Structured Settlements 4Real™ Blog: Structured Settlements | Settlement Planning News and Commentary

Glenn Neasham Case: From Successful Insurance Practice to Food Stamps

California's insurance department has revoked the insurance license of Glenn Neasham, who was convicted of felony grand theft of an elder for selling an Allianz Masterdex 10 indexed annuity to an 83-year-old woman with dementia.

On February 29, 2012, the California Superior Court in Lakeville, CA sentenced Neasham to 300 days in jail, which the judge in that court reduced to 60 days.

Neasham is scheduled to report to jail April 18, 2012, with an interim hearing. March 20 to postpone serving jail time while an appeal is heard.

Neasham has paid a heavy price for selling a single annuity in which the victim purportedly made money. He said the case has destroyed his business and his family is subsisting on food stamps. He can no longer afford the cost of his defense and expects to qualify for a public defender, according to report in Insurance News. A fund seeks contributions for his defense.

It has been argued that Neasham's case is significant because (1) Whether or not the product was one I would recommend as a partial CD replacement, Neasham purportedly did take steps to determine suitability and the customer did not lose any money (she actually made money) and denies he did anything wrong. The adequacy is called into question (2) apparently it was a single incident; does the punishment fit the crime he was convicted for? (3) the case has received notoriety because the result makes causes agents to be more skittish of working with senior customers, leaving that market underserved.

In a previous post I drew a parallel to the structured settlement industry and used the findings in the Neasham case to underscore the need for suitability regulations with teeth, mandatory training and continuing education for the sale of structured settlement annuities to plaintiffs who have mental incapacitates, or are seniors, and the like, that is similar to the standards for sale to seniors in states like California.

Furthermore, sale of re-marketed structured settlement payment rights (rights that are acquired in the secondary market and resold to investors (including the potentially and actual use by some with personal injury plaintiffs) is ripe for potential abuse IF there is a lack of  up-front disclosure and understanding of the person's role and actual or potential conflicts are not addressed.

Plaintiff Structured Settlements: Hartford Life Has No Qualified Assignment Fee

 A qualified assignment fee is an administrative charge by a qualified assignment company for taking on the obligation to make periodic payments from a Defendant or Defendant's insurer as part of the process of setting up a structured settlement. Qualified Assignment Fees generally range from $250 to $750. Hartford LIfe Insurance Company has announced that its assignment company Hartford CEBSCO will be charging no assignment fee for structured settlements payable to plaintiffs. A $250 qualified assignment fee applies to structured attorney fees, which is still very competitive.

The Hartford Life structured settlement program has a qualified assignment company whose assumed periodic payment obligations are backed by two guarantors, Hartford Life Insurance Company (the annuity issuer) and Hartford Life, Inc. The link below leads to a helpful chart that demonstrates the Hartford life qualified assignment program.

Download Hartford Structured Settlement Qualified Assignment Guarantee Overview

The size of a qualified assignment fee, or whether or not a company charges a qualified assignment fee, may or may not matter. A market survey by a structured settlement broker or settlement will help determine if it does. In some cases it means a little extra can go to the injury victim. Some structured annuity issuers have minimum premiums or charge a small case policy fee for premiums less than a certain level. In Hartford's case the small case fee applies for premiums less than $25,000.

Our contact implied that The Hartford is "sharpening its antlers" in preparation to to cut some good structured settlement quotes for annuitants. They will be offering rated ages.

For more information about qualified assignments and the process of setting up structured settlements you may find the educational video to be helpful.

Elder Fraud: Law Blog Misrepresents Annuity as Security, Blows Opportunity To Do Good

The Law Blog at Legal Match.com blows an opportunity to properly address the important subject of protecting seniors and others from being placed into annuity products that are not appropriate for their circumstances.

"Actual Annuities are legitimate securities that can be very profitable long-term investment option for the right person.", according to the author of a post on the Law Blog at Legalmatch,com (see Elder Annuity Fraud: The Scam That Won't Go Away" Andrew Dat  August 5, 2010 Business Law section), Andrew Dat appears to be a staffer at legalmatch.com

Law Blog defines an "annuity scam" as one which "involves a financial advisor selling a long term insurance annuity to a client that doesn't need it".

One remedy that Law Blog/ Andrew Dat misstates as fact that "there are both federal and state laws that specifically prohibit this form of securities fraud".

