Friday, September 27, 2013

Why I Get My Best Ideas in the Shower

strategy+business magazine:

Theodore Kinni

I get a lot of good ideas in the shower, but I never thought too much about why until I read a new book by Ori Brafman and Judah PollackThe Chaos Imperative: How Chance and Disruption Increase Innovation, Effectiveness, and Success (Crown Business, 2013). It turns out that it’s not the water pelting my noggin or the shampoo that promotes healthy, silky smooth hair triggering my creativity. It’s the default mode network in my brain.
Neuroscientists have long known that the human brain is always on, even when its owner isn’t consciously using it. (For other perspectives on this phenomenon published in s+b, see Matthew May’s piece from the Spring 2013 issue, and the Thought Leader interview with Loran Nordgren in the Autumn 2013 issue.) In fact, that’s exactly when the default mode network—a connected group of functional areas within the brain—is most active. As Brafman and Pollock explain it, “The default mode is always engaged, unless we actually interrupt it to perform a specific task.”
This neural network helps us evaluate our environment, reflect on it, and make connections between external information and the data we have stored in our heads. These connections are the fodder for all kinds of creative endeavors, including business innovation. ...
English: Albert Einstein Fran├žais : Portrait d...
English: Albert Einstein Fran├žais : Portrait d'Albert Einstein (Photo credit: Wikipedia)
Brafman and Pollack would say that my shower is “white space”—a time and a place in which I let my thoughts become less structured and more chaotic. In The Chaos Imperative, they point out how the white space in the lives of people like Albert Einstein and Steve Jobs produced some pretty good ideas, like the theory of relativity and all those digital fonts in your computer. The authors also describe how they have worked with the U.S. Army to produce fresh thinking by introducing a bit of white space into an environment in which being “on task” is a fetish.
So, if you’re pursuing innovation in your company (and what company isn’t?), what can you do get white space working in your innovation process? Brafman and Pollack offer these four tips in the book:
Image representing Steve Jobs as depicted in C...
Image via CrunchBase
Employ white space judiciously. It works best when you have a clear goal in mind and have already spent some time consciously working on a problem.
Consider how much white space is too much. Ask people if they feel like they need more or less unstructured time.
Move. As long as it doesn’t require a good deal of conscious thought, exercise is a proven way to trigger the default mode network.
Create a micro white space. Don’t look for answers as soon as you ask a question; give people 20 seconds or more to reflect. Likewise, start an idea session with a minute of silent reflection on the meeting’s purpose.

Theodore Kinni is senior editor for books at strategy+business.Ted Kinni 

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Five 401(k) mistakes to avoid

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401k, retire, retirement, retiring, 401(k) plan, money, investment, investing / ISTOCKPHOTO
CBS News:
MONEYWATCH/ September 20, 2013, 7:00 AM

