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The United States Department of Housing and Urban Development (HUD) signed the Housing Opportunity through Modernization Act (HOTMA) into law on July 29, 2016. For multifamily housing owners, HOTMA went into effect on January 1, 2024, and owners are expected to be fully compliant by January 1, 2025.

Keep these key dates in mind to ensure you are HOTMA compliant:

By March 31, 2024

  • Update Tenant Selection Plans and make sure plans are publicly available
  • Revise Enterprise Income Verification (EIV) policies and procedures to reflect HOTMA rules

Note: While HOTMA-compliant Tenant Selection Plans and EIV policies and procedures need to be in place by the end of the first quarter, owners need to continue to follow existing Tenant Selection Plans and EIV policies and procedures until their software is HOTMA compliant.

During 2024

You must take action to make sure your software is HOTMA compliant, at which point you will need to:

  • Notify tenants at least 60 days before the end of their lease term that their lease will be modified at the end of the 60-day notice period. Once notice has been given, you can begin using the revised Model Leases when a family’s lease term expires.
  • Apply Revised Tenant Selection Plans and EIV policies and procedures that were drafted to comply with the March 31, 2024, deadline.
  • Make sure families understand how HOTMA will impact their income determinations and let families know that their income determination will be conducted with the HOTMA final rule before their first reexamination under HOTMA as tenant data submissions need to follow HOTMA regulations.
  • You will be expected to use the updated Tenant Consent form, which is form HUD-9887/9887A

You must be fully compliant with the HOTMA final rule by January 1, 2025. To aid with implementation, HUD has created a resource page for multifamily housing owners that addresses the core principles to consider throughout implementation.

At BerryDunn, we understand that affordable housing organizations are unique and dynamic organizations with specific challenges and opportunities. Our commitment to specialization provides our clients with a team of specialists who understand the complex accounting, regulatory, and tax issues of affordable housing organizations. Please reach out to us if you have any questions about HOTMA compliance.

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HUD compliance for multifamily housing: 2024 HOTMA deadlines

This article is a condensed version of our in-depth resource Seven well-being focus areas for a resilient workforce. Download the full report, which includes additional considerations, key takeaways, and real-world best practice examples.

Employee perspectives on well-being are constantly shifting, as are their expectations from employers. To stay competitive in the recruitment and retention of employees, employers need to stay abreast of the current well-being trends—the ones that have the potential to move the needle in creating a thriving, healthy workforce. We’ve identified and analyzed the top seven trends for 2024 that should be top of mind for employers as they think about the future evolution of their well-being strategies.

Ongoing focus on mental health and resilience

Employers can play a pivotal role in cultivating an environment that benefits the mental well-being of all employees. And just as exercising and healthy eating benefit everyone (not only those with a physical health diagnosis), programs, resources, and cultures that cultivate mental well-being can help improve overall workforce resilience. For example, an environment where there is little to no stigma around mental health challenges and where supervisors and peers respect and openly support mental health self-care will better withstand the inevitable ups and downs that every employee and workplace will experience.

Modernizing financial well-being

Financial well-being begins with a fair and competitive salary. Fair and competitive needs to account for a variety of factors—including pay equity, cost of living, health insurance affordability, and executive pay ratios. Additionally, organizations should be providing employees with the resources, education, and benefits to help manage debt levels, save for the future, and cope with financial stress.

Some ways employers are addressing these needs include expanding benefits to include personalized financial counseling, credit/debt counseling, or implementing new incentives to encourage positive financial decisions. Other popular considerations relate to easing the burden of childcare expenditures and student loan repayment. For example, the SECURE 2.0 Act allows employers to match 401(k) contributions with employee student loan repayment (among other things). For organizations where pay is a known concern, it may be time to conduct a more in-depth compensation analysis to understand gaps in employee total rewards. https://www.berrydunn.com/news-detail/secure-20-act-of-2022-introduces-key-changes-for-workplace-retirement-plans

Telling the well-being story as part of the employer brand

An employer brand is how employees and job candidates experience an organization’s mission, values, and workplace norms. Workplaces that lead with a visible emphasis on shared values (versus policies and rules) cultivate trust and belonging. Well-being programs can bring organizational values to life—particularly those related to trust, excellence, collaboration, diversity, integrity, authenticity, and work-life harmony.

Consider the existing programs, benefits, and resources as different building blocks of an organization’s well-being story. Cataloging these elements by well-being dimension (e.g. physical, mental, social, financial, and career) and by employee persona (e.g., stage of life, dependent responsibilities, nature of work responsibilities, work environment) can help build a compelling story while also revealing gaps in the well-being strategy.

Download the full report, including key takeaways and best practice examples.

Connecting well-being with other “good for business, good for people” initiatives

Leaders across industries are seeing the business case for organizational strategies around a range of topics, including employee engagement, Diversity, Equity, and Inclusion (DEI), Triple Bottom Line (e.g., Environmental, Social, Governance [ESG] and Corporate Social Responsibility), upskilling, and organizational resilience. While each topic warrants some unique considerations and tactics, there is much opportunity for coordinated initiatives that support multiple goals.

Positioning humans for success in an AI-enabled, not-so-distant future

Generative Artificial Intelligence (AI) was fresh on the scene in 2023 and is already on a fast course to disrupt many aspects of business and work as we know it. From AI-powered personal assistants to chatbots that will write programming code, articles, and resumes, many employees are looking for ways AI can save time or eliminate undesirable tasks, while leaders are looking for opportunities to increase productivity.

