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Week of Sept. 30, 2016

Advisers Say this part of Hillary Clinton's Estate-Tax Plan is Worse than the Higher Rate

( Investment News ) September 23, 2016 – Democratic presidential nominee Hillary Clinton took another stab at the nation's wealthiest Americans on Thursday, endorsing an increase in the top estate-tax rate — a sharp contrast to her opponent Donald Trump's plan to eliminate the estate tax altogether. But that increased rate is not what concerns financial advisers most. She would set the top tax rate at 65% for estates over $500 million for individuals and $1 billion for married couples, according to the updated plan on her campaign website. This compares to the current highest rate of 40% on estates over $5.45 million per person ($10.9 million per married couple).

IRS Warns On New Scam Involving Fake Tax Bills & Affordable Care Act

( Forbes ) September 22, 2016 – New scams are popping up every day. Today, the Internal Revenue Service and its Security Summit partners issued an alert to taxpayers and tax professionals to be on guard against fake emails purporting to contain an IRS tax bill related to the Affordable Care Act. The IRS says that it has received numerous reports of the scam which involves an email with an attachment. The email attachment is typically a fake CP2000 notice for the tax year 2015. That’s your first red flag: a real CP2000 notice is mailed to taxpayers through the U.S. Postal Service. It is never sent as part of an email to taxpayers. Here’s what else to look for.

New Private Debt Collection Program to Begin Next Spring; IRS to Contract with Four Agencies; Taxpayer Rights Protected

( IRS ) September 26, 2016 – The Internal Revenue Service announced today that it plans to begin private collection of certain overdue federal tax debts next spring and has selected four contractors to implement the new program. The new program, authorized under a federal law enacted by Congress last December, enables these designated contractors to collect, on the government’s behalf, outstanding inactive tax receivables.

New IRS e-Services Authentication Process Requires Re-registration

( Journal of Accountancy ) September 23, 2016 – The IRS notified tax practitioners and taxpayers who use many IRS e-services that it is strengthening the authentication process for identifying users and that the new, more stringent procedures will require existing users to re-register (Oct. 24 is the target date for the start of re-registration). Any current e-account holder is affected.

Challenges Filed to DOL Overtime Regulations

( JDSupra Business Advisor ) September 27, 2016 – The U.S. Department of Labor’s new regulations governing the “white collar” exemptions from overtime are only two months away. Under the new regulations, which go into effect on December 1, 2016, “white collar” employees must receive $913 per week (the equivalent of $47,476 per year) instead of the current threshold amount of $455 per week in order to remain exempt. This salary threshold will be automatically increased every three years, beginning January 1, 2020.

FASB Offers More Narrow Corrections to New Revenue Rule

( Compliance Week ) September 20, 2016 – The Financial Accounting Standards Board has issued another proposed update to the massive new standard on revenue recognition to address more technical corrections and upgrades on a handful of narrow issues. As with earlier revisions to the standard, the latest proposal is meant to clarify what the board originally had in mind in 2014 when it finalized the new revenue recognition requirements, which take effect for public companies in 2018. The new standard replaces hundreds of historical accounting pronouncements adopted piecemeal over many years to tell companies when and in what amounts they should recognize revenue in financial statements.

SEC Advancing Third-Party Exam, Fiduciary Rule Plans

( ThinkAdvisor ) September 27, 2016 – Commissioners at the SEC are currently reviewing staff recommendations on a rule to require “independent compliance reviews” for advisors, or third-party exams, as well as a “detailed outline” on a uniform fiduciary duty rule for brokers and advisors, agency Chairwoman Mary Jo White said Tuesday. During a question-and-answer session at the Securities Industry and Financial Markets Association’s annual capital markets conference in Washington, White also said coordination between the SEC and the Department of Labor continues regarding implementation of Labor’s fiduciary rule.

Is Progress Being Made on Enhancing Audit Quality?

( AccountingWEB ) September 27, 2016 – Audit quality is on everyone’s radar screens these days as regulators and stakeholders heed increasingly complex business environments. So, it’s no surprise that the American Institute of CPAs continues to weigh in on how to improve this segment of the accounting profession. A new report, AICPA Enhancing Audit Quality Initiative: Highlights and Progress 2016, is a report card of sorts on the six-point plan to improve audit quality that the AICPA launched last year. The report acknowledges the long-term effort required by thousands of firms and auditors, regulators, and standard-setters at state and federal levels to improve audit quality.

