IRS Announces 2014 Pension Plan Amounts

Saving for retirement is critical because it allows you to accumulate wealth for the future and generally provides a tax break.

The Internal Revenue Code provides dollar limitations on benefits and contributions of qualified retirement plans. It also requires the IRS to adjust these limits for cost‑of‑living increases on an annual basis.

The IRS announced the pension plan limitation changes for 2014.

Some pension limitations remain unchanged "because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustments," the IRS explained. However, other limits will increase for 2014.

Below are some of the key amounts:

Annual Qualified Plan Limits	2014	2013
401(k), SARSEP, 403(b) Plan Deferrals (Section 402(g)) & 457 Plan deferrals (Section 457(b)(2))	$17,500	$17,500
401(k), 403(b), 457 & SARSEP additional "catch-up" contributions for employees age 50 and older	$5,500	$5,500
Defined contribution plan dollar limit on additions (Section 415(c)(1)(A))	$52,000	$51,000
Defined benefit plan limit on benefits (Section 415(b)(1)(A))	$210,000	$205,000
Maximum compensation used to determine contributions	$260,000	$255,000
SIMPLE deferrals (Section 408(p)(2)(A))	$12,000	$12,000
SIMPLE additional "catch-up" contributions for employees age 50 and older	$2,500	$2,500
Compensation defining highly compensated employee (Section 414(q)(1)(B))	$115,000	$115,000
Compensation defining key employee (officer)	$170,000	$165,000
The compensation amounts under Section 1.61‑21(f)(5)(i) of the Income Tax Regulations concerning the definition of "control employee" for fringe benefit valuation purposes	$105,000	$100,000
Compensation triggering Simplified Employee Pension (SEP) contribution requirement (Section 408(k)(2)(c))	$550	$550
IRAs	2014	2013
Traditional and Roth IRA Individual, up to 100% of earned Income	$5,500	$5,500
Roth and traditional IRA additional annual "catch-up" contributions for account owners age 50 and older	$1,000	$1,000

Is America Falling Behind in Workplace Skills?

Americans scored well below the international averages in three skill areas in tests given to adults in 24 countries. The Organization for Economic Cooperation and Development (OECD) released the results of its first survey in early October.
You might be surprised by the results on the Program for the International Assessment of Adult Competencies (PIAAC) exam:

More about the PIAAC Exam The goal of the Survey of Adult Skills (PIAAC) test is to provide insight into the availability of basic skills in society, as well as how they are used at work and home. In 2011 and 2012, OECD tested about 166,000 adults aged 16 to 65 in these countries and sub-national regions: Australia, Austria, Belgium, Canada, the Czech Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Ireland, Italy, Japan, Korea, the Netherlands, Norway, Poland, the Russian Federation, the Slovak Republic, Spain, Sweden, the United Kingdom, and the United States. Top performers include Finland and Japan. More than 20 percent of the Finn and Japanese testers read at high levels (Level 4 or 5 on the Survey of Adult Skills). By comparison, only 11.5 percent of U.S. test takers read at such high levels. Other top performers include the Netherlands, Sweden and Australia. Weak performers include Italy and Spain, where more than 30 percent of those tested scored the lowest levels for both literacy and numeracy (Level 1 or below on the Survey of Adult Skills).

• Americans ranked 16th out of 23 industrialized countries in literacy (written text).
• We scored 21st out of 23 in numeracy (numerical and mathematical concepts).
• In the "problem solving in technology-rich environments" test, the U.S. ranked 17th out of 19 countries.

Which countries scored the highest? Japan and Finland far surpassed the United States. (See right- hand box for more about various country results.)

Weak U.S. Test Scores
After reviewing the PIAAC scores, Joseph B. Fuller, a senior lecturer at Harvard Business School's Institute for Strategy and Competitiveness, paints a dismal picture of America's ability to compete in a global economy:

"The [PIAAC] results show that the U.S. has lost the edge it held over the rest of the industrial world over the course of Baby Boomers' work lives. We had a lead and we blew it. We have a substantial percentage of the workforce that does not have the basic aptitude to continue to learn and to make the most out of new technologies. That manifests itself in lower rates of productivity growth, and it's productivity growth that drives real wage growth."

Two trends in U.S. basic workplace skills are especially sobering:

1. Our numeracy scores are among the lowest in the world. Almost 30 percent of Americans tested received the lowest possible scores (Level 1 or below). Worldwide only 19 percent of those tested scored this low.


2. Americans entering the workforce are no more skilled than older workers.Normally, literacy, numeracy and problem solving skills peak around age 30 and decline over time, according to the OECD. The oldest age groups generally display lower levels of proficiency than the youngest. But that's not true in the United States. Improvements in workplace skills are barely apparent between younger and older generations.
   
   In numeracy, U.S. workers performed near the global average when comparing the overall proficiency of people aged 55 to 65 years. But young Americans don't hold a candle to their global peers. Americans aged 16 to 24 years scored the lowest in numeracy among all participating countries. We also have the smallest proportion of 16 to 24-year-olds who received top scores (Level 2 or higher) for problem solving in technology-rich environments.

Our relative inferiority is not necessarily because performance has declined in the United States, the OECD notes. Instead, it's because performance has risen much faster in many other countries across generations. This trend signals a marked decline in the competitiveness of U.S. workers of younger generations compared to their peers in other countries.

Skill Distribution Gap
Results among U.S. workers varied significantly across socioeconomic and education levels, as well as across different occupations. Americans with jobs that demand high levels of literacy, numeracy and technology problem-solving skills -- including managers, doctors and lawyers -- tended to outperform their peers in other countries.
But other Americans -- even those with college and graduate degrees -- tested behind their global peers.
As middle class jobs become increasingly complex, the average U.S. worker may not have the requisite skills to fill these roles. Those left behind may wind up unemployed and collecting various government benefits that burden the national economy.

Workplace Skills and Quality of Life
Worldwide, the OECD correlates test scores with an individual's ability to earn wages and secure employment. It reports that the median hourly wage of workers with high literacy scores is more than 60 percent higher than for workers who can only read relatively short texts. Those with low literacy skills are also more than twice as likely to be unemployed.
Even worse, the OECD found that underperformers on the test tend to:

• Report poor health;
• Believe that they have little impact on political processes;
• Not participate in associative or volunteer activities; and
• Distrust others.

How Employers Can Respond
From a business owner's perspective, this study could explain why it's hard for some U.S. employers to find and retain skilled workers. You may need to think outside your immediate geographic market to improve your supply of skilled workers. For example, a high-tech company located in a rural environment might consider employing remote employees (who work from home offices) to tap into a larger labor pool. Or when hiring, consider going global, say, to Canada, where the PIAAC results show skill-levels are higher.
Also, make better use of the existing labor pool in your area. Consider people who temporarily left the workforce, such as adults who earned a college degree later in life or former stay-at-home parents. And don't forget retirees who want to work part time.
Companies that can't find skilled workers might have to create their own through on-the-job training and flexible off-site continuing education. Employers that believe in their employees and provide lifelong learning opportunities engender loyalty, improve productivity and lower turnover.

Tax Benefits for Private School If you have doubts about the efficacy of the education system in your area, you're not alone. U.S. Secretary of Education Arne Duncan released the following statement about the PIAAC test results: These findings should concern us all. They show our education system hasn't done enough to help Americans compete -- or position our country to lead -- in a global economy that demands increasingly higher skills. People concerned about the quality of their children or grandchildren's education might opt for private education starting at the K-12 level. But "going private" can be costly. There's no federal tax "voucher" for private school costs. (Many states offer tax credits to offset private school costs.) There are some possible federal tax saving opportunities: Coverdell ESAs Coverdell Education Savings Accounts (ESAs) can be used to pay a student's eligible K-12 expenses, as well as post-secondary expenses. A non-deductible contribution of up to $2,000 per year can be made to a Coverdell ESA. Amounts deposited in the account grow tax-free until distributed. Distributions are tax-free as long as they're used for qualified education expenses, such as tuition and fees, required books, supplies, equipment and qualified expenses for room and board. Contributions to Coverdell ESAs are phased out if your modified adjusted gross income exceeds $95,000 ($190,000 for married joint filers). No exclusion is permitted if your MAGI is above $110,000 ($220,000 for married joint filers). Another Option Grandparents and generous extended family members can pay an unlimited amount of education expenses without incurring gift taxes or tapping into their unified federal gift and estate tax exemption. The catch is that the donor must pay expenses directly to the school, rather than reimburse the parent for paying the expenses. Child and Dependent Care Credit Just as with public schools, the portion of private school fees you pay for before and after hours school programs may qualify for the child and dependent care credit. This credit can be worth up to 35 percent of your qualifying costs for care, depending upon your income. You can claim up to $3,000 of the total costs if you have one qualifying child. If you have two or more, you can claim up to $6,000 of the costs.

Paying for Performance and 2014 Raises: What Others are Planning

Job performance matters. But at your organization, does it matter enough when the time comes to hand out raises? The latest General Industry Salary Budget Survey of 910 employers from Towers Watson Data Services indicates employees whose performance ratings are below average can look forward to raises next year in the 1.3 percent range, which is slightly below the projected national inflation rate (based on the Consumer Price Index).  

This 1.3 percent figure for below average performance is the same across categories, from non-exempt employees to managers and executives. This suggests one of two things.

1. Respondents to the survey have confidence their under-performing employees and managers have the potential to improve their performance and will improve in the future, or


2. Respondents simply don't have the stomach to "punish" under-performers by giving them no raise at all.

Yet taking this more hard-nosed no raise approach, particularly in a low-inflation, relatively high unemployment environment, would convey a stronger message that under-performance is not taken lightly, without being unduly harsh.

How Average is Average? 

In addition, as the table below indicates, employers are rating fairly high numbers of employees either as top performers or above-average performers (combining those two categories). The proportion of employees receiving "below average" ratings is much smaller. This pattern is reminiscent of Lake Wobegone of Prairie Home Companion radio show fame, where everybody is above average. 

