by John Darer CLU ChFC CSSC RSP
The New York Superintendent of Insurance asked the Supreme Court of the State of New York, Nassau County that has had jurisdiction and supervision of ELNY’s rehabilitation over the last 20 years, to approve liquidation of Executive Life of New York under a complex liquidation plan involving a number of Life and Health Insurance Guaranty Associations and a consortium of life insurance companies.
Critical aspects of the treatment of annuity benefits under the ELNY liquidation plan remain to be determined, because it remains subject to final approval by Guaranty Associations and because some proposed protections for ELNY annuity payees remain under discussion. If the individual Guaranty Associations approve the plan, benefits under most ELNY annuities should continue to be paid in full; but some payees could face benefit reductions, and some annuity owners could be obliged to cover resulting shortfalls under buy-and-hold settlements. Buy and hold structured settlements are where the structure annuity is applied for and owned by the Defendant or Insurers as opposed to by a qualified assignment company, a method currently used, that became more popular subsequent to the Periodic Payment Settlement Act of 1982 under which Section 130(c) of the Internal Revenue Code was created.
IRC 130(c) is an exception to taxation of annuities owned by non-natural persons. This enables a process by which there is a substitution of periodic payment obligors resulting in a novation of a claim. In some cases, buy and hold structured settlements were used by non-taxed entities such as municipalities, where the issue of non-natural person ownership/ taxation of annuities was not an issue.