VOLUME VIII, ISSUE III
JULY 2005
M S
ission
tatement
The Pangburn Company, Inc. is a
fee-for-service TPA (Third Party
Administrator) dealing exclusively with
nonqualified executive fringe benefit
plans. We administer plans for a diverse
clientele ranging from small closely held
family businesses to international
Fortune 500 companies. Our clients can
be found in all fifty states and represent
a broad cross section of the global
economy. Our primary objective is to
provide you and your clients with
accurate and useful information, on a
timely basis, at a reasonable cost. As a
TPA we have formed a number of
strategic alliances with major life
insurance carriers, mutual fund
wholesalers, accounting firms, banks,
producer groups, brokerage houses, and
executive benefit specialists. We have
combined experience with technology to
provide you and your clients with stateof-the-art plan administration at a
reasonable cost.
IN THIS ISSUE
DEATH MAY BE CERTAIN, BUT IT’S NOT
PRECISE
UPDATES
COMPANY NEWS
PLANNING BRIEFS
COLI BEST PRACTICES
WORTHY WEB SITES
TECHNOLOGY TIPS
INTERESTING RATES
The information in this publication is
for general use and should not be
applied to individual situations unless
carefully coordinated with professional
financial advice.
The Pangburn Company, Inc.
Death May Be Certain, But It’s Not Precise
A recent resurgence in the popularity of
nonqualified defined benefit SERPs has focused
new light on the importance of mortality tables.
It has been relatively common in the past to see
nonqualified defined benefit plans that offer
participating executive’s lifetime benefits
(single and joint life). But what has not been so
common is for the plan document to dictate how
to calculate life expectancies - a critical factor
when determining liability accruals and/or
present value lump sum equivalents. If a plan
document is silent on the appropriate table to
use, Plan Sponsors and Plan Administrators
should make informed decisions and disclose
the assumption to participants to mitigate future
claims controversy. Auditors should also be
aware of assumptions being used and be
comfortable with the impact on plan liability
accruals. Having restated the obvious, there
does not appear to be a definitive answer for
nonqualified plans. Larger plans may want to
duplicate mortality assumptions for the Plan
Sponsor’s other qualified plans, and some have
argued that if COLI or BOLI is being used as an
informal funding vehicle the mortality
assumptions used by the insurance carrier
would be applicable. There is an additional
argument based on Revenue Ruling 2001-62
which held that the 1994 Group Annuity
Reserving Table (94 GAR) should be used for
determining the present value of qualified plan
benefits under IRC Section 417(e)(3). Although
the selection of a mortality table in the average
nonqualified plan has little or no impact on the
actual funding of the plan, it is nevertheless a
critical factor in valuing lump sum equivalents
and in accounting for plan liabilities. Although
not conclusive of the results at all ages, the
following table illustrates life expectancy for a
male age 50:
Table
1994 Group Annuity Reserving Table (94 GAR)
Life
Expectancy
32 Years 8 Mos
1983 Group Annuity Mortality (83 GAM)
31 Years 9 Mos
2001 Commissioners Standard Ordinary (CSO 2001)
29 Years 3 Mos
1980 Commissioners Standard Ordinary (CSO 80)
25 Years 5 Mos
Regardless of the table selected, beware of
the impact, choose wisely, and disclose
accordingly.
Updates
CARRIERS SUPPORTED ON WEB
PLATFORM:
The Pangburn Company currently supports
Participant Managed Web accounts measured
by VUL unit value performance from the
following carriers: John Hancock, Lincoln
Financial, MassMutual, MetLife, New York
Life, Northwestern Mutual, Pacific Life, Penn
Mutual, Phoenix Life, and Sun Financial.
BOLI HAPPENINGS
OCC Interpretive Letter 1030:
(NOTE: this is similar to a Private Letter Ruling
in that it only applies to a specific bank)
At issue was a bank holding a separate account
BOLI product that in turn held interests in
instruments with characteristics of debt
securities and a rate of return, a portion of which
was linked to equity securities. The OCC
concluded that the Bank’s investment was
permissible assuming that the Examiner-inCharge had no supervisory objection. (See
www.tpc-consulting.com for complete text)
OCC Interpretive Letter 1031:
The OCC concluded that the Bank could
establish a rabbi trust to provide reasonable
deferred compensation for its officers and that
the trust could hold investments beyond those
allowed for national banks as long as the Bank
did not receive any income or profit from the
trust’s assets and that the trust met all other
applicable requirements under state and federal
law. (See www.tpc-consulting.com for complete
text)
Company News
The Pangburn Company BOLI affiliate,
TPC Consulting, is pleased announce that
Preston Fulco has joined the firm as a New
Business Analyst. Preston graduated magna cum
laude from the University of Louisiana, Monroe
with a bachelor of business administration in
finance.
The Pangburn Company, Inc. • The Pangburn Company, Inc. • The Pangburn Company, Inc. • The Pangburn Company, Inc.
The Pangburn Company, Inc. • The Pangburn Company, Inc. • The Pangburn Company, Inc. • The Pangburn Company, Inc.
P lanning Briefs
HR 2251
QUALIFIED PLAN FREEZE:
Large companies froze or terminated their
pension plans at a sharply accelerated pace last
year, with 71 of the Fortune 1000 opting for that
course of action. That was 11% higher than
2003.