After pairing the term annuity with derogatory and criminal acts twice,  Andrew Dat of Law Blog on Legalmatch.com admits "however, this is not to say that annuities themselves are scams". Unfortunately his apologies will not carry weight of with Google, BIng or Yahoo search engines.

A few other comments:

• Unless we are talking about variable annuities, annuities ARE NOT securities.
• Annuities are issued by insurance companies which are regulated by each state they are admitted to do business.
• In order to sell annuities you must possess a valid insurance license in the state of solicitation and writing and an appointment with the life insurance company that is the issuer of the annuity contract
• A federal layer comes into play where the solicitation and distribution variable annuities are concerned, as those who sell such products must possess a FINRA Series 6 or 7 and 63 in addition to an insurance license and appointment.

Many states have laws governing how seniors can be approached when it comes to annuities. Licensed agents in some states are required to take a specific course on the subject.

Regardless of whether you are dealing with seniors, parents of a brain damaged child, or a  disabled doctor, the financial professional should do an assessment of the person's needs before placing an individual into an annuity or any other financial instrument.

Those who appreciate the "subtleties" of the structured settlement watchdog's "unique" writing style might chuckle as he asks what do you expect from the author of an article about a serious topic that peppers his prose with:

"I apologize in advance for being a Derrick Downer (not "Debbie" as I'm a dude)"

"First of all slow down there Ke-mo-sah-bee"?

  Part of my "Muttley Crew"

 

 

 

 

Suitability In Annuity Transactions Model Regulation

Recent revisions to the Suitability In Annuity Transactions Model Regulation, approved in late March 2010 by the National Association of Insurance Commissioners, will ring in changes for agents  and brokers who sell fixed annuities (in states that adopt the model regulation) and for the insurers who offer fixed annuities.

The new rule:

1. Mandates completion, within six months of its effective date, of a four-hour training course on annuities.
2. Insurers must verify agents’ completion of this course before permitting them to sell any annuity, except contracts used to fund individual retirement accounts, qualified plans, deferred compensation arrangements, or structured settlements.

In other words, it applies to nearly all “non-qualified” annuities. It requires that insurers review all annuity transactions, and it makes them responsible for compliance with the regulation, even if they hire a third party firm to monitor compliance.

The NAIC guidelines for factors to consider

• Age
• Annual Income
• Financial Situation and needs: including the financial resources used for the funding of the annuity
• Financial Experience
• Financial Objectives
• Intended Use of Annuity
• Financial Time Horizon
• Existing Assets, including investment and insurance holdings
• Liquid Net Worth
• Risk Tolerance
• Tax Status

I personally would not mind being required to take a 4 hour training course if it meant that the requirement helped "raise the bar" for the entire industry. And while we are at it, how about licensing requirements and similar standards for those that operate in the structured settlement secondary market?

Read John L.  Olsen's article on the Annuity Suitability Model Regs from the April 29, 2010 edition of National Underwriter

Structured Settlement Companies: In Force Annuity Rates Highlight Investor Confidence

Is there a significant shift in investor perception of insurer safety afoot?

It may surprise some but individuals buying structured settlement payment rights appear to be willing to put up their capital and accept a transfer of payment rights to earn the same rate for a stream of payments from American General Life Insurance Company or AIG Life Insurance Company as they would from higher rated annuity companies like John Hancock Life Insurance Company , or Metropolitan Life Insurance Company. Whatever gap still exists between investor confidence and tort victim or attorney confidence, perhaps that is beginning to close.

As an aside, "in force" annuity payment rights deals that being advertised today would pay such investors 7% for income streams ranging from 12.5 to 25 years.  Note that such rates are taxable and thus are commonly purchased by attorneys and other investors for their qualified pension plans.

A discussion has been started to vet the applicability of such deals for tort victims with the goal of establishing market place standards for this rapidly evolving area.  An upcoming video series on Legal Broadcast Network (to also be aired here) explores and provides important information about this marketplace featuring this author John Darer and interviews with a major wholesaler of these deals to individuals, as well as Matt Bracy, general counsel of Settlement Capital Corporation.

Penalty Free IRA Withdrawals for Unequal Periodic Payments to Disabled Says IRS Private Letter Ruling

A new IRS Private Letter Ruling gave a disabled taxpayer relief by permitting withdrawals of unequal periodic payments from the taxpayer's IRA

Background

The taxpayer has multiple sclerosis and is unable to engage in any substantial gainful activity because of the physical impairment resulting from this sickness.

