Leadership is needed to address this problem, but it becomes easier to make hard decisions when there is no choice. While change clearly needs to be made, state employees should be recognized for their hard work, and they deserve the benefits that were promised. What makes their compensation competitive is not their salaries, but the pension plan and health insurance benefits.

Over the last 20 years, private-sector employees have seen their companies’ defined-benefit plans terminated in favor of self-contributory 401(k) plans. Unlike the state, the private sector did not have the option of underfunding its retirement plans. It had to meet funding requirements or face the wrath of federal pension regulators. As funding became prohibitive, many companies came to the conclusion that they could no longer provide this benefit.

As a result, many American workers must fund their own retirement accounts, and many will be unable to retire with the same comfort as their parents. What employees do not realize is that it takes a massive amount of personal savings to equal the benefit they would have received from a defined-benefit pension plan. This is the reason the commonwealth is having such a difficult time with the VRS, as it takes enormous amounts of funding, which was easy to sidestep until now.

While the main problem with the VRS has been underfunding, that becomes increasingly problematic when coupled with unrealistic return assumptions. The VRS used to assume an investment return rate as high as 8 percent, but reduced that to 7 percent in 2010 — still high compared to most private-sector plans. Although the investment management of the VRS has performed reasonably well in light of difficult circumstances, we cannot and should not rely on future investment performance to make up the large deficit. It is also not prudent to try to make up for lost time by taking on additional risk. More and more state and municipal pensions are trying to enhance returns through increased use of more expensive active managers and private-equity exposure. The choices that we make now will affect all of us for many years, and we must demand that our leaders use reasonable assumptions and make responsible decisions.

The state is now faced with correcting its underfunding, and there is no responsible way to correct it without pain to all Virginians. Current cost-saving measures that are being “floated” to existing employees include changes to the cost of living calculation, a reduction to disability benefits and modification to the average final salary calculation. These measures alone won’t correct the problem, and existing employees should not have to pay this price in addition to asking them for more funding. So what is the most responsible way to approach this deficit funding issue?

The federal government dealt with a similar situation in the 1980s. They changed from the Civil Service Retirement System (CSRS) to the Federal Employees Retirement System (FERS). In essence, a demarcation line was drawn giving new federal employees a watered-down pension plan, inclusion in Social Security and a 401(k) option, while current employees remained under the CSRS. Structuring the solution for the VRS system like the federal plan and phasing out the state’s current defined-benefit plan would help solve the problem. Creating a pension system with a more flexible combination of 401(k) options and a reduced pension benefit for younger employees, new hires and short-term employees makes sense, but we must also continue to honor the existing benefits (without change) for existing employees. It is not right to penalize those who have worked for years under the assumption that they would have a retirement benefit.

Changing the structure alone, however, is not enough. Increased contributions by state employees and the state’s matching contribution will be necessary. State employees will feel the pain that many employees in the private sector have felt over the last 20 years, and it will not be popular. 

As citizens, we elect our state leaders and hope they will look beyond the next election, to make difficult decisions courageously and lead us through adversity with a long-term vision that is in the best interest of all Virginians. It took guts to address this situation, and I do applaud the current administration for doing so. That may mean there will be discomfort or pain. All of us must understand we have contributed to a long-term problem, and we must be willing to be part of the long-term solution.

As a CPA, l help individuals, nonprofits and companies make difficult financial decisions. I often have to tell people things they don’t want to hear. Our VRS problem can’t be fixed unless someone has the courage to tell us the truth and get us on the right track to correct it. I am calling on state leaders to do the right thing for all Virginians. Look at the facts of this sensitive situation, bring us together to make the difficult choices and lead us to a fair and unified solution.

James M. Shepherd, CPA, PFS, CFP®, is managing director and founding shareholder of Kuehl Shepherd Kozlowski & Associates Inc. He is a vice chair of the Virginia Society of CPAs (VSCPA).

“It’s not about winning the award but about creating an organization that is worthy of winning the award — we focus on creating an environment that makes our associates want to come to work every day,” says Mike Mulvihill, president of Richmond public relations firm CRT/tanaka, last year’s top small company. “Our assets are our people, and we have to make sure the plant and equipment are well-oiled and finely functioning every day.” 

Gary Lisota, CEO and president of Virginia Beach defense contractor Valkyrie Enterprises, echoes Mulvihill’s sentiments. Being named the top midsize company last year meant that he accomplished what he set out to do when he started the firm in 2007.  Lisota‘s goal was to “focus on developing the kind of culture where my employees are proud and want to come to work.” He makes it a priority to “really get out there and walk the talk, show my team that I am interested in taking the time with my people on a human and worker level to show that I care.” 

