Risk Management for Business Owners: Captive Insurance with Van Carlson
Ryan Kolden:
Welcome to Alternative Wealth, where we explore traditional and alternative investing, retirement, and personal finance concepts. I'm your host, Ryan Kolden. Join us as we talk about the strategies and tactics that can help you make better financial decisions.
Disclaimer & Disclosure: Ryan Kolden is an investment advisor representative of RPG Family Wealth Advisory. Kolden Wealth is a DBA of RPG Family Wealth Advisory. The opinions expressed by the host and or guests in this podcast do not necessarily reflect the opinions of Kolden Wealth or RPG Family Wealth Advisory. No information on this podcast should be construed as as investment, legal, tax, or financial advice.
Ryan Kolden: Today on the show, we have Van Carlson. Van is the founder and CEO of SRA B Admin and has over 25 years of experience within the risk management industry. With a steadfast commitment to empowering trusted advisors and entrepreneurs through innovative risk solutions, Carlson has been a guest on more than 75 podcasts in a marad of industries and has presented at conferences across the country. Carlson has also spearheaded SRA to new heights, earning a spot in the Inc. 5000, among other prestigious awards. Prior to founding SRA, Van ran his own property and casualty firm for 15 years and was awarded the President's Council and other top-performing achievements during his tenure as a PNC agent. In 2008, he also saw the Great Recession hit his commercial business clients hard, and just like them, he was also affected by the sharp downturn in the economy. During this time, he realized that there must be a better way to manage risk overall. From that desire to improve business operations for both himself and his clients, among with his extensive background in insurance, risk management, and finance, a mission to educate others about 831B plans began and continues. Van, great to have you on the show and welcome.
Van Carlson: Yeah. Thank you, Ryan. I look forward to having our conversation today. So thanks for having me on your show.
Ryan Kolden: Of course. So today we're going to do a deep dive into alternative risk mitigation and alternative risk mitigation strategy called an A31B plan, which in my personal opinion is an incredibly innovative and tax efficient method for business owners to not only strengthen, but protect their businesses from risk. But before we do that, I'm interested, Van, to hear about your background and how you ended up becoming a risk manager.
Van Carlson: Yeah, you know, my accident, you know, never sought out to be in the insurance business. Honestly, I, you know, I was, uh, uh, I was heading down the world of corporate America and, you know, we live in, we have, we're headquartered in Idaho. It's a great state to live. And in order to be, you know, uh, in order to move up the ladder of corporate America, you, you gotta be willing to move every three to four years to, You know, and I, and I just chose it early on in my stage. I had an early fan. I was young when I first started having my kids and I realized I didn't want to sell my soul to the corporation. If I'm going to work 70, 80 hours for a corporation, why not work for myself? And that's literally how I started. I grew my insurance agency from scratch and just kept that mindset. Honestly, nothing's easy. Everything's a grind. There are no straight lines, all of those things. And you got to, you know, unfortunately keep getting reminded of those things. So, you know, along came 08. And to your point earlier, thanks for the introduction, by the way, you know, it just became earth shattering to me, you know, business owners, the entrepreneurs, the risk takers, you know, they knew one thing really in their, in their quiver of arrows is buy more equipment and we'll take the accelerated depreciation. And we just kept betting every year was going to be better than previous year. And eventually some of the bottom falls out. And by the way, It's going to happen all the time, right? I mean, looking back through our history, I just, you know, the ebbs and flows of the economy, it is what it is. And I witnessed the gentleman that had these plans in place leading up to 08. And that's when I became a true believer. I saw him show up to the auctions. He was buying raw materials for 10 cents on the dollar. I mean, I can, it was a, that's just what smart money does. That's when the, that's, that's what I would say. This is a smart money tool. When you're doing really well in business. How do you maximize those profits and maximize to the win? And, you know, unfortunately we can, you know, we may go a couple of years of just losing or maintaining, but when we win, we got to really maximize the win because it gets into those peaks and valleys of businesses. You know, if we can straighten that line out through your industry. it will make you better, stronger, more effective business owner. And that's really what I saw coming out of 08, the people that survived the Great Recession, and then it happened again in COVID. And we became more proof of concept after COVID, obviously.
