Where is the real money made?

I am a regular listener of the Clark Howard radio show. One of his common caller issues is the listener who has recently attended a hotel ballroom seminar pitching strategies to attain great wealth and is concerned that they are about to be "ripped off". These strategies come in different forms; buying manufacturers receivables, purchasing foreclosed real estate, buying over priced investments, and home based-businesses to name a few. The common denominator amongst all of them is the request for further outlays of cash; payments of hundreds and sometimes even thousands of dollars are necessary to receive additional courses, books, tapes, mailing lists and other materials to make this money making endeavor successful. Clark’s response is always the same; if this was such a great money making idea, the presenters would be off making millions, not hawking their techniques in hotel ballrooms.

I couldn’t help but be reminded of Clark’s response as I read Warren Buffett’s biography, “The Making of an American Capitalist,” by Roger Lowenstien. One thing that stood out from the beginning of Buffett's investment career was his aversion to giving stock tips. In the beginning years of Berkshire Hathaway he would not keep his investors informed as to where their money was invested and only provided return updates on an annual basis. Much of the investment purchasing he made for Berkshire Hathaway was accomplished by quiet accumulation.

Think about these questions the next time someone pitches a get rich quick scheme to you. Where is the money really being made? Is it by using the actual techniques being pitched or is it in the pitch itself? Warren Buffett became the richest man on the planet by investing in stock, not pitching subscriptions for stock tip guides in hotel ballrooms for a monthly fee of $19.95.

"Enough With the Bottled Water"

I find my co-worker's bottled water in our work refrigerator and freezer; partially filled bottles are abandoned in the copy room and lunch room. Many of the members at my gym arrive toting their bottled water. I'm sure many prefer the taste, enjoy the convenience and feel it’s safer, but I never understood why anyone would buy bottled water if they had perfectly good tap water. I assume most are somewhat aware purchasing bottled water is not good for their budget or the environment. To further deter them, I recommend they read "The Blue Death", by Dr. Robert Morris where he points out the following:

Bottled water is immensely popular with Americans ~
Americans toss nearly 50 million empty water bottles into trash cans every day. More than 7 billion gallons of bottled water are consumed every year.

The bottles have a huge impact on the environment ~
The production of the bottles themselves requires more than two billion pounds of plastic per year, which translates into millions of barrels of oil consumed and a steady release of toxic waste into the environment. The manufacturer of a single bottle requires more water than the bottle will ultimately hold. The transport of these bottles over hundreds or even thousands of miles by ship, train & truck further adds to the disportionate ecological impact of bottled water.

Bottled water is not necessarily safer ~
Despite the fact that it costs almost a thousand times more than tap water, there is no guarantee that bottled water is safer. Bottled water is less closely regulated than tap water and is not required to meet stricter standards for purity. In fact, a major portion of bottled water in the US is nothing more than tap water in an expensive bottle.

To be sure, many brands of bottled water are superior to tap water and can offer a valuable alternative, particularly when traveling or after a local disaster threatens the water supply.

He closes with ~
But environmentally, economically, and in many cases even with respect to disease prevention, they fall short as a replacement for piped water.

Need I say more?

"Open Every Door"

Networking is a continuous process:
I've been an active member of a professional organization for the last ten years. I maintain this membership for many reasons, but my primary goal is networking. What many new members do not understand is that relationships are developed over time. I have seen new recruits join our organization, attend a meeting or two, distribute their business cards to every member present, then quit when that great job offer does not materialize in a month or two.

I received a call this week from a recruiter whose membership I have mentored in this organization for at least three years. She was recruiting for a great position that paid an excellent salary with a company known as one of the best places to work in the Milwaukee area.

Why Me:
She thought of me, after the employer specifically requested someone with a pleasant personality. I was flattered, this was the second time a recruiter from this organization had thought of me for a position because of my personality. I attribute this to working closely with them on committees within the organization. It is not always easy for me to talk up my attributes, but it is easy for them to see my real personality and work ethic after working closely with me.

My Response:
Unfortunately I had to turn her down. This company is located 45 miles from my home; I am not fond of long commutes or in a position to relocate. I did refer her to two other accountants who would also make great candidates for the position. I asked that she keep me in mind for future positions. I followed up by thanking her again for thinking of me, and forwarding her my resume.

