March 2012

What Does it Mean For Employee Benefits?

The Supreme Court deliberates. Citizens wring their hands about the fate of the the Individual Mandate. And the industry wonders what financial impact the Patient Protection and Affordable Care Act (ACA) is going to have on employee benefits.

The picture is coming into focus as  a series of studies conducted since 2010 bring an understanding of the areas of most concern to employers related to health reform.  Key findings from a 2012 employer survey conducted by the Midwest Business Group on Health (MBGH) and co-sponsored by the National Business Coalition on Health (NBCH), Business Insurance and Workforce Management concludes this: the financial impact of the provisions in the ACA  for most businesses have not been as significant as anticipated. Fewer U.S. employers responded that they plan to drop coverage due to the law’s mandate than reported in 2010.

“While employers uniformly expressed concern with the administrative costs and reporting burdens in the law, there was surprising support for many of the coverage and system reform provisions,” said Larry Boress, MBGH president and CEO. “It’s clear that what some call ‘Obamacare’ is actually a compilation of insurance, health system and coverage reforms that are perceived by many employers as having some good, as well as  some costly, impacts…As employers have evaluated their options, the vast majority have determined there is value in continuing to offer health coverage in order to retain and recruit talent, as well as to ensure a productive workforce.”

 Many survey respondents indicated support for the ACA provisions that enable changes in provider payment, medical care coordination and providing medical cost and quality information for consumers.

Key survey findings:

  • In contrast to what employers indicated in the 2010 survey, many of this year’s respondents found complying with the ACA provisions cost them less than anticipated.
  • The cost impact of the ACA in 2011, including extending coverage to adult children up to age 26, was less than 2% for large employers. The cost impact or most small- and mid-sized employers was increases up to 5%.
  • Only 6% of all employers said they were likely to pay the penalty fee and drop health benefits coverage for employees in order to save money. This is down by more than half from the 2010 survey results.
  • Of employers offering retiree benefits, 57% said they are likely to continue to offer these benefits.
  • Less than 30% of employers that are likely to drop coverage will raise salaries to enable individuals to buy health coverage on their own.
  • Many small employers anticipate increases in their health benefit costs over 10% in the future due to the ACA.

“Employers appear to be warming up to the potential value of ACA provisions on prevention and wellness incentives, provider payment reform, medical homes, ACOs, and cost and quality transparency even while expressing continued frustration with the law’s slow pace towards cost containment,” said Andrew Webber, NBCH president and CEO. “And while employers seem to have less of an appetite for dropping coverage than noted in previous surveys, alternatives like defined contribution strategies are beginning to be considered and bear close monitoring in the years ahead.”

Why the Supreme Court is Likely to Uphold the Individual Mandate

 An article by Slate makes the case that mandated coverage is not only consistent with current employer health care practice, but a de facto effective practice already. To understand this, you need to consider the principles of insurance and the history of employer-sponsored health insurance plans.
The history of employer provided health coverage in the U.S. dates back to World War II. During the war, to maximize war production, numerous government controls were put in place, including wage controls, price controls, rationing, and intense social pressure to invest in low-yield war bonds to depress domestic consumption. The idea was to devote as large a share of output as possible to the war cause.  Since wage controls led to windfall profits for some firms, which were then subject to high taxation, employers hit upon the idea of offering workers non-wage benefits including, among other things, health insurance.

in 1943, the IRS ruled  that employer contributions to a health insurance plan didn’t count as taxable income, giving firms an incentive to offer some compensation in the form of insurance.  In 1954, Congress codified this in Section 106 of the Internal Revenue Code, a decision that is one of the two pillars of the current American insurance system.

The second pillar is the rule that employers need to offer health coverage on the same terms to all full-time employees. This is partly risk management, but a tax issue as well.

The insurance principle: A healthy young worker pays the same premium as a middle-aged one with high blood pressure. This ensures that within any given firm there’s considerable cross-subsidy flowing from younger and healthier workers to older and sicker ones. If all the young people dropped out of the plan, then the premiums charged to the remaining members would need to go way up. That’s because the healthier employees are, on average, receiving fewer dollars per year in health care services than they and their employers are paying into the plan in premiums.

The tax principle: If  employers stopped subsidizing employee insurance premiums and just raised their salaries instead,  thousands of dollars of tax-free subsidies would become taxable income.  If an employees opted out of the insurance pool, it would cost them hundreds of dollars in taxes. But without that penalty, people would drop out of employer-provided insurance pools, leading to higher premiums, more dropouts, leading to even higher premiums. The system would become unworkable.  Because this principle operates invisibly in the background, it is mistaken for the operation of a “free market”. But is it, really?

The non-taxation of group health plans is actually a government program that, according to the Congressional Research Service will cost the federal government $164.7 billion in fiscal year 2014.  This is funded by taxes on everyone – including those who don’t benefit from the deduction, including many entrepreneurs, part-timers, freelancers, or small-business owners.

Although we can’t be certain about how the Supreme Court will rule on the Affordable Care Act, the individual mandate is consistent with the principles of insurance and is likely essential to make the Act work to expand coverage to most Americans.

Health Insurer Stocks Rise in Value:  Insurance companies have taken note of the Supreme Court Justices’ queries and comments, as they discussed the ACA over three days. They noted that the Justices appeared more concerned about the welfare of health insurers than the uninsured. As a result, health insurance stocks reached a 52-week high on Friday, March 30th, following three days of judicial review.  UnitedHealth was up 17 cents, WellPoint up 19 cents, Aetna up 59 cents, and Humana Up $1.12.

These were small gains in 2% to 3% range, but it seems that investors may well have been reacting to the President’s emphatic endorsement of mandates.  Investors seem to recognize that the mandate means that a surge in enrollment is coming for health insurers, followed by a flood of new revenue.