Ryan Kolden: I wanna get back to that and dive into that a little bit deeper. But before we do that, I wanna talk about the current state of the insurance market, which I think will set us up really nicely to go into why we're even talking about A31B plans in the first place. Can you just briefly discuss what is happening with price and coverages in the traditional markets and how traditional risk transfer works and why business owners are starting to talk about B plans and how you think that kind of like fits that or fixes the problem?
Van Carlson: Yeah, for sure. The code started in 1986, 831B. So a lot of your listeners might be hearing about it for the first time, but we're coming up on 40 years of that code being in existence. Very similar to the market space we're in today when it comes to traditional insurance. That's why Congress even passed the code was back in the mid 80s. And it really had to do with a lot with crop insurance and general liability. We were really picking up the litigious, we were becoming more of a litigious society went in through the 80s, shockingly enough, and it hasn't gone away. So from that standpoint, Congress has said, hey, we need to create an incentive. So given today's market, even going back to the 80s, in my going on 30 years in this business, I would have never, ever guessed. guest at all where we're at today in the state that the state of the traditional insurance today is it's not it's it's going to get worse before it's going to get better. And the timeline on these could be a decade. Honestly, I think the burden of the business owner, the burden will continue to fall to the business owner. I think I think traditional insurance is going to do still a lot of the heavy lifting when it comes to ensuring the tangible assets of your business. I still think they're going to do a good job on your buildings. You know, your commercial auto, your liabilities and all those other things. But when we look at the complexities of risk today, it just keeps getting more complicated. And I think COVID kind of shown itself. We're even seeing issues with buildings today, though. We're seeing replacement going away on the endorsement policies, which is, again, shocking to me. But I get it, it's a 20 year old building. They're just not willing to insure it for replacement today because what it costs to replace that building today, relative to 20 years ago with inflation, with cost of materials and everything else, they're just not charging a premium for that risk. And what insurance companies will continue to do to the consumers, and that's across the board between personal lines and commercial lines of insurance, The consumer can only pay so much in cost. Your threshold of pain on that comes quick. You're just not willing to pay as much premium, continue to pay more premium. I mean, most of our clients are looking at 30, 40% increases since COVID. And it's going to go more, unfortunately, because we've not even priced in the LA fires yet and 25 losses. But what's going to happen is that they're going to keep, you know, they're going to say, okay, here's our premium. The one way they can take rate increase without you necessarily filling it is adding exclusions. that is taking a rate increase. If they can lower their risk, they're going to have better underwriting and more predictable underwriting profits. And that's really what they live for. Insurance companies live and breathe for underwriting profit called surplus. This is where they get to put their names on the buildings. And this is the exciting part of the business. You know, I used to think it was selling insurance was exciting. It's not until I talked to an executive at an insurance company and he said to me, you guys have a good time there, but you know, it's kind of nice moving billions of dollars around in the back room that, you know, it's a company's money.
Van Carlson: And I'm like, I can see that. Being a financial planner, I'm sure you can appreciate that, as I could imagine.
Van Carlson: But anyway, that's really the state of the market, is the burden will continue to fall to the commercial, the business owners. They're going to be paying more in premium, but getting less in coverage. And that's the foreseeable future, unfortunately.
Ryan Kolden: And so that leads us nicely into 831B. A business owner doesn't want to pay those premiums. They're inherently self-insuring or taking on those risks themselves. Can you explain from a high level view what an 831B plan is and how it's structured and how it interacts with a client's operating company?
