U.S. patent application number 10/178470 was filed with the patent office on 2003-04-24 for method for generating a study of a benefit plan for international employees of an outsourced client.
Invention is credited to Parsons, David W..
Application Number | 20030078815 10/178470 |
Document ID | / |
Family ID | 23214641 |
Filed Date | 2003-04-24 |
United States Patent
Application |
20030078815 |
Kind Code |
A1 |
Parsons, David W. |
April 24, 2003 |
Method for generating a study of a benefit plan for international
employees of an outsourced client
Abstract
A method implemented with a machine, the machine, and method for
using the machine, and products produced thereby, the method for
generating a study of a benefit plan for international employees of
an outsourced client. The method includes the steps of: processing
input information to produce output digital signals corresponding
to characteristics for a benefit plan that is viable at one
location, but not viable at a location of the benefit;
communicating the characteristics to an international human
resource outsourcing computer; and generating, with the computer, a
study showing the benefit plan for the international employees of
the outsourced client. The method can be carried out with a
replacement benefit plan as the benefit plan.
Inventors: |
Parsons, David W.; (Roswell,
GA) |
Correspondence
Address: |
PETER K. TRZYNA, ESQ.
P O BOX 7131
CHICAGO
IL
60680
US
|
Family ID: |
23214641 |
Appl. No.: |
10/178470 |
Filed: |
June 24, 2002 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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10178470 |
Jun 24, 2002 |
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09313164 |
May 17, 1999 |
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6411939 |
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Current U.S.
Class: |
705/4 ;
705/35 |
Current CPC
Class: |
G06Q 40/02 20130101;
G06Q 40/08 20130101; G06Q 10/0635 20130101; G06Q 40/10 20130101;
G06Q 40/00 20130101 |
Class at
Publication: |
705/4 ;
705/35 |
International
Class: |
G06F 017/60 |
Claims
I claim:
1. A method for generating a study of a benefit plan for
international employees of an outsourced client, the method
including the steps of: processing input information to produce
output digital signals corresponding to characteristics for a
benefit plan that is viable at one location, but not viable at a
location of the benefit; communicating the characteristics to an
international human resource outsourcing computer; and generating,
with the computer, a study showing the benefit plan for the
international employees of the outsourced client.
2. The method of claim 1, wherein said steps are carried out with a
replacement benefit plan as the benefit plan.
Description
I. CROSS REFERENCE TO RELATED APPLICATIONS
[0001] This is a continuation-in-part application of Ser. No.
09/313,164, issuing as U.S. Pat. No. 6,411,939, on Jun. 25, 2002,
and is incorporated by reference.
II. TECHNICAL FIELD OF THE INVENTION
[0002] The present invention is in the field of digital electrical
machines and methods for making and using the same, data
structures, necessary intermediates, and products produced thereby.
More particularly, the present invention is directed to a digital
electrical apparatus and method for data processing and data
management having particular utility in the field of employee
benefits, insurance, and compensation, especially in a business or
financial transaction data processing system. Still more
particularly, the present invention pertains to automated or
partially automated (as by machine) activities in financial,
business practice, management, or cost/price determination. Even
more particularly, the present invention pertains to a machine
comprising a digital electrical computer having a processor
programmed for electrically processing input data into output data,
the computer electrically connected to an input device and to an
output device, for illustrating a replacement of a benefit
plan.
III. BACKGROUND OF THE INVENTION
[0003] The genesis of this invention originates in what the
inventor believes is a need to provide fair and equal compensation
to the global work force. And given the morass of national laws, it
has been a challenge to provide equivalent benefits to employees,
executives, and self-employed individuals located anywhere in the
world. Typically, U.S. multi-national employers (MNEs) will offer
their domestic employees both "qualified" and "non-qualified"
benefits. Qualified benefits usually include one or more retirement
plans, designed as either defined benefit plans (such as pensions)
or defined contribution plans (such as the 401(k)). Non-qualified
plans are generally available only to executives and include both
defined benefit plans, such as Supplemental Executive Retirement
Plans (SERPs), defined contribution plans, such a Deferred
Compensation Plans, incentive plans, such as Incentive Stock Option
Grants, and risk-transfer plans, such as Executive Life Insurance
Plans (ELIPS).
[0004] For those employees outside the U.S., whether they are U.S.
citizens on a foreign assignment (expatriates), foreign nationals
on assignment in the U.S. (inpatriates), third-country nationals
(TCNs), or foreign nationals in their home country (locals), cannot
be offered the same benefit plans for economic and tax reasons.
Therefore, an inequity in benefits is created between the
international employees, both U.S. and foreign, and their
U.S.-based peers. Often, the disgruntled international employees
openly express their discontent and the MNE's human resource (HR)
department is under pressure to provide an equivalent benefit.
Prior to this invention, there was no efficient uniform means for
providing equivalent benefits, and most MNEs would ignore the
demands for equivalent benefits or increase cash compensation as a
partial offset.
[0005] Many MNEs do not allow their U.S. expatriates to participate
in the employer's 401(k) plan, because the deferral of income is
recognized as income in the majority of foreign jurisdictions. This
means that the employee is taxed on income not received, and the
MNE will usually gross up the employees' compensation to cover the
additional foreign income tax, under the MNE's tax equalization
program. Those MNEs that do allow their employees to participate in
the 401(k) retirement plan incur added globalization costs.
[0006] In addition, when foreign national employees are assigned to
work in countries other than their home country (TCNs) the home
country pensions are frozen and the employee may or may not be
eligible to participate in the pension plans of the host country
where assigned. Consequently, the TCN employee may retire with a
pension that is less than the pension of a colleague who never left
the home country. Prior to this invention, there was not uniform
means for providing "pension gap" funding created by these
situations.
[0007] The cost of maintaining a global workforce is significant.
Generally, an employee in the U.S. with an annual salary of
$100,000 may cost the MNE over $500,000 annually while on an
overseas assignment, because of incentives, allowances and tax
gross-ups that are usually paid. Local nationals and TCNs may be
somewhat less expensive, based on their negotiated compensation
packages. To alleviate the cost of globalization, the international
HR departments are continually pressured to find ways to cut cost.
At the same time, the international employees are trying to ensure
that cost cutting does not affect their pocketbooks. Prior to this
invention, there was no uniform means for reducing employee cost
without reducing the employee's compensation package.
[0008] The time required to administer an international workforce
is also excessive. It is estimated through surveys, conducted by
Organization Resource Counselors, Inc. in New York, that each
international employee demands over 60 hours of administrative time
per year. This time is spent administering compensation and benefit
issues for the various jurisdictions in which the MNE may be
operating. If an MNE is operating in 200 countries globally, there
are 200 different sets of labor and tax laws that the international
HR department has to consider when making even the smallest change
to the compensation and benefits program. The implementation of a
global plan, such as an incentive stock option program, presents
significant administrative time requirements and expense to sort
the tax and legal impact associated with its implementation. Prior
to this invention, there was not a single-source, cross-border
solution for implementing benefit plans.
[0009] Recruitment for foreign assignments is also difficult.
Historically, employees have been financially enticed to accept a
foreign assignment. In recent history, career development requires
international experience, and the HR departments would like to
change the employee's motivation for accepting an assignment from a
financial incentive to a career incentive. However, due to
downsizing and mergers, most employees are not convinced that
career enhancement opportunities actually result from overseas
assignments. In many cases, the international employee has had no
career position to return to upon repatriation. Therefore, it is
difficult to gain employee acceptance of any cost cutting program
in favor of career enhancement. Today, employees are focused on
"what's in it for me." Prior to this invention, there was no
uniform means for keeping the employee "whole," while reducing the
cost to the MNE.
[0010] To further complicate the situation, MNEs have to
continually deal with changing tax laws in the U.S., as well as the
other jurisdictions in which they may do business. Compliance with
changing tax laws and host country social programs is extremely
challenging. Consequently, many MNEs find themselves out of
compliance in one or more jurisdictions. Prior to this invention,
there was no uniform means for providing benefits in a stable tax
environment that would be applicable across jurisdictional
borders.
[0011] Currently, only a few MNEs have addressed these issues to
any great extent. In doing so, there have been programs designed
for each specific type of international employee and each host
country in which they work. Consequently, some MNEs may have as
many a 100 different benefit plans for their global workforce. The
administrative burden is overwhelming. Prior to this invention,
there was no uniform means for providing a single-source benefit
program that could provide multi-jurisdictional benefits.
[0012] The intent of this invention is to provide equivalent
benefits. It is important to understand that equivalent benefits
means "equitable" benefits, but does not have to be the "same"
benefits. To further explain, foreign employees do not need to
participate in a U.S. 401(k) plan, as long as the distribution from
their replacement plan provides the same economic benefit as their
U.S. peers.
[0013] To design a multi-jurisdictional replacement benefit plan is
largely dependent on the tax laws of the host jurisdiction within
which the benefitted employee is the taxed entity. Generally,
foreign jurisdictions are either common law or civil law entities.
Civil law is based on the court's interpretation of the law as
written, whereas each court decision adds to the body of law in a
common law system. In either system, individual taxable income is
based on any one or more of the following factors:
[0014] 1. Tax residency
[0015] 2. Remittance of income into the country
[0016] 3. Economic benefit enjoyed by the individual
[0017] 4. Benefits-in-kind
[0018] 5. Constructive receipt of the income
[0019] 6. Income effectively connected with the country (foreign
sourcing)
[0020] 7. Income for services provided in the country.
[0021] Traditional devices, such as the 401(k), deferred
compensation and split-dollar executive life insurance plans,
depend on special provisions in the U.S. tax law, which do not
exist in foreign jurisdictions. Whereas an U.S. employee is allowed
to elect to defer income not yet received without being in
constructive receipt of the income, foreign jurisdictions consider
the right to defer the same as constructive receipt and tax a
deferral as income. Likewise, premiums paid on behalf of the
employee for a split-dollar program (ELIP) may be taxed as benefits
in kind. Although elective deferred compensation plans may be
recognized by a few foreign jurisdictions, they generally require a
more severe risk of forfeiture than acceptable in U.S. plans.
[0022] In addition, any items of compensation attached to the
international employee become subject to foreign social insurance
costs, which in most cases are materially significant. So, it is
also important to attempt to reclassify any replacement benefits as
non-income, as well as non-taxable.
[0023] In general, employee benefits can be classified in three
ways--(1) risk-shifting plans, such as life, health and disability
insurance, (2) accumulation plans, such as retirement plans, and
(3) income deferral plans, such as non-qualified deferred
compensation. Prior to this invention, compensation techniques,
such as assignment-completion bonuses, were the predominant tax
avoidance strategy employed by consultants. However, these bonuses
are being viewed by foreign tax entities as compensation related to
services provided in the host country and subject to tax through
the application of both "attribution" and "look-back" rules. To
provide replacement benefits utilizes risk-shifting and
accumulation strategies, since the employee's right to defer income
is considered constructive receipt by most foreign jurisdictions
and therefore, subject to tax.
[0024] The number of companies globalizing is increasing. Yet, the
systems for supporting an international workforce are generally not
adequate and sometimes obsolete. There is a limited number of
consulting firms able to provide advice to MNEs and even less time
to perform the myriad of functions necessary to support a global
workforce. There are tremendous pressures to reduce costs, while at
the same time improve performance. Consequently, the development
and providing of state-of-the-art global benefits programs have
been given a higher priority than ever before.
[0025] Meanwhile, MNEs are seeking the ability to provide equitable
cross-border benefits to their global employees, and therefore,
consultants are anxiously seeking providers who can supply global
benefit solutions. Yet, to date, no one has dedicated the time and
resources to developing the complex structures needed to provide
global benefit plans. Prior to this invention, products and support
programs for global benefit plans did not exist.
[0026] While there does exist a few providers who offer global
health plans and group life, health and disability insurance plans,
there are no providers of replacement benefits. In addition, there
are considerable efforts being made to introduce defined
contribution plans into Europe. Legislative changes are slow,
especially in those countries where the social insurance programs
are the strongest. Europe and the Far East are seeking an
easy-to-implement defined contribution solution. Prior to this
invention, there was no plan that could meet their needs.
[0027] Self-Employed Individuals and Consultants. The need for
replacement benefits is not limited to employees and executives of
multi-national corporations. In the global workplace, an increasing
number of individuals are working as consultants or starting their
own companies. Prior to this invention, there was no single source
for these individuals to obtain the benefit plans they needed.
[0028] Individual Financial Services. Since replacement benefit
plans are financial by nature, they affect every aspect of an
individual's financial affairs. Therefore, prior to the present
invention, replacement benefits have not been integrated with other
financial services that might be needed by the plan participant.
The services that this invention integrates include, but are not
limited to, banking services, investment services, financial
planning services, estate planning services, relocation services,
and other such services.
[0029] Assumption of Benefit Liability. In accounting for benefit
plans, the benefits owed to the plan participant's are considered
liabilities on the company's balance sheet, and the annual increase
in the benefit liability has a negative impact on the company's
earnings statement for the period in which the increase occurs.
Consequently, the company's benefit plans can have an unfavorable
impact on the financial welfare of a company independent of sales,
production and/or operations. Company management would like to be
able to be able to completely out-source the benefit liabilities to
relieve the company of the financial impact, as well as the
administrative burden of providing services that are outside of the
company's business. Until this invention, there was no means for
the assumption of the benefit liability.
IV. SUMMARY OF THE INVENTION
[0030] A. Objects
[0031] Thus, an object of the invention for which a patent is
sought is overcoming some or all of the drawbacks indicated herein
by digital electrical computerized means or at least partially by
machine.
[0032] It is a more particular object of the present invention to
provide an apparatus and method for using a digital electrical
computer system to process digital electrical signals to illustrate
a replacement of a benefit plan.
[0033] It is a more particular object of the present invention to
provide an apparatus and method for using a digital electrical
computer system to process digital electrical signals to illustrate
a benefit plan that is viable at one location but not viable at the
replacement plan location.
[0034] It is a more particular object of the present invention to
provide an apparatus and method for using a digital electrical
computer system to process the input data into the output data, the
output data corresponding to characteristics for a replacement of
the benefit plan that is viable at the replacement plan
location.
[0035] It is still another object of the present invention to
provide an apparatus and method for using at least one, and
preferably a plurality, of digital electrical computer systems to
process digital electrical signals in support and implementation of
the replacement plan, especially including computerized or
computer-aided generation of all documentation involved in
illustrating, supporting, and implementing the replacement
plan.
[0036] It is yet another object of the present invention to provide
an apparatus and method for using at least one, and preferably a
plurality, of digital electrical computer systems to process
digital electrical signals in an electronic community of related
services (as discussed hereinafter) distinguished by virtue of the
replacement plan or participation therein.
[0037] B. Summary
[0038] To meet these and other objects apparent from this document
as a whole, the inventor herein has made a first innovation in the
field of compensation and particularly in benefits that has created
a need for a second innovation in the field of computer science,
the latter being the subject of this patent application. The
invention for which a patent is sought in overcoming some or all of
the drawbacks indicated herein is an apparatus (machine), method of
making the machine and products produced thereby, method of using
the machine, article of manufacture, necessary intermediates
including data structures, collectively referenced herein as the
method. The method is implemented with a machine comprising a
digital electrical computer having a processor programmed for
electrically processing input data into output data, the computer
electrically connected to an input device and to an output device,
for illustrating a replacement of a benefit plan. Preferably, the
method is carried out including the steps of: entering information
defining a benefit plan that is viable at one location but not
viable at the location of the replacement plan, to convert the
information into a portion of the input data that is electrically
conveyed to the digital electrical computer for processing;
engaging the digital electrical computer for the processing of the
input data into the output data, the output data corresponding to
characteristics for a replacement of the benefit plan that is
viable at the replacement plan's location; and generating an
illustration of the replacement at the output device. The foregoing
can be carried out further including the step of computer-assisted
administering of the replacement in accordance with the
illustration and/or further including the step of computer-assisted
accounting of payments for the replacement in accordance with the
administrating and/or further including the step of
computer-assisted trust accounting for the replacement in
accordance with the administrating.
[0039] In any of the foregoing, the step of computer-assisted trust
accounting for the replacement in accordance with the
administrating can include the step of computer-assisted trust
accounting for an unfunded deferred tax plan trust, and/or can
include the step of computer-assisted trust accounting for a funded
current tax immediate-vesting plan trust, and/or can include the
step of computer-assisted trust accounting for a funded deferred
tax deferred-vesting plan trust, and/or can include the step of
computer-assisted trust accounting for a funded 83(b) election,
deferred tax deferred-vesting plan trust, and/or can include the
step of computer-assisted trust accounting for a plurality of
trusts for plans from at least two of the group: unfunded deferred
tax plan; funded current tax immediate-vesting; funded 83(b)
election, deferred tax deferred-vesting plan trust; and funded
deferred tax deferred-vesting. Similarly, any variant of the
foregoing can further include the step of computer-assisted policy
administration for funding for the replacement in accordance with
the trust accounting, and/or computer-assisted calculating of net
asset accumulation of the funding for the replacement for reporting
and in accordance with the policy administration, and/or
computer-assisted reinsurance administration for the policy in
accordance with the policy administration, and/or computer-assisted
reinsurance administration for the policy in accordance with the
policy administration.
[0040] Likewise, in any variation of the foregoing, the step of
engaging the digital electrical computer for the processing of the
input data into the output data, the output data corresponding to
characteristics for a replacement for the benefit plan that is
viable at the replacement plan's location, can include engaging the
digital electrical computer for the processing of the input data
into the output data, the output data corresponding to
characteristics for a cost-reduction-profit sharing replacement for
the benefit plan, corresponding to characteristics for a synthetic
defined contribution plan as the replacement for the benefit plan,
corresponding to characteristics for a stock option substitute as
the replacement for the benefit plan, corresponding to
characteristics for a pension gap supplement as the replacement for
the benefit plan, corresponding to characteristics for a voluntary
contribution as the replacement for the benefit plan, corresponding
to characteristics for an employer supplemental contribution as the
replacement for the benefit plan, corresponding to characteristics
for a plan covering at least one of health, life, and disability as
the replacement for the benefit plan, corresponding to
characteristics for the replacement for a retirement plan as the
benefit plan, corresponding to characteristics for the replacement
for a deferred compensation plan as the benefit plan,
characteristics for the replacement for an incentive plan as the
benefit plan, and/or characteristics for the replacement for a
retirement plan as the benefit plan.
[0041] Moreover, in the foregoing variants, the step of
computer-assisted trust accounting for the replacement in
accordance with the administrating can include accounting for a
trust investment, accounting for a loan secured by non-trust funds,
and/or accounting for interim distributions of trust funds.
[0042] Additionally, any such variants can be carried out as
further including providing Internet-based computerized banking
services in response to data communicated over the Internet to a
banking service computer, the data confirming an identity for an
employee receiving the replacement.
[0043] It is especially preferred that any of the foregoing be
carried out by further including providing Internet-based
computerized investment service in response to data communicated
over the Internet to an investment service computer, the data
confirming an identity for an employee receiving the replacement,
further including providing Internet-based computerized financial
planning service in response to data communicated over the Internet
to a financial planning service computer, the data confirming an
identity for an employee receiving the replacement, further
including providing Internet-based computerized relocation service
in response to data communicated over the Internet to a relocation
service computer, the data confirming an identity for an employee
receiving the replacement, further including providing
Internet-based computerized estate planning service in response to
data communicated over the Internet to an estate planning service
computer, the data confirming an identity for an employee receiving
the replacement.
V. BRIEF DESCRIPTION OF THE DRAWINGS
[0044] FIG. 1 is a representation of a computer system,
particularly illustrating suitable hardware for the present
invention;
[0045] FIG. 2 is an overview of the present invention, particularly
illustrating cooperation of elements of the present invention;
[0046] FIG. 3 is a logic flow diagram for the illustrating an
overview for the present invention;
[0047] FIG. 4 is a diagram of a benefit plan menu for the present
invention;
[0048] FIG. 5 is a logic flow diagram for valuing a benefit plan
that is in place until maturity;
[0049] FIG. 6 is a logic flow diagram for valuing a benefit plan
that is not continuously in place until maturity;
[0050] FIG. 7 is a diagram of a replacement plan menu for the
present invention;
[0051] FIG. 8 is a logic flow diagram of generating replacement
plan characteristics;
[0052] FIG. 9 is a overview logic flow diagram for administering
the replacement plan;
[0053] FIG. 10 is a logic flow diagram of the replacement plan
participant's transactions affecting the replacement plan
administering;
[0054] FIG. 11 is a logic flow diagram of the replacement plan
sponsor's transactions affecting the replacement plan
administering;
[0055] FIG. 12 is a logic flow diagram of the replacement plan
funding transactions affecting the replacement plan
administering;
[0056] FIG. 13 is a logic flow diagram of inputting the
participant's data into the replacement plan administering;
[0057] FIG. 14 is a diagram of an output report menu for the
replacement plan administering;
[0058] FIG. 15 is a logic flow diagram for accounting for the
replacement plan by the plan sponsor;
[0059] FIG. 16 is a logic flow diagram for the system used to
market the replacement plan;
[0060] FIG. 17 shows FIGS. 17A and 17B;
[0061] FIG. 17A is a logic flow diagram for providing additional
services to the replacement plan participants via the Internet and
other electronic and non-electronic networks;
[0062] FIG. 17B is a logic flow diagram for providing additional
services to the replacement plan participants via the Internet and
other electronic and non-electronic networks;
[0063] FIG. 18 is a logic flow diagram for a consultant's computer
system used to provide replacement plan consulting to plan
sponsor's and participants;
[0064] FIG. 19 is a logic flow diagram for managing investment
funds of the replacement plan by independent money managers and/or
investment sub-advisers;
[0065] FIG. 20 is a logic flow diagram for valuing the assets held
in the investment accounts;
[0066] FIG. 21 is an overview logic flow diagram for the
administering of a life insurance policy for use in a replacement
plan;
[0067] FIG. 22 is a logic flow diagram for valuing the life
insurance policy for administering purposes;
[0068] FIG. 23 is a logic flow diagram for valuing the life
insurance policy's Deferred Acquisition Costs (DAC) receivable
account for administering purposes;
[0069] FIG. 24 is a logic flow diagram valuing the life insurance
policy's Mortality Reserve for administering purposes;
[0070] FIG. 25 is a logic flow diagram for valuing the life Net
Premium for life insurance administering purposes;
[0071] FIG. 26 is a logic flow diagram for valuing the life
insurance policy's Cost of Insurance (COI) for administering
purposes;
[0072] FIG. 27 is a logic flow diagram for valuing the life
insurance policy's Mortality and Expense Risk (M&E) charge for
administering purposes;
[0073] FIG. 28 is a logic flow diagram for valuing the life
insurance policy's Investment Management (IM) fees for
administering purposes;
[0074] FIG. 29 is a logic flow diagram for valuing the investment
income used in determining the life insurance policy value for
administering purposes;
[0075] FIG. 30 is a logic flow diagram for valuing the net
liability transferred from the life insurance carrier to the
reinsurance facility for administering purposes;
[0076] FIG. 31 is a logic flow diagram for the payment of life
insurance death claims for administering purposes;
[0077] FIG. 32 is a overview logic flow diagram for the accounting
of the benefits master trust for the administering of the
replacement plan funding assets;
[0078] FIG. 33 is a logic flow diagram for administering the
accounting for the unfunded sub-trust for the administering of the
replacement plan funding assets;
[0079] FIG. 34 is a logic flow diagram for administering the
accounting for the funded, participant owned sub-trust for the
administering of the replacement plan funding assets;
[0080] FIG. 35 is a logic flow diagram for administering the
accounting for the funded vesting sub-trust for the administering
of the replacement plan funding assets;
[0081] FIG. 36 is a logic flow diagram for administering the
accounting for the funded, currently taxable, vesting sub-trust for
the administering of the replacement plan funding assets;
[0082] FIG. 37 is a logic flow diagram for accounting for the
revenue generated from the replacement plan.
