Benchmarking: Satisfy your board and gain a competitive advantage

This article is the first in a series to help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with ERISA requirements.

On Labor Day, 1974, President Gerald Ford signed the Employee Retirement Income Security Act, commonly known as ERISA, into law. Prior to ERISA, employee pensions had scant protections under the law, a problem made clear when the Studebaker automobile company closed its South Bend, Indiana production plant in 1963. Upon the plant’s closing, some 4,000 employees—whose average age was 52 and average length of service with the company was 23 years—received approximately 15 cents for each dollar of benefit they were owed. Nearly 3,000 additional employees, all of whom had less than 10 years of service with the company, received nothing.

A decade later, ERISA established statutory requirements to preserve and protect the rights of employees to their pensions upon retirement. Among other things, ERISA defines what a plan fiduciary is and sets standards for their conduct.

Who is—and who isn’t—a plan fiduciary?
ERISA defines a fiduciary as a person who:

1. Exercises discretionary authority or control over the management of an employee benefit plan or the disposition of its assets,
2. Gives investment advice about plan funds or property for a fee or compensation or has the authority to do so,
3. Has discretionary authority or responsibility in plan administration, or
4. Is designated by a named fiduciary to carry out fiduciary responsibility. (ERISA requires the naming of one or more fiduciaries to be responsible for managing the plan's administration, usually a plan administrator or administrative committee, though the plan administrator may engage others to perform some administrative duties).

If you’re still unsure about exactly who is and isn’t a plan fiduciary, don’t worry, you’re not alone. Disagreements over whether or not a person acting in a certain capacity and in a specific situation is a fiduciary have sometimes required legal proceedings to resolve them. Here are some real-world examples.

Employers who maintain employee benefit plans are typically considered fiduciaries by virtue of being named fiduciaries or by acting as a functional fiduciary. Accordingly, employer decisions on how to execute the intent of the plan are subject to ERISA’s fiduciary standards.

Similarly, based on case law, lawyers and consultants who effectually manage an employee benefit plan are also generally considered fiduciaries.

A person or company that performs purely administrative duties within the framework, rules, and procedures established by others is not a fiduciary. Examples of such duties include collecting contributions, maintaining participants' service and employment records, calculating benefits, processing claims, and preparing government reports and employee communications.

What are a fiduciary’s responsibilities?
ERISA requires fiduciaries to discharge their duties solely in the interest of plan participants and beneficiaries, and for the exclusive purpose of providing benefits for them and defraying reasonable plan administrative expenses. Specifically, fiduciaries must perform their duties as follows:

1. With the care, skill, prudence, and diligence of a prudent person under the circumstances;
2. In accordance with plan documents and instruments, insofar as they are consistent with the provisions of ERISA; and
3. By diversifying plan investments so as to minimize risk of loss under the circumstances, unless it is clearly prudent not to do so.

A fiduciary is personally liable to the plan for losses resulting from a breach of their fiduciary responsibility, and must restore to the plan any profits realized on misuse of plan assets. Not only is a fiduciary liable for their own breaches, but also if they have knowledge of another fiduciary's breach and either conceals it or does not make reasonable efforts to remedy it.

ERISA provides for a mandatory civil penalty against a fiduciary who breaches a fiduciary responsibility under ERISA or commits a violation, or against any other person who knowingly participates in such breach or violation. That penalty is equal to 20 percent of the "applicable recovery amount" paid pursuant to any settlement agreement with ERISA or ordered by a court to be paid in a judicial proceeding instituted by ERISA.

ERISA also permits a civil action to be brought by a participant, beneficiary, or other fiduciary against a fiduciary for a breach of duty. ERISA allows participants to bring suit to recover losses from fiduciary breaches that impair the value of the plan assets held in their individual accounts, even if the financial solvency of the entire plan is not threatened by the alleged fiduciary breach. Courts may require other appropriate relief, including removal of the fiduciary.

