Wednesday, July 24, 2013

Enabling- An Increasing Problem for Parents

The following is from today's Wall Street Journal in an article written by Veronica Dagher.

In my 40 years of practice enabling is one of the most difficult facets of estate planning to cope with. By the time a parent is ready to begin serious planning the behavior has already been established. What to do when the parent is gone is often a difficult question. Some call it entitlement but it’s really the same thing. The younger generation has great expectations of what they think they will receive form their parents.

In this article the author recognizes the problem and offers some guidance.

Financial enabling is a common trap for parents who want to help their adult children who are in chronic financial trouble, says Brad Klontz, a Lihue, Hawaii, financial psychologist.

Mr. Klontz worked with a 75-year-old woman who had given her 52-year-old son a total of $150,000 over five years for various business ventures, all of which were ill-conceived and failed. She was having trouble saying "no" when the son asked for another $50,000, even though her own financial security was at risk as her savings were dwindling.

"Money for doing nothing creates more doing nothing," says Mr. Klontz.

Laura Scharr-Bykowsky has seen many grandparents rack up large amounts of credit-card debt and give away the last of their savings to fund their grandchildren's tuition or vacations.

They may have a desire to spoil their children or grandchildren, want to get their attention, don't want to renege on a promise they made when they were in a better financial situation or feel guilty for not seeing them more, says Ms. Scharr-Bykowsky, a financial planner in Columbia, S.C.

If enabling has been going on for years, it can be difficult to stop doing it "cold turkey," says Mr. Klontz. For enablers, it can be important to recognize that their efforts to help backfired or have been reinforcing dependence.

Mr. Klontz says it's also important to set up a timeline to withdraw financial support, say, in six months, and perhaps explore other ways to help such as paying for a financial plan, a career counselor or a therapist.

Ms. Scharr-Bykowsky counsels clients to reduce support to their kids and stop altogether when they are gainfully employed. Then, she says, the parents can make gifts periodically, but only if their adult child is being financially responsible.

"The most important word a parent needs to use is 'no' or else they'll have an entitlement problem to deal with," says Ms. Scharr-Bykowsky.

"No" is a very powerful word; the problem is saying it and sticking to it.

In some cases trusts can be used with independent trustees to make critical decisions which can ameliorate the problem to some extent.

Wednesday, July 17, 2013

Beware Plan Sponsors, the Department of Labor May be Knocking on Your Door

Here is a contribution form my colleague Gary Young, a partner at Scarinci Hollenbeck.
The U.S. Department of Labor (“DOL”) has substantially increased the number of ERISA compliance audits it conducts each year. Document requests covered in the typical audit letter are striking fear into the hearts of executives charged with HR responsibility. While in most cases the companies and their staff members do not deliberately violate the law’s requirements, this responsibility often suffers from benign neglect – especially in the welfare benefit side of the equation (pension compliance, although not perfect, is much better). The truth is that, since 1974 when ERISA was first passed, welfare plan ERISA compliance has been largely ignored by both the government and by plan sponsors.

The Employee Benefits Security Administration (“EBSA”) is the division of the DOL that is responsible for protecting the integrity of pensions, health and other employee benefits, and is the agency charged with administering and enforcing ERISA. EBSA's current budget includes significant increases in staff and resources to conduct welfare benefit plan audits as the government views this as a revenue generating activity.

Indeed, it is found that three out of four plans audited have one or more ERISA violations. These violations must be taken seriously as they are, as a matter of law, breaches of fiduciary duty that expose both the plan sponsors and the individual fiduciaries (officers and directors of the company among others) to personal liability. In 70 percent of the audits conducted, the government finds some sort of failure, either in the operation of the plan or in the interpretation of the plan’s provisions.

With new requirements of the Patient Protection Affordable Care Act (“PPACA”) already in force, this adds additional compliance concerns and exposure to plan sponsors that may be audited. Those with HR responsibility need to double-check that:

• The people running the plan know the plan document inside and out.

• Plan operations are in compliance with the plan document.

• The plan document must be in compliance with all current laws and regulations.

• Summary plan descriptions (“SPDs”) must be prepared, current and properly distributed.

SPDs are often the main target of the audit as the legal requirements are numerous and have increased significantly over the years since the passage of ERISA. Many plan sponsors assume that the booklets prepared by the plan’s insurer meet the requirements for an SPD. This frequently is not true. Further, new PPACA eligibility requirements need to be explained in the SPD, and this area is of particular concern to the EBSA auditors.

The second most frequent item in DOL audits relates to HIPAA and whether the SPD informs participants about special enrollment rights. COBRA compliance is another focus point as there are frequent lapses by plan sponsors in meeting the law’s many requirements.

If you are not ready demonstrate your company’s ERISA compliance in an EBSA audit, do not wait until you get an audit letter to act as that will be too late. Please contact Gary Young or another member of Scarinci & Hollenbeck to assist you in bringing your welfare benefit plans into full and current compliance.