By: Sharon Jeffries, Human Resources Manager

The Employee Retirement Income Security Act (ERISA) requires plan administrators (employers) to give plan participants in writing the most important facts they need to know about their health benefit plans.

One of the most important documents participants are entitled to receive automatically when becoming a participant of an ERISA-covered health benefit plan is a summary of the plan, called the Summary Plan Description or SPD. The plan administrator is legally obligated to provide to participants, free of charge, the SPD. The summary plan description is an important document that tells participants what the plan provides and how it operates. It provides information on when an employee can begin to participate in the plan, how service and benefits are calculated, when and in what form benefits are paid, and how to file a claim for benefits. If a plan is changed, participants must be informed, either through a revised summary plan description, or in a separate document, called a Summary of Material Modifications, which also must be given to participants free of charge.

A Wrap Plan Document is designed to meet plan documentation requirements under ERISA and other federal laws and to incorporate all other welfare plans, insurance contracts, and other relevant documents into a single plan. These materials can be kept together for administrative ease. The Wrap Plan Document provides additional legal protection for the employer and plan fiduciaries and can simplify plan administration.

What Does That Mean?
In the past, much of the regulatory focus was on the retirement side of the ERISA legislation. However, with the implementation of the Patient Protection and Affordable Care Act (PPACA), that has changed. Much of the current government monitoring, oversight, and auditing relates to the health and welfare side of the ERISA regulation.

ERISA now requires employers who are plan administrators of their group health plans to comply with two (2) critical requirements or they will risk potential penalties and possible government audits.

Those requirements are:

• Maintain and distribute SPDs to plan participants which accurately reflect the contents of the plan and which include specific information as required under federal law.
• Group health plans must be administered in accordance with a written Plan Document which must be made available to plan participants and beneficiaries upon request.

Are You at Risk?
Yes, and the reason is this: Many banks will mistakenly assume that insurance contracts, certificates of insurance, and benefit summaries fulfill the ERISA requirements for an SPD and Plan Document, but they do not. And, the primary reason is that they do not include the required or recommended provisions that protect the plan and the employer.

What Should You Do?
Recognize that:

• Failure to provide an SPD or Plan Document within 30 days of receiving a request from a plan participant or beneficiary will result in a penalty of up to $110/day for each violation.
• ƒƒLack of an SPD could trigger a plan audit by the United States Department of Labor (DOL).
• The United States DOL has increased its audit staff and national enforcement initiatives to investigate employers’ compliance with Health Care Reform, resulting in companies of all sizes being audited and being required to provide an SPD and Plan Document.

The Solution
Do not try to create these documents in house. Allow experts in the areas of benefits and benefits regulations assist you with this monumental effort. Young & Associates, Inc. has partnered with The Alpha Group Agency, Inc. to offer our clients this unique service. The Alpha Group Agency, Inc. is a highly skilled, reputable organization involved in the management of health insurance services as well as other related subjects.

The Alpha Group Agency, Inc. has been an advisor to Young & Associates, Inc. for almost fifteen (15) years in the management of its group health insurance plans. For additional information on how you can become compliant with these critical ERISA regulations and also lower the risk of a DOL audit, contact Sean Nehlsen, The Alpha Group Agency, at 1.800.886.3315 or snehlsen@thealphaga.com.

By: Stephen Clinton, President, Capital Market Securities, Inc.

Market Update

The economy continued to move forward into the seventh year of post-recession recovery. The first quarter growth in the U.S. economy was 1.1%. The following summarizes certain issues we think are worth watching:

