The United States structured settlement market has been in existence for approximately 40 years and continues to expand its scope, complexity and importance within the context of personal injury settlement planning. When structured settlements were first introduced in the United States in the late 1970s, they were viewed primarily as a defense claim management concept which was binary in nature. A settlement was either “cash” or “structure”. A “failed” structured settlement was a “cash out”. Defense brokers sold a single product – a structured settlement annuity which could be, and almost always was, combined with up front cash. Rarely, however, from a defense perspective, was a structured settlement annuity integrated with other financial products or government benefits. In fact, a fundamental public policy justification for structured settlements claimed that “structured settlements enable injury victims to live free of reliance on government assistance.”
As the U.S. structured settlement market evolved, however, a shift in control has occurred