AI is coming in hot and presents both risks and opportunities for well-being. Organizations should be looking for ways AI can improve both personal and professional well-being for employees—alleviating aspects of work that do the least for our well-being and augmenting aspects where humans thrive.

Flexibility still in flux

Finding the right flexibility approach is key. Multiple surveys conducted in the last six months indicate return to office results have been mixed. Many leaders have not seen the hoped-for productivity gains and many have lost more employees than expected in the transition. Flexibility is not a one-size-fits all solution, regardless of industry, size, location, or workforce demographics. The best flexibility models will balance performance management with a culture that promotes belonging, development, and trust. To find that balance, organizations will be well-served to take the time to evaluate the needs of their workforce, the needs of their business, and their capability to withstand, support, and manage different flexibility models.

Recalibrating physical wellness

While employers have limited control over personal well-being behaviors (and rightly so), there are steps organizations can take to set up employees for positive health outcomes. Free or low-cost healthy food, yoga classes, on-site fitness centers, and gym membership reimbursements are all fantastic benefits that will resonate with many employees and will also help set a tone that your organization values health. However, think of these as added perks. Most employees want to make healthier choices. It is not the organization’s responsibility or prerogative to convince them to be healthier, but an organization can take steps to make the healthiest choice the easiest and/or most affordable choice. The best way for an organization to support physical well-being is to remove barriers.

While it may be unrealistic to address all seven topics for your workforce, the key to being successful in 2024 is to take a holistic approach to well-being in the workplace. Leaders who recognize well-being’s broad impact and connection to other initiatives, and employ a strategic approach that considers how culture, programs, resources, and benefits work together, will be best positioned in creating a thriving workforce.

Download the full report, including key takeaways and best practice examples.

About BerryDunn's well-being consulting practice

BerryDunn partners with organizations to create work environments where business success and personal growth coexist, and where people are confident knowing their workplace positively contributes to their physical, mental, financial, and social well-being. We take a detailed approach to well-being, considering the whole person and the work environment to design well-being programs that are inclusive, equitable, and integrated into the way people work. Learn more about our well-being team and services. 

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What's trending in workplace well-being in 2024?

The Department of the Treasury and the IRS on December 14 issued proposed regulations to implement the advanced manufacturing production credit introduced by the Inflation Reduction Act under Internal Revenue Code Section 45X. 

Section 45 X provides eligible taxpayers a tax credit for the US production of eligible components related to clean energy technologies.

The IRS on October 24, 2022, had requested comments on issues arising under Section 45X, and received over 300 public comment submissions. 

The proposed regulations aim to provide clarity for eligible taxpayers seeking to claim the credit. Several key issues raised by industry and stakeholders that were addressed by the proposed regulations are discussed below. 

Production activity

One of the key requirements of the Section 45X credit is that the taxpayer must produce the eligible component. However, Section 45X does not provide a description of the level of activity necessary for a component to be considered “produced by the taxpayer.” The proposed regulations provide greater clarity on the required activity for a taxpayer to meet the production requirement. 

According to the proposed regulations, the term “produced by the taxpayer” generally refers to a process conducted by the taxpayer that substantially transforms constituent elements, materials, or subcomponents into a complete and distinct eligible component. This transformation must result in a functional difference, going beyond mere assembly or superficial modification. 

Partial transformation that does not lead to substantial transformation of the constituent elements, materials, or subcomponents into a complete and distinct eligible component is not included in the definition of “produced by the taxpayer.” To illustrate this concept, the proposed regulations provide an example whereby a taxpayer is ineligible for the Section 45X credit because it produces only a portion of an eligible component, but not the entire eligible component. 

Additionally, minor assembly of constituent elements, materials, or subcomponents, or superficial modification of the final eligible component, does not qualify as "produced by the taxpayer" unless the taxpayer also engages in the process resulting in substantial transformation. The proposed regulations provide several examples to illustrate cases whereby a taxpayer engaged in mere assembly or superficial modification is ineligible for the Section 45X credit. 

The proposed regulations do provide a special rule for solar grade polysilicon, electrode active materials, and applicable critical minerals, as “produced by the taxpayer” in these cases means processing, conversion, refinement, or purification of source materials, such as brines, ores, or waste streams, to derive a distinct eligible component.

Contract manufacturers

Taxpayers often utilize contract manufacturers to produce various components used in their trade or business, but before the proposed rules were issued, it was unclear which party may claim the Section 45X credit in scenarios involving eligible components. Stakeholders wondered if the IRS would adopt an approach similar to that used for other tax credits and deductions that follows the rights and risks associated with the arrangement. 

The proposed rules provide that in contract manufacturing arrangements of eligible components, the parties may determine by agreement who may claim the Section 45X credit. The IRS will not challenge such agreements provided all parties execute valid certification statements. Taxpayers should be careful, however, in scenarios where a contract manufacturer produces an eligible component for the taxpayer’s use. Because there is no sale of the eligible component (i.e., the contract manufacturer produces an eligible component for the taxpayer’s use), no Section 45X credit may be generated in those scenarios. 

Unrelated person sales requirement

The Section 45X credit is generally generated at the point of sale of the eligible component to an unrelated person. The proposed regulations adopt the definition of the term “related person” used in Section 52(b). Note, however, that the unrelated person rule may be satisfied by a sale to a related person who subsequently sells the eligible component to an unrelated person. In such cases, the Section 45X credit may be claimed at the point of sale to the unrelated person. 

