Fall 2011 issue of Horizons

Fall | 2011

horizons A Publication of RubinBrown LLP

The Digital World: HowTechnologyContinues toEvolveBusiness

Technology as a strategic business partner Technology perspectives and profiles Find out how RubinBrown’s industry groups use technology to their advantage

Table Of Contents

horizons A publication of RubinBrown LLP FALL | 2011

Features 2

Welcome From RubinBrown’s Managing Partner

3

RubinBrown News

6

Chairman’s Corner

Chairman James G. Castellano, CPA Managing Partner John F. Herber, Jr., CPA

7

RubinBrown Expands Further In Denver

10

Technology Perspectives & Profiles

13

Technology As A Strategic Business Partner

Denver Office Managing Partner

17

New Retirement Plan Fee Disclosures

Gregory P. Osborn, CPA Kansas City Office Managing Partner Todd R. Pleimann, CPA Editor Dawn M. Martin Art Director Joe Ebeler

57

Timely Reminders

Industry-Specific Articles 21 Automotive A Steady Recovery Boosts Confidence For The Automotive Industry 24 Contractors Technology Efficiencies And Process Improvements For Contractors 27 Home Builders The New Technology in Home Building 30 Hospitality & Gaming Four Key Questions For Country Club Executives 33 Life Sciences

Horizons, a publication of RubinBrown LLP, is designed to provide general information regarding the subject matters covered. Although prepared by professionals, its contents should not be construed as the rendering of advice regarding specific situations. If accounting, legal or other expert assistance is needed, consult with your professional business advisor. Please call RubinBrown with any questions (contact information is located on the back cover).

Technology as a Driver For Life Sciences Companies

36

Not-For-Profit Is Your 403(b) Plan Subject to ERISA?

39

Media & Entertainment Even During Economic Bust, Technology Advances Boom Manufacturing & Distribution Inventory Management: Updates on Cycle Counting & LIFO Professional Services The Future Direction of Healthcare Technology Public Sector New Exposure Drafts Overhaul Financial Reporting for Governmental Pension Plans

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45

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Real Estate RubinBrown Releases 2011 Apartment Stats

Raise Your Expectations

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Welcome fromRubinBrown’s Managing Partner

The speed at which technology evolves is unbelievable.

Think about it. Ten years ago, we were listening to music on CDs and taking pictures with cameras that had film. Even more astonishing? Think back to what your cell phone looked like ten years ago. Touch screens? We couldn’t even imagine. For businesses, technology has literally reshaped every facet of our world. Of course, technology helps us produce faster and improve efficiencies. But arguably, the greatest advantage it has given us is connection. Thanks to technology, the whole world is accessible, which has far-reaching implications for the way we conduct business. Today, geographically dispersed teams can meet instantly. Conference calling, video conferencing, email, cloud computing, instant messaging, and even Skype have all helped us collaborate in an even larger business network. The result is greater productivity and a wider blend of talents, abilities, and viewpoints. Overall, technology has had a bigger impact on business than any other factor. Companies have had to transform themselves almost entirely to remain competitive. While technology advances in business and our personal lives have been both costly and resource draining, the increased productivity and mobility has far outweighed the investments. What will technology look like ten years from now in 2021? Who knows? But undoubtedly, we will look back at 2011 and be amazed at how much it has evolved. As always, I personally welcome your feedback on this issue of Horizons and, overall, on your business views. Please email me directly at john.herber@rubinbrown.com .

John F. Herber, Jr., CPA Managing Partner

Pleasant reading,

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News

RubinBrown Around Town

RubinBrown Sponsors RCGA Top 50 Awards

RubinBrown Awards & Recognitions

For the third year in a row, RubinBrown will serve as presenting sponsor of the St. Louis Regional Chamber and Growth Association’s Top 50 Businesses Awards.

The awards program recognizes companies based on their significant contributions to the St. Louis region and how they have positively affected the future of the business community. RubinBrown Partner Appointed As NASBA COO Long-time RubinBrown Partner Colleen Conrad has been named Chief Operating Officer of the National Association of State Boards of Accountancy (NASBA) effective October 31. NASBA is dedicated to enhancing the effectiveness of the country’s 55 state boards of accountancy, all of which serve as regulators for the accounting profession in their respective states.

RubinBrown Founder, Partner and Family Recognized Founding Partner Mahlon Rubin and his son, Partner Ken Rubin , their wives, and Ken’s daughters have been jointly awarded the Netzach Award by the American Jewish Committee. The Rubin family was presented this award in recognition of their leadership, dedication, and commitment which has significantly enriched the Jewish Community. Partner Wins Award from Notre Dame Club of Denver Partner Bert Bondi has been awarded the Distinguished Service Award for 2011 by the Notre Dame Club of Denver. The award recognizes Bert for outstanding leadership in his profession and community, evidencing the vision of the University of Notre Dame.

