Archive for February, 2012
Small businesses benefit from group RRSPs
A recent study by BMO Financial Group found that 51% of small business owners plan to fund their retirement through the eventual sale of their businesses, while 49% admitted to having to choose between contributing to their RRSPs or investing in their businesses.
Putting all the retirement eggs into the company basket has risks. The valuation of a business can fluctuate considerably over time; the business may hit a down cycle just when the owner is nearing retirement or, even worse, it could fail. A personal financial plan, reflecting retirement goals, should accompany an owner’s business plan.
One easily structured retirement plan is the group RRSP. Business owners can establish group RRSPs that in turn benefit themselves as employees. Group RRSPs are employer-sponsored retirement savings plans wherein the company makes contributions to an RRSP on the employee’s behalf within individual contribution limits. Contributions are deductible by the company and reportable as earned income by the employee, who then receives a tax deduction for the contribution. Group RRSPs are creditor-proof, providing additional security for the owner should something catastrophic happen to the business.
Group RRSPs are an easy way for small business owners to build retirement savings and provide some benefit for the company too. Included as a part of a total compensation package, group RRSPs add appeal for prospective employees. They may also help control payroll costs when re-assessing the overall salary picture.
Another option is the Individual Pension Plan (IPP). IPPs are highly specialized, one-person defined benefit pension plans achieving pre-determined retirement income streams by using tax-deductible contributions. Allowable contributions are generally higher than for RRSPs, enabling tax-free growth of a larger pool of retirement assets. IPPs are typically used by business owners, incorporated professionals and executives over the age of 45 who have an annual income exceeding $ 100,000.
IPPs offer advantages such as higher tax-deductible contributions and tax sheltering of asset growth. An added bonus is that the assets are 100% protected from creditors. IPPs allow for past service funding, and, if an individual retires earlier than 65, a terminal funding contribution can be made to provide further retirement benefits. Essentially, the IPP offers the small business owner a chance to have the kind of defined benefit income security enjoyed by executives in large corporations.
Small business owners often use Retirement Compensation Arrangements (RCAs) because they provide income greater than traditional registered plans. Contributions are made to RCAs by the business to a custodian on behalf of an individual such as the business owner. Half the contribution is deposited with the custodian and is invested, while the other half is deposited with the Canada Revenue Agency in a Refundable Tax Account (RTA). Additionally, half of income earned in the custodian account is directed to the RTA.
When the business owner eventually receives the benefits, 50% is fully taxable and the other 50% comes in the form of a refund from the RTA. Taxes paid on the benefits are often lower though, since taxable income tends to decline upon retirement.
Entrepreneurs should be as diligent with retirement goals as they are in developing business objectives. And, just as they value advice in business, they should seek professional guidance to ensure their retirement plans are the best fit for their personal and business needs.
Kim Inglis is an investment advisor & portfolio manager with Canaccord Wealth Management, a division of Canaccord Genuity Corp. www.reynoldsinglis.ca. The opinions expressed in this column are her own.
Bob Greenstein: The Myth of the Out-of-Control Federal Government
My colleague at the Center, Richard Kogan, authored a wonderful summary of our new report tackling the question, “Are the Size and Reach of the Federal Government Exploding.” See his post below from the Center’s blog, Off the Charts.
Are the size and reach of the federal government exploding, as some have suggested? While overall federal spending is well above its historical average as a share of the Gross Domestic Product (GDP) and is expected to remain so even after the economy recovers, our new examination of the latest Congressional Budget Office (CBO) data belies claims of a large and permanent expansion of the federal government.
Here’s what we found:
- If we continue current policies, federal expenditures outside of interest payments on the debt are projected to decline in the decade ahead as the economy recovers. In fact, these expenditures (which analysts call “primary outlays”) have already fallen from 23.9 percent of GDP in 2009 — at the bottom of the recession — to a projected 22.0 percent of GDP in the current year, 2012. They are projected to fall further, to 20 percent of GDP or lower in the latter part of this decade.
- Total non-interest spending outside of Social Security and Medicare — two programs whose costs are being driven up by the aging of the population and the rise in health care costs throughout the U.S. health care system — will fall well below its 50-year historical average in the decade ahead (see graph). By 2022 it will fall to 10.8 percent of GDP, compared to an average over the 1962-2011 period of 13.0 percent (see table).