1. IRC Section 72 imposes a 10% penalty tax on certain early distributions from qualified retirement plans such as IRA, 401(k) etc. The penalty is imposed on distributions prior to age 59 1/2.
2. IRC 72(t)(2) (iii) provides an exception to the the tax when distributions are attributable to disabled individuals within the meaning of IRC 72 (m)(7)
3. IRC 72(t)(2)(iv) provides an exception when distributions are part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his or her designated beneficiary.
4. IRC 72(m)(7) provides that an individual shall be considered to be disabled if he or she is unable to engage in any substantial gainful activity by reason of any physical or mental impairment which can be expected to result in death or to be continued and indefinite duration.

Settlement Planning Issues for Discussion

The either "72(m)(7) disabled" OR "substantially equal periodic payments" exception afforded to disabled IRA owners and qualified plan distributees  appears to apply to holders of modified endowment life insurance contracts  (see IRC 72(v)(2)(B)) and 72(v)(2)(C), but DOES NOT appear to apply to holders of annuities.

IRC 72(u) imposes a similar 10% penalty tax on withdrawals from annuities prior to age 59 1/2. The exceptions relevant to plaintiffs are:

• If annuity contract acquired by estate of decedent by reason of death of decedent   72(u)(3)(A)
• If annuity is held under a plan described in section 401(a) or 403(a), under a program described in section 403(b), or under an individual retirement plan, 72(u)(3)(B)
• A qualified funding asset, defined in IRC 130(d) , but without regard to whether or not there is a qualified assignment  72(u)(3)(C)
• Is an immediate annuity  72(u)(3)(E)- which requires 
• • a single premium;
  • a start date of no later than one year from the date of purchase of the annuity; and
  • the "substantially equal periodic payment requirement".

Please consider these issues when making settlement planning recommendations to disabled tort victims that include non structured deferred annuities.

For more information contact John Darer at 888-325-8640

Financial Literacy Lessons of 2010-4 -Lifetime Annuity for Structured Settlement

A Milwaukee Wisconsin structured settlement consultant bullet points that "only annuities can pay out for a lifetime" in an online sales presentation about structured settlements.

Is this true or just "cheesehead whiz"?

Structured Settlement Watchdog on undercover assignment

Here we go...

What is a lifetime?

The duration of existence of a living being or thing  Source: Merriam Webster OnLine

What is a structured annuity?

A contract or agreement providing for periodic payments. Types of structured settlement payments.

Since one does not know precisely when the end will come, it is very possible that a managed portfolio of investments will "payout" for a lifetime. For example if you are 56 years old  and were to take a lump sum of $1,000,000 and you buy a 30 year United States Treasury Bond yielding 4.625%, you will receive approximately $46,000 for a period which exceeds your normal life expectancy.  A United States Treasury Bond is backed by the full faith and credit of the United States government and is an alternative permissible qualified funding asset for structured settlements.

A structured settlement annuity may provide a contractual guarantee "to pay out for a lifetime", however long that is. Depending on the age of the annuitant actual lifetime may exceed the maximum term of available bonds. With medical improvements and healthier living people are living longer.

Does IRS and DOL Interest in Lifetime Annuity Payments Bode Well For The Future of Structured Settlements?

In a development that should be of interest to structured settlement and retirement planning stakeholders, the Internal Revenue Service and the Department of Labor’s Employee Benefits Security Administration (EBSA) have published a request for comments regarding lifetime income options for participants in retirement plans. The request was published in the February 2 Federal Register.

The IRS and the EBSA are currently reviewing the ERISA and Internal Revenue Code rules to determine whether and how the agencies could or should enhance the retirement security of participants in employer-sponsored retirement plans and in individual retirement accounts by facilitating access to, and use of, lifetime income or other arrangements designed to provide a lifetime stream of income after retirement (such as annuities). The purpose of the request for information is to solicit views, suggestions, and comments from plan participants, employers, and other plan sponsors, plan service providers, and members of the financial community, as well as the general public.

Comments must be submitted by the May 3, 2010 deadline to the Office of Regulations and Interpretations, EBSA, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, DC 20210, Attention: Lifetime Income RFI; via e-mail to e-ORI@dol.gov. (you must include RIN 1210-AB33 in the subject line of the message); or via the interactive online portal at http://www.regulations.gov.

Among the issues that the agencies have requested comments:

1.  From the standpoint of plan participants, what are the advantages and disadvantages for participants of receiving some or all of their benefits in the form of lifetime payments?

