Construction Risk Advisor - July 2018 Edition

DATA SCIENCE TO BOOST EFFICIENCY AND SAFETY


In order to improve worker safety and boost efficiency, about 20 construction companies have launched data science initiatives over the past few years.

One of those pioneers is a Boston-based company whose data scientists have developed an algorithm that analyzes photos from its job sites and then scans them for safety hazards. The algorithm then correlates those images with its accident records.

Although the technology still needs some fine-tuning, the company hopes to use the algorithm to rate project risks. As a result, the technology could prove extremely helpful in detecting elevated threats and then intervening with safety briefings.

Combining the data collected from these efforts could also be used to forecast project delays. Although data science is somewhat new to construction, a recent McKinsey report said that firms could boost productivity by as much as 50 percent through real- time analysis of data.

Newsletter Provided by: Hierl's Property & Casualty Experts

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AVOIDABLE ESTIMATION MISTAKES IN CONSTRUCTION


In the past three years, only 31 percent of construction projects came within 10 percent of their budgets, according to RSMeans, a provider of construction cost information. Completing projects within budget is a constant challenge for many contractors. Here are five estimating mistakes to be aware of, along with best practices to combat them.

1. Unrealistic expectations—Don’t rely on ideal orworst-case scenarios, which can lead to impractical estimates. Find the middle ground to avoid setting expectations too high and blowing timelines.

2. Flying solo—Don’t be afraid to use outside data sources from a credible third party. Create a realistic estimate by including a combination of your own historical data and their custom data.

3. Lack of or wrong permits—If you lack permits or have the wrong type, work can come to a standstill. Factor proper permits into your estimate, as well as their corresponding costs.

4. Unclear parameters—Parameters must be established clearly at the onset of each project.Make sure you clearly understand your clients’limitations and restrictions before creating an estimate to avoid unnecessary change orders.

5. Missing details—A lack of knowledge, missing items or generalized task descriptions can lead to estimates that are too low. Take the time to account for all necessary materials, labor and equipment by referencing similar work done in the past or detailed cost data from a third party.


Cyber Risks and Liabilities July/August 2018

Training Staff to Guard Against Cyber Attacks


Using mobile devices to work remotely is becoming the new norm. But when your employees use phones, tablets and laptops to access your networkand do their jobs, they’re essentially providinghackers with more entry points, leaving your organization highly vulnerable to attacks.

No matter how many security measures you take,they’re useless if you don’t supplement them withemployee training. Here are five ways to help employees protect your company from cyber attacks:

  1. Offer training on phishing and spam. Show your employees what to look for so they can alert IT if they receive a suspicious email. You can also use phishing simulator training tools, which attempt to trick your employees into opening the wrong types of email. The employees who click on those emails can then be flagged for additional training.
  2. Provide strong password training. Passwords should be changed on a regular basis and contain more than seven characters, an uppercase letter, a number and a symbol.
  3. Teach employees to report problems. Even if your employees clicked on something they shouldn’t have, it’s important that they feel comfortable reporting their infractions so any potential threat can be addressed immediately.
  4. Insist that your employees update all software when new updates become available.Vulnerabilities spread like wildfire among hackers. If employees fail to perform updates,they’re allowing hackers access to the device and possibly your entire network.
  5. Give remote access and Wi-Fi training and set up a virtual private network (VPN). Any employee that works remotely should use that VPN at all times for all activities.

Businesses Need Both Cyber Threat Intelligence and Business Risk Intelligence


Devising an all-encompassing strategy that protects your organization from cyber criminals, data breaches and other cyber security threats is no easy task. You need to ensure protection from not only hackers, but also the actions of your own staff.

Your employees may not intentionally threaten your organization, but without proper training and policies on using, storing and transferring data, there will always be a chance of them inadvertently putting your business at risk. In order to protect against such threats and react accordingly, businesses need to two types of intelligence: cyber threat intelligence and business risk intelligence.

Cyber Threat Intelligence

Cyber threat intelligence is information that has been collected, evaluated and analyzed. It involves looking outward, always being on the defense for potential cyber threats and turning unknown threats into well-known, mitigated threats. Cyber threat intelligence helps organizations understand the threat landscape they face and improve the effectiveness of their defense.

Cyber security analysts can use the data from their own internal security systems and outside vendors to build an understanding of the threats they face. They may also enlist the help of outside providers who understand the behavior of cyber criminals, as well as the long-term trends and short-term risks that might affect a particular sector.

Business Risk Intelligence

Business risk intelligence addresses the broader risks facing a business, including the digital risks. Due to the connected nature of the “internet of things,” business risk intelligence can also include cyber threat intelligence. But unlike cyber threat intelligence—which primarily affects the day-to-day operations of a company’s chief information security officer—the impact of business risk intelligence is likely to be felt across the entire executive suite.

A company with business risk intelligence is aware of the broad risks it faces. That may include insider threats to the physical security of staff or the risk of engaging with third-party vendors in the supply chain. Any type of activity that can alter business operations can be combatted with business risk intelligence.