Workplace Leaders: Yes, You Do Have to Sweat the Small Stuff When it Comes to Employee Relations

( Industry Week ) September 27, 2016 – Leaders who fail to address the “little things” before they escalate risk workplace behaviors that result in low productivity, low affinity, and low levels of employee engagement. Here is a guide to what to look for and what questions will help clarify the problems. Paying attention to the details is a lost art in many circles, but when it comes to communicating effectively at work, it’s essential.

It’s Time to Talk about State and Local Pension Debt

( Tax Analysts ) September 27, 2016 – Those in state and local government should be well aware of the level to which pension plans are underfunded. According to an article published in State Tax Today on September 20, there “isn’t a pension fund in America that can earn its way out of its liabilities.” Most state and local governments provide some form of retirement income for their employees. Often, governments provide defined benefit plans, in which employees are guaranteed a specific pension payment upon retirement. Defined benefit plans are funded through dedicated trust funds, which are funded to cover future pension liabilities. Payments into those trust funds come from employers (the state or local government) and employees, and the amounts in the funds are invested.

Advisers Say this part of Hillary Clinton's Estate-Tax Plan is Worse than the Higher Rate

She would set the top tax rate at 65% for estates over $500 million for individuals and $1 billion for married couples, according to the updated plan on her campaign website. This compares to the current highest rate of 40% on estates over $5.45 million per person ($10.9 million per married couple).

Ms. Clinton also would set a 50% rate for estates over $10 million and 55% rate for those over $50 million. Before this change, she had supported a top estate-tax rate of 45%.

But what's of particular concern to advisers is that she'd also remove aspects of the tax code that people use to make their estates “appear to be worth less than they really are,” according to Ms. Clinton's website.

“The real focus of her new estate-tax plan is the elimination of the step-up in basis for all. This will impact a very large number of Americans,” said Victoria Fillet, president of Blueprint Financial Planning. “The raise in the estate tax is primarily focused on the very rich, and they have sophisticated tax planning done by a bank of accountants and will probably not be impacted.”

When investors get a so-called step-up in basis at death, the inheritors of the assets don't have to pay capital gains tax.

For instance, a couple buys a $50,000 house that is worth $500,000 when they die and leave it to their daughter. Today she receives a step-up in value to the current market price, and if she sells at that new market price, there are no tax consequences, Ms. Fillet said.

Under Ms. Clinton's plan with no step-up in basis, that daughter would owe capital gains taxes on $450,000, she said.

“This will seriously impact inheritances for many middle- and lower-income Americans,” Ms. Fillet said.

The step-up in basis applies to any appreciated asset in the estate that are not included in a qualified plan, such as an individual retirement account or a 401(k).

Charlie Douglas, director of wealth planning at Cedar Rowe Partners, agrees that the loss of step-up in basis would be significant for many.

He points out that Republican candidate Donald Trump, who has called for repeal of the estate tax, has been mum on his plans for the step-up, while former candidate Jeb Bush had said he'd support getting rid of the step-up in exchange for eliminating the estate tax.

Any estate-tax change would need Congressional approval, a challenge in the current political environment. These two estate-tax components may end up being part of a compromise, Mr. Douglas said.

“Some say Hillary's plan would be dead on arrival, but that that's not the point,” he said. “The point is this is about politics and horse-trading, and we'll see if it becomes a tradeoff between her higher estate-tax rates and keeping the step-up.”

Russell J. Fishkind, partner and estate-planning lawyer at Saul Ewing, said it’s surprising Ms. Clinton is supporting the elimination of the step-up because that will affect everyone, not just the wealthiest Americans that her other tax increases would impact.

“I think her whole estate-tax policy is really a debate piece to highlight the differences between her and Donald Trump,” he said.

Targeting the estate-tax rate is only the most recent tactic of having the wealthiest in the nation pay more in taxes. She also backs a cap on itemized deductions and a 4% “fair-share surcharge” on those with incomes over $5 million.

