A publication of the Utility Contractors’ Association of New England, Inc.
AUGUST, 2014
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WAT ER , WAST E WAT ER & STO R MWAT ER S O LU T I O N S
AUGUST, 2014
IN THIS ISSUE
OFFICERS President AL MORTEO FED. CORP. President Elect TONY BORRELLI Celco Construction Corp. Treasurer JOHN OUR Robert B. Our Co., Inc. Secretary PAUL SCENNA Albanese D&S, Inc.
BOARD OF DIRECTORS MARCELLA ALBANESE Albanese Bros., Inc. JEFF BARDELL Daniel O’Connell’s Sons, Inc. VINCENT BARLETTA Barletta Heavy Division NICK BIELLO J. D’Amico, Inc. KEVIN COLE J. F. White Contracting Co. STEVE COMOLETTI P. Caliacco Corp. STEPHEN J. CONNOLLY ATS Equipment, Inc. MAUREEN DAGLE Dagle Electrical Const., Corp. THOMAS DESCOTEAUX R. H. White Const. Co., Inc. ALEX DUNN Travelers JERRY GAGLIARDUCCI Gagliarducci Construction, Inc. MARCO GIOIOSO P. Gioioso & Sons, Inc. BILL IRWIN C.J.P. & Sons Const. Co., Inc. PHIL JASSET Honorary Board Member RICHARD PACELLA, JR. R. M. Pacella, Inc. BRIAN RAWSTON J. Cashman, Inc. KENNETH STEVENS A. H. Harris & Sons, Inc. DAVID ZOPPO R. Zoppo Corp.
KLAYMAN ANNE Executive Director
3 President’s Message:
Commonwealth Takes First Step in Addressing Water Infrastructure Needs
7 Legislative Update:
• Governor Patrick Signs Water Infrastructure Legislation • Legislature Sends Bills to Governor Patrick’s Desk to Close Out 2013-2014 Formal Sessions • Legislature Overrides Governor Patrick’s Veto of Soil Management Language • Massachusetts Department of Revenue: Monthly Collections Exceed Benchmarks
17 Legal Corner:
The Superior Court Interprets the Liabilities Imposed Upon a Construction Manager at Risk on Major Public Building Projects
24 Contractor Member of the Month:
Albanese D&S, Inc. Takes on Challenging Projects
31 Save the Date...UCANE’s 60th Gala Banquet 32 UCANE’s 35th Annual Golf Classic: Good Things Come to Those Who Wait 43 Benefits & HR Strategies:
An Ounce of (Survey) Preparation
49 LLS of Massachusetts Announces the 2014 Man & Woman of the Year at the Champions of Hope Gala 51 Financial Management: • • • • •
Financial Aid Starts With the FAFSA Grandparent Aid for College Costs Keeping Wealth in Your Family’s Future Tougher Rules on Reverse Mortgages Reasonable Compensation for S Corporation Owners
Editor: Anne Klayman, Associate Editor: Suzanne Savage, Graphic Designer: Sherri Klayman Construction Outlook Chairman: Al Morteo Editorial Board: Al Morteo, Tony Borrelli, John Our, and Paul Scenna CONSTRUCTION OUTLOOK published monthly by the Utility Contractors’ Association of New England, Inc., 300 Congress Street, Suite 101, Quincy, MA 02169; Tel: 617.471.9955; Fax: 617.471.8939; E-mail: aklayman@ucane.com; Website: www.ucane.com. Statements of fact and opinion are those of the authors alone and not necessarily those of UCANE and the Construction Outlook editorial board and staff. Subscriptions are included in dues payments for UCANE members. Presorted Standard postage paid at Abington, MA. POSTMASTER, please send form #3579 to Construction Outlook, Crown Colony Office Park, 300 Congress Street, Suite 101, Quincy, MA 02169.
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Commonwealth Takes First Step in Addressing Water Infrastructure Needs When the Massachusetts Water Infrastructure Finance Commission (MWIFC) completed its report on the status of the Commonwealth’s water infrastructure in 2012, it is fair to say most people were surprised to learn that the Commonwealth had, at a minimum, a $21.4 billion problem. With a problem that large, it would have been understandable if most people shied away from even beginning to address it. Most people, however, are not Senate President Therese Murray. To her credit, the Senate President made water infrastructure a priority for the 2013-2014 legislative session. As a result, I am happy to report that with the recent passage of water infrastructure reform, the Commonwealth has taken a solid first step to addressing our water infrastructure needs.
T
he water infrastructure financing legislation that was signed by the Governor will provide a solid foundation from which to grow and shape how we look at water infrastructure in the future. The Water Pollution Abatement Trust will see its spending capacity increase from $88 million to $138 million with a targeted spending floor of 80 percent. To allow for more flexibility, the bill creates a sliding scale interest rate from 0 to 2 percent and establishes a principal forgiveness program for qualifying projects. In addition, the legislation requires the MassDEP to create guidelines and policies for implementing best management practices for asset management, full cost pricing and the coordination of inter- and intra- municipal infrastructure projects. In short, this legislation is the kick-start the Commonwealth needs to finally start addressing our water infrastructure needs in a cogent and comprehensive manner. With that said, this is just a first step. Similar to how the Commonwealth first reformed, then funded, the transportation system, the same must be done with water infrastructure. Measures such as the local option 3 percent water surcharge in the water infrastructure legislation may provide some funding for municipalities willing to adopt the program, but it will not be nearly enough. As such, I was very pleased to see that the recently enacted water infrastructure legislation contains an advisory council to monitor the progress of closing the gap in funding for water, wastewater, and storm water infrastructure. No advisory council by itself will solve our funding needs, but its existence will keep the issue alive and help maintain focus on this issue of critical importance.
AUGUST, 2014
There is much work still to be done. We must now work with the various agencies to implement the new law. We must continue to educate our elected officials about the needs that still exist. We must continue to engage businesses and residents who rely on a strong water infrastructure. Before that, we must thank the individuals who made this first piece of water infrastructure legislation a reality. In addition to the tireless work of the Senate President and her team, UCANE greatly appreciates the hard work and commitment shown by Senator Jamie Eldridge and Representative Carolyn Dykema, the former co-chairs of the MWIFC. Our thanks are also extended to the House leadership; Speaker Bob DeLeo, House Ways and Means Chairman Brian Dempsey, and the Majority Leader Ron Mariano, who were instrumental in seeing this legislation to the finish line. We also appreciate the work and commitment of Abbie Goodman of ACEC/MA and Jen Pederson of MWWA for their work in organizing and leading the Water Infrastructure Alliance. Finally, I would like to personally thank UCANE’s own Phil Jasset. Having served on the MWIFC, Phil has represented our industry with the utmost professionalism during the whole process of passing legislation to implement the recommendations of the MWIFC. He has maintained his strong commitment to fact-based advocacy with an eye towards establishing a framework for future investment in water infrastructure. His tireless energy and commitment serve to remind us that water infrastructure must remain on the radar. n
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Governor Patrick Signs Water Infrastructure Legislation
n August 6, Governor Deval Patrick signed legislation passed by the Massachusetts legislature reforming the way in which the Commonwealth undertakes water infrastructure. In what is hoped to be the first piece of a multi-prong approach, the legislation includes key provisions expanding the Water Pollution Abatement Trust’s (WPAT’s) (now to be renamed the Clean Water Trust) ability to provide more interest free loans and, potentially, principal loan forgiveness. Although expanding the WPAT’s loan threshold, the legislation does not provide more funding through the contract assistance line-item. The legislation also requires the Massachusetts Department of Environmental Protection (“MassDEP”) to develop guidelines and policies delineating best management practices for municipalities and regional water authorities (i.e., asset management, full cost pricing, capital planning, etc.). As well, the legislation provides funding ($3 million) for technical assistance grants and funding ($1.5 million) for pilot programs governing the use of new water technologies. The final legislation does not include the controversial “water banking” proposal, which allows municipalities to charge a water usage fee to developers looking to build projects within the municipality. The language, which was supported by the Massachusetts Municipal Association among others, was strongly opposed by the Massachusetts Chapter of the National Association of Industrial and Office Parks. The legislation also does not contain language governing “net metering” as debate over the final language eventually proved too great to overcome. An item that survived vigorous “behind the scenes” lobbying was language governing irrigation systems. In particular, the MassDEP will be required to promulgate regulations that require system interruption devices for newly installed or renovated irrigation systems to override and suspend the programmed operation of the irrigation system during periods of sufficient moisture.
