CBIZ Quarterly Manufacturing & Distribution “Hot Topics” Newsletter (Jan-Feb 2022)

QUARTERLYHOT TOPICS
CBIZ Manufacturing & Distribution
Manufacturing Relationships. Distributing Quality.
CBIZ Manufacturing & Distribution
QUARTERLYHOT TOPICS
IN THIS ISSUE:
Helping clients in the
manufacturing and distribution
sectors maximize their potential
and navigate industry changes.
Manufacturing
& Distribution
JANUARY 2022 | ISSUE NO. 12
PAGE 1
©
Copyright
2022.
CBIZ,
Inc.
NYSE
Listed:
CBZ.
All
rights
reserved.
(Continued on page 2)
2022may very well be the year of balance for manufacturers, and for private
manufacturers, balance sheets.
As the industry continues to address ramifications from pandemic-related supply chain
disruptions, inflation concerns, and other market factors, another development has arrived
with a balance sheet impact: changes to lease accounting guidance. The Financial Accounting
Standards Board (FASB)’s updates to lease accounting will require companies that lease assets
– such as heavy machinery and equipment, to record all long-term leases on their balance
sheets starting in 2022 for calendar year-end private manufacturers.
Below are the core provisions manufacturers should know about with the lease accounting
changes and how the standard could potentially affect your financial statements.
3ThingsManufacturersNeedtoKnow
AboutTheirAccountingforLeases
1-800-ASK-CBIZ • CBIZ Manufacturing & Distribution National Practice @CBZ
CBIZ BizTipsVideos
3 Things Manufacturers
Need to Know About Their
Accounting for Leases
PAGE 1
Managing Ongoing
Challenges in 2022
PAGE 3
3 Ways Manufacturing
Companies are
Restructuring Benefits
to Increase Retention
PAGE 4
Additional Content &
Resources
PAGE 5
Key Person Insurance:
What Is It and
How Does It Work?
PAGE 6
Retirement Plan Fees
and Expenses – What a
Fiduciary Needs to Know
PAGE 7

CBIZ BizTipsVideos PAGE 2
(Continued from page 1)
What is ASC 842?
The FASB introduced ASC Topic 842, Leases, to
increase transparency into the lease accounting
for public and private organizations. The new lease
guidance went into effect in late 2018 for public
companies and, after several extensions, finally went
into effect for most private companies for fiscal years
beginning after Dec. 15, 2021.
The new ASC 842 lease accounting standard requires
organizations to record all leases on their balance
sheets except for those meeting the short-term lease
criteria. The goal of the change is to provide a more
accurate picture of an organization’s financial health
and offer a better understanding of its financial
commitments.
The changes affect everything from financial statements
to the lease cataloging process.
How will ASC 842 Affect Manufacturing?
ASC 842 contains guidance for companies that manage
leases (lessors) and companies that lease assets
(lessees). Manufacturers are most likely to find that the
lessee accounting guidance is the most applicable to
the leases that they use in operations.
The lessee accounting guidance classifies a lease
as either a finance lease or operating lease. Finance
leases and operating leases have slightly different
financial reporting requirements for both income
statements and balance sheets. Changes brought about
by the new standard may mean that manufacturers
with operating leases are having to record lease assets
and liabilities for the first time on their balance sheets,
which could affect lending arrangements and other
scenarios that rely on balance sheets as inputs.
Cataloging all of the leases that your organization has
and their corresponding lease type will be an essential
part of your ASC 842 adoption efforts. Each lease may
have both lease and nonlease components that will
have to be separated for financial reporting purposes.
To record the lease assets and liabilities on your
balance sheet, you will need to record the present
value of future lease payments, which may be easier
said than done. The accounting guidance requires
that lessees use the rate implicit in the lease, if readily
available, to determine the present value. It is expected
that the implicit rate will not be known by many lessees;
however, scenarios exist where the rate is known by
the organization making its use a requirement. The
alternative is to determine the appropriate incremental
borrowing rate — the rate the lessee would pay to borrow
on a collateralized basis of a similar term in a similar
economic environment — adjusted for the length of the
lease and the country or region of operation. Private
lessees can also elect a risk-free discount rate accounting
alternative for all or a select class of underlying assets.
Lease modifications and renewals will also be important
to monitor with the new standard.
Leasing ‘Oddities’ in the Manufacturing Sector
Certain types of leases may be harder to transition to ASC
842. One “oddity” that affects the manufacturing sector
are build-to-spec or build-to-suit arrangements.
In a typical build-to-spec or build-to-suit arrangement, a
real property developer builds out real property according
to a tenant’s specifications. Manufacturers may find they
have build-to-spec or build-to-suit arrangements with
their manufacturing plants or even, potentially, with their
specialized equipment resulting in the manufacturer
being, for accounting purposes, the owner of the asset
during the construction period.
ASC Topic 842 makes significant changes to the build-
to-suit rules. A lessee will now recognize the entire
project on its balance sheet during the construction of
the equipment or plant only if the lessee “controls” the
asset during construction. After the equipment or plant
has been completed, the arrangement is evaluated
under the sale and leaseback guidance. If the lessee
manufacturer does not “control” the space or asset
during its construction, any amounts paid by the lessee
manufacturer during construction will be treated as
prepaid lease payments.
Another leasing “oddity” affecting manufacturers are
embedded leases. Manufacturers should pay attention
to their transportation and logistics arrangements
including freight management services, and warehouse
space, as these are often ripe for embedded leases.
Your organization’s information technology may also
have embedded leases related to its servers, data center
spaces, modems, routers, and network equipment.
For More Information
The new lease accounting standard brought about
significant changes for private companies and the
manufacturing industry. Adoption challenges can be
overcome with careful planning and execution, but it will
be necessary for manufacturers to learn all they can
about ASC 842 and how it will affect their business to
make the necessary changes.
For assistance with the lease accounting adoption, please
contact a member of our complex accounting team.