(MoneyWatch) Workers in 401(k) plans are required to make important decisions that can have a significant impact on their ultimate retirement savings. Folks relying on their 401(k) as their primary retirement nest egg need to make the right decisions on when to enroll in the plan, how much to contribute, how to invest contributions and how to manage the account.
Most people have the best of intentions when they contribute to their 401(k), but merely being a good saver isn't enough. Here are some of the common mistakes savers should avoid in order to keep their savings growing in their employer's plan.
1) Not enrolling at the earliest opportunity
The problem is that a lot of workers don't take the steps to sign up and join their employer's 401(k) plan at the earliest opportunity. ... The problem is they've lost out on matching contributions (assuming their employer matches) and on the tax-deferred gains on funds they could have saved and invested. Changing jobs five to seven times over a working career (which is typical) only compounds this mistake.
2) Not increasing contributions
According to industry data, the average contribution percentage for workers saving in a 401(k) is around 6 percent. Most studies that take a measure of what folks need to save over their working lifetimes indicate that workers without a pension will need to save and invest 10 percent or more every year into a 401(k) type retirement plan. These assets combined with Social Security income should be sufficient for retirement. If you enrolled into your 401(k) with a six percent contribution percentage, increase this to at least 10 percent as soon as possible and work towards increasing it from there over time.
3) Not making catch-up contributions
... In 2013 workers can contribute up to $17,500 annually into their employer sponsored 401(k) type retirement plans. But if you're over 50 at any time in 2013 (even if you turn 50 on December 31st 2013), you can contribute an additional $5,500 (which remains unchanged from 2012 limits) for a total contribution of $23,000.
4) Taking a 401(k) loan
Most retirement plan experts agree you should never take money from your 401(k) plan because you are taking money away from what you will need for a financially secure retirement. The biggest risk of borrowing from your 401(k) is that most plan rules require repayment within 30 to 90 days of leaving your employer. That's a disaster for someone who suddenly loses their job. If you don't have the money to pay off the loan it will be included in income as a taxable distribution. If you are under the age of 59 1/2 you'll owe a 10% penalty tax on top of applicable federal and state income taxes. If you don't have the money to pay the tax, the IRS can collect what you owe by deducting it from your remaining balance, virtually wiping out your retirement savings in the plan. Whether or not it's a good idea to take a withdrawal from your 401(k) account ultimately depends on what you are doing with the money, but for the reasons explained here, it's wise to avoid this move, as it can backfire.
5) Not running your retirement numbers
The time to find out you have not saved enough is not after you retire. Now is the time to do some serious number crunching. Calculating how much income your current retirement account and annual savings will generate at retirement is a critical step to ensuring you are on track to achieving your retirement income goals. If your retirement plan offers access to online tools to do this, use them.
© 2013 CBS Interactive Inc.. All Rights Reserved.
  • Ray Martin
    View all articles by Ray Martin on CBS MoneyWatch »
    Since 1986, Ray Martin has been a practicing financial counselor, providing valuable and practical financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch, and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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Thursday, September 26, 2013

IRS Filling The Pipeline With Captive Insurance Cases And Focusing On Dubious Practices


Jay Adkisson, Contributor
I write about asset protection.

Logo of the Internal Revenue Service
Logo of the Internal Revenue Service (Photo credit: Wikipedia)

Mr. John Glover of the IRS General Counsel’s office spoke about captive insurance arrangements Friday in San Francisco at a meeting of the American Bar Association’s Tax Section, which was hosted by that Section’s Insurance Companies Committee and co-sponsored by the Business Law Section’s Committee on Captive Insurance (of which I am the current Chair).
By agreement, the program was not recorded, Mr. Glover’s remarks were not “on the record”, and what follows comes from my notes and should not be taken as anything like a transcript of his remarks.
Mr. Glover has long been instrumental in IRS rule-making with regard to captive insurance companies, and so many tax practitioners in the field hang on to his every syllable and nuance as if he were the Fed Chairman.