RubinBrown Announces New Industry Group; Stevens to Head Group

RubinBrown has formed a new group that will focus specifically on servicing colleges and universities. The Colleges & Universities Services Group provides a full range of assurance, tax and consulting services to colleges and universities, both private and public. Newly promoted partner Brent Stevens has been named the partner-in- charge of this new group.

Partner Presented Urban League Young Professionals Award

Congratulations to RubinBrown Partner Steven Harris who was named Young Professional of the Year by the Urban League Young Professionals of Metropolitan St. Louis.

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New Rankings RubinBrown moved up the rankings to the 46th largest accounting firm in the country, according to the Inside Public Accounting 2011 Top 100 Firms .

Partner Named UMSL Alumni Honoree The University of Missouri-St. Louis has named RubinBrown Partner Audrey Katcher a 2011 UMSL Distinguished Alumni Honoree. This award is given annually to a select group of alumni who have distinguished themselves in the community and their professional careers. Manager Honored For Two St. Louis Awards The St. Louis Business Journal named RubinBrown Manager Ricky Vigil to its list of 30 Under 30 Professionals. In addition, Ricky was named one of the Top 100 St. Louisans to Know to Succeed in Business by St. Louis Small Business Monthly .

In addition, RubinBrown has moved up in the Denver Business Journal’s rankings to the 18th largest accounting firm. This ranking is reported with information prior to the firm’s combination with the former BONDI & Co. on June 1. In the St. Louis Business Journal , RubinBrown remained the number one accounting firm in terms of number of CPAs and total professionals. The Kansas City Business Journal reported that RubinBrown moved up to number 10 in terms of number of CPAs and total professionals. This is up from number 11 last year.

RubinBrown’s Run for the Town A 5k Run/Walk & Kids’ Quarter Mile Dash Join our St. Louis RubinBrown team members in this fun event to help the community. All proceeds from the race will benefit the RubinBrown Charitable Foundation. Saturday, October 1 Tower Grove Park, Sons of Rest Pavilion 8:00 a.m.

For more information, go to www.rubinbrown.com

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News – continued

RubinBrown New Hires & Promotions

New Partners

New Managers - continued

Matt Marino, CPA was recently promoted to

RubinBrown promoted Cheryl Heller, CPA , to partner in RubinBrown’s Wealth Management Services Group in St. Louis. She provides tax compliance and consulting

assurance manager in the Denver office. In his new role, Matt provides benefit plan audit and assurance services to a variety of clients, including those in the manufacturing and distribution, not-for-profit, public sector, and real estate industries.

services to middle market and small, family owned companies, as well as tax planning and preparation for high-net worth individuals.

Brent Stevens, CPA , was promoted to partner in the Assurance Services Group

RubinBrown promoted Tanya Mullenix, CPA to manager in its Assurance Services Group in the St. Louis office. Tanya provides audit services for clients in the real estate industry and specializes in low-income and historic tax credits. Eric Westby, CPA was promoted to manager in the St. Louis Assurance Services Group. In his position, Eric serves mid-sized privately held organizations, specializing in the manufacturing and distribution groups as well as

in St. Louis. He provides traditional audit, student financial assistance and single audit services. In addition, Stevens was named partner-in- charge of RubinBrown’s recently formed Colleges & Universities Industry Group. Firm Management

RubinBrown named Mike Ramirez, CPA as its new director within the Business Advisory Services Group in St. Louis. Mike will lead the quality control initiatives for the Business Advisory Services Group, in addition to RubinBrown promoted Megan Knoblauch, CPA to manager in its Assurance Services Group. Megan, who works in RubinBrown’s Kansas City office, serves clients in various industries, specializing in audits, reviews, benefit and

homebuilders and contractors. In addition, Eric has vast experience with due diligence services related to mergers and acquisitions.

developing new service offerings. New Managers

The Kansas City Office added Scott Voss, CPA as a manager in its Tax Consulting Services Group in Kansas City. In

his position, Scott provides federal, state and local tax consulting and planning services to a variety of clients, from small businesses to Fortune 500 corporations.

contribution plan audits and advisory services.

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Chairman’s Corner

Development of the Accounting Profession in China By Jim Castellano, CPA

While the American Institute of CPAs prepares to celebrate its 125th anniversary, it is interesting to note that the Chinese Institute of CPAs is less than 25 years old. While more than 100 years younger, the accounting profession in China is expanding and developing at an incredible pace. Yet there are serious challenges both to the profession and to companies doing business there that must be overcome. Since the founding of the People’s Republic of China in 1949, all significant economic activity was conducted by State Owned Enterprises (SOEs). Shortly after the death of Mao Zedong in 1976, the Cultural Revolution in China came to an end. At that point, China began to open itself to the outside world. Today, while approximately 150 SOEs still report directly to the central government, many have been partially privatized and other enterprises, not owned by the state, are rapidly developing in China. All of these enterprises require services of China’s public accounting firms. It is the Ministry of Finance in China that promulgates accounting standards and, as a result, has direct oversight of the accounting profession. There is little doubt that, while western CPA firms have been investing enormous resources to develop their presence in China, the Ministry of Finance prefers that one or more global CPA firms be Chinese owned and branded. Yet such firms have a long way to go to achieve the scale necessary to compete on a global basis. As such, many major Chinese firms have aligned themselves with major international networks of accounting firms as a means of achieving the

scale necessary to compete globally and to garner the support of the Ministry of Finance. Baker Tilly China is one such firm. Baker Tilly China was established in 1988 and has been ranked as the twelfth largest CPA firm in China.

