Presentation is loading. Please wait.

Presentation is loading. Please wait.

AFP Learning System Treasury

Similar presentations


Presentation on theme: "AFP Learning System Treasury"— Presentation transcript:

1 AFP Learning System Treasury
Module One: The Corporate Treasury Management Function Module Two: Corporate Financial Management Module Three: Working Capital Management Module Four: Cash and Liquidity Management Module Five: Money and Capital Markets Module Six: Treasury Operations and Controls v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Course Overview - 1

2 Session 1, Module One: The Corporate Treasury Management Function
Chapter 1: The Role and Organization of Treasury Management Chapter 2: Financial Regulatory Environment

3 Chapter 1: The Role and Organization of Treasury Management
Outline: Introduction to the Study of Treasury Management The Role of Treasury Management Finance and Treasury Organization Treasury/Finance Organizational Structure Corporate Governance Ethics and Accountability AFP Standards of Ethical Conduct v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter 1 - 3

4 Treasury and Its Relationship to the Corporate Finance Function
Treasury professionals: Short-term Perform critical liquidity management tasks daily to ensure availability of cash resources for operational activities. Long-term Perform critical finance functions that ensure availability of funds and information to sustain initiatives to support the financial objectives. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter 1 - 4

5 Discussion Question What are the principal roles of the corporate finance function? Answer: Corporate finance functions: Short-term funding (credit lines, revolving credit agreements, issuance of commercial paper) Long-term funding (issuance of stocks, bonds, term loans and long-term lease agreements) Acquiring strategic assets with long lives Assessing when and how to divest assets Advising on declaration and payment of dividends v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter 1 - 5

6 Discussion Question What are eight major objectives of treasury management? Answer: Maintain liquidity. Optimize cash resources. Manage risk. Maintain access to short-term financing. Maintain investments. Maintain access to medium- and long-term financing to support investments in capital assets. Coordinate financial functions and share financial information. Enhance global and cross-border focus. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter 1 - 6

7 Discussion Question Answer:
What are some actions that can be taken to mitigate counterparty risk? Answer: Add to the number of counterparties to increase diversification. Eliminate specific counterparties. Implement or adjust single counterparty balance limits. Rebalance liquidity allocations among counterparties. Adopt third-party custodians for investments. v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter 1 - 7

8 Financial Function Organization
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter 1 - 8

9 Discussion Question For companies publicly traded on a U.S. public exchange, the Sarbanes-Oxley Act (SOX) makes which of the following personally responsible for the accuracy of financial statements? Treasurer Chief financial officer (CFO) Controller All of the above v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter 1 - 9

10 Discussion Question What are six primary responsibilities of the treasurer? Answer: Managing overall financial risk Arranging external financing Managing relationships with banks and other financial institutions Overseeing day-to-day liquidity and cash management Investing for the short- and long-term Developing and implementing treasury policies and procedures v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

11 Role of the Board of Directors in Treasury Operations
General authority for treasury operations Approve business policies, major initiatives and business contracts Board grants authority to: Open, close and modify bank accounts Establish borrowing facilities Oversee investments Issue debt and equity securities Devise, implement and execute risk management strategies through board-approved policy statements v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

12 Daily Funds Management
Prepare cash position worksheet. Monitor cash balances. Collect, concentrate and disburse cash. Invest and borrow on short-term basis. Research and reconcile exception items. Coordinate finance functions with A/R, A/P and accounting. Other responsibilities Banking relationship administration Liquidity management Cash forecasting Systems design Financial risk management Daily reporting v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

13 Bank Account Management
Treasury responsibilities: Opening, maintaining and closing all organization bank accounts Organization’s articles of incorporation and bylaws Corporate resolution Certificate of incumbency Managing all bank and service provider relationships Company policies v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

