Captives save business owners money

Special-purpose insurer ideal for pretax wealth accumulation, asset protection, other goals

InvestmentNews

By David T. Phillips October 5, 2008

Through the creation of a captive insurance company, businesses can cut their taxes and increase the value of their estate. [The] business can also use the captive for pretax wealth accumulation, to protect assets, for efficient estate planning and to retain key employees. ... The strategy works best for companies that generate at least $1 million in annual net income, making it viable for physician groups, associations, franchisees and other businesses. ...

Captives were established more than 30 years ago, and today, there are more than 6,000 captives and $100 billion in annual insurance premiums.

There are two broad ways to employ a captive.

First, a captive can replace existing insurance, such as workers' compensation, general liability, medical malpractice, auto liability, property or other conventional insurance.

Through a captive, the overall cost of insurance is reduced, and the captive owner can capture underwriting profit and investment income.

Second, the captive can purchase insurance that covers exclusions, deductibles and self-insured risk.

In the event that claims don't materialize, the captive will capture a substantial pretax nest egg that can be used for future business risks, or it can be used for distributions to owners, family members or key executives at favorable tax rates.

Moreover, under the U.S. tax code, if the captive receives less than $1.2 million in insurance premiums a year, the entire amount is received tax-free by the captive. The insured business might then deduct the $1.2 million annually, saving about $500,000 a year in taxes.

Remember that premiums paid to a captive ...can be invested in stocks, bonds, mutual funds, real estate and other investments. A captive can also hold life insurance.

Generally, these are specialized life insurance policies with a high cash surrender value to ensure that the policies qualify as a proper investment under insurance regulations. The captive can hold the life insurance directly or loan money to a life insurance trust to buy the insurance.

Also, the death benefit of the life insurance is outside the estate. This means that because of the captive, a $10 million or even $25 million death benefit is created for the estate's beneficiaries without any gift or estate tax liabilities.

David T. Phillips is the founder and chief executive of Estate Planning Specialists LLC in Chandler, Ariz., a national network of estate planners. He can be reached at david@epmez.com.

Retirement Experts Urge Plan Sponsors to Shift Focus

401khelpcenter.com

HARTFORD, CT, December 2, 2008 -- Generating secure lifetime retirement income should become an urgent priority for plan sponsors and participants, according to the Institutional Retirement Income Research Council (IRIRC).

In its first white paper, Institutional Retirement Income Solutions: A Call to Action, available through the organization's website, www.irirc.com, the IRIRC discusses why defined contribution plan sponsors should consider adding retirement income solutions to their plans.

"We realize that the current defined contribution approach is leaving retiring participants unprepared to construct a sustainable draw down of their assets in order to generate secure lifetime income that they will not be able to outlive," said IRIRC co-chair Martha Spano, who is the West Division Practice Leader for the consulting firm Watson Wyatt. ...

"The current economic crisis has exposed the flaws in the existing retirement system and the IRIRC can provide tools and information to help plan sponsors and participants fill in the gaps, and capably manage the ever-changing defined contribution marketplace," Spano said.

...[Defined]contribution plan assets are projected to be the primary source of retirement income for future retirees, and the responsibility to save for and generate a guaranteed retirement income has transferred from institutions to individuals.

"The shift toward individual responsibility has swung too far," said Dr. Jeffrey Brown, William G. Karnes professor, Department of Finance at the University of Illinois and Director of the Center for Business and Public Policy in the College of Business. "Participants are unprepared to manage the dizzying amount of choices and decisions they must make in order to prepare for retirement." ...

Institutional Retirement Income Solutions: A Call to Action suggests:

• Increasing longevity, poor financial literacy and behavioral biases are compounding the challenge for plan participants;
• Plan designs should evolve ... and expand to encourage participant behavior that accomplishes the goal of securing lifetime income during retirement; and
• Success of the DC plan should be based on whether the plan facilitates adequate retirement income versus participation rates.

"The only way to quell the increasing public angst around the ability of Americans to retire in the future is for stakeholders from all areas of the retirement industry to come together and encourage plan sponsors to implement optimal retirement income solutions that address many of the problems retirees face in generating secure lifetime income," said Spano.

About the Institutional Retirement Income Research Council

The Institutional Retirement Income Research Council, an independent think tank, was established in 2007 to advance the interests of retirement savings plan participants, plan sponsors, plan advisors and consultants by: analyzing innovative approaches to in-plan, institutional retirement income solutions; creating acceptable best practices and evaluation tools to supplement the decision making; discussing and identifying regulatory, legislative, and fiduciary issues pertinent to in-plan, institutional income solutions; and producing and publishing relevant findings through various media outlets.

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Click here for more material dealing with current trends, opinion, news, legislative action, investments, marketing, sales, consulting, and legal issues on 401k plans.

This is a press release provided by the company or its representatives. 401khelpcenter.com, LLC is not the author of this release and is not associated or affiliated with any firm or organization mentioned unless otherwise noted. Use of any information obtained from this release is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness. Reference to any specific commercial product, process, or service by trade name, trademark, service mark, manufacturer, or otherwise does not constitute or imply endorsement, recommendation, or favoring by 401khelpcenter.com, LLC.

S&MM SoundOff: A Tool to Help with Reference Selling

Unless your sales method provides processes, tools, training, and measurements for leveraging existing customers as references, you are probably leaving money on the table. ...