Jim Castellano, CPA Chairman

Baker Tilly China is registered with the United States Public Company Accounting Oversight Board and is thus qualified to audit or participate in the audits of companies listed on exchanges in the United States. I had the pleasure of participating in the ceremony conducted at the Peoples Hall in Beijing celebrating the acceptance of Baker Tilly China in Baker Tilly International. The event, attended by high ranking Chinese government officials, including those from the Ministry of Finance and the State Owned Enterprises, clearly demonstrated the enthusiasm of the Chinese government for the development of the accounting profession in China. Challenges remain, such as establishing protocols so that the US PCAOB can effectively inspect the Chinese firms that audit US public companies. In addition, extraordinary diligence must be maintained to ensure the quality of the underlying financial information reported by the rapidly growing Chinese entities requiring audits. Please call on me if RubinBrown can be of assistance to you as you explore the opportunities to do business in China.

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Features

RubinBrown

Denver EXPANDS FURTHER IN

O n June 1, RubinBrown augmented its thriving practice by joining with BONDI & Co. LLC, an accounting firm located in Denver. As a result of this combination, RubinBrown has moved up the rankings to the 46th largest accounting firm in the U.S., with a professional staff of more than 425 people located in Denver, Kansas City and St. Louis. RubinBrown has been looking to expand its audit practice in the Denver area since it successfully entered the market in mid-2010. Combined, RubinBrown now serves clients with nearly 60 accounting, tax and business advisory professionals in the Denver office.

“Our firms’ combined expertise and resources enable us to provide exceptional service to our clients and continue to grow in our markets,” explains RubinBrown Chairman Jim Castellano. “We’re very pleased to have the BONDI & Co. firm and its professionals join with RubinBrown as they provide the perfect fit for us,” Castellano further explains. “Their outstanding audit practice has long been recognized for its quality and depth.” BONDI & Co. has been operating for 35 years under the leadership of Bert Bondi, who developed the firm into one of the largest independently owned and operated CPA firms in Colorado. Bondi explains that “by joining RubinBrown, our clients will have access to greater reach and more comprehensive services with specific industry expertise.”

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New LoDo Office RubinBrown’s newly expanded Denver office is currently working from two locations—its original office downtown and the BONDI location, which operates out of Englewood. The two offices will physically combine into one later this fall. Construction is underway on the new office located in the “LoDo” district of Denver. LoDo is the affectionate name that Denver residents have given the Lower Downtown Historic District, which is one of the fastest growing and contemporary areas of the city. The new RubinBrown Denver office will span the entire third floor of 1900 Sixteenth Street. Join RubinBrown to celebrate our combined office at an open house, which will be scheduled this winter. Details will be published as soon as they are available.

RubinBrown’s Denver offices will combine and relocate to 1900 Sixteenth Street.

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FEATURES – continued

RubinBrown Welcomes Four New Partners from BONDI & Co. LLC While Greg Osborn continues to serve as the Denver office’s managing partner, RubinBrown welcomes the below partners as part of our expanded firm. Bert R. Bondi, CPA Partner After eight years with two different accounting firms, Bert founded BONDI & Co. LLC in 1976 and has led the firm since. He has more than three decades of accounting experience, providing services for governmental entities, financial institutions and Colorado businesses. Bert is a member of the American Institute of Certified Public Accountants, California Society of Certified Public Accountants, Colorado Society of Certified Public Accountants and Wyoming Society of Certified Public Accountants. He is a former president of the Metropolitan State College Foundation Board of Governors and previously served on the Colorado Society of CPAs Committee for Aid to Disadvantaged Businessmen. A graduate of the University of Notre Dame in South Bend, Ind., Bert has also participated in and continued his education through the National Tax Program at the University of Michigan and the Government Finance School

governments, as well as small businesses and not- for-profit organizations. Her primary duties include supervising and managing internal audits and accounting services. For several years, Evelyn was the featured speaker for the Federal Reserve System’s week-long Audit School, which trains and develops new internal auditors. She is a member of the Institute of Internal Auditors and the Colorado Society of Certified Public Accountants. Law holds a bachelor’s degree in accounting from Texas Women’s University. Julia Stone, CPA Partner Julia has expertise in government and not-for-profit

accounting, auditing and tax issues. Her specialties include performing tax research, preparing budgets and processing accounting

records. Julia also is experienced in several management operating systems and financial software programs. A University of Kentucky graduate, Julia is a member of the government issues committee of the Colorado Society of Certified Public Accountants. Cheryl L. Wallace, CPA Partner

Cheryl has more than 18 years of accounting, auditing and management experience. Her previous experience includes working at a Big Four auditing firm. Cheryl holds a

bachelor’s degree from Texas A&M University.

at Texas Tech University. Evelyn D. Law, CPA Partner Evelyn has an impressive career, spanning nearly three decades. She serves clients in the public sector industry, including local and county

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FEATUREs

Technology Perspectives and Profiles RubinBrown asked three of its clients working in the technology industry to share information about their companies, the impact of technological advances, as well as some predictions for the future.