IRS Warns On New Scam Involving Fake Tax Bills & Affordable Care Act

( Forbes ) September 22, 2016 – New scams are popping up every day. Today, the Internal Revenue Service (IRS) and its Security Summit partners issued an alert to taxpayers and tax professionals to be on guard against fake emails purporting to contain an IRS tax bill related to the Affordable Care Act.

The IRS says that it has received numerous reports of the scam which involves an email with an attachment. The email attachment is typically a fake CP2000 notice for the tax year 2015. That’s your first red flag: a real CP2000 notice is mailed to taxpayers through the U.S. Postal Service. It is never sent as part of an email to taxpayers.

Here’s what else to look for:

• The fake CP2000 notices appear to be issued from an Austin, Texas, address;

• The underreported issue is related to the Affordable Care Act (ACA) requesting information regarding 2014 coverage;

• The payment voucher lists the letter number as 105C;

• The fake CP2000 notice included a payment request that taxpayers mail a check made out to “I.R.S.” to the “Austin Processing Center” at a Post Office Box address; and

• The check request is in addition to a “payment” link within the email itself.

If you receive this scam email, do not respond and do not open the attachment. Forward the email to phishing@irs.gov and then delete it.

Typically, a CP2000 is generated when income reported from third-party sources (like your employer) does not match what is reported on the tax return. The notice provides instructions about what to do next.

The issue has been reported to the Treasury Inspector General for Tax Administration for investigation.

If you get an email asking you to visit a website or answer personal questions, do not reply and do not click on any links in the email. Remember that the IRS has previously confirmed they will not:

• Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you several bills.

• Call or email you to verify your identity by asking for personal and financial information.

• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.

• Require you to use a specific payment method for your taxes, such as a prepaid debit card.

• Ask for credit or debit card numbers over the phone or email.

New Private Debt Collection Program to Begin Next Spring; IRS to Contract with Four Agencies; Taxpayer Rights Protected

The new program, authorized under a federal law enacted by Congress last December, enables these designated contractors to collect, on the government’s behalf, outstanding inactive tax receivables. As a condition of receiving a contract, these agencies must respect taxpayer rights including, among other things, abiding by the consumer protection provisions of the Fair Debt Collection Practices Act. The IRS has selected the following contractors to carry out this program:

CBE Group
1309 Technology Pkwy
Cedar Falls, IA 50613

Conserve
200 CrossKeys Office park
Fairport, NY 14450

Performant
333 N Canyons Pkwy
Livermore, CA 94551

Pioneer
325 Daniel Zenker Dr
Horseheads, NY 14845

These private collection agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working their accounts. Several factors contribute to the IRS assigning these accounts to private collection agencies, including older, overdue tax accounts or lack of resources preventing the IRS from working the cases.

The IRS will give each taxpayer and their representative written notice that their account is being transferred to a private collection agency. The agency will then send a second, separate letter to the taxpayer and their representative confirming this transfer.

Private collection agencies will be able to identify themselves as contractors of the IRS collecting taxes. Employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act and must be courteous and respect taxpayer rights.

The IRS will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continual phone scams where callers impersonate IRS agents and request immediate payment.

Private collection agencies will not ask for payment on a prepaid debit card. Taxpayers will be informed about electronic payment options for taxpayers on IRS.gov/Pay Your Tax Bill. Payment by check should be payable to the U.S. Treasury and sent directly to IRS, not the private collection agency.

The IRS will continue to keep taxpayers informed about scams and provide tips for protecting themselves. The IRS encourages taxpayers to visit IRS.gov for information including the “Tax Scams and Consumer Alerts” page.

For more information visit the Private Debt Collection page on IRS.gov.

New IRS e-Services Authentication Process Requires Re-registration

Any current e-account holder is affected, which the IRS said includes:

• Electronic return originators
• Return transmitters
• Large business taxpayers required to e-file
• Software developers
• Health care law insurance provider fee/branded prescription drug filers
• Health care law information return transmitters/issuers
• Reporting agents
• Not-for-profit (Volunteer Income Tax Assistance (VITA), Tax Counseling for the Elderly (TCE), and Low Income Taxpayer Clinic (LITC)) users
• States that use Transcript Delivery Service
• Income Verification Express Service (IVES) participants

E-services account holders who use only the taxpayer identification number (TIN) matching program will also need to validate their identity but will have a streamlined process because they do not exchange sensitive data. (TIN matching allows payers reporting payments on Forms 1099 to check the payee’s TIN with the IRS before filing.)

