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Claims  |
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What is claimed is:
1. A computerized self-implementing pension benefits system for
administering individual subscriber employee accounts on behalf of
subscriber employees who are to receive periodic benefits payments, said
system comprising:
a money lender; and
a life insurer;
said life insurer including:
a. subscriber employee contribution computing means for computing and
receiving each said subscriber employee's particular periodic contribution
based upon preselected periodic benefits payments;
b. life insurance policy issue means for issuing a pre-selected life
insurance policy for each said subscriber employee's life, each said life
insurance policy to be assignable to, retained by, and naming as its
beneficiary, said money lender;
c. periodic death benefit payment means for dispersing payable death
benefits upon the death of each said subscriber employee who has assigned
said life insurance proceeds to said money lender and has arranged for
commencement of periodic reverse annuity payments by said money lender;
life insurance proceeds collecting means within said money lender for
receiving and retaining from said life insurer all said life insurance
policy proceeds assigned to said money lender as said beneficiary upon
each subscriber employee's death;
periodic reverse annuity payment means for dispersing periodic benefits
from said money lender to each said subscriber employee who has assigned
said life insurance proceeds to said money lender and has arranged for
commencement of periodic reverse annuity payments by said money lender.
2. A computerized self-implementing pension benefits system as set forth in
claim 1, wherein said pension benefits include:
periodic retirement benefits payments;
periodic death benefits payments; and
periodic disability benefits payments.
3. A computerized self-implementing pension benefits system as set forth in
claim 1, wherein each said life insurance policy includes:
a whole life policy and a progressive one year term dividend rider coupled
with said whole life policy on each subscriber employee's life.
4. A computerized self-implementing pension benefits system as set forth in
claim 3, further comprising:
means for maintaining each said whole life policy by said life insurer in
full force and effect until the death of each said subscriber employee,
whether working or retired;
means for maintaining each said rider by said life insurer in full force
and effect until a predetermined retirement age or earlier death of each
said subscriber employee.
5. A computerized self-implementing pension benefits system as set forth in
claim 3, further comprising:
means for producing dividends by each said whole life policy which are
accumulated and retained by said life insurer;
means for accumulating said dividends after a predetermined number of years
of participation by each said subscriber employee to automatically pay for
all subsequent life insurance policy premiums.
6. A computerized self-implementing pension benefits system as set forth in
claim 3, wherein:
each said rider yearly increases said insurance policy proceeds a
predetermined amount until said predetermined retirement age or earlier
death of each said enrolled employee.
7. A computerized self-implementing pension benefits system as set forth in
claim 3, further comprising:
means for producing by additional dividends each said life insurance policy
which are used annually to purchase paid-up additions to each said life
insurance policy.
8. A computerized self-implementing pension benefits system for
administering individual subscriber employee accounts on behalf of
subscriber employees to provide periodic benefits payments for each said
subscriber employee beginning at the earliest of death, disability or
retirement, said system comprising:
a money lender; and
a life insurer;
said life insurer including:
a. subscriber employee contribution computing means for computing and
receiving each said subscriber employee's particular periodic contribution
based upon preselected periodic benefits payments;
b. life insurance policy issue means for issuing a preselected life
insurance policy for each said subscriber employee's life, each said life
insurance policy to be assignable to, retained by, and naming as its
beneficiary, said money lender, each said life insurance policy including
a whole life policy and a progressive one year term dividend rider coupled
with said whole life policy for each said subscriber employee's life;
c. periodic death benefit payment means for dispersing payable death
benefits upon the death of each said subscriber employee who has assigned
said life insurance proceeds to said money lender and has arranged for
commencement of periodic reverse annuity payments by said money lender;
life insurance proceeds collecting means within said money lender for
receiving and retaining from said life insurer all said life insurance
policy proceeds assigned to said money lender as said beneficiary upon
each subscriber employee's death;
periodic reverse annuity payment means for dispersing periodic benefits
from said money lender to each said subscriber employee who has assigned
said life insurance proceeds to said money lender and has arranged for
commencement of periodic reverse annuity payments by said money lender.