14 Internal and External Collaboration
Internal collaboration v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

15 Internal and External Collaboration
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

16 Efficient Treasury Operations
Benchmarking Examining and comparing core activities within/across an industry or functional area for the purpose of identifying best practices Example: Basic staffing levels Reengineering Radical redesign of a particular business process with the goal of continuous improvement Example: Application of Six-Sigma concepts to treasury area Outsourcing Utilizing a third party to perform all or part of a core function Example: Payroll processing v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

17 Business Transitions: Mergers, Acquisitions and Reorganization
When two companies combine, with one company ceasing to exist as legal entity. Combined assets are operated under surviving company. Usually consensual. Acquisition When one company buys a majority of voting shares of another corporation. May be friendly or hostile. Reorganization In the event of severe financial distress, a company may face bankruptcy, which could result in the reorganization or liquidation of the company. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

18 Discussion Question Why is treasury sometimes set up as a cost center and other times as a profit center? Which is more common, and why? Answer: A cost center is the most common approach because treasury is seen as a support function. A profit center is used in companies specializing in global finance, trade or risk management; they require use of derivatives and should be able to generate income from hedging and/or speculation. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

19 Discussion Question What are the advantages and disadvantages of centralized and decentralized control of the global treasury management organization? Answer: Centralized control Advantages—Control, economies of scale and lower operating costs Disadvantages—Little autonomy for field office personnel Decentralized control Advantages—In-country personnel familiar with local business and banking practices, language and customs Disadvantages—May have heavier compliance burden; field offices generally submit periodic reports and the home office must conduct audits v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

20 Discussion Question Answer:
Describe some of the reasons for the popularity of SSCs. Answer: Web-based technology has enabled developments in treasury and may provide cost reduction benefits over outsourcing. Some global treasury back-office operations do not require local management. Development of global TMS standardizes information and enhances SSC benefits. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

21 Discussion Question Answer:
What are the benefits of utilizing in-house banks in international treasury management? Answer: The primary benefit is a reduction in overall banking costs by aggregating many small transactions into fewer larger ones. An in-house bank can also manage five principal international treasury management solutions—investments/debts, netting, pooling, re-invoicing and centralization of FX exposures. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

22 Corporate Governance Major concern for large, publicly traded companies; regulations vary widely between countries. Challenges include: Separation of ownership and control in large companies (stockholders vs. executive officers) Not-for-profit organizations: board serves as oversight for the public (public vs. internal management) Think of stockholders as investors rather than owners (agency problem). Establish procedures for checks and balances, board of directors. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

23 Discussion Question Who are the five key parties in corporate governance of publicly traded companies in the U.S.? Answer: Securities and Exchange Commission (SEC) Public Company Accounting Oversight Board (PCAOB) New York Stock Exchange (NYSE) Large institutional investors (e.g., labor unions, mutual funds, pension funds) States’ attorneys general offices (especially New York and California) v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

24 Investor Relations Company function that deals with the disclosure or release of information to bond- and stockholders in a timely manner; activities mandated to support market regulatory requirements. Responsibilities include earnings releases and forecasts, annual/quarterly reports, press releases, legal disclosures. Investor relations department is a company’s only interaction with the stock market, over which it has full control. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

25 Role of Independent Directors
Four purposes of NYSE standards Define independent directors. Define role and authority of independent directors. Define shareholder participation in governance decisions. Define control and enforcement mechanisms. Financial professionals at NYSE-listed firms must understand standards. CEOs must certify to the listing exchanges that their companies comply with standards. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

26 Ethics and Accountability
After numerous accounting scandals, AFP published “Standards of Ethical Conduct.” Steps to institutionalize ethical conduct: Establish a code of conduct and have all members of the treasury department pledge to adhere to it. Develop specific treasury policies and procedures statements. Provide ethics training sessions that review the code of conduct, its purposes, and examples. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

27 Ethics and Accountability
Code of conduct for treasury Encourage ethical conduct through clear statements of what is, and is not, acceptable behavior. Confidential information Cannot be disclosed to vendors, family or third parties. Conflicts of interest Avoid conflict of interest or appearance thereof. External activities External business ventures should not interfere with duties or create a conflict of interest. Employee conduct On-the-job behaviors and personal habits should not reflect negatively on company. Conformance to code Employees should personally certify that they have read and comply with the code. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

