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Pros and Cons of Structured Settlement Annuities FINDLAW

by John Darer® CLU ChFC MSSC RSP CLTC

What are the pros and cons of structured settlement annuities?   It's a quick and easy commonly written topic for legal journalists. Unfortunately the legal journalists don't always get the details of the important topic straight.  Here is what FindLaw "the leading and largest online resource for legal information" has to say:

PROS   [ I have highlighted the errors for further comment/correction below]

• A structured settlement may provide a plaintiff with a substantial tax benefit. Many lump-sum settlements are considered income and must be claimed on tax returns.  Funds received from an annuity are tax-free as long as the plaintiff does not control the funds.
• Plaintiffs who receive lump-sum settlements often spend everything within five years. Afterwards, many become dependent on the government for their support. With a structured settlement, the funds are preserved throughout the time of plaintiff's disability.
• Annuity funds must be managed by a professional. Proper financial planning will help make sure plaintiffs have enough funds to cover future expenses.
• Parties may tailor annuities to cover a plaintiff's specific needs and all sorts of future demands or contingencies.
• In most states, annuities are protected by state insurance laws that guarantee the obligations of a bankrupt insurer will be covered.
• A lump-sum payment may be combined with a structured settlement to meet immediate expenses, such as medical bills, repayment of debts, rehabilitation costs, and the like.
• Parties can dedicate funds of a structured settlement to cover unanticipated advances in medicine so that if medical science develops a miracle cure, the plaintiff can give it a try.
• A structured settlement may allow parties who are far apart in their settlement negotiations to close the gap and reach an agreement acceptable to both the plaintiff and the defendant

CONS

• If the plaintiff retains too much control over the proceeds, the IRS may look at the situation and decide that the tax
  benefit must be forfeited.
• The plaintiff may fear that, no matter how the settlement protects against adverse economic conditions such as inflation
  or recession, unknown changes in the economy could make the annuity payments too small.
• Sometimes, the annuity is placed with brokers who do not have sufficient protection for insolvency.
• Insurance companies are reluctant to disclose how much they will have to pay to buy an annuity covering the
  amount of the settlement. A structured settlement frequently costs the insurer much less than it would to make a
  lump-sum settlement. The problem with this is that the plaintiff’s attorney may not be able to make a complete
  assessment of the merits of the settlement offer.

Comments about errors found in Findlaw's analysis

1. There has been an income tax exclusion for damages for personal injury since about 1918. The tax laws have been amended a few times, but the tax exclusion is  a function of the type of damages that the settlement payments represent, whether the payment is in a lump sum or a structured settlement.  Another factor influencing taxation is if the settlement payments are for medical and the plaintiff has previously taken a tax deduction for those expenses. The relevant sections of the code are IRC 104(a)(1) and 104(a(2) and IRC 130  [IRC 213 on the meds]
2. The plaintiff's control over the funds only affects the ability to structure. The plaintiff cannot be in constructive receipt or actual receipt of settlement proceeds in additional to the other factors, in order for there to be a structured settlement of any sort. 
3. Structured settlements can be used in taxable damage settlements and enable the payee to defer taxes
4. One does not claim income, one declares income on one's tax returns.
5. The dissipation of a lump sum in five years is well supported by anecdotal evidence, but as then NYU law student Jeremy Babener pointed  in or about 2009, there is no empirical study to support that.
6. With a structured settlement, the payee receives payments that are preserved throughout the term of the structured settlement annuity contract. The term of the annuity contract may only be for a fixed period which may be exceeded by the plaintiff's disability, or the plaintiff may die and the structured settlement payments may exceed the term of the plaintiff's disability depending on the terms of the contract.  For example, the terms of the structured settlement payable to Johnny Wishbone from his  lawsuit against Shirley U. Cantbeserious, extend for 25 years or his lifetime, whichever is longer.  Wishbone "splits" this earth 5 years into the structure and he's no longer disabled because he's dead.  But his structure isn't dead and continues to pay to Johnny Wishbone's two daughters Monique and Unique.
7. A structured settlement annuity contract is backed by the insurer that issues the contract.  There is no account per se, to be managed. The payee has the right to receive payments, funded by the contract, subject to the terms of the contract and the relevant settlement documents.
8. Insurers cannot file for bankruptcy
9. Statutory guarantees have limits.
10. A structured settlement may be used as a tool to help the parties close a gap in negotiations. 
11. Broker's E&O typically does not cover insolvency. 
12. The last "Con" is simply not supportable in 2016.  Today plaintiff lawyers frequently have longstanding relationships with structured settlement brokers and settlement planners.  Furthermore, laws in NY, MA, FL and MN require disclosure of cost of structured settlement in writing.

