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Bring SPF. Take CPE.JULY 6, 7, & 8
Ocean City, MD | Clarion Resort Fontainebleau Hotel
LEADERSHIP ACADEMYFostering CPAs’ leadership and strategic
skills to move careers forward, faster.
It’s not about climbing the ladder.
It’s about serving your team, your organization, and yourself.
It’s about being a CPA who can lead well.
AUGUST 24-26 2016
In the fast-approaching future, successful CPAs must be leaders. Leadership Academy is the starting point for unlocking the full potential in the profession’s best and brightest young CPAs. This three-day event is cited by past participants as a transformative boost to their careers.
Event ID: 371001 • Towson • Sheraton Baltimore NorthUP TO 20 CPE CREDITS
BLIonline.org/LeadershipAcademy
INNOVATION | TECHNOLOGY | LEADERSHIP
Future-ready CPAs growing to meet theopportunities of tomorrow.
CPA
• TECHNOLOGY SKILLS Learning practical tools and techniques• TECHNOLOGY STRATEGY Planning the future of your infrastructure• FUTURE-READY CPAs Leading and preparing for change in your organization
TRACKS
Johns Hopkins Applied Physics LabSAVE THE DATE: DECEMBER 15, 2016
INNOVATION PARTNERS
888-481-3500 http://www.bizlearning.net
Beach Retreat: Macroeconomic Factors Influencing the CPA
A Custom Designed BLI Public Seminar
Presented by Francis X. Ryan Business Learning Institute Provider
July 7th, 2016 – Clarion Resort Fontainebleau Hotel
7/1/2016
1
Macroeconomic Factors Influencing the New Industry Accountant
Matt X. Ryan, CPA, CFE, MBAFrank Ryan, CPA, CGMA, MBA© 2011-2015 and 2016 Matthew X. Ryan and Francis X. Ryan
Course Perspective With experience as CFO, COO, and
board member: Courses for “C”-Suite officers must be
dealt with in more detail
Topics Top 50 chosen for senior financial
executives 10 per year in 5 different programs Continuously updated
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Course Description Economic “New Normal”
Greater uncertainty/volatility Greater oversight Greater risks
Profound challenges to financial executives.
Organizations blind-sided with events outside their control.
Widely-taught business principles may not work effectively. Macro-economic events may override all micro-
factors.
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Course Objectives Manage Competing in Global Economy to include IFRS
Analyze the Impact of Government Spending and Deficits on your Organization
Analyze the Impact of Social Security Funding on Employee Retirement Guidance
Analyze the future of Medical Care in the United States
Determine the impact of the “Fate of the States”
Analyze the impact of a deficit national infrastructure
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Course Approach In each segment we will:
Discuss background Identify concerns Discuss recommended solutions Provide websites/sources for reference and
assistance
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1. Competing in the Global Economy
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Competing in the Global Economy European sovereign debt issues are STILL in the public
light.
IFRS and GAAP convergence issues propel the United States into a global competitive environment.
Many industries have been adversely affected by global competition.
Many firms have surrendered to the “lower” cost myth of global competition.
Issues to consider are: Competitive advantage Lean Systems IFRS convergence and adoption Competing globally C
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Competitive Advantage Understanding the product concept is critical to
understanding and using competitive advantage.
Detailed analysis of competitors is required to determine competitive strengths and weaknesses.
The concept of “lean” provides a framework of understanding of the value proposition.
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Product Concept• Product Concept is what the product is to the
consumer.
• Product concept includes: Determinants of demand - Airlines Elasticity of demand – Gas prices Product features and attributes – Tablets (video), Social
Media sites (Facebook v. MySpace) – next slides Product solutions – Healthcare IT Channel of distribution – Krispy Kreme, Tesla (next
slides) Service – Car insurance, Comcast (video) Brand name – Volvo, Honda, Lexus
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Lean Systems
• Lean provides a way to specify value to the customer. A process-oriented approach to detail ways to
enhance customer value and eliminate waste.
• Lean focuses on the customer and what is of value to the customer.
• Lean concepts are also activity-driven concepts.
• A critical element is that activities drive costs. Activity Based Costing
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Lean Systems Implementing lean accounting requires a
company to first identify the targeted lean “project” and MAP THE SYSTEM
Identify key processes and people from beginning to end of the system
The Value Stream – costs associated with the process
Further identify every process as: Value Added Non-Value Added (immediately eliminate) Non-Value Added but Required C
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Seven Types of Waste Identified by Lean Operations • Overproduction
• Waiting
• Transportation
• Inappropriate Processing
• Unnecessary Inventory
• Unnecessary Motion
• Defects
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Overproduction• Procedures continued after demand/requirements fulfilled. Doctor’s office: filling out paperwork multiple
times
• Also relates to items produced too early.
• Causes? Misinterpretation of regulations Poor communication Insufficient technology
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Waiting• Idle time created when people, information,
materials, or equipment are not on hand. Doctor’s Office: waiting for nurse, waiting for
doctor, waiting for prescription, waiting for diagnosis Taxes/Audits: waiting for customer data
• Causes? Poor understanding of time required to complete
task Lack of accountability for delivering on time Compounding delays (next slide)
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Transportation• Transporting product between processes is a cost
incursion which adds no value to the product.
• Excessive handling
• Movement of paperwork/movement between offices
• Causes? Non-standardized supply location Supplies to complete one task located in multiple locations
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Inappropriate Processing• Too many procedures/processes after the product is
complete. Clarifying orders, redundant information
gathering
• Could new designs eliminate problems in extra processing?
• Causes? Work area layout that does not promote continuous flow Multiple/complex forms
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Unnecessary Inventory• More materials on hand than are required to do the work. Doctor’s Office: overstocked medications Iraq: Medical Logistics warehouse
• Causes? Supply/demand not well understood Outdated supplies not deleted/eliminated
Personal preferences catered, duplicated
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Unnecessary Motion• Ketchup Bottles
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Unnecessary Motion• Movement of people that does not add value Looking for information Looking for materials and people Materials, tools located far from the work
• Causes? Inconsistent information systems (includes communication) Materials stocking that does not match the demand Scheduling that creates work-arounds and re-work
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Defects• Work that contains errors or lacks something of value Variation in outcomes; incorrect billing/charges
• Causes? Lack of understanding of what is "defect free" Lack of specification in work processes
Where is your QC process located in a system?
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IFRS – GAAP IFRS has been adopted by over 100 nations.
Contrary to popular belief, NO decision has yet been made relative to adopting IFRS in the United States (next slide)
Summary of IFRS -http://www.ifrs.com/ifrs_faqs.html
The IASB’s booklet entitled “IFRSs as the Global Standard” provides the strategy involved for IFRS.
U. S. Companies operating internationally will have to address the IFRS – GAAP divergence.
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IFRS – GAAP 2011 – Target date for FASB/IASB agenda
2011 – Proposed SEC decision on IFRS
2012-2015 – Development of effective dates of convergence standards
2012-2014 – possible early adoption
2013-2014 – Comparative data possibly required
2015 – possible staggered adoption
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IFRS – GAAP Develop an accurate understanding of IFRS,
convergence and U. S. GAAP.
Provide your thoughts on this decision to your state society, the AICPA, the FASB, SEC and your legislator
When interviewing staff ensure proper background and training because many universities will NOT be up to date on the standards
When all else fails, hope that you retire before they ever make a decision.
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Competing Globally Global selling and marketing is relatively
straight forward.
Industry trade associations provide excellent sources of information on getting started.
Establish by-nation and by-market orientation and understanding.
Understand the culture of the nation targeted.
Understand differences in national laws.
See the article entitled “Competing Globally” http://harvardbusinesspress.wordpress.com/category/competing-globally/
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Competing Globally - China• 2nd largest economy
$9.2 trillion (nominal)
• World’s top manufacturer
• #1 Exporter
• #2 Importer
• Growth rates ~10% annually for 30 years 1978: China one of the poorest countries in the
world
• 2014: 7.4% GDP growth
• 2015: estimated 6.8-7% growth Cop
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Competing Globally - China• Things to consider:
• Growth fueled by infrastructure investment Ghost cities?
• Bank Assets since 2008: U.S.: +$2.1 trillion China: +$15.4 trillion (total $23 trillion)
• Credit bubble in China? Shadow banking, easy credit Credit to GDP: 75% to 200% in <5 years
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Competing Globally - India 10th largest economy (nominal)
Inflation averaged 9.7% (2012-2014)
GDP estimated at ~5.0-6.4% into 2015
Narendra Modi, new Prime Minister Indian National Congress Party in power since
1947 Modi very pro-business: will most likely try to lure
technology and healthcare workers back to India Tightened monetary policy, narrowing fiscal
imbalances, structural reforms 2005: Modi denied VISA to United States
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Competing Globally - Brazil• World’s 7th largest economy
• Host of 2014 World Cup, 2016 Summer Olympics
• GDP growth slowed considerably in 2011-2012 7.5% to 2.7% to 0.9%
• High levels of inequality (economic & geographic), but poverty has dropped considerably
• High foreign reserves ($380 billion)
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Competing Globally - Brazil• Risks
Protests/demonstrations in 2013 in the absence of high unemployment (5%) and decreasing quality of life
Political corruption, income inequality, failing education and healthcare systems
Presidential election – Oct 2014 (runoff, incumbent Dilma Rousseff won 51.6% to 48.4%)
OECD gives negative economic outlook to all BRICs
Inflation increase to 6.28% Benchmark interest rate at 11% (up 375 bps in 1
year)
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Competing Globally -Argentina World’s 22nd largest economy (PPP)
18.2% inflation Private economists estimate 40%
Official economic statistics viewed as unreliable 2007: President Kirchner fired 22 employees
responsible for CPI; growing gap between official and unofficial consumer prices
Presidential election in Oct. 2015 (Cristina Fernandez de Kirchner unable to run for 3rd
consecutive term)
Sept 18: Congress approved a law allowing the government to set prices and profits (to combat inflation) C
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Competing Globally -Argentina 2002: $100 billion bond default (millions
pushed into poverty)
Following 2014 default, Citibank and Argentina sued to allow payments to continue Sept 19: Federal Appeals Court ruled it did
not have jurisdiction; sent case back to NY District Judge
Argentina further asked the UN to adopt a multi-lateral framework for sovereign debt restructurings
Non-binding resolution passed 124-11 (U.S. was No vote) C
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Competing Globally -Argentina Agriculture
Farmers now hoarding crops Priced in USD: “Closest thing we have to USD” Exports falling (35% export tax) 55% of crops sold (64% last year) Grains: 38% less than last year Soybean/soybean oil: #1 exporter (what if soybean
prices fall? – minus 18% YTD)
Currency Reserves down 6.7% to $28.5 billion (lowest in 8 years) Black market exchange rate around 14:1
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Competing Globally -Argentina
2015-2016 $10 billion in debt due in 2015 Will exceed central bank reserves on a net
basis (strips out gold, foreign-currency deposits)
Analysts estimate bonds could plunge to 60 cents on the dollar
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Competing Globally – Middle East & N.Africa
Arab Spring uprisings since 2011 has caused a “tale of two countries” Those affected by unrest have seen stagnate
growth (best case) or substantial contractions (Syria, Iran, Libya)
Those relatively unaffected have boomed as a result of stimulus spending and oil prices
BUT: recent drop in oil prices has caused more instability in the region (Iran)
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Competing Globally – Middle East & N.Africa
2015 and beyond Narrower budget surpluses seen in oil-rich
countries as spending on infrastructure, pensions, etc. declines and oil prices continue to slide
Budget increases 4-5% year-on-year (versus 15-30% increases from 2011-2013)
Push to hire locals/nationalsSaudi Arabia will fine companies with >50%
foreign employeesLess-educated, higher cost for local workers
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Competing Globally – Middle East & N.Africa
2015 and beyond (cont) International reach and quick growth of
Sunni insurgent group ISIS/ISILEstimated 4,000 insurgents in 2013Estimated 20,000-100,000 as of late 2014Foiled attack in Australia and other foreign
countriesSeveral hundred Americans suspected of
being part of the group (40-50 on American soil)New Secretary of Defense
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Competing Globally - Ukraine Election May 25th, 2014
Petro Poroshenko declared victory (55%) Businessman, entered race March 29th, 2014
Continued unrest risks: Higher energy prices (Europe) Slower economic growth (due to energy costs) GDP growth in Eastern Europe & Turkey cut in half
Lower yields in U.S. Treasuries & German Bunds Continued volatility in the financial markets Russia: 3 failed Treasury auctions in Moscow,
financing difficulties for businesses dealing with Russia, growth forecast cut from 2.5% to 0%
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Competing Globally -Turkey “Gateway” between EU and the Middle East
Slowing economic growth after boom period 9.2% and 8.5% in 2010-2011 Budget deficit from 10% to 3% of GDP from 2002-2011
Political protests plaguing the nation
Effect of ISIS and Syrian refugees Initial refusal to work with U.S. effect of support for
Kurds Kobani on the Turkish-Syrian border
Effect of Russian influence: new energy deal Russia will increase gas supplies to Turkey Russia will decrease gas prices by 6% C
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Competing Globally -Europe Continued unrest in Ukraine and sanctions
against Russia has led to increased energy costs throughout Europe.
GDP growth forecasts cut substantially throughout the region.
Decline in the value of the Euro against the USD and other currencies.
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Competing Globally -Europe Greece: 2.9% and 1.4% contractions in 2014 and 2015
(32.4% unemployment)
Spain: 0.1%, 0.5%, and 0.7% growth in 2014-2016 (27.9% unemployment)
Italy: 0.1%, 0%, 0.2% growth in 2014-2016 (debt 140% of GDP)
Portugal: 0.6%, 0%, 1.0% growth 2014-2016 (debt 149% of GDP, unemployment 18.3%)
Many economists and analysts believe Europe may be in a “lost decade” Italy & Spain are #3 & 4 largest economies using the Euro What if Germany went back to the deutsche mark?