Save Your Website from ADA Lawsuits


The Americans with Disabilities Act (ADA) of 1990 prohibits discrimination based on disability, which involves ensuring that everyone has reasonable access to all areas of public life. Although the ADA doesn’t explicitly mention the internet, the federalgovernment has taken the position that Title III of the ADA covers access to websites of public accommodations, including service and rental establishments, retail stores, educational institutions and recreational facilities.

Currently, ADA website compliance is only mandatory for government-managed websites. However, the absence of laws enforcing ADA compliance for websites ofpublic accommodations hasn’t prevented people from filing lawsuits againstcompanies that don’t meet the suggested guidelines.

Businesses in health care, government and education have been the most common targets of these lawsuits. Attorneys looking for easy money typically target small businesses’ websites by offering a low settlement fee. If your business is targeted by an ADA website compliance grievance, consider taking the following steps in response:

  1. Review the grievance for credibility. A lawsuit may likely begin by citing“violations of the Americans with Disabilities Act, Title 42 U.S.C. 12101 and12181.” It may also include an inexpensive settlement option—a prime indicator that the lawsuit has no legs to stand on and is likely a scam.
  2. Consult a lawyer. Doing so will help determine the credibility of the threat and stop future threats to your business.
  3. Respond to the plaintiff. Ask your attorney to draft something explaining thatyou’ve reviewed their grievance and consulted a lawyer. Realizing that you’vesought legal help may scare away anyone trying to file a lawsuit.
  4. Update your website. Do this regardless of whether there is a legal need. If your site is easily accessible by people with disabilities, you may see beneficial returns from those users.

Newsletter Provided by: Hierl's Property & Casualty Experts

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Safety Focused Newsletter - July 2018

Back Strain: A Workplace Risk for Every Employee


Back injuries are common in the workplace and are typically the result of a strain or sprain to back ligaments or muscles, the spinal cord, thoracic spine, lumbar spine, sacrum or coccyx. What’s more, you don’t need to work in a manual labor-intensive job to experience back problems. Employees of all kinds can maintain back health by keeping these tips in mind during their workday:

  • Take small breaks throughout your workday and stretch regularly.
  • Manage your stress level to reduce discomfort and back pain.
  • Exercise and stay active to reduce your chances of developing back pain.
  • Adjust your posture frequently.
  • Position your desk chair so your feet are flat on the floor.
  • Lift with your knees, and keep what you are lifting close to your body. Ask a co-worker to assist you when performing tasks that require heavy lifting, pushing, pulling or throwing.
  • Drink enough water and eat a healthy diet. This helps keep your spinal discs hydrated and healthy.
  • Watch where you walk. Many back strain injuries are the result of involuntary motion, like an attempt to recover from a slip.It may also be a good idea to work with your manager to plan your working hours in a way that helps you avoid long periods of repetitive work.

EMPLOYEES DO NOT NEED TO WORK IN THE CONSTRUCTION INDUSTRY OR A MANUAL LABOR- INTENSIVE JOB TO EXPERIENCE BACK PROBLEMS.

5 WAYS TO IMPROVE COMMUNICATION

  1. AVOID CLICHÉS
  2. BE BRIEF
  3. BE SINCERE
  4. AVOID ARGUMENTS
  5. ALLOW OTHERS TO RESPOND WITHOUT INTERRUPTION

How Employees Can Improve Workplace Communication


Communication is key in all aspects of life, but especially in the workplace. Without good communication, employees and productivity can suffer.

However, there are things you can do to establish better communication and improve the way things are done at your workplace. When it comes to interacting with your co-workers, keep in mind the following:

Make sure you are being clear and concise.

This applies not only to face-to-face conversations, but also to emails and all other types of communication. Your messages should be complete and include everything you want to convey.

Listen carefully. Don’t respond to what someone has said—aloud or in your head—until they have finished speaking. If you start thinking about a response before your co- worker has gotten their message across, you could miss important pieces of information and derail the conversation.

Summarize what you’ve said. After you’vegiven a long-winded speech or written an extensive email, go over the basic, most important points. This will help refresh yourlistener’s memory and potentially weed outopportunities for miscommunication.

Make meetings meaningful. Schedule a meeting to elaborate on complex tasks and make the most of scheduled time. Don’tstray from the topic, and keep conversations productive.

Follow up in writing. No matter how compelling a meeting or conversation was, it’s likely that people will not remember everything that was shared. For important matters, follow up with an email that highlights key takeaways from the conversation or meeting.

Above all, it’s important to be mindful ofyour body language and tone when you communicate. Together, these strategies ensure clear, effective correspondence.

Newsletter Provided by: Hierl's Property & Casualty Experts

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Agriculture Risk Advisor- July/August 2018

FARM BILL UPDATE


On June 13, in a 20-1 vote, a Senate panel approved a modest, bipartisan rewrite of federal farm and nutrition programs. The sole vote against the bill was by Sen. Chuck Grassley, R-Iowa, because his amendment to limit subsidy payments was omitted.

If passed, the legislation would renew farm programs that include subsidies for crop insurance, farm credit and land conservation. It would also extend the Supplemental Nutrition Assistance Program (SNAP)—formerly known as the Food Stamp Program—which helps feed more than 40 million people.