AUGUST, 2014
Of particular note to UCANE members, the final legislation included one unique mechanism for increasing funds available to undertake water and sewer projects at the local level. Under language adopted by both the House and Senate, municipalities can elect to charge a 3 percent local surcharge on ratepayers’ property bills. Furthermore, the final legislation adopted a new commission charged with improving the coordination among utilities and awarding authorities to prevent duplicative efforts when undertaking underground work (i.e., planning a water project after just completing a pavement project in the same location). Finally, in an acknowledgement that the Commonwealth’s water infrastructure needs will be ongoing, the legislation creates an advisory council to monitor the progress of closing the gap in funding for water, wastewater, and storm water infrastructure. UCANE is a named member of both the underground utility commission and the water infrastructure advisory council. UCANE would like to thank Senate President Therese Murray and Senator Jamie Eldridge for their tireless efforts to pass this legislation. Likewise, UCANE would like to thank Speaker Bob DeLeo and Representative Carolyn Dykema for their unwaivering support for water infrastructure reform. While UCANE was actively involved in advocating strongly for water infrastructure legislation throughout the legislative session, the hard work of Abbie Goodman, Executive Director of the American Council of Engineering Companies of Massachusetts, and Jen Pederson, Executive Director of the Massachusetts Water Works Association, deserves special recognition for their work organizing and leading the Water Infrastructure Alliance. To review the water infrastructure legislation, please visit: www.malegislature.gov/Bills/188/Senate/ S2342. It will also be posted shortly on the legislature’s website as Chapter 259 of the Acts of 2014 under the Session Laws for 2014. continued on page 9
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Legislative Update continued from page 7
W
Legislature Sends Bills to Governor Patrick’s Desk to Close Out 2013-2014 Formal Sessions
hile the House and Senate typically adjourn at midnight on July 31, the last night of formal sessions, this year the legislature needed another full hour to usher through priority matters. To that end, a few matters that passed through both chambers on the last day of the session, which may be of particular interest to UCANE include: • Environmental Bond Bill, House Bill 4375. This $1.9 billion 4-year bond bill was crafted to provide for the preservation and improvement of land, parks, and clean energy in the Commonwealth through targeted investments to preserve the state’s natural resources. The bond bill authorizes investments in water quality improvement projects, innovative green projects, and efficiency projects that seek to capitalize on clean and alternative forms of energy and cutting edge technologies. The bill would fund a Water Innovation Trust Fund, which will provide “the
ability to partner with universities and the private sector to develop leading edge clean water technology and create jobs.” Of interest, the bond bill includes, but is not limited to, authorizations for the following types of infrastructure and construction work: • $10 million for the Executive Office of Energy and Environmental Affairs for general improvements and replacements to infrastructure; • $1.625 million for a conservation district grant program; • $75.7 million for the Department of Environmental Protection for investment in water and air quality protection; • $117.1 million for the design, construction, reconstruction, improvement or rehabilitation of coastal and inland waterways projects; continued on page 11
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Legislative Update continued from page 9 • $15 million for the design, construction, reconstruction, repair, improvement, or rehabilitation of flood control facilities and water resource protection related facilities; • $7 million for a matching grant program for the repair, construction, and modernization of equipment and capital improvements of marine industrial infrastructure located in designated port areas or maritime industrial zones; • $24.1 million for integrated energy and environmental projects; • $10 million to capitalize the Water Innovation Technology Fund, through the Massachusetts Clean Energy Center, for the creation and operation of testing piloting facilities to determine cost-effective and energy efficient ways to move water; • $255.4 million for the Department of Conservation and Recreation for the design, construction, reconstruction, removal, improvement, or rehabilitation of department reservations, forests, parks, harbor islands, and other recreational facilities; • $120 million for the design, construction, reconstruction, rehabilitation, or removal of coastal infrastructure. • An Act Relative to Retainage on Private Construction, Senate Bill 2271. This bill, which represents the compromise between the Associated General Contractors of Massachusetts and the Associated Subcontractors of Massachusetts would cap retainage at 5 percent on private construction projects over $3 million. The law is also designed to incentivize deliverables through the release of a certain percentage of retainage. The legislation further creates a mechanism for reducing retainage legitimately withheld in the event of a dispute. The law establishes a new form for Notice of Substantial Completion and requires the owner to accept or reject such notice within 14 days of receipt. Additional criteria and processes (with time limits now established by law) are outlined to standardize submission of deliverables. Provisions requiring good faith and prompt pay are prevalent throughout the law. At the time of this writing, the Governor has not signed either piece of legislation. Those bills that the House and Senate did not pass by July 31 now face the unique challenges presented by informal sessions. For the remainder of 2014, informal sessions are the only opportunity for bills to advance through the legislative process, where a single legislator’s challenge can stall further progression. Regardless, the legislature generally recesses for August and any such activity is unlikely to occur until September. continued on page 13
AUGUST, 2014
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Legislative Update continued from page 11
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Legislature Overrides Governor Patrick’s Veto of Soil Management Language
n somewhat of a surprise move, the Massachusetts legislature overrode Governor Patrick’s veto of language included in the FY15 budget relative to soil management. Included as part of the conference committee report on the FY15 budget, the soil management language was a redraft of language included by the Senate which would have adversely impacted the construction industry throughout the Commonwealth. Governor Patrick vetoed the language stating that, “it imposes unnecessary regulatory burdens on businesses operating in the Commonwealth.” Under the redrafted language, the legislature, in response to comments received from the construction industry, restricted the development of soil management regulations to the reclamation of quarries, sand pits, and gravel pits. Under the language, which is now law via the override, the DEP is required “to establish regulations, guidelines, standards, or procedures for determining the suitability of soil used as fill material for the reclamation of quarries, sand pits, and gravel pits. The regulations, standards, or procedures shall ensure the reuse of soil poses no significant risk of harm to health, safety, public welfare, or the environment considering the transport, filling operations and the foreseeable future use of the filled land. The DEP may adopt, amend, or repeal regulations establishing: (i) classes or categories of fill or reclamation activities requiring prior issuance of a permit issued by the department; (ii) classes or categories of fill or reclamation activities that may be carried out without prior issuance of a permit issued by the department; and (iii) classes or categories of fill that shall require local approval based on the size, scope, and location of a project; provided, however, that local approval shall not be required for projects involving less than 100,000 cubic yards of soil.” UCANE and other contractor associations opposed this language as not necessary in light of the extensive protections afforded by the Massachusetts Environmental Policy Act (Mass. Gen. Laws ch. 30, §§61-62I) and governing regulations (see, 301 CMR 11.00 and 310 CMR 40.0000). In particular, UCANE expressed concern that these regulations will create a separate body of rules and regulations requiring different and additional state and local procedures, resulting in greater project costs without increased environmental protection. Already, the Massachusetts Environmental Policy Act (“MEPA”) requires state agencies to study the environmental consequences of their actions and take
AUGUST, 2014
all feasible measures to avoid, minimize, and mitigate damage to the environment. Further, Massachusetts Contingency Plan (310 CMR 40.0000) (“MCP”) contains extensive rules and regulations governing identification, classification, tracking, transporting, recycling, use, and disposal of soils. Through the MCP, the DEP already specifies when chemical concentrations are “reportable” and whether a particular soil makeup is considered “clean” for particular uses. Finally, the MCP includes an “Anti-Degradation Clause” (310 CMR 40.0032(3)(b)), which prevents even “clean” soil to be reused at a location where chemical concentrations are significantly less than those in the soil at the location proposed for reuse. UCANE will now monitor the development of these regulations before the DEP and will advocate for language that does not burden contractors in their effort to bring projects to fruition in a timely basis and under budget. continued on page 15
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ccording to a press release from the Massachusetts Department of Revenue, preliminary revenue collections for July totaled $1.597 billion, $12 million or 0.8 percent more than the state took in last July. Total tax collections were $11 million above the monthly benchmark based on the fiscal year 2015 revenue estimate of $24.43 billion. The July surplus was mainly due to corporate and business tax payments, which came in better than expected, offsetting lower collections in estate tax and income tax payments with bills and returns. The Department of Revenue reports that July is a relatively small tax collection month without quarterly payments due from businesses or individuals. Income tax payments with returns or bills totaled $31 million for July, down $56 million from last July and $6 million below the monthly benchmark; most of the July decline was expected and largely due to
one-time payments included in last July’s numbers. Income tax cash refunds for July totaled $16 million, down $2 million from last July and $2 million below the monthly benchmark. Estimated income tax payments of $28 million for July were $4 million or 17.4 percent more than last July and $3 million more than the July benchmark. Sales tax collections totaled $516 million for July, up $28 million, or 5.7% from a year ago and slightly below the July benchmark. Corporate and business tax collections of $71 million were up $3 million or 3.9 percent from a year ago and $20 million above the anticipated monthly estimate. Other tax collections, which include revenues from deeds and estates, totaled $153 million, $5 million or 2.9 percent less than last July and $9 million below the July benchmark, largely due to relatively low estate tax collections. n
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The Superior Court Interprets the Liabilities Imposed Upon a Construction Manager at Risk on Major Public Building Projects Prior to 2005, public authorities were limited to awarding projects under the traditional “design-bidbuild” delivery method for major public building projects.1 In response to the growing popularity and perceived benefits of alternative methods of project delivery, Massachusetts enacted M.G.L. c. 149A, known as the “Public Construction Reform Law” or the “Public Construction Alternative Delivery Methods Act”. M.G.L. c. 149A authorized the use of two optional alternative delivery methods for public construction projects in Massachusetts: (1) the construction manager at risk (“CMR”) contracts for building projects estimated to cost $5 million or more; and (2) design-build for public works projects estimated to cost $5 million or more. As M.G.L. c. 149A didn’t take effect until January 1, 2005, few Courts have been asked to interpret CMR contracts. AUGUST, 2014
I
n a case of first impression, the Superior Court of Worcester County was called upon to construe the liabilities of a construction manager under the CMR contract between Gilbane Construction Company (“Gilbane”) and the Massachusetts Division of Capital Asset Management (“DCAM”) (the “CMR Contract”). The Court’s holding, while yet to be examined on appellate review, may ultimately serve to expose a CMR awarded a public project to increased liability for pass-through claims from subcontractors, whether or not those claims arise from errors or omissions in design. In Coghlin Electrical Contractors, Inc. v. Gilbane Building Company, et al., the Superior Court held that the CMR contract employed by DCAM effectively continued on page 19
1
M.G.L. c. 149, § §44A-M.