Both executives say the Best Places to Work recognition has had very positive effects on their organizations.  Valkyrie uses the honor as part of its branding strategy.  The Best Places to Work logo is featured in a company sign at Norfolk International Airport and is incorporated in all of its marketing handouts. The award has given Valkyrie further credibility with customers and in some cases, Lisota says, has helped it “seal the deal.”

Mulvihill agrees that the award impresses customers. “We have certainly heard a lot of positive things back from clients, though that’s not why a client hires us.  They become greater champions for us within their organizations, which results in us being able to get a higher level of exposure.”  CRT/tanaka is getting more inquiries from new prospects, Mulvihill says.  Where before the firm might have been one of many candidates for a job, “now we are one of a few narrowed-down finalists for a project,” he says. 
The executives also say the recognition has helped them attract and retain employees. “Everybody says we’re a great company to work for, but we can point to [the Best Places to Work logo],” says Lisota. “That says what our employees really say about us.”  The recruitment process is immediately shortened as a result.

CRT/tanaka, meanwhile, has seen a bump in some internal employee survey scores. Mulvihill believes that “sometimes you need someone else to tell you that you are good to appreciate that you are good.”  Being named the top small firm is like having a “third-party spotlight” shining on the company.  The recognition has caused employees to have a greater engagement with the company, he says.

So what’s in store for these companies?  “We can’t stop and sit on our laurels, so we are constantly looking at how can we do things better, keep morphing the culture and create new opportunities for people to grow,” Mulvihill says. Those opportunities can include new locations, new or expanded lines of business or the acquisition of other companies. CRT/tanaka evaluates potential acquisitions from a cultural standpoint and will turn down a deal if it’s not the right fit.  Not surprisingly, company executives look at what awards a potential acquisition has won.

At fast-growing Valkyrie, the job of maintaining the type of culture that garnered the Best Places to Work award “gets harder as it gets bigger,” Lisota says.  He challenges company leaders to get to know each employee.  Because many of his employees work on-site with a client, they have a harder time feeling connected to the company.  So, Lisota invites 12 employees each month to meet him at a local pub for a talk.  He has overheard his workers bragging to competitors that “we just had beers with our CEO.”

Lisota says his company has won many awards, but the Best Places to Work recognition meant more to him because it involved the opinion of his employees. Their positive response has reaffirmed his efforts to create a “home for my employees where they know we care about them.” For Valkyrie and CRT/tanaka, the Best Places to Work recognition is a means to an end but not an end in itself.

Genevieve Roberts is a partner at Titan Group LLC, a Richmond-based human resources consulting firm. She can be reached at Genevieve@titanhr.com, http://www.titanhr.com, or (804) 741-2390.

Best Places to Work overview

Employer survey results

TOP SMALL EMPLOYER:  Knight Point Systems
Best Places to Work in Virginia:  List of Small Employers

TOP MIDSIZE EMPLOYER: SNVC
Best Places to Work in Virginia:  List of Midsize Employers

TOP LARGE EMPLOYER: Edward Jones Investments
Best Places to Work in Virginia:  List of Large Employers

Commentary by Genevieve Roberts 

To the Editor,

The Nov. 17 opinion piece by Elliott Negin on VirginiaBusiness.com, “Renewable energy and energy efficiency create more jobs than nuclear power,” ignores the fact that electricity demand will rise significantly in the next two decades and will require additional supplies of affordable baseload power.  U.S. nuclear energy facilities have proven their ability to reliably provide electricity around the clock at low cost while stimulating local economies.

Nuclear energy facilities provide more permanent jobs than other sources of electricity, including renewables.  According to the U.S. Department of Energy, for every 1,000 megawatts of generating capacity, nuclear energy creates, on average, 500 jobs, while wind power provides just 90.  The new reactors being built at nuclear energy facilities in Georgia and South Carolina have already brought 3,000 new construction jobs to the local communities.

It is telling that Negin premises his arguments on a federal mandate for renewable energy technologies that may or may not be cost competitive. If energy companies are forced to develop renewable energy projects that don’t make sense economically, then the “new jobs” that Negin’s group promises will be a temporary boon offset by higher energy costs that will damage the economy over the longer term.

Even with energy efficiency programs, Americans will continue to use more electricity. While Negin seems more than willing to hitch Virginia’s energy future to efficiency and intermittent energy sources, it’s unlikely that the political and business leaders who have real skin in the game are willing to do so.

It is good that the renewables-efficiency sector is growing. A diversified, low-carbon energy portfolio that includes nuclear energy will put our economy on sounder, more stable and prosperous footing.

