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R&R Insurance Blog

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Your 401(k) plan’s investments.  Are you paying attention?

Posted by the knowledge brokers

When you made the decision to set up your company’s 401(k) retirement savings plan, you carefully considered the investment options that your plan provider had available.  Your choices were likely based upon factors such as management style, historical performance, the types of asset classes necessary to offer true diversification, and the underlying investment costs to your employees. 

Now, when was the last time that you went back and looked at them again with that type of scrutiny? 

Well, if it was within the last year, and your process was thorough and documented, you are likely in good shape.  But if it has been two years or more since your last analysis, you are creating a risk that must be addressed.  As is true in so many areas nowadays, even the best intentions can create litigation risk when proper due diligence and procedures are not consistently followed.  What are the primary risks?

  • Under-performance - Investment performance and rankings are always changing. Are the “top rated investments” that you originally picked still at the head of their class, or are they now lackluster shadows of what they once were?
  • Unreasonable Costs - Are the investments that are offered cost effective as compared to their peers, or are you effectively forcing employees to utilize options that are now expensive as compared to other readily available options?
  • Failure to Monitor - Within actively managed funds, investment managers at times tend to stray from their original investment goal. This “style drift” can result in stronger investment performance when effectively managed, but a failure to monitor these changes can create a lack of diversification and heighten investment risk.
  • Excessive Proprietary Investment Use - Has your plan made substitutions in their offerings leaving your employees with fewer independent investment options, and a slate of proprietary offerings that are more generous to the investment management firm than to your employees.

Any one of these issues, combined with a disgruntled employee, could be enough to trigger civil or class action litigation.  The good news, however, is that there are effective ways to protect your company and your Plan Fiduciaries.

Has your Plan Advisor prepared and presented to you a full review of your company’s 401(k) Plan within the last 18 months?  If they have not, you should be asking why.  And if they are not, let us know and we would be happy to do so.

At R&R we are specialists in helping to protect you against risk, and to work with you to mitigate your risks as you grow.  Our in house Retirement Plan specialists are available to provide a complete review of your company’s Employer-Sponsored Retirement Plan, and to help you to understand what risks are present and how you should be working to address them.  There is no cost for this review service, and it requires only a modest investment of time and effort on your part.

You have the option to either work from the belief that your Retirement Plan is in good shape, or you can know for certain that it is.  Give us a call and let us provide you with greater peace of mind.  It’s what we do at R&R.

Topics: Wealth Management

Avoiding a DOL Audit with 401(k) Fidelity Bond

Posted by the knowledge brokers

Audit.  The word alone is enough to give most Americans chest pain.  And while most equate the term with their personal income taxes, business owners and senior managers are also aware that the US Department or Labor can inflict an adverse reaction to their health with the word as well.  As such, it only makes sense to run your business in a manner that keeps you in the good graces of the DOL, and doesn’t raise any red flags.  Right?

Most would likely agree with that, and yet every year as we meet with our clients or new prospects we are surprised to see just how many companies are unknowingly leaving themselves at risk of triggering a DOL audit.  And it’s especially frustrating given how cost effective and simple the fix is.

As a company that provides a 401(k) plan to its employees, you are a Fiduciary and while that duty covers various aspects, none is more fundamental than protecting your employees’ assets against Fraud, Theft, or other acts of dishonesty.  This is such a fundamental tenet that the Employee Retirement Income Security Act of 1974 (ERISA) mandates that certain individuals who are responsible for the day-to-day administration of your 401(k) plan must be covered by Fidelity Bond.  Some basics:

  • All 401(k) plans require a Fidelity Bond, with the notable exception of Solo 401(k) Plans
  • A Plan’s Fidelity Bond is designed to bond each official tied to the Plan, and must be sufficient in size to bond each official for an amount of no less than 10% of the funds that they handle as of the first day of the Plan year (subject to a $1,000 minimum)
  • Generally no plan is required to bond an amount higher than $500,000, however that cap increases if a plan holds Employer Stock
  • Special rules also apply for plans that hold “non-qualifying assets” such as real estate or Limited Partnerships

Do you know if your plan is sufficiently bonded, or are your running the risk of facing a plan audit by the Department of Labor?  If you are uncertain, there is good news.  As your trusted partner in risk protection, R&R Insurance has the in-house resources and talent to help you to determine whether or not you are at risk for an insufficient 401(k) Plan Fidelity Bond, and the ability to help you correct it in a timely manner.  While this should be a primary discussion point at every single plan review meeting that you have with your 401(k) Plan Advisor, it too often is missed.  Don’t let a complacent plan advisor put you, your Plan Trustees, or your company at risk.

