ISSUE 56 • SUMMER 2013BIZGROWTHS T R A T E G I E SI D E A S T O H E L P G R O W Y O U R B U S I N E S SIS CAPTIVEINSURANCETHE ANSWERFOR YOURCOMPANY?our businessis growing yoursWHEN SHOULD YOU ADOPTTANGIBLE PROPERTYREGULATIONS?MARKETING:KNOWYOUR CUSTOMERSHORT-TERMINCENTIVE PLANDOs & DON’TsTHE LATESTBUSINESSREVOLUTIONBYOD–GOVERNANCE IN AFEERETIREMENT PLANDISCLOSUREWORLD
In This Issue…To view the electronic versionsof current and past issues ofBIZGrowth Strategies, visitcbiz.com/bizgrowthstrategies.To register for our online version,visit cbiz.com/invitation.asp.You can also call us at1-800-ASK-CBIZ (1-800-275-2249).@cbz CBIZ BIZ TipsVideosEmployee Benefits.......................2Retirement Plan Governancein a Fee Disclosure WorldTax & Accounting........................4Tangible Property Regulations:Is Early Adoption Right for You?Marketing...................................4Marketing: Begin withKnowing Your CustomerInsurance Strategies...................5Is There a Captive InsuranceSolution for Your Company?Human Resources.......................6DOs & DON’Ts of Short-TermIncentive Compensation PlansManagement & Performance.......7BYOD – The LatestBusiness RevolutionCBIZ in the NewsFor complete articles:cbiz.com/in_the_news.aspThe Wall Street JournalTax court slaps down IRAs holding‘alternative assets’May 17, 2013FoxBusiness.comOut-of-the-box loan optionsto start a businessApril 23, 2013ForbesNetworking at incubators, acceleratorsand coworking spacesApril 22, 2013Employee Benefits2 | BIZGROWTH STRATEGIES – SUMMER 2013 CBIZ, INC.To attract and retain quality employees, employers must providea benefits package that includes a quality retirement plan. Inproviding this benefit, employers and plan fiduciaries assume anumber of responsibilities. Although professionals may be retainedto perform the duties associated with offering a retirement plan, aneffective and meaningful governance process must be developed toensure best practices are followed in maintaining the plan. This willallow plan sponsors to manage the legal and financial risks whiledelivering a high-quality retirement program for plan participants.An effective plan governance process will provide for oversightprotocols, identify the plan fiduciaries, develop monitoring processesand document plan decisions. As a practical matter, the governanceprocess should address 1) plan compliance issues; 2) management ofplan assets; and 3) administrative concerns.Plan ComplianceERISA and the Internal Revenue Code (IRC) impose a complianceburden on sponsors of tax-qualified retirement plans. In order to meetthe rules set by these statutes, a governance plan should addressthe following:• Plan document. This instrument details the terms of theretirement program and needs to be updated periodically toreflect discretionary changes made by the plan sponsor orregulatory changes required by law.• Governmental filings. These filings include Form 5500 whichreports financial, investment and operational information aboutthe plan; Forms 1096 and 1099R which report distributioninformation; and any other forms required by regulatory agencies.• Testing. Annually, a tax-qualified retirement plan mustdemonstrate that the plan does not exclude a disproportionatenumber of lower-paid employees (generally making less than$115,000) or provide benefits that discriminate in favor of higher-paid employees. If the plan sponsor is under common control withother entities, these tests must be based on the employees of allentities under common control.• Operational compliance. It is important to monitor that the plan’soperation is consistent with plan document provisions.Plan AssetsFiduciaries responsible for the management of plan assetsare subject to the prudence standard, which requires a fiduciaryto act with the care, skill and diligence that would be exercised bya prudent person familiar with the matter and acting under similarFee Disclosure WorldGOVERNANCERetirement Planin a
circumstances. In meeting this standard, fiduciariesmust:• ensure plan assets are diversified so as tominimize the risk of large losses, unless underthe circumstances it is clearly prudent not todo so• comply with the plan’s investment policy statement• monitor the reasonableness of fees charged byservice providers• ensure that the plan has sufficient liquidity• act in the best interest of the plan participantsAdministrative IssuesFiduciaries must make sure all of the plan’srecordkeeping/administrative issues are addressed.Regulatory agencies, participants, the courts or otherentities may have a legal right to access plan records.DISCLAIMER: This publication is distributed with the understanding that CBIZ is not rendering legal, accounting, or other professionaladvice. To the extent anything herein could be construed as tax advice, such advice is not intended to be used and cannot be usedto avoid penalties under the Internal Revenue Code, or to promote, market, or recommend to another person any tax related matter.This information is general in nature and may be affected by changes in law or in the interpretation of such laws. The reader isadvised to contact a professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever inconnection with the use of this information and assumes no obligation to inform the reader of any changes in laws or other factorsthat could affect the information contained herein.BILL KARBONCBIZ Insurance Services, Inc.Lawrenceville, NJ609.895.5332 • firstname.lastname@example.orgTherefore, it is incumbent on the plan administrator tomaintain historical records that include copies of plandocuments, participant notices, government filings,enrollment forms, beneficiary designation forms, censusdata and evidence of required insurance coverage.Without an effective governing process, it will bevirtually impossible to fulfill all of the duties associatedwith maintaining a tax-qualified retirement plan. Hiringqualified professionals to assume all or some ofthe aforementioned duties does not relieve the plansponsor of their duties. A documented process mustbe developed for selecting these professionals andmonitoring their performance. CBIZ, INC. BIZGROWTH STRATEGIES – SUMMER 2013 | 3