The IRS has concerns about risk pooling arrangements and is beginning to focus on such arrangements, stated Mr. Glover, especially in cases where there is nominal laying and assuming of risks, but in the end reconciliation there really isn’t any risk-shift because the captive or business owner will reimburse the pool for significant losses. But there is also concern where the risk pool is simply an account where money comes in, and money goes out, and it is called “insurance” when it is really anything but.
Another concern that the IRS is starting to focus on, stated Mr. Glover, are dubious risks. The example he gave was of a widget shop in Nebraska that purchases tsunami insurance. The IRS has an increased interest in the pricing of captive insurance policies for such things as terrorism, cyber-liability, etc., which may be the subject of abuse.
Notably, Mr. Glover addressed the lack of IRS enforcement in the area of captives, noting that it has taken some time to get cases into the pipeline, but making a special point that the IRS now has more cases pending in tax court against captives than ever before — and the growth of the sector means that the IRS will be tasking more resources towards abusive practices. (This is not to be read that the IRS is challenging captives generally; to the contrary, the IRS now recognizes the legitimacy of proper captive insurance arrangements, and Mr. Glover has himself drafted much of the guidance for that purpose).
Captive insurance cases currently pending before the U.S. Tax Court include:
  • Rent-A-Center, Inc. & Affiliated Subs. (Dkt. Nos. 8320-09, 6909-10 & 21627-10)
  • YRC Worldwide & Subs. (Dkt No. 6714-10)
  • Securitas Holdings, Inc. & Subs. (Dkt. No. 21206-10)
  • Dielco Crane Service (Dkt. No. 21726-10)
  • Pilgrim’s Pride (Dkt. No. 16972-10)
  • Vincent Enterprises, Inc. & Subs. (Dkt. No. 2759-10
Other cases in other courts include:
  • Proliance Surgeons (Dkt. No. 1:09-cv680) (Court of Federal Claims)
  • Salty Brine (Dkt. No. 5:10-CV-00108-C); K&T Farm Ltd. (Dkt. No. 5:10-CV-00109-C); Wasson Solid Waste Disposal System (Dkt. No. 5:10-CV-00110-C); Five Star Consolidated Companies (Dkt. No. 5:10-CV-00111-C); Thomas & Kidd Oil Production (Dkt. No. 5:10-CV-00141-C) (U.S. District Court for the Northern District of Texas) (consolidated cases).
Mr. Glover also stated that IRS agent Steve Henson is maintaining a resource well that is available to answer questions for field agents and assist them with particular issues as they increasingly run across captive insurance arrangements.
But Mr. Glover also noted that in attempting to provide guidance for captive insurance practitioners, the IRS is hamstrung by the lack of case law as to many issues, and at this point can only set out various buoys (his term) to help practitioners stay in the safe waters and away from the shoals.
Aside from Mr. Glover’s remarks, other discussion focused on the importance of following NAIC reserving standards, which the tax court has found to be among the most persuasive evidence in whether the reserves were fair and reasonable. It is also very important for the Board of Directors of a captive to carefully review and approve an actuary’s recommendations.
There was a good deal of discussion at the meeting about so-called “Micro Captive” qualifying for special treatment under Tax Code section 831(b) and about the proliferation of promoters who sell captives as essentially a tax shelter with little or no consideration of the true insurance function of such companies.
Finally, there was a discussion of state taxes as they related to captives after the passage of Dodd-Frank, with some practitioners, notably captive tax attorney Bruce Wright, observing that there has been an significant uptick in the actions by various states to collect these taxes, particularly for businesses in California, New York and Texas. Captive tax attorney Chaz Lavelle pointed out that with rare exceptions the states often win these challenges in the state courts, and, despite there sometimes being good arguments why the taxes should not apply under the Todd Shipyards and Dow Chemical opinions, they are often more costly for captive insurance companies to fight than to just pay the taxes to begin with.
The bottom line is that the captive insurance tax world continues to evolve, and that certain dubious practices that did not merit much attention in the past are now almost certain to receive much stricter attention in the future. That somebody has gotten away with these practices in years before is essentially meaningless, or as the SEC requires in prospectuses:
“Past performance is no guarantee of future returns.”
Jay Adkisson
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Tuesday, September 24, 2013