The House failed to pass a version of this bill in May due to a still unresolved immigration debate. Contrary to the Senate farm bill, the House is asking for greater job training opportunities for SNAP recipients. However, the bill has been heavily criticized for what some call a poor design and the possibility that it could exclude 2 million people from SNAP.

The current food and farm bill expires at the end of September. Although enacting the legislation this year is unlikely, a short-term extension is expected when the bill is brought back to the floor.

NEW WEB TOOLS FOR CATTLE MARKET


Two new web tools created by the Noble Research Institute will allow cattle producers to easily access Oklahoma cattle auction data. The tools include a price slide table and market charts.

PRICE SLIDE TABLE

The first web tool is a breakdown of the price slide (PS) and value of gain (VOG) for the reported markets. The PS and VOG tool looks at the sales receipts for the selected market, as well as frame size, gender, yield grade and the sale date to give producers a glimpse at the type of cattle buyers are looking for.

Cattle with notes about their features aren’t included in the table in order to prevent the PS and VOG from being affected. However, a link to the original USDA- AMS report is provided near the top of the page for producers who want more details and to see where the original data was taken from.

MARKET CHARTS

The second web tool is a set of charts for slaughter, feeder and replacement cattle. The tool offers an option to compare each group across whichever markets the user selects, either during a specific year or across years.

The auction comparison tool was designed to provide producers with information to help them in their marketing and purchasing options. By comparing years, producers can better evaluate how the current year is stacking up against previous years for a particular market.

Newsletter Provided by: Hierl's Property & Casualty Experts

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3 things you should be telling employees about HSAs

HSAs can seem to be complicated but can save your employees an additional 20 percent on average compared to paying out of their pockets. Here are 3 tips for an employer to keep in mind about HSAs.


Everyone wants to spend less on health care, but many employees don’t realize that an HDHP plan with an HSA might be the best deal they can get. Some people get scared off by an HDHP’s big deductible, some are accustomed to FSAs, and some just think an HSA seems too complicated.

But using an HSA to pay for health expenses can save your employees an additional 20 percent on average compared to paying out of their pocket. HSAs give them a way to pay for current and future medical expenses, and every dollar they save in their HSA saves you money on payroll taxes.

Here are three things you should be communicating about your HSAs:

1. FSAs are rubber, HSAs are glue

Many employees familiar with FSAs will expect that all health care accounts follow the “use it or lose it” rule. To them, saving a lot of money on health care will seem like a gamble since with an FSA, it can be better to save too little rather than way too much.

Make sure your employees understand that there’s no “use by” date on their HSA. The money they save will stick with them until they need it — this year, next year, or twenty years from now. Emphasize that the HSA is their account, and they’ll carry it with them even if they change jobs or retire. And speaking of retirement…

2. HSAs are a great way to save for retirement

Employees who understand their HSA may still only think of them as a way to cover their current medical expenses. The sobering reality is that the average couple will have over $240,000 in medical expenses during retirement. An HSA offers a great way to save for those expenses and other retirement costs.

Explain to your employees that HSA savings can be invested like a 401(k) and can grow year-after-year. An HSA actually offers better tax savings than an 401(k) when it’s used to cover medical expenses. Reassure your employees that there’s no downside to saving too much, because once they turn 65, their HSA savings can be spent on non-medical expenses, so they can use that HSA money to buy themselves those senior-discount skydiving lessons. And speaking of treating themselves…

3. You can pay yourself back with an HSA (thanks, self!)

Many employees worry that they’ll get no benefit from an HSA if they run into medical expenses before they’ve saved enough, so they choose an FSA, since their FSA annual contribution would be available immediately.

Let them know that they can use their HSA to “reimburse themselves” for any out-of-pocket money they spend on medical expenses. So if they spend $100 out-of-pocket on an X-ray in January, they can save some pre-tax money in their HSA during February, and write themselves a check for $100. Just remind them the medical expense has to be from afterthey opened the HSA—so setting it up right away is critical.

HSAs can save everybody money; employees just need to know how to make it work. Having a solid understanding of the benefits and flexibility of HSAs can help employees realize how easy it is to lower their taxes, cover their medical expenses, and save for the future.

SOURCE:
Schneider, C (2 July 2018) "3 things your clients should be telling employees about HSAs" [Web Blog Post]. Retrieved from https://www.benefitspro.com/2018/07/02/3-things-your-clients-should-be-telling-employees/


3 ideas to ease the transition to a high-deductible world

With high-deductible health plans rising to substantial heights, employers may not be thinking about the extreme changes happening ahead. Here are some tips on how to make a painless transition into a high deductible world.


We’re all familiar with the necessary evils of today’s society: paying taxes, going to the dentist and sitting in rush-hour traffic. Now, there’s another one to add to the list — high deductible health plans (HDHPs). They’re on the rise due to increasingly unmanageable health care costs caused by factors such as increased carrier and hospital consolidation, unregulated pharmaceutical prices, and a lack of financial awareness among medical providers.

In response, prudent employers who want to continue providing health benefits but can’t keep up with the costs are turning to HDHPs to share the financial burden with employees and encouraging those employees to become more disciplined shoppers. This is predictably being met with resistance.

