GEORGE JOHNSON & COMPANY
Dear Clients and Friends,
This issue discusses important concepts about cash balance plans; what plan sponsors need to know about 401(K) service fees; tax reform and how it could affect ESOP valuations; and cybersecurity as it relates to plan sponsors’ fiduciary duty.
Political candidates who don’t know the cost of a gallon of gas or a movie ticket usually wind up paying that price with voters and losing on election day. Likewise, many plan sponsors are finding themselves on the losing side of lawsuits because they allowed their defined contribution plan to pay unreasonable service fees.
Plaintiffs’ class action lawsuits against excessive fees dominated Employee Retirement Income Security Act (ERISA) litigation in 2017, according to Seyfarth Shaw’s annual Workplace Class Action Litigation Report. Of the $2.72 billion spent by employers on the top 10 aggregate workplace class action settlements, nearly $928 million came from the 10 largest ERISA settlements. That is up from $807 million in 2016.
The Tax Cuts and Jobs Act of 2017 (TCJA) was the most sweeping change to the tax code since the mid-1980s. There were only a few provisions in the law that apply to employee stock ownership plans; the reduction of corporate taxes in particular will have a significant impact on stock valuations in these types of defined contribution plans. As a result, companies with ESOPs should begin thinking about what a potential surge in their stock valuations in 2018 could mean for their funding strategies.
The TCJA lowered the top corporate federal tax rate from 35 percent to 21 percent. The change is significant for all companies, and especially companies that have ESOPs because it:
- Generates additional cash flow for a company
- Could boost net profits, which in turn would increase the value of the stock in the ESOP
- Could result in a higher repurchase obligation because of the higher value of the stock in the ESOP
We’ve all received suspicious-looking emails asking us to provide personal information to redeem a prize that we’ve won or alerting us that someone we know needs financial help. By now, most of us recognize these scams-and don’t open the email.
But what if the message looked like it was coming from an official, known source? Would you open an email you thought was coming from your 401(k) service provider or the sponsor of your retirement plan?
It’s vitally important for plan sponsors to consider questions like these because retirement plans and the $28 trillion that they currently hold in the United States are major targets for cyber hackers. Cyber criminals are becoming increasingly sophisticated in targeting entities that manage vast amounts of assets and personal data-two characteristics inherent in retirement plans and their service providers.
Join us in congratulating Michael Nicholas and Gloria Zhao on their tenure with GJC!
We are happy to share that our Quality Control Principal, Michael Nicholas is celebrating 32 years of service with George Johnson & Company. He joined GJC in 1986 and has been a Principal since 1994. Aside from being responsible for managing all facets of audits, reviews, other attestation engagements, and tax return preparation services for our clients, Mike also maintains our quality control standards. We are fortunate to have him on our team!
Luanne MacNichol – Director, Employee Benefit Plan Audit Practice, BDO USA LLP
Kim Flett – Compensation & Benefits Services Managing Director, BDO USA LLP
Lee Klumpp – National Assurance Partner, Nonprofit & Government Industries, BDO USA LLP
The Nonprofit Organizations & Foundations Seminar was later held on May 22nd. Our keynote speaker was the highly accredited Lee Klumpp, National Assurance Partner – Nonprofit & Government for BDO, out of the Washington, D.C. office. Lee discussed the latest trends and topics including tax reform and current accounting developments affecting the nonprofit industry.
With various changes occurring in the industry, we modified the format of the seminar by supplementing with two additional guest speakers. Following Lee’s presentation, Attorney Jeremy Cnudde, from KempKlein, spoke about Mergers & Acquisitions and Creating Value for Nonprofits. John Caldwell, Investment Specialist and Executive Director of J.P. Morgan Private Bank, discussed Key Principles of Effective Governance & Investment Management and Investment Policy Statements for the Current Environment.
Jeremy Cnudde – Attorney/Shareholder, KempKlein Law Firm
Based on the seminar feedback, we are pleased to announce that the attendees were overall satisfied with the new format! Stay tuned for future seminars!