9. A computerized self-implementing pension benefits system as set forth in
claim 8, further comprising:
means for maintaining each said whole life policy by said life insurer in
full force and effect until the death of each said subscriber employee,
whether working or retired;
means for maintaining each said rider by said life insurer in full force
and effect until a predetermined retirement age or earlier death of each
said subscriber employee.
10. A computerized self-implementing pension benefits system as set forth
in claim 8, further comprising:
means for producing dividends by each said whole life policy which are
accumulated and retained by said life insurer;
means for accumulating said dividends after a predetermined number of years
of participation by each said subscriber employee to automatically pay for
all subsequent life insurance policy premiums.
11. A computerized self-implementing pension benefits system as set forth
in claim 8, wherein:
each said rider yearly increases said insurance policy proceeds a
predetermined amount until said predetermined retirement age or earlier
death of each said subscriber employee.
12. A computerized self-implementing pension benefits system as set forth
in claim 8, further comprising:
means for producing by additional dividends each said life insurance policy
which are used annually to purchase paid-up additions to each said life
insurance policy.
13. A computerized self-implementing pension benefits system for
administering individual subscriber employee accounts on behalf of
subscriber employees to provide periodic benefits payments for each said
subscriber employee beginning at the earliest of death, disability or
retirement, said system comprising:
a money lender; and
a life insurer;
said life insurer including:
a. subscriber employee contribution computing means for computing and
receiving each said subscriber employee's particular periodic contribution
based upon preselected periodic benefits payments;
b. life insurance policy issue means for issuing a pre-selected life
insurance policy for each said subscriber employee's life, each said life
insurance policy to be assignable to, retained by, and naming as its
beneficiary, said money lender, each said life insurance policy including
a whole life policy and a progressive one year term dividend rider coupled
with said whole life policy for each said subscriber employee's life, each
said life insurance policy producing additional dividends which are used
annually to purchase paid up additions to said life insurance policy;
c. periodic death benefit payment means for dispersing payable death
benefits upon the death of each said subscriber employee who has assigned
said life insurance proceeds to said money lender and has arranged for
commencement of periodic reverse annuity payments by said money lender;
life insurance proceeds collecting means within said money lender for
receiving and retaining from said life insurer all said life insurance
policy proceeds assigned to said money lender as said beneficiary upon
each subscriber employee's death;
periodic reverse annuity payment means for dispersing periodic benefits
from said money lender to each said subscriber employee who has assigned
said life insurance proceeds to said money lender and has arranged for
commencement of periodic reverse annuity payments by said money lender.
14. A computerized self-implementing pension benefits system as set forth
in claim 13, further comprising:
means for maintaining each said whole life policy by said life insurer in
full force and effect until the death of each said subscriber employee,
whether working or retired;
means for maintaining each said rider by said life insurer in full force
and effect until a predetermined retirement age or earlier death of each
said subscriber employee.
15. A computerized self-implementing pension benefits system as set forth
in claim 13, further comprising:
means for producing dividends by each said whole life policy which are
accumulated and retained by said life insurer;
means for accumulating said dividends after a predetermined number of years
of participation by each said subscriber employee to automatically pay for
all subsequent life insurance policy premiums.
16. A self-implementing pension benefits system as set forth in claim 13,
wherein:
each said rider yearly increases said insurance policy proceeds a
predetermined amount until said predetermined retirement age or earlier
death of each said subscriber employee.
17. A self-implementing pension benefits system as set forth in claim 13,
further comprising:
means for producing by additional dividends each said life insurance policy
which are used annually to purchase paid-up additions to each said life
insurance policy. |
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Claims |
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Description |
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BACKGROUND OF THE INVENTION
This invention relates generally to pension plans, and more specifically,
to a self-implementing pension benefits system utilizing life insurance as
a major vehicle for funding benefits.
Several Congressional acts since 1974 including ERISA and TEFRA have led
the way in a Congressional attempt to stem the tide of underfunded or
illusory pension benefits in the past. To a large extent, these
Congressional efforts coupled with other judicial pronouncements have
contributed to the demise rather than strengthening of many of these prior
pension programs and have compelled drastic changes in those that remain.
Several economic and social factors including inflation, longer life
expectancies, higher interest rates, recession, bankruptcies and other
economic factors have all taken heavy tolls on private pension plans.