• Brexit shook the markets in June. Britain’s vote to leave the European Union has caused the market additional concern about world-wide economic growth prospects.
• This adds to the existing concerns about growth potential in the world’s second largest economy, China.
• ƒThe Federal Reserve is in a holding pattern as we approach its late September policy meeting. Most believe that the Fed wants to continue to move interest rates upward, but they are being cautious.
• ƒJune’s job growth report indicated a renewed momentum in the labor market. After a dismal report in May, the job growth in June exceeded most analysts’ expectations. Unemployment was reported at 4.9%. This falls within the Fed’s normal long-run employment target of between 4.5% and 5%.
• ƒThe tightening job market has put upward pressure on wages as employers are in competition to find workers. The average hourly earnings for private-sector employees was estimated to have increased 2.6% in the last year. This is the highest growth in wages since 2009. Since 2000, median household income (adjusted for inflation) has dropped 7%. Thus rising wages is a positive sign for future consumer spending.
• The global issues have caused the U.S. dollar to gain value. The dollar has increased in value almost 10% over the last year. This increase makes U.S. exports more expensive.
• ƒƒBusiness investment has been slowing. Companies have been hesitant to invest in machines, technology, and inventory. The level of business investment in capital goods has declined nearly 12% since 2014.
• ƒOil prices continue to remain well below historical levels. This has impacted the market in a variety of ways. Consumers and businesses have benefited from lower gasoline prices. However, the oil production firms have been hard hit and banks are being forced to strengthen their loan loss reserves for struggling oil related
  firms.
• After years of volatility, home prices have grown at an annual rate of approximately 5% since early 2015. Increasing home prices and low mortgage rates have made the housing market one of the strongest sectors in the U.S. economy in recent months.
• We are now approximately three months from electing a new President. The differences between the two candidates appear to be dramatic. The uncertainty surrounding the election will impact the markets until after the election.

Short-term interest rates remain historically low with the 3-month T-Bill ending June at 0.26%. The 10-Year T-Note ended June at 1.49%, down 78 basis points from year-end 2015. This has led to a significant reduction in the slope of the yield curve.

The stock market performance in 2016 has been mixed. The Dow Jones Industrial Index closed June up 2.90% for the year. The Nasdaq Index closed down 3.29%. The Nasdaq Bank index ended June down 4.18%. Larger U.S. banks fared even worse, ending the first half of 2016 down 11.25%.

Interesting Tid-bits ƒƒ

• Lost value. Since the start of 2016, 20 of the world’s largest banks have lost a quarter of their combined market value. In total, approximately $465 billion has been lost.
• ƒƒPrinting money? The Fed owns approximately $2.4 trillion in U.S. Treasury debt at the end of June. This represents approximately 20% of the total U.S. Treasury Debt.
• ƒƒThe wealthy get richer. It was recently reported that the top 20% of American families account for 48.9% of total U.S. income compared to 44.3% in 1990.

Merger and Acquisition Activity
In the first half of the year, there were 114 bank and thrift announced merger transactions. This compares to 139 deals in the first half of 2015. The median price to tangible book for transactions involving bank sellers was 131% which is down from the 141% median recorded in 2015.

By: Gary J. Young, President and CEO

For 30 years, I have had the pleasure of working with community banks across the country in developing a strategic plan. Yes, my first strategic planning engagement was in 1986. I recently completed a strategic plan for a great bank in Alaska, the first one in that state. There are two banks in Ohio that I have been facilitating strategic plans for since the mid-1980s. And there is another bank in New Mexico in which I am approaching 20 years. Many others are new clients. I certainly feel that I have helped those banks succeed in the way they define success. I also have learned from
all of my strategic planning clients. Those main items are the subject of this article. Regardless of how you approach strategic planning, I believe these concepts will help make your plan meaningful to the management team and the board of directors.

The following are the 8 lessons learned from the facilitator:

1. There is no value in a strategic plan. I know this is a strange thought coming from a strategic plan facilitator. But, I have learned that value is achieved only when the plan is implemented to the benefit of the bank. It is absolutely critical to build consensus and buy-in. If participants believe the plan is from the facilitator, you have lost. The facilitator is there to achieve consensus on the bank’s plan, then write that management and the board want to implement for success.

2. A strategic plan is not about predicting the future, but making the future. Nobody can predict the future. But, that’s not what strategic planning is about. An effective strategic plan is about making the future not predicting it. That’s why I often ask plan participants, “If you could envision the perfect future for your bank, what would it look like, or be like in five years?” The goal is to then build strategies and tactics to deliver the consensus of that perfect future. Of course, there will be deviations from which a change-in-course will be made. We call that good management.

