Method for hedging one or more liabilities associated with a deferred compensation plan and for recordkeeping information of such a hedge

• US 20030093354A1
• Filed: 12/26/2002
• Published: 05/15/2003
• Est. Priority Date: 05/16/2001
• Status: Abandoned Application

• Current Assignee: Analect Benefit Finance LLC
• Original Assignee: Analect Benefit Finance LLC
• Inventors: Marshall, David J.
• Application Number:
  US10/329,971
• Publication Number:
  US 20030093354A1
• Time in Patent Office: Days
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance
• CPC Class Codes: G06Q 40/10 Tax strategies

Abstract

The present invention relates to a method for hedging a deferred compensation liability. In one embodiment, the invention may provide a mechanism to hedge the compensation expense liabilities of an employer providing deferred compensation to one or more employees.

Claims

1. A method of finance related to a deferred compensation plan associated with a deferred compensation liability, which deferred compensation plan permits a participant in the deferred compensation plan to select a notional investment allocation of deferred compensation attributable to the participant, comprising:

recording information relating to a total return swap between a party sponsoring the deferred compensation plan and a counterparty;

wherein the total return swap is used to hedge the deferred compensation liability;

wherein the party sponsoring the deferred compensation plan receives from the counterparty a total return generated by the total return swap; and

wherein the total return swap is arranged so that the total return generated by the total return swap substantially tracks the selected notional investment allocation.

2. The method of claim 1, wherein the recorded information is used for financial accounting or tax purposes.

3. The method of claim 2, further comprising reporting at least a portion of the information used for tax purposes to a governmental tax authority.

4. The method of claim 3, wherein the governmental tax authority is the Internal Revenue Service.

5. The method of claim 1, wherein the recorded information includes information related to a gain associated with the total return swap.

6. The method of claim 5, wherein the gain is recognized in connection with resetting at least a portion of the total return swap.

7. The method of claim 5, wherein the gain is recognized in connection with liquidating at least a portion of the total return swap.

8. The method of claim 1, wherein the recorded information includes information related to a loss associated with the total return swap.

9. The method of claim 8, wherein the loss is recognized in connection with resetting at least a portion of the total return swap.

10. The method of claim 8, wherein the loss is recognized in connection with liquidating at least a portion of the total return swap.

11. The method of claim 1, wherein the counterparty receives from the party sponsoring the deferred compensation plan a total return swap fee comprising a LIBOR based payment.

12. The method of claim 11, wherein the recorded information includes information related to the LIBOR based payment.

13. The method of claim 1, further comprising recording information related to the notional investment allocation of deferred compensation attributable to the participant.

14. The method of claim 1, further comprising recording information related to the deferred compensation attributable to the participant.

15. The method of claim 1, further comprising recording information related to a benefit payment associated with the participant.

30. The method of claim 2, wherein the swap relates to the liability of the party sponsoring the deferred compensation plan with respect to a single participant.

31. The method of claim 2, wherein the swap relates to the liability of the party sponsoring the deferred compensation plan with respect to a plurality of participants.

16. A method of finance related to a deferred compensation plan associated with a deferred compensation liability, which deferred compensation plan permits a participant in the deferred compensation plan to select a notional investment allocation of deferred compensation attributable to the participant, comprising:

recording total return swap information relating to a total return swap, which total return swap is;

(a) between a party sponsoring the deferred compensation plan and a counterparty;

(b) used to hedge the deferred compensation liability; and

(c) arranged so that a total return received by the party sponsoring the deferred compensation plan from the counterparty substantially tracks the selected notional investment allocation;

recording notional investment allocation information related to the notional investment allocation of deferred compensation attributable to the participant;

recording deferred compensation information related to the deferred compensation attributable to the participant; and

recording benefit payment information related to a benefit payment associated with the participant;

wherein at least a portion of at least one of the recorded total return swap information, the recorded notional investment allocation information, the recorded deferred compensation information, and the recorded benefit payment information is used for financial accounting or tax purposes.

17. The method of claim 16, further comprising reporting at least a portion of the information used for tax purposes to a governmental tax authority.

18. The method of claim 17, wherein the governmental tax authority is the Internal Revenue Service.

19. The method of claim 17, wherein the recorded total return swap information includes information related to a gain associated with the total return swap.

20. The method of claim 19, wherein the gain is recognized in connection with resetting at least a portion of the total return swap.

21. The method of claim 19, wherein the gain is recognized in connection with liquidating at least a portion of the total return swap.

22. The method of claim 17, wherein the recorded total return swap information includes information related to a loss associated with the total return swap.

23. The method of claim 22, wherein the loss is recognized in connection with resetting at least a portion of the total return swap.

24. The method of claim 22, wherein the loss is recognized in connection with liquidating at least a portion of the total return swap.

25. The method of claim 17, wherein the counterparty receives from the party sponsoring the deferred compensation plan a total return swap fee comprising a LIBOR based payment.

26. The method of claim 25, wherein the recorded total return swap information includes information related to the LIBOR based payment.

32. The method of claim 16, wherein the swap relates to the liability of the party sponsoring the deferred compensation plan with respect to a single participant.

33. The method of claim 16, wherein the swap relates to the liability of the party sponsoring the deferred compensation plan with respect to a plurality of participants.

27. A method of finance related to a deferred compensation plan associated with a deferred compensation liability, which deferred compensation plan permits a participant in the deferred compensation plan to select a notional investment allocation of deferred compensation attributable to the participant, comprising:

recording total return swap information relating to a total return swap, which total return swap is;

(a) between a party sponsoring the deferred compensation plan and a counterparty;

(b) used to hedge the deferred compensation liability; and

(c) arranged so that a total return received by the party sponsoring the deferred compensation plan from the counterparty substantially tracks the selected notional investment allocation;

recording deferred compensation information related to the deferred compensation attributable to the participant; and

recording benefit payment information related to a benefit payment associated with the participant;

wherein at least a portion of at least one of the recorded total return swap information, the recorded deferred compensation information, and the recorded benefit payment information is used for financial accounting or tax purposes;

wherein the recorded total return swap information includes information related to at least one of;

(a) a gain associated with the total return swap; and

(b) a loss associated with the total return swap; and

wherein the recorded total return swap information includes information related to a LIBOR based payment received by the counterparty from the party sponsoring the deferred compensation plan.

28. The method of claim 27, wherein the swap relates to the liability of the party sponsoring the deferred compensation plan with respect to a single participant.

29. The method of claim 27, wherein the swap relates to the liability of the party sponsoring the deferred compensation plan with respect to a plurality of participants.