Over the coming months, we’ll share a series of blogs for employee benefit plan fiduciaries, covering everything from common terminology to best practices for plan documentation, suggestions for navigating fiduciary risks, and more.

Editor's note: Read this if you are a leader in higher education.

The Department of Education has released guidance to colleges and universities on how the CARES Act grants to institutions, under the Higher Education Emergency Relief Fund (HEERF), may be used. The guidance comes in the form of answers to frequently asked questions, which we recommend institutions read before accepting the funds. Some key answers included in the document:

1. A school has to participate in the HEERF funding to be used for grants to students to get the institutional share.
2. Schools can use these funds to cover the costs of refunds for room and board provided as a result of campus closure.
3. These funds can be used to make additional emergency financial aid grants to students impacted by campus closure.

We urge schools to retain supporting documentation of the proper use of these funds to allow for a compliance audit, should that be required. 

Questions?
Please contact Renee Bishop, Sarah Belliveau, or Mark LaPrade. We’re here to help.

BerryDunn’s Healthcare/Not-for-Profit Practice Group members have been working closely with our clients as they navigate the effect the COVID-19 pandemic will have on their ability to sustain and advance their missions.

We have collected several of the questions we received, and the answers provided, so that you may also benefit from this information. We will be updating our COVID-19 Resources page regularly. If you have a question you would like to have answered, please contact Sarah Belliveau, Not-for-Profit Practice Area leader, at sbelliveau@berrydunn.com.

The following questions and answers have been compiled into categories: stabilization, cash flow, financial reporting, endowments and investments, employee benefits, and additional considerations.

We are here to help
Please contact the BerryDunn not-for-profit team if you have any questions, or would like to discuss your specific situation.

Read this if your CFO has recently departed, or if you're looking for a replacement.

With the post-Covid labor shortage, “the Great Resignation,” an aging workforce, and ongoing staffing concerns, almost every industry is facing challenges in hiring talented staff. To address these challenges, many organizations are hiring temporary or interim help—even for C-suite positions such as Chief Financial Officers (CFOs).

You may be thinking, “The CFO is a key business partner in advising and collaborating with the CEO and developing a long-term strategy for the organization; why would I hire a contractor to fill this most-important role?” Hiring an interim CFO may be a good option to consider in certain circumstances. Here are three situations where temporary help might be the best solution for your organization.

Your organization has grown

If your company has grown since you created your finance department, or your controller isn’t ready or suited for a promotion, bringing on an interim CFO can be a natural next step in your company’s evolution, without having to make a long-term commitment. It can allow you to take the time and fully understand what you need from the role — and what kind of person is the best fit for your company’s future.

BerryDunn's Kathy Parker, leader of the Boston-based Outsourced Accounting group, has worked with many companies to help them through periods of transition. "As companies grow, many need team members at various skill levels, which requires more money to pay for multiple full-time roles," she shared. "Obtaining interim CFO services allows a company to access different skill levels while paying a fraction of the cost. As the company grows, they can always scale its resources; the beauty of this model is the flexibility."

If your company is looking for greater financial skill or advice to expand into a new market, or turn around an underperforming division, you may want to bring on an outsourced CFO with a specific set of objectives and timeline in mind. You can bring someone on board to develop growth strategies, make course corrections, bring in new financing, and update operational processes, without necessarily needing to keep those skills in the organization once they finish their assignment. Your company benefits from this very specific skill set without the expense of having a talented but expensive resource on your permanent payroll.

Your CFO has resigned

The best-laid succession plans often go astray. If that’s the case when your CFO departs, your organization may need to outsource the CFO function to fill the gap. When your company loses the leader of company-wide financial functions, you may need to find someone who can come in with those skills and get right to work. While they may need guidance and support on specifics to your company, they should be able to adapt quickly and keep financial operations running smoothly. Articulating short-term goals and setting deadlines for naming a new CFO can help lay the foundation for a successful engagement.