One way savvy salespeople can leverage referrals is through the online service LinkedIn.com, a business networking site. This company provides an invaluable tool to many of their 6.8 million members.

... Your reps can learn where their targeted prospect worked before and with whom. The rep can then see whether the target connects with anyone in his or her business or personal network. There may be people within your company with connections to the target executive.

LinkedIn shows you those connections. The site eases the rep's pitching duties and is less intrusive for the prospect. It makes getting in contact much easier from the rep's point of view and much more acceptable for the prospect. LinkedIn is one technology helping salespeople sell more effectively.

Speaking of useful Web sites, be sure to check out Sales & Marketing Management's new online home: http://www.managesmarter.com/. You'll enjoy the same management tools and resources you rely on--and a whole lot more. Click here to enter the Smart Sweepstakes!

Posted by dsteinSMM in Business Technology, Marketing Strategy, Sales Strategy Permalink

S&MM SoundOff: A Tool to Help with Reference Selling

Fannie, Freddie to ease some mortgage payments

Reuters

Tue Nov 11, 2008 6:14pm EST

By Patrick Rucker

WASHINGTON (Reuters) - ...Homeowners facing foreclosure who are spending more than 38 percent of their income on mortgage payments could have monthly payments reduced by Fannie Mae and Freddie Mac in an effort to keep their homes, [James Lockhart,] the head of the Federal Housing Finance Agency said....

Soaring mortgage defaults are at the root of the global credit crisis that threatens the U.S. economy with a deep and long recession, and some economists say putting a floor under the housing market is a prerequisite to recovery. ...

Lockhart said eligible homeowners could see their mortgage rates cut, the life of their loans extended or their principal reduced in an effort to ease payments. Borrowers would need to be delinquent 90 days or more to qualify for new loan terms. ...

FDIC Chairman Sheila Bair, however, faulted the new plan for focusing so narrowly on Fannie Mae and Freddie Mac, which means it will not cover the 60 percent of seriously delinquent home loans held by Wall Street firms and other investors. ...

TRYING TO INSPIRE

Lockhart said he hopes other mortgage finance companies will adopt the new plan as an "industry standard," but mortgage investors often stand in the way of changes to failing loans.

In recent weeks, Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co have all said they will ease some loan terms.

But critics say those efforts are also part of a piecemeal approach to the housing crisis that has so far failed to reverse the trend of increasing delinquencies. ...

The plan outlined on Tuesday was conceived in part by Hope Now, an industry group midwifed by U.S. Treasury Secretary Henry Paulson last year to help troubled homeowners.

Hope Now has spurred mortgage finance companies to ease terms for borrowers, but those voluntary efforts have not been enough to halt the growing pace of foreclosures. ...

MORE AID COULD COME

Bush administration officials for weeks have been trying to agree on a fresh program to aid borrowers, and Tuesday's announcement could mark the first step in a wider effort.

[FDIC Chairman Sheila Bair] has emerged as a strong proponent of more-aggressive action, but others fret too much government aid could create a perverse incentive for homeowners to game the system.

The Department of Housing and Urban Development is mulling how to expand its Hope for Homeowners program, which gave the Federal Housing Administration a $300 billion kitty to underwrite failing loans...

That program ... went into effect in October. However, it got off to a slow start and officials are eager to loosen the terms and cut some red tape to make it more appealing to mortgage companies.

Under the program in its current form, a mortgage finance company must have a home reappraised and then erase 10 percent of its value before the loan can win a government guarantee. Officials are considering lowering that required write-off, sources said.

(Reporting by Patrick Rucker; editing by Gary Crosse)

© Thomson Reuters 2008 All rights reserved

Early Stage Algae Biofuel Company Closes $10.5M Funding Round; Additional $5M for Pilot Plant

Green Car Congress

11 November 2008

Solix calculations on the theoretical maximum production of algal oil. (See below.) Click to enlarge. Source: Kristina Weyer, Solix Biofuels

Solix Biofuels, a Fort Collins, Colo.-based early-stage company focused on algae-based intermediates for fuel and chemical production (earlier post), has raised $10.5 million in its first round of outside funding, and has reached an agreement with investors for an additional commitment of $5 million, to be used to build an algae biofuel facility near Durango, Colo. The pilot project is intended to showcase Solix’s ability to produce biofuel and feedstocks for the chemicals industry at commercially-feasible production levels and costs. ...

Two primary factors contribute to algal oil yield: the productivity of the algae, and their lipid content as a percentage of the biomass. Both vary with the species of algae. ...

Solix says that currently, algae grown in photo-bioreactors at its headquarters yield more than five times the amount of fuel per acre of land per year than agriculture-based fuels including ethanol from corn and biodiesel from soy and canola, at their current commercial yields. ...

Solix engineers have created systems that automatically adjust for environmental changes such as sunlight and temperature to optimize growing conditions. The Solix system has the ability to capture emissions directly from power plants and factories.

Solix Biofuels is a spin-off and technology partner of Colorado State University in Fort Collins, Colo. Solix seed funds were used to sponsor research by CSU faculty and graduate students to identify algae species with the best potential to grow at large scale and produce high yields of fuel and chemical feedstocks, and to develop technology that can bring the process to commercial scale. ...