Written by ι Stock Market Media — April 4, 2013
Changes in recent accounting rules have left municipalities, universities, hospitals and other government entities highly exposed and dramatically under-funded. INSCOR, Inc. (OTC Pink: IOGA) seems to have a solution for part of what some are conservatively estimating is $1.5-trillion in unfunded liabilities.
Without getting too bogged down in the minutia that is accounting rules, employee retirement benefit plans and insurance policies – let’s just say the solution that INSCOR offers deals with all three. The solution borrows from plans used for years by large corporations and banks, but improves on the design by eliminating much of the out-of-pocket cost to fund the solutions.
While others were in a daze with mouth agape over such a daunting financial crisis looming, INSCOR executives went to work, collaborating with actuaries and other financial institutions, to design a plan specifically tailored to meet the approaching problem with funding post-employment (retiree) benefit plans. You know those benefits that employers add to sweeten your employment package in order to attract a better workforce like retiree healthcare benefits, vision, dental, prescription drugs and even life insurance.
The problem is this: for years employees have been working with the expectation that they will get all of these great benefits when they retire, but the management and funding of those plans known as Other Post-Employment Benefits (OPEB) fell under accounting rules that allowed municipalities and other public entities to use “pay-as-you-go” accounting – long story short the promise of future benefits was made but the money was never set aside. In just about every case, the plans have not been prefunded for those employees who retire. Instead, these government entities have waited until an employee retires and then uses a cash or pay-as-you-go system paying medical costs or premiums as they are incurred by current retirees.
Well, new accounting rules issued by the Governmental Accounting Standards Board (GASB) aren’t so generous, and with the advent of GASB- 45, it has been revealed that unfunded liabilities may well be in excess of $1.5 trillion, by some estimates, among the more than 67,000 state and local governments, and other agencies in this country. The rules now call for the plans to be funded on an accrual basis, and entities must now take the liability and move it to their balance sheets. Public agencies must now recognize and report their OPEB costs and obligations as a current cost during the working years of employees (similar to pension) rather than after they retire.
Unfortunately, this situation leaves municipalities and other public entities with large numbers of employees in a major bind as there are no real, practical and low-cost, existing options to fund these liabilities. City and county governments have had their ratings slashed, budgets cut dramatically and some have even filed for bankruptcy protection. So, any attempts to raise taxes or further cut spending by cutting programs in already reduced budgets are met with frustration and disdain.
In an extensive study done by Credit Suisse on the growing problem, their report said:
What’s being revealed is not too pretty. We estimate over $1.5 trillion in unfunded OPEB liabilities. GASB 45 does highlight another large legacy obligation where a promise made to U.S. workers is going to be hard to keep, presenting difficult challenges for the U.S. economy.
INSCOR’s management team has spent the last two years meeting with many of these municipalities, educating them on the coming storm and marketing their solution to this imposing debacle. The company’s tailored plan is being met with a great deal of interest as much for its benefits to the municipality as for its simplicity to implement. And, with the rising costs of healthcare and the growing number of retiring employees, it’s easy to understand why INSCOR’s FIT OPEB plan is so attractive.
The genius behind the FIT OPEB plans is that they use life insurance specifically designed for the potential of producing high cash value growth without the risk of market loss. INSCOR’s approach for these government entities is derived from proven strategies corporations have used for years and have tailored for this current crisis.
Life Insurance on employees has been used to fund OPEB for years by the corporate world that has purchased life insurance on its employees to successfully fund retirees’ health care and other post-employment benefits (OPEB). Similarly, a FIT OPEB plan makes such ‘insurance’ OPEB funding solutions available to the public sector – further expanded by the option of funding the policies wholly, or in part, with money loaned from the financial sector or by issuing OPEB bonds.
The FIT OPEB Plan consists of 2 key drivers:
• Life Insurance specifically designed to provide superior cash value accumulation potential while eliminating all downside risk from losses in the stock market.
• Financing Insurance Premiums via a lending platform with superior lending terms specific for this market.
After talking with INSCOR President Richard Krabbeler, it’s clear the company has a well mapped out game plan, and any investor looking for a ground floor opportunity would be well served to take a long look at the potential for huge revenues coming INSCOR’s way. Krabbeler’s confidence is growing as he and the company’s CEO Richard Doerr know they are on to something with their product and the competition simply can’t offer what INSCOR can provide.
Krabbeler says the company is currently working with 22 municipalities and several universities. To that end, INSCOR recently added Mark Bolt to its Board of Directors and named him as its Vice President of Sales. Bolt has strong ties to Tennessee and working relationships with both municipalities and university systems throughout the state. Richard Krabbeler said of the appointment, “Mark Bolt has extensive experience with municipalities and corporations in pioneering low-cost, financed insurance solutions as a way of funding post-employment benefits. Mr. Bolt has already been meeting with city mayors, council members, CFOs, finance directors and city managers, some of which are nearing the final stages of approving a FIT OPEB plan.”
INSCOR will use Tennessee as the starting point for the company’s roll out of the FIT OPEB plan and grow outward from there all across the nation. In a detailed report put out by the Pew Center on The States titled “The Trillion dollar Gap,” all of the states were rated on how well each is managing its obligations with funding these non-pension employee benefit plans. The report found that only nine states were rated “solid performers.” This rating includes – Arizona and Alaska – that have both set aside 50% or more of the assets needed to cover their future healthcare and other non-pension benefit obligations. Arizona was 65% funded, leading all states, and Alaska had nearly 56% in assets to cover its liabilities. The other seven states — Colorado, Kentucky, North Dakota, Ohio, Oregon, Virginia and Wisconsin — were also solid performers, ranging from 10.4% to 38.2%.
Meanwhile 40 states were rated as “needs improvement” with less than 7.1% of the funds needed to cover future healthcare and other non-pension benefit obligations set aside. The report found that 20 of those states had failed to put aside any assets.
These staggering numbers should give the reader a good idea of the work ahead for these states to comply with their obligations to fund these promises. The approach by INSCOR to start one state at a time makes a great deal of sense especially given the dramatic head start it has on all of its competition. The company has been “dormant,” for the lack of a better word, for about two years now while it methodically planned out what appears to be the most logical solution for municipality’s and other public entity’s and even corporations trillion dollar problem.
In that time the company has worked with actuaries and investment companies to tailor financing and specific insurance plans for the growing crisis, and to develop a marketing strategy to educate thousands of potential clients. Krabbeler said, “We didn’t want to just come out with the plan and not be able to handle the business. We wanted to do this the right way.”
He continued by saying, “INSCOR’s diverse target market and first-mover advantage as a back-tested, low-cost option to fund OPEB liabilities and other cash flow needs should result in high revenue growth and profitability for the company.
Depending on plan design, the anticipated eligible employee life insurance sign-up rate is 5-25% resulting in potential gross contract values exceeding $9 million for larger municipalities, of which up to 30% is booked in Year 1, and the balance amortized equally over the following 4 years.”
And, for investors, INSCOR is at the doorstep of a remarkable opportunity to show incredible revenue growth and profitability, and at the same time, help the US economy put a dent into a daunting problem that is not going away on its own.
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