More recently, many private pension plans which had moved to adopt defined
benefits pension plans are now being forced to either amend or dissolve
their programs, resulting in loss by employees of considerable unvested
benefits and creating a new movement toward defined contributions programs
which are completely open ended concerning levels of benefits and
protection of future purchasing power.
The present system, while fully complying with all of the latest
Congressional and judicial mandates, provides a novel fully funded pension
benefits system which imposes considerably lower and fixed determinable
financial burdens upon each subscriber employee who may be an individual
below retirement age, whether employed or not, and relieves him of all
administrative and fiduciary responsibility, while also providing
expanded, accurately predictable, and increasing benefits to all such
enrolled employees. Benefits are expanded in that, in addition to periodic
retirement payments after retirement age e.g., 65, both death and
disability benefits are also provided. Rather than being fixed or
completely undeterminable, all benefits provided by the present system are
projectable from the onset of a program so that each subscriber employee
may determine his or her future benefits resulting from death, disability,
or retirement and be assured that because of a built-in increasing
benefits, that the benefits he or she receives will keep pace with
inflation, retaining his purchasing power. The marvels of this new
self-implementing pension system are, in large part, achieved by a unique
implementation of life insurance to fund future payable liabilities by a
lending institution utilizing principles of reverse annuity also in a
unique way. Rather than terminating life insurance at employee retirement,
each policy is maintained in force by the life insurer until the
employee's death, the proceeds flowing to the lending institution chosen
to assist in funding the reverse annuity and the associated periodic
benefits.
BRIEF SUMMARY OF THE INVENTION
The present invention is that of a self-implementing pension benefits
system for subscriber employees including a lending institution and a life
insurer institution. The functions of the life insurer institution
include: computing and receiving each subscriber employee's periodic
payment thereinto based primarily upon each employee's desired projected
periodic benefits and their ages; issuing a unique life insurance policy
covering each subscriber employee; providing specific accurate future
projections of periodic benefits for retirement, death, or disability; and
distributing all life insurance policy proceeds upon the death of each
enrolled employee to the lending institution and/or second beneficiaries
of each employee. Funding a significant portion of payable periodic
benefits by reverse annuity issued by the lending institution, secured by
the cash value of life insurance policy proceeds retained within the
lending institution is one truly unique feature of this system; life
insurance having prescribed amounts of whole life and increasing one-year
term dividend rider components is yet another.
It is therefore an object of the present invention to provide a
self-implementing pension system for subscriber employees without the need
for employer participation and which will both reduce and accurately
define employee contributions while eliminating the need for all employee
contributions after a predetermined number of years.
It is another object of this invention to provide a unique
self-implementing pension system which provides periodic benefits upon
death, disability or retirement of each enrolled employee.
It is still another object of this invention to provide the above pension
benefits system whose benefits are automatically increased at
predetermined fixed rates to help keep pace with inflation.
Still another object is to provide the above invention fully funded in part
by a unique utilization of life insurance which will serve as collateral
for a reverse annuity.
In accordance with these and other objects which will become apparent
hereinafter, the instant invention will now be described with reference to
the accompanying drawings in which:
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. 1 is a schematic flow diagram of the entire pension benefits system.
DETAILED DESCRIPTION OF THE INVENTION
Referring now to FIG. 1, the system of the present invention includes a
life insurer institution 10 and a lending institution 12, which relate and
exist functionally as follows. Each subscriber employee E1, E2, E3 . . . ,
makes a predetermined periodic contribution into the life insurer
institution 10. The life insurer institution 10 then, continuously and
regularly performs several functions. A portion of each subscriber
employer's contribution is applied for purchasing a predetermined life
insurance policy against each enrolled employee's life from the life
insurance institution 10. A significant portion of the funding of all
payable periodic benefits to subscriber employees, E1, E2, E3, . . . is
achieved through the unique utilization of predetermined amounts of life
insurance. The lending institution 12 receives and retains the life
insurance policies and subsequently receives all life insurance proceeds
associated therewith at the death of each employee E1, E2, E3, . . . who
elects to receive reverse annuity payments.
It is here noted that, although participants of this system are referred to
generally herein as "subscriber employees", any individual below
retirement age who wishes to enroll may do so, even if unemployed, so long
as prescribed payments to the life insurer are timely made for the
predetermined number of months, e.g. 180 months.
