Source: http://www.google.com/patents/US6766303?ie=ISO-8859-1&dq=%22Meaning-based+information+organization+and+retrieval%22
Timestamp: 2015-04-21 07:29:39
Document Index: 18856316

Matched Legal Cases: ['arty 101', 'arty 103', 'arty 101', 'arty 103', 'arty 205', 'arty 205', 'arty 205', 'arty 205', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305', 'arty 305']

Patent US6766303 - Method for hedging one or more liabilities associated with a deferred ... - Google PatentsSearch Images Maps Play YouTube News Gmail Drive More »Sign inAdvanced Patent SearchPatentsThe present invention relates to a method for hedging a deferred compensation liability. In one embodiment, the invention may provide a mechanism to hedge the compensation expense liabilities of an employer providing deferred compensation to one or more employees....http://www.google.com/patents/US6766303?utm_source=gb-gplus-sharePatent US6766303 - Method for hedging one or more liabilities associated with a deferred compensation planAdvanced Patent SearchPublication numberUS6766303 B2Publication typeGrantApplication numberUS 09/977,813Publication dateJul 20, 2004Filing dateOct 15, 2001Priority dateMay 16, 2001Fee statusPaidAlso published asUS20020174044, US20030093354, WO2003098516A1, WO2003098516A8Publication number09977813, 977813, US 6766303 B2, US 6766303B2, US-B2-6766303, US6766303 B2, US6766303B2InventorsDavid J. MarshallOriginal AssigneeGoldman Sachs & Co.Export CitationBiBTeX, EndNote, RefManPatent Citations (7), Non-Patent Citations (4), Referenced by (12), Classifications (7), Legal Events (6) External Links: USPTO, USPTO Assignment, EspacenetMethod for hedging one or more liabilities associated with a deferred compensation plan
A conventional deferred compensation plan is a mechanism by which an executive or other employee of a company may elect to defer payment of compensation until a later date. Taxation of the income to the employee, and the employee's deduction, are typically delayed until payment of the deferred compensation is actually made. Further, the deferred compensation plan is typically offered through a non-qualified deferred compensation arrangement (i.e., a plan which is not described under section 404(a)(1), (2),or (3) of the U.S. Internal Revenue Code of 1986, as amended (hereinafter the �Code�)) which is accounted for without a specific amount set aside in trust. Of note, when participant investment direction is permitted, many conventional non-qualified deferred compensation plans offer the plan participants market-based investment benchmarks similar to investment options under a 401(k) program. That is, conventional non-qualified deferred compensation plans offer the plan participants (e.g., employee(s)) the ability to receive a return on deferred compensation as if their deferred compensation were invested in one or more market-based benchmarks such as the S&P 500, the Russell 2000, and/or a particular mutual fund (hereinafter generically referred to as �Mutual Fund A� or �Mutual Fund B�). Although the employee is entitled to receive a payout equal to the value of its deferred compensation as if such amounts were invested in the selected investment benchmarks, neither the employer nor anyone else is under any obligation to actually purchase the benchmark investments. In this way, the employee's deferred compensation may be said to be �notionally� invested in the benchmark investments.
In one specific example of the operation of a conventional deferred compensation plan, an employee may defer $100 of compensation (i.e., the employee will not take the deferred compensation as income) and the employee may elect to receive a return on the deferred amount as if the deferred amount were invested in one or more benchmark investments specified by the deferred compensation plan. The plan allows employees to change periodically the manner in which their deferred compensation is notionally invested prior to the payout date. For example, an employee might defer $100 of compensation and elect to receive a return on that amount as if it were invested in Mutual Fund A. One year later, the value of such an investment might be $110 (such amount is typically known as the employee's �plan balance�). At that time the employee might change its notional investment to reflect a return on its plan balance as if that balance were invested in Mutual Fund B. At the payout date, the employee typically would be entitled to receive an amount equal to its plan balance at that time. This amount due at the payout date represents a liability (hereinafter �NQDC Liability�) to the employee owed by the employer. However, it is understood that NQDC plans are unfunded promises to pay. The employee has no rights of ownership in any asset, hedge, etc. used by an employer to hedge or offset balance sheet liabilities.
