Dear Clients and Friends,

Welcome to our Summer issue of the GJC Advisor, Employee Benefit Plans edition.

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.

Below in our Spotlight segment, you can read about team members Michael Nicholas and Gloria Zhao’s tenures with the firm. We recognize how important it is to have a team of hard-working individuals and we are grateful for the services they provide each and every one of our clients.
You can also see in our Community section, we took a look back and shared some photos from our Annual Client Seminars. If you are interested in receiving information from our seminars, contact Rodelyn Frijas at rfrijas@gjc-cpa.com. We would be happy to share. Following the seminars, the speakers stayed to train our accountants on reporting updates as it relates to the industries we service. The continued educational programs ensure that we use the most current standards and practices.
We hope you enjoy this Employee Benefit Plan edition of the GJC Advisor. As always, if you have any questions, feel free to contact us.
George Johnson & Company
Cash Balance Plans: An Effective Strategy to Maximize Retirement Savings for Key Employees

Competition for talent is fierce today, and many employers are searching for solid benefit strategies to attract and retain top employees. One approach that can accomplish these goals is the cash balance plan. These plans have been growing in popularity in recent years despite the fact that many in the benefits industry once considered cash balance plans to be nearly extinct.
Cash balance plans-also known as hybrid plans-are a type of defined benefit plan where employees see their accounts just like they would in a defined contribution plan. Unlike 401(k)s, however, employers-not employees-contribute to an account.  These accounts are known as hypothetical accounts because cash balance plans are ongoing, not finite like a 401(k). Contributions to the accounts comprise two calculations: one that is based on a pay credit (which is typically based on a percentage of pay or a flat dollar amount) and the second is a fixed or variable rate interest credit.
Fees for 401(k) Services: What Plan Sponsors Need to Know

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.

How Tax Reform Could Affect ESOP Valuations

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
For C Corporations, the increased repurchase obligation may not be difficult to manage. In many cases, the rise in the repurchase obligation will be offset by increased cash flow as a result of the lower corporate tax rate.
Retirement Plan Sponsors: Is Cybersecurity Part of Your Fiduciary Duty?

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!

This year also marks Gloria Zhao’s 16th year with us. Gloria started in 2002 as a staff accountant and has progressed to Principal in 2007. Among many responsibilities, including managing all facets of audits and reviews for many of our major clients, Gloria also serves as our Certified Fraud Examiner. We are proud to have Gloria on our team!
We appreciate the selfless service Mike and Gloria have provided for so many years. It is the loyalty, hard work and expertise that have helped GJC achieve its present stature.
Congratulations to Mike and Gloria!


Annual Client Seminars
Earlier this year, GJC hosted its annual client seminars at the historic DAC (Detroit Athletic Club).

On February 27th, our keynote speakers from BDO, Luanne MacNichol of Grand Rapids, and Kim Flett out of Akron, Ohio, shared the podium and addressed hot topics in the Employee Benefit Plan industry including: impacts of tax reform on compensation and benefits issues and important information regarding employee benefits; Affordable Care Act updates; cybersecurity; and Department of Labor and Internal Revenue Service investigations – current trends and best practices for sponsors of benefit plans.

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!

If you are interested in receiving information from the seminars, or if you would like to be added to our events guest lists, please contact Rodelyn Frijas at rfrijas@gjc-cpa.com.