Leslie Kass
Senior director,
business policy and fuel supply
Nuclear Energy Institute
Washington D.C.

Political parties aren’t the only ones to blame.  Publicly and behind closed doors, single-issue special interest groups push party funding buttons on both sides of the aisle.

For example, one has to wonder about the timing of U.S. Secretary of the Interior Ken Salazar’s Jan. 9 decision to ban new uranium mines in Colorado, supposedly to protect the Grand Canyon and the Colorado River. The announcement was made just before the Virginia General Assembly began its session at which a 30-year-old uranium mining moratorium was expected to be reviewed.

Skeptics might wonder if this has anything to do with Virginia being under Republican control, while White-House Dems look toward environmental organizations for 2012 campaign funds.  Could Salazar’s action be a deposit with a return expected in the upcoming presidential race?

For more than 50 years, the Yankelovich Monitor has been measuring social trends, among them “anti-bigness bias,” meaning that consumers tend to distrust large organizations and institutions.  Should we be adding “big enviro” to the same list as big oil, big labor, big business, big media and big government?

After all, once we’re done with banning uranium mining, nuclear power, coal, shale gas, even hydro and wind power for their environmental impacts, we’ll be in a fine state of affairs with no power whatsoever. Making all approvals contingent on the complete elimination of worst-case scenarios is perhaps one of the best recipes for inaction ever devised.

In 1976, Bob Woodward and Carl Bernstein reported that their source, “Deep Throat,” advised them to “follow the money” and uncover the source of the Watergate scandal.  Unfortunately, following the money also sheds light on why certain issues become part of the legislative agenda.

Not long ago, Virginia’s lawmakers spent the better part of two sessions working on legislation regarding payday lenders.  In 2008, lobbying expenditures for the General Assembly reached a record high of more than $20 million.  Of this total an estimated $3.8 million, or almost one in five lobbying dollars, was spent to influence payday lending legislation, yet there never seems to have been much outcry from voters on the issue.  Similarly, 2011’s time spent on ABC-privatization yielded no legislation but may have built future political capital with big-spending big-box retailers along the way.

State police statistics show a record number of gun-related transactions occurred in 2011, rising 16 percent over 2010.  Yet it’s expected that the General Assembly may spend significant time figuring how best to ease some of the commonwealth’s gun-buying restrictions, such as the one-handgun-per-month limit. Could this be yet another example of money driving the agenda?

Lobbying money isn’t all that matters; social issues also have an impact.  For example, the so-called “personhood bill,” proposes a legislative answer to the timing of life’s beginnings, a concept so fraught with unintended consequences that even Mississippi’s conservative voters turned it down in last November’s elections.

Then there’s the business of unfunded mandates.  Supposedly, these are a real problem when handed down from the federal government as in the case of the No Child Left Behind Act.  But what about when the state passes the buck to its localities?  Elimination of machinery and tools tax may sound good for economic development and also appeal to tax-shy voters, but it removes a key source of funding for cities and counties already stretched thin by high unemployment rates and depressed real estate values.

Let’s hope that some of this stuff never makes it past the rules committees and onto the floor for a vote.  After all, we have some pretty big issues with funding the essential functions of government, such as transportation, public safety, social services and education.  The budget work alone required to create positive impacts and lasting solutions for these areas should be enough to keep our lawmakers busy in an extended session.

Even then, the results are subject to interpretation.  We’ve already seen that repaying money owed to the Virginia Retirement System for teacher pensions is supposedly the same as providing new money to education.

In all fairness, voters themselves have to shoulder blame for lack of effectiveness in government.  Whether due to lack of participation in the political process or by selecting candidates based on social issues while expecting a better economy to be the result, we largely have gotten what we’ve voted for.  We’ll have new chances to have our voices heard and votes counted in 2012 and 2013.  Let’s make choices based on the results we’d like to receive.  It’s too important to do it any other way. 

Before you know it, a year has gone by and very few, if any, of those initial goals or objectives are checked off as “done.” That is if you can actually find the original goal sheet in your cube or office!  Sound familiar?

Well, this is a new year and a new opportunity to not let that happen.  It also is a new opportunity to change your habits, become more disciplined and hold yourself accountable for achieving your goals.  The key to all of this is managing your time more effectively.  Below are a few tips and techniques to help you get better control of your time so you can accomplish more and meet your goals.

Create your own strategy map

Although this is not a traditional time management tip, it is critical to shape everything you do.  When you create a strategy map, you define your MVVs (mission, vision and values.) This can be personal or career-based.  Staying true to your MVVs and determine your strategic goals for the year.  I would recommend only four or five.  Once you have these goals, determine the activities you need to engage in to achieve those goals.  Lastly, translate those activities into measures and have targets for those measures so you can hold yourself accountable.