Legal journalists have a responsibility to get things right about structured settlements, knowing that their errors are more likely to be cited rather than critiqued.   There are plenty of legitimate credentialed resources in the industry who could make the piece more valuable. If Findlaw or any other legal publication wants to fact check on structured settlements feel free to contact me at 888-325-8640

TheBay.Net Serves "Babener-Ganoush" In Washington Post Roast

by Structured Settlement Watchdog®

The structured settlement secondary market's response to fall out from the Access Funding Baltimore Blacksploitation disaster,  is to employ the purported #1 news source for Southern MD, which supplies false justification for the industry's activities by intentionally misrepresenting Oregon tax lawyer Jeremy Babener's work as law student.  Here's what TheBay.net says   (BS is highlighted):

Jeremy Babener did not conduct a legal study.  The statement Babener made in the paper STRUCTURED SETTLEMENTS AND SINGLE-CLAIMANT QUALIFIEDSETTLEMENT FUNDS: REGULATING INACCORDANCE WITH STRUCTUREDSETTLEMENT HISTORY clearly states that "the fact is that the factoring industry claims" this and a syou can clearly see below cites in his footnote a supra note 1999 hearing made in a written statement by a solitary lawyer from a solitary law firm on behalf of the National Association of Settlement Purchasers (in the lead up to the passage of The Federal law that gave rise to IRC 5891).

TheBay.Net also throws beleaguered non-NASP member Access Funding under the bus as if they are the only bad egg in the structured settlement secondary market, while providing a link to member company of NASP.  What a  "pita" bullshit!

 

 

Lump Sum Dissipation: Where Are The Cited Studies?

by John Darer® CLU ChFC CSSC RSP

The structured settlement watchdog calls on Don McNay to share the lump sum dissipation study that is currently cited on his website for the good of the structured settlement industry. Another firm, Plaintiff Settlement Solutions, Inc., is called out to back up its dissipation claims with a cite.

Then NYU tax law student Jeremy Babener concluded in a 2009 white paper, after what NYU Law School described as "assiduous research", that the often cited lump sum dissipation "statistic" of "90% in 5 years" was not backed up by empirical evidence. while acknowledging that there is plenty of anecdotal evidence

Justifying the Structured Settlement Tax Subsidy and Expanding Its Application, Annual Meeting & Educational Seminar of the Society of Settlement Planners (Washington, D.C., May, 2010). Concurrent to the release of Babener's paper, Patrick HIndert of S2KM and co-author of a seminal industry text, described Babener's "lynch pin" as part of what he dubbed "pernicious" lies promoted by the industry.

Despite Babener's research a number of structured settlement stakeholders continue to make factual assertions regarding dissipation that conflict with Babener's findings.

The following shows that there is even a 5% swing between facts asserted about dissipation by several structured settlement stakeholders

• Due to the difficulty of self-managing a cash settlement, 92% of all claimants exhaust their funds completely within the first five years."--John Bat, Plaintiff Settlement Solutions, Inc., Castle Rock, Colorado (currently published as of July 30, 2011: 1145am EDT)
• A Stanford University study showed that 90% of all lump sums are dissipated within five years. Don McNay, CLU ChFC MSFS, Richmond, KY, a "HuffPo" columnist and former Board members of NSSTA, from Structured Settlements in Workers Compensation cases January-February, 1995 Edition of the Kentucky Academy of Trial Attorney’s Advocate (currently published as of July 30, 2011 at 1145am EDT)

These folks have not expressed opinions. They have made, and continue to publish (at time of this writing) these factual assertions. I am simply asking them to prove the asserted facts to the public

Don and John, if you have a copy of the Stanford study please share it with the industry and the public by posting it to your website. I, for one, think we need a "Cardinal Rule" on dissipation.

Copies of these studies would provide a tremendous benefit to promoters of annuities and longevity insurance, wouldn't they?

And "Captain J-Bab", if you are reading this, feel free to weigh in.

Photo: Wikipedia

 

 

 

 

The Joint Committee on Taxation "Surprise Party" Favors Structured Settlements

 by John Darer® CLU ChFC MSSC RSP CLTC

Surprise! Surprise! The Joint Committee on Taxation (JCT) released its Estimates of Federal Tax Expenditures and the estimated tax revenue loss for structured settlement tax subsidy may not be as big as previously thought, observes Patrick Hindert of S2KM. He writes:

"The first surprise: for what appears to be the first time, the JCT staff actually calculates an estimated tax revenue loss for the "exclusion of investment income from structured settlement arrangements" in its annual JCT Report.

