BY DIANE WASSER CPA
PARTNER AND DIRECTOR, Amper PENSION SERVICES GROUP

IT'S ABOUT TIME both employers and employees paid attention to their retirement savings plans. We have been encouraging our business clients and peers to pay closer attention to this area since we began working with employee benefit plans over 25 years ago. Unfortunately, recent headlines tell a sad tale: "Bush turns up the heat on 401(k) reform," "The Enron Problem," etc.,etc., etc.

Does fiduciary responsibility mean anything? It always has, and that responsibility may lie with you. The lifeblood of the ERISA enforcement initiative is the establishment of fiduciary standards for plan operation. In general, ERISA defines a fiduciary to be a person who:

1. exercises any discretionary authority or discretionary control for management of the plan, or exercises any authority or control over the disposition of plan assets;
2. renders investment advice for a fee or other compensation, direct or indirect, with respect to plan assets, or has authority or responsibility to render such advice even if not actually rendering, or
3. has any discretionary authority or discretionary responsibility in the administration of the plan.

The employer generally wears two hats. One, as the person who establishes and maintains the plan (not a fiduciary relationship), the other as the plan administrator with authority over the plan's administration and management (this IS a fiduciary relationship). Standards of fiduciary conduct require a fiduciary to carry out his or her duties solely in the interest of plan participants and beneficiaries. These standards are:

• exclusive purpose (providing benefits to participants and beneficiaries, and defraying reasonable expenses of administering the plan)
• prudence
• diversification of investments, and
• compliance with plan documents

BY DANIEL SCHROEDER CPA, MBA
DIRECTOR, AMPER CONSULTING

Various research studies report between 1/3 and 2/3 of new system implementations fail to deliver expected business benefits. By new "systems" we are referring to integrated business systems such as Enterprise Resource Planning (ERP) or Customer Relationship Management (CRM). ERP systems usually include integrated functionality for accounting, manufacturing, distribution, and customer service. CRM systems collect and organize customer data from various sources including call centers, e-mail, point-of-sale, sales personnel, etc. Ideally, CRM gives a comprehensive view of customer data and behavior so companies can better manage their customer relationships.

The following information is taken from Amper Consulting's Business System Solutions Selection program. In it, we highlight what we consider the most important action steps your company can take to ensure your new system delivers the results your business expects and needs.

Step #1 Confirm your business is ready for the change.
Selecting and implementing a new business system is a major undertaking involving serious commitments of time and money. Integrated systems are fundamentally about how you operate your business. If your business is not ready to operate with structure and discipline, the new system should be postponed.

Ask yourself if your business needs the new system to cut costs, reduce inventories, improve customer service and decision support information. Those companies that have a clear link between these needs have the highest chance for success.

Any company embarking on a new system initiative should make sure they have committed to a "foundation for change."

Step #2 Establish a foundation for change and continuous business performance improvement.
While it may be clear your business needs real change to improve business performance, making that change can be very tough and elusive. This is especially true for well-established industrial companies with deeply ingrained routines and habits. Because an integrated system affects every major operation, the company needs to have the "organizational will to change," to support and sustain the difficult and sometimes contentious activities of selecting and implementing a new system.

Performance measurements are a great way of highlighting the cause and effect relationship between how a company operates and the bottom line. Companies lacking this often do not have the facts to isolate the real problems that are cutting into margins, causing poor customer service, driving the wrong inventory, etc. For this reason, operational management personnel often resist performance measurements.

Performance metrics are most effective when tied to performance evaluation and compensation, not just for senior management, but also for all personnel that play a significant role in the business process. Performance measurements linked to compensation can be difficult to apply, but once implemented properly, they focus the company's collective attention on doing things that matter most to the bottom line.

Step #3 Define system requirements that meet your business performance needs (i.e., focus on your business processes, not the technology!)
Your business is about your processes, not IT systems. The only value IT systems provide is helping you operate your processes effectively and efficiently. Before engaging software vendors, understand your business needs from a system and prioritize what is most important and will help set your business apart.

