Tips for staying on top of fast-changing market forces

Companies are making significant changes to their business from one day to the next because of rapidly changing conditions in the marketplace. They’re preparing both for the possibility that normalcy might return and that there will be further disruptions. Either way, change is inevitable. That means staying focused and being nimble enough to adjust course quickly.

Smart Business spoke with Kurt Kappa, Chief Lending Officer at First Federal Lakewood, about how leaders can stay on top of fast-changing market forces and keep their organizations poised to respond.

What are some of the keys to keeping pace with changes in the market?

It’s important for leaders continue to stay in front of their team. They need to make sure team members are actively engaged, using video calls, weekly huddles to catch up, sending congrats emails when a project wraps. The more communication the better.

The way business is conducted may not be the same. More interactions are going to happen online, which for some businesses means infrastructure needs to be addressed and improved. That could also entail shifting resources and dollars. There will likely be changes to the way companies share their message to customers and prospects. And in some cases, companies’ distribution networks are going to be different. All of this is going to require shifts in internal responsibilities, strategies, external relationships, budgeting and more.

CEOs and top-tier management need to review and adjust their strategy. They need to look at where they started off the year, what their plans were, and what transpired over the last three to four months. Then, they can re-evaluate and readjust their budget and focus for the year. That means determining where organizational focus should be and how to redeploy resources to that end.

Where should company leaders turn for perspective?

Industry trade groups are a good resource for outside advice. Leaders from many companies are able to discuss the challenges everyone is seeing across the country and how they’re addressing them.

CPAs are also great partners because they’re intimately involved with the financial aspect of the current situation. They’re seeing what’s going on both at a company and industry level. Similar to a trade group, accountants are both aware of the macro issues and how individual companies are handling them.

Because companies need to lean on their advisers more than ever, now is the time to ensure the right team is in place. Accountants and bankers are both seeing different aspects of the challenges in the market, so it’s a good idea to bring them in to get their perspective on how best to address the challenges.

How does a company balance making the right short-term moves without hurting itself in the long term?

There could be a tendency toward knee-jerk reactions as companies focus on the bottom line. While it’s necessary to take a shorter-term approach to get through the immediate challenges, companies should not lose sight of their long-term plans. It’s important to stay nimble enough to navigate the current challenges while keeping an eye toward the overall strategy.

Earlier this year, some businesses may have been considering making an acquisition, or possibly selling the company or some of its assets. But, conditions have changed drastically. It’s important to take into consideration the current environment and how acting on these previously planned moves may help or hurt the long-term vision.

Change is inevitable. Today, it’s happening at a faster pace than ever. That makes communication critical. Leaders should look to their advisers for advice and keep the long term in mind as short-term changes are made.

Insights Banking is brought to you by First Federal Lakewood

How companies’ cash position affects their options in a downturn

Cash has always been king but, given the pandemic’s impact on the economy, that is true now more than ever. However …

“Hording cash for the future isn’t a complete solution,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “But at the moment, a strong cash position enables companies to both overcome revenue challenges and be opportunistic — to have options and not need to be reactionary or inwardly focused.”

Altman says there are actions companies can engage in now to improve their current position. But at the same time, they should be thinking about seizing future opportunities and better insulating their business against future difficulties.

“It’s a time for action, but also reflection — a chance to figure out how the company got into the position it’s in and what it could have done to be in a better position,” he says. “Now is a time to take lessons from the crisis and use them to make a stronger company on the other side of the pandemic.”

Smart Business spoke with Altman about the role of cash today and how it affects the way companies approach the market.

How does cash set companies up to be offensive or defensive?

As demand for many products and services has declined, many companies are burning cash reserves at alarmingly high rates. Cutting costs and stimulus programs offered some relief for many but haven’t guaranteed complete success for the long term.

Those companies that had a less-than-ideal cash position when they were confronted by the pandemic are now playing defense, meaning they’re compelled to make decisions wholly to address short-term challenges rather than take advantage of long-term opportunities. This lack of options can make a company vulnerable.

Companies with ample cash reserves are in a position to play offense. They can take advantage of other companies’ challenges — for example, acquiring a struggling competitor for a very attractive price — and avoid reactive decision-making in the short term that could limit their opportunities in the long term.

How can companies maximize their cash position?