Survey Details

The online survey was conducted from February to March 2012 on the intentions and perspectives of employers concerning the Accountable Care Act. There were approximately 440 respondents from 34 states; 58% representing employers with more than 500 employees and 25% representing employers with 50-500 employees. Survey partners also included Aon Hewitt, Buck Consultants, Chicagoland Chamber and the Illinois Chamber of Commerce. A summary of the findings is available and can be ordered by contacting MBGH at

About Business Insurance and Workforce Management
These publications are part of Crain Communications Inc, one of the largest privately owned business publishers in the U.S., offering publications and related Web sites in North America,Europe and Asia. Business Insurance and Workforce Management offer vital news and information to industry leaders and consumers worldwide.

About the Midwest Business Group on Health
Celebrating more than 30 years of advancing value in health benefits management, the non-profit Midwest Business Group on Health (MBGH) is one of the nation’s leading business groups of private and public employers. MBGH’s more than 100 members represent over 3 million lives, spending more than $3 billion on health care benefits annually.

About the National Business Coalition on Health
NBCH is a national, non-profit, membership organization of 56 purchaser-led business and health coalitions, representing over 7,000 employers and 25 million employees and their dependents across the United States. NBCH and its members are dedicated to value-based purchasing of health care services through the collective action of public and private purchasers.

Source: Midwest Business Group on Health; National Business Coalition on Health

Snap principle of employer-sponsored health insurance benefits:

The market is here to stay and more lucrative than ever.


The 4 Phases of The Content Lifecycle

A Guide to Content Marketing

“Content marketing.” is a term that is coming into vogue in the digital marketing space lately. What’s the buzz all about? But it is much more than a buzzword. It is a discipline that will revolutionize marketing and your marketing process.

What is Content?

No matter the platform, publication, or format, content is everything that conveys meaning. Wikipedia defines it as “Information and experiences that may provide value for an end-user/audience in specific contexts.” Rahel Bailie says, “Simply put, content is contextualized data.”

Web content is anything that appears on a website, and any of the elements that make up an interactive experience, including:

  • text
  • logos
  • graphics
  • video
  • audio
  • downloadable files (PDF)
  • buttons and icons.

What is Content Marketing?

Content Marketing is earning eyeballs through content.  Hollis Thomases of Inc. defines content marketing as:

Producing and leveraging one’s own branded content for marketing purposes, rather than ‘renting’ advertising time and space” on someone else’s media.

Why Content Marketing Now?

Content marketing is becoming an explosive force in marketing today for several reasons:

  • Diminished efficacy of traditional advertising: There have been diminishing returns on  ad dollars spent.
  • People crave good information: In the past, marketers were limited to buying visibility within someone else’s content using media  they felt attracted the right audience. The Internet now allows companies to create their own content, and the quality can far exceed whatever else the audience can find.
  • Control of the consumer experience: As people become more skeptical of mass advertising, they are tuning out, or switching the channel. Why rely on expensive media when marketers can instead attract, engage and sell to its audience from within its own content?
  • The Explosion of Social media: Social media ups the need to to constantly “feed the content beast.” But poor gets ignored.
  • Search Engines Require Content: Search engines value fresh and relevant content. Now they also integrate social sharing into their algorithms and query results, so new content plays a greater role than ever.

Caution: Not a Free or Stand-Alone Strategy

An article by Inc. discusses the fallacy of using social media as an excuse to cut marketing spend.  One of the world’s largest advertisers, Procter & Gamble, with an annual ad budget of about $10 billion, announced that they would be eliminating “1,600 ‘overhead’ or nonmanufacturing jobs, including in marketing,” deferring to “digital marketing to help contain media spending long-term.”

Chairman-CEO Bob McDonald credited the “1.8 billion in free impressions generated by the Old Spice campaign in recent years,” stating that with “things like Facebook and Google and others, we find that return on investment of the advertising when properly designed, when the big idea is there, can be much more efficient.”

The fallacy of this is that social media isn’t free.  Although the Old Spice campaign went viral, these “free” impressions didn’t come free. P&G hired one of the most innovative – and expensive – ad agencies, Wieden & Kennedy, engaging a talented team to conceive, script, produce, and  distribute and these “non-ads.” The strategy required the talents of a  hunky guy (Isaiah Mustafa), and the purchase of strategically placed media spots, the bulk of which were on broadcast and cable TV. The spots and ensuing viral campaign were supported by Isaiah’s appearances on late-night and radio shows and his own overnight talk show. The total cost of this “free” social media campaign: one industry insider estimated it at $10 million to $15 million.

It is also important to bear in mind that digital marketing, while increasingly important, is just one tool, and different products call for different strategies and mixes of  media and marketing tools. Marketing must be integrated.

Content Strategy and the Content Lifecycle

Content strategy is an emerging field of practice encompassing every aspect of content. Kristina Halvorson, in Content Strategy for the Web defines content strategy as “the practice of planning for content creation, delivery, and governance.” It includes such aspects as:

  • design
  • development
  • analysis
  • presentation
  • production
  • management and governance
  • measurement and evaluation.

The Content Lifecycle:  Rahel Bailie recognizes the iterative content lifecycle as “a repeatable process or methodology that manages content within the entire content lifecycle.”  She shares her methodology: “The content lifecycle is a repeatable system that governs the management of content. The processes within a given content lifecycle  are  system-agnostic. The processes are established as part of a content strategy, and implemented during the content lifecycle.”

The content lifecycle covers four macro stages: 1.Strategic analysis, 2. Content collection 3. Management of the content 4. Publishing (publication and post-publication activities.) The Analysis quadrant relates to content strategy, while the other three quadrants are tactical , focusing on implementation of the strategy.