The fact that life insurance is used universally in this system to fund
both pre-retirement, post-retirement, and disability benefits produces a
significant cost savings for this system. Whereas typically life insurance
held by individuals or is otherwise terminated and converted to cash equal
to the cash value of the policy to serve as collateral for an annuity at
retirement, the lending institution 12 retains the life insurance policy
on each employee in full force and effect until death.
Coupled with a whole life insurance policy on each subscriber employee's
life, the life insurer institution 10 also automatically issues a one-year
term dividend increasing term rider in conjunction with each whole life
policy providing for increasing proceeds without the expense of first year
agent commissions and additional policy fees and handling expenses by the
life insurer institution 10.
To further enhance the accumulation of cash within the life insurer under
this system, all accumulated dividends in excess of that necessary to fund
the one year term rider and all monthly payments after the predetermined
number of months, e.g. 180 months, are utilized to purchase paid-up whole
life insurance additions to the basic whole life policy for each
subscriber employee. These additional dividends are accumulated from
interest on dividends themselves which are utilized in part, to purchase
these paid-up insurance additions. These paid-up additions also share in
dividends and will have increasing cash and loan values at a point in time
when the subscriber employee chooses to utilize the policy to serve as
collateral for the lending institution in exchange for establishing the
reverse annuity and periodic payments associated therewith. Thus, two
separate accounts within the life insurer earn dividends compounded
annually.
An additional feature preferred is the incorporation of disability waiver
of premium during the initial period of the program when each subscriber
employee is paying policy premiums. Should the subscriber employee become
disabled during this initial payment period, the life insurer has waived
further payment of any premiums so that the overall program remains in
full force and effect even if the subscriber employee has lost his ability
to continue to pay the premiums for the expected time period.
While typically the rest of the pension world dictates that when an
employee retires, his life insurance policy should be surrendered in favor
of a cash surrender value to help pay retirement benefits or to dund an
annuity, the present system retains the whole life policy in force until
death. The one year progressive term dividend rider portion of the life
insurance is terminated at retirement age, e.g. 65, because the risk of
payment of disability and pre-retirement death benefits are no longer
present. The benefits derived by retaining the whole life insurance policy
in force until employee's death amounts to approximately 20 to 25 percent
increased revenues to guarantee reverse annuity payments from the lending
institution 12 as compared with the cash surrender value of that whole
life insurance policy a retirement age.
Once the level of employee benefits have been chosen by each subscriber
employee, the level of life insurance policy is then established. In the
preferred embodiment, the amount of whole life insurance is typically
equal to about 100 times the employee's desired monthly benefits, while
the one year term dividend rider is equal to approximately three times the
desired monthly benefits increasing yearly automatically to normal
retirement age. An important secondary benefit in the choice of the one
year progressive term dividend rider is that all cash dividend yields
therefrom are accumulated within the life insurer institution 10. By this
dividend accumulation, after, e.g. 15 years or other predetermined period
of time, the accumulated dividends from the whole life policy are
sufficient such that all future life insurance premiums for both the whole
life portion and the increasing term dividend portion will be
automatically paid from accumulated dividends for each employee's policy
after the 15 years of participation in the system. Thereafter, no further
subscriber employee contributions are required. However, each subscriber
employee may elect to make continued further payments to enhance and
compound further cash values.
Benefits of this system include periodic payments upon death, disability,
or retirement of each employee. Death benefits vest upon the enrollment by
the subscriber employee into the system, and are payable beginning
immediately upon the death of a subscriber employee to the employee's
beneficiaries. These periodic death benefits are payable for a
predetermined period of years. Disability benefits vest also on enrollment
of the subscriber employee, and are payable upon the occurrence of the
disability in supplemental form to Social Security such that the total
amount of periodic benefits received by the disabled employee is at a
predetermined level.
Because this program is self-implementing by each subscriber employee,
there is no issue of portability or loss of accumulated benefits should a
subscriber employee choose to change employers. This system is completely
detached from an employer and therefore any job shifting between employers
or temporary discontinuance of employment altogether prior to retirement
has no effect whatsoever on benefits to be received.
