How retirement planning needs to change with your company

Paula M. Lewis, QPA, QKA, Manager, Client and Advisor Experience, Tegrit Group

Paula M. Lewis, QPA, QKA, Manager, Client and Advisor Experience, Tegrit Group

Retirement plan sponsors, now more than ever, need to be diligent in carrying out their fiduciary responsibilities. The Department of Labor, IRS and other agencies have eyes on the industry, especially with new retirement planning fee disclosures and a soon to be proposed expanded definition of “fiduciary.”

“The business owner who says, ‘I’m hiring these service providers to run the plan and I don’t have to worry about it’ is nonetheless ultimately responsible if there are problems,” says Paula M. Lewis, Manager, Client and Advisor Experience, at Tegrit Group.

Smart Business spoke with Lewis about what business changes could signal that retirement plan adjustments are necessary.

Who do plan sponsors deal with?

Plan sponsor decision-makers depend on industry experts for assistance in managing their roles and responsibilities. Although some parties may serve multiple roles, the sponsor may engage an accountant, an investment advisor, an actuary, an ERISA attorney and a third-party administrator (TPA), with each having important and distinctive functions impacting the plan’s operation.

Despite having all these providers in place, the ultimate responsibility for the plan still lies with the plan sponsor. Employers sometimes put in a retirement plan and just let it ride, but then no one is ensuring the plan grows and changes with the company and its employees.

In this dynamic environment, it’s crucial that all parties communicate. It’s best if you know that your service providers work well together, which lessens the risk of something being missed, and the best course of action is being charted.

What changes need to be communicated?

Usually, over time there are changes to the employee demographics, financial standing and even the goals of a company. The company’s retirement plan should also change over time to reflect these changes in employees, finances and objectives. Certain changes always should be communicated to plan service providers, including:

  • Changes in ownership.
  • Acquisition or divestiture of another company.
  • Family members becoming employees of the firm.
  • Major compensation changes of key personnel.
  • Retirement plan goal changes of key personnel.

It’s confusing to know who to tell what, but generally, the investment advisor and TPA should be made aware of all of these changes, as they may impact fiduciary considerations and compliance. The investment advisor, along with the TPA, should be able to analyze any changes, determine which parties need to be informed, and make any plan changes to avoid any problems or penalties and ensure the plan is designed to maximize the benefits and goals of the company.

What can happen if changes aren’t reflected in the plan?

There are various penalties that are imposed if a plan falls out of compliance because of changes at the plan sponsor level. Late amendments and failed compliance testing are but two. For instance, if the spouse of the owner of one company purchases a separate company, the two companies can be considered a ‘control group,’ and for plan purposes are ‘one.’ Upon an IRS audit, the less generous company may have to increase its plan contributions, which could be an expensive correction avoidable with advance planning and appropriate plan designs.

When acquiring a company with a pension plan, you acquire its liability, especially if it’s underfunded — unless the acquisition agreements are carefully worded. Without advance planning, closing a division could produce a costly surprise as it could be considered a partial plan termination, requiring that the terminated employees be 100 percent vested.

Another area that can cause compliance issues is how certain family members of owners becoming an employee impacts the retirement plan. According to the IRS, he or she is considered highly compensated regardless of their salary. That could cause a plan to require corrective contributions. It is crucial to keep the lines of communication open with your advisors and TPA.

Paula M. Lewis, QPA, QKA, manager, Client and Advisor Experience, at Tegrit Group. Reach her at (330) 983-0485 or [email protected]


Website: Visit Tegrit’s Advisor Resource Center at for additional retirement planning tips.


Insights Retirement Planning Services is brought to you by Tegrit Group


How changes to federal taxation will likely play out in 2013

John T. Alfonsi, Managing Director, Cendrowski Corporate Advisors

While the results of the presidential election have been determined, the tax landscape is less than settled. Absent any legislative changes, taxpayers are looking at significant modifications in federal taxation beginning in 2013.

“Taxpayers need to be aware of the changes and know how they will impact them. Year-end tax planning becomes critical,” says John T. Alfonsi, managing director at Cendrowski Corporate Advisors.

Smart Business spoke with Alfonsi about what business owners and individuals should know about the anticipated changes.

What are some of the changes individuals will be experiencing in 2013?

Plenty of changes will occur by virtue of the expiration of the Bush-era tax cuts primarily enacted by the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs Growth Tax Relief Reconciliation Act of 2003. For starters, tax rates will revert back to the former brackets, with the top marginal rate rising from 35 percent to 39.6 percent. Capital gain rates will also change. Currently, long-term capital gains are taxed at a maximum rate of 15 percent. Beginning in 2013, that maximum rate goes up to 20 percent.

What about dividend income?

Dividend income is currently taxed at the same rate as long-term capital gains, or a maximum of 15 percent. All dividend income will be taxed at ordinary income rates beginning in 2013. Accordingly, individuals in the top tax bracket will see their dividend income go from being taxed at 15 percent to 39.6 percent.

Are tax rates the only thing affected?

No, deductions are impacted, as well. For example, overall itemized deductions are currently not subject to any limitations. Beginning in 2013, we revert back to prior law, where higher-income taxpayers must reduce their total itemized deductions by 3 percent of the amount in excess of a threshold amount of adjusted gross income; total itemized deductions cannot be reduced by more than 80 percent, however. Personal exemptions are another deduction that will be impacted. Currently, there are no restrictions on the amount of personal exemptions a taxpayer can deduct in arriving at taxable income.  After 2012, however, personal exemptions will be limited for higher income taxpayers — the amount is reduced by 2.5 percent for each $2,500 by which the taxpayer’s adjusted gross income exceeds applicable thresholds.