28 Discussion Question Answer:
Name types of unethical and illegal activities that can be reported under whistle-blower protection. Answer: Failure to maintain work papers Manipulation of financial statements and reports Document destruction Securities fraud Personal loans to executives Insider trading during blackout periods v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

29 Training Sessions in Corporate Treasury Ethics
Possible off-site meeting agenda: Explain company’s concern for ethics, as mandated by board of directors, CEO and/or CFO. Discuss recent historical cases of unethical/criminal behavior. Present hypothetical unethical situations and resolution. Explain code of conduct (purpose and obligations). Review corporate P&Ps and cite violations at company or elsewhere. Describe insider trading restrictions. Discuss examples of conflicts of interest. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

30 Discussion Question What are some areas of particular concern to treasury and finance employees regarding ethical breaches? Answer: Check and electronic payments fraud Rogue trading or trading without approval Segregation of duties failures Anti-money laundering violations Backdating options Manipulation of earnings Revenue recognition issues Failure to report significant accounting deficiencies Insider trading Unfair dealings with vendors Improper use of company assets Chinese wall violations v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

31 AFP Standards of Ethical Conduct
Competence Continue to acquire appropriate level of professional knowledge and skill in finance. Perform professional duties in good faith and in accordance with technical, legal and regulatory practices, as well as the letter and spirit of the law in the field of finance. Confidentiality Maintain confidential information acquired in the course of professional activities and disclose such information when legally obligated to do so. Refrain from using or appearing to use confidential information for unethical or illegal advantage either personally or through third parties. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

32 AFP Standards of Ethical Conduct
Integrity Practice honesty and accuracy in all dealings without engaging in any activity that would prejudice the ability to carry out professional responsibilities competently and fairly. Avoid conflicts of interest or the appearance thereof. Refrain from abusing the financial systems and markets. Disclose fully all relevant information that could reasonably be expected to influence business dealings. Certified Cash Manager (CCM) and Certified Treasury Professional (CTP) designations may be used only if active. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

33 Chapter 2: Financial Regulatory Environment
Outline: General Regulatory Environment Primary Regulators and Standard Setters of Global Financial Markets U.S. Regulatory Environment U.S. Federal Legislation The Uniform Commercial Code (UCC) The Employee Retirement Income Security Act (ERISA) (1974) U.S. Bankruptcy Legislation Federal Liquidity Programs v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

34 General Types of FI Regulations
Monitoring and managing the overall safety and soundness of the banking system Setting and implementing monetary policy Determining guidelines for the chartering of banks and other depository FIs Allocating credit toward certain sectors of the economy and protecting consumers Protecting investors purchasing securities through FIs v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

35 Discussion Question Which of the following regulatory approaches used to monitor and manage the safety and soundness of the banking system carries a moral hazard for both depositors and bankers? Setting minimum capital levels required of banks operating in the country (ratio of capital to at-risk assets and tiered capital) Ensuring proper investment policies and diversification (impairment of capital rules) Deposit insurance for investors’ funds held by the bank Regular monitoring and surveillance Answer: c. Depositors may not investigate a bank’s creditworthiness; banks may undertake more risk. v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

36 Primary Regulators and Standard Setters of Global Financial Markets
Financial Stability Board (FSB) Bank for International Settlements (BIS) International Organization of Securities Commissions (IOSCO) Financial Action Task Force (FATF) Coordinates national financial authorities and international standard setting bodies Develops and promotes implementation of effective regulatory, supervisory and other financial sector policies Organization that fosters international monetary and financial cooperation Serves as bank for central banks Sponsor of BCBS, CPSS Recognized as the international standard setter for securities markets Membership regulates more than 95% of world’s securities markets International organization composed of members from more than 30 countries Develops and promotes policies at national and international levels to combat money laundering and terrorist financing v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