VI. DETAILED DESCRIPTION OF THE DRAWINGS
[0083] FIG. 1 shows, in block diagram form, the computer-based
elements that can be utilized to implement the present invention.
The present invention involves computer system 1, which encompasses
processor circuitry 3 in a digital electrical computer 2. For
flexibility, it is preferable to have the processor circuitry 3
formed by means of a computer program programming programmable
circuitry, i.e., programming the computer (microprocessor, such as
one of the Pentium series). The programming can be carried out with
a computer program (or programs) 4, which for flexibility should be
in the form of software stored in an external memory 5, such as a
diskette, hard disk, virtual disk, or the like form of an article
of manufacture. (The virtual disk is actually an extended internal
memory 5 that may assist in speeding up computing.) A diskette
approach is optional, but it does provide a useful facility for
inputting or storing data structures that are a product produced by
the host software, as well as for inputting a software embodiment
of the present invention. Of course, storing the computer programs
4 in a software medium is optional because the same result can be
obtained by replacing the computer programs in a software medium
with a hardware storage device, e.g., by burning the computer
programs 4 into a ROM to form a specific hardware embodiment, using
conventional techniques to convert software into an ASIC or FPGA,
etc., as would be understood by one having a modicum of skill in
the arts of computer science and electrical engineering. (It is
well known in the art of computer science that it is a trivial
technical exercise to go from hardware to software or vice versa.
See, for example, James R. Goodman, Todd E. Marlette, and Peter K.
Trzyna, "The Alappat Standard for Determining That Programmed
Computers are Patentable Subject Matter," J.P.T.O.S. October 1994,
Volume 76, No. 10, pages 771-786, and James R. Goodman, Todd E.
Marlette, and Peter K. Trzyna, "Toward a Fact-based Standard for
Determining Whether Programmed Computers are Patentable Subject
Matter," J.P.T.O.S. May 1995, Vol. 77, No. 5, pages 353-367, both
of which are incorporated by reference.) In this regard, it should
also be noted that "input" can include inputting data for
processing by the computer program 4 or inputting via a portion of
the computer program 4 code itself. Likewise, computer system 1
contemplates implementations in one or a plurality of computers,
which could be in a distributed network or even unconnected but
operated to carry out the invention as a whole.
[0084] An internal memory 6 works in cooperation with the external
memory 5. An input device 7 could be a keyboard or equivalent means
for a user to input the data discussed below. A visual display unit
8 can be employed for a visual representation, and a printing
device 9 can be employed for producing hard copy documentation
output 10. Note that output electrical data corresponding to output
10 can also be stored to memory 5.
[0085] For such an embodiment, the following specification should
operate satisfactorily: an IBM or compatible PC (type XT or
upwards) computer with a Pentium 2 or higher processor, having at
least 20 Meg of memory (RAM). The environment/operating system
could be MS-DOS/PC-DOS (or equivalent) version 3.0 or later. A
numeric (math) co-processor is also advantageous in speeding up
computing times, as is an extended memory. Alternatively, a Windows
implementation could be used. The input device 7 can be any ANSI
standard terminal, and the visual display unit 8 can be a Trinatron
color monitor.
[0086] Still other alternatives include optionally using a network
18, such as a telecommunications, Internet, or intranet network, in
facilitating other computers 11 to cooperate. Such cooperation can
also involve communicating by a computer-to-computer communications
device (e.g., a modem). However, a mini-computer or a mainframe
system, or the like could be employed. With such larger scale
approaches, the external memory 5 could be a tape or a CD ROM for
data retrieval. A VAX or MicroVAX system running VMS 5.0 or later
is an acceptable approach.
[0087] As indicated above, an embodiment could also be carried out
in hardware, though this is not recommended as it is an inflexible
approach. Accordingly, a hardware implementation is described here
for exemplary purposes. Of course it is well known that a computer
program can be stored in hardware by many approaches, not the least
of which is burning it into a ROM. More sophisticated than burning
a ROM, but also entirely conventional, is to use techniques to
translate the computer program 6 into an ASIC or a chip that will
carry out the invention in an equivalent manner, and if fact with
equivalent circuitry to that formed by programming programmable
computer circuitry. It is all just digital electrical circuitry
processing digital electrical signals, transforming them to output
different electrical signals.
[0088] The present invention can best be implemented by utilizing a
database 13 of files (or an equivalent, e.g., records, a relational
database, etc.) pertaining to insurance documentation data for
processing as discussed herein. In FIG. 1, a dotted line between
database 13 and computer program 4 is to illustrate that the
computer program 4 code can be used to convey data to database 13,
though this is not a particularly flexible approach. In any case,
such data can be obtained from data input at the input device 7,
which converts the respective input data into respective electrical
signals for handling by the digital electrical computer 2, and
processor 3, including storing the respective digital electrical
signals in the memories 5 and 6. Output electrical data, in the
form of digital electrical signals, is generated by the processor 3
processing the input electrical data in a manner specified by the
executable computer program 4 to generate (at printing device 9)
documentation 10, including such documents as insurance and
illustration documentation, forms corresponding to the benefits,
and the like.
[0089] There can be five basic types of file or data stored in the
external memory 5:
[0090] 1. The main program file (i.e., computer program 4).
[0091] 2. Local files 14 (files specific to a particular user and
not available to other users). These include files describing the
configuration of the user's preferred output format, private
dictionary files, input and output files generated by the user,
etc.
[0092] 3. Data files 15 local to a user, which in a single computer
system, can include the main database file.
[0093] 4. User utilities 16, which assist in customizing reference
files and in the creation of private dictionaries.
[0094] 5. Reference files 17, which are accessible to all users
(e.g., users of other computers 18) and include The standard (or
"public") dictionary files, files containing the menus, error and
information messages and prompts. Of course, if the invention is
carried out with one computer and used by one user, reference files
17 are kept along with local files 14. In any case, a user should
have access to the files that include a machine-readable version of
the above-referenced documentation 10.
[0095] The programmed processor circuitry 3 uses the electronic
contents of Database 13, including files 14-17, which represent
some or all of the data input by the user to produce output data in
a digital electrical form of a string of bits which correspond to
processed data. The processor circuitry 3 carries out its
operations by using at least one "filter", which can be
characterized as an analysis or process restricted by a precise
definition implemented by the processor circuitry 3. Elements of
the definition can be characterized by at least one logical
operator or operand to indicate the precise definition or process
to be carried out, e.g., whether the union or intersection of two
elements or the complement of an element is required. The term
"filter" is also applied to the process of applying this definition
to change, create, or generate, or exclude data other than that
defined from subsequent processing.
[0096] This invention can also be implemented by utilizing at least
one pointer to insert a computed piece of data or text into other
text and formatted to produce the above-referenced documentation
10. Alternatively, a plurality of pointers can be logically linked
so that the output electrical data can be inserted in a plurality
of locations in the aforementioned documentation 10. The computer
program 4 controlling the digital electrical computer 2 checks for
the pointer(s) to ascertain whether any electrical output data
should be inserted in generating the documentation 10. This is
preferable to an approach of doing the computing described in the
subsequent figures.
[0097] For the sake of brevity, it should be understood that the
foregoing detailed depiction of items 2-18 in FIG. 1 are also
representative of the details of other computers 11 mentioned
herein, including Replacement Plan Administering Computer 20,
Accounting Computer 22, Master Trust Accounting Computer 24, Life
Insurance Policy Administering Computer 26, Assets Value
Calculating Computer 28, Trust Funds Investment Manager Computer
30, Banking Services Computer 32, Investment Services Computer 34,
Relocation Services Computer 38, Estate Planning Services Computer
40, Other Services Computer(s) 41, administrating computers for
sub-trusts 42-49, Marketing Computer 50, Reinsurance Company
Computer 60, Off-shore Payroll Accounting Computer 62,
Participant's Computer 68, Consultant's Computer 64, Compliance
Computer 66, Case Study and Sensitivity Computer 70, Revenue
Accounting Computer 72, etc. as set forth hereinafter and
illustrated in FIG. 2. Each of other computers 11 can have
analogous components to those encompassed in items 2-18 in FIG. 1,
and that the other computers 11 can communicate via the
computer-to-computer communication device 12, such as a modem, and
the network 18, such as the Internet, or telephone or the like,
connecting the computer's respective input devices. More
particularly in FIG. 2, a representation of the overall functioning
system for the invention is illustrated. The logic for System 1 can
involve at least two alternative approaches. Either the logic is
initiated by a consultant acting on behalf of a plan sponsor or by
the plan sponsor directly. The System 1 works equally well under
both approaches.
[0098] Considering the first alternative, the process begins with
input from the via Consultant's Computer 64, which may be used in
supporting and automating the consulting services related to this
invention. The input data can include a request for a comparative
study for providing equivalent benefits for the consultant's
client. The Consultant's Computer 64 can identify the plans(s) to
be illustrated and replaced. The necessary plan sponsor and
participants' data can also be transmitted or otherwise
communicated.
[0099] The Consultant's Computer 64 receives data from a Compliance
Computer 66, which may provide accounting, legal and/or tax
information, possibly from a database or network, for the United
States and the various foreign jurisdictions in which their clients
can desire replacement plans. The compliance information is used by
the consultant to perform due diligence on the replacement plan
illustrated by this invention.
[0100] The Central Computer 2 uses the data input from the
Consultant's Computer 64 to prepare the comparative illustration of
the current and replacement plans, which can be transmitted to a
Marketing Computer 50, for the preparation of a marketing
presentation for use by the consultant. The consultant may also
prepare case studies or sensitivity analyses (a plurality of
documents collectively showing the ramifications of a change in
performance, an analytic assumption, or a target for the
replacement) for clients inputting the illustrations provided into
the Case Study and Sensitivity Computer 70. The Central Computer 2
can also provide new illustrations for those studies and analyses
through the Marketing Computer 50.
[0101] In FIG. 2, a representation is shown for generating a study
of a benefit plan for international employees of an outsourced
client. The general idea involves processing input information to
produce output digital signals corresponding to characteristics for
a benefit plan that is viable at one location, but not viable at a
location of the benefit; communicating the characteristics to an
International Human Rresource Outsourcing Computer 65; and
generating, with the computer, a study showing the benefit plan for
the international employees of the outsourced client. Embodiments
can involve a benefit plan where none previously existed or with a
replacement benefit plan as the benefit plan.
[0102] The logic for System 1 can be initiated by an International
Human Resource Outsourcing firm (i.e., third-party administrator)
acting on behalf of the plan sponsor. Multi-national employers are
increasingly hiring independent third-party administrative firms to
assume responsibility for the daily administration of their
international employees, who are globally mobile, including
expatriates, third-country nationals, globalists, and certain key
local employees. The international human resources outsourcing
firms handle all functions dealing with these globally mobile
employees, including their benefit plans.
[0103] The process can involve input from the International Human
Resource Outsourcing Computer 65, which may be used in supporting
and automating the third-party administrative services for
international employees of multi-national clients related to this
invention. The input data can include a request for a comparative
study for providing equivalent benefits for the international human
resources outsourcer's client(s). The international human resources
outsourcing Computer 65 can identify the plan(s) to be illustrated
and/or replaced. The necessary plan sponsor and participants' data
can also be transmitted or otherwise communicated.
[0104] The International Human Resources Outsourcing Computer 65
receives data from a Compliance Computer 66, which may provide
accounting, legal and/or tax information, possibly from a database
or network, for the United States and the various foreign
jurisdictions in which their clients can desire replacement plans.
The compliance information is used by the consultant to perform due
diligence on the replacement plan illustrated by this
invention.
[0105] The Central Computer 2 uses the data input from the
International Human Resources Outsourcing Computer 65 to prepare
the illustration of a benefit plan that is viable at one location,
but not viable at the location of the illustrated benefit plan,
which can be transmitted to a Marketing Computer 50, for the
preparation of a marketing presentation for use by the
international human resources outsourcing firm. The international
human resources outsourcing firm may also prepare case studies or
sensitivity analyses for clients inputting the illustrations
provided into the Case Study and Sensitivity Computer 70. The
Central Computer 2 can also provide new illustrations for those
studies and analyses through the Marketing Computer 50.
[0106] A comparative study could include the illustration of a
benefit plan, including its economics to the participant and the
plans sponsor, the costs of implementation and administration, the
investment options and their performance characteristics, and any
other factors that the international human resources outsourcing
firms might want to consider when making a decision regarding the
design, implementation and administration of a global benefit plan
and/or a replacement plan.
[0107] When a Plan Sponsor initiates the process directly, the U.S.
Plan Sponsor Computer 22, requests the comparative analysis and
provides the needed data. The comparative illustrations are sent to
the Marketing Computer 50, and packaged for transmission to the
plan sponsor through the Central Computer 2. The Marketing Computer
50 provides case study and sensitivity analysis.
[0108] The Plan Sponsor may be an off-shore employer, which is
related to a domestic employer, or totally independent, such as a
non-U.S. company. The off-shore plan sponsor may transmit data to
the Central Computer 2 from its Payroll Accounting Computer 62 with
the same results as previously described for the consultant and
domestic plan sponsors.
[0109] Once the plan sponsor accepts the replacement plan, data is
transmitted from the Central Computer 2, the Marketing Computer 50,
and the consultant's Computer 64, to the Replacement Plan
Administering Computer 20. The Replacement Plan Administering
Computer 20 prepares participant enrollment kits and the plan
sponsor administrative guide, as well as providing on-going plan
administration. As part of the administering, the Replacement Plan
Administering Computer 20 also tracks benefit liabilities and
issues benefit payment checks directly to either the plan
participant or to the plan sponsor for further distribution to the
plan participant.
[0110] The Replacement Plan Administering Computer 20, transfers
data to the Master Trust Accounting Computer 26, which matches the
benefit liabilities against the plan assets held in trust. The
Master Trust Accounting Computer 26 is used to administer the trust
document supporting the replacement plan and authorizes benefit
payments, which can also include premature distributions of assets
through trigger devices, secured loans, and/or interim
distributions. The Replacement Plan Administering Computer 20,
identifies the event and initiates the payment through
transmissions to the Master Trust Accounting Computer 24, which
verifies the event and authorizes the Replacement Plan
Administering Computer 20 to make the payment.
[0111] The Master Trust Accounting Computer 24 accounts for the
co-mingled assets of four or more sub-trusts that support specific
replacement plans. The Master Trust Accounting Computer 24 can
support multiple sub-trusts, based on plan specifics. Sub-Trust A
is an administering computer 42 for an unfunded, deferred tax trust
with substantial risk of forfeiture. Sub-Trust B is an
administering computer 44 for a funded, taxable trust owned by the
participant with a pay-out schedule. Sub-Trust C is an
administering computer 46 for a funded, tax deferred, stand-alone
trust with a predetermined vesting schedule. Sub-Trust D is an
administering computer 48 for a funded, taxable, stand-alone trust
with a predetermined vesting schedule. Other computers for
sub-trusts are illustrated by Block 49, may be added as needed.
[0112] If life insurance is used by the trustee as a trust
investment, the Life Insurance Policy Administering Computer 26
provides the trustee with the policy values, net of all expenses
and charges, for fiduciary accounting. The Life Insurance Policy
Administering Computer 26 transfers data to the Reinsurance Company
Computer 60, for the determination of the transfer of risk
liability between the carrier and the reinsurer. The Life Insurance
Policy Administering Computer 60 also provides life insurance
illustrations to the Central Computer 2 for the preparation of the
comparative illustrations.
[0113] The Life Insurance Policy Administering Computer 26,
receives data from the Assets Value Calculating Computer 28, which
determines the net asset value of the actual investments held by
the money managers. The net asset value is used in determining the
policy values needed for life insurance policy administration.
[0114] The trust assets are actually held and managed by investment
managers around the world. The Trust Funds Investment Manager
Computer 30 tracks the custody, current market values and
allocation of the assets actually held by the managers. That data
is transferred electronically to the Assets Value Calculating
Computer 28.
[0115] The Central Digital Computer 2 also passes data to financial
services providers' computers at the direction of participants. The
financial services providers may be accessed via the network 12,
including the Internet, Intranet, telecommunications, facsimile,
letter or any other such possible means. The services include those
corresponding to Banking Services Computer 32, Investment Services
Computer 34, Financial Planning Services Computer 36, Relocation
Services Computer 38, Estate Planning Services Computer 40, and
other such services Computer 41 as need evolves.
[0116] The computer system 1 is designed to also provide data to
and receive data from the replacement plan participants through
their own personal Participant's Computers 68, via the Network 12.
Access is limited by a gateway to the supplemental financial
services, the replacement plan participant reports, the input of
participant transactions, and asset allocation for the
participant's liability account only.
[0117] Representative samples of the system's output documents are
shown in Specimens 1 to 12, beginning with Specimen 1 below. Being
only a representation of the actual documents that can be produced,
the final output reports may be different in form, but similar in
substance.
[0118] Turning now to FIG. 3, the central digital Computer 2 is
used to generate comparative illustrations analyzing the
replacement plan characteristics in comparison with the forfeited
benefits not available or viable in the replacement plan's
location. As described in FIG. 2, the process is initiated by
either the consultant or the plan sponsor. In Block 115, the source
of the data input is selected. If a consultant is selected, plan
sponsor's data, Block 116, is provided by the appropriate Plan
Sponsor Computer 22 and/or 62 to the Consultant's Computer 64,
which in turn will provide the data, Block 117, to the Central
Computer 2. Likewise, if the consultant is not selected, the plan
sponsor's data, Block 118, is provided by the Plan Sponsor Computer
22 and/or 62, which will provide the data directly to the Central
Computer 2.
[0119] As requested by the consultant or the plan sponsor, the
first input item is the current benefit plan information 100, which
is selected from the menu in FIG. 4. The selection would typically
be a plan that may not be extended to foreign employees, such as
non-qualified deferred compensation, or a plan that is not tax
effective overseas, such as a 401(k) retirement plan.
[0120] The next process step in Block 102 is to value the benefit
plan if held to maturity and uninterrupted. This analysis assumes
that the individual is a participant in the selected plan and that
particpation will continue until the benefit plan matures and
distributions made. If the individual is not a current participant,
the analysis is prepared as if the individual is a particpant. For
example, a new employee being hired to work in Europe may not have
the opportunity to participate in the U.S. benefit plans, but wants
an equivalent plan while employed overseas.
[0121] Therefore, the illustration is generated as if the employee
is a participant.
[0122] In Block 104, the current plan is recalculated illustrating
the effect of not being able to particpate for a period of time,
such as an employee on an overseas assignment for three years. As
in Block 102, if the individual is not a current participant, the
analysis is prepared as if the individual is a particpant, for the
same reasons.
[0123] In Block 106, the selected plan variance is calculated
between the illustrations of the plan held to maturity and the
interrupted plan. That variance represents the lost benefit value
experienced by the individual as a participant or would-be
participant. For example, if an individual was unable to
participate in the company's 401(k) retirement plan for the three
years while overseas, the value of the plan would be reduced by
three years of contributions plus the lost earnings on those
contributions.
[0124] In Block 108, the replacement plan that is best suited to
provide the benefit equivalent to the value of the benefit being
lost is selected from the replacement plan menu in FIG. 7. These
plans are designed to provide an equivalent or improved economic
benefit to the participant when compared to the plan being
replaced.
[0125] In Block 110, the Central Computer generates the
characteristics of the replacement plan on a current and
prospective basis. This analysis is based on the same assumptions
as the current plans for parity.
[0126] In Block 112, an illustration is generated that compares the
illustrations generated in Blocks 102, 104, 106, and 112. This
illustration may be presented as a side-by-side illustration or
other format, as required. The purpose of this illustration is to
quantify the ability of the replacement plan to meet or exceed the
variance identified in Block 106. The ability of the replacement
plan to provide equivalent value to the participant is a dominant
goal of this invention.
[0127] Specimen 1 is a representative sample of a Participant
Summary Illustration for a Replacement Plan for a U.S. 401(k)
retirement plan. The Participant Summary Illustration is supported
by several schedules that provide the analysis necessary to
generate the Summary Illustration. For a Replacement Plan with
multiple participants, each participant's illustration is
aggregated to generate Plan Sponsor Illustration, which includes
the supporting schedules and a Plan Sponsor Summary Illustration.
The supporting schedules can include the financial impact on the
plan sponsor's cash flow, earnings statement, and balance sheet, as
well as one or more life insurance illustrations. Various schedules
can also be combined on one schedule, such the Participant and Plan
Sponsor Summary Illustrations can be combined into one schedule, if
preferred.
[0128] In Specimen 1, the participant assumptions used are on the
first page and the summary illustration is on the second page. The
supporting schedules are not included in this specimen, since they
follow standard industry formats and can be derived from review of
the Summary Illustration. The assumptions used include a 45 year
old participant, with a $100,000.00 current 401(k) balance, making
a regular $10,000.00 annual contribution, and earning an overall
10% rate-of-return on the account. At the beginning of 1999, the
participant will be assigned to a foreign assignment for five
years, without the ability to continue to participate in the plan
sponsor's 401(k) plan, since the plan is not favorably taxed in the
foreign jurisdiction. Therefore, the plan sponsor has implemented a
Replacement Plan to assist the participant in maintaining an
equivalent benefit. To implement the Replacement Plan, the
participant has negotiated a remuneration package that includes a
Replacement Plan Benefit of $50,000.00, plus earnings, which will
be distributed when vested in 20 years. Since the participant has
no access to the funds (constructive receipt) until the benefit
vests, the benefits will not be taxed to the participant until
distributed in 20 years. The plan sponsor will use this invention
to fund the promised Replacement Plan benefit using a specially
designed, no-load life insurance product as the investment
vehicle.
[0129] The sample Summary Illustration in Specimen 1 is a typical
side-by-side comparison of the ability of the Replacement plan to
generate equivalent benefits. Section A illustrates the
participant's account balance and retirement income benefit if the
plan could be continued uninterrupted by the foreign assignment.