The result of this exercise will be a one-page diagram that summarizes what you are doing, why you are doing it, how you’re going to do it and how you’re going to measure it.  I have my strategy map as my background on my laptop so that every morning it’s the first thing I see.  This helps me to focus my day immediately on the things that matter most.

For a sample strategy map, please contact me at derrick@titanhr.com and I will send you one as well as directions on how to complete it.

Break down activities into smaller chunks

One reason we don’t achieve our goals is they are too big, so we don’t even try.  For instance, if my goal is to write a book this year, that goal may feel overwhelming on the surface.  If I break down that goal into writing one page a day, it seems much more doable.  If I do this, I will have a 365-page book written by year-end.  The key is to break large goals into smaller ones.  This gets you started on a positive note, which creates momentum along with the desire to continue.

Manage two of your biggest time wasters

Easily two of the biggest time wasters in the workplace are email and meetings.  Look at your emails and ask yourself, “Did I really need to receive this email?” or “Does this email help me achieve my goals?”  If not, start the purging process.  Ask to be removed from unnecessary distribution lists and tell people to copy you only on things that require your attention.  Also, remove yourself from newsletters, etc., that distract you from your stated goals.  At the very least, route those messages into a folder, “To Be Read Later.” Over time, you will greatly reduce the volume of email, freeing up time to do more important things.

Meetings are an even a bigger waste of time, in most cases.  If a meeting does not connect to your job duties or goals, don’t go.  There is nothing wrong with refusing to be in meetings that are not productive.  At a minimum, it may spark a discussion to change a meeting to become more relevant.  You may not be able to get rid of all your unproductive meetings, but you will be surprised at how many you can get out of that are not worthwhile, freeing up time to do other things that align with your strategic goals.

Return to batch processing

This may sound counterintuitive in today’s real-time environment, but studies have shown that what we think of as multitasking at work is actually switch-tasking, meaning that we are switching our attention back and forth between different things.  There is a cost each time we switch.  There are many exercises available that prove this theory.  So instead of switching back and forth from answering email, doing research, answering the phone and instant messaging, turn everything off but one task and focus on that until it is done.  Then move on to the next thing and completely focus on that.  You will get more done, faster and with higher quality.

Some people have mastered this by answering email only at 10 a.m. and 3 p.m.  The rest of the day, email is shut down.  They answer messages in batches and are much more productive than switching back and forth between different tasks.  This also applies to the phone.  Forward your phone to voice mail and answer messages at certain times of the day.  You will be amazed how much more productive you will be.

Plan for tomorrow at the end of today

One simple yet powerful technique is to plan out tomorrow’s work before you leave today or before you go to sleep at night.  You will think more clearly than the next morning when the noise of the day can get to you even before you start.  Planning the night before with a clear head will greatly improve productivity tomorrow.

My challenge to you

Some of you may think these suggestions are crazy or unrealistic in today’s fast-paced world.  In some cases that may be true, but for the vast majority I bet that is not. My challenge to you is to just try them and see what happens.  Even though you probably can’t eliminate all worthless meetings, the effort at least may help to eliminate one or two from your calendar.  Wouldn’t that be worth a try? 

Maybe you can’t answer email only at 10 a.m. and 3 p.m., but why not shut it off for an hour and focus on only one thing and do it well.  My guess is that the world will not explode if you aren’t on email for one hour.

How about breaking big goals into smaller ones that can be done in one day?  Isn’t that worth a shot?

Please send me a note to let me know how these tips have helped you become more productive and focused.  Just know I won’t respond until 10 a.m. or 3 p.m.!!

Derrick Strand is principal of leadership and organizational development at the Titan Group in Richmond.  For more information contact him at derrick@titanhr.com.
M]]> 2012-01-27T14:04:28-05:00 http://www.virginiabusiness.com/index.php/opinion/article/federal-budget-crisis-puts-virginias-fiscal-future-in-peril/ The revenue estimate and assumptions behind the governor’s budget. Opinion Gov. Bob McDonnell’s has proposed an $84.9 billion 2012-2014 state budget, with $34.5 billion coming from the commonwealths’ general fund and $50.3 billion from other sources, including federal grants and contracts.

While much of the public and media focus is on spending, it’s important to identify the major sources of general and non-general fund revenues, and the inherent risks and assumptions used to forecast key revenue sources that support the proposed expenditures.