37 U.S. Regulatory Environment
Treasury Department is organized into two major components: Departmental offices Formulate policy and management of Treasury Operating bureaus Carry out specific operations assigned to Treasury Regulatory agencies: OCC OFAC FinCEN IRS U.S. Mint FMS Office of Inspector General FSOC OFR FIO FDIC NCUA DOJ CFPB SEC CFTC FINRA v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

38 The Federal Reserve System (Fed)
Organization: Board of Governors Federal Open Market Committee (FOMC) 12 banks and 24 branches Dodd-Frank Act: New governance rules (appointing members) Periodic audits and counterparty disclosure (discount window and open market operations) New vice chairman for supervision Three tools of monetary policy: Open market operations Discount rate Reserve requirements Principal roles: Monetary policy Supervision and regulation Government services Depository institution services v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

39 Discussion Question Which component of the Fed has the most impact on monetary policy, and why? Answer: The Federal Open Market Committee (FOMC) because it oversees the buying and selling of T-bills, T-notes and T-bonds. The FOMC’s sale of government securities reduces the money supply and credit; redemption causes the opposite. v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

40 Office of the Comptroller of the Currency (OCC)
Regulates the national banking system Administers: Nationally chartered banks and federal thrifts of all sizes Holding companies of national banks and federal thrifts with less than $50 billion in assets For national banks and federal thrifts: Oversees the execution of laws Proposes rules and regulations governing operations Supervises a nationwide staff of bank examiners Approves/denies national bank and thrift charters, branches, capital and other banking structure changes Examines national banks and federal thrifts for asset (loan) quality, capital adequacy, management and key regulatory issues v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

41 Discussion Question Answer: a Which of the following is true?
FinCEN enforces counter-money laundering legislation (e.g., the Bank Secrecy Act) and provides intelligence and analytical support to law enforcement agencies to build investigations and plan new strategies that combat money laundering. The FDIC provides deposit insurance for banks and thrifts and acts as a trustee for failed banks but does not supervise any depository institutions. The Dodd-Frank Act phased out the “dual nature” of the U.S. banking system. Answer: a v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

42 Regulatory/Supervisory Agencies Focusing on Consumer Protection, Investors and Insurance Companies
CFPB SEC CFTC FINRA FIO Office accountable for consumer protection Regulates and supervises securities sales Regulates commodity futures and options in U.S. Provides investor protection and market integrity Will provide recommen-dations and guidance on insurance industry v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

43 Securities and Exchange Commission (SEC)
Registers public offerings of debt and equity securities by banks, bank holding companies and other corporations Sets financial disclosure standards for corporations that sell securities to the public Requires filing of quarterly and annual financial statements by companies with publicly owned securities Regulates mutual funds and investment advisors Monitors insider trading v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

44 End of Session 1 Assignment: Complete the online pre-test.
Complete the following tasks for Module One, Chapters 1 through 3: Review each chapter. Complete the test-your-understanding questions at the end of each chapter. Complete the online module-specific test. Complete the Exam Practice (Describe and Differentiate) questions (located at the end of the module). v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

45 Session 2, Module One: The Corporate Treasury Management Function

46 Chapter 2: Financial Regulatory Environment
Outline: General Regulatory Environment Primary Regulators and Standard Setters of Global Financial Markets U.S. Regulatory Environment U.S. Federal Legislation The Uniform Commercial Code (UCC) The Employee Retirement Income Security Act (ERISA) (1974) U.S. Bankruptcy Legislation Federal Liquidity Programs v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

47 Gramm-Leach-Bliley Act (1999)
Permits the creation of financial holding companies (FHCs) Establishes the Fed as the primary regulator of FHCs Allows easier entry by foreign banks Placed CRA rating stipulations on mergers of bank holding companies with insurance or securities firms Required financial institutions to establish and regularly disclose privacy policies; prohibited credit card and account numbers from being shared with third-party marketers Eliminated many provisions of the Glass-Steagall Act (e.g., barriers among banking, insurance and securities businesses) v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

