Secure 2.0 Act of 2022 introduces key changes for workplace retirement plans

Do you know what would happen to your company if your CEO suddenly had to resign immediately for personal reasons? Or got seriously ill? Or worse, died? These scenarios, while rare, do happen, and many companies are not prepared. In fact, 45% of US companies do not have a contingency plan for CEO succession, according to a 2020 Harvard Business Review study.  

Do you have a plan for CEO succession? As a business owner, you may have an exit strategy in place for your company, but do you have a plan to bridge the leadership gap for you and each member of your leadership team? Does the plan include the kind of crises listed above? What would you do if your next-in-line left suddenly? 

Whether yours is a family-owned business, a company of equity partners, or a private company with a governing body, here are things to consider when you’re faced with a situation where your CEO has abruptly departed or has decided to step down.  

1. Get a plan in place. First, assess the situation and figure out your priorities. If there is already a plan for these types of circumstances, evaluate how much of it is applicable to this particular circumstance. For example, if the plan is for the stepping down or announced retirement of your CEO, but some other catastrophic event occurs, you may need to adjust key components and focus on immediate messaging rather than future positioning. If there is no plan, assign a small team to create one immediately. 

Make sure management, team leaders, and employees are aware and informed of your progress; this will help keep you organized and streamline communications. Management needs to take the lead and select a point person to document the process. Management also needs to take the lead in demeanor. Model your actions so employees can see the situation is being handled with care. Once a strategy is identified based on your priorities, draft a plan that includes what happens now, in the immediate future, and beyond. Include timetables so people know when decisions will be made.  

2. Communicate clearly, and often. In times of uncertainty, your employees will need as much specific information as you can give them. Knowing when they will hear from you, even if it is “we have nothing new to report” builds trust and keeps them vested and involved. By letting them know what your plan is, when they’ll receive another update, what to tell clients, and even what specifics you can give them (e.g., who will take over which CEO responsibility and for how long), you make them feel that they are important stakeholders, and not just bystanders. Stakeholders are more likely to be strong supporters during and after any transition that needs to take place. 

3. Pull in professional help. Depending on your resources, we recommend bringing in a professional to help you handle the situation at hand. At the very least, call in an objective opinion. You’ll need someone who can help you make decisions when emotions are running high. Bringing someone on board that can help you decipher what you have to work with and what your legal and other obligations may be, help rally your team, deal with the media, and manage emotions can be invaluable during a challenging time. Even if it’s temporary. 

4. Develop a timeline. Figure out how much time you have for the transition. For example, if your CEO is ill and will be stepping down in six months, you have time to update any existing exit strategy or succession plan you have in place. Things to include in the timeline: 

• Who is taking over what responsibilities? 
• How and what will be communicated to your company and stakeholders? 
• How and what will be communicated to the market? 
• How will you bring in the CEO's replacement, while helping the current CEO transition out of the organization? 

If you are in a crisis situation (e.g., your CEO has been suddenly forced out or asked to leave without a public explanation), you won’t have the luxury of time.  

Find out what other arrangements have been made in the past and update them as needed. Work with your PR firm to help with your change management and do the right things for all involved to salvage the company’s reputation. When handled correctly, crises don’t have to have a lasting negative impact on your business.   

5. Manage change effectively. When you’re under the gun to quickly make significant changes at the top, you need to understand how the changes may affect various parts of your company. While instinct may tell you to focus externally, don’t neglect your employees. Be as transparent as you possibly can be, present an action plan, ask for support, and get them involved in keeping the environment positive. Whether you bring in professionals or not, make sure you allow for questions, feedback, and even discord if challenging information is being revealed.  

6. Handle the media. Crisis rule #1 is making it clear who can, and who cannot, speak to the media. Assign a point person for all external inquiries and instruct employees to refer all reporter requests for comment to that point person. You absolutely do not want employees leaking sensitive information to the media. 
 
With your employees on board with the change management action plan, you can now focus on external communications and how you will present what is happening to the media. This is not completely under your control. Technology and social media changed the game in terms of speed and access to information to the public and transparency when it comes to corporate leadership. Present a message to the media quickly that coincides with your values as a company. If you are dealing with a scandal where public trust is involved and your CEO is stepping down, handling this effectively will take tact and most likely a team of professionals to help. 

