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

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.

United States "T-Bomb" Tossed by "Batman"

by John Darer CLU ChFC CSSC

Shouldn't settlement consultants have an obligation to those they serve and the industry to achieve and maintain the highest level of financial literacy? Those that also hold a Series 7 and hold themselves out as "financial advisors" must surely be held to a greater standard.

John S. Bat a settlement consultant with High Impact Structures, LLC, a firm which claims a business method patent pending for discounting collateral services in exchange for giving them structured settlement consideration, sent a blast email to a number of the nation's attorneys today and the claims made by Bat in that email are subject for discussion.

Download John Bat Email Blast Saying Annuities Backed By T Bonds <----click here

"For the most part (structured settlements) offer the best rate of return around"

"Every annuity issued in this country must be backed dollar for dollar by a secure and liquid asset in that insurance company's General Account. The majority of assets backing up each annuity are the safest possible asset, U.S. Treasury Bonds. U.S. Treasury Bonds are so safe that they do not require a credit rating attached to them. They are above that."- 

"The safest investment vehicle today" 

quotes from an email blast sent by John S. Bat, High Impact Structured Settlements to several of the nation's trial lawyers on December 3, 2008. See above link.

Points for Discussion (related to the above quotes)

1. General Account - All premiums are paid into an insurer's general account. Thus, buyers are subject to credit-risk exposure to the insurance company, which is low but not zero.  Source : AM Best Glossary

2. Majority means "greater than half". John S. Bat therefore implies that greater than 50% of insurer assets backing every annuity in the United States are backed by United States Treasury Bonds.

3. At the close of business December 3, 2008 the 10 year U.S.  bond was yielding 2.6% and the 30 year U.S. Treasury Bond was yielding 3.16%. If annuities pay 4% commission and have other underwriting cost what must the companies be investing in to pay significantly higher yields?

4. With a structured settlement that carries a security interest, the security interest is in the assignee or annuity contract owner which pledges the annuity as collateral. There is no security interest in the specific United States Treasury Bonds in the reserves of the insurance company's general account, as for example there might be in the specific United States Treasury Bonds held in trust with a United States Treasury Bond Structured Settlement.

5. An Insurance Annuity is backed by the full faith and credit of the life insurance company issuing the annuity.

6. A U.S. Treasury Bond is backed by the full faith,credit and taxing power of the United States government. 

    7.  And there is another Bat Blooper...Bat claims a copyright for 2007, an impossibility given  the subject matter of the email blast.

      Need I go on?