new expenditures are depreciated over the shortestperiod allowable.Does your company acquire many small-dollar fixedassets on an annual basis?If you have an applicable financial statement andhave expensed property costing below a specifiedamount, the de minimis rule may allow you to deductexpenditures below the de minimis cap instead ofcapitalizing them.Does your company accumulate large expendituresto maintain equipment?You may be able to use the de minimis rule orthe routine maintenance safe harbor to increase yourcurrent deductions or at least deduct them with morecertainty. The new regulations provide favorable rulesto correct any impermissible methods that are usedin accounting for materials and supplies.Does your company have Net Operating Losses (NOLs)?Early adoption of the tangible property regulationsbased on the facts and circumstances described aboveare typically negated if you have NOLs. Consult your taxprovider regarding your specific circumstances.MICHAEL FINNEGANCBIZ MHM, LLC • Phoenix, AZ602.264.6835 • email@example.com | BIZGROWTH STRATEGIES – SUMMER 2013 CBIZ, INC.In late December 2011 new tangible propertyregulations were issued by the IRS to guidetaxpayers on how to account for amounts paidto acquire, produce or improve tangible property.Originally scheduled to be effective for tax yearsbeginning on, or after, January 1, 2012, mandatorycompliance with the new regulations has been delayedto tax years beginning on, or after, January 1, 2014.Despite the delay, certain taxpayers may benefitfrom early adoption of all or select provisions in theregulations. Regardless of whether early adoptionis right for your company, it is expected that mostcompanies will incur additional expenses next yearin complying with the new regulations. The followingquestions identify key triggers that can help determinewhether early adoption is right for your company.Does your company own a building?If you have replaced a significant component ofyour building, you may be able to write off the oldcomponent still sitting on your books. You also may beable to use general asset accounts to group types ofexpenditures together, potentially increasing the abilityto deduct similar future expenditures as repairs.Has your company recently completed renovationor expansion projects to your buildings?You should have your records reviewed to ensurethat replaced components are written off and thatTax AccountingTangible Property Regulations:Is Early Adoption Right for You?Imoved away from marketing because it wasn’tworking for me,” said Doug, a small businessowner. He continued, “I took a class on marketingwhere the presenter advised that I should usepostcards. He even gave me the messaging Ishould put on them and said they got results forbusinesses like mine. I spent thousands of dollarsand I’m not sure I ever saw the results I wanted.It left a bad taste for marketing in my mouth.”It turns out that Doug attended a lunch seminarpresented by a postcard salesperson. Countless dollarshad been wasted or at the very least not effectivelydistributed. What Doug put his money into was apostcard advertising campaign, not a well-plannedmarketing strategy. Jumping into a campaign likethis without any research or planning is like a doctor“IMarketingMARKETING: Begin with Knowing(Continued on page 8)Your Customer
Over 28% of all commercial insurance premiumstoday are paid to captive insurance companies.Yet, there still exists a sense of mysteryand confusion amongst middle-market commercialinsurance buyers as to what benefits this arrangementcan provide. The goal of this article is to simplify thecaptive insurance arena into a few broad categories tobetter help middle-market business owners understandthe potential advantages of these risk financingarrangements.DefinitionA captive insurance company is a privately-owned insurance company whose owners arealso its insureds. These insureds are then theprincipal beneficiaries of all underwriting profitsand corresponding investment income generatedfrom premiums paid into the captive. Captives havebeen utilized by business owners for more than 100years, with over 6,000 captives operating today.Let’s look at the potential benefits for middle-marketcompanies, using a few different scenarios.Group CaptivesPrivately-held or smaller public companies usuallydo not have the size or legal/taxable diversity toqualify for insurance company status on their own inthe eyes of the IRS. These companies typically havean annual commercial insurance spend of between$150,000 and $2 million. For certain portions of theircommercial insurance program (General Liability,Workers Compensation and Automobile) they canparticipate in a group captive arrangement wherebyup to 65% of their premiums are available for them toretain if not used for claims. Companies in this spacecurrently utilizing high deductibles or retrospectively-rated programs will find captives less expensiveand more financially efficient over the long term.Additionally, most privately-held companies own theircaptive stock outside their personal estate, thusInsurance StrategiesCBIZ, INC. BIZGROWTH STRATEGIES – SUMMER 2013 | 5COURTNEY W. CLAFLINCBIZ Insurance Services, Inc. • Minneapolis, MN612.436.4614 • firstname.lastname@example.orgIs There aCaptive Insuranceallowing captive profits to be held in a vehicle notsubject to estate taxes.Balance Sheet (Micro) CaptivesHigher pre-tax profit companies can set asidethese pre-tax profits, on a tax deductible basis, into acaptive to insure business risks for which they currentlydo not buy insurance or for which they do not buy enoughinsurance. As long as premiums are less than $1.2million per year, profits are retained inside the captive ona tax-exempt basis. Profits distributed from the captiveare in the form of a dividend and are taxed as such.Stop Loss Health Insurance CaptivesOne of the hottest trends in the health insuranceindustry is the group stop loss health insurance captive.This vehicle gives current fully-insured employers withas few as 25 employees the ability to achieve qualifiedself-insured status, along with all the advantages ofbeing “self insured” and without the economic volatilityof being self insured on their own. Additionally, currentself-insured employers in these vehicles have access toprofits normally only available to their current stop lossinsurance provider.Insurance is the purest form of socialism; the“haves” subsidize the “have nots”. Captive insurancecompanies are designed to reward those companiesthat, through their risk management discipline,consistently pay far more in premiums than in claims.With a limited amount of “risk” attached to captivesand with the client’s ability to keep the underwritingprofits and investment income, it’s no wonder thecaptive marketplace has grown at over 200 times therate of the traditional market in the past 15 years. for Your Company?
Motivating workers is critical to corporatesuccess. Organizations across the countryare seeking to continuously improveemployee performance, while simultaneouslycontrolling costs. Establishing or expanding incentivecompensation programs can be an effective strategyto achieve this objective.When designed well, incentive plans alignemployee behaviors and activities with specificgoals. When designed poorly, incentive plans cancause confusion and frustration among employeesand dissatisfaction among owners and management.There are several practices to be avoided andothers to be considered in order to design anincentive plan that succeeds in motivating andrecognizing desired performance.Don’t: Use corporate performance measures that donot apply to the industry or organizational operations.Do: Focus on metrics that are meaningful toorganizational strategies.Organizations at different stages of developmentare likely to have different goals and, thus, differentperformance measures that should be included inincentive plans. For example, a start-up company isgenerally focused on gaining customers and growingsales. As a result, increases in market share andrevenue growth are likely to be appropriate measuresto incorporate into incentive plans. Conversely, maturecompanies often have reached maximum marketpenetration and revenues have stabilized. Thesecompanies therefore should emphasize profitabilityand cost controls.Don’t: Wait until the end of the period to determineperformance measures and corresponding payouts.Do: Establish and communicate incentive plancriteria before the performance period begins.For budgeting purposes it is financially responsibleto estimate potential incentive payouts prior to theperformance period. Furthermore, employees are likelyto respond much more positively to the plan if there isclear understanding as to what results are needed toearn the incentive.Human ResourcesPRIYA J. KAPILACBIZ Human Capital Services • St. Louis, MO314.995.5558 • email@example.com | BIZGROWTH STRATEGIES – SUMMER 2013 CBIZ, INC.DOs DON’TsOF SHORT-TERM INCENTIVECOMPENSATION PLANSDon’t: Overemphasize corporate financialperformance measures.Do: Adjust the relative weighting of corporate andindividual performance based on job levels.While including corporate performance as anelement of the incentive plan encourages employeesto have a more holistic perspective, considering “lineof sight” is imperative. If employees cannot influencethe incentive plan’s performance measures, the abilityto earn incentives is beyond their control. This meansthe plan will be largely unsuccessful at motivatingemployees. At lower levels of the organizationindividual or team performance measures shouldcompose the majority of the plan’s criteria.Don’t: Award incentives indiscriminately across staff.Do: Determine eligibility based on line of sight,market prevalence and job level.Many employers believe in rewarding all staff whenorganizational performance is strong; however, this isone of the most common ways of fostering feelingsof entitlement and misunderstanding among staff.Additionally, there is compliance risk if incentivesfor non-exempt employees are not calculatedcorrectly. The ideal way to determine eligibility foran incentive plan is to identify employees whocan impact the performance measuresand those for whom incentives area market-competitive practice.Corporate initiatives toimprove worker performanceand motivation are nothingnew. However, such endeav-ors have taken ongreater significanceas companies focus onenhancing organizationalresults in the midst ofuncertain economic times.A key objective of incentivecompensation is to encourageand reward desirable employeeperformance and behaviors. As aresult, any incentive plan that does notillicit improvement falls short of overall plan goals.Incentive compensation plans should be developedconscientiously, keeping the basic “DOs and DON’Ts”in mind, and continuously reviewed for effectiveness.