Employee Performance Rating Distributions by Job Category
Performance rating	Management and Executives	Exempt Non-Management	Non-Exempt Salaried*	Non-Exempt Hourly
Highest possible	14%	11%	10%	10%
Above average	31%	28%	26%	24%
Average	51%	56%	57%	60%
Below average	4%	5%	6%	6%

* Total equals 99% due to rounding error.
Source: 2013 Towers Watson General Industry Salary Budget Survey

Also noteworthy in the table above is the relative similarity of the performance distributions by job function. The one exception is the management/executive category, which has a significantly higher distribution of combined above-average and highest possible performance ratings.

Modest Raises for Top Performers

Projected 2014 raises for employees by job performance rating, as shown in the table below, also reveals a general consistency in the planned percentage-of-salary level of raises for each of the four basic job categories. The numbers are remarkably similar to raises granted this year and in 2012.

Projected 2014 Employee Raises by Job Category
Performance rating	Management and Executives	Exempt Non-Management	Non-Exempt Salaried	Non-Exempt Hourly
Highest possible	4.50%	4.60%	4.50%	4.30%
Above average	3.50%	3.60%	3.50%	3.40%
Average	2.60%	2.60%	2.60%	2.50%
Below average	1.30%	1.30%	1.30%	1.40%

Source: 2013 Towers Watson General Industry Salary Budget Survey

According to the table above, projected raises for top performers are not even double those of average employees, at these companies. This approach may be a mistake. At the Fortune "Most Admired" companies, top performers received raises triple those of average performers. Where the "raise gap" is narrower, incentives to work harder and smarter are narrowed as well. Also top performers -- assuming they are rated honestly -- are the ones you can least afford to lose. Not only does their performance matter in and of itself, but top performers set the bar higher for everyone else, by their example. 

Raises not Only Factor in Retention

Giving out large raises to those who perform well is not the only thing you need to do to retain them, of course. You can have high turnover rates regardless of the competitiveness of your salary and raise levels if you have deficient supervisors. In fact employees often quit because of workplace environment issues rather than pay -- although a low pay raise may be the last straw for top performers who are unhappy with their jobs for other reasons.

Additional highlights from the Towers Watson Survey:

• Budgeted 2014 pay raises are remarkably similar by job level; the average is 3 percent, with the highest average (3.1 percent) for executives and the lowest (2.9 percent) for non-exempt hourly workers.


• The average company is projecting the additional cost to their salary budgets in 2014 due to employee promotions will be 1.4 percent of their entire salary budget.


• Projected discretionary bonuses to be awarded next year will average 18 percent of salary for executives, 9 percent for non-executive managers, 6 percent for exempt non-managers, 5 percent for non-exempt salaried employees and the same level for non-exempt hourly workers.

If you are scratching your head trying to fairly divvy up a small budget for raises, it might be time to consider not just what you feel you have to do to keep employees happy, but consider what you are trying to accomplish, what performance you are hoping to reward and encourage, and proceed from there.

What Does the Federal Government Shutdown Mean for Taxes?

Due to the current federal government shutdown, IRS operations are limited. However, the tax agency issued a release stating "the underlying tax law remains in effect, and all taxpayers should continue to meet their tax obligations as normal."

Here are some basic questions for taxpayers about what they should do during the shutdown, along with answers from the IRS.

How Does the Shutdown Affect Me?

• You should continue to file and pay taxes as normal.
• All other tax deadlines remain in effect, including those covering individuals, corporations, partnerships and employers. The regular payroll tax deadlines remain in effect as well.
• You can file your tax return electronically or on paper --- although the processing of paper returns will be delayed until full government operations resume. Payments accompanying paper tax returns will still be accepted as the IRS receives them.
• Tax refunds will not be issued until normal government operations resume.
• Tax software companies, tax practitioners and Free File will remain available to assist with taxes.

What IRS Services Will Be Available?

• For taxpayers seeking assistance, only the automated applications on the regular 800-829-1040 telephone line will remain open.
• The IRS website (IRS.gov) will remain available, although some interactive features may not be working.
• The IRS Free File partners will continue to accept and file tax returns.
• Tax software companies will continue to accept and file tax returns.

Is the October 15 Due Date Still in Effect and Should People Still File by Then?
Taxpayers should continue to file and pay taxes during a lapse in appropriations as they would under normal government operations. Individuals who requested an extension of time to file should file their returns by October 15, 2013. Taxpayers can file their tax returns electronically or on paper. However, the processing of paper returns will be delayed until full government operations resume.
Payments accompanying paper tax returns will still be accepted as the IRS receives them. Tax refunds will not be issued until normal government operations resume. Tax software companies, tax practitioners and Free File will remain available to assist with taxes.
All other tax deadlines remain in effect, including those covering individuals, corporations, partnerships and employers. The regular payroll tax deadlines remain in effect as well. Penalties and interest still apply for all late filings not received by the regular deadlines.