The second surprise: the JCT Report estimates the structured settlement tax revenue loss to be "de minimis" - meaning less that $50 million for Fiscal Years 2010-2014 or less than $12.5 million per year."

"Party pooper" Hindert notes that the revenue loss "appears especially small compared with statements from structured settlement and some settlement planning consultants aggressively promoting structured settlement tax savings for injury victims". Is he (1) implying that the tax subsidy is not what it is cracked up to be, or  (2) is he implying that not enough people are benefitting from the tax subsidy, or (3) is "Hedwig" simply using this as another gratuitous reason to trash structured settlement and settlement planning consultants?

In his 2009 paper titled "Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlement Monies", heavily promoted by Hindert,- NYU LLM tax candidate Jeremy Babener estimated the value of the subsidy to be between $360 million and $840 million per year. His paper suggested that an empirical study to justify the "structured settlement tax subsidy" might be necessary to support the overwhelming anecdotal evidence. I don't think I'm alone in observing that Hindert aggressively used the Babener paper to aggressively promote strategic reevaluation of the structured settlement industry.

 Hindert then explores how Babener derived his numbers (should one read that as " how can one backpedal credibly" ?) In recent history Hindert made an outrageous miscalculation of the value of the potential damages* in the Spencer v Hartford case in order to trash the structured settlement industry).

There is a long standing exclusion for personal injury damages. The Revenue Act of 1918 is the origin of the exclusion for personal injury** damages presently encapsulated in IRC Section 104(a)(2).

When one boils down a properly constructed personal injury structured settlement transaction, each of the future periodic payments is considered payment of damages under IRC 104(a)(2).

The current JCT estimate for the overall damages exclusion under 104(a)(2) 2010-2014 is $7.9 billion.  THERE'S  "the beef".

 

 

 

 Anyone ELSE want to take a swing at the "structured settlement tax subsidy" piñata?

 

 

* see Spencer v Hartford -2 April 7, 2009. Hindert estimated $712MM. The settlement paid was for about 1/10th that number just over one year later.

** current exclusion is "the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness"

Structured Settlement "Tax Reformer": What D'Higgins Is He Talking About?

Los Angeles tax attorney David Higgins has submitted a legislative recommendation to for a "rollover provision" to replace Section 130 of the Internal Revenue Code. His proposal would allow personal injury plaintiffs to accept a check from defendants and invest the money within a given period (likely limiting the investment options to annuities and Treasury bonds), without losing the tax benefit currently available to them only by agreeing to a structured settlement with a counter-party.

Higgins, according to Jeremy Babener, a Tax LL.M at New York University Law School (who reviewed the submission at the request of Patrick Hindert of S2KM and TSSG), recommends that IRC Section 130 be repealed and replaced by a provision that allows for personal injury plaintiffs to have a tax exemption, even when plaintiffs actually receive the settlement money and subsequently invest. Higgins’ letter refers to a limited period in which plaintiffs might have to re-invest the settlement money received. Such “rollover” type provisions, though inconsistent with tax doctrines like “constructive receipt” and “economic benefit” have been allowed for certain retirement income.

I have a great deal of respect for David Higgins, as an attorney I've had the experience of working with, but the recommendation seems to have a narrow application (personal injury) and in my opinion, judging solely on Babener's commentary, the variables have not been completely thought through.

Discussion points

A. IRC 130 also applies to workers compensation claims.  What of those claimants under the recommendation?

B. What about wrongful death claimants?

C. Would there be any limit to the "rollover" in Higgins proposal?  There are no dollar amount limitations on qualified assignments, other than capacity of its related annuity issuer.

D. What appetite would Congress have for an "unlimited rollover" when a Bill to establish the more modest  Disability Savings Account is "Missing in Action"?