Current users who return to their accounts on or after Oct. 24 will be required to update their account information through the IRS’s “Secure Access” process, which includes proving the user’s identity, verification using financial records, and mobile phone verification.

Secure Access employs a two-factor authentication process, under which returning users, once they have successfully registered, must provide their credentials (username and password) and the security code sent to their mobile phone by text. These are the same procedures that already apply to the Get Transcript process and the identity protection personal identification number (IP PIN) process for identity theft victims.

This two-factor authentication process is intended to prevent cybercriminals from accessing the accounts when they obtain usernames and passwords through phishing.

Users who have already registered through Get Transcript will not have to re-register for these other services, but they will have to change their password when they return to the website. They should be aware that they will have the same username for their personal accounts, such as a Get Transcript account, as they do for e-services.

To help users with the new authentication process, the IRS is hiring additional staff to assist at the e-Help Desk.

Challenges Filed to DOL Overtime Regulations

Just last week, however, a group of 21 states filed a lawsuit in a Texas federal court challenging the legality of the new regulations. The states claim that the federal regulations unlawfully infringe upon their right to determine how their employees are paid. They also argue that the automatic “escalator” provision is unlawful and that the Department acted in an “arbitrary and capricious” manner in passing the regulations.

The stakes are certainly high for both public and private employers, as the new regulations are expected to make more than 4 million workers newly eligible for overtime, costing employers nearly $1.2 billion per year. It is far from certain, however, that this or any other legal challenge to the new regulations will succeed. Accordingly, we recommend that employers affected by the regulations continue to prepare as if the December 1 effective date will stand.

FASB Offers More Narrow Corrections to New Revenue Rule

As with earlier revisions to the standard, the latest proposal is meant to clarify what the board originally had in mind in 2014 when it finalized the new revenue recognition requirements, which take effect for public companies in 2018. The new standard replaces hundreds of historical accounting pronouncements adopted piecemeal over many years to tell companies when and in what amounts they should recognize revenue in financial statements.

The current batch of corrections includes new language to make it clear that loan guarantee fees are not within the scope of the new revenue recognition standard, along with amendments to clarify the requirements around contract assets and receivables. Additional issues addressed in the current proposal include clarifications around how to treat refund liabilities and how to treat advertising costs.

FASB is inviting comments on the proposal to assure it addresses questions that companies have raised as they have worked through preparations to implement the new standard. The comment period is short, however, with responses due by Oct. 4. The board is trying to finalize any outstanding revisions to the standard so companies will have firm and final guidance as they continue to move toward adoption.

In a recent webcast to explain the new standard, a poll of more than 1,600 participants revealed 18 percent of participants reported their organizations have made “significant progress” to prepare for the new standard, while 25 percent said they had recently started. Another one-fourth said they had not yet begun any implementation activity, and the rest of the webcast participants did not represent the corporate preparer community.

FASB has already delayed the original 2017 effective date by one year to give companies more time to prepare for adoption. In FASB’s recent webcast, James Kroeker, vice chairman of FASB, indicated the board is not having any new discussions around deferring the effective date further. The board also regards the latest technical corrections proposal as likely the last revision that will need to be made to the standard that would apply to public companies, unless something new materializes through the activity of the Transition Resource Group.

The TRG has vetted dozens of implementation questions and referred a handful to FASB for clarification through the rule-making process. That prompted FASB to issue clarifications around identifying performance obligations, licensing agreements, recognizing revenue on a net versus gross basis, and other narrow-scope clarifications and practical expedients.

SEC Advancing Third-Party Exam, Fiduciary Rule Plans

During a question-and-answer session at the Securities Industry and Financial Markets Association’s annual capital markets conference in Washington, White also said coordination between the SEC and the Department of Labor continues regarding implementation of Labor’s fiduciary rule.

During her Q&A with SIFMA president and CEO Ken Bentsen, White said that SEC staff has completed the “independent compliance reviews” plan for advisors and that the proposal is “now with the commissioners.”

Indeed, White told reporters on the sidelines of the meeting that SEC Commissioners Kara Stein and Michael Piwowar are “studying” a recommendation from SEC staff on what the industry dubs a third-party exam rule for advisors, but said she “couldn’t predict the timing” on when such a rule would come up for a vote.

