President Issues Sequestration Order

On March 1, 2013 President Obama notified Congress that sequestration was being triggered.  Sequestration is the mechanism established by the Balanced Budget and Emergency Deficit Control Act of 2011 to make automatic budget cuts if a joint Congressional committee couldn’t reach agreement on a broader deficit reduction plan.

Needless to say the joint Congressional committee failed but the American Taxpayer Relief Act of 2012, passed to avert the fiscal cliff, a broader set of tax increases and spending cuts to occur on January 1, 2013, delayed sequestration until March 1, 2013.

The sequestration order officially cancels $85 billion in budgetary resources across the Federal Government for FY 2013.  The cuts amount to a 5% cut in discretionary spending for non-exempt functions in civilian agencies and a 7.9% cut for non-exempt functions in the defense department.

Since these cuts will only be applied during the final seven months of the fiscal year their impact will be concentrated.  For example, in the remaining seven months non-exempt defense functions will actually be cut 13% and non-exempt civilian agencies will be cut 9%.

Along with the notification the Administration provided a detailed accounting of the cuts by agency and program.  Some examples include military construction being cut nearly $1.6 billion and the US Department of Labor Wage and Hour Division being cut $12 million.

While there seems to growing interest in retaining the amount of reduction there is growing interest in providing more agency flexibility.  This may be accomplished when Congress adopts a continuing resolution, which must be done before March 27, 2013, to fund the remainder of the year.

The sequester order can be viewed at http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/fy13ombjcsequestrationreport.pdf

Sequestration and Government Contractors

March 1, 2013 the federal government initiated $85 billion in automatic spending cuts, typically referred to as “sequestration”.  These automatic cuts were developed as a “fall back” in the Budget Control Act, which was part of the agreement to increase the federal government’s debt ceiling to prevent default on payments.

This fall back plan was only to be implemented if a joint Congressional committee failed to reach agreement on a long-term deficit reduction plan.  Needless to say, the joint committee failed. That means the fall back plan which calls for $1.2 trillion in cuts between FY 2013 and FY 2021 will be begin to be implemented today.  Sequestration was initially scheduled to occur January 1, 2013 but was delayed until today as part of the American Taxpayer Relief Act which was adopted to avert the fiscal cliff.

Sequestration cuts will be split evenly between defense and nondefense programs but about 1/3 of civilian cuts will come from nondiscretionary programs. This limits the impact on discretionary programs such as contracts.  On the defense side, the entire amount will come from discretionary accounts. To intensify the impact, military personnel are exempt from these cuts, so a greater percentage of the decreases in spending will fall on a smaller number of accounts.  Military construction, maintenance, base operations, security, IT, and other areas are all expected to be impacted.  On the other hand, road construction funded by the highway trust fund is not likely to be impacted.

The entire $85 billion is supposed to be cut in FY 2013 which runs through the end of September; however there currently is not an approved budget beyond March 27th of this year.  When Congress and the White House address funding for the second half of FY 2013, these issues may be addressed.

In the meantime expect cuts and disruptions.  On February 27, 2013 the White House Office of Management and Budget issued a memo to agencies providing implementation guidance.  In the section on acquisition the memo stated, “As a general matter, agencies should only enter into new contracts or exercise options when they support high-priority initiatives or where failure to do so would expose the government to significantly greater costs in the future. Agencies may also consider de-scoping or terminating for convenience contracts that are no longer affordable within the funds available for Fiscal Year 2013, should no other options exist to reduce contracting costs in these instances.”

We’ll continue to follow the effects of sequestration and provide updates.

How Can You Avoid Becoming a Headline?

The stories just keep coming. One of the latest involves a Missouri contractor who has been debarred for a year, fined, and given a suspended jail sentence. Contact us to find out about the unparalleled level of compliance support we provide to our clients. The Affordable Care Act adds another level of regulations – are you prepared?