CBIZ BizTipsVideos
DISCLAIMER: This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional
advice. This information is general in nature and may be affected by changes in law or in the interpretation of such laws. The reader
is advised to contact a professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in
connection with the use of this information and assumes no obligation to inform the reader of any changes in laws or other factors that
could affect the information contained herein.
T
he CBIZ Main Street Indices reported
industry concerns throughout another
difficult year – staffing shortages, supply
chain issues, loss of revenue, growing cyber
risk and the potential impact of changes in
tax policies to name a few. In this follow-
up publication, we provide a few planning
considerations and several resources to
help manage ongoing business challenges.
Discussion, case studies and resources
address the invisible business tax (over-
reporting = overpaying), supercharged ERTC
(don’t assume you can’t apply), managing
soaring insurance costs (always a large annual
expense), plus R&D tax credits, cyber risk, cash
flow, and managing key staff shortages. Access
this packed publication here.
Managing
Ongoing
Challenges
in2022

CBIZ BizTipsVideos
3WaysManufacturingCompaniesare
RestructuringBenefitstoIncreaseRetention
T
he Great Resignation has led to a labor shortage
for companies across the country. As of June
2021, more than 3 million employees had quit
their jobs, and that number has continued to rise. In the
manufacturing industry in particular, the stats are even
more concerning.
According to the Association for Manufacturing Excellence,
the average manufacturing company has an approximate
absenteeism and turnover rate of 37%. Employers in this
industry are making changes to combat this issue, and
one area they’re focusing on is employee benefits.
Here are three ways manufacturing companies are
restructuring benefits to increase employee retention:
1. Taking On Increased Costs
Health care costs continue to rise. Historically, either
these price increases would ultimately trickle down to
employees, leading to higher deductibles and out-of-
pocket costs, or employers would reduce benefits to
avoid increased costs.
Manufacturing companies are changing this narrative,
instead choosing to shoulder increased costs themselves
without reducing benefits. In fact, many employers are
starting to cover dental and vision coverage, a benefit
that was previously employee-paid.
Not only are companies currently focused on helping
their employees avoid cost increases, but they are also
actively looking for ways to offer lower deductibles and
out-of-pocket costs, even to their own financial detriment.
2. Offering Additional Optional Benefits
Employers recognize that in today’s fiercely competitive job
market, they must go above and beyond in their benefits
offerings to hold on to top employees. Because of this,
many companies have decided to offer additional optional
benefits, like pet insurance and identity theft coverage.
These unique offerings are intended to increase retention
of current employees, but also entice prospective

