Method and system for administering the hedging of an employee deferred compensation plan using swaps

• US 20050131798A1
• Filed: 01/06/2004
• Published: 06/16/2005
• Est. Priority Date: 04/30/2002
• Status: Active Grant

• Current Assignee: Analect Benefit Finance LLC
• Original Assignee: Analect Benefit Finance LLC
• Inventors: Eisler, Clifford R., Marshall, David J.
• Granted Patent: US 8,290,849 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/10 Tax strategies

Abstract

A method and system for administering the hedging of an employee deferred compensation plan, e.g., which employs hedging of NQDC plan liabilities using total return swaps and/or put and call options and/or forwards, for tax purposes. A plan coordinator coordinates a transfer of information between an employer/plan sponsor, a plan administrator that communicates with the employees/plan participants, and a balance sheet provider. The plan coordinator receives and reconciles data and then calculates and modifies relevant information for tax purposes and use in reports that are provided to the plan sponsor and balance sheet provider. Calculations and modifications for tax purposes allow the plan sponsor to reap tax benefits from the NQDC plan swap hedge. The reports include an upcoming transactions report, which indicates new compensation deferrals, reallocations of previously deferred compensation among specified indices, and withdrawals. A NQDC plan swap hedge re-weighting request report is prepared to notify the balance sheet provider of necessary changes to the NQDC plan swap hedge. Deferred compensation plan details and summary reports are also provided to show the plan information in both individual form and aggregated plan form. Moreover, swap details/summary reports, a put and call option details report, and a forward details report may be provided which indicates future payments that the balance sheet provider must pay the plan sponsor under the swap and/or option and/or forward hedge, as well as hedge instrument information in both in disaggregated individual form and aggregated form. A deferred compensation exposure/swap position summary report is based on differences between deferred compensation liabilities and NQDC plan swap hedges, which represent the plan sponsor'"'"'s net risk or exposure.

Claims

1. A method for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the method comprising:

accumulating information relating to the at least one hedge instrument on an aggregate level and information relating to at least the hedged portion of the plan on an aggregate level and on a plan participant level;

disaggregating aggregate level information relating to the at least one hedge instrument into respective portions attributable to each plan participant; and

calculating taxable and tax-deductible amounts of the plan sponsor related to a tax triggering event of a plan participant withdrawal in consideration of (a) a respective portion of the at least one hedge instrument attributable to that plan participant and (b) accumulated information.

2. The method of claim 1 wherein accumulating information on an aggregate level comprises accumulating information on at least one of return earned or lost on the hedge instrument by the plan sponsor, return on the hedge instrument paid to or paid by the plan sponsor, the notional investment in the hedge instrument made by the plan sponsor and payments made to the balance sheet provider pursuant to the at least one hedge instrument.

3. The method of claim 1 comprising:

receiving information relating to the at least one hedge instrument on the aggregate level;

receiving information on the plan participant level and on the aggregate level for at least the portion of the plan being hedged; and

accumulating aggregate level information relating to the at least one hedge instrument and aggregate level and plan participant level for at least the portion of the plan being hedged.

4. The method of claim 1 wherein the tax-triggering event of the plan participant comprises a withdrawal by that plan participant of all or part of a deferred compensation award.

5. The method of claim 1 comprising providing at least one report containing accumulated information relating to the at least one hedge instrument and to any withdrawal of deferred compensation by a plan participant.

6. The method of claim 3 comprising providing a plan coordinator to perform accumulating of the information and calculating of the taxable and tax-deductible amounts from the received aggregate level information relating to the at least one hedge instrument and aggregate level and plan participant level for at least the portion of the plan being hedged.

7. The method of claim 1 comprising determining the plan sponsor'"'"'s net exposure under the plan from a current liability of the plan sponsor under the plan based on the aggregate level information relating to at least the portion of the plan being hedged, and a current position for the at least one hedge instrument.

8. The method of claim 7 comprising:

creating a deferred compensation plan/swap position summary report describing the plan sponsor'"'"'s net exposure;

calculating a profit and loss of the plan sponsor for the deferred compensation plan, the at least one hedge instrument, and net profit and loss;

summarizing accounting entries and profit and loss of the plan sponsor relating to its deferred compensation plan and the at least one hedge instrument; and

summarizing a tax impact, cumulative profit and loss, and cumulative hedging results relating to the portion of the at least one hedge instrument corresponding to any withdrawal of deferred compensation by a plan participant.