Read about the Missouri case here:http://bit.ly/VlSLn3

Scrutiny for Compliance Continues

Guidance from the IRS states that companies with a common owner, or which are otherwise related generally are comibined for the purposes of determining whether they employe 50 full-time employees (or an equivalent combination of full-time and part-time employees).

If the combined total meets the threshold, then each separate company is required to comply with the Affordable Care Act — even those companies that individually do not employ enough FTEs to meet the threshold.

More information is available at irs.gov.

The Affordable Care Act: What Government Contractors Should Do Now

Penalties for non-compliance with the Affordable Care Act become effective in less than a year.  Government contractors who are subject to the provisions of the law (those with 50 or more FTEs) should take action now to get into compliance.

First and foremost: If you’re not offering health insurance to your workers now, get covered.

• The longer you wait to find and implement coverage, the more difficult – and expensive – it’s likely to be.

• It takes time for a carrier to underwrite and rate a group. Take action now and prevent the possibility of missing the deadline.

• While changing more employees to part-time status may seem like a way to save money and hassle, is it really? This is likely to result in a less-skilled workforce, which will only cost you in the long run. Part-time employees may also be more likely to be less committed to doing excellent work, and may not be as loyal to your company.

• While you may have fewer than 50 FTEs now, what happens when you win your next contract? Will you even be able to win a contract that would require you to hire more workers if you can’t show proof of compliance with the law?

•If you’re not currently using the fringe portion of the prevailing wage to provide health insurance and other bona fide benefits for your workers, you’re already passing up significant savings on your payroll burden. That eats into your profits and makes your bids less competitive.  Paying fines for failing to comply with the law erodes your profit even further.

To find out more about using the fringe portion of the prevailing wage to save on payroll, submit more competitive bids, and provide health insurance for your workers, contact us.

Fringe Benefit Group Executive VP of Government Markets Quoted in Bloomberg Article on Construction Industry Rebound

Fringe Benefit Group’s Executive Vice President of Government Markets, Adam Bonsky, was quoted in a recent article on Bloomberg.com regarding positive trends in the construction industry.

In the article, Bonsky explains that complying with provisions of the Affordable Care Act is one issue causing concern for contractors as they consider hiring more employees. Penalties for failure to comply with the ACA begin January 1, 2014 for employers with at least 50 FTEs.

And while Congress was able to come to an agreement and avoid going over “the fiscal cliff”, the deal did not address sequestration. Uncertainty over upcoming federal spending cuts is a concern for government contractors.

Read the entire article here.

Federal Spending Declines – Competition Increases

Experts say federal spending down 52% in WI: “You’re going to see more competition for less work,” says military procurement expert David King.

How will your company stay competitive? It’s going to be more important than ever to submit lean bids as competition increases. One way to do this is to use the fringe to provide benefits for workers on prevailing wage jobs – especially since Healthcare Reform is here to stay. Penalties for non-compliance take effect January 1, 2014. Your company can comply with the law, avoid fines, and save on payroll costs all at the same time – simply by using the fringe as it was intended.

Something to think about as you start planning for the year ahead. We wish you all a wonderful holiday season!

You can read the entire story in which King was quoted here: http://www.jsonline.com/business/federal-spending-in-state-dips-52-fv7vmma-182924761.html

Is Your Health Insurance Plan Compliant with PPACA?

In just over a year, penalties for noncompliance with the Affordable Care Act start to take effect for those with more than 50 FTEs. The health insurance provided by an employer must meet minimum standards to comply with PPACA. Broadly speaking, some of those standards include:

• The employer plan design must pay 60% of costs (the “minimum value” standard)
• The employee contribution must not exceed 9.5% of the employee’s household income (the “affordability” standard)

Guidance regarding many parts of the Affordable Care Act is still forthcoming, and some of the existing guidance can be confusing. What assistance is your current benefits provider offering you regarding getting into compliance with the law? The Contractors Plan has focused on benefits solutions for government contractors for more than 30 years, and we’re taking a proactive approach to helping our clients get into compliance with PPACA.