In one financial area which had traditionally been unrelated to such deferred compensation plans, a conventional �Swap� (e.g., a Total Return Swap) has been utilized by an investor to gain exposure to the appreciation or depreciation of an asset. More particularly, as seen in FIG. 1, a Total Return Swap may be a bilateral financial contract in which a Party 101 agrees to pay a Counterparty 103 the �total return� of an underlying asset or assets, traditionally in return for receiving a London Inter-Bank Offering Rate (�LIBOR�) based cash flow. The LIBOR-based cash flow generally is designed to compensate Party 101 for any borrowing of money it might need in order to purchase the underlying asset or assets. It is noted that throughout the present application a transaction may be described as relating to two parties (e.g., a party and a counterparty). In any case, the LIBOR based cash flow may, of course, include a desired spread. The Total Return Swap was typically applied to equity indices, single stocks, bonds, and defined portfolios of loans and/or mortgages. In essence, the Total Return Swap provides a mechanism for a user to accept the economic benefit/liability of asset ownership without requiring the purchase of those assets. Of note, the return associated with owning the underlying asset(s) and the return associated with the Total Return Swap are essentially the same, with the difference being the LIBOR based cash flow made by Counterparty 103.
In one particular type of Total Return Swap, an equity contract may provide for payments between a party and a counterparty based on the product of a �notional principal amount� multiplied by the price or value of one or more specified equities. For example, party A and counterparty B might agree that:
Further, an option contract is essentially identical to a forward contract, except that delivery and payment of the purchase price (known as the option's �strike price�) occurs at the discretion of the holder of the option. The party that is obligated to perform if the holder exercises the option is the writer of the option. A call option is an option contract that, if exercised, obligates the writer to deliver a commodity at a specified price. Alternatively, a cash-settled call, if exercised, obligates the writer to pay the holder an amount of cash equal to the excess, if any, of the commodity's price at the future date over the option's strike price. A put is an option contract that, if exercised, obligates the writer to take delivery of a commodity at a future date at a specified price. Alternatively, a cash-settled put, if exercised, obligates the writer to pay the holder an amount of cash equal to the excess, if any, of the option's strike price over the commodity's price at the future date. Because the writer of an option obligates itself to perform at the discretion of the option's holder, the writer receives from the initial purchaser a premium, which is typically paid at the time the option is entered into but may be paid over time.
In summary, one embodiment of the present invention provides a mechanism to hedge the compensation expense liabilities of an employer providing a deferred compensation plan to one or more employees. In one specific example, which is intended to be illustrative and not restrictive, the employer may be a publicly held corporation with one or more non-qualified deferred compensation plans. In another specific example, which again is intended to be illustrative and not restrictive, the employer may enter into a hedging agreement with a counterparty to hedge some or all of the employer's liabilities under the non-qualified deferred compensation plan (and such counterparty may in turn hedge some or all of its liabilities associated with the hedging agreement with the employer with one or more additional counterparties (or �Balance Sheet Providers�)).
Referring now to FIG. 2, a block diagram of a deferred compensation liability hedging mechanism according to an embodiment of the present invention is shown. As seen in this FIG. 2, Plan Participant 201 (e.g., an employee) may be enrolled in a deferred compensation plan sponsored by Employer 203, whereby certain �Deferrals� (i.e., compensation payments) which would ordinarily be made to Plan Participant 201 are deferred until paid at a later date as �Benefit Payments�. �Plan Statements� may also be provided to Plan Participant 201 detailing, among other things, �Deferrals� and/or �Benefit Payments�.
Further still, Counterparty 205 may enter into a Total Return Swap with Employer 203. The Total Return Swap may require payment of a fee to Counterparty 205 (e.g., a one-time or periodic LIBOR based fee, such as LIBOR+a spread) as well as payment of the Total Return Swap's �total return� to Employer 203 (which may be paid in a lump sum at the end of the Total Return Swap, for example). It is noted that the selection of the underlying asset(s) involved in the Total Return Swap may be determined as described below.