What else I learned from her:
While discussing her business, she mentioned one unsettling experience. A candidate she placed with a company nine months ago had recently called requesting she find her another position. Feeling this was unethical she refused.

This reminded me of the recruiter who placed me with my current firm nine years ago. Since then, I have pretty much entrusted her with my job search. We meet a couple times each year to talk about my current company and discuss my career goals. She is instructed to call me if she sees a position that may be of interest to me. In thinking back, her firm (not her) has called me only once in nine years with an open position. I can't help but think my recruiter’s loyalty is really with my employer who has provided her with a paycheck. It is a good thing I have not been overly serious about changing jobs, but by entrusting her almost exclusively with my job search I may have missed out on some great opportunities.

“Not knowing when the dawn will come, I open every door” Emily Dickinson

A Meaningful Valentine's Day

Valentine's Day doesn't have to be about cards, chocolates or flowers to be memorable.

Last week, as Mr. Savvy Working Guy left to purchase a birthday card for his niece, I remarked, "I don't want a Valentine’s Day card this year. What I really want is a “music night”, a night where each of us takes a turn playing one of our favorite love songs." I came up with this idea after reading Florinda’s post where she writes about liking love stories best in a song.

We both had lots of fun with this; trying to guess each others selection, etc. Mr. SWG selected The Beatles "And I Love Her” from his Ipod. I had two selections, first I played Florinda's favorite, Bruce Springsteen's "If I Should Fall Behind” from Lucky Town, which we own. I also played Bob Dylan "Love minus Zero/No Limit which I found here:





We both really enjoyed our Valentine's Day. With a little creativity it can be easy to celebrate a Hallmark Holiday without spending a lot of money.

Don't forget to keep your beneficiary forms updated

Along with an annual review of my financial accounts, it was also time to update my IRA account beneficiaries. Two years ago I was blessed with two new nephews that I would hate to leave out. It was very easy to request, fill out and submit a new beneficiary designation form.

Many important assets (pensions, IRAs, and annuities) have beneficiary designations. Those forms mean that after your death, the assets go directly to the people or trusts you've named. You can't determine otherwise in your will. So it is important keep your forms updated.

Our Experience with a Financial Advisor

Why a financial advisor?
We decided to seek the services of a financial adviser after our 401(k) accounts, still with our previous employer, had lost 35% of their account value during the last recession. Neither of us had the time or the inclination to do our own research. We wanted someone to advise us on investing these monies, then monitor our accounts and alert us when it is time to buy, sell or rebalance our funds.

How we found him?
We selected an independent agency who had been hosting a money show on a prominent local radio station. We were intrigued by the firm's goal to provide objective, unbiased investment advice. Plus, they offered a free consultation with one of their independent brokers. An independent broker researches the whole market to find the most suitable products for your situation. A non-independent broker sells only the products provided by his/her employer, usually a bank or insurer. Many of these products are sold with big commissions and have high expense ratios.

What we learned?
The broker assigned to us compiled our most recent 401(k) statements into a spreadsheet providing us with an overview of our portfolio. To our surprise, we were not nearly as diversified as we had thought. Even though, we owned many different funds, the majority of our money was not only invested in high growth stocks, but almost entirely invested in the information sector. He recommended that we roll our 401(k)'s into IRA's keeping them with the Putnam family of funds to save money on fees. We could further diversify by rolling money into additional Putnam funds not accessible through our 401(k) plans. He explained his fee structure; we would be charged 1% on the total balance of our portfolio. He also asked several questions to determine our risk tolerance and explained his insistence on at least annual client reviews.

What happened next?
We decided to go with his services, and rolled our money into Putnam IRA accounts through his firm. We could have taken his free advice and rolled our 401(k) money into Putnam accounts on our own, but we still wanted the comfort of knowing someone with more knowledge than us would be keeping an eye on our money. This ended up being a wise decision.

