By Don Musnicki and Dan Kravitz
If you are like most people, you’ve seen your retirement nest egg shrivel in this depressing economy. Perhaps you’re losing sleep over how you can possibly regain those lost monies, which were dedicated to funding your retirement years. If you are concerned about the adequacy of your retirement fund and want to accelerate your annual retirement savings rate, read on.
When you look at your 401(k) and your profi t sharing accounts, you realize that the maximum pre-tax contribution can be reached very quickly. In fact, currently, 401(k) plans allow participants to contribute only up to $22,000 for 2009, depending on the participant’s age. A profi tsharing plan allows employers to contribute another $32,500 on behalf of the participant. But after the total deductible contribution of $54,500 has been reached, you may think that you are out of luck.
Think again. Cash Balance Plans can accelerate retirement funding with contributions as high as $220,000 per year, depending on the participant’s age. Combining contributions to a 401(k), profi t sharing plan and Cash Balance Plan, anyone at the optimal age can put nearly $275,000 into his or her nest egg on a pre-tax basis per year. Today, more than 5,500 Cash Balance Plans exist in the United States as executives recognize the value of these plans.
A Cash Balance Plan is a defi ned benefi t plan that specifi es the amount of contribution to be credited to each participant. The contribution can be either a fl at dollar amount or a percentage of pay. The plan credits interest on those contributions at a guaranteed rate. That guaranteed rate of return, detailed in the plan document, is not dependent on the plan’s investment performance. The rate of return changes each year and for many plans is equal to the yield on the 30-year Treasury bond, which is about 4.5% recently.
If your company has one or more of the following characteristics, you may be a good candidate for a Cash Balance Plan: owners who desire to contribute more than $54,500 per year; executives who want to make up recent fi nancial losses promptly; owners who have neglected their personal retirement savings while putting money into building their businesses; companies that have demonstrated consistent profi t patterns; companies that are already contributing three percent or more to employees’ accounts or willing to do so.
Historically, the types of businesses that are good candidates for Cash Balance Plans include professional service businesses such as CPA and law fi rms, medical groups, and family or closely-held businesses where there are a number of owners who are at their 401(k) and profi t sharing contribution limit. Profi table businesses that need tax deductions may fi nd the Cash Balance Plan very attractive. A Cash Balance Plan allows for both an acceleration of savings and a large tax deduction.
For executives with a wary eye toward their fi nancial future and retirement prospects, a Cash Balance Plan provides a signifi cant opportunity to increase contributions to a qualifi ed retirement plan, while deferring taxable income.
Cash Balance Plans need to be implemented by December 31, 2009 to take advantage of 2009 tax benefits.
Donald C. Musnicki has been a fi nancial consultant since 1989. Mr. Musnicki is a Wealth Management Consultant in the Watertown office of RBC Wealth Management, a division of RBC Capital Markets Corporation, member NYSE/FINRA/ SIPC, which is a wholly owned subsidiary of Royal Bank of Canada. As one of the nation’s largest wealth management and full-service securities fi rms, RBC Wealth Management provides a complete and comprehensive approach to wealth management needs by providing clients with the global resources of an international fi rm, while maintaining the smallfi rm feel. Mr. Musnicki can be reached at (315) 788-4200 or at donald. musnicki@rbc.com. For more information, visit his website at www. donmusnicki.com.
Daniel Kravitz is President of Kravitz, Inc., the national leader in Cash Balance Plan design. Kravitz has successfully revised hundreds of retirement programs to include a Cash Balance Plan, resulting in larger contributions for executives. Mr. Kravitz completed the American Society of Pension Actuaries exams for the designation Certifi ed Pension Consultant. He is a nationally recognized speaker on retirement plan design and administration, and serves on the board of the National Institute of Pension Administrators (NIPA). He can be reached at dkravitz@kravitzinc.com or (818) 379- 6162. To learn more about Cash Balance Plans, visit www.CashBalanceDesign.com.