Exit strategies are planning tools. Uncontrollable events occur and we don’t always get to follow our plan as we would have liked. Your organization can still be prepared and know what to do in an emergency situation or sudden crisis.  Executives move out of their roles every day, but how companies respond to these changes is reflective of the strategy in place to handle unexpected situations. Be as prepared as possible. Own your challenges. Stay accountable. 

BerryDunn can help whether you need extra assistance in your office during peak times or interim leadership support during periods of transition. We offer the expertise of a fully staffed accounting department for short-term assignments or long-term engagements―so you can focus on your business. Meet our interim assistance experts.

Read this if your CFO has recently departed, or if you're looking for a replacement.

With the post-Covid labor shortage, “the Great Resignation,” an aging workforce, and ongoing staffing concerns, almost every industry is facing challenges in hiring talented staff. To address these challenges, many organizations are hiring temporary or interim help—even for C-suite positions such as Chief Financial Officers (CFOs).

You may be thinking, “The CFO is a key business partner in advising and collaborating with the CEO and developing a long-term strategy for the organization; why would I hire a contractor to fill this most-important role?” Hiring an interim CFO may be a good option to consider in certain circumstances. Here are three situations where temporary help might be the best solution for your organization.

Your organization has grown

If your company has grown since you created your finance department, or your controller isn’t ready or suited for a promotion, bringing on an interim CFO can be a natural next step in your company’s evolution, without having to make a long-term commitment. It can allow you to take the time and fully understand what you need from the role — and what kind of person is the best fit for your company’s future.

BerryDunn's Kathy Parker, leader of the Boston-based Outsourced Accounting group, has worked with many companies to help them through periods of transition. "As companies grow, many need team members at various skill levels, which requires more money to pay for multiple full-time roles," she shared. "Obtaining interim CFO services allows a company to access different skill levels while paying a fraction of the cost. As the company grows, they can always scale its resources; the beauty of this model is the flexibility."

If your company is looking for greater financial skill or advice to expand into a new market, or turn around an underperforming division, you may want to bring on an outsourced CFO with a specific set of objectives and timeline in mind. You can bring someone on board to develop growth strategies, make course corrections, bring in new financing, and update operational processes, without necessarily needing to keep those skills in the organization once they finish their assignment. Your company benefits from this very specific skill set without the expense of having a talented but expensive resource on your permanent payroll.

Your CFO has resigned

The best-laid succession plans often go astray. If that’s the case when your CFO departs, your organization may need to outsource the CFO function to fill the gap. When your company loses the leader of company-wide financial functions, you may need to find someone who can come in with those skills and get right to work. While they may need guidance and support on specifics to your company, they should be able to adapt quickly and keep financial operations running smoothly. Articulating short-term goals and setting deadlines for naming a new CFO can help lay the foundation for a successful engagement.

You don’t have the budget for a full-time CFO

If your company is the right size to have a part-time CFO, outsourcing CFO functions can be less expensive than bringing on a full-time in-house CFO. Depending on your operational and financial rhythms, you may need the CFO role full-time in parts of the year, and not in others. Initially, an interim CFO can bring a new perspective from a professional who is coming in with fresh eyes and experience outside of your company.

After the immediate need or initial crisis passes, you can review your options. Once the temporary CFO’s agreement expires, you can bring someone new in depending on your needs, or keep the contract CFO in place by extending their assignment.

Considerations for hiring an interim CFO

Making the decision between hiring someone full-time or bringing in temporary contract help can be difficult. Although it oversimplifies the decision a bit, a good rule of thumb is: the more strategic the role will be, the more important it is that you have a long-term person in the job. CFOs can have a wide range of duties, including, but not limited to:

• Financial risk management, including planning and record-keeping
• Management of compliance and regulatory requirements
• Creating and monitoring reliable control systems
• Debt and equity financing
• Financial reporting to the Board of Directors

If the focus is primarily overseeing the financial functions of the organization and/or developing a skilled finance department, you can rely — at least initially — on a CFO for hire.

Regardless of what you choose to do, your decision will have an impact on the financial health of your organization — from avoiding finance department dissatisfaction or turnover to capitalizing on new market opportunities. Getting outside advice or a more objective view may be an important part of making the right choice for your company.