Were there follow up recommendations?
After a year or so he called us; we needed to move all our money out of Putnam where a scandal was brewing. Six of Putnam’s investment professionals were under investigation for illegal trading. The outlook for keeping our money with Putnam was not good. He also suggested perhaps we should think about opening Roth accounts. We took all of his advice. Moved our money out of Putnam, reduced our current 401(k) contributions (investing just enough to still take advantage of the company match), and placed the extra money into Roth IRA accounts.

What about 2008?
I recently called to have our monthly Roth contributions increased to take advantage of the new 2008 maximum contribution limits:
$5000 for those under 50
$6000 for those over

He took this as an opportunity to insist on another client account review. January of 2008 had the worst stock performance start since 1978. As soon as the market stabilizes, possibly by summer, we need to begin rebalancing our funds and scaling down our investment in stocks by 3 to 5 percent each year. He will call us when it is time to do this.

What are our overall thoughts?
We could invest our own money and save the 1% fee; many financial experts recommend doing so using only index funds. There are also plenty of reputable web sights (Clark Howard's for example) that recommend low cost quality funds for your Roth IRA. I still like a little hand holding and feel we receive value from our independent, unbiased adviser. He keeps us on track; preventing panic sales during down times and alerting us when it is time to sell, keeps us diversified and on track to achieve our long term goals.

I hate to admit it; but Time Warner Cable is growing on me

Over the past several years, I have had a love/hate relationship with Time Warner Cable, our local cable company. This is primarily due to the inadequate customer service I have received when we have service issues and their ever increasing prices. A couple of years ago, we did upgrade to one of their combination packages that includes high-speed internet, cable and digital phone service. The total cost of the package is cheaper than buying the services separately. Overall, we’ve been happy with this move, despite initial misgivings about Time Warner Cable in general and our doubts as to whether a landline phone was even needed.

This past week, my husband actually read the advertising fliers included with our monthly Time Warner bill. According to him, we could save $10 a month if we cancelled our free domestic long distance service in all states accept Wisconsin. We would still have access to local domestic calling outside of Wisconsin at 5¢ a minute. We decided to take advantage of this deal. Unfortunately, when he called to make the change, he was told the special was good for digital phone customers only; we were ineligible because our phone service was part of a package.

Here is the part where they start to grow on me:
The customer service rep then offered to give us $10 off anyway since we had been long-term customers. How about that for service; we still save $10 a month and can continue to call anyone in the United States and Canada for free.

Also, they have added a new feature:
Our TV now has an option for caller ID display at no extra charge. For old-fashioned folks like me who don't have a phone with caller id capabilities, we can now screen our calls while watching TV without ever leaving the couch. When the phone rings, the caller’s name and phone number are shown in the top left hand corner of our television screen.

Recession Ramblings

No one can say for certain whether or not we are currently in a recession, but economists are saying that the effect of the economy largely depends on the stability of each individual’s company.

The companies my husband and I work for seem more stable than they did at the beginning of the recession in 2001.

As you may recall, my husband and I both worked for the same company in the late 90’s. This company continuously struggled to make payroll. I used to joke, if they couldn’t make money in the “exuberant 90’s” they certainly weren’t going to do well in an economic downturn. Sure enough, when the economy went into a recession in March 2001 this company was hit hard. My husband ended up being laid off due to lack of work.

I had started a new job in 1999. My new company was well established, having been in business over 50 years. This did not prevent them from coming extremely close to closing its doors for good. In 2001, they were highly leveraged, had a huge build up of inventory, and had recently begun selling specialized tech equipment that was not part of their core business. Unbeknownst to them, the technology for this equipment evolved quickly, leaving company shelves bulging with obsolete inventory. Once the recession hit, sales dwindled and a huge cash shortage ensued. To make matters worse, the cost of both business and health insurance sky rocketed. To save the company, management went into a major cost cutting endeavor like I had never seen before. A new bank was brought in with less stringent collateral requirements which provided a higher line of credit. Debt was refinanced at much lower interest rates. Massive amounts of inventory were returned to vendors for credit (of course this was after huge restocking fees were tacked on). For inventory not returned, management begged manufacturers for deep discounts and lengthy repayment plans. Employees were laid off. Every discretionary service was cancelled; including cleaning services at all company stores. After a two year struggle the company’s finances began turning around culminating in 2005 with the healthiest balance sheet in the company’s history.