By Joleene DesRosiers
Definition: BANK—an institution organized chiefly to handle the everyday financial transactions of businesses (as through demand deposit accounts and short-term commercial loans)
Definition: CREDIT UNION—a cooperative association that makes small loans to its members at low interest rates and offers other banking services (as savings and checking accounts)
THE DIFFERENCE—Personalized Service
As its visionary leader, St. Hilaire is driven to make Northern the standard of excellence in fundamental banking services. This desire comes from a genuine faith in the members and employees that make the credit union possible. From Corner to Corner Being the standard of excellence means change and plenty of it. Northern is constantly looking for ways to grow and improve. The financial cooperative started with humble beginnings as the New York Air Brake Employees Credit Union.
Born in 1955, in the corner of the actual Air Brake facility (which is how many credit unions were originally established back in the day), the credit union served Air Brake employees as a place they could borrow money safely, confidentially, and at fair rates of interest. After several successful years, the tiny credit union looked to expand its reach andits services.
Northern revised its charter to include employees and officials of the 25 school districts which made up the North Country Coordinating Council of Teachers, becoming known as NYAB/Tri County FCU in 1982. Roughly 13 years later, in an effort to reflect its continued growth in the region, the credit union changed its name again, this time to Northern Federal Credit Union. It was only the beginning of a plethora of changes the credit union would see over the next several years.
Including the Community
Credit unions were originally designated solely for employers that put forth the initiative to establish basic banking services on behalf of their employees.
“Most employer groups, if they had a desire to provide these services to their employees, would contact an established local credit union to inquire about how to start one of their own,” St. Hilaire said. “Today, Northern Federal Credit Union proudly services more than 185 employer groups.”
In 2004, Northern received an ‘underserved area’ designation from the National Credit Union Administration, expanding their charter to include anyone that lives, works, worships, attends school or regularly does business in the counties of Jefferson, Lewis and St. Lawrence, up to and including Canton.
Due to its member-focused philosophy, these primarily rural and under-banked areas are well served by the benefits of credit union membership.
“As long as you own a membership share, which at Northern is $5.00, you have as much right and as much influence in the future direction of your credit union as the person with $500,000. We’re a democratically run financial cooperative,” St. Hilaire said.
“When members walk through the doors of NFCU, they know their credit union will do whatever it takes to meet or exceed their expectations, even if it means referring them to a competing entity.”
St. Hilaire explained, “We strive to improve the financial lives of our individual members, even if that means referring them to other financial service providers when it is in their best interest to do so. Creating mutual value by providing personalized service and banking solutions is our mission, and it’s what we’re here to provide first and foremost. Northern Federal Credit Union’s mission is more about ensuring the financial well-being of its members than it is about the bottom line. One of the fundamental differences between credit unions and banks is that credit unions are not-forprofit financial cooperatives. We’re here to serve the financial needs of our 23,000 owner-members, not a handful of major stockholders and substantial customers”
He continued, “And you really can expect more personalized service. Our employees take more time and put forth more effort to identify the member need and match it with the best solution. They’re not interested in forcing the product or service of the month as that provides no lasting, mutual value, and is not what our members expect from us.”
The ‘Wow’ Factor
St. Hilaire describes the typical bank branch as following a ‘cookie cutter’ blueprint when it comes to layout and design. Northern avoids this approach at all costs when it comes time to build and renovate branches. They want service centers to be unique and convenient, blending inviting and comfortable spaces with technology and functionality. St. Hilaire noted
“We want our officesto reflect the personality of the surrounding community while leveraging state of the art technology to allow the efficient, cost effective delivery of our member experience.” His vision is becoming a reality.
Picture this: you walk into your financial institution and you’re immediately greeted by an employee. That employee smiles, chats a bit with you and then wishes you a good day after bringing you to what is known as a ‘pod.’ And no, you’re not alone. You’re standing side-by-side with an attentive Member Service Representative, both of you with access to a computer screen showing your financial information. You do your business using -the safe, timesaving technology of a cash dispenser and electronic signature pads; the MSR thanks you for your business as she or he escorts you to the door, and you’re on your way. It’s a highly personalized service approach known as dialogue banking.
