News From Sobel & Co., LLC

Please join us at our Quarterly Roundtable on January 19, 2012. The topic is "How to Use Benefits Programs to Incentivize Employees." Our presenter will be Elise Feldman, President of Feldman Benefit Services, Inc.

We hope you will find the articles included here to be valuable, and that you will pass this along to others. You are always welcome to provide topics of interest that you would like covered in future issues.

I look forward to hearing from you .

Enjoy!

Ken

Ken Bagner, CPA, MST

Member of the Firm

Director, Employee Benefit Plan Audit Practice

P.S. If you want to add anyone else to the e-newsletter mailing list, please just send their contact information to sally.glick@sobel-cpa.com and we will see that they are included going forward.

Best Practices for Employee Benefit Plans and Plan Sponsors, Administrators and Trustees

Written by Liz Harper

Senior Manager Quality Control

Throughout my career I have worked on audits of employee benefit plans at small to large sized private and public companies. I have compiled a short list of best practices for you to consider as you wrap up your current audits or prepare for the next year.

Plan Documents and Required Amendments: Ensure that your plan documents are up to date with new required amendments relating to Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

Custodian (Trustee), Recordkeeper and Fiduciary Agreements: Understand who does what for the Plan. The custodian (trustee) hold the Plan's assets. The recordkeeper tracks the activities of the Plan. Review trustee and recordkeeper agreements ensuring that they are signed. Ensure that fiduciary agreements are in place as required.

SSAE 16 Service Organization Controls (SOC) Reports (formerly SAS 70 Reports): Review all relevant reports from your custodian (trustee), recordkeeper and payroll providers paying particular attention to recommended client user control considerations. Monitor that key user controls are implemented and properly functioning.

Legal and Tax Counsel: Seek the advice of legal and tax specialists when required.

Minutes of the Plan: At a minimum conduct an annual meeting for the Plan. Document the meeting minutes and consider establishing an investment committee to monitor investments. Plan oversight of investments is critical in these economic times ensuring diversification and compliance with investment strategies and the Plan offering appropriate investment options for participants in a self directed Plan. Consider establishing an investments committee.

From a Human Resource Perspective......

Leading Across the Generations: A Customized Approach

To be successful, Human Resource professionals must have a depth of knowledge about the people they work with in order to understand what motivates them, to understand their communication styles, and to understand what ideals they most value.

At a recent HR conference I attended there was an interesting presentation that focused on generational differences and their impact in the work environment. Effectively managing staff is especially critical for recruiting and retaining high quality, talented employees, but today's workforce is comprised of multiple generations with different beliefs and experiences. This presents new challenges for leaders in the human resource arena.

The generational groups that are currently working side by side can be divided into four categories:

Traditionalists (born between 1922 - 1043);

Baby Boomers (born between 1944 - 1964);

Gen-Xers (born between 1965 - 1981);

Millenials (born between 1982 - 2002).

In a study across the generations, assessing their views on topics such as interracial dating, homosexuality, tattoos, body piercings and reliance on cell phones (such as sleeping with the cell phone nearby), the disparity is obvious.

For example, Traditionalists had the highest percentage among the four groups who responded that same sex relations are always wrong and Millenials had the lowest percentage of respondents who believe same sex relations are always wrong. Millenials had the highest percentage of tattoos and body piercings of any of the generational groups and the highest positive response regarding interracial dating.

The need for connectivity and reliance on technology is demonstrated in a question regarding cell phone behavior. Less than 25% of the Traditionalists said they sleep with their cell phone nearby while slightly more than 45% of Boomers said they do and 67.5% of Gen Xer-s said they have their cell phone near them when sleeping. However, nearly 90% of the Millenials said they keep their cell phones close, even in the bedroom.

Other trends that also reveal the differences between these categories involve their collective perspectives on what is important to them. Traditionalists highly rate characteristics like respect, hard work, loyalty, sacrifice and following the rules. At the other end of the spectrum, technology, optimism, diversity, social responsibility, constant contact, transparency and the environment are at the top of the Millenials' list. The gap between them is vast!

Because of these conflicting viewpoints, HR Directors and other company leaders must identify distinctive ways to cultivate, engage, motivate, guide and reward employees across all the generations. Clearly the tactics that can be successful with Baby Boomers or Traditionalists will fall flat when applied to Millenials or Gen-Xers. They all have different approaches to their careers and to their expectations regarding how to achieve balance between their time spent at work and their personal leisure time.