In this regard, Counterparty 205 may (but is not required to) either partially or fully (�perfectly�) hedge its liabilities under the Total Return Swap by purchasing one or more assets (not shown) in Market 209 such that the purchased assets essentially track some or all of the investment allocations made by the Plan Participant 201. On the other hand, Counterparty 205 may go unhedged with regard to its liabilities under the Total Return Swap. In either case, the Total Return Swap would provide a total return to Employer 203 essentially corresponding to a return which would have been provided by the assets indicated in the investment allocation instructions made by the Plan Participant 201.
Referring now to FIG. 3, a block diagram of a deferred compensation liability hedging mechanism according to another embodiment of the present invention is shown. As seen in this FIG. 3, Plan Participant 301 (e.g., an employee) may be enrolled in a deferred compensation plan sponsored by Employer 303, whereby certain �Deferrals� (i.e., compensation payments) which would ordinarily be made to Plan Participant 301 are deferred until paid at a later date as �Benefit Payments�. �Plan Statements� may also be provided to Plan Participant 301 detailing, among other things, �Deferrals� and/or �Benefit Payments�.
Further still, Counterparty 305 may enter into a Total Return Swap with Employer 303. The Total Return Swap may require payment of a fee to Counterparty 305 (e.g., a one-time or periodic LIBOR based fee, such as LIBOR+a spread) as well as payment of the Total Return Swap's �total return� to Employer 303 (which may be paid in a lump sum at the end of the Total Return Swap, for example). It is noted that the selection of the underlying asset(s) involved in the Total Return Swap may be determined as described below.
In addition, Counterparty 305 may hedge some or all of its liabilities to Employer 303 under the Total Return Swap by entering into its own hedging agreement(s) (such as one or more Total Return Swaps) with each of Balance Sheet Provider 307 a and Balance Sheet Provider 307 b (wherein each of Balance Sheet Provider 307 a and 307 b acts as an additional �counterparty� to Counterparty 305). Of note, two (or more) Balance Sheet Providers (each of which may be any desired third party) may be used to help to avoid consolidation for accounting purposes (although one Balance Sheet Provider may, of course, be used if desired). In one embodiment, each of Balance Sheet Provider 307 a and Balance Sheet Provider 307 b may have an interest (such as an equity interest) in Trust 309, which in turn may invest in Market 311 (in another embodiment, one or both of Balance Sheet Providers 307 a and 307 b may invest directly in Market 311 without utilizing a trust). Counterparty 305 may receive from each of Balance Sheet Provider 307 a and Balance Sheet Provider 307 b a total return (based upon each Balance Sheet Provider's interest in Trust 309 or in Market 311) and Counterparty 305 may pay to each of Balance Sheet Provider 307 a and Balance Sheet Provider 307 b an agreed payment (e.g., a one-time or periodic LIBOR+Spread payment). Counterparty 305 may, of course, receive and/or pay a fee (e.g., a fixed fee or a percentage fee) from/to Employer 303 and/or Balance Sheet Provider 307 a and/or Balance Sheet Provider 307 b. It is noted that the selection of the underlying asset(s) involved in the Total Return Swaps may be determined as described below.