You don’t have the budget for a full-time CFO

If your company is the right size to have a part-time CFO, outsourcing CFO functions can be less expensive than bringing on a full-time in-house CFO. Depending on your operational and financial rhythms, you may need the CFO role full-time in parts of the year, and not in others. Initially, an interim CFO can bring a new perspective from a professional who is coming in with fresh eyes and experience outside of your company.

After the immediate need or initial crisis passes, you can review your options. Once the temporary CFO’s agreement expires, you can bring someone new in depending on your needs, or keep the contract CFO in place by extending their assignment.

Considerations for hiring an interim CFO

Making the decision between hiring someone full-time or bringing in temporary contract help can be difficult. Although it oversimplifies the decision a bit, a good rule of thumb is: the more strategic the role will be, the more important it is that you have a long-term person in the job. CFOs can have a wide range of duties, including, but not limited to:

• Financial risk management, including planning and record-keeping
• Management of compliance and regulatory requirements
• Creating and monitoring reliable control systems
• Debt and equity financing
• Financial reporting to the Board of Directors

If the focus is primarily overseeing the financial functions of the organization and/or developing a skilled finance department, you can rely — at least initially — on a CFO for hire.

Regardless of what you choose to do, your decision will have an impact on the financial health of your organization — from avoiding finance department dissatisfaction or turnover to capitalizing on new market opportunities. Getting outside advice or a more objective view may be an important part of making the right choice for your company.

BerryDunn can help whether you need extra assistance in your office during peak times or interim leadership support during periods of transition. We offer the expertise of a fully staffed accounting department for short-term assignments or long-term engagements―so you can focus on your business. Meet our interim assistance experts.

Read this if you are at a rural health clinic or are considering developing one.

Section 130 of H.R. 133, the Consolidated Appropriations Act of 2021 (Covid Relief Package) has become law. The law includes the most comprehensive reforms of the Medicare RHC payment methodology since the mid-1990s. Aimed at providing a payment increase to capped RHCs (freestanding and provider-based RHCs attached to hospitals greater than 50 beds), the provisions will simultaneously narrow the payment gap between capped and non-capped RHCs.

This will not obtain full “site neutrality” in payment, a goal of CMS and the Trump administration, but the new provisions will help maintain budget neutrality with savings derived from previously uncapped RHCs funding the increase to capped providers and other Medicare payment mechanisms.

Highlights of the Section 130 provision:

• The limit paid to freestanding RHCs and those attached to hospitals greater than 50 beds will increase to $100 beginning April 1, 2021 and escalate to $190 by 2028.
• Any RHC, both freestanding and provider-based, will be deemed “new” if certified after 12/31/19 and subject to the new per-visit cap.
• Grandfathering would be in place for uncapped provider-based RHCs in existence as of 12/31/19. These providers would receive their current All-Inclusive Rate (AIR) adjusted annually for MEI (Medicare Economic Index) or their actual costs for the year.

If you have any questions about your specific situation, please contact us. We’re here to help.

The COVID-19 emergency has caused CMS (Centers for Medicare & Medicaid Services) to expand eligibility for expedited payments to Medicare providers and suppliers for the duration of the public health emergency.

Accelerated payments have been available to providers/suppliers in the past due to a disruption in claims submission or claims processing, mainly due to natural disasters. Because of the COVID-19 public health emergency, CMS has expanded the accelerated payment program to provide necessary funds to eligible providers/suppliers who submit a request to their Medicare Administrative Contractor (MAC) and meet the required qualifications.

Eligibility requirements―Providers/suppliers who:

1. Have billed Medicare for claims within 180 days immediately prior to the date of signature on the provider’s/supplier’s request form,
2. Are not in bankruptcy,
3. Are not under active medical review or program integrity investigation, and
4. Do not have any outstanding delinquent Medicare overpayments.