3. There is no one best plan. I have seen successful banks run in an extremely conservative manner and successful banks run in an extremely aggressive manner. There is never one best way. Whatever the strategy, I can give you an example of a successful bank that took a different position. The key is to have a consensus in strategy that exists between the board of directors and senior management. I don’t mean there needs to always be agreement on issues, but agreement on the basic core values that lead to direction.

4. Every good community bank needs to fill in the blank. However you might define this statement, it is wrong.  Community banks are incredibly unique. While Bank A may have 80% of things in common with Bank B, they are still incredibly different. To the facilitator, keep your EYES WIDE OPEN. Only in that way, will you see the nuances that make the job of facilitating a strategic plan rewarding and down-right fun.

5. Banking is about risk. Without risk there is no bank. This relates to 3 and 4 above. But, it is critical that the facilitator help define the risk appetite of the directors. This will then help define capital adequacy which ultimately is at the heart of every strategic plan. Management and the board of directors need to understand there is no right answer. Your risk appetite is all that matters. But, I will tell you one thing that is absolutely wrong: taking risk that is beyond your appetite and that you don’t fully understand. Please, never do that.

6. Define your target or goal for capital. This is a part of 5 above, but it is critical. Let’s assume that capital adequacy based on risk is 7.5%, but the board wants to maintain 9.5%. This is certainly OK, but understand there is a cost to the excess capital. Excess capital could be viewed as an insurance policy against potential losses. Many banks that had excess capital during the Great Recession were certainly happy they did. Excess capital could also be used as pportunity capital in case it is needed for a branch purchase, bank purchase, etc. But also remember, as the tier-1 leverage ratio increases, the return on equity decreases, all other things being equal. A decrease in return on equity is a drag on shareholder value.

7. Asset quality can kill you. Discussing asset quality is not as exciting as many other issues. But, nothing will derail a bank’s plans quicker and more completely than problems in asset quality. Even though loan growth drives asset growth, which is a key component of bank success, we must remember to aggressively seek and conservatively underwrite, and thoroughly understand the risk associated with the loan growth.

8. A facilitator will never know your bank or your market like you do. I am like most other facilitators. I have had the experience of working with hundreds of community banks and seeing how things work positively and negatively. That is my perspective and it is good to have that voice at the retreat. But, I always remind new clients that while I have an experienced perspective, just because I share an opinion does not make it right for your bank in your market. It might be right for 95% of other banks, but that doesn’t mean that it is right for your bank.

I hope that you will consider these concepts as you complete your next strategic plan. And, if you are considering a facilitator, I hope you consider Young & Associates, Inc. If you would like to discuss this article or strategic planning, please call me at 330.283.4121 or click here to send an email.

By: Stephen Clinton, President, Capital Market Securities, Inc.

Market Update – Slow Liftoff
Following its first rate increase in almost a decade in December, the Fed has decided to proceed cautiously on future rate increases. At the Fed’s meeting in March, the Fed held rates unchanged. The minutes of the March meeting indicated that there were various opinions as to how quickly interest rates should be increased. It appears that two increases is the most likely scenario this year.

In other economic developments:

• U.S. GDP expanded at a 1.4 percent seasonally adjusted annual rate in the fourth quarter of 2015. This continues the economic recovery that began seven years ago.
• The latest inflation rate for the United States is 1.0 percent for the 12 months ending February 2016. This is well below the Fed’s target of 2 percent and gives the Fed latitude to slowly increase interest rates.
• Job creation has been at the forefront of the economic recovery. The Labor Department reported that more Americans were hired to start a new job in February than in any month since before the recession began in 2007. The unemployment rate edged up to 5 percent in March, but that was largely due to more Americans joining the labor force.
• Manufacturing activity remains soft. Weak global growth, low oil prices, and financial volatility were cited as reasons for a decline in orders for durable goods. A bright spot, however, was the U.S. auto industry that recorded its best month of sales in over ten years in March.
• Another indicator of the impact foreign economic growth has had on the U.S. economy was revealed in the decline in U.S. exports. In February, the export activity was 4.2 percent below the level of the prior year. The strong dollar also has impacted exports in that the stronger dollar makes U.S. products more expensive.
• The non-manufacturing sector of the U.S. economy continues to show strength. According to the Institute for Supply Management, non-manufacturing activity rose to 54.5 in March. (A reading above 50 signals expansion.)
• U.S. consumers barely increased their spending in February and spent less in January than the government had estimated earlier. Consumer spending edged up 0.1 percent in February. The government also revised downward its estimate of spending growth in January from a solid 0.5 percent gain to a much weaker 0.1 percent, which matched December’s lackluster figure. With consumer spending, which fuels about 70 percent of the economy, off to a weak start in 2016, economic growth in the first quarter is anticipated to be weak. Impacting consumer spending is the slow growth in incomes which moved up just 0.2 percent in February.
• Home prices continued rising at a steady clip in January, another sign that 2016 will offer more of the same in the housing market: tight inventory leading to rising prices and sales volatility. The S&P/Case-Shiller Home Price Index, covering the entire nation, rose 5.4 percent in the 12 months ending in January.
• Oil prices have moved up recently. Oil prices remain down more than 20 percent from last year. Most analysts still see the market as over-supplied but some expect that falling U.S. output and rising demand will alleviate some of the glut later this year.

We do expect the economy to strengthen later this year. We anticipate GNP reaching 2 percent for the year as a whole. Job growth remains positive and the dollar’s strength has weakened somewhat perhaps aiding export growth. We think home building and home sales will be a positive to the economy and expect the limited supply to cause home prices to continue their upward trend. We agree with the forecast of two rate increases this year, as we expect the Fed to move cautiously.

Interesting Tid Bits

• The GSEs continue to be a source of funding for US government spending. In all, Fannie and Freddie received $187.5 billion from the Treasury but have paid $245.8 billion back in the form of dividends.
• Baby boomers are re-writing the old adage that as you get older you seek to get out of debt. The Federal Reserve reported that the average 65 year old borrower today was reported to have 47 percent more mortgage debt than in 2003. They also have 29 percent more auto debt. Both figures were adjusted for inflation.
• It is projected that this year Americans will use prepaid cards (including gift cards) to a total of $651 billion, an increase of 57 percent from six years ago.
• During the first six weeks of 2016, the KBW Bank Index dropped nearly 23 percent to a three-year low. Over the same period, the Dow Jones Industrial Average fell slightly more than 10 percent over the same period.

Short-term interest rates remain low, with the 3-month T-Bill ending March at 0.21 percent. The 10-year T-Note ended March at 1.78 percent. The yield curve has flattened with the 10-year T-Note falling 49 basis points since December 31, while the three-month T-Bill increased 5 basis points.

The general stock market struggled out of the gate in 2016. As noted above, the market recorded a significant correction in the first six weeks of the year. The market has recovered with the Dow Jones Industrial Index ending March 31 up 1.49 percent for the quarter. This marks a new high for the Dow. The KBW Bank Index ended the March quarter down 12.11 percent. The poor performance of the banking sector is attributable to a variety of concerns, including problem loans surfacing related to the oil industry, continued margin compression issues as interest rates are not rising as quickly as anticipated, and limited growth prospects due to the slow growth of the U.S. economy.

Merger and Acquisition Activity
For the first quarter of 2016, there were 64 bank and thrift announced merger transactions. This compares to 66 deals in the first quarter of 2015. The median price to tangible book for transactions involving bank sellers was 129 percent which is down slightly from 2015’s median value.

Young & Associates, Inc. has been a resource for banks for over 37 years. Through our affiliate, Capital Market Securities, Inc., we have assisted clients in a variety of capital market transactions. For more information on our capital market services, please contact Stephen Clinton at 1.800.376.8662 or click here to send an email.