Norm Champ, the former director of the SEC’s investment management division, told ThinkAdvisor in a recent interview that he believes White “could propose” the third-party exam rule for advisors before the election. Champ, who’s now a partner in Kirkland & Ellis’ private funds group, has criticized the idea of third-party advisor audits.

White also addressed the continuing coordination between the SEC and the DOL regarding Labor’s fiduciary rule.

“The coordination is going on and will continue to go on” with respect to the rule, White said. “Before, we’ve had some overlapping rules where we’ve had to coordinate, maybe not in the same dimension…we’re listening to those issues of implementation. The challenges are there, and we are very receptive to hear about those challenges.”

As to the SEC finalizing its own fiduciary rule, White reiterated her position that she supports the agency moving ahead with such a rule, but stated: “I’m one vote; it’s very complex.”

A fiduciary rule making by the SEC “needs to be a data driven exercise so we get it just right,” White continued, so that “we’re achieving the objective of a fiduciary standard,” which is to raise the bar for financial professionals without depriving retail investors of reasonably priced and accessible advice.

As it stands now regarding an SEC fiduciary rule, “staff has provided the commission a detailed outline about such a rule; that’s before the commissioners for their consideration. But as you know, there are different views from different commissioners about the subject,” White said. “I’m being clear that it’s not anytime soon, but we continue to focus on it.”

Because an SEC fiduciary rule would comply with Section 913 of the Dodd-Frank Act, which does not apply to Labor and the Employee Retirement Income Security Act, White said she would not expect that an SEC fiduciary rule would be “identical” to DOL’s. “There are differences in what I would expect to see.”

The SEC is also “constantly” attempting to increase coverage of registered investment advisors, White said. “I’ve taken a number of actions to increase the exam coverage,” she said, noting that 2,000 new RIAs came under the SEC’s purview in the last year.

But despite transferring some SEC examiners who focus on broker-dealers to advisors, as well as doing some “targeted hiring” of exam staff from Congressional appropriations increases, the agency's Office of Compliance Inspections and Examinations is "still under resourced."

White also said she sees fintech having “the potential to transform the securities industry — from trading, clearance and settlement to how advice is provided,” and she added “the SEC, and staff, is very, very focused on this.” The agency plans to hold a Fintech Forum on Nov. 14 with regulators and industry representatives to talk about everything from automated advice to compliance, the SEC Chairwoman said.

Is Progress Being Made on Enhancing Audit Quality?

A new report, AICPA Enhancing Audit Quality Initiative: Highlights and Progress 2016, is a report card of sorts on the six-point plan to improve audit quality that the AICPA launched last year.

The report acknowledges the long-term effort required by thousands of firms and auditors, regulators, and standard-setters at state and federal levels to improve audit quality.

“There is still much more to do,” Susan Coffey, CPA, CGMA, executive vice president for public practice at the AICPA, said in a prepared statement. “Ultimately, audit quality results from a profession-wide dedication to continuous improvement and evolution. The profession has taken significant steps to keep pace with the expectations and demands to protect the public.”

Here are the highlights of the progress report.

Prelicensure. Evolution of the CPA exam is in the works. The next version is expected to launch in April with more emphasis on critical and analytical thinking, as well as solving problems. The Audit and Attestation section will test analysis and evaluation, and use simulations to test competence in recognizing issues, identifying errors, challenging assumptions, and applying professional judgment and skepticism.

Standards and ethics. The AICPA Auditing Standards Board is working to improve the relevance of an auditor’s report through proposed changes to Generally Accepted Auditing Standards.

CPA learning and support. Auditors can test their know-how and competency in various subject matters on the AICPA/CIMA Competency and Learning Website. Subjects include employee benefit plan (EBP) audits, government audits, IT, nonprofits, and financial accounting and reporting.

EBP and single-audit engagements have specific learning programs that can lead to a certificate.

Peer review. Root-cause analysis was added to peer reviews after engagements subject to enhanced oversight doubled this year.

Reviewers are studying certain industries and high-risk areas, including EBP audits and single audits. Also, poor-performing firms that fail to remediate can be more quickly booted out of the Peer Review Program.