BerryDunn can help whether you need extra assistance in your office during peak times or interim leadership support during periods of transition. We offer the expertise of a fully staffed accounting department for short-term assignments or long-term engagements―so you can focus on your business. Meet our interim assistance experts.

As construction companies look for new ways to cut costs, the annual bonus is often one of the first items on the chopping block.

Rather than eliminating financial incentives, consider developing an incentive compensation program that’s designed to help achieve your firm’s goals.

Here are five tips for designing a program that works.

1. Reward the right things 
   Incentive programs frequently backfire because companies reward employees for the wrong things. Bonuses tied strictly to profits, for example, can motivate employees to adopt short-term strategies that increase their pay at the expense of the firm’s long-term performance.
   
   Unfortunately, short-term strategies sometimes sacrifice quality or safety to boost profits. Cutting corners on jobs may create short-term savings, but could hurt the firm’s bottom line over the long run. Safety issues can threaten a contractor’s very existence. 
   
   Instead, tie compensation to all aspects of an employee’s job. When designing an incentive program for superintendents, for example, reward projects that get done on time and within budget—while maintaining quality and safety standards. If you offer bonuses only for staying on schedule, then cost, quality and safety may suffer. Instead, make sure your program rewards excellence in all four areas.
    
2. Link pay to results 
   For incentive compensation to work, it’s critical to reward employees for achieving quantifiable results that are within their control. Discretionary annual bonus plans are often ineffective because employees typically view bonuses as a “gift” rather than a reward for good performance. If year-end bonuses become an expected component of compensation, not only are they poor motivators, but they can quickly turn into “demotivators” should they be reduced or taken away.
   
   Establish performance goals that are attainable with hard work, but not too easily achieved. The goals should be simple and straightforward enough so that employees understand both what they’re expected to do and what they stand to gain if they do it. Sometimes companies create incentive pay formulas that are so complex and difficult to understand that employees become disillusioned with the program. As you develop your plan, seek input from eligible participants to gain employee buy-in.
    
3. Establish benchmarks
   The only way to gauge employee performance is to measure your firm’s recent performance and establish goals for improvement. You can’t reward employees for reducing the time to completion unless you know your average building time on similar jobs. 
   
   To reward cost reduction, for example, you might measure decreases in labor hours or overtime. To reward quality improvement, you might track defects per square foot or amounts spent on warranty calls. The right benchmarks depend on the nature of your firm and its specific goals.
    
4. Time it right
   For your incentive program to be truly effective, timing is everything. To maximize the impact, compensation should be linked closely in time with the performance that earned it—by paying bonuses quarterly, for example, rather than annually.
   
   Consider deferring part of the bonus, however, to reflect future events that bear on an employee’s performance. Some firms hold back a portion of the bonus and reduce it based on warranty expenses during the year following a project’s completion, for example.
    
5. Think long term
   To align your employees’ interests with the company’s long-term goals, consider using stock options, restricted stock or other equity-based awards. Giving employees an ownership stake in the business provides them with a financial incentive to stay with the company and maximize its long-term value. 
   
   To be effective, these incentives should vest over a substantial period of time. Otherwise, they might encourage actions that artificially boost the value of the company’s stock or other equity interests in the short term.  And be sure to discuss these with your accounting and tax advisors before implementation—these awards come with some accounting and reporting requirements and may also trigger tax consequences.  

Tying it all together
By tying compensation to performance, you can identify, motivate and retain your most valuable employees. Unlike across-the-board bonuses, a carefully targeted incentive program can pay for itself. Some contractors have even convinced employees to accept lower base salaries in exchange for an opportunity to earn higher performance pay.

Reading through the 133-page exposure draft for the Proposed Statement on Auditing Standards (SAS) Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, issued back in April 2017, and then comparing it to the final 100+ page standard approved in September 2018, may not sound like a fun way to spend a Sunday morning sipping a coffee (or three), but I disagree.

Lucky for you, I have captured the highlights here. And it really is exciting. Our feedback was incorporated into the final standard both through written comments on the exposure draft and a voice via our firm’s Director of Quality Assurance, who holds a seat on the Auditing Standards Board.