Perhaps the biggest risk facing Virginia’s budget and the economy as a whole is that the impact and risks associated with federal policy are not discussed in any detail in the proposed budget document. The assumptions made regarding federal policy are not even mentioned. For example, what assumptions have been made with regard to the impact of potential mandatory defense budget cuts resulting from the failure of the “super committee?” While the cuts would not officially take effect until January 2013, a recent article in The Washington Post noted that some lawmakers fear an earlier impact due to potential preemptive action by the Department of Defense to slow or cancel contracts.

The budget document

The budget document is 483 pages — an imposing document, to say the least. However, if one considers each of the four parts at a time, it becomes more manageable. I recommend starting with Part A, which checks in at only 18 pages. It provides highlights of the governor’s proposed recommendations for the 2012–2014 biennium, an economic forecast on the state of Virginia’s economy and a revenue forecast that specific projected revenues on which the proposed operating budgets and amendments are based. 

Economic outlook and revenue estimates

The economic forecast goes through a formal process of review, which started with a meeting of the Joint Advisory Board of Economists (JABE) in October. Their recommendation was then considered at the November meeting of the Governor’s Advisory Council on Revenue Estimates (GACRE). Finally, their recommendation was adjusted slightly based on December revisions to the fiscal year 2012 forecast. Overall, the forecast anticipates that the U.S. economic recovery is on firmer ground as economic data have been somewhat more optimistic. The GACRE consensus for key economic assumptions was as follows:

• Real GDP is projected to grow 1.7 percent in FY 2012, 1.8 percent in 2013 and 3.2 percent in FY 2014.
• Employment is expected to be sluggish with growth of 1 percent over the next two years.
• Real consumer spending is expected to grow by 2 percent per year.
• Inflation is expected to be slightly higher for 2012, but will be less than 2 percent for FY 2013 and 2014.
• The Federal Reserve is expected to maintain the federal funds rate at zero through FY2013.

The total revenue for the biennium is $83.5 billion, and the governor’s proposed spending appropriation is $84.9 billion. Is the apparent $1.5 million gap between revenues and expenditures a case of deficit spending? Not exactly. It appears revenue estimates do not include the net proceeds from the Virginia Lottery of approximately $870 million over two years. In fact, the lottery is not mentioned in the revenue section of the budget. Add to that the estimated available carryover balance of $515 million from fiscal year 2012, and total revenue and resources reconcile to the $84.9 billion proposed appropriation amount.

Federal impact

In fiscal year 2011, revenue from federal grants was $10.3 billion — the largest single source of revenue. While the forecast shows a decrease in 2012 and 2013 as stimulus funds are used up, federal revenues still make up 37 percent of nonfederal revenue and 22 percent of the total for 2013–2014.

The economic assumptions noted above can be found in Part A of the proposed budget. What will not be found in the budget document are the significant assumptions relating to federal government policy. For that information one must refer to the economic outlook, a separate document prepared by Secretary of Finance Ric Brown. His Dec. 19 report notes the following assumptions built into the revenue forecast:

• The 2 percent payroll tax cut and emergency unemployment insurance benefits are extended for 2012 then phased out over several years.
• The automatic cuts beginning in 2013, predicated by the failure of the “super committee”, will not occur. Instead, a new package of spending cuts and tax increases will be approved and won’t begin until January 2014.
• The Bush tax cuts will be extended in 2013.

These are very significant assumptions. While we might agree or disagree whether these assumptions are the “best guess” today, it is worth examining how significant the risk is if these assumptions prove inaccurate.

Virginia’s dependence on federal spending goes far beyond the $10 billion in direct aid. When federal contracts and direct payments to employees and retirees are taken into consideration, the federal government accounts for more than one-third of the commonwealth’s GDP.  Even a small reduction in federal spending and support could have a devastating impact on revenues. In addition to the direct impact on federal grant funding, the decline in federal outflows will have a significant impact on the commonwealth’s other major revenue sources, mainly individual and corporate income tax and state sales and use tax.

Virginia response to the risk posed by the federal budget crisis

In his budget presentation, McDonnell pointed out the risk posed to the commonwealth and its AAA bond rating by the current political uncertainty created by the federal budget crisis. He noted that, while currently our AAA bond rating has been reaffirmed, it was placed on “negative outlook” by the rating agencies — primarily due to the commonwealth’s dependence on the gederal government.

In response to this risk, McDonnell proposes to replenish the “rainy day” fund by $440 million, bringing the balance to $600 million by the end of FY 2014. The rainy day fund was at its highest level at $1.19 billion in 2007, and has dropped to $299 million as of June 30, 2011.

The governor also has proposed creating a new Federal Action Contingency Fund (FACT) to be used to mitigate a variety of negative impacts on Virginia related to likely future federal actions. This appears to be a great first step by recognizing the risk posed by dependency on the federal government. Unfortunately, the proposed $50 million dollar funding by 2014 is just a drop in the bucket compared to the potential risk.