Section B illustrates the effects of the five-year lapse of
participation on the account balance and retirement income benefit.
Section C illustrates the account balance and retirement income
benefit of the Replacement Plan. The illustration shows the effect
of combining the benefits in Section B with the Replacement Plan
benefits in Section C and compares the combined Net Income to the
Net Income in Section A. As Specimen 1 illustrates, the
participant's position is improved.
[0130] In Block 114, the illustration is analyzed for meeting the
objectives, and if further analysis is required, the process is
repeated until the output illustration is satisfactory, or until
all of the desired plan options are illustrated. Likewise, if the
reillustration is for sensitivity analysis, required by the
consultant and/or plan sponsor, additional input of the sensitivity
parameters is entered into Block 100 from the Marketing Computer 50
in Block 470, FIG. 16.
[0131] Moving to FIG. 4, the Benefit Plan Menu, Block 120, is used
by the operator to select the current benefit plan to be compared
and replaced. The menu is expandable and can include specific
employer plans, as well as generic or model plans. For example, a
particular plan sponsor may want to use the specific features of
the company's non-qualified deferred compensation plans, rather
than a generic model that is programed into the computer. The plan
sponsor's plan(s) is downloaded into the Central Computer 2.
[0132] In Block 122, the Retirement Plans selection includes
various tax-qualified plans within the main selection, including,
but not limited to, Defined Benefit plans, such as pension plans,
and Defined Contribution plans, such as money purchase plans,
profit-sharing plans and the 401(k) profit-sharing plan. Also
included are excess plans and restoration plans. Retirement plans
can also include other types of empolyer-sponsored savings plans,
such as Simplified Employer Plan (SEP), as well as individual
retirement plans, such as Individual Retirement Accounts and Keogh
plans. This menu selection also includes retirement plans of
non-U.S. companies in foreign jurisdictions.
[0133] In Block 124, the Deferred Compensation Plans selection
includes non-qualified deferred compensation plans of all types and
variations, which are generally classified as defined contribution
plans. As such, in most of these types of plans, a defined amount,
expressed in percentages or pecuniary terms, is forgone (deferred)
from remuneration by the participant. The deferred amount is
accounted for by the plan sponsor as a liability and is credited
with earnings, in accordance with the plan design. The liability is
recorded on the plan sponsor's balance sheet, and the earnings
credited to the account are charged against the earnings of the
plan sponsor. This menu selection also includes deferred
compensation plans of non-U.S. companies in foreign
jurisdictions.
[0134] In Block 126, the Incentive Plans selection includes all
forms of incentive plans, including bonus plans, short-term and
long-term incentive plans, and management incentive plans. The
various forms of stock incentive plans are also part of this menu
selection. Incentive stock plans include qualified and
non-qualified stock option grants, stock appreciation rights
(SARs), phathom stock plans, and other forms of stock incentive
plans. This menu selection also includes stock participation plans
of non-U.S. companies in foreign jurisdictions.
[0135] In Block 128, the Social Insurance Plans selection includes
all forms of government sponsored social insurance programs. For
the U.S., this menu selection includes Social Security and its
related programs of retirement, death, disability and medical
insurance coverages. For foreign jurisdictions, this menu selection
includes the government-sponsored programs specific to the
jurisdiction.
[0136] In Block 130, the menu selection non-qualified defined
benefit plans, such as a Supplemental Executive Retirement Plan
(SERP), which pays an executive a supplemental retirement income at
retirement. This menu selection also includes other forms of salary
continuation plans and management supplemental retirement benefit
plans. In addition, this menu selection includes non-qualified
defined benefit plans of non-U.S. companies in foreign
jurisdictions.
[0137] In Block 132, the menu selection allows for expansion to
include other types of benefit plans that might be found in the
U.S. and foreign jurisdictons.
[0138] Turning now to FIG. 5, the illustration for the current
benefit plan active until maturity is formulated. the logic
proceeds with Block 138, which receives the Participants' Data from
the data input used to generate the Replacement Plan
Characteristics in Block 228, FIG. 8.
[0139] The logic continues in Block 140, which receives input from
the participants' data of each participant's identification in
either numeric or alphabetic form. If there is more than one
participant to be included, a census may be inputted. If a
participant census is not available, the participants are grouped
by age cells based on agreed upon assumptions provided by the
consultant or plan sponsor. Obtaining the participant population
data is important to this process.
[0140] The logic proceeds in Block 142, which receives an input
from the participants' data of the amount of money for each
participants' contribution, such as the participants' present
contribution to the benefit plan to be replaced. If the replacement
is not for a present benefit of the participant, but rather is a
replacement for a hypothetical benefit that the participant could
have had had he or she been employed at a location where the
benefit plan is viable, a hypothetical contribution can be entered
to provide a reference. For example, a maximum contribution for a
401(k) defined contribution profit sharing plan is $10,000 per
year, and assuming that the participant earns an income sufficient
to qualify for the maximum, this maximum amount can be entered at
Block 142.
[0141] Block 144 receives input from the participants' data of the
amount of money equivalent to the current account value of the
benefit being replaced. For a benefit that does not exist for the
participant, the entry can be zero. However, for example, for an
existing 401(k) with a current total value of $50,000, and a vested
value of $40,000, the entry can be the $50,000. For a defined
benefit plan with an accrued benefit of $4,000 per year and a
projected benefit of $10,000 per year for a long term, the later is
used for a long term analysis, and the former is used for a current
analysis.
[0142] Block 146 receives input from the participants' data of each
participant's current age. Optionally the current age, age at end
of year, or nearest birthday may be used. Block 148 receives input
from the participants' data of each participant's assumed age at
the plan's expected distribution date, which can optionally be
defined by the benefit plan being replaced. If no plan exists, a
distribution age declared by the participant or by law can be used.
For example, if the benefit plan is a pension plan having a normal
retirement age of 65, then 65 is entered in block 148.
[0143] Block 150 receives input from the participants' data of each
participant's assumed life expectancy. The input is based on the
participant's personal planning assumptions, assumptions provided
by the plan sponsor or actuarial tables. For example, if the plan
sponsor desires to use a life expectancy of age 90, then age 90 is
entered. Block 152 receives input from the participants' data of
the assumed rate of return for the current benefit plan. The rate
of return is either the actual historical life of plan rate of
return or an assumed rate of return provided by either the
participant or the plan sponsor. Where a current plan does not
exist, the participant or plan sponsor will provide an assumed rate
of return. For example, if a participant's 401(k) has yielded an
average annual total return of 10%, then 10% will be entered.
Comparatively, if a defined benefit pension plan benefit is
projected using an actuarial calculation based on an 8% rate of
return, the 8% is entered.
[0144] Block 154 receives input from the participants' data of the
benefit payment option to be illustrated. Generally, the choices
will be between a lump sum payment at the inputted distribution age
and an annuity payment beginning at the inputted distribution age
and ending at the life expectancy input. Block 156 receives an
input of the Block 154 entry. If a lump sum payment is entered,
Block 158 will calculate the amount of the lump sum amount to be
paid at the inputted distribution age. The calculation is performed
by executing an equation that uses the principal of compound
interest applied to the existing balance and continuing
contribution from the participant's current age to the age at
distribution. If an annuity payment is entered, Block 160 will
calculate the amount of the lump sum, using the same method as
previously described, and convert it into an annuity, based on
tables in the program.
[0145] Turning now to FIG. 6, the illustration for the current
benefit plan, which is not active until maturity, is formulated.
The logic proceeds with Block 168, which receives the Participants'
Data from the data input used in Block 138, FIG. 5, which is the
same data used to generate the Replacement Plan Characteristics in
Block 228, FIG. 8.
[0146] The logic continues with block 170, which receives input
from the participants' data of each participant's identification in
either numeric or alphabetic form. This is the same data as
previously used in Block 140. Similarly, If there is more than one
participant to be included, a census may be inputted. If a
participant census is not available, the participants are grouped
by age cells based on agreed upon assumptions provided by the
consultant or plan sponsor.
[0147] The logic proceeds in Block 172, which receives input from
the participants' data of the amount of money for each
participant's contribution, such as the participant's present
contribution to the benefit plan to be replaced. If the replacement
is not for a present benefit of the participant, but rather is a
replacement for a hypothetical benefit that the participant could
have had had he or she been employed at a location where the
benefit plan is viable, a hypothetical contribution can be entered
to provide a reference. For example, a maximum contribution for a
401(k) defined contribution profit sharing plan is $10,000 per
year, and assuming that the participant earns an income sufficient
to qualify for the maximum, this maximum amount can be entered at
block 172.
[0148] Block 174 receives input from the participants' data of the
amount of money equivalent to the current account value of the
benefit being replaced. For a benefit that does not exist for the
participant, the entry can be zero. However, for example, for an
existing 401(k) with a current total value of $50,000, and a vested
value of $40,000, the entry can be the $50,000. For a defined
benefit plan with an accrued benefit of $4,000 per year and a
projected benefit of $10,000 per year for a long term, the later is
used for a long term analysis, and the former is used for a current
analysis.
[0149] Block 176 receives input from the participants' data of each
participant's current age. Optionally the current age, age at end
of year, or nearest birthday may be used. Block 178 receives input
from the participants' data of each participant's assumed age at
the plan's expected distribution date, which can optionally be
defined by the benefit plan being replaced. If no plan exists, a
distribution age declared by the participant or by law can be used.
For example, if the benefit plan is a pension plan having a normal
retirement age of 65, then 65 is entered in block 178. Block 180
receives input from the participants' data of each participant's
assumed life expectancy. The input is based on the participant's
personal planning assumptions, or assumptions provided by the plan
sponsor or actuarial tables. For example, if the plan sponsor
desires to use a life expectancy of age 90, then age 90 is
entered.
[0150] Block 182 receives input from the participants' data of the
assumed rate of return for the current benefit plan. The rate of
return is either the actual historical life of plan rate of return
or an assumed rate of return provided by either the participant or
the plan sponsor. Where a current plan does not exist, the
participant or plan sponsor will provide an assumed rate of return.
For example, if a participant's 401(k) has yielded an average
annual total return of 10%, then 10% will be entered.
Comparatively, if a defined benefit pension plan benefit is
projected using an actuarial calculation based on an 8% rate of
return, the 8% is entered.
[0151] Block 184 receives input from the participants' data of each
participant's period of non-participation in the plan. This is
usually expressed in years, but can be expressed in months. For
example, if a participant is to be located at a foreign employment
location that would require being unable to participate in a
benefit plan for 48 months, then 48 months can be entered. Block
186 receives input from the participants' data of the benefit
payment option to be illustrated. Generally, the choices will be
between a lump sum payment at the inputted distribution age and an
annuity payment beginning at the inputted distribution age and
ending at the life expectancy input. For example, if the
illustration is to analyze a lump sum payment, then lump sum is
entered.
[0152] Block 188 receives an input of the Block 186 entry. If a
lump sum payment is entered, Block 192 will calculate the amount of
the lump sum amount to be paid at the inputted distribution age.
The calculation is performed by executing an equation that uses the
principal of compound interest applied to the existing balance and
continuing contribution from the participant's current age to the
age at distribution, less the period of time the participant is not
participating. If an annuity payment is entered, Block 190 will
calculate the amount of the lump sum, using the same method as
previously described, and convert it into an annuity, based on
tables in the program.
[0153] Moving to FIG. 7, the Replacement Plan Menu, Block 200, is
used to select the new benefit plan to be used to replace the
benefit plan in Block 120, FIG. 3. The menu is expandable and is
intended to include existing replacement plans, as well as plans to
be developed for future use within the invention. One of the
objectives of this invention to promote and support the continuing
development of new replacement plans. The replacement plan menu
will include replacements for U.S. and foreign plans. For example,
if the European Union wanted to develop a defined contribution plan
for the population of its member nations, this invention can be
used to design, implement and administer such a plan, and it can be
added to the menu in Block 200.
[0154] The replacement plans are not intended to specifically
replace any particular existing benefit plan, but rather, any
replacement plan may be used to replace any existing benefit plan
at the plan sponsor or consultant's request. For example, a plan
sponsor may desire to use a Flexible Remuneration Incentive Plan as
a replacement for the company's 401(k) plan, which is not viable
overseas.
[0155] In Block 202, the Severance Plans selection includes the
various plans for making payments to employees, who are being
terminated from their employment for whatever reasons. Typically,
this situation can be created when a plan sponsor releases a
participant from one company to be rehired by a foreign subsidiary.
For example, it is common for an U.S. company (USCO) to terminate
an employee from the U.S. entity to be rehired by the company
overseas company (USCO-Europe). USCO may use a severance payment
replacement plan to reward the employee for taking an overseas
assignment, or alternatively, use the severance plan to replace
certain incentives and allowances in the assignment compensation
package. In addition, a plan sponsor may use a severance plan
design to supplement or replace a "golden parachute" payment for a
terminated executive.
[0156] In Block 204, the Flexible Remuneration Incentive Plans
selection includes various forms of flexible compensation tied to
long-term vesting benefits. For example, using a "balance sheet"
based expatriate assignment package, a plan sponsor may enter a
genuine negotiation with a participant to adjust the amounts of the
incentives and allowances that comprise the participant's total
remuneration package. Typically, the consultant can coordinate the
design of the flexible remuneration plan and plan sponsor
negotiation.
[0157] To the extent that the negotiation results in cost savings
to the plan sponsor, the savings can be shared with the
participant, which is the Incentive Plan portion of this menu
selection. At the plan sponsor's discretion, a portion of the
savings is placed into a deferred vesting arrangement for
distribution at a later time to be determined jointly by the plan
sponsor and participant. With an infinite number of plan designs,
each plan sponsor will have the option of designing a Flexible
Remuneration Incentive Plan to meet their own unique situation,
goals and objectives.
[0158] As an example of the plans operation, a participant is
selected for an expatriate assignment, and the plan sponsor
negotiates with the participant to determine the allowances and
incentives that are needed and those that the participant can
forgo. Assume the negotiation is settled with the participant
forgoing a portion of several allowances totaling $30,000.00, which
saves the plan sponsor an addition $20,000.00 of tax and gross-ups.
The plan sponsor may then decide to share the savings with the
participant by entering a separate agreement with the participant
to pay a $25,000.00 benefit with earnings at a date in the future.
The distribution date can vary as mutually agreed by the plan
sponsor and the participant, but would be expected to be between
five and twenty years. The benefit would be subject to risk of
forfeiture or vesting until distribution depending upon the plan
design. In addition, another replacement plan can be used as an
incentive plan in lieu of the typical arrangement. For example, the
plan sponsor may implement a "severance plan" instead of the
incentive plan and use the cost savings to fund that plan for the
benefit of the participant.
[0159] In Block 206, the Synthetic Defined Contribution Plans
selection includes any plan that simulates a U.S. tax-qualified
defined contribution retirement plan, such as a money purchase plan
or a 401(k) profit sharing plan. For example, the Insured Security
Option Plan (ISOPTM) is a plan that can be considered a synthetic
defined contribution plan (see, e.g., U.S. Pat. No. 5,839,118
incorporated by reference). It produces essentially the same
financial results to both the plan sponsor and the participant as a
401(k) plan without being tax qualified for IRS purposes. Other
synthetic defined contribution plans will be created for the global
workforce.
[0160] In Block 208, the Synthetic Incentive Plans selection
includes plans designed to be a substitute for the traditional
forms of incentive plans. For example, the Private Stock Option
Plan (PSOP) is a synthetic stock option plan that is designed to
replace incentive stock option grants, phantom stock and stock
appreciation rights. In Block 209, the PSOP is a plan in which the
plan sponsor transfers cash to an offshore trust, through a loan,
gift or other means. The trustee uses those funds to purchase the
plan sponsors stock or some other company's stock or mutual fund on
the open market through an appropriate exchange in the U.S. or in a
foreign jurisdiction. In accordance with the trust document, the
trustee is allowed to issue and sell private long-term options to
the plan participants on the stock held by the trust. Typically,
they would expire in ten years and be exercisable after three
years, but each plan can be designed differently. However, in order
for the participants to be allowed to exercise their options,
certain performance criteria must be met. For example, to allow an
option exercise, the plan sponsor may require that the stock price
be above a certain level, the participant be an active employee of
the company, the income from operations be increased by a certain
percentage, and/or any other measurement that the plan sponsor
believes to be an important goal for the company. The probability
of the selected events occurring will devalue the price of the
option to the participant. Therefore, the option price can be
relatively small compared to the price of the stock. Depending on
the factors, it can be as low as one to two percent of the share
price. The participants purchase the PSOPs with their own funds, or
with bonus money paid to them by the plan sponsor, as personal
investments. Payroll deduction may also be used for administrative
convenience.
[0161] When vested and if the prescribed criteria have been met,
the participant can exercise the options and call in the stock. As
directed, the trustee sells the called shares in the market and
uses the proceeds to pay off the loan to the plan sponsor, with the
balance paid to the participant as capital gains. Alternatively,
the trustee may sell only the shares needed to pay the
participant's gain and use the remaining shares for another
PSOP.
[0162] The financial result to the participant is improved in that
the gain is the same, but it is classified as capital gains instead
of ordinary income. Likewise, the plan sponsor avoids the FAS 123
accounting issues and has an immediate tax deduction when bonuses
are used to help the participants purchase the shares. In the case
where the participants are using personal funds to purchase the
PSOPs, the plan sponsor has no accounting requirements, except for
entering the loan to the trust as a note receivable on the balance
sheet and recording any interest credited on the loan in the
earnings statement.
[0163] In Block 210, the Synthetic Defined Benefit Plans selection
includes plans that are used to simulate the economic benefits of
U.S. and foreign tax-qualified and non-qualified defined benefit
plans in locations where they may not be viable. These plans
include synthetic supplemental executive retirement plans, target
benefit plans, and the Guaranteed Return Income Plan (GRIP). In
Block 212, the Guaranteed Return Income Plan is a defined benefit
investment vehicle, which has a guaranteed rate-of-return and
generates a guaranteed annuity income to the participant. The
concept is that the participant is buying a guaranteed income to
begin at some future time and continue for life or for a certain
period of time. For example, a 40 year-old participant could be
guaranteed a $1.00 per month income for life beginning at age 65
for every $10.00 invested. In fact, the participant's periodic GRIP
statement would detail the guaranteed future income earned to date
as a primary focus of the statement rather than the performance,
since the participant is purchasing guaranteed income, not
rate-of-return.
[0164] The product design can be a life insurance and/or annuity
product, using a combination of stable-value bond and/or equity
separate accounts and life insurance as the funding device to
produce a guaranteed income based on a guaranteed rate-of-return.
The guarantee is a floor with upside profit-sharing for the
participant.
[0165] The GRIP allows the participant to pass the investment
responsibility to the investment professionals, where it belongs.
It gives every participant the ability to participate in the global
financial markets with certainty and confidence. The GRIP's most
novel feature is that it is a defined benefit investment that can
be used to fund defined contribution arrangements.
[0166] In Block 214, the Synthetic Social Insurance Programs
selection includes those plans created as a substitute for the
social insurance programs of various governments worldwide. For
example, using a life insurance product, a plan can be developed to
provide a German executive working in Japan for a U.S. plan sponsor
the same survivor, disability and retirement benefits that his U.S.
peers will receive from U.S. Social Security. Similarly, plans can
be developed to simulate any social insurance program in which a
participant is not eligible to participate.
[0167] In Block 216, the Pension Gap Supplement Plans selection
includes those plans that are designed to supplement the national
social retirement pension programs sponsored by most foreign
governments. Typically, when foreign participants are no longer
residents of their home country, they do not participate in the
home country's social retirement pension program, and their
benefits are frozen. Therefore, the participants working outside
their home country may sacrifice a portion of their retirement
benefits. The Pension Gap Supplement Plans are designed to offset
any deficit created by employment outside the home country. For
example, a Frenchman working in South America for an extended time,
whose French social Pension is reduced by $1,000.00 per month by
his absence, can use a Pension Gap Supplement Plan to restore the
$1,000.00 of monthly income from outside the French system.
[0168] In Block 218, the Participant's Voluntary Investment Plans
selection includes plans that are intended for us by participants
on a voluntary contribution basis, either through a plan provided
by a plan sponsor or on a direct participation basis. For example,
residents of several merging countries are limited in their ability
to invest their funds outside their country because of strict
exchange controls. One of these plans can be used by a plan sponsor
to allow offshore investments for their participants using
world-class investments. In addition, these plans can be used by
participants as accumulation investments to increase their personal
wealth or supplement their retirement.
[0169] In Block 220, the Plan Sponsor Supplemental Contribution
Plans selection includes plans designed for the plan sponsor to use
as vehicles for making contributions to incentive plans or catch-up
plans for their participants. For example, if a plan sponsor
recognizes that a participant or group of participants are
under-compensated relative to their peers, but the plan sponsor
does not want to incur the additional tax and social insurance cost
associated with providing compensation, a supplemental contribution
plan is used to provide the participants with equivalent value.
[0170] In Block 222, the Other Plans selection is used to
accommodate additional plans that might be added to the invention
in the future. A goal of the invention is to foster the creation
and development of new replacement plans that provide equivalent
benefits and/or new benefit plans.
[0171] The selected Replacement Plan data is transmitted to both
the Central Computer in Block 108, FIG. 3, for the generation of
illustrations and to the Replacement Plan Administering Computer,
Block 264, FIG. 9, for recording the replacement plan data needed
to accurately administer the plan.
[0172] The logic now moves to FIG. 8 as the selected replacement
plan is illustrated. The logic proceeds with Block 228, which
receives the Participants' Data from the data input used to
generate the Replacement Plan Characteristics from the various
possible sources. Obtaining accurate participant sourcing
information and population data is important to this process. This
data is also used to illustrate the benefit plans to be replaced in
Block 138, FIG. 5. In addition, this data is transmitted to the
Replacement Plan Administering Computer, Block 262, FIG. 9, to be
used to track the participants' benefit liabilities. The specific
design will be influenced by the source of the plan sponsor, and
the input received by Block 230 needs to identify that
information.
[0173] In Block 254, the input to Block 228 is being provided
directly or through a consultant from an Employer, either U.S. or
foreign. The location of the employer will also be entered. For
example, if the plan sponsor is an U.S. employer and the
participants are U.S. expatriates, a synthetic incentive plan may
be designed differently than a plan designed for a Japanese
employer with Singaporean participants, although it is the same
basic plan being illustrated.
[0174] In Block 255, the input to Block 228 is being provided from
an offshore payroll company, which can be a subsidiary of an U.S.
or foreign employer, as well as a Professional Employer
Organization (PEO). Offshore payroll companies and PEOs are
typically used to operate an employee leasing operation, where the
participants are hired by the offshore entity and sent to various
assignments. A replacement plan is designed differently for a
participant in an offshore payroll company than it might be for
another participant. For example, since the offshore company is not
subject to the same regulations as the parent might be, the
offshore company is better able to pass the benefit liability to
the replacement plan provider. In doing such, the employer can
eliminate the financial statement impact created by implementing a
replacement plan. The assumption of the benefit liability becomes a
currently tax-deductible expense, rather than a deferred tax
asset.