If your plan provider is NOT being proactive in helping you to make your 401(k) offering the most effective plan for your employees that it can be, contact your R&R Insurance Agent and let them know.  We have Professionals in the Insurance and Wealth Management areas who look forward to meeting with you to review your plan and provide specific guidance as to how to improve your plan and safeguard it against risk.

You made the commitment to provide the tools that your employees need to be successful, now let us put you in contact with the team that will provide the value that you should expect.

Topics: Wealth Management

Improving Your 401(k) by Increasing Your Employee Participation

Posted by the knowledge brokers

As an astute employer, you make investments in your employees in many ways.  You hire the best people that you can find and compensate them fairly.  You train them to excel at their position and to grow into new roles with greater responsibility.  And when you make the decision to invest the time and resources to offer them a high-quality retirement plan you are investing in the platform that will help them to build a lifetime of financial security. 

Few things though are more frustrating than when the employees that most need to work to build that security choose not to do so.  Compounding this frustration is that a lack of participation across your workforce can also create problems with your retirement plan’s non-discrimination testing at the end of the year, which can create an adverse result for those employees that are actively using the plan. 

When this issue arises in plans, there are a few steps that are recommended to help motivate and guide your employees to taking full advantage of the benefits that you have put into place.  Among them are:

  1. Automatic enrollment of all employees into your plan. According to data provided by Vanguard’s small plan division, employee participation increased from 57% to 82% by simply defaulting employees into a plan, as opposed to waiting for them to enroll.
  2. Automatically increasing deferral rates on an annual basis is one way to take employees from a relatively modest deferral to a healthy, meaningful contribution over time. After all, it’s great to have employees contribute 3% of their pay as compared to nothing, but a deferral rate that remains stagnant over time will likely not be sufficient to help your employees retire comfortably.
  3. Making it easier for employees to increase their deferral rates as their financial situation improves is one of the surest ways to help employees them do so. Rather than filling out new forms and offering limited time windows to make changes, your platform should be set to offer your employees the opportunity with a few clicks of a mouse.  This is especially true for employees that see variances in their income from month-to-month or as a result of production incentives.
  4. There is no substitute for quality education. How often does your plan provider spend time with your employees to help them to understand the opportunity that they have in plain, easy-to-understand language?  And does your plan advisor make themselves available in a way that encourages your employees to take responsibility for their future, or do they inadvertently dissuade them by them by being hard to reach?  Do not let a complacent provider diminish the value or your plan with poor service.

These are just a few of the different techniques that can be implemented into an existing plan to provide the encouragement that your employees need to get started, or to ramp up their efforts.  If your plan provider is NOT being proactive in helping you to make your 401(k) offering the most effective plan for your employees that it can be, contact your R&R Insurance Agent and let them know.  We have the Wealth Management talent and resources in-house who look forward to meeting with you to review your plan and provide specific guidance as to how to improve your plan.

You made the commitment to provide the tools that your employees need to be successful, now let us put you in contact with the team that will provide the value that you should expect.

Topics: Wealth Management

Corrective Distributions:  Upsetting your Key Employees

Posted by the knowledge brokers

Businessman looking for connection between two things while standing in front of a wall

It’s the phrase that no HR Manager or CFO wants to hear, “The retirement plan failed it’s Non-Discrimination Testing.”  For your management team it means extra work, and perhaps fines and excise taxes, but it has an even bigger downside.  You now have angry key employees who could begin to search for perceived greener pastures.

In the first fiscal quarter of every year, every company that offers a 401(k) plan to their employees is required to file documents and undergo mandatory compliance testing.  These “non-discrimination tests” are in place to ensure that a company’s retirement plan is fair to all employees, and not just those who are highly compensated.  For purpose of clarity, an employee is considered a Highly Compensated Employee (HCE) if they made more than $125,000 per year (in 2019) OR own at least 5% of the company.