This paradigm is also applicable when a taxpayer produces and sells an eligible component to a related person who integrates, incorporates, or assembles the eligible component into another eligible component. In such cases, the taxpayer may claim the Section 45X credit when the related person’s sale to the unrelated person occurs. To alleviate the administrative burden of tracking when the subsequent sales occur, taxpayers may use the Related Person Election as outlined in Section 45X and clarified in the proposed rules. 

With a Related Person Election, a taxpayer may treat the sale of an eligible component to a related person as if made to an unrelated person. The election applies to all sales of eligible components by the taxpayer to the related person during the taxable year with respect to that trade or business. The Related Person Election can also accelerate when a taxpayer may claim a Section 45X credit, as they do not need to wait until subsequent sales by other persons. 

Anti-abuse concerns

Recognizing the value of the Section 45X credit and potential for abuse, Treasury and the IRS provide robust anti-abuse provisions in the proposed rules. In some cases where the cost of producing certain eligible components is less than the amount of Section 45X credit available to produce those eligible components, the Treasury and the IRS expressed concerns over incentivizing taxpayers to produce eligible components solely for the purpose of claiming the Section 45X credit rather than for productive use. 

If the facts and circumstances lead the government to believe that a taxpayer’s primary purpose in producing an eligible component is wasteful, the Section 45X credit may be disallowed. In that case, excessive payment and excessive credit transfer penalties may also apply. Specifically, the Treasury and IRS present an example whereby a taxpayer may be motivated to produce and sell eligible components to both related and unrelated parties in order to claim the Section 45X credit, understanding that neither party plans to resell or use the eligible components, utilizing accommodation fees to facilitate the transactions. 

The Related Person Election is not available to taxpayers that utilize the election to sell components to related parties that plan to put the components to improper use or if the components were inherently defective, because they cannot be used for their intended purpose as an eligible component. 

The government is similarly concerned about scenarios where the Section 45X credit exceeds the cost of production, which could incentivize behavior that goes against the intent of Section 45X. To address this concern, the Treasury and the IRS added an anti-abuse provision to the proposed regulations that would recognize that the Related Person Election may remove an important safeguard and that selling to an unrelated party would mitigate the risks in those scenarios. 

Costs incurred by the taxpayer

The Section 45X credit is generally calculated by multiplying the volume or amount of eligible components by a predetermined credit amount. For electrode active materials and critical minerals, however, the Section 45X credit is instead calculated as 10% of the costs incurred to produce the eligible component. Note that in some cases, such as with lithium carbonate, a material may be both an electrode active material and a critical mineral, and the taxpayer may elect to claim the Section 45X credit for either category, but not both. 

Section 45X does not specify what is included in the costs incurred by the taxpayer for purposes of calculating the Section 45X credit. The proposed regulations, unsurprisingly, follow the Section 263A rules to determine includable production costs. However, for both electrode active materials and critical minerals, direct materials costs, indirect materials costs, and costs related to the extraction or acquisition of raw materials are excluded from production costs. 

Treasury and the IRS provide an explanation for these exclusions, stating that their intention is to appropriately credit value-added activities involved in the production of electrode active materials and critical minerals. While purchasing raw materials may enable a taxpayer to produce the eligible component, it is not considered an activity that adds value on its own. Therefore, only the costs associated with production activities that add value to the eligible component, conducted by the taxpayer producing the component, are considered for the 10% cost incurred amount for the Section 45X credit.

Treasury and the IRS also express concerns in the proposed regulations about potentially duplicating costs for multiple credits in cases where an electrode active material or critical mineral is later incorporated into another electrode active material or critical mineral. They invite comments on whether costs for extraction and other similar value-added activities in raw material production should be included, provided that these costs can be effectively administered by the IRS while addressing the government's concerns about cost duplication.

Other highlights from the proposed regulations include: 

  • The sale requirement may be met with an end product that is not itself an eligible component (such as an electric vehicle), as long as an eligible component is sold as part of that end product.
  • Production of eligible components may have begun before the effective date of the Section 45X credit, as long as they are completed and sold after December 31, 2022.
  • The proposed rules distinguish between 48C and 45X facilities for operations that may seek to claim both credits.
  • The regulations provide definitional clarity on eligible components and critical minerals.
  • A certificate of analysis (COA) requirement is introduced to document critical minerals.

Next steps

Before the proposed regulations are adopted as final regulations, the IRS and Treasury will consider any comments regarding the notice of proposed rulemaking that are submitted to the IRS by February 13, 2024. A public hearing has been scheduled for February 22, 2024.

Written by Jesse Tsai, Gabe Rubio and Courtney Sandifer. Copyright © 2023 BDO USA, P.C. All rights reserved. www.bdo.com

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Treasury, IRS release proposed regulations on advanced manufacturing production credit

Read this if you sponsor an employee benefit plan. 

Sponsors of defined benefit and defined contribution retirement plans should keep the following deadlines and other important dates in mind as they work toward ensuring compliance for their plans in 2024. Dates assume a calendar year plan. Some deadlines may not apply, or dates may shift based on the plan sponsor’s fiscal year. 

