Institutional Funding

Corporate Owned Life Insurance (COLI)

Fulcrum Partners is one of the largest independent distributors of Corporate-Owned Life Insurance (COLI) in the United States. COLI is an institutional life insurance product purchased by corporations covering a select group of management for the purpose of financing executive benefit plans and other corporate liabilities. COLI policies are long-term investments with effective tax advantages.

Fulcrum Partners can provide a wide variety of general account and separate account COLI products from the majority of the top-rated insurance carriers. The consultants will focus on the corporation’s specific business objectives, participant demographic, timing of plan distributions, and provide financial models to determine whether COLI is an effective hedge against long term benefit plan liabilities.

The COLI Best Practices Provision of the Pension Protection Act of 2006 was signed into law on August 17, 2006, and is designed to codify industry "best practices" regarding the use of COLI. Fulcrum Partners’ consultants are experts in the COLI Best Practice provisions and will ensure these best practice conditions are met according to all statutory requirements.

Mutual Funds

Mutual funds and ETFs are also a common hedging instrument for long term plan liabilities. Plan sponsors of qualified retirement plans, such as 401(k) plans, often offer these same funds to serve as “measurement funds” for their nonqualified plan. Since the taxation of qualified plan assets (tax deferred) and nonqualified plan assets (generally taxable) are different, mutual funds may or may not be the most effective hedging strategy available.

Fulcrum Partners assists nonqualified plan sponsors in analyzing the suitability of mutual funds and ETFs for hedging purposes by performing financial diagnostics to measure the effect of mutual funds on corporate cash flow, P&L and the balance sheet. Additionally, Fulcrum Partners will provide evaluation of fund suitability, manager performance, fee structures, peer group benchmarking, and assist sponsors with mutual fund and ETF selection.

Bank Owned Life Insurance (BOLI)

Successful financial institutions with excess cash are faced with numerous investment decisions, including reinvesting in the business, paying a dividend, repurchasing stock, or investing the cash for use later. Specially designed life insurance policies have become popular as alternative investment vehicles. The tax deferred growth of policy cash value and the ultimate tax‐free receipt of death benefits paid make Bank Owned Life Insurance (BOLI) an attractive financing strategy that can produce favorable earnings and long‐term yields. These policies also provide the company the ability to finance supplemental executive benefits, such as pre‐retirement death benefits, and to fund employee benefit programs in a tax‐efficient manner.

BOLI as an Alternative Investment
Bank-Owned Life Insurance (BOLI) has become the prevalent tool for offsetting the rising costs of employee benefits. Fulcrum Partners can provide a variety of products designed with our carrier partners to meet bank needs while offering competitive yields. Our BOLI consultants help create a portfolio that suits a bank’s investment philosophy and meets the necessary regulatory compliance and documentation requirements.

Benefits of BOLI as an alternative investment:

• Offset low level of long-term interest rates
• Gain competitive returns with superior credit quality
• Post tax-free earnings when BOLI held to maturity
• Increase EPS for added shareholder value

BOLI and Executive & Director Benefit Planning
To assist banks in recruiting, retaining, and rewarding key employees, Fulcrum Partners offers consulting on a wide array of nonqualified benefit plans. Programs such as supplemental retirement plans, performance-driven retirement plans and welfare benefit plans provide key employee benefit solutions in addition to enhancing shareholder value. These programs help restore deficiencies in existing retirement programs, create management incentives, and upgrade director benefits.

Insurance Company Owned Life Insurance (ICOLI)

Similar to Bank-Owned life insurance (BOLI), Insurance-Company Owned Life Insurance (ICOLI) encompasses all life insurance that an insurance carrier purchases and either owns or in which it has a beneficial interest. Like banks, insurance companies (life and property and casualty) may purchase life insurance on the lives of directors, officers and key employees with the insurance company as owner and beneficiary of the policies. These institutionally priced policies can help the insurance company recover all or a part of the costs of its employee compensation and benefit programs, while diversifying investment holdings across all style sectors within these tax structured products.

Other than tax-exempt municipal bonds, most traditional insurance carrier investments create taxable interest or investment income. In contrast, ICOLI results in no current income tax liability for the earnings generated each year. Earnings remain permanently tax deferred inside the policies as long as the contracts remain in force. Death proceeds accrue to the policy owners tax free from properly structured contracts. By reinvesting funds from traditional portfolio investments into ICOLI, insurance carriers may be able to increase its yield by 100 to 350 basis points depending upon marginal tax rates, the size of the transaction, the type of policies selected and the demographics of the key employees to be insured.

VEBA / FAS 106 Liability Funding

Post-retirement benefit plans maintained by employers must recognize these liabilities on their balance sheets in accordance with FAS 106. Companies may look to alternative financing structures to offset or mitigate this growing liability. Financing approaches may include traditional pay as you go, or setting up formal arrangements such as a 401(h) account; a 501(c)(9) – VEBA Trust; or utilizing informal funding methods such as Trust Owned Life Insurance. These strategies may allow a company to recognize deductions of employer contributions as they occur and ultimately recover the cost of the FAS liability.

ESOP Funding

An Employee Stock Ownership Plan (ESOP) is a qualified defined contribution employee benefit plan subject to ERISA, IRS and DOL oversight. An ESOP can be a valuable tax advantaged strategy for owners of privately held companies to help them capitalize the company, or exit their business either gradually or immediately. The ESOP creates a ready market for the stock of closely held businesses while simultaneously helping to motivate, retain and reward employees.

As a qualified retirement plan, an ESOP allocates stock to a participant’s account after being purchased from shareholders. The stock must be repurchased from the participant accounts when certain trigger events occur, such as death, disability, retirement or termination of employment. This “repurchase obligation” is required to be made by the company at fair market value and in the case of death, disability or retirement must begin no later than the plan year following the event. In the early years of an ESOP, the repurchase obligation is typically insubstantial. However as the number of shares in the ESOP increases and as the shares rise in value, the repurchase liability can grow significantly, creating cash flow strains for the plan sponsor.

At Fulcrum Partners, we have the expertise to assist companies with the design, implementation, and communication of ESOP’s as well as the knowledge and resources to evaluate tax advantaged financing techniques of the repurchase obligation.

Pension Risk Transfer

Sponsors of defined benefit plans are aware that annuities must be provided for or offered to plan participants in the event of plan termination. These annuities, which are offered only through an insurance carrier, are intended to guarantee benefits earned under the plan. However, many plan sponsors are not aware that annuity-based products can also play a role in managing risk in active and frozen plans. Given the volatility in pension plan funding levels, accounting expense, and ongoing contributions, it may be useful to consider the merits of an immunization strategy when plans become adequately funded using a partial risk transfer strategy.

Partial risk transfers occur by removing a portion of the assets and liabilities from a plan (for example, those of retired employees) by settling them with the purchase of a group annuity contract from an insurance carrier. The settlement of liabilities for a large group of employees will transfer investment and interest rate risk as well as mortality and early retirement risk to the insurance carrier. Partial risk transfers require fiduciary oversight and need to be examined carefully. Our relationship with various insurance carriers familiar with this type of transaction makes Fulcrum Partners well positioned to assist plan sponsors with the proper analysis and implementation of this strategy.