Van Carlson: Yeah. So getting back to that burden of self-insuring risk, and this is really why Congress even, you know, back in the mid eighties, farmers were self-insuring crop insurance. Now it's fully subsidized, but even the crop related, a lot of the farmers are still in self-insuring a lot of their own crop insurance. So Congress basically said, Hey, we got to create an incentive. You know, if the business owners are going to retain risk on their books. And so we call that an unfunded liability, right? You have an unfunded liability on your, on your balance sheet. Now, traditionally, if you can buy, you know, If you have a mortgage, I got a mortgage on a building, I got to get insurance for that. I'm going to pay a premium for that and get a policy. I'm going to transfer that risk to the insurance carrier for fire, theft, vandalism, wind, hell and all that good stuff. And in turn, I'm going to pay a premium for that and get a contract from it. And then there's going to be risk that you can't transfer. And then it comes down to risk financing. So to make it pretty simple, Ryan, is if you have this unfunded liability on your books, how do you want to fund it? You want to fund it with after-tax money or pre-tax money. And if you want to use pre-tax money, then that's something we got to go do for you as an administrator, no different than the 401k administrator. We got to go help form that entity. In this case, we're going to form a C-corp that's going to look and feel like an insurance company that's going to manage your risk. We as your administrator do that on your behalf. So our core competency as a business is really managing insurance companies and admitting them at SRA. We don't complicate the business owner's life at all, but if you want to use pre-tax dollars to manage that risk, you need an administrator, and we're going to utilize the 831B tax code. If you don't want to use pre-tax dollars, then keep doing what you're doing today, because there's no difference. If something happens, you're just going to either pull it out of savings, your line of credit, You're operating capital. And I call it unexpected expenses. And, you know, and a lot of businesses run on thin margins. I think COVID is a good example. The reason why PPP and ERC and all the government programs that had to come out was those businesses' expenses, if they were forced to shut down or simply their customers weren't coming into the door like they were at the volume they were doing so in the past. their capital is going to get eaten up. Those bills don't go away. The loan payments don't go away. The payroll doesn't go away. The power bill, I mean, all those expenses are still there. However, the revenue is not. And that's traditional business interruption. Traditional insurance policies will never cover those types of risks. And so there's a lot of, and that's one thing we do really well at. I think because we are underwriters, we are risk managers first and foremost. We're not, we're not attorneys or CPAs, which most of our competitors are. We're risk management people. We'll hire the CPAs and attorneys and all that stuff, but we want to look at your risk. We want to assess your company. We want to, you know, you know, I'm very thankful for AI because we have the ability now to pull through, you know, load up clients' policies and really dig down as to what their exclusions are and what their first dollar loss is, which basically means deductible or call insurances. What are they on the hook for before their insurance kicks in? And that's a huge unfunded liability on their books today. We see clients taking on much higher deductibles in the past. One way to offset the increase in premiums, but a lot of business owners are simply saying, hey, I'm not going to turn the insurance claim in if it's not you know, $50,000, $100,000 losses because I don't want to take the risk of losing my insurance coverage. Because that's another part of the business right now we're seeing a lot of people being canceled for having claims. So those are all just really things you got to balance, you know, every year. And I will say this, and one of the things we at SRA like to say, we emboldened business owners through innovation of risk management. And that's exactly what we've done. I think the best thing we can do for our clients is when you're killing it, when you're winning, and when you're maximizing that win is We're gonna mitigate your tax liability, right? So I should mention, and sometimes I forget this, and this is probably the most important part. We're gonna create a deduction at your operating company level. No different than what those business owners back in 08 were doing with the 172 line item, you know, with the accelerated depreciation. We're still gonna create the deduction, but you're gonna keep the money. You're gonna retain the money for your rainy day r slash war chest, whatever this happens to be going on in your business, unfortunately, at a time where you're gonna need money that's you're gonna need a war chest. And we see it all the time. And so we talked to business owners about that, like, hey, how do you maximize those wins? We hope you win every year. I think, Ryan, and you've known us for a while now, I think the best thing a client can say to us as a risk manager is, Van, I sleep better at night knowing I've done your program. And I think it's true. I've experienced it. I've seen it. I've had clients tell me that taking a little bit off the top and parking it off to the side is not only good risk management, it's just simply good business. You know, that's what big companies are doing. They've been doing it for decades. They're not afraid of the IRS. They're not afraid of those guys. What's bothersome to me is the small to mid-market business owners that we work with, the risk takers, the innovators, the ones that go fight every day to turn a profit in their business. They're more susceptible to these types of risks than big businesses are. And yet their local CPAs don't know either about the code, which shocks me to this day. It's been on the books for almost 40 years, but I will, I'll talk to a CPA today that will not have never heard of our tax code. And I'm just like, man, are you engaged? You're, you're, you're running it. You're, you're, you are working with a business owner that runs a $50 million a year operation. And you don't even know about this code. I don't know. And sometimes we can beat up the CPA because, you know, you're not. I talk about CPAs and CPAs are our greatest referral source, honestly. And for the right CPAs, we're a great tool for them. And I think that's all we are. We're certainly not a silver bullet. And we can get into some of the details of owning one of these, the complexities of the of the of the insurance company weight in the box and how it needs to operate if you'd like. But that's really high level is utilizing tax deferred dollars, still create deduction at your operating company level and creating an incentive for you to save money, not just spend money.