The Disability Savings Act of 2008, was introduced by then Senator Christopher Dodd (D-CT) on March 11, 2008 as Senate Bill 2741 (related 2743), would have amended the Internal Revenue Code to allow a tax exemptionfor disability savings accounts (DSA) that have a value of $250,000 or less and established for beneficiaries under the age of 65 who are blind or disabled. The proposed act:

1. Would have allowed tax-free distributions from such accounts for certain services provided to account beneficiaries, including education services, respite care, clothing, therapy, nutritional management, and funeral and burial expenses.
2. Would have allowed tax credits for contributions of up to $2,000 made to a disability savings account (DSA) and for certain entities that maintain disability savings accounts.
3. Would have permitted disability savings accounts to be disregarded in determining eligibility for Medicaid benefits and certain other means-tested federal programs. 
4. Requires the Secretary of Health and Human Services to establish a program for marketing, outreach, and education related to disability savings accounts.
5. My May 29, 2009 post on the Disability Savings Act of 2008 saw the DSA as positive thing and not a threat to structured settlements.
6. If there were an "unlimited rollover" how would that impact public benefits? Under the DSA proposal, which is not active, there was only a "limited diregard".

E. If one looks across "The Pond" for inspiraton, the UK system for periodical payments does not involve a qualified assignment company or anything like it. 

Its legislation "specifically extends the tax exemption for periodical payments in a personal injury case to annuity payments made under an annuity purchased or provided

• in accordance with a court order, agreement or Motor Insurers’ Bureau undertaking - see IPTM5020 - or a varying order - see IPTM5030
• by the person by whom the periodical payments under such an order, agreement or undertaking would otherwise fall to be made".

As with periodical payments generally, "the link with the court order or agreement is crucial". If, for instance, the court order for damages provided for a lump sum to be paid to the injured person who subsequently used it to purchase an annuity "then the annuity payments would not be exempt from tax". First, the annuity was not purchased in accordance with the order. Secondly, it was purchased by the injured person, not the person by whom the payments would otherwise fall to be made.   Source: Her Majesty's government

Where, however, a defendant or insurer initially directly funds periodical payments of damages for personal injury specified in the court order and then purchases an annuity for the injured person to meet the payments, the payments under the new method of funding will remain tax exempt. This will be the case even if an annuity is not specifically provided for in the order, because the Damages Act permits such a change without court approval.

Note that the UK system DOES NOT extend the tax exemption to survivors of periodical payment annuitants.

F.  By eliminating section 130, wouldn't that also wreak havoc on plaintiffs' settlement planning, particularly in a declining or volatile interest rate environment?

Under the current system a defendant or insurer, guided by their settlement consultant, might elect to pre fund the structured settlement before releases are signed so that cases involving a protracted court approval process do not effectively penalize the plaintiff. Under Higgins recommendation what defendant or insurer is going to part with cash without a release? The more complex the case is in terms of number of Defendants and/or insurers, the more difficult it would be.

G. So who or what is the motivation behind Higgins' tax recommendation? 

• To give plaintiffs' greater control?  Don't they already have that through qualified settlement funds and Rev Proc 93-34?  Yet the single claimant 468B question was taken off the Treasury Priority list in 2009 after many years. Then a wild strategy to attempt to "back door" the concept by Dick Risk and Jack Meligan in February 2010 at a public hearing about expanding the damages eligible under the IRC 104(a)(2) income exemption was unsuccessful. One can't help wondering if there is any connection.
• To facilitate an end around 28 CFR 50.24 and 28 U.S.C. Section 519 (and applicable statutory note) with respect to structured settlements or annuities entered into by the United States to resolve claims filed under the Federal Tort Claims Act?
• A creative attempt to obviate the need for Defendants to have settlement consultants on certain types of transactions?
• To sufficiently commoditize structured settlements so that transaction oriented advisors and companies  (versus planners) can more easily prosper?

Surely given this country's state of affairs there are more poignant potential tax changes and/or rulings that can help grow the settlement industry and provide more value to plaintiffs and defendants.

Frankly I am surprised that Higgins did not first post the suggestions on the HIggins Settlement Law Blog and open it up to an industry debate. It will be interesting to see which, if any, special interest groups come out in support of the recommendation.

 

Treasury Hearing on IRC 104(a)(2) | Settlement Planners' Attempt to Waste Taxpayers' Time Fails

by Structured Settlement Watchdog®

Dick Doesn't Get Jack

It was a case of "Dick' not getting 'Jack' when, as expected,  the Treasury Panel presiding over yesterday's IRC 104(a)(2 hearing) pushed back 'forum shopping'  interlopers Jack Meligan and Dick Risk by informing them them that the hearing WAS NOT the forum to argue IRC 468B single claimant qualified settlement funds.