CEO DECLINING STOCK OPTIONS:
According to Watson Wyatt the number of
stock options awarded to CEO’s declined 16% in
2005 after a 7% decrease in 2004. However, the
economic value of stock option grants increased
by nearly 7%.
PENSIONS UNDERFUNDED
BY $353.7 BILLION:
Underfunding increased by 27%, or $74.7
billion, from the $279 billion reported in 2003.
The 2004 reports, received by PBGC in April,
were submitted for 1,108 plans covering about
15 million workers and retirees. The
underfunded plans had $786.8 billion in assets
and more than $1.14 trillion in liabilities.
LAW FIRM
RETIREMENT PLAN SURVEY:
According to the Segal Survey of
Retirement Benefits at Large Law Firms, since
1993, defined benefit plan offerings for legal and
paralegal staff have declined from 54% to 28%.
For partners and higher-level staff the rate of DB
offerings has actually risen since 1993 from 30%
to 37%.
(condensed with permission from an article written by
James Magner, JD, CLU, ChFC)
On May 11th, the “COLI Best Practices
Act” was introduced in the House with 29
out of 41 members of the House Ways &
Means Committee signing on as cosponsors. Under the proposal, life
insurance death benefits received by an
employer on the life of an employee would
be taxable (in excess of basis) unless,
before the policy was issued, the employee:
a) is notified in writing that the employer
intends to insure the employee’s life, b)
provides written consent to being insured
and that the coverage may extend after
termination of employment, and c) is
informed in writing that the employer will
be the beneficiary of any proceeds payable
at the employee’s death. The proposal also
requires the notice forms to specify the
maximum policy face amount that the
employee “could be insured for at the time
the policy was issued.” The proposal also
contains
provisions
relating
to
recordkeeping and tax reporting as well as
a possible bright-line compensation test.
Passage of the COLI-BPA appears to be a
good bet in 2005.
W orthy Web Sites
Latest Info on Employee Benefits
http://benefitslink.com
STOCK DIVIDENDS INCREASE:
HR Tools and Trends
www.workforce.com
Standard & Poor’s says that there were 155
dividend increases in March from approximately
7,000 publicly owned companies that report
dividends to them. That is 29.2% above the 120
increases reported in March 2003 and 7.6%
higher than the average number of March
increases over the past decade.
INTERESTING RATES
T echnology Tips
M
“COLI BEST PRACTICES ACT OF 2005”
Compliance for Dummies
www.soxlaw.com
With the wide adoption of broadband or high
speed Internet access, the technology is now
available to integrate traditional phone
services with data networking capabilities.
This new technology is referred to as VoIP, or
Voice over Internet Protocol. VoIP is simply a
merging of voice communications with data
networking technology, whereby voice is
converted to digital ones and zeros and sent
over a data network (typically the Internet)
instead of being routed over the age-old
public switched telephone network.
Why would I want to bother with this type of
setup when my current phone system works
just fine? Well one particular advantage of
using VoIP, is that it can offer businesses, in
particular, a dramatic cost savings in their
communications bill each month.
For example, imagine a company with
multiple remote offices. Using VoIP and the
data lines already connecting the remote
offices together, the business can completely
eliminate monthly voice communication costs
between these locations by simply routing
voice traffic over the existing data lines. The
technology department would benefit from
this scenario as well, by being able to
completely eliminate the hardware and wiring
required by legacy voice systems, thus greatly
streamlining the entire communications
infrastructure.
With a few false starts in the past, it’s clear
that VoIP is now here to stay and will be only
gaining popularity and further adoptance as
time goes on. For more information on VoIP
and a general overview of how it works, you
can visit: http://www.fcc.gov/voip.
The Pangburn Company has recently
upgraded to a VoIP system. We will discuss
some specifics regarding this upgrade in part
two of this article, next quarter.
Roth Resources
www.rothira.com
2004
2005
Index
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Short-Term AFR
2.37
2.34
2.26
2.37
2.48
2.78
2.92
3.08
3.35
3.54
3.46
3.45
Mid-Term AFR
4.00
3.84
3.62
3.55
3.56
3.76
3.83
3.83
4.09
4.28
4.01
3.86
Long-Term AFR
5.21
5.03
4.84
4.70
4.68
4.76
4.72
4.52
4.68
4.83
4.57
4.35
Section 7520
4.80
4.60
4.40
4.20
4.20
4.60
4.60
4.60
5.00
5.20
4.80
4.60
Federal Funds
1.28
1.53
1.86
1.83
2.04
2.31
2.40
2.39
2.77
2.98
3.02
3.36
T-Bill (One Year)
2.12
1.99
2.21
2.34
2.60
2.79
2.95
3.20
3.38
3.34
3.25
3.51
T-Bill (Ten Year)
4.48
4.13
4.21
4.11
4.38
4.23
4.15
4.38
4.55
4.21
3.91
4.06
Moody’s Aaa
5.79
5.51
5.53
5.50
5.63
5.43
5.22
5.35
5.44
5.21
4.93
4.99
(Rates which fluctuate daily are shown on or about the 1st day of the month)
THE PANGBURN COMPANY, INC. • POST OFFICE BOX 900, NEW ROADS, LA 70760-0900
Phone: (800) 634-3287 • Fax: (225) 638-4773 • E-mail: [email protected] • Web site: www.nqadmin.com
The Pangburn Company, Inc. • The Pangburn Company, Inc. • The Pangburn Company, Inc. • The Pangburn Company, Inc.