JANUARY

  • 15 / Fund: Possible fourth quarter 2023 contribution due for defined benefit pension plans.
  • 31 / Action: File IRS Form 945, Annual Return of Withheld Federal Income Tax, by January 31 for non-payroll income taxes, such as taxes withheld by retirement plans, during 2023.
  • 31 / Action: Distribute IRS Form 1099-R to participants by January 31 for 2023 retirement plan distributions.

Best Practice: Plan sponsor should confirm the accuracy of the prior year’s census data to the recordkeeper. This information is used for ADP/ACP testing, among other things.

FEBRUARY

  • 28 / Action: File IRS Form 1096, Annual Summary and Transmittal of US Information Returns, with IRS if using paper transmittal by February 28 for 2023 tax year.
  • 28 / Action: File IRS Form 1099-R in paper format with the IRS by February 28 for 2023 retirement plan distributions.

Best Practice: Review and approve compliance testing results sent by plan administrator.

MARCH

  • 15 / Action: Highly compensated employees who fail the ADP/ACP test for the prior plan year must have refunds processed by March 15 (other than eligible automatic contribution arrangements).
  • 15 / Fund: Partnerships and S Corporations that are not getting an extension must fund employer contributions to receive tax deductions for the prior year.

APRIL

  • 1 / Action: 401(k) plans with publicly traded employer stock that follow Article 6A of the Regulation S-X (SEC format) must file Form 11-K with the Securities and Exchange Commission by April 1.

Note: The IRS “weekend rule” does not roll the April 1 deadline to the next business day if April 1 falls on the weekend or holiday.

  • 1 / Action: Recordkeeper (or other responsible party) completes and files Form 1099-R electronically with the IRS by April 1 for 2023 retirement plan distributions.
  • 1 / Action: April 1 deadline for 5% of business owners and terminated participants who turned 73 in 2023 to receive their required minimum distribution (RMD).
  • 15 / Fund: April 15 possible first quarter 2024 contribution due for defined benefit pension plans (i.e., contribute by April 15 before the weekend, as contribution deadlines are not extended to the next business day).
  • 15 / Distribute: Participants who contributed over 402(g) or 415 limits in the previous year must be refunded the excess amount by April 15.
  • 15 / Action: File PBGC Form 4010, Notice of Underfunding for single-employer defined benefit plans with more than $15 million aggregate underfunding by Monday, April 15.
  • 15 / Fund: C-Corporations and Sole Proprietors that are not getting an extension must fund employer contributions by April 15 to receive tax deductions for the prior year.
  • 15 / Fund: IRA contributions for the prior tax year must be funded by April 15.
  • 29 / Action: Send annual funding notice to participants of single and multi-employer defined benefit plans over 100 participants by April 29.

JUNE

  • 28 / Action: 401(k) plans with publicly traded employer stock must file SEC Form 11-K with the Securities and Exchange Commission by June 28 or file an extension on SEC Form 12b-25.
  • 30 / Action: Highly compensated employees who fail ADP/ACP test for prior plan year must have refunds processed by June 30, if an eligible automatic contribution arrangement (EACA).

JULY

  • 15 / Action: 401(k) plans with publicly traded employer stock that requested a 15-calendar day extension (SEC Form 12b-25) for the SEC Form 11-K must file the SEC Form 11-K with the Securities and Exchange Commission by July 15.
  • 15 / Fund: Possible second quarter 2024 contribution due for defined benefit pension plans by July 15.
  • 31 / Action: File IRS Form 5500, Annual Return/Report of Employee Benefit Plan, and IRS Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, for the 2023 plan year by July 31.
  • 31 / Action: To request an extension of time to file IRS Form 5500, file IRS Form 5558 by July 31.

SEPTEMBER

  • 15 / Fund: If an extension was filed, September 15 is the deadline to fund employer contributions for Partnerships and S Corporations.
  • 15 / Fund: September 15 is the last date to make 2023 contributions for single and multiemployer defined benefit pension plans.
  • 30 / Action: By September 30, distribute the  Summary Annual Report (SAR) to participants if the Form 5500 was filed on July 31.

OCTOBER

  • 3 / Action: Distribute annual notices to participants no earlier than October 3 and no later than December 2, including notices for 401(k) Plan Safe Harbor Match, Automatic Contribution Arrangement Safe Harbor, Automatic Enrollment, and Qualified Default Investment Alternatives (QDIA).
  • 15 / Fund: On October 15, any possible third quarter 2024 contribution due for defined benefit pension plans.
  • 15 / Action: October 15 is the extended deadline for filing IRS Form 5500 and IRS Form 8955-SSA.
  • 15 / Action: October 15 is the extended deadline for filing individual and C Corp tax returns.
  • 15 / Action: If an extension was filed, October 15 is the deadline to fund defined contribution employer contributions for C Corporations and Sole Proprietors.
  • 15 / Action: October 15 to open a Simplified Employee Pension (SEP) plan for extended tax filers.
  • 15 / Action: Send annual funding notice to participants of single- and multi-employer defined benefit plans with 100 or fewer participants by October 15.
  • 15 / Action: October 15 defined benefit plan PBGC Premium filings and payments due.
  • 31 / Action: Single-employer defined benefit plans that are less than 60% funded or are 80% funded and have benefit restrictions triggered must inform participants by October 31 or 30 days after the benefit restriction applies.

Best practice: Make sure administrative procedures align with language in plan document.