Companies should focus on their cash, collections and managing disbursements while also reviewing and managing the line item expense components. The latter should include a workforce review, prioritizing critical positions as the company operates in a reduced revenue state. Also look at every expense item to see where cutbacks can occur in both the short and long term.

Review and manage capital expenditures and evaluate how to lower leverage so that debt service isn’t an additional burden in a cash-challenged environment. A line of credit should be available as a backstop as an additional source of potential liquidity and is very important to have in place.

Also consider selling assets that are not critical for the future, and have a willingness to be creative in finding alternatives to generate revenue, even if in the short term, to maximize capacity and all resources in the company.

What should companies focus on for the remainder of 2020?

Companies should generally evaluate their cash position weekly or at a minimum monthly, with a focus on three-month intervals and re-evaluating as new information becomes available. Cash collections and disbursements are the priority, as are evaluations of what can be done differently to generate more cash and reduce expenses.

Because there’s a lot of uncertainty, it’s important to plan for the balance of 2020. As economic challenges occur, the best companies continue to look forward while dealing with the present. Challenge the status quo, and lean on experts to help guide your decisions and think through new ideas. To that end, bankers can provide insight-based new ideas on what they’re learning from talking with a range of companies.

While it’s tough, success, even during a crisis, is as much about dealing with the present as it is looking out to the future. Companies need to be opportunistic when the economy is challenged — be in an offensive state — and that requires both discipline and creativity. The alternative is being defensive or inwardly focused, which presents its own set of challenges.

Insights Banking & Finance is brought to you by Huntington Bank

Regrouping as businesses begin to reopen

Since the start of the pandemic, banks have been there for their clients. They have helped companies navigate the financial and strategic challenges that came with sudden closures, constrained operations and supply chain disruptions. And banks are still there, helping businesses regain their footing. But to do so effectively requires full disclosure between businesses and their bank by working together as partners.

“This is the perfect time for businesses to be proactive and put it all on the table,” says Wesley Gillespie, regional president at ERIEBANK. “As a financial institution, we are here to help businesses.”

Smart Business spoke with Gillespie about what businesses should do in the short term to have a better chance of being around for the long term.

Where should businesses focus their attention?

Their attention should focus on cash, customers and credit.

Cash is really about their weekly and monthly rate of cash burn and how long their cash will last them if they faced a significant reduction in revenue or had no revenue at all. That requires a look at expenses to see where resources may need to be reallocated or what operating expenses need to be cut. They should also look very closely at collecting on their receivables. They might be able to collect faster by offering discounts to get payments sooner. At a minimum, they should keep a close eye on their contracts and close the gaps as quickly as possible.

Businesses should also be close to their top customers right now — know what they’re thinking, doing and feeling so that they can put themselves in a position to understand and address some of their problems. Keep up a dialogue to be aware of where customers are struggling and offer solutions. Businesses have a stronger chance to recover or grow if their customers are doing well.

Businesses should also examine their credit relationships with their bank and vendors. Companies may need additional credit for working capital or may need to work with vendors or customers on payment terms and arrangements.

What is important to discuss with a banker right now?

One of the primary conversations that businesses should be having with their banker right now is related to their liquidity position and their credit facilities, which may need to be reviewed. In some cases, a business may need a total restructuring of its credit or its debt. Where there are loans, there may need to be a conversation about deferring payments, either going to an interest-only payment for a period or total deferment of principal and interest. Liquidity right now is paramount, particularly for nonessential businesses that were closed during the last 10 weeks or had constraints on their operations. These are all important conversations to have.

What should companies do as recovery begins?

Companies that remained open should review their supply chains and look for alternative ways to procure critical inventory in the event of a future disruption. Now may be a good time to rate the efficiency of the operation through the initial challenges and make adjustments based on resources going forward. This could be an opportunity to regroup as restrictions ease.

Now is a time to review and revisit HR policies and procedures. Some companies, for the first time, may have made work-from-home accommodations for employees. Companies should explore those policies and procedures and adjust them in the event that they may be needed again.

The disruption might also present merger and acquisition opportunities. M&A offers a chance to expand the company, add a product line, or move into a new market. This creates the possibility for businesses to come out of the pandemic even stronger than they were before it began.