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Gilbane, in turn, submitted a change order request to DCAM, which incorporated Coghlin’s shifted the risk for pass-through claims from subconproposed change order. Ultimately, however, tractors to the CMR, Gilbane, even if (as was alleged DCAM rejected Gilbane’s change order request by Gilbane) these claims may have actually resulted (including Coghlin’s proposed change order) as from errors or omissions in design. an “inefficiency claim which the [CMR] Contract On the public project at issue, Gilbane served does not allow.” as the CMR for DCAM on the construction of a 320After attempts to resolve the dispute broke bed, adult and adolescent state psychiatric facility for down, Coghlin commenced a civil action against the Massachusetts Department of Mental health in Gilbane seeking, among other things, the recovery Worcester, Massachusetts (the “Project”). Coghlin of additional costs encapsulated in its proposed Electrical Contractors, Inc. (“Coghlin”) was the prichange order. In its Complaint, Coghlin alleged that mary electrical contractor for the Project. Gilbane mismanaged design changes to certain wall and ceiling areas of the Project. Thereafter, GilDuring the Project, Coghlin submitted a multibane, instituted a third-party action against DCAM million dollar change order to Gilbane for increased for the breach of the CMR contract, contribution costs purportedly due to the following: and indemnification for any liability imposed upon in (i) Gilbane’s failure to abide by the construction Coghlin’s Complaint. scheduling requirements on the contract documents; As stated in the Court’s decision, Gilbane’s (ii) Gilbane’s failure to properly manage and claims of contribution and indemnification against complete the wall framing on the Project; DCAM were made based on the so-called “Spea(iii) Gilbane’s failure to properly manage and rin doctrine” – a long-standing legal theory adopted complete ceiling framing on the Project; by Massachusetts – which states that an awarding (iv) Gilbane’s failure to properly coordinate the authority’s plans and specifications constitute an implied warranty of feasibility, accuracy and completework of other subcontractors; and ness in public construction contracts. (v) Gilbane’s restriction of [Coghlin’s] site acIn response, DCAM moved to dismiss Gilbane’s cess to the Project. third-party claims arguing that the terms of the CMR Contract imposed broad obligations on Gilbane to “indemnify, defend and Water Works Specialist hold harmless” DCAM John Hoadley and Sons Inc.from “all Water Works Specialist Tel:781-878-8098 Fax:781-878-5298 claims, damages, losses and exWater Works Specialist penses...arising out of or resultTel:781-878-8098 Fax:781-878-5298 Tel: 781-878-8098 Fax: 781-878-5298 ing from the performance of the “Our Products the Most Trusted NamesNames in theinIndustry” “OurIndustry” Products Are the Most Trustedincluding Names in the“those Industry” Work,” arising or “OurAre Products Are the Most Trusted the � U.S. Pipe ● Cultec Chambers � U.S. Pipe ● Cultec Chambers resulting from: labor performed or � Mueller Fire Hydrants ● National Pipe & Plastics • U.S. Pipe • Cultec Chambers furnished and/or materials used or � Mueller Tapping Sleeves & Valves ● ADS Pipe & Chambers � Mueller Fire Hydrants ● National Pipe & Plastics • Mueller Fire Hydrants • National Pipe� &Smith Plastics Blair Clamps & Couplingsemployed ● General Foundry Castings in the performance of � Mueller Tapping Sleeves & Valves ● Valves ADS Pipe Chambers • Mueller Tapping Sleeves & • &ADS Pipe & Chambers Mechanical Services the work”. � Tapping Sleeves & Gates Installed / Cut • Clamps Smith & Blair Clamps & Couplings • General Foundry Castings � Smith Blair Couplings ● General Foundry Castings � Line Stop / EZ ValvesThe Court granted DCAM’s Mechanical Services � Cutting of Chilled Water Lines & Steam Lines Mechanical Services toof dismiss, disposing of Gil� Pressure Testing motion & Disinfection New Mains � Tapping Sleeves & Gates Installed / Cut � Installation & Testing of Backflow Preventers bane’s claims for breach 24 Hoursof the CMR • Tapping Sleeves & Gates Installed / Cut Sales& Service � Large Diameter Contract, Hydraulic Pipe Cutting � Line Stop / EZ Valves contribution and Serving all of indemni• Line Stop / EZ Valves � Hydrant Installation & Repair New England fication against DCAM. In its deci� Cutting of Chilled Water Lines & Steam Lines � Electronic Leak Detection • Cutting of Chilled Water Lines & Steam Lines “Water-Sewer-Drain Supplies at a Competitive Price” sion, the Superior Court held that • Pressure Testing &&Disinfection � Pressure Testing DisinfectionofofNew NewMains Mains www.hoadleyandsons.com the relationship between an owner • Installation && Testing ofof Backflow � Installation Testing BackflowPreventers Preventers 24 24Hours Hours672 Union Street Rockland, MA 02370 and the Construction Manager un• Large Diameter Hydraulic Pipe Cutting Sales& Service Sales & Service � Large Diameter Hydraulic Pipe Cutting der a CMR contract is generally • Hydrant Installation & Repair Serving ofof Servingallall � Hydrant Leak Installation & Repair “not the same as the relationship... New • Electronic Detection NewEngland England � Electronic Leak Detection under a traditional design-bid-build arrangement”. The Court went on to “Water-Sewer-Drain Supplies at Supplies a Competitive Price” Price” “Water-Sewer-Drain at a Competitive state that under the CMR Contract www.hoadleyandsons.com www.hoadleyandsons.com in question, Gilbane undertook an
John Hoadley and Sons Inc. John Hoadley and Sons Inc.
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AUGUST, 2014
continued on page 21
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Legal Corner continued from page 19 ongoing duty to “review the design documents for clarity, consistency, constructability, maintainability/ operability and coordination among trades, coordination between specifications and drawings...” Therefore, according to the Court, the CMR Contract, and the General Conditions thereto, trump any legal precedent espoused by the “Spearin” doctrine in Massachusetts.
relationship of the owner and the construction manager, may serve to assign liability for cost-overrun claims resulting from errors or omissions in design to the CMR. Such a rationale implies that the virtues of the “Spearin” doctrine, which assigns responsibility for the accuracy and integrity of design documents to those who prepare them, are generally inapplicable under CMR contracts. Given the implications of the Court’s decision, this case is one to watch for any CMR bidding public projects estimated to cost $5 million or more. We can expect that this decision will eventually be subject to an appeal. Be on the lookout for any further developments that clarify how Courts in Massachusetts should interpret similar CMR contracts with awarding public authorities. continued on page 23
Further, the Court found no support for Gilbane’s claim that DCAM was contractually bound to issue a change order for design changes in the "scope" of the walls and ceilings of the Project. In its decision, the Court misinterprets “scope” in the CMR Contract to encompass all work relating to those sections of the Project relating to the walls and ceilings, despite that any subsequent changes to their design could not have been contemAon Risk Solutions plated under the original “scope”. Construction Services Group As a result, the Court held that DCAM was not obligated to issue a change order for extra costs sustained in the construction of the walls and ceilings, even if (as argued by Gilbane) these extra As the leading provider of risk solutions to the construction industry, Aon expenses were incurred due to Construction Services Group partners with clients to provide insighful design changes affecting Gilbane’s original “scope” of work. analysis, strategic direction and creative solutions backed by our dedicated
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Importantly, despite the particular set of facts and contract language presented, the Superior Court attempts to extend this rationale to all cases in Massachusetts interpreting CMR contracts. Given the material changes in the roles and responsibilities voluntarily undertaken by the parties in a modern CMR contract, the protections Massachusetts courts historically have extended to construction contractors in the traditional design-bid-build context...simply are inapplicable... While prior decisions in Massachusetts have held that a public authority’s implied warranty under the “Spearin” doctrine may be mitigated by an express disclaimer of liability, no Court decision has gone so far as to suggest that a CMR contract itself, by altering the
AUGUST, 2014
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Legal Corner continued from page 21 In the meantime, on public projects already awarded, a CMR must take extra care     to make a record of claims arising out of de-       Source for Quality Lu sign defects or omissions, and to be mindful Source Sourcefor forQuality QualityLu Lu that this decision may be used against them Source for Quality Lu Source for Quality Lu on pass-through claims by subcontractors       or other prime contractors, as the case may     be. For example, when bidding future public    projects, larger contingencies may be con-   sidered to accommodate for any potential    increased liabilities to pass-through claims   st st New Â
 Source  Elite  Marketer  of   Source  Elite  Marketer  of  posed by the Superior Court’s recent de New Â
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AD&S removing support of excavation using the DaeDong excavator-mounted sheet pile vibratory hammer at the Concord/School Streets Sewer Improvements Project - Phase 1 in Framingham, MA. Environmental Partners Project Manager, Paul Millett, and Town of Framingham Project Manager, James Barsanti provided this testimonial: “Albanese D&S committed their resources by working with the Owner and Engineer around the clock to complete this difficult project on budget and ahead of schedule. Albanese D&S were very responsive and they maintained a good working relationship with the Engineer and the Owner.”
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AUGUST, 2014
Albanese D&S, Inc. Takes on Challenging Projects The story of Albanese D&S, Inc. and the company’s success is undeniably tied to two men who had the drive, determination, and persistence to come to the United States from Italy, start a business, and make a good life for themselves and their families. The story of the men who built this company is much like the thousands of Italian immigrants who, in the early 1900s, left their families behind, traveled to the land of opportunity; made a success of themselves; saved their wages and then summoned their families to America…but with one important exception. By the time Giovanni Albanese arrived in America in 1974 and settled with family members in and around Boston, many Italian-American immigrants were already established, and over generations had built business and construction empires. But before Giovanni could compete with them, he first had to learn the language, build up reserves and save the necessary capital to start a business. Undaunted by the challenge, Giovanni was determined to start a construction company right in the midst of the “giants” knowing in his heart that opportunities were still out there for people who were willing to work hard. He said, “…there was no job too small…no job too difficult, and nobody who could out-work me.” After working as an auto mechanic over the next four years, he and his brother Marco joined forces in 1978 to open Albanese Bros., Inc. They worked together for the next 13 years, mainly performing underground water and sewer construction projects. Albanese Bros, Inc. is currently under the leadership of Maria, Marcella, and Oto (Dino) Albanese. continued on page26
AUGUST, 2014
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Albanese D&S, Inc. continued from page 25 In 1991, Giovanni’s desire to start another company came to fruition when he sold his share of the business to Marco, and with longtime childhood friend, Andrea Ciano, branched off to establish a new company, Albanese D&S, Inc. Andrea had immigrated to the United States, also from Avellino, Italy. He and his brother, Angelo, operated two companies, Ciano Contractors and Avellino Well & Pump here in the States. With their combined wealth of construction knowledge, Giovanni and Andrea set out on their own and built Albanese D&S into a well-respected underground utility construction company with a reputation for taking on some of the most difficult and challenging projects. As proud of his company as he is, Giovanni is most proud that the two companies he helped start are still going strong. Albanese D&S is a general contractor with strengths in underground water and sewer utility construction; building pump stations and culverts; installing mechanical piping; and the construction of small buildings. They also have enough experience to perform blasting and pile driving; install sheeting; and perform concrete work and road reconstruction.