In developing your requirements, it is important to define not only what enables your business to operate, but also the functionality you can use to enhance your processes and business results. If your company's technology experience is limited to working with an outdated system, then your business probably has a great opportunity to improve by leveraging a new(er) integrated system. Unless you have internal staff that constantly monitor new systems, you should consider engaging a business technology advisor experienced in your industry to help you understand how technology can be leveraged to meet your business improvement goals.

Step #4 Selecting the appropriate technology providers.
Initially, this involves scanning the marketplace for vendors and technologies that align well with the company's business requirements (from the list developed under Step #3) and that are priced within the available budget range (considering software, services, hardware, ongoing maintenance). Sometimes companies can identify relevant software alternatives by looking within their industry. However, another company's success does not guarantee yours, just as another company's failure with software should not necessarily eliminate it from consideration. In many cases software does not work properly because it was not implemented correctly.

COMMON MISTAKE: Often companies will start in depth evaluations of a software vendor without completing Step #3 (Requirements Definition) and thoroughly defining several alternative vendors. These companies run the risk of being unprepared in evaluating the system properly. If they are not familiar with current technology they may be enamored with the first solution they see and be compelled to shortcut their evaluation activities. Avoid this pitfall, by first identifying the relevant vendors and then narrowing the field by having them respond to your Request for Information (RFI). This will outline your key requirements and requests the vendors to provide responses as to how well their products meet your requirements while providing approximate total cost of the solution (including software, services, hardware, ongoing maintenance, etc.).

After narrowing the field to three or four vendors, you are ready to conduct a detailed review of each product's functionality against your requirements and of the providers' capabilities, integrity, viability, and direction. Reference checks can help to substantiate claims, but understand these are usually well managed by the provider / VAR. Your vendor negotiations will be more effective when you are armed with two to three solid proposals resulting from a carefully orchestrated solution selection process.

Step #5 Focus the implementation on achieving specific business performance results.
Steps 1-4 are critical in placing your business in a great position to win. Step 5 is where your team drives the results from Steps 1-4. Step 5 is analogous to a football team kicking the winning field goal. Many things had to be well executed to put them in a position to make the kick.

Whether your company is a $1M emerging business or a well-established$100M company, there are several common requirements for achieving a successful implementation:

1. The implementation is completely focused on implementing processes and procedures that enable significant business benefits.
2. The key people who will be using the system are heavily involved in the education and setup of the system.
3. The team responsible for the implementation has incentives and accountabilities that align to their efforts in implementing the system. An accountability system outlined in Step 2 helps pull the system initiative into place because it is a given that it is the right thing to do for the business, rather than being thought of as the CFO's new system, or the IT Director’s new system.
4. The new system is setup in a test mode and test scenarios are executed to simulate how the system will be used. This is done for every significant operation, transaction, or event.
5. Every report that will be needed when the system is live is defined and developed before the new system is activated.
6. Solid project management leadership and project management exist. System implementations demand strong leadership and orchestration to deliver results, stay on schedule and come in on budget.

ADVICE WORTH ITS SALT

BY JOHN GENZ, CPA
SENIOR MANAGER, TAX DEPARTMENT

Though mild by historical standards, the impact of the economy's downturn is far-reaching. States, impacted by the decrease in tax revenue, are making up lost revenue by increasing the number of income and sales/use tax audits. Businesses are well advised to take steps to minimize their risk. State and local tax laws vary from state to state and can be very complex. Our State and Local Tax (SALT) Group can help minimize your exposure, starting with implementing controls to comply with the tax laws currently in effect. We believe this could reduce examination adjustments typically assessed for multiple year periods. To minimize or avoid penalties and to minimize interest charges on additions to tax resulting from such adjustments, it can be critical to voluntarily comply with the law before the state taxing authorities come calling.

The burden of state and local tax on business has increased much more rapidly than that of federal taxes. State and local taxes should be a key consideration in business planning. Our SALT Group can help you develop the strategies necessary to minimize these taxes and provide you with ongoing assistance in your day-to-day operations.

The services of the SALT Group include:

• Advanced tax planning to maximize tax exemptions.
• Records and operations review to determine if refunds are available.
• Review of your eligibility for and assistance with filing under the NJ Tax Amnesty Program.
• Audit representation to ensure you do not pay more than legally required.
• Updates on changing interpretations, new tax laws, and policies.
• Compliance checkups to make sure your systems and records are adequate and to minimize audit exposure.
• Nexus reviews to determine if you have a tax liability in other states in which you are doing business.
• Research and answers to your sales and use tax questions.
• Training for your staff.

