Beyond Structured Settlements

NSSTA and NASP 2010 Educational Conferences - 3

"Protect and Preserve" or "Improve and Grow".

These polar-opposite imperatives for the structured settlement industry represent S2KM's two strategic lenses for reporting and analyzing simultaneous educational programs this week in Las Vegas sponsored by the National Structured Settlement Trade Association (NSSTA) and the National Association of Settlement Purchasers (NASP).

S2KM's Managing Director, Patrick Hindert, will attend portions of the NSSTA conference (as a NSSTA member and former NSSTA President) and participate in NASP's Friday morning "Industry Analysis" program (as a moderator and speaker). S2KM's continued reporting and commentary about the NSSTA and NASP conferences will appear on this S2KM blog ("Beyond Structured Settlements") as well as S2KM's structured settlement wiki.

NSSTA's strategic mandate is to "protect and preserve".

Question: what exactly does NSSTA want to "protect and preserve"?

The simple answer: Internal Revenue Code sections 104(a) and 130.

More strategically, what NSSTA wants to "protect and preserve" (to the extent possible) are business models and business practices ("good old days") that existed prior to:

• 1986 - Jim Lokey completed the first structured settlement transfer;
• 1991 - Executive Life insolvency;
• 1993 - Congress enacted IRC 468B and introduced qualified settlement funds;
• 1994 - Weil lawsuit settlement permitting structured settlement agents to work directly with claimants and plaintiff attorneys;
• 2001 - Congress adopted IRC 5891 and defined "structured settlement" as well as rules for structured settlement transfers;
• 2010 - Hartford settled the Spencer class action lawsuit (and departed the structured settlement business) following allegations of civil RICO and state fraud violations by Hartford, its agents, brokers and attorneys.

One result of NSSTA's "protect and preserve" mandate has been a "dumbing down" of NSSTA's educational programs - at least from a strategic perspective. Some of NSSTA's technical discussions are excellent. For example, NSSTA's legal committee has re-emerged as a leading structured settlement educational resource. And NSSTA's CSSC certification program continues to receive positive reviews despite low attendance and the lack of a continuing education (CLE) requirement.

NSSTA's primary educational problem is the application of its narrow and political strategic framework ("protect and preserve" as opposed to "improve and grow") for its educational programs. For example, NSSTA never invites knowledge leaders from NASP or SSP (or anyone critical of NSSTA political objectives) to participate in NSSTA's educational programs. For another related example, NSSTA educational programs never provide strategic discussions ("Industry Analysis") with alternative perspectives.

Bottom line: NSSTA's educational programs have fallen behind NASP and SSP who now represent the benchmarks for structured settlement educational excellence. For further S2KM reporting about NSSTA's educational demise, see: S2KM's analysis of NSSTA's 2009 educational program. Unfortunately, NSSTA's announced 2010 educational program looks like "the same old, same old" - at least from S2KM's strategic perspective.

By comparison with NSSTA, NASP will devote three hours of its 2010 educational program this week in Las Vegas specifically to "Structured Settlement Industry Analysis". This portion of the NASP program is subtitled: "How to Improve and Grow the Structured Settlement Industry".

Announced participants for this strategic discussion include industry knowledge experts who are members of NASP, SSP and NSSTA plus Jeremy Babener as an independent writer and analyst. Other participants include: Robin Shapiro, Earl Nesbitt, Matt Bracy, Andrew Savysky, Peter Vodola, Richard Risk, John Darer and Patrick Hindert - and continues prior NASP strategic discussions that featured: Stephen Harris, Jack Meligan and Michael Upchurch among others.

NASP 2009 Annual Meeting - 3

This blog post continues S2KM's summary and analysis of the NASP 2009 Annual Meeting. Prior S2KM blog posts about NASP are accessible on S2KM's structured settlement wiki.

NASP's 2009 strategic educational analysis occurred primarily during a two-hour panel discussion titled "Re-thinking Structured Settlements". S2KM assisted NASP in organizing this panel discussion. Jeremy Babener's NASP presentation titled "Factoring and the Structured Settlement Tax Subsidy" preceded and contributed to NASP's strategic discussions.

NASP Panel Discussion: "Re-thinking Structured Settlements".

Moderator: Earl Nesbitt, Executive Director of NASP.

Panelists: Jeremy Babener; Matthew Bracy; Daniel Hindert; Richard Risk; Andrew Savysky; Robin Shapiro; Michael Upchurch.

Format: S2KM identified and submitted to NASP a preliminary list of strategic structured settlement questions. NASP encouraged the panelists to identify and address S2KM questions that most interested them. NASP allocated time for audience questions and participation.