“When you walk into a traditional financial institution branch, the first thing you see is this big, bulky structure that separates you from the teller,” St. Hilaire said. “Not here. At Northern, we’re all about removing barriers and engaging in meaningful relationship-building conversations with our members.”
The ‘wow’ factor doesn’t end with dialogue banking, which has already been implemented at the Factory Street branch in Watertown , as well as the credit union’s Lowville and Adams branches. As a matter of fact, St. Hilaire says, it’s only the beginning. The next wave of cutting edge banking technology will come to life in the spring at NFCU’s new service center, currently being constructed in West Carthage. It’s called the Personal Teller Machine. And it’s something that will make you realize you really are living in the 21st century.
The personal teller machine, or PTM, is similar to your standard ATM, except you will be able to talk to a real person when transacting your business. An experienced, knowledgeable individual, who can be located literally anywhere, will assist you with your banking needs. Like an ATM, it can be located either inside or outside a branch, within a free standing kiosk, or, in or outside of other places of business, such as malls and hospitals. The PTM technology combines maximum convenience and versatility with exceptional personal service. The CreditUnion’s branch in West Carthage will include a drive- thru PTM that will provide 24 hour, 365 day service to its members.
St. Hilaire explained, “When you pull up at 3 o’clock in the morning, you won’t be just sliding a card into an ATM. You’ll have a live person on the screen talking to you, just as you would if it was 3 o’clock in the afternoon. And that person will be friendly, knowledgeable, and able to take care of whatever financial transaction or need you have.” Within the next few years, PTMs will be delivering service at all branches and at other strategically placed locations. It will be one of many convenient choices Northern Federal Credit Union members will have to conduct their financial business.
Final Thoughts
“In looking toward our future, we’ve really tried to make decisions through the lens of our members, organization and employees. As a people-first institution, we are accountable for our success. We take a holistic 360 degree view of our organization, asking what would we want, ideally? What would we want if we were to design a financial institution that specifically catered to our needs? We ask our members what they want and we work very hard to deliver it,” said St. Hilaire. What’s next for NFCU? Only time will tell. But no doubt St. Hilaire will make sure it’s forward-thinking, cutting edge and delivers upon the credit union’s mission of creating mutual value with their member-owners.
He said, “When we see technology that really makes a difference and could have an impact on the lives of our members, we don’t hesitate to go out there and get it.”
By Diane Rutherford
When many people think of certified public accountants, words like “mousy” and “pencil-pusher” might come to mind. Gary Rowe transcends the stereotype of the CPA. He knows all about the old-fashioned image of the accountant and jokes about the way CPAs used to wear green eyeshades “They’re a very conservative bunch. I guess I’m a little bit of a risk taker. That would be true,” he said.
Rowe, the owner and chief executive officer of M.R. Gaebel, Inc. in Carthage, is downright cool. He’s a pilot with part ownership in a plane. He plays guitar and saxophone and used to rock and roll with friends in a garage band. Three generations of his family have been enthusiastically involved in race car driving. Rowe’s father, Howard, helped operate and promote the Watertown Fairgrounds Speedway for two decades beginning in the 1950s. (Racing operations moved to the Can-Am Speedway in LaFargeville in the mid-1970s.) As a sixweek- old baby, Gary Rowe began going to auto races. At age 57, his love of the sport hasn’t subsided. Because of his vast experience with race car driving, he counts a number of famous drivers as his friends and clients.“I’m not supposed to name names, but a lot of professionals come to me,” said Rowe. “I’ve been involved in racing my entire life because of my dad. It’s kind of neat,” said Rowe.
“I’ve done seminars both in Syracuse and out in New England on racers and taxes. Most people in racing don’t realize it can be a business. If it’s a business, then they are eligible to take a lot of deductions and they don’t understand how that all plays out. That’s where I become involved because I explain the rules and show them how they can realize the tax benefit from their racing activities. If it’s a hobby, then there are different rules. But if it’s a business, there can be tax benefits and I try to teach these folks how to use them.”