Will Electronically Filed Returns Be Processed? 
Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law. Taxpayers are urged to file electronically, because most of these returns will be processed automatically. Payments accompanying electronic tax returns will be accepted as the IRS receives them, although the IRS will be unable to issue refunds during this time.

Will Paper Tax Returns Be Processed?
Individuals and businesses should keep filing their tax returns and making deposits with the IRS as they are required to do so by law. However, the processing of paper returns will be delayed until full government operations resume. Payments accompanying paper tax returns will still be accepted as the IRS receives them, though the IRS will be unable to issue refunds during this time.

Will Paper Tax Returns Be Considered to Be Filed on Time Even though the IRS is Not Processing Paper Returns?
Yes. the U.S. Postal Service is operating during the shutdown, and it will postmark and deliver mail to the IRS. Any return postmarked by the due date will be considered timely filed by the IRS even though processing of the return may not occur until after the return due date depending on the length of the lapse in appropriations.

Can I Obtain a Tax Transcript during the Shutdown?
Yes. This is an automated process. Taxpayers can still use automated tools, including IRS.gov, to request that a transcript of their personal tax records be sent to their address of record; the taxpayer will typically receive transcripts in the mail within five to 10 calendar days.

Can a Third Party Obtain a Tax Transcript during the Shutdown?

No. Transcript requests from third parties require actions by IRS employees, who are not available due to the current lapse in government appropriations. During this period, transcript requests by third parties, such as financial institutions, cannot be processed through the IRS Return and Income Verification Services and Income Verification Express Service. These processes are not automated. However, individuals requesting their own transcripts can still use the automated process.

For more information, contact your tax adviser or visit the IRS.gov website.

Protecting Your Business From Cyber Crime

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See below invitation for details

IRS Debuts Final Repair Regs

Business owners have lots of questions when it comes to deciding whether to expense costs or capitalize fixed assets, such as:

• Can I expense a laptop computer I purchased for $699 in the current year?
• What qualifies as standby emergency spare parts, and can I capitalize them for tax purposes?
• Can I use the same accounting capitalization policy for book and tax purposes?
• I replaced the roof on my factory -- but haven't yet finished depreciating the original roof -- how should I handle the disposition of the old roof?

In the past, tax preparers and business owners criticized the IRS capitalization guidelines for being ambiguous, complex and subjective. There were few quantitative brightline rules. Instead, the appropriate tax treatment was governed by qualitative "betterment" tests and Tax Court cases. The IRS released temporary guidelines in 2011 to clarify how to apply Internal Revenue Code Sections 162 and 263.

Two Tax Treatments The IRS final capitalization regulations are sometimes known as the Repair Regs. But they cover far more than just repairs. They address money spent to acquire, produce or improve property, plant and equipment. When deciding how to handle tangible property costs, you generally have two options: Deduct now. Internal Revenue Code Section 162 allows you to deduct all ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business, including the costs of certain supplies, repairs and maintenance. Capitalize and depreciate later.Internal Revenue Code Section 263 requires you to capitalize amounts paid to acquire, produce or improve tangible property. Capitalized costs are generally not deducted in the current tax year; they are depreciated over their economic useful lives. In general, taxpayers prefer to deduct as many tangible property costs as possible to lower their taxable income in the current period. But the decision to expense or capitalize an item is just a matter of timing. You will pay the same taxes over the life of the asset, regardless of how you classify the costs, as long as tax rates and laws remain consistent. If you expect higher tax rates or more restrictive tax laws in the future, you might prefer to capitalize costs to reduce taxable income in future periods. Some items are easily classified as a deductible business expense (such as a box of staples) or a capital expenditure (such as a new forklift). Others fall in the gray area between Sections 162 and 263. The final capitalization rules attempt to refine and clarify those gray areas, as well as provide new safe harbors that might make filing your federal tax return less burdensome.

On September 13, 2013, the final regulations (IRS T.D. 9636) debuted, revealing some significant changes from the 2011 temporary version. Here is an overview of the major changes that will affect your privately held firm.

Materials and Supplies
The new regulations generally allow you to deduct materials and supplies that cost $200 or less to acquire or produce under Section 162.

The final regs also permit an optional election to capitalize rotable, temporary or standby emergency spare parts that have been acquired to maintain, repair or improve your property. Most taxpayers would prefer to expense them in the current period, however.

Repairs versus Improvements
When it comes to repairs, the final regulations retain most of the guidance issued under the 2011 temporary regulations. Under Section 162, incidental repairs are expensed.
Under Section 263, however, you must generally capitalize improvements that:

1. Add to the value, or substantially prolong the useful life, of your property or
2. Adapt the property to a new or different use.

Betterment test. The final regs use a modified "betterment" test to determine whether to capitalize costs as improvements. An improvement makes the property better if it materially adds to the asset, restores a major condition or defect, or increases its productivity, efficiency, strength, quality, or output.

An improvement also must be capitalized if it restores the asset by replacing a major component or substantial structural part of the asset, including buildings. The final regs no longer require you to consider how the expenditure is treated on your financial statements when applying the betterment test.