But there’s a more urgent matter at hand: until we find a way to flip the health-care system on its head, we’re anticipating a future where networks get narrower and significantly limit options and deductibles rise to catastrophic heights.

Employers may not be thinking ahead for these drastic changes, which is why brokers can be instrumental in helping clients guide their employees toward the necessary mental and financial preparations. Here are a few ideas to get them started.

1. Shift gears to plan beyond the calendar year.

For most, health care is an infrequent experience that’s handled reactively: you get sick, you go to the doctor, your insurance foots the bill. However, now that employees are on the hook for potentially thousands of dollars, it’s crucial that they plan ahead.

To facilitate this shift in mindset, employers should encourage employees to:

  • Utilize a health savings account (HSA):When it comes to HSAs, people tend to fall into one of two schools of thought: “HSAs are a silver bullet” or “HSAs are a terrible excuse by politicians to allow the existence of HDHPs.” Rarely is a situation so black and white, and this one is no exception. HSAs aren’t the best choice for everyone. Certain demographics can’t afford to juggle the high costs of health care (and life) while also contributing funds to an account. However, it’s important to keep in mind that as costs continue to rise, more people will be pushed above the HSA qualification line and having an account may be the only life raft available when drowning in high deductibles — a trend we’re already starting to see.In an ideal world, the HSA wouldn’t exist. Out-of-control health care costs bear the blame for solutions like HDHPs — and the HSA is our consolation prize. The reason I advocate the utilization of these accounts for long-term planning is because they are the only health care benefit we have that encourages people to think beyond 12 months. Unlike the flexible spending account (FSA), the money in an HSA rolls over every year and grows over time, so it lets people save for years down the road (maybe when the pediatrician bills pile up, or you finally have that major surgery) vs. scrambling to spend their funds before the end of the year. Also, if an employer is contributing to an employee’s HSA, it’s leaving money on the table not to sign up for an account.
  • Shop for the best “deals”:Unless someone is a frequent flyer in the health care system, they might brush off shopping for healthcare since it seems like a lot of effort for a single doctor’s visit. However, considering the fact that the cost of an ACL surgery can vary as much as $17,000, those numbers certainly add up over time. (Even more so if a patient fails to find care that’s in network.) Helping employees understand this concept, and pairing it with an easy-to-use transparency solution, can save them tons of money in the long run — especially if the cost savings from each doctor’s visit are deposited into an HSA for future use.

2. Recognize that options are still available.

I’m not going to try to frame high deductibles in a positive light. It’s not the ideal situation for consumers or employers. But sometimes, just knowing there are options in a seemingly bleak situation can provide temporary relief. Here are some tips for employers to share with employees when they’re frustrated about their HDHPs:

  • Ask questions:Employees shouldn’t be afraid to ask questions. Healthcare is known for being convoluted, so it’s likely they’re not alone in any confusion they experience. They should start with health insurance and take time with the HR manager to understand the specifics of their coinsurance, copays, deductibles, and benefits so they’re aware of all their options, such as free preventive services. Another great place for questions is at the doctor’s office. Asking about and negotiating costs (yes, you can do that!) can have huge payoffs — Consumer Reports found that only 31 percent of Americans haggle with doctors over medical bills but that 93 percent of those who did were successful, with more than a third of those saving more than $100.
  • Stay educated:“Education” can be a tired term for brokers and employers. Employees never seem to read the emails and collateral materials that teams painstakingly curate each year. While disheartening, I think the focus on education is a long but ultimately rewarding process. Consider the 401(k). These plans struggled through the recessions in the early 2000s, but through constant behavioral reinforcement (helped largely by policies such as The Pension Protection Act, which made it easier for companies to automatically enroll their employees in 401(k) plans) and continued efforts by employers, 401(K)s bounced back and hold $4.8 trillion in assets today.The same lesson can be applied to your education efforts as well. That is, eventually the education will stick. So help create a new ecosystem for employees to navigate by getting timely information and resources out there about maximizing HDHPs and utilizing HSAs.

3. Stay optimistic because change is coming.

This point is a bit more abstract. Worrying about health care costs is exhausting, and things are likely to get worse before they get better. However, there’s been a lot of news in the health care space that should bring a glimmer of optimism.

For instance, we heard about the partnering of three industry powerhouses to create a new health care company for their employees. It’s been fascinating to see how much chatter this announcement has already generated and will likely keep traditional employer health care vendors on their toes.

While the trend of employers building coalitions to tackle health care costs is nothing new and it’s too early to tell how successful this initiative will be, the bigger point is that this is a strong signal that change is desperately needed. More and more companies — regardless of what industry they’re in — are starting to realize that they’re all in the business of health care. And as we gain power in numbers, I believe we will build the momentum to create some serious change.

It’s tough to win in today’s health care world, and it’s likely going to get even more challenging over the next few years.  But if brokers and employers can provide the right level of guidance, education, and resources, they can help employees better mentally and financially manage their high-deductible futures.