And finally, it is a good time to re-evaluate your banking relationship. Community banks worked hard for their clients at the start of the pandemic, counseling them through their challenges, adjusting their credit and loan obligations and helping them connect with critical financing. Working with a community bank often means less red tape and a more agile response to customer needs so companies can get back to and stay in business, even in the most challenging of times.

Insights Banking & Finance is brought to you by ERIEBANK

A look at PPP forgiveness, staying afloat in rough markets

Business owners quickly reached out to their banks to apply for the Paycheck Protection Program (PPP) loan when it became available because they needed a lifeline. The economy, in a matter of days, essentially shut down, but businesses still had expenses coming through — employees on their payroll, lease payments — and they were looking for help to get them through the short term.

“Businesses essentially went into survival mode,” says Kurt Kappa, chief lending officer at First Federal Lakewood.

Businesses awarded the PPP loan now have many questions regarding loan forgiveness and repayment. And just about every business is looking for the best way to stay above water as markets reopen and begin to recover.

Smart Business spoke with Kappa about the PPP forgiveness process and where companies should put their focus in the short term.

What should business owners understand about PPP loan forgiveness?
The sense when businesses first applied for the PPP loan was that it was free money; that as long as they use it to cover the next two and a half months of payroll, they don’t have to pay it back. That’s correct. But if the money isn’t used for payroll, it’s not fully forgivable and will require repayment.

Businesses were asking their bank how they could maximize their forgiveness because they didn’t want to come out of the downturn with more debt on their balance sheet. Many are having ongoing conversations with their CPAs about the compliance process. In the meantime, they’re essentially watching every decision they make and how those decisions might impact them 30 days down the road when they need to provide supporting documents on how they used the loans. Their banks will then submit that information to the Small Business Administration (SBA) and it will process their loan forgiveness.

There may not be answers to all the questions out there, but businesses are doing the best they can to use the tools available to navigate the uncertainty.

What will the SBA take into consideration for forgiveness? 
There are a few key considerations the SBA will look at when reviewing forgiveness. They will look at the date of disbursement for the business’s PPP loan proceeds plus the following eight-week time period. A business’s headcount and payroll will need to remain intact and an understanding of the average number of employees will be needed to determine loan forgiveness amounts. It all comes down to timing — businesses should make sure that 75 percent of loan proceeds are used for payroll expenses within eight weeks of receiving the funds and before June 30.

How should businesses prepare for loan forgiveness? 
The SBA has guidance posted on its website and updates it daily. That is the best and most accurate source of information.

However, there is one thing that’s certain: If businesses don’t have the documents requested by the SBA, their loan will not be forgiven. As companies begin to compile this information, they should reach out to their CPAs or banker for a deeper dive into how they should approach the forgiveness process.

What might the “new normal” look like for businesses?
Businesses are going to need to get more creative in every way, including how they operate. It means being proactive, leveraging technology to compensate for the inability to hold in-person meetings, and being flexible, especially with workforces that now need to work remotely. The faster businesses can adjust their approach, the more likely they are to survive.

These are unprecedented times. Companies are building an airplane as they’re flying and just about everyone is in the same situation. It’s important that companies work with partners such as bankers and CPAs to get an honest assessment of their financial, competitive and organizational situation to figure out the best path forward.

Based on preliminary guidance from the SBA as of May 5, 2020, and is subject to change.

Insights Banking is brought to you by First Federal Lakewood

Avoid the urge to make hasty moves in your retirement plan

A few months into the public health crisis and market downturn, many people have likely logged in to their retirement accounts online and discovered the negative toll the pandemic has taken on their balances.

But there’s good news: What’s happening to retirement plans today is not the same as what they went through during the Great Recession a decade ago. And that’s why it’s important not to make moves in haste today based on what happened back then.

Still, some plan participants are cashing out or are no longer contributing to their retirement plans. But, according to Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank, those might be the two worst things people could do right now.

Smart Business spoke with Altman about what’s happening to 401(k) plans and what moves should, or shouldn’t, be made to mitigate losses.

What has happened recently to 401(k) plans?

Asset levels in retirement plans have been falling, but slightly less than in other investment accounts because, as a whole, retirement plans are generally moderately aggressive.