Routine maintenance safe harbor. The final regs also allow routine maintenance on fixed assets -- including routine building maintenance -- to be deducted for tax purposes. Routine maintenance costs are those recurring activities you expect to perform to keep the property in its ordinarily efficient operating condition. Examples include inspection, cleaning, testing and replacing parts.

To qualify as "routine," you must expect, at the time the property was placed in service, to perform the activity more than once during its economic useful life. For building improvements to qualify under the routine maintenance safe harbor, you must expect to perform the activity more than once in 10 years.

De Minimis Safe Harbor for Acquisitions
For simplicity's sake, many business owners prefer to use the same capitalization methods for book and tax purposes. The final regs permit certain taxpayers to deduct tangible property they acquire or produce, if the total cost per item (or invoice) is $5,000 or less. To qualify for this safe harbor, you must:

• Prepare an "applicable financial statement." That is, a certified audited financial statement or a financial statement filed with a state or local government.
• Possess a written accounting procedure at the beginning of the tax year for expensing property under a specified dollar amount.
• Expense the cost on your applicable financial statement, not just your tax return.

The de minimis safe harbor also applies to property with an economic useful life of 12 months or less as long as the item does not cost more than $5,000 per item (or per invoice).

Many private businesses do not prepare "applicable financial statements." You might prepare financial statements in-house or have them compiled by a CPA, for example. Taxpayers without applicable financial statements are subject to a $500 capitalization threshold. Even to qualify for the lesser amount, you must have accounting procedures in place at the beginning of the tax year for expensing property below the threshold, however.

If you elect to use this safe harbor on your tax return, you must use the de minimis safe harbor for all amounts paid in the taxable year for tangible property -- including materials and supplies -- that meet the requirements. You can only revoke an election to use the de minimis safe harbor by filing an application for change in accounting method.

If you do not currently have a written policy for expensing property under a specified dollar amount, consider drafting one before year end, if you plan to elect the de minimis safe harbor in 2014.

Small Business Safe Harbor
The final regs offer a break to small businesses with gross receipts of $10 million (or less) when it comes to building improvements. For buildings that initially cost $1 million or less, qualifying small taxpayers may elect to deduct the lesser of $10,000 or 2 percent of the adjusted basis of the property for repairs, maintenance, improvements and similar activities each year.

You may elect annually to use the safe harbor for buildings on a building-by-building basis by including a statement on your federal tax return. Amounts to which you correctly apply this safe harbor are not treated as capitalizable building improvements under Section 263; instead, they are expensed under Section 162.

Effective Date
The final regulations generally apply to taxable years beginning on or after January 1, 2014. However, certain provisions of the final regs only apply to amounts paid or incurred in taxable years beginning on or after January 1, 2014.

You may apply the new regulations to tax years beginning on or after January 1, 2012. Compliance may require you to change your current capitalization procedures and file an IRS form.

The Next Step
The Repair Regs have been a work-in-progress for many years. The final framework provides much-needed clarity and guidance. But, at more than 200 pages, the final regs are hardly clear and concise. This brief article just scratches the surface of the complex capitalization rules. There are many nuances, exceptions and safe harbors. The IRS expects to publish additional industry-specific guidelines on capitalizing or expensing tangible property for cable networks, natural gas firms and retailers in 2014.

If your business owns or leases fixed assets, consult with your tax adviser to determine how these rules affect your accounting practices -- and whether they will result in tax savings or unexpected costs.

P.S. Don't Forget Expanded Section 179 and Bonus Depreciation Deductions If you are contemplating purchasing or improving a fixed asset in the coming months, you might want to act sooner, rather than later. The American Taxpayer Relief Act (ATRA) provides increased Section 179 and bonus depreciation deductions for qualifying improvements and acquisitions through the end of 2013. Items that can be capitalized under the final regs can be partially or entirely deducted now if you act before year-end. Section 179 allows you to write off up to $500,000 of qualified capital expenditures in 2013, subject to a dollar-for-dollar phaseout once these expenditures exceed $2 million. These amounts are scheduled to go down significantly next year if Congress does not act to retain them. If the phaseout provision limits your Section 179 deduction, you may still be eligible for 50 percent bonus depreciation on qualifying new asset purchases above the $2 million cap. Contact your tax adviser to determine whether Section 179 and/or bonus depreciation make sense for your business.

Important Employer Deadline under the Healthcare Law Is Almost Here

Unless the federal government does a dramatic about-face, the public health insurance exchanges will be up and running October 1 for enrollment in 2014. Many employers are also facing an October 1 deadline that imposes a paperwork burden. By that date under theAffordable Care Act, most employers are required to provide a notice to each employee explaining their options available under the law.

Here are answers to questions employers are asking about the notice requirement.

The Obama administration announced on September 26 that the small business health exchanges, operated by the federal government, will not open for online enrollment until November 1 (rather than October 1). Applications can still be made by mail, phone or fax starting on October 1.

What Information Must Be Included in the Notices?
The written notice must:

1. Inform employees of the existence of the "Health Insurance Marketplace," and include a description of the services it provides and how employees can contact the Marketplace to request assistance.