What has changed in seven years?
The latest economic news reports that employers are not trimming hours as they usually do when demand for their product falls off. Plus, inventories are not unusually high making it less urgent for manufacturers to scale off production.

On a personal level: My husband has a new job which he loves; just last week he was assigned to a new project that comes with a three year contract. My company has never gotten back to the glut of excess spending of the late 1990’s. Our inventories are lean and manageable. Employee count remains low; few new overhead positions have been added. Are sales down? Yes. Are margins low? Yes. Is the year going to be easy? No. But I am confident both companies are healthy enough to ride the storm.

A little bit of gratitude to shake a bad day

In response to a horrendous day, I am listing five “feel good” entries from my gratitude journal in no particular order. During the past two months have been grateful for:

1. Tyler, my co-worker, for finding an error I had made so that it could be corrected in a timely fashion and a future problem eliminated. Typically, I would have internalized this mistake and spent the rest of the day feeling bad about myself. Once I acknowledged that I was grateful to Tyler, I just fixed it and moved on.

1. A. On a side note, Tyler made a mistake in the same system in early January. He came to me asking for my assistance fixing it, even admitting the system is not as easy as it looks.

2. My dogs, Buck and Teddy and all of the puppies my husband has been training. They keep me grounded and living in the present.

3. The window in my office from which I can watch the season's change, monitor the weather and occasionally catch a glimpse of wild life. In the past I have taken this window for granted, not realizing what a benefit it is. I am reminded of a company I visited a few years back that had virtually no windows. The most popular topic of conversation around the office was whether anyone had been outside, and if so what the weather was like.

4. Plumbing that works and a hot morning shower. Nothing makes you appreciate modern technology more than when it does not work.

5. A phone call from Judy my favorite acquaintance. Judy was a business associate who had recently left her position to go on permanent disability; she has cancer. I loved working with her, missed her terribly and had run out of lame business excuses to call her. She called me out of the blue before the holidays for the simple and perfect reason ~ to wish me a Merry Christmas. In today’s world of hectic schedules acquaintances and business associates are our new friends. It took this phone call for me to realize I don't need a business reason to call her; I can call just to say hi and ask how she is doing.

Paradox of choice

The price of oil has hit $100 a barrel, grocery costs are up 6% over last year and the out of pocket costs for prescription drugs is ever increasing. What are we the middle class, as we find ourselves continuously strapped for cash, to do?

In order to make ends meet, I am hearing my co-workers making the choice to forego refilling their prescription drug medications. One employee admitted he had stopped taking his asthma medication when his out of pocket cost hit $60 a refill. Only after he received a warning for excessive absenteeism did he indicate that perhaps he would cancel his cable instead. Another employee who complains of leg pain when he cannot afford his blood pressure medication can afford to go out to eat for breakfast and lunch everyday plus spend most of his weekends betting at the dog track. My favorite story is the employee who disgusted with her high out of pocket cost for lipitor began a diet an exercise program that has resulted in a 20 lb. weight loss, lowering her cholesterol and no longer needing her medication.

I understand our company drug plan requires higher out-of-pocket costs every year causing greater financial hardship. We have a formulary drug plan; a plan with a list of preferred drugs. If your doctor prescribes a non-formulary drug (one that is not on the list) your out of pocket cost is higher.

We are all faced with choices every day in our lives, perhaps too many choices; let’s make sure we look at all our options before choosing not to take our meds.

Vacation time is not free

In addition to math essentials, I recommend Penelope Trunk incorporate a few accounting essentials into her career. In her post http://blog.penelopetrunk.com/2005/01/08/math-essentials-for-your-career/ she states:

Extra Vacation time is free to the company

Extra vacation time is not free to the company. When an accountant pays an employee for time not worked an account is charged in the general ledger called vacation expense. Expense accounts are used, in most cases, to record costs. In addition to paying an employee for time not worked, the company may actually incur additional costs due to an employee’s extra vacation. The employee’s work still needs to be completed. He/she may need to work extra hours resulting in overtime pay to get his job done. Also, co-workers may work additional hours to cover for him in his absence. If his work is not completed there is always the potential for lost sales and lower productivity.