SOURCE:
Vivero, D (2 July 2018) "3 ideas to ease the transition to a high-deductible world" [Web Blog Post]. Retrieved from https://www.benefitspro.com/2018/02/08/3-ideas-to-ease-the-transition-to-a-high-deductibl/


The Importance of Business Continuity Planning

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Rarely do we ever get advanced notice that a disaster is prepared to strike. Weather, network failures, epidemics and violence are just a few of the disasters that could have an impact on a company’s reputation. Every incident is unique due to the challenges it presents. However, implementing a business continuity plan (BCP) can help give your organization the best shot at success both during and after a disaster. A current, tested plan in the hands of all personnel responsible can help mitigate the potential impact. The absence of a plan doesn’t just mean your organization will take longer than necessary to recover from a crisis – you could go out of business. In this installment of CenterStage, Cathleen Christensen, our VP of Property and Casualty, discusses what a BCP is, why it matters, keeping one in place, and how Hierl can help you build a strategy that works with it.

What is a Business Continuity Plan?

Business continuity refers to maintaining business functions or resuming them in a timely manner in the event of a crisis. Examples of crises include natural disasters such as weather, fire, or an epidemic outbreak like the flu, but also include events involving company reputation, violence and network breaches. A business continuity plan outlines the procedures and instructions an organization must follow in the face of such disasters. The plan not only identifies the internal and external needs of an organization after a catastrophic loss but lays out the path for recovery. Cathleen explains, “A business continuity plan can be the difference between successfully recovering or going out of business.”

Why Does Business Continuity Planning Matter?

The importance of having a business continuity plan cannot be stressed enough. Truth is, 1 in 5 organizations do not recover following a crisis. Severity vs. probability must be factored into the management of your organization. The purpose of having a business continuity plan is not only to prepare for a disaster both during and after, but to mitigate the potential danger and lessen the odds of attack for your organization. Serving as the ultimate disaster plan, it is vital that preparation information is made common knowledge amongst all levels of the organization - from the highest level down. To ensure a healthy and effective BCP, craft a plan following these seven steps:

1. Initial Response

Disruption in the day-to-day operations should trigger everyone to not only know what is wrong, but what – if anything – to do to resolve it immediately. Planning and exercising this element of the plan will eliminate the rush of, “What do I do,” from employees. Proper communication will allow there to be no holes in the plan.

The initial response should also provide a clear sense of who is in ‘charge’ when disaster strikes. Whether it be at a corporate level, regionally or locally, knowing who is overseeing the process towards recovery is vital to the success of a BCP.

2. Stabilization

Regardless of cause, every disruption needs containment to prevent a bad situation from getting worse. It is important to know what happened to cause the event and the potential impact it may bring if left unchecked. Assess the impact, know how to stop the bleeding and devise short and medium-term goals to appropriately address the situation.

3. Activation

Following an impact assessment, identify what services need to be restored. Additionally, note who is responsible for the plan – what will they do, where will they do it and with whom will they do it?

4. Communication

In the event of a disaster, stakeholders might initiate various actions to stabilize or restore services. Timely communication between various respondents is critical to an effective incident response. Communication during an incident should be geared towards management, employees, customers and others who have a stake in the business. The goal is to keep them updated regarding the current state of restoration activities and collaboration with responders.

5. Planned Response

These are the initial response activities that need to be taken to limit the loss of life and property in the time immediately before, during, and after a crisis. Items that could be included are:

  • What types of incidents or crisis situations activate the plan?
  • Who has authority to activate it?
  • Details regarding the incident response team
  • Evacuation procedures
  • Contact lists

6. Extended Response

Actual recovery may take days, weeks, months or even longer. After the initial response the recovery plan outlines the steps you will need to take to get your business running again after an incident or crisis. It includes a realistic time frame in which you can get your operations back on track to minimize financial losses. Forcing yourself to rely heavily on your initial or planned response will only worsen recovery efforts. Be knowledgeable about your staff and the direction the road to recovery is going.

7. Return to Normal

When disruption ends, questions will still need to be answered. These are not limited to questions such as, Is the return to ‘normal’ a ‘new normal’. Other questions could include, “How will work between ‘normal’ operations and post-catch up tasks be managed? How will my information for insurance purposes be collected?”

Maintaining a Business Continuity Plan

With a plan in place, efforts do not cease. To remain disaster ready, you must remain active in your preventative efforts. As the world around us changes, so should your BCP to remain up to date and effective in all threats. Communicating any changes that may have occurred with initial plan to employees is a must. There is no way for all members of your organization to remain ‘in the know’ if they are kept uninformed. With effective communication of the BCP comes proper training. As critical as communicating clearly is with employees, instructing them in a hands-on potential scenario leaves nobody in the dark on recovery execution when disaster strikes.

How Can Hierl Help Business Continuity Planning?

At Hierl, we offer the necessary tools for creating an effective BCP. By working hand-in-hand with your business/organization, we offer the resources to locate and analyze potential risks and to create a team within your business to properly manage disasters. To get started, speak with Cathleen today at 920-921-5921 or cchristensen@hierl.com.

 

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HSA How-To

Health Savings Accounts can be tricky, employees have the control, employers and insurance companies are there to guide them in the right direction. Here is a how to helping guide to assist your customers to the right HSA plan.