"Limited scope" audits will no longer exist

The debate over the “limited scope” audit has been going on for years. The new standard is designed to help auditors clearly understand their responsibilities in performing an audit, and provide plan sponsors, plan participants, the Department of Labor (DOL), and other interested parties with more information about what auditors do in situations when audits are limited in scope by the plan’s management, which is permitted by DOL reporting and disclosure rules.

Once effective, Audit Committee and Board of Director meetings in which plan financial statements are presented will include more clarity into what an employee benefit plan audit entails, based on revisions to the auditor’s report. I know I would frequently kick off meetings covering the auditor’s report opinion by explaining what a “limited scope” audit was. As a “limited scope” audit will no longer exist, the revised auditor’s report language clearly articulates what the auditor is, and is not, opining on.

When is the new standard effective?

The effective date is “to be determined” as it will be aligned with the new overall auditor’s reporting standard once that is finalized, and the standard does not permit early adoption. So there is still time to educate and prepare all parties involved.

Probably the biggest conversation piece around the water cooler for the new standard is the lingo. The “limited scope” audit language will be going away and now the auditor’s report and all related language will refer to an “ERISA section 103(a)(3)(C)” audit. I know, it’s a mouthful?try and say that one three times fast!

The auditor's report will look much different

The auditor’s report under an ERISA section 103(a)(3)(C) audit will look significantly different from the old “limited scope” auditor’s report, once the standard is effective. There are several illustrative examples of reports included in the standard to refer to. One thing you will immediately notice?the auditor’s report is getting longer and not shorter. Some highlights:

The Opinion section will include two bullets that explicitly state, in basic summarized terms: (1) the certified information agrees to the financial statements, and (2)  the auditor’s opinion on everything else, which the auditor has audited.

Other Matter—Supplemental Schedules Required by ERISA section will include two bullets that explicitly state, in basic summarized terms, (1) the certified information agrees to the financial statements and (2) the auditor’s opinion on everything else, which the auditor has audited in relation to the financial statements. Sound similar to the Opinion section? Well, that’s because it is!).

Other key takeaways

• Auditors will be required to make inquiries of management to gain assurance they performed procedures to determine the certifying institution is qualified for the ERISA section 103(a)(3)(C) audit, as it is management’s responsibility to make that determination.
• Fair value disclosures included within the plan’s financial statements are also included under the certification umbrella and subject to the same audit procedures. As an auditor, if anything comes to our attention that does not meet expectations, we would further assess as necessary.
• The auditor is required to obtain and read a draft Form 5500 prior to issuance of the auditor’s report.

The final standard also removed some highly debated provisions included in the draft proposal as follows:

• There is no report on findings required, but the auditor is required to follow AU-C 250, AU-C 260 and AU-C 265. Should anything arise that warrants communication to those charged with governance, those findings must be communicated in writing. Be sure to grab another coffee and refresh yourself on AU-C 250, AU-C 260 and AU-C 265!
• The new required procedures section for an audit was scrapped and replaced with an Appendix A for recommended audit procedures based on risk assessments. There are some great tools there to look at.
• The required emphasis-of-matter section paragraph section of the auditor’s report was also scrapped.

Questions about the new employee benefit audit standard or employee benefit plan audits

At BerryDunn, we perform over 200 employee benefit plan audits each year. If you have any questions, we would love to help. And we’ll keep the acronyms to a minimum. Please reach out with any questions.

For over four years the business community has been discussing the impact Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, will have on financial reporting. As you evaluate the impact this standard will have on a manufacturers’ financial reporting practices, there are certain provisions of ASC 606 you should consider.

Then: Prior to ASC 606, manufacturers generally recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fees are fixed or determinable, and collection is reasonably assured. For most, this typically occurs when a product ships and the title to the product transfers to the customer.

Now: Under ASC 606, effective for annual reporting periods beginning after December 15, 2018 for non-public entities (December 15, 2017 for public entities), an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under this core principle, an entity should:

1. Identify its contracts with its customers,
2. Identify performance obligations (promises) in the contract,
3. Determine the transaction price,
4. Allocate the transaction price to the performance obligations in the contract; and
5. Recognize revenue when (or as) the entity satisfies the performance obligation. 

Who does it impact, and how?