Ryan Kolden: Absolutely. I have kind of two points on that. And one of the things that was most interesting to me about just captive insurance in general was when I first learned about this, almost every single Fortune 500 company is executing upon some form of self-insurance, usually large captive. So that's the first thing. And the second thing is going back to building the war chest. And I'm interested to hear if you have any good examples of when you've seen that with your plans. But let me give you an example of, I have a friend who he runs a lumber yard, a very large lumber yard, which is a commodities-based business. And one of the ways that they manage risk in their business is through hedging commodities prices with futures and forward contracts on lumber. But even during the pandemic, they were not hedged properly because the price of lumber went up, I think, three X. It was way more than they ever, ever planned for. And they almost got, they didn't have a good time. But I was just thinking, kind of reflecting on that as if they would have had this massive reservoir of surplus capital, they would have been able to weather that storm, so to speak. So going back to you, do you have any favorite examples of when you've seen, not necessarily the insurance component of the 831B plan, but just that excess surplus capital benefit of business owner?
Van Carlson: Yeah, you know, it's unfortunate, you know, because I've been a risk manager for such a long time, I've had those phone calls in the middle of the night, right? a fatality and auto accident or, hey, my house is burned down. I mean, really tragic events. But then I've also dealt with business owners since 08 doing this business where, you know, really unexpected things happen, you know, to your client about the lumberyard. Now, typically, you can't insure for business type risk because it's commodities and futures or, you know, it's at the whim of the market and all that stuff and the economy and everything else. But what they experienced was true business interruption, right? I mean, with the COVID, I mean, that wasn't planned or expected, right? I mean, that's the difference when it comes to business risk, not to get too technical with that, but in their experience, yeah, absolutely. And it goes back to that gentleman in 08 that I witnessed had seven or eight of these, and he was a large manufacturer. of RV and I saw what he did. And that's just what smart money does. I mean, so, so, but, you know, going back to brand damage today, one of the things that we see a lot of is brand damages claims. I mean, we, it takes years to build a consumer confidence brand in your community, either statewide, nationally, or whatever you're, what are you're trying to accomplish there with your brand, but it literally takes seconds to destroy. Whether it's true or not, you know, we live in this world of social media today. And there's been several incidences in the past where people said the wrong thing at the wrong time and it was overheard. And somebody posted some stuff on Facebook that maybe compromised some of the HIPAA stuff when it comes to medical. I've had, you know, doctors get, you know, made local news on an incident and, you know, hit their malpractice and they made the local news. And I've had people just do things they shouldn't have done and got caught up in the middle of it. And, you know, and their brand is there, you know, they were the brand a lot, a lot of times we've seen people, you know, I call it the double negative when those things are happening. Okay. It's one thing for COVID to happen or, and like, for example, in Palisades right now in Southern California, we've got clients down there that own businesses, but simply their customers aren't there anymore. You know, those subdivisions they were supporting was part of their business. Those clients aren't even there. So that's straight up business interruption. They didn't have a fire. That's a straight up business interruption. And so, you know, how are they going to rebuild on that when your customers are gone? Or, you know, we've had other instances where you've, you know, I've get a lot of clients down in Southern California, Florida, because they'll shut down for five days and then the hurricane never hits.
Ryan Kolden: Yeah.
Van Carlson: You know, those those bills just keep coming, you know, that's a straight up business interruption. And the insurance industry is not going to cover that kind of stuff. It's it's not a direct loss. It's an indirect loss. So there's there's lots of incidences, Ryan, where we have that. And we and that's another thing I think we do a really good job with. I can't reiterate that enough as we do a deep dive with the client when we sit down with them and go through there. They go through our underwriting process. I don't know if you've even been involved in those calls, but we do a certainly deep dive with the clients. And we want to, first off, listen to them, because if you've been in business long enough, Something's happened either. You thought it was covered or you realize it wasn't gonna be covered or hey, I turned it in and here's what happened to me. You know, 1st and foremost is a client and from there, we'll make recommendations on based on your industry. But what we've seen and we say, hey, you know, you're, you're self funding. A lot of these things now, how do we how do we fund for that? And by the way, it's not a silver bullet of this program. I mean, it's a long-term planning strategy to try to soften that. A lot of those unfunded liabilities on your books, but we're putting a plan in place at least versus reacting to something after it happened. I think that's the biggest thing we can do. And that's really risk mitigation 101, right?