9. The method of claim 1 comprising:

determining one or more changes in the at least one hedge instrument that would better hedge the plan sponsor'"'"'s liability under the plan in consideration of changes in the plan based on information relating to the at least one hedge instrument on an aggregate level and information relating to at least the hedged portion of the plan on an aggregate level; and

providing at least one request for the balance sheet provider to change the at least one hedge instrument in accordance with the determined change or changes.

10. A method for administering the hedging of at least a portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the method comprising:

determining one or more changes in the at least one hedge instrument that would better hedge the plan sponsor'"'"'s liability under the plan in consideration of changes in the plan based on information relating to the at least one hedge instrument on an aggregate level and information relating to at least the hedged portion of the plan on an aggregate level; and

providing at least one request for the balance sheet provider to change the at least one hedge instrument in accordance with the determined change or changes.

11. The method of claim 10 comprising:

receiving information relating to the at least one hedge instrument on the aggregate level;

receiving information on the on the aggregate level and plan participant level for at least the portion of the plan being hedged; and

determining the one or more changes based on the aggregate level information relating to the at least one hedge instrument and aggregate level and plan participant level for at least the portion of the plan being hedged.

12. The method of claim 10 comprising providing at least one report containing a basis for the one or more changes that have been determined to better hedge the plan sponsor'"'"'s liability under the plan.

13. The method of claim 11 comprising providing a plan coordinator to perform determining of the one or more changes from the received balance sheet provider-related information and the received plan sponsor-related information, and to provide the at least one request for the balance sheet provider.

14. A method for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the method comprising:

receiving current information relating to the at least one hedge instrument on an aggregate level and current information on at least the hedged part of the plan on an aggregate level; and

determining the plan sponsor'"'"'s net exposure under the plan from a current liability of the plan sponsor under the plan based on the aggregate level information, and a current position for the at least one hedge instrument.

15. The method of claim 14 comprising providing at least one report containing a basis for the plan sponsor'"'"'s net exposure under at least the hedged portion of the plan.

16. The method of claim 14 wherein receiving current information on the aggregate level comprises receiving information on at least one of return earned or lost on the hedge instrument by the plan sponsor, return on the hedge instrument paid to or paid by the plan sponsor, the notional investment in the hedge instrument made by the plan sponsor and payments made to the balance sheet provider pursuant to the at least one hedge instrument.

17. The method of claim 14 comprising:

receiving related information relating to the at least one hedge instrument on the aggregate level;

receiving related information relating to at least the portion of the plan being hedged on the aggregate level; and

determining the plan sponsor'"'"'s net exposure under at least the hedged portion of the plan from the received aggregate level information relating to the at least one hedge instrument and aggregate level and plan participant level for at least the portion of the plan being hedged.

18. The method of claim 17 comprising providing a plan coordinator to determine the plan sponsor'"'"'s net exposure under at least the hedged portion of the plan from the received balance sheet provider-related information and the received plan sponsor-related information.

19. A computer-readable medium or media encoded with a computer program for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the computer program comprising computer code for causing a computer system to:

store in at least one storage device accumulated information relating to the at least one hedge instrument on an aggregate level and accumulated information relating to at least the hedged portion of the plan on an aggregate level and on a plan participant level, including information relating to tax triggering events of plan participants;

disaggregate aggregate information provided by the at least one storage device into respective portions attributable to each plan participant; and

calculate taxable and tax-deductible amounts of the plan sponsor in consideration of information relating to a tax triggering event of a plan participant withdrawal provided by the at least one storage device, a respective portion of the at least one hedge instrument attributable to that plan participant provided by the at least one computer and accumulated information provided by the at least one storage device.

20. The computer readable medium or media of claim 19 wherein the computer code causes the computer system to determine the plan sponsor'"'"'s net exposure under the plan from a current liability of the plan sponsor under the plan based on the aggregate level information relating to at least the portion of the plan being hedged, and a current position for the at least one hedge instrument.

21. The computer readable medium or media of claim of claim 19 wherein the computer code causes the computer system to:

create a deferred compensation plan/swap position summary report describing the plan sponsor'"'"'s net exposure;

calculate a profit and loss of the plan sponsor for the deferred compensation plan, the at least one hedge instrument, and net profit and loss;

summarize accounting entries and profit and loss of the plan sponsor relating to its deferred compensation plan and the at least one hedge instrument; and

summarize a tax impact, cumulative profit and loss, and cumulative hedging results relating to the portion of the at least one hedge instrument corresponding to any withdrawal of deferred compensation by a plan participant.

