Earlier this month, the U.S. Department of Agriculture (USDA) announced details of a framework intended to transform supply chains in the food and beverage industry and provide more funding for companies filling a demonstrated need. The framework is a response to the challenges revealed by the COVID-19 pandemic and supply chain disruptions due to Russia’s war in Ukraine and aims to improve the food supply chain at every step between farm and fork.   Significant funding is available to qualifying companies as part of the framework, including:  $650 million in funding and loan assistance for meat and poultry processing projects
This includes $275 million to help entrepreneurs who have had trouble getting credit and $100 million for training workers in meat processing  $600 million for improving food supply chain infrastructure, including cold storage and refrigerated trucks, outside of meat and processing  $200 million to help fruit and vegetable growers comply with food safety regulations  $400 million to create regional food business centers that will provide coordination and technical assistance and other support to small and 
mid-size businesses involved in processing, distribution and aggregation  $155 million to expand USDA’s Healthy Food Financing Initiative, which is aimed at reducing food deserts  $90 million to prevent and reduce food loss and waste  $60 million farm-to-school programs that increase markets for smaller-scale farmers through child nutrition programs Baker Tilly’s food and beverage industry team can help companies considering applying for funding through the framework. Our team can help clients evaluate the opportunity through third party feasibility assessments and more.  In addition, our project development office can assist companies looking to expand or relocate as part of investments in supply chain infrastructure. This team of specialists can help perform site suitability assessments, recommend potential locations based on labor availability and help companies navigate relationships with economic development groups to maximize tax incentives.  

Manufacturing & Distribution

Food & Beverage

Distribution

Agribusiness

Craft Beverage

Manufacturing Project Development Office

Additional funding available to companies investing in food supply chain infrastructure

It is common for people, particularly those early in their careers, to hop from job to job, or to move from home to home.   In many cases, employees are enrolled in retirement plans that accumulate thousands of dollars during their tenure with a company. Yet when they leave a job, those retirement dollars often get lost in the shuffle, as it is common to change addresses and forget to update contact information with prior employers. Thus, their ability to one day receive their retirement funds takes a major hit.  With this issue in mind, the Employee Benefits Security Administration (EBSA) has started to place a high priority on helping retirement plans locate and communicate with these missing participants.   After all, these accounts are just sitting there dormant – and the money can be rather significant. And from the plan sponsors’ perspective, they are often paying fees on these accounts, or sometimes undergoing an audit because the number of missing participants is causing them to exceed the audit threshold. Not to mention that plan sponsors typically must pay out required minimum distributions when participants reach 72 years old and must disclose unpaid benefits to the public on their Form 5500.  In short, missing participants present a potential hassle for plan sponsors, as well as obviously a potentially squandered financial opportunity for the missing participants themselves.   Be aware of the red flags With so much on the line for plan sponsors, it is certainly important to recognize the red flags that commonly surround missing participants. In fact, plan sponsors quite often do not realize the number of missing participants that they have, so these warning signs can be particularly helpful in those cases.  The first warning sign is having more than a small number of missing or nonresponsive participants. Obviously any company can have one participant, or a few participants, who are difficult to track down. This is particularly true in industries that experience a high turnover rate. But more than a few is an early indicator that some (or many) of those participants might be missing.   Additionally – and this only applies to pension plans, it can be a warning sign when a plan has more than a small number of vested participants who are not receiving benefits despite being at a normal retirement age.   Problems with contact information, or census data, are another red flag. Disconnected phone numbers or mail that gets returned should raise eyebrows that a plan’s information is not up-to-date, which of course can be an indicator of missing participants. In turn, additional signs that missing participants may be a significant problem.  Leading practices to remember The Department of Labor has highlighted four areas of best practices that plan sponsors can focus on as they strive to locate and resolve missing participants – and to avoid falling into a similar situation in the future. We have highlighted the key areas in bold below.  The first is the importance of maintaining accurate census information for the plan’s participant population. That means contacting plan participants periodically to ensure their contact information is current. An important aspect of maintaining accurate contact information is having an online platform for the plan that allows participants to update their contact information and, in turn, the plan’s census information. With that in mind, plan sponsors also should regularly audit the census information and correct any errors.   Implementing effective communication strategies is another area that plan sponsors should focus on to avoid having missing participants. Some of these best-practice strategies in this area are using simple language, offering non-English options, encouraging the use of websites and toll free numbers to update information, and addressing the importance of maintaining accurate information at employee onboarding – and during the employee exit/retirement process.   When it comes to missing participant searches, it is recommended that plan sponsors check other available plan and employee records for correct contact information – not just for the participant, but also for their spouses, beneficiaries and next of kin. In other words, even though one particular plan may not have current contact information (creating a missing participant situation), it is possible that another plan, or other company records (such as payroll) could be updated and accurate.   Other techniques related to this area are to use a commercial locator service (either an agency or an internet search tool) to locate individuals. Sometimes using the postal service to reach out to the participant’s last known mailing address can be a worthwhile endeavor. And of course email addresses, telephone numbers and social media are possible options, as well. Don’t limit yourself to mailing addresses.  Finally, it is very important for plans to document procedures and actions. Not only is it critical to have the plan’s policies and procedures in clear, consistent writing to help past, current and future employees understand the situation. But also if the plan ever came under audit, the documented procedures and actions could prove to be significant.   Having documented procedures and actions is even more critical for plans that use a third party to maintain records and contact information.  For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team. 