2. If the employer plan's share of the total allowed cost of benefits provided under the plan is less than 60 percent of such costs, inform the employee that he or she may be eligible for a premium federal tax credit if the employee purchases a qualified health plan through the Marketplace.


2. If the employer plan's share of the total allowed cost of benefits provided under the plan is less than 60 percent of such costs, inform the employee that he or she may be eligible for a premium federal tax credit if the employee purchases a qualified health plan through the Marketplace.

3. Inform the employee that if he or she purchases a qualified health plan through the Marketplace, he or she may lose the employer contribution (if any) to any health benefits plan offered by the employer. In addition, all or a portion of such contribution may be excludable from income for federal income tax purposes.

Which Employers Must Send the Notices?

The notice requirement must be met by employers that are required to comply with the Fair Labor Standards Act (FLSA). In general, the FLSA applies to employers with one or more employees who are engaged in, or produce goods for, interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies.

The FLSA also specifically covers the following: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; as well as federal, state and local government agencies.

Is there a Fine if an Employer Doesn't Send the Notices?

According to the Department of Labor (DOL), there is "no fine or penalty under the law" for failing to provide the notices. However, the Affordable Care Act is intertwined with other laws (this particular provision is embedded in the FLSA in a new section, 8A), so it's a good idea to comply to avoid possible legal complications.

Who Should Receive the Notices?

Notices must be given to all employees, whether or not they work full time, and regardless of whether they are currently receiving health benefits. By October 1, you must give these notices to all employees. After October 1, the notices must be given to new hires within two weeks of coming on board.

How Should Employers Send Them?

The notices must "be provided in writing in a manner calculated to be understood by the average employee," the DOL states in Technical Release 2013-02. They can be sent by first-class mail and can also be provided via e-mail, but only if employees access e-mail as an "integral part" of their duties and can access the messages easily.

Is there a Standard Notice Employers Can Use?

The DOL has issued a pair of model notices you can use (but they are not required).

• One is for employers that currently offer health benefits. Here is the link:http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf .
• Another is for employers without plans. Here is the link:http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf .

On Part B of the forms, you will see information employees will need if they plan to purchase coverage on the exchange, assuming they are eligible.

The Part B information is needed by employees who apply to their state's exchange (or the federal version, if no state-run exchange exists). They must complete a required questionnaire to determine their eligibility.
On Part B of the model notice for employers that do currently offer health coverage, there are several blank spaces requesting information about the health plan. Since the law doesn't actually require you to provide the information, and because some of the information may be hard to dig up, some legal advisors say that employers may decide to disregard some or all of Part B, especially if the information is uncertain or likely to change.

Can another Party Send the Notices on Behalf of an Employer?
The DOL stated on its website that an employer can satisfy its obligation to provide notices if another party, such as a third-party administrator or multi-employer plan, sends out notices on its behalf.

Do You Satisfy the "Bronze Standard?"
One question in Part B asks whether your organization provides health benefits that meet the ACA's minimum value test. In other words, does your plan lives up to the standard for a bronze plan? This information is also essential for determining whether you are "playing" or will instead need to "pay" when the delayed requirement takes effect in 2015. It also determines whether employees are eligible to get coverage through the exchange.
In May, the Department of Health and Human Services issued proposed regulations (not yet finalized, but the best guidance available so far) on the subject. Individual states may set some standards of their own.
Here are three safe harbors:

• A plan with a $3,500 integrated medical and drug deductible, 80 percent plan cost sharing, and a $6,000 maximum out-of-pocket limit for employee cost-sharing.
• A plan with a $4,500 integrated medical and drug deductible, 70 percent plan cost sharing, a $6,400 maximum out-of-pocket limit, and a $500 employer contribution to an HSA.
• A plan with a $3,500 medical deductible, $0 drug deductible, 60 percent plan medical expense cost-sharing, 75 percent plan drug cost-sharing, a $6,400 maximum out-of-pocket limit, and drug co-pays of $10/$20/$50 for the first, second and third prescription drug tiers, with 75 percent coinsurance for specialty drugs.

Possible Employee Public Relations Opportunity

If it turns out the plan your organization is already offering exceeds the bronze standard (making it a silver, gold, or platinum plan), consider informing employees to help them appreciate the benefit they're receiving. Taking advantage of this employee public relations opportunity can counter any lingering doubts or speculation by some employees about the coverage you are offering them.

Keys to Attracting and Retaining Talented Workers

Who was the highest-paid executive at a U.S. public company last year? Software giant Oracle paid its CEO, Larry Ellison, $96.2 million last year in cash, benefits and stock options, according to its proxy statement.

That might seem like a hefty price tag for C-level talent, but many public companies pay out multi-million dollar compensation packages to attract and retain key executives. In addition, they often provide lavish perks.