For some manufacturers, ASC 606 will not impact their financial reporting practices since they satisfy their performance obligation when the product is shipped and the title has transferred to the customer. However, entities who manufacture highly specialized products may be required to recognize revenue over time if the entity’s performance creates an asset without an alternative use to the entity, and the entity has an enforceable right to compensation for performance completed to date.

Limitations

To determine if a product has an alternative use, the entity must assess whether it is restricted contractually from redirecting the asset for another use during production, or if there are practical limitations on the entity’s ability to redirect the product for another use. A contractual limitation must be substantive for it to be determined to not have an alternative use, e.g., the customer can enforce rights for delivery of the product. A restriction is not substantive if the product is largely interchangeable with other products the entity could transfer between customers without incurring a significant loss.

A practical limitation exists if the entity’s ability to redirect the product for another use results in significant economic losses, either from significant rework costs or having to sell the product at a loss. The alternative use assessment should be done at contract inception based on the product in its completed state, and not during the production process. Therefore, the point in time during production when a product becomes customized and not generic is irrelevant. If it is determined there is no alternative use, the entity has satisfied this criterion and must evaluate its enforceable right to compensation for performance completed to date.

Definitions and Distinctions

ASC 606 defines a contract as “an agreement between two or more parties that creates enforceable rights and obligations”. Accordingly, the definition of a contract may include, but not be limited to, a Purchase Order, Agreement for the Sale of Goods, Bill of Sale, Independent Contractor Agreement, etc. In applying this definition to business operations and revenue recognition, an entity must consider its individual business practices, and possibly individual customer arrangements in determining enforceability.

Once it is determined that the entity has an enforceable right to a payment, the amount of payment must also be considered. The amount that would “compensate” an entity for performance to date should be the estimated selling price of the goods or services transferred to date (for example, recovery of costs incurred plus a reasonable profit margin) rather than compensation for only the entity’s potential loss of profit if the contract were to be terminated. Accordingly, a payment that only covers the entity’s costs incurred to date or for the entity’s potential loss of profit if the contract was terminated does not allow for the recognition of revenue over time.

Compensation for a reasonable profit margin need not equal the profit margin expected if the contract was fulfilled as promised. Once the “enforceable right to compensation for performance completed to date” requirement has been met, an entity will then assess the appropriate method of recognizing revenue over a period of time using input or output methods, as provided under ASC 606.

For manufacturers of highly specialized products there may not be a simple answer for determining appropriate revenue recognition policies for each customer contract and evaluating the impact can be a challenging endeavor.

Next steps

If you would like guidance in analyzing the impact ASC 606 will have on a manufacturer’s financial reporting practices, including the potential impact it may have on bank covenants, borrowing base calculations, etc., please contact one of our dedicated commercial industry practice professionals.
 

The late science fiction writer (and college professor) Isaac Asimov once said: “I do not fear computers. I fear the lack of them.” Had Asimov worked in higher ed IT management, he might have added: “but above all else, I fear the lack of computer staff.”

Indeed, it can be a challenge for higher education institutions to recruit and retain IT professionals. Private companies often pay more in a good economy, and in certain areas of the nation, open IT positions at colleges and universities outnumber available, qualified IT workers. According to one study from 2016, almost half of higher education IT workers are at risk of leaving the institutions they serve, largely for better opportunities and more supportive workplaces. Understandably, IT leadership fears an uncertain future of vacant roles—yet there are simple tactics that can help you improve the chances of filling open positions.

Emphasize the whole package

You need to leverage your institution’s strengths when recruiting IT talent. A focus on innovation, project leadership, and responsibility for supporting the mission of the institution are important attributes to promote when recruiting. Your institution should sell quality of life, which can be much more attractive than corporate culture. Many candidates are attracted to the energy and activity of college campuses, in addition to the numerous social and recreational outlets colleges provide.

Benefit packages are another strong asset for recruiting top talent. Schools need to ensure potential candidates know the amount of paid leave, retirement, and educational assistance for employees and employee family members. These added perks will pique the interest of many candidates who might otherwise have only looked at salary during the process.