  1. Analysis:  The analysis phase concerns with the strategic aspects of content. A content strategist, business analyst or information architect examines the need for various types of content within the context of the business and the content consumers for multiple outputs on multiple platforms. On a new project with new content, this is the beginning of the process. The process may also start somewhere else in the cycle, as when current content is being transitioned to a future state.
  2. Collection: Collection includes the garnering of content for use within the framework set out in the analysis phase. Collection may include 1. development (creating content or editing the content of others), 2.content ingestion (syndication of content from other sources), 3. incorporation of localized content, or 4. content integration and convergence (such as integrating product descriptions from an outside organization with prices from a costing system, or the convergence of editorial and user-generated content from social media for simultaneous display.)
  3. Management: Management concerneds the efficient and effective use of content. In organizations using technology to automate the management of content,  management assumes use of a CMS. In organizations with smaller amounts of content, with little need for workflow control and virtually no single-sourcing requirements, manual management is possible. However, in large enterprises, there is too much content, and there are too many variations of content output, to manage the content without some sort of system to automate whatever functions can be automated. The content configuration potential is enormous, and builds on the information gathered during the analysis and collection phases. The solutions will be highly situational, and revolve around the inputs and outputs, the required content variables, the complexity of the publishing pipeline, and the technologies in play. The most basic questions are around adoption of standards and technologies, and determining components, content granularity, and how far up or down the publishing pipeline to implement specific techniques.
  4. Publish: Publishing deals with content delivery to its output platform, and ensuing transformations, manipulations, or uses of the content. Post-publishing considerations include as re-use and retention policies.

Collaborative Content Strategy Diagram

 Content Strategy Execution

The many perspectives involved in content strategy and execution can involve numerous professionals with varied training and education. Some may specialize in content analysis, involving work with metadata, taxonomy, search engine optimization, other ways to support content. Another discipline is web editorial, which involves strategies, guidelines, and tools, and may extend to organizational change management as it  may require developing new forms of content, such as multimedia, or various “presence management” technologies like microblogging. Another discipline in content strategy is information architecture. Content strategy may involve writing site copy for new website pages or adapting the content on existing ones.

Some factors and considerations in successful execution include:

  • What is the purpose/objective? You will want to build a content strategy to guide your process–with KPIs in mind like ones for branding, membership, lead generation, or ecommerce.
  • Resources: Who will do the production work, and how many different departments will need to be involved in the process? Who in your organization knows the subject matter? What kinds of content do you want to produce? Do you have capabilities in-house to produce them all?
  • Tools: To produce this content, you’re going to need: planning tools like an editorial calendar; production and creation tools like software and recording devicesdistribution tools get your content out effectively; and monitoring and reporting tools to measure results.
  • Ownership issues: Creating original content is one thing. But sharing someone else’s content for your own marketing purposes can lead to problems if you’re not careful–particularly about attribution.
  • What assets you currently have to leverage:  In your pre-existing assets, are there print ad campaigns you can turn into shareable slideshows? Research findings that can be turned into white papers? Blog posts that could become podcasts? Case studies that would make great webinars?
  • Quality first: Ensure your content has real value for your consumer. Inform your readers; educate them; tell a good story. You need to leave them feeling better off than before.


Shelly Bowen provides this deliverables list as a guide:

 What Are You Trying to Achieve?
  • Summary of company goals

What Do You Own?

  • Content inventory or audit
  • Content assessment (quality and quantity)

What’s Missing?

  • Content gap analysis
  • Comparative content analysis
  • Competitive analysis

How Do You Present the Words?

  • User personas
  • User scenarios (think believable stories)
  • Editorial strategy
  • Core messaging strategy
  • Sample content
  • Content templates
  • Search Engine Optimization (SEO) strategy
  • Brand strategy
  • Metadata strategy
  • Style guide
  • Glossary

Where Does It Go?

  • Copy deck
  • Channel strategy
  • Content conversion/migration strategy
  • Content flow schematic
  • Community and social strategy
  • Visual presentation recommendations
  • Wireframes

How Do We Make It Happen?

  • Content approval workflow
  • Communication plans
  • Community moderation policies
  • Content production workshops and training
  • Content sourcing review and plans (people, tools, budget, time)

How Do We Stay Organized?

  • CMS requirements
  • Business rules
  • Taxonomies
  • Responsibilities
  • Schedules

How Do We Know It’s Right?

  • CMS requirements
  • Usability tests
  • Benchmarks
  • Checks and balances
  • Summary of company goals
  • Success metrics

 What’s Coming Up?

  • Editorial calendar

Reading and Resources:


Work Templates and Guides


It's so hard to find a good pet insurance salesman.

Strong Growth Pet-ential

The pet insurance market is a rapidly emerging market, with spending estimated at $450m in 2011, according to a recent articlein Stl Today. In fact, a new study by Packaged Facts indicates that sales of pet insurance policies are actually growing faster than the sales of veterinary services. Following a jump of 27 percent from 2007 to 2008, pet insurance sales rose 16 percent from 2008 to 2009, according to Packaged Facts. Sales of veterinary services rose 10 percent during the same year.

Pet insurance revenue in North America totaled $354 million in 2009, up from $310 million in 2008, according to a Packaged Facts estimate.  The growth is not expected to end, estimates Packaged Facts, which says pet insurance sales in the United States could climb toward $760 million by 2014.

According to APPA (American Pet Product Association), the number of US households that own pets has steadily increased to an all-time high of 72.9 million in 2011/2012.  APPA also projects that pet owners are going to spend up to $12.2 billion dollars for veterinary care in 2012.

Pet health insurance has been available in the United States for nearly 30 years, but expanded veterinary treatments and changing attitudes toward the family pet have bolstered the number of policies over the last decade, even during the economic downturn. Three percent of the nation’s 78 million dogs and 1 percent of its 93 million cats are now covered, according to a recent American Pet Products Association estimate. That’s up from 1 percent of dogs and virtually no cats covered in 1998.

What’s the potential for this market? Pet insurance has gained wide acceptance in some European countries, such as the United Kingdom, where 20 percent of pets have policies, and Sweden, where at least 30 percent of pets are covered, according to New York-based research firm Packaged Facts. St. Louis-based Nestlé Purina PetCare, which started its PurinaCare insurance subsidiary in 2008 and has expanded coverage to all 50 states, believes that eventually 10 percent of U.S. pets will be covered by insurance.

Changes in people’s social support systems — higher divorce rates, fewer children and people living farther away from their families — has helped drive this trend, said James Serpell, a veterinary ethics professor at the University of Pennsylvania’s School of Veterinary Medicine. “We’re using animals to replace what we’re losing in human social relationships,” he said.

Who Let the Dogs Out?