We welcome the opportunity to meet with you to discuss how we can help maximize your sales and use tax savings.

THE CHALLENGE OF MANAGING MONEY DURING RETIREMENT

BY MARC L. SCUDILLO, MS, MBA, CPA, CFP
MANAGING PARTNER, FINANCIAL SERVICES

The primary difference between managing money before and after retirement is that prior to retiring, most people get their income or "liquidity" from their wages. After retiring, however, we no longer have the same safe, steady, periodic income we had while we were working, and so we need to rely on our retirement assets to replace it. However, and this is the crucial point, converting financial assets to income is considerably more complicated than going to the bank to cash a paycheck. Overcoming this critical "loss of liquidity" is the key issue in retirement planning. The real challenge is to provide safe, steady, dependable income from retirement assets that may be (and in most cases will have to be) substantially invested in assets that are anything but safe, steady and dependable — at least in the short term.

Unfortunately, far too many people still think the way to solve the "liquidity" problem is to invest more heavily in fixed-income investments. In fact, this strategy may seem appropriate for a couple of other reasons, too. First, the old rules of thumb have always suggested a more conservative asset allocation during retirement. And second, most people feel a strong sense of urgency to protect their retirement assets. They think that by investing conservatively they can add "liquidity" and protect their assets all at the same time — and what could be better than that? Well, as you know, the game has changed, and it's time for people to understand that while protecting assets is a big part of retirement planning, the whole issue has now got to be framed within the broader context of protecting overall retirement lifestyles. Clearly, an overly narrow focus on asset protection can leave retirees vulnerable to serious, unexpected, and perhaps catastrophic erosion of their retirement income.

There are really two good explanations that will help people see why investing too conservatively during retirement is a bad idea. The first of them is increasing life expectancies.

Current life expectancy tables indicate that today's 65 year-olds can plan to live to an average age of about 85. The problem, however, is that no one can really "plan" to live to an "average age." Averages are averages. Actually, about half of the population attaining age 65 will live less than 20 more years, while the other half will live quite a bit longer. The problem is that none of us know which half we're in. And, since none of us know which half we're in, we all have to plan to live longer than average, because at least half of us will. And if we don't plan to live longer than average, many of us will simply be planning to run out of money. We obviously need to develop financial strategies that will help us make our resources last a long time. The bottom-line is that today, the greatest risk we face is outliving our money, not losing it.

The second reason that investing too conservatively during retirement is a bad idea is inflation. Although inflation wasn't such a big problem in the old days when people didn't live very long in retirement, it is a critical issue for those of us who will. In a sense, it is the increase in life expectancies that causes us to be so much more concerned about inflation. Today's retirees will need to protect themselves against the ravages of inflation for very long retirement periods. The price of a loaf of bread, using the 25-year average annual rate of inflation (provided by Ibbotson Assoc.) between 1974 and 1998, 5.2%, would increase from about $2.50 today to almost $11.50. If we consider a retiree wanting to maintain a $50,000 lifestyle in today's dollars, at the 5-year average annual inflation rate (provided by Ibbotson Assoc.) of only 2.4% between 1994 and 1998, their income would need to increase to over $100,000 by the end of a typical 30-year retirement period. So the question for our clients is, "in even the best of circumstances, what provisions have you made in your financial plans to double your income over the next thirty years?" As a result, people need to have a good sense for historical inflation rates — and unfortunately most people don't. They should be aware that even though past inflation rates cannot predict future rates, they can be an important guide in making reasonable assumptions about the future. Retirees need to work with their tax and financial planners to determine inflation rates that make sense in their own particular circumstances.

Ultimately, people want to feel a sense of security during retirement. And this sense of security comes from knowing "the right amount," and knowing how to maintain it, using the flexibility, comfort and control that comes from a well-built, well-navigated financial plan. An educated client, combined with skilled and experienced financial planners, are the ultimate keys to success.

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Advisory services offered through Securities America Advisors, Inc.
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