Use the right job title

Some current school vacancies have very specific job titles, such as “Portal Administrator” or “Learning Multimedia Developer.” However, this specificity can limit visibility on popular job posting sites, reducing the number of qualified applicants. Job titles, such as “Web Developer” and “Java Developer,” can yield better search results. Furthermore, some current vacancies include a number or level after the job title (e.g., “System Administrator 2”), which also limits visibility on these sites. By removing these indicators, you can significantly increase the applicant pool.

Focus on service, not just technology

Each year, institutions deploy an increasing number of Software as a Service (SaaS) and hosted applications. As higher education institutions invest more in these applications, they need fewer personnel for day-to-day technology maintenance support. In turn, this allows IT organizations to focus limited resources on services that identify and analyze technology solutions, provide guidance to optimize technology investments, and manage vendor relationships. IT staff with soft skills will become even more valuable to your institution as they engage in more people- and process-centric efforts.

Fill in the future

It may seem like science fiction, but by revising your recruiting and retention tactics, your higher education institution can improve its chances of filling IT positions in a competitive job market. In a future blog, I’ll provide ideas for cultivating staff from your institution via student workers and upcoming graduates. If you’d like to discuss additional staffing tactics, send me an email.

As a leader in a higher education institution, you'll be familiar with this paradox: Every solution can lead to more problems, and every answer can lead to more questions. It’s like navigating an endless maze. When it comes to mobile apps, the same holds true. So, the question: Should your institution have a mobile app? The Answer? Absolutely.

Devices, not computers, are how millenials communicate, gather, inform, and engage. Millennials, on average, spend 90 hours per month on mobile apps, not including web searches and website visits.

Students are no exception. A 2016 Nielsen study showed that 98% of millennials aged 18 – 24, and 97% of millennials aged 25 – 34, owned a smartphone, while a 2017 comScore report stated that one out of five millennials no longer use desktop devices, including laptops. Mobile apps have quickly filled the desktop void, and as students grow more reliant on mobile technology, colleges and universities are in the mix, creating apps to bolster student engagement.

So should you create an app? Here are some questions you should answer before creating a mobile app. Welcome to the labyrinth! But don’t be frustrated—answer these questions to help you avoid dead ends and overspending.

1. Is a mobile app part of your IT Strategy? Including a mobile app in your IT strategy minimizes confusion at all levels about the objectives of mobile app implementation. It also helps dictate whether an institution needs multiple mobile apps for various functions, or a primary app that connects users with other functionality. If an institution has multiple campuses, should you align all campuses with a single app, or if will each campus develop their own?

2. What will the app do? Mobile apps can perform a multitude of functions, but for the initial implementation, select a few key functions in one main area, such as academics or student life. Institutions can then add functionality in the future as mobile adoption grows, and demand for more functions increases.

3. Who will use the app? Mobile apps certainly improve engagement throughout the student life cycle—from prospect to student to alumni—but they also present opportunities for increased faculty, staff, and community engagement. And while institutions should identify the immediate audience of the app, they should also identify future users, based upon functionality.

4. Who will manage the app? Institutions should determine who is going to manage the mobile app, and how. The discussion should focus on access, content, and functionality. Is the institution going to manage everything in house, from development to release to support, or will a mobile app vendor provide this support under contract? Depending on your institution, these discussions will vary.

5. What data will the app use? Like any new software system, an app is only as good as its supporting data. It’s important to assess the systems to integrate with the mobile app, and determine if the systems’ data is up-to-date and ready for integration. Consider the use of application program interfaces, or APIs. APIs allow apps and platforms to interact with one another. They can enable social media, news, weather, and entertainment apps to connect with your institution’s app, enhancing the user experience with more content for users.

6. How much data security does your app need? Depending on the functionality of the app you create, you will need varying degrees of security, including user authentication safeguards and other protections to keep information safe.

7. How much can you spend for the app? Your institution should decide how much you will spend on initial app development, with an eye toward including maintenance and development costs for future functionality. Complexity increases costs, so you will need to  budget accordingly. Include budget planning for updates and functionality improvements after launch.

You will also need to establish a timeline for the project and roll out. And note that apps deployed toward the end of the academic year experience less adoption than apps deployed at the beginning of the academic year.

Once your institution answers these questions, you will be off to a good start. And as I stated earlier, every answer to a question can lead to more questions. If your institution needs help navigating the mobile app labyrinth, please reach out to me.