Category Archives: Press Release

There’s renewed interest in using the “Chained CPI” as a replacement for the “current CPI” for cost-of-living increases in such items as Social Security. Here are some facts.

  1. Its complete name is the “United States Chained Consumer Price Index”.
    • It was created by the Bureau of Labor Statistics (BLS) in 2000.
    • It’s also known as the C-CPI-U.
    • It’s also known as the chain-weighted CPI.
    • It’s also known as the chain-linked CPI.
  2. It’s based on the theory that consumers choose less-expensive substitutes.
    • NOTE: The “current CPI” also takes substitutions into account, by adjusting the “market basket” of goods that it represents in January of even-numbered years, and also adjusting for less-expensive goods and services within each element. The Chained CPI makes adjustments for the less-expensive substitutes by making changes to less expensive goods and services, both within and outside of the elements.
  3. METHODOLOGY FOR COMPUTING CURRENT CPI:
    • BLS makes monthly calculations of average prices.
    • It uses 211 different categories of goods and services in 38 different urban areas, for a total of 8,018 (211 X 38) different elements.
    • BLS uses one set of weights for CPI-U and another set of weights for CPI-W, each of which is updated in January of even-numbered years (at the time the market basket is re-adjusted).
  4. SUBSTITUTION EXAMPLE:
    • Consumer buys one type of apples until the price increases, at which time the consumer buys cheaper apples. The current CPI takes this substitution into account, because it’s within the “apple element”.
    • BUT if consumer switches, say, to oranges, this is within the “citrus element” of the “market basket”, and so will not be accounted for in the current CPI until January of the next even-numbered year. C-CPI-U takes this switch into account in the very next month.
  5. C-CPI-U has averaged 0.3% lower per year than CPI in years since 2000.
    •  [For example, the recent 1.7% increase used as a Social Security COLA would have averaged about 1.4% under C-CPI-U.]
  6. MAGNITUDE OF THE DIFFERENCE OVER 10 YEARS
    • 1.017% for 10 years leads to a loss for each $1,000 monthly of $1,862
    • 1.014% for 10 years leads to a loss for each $1,000 monthly of $1,558
    • Difference = $1,862 less $1,558 equals $304 annually (2.5% of $12,000), $25 monthly
    • Of course, the original $1,000 won’t be reduced; it’ll just buy less.
  7. President Obama and the Republicans seem to favor the C-CPI-U.  Democrats, the AARP and the AFL-CIO seem to be among those who do not like the switch.

 

A VALUABLE TOOL FOR REWARD AND RETENTION

1.  Executives in nonprofit organizations (NPOs) receive less retirement income from qualified retirement plans, as a % of final pay, than do non-executives.

  • Why is this?
    • Qualified plans are designed for the non-executive, as is Social Security. They assume the long-term employee, and they have strict discrimination rules as to participation, cap on compensation and vesting.
  • Shouldn’t there be a better balance between the levels of compensation in nonprofit organizations, similar to the balance we see in for-profit organizations?
    • Yes, if we assume that the talents and responsibilities, as well as other organizational aspects, are similar.
  • How do we make the balance more equitable?
    • For-profit organizations fix the problem with various forms of stock (stock options, restricted shares, performance shares and such), and nonqualified deferred compensation.
      • Although the first of these forms is not generally available to NPOs,
      • the second of these (the nonqualified deferred compensation plan) is readily available, using special provisions of the Internal Revenue Code and ERISA.

2.  Combining the provisions of the Internal Revenue Code, ERISA, and related IRS and DOL regulations, and guided by the latest IRS audit manual, an NPO can have a nonqualified deferred compensation plan which is:

  • required to be discriminatory,
  • must not be pre-funded,
  • can be either defined contribution or defined benefit,
  • need not have any participation or vesting provisions,
  • can provide for pre-tax executive deferrals,
  • can provide for pre-tax credits from the NPO:
    • to bring the executive’s benefit
      • up to the level of the non-executive’s as a % of final pay (the “executive equality benefit”), or
      • up to a level in excess of the non-executive’s (the “top hat benefit”),
    • which are no longer reduced by qualified plan benefits,
    • can account for the anti-executive Social Security formula,
    • which have a special “catch-up provision” in the last 3 years before full retirement age (which full retirement age can be selected by the executive), and
    • which coordinate with the “intermediate sanctions” provisions of the Code applicable to Code section 501(c)(3) and Code section 501(c)(4) organizations.