Ryan Kolden: Right. I think that, you know, the two biggest misconceptions that I've run into when talking about this with clients is the first one is people they think, is this replacing my current coverages? And from what I understand is that you guys first and foremost as risk managers are trying to find gaps in the client's coverages or areas where they're exposed to. And then the second kind of misconception that I see is, and I get this one I think probably the most, but people say, Hey, I'm not a manufacturer. Like I'm, I'm a doctor. Like how, how could I benefit from this type of plan? Could you briefly describe van, just some of like the major, so other than brand interruption, other, some, some other major bridges that people might say, Oh, I never really thought that I had that type of risk or I can ensure that.
Van Carlson: Yeah, I want to make a point to you real quick. And we get the same, like, hey, can I replace my traditional insurance? Again, I think traditional insurance has done what they do. They do pretty good. They're pretty competent with. I will say, though, we're not here to increase or decrease the risk you currently have. We're here to recognize risk you're currently self-funding, self-insuring for. And how do we position that more effectively and efficiently through utilizing tax deferred dollars? But we do replace traditional insurance too. So if you've got big enough premiums and it makes sense, we can do those types of things. But when we talk about what you're describing as enterprise risk management, and it's been around for a long time. But again, to your point, first 500 companies have been worried about their brand, their intellectual property, their supply chain risk, their contracts. I mean, all of those things, that's enterprise risk management. And I would tell you that medical community today is certainly got a lot of issues with cyber issues. They collect a lot of data. I will tell you, we see a lot of that. Some clients will have their own standalone cyber policies, but they've excluded and limited so much in coverages today. that the guidelines will be covered. Like if you're compromised, you got to do a credit watch for two years and everything like that on your patients and clients. When it comes to brand protection, when it comes to forensic, like what happened, who do I need to hire to come in? Those are all really limited dollar amounts. So that's something we'll build around. Employer liability practices today, we've seen a huge spike in employer liability practices. And that's really when an employee is suing the employer for hostile work environment. sexual harassment, anything that caused a hostile work environment, we've seen a big spike in that. What's been interesting to witness is the severity of the business interruption that that causes to the business, especially if you're an owner. I mean, especially if you pride yourself on taking care of your employees, there's a mental drain of being sued by your employee. I've seen it. I've manage it through my clients over the years. However, since COVID, I will tell you, there's been a big spike on that. So we'll add business interruption under the employer liability practices. Another good, I mean, the key employee today, if you're a Rainmaker, they might have short-term, long-term disability for themselves. But what about the business? If you're a surgeon and you make it rain in that surgical center, what happens when you get the skiing accident? What happens if you come down for a fatal illness? Not a fatal illness, but you got an illness that where you're going to have to maybe have some therapy done or some radiation done, right? And these are all things that have happened. Huge, huge business interruption to those businesses. And so again, I can, I can, well, honestly, Ryan, I can scare the hell out of you, however way you want to go in the business. I don't want to do that, but you know, I've been, I've been told I can do that. You know, I'm not a great, I'm not a great guy to be around the cocktail parties and telling more stories of what's happened to clients over the years. But nevertheless, you know, I'm, I'm here to, you know, manage the client's risk. We got a great risk management team, and I think we bring a lot of value just in that aspect alone. But there's plenty of risk to go around, unfortunately, and it continues. Then we talk about traditional insurance. You know, I brought up the exclusions earlier. We were actually rolling out a new policy this year. I don't think you've even heard about this yet, but it's called Halo Coverage. And what it's going to do, as long as you have an underlying policy, a traditional policy, the halo is going to come in over the top. So if you have exclusions, or if you have first dollar loss, either through deductibles or co-insurance, or co-insurances are getting triggered because there's language in the policy that triggers an additional cost out of pocket, not just the deductible, which we see that a lot now too, unfortunately, these dollars would come in and help solidify that first dollar loss and our exclusion. So that halo coverage is going to be important for our business owners. I think that's something we had to come out with because like I said, they're just going to keep adding more and more exclusions in order to offset the rate increases that they should be trying to take, but they know they can't and they're just going to keep adding more inclusions in the back room. Your policies are going to get thicker. So I always joke, thank goodness they send those in a PDF today versus the old policies where you had to do three-hole punch and put it in a binder and mail it off to the client or stop by and drop it off at the client. It would just keep getting thicker and thicker at this point. But that's one of the things that we'll dive in and we'll assess that every year too with our clients is what's new in your policies, what's excluded. And we build out a pretty good library on that based on the insurance carrier we're working with and two, what the trends are in the marketplace.
