The Todd Organization has always been an innovative leader in the executive benefits marketplace. A cornerstone of our success has been our ability to solve problems for America’s largest businesses. Our solutions have spanned over five decades and have had a significant impact on the evolution of the industry.
The Todd Organization has a long history of solving corporate executive financial compensation issues. John O. Todd, Sr. is credited with creating the non-qualified executive benefit industry by solving an executive compensation issue for the Cargill Company in 1957. Cargill’s Board would not approve the cost of a company-wide retirement plan presented by management. However, the Board finally approved a plan designed by The Todd Organization that reduced the eligibility to key personnel and a hedging strategy that recovered the net present value cash flow cost of the benefit using Cargill’s opportunity cost of capital.
The hedging strategy was the first use of key man life insurance by a major corporation to recover the cost of an executive benefit plan. John designed a group of corporate owned life insurance policies so that the net present value gain of the death benefits, assuming normal life expectancy, equaled the net present value cost of benefit payments and policy premiums. The acronym for Corporate Owned Life Insurance became COLI.
In the late 1950s, General Electric’s key executives’ estates were being devastated by the impact of estate taxes. The estates were forced to liquidate GE stock to pay taxes. Their heirs were losing the stock’s capital value and also the potential dividend income and future appreciation. In 1962, John Todd designed an executive benefit plan that created the liquidity to pay the estate taxes. This plan enabled the estates to retain the GE stock. GE was the first public company to publish in their proxy that all benefit expenses would be recovered, along with a factor for use of money, if the actuarial assumptions were realized.
In the 1980s, a large New York City bank needed a plan to help senior executives who were “retired” but could not afford to retire. Todd consultants from the New York office designed a capital accumulation plan that credited an above market interest rate on monies deferred into a non-qualified deferred compensation plan. The bank executives were able to defer substantial amounts (up to 100% of total cash compensation) of pre-tax income and earn this attractive rate of return, compounding income tax-free. The bank hedged the plan liabilities with a COLI portfolio designed to take advantage of the tax arbitrage of deductible benefit payments and non-taxable earnings. This plan evolved into today’s “Mirror 401(k) Plan”.
In the 1990s, large banks were not able to acquire the amount of municipal bonds with high enough ratings to meet their investment portfolio allocation policies. The Todd Organization consultants worked with strategic partners and major providers of COLI policies to design contracts that were an attractive alternative to municipal bonds. Bank Owned Life Insurance (BOLI) became an important investment for all types of banks to help improve their investment returns and to finance employee benefit expenses.
In the 2000s, the majority of an executive’s compensation is variable and in company stock. Therefore, most corporate executive’s investment portfolios are over weighted in equities, making it difficult to diversify until retirement. Due to market timing and taxation issues, executives may face the same diversification concerns in retirement. Following the crash of the tech and real estate bubbles, there was a flight to safety as executives in non-qualified deferred compensation plans moved large portions of their account balances into money market funds. They were using Will Rodger’s philosophy of “being more worried about the return of their money than the return on their money!”
Innovative problem solvers, Todd’s current consultants designed an investment account that could be added to a Non-Qualified Deferred Compensation Plan’s investment menu that credits an above market fixed rate of return (from a high of 8% to a rate in 2011 of 5.5%). Thus, executives are able to reduce the risk profile of their portfolio without sacrificing return. The plan sponsor passes through to the plan participants the long-term rate of return of a COLI portfolio with a AAA rated provider.
Todd’s partners follow in the tradition of our founders. Our experienced consultants provide value to corporations by designing unique benefit compensation plans that help companies recruit, motivate and retain key personnel. We assist plan sponsors with selecting and maintaining relationships with the plan administration service providers. We provide communication and education to the plan sponsor’s management, Board of Directors, and plan participants with our value-added services.
By maintaining our core values of problem solving and high quality service, The Todd Organization brings unparalleled experience, knowledge, and commitment to non-qualified deferred compensation plan sponsors.
Today, Todd’s strength is evident in numerous ways. Its consultants, both current and retired, have been some of the most successful agents in Northwestern Mutual history, having sold over 3 billion dollars in COLI and BOLI products. Further, Todd maintains a stable, growing list of over 600 corporate clients around the nation, in all industries.