22. The computer readable medium or media of claim of claim 19 wherein the computer code causes the computer system to:

determine one or more changes in the at least one hedge instrument that would better hedge the plan sponsor'"'"'s liability under the plan in consideration of changes in the plan based on aggregate information; and

provide at least one request for the balance sheet provider to change the at least one hedge instrument in accordance with the determined change or changes.

23. A computer-readable medium or media encoded with a computer program for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the computer program comprising computer code for causing a computer system to:

determine one or more changes in the at least one hedge instrument that would better hedge the plan sponsor'"'"'s liability under the plan in consideration of changes in the plan based on information relating to the at least one hedge instrument on an aggregate level and information relating to at least the hedged portion of the plan on an aggregate level; and

provide at least one request for the balance sheet provider to change the at least one hedge instrument in accordance with the determined change or changes.

24. A computer-readable medium or media encoded with a computer program for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the computer program comprising computer code for causing a computer system to:

receive current information relating to the at least one hedge instrument on an aggregate level and current information on at least the hedged part of the plan on an aggregate level; and

determine the plan sponsor'"'"'s net exposure under the plan from a current liability of the plan sponsor under the plan based on the aggregate level information, and a current position for the at least one hedge instrument.

25. A computer system for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the computer system comprising:

means for accumulating information relating to the at least one hedge instrument on an aggregate level and accumulated information relating to at least the hedged portion of the plan on an aggregate level and on a plan participant level;

means for disaggregating aggregate information into respective portions attributable to each plan participant; and

means for calculating taxable and tax-deductible amounts of the plan sponsor related to a tax triggering event of a plan participant withdrawal in consideration of (a) a respective portion of the at least one hedge instrument attributable to that plan participant and (b) accumulated information.

26. The computer system of claim 25 comprising means for determining the plan sponsor'"'"'s net exposure under the plan from a current liability of the plan sponsor under the plan based on the aggregate level information relating to at least the portion of the plan being hedged, and a current position for the at least one hedge instrument.

27. The computer system of claim 25 comprising:

means for creating a deferred compensation plan/swap position summary report describing the plan sponsor'"'"'s net exposure;

means for calculating a profit and loss of the plan sponsor for the deferred compensation plan, the at least one hedge instrument, and net profit and loss;

means for summarizing accounting entries and profit and loss of the plan sponsor relating to its deferred compensation plan and the at least one hedge instrument; and

means for summarizing a tax impact, cumulative profit and loss, and cumulative hedging results relating to the portion of the at least one hedge instrument corresponding to any withdrawal of deferred compensation by a plan participant.

28. computer system of claim 25 comprising:

means for determining one or more changes in the at least one hedge instrument that would better hedge the plan sponsor'"'"'s liability under the plan in consideration of changes in the plan based on aggregate information; and

means for providing at least one request for the balance sheet provider to change the at least one hedge instrument in accordance with the determined change or changes.

29. A computer system for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the computer system comprising:

means for determining one or more changes in the at least one hedge instrument that would better hedge the plan sponsor'"'"'s liability under the plan in consideration of changes in the plan based on information relating to the at least one hedge instrument on an aggregate level and information relating to at least the hedged portion of the plan on an aggregate level; and

means for providing at least one request for the balance sheet provider to change the at least one hedge instrument in accordance with the determined change or changes.

30. A computer system for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the computer system comprising:

means for receiving current information relating to the at least one hedge instrument on an aggregate level and current information on at least the hedged part of the plan on an aggregate level; and

means for determining the plan sponsor'"'"'s net exposure under the plan from a current liability of the plan sponsor under the plan based on the aggregate level information, and a current position for the at least one hedge instrument.

31. A computer system for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the system comprising:

at least one storage device that receives and stores, under control of at least one computer, accumulated information relating to the at least one hedge instrument on an aggregate level and accumulated information relating to at least the hedged portion of the plan on an aggregate level and on a plan participant level, including information relating to tax triggering events of plan participant withdrawals;

at least one computer coupled to the at least one storage device and programmed to;

disaggregate aggregate information provided by the at least one storage device into respective portions attributable to each plan participant; and

calculate taxable and tax-deductible amounts of the plan sponsor in consideration of information relating to a tax triggering event of a plan participant withdrawal provided by the at least one storage device, a respective portion of the at least one hedge instrument attributable to that plan participant provided by the at least one computer and accumulated information provided by the at least one storage device.