For the last 30 years, Rowe has been writing a column for Gater Racing News, a regional trade publication. He also contributes tax-related articles to Speedway Illustrated, a magazine created by Dick Berggren, the lead pit reporter for Fox Broadcasting. In addition, Rowe has served as the vice-chairman of the DIRT Motorsports Hall of Fame Selection Committee and was the CPA of record for DIRT Motorsports in its sale to Boundless Motorsports, Inc.
Helping racers with their taxes is just one of many services Rowe and his staff provide at M.R. Gaebel. The business is essentially a one-stop shop for tax, accounting and other financial needs. Rowe handles everything from multi-million dollar programs to small locally owned businesses. He has extensive knowledge of IRS and New York State Department of Taxation rules and regulations as well as Security and Exchange Commission issues.
“We have people coming in who only have is little craft business that they take around to different flea markets and I’ve got some clients that are seven or eight figures. We have to be somewhat diverse up here. You just can’t specialize—there’s just not enough business to do that. But we do focus a lot on farmers. That’s a big part of our arena.”
Raymond Simon, owner of Simon’s Farm & Home Center in Carthage, has worked with Rowe for nearly a decade at M.R. Gaebel. Simon uses Rowe’s services for both his business and personal finances. “He comes over and pulls off my payroll and does my year-end statements and tax forms. I’m pleased with it. He’s a great guy. He does great work and if there are questions, he works you through them and takes care of it,” said Simon.
Ironically, it was the agriculture industry that launched M.R. Gaebel, Inc. more than 60 years ago. “M.R. Gaebel was organized in 1948 by Margaret Rose Gaebel,” said Rowe. “It all started in 1948 when the laws changed after World War II. Tax laws changed from being…a revenue source, just like a sales tax, and they weren’t very complicated.”
Rowe says Congress changed the rules, which became much more difficult to comprehend. “These farmers were coming in, not knowing how to do their taxes and she (Margaret Rose Gaebel) was running the books. She was a very smart lady,” said Rowe. “To make a long story short, she started doing taxes. Then she became an enrolled agent.”
Rowe graduated in 1974 from SUNY Albany and worked for a variety of businesses. “I’ve always done accounting, always done taxes,” he said. In 2000, he went into business for himself by purchasing M.R. Gaebel, Inc. from the family. Rowe started out with a 1,100 square foot building, one full-time employee and three part-time workers. Today his building is nearly three times the size of the original and he employs five full-time and three part-time workers.
Rowe has approximately 1,800 clients, making M.R. Gaebel one of the largest accounting businesses in the area. “People are more cautious about who they select for their financial/tax preparer than they are about their doctor. It’s all word of mouth. People have to have a good positive experience with you. Knock on wood, some people must like me,” said Rowe.
Just look at M.R. Gaebel’s web site and you’ll see a cornucopia of services offered for new and existing businesses as well as for individuals who are buying a home or planning for their child’s college education. Other services include: representation before the IRS and the New York State Tax Department; assistance and expertise with liens and levies; unfiled returns; payroll tax problems; settlement of tax debts; financial management/consultation; small business start-up; business reorganizations and restructuring, estate and retirement planning. “We do everything except for non-profits and municipalities. We do your typical auditing and bookkeeping, financial statements, Quickbook advisors,” said Rowe.
When asked if his business prepares income tax returns for all 50 states, he quickly points out that “Florida, Texas and North Dakota don’t have income taxes. For all the rest of the states, we can do it and it’s a big deal up here because of Fort Drum. Dealing with their taxes can be the most stressful thing that people go through. They come in and they’re just stressed right out. If I can give them a little bit of peace of mind and help guide them through the process, that’s very satisfying.”