In 1982, VPI Pet Insurance issued the first pet insurance policy in the United States. VPI has long dominated the industry, but it has lost market share in recent years as more providers emerged. VPI had 52 percent market share in 2009, according to Packaged Facts, down from 68 percent in 2005. The number of pet insurance providers in the nation doubled over the last decade from six to a dozen in 2010.

Among the newcomers is Nestlé Purina. After studying the pet insurance market for three years, the company felt it could be competitive by drawing on its experience and research in pet health.  According to company executives, a void existed in the market for people to access information about what pet policies covered. Packaged Facts estimates it still has less than 1 percent of the North American pet insurance market. However, the entry into the market of such a large global consumer products conglomerate, no less one as cautious and conservative as Nestlé Purina is a sign of the market’s strong growth potential.

Rivals include pet retailer PetCo and the financial services division of grocery chain Kroger. There’s speculation that Wal-Mart will introduce a pet insurance product at its Canadian stores this year.

“I think that the tipping point will be when big retailers get into it, and we’re right on the verge with retailers exploring it,” said Kristen Lynch, executive director of the nonprofit North American Pet Health Insurance Association, whose members include pet insurance providers.

Still Laughing? You Haven’t Seen the Bill

Veterinary care isn’t cheap. It’s second only to food in the amount people spend on pets. Of the $50 billion expected to be spent this year on pets, $14.11 billion will be for vet bills, up from $13 billion last year.  Visits to the office can start at $100 but can quickly add up to several thousand dollars when multiple procedures are performed.  Treatment for some chronic diseases such as cancer can cost pet owners more than $300 a month. Many pet owners are willing to pay the cost, with or without insurance.

By comparison, monthly pet insurance premiums can be a bargain. They can start at around $10 but can exceed $100 for some older dogs. Plans may allow pet owners to pay lower premiums in exchange for bearing a higher percentage of the bill, between 30 percent and 40 percent of eligible expenses.

Some of the higher-end preventive plans cover heartworm and flea medications in addition to vaccines and annual exams while some lower-cost plans just provide coverage for unexpected accidents and illnesses.  A $1,180 vet bill for a dog’s broken leg under VPI’s Super Plan, for example, will reimburse the pet owner $1,002. With a lower monthly payment, VPI will reimburse $626 of the vet’s bill.

Consumer Reports’ Money Adviser newsletter’s article analyzing VPI, ASPCA Pet Health Insurance, 24PetWatch QuickCare and Trupanion concluded that for generally healthy animals, pet insurance isn’t worth the cost, and establishing an emergency fund for unexpected pet bills is a better choice. Still, the report stated that for young pets that develop a chronic condition or illness after the policy is in place, having the policies paid off.

Time to Let the Cat Out of the Bag

As the market for pet insurance continues to grow, ReviMedia has launched a new website that gives a general overview of pet insurance options and provides users with all the necessary information for choosing the right plan for their pet. was designed to support pet owners in making an informed, independent decision and to have a positive effect on the pet insurance industry’s growth.

ReviMedia, Inc, which has offices in New York City, Panama and Holland, specialized in developing and executing direct response and performance marketing campaigns. It has a industry leading platform and campaigns focusing on high quality lead generation in insurance verticals, exclusive in-house offers and more.

Who do marketers need to target? The Packaged Facts report suggests that the best candidates might be upper income households who already indulge their pets. According to their data on who is buying pet insurance, nearly 7 percent of dogs who are taken to the veterinarian three or more times per year are covered by insurance. So are 5.3 percent of dogs belonging to a household with an income of $60,000 or more. About 5 percent of large-dog owners purchase pet insurance, as well as 4.5 percent of owners who spend $240 or more per year on dog-related expenses.

IRC Section 72(q) Can Eliminate Tax Penalties For Premature Annuity Distributions

Note: Annuities are complicated instruments, so this article can’t possibly provide all the information you’ll need to know about them, and this does not constitute professional advice. You’ll need to consult your tax advisor and financial advisor when making decisions about these products. This article deals with Nonqualified Annuities – ie. annuities purchased with after tax dollars. Similar rules apply to Qualified accounts like IRAs.

It’s my money and I need it now!

Help! My Money’s Tied Up!

Non-qualified Annuities are great vehicles for allowing you to accumulate money tax deferred. But if you own one, you are also likely aware of some of the tax issues that could be triggered by accessing your account early:

  • Withdrawals are taxable as LIFO – If the annuity has not yet been annuitized, it is taxed on a “Last In First Out” or LIFO basis. The dollars that come out are presumed to be from the most recent that went in. The original principal (which isn’t taxed) remains untouched, while the taxable earned income portion is withdrawn.  These are included in your income taxes that year.For example, if you put $100,000 in (after tax), as long as the remaining balance remains over $100,000, every penny you withdraw is taxable as earnings. Only after the account falls below $100,000 (your “basis”) are you presumed to be using your contributed money. Every dollar of contributed money you take lowers this threshold, or “basis” in the account. If you take $20,000 of the original money, your basis is now $80,000, but the “basis” can also be increased by subsequent contributions.
  • Withdrawals prior to the age 59 1/2 incur a 10% IRS tax penalty –   The penalty applies to the portion of withdrawals that have yet to be taxed – the growth portion.  This is in addition to regular income tax also imposed on those amounts.
  • Annuities have contractual early withdrawal charges –  Like bank certificates of deposit, annuities have impose early withdrawal penalties if you take money out before an initial period. A typical annuity has a surrender charge that declines year by year. For example, a seven-year surrender period may impose a 7 percent fee if you bail out in the first year, 6 percent during the second year, and so on until there is no penalty after seven years. Your annuity may have a limited free withdrawal feature that allows withdrawals of 10% per year without a charge. Some annuities also waive withdrawal charges in certain situations, such as death, confinement in a nursing home or terminal illness.
  • Withdrawals over a certain limit may cancel a Living Benefits Rider – This is an optional rider on your annuity. The Living Benefits Rider guarantees the contract principal and/or a certain rate of hypothetical growth as long as certain conditions are met (such as annuitizing the contract instead of taking a systematic withdrawal.)

But It’s My Money and I Need it Now!