The investment allocation instructions may be used to structure the various hedges (e.g., the Total Return Swap between Counterparty 305 and Employer 303 and the Total Return Swap(s) between Counterparty 305 and Balance Sheet Providers 307 a and 307 b). Of note, under this embodiment of the present invention, as discussed with regard to the embodiment shown in FIG. 2, Counterparty 305 is obligated to adjust the Total Return Swap with Employer 303 to reflect investment instructions, but Counterparty 305 is not obligated to invest in the assets identified in the investment instructions. In other words, the Total Return Swap obligates Counterparty 305 to pay a Total Return to Employer 303 as if Counterparty 305 invested in the assets, regardless of whether Counterparty 305 actually invests in those assets. Likewise, if Counterparty 305 chooses to hedge, on its own behalf, its liabilities under the Total Return Swap to Employer 303 (e.g., via one or more Total Return Swaps with Balance Sheet Providers 307 a and 307 b), then each of Balance Sheet Providers 307 a and 307 b may (but is not required) to either partially or fully (�perfectly�) hedge its liabilities under the Total Return Swap(s) with Counterparty 305 by purchasing appropriate assets. Alternatively, Balance Sheet Providers 307 a and/or 307 b may go unhedged with regard to their liabilities to Counterparty 305 under the Total Return Swap(s). In either case, the Total Return Swap between Employer 303 and Counterparty 305 would provide a total return to Employer 303 essentially corresponding to a return which would have been provided by the assets indicated in the investment allocation instructions made by the Plan Participant 301.
Further still, in this specific example the plan may provide an employee with the right to notionally invest the employee's plan balance in any one or more of selected publicly-available, open-end mutual funds (the �Reference Funds�), wherein the employee's plan balance may grow or decline in accordance with his or her investment allocations, as if the employee had actually invested the plan balance in such funds. It is noted, however, that as notional investments an employee may have no proprietary or security interest in any of the Reference Funds underlying his or her investment allocations.
Further still, the swap may be documented according to standard market practice as a confirmation issued pursuant to an International Swaps and Derivatives Association (�ISDA�) Master Agreement between the employer and the counterparty.
Further still, in this specific example the swap may be viewed as an aggregate of many smaller, individual swaps (or �mini-swaps�), each of which mini-swaps may relate to the employer's plan liability with respect to a particular Employee.
In another embodiment, a hedging mechanism according to the present invention may be used to provide �off balance sheet funding� in connection with a deferred compensation plan, wherein the plan sponsor may pay a predetermined payment (e.g., a LIBOR based payment) in exchange for market-based returns that are used to hedge plan liabilities.
In another embodiment, a counterparty entering into a Total Return Swap with an employer: (a) gets a payment (e.g., LIBOR plus a spread); and (b) gets a short position in the hedged assets (which position may in turn be partially or fully (�perfectly�) hedged).
In another embodiment, a counterparty (e.g., a counterparty to the employer) may partially or fully (�perfectly�) hedge by buying the underlying assets (which could affect the counterparty's balance sheet) and/or may hedge the liability to the employer (e.g., via a Total Return Swap and/or a Forward Contract).
Of further note, section 1032 of the Code generally provides that a corporation does not recognize taxable gain or loss on the receipt of cash or property in exchange for the issuance of its own stock or with respect to any lapse or acquisition of an option, or with respect to a securities futures contract, to buy or sell its stock (e.g., buy at $100 and sell at $150�no taxable gain; buy at $100 and sell at $50�no taxable loss). It is believed that the hedging rules (described above) should not affect the applicability of section 1032 to any put and call options that might be used to hedge NQDC Plan liabilities calculated with regard to the value of employer's stock.
