Funding & Hedging Management
We develop funding and hedging strategies customized to each plan sponsor’s financial objectives, and then implement and manage these strategies on an ongoing basis.
Corporate-Owned Life Insurance (COLI). On the sponsor’s behalf, we work with insurance carriers to evaluate, restructure and reprice their COLI to improve its financial performance. Further, we proactively manage the investments within the COLI to effectively hedge the plan’s liabilities and minimize expenses. Additionally, we provide a comprehensive array of COLI services, including policy administration, financial reporting, and death claim processing.
Mutual Funds or Other Non-COLI Assets. We design and implement portfolios of low cost, tax-efficient investment options. We manage these portfolios through tax-efficient trading protocols, ensuring that assets remain highly correlated with plan liabilities, while minimizing taxable gains. When implementing a new portfolio, we manage the transition from the existing portfolio with the objective of minimizing tax costs to the sponsor.
Total Return Swaps. In many cases, total return swaps (TRS) are a cost-effective way to hedge the market exposures of non-qualified benefit plan liabilities. Created and patented by our strategic partner Atlas Financial Partners, a TRS is an effective hedge for unfunded plan liabilities but can also be used in combination with existing funding, including COLI and mutual funds.
CapAcuity supports the adoption of a TRS through:
- Due Diligence. We construct a detailed cost/benefit analysis of a TRS vs. alternative funded strategies, with cash flow and P&L/earnings analysis specific to the company’s fact pattern.
- Implementation. We develop a customized “basket” of assets to be owned by the financial counterparty to effectively hedge participant liabilities; negotiate the most competitive TRS pricing; and assist in the evaluation of appropriate accounting and tax treatment.
- Management. We monitor swap positions daily and ensure that the TRS asset is synchronized to benefit plan liabilities; provide tax recordkeeping at the participant level; provide robust monthly reporting; and independently audit the swap settlement during each period to ensure accuracy.