A new data-matching program this year increases the ability to identify firms that should be enrolled in peer review actually are enrolled, and that engagements that should be reviewed actually are.

The Office of Management and Budget (OMB) Uniform Guidance for Federal Awards requires a quality study every six years covering single audits submitted by the Federal Audit Clearinghouse. The first study on single audits sent to the clearinghouse no earlier than 2018 is scheduled for 2019 or 2020, to be determined by the OMB. Needless to say, AICPA outreach is helping firms prepare for the reviews.

Practice monitoring. Changing peer review into an almost real-time monitoring experience is in the works, along with the pilot of a self-monitoring tool that firms can use internally.

Enforcement. The AICPA Professional Ethics Division is working with the National Association of State Boards of Accountancy and the U.S. Department of Labor (DOL) on an initiative that would allow the division and DOL to share investigative files with state boards of accountancy. The division also is searching public databases to identify possible issues for outreach efforts.

Workplace Leaders: Yes, You Do Have to Sweat the Small Stuff When it Comes to Employee Relations

Paying attention to the details is a lost art in many circles, but when it comes to communicating effectively at work, it’s essential.

Leaders who fail to pay detailed attention to their team’s interpersonal dynamics will quickly discover that when employees are not working cohesively as a team, performance will lag and previously-high metrics will be more elusive to achieve.

Dysfunction thrives when leaders fail to explore and address specific behaviors that result in low productivity, low affinity, and low levels of employee engagement. And direct reports, almost without exception, tend to view leaders who procrastinate in addressing the team’s disruptive behavior as weak, ineffective and incompetent.

Gallup reports that approximately 68% of the workforce is disengaged or actively disengaged; so clearly, this is an issue that cannot be ignored.

This is a serious challenge and it falls squarely on the shoulders of the leader.

In leadership, the following axiom is true: What you ignore becomes more. What you tolerate will soon take over. But what you challenge will change.

Over the years, I’ve developed a model to help motivate leaders to address the “little things” before they escalate to something far more unmanageable. The premise is very straightforward. There are three levels at which the leader can intervene in the conflict escalation process:

Inconveniences. These are the small incidents that, if allowed to reoccur, begin to grate on the nerves and patience of the team member.

Being left out of an email chain, not being recognized in a meeting, or making an appointment with a leader that is not kept are all small things that if they continue to occur or are left unaddressed, can damage a work team.

These behaviors may not be deal breakers when considered individually, but think of each incident as a drop of water accumulating in a bucket; eventually, the bucket will overflow.

Conflict. Conflict manifests itself in many forms. At this stage, accumulated inconveniences bring about a more aggressive display of retaliatory behaviors.

Those behaviors may include arguments, avoidance, sabotage, or attempts to besmirch the competence or character of another team member. Here, the persistence of conflict can easily contribute to the perception of a hostile or intimidating environment.

Crisis. This occurs when outside entities become interested and involved in the problem. Once your company is the lead story on the evening news or the front page story in the newspaper, you have a crisis on your hands.

Lawyers or public relations professionals can spin the situation, but crisis mitigation is always expensive. It takes a toll on your bottom line as well as team morale and your company’s reputation.

It’s crucial to note that each move along the continuum requires a different set of skills, and each move also further expends human and capital resources. As a responsible steward of organizational resources, leaders do well to remember this: it will always require fewer resources to address an inconvenience than to resolve a conflict.

In short, it pays to be proactive.

Here are seven of the most common inconveniences that can occur in a workplace:

Capricious Rule Enforcement. Allowing a few employees to circumvent rules and guidelines is not a good bet. An example may be that some people almost always return late from lunch and break, without consequence.

Being Left Off/Out of Communications. Anyone can make a mistake – once or twice-- but when there is a pattern of being excluded from the flow of information, it won’t be long before this becomes a point of contention.

Role Confusion/Ambiguity. A coworker behaves as if he or she is the supervisor – but he isn’t-- nor has he been asked or authorized to do so. A reminder of his or her role in the organization is absolutely essential and the situation should be immediately rectified.

Overt Displays of Insensitivity. Seemingly “innocent” comments or feigned humor that can be construed as belittling or insulting can reinforce common negative stereotypical perceptions. If this behavior is allowed to continue, team members may become disengaged or depart.