2. Currently, the vast majority of individuals who have the option of receiving a lump sum distribution or ad hoc periodic payments from their retirement plan or IRA choose to do so and do not select a lifetime income option. What explains the low usage rate of lifetime income arrangements? Are there steps that the agencies could or should take to overcome at least some of the concerns that keep plan participants from requesting or electing lifetime income?

3.  What types of lifetime income are currently available to participants directly from plans, such as payments from trust assets held under a defined benefit plan and annuity payments from insurance contracts held under a defined contribution or defined benefit plan?

4. To what extent are 401(k) and other defined contribution plan sponsors using employer matching contributions or employer nonelective contributions to fund lifetime income? To what extent are participants offered a choice regarding such use of employer contributions, including by default or otherwise?

5. What types of lifetime income or other arrangements designed to provide a stream of income after retirement are available to individuals who have already received distributions from their plans, such as IRA products, and how are such arrangements being structured (fixed, inflation-adjusted, or other variable, immediate, or deferred, etc.)?

6. What product features have a significant impact on the cost of providing lifetime income or other arrangements designed to provide a stream of income after retirement, such as features that provide participants with the option of lifetime payments, while retaining the flexibility to accelerate distributions if needed?

7. What are the advantages and disadvantages for participants of selecting lifetime income payments through a plan as opposed to outside a plan (e.g., after a distribution or rollover)?

8.  How should participants determine what portion (if any) of their account balance to annuitize? Should that portion be based on basic or necessary expenses in retirement?

9. Should some form of lifetime income distribution option be required for defined contribution plans (in addition to money purchase pension plans)? If so, should that option be the default distribution option, and should it apply to the entire account balance? To what extent would such a requirement encourage or discourage plan sponsorship?

10. What are the advantages and disadvantages of approaches that combine annuities with other products (reverse mortgages, long term care insurance), and how prevalent are these combined products in the marketplace?

It is clear that the goverment is interested in annuities, LIFETIME INCOME ANNUITIES, as a means to provide lifetime financial security.

Structured Attorney Fee Malpractice Looming

Having been contacted for a number of second opinions recently , I am increasingly troubled by the number of cases where I've observed that those who hold themselves out as competent advisers to plaintiffs are convincing (or attempting to convince) a plaintiff attorney to take an ultra short term structured legal fee over say 2-3 years, the result being that the attorney actually loses money because of the very low to non existent ultra short term rates. The only person that appears to be making money is the structured settlement broker and that's NOT right!

If the attorney wants to structure $1,000,000 the broker will make or split commissions of close to $40,000. So on a 2 year structure where the the total gross payout shows attorney comes out lower than what the attorney has allocated to the deferral is mostly a losing proposition, enriching the insurance agent at the expense of the attorney. The picture is dramatically worse after one takes into account the taxes that the attorney must pay in the tax year he/she receives the money.

In theory, structured attorney fees are advantageous because during the deferral period, there is implicit interest on that portion of the gross amount that would otherwise have gone to the IRS. While the plaintiff attorney may ultimately pay taxes on that money the net after tax amount MAY possibly be better than simply paying the taxes in year 1. It depends on the cash flow. One should not always fear paying one of life's "certainties".

One structured annuity company told this author today that it WILL NOT accept money to fund a structured attorney fee with one of its annuities in which the projected total payout is less than the premium paid to the company.

Until short term interest rates make a meaningful rise to support better pricing, an ultra short term structure would only have a modicum of benefit if the incremental amount being deferred pushes the attorney into a different tax bracket, or if a large gap in the case pipeline presents a near term projected income void that needs filling and the lawyer or firm is willing to accept losing money for the peace of mind.

For a few years a number of industry colleagues are marketing "companion" loan deals against structured attorney fees. The gist of it is (1) the attorney structured fees over a period of time; (2) shortly thereafter, in an actually separate transaction, the attorney takes a loan from a specialty finance company which is in substance "appears" to be tied in someway to the structured attorney fee. The sales pitch is that you avoid taxes recognition of income now, but "get use of a percentage of the money" via the loan. The transaction obviously depends on a healthy spread to work financially. Where are those spreads coming from today?

There are still plenty of good reasons to structure attorney fees. In addition to the reasons stated in the link to the left, my colleague Dan Finn alerted me to an article appearing in Kiplinger's Retirement Report on October 7, 2008 entitled A Ladder of Annuities Can Hedge Your Bets. The article, published during the 2008 financial meltdown, provides foundational support to systematic structuring of attorney fees by correctly suggesting that staggering purcbases or laddering annuities can smooth out highs and lows of interest rates, and payouts.