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Competing Globally Concerns Global competition requires a commitment to
the market.
Attempting to compete globally without marketing, national presence, legal and accounting planning is a recipe for disaster.
U. S. laws do not apply internationally (in most cases).
Understanding a target nation’s culture and heritage is crucial to success in the market place.
The concept of “saving face” and relationship marketing is very prevalent internationally.
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Competing Globally -Recommendations Develop an international strategy.
Hire appropriate expertise to guide your international decision making and strategy.
Establish a strategy and identify a target market.
Identify a resident expert and advisor(s) in the target market.
Develop cultural awareness.
Understand that our “direct” approach to business is not well received in many parts of the world.
Understand the value of “saving face.”
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2. Federal, State, and Local Budgets
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Federal and State Deficits• The federal deficit is expected to decline slowly
month-to-month
• The national debt exceeded $16 Trillion in 2013 $19+ Trillion in 2016 Should there be a debt ceiling?
• States generally cannot run deficits but budget shortfalls are hitting most states
• Many states are on the bankruptcy watch list even though states are still not able to seek bankruptcy protection
• Many localities/municipalities are facing severe budget shortfalls.
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Capital Structure – State & Local Government
• Local governments are declaring bankruptcy in record numbers. Over 51 municipalities have filed bankruptcy since 2010.
• City and Locality Bankruptcy Filings (7): (2010 thru 11/30/13) City of San Bernardino, CA Town of Mammoth Lakes, Calif. (Dismissed) Detroit, MI City of Stockton, Calif. Jefferson County, Ala. City of Harrisburg, Pa. (Dismissed) City of Central Falls, R.I. Boise County, Idaho (Dismissed) Chicago, IL may be the largest bankrupt city in 2016
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State & Local Government• City of San Bernardino, Calif. Sharp fall in property values lead to decreased tax revenue Employee pay and benefits continued to escalate Consulting firm warned of financial collapse in 2007 City Manager warned of financial collapse in 2010 Political in-fighting; agreed pay cuts later challenged and
reversed
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State & Local Government• Jefferson County, Ala. Largest municipal bankruptcy (until Detroit) Debts of $3.14 billion related to sewer work JPMorgan forgave $1.4 billion in debt in 2013 Sewer rates to rise 8% annually through 2017, then
3.5% annually thereafter Attorneys fees: $24 million to date
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State & Local Government• City of Harrisburg, Pa. (Dismissed) Debt of 5 times its general fund budget True debt unknown: city has missed audits, engaged in
complex swap agreements, etc. First city to ever be charged with securities fraud by the SEC
Incinerator project - $320 million in debt Chapter 9 filed to prevent state from taking over
finances Dismissed due to objections to filing by Mayor and violation of
state law Receiver from state issued new plan in 2013 which involved
taking on more debt
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State & Local Government• Chicago, IL “Official” Debt listed at $63 billion Moody’s lists at $87 billion (unfunded liabilities) Debt downgraded to Baa2 in Feb 2015 Downgraded to Ba1 in May 2015 Unfunded liabilities at 8 times the city’s operating revenue
State requires Chicago to boost contributions to pension funds in 2016 Pension reform thrown out by Supreme Court
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Impact –Federal and State Deficits• Expect even greater political instability in the next
few years
• Expect “Wisconsin” type dissent to spread
• Look for significantly increasing taxes at the state and local levels OR substantial cutbacks in services
• Expect significant increases in “user” fees – e.g. tolls
• Expect potential “means testing” of social security
• See Appendices 7 to 9
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Recommendations –Federal and State Deficits• Stay up-to-date on current legislation
• Work with your clients to review FIN 48 issues on tax provisions.
• Have Human Resources Department stay up to date on social security, health care, and user fee assessments
• Look for ways to trim liability for unemployment taxes
• Think carefully about building new facilities until this sorts itself out.
• Hold onto cash to keep flexibility in strategy
• Consider overseas as a place for investment if new capacity is required
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3. Trends in Employee Business Practices & Motivation
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Hiring
• Should we be worried about the future workforce?
• Will we be able to find the “right” people?
• Unemployment rate?
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Overview - EmploymentC
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HR Function• The functions of an effective human
resources program include: Hiring qualified staff Retaining qualified staff Firing if necessary Pay Performance appraisals and
promotions Training and Education Employee Benefits
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HR Function Qualified staff is defined by the vision
and strategy of the organization. All persons hired should be evaluated with
this vision in mind.
Know your culture – extremely important.
Motivating employees is geared to feeling valued REGARDLESS of age.
Employee engagement has been declining for two decades.
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TrendsSee Appendix 1
Top performers are increasingly more dissatisfied.
Dissatisfaction is highest in firms without a clear understanding of expectations and culture.
Generational issues, while significant, are not the barrier once thought to be.
Generations of workers are losing hope of ever retiring, which is causing a change in the way employees view work.
Long term engagement requires long term perspective towards the employee.
Employees are increasingly concerned about leadership, ethics and morality.
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What Employees Want• Meaning Belief in purpose/mission Belief in vision – where are we going? Contributing to the benefit of mankind
• Control Responsibility Authority Authority must match responsibility
• Reward/Recognition Not just monetary Time off – EASY
• Balance Especially with Millennial generation
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Autonomy• Flexible Work Arrangements Working from Home Job Sharing Flexible Hours Are you more motivated early or late?
Contract Labor Arrangements Tele-commuting
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Mastery• What is it? Ability for workers to progress, learn to
master their jobs, and then move on Millennial generation – broad
experiences
• How to Achieve it? Military: forced movement after 2-3
years (sometimes 1 year) Command time, staff positions, etc.
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Relevance• What is it? Steve Jobs: in convincing John Sculley to
leave Pepsico and work for Apple: Do you want to make “sugar water” all your
life, or change the world?
• How to Achieve it? Volunteer work “on the clock”
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Education & Training• Training expenses are increasing; average $800/employee Still below pre-Recession levels Tuition reimbursements down
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Mobility• Ability of employees to relocate has improved, but there is still great reluctance Difficult housing market Rising cost of house-hunting Negative equity
Rental bubble?
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Job Growth• Of 30 occupations projected to have the largest employment increases: 14 are related to healthcare 19 with highest % growth typically
require postsecondary education (not necessarily bachelor’s degree) 20 with the highest # growth do NOT
require postsecondary education
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Flexible Compensation Systems• The Semco Model “Insanity that works” No job titles, no org charts, no HQ “If you don’t know where your people are, you
can’t possibly keep an eye on them. All that’s left to judge is performance.” Many workers set their own pay and
schedules All information public Employees must reapply for their jobs every
6 months Most compensation tied to profitability
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Flexible Compensation Systems• The Semco Model Workers PICK THEIR MANAGERS and
evaluate them twice/year: results public Meeting optional: if no one attends, then the
topic must have been unimportant Board meetings: 2 seats reserved for
employees (first come, first served) Results? 80% of sales from repeat customers 600% sales increase and 500% profitability
increase in 10 years 1% employee turnover in 6 years (3,000
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Flexible Compensation Systems• The Semco Model What would happen at your company if
employees could pick their managers? What would happen if you published
salaries? What would happen if you had to
reapply for your job every 6, 12, or 24 months?
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Leadership• Leadership is causing people-driven
actions in a planned fashion.
• Relates to Leadership Principles and Traits.
• Deeply embodied in Ethics and our character.
• Ethical Conduct is important for perception and reality.
• The COSO standards and enterprise risk management have at their core the concept of “tone at the top.”
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Leadership & Ethics•What are ethics?: Higher Standard of Conduct. Matter of conscience about what is
right or wrong in the interaction we have with one another.
Frequently tied to our religious beliefs.
Learned as a child from our parents.
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Leadership & Ethics•What is morality? Accepted moral standards: standards
of conduct that are generally accepted as right or proper.
How right or wrong something is: the rightness or wrongness of something as judged by accepted moral standards.
Virtuous behavior: conduct that is in accord with accepted moral standards.
Moral lesson: a lesson in moral behavior.
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Employee - Concerns Too often the problem is viewed with tangential
evidence rather than empirical evidence.
Staff concerns about pension, health insurance, work life balance are real and too easy to ignore.
The measure of effectiveness is employee turnover and mission accomplishment (EVA).
Pay is important but will not substitute for poor leadership. People don’t quit jobs, they quit managers.
Employees are leaving firms because of leadership and failure to address poor performance of peers.
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Employees -Recommendations Evaluate and understand your philosophy of
business (your culture).
Determine criteria for type of employee that fits your culture.
Evaluate employees honestly.
Evaluate ineffective employees and take corrective action.
Understand all processes in the HR Department and eliminate non-value added activities.
Train the leadership of your firm.
Do you assume that leaders know how to lead?
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4. Social Security Funding & Retirement
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Social Security• Establish August 1935
• History lesson: at the time of its passage, Democrats outnumbered Republicans in the House by 217 seats and in the Senate by 44 seats
• 2014: Soc Sec expenditures = $845 billion 24% of total Federal spending Medicare & Medicaid: $831 billion; 23% of federal
spending
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Social Security• Currently estimated to keep 20% of Americans over 65 above the poverty line
• Original tax rate: 2% on income up to $3,000 $3,000 in 1935 is approx. $50,000 today
• Current tax rate: 12.4% + 2.9% Medicare on income up to $118,500 Recommendation by CBO to raise rate to 14.4%
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Social Security – Key Dates• 1954: Disability program added
• 1961: early retirement (62) added
• 1965: Medicare benefits added
• 1975: COLAs mandated
• 1983: retirement increased for younger workers (born after 1960) to 66 & 67 years
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Social Security Retirement Ages• For employees born after 1960: The full retirement age is 67 Compared to age 65 for many baby boomers.
• The Conclusion of the Social Security 2013 Report is that the various funds are unable to sustain full benefits after 2033 and 2016 (for Medicare).
• Appendix 2 provides a redacted copy of the full report to include the Conclusion and interest rate assumptions.
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Social Security Benefits• The Social Security Report concludes that costs
are increasing faster than funding due to: Reduced birth rates (next slide) Increasing life expectancy Aging of the baby boomers.
• Most young associates do not feel confident that Social Security will be available for them when they retire.
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Social Security Benefits• Combined with the reduced expectations of company provided benefits and reduced expectations of social security, associates are very concerned even at age 22 about retirement obligations. What impact could this have on your
organizations? Are Millennials changing the way retirement
and vacation planning are viewed?
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U.S. Birth Rate
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Quantitative Easing post 2008
Again:
• The Federal Reserve has been engaged in monetary easing for almost 7 years.
• Quantitative Easing has amounted to over $4 Trillion in stimulus The intent is to keep short term interest rates low
and combat threat of deflation.
• Interest rates have continued to hover near zero.
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Social Security•The concerns relative to social security funding: The previous “tax holiday” negatively
affected the trust fund balance. Many workers perceive that Social Security
will not be available for them Many firms have dropped retirement plans,
particularly defined benefit plans and reduced contributions to 401K plans.
The aging work force creates additional demands on the Social Security system.
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Social Security• The following concerns must be examined: Social Security – as higher earning workers retire
and draw on social security, the funding of social security poses a problem. Dropping birthrate in U.S. will also cause long-term
funding issues. Disability claims are increasing, decreasing the
disability trust fund as well. 11 million on disability (included dependents) SSA estimates >25% of today’s 20 year-olds will be
disabled by age 67. Pay raises have not kept pace with prior year averages The elimination of the 2% tax holiday causes cost
control issues for firms. Cop
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Social Security•The following concerns must be examined: Potential solutions for the problem are
well known, but politically charged. Raise retirement age Privatize parts of social security Needs-based eligibility
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Social Security - Concerns• Lack of appropriate investment planning will
force many employees to consider working well beyond the period originally planned.
• The organization may face human resource management issues for employees who may wish to retire but cannot due to financial reasons.
• The discount rates used in all pension plans dropped in 2013-2014, further exacerbating the trust fund short fall of ALL pension and trust fund plans.
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Social Security - Concerns• For defined benefit plans, the actuarial
assumptions used are critical.
• Expected earnings rates, discount rates, and future benefit rates all impact funding status.
• There is an incentive to keep funding down during stressful economic times by using more attractive assumptions.
• Unfunded liabilities become a major use of funds for employers.
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Social Security - Concerns• For defined contribution plans, the risk of
the investment decision is merely shifted to the employee.
• Most companies do NOT offer training on investment planning. Not seen as a organizational responsibility.
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Social Security -Recommendations• Provide educational opportunities for your staff to
plan for retirement.
• Develop stress tests should social security no longer become a reliable part of a plan.
• Continue to contribute to plans unless absolutely necessary to stop.
• The lack of longevity with companies by individuals may be caused in SOME part by this issue.
• Do not allow lack of someone’s planning to become your employment retention problem.
• Hire competent labor counsel.
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Social Security -Recommendations• Avoid the elimination of the employer
contribution to plans in bad economic times.
• Avoid the perception that younger workers do not care about retirement plans.
• Consider plans which have the company provide a benefit for all employees if possible AND sustainable.
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5. Growth through Acquisition
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Acquisition Periods of economic distress and
dislocation provide opportunities to acquire assets and sales at distressed values.
Turnaround management companies and law firms specialize in shedding unprofitable divisions.
In difficult economic times, frequently valuable assets are shed merely for cash.
Rather than grow sales it is very possible to acquire sales.
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Sources of Opportunities The Turnaround Management Association is a place
to identify opportunities - http://www.turnaround.org
Commercial Finance Association (CFA) provides summaries of firms that provide financing in unusual circumstances – www.cfa.com.
CFA has also as free service to assist in finding a lender for unusual types of financing needs.
Asset based lenders (ABL) are an excellent source of finding distressed assets.
Workout Departments of banks are an excellent source as well.