Custom Communications, Inc. Rick Fessler Chief Operating Officer An exclusive premier AT&T retailer

Year Established:

1985

Revenue:

$10,000,000

Number of Employees: 85 Number of Locations: 17

How have technology advances affected your business? With advancements in technology, the opportunity for sales continues to grow. Our business model is no longer just providing a cellular phone sale to our customers, as it was in the `80s, `90s, and 2000s. Today, our business is tying your technological world together to enhance your day-to-day life with convenience. Your phone is your laptop, your TV is tied in to your home computer and your phone is now an extension of your TV and computer. You can describe it as your mobile phone being a “hot spot” allowing you to access high speed internet from your laptop, notebook, or tablet anywhere you have an AT&T wireless signal (which today is almost everywhere). Your TV (if you have AT&T U-Verse) is tied into your home PC giving you the ability to access your music and pictures from any TV in your house. With the AT&T U-Verse app, you can access your DVR from anywhere to set up and/or delete recordings. With any downtime you may have, you can watch tons of pre-recorded shows through U-Verse on your phone.

What are the biggest issues facing your company?

Three words: Big box retailers. These “multi-carrier” retailers carry Sprint, T-Mobile, Verizon, AT&T, etc., which lends to no-brand-loyalty and/or dedicated knowledge of the products and services they offer. This is not to say that they do not have a quality staff. I have experienced some smart individuals working at these “booths,” but not once have I experienced an individual who was more concerned about my needs, than which carrier was offering the best deal at the time. It’s important that you work with someone trained in how the devices you are purchasing not only help, but could complete your world. What are your predictions for the remainder of 2011 and 2012? Growth and more growth. Even in the state of current economy, we see and predict growth. Technology is no longer something someone wants; it’s now essential to everyone’s needs. Instantaneous information, results, and communication is not a fad…it’s the new way of life.

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FEATURES – continued

Contegix Matthew E. Porter CEO & Co-Founder

Contegix is a managed and cloud hosting company; our core purpose is to empower and unleash the potential of our customers by managing their internet IT infrastructure needs, which ultimately allows them to focus on their core business and what makes them truly unique for their customers.

Year Established: 2004 Number of Employees: 40 Number of Locations: 2

We have spent our company lifetime focused on our customers and helping drive their values. This will remain our commitment. Yet, our current marketing strategy is centered on increasing general awareness of our organization, as well as education initiatives centered on the specific services and products that Contegix provides. What are your predictions for the remainder of 2011 and 2012? We believe there is a fundamental flaw in how cloud computing is being provided by the marketplace today. Contegix is releasing exciting news in the second half of 2011 regarding our cloud infrastructure as a service offering to address this need. Combined with our overall brand strategy and continued hyper-focus on our customers, Contegix will gain significant market share in this growing sector of the market, especially as business pushes from the on-premise to off-premise. We expect to continue expanding our position in the area of traditional managed hosting as well as the growing area of cloud infrastructure as a service in 2012.

How have technology advances affected your business? Our industry is constantly evolving; currently our industry has shifted focus into cloud infrastructure as a service. The features of these systems are changing rapidly and Contegix is focused on innovation and development to broaden our offerings to match this rapid growth in infrastructure choice, and the accompanying managed services. Additionally, increased automation, dynamic managed service offerings and more choices for enterprise applications are all adding to our core capabilities. We are seeing a fundamental shift from customer on-premise IT infrastructures to agile, flexible infrastructures managed by trusted IT

infrastructure companies, such as Contegix. What are the biggest issues facing your company?

Contegix is known for unmatched client support and customer service by virtue of client referral and word-of-mouth marketing. However, in the larger marketplace, Contegix lacks brand recognition in a heavily commoditized market.

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Document & Network Technologies, Inc. (DNT) Jim Broderick Director of Managed Print Services DNT provides the industry’s highest level of customer service in helping companies to understand the intricacies of their document workflow and to offer services/solutions to help improve efficiencies as well as to drive out costs.

Year Established: 1970 Number of Employees: 75 Number of Locations: 2

shredding services, etc). Our challenge then is to make them aware that there are many ancillary costs and processes and offer suggestions that will help at a much higher level, ultimately making the process more streamlined as well as driving out costs associated with the entire process. What are your predictions for the remainder of 2011 and 2012? The remainder of 2011 and into 2012 appear to have many opportunities and challenges ahead. The outlook for our services is good, as companies will continue to look to cut costs without having a negative impact on efficiencies and processes.