An Unconvincing Strategy to Stray Off Point into the Non Sequitur

Meligan argued that the National Structured Settlements Trade Association (NSSTA) doesn't represent all structured settlement consultants and I agree. However based on unconvincing strategy (punctuated by the plaintiff wail of "why did you remove single claimant 468B from the Priority Guidance Plan"?) one could also say that Meligan did not represent all those who have an interest in the resolution of questions conerning single claimant 468B qualified settlement funds. In 2003 those guns were partners at venerable Skadden Arps with notable histories at Treasury or IRS.  In 2010 is the best there is "Jack Meligan" and "Dick Risk"?

While assigning an appropriate nod to the right to free speech, given the easily foreseeable outcome one can't help but view that the left wing front of the settlement industry was simply wasting tax payers' money and time during a period of economic crisis. John McCulloch of IFS Corp deserves a hand for showing that there are those in the industry who desire to keep things on point.

Jeremy Babener does a nice job of summarizing the "voices" at the 104(a)(2) hearing on Beyond Structured Settlements. Still not sure what Babener's gig is after he threw his QSF white paper into the IRC 104(a)(2) comments mix in the lead up to the hearing. 

Do Meligan and Babener Actions Now Reveal a level of Panic Over Single Claimant 468B?

This author submits that certain settlement planners thought that Treasury guidance on the Single Claimant 468B qualified settlement fund was a forgone conclusion given that it was on the Priority Guidance plan for so many years. Then it was inexplicably omitted from the 2009-2010 Priority Guidance Plan. The settlement planners panicked and obviously came up with a strategy that includes an attempt to hijack a hearing on proposed regulations relating to the exclusion from gross income for amounts received on account of personal physical injuries or physical sickness, with the non sequitur. However noble their cause may be it IS a non sequitur with respect to the hearing.

Humming a few bars to the tune of "Panic" by The Smiths

Panic on the streets of Portland  Panic on the streets of Washington

They wonder to themselves
Could life ever be sane again ?
The Priority Guidance Plan let them down
They wonder to themselves
Hopes may rise on the 23rd
468B, not safe yet
So they run down
To the safety of the town
But there's Panic on the streets of Tulsa
Austin, Denver, Jacksonville  They wonder to themselves...

On September 15, 2009 The IRS issued notice of proposed rulemaking. The notice stated that the agency sought comments, to wit

"Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations, consideration will be given to any
written (either a signed paper original with eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department specifically requests comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying.

A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time and place for the hearing will be published in the Federal Register". Note that Dick Risk requested a hearing in his comments submitted October 2009.

What I want to know is WHY,  just one day after doing a fantastic job of keeping people focused on what is actually on the table, Jeremy Babener is throwing his QSF paper into the "kitchen sink"?

(1) Can't these people stay on point? (2) Why not let the QSF issue stand on its own, with its own hearing? Why swim around like male salmon reaching the end of their lives at breeding pond desperate to seal their legacy?

Bears will be required to check their unicycles OUTSIDE the Internal Revenue Building in D.C. on Tuesday February 23rd.

Jack Meligan's 468B Rant on Legal Broadcast Network Riddled With Inaccuracies

 

by Structured Settlement Watchdog

Jack Meligan, Co-Founder of Settlement Professionals, Inc. and the founding President of The Society of Settlement Planners was up on his soap box in a video posted on LBN earlier today.  In a video podcast entitled "Treasury Hearings on 104(a)(2)" it was virtually ANYTHING BUT!

Interviewer and LBN President Mark Wahlstrom tried his best to steer the good ship "Sticky Beak" on course. but the majority of the 16 minute video was replete with Meligan's "same ole same ole" generalized diatribe against the NSSTA and its members that was filled with inaccuracies.

Six Jack Meligan Inaccuracies in the Legal Broadcast Network video

1. Meligan inaccurately generalizes that single claimant QSFs give claimants a tax benefit from structured settlements that they cannot get without them.
2. Meligan inaccurately generalizes that NSSTA and its membership provide a blanket endorsement of approved lists of annuity issuers.
3. Meligan inaccurately generalizes that NSSTA and its membership do not care about people with disabilities,  when NSSTA is one of the largest donors and many of its members are actively involved with the American Association of Persons With Disabilities or similar organizations throughout the country. As a Platinum sponsor for the AAPD 2009 Gala,  NSSTA donated $50,000 on behalf of its members to AAPD. Another $50,000 was donated in 2008.
4. Meligan inaccurately generalizes that NSSTA and its membership provide a blanket endorsement of approved lists of annuity brokers
5. Meligan admits that the removal of 468B consideration from the Treasury 2009-2010 guidance plan was a surprise.
6. Refers to Dick Risk as one of the leading attorneys in the country and yet neither he nor Dick Risk follow Risk's legal opinion related by the Society of Settlement Planner's Executive Director during Meligan's reign as President of that organization. Meligan's howler is that Risk wrote his comments in October 2009, BEFORE Treasury removed single claimant 468B from its 2009-2010 priority guidance plan and then a month later purportedly stated that such guidance was not necessary.