Amount of payment:
Eligible providers/suppliers will request a specific amount for an accelerated payment. Most providers can request up to 100% of the Medicare payment amount for a three-month period. Inpatient acute care hospitals and certain other hospitals can request up to 100% of the Medicare payment amount for a six-month period. Critical access hospitals (CAHs) can request up to 125% of the Medicare payment for a six-month period.

Processing time:
CMS has indicated that MACs will work to review and issue payment within seven calendar days of receiving the request.

Repayment, recoupment, and reconciliation:
The December 2020 Bipartisan-Bicameral Omnibus COVID Relief Deal revised the repayment, recoupment and reconciliation timeline on the Medicare Advanced and Accelerated Payment Program as identified below. 

Application:
Applications for accelerated payments can be found on each MACs' website. CMS has established COVID-19 hotlines at each MAC that are operational Monday through Friday to assist providers with accelerated or advance payment concerns. Access your designated MACs' website here.

The MAC will review the application to ensure the eligibility requirements are met. The provider/supplier will be notified of approval or denial by mail or email. If the request is approved, the MAC will issue the accelerated payment within seven calendar days from the request.

When funding is approved, the requested amount is compared to a database with amounts calculated by Medicare and provides funding at the lessor of the two amounts. The current form allows the provider to request the maximum payment amount as calculated by CMS or a lesser specified amount.

We are here to help
If you have questions or need more information about your specific situation, please contact the healthcare consulting team. We’re here to help.

CARES Act update:

As anticipated, the House of Representatives approved the CARES Act on March 27, 2020, and the President has signed the measure. The provisions highlighted in our prior summary remain intact in the final measure. 

So…how are the emergency relief funds in the legislation accessed by healthcare providers?

• Public Health & Social Services Emergency Fund (PHSSEF): The guidance on how hospitals will access the $100 billion in PHSSEF funds to offset “COVID-19 related expenses and lost revenue” is expected to be released shortly. Keep an eye on this space for further updates as information becomes available.
• Medicare Advanced Lump Sum or Periodic Interim Payments: Application is made through the Fiscal Intermediary (FI). It should be noted that healthcare organizations do not qualify if they are in bankruptcy, under active medical review or program integrity investigation, or have outstanding, delinquent Medicare overpayments.
• SBA Paycheck Protection Program (PPP): This application process begins with your local lender. Do not hesitate—contact your lender immediately as it is anticipated that application volume will be tremendous. For more specifics on this program compiled by BerryDunn experts, visit our blog.

We will continue to provide updates as more information becomes available. In the meantime, please feel free to contact the hospital consulting team. Despite the current circumstances we remain available to support your needs. 

On March 25, 2020 the US Senate unanimously approved the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act (The “Act”). The White House has signaled that it will sign the measure as approved by the Senate. 

Major provisions of the proposed legislation include:

• $100 billion for hospital “COVID-19 related expenses and lost revenue”
• $275 million for rural hospitals, telehealth, poison control centers, and HIV/AIDS programs
• $250 million for hospital capacity expansion and response
• $150 million for modifications of existing hospital, nursing home, and “domiciliary facilities” undertaken as part of COVID-19 response

The CARES Act also includes the following targeted relief and payment modifications under the Medicare and Medicaid programs:

• The Medicare 2% sequester will be suspended from May 1, 2020 through December 31, 2020. 
• “Through the duration of the COVID-19 emergency period”, the Act will increase by 20% hospital payments for the treatment of patients admitted with COVID-19. The add-on applies to hospitals paid through the Inpatient Prospective Payment System.
• $4 billion in scheduled cuts to Medicaid Disproportionate Share Hospital payments will be further delayed from May 22, 2020 to November 30, 2020.
• Certain hospitals, including those designated as rural or frontier, have the option to request up to a six month advanced lump sum or periodic interim payments from Medicare. The payments will:
  1. Be based upon net payments represented by unbilled discharges or unpaid bills,
  2. Equal up to 100% of prior period payments, 125% for Critical Access Hospitals
  3. In terms of paying down the “no interest loans”, hospitals will be given a four month grace period to begin making payments and at least 12 months to fully liquidate the obligation.