[0175] In Block 256, the input to Block 228 is received from a
self-employed participant, of either U.S. or foreign origin. The
replacement plan will be designed differently for the self-employed
than for other types of participants, in that the participant and
the plan sponsor are one-and-the-same. Therefore, there is not
flexibility on some designs and limitations on other types of
replacement plans. For example, it may be difficult to justify a
severance plan for a self-employed individual. While at the same
time, a plan for a self-employed participant can be more customized
to the particular needs of the participant, when there is not a
group of participants or management to set limits.
[0176] In Block 257, the input to Block 228 is received from local
nationals, who may or may not be employees of a local or
multi-national company. Local participants are not usually on the
same compensation packages as expatriates, third-country nationals
and foreign nationals in the U.S. Therefore, the plan design may be
limited. For example, local participants would not be candidates
for a pension gap supplement plan.
[0177] The logic proceeds with block 230, which receives input from
the Participants' Data of the participant's identification in
either numeric or alphabetic form from the applicable source. If
there is more than one participant to be included, a census may be
inputted. If a participant census is not available, the
participants are grouped by age cells based on agreed upon
assumptions provided by the consultant or plan sponsor.
[0178] The logic proceeds in Block 232, which receives input from
the Participants' Data of the amount of money for a contribution
into the replacement plan for the benefit of the participants. For
example, a maximum contribution for a 401(k) defined contribution
profit sharing plan is $10,000 per year, and assuming that the
participant earns an income sufficient to qualify for the maximum,
this maximum amount can be entered if the replacement plan was a
synthetic defined contribution plan. This data is also transmitted
to the Replacement Plan Administering Computer, Block 266, FIG. 9,
for determining the total amount of financial contribution required
to fund the replacement plan. In addition, the contribution data is
transmitted to Block 800, FIG. 25, to be used to determine initial
gross premium to be used to fund a life insurance policy.
[0179] Block 234 receives input from the Participants' Data of the
amount of the time period that it is anticipated that the
replacement plan contribution will be made. For example, if the
replacement plan is a pension gap supplement plan and the
participant will be away from home for five years, then five years
is entered into Block 234. If the five-year contribution is to be
made in a single lump sum payment, that is also entered.
[0180] Block 236 receives input from the Participants' Data of each
participant's current age. Optionally the current age, age at end
of year, or nearest birthday may be used.
[0181] Block 238 receives input from the Participants' Data of each
participant's assumed age at the plan's expected distribution date.
For example, if the participant is 40 years old and the replacement
plan is to vest in 15 years, then 55 is entered in Block 238.
[0182] Block 240 receives input from the Participants' Data of each
participant's assumed life expectancy. The input is based on the
participant's personal planning assumptions, assumptions provided
by the plan sponsor or actuarial tables. For example, if the plan
sponsor desires to use a life expectancy of age 90, then age 90 is
entered. Block 242 receives input from the Participants' Data of
the assumed rate of return for the current benefit plan. The rate
of return is either the actual historical life of plan
rate-of-return or an assumed rate of return provided by either the
participant or the plan sponsor. Where a current plan exists, the
participant or plan sponsor may provide the historical
rate-of-return. For example, if a participant's 401(k) has yielded
an average annual total return of 10%, then 10% will be entered for
a 401(k) replacement plan. Comparatively, if a defined benefit
pension plan benefit is projected using an actuarial calculation
based on an 8% rate of return, the 8% is entered for a defined
benefit replacement plan.
[0183] Block 244 receives input from the Participants' Data of the
benefit payment option to be illustrated. Generally, the choices
will be between a lump sum payment at the inputted distribution age
and an annuity payment beginning at the inputted distribution age
and ending at the life expectancy input. Block 246 receives an
input of the Block 246 entry. If a lump sum payment is entered,
Block 248 calculates the amount of the lump sum amount to be paid
at the inputted distribution age. The calculation is performed by
executing an equation that uses the principal of compound interest
applied to the existing balance and continuing contribution from
the participant's current age to the age at distribution. If an
annuity payment is entered, Block 250 calculates the amount of the
lump sum, using the same method as previously described, and
convert it into an annuity, based on tables in the program.
[0184] In Block 252, the total number of participants in a
replacement plan is sent to the Revenue Accounting Computer 72,
Block 1202, FIG. 37, for determining the per-capita first-year
participation fee for each new replacement plan. Inputs from Block
468, FIG. 16 will be used to adjust the Participants' Data for the
preparation of case study analysis for various scenarios.
[0185] Moving to FIG. 9, the logic continues with the Replacement
Plan Central Administration System, which administers the
replacement plan by tracking the participants, measuring the
benefit liabilities, generating accounting reports and issuing
benefit distribution payments. The administration system is
activated when the plan sponsor accepts a replacement plan for
implementation. This database is maintained by the entity providing
administrative services, such as a third-party administrator
(TPA).
[0186] In Block 260, the logic continues with the Replacement Plan
Central Administration Database, which stores all reference data
inputs received and all on-going transactional inputs. In Block
262, Participant Data is entered from the Replacement Plan
illustration in Block 230, FIG. 8. If the census has changed since
the last illustration, it is updated by the generation of a final
implementation illustration, which is signed by the plan sponsor to
verify the accuracy of the census data and plan design.
[0187] In Block 264, Replacement Plan Data is received from the
Replacement Plan Menu, Block 200, FIG. 7, identifying the
replacement plan selected. This input will trigger the
administration format to be used by the database software for
administering the plan. The specific plan design details and
variations are entered in Block 262. In Block 266, the Replacement
Plan Funding data is received from Block 232 in FIG. 8, which
identifies the amount of the initial contribution and any
subsequent contributions to be used to fund the replacement
plan.
[0188] In Block 268, Participant Transactions inputs are received
from Block 289, FIG. 10 and entered into the database in Block 260.
These transactions are generally initiated by the participant, but
may be initiated by the plan sponsor on behalf of the participant.
For example, the participant may make a beneficiary change, while a
plan sponsor will notify the administrator of a participant's
employment termination. In Block 270, Replacement Plan Transactions
inputs are received from Block 302, FIG. 11 and entered into the
database in Block 260. These transactions may include such inputs
as changes to the plan design, changes in asset allocation,
contribution changes and changes in planned distributions.
[0189] In Block 272, Funding Transactions inputs are received from
Block 336, FIG. 12 and entered into the database in Block 260.
These transactions include the calculation of net asset value for
the assets being used to measure the participant's benefit
liability. For example, if a participant has selected the Standard
& Poors 500 Index (S&P 500) as an investment for a
replacement plan in which he is a participant, its value is used to
measure the growth of the participant's benefit. However, the
assets actually being used to fund the participant's liability may
be and probably will be different investments.
[0190] In Block 273, the Plan Sponsor Data input is received from
Block 464, FIG. 16, which is the plan sponsor data used in the
marketing process. If any data has changed during the marketing
process, it should be updated before entering the information into
Block 273.
[0191] In Block 274, the logic continues with an input of whether
to calculate benefit liabilities. In Block 275, an input to
Implementation Documents will generate the primary documents need
to implement the replacement plan. In Block 277, the administration
computer will generate the Plan Sponsor's Administrative Guide.
This document, delivered in hard copy or electronically, provides
comprehensive details of the plan design and administrative
requirements that must be met. The plan sponsor may elect to
self-administer the plan or use the services of an outside
provider. The contents of the Administrative Guide are unique for
each replacement plan design, with a pre-written text that can be
customized for the plan specifics.
[0192] Specimen 2 is a representation of the contents of a sample
Plan Sponsor's Administrative Guide. The specimen presents a
typical Table of Contents, which details the myriad of information
items that can be included in a guidebook. Each Replacement Plan
will have a unique Table of Contents tailored to the particular
plan design. Likewise, each plan sponsor can have particular
content to be included in the guidebook that is unique to the plan
sponsor's methods of accounting or philosophy of doing business.
The development of each Administrative Guide is a joint effort
between the plan sponsor and the plan administrator to develop an
useful tool for maintaining the integrity of the Replacement Plan
and keeping all parties properly informed regarding the success of
the plan in fulfilling the plan sponsor's objectives and goals in a
cost-effective manner.
[0193] The sample Table of Contents for a Replacement Plan for a
non-qualified deferred compensation plan funded with a life
insurance policy. Each section contains needed reference materials.
Section 1 provides information about the plan administrator and the
contact listing for all parties involved. Section 2 explains the
evolution of the plan design and its purpose for future management,
who may not be a party to the replacement plan's implementation.
Section 3 describes the process and criteria used to select the
funding product and the particular investment options within that
product. Section 4 includes the Replacement Plan Illustration and
provides a place for annual performance reviews to measure the
actual performance against the projected performance originally
illustrated. Section 5 delineates the Plan Administration
mechanics, with separate procedures for the phase of the plan in
which the assets are being accumulated and the phase of the plan
when the assets are being paid as benefits to the participants. In
addition, Section 5 includes the procedures and forms to be used
for participant transactions (ref. FIG. 10). Section 6 provides the
procedures and instructions for transferring contributions into the
Replacement Plan funding system, which is this invention. Section 7
is a calendar of events that need to be executed to efficiently
service the Replacement Plan. The calendar is included as part of
Specimen 2. Section 8 is the legal agreement that details the
expectations of both the plan sponsor and the plan administrator in
providing the plan servicing. Section 9 provides samples of the
routine and custom reports generated by the plan administration
system for both the plan sponsor and the participant. These reports
will be further explained as additional specimens. Section 10
provides the plan sponsor with the forms needed for the life
insurance policy and participant administration. Of course, the
form and substance of such a manual is subject to change, and it
may be provided in different formats, including electronically
provided directly or indirectly from the Replacement Plan
Administering Computer 20 to the Plan Sponsor's Computer 22 via a
network.
[0194] In Block 279, the administrative computer will generate the
Participant Enrollment Kit. This document, delivered in hard copy
or electronically, provides the participant with the details of the
replacement plan design, the final implementation illustrations,
which detail the benefits of the plan for the participant, and the
forms needed for the participant to enroll in the plan. The
contents of the Enrollment Kit are unique for each replacement plan
design, with a written text that can be customized for the plan
specifics. The kit may also include information about the available
ancillary individual financial services, as well as financial
planning tools to help participants take the best advantage of the
plan for their personal goals and objectives. For example, model
portfolio asset allocations can be provided for the available
investment choices, showing the various expected rates-of-return
and associated risks.
[0195] In Block 255, a Benefit Payment Authorization is received
from the Benefits Trust, if a trust exists, Block 978, FIG. 32,
directing the Plan Administrator to issue a benefit check to either
the participant or the plan sponsor for the benefit of the
participant. The amount of the payment is entered, as well as the
currency denomination in which it is to be issued.
[0196] In Block 256, the benefit check is distributed, in hard copy
or electronically, along with the appropriate government accounting
and tax forms. For checks written to U.S. citizens, a Form W-2 or
Form 1099 reporting the income to the U.S. Government can accompany
the checks.
[0197] In Block 257, the amount of the benefit check is recorded
and the reduction in the benefit liabilities is calculated and sent
to Block 258 for further computing. In Block 258, the
administrative software calculates the Benefit Plan Liabilities.
The calculation is performed by executing an equation that applies
the actual investment returns for the investment options selected
to the existing balance from the time of the participant's
enrollment in the plan until the date of the current reporting
period. The liabilities are calculated for each participant of each
type of replacement plan, for each plan sponsor.
[0198] In Block 276, the administrative computer accumulates the
available data and generates the Output Reports, as described in
Block 380, FIG. 14. The output reports are prepared for the plan
sponsor, participant and Trustee of the benefits trust. In Block
261, the use of a Benefits Trust is entered. If a trust is to be
used, the information and data needed by the Trustee is downloaded
from the Central Administration Database into the Benefit Trust
Central Administrative Database, FIG. 32.
[0199] In Block 278, data is transmitted to other computers for
related calculations. The total number of participants for each
replacement plan is sent to the Revenue Accounting Computer 72,
Block 1202, FIG. 37, for calculating the on-going annual
Participation Fees. The total number of participants for each plan
is sent to the Revenue Accounting Computer 72, Block 1208, FIG. 37,
for calculating the annual Plan Administration Fee for each
replacement plan. In addition, the total replacement plan
liabilities is sent to the Benefits Master Trust Administrative
Database, Block 956, FIG. 32, to be used by the Trustee to match
assets against the liabilities.
[0200] Moving to FIG. 10, the Participant's Transactions are
transmitted to and recorded in the Replacement Plan Central
Administrative Database directly or indirectly from the
Participant's Computer 68, or via the telephone, facsimile, or any
other means that may become available over time.
[0201] In Block 281, the changes to the Participant's Beneficiary
Designation are entered. It is intended that the replacement plans
will all be placed to the participant's heirs via beneficiaries and
therefore, avoiding the probate procedures of the participant's
jurisdiction of domicile.
[0202] In Block 282, the changes to the Participant's Asset
Allocation are entered. The participant's asset allocation will
usually be different from the plan sponsor's allocation. The
participant is allocating the investment choices included in the
replacement plan, while the plan sponsor is allocating the actual
investments being used to fund the plan's benefit liabilities. The
participant's asset allocation is actually a phantom account used
solely to measure the growth of the participant's benefit
liability. The participant's asset allocation changes are also
communicated to the Trust, Block 970, FIG. 32, and the plan
sponsor, Block 407, FIG. 15, for use in adjusting the asset
allocation of the assets held in the Trust. In addition, the
participant's asset allocation changes the Replacement Plan
Administrative System's Funding Transactions database, Blocks 312
and 324, FIG. 12, for use in determining the transfer of assets in
and out of the equity and bond portfolios.
[0203] In Block 284, the Participant's Termination Date is entered.
In the event the plan sponsor terminates the participant from the
plan, either the plan participant or the plan sponsor enters the
effective date of the termination. The termination date is used by
the plan administrator to determine the participant's eligibility
for future benefits for some plans. However, in other plans, such
as the Cost Reduction Incentive Plan, the benefits are determined
by vesting, and therefore, if termination occurs the day after the
employee becomes a participant in the plan, the accrued benefits
will not be affected by the termination.
[0204] In Block 286, the changes to the Participant's Contributions
are transmitted by the participant and entered. In those plans that
allow participant contributions, such as the Participant Voluntary
Investment Plan and the Private Stock Option Plan, any increases or
decreases in the participant's contributions will directly affect
the benefits.
[0205] In Block 288, any Participant Loan Requests are entered for
processing by the participant. Most of the Plans that provide for
vesting, except the Private Stock Option Plan, will allow the
Trustee to make secured loans to the participants as a trust
investment. The loans cannot be secured by any assets of the trust
or in the participant's account, unless the plan is using a
Participant Grantor Trust arrangement, which is taxed at the time
of implementation. This data is also transmitted to the Benefits
Trust Central Administration Database, Block 961, FIG. 32, for
processing.
[0206] In Block 289, the Participant's Benefits claims are entered
by the participant. These claims may be initiated by the
participant based on eligibility created by vesting and/or trigger
events, as defined by the plan document. This data is also
transmitted to the Benefits Trust Central Administration Database,
Block 961, FIG. 32, for processing. If the benefit claim is a death
claim submitted by the participant's beneficiaries, the data will
also be transmitted to insurance company, Block 920, FIG. 31, for
processing.
[0207] Moving to FIG. 11, the Replacement Plan Transactions are
entered, recorded and transferred to the Replacement Plan Central
Administrative Database.
[0208] In Block 290, Changes in Plan Provisions are received from
the Plan Sponsor, Block 22, FIG. 2, entered and recorded in the
Replacement Plan Central Administrative Database. These
transactions will generally be amendments to the plan, which may
include changes in the vesting provisions, changes in eligibility
requirements, changes in benefit formulas, and any other provisions
that might change the plan design.
[0209] In Block 292, Changes to the plan sponsor's Asset Allocation
are received from the plan sponsor, Block 407, FIG. 15, entered and
recorded in the Replacement Plan Central Administrative Database.
Although the Trustee is ultimately responsible for the asset
allocation, the plan sponsor can assist by working with the Trustee
to determine the allocation of the funding assets that will best
equal or exceed the liabilities created by the participants'
allocation of the hypothetical investments.
[0210] In Block 294, Changes in Plan Contributions are received
from the plan sponsor, Block 404, FIG. 15, entered and recorded to
the Replacement Plan Central Administrative Database. A change in
the plan contribution does not usually require an amendment to the
plan document. Contribution changes are used to makeup
under-funding deficits, compensate for over-funding, and increase
the benefits payable. For example, if the Trustee determines that
the trust assets have out-performed to liability created by the
participants' allocations, the next contribution may be reduced to
take advantage of the investment performance.
[0211] In Block 296, Plan Distributions required by the Replacement
Plan provisions are received from the plan administrator, entered
and recorded in the Replacement Plan Central Administrative
Database. These transactions occur when the plan provisions provide
for a benefit to be paid under the terms of the plan document. For
example, if the plan calls for a benefit to be vested and paid in
ten years, when the ten years end, the benefit will be paid.
[0212] In Block 298, Plan Distributions resulting from activating
Plan Triggers are received from the plan administrator, entered and
recorded in the Replacement Plan Central Administrative Database.
Certain provisions can be added to the plan document that will
trigger a distribution. For example, a plan provision might call
for a distribution of the plan assets to the participants in the
event of a hostile takeover of the plan sponsor.
[0213] In Block 300, Interim Plan Distribution requirements are
received from the plan administrator, entered and recorded in the
Replacement Plan Central Administrative Database. These
transactions involve distributions allowed by the plan provisions
prior to the regular distributions. For example, a plan may allow
for an unscheduled partial distribution upon the participant's
return to his/her home country after being on an assignment
[0214] In Block 302, a Distribution decision is made. If a
distribution is not required, the transactions are electronically
transferred to the Replacement Plan Central Administrative
Database. If a distribution is required, the logic continues.
[0215] In Block 304, the Required Distribution is calculated as of
the date of the transaction, and transferred to the Replacement
Plan Central Administrative Database. For example, if the plan
document allows for a $10,000.00 interim distribution in the event
of repatriation, a $10,000.00 benefit claim is transmitted to the
Trustee, Block 961, FIG. 32, for processing.
[0216] In Block 306, the Depletion of the Plan Assets is calculated
by totaling the distributions for any accounting period and
reporting the result to the Replacement Plan Central Administrative
Database.
[0217] Moving to FIG. 12, the Funding Transactions are entered and
recorded in the Replacement Plan Central Administrative Database.
The funding transactions include accounting for the growth of the
participants' benefit liabilities. For the replacement plan, the
participant will choose from a selection of investment vehicles or
more likely, a selection of investment performance indices. The
performance of the investments selected will determine the growth
of the participants' benefit liabilities. However, the funding
transaction addressed by this portion of the invention is a phantom
account only and functions independently of the asset management
associated with funding the plan. For example, the participant may
select the S&P 500 Index Fund and a Salomon Government Bond
Index for his/her investment selections, but no assets will
actually be transferred into funds simulating those indices. The
plan sponsor has the responsibility for investing the contributions
made into the plan to meet the liabilities created by the
participants.
[0218] In Block 310, the Fund Type is selected. The funding
transactions are best tracked by considering equity investments and
interest bearing (fixed income) investments separately. The sources
of income, yield, and gains are different. In Block 312, the funds
transferred in and out of the equity funds are received directly
from the plan participants' asset allocation changes recorded in
the database, Block 282, FIG. 10, and entered. As asset allocations
change, funds may be moved from one investment to the next. These
transfers must be accounted for to accurately track the funds
invested in a particular investment vehicle. In addition,
distributions from an investment are tracked as transfers.
[0219] In Block 314, the last known asset value of the equity
investments is received from the last calculation of the net asset
value, Block 334, and is entered. If valuations are made daily, as
is typical, yesterday's asset value can be entered as today's
beginning balance. In Block 316, any dividends received from equity
investments are received directly from the Internet or some other
electronic medium and are entered. Dividends are recorded on the
distribution date.
[0220] In Block 318, realized and unrealized capital gains and
losses from the sale of any equity assets are received Internet or
some other electronic medium and entered. Mutual fund type equity
investments have periodic capital gains and losses distributions
from assets sold inside the fund. In Block 320, the Equity Asset
Value is calculated. The calculation starts with the last asset
value, increased by the transfers in, dividends received, and
capital gains, and decreased by the capital losses to realize the
Equity Asset Value.
[0221] In Block 322, the investment management Charges and Fees are
calculated, if they are not included in the asset value. If a
$10,000.00 equity investment is the plan sponsor's stock, and a fee
of 1% can be charged to sell the shares held, the $100.00
transaction fee can be calculated.
[0222] Moving to the Interest Bearing assets, in Block 324, the
transfers in and out of the fixed income account are received
directly from the plan participants' asset allocation changes
recorded in the database, Block 282, FIG. 10, entered and recorded
in a similar fashion as with the equity investments.
[0223] In Block 326, the last valuation of the fixed income account
is received from the last calculation of the net asset value, Block
334, and entered. If valuations are made daily, as is typical,
yesterday's asset value can be entered as today's beginning
balance. In Block 327, the interest earned during the period
received directly from the Internet or some other electronic medium
is entered. Interest income is usually credited on a daily
basis.
[0224] In Block 328, any realized and unrealized capital gains are
received directly from the Internet or some other electronic medium
and are entered. In Block 330, the Interest Bearing Account Value
is calculated. The calculation starts with the last asset value,
increased by the transfers in, interest income received, and
capital gains, and decreased by the capital losses to realize the
Interest Bearing Account Value.
[0225] In Block 332, the investment management Charges and Fees are
calculated, if they are not included in the asset value. If a
$10,000.00 fixed income investment is a corporate bond, and a fee
of 1% can be charged to sell the bond, the $100.00 transaction fee
can be calculated.
[0226] In Block 334, the Net Asset Value Change is calculated. The
calculation basically combines the asset values of the equity
account and the interest bearing account and subtracts the total
fees and charges to derive the Net Asset Value. The fees and
charges can include those administrative fees passed through to the
participants and any other charges that may be applicable.
[0227] In Block 336, other computing requirements are entered. If
none are entered, the logic returns to Block 272, FIG. 9.
[0228] Turning to FIG. 13, the Participant's Data is entered for
the generation of the replacement plan illustration in FIG. 8. In
addition to providing the needed data for comparative
illustrations, the objective is to determine the origin of the
participant to better design the benefits solution.
[0229] As described in FIG. 2, there are at least two alternative
approaches to collecting data. Either the logic is initiated by a
consultant acting on behalf of a plan sponsor or by the plan
sponsor directly. In Block 362, the data source is selected.
