We applaud the effort invested in the survey, " The Software CPAs Use " (JofA, Nov.97, page 52). It was far-reaching and contained much valuable information.
However, we disagree with exhibit 9, " Tax Software ." Your survey results suggest that none of the Big 6 firms use A-Plus-Tax. This is incorrect—all Arthur Andersen offices in the United States use A-Plus-Tax programs.
With all due respect to the coauthors of this market survey, the gross disparity between market reality and your research suggests the need for more stringent analysis. Moreover, it challenges the overall accuracy of your effort. We suggest you pursue the facts through either a larger sampling or from a better response from those people who receive your questionnaires.
Miguel A. Figueras, CPA
Arthur Andersen LLP
Not Shy About "Shyness"
" Conquering Shyness " (JofA, Oct.97, page 63) was not particularly helpful. To solve your shyness problem, you must get out and do. Sign up for a Dale Carnegie course, where you get in front of people and speak. You'll find strengths and weaknesses in yourself and in others. Join Toastmasters or other roundtable groups and use your public-speaking skills or take a drama course. Affirmation (if I say "I am good" enough times, I'll believe it) is fine, but it's weak—not based on real strength. You must build yourself up and build your strengths through training, experience and taking licks. You can then "draw on your strengths" when facing a challenge.
People also can be shy because they are lazy or unprepared. When I go to a meeting, I have a written agenda. I've done my homework and am prepared. The unprepared will let the prepared person take charge and make his or her points. It's quite amazing how powerful you are in such situations.
Does my advice work? If you want affirmation or a success story from me, forget it! Get going yourself.
Brian Rowbotham, CPA
Offers in Compromise and Form 433
I enjoyed reading " Easier Offers in Compromise " (JofA, Dec.97, page 57). The article briefly covered the amount payable from current and future income. Unfortunately, it did not address the issue of how the IRS capitalizes the net monthly available income. In fact, it missed one of the most important items—the financial statements form 433. Specifically, I have seen a lot of inconsistencies among revenue officers on how they capitalize the available cash, per form 433, over 60 months and then possibly discount it to the present value. Is it possible that the authors could supplement the article to cover these important items?
Thomas J. Murphy, CPA, CFP
A Need for Nonqualified Plans?
The recent article " More Than Golden Handcuffs " (JofA, Nov.97, page 37) closed with the following thought: "Companies seeking to attract, retain and motivate key executives need to consider some type of nonqualified deferred compensation plan."
As a practicing actuary and CPA in the area of retirement consulting, I submit there's scant need for nonqualified plans in our current economy to retain top talent. Most executives today are hanging onto their jobs with trepidation and through adroit politicking. How many key executives quit voluntarily these days? If enough did, "downsizing" wouldn't be necessary. The article also presumes most of these executives warrant retirement income at levels corresponding to their salary (that is, final average salary)—a major assumption!
Terminating executives isn't easy; companies generally don't release management without generous severance packages that affect the earnings for at least a quarter or two. The problem is not retaining qualified executives but shedding the positions when costs become an overriding concern. Replacement, when necessary, is rarely a problem with such a talented pool on standby. And consultants or "executive temps" are sometimes used as an alternative to taking on the burden of highly paid personnel with all the attendant overhead and benefits.
Many of the astute executives I've known and worked with as clients are interested foremost in two things: maximum cash and some sort of equity participation through options, bonuses or other specialized stock compensatory programs. Everything else, including retirement plans (qualified and nonqualified), is secondary. Smart executives know that, with enough cash compensation (even after taxes) and the right stock programs, a big enough pile of capital can be accumulated to make all other forms of remuneration incidental. Give them enough cash, stock, recognition and respect, and most executives are with you forever—kind of like a kitten.
Investments in most corporate stock programs or in general stock index funds over the past several decades have significantly outpaced a nonqualified program for accumulating capital, particularly those financed with life insurance.
Life insurance isn't an investment alternative, and it's unable to compete with traditional asset classes. While the tax leverage created by life insurance at death is powerful, there are many other factors involved before it can be considered a judicious use of funding (financing) dollars. Warren Buffett didn't get rich buying life insurance policies (he did get rich owning insurance stocks).
Some of the assumptions in your article might be rethought.
Robert Preston, CPA
Member American Academy of Actuaries
Letters to the Editor
The Journal encourages readers to write letters on important professional issues in addition to comments on published articles. Because space is limited, letters submitted for publication should be no longer than 500 words. Please include telephone and fax numbers.
Authors Reply: Robert Preston's letter contained four broad areas of misunderstanding regarding deferred compensation plans:
- There is scant need for nonqualified plans in our current economy to retain top talent . Changes in federal law that took effect in 1997 reduced to $160,000 the amount of employee compensation a company can consider when determining qualified benefits. This is wholly inadequate. Without nonqualified plans in place, these individuals would receive just 20% to 30% of their final years' pay as a retirement benefit. Every Fortune 1000 company has a nonqualified plan in place for top executives.
- Executives are hanging onto their jobs . With the nation's unemployment level at record lows, many executives—even those who are nearing retirement age—can be far more selective about negotiating salaries and are opting for positions with companies that offer the most comprehensive retirement packages. And temporary help is not sufficient for a long period of time.
- Cash and stock options are enough . Stock options are critically important but do not preclude companies from offering nonqualified plans in addition. Millionaires who receive stock option benefits are the exception, not the rule.
- The funding issue . Companies have a number of funding options. Actuarial firms often are involved in the decision-making process, and thus, there have been third-party reviews of this corporate-owned life insurance financing technique. This strategy has been recognized by sophisticated companies and their advisers as far back as the late 1960s, when General Electric put into place a major corporate-owned insurance-funded plan.
William Hall, CPA
Charles Morse, Jr.
The Todd Organization