Seven Ways to Make Your Strategic Planning Relevant

strategy+business magazine
Matthew Siegel

One of the most important shifts in many companies today is the move toward a capabilities-driven strategy. Companies that define a “way to play,” lined up with a handful of key differentiating capabilities that deliver on that value proposition, have a definite competitive advantage. Your own company may have redesigned your strategy accordingly. Now it’s time to execute.
English: Capabilities value contribution to st...
English: Capabilities value contribution to strategy (Photo credit: Wikipedia)
Undoubtedly, you already have a planning and performance management system—otherwise known as a strategic plan and corporate budget. This is a group of deeply ingrained methods for allocating costs and tracking. ... They tend to foster silo-based thinking and to spread investments across all activities. That makes them irrelevant to your strategy—at best. At worst, they will undermine the development of key capabilities. ...
A truly relevant planning and performance management system will help you instill the discipline and accountability to make hard choices. It will make it easier, not harder, to assign the lion’s share of investment to your differentiating capabilities. And it will keep things on track with clearly articulated objectives and performance metrics. Here are seven guiding principles that will help you put such a system into place:
1. Emphasize key capabilities in your strategic plan. Look beyond short-term marketplace opportunities and challenges. Articulate what you need to do, different from what any other company can do, to deliver on the company’s unique value proposition. Tie strategic objectives to those capabilities. ...
English: A diagram of the (strategic) planning...
English: A diagram of the (strategic) planning cycle showing the key stages in the loop (Photo credit: Wikipedia)
2. Spell out capability-building initiatives in the plan. Design roadmaps for developing and steadily upgrading specific capabilities over time. Then, in each annual plan thereafter, spell out how you can further advance these capability-building initiatives. ...
3. Manage discretionary and non-discretionary spending separately. A successful strategy concentrates investment dollars where they are needed most: the company’s distinctive capabilities. Traditional budgeting can undermine this goal by allowing individual units to spend discretionary dollars as they see fit—often favoring pet projects, even if they have no strategic relevance. To prevent this, use zero-based budgeting to determine the amount of non-discretionary expenditures needed to “keep the lights on” throughout the company. The rest of your spending should go through a management process, connected directly to the strategic plan.
4. Use cross-functional governance to balance company priorities against the priorities of individual business areas. Governance forums should use a set of clearly defined decision rights on a regular basis to steer the business. ...
5. Create guidelines for evaluating investment demands. Your company is subject to a range of investment demands with varying degrees of relevance to strategic priorities. Detailed investment guidelines will help assess these requests, especially when you’re balancing “apples and oranges” demands (such as regulatory compliance expenditures versus capital spending proposals). ...
6. Give leaders cross-functional authority to build capabilities and hold them accountable. Capability-building efforts fail when nobody has the authority to carry them out. Help individual leaders build capability systems across functional lines by making sure others can see that they have the requisite decision rights and position. ...
7. Measure and reward progress. Building a strategic capability can often take months or years. Explain clearly how each initiative bolsters a critical capability. Establish objectives and milestones for each initiative. Use these benchmarks to measure and reward progress toward the ultimate goal: a market-leading capability.
A more relevant planning and performance management system yields significant long-term benefits, because it continuously evaluates your company’s performance against strategic goals. The performance benchmarks tell you where and how external changes are affecting your progress. This provides a real-time snapshot of your capabilities at work in the marketplace. Strengths and weaknesses become clear, informing your investment decisions for the next strategic planning cycle. After a few years, this virtuous feedback loop can become second nature, paving the way for real collective mastery of the capabilities that distinguish your company.
Matthew Siegel is a principal with the organizational change and leadership practice at Booz & Company in New York. 