employees. Organizations that choose to differentiate
their benefits plans are likely to have an edge over those
that stick with the status quo.
3. Improving Employee Assistance Programs
The pandemic has had a serious impact on employee
mental health and wellbeing. Manufacturing workers
tend to face long hours with little flexibility, making them
more susceptible to burnout and mental fatigue.
What makes matters even more complex is the stigma
that surrounds mental health in the manufacturing
industry. Many of these employees don’t feel comfortable
openly discussing mental health, much less asking for
help should they need it.
Employers are trying to solve this problem by greatly
enhancing their Employee Assistance Programs
(EAPs). Through this program, employees can access
confidential assessments, free counseling, and
follow-up services. Organizations that take the time to
improve their EAP and truly ensure that its offerings are
meeting their workers’ needs are likely to see increased
retention in the coming year.
Bottom Line
Overall, there has been an industry-wide shift in how
employers approach their benefits offerings amid
the Great Resignation. Manufacturing organizations
are focused on making it easy and cost-effective for
employees to get the services and coverage they need
without regard to increased company expenses.
Organizations that choose to embrace this change are
likely to see a significant return on their investment in the
form of increased retention of their most valuable asset
— their people.
Additional Resources

■ Mental Health Scorecard

■ 6 Strategies to Combat the Great Resignation

■ Designing a Successful Total Rewards Program

■ Employee Mental Health & Wellbeing: Strategies
to Create a Thriving Workforce

■ Maximizing Productivity & Engagement by
Improving Your Employees’ Health & Wealth
Your Team
Your team at CBIZ Employee Benefits is proud to offer
personal service paired with national resources. Connect
with our benefits experts today to discuss how your
organization can leverage your benefits offerings to
increase employee retention.
Additional Content & Resources
6 Strategies to Combat the Great Resignation.
Strategies aimed at limiting turnover and retaining
your greatest asset — your people! Download your
free copy here.
Tax Planning Guide, including 2021 and 2022 tax
charts, opportunities to adjust prior tax returns,
second look at CARES Act tax change and time
sensitive opportunities. Available here.
Is your company prepared for – Emergency
Evacuation? Check your plan against this guidance.
Unexpected Business Disruptions? Download your
guide here.
Featured Webinar
It’s Time for a Culture Shift – Leveraging Data
to Assess & Enhance Your Workplace Wellbeing
Program, February 22, 1 pm CST
Now more than ever, organizations must look
beyond traditional benefits to determine what
elements of a workplace culture matter most to
employees. Register online.
News from the NAM
Multigenerational Teams in Manufacturing, report
of research by AARP and the Manufacturing Institute
on industry trends and best practices for leveraging
age diversity.
NAM’s 2021 4th Quarter Manufacturers’ Outlook
Survey – download here.

KeyPersonInsurance:WhatIsIt
andHowDoesItWork?
A
key person insurance plan covers the life of an
employee who is deemed as a valuable asset to
the company. It is a simple, efficient way to provide
your business with the liquidity needed to handle the loss
of a key employee and recruit and train a replacement.
The plan may also help to replace lost profits as a result
of the loss.
How to Determine Who Is a Key Person
A key person is a critical component of the success and
profitability of your business. Key employees can be
business owners, successful sales reps, or individuals
whose daily contributions are vital to the success of the
business.
How Does It Work?
The business buys a life insurance policy on the life of
the key employee. The business is the owner and the
beneficiary, and pays the premium insuring the key
employee. Upon the death of the key employee, the
business will receive the entire death benefit. The key
employee does not have any interest in the policy, nor
does his family receive any benefit from it when the
premature death occurs.
Advantages of Key Person Insurance

■ Provides cost-efficient liquidity immediately upon
the death of a key person.

■ Provides cost-efficient liquidity to help the
business function after losing a key employee.

■ Keeps the business running smoothly.

■ Provides the company with a valuable asset on
the company’s balance sheet.
How to Determine the Right Amount of Insurance
Coverage
A typical rule of thumb for deciding the amount of life
insurance coverage is five to ten times the annual
compensation. In addition, you should take into account
how much it will cost to replace the key person, how
much the person is worth to the bottom line, and how
much of the company’s loss you are willing to ensure.
We’re Here to Help
Key person life insurance is an important way for
a business to protect itself against the loss of key
employees, partners, or owners. Key person life insurance
is simple to set up and easy to implement, and should be
considered by a business whose day-to-day and long-term
performance may be in jeopardy if something happens to
one of its vital employees.
CBIZ Life Insurance Solutions understands that protecting
your employees and your business is critical. Connect
with a member of our team to learn more about our key
person insurance.