New Reports: Job Market Is Rebounding Recent sources of hiring data suggest that the job market is starting to turn around. AICPA Survey: A growing number of companies plan to hire new employees in the next 12 months, according to the third quarter Business & Industry Economic Survey recently released by the AICPA. Companies have improved outlooks for revenues and profits, which translates into higher spending on hiring, capital investments, information technology, training and development. However, the AICPA survey found that financial pros are cautiously optimistic about the future. Their optimism is tempered by three concerns: Regulatory changes (such as healthcare and tax reform), Domestic economic conditions, and Employee and benefits costs. Manpower: A recent Manpower survey supports the AICPA's findings about increased employer optimism. Manpower discovered that 18 percent of employers expect to add workers in the fourth quarter of 2013, according to seasonally adjusted data. This represents the highest percentage of employers projecting a fourth quarter increase since 2007. DOL Data: The Department of Labor reports similar findings. In July 2013, job openings in the U.S. fell to their lowest level in six months. The reasons? Hiring and payrolls are up while firing is down. The jobless rate was 7.3 percent in August, its lowest level since December 2008. Hiring Tips If you're among the employers that plan to hire new workers in the coming months, here are a few considerations: Downplay first impressions. Don't make hiring decisions based on gut feelings or what happens in the first minutes of an interview. Measure performance first, then personality. First determine if a candidate can do the work. Then determine if you like him or her. Clarify success. Before you begin the hiring process, define specifically what superior performance is for that job. Clarify what the candidate must do to succeed in the job, not what experience or skills the candidate must have. Then, you can begin looking for superior people. Think beyond traditional recruiting.The response rate to newspaper ads is declining. To maximize the number of qualified applicants for job openings, consider social media, Internet hiring sites and radio ads -- or put up notices for entry level positions at business school campuses. Market your job. Think of candidates as customers.

How Does Your Package Measure Up?

Your employees may feel undercompensated and overworked when they hear about highly paid executives. They're not alone. A Gallup poll conducted in August 2013 reports that:

• 31 percent of U.S. workers are dissatisfied with the money they earn;
• 40 percent are dissatisfied with their health insurance benefits; and
• 15 percent are dissatisfied with the amount of work their employers require.

As the labor market heats up (see right-hand box), it's a good time to assess whether employees are satisfied with what you're offering in terms of:

• Salaries, wages, overtime and bonuses;
• Vacation, sick and holiday time;
• Medical, dental and vision benefits;
• Life and disability insurance coverage;
• Retirement plans;
• Wellness benefits, such as reimbursement for health club dues; and
• Other perks, such as discounted stock, company vehicles and corporate discounts.

Research how other companies in your area and industry compensate their workers. If it seems like you're offering too little (or too much), consider revising your compensation package. Also, survey your employees to see which benefits and perks they value most. You might be surprised by the results.

For example, after surveying employees about benefits and perks, one large insurance company discovered that workers valued free daily lunches from local restaurants above other more expensive perks, such as commuter benefits, an annual holiday party and Friday afternoons off during the summer. From the employer's perspective, a bonus from free lunches is that employees are more productive, because they don't leave their desks and often collaborate over meals. As a result of surveying employees, the insurer eliminated summer hours to save money but kept its free lunches to maintain morale.

There is no universal compensation package that works best for all companies. The "best fit" for your business depends on demographics, such as geographic location, income levels and average age of employees.

Don't Fear Change

If you modify your compensation package, expect some initial resistance. People don't typically like change, especially if they feel like something's being taken away. But sometimes you need to rethink conventional ways of doing business.

For example, some high-end restaurants in major cities no longer accept gratuities from customers. Instead, they've built tips into their menu prices and they pay wait staff a higher fixed salary. Initially, many people scoffed at the change, arguing that customer service would suffer without tips.

But restaurateurs who adopted a "no-tip" policy -- a practice common in other countries -- found that when servers are less concerned about money, they're more focused on doing a good job. There are also fewer spats about how to divvy up tips among servers and support staff. Of course, customers are happy to forego the post-meal mathematics, too.

Change is often necessary to remain competitive. If you continue to offer mediocre compensation because you're afraid to rock the boat, employees could seek greener pastures. Weak compensation packages also make it harder to attract new talent as companies ramp up their hiring efforts.

Money Alone Doesn't Buy Happiness

Compensation packages aren't the only means of attracting and retaining talent. Many employees are motivated by qualitative factors, such as challenging assignments and the opportunity to contribute.

These can be hard motivators to measure, because you can't put a price tag on them. Here are some ways to help employees feel enriched and empowered:

Give them a voice. Some of the best ideas come from frontline workers. Put out a suggestion box or set up an online system for submitting ideas. Survey workers about proposed changes to policies and procedures. Create think tanks to brainstorm more efficient workflow. Above all, listen and implement feedback whenever possible.

Provide opportunities to try something new. No one wants to do the same tasks, day after day, year after year. Allow employees to rotate duties. Invest in training and continuing education. Expand or modify daily responsibilities. If you don't allow employees to change it up, they may get bored or burnt out.

Share what's in the pipeline. Surprises and rumors make employees edgy. As much as possible, communicate how the company is doing and where it's heading.

