The Newsletter for Auto Dealers by O’Connor & Drew P.C. · 25 Braintree Hill Office Park •...

25 Braintree Hill Office Park • Suite 102 • Braintree, MA 02184 • Tel. 617.471.1120 • Fax 617.472.756027 Church Street • Winchester, MA 01890 • Tel. 781.729.4949 • Fax 781.729.5247 • www.ocd.com

T h e N e w s l e t t e r f o r A u t o D e a l e r s b y O ’ C o n n o r & D r e w P. C . October, 2012 — Volume 13

DealerDetails

In This IssueAre You Taking Your 401(K) Plan Fiduciary Responsibility Seriously?

Reconcile Inter-Company BalancesDealership “Dashboard”

O’Connor & Drew, P.C.

has been servicing the

dealership industry

for over 50 years.

Our passion for

dealerships is the

hallmark of our

commitment to the

industry. We have built

our firm on the trust

we have earned from

dealerships of all sizes

throughout the country.

25 Braintree Hill Office Park Suite 102Braintree, MA 02184

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Braintree, MA

•Doublecheckingyourminimumwageandovertime compliance-FederalandState

•Reviewingyourcurrentsalestaxpoliciesandprocedures, forpropercollectionandremitting

• “Drivers”andotherparttimehelp…..qualifyas“1099”or part-timeemployees?

•Meetwithhealthinsurancebrokertodiscusshownew healthcarelaweffectsyourcompany…certainofthe voluminouscompliancerequirementshavebegun

•QualifiedDividendsratecouldincreasein2013…consider drawinganyqualifyingdividendsfromextendedwarranty programs

•CapitalGainsratewilllikelyincreaseformanytaxpayers intwoways…1)increaseintaxrateand2)potential “Medicare”taxonmostgains…thereforeanypropertyor stocksalesshouldbeconsideredpriortoendofyear

Dealership “Dashboard”A few key items that should currently be on your dashboard:

DealerDetails DealerDetails

Asthesponsorofa401(K)plan,youarehelpingyouremployeessaveforthefuture.Bysponsoringthisplan,youhavetakenoncertainresponsibilitiesthatcannotbetakenlightly.Itisimportantforplansponsorstounderstandsomebasicrules,especiallytheEmployeeRetirementIncomeSecurityAct(ERISA).ERISAsetsstandardsofconductforthosewhomanageanemployeebenefitplananditsassets.

Doyouevenknowifyouareafiduciaryforyourplan?Aplanmusthaveatleastonefiduciarynamedintheplandocumentashavingcontrolovertheplan’soperations.Fiduciarystatusisbasedonfunctionsperformed,notjustaperson’stitle.Usingdiscretioninadministeringandmanagingaplanorcontrollingtheplan’sassetsmakesthatpersonafiduciarytotheextentofthatdiscretionorcontrol.

Asafiduciary,youhaveimportantresponsibilitiesandaresubjecttocertainstandardsofconduct.Fiduciariesthatdonotfollowthesestandardsmaybepersonallyliabletorestoreanylossestotheplan.Someoftheseresponsibilitiesinclude:

• Actingsolelyintheinterestofplanparticipantsand theirbeneficiariesandwiththeexclusivepurposeof providingbenefitstothem.

• Carryingouttheirdutiesprudently.

• Followingtheplandocument.

• Diversifyingplaninvestments.

• Payingonlyreasonableplanexpenses.

Prudencefocusesontheprocessformakingfiduciarydecisionsandforhiringsomeonewiththeknowledgetohandlethesefunctions.

Thedecisiontohireaserviceprovidercanbecomplicatedandinvolvesduediligence.Afiduciaryneedstounderstandtheservicesthatwillbeprovidedtotheplanandthecompensationtheserviceproviderwillreceive.Inordertodemonstratethatonehascarriedout

theirfiduciaryresponsibility,itiscrucialtodocumenttheselectionprocessandtheproceduresusedtomonitortheserviceproviderperiodicallytobecertainthattheyarehandlingtheplan’sinvestmentsprudently.