While a number of embodiments of the present invention have been described, it is understood that these embodiments are illustrative only, and not restrictive, and that many modifications may become apparent to those of ordinary skill in the art. For example, while the present invention has been described primarily with reference to a single Plan Participant, any desired number of Plan Participants may, of course, be enrolled in the deferred compensation plan. Further, when multiple Plan Participants are enrolled in the deferred compensation plan, any information corresponding thereto (e.g., the investment allocation instructions) may be communicated individually by Plan Participant or may be communicated in the aggregate. Further still, while the present invention has been described primarily with reference to two Balance Sheet Providers, any desired number of Balance Sheet Providers may, of course, be used. Further still, when multiple Balance Sheet Providers and used, each may account for any desired portion of the underlying assets (e.g., each Balance Sheet Provider may directly own any desired portion of the underlying assets and/or each Balance Sheet Provider may own equity in the Trust corresponding to any desired portion of the underlying assets). For example, each Balance Sheet Provider may be associated with equal percentages of the total underlying assets or each Balance Sheet Provider may be associated with non-equal percentages of the total underlying assets, or some Balance Sheet Provider(s) may be associated with equal percentages of the total underlying assets while other Balance Sheet Provider (s) may be associated with non-equal percentages of the total underlying assets. Further still, while the present invention has been described primarily with reference to one Counterparty, any desired number of Counterparties may, of course, be used. Further still, when multiple Counterparties and used, each may account for any desired portion of the underlying assets. For example, each Counterparty may be associated with equal percentages of the total underlying assets or each Counterparty may be associated with non-equal percentages of the total underlying assets, or some Counterparties (or Counterparty) may be associated with equal percentages of the total underlying assets while other Counterparties (or Counterparty) may be associated with non-equal percentages of the total underlying assets. Further still, the payment of the fee to the counterparty(s) (e.g., the LIBOR based fee) may be made once or may be made multiple times (e.g., on predetermined calendar dates and/or periodically, such as monthly, quarterly, or yearly, for example). Further still, the investment allocation instructions made by the Plan Participant may include allocation instructions in connection with certain mutual funds and/or certain market indices (e.g., S&P 500, Russell 2000), and/or certain individual securities (e.g., individual stocks and/or individual bonds), and/or certain money market funds. Further still, the Trust through which a Balance Sheet Provider may invest according to the present invention may be any desired type of trust (e.g., an SPV Trust). Further still, for the purposes of the present application the term �notional amount� is intended to include, but not be limited to, a number used as a reference point for an obligation (wherein such reference point does not necessarily obligate a physical purchase or sale). Further still, the employer may be a publicly held corporation with one or more non-qualified deferred compensation plans. Further still, the employer may be a closely held corporation with one or more non-qualified deferred compensation plans. Further still, a Balance Sheet Provider according the present invention may be any desired party (including, but not limited to, a company that administers deferred compensation plans as part of its day to day business). Further still, while the payment made by one party to another party as compensation for the �total return� of an underlying asset or assets has been described principally as a LIBOR based cashflow, any other payment or payments may, of course, be made. Further still, while the investment allocations have been described principally as notional investment allocations, any other type of investment allocations (e.g., non-notional investment allocations) may be used when desired and/or required. Further still, while the present invention has been described principally with respect to a method for hedging a liability associated with a deferred compensation plan a corresponding software program and/or system may of course be utilized to hedge a liability associated with a deferred compensation plan or to help to hedge a liability associated with a deferred compensation plan.