I want to remind readers that the upcoming hearings are about IRC 104(a)(2), the tax exclusion for damages paid for physical injury or physical sickness NOT whether or not the issue of IRC 468B qualified settlement funds for single claimants needs to be clarified next week. That ship has sailed!

This author first questioned the relevance or Risk's writing in a post on January 1, 2010. 

It is the opinion of this author that NSSTA was well within its rights to issue its own commentary the major thrust of which was that the IRC 468B scope was not part of the original intent of the hearings, a point well taken by legal scholar Jeremy Babener in his recent commentary.

Ignoring for the moment the intent of the hearings, I believe that a sticking point for some, and opportunistically exploited by Meligan,  is the verbiage of the NSSTA message which could be interpreted to mean that the NSSTA stated position on IRC 468B represents the opinion of all of its members on the issue. I agree with Meligan that it absolutely DOES NOT.

Hence the reason for my sarcasm in my prior post

NSSTA Offers Ricci Response to Dick Risk's 468B Fandango

Did NSSTA have any choice but to respond to Dick Risk's comments?

In my opinion this tempest in teapot is the result of the response (i,e, content) not being well thought through

Readers may enjoy The Ironic Man Settlement Professionals, Inc. Affiliate Promotes NSSTA

 

 

 

 

 

 

Getting "PSSI" in the Name of Financial Literacy and Attention to Detail

by John Darer CLU ChFC CSSC RSP

The new website of  John Bat's Plaintiff Settlement Solutions Incorporated  ("PSSI", pronounced "Pissy") is NOT one of "life's moments that takes our breath away". As Will Smith might have paraphrased back in the day,  time to start "gettin' pissy with it"

PSSI:  An annuity is an investment vehicle in which the plaintiff allows all or part of the award or settlement to be placed with an insurance company

Reality: An annuity is a contract between the annuity owner and an insurance company. In return for premium payment or consideration, the insurance company agrees to provide a regular stream of income and/or a lump sum payout, or a combination, at some future time. With respect to structured settlements an annuity is one of two permissible types of "qualified funding assets", as defined in IRC 130(d).

PSSI: In return, the insurance company guarantees inflation adjusted periodic payments for life or period certain.

Reality: There is currently no annuity structured settlement that provides guaranteed inflation adjusted periodic payments for life or period certain. The best one can do with an annuity funded structured settlement at this time is a fixed COLA. United States Treasury Bond structured settlements however, funded with Treasury Inflation Protected Securities (TIPS) not issued by insurance companies DO guarantee inflation adjusted periodic payments for period certain. There are also other ways to address inflation risk.

PSSI: Due to the difficulty of self-managing a cash settlement, 92% of all claimants exhaust their funds completely within the first five years.

Reality: NYU Law professor Lily Batchelder's star pupil, Jeremy Babener, ought stand up and give "Batty Boy" the business! I've written about this before, how can Bat get a now proven flawed statistic wrong?

PSSI: Internal Revenue Service Code Sections 104a2 and 130 provide for periodic payments (i.e., a structured settlement), in personal physical injury and workers' compensation cases,to be income tax free to the plaintiff. This means the amount of the award or settlement is tax free, but more importantly, so are all future periodic payments and lump sums.

Reality: The periodic payments represent payment for damages.

• IRC104(a)(2) NOT 104a2 provides an exclusion to the taxpayer for damages that are for physical injury or physical sickness.  PSSI incorrectly ties workers compensation cases to the inaccurate 104a2.
• IRC 104(a)(1) provides a  similar tax exclusion to IRC 104(a)(2) for workers compensation cases.
• IRC 130 is a tax exclusion that only comes into play if there is a qualified assignment. IRC 130 provides a tax exclusion to the qualified assignment company, NOT the plaintiff, which typically owns the annuity and receives the income generated by the annuity, prior to making payment to the plaintiff/payment recipient. Such exclusion is desirable because non natural entities do not otherwise enjoy the same tax benefits from annuities as individuals. To wit, IRC 130(a) expressly states
  

  "(a) In general
  
   Any amount received for agreeing to a qualified assignment shall not 
  be included in gross income to the extent that such amount does not 
  exceed the aggregate cost of any qualified funding assets".