The citizens of the commonwealth and the business community at large would be better served if the risks and potential impact associated with federal budgetary policy decisions were described in more detail in its revenue forecast. Clearly-quantified estimated impacts of policy decisions would lead to a more informed voting public in a better position to evaluate the actions of our federal leaders.

John B. Montoro, CPA, is a partner at Cherry, Bekaert & Holland LLP, where he serves as the director of the firm’s Government Services Group. He currently serves on the executive committees of the American Institute of CPAs (AICPA) Governmental Audit Quality Center and the Virginia Society of CPAs (VSCPA) while also serving as a reviewer for the Association of Government Accountants (AGA) Certificate of Achievement in Service Efforts and Accomplishments Reporting program.

An example of a burdensome but important IRS requirement pertains to qualified retirement plans.  When a company sponsors a plan, such as a 401(k), it must do annual maintenance to ensure it remains compliant with the IRS rules and regulations.  Often clients and business owners struggle to keep up with the IRS rules in two primary plan areas:
1) timely adoption of IRS-required amendments; and 2) operational failures, such as when elective deferrals and matching contributions are neglected on bonus payments as may be required by the plan document.

Issue 1) arises when the business owner fails to implement IRS-required Plan amendments or restatements.  Business owners often ignore plan documentation provided by the document provider.  The consequence is the plan is not timely amended and no longer qualified.

This is corrected by adopting the applicable amendment or restatement and submitting an application with payment of the IRS compliance fee to the IRS under its voluntary correction program.  Failure to submit under the IRS voluntary correction program subjects the employer to greater penalties if noncompliant issues are identified in an IRS audit.

Issue 2) arises where the plan is required to, but does not, account for an employee’s voluntary or elective deferrals and employer matching contributions on bonus payments.  Often the Plan document is not properly written to reflect the employer’s intentions.  Other times the Plan document is not being properly interpreted by the employer’s HR personnel, payroll/third party administrators or accounting service providers.

The consequence is that deferrals and matching contributions are not being made on bonus payments when they should be.  Generally, this is corrected, at the employer’s expense, by making restorative deferrals and matching contributions for years of omission, plus earnings and interest.  A submission to the IRS is also required under its voluntary correction program if the failure is significant.  As with Issue 1), failure to file under the IRS voluntary correction program may subject the employer to greater penalties if these type of operational failures are identified in an IRS audit.

The IRS is improving its identification of noncompliant plans. Over the past five years, a whopping 64 percent of audits have resulted in IRS required changes at the employer’s expense. Given these rates of success, you can expect that the IRS will continue to monitor plans for compliance issues.

Consider this example:

ABC Security Company provides security services to the public and private sector.  It is a family business owned by dad, mom and their two children, and generates annual revenue of $100 million.  The four family members also comprise the Board of Directors.  Because of a proliferation of government spending, ABC Consulting Company has been extremely profitable since 2002, earning the four family members and 20 other employees significant bonuses.  The Company’s Plan calls for matching contributions on the bonuses.  However, nobody with ongoing monitoring responsibility - neither the internal human resources department, the outside company that administers the plan; nor the CPA firm that audits the company’s returns - discovers the oversight until 2011.

At the least, ABC Consulting Company must “make-up” for the missed deferrals.  But the company’s analysis of what it means to make-up for past deferrals is only starting.  Among the considerations are the following: 

1)  There is no statute of limitations, thus the liability is not necessarily limited to the past three years, as with an income tax liability.  Does ABC Consulting Company’s ‘lan liability stretch back to 2002; is it limited to just the past three years open under the income tax statute of limitations; or is it limited just to 2011, the year the CPAs discovered the oversight?

2)  Once the company and its advisoes agree on a corrective action, the company must confess to the IRS before the IRS discovers the problem, thereby hoping to avoid IRS sanctions, which could include loss of income tax deductions for contributions and income tax free accumulations.
 
3)  There is a third issue extending beyond the IRS and the company, which is potential personal liability against the directors personally - the four family members.  An individual plan participant could assert a claim against the directors for failure to properly oversee the plan. This potential claim raises a related issue; namely, whether it is prudent to have members of the same family serving on the board.     

Law firms are often involved when the non-compliance issues rise to legal concerns.  The legal presentation involves assisting employers with the IRS submissions under the Employee Plans Compliance Resolutions System, which covers self-correction, voluntary correction and audit corrections initiated by the IRS.  Because of the significance of these Plan issues, often times law firms are invited to independently audit the Plans to discover potential problems before they proliferate.