Here are some of the suggestions made at the presentation on "Four Generations, One Workplace":

Effective leadership approach to working with Traditionalists: Show them respect - they are loyal and hardworking.
Effective leadership approach to working with Baby Boomers: Focus on relationship building and the positive. They are optimistic, team players, and open to change. They like to work and are willing to do whatever it takes to get the job done.
Effective leadership approach to working with Generation X: Focus on skills building, present a short time line, de-emphasize hierarchy and emphasize the team interaction, provide one-on-one instruction and guidance.
Effective leadership approach to working with Millenials: Be interested in them (ask questions), recognize and immediately reward their efforts and successes, share information and communicate consistently, use emotional intelligence to build trust and respect.

The final words of wisdom that can help all leaders and HR professionals in the workplace -

Learn as much as you can about your employees and their communication styles so that you can be an effective communicator on all levels
Accept the generational differences in your staff and learn to leverage them to your advantage and theirs
Keep an open mind and continue to learn from everyone around you, even when it isn't what you are accustomed to doing
Invest in leadership training for the successor generations so that they can be effective at managing and leading when it is their turn
Celebrate the commonalities that you all share while embracing the diversity and distinctions in the group

As a leader and a human resource professional, just remember not to lose your sense of humor - and enjoy the challenge of having four unique generations of employees under one roof!

The Defined Benefit Plan "TUNE-UP"

Elise Feldman, CPC

President

Feldman Benefit Services, Inc.

Elise Feldman, CPC

Defined Benefit Plans remain a "secret formula" for financial security at retirement. If a business has one, a "tune-up" is due, as all Defined Benefit Plan documents must be restated for the Economic Growth and Tax Relief Reconciliation Act by April 30, 2012. Therefore, this is the time to ask if the plan provisions should or can be modified, if the benefits and funding meet expectations, and what are the options.

DESCRIPTION: A defined benefit plan is usually created to provide owners, older executives, and other valued employees with greater benefits than are available in a defined contribution plan. A benefit is promised at retirement (age 62 - 65), such as 50% of salary (average compensation), for each year the employee lives (and could include how long the spouse lives) past the retirement date. Another way of wording a benefit is on a "unit credit" formula such as 1.5% of compensation for each year of service up to 25 years. The maximum benefit is 100 % of high three-year average compensation not to exceed $195,000.

An employee may be given the option to take monthly benefits or a lump sum. If married, the monthly benefit will automatically be on a joint and survivor basis, unless both spouses agree to a different form of distribution.

The standard defined benefit plan does not show individual account balances, but provides information to participants annually on the amount of monthly benefit available at retirement, accrued-to-date, and vested-to-date. Today, employees are beginning to understand that even though they do not receive account balance information or have the ability to select individual investments, they do not assume any investment risk either. They are being guaranteed a lifetime retirement benefit.

The actuarial funding calculations are yielding minimum and maximum ranges to meet a company's annual budget. Under the Pension Protection Act, actuarial assumptions are prescribed; however, they are currently based on an interest rate assumption near 6%. The annual contribution is not limited as in a defined contribution plan, but based on how much it will take annually to fund a benefit over the years to retirement. Thus, a higher contribution is needed for employees with fewer years to retirement. An analogy is a mortgage payable over fewer years than 30, the purchase price remaining the same.

DESIGN OPTIONS: The goals and expectations govern design changes.

To offer employees an easier way of understanding the plan and make it more similar to the account balance they are used to seeing, defined benefit plans may switch to a "cash balance" variation. These give the appearance of defined contribution plans because they calculate and express each participant's future annuity as an "account" value. Technically, though this amount is an actuarial estimate, it does represent the sum that could be distributed to a participant at termination of employment. Participants are not permitted to control the investments as in a 401(k). Such a design can also help to even out the contributions due to varying ages of employees, and may also help benefit the key employee(s).

A defined benefit plan and a defined contribution plan can be combined to supplement each other. This design could be used to maximize benefits, to control costs, or offset one plan against the other. For example, if contributions for lower paid employees are high enough in the defined contribution plan, there may be very little, if any, benefits offered in the defined benefit plan. Then the defined benefit or cash balance plan may benefit primarily the owners, or valued executives without violating the anti-discrimination rules.

SUMMARY: The closer the plan design is monitored, the more flexibility a business owner has in managing it. The approach to the investment portfolio is extremely relevant.

For most business owners, their qualified plan is the magic ingredient to their financial security at retirement. By sharing their immediate and long-term needs with their advisors, and addressing the broad investment, economic, and tax environment that exists and fluctuates, a business owner can take advantage of these plans to ultimately yield the financial freedom needed for themselves and their employees.

Understanding the Specific Rules Governing Pension Plans

Understanding the specific rules governing Pension Plans as established by the Department of Labor (DOL) and the Internal Revenue Service (IRS) can ensure that you, and your company, operate your Plan in accordance with all regulations.