You may be able to avoid the 10% penalty if you meet one of several exceptions (there are additional exceptions for qualified retirement plans):

  • After age 591/2;
  • If you need to withdraw annuity funds as part of a divorce settlement, personal injury settlement, or similar legal ruling;
  • In the event of disability;
  • In the event of death;
  • As part of a series of substantially equal payments taken over life expectancy.
  • In a 1035 Exchange: You can move your annuity account values into a different annuity. Just be sure that you are past the original surrender period and won’t be charged a penalty in doing so. Bonus annuities may pay an upfront bonus to make up for such penalties, but beware – they typically have higher fees in return.

You can read more about these exceptions here and in IRS IRS information,  including Publication 575.

72(q) to the Rescue! – Substantially Equal Periodic Payments

You can access your annuity without paying the tax penalties and use it for any need you have – including mortgage payments, childcare expenses, to pay for college or start a business if you meet certain criteria that are outlined under IRS Section 72(q,) You can similarly access your IRA funds under Section 72(t). A very advantageous way to avoid the 10% penalty on distributions from an annuity before you are 59 1/2 is to take them  in “Substantially Equal Periodic Payments.”

Here are the rules:

  • Substantially Equal Periodic Payments” must be taken at least annually.
  •  The payments must be based on your life expectancy.
  • You must continue the payments for the later of 5 years or until you turn 59 1/2 (whichever is longer.)
  • If you modify the amount or method of payment or discontinue the payments before the later of 5 years or age 59 1/2, the 10% penalty applies retroactively so you may have to pay all back taxes with penalties and interest.
  • Distributions may be subject to surrender charges as described in your annuity contract.
  • Federal and State ordinary income taxes are still applicable.

Payment Methods:

There are three acceptable methods of calculating 72(q)/72(t) distributions, as described below: the Life Expectancy Method, the Amortization Method, and the Annuitization Method. DON’T PANIC! An interactive calculator can help you compare your payouts under each of these three methods. If you are serious about tapping your funds early, your financial advisor will be able to run these scenarios for you. At the End of this article, I will provide a Wonk Section to review the three methods in greater detail.

The Bottom Line: Your Case Study

Situation: You and your spouse, both age 56, need a steady source of income to meet your financial obligations as you make a job transition or start a business.

Setting: You’ve accumulated a substantial amount of money in an IRA or annuity.

Solution: Under IRS Code Section 72(q) for Annuities or 72(t) for IRAs, you can withdraw a set amount every month for five years to cover expenses. You’ll only pay income taxes on the distributions, but you won’t incur the 10% penalty tax.

Wonk Section – How 72(q) Distributions are Calculated

Anyway, for your curiosity, here is a brief review of the three methods:

  1. Life Expectancy Method
    • Calculated by dividing the annuity account balance by a life expectancy factor that is published in the IRS tables
    • Payment amounts must be recalculated annually
    • Since payments are recalculated based on life expectancy, the payment amount will vary from year to year. Generally, this method provides for smaller payments in the beginning, with payments increasing annually over time.
  2. Amortization Method
    • Calculated by amortizing the annuity account balance over the life expectancy of an individual, or the joint life expectancy of an individual and designated beneficiary, by using IRS mortality table and reasonable interest rate.*
    • Payments are NOT recalculated annually and remain constant over time
  3. Annuitization Method
    • Calculated by dividing the annuiy account balance by an annuity factor that is published in the IRS mortality tables and a reasonable interest rate.*
    • This method does NOT require annuitization of the contract
    • Payments are not recalculated annually and remain constant over time

A tax advisor should carefully consider the initial funding amount, payment method (including interest rate assumption), payment frequency, and investment options. Investment performance should be monitored and periodically adjusted as necessary to ensure assets are sufficient to continue the specified IRS Section 72(q) payment amount. IRS general information letter (INFO 200-0226) states that the interest rate used for 72(q)/72(t) distribution calculations must be a “reasonable interest rate” equivalent to 120% of the Federal Mid-Term Rate. Your client should consult with his/her tax advisor to determine the assumed interest rate to use.

Snap Principle of Annuity Planning

They’re great vehicles for tax deferral and generating income. To make them work for you, make sure you understand them well.

Social Media Is a Force to Be Reckoned With

Another great article was brought to my attention by Suzanna Keith at Revolutionarymarketingideas. Consistent with her mission of researching revolutionary insights and ideas to grow brands, she highlights an AdWeek article that features a SocialGuide Intelligence snapshot taken over two days in February tracking social response to TV content via Twitter.

Some great infographics by Carlos Monteiro show the results of their examination of tweets related to 213 channels over a two-day period.

This information demonstrates the great value that social media represent to market research. I lack sufficient analysis to draw in depth conclusions, but the data points to the fact that a high degree of engagement drives tweets. The implications for marketing research is that social media provides a good tool to mine important information about consumer brand preference. The implications for marketing execution are that  it is more important than ever to know your target segments in order to maximize the effect of social media in complementing your campaign by generating a buzz among likely demographics.

Which Program Types Generate the Most Tweets?

  • Reality TV was the most active, with 19% of all tweets.
  • Series were the most-tweeted program, with more than half the tweets (in keeping with the volume of programs they represent.)
  • Sports fans were the most active with 37% percent of tweets and only 3 percent of program volume!

Social Media Can Gauge Customer Segments’ Brand Preference

Related Research recently featured on AdWeek, Social Data Uncovers Brand, TV Show Affinity, was conducted by Bluefin Labs, a Cambridge, Mass.-based social TV analytics firm. Much of their findings is intuitive, but strongly suggestive of the extent of the power of social media as a market research tool vs. traditional forms of research, such as focus groups.

Some intuitive general findings appear to confirm, for instance, that suggesting a young audience tweets more: MTV’s Video Music Awards led the overall list of programs generating social media buzz, with 3.15 million comments, and The X Factor on Fox was the top series with an average of 137,000 comments per telecast.

The most promising area involves research into brand and audience segment, for which Bluefin took a more in depth look at TV data,  comparing competitive brands. The findings are also fairly intuitive, but this is strongly suggestive of the great potential of social media to capture audience preferences, which can be translated to actionable engagement strategies.

