Financial Services News

What is Diversification?

G.R. Reid Consulting Services, LLC
 

Virtually every investment has some type of risk associated with it. The stock market rises and falls. An increase in interest rates can cause a decline in the bond market. No matter what you decide to invest in, risk is something you must consider.

One key to successful investing is managing risk while maintaining the potential for adequate returns on your investments. One of the most effective ways to help manage your investment risk is to diversify. Diversification is an investment strategy aimed at managing risk by spreading your money across a variety of investments such as stocks, bonds, real estate, and cash alternatives; but diversification does not guarantee against loss.

The main philosophy behind diversification is really quite simple: “Don’t put all your eggs in one basket.” Spreading the risk among a number of different investment categories, as well as over several different industries, can help offset a loss in any one investment.

Likewise, the power of diversification may help smooth your returns over time. As one investment increases, it may offset the decreases in another. This may allow your portfolio to ride out market fluctuations, providing a more steady performance under various economic conditions. By potentially reducing the impact of market ups and downs, diversification could go far in enhancing your comfort level with investing.

Diversification is one of the main reasons why mutual funds may be so attractive for both experienced and novice investors. Many non-institutional investors have a limited investment budget and may find it challenging to construct a portfolio that is sufficiently diversified.

For a modest initial investment, you can purchase shares in a diversified portfolio of securities. You have “built-in” diversification. Depending on the objectives of the fund, it may contain a variety of stocks, bonds, and cash vehicles, or a combination of them.

Whether you are investing in mutual funds or are putting together your own combination of stocks, bonds, and other investment vehicles, it is a good idea to keep in mind the importance of diversifying. The value of stocks, bonds, and mutual funds fluctuate with market conditions. Shares, when sold, may be worth more or less than their original cost.

Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

G.R. Reid Consulting Services, LLC and AAM  is not a registered investment advisor and is independent of American Portfolios Financial Services Inc.and American Portfolios Advisors Inc. Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.


The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal income tax penalty. You are encouraged to seek tax or legal advice from an independent professional advisor.

The above information was supplied by Emerald Connect, Inc. All rights reserved © 2011.  This material may not be reproduced without permission.

Accounting & Tax News

Green and LEED Standards for Energy Efficiency and Tax Incentives on Commercial Properties


:: Jonathan Cohen, CPA, Partner
631.425.1800 ext. 308
G.R. Reid Associates, LLP

G. R. Reid Associates, LLP is now in aligned with LEED Accredited Professionals, the American Institute of Architects’ (AIA) Executive Leadership, the United States Green Building Council Executive Leadership, and the Internal Revenue Service (IRS) to give clarity and awareness to the engineering processes involved in certification of public and private buildings.  The science of engineering and the principles of tax and accounting will allow us to arrive at financial solutions that result in increased cash flow, minimized tax payments and maximum return on investment and energy for our commercial clients. These IRS-sanctioned services include Energy Tax Credits, Energy Policy Act Certifications (179D Studies), Cost Segregation Studies, Research and Development Studies, Repair and Maintenance Studies,  Historic Tax Credits Studies, Engineering Insurance Appraisals, Energy and Carbon Audits. Without an engineering-based cost segregation study, taxpayers are unable to take full advantage of the tax law; therefore, they surrender significant cash flow to the IRS. Our alliances with a unique combination of experience and professional talent has enabled G.R. Reid to develop unique ways to identify and qualify commercial properties for energy accreditation and related tax benefits. Form more information, contact us.

Commercial Insurance Services

The Pros and Cons of Employee Leasing

: : Louis Santelli, CPCU, CIC, Managing Director, Commercial Insurance Services
631.923.1595 ext. 330
G.R. Reid Insurance Services, LLC

Employee leasing firms earned $68 billion in gross revenues in 2008, according to the National Association of Professional Employer Organizations. Their clients, primarily small businesses with fewer than 20 employees, outsource to leasing firms the responsibilities for payroll administration, employee benefits, workers' compensation claim management, human resource management, and related operations. Businesses trying to reduce costs and focus on growth may find employee leasing to be an attractive option. It is an option, however, that comes with advantages and disadvantages for both employer and employee.

The NAPEO cites a number of benefits from employee leasing. The benefits for employers include:

• Access to professionals with expertise in human resources, payroll, risk management, and employee benefits.
• Assistance with labor law compliance.
• Professional claim management.
• Reduced and controlled administrative costs.
• Professionally written employee handbooks, policies, and procedures.
• Relief from some employment-related liabilities.
• Reduced workers' compensation costs resulting from improved workplace safety.

Employees may also benefit from leasing in several ways.

• Access to benefits that might not have otherwise been available, such as 401(k) plans, cafeteria plans, insurance, and credit union membership.
• Timely and accurate paychecks.
• Protection under federal labor laws.
• Improved communication among and between employees.
• Employees who move from one leasing client to another do not lose eligibility for benefits.
• Efficient and timely claim processing.
• Assistance with employment-related issues.