Never Resting on Their Laurels, Equipment East LLC was Formed Giovanni and Andrea did not rest on their laurels and were always looking for new opportunities. Over the years, the company purchased many pieces of construction equipment, and in 2009 a new company was formed…Equipment East LLC, a full service heavy equipment dealer offering a wide range of construction equipment for sale or rent. One of the more unique pieces of equipment available is the excavator mounted sheet pile vibratory hammer and milling services among a diverse fleet of trucks, loaders, and excavators.
One major project currently being worked on by AD&S is BWSC Contract 11-309-009 Dudley Square Sewer Separation Project
26
Lauds Employees’ Dedication When company President Giovanni was asked what makes his company unique, he was anxious to respond, “First I’d have to say it’s the caliber and professionalism of our employees. Andrea has been there from the very beginning and his experience and dedication to our company is evident every day. As company Treasurer and Project Manager, he ultimately controls the profitability of the company and his attention to detail is unmistakable and unparalleled. Our experienced and skilled Vice President, Paul Scenna, is also very familiar with the construction industry. We count on him to keep us informed of the latest innovations in the industry, as well as being our company representative at Utility Contractors’ Association of New England. We all believe in UCANE and its goals and Paul is presently moving up the ladder there and within the next few years he hopes to serve as UCANE President.”
Safety is #1 Giovanni went on to say that, “One of UCANE’s top priorities is, and has always been, safety. This falls in line with our motto that ‘Safety is our #1 priority’. Safety is a priority with us and we try to reinforce this concept every day. I think over time, the company has proven that safety and proper planning leads to success. Our safety record is excellent and we plan to keep it that way. Many people working for us are family members, or have been with us for almost 20 years. My wife Gilda is our Clerk and Office Manager. My son Giovanni, Jr., after spending some time in California, came back to Massachusetts to take on the position of Manager at Equipment East LLC, and my son Marco is Shop Manager for Albanese D&S, Inc. Andrea’s son Andrea Jr. performs as General Superintendent/ Project Manager. Andrea’s son Pietro performs as a Project Manager and Estimator. So you can see that family is important to us, and a major part of our company. Also, we promote from within whenever possible so that each employee becomes part of our team. We respect each and every one of them as they will ultimately shape our future.”
Everett Emergency Culvert Repair at Boston New Market Terminal (2012)
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AUGUST, 2014
Albanese D&S Takes on Challenging Projects Paul provided some insight into some of the company’s more difficult jobs and how the problems were overcome. “I’d have to say that our DCR Cambridge Street Sewer Relief project in Worcester, MA was maybe one of our most difficult. The job required the installation of a new 54-inch RCP relief sewer; two cast-in-place junction chambers; dewatering; and the removal and replacement of an existing 30-inch water main on a highly traveled street; build a temporary roadway and sidewalk; add new drains while handling existing flows; and finally, perform road reconstruction.” He went on to say, “The biggest challenge was casting a structure designed to divert flow from an existing 60-by-84-inch egg-shaped brick interceptor to a newly installed 54-inch reinforced concrete sewer main. We did this by building a flow-through apparatus to allow work to continue without the need for a large and costly bypass. The project was so difficult and the solution we came up with was so unique that
the project engineers, Weston & Sampson, made a presentation on this project at a New York NEWEA Conference.” Paul then showed a written testimonial given to the company by Weston & Sampson’s Project Manager John C. Potts, which read in part, “I had the pleasure of working with Albanese D&S, Inc. of Dracut, MA on the DCR Cambridge Street Relief Sewer Project in Worcester, MA, …their crews handled themselves in a very professional manner in dealing with the local businesses and residents. Their workmanship was equally good and the project was completed on time and on budget. In particular, I was extremely impressed with their ingenuity in handling the existing wastewater flows while constructing the junction chamber at the Cambridge Street end of the project. …I would definitely recommend Albanese D&S for sewer work, especially projects with difficult or unique situations like this Worcester job.” continued on page 29
DCR Cambridge Street Sewer Relief Project, Worcester, MA
1. Casting concrete walls around the active 60-by84-inch existing brick interceptor
3. Invert built and flow redirected to the new 54-inch RCP
2. AD&S installing a flow through apparatus
4. Casting the top slab of the new diversion chamber
AUGUST, 2014
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27
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Albanese D&S, Inc. continued from page 27
Engineers Recognize Albanese D&S’ Superior Performance and Ingenuity After completing the MWRA Northern Intermediate High Stoneham-Reading (MA) Connection Project, Cori Barrett wrote this testimonial about Albanese D&S. “Albanese D&S, Inc. is a very capable contractor that has worked cooperatively with the MWRA in completing a number of water and sewer contracts. Each of these contracts was complex in that they occurred in difficult locations with various restrictions, yet Albanese D&S, Inc. successfully completed the work on schedule while minimizing disruptions to the local communities.” CDM Smith’s Myles Johnson wrote this testimonial after work was completed on the $14.5 million CSO Sewer Separation Project for the Lowell, MA Regional Wastewater Utility. “It was a fantastic professional and personal experience to work with the Albanese D&S staff on the LRWWU CSO Separation projects performed during the period from 2009 through 2011. AD&S was able to successfully execute these complex designed and rigorously mandated scheduled projects with absolutely minimal disruption to area residents and businesses. AD&S is indeed a shining example of a UCANE contractor with diverse construction knowledge and capabilities.” Mark Young Executive Director of Lowell Regional Wastewater Utility provided the following testimonial. “Albanese D&S, Inc. (AD&S) completed CSO Sewer Separation Program-Lincoln St. West (Part 2), Wellman St. (Part 2) & Sewer Areas 24 & 25 – Contract 09-01 and Cabot St. Area & Gorham St. North Area Sewer Separation- Contract 10-01. The above-mentioned contracts combined were equal to $14.5 Million. $3 Million of the 2010 contract was slated to be constructed within the UMASS Lowell campus between July and August of 2010. By the time students came back to their dorm rooms at the end of August, the project was complete, sidewalks were replaced, roads were paved and the grass was growing. As part of the separation program and within AD&S’ 2009 contract, LRWWU offered its residents the installation of internal piping work for inflow disconnections,
MWRA Northern Intermediate High StonehamReading Connection (2011)
AUGUST, 2014
sump pumps and external piping to the mainline drain. At the beginning of the project very few responded to the City’s offer, until of course the infamous Mother’s Day storm occurred. In the end, approximately 300 sump pumps were installed with the associated piping. Whether working in the street or in private residences, AD&S acted professionally and efficiently. LRWWU was pleased with the execution, quality and overall outcome of both projects. LRWWU, CDM Smith, and AD&S made a great team, which led to a successful completion of both projects. It was a pleasure working with Mr. Albanese, Mr. Ciano, Mr. Scenna, and their great team of hard working and talented employees.”
UCANE is proud to count Albanese D&S, Inc. as a valued member of our Association since 1992. Our Officers, Board, and Staff want to wish them continued growth and success in the future. n
Lowell Regional Wastewater Utility – Cabot Street Area Sewer Separation Contract 10-01 Father Morissette Boulevard (2010)
Lowell Regional Wastewater Utility – Cabot Street Area Sewer Separation Contract 10-01 Headwall at the Merrimack River – UMASS Campus (2010)
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AUGUST, 2014
Saturday October 25, 2014 • Marriott Newton Hotel • Newton, MA
T
here’s a saying that goes, “Good things come to those who wait.” That was certainly true of UCANE’s rescheduled 35th Annual Golf Tournament at Brookmeadow Country Club in Canton, MA. Even the best meteorologists can be wrong once in a while, as forecasts for hail and thunderstorms on our original date turned into nothing more than a cloudy day. But with a little luck, the rescheduled July 21 date was picture perfect and everyone was in great spirits, anxiously looking forward to a great day of golf, some much needed fun, and of course, our fabulous raffle prizes and UCANE’s signature Lobster Clambake Dinner. Sold out by the first week in April, this tournament is a much anticipated day of golf that was only made possible by the incredible generosity and support of our members, especially Corporate Sponsor Dagle Electrical Construction, Corp. and Lobster Clambake Sponsor E. J. Prescott, Inc. Many of our golfers joined us bright and early to take part in our Golf Clinic sponsored by United Rentals Trench Safety, to get an edge on their game, and to have a chance to win a TaylorMade RocketBallz Stage 2 Driver in a raffle later in the day. Upon registration, golfers received insulated “Goody Bags” sponsored by P. Gioioso and Sons, Inc. which were overflowing with promotional items donated by our members and friends. They also fueled up for the day at a Continental Breakfast sponsored by ATS Equipment, Inc. By 9 o’clock everyone was in their carts and ready for the shotgun start. There was a lot of fun at the 6th hole as former New England Patriot Defensive Back Roland James took part in our “Closest to the Pin” 50/50 contest sponsored by HD Supply Waterworks. Midway through the course everyone had worked up quite an appetite and was served a Barbecue Lunch sponsored by Schmidt Equipment, Inc. Golfers were kept hydrated throughout the day by our two Cold Drink Carts sponsored by Kirkland, Albrecht & Frederickson, P.C. and The Vellano Corporation.