What happens when your plan fails its test, and needs to be corrected?  The short-term corrective measure is to work with your plan provider to calculate the amount of money that your HCE’s have “over contributed,” and then the plan sends checks back to them for that amount.  While the company can face potential fines or excise taxes, the bigger concern for HR Directors is the backlash from the highly compensated folks who are about to receive their money back.  Why are they so upset?

  • If the funds were deferred on a pre-tax basis, the correction has now increased the employee’s taxable income for the following year.
  • The amount of “excess contribution” that was returned to your employees has now reduced your employee’s retirement investment base, leaving them with less to work with.
  • Because their income is higher than most, your HCE’s likely cannot build a sufficient retirement asset base solely by maximizing their 401(k) plan contributions. By reducing their contribution limits, it only makes their task harder.
  • Companies that fail this ACP/ADP testing too often fall into a pattern, and this becomes the norm.

But there is good news, this does NOT have to continue.  While you cannot undo the damage to employee morale from the previous year, you can correct the problem for the current year and demonstrate to your key employees that you are always looking out for them.

If your plan provider is NOT being proactive in helping you to make your 401(k) plan the most effective plan for your employees that it can be, contact your R&R Insurance Agent, and let them put you in contact with the in-house Wealth Management team that can make you a hero to your employees.  We are prepared to make a difference for your employees, and to make sure that they know that you are always watching out for their best interests.

Is your 401(k) ready for the CARES Act?

Posted by the knowledge brokers

Retirement written on rural road

When the CARES Act was passed and signed into law on March 27th of this year, it provided employers the opportunity to extend their employees a potential lifeline to navigate the COVID-19 pandemic, and more notably the economic challenges that it presented.  Specifically, these tools included:

  • Increasing the amount that an employee can borrow from their 401(k) plan from 50% of the vested balance, with a $50,000 maximum, to 100% of the vested balance with a $100,000 limit.
  • Making any 401(k) loan tied to COVID-19 interest free if paid back within five years.
  • Allowing hardship withdrawals to COVID-19 affected employees younger than age 59 ½ without the standard 10% federal premature withdrawal penalties (state tax codes should be reviewed).
  • Allowing employees to repay any hardship withdrawal distribution within a three-year period to avoid creating a taxable event.

These are unprecedented opportunities for employees that have been hit by COVID-19 circumstances, but there is one key stipulation.

In order for an employee to benefit from these provisions, their employer’s ERISA qualified plan must have a plan document that allows these benefits.  Until March 27th there would have been no reason for them to be listed in a plan, and as such they were not.  At this point, every retirement plan provider should have proactively reached out to every company with an employer-sponsored plan and recommended, or at very least initiated, an amendment to the plan to help their employees.

Has your retirement plan provider contacted you and taken the steps necessary to make your plan CARES Act ready?  If they haven’t, why?  While the deadline for employers to make amendments is generous, your employees only have until September 23, 2020 to take advantage of the loan provisions of the CARES Act, so every day counts. 

If your plan provider is NOT helping you to make your 401(k) plan the most effective plan for your employees that it can be, contact your R&R Insurance Agent, and let them put you in contact with the in-house Wealth Management team that can make you a hero to your employees.  We are prepared to make a difference for your employees, and to make sure that they know that you are always watching out for their best interests.

Delivery Drivers Insurance During COVID-19 Health Emergency

Posted by the knowledge brokers

deliver driver

Personal lines automobile policies do not typically provide coverage for vehicles used for commercial purposes, like food delivery. As a result, in the absence of any other action, many of the anticipated temporary food delivery drivers would be uninsured.

However, it would be impractical and untimely for these drivers to temporarily obtain coverage for this limited purpose. Therefore, the Office of the Commissioner of Insurance (OCI) orders that Insurers shall not deny a claim under a personal auto policy solely because the insured was engaged in delivering food on behalf of a restaurant impacted by the restaurant closure.

This order shall apply to all personal auto policies in effect on or after March 17, 2020, and shall apply to all claims that arise from an occurrence beginning on March 17, 2020. This order shall remain in effect until the public health emergency order is lifted, in whole or in part, to permit restaurants to resume normal operations.