BASIC ASSUMPTIONS
Obviously, one primary assumption in this pension benefits system is the
current life expectancy of employees. This is assumed to be equal between
men and women and is determined actuarially on a yearly basis. Because no
pension benefits are payable before a predetermined number of years of
employee participation, the only financial exposure during that period
would be from death or disability of the employee. Therefore, during this
start-up period, the liabilities are treated and calculated separately and
fully funded separately.
After a predetermined number of years of payments by each employee, e.g.
fifteen years, life insurance premiums begin to be paid by the whole life
policy dividend accumulations. Thereafter, all life insurance premiums for
a given subscriber employer are paid substantially, if not totally, by
dividend accumulations within the life insurance institution.
Because at the pre-established age of retirement of each employee the risk
of having to pay pre-retirement death or disability benefits is
extinguished, the term rider portion of the life insurance policy is
discontinued for each particular enrolled employee. However, the
accumulated dividends from that whole life policy will continue to
automatically accumulate and to pay the whole life insurance policy
premiums on each employee after his retirement age.
All employee periodic benefits are increased annually throughout the
duration of their participation in the program and into retirement in
order to compensate for loss of purchasing power due to inflation.
However, rather than tieing benefits level to uncontrollable cost of
living indexes or the like, this system incorporates predetermined fixed
simple interest percentages of yearly benefits increases based upon the
employee's start-up salary. Benefits calculations described herebelow and
which may be tabularized, provide an easy index for determining minimum
future payable benefits, that is, benefits which are upwardly adjusted
annually according to the predetermined yearly simple percentage rate of
increase.
Death benefits are presumed to be required by the employee's beneficiaries
only for a fixed period of years. Thereafter, periodic benefits will
terminate. However, disability benefits are payable periodically to the
employee from the reverse annuity by the lending institution as a
supplement to Social Security until death. These benefits for disability
will increase according to the assumed fixed simple interest inflation
factor until a preselected age and level thereafter until death. Likewise,
retirement benefits continue to increase by the simple interest inflation
factor until a preselected age and level thereafter until death or the
termination of the annuity contract, whichever occurs first.
Principles of Annuity
One typical use of whole life insurance policies at retirement is to
convert or retire them to the life insurer in exchange for a lump sum
amount equal to the cash value of the policy at retirement. This cash
amount may be utilized by the individual by transfering the cash to a
lending institution which will then establish an annuity contract and
periodic payments associated therewith for a predetermined number of
years.
In the present system, the policy is maintained in full force and effect
until death. However, at retirement or other preselected time periods,
each subscriber employee may establish a reverse annuity by assigning the
first beneficiary interest of the policy to a lending institution. This is
done strictly in conjunction with maintaining the life insurance policy in
full force and effect. By accepting assignment of first beneficiary
interest under the policy, the lending institution is assured of payment
of a sum certain which will typically be somewhat less than the total cash
value of a whole life policy when the reverse annuity is established.
Projected increases in cash value are due to at least two factors. First,
the paid-up additions have substantially increased the cash value of the
policy. Additionally, because the policy is to be maintained in full force
and effect until the death of the employee, the cash value of the policy
continues to accumulate and increase on a yearly basis so that, the longer
the subscriber employee lives, the greater the cash value to be
transferred to the lending institution at the death of the employee or the
termination of the reverse annuity contract, whichever occurs first.
However, a very important feature of this system is realized in the form
of increased cash value at death which occurs after termination of the
reverse annuity contract. Even though the lending institution is paid its
principle and interest at the end of the annuity contract by the life
insurer, the remaining cash value continues to accumulate. The employee
may thus immediately continue to receive anticipated increased monthly
payments from the life insurer or a large death benefit payment to second
beneficiaries, or both, when reverse annuity payments terminate.
Reverse Annuity Formula
This system also provides for standardized formula for calculating the
expected cash value and reverse annuity payments at retirement, or
whenever the subscriber employee wishes to commence reverse annuity
payments. Accordingly, from the inception, all benefits are predictable by
each enrolled employee. This predictability is utilized to assist each
subscriber employee in preselecting the amount of benefits desired at
retirement disability or death and, accordingly, determines the amount of
the whole life policy to be issued and its associated cash values. These
benefits are selected based only upon the amount of monthly payments which
the subscriber employee can afford, balanced by the projected cash values
and reverse annuity benefits associated with those payments.