How have technology advances affected your business? The affects of technology changes/advances have been significant. The nature of our business is to help our customers understand these advances and the affect that they have on their business. This means that we must keep our knowledge keen and the value that we deliver to our customers high. It seems that a good portion of the technological advances have to do with the elimination or the generation of paper, both of which are our specialties. This makes the demand of keeping up- to-speed all the more critical. What are the biggest issues facing your company? Keeping up with technology and informing our customers and prospects of all of the areas that we can help them with. Our specialty is working from “cradle to grave” of the document lifecycle, which puts us in a position to assist in many areas. Oftentimes our customers call with questions regarding only one aspect of the document lifecycle (such as needing a printer/copier, wanting

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Features

Technology as a Strategic Business Partner

By Dan Raskas, Audrey Katcher, CPA, CISA & Diana Knapp

Everyone talks about technology, uses technology, but sometimes we all lose sight of what actually defines technology. According to Merriam-Webster, technology is defined as “ the practical application of knowledge .” Interestingly, if you decompose this definition, the two key components to technology, the practical application and the knowledge itself, are the key elements that determines its value. In order for technology to be a strategic business partner in an organization, the organization must first learn to effectively use technology that already exists. Subsequently, they need to enhance it with newly created technology or uses of existing technology that do not yet exist. It is this combination that provides the optimal value to an organization.

Technology as a Commodity In many organizations, technology is viewed as a necessary cost of doing business. Employees need computers to be more efficient and to communicate with customers. Key applications that are utilized include e-mail, office productivity suites that provide word processing capabilities, spreadsheets and presentation tools. Back office systems such as accounting, order management and other corporate systems are all part of the technology commodity umbrella.

Technology as a Strategic Partner

Existing Technology

Created Technology

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Individually, none of these are strategic to an organization. If they were not in place, it would be inconvenient, but would arguably not present a significant impact to the business. One test to determine if your organization views technology strategically would be to evaluate what would happen if a disaster occurred and the systems in place were unavailable. How long could your business operate without the technology? Could you last a week, a day, or even hours? The longer your business could function without technology, the more of a commodity it is to your organization. Another test is to look how organizationally the technology function is structured. If we look at the IT function, to whom does the top IT individual report? Is the top IT person part of the executive team? Are they involved in strategy discussions and business planning activities? In most organizations where technology is viewed more of a commodity, the top IT person will report to the CFO. They will not be included in strategic discussions other than to provide answers to specific questions and they are not viewed as a member of the executive team. So why don’t companies use technology strategically? Many times it is because the business does not understand how to use technology strategically. There are also perceptions that to use technology strategically is costly, too complex, or even risky. While there are many cases where all of these things are true, the right solution will balance all of these with the corresponding benefits. The end result will be the optimal use of technology to meet the needs of the business at the maximum value. Strategic

Cost

Benefit

Infrastructure Applications

Efficiency Time to Market Competitive Advantage

Using technology as a commodity is a perfectly acceptable business practice. However, the business must realize that this strategy will provide the least benefit to the organization and in the long run, not necessarily the lowest cost.

Time without Technology Access

Commodity

Using Technology Strategically How does an organization begin to think about using technology strategically? What are the steps in the process? How do you start? Like most aspects of your business, it all revolves around where the business is going. The process begins with an overall business assessment. If the business does not have a strategy, it will be difficult to determine how technology, or anything else for that matter, can be strategic to the organization. If we assume that a business strategy exists, then the first step in the process is to assess the technology as it exists today and how it enables the strategic needs of the business. During this assessment, the organization should determine: • Where they are now as it relates to technology • What do they currently have • Where do they want or need to go

• What are the issues and risks • What are the opportunities

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Features – continued

Business Strategy

Technology Strategy

Implementation

The results of the assessment will provide the organization with a solid understanding of the role technology plays and what is missing. Once the business assessment has been completed, then the organization is ready to develop a technology strategy. During this process, the organization should evaluate: • What are the various technology options • What are the tradeoffs • What is the organization’s technology vision and best direction • How can they deal with the immediate needs As the technology strategy unfolds, the organization will begin to better understand the benefits that can be provided by technology and its associated costs. The most difficult part of the process is how to implement the technology strategy. As part of the implementation planning, the organization should focus on: • What are the priorities • How to manage the implementation of the plan • Who is going to do what • How much will it cost over time to implement and maintain • When will it be done The implementation can take place over a long period of time. The plan must be flexible so that it can accommodate changes in the business as the strategy is implemented. The organization must also continually evaluate the plan and measure the outcomes to ensure that the benefits are being derived.