Ryan Kolden: I'm gonna go back to the war stories. So instead of a war story, I want to maybe paint a picture for people of maybe your favorites or top two favorite examples of how an 831B plan could work. So do you have a favorite case of helping a business out and maybe in particular, when they were initially resistant to implementing an 831B plan and saying something like, I'm never gonna use this and then they end up being saved by it.
Van Carlson: Yeah, it happens almost every year. I'm not in the weeds like I used to be, meaning I'm not out meeting with clients face to face like I used to. I still will, but I will tell you this. Back in the day when we first started, it was a great time to start this company. It was in 08, let me tell you. It was a grind. It was a grind for the first five years. During that time, unfortunately, there was a lot of tax incentive being done. As you're probably aware, the tax code's been abused, but it was abused for estate tax purposes. really to eliminate the state tax burden for clients who sold that way. And that's the unfortunate part. But so I kind of was fighting that in the beginning. You know, we were risk managers first and foremost. So we wanted to, you know, we believed what we were saying is true, that this is a great risk management tool, but we understood the business owners being highly incentivized for taxes. So yeah, and we still have those clients. I get that. I mean, I get it. At the same time, yeah, these are the same clients that said, hey, I'll never use you. But the very following year, you know, and it happened to a medical malpractice. It was fall, actually. You know, it was a brand damage claim. An incident occurred that was, he lost a patient and made local news about it. And unfortunately, when it comes to any professional liability insurance or in this case, medical malpractice, it's a math problem for the insurance company. It's not a, they're not worried about their client's reputation. They're not worried about the effects of this business long-term if they settle or they don't go to court and fight the case, even though the doctor didn't do anything wrong, right? And that was basically the scenario here. And it hurt his business drastically. And, you know, he had that war chest. It's a war chest or a rainy day fund, right? I kind of hope it's a rainy day fund. You know, now you have an unexpected expense and you're going to use it for that. That's best case scenario. Worst case scenarios, you're at war. and you got to go fight for your company. And in today's world, you know, either you're being sued. So we have a dispute resolution policy that will protect your, you know, pays for your legal defense. If you're served and you got to go to war and your general liability or your professional liability insurance isn't going to pick it up, which we've seen a lot more of those lately, uh, as well. So shockingly enough, where insurance carriers are simply aren't going to cover your legal defense, even not alone that if you had a judgment against you. So we, we, you know, We are the largest manager of these plants in the country. We currently manage over 800. We're on track at current pace to double that in three years, the next three years. And in what's happening, honestly, is the tax thing's kind of going away, Ryan. It's really the risk. And to your point earlier about the market that we're in today, they're just not even willing to take the chance of having a claim today. So why not take high as deductibles as you can and fund for that deductible? Utilizing tax deferred dollars. And I think there's an efficient way of doing that that I think we could bring to the table that, you know, really the conversations were, ever since COVID, our conversation on this thing has changed drastically. Leading into COVID, it was cyber. It was political risk. We talked about supply chain risk. That really didn't show itself until COVID happened. And then business owners were like, well, wait a minute. You know, I do have a, at least I got, these are people that buy, you know, it's like me getting that risk management by accident. People didn't, you know, I own a, I own three body shops. How did you become the owner? When I started doing body work in high school and the owner liked me so much, he sold me the business, but he was, he didn't go to business school. He didn't, these are people that are hardworking people. know their skill very well, but maybe rely on other people to help with business, right? And they rely heavily on their CPAs to help them with their business strategies and all of those things. And so, you know, these people are busy. And honestly, you don't know the risk. You don't know how good your policy is until you need it. And unfortunately, when I was selling traditional insurance, I would tell you, I don't know, at least 40%, if not more, of the time I was telling business owners they're not going to be covered. And here's why. Or, hey, if you turn it in, here's what's going to happen to you. not great conversations to have with clients, right? That's really the, most of these guys are off, I say it all the time, I'm an entrepreneur. We got to have short term memory, right? You wouldn't get out of bed. You'd be in fetal position almost 24-7 if you remembered everything. All the trials and tribulations, as my business partner likes to say, that we had to go through to get where we are. And of course, now we're in a 17-year overnight success story. We like to consider ourselves. But no, there's a lot of hard work in any business. You know, how do you protect that? How do you manage that? It's utilizing a tool like this. And that's all it is, is a tool. at the right time, it's a great tool. If you're not in a position to utilize us today, I hope someday you will be, because that just tells me you're running a very successful enterprise and you're trying to hedge for the downside now. And that's where we want to catch you as a business owner.