With that in mind, we are going to share the most common pitfalls you will be most likely to encounter so as to help you be efficient, effective and compliant. Some of these rules you may have already been aware of, others you may not have known. Once you have reviewed these ten tips, and the explanations, we believe you will have better insights into what is expected of you by the DOL and the IRS, making you less vulnerable to unintentional errors or missteps.

Top Ten Pension Plan Expectations

#1: Ensure a timely deposit of employee elective deferrals.

According to the DOL, all elective deferral deposits into the Plan should be made on a consistent basis, no later than one to two days after the payroll date.

Hint: Close coordination with your payroll provider will enable you to determine when the deposits can reasonably be segregated from your Company's general assets. Policies and procedures regarding the deposits should be established and regularly implemented.

#2: Apply the Plan's definition of compensation properly.

The compensation definitions stipulated in the Plan Document must be followed correctly.

Hint: Plan sponsors should review their Plan on a regular basis and focus clearly on defining the compensation elements that are both included and excluded from compensation.

#3: Update your Plan Document.

There are statutory deadlines regarding when many provisions must become effective, but the laws related to retirement plans change periodically. Failure to update your plan may cause it to be disqualified.

Hint: To maintain compliance, engage in constant communication with your third party administrator, trusted advisors and ERISA counsel. Always keep signed documents readily available, including the original Plan Document, subsequent amendments, adoption agreements, Board minutes and any opinion letters you have received from the IRS. Lastly, confirm that operation of the Plan remains consistent with the current terms of the Plan.

#4: Follow your Plan's eligibility provisions.

The Plan Sponsor and the Third Party Administrator may interpret Plan provisions differently, leading to the inclusion or exclusion of some employees.

Hint: To avoid inaccurate inclusions and exclusions due to miscommunication, ensure constant interaction with your plan administrator. At the same time, be sure to maintain and monitor records of the employees' census data and any notices sent to employees. Have every employee complete an enrollment or opt out form if they are not interested in participating in the Plan.

#5: Understand whether or not all of your investments fall under the Limited Scope Audit provisions.

All investments may not be covered under the limited scope exception. For example, if your Plan has alternative investments such as real estate, derivatives, or hedge funds, the third party administrator may not be able to certify these investments.

Hint: If you have investments that fall outside the limited scope audit, they may need to be fully audited. Ask your trustee if the Plan, as it currently exists, qualifies for a limited scope audit. In addition, make sure you have a signed trustee agreement with your TPA, and that your assets can be certified by a qualified bank or insurance company.

#6: Be sure to properly meet hardship withdrawal requirements..

Hardship withdrawals should never be made without proper and thorough documentation of the employee's hardship. In addition, Plans may be required to suspend employee deferrals after a hardship withdrawal for a six month period after the withdrawal. Failure to suspend employee deferrals, if required by the Plan Document, can lead to forfeiture of employee deferrals, matching contributions and Plan earnings on those contributions. The Company will be required to refund the participant the lost contributions plus earnings through payroll...

Hint: As the employer you should be aware of the plan requirements for hardship withdrawals to ensure proper operation of the plan provisions.

#7: Treat Plan forfeitures correctly.

An annual allocation is required. For forfeitures not allocated within the terms of the Plan, the Sponsor may be required to make the Plan participants whole from the Sponsor's assets.

Hint: Forfeitures cannot stay in an unallocated account in the Plan. You must allocate assets as soon as feasible, especially if forfeitures are allocated to participants. If forfeitures are allocated to participants, be sure to estimate the lost earnings and contribute to the participants' accounts accordingly.

#8: Obtain spousal consent when required.

If a Plan provides for benefit payments in the form of a Qualified Joint and Survivor Annuity, and the participant requesting the payment is married, spousal consent must be obtained before the benefit payment can be made.

Hint: Failure to comply with this provision may force the Plan to make benefit payments to an employee's spouse who didn't originally consent to the distribution. Change your policies going forward to avoid such disputes against the Plan.

#9: Ask if you can really have a Limited Scope Audit.

Only insurance carriers, banks, trust companies or similar institutions can certify the accuracy and completeness of the investments.

Hint: Using any other trustee or custodian besides those listed here will require the Plan to engage an auditor for a full scope audit, which is more costly because the auditor will be required to audit all of the investments.

#10: Meet your fiduciary responsibilities as the Plan Administrator.

You must be proactive to administer an Employee Benefit Plan.

Hint: Perform an internal audit on a regular basis. Be sure to properly document investment decisions to demonstrate that you have carried out your fiduciary responsibilities.