Adding to the excitement of the day was the possibility of winning the $25,000 Hole-In-One Contest sponsored by McCourt Construction Co. on the 15th hole. Additionally, the $10,000 Putting Contest sponsored by Taylor Oil Company was another hit with our golfers. Unfortunately, both prizes went unclaimed again this year which is all the more reason for our golfers to attend our early morning Golf Clinic next year and practice their skills before our Tournament. By 2:30 p.m. all attendees had finished their round of golf and were relaxing and enjoying the Social Hour sponsored by T-Quip Sales & Rentals, Inc. during which they compared scores and traded golf stories. After this cooling down period our golfers were treated to UCANE’s now famous and fabulous Lobster Clambake Dinner, which featured 2 lb. lobsters, clam chowder, garden salad, pulled pork, roasted potatoes, and corn-on-the-cob. This feast was finished off with an Ice Cream Sundae Bar sponsored by USI Insurance Services, LLC. Needless to say, no one went away hungry. This sensational day was concluded by awarding prizes to the first, second, third, and fourth place tournament winners; the winners of the Closest-to-the Pin and Longest Drive contests; the 50/50 raffle against Roland James; and concluded with the drawing for all of our amazing raffle prizes. From all the comments we received, UCANE’s 35th Annual Golf Tournament was both exciting and challenging. The beautifully manicured greens were the ideal setting on such a picture perfect day for an extraordinary round of golf. In addition to the friendly competition there were many laughs and good times along the way, old friendships were renewed and new friendships were made. As always, all who attended had a great time. On behalf of the UCANE staff we would like to thank all our golfers, tee and putting green sponsors, (all signage was provided by Roadsafe Traffic Systems, Inc.) and to everyone who donated raffle prizes and items for our goody bags. Your ongoing support and generosity is unparalleled and greatly appreciated. n
Putnam Pipe Corp.
AUGUST, 2014
“BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”
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A special thank you to our sponsors for their continued support of UCANE’s Annual Golf Tournament Corporate Sponsor
DAGLE ELECTRICAL CONSTRUCTION, CORP. Lobster Clambake Sponsor
E. J. PRESCOTT, INC. $25,000 “Hole-in-One”
Social Hour
McCOURT CONSTRUCTION CO.
T-QUIP SALES & RENTALS, INC.
$10,000 Putting Contest
Ice Cream Sundae Bar
TAYLOR OIL COMPANY
USI INSURANCE SERVICES, LLC
Complimentary Golf Clinic
Cold Drink Cart
UNITED RENTALS TRENCH SAFETY “Closest to the Pin” against Former N.E. Patriot Roland James
HD SUPPLY WATERWORKS Continental Breakfast
ATS EQUIPMENT, INC. Barbecue Lunch
SCHMIDT EQUIPMENT, INC. All signage provided by
ROADSAFE TRAFFIC SYSTEMS, INC.
KIRKLAND, ALBRECHT & FREDRICKSON, P. C. THE VELLANO CORPORATION Golf Prizes
BARLETTA HEAVY DIVISION DeFELICE CORPORATION LIDDELL BROS., INC. Guest Sponsors
JAY CASHMAN, INC. (4) TAYLOR OIL COMPANY (2)
RAFFLE SPONSORS:
AGGREGATE INDUSTRIES N.E. REGION 2 Pair of Red Sox Tickets AMERICAN SHORING INC. Flat Screen TV & Golf Bag A. F. AMORELLO & SONS, INC. 2 Pair of Red Sox Tickets BAKERCORP Weber Gas Grill BROOKMEADOW COUNTRY CLUB Golf for Four w/Carts
FED. CORP. Pair of Anti-Gravity Lounge Chairs
TAYLOR OIL COMPANY Pair of Red Sox Tickets
FORD METER BOX CO. Collapsible Wheeled Cooler
UNITED CONCRETE PRODUCTS, INC. 2 Pair of Red Sox Tickets
LORUSSO CORPORATION 2 Pair of Red Sox Tickets Pavilion Seats
WHITE CAP CONSTRUCTION SUPPLY 4-Piece Milwaukee Cordless Combo Kit, 2 Sawzalls & 2 Right Angle Drivers
NORTHSTAR INSURANCE SERVICES, INC. Pair of Red Sox Tickets STORMTRAP, LLC 3 Callaway Golf Shirts
D. W. WHITE CONSTRUCTION, INC. Golf for Four w/Carts Back 9 Golf Club, Lakeville, MA
PUTTING GREEN SPONSORS:
Adler Tank Rentals American Equipment & Fabricating Corp. Barletta Heavy Division Biszko Contracting Corp. Jay Cashman, Inc. Chapman Waterproofing Co., Inc. Dagle Electrical Const., Corp. DeFelice Corporation DeSanctis Ins. Agency, Inc. GVC Const. & Engineering, Inc. Gencorp Insurance Group
Hinckley Allen, LLP Liddell Brothers, Inc. (2) Lorusso Heavy Equipment, LLC Mabey, Inc. Rodman Ford Sales, Inc. New England Construction SPS New England, Inc. Products, LLC Scrap-It, Inc./Minichiello Northeast Traffic Control Bros., Inc. Services, Inc. TGA Cross Insurance NorthStar Insurance Services, Inc. R. H. White Const. Co., Inc. Daniel O’Connell’s Sons White Cap Construction Supply Pinnacle Financial Group C. N. Wood Company, Inc. E.J. Prescott, Inc. Zurich Surety
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AUGUST, 2014
GOODY BAG SPONSORS: P. Gioioso & Sons, Inc. Goody Bags Aqua Line Utility, Inc./ Paul Wahlberg Baseball Hats Dagle Electrical Const., Corp. Frisbees & Tees Diesel Direct, Inc. Golf Towels
Dig Safe Systems, Inc. Hats, Pens, & Key Chains EJ Hats & Tumblers A. H. Harris & Sons, Inc. Pocket Note Pads Milton CAT Golf Balls Robert B. Our Co., Inc./ Shorey Manufacturing Co., Inc. Travel Mugs Putnam Pipe Corp. Bottle Openers Stiles Company, Inc. Note Pads StormTrap, LLC Note Pads & Playing Cards
Taylor Oil Company Koozies Albert J. Tonry & Co., Inc. Ball Markers United Concrete Products, Inc. Key Chain Flashlights United Rentals Trench Safety Stress Relievers, Lip Balm, Pens, Key Chains, & Koozies
TEE SPONSORS: ABC (2) Aggregate Industries-N.E. Region(2) Albanese Brothers, Inc. B2W Software, Inc. Baltazar Contractors, Inc. A. R. Belli, Inc. (2) C.J.P. & Sons Const. Co., Inc. P. Caliacco Corp. Celco Construction Corp. Concrete Systems, Inc. Cullen, Murphy & Co., P.C. Dagle Electrical Const., Corp. J. D’Amico, Inc. (2) DeFelice Corporation (3) EJ (4) Eastern Insurance Group, LLC Eastern States Ins. Agency, Inc. (2) Equipment4Rent (2) FED. CORP. (2) Feeney Bros. Excavation, LLC (2) Ferguson Waterworks (2) GTA Co., Inc. (2) Gagliarducci Const., Inc. (2)
Griffin Dewatering New England, Inc. Guerini Material Placing (2) Haluch Water Contracting, Inc. I. W. Harding Const. Co., Inc. A. H. Harris & Sons, Inc. Hub Int’l New England, LLC (2) K & K Excavation Co., Inc. (2) P. T. Kelley, Inc. Kistler & Knapp Builders L & L Concrete Products, Inc. (2) Lawrence-Lynch Corp. Lockton Companies (2) G. Lopes Construction Inc. J. F. McDonald Ins. Agency, Inc. McGladrey (2) Milton CAT (2) Minuteman Trucks, Inc. Norfolk Power Equipment, Inc. (2) Ocean State Oil Robert B. Our Co., Inc. R. M. Pacella, Inc. Podgurski Corp.
J. A. Polito & Sons Co., Inc. (2) Power Line Contractors, Inc. E. J. Prescott, Inc. H. R. Prescott & Sons, Inc. (2) Scituate Concrete Pipe Corp. Scituate Concrete Products Corp. Scrap-It, Inc./Minichiello Bros., Inc. Shea Concrete Products (2) Shorey Manufacturing Co., Inc. Starkweather & Shepley Ins. Brokerage, Inc. (2) Stiles Company, Inc. Ti-SALES Inc. Albert J. Tonry & Co., Inc. Triumph Modular (2) USI Insurance Services, LLC (2) Umbro & Sons Const. Corp. (2) United Concrete Products, Inc. (2) United Rentals Trench Safety (2) WES Construction Corp. Water Works Supply Corp. (2) Woodco Machinery, Inc. (2)
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On Tuesday, September 16 Sojourner House will hold its 13th Annual Golf Tournament at Brookmeadow Country Club, Canton, MA. UCANE supports the Sojourner House mission to house Boston area homeless families. It’s filling up fast and on the way to another sold-out event. To register call the UCANE office at 617.471.9955.
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BENEFITS & HR TRATEGIES Doug V. Mure, Managing Director HR Consulting, Pinnacle Financial Group
An Ounce of (Survey) Preparation Garnering honest feedback from employees about benefit programs by investing in a survey can spare employers headaches and resources A recent article in the Boston Globe talked about the proliferation of customer satisfaction surveys flooding our inboxes every time we make a purchase or even inquire about a service. Employers have always found surveys to be useful tools but they often required complicated database and collection processes, which could be time consuming and cost-prohibitive. With the advent of inexpensive survey technology such as Survey Monkey, companies can now much more quickly and easily solicit information on a variety of topics. According to the Boston Globe article, Survey Monkey is now processing survey responses at a rate of 2.2 million per day, up from 1 million per day in January 2013. Whether you’re an employer facing the challenges of how to ease the burden of increasing health care costs or an employer in a position to offer new benefits as a result of a slowly improving economy and competitive hiring environment, a survey can provide valuable means to checking the pulse of large and small internal audiences quickly and anonymously. Following are two examples of how surveys helped Pinnacle clients better plan their benefits offerings: AUGUST, 2014
Preparing Employees for Change and Revealing where Change was Needed A client was anticipating significant health insurance premium increases and as a result, had to make dramatic changes to their benefit plans. A survey allowed the employer to: Reinforce the value proposition of increases in payroll deductions versus an increase in outof-pocket costs. Employers are better able to steer messaging via the survey itself and in any follow up communications shaped by survey feedback. In the end, employer and employees were better prepared for changes in the plan. Solicit general feedback about HR. When employees feel their employer is listening, they feel empowered and valued, even if the employer ultimately continued on page 45
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U.S. News and Best Lawyers considered more than 10,000 law firms in 170 metropolitan locations *Source: U.S. News Media Group and Best Lawyers
Many thanks to our clients, peers and friends whose comments contributed to our being awarded a first-tier national ranking in the Litigation-Construction category.
