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From the Desk of:

John D. Pivirotto
President
Calif. Insurance License #0699308


Financial Concepts

Burlingame, CA 
(650) 348-1880
(650)348-0255 Fax

JohnPiv@FinancialConcepts.net


Helping Build & Protect Your Future

Investment Advisor Representative
Securities and Advisory Services
offered through
Lincoln Financial Securities Corporation
Member SIPC


Taking a Closer Look at the FMLA 
Attracting and retaining top employees is a key issue for many companies in today’s competitive marketplace. With cost control a high priority for employers nationwide, businesses can benefit from understanding the various noncompensation-related factors that can help contribute to greater workplace satisfaction. 

Workplace Initiatives 
One way for companies to attract and retain high quality workers is to broaden their family and medical leave policies. From an employee’s perspective, the guarantee of a job at the end of such a leave is an extremely desirable aspect of an overall benefits package. Employers can benefit too, since low employee turnover decreases training costs and results in fewer disruptions to continuity. Thus, many companies recognize that it makes good business sense to adopt a family-friendly approach, because the benefits outweigh, or at least offset, the costs that may otherwise be incurred. 

Under the Family and Medical Leave Act (FMLA) of 1993, businesses with more than 50 employees are required to provide eligible employees with up to 12 weeks of unpaid leave for childbirth, adoption, or the serious illness of an employee or immediate family member. However, small businesses—to which the FMLA does not apply—are not required to do so, but may voluntarily choose to enact benevolent leave policies. 

According to a U.S. Department of Labor (DOL) report, Balancing the Needs of Families and Employers: Family and Medical Leave Surveys 2000 Update, more than 35 million employees had taken leave under the FMLA as of the year 2000. The DOL reported that 78.7% of employees who took leave under the FMLA felt that their time off had a positive effect on their ability to care for family members, and 93.5% felt their leave enabled them to more easily comply with instructions from their doctors. In addition, 83.7% felt their leave sped up their recovery (DOL, 2000). 

In terms of business productivity, profitability, and growth, employers subject to FMLA regulations generally felt that the legislation had no noticeable impact on their operations. To cover for an employee’s absence, 98.3% of surveyed establishments temporarily assigned work to other employees. Furthermore, of all companies surveyed (including those not subject to the FMLA), approximately one out of five offer leave beyond the 12 weeks guaranteed by the FMLA (DOL, 2000). 

Coverage Concerns While many employers may theoretically favor the idea of family and medical leave, it is not surprising that they may be concerned about how to provide adequate work coverage during an extended leave. Assigning the work to other employees or outsourcing certain functions may be practical in some cases, but not in others. 

Fortunately, the rise in the number of qualified individuals working for temporary help agencies offers a contemporary solution. While in the past “temps” may have been viewed as less qualified workers, today, it’s rapidly becoming clear that more and more individuals are choosing temping as an alternative work style. Also, today’s temps are available for all types and levels of positions. Whether a company needs a short-term secretary, graphic designer, engineer, computer programmer, or even a chief financial officer, temporary agencies now exist to fill the bill.

 It Makes Good Business Sense 
A family-friendly work environment can offer benefits for all parties in a workplace. Workers who have chosen temping as an alternative work style, benefit from the recognition that they can step in and make valuable short-term contributions. Employees benefit when their employers recognize and support their need to care for newborns and aging parents, and when they provide job security during medical leaves. Finally, small businesses gain by reducing turnover and retaining skilled employees. $

Planning Continues Beyond Retirement 
After making your company an integral part of your life for many years, you may now find yourself at the point when you can retire. However, retirement planning does not end when retirement begins. What you do next, and how you navigate the array of tax issues and regulatory pitfalls you may face, can make a big difference in the long-term success of your retirement plan. This article offers a brief review of some of the more “taxing” issues you may encounter. 