If an employer wants to offer employees pretax payroll deferrals to their health savings accounts, the employer needs to first create a Section 125 plan or cafeteria plan that allows HSA deferrals.

A cafeteria plan is the only way for employers to offer employees a choice between taxable and nontaxable benefits, “without the choice causing the benefits to become taxable,” the IRS says. “A plan offering only a choice between taxable benefits is not a Section 125 plan.”

Here are five things to know about HSAs and Section 125 plans.

1. A Section 125 plan is just one of several ways for employers to help employees with funding their HSAs.

Employers offering HDHPs face the choice of whether and how to help their employees with the funding of the employees’ HSAs. The options include the following:

  • Option 1 – Employee after-tax contributions.Employers are not required to help with the employees’ HSAs and may choose not to. In this case, employees may open HSAs on their own and receive the tax deduction on their personal income tax return. This option allows for income tax savings, but not payroll taxes. A variation on this option is for employers to allow for post-tax payroll deferral (basically, direct deposit of payroll funds into an HSA without treating the deposit any differently than other payroll which may also be directly deposited into an employee’s personal checking account).This does not change the tax or legal situation, but it does provide convenience for employees and will likely increase HSA participation and satisfaction.
  • Option 2 – Employee pretax payroll deferral.Employers can help employees fund their HSAs by allowing for HSA contributions via payroll deferral. This is inexpensive and can be accomplished by adding a Section 125 cafeteria plan with HSA deferrals as an option. Employers benefit by not having to pay payroll taxes on the employees’ HSA contributions. Employees save payroll taxes as well. Plus, HSA contributions are not counted as income for federal, and in most cases, state income taxes. Setting up automatic payments generally simplifies and improves employee savings.
  • Option 3 – Employer-funded contributions.Employers may make contributions to their employees’ HSAs without a Section 125 plan if the contributions are made directly. The contributions must be “comparable,” basically made fairly (with a lot of rules to follow). This type of contribution is tax deductible by the employer and not taxable to the employee (not subject to payroll taxes or federal income taxes and in most cases, not subject to state income taxes either).
  • Option 4 – Employer and employee pretax funding.Employers can combine options 2 and 3, where the employer makes a contribution to the employees’ HSAs and the employer allows employees to participate in a Section 125 plan and enabling them to defer a portion of their pay pretax into an HSA. This is a preferred approach for a successful HDHP and HSA program, as it ensures that employees get some money into their HSA through the employer contribution and allows for the best tax treatment to allow for employees to contribute more on their own through payroll deferral.
  • Options for more tax savings.Some employers go beyond these options to increase tax savings even more. Although a number of strategies exist to increase tax savings, using a limited-purpose FSA (or HRA) is a common one. Generally, FSAs are not allowed with HSAs; however, an exception exists for limited-purpose FSAs. Limited-purpose FSAs are FSAs limited to payments for preventive care, vision and dental care. This provides more tax savings and employees use the FSA to pay for the limited-purpose expenses (dental and vision) and save the HSA for other qualified medical expenses.

HRAs can also be used creatively in connection with HSA programs. The HRA cannot be a general account for reimbursement of qualified medical expenses, but careful planning can allow for a limited-purpose HRA, a postdeductible HRA, or other special types of HRAs.

2. There are several benefits for an employer using a Section 125 plan combined with an HSA.

  • Employees can make HSA contributions through payroll deferral on a pretax basis.
  • Employees may pay for their share of insurance premiums on a pretax basis.
  • Employers and employees save payroll taxes (7.65 percent each on FICA and FUTA for contributions).
  • Employers avoid the “comparability” rules for HSA contributions although employers are subject to the Section 125 plan rules.

3. The employer is responsible for administering the Section 125 plan.

For payroll deferral into an HSA through a Section 125 plan, the employer must reduce the employees’ pay by the amount of the deferral and contribute that money directly into the employees’ HSA.

The employer may do this administration itself or it may use a payroll service or another type of third-party administrator. In any case, the cost of the Section 125 plan itself and the ongoing administration are generally small and offset, if not entirely eliminated, by employer savings through reduced payroll taxes.

Another administrative element is the collection of Section 125/HSA payroll deferral election forms from employees. Employers that have offered Section 125 plans prior to introducing an HSA program are familiar with this process.

Unlike other Section 125 plan deferral elections, which only allow annual changes, the law allows for changes to the HSA deferral election as frequently as monthly.

Although frequent changes to the elections create a small administrative burden on the employer, the benefit to employees is significant. Employers are not required to offer changes more frequently than annually.

The full extent of the administrative rules for Section 125 plans is beyond the scope of this discussion.

4. Contributions to HSAs under Section 125 plans are subject to nondiscrimination rules.

A cafeteria plan must meet nondiscrimination rules. The rules are designed to ensure that the plan is not discriminatory in favor of highly compensated or key employees.

For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. Contributions that favor lower-paid employees are not prohibited.