PSSI: When given an option, most clients prefer to have all their needs for financial services met by one financial professional who understands their situation, as well as their goals and aspirations. In order to meet this client need Plaintiff Settlement Solutions delivers trust services through Registered Representatives and Registered Investment Adviser Representatives.

Comment: To meet the need that most clients prefer to have all their needs met by one financial professional they deliver trust services through Registered Representatives and Investment Adviser Representatives?  Does Bat, who this author understands is a member of the Society of Settlement Planners , have 468B on the brain? If that was the case the operative phrase is "One OR more" not "One equals More".  At the very least there's a better way to articulate this!

Other moguls encountered on this "piste":

PSSI: Structured settlements exclusively for Plaintiff's

Comment: Plaintiff's what? Or is that a typo?

PSSI: Sometimes, at moments that are inopportune for us--for example, when we need the income-- stocks may stumble. 

Comment:

Stumble       Tumble

Which do you suppose represents the worse predicament for stock investments, the cautious bumbler or the snowball downhill?

PSSI:   PSSI is seeking marketing representatives (i.e. "Persons with prior marketing experience at CLE conferences and conducting educational lunch's at law firms."  AND  "What the key consideration for the injured claimant should be is how do I make enough money with my settlement funds to keep pace or exceed the ravages of inflation's with the least of amount of risk?"

Comments: 

• Must have been a huge sale on apostrophes in Denver that day
• "Ravages" means to bring heavy destruction on or devastate or to pillage , sack. Does PSSI actually want to EXCEED or add to the ravages? Or do they simply want to keep pace or exceed the RATE of inflation?

And finally a biggie, NO DISCLOSURE OF BROKER DEALER. So I looked up John S. Bat's name on the FINRA Broker Check and the name of the investment firm therein (Multi-Financial Securities Corporation) at the time of this posting, appears nowhere on the PSSI website despite it stating that it (PSSI) "offers a broad range of investment options" such as variable annuities, fund of funds, stocks and corporate bonds etc. See requirements of FINRA Rule 2210

It is the ongoing opinion of this author that those who dispense financial advice should maintain the highest level of financial literacy. Such financial literacy should be demonstrated by an ability to properly articulate the essential knowledge of one's business to members of the public.

Structured Settlements Industry 2009 | A Review of the Year's Impactful Stories

by John Darer CLU ChFC CSSC RSP

The Doom and Gloom concerning structured settlement annuity issuers of late 2008 has abated somewhat. At this time last year our industry was in the throes of significant     uncertainty created by the government bailout of AIG. the sudden withdrawal of Aviva from the structured settlement market and the media reports creating jitters about The Hartford and others and which weighed heavily on our minds. Other stories (not necessarily in chronological order)