DECEMBER

  • 2 / Action: Distribute annual participant notices no later than December 2. These include notices for: 401(k) Plan Safe Harbor Match, Automatic Contribution Arrangement Safe Harbor, Automatic Enrollment and Qualified Default Investment Alternatives (QDIA).
  • 15 / Action: December 15 is the extended deadline to distribute the Summary Annual Report (SAR) when the Form 5500 was filed on October 15.
  • 31 / Action: December 31 is the final deadline to process corrective distributions for failed ADP/ACP testing; a 10% excise tax may apply.
  • 31 / Action: Ongoing required minimum distributions (RMDs) for 5% business owners and terminated participants must be completed by December 31.
  • 31 / Action: Amendments to change traditional 401(k) to safe harbor design, remove safe harbor feature or change certain discretionary modifications must be completed by December 31. Amendments to change to safe harbor non-elective design must be completed by December 1 of the given plan year for 3% or by December 31 of the following year for 4% contribution level.
  • 31 / Action: Plan sponsors must amend plan documents by December 31 for any discretionary changes made during the year.

In addition to those important deadlines and dates, plan sponsors should be aware of the contribution plan limits and other rolling notices for 2024:

  • Traditional and Roth Individual Retirement Account contribution limit is $7,000. Catch-up contributions for participants aged 50 and over is $1,000, which is fixed by law and not adjusted each year.
  • The employee salary deferral limit for 401(k), 403(b) and 457 plans is $23,000. The catch-up contribution limit for participants who are age 50 or older in 2024 is $7,500.
  • Maximum annual additions (i.e., employee deferrals, employer contributions, and forfeitures) that can be allocated to a participant’s defined contribution plan account for 2024 is $69,000.
  • Limitation for the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is $275,000.
  • The dollar amount used to define “highly compensated employee” under Section 414(q)(1)(B) is $155,000.

BEST PRACTICES:

  • Contact your service provider to discuss any required and/or discretionary SECURE 2.0 provisions effective in 2024 to ensure compliance.
  • Make sure discretionary amendments that impact plan design and administration are executed and implemented timely per IRS regulations.
  • Make sure administrative procedures align with language in plan document.
  • Plans may consider doing mid-year compliance testing to avoid failing applicable annual tests.
  • Review and approve compliance testing results sent by plan administrator.
  • Plan sponsor should confirm the accuracy of the prior year’s census data to the recordkeeper. This information is used for ADP/ACP testing, among other things.

If you want to discuss these considerations or have questions about your specific situation, please contact our Employee Benefits team. We're here to help. 

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2024 Deadlines and important dates for plan sponsors

The Centers for Medicare and Medicaid Services (CMS) has temporarily paused the Program for Comparative Billing Reports (CBRs) and Evaluating Payment Patterns Electronic Report (PEPPERs). During this pause, which is expected to end in the fall of 2024, CMS will be improving and updating the program.

The PEPPER summarizes provider-specific Medicare claims data that can be used as a guide for providers to help identify and prevent payment errors and revenue capture opportunities.

For more information, visit the CMS website.

BerryDunn partners with assisted living, skilled nursing, and specialized housing facilities, as well as retirement communities, to optimize their operations. Our senior living experts have more than four decades of experience in helping clients optimize finances, staffing, processes, and technology. Our advisors deliver practical, up-to-date advice for improving operational performance, and can help with issues like high taxes, financial and regulatory compliance, poor cash flow, leadership turnover, technology challenges, and more.  Learn more about how we can help.

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PEPPER temporarily suspended by CMS

Read this if you are in the senior living industry. 

At our recent annual Senior Living Summit, guest speakers, senior living experts, and attendees discussed many topics, updates, and trends in senior living and for the year ahead. Here are highlights from the summit and some considerations for 2024.

National overview

Occupancy trends
The senior living industry has witnessed a gradual and sustainable improvement in occupancy throughout 2022 and 2023. During the pandemic, nursing facilities experienced a significant decline in occupancy, at one point dropping to as low as 67.5%. Fast forward to December, 2023, and the industry has shown remarkable resilience, with overall occupancy averaging 83.1%.

Assisted living facilities displayed an average occupancy rate of 83.4% in December, 2023. This stands in stark contrast to the record low occupancy of approximately 74% witnessed during the throes of the pandemic. The notable recovery in assisted living occupancy indicates a positive shift, reflecting increased confidence in the safety of residents in these facilities.

Similarly, independent living facilities have demonstrated a robust rebound, reaching an occupancy rate of 86.8% in 2023. This is nearly a 4% increase in occupancy since 2021. The resurgence in independent living occupancy emphasizes a growing preference among seniors for communities that offer autonomy while providing a supportive and engaging environment.

These positive trends collectively signify the industry's ability to adapt and recover from the challenges posed by the pandemic. The continuous improvements in occupancy rates underscore the resilience and dedication of senior living facilities in meeting the evolving needs of seniors and restoring confidence among residents and their families.

Demographic evolution and the silver tsunami
As the United States undergoes a demographic shift, the US Census projects a significant milestone: by 2034, older adults (those aged 65 and over) are anticipated to outnumber children for the first time in US history. This impending demographic phenomenon has been coined the silver tsunami, reflecting the rapid growth and increased longevity of the elderly population. However, the challenges associated with this shift extend beyond sheer numbers, particularly concerning the availability of caregivers for the aging population.

The caregiver support ratio, as calculated by the US Census, involves assessing the ratio of individuals aged 45-64 to those aged 80 and over. In 2020, this ratio stood at 6.31, indicating a relatively favorable balance between potential caregivers and the elderly. However, projections paint a concerning picture for the future. By the year 2060, the caregiver support ratio is expected to decline significantly to 2.96. This decline raises critical questions about the sustainability of caregiving resources and the capacity of the healthcare system to meet the increasing demands associated with an aging population.