Create a sense of real or perceived ownership. Tie bonuses to personal, department and company performance. Or consider offering stock options or discounted stock purchase plans for employees. As the value of the company climbs, so does the value of these benefits. When employees feel their input is valued, they want to make a difference in your organization.

An Overall Competitive Environment

Your ability to attract and retain the best and brightest employees can make or break your business. While few businesses are in a position to offer multi-million dollar compensation packages, yours needs to be competitive. And your work environment needs to foster personal development and enrichment -- attributes employees often value more than cash and other perks.

Deadline for Reversing 2012 Roth Conversions Is Closing In

If you converted a traditional IRA into a Roth account last year and are now unhappy with the results, you can reverse the conversion as long as you get it done by October 15. Here's what you need to know as this deadline rapidly approaches.

Reversal Basics

When you converted your traditional IRA into a Roth IRA last year, the transaction was treated as a distribution from the traditional IRA followed by a contribution of the distributed amount to the Roth account. So the conversion triggered a 2012 federal income tax bill (and maybe a state income tax bill, too) based on the traditional IRA's value on the conversion date.

Better Luck Next Year? Following the recharacterization of a devalued Roth account back to traditional IRA status, you might want to reconvert the same account back to Roth status. This time around, however, the conversion tax hit will be lower (all other things being equal), because the account is worth now less than before. There are timing restrictions on the reconversion privilege, however. After an account has been recharacterized back to traditional IRA status, it cannot be reconverted to Roth status until the later of: January 1 of the year following the year the account was originally converted to Roth status, or 30 days after the date the account was recharacterized back to traditional IRA status. To illustrate, suppose you converted a traditional IRA into a Roth in 2012. The account took a nosedive over the summer, so you recharacterize it back to traditional IRA status on October 1, 2013 to avoid an inflated conversion tax hit. The earliest you can reconvert the account back into a Roth IRA is October 31, 2013 (30 days after the recharacterization date). Alternatively, let's say you converted a traditional IRA into a Roth account in 2013 and then recharacterize it back to traditional IRA status on November 1, 2013. The earliest you can reconvert the account back into a Roth IRA is January 1, 2014 (January 1 of the year following the year the account was originally converted into a Roth IRA).

However, one taxpayer-friendly aspect of the Roth conversion drill is that individuals who use the calendar year for tax purposes have until October 15 of the year following the conversion year to reverse a conversion. For example, you have until October 15 of this year to reverse a 2012 conversion. That October 15, 2013 deadline applies whether or not you extended your 2012 Form 1040.

When to Reverse a Roth IRA Conversion

You accomplish a Roth conversion reversal by "recharacterizing" the Roth account back to traditional IRA status. This is done by turning in the proper form to your Roth IRA trustee or custodian.

To illustrate, say you converted two traditional IRAs, Account A and Account B, into two Roth accounts in 2012. Account A has gone up in value since the conversion date. But Account B has plummeted in value and is now worth significantly less than on the conversion date.

In this suboptimal situation, you would have to pay income tax on the value of Account B on the conversion date, even though its value subsequently took a nosedive. Thankfully, you have until October 15, 2013 to recharacterize Account B back to traditional IRA status. After the recharacterization, it's as if the ill-fated conversion never happened, so you won't owe any 2012 income tax on the conversion of Account B. In other words, the 2012 conversion of Account B is reversed this year with no tax harm done.

Key Point: What you do with Account B has no effect on Account A. You can leave Account A, the converted account that is performing well, in tax-free Roth IRA status.

What if the Roth IRA Includes Other Contributions?

Matters are more complicated if your Roth IRA includes other contributions besides the 2012 conversion contribution that you now want to reverse. In this case, it may not be possible to simply recharacterize the entire Roth account back to traditional IRA status.

For instance, if the Roth IRA includes contributions for pre-2012 tax years, it is now too late to recharacterize the part of the account balance that is attributable to those pre-2012 contributions. However, up to the October 15, 2013 deadline, you can still reverse the account balance that is attributable to the ill-fated 2012 conversion by filing the appropriate forms with your IRA trustee or custodian.

You will have to instruct your IRA trustee or custodian how much you want moved back into a traditional IRA. Most trustees or custodians can help calculate the amount converted in the current year less any related losses.

Tax Return Implications

If you extended the filing deadline for your 2012 Form 1040 to October 15, 2013, and have not yet filed the return, you reflect the reversal of the 2012 Roth conversion by simply not including the income triggered by the conversion on your return.

If you've already filed your 2012 Form 1040, you'll have to file an amended 2012 return to delete the conversion income and claim a refund for the related tax bill. Consult your tax adviser for full details about filing an amended return.

Limited Time Offer

In many cases, converting traditional IRAs into Roth accounts is a savvy tax planning strategy. But that's not true when the converted account quickly plummets in value. When the value of your investment tanks after the conversion date, you wind up paying taxes on account value that no longer exists.

The conversion recharacterization (reversal) privilege is specifically intended to prevent that problem, but the deadline for reversing 2012 conversions is almost here. Contact your tax adviser as soon as possible if you're interested in reversing an ill-fated 2012 Roth IRA conversion.