A funding agreement is a conservative, fixed-income product that provides a stream of predictable, fixed payments at a predetermined future date. The legally enforceable document, agreement, and/or contract sets out the terms and conditions between the entity making an offer and the entity agreeing to the offer. The terms and conditions of the funding are generally not open to negotiation.

In order to satisfy both federal and state requirements:

• The intended contractholder (owner) must be a U.S. corporation or other similar organization that has substantial operations and assets in the United States. A corporation or other entity that is prohibited under current Office of Foreign Assets Control regulations and shell corporations are not eligible to be contractholders. The life company may request copies of the corporation’s 10K, Annual Report, or other evidence of capitalization at any time.
• The life company will require the legal name(s) and title(s) of persons representing the intended contractholder.
• Most generally, the following accurately describes what the funding agreement will be issued in connection with:

1. An ERISA employee benefit plan (including welfare benefit plans) or any similar plan or program in a foreign country (the life company will request the tax status of the plan if for a foreign country);
2. Any program of a tax exempt IRC 501(c) organization or similar organization in a foreign country (the life company will request to describe the nature, purpose, and tax status of the program if for a foreign country);
3. Any program of the United States, any state or other political subdivision, or of any foreign government (including its political subdivisions). The name of federal agency or program, state, state agency or program, political subdivision (agency name or program), foreign country and indicating the political subdivision, agency, or program of that foreign country must be provided with a description of the nature, purpose, and tax status of the program);
4. As an agreement to make periodic payments to satisfy a claim (e.g.: a structured settlement);
5. A program of an institution with over $25,000,000 in assets must provide the most current financial report of the institution and describe the nature, purpose, and tax status of the program.

• The name(s) of each person directly involved in the decision of the intended contractholder to invest in a funding agreement to be issued by the life insurance company, including any agent, broker, or other intermediary must be provided.
• The nature and source of the funds to be invested with specific information as to their current ownership, investment, and purpose must be provided. If the source of the funds to be invested is a non-U.S. source then the character, tax status, ownership, and source country are required.
• Most funding agreements have no early withdrawal rights, and any non-scheduled payments or pre-maturity termination may be subject to a market value adjustment.
• If it is intended that the funding agreement be used as collateral, then must be able to provide, to whom, in what amount, and would the possibility of a market value adjustment on non-scheduled or pre-maturity payments eliminate the use of the funding agreement for the purpose.

Best Use for Funding Agreements

There are many ways and purposes of use; the following provides the most common:

• Environmental clean-up and remediation
• Policy buyouts
• Future bonuses and/or benefit plans for employees
• Building contracts
• Government contracts
• Charitable organization contracts
• College and university contracts

ROBINYOUNG & COMPANY advises and provides expertise and consulting utilizing funding agreements for the areas of environmental clean-up and remediation, future bonuses and benefit plans for employees, and college and university contracts.
Learn more by contacting ROBINYOUNG & COMPANY.