Itisalsoafiduciary’sresponsibilitytomakesurethattheplandocumenthasbeenread,understood,updatedandisbeingfollowedbyallwhoadministerormanagetheplan.Thereareseriousconsequencesfortheplansponsorandfiduciaryiftheplandocumentisnotbeingfollowed.

Itisveryimportantforafiduciarytomakesurethattheplan’sinvestmentsarediversified.Thishelpstominimizetheriskoflargeinvestmentlossestotheplan.Alldecisionsregardinginvestmentsshouldbedocumented.

Inrecentyears,wehaveseenanincreaseinlawsuitsbroughtagainstplansponsorsclaimingfeespaidbyplansarecomplex,excessiveandsometimesillegal.AfiduciaryneedstounderstandtheamountoffeesthatarebeingchargedtothePlan,whoischargingthem,andhowtheplanisbeingcharged.

Newruleshaverecentlybeenissuedrelatedtoplanfeesandexpenses.Itispartofyourfiduciarydutytomakesurethatparticipantscanmakeinformeddecisionsaboutfeesandexpenses.Youarealsoresponsiblefordeliveringthisinformationtoparticipantsinameaningfulformat

Are You Taking Your 401(K) Plan Fiduciary Responsibility Seriously?

Need Help? Call Kim Reed at (617) 471-1120

Reconcile Inter-Company BalancesInmostcaseswheretherearetworelatedparties, inter-companybalancesareusuallyreconciled.However,whentherearetwoormorerelatedpartieswithinagroup,wefindthatmanydealershipsstrugglewithreconcilinginter-companybalances.

Dealersfacemanychallengesincluding:

• Lackofpoliciesandprocedures

• Lackofconsistentapplication

• Non-existentenforcement

• Incompleteinformation

Inordertoovercomethesechallengesandstrengthenanorganization’sinter-companyaccounting,weneedtodothefollowing:

• Understandtheprocessofreconciliationandthen establishprocessesandpolicieswhichwilleffectively enhanceyourcontrols.

• Classifygroupsoftransactionsbetween1)Long-term Investment/Financing;whichyoudonotexpecttobe settledwithinayearand2)Transactionsinvolving sharingofcommonexpenses,oranytransactionsthat youexpecttogetpaidintheshortterm,withthese balancesbeingreportedeitherasaccountsreceivable oraccountspayable.

• Reconciliationonamonthlyorevenweeklybasis. Monthendclosingwillnotbeboggeddownwith un-reconciledbalances,adjustmentofwhichmay affectprofitability.

Afterestablishingbasic,soundinter-company accountingproceduresandpoliciesthebenefitsare asfollows:

• Quickerclosingatmonthend

• Reliablefinancialresults

• Minimizesmistakesandreportingissues

• Enhancedinternalcontrols

• Minimizingcostofuntimelyadjustments

Therefore,itisimperativethattheinter-companybalancesarereconciledand/oragreewiththeirrespectiveentitiesonatimelybasis.

thatallowsthemtocompareinvestmentoptions.Thesedisclosureshavespecificduedatesbasedontheyearendofyourplan.Ifyouarenotawareofthesedeadlinesandhavenotbegunthisprocessyet,youshouldcontactyourserviceproviderimmediately!

Thereareotherthingsthatyoucandotolimityourliability.Givingparticipantscontroloverinvestmentscanlimitafiduciary’sresponsibilityfortheinvestmentdecisionsmadebyparticipants.Don’tforgetthateventhoughafiduciarycangetrelieffromtheinvestmentsthatparticipantschoose,thefiduciarystillhastheresponsibilityforselectingandmonitoringinvestmentsinthePlan.Automaticenrollmentisanothergoodwaytolimityourliability.Thiscaneliminatepotentiallosses

sinceparticipantsareautomaticallyinvestedincertaininvestmentsoncetheybecomeeligible.

Asanadditionalprotectionforplans,thosewhohandleplanfundsmustbecoveredbyafidelitybond.Afidelitybondisatypeofinsurancethatprotectstheplanagainstlossresultingfromfraudulentordishonestactsofthosecoveredbythebond.

Soasyoucansee,theroleofaplanfiduciaryshouldnotbetakenlightly.Itinvolvestime,commitmentandanunderstandingofhowyourplanreallyworks!