Wallmart vs. Target:

People who create online buzz about Walmart are most likely to tweet or comment about the following “less than lofty” programs:

  • Lifetime’s America’s Supernanny,
  • CMT’s Dallas Cowboys Cheerleaders: Making the Team and
  • truTV’s Las Vegas Jailhouse.

People commenting about Target, seem to go for more wholesome TV fare, and represent consumers who commented on programs involving cooking and home makeovers such as:

  • CMT’s Top Secret Recipe and
  • HGTV’s My Yard Goes Disney.

Coke vs. Pepsi

Bluefin Labs looked at all the people in the social media universe who commented positively or negatively on a particular brand, and then identified the TV programs these users most frequently mentioned. Bluefin Labs created a “show index” to rank the shows, normalized on an index of 100.

People who commented about Coke watched a lot of TLC and ESPN:

  • ESPNews, leads the top 10 list for Coke with a show index of 234 – those commenting about Coke are more than twice as likely to tweet or talk about this program.
  • Three of the top 10 shows that overindex for Coke conversations are on ESPN.
  • TLC is the most represented, followed by ESPN among all shows that overindex for Coke .

By contrast, the top 10 for people who tweet and talk about Pepsi didn’t comment on any sports shows:

  • The Mortified Sessions on Sundance leads the list.
  • The Exes on TV Land is second.
  • Prophets of Science Fiction on Science was third.
  • Nick Jr. was the leading network for Pepsi.
  • ABC, NBC and TLC tied for second.

Other findings:

Bluefin Labs also sliced the data by broader audience segments, comparing beer and wine drinkers, and cat and dog owners. The company identified the lifestyle groups by analyzing historical social media chatter and then ranked the shows each group talked about most. The findings are rather intuitive.

  • Sports programming features prominently on the top 10 list for beer drinkers.
  • Fashion and relationship-related programming dominates the list for wine drinkers.

Social Media’s Growing Role in Marketing

Gauging Campaign Effectiveness: Tom Thai, VP of marketing and business development at Bluefin Labs said,“Social TV is not just about how much people talk during the shows,” Thai said. “What people say about brands and commercials is also  a big part. We’ll be able to, in 2012, tell a lot more interesting stories about how real-world audiences in social media react to TV campaigns and react to brands.”

Understanding Synergies between Paid and Earned Media:  Kate Sirkin, EVP of global research at Starcom MediaVest Group—which recently announced it was partnering with Bluefin Labs to help inform its clients media buys—noted that “understanding the cause-and-effect relationship between paid and earned media is a challenge. Bluefin Labs’ data provides us with an incredibly valuable new data set to evaluate this relationship.”

Targeting and Engaging The Best Segments for The Brand : Thai said that over the past year his company has been sharing the “basic building blocks” of social TV analytics with TV networks and agencies, and  the next step is to make the information brand specific. “Brands really want the shows with the most social conversations as it applies to their brand as well as other brands . . . or audiences or lifestyle segments that they care about.”

Snap Principle of Paid and Earned Media Synergy:

Social media is an invaluable opportunity to:

  • better understand customer segments’ receptiveness to your campaigns
  • more effectively reach customer segments through powerful word of mouth.

Click. Game Over!

The FBI’s warning a spam email scheme using malware called “Gameover” in January, 2012, is a good indication of where theft has gone.  This scheme involves fake emails from the National Automated Clearing House Association, the Federal Reserve or the FDIC which  attempt to trick you into clicking on a link to resolve some type of issue with your account or a recent ACH transaction. Once you click on the link, Gameover takes over your computer, and thieves can steal usernames, passwords and your money. Criminal hacking expertise has evolved to the point that online theives can navigate around common user authentication methods used to verify your identity, including personal questions, birth dates and other private information intended to provide an extra layer of security. This it is a timely reminder that it’s important to remember that your smartphone is also susceptible to hacking.

Sophisticated Mobile Scams Target YOU

Targeting a Burgeoning Market:One of every 5 U.S. consumers used a mobile phone to access a bank, or other financial account in 2011, according to a  survey of nearly 2,300 people by Knowledge Networks – and another 1 of every 5  consumers plan to do so in the future. A Federal Reserve statement about the survey  suggests that mobile banking is poised to expand further with usage possibly increasing to 1 of every 3 mobile phone users by next year. This means mobile banking is crossing the tipping point from a nice‐to‐have to a must‐have investment for financial institutions. A recent report by market research firm First Annapolis found that 54% of the top 100 financial institutions surveyed in the US offer some form of mobile banking. A recent Javelin Research new report cites massive growth in mobile banking in the past year:

  • In 2o11, the number of consumers conducting mobile banking rose dramatically from 19%  to 30%of mobile consumers.
  • Those conducting mobile banking in the most recent seven days increased 50%, from 12% in 2010 to 18% in 2011.
  • Mobile banking vendors in 2010 only had a few of banks live, but the average in 2011 is 173 live – a huge increase.
  • A “smartphone adoption crossover” is in occurring – when more Americans will own smartphones than will own regular phones. Now smartphone adoption is at 45% percent, so we’re just about at that crossover point.
  • Half of smartphone owners conducted mobile banking last year.

Mobile banking use is highly correlated with age, with people in the 18-to-29-year-old age group accounting for 44% of  users, while they are only 22% of all mobile phone users (people ages 60 or older accounted for only 6%of all mobile banking users although they comprise fully 24% of mobile phone users.) Checking an account balance and monitoring recent transactions were the most commonly reported mobile banking activities.

Targeting the Savvy: A large number of mobile phone owners who didn’t use mobile banking expressed security concerns – security is the No. 1 reason consumers fear using mobile banking, with two out of three consumers believe that transacting on a mobile phone is ‘much less secure’ than on a computer or laptop, according to a Javelin Research report.

However, mobile banking users were much less skeptical about how secure the technology was. So those who might consider themselves savvy consumers are likely targets. What this means is that those who are young and technologically savvy and used to mobile computing may be underestimating the threat.