48 Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)
Ends “too big to fail” bailouts Increases regulation of payment, clearing and settlement systems Provides an advance warning system Increases transparency and accountability for exotic instruments Provides executive compensation and corporate governance Provides transparency and accountability rules for credit rating agencies Enforces regulations on the books Enacted in response to the near failure of the U.S. banking system as a result of the Great Recession v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

49 Check Clearing for the 21st Century Act (Check 21) (2003)
Facilitates check truncation Fosters check-payment innovation without mandating receipt of electronic checks Improves payment system overall Creates IRD or substitute check that is legal equivalent of original check MICR-encoded paper reproduction with image of front/back Conforms to industry standards v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

50 Acts Controlling Money Laundering
Bank Secrecy Act (1970) and Money Laundering Control Act (1986) Stages of money laundering: Placement Layering Integration All FIs must report suspicious financial transactions. USA PATRIOT Act (2001) Imposed obligations on non-bank financial institutions Made foreign banks in U.S. subject to U.S. jurisdiction Prohibited U.S. banks from maintaining correspondent accounts for foreign shell banks Prevented U.S. credit card operators from authorizing foreign banks to issue or accept U.S. credit cards without taking steps to prevent terrorist use Requires banks to know customers (due diligence) v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

51 Sarbanes-Oxley Act (SOX) (2002)
Improves disclosure and financial reporting. SEC rule changes require companies to: Disclose code of ethics for senior management (and any waivers). Indicate if audit committee has a financial expert. Have audit committees preapprove auditor’s audit and non-audit services; be briefed on company’s accounting (including preferable alternatives). Regulation G requires companies to: Reconcile pro-forma financial information to financial statements. Issue earnings releases on Form 8-K. Include material off-balance-sheet arrangements in MD&A. v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

52 Discussion Question Which act requires periodic evaluations of a depository institution’s records to meet credit needs in the area in which they operate? Community Reinvestment Act (CRA) (1977, 1995) Expedited Funds Availability Act (1997) Gramm-Leach-Bliley Act (1999) Dodd-Frank Act (2010) v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

53 Federal Reserve Regulations
Regulation D Implements Federal Reserve Act of 1913; imposes uniform reserve requirements on all depository institutions with different levels of reserves for different types of deposits Regulation E Implements EFTA (1978); defines rights and responsibilities of parties using consumer-related EFTs and provides consumer protection for ATM, ACH and credit card transactions Regulation J Implements check collection and settlement provision of Federal Reserve Act (1913); establishes check collection and settlement procedures, duties and responsibilities Regulation Q Prohibits depository institutions from paying interest on corporate demand deposit accounts; repealed by Dodd-Frank Act v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

54 Federal Reserve Regulations
Regulation Z Protects consumers from unexpected credit card rate increases; prohibits issuing credit card to consumer under age 21; requires consent before charging over-limit fees; limits high fees; bans creditors from two-cycle billing method; prohibits allocating payments to maximize interest charges Regulation BB Implements CRA Regulation CC Establishes rules designed to speed the collection and return of checks; establishes endorsement standards for banks and companies to follow in depositing and clearing checks; imposes the same return procedures that apply to checks to payable through drafts v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

55 Discussion Question Match each tax with its correct use.
Foreign tax credit (FTC) Capital tax Asset tax and turnover tax Withholding tax Sales and use taxes VAT To relieve double taxation To slow foreign direct investment To tax despite no profits To tax funds moving out of a country To tax at the point of purchase or Internet To tax at each stage of production v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

56 The Uniform Commercial Code (UCC)
Article 3—Negotiable Instruments Article 4—Bank Deposits and Collections Accord and satisfaction: Stipulates when a check could constitute a payment made in full Revised to permit avoidance of inadvertent accord and satisfaction (if the payee discovers an error within 90 days) Unauthorized signatures: Properly payable checks When a company may be held liable for situations related to check issuance Defines the various bank parties to the deposit and collection process and their respective rights and duties Defines the relationship between a bank and its customers Defines a company’s duty to examine bank statements; makes it imperative to accurately reconcile accounts on a timely basis v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