This coverage is not required to be afforded to drivers who otherwise have coverage for deliveries through their personal policy or another policy. This coverage also does not apply to drivers working for a transportation network company or similar delivery company. This coverage is only afforded to delivery drivers who do not have such coverage and this coverage does not stack with any coverage that is currently afforded.

Hired and Non-owned Auto Coverage

It is common for restaurants who employ delivery drivers who use their own car to obtain hired and non-owned auto coverage for liability incurred by those drivers. This is often offered as a rider to a commercial general liability policy. Since many of the restaurants who may begin delivery services did not anticipate the need for this coverage, it is likely that their commercial general liability policy will not include a hired and non-owned auto coverage rider. OCI further believes that it would be impractical and untimely for these restaurants to shop for coverage that includes coverage for non-owned autos.

For these reasons, all insurers who provide commercial general liability coverage to a restaurant to notify their restaurant insureds that hired and non-owned auto coverage is available if requested. If the insured restaurant requests hired and non-owned auto coverage, the insurer shall, either through a rider or stand-alone policy, provide this coverage to any insured restaurant.

This order shall apply to all commercial general liability policies in effect on or after March 17, 2020. The coverage afforded shall be effective upon the date it is requested. Insurers who offer retroactive coverage may request that the insured certify that they have not incurred any potential claims in the period of retroactive coverage. This order shall remain in effect until the public health emergency order is lifted, in whole or in part, to permit restaurants to resume normal operations.

Have questions?  Talk to your agent or contact a KnowledgeBroker.

Topics: Personal Insurance

The Basics of Business Income Insurance

Posted by the knowledge brokers

business interruption insurance

Also commonly referred to as "business interruption insurance", business income insurance covers lost income when your business must shut down due to a covered loss: fire, theft, wind.  Many business owners fail to think about how they would manage if a fire or other disaster damaged their business so they were temporarily out of work.  A few simple calculations can provide the information needed to purchase the proper coverage for an unforeseen loss.

Business Income protection is not like a $1,000 auto deductible.  The impact of BI is extremely important on the business.  A number of companies are out of business in 12-18mn due to a loss.  Many of these companies do not survive due to the financial loss incurred.We ask our customers: How was your BI coverage determined?  "Well, a while ago we had some formula..." or  "I have never filled out a Business Income worksheet..."

Many people think "oh no, the dreaded BI worksheet!"  But it doesn't need to be.  Many of our insurance company partners have a simple online application that will provide a single page summary.  We also have in-house experts that can help you identify the data needed and walk you through the process of completing the worksheet. 

Basic Business Income Worksheet Data Points

Business Income coverage includes, but is not limited to:

  • Gross revenue minus non-continuing expense
  • Cost of materials
  • Ordinary payroll
  • Coverage for anticipated duration of loss
  • Extra-expense limit

90% of the time "agreed amount" is missed. Why is the agreed amount so important?  It waives the coinsurance clause on the specified property. As long as this endorsement is in effect, there would be no coinsurance penalty at the time of a claim.

Additional Consideration to Business Income Coverage: Extended Indemnity

Business Income coverage ends once a business is back to operating.  However for many companies, they are not operating at 100% on Day 1. Extended Indemnity will provide extra buffer until fully operating.

For example: after a business has been down for 6 months and they're able to begin operating but at 20%, the Business Income coverage ceases.  In steps Extended Indemnity to help cover the non-operating 80% until the business is fully up and running again at 100%.  Depending on the insurance company, this extra buffer range from 30 days, 90 days, 365 days, or beyond.

You've worked hard for all that you have.  Be sure to reduce your risk and protect your lost income due to unforeseen losses.

 

Managing the Increase of Commercial Insurance Prices

Posted by the knowledge brokers

Business Man Stopping Falling Dominoes

You can't open a publication these days without hearing about rising insurance prices.  As discouraging as this is to your wallet, perhaps some insight on WHY this is happening will make it a little more tolerable.