Protecting Technology As technology becomes more strategic to an organization, it is crucial to put measures in place to protect it. There are several areas that need to be reviewed in order to effectively protect technology. These include legal protection, development of effective policies and procedures that govern how the technology is used and by whom, and the general security of the technology itself. As technology is developed, it can become a valuable asset to an organization as a key competitive advantage. A common legal protection is to patent the technology. Many aspects of a technology, be it a formula, a software application or a process, can potentially be patentable. By doing this, an organization not only protects its investment in the technology but also creates an asset that can be valued. In some cases, companies have licensed the use of their technology to create additional revenue streams while others have leveraged their patented technology to enhance the value as part of a transaction. In order to help ensure that technology is used correctly and effectively as well as protecting it, adequate controls and procedures should be developed and followed. These controls and procedures assure that the technology is used consistently and in the manner that it was designed to be used. They also provide protection for the technology so that information contained in the technology solution or the technology itself is only available for

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the intended purposes and to the individuals who have authorized access. As technology evolves, the importance of securing the technology becomes more critical to an organization. The more valuable the technology is to the organization, the more valuable it might be to someone outside the organization. There are many reported instances where breaches of security in high-profile organizations have had a tremendous impact on businesses. In most cases, the threat has been the loss of secure information, while in other cases a company’s ability to access its own information has been compromised. Overall, appropriate steps must be taken to secure the technology including the development of contingency plans in the event something does occur. There are many aspects that need to be considered in leveraging technology as a strategic business partner. Organizations need to first determine if

they are content with technology as a commodity or if they can quantify the value of technology as a strategic business partner. Once the organization is able to appreciate technology’s value, the combination of an effective strategy, implementation plan, appropriate controls and procedures, and security will help assure that this value is derived. There are documented cases of businesses that have taken this path and have literally transformed their businesses well beyond what was expected. There’s no doubt that investing time and resources into technology and the practical application of knowledge, can be one of the most powerful strategies that determines the viability of your company for decades to come.

RubinBrown’s Business Advisory Services Group Your company can improve your processes, comply with regulations, embed risk management programs, and strengthen information technology support through RubinBrown’s Business Advisory Services Group.

Michael T. Lewis, CFA – St. Louis Partner-In-Charge Business Advisory Services Group michael.lewis@rubinbrown.com 314.290.3397

Todd Pleimann, CPA – Kansas City

Managing Partner, Kansas City Office todd.pleimann@rubinbrown.com 913.499.4411

Dan Raskas – St. Louis Partner

Greg Osborn, CPA - Denver Managing Partner, Denver Office greg.osborn@rubinbrown.com 303.952.1250

Business Advisory Services Group dan.raskas@rubinbrown.com 314.678.3530

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Features

New Retirement Plan Fee Disclosures

By Wayne Isaacs, CPA, JD, CEBS

The Department of Labor issued “interim final regulations” in 2010 requiring covered service providers of defined benefit, defined contribution (401(k), profit sharing, employee stock ownership, money purchase pension) and ERISA 403(b) plans to disclose certain plan information to fiduciaries. The disclosures will enable fiduciaries to assess the reasonableness of their plan fees and identify any actual or potential conflicts of interest. The regulations were originally supposed to become effective July 16, 2011, but that date was extended first to January 1, 2012 and then to April 1, 2012. The regulations identify the requirements that must be followed in order for a plan to avoid a prohibited transaction. The regulations are complicated, and covered service providers are trying to interpret them. The Department of Labor did not publish a standard template for the covered service providers to use to disclose the required information.

Thus a retirement plan fiduciary who is responsible for the management or administration of multiple plans may receive different versions of the disclosures based on that covered service provider’s interpretation of the regulations. This article will provide you with a high level overview of the regulations. Fees The first step is to identify the various types of fees or compensation that a covered service provider may receive from a plan. There are two types of compensation that must be defined to fully understand the impact of the regulations. The first one is “direct compensation,” which is compensation received directly from the plan for services rendered to the plan. The second term is “indirect compensation,” which is compensation received from any source other than from the plan, plan sponsor or an affiliate of a covered service provider. This compensation is netted against the value of the assets.

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Examples include: • fee and expense reimbursement payments, • management fees paid to investment fund advisors, • sub-transfer agency fees, • shareholder servicing fees, • account maintenance fees, or • 12b-1 fees (these are fees for services related to marketing and distribution) Who Are Covered Service Providers? Covered service providers are required to provide written disclosures if they reasonably expect to receive more than $1,000 of compensation during the term of the contract. Covered service providers do NOT have to disclose fees that they receive which are paid directly from the plan sponsor. There are three types of covered service providers under the regulations: 1. A fiduciary under the Employee Retirement Income Security Act of 1974, which includes any party who: • Exercises discretionary authority and control over the management of the plan or the assets, • Is a registered investment advisor and provides investment advice for a fee, • Exercises discretionary authority and control over the administration of the plan, or • Is a fiduciary to a plan asset vehicle such as an investment contract, product or entity that holds plan assets. This would include plan assets invested in a common or collective trust fund maintained by a bank or a pooled separate account maintained by an insurance company. 2. Platform record keeper or an entity providing brokerage services to a participant-directed individual account plan in connection with the investment options made available under the plan. Basically the recordkeeper is providing an investment platform for the participants to invest their assets.