I understand the point of Penelope’s post is to get you thinking about benefits other than salary when negotiating your compensation package, but she is wrong about vacation time being free to the company and it isn't always that simple. She states in entirety:

Getting a Raise

Use numbers to negotiate your raise, too. When it comes to compensation, do your own research to present a rational, numbers-based explanation for why your salary is not in line with comparable salaries in your field. If your company won’t budge, figure out which non-financial perks will equal a financial perk. (Finally! A use for high school algebra!) For example, extra vacation time is free to the company and a laptop, after tax deductions, is very cheap for the company.

I am not saying don't ask for additional vacation, I have received additional vacation in lieu of a raise higher raise in past employment. After the 2001 downturn and as more companies switch to PTO plans, I believe extra vacation is not a benefit handed over easily. Other benefits that are more readily given to employees are payment for additional training if job related, especially if asked for during a profitable period. This shows initiative plus the company benefits from your increased knowledge. My company has given laptops, but only to employees that are not in the office on a daily basis or travel a lot. Another benefit I've seen given is to for the company to pay an employee’s high speed internet connection if they do a lot of work from home.

Don't be afraid to negotiate non-financial benefits, but do know your facts up front.

Financial Illiteracy

Once again I am amazed by the lack of financial literacy in this country ~

From “Richistan” by Robert Frank:
At a summer camp for young Richistans (a term coined by Frank to describe the nouveau riche - a group of self-made entrepreneurs with wealth that equals or surpasses old money) - One of the rich kids asks the question, "So is the stock market the same the as a mutual fund?" Most members of the group looked stumped.

A stock represents a share of partial ownership in a corporation.

A mutual fund offers partial ownership in a professionally-managed group of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.

The New Year's Ham Tradition

Each year for as long as anyone can remember, my company has given employees a New Year’s ham. This is a nice gesture and all; the hams are huge weighing close to fifteen pounds and probably cost at least $25 apiece. My husband and I enjoyed this ham the first couple of years, but found it increasingly difficult to eat fifteen pounds of ham in one year. Once we began finding the previous year’s ham still in our freezer at Christmas time, we decided to give all future New Years ham’s away. Last year, I gave my ham to a friend whose husband had been out of work. This year's ham went to a needy family we found through our local food pantry.

I don’t want to seem ungrateful, but the New Year’s ham tradition is an outdated idea. I am sure for the employee that is single, has a small family, is vegetarian or like me can no longer eat 15 pounds of ham in one year this gesture is wasted. It is time for companies to give up outdated traditions and look for new perks that will appeal to a greater majority of employees.

2008 "The Year of Gratitude"

I am proclaiming 2008 to be the year of gratitude. I came to this conclusion after reading "Happier," by Tal-Ben Shahar which I picked up on a whim last October. Shahar proclaims that those who keep a daily gratitude journal – writing down at least 5 things they were grateful for every day – enjoy higher levels of emotional and physical well-being. This wasn’t the first time I’ve heard of the “grateful living concept,” but it was the first time I took it seriously. In the past, I felt gratitude journals were corny and a waste of time.

I started my own gratitude journal in late October and am proud to say I have not missed a day. It has been an insightful exercise with the greatest insight occurring on truly awful days when I am forced to find something positive, usually the little things, rather than dwell on negative events. It is amazing how easy I have found this exercise to be. Once I got started, I keep finding more and more things to be grateful for; many days my list well surpasses five items.

In going through my old journals, I discovered the following list (unfortunately I did not jot down the author) of the benefits of gratitude: 1. People that don’t fixate on material goods eventually cut back on envy and nagging comparisons. 2. Traumatic memories fade into the background for people who are regularly grateful. 3. Troublesome thoughts appear less frequently and with less intensity, which suggest gratitude may enhance emotional healing. 4. Thankfulness helps the brain fully process events. 5. Grateful people achieve closure by making sense of negative events so that they mesh with a generally positive outlook.


I am looking forward to continuing my gratitude journal in 2008.

Do Snow Days Reveal Your Bad Attitude?