As we conclude:
To be sure, in subsequent decades, as the population continues to age and health care costs continue to rise, federal non-interest spending will climb significantly higher. One key factor is that average health care costs are considerably greater for people in their 80s and 90s than for people in their late 60s and early 70s, and the baby boomers will become very old in future decades. In addition, if the debt continues to rise faster than GDP, interest costs will continue to swell. We will have to tackle these issues.
| Program Spending as a Share of GDP Under Continuation of Current Policies | ||||
| Avg 1962-2011 | 2012 | 2017 | 2022 | |
| Primary outlays | 18.5% | 22.0% | 20.0% | 20.0% |
| Less Social Security | 14.5% | 17.1% | 14.9% | 14.5% |
| Less Social Security and Medicare | 13.0% | 13.8% | 11.6% | 10.8% |
| Note: program spending includes all federal expenditures other than net interest on the debt. Sources: OMB through 2011; CBPP analysis of CBO data thereafter. | ||||
But when Americans hear talk of the government exploding in size and reach, they don’t usually think this means that more people will receive Social Security and Medicare because the population is growing older or that Medicare will cost more because of factors like the aging of the baby boomers and advances in medical technology that improve health and prolong life but at significant cost.
Outside of those demographic and health cost factors, the portrait of a rapidly growing federal behemoth is simply at odds with reality, since costs are shrinking to levels well below their historical averages.
Related Posts:
- Debunking the “Entitlement Society” Myth
- Romney’s Wrong: Federal Low-Income Program Dollars Go Overwhelmingly to Beneficiaries
- War, Taxes, and Priorities
- Obama Proposal Could Lead to Bigger Domestic Cuts, Smaller Defense Cuts
From:The Blog
Deciphering the madness of the Murdoch method
In the midst of a scandal that reaches new lows every day, Rupert Murdoch’s reactions have ranged from the canny and shrewd to the absurd. Given his tight control over News Corp., don’t expect any changes soon.
By Geoff Colvin, senior editor-at-large
James and Rupert Murdoch
FORTUNE — Rupert Murdoch’s decision to demote his own son is a perfect example of why he’s endlessly interesting. Sometimes he makes business decisions purely with his head, canny and shrewd, occasionally ruthless. That’s what he did this time. But sometimes he makes giant decisions with his heart, appearing misguided or just nuts; for example, he runs the New York Post and the Times of London at deep losses that will apparently continue forever, and he just doesn’t care.
Overall, the Murdoch method has worked well for him. For investors in his News Corp. (NWS), it has not worked nearly as well as it should have. Recent events show the problem clearly. Amazingly, amid the U.K. phone hacking scandal that led to James Murdoch’s downfall — a mushrooming story that a member of Parliament yesterday called “the single largest corporate corruption case in this country for more than 250 years” — the Murdoch method is still working, at least for him.
James was, among other things, chief of News International, the News Corp. division that owns the company’s British newspapers. When the phone hacking scandal erupted at one of them, the News of the World, Rupert made one of his famously tough-minded decisions, abruptly closing the 168-year-old paper. News Corp.’s value dropped by billions of dollars as investors feared more revelations would follow.
They have followed. An inquiry still underway yields worse disclosures every day. Witnesses have reported that phone hacking was conducted at “industrial scale,” that News International employees bribed the police so widely that Scotland Yard became in effect “a subsidiary of News International,” that employees destroyed evidence massively, and that all of this was approved at “the highest levels.” The highest levels would seem to include James Murdoch. As this mess gets bigger and uglier, Rupert concluded that James had to go. He’s out as News International’s boss and will work in New York City on the international TV business and other vaguely defined tasks.
Here’s the surprise: The stock isn’t going down anymore. As the scandal gets worse, the stock rises higher. It fell to $ 14 last summer; it was over $ 20 when James got the shove. Investors figure this historic scandal won’t hurt profits much; it won’t make people stop watching The Simpsons or refuse to go see the next Avatar.
At the same time, Rupert keeps making heart decisions. When he showed up in London last week with elder son Lachlan in tow, News Corp. kremlinologists sensed that a new heir apparent was displacing James. Rupert’s determination to have one of his sons eventually run the company makes no economic sense; it discourages other ambitious managers from working there. He just doesn’t care.
But hey, the stock’s up – what’s the problem? The answer is it’s a much bigger problem that afflicts News Corp.’s shareholders, namely the penalty they pay for investing at all in a company with terrible governance. Through dual-class stock — always a warning sign for investors — Murdoch’s 12% economic interest in News Corp. translates into effective control of the board, because he controls 39% of the voting shares and his business partner Prince Alwaleed bin Talal controls another 7%. Thus the 88% owners know they don’t run the show. Murdoch, with his unpredictable head-and-heart method, can do whatever he wants.