Cyber theft and false bank alerts are becoming increasingly sophisticated.  Because you have no spam filter for text messages, and they simply appear in the same folder that holds notes your friends and colleagues, notifications about your debit card are likely to immediately catch my attention.SMiShing s term is used to describe identity theft attempts via SMS text messages.

Recent Mobile Banking Scams: SMiShing

SMiShing scams have recently targeted some account holders at Fifth Third Bank.  Here are a few examples of what’s been popping up on mobile devices:

  • Fifth Third Bank alert. Debit card locked. Call XXX-XXX-XXXX to unlock.
  • FifthThirdB MJVA alert 119471. Please call (XXX)XXX-XXXX.
  • Fifth Third B. Message. Your card has been locked. Call XXX-XXX-XXXX to unlock.

Fifth Third advises account holders that it will never contact them by email, phone or text to request or verify information. In any case like this, it’s best to call the number directly on the back of your debit card.The FDIC recently issued new warnings about the risks of transmitting account information via mobile phones. As banks continue to develop new tools and technologies, you can be sure that identity thieves will race to develop new strategies for outsmarting them.

The new game is to send out thousands texts to local phone numbers in the same area code as local banks, and hope many are members of that bank and fall for the scam.  On  February 10, 2012, SMiShing scams were reported in Tampa, Fla., where a radio show received a text message from an unverified sender with a 917 area code. It contained an alert from “Tampa Bay Federal Credit Union” that urged him to call a number with a 530 area code. When Schnitt called, an automated voice told him his bank card was deactivated and to enter his card number to reactivate it. He played along and entered a fake card number and expiration date. Finally, he was prompted for his PIN and then informed his card had been verified and re-activated.  “Watch out,” he told his listeners, “you’ve just given them your card number, expiration date and (personal identification number), so they can wipe out your account.” Hurricane, another radio show personality and Tampa resident, says he received the same text message, and knew it was a scam because he doesn’t bank at Tampa Bay Federal Credit Union.

Marie Baskerville, member solutions representative at Tampa Bay Federal Credit Union, said,”We do use a third party to track transactions for evidence of fraud or suspicious activity. They will contact you by phone, never a text message or an email, so you can verify that phone number before calling back.” She further explained when you call, you may or not be prompted by automated messages to input your account number. If so, you will be transferred to a real person. “We will never ask you for the expiration date or PIN associated with your card, as we already have that information. We will ask you to list some recent transactions to verify that you are the cardholder and that you made those transactions.”

A recent TV newscast from January alerted local residents in Batesville, Ind., to watch out for fake alert texts from Indiana Bank and Trust.

Tip offs to A Mobile Banking Scam

  • Unrecognizable phone number or strange area code.
  • Urgent text message or alert.
  • Request for personal information beyond the card number.
  • Completely automated system.
  • You are not a member of the bank contacting you.

Crucial Steps to Avoid Falling Victim

  • Update your computer and mobile device  with the newest versions of anti-virus software.
  • Do not click on any embedded links and maintain a healthy suspicion about all email senders’ authenticity,
  • Remember, banks never request any personal information via email!
  • Be vigilant about checking your account balances. The sooner you notice and report any type of fraudulent activity, the more likely you’ll be able to be reimbursed for any missing funds.
  •  Download your bank’s official app for your mobile banking needs, because that’s most secure.
  • The Federal Bureau of Investigation and Federal Deposit Insurance Corp. offer the same identity theft protection warning: If you did not initiate the communication, don’t provide any information. If you believe the contact is legitimate, call the financial institution yourself at the main number listed on your card or the company’s website, never from a link provided in an email or number provided in a text message.

Steps to Prevent Mobile Phone Theft

The lack of encryption for SMS message banking means that a banking institution must continually review its security policies. In addition,  financial institutions need to educate account holders on ways to keep their information secure, including:

  • Avoid public wireless networks for banking activities.
  • Run security software on mobile devices.
  • Protect devices with strong passwords.

Has It Happened to You?

If you’ve ever fallen victim attack, I’d be interested in hearing more about your experience and any tips to avoid the problem.

Related posts:

  1. Tablet banking on the rise
  2. Digital banking fees on the way?
  3. Boomers move to online banking
Snap principle of mobile banking security:
Institutions need to:
  • lock down mobile apps, 
  • aggressively educate customers on identity theft, 
  • work to overcome consumer fears, and 
  • establish a relatively clean safety record to settle some consumer fears.

The Atlantic’s Megan McArdle looks into the real reasons “Why Companies Fail.”  Using GM as a case study, she concludes: “the answer is often culture—the hardest thing of all to change.” I see The Hartford as a case in point.

Business failure is about mismanagement – corporate culture that results in business practices that fail to balance risk with reward and complacency with scale. While short term returns are maximized for the majority shareholders (private equity firms) then there is a strong anti innovation incentive. Rather than innovate, management tinkers to fine tune shareholder equity.

Shareholder-Compliant Culture vs. Sound Business Fundamentals

Private equity firms in the past have targeted 20% returns vs. a public average of 8 – 10%.  That extra margin of 10% return creates pressure on management to focus on rationalizing operations, rather than investing in growth. For The Hartford,  fund manager John Paulson was reportedly pressing for 40 – 60% when he insisted on breaking up The Hartford to maximize the share price.

Management had already been stretching itself thin, making a series of compromising business decisions to satisfy shareholders at the expense of sound business judgement.  Not rocking the shareholder boat had resulted in the abandonment of the fundamentals of running a business,exposing them to increased market risk that came unexpectedly during the market plunge of 2008.

By the fundamentals of running a business, I mean anticipating consumer trends and opportunities, and moving resolutely and soundly to profit from them – encouraging the risks of creativity and innovation, buttressed with proper actuarial assumptions.  But habitual capitulation to shareholder pressure can make it more likely that a company will pursue the production of high profit margin widgets (as with GM’s SUVs), and/or fight to dominate a familiar market niche,  shaving margins without adequate hedging, as Hartford did in its race to add costly, improperly hedged generous living benefits to its Variable Annuity products.