These plans have been somewhat more resilient because of actions taken by the federal government. For example, the SECURE Act included provisions that are beneficial, long-term, to participants, such as automatic enrollment and escalation of deferral. Also, the CARES Act removed the requirement for minimum distributions for those participants, which means they can keep more money in their plan. And the Paycheck Protection Program allowed retirement plan contributions to be included in the payroll calculation when companies applied for the program’s loan, so employers can continue to make retirement plan contributions.

How have those with 401(k)s reacted to the market’s effect on their retirement plans?

Some participants have taken their money out of the market. Other participants have stopped putting money into their 401(k) plan. In the long-term, both these moves are likely going to be detrimental to those participants. Much of the losses in the market have already come back. Those who took their money out won’t capitalize on those gains. And those who have stopped putting money into their plans have lost the benefit of buying low. Both will have less money in their retirement plan accounts because of those hasty moves.

What should plan participants do right now?

Retirement plans are perfectly designed for this kind of volatility. It’s a systematic investing approach by which participants make regular plan contributions over a long period of time. Participants that are making contributions can take advantage of volatility when the market goes down because they’re buying low. And there are also opportunities to rebalance portfolios to take better advantage of a down market. So participants  should be focused on dollar-cost averaging to maximize the opportunity.

Most plans are set to be automatically diversified or rebalanced on behalf of
the participant by a professional money manager. For those who manage their own plans, it’s important to stay balanced and diversified. Don’t try to time the market. Keep the bigger-picture perspective and rebalance according to a long-term strategy.

Who should plan participants talk with before they make changes to their plans?

Before sponsors or participants make any changes related to the design of their plan, they should discuss with an adviser what moves could be made to enhance the plan or protect it from additional risk.

But the worst thing someone with a 401(k) could do right now is take their money out of their plan or stop contributing. There are still opportunities for these plans to make money. Some may decide to make their portfolio more conservative to lower their risk exposure, but they should absolutely continue to make contributions, especially if they have an employer match or a profit- sharing contribution.

Bottom line: Don’t panic. Instead, leverage the advice of professional management, and stay balanced and diversified with an allocation strategy that matches your risk tolerance and time horizon.

Insights Banking & Finance is brought to you by Huntington Bank

Strategies for companies with international currency exposure

In a market crisis, investors rush to safe haven assets, which for the currency market tend to be the U.S. dollar, the Japanese yen and the Swiss franc, strengthening those currencies. At the same time, money moves out of emerging markets, which depreciates those currencies.

In this troubled market, a depleting demand for oil has caused crude prices to collapse. That has also had a negative effect on emerging market currencies that are highly tied to oil. These actions together have created significant risks for many U.S. businesses.

“Another unfortunate aspect of a crisis like this is that business forecasts just get totally thrown out the window,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “When companies hedge, they often project out a year or two. But in a crisis like this, those forecasts are cloudy at best. It’s a paradox that in a crisis hedging is more important — you want to be protected and insulated against risk — but it’s difficult to implement because of the uncertainty in exposures. It’s a tough environment to deal with.”

Smart Business spoke with Altman about risk-hedging strategies for companies that have exposure to international currency markets.

Who has exposure to risk in foreign currencies at the moment?

If you are selling in foreign markets and the dollar strengthens, then the value of those foreign sales goes down, which can have a significantly negative impact for larger companies. If you’re manufacturing or purchasing material outside the U.S., the strong dollar could be beneficial because it gives you more purchasing power there.

There is also a second-level effect. If you’re a U.S. company primarily dealing in the U.S., you might not have direct foreign currency exposure but you might work with suppliers or customers that are foreign-owned or have operations that are heavily involved in international supply- chain activities. They might become impacted by foreign exchange rates or market impairments. And even beyond foreign exchange rates, international supply chains are facing challenges because companies have had to furlough employees or are partially or entirely shut down.

How can companies mitigate their exposure to risks in foreign currencies?

If you’re concerned about international risk, consider extending hedge tenors. A typical hedge might be inside six months or a year. But now you might want to consider looking out two years because you’re concerned about the longer-term risks to the business.

The other thing that you can do is increase hedge ratios. You may typically look to hedge 50 percent of your foreign purchases out a year, but now you might want to hike that up to 75 percent or all of what you anticipate purchasing because of the risk in the market.