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Friday, September 20, 2013

A Rich Retirement: How to get the biggest Social Security check

CBS News:
MONEYWATCH/ September 18, 2013, 5:27 AM

(MoneyWatch) According to the Employee Benefit Research Institute, only two-thirds of Americans have saved for retirement and most have saved less than $25,000. The average retiree depends on Social Security for 70 percent of his or her income....
Ida May Fuller, the first recipient
Ida May Fuller, the first recipient (Photo credit: Wikipedia)
You can start collecting Social Security anytime from age 62 to 70, but the later you start, the bigger your benefit. Just how much bigger depends on when you were born. People born from 1943 to 1954 have a "normal" or "full" retirement age of 66. They get 25 percent less than their normal benefit if they cash in at 62 and 32 percent more than their normal benefit if they wait until 70. (People born later have a slightly higher "normal" retirement age and take a somewhat bigger hit for claiming their benefits early and a somewhat smaller bonus for waiting until 70.)
Roosevelt Signs The : President Roosevelt sign...
Roosevelt Signs The : President Roosevelt signs Social Security Act, at approximately 3:30 pm EST on 14 August 1935. Standing with Roosevelt are Rep. (D-NC); unknown person in shadow; Sen. Robert Wagner (D-NY); Rep. John Dingell (D-MI); unknown man in bowtie; the Secretary of Labor, ; Sen. (D-MS); and Rep. David Lewis (D-MD). (Photo credit: Wikipedia)
Say you turned 62 in June 2013 and earned $50,000 a year. You could collect about $1,011 a month as a single if you retire at 62, or $1,420 a month (in today's dollars) at your full retirement age of 66 in 2015, or $1,972 a month (again in today dollars) starting in 70 in 2019. If you're earning $150,000, the comparable monthly amounts would be $1,840 at 62, $2,501 at 66, and $3,370 at 70.
While those benefit amounts sound dramatically different, in theory the system is neutral -- meaning if you live to an average age, you'll end up with roughly the same total benefit no matter when you claim. ...
There is no pat answer to decide when to start collecting Social Security benefits, but there are a few guiding rules. First, if you're still working, don't claim benefits before your full retirement age. This is the rule thumb that nearly every expert can agree on. You shouldn't claim early while you're still employed unless you truly need the money to survive, because it comes with hefty penalties. Until you reach the full retirement age, for each $2 you earn in 2013 above $15,120, you lose $1 of your annual Social Security benefits. By contrast, after 66, benefits don't get cut no matter how much you earn. If you're working, try to wait. Also, don't take the money early thinking you'll make more by investing it: If you invested the money, you would need to earn more than 7 percent annually to equal what you'd make by delaying benefits until full retirement age.
Medicare & Social Security Deficits Chart
Medicare & Social Security Deficits Chart (Photo credit: Wikipedia)
A common concern is whether Social Security will even exist by the time someone is eligible to receive it, and it's a valid one: The trustees who oversee Social Security say the program's trust funds will run dry in 2033, leaving the program with only enough revenue to pay about 75 percent of benefits. Already, the program is paying out more in benefits than it collects in payroll taxes.
And people frequently aren't confident that they've saved enough on their own to retire comfortably. It's no wonder that a recent survey of Baby Boomers found that 61 percent of respondents fear outliving their retirement more than death. Think about that for just a second. People would sooner die than outlive their retirement. This uncertainty is coloring a lot of people's decision to cash in on Social Security while they know they still can. A recent survey by BMO Retirement Institute found 83 percent of retirees were influenced to start their benefits because they were concerned about the viability of the program.
My next guiding rule: Don't take Social Security until you're sure you want it. Up until December 2011, the Social Security Administration had a "do-over" strategy that had allowed seniors to file for benefits and then later repay them, without interest, to get a bigger check. ... But since December 2011, you have only 12 months to change your mind after initially filing for benefits.
Finally, part of being a smart financial planner is answering tough questions like "How
English: This is a chart illustrating the futu...
English: This is a chart illustrating the future payouts of Social Security Benefits in the US from 2009-2083. The source of the information is the Social Security Administration's website. (Photo credit: Wikipedia)
long do you expect to live?" A calculator on the Social Security website will give you your average life expectancy. It predicts a woman turning 62 this coming year will live to an average of 85.5 and a man of the same age to 83.4. But what about your health and your genes? There are a bunch of websites that calculate your life expectancy while taking into account your health, family history, exercise, eating, drinking and driving habits and even social relationships. If you're not in great health and you want to get some of your tax dollars back, it can make sense to start claiming Social Security as early as possible.
Deciding when to collect get a little more complicated if you're married. When a married person claims benefits, they're eligible for what they've earned or up to half of their living spouse's full retirement benefit, whichever is higher. A low earning spouse who is relying on spousal benefits takes an even bigger early claiming hit than a primary wage earner -- if he or she claims benefits at 62, they get just 35 percent of the primary earner's full retirement age check, instead of 50 percent. On the other hand, there are no extra benefits for waiting past full retirement age to claim that spousal check. That means this is the one case where no matter how you slice it, waiting past the "full retirement age" of 66 doesn't net you an extra dime.
Social Security - Ratio of workers to benefici...
Social Security - Ratio of workers to beneficiaries (Photo credit: Wikipedia)
The catch is that a spouse can't claim benefits until the earner makes a claim. So let's say a high-earning husband and non-working wife both turn 66 this year. The best financial plan is for the husband to begin claiming his benefits so his wife can collect. But not so fast! We already covered that he'll receive a bigger benefit if he waits until he's 70. He can still wait and cash in on that delayed payday by requesting that his claim and his benefits be immediately suspended. That way, he then can continue to wait for a bigger benefit, while his wife is now eligible to claim her spousal benefits.
It's tricky, but if you familiarize yourself with the basic rules, you'll be okay. Another thing to remember for married people: If one partner dies, the survivor can claim the deceased spouse's check instead of his or her own, assuming the deceased spouse's check is bigger. The general rule of thumb for married couples is that at least one partner (usually the higher earning one) should delay benefits well past 66. This is "longevity insurance" for you both.
One final thing to remember: Regardless of when you take Social Security and when you stop working, you need to enroll in Medicare when you first become eligible at 65, or you could face financial penalties in the form of higher premiums.
© 2013 CBS Interactive Inc.. All Rights Reserved.

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