Rowe deeply believes in honesty and integrity when helping people, which is why he refuses to offer or sell certain services. “We don’t do rapid refunds. I don’t believe in them because they’re very, very pricey and I think they’re almost gouging people,” he said. “But we do do electronic filing where you get your refund back much quicker than if you mailed the tax return in. Usually you get it back in less than two weeks.”
Rowe and his staff also serve as independent financial advisors who provide objective opinions and strategies for short and long-term financial planning. “We don’t sell products. When I was coming up, it was considered a conflict of interest and unethical for a CPA to recommend products,” he said. However, the rules changed in the 1990s making it acceptable for accountants to sell financial products. “I keep my role to just being able to advise people, give them some ideas without selling a product. I figure I do a better job with that,” said Rowe.
Rowe also deeply believes in giving back to the community that has been so good to him. He shares his personal time and financial support with many agencies and organizations. He is on the board for Carthage Area Hospital and serves as chairman of the board for Northern Federal Credit Union. Rowe recently became a member of the board for the Pratt- Northam Foundation, which provides financial support to not-for-profit organizations. He has been a board officer for the Carthage Chamber of Commerce and a member of the education council for Immaculate Heart Central School.
Care of people through volunteerism or through his work as a certified public accountant is something that comes up again and again in conversation with Rowe, who says his job is “very rewarding. It’s more than just pushing numbers. It’s an opportunity to help people. Financial issues are the number one things that go through people’s minds. They live it, eat it, breath it, sleep it and it’s very stressful for them. If I can help them relieve that stress just a little bit, make them feel a little more comfortable, have a little more peace of mind, and a lot more confident in what they’re doing, then I’ve stepped up to my role.”
M.R. Gaebel, Inc. is located at 27 Barr Street in Carthage. For more information about the services the business has to offer, call (315) 493-1862 or visit its web site at www.mrgaebel.com..
By Randy Beach
Despite the challenging economic climate, small businesses can still obtain credit through banks that partner with the U.S. Small Business Administration (SBA), which guarantees business loans.
Recognizing that small businesses remain the most fertile source of both business growth and employment, the recently signed American Recovery and Reinvestment Act actually increases the availability of SBA financing. This represents one of the first and most directly beneficial effects of the Act, and a bright ray of hope in an otherwise often gloomy business finance landscape.
To understand the significance of the SBA financing aspects of the Act, it’s important to recognize a key negative factor that has contributed to the overall credit squeeze: the collapse of the secondary market for asset-backed securities, prompted by the decrease in the value of securities based on sub-prime mortgages. The secondary market had previously allowed banks to sell their SBA loans to investors, raising funds for those banks to make future loans to businesses and consumers. The overall tightening of credit markets has temporarily threatened the availability of SBA financing since the secondary market for securitized SBAloans has slowed considerably. (It has rebounded recently, but the speed and extent of its recovery remains unclear.)
When banks are unable to sell their loans on the secondary market, they have to hold them on their books. As a result, some banks have become unable to make SBA loans. In fact, some banks are no longer even taking new applications for SBA loans. Naturally, this has diminished access to SBA loans, one of the most desirable, dependable and affordable forms of financing for small businesses.
Fortunately, the new American Recovery and Reinvestment Act brings good news for small business financing through SBA programs.
The Act provides $730 million to the SBA and changes its lending and investment programs, all initiatives that will help unfreeze credit for small businesses. The SBA is working on fully developing the various pieces of the legislation, and, as they do, financial institutions will implement them and businesses will benefit.
The funding includes:
• $375 million in the temporary elimination of some loan fees, making loans more affordable;
• $255 million for a new loan program to help small businesses meet existing debt payments, providing liquidity to borrowers, known as “America’s Recovery Capital Stabilization Loans” or “ARC;”
• $30 million to expand the SBA’s Micro-loan program, which will help finance up to $50 million in new lending and $24 million in technical grants assistance to micro-lenders; and
• $70 million for improvements to SBA operations, including technology systems for more efficient lending and oversight processes, expanding the SBA’s Surety Bond Guarantee program (from $2 million to $5 million and in limited circumstances to $10 million), and increasing staff to handle new programs.
