As recent events have proven, it is a best practice for nonprofit organizations to keep liquid reserves on their balance sheets for unexpected emergencies and opportunities. These reserves are typically held in cash at the bank, or invested in CDs, U.S. Treasurys, or short-term bonds.
In today’s historically-low interest rate environment, it is difficult to achieve meaningful yields on these assets without taking additional risk or sacrificing liquidity.
The Liquidity Plus Program provides a solution to this dilemma by offering the following three benefits to nonprofits:
- Yields of 3-to-6% with 5-day liquidity and no surrender penalties, plus positive correlation to interest rates.
- A death benefit on key employees of 2-to-3 times the amount of the deposit, paid income tax-free when structured properly.
- An option to provide a portion of the death benefit to a key employee’s beneficiaries as a retention tool (Golden Handcuff).
The additional income earned by an organization can be used for any purpose and is often earmarked to offset employee benefit expenses such as supplemental retirement benefit plans.
If an executive unexpectedly passes away, the death benefits are typically utilized to recover the cost of supplemental retirement benefit plans, fund the foundation or endowment, or more efficiently offset other benefit expenses.
“Our organization was earning next to nothing on our assets at the bank. On several million dollars, that really hurts, and our board was understandably uncomfortable taking any additional risks with those funds,” remarked the CFO of an nonprofit that utilizes the program. “We earned about a decade’s worth of interest in just one year with Liquidity Plus, and we have key-man protection on our executive director. It’s a win-win, especially in today’s interest rate environment, and the board is thrilled.”
As interest rates rise, Liquidity Plus Program yields will also rise. The organization has three yield models to choose from, depending on which one, or combination, is most appropriate.
If, at any time, the organization would like to access the cash built up in these policies, it may do so without penalty.
If desired, a portion of the death benefit may be paid to the heirs of the insured executive. This is a valuable benefit that can be used by the organization to attract, reward, and retain its key people.
Nonprofit organizations that use Liquidity Plus include credit unions, museums, hospitals, community health centers, associations, and community foundations. Contact our office so we can show you how it can benefit your organization, too.
Note: Policy performance is based on current rates as charges, and values are not guaranteed. Medical and financial underwriting is required. Withdrawals and loans from life insurance policies classified as Modified Endowment Contracts (MEC) may be subject to income tax and a federal tax penalty, if taken prior to age 59½. Policy withdrawals and loans may cause the policy to lapse, which will result in the loss of death benefit and adverse tax consequences. Life insurance is backed by the claims paying ability of the carrier and is not FDIC insured. See policy illustration for details. Tax-free death benefit IRC §101(a) and tax-deferral of cash value IRC §7702 (a), (g). Grant Hinkle & Jacobs does not provide tax, legal, or investment advice.