Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Can you Fund a Structured MSA With a "Secondary Market Annuity"?

by John Darer CLU ChFC MSSC RSP CLTC

With a few settlement planners dabbling in structured settlement derivatives it won't be long before the question is raised about whether or not a Medicare Set Aside can be funded with structured settlement derivatives labeled " secondary market annuities".  A possible argument for is that such vehicles carry higher interest rates and thus can reduce the cost of the MSA even further than an annuity. 

You cannot fund a Structured  Medicare Set Aside arrangement with a  "secondary market annuity".   You cannot fund a Medicare Set Aside arrangement with a "secondary market annuity" because a "Secondary Market Annuity" is not an annuity.  A "Secondary Market Annuity" is a scam label for structured settlement derivatives.

The CMS Medicare Set Aside Self-Administration Tool Kit includes an attestation letter entitled "Worker's Compensation Medicare Set-Aside Arrangement (WCMSA)-Account Expenditure for Structured Annuity"   Download Account-Expenditure-for-Structured-Annuity-Attestation-Letter

The account holder must attest annually...choosing from one of the following

I the undersigned attest that I have a structured annuity WCMSA and have used the annual monies from the WCMSA account for the period of ____to ____ to pay for the following:

I the undersigned attest that I have a structured annuity WCMSA and have exhausted the annual money (and any applicable acrry-over from pevious years) in the WCMSA account for the period of ___ to ____ to pay for the following:

I the undersigned attest that I have a structured annuity WCMSA and have completely exhausted all monies in the WCMSA account to pay for the following:

Do you want to attest, or do you want to advise your client to attest, to having an "annuity" that is not, in fact, an annuity?

CMS Memo Q5  7/23/01  refers to "structured settlement"

• IRC 5891(C) defines structured settlement as follows:

(1) Structured settlement The term “structured settlement” means an arrangement—

(A) which is established by—
(i) suit or agreement for the periodic payment of damages excludable from the gross income of the recipient under section 104(a)(2), or
(ii) agreement for the periodic payment of compensation under any workers’ compensation law excludable from the gross income of the recipient under section 104(a)(1), and

(B) under which the periodic payments are—
(i) of the character described in subparagraphs (A) and (B) of section 130(c)(2), and
(ii) payable by a person who is a party to the suit or agreement or to the workers’ compensation claim or by a person who has assumed the liability for such periodic payments under a qualified assignment in accordance with section 130.

• IRC 5891(C)(2) defines the term “structured settlement payment rights” means rights to receive payments under a structured settlement. 

When doing at WCMSA allocation the CMS guidelines require that you Identify if the set-aside is paid out as a lump sum or an annuity. If the set-aside is paid out as an annuity, you must identify the following:

1. Name of the carrier

2. Cost of the annuity 

• the cost of the structured settlement derivative, which is not an annuity, is not the cost of the annuity from which the structured settlement payment rights are derived]
• in its 2016 WCMSA Guide Version 2.5, CMS says "If annuities are involved, use the lifetime payout amount in the total instead of annuity purchase price and include the annuity rate sheet to  support your calculation". 

3. Proposed initial deposit (seed money)

4. Minimum annual deposit for the balance of the claimant’s life

5. Annuity starting date

6. Length of annuity

7. Annual payout of annuity

8. Annual funding date

If That Wasn't Enough....

• Structured settlement derivatives are not able to make life contingent/lifetime payouts
• The cost of insurance to cover the potential of vacated transfer order could not be taken out of the MSA.
• The legal expenses to fight an attempt to vacate the transfer order or negotiate a rescission of an order cannot be charged to the MSA.
• Chopped up streams of income sewn together like a patchwork quilt are not an annuity.

Medicare Set Aside (WCMSA) Exempt Property in Pennsylvania Chapter 7 Bankruptcy

by John Darer® CLU ChFC MSSC RSP CLTC

Are MSA's Exempt Property in a Bankruptcy?

The United States Bankruptcy Court for the Middle District of Pennsylvania has decided that assets in a Workers' Compensation Medicare Set-Aside (WCMSA) are exempt property and therefore not available to creditors in a Chapter 7 bankruptcy case (In Re: Jesus Arellano, Debtor Steven M. Carr, Chapter 7 Trustee Objectant v. Jesus Arellano, Respondent. Decided January 5, 2015).

Medicare Set Aside Arrangements | CMS Publishes Reference Manual Version 3.9 (2023)

by John Darer CLU ChFC MSSC RSP CLTC

The Center for Medicare and Medicaid Services ("CMS") published a helpful 175-page reference guide for Workers' Compensation Medicare Set-Asides (WCMSAs) on September-2023

Download Workers Compensation Medicare Set Aside WCMSA Administration Guidelines CMS March-2023

Other information

• Medcare Set Aside Arranagement- What is It? Why Is It Needed? Save With a Structured MSA
• Medicare Set Aside FAQ
• WCMSA Self Administration Tool-KI Version 1.4 July 3, 2023

Last updated January 15, 2024

Workers Comp MSAs: CMS Rated Age Requirements

by John Darer CLU ChFC MSSC RSP

The Center For Medicare and Medicaid Services (CMS) sure knows how to drop the Bomb, The Medicare Set aside (MSA) Rated Age.

From the latest of 13 CMS Memoranda... there is a new requirement for MSA submissions involving rated ages:

“Our organization certifies that all rated ages obtained on the claimant, at any time during that individual claimant’s lifetime, have been included as part of this submission to the Centers for Medicare & Medicaid Services.”  (underline added for emphasis)   

CMS Requires Median Rated Ages Be Used in WCMSA

As a bit of background, in its April 2005 ,CMS stated in Note 2 page 3 that where multiple rated ages are available, CMS would require the use of a median of the rated ages. The move by CMS was apparently designed to force workers comp settlement practioners to discontinue the practice of using the highest rated age to ensure the shortest available life expectancy and thus the lowest MSA funding amount (ultimately a "double discount")

CMS’ memorandum stated that  no variations or substitutions in wording will be acceptable.  If the exact language is not used, they will price out your WCMSA based upon chronological age, increasing the cost of the WCMSA.

It is important to distinguish between the use of rated age  to  "price out the WCMSA" in the CMS memo and the actual cost of the annuity if a structured MSA is used. The funder of the MSA will still be able to use the highest rated when it buys/funds the commercially available annuity for the structured MSA, it just wont get the "Double D".

But consider the burden of certifying this when the claimant may have received a rated age on an unrelated workers comp claim or a liability claim or lawsuit 10, 20, 30 years ago!  Would it be best practice to rely on a statement from the claimant for accuracy?  

Some say that CMS is looking to ban rated ages. Other speculation is that perhaps Patrick Hindert is far more powerful than anyone thought? In an April 24, 2010 effort to grow the structured settlement industry he posted about structured settlement public policy:

• "Why should structured settlement annuities cost less than lump sum alternatives to fund Medicare Set Aside Arrangements(MSAs)?"

and now  just 2 weeks later, Voila! 

What Are Rated Ages?

Copy of CMS Memorandum 13 dated May 14, 2010  Download 13 May-14-2010 Memo