In addition, the Act:
• allows the SBA to increase its loan guarantees to 90 percent on some loans from current levels (75 percent on loans greater than $150,000 and 85 percent on loans less than $150,000);
• allows the SBA to use its 504 Certified Development Program to refinance existing loans for fixed assets; and
• establishes secondary market liquidity for Section 7(a) loans, SBA’s largest guarantee program, as well as a secondary market for “first lien” 504 loans, which support small business capital-asset and real-property investments. The government’s heavy focus on the secondary markets is intended to stimulate further activity in secondary markets.
Banks Still Making SBA Loans
These changes in SBA lending through the American Recovery and Reinvestment Act are certainly welcome and timely. But it’s also important to recognize that many banks were making SBA loans even before these improvements were made.
Banks that are staffed by businesslending professionals who understand SBA lending, know their customers and recognize opportunities to deliver the benefits of SBA lending to customers are ideally positioned to lend through SBA programs even under present, distressed economic conditions.
These are banks in local markets making local lending decisions based on local knowledge. They are relationship-based, so they understand their customers’ businesses in the context of local, as well as global, conditions. Therefore, they can realistically assess the risk in making a loan.
One very significant positive lesson in this recession is that the healthiest banks are well capitalized, with sensible credit standards, solid underwriting and detailed knowledge of the markets they serve. For example, KeyBank, as a whole, which has no exposure to sub-prime mortgage loansand which has continued to make sound credit decisions, actually increased its loans to businesses in January 2009 over the previous January.
Even during the well-publicized credit tightening that justifiably worries so many business people, KeyBank increased its SBA Express lending (a part of the SBA 7A program) by 11 percent from January 2008 to January 2009.
Clearly, financing remains available for businesses that can demonstrate the ability to support themselves during currently challenging economic conditions. Just as clearly, banks cannot be faulted for reluctance to lend to failing companies. Most banks understandably prefer to lend to full-relationship clients these days, working with businesses whose operations they know thoroughly.
The advantages of SBA lending, a good idea in any business climate, have only intensified during this recession, with SBA-savvy banks ideally positioned to deliver.
Getting an SBA Loan
The U.S. Small Business Administration provides in-depth expertise to small businesses on structures, operations, management and financing. The SBA guarantees business loans, in partnership with banks, through two different small business lending programs.
The SBA 7A program provides the most commonly used type of SBA loan. A bank partners with the SBA, the bank processes the loan application under SBA processes, and the SBA provides a guarantee, protecting the bank should the business owner default on the loan. The bank essentially makes and administers the loan and the SBA backs it. SBA Express loans are part of the SBA 7A program, providing the fastest turn-around on loan applications.
The SBA 504 Program provides loans to businesses specifically for major fixed assets: to purchase land, buildings, and some types of equipment and machinery. A bank lends 50 percent of the total project cost, while a certified development corporation (CDC) lends 40 percent, using the 504 program, and the borrower contributes equity of 10 percent. The program reduces the risk to the bank in such a partnership and allows the borrower to expand the business while retaining operating capital. Interest rates and terms are more generous than conventional financing, although job creation requirements and other eligibility guidelines apply.
As with any business loan application process, obtaining an SBA loan requires the borrower to demonstrate the ability to pay back the loan through the cash flow of the business. Lenders seek proof of this ability by assessing the business’s management capability, collateral and owner’s equity contribution, among other factors.
They usually require a business plan, which the business owner often develops with professionals including an attorney, accountant and banker.
Most SBA loans require a personal guarantee by any owner with a 20 percent position in the business. And the credit scores of all owners comprise an important component in proving the ability to repay the loan.
Well-run businesses that demonstrate the ability to repay loans will find that banks will just about fight over them.
Randy Beach is vice president and relationship manager for KeyBank’s Business Banking division covering Clinton, Essex, Franklin and St. Lawrence counties.
Visit the U.S. Small Business Administration web site at www.sba.gov for more information.
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