Besides the need to timely adopt plan amendments and avoid operational failures as described above, there is a third area of risk, which pertains to the fiduciary duty plan administers owe the participants regarding the plan’s investment policy.  ABC Consulting Company should be working with a plan administrator or an accredited investment fiduciary, whose investment policy is compliant with Department of Labor regulations.  The investment issues to cover include developing an investment policy statement and monitoring to ensure the portfolio does not deviate from its investment model yet can remove underperforming fund managers.  The bench working of fees paid by plan participants is also a big issue in the Department of Labor’s eyes.   

One New Year’s Resolution critically important for business owners is to review their company’s plan to ensure compliance.  Failure to do so creates financial danger for the company and personal liability for board members.

John P. Dedon is a principal in the firm with the Trust, Estate & Tax Planning practice group of Odin, Feldman & Pittleman. Dedon blogs about estate planning issues for Virginians and U.S. citizens at http://www.dedononestateplanning.typepad.com.

The county clerk had drawn up a budget for the coming year and informed the three county commissioners that it would require a half-mill increase in the real estate tax.

After some deliberation, two of the commissioners voted for the tax increase but the third commissioner abstained. The clerk was incensed. “You sit right there and show me where I can cut the budget,” she told the holdout commissioner. In essence, she was making him stay after school for misbehaving.

While the clerk and hesitant commissioner went through the budget page by page, the other two wandered off to eat lunch and tend to other chores. By midafternoon, they returned to the courthouse to find the clerk and their beleaguered colleague still combing through the budget.

The sight must have caused a change of heart. The commission chairman, who had voted for the tax increase, told the others, “You know, we don’t have to do this right now. Let’s wait awhile.” So more than four hours after the official commission meeting had ended and the press had departed, the commissioners decided to rescind their vote and table consideration of the budget. They didn’t bother to call anyone to announce the change.

The next day, my story about the tax increase came out. The commission chairman told the region’s daily newspaper I was a liar. “We didn’t do any such thing,” he said.

I chalked up such “Keystone Cops” antics as small-town politics. Boy, was I wrong.

In the past six months, we have watched members of Congress bring us to the brink of economic disaster before approving an increase in the debt ceiling. The deal was based on the creation of a 12-member “super committee” charged with agreeing on at least $1.2 trillion in spending cuts or else automatic across-the-board cuts would take effect starting in 2013.

Standard & Poors was so unimpressed with the debt ceiling deal that it promptly lowered the government’s bond rating, sending the stock market into a tailspin. It turns out, S&P’s skepticism was well-founded. The super committee failed to reach an agreement, providing one more piece of evidence that our political system is totally dysfunctional.

Half of the automatic cuts will fall on the Defense Department, a development that will “hollow out” the U.S. military, according to Defense Secretary Leon Panetta. The cuts follow a $450 billion reduction in defense spending that already is scheduled to take effect. 

The cuts also could have a devastating effect on Virginia’s economy. Stephen Fuller, director of the Center for Regional Analysis at George Mason University, says they would lead to more than a million job losses nationwide, with nearly 123,000 jobs lost in Virginia.

Two areas that have been beneficiaries of defense spending in the past will be hit hardest. Northern Virginia would lose 92,691 jobs and $7.96 billion in gross regional product, while Hampton Roads would lose 20,785 jobs and $1.78 billion. “Virginia is right at the top for being vulnerable,” Fuller says.

The potential effects of budget reductions already are being factored into assessments of Virginia’s competitiveness with other states in attracting new employers.  Virginia owned the top spot in Forbes.com’s annual list of the best states for business for four years before slipping to second behind Utah last year. In the latest list, released in late November, the commonwealth was again No. 2.

The one thing keeping Virginia from regaining the No. 1 position is doubt about its economic outlook. “As fiscal screws tighten, it is going to be more difficult for Virginia to maintain the growth rates and success it has had in the past,” says Mark Zandi, chief economist at Moody’s Analytics, which contributed data used in the ranking.

When the super committee gave up, no one was surprised by its failure. But that doesn’t mean people don’t care.

A Gallup poll released in early December found that 75 percent of voters surveyed say most members of Congress should be turned out of office. That’s the highest percentage Gallup has seen since 1993, the year before Republicans gained control of the House of Representatives for the first time in 40 years in a Democratic bloodbath.

Just before the super committee admitted failure, Democratic Sen. Mark Warner had a few words of advice for voters during a visit to Norfolk.  The senator, a member of the bipartisan “Gang of Six” that tried to broker a deal during the debt ceiling crisis, had recommended the super committee “be bold,” looking for cuts beyond $1.2 trillion.  “If we can’t get this fixed, you’ve got to fire us all. I’m serious,” he told the Virginia Women’s Conference.