3. Any party who provides services to the plan and receives indirect compensation under a contract or arrangement from one of the following services:

• Accounting • Auditing • Actuarial • Banking • Consulting

• Legal • Recordkeeping • Securities or other investment brokerage • Third party administration • Valuation services

• Custodial • Insurance • Investment advisory

What Must Be Disclosed? The regulations generally require the covered service provider to disclose the following key elements: 1. Description of the services provided to the plan, 2. Identification of the party as a covered service provider, affiliate of the service provider or a subcontractor, 3. Description of the compensation and fees in connection with the services being provided, 4. Description of the recordkeeping services,

continued on page 20

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Features – continued

5. Are you limiting participant deferral (pre-tax and Roth 401(k)) contributions to $16,500 ($22,000 for an eligible participant who attained age 50) for the 2011 calendar year? Administration 6. Have you identified all eligible new employees and provided them with a summary plan description and other applicable plan documentation? 7. Have you remitted all participant deferral, Roth 401(k), after-tax contributions and loan repayments to the plan’s trust as soon as they can be reasonably segregated? 8. Have you made all required age 70 1 / 2 minimum distributions to owners and terminated participants? 9. Have you filed the applicable Form 5500 series return within seven months after plan year end unless you requested an extension of time to file the return? 10. Do you have a fidelity bond in an amount that is at least equal to 10% of the total value of the assets as of the beginning of the plan year? 11. Have you reviewed your investment policy statement within the past six months? Testing 12. Have you completed all required plan nondiscrimination tests and made the appropriate corrections timely for any failed test? If you answered “no” to any of these questions, you should investigate to determine what course of action may be required. You can find other relevant information on these items on the RubinBrown Benefits Group website by viewing the articles “Key Compliance Dates for a 401(k) and Profit Sharing Plan” and “Trends in Retirement Plan Administration – Common Mistakes.” RubinBrown Benefits Group, LLC can assist employers with various aspects of their 401(k) plans. Please contact Wayne Isaacs for further information.

401(k) Plan Compliance Challenges Complying with all the statutory and regulatory requirements to administer a 401(k) plan in today’s environment can be challenging. It seems that the requirements are ever- changing or you never have enough time to focus the required attention on them. Here are a few key questions to assist you in determining if you should review various aspects of your plan in more detail: Plan Document 1. Have you amended the plan document for the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and other statutory and regulatory changes? 2. Have you amended the plan document for any current year discretionary changes? Contributions 3. Are you using the proper definition of compensation to calculate participant deferral, matching and profit sharing contributions? 4. Are you limiting eligible participant compensation to $245,000 for the 2011 plan year when you calculate deferral, matching and profit sharing contributions?

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5. Description of whether the fees will be billed or deducted directly from the plan or investment accounts, and 6. Any termination fees.

Conclusion There were several versions of the regulations issued by the Department of Labor before the “interim final regulations” were issued. In addition, numerous parties testified before the Department of Labor on the regulations, all with the intent of providing their opinions. The regulations require full disclosure of all plan fees to help fiduciaries understand them and make better decisions. The disclosures will enable them to better assess the reasonableness of their plan fees and identify any actual or potential conflicts of interest. However, the implementation of these regulations and the continued evolution will be challenging for plan fiduciaries and service providers. RubinBrown Benefits Group, LLC can assist employers with various administrative aspects of their plans including understanding the new fee disclosure requirements. Please contact Wayne Isaacs for further information.

When Must the Fees Be Disclosed? Covered service providers that are providing services to existing plans must disclose the required information by April 1, 2012 unless that date is extended again. Covered service providers that will provide services to plans in the future must initially provide disclosures reasonably in advance of the date the contract or arrangement is entered into, extended or renewed. The regulations do specify that a change to a service arrangement requires the covered service provider to make subsequent disclosures as soon as practicable, but no later than 60 days from the date they are notified of any change. In addition, a covered service provider must correct any disclosure errors that they discover within 30 days from the date they become aware of any error or omission.

RubinBrown’s Benefit Services Group RubinBrown Benefits Group serves employers in the design, development, and maintenance of retirement plans, cafeteria plans, defined benefit plans and more Chip Harris, CPA - Kansas City Partner-In-Charge RubinBrown Plan Audit Services Group 913.499.4426 chip.harris@rubinbrown.com Bob Jordan, CPA - St. Louis Partner-In-Charge RubinBrown Wealth Management

Services Group 314.290.3221 bob.jordan@rubinbrown.com

Wayne Isaacs, CPA, JD, CEBS - St. Louis Manager-In-Charge RubinBrown Benefits Group 314.290.3493 wayne.isaacs@rubinbrown.com

Brian Frevert, CPA, CFP, MBA - Denver Partner RubinBrown Wealth Management Services Group 303.952.1231 brian.frevert@rubinbrown.com

www.rubinbrown.com

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Automotive

A Steady Recovery Boosts Confidence for the Automotive Industry By Mark Conrad, CPA 2010 Market Share by Manufacturer Chrysler 10%