When you’re very certain about hedging, you can enter into a forward rate contract and that’s what a lot of our companies use to enter foreign exchange hedges. But if you don’t have total certainty in the underlying exposure, then you should look for alternative hedge instruments, such as FX Options. That’s something to talk with your banker about to find the best strategy.

Should companies now focus on risk mitigation or finding opportunities?

Initially it’s important to stop the bleeding, focus on shoring up core capabilities and be really diligent about your risk management framework. Identify and quantify critical risks in the context of your risk tolerance, then look for strategies to hedge the risks that exceed that tolerance. This process can be done with a banker or accountant, who can then help you come up with a plan to hedge risk. With the bleeding stopped, you can be on the lookout for opportunities with partnerships, investments and in the M&A space, for instance.

There is uncertainty right now that makes hedging strategies difficult. Working with a bank and developing a plan within your strategic framework can help you identify risks and develop a plan of attack.

Insights Banking & Finance is brought to you by Huntington Bank

The importance of culture to your company’s growth

The growth indicators banks consider when examining the health and progress of businesses tend to be quantifiable. They include industry financial ratios and how they’re moving; if there’s inventory, how it’s turning compared to national averages in the specific industry; the pace of hiring and turnover; revenue and profit; etc. 

However, there is another factor that is hard to quantify but has an outsized impact on a company’s growth: culture.

“Culture is everything because culture drives the behaviors of the employees and the behaviors of the employees drive results,” says Wesley Gillespie, regional president at ERIEBANK. “Culture is oxygen to a business — you don’t see it, but you’ll know if it’s not there.”

Smart Business spoke with Gillespie about the role culture plays in company growth.

How does culture affect a company’s growth metrics and its ability to hit its growth goals?

Company cultures commonly fall short in one of four areas. They might not be able to:

  •   Clearly define their culture.
  •   Manage and shape their culture so that it fits their definition of culture.
  •   Align their culture with their market strategy.
  •   Leverage their culture in times of positive or negative change.

Culture is critical to the sustainable growth of any company. It’s possible to grow with a bad culture, but those looking for sustainable, long-lasting growth need a consistently good culture.

Strong cultures require a high degree of trust — both among employees and in the company leadership — and that’s critical to longevity and growth. Low-trust cultures typically have disengaged workers as well as higher operating costs that come from an inability to move definitively and efficiently in response to changes in the market or to new company initiatives. Those higher operating costs impede growth. 

How well do area companies understand the state of their culture?

Companies typically wait for a triggering event to examine their culture. Often it’s after something goes wrong, when they want to position their company to sell or are having issues with high turnover. It’s rare that a company gives attention to its culture when things are going well. That can be explained in part because it’s difficult for leadership to asses or understand their culture while they’re in the weeds running the day-to-day operations. Many things become invisible and that makes assessing their organizational culture difficult.

One way to gauge the health of a company’s culture is with anonymous engagement and employee satisfaction surveys. These can be done internally by the company or an outside agency can issue them. In the results, companies should look to see if they’re getting similar responses about the culture at all levels of the employee population and across departments.

If there are similar responses from diverse employees and departments, that’s the culture. If they’re all saying something different, a company might have good workplace but the culture is lacking. The next question the company needs to ask itself is whether it has the culture it wants, or does it want change?

How can companies foster a culture that fosters company growth?

First, define the culture, then communicate those cultural ideals to employees. If there’s a gap in the culture and the cultural ideal, then identify the issues creating that gap and address them.

Once culture is defined and communicated, aligning the strategies of the business to the culture is the next step toward ensuring the organization is synchronized. This is how engaged employees impact company growth. 

Culture shapes attitudes and behaviors in wide-ranging and tangible ways. Company leadership needs to lay the foundation and occasionally take the temperature to see if it’s where it should be. It’s more than just putting up a poster in breakroom. It’s living it every day, tracking employee behaviors and correcting when necessary. And that’s critically important because culture drives behavior and behavior drives results.

Insights Banking & Finance is brought to you by ERIEBANK

Should your 401(k) have socially responsible investment options?

The meaning of the term socially responsible investing (SRI) continues to evolve as 401(k) plan participants look to align their investment portfolio with their values. More conversations around environmental, social and governance investing (ESG) are happening. And that’s coming not just from the youngest generational demographics in the workforce but from all generations.