1. From what we've been hearing, 2009 saw a number of industry producers taking meaningful hits to their production, particular in the early part of the year.Others saw flat to slight increases in production. Perhaps my experience is an anomaly, but I've noticed a meaningful increase in activity since July 2009.
2. Following the Madoff fraud exposed in late 2008 which had nothing to do with structured settlements, 2009 brought us $16.5B in fresh exposed frauds including two purportedly about structured settlements that weren't. Media characterization of Scott Rothstein as a "mini Madoff" added to the stigma.  The cherubic Rothstein didn't even come close. Credit to Mark Wahlstrom, Jan Schlictmann, Roger Bernstein, Peter Arnold. Bruce DeBacher, Matt Bracy and this author John Darer for their considerable collective efforts to diffuse and undo any damage done when former Elian Gonzalez' and U.S. attorney Kendall Coffey mislabeled structured settlements in a complaint against Rothstein which sparked a media mislabeling frenzy.
3. The "Connecticut Woman" factoring saga gave us a live case which underscored (1) the need for structured settlement consultants, settlement planners and plaintiff lawyers to ask more questions about, and do a better job of addressing plaintiffs' immediate liquidity needs; (2) the fact that fast cash now (for structured settlements) is a load io B.S.; (3) the need for regulation of the advertising practices of factoring companies; (4) the potential exposure to the settlement consultant and attorney for failing to address the aforementioned need that resulted in a loss of principal in line with stock market losses, from a safe investment. To remind everyone the woman took an estimated 30% hit to principal to sell the payment rights and had to wait 6 months to get the money to address her immediate cash needs.
4. The issue of Structured Settlement Servicing was brought to the forefront. Allegations that certain structured settlement annuity issuers were not slicing or dicing structured settlement payments to multiple payees when an annuitant only wanted to sell part of their structured settlements to meet emergency liquidity needs. The result is a structured settlement servicing agreement in which all of the payments, not just the sold payments, are paid to the servicing company (the factoring company, Structured Asset Funding in the CT Woman case), which then takes its cut and passes the balance of the payment to the annuitant. This raised the issue of what happens to the annuitant's payments in the event of Chapter 7 bankruptcy of the servicing factoring company? In a series of pod casts John Darer addressed the structured settlement servicing issue together with guest, Houston attorney Bruce Akerly.
5. The issue of credential puffery in the structured settlement industry was brought to the forefront and substantially improved. Through the considerable public efforts of this author NSSTA has now published guidelines on promoting the Certified Structured Settlement Consultant certification. It's only too bad it took so long and required extreme peer pressure to get it right.
6. Prudential's decision to withdraw from the non qualified structured settlement market was a biggy. The market has not quite filled the void.  As other industry commentators have noted, there are considerable opportunities in this area for insurers and settlement professionals.
7. JG Wentworth Chapter 11 Bankruptcy.  Call it shadenfreude, but I consider this one of the best things to happen for the industry in 2009. (1) These guys really needed some humility; (2) The bankruptcy disclosure made by JG Wentworth coughed up some useful information supplying proof that the size of factored structured settlements does not match up against the perception by plaintiff attorneys created by the advertising noise;  (3)The continuous bombardment of false advertising "cash now" that $40 million will buy you was tempered dramatically.
8. The withdrawal of Hartford from the structured settlement market place was not unexpected. The parent company suffered jitters for almost 12 month before the life company withdrawal,  due to fears over its exposure to credit default swaps and variable annuity guarantees. During those months the companies structured annuity rates were rarely competitive. Hartford Financial services Group, Inc. stock has rebounded from its 52 week lows of 3.33 over 7 fold.  It was sad to see some long time industry colleagues lose their jobs but many of them have landed on their feet. Industry veteran Mal Deener has landed at Symetra and John Meaney is trying his hand at settlement planning with Delta.
9. In a number of published legal decisions, the United States continued to render useless, the attempts to factor annuities placed as part of Federal Tort Claims Act settlements. 
10. One can observe that more settlement firms are making an Investment in websites and other web 2.0 technology. This blog has highlighted the information on static content websites are boring, neither attract or retain traffic and sometimes embarrassing when failure to update outdated information comes to light. Industry members caught in the headlights have simply had to put up with the minor annoyance of peer pressure for the greater good.
11. The nation's first Registered Settlement Planners (RSP) rolled off the assembly line. This author was among the first in the United States to earn the designation. Kudos to the leadership of the Society of Settlement Planners for laying the foundation, and to Joe Tombs and his crew at Texas Tech for the delivery. The RSP designation has a lot of promise, yet it faces significant challenges to become a force which will be covered in a separate post. 
12. Priority guidance for single claimant qualified settlement funds has been removed from the 2009-2010 United States Treasury Priority guidance list
13. Jeremy Babener, a 3rd year law student at NYU challenged a statistic that alleged basis of the structured settlement tax subsidy in a white paper. Babener was "pimped" all over by Patrick Hindert as if he was the "Elvis Presley of structured settlements".  The "Dissipation Myth Bab-oon" road show hit a new low at the annual meeting of the National Association of Settlement Purchasers in November.
14. While Hindert, in his annual summary, places the take over of The Settlement Services Group by Forge as a seminal event, we simply see it as a way for Forge to justify having defense brokers in an organization that markets itself as plaintiff exclusive. The timing of the announcement suspiciously followed our September post about an anonymous plaintiff exclusive organization that had defense brokers.
15. In 2009 the industry lost some good people due to cancer, Mary Lynn Izzo and Richard G. Halpern. Most people loved Mary Lynn. While the brilliant and innovative Richard Halpern was not universally loved by the industry, he was an important force in the history of the structured settlement industry,  who challenged the status quo and succeeded (by a wide margin). I was sad to lose both of these friends this year. 
16. After extended period of reductions, the 10 year bond is again approaching 4% and the 30 year bond approaching 5% as I type. It is my prediction and others that by end of 2010 we may see 10 year bonds in the 5.5% range with a meaningful increase in the long bond. 
17. As an aside and some industry news just "sliding in the door" at year's end, the popular Jeanne Ragusa, formerly at Aviva, has joined John Hancock as Internal Sale Manager.

Concluding with a light hearted summary of the events of 2009, courtesy of JIb Jab...

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