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Benefits & HR Strategies continued from page 43 makes the final decisions on benefits. This employer had anecdotally heard about service issues with their Flexible Spending Account vendor. The survey results showed that the issues were global and it was a pain point for many of the participants. As a result, the employer changed vendors upon renewal and increased education about the plan, averting a potentially large issue and reaffirming a benefit that is supposed to be positive for employees, not negative.
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On the retirement side, Pinnacle had a relationship with a firm that did not have a 401(k) plan. The firm was wary of implementing a plan because they had been advised by other firms that their organizational structure, which leaned heavily to highly compensated employees (HCEs), would lead them to fail non-discrimination testing and require a cost prohibitive Safe Harbor design. Pinnacle suggested the firm explore the prospects of a “top paid group election design” which limits the number of employees classified as highly compensated to 20% of the eligible employees thus shifting highly paid continued on page 47
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Benefits & HR Strategies continued from page 45
The survey itself need not be overly complex. In fact, it could be worthwhile to conduct a series of surveys over time – perhaps semi-annually or quarterly – prioritizing those areas that you feel need the most attention. individuals (who are more likely to contribute at high levels) to the non-highly compensated testing group. This election alone does not ensure improved testing results, and while Pinnacle projected that the election would be beneficial, the projections were highly dependent on assumptions and the prospective client wanted greater affirmation. Pinnacle drafted a brief survey to forecast participation and contribution rates. The survey results indicated that the firm would likely be comfortably above the threshold for passing non-discrimination testing. The firm felt the results were very promising and elected to move forward with implementing the benefit that the survey indicated would be used by a high percent of employees.
Survey Basics
with each blast. Spread the word about your survey. Entice participation by conducting a drawing for a prize from all the respondents’ names. This is not an option for an anonymous survey, but it does help drive participation when appropriate. Follow-Up. A critical element of any employee survey is the follow-up. Once you embark upon asking the sometimes tough questions, you must be prepared to communicate regarding the results. You are not obligated to deliver specific results (unless that was part of the original message), but general insights gained and actions planned will let employees know you paid attention to their input If employees do not have a sense that they were ‘heard’, they may not be as responsive the next time you solicit their opinion. Ever-improving technology makes it less expensive and easier to conduct surveys. More progressive employers tend to embrace the idea that it is better to know about workplace issues than to be blindsided by employee dissatisfaction that could lead to loss of productivity and employee retention issues.
Moving forward with surveys will help you gain the insights you need to make the best choices for your company and employees. Contact your benefits consultant for guidance on how to get started. n
Content. There is no “one-size-fits-all” approach to surveys and you should give some thought to the types of questions that would be useful within your company culture. The survey itself need not be overly complex. In fact, it could be worthwhile to conduct a series of surveys over time – perhaps semi-annually or quarterly – prioritizing those areas that you feel need the most attention. Keeping it short and simple will improve the response rate. Typical employer surveys include questions surrounding the following topics: • Benefits – Do employees understand their benefits? Which benefits are they using/not using? Do employees feel benefits are substantive and competitive? • Communication – Do employees feel well informed by their managers and by the firm overall? Where would they like more or less? What’s their receptivity to online resources? • HR Practices – Does their direct supervisor clearly outline priorities? Do employees feel encouraged to grow professionally and have the training to reach their goals? Execution. Tools such as Survey Monkey and Constant Contact make it fairly easy and cost-effective to build, send, and analyze survey results. Depending on the size of the audience, surveys are often sent 2 or 3 times, capturing only non-responders
AUGUST, 2014
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groups.
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ChaMPi nS The Leukemia & Lymphoma Of hOPe gala Society of Massachusetts Announces 2014 Man & Woman of the Year at the Champions of Hope Gala
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or the first time, the Leukemia & Lymphoma Society of Massachusetts (LLS) combined two important fundraising events, “Gala for a Cure” and “Man and Woman of the Year” into one hugely successful event, the “Champions of Hope Gala”, which raised over $588,000. Nine candidates were tasked with raising as much money as possible to advance the LLS mission. The top fundraisers would be named 2014 Man and Woman of the Year. For their efforts, John Ragan of Westborough and Cynthia Paleologos of West Boylston were named this year’s winners. Sponsors of the “Gala” included Dana-Farber Cancer Institute, The Takeda Oncology Company, Boston magazine, KBW - A Stifel Company, S&S Ventures, Inc., and Stifel. UCANE President Al Morteo and his wife Rosemary were instrumental in starting “Gala for a Cure” five years ago, and since that time they have helped raise more than $1.5 million for LLS. These funds aid the doctors at Dana-Farber Cancer Institute to continue their research to find the ultimate cure for leukemia, lymphoma, Hodgkin’s lymphoma, and myeloma, and to improve the quality of life for patients and their families. Al’s direct involvement in LLS began in 2008. His younger brother Albert had been battling Acute Myelogenous Leukemia since 2004, and his cousin Frankie was diagnosed with Chronic Myelogenous Leukemia in January 2006. Al was asked to run as a candidate for “Man of the Year” and quickly accepted the nomination. In May, he won the title of “2008 Man of the Year.” In April during the campaign Al’s cousin passed away, and then in September, his brother Albert passed
AUGUST, 2014
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away. This only solidified Al and Rosemary’s commitment to fundraising in an effort to support the doctors trying to find a cure for these dreaded diseases.
UCANE, which has supported LLS for over 35 years, was proud to support both events and would like to congratulate Al and Rosemary, and all the Man and Woman of the year candidates, as well as the staff and volunteers who helped raise the funds necessary to support the researchers in finding a cure for leukemia and other related blood diseases. n
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IN THIS ISSUE: • • • • •
Financial Aid Starts With the FAFSA Grandparent Aid for College Costs Keeping Wealth in Your Family’s Future Tougher Rules on Reverse Mortgages Reasonable Compensation for S Corporation Owners
Smart Tax, Business & Planning Ideas
Starts With th Financial Aid Starts Financial With theAid FAFSA
C
ollege-bound students and their families have more work to complete beyond submitting applications and (hopefully) deciding which school to attend. Students should file the Free Application for Federal Student Aid (FAFSA) before starting college and succeeding years. As the cost of higher education soars, filing the FAFSA may provide some valuable relief.
student’s inc and parents’ placed into a the expected (EFC) for th If the cost of exceeds the E offered some Example the FAFSA, her EFC for $22,000. If A Why It’s Important college wher Using the FAFSA to apply for aid opens the receive a $14,000 students aid package fill the gap. is $36,000, she m College-bound and to their door to various forms of assistance, including needSome have parents may choose not to have their families more work to complete aid package to fi based grants, merit-based scholarships, education youngsters file the FAFSA, either because they doubtSome parent beyond submitting applications and loans, and work opportunities. Funds may come they’ll receive need-based aid or because (hopefully) deciding which school to they don’t their youngsters from federal or state governments or from individual want to deprive more deserving applicants of limitattend. Students should file the Free because they do colleges. ed aid dollars. That’s for each family to decide, but Application for Federal Student Aid based aid or bec Essentially, aid applicants use the FAFSA to not filing the FAFSA may have repercussions. Some (FAFSA) before starting college and in deprive more de report the student’s assets, student’s income, parmerit scholarships require the FAFSA, as do federal succeeding years. As the costsome of higher aid dolla ents’ assets, and parents’ income. These data are education loans. What’s more, colleges arelimited so education soars, filing the FAFSA may to decide, but no placed into a formula to determine the expected expensive that relatively affluent parents can qualify provide some valuable relief. may have reperc family contribution (EFC) for the coming academic for aid, especially if more than one child will be atscholarships req year. If the cost of attending a given college extending college. ceeds the EFC, the student may be offered some Why it’s important federal educatio A Matter of Time form of financial aid. Using the FAFSA to apply for aid opens some colleges ar the doorout to the various forms of assistance, relatively affluen Example 1: Arlene Walker fills out the FAFSA, Filling FAFSA presents some challenges. which determines that her EFC for the coming school The forms can be filled out as early as Januaryaid, for especially if including need-based grants, merit-based year is $22,000. If Arlene will be attending a college thescholarships, following school year. Indeed, some observers education loans, and work be attending col continued where the published total cost is $36,000, she might opportunities. Funds may come from on page 53 A matter of federal or state governments or from Filling out the F individual colleges. “BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK” 51 AUGUST, 2014 challenges. The Essentially, aid applicants use the as early as Janua FAFSA to report the student’s assets,
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Financial Management continued from page 51 recommend filing as early as possible because late filers may be competing for a depleted pool of funds. Some universities have early deadlines for submitting the FAFSA. However, families filing in January may not yet have all the relevant information, such as adjusted gross income (AGI) for the previous calendar year. Example 2: Brad Taylor is a high school senior in 2014–15 who will start college in August 2015. In January 2015, Brad fills out the FAFSA with help from his parents. They include their best estimates for 2014 financial information, including AGI. In March 2015, after the Taylors’ tax returns for 2014 are completed, they update the data on the FAFSA that was previously submitted. Going forward, the Taylors keep submitting a new FAFSA every year, until Brad no longer will be in undergraduate or graduate school.