As the silver tsunami approaches, the pressing concern is who will care for the elderly as their numbers surge and the number of caregivers declines. Addressing this challenge requires a comprehensive approach, involving policy changes, investment in caregiver training and support programs, and innovations in healthcare delivery. Proactive measures are essential to ensure that the evolving demographic landscape aligns with a sustainable and compassionate system capable of providing adequate care and support for the elderly in the years to come. 

Additionally, there may be a need to explore and reevaluate the required caregiver ratio. Shifting the threshold to a lower ratio could become a crucial aspect of adapting to the changing demographics and making sure the aging population receives the necessary care without overwhelming the available caregiving resources. Policymakers and healthcare stakeholders must collaboratively work towards solutions that anticipate and accommodate the evolving needs of an aging society.

Medicare, Medicare Advantage, and Medicaid trends
The trends in Medicaid and Medicare utilization within assisted living facilities reflect a notable shift towards home and community-based care over the years. Since 1996, when a mere 18% of total Medicaid expenditures were allocated for home and community-based care, the percentage has soared to 59% in 2019 (95 billion dollars). In contrast, the share of Medicaid spending on institutional care decreased from 82% in 1996 to 41% in 2019, reflecting a significant transition in care preferences. Acknowledging this shift, 40 states have committed to expanding home and community-based care in 2022, signaling a collective effort to align Medicaid services with the evolving needs and preferences of beneficiaries.

Furthermore, the trajectory of Medicare trends in senior living facilities highlights a growing preference for Medicare Advantage Plans. In 2007, 19% of Medicare beneficiaries were enrolled in a Medicare Advantage Plan, a percentage that rose to 32% in 2015 and 51% in 2023. Additionally, Accountable Care Organizations (ACOs) have become integral in providing care for nearly 20% of all Medicare patients, including almost a third of those under traditional Medicare plans. These trends reflect a broader movement towards flexibility and patient-centered care models within both Medicaid and Medicare, emphasizing the importance of community-based services and the increasing popularity of Medicare Advantage Plans.

Senior living and cybersecurity 
The security landscape for senior living organizations is increasingly complex and poses significant risks that demand attention. As technology becomes more integrated into daily life, senior living homes have become attractive targets for hackers due to the abundance of valuable personal information on their systems and limited resources to invest in robust cybersecurity measures. The average patient room, equipped with 10-15 connected devices, serves as a potential gateway for cyber threats, highlighting the vulnerability of these facilities to data breaches.

The use of technology among seniors has surged, with over 70% utilizing tablets and smartphones, and a growing demand for technology and Wi-Fi in their living spaces. While beneficial for enhancing the quality of life through wearable devices and smart home features, this increased connectivity also amplifies the risk of cyber threats.

It is crucial to recognize that protecting senior living organizations extends beyond physical health considerations. Educating residents about scams and fraud, along with imparting basic IT security concepts, is just as critical. Imposter scams, including those impersonating IRS or Social Security officials, as well as fraudulent activities on online dating sites, rank as the top risks. Seniors represent the most vulnerable targets, reflected by the billions lost annually to scams, making it imperative for senior living facilities to actively engage in educating residents about potential threats.

The Federal Trade Commission (FTC) offers invaluable resources for educating both staff and residents on recognizing and mitigating the risks associated with scams and cybersecurity threats. In an era where technology plays a significant role in senior living, a comprehensive approach that addresses both physical and digital well-being is essential to create a secure and supportive environment for residents.

If you have questions about 2024 senior living trends or your specific situation, please don't hesitate to contact our Senior Living team. We're here to help. 

Article
Senior Living Summit: Outlook for 2024

Read this if you are at a financial institution.

CECL signifies one of the biggest changes to accounting requirements financial institutions have seen in the modern banking environment. While there are many differences between the incurred loss method and the new current expected credit loss model, the new (or increased) reliance on vendors to produce the loss reserve calculation, host the underlying loan-level detail, and maintain other assumptions and data brings significant change—and risk—to many institutions. 

With CECL now fully adopted by all remaining institutions in 2023, and that work currently under review, a theme is emerging across the nation: some financial institutions are placing a significant amount of responsibility in the hands of their vendors. Is it possible to rely on a vendor too much? What are some examples of vendor overreliance, and what might this mean for management and oversight of model risk? 

Overreliance on a vendor may look something like this: Management receives vendor documentation and calculation results and does not perform any type of analysis to verify the outputs or further understand vendor-provided template documents that describe what the vendor is doing to create the calculation. 

In this example, management is using the vendor’s model design, tools, and documentation without evidencing management’s review, analysis, and challenge. Standard vendor documentation may also lack institution-specific decisions or process steps needed to understand the methodology currently in practice. Without customization or analysis, the model may be open to increased risk. For each change in assumption or data, the next questions management could ask are “How far into the model does that trickle down?” and “Does it affect the end result?” 

Interagency supervisory guidance for CECL

There are two important interagency supervisory guidance documents we recommend consulting related to understanding, addressing, and managing CECL model risk: Model Risk Management (FDIC’s FIL 22-2017, FRB’s SR 11-7, and OCC’s 2011-12) and the new Third-Party Risk Management guidance published in June 2023 (FDIC’s FIL-29-2023, FRB’s SR 23-4, and OCC Bulletin 2023-17).

