MC Overview - Banks

Question 1

Plan Design

Answer 1

Plan Design
Ensure flexibility of:
1. Plan features
2. Deferral options- salary, bonus, commission, RSU/PSU in either dollar amount or percentage.
3. Payout options (separation of service, specified date and retirement)
4. Investment options - variety including fixed rate
5. Compliance - 409A, 101(j)

409A compliance: “non-qualified deferred compensation” must comply with various rules regarding the timing of deferrals and distributions.

101(j) compliance: (aka COLI Best Practices). Definitions of eligible executives and requirements to obtain consent to insure in order for the death benefit to be non-taxable. For the 2020 plan year, an employee who earns more than $125,000 in 2019 is an HCE. For the 2021 plan year, an employee who earns more than $130,000 in 2020 is an HCE.

Question 2

Plan Security

Answer 2

Plan Security:

1. Trust structure
2. Trust document provisions including:
   a. liquidity options
   b. flexibility
   c. fees and services

Question 3

Plan Audits

Answer 3

Our audits are focused on five areas (see audit 2 pager)

1. Plan design
2. Plan funding
3. Plan security
4. Investment performance
5. Plan Communication and Administration

As part of our process we will review current plan documents, census data, current funding structure and provide observations and recommendations for plan enhancements

Question 4

Change in Control

Answer 4

There are 5 plan transition options given a change in control (see change in control matrix) Understanding each option and how each applies the buyer and/or the seller is our focus.

Question 5

Strategic Fee Income Planning

Answer 5

Strategic Fee Income Planning:
Create additional income streams for the bank by exploring new loan growth opportunities and other fee income strategies.

Question 6

IRC 280G

Answer 6

Design and structure compensation and benefit plans that maximize the deduction of parachute payments paid to an executive upon a change in control. (See 280G analysis and MC article)

Question 7

IRC 162M

Answer 7

Design and structure benefit and compensation plans that maximize the $1 million-dollar limit on the amount of deductible compensation paid to the C-Level executives (See MC article on 162M and deferred compensation plans)

Question 8

M&A

Answer 8

Consult on how a merger or acquisition impacts the company’s:

1. executive benefits plans
2. eligible group
3. plan design differences
4. change in control planning options

Question 9

Asset Structure

Answer 9

Determine which asset structure is best. BOLI vs. Taxable Securities from a tax, accounting, P&L, cash flow costs and cost recovery perspective

Question 10

Product Selection

Answer 10

Product analysis in all BOLI product types including 1. general account

2. separate accounts
3. hybrid structure

Evaluate short term and long cost structure 
and best in class institutional investment options. (See and understand details of our COLI product due diligence)

Question 11

Tax Impact

Answer 11

Ensure efficient tax structure

Question 12

P&L Impact

Answer 12

Earnings impact differences between investment options and BOLI structures

Question 13

Cash Flow Cost

Answer 13

Evaluation of fees and tax impact

Question 14

Economic Cost

Answer 14

Compare one course of action with that of another; company’s cost of money is always taken into consideration

Question 15

Carrier and Manager Due Diligence

Answer 15

Insurance carrier strength, credit analysis and investment manager performance

Question 16

Asset Allocation

Answer 16

Best in Class fund review with Morningstar Ratings ; Comparisons to provide the most efficient asset allocation given the bank’s balance between investment return and risk weighting.

Question 17

Plan Enrollment

Answer 17

Set up enrollment with mapbenefits, create enrollment materials and set frequency of enrollments

Question 18

Plan Communication

Answer 18

Choose multiple forms of communication (written, video and webinars) and align plan communication with plan documentation to best educate the plan participants

Question 19

Plan Set Up

Answer 19

Create the plan in mapbenefits given the discussed and agreed upon plan design

Question 20

Plan Accounting

Answer 20

Provide monthly and/or quarterly accounting for both the asset and liability. All plan accounting including journal entries can be access through the Plan Sponsor portal of mapbenefits.

Question 21

Participant Access

Answer 21

Participants use mapbenefits to manage their personal account information, complete enrollment, and access real-time account activity.

• View Elections and Benefits
• Change Elections
• View Fund Information and Account Rate of Returns
• Manage Fund Allocations
• View Personal Rate of Return Charts
• Access Support Site and FAQ’s
• View Plan Information
• Complete Online Enrollment
• View Participant Statements
• View Historical Reports
• Access Real Time Reports
• Access to the Retirement and Risk Planning Tools
• Access to the mapbenefits mobile app

Question 22

Corporate Access

Answer 22

The mapbenefits application is utilized by company HR and finance administrators to view dynamic corporate level reporting, statements, and employee account details.
• Access Accounting and Reconciliation Reports
• View Participant Elections and Benefits
• View Fund Information and Account Rate of Returns
• Utilize the Service Calendar
• Access Real Time Reports (100+)
• View Historical Reports
• View Participant Statements
• View Plan Information
• Access the Support Site and Frequently Asked Questions (FAQ’s)
• Utilize the Retirement and Risk Planning Tools

Question 23

Financial Management

Answer 23

mapbenefits addresses the reporting requirements needed for corporate accounting, finance, and human resources (HR) departments. This includes the ability the access over 100 reports that can be generated for information about plan participants or for the plan in the aggregate for corporation’s perspective.

Question 24

mapbenefits™ utilization

Answer 24

mapbenefits was designed specifically for executive benefit plan administration and asset/liability management utilizing Corporate Owned Life Insurance (COLI) and taxable mutual funds. mapbenefits can be used to administer the following plans:

• Deferred Compensation Plans (fixed and variable)
• Long Term Incentive Plans (LTIP)
• Supplemental Executive Retirement Plans (SERP)
• Executive Disability Income Plans
• Executive Long-Term Care Plans
• Split-Dollar Plans

Question 25

BOLI General Account

Answer 25

When banks make an investment in a general account product the deposit becomes part of the general account of the insurance carrier. Most insurance carriers primarily invest in real estate and bonds. The carrier does not provide specific detail on where they are investing the BOLI proceeds rather they provide some detail of the general account holdings of the carrier. The product has a current crediting rate which can be changed from time to time by the carrier as well as a guaranteed minimum crediting rate that it cannot fall below.

Question 26

BOLI Separate Account

Answer 26

Under this approach the carrier segregates the holdings from their general account into bank eligible investments managed by well-known fund managers. The fund managers provide detailed reporting of the assets within the portfolio. The crediting rate is determined by the carrier using a yield-to-worst ratio. However there is no guaranteed minimum crediting rate. A stable value insurance rider can be purchased in order to smooth out the mark to market performance and provide downside protection.

Question 27

BOLI Hybrid Account

Answer 27

Provides both a current and guaranteed crediting rate of a general account product with the transparency of a separate account product. It should be noted that both separate and hybrid product are not subject to creditors of the insurance carrier providing another level of protection to the bank.