The EBSA places high priority on helping retirement plans locate and communicate missing participants to prevent exceeding the audit threshold.

Assurance

Employee Benefit Plan Audit

Retirement plans and missing participants: examining the issues, warning signs and solutions

Amid the always evolving landscape of cybersecurity risks and technological threats, organizations are constantly faced with various pressing concerns. Is our clients’ data secure? Is the data maintaining its integrity throughout the transactional process? Will the data be readily available in situations of potential downtime? These questions, amongst many others, can be addressed by undergoing a System and Organizational Controls (SOC) 2®  examination. What is a SOC 2 report? A SOC 2 report evaluates the design and operating effectiveness of internal controls of a service organization and is focused on the systems that capture, store, transmit or process customer data. The primary focus of the SOC 2 relates to data security, which is one of five trust services categories established by the American Institute of Certified Public Accountants (AICPA). Additional categories can be included within the SOC 2 report. These additional categories include availability, processing integrity, confidentiality and privacy.  AICPA trust services categories Security – information and systems are protected against unauthorized access 
Availability – information and systems are available for operations to meet the service organization’s objectives 
Processing Integrity – system processing is complete, valid, accurate, timely and authorized to meet the service organization’s objectives
Confidentiality – information designated as confidential is protected to meet the service organization’s objectives 
Privacy – personal information is collected, used, retained, disclosed and disposed of to meet the service organization’s objectives  The security, availability, and processing integrity categories are related to the system, and the confidentiality and privacy categories are related to the information processed by the system. SOC 2 report value The SOC 2 report is utilized to inform external stakeholders, which often includes compliance officers, CIOs/CISOs, vendor risk management professionals, potential business partners, and other executives who oversee governance functions. Information that can be obtained via the SOC 2 report includes the systems, processes and internal controls at a service organization that are critical to meeting the organization’s service commitments and system requirements. While SOC 2 has traditionally focused on technical aspects of data security, the 2018 Trust Service Criteria (TSC) updates now also allow organizations to demonstrate their commitment to integrity and ethical values, as well as governance and oversight, by aligning the TSCs with the 17 principles of the COSO framework. Organizations can now not only add insight into the technological procedures and controls within their organization, but they can also demonstrate the efforts being taken organization-wide to address data security risks. Key components for internal stakeholders improved information security practices, governance and oversight  reasonable assurance that internal controls related to data security are designed and operating effectively and mitigating the risks posed to the organization enhanced visibility into information security practices by the board and executive management  Key components for external stakeholders assurance that a third-party service organization is protecting the organization’s data  efficient and effective vendor risk management   understanding of the service organizations service commitments and system requirements  For more information on this topic, contact our team or tell us about your SOC reporting needs.