Primary S2KM questions addressed by the NASP panel:

• Which 2009 events and developments (legal; financial; political) will most significantly impact the future of structured settlements?
• What are the best and worst structured settlement business practices?
• Are factoring transactions good or bad for structured settlements?
• Does public policy support state court ordered structured settlement factoring transactions?
• How has the financial crisis changed the structured settlement market? Note: although NASP's strategic panel acknowledged the importance of this issue, the panel also recognized the related comprehensive discussion by the NASP "Capital Markets" panel.

2009 structured settlement developments - as sequentially identified and discussed by the NASP panel:

• Financial and credit crisis - addressing both primary and secondary market consequences;
• Election of President Obama - highlighting anticipated legislation including health care reform and tax reform;
• J.G. Wentworth bankruptcy - what it means for traditional secondary market business models;
• Primary market departures - why leading structured settlement annuity providers continue to leave the market;
• Diminishing annuity sales - why structured settlement annuity sales are down when fixed annuity sales generally are way up;
• Spencer v. Hartford - how the recent United States Second Circuit Court decision (denying Hartford's appeal) impacts the Hartford class action lawsuit and which other structured settlement programs are now at risk for potential RICO class action lawsuits?
• Revised California protection statute - viewed by the panel as a legislative victory for the structured settlement industry and featuring specific "best interest" criteria for state judges to consider in California settlement transfer cases.
• Fresno County cases - viewed by the panel as a judicial victory for the structured settlement industry with an appellate court ruling that public policy supports state court approved structured settlement factoring transactions.
• Rapid Settlement cases - viewed by the panel as a victory for the structured settlement industry with continuing judicial denial of arbitration alternatives to state court approved transfers pursuant to IRC 5891 and state structured settlement protection statutes.
• Scott Rothstein ponzi scheme - identified as a legal and public relations reminder that all participants in settlements featuring periodic payments with potential subsequent payment transfers would benefit from applicable legislation (protection statutes) and required state court approvals.

Best and worst business standards and practices - as identified and discussed by the NASP panel:

• Primary market
  • Best practices
    • SSP's "Standards of Professional Conduct for Settlement Planners" - including Rule 9 titled "Factoring Structured Settlements";
    • IRC 468B qualified settlement funds;
    • Full market quoting surveys;
    • Multiple (blended) product offerings, licensing and expertise.
  • Worst practices
    • Alleged RICO violations in the Spencer v. Hartford class action lawsuit;
    • Over-structuring the wrong cases and with the wrong periodic payments;
    • Lack of disclosure to injury victims - about compensation sharing; conflicts of interest; IRC 5891; and state protection statutes;
    • No applicable "best interest" legislation or standards;
    • Mischaracterization by and of "agents" (loyal to annuity providers) as "brokers" (loyal to injury victims);
    • Defendant "approved lists" of agents and funding companies;
    • Affiliated company funding programs;
    • "Pay for play" endorsements by professional associations.
• Secondary market
  • Best practices
    • Business practices required by IRC 5891 and NCOIL's model state structured settlement protection statute - including judicial approval; best interest standard; disclosure; notification;
    • Standards and business practices endorsed by NASP;
    • Competitive bidding fostered by the Internet.
  • Worst practices
    • "Cash now" advertising;
    • Non-competitive bidding fostered by television advertising;
    • Failure to fund (or delayed funding) of court ordered settlement transfers.

Is the secondary market good or bad for structured settlements? This question was discussed in detail during the NASP 2008 Annual Meeting with Jack Meligan and Michael Upchurch providing a primary market critique of the secondary market. NASP's 2009 Annual Meeting featured two published critics of secondary market business behavior: Judge Edward Burke of Arizona and attorney Daniel Hindert of Utah. In addition, Michael Upchurch participated on the NASP strategic analysis panel. If the NASP program reached any conclusion for this issue, it was: the secondary structured settlement market is a reality. Whether the secondary market is good or bad for structured settlements depends upon business behavior and business results in both the primary and secondary markets.

Does public policy support state court ordered structured settlement factoring transactions? Jeremy Babener discussed the public policy arguments for and against factoring transactions. Babener concluded that more information is needed to make a comprehensive public policy declaration. The recent California appellate court decision in Henderson v. Scioteco holds that public policy supports state court approved factoring transactions. Babener, acknowledged the importance of the decision, but disagreed with the California court's characterization of IRC 5891 as an "express sanction" of factoring. Richard Risk agreed with Babener that IRC 5891 does not contain a clear statement of public policy about factoring. Risk, however, pointed to examples of IRC 5891 legislative history that contradict any claim that public policy is against structured settlement factoring. As one example, Risk cited the Joint Committee on Taxation’s report released on March 18, 1999, “Tax Treatment of Structured Settlement Arrangements,” which Risk interprets as public policy support that structured settlements can co-exist with factoring.

S2KM applauds NASP for:

• Focusing much of its 2009 educational program on strategic structured settlement industry issues; and also for
• Inviting and featuring  structured settlement industry experts with diverse viewpoints and opinions.