Non-financing provisions contained in the Act that will impact hospital operations include:

• Providing acute care hospitals the option to transfer patients out of their facilities and into alternative care settings to "prioritize resources needed to treat COVID-19 cases." That flexibility will come through the waiver of the Inpatient Rehabilitation Facility (IRF) three-hour rule, which requires patients to need at least three hours of intensive rehabilitation at least five days per week to be admitted to an IRF.
• Allowing Long-Term Care Hospitals (LTCH) to maintain their designation even if more than 50% of their cases are less intensive and would temporarily pause LTCH site-neutral payments.
• Suspending scheduled Medicare payment cuts for durable medical equipment during the length of the COVID-19 emergency period, to help patients transition from hospital to home.
• Disallow Medicare beneficiary cost-sharing payments for any COVID-19 vaccine.
• Ensuring that uninsured individuals could receive free COVID-19 tests "and related service" through any state Medicaid program that elects to enroll them.

Other emergency-period provisions that directly affect other entities but have implications for hospitals:

• Affording $150 billion to states, territories, and tribal governments to cover their costs for responding to the coronavirus public health emergency.
• Physician assistants, nurse practitioners, and other professionals will be allowed to order home health services for Medicare beneficiaries, to increase "beneficiary access to care in the safety of their home."
• Requiring HHS to clarify guidance encouraging the use of telecommunications systems, including remote patient monitoring, for home health services.
• Allowing qualified providers to use telehealth technologies to fulfill the hospice face-to-face recertification requirement.
• Eliminating the requirement that a nephrologist conduct some of the required periodic evaluations of a home-dialysis patient face-to-face.
• Allowing federally qualified health centers and rural health clinics to serve as a distant site for telehealth consultations.
• Eliminating the telehealth requirement that physicians or other professionals have treated a patient in the past three years.
• Allowing high-deductible health plans with a health savings account (HSA) to cover telehealth services before a patient reaches the deductible.
• Allowing patients to use HSA and flexible spending accounts to buy over-the-counter medical products without a prescription.

For more information
If you have questions or need more information about your specific situation, please contact the hospital consulting team. We’re here to help. 
 

Editor’s note: Read this if you are a Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, Chief Information Officer, or Controller.

Last month, the Office of the Comptroller of the Currency (OCC) issued its Semiannual Risk Perspective for Fall 2019. The report addresses key issues facing banks and focuses on those that pose threats to their safety and soundness. According to the report:

• Bank financial performance is strong due to a favorable credit environment and the longest economic expansion in U.S. history.
• Capital levels have reached historical highs.
• Return on equity was above its 2006 pre-crisis level for the first time at 12.7%.
• Net income grew 8.22% from the same period a year ago; however, net interest income grew only 4%, as loan growth is below historical averages and an increasing number of banks are facing a flat or declining net interest margin.
• There is continued weakness in residential and commercial real estate loan growth.
• Delinquent and nonperforming loans remain below their long-term averages.

Banks can thrive even with economic uncertainty

While these trends indicate that 2019 was by and large an excellent year, banks cannot afford to be complacent, as 2019 also saw increasing risks to the industry. For instance, in 2019 there was much discussion of the future cessation of the London InterBank Offer Rate (LIBOR). The OCC has indicated it will increase its regulatory oversight regarding the anticipated cessation, to ensure banks assess their exposure to LIBOR and are appropriately planning their transition from the widely used benchmark rate. The Financial Accounting Standards Board (FASB) is also working on a project to address accounting issues that could arise from the transition from LIBOR.