Retirement Plan Fees and Expenses–
What a Fiduciary Needs to Know
BY JEFF BARNES AND ED HINDERS,
CBIZ RETIREMENT PLAN SERVICES
R
ecently, I was talking to a CFO of a manufacturing
company about their 401(k) plan. As we were
talking, she turned to me and said, “You know, I
simply don’t know what I’m supposed to know. I hear
about lawsuits that involve people like me in regard to
costs, but I have no idea what people like you should be
charging me and my employees.”
I was not surprised. There’s a lot to keep up with if your
company sponsors a retirement plan, especially if you are a
fiduciary to the plan. As a fiduciary, it is not only a practical
matter regarding selection and monitoring of service
providers who are often paid out of the plan’s assets but
also a requirement under the law for you to do so.
Fiduciary Responsibility Requires Plan Oversight
The CFO was right to be concerned. She is a fiduciary
and, due to recent market highs, her plan has grown a
great deal in assets while her workforce has stayed about
the same. This means the average account balance per
participant has increased. Since the cost to service a
participant is relatively stable and most service providers
(e.g., recordkeepers/custodians, administrators, advisors)
charge for services based on a percentage of assets, the
cost to participants has increased, usually meaning it’s
time to review the pricing of the plan.
In recent years, the Department of Labor (DOL) has
issued a number of regulations to help improve
transparency and assist both plan sponsors and
participants in understanding the fees and expenses of
their retirement plans. Now, the employees who pay these
fees have data to compare costs and better understand
their plan’s fees.
ERISA Litigation Challenges Fees and Funds Selection
Since 2006, legal firms have initiated multiple waves of
ERISA litigation challenging the fees and the selection
and retention of mutual funds and other investments
offered in these plans (“fee and investment litigation”).

The pace of new complaints has surged to historic levels
with nearly 100 new cases filed in 2020, accounting for
the largest one-year increase in history. During the past
five years, plaintiffs have secured nearly a billion dollars
in settlements that included $330 million for attorneys’
fees. Much of the litigation has centered on the following,
with mixed results on legal outcomes:

■ A plan sponsor’s continuing duty to periodically
monitor funds selected as investment
alternatives

■ The prudence of participants’ investment options
that are managed directly or indirectly by the
plan’s service providers

■ Excessive fees and underperformance for Target
Date Funds

■ The use of retail-class mutual funds as plan
investments when materially identical lower
priced institutional-class mutual funds were
available

■ A plan sponsor’s duty to monitor and conduct a
“regular review” of its investments, implying the
duty to monitor is a “continuing” one

■ Excessive recordkeeping fees

■ The importance of well-documented meeting
minutes and materials

■ Claims challenging the use of plan participant
data and questioning if a fiduciary has a duty to
protect and regulate the use of this information
by plan service providers
Plan Service Providers
When you sponsor a plan, you engage a variety of service
providers. These service providers are required to provide
you, and ultimately your participants, with information on
the extent of the costs for services provided, including:

■ Recordkeeping

■ Administration

■ Compliance

■ Non-fiduciary broker and/or fiduciary investment
advisor services

■ Investment management fees and the impact of
differing share classes

■ Employee and participant education
All of the fees and expenses for these services fall into
broad categories of direct or indirect compensation.
As a plan sponsor you need to determine exactly how you
are paying your service providers. These fees can be paid
in a variety of ways:

■ Directly by the plan sponsor to the service
providers

■ From participant account balances through
either a fixed-dollar “per head” charge or by a flat
percentage of their account balance

■ Through revenue sharing. When applicable,
revenue sharing is an investment expense above
and beyond the investment manager’s fee, which
is included in the investment’s gross expense
ratio. This fee is collected by the investment
provider and passed back to the service provider
to cover expenses.
How to Determine “Reasonableness”
Retirement plan fiduciaries are tasked with determining
if fees and expenses are “reasonable.” Reasonableness
does not necessarily mean you have the lowest fees
possible; they just need to be “reasonable” as they
compare to other retirement plans of the same size. As
with any other purchase, a fiduciary should compare the
costs incurred to the service and benefits provided. A
qualified resource, such as your broker or an advisor, can
assist you with benchmarking the fees within your plan. It
is also important to make sure that fees are transparent
and effectively communicated to participants. The bottom
line is, if you have not studied the fees and expenses of
your 401(k) plan, you should.
Your Team
For additional guidance on retirement plan fees and
expenses, contact Ed Hinders (314.692.5822) or Jeff
Barnes (901.969.1303), or visit www.cbiz.com/retirement.
Investment advisory services provided through CBIZ
Investment Advisory Services, LLC, a registered investment
adviser and a wholly owned subsidiary of CBIZ, Inc.

CBIZ Quarterly Manufacturing & Distribution “Hot Topics” Newsletter (Jan-Feb 2022)

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