Are there any new taxes individuals should be aware of?

Absolutely. There are two specific taxes higher income individuals need to consider.  First, the employee portion of the hospital insurance payroll tax will increase by 0.9 percent — from 1.45 percent to 2.35 percent — on wages over $250,000 for married individuals and $200,000 for unmarried individuals. The employer portion will remain at 1.45 percent. The other new tax is the Medicare contribution tax on unearned income of higher-income individuals. This tax was enacted as part of the Patient Protection and Affordable Care Act, better known as ‘Obama Care.’  The tax is 3.8 percent on the lesser of an individual’s net investment income or the amount of adjusted gross income in excess of certain thresholds  — $250,000 for married individuals and $200,000 for unmarried individuals. For purposes of this tax, investment income includes interest, dividends, and income and net gains from passive activities and ‘trader’ activities, such as hedge funds.

To illustrate the impact of these changes, let’s assume a married individual has an adjusted gross income of $700,000, which is made up of wages and salary of $500,000, dividend income of $100,000 and $100,000 long-term capital gain, both from investment partnerships. Further, assume the taxpayer has gross itemized deductions of $50,000 and four personal exemptions. Taxable income will increase by approximately $35,000 solely because of the limitation on itemized deductions and personal exemptions. The total federal income tax liability will increase from approximately $151,500 to $206,000 as a result of the higher tax brackets, dividend income being taxed at ordinary income rates and the new Medicare contribution tax on the dividend and long term capital gains income. This is a 36 percent increase in the federal income tax liability without any change in gross income. This also ignores the impact of the additional $2,250 hospital insurance payroll tax on the wages.

What can taxpayers do to minimize the potential tax increase?

Tax planning becomes important. Conventional wisdom suggests you should defer income and accelerate deductions. But in a period of increasing tax rates, there are no steadfast rules; each situation needs to be looked at individually. For example, with the higher tax rates in 2013, you may want to defer any charitable contributions from 2012 to 2013 as you get a potentially bigger benefit at the higher rate. But the taxpayer needs to consider the limitation on itemized deductions that will apply in 2013, but not in 2012. This ignores, of course, the impact of the alternative minimum tax, which presents its own set of issues, concerns and tax planning. Accelerating capital gains into 2012 may be a planning opportunity to take advantage of the 15 percent rate and avoid the Medicare contribution tax on such income.

Do you have any other tax planning tips?

Taxpayers looking to make significant gifts as part of their estate plan should consider taking advantage of the $5 million lifetime gift exclusion, which expires at the end of 2012. Beginning in 2013, the lifetime gift tax exclusion decreases to $1 million. Further, estate and gift tax rates are scheduled to increase from a maximum of 35 percent to 55 percent. Of course, all of this becomes moot if new legislation is enacted to avoid the ‘fiscal cliff’ we are facing.

John T. Alfonsi is managing director at Cendrowski Corporate Advisors. Reach him at (866) 717-1607 or [email protected]

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC

Retailers adapt as mobile device holiday shopping booms

NEW YORK ― When it comes to holiday shopping, more people are phoning it in, forcing retailers to embrace new ways to connect or else lose sales.

Lowe’s Companies, Best Buy and Toys R Us are among retailers making big changes to prepare for a wave of holiday shoppers who will use smart phones to research products, check rivals’ prices and make purchases.

“The shopping experience is in the consumer’s hands and you can’t fight where they’re going,” said Gihad Jawhar, vice president of, the website of the second-largest home-improvement company. “Retailers can either hop on the bus or get left behind. We are choosing the first option.”

Lowe’s is issuing more than 42,000 Apple iPhones to employees in more than 1,700 stores.

When shoppers are in Lowes stores scanning bar codes with their phones, reading product reviews and checking prices, employees can engage them better using iPhones to track down similar information.Staff can also check quickly if products are in stock or if items are available on Lowes’ website or another store nearby, and can often match or beat a price a consumer finds elsewhere via a smart phone.

Best Buy has 63 so-called connected stores in which employees have been given mobile devices and are encouraged to use their own smart phones to help shoppers research products and check inventory.

“Employees are empowered to make the decision to match a competitor price on the spot,” a spokeswoman for Best Buy added.

More than 40 percent of retailers this year have a policy of at least competing with lower online prices found through mobile comparisons. Ahead of last year’s holiday season, most retailers were still in denial about this trend, according to research firm RSR.

The mobile shopping boom is putting billions of dollars in sales up for grabs in an industry that is being pummeled by lackluster economic growth and weak consumer confidence.

U.S. retail e-commerce holiday sales will rise 17 percent to $46.7 billion in 2011, while total retail sales will grow about 3 percent this season, eMarketer forecast on Thursday.

But mobile commerce is growing even faster.

The 300 largest U.S. mobile merchants, led by Inc, will generate $5.37 billion in sales through mobile devices this year, more than double 2010, according to a recent survey by Internet Retailer.

A recent survey of shoppers by the National Retail Federation found that 40 percent own a smart phone and more than half of those people plan to use their device to research products or make a purchase this holiday.

The peak day for mobile holiday shopping is expected to be the second Sunday in December (Dec. 11 this year), according to PayPal, the online payments business owned by eBay Inc. That’s the last non-work day when orders will be shipped in time for Christmas.