And, although 2019 continued the longest economic expansion in US history, economic uncertainty exists due to, in part, the US-China trade conflict and ongoing Brexit discussions. This economic uncertainty has caused volatility in the interest rate environment. Aside from the yield curve inverting in 2019, banks also saw the Federal Funds target rate increase 25 basis points prior to decreasing 50 basis points. Given the typically asset-sensitive nature of banks’ balance sheets, the current interest rate environment will also put pressure on net interest margins. The current volatility of interest rates has caused the OCC to conclude interest rate risk is currently at heightened levels. 

Net interest income continues to be the most significant driver of net revenues for community banks, comprising nearly 80% of net revenues. With a difficult interest rate environment and lackluster loan growth in residential and commercial real estate, banks may face a difficult path ahead. Banks should tread cautiously, especially if this uncertainty persists. Asset-liability management will need be a significant focus (more than usual) as banks try to position themselves to not only maintain profitability through this uncertainty, but also come out stronger than before. Specifically, if lower rates persist, asset growth will need be a priority over deposit growth to maintain profitability at lower net interest margins. If loan growth continues to wane, this will prove to be difficult.

Innovations to compete with new lending sources

Adding to the list of threats to performance is the increasing amount of alternative financial resources available to borrowers. Banks have traditionally been the only source of credit for borrowers. However, technology has rapidly changed that landscape. Person-to-person (P2P) lending (also known as crowd lending, or social lending), allows people to borrow funds directly from another person, cutting out traditional lending sources (banks). Additionally, blockchain technology, if the hype is accurate, has the potential to eliminate the need of a financial intermediary altogether. 

Banks are adapting to this competition and to customers looking for more convenience and alternative services by offering new, unique services that differentiate themselves from others and provide added value to the customer. Banks have delivered through remote deposit, ATMs, and interactive teller machines (ITMs). Banks will need to continue to adopt innovative services to remain competitive. 

For instance, banks could offer video conferencing services, in which customers could have a live conversation with a bank representative through their smartphone. This convenience would allow a customer to conduct a transaction, such as apply for a loan, from the convenience of their home, while still maintaining human interaction throughout the transaction. Such a service would help banks compete with digital channels offered by non-banks, such as Quicken Loans, which is now the largest mortgage originator in the United States.

Strategies to protect against technological risks

These services all require the use of existing and new technologies, which have caused banks to hold more personally identifiable information (PII) digitally across an increasing number of digital platforms. As noted by the OCC, this digital exposure has created persistent cybersecurity risks for banks. Adopting a robust cybersecurity framework is no longer an option. 

Banks should bring cybersecurity to the forefront of their strategic planning. Any strategic plan must consider cybersecurity implications, as a single disaster can be detrimental to a bank’s reputation. And, given this rapidly changing environment, the cybersecurity conversation must be ongoing through relevant bank committees and the board of directors.

Furthermore, these technological solutions require partnerships with businesses that banks would not traditionally partner with. Financial technology (fintech) companies don’t just pose as a competitor to traditional banks. Many fintech companies are offering their technological solutions to traditional banks. However, outsourcing technological solutions to fintech companies and other businesses does not relieve a bank from performing its own due diligence and ensuring those companies meet the bank’s standards. 

Banks should evaluate potential vendors to ensure they comply with the bank’s vendor management policy. Since environments are constantly changing, this evaluation should be ongoing. Many vendors now provide System and Organization Controls (SOC) reports which detail the control environment at the vendor and involve independent third-party testing of those controls that exist at the vendor. SOC reports can provide a useful starting point for evaluating a vendor’s ongoing compliance with the bank’s vendor management policy. However, it is not a substitute for ongoing communication with a vendor.

There is no doubt 2019 was a successful year for banks. But past performance is not a guarantee of future success. Banks face many challenges, risks, and uncertainties, of which only a few have been outlined above. The current landscape may be challenging but it is also filled with opportunity. Banks should consider expanding their services, adopting new technologies, and partnering with other companies to leverage their strengths. Doing so should help position themselves for an exciting decade ahead.

If you have specific concerns about challenges facing your institution, please contact the team.