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Application Assistance You and your student can fill out the FAFSA online at www.fafsa.ed.gov. Some colleges require still other financial aid forms, and the entire process can be time-consuming. continued on page 55
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Financial Management continued from page 53
Grandparent Aid for College Costs
M
any grandparents would like to help their grandchildren with the steep costs of higher education. That’s often a laudable goal, but some methods of providing this assistance might be more effective than other tactics. Grand Gifts
The simplest tactic is to give money to youngsters before or during their college years. In 2014, the annual gift tax exclusion is $14,000 per recipient. Example 1: Cora Smith has three grandchildren. She can give each of them $14,000 this year for their college funds. Cora’s husband, Rob, can make identical gifts to each of their grandchildren. Such gifts will have no adverse tax consequences. (Larger gifts may reduce this couple’s gift tax exemption and, ultimately, their estate tax exemption.) In addition to all of these $14,000 gifts, the Smiths can pay the college tuition for any of their grandchildren. No matter how large these outlays might be, Cora and Rob will not owe any tax or suffer any reduction in their transfer tax breaks.
Axing Aid Such grandparent gifts may have their disadvantages, though. They could result in reduced financial aid. Example 2: Over the years, Rob and Cora have made gifts to their grandson Doug. Counting investment buildup, Doug has $50,000 worth of assets when he fills out the FAFSA (see the article “Financial Aid Starts With the FAFSA” in this issue) for his first year of college. The FAFSA assesses Doug’s assets by 20%, when calculating the expected family contribution (EFC), so the $50,000 could reduce his financial aid by
$10,000: the 20% assessment times $50,000 of Doug’s assets. Tuition payments by Rob and Cora for Doug’s schooling could result in even larger aid cutbacks. For some grandparents, this won’t be a major concern. The student’s immediate family might have such extensive assets and such substantial income that need-based financial aid won’t be possible. However, today’s college costs are so high that aid might be available, even to well-off families. The possible impact on financial aid should be discussed with the student’s parents. In addition, it should be considered that assets given to grandchildren will come under the youngsters’ control once they come of age, usually on or before age 21. Grandparents need to be comfortable with the idea that money in a grandchild’s account may or may not be used for education or other worthwhile purposes.
Grandparents to Parents Instead of making gifts directly to grandchildren, grandparents can give assets to their own children who are the student’s parents. This plan will have less impact on financial aid. Example 3: Assume that Cora and Rob have made gifts to their daughter Elly, Doug’s mother, rather than making gifts directly to Doug. Such gifts have increased Elly’s assets by $50,000. A parent’s assets are assessed at no more than 5.64%, on the FAFSA, so the additional assets held in Elly’s name would reduce possible aid by $2,820: 5.64% of $50,000. Therefore, giving money to the student’s parent would be better than giving money to the student, if financial aid is a concern, and, assuming the parents are more financially prudent, less chance exists of the transferred assets being squandered. continued on page 57
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Financial Management continued from page 55 Focusing on 529 Plans If concerns about the security and intent of the gifted funds still exist, they may be addressed by contributing to a 529 college savings plan, instead. Such plans have many advantages. Example 4: Cora Smith creates three 529 accounts, naming a different grandchild as the beneficiary for each one. Now Cora has control over how the money will be invested and how it will be spent. Any investment earnings will be tax-free and distributions also will be untaxed if the money is used for the benefi-
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ciary’s college bills. Cora can even reclaim the funds in the 529 if she needs money, paying tax and (with some exceptions) a 10% penalty on any earnings. What’s more, a 529 account owned by a grandparent won’t be reported on the grandchild’s FAFSA, so it will not have any initial impact on financial aid. It’s true that eventual distributions from a grandparent’s 529 will be reported on a subsequent FAFSA and will substantially reduce financial aid. That won’t be a concern for families who are not receiving needbased aid. If the student is receiving aid, distributions from the grandparent’s 529 plan can be postponed until the last FAFSA has been filed. Example 5: Doug Franklin will start college in the 2015-2016 school year, so he files his first FAFSA in January 2015. Doug receives some need-based aid, so his grandmother Cora lets the 529 account continue to grow, untaxed. Doug files a new FAFSA every year until January 2018, when he submits the form for his senior year. Subsequently, Cora can tap the 529 account to pay Doug’s remaining college bills. Doug won’t be filing any more FAFSAs for financial aid, so Cora’s 529 distributions won’t be reported. The bottom line is that grandparents have many tactics they can consider if they wish to give grandchildren a financial assist on the path towards a college degree. continued on page 58
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Financial Management continued from page 57
A
Keeping Wealth in Your Family’s Future
ccording to a new study by Merrill Lynch’s Private Banking and Investment Group, family wealth fails to outlive the generation following the one that created that wealth in more than two out of three instances; 90% of the time, “assets are exhausted before the end of the third generation.” This report focuses on investors with more than $5 million, but the principles apply just as well to those with $500,000 or even $50,000 to invest. If you are concerned about the financial security of your children and grandchildren, you should set a good example and discuss money matters regularly with your descendants.
Savvy Spending One reason that family wealth may not last very long is simple: people spend too much. In the Merrill Lynch study, more than half of the respondents either expressed confidence that a 6% distribution rate could sustain an investment portfolio indefinitely or did not have any idea of how much could be withdrawn prudently. To put this in perspective, research indicates that a sustainable distribution rate might be as low as 2% of portfolio value a year. Obviously, the less you spend the more that can pass to a surviving spouse and to your descendants. Spending moderately will signal to your loved ones that this is how one builds and maintains net worth. In addition, you can make sure that your heirs know that your spending habits are designed to minimize the chance of depleting the family’s coffers. continued on page 59
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Financial Management continued from page 58 Continuing the Conversation Indeed, perhaps the most important thing you can do to preserve wealth in your family is to regularly talk to your children about finances. Remember to keep the discussions age appropriate. With very young children, you might talk about how money is earned by working, how some money goes to taxes to pay for schools and other services, and how what’s left might be either saved or spent. Avoid getting into too much detail with youngsters, who probably will be overwhelmed and, therefore, intimidated rather than educated. Once your children are ready for college, you can
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have practical conversations about their choice of study and eventual career path. A student who knows a substantial inheritance lies in the future, or who can play a possible role in a thriving family business, might be inclined to consider a course of study that relates to a personal passion; another student, one who understands that his or her lifestyle will depend on his or her earnings, could go in another direction. Similar conversations might take place when children are about to become parents or are shopping for a home. The more they know about your finances, and about their own prospects for an inheritance, the greater the likelihood they’ll make informed decisions. On the flip side, holding these ongoing conversations with your children can educate you, too. You might discover a need for gifts or loans that you hadn’t known about. Conversely, you might realize that your children are uninterested in financial matters and may make poor decisions if they inherit money outright. If so, you may have the opportunity to build safeguards into your estate plan, such as giving or leaving money to a trust for a child’s benefit.
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Of course, some parents will not want to reveal all the details of their financial affairs to their children. In truth, that’s not really necessary. You might give your children an overview, with enough information to impart what you are willing and able to provide during your life and a general idea of what they might inherit someday. In addition, you can tell your children where to find key documents and also provide contact information for your professional advisors. Once you bring your advisors into the inheritance conversation, keep in mind that some studies show that both parents and children may be more comfortable discussing their circumstances with a financial professional (CPA, attorney, financial planner) than with each other. If that’s the case in your situation, you might ask a professional with whom you work to suggest and even host a meeting of the generations. continued on page 60
1/6/12 2:56 PM “BUY FROM THE ADVERTISERS IN CONSTRUCTION OUTLOOK”
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Financial Management continued from page 59
poor decisions if they inherit money outright. If so, you may have the opportunity to build safeguards into your estate plan, such as giving or
a general idea of what th inherit someday. In addit tell your children where documents and also prov
TougherMortgages Rules on Reverse Mo Tougher Rules on Reverse
T
he Federal Housing Administration (FHA) has imposed more stringent requirements on reverse mortgages, making them increasingly difficult to obtain. For qualified borrowers, though, continued low rates and the spread of so-called “purchase loans” can make it worthwhile to consider this type of debt. Income Instead of Outflow As the name suggests, a reverse mortgage is the opposite of a traditional home loan. With a reverse mortgage, you get cash instead of making payments to the lender. You can get a lump sum, a line of credit, or regular monthly income. The amount you borrow will be secured by your home, so reverse mortgages are for homeowners with little or no debt on their home. Most reverse mortgages are Home Equity Conversion Mortgages (HECMs), which are offered by private lenders and insured by the FHA; borrowers must be at least age 62. The amount you’ll receive will be determined by current interest rates, your age, and your home equity. Interest rates are relatively low now (around 5% for a fixed-rate loan and under 3% for a loan with a variable rate that adjusts monthly), but you’ll pay an added 1.25% of the balance for mortgage insurance. The older you are and the greater your home equity, the more you’ll be able to borrow on a reverse mortgage. Many reverse mortgage calculators can be found online. Near mid-year 2014, the calculator at reversemortgage.org was asked what a married couple in Indianapolis, both aged 68, could borrow against a $320,000 debt-free home. A fixed-rate loan would permit an upfront payout of over $97,000, whereas a variable-rate loan would provide $971 in monthly cash flow. If that couple were both age 78, the numbers would be about $106,000 upfront and $1,236 a month, respectively. In any case, no tax would be due on the borrowed funds. (See the Trusted Advice column “Delayed Deduction” for more information.) With a HECM, an owner occupant doesn’t have to make any debt repayment while still living in the home. No matter how large the loan balance becomes, the outstanding loan balance won’t be due until the borrower dies, sells the home, or is no longer using the home as a primary residence. Naturally, the loan balance will keep mounting: that $97,000 or $106,000 loan against a $320,000 house will approximately double in 11 years, at today’s fixed interest rates. 60
or regular mont The amount you be secured by yo so reverse mortg for homeowner or no debt on th Most reverse m Home Equity C Mortgages (HE which are offere lenders and insu FHA; borrower least age 62. The amount Higher Hurdles will be determin Thereverse Federal Housing Administration interest rates, yo A mortgage borrower still current owns the (FHA) has imposed more stringent your home home, which means continuing to have ownership equity. Intere requirements on reverse mortgages, relatively low now (aroun responsibility. making them increasingly difficult fixed-rate loan and unde Example 1: Frank andborrowers, Robin Grant receive a re-a variable rate to obtain. For qualified loan with verse mortgage that will $1,000monthly), a month.but you’ll pay though, continued low pay ratesthem and the Theyspread still own their home, soloans” they still 1.25% must of pay of so-called “purchase the balance for can make itinsurance worthwhilepremiums, to consider localinsurance. homeowners propertyThe older you this type of debt. dues. greater your home equity taxes, and association be 61 able to borrow continued you’ll on page Income instead of outflow mortgage. As the name suggests, a reverse Many reverse mortgag mortgage is the opposite of a can be found online. Nea traditional home loan. With a reverse year 2014, the calculator mortgage, you get cash instead of reversemortgage.org was making payments to the lender. You a married couple in India can get a lump sum, a line of credit, both aged 68, could borr 4
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Financial Management continued from page 60 Under new FHA rules, reverse mortgage applicants must undergo a financial assessment in order to qualify for a loan. Lenders have to check to see that borrowers can afford to pay the required taxes and insurance bills, based on their assets and cash flow. Borrowers with questionable resources may be asked to put money into escrow or may have their application rejected.