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Acquisition Target• The process for acquiring distressed assets or sales opportunities is very specific: Select target project Identify lender for asset or owner of
asset Ensure funds are immediately available
for purchase. The process is very rapid. Ensure that a due diligence checklist is
followed – see appendix 3 for a sample –CAUTION – checklists change and you are encouraged to review with counsel first. C
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Acquisition Target• Continued…
Be prepared to acquire assets in excess of what you desire.
Have an assimilation team prepared to deal with the acquired team immediately.
Have team or function to dispose of unneeded assets.
Ensure proper legal and accounting review of acquisition.
If project does not meet you specific needs – decline the offer.
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Growth through Acquisition -Recommendations• It is essential that a thorough legal review is
completed to ensure that legal title to the project can be conveyed.
• Understand the inherit risks of litigation through bankruptcy due to the preference period.
• The workout departments are an unusual style of business. Expect very direct, no nonsense discussions
that may, at times, appear ruthless.
• Be extremely concerned about fraudulent conveyance.
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Growth through Acquisition -Recommendations As part of the Chief Risk Officer’s
responsibilities, develop a capability to track financial risk of competitors.
Maintain substantial cash sources (financial capacity) to quickly seize opportunities (10 best events).
Have standing due diligence process in place.
Pick financial and legal experts as a relationship team to assist in due diligence and target opportunities.
Be ethical in all your dealings. This is one area where lack of trust kills deals.
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6. The future of medical care, impact on your associates, and
your costs
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Future of Medical Care• The ACA has had wide ranging impact in
the U. S.
• The impact on the cost of health care has not (as of March 2016) been as expected and costs have risen.
• The health care system appears to be gearing to a two tier health care system of “government sponsored” healthcare and private health care
• There has been a major increase in concierge service type health care.
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How the Health Care Law Benefits your associates• When the law was passed the intent was
for the following primary benefits of the ACA
• Primary benefits: Better value by making sure 80% of premium goes to
care Transparency on health care rates Stronger consumer protections Free preventive services Comprehensive coverage Better options for access to quality, affordable
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Future of medical care – the impact on your associates• The new inequality – higher income workers receive
better healthcare than lower income workers. Sources:
CNN Money and the Commonwealth Fund
• Gap in health coverage is increasing and not decreasing in areas such as: More doctors for wealthier Americans Better treatment for wealthier Americans Better health for wealthier Americans
• Concierge Medicine is growing for middle income Americans and is helping to create a two-tier medical system: those with health care and those with health insurance.
• Employers are sharing more of costs increases with employees
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Future of medical care –concerns
• The costs of employer provided healthcare are expected to continue to increase in the range of 6.5% annually –U. S. average but some states seeing relief.
• The “cost” to cover employees for health insurance may not be recoverable from customers or the market place, putting additional strains on profit margins or hiring.
• Employers will be forced to rethink whether or not health insurance is an employer responsibility, meaning that more employers will consider grossing up salary and having employees pay for their own coverage.
• Spousal coverage will become a major “hot” button with employees
• Employers will start to consider single payor plans as a reasonable alternative – choose insurance over care
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Future of medical care –recommendations
• Avoid eliminating types of coverage for employees or their spouses without looking at the impact on retention of key employees.
• Examine the total cost of an employee and the value of the position and look at productivity initiatives to improve cost/benefit considerations.
• Develop reasonable analysis of health improvement initiatives as well as health care prevention care
• Develop measures of effectiveness for health care costs
• Appoint ONE person responsible for developing control programs for health care costs and programs
• Hire appropriate and COMPETENT legal counsel to guide you through the maze of health care issues. 10
5
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7. National Infrastructure
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The National Infrastructure includes:
• Electric and power grids
• Highway networks
• Bridge systems, networks and maintenance
• Air transportation and facilities
• Ocean transportation and structures
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The National Infrastructure issues
• Electric and power grids are aged and facing outages
• Highway networks are becoming more congested in many areas
• Bridge systems, networks and maintenance are problematic in many locations in the United States
• Air transportation and facilities are crowded and the hub network may add to delays
• Ocean transportation and structures are centralized in key areas and potentially vulnerable
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Electric and power gridsNational Transmission Grid Study of 2002
analyzed:
• Transmission system operation and interconnection
• Reliability management and oversight
• Alternative business models for transmission
• Transmission planning and need for new capacity
• Transmission sites and permitting
• Advanced transmission technologies 109
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nHighway and bridge networksThe Department of Transportation coordinates
highway networks through the National Highway Planning Network. The network includes:
• National Highway System
• Eisenhower Interstate System
• Strategic Highway Network
• NHS Intermodal networks
• Highway Performance Management System
• National Bridge Inventory
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National Highway Planning Network
• The National Highway Planning Network (NHPN) is currently a 1:100,000 scale geospatial network database that contains line features representing just over 450,000 miles of highways in the United States. The NHPN contains geospatially referenced information on the National Highway System (NHS), the Eisenhower Interstate System, the Strategic Highway Network (STRAHNET), and NHS Intermodal Connectors
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Air Transportation and FacilitiesThe Federal Aviation Administration is the
responsible agency for coordinating air transportation capacity issues and includes:
• Capacity needs in National Airspace System
• General Aviation Assets
• National Plan for Integrated Airport Systems
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Ocean transportation and structures Both the USDA and the Inbound Logistics organizations
predict excess capacity in shipping for the intermediate term
• Capacity is expected to increase by 20% per year through 2016
• There continues to be an oversupply of containers and shipping capacity
• Sufficient influx of container vessels to meet expected demand
• Slower economic growth has caused the excess capacity
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National Infrastructure -Concerns• Capacity problems exist in highway, bridge
and power grids in the United States
• Permitting for infrastructure projects has been expensive and subject to significant delays
• Costs associated with national infrastructure expansion are expensive
• The Northeast and upper mid-West of the US is expected to face major power shortages in the next 10 years
• Bridge repair and maintenance are woefully inadequate 11
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National Infrastructure -Recommendations• Develop alternative sources of power if
possible
• Appoint a person responsible to assess risks on your organization of problems in the national infrastructure
• Consider facility locations very carefully due to impact of highway systems in particular on employee and staff commuting costs and time
• Examine impact of infrastructure on any business expansion or acquisition plans.
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8. The Way Ahead
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The Way Ahead The markets are more unstable than ever: Prior learning and knowledge may no
longer apply under these unusual circumstances.
Good governance requires that the financial executive be attuned to broad business issues. Not just the mechanics of accounting
Enterprise risk is a critical element of safeguarding and protecting assets.
A balanced approach and a long term customer driven focus is essential to survive and thrive in such challenging times.
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The Way Ahead Volatility in financial markets expected to increase and
sovereign debt issues will likely surface
Borrowing rates expected to remain “unrealistically” low due to quantitative easing. The potential exists for a “bubble” in the corporate
interest rate markets.
Pension fund shortfalls expected to increase substantially due to Operation Twist and very low long term interest rates. This predominately affects public sector pensions.
The U.S. Deficit and debt loads may not be sustainable.
The tools of the last depression are being used to halt current economic problems. C
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The Way Ahead• Manage financial capacity or sources of funds.
• Seek long term sources of debt to replace revolving debt instruments.
• Ensure financial viability of your financial institution.
• Interview other lenders and banking relationships to keep a pipeline open.
• Manage cash flow and profitability more closely.
• Ensure employee programs are in place to address employee work life balance issues. C
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Important Sites• Governance Institute:
http://www.governanceinstitute.com
• Committee on Sponsoring Organizations –COSO – http://www.coso.org
• COSO Integrated framework: http://www.coso.org/documents/COSO_ERM_ExecutiveSummary.pdf
• AICPA Audit Committee Center –http://www.aicpa.org
• IFRS - http://www.ifrs.com/ifrs_faqs.html
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Intro – Frank Ryan• MBA, CPA, CGMA
• Crisis Manager for troubled firms
• Syndicated author on economic and political issues
• Author of “Life Lessons Learned-Amazing Stories of my Walk Across America for Children” www.colfrankryan.com
• Marine Colonel (Ret) – Iraq & Afghanistan
• Expert on Economic Warfare
• Former Interim CFO of a bank (Jan 2010)
• Extensive board experience
• Adjunct Faculty – accounting and economics Cop
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Intro – Matt Ryan• Financial Services experience
Public Accounting Hedge fund/alternative investment accounting Lean implementations
• Captain, PA Army National Guard Commander, distribution/logistics company Executive Officer, medical company (Taji, Iraq)
• Non-profits
• Political committees Treasurer – U.S. Congressional candidate Committeeman - County political party
• Education MBA – The Wharton School B.S. Finance – Penn State CPA (PA & VA), CFE C
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Thank You
• Matthew X. Ryan, CPA, CFE, MBA
• Semper Finance, Inc
• (412) 215-2983 (cell)
Francis X. Ryan, CPA, CGMA, MBA
Semper Finance, Inc.
(717) 891-2707 (cell) Cop
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Baker | Employee engagement trends: 2008-2010 | December 2010 | r5 1
Research Summary Employee engagement trends: 2008-10
Steady decline in engagement and job satisfaction
2010 HEWITT ASSOCIATES STUDY
Significant drop in employee engagement since the onset of the recession
Since July 2008, Hewitt has analyzed quarterly changes in engagement for over 900
organizations worldwide conducting annual studies on such topics as morale, confidence in
the organization, trust in leadership, career opportunities, rewards and recognition.
> Over the past two years, engagement has been steadily declining:
• 46% organizations experienced a decline in the quarter ending June 2010 vs. the
historical average of 15% in a one- or two-year period.
• Only 30% saw improvement vs. the historical average of about 50%.
> Hewitt's analysis links employee engagement levels and financial performance.
• Organizations with high engagement (65% or more of employees are engaged)
outperformed the total stock market index—even in volatile economic conditions.
• During 2009, total shareholder return for these companies was 19% higher than the
average total shareholder return.
• Conversely, companies with low engagement (less than 40% of employees are engaged)
had a total shareholder return that was 44% lower than the average.
2009 CONFERENCE BOARD REPORT
Growing job dissatisfaction over the past two decades
The Conference Board’s survey of 5,000 households recorded the lowest level of American
workers’ job satisfaction in more than 22 years of studying the issue.
> 45% were satisfied with their jobs in 2009, down from 61% in 1987.
> 51% find their jobs interesting, down from 70% in 1987.
> 43% feel secure in their jobs in 2009, 59% in 1987.
> 56% like their co-workers, down from 68% in 1987.
> 51% are satisfied with their boss, down from 60% in 1987.
Sources
“Americans’ job satisfaction falls to record low.” MSNBC.com. Associated Press, January 5, 2010.
http://on.msnbc.com/hhPRlo
“Hewitt Analysis Shows Steady Decline in Global Employee Engagement Levels.” HewittAssociates.com. Hewitt
Associates (now Aon Hewitt), July 29, 2010. http://bit.ly/d2Wfck
Baker | Employee engagement trends: 2008-2010 | December 2010 | r5 2
Sharpest decline among top performers
TOWERS WATSON’S 2009/2010 U.S. STRATEGIC REWARDS REPORT
Long-term impact of employers’ response to the recession
This May 2009 survey is based on responses from 1,300 U.S. workers. The findings show that
employers’ cost-cutting actions during the downturn lowered engagement from 2008 to 2009,
most severely among top performers.
> Top performers feel less confident about and less committed to their companies.
• Engagement levels of top performers have dropped 23% vs. 9% for workers overall.
• 36% say their employer’s situation has worsened in the past 12 months.
• They ‘re 20% less likely to recommend others take jobs at their company.
• They ‘re 26% less satisfied with advancement opportunities at their company and 14%
less committed to stay rather than to take a comparable job elsewhere.
• They ‘re 29% less confident in management’s ability to grow the business and 20% less
clear on the link between the company’s goals and their own.
• 41% say pay and benefit changes have negatively affected quality and customer service.
• Satisfaction with the organizational culture has dropped 28%.
> Top performers feel employers have changed the employee value proposition* (EVP).
• They’re 30% less convinced that their employers live up to the employment deal or align
it with what the companies stand for in the market.
• 42% say cost-cutting and restructuring activities have been detrimental to the EVP.
• 43% say individual performance expectations have increased, with 65% feeling
insufficiently rewarded for that performance.
*The EVP encompasses the collective array of programs and benefits that an organization offers in exchange for
employment. The organization’s brand, values, culture and leadership shape the EVP.
TOWERS WATSON’S 2009 STRATEGIES FOR GROWTH SURVEY
Inability to find and keep top talent—a threat to recovery and growth
According to this September 2009 global study of nearly 750 companies, the top five
workforce challenges to post-recession growth are:
> Loss of talent in key areas: Total 51%; North America 37%
> Lack of succession planning/management: Total 49%; N. Amer. 52%
> Inability to attract necessary talent: Total 38%; N. Amer. 34%
> Level of disengagement among workers: Total 30%; N. Amer. 44%
> Inability to use incentives as needed to differentiate performance: Total 29%; N. Amer. 36%
Sources
Looking Toward Recovery: Focusing on Talent and Rewards—2009/2010 U.S. Strategic Rewards Report. Towers
Watson , December 2009. http://bit.ly/eRIR7d
Strategies for Growth: Talent and Performance Issues Lie at the Heart of an Emerging Global Growth Agenda.
Towers Watson, December 2010. http://bit.ly/eYJJsr
Baker | Employee engagement trends: 2008-2010 | December 2010 | r5 3
Need for a new EVP to retain and re-engage key talent
TOWERS WATSON’S 2010 GLOBAL WORKFORCE STUDY
Post-recession workplace—no longer business as usual
The global economic crisis has forced employers and employees to rethink the traditional
employment deal. Studying over 20,000 employees in 22 markets from November 2009 to
January 2010, this report reveals the post-recession employee mindset—one with lower
expectations, increased anxiety and new priorities.
Key findings—low engagement, high anxiety and new priorities
> Deep, long-lasting fallout from the recession and employers’ response to it
• 38% are either disenchanted or fully disengaged.
