Proprietary Methodologies-Based Combined Investment and Taxation Optimization Service for Rabbi Trus...
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Proprietary Methodologies-Based Combined Investment and Taxation Optimization Service for Rabbi Trusts. HR Specialty Products & Services Catalogue Executive Summary A No Frills Distillation of Vendor’s Marketing Collateral Thomas A Ference President & CEO

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HR Specialty Products & Services Catalogue Executive Summary

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Hr specialty products services catalogue executive summary

Proprietary Methodologies-Based Combined Investment and Taxation Optimization Service for Rabbi Trusts

HR Specialty Products & Services Catalogue Executive Summary

A No Frills Distillation of Vendor’s Marketing Collateral

Thomas A Ference

President & CEO

Human Resources Mining & Distribution Co

Locating, Validating and Accelerating HR  Innovation

Office: 219-662-0201

Cell: 630-240-2583

Fax: 219-661-0236

e-mail: [email protected]

Website: www.hrmdco.com


Combined investment and taxation optimization service for rabbi trusts

  • Typical “funding” approaches for Rabbi trust-funded NQP’s that deploy life insurance and /or off-the-shelf mutual funds can be rife with cost and tax inefficiencies caused by the inadequate matching of assets and liabilities and the mis-considerations of corporate tax implications.

  • This service combines the extensive modeling and monitoring capabilities of a renowned NQP consultancy with the sophisticated tax analytics, portfolio optimization and volume-based separate account purchasing capabilities of a large, brand name financial institution.

  • The model first analyzes all current trust investments to determine the true after tax rate of return by asset class while considering all sources of expense plus the taxation / ”tax drag” factors.

Combined Investment and Taxation Optimization Service for Rabbi Trusts


Combined investment and taxation optimization service for rabbi trusts1

  • Newly-established employer financial and funding objectives are used to drive asset and liability modeling / matching with overlaid tax analyses in order to optimize current funding of the Rabbi trust.

  • Ongoing performance monitoring assures ongoing NQP trust optimization.

  • Results include improved after-tax rates of return and thus, improved financial statement results.

Combined Investment and Taxation Optimization Service for Rabbi Trusts


Typical nqp funding inadequacies

  • Cost-ineffective COLI funding

  • Tax-inefficient mutual funds

  • Lack of integrated liability assessment. Little or no:

    -duration analysis,

    -liquidity planning,

    -sensitivity testing,

    -asset class tax-attribution analysis, etc.

  • Lack of advanced “tax overlay” capabilities

  • Inadequate coordination between HR, finance and treasury for prudent plan / funding management

Typical NQP Funding Inadequacies


Problems with coli

Frictional Costs

Investment Drains

Substandard investment performance per benchmarks

Retail (or higher) asset management fees

Neglected asset/liability matching and inappropriate asset allocation policy

  • Mortality Charges

  • Carrier Profit

  • Commissions

  • M&E Expenses

  • Premium Tax

  • DAC Tax

Problems with COLI


Problems with mutual funds

Tax Drains

Investment Drains

Substandard investment performance per benchmarks

Retail asset management fees

Reduced yields for munis vs. taxable bonds

High transaction costs from participant rebalancing

  • Tax on dividends and income

  • Tax on realized gains from:

    -Participant reallocations

    -Fund turnover/rebalancing

    -Fund distributions

  • No cross-fund tax management

Problems with Mutual Funds


Case study of coli policy audit results within rabbi trust

Policy issued 2005

Current Cash Value = $234,987M

Carrier Projected Crediting Rate = 7%

Internal Rate of Return = - 0.827%

Cash on Cash Return

Years:

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Death at Age 83

Death at Age 86

Actual After Tax

Internal Rate of Return

Ranges from 2% to3%

vs. 7% projected

Case Study of COLI Policy Audit Results within Rabbi Trust

Notes:

-Although policy had market losses, the key problem was excessive loads.

-Expense “drain” from a 7% crediting rate produced a 2-3% actual IRR

-Analysis of mutual funds can produce similar results


Model for optimization of investments and taxes

Tax Overlay

  • Separately Managed Accounts

  • ETFs

  • Company Stock

  • Alternative Investments

Tactical Integration

Model for Optimization of Investments and Taxes

  • High Turnover Equities

  • Optional COLI Portfolio

  • Fixed Income

  • Other Highly-Taxed Classes


Proprietary process followed to achieve the results

  • Actuarial liability analysis/sensitivity testing

  • Liquidity and liability duration analysis

  • Asset/liability studies

  • Investment policy/asset allocation recommendations

  • Investment-manager research/selection

  • COLI audit, analysis and performance optimization services

  • Tax-overlay analytics

  • Global market analyses

  • Disciplined ongoing rebalancing services

  • In-depth, after-tax, ongoing performance review

Proprietary Process Followed to Achieve the Results


Next steps

  • This product/service is contained in the HR Specialty Products & Services Catalogue™

  • Operational level details about this particular service provider can be obtained in conference with the vendor

  • The HR Mining &Distribution Co. is an independent and contracted representative of the vendor

  • Upon your request, we will arrange for an introduction that can range from a simple, quick conference call to a services overview / system demo

  • Tom Ference 219-662-0201 (Chicagoland area) or [email protected]

  • Thank you for your potential interest in this fresh thinking

Next Steps


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