Borrowing to Buy Reverse mortgages are aimed at seniors who wish to stay in their home as they grow older. In effect, they can use their home equity for added cash in retirement so they won’t have to move into an unfamiliar place, perhaps one that’s away from friends and family. That’s not the case for all seniors. Some want to buy a different home that’s easier to maintain or move to a less expensive region. Example 2: Helen Parker is a widow living in a large house. She wants to buy a place in a seniors’ community, but she lacks the income to qualify for a traditional mortgage, and she is having a difficult time selling the house where she now lives. Fortunately, Helen has enough assets to qualify for a reverse mortgage purchase loan, which will enable her to buy into the seniors’ community now. Helen still plans to sell her old home, but she can
Trusted Advice Delayed Deduction • Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. • Any interest accrued on a reverse mortgage is not deductible until the interest is actually paid, which is usually when the loan is paid off in full. Such a payment might be made by the borrower, by an heir, or by the borrower’s estate. • For the party repaying the loan, the deduction may be limited because a reverse mortgage loan generally is subject to the limit on home equity debt. That limit caps deductions to the interest on $100,000 of debt. move right away and not have to make payments on the reverse mortgage purchase loan. Reverse mortgages can be complicated, and they require various fees, but they may offer a practical way to tap home equity in specific circumstances. continued on page 62
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circum Financial Management continued from page 61
F
Reasonable Compensation forCompens Reasonable S Corporation Owners
or regular C corporations, “reasonable compensation” can be a troublesome tax issue. The IRS doesn’t want shareholder executives to inflate their deductible salaries while minimizing the corporation’s nondeductible dividend payouts. For S corporation owners, the opposite is true. If owner employees take what the IRS considers "unreasonably low" compensation, the IRS may recast the earnings to reflect higher payroll taxes, along with interest and penalties. One Pocket to Pick
Eligible corporations that elect S status avoid corporate income taxes. Instead, all income flows through to the shareholders’ personal tax returns.
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Nelson owns a plumbing supForExample regular1: CIvancorporations, ply firm structured as an S corporation. Ivan’s salary “reasonable compensation” can profits be are is $250,000 a year while the company’s $400,000. The $650,000 total is reported on Ivan’s a troublesome tax issue. The IRS personal tax return. doesn’t want executives In 2014, Ivanshareholder pays 12.4% as the employer continued on page 63 to inflate their deductible salaries
while minimizing the corporation’s nondeductible dividend payouts. For S corporation owners, the opposite is true. If owner employees take what the IRS considers "unreasonably low" compensation, the IRS may recast the earnings to Offering a full range of products: Manholes, Catch Basins, Septic Tanks, Leaching Chambers, Dry Wells, Distribution Boxes, Pump Chambers, Grease Traps, PreTreatment Tanks, Utility Vaults, Meter Pits, Yard Drains, Box Culverts, End-Walls, Wing Walls, Curbs, Water Quality Structures, Prefab. Pump Stations, Storage Buildings, Dugouts, Concrete Barriers, Cable Concrete, Retaining Walls, Restroom Buildings, Telecommunication Shelters, Prestress Bridges, National Grid, Traffic Control Structures and many more.
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Eligible status a Instead the sha Exam a plumb as an S $250,0 profits total is tax retu In 2 employ Social S earning tax on h a result
Financial Management continued from page 62 and employee shares of Social Security tax on $117,000 of earnings. He also pays 2.9% Medicare tax on his $250,000 of salary. As a result of recent tax legislation, Ivan—who is not married—owes an additional 0.9% Medicare tax on $50,000, the amount over the $200,000 earnings threshold (the threshold is $250,000 on a joint tax return). Altogether, Ivan pays well over $20,000 in these payroll taxes.
Going Low Often, S corporation owners have a great deal of leeway in determining their salary and any bonus. Holding down these earnings may reduce payroll taxes. Example 2: Jenny Maxwell owns an electrical supply firm across the street from Ivan’s business. Jenny’s company also is an S corporation. She reports the same $650,000 of income from the business but Jenny classes only $75,000 as salary and $575,000 as profits from the business. Thus, she pays thousands of dollars less than Ivan pays for Social Security and Medicare taxes.
Proving your Payout As mentioned, the IRS might target S corporation owners suspected of lowballing earned income. Therefore, all S corporation shareholders should take steps to justify the reasonableness of their compensation. If you own an S corporation, consider spelling out your salary level in your corporate minutes. Where possible, give examples and quote industry statistics that show your compensation is in line with the amounts paid to executives at similar firms. Other explanations also might help. Depending on the situation, you might say that business is slow in the current economy, so the minutes will report that you are keeping your salary low to provide working capital for the company. If your business is young, the minutes could explain that you’re holding fixed costs down, so the company can grow, but you expect to earn more in the future. In still another scenario, you might say that you are nearing retirement and making an effort to rely more on valued employees, so a modest level of earnings reflects the actual work you’re now contributing. As illustrated above, holding down S corporation compensation can result in sizable payroll tax savings.
Calculating Coverage Beyond compensation, health insurance also may
AUGUST, 2014
affect the payroll tax paid by an S corporation owner. Special rules apply to anyone owning more than 2% of the company’s stock. If the company has a health plan and pays some or all of the costs for coverage of such a so-called “2% shareholder,” the payments will be reported to the IRS as taxable income. However, that amount will not be subject to payroll taxes, including those for Medicare and Social Security. The company can take a deduction for these payments, effectively reducing corporate profits passed through as taxable income for the shareholder. In addition, the S corporation shareholder may be able to deduct the premiums paid by the company—this deduction can be taken on page 1 of his or her personal tax return, which may provide other tax benefits. However, such an “above-the-line” deduction cannot be taken in any month when the shareholder or spouse is eligible to participate in another employer-sponsored health plan. Also, this deduction can’t exceed the amount of the shareholder’s earned income for the year. This can be a complicated issue, especially if your state law prevents a corporation from buying group health insurance for a single employee. Reprinted from CPA Client Bulletin. n
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Advertisers’ Index ATS Equipment, Inc. ...........................................................16 Adler Tank Rentals...............................................................61 Albanese D&S, Inc.................................................................6 Allied Recycling Center.......................................................20 American Shoring, Inc.........................................................10 Aon Construction Services Group........................................21 Boro Sand & Stone Corp......................................................45 Dennis K. Burke, Inc............................................................54 Concrete Systems, Inc..........................................................38 Dagle Electrical Construction, Corp....................................18 Darmody, Merlino & Co., LLP............................................55 DeSanctis Insurance Agency, Inc. . .....................................52 Dig Safe System, Inc............................................................50 The Driscoll Agency ...........................................................59 EJ..........................................................................................12 Eastern Insurance Group, LLC..............................................8 Eastern States Insurance Agency, Inc..................................23 T. L. Edwards, Inc................................................................52 Ferguson Waterworks...........................................................53 Foley Carrier Services, LLC................................................50 Geod Consulting, Inc............................................................63 L. Guerini Group, Inc...........................................................13 HD Supply Waterworks..........................................................2 A. H. Harris & Sons, Inc. ......................................................9 Hinckley Allen, LLP........................................................... 44 John Hoadley & Sons, Inc....................................................19 P. A. Landers, Inc.................................................................52 Lawrence-Lynch Corp..........................................................54 Lorusso Corp........................................................................15 Lorusso Heavy Equipment, LLC.........................................42 Mabey, Inc............................................................................45 Mass Broken Stone Company...............................................57 Milton CAT...........................................................................14 Norfolk Power Equipment, Inc.............................................56 North East Shoring Equipment, LLC...................................58 NorthStar Insurance Services, Inc.......................................28 Ocean State Oil.....................................................................23 Our Outhouses, Inc...............................................................56 Palmer Paving Corporation..................................................57 E. H. Perkins Construction Co., Inc.................................... 64 Podgurski Corp.................................................................... 60 E. J. Prescott, Inc..............................................Ins. Front Cvr. Rain For Rent-New England................................................ 46 Read Custom Soils . .............................................................53 Rogers & Gray Insurance Agency, Inc................................ 40 Schmidt Equipment, Inc.......................................... Back Cvr. The Scituate Companies.......................................................22 Shea Concrete Products........................................................48 Smith Print............................................................................50 Starkweather & Shepley Ins. Brokerage, Inc.......................56 Ti-SALES, Inc. ....................................................................11 Albert J. Tonry & Co., Inc....................................................11 Travelers................................................................................47 United Concrete Products, Inc. ...........................................62 United Rentals Trench Safety........................... Ins. Back Cvr. The Vellano Corporation................................................ 4 & 5 C. N. Wood Co., Inc. . ..........................................................30 Woodco Machinery, Inc.......................................................36
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