• Dissatisfied top performers may leave as better opportunities emerge.
• Remaining employees may not be working up to their full potential or delivering their
best discretionary effort.
• Losing key talent while keeping more disengaged, under-performing employees will
exacerbate productivity, quality and customer service issues.
> Dramatic shift in the drivers of engagement since 2008
• Greater focus on “empowerment,” the ability to control one’s work situation:
47% in 2009 vs. 21% in 2008
• Lower importance of career development, no doubt because of fewer advancement
opportunities and a greater focus on job security:
47% in 2009 vs. 64% in 2008
• Leadership remains the top driver, although less so given the rise of other drivers:
80% in 2009 vs. 100% in 2008
• Greatest increase in “image” (corporate reputation, responsible and ethical behavior,
risk management and alignment of what companies say and do inside and outside):
60% in 2009 vs. 29% in 2008
> Desire for today’s rarest commodity, security and stability
• 76% want a secure and stable position above all else.
• Only 51% think it’s achievable.
> Anxiety about securing one’s own future, financial and physical health and well-being
• About 75% agree they’re responsible for their financial future and career.
• About 50% have serious doubts about their ability to take on the task.
• 41% anticipate a drop in their standard of living in retirement.
• As a result, employees are focusing on the practical aspects of the deal, such as pay and
flexibility in work arrangements.
> Declining mobility, with many sacrificing career advancement for job security
• 81% aren’t looking for other jobs even though 48% see no advancement opportunities
where they are, and 42% believe they must go elsewhere to advance.
Baker | Employee engagement trends: 2008-2010 | December 2010 | r5 4
> Low confidence in leaders and managers, particularly in their people skills
• 38% feel their leaders have a sincere interest in their well-being.
• 47% feel their leaders are trustworthy.
• 42% feel their leaders inspire and engage them.
• Although 59% say their direct managers are effective at managing, 53% question
whether they have time for the interpersonal and relational aspects of the job.
• 61% question how well their managers deal with poor performers.
• 41% feel their leaders are committed to developing critical talent.
> Lack of tools and support hindering self-reliance in the workplace
• Employees want more freedom and flexibility, especially in decision-making and work
arrangements, but feel they lack the right tools and support to do either effectively.
• Social media for business purposes is in its infancy, with only 10% using it for work and
a third saying it improves their productivity.
• Most companies aren’t fully leveraging collaborative Web 2.0 technologies to enhance
engagement, productivity and performance.
• McKinsey’s 2010 multi-regional survey of 3,249 executives underscores the benefits of
using Web 2.0 technologies to interact with internal and external stakeholders.
— An elite group of 3% was fully networked (internally and externally) and reported
higher benefit levels than did companies that weren’t.
— Internal benefits: Higher collaboration by breaking down organizational barriers,
promoting more fluid information flows, deploying talent more flexibly to deal with
problems, and allowing employees lower in the hierarchy to make decisions
— External benefits: Higher market share gains, operating margins and profitability;
greater agility in leveraging internal and external resources to form working teams
Takeaways for employers in today’s “brave, new world”
The global workforce study findings imply the following employer challenges:
> Where will employers wage the next “war for talent”?
• Mature economies: Inside organizational walls—as employers focus on advancing and
retaining top talent while continuing to develop and engage the broader workforce
• Emerging economies: In the external market—as employers compete for talent that is
far more mobile in these faster recovering economies
> In mature economies, how will companies plan for an aging workforce that is ready to
settle in for years—either unable to retire or choosing not to?
• Impact on those just entering the workforce and those seeking to advance their careers
• Helping employees build their own sense of security and stability in uncertain times
> How much can companies reasonably shift costs, responsibility and risk to employees?
• Eliminating the stress associated with this shift to avoid negative impacts on morale,
productivity and performance
• Equipping employees with the capabilities and tools to work well remotely; to become
more self-sufficient and productive; and to secure their own futures and well-being
Baker | Employee engagement trends: 2008-2010 | December 2010 | r5 5
> How can companies foster effective leaders in the post-recession world—ones who are
both competent managers and inspiring, people-centric leaders?
• Emotional/social intelligence tops the list; U.S. respondents ranked these five:
— 79%: Is trustworthy
— 67%: Sincerely cares about the well-being of others
— 56%: Encourages the development of talent in the organization
— 42%: Is highly visible to employees
— 42%: Manages financial performance successfully
• Understanding workforce differences across geography, job function, level and role
• Customizing work experiences to draw out people’s discretionary effort and potential
• Refocusing leadership development on engaging, motivating and inspiring people
Forging a new employment deal or EVP
To remain competitive, employers must re-engage valued employees by defining a new,
sustainable employment deal grounded in self-reliance, personalization and agility.
> Self-reliance: Enabling employees to build their skills, plan for their financial future
and live healthy lives—active security vs. passive security
• Employees desire these types of support from their employers:
— 65% want more frequent communication about reward and benefit programs.
— 61% want simplified design and administration for benefit and reward programs.
— 47% want one-on-one counseling sessions with financial advisors.
— 41% want financial management classes.
— 38% want an online self-service educational portal.
• Employees want to allocate rewards more flexibly in ways that best suit their needs.
— 44% prefer to allocate rewards with an organization-provided safety net to protect
them against excessive risk.
— 37% prefer to allocate rewards completely on their own.
— 20% prefer the organization to allocate all rewards on their behalf.
> Personalization: Segmenting the workforce to understand differing needs, preferences
and perceptions; and using this insight to create more personalized work experiences
• Variability across nationality, age, gender, job level, function and career orientation in:
— Why people join or leave organizations
— How they define a career
— How much risk they’re comfortable taking on
— What motivates them with regard to their reward package
— What they want from their managers
• Using these insights about various employee groups to:
— Tailor talent and reward strategies that align organizational inputs (workplace
programs and processes) with desired outputs (employee behaviors and actions)
— Personalize every aspect of the EVP: job design, pay, benefits, performance
management, professional development, training and work/life arrangements
Baker | Employee engagement trends: 2008-2010 | December 2010 | r5 6
• Personalizing not only program design and delivery, but also communication
— Using employee segmentation insights to determine what communication strategies,
tactics and channels would resonate best with each internal audience
— Aligning the message and medium to the interests and needs of each group
— Measuring effectiveness and adjusting the approach as needed over time
> Agility: Embedding greater flexibility and scalability into the organization’s talent and
reward strategies and programs—and into the HR function itself
• Workforce strategy and structure
— Anticipating and responding quickly to shifts in the business cycle, competitive
situation and operating strategies
— Using the best blend of workforce sourcing and staffing models to meet the needs of
various divisions and groups (flexibility within an enterprise framework)
• Program design and delivery
— Accommodating differences not only in employees’ roles, skills and performance, but
also in their interests, needs and expectations
— Building variability and flexibility into EVP design, delivery and communication
• Leadership development
— Developing and rewarding high-performing employees and future leaders with the
right skills, motivation and temperament to succeed
— Fostering these traits: Strong cognitive abilities; a learning orientation; ability to
build and manage relationships; ability to lead and manage change; ability to mentor
and coach; ability to motivate and inspire others
— Closing the gap between the traits employees desire in leaders and the degree to
which they feel leaders actually display them—specifically, trustworthiness, concern
for employee well-being and commitment to developing talent
• HR function (structure, staff, services, processes and priorities)
— Aligning with business needs, goals and strategies, and stakeholder expectations
— Selecting and training staff to be more business-savvy, with a focus on business
acumen, workforce planning and analytics, social media and other emerging skills
— Investing in the right tools and technologies and updating them as needed
— Building in measurement systems to ensure the function is doing the right things for
the business and delivering results that matter
Sources
“Jobless Recovery in the U.S. Leaving Trail of Recession-Weary Employees in Its Wake, According to New Study.” TowersWatson.com. Towers Watson, March 16, 2010. http://bit.ly/a5wmFu
The New Employment Deal: How Far, How Fast and How Enduring? Insights from the 2010 Global Workforce Study. Towers Watson, 2010. http://bit.ly/cSJcOg
Baker | Employee engagement trends: 2008-2010 | December 2010 | r5 7
Effective communication as a driver of engagement and results TOWERS WATSON’S 2009/2010 COMMUNICATION ROI REPORT
Communication practices of high-performing companies
This report examines data collected in April and May 2009, from 328 organizations
representing five million employees around the world. It identifies how companies with highly
effective communication practices are informing and engaging their employees in
challenging economic times.
A leading indicator of financial performance
> Between mid-2004 and mid-2010, the most effective communicators among surveyed
companies had 47% higher total shareholder returns than did the least effective.
Defining and communicating the employee value proposition (EVP)
> 2.7x more likely than low performers to have a clearly defined EVP
> 3.1x more likely to align the EVP with their customer-facing brand
> 2x more likely to make the EVP part of their communication strategy
> 1.3x more likely to have revised their EVP as a result of the downturn
Communicating the combined value of reward programs
> 5.2x more likely than low performers to have a coordinated and branded approach to
communicate the total value of their health- and wealth-related benefits
> 2.3-3.1x more likely to improve employee understanding of their total rewards
Helping leaders and managers communicate with employees
> 1.9x more likely than low performers to provide training to managers
> 2.5-3x more likely to have managers effective at addressing employees’ needs and
concerns, implementing change and supporting the organizational vision
> 2.7x more likely to have managers who communicate more during times of change
> 3.4x more likely to have managers able to deal openly with resistance to change
Customizing messages to maximize impact
> Communicating companywide messages for big-picture information and perspective
alongside site-specific information for local relevance and impact
> Messages delivered centrally include:
• Educating employees about organizational culture and values
• Explaining and promoting new programs and policies
• Providing information on organizational performance and financial objectives
• Providing information about the true value of employees’ total compensation package
> Messages delivered locally include:
• Helping employees understand the business
• Communicating to employees on how their actions affect the customer
• Integrating new employees into the organization
Baker | Employee engagement trends: 2008-2010 | December 2010 | r5 8
Increasing use of electronic and face-to-face communications and social media
> 1.4x and 1.9x more likely to have increased their use of electronic and face-to-face
communications respectively—especially to deliver business change messages
> 1.2x more likely to have decreased their use of print (overall trend for all companies)
> 2.2x more likely than low performers to have expanded their use of social media
> 2.6x more likely to report their social media tools as cost-effective
> 2.4x more likely to have tools in place to measure social media effectiveness
> 1.2-1.4x more likely to use social media with employees to address:
• Community or team building
• Adapting to organizational/HR changes
• Collaborating or sharing new ideas
• Encouraging health or wellness
• Clarifying how one’s job contributes to the organization’s success
• Engaging a workforce in real time
• Promoting risk taking
> 2-3x more likely to use social media tools to reach all employee audiences, such as
telecommuters, local and global staff, recruits, sales staff and line management
Having a documented communication strategy
> 2.1x more likely than low performers to have an electronic communication strategy
> 2.2x more likely to have a global communication strategy
> 2.8x more likely to have a social media strategy
Measuring communication effectiveness
> 1.6x more likely than low performers to have increased the number of communication
outcome metrics in the past year
> 1.5x more likely to formalize these metrics in a corporate scorecard
> 1.9-3.3x more likely to use measurement findings for planning and decision-making, to
benchmark results and performance, and to use communication advisory groups.
> Conversely, low performers are 3x more likely than high performers to report having no
formal measurements of communication effectiveness.
Sources
Capitalizing on Effective Communication: How Courage, Innovation and Discipline Drive Business Results in
Challenging Times—2009/2010 Communication ROI Study Report. Towers Watson, December 2009. http://bit.ly/aLw0Q5
Baker | Employee engagement trends: 2008-2010 | December 2010 | r5 9
The ROI of employee engagement GALLUP’S Q1 2 ® META-ANALYSIS
Positive link between employee engagement and business outcomes
Gallup's 2009 meta-analysis of 199 research studies across 152 organizations in 44
industries and 26 countries shows dramatic differences between top- and bottom-quartile
workgroups on key business outcomes. In total, this seventh iteration of the Q12 study
examined the relationship between engagement and the following nine performance criteria
for 32,394 business/work units comprising 955,905 employees:
> Customer loyalty/engagement
> Profitability
> Productivity
> Turnover
> Safety incidents
> Shrinkage (theft)
> Absenteeism
> Patient safety incidents
> Quality (defects)
Description of the Q12
> The Q12 is Gallop’s proprietary set of engagement indicators based on more than 30 years
of in-depth behavioral economic research involving more than 17 million employees.
> It measures 12 core elements that best predict employee and workgroup performance:
employees’ perceptions of people-related management practices in their business units.
• Q00 (overall satisfaction): On a five-point scale, where 5 is extremely satisfied and 1 is
extremely dissatisfied, how satisfied are you with your company as a place to work?
• Q01: I know what is expected of me at work.
• Q02: I have the materials and equipment I need to do my work right.
• Q03: At work, I have the opportunity to do what I do best every day.
• Q04. In the last seven days, I have received recognition or praise for doing good work.
• Q05: My supervisor, or someone at work, seems to care about me as a person.
• Q06. There is someone at work who encourages my development.
• Q07: At work, my opinions seem to count.
• Q08: The mission or purpose of my company makes me feel my job is important.
• Q09: My associates or fellow employees are committed to doing quality work.
• Q10: I have a best friend at work.
• Q11: In the last six months, someone at work has talked to me about my progress.
• Q12: This last year, I have had opportunities at work to learn and grow.
Baker | Employee engagement trends: 2008-2010 | December 2010 | r5 10
Key findings of the latest Q12 meta-analysis
> Comparing engaged vs. disengaged workgroups:
• Workgroups scoring in the top half on the Q12 nearly double their odds for success within
their own organizations (94% higher success rate) and increase their odds by 2.4x
across business/work units in all companies (145% higher success rate).
• Those scoring in the 99th percentile on the Q12 have nearly 5x the success rate (83%
chance of high performance) as those scoring in the 1st percentile (17% chance).