[0230] In Block 364, the plan sponsor's computer provides the
consultant's computer, Block 366, with the needed data, which
includes the participants' data and the plan sponsor data. The data
will contain the participants' identification, contribution
amounts, current account values, current ages, distribution ages,
investment return, life expectancies, payment method, tax brackets,
and any other needed data. The plan sponsor data can include the
business name, address, communication numbers, investment return
assumption, tax bracket, and any other needed data.
[0231] In Block 366, the consultant can add additional data to the
plan sponsor's data and transmit it the participants' data to the
replacement plan illustration system through Block 350, FIG. 13,
and the plan sponsor data to the marketing computer through Block
464, FIG. 16.
[0232] In Block 368, the plan sponsor provides the needed
participant directly to the illustration system through Block 350,
FIG. 16 and the plan sponsor data to the marketing computer through
Block 464, FIG. 16. In Block 350, the Participant's Data is
received from either the consultant or the plan sponsor and
entered. The data input can include the participant's
identification (either name or government identification number),
age, citizenship, employment status, home country, host country,
plan sponsor's home and host countries, distribution age, and the
other data needed for illustrating a replacement plan.
[0233] In Block 352, U.S. Citizenship is entered. The participant
is considered a U.S. citizen if he/she is a U.S. citizen located
anywhere in the world. A foreign national with a valid "green card"
is treated as an U.S. citizen. In Block 354, if U.S. citizen is
entered, the employment status of the participant is determined
next. The participant is considered an employee if working for some
other entity on a full time or part-time basis. If the participant
is a U.S. citizen, but not an employee, the participant is
considered self-employed and the data is transferred to the Central
Computer 2 replacement plan illustration system through Block 256,
FIG. 8.
[0234] In Block 358, if U.S. citizen is not entered, the
determination of a third-country national (TCN) is entered. A TCN
is a participant who is a citizen of one country working in a
second country for a company, which is domiciled in a third
country. For example, a German working in Japan for a U.S. company
would be a TCN. In Block 360, the employment status of the TCN is
determined.
[0235] In Block 356, the use of an offshore payroll company is
entered. An offshore payroll company is a separate company, usually
located in a tax-haven jurisdiction, that hires employees from an
employer and leases the employees back to the same employer, but in
a foreign jurisdiction. For example, USCo would terminate an
Employee X, who would be hired by USCo(Cayman) and transferred to
USCo(Japan) to work. USCo(Japan) would lease Employee X from USCo
(Cayman). When the assignment is over, Employee X is terminated
from USCo(Cayman) and rehired by USCo. Offshore Payroll Companies
and PEOs offer a cost-efficient way to maintain a global
workforce.
[0236] If the U.S. citizen is on an offshore payroll and the
non-U.S. citizen is a TCN on an off-shore payroll, their data is
transmitted to the replacement plan illustrating system through
Block 255, FIG. 8. If the U.S. citizen is not on an offshore
payroll and the non-U.S. citizen employee is not a TCN, their data
is transmitted to Block 254, FIG. 8. If the foreign national is not
an employee, the participant's data is transmitted to Block 257,
FIG. 8.
[0237] Turning now to FIG. 14, the Output Reports Menu Selection
for the Replacement Plan Central Administrative System is used by
the plan administrator/operator to select the report to be
prepared. In Block 380, the available reports are listed. The menu
is expandable and additional reports can be added at the request of
the plan sponsor or as needed by the plan administrator.
[0238] In Block 382, the Plan Sponsor Statement of Liabilities is
selected. The quarterly liabilities statement is the principal
report used by the plan sponsor and provides a listing of the plan
sponsor's plans by participant. It is produced by aggregating all
of the Participant's Statements of Account (see Specimen 3) and
totaling the ending account balances, which is the total plan
sponsor's liability. The statement can be produced monthly,
quarterly, semi-annually and annually, or upon special request. The
report is transmitted to the Plan Sponsor's Computer in Block 401,
FIG. 15.
[0239] In Block 384, the Participant's Statement of Account is
selected. The participant's account statement reports the current
value of the benefit plan account, as measured by the performance
of the benchmark investments selected. It can be formatted to
display the benefit by contribution dates or benefit distribution
dates. The statement can also displays the current asset
allocation. The statement can be produced monthly, quarterly,
semi-annually and annually, or upon special request. This report is
transmitted to the participant's computer 68, FIG. 2.
[0240] Specimen 3 is a representative sample of a Participant's
Statement of Account for a Replacement Plan for a Deferred
Compensation Plan. The Beginning Balance is the value of the
benchmark investments at the beginning of the measurement period,
which is normally the Ending Balance of the previous participant
statement. The Deferral (contribution) amounts include all new
funds contributed by the participant and/or plan sponsor during the
measurement period to the Replacement Plan. Under each benchmark
fund is listed the source of the contribution, which can change
depending on the plan design. The Transfers Realign column
indicates the new funds moved into benchmark investments, as well
as asset allocation changes. Positive entries represent money
transferred in and negative entries represent money transferred
out. Positive entries and negative entries must balance to zero.
Benefit Payments made to the participant are subtracted from the
appropriate funds. The Earnings column includes all earnings or
(losses) during the measurement period. The Ending Balance is the
sum of the other columns and represents the plan sponsor's
liability to the participant. The Ending Balance will be the
Beginning Balance for the next reporting period.
[0241] In Block 386, the Plan Sponsor Asset Allocation Report is
selected. The asset allocation report displays the current asset
allocation of the total participant population for each of the plan
sponsor's plans. The report can also have a summary of the
performance of the participant's total allocation to use to compare
to the performance of the plan sponsor's asset allocation used to
fund the plan. The plan sponsor uses this report to determine the
need to reallocate the plan sponsor's funds invested to meet the
participant liabilities. This report is transmitted to the plan
sponsor's computer in Block 402, FIG. 15.
[0242] Specimen 4 is a representative sample of the Plan Sponsor
Asset Allocation Report for a Replacement Plan for a Deferred
Compensation Plan. The current hypothetical fund allocation is the
aggregate allocation of all participants benchmark fund balances.
The allocation is presented in both currency and percentages. Each
benchmark investment is listed, with the fund manager's name for
reference. The amounts invested in each fund by all participants
are provided as the Total Balance. The percentage of each fund to
the total is displayed in the Allocation column. The percentage
allocation will always total to 100%.
[0243] In Block 388, the Plan Sponsor Payment Summary is selected.
This report summarizes the benefit payments that have been made
during any reporting period for each participant. The plan sponsor
uses this report for budgeting. This report is transmitted to the
plan sponsor's computer in Block 404, FIG. 15.
[0244] Specimen 5 is a representative sample of a Plan Sponsor's
Payment Summary report for any Replacement Plan. The Payment
Summary provides the plan sponsor with a summary of payment
activity by participant. Payments are segregated on the report by
source and benchmark fund.
[0245] In Block 390, the Plan Sponsor Asset and Liability
Comparison Report is selected. This report compares the plan
sponsor's benefit liabilities for a particular plan to the plan
sponsor's assets invested to fund the liabilities. To the extent
there is a surplus or deficit of assets, the plan sponsor uses the
report to measure the variance and adjust the investment strategy
and/or contribution level to meet the objectives. This report is
transmitted to the plan sponsor's computer in Blocks 406 and 408,
FIG. 15.
[0246] Specimen 6 is a representative sample of the Plan Sponsor
Asset and Liability Comparison Report for a Replacement Plan for a
Deferred Compensation Plan. This report is an expanded version of
the Plan Sponsor Asset Allocation Report (see Specimen 4). Like the
Asset Allocation Report, the Liability Fund Balance section is
reporting the aggregate allocation of all participant fund balances
in the Total Balance column. In addition, in the Vested Balance
column, it details the vested liability balances of the participant
liabilities. In the Asset Fund Balance section, the plan sponsor's
actual investments held in the insurance policy owned by the
Trustee of the Benefits Trust (FIG. 32) are itemized by investment
manager. The Vested Balance column is reserved for detailing those
assets that are vested and pending distribution as benefit
payments. At the bottom of the report the Difference line
calculates the amount of plan liabilities over and above the assets
available to fund the replacement plan held in the trust.
[0247] In Block 392, the Plan Sponsor Contribution Confirmation
report is selected, which confirms the receipt of cash
contributions to a plan. The report shows the amount of the
contribution and compares it against the amount scheduled to be
contributed. This report is transmitted to the plan sponsor's
computer in Block 404, FIG. 15.
[0248] Specimen 7 is a representative sample of the Plan Sponsor
Contribution Confirmation report for a Replacement Plan for a
Deferred Compensation Plan. Confirmation statements are produced
for various transactional activities with the Replacement Plan
administration process. The most frequently generated confirmations
are for contributions, asset allocation changes and benefit
payments. The Contribution Confirmation is sent to the Plan Sponsor
to confirm the source, amount and allocation of any contribution
made to the Replacement Plan trust investments on behalf of each
participant. Confirmations can also be sent to participants.
[0249] In Block 394, the Participant's Hypothetical Fund Investment
Performance Report is selected. This report is used by participants
to determine the performance of their hypothetical portfolio and
make asset allocation decisions. This report is sent to
participant's computer 68, FIG. 2, to report the performance of
their hypothetical investments used to measure the benefit
liability.
[0250] Specimen 8 is a representative sample of the Participant's
Hypothetical Fund Investment Performance Report for a Replacement
Plan. This report summarizes the investment activity of all
hypothetical benchmark funds associated with the participant's
Replacement Plan benefit liability during the reporting period.
This report provides the participants a detailed accounting of the
fluctuations associated with their multiple benchmark portfolio.
The Percentage Change in Value and YTD Percentage Change columns
help participants analyze the earnings and losses in their
hypothetical portfolio. The data is downloaded from the fund
managers or through a network to produce the report.
[0251] In Block 396, the Participant Transaction Confirmation
Statement is selected. This is an on-demand statement used to
confirm participant initiated transactions. For example, if a
participant makes a beneficiary change, a statement is sent
confirming the beneficiaries added and those deleted, as well as
the effective date. More common are confirmations for realignment
of the asset allocation for their hypothetical investment funds and
confirmation of benefits paid. These reports are transmitted to the
participant's computer 68, FIG. 2.
[0252] Specimen 9 is a representative sample of Participant
Transaction Confirmation Statements for a Replacement Plan. A
Realignment Confirmation is issued when a participant realigns the
percentage of assets held in each hypothetical fund detailing the
source of the instruction, the effective date and the new asset
allocation percentages. The Payment Confirmation is produced
indicating the amount, source and date of payment for any benefit
payment made to the participant, whether a lump sum or annuity-type
payment.
[0253] In Block 398, the Other Reports selection is used for
expanding the menu with additional reports to be created as
needed.
[0254] Turning now to FIG. 15, the logic continues with the plan
sponsor's accounting for the replacement plan in its financial
statements. The accounting is an important part of the plan
sponsor's decision to implement a replacement plan. In this
invention, at least two accounting scenarios are available. The
first is the traditional method of accounting for the benefit as a
balance sheet liability and the increase in benefits as an earnings
statement item.
[0255] The second scenario, not readily available before this
invention, is the assumption of the fiduciary responsibility for
the benefit liability by a third-party benefit provider. In this
case, the plan sponsor out-sources the entire benefit liability and
the accounting is limited to an expense entry. The provider then
assumes the fiduciary responsibility of the plan sponsor.
[0256] The logic continues in Block 400, where the Assumption of
Benefit Liability is entered.
[0257] Block 403 receives the entry that the benefit liability is
being out-sourced to a third-party provider and inputs the total
plan contribution from the plan administrator's Contribution
Confirmation Report in Block 392, FIG. 14. For example, if the plan
is for 400 employees, with a total confirmed contribution of
$4,000,000.00, the $4,000,000.00 is entered.
[0258] In Block 405, the total contribution is recorded as an
ordinary business expense on the earnings statement, and may be a
tax-deductible item, depending on the plan sponsor's tax situation.
No further plan sponsor accounting is required. If the liability is
not being assumed, Block 401 receives an input of the plan
liabilities from the Plan Administrator's Statement of Liabilities
Report in Block 382, FIG. 14. Generally, plan sponsors prepare
quarterly financial statements, and therefore, the plan
administrator prepares reports quarterly. However, reports and
reports can be prepared at any interval.
[0259] Block 402 receives input of the Plan Assets from the Plan
Administrator's Asset Allocation Report, Block 386, FIG. 14. The
plan assets are the total of the assets held in trust to fund the
plan sponsor's plan. Block 404 receives input of the increase in
Plan Contributions Assets from the Plan Administrator's
Contribution Confirmation Reports, Block 392, FIG. 14. This input
is of the contribution made since the last reporting period. For
example, if the plan calls for a quarterly contribution of
$100,000.00 and the payments have been made in a timely manner, the
increase in plan contributions for the current quarterly reporting
period can be $100,000.00. This data is provided to the Plan
Administrator as a Plan Transaction in Block 294, FIG. 11.
[0260] In Block 406, the data inputted from the Plan
Administrator's Asset/Liabilities Comparison Report, Block 390,
FIG. 14, is used to calculate the Change in Plan Assets. The
calculation is based on subtracting the total assets at the
beginning of the period from the assets at the end of the period,
resulting in the change in value. The change will be either an
increase or decrease in assets.
[0261] In Block 408, the data is inputted from the Plan
Administrator's Asset/Liabilities Comparison Report, Block 390,
FIG. 14 and is used to calculate the Change in Plan Liabilities.
The calculation is based on subtracting the total liabilities at
the beginning of the period from the liabilities at the end of the
period, resulting in the change in value. The change will be either
an increase or decrease in liabilities.
[0262] In Block 407, the calculated results from Blocks 406 and 408
are used to determine Changes in Asset Allocation, which is
transmitted to the Plan Administration Central Computer, Block 292,
FIG. 11, to be entered into the system as a plan transaction. Input
is also communicated regarding the participants' asset allocation
for planning purposes from Block 282, FIG. 10.
[0263] In Block 410, the Impact on the Earnings Statement is
calculated. The calculation is based on the difference between the
financial results with and without the replacement plan. Depending
on the replacement plan design, the earnings impact may be
different for each plan design. The plan design system includes the
earnings impact calculation, but in general, the earnings impact
will be the increase in earnings on the benefit liabilities.
[0264] In Block 412, the Impact on Cash Flow is calculated. The
calculation is based on the difference between the financial
results with and without the replacement plan. Depending on the
replacement plan design, the cash flow impact may be different for
each plan design. The plan design system includes the cash flow
impact calculation, but in general, the cash flow impact will be
the increase in contributions and benefits paid.
[0265] In Block 414, the Impact on the Balance Sheet is calculated.
The calculation is based on the difference between the financial
results with and without the replacement plan. Depending on the
replacement plan design, the balance sheet impact may be different
for each plan design. The plan design system includes the balance
sheet impact calculation, but in general, the balance sheet impact
will be the increase in benefit liabilities.
[0266] Moving to FIG. 16, the Marketing Computer prepares proposals
and tracks marketing activities. The marketing system will be used
by the consultant, as well as by others. It is linked to the
Central Computer, the administrative computer, and the consultant's
computer.
[0267] Block 450 receives the illustrations as input from the
central digital computer, Block 112, FIG. 3. The illustrations are
in spreadsheet form, without supportive and explanatory text. In
Block 452, the decision to prepare a Proposal is entered. A
proposal is prepared for a potential plan sponsor that wants to
analyze the financial and human resources impact of installing a
replacement plan.
[0268] If not preparing a proposal, Block 454 receives input of
Marketing Activities from the illustrations that are generated and
from the consultant's activities reported from Block 524, FIG. 18.
Marketing activities include such information as the plan sponsor's
name, location, plan design, date of last contact, date of next
contact, marketing process status, marketer's name and company, and
similar information that might be needed by management.
[0269] Block 456 Tracks the Marketing Activities using database
software to organize the marketing data. It is anticipated that
there will be several marketers from different companies marketing
the replacement plans. The tracking system will track the marketing
activities by marketer and by plan design. For example, the
database will track the activity for ABC Consulting Firm, while
also tracking all of the firms that have presented a particular
replacement plan, such as the Private Stock Option Plan.
[0270] In Block 458, the database generates a periodic Marketing
Activity Report in written and electronic formats. The report
details the information in the database relative to calls,
prospects, proposals outstanding, and other related information,
organized by marketer and plan design. The report is updated at
least weekly and can be accessed electronically at any time.
[0271] In Block 460, the database generates a periodic Marketing
Status Report in written and electronic formats. The report details
the information in the database relative to the progress of plan
sponsor's through the sales and implementation processes organized
by marketer and plan design. The report can also contain completed
sales transactions with marketer's revenue totals. The report is
updated at least weekly and can be accessed electronically at any
time.
[0272] If a proposal request is inputted, Block 462 receives input
from the marketer or from the computer's memory of pre-formatted
text that supplements and explains the illustrations. The text will
contain technical references and can be customized to be client
specific.
[0273] Block 464 receives an input of the plan sponsor's data from
the consultant's computer, Block 366, FIG. 13, or from the plan
sponsor's computer, Block 368, FIG. 13. The plan sponsor data
includes the plan sponsor's name, address, contact persons,
decision makers, telephones, faxes and e-mails, current plan data,
replacement plan interest, tax data, and other pertinent
information. This data is also transmitted to Block 273, FIG. 9,
which is the Plan Administration Database.
[0274] In Block 466, the Proposal Documents are generated for
presentation to the client. The proposal is comprised of the
Replacement Plan illustrations and text, which has been customized
to conform to the plan sponsor's data. The proposal text will
parallel the Plan Sponsor's Administrative Guidebook (see Specimen
2) in form and content, except that it will be presented in more of
a marketing format. It will explain the purpose of the Replacement
Plan and the rationale for the plan design, as well as detail the
product selection process and the conclusions on product and
investment options selection. In addition, the implementation and
participant enrollment procedures are outlined. Likewise, the plan
administration services can be outlined to ensure the long-term
success of the Replacement Plan. The text supporting the
Replacement Plan illustration can explain the financial impact of
the Replacement Plan's economics on the plan sponsor's financial
statements. The proposal is manually packaged for presentation to
the client.
[0275] If the consultant wishes to prepare additional case study or
sensitivity analysis independent of this invention, the proposal
documents can be transmitted to the consultant's case
study/sensitivity analysis computer 70, FIG. 2. The additional case
studies and sensitivity analyses can also be included in the
proposal documents.
[0276] In Block 468, a decision is made to prepare case study
analysis within this invention. If after reviewing the proposal,
the client wishes to review one or more case studies, the process
returns to the illustration of the Replacement Plan, Block 228,
FIG. 8 to generate a new illustration with different data.
[0277] If a case study is not requested, Block 470 requires a
decision on preparing a sensitivity analysis within this invention.
If a sensitivity analysis is requested, the data is transmitted to
the Central Computer, Block 100, FIG. 3, to rerun the entire
comparative illustrations using different assumptions. If
additional analysis is not required, the logic returns to the
marketing computer 50.
[0278] Turning now to FIG. 17, the system provides ancillary
financial services to the replacement plan participants, which are
intended to assist them in their individual financial affairs and
supplement the benefits provided through the replacement plan. The
services are provided by world-class financial institutions with
extensive expertise and experience. The services are accessible
through the Internet, telephone, fax, mail, e-mail and any other
practical means. These services do not require a plan sponsor, but
may be endorsed by a plan sponsor. They can also be offered as
stand-alone services, not connected to a replacement plan.
[0279] The logic continues in Block 480, which receives an input of
the Eligible Employees from the Consultant's Computer 64, FIG. 1,
the Plan Administration Central Database, Block 260, FIG. 9, and/or
the Plan Sponsor's Computer 22, FIG. 2. The participant can also
make direct contact through the Participant's Computer 68, FIG. 2.
To control the access, a password may be used. Eligibility is based
on being a plan participant and/or enrolled by a consultant or
provider, with sufficient assets to benefit from the services, as
defined by the providers.
[0280] The logic continues in Block 482 where the eligible
participants are contacted in writing or electronically to inform
them of the services. Notification may also be provided in the
replacement plan participant's enrollment kit with the plan
sponsor's approval.
[0281] In Block 484, the participant may access the services via
the Internet or some alternative network. In Block 486, the
participant responds by using the Participant's Computer 68 to
access the Internet or other network to review the selection of
available products and services. In Block 488, the participant
decides to access Private Banking Services, which can be provided
by one or more financial institutions.
[0282] In Block 500, Private Banking Services is selected and the
participant is presented a menu of products and services from which
to choose those that are of most interest or best suits the
participant's needs. Each institution will decide independently
which services to provide, but the typical services include cash
management, lending, letters-of-credit, personal financial
statement preparation, and other similar services. As the
participant selects a particular product or services, a list of
providers of the particular products or services can be displayed,
from which the participant makes a selection. At that time, the
selected provider's marketing and other presentation materials will
be displayed on the Internet/network for the participant's review.
The participant may subsequently contact the selected provider by
telephone, fax, letter, e-mail, or directly through the network
being used. This initial contact can be to obtain additional
information or to transact business. The providers' computers will
store independent software programs to prepare and provide the
products and services being offered by that provider. To build the
system to provide the services in Block 500 simply requires the
adaptation of the providers' current computer that are being used
to provide traditional transactional banking services, such as
checking accounts, loans, and other similar services.
[0283] Specimen 10 is a representative sample of a draft brochure
offering private banking services for overseas participants. The
brochure offers the services needed by participants and can be
accessed by the Internet.
[0284] In Block 490, the participant decides to access Investment
Management Services, which can be provided by one or more financial
institutions. In Block 502, Investment Management Services is
selected and the participant is presented a menu of products and
services from which to choose those that are of most interest or
best suits the participant's needs. Each institution will decide
independently which services to provide, but the typical services
include asset allocation, fixed income management, equity
management, tax-efficient investments, Guaranteed Return Income
Plan, performance reporting, manager selection, and other similar
services. As the participant selects a particular product or
services, a list of providers of the particular products or
services can be displayed, from which the participant makes a
selection. At that time, the selected provider's marketing and
other presentation materials will be displayed on the
Internet/network for the participant's review. The participant may
subsequently contact the selected provider by telephone, fax,
letter, e-mail, or directly through the network being used. This
initial contact can be to obtain additional information or to
transact business. The providers' computers will store independent
software programs to prepare and provide the products and services
being offered by that provider.