“Interest in ESG investing is broad,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “Plan participants of all ages are asking more questions about how companies behave, their impact and their intentions.”

Smart Business spoke with Altman about socially responsible investing and what employer plan sponsors should know.

What is socially responsible investing?

SRI had typically been concerned with a couple things. One is negative screening, something that’s most common with faith-based organizations — they might decide they won’t invest in companies that deal in tobacco, alcohol or firearms, for instance. The other dealt with environmental concerns and is what most people think about when they think about SRI. But environmental concerns don’t just mean solar panels and windmills. SRI now also includes environmental, social and governance investing (ESG), which, puts the focus on those elements, though each area of interest can mean something different to each investor.

What should employers know before adding ESG investment options to a 401(k)?

While some employer plan sponsors might be eager to include ESG options in the portfolio to capture the interest of socially conscientious investors, there is good reason to approach the initiative with caution. Adding ESG options to a plan could signal to some that the employer’s belief system is showing itself in that decision, and that has ramifications. A plan sponsor that constricts investments to only ESG options could find themselves the target of criticism by plan participants if the investments are seen as politicized or impinging on someone’s religious views.

The best approach is think in terms of complementary strategies. Don’t get rid of a fund in a lineup just to add an ESG option. Instead, introduce ESGs as new offerings that complement the existing plan.
It’s also a good idea to have an open conversation among stakeholders about changes to the plan rather than leadership making the sole decisions. Be collaborative and document the process to defend the position that’s reached regarding ESGs.

How might including ESG investment options in a 401(k) plan affect plan performance or participation?

There tends to be a negative connotation of how ESGs affect plan performance, mainly because of embedded SRI ideas that, at their extreme, completely exclude certain industries, such as fossil fuels. Adhering to such a strict portfolio could lead to underperformance. However, as ESG ideas have progressed, it’s less about excluding industries or companies and more about considering the direction of those businesses. For example, a fossil fuel company might pump oil but its R&D for wind, solar and other sustainable sources of energy are on the cutting edge.

Participation in employer-sponsored plans hasn’t shown a drop off when a plan lacks ESG-offerings. Part of that has to do with the fact that most plan participants use the default vehicles — target-date funds for example — when they enroll in a 401(k).

How have asset managers adjusted their plan offerings to accommodate socially responsible investing?

Asset managers that sponsor 401(k) plans are becoming more ESG-minded. Some are integrating ESG options into all funds almost by default. There could soon be ESG-dedicated strategies as well as plans in which ESG options are integrated with more mainstream options. Increasingly, the demand for ESG is there from a participation standpoint, but not all asset managers have brought those options into their plans.
ESG investing is a growing and worth-while discipline in investment management. Employers shouldn’t be afraid to tread into this area, but should do their research before acting.

Insights Banking & Finance is brought to you by Huntington Bank

Digital banking tools are great, but they can’t replace a good relationship

Banking continues to change as advancements in technology lead to the development of new banking services. The convenience and accessibility delivered through these newly developed, technology-based services are influencing the expectations businesses have for the way banking is conducted.

“Businesses want access to funds and their account information the moment they need it,” says Kurt Kappa, chief lending officer at First Federal Lakewood. “Mobile banking, remote check capture and other digital services mean convenience and easy access. But when they have questions, they want the personal touch they get from a banking partner. To be successful, banks have to balance having the technology businesses want with the personalized, human touch they need.”

Smart Business spoke with Kappa about the value of a banking relationship in an increasingly digital banking world.

Why does it matter where a business banks when banking tools and account access are available 24/7?
Even though online banking tools are available at almost all banks, there are still many reasons to have a more personal relationship with a bank. The combination of digital tools to help a business be more efficient in their banking and a personal banker to address issues that are unique to the business is one of the key benefits of working with a community bank partner.

Technology is great, but it cannot solve an issue like an incorrect deposit amount or answer questions on a loan status. That is where the relationship with the bank and banker is vital, being able to speak to someone knowledgeable who can quickly resolve the problem or answer questions. Having a banker as part of the business’s financial team is the complement to the technology that keeps a business running smoothly.

What is the importance of maintaining a relationship with a bank if most banking can be done without interacting with a bank representative?
Technology-driven products are just a part of the day-to-day services banks offer. Establishing a personal relationship with a bank and a banker means having a partner to help address issues that businesses face and successfully manage their financial needs. Having a strong banking relationship can help companies looking to expand into a new market, buy another business, establish a line of credit and more.