By: Mike Lehr, Human Resources Consultant

When clients see adverse impacts in their Affirmative Action Plans (AAP), it is not unusual for them to say, “So Mike, does this mean I have to hire more females and minorities?” This is the wrong question. It should be, “How do we look into this more?”

AAPs are similar to insurance policies. They help us identify risk in our recruiting, hiring, compensation, promotion, and termination policies and practices. If the Equal Employment Opportunity Commission or the Civil Rights Commission investigate a complaint, they will very likely want to see our AAPs. As with insurance, good plans afford us more protection than bad ones do.

When adverse impacts arise with clients, I automatically look at two areas first:

1. Employment practices and activities
2. The plan’s statistics

Employment Practices and Activities
I review employment practices and activities in affected areas first for two reasons. First, too often what should happen differs from what actually happens. There might not be anything wrong with the policy or practice. It just isn’t being followed well. Why change it? This often happens with policies regarding the acceptance of applications and completion of self-identification disclosures.

The second reason why I look at employment practices and activities first is that they give me ideas on where better recordkeeping might help produce better statistics. This makes revisiting the statistics easier and more directed.

This happens often when we dive into the specifics of a job. Since community bankers often wear many hats, weighting the job against several census codes rather than just one is better. Also, since many community banks serve rural communities, the census sample for a job might be too small to be representative. A next best code can come into play then.

Plan Statistics
When it comes to the plan’s statistics, too often they are based on what is easy to track and figure. This shows up most in the job groups used to categorize jobs, the availability of candidates for openings (promoting from within versus hiring from outside), and the census codes used to compare banks’ jobs with the outside world.

I’m not a fan of redoing calculations after the results. I am a fan of saying, “In order to understand this and our options better, how can we improve our data collection for next year?” It’s similar to analyzing a credit. If there are questionable items, we ask for more information.

As an example, I often recommend dividing up the Professional job group (2) into Lending Professionals (2.1) and Administrative Professionals (2.2). Lending and credit jobs can be in the first group, and accounting, finance, marketing, trust, and other non-lending related jobs can be in the second.

Since lending is a specialized skill to banking and is often sales-related, it frequently creates adverse impacts and compensation disparities for the Professional job group. This can happen if census data is small but not enough so to justify alternative census codes.

Granted, the adverse impact might not disappear. Knowing it’s focused on lending or administrative professionals does help though. Rather than carefully monitoring practices in the entire Professional Job Group, we might only need to focus on a sub-set of it.

Additionally, for the same reasons, I often recommend splitting up the Administrative Support Group (5.0) into three groups such as Ancillary (or Executive) Administrative Support (5.1), Operational Support (5.2), and Retail Administrative Support (5.3).

Often, 75 percent of the jobs in Retail Administrative Support are tellers. They are introductory jobs often filled from outside. More promotions-from-within occur with the other administrative support groups. This pattern affects availability and compensation calculations.

Compensation
From a statistical perspective, I also focus on compensation because it’s grayer than clients often think it is. Even The Code of Federal Regulations (see § 1620.13 through § 1620.19) admits that what is equal pay for equal work “cannot be precisely defined.”

Furthermore, “‘equal’ does not mean ‘identical.’” It is defined by the job’s requirements in terms of skill, effort, and responsibility, not the qualifications of the person unless they specifically impact those requirements. That means two jobs with different titles could be “equal.” That means having better qualifications does not matter unless those qualifications are important to the job.

That is why it helps to begin compensation analyses with job groups, not jobs with the same title. The latter could easily give a false sense of security. Starting at the global level and working down forces us to really look at what makes jobs unequal. AAPs with workable job groups and census codes can help prioritize the jobs and the job descriptions we need to rework or revisit with legal counsel.

Conclusion
Returning to the original question, AAPs have many ways for us to look into adverse impacts and compensation disparities more. A good plan not only provides us good insurance against adverse actions, it guides and prioritizes us. This saves our time and money.

For more information on Affirmative Action Plans, contact Mike Lehr at 1.800.525.9775 or click here to send an email.