After struggling for several years, economic indicators for the automotive industry reveal improving conditions. An 11 percent increase in 2010 from 2009 for new light-vehicle sales leads the good news, according to the National Automotive Dealership Association (NADA) . In addition, NADA reports that 2010 dealership net profit before tax as a percent of sales was 2.1 percent, up from the disappointing 1.5 percent in 2009. According to the NADA industry analysis division, the new-vehicle market share by manufacturer for 2010 was as follows:

Other Imports 17%

Volkswagen 3%

Ford 17%

Nissan 8%

Honda 10%

G.M. 19%

Toyota 16%

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Toyota lost the largest amount of market share during 2010, going from approximately 17 percent in 2009 to approximately 16 percent in 2009. All other manufacturers did not experience an increase or decrease in market share greater than 1 percent. Industry experts continue to predict that new light- vehicle unit sales will increase in 2011 by nearly another 10 percent; however, there remains some concern that the impact of Japan’s tsunami will create an inadequate supply of cars and trucks for the remainder of the year and will ultimately hurt international new-vehicle sales. To validate this concern, the NADA recently calculated that total automaker inventory remained below the desired 60 days of supply. The days’ supply of domestic vehicles decreased down to 54 days as of April 2011, and some of the faster-selling imported vehicles dipped below 35 days’ supply as of April 2011. Despite this concern, a March 2011 survey conducted by the NADA Industry Analysis Division reported that 57.5 percent of dealers expect an increase in profit during 2011, while 35.8 percent of dealers expect no change in profits during 2011, and only 6.7 percent of dealers expect a decline in profit during 2011. Speeding the Customers’ “Buying Cycle” As dealers and industry experts remain cautiously optimistic about 2011 and beyond, they are continuing to explore innovative ways to increase new light-vehicle sales. One popular method used by dealers is to contact customers, who either have equity in their vehicles or good payment histories with vehicle leases, with offers to get out

According to Automotive News , dealers are typically able to offer these customers new vehicles with attractive payment options that are similar or less than the customer’s current payment on their older vehicle. Boyd Wagner, CEO of AutoAlert, Inc, estimates that “ten to twelve percent of existing clients are not on salespeople’s radar but are in a position to drive off in new vehicles and keep their payments the same.” As an added benefit to the dealers using this market approach, the process is giving dealers better used- vehicle inventory during a time that there is more demand than supply for used-vehicles. According to R.L. Polk & Company , an automotive data and marketing solutions leader, fewer than 50 percent of customers who purchased or leased a vehicle in 2009 chose their previous brand. Furthermore, of the 4.5 million new-vehicle buyers who returned to the market in 2009, only 30 percent of them were loyal to their previous dealer. Using Software Programs To Build Business To entice new and previous customers, many dealerships are utilizing new software programs which help them speed up their new-vehicle unit sales and improve service volume and revenues. There are a number of relatively inexpensive factory and third-party software programs. A few of the featured software programs in a recent Automotive News article are:

Third-Party Software Programs COMPANY

PRODUCT

AutoAlert, Inc.

Auto Alert

BMW

Loan Loyalty

eLEAD CRM

GoldDigger2.0 Xtream Service

of leases and loans early — before the customers have even begun shopping for their vehicles.

HCD Software

Intelligent Marketing Systems

DealActivator

Prospect Vision

PV Advantage, PV Direct

Reynolds & Reynolds

Equity Calculator

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Automotive – continued

relationships with previous customers through timely mailings and other marketing touches. BMW utilizes a software program to operate their BMW loan loyalty program. The loan loyalty program simply notifies BMW dealers about their customers who are in good standing and whose vehicles’ market value is more than what is owed. Shawn Bugbee, vice president of sales and marketing for BMW Group Financial Services, says that over the past four months the loan loyalty program has converted more than 1,700 new-car sales for retail customers. He furthers states that approximately 70 percent of converted sales are occurring between 22 and 34 months, well ahead of the normal trade cycle of 30 to 36 months. Overall, the goal of these software programs is to provide customers with more options and to ultimately put dealerships in the fast lane for new- vehicle sales.

Each system has a different cost, but generally dealers can expect to spend between $1,000 and $3,000 per month for a program depending on the size of the store and sales volume. For example, in an area that is saturated with several dealers that sell the same brand, these software programs enable a dealer to better target a competing dealer’s customer base for service and maintenance opportunities. The software systems have proven to be an effective tool to help dealers develop stronger

RubinBrown’s Automotive Services Group RubinBrown assists the automotive industry through accounting, income tax, retirement, estate and fringe benefit planning.

John Butler, CPA - St. Louis Partner-In-Charge Automotive Services Group john.butler@rubinbrown.com 314.290.3333

Mary Ramm, CPA - Kansas City Partner Automotive Services Group mary.ramm@rubinbrown.com 913.499.4406

Russ White, CPA, MBA - Denver Partner Automotive Services Group russ.white@rubinbrown.com 303.952.1247

Mark Conrad, CPA - St. Louis Manager Automotive Services Group mark.conrad@rubinbrown.com 314.290.3425

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