Actuarial and Claims Issues Parallel the ’97 DI Market

Top-down shareholder compliant strategies can result in a slippery slope to a highly leveraged position and extreme sensitivity to market fluctuations, which further erodes profit margins and investment in distribution.  As a result of the losses and potential losses owing to their Variable Annuity living benefit provisions during the 2008 market decline, The Hartford all but discontinued sales of variable annuities, a strategic mistake that resulted in the loss of a distribution system.

Actuarial losses in products that produce periodic claims typically result in companies withdrawing from the market as the result of adverse claims and declining profits. This is what happened with Noncancellable and Guaranteed Renewable Disability Income policies with Own Occupation definitions of disability in the mid 1990s.

The Own Occupation definition of disability was so generous that a surgeon could collect benefits for “gray area claims” –  conditions with self-reported symptoms for which little objective medical data was available to support, including Fibromyalgia, Epstein-Barr Syndrome, Chronic Fatigue Syndrome, Carpal Tunnel Syndrome, and various mental- and nervous disorder-type claims.  As long as they prevented the insured from performing the duties of his own occupation (for example, surgery) but allowed him to keep working (in general practice, for instance)  a specialist could claim full disability benefits equivalent to 70% of average monthly income while continuing to practice medicine. It was a windfall profit for savvy physicians who could effectively double their earnings, but a major loss for Disability Income Insurance (DI) providers. A difficult economy caused by reduced payments under managed care plans helped touch off a spate of claims that DI providers could not sustain.

In response to the financial crisis, many insurance companies exited the disability market, while others consolidated. Three of the nation’s largest – Provident Life and Accident Insurance Company of America, Paul Revere, and Unum Corp—are now one company, UnumProvident, which writes some 40 percent of disability insurance in the country, while a handful of companies now comprise the bulk of the market.

For remaining carriers, benefits were scaled back by tightening eligibility through stricter definitions of disability, and switching to Residual Income policies, which only paid percentage of income lost due to disability.

Synopsis of the Implosion of the DI Market

Here’s an excellent synopsis of the DI market shakeout by Physicians News Digest:

By the mid-1990s, disability insurance companies began to report a large increase in the overall number of disability claims, as well as an increase in the incidence of claims for conditions with self-reported symptoms for which little objective medical data was available to support, according to Tim Mitchell, national sales director for MetLife, which concentrates on group disability writing for large companies. Such “gray area” claims, which Mitchell says continue to escalate, include Fibromyalgia, Epstein-Barr Syndrome, Chronic Fatigue Syndrome, Carpal Tunnel Syndrome, and various mental- and nervous disorder-type claims. Aggravating the trend, Mitchell adds, was an older work force than in the past and the movement of the baby boomer population into the 45 to 55-year-old age bracket, which he says produces the highest incidence of disability claims. Although these claim trends were mirrored by other occupational groups such as attorneys, says Mitchell, insurers’ experience with physician claims was particularly negative during the onset of managed care, says Mitchell. “In the past,” he says, “physicians with disabilities were so dedicated to their occupation and making so much income that they were willing to work through their disability.” Managed care reduced physician income and increased bureaucratic hassle, he adds, leaving disabled physicians less willing to work through a disability. Perry notes that adverse physician claims experience was particularly acute in the California area, where managed care had a head start on the rest of the country. A less charitable assessment, made by some insurance companies and analysts during the crisis of the mid-1990s, was that managed care had eroded healthy physicians’ work ethic and that many found that they could earn a considerable income by cashing in their generously-written disability policies.

Hartford Suffers The Same Fate

The “quantitative myopia” of The Hartford caused them to build in generous product features that would kick in during a bear market. But it seems they failed to factor in the worst case scenario – that a bear market might actually arrive. The tipping point came in the form of the recent mortgage bubble collapse.

The ones who suffered from this were employees who faced layoffs, and today face massive layoffs since the situation has became so untenable that private equity shareholders have demanded units be spun off.  Paulson wants The Hartford to focus on its more profitable core business to increase shareholder returns 40% to 60%.

Problems of this magnitude often never come to light until the last minute because, as long as influential shareholders are getting a reliable return, they are content to allow the business to manage itself, while, within the organization, there is little incentive to rock the boat, fund innovation, and undertake creative risk tempered by sound risk management.

The Mistake That We are Condemned to Repeat

This is, unfortunately, an inherent flaw in our capitalist model, and one that is difficult to resolve from the inside. Outside in oversight can be established in the form of reserve requirements and such, and government has a role to play in this as the canary in the coal mine.  But government’s role is, of course, reactive rather than proactive, focusing on consumer protection and ethical trade, and the financial integrity of the institution.

The large banks are today fast approaching a point of insustainability that may require private equity firms to eventually break them up as well. But we know historically that if we wait that long, it’s already too late to undo tremendous damage to the broader economy.  At that point there are calls for government bail outs, and the endemic issues of corporate governance are left untouched.

Theodore Roosevelt took an activist approach to trust busting, to break up institutions that overreach, and laws like Glass Steagall were effective protections against the self-destructive cannibalistic policies that resulted from the merger of consumer banking with investment banking. Deregulation and failure to rigorously oversee business practices, including most prominently the trading of derivatives, resulted in a major financial setback resulting in a housing crisis, massive unemployment, ballooning public debt and increased income polarization.

Today, lacking real corporate governance, retail institutions like Walmart have forced suppliers to compete for the lowest possible unit costs, resulting in manufacturing being shipped to China and Bangladesh for 40 cents per hour wages, further eroding economic viability and lowering GDP. All we can do is throw up our hands and say that the answer is to just let the “free market” rein, drill for more oil and frack for gas, simplistic answers that ignore root issues.

You would think that business schools would have trained managers and congress to better understand the fundamentals of running a business.  It appears that government works in much the same way that the private sector does, with large shareholders dictating economic policy. Politicians are for the most part myopic lawyers who are largely ignorant of economic theory and trained to represent paying clients for billable hours (short term profit.) As in the corporate culture, the advice of trained economists is marginalized.

Quantitative myopia means running a business for shareholder gain rather than sustainability and long term profit.  This can be avoided through forward-looking, rigorous business practices that balance the needs of all stakeholders.

Snap principle of sound business management:

Invest in profitable lines of business and control for inevitable volatility.

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