The cafeteria plan must not: (1) discriminate in favor of highly compensated employees as to the ability to participate (eligibility test), (2) discriminate in favor of HCEs as to contributions or benefits paid (contributions and benefits test), and (3) discriminate in favor of HCEs as measured through a concentration test that looks at the contributions made by key employees (key employee concentration test). Violations generally do not result in plan disqualification, but instead may cause the value of the benefit to become taxable for the highly compensated employees or key employees.

The nondiscrimination rules predate the creation of HSAs and how the rules apply to HSA contributions is an area where additional government guidance would be welcome.

5. An employer needs a Section 125 plan to allow for HSA contributions through payroll deferral.

Can an employer allow for HSA contributions through payroll deferral without a Section 125 plan? No, not if the goal is to save payroll taxes. Employers can offer HSA payroll deferral on an after-tax basis without concern over the comparability rules or the Section 125 plan rules. Amounts contributed under this method are treated as income to the employee and are deductible on the employee’s personal income tax return. The lack of any special tax treatment for this approach makes it unattractive for most employers and with just a small additional investment of money and time, a Section 125 plan could be added allowing for pretax deferrals.

Here is an example: Waving Flags, Inc. does not offer health insurance or a Section 125 plan to its employees. Waving Flags does provide direct deposit services to its employees that provide it with their personal checking account number and bank routing number. Maggie, an employee of Waving Flags, Inc., approaches the human resources person and asks to have her direct deposit split into two payment streams with $100 per month being directly deposited to her HSA and the balance of her pay being deposited into her personal checking account. She provides Waving Flags the appropriate account and routing numbers and signs the proper election forms.

Waving Flags is not subject to the Section 125 nondiscrimination rules for pretax payroll deferral, nor is Waving Flags subject to the HSA comparability rules. Waving Flags is simply paying Maggie by making a direct deposit into her HSA. The $1,200 Maggie elects to have directly deposited to her HSA in this manner will be reflected in Box 1 of her IRS Form W-2 from Waving Flags as ordinary income. She will be subject to payroll taxes on the amount. She can claim an HSA deduction on line 25 of her IRS Form 1040 when she files her tax return.

Maggie benefits from this approach by setting up an automatic contribution to her HSA, which often improves the commitment to savings. Most HSA custodians will offer a similar system that HSA owners can set up on their own by having their HSA custodian automatically draw a certain amount from a personal checking account at periodic intervals. Employer involvement is not necessary. Individuals with online banking tools available to them may be able to set it from their personal checking account as well to push money periodically to an HSA.

SOURCE:
Westerman, P (2 July 2018) "HSA How-To" [Web Blog Post]. Retrieved from https://www.benefitspro.com/2018/01/01/hsa-how-to/


What's the Dish? Taylor Cerminara's Homemade Chocolate Ice Cream with Peanut Butter Swirls

Prior to joining our team, Taylor earned her Associates of Applied Sciences in Human Services and gained experience through her work at a skilled nursing facility.

In her free time, she enjoys the outdoors and when it's colder out, she loves to curl up with a good book.Some of her favorite hobbies include skiing, hiking, kayaking and canoeing...Read her full bio.

Dine In

Taylor loves making her Homemade Chocolate Ice Cream with Peanut Butter Swirls when she's dining in. Want to try it out? Try out her recipe below: 

• 3/4 cup sugar

• 1/3 cup unsweetened cocoa powder

• 3 tbsp cornstarch

• 2 1/2 cups whole milk

• 3/4 cup heavy cream

• 1 cup semisweet chocolate chips, divided

• Peanut butter filling

• 3/4 cup smooth peanut butter

• 1 tbsp plus 1 tsp heavy cream

• Pinch of salt

In a small bowl whisk together the sugar, cocoa powder and cornstarch.

In a heavy bottom saucepan, warm milk over medium heat.

Add the sugar mixture to the warm milk and whisk out any lumps.

Continue to heat over a medium flame until the mixture just starts to boil.

It will be thick, close to the consistency of chocolate pudding.

Pour the chocolate mixture through a fine-mesh strainer into a large bowl.

Add the heavy cream and 3/4 cup of the chocolate chips to the bowl.

Stir the cream and chips into the chocolate mixture until everything melts and is a smooth consistency.

Put plastic wrap directly over the chocolate mixture – making sure it touches the mix. This keeps a thick skin from forming on your ice-cream base.

Refrigerate at least two hours, overnight if possible.

While the chocolate base is cooling, make your peanut butter swirl. You want to make the peanut butter swirl the same day you will be churning your ice cream.

In a small bowl, whisk together the peanut butter, heavy cream and salt. Cover with plastic wrap and set aside at room temperature.

When your chocolate mixture is completely cool, churn it according to your ice cream makers instructions.

When completely churned, add the remaining 1/4 cup chocolate chips into the mixture, stirring to completely incorporate the chips throughout the ice cream.

Spoon into a freezer-friendly container.

Add the peanut butter mixture by dropping spoonfuls on top of the chocolate ice cream and swirling it through with a butter knife or stiff spatula.

Be careful not to stir too much so you don’t completely incorporate the peanut butter, but have thick swirls of it running through the ice cream.

Cover and freeze for several hours before serving.