Within the new Third-Party Risk Management guidance, key sections related to vendor and risk management are “Due Diligence and Third-Party Selection,” “On-Going Monitoring,” and “Governance.” Within the interagency supervisory guidance on model risk management, it states, “Documentation of model development and validation should be sufficiently detailed so that parties unfamiliar with a model can understand how the model operates, its limitations, and its key assumptions. For cases in which a bank uses models from a vendor or other third party, it should ensure that appropriate documentation of the third-party approach is available so that the model can be appropriately validated.”1 “The design, theory and logic underlying the model should be well documented and generally supported by published research and sound industry practice.”2

“The data and other information used to develop a model are of critical importance; there should be rigorous assessment of data quality and relevance, and appropriate documentation. Developers should be able to demonstrate that such data and information are suitable for the model and that they are consistent with the theory behind the approach and with the chosen methodology.”3

The above guidance would include any decisions, elections, choices, or procedural steps that management has made to evolve the model to its current use.

Vendor management: Best practices

Here are some common areas in which vendor overreliance can occur. Review them to assess and improve your vendor management: 

  • Documentation. Review any vendor-provided documentation, noting differences in how the calculation process or elections were made at your institution, and update the document(s) accordingly. For example, model or data assumptions made at set-up, reasons why management made these choices, including the choice to accept any work or recommendations made by the vendor, or the explanation of any changes or updates management decided to implement. 
  • Peer groups. Although management may have selected the peer group with the vendor, institutions could be lacking enough testing around what peer information is being used within the model to be confident of its accuracy and completeness. Common tests include confirming the historical loss time period of peer data in use, reconciling the number of financial institutions included within the final peer group list to the peer group loss history included in the calculation, and making sure the loss rates used match underlying call report data, on a sample basis. 
  • Default settings. Identify and review default settings or values provided by the vendor or built into your calculation tool. Review documentation to ensure that management’s reasons for using them have been explained. Common examples include weightings for different economic scenarios, assumptions for missing maturity dates, defaulting a loss rate to a certain percentage, or weighting the use of peer and financial institution data. 
  • Remaining life. For institutions using the remaining life or average remaining life method, consider sample testing the calculation of your largest two portfolios to make sure the remaining life calculation is occurring as designed and consistent with acceptable methods. 
  • Outsourced calculation. Some institutions may be relying on an outside vendor to perform their institution’s allowance for credit losses (ACL) calculation. Interagency guidance reminds management they remain fully responsible and accountable for the process, elections, and outcome. As a result, management teams will be expected to demonstrate an understanding of how everything is working together. We recommend clear documentation of management’s review and testing to support their determination that the outcome is reasonable and accurate. Having controls, such as a reconciliation between the loan data to the core system or verifying the segment totals to the core information, could be beneficial. 


CECL resources 

Do you need a “source of truth document” that you can call your model document? Check out “Building the whole picture: CECL model documentation” to help get you started. 

If you still need assistance or want to discuss any other pain point you might be experiencing, our team of experts is here to help you navigate the requirements as efficiently and effectively as possible. We provide CECL model validation and consulting services. Submit your CECL questions on our Ask the Advisor page or contact our CECL consulting team.

1MRM OCC 2011-12 pdf, pg. 21
2FDIC - Supervisory Guidance on Model Risk Management pg. 5
3FRB - Supervisory Guidance on Model Risk Management (SR letter 11-7 Attachment)
 

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CECL: Are you relying on your vendor too much?

Read this if you are a business owner. 

Consider the value of the following two hypothetical companies. Anita owns A+ Manufacturing, a car parts manufacturer that employs 100 people. Roger owns a very similar company, D- Manufacturing, which also manufactures car parts and employs 100 people. These companies are both almost identical, and last year, they generated the same amount of revenue and income. A key difference, however, is in the management styles of the owners. Roger is extremely disorganized and has difficulty with record retention, locating information, and tracking and analyzing data. He is relatively inexperienced as a manager. Anita, meanwhile, is very punctual and organized and has 15 years of management experience. She relies heavily on tracking operational and financial data and makes this information readily available to managers and their teams. She believes in an organized, clean workplace, and her strong leadership and carefully maintained culture have resulted in employee tenure that is much higher than industry standards. Which company is more valuable?

Despite being identical in terms of service offering and size, most people would identify A+ Manufacturing as being more valuable. Alarm bells start to ring in a valuation analyst’s head when learning about the sloppy management style, lack of experience, and poor use of data at D- Manufacturing. The difference in value should be substantial. Despite generating the same amount of profit last year, A+ Manufacturing could be worth twice as much as D- Manufacturing because these risk factors may jeopardize future profits.

In addition to the risk factors from the above example, there are many other drivers of business value.

Valuation formula

In its simplest form, the valuation of a business can be reduced to the following formula based on earnings before interest, taxes, depreciation, and amortization (EBITDA). Factors that affect value do so by affecting the valuation multiple. Companies such as D- Manufacturing would be worth a lower multiple of EBITDA, and a higher multiple would be justified for less risky companies such as A+ Manufacturing.