[0285] To build the system to provide the services in Block 502
requires the integration of several different software
capabilities. First, the provider's computer can prepare a
financial analysis of the participant's goals and objectives,
relative to participant's current assets and net worth, to
determine the required net-after-tax rate-of-return required for
funding the goals, based on agreed assumptions regarding tax rates,
inflation and cash flow capabilities. The next step can be to use
the required Rate-of-Return as a benchmark for a second software
package that could use the principles of Modern Portfolio Theory to
develop an Efficient Frontier analysis to determine the optimum
portfolio with the desired expected rate-of-return and the lowest
risk, as measured by standard deviations. Next, the optimized
portfolio can be used to develop a Strategic Investment Plan, which
can be the asset allocation used to actually allocate funds among
cash, fixed income, equity, and hard asset investments funding the
strategic investment plan. The Strategic Investment Plan is the
primary tool for providing investment management services. It
establishes the benchmark against which performance is measured and
provides the investment mangers a detailed guideline for selecting
specific investments for the participant. In addition, an
investment policy can also be formulated from the Strategic
Investment Plan to provide a formal guideline for investment
managers.
[0286] The third step in providing investment management services
involves administering the strategic investment plan in accordance
with the investment policy. If desired, a different software
package can be used to administer the investments. This software
can track cost basis, investment amounts, investment performance,
and tax consequences, while producing reports that show the
participant how the portfolio is performing by asset class,
subclass, and individual investments. This administration database
software can also be used to track the performance of independent
investment managers, who may be selected by the participant to
manage investments, by compiling the data from their periodic
reports or by direct download via the Internet or other network.
All of these software functions can be found in commercial packages
on the market. This invention provides the delivery system.
[0287] Specimen 15 is a representative sample of a Strategic
Investment Plan for a Replacement Plan Participant that can be
provided through the Investment Management Internet Services and
the Financial Planning Internet Services. The Strategic Investment
Plan (SIP) divides the participant's investable assets into the
four main asset classes of cash, fixed income, equities, and hard
assets. Based on a separate financial analysis, the Strategic
Allocation benchmark is shown on the left of each asset class and
is designed to result in a 10% net after-tax rate-of-return, based
on historical data using Modern Portfolio Theory. Each asset class
is divided into sub-classes, with specific investments selected for
each sub-class. The Security Percent Allocation for each specific
investment is then shown. Based on the specific allocation, the
Asset Class Allocation is determined for comparison to the
Strategic Allocation. In this representative sample, the 63.61%
equity allocation exceeds the Strategic Allocation of 55% and the
hard asset allocation is less than the 10% Strategic Allocation,
which reflected the participant's personal desire to not invest in
real estate or other hard assets. At the end of the schedule, the
percentages all add to 100% and the total of the allocations to the
investment securities totals the available investable assets.
[0288] In Block 492, the participant decides to access Financial
Planning Services, which can be provided by one or more financial
institutions. In Block 504, Financial Planning Services is selected
and the participant is presented a menu of products and services
from which to choose those that are of most interest or best suits
the participant's needs. Each institution will decide independently
which services to provide, but the typical services include tax
planning, cash flow planning, retirement planning, investment
planning, estate planning, insurance planning, education funding,
specific goals funding, and other similar services. As the
participant selects a particular product or services, a list of
providers of the particular products or services can be displayed,
from which the participant makes a selection. At that time, the
selected provider's marketing and other presentation materials will
be displayed on the Internet/network for the participant's review.
The participant may subsequently contact the selected provider by
telephone, fax, letter, e-mail, or directly through the network
being used. This initial contact can be to obtain additional
information or to transact business. The providers' computers will
store independent software programs to prepare and provide the
products and services being offered by that provider.
[0289] To build the system to provide the services in Block 504
requires the integration of different software capabilities,
although there are several providers that have a single software
package that integrates the six elements of personal financial
planning (cash flow, taxation, investments, retirement, estate
planning and insurance). There can be some overlap in the services
provided through estate planning and investment management, but
generally, the financial planning may not be as detailed as the
other specialized services. In addition, the financial planning
services tend to be used more by participants with less wealth than
those typically interested in investment management and estate
planning.
[0290] The main distinction in the financial planning services
provided by this invention, when compared to other providers, is
the integration of multi-jurisdictional planning for participants
subject to multiple tax authorities, such as a German citizen
working in Japan with a U.S. 401(k) plan holding U.S. situs assets.
In these cases, the tax laws of each country should be considered
in making planning recommendations.
[0291] In Block 494, the participant decides to access Estate
Planning Services, which can be provided by one or more financial
institutions. In Block 506, Estate Planning Services is selected
and the participant is presented a menu of products and services
from which to choose those that are of most interest or best suits
the participant's needs. Each institution will decide independently
which services to provide, but the typical services include current
estate analysis, host country jurisdictional analysis, current will
review, current trust review, multi-jurisdictional estate planning,
legal referral service, trust services, estate settlement services,
and other similar services. As the participant selects a particular
product or services, a list of providers of the particular products
or services can be displayed, from which the participant makes a
selection. At that time, the selected provider's marketing and
other presentation materials will be displayed on the
Internet/network for the participant's review. The participant may
subsequently contact the selected provider by telephone, fax,
letter, e-mail, or directly through the network being used. This
initial contact can be to obtain additional information or to
transact business. The providers' computers will store independent
software programs to prepare and provide the products and services
being offered by that provider.
[0292] To build the system to provide the services in Block 506
requires elements of estate taxation, trusts and insurance. The
main distinction in the estate planning services provided by this
invention, when compared to other providers, is the integration of
multi-jurisdictional planning for participants subject to multiple
tax authorities, such as a U.S citizen working in Switzerland with
U.S. and Swiss situs assets and a non-U.S. citizen spouse.
[0293] Upon the participant's request, the estate planning system
in Block 506 will electronically provide the participant's computer
68 with a data collection form, which will be completed manually or
electronically by the participant and returned. In turn, the estate
planning provider will prepare the analysis, using a software
program, and return the completed analysis to the participant.
Follow-up discussions will be by voice or electronic means, with
implementation assistance available upon request from provider law
firms.
[0294] In Block 496, the participant decides to access Relocation
Planning Services, which can be provided by one or more financial
institutions. In Block 508, Relocation Services is selected and the
participant is presented a menu of products and services from which
to choose those that are of most interest or best suits the
participant's needs. Each institution will decide independently
which services to provide, but the typical services real estate
brokerage services, education/school location services, language
services, local area familiarization services, efficient buying
services, moving services, and other similar services. As the
participant selects a particular product or services, a list of
providers of the particular products or services can be displayed,
from which the participant makes a selection. At that time, the
selected provider's marketing and other presentation materials will
be displayed on the Internet/network for the participant's review.
The participant may subsequently contact the selected provider by
telephone, fax, letter, e-mail, or directly through the network
being used. This initial contact can be to obtain additional
information or to transact business. The providers' computers will
store independent software programs and databases to prepare and
provide the products and services being offered by that
provider.
[0295] Upon the participant's request, the relocation system in
Block 508 will electronically provide the participant's computer 68
with a data collection form, which will be completed manually or
electronically by the participant and returned. In turn, the
relocation provider will prepare a proposal, using a software
database program, and return the completed proposal to the
participant. Follow-up discussions will be by voice or electronic
means, with implementation assistance available upon request from
various provider firms.
[0296] In Block 498, the participant decides to access Other
Services, which are provided by one or more financial institutions.
Each institution will decide independently which services to
provide through the network created by this invention, and the
methodology follows the same logic as described for the other
services. In Block 512, the usage of the Internet/network services
is recorded by contacts made by participants to each provider and
transmitted to the Revenue Accounting Computer 72, at Block 1238,
FIG. 37.
[0297] Turning to FIG. 18, the independent consultant's computer
integrates with the Central Computer in Block 2, FIG. 2, as well as
sending and receiving data from the plan administration computer in
Block 20, FIG. 2. The independent consultant may be the primary
user of this invention, and has to be able to access various parts
of the system.
[0298] Block 520, the independent benefits consultant maintains a
database of clients for which consulting services are provided. The
consultant provides a myriad of services, in which providing
replacement plans is included.
[0299] The consultant's computer uses data received from tax and
accounting compliance computers, Block 521, to design and maintain
benefit plans. These computers may be linked to the Internal
Revenue Service or other compliance agencies.
[0300] In Block 522, the consultant's computer performs consulting
functions and provides consulting studies to clients. In Block 524,
the consultant provides input to the Central Computer, Block 2,
FIG. 2, to start the process of designing a replacement plan for
the consultant's client. The Plan Administration Computer also
receives information, from which reports are prepared and sent to
the consultant for review in Block 522. The consultant performs the
needed activities to review the reports and advises the client. The
consultant may also provide additional input to the Central
Computer, which may result in changes to the plan design or
funding. New reports are generated, sent to the consultant, and the
logic continues. Replacement Plans marketing activities are also
transmitted to the Marketing Computer 50 through Block 454, FIG.
16, for the preparation of the marketing activity report.
[0301] Moving to FIG. 19, the Replacement Plan Investment Funds
Database records and accounts for the plan sponsors' assets, which
are being invested by the money managers, who are acting as
"sub-advisors" under the replacement plan arrangement. The
sub-advisors are holding the only tangible assets for funding the
replacement plan. The sub-advisors are substantial world-class
financial institutions with extensive expertise and experience in
managing money.
[0302] Block 602 receives an input of the amount of the funds to be
managed for the replacement plans from the Trustee, Block 972, FIG.
32. The funds can be the gross contribution to the plan less the
administrative fees and expenses incurred to maintain the plan. For
example, if the total plan contribution is $20,000,000.00 and the
associated fees and charges totaled $1,000,000.00, only
$19,000,000.00 can be transferred to the money managers for
investing.
[0303] Block 604 receives input from the Trustee, Block 970, FIG.
32, on the Asset Allocation to be used by the managers to mange the
money. The asset allocation is by asset class and sub-class, with
managers that may specialize in a particular asset class or
sub-class. Typically, there are four classes of assets--cash and
cash equivalents, fixed income (interest bearing) assets, equity
assets, and hard assets. In each class, there are subclasses. For
example, cash assets are subdivided into cash, money market, and
short-term U.S. Treasury securities. Fixed income investments may
be subdivided into domestic and foreign government bonds, corporate
bonds, and municipal bonds, as well as certificates of deposits and
fixed annuities. Equity investments can be subdivided into domestic
and foreign income stocks, growth and income, growth, aggressive
growth, small company and sector investments. Hard assets are
usually subdivided into precious metals, real estate, art, and
precious gems.
[0304] Block 606 receives input from the Trustee, Block 972, FIG.
32, on the investment policy for the various managers, based on the
investment objectives of the plan sponsor. Each replacement plan
will have an investment policy drafted by the Trustee and
investment advisor to outline the parameters and limits for the
sub-advisors investing the funds. An investment policy provides the
sub-advisor with guidelines for making investments. For example, an
investment policy may have a provision stating that only the stock
of domestic companies with a certain market capitalization size,
which do not manufacture guns or tobacco, are to be purchased.
[0305] In Block 608, the securities purchases and sales are
entered. As each manager buys and sells individual securities, the
transactions are recorded in the database. The specific
transactions to track are trade dates, realized gains and losses,
cost basis, and verification of portfolio holdings. The method for
transferring this data to the database is unique to the systems
used by each sub-advisor/manager.
[0306] In Block 610, the Trustee's transactions are entered. The
Trustee may make direct investments, such as secured loans, shift
funds from one manager to another, add and delete managers, and
other similar transactions. The method of transferring this data to
the database is unique to the systems used by the Trustees. In
Block 612, investment Income and Expense Accruals are entered.
Daily activity in the investment accounts requires tracking
dividend income, interest income, accrual of discount, amortization
of premium, investment advisory fees, custodial fees, accounting
fees, insurance fees, and other fees, which are recorded in the
database. This data is provided from the money manager's daily
activity being tracked and recorded in Block 622, FIG. 19.
[0307] The data in the database is used in Block 614 to calculate
the allocation of the investment funds to the various sub-advisors.
It is the Trustee that has the fiduciary responsibility to make the
invested assets equal the benefit liabilities. Therefore, the
Trustee develops the overall asset allocation recommendations for
the investment advisor, based on the plan participants' overall
asset allocation for the benefit liability. The asset allocation
will specify the asset classes and sub-classes.
[0308] The sub-advisors have investment class specialties. One
manager may specialize in European equities, while another
specializes in U.S. Government bonds, while still another may
specialize in real estate REITs. Consequently, the Trustee will
consult with the investment advisor to allocate the assets to the
respective sub-advisors/managers based on the asset allocation
needed to equal or out perform the liabilities, matching the
manager to the asset class and sub-class.
[0309] In Block 616, the assets are transferred electronically to
the investment advisor and subsequently to the
sub-advisors/managers in accordance with the asset allocation. In
Block 618, the managers will acknowledge the receipt of the funds
for investing and maintain separate accounts for the funds,
avoiding any commingling of the assets with other investment funds
unless specifically agreed in advance.
[0310] In Block 620, the transferred funds are invested in
accordance with the investment policy and according to the asset
allocation by the investment managers. Compliance with the
investment policy will be automatically monitored, and periodic
compliance reports will be submitted to the Trustee.
[0311] In Block 622, the investment managers' daily activities are
tracked. At the end of each day, the manager needs to be able to
report the net value of the account. This information is important
to the remainder of the process. The reporting is made
electronically, and is transmitted to Blocks 612, 656 and 658, FIG.
19.
[0312] In Block 624, the total assets under management amount is
transmitted to the Revenue Accounting Computer 72, through Block
1230, FIG. 37.
[0313] The logic continues to FIG. 20, where the Net Asset Value of
the sub-advisor's accounts is determined. The Net Asset Value can
be calculated by the sub-advisor's/investment managers or by a
third-party firm specializing in that work. In either case, the
results are the same.
[0314] In Block 650, Trustee transactions are entered from Block
610, FIG. 19. In Block 652, Income and Expense Accruals are entered
from Block 612, FIG. 19. In Block 654, Securities Transactions are
entered from Block 608, FIG. 19. In Block 656, Corporate Actions
are entered from Block 622, FIG. 19. Corporate actions include such
transactions as stock splits, mergers and acquisitions, stock
dividend, spin-offs, callable bonds, principal pay-downs, and
similar transactions. In Block 658, Market Value Calculations are
entered from Block 622, FIG. 19, which include such items as
amortized book value, original issue discounts, unrealized gains
and losses, and similar transactions.
[0315] In Bock 660, the Net Asset Value of each portfolio is
calculated. From that calculation, reports and reconciliations are
generated. The Net Asset Value is also transmitted to Block 753,
FIG. 22, where it is used to determine the life insurance policy
values. In Block 664, the periodic Reconciliation Reports are
generated, which can include various types of investment management
information, such as dividend and interest, gains and losses
schedule, book value verification between periods, custody
reconciliation, and Net Asset Value rollover. Reconciliations can
be generated for any period, but are typically issued daily and
monthly.
[0316] Specimen 11 is a representative sample of an Asset
Reconciliation Report for a Replacement Plan. The specimen
exemplifies the information that may be used to reconcile a bond
portfolio. This statement includes the information needed to
reconcile the value allocated to the particular division of the
total portfolio, including the Trade Date, Settlement Date,
Maturity Date, Currency Par Value, Book Value, Coupon Rate, and the
current Market Value. At the end of the report details regarding
sales and purchases, dividends and interest, other assets and
liabilities, and accrued fees and charges are entered.
[0317] In Block 662, the periodic Accounting Reports are generated,
which include general ledger and trial balances, dividend and
interest ledgers, purchases and sales journal, and similar reports.
When life insurance is used, this data is also transmitted to
Blocks 880 through 896, FIG. 29, where it is used to calculate the
policy's Investment Income, as part of the life insurance
administration system.
[0318] In Block 666, the Quarterly Diversification Testing Report
is generated in accordance with Internal Revenue Code Section 817h.
The testing format follows a prescribed format, which is an
industry standard, and not unique to this invention.
[0319] In Block 668, other reports are generated, such as disaster
recovery reports, error policies and procedures reports, and
similar reports as needed.
[0320] Continuing to FIG. 21, life insurance may be selected as a
funding vehicle for the replacement plan, and in fact, is the
preferred method of funding. Although various forms of life
insurance may be used for funded benefits with this invention, the
type being illustrated is Group Private Placement Variable
Universal Life, which is issued by a foreign carrier and purchased
by the Trustee of an offshore trust. The Trustee is both the owner
and the beneficiary of the insurance contract(s). The participants
have no incidence of ownership, nor do they have any beneficial
interest in the policy's values. They are only the insureds. In
addition, the contract is underwritten on an aggregate-funded,
guaranteed issue basis, and may not be subject to the taxes and
expenses associated with U.S. regulated insurance contracts. Other
features include variable morality that can comply with IRC Section
7702 regulations to qualify in the U.S., or the mortality can be
"dialed down" to meet foreign competition. Prior to this invention,
this life insurance product did not exist for the international
marketplace. FIG. 21 is the system for administration of this new
form of life insurance.
[0321] Specimen 14 is a representative sample of the Product
Specifications for this new form of Group Private Placement
Variable Universal Life Insurance Policy. The specimen outlines the
design purpose of the contract, the unique ownership by an offshore
trust, the special application of underwriting to lower risks
associated with insuring foreign lives, and the flexible "dial-in"
design features. The built-in charges are also specified, as well
as the preferred investment options and world-class
sub-advisors.
[0322] In Block 701, the decision is made by the Trustee of the
benefits trust to use life insurance as a funding vehicle. In Block
700, the initial Gross Premium is entered from the Trustee in Block
972, FIG. 32. The gross premium is equal to the net contribution
into the plan, which can be the gross contribution to the plan less
any plan Participation Fees and the Plan Administration Fees
incurred to maintain the plan. For example, if the total plan
contribution is $20,000,000.00 and the associated participation and
plan administration fees totaled $200,000.00, the remaining
$19,800,000.00 can be the gross premium. The Gross Premium is
reduced by the applicable taxes (DAC and state premium tax) to
produce the Net Premium (see FIG. 25). Further insurance company
charges and fees will reduce the Net Premium to the net investment
that is transferred to the money mangers/sub-advisors to invest in
Block 602, FIG. 19. The Gross Premium is also transmitted to Block
800, FIG. 25, to be used in the calculation of the net premium for
policy administration purposes. In addition, this data is
transmitted to the Revenue Accounting Computer 72, Block 1224, FIG.
37, for use in calculating the policy fee.
[0323] In Block 702, the Policy Values are entered from FIG. 22. In
Block 704, the Deferred Acquisition Cost (DAC) receivable is
entered from FIG. 23. In Block 706, the Mortality Reserve is
entered from FIG. 24. In Block 708, the Change in the Value of the
Product Assets is calculated. The calculation is performed by
subtracting the Total Product Assets Opening Balance from the Total
Product Assets as of the last market date of the reporting period.
The opening balance is the sum of the initial gross premium, the
policy value. The DAC receivable, and the mortality reserve. The
closing balance is the sum of the policy values, the DAC
receivable, the mortality reserve, and the unamortized premium
tax.
[0324] In Block 710, the Death Benefits Paid are entered from FIG.
31, which is the total proceeds paid resulting from claims. The
death benefits will be increased by any interest paid on the
proceeds from the date of death to the date of payment. In Block
712, the Total Change in Policy Value is calculated, which is the
total of the product change in value and death benefits paid.
[0325] In Block 714, the new policy value is calculated by adding
the total change in policy value to the policy value entered in
Block 702. In Block 716, the Cash Value Reports are generated and
transmitted to the Trustee in Block 958, FIG. 32. The Cash Value
Report sent to the Trustee can be the aggregate assets of several
plan sponsors' Replacement Plans or for a single plan, depending on
the trust design. A Master Trust will tend to aggregate funds for
several plans. An abbreviated Cash Value Report can be sent to the
plan sponsor for each Replacement Plan.
[0326] Specimen 12 is a representative sample of a Trustee's Cash
Value Report for a Private placement Variable Universal Life
Insurance Policy used to fund a Replacement Plan. The report is
composed of a Summary page and supporting schedules detailing the
specifics of the policy administration. The Summary begins with the
determination of the Total Opening Balance. The ending balances for
the prior period become the opening balances for the current
period. The Policy Values, DAC Receivable, Mortality Reserve, and
any Free-look Adjustment opening balances are presented for the
current reporting period and prior periods, and when added to
provide the Total Opening Balance. New Premium Received or premium
Rescinded is added to or subtracted from the Total Opening Balance.
The Closing Balances of the Policy Values, DAC Receivable,
Mortality Reserve, and any Free-look Adjustment are added to
provide the Total Closing Balance. The opening is subtracted from
the closing balance to provide the Assets Change in Value. The DAC
Refunds are added to the value and Death Benefits Paid are
subtracted to provide the Total Change in Value. For informational
purposes, the Interest Income on Death Benefits is also shown, as
well as the Annualized Yield on the Opening Balance.
[0327] The Asset Value Analysis is a supporting schedule that
calculates the closing balance for the Policy Value, the DAC
Receivable, and the Mortality Reserve for the current reporting
period and prior periods. The Asset Charges and Net Cost of
Insurance Analysis is a supporting schedule that calculates the
Total Investment Management Charges, the Net Mortality and Expense
Risk, and the Net Cost of Insurance for the current reporting
period and prior periods. The Premium Report calculates the Net
Premium Payments from the plan's inception, as well as any Premium
Tax Adjustments. The Mortality Reserve Calculation analysis
determines the End of Period Contingent Reserve.
[0328] Specimen 13 is a representative sample of a Plan Sponsor's
Cash Value Report for a Private placement Variable Universal Life
Insurance Policy used to fund a Replacement Plan. This report is
Replacement plan specific and lists the cash value attributable to
each participant, identified by a contract or certificate number.
The Premium is itemized, from which is subtracted the Premium and
DAC Tax Expense, the Administrative Fee and the Cost of Insurance
to provide the Pre-Earnings Balance. The Investment Experience,
which is the earnings, is added to produce the Ending Cash Value
for the participants. The Total of the participant's cash values is
the asset that offsets the total participants benefits
liability.
[0329] Moving to FIG. 22, the Closing Balance Policy Value is
determined. There are two alternatives for determining the policy
value. Either the Unit Value Accounting Method is used, or it is
not used. Both methods end with the calculation of Policy
Value.
[0330] In Block 751, the Unit Value Accounting Method is selected.
In Block 750, the Policy Value Opening Balance is entered, which is
the prior period's Policy Value Closing Balance. Block 752 receives
the Net Premium input from FIG. 25, which is the net premium paid
during the reporting period. Bock 754 receives the Cost of
Insurance (COI) expense input from FIG. 26, which is the cost of
insurance charges deducted from the policy values during the
reporting period.
[0331] Block 756 receives the Net Mortality and Expense (M&E)
charges from FIG. 27, which are the M&E charges deducted from
the policy values during the reporting period. In Bock 758, the
Administration Fee is manually entered for each policy and is a per
policy fee for policy administration. This is a fixed fee expressed
as a percentage of the premium and is usually in the 15 to 25 basis
points range. However, this fee is usually negotiable by the
client.