The result is that when Wall Street analysts add up the value of News Corp.’s pieces, they get a total that’s almost twice as great as the company’s actual stock market value. Investors impose a “Murdoch discount” because they know the company isn’t being managed for them.
The outlook isn’t bright. Yes, the market is telling Murdoch that if he gave up some control — and with it, the ability to make those heart decisions whenever he wants too — he could be twice as rich as he is. But when you’re worth more than $ 6 billion, how much do you care?
The bottom line for Murdoch is that he’s over $ 1 billion richer today than he was when the scandal broke last summer. It’s hard to see why he would conclude that he should change his ways one bit.
Filed under: Contributors, Management 
From:Management and Career
Robyn Greenspan: How Do You Help Your Team Run?
A few months after losing my beloved dog, Moca, of 12 years, I began looking for another companion. A friend who worked with a shelter in Puerto Rico sent me some pictures, and I was immediately drawn to Hope, a year-old mix recovering from an injury it was believed she incurred during her time spent abandoned on the streets.
When I met her, she took a few steps toward me and fell, and then never seemed to fully regain her footing. We thought it was due to her long trip, nervousness and new surroundings, but she didn’t improve when we got her home.
Watching her struggle to walk was heartbreaking, as she could only take a couple of steps and fall over. She couldn’t even get herself upright from the hardwood floors, dragging herself around the house instead.
While Hope did show signs of injury as the shelter in Puerto Rico suspected, our vet’s diagnosis was more dire: she had cerebellar hypoplasia, a neurological condition that caused permanent disability. She would not get better.
If Hope’s potential was limited, then we had to give her the tools to make the best use of the skills she had.
A small sock with a non-skid surface helped her walk on the hardwood floors, and a dog boot stabilized her for outdoors. After a couple of tumbles down the stairs, we got on hands and knees and manipulated her legs up and down so she could better understand the movements. The right motivation came when the cat ran downstairs for refuge during a game of chase!
Unexpected mentoring came from Sunny, the dog sitter’s own mixed breed with hip dysplasia. The two canines spent a week together and Hope learned all of Sunny’s tricks on how to overcome a physical limitation.
Hope has been with us just five months and the progress has been amazing. There is still evidence of her neurological condition, but she has figured out ways to compensate and gained confidence in her unconventional methods.
Hope is now a regular at the dog park, running and playing with the pack, albeit for limited lengths of time. She chases the ball in the yard and the cat up and down the stairs. She can even jump onto the bed, couch and into the back of the car on her own.
While we may have taught her how to live a dog’s life, there’s a lot more that I learned from her. Whether working with pets or people, there are some basic principles:
- Pay attention to what your people need and work to get them the appropriate resources.
- The right environment can make a big difference. Hope would have never gotten better among 150 dogs in a shelter, but she thrived with one-on-one support.
- Find incentives to get the required outcomes.
- Peer mentors can sometimes achieve what supervisors can’t.
- Confidence begets confidence. If your team feels like they let you down it will become a self-fulfilling prophecy.
From:The Blog
Canada’s home prices drop for second straight month
OTTAWA — Canadian housing prices were flat or falling in the last quarter of 2011, according to the Teranet-National Bank house price index released Wednesday.
Home prices fell in December by 0.2% from the previous month, the second straight monthly decline following two consecutive months of flat prices, National Bank senior economist Marc Pinsonneault wrote in his monthly report.
The index was up 6.8% from December 2010, though the year-over-year advance had slowed somewhat from the 7.1% gain posted in November.
Home prices fell in December in nearly half of the 11 markets included in the survey, including Victoria, Ottawa-Gatineau, Montreal, Toronto and Vancouver. “For Ottawa-Gatineau, Vancouver and Victoria it was the third consecutive decline, and for Toronto it was the second,” Pinsonneault said. Prices in Edmonton were flat, while prices rose in Quebec City, Winnipeg, Hamilton, Calgary and Halifax.
The year-over-year gains in Toronto, Winnipeg, Vancouver, Hamilton and Quebec City all exceeded the national average. While the year-to-year price differences varied widely, “December was the first month since September 2010 in which all 11 metropolitan markets showed prices up from 12 months earlier.”
Meanwhile, Pinsonneault said the Canadian Real Estate Association has determined market conditions are generally balanced across Canada, “the exceptions were tight markets in Toronto, Hamilton, Winnipeg and — suddenly — Halifax, and buyers’ markets in Vancouver and Victoria.”