Estimating an EBITDA multiple

A generic multiple often thrown around is 5x EBITDA. EBITDA multiples from the DealStats database have historically been in this range, but have come down in the last few years, as shown in the accompanying chart.1 

Median Selling Price/EBITDA with Trailing Three-Quarter Average


EBITDA multiples vary widely by industry. For example, in the DealStats database, the median EBITDA multiple for retail trade was 3.7x compared to 6.1x for manufacturing companies.2 The chart below presents EBITDA multiples by industry from the DealStats database.

Selling Price/EBITDA Interquartile Range by Industry Sector (Private Targets)


Even within a specific industry, multiples can vary dramatically. For example, from the chart above, the median wholesale trade multiple was slightly above 5.0x, but the 75th percentile multiple for this industry was nearly 10.0x. 

Factors affecting EBITDA multiples

Differences in valuation multiples from company to company reflect differences in risk profiles. High-risk companies command lower multiples than safe investments. The following chart illustrates how certain operational risk factors may affect the valuation multiple.

Other factors that affect valuation multiples include the following:

  • Access to capital
  • Supplier concentration 
  • Supplier pricing advantage 
  • Product or service diversification 
  • Life cycle of current products or services 
  • Geographical distribution 
  • Currency risk 
  • Internal controls 
  • Business owner reliance
  • Legal/litigation issues 
  • Years in operation
  • Location   
  • Demographics 
  • Availability of labor 
  • Employee stability 
  • Internal and external culture 
  • Economic factors 
  • Industry and government regulations 
  • Political factors 
  • Fixed asset age and condition 
  • Strength of intangible assets 
  • Distribution system 
  • IT systems 
  • Technology life cycle 

One model to assess risk and select an appropriate multiple is the exit and succession planning software prepared by MAUS Business Systems (“MAUS”). The MAUS Business Attractiveness model assists analysts in assessing and diagramming the risk profile of a company. This model was developed to assess business attractiveness to potential acquirers based on common risk factors. Analysts can use this software as part of their assessment of an appropriate valuation multiple. This model is also a helpful communication tool because it provides a visual representation of a company’s risk profile and highlights the areas in which a company can improve. 

Using this model, analysts assess a company’s risk profile regarding several key factors. MAUS then generates a report that includes a series of diagrams like the one below. Business attractiveness factors are positioned around the outside of a polygon. If a company performs well regarding a particular factor, a point is plotted toward the outside of the polygon. If the company performs poorly, a point is plotted toward the center of the shape. The points are then connected to visualize a company’s risk profile. 

Business Risk & Value Factors

         

The larger the colored shape is in the MAUS diagram, the higher the valuation multiple should be. However, these factors do not all affect the multiple equally. The valuation multiple may be highly responsive to some factors and less responsive to others. Additionally, each factor may not have a linear effect on the valuation multiple. For these reasons, formula-based estimates of valuation multiples are often inaccurate, although a great place to start for a ballpark indication of value. For matters of importance where accuracy is paramount, we strongly recommend consulting with a valuation professional. In addition to valuation expertise, an outside party provides an independent, unbiased assessment of value. 

Conclusion

The value of a business can be affected dramatically by its risk profile. Analysts value businesses based on a number of different factors that affect value. 

Learn what risk factors your company may have and how those affect your business value by downloading our value driver matrix

1,2 DealStats Value Index 4Q 2023, Business Valuation Resources, LLC (www.bvresources.com).

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Factors affecting the value of a company

Read this if you are interested in building a thriving workforce.

As businesses across the country continue to struggle to find and keep employees, it is time to build a workplace that sends a clear message to employees: “We care about you as a person. Your well-being matters.” 

Many leaders will send communications that emphasize the importance of people and the value of well-being. Despite this messaging, many organizations are missing opportunities to make well-being a natural part of the employee experience. The resulting disconnect between messaging and reality can result in frustration, disengagement, and cynicism. We’ve compiled a list of some of the most common workplace factors that can disrupt an organization’s intentions to build a strong well-being culture. 

Are you missing the mark with employee well-being? 

The chart below illustrates common ways that employers may be missing the mark on providing a supportive environment to employees. As you’ll see, they can be both large things like compensation and benefits, but they can also be small, potentially easy-to-fix things such as providing healthy snacks in the office instead of junk food. Look at this chart holistically for ways you may be able to change some negative influences into positive ones.


Overcoming the challenges to your well-being goals takes time. And while it is natural for organizations to think of employee well-being as the responsibility of human resources and leadership, in reality, well-being is a product of every part of the employee experience. In other words, it’s part of everyone’s job.

Well-being program considerations

Understanding the pain points for employees is an essential element of any successful well-being program, even if those pain points exist outside the domain of traditional well-being and wellness programs. Here are some things to consider:

  • Find out what matters to your employees, as every organization is different. Use surveys, interviews, and focus groups to understand priorities and do something substantive with what you learn.
  • Make a plan to address operational challenges. Put simply, outdated technology and inefficient business processes stress employees out.
  • Assess your well-being approach to identify strengths, gaps, and opportunities for improvement.
  • Develop, document, and implement a well-being plan that aligns with your organizational culture and goals. 
  • In the midst of planning a big system implementation of organizational change? Consider ways to integrate well-being as part of high-stress initiatives. 

How mature is your organization’s well-being program?

Understanding the maturity level of your organization’s well-being program can help you benchmark, assess progress, and gain leadership support by showing a clear path to improvement. This maturity model can help you assess where you are now and how to incrementally improve.

Have questions or need ideas about your specific situation? Contact our well-being consulting team. We’re here to help.

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Workplace well-being: Common ways organizations miss the mark