Patent CitationsCited PatentFiling datePublication dateApplicantTitleUS5903879Oct 29, 1996May 11, 1999Mitchell; Clark AlanMethod for computerized managementUS5918218Sep 1, 1994Jun 29, 1999First Data Investor Services Group, Inc.Method and apparatus for automated trade transactions processingUS5991744Oct 31, 1997Nov 23, 1999Gary P. Dicresce & AssociatesMethod and apparatus that processes financial data relating to wealth accumulation plansUS5999917Aug 29, 1996Dec 7, 1999Bancorp Services, L.L.C.Automated system for managing a non-qualified deferred compensation planUS6161096Oct 22, 1998Dec 12, 2000Bell; Lawrence L.Method and apparatus for modeling and executing deferred award instrument planUS6205434Dec 18, 1995Mar 20, 2001The Evergreen Group IncorporatedComputerized indenture plan allocation determination management and reporting systemWO1997043893A1 *May 23, 1997Nov 27, 1997Citibank NaGlobal financial services integration system and process* Cited by examinerNon-Patent CitationsReference1 *A glossary of derivatives market terms "Corporate Finance Risk Management Yearbook 1995" pp I-L.*2 *Finnerty, John D "The PriceWaterhouseCoopers Credit derivatives Primer: Total Return swaps" Financier V7n1-4 PP 66-77 2000.*3Interpretative Letter #878; Jan. 2000 (Comptroller of the Currency, Administrator of National Banks).4 *Saunders Anthony, Credit Risk Measurement, May 1999, John Wiley & Sons, Inc., First Edition, pp. 186-204.** Cited by examinerReferenced byCiting PatentFiling datePublication dateApplicantTitleUS7337141 *Apr 19, 2002Feb 26, 2008IoptionsHedging employee stock optionsUS7567928 *Jan 31, 2006Jul 28, 2009Jpmorgan Chase Bank, N.A.Total fair value swapUS7590577Apr 22, 2005Sep 15, 2009Swint Clifford CNon-recourse funding of share repurchasesUS7707096 *Dec 24, 2002Apr 27, 2010Bgc Partners, Inc.Futures contract on options contracts exchange deviceUS8121925Feb 11, 2005Feb 21, 2012Ives Jr E RussellMethod for managing an investment companyUS8244620 *Jul 22, 2011Aug 14, 2012Goldman, Sachs & Co.Methods, systems and securities for assuring a company an opportunity to sell stock after a specified timeUS8290849 *Jan 6, 2004Oct 16, 2012Analect Benefit Finance, LlcMethod and system for administering the hedging of an employee deferred compensation plan using swapsUS8533088Aug 24, 2010Sep 10, 2013Goldman, Sachs & Co.Methods, systems and securities for assuring a company an opportunity to sell stock after a specified timeUS8660933 *Apr 14, 2010Feb 25, 2014Bgc Partners, Inc.Futures contracts on restricted compensation securitiesUS8694408Aug 13, 2012Apr 8, 2014Goldman, Sachs & Co.Methods, systems and securities for assuring a company an opportunity to sell stock after a specified timeUS20100262561 *Jan 14, 2010Oct 14, 2010Cecchi Rudolph ASystem and method for modeling and implementing an employee benefit planUS20110258099 *Apr 14, 2010Oct 20, 2011Philip GinsbergFutures contracts on restricted compensation securities* Cited by examinerClassifications U.S. Classification705/36.00RInternational ClassificationG06Q40/00Cooperative ClassificationG06Q40/08, G06Q40/06, G06Q40/10European ClassificationG06Q40/08, G06Q40/06Legal EventsDateCodeEventDescriptionDec 21, 2011FPAYFee paymentYear of fee payment: 8Apr 14, 2008ASAssignmentOwner name: ANALECT BENEFIT FINANCE, LLC, NEW YORKFree format text: PATENT ASSIGNMENT AGREEMENT;ASSIGNOR:GOLDMAN SACHS & CO.;REEL/FRAME:020794/0593Effective date: 20080407Jan 15, 2008FPAYFee paymentYear of fee payment: 4Oct 5, 2004CCCertificate of correctionJan 27, 2003ASAssignmentOwner name: GOLDMAN SACHS & CO., NEW YORKFree format text: ASSIGNMENT OF ASSIGNORS INTEREST;ASSIGNOR:MARSHALL, DAVID J.;REEL/FRAME:013693/0618Effective date: 20030113Owner name: GOLDMAN SACHS & CO. 85 BROAD STREETNEW YORK, NEW YFree format text: ASSIGNMENT OF ASSIGNORS INTEREST;ASSIGNOR:MARSHALL, DAVID J. /AR;REEL/FRAME:013693/0618May 24, 2002ASAssignmentOwner name: GOLDMAN SACHS & CO., NEW YORKFree format text: ASSIGNMENT OF ASSIGNORS INTEREST;ASSIGNOR:MARSHALL, DAVID J.;REEL/FRAME:012927/0552Effective date: 20011015Owner name: GOLDMAN SACHS & CO. 85 BROAD STREETNEW YORK, NEW YFree format text: ASSIGNMENT OF ASSIGNORS INTEREST;ASSIGNOR:MARSHALL, DAVID J. /AR;REEL/FRAME:012927/0552RotateOriginal ImageGoogle Home - Sitemap - USPTO Bulk Downloads - Privacy Policy - Terms of Service - About Google Patents - Send FeedbackData provided by IFI CLAIMS Patent Services