32. The computer system of claim 31 wherein the at least one computer is programmed to determine the plan sponsor'"'"'s net exposure under the plan from a current liability of the plan sponsor under the plan based on the aggregate level information relating to at least the portion of the plan being hedged, and a current position for the at least one hedge instrument.

33. The computer system of claim 31 wherein the at least one computer is programmed to:

create a deferred compensation plan/swap position summary report describing the plan sponsor'"'"'s net exposure;

calculate a profit and loss of the plan sponsor for the deferred compensation plan, the at least one hedge instrument, and net profit and loss;

summarize accounting entries and profit and loss of the plan sponsor relating to its deferred compensation plan and the at least one hedge instrument; and

summarize a tax impact, cumulative profit and loss, and cumulative hedging results relating to the portion of the at least one hedge instrument corresponding to any withdrawal of deferred compensation by a plan participant.

34. The computer system of claim 31 wherein the at least one computer is programmed to:

determine one or more changes in the at least one hedge instrument that would better hedge the plan sponsor'"'"'s liability under the plan in consideration of changes in the plan based on aggregate information; and

provide at least one request for the balance sheet provider to change the at least one hedge instrument in accordance with the determined change or changes.

35. A computer system for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the system comprising:

at least one storage device that receives and stores, under control of at least one computer, information relating to the at least one hedge instrument on an aggregate level and information relating to at least the hedged portion of the plan on an aggregate level;

at least one computer coupled to the at least one storage device and programmed to;

determine one or more changes in the at least one hedge instrument that would better hedge the plan sponsor'"'"'s liability under the plan in consideration of changes in the plan based on information relating to the at least one hedge instrument on an aggregate level and information relating to at least the hedged portion of the plan on an aggregate level; and

providing at least one request for the balance sheet provider to change the at least one hedge instrument in accordance with the determined change or changes.

36. A computer system for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge instrument that comprises one or more of a total return swap, an option and a forward contract provided by a balance sheet provider, the system comprising:

at least one storage device that receives and stores, under control of at least one computer, receiving current information relating to the at least one hedge instrument on an aggregate level and current information on at least the hedged part of the plan on an aggregate level; and

at least one computer coupled to the at least one storage device and programmed to determine the plan sponsor'"'"'s net exposure under the plan from a current liability of the plan sponsor under the plan based on the aggregate level information, and a current position for the at least one hedge instrument.

37. A method for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge agreement comprising one or more of a total return swap, an option and a forward contract provided by a provider thereof, the method comprising:

receiving information relating to either or both of (a) a change by a plan participant in at least one notional investment based on at least one prior deferred compensation award, and (b) a new deferred compensation award and a notional investment or investments thereof; and

determining the plan sponsor'"'"'s net risk by matching up its obligations under at least the portion of the plan being hedged plan with its hedges.

38. The method of claim 37 comprising providing the plan sponsor with information relating to the sponsor'"'"'s net risk.

39. The method of claim 37 comprising providing the provider with information relating to a change to the hedge agreement to more closely match the plan sponsor'"'"'s total obligation and the hedge agreement.

40. The method of claim 39 wherein the plan sponsor'"'"'s total plan liability under at least the portion of the plan being hedged is determined to be greater than the hedge agreement, and wherein the information provided to the provider relates to a change to reduce the plan sponsor'"'"'s net risk under at least the hedged portion of the plan.

41. The method of claim 37 comprising computing a gain (or loss) for the plan sponsor on a taxable event in the plan, and providing information relating thereto due to the plan sponsor.

42. The method of claim 37 comprising computing a tax deduction for the plan sponsor on a taxable event in the plan, and providing information relating thereto to the plan sponsor.

43. A method for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge agreement comprising one or more of a total return swap, an option and a forward contract provided by a provider thereof, the method comprising:

receiving information relating to a taxable event relating to action of a plan participant relating to at least a portion of a deferred compensation award; and

computing a gain (or loss) for the plan sponsor on the taxable event in the plan, and providing information relating thereto due to the plan sponsor.

44. A method for administering the hedging of at least that portion of a deferred compensation plan in which a plan sponsor has hedged its liability under the plan for notional investments of deferred compensation awards, made to plan participants, using at least one hedge agreement comprising one or more of a total return swap, an option and a forward contract provided by a provider thereof, the method comprising:

receiving information relating to a taxable event relating to action of a plan participant relating to at least a portion of a deferred compensation award; and

computing a tax deduction for the plan sponsor on the taxable event in the plan, and providing information relating thereto to the plan sponsor.