A SOC 2 report is important for customers to obtain to effectively evaluate the systems that capture, store, transmit or process data for stakeholders.

Healthcare & Life Sciences

Financial Services

Software & Technology

Health Plans

Insurance

Banking & Capital Markets

Risk Advisory

Cybersecurity

System & Organization Controls (SOC) Reporting

Importance of obtaining a SOC 2 for your customers

The initial months of 2022 have featured economic news quite different from recent years, and the U.S. economy is facing multifaceted inflation. First, there is money supply related inflation: the growth rate of all dollars in circulation increased 36% over the two-year period from March 2020 to March 2022, in particular as the federal government pumped money into the system as part of various COVID-19 relief programs. Second, inflation is being driven by geopolitical issues related to the crisis in Ukraine as well as ongoing supply chain issues. The Consumer Price Index rose 8.5% for the 12 months ending March 2022, the largest 12-month increase since December 1981.  On May 4, the Federal Reserve increased the federal funds rate by 0.5 percentage points, the highest increase in 22 years. At the time, Fed Chair Jerome Powell said, “Inflation is much too high and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down.” It is widely expected that the Federal Reserve will increase the federal funds rate several more times this year.   On the estate and charitable planning side, IRS-provided interest rates are a critical component in calculating the benefits for clients as they review various strategies available to them. While these rates—the Section 7520 rate and the Applicable Federal Rate (AFR)—are still relatively low from a historical perspective, they are rising rapidly. For example, the Section 7520 rate has increased from 1% in October 2021 to 3% in May 2022.   After more than a decade of record low interest rates, the combination of inflation and increasing interest rates has investors jittery; however, it also presents an opportunity for high-net-worth individuals to review and adjust their existing strategies for estate planning, business planning, financial planning and wealth management.   Estate planning  Despite recent interest rate increases and the expectation that rates will continue to rise for the foreseeable future, it is important to keep in mind that interest rates remain historically low. That being said, now is a good time to consider locking in strategies that tend to perform well with low rates. Now is also a good time to evaluate strategies that perform well when rates are high in anticipation of further rate hikes.  Four strategies to consider while interest rates are low include:  Intrafamily loans. Low interest loans to family members can afford those family members an opportunity to invest the borrowed proceeds and earn returns in excess of the interest they are required to pay you. That excess return can be thought of as a gift-tax-free gift. In a low interest rate environment, such as the current one, intrafamily loans are more likely to succeed as a wealth transfer strategy.  Grantor Retained Annuity Trust (GRAT). A GRAT is a trust to which a donor transfers property and retains an annuity interest for a term of years. The annuity is based on the Section 7520 rate. Appreciation in GRAT assets over that rate pass to the remainder beneficiaries free of gift tax. Thus, the lower the Section 7520 rate, the greater the potential wealth transfer. Given that rates are expected to increase, now is the time to consider locking in the low rates with longer-term GRATs, such as 5 or 10 or more years. Installment Sales to Intentionally Defective Grantor Trusts (IDGTs). Although sales to IDGTs are more complicated than intrafamily loans – and also more effective – the concepts are similar. The idea is to sell appreciating assets to trusts (likely for the benefit of family members) in exchange for a promissory note. Appreciation in excess of the AFR charged on the note is transferred gift-tax free. Like intrafamily loans, sales to IDGTs work best when rates are low, as they are now.  Charitable Lead Annuity Trust (CLAT). CLATs are similar to GRATs except that the annuitant is a charity rather than the donor. Like with GRATs, the lower the Section 7520 rate the higher likelihood more will pass to the remainder beneficiaries (likely family) at the end of the CLAT term. Not all planning strategies benefit from lower interest rates. As interest rates go higher from their recent historic lows, you should investigate the following: Qualified Personal Residence Trust (QPRT). With a QPRT, a homeowner transfers his or her personal residence into a trust and retains the right to use the residence for a certain number of years. After that time, the residence passes to the remainder beneficiaries of the trust. The initial transfer to the QPRT results in a taxable gift