Split-Funding
- 2019 - EntreLeadership - [Dave Ramsey] - How To Change Your Life and Your Business - Art Williams - [VIDEO-YouTube-54:47]
- 8:15 - In 1977 the Life Insurance Companies owned 60% of the Assets in the United States. They owned the politicians and they owned the Regulators. They had been in business for over 100 years. They did everything they could possibly do to put A.L. Williams out of business. But the industry had to defend things that were indefensible.
- They had to defend selling a fraud.
- They sold a Cash Value Life Insurance Product whether it was called Whole Life or Universal Life or any of that stuff out there - there were two Benefits locked together in one Contract. - Insurance and Savings. You pay for 2 things, but you only got one.
- If you died, your family got the Life Insurance Benefits, but they kept your Savings.
- If you wanted you Savings, you had to Surrender your Life Insurance.
- A.L. Williams separated that. Split-Funding we called it.
- Where you bought an Insurance Policy, a Cheap Term Insurance policy from an Insurance Company and you Invested with an Investment Company. You paid for two things and you got both things.
- On December 31, 1962, New York Life introduced a program for self-employed individuals' retirement plans.
- In general, the program involves the use of the same policies as are available for pension trust business:
- (1) retirement income and retirement annuity policies for fully insured plans;
- (2) whole life policies with a pension option for combination or split-funded plans and profit-sharing plans; and
- (3) retirement annuity policies for direct purchase on a nontransferable basis.
- In general, the program involves the use of the same policies as are available for pension trust business:
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- The usual practice in setting up split-funded and profit-sharing plans is to use a whole life policy with a pension option under which only a small part of the desired monthly income is provided by the guaranteed cash values in the policy. We felt that the professional and small businessmen who might be interested in setting up such plans under the Keogh Act might be interested in having a larger part of the monthly income guaranteed by the policy's cash value rather than relying on the side funding for the large majority of the income.
- So we developed a special pension option to be used with retirement income policies and which gives the policy owner the right to increase the monthly income from the guaranteed $10 per $1,000 to up to $30 per $1,000 by making an appropriate lump-sum payment. This approach has the advantage of giving the insurance company a larger share of the total contributions each year under split-funded and profit-sharing plans.
-- John F. Ryan [Bonk: New York Life-?]
1963 - SOA - Retirement Plans (Individual and Group), Society of Actuaries - 33p
- 1983 - EAR - Enrolled Actuaries Report - https://www.actuary.org/archives/pdf/ear/ear_198304.pdf - [Bad Link - <WishList>]
- Two basic funding approaches to be used with universal life product were discussed.
- One approach treats it basically as a traditional life insurance policy by choosing an interest assumption to accumulate the cash value and offset total cash by this assumed accumulated cash value at retirement.
- Excess earnings over the "theoretical" cash value would be calculated each year and treated as a side fund asset. The audience indicated this approach would not constitute a change in funding method for a plan previously funded with traditional whole life insurance.
- The second approach is a "term-cost" approach, which funds the retirement benefit on a noninsured basis and then adds a term cost to cover the death benefit.
- This does not require any separate interest assumption for the insurance, as all assets are treated as a combined fund.
- Many in the audience believed this would be a change in method for a plan previously using traditional split-funding with whole life insurance; however, a class ruling to change methods could make the transition less painful .
- One approach treats it basically as a traditional life insurance policy by choosing an interest assumption to accumulate the cash value and offset total cash by this assumed accumulated cash value at retirement.