Pricing continues to be impacted by increased litigation around social events relating to #MeToo, cyber breaches, social media and safety.  According to a Q4 2019 Market Scout report,
  • D&O increased 8.25%
  • Commercial auto increased 8%
  • Property prices rose 5.25%
  • Excess liability rose an average of 5.5%
  • Workers compensation decreased an average 1% in Q42019, continuing a downward trend for the year

The Wall Street Journal article, is citing several factors accounting for the rising prices:

  • Several years of large catastrophe losses
    • The current price increases are partly due to hurricanes, wildfires, and other catastrophes of 2017 & 2018 that cost the global industry more than $200 billion
    • During periods without catastrophic claims, you'll generally see lower insurance prices.  Following large natural disasters or other big losses, you'll generally see a rise in prices or reduction of exposure to certain risks.
  • Continued low interest rates
  • Non-catastrophe claims
    • Property losses from building fires and mechanical breakdowns have increased
  • Social-inflation have increased liability-insurance claims
    • There is a greater tendency to sue insurers and for juries to hand out higher rewards

What can be done?

The good news, according to Insurance Journal: you can take a proactive approach to gaining control over your risk management program.  By creating long-term plans it helps to see where to make investments in the overall risk - not just the rising cost of premium, but also risk improvements and funding higher deductibles for the long term.  Having the additional resources from a safety and loss control standpoint advising you along the way will help your overall strategic goals. 

In today's market, properly managing loss control and mitigating exposures can make the most impact in total cost of your risk management program.

The Rise of Auto Insurance Rates in the Modern Age

Posted by the knowledge brokers

Car with coinsDespite slight declines in accident rates, auto insurance rates have been on the rise for the past decade.  American car insurance rates have risen 29.6%, outpacing inflation and the increase in average car prices.

According to an article by Wired, a few culprits are to blame:

  • Vehicle theft is rising
  • Extreme weather, fueled by climate change, can destroy cars in a shorter amount of time
  • Hurricane Harvey wrecked close to 1 million cars in 2017

The biggest culprit in rising auto insurance rates: the newer technology features within the cars themselves.

The reason: the sensors that power the systems make cars much more expensive to fix when they do crash.  Dent a steel bumper and a couple hits of a hammer will fix the issue.  Dent a bumper on a newer vehicle and it could mean repairing or replacing a camera, a radar, and ultrasonic sensors.  And then have everything calibrated!

Those who pay for blind spot warning, driving alertness monitoring, lane departure warning, night vision, or parking assistance systems may not actually save anything, depending on the insurance company.

Not to be overlooked, other leading causes of higher auto insurance costs:

  1. Shift from halogen to carbon fiber.  It's lighter and stronger than steel or aluminum, but when damaged needs to be replaced.  In general, the cost of repairs has risen 5% to 6% annually since 2015, however frequency of crashes has dropped by 2% to 3%.  The gap explains the steep rise in rates.
  2. Distracted driving. Smartphone use has risen from 35% to 81% in the past decade and have accounted for more than two-thirds of crashes.  Inattention behind the wheel has been blamed for the recent rise in traffic fatalities among pedestrians.  Insurance companies have responded by increasing rates for smartphone violations by as much as 23% year-over-year.

On the bright side, these higher rates may not last.  As mechanics learn to replace and calibrate sensors and as the prices of parts begin to fall, repairs should get cheaper.

No More Reminders | Wisconsin Contractors Premium Adjustment Program (WCPAP) Credit

Posted by the knowledge brokers

Effective 2/1/2021, the Workers Compensation Rating Bureau (WCRB) will no longer issue courtesy postcard reminders to employers eligible to file for the Wisconsin Contractor's Premium Adjustment Program.

Read the full Circular Letter from the WCRB

WCRB will mail an orange WCPAP postcard notification to complete the WCPAP Online Application for one more renewal cycle (fiscal year 2020). 

Beginning with policies effective 7/1/2021 eligible employers should create their own reminders to complete their WCPAP Online Application every year. 

REMINDER: employers must submit a WCPAP Online Application every year, no less than 90 calendar days prior to the first day of the month of their worker’s compensation policy renewal.  The WPAP Online Application is updated every year on the evening of September 30th.  Therefore, you may complete this online application as soon as October 1st, regardless of your policy effective date.

Policies Expiring

WCPAP Online Application Deadline*

January

November 2

February

  November 3

March

  December 1

April

  January 1

May

  January 31

June

  March 3

July

  April 2

August

  May 3

September

  June 3

October

  July 3

November

  August 3

December

  September 2

*Updated as of January 2020 - dates subject to change

 

Topics: Construction