equal to the value of the remainder. As rates increase, the value of the taxable gift decreases as the value of the homeowner’s right to use the residence increases. Thus, QPRTs work best when rates are higher. Charitable Remainder Annuity Trusts (CRAT). With a CRAT, the donor transfers assets to the trust, and the trust pays an annuity to one or more persons, which can include the donor. At the end of the trust term, the remainder goes to charity. The donor is entitled to an income tax charitable deduction for the value of the remainder passing to charity. The remainder is determined by reference to the Section 7520 rate. The higher that rate, the more value that will likely pass to charity, and therefore, the greater the income tax charitable deduction.  Individual/business planning Succession planning for closely held businesses are evergreen, despite interest rate or inflation volatility. For example, having in place a buy-sell agreement that will protect the business in the event of death, disability or retirement is a necessity in any economy or environment. But in addition to having a solid succession plan, business owners need to protect and strengthen the existing business. One of the most critical aspects to doing so is finding and retaining key talent, particularly in today’s economy. In a time when more and more workers have the option of working remotely, simply increasing compensation and benefits may no longer be sufficient to retain key people or attract the necessary people to your business. Rising inflation may provide business owners with a new type of employee to target and hire – the recently retired who have discovered that stock market volatility and rising interest rates have affected their retirement portfolios to the extent they may have to get back into the job market. Businesses may tap into these seasoned professionals to fill critical role in their organizations. If a family business is transitioning ownership from older to younger generations, some of the estate planning strategies above will likely come into play.   Wealth management Investors, especially those who believed they were taking a conservative, prudent approach with their portfolios, may be concerned by the drop in their portfolios and surprised to see that bond investments, typically a safe haven, may have fallen even more than equities. Consider the following in the near term: Understand your bond portfolio. Whether you hold individual bonds or have a barbell strategy pairing short-term and long-term bonds, this is the time to get educated on the types of bonds you own and their duration. Refinance your mortgage. Yes, mortgage rates remain historically low. But rates for a 30-year mortgage have gone from around 3.18% in the summer of 2020 to over 5% in the spring of 2022, with higher rates likely later in the year. So, this would be a good time to refinance and lock in a fixed rate. Revisit your asset allocation. In recent years, closely examining your asset allocation has been less important since most equity asset classes were appreciating in value. Now is a good time to better understand the standard deviation of the rate of return on your portfolio, which will help measure the inherent volatility of an individual asset class. Conclusion Inflation and interest rates are not the only things to consider. The historically high federal estate tax exemption ($12.06 million per person, $24.12 million for married couples) is scheduled to sunset at the end of 2025. Thus, now is the time to plan. Taking a measured approach to re-examining your estate plan, considering new strategies and adjusting your portfolios will allow you to take advantage of this volatile environment. Ready to adjust your estate plan or investment strategy? Connect with a Baker Tilly or Baker Tilly Wealth Management professional to learn more.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments. Baker Tilly Wealth Management, LLC (BTWM) is a registered investment advisor. BTWM does not provide tax or legal advice. BTWM is not an attorney. Estate planning can involve a complex web of tax rules and regulations. Consider consulting a tax or legal professional about your particular circumstances before implementing any tax or legal strategy. The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Securities, when offered, and transaction advisory services are offered through Baker Tilly Capital, LLC, Member FINRA and SIPC; Office of Supervisory Jurisdiction located at 4807 Innovate Ln., Madison, WI 53718; phone: +1 (800) 362 7301. Baker Tilly Wealth Management, LLC and Baker Tilly Capital, LLC are controlled by Baker Tilly US, LLP. Baker Tilly US, LLP, is an independently owned and managed member of Baker Tilly International. © 2022 Baker Tilly Wealth Management, LLC

Read our article to learn more about re-examining your estate plan and adjusting your portfolio to take advantage of the volatile environment.