Ryan Kolden: The piece that owners need to realize is these risks are present in your business, like regardless of what you think about it or not, they are present and you have a choice. You can either pay it with pre-tax or post-tax dollars. And going back to what you said with kind of the pandemic, if you're ever in that position, you don't, as a business owner, we love control and you don't want to be in a position where you ever have to rely upon the government and hoping that they pass a stimulus package because You're going to hope next time that it happens and they're not going to pass it and then you're going to have no options. With this tool, you have options. And I think that's what makes it so appealing. Now, I want to move into, we're kind of wrapping up. the show. But the last thing I want to dive into is kind of the legal landscape with regards to 831B plan. So a lot of people probably just aren't aware because it's not their space. But in January, the IRS passed final regulations on microcaptives. Can you discuss the legal landscape as it comes to 831B plans and how specifically SRA administers 831B plans to be compliant with IRS requirements and what other providers get wrong when it comes to IRS compliance?
Van Carlson: That's a mouthful, Ryan, just so you know. If you wanted to wrap up, you just add another 30 minutes to this conversation. No, I'll keep it brief. I would tell you the regulations, it's something we've been dealing with really since 2016. So we're not afraid of the AAA-6 documents. It's an illicit transaction or transaction of interest. The illicit transaction is more serious from the eyes of the CPA community. It's almost guaranteeing you an audit. It takes 10 years of owning one of these plans before you even get into that. You still have to meet certain things before you even become an illicit transaction. We're not too worried about any of that stuff. I mean, we're just not worried about all that. Now, I will tell you there's a good chance it's going to get quashed. those new regulations based on the Chevron case, first and foremost. Last year, it turned over that these are additional regulations. A federal bureaucracy is adding to an existing law that's not written into law. I know it's being challenged all over the country. And we're actually looking at litigation ourselves with the IRS over this, over these regulations. And, you know, if they don't get, if Congress doesn't come to the table and say, we're going to quash these additional regulations put forth, There's an opportunity to do that when the new administration comes in. I will tell you this when the administration left, and this is. It doesn't matter what side of the aisle you are when it comes to politics, a lot of administrators on the way out, dropping a lot of new regulations to do their bureaucracies. It's 1 way they can. get some things done that they wanted to get done at the very end, but it would maybe put too much of a political hot button to do while they're trying to get reelected. So that's kind of what happened. And again, if it happens, it happens. We're not too worried about it. We don't have anything to hide from the IRS. We've gone through our 6,700 promoter audit. What that means is if you're out promoting a tax code, and you get successful at it, and like I said, we're the largest manager of these plans, you're gonna bring the attention of the IRS to you. We went through that, started that in August of 22. It closed June of 24 with no changes. I think we were one of the few, if only, managers that managed 8301B plans and insurance companies to ever receive that letter. So, I think that speaks boldly to our program. There is a four-part test you got to adhere to. If any place our competitors fall short on is a thing called the distribution of risk. There has to be the law of large numbers applying to your insurance company. You can't just insure 100% of your own risk, call yourself an insurance company. So, there is an element of a risk there that you have to calculate. And of course, we work with our business owners on that. The other thing, too, is I think we stay in our lane. We don't manage the money. We don't have any interest in that. And, you know, I've got competitors that not only manage the money, but they're going to try to sell you a life insurance policy inside the CAPTA, which we don't allow. There's some things in there that I think just rubs the IRS wrong. And I think we'll do everything we can to stay out of that, because it's one thing to get me, okay, you got a deduction on the premium, great, good for you. That's what the code said you can do. Now you're putting it into the insurance company, 831B plan. It's a C-Corp, you're electing to be taxed under the 831B provisions. But now what are you gonna use the reserves and surplus for? And that's really where it gets a little ugly, honestly, Ryan. That's why we love working with financial planner. You guys are going to manage the reserves and the surplus of the plan. We don't do that. We don't get in your pocket for that. We don't have any interest in that. We're doing what a 401k administrator does is minister the plan, making sure those dollars stay tax deferred that you're adhering to. And, you know, 401k is obviously ERISA's and, you know, the right retirement, you know, or the right Are you providing the right types of investments for the plan, but they're not managing the money on behalf of the employee or the employer. And we're doing the same thing. And I think that's what makes us unique and keeps some of the heat off our clients. Because we've never had a client get audited due to owning an A31B ever in, I want to say 17 years of doing this now, that we've never had that happen. And I don't think a lot of managers can say that out there in the marketplace.