Keep that advice in mind as the election approaches next November. When you see the notation “(i)” next to a candidate’s name, you could read it one of two ways: “incumbent” or “incompetent.” 

In 2001, Jim Gilmore took over as chairman of the Republican National Committee.  In 2004, Mark Warner was being considered by some as potential presidential material.  In 2008, Tim Kaine was a possible vice presidential candidate, ultimately taking over the Democratic National Committee.  Now, Gov. Bob McDonnell is vying for a 2012 vice presidential nod.

You can’t blame our governors.  Virginia is the only state that does not allow its governors to succeed themselves. The result is that our chief executives face a very simple choice — either polish their résumés for a quest for higher political office or face retirement.

Few of our recent governors have shown an inclination to retire upon leaving office.  Politicians by nature are constant contenders for a bigger stage. Once they’ve topped the charts in Virginia, the next step is the national limelight.

A successful campaign to be governor of Virginia generally requires moderate policy positions to attract independents. Roughly one-third of voters identify themselves as independents.  On the other hand, being nominated to run for office requires adherence to party orthodoxy.

Being selected to join a national ticket is even more complicated.  Parties seek vice presidential candidates who either can balance the ideological leanings at the top of the ticket or bring additional experience to the campaign.  Joe Biden, for example, provided age, foreign relations and long-term Washington experience to the Obama ticket in 2008, matching some of the strengths of the Republican presidential candidate, Sen. John McCain.

Virginia’s once reliable reputation as a red state in national elections took a distinct turn in 2008 as the commonwealth’s voters chose Democrat Barack Obama for president and selected Mark Warner to join Jim Webb as the state’s second Democratic U.S. senator.

Virginia’s 2008 swing made the 2009 gubernatorial race a very closely watched election.  McDonnell’s win followed a pattern established 34 years ago in which the party that wins the White House loses the Virginia gubernatorial election the following year.

As we approach the 2012 presidential election and the 2013 governor’s race, new dynamics suggest that Republican Party orthodoxy will be a more significant factor than usual.  Three related factors are driving the upcoming Virginia campaigns toward a deeper shade of purple: 1) McDonnell’s vice presidential possibilities, 2) the 20-20 tie in the Virginia Senate, and 3) Attorney General Ken Cuccinelli’s announcement that he will challenge Lt. Gov. Bill Bolling for the Republican gubernatorial nomination.

Although the Republican National Convention does not occur until August, former Massachusetts Gov. Mitt Romney is perhaps the most likely to survive the contest to be the presidential candidate.  He’s been well vetted over the years and most definitely has the credentials of a candidate whose “time has come.”  Several potential challengers have come and gone, with none having any real staying power.
Romney is a moderate Republican who, as governor of a liberal-leaning Northeastern state, helped create a health-care plan that is widely seen as the model for “Obamacare.” Given that background, Romney undoubtedly would benefit from McDonnell’s reputation as a successful, conservative Southern governor.

McDonnell campaigned largely on economic issues (“Bob’s for Jobs”) when he ran for governor, but he will need to put his conservatism on greater display to bring balance to a Romney ticket.
Virginia’s newly elected state Senate is split 20-20 between the parties.  When there was a Democratic majority, signature Republican initiatives against gun control, abortion, illegal immigration and tax increases often ran into a roadblock after being passed in the Republican-dominated House of Delegates.

To the extent these issues surface in the 2012 General Assembly, they likely will benefit the ambitions of both McDonnell and Bolling. The presence of Cuccinelli, a champion of many conservative causes, in the governor’s race means the Bolling campaign may need to take a more conservative stance to win the nomination and keep the Republican Party intact in the general election.

Tempting fate, Republicans are counting on a 2012 presidential win to help them hold onto the governor’s office in 2013, breaking the pattern of state and national winners coming from opposing parties.
For Democrats, these same dynamics also foreshadow a move toward a deeper shade of purple.  Virginia Democrats have long known that they must campaign from the center to get elected and govern from the center to be effective in office.  Competitive pressures now pushing Republican candidates to the right may open up the center for Democratic challengers.

At this point, only one Democrat appears ready to toss his hat into the ring in the governor’s race.  Former Democratic National Chairman Terry McAuliffe ran a well-financed but unsuccessful campaign to be the Democratic candidate in 2009.  He’s been campaigning for a second chance in 2013 ever since.

McAuliffe’s connections to the blue party are deep, possibly even a liability.  Still relatively new to Virginia, McAuliffe is running as a successful businessman in the Mark Warner model.  With Virginia’s political music changing to deep purple, we’ll soon see if other candidates join the dance.