Dine Out

When Taylor isn't dining in, her favorite place to go is Trepanier's Backyard Grill & Bar. Click here for directions.

Don't forget to check in next month for another edition of Dish!

Looking for an experienced advisor who can help you build a better employee benefits strategy? Visit this page.


Amazon has just entered the drug-distribution business

Amazon is the king, knocking big competitors out one by one. Today, they take down pharmacies by offering online health-care services. See what Amazon has in store here.


Amazon.com Inc. agreed to buy the online pharmacy startup PillPack, jumping into the health-care business with a deal that will give the retail giant an immediate nationwide drug network.

The move represents a formidable threat to pharmacy chains including Walgreens Boots Alliance Inc., which earlier Thursday reported tepid U.S. same-store sales, and rival CVS Health Corp. Walgreens was down 10 percent at 10:18 a.m. in New York, while CVS shares shed 8.9 percent.

Terms of the deal weren’t disclosed. The transaction is expected to close in the second half of 2018, according to a statement from the companies.

The U.S. market for prescription medicine is huge. In 2016, U.S. consumers spent $328.6 billion on retail prescription drugs, according to the U.S. government. CVS reported prescription sales of $59.5 billion last year, and Walgreens sold $57.8 billion worth of drugs in its fiscal 2017.

PillPack has mail-order pharmacy licenses in all 50 U.S. states, which could allow Amazon to expand quickly. PillPack also has relationships with most major drug-benefit managers, including Express Scripts and CVS, and says it works with most Medicare Part D drug plans. Those ties will give Amazon access to much of the prescription drug market in the U.S.

PillPack sells pre-sorted packets of prescriptions drugs, delivering them to customers in their homes. The closely held firm has software that automates many routine pharmacy tasks, such as verifying when a refill is due, determining co-pays, and confirming insurance. That eliminates much of the manual work that pharmacists often are saddled with now.

The pact follows months of speculation about Amazon’s plans to get into the pharmacy or drug-distribution business. Despite the retailer’s vast reach, entering the market presented a daunting logistical challenge in terms of licensing and dealing with a range of private and government payers. Acquiring PillPack’s networks helps Amazon surmount those hurdles.

Michael Rea, chief executive officer of Rx Savings Solutions, said PillPack could transform the industry and that employers and health plans would benefit from the deal, which he called a “sign of the times.”

“This move signals just how big of a market opportunity there is to change the pharmacy landscape,” Rea said in an email.

Amazon has been disrupting businesses from electronics to household staples and even package delivery. Pharmacy and health-benefits companies have long fretted that they’d be next. Chief Executive Officer Jeff Bezos signaled his interest in health-care earlier this year when he teamed up with Berkshire Hathaway Inc.’s Warren Buffett and JPMorgan Chase & Co.’s Jamie Dimon to form a health-care company to manage the health plans of their more than 1 million employees.

The selloff in drugstore stocks was reminiscent of the food-industry swoon that resulted in June 2017 when Amazon said it was buying Whole Foods Market Inc. Kroger Co., the biggest U.S. supermarket chain, saw $2 billion in market value wiped out in one day. Big packaged food stocks also took a hit.

“When Amazon sneezes, everybody else catches a cold,” said Joseph Feldman, an analyst with Telsey Advisory. “And I think that that’s more likely than not what you’re going to see today.”’

Long time coming

Prescription drugs sales are largely intertwined with groceries and personal items like makeup and shampoo and Amazon already sells bulk packs of latex gloves, bed pads and syringes. It recently began selling medical devices and instruments, as well.

Bezos has been thinking about the drug business for nearly two decades; in 1999, Amazon purchased a stake in Drugstore.com. That effort ultimately failed and Walgreens purchased the money-losing startup in 2011 and ultimately shut it down.

Pharmacist TJ Parker and computer scientist Elliot Cohen founded PillPack in 2013 after meeting at a medical-technology program at the Massachusetts Institute of Technology. The company raised more than $118 million from brand-name investors including Accel, Sherpa Capital and New York rapper Nas’s Queensbridge Venture Partners.

A September 2016 funding round valued the Boston-based startup at around $360 million, according to venture-capital database PitchBook. In April, CNBC reported Walmart Inc. was in talks to buy the company for “under $1 billion,” citing unnamed sources.

Standing firm

For now, Walgreens indicated that it was in no hurry to find a deal to respond to Amazon, despite the damage to its stock. On an earnings conference call, Walgreens CEO Stefano Pessina faced multiple questions from analysts about the PillPack deal.

“It is a declaration of intent from Amazon,” said Pessina.

He said Walgreens knew that PillPack was for sale as “it had been for sale for a while,” but that the retailer wouldn’t do deals based on emotions or make moves that could destroy value. Pessina insisted that physical pharmacies would continue to be “very important.”

The slump in Walgreens shares weighed on the Dow Jones Industrial Average, which added the stock to its index of 30 companies this month, replacing General Electric Co.

SOURCE:
Langreth R and Tracer Z (29 June 2018) "Amazon has just entered the drug-distribution business" [Web Blog Post]. Retrieved from https://www.benefitspro.com/2018/06/28/amazon-has-just-entered-the-drug-distribution-busi/