How can a business ensure it’s able to do its banking when it needs to while also maintaining a relationship with its banking partner?
Each tool banks offer are all pieces of a puzzle. The goal should be to make sure that the pieces of the puzzle fit together in a way that works for both the business and the owner of the business. The pace of change in the banking industry will continue to be a constant as the industry looks to leverage technology to provide convenient and time-saving tools for businesses. But, just having the latest banking app isn’t going to solve every problem or address every issue that a business faces. Businesses also need a partner who can advise them as their needs change and obstacles are encountered.

That requires having a more personal understanding of the business in order to address its unique issues and help it thrive and grow.

It’s helpful to be able to talk with someone and get advice from a banking partner who has the business’s best interests in mind. Of course, it’s also important to save time and money by completing transactions any time of the day, any day of the week, right from the office or anywhere else through online and mobile banking.

Finding a bank that can offer a balance between time-saving tools and personalized service and advice is the best way to go.

Insights Banking & Finance is brought to you by First Federal Lakewood

How the Secure Act affects IRA, 401(k) plan holders and beneficiaries

The Secure Act, which passed and took effect Dec. 20, 2019, became applicable at the start of this year. The federal law made changes to a number of retirement vehicles, which means many people and businesses should take time to consider how the legislation affects them and their beneficiaries, and make adjustments.

“It’s been viewed by many as a patch, but it’s a significant change to the way IRAs are treated, and there are implications for 401(k) sponsors that shouldn’t be overlooked,” says Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank. “The Secure Act is in place, so it’s important for account holders and sponsors to plan for its more significant changes, especially those that affect beneficiaries.”

Smart Business spoke with Altman about the Secure Act, some of the key changes it brings to IRA and 401(k) plans, and what those changes mean for account holders, their beneficiaries, and employer sponsors.

What changes to IRAs and 401(k)s are important to highlight?

The Secure Act makes a few changes that will largely benefit IRA holders. For example, the minimum distribution age for IRAs has been changed from 70.5 to 72. That, for many people, can represent a meaningful difference, as it allows for the money within an IRA to enjoy additional tax-free growth.

The law raises the age of restriction on making contributions to an IRA. Previously, IRA contributions were prohibited after the account holder reached the age of 70.5. Now contributions can continue as long as the account holder is working.

However, the law changes the rules that dictate the time by which funds in an IRA must be removed by a beneficiary after the death of the account holder. Currently the named beneficiary may take funds out of an IRA over their life expectancy. Now funds must be removed within 10 years of the original account holder’s passing.

How might the law change affect employers?

The Secure Act’s passage also brings new rules regarding who can participate in 401(k)s that are favorable for account holders and mixed for plan sponsors. One notable change is that the law allows more part-time employees who qualify under testing rules to participate in a 401(k). This is where business owners should examine their plans because there now might be part-timers who either need to be covered or want to participate. Those who employ a lot of part-timers might end up contributing more to their 401(k) plans if participation increases. While that’s an additional cost, it could help employers improve retention.

What have been some of the early questions or concerns regarding the changes?

One of the issues that’s arisen from the changes is how best to deal with second marriage situations. Some of those who hold IRAs want to make sure their current spouse is taken care of, but when that spouse passes they want the money to go to the children of the first marriage. The new rules makes that more difficult.

Taking money out of a traditional IRA means paying ordinary income tax on the amount withdrawn. However, by converting to a Roth IRA, when the money eventually goes to the designated beneficiaries, they won’t pay taxes on the withdrawals because Roth dollars are tax free.

More generally, however, most people want to understand how their beneficiary designations will work under the rule changes. That’s something that’s important to take the time to look at. IRA holders should talk with their with legal, tax, banking and financial advisers to determine a structure that makes the most sense for their situation.

The IRA and 401(k) changes brought on by the Secure Act will apply to lots of people because so many in the U.S. have assets inside an IRA or 401(k), or sponsor a 401(k) plan for their employees. These are broad-reaching changes with significant impact, so it’s important not to gloss over the issue. Talk with trusted advisers and ask good questions to determine how this affects retirement outcomes not only for the current holder, but also for their beneficiaries.

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