Attorneys who wish a consultation on structured attorney fees please contact this author, John Darer, at (888)325-8640,  (203)325-8640 from within Connecticut.

John Hancock Pending Structured Annuity Underwriting Company Changes Reminder

John Hancock has announced organizational changes in the early Fall that are pending regulatory approval. We are reposting this as a reminder to those who have or are contemplating structured settlement annuities funded with a John Hancock annuity product.

Pending regulatory approval, John Hancock Life Insurance Company (“JHLICO”, which issues structured settlement annuities (and guarantees the payment of periodic payment obligations assigned to John Hancock Assignment) is to be merged into John Hancock Life Insurance Company (U.S.A.) (“JHUSA”). As a result, John Hancock is to withdraw JHLICO’s license to do business in New York.

Under the withdrawal plan approved by the New York Insurance Department, JHUSA will then
assume direct responsibility for the payment of all claims and benefits, and for all other policy
obligations, under in force policies, certificates, or contracts. Servicing will continue without interruption.

All new insurance policies and annuity contracts in New York will be issued by John Hancock Life
Insurance Company of New York or John Hancock Life & Health Insurance Company.

A few bullet points from the John Hancock Q&A

1. Not final yet. It is pending regulatory approval.
2. The withdrawal and realignment is taking place in sequel to the Manulife Financial Corporation acquisition of John Hancock Financial Services, Inc. in 2004.  Despite the integration having been successful, as is often the case in combining large organizations, John Hancock now has an excess of legal entities. As a result, this measure is part of the process of streamlining these entities to better position the company for future growth.
3. We expect the withdrawal and realignment will become effective at the end of the day on December 31, 2009 and your policy, certificate, or contract to be endorsed effective at that time to show John Hancock Life Insurance Company (U.S.A.) as the insurer

Useful reference pieces

New York John Hancock Questions and Answers on Merger

Download NYWithdrawalClientQA

Sample Cover Letter To Be Going Out to John Hancock clients (also presumably to structured settlement annuitants) along with the Q&A

Download Subsidiary Reorganization Cover Letter and Info Sheet

Q2 2009 Financials

John Hancock Life Insurance Company (U.S.A.) and John Hancock Life Insurance Company of New York., as provided by John Hancock

Download JHUSA and JHNY Financials Q2 09

John Hancock has announced organizational changes in the early Fall that are pending regulatory approval. We are reposting this as a reminder to those who have or are contemplating structured settlement annuities funded with a John Hancock annuity product.

Pending regulatory approval, John Hancock Life Insurance Company (“JHLICO”, which issues structured settlement annuities (and guarantees the payment of periodic payment obligations assigned to John Hancock Assignment) is to be merged into John Hancock Life Insurance Company (U.S.A.) (“JHUSA”). As a result, John Hancock is to withdraw JHLICO’s license to do business in New York.

Under the withdrawal plan approved by the New York Insurance Department, JHUSA will then
assume direct responsibility for the payment of all claims and benefits, and for all other policy
obligations, under in force policies, certificates, or contracts. Servicing will continue without interruption.

All new insurance policies and annuity contracts in New York will be issued by John Hancock Life
Insurance Company of New York or John Hancock Life & Health Insurance Company.

A few bullet points from the John Hancock Q&A

1. Not final yet. It is pending regulatory approval.
2. The withdrawal and realignment is taking place in sequel to the Manulife Financial Corporation acquisition of John Hancock Financial Services, Inc. in 2004.  Despite the integration having been successful, as is often the case in combining large organizations, John Hancock now has an excess of legal entities. As a result, this measure is part of the process of streamlining these entities to better position the company for future growth.
3. We expect the withdrawal and realignment will become effective at the end of the day on December 31, 2009 and your policy, certificate, or contract to be endorsed effective at that time to show John Hancock Life Insurance Company (U.S.A.) as the insurer

Useful reference pieces

New York John Hancock Questions and Answers on Merger

Download NYWithdrawalClientQA

Sample Cover Letter To Be Going Out to John Hancock clients (also presumably to structured settlement annuitants) along with the Q&A

Download Subsidiary Reorganization Cover Letter and Info Sheet

Q2 2009 Financials

John Hancock Life Insurance Company (U.S.A.) and John Hancock Life Insurance Company of New York., as provided by John Hancock

Download JHUSA and JHNY Financials Q2 09