[0332] In Block 760 the Deferred Acquisition Cost (DAC) tax refunds
to the policy are entered from Block 784, FIG. 23, which are added
to the policy values. Block 762 receives the Investment Values
Released Due to Death input from Block 926, FIG. 31, which is the
amount of investment value released due to claim proceeds paid
during the reporting period.
[0333] Block 764 receives Investment Management Charges from FIG.
28, which are the investment management charges deducted from
values. Block 766 receives the Investment Income input from FIG.
29, which is the investment income to the policy before any charges
are made. In Block 768, the Policy Value Closing Balance is
calculated. The calculation begins with the policy value opening
balance, adding net premium, DAC refunds, and investment income,
ten subtracting COI expense, administration fees, M&E charges,
investment values released, and investment management charges to
derive the Policy Value Closing Balance.
[0334] When the Unit Value Accounting Method is used, Block 753
receives the Net Asset Value input from Block 660, FIG. 20.
[0335] Block 755 receives the Net Premium input from FIG. 25, which
is the net premium paid during the reporting period. Block 757
receives the Cost of Insurance (COI) expense input from FIG. 26,
which is the cost of insurance charges deducted from the policy
values during the reporting period. Block 759 receives the Net
Mortality and Expense (M&E) charges from FIG. 27, which are the
M&E charges deducted from the policy values during the
reporting period.
[0336] In Bock 761, the Administration Fee is manually entered for
each policy and is a per policy fee for policy administration. This
is a fixed fee expressed as a percentage of the premium and is
usually in the 15 to 25 basis points range. However, this fee is
usually negotiable by the client. In Block 763 the Deferred
Acquisition Cost (DAC) tax refunds to the policy are entered from
Block 784, FIG. 23, which are added to the policy values. Block 765
receives the Investment Values Released Due to Death input from
Block 926, FIG. 31, which is the amount of investment value
released due to claim proceeds paid during the reporting period.
Block 767 receives Investment Management Charges from FIG. 28,
which are the investment management charges deducted from
values.
[0337] Block 769 receives the Investment Income input from FIG. 29,
which is the investment income to the policy before any charges are
made. Block 771 receives an input of the number of Units Opening
Value, which is the Units Closing Balance of the prior period. At
the policy's issue, a certain number of units are assigned.
Generally, the premium is buying the units, with a $10.00 value per
unit, meaning that a unit is designated for each $10.00 of
premium.
[0338] In Block 773, the number of Units Closing Balance is
calculated. The calculation is the same as in Block 768, except
that the additions and subtractions are in terms of units used or
gained instead of dollars. For example, if a $1,000,000 policy has
a premium of $10,000.00, the policy begins with 1,000 units at
$10.00 each. With investment income of $1,000.00 (100 units), less
charges and fees of $500.00 (50 units), the closing balance is
1,050 units.
[0339] In Block 775, the Unit Value is calculated. For example, if
a $1,000,000 policy has a premium of $10,000.00, earnings of
$1,000.00, and an end of year cash value of $11,000.00, the unit
value is $10.48.
[0340] In Block 777, the Policy Value Closing Balance is calculated
by multiplying the Unit Value times the number of Units. For
example, for a policy with a closing balance of 1,050 units at
$10.48 per unit, the Policy Value Closing Balance is
$11,000.00.
[0341] Continuing to FIG. 23 for the detail of the Deferred
Acquisition Cost (DAC) Receivable. The Deferred Acquisition Cost
Tax is a U.S. Federal Tax currently equal to 4.146% of premium. The
DAC tax is refunded over an eleven-year period on the policy
anniversary. The DAC Receivable is the amount of the DAC Tax
remaining to be refunded and is a product asset. For non-U.S.
regulated policies, DAC is not applicable. Various actuarial
techniques can be applied to the treatment of the DAC tax,
depending on the life insurance company's practices.
[0342] In Block 781, an U.S. Regulated Policy form is selected.
[0343] In Block 780, the DAC Receivable Opening Balance is entered,
which is the DAC Receivable closing balance for the prior reporting
period. In Block 782, DAC Receivable Contributions are entered from
Block 802, FIG. 25. These are additions to the DAC receivable from
premium payments made during the reporting period. In Block 784,
DAC Credits to the separate account are calculated and entered to
the policy values. These are the amortized DAC refunds credited to
the policy value. This data is also used in Block 760, FIG. 22.
[0344] In Block 786, the DAC Receivable Closing Balance is
calculated, which is the DAC Receivable on the last market day of
the reporting period. The calculation is performed by adding the
contributions and credits to the opening balance.
[0345] Continuing to FIG. 24, the Mortality Reserve Closing Balance
is determined. A percentage of the Cost of Insurance is allocated
to the Mortality Reserve to support the payment of death claim
proceeds. The Mortality Reserve applies to all policies and is a
product asset. Various actuarial techniques can be applied to the
treatment of the Mortality Reserve, depending on the life insurance
company's practices.
[0346] In Block 790, the Mortality Reserve Opening Balance is
entered from Block 822, FIG. 26, which is the Mortality Reserve
Closing Balance for the prior reporting period. In Block 792, the
Contribution to Reserves is entered from Block 898, FIG. 29, which
is the portion of the reporting period's Cost of Insurance charges
allocated to the mortality reserve. Also included are any reversals
of COI charges refunded due to death claims. In Block 794,the
Investment Income on the Reserve is entered. This is the investment
earnings on the Mortality Reserve during the reporting period.
[0347] Block 796 receives the Mortality Reserve released for Death
Claims input from Block 928, FIG. 31. This is the amount of the
Mortality Reserve released to pay claim proceeds during the
reporting period. In Block 798, the Mortality Reserve Closing
Balance is calculated, which is the Mortality Reserve on the last
market date of the reporting period. The calculation is performed
by adding the contributions and income to the opening balance and
subtracting the released reserve to derive the closing balance.
[0348] Continuing to FIG. 25, the Net Premium is determined.
[0349] In Block 800, the Gross Premium Received is entered from
Block 700, FIG. 21, which is the premium made prior to deductions
for taxes, loads and charges. In Block 802, an U.S. Regulated
policy form is entered. If the policy is not U.S. regulated, the
gross premium and the net premium can be equal.
[0350] In Block 803, the Deferred Acquisition Cost (DAC) Tax is
calculated. The Deferred Acquisition Cost Tax is a Federal Tax
currently equal to 4.146% times the premium, which is deducted from
the premium. The DAC tax is also transmitted to Block 782, FIG. 23,
for use in determining the DAC receivable.
[0351] In Block 804, State and Local Premium Taxes are calculated.
These taxes are only applicable to U.S. regulated policies and are
deducted from the Gross Premium. The State Premium taxes vary from
1% to 3% of the gross premium, depending on the state. Various
actuarial techniques can be applied to the treatment of the premium
tax, depending on the life insurance company's practices.
[0352] In Block 806, the Net Premium Payment is calculated by
subtracting the applicable taxes from the Gross Premium. With a DAC
Tax of 4.146% and a Premium Tax of 2%, the net Premium is 93.854%
of the Gross Premium.
[0353] Continuing to FIG. 26, the Net Cost of Insurance (COI) is
determined. The COI charge is applicable to all policies.
[0354] In Block 820, the Cost of Insurance (COI) Expense for the
reporting period is entered. The COI rate is received from the
policy underwriters and is an actuarial calculation that is
calculated based on the characteristics of each insured population.
COI charges are deducted from the policy value on the processing
date.
[0355] In Block 822, the COI Contribution to the Mortality Reserve
made during the reporting period is entered. This input is an
actuarial calculation based on the expected deaths of any given
insured population. This data is also used in Block 792, FIG. 24.
In Block 824, the Investment Income on the Mortality Reserve is
entered from Block 898, FIG. 29.
[0356] In Block 826, the Net Cost of Insurance for the reporting
period is calculated. The calculation is performed by subtracting
the Mortality Reserve contribution from the COI Charge and adding
the Investment Earnings on the Mortality Reserve to derive the Net
COI expense.
[0357] Continuing to FIG. 27, the Net Mortality and Expense Risk
(M&E) Charge is determined.
[0358] In Block 850, the Gross Mortality and Expense Risk (M&E)
Charge is entered, which is deducted from the policy values during
the reporting period. The M&E charge is an actuarial
calculation based on the characteristics of the insured
population.
[0359] In Block 852, the Mortality and Expense Experience Credit
("M&E Dividend") is entered. The M&E Experience Credit is
credited to the policy value on the monthly processing date, and
the amount is based on the prior period (month) average daily
investment value. In Block 854, the Net M&E Risk Charge is
calculated by subtracting the M&E Experience Credit from the
M&E Charge.
[0360] Continuing on to FIG. 28, the Total Investment Management
Charges are determined. The total investment management fees are
comprised of two separate charges. The Account Management Fees are
charged by the insurance carrier for having overall fiduciary
responsibility for the investments within the policy. The
Investment Advisory Fees are charged by the investment managers
acting as "sub-advisors" to the carrier. Generally, both fees are
calculated as a percentage of the assets under management (AUM),
but the "Management Fee" can be a percentage of the "Advisory
Fee."
[0361] In Block 860, the Investment Advisory Fees are entered,
which are the total advisory fees charged daily during the
reporting period. The percentage fee is detailed in the policy
documents and will generally be in the 1 to 2% of assets under
management. In those cases where the Advisor's fee is a percentage
of the manager's fee, the range is 10 to 20%.
[0362] In Block 862, the Account Management Fees are entered, which
are the total investment management fees charged daily during the
reporting period. The Investment Management fees are also detailed
in the policy documents and are a portion of the Advisory fee,
usually 50 basis points to 1.5%. The Advisor generally pays them
from the Advisory fees.
[0363] In Block 864, the RVP Fees are entered, which are the total
RVP fees charged daily during the reporting period. In Block 866,
the Total Investment Management Fee is calculated by adding the
advisory, management and RVP fees together.
[0364] Continuing to FIG. 29, the Total Investment Income is
determined for each separate account. This is the total investment
income to the policy before any charges are made. The data to
calculate the investment income is received from the daily tracking
of the investment managers' activities, recorded in Block 662, FIG.
20.
[0365] In Block 880, the interest income is entered. The interest
income will be received from short-term and long-term bonds, money
market accounts, guaranteed investment contracts, and other
interest-bearing investments. In Block 882, Realized Gains and
Losses are entered. The gains and losses are from the sale of all
investments. In Block 884, the Dividend Income from stocks and
mutual funds is entered. In Block 886, the Amortization of Bond
Discount is entered. In Block 888, the Amortization of Bond Premium
is entered. In Block 890, the Unrealized Gains and Losses are
entered. In Bock 892, any Miscellaneous Income is entered. In Block
894, any Short-term Discount and Premium is entered. In Block 896,
any Gains and Losses on Fees in the Separate Account are
entered.
[0366] In Block 898, the Total Investment Income is calculated by
the elements of income. This is the Gross Income to the separate
account. This data is also used in Block 824, FIG. 26 to calculate
the net COI and in Block 794, FIG. 24 to calculate the mortality
reserve.
[0367] Moving to FIG. 30, the Net liability Transferred from the
Carrier to the Reinsurance Company is determined. An insurance
carrier will usually work with a reinsurance company to share the
risk of any particular policy or group of policies.
[0368] In Block 900, the portion of the Premium Transferred from
the carrier to the Reinsurance Company is entered. This is an
actuarial calculation negotiated between the carrier and the
reinsurer on an automatic, facultative or case by case basis.
[0369] In Block 902, the portion of the Benefit Transferred from
the Reinsurance Company back to the carrier is entered. The
reinsurer can participate in a stop-loss arrangement with the
carrier. This is an actuarial calculation negotiated between the
carrier and the reinsurer on an automatic, facultative or case by
case basis.
[0370] In Block 904, the portion of the Expense Allowance
Transferred from the Reinsurance Company back to the carrier is
entered. This is an actuarial calculation negotiated between the
carrier and the reinsurer on an automatic, facultative or case by
case basis.
[0371] In Block 906, the Net Liability Transferred from the Carrier
to the Reinsurance Company is calculated. The calculation nets the
liabilities transferred to the Reinsurance Company against the
allowances received by the Carrier to determine the Net liability
Transferred. The ceded mortality reserve is also determined. In
addition, if the reinsurer participates in experience rating, an
annual experience analysis is performed. These are all actuarial
calculations negotiated between the carrier and the reinsurer on a
case-by-case basis.
[0372] In Block 908, the reinsurance risk assumed from the carrier
by the reinsurance arrangement is transmitted to the Revenue
Accounting Computer 72, Block 1234, FIG. 37, for the calculation of
revenue to the replacement plan provider.
[0373] Continuing to FIG. 31, the Death Claims procedure is
analyzed. Using life insurance as a funding vehicle for the
replacement benefits results in death clams when the participants
die. Since it is advantageous to hold life insurance until it
matures as a death benefit, the death claims procedure becomes an
important step in the proper operation of the invention.
[0374] Block 920 receives a completed Death Claim Notification Form
from the policy owner, which is the Trustee, Block 974, FIG. 32.
Prior to the participant's benefit distributions being completed,
it is expected that the participant's heirs will provide
notification to the Trustee as they apply for the decedent's
benefits. After the benefit distributions have been completed, it
may be more difficult to locate deceased participants, especially
on a global basis. For U.S. citizens, Social Security records are a
source for locating decedents. Likewise, other countries may
provide records of decedents. Plan Sponsor's are also good sources
for decedent information as heirs submit claims for other benefit
programs. As a failsafe, the life insurance policy is designed to
mature at a specific age (e.g., endowment at age 85), at which time
the policy will mature and the benefits paid to the Trustee.
[0375] In Block 922, the death claim is processed by the life
insurance company, which verifies that the decedent is an eligible
insured. The Trustee collaborates with the Plan administrator as
necessary to authenticate the claim. The life insurance company
will specify the proof of claim requirements, which can include the
Death Claim Notification, a Certified Death Certificate or its
equivalent, and other documentation that may be needed. For foreign
insureds, other documentation can be required.
[0376] In Block 924, the Death Benefit is calculated by the
insurance company and verified for accuracy by the Trustee, Block
762, FIG. 22. Any policy loans made by the Trustee will be repaid
from the death proceeds prior to distribution.
[0377] In Block 926, the Investment Value Released due to death
claims is calculated and transmitted to Block 762, FIG. 22. In
Block 928, the Mortality Reserve Released due to death claims is
calculated and transmitted to block 796, FIG. 24. In Block 930, the
net Death Claim proceeds and any interest due are forwarded to the
Trustee by check or electronically, Block 966, FIG. 32.
[0378] Moving to FIG. 32, the Master Benefits Trust Central
Administration Computer is the fourth primary system in the
invention, with the Central Digital Computer, the Plan
Administration Central Computer, and the Life Insurance Policy
Administration Computer systems being the other three. The Master
Benefits Trust assumes all fiduciary responsibility for the assets
funding the replacement plans, for the maintenance of the plans,
and for the accounting associated with both. Although flexible in
form, the invention is submitted so that the Master Trust manages
the co-mingled assets of various sub-trusts, which function to
support the particular replacement plan for which the sub-trusts
are settled. There are four primary sub-trusts submitted as part of
this invention, with the intention of expanding the number as
needed.
[0379] Block 950 is the Master Trust Central Administrative
Database. It records and maintains data and transaction files for
the management of the replacement plans' investment funds. Block
960 receives the Replacement Plan Data input from the Plan
Administration Central database, Block 261, FIG. 9 via electronic
download. The Trust will receive the same Replacement Plan data and
information as maintained by the Plan Administrator. Block 952
receives the Participant Data input from the Plan Administration
Central database, Block 261, FIG. 9 via electronic download. The
Trust will receive the same Participant data and information as
maintained by the Plan Administrator.
[0380] Block 954 receives the Plan Sponsor Data input from the Plan
Administration Central database, Block 261, FIG. 9 via electronic
download. The Trust will receive the same Plan Sponsor data and
information as maintained by the Plan Administrator. Block 956
receives the Plan Liabilities input from the Plan Administration
Central database, Block 278, FIG. 9 via electronic download. The
Trust will receive the same Plan Liabilities data and information
as maintained by the Plan Administrator.
[0381] Block 958 receives the total Assets-under-Management (AUM)
Data from the Plan Administration Central database, Block 261, FIG.
9 via electronic download. The Trust will receive the same
contribution formation as maintained by the Plan Administrator. The
total assets-under-management is the total plan contribution less
the plan administration fees and participation fees, but prior to
any deduction for insurance policy fees. If life insurance is used
by the Trustee to fund a Replacement plan, the policy cash values
will be the AUM and reported to the Benefits Trust database from
Block 716, FIG. 21.
[0382] Block 961 receives the Benefits claims data from the
Participant's Computer 68 via Blocks 288 and 289, FIG. 10, and from
the Plan Sponsor via the Replacement Plan Provisions sent from
Block 304, FIG. 11.
[0383] Block 962 receives Contributions Collection data from the
Plan Administration Central database, Block 261, FIG. 9 via
electronic download. The Trust will receive the same contribution
transaction data and information as maintained by the Plan
Administrator. These transactions reflect changes in periodic
contribution amounts and/or timing, as well as similar transactions
that would effect the scheduled receipt of plan contributions.
[0384] Block 964 receives Trust Records Update data from the
Trustee's periodic review of the Benefits Trust's provisions and
procedures, resulting in changes in procedures, amendments to the
trust document, change of trustees, and similar transactions that
would affect the administration of the trust.
[0385] Block 966 receives Death Claims proceeds payment from the
life insurance company, Block 930, FIG. 31. The proceeds in excess
of the premiums are recorded as gains and added to the
assets-under-management.
[0386] In Block 968, the Trustee calculates the Variance between
the total assets and liabilities. The variance analysis will result
in a match-funded, under-funded or over-funded asset account.
[0387] If the benefit liability and fiduciary responsibility
remains with the plan sponsor, the calculation is performed for
each replacement plan for each plan sponsor. For example, if USCo
is sponsoring a synthetic defined contribution plan, with current
liabilities of $10,000,000.00 and dedicated trust assets of
$10,500,000.00, the plan is over-funded by $500,000.00.
[0388] For those plans in which the liability and fiduciary
responsibility has been assigned to a third-party provider, the
calculation may be performed on a plan-by-plan basis or on an
aggregate basis. For example, a sub-trust is created to assume the
fiduciary responsibility for a master synthetic defined
contribution plan, and several employers are using the master plan
for their overseas employees. If the total liability for the plans,
in the aggregate, is $100 million and the trust assets total $99
million, the trust is under-funded by $1 million.
[0389] In Block 970, the logic continues by using the results of
the variance analysis to determine the adjustments to the asset
allocation of the trust assets. The revised asset allocation is
transmitted to the investment management sub-advisors, Block 604,
FIG. 19 via the Investment Advisor, if life insurance is being used
as the funding device. In calculating the adjustments the system
uses various methods, including Modern Portfolio Theory and
Efficient Frontier Analysis to derive asset allocation decisions.
As part of the analysis, the participant's allocation must be
considered, which is available electronically from the Plan
Administrator, Block 282, FIG. 10. For example, in an $1 million
under-funded situation, the asset allocation analysis can determine
that a higher rate of return is needed to make up the deficit. The
extent of the higher return will depend on the projected
performance of the participants' allocation. If the participant's
allocation is projected to yield a fixed-income return (6% to 9%),
the allocation adjustment may not need to be as aggressive, as if
the participants' allocation was a S&P return (10% to 12%).
[0390] In Block 972, the logic uses the asset allocation
adjustments to determine the distribution of the investment funds
to the various investment management sub-advisors. When a plan is
initially implemented and the initial contribution is invested, the
system will determine the initial distribution of funds to the
sub-advisors, Block 602, FIG. 19 and produce an investment policy
for the sub-advisors, Block 606, FIG. 19. Subsequent asset
allocation adjustments may require shifting assets from one
investment manager to another. For example, if an asset allocation
adjustment requires increased investments in aggressive equities
and less in government bonds, funds may be moved from the
government bond manager to the small company equity manager. When
life insurance is used as the primary funding vehicle, the gross
distribution is made to the insurance company, acting as the
investment advisor, Block 700, FIG. 21, which then distributes the
assets to the appropriate sub-advisors.
[0391] In Block 974, the Trustee receives benefit claim requests
from the Plan Administrator, FIGS. 10 and 11, and verifies with the
appropriate sub-trust that the decedent is a plan participant and
eligible for the benefit request. The Master Trustee collaborates
with the Plan administrator as necessary to authenticate the claim.
As the owner of any life insurance policies, the Trustee submits
all death claims to the insurance company, Block 920, FIG. 31, for
processing and payment of the claim.
[0392] In Block 976, Replacement Plan Benefit Payments are
calculated by the sub-trust managing the plan, based on the plan
provisions, vesting and benefit liability, and confirmed by the
Master Trust. The benefit payment is based on the growth of the
participant's benefit liability and not the growth of the trust
assets. For example, a participant in a Cost Reduction Incentive
Plan had a contribution of $100,00.00 set aside for his benefit,
payable in 10 years. During the 10 years the benefit grew to
$250,000.00, based on the participant's selection of hypothetical
investments. On the tenth anniversary of the participant's entry
into the plan, a $250,000.00 payment is made to the participant,
either as a lump sum or an annuity, irregardless of the return
realized on the trust assets. For death claims, Block 976 receives
the calculation of the death benefit from the life insurance
company, Block 924, FIG. 31, which is verified and recorded.
[0393] In Block 978, the benefit payment is authorized by the
appropriate sub-trust and confirmed by the Master Trust before
being transmitted to the Plan Administrator, Block 255, FIG. 9, for
payment. Once the claim is verified as a valid claim and the
benefit is calculated, the Trustee ensures that the funds are
available for the payment before authorizing payment.
[0394] In Block 986, the Replacement Plan Data and Trust Data is
transmitted to the various sub-trusts held under the Master Trust
Central Administration Computer. The sub-trusts are used to provide
the fiduciary accounting for each replacement plan, and different
types of trusts are used to meet the designs of different
plans.
[0395] In Block 980, trust accounting data from the Various
Sub-trusts is entered into the Master Trust system. In Block 982,
the Master Trust generates Output Reports, detailing the assets
under management, the asset allocation, the benefit claims paid and
pending, the accounting reconciliations, the investment
transactions, and similar reports, as needed for specific purposes.
The Master Trust Output Reports generated will be unique to the
system in place and used by the Trustee for the Replacement Plan.
The Trustee for this invention is anticipated to be a major
international financial institution with established systems and a
global custody network for tracking assets held by investment
managers in most major countries of the world. This invention will
interface with the Trustee's existing systems to produce a seamless
service network system. Where adaptations are required, they will
need to be customized for the end user.
[0396] In Block 984, the assets-under-management total is
transmitted to the Revenue Accounting Computer 72, Block 1216, FIG.
37, for the calculation of co-trustee fees.