Private Wealth

Private Client

Trust & Estate Planning

Wealth Management

Volatile economic signals present opportunity for beneficial re-evaluation of estate and business plans

Commercial real estate activity remained elevated entering 2022 with broad-based investment and transaction activity continuing from 2021. Multifamily and industrial assets are still seeing the most investment; however, retail activity has increased as confidence in the sector improves and concerns related to the COVID-19 pandemic wane. So far rising interest rates and persistent inflation have not seemed to dampen real estate activity, but the rest of 2022 could prove challenging if current economic trends persist or worsen. The dominating story of 2021 was the lingering effects of the pandemic and widespread supply chain disruptions and inflation. Issues that have not only stuck around but were joined by the political and economic uncertainty around the war in Ukraine. Key takeaways: Geopolitical tensions, rising costs and lingering threats of new COVID-19 variants are all factors that could lead to a general economic slowdown over the rest of 2022. The shortage of available homes is pushing more investors to pursue build-to-rent models. A national office vacancy rate around 18% has left investors wary, although Moody’s Analytics stated the pandemic vacancy peak of around 18.5% may have already occurred in the second quarter of 2021. Retail sales were very strong in the first two months of 2022 with year-over-year sales up 14.14% in January and 18.18% in February.   2021 was a stellar year for the industrial sector as it saw record gains and all-time-low vacancies, however, concerns over supply issues are pushing many companies to migrate operations back to the United States and build redundancies into their supply chains. Despite evidence of higher interest rates, commercial real estate cap rates continued to compress in most sectors with investors eager to unlock cash flow. Continue reading the Q1 2022 report for further analysis, insight and outlook into the multifamily housing, office, retail, industrial and capital market industries.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

The Q1 2022 commercial real estate market report provides analysis, insight and outlook into the multifamily housing, office, retail, industrial and capital market industries.

Real Estate

Retail

Construction

Multifamily Housing

Real Estate Investors

Real Estate Valuation & Advisory Services

Development Advisory 

Construction Risk Management

Commercial real estate market report: Q1 2022

Baker Tilly’s e-book, Innovation culture, reveals strategies and key considerations in creating something new, adding value, improving performance and fueling future success with a culture of innovation. It’s human nature to continually think of new ways to do things. In its simplest form, innovation occurs when a company or organization does something new or different that creates value. Innovation takes time and resources. If an organization has a dollar or an hour to spend, they will spend it servicing a customer, client or constituent. That’s a “today” goal, while innovation is about the future. The focus on near-term profitability and growth or servicing immediate client or constituent needs may distract an organization from realizing that innovation will fuel business growth or an organization’s long-term mission. When organizations allow employees at all levels to be stakeholders in the decision-making process, they foster a culture of innovation. To have an innovation mindset, organizations must recognize the need for change and be committed to supporting change through action. Talent development and data maturity are two primary initiatives that organizations can adopt to start on their innovation journey.
Baker Tilly’s wide array of advisory services can help executives looking to innovate and differentiate their organizations. Our specialists have the experience to help you determine opportunities for innovation and develop a culture of innovation. Baker Tilly’s Value Architects™ can help.

Innovation occurs when an organization does something new or different that creates value. Creating a culture of innovation is essential for organizations.

Additional funding available to companies investing in food supply chain infrastructure

Retirement plans and missing participants: examining the issues, warning signs and solutions

Importance of obtaining a SOC 2 for your customers

Volatile economic signals present opportunity for beneficial re-evaluation of estate and business plans

Commercial real estate market report: Q1 2022

Innovation culture – jumpstarting new ideas to drive organizational success

Additional funding available to companies investing in food supply chain infrastructure