Early retirement and early withdrawals. 
Early retirement has become a growing trend in recent years. However, there is one issue you should keep in mind. If you take withdrawals from your qualified plan assets before age 59½, you may be subject to a 10% income tax penalty. To avoid this penalty, you can elect to take your annual withdrawals in a series of substantially equal periodic payments. The payments must continue for at least five years, or until you reach age 59½, whichever comes later. 

There are a few circumstances in which early withdrawals may be taken without penalty (e.g., death, disability). From a retirement planning perspective, the penalty tax should not be ignored. Waiting too long. You must begin taking mandatory minimum withdrawals from your Individual Retirement Account (IRA) by April 1st of the year after you reach age 70½. (Distributions from your company- sponsored plan can be postponed until retirement if you continue working past age 70½, provided you are not an owner-employee.) 

If you ignore the mandatory minimum withdrawal, or do not take out enough from your IRA, you will be subject to a 50% penalty tax. The tax will be incurred on the difference between what you should have taken out of your IRA and the actual amount you withdraw. Your minimum withdrawal amount will be based on the previous December 31st balance, divided by your life expectancy (or the joint life expectancy of you and your spouse, if applicable). 

Working while receiving Social Security. If you receive Social Security and decide to continue working, a portion of your benefits may be taxable. Calculating the taxable amount is no easy matter. For more information, you can refer to Internal Revenue Service (IRS) Publication 915, Social Security and Equivalent Railroad Retirement Benefits, or consult with your financial or tax professional. 

Previously, the law required Social Security income recipients between the ages of 65 and 69 to return $1 for every $3 earned in excess of a predetermined earnings limit ($31,080 in 2004). However, it is important to note that recent tax law changes do not eliminate the “give-back” of $1 for every $2 earned above $11,640 (in 2004) for individuals who retire prior to their full retirement age and are receiving a reduced Social Security benefit. Therefore, it is important for anyone who is thinking about taking Social Security benefits while still working to understand the potential tax consequences and to plan accordingly. 

Where you live can make a difference. Some important taxation issues must be addressed when you select your retirement haven. Each state has its own rules on income, estate, sales, and property taxation. Your accountant can help you become familiar with the potential tax advantages and disadvantages of your retirement destination. 

Planning Doesn’t End with Retirement 
Your personal retirement plan most likely involved building a nest egg with regular savings over the years. However, once you reach retirement, your planning should not come to an end. While you will always benefit from maintaining a savings plan consistent with your changing goals and objectives, a consultation with your financial professional can be an important next step to help you ensure peace of mind for your long-term financial future. $

Business Continuity: “Life After Death” 
Consider this scenario: You’re part owner of a thriving small- to medium-sized business. You handle certain key responsibilities and rely on your partner to handle others. While your partner is away on business, the phone rings. The shaky voice at the other end of the line informs you that your partner has been fatally injured in a car accident. You’re grief-stricken. At the same time, you realize many people—you, your family, your partner’s family, your employees, customers, and creditors—depend on the uninterrupted continuation of your business. You know you should have planned for this. . .but you just never found the time. 

What If I Wait? Is this a situation you secretly dread the possibility of facing because you’ve never “found time” for business succession planning? Once tragedy strikes, it can be the worst time to deal with these issues. Under some circumstances, it may be too late. Consider the following potential risks you could face without a proper business succession plan in place. 

An owner’s unexpected death may jeopardize the long-term viability of a company, whether it is a sole proprietorship, partnership, or corporation. For instance, loans may be called, or work in progress may be put on hold until a replacement can be hired. In the meantime, customers may gravitate to your competition, making it difficult to win them back. 

Moreover, once a business is in crisis, selling a deceased owner’s interest may result in the surviving spouse or family members settling for a price that is less than fair market value (FMV). Since stock or partnership interests in a closely-held business are not publicly traded, their value is not clearly established without a business succession plan. 

Finally, although a deceased owner’s estate plan may have made sense for his or her estate, it could spell disaster for the business. For example, if the company is an S corporation, and the trustees of a family trust become stockholders in the business, an inadvertent termination of the S corporation election may result if the trust does not qualify. 