Minimalizing Ambitions. To be overlooked in consideration for a learning opportunity or a special assignment is off-putting, especially when a team member or manager nonchalantly says, “Oh, I didn’t know you were interested in that sort of thing.”

Isolation/Exclusion. Everyone likes to be included. People are sensitive. To be an “after-thought” when invitations to lunch or after-work events are extended incites anger and resentment.

Selective Validation of Ideas or Contributions. When a new idea is floated in a meeting, note which ideas are met with enthusiasm and which are met with disdain or derision. Endorsing contributions and ideas contingent upon the performer or the source of the idea, not on objective merit, is a sure-fire way to get under a team member’s skin.

In order to identify these inconveniences as early as possible, and then work to reduce or eliminate them, the leader must initiate honest and genuine conversations. These conversations should encourage direct reports to share their experiences—good and bad-- as a team member. Use probing questions to achieve this goal-- not in the sense of an interrogation, but in an inquisitive, curious manner.

Here are four key questions that will help any leader get under the surface of a team’s interpersonal dynamics:

• How would you characterize your experience as a member of this team?

• When do you feel most respected as a member of this team?

• What behaviors leave you feeling, in any way, disrespected?

• From your perspective, what would enhance our overall team dynamic?

Remember this: the quality of your questions will define the effectiveness of your leadership. And while these questions may not be especially entrancing, the ensuing dialog will pay remarkable dividends.

There will always be challenges in inspiring a team to reach its full potential, but they can be dramatically lessened if a leader simply pays attention to the details surrounding a team’s interpersonal interactions. To ignore the early-warning signs is to set up yourself and your organization for disheartening and costly setbacks in the marketplace.

Staying proactively attuned to the team’s dynamic positions the leader to effectively leverage the talents of the team while preempting potentially distracting or divisive behaviors. The best leaders know this and practice it faithfully; moreover, they make a practice of encouraging their direct reports to do the same.

It’s Time to Talk about State and Local Pension Debt

( Tax Analysts ) September 27, 2016 – My colleague Maria Koklanaris recently wrote an excellent article on the pension debt held by state and local governments. It’s worth a read. Those in state and local government should be well aware of the level to which pension plans are underfunded. According to Koklanaris’s article, which was published in State Tax Today on September 20, there “isn’t a pension fund in America that can earn its way out of its liabilities.”

Most state and local governments provide some form of retirement income for their employees. Often, governments provide defined benefit plans, in which employees are guaranteed a specific pension payment upon retirement. Defined benefit plans are funded through dedicated trust funds, which are funded to cover future pension liabilities. Payments into those trust funds come from employers (the state or local government) and employees, and the amounts in the funds are invested.

The level of underfunding in state and local government pensions is significant.

When I first wrote about this in 2012, it was estimated that state and local government pensions were underfunded by approximately $1 trillion. And the picture was even worse if liabilities are valued using "low-risk" discount rates. Under that approach, state and local pension plans were estimated to be underfunded by $3 trillion. According to new numbers from the Actuarial Standards Board, state and local governments are now underfunded by over $5 trillion. It’s a staggering figure, and it hasn’t improved in the last four years.

Many state and local governments also provide healthcare benefits to retired state and local government workers, as well as life insurance and other smaller benefits. Those programs often receive little funding because they are funded on a pay-as-you-go basis. The situation could be made worse if the federal government increases the eligibility age for Medicare. Liabilities for those programs would increase because state and local government healthcare benefits often provide coverage during the transition period between retirement from government service and eligibility for Medicare.

States must begin planning for the future. This is not a can to be kicked down the road. Given consistently tight budgets year after year, the always present potential for a decrease in federal funding (even if for programs that are not directly related to state pensions or healthcare), the existing underfunded programs, and the fact that most states must balance their budget each year (and must stop shifting funds to achieve a balanced budget), states have no ability to put off planning for the future. They must plan for more than one year at a time.

What does that mean? It means state and local officials will have difficult decisions to make. Do they raise taxes or lower expenses or both? The debts are coming due, so as much as politicians like to avoid being the one who raised taxes or reduced services, they will have to be honest with voters about the choices that were made and what it will take to eliminate the underfunding.

As Stanford University professor David Crane said in Koklanaris’s article, “When you’re in a hole, stop digging.”

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