[0397] Continuing to FIG. 33, an "Unfunded, Deferred Taxation
Sub-Trust" is created by the Master Trust or alternatively, by the
Plan Sponsor, for certain Benefit Replacement Plans. Specific types
of Sub-Trusts are created for certain replacement plans depending
on the plan design and/or the plan sponsor's preferences. This
particular trust is considered unfunded and defers taxation based
on the existence of certain "Risks of Forfeiture." In the U.S., as
in most jurisdictions, to avoid current taxation of contributions
made into an "unfunded" benefit trust, substantial risks of
forfeiture must exist to avoid current taxation. Typically,
substantial risks include change of control, change of heart,
inability to pay benefits and plan sponsor bankruptcy. The
participant is, in effect, a general creditor of the plan sponsor.
If the plan sponsor's objective is to tie the participants to their
employment with the plan sponsor, the unfunded trust will
accomplish that objective for most replacement plans.
[0398] Block 1000 is the Unfunded Sub-Trust Database, which records
and maintains data and transaction files for the management and
accounting of certain replacement plans. Block 1002 receives Plan
Data input from the master Trust, Block 986, FIG. 32, for the
particular plan that is to be maintained within the sub-trust.
Block 1004 receives Participant Data input from the master Trust,
Block 986, FIG. 32, for the particular plan that is to be
maintained within the sub-trust. Block 1006 receives Plan Sponsor
Data input from the master Trust, Block 986, FIG. 32, for the
particular plan that is to be maintained within the sub-trust.
Block 1008 receives the Non-Forfeiture Provisions input from the
master Trust, Block 986, FIG. 32, for the particular plan that is
to be maintained within the sub-trust. Block 1010 receives the
Participant's Transactions input from the master Trust, Block 986,
FIG. 32, for the particular plan that is to be maintained within
the sub-trust. Block 1012 receives the Replacement Plan
Transactions input from the master Trust, Block 986, FIG. 32, for
the particular plan that is to be maintained within the sub-trust.
Block 1014 receives the Funding Transactions input from the master
Trust, Block 986, FIG. 32, for the particular plan that is to be
maintained within the sub-trust.
[0399] Block 1016 maintains the Replacement Plan Records. The trust
agreement is drafted to parallel the plan document and facilitate
the plan's management. The trust computer records all changes and
transactions. The plan changes that require changes to the trust
agreement are identified and processed.
[0400] In Block 1018, the Participant Records are maintained.
Almost all of the replacement plans require separate accounting for
each plan participant. Records of participants' transactions and
communications are maintained electronically.
[0401] Block 1020 accounts for all Trust Principal in accordance
with trust accounting rules. Trust contributions are usually
considered principal, while the earnings on the principal is
considered income. Accounting is in accordance with Generally
Accepted Accounting Principles (GAAP).
[0402] Block 1022 accounts for all Trust Income in accordance with
trust accounting rules. Accounting is in accordance with Generally
Accepted Accounting Principles (GAAP).
[0403] In Block 1024, the records of all Benefits Paid are
maintained and archived electronically. In Block 1026, Benefit
claims request are received from the Master Trust, Block 974, FIG.
32, for verification of the claimant's participation in a plan.
[0404] In Block 1028, the Participant's eligibility for benefits is
determined, comparing plan requirements to the participant's
fulfillment of those requirements. Compliance with non-forfeiture
provisions is also verified.
[0405] In Block 1030, the Benefit Payment is calculated and
transmitted to the Master Trust, Block 976, FIG. 32. In Block 1032,
authorization to pay the benefit is transmitted to the Master
Trust, Block 978, FIG. 32. In Block 1034, the sub-trust generates
accounting reports to be submitted to the Master Trust, Block 980,
FIG. 32. The reports will include a transactions log, accounting
reports delineating contributions (principal) and earnings
(income), claims and benefit payments logs, and other reports
needed to manage the replacement plans. The Sub-Trust Accounting
Reports generated will be unique to the system in place and used by
the Trustee for the Replacement Plan. The Trustees for this
invention are anticipated to be major international financial
institutions with established systems and a global custody network
for tracking assets held by investment managers in most major
countries of the world. This invention will interface with the
Trustee's existing systems to produce a seamless service network
system. Where adaptations are required, they will need to be
customized for the end user.
[0406] Continuing to FIG. 34, an "Funded, Immediately Taxable
Participant Sub-Trust" is created by the Participant through the
Master Trust for certain Benefit Replacement Plans, where the
participant is deemed to own the trust and corresponding assets.
This particular trust is considered funded and subject to immediate
taxation when the contribution is made. The plan sponsor receives a
corresponding tax deduction when the contribution is made.
[0407] Block 1050 is the Participant-Owned Sub-Trust Database,
which records and maintains data and transactions files for the
management and accounting of certain replacement plans. Block 1052
receives Plan Data input from the master Trust, Block 986, FIG. 32,
for the particular plan that is to be maintained within the
sub-trust. Block 1054 receives Participant Data input from the
master Trust, Block 986, FIG. 32, for the particular plan that is
to be maintained within the sub-trust. Block 1056 receives Plan
Sponsor Data input from the master Trust, Block 986, FIG. 32, for
the particular plan that is to be maintained within the sub-trust.
Block 1058 receives the Distributions Payout Provisions input from
the master Trust, Block 986, FIG. 32, for the particular plan that
is to be maintained within the sub-trust. Block 1060 receives the
Participant's Transactions input from the master Trust, Block 986,
FIG. 32, for the particular plan that is to be maintained within
the sub-trust. Block 1062 receives the Replacement Plan
Transactions input from the master Trust, Block 986, FIG. 32, for
the particular plan that is to be maintained within the sub-trust.
Block 1064 receives the Funding Transactions input from the master
Trust, Block 986, FIG. 32, for the particular plan that is to be
maintained within the sub-trust. Block 1066 maintains the
Replacement Plan Records. The trust agreement is drafted to
parallel the plan document and facilitate the plan's management.
The trust computer records all changes and transactions. The plan
changes that require changes to the trust agreement are identified
and processed.
[0408] In Block 1068, the Participant Records are maintained.
Almost all of the replacement plans require separate accounting for
each plan participant. Records of participants' transactions and
communications are maintained electronically. Block 1070 accounts
for all Trust Principal in accordance with trust accounting rules.
Trust contributions are usually considered principal, while the
earnings on the principal is considered income. Accounting is in
accordance with Generally Accepted Accounting Principles
(GAAP).
[0409] Block 1072 accounts for all Trust Income in accordance with
trust accounting rules. Accounting is in accordance with Generally
Accepted Accounting Principles (GAAP).
[0410] In Block 1074, the records of all Distributions and/or
Benefits Paid are maintained and archived electronically. In Block
1076, Distribution Requests are received from the Master Trust,
Block 974, FIG. 32, for verification of the claimant's
participation in a plan. In Block 1078, the Participant's
eligibility for distribution is determined, comparing plan
requirements to the participant's fulfillment of those
requirements. In Block 1080, the Distribution Payment is calculated
and transmitted to the Master Trust, Block 976, FIG. 32. In Block
1082, authorization to pay the distribution is transmitted to the
Master Trust, Block 978, FIG. 32.
[0411] In Block 1084, the sub-trust generates accounting reports to
be submitted to the Master Trust, Block 980, FIG. 32. The reports
will include a transactions log, accounting reports delineating
contributions (principal) and earnings (income), claims and benefit
payments logs, and other reports needed to manage the replacement
plans. The Sub-Trust Accounting Reports generated will be unique to
the system in place and used by the Trustee for the Replacement
Plan. The Trustees for this invention are anticipated to be major
international financial institutions with established systems and a
global custody network for tracking assets held by investment
managers in most major countries of the world. This invention will
interface with the Trustee's existing systems to produce a seamless
service network system. Where adaptations are required, they will
need to be customized for the end user.
[0412] Continuing to FIG. 35, an "Funded, Third-Party Vesting
Sub-Trust" is created by the Master Trust for certain Benefit
Replacement Plans. This particular trust is considered funded and
defers taxation based on the existence of a vesting schedule. The
plan sponsor is not the grantor of this sub-trust, and therefore,
avoids the adverse accounting and tax effects of being the grantor.
This sub-trust arrangement is the preferred arrangement for most
replacement plans. It allows for the portability of the
participants' benefits and is easier to administer.
[0413] Block 1100 is the Funded, Third-Party Vesting Sub-Trust
Database, which records and maintains data and transaction files
for the management and accounting of certain replacement plans.
Block 1102 receives Plan Data input from the master Trust, Block
986, FIG. 32, for the particular plan that is to be maintained
within the sub-trust. Block 1104 receives Participant Data input
from the master Trust, Block 986, FIG. 32, for the particular plan
that is to be maintained within the sub-trust. Block 1106 receives
Plan Sponsor Data input from the master Trust, Block 986, FIG. 32,
for the particular plan that is to be maintained within the
sub-trust. Block 1108 receives the Vesting Provisions input from
the master Trust, Block 986, FIG. 32, for the particular plan that
is to be maintained within the sub-trust. Block 1110 receives the
Participant's Transactions input from the master Trust, Block 986,
FIG. 32, for the particular plan that is to be maintained within
the sub-trust. Block 1112 receives the Replacement Plan
Transactions input from the master Trust, Block 986, FIG. 32, for
the particular plan that is to be maintained within the sub-trust.
Block 1114 receives the Funding Transactions input from the master
Trust, Block 986, FIG. 32, for the particular plan that is to be
maintained within the sub-trust. Block 1116 maintains the
Replacement Plan Records. The trust agreement is drafted to
parallel the plan document and facilitate the plan's management.
The trust computer records all changes and transactions. The plan
changes that require changes to the trust agreement are identified
and processed.
[0414] In Block 1118, the Participant Records are maintained. All
of the replacement plans using this sub-trust require separate
accounting for each plan participant. Records of participants'
transactions and communications are maintained electronically.
Block 1120 accounts for all Trust Principal in accordance with
trust accounting rules. Trust contributions are usually considered
principal, while the earnings on the principal is considered
income. Accounting is in accordance with Generally Accepted
Accounting Principles (GAAP). Block 1122 accounts for all Trust
Income in accordance with trust accounting rules. Accounting is in
accordance with Generally Accepted Accounting Principles
(GAAP).
[0415] In Block 1124, the records of all Benefits Paid are
maintained and archived electronically. In Block 1126, Benefit
claims request are received from the Master Trust, Block 974, FIG.
32, for verification of the claimant's participation in a plan.
[0416] In Block 1128, the Participant's eligibility for benefits is
determined, comparing plan requirements to the participant's
fulfillment of those requirements. Compliance with vesting
provisions is verified. In Block 1130, the Benefit Payment is
calculated and transmitted to the Master Trust, Block 976, FIG. 32.
In Block 1132, authorization to pay the benefit is transmitted to
the Master Trust, Block 978, FIG. 32. In Block 1134, the sub-trust
generates accounting reports to be submitted to the Master Trust,
Block 980, FIG. 32. The reports will include a transactions log,
accounting reports delineating contributions (principal) and
earnings (income), claims and benefit payments logs, and other
reports needed to manage the replacement plans. The Sub-Trust
Accounting Reports generated will be unique to the system in place
and used by the Trustee for the Replacement Plan. The Trustees for
this invention are anticipated to be major international financial
institutions with established systems and a global custody network
for tracking assets held by investment managers in most major
countries of the world. This invention will interface with the
Trustee's existing systems to produce a seamless service network
system. Where adaptations are required, they will need to be
customized for the end user.
[0417] Continuing to FIG. 36, an "Funded, Third-Party Vesting
Sub-Trust with Immediate Taxation" is created by the Master Trust
for certain Benefit Replacement Plans. This particular trust is
considered funded and makes benefit distributions based on the
existence of a vesting schedule. The sub-trust provisions allow for
an election to claim the contribution as income to the participant
when the trust is funded, under IRC Section 83(b). The plan sponsor
receives an immediate tax deduction when the contribution is made.
This sub-trust arrangement is the preferred arrangement for
replacement plans that may extend beyond the life of the plan
sponsor. It allows for the portability of the participants'
benefits and saves the tax deduction for a business entity that is
to be dissolved at the end of a project. For example, an oil
company may want to use a 10-year vesting plan for the employees of
a two-year exploration joint venture. Since the joint venture
company will be dissolved before the benefits are paid in 10 years,
the company can take the tax deduction currently while the
employees receive their benefits in the future. Using this
arrangement, the plan sponsor will usually pay the tax for
participant that is currently incurred, in exchange for the
participant paying the tax on the earnings at distribution.
[0418] Block 1150 is the Funded, Third-Party Vesting Sub-Trust with
Immediate Taxation Database, which records and maintains data and
transaction files for the management and accounting of certain
replacement plans. Block 1152 receives Plan Data input from the
master Trust, Block 986, FIG. 32, for the particular plan that is
to be maintained within the sub-trust. Block 1154 receives
Participant Data input from the master Trust, Block 986, FIG. 32,
for the particular plan that is to be maintained within the
sub-trust. Block 1156 receives Plan Sponsor Data input from the
master Trust, Block 986, FIG. 32, for the particular plan that is
to be maintained within the sub-trust. Block 1158 receives the
Vesting and Tax Provisions input from the master Trust, Block 986,
FIG. 32, for the particular plan that is to be maintained within
the sub-trust. Block 1160 receives the Participant's Transactions
input from the master Trust, Block 986, FIG. 32, for the particular
plan that is to be maintained within the sub-trust. Block 1162
receives the Replacement Plan Transactions input from the master
Trust, Block 986, FIG. 32, for the particular plan that is to be
maintained within the sub-trust. Block 1164 receives the Funding
Transactions input from the master Trust, Block 986, FIG. 32, for
the particular plan that is to be maintained within the sub-trust.
Block 1166 receives the Income Tax Transactions, which is the plan
sponsor's decision to elect immediate taxation, under IRC Section
83(b).
[0419] Block 1168 maintains the Replacement Plan Records. The trust
agreement is drafted to parallel the plan document and facilitate
the plan's management. The trust computer records all changes and
transactions. The plan changes that require changes to the trust
agreement are identified and processed.
[0420] In Block 1170, the Participant Records are maintained. All
of the replacement plans using this sub-trust arrangement require
separate accounting for each plan participant. Records of
participants' transactions and communications are maintained
electronically. Block 1172 accounts for all Trust Principal in
accordance with trust accounting rules. Trust contributions are
usually considered principal, while the earnings on the principal
is considered income. Accounting is in accordance with Generally
Accepted Accounting Principles (GAAP).
[0421] Block 1174 accounts for all Trust Income in accordance with
trust accounting rules. Accounting is in accordance with Generally
Accepted Accounting Principles (GAAP).
[0422] In Block 1176, the records of all Benefits Paid are
maintained and archived electronically. In Block 1178, Benefit
claims request are received from the Master Trust, Block 974, FIG.
32, for verification of the claimant's participation in a plan.
[0423] In Block 1180, the Participant's eligibility for benefits is
determined, comparing plan requirements to the participant's
fulfillment of those requirements. Compliance with vesting and tax
provisions is also verified.
[0424] In Block 1182, the Tax Consequences, under the applicable
jurisdiction's tax code, is determined and the reporting
requirements are documented, which are forwarded to the
participant. In Block 1184, the Benefit Payment is calculated and
transmitted to the Master Trust, Block 976, FIG. 32., along with
the tax consequences documentation. In Block 1186, authorization to
pay the benefit is transmitted to the Master Trust, Block 978, FIG.
32.
[0425] In Block 1188, the sub-trust generates accounting reports to
be submitted to the Master Trust, Block 980, FIG. 32. The reports
will include a transactions log, accounting reports delineating
contributions (principal) and earnings (income), claims and benefit
payments logs, and other reports needed to manage the replacement
plans. The Sub-Trust Accounting Reports generated will be unique to
the system in place and used by the Trustee for the Replacement
Plan. The Trustees for this invention are anticipated to be major
international financial institutions with established systems and a
global custody network for tracking assets held by investment
managers in most major countries of the world. This invention will
interface with the Trustee's existing systems to produce a seamless
service network system. Where adaptations are required, they will
need to be customized for the end user.
[0426] Turning to FIG. 37, the Revenue Accounting Computer 72 is
used to account for the revenue generated by the invention from the
various sources. The revenue is based on fees paid by plan sponsors
and providers. The Revenue Generating Computer 72 is linked
directly with to the Central Digital Computer 2 and communicates
with each of the other computer systems for the collection of data.
The computer receives data input from each revenue source, applies
the agreed revenue formula stored in its database, calculates the
division of revenue, issues checks to the appropriate providers,
and generates reports detailing the source and division of
revenue.
[0427] Block 1202 receives an input from the Plan Administration
Computer (Block 278, FIG. 9) of the number of participants in an
existing replacement plan. For example, if there are 500
participants in a Pension Gap plan, then 500 is entered. The number
of participants in a new plan is received from Block 252, FIG. 8
for the determination of the first-year participation fee. For
example, if a Severance plan is implemented with 100 new
participants, then 100 is entered.
[0428] Block 1200 calculates the Per Capita Participation Fee by
applying the fee rate times the number of participants. For
example, if the first-year participation fee is $1,000 per capita,
the total participation fee for 500 participants is $500,000.00.
The rate for ongoing participation, which may be less than the
first-year rate, is applied to the ongoing participants.
[0429] In Block 1204, the Finder's Fee is calculated for the
consultant or other entity that brought the client to the program.
The Finder's Fee is paid out of the Participation Fees, based on an
agreed formula. For example, if the Finder's Fee is 50% of a
$1,000.00 first-year participation fee on a per capita basis, then
the finder receives $250,000.00 for a 500 participant plan.
[0430] In Block 1206, the Finder (marketer) is issued a check in
the net amount of the Finder's Fee from the Revenue Accounting
Computer 72. Block 1208 receives an input from the Plan
Administration Computer (Block 278, FIG. 9) of the number of
participants in a replacement plan. For example, if there are 500
participants, then 500 is entered. If 100 new participants are
added, then 100 is entered as it happens.
[0431] Block 1210 calculates the Per Capita Annual Administrative
Fee by applying the fee rate times the number of new participants.
For example, if the participation fee is $100 per capita, the total
administrative fee for 500 participants is $50,000.00. The per
capita rate for administration can decrease as the number of
participants increases.
[0432] In Block 1212, the Third-Party Administrator's (TPA) fee is
calculated for the consultant or other entity to which the plan
administration is being out-sourced. For example, if the TPA's Fee
is $50.00 per capita, then the TPA receives $25,000.00 for 500
participants.
[0433] In Block 1214, the TPA is issued a check in the net amount
of their Administrator's Fee from the Revenue Accounting Computer
72. Block 1216 receives an input of the total Trust
assets-under-management from the Master Trust (Block 984, FIG. 32).
In Block 1218, the Co-Trustee fees are calculated as a percentage
of the AUM or the Trustee fees. For example, the Co-Trust fees may
be 25 basis points of the AUM or 20% of the Trustee Fees. In Block
1220, the Net Payment to the Master Trustee is calculated. Trustee
fees vary among institutions, but for example, if the Trustee fees
are 1.5% of assets under management and the co-trustee fee is 0.3%,
a net fee of 1.2% is due the Master Trustee.
[0434] In Block 1222, the Master Trustee is paid from the Revenue
Accounting Computer 72. If the assets-under-management total $10
million and the net Trustee Fee is 1.2%, the net Trustee fee paid
is $120,000.00. Block 1224 receives an input of the total new
Insurance Premium amount from Block 700, FIG. 21.
[0435] In Block 1226, the Policy Fee is calculated, if applicable.
For example, this can be a 1% fee on all new premium paid into the
policy. In Block 1228, the Net Premium Amount is forwarded to the
insurance carrier to be applied to the policy. For example, the
plan sponsor makes a net replacement plan contribution of $10
million, which is to be invested into a life insurance policy by
the Trustee. The contribution is received by the Central Computer,
which retains the $100,000.00 policy fee (1%) and forwards the
remaining funds to the insurance company. Otherwise, the total
premium is forwarded to the insurance company, which then pays the
policy fee directly to the Replacement Plan provider. In this case,
the Revenue Accounting Computer 72 calculates the policy fee only
for verification of its correct payment. Block 1230 receives the
amount of Total Assets-Under-Management as input from Block 624,
FIG. 19. In Block 1232, the Investment Trailers are calculated. The
Trailer Fees are usually calculated as a percentage of the
investment advisory fees, paid annually. The Asset Trailer may be
percentage of the advisory fee. For example, if the investment
advisory fee is 1% and the Asset Trailer is 20% of the advisory
fee, the Trailer fee would be $2,000.00 per $1 million of AUM paid
annually. The trailer is paid by the insurance company, as the
account manager, or the sub-advisors directly.
[0436] Block 1234 receives the input of the amount of risk assumed
by the reinsurance company from Block 908, FIG. 30. In Block 1236,
the revenue from the reinsurance arrangement is calculated using
the agreed revenue sharing arrangement. The insurance carrier pays
the fee.
[0437] Block 1238 receives the input number of uses of the Internet
Financial Services from Block 512, FIG. 17. In Block 1240, the
revenue from the Internet Financial Services revenue sharing
arrangement is used to calculate the expected revenue. It is paid
by the service providers.
[0438] In Block 1242, the Total Revenue from all sources is
calculated by adding the participation fees, administrative fees,
co-trustee fees, policy fees, investment trailers, reinsurance
fees, and financial services fees. In Block 1244, the calculations
are detailed in separate reports for each provider and a
consolidated statement for the use of the Replacement Plan
provider.
[0439] Turning now to the specimens, consider the following:
1 SPECIMEN SAMPLES Table of Contents Fig. Output Reports Specimen 3
Replacement Plan Illustration 1 9 Plan Sponsor Administration Guide
2 14 Participant's Statement of Account 3 Plan Sponsor Asset
Allocation Report 4 Plan Sponsor Payment Summary 5 Plan Sponsor
Asset/Liability Comparison 6 Plan Sponsor Contribution Confirmation
7 Participant's Hypothetical Fund Performance Report 8
Participant's Transaction Confirmation Statement 9 17 Private
Banking Internet Services Offering 10 20 Asset Reconciliation
Report 11 21 Trustee's Cash Value Reports 12 Plan Sponsor's Cash
Value Report 13 Offshore Group PPVUL Product Specifications 14 17
Strategic Investment Plan - Internet Services Offering 15
[0440] Thus, it can be seen that this invention is a valuable tool
that allows meeting the objectives of the invention. As a result,
it is respectfully submitted that this invention improves
significantly over the known prior art. While the above description
contains many specificities, these should not be construed as
limitations on the scope of the invention, but rather as an
exemplification of one preferred embodiment thereof. Many other
variations are possible such as, but not limited to, those
described in the Objects and Advantages section above. Thus, the
scope of the invention should be determined by the appended claims
and their legal equivalents, rather than by the principal
embodiment and other examples described above.
* * * * *