> Median differences in nine performance criteria between the top and bottom quartile
workgroups are:
• 12%: Customer loyalty/engagement
• 16%: Profitability
• 18%: Productivity
• 25%: Turnover for companies with 60% or higher annualized turnover
• 49%: Safety incidents
• 27%: Shrinkage (inventory loss due to theft, error or fraud)
• 37%: Absenteeism
• 41%: Patient safety incidents
• 60%: Quality (defects)
> Beyond these significant differences between engaged and disengaged workgroups,
Gallop research indicates that engaged organizations have 3.9x the EPS growth rate
compared to those with lower engagement in their same industry.
FORTUNE'S 100 BEST COMPANIES TO WORK FOR®
> The Great Places to Work® Institute produces FORTUNE's 100 Best Companies to Work
For® list, identifying organizations with high-trust cultures and engaged workers.
> Annually, it publishes data from Russell Investment Group analyzing the stock
performance of a portfolio comprised of these companies.
> Data shows how these companies have outperformed the major stock indices since the
list’s inception in 1998.
> 1998-2009 annual returns:
• 10.3%: “100 Best Companies” list
• 2.95%: S&P 500
• 3.27%: Russell 3000
Sources
Harter, James K., Frank L. Schmidt, Emily A. Killham, and Sangeeta Agrawal. Q12® Meta-Analysis: The Relationship
Between Engagement at Work and Organizational Outcomes. Gallop, August 2009. http://bit.ly/bj6vra
Greatplacetowork.com. Great Place to Work Institute, Inc., 2010. http://bit.ly/hiRB6r
Status of the Social Security and Medicare Programs
A SUMMARY OF THE2015 ANNUAL REPORTS
Social Security and MedicareBoards of Trustees
2015
The Social Security and Medicare Trustees Reports, as well asthis document, are available at the following addresses:
Social Security (OASDI): www.socialsecurity.gov/oact/tr/2015/index.htmlMedicare (HI and SMI): www.cms.gov/reportstrustfunds/Summary: www.socialsecurity.gov/oact/trsum/index.html
Other information about Social Security benefits and services is available atwww.socialsecurity.gov or by calling toll-free 1-800-772-1213.
Other information about Medicare benefits and services is available atwww.cms.gov or by calling toll-free 1-800-633-4227.
A MESSAGE TO THE PUBLIC:
Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs. This message summarizes the 2015 Annual Reports.
Social Security’s Disability Insurance (DI) Trust Fund now faces an urgent threat of reserve depletion, requiring prompt corrective action by lawmakers if sudden reductions or interruptions in benefit payments are to be avoided. Beyond DI, Social Security as a whole as well as Medicare cannot sustain projected long-run program costs under currently sched-uled financing. Lawmakers should take action sooner rather than later to address these structural shortfalls, so that the uncertainty now facing dis-ability beneficiaries will not eventually be experienced by other pro-grams’ participants, and so that a broader range of solutions can be considered and more time will be available to phase in changes while giv-ing the public adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on pro-gram benefits.
Social Security and Medicare together accounted for 42 percent of Fed-eral program expenditures in fiscal year 2014. Current trust fund opera-tions including General Fund transfers into SMI, the portion of interest payments made to the trust funds that are necessary to pay benefits, and any drawdowns of a trust fund’s assets—are resulting in mounting pres-sure on the unified budget. Both Social Security and Medicare will experi-ence cost growth substantially in excess of GDP growth through the mid-2030s due to rapid population aging caused by the large baby-boom gen-eration entering retirement and lower-birth-rate generations entering employment and, in the case of Medicare, to growth in expenditures per beneficiary exceeding growth in per capita GDP. In later years, projected costs expressed as a share of GDP trend up slowly for Medicare and are relatively flat for Social Security, reflecting very gradual population aging caused by increasing longevity and slower growth in per-benefi-ciary health care costs.
Social Security
The DI program satisfies neither the Trustees’ long-range test of close actuarial balance nor our short-range test of financial adequacy and faces the most immediate financing shortfall of any of the separate trust funds. DI Trust Fund reserves expressed as a percent of annual cost (the trust fund ratio) declined to 40 percent at the beginning of 2015, and the Trustees project trust fund depletion late in 2016, the same year projected in the last Trustees Report. DI costs have exceeded non-interest income since 2005, and the trust fund ratio has declined in every year since peak-ing in 2003. While legislation is needed to address all of Social Security’s financial imbalances, the need has become urgent with respect to the pro-gram’s disability insurance component. Lawmakers need to act soon to avoid automatic reductions in payments to DI beneficiaries in late 2016.
To summarize overall Social Security finances, the Trustees have tradi-tionally emphasized the financial status of the hypothetical combined trust funds for DI and for Old Age and Survivors Insurance (OASI). The combined trust funds, and expenditures that can be financed in the context of the combined trust funds, are hypotheticals because there is no legal authority to finance one program’s expenditures with the other program’s taxes or reserves.
Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year pro-jection period. The Trustees project that this annual cash-flow deficit will average about $76 billion between 2015 and 2018 before rising steeply as income growth slows to its sustainable trend rate after the economic recovery is complete while the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.
Interest income and redemption of trust fund assets from the General Fund of the Treasury, will provide the resources needed to offset Social Security’s annual aggregate cash-flow deficits until 2034. Since the cash-flow deficit will be less than interest earnings through 2019, total income will exceed expenditures and reserves of the combined trust funds will continue to grow but not by enough to prevent the ratio of reserves to one year’s projected cost (the combined trust fund ratio) from declining. (This ratio peaked in 2008, declined through 2014, and is expected to decline
steadily in future years.) After 2019, Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of total trust fund reserves in 2034, one year later than projected in last year’s Trustees Report. Thereafter, tax income is projected to be sufficient to pay about three-quarters of scheduled bene-fits through the end of the projection period in 2089.
Under current projections, the annual cost of Social Security benefits expressed as a share of workers’ taxable earnings will grow rapidly from 11.3 percent in 2007, the last pre-recession year, to roughly 16.7 percent in 2038, and will then decline slightly before slowly increasing after 2050. Costs display a slightly different pattern when expressed as a share of GDP. Program costs equaled 4.1 percent of GDP in 2007, and the Trust-ees project these costs will increase to 6.0 percent of GDP for 2037, then stay about flat through 2060, and thereafter rise slowly reaching 6.2 percent by 2089.
The projected 75-year actuarial deficit for the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds is 2.68 percent of taxable payroll, down from 2.88 percent projected in last year’s report. This deficit amounts to 20 percent of program non-interest income or 16 percent of program cost. A 0.06 percentage point increase in the OASDI actuarial deficit would have been expected if nothing had changed other than the one-year extension of the valuation period to 2089. The effects of recently enacted legislation, updated demographic and economic data, and improved methodologies on net improved the actuarial deficit by 0.26 percent of taxable payroll.
While the hypothetical combined OASDI Trust Fund fails the long-range test of close actuarial balance, it does satisfy the test for short-range (ten-year) financial adequacy. The Trustees project that the combined trust fund asset reserves at the beginning of each year will exceed that year’s projected cost through 2028.
Medicare
The Trustees project that the Medicare Hospital Insurance (HI) Trust Fund will be depleted in 2030, the same year projected in last year’s report. At that time dedicated revenues will be sufficient to pay 86 percent of HI costs. The Trustees project that the share of HI cost that can be
financed with HI dedicated revenues will decline slowly to 80 percent in 2050, and will then rise gradually to 84 percent in 2089. HI non-interest income less HI expenditure is projected to be negative this year and next (as it has been in every year since 2008), and then turn positive for four years (2017-2020) before turning negative again in 2021. The HI fund again fails the test of short-range financial adequacy, as its trust fund ratio is already below 100 percent and is expected to decline in a near continuous fashion until reserve depletion in 2030.
The HI Trust Fund’s projected long-term actuarial imbalance is smaller than that of the combined Social Security trust funds under the intermedi-ate assumptions employed in the 2015 Trustees Report. The estimated 75-year actuarial deficit in the HI Trust Fund is 0.68 percent of taxable pay-roll, which amounts to 18 percent of tax receipts or 15 percent of program cost. This estimate is down from 0.87 percent projected in last year’s report, in large part due to a change in the projection methodology that results in a lower estimate for long-range health care cost growth for HI and other parts of Medicare.
The Trustees project that Part B of Supplementary Medical Insurance (SMI), which pays doctors’ bills and other outpatient expenses, and Part D of SMI that pays for prescription drug coverage, will remain ade-quately financed into the indefinite future because current law provides financing from general revenues and beneficiary premiums each year to meet the next year’s expected costs. However, the aging population and rising health care costs cause SMI projected costs to grow steadily from 2.0 percent of GDP in 2014 to approximately 3.4 percent of GDP in 2035, and then more slowly to 3.8 percent of GDP by 2089. General revenues will finance roughly three quarters of these costs, and premiums paid by beneficiaries almost all of the remaining quarter. SMI also receives a small amount of financing from special payments by States and from fees on manufacturers and importers of brand-name prescription drugs.
The Trustees project that total Medicare costs (including both HI and SMI expenditures) will grow from approximately 3.5 percent of GDP in 2014 to 5.4 percent of GDP by 2035 and will increase gradually thereafter to about 6.0 percent of GDP by 2089.
Relative to last year’s projections, the projections for Medicare’s total costs are little changed over the next 20 years, but are substantially lower
over the longer range. The improvement in the longer-term Medicare out-look is principally due to the methodological change mentioned above, and also to provisions of the recently enacted Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) that lowers projected long-range Medicare Part B costs. After 20 years, Medicare reimbursement rates for physicians’ services under MACRA are substantially reduced relative to last year’s featured baseline projection that assumed continued overrides of the prior-law mechanism for setting Medicare’s physician reimburse-ment rates.
In recent years U.S. national health expenditure (NHE) growth has slowed considerably. There is uncertainty regarding the degree to which this slowdown reflects the impacts of the recent economic downturn and other non-persistent factors or structural changes in the health care sec-tor that may continue to produce cost savings in the years ahead. The Trustees are hopeful that U.S. health care practices are in the process of becoming more efficient as new payment models become more prevalent and providers anticipate less rapid growth of reimbursement rates in both the public and private sectors than has occurred during the past several decades.
For a number of years the methodology the Trustees have employed for projecting Medicare finances over the long term has assumed a substan-tial reduction in per capita health expenditure growth rates relative to historical experience. In addition, the Trustees have been revising down their projections for near-term Medicare expenditure growth in light of the recent favorable experience, in part due to effects of payment changes and delivery system reform that are changing how health care is prac-ticed. However, the Trustees have not assumed additional, specific cost saving arising from structural changes in the delivery system that may result from MACRA’s new payment mechanisms and the cost-reduction incentives in the Affordable Care Act, as well as from payment reforms initiated by the private sector.
Notwithstanding the assumption of a substantial slowdown of per capita health expenditure growth, the projections indicate that Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation. Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers.
Conclusion
Lawmakers should address the financial challenges facing Social Secu-rity and Medicare as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and pro-vide more time to phase in changes so that the public has adequate time to prepare.
By the Trustees:
JACOB J. LEW,Secretary of the Treasury,and Managing Trustee of the Trust Funds.
THOMAS E. PEREZ,Secretary of Labor,and Trustee.
SYLVIA M. BURWELL,Secretary of Health and Human Services,and Trustee.
CAROLYN W. COLVIN,Acting Commissioner of Social Security,and Trustee.
CHARLES P. BLAHOUS III,Trustee.
ROBERT D. REISCHAUER,Trustee.
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A SUMMARY OF THE 2015 ANNUAL SOCIAL SECURITYAND MEDICARE TRUST FUND REPORTS
The Trustees continue to project depletion of the Social Security Disabil-ity Insurance (DI) Trust Fund in late 2016 if lawmakers take no action. This impending DI funding shortfall, which threatens beneficiaries with sudden and substantial benefit reductions, is but the first manifestation of larger financial imbalances facing Social Security as a whole as well as Medicare. The Trustees strongly urge lawmakers to enact legislation promptly to achieve sustainable financial balance which, in view of cur-rent financing needs, would almost certainly need to include at least a temporary increase in resources for the DI Trust Fund.
Social Security’s and Medicare’s projected long-range costs are not sus-tainable with currently scheduled financing and will require legislative action to avoid disruptive consequences for beneficiaries and taxpayers. The sooner that lawmakers take action, the wider will be the range of solutions to consider and the more time that will be available to phase in changes, giving the public adequate time to prepare. Timely resolution of the financial imbalances will prevent the uncertainty currently facing the disabled population from being experienced by other Social Security and Medicare participants. Earlier action would also provide more opportu-nity to ameliorate adverse impacts on vulnerable populations, including lower-income workers and people already significantly dependent on pro-gram benefits.
What Were the Trust Fund Operations in 2014? In 2014, 48.1 million people received Old-Age and Survivors Insurance (OASI) benefits, 10.9 million received DI benefits, and 53.8 million were covered under Medi-care. A summary of Social Security and Medicare trust fund operations is shown in the following table. The OASI Trust Fund increased asset reserves in 2014; reserves in the DI, Hospital Insurance (HI), and Supple-mental Medical Insurance (SMI) Trust Funds declined.
Table 1: TRUST FUND OPERATIONS[In billions]
OASI DI HI SMIReserves (end of 2013) . . . . . . . . $2,674.0 $90.4 $205.4 $75.1Income during 2014 . . . . . . . . . . 769.4 114.9 261.2 338.0Cost during 2014. . . . . . . . . . . . . 714.2 145.1 269.3 344.0
Net change in reserves . . . . . . 55.2 -30.2 -8.1 -6.0Reserves (end of 2014) . . . . . . . . 2,729.2 60.2 197.3 69.1Note: Totals do not necessarily equal the sum of rounded components.
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The following table shows payments, by category, from each trust fund in 2014.
Trust fund income, by source, in 2014 is shown below.
