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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
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@example.com Website: www.hrmdco.com
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
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
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
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
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
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
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
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
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 firstname.lastname@example.org • Thank you for your potential interest in this fresh thinking Next Steps