57 The Uniform Commercial Code (UCC)
Article 4A—Funds Transfers Article 5—Letters of Credit (L/Cs) Bank must make security procedures available to the customer. Includes the use of: Personal identification numbers (PINs) Callbacks Encryption Message authentication Consequential damages: Relieves a bank of liability for losses beyond the actual loss Holds a bank liable for interest losses or incidental expenses Defines a L/C, a documentary draft or documentary demand for payment Defines the roles of the issuer, applicant, beneficiary, advising and confirming banks Article 9—Secured Transactions Businesses that require a security interest must file UCC-1 Financing Statement listing collateral. v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

58 Retirement Plan Formats
Defined benefit plan Defined contribution plan Based on pay or seniority. Plan obligation is discounted aggregate of projected benefits. Value is independent of liability and based on fair market value (can be overfunded or underfunded). Funding/valuation can have significant impact on firm’s financial condition. Retirement savings based solely on contributions credited to an individual account and its earnings. Participants bear risk of self-directed investment decisions. Assets and liabilities are always equal. No funding/valuation issues but significant record keeping (work with HR). Other types of plans: Hybrid plans (technically one or the other) Qualified vs. non-qualified plans v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

59 Employee Retirement Income Security Act (ERISA)
Objectives Ensure that employees and beneficiaries receive adequate information on plans. Set standards of conduct for individuals who manage employee benefit plans and funds. Determine that adequate funds are set aside to pay promised pension benefits. Ensure that employees receive pension benefits after they have satisfied certain minimum requirements. Safeguard pension benefits for workers whose pension plans are terminated. v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

60 ERISA Reporting and Disclosure Requirements
Favorable tax treatment vs. penalties, disqualification or excise tax Applies to all private- sector retirement plans DOL Annual report (Form 5500) that describes plan, financial statements, insurance and actuarial information, plan assets Summary plan description and ERISA statement of rights Pension Benefit Guaranty Corporation (PBGC) Insures pension plans of private U.S. corporations and sends report of premiums due Other filings Must give participants summary plan description and annual summary of financial statements (others on request) Must provide participants with periodic benefit statements v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

61 Discussion Question Answer: d
Which of the following is true of ERISA rules? Using the ratio percentage test, the plan must cover a nondiscriminatory group of non-HCEs who receive compensation worth at least 70% of what HCEs receive. Using the average benefits test, the percentage of non-HCEs benefiting must be ≥ 70% of HCEs who benefit. Any firm with unfunded benefits can qualify for a distress termination and PBGC plan takeover. In a distress termination, the plan sponsor and control group of companies are liable for unfunded benefits. Answer: d v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

62 Pension Protection Act (PPA) (2006)
Impact on defined benefit plans Updates for defined contribution plans Specifies actions to remedy underfunded plan Must pay higher premiums to PBGC If underfunded at time of termination, must pay extra funding to pension system Closes other loopholes Removes conflict of interest fiduciary liability for self-interested investment advice Gives plan participants greater control over how their accounts are invested Establishes safe harbor investments v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

63 U.S. Bankruptcy Legislation
Chapter 11 reorganization Unanimous consent procedure Cram-down procedure Chapter 7 liquidation Provides safeguards against withdrawal of assets by owners of bankrupt firm Provides for equitable distribution of assets among creditors Allows insolvent debtors to discharge all of their obligations and start over Formal bankruptcy Freefall Pre-arranged Pre-packaged Informal bankruptcy v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

64 Discussion Question Complete the following Chapter 7 bankruptcy priority of claims. Specific property pledged (e.g., lien) Trustee’s costs Pre-trustee involuntary liquidation expenses Wages earned three months prior to filing Unpaid benefit contributions owed six months prior Unsecured claims for customer deposits Taxes due Unfunded pension plan liabilities up to 30% of book value of common/preferred equity General unsecured creditors Preferred stockholders (paid up to par value) Common stockholders (receive remaining funds) v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter


Download ppt "AFP Learning System Treasury"

Similar presentations


Ads by Google