A few additional points about your fiduciary duty:

Know that courts have been quick to find fiduciary liability when it was apparent that diversification didn't exist and a loss occurred
Follow asset allocation guidelines
Properly document the processes used to carry out your fiduciary responsibilities
Outline diversification projects in a well thought out Investment Policy Statement
Be able to provide a satisfactory answer when asked, "Do you stand to benefit or gain personally either directly or indirectly, by the handling of the Plan assets?" to demonstrate that there are no prohibited transactions taking place between the Plan and you as the fiduciary
Avoid conflicts of interest that may arise if you as fiduciary received current financial economic benefit from a transaction
Appoint professional investment advisors to manage the Plan's assets
Ensure that the investment transactions are executed at the best and most reasonable cost

By learning more about these potential pitfalls, you will gain some keen insights to help you manage and mitigate any challenges you may face in your Plan. For further information or to ask a question, please call Kenneth Bagner, 973-994-9494, and he will be glad to assist you.

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Is Your Retirement Plan Compliant?

It seems everywhere you look these days that someone is saying something about the changing environment of retirement plans, whether it be in print, TV or radio. This recent press is due in part to the Department of Labor's new service provider 408(b)(2) and participant-level 404(a)(5) disclosure regulations under ERISA. In addition, the Employee Benefits Security Administration (EBSA) is reviewing lifetime income, electronic disclosures, and the definition of an ERISA fiduciary. All of this regulation is enough to make even the more seasoned retirement professional's head spin. What does this all mean to the sponsor of a retirement plan? Now might be the perfect time to conduct a thorough analysis of your existing plan. This column will address some of the things that should be reviewed.

1. What is the purpose of your retirement plan?

Sounds like an obvious question, right? But it isn't. That's why it's important to look over any plan documents that might describe what needs your plan was designed to meet. Your plan should seek to find the middle ground between giving you the best value and keeping costs appropriate.

2. Assess your retirement program design

Once you know how your plan was supposed to work, it's time to do a systematic review. Is your plan document out of date? Does it meet your goals? Are there new "extras" now available to you that weren't available when your plan was initiated? Are there new ways to help minimize fiduciary responsibility? Are the investments currently available still appropriate? As fiduciary, you should monitor your plan regularly to make sure it keeps pace with the industry.

3. Understand your options

Retirement plans have lots of moving parts to track. Are you aware of any changes in asset allocation theory? Have plan costs increased significantly since it was put into place? Do you foresee, or have you been informed of, further cost increases? Has your plan grown in size, possibly allowing a reduction in cost?

4. Review committee roles and responsibilities

It's time to take a look at your own role and the role of your co-workers in your plan. What processes do you use to make plan-related decisions? Are they prudent in light of Internal Revenue Service (IRS) guidance? Have decisions been made solely in the interest of plan participants? Is the process efficient, and does it work? Are there members of the committee who are too busy to put in necessary time to make prudent plan decisions? What past decisions have been made about important plan design topics like investment options and plan responsibilities?

5. Administration practices and procedures

Don't wait for an IRS or DOL audit to tell you what changes need to be made to your plan. Do your best to ensure that your plan is working the way it should. Are company contributions being deposited and invested in a timely manner? Are new participants being appropriately educated on how to use their plan? Are you passing annual non-discrimination testing?

6. Costs

America's belt has tightened. The costs of retirement plans have gone up for many employers. Administrative and recordkeeping costs have probably gone up. Sometimes the fees mirror fees at other companies. But sometimes they do not.

7. Make a Move

It's easy to be intimidated by all you have to do to update or improve your retirement plan. But this is one circumstance in which procrastination should be avoided. If your plan was created more than two years ago it should be reviewed and your preliminary research will most likely reveal that. Plan sponsors often design their retirement plans to accomplish business objectives -subject to the Internal Revenue Code's tax qualification rules. However, once designed and established, retirement plans must be operated for the exclusive benefit of the participating employees. This means getting your plan evaluated regularly, and acting on the information you find in a timely manner.

This article was written by Richard Rowehl, AIF®, Executive Director, Retirement Services Department with Oppenheimer & Co. Inc. and submitted by Michael Israel Director, Investments from the Katz Israel Katz Private Client Group of Oppenheimer & Co. Inc. His opinions do not necessarily reflect those of the firm. This article is not and is under no circumstances to be construed as an offer to sell or buy securities. The material herein has been obtained from various sources believed to be reliable and is subject to change without notice. Oppenheimer & Co. Inc. does not give legal or tax advice. However, our Financial Advisors will work with clients, their attorneys and tax professionals to ensure all of their needs are met and properly executed. For more information, please contact your Sobel Company relationship manager or Michael Israel at (973) 245-4625.

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