Why financing NQDC plans with corporate-owned life insurance (COLI) makes sense

With modern technology tools, a Newport-administered COLI solution can be seamlessly connected to existing NQDC plans currently using a different financing vehicle, either because their record keeper does not offer COLI or lacks the expertise to implement and service COLI programs. This creates a powerful opportunity for advisors to help plan sponsors reduce the financing expenses of their NQDC plan.

Tax efficiency: A key reason to recommend COLI to plan sponsors who may use other NQDC financing tools 

COLI can help plan sponsors currently financing their plans with other vehicles to reduce tax consequences/create tax efficiency. Here are some potential advantages of a tax-advantaged COLI program as compared to other financing vehicles, including mutual funds, another popular NQDC plan financing choice.

• Lower expenses—the insurance expenses associated with COLI are typically lower than the costs associated with other financing options
• Higher net yields—because of the lower costs associated with COLI, the net yields generated by COLI have tended to be higher than those generated by mutual funds and other financing vehicles

Three ways COLI can help advisors differentiate themselves and grow their business

Although COLI is not new to the NQDC plan marketplace, the addressable market for COLI is substantial. Advisors who are familiar with the tax and accounting benefits of COLI are in a position to provide a significant value-added service to plan sponsor clients while including a financially rewarding differentiator in their practices.

If a plan sponsor currently uses a record keeper that does not offer COLI or lacks COLI capabilities, here are three key reasons to reach out to them about setting up COLI financing for their NQDC plan.

• COLI can be easily integrated into existing NQDC plans, allowing advisors to help plan sponsor clients optimize NQDC plan financing performance without requiring them to change plan recordkeepers. 
• While COLI remains the most popular financing vehicle for NQDCs, roughly one-third of plan sponsors do not use it*. This is an opportunity for advisors to engage a sizable untapped market.
• Many advisors don’t include COLI among their service offerings, making this a less-saturated space with strong growth potential.

Three COLI benefits that can help strengthen plan sponsor client retention

Plan sponsors, even those who may be satisfied with their current financing vehicle, can benefit by adding a COLI program to their existing NQDC plan. Three common benefits of using COLI are: 

1. Profit & loss (P&L) stability—Financing NQDC plan liabilities with COLI can help clients reduce financial statement volatility associated with asset rebalancing
2. Tax advantages—COLI offers tax-deferred growth of the cash value, tax-free rebalancing within the policy, and tax-free receipt of death proceeds
3. Financial flexibility—COLI cash values may be accessed tax-free, thus enabling sponsors to meet NQDC plan liquidity demands without affecting the funding ratio for the NQDC plan

Key takeaway: Even if a plan sponsor’s current plan record keeper is unfamiliar with COLI, advisors can still introduce it as another financing solution to improve plan efficiency and employee retention. Today, it is easier than ever to integrate these programs into an existing NQDC plan. 

Partner with Newport for COLI expertise and support

Newport, an Ascensus company, is uniquely qualified to design and implement COLI programs tailored to the specific needs of each plan sponsor. With a dedicated team of more than 150 insurance specialists, Newport provides guidance and expertise throughout the entire COLI life cycle, including policy issuance, administration, and reporting. Newport will work with a client’s record keeper to provide asset-liability rebalancing services, consistent with the client’s financial objectives.

Key features of Newport’s COLI programs

Advisors and plan sponsors who choose Newport as their COLI provider can feel confident that we will work with them to meet every need and can handle all aspects of the program with an efficient and personalized touch. We offer consultative expertise, specialized skills, advanced technological capabilities, and innovative product design. Our comprehensive COLI program services include:

• Carrier due diligence
• Comprehensive assessment of insurer’s credit quality
• Seamless implementation
• Monthly reporting
• Regulatory compliance
• Death claim sweeps and processing
• Asset-liability rebalancing services

As an independent provider (Newport is not owned by an insurance company or asset manager), Newport delivers unbiased guidance by setting up and administering COLI programs. We partner with some of the premier carriers within the institutional space to offer flexible COLI policies that require no physicals or medical exams, which helps simplify the policy issuance process. This helps streamline the program implementation for plan sponsors. Our long-term commitment to both advisors and clients provides consistent support throughout the entire life of the policies.

Please Contact us today for more information about this unique opportunity.

*Source: Newport/PLANSPONSOR NQDC Trends Survey Report (employer survey on NQDC plans)