Do you make the effort to drive into work during a snow storm? Recently, the Milwaukee area experienced a snow/ice storm. Most of the schools were closed and there was an ice storm advisory for those living to the south. In my area, we received only snow; the radio announcers advised that the roads were not treacherous, to take it slow and give yourself plenty of time. My husband who left for work before me called to report the roads were fine; all of his co-workers had made it in safely coming from every area of South Eastern Wisconsin.

My department was a different story; five out of twelve did not make it in. Yet, all the employees in the other departments at our location had made it. This statistic reminded me of a recent article I had read indicating that employees with bad attitudes do not bother going into work during inclement weather. Our company’s owner did walk around making a mental note of who came in and who did not. His only comment was, “I can understand why Jim's not here he has that long commute.”

These same workers grumbled amongst themselves when they returned the next day seeming to have forgotten our company policy, "In fairness to those employees who do not come in to work under adverse weather conditions when we are not closed will not be paid for hours not worked." Understandably, there are family situations employees must attend to; two of the five had to stay home with their children due to school closings. If you truly can't make it in, you can try to handle the situation in a positive manner. Plan ahead, if weather reports are predicting bad weather take work home, call your managers and co-workers to make sure important tasks are completed in your absence, keep up with your work by checking voice mail and email from home, our company is set up so that everyone can do so. Lastly do your career a favor, if the roads are not that bad make the effort and go in.

Wal-Mart $4 Generic Drug List

I thought this was an excellent resource for you or family members who may take some type of prescription drug. Wal-Mart has provided a list of drugs which are $4 Prescriptions up to a 30-day supply fill and refill. I have attached the link for your reference. I hope some of you could benefit from this cost savings program. Prescription drugs is one of the highest cost benefits for a employers health care plan. Wherever we as consumers can save money, we should take advantage of that benefit.

Wal-Mart $4 Generic Drug List - 10/07 Ever wonder what drugs were covered at Wal-Mart for $4?

http://i.walmart.com/i/if/hmp/fusion/four_dollar_drug_list.pdf

"Ode to Joy"

This year my husband's holiday party was at the Milwaukee Performing Arts Center and included a performance by the Milwaukee Symphony. Each year his company provides new and unique ideas for their summer parties and holiday events. Past events have included outings to the State Fair, the zoo, a casino night, and Hawaiian entertainment. By providing a variety of events, they ultimately should find something everyone will enjoy. For my husband and me this one was a winner. We both love music; and are always looking to attend cultural events. Others felt differently. Unable to appreciate the two hour concert, they would have preferred a party with an open bar and continuous social interaction. From the owner’s perspective, the President probably preferred an event such as this over one where the entertainment’s focus was alcohol for potential liability reasons.

As more and more companies are doing away with the "Holiday Party", I think we need to appreciate the efforts of company’s such as this who continue to provide a unique “Holiday Party”.

Workplace-Hookups

Penelope Trunk's resent blog posting: What to Consider when Considering a Workplace Hook-up hits close to home. My husband and I were a workplace-hookup.

I'm glad we met and all; we have now been married ten years, but looking back on the situation I see it was a stressful time. Also, I am sure our relationship interfered with my work performance at least initially. I spent an awful lot of time wondering if my new boyfriend was in the office, what he was doing, and who he was talking to. I went out of my way to find reasons to visit his department sometimes carrying around a stack of project files pretending I had questions. From the beginning, we both agreed to be discreet and keep our relationship a secret even if it meant attending the holiday party separately. I worked in accounting and was privy to confidential information including the company’s financial position, payroll and human resources. Even though I took the confidentiality aspect of my position seriously, I am sure senior management would have been more cautious sharing information with me if they had known about our relationship and may even have thought twice about promoting me to manager.

My future husband was a consultant with sales goals he needed to meet and projects he had to manage under budget. After we had been dating a couple of years, I was promoted to Controller. I then had to sit through uncomfortable meetings and had a few awkward moments as my future husband’s performance was reviewed and critiqued in front of me. I left the company a month before we  married. After our marriage was made public, my former female co-workers claimed they had been on to us for quite some time; whereas senior management, all of whom were male, had been completely taken by surprise. My husband left the company three years later.