Employee leasing carries some risks. A poorly managed leasing firm may mishandle payroll and benefits or may go out of business, leaving the client with its obligations. The employer may also be legally liable for the actions or inactions of the leasing firm. For example, if the leasing firm fails to comply with regulations, it may be the employer who bears ultimate responsibility. Also, the employer is ceding control of its workforce to a third party who may or may not do things the way the employer would. Employee relations may suffer during the transition to leasing.
From the employee's standpoint, the employer will have to fire and the leasing firm will have to re-hire him. Also, there is no guarantee that the leasing firm's benefits will be as good as those the employer offered. Some employers have also used leasing as a means to avoid dealing with unions, though federal rules may limit their ability to do this.

Employers who decide to lease their employees should carefully evaluate the leasing firms it considers. The financial stability of the firm and of the insurance companies providing its benefits are a major consideration, as the failure of either may leave the employer with unfunded obligations. The firm's experience in the employer's industry, track record of success, and safety record are also important. Another consideration is the range of benefits the firm offers; a plan that does not meet the employer's needs will not be worth the expense of hiring the leasing firm.

Employee leasing is a big step and not one to be taken lightly. Employers must weigh the upsides and downsides of leasing and make decisions that is best for their employees and their businesses.

Human Resource Services News

W2 Reporting Requirements

:: Deidre Siegel
Director, Human Resource Services
G. R. Reid Consulting Services, LLC
Read about G.R. Reid Human Resource Management Tools


The W2 reporting requirements for large employers will change for the 2012-year, filed in 2013. Employers with more than 250 employees will be required to report the cost of group health care coverage provided to employees. Employers with less than 250 employees will be required to report health care coverage costs in the 2013-year, filed in 2014.  In addition to the small employer exception for 2012, the following additional exceptions will be in effect:

• An employer that contributes to a multi-employer plan is not required to report any coverage costs for such plan
• Indian tribal governments are not required to report
• A self-insured church plan that is exempt from federal health continuation requirements is also not required to report the amount of coverage on the W-2
• The cost of coverage provided by a government entity for the benefit of military members and their families is not subject to reporting.  

If a large employer is not exempt from filing based on the aforementioned exceptions, the system requirements should immediately be examined to ensure compliance. If an employer does not comply, a penalty of $200 per return to a maximum of $3 million per year will be imposed.

Employers are required to report the costs for the covered employee plus the employer cost for any covered dependent and the amount paid by the employee on a pre-tax or after-tax basis. This includes FSA as well if the employee’s health FSA for the plan year exceeds the salary reduction election for the plan year when an employer contributes to the FSA Plan. For example, if an employee elects to contribute $700 to the FSA Plan and the employer matches it, then the employer contribution of $700 must be reported.

The IRS notice also indicates that if the employer charges the same rate to all employees regardless of the scope of coverage, it can report that same cost for all employees. If the employer charges rates based on a coverage tier, the employer can report the same cost for each coverage tier.

In addition, if a former employee has continued coverage for the year under COBRA, this should also be reported on the W2. The IRS Notice states that the cost of coverage must be determined on a calendar year, therefore some COBRA rates will need to be converted to a calendar year amount for purposes of reporting the costs. If a former employee requests a W2 prior to the end of the calendar year, the employer is not required to include the cost of the coverage on the midyear W2.

Lastly, if dental and vision plans are separate coverages and not included within the health plan, these do not need to be reported on the W2. The reporting is solely for health plan coverage and FSA plans when applicable.

The aggregate employer cost is reported in Box 12, using code DD. This reporting is for information only and does not make such amounts taxable.

For further information on the W2 reporting notice, you may visit http://apps.irs.gov/pub/irs-drop/n-11-28.pdf

Life, Disability & Long Term Care Insurance Services

Uncovering the Mysteries of Whole Life Insurance



: : Roland A. Vitanza, J.D.
Specialist in Life, Disability and Long Term Care Insurance
631.923.1595 ext. 342  
G.R. Reid Consulting Services, LLC
                               
This article will focus on several factors which make Whole Life Insurance a dynamic asset to any family protection plan.  In the last discussion of Whole Life Insurance we glossed over the main benefits of A whole life insurance policy; now I will discuss the strengths of Whole Life Insurance that are not so obvious to the everyday American.

The growth of cash value inside of the life insurance policy is deferred from taxation while the funds remain in the policy, making whole life insurance a wealth protecting instrument.  During the insured’s life, cash values can be accessed under advantageous tax rules.  This means that dividend withdrawals are tax-free up to the amount cumulatively pain in premiums.  If a policy owner takes a loan against the life insurance policy, this will not create a taxable event, even if the policy may have a substantial gain in excess of paid premiums.  A policy owner may have the policy pay for itself by using dividends received to pay the premiums.  This is a tactic that can be used at any time by the policy owner and the policy owner can also choose to stop this option and continue making premiums payments themselves.  If a policy loan has been taken, the annual dividend can be used to pay back a policy loan.  By taking a loan from the policy, the policy owner is avoiding the use of loan applications and having to deal with lenders and interest payments.  That being said, a whole life policy may also be used as collateral to receive a loan with a favorable interest rate.  This increases the value of whole life insurance exponentially.

Whole life insurance loans are paid back on a flexible schedule decided by the policy owner.  If a policy owner wishes to pay back to the loan, then he may do so, and the death benefit will rise accordingly.  Furthermore the policy owner will be able to continue to borrow from the policy at any time and if dividends received are allowed to accumulate within the policy the policy death benefit will grow helping to resist the eroding effects of inflation.