In 2014, Social Security’s cost continued to exceed the combined pro-gram’s tax income, a situation that the Trustees project to persist through-out the long-range period (2015-89) and beyond. The 2014 deficit of tax income (Table 3, first two lines) relative to cost was $74 billion.
In 2014, the HI fund used $9 billion of interest income (Table 3) and $8 billion of asset reserves (Table 1) to finance expenditures beyond those that could have been made solely on the basis of tax and premium income. For SMI, transfers from the General Fund of the Treasury, which are set prospectively based on projected costs, represent the largest source of income. Part B spending was higher than anticipated in 2014, account-ing for half of the $6 billion decrease in account asset reserves (Table 1).
What Is the Outlook for Future Social Security and Medicare Costs in Relation to GDP? One instructive way to view the projected costs of Social Security and Medicare is to compare the costs of scheduled bene-fits and administrative costs for the programs with the gross domestic product (GDP), the most frequently used measure of the total output of the U.S. economy (Chart A). Under the intermediate assumptions
Table 2: PROGRAM COST[In billions]
Category OASI DI HI SMIBenefit payments . . . . . . . . . . . . $706.8 $141.7 $264.9 $339.6Railroad Retirement financial
interchange . . . . . . . . . . . . . . . 4.3 0.4 — —Administrative expenses . . . . . . 3.1 2.9 4.5 4.4Total . . . . . . . . . . . . . . . . . . . . . . 714.2 145.1 269.3 344.0Note: Totals do not necessarily equal the sum of rounded components.
Table 3: PROGRAM INCOME[In billions]
Source OASI DI HI SMIPayroll taxes . . . . . . . . . . . . . . . $646.2 $109.7 $227.4 —Taxes on OASDIa benefits . . . . 28.0 1.7 18.1 —Beneficiary premiums . . . . . . . . — — 3.3 $77.0Transfers from States. . . . . . . . . — — — 8.7General Fund reimbursements . 0.4 0.1 2.0 3.0General revenues . . . . . . . . . . . . — — — 243.7Interest earnings . . . . . . . . . . . . 94.8 3.4 8.8 2.4Other . . . . . . . . . . . . . . . . . . . . . b — 1.6 3.3Total. . . . . . . . . . . . . . . . . . . . . . 769.4 114.9 261.2 338.0Note: Totals do not necessarily equal the sum of rounded components.aOASDI designates the combined operations of the OASI and DI programs.bLess than $50 million.
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employed in the reports and throughout this Summary, costs for the pro-grams increase substantially through 2035 when measured this way because: (1) the number of beneficiaries rises rapidly as the baby-boom generation retires; and (2) the lower birth rates that have persisted since the baby boom cause slower growth of the labor force and GDP.
Social Security’s projected annual cost increases to about 6.0 percent of GDP by 2035, declines to 5.9 percent by 2050, and rises to 6.2 percent of GDP by 2089. Under the intermediate assumptions, Medicare cost rises to 5.4 percent of GDP by 2035 due mainly to the rapid growth in the number of beneficiaries, and then to 6.0 percent by 2089. The growth in health care cost per beneficiary becomes the larger factor later in the valuation period, particularly in Part D.
In 2014, the combined cost of the Social Security and Medicare programs equaled 8.5 percent of GDP. The Trustees project an increase to 11.4 per-cent of GDP by 2035 and to 12.2 percent of GDP by 2089. Medicare’s rel-ative cost (3.5 percent of GDP) is expected to rise gradually from 71 percent of the cost of Social Security (5.0 percent of GDP) in 2015 to about 97 percent by 2089.
The projected costs for OASDI and HI depicted in Chart A and elsewhere in this document reflect the full cost of scheduled current-law benefits without regard to whether the trust funds will have sufficient resources to meet these obligations. Current law precludes payment of any benefits beyond the amount that can be financed by the trust funds, that is, from annual income and trust fund reserves. In years after trust fund depletion,
Chart A–Social Security and Medicare Cost as a Percentage of GDP
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HI + SMI (including Part D)
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the amount of benefits that would be payable is lower than shown, as described later in this summary, because benefit cost exceeds annual income. In addition, the projected costs assume realization of the full esti-mated savings of the Affordable Care Act and the physician payment rate updates specified in the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015. As described in the Medicare Trustees Report, the projections for HI and SMI Part B depend significantly on the sustained effectiveness of various current-law cost-saving measures, in particular, the lower increases in Medicare payment rates to most categories of health care providers.
What Is the Outlook for Future Social Security and Medicare HI Costs and Income in Relation to Taxable Earnings? Since the primary source of income for OASDI and HI is the payroll tax, it is informative to express the programs’ incomes and costs as percentages of taxable pay-roll—that is, of the base of worker earnings taxed to support each pro-gram (Chart B). Both the OASDI and HI annual cost rates rise over the long run from their 2014 levels (13.99 and 3.42 percent). Projected Social Security cost grows to 16.73 percent of taxable payroll by 2038, declines to 16.54 percent in 2050, and then rises gradually to 17.97 percent in 2089. The projected Medicare HI cost rate rises to 4.84 percent of tax-able payroll in 2050, and thereafter increases to 5.14 percent in 2089.
Chart B–OASDI and HI Income and Cost as a Percentage of Taxable Payroll
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Income ratesCost rates
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OASDI
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HI taxable payroll is about 25 percent larger than that of OASDI because the HI payroll tax is imposed on all earnings while OASDI taxes apply only to earnings up to a maximum ($118,500 in 2015) which ordinarily is adjusted each year.
The OASDI income rate—which includes scheduled payroll taxes at the current 12.4 percent level, taxes on benefits, and any other transfers of revenues to the trust funds excepting interest payments—was 12.80 per-cent in 2014 and increases slowly over time, reaching 13.32 percent in 2089. Annual income from the taxation of OASDI benefits will increase gradually relative to taxable payroll as a greater proportion of Social Security benefits is subject to taxation in future years, but will continue to be a relatively small component of program income.
The HI income rate—which includes payroll taxes and taxes on OASDI benefits, but excludes interest payments—rises gradually from 3.26 per-cent in 2014 to 4.32 percent in 2089 due to the Affordable Care Act’s increase in payroll tax rates for high earners that began in 2013. Individ-ual tax return filers with earnings above $200,000, and joint return filers with earnings above $250,000, pay an additional 0.9 percent tax on earn-ings above these earnings thresholds. An increasing fraction of all earn-ings will be subject to the higher tax rate over time because the thresholds are not indexed. By 2089, an estimated 80 percent of workers would pay the higher rate.
How Will Cost Growth in the Different Parts of Medicare Change the Sources of Program Financing? As Medicare cost grows over time, general revenue and beneficiary premiums will play an increasing role in financing the program. Chart C shows scheduled cost and non-interest revenue sources under current law for HI and SMI combined as a percent-age of GDP. The total cost line is the same as displayed in Chart A and shows Medicare cost rising to 6.0 percent of GDP by 2089.
Projected revenue from payroll taxes and taxes on OASDI benefits cred-ited to the HI Trust Fund increases from 1.4 percent of GDP in 2015 to 1.9 percent in 2089 under current law, while projected general revenue transfers to the SMI Trust Fund increase from 1.5 percent of GDP in 2015 to 2.8 percent in 2089, and beneficiary premiums increase from 0.5 to 1.0 percent of GDP during the same period. Thus, the share of total non-interest Medicare income from taxes falls substantially (from 41 percent to 32 percent) while general revenue transfers rises (from 44 percent to 48 percent), as does the share of premiums (from 14 percent to 18 per-cent). The distribution of financing changes in large part because in Part B and especially Part D—the Medicare components that are financed largely from general revenues—costs increase at a faster rate than Part A cost under the Trustees’ projections. The projected annual HI financial deficit beyond 2035 through 2089 averages about 0.4 percent of GDP and there is no provision under current law to finance that shortfall through general revenue transfers or any other revenue source.
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The Medicare Modernization Act (2003) requires that the Board of Trust-ees determine each year whether the annual difference between program cost and dedicated revenues (the bottom four layers of Chart C) under current law exceeds 45 percent of total Medicare cost in any of the first seven fiscal years of the 75-year projection period, in which case the annual Trustees Report must include, as it did from 2006 through 2013, a determination of “excess general revenue Medicare funding.” Because the difference between program cost and dedicated revenues is not expected to exceed the 45 percent threshold during fiscal years 2015-21, there is no such determination in this year’s report.
What Are the Budgetary Implications of Rising Social Security and Medicare Costs? Concern about the long-range financial outlook for Medicare and Social Security often focuses on the depletion dates for the HI and OASDI trust funds—the times when the projected trust fund bal-ances under current law will be insufficient to pay the full amounts of scheduled benefits. A more immediate issue is the effect the programs have on the unified Federal budget prior to depletion of the trust funds.
Chart D shows the excess of scheduled costs over dedicated tax and pre-mium income for the OASDI, HI, and SMI trust funds expressed as per-centages of GDP through 2040.1 Each of these trust funds’ operations will contribute increasing amounts to Federal unified budget deficits in future
Chart C–Medicare Cost and Non-Interest Income by Sourceas a Percentage of GDP
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Payroll Taxes
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eTotal Cost
State Transfers & Drug Fees
Deficit
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years. General revenues pay for roughly 75 percent of all SMI costs. Until 2030, interest earnings and asset redemptions, financed from general rev-enues, will cover the shortfall of HI tax and premium revenues relative to expenditures. In addition, general revenues must cover similar payments as a result of growing OASDI deficits through 2034.2
In 2015, the projected difference between Social Security’s expenditures and dedicated tax income is $84 billion. For HI, the projected difference between expenditures and dedicated tax and premium income is $4 bil-lion.3 The projected general revenue demands of SMI are $276 billion. Thus, the total General Fund requirements for Social Security and Medi-care in 2015 are $364 billion, or 2.0 percent of GDP. Redemption of trust fund bonds, interest paid on those bonds, and transfers from the General
1 Note that HI contributes small surpluses to combined General Revenue needs during 2017-20. The depicted height of the combined shortfall during those years reflects these HI surpluses. 2 As noted earlier in this summary, if trust fund depletion actually occurred as projected for HI in 2030 and for theoretical combined OASDI in 2034, each program could pay benefits thereafter only up to the amount of continuing dedicated revenues. Chart D, by contrast, compares dedicated sources of tax and premium income with the full cost of paying scheduled benefits under each program. In practice, lawmakers have never allowed the asset reserves of the Social Security or Medicare HI trust funds to become depleted.
Chart D–Projected SMI General Revenue Fundingplus OASDI and HI Tax Shortfalls
[Percentage of GDP]
3 This difference is projected on a cash rather than the incurred expenditures basis applied elsewhere in the long-range projections, except where explicitly noted otherwise.
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Fund provide no new net income to the Treasury, which must finance these payments through some combination of increased taxation, reduc-tions in other government spending, or additional borrowing from the public.
Chart D shows that the difference between cost and revenue (expressed as a percentage of GDP) from dedicated payroll taxes, income taxation of benefits, and premiums will grow rapidly through the 2030s as the baby-boom generation reaches retirement age, under the assumption that sched-uled benefits will be paid even in the absence of an increase in dedicated tax revenues.4 This imbalance would result in vastly increasing pressure on the unified Federal budget, with such financing requirements equaling 4.2 percent of GDP by 2040.
What Is the Outlook for Short-Term Trust Fund Adequacy? The reports measure the short-range adequacy of the OASI, DI, and HI Trust Funds by comparing fund asset reserves at the start of a year to projected costs for the ensuing year (the “trust fund ratio”). A trust fund ratio of 100 percent or more—that is, asset reserves at least equal to projected cost for the year—is a good indicator of a fund’s short-range adequacy. That level of projected reserves for any year suggests that even if cost exceeds income, the trust fund reserves, combined with annual tax revenues, would be sufficient to pay full benefits for several years.
By this measure, the OASI Trust Fund is financially adequate throughout and beyond the short-range period (2015-24) period, but the DI Trust Fund fails the short-range test because its estimated trust fund ratio was 40 percent at the beginning of 2015, with projected depletion of all reserves in late 2016.
The HI Trust Fund also does not meet the short-range test of financial adequacy; its trust fund ratio was 72 percent at the beginning of 2015 based on the year’s anticipated expenditures, and the projected ratio does not rise to 100 percent within five years. Projected HI Trust Fund asset reserves become fully depleted in 2030. Chart E shows the trust fund ratios through 2040 under the intermediate assumptions.
The Trustees apply a less stringent annual “contingency reserve” test to SMI Part B asset reserves because (i) the financing for that account is set each year to meet expected costs, and (ii) the overwhelming portion of the financing for that account consists of general revenue contributions and beneficiary premiums, which were 73 percent and 25 percent of total Part B income in calendar year 2014. Part D premiums paid by enrollees and the amounts apportioned from the General Fund of the Treasury are deter-mined each year. Moreover, flexible appropriation authority established by lawmakers for Part D allows additional General Fund financing if
4 As previously noted, this scenario would require a change in law to allow for the timely payment of all scheduled benefits upon trust fund depletion.
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costs are higher than anticipated, limiting the need for a contingency reserve in that account.
What Are Key Dates in DI, OASI, and HI Financing? The 2015 reports project that the DI, OASI, and HI Trust Funds will all be depleted within the next 20 years. The following table shows key dates for the respective trust funds as well as for the theoretical combined OASDI trust funds.5
Chart E–OASI, DI, and HI Trust Fund Ratios[Asset reserves as a percentage of annual cost]
KEY DATES FOR THE TRUST FUNDS OASI DI OASDIa
a.Column entries represent key dates for the theoretical combined OASI and DI funds.
HIYear of peak trust fund ratiob . . . . . . . . . .
b.Dates pertain to the post-2000 period.
2011 2003 2008 2003First year cost exceeds income excluding interestc. . . . . . . . . . . . . . . . . . .
c.Dates indicate the first year that a condition is projected to occur and to persist annually thereafter through 2089.