Following is the general formula used to calculate the reverse annuity
values:
##EQU1##
where: NELI=Net equity of the life insurance policy at time of reverse
annuity contract
LCBP=Lending institution cumulative balance of payments, i.e., the amount
that will be due and owing (principle and interest) to it by employee at
end of reverse annuity contract, X years.
The above formula is of a general nature which may be utilized to determine
any one of the three factors contained therein when two of the other
factors are known or assumed. However, the preferred embodiment of the
formula is modified in the following manner. Of course, the NELI is
determined from conventional life insurance cash value tables in
conjunction with the specialized life insurance program as hereinabove
described. The initial monthly payment represents either the desired or
the projected beginning payments to each subscriber employee. Part of the
uniqueness of this system, however, resides in the determination of LCBP.
In the preferred system, the reverse annuity period is established at 30
years of payments or 360 monthly payments. Additionally, the LCBP is
calculated based upon increasing payments to each subscriber employee at a
fixed simple rate over an initial period of the annuity contract, e.g. 10
years. A further assumption needs to be made in the determination of LCBP,
that being the assumed interest rate to be charged by the lending
institution for establishing the reverse annuity contract. Although some
uncertainty resides in establishing this interest rate, nonetheless a
range of interest rates may be assumed for calculation purposes so that
each subscriber employee may accurately predict the expected range of
payments at the time of establishing the reverse annuity contract.
Again, for the purposes of describing the preferred embodiment, an
increasing payment rate of five percent is utilized over a ten year or 120
month period. Further, an interest rate of ten percent (10%) is assumed as
a reasonable rate to be charged by each lending institution for
establishing and on paying each reverse annuity contract.
The following table, then, lists a series of LCBP's which accurately
indicate the amount of monies which would have to be repaid to the lending
institution after the corresponding number of years of payments on a
monthly basis, starting with an initial monthly payment of one dollar
($1.00). In this table, the age of the subscriber employee is indicated
wherein the reverse annuity contarct commenced at age 65 for a thirty year
period.
Also indicated in the table herebelow is the total principle paid at the
end of the corresponding number of years and the accrued intrest owed to
the lending institution, the total of which combine to equal the LCBP.
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TABLE OF FACTORS @ 10% INTEREST
Years of Principle Interest
Age Payments Paid + Accrued = L.C.B.P.
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75 10 147 69.1646 216.1646
80 15 234 164.7796 398.7796
85 20 321 303.8946 624.8946
90 25 408 486.5096 894.5096
95 30 495 712.6246 1207.6246
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Utilizing the above table of factors in its simplest form and based upon
the assumptions contained therein as hereinabove described, i.e., a 10%
interest rate on the reverse annuity contract with payments starting at
one dollar ($1.00) and increasing 5% simple yearly to the tenth year and
continuing constant thereafter to year 30, it may readily be seen that, at
the end of ten years, the L.C.B.P. will equal two hundred sixteen dollars
and 1646/100 ($215.16 rounded off). Likewise, the total amount due and
owing at the end of the thirty year period will be one thousand two
hundred seven dollars and 6246/100 ($1,207.62 rounded off).
To utilize the above table of factors in a more comprehensive way, the
initial monthly benefits payments desired are inserted into the above
formula, the L.C.B.P. at the end of the thirty year period as indicated in
the above table, is inserted into the formula allowing the NELI to be
determined. The NELI will then be utilized in conjunction with actuarial
tables available from the life insurance institution based upon the
present age of the participant which will then allow the determination of
the actual face amount of the whole life insurance policy to be issued and
the corresponding subscriber employee periodic payments associated
therewith.
Utilizing the above formula and table, each perspective enrolled employee
may quickly determine the expectd benefits payments at death, retirement,
or disability at a predetermined point in time. Of course, other tables
assuming different increasing levels of payments and assumed reverse
annuity contract interest dates may be easily developed.
While the instant invention has been shown and described herein in what is
conceived to be the most practical and preferred embodiment, it is
recognized that departures may be made therefrom within the scope of the
invention, which is therefore not to be limited to the details disclosed
herein but is to be accorded the full scope of the claims so as to embrace
any and all equivalent apparatus and articles.
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