Secure Your Future
A business succession plan helps reassure all parties the business will continue to operate. It establishes a monetary value for each owner’s business interest before the need arises. It also helps prevent problems by coordinating each owner’s estate plan with the business. One of the key components of a business succession plan is a buy-sell agreement. 

A buy-sell agreement is a contract that creates a market for a deceased owner’s business interest. It obligates the owner’s estate to sell his or her shares for a predetermined price to partners or shareholders (a cross-purchase agreement); to the business itself (an entity agreement); or to both (a hybrid, or “wait and see” agreement). Life insurance is commonly used to help fund buy-sell agreements. It provides income tax-free money at the owner’s death, and can also help fund a buyout at retirement or in the event of disability. Points to consider in choosing a policy include: the size of the death benefit; the flexibility to change the death benefit as the business’s valuation changes; and the cash value component. Also of importance are the policy’s ownership, beneficiary designations and endorsements. 

Beat the Odds 
Relatively few closelyheld businesses actually pass to the next generation. A demanding schedule may lead to procrastination. However, with so much riding on a proper business succession plan, investing the time to prepare one now—and to review it periodically— may be one of the smartest business moves you’ll ever make. Keep in mind you’ll need qualified legal, financial, and insurance assistance in establishing your buy-sell agreement. $

How Fast Should You Grow Your Business? 
Many companies operate under the assumption that there is no limit to growth, as long as sales can increase. Growth, however, can easily outstrip a company’s financial resources. The key is to determine an “affordable growth rate.” 

To accomplish this, the affordable growth rate (AGR) formula can be used. This formula assumes that: (1) sales can increase only as quickly as assets; and (2) debt will grow at the same rate as equity. Based on these assumptions, AGR indicates the financial performance necessary to support expected sales growth. The formula also identifies how fast the company can grow without changing its debt structure. Thus, it is an effective planning and budgeting tool. 

To determine the AGR, multiply retained earnings by the annual percentage increase in the “stockholders’ equity” figure on the balance sheet. For example, a company retains 80% of earnings (distributing the rest as dividends), and achieves a 30% return on stockholder equity. In this case, the AGR is equal to 24% (.80 x .30). This means that by maintaining a 24% growth rate, the company can also maintain a constant debt-to-equity ratio. A faster growth rate would force the company to either increase the ratio or sell more stock. 

Certainly, it is important for all business owners to plan the growth of their company. By using the AGR formula, the necessary cash flow to pay current expenses can be maintained. 

Current tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. The information contained in this newsletter is not intended as tax, legal, or financial advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek such advice from your professional advisors. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Written and published by Liberty Publishing, Inc. Copyright © 2009 Liberty Publishing, Inc.
Copyright 2009 Liberty Publish- ing, Inc., Beverly, MA. The opinions and recommendations expressed herein are solely those of Liberty Publishing, Inc., and in no way represent advice, opin ions, or recommendations of the Financial Planning Association, its affiliates or members. CFPTM and CERTIFIED FINANCIAL PLANNERTMare federally registered service marks of the Cer- tified Financial PlannerBoard of Standards (CFP Board). This summary does not constitute legal and/or tax advice and should only be relied upon when coordinated with a qualified legal and/or tax advisor. Febuary, 2009.
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*Disclosure – Securities and Advisory services offered through representatives of Lincoln Financial Securities Corporation, member FINRA & SIPC. FINRA Branch Office: 233 Bloomfield Road, Burlingame, CA 94010. 
This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in California, Oregon and Colorado only. Advisory Services are offered to residents of the state of California only. Lincoln Financial Securities Corporation is not affiliated with Financial Concepts. Financial Concepts offer insurance & financial services to residents in California and Oregon. Variable & Group insurance products offered through LFS Marketing and Insurance Sales Corporation; fixed insurance products offered through Financial Concepts Insurance & Financial Services.
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John Pivirotto’s California Insurance License #: 0699308
Financial Concepts’ California Insurance License #: 0786047