by John Darer CLU ChFC CSSC RSP
The purpose of this post is to focus on the 8th wonder. NO, NOT THE"Old School classic " by The Sugarhill Gang
I'm "wondering" about S2KM's incredible 8TH POST about their putative "Elvis Presley" of structured settlements, NY Law School student Jeremy Babener. In honor of this, tonight "we're gonna turn THIS motha-- sucka out!"
According to Jeremy Babener in the exclusive interview he gave to apparent structured settlement "Svengali" Patrick Hindert, Babener's QSF paper "focuses on the Treasury's treatment of single-claimant QSFs, recommending their explicit eligibility for the structured settlement tax subsidy. In order to properly consider the subject, however, one must view the question in the context of three decades of structured settlement tax and policy history".
This is the same Jeremy Babener who questioned the "structured settlement tax subsidy" due to lack of empirical evidence and called for an a new study to ground the tax subsidy. Babener dismissed the anecdotal evidence "From a policy standpoint, however, the fundamental importance of this subsidy demands more than mere opinion. A policy that impacts millions of taxpayers and subsidy recipients is deserving of a substantiated empirical foundation.”
S2KM asks: "What linkage, if any, exists between your QSF paper and your dissipation paper?"
Babener answers: "The dissipation paper was actually the result of research for the QSF paper. To explain the justification for the structured settlement tax subsidy, I needed to find the basis for the claim that lump sum recipients frequently dissipate their settlements. In time, I realized the empirical work cited could not be found."
The dissipation paper observes there is no empirical foundation for the structured settlement tax subsidy, although much anecdotal evidence exists". The "Svengali" Hindert, who (cited by Babener) testified before Congress about dissipation when Congress was considering the "structured settlement tax subsidy" in 1982, in June 2009 referred to a similar statistic as an "especially pernicious myth" For those readers unfamiliar with the word "pernicious" it " implies irreparable harm done through evil or insidious corrupting or undermining" (see Merriam Webster)
Babener contends that opponents of such Treasury guidance on single claimant 468B QSFs "argue that the use of single-claimant QSFs will lead to less structured settlements, and therefore more premature dissipation of settlement monies". He ALSO states that the " QSF paper considers how to increase the effectiveness of the tax subsidy by structuring in a non-combative and less hurried context".
Wait a minute, isn't this is the same guy who said that the tax subsidy needs a strong empirical foundation? Hindert reported on June 23, 2009 that "Babener recommends a new United States study to develop "empirical and substantiated" dissipation statistics for injury victims because the United States tax subsidy for structured settlements is premised on this belief".
By acknowledging the substantial anecdotal evidence and the fact that Babener is now looking for ways to "increase the effectiveness of the tax subsidy" that is only grounded (reading between the lines) by the "flimsy" empirical evidence, strong anecdotal evidence and the "pernicious myth", must we care about Babener conclusions (and as a by product, Hindert's) in the vaunted dissipation paper?
S2KM Hindert: What are the strongest public policy arguments for and against single claimant QSFs?
Babener on the arguments against: He says opponents say "By removing defendants from the structuring process, QSFs may result in many plaintiffs not being pushed to structure. However, there are at least two problems with this argument.
- First, it must be remembered that while defendants have an economic incentive to structure, they do not have an economic incentive to structure accurately, matching the timing of plaintiff’s future payments with future needs.
- Second, just as defendants have an incentive to structure to mitigate settlement costs, other parties have an economic incentive to encourage plaintiff to structure even outside of plaintiff-defendant negotiations. These are structured settlement advisors (and possibly QSF administrators), whose business depends upon plaintiffs understanding the benefits of structuring.
There will surely be plaintiffs whose use of single-claimant QSFs ends in a lump sum distribution rather than structuring. But, there are likely many more who will structure, who otherwise would not have as a result of the plaintiff-defendant settlement process. By increasing the frequency of structuring, and the accurate matching of future payments to future needs, the use of QSFs will prevent premature dissipation (and the need to factor) in many cases".
Babener's assertion that defendants do not have an economic incentive to "structure accurately" demonstrate a fundamental lack of understanding of the processes that qualified settlement consultants employ when representing defendants. For the purposes of this point I will use Babener's overly simplistic definition of "structuring accurately" as matching the plaintiff's future payments with future needs. In his extensive research perhaps Babener did not encounter any settlement consultant who "accurately" priced out a life care plan, or accurately looked into collateral sources
While on the one hand some settlement planners retained by the defense may not be able to ask and/or obtain the answers to all of the questions that a settlement planner retained by the plaintiff might (due to access), the Registry of Settlement Planners standards of conduct acknowledges that a settlement planner "may also represent a defendant". Furthermore a skilled settlement planning expert should be able to learn a considerable amount of answers to potential questions from available forensic evidence and use this to make a thoughtful and meaningful presentation. It is very rare that even a settlement planner retained by the plaintiff, who asks a ton of questions, creates a structured settlement design that is not tweaked at least once.
At often $3,000-$4,000 a pop, the cost of QSFs in a single claimant context make it very expensive to use as every day every case place setting on the settlement table. My February 22, 2009 post Qualified Settlement Fund As A "Settlement Planning Standard" Caveat-1" discusses this point. Hindert, in a previous post acknowledges the cost and the need to bring it down.
Babener asserts that there are likely many more who will structure, who otherwise would not have as a result of the plaintiff-defendant settlement process. Where is the objective proof? I submit that settlement planners who recommend a single claimant QSF already know whether or not a structured settlement will take place.
Babener disappoints with the "kitchen sink conclusion that" by increasing the frequency of structuring, and the accurate matching of future payments to future needs, the use of QSFs will prevent premature dissipation (and the need to factor) in many cases".
My interpretation of Babener's statement is that he believes (or has been led to believe) QSFs will reduce "over structuring" and thus reduce factoring. As someone who has experience from both viewpoints and has participated in QSFs, including single claimant QSFs as part of case resolution, I can safely say that on a broad level this is highly speculative. The CT Woman saga about which I've previously reported, shows how a plaintiff settlement consultant did a poor job of assessing a woman's cash needs and this led to her factoring a part of her structured settlement within a minimal time lapse from conclusion of her case. All a QSF would have done it that scenario would have increased her cost and her already needless "loss of principal".
A single claimant QSF is not an open ended life time device. Many are open and closed within a very short time period. Moreover a QSF is not going to increase a settlement planner's "powers of clairvoyance", solve poor future decision making by the plaintiff, lack of budgeting along the continuum of the person's life or other human frailties.
What next from Hindert,"The Sauerkraut Polka"?