Keep the following in mind:
• On Davis-Bacon or Service Contract Act contracts, the funds to provide health insurance and other benefits for your workers are included in the wage determination.
• Using these fringe dollars to offer health insurance for your workers removes money from payroll, so you save on payroll burden!
• Paying the fringe as additional cash wages rather than providing health insurance is expensive, and will be even more so for large employers when fines begin kicking in January 1, 2014.

Does the PPACA Apply to Me?

Regardless of the outcome of the presidential election, it’s likely that healthcare reform is here to stay. The U.S. Supreme Court upheld the law (PPACA) this summer, and historically legislation which affects social reform has not been repealed.  The short answer to “Does healthcare reform apply to me?” is: YES.

Large Employers:

Employers with 50 or more full-time equivalent employees are required to provide health insurance for their workers or face fines beginning in 2014.

Small Employers:

On prevailing wage jobs, large contractors with the mandate for coverage will have a lower payroll burden than small contractors because they are using the fringe to pay for health insurance. And don’t overlook the importance of attracting and retaining talented workers – they will be looking for jobs which provide health insurance.

Individuals:

All individuals are required to have health insurance beginning in 2014. Those who do not will face penalties which will be included on their income tax returns.

Plus, providing benefits to your employees is the right thing to do. Coverage provided with fringe dollars is paid with pre-tax money and employees who are not covered at work must be underwritten on their own and pay potentially higher rates with their after tax dollars. You have fringe dollars specifically earmarked to provide benefits and significant payroll and insurance costs savings when you do.

You have just over a year to get into compliance with PPACA. The good news? As a government contractor working on prevailing wage jobs, the funds to cover providing health insurance for your workers are already there – included in the wage determinations!  In addition to avoiding penalties, when you use the fringe portion of the prevailing wage to provide benefits like health insurance for your employees, these dollars are not subject to payroll burden.  This can result in significant savings over the life of a project.

The fringe is an employer contribution; therefore, the employer is in the driver’s seat when it comes to deciding how to disburse it. Letting employees know that the decision to use the fringe for health insurance is a healthcare reform requirement may ease their objections to not receiving the fringe as cash.

There is no doubt that the PPACA and all of its new regulations add a whole new level of complexity for government contractors who already have to worry about prevailing wage laws. Paying fines in addition to the expense of paying fringes as additional cash wages is a double hit on your bottom line. Can you afford to take that hit? If other bidders are benefiting from savings on payroll burden and you’re not, will your bids be competitive?

Morningstar Report Gives Top Ratings to Manning & Napier Target Date Funds

When Morningstar released its Target Date Fund Family Reports for the quarter ending June 30th, the announcement included great news for The Contractors Plan and Manning & Napier, a major fund company utilized by The Contractors Plan for over 13 years.

The first piece of good news is that Morningstar included Manning & Napier’s target-date funds in its review for the first time. Only 25 target date fund families are reviewed. The second and more important piece of good news is that Morningstar gave Manning & Napier’s Target-Date series of funds a “Top” rating. This is particularly important given the economic environment we’ve seen over the past few years.

According to those in the industry, Morningstar does an intensive and thorough analysis of the funds it rates. While returns are certainly a part of the formula used to rate the funds, Morningstar also looks at factors such as the underlying investment philosophy, the people who are managing the funds, and  how the funds have performed over a full market cycle rather than just a few years. In the review, Morningstar states: “. . . over the firm’s long history they’ve demonstrated a strong record, and their investment personnel are some of the longest-tenured in the business. The underlying Pro-Blend funds all receive Morningstar Analyst Ratings of Gold, and the target-date series now earns a top rating as well.”

Please follow the link below to view the June 30, 2012 Morningstar analyst report. Keep in mind the article covers the Target Date’s Mutual Funds which are publicly traded rather than the Collective Investment Trusts which are available through The Contractors Plan.

Please click on the link below to view the article and all corresponding disclaimers.

Manning & Napier Target Date Fund Series Report