In retrospect I believe we were fortunate our workplace-hookup worked out as well as it did. We had been good friends for a year and a half before we started dating which I am sure made a difference. Also, I have never regretted our decision to be discreet and to keep our relationship a secret.

We've never done it that way before!

Snow and freezing rain caused havoc this week at my place of employment. Two employees slipped and fell in our company parking lots. Luckily, neither of them was seriously hurt. In the past, some of our company's largest workman's compensation claims have resulted from employees falling on ice. After the first incident, I instructed the employee who is responsible for salting our parking lot to please salt the entire lot. After the second spill, which occurred at a different location, I realized our entire lot still had not been salted. When I confronted our employee he replied, “We’ve never done it that way before.” He has always salted the entryway only and besides we were almost out of salt. To which a co-worker overhearing our conversation responded, "That is not true we have always salted the entire lot, weigh your options $4 bag of salt vs. 1,400,000 liability suit. Hmm what sounds better?" I couldn’t have said it better myself.

Today in our litigious society companies need to constantly manage risks. Slippery parking lots are a hazard to the company not to mention the loss of productivity, pain and suffering for the employee.

Does your Company Offer a Flexible Spending Plan?

A co-worker recently inquired as to why our company does not offer a flexible spending plan. Both he and his spouse incur high out-of-pocket medical expenses each year; almost always paying out their entire deductible. If they were able to set some of these monies, let’s say $1,000, aside each year in a flexible spending account they would be able to save about $300.00 a year.

What is a Flexible Spending Plan?
The Flexible Benefit Plan is a program that was enacted by Congress in 1978. The plan allows employees to pay for certain expenses using pre-tax dollars. Employees deduct monies from their paycheck before federal, state, social security and medicare taxes are calculated. The monies are withheld from each paycheck in equal installments and reimbursed once an employee shows proof that the service was rendered. By using the plan, you save approximately 30% in taxes on the qualifying expenses. Employers also save money. They do not have to pay their portion of social security and medicare taxes on your pre-tax deduction.

What types of expenses qualify for reimbursement?
Medical Reimbursement: Expenses paid out-of pocket for medical deductibles, vision care including eye exams, contacts, and glasses, and dental work. Over the counter drugs such as allergy, cold and flu, pain relievers, cough suppressants, anti-inflammatory drugs and smoking cessation items. Walgreen's Pharmacy codes items eligible for reimbursement with an "F" on their receipts. I have noticed purchases of prescription drugs, sunscreen, lip balm and saline solution all coded in this manner.

Dependent care Reimbursement: Expenses paid for care of a qualified dependent can be paid on a pre-tax basis. You may be able to claim dependent care expenses for children under the age of 13, certain preschool tuition and certain adult care expenses.

Independent Premium Feature: If you do not have insurance coverage through your employer and have purchased an independent policy for either health or dental insurance, you may be allowed to set aside funds pre-tax for those premiums.

Why does our company not institute a plan?
First, we were told that we can not offer a (FSA) Flexible Savings Account in conjunction with an (HSA) Health Savings Account. Our company was contemplating instituting an HSA instead of our current health plan. Despite changing our views on HSA’s, all discussions concerning flexible spending accounts are on hold.

Adding a FSA account would increase the administrative work for our already over burdened payroll department. Initially, instituting a FSA would entail more work, but typically companies contract this service out to a third party, so after the initial set up additional work should be minimal.

Adding an FSA plan will be costly. After the initial set-up costs, the account should pay for itself with the social security and medicare tax savings I previously mentioned.

Honestly, the real reason our company does not institute a FSA is that if an employee leaves the company early in the plan year, after they have been paid out all or the majority of their FSA medical deduction, but before an equal amount has been deducted from their paycheck, our company would be out the difference. In discussions with Human Resource Managers from other companies, I have learned this is usually not the case. The more prevalent scenario is that an employee leaves the company or completes the plan year without using their entire FSA deduction and forfeits their money. One way to minimize losses on both sides is for the employer to cap the amount of monies employees can place in their accounts each year. Also, the employee should use conservative estimates when determining their deduction amounts and only set aside monies for known expenses.

My Perception: The employee benefits of a flexible benefit account outweigh the employer costs of this benefit. I recommend that management consider adding this benefit.