Ryan Kolden: And another thing SRA does really well from my perspective is you over disclose. I know you've provided, you know, the 8886 and a couple other forms when you weren't required to. So when these regulations came into play, it's honestly, I don't think change is really the way you even did business because you're already doing it. The last thing I'll touch, and I do think this is important because we just live in such a age where you can get all this information from Google, from, you know, And then from your tips is like, when people first discover, you know, 831B, they're going to go ahead and Google it, and they're going to get a bunch of bad articles and PR surrounding micro captives. But if you really apply yourself and dive deeper into it, you're going to find that A lot of these transactions were abusive because they were lacking many of the attributes of legitimate insurance. And so I think it's important for people to understand that, you know, for to have like a legitimate 831B plan, that's why that four-part test is so, so critical in the validity of having one. So Van, any last closing words? I'll put SRA's information in the show notes and description so they can learn more about what it is you do and who you are.
Van Carlson: Any last words for the… You know, I would say this, and I think, I mean, I know a lot going on the backseat right now, politically. We are, we are driving this to become a normal business practice. No different than the 401k. And we have a lot of our competitors that we're kind of in line with on that. And we're making a lot of good faith effort with Congress right now, and we're getting a lot of traction there. Because it's kind of replacing the PPPs and ERCs in the future. I mean, this should have been there in place already, honestly, to where we didn't. I think we still have economic fallout because of what happened during COVID. And I don't know if everything's shown itself yet for what that caused. And to your point, I don't think you can rely on government doing it the next time. So again, what are you doing differently today? So that's one thing. This will become a normal business practice. I think we're in the front of the bell curve right now. I think as a business owner, you are competing with competitors that have these things already in place that gives them a competitive advantage. I've seen that a lot happen too. That's for another conversation, but just remember that. I mean, if you've seen bids going out and they're a little bit lower than yours and they're like, well, how is this possible? It's because the way they're positioning their dollars, their tax dollars, emboldens them through innovation and risk management to take different risks in different areas that they wouldn't otherwise do. And that's efficiencies of business that I want to be bringing to those small to middle market business owners. And here's the thing, it's a tool in a toolbox. I think you owe it to yourself, the risk you took, the business you own, the employees you help support to look at all tools available to you. And that's what you got to look at it. And you got to do your own due diligence. You got to do your own thinking and understand there is a propaganda machine out there from the IRS That's really the only tool they have. They don't have the manpower. They don't have the knowledge. They don't have the technology, honestly, to do nothing more to intimidate taxpayers. And that's what they've done. And they do a really good job with that. They continue to cherry pick bad faith taxes. And that's what's driving the problem there. But anyway, not too worried about the IRS at this point in time. I think this is gonna become a normal business practice, not out of the tax incentives, but more out of the risk mitigation that's gonna bring business owners
Ryan Kolden: Beautiful. Well, Van, I appreciate your time and coming on the show and sharing your time and knowledge with us. Again, appreciate having you on and that's a wrap for today. Take care. Thank you. Hey, real quick before you go, thanks for listening and please remember to hit follow on your podcast player. You won't miss any episodes and it helps support us bring you the show. Today's show notes and resources are available to you by clicking the link in the description. The opinions and views expressed here are for informational purposes only and does not tax, legal, financial, investment or accounting advice. This material is educational in nature and should not be deemed as solicitation of any specific product or service. All investments involve risk and a potential for a loss of principal. Should you need such advice, please consult with a licensed financial, tax, or legal professional. Neither host nor guest can be held responsible for any direct or incidental loss incurred by applying any of the information offered.