3.  WHY AREN’T NPOs USING THESE READILY AVAILABLE PROVISIONS OF THE LAW?

  • Many decision-makers (who control executive compensation) do not understand the complexities faced by the NPO executive.
  • Decision makers of NPO compensation sometimes do not realize that C-suite executives of NPOs face many/most/more of the complexities faced by executives of for-profit organizations.
  • The general public may think that executives in NPOs should function in a “good guy” capacity, donating their services to the cause.
  • The public is often informed, by news-hungry media, of salary/bonus abuse in a few nonprofit organizations, and led to believe that this is typical of all NPOs.
  • Legislatures often pass laws which don’t understand that NPO executives are often challenged by complexities on a par with what for-profit executives deal with.
  • Nonqualified plan benefits used to be offset by qualified plan benefits; this is not so any more.
  • Possible penalties to executives of too-high compensation.
  • Possible loss of tax status to the NPO.
  • Difficulty in constructing a credible peer group.

ALL OF THESE OBJECTIONS ARE DEALT WITH IN A PROPERLY DESIGNED NONQUALIFIED DEFERRED COMPENSATION PLAN.

WORCESTER BUSINESS GIVES BACK
Donating “human capital” to South Worcester Neighborhood Improvement Corporation (SWNIC)

Worcester, MA December 20, 2012 – Touchstone Consulting Group (a global employee benefits consulting company headquartered in Worcester) has a unique way of giving back this holiday season.

“We’re donating the time and expertise of one of our top company executives, Denise Minor, to the South Worcester Neighborhood Improvement Corporation,” said Touchstone President, David Peck, “Denise brought to our attention the work that SWNIC is doing and their needs. We thought that this would be the most valuable and practical contribution we could make to this highly essential South Worcester nonprofit. This seemed to be a great solution, for both organizations, and it expresses our deep commitment to the Worcester Community.”

Founded in 1969 as part of the war on poverty, South Worcester Neighborhood Improvement Corporation (SWNIC) is a nonprofit, 501(c)(3), dedicated to improving the quality of life of Worcester residents. This community-based organization serves 350 families per week from four locations in the Worcester area.

“We couldn’t begin to pay for this caliber of service to our organization,” said SWNIC Executive Director, Ron Charette. “Denise brings all of her formidable skills and legal expertise to the forefront, and we are entirely grateful to Touchstone for donating her time to us.”

“I am so grateful that Touchstone decided to do this,” said Denise Minor, “I love both companies and the Worcester area, so this is a perfect blend for me. But I’m not the only one who spends significant time and money for local community needs. Our President, David Peck is involved with other community organizations and our Marketing Director, Lan Goodwin is a mediator at the non-profit Center for Non Violent Solutions in Worcester.

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About South Worcester Neighborhood Improvement Corporation (SWNIC):
Founded in 1969, SWNIC is a nonprofit, 501(c)(3) working with families that are in the South Worcester Community. SWNIC identifies needs and goals of families and clients, then partners with them to provide practical solutions; including – Employment and job placement assistance, housing rehabilitation, counseling, health care, food pantry services and more.
Contact Information: SWNIC 47 Camp Street, Worcester MA 01603 (508) 757-8344
Ron Charette, Executive Director email: rchare2625@aol.com.

About Touchstone Consulting Group:
Touchstone Consulting Group is an employee and executive benefits consulting company headquartered in Worcester, MA. Touchstone provides effective and innovative benefit strategies to a broad range of National and International clients. At Touchstone we believe in a close personal approach, providing a unique client partnering service with tailored solutions to navigate change and facilitate growth.