2010 2005 2010 2021First year cost exceeds income including interestc . . . . . . . . . . . . . . . . . . . 2022 2009 2020 2024Year trust fund reserves are depleted . . . . 2035 2016 2034 2030
5 HI results in this section of the Summary are on a cash rather than the incurred expenditures basis.
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DI Trust Fund asset reserves, which have been declining since 2008, are projected to be fully depleted in late 2016, as reported last year. Payment of full DI benefits beyond 2016, when tax income would cover only 81 percent of scheduled benefits, will require legislation to address the finan-cial imbalance. The OASI Trust Fund, when considered separately, has a projected reserve depletion date of 2035, one year later than in last year’s report. At that time income would be sufficient to pay 77 percent of scheduled OASI benefits.
The theoretical combined OASDI trust funds have a projected depletion date of 2034, one year later than indicated in last year’s report. After the depletion of reserves, continuing tax income would be sufficient to pay 79 percent of scheduled benefits in 2034 and 73 percent in 2089.
The OASDI reserves are projected to grow in 2015 because anticipated interest earnings ($93 billion in 2015) still exceed the non-interest income deficit ($84 billion). This year’s report indicates that annual OASDI income, including payments of interest to the trust funds from the General Fund, will exceed annual cost every year until 2020, increasing the nomi-nal value of combined OASDI trust fund asset reserves. The trust fund ratio (the ratio of projected reserves to annual cost) will continue to decline gradually (Chart E), as it has since 2008, despite this nominal bal-ance increase. Beginning in 2020, net redemptions of trust fund asset reserves with General Fund payments will be required until projected depletion of these reserves in 2034.
The projected HI Trust Fund depletion date is 2030, unchanged from last year’s report. Under current law, scheduled HI tax and premium income would be sufficient to pay 86 percent of estimated HI cost after trust fund depletion in 2030, declining to 79 percent by 2039, and then gradually increasing to 84 percent by 2089.
This report anticipates that HI Trust Fund reserve assets will increase by $2.0 billion in 2015 because interest earnings ($9 billion) will exceed the non-interest income deficit ($7 billion). Annual non-interest HI income is projected to exceed expenditures from 2017 through 2020, after which annual shortfalls reappear and persist through the remainder of the long-range projection period.
What Is the Long-Range Actuarial Balance of the OASI, DI, and HI Trust Funds? Another way to view the outlook for payroll tax-financed trust funds (OASI, DI, and HI) is to consider their actuarial balances for the 75-year valuation period. The actuarial balance measure includes the trust fund asset reserves at the beginning of the period, an ending fund balance equal to the 76th year’s costs, and projected costs and income during the valuation period, all expressed as a percentage of taxable pay-roll for the 75-year projection period. Actuarial balance is not an informa-tive concept for the SMI program because Federal law sets premium
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increases and general revenue transfers at the levels necessary to bring SMI into annual balance.
The actuarial deficit represents the average amount of change in income or cost that is needed throughout the valuation period in order to achieve actuarial balance. The actuarial balance equals zero if cost for the period can be met for the period as a whole and trust fund asset reserves at the end of the period are equal to the following year’s cost. The OASI, DI, and HI Trust Funds all have long-range actuarial deficits under the inter-mediate assumptions, as shown in the following table.
The Trustees project that the annual deficits for Social Security as a whole, expressed as the difference between the cost rate and income rate for a particular year, will decline from 1.31 percent of taxable payroll in 2015 to 0.98 percent in 2017 before increasing steadily to 3.52 percent in 2038. Annual deficits then decline slightly to 3.32 percent in 2050 before resuming an upward trajectory and reaching 4.65 percent of taxable pay-roll in 2089 (Chart B). The relatively large annual variations in deficits indicate that a single tax rate increase for all years starting in 2015 suffi-cient to achieve actuarial balance would result in sizable annual surpluses early in the period followed by increasing deficits in later years. Sustained solvency would require payroll tax rate increases or benefit reductions (or a combination thereof) by the end of the period that are substantially larger than those needed on average for this report’s long-range period (2015-89).
The Trustees project that the HI cost rate will exceed the income rate in 2015 by 0.05 percent of taxable payroll, followed by a period of small tax-income surpluses in 2016 through 2021. Deficits subsequently re-emerge to grow rapidly with the aging of the baby boom population through about 2045, when the annual deficit reaches a peak of 1.03 per-cent of taxable payroll. Annual deficits then decline to 0.82 percent of payroll by 2060 and remain in the range of 0.80 to 0.90 percent of taxable payroll through 2089.
The financial outlooks for both OASDI and HI depend on a number of demographic and economic assumptions. Nevertheless, the actuarial defi-cit in each of these programs is large enough that averting trust fund depletion under current-law financing is extremely unlikely. An analysis that allows plausible random variations around the intermediate assump-
LONG-RANGE ACTUARIAL DEFICIT OF THE OASI, DI, AND HI TRUST FUNDS
[Percent of taxable payroll]
OASI DI OASDI HIActuarialDeficit . . . . . . . . . . . . . . . . . . 2.37 0.31 2.68 0.68
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tions employed in the report indicates that OASDI trust fund depletion is highly probable by mid-century.
How Has the Financial Outlook for Social Security and Medicare Changed Since Last Year? Under the intermediate assumptions, the combined OASDI trust funds have a projected 75-year actuarial deficit equal to 2.68 percent of taxable payroll, 0.20 percentage point smaller than last year’s estimate. The anticipated depletion date for the theoretical combined asset reserves is 2034. If the assumptions, methods, starting values, and the law had remained unchanged from last year, the actuarial deficit would have increased by about 0.06 percent of payroll due to advancing the valuation date by one year and including the year 2089. Changes in methods (for example, improved earnings projections for future beneficiaries), updated starting values, and revised economic assumptions (for example, an increased average real wage differential) account for most of the net decline in the actuarial deficit.
Medicare’s HI Trust Fund has a long-range actuarial deficit equal to 0.68 percent of taxable payroll under the intermediate assumptions, 0.19 percentage point smaller than reported last year. This improvement is primarily due to a reduction in projected long-range health care cost growth based on 1) changed assumptions about the effect of increases in income, technology, and health care prices on health care costs (0.23 per-cent of payroll), and 2) provider payment reductions due to legislation (0.03 percent of payroll). Partly offsetting these gains, by -0.07 percent of payroll, was an increase in the projected number of beneficiaries enrolled in Medicare Advantage plans, where benefits are more costly. The pro-jected date of depletion of the HI Trust Fund remains 2030.
What Are the Trust Funds? Congress established trust funds managed by the Secretary of the Treasury to account for Social Security and Medi-care income and disbursements. The Treasury credits Social Security and Medicare taxes, premiums, and other income to the funds. There are four separate trust funds. For Social Security, the Old-Age and Survivors Insurance (OASI) Trust Fund pays retirement and survivors benefits and the Disability Insurance (DI) Trust Fund pays disability benefits. (OASDI is the designation for the two trust funds when they are considered on a theoretical combined basis.) For Medicare, the Hospital Insurance (HI) Trust Fund pays for inpatient hospital and related care. The Supplemen-tary Medical Insurance (SMI) Trust Fund comprises two separate accounts: Part B, which pays for physician and outpatient services, and Part D, which covers the prescription drug benefit.
The only disbursements permitted from the funds are benefit payments and administrative costs. Federal law requires that all excess funds be invested in interest-bearing securities backed by the full faith and credit of the United States. The Department of the Treasury currently invests all program revenues in special non-marketable securities of the U.S. Gov-
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ernment which earn interest equal to rates on marketable securities with durations defined in law. The balances in the trust funds, which represent the accumulated value, including interest, of all prior program annual sur-pluses and deficits, provide automatic authority to pay benefits.
How Are Social Security and Medicare Financed? For OASDI and HI, the major source of financing is payroll taxes on earnings paid by employ-ees and their employers. Self-employed workers pay the equivalent of the combined employer and employee tax rates. During 2014, an estimated 166 million people had earnings covered by Social Security and paid pay-roll taxes; for Medicare the corresponding figure was 169.6 million. Cur-rent law establishes payroll tax rates for OASDI, which apply to earnings up to an annual maximum ($118,500 in 2015) that ordinarily increases with the growth in the nationwide average wage. In contrast to OASDI, covered workers pay HI taxes on total earnings. The scheduled payroll tax rates (in percent) for 2015 are:
Self-employed persons pay the combined rates. The Affordable Care Act applies an additional HI tax equal to 0.9 percent of earnings over $200,000 for individual tax return filers, and on earnings over $250,000 for joint return filers.
Taxation of Social Security benefits is another source of income for the Social Security and Medicare trust funds. Beneficiaries with incomes above $25,000 for individuals (or $32,000 for married couples filing jointly) pay income taxes on up to 50 percent of their benefits, with the revenues going to the OASDI trust funds. This income from taxation of benefits made up about 3 percent of Social Security’s income in 2014. Those with incomes above $34,000 (or $44,000 for married couples filing jointly) pay income taxes on up to 85 percent of benefits, with the additional revenues going to the Medicare trust fund. This income from taxation of benefits made up about 7 percent of HI Trust Fund income in 2014.
The trust funds also receive income from interest on their accumulated reserves, which are invested in U.S. Government securities. In 2014, interest income made up 11 percent of total income to the OASDI trust funds, 3 percent for HI, and less than 1 percent for SMI.
Payments from the General Fund currently finance about 75 percent of SMI Part B and Part D costs, with most of the remaining costs covered by monthly premiums charged to enrollees or in the case of low-income ben-eficiaries, paid on their behalf by Medicaid for Part B and Medicare for
OASI DI OASDI HI TotalEmployees . . . . . . 5.30 0.90 6.20 1.45 7.65Employers . . . . . . 5.30 0.90 6.20 1.45 7.65 Combined total . . 10.60 1.80 12.40 2.90 15.30
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Part D. Part B and Part D premium amounts are determined by methods defined in law and increase as the estimated costs of those programs rise.
In 2015, the Part B standard monthly premium is $104.90. There are also income-related premium surcharges for Part B beneficiaries whose modi-fied adjusted gross income exceeds a specified threshold. In 2015 through 2019, the threshold is $85,000 for individual tax return filers and $170,000 for joint return filers. Income-related premiums range from $146.90 to $335.70 per month in 2015.
In 2015, the Part D “base monthly premium” is $33.13. Actual premium amounts charged to Part D beneficiaries depend on the specific plan they have selected and average around $32 for standard coverage. Part D enrollees with incomes exceeding the thresholds established for Part B must pay income-related monthly adjustment amounts in addition to their normal plan premium. For 2015, the adjustments range from $12.30 to $70.80 per month. Part D also receives payments from States that par-tially compensate for the Federal assumption of Medicaid responsibilities for prescription drug costs for individuals eligible for both Medicare and Medicaid. In 2015, State payments will cover about 9 percent of Part D costs.
Who Are the Trustees? There are six Trustees, four of whom serve by virtue of their positions in the Federal Government: the Secretary of the Treasury, the Secretary of Labor, the Secretary of Health and Human Ser-vices, and the Commissioner of Social Security. The other two Trustees are public representatives appointed by the President and confirmed by the Senate: Charles P. Blahous III, Senior Research Fellow at the Merca-tus Center and Research Fellow at the Hoover Institution, and Robert D. Reischauer, President Emeritus and Distinguished Fellow of the Urban Institute.
A MESSAGE FROM THE PUBLIC TRUSTEES
Participation in our fifth annual Trustees Reports provides an opportunity to reflect on the great privilege it has been to serve as Public Trustees for the Social Security and Medicare trust funds. Not only do the Social Secu-rity and Medicare programs remain exceptional public policy achieve-ments, but also we have found that the Trustees’ process itself accords with the highest standards of public service. The ex officio Trustees and their capable staffs with whom we have worked have invariably approached their responsibilities with an attitude of respect for a process that well serves lawmakers and the public. The same can be said of the independent and tirelessly working Chief Actuaries at the Social Security Administration and Centers for Medicare & Medicaid Services and their skilled staffs.We have also benefited tremendously from the insights of the Social Security and Medicare technical panels that have reviewed the assumptions and methodologies underlying the annual reports. Although only time will allow us to judge the accuracy of the Trustees’ long-term projections, it is not too soon for us to vouch for the methodological rigor, objectivity, and integrity with which the work has been conducted.
As noted in last year’s Message, the public trustee positions were created pursuant to a recommendation of the 1983 Greenspan Commission, based on its view that “the presence of such public members would inspire more confidence in the investment procedure” for trust fund assets. This recom-mendation followed the Commission’s finding that the trust fund invest-ment procedures were “equitable to both the trust funds and the General Fund of the Treasury.” It preceded the Commission recommendation on budget procedures to “make clear the effect and presence of any pay-ments from the General Fund of the Treasury to the Social Security pro-gram.” While it emphasized the usefulness of public trustees in monitoring these interactions, the Commission also opined that establish-ing public trustees “would help to assure that the demographic and eco-nomic assumptions for the cost estimates of the future operations of the program would continue to be developed in an objective manner.”
Our positions thus require that we monitor several important aspects of Social Security and Medicare financing. The language of the Social Secu-rity Act, statements of influential legislators and commission members, and the structures of the Social Security and Medicare programs them-selves, all convey that a positive trust fund balance is a necessary but insufficient condition for financial viability. To ensure that these pro-grams function adequately, policy makers will need to consult other infor-
mation in our reports beyond the mere projected duration of trust fund adequacy. This is true for both Social Security and Medicare, though the underlying considerations are distinct in each case.
The importance of financial information beyond a trust fund’s solvency status is most readily apparent in Medicare, a significant portion of which is kept automatically solvent by statutory design. For example, lawmakers have long required that the Trustees provide an annual report on the finances of Medicare’s Supplemental Medical Insurance (SMI) Trust Fund, using statutory terminology similar to that used for the Social Security and Hospital Insurance trust funds despite the fact that, in con-trast to these other trust funds, the SMI fund can never be depleted. By this and other actions, lawmakers have conveyed to the Trustees a desire for a range of pertinent financial information. In the specific case of SMI, financing strains are manifested not in a threat of Trust Fund reserve depletion but in rising costs facing premium payers as well as the Federal Government’s General Fund. The budgetary pressures that arise from maintaining Trust Fund solvency are among the issues about which the annual Trustees Reports are intended to inform lawmakers and the public.
With Social Security, much of the need to look more critically at program finances arises from the pattern of trust fund operations that has devel-oped over time. Throughout much of Social Security’s early history annual income and outgo were kept in reasonably proximate annual bal-ance, such that when the Trust Funds faced a threat of depletion in the early 1980s it was still fully possible, though difficult to be sure, to close the financing gap. After the 1977 and 1983 program amendments, Social Security experienced substantial surpluses of tax income relative to expenditures from the late 1980s through the 2000s. Notwithstanding the fact that the aggregate program has been running annual cash deficits since 2010, these surpluses have accumulated to a substantial positive balance in the hypothetical combined trust funds, one that will peak in 2019 and then decline gradually to depletion in 2034. A critical unin-tended consequence of large trust fund balances has been that unavoid-able corrective actions have been postponed. Continued inaction going forward to the point where the combined trust funds near depletion would—unlike the situation in 1983—likely preclude any plausible oppor-tunity to maintain Social Security’s historical financing structure.
To appreciate these dangers, consider that under the Trustees’ current projections, annual Social Security costs will be more than 25 percent higher than income by 2034. There is no historical precedent for closing
annual gaps of this size within the space of just a few years. As the Trust-ees Report notes, even the total elimination of Social Security benefits for those newly eligible in 2034 would be insufficient to restore short-term financial balance. Similarly, a payroll tax increase of the magnitude needed to maintain scheduled benefits would have a profound adverse impact on the economy and employment. Thus, while legislative action is not yet necessary to prevent imminent reductions in Old-Age and Survi-vors Insurance (OASI) benefits (the immediate threat being confined to disability benefits), prompt action is needed to prevent Social Security’s aggregate financial shortfall from growing to an intractable size.
The imminent depletion of Social Security’s Disability Insurance (DI) Trust Fund reserves is but the first financing crisis arising from program cost growth trends that have been evident for the past few decades. Social Security DI faces unique policy challenges that lawmakers should address, distinct from those facing the OASI Trust Fund. At the same time, however, the projected imbalance of the OASI Trust Fund is larger in both absolute and relative terms than that facing the DI fund and arises from many of the same sources.
Conflicting considerations arise from these factors. At this late date, it is impracticable to reduce DI costs sufficiently to prevent imminent Trust Fund depletion (and thus, sudden benefit reductions for highly vulnerable individuals) without at least a temporary increase in DI Trust Fund resources, irrespective of its source or combination with other measures. But on the other hand, DI already receives a higher share of the Social Security payroll tax relative to its projected obligations, than does OASI. Moreover, past DI income increases have generally been enacted in the context of legislation affecting projected program outlays, the sole recent exception in 1994 being preceded by a Trustees’ warning that a further reallocation to DI from OASI “would ultimately raise concern about the financial viability of the retirement and survivors program.” Any neces-sary resource reallocation that does occur should not be regarded as a substitute for action to sustain the finances of DI and Social Security as a whole, nor enacted in a manner that has the effect of further postponing those required corrections.
Several years of delay in legislating financing corrections has led to the current situation in which there are few options for preventing sudden DI benefit reductions affecting many of our society’s most vulnerable mem-bers. Substantial further delay in enacting financial repairs to Social Security as a whole would compound these problems, creating uncer-tainty on an even larger scale for millions of vulnerable OASI beneficia-
ries and taxpayers, and leaving even less palatable options than now exist.
Though Medicare has long been considered the relatively more difficult financing challenge, by some measures it is in better financial shape than Social Security. Medicare’s actuarial imbalance is smaller and its Hospi-tal Insurance Trust Fund depletion date (2030) is substantially more dis-tant than that facing Social Security’s DI fund (2016). But two important factors complicate this picture. One is that, as earlier noted, Medicare SMI is constructed to remain solvent by statutory design. Thus the absence of a projected SMI Trust Fund depletion date does not by itself signify that Medicare is free from financing strains. Instead, these pres-sures are simply manifested in different ways—as projected financial bur-dens on Federal income taxpayers and Medicare premium payers.
The other important factor is that the relatively smaller size of Medicare’s financing gap depends in large part on sustaining ambitious cost-contain-ment provisions under current law whose effectiveness has yet to be fully tested over the long term. Irrespective of whether one supported or opposed the enactment of these provisions, Medicare participants and those with insurance obtained through employers, unions and exchanges share a common stake in their success. If these provisions were to be scaled back or repealed, other more aggressive savings measures would need to be enacted in their place. Because even under current projections Medicare faces a substantial financing gap, we will need all of current law’s cost containment and more to ensure that it remains on a financially secure footing.
We hope that the information contained in these reports will prove useful to policy makers as they undertake the important work of strengthening Social Security and Medicare finances.
CHARLES P. BLAHOUS III,Trustee.
ROBERT D. REISCHAUER,Trustee.
.
.
2015
"Due Diligence" Investigation Check List
1. CORPORATE MATTERS
a. Articles of Incorporation and by-laws of the Company and Seller.
b. Corporate minute books and stock transfer records of the Company.
c. Federal and state tax returns and related reports of the Company including:
i. income tax returns,
ii. audit reports of taxing authorities including descriptions of any open issues,
iii. real estate tax bills and payment records,
iv. personal property tax bills and payment records,
v. franchise, license, capital stock, doing business, and similar tax reports, and
vi. any other material documents.
d. Agreements and arrangements between the Company and Seller or any affiliate of the Company or Seller, including:
i. stock subscription agreements,
ii. loan, line of credit or other financing arrangements,
iii. tax sharing agreements or arrangements,
iv. overhead allocation agreements or arrangements,
v. management services or personnel loan agreements or arrangements,
vi. guarantees or keep-well arrangements for the benefit of creditors or other third parties, and
vii. any others.
e. Shareholder agreements relating to stock of the Company or stock owned by the Company.
f. Documents imposing restrictions or conditions on stock transfer or merger, including any arrangements granting rights of first refusal or other preferential purchase rights.
g. Third-party or governmental consent or authorizations required for merger or acquisition.
2. FINANCIAL MATTERS
a. Financial statements, including:
i. audited financial statements for all periods beginning on or after ^, 19^, consisting, in each case, of at least a balance sheet and income statement,
ii. interim monthly unaudited financial statements for periods after the latest audited statements, and
iii. working papers relating to the foregoing.
b. Bank accounts and depositary arrangements.
2
c. Credit agreements and credit instruments including loan agreements, notes, debentures and bonds, and files relating thereto.
d. Performance and financial bonds.
e. Letters of credit.
f. Instruments or arrangements creating liens, encumbrances, mortgages, or other charges (including mechanics and materialmens' liens) on any real or personal property of the Company, including property held indirectly through joint ventures, partnerships, subsidiaries or otherwise.
g. Receivables analysis including aging, turnover and bad debt experience.
3. MANAGEMENT AND OPERATIONS
a. Internal management reports and memoranda.
b. Policy and procedures manuals including those concerning personnel policy, internal controls and legal and regulatory compliance.
c. Budgets, financial projections, business plans and capital expenditure plans.
d. Contracts and arrangements for supplies or services, including the following which were entered into or under which work was done during the past ^ years:
i. contracts for the sale or purchase of real estate,
ii. contracts for the purchase or sale of materials, equipment or other personal property or fixtures,
iii. contracts or other arrangements for legal, accounting, consulting, brokerage, banking or other services, and
iv. construction and engineering contracts or subcontracts.
e. Proprietary information and documents, including:
i. patents and patent applications,
ii. copyrights,
iii. trademarks, service marks, logos and trade or assumed names,
iv. nonpatentable proprietary know-how,
v. federal and state filings relating to any of the foregoing,
vi. licensing agreements relating to any of the foregoing (whether the Company is a licensor or licensee), and
vii. confidentiality agreements relating to any of the foregoing.
f. Partnership or joint venture agreements to which the Company is a party and any other arrangements with third parties concerning the management or operation of properties, facilities or investments of the Company.
g. Reports to management, board of directors or shareholders prepared by outside consultants, engineers or analysts.
h. Closing documentation and related files for each prior sale of Company stock and each material asset purchase or sale by the Company during the past ^ years.
i. Leases, deeds and related instruments, including without limitation, office premises leases, equipment or vehicle leases, and any such instruments held indirectly through joint ventures, partnerships, subsidiaries or otherwise.
3
j. Agreements or arrangements granting rights of first refusal or other preferential purchase rights to any property of the Company.
k. Other material agreements or arrangements.
4. EMPLOYEE MATTERS
a. Corporate policies concerning hiring, compensation, advancement and termination.
b. Labor contracts together with a list of all labor unions that have represented or attempted to represent employees of the Company during the past ^ years.
c. Agreements with individual employees, including:
i. executive employment agreements,
ii. bonus, profit-sharing and similar arrangements,
iii. postemployment agreements including "salary continuation" and "golden parachute" arrangements, and
iv. covenants not to compete by present or former employees.
d. Names of any officers or key employees who have left the Company during the past years.
e. Each of the following which the Company maintains or contributes to, together with filings with the Internal Revenue Service, Pension Benefit Guaranty Corporation (PBGC), Securities and Exchange Commission and Department of Labor, including without limitation Forms 5500 and 5310, summary plan descriptions, summary annual reports, IRS determination letters (for qualified plans), and PBGC reportable events:
i. Union-sponsored multiemployer plans,
ii. Defined benefit plans,
iii. Defined contribution plans including:
1. money purchase pension plans,
2. profit-sharing plans,
3. stock bonus plans,
4. employee stock ownership plans, and
5. savings or thrift plans,
iv. Health and welfare plans, including:
1. medical, surgical, hospital or other health care plans or insurance programs including HMOs,
2. dental plans,
3. short-term disability or sick pay plans or arrangements,
4. long-term disability insurance or uninsured arrangements,
5. group term or other life or accident insurance,
6. unemployment or vacation benefit plans, and
7. other welfare plans,
v. Nonqualified deferred compensation arrangements including:
1. director or officer deferred fee plans,
4
2. excess benefit plans (providing benefits in excess of internal revenue code limitations for qualified plans), and
3. severance pay plans,
vi. Incentive or bonus plans including:
1. stock option plans,
2. stock bonus plans,
3. stock purchase plans, and
4. cash bonus or incentive plans.
5. INSURANCE
a. Insurance policies including those covering:
i. fire,
ii. liability,
iii. casualty,
iv. life,
v. title,
vi. workers' compensation,
vii. directors' and officers' liability, and
viii. any other insured events or matters.
b. Claim and loss histories, correspondence with insurance carriers and names of all insurance representatives relating to the foregoing.
6. REAL ESTATE AND EQUIPMENT AND OTHER PERSONAL PROPERTY
a. List of real estate (with legal descriptions), equipment and other personal property owned, leased or in the process of being acquired or sold by the Company, with the cost and book value of each item.
b. Real estate, equipment and other personal property leases and conditional sale agreements.
c. Information relating to title on all property listed in the items above, including motor vehicle title documents.
d. Appraisals of real estate, personal property and equipment.
7. GOVERNMENTAL REGULATION
a. Licenses, permits, filings or authorizations obtained from, made with or required by any governmental entity.
b. Correspondence with any governmental regulatory authority.
c. Accident or injury reports to federal, state, local and foreign governmental entities.
8. LITIGATION AND CLAIMS
a. Pending or threatened litigation, regulatory investigations, governmental actions, arbitrations, or notices of violation or possible violation, including proceedings in
5
which the Company is a plaintiff or claimant, and the names and addresses of legal counsel advising or representing the Company in each matter.
b. Files and records relating to the foregoing including opinions and evaluations.
WHAT IS BLI?
THE BLI CURRICULA
Strategic conversation reflects the dynamics
between the organization and its environment. The
closer the language reflects current and potential
customer dynamics, the higher the company’s profit
potential.
BLI is the training affiliate of the MACPA. BLI’s mission is to deliver competency-based courses, content and community that enhance learning and foster organizational and executive leadership.
BLI has grown into the largest provider of on-site training in the country. Pam and the Customized Learning Solutions team have grown the business in three core segments – Corporate, Firm and Government.
Today’s business environment demands the need to gain competencies and share strategic knowledge. BLI delivers competency-based curriculum, courses, content, and community to enhance learning and grow intellectual capital for organizational and executive leadership.
These soft skills are essentially people skills – the non-technical, intangible, performance skills that determine your strengths as a leader, manager, and team member.
Great leadership is one of the most valued of all human
activities. Modern myth holds that “leaders are born
not made,” but leadership is a set of observable and
learnable practices - it is the process people use when
they bring out the best in others and themselves.
As the business world moves at an incredible pace,
keeping up is a key to success. Today’s financial
managers must be able to translate strategy to
operational and corporate growth.
Executives and managers must effectively transform
their firms or companies into high performance
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the appropriate core competencies and link them to
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Success is not defined solely by a product line or service - it
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Keeping up with technical competencies is a core
business requirement for financial professionals.
Staying attuned to the latest changes, updates, and
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competitive in an ever-changing business environment.
Harness the technology you use every day to make
your business life easier and allow you to work smarter.
STRATEGIC MANAGEMENT
LEADERSHIP DEVELOPMENT
BUSINESS MANAGEMENT
PERFORMANCE MEASUREMENT MANAGEMENT
COMMUNICATION SKILLS
TECHNICAL EXPERTISE
TECHNOLOGY AND COMPUTER SKILLS
Please note that many programs in this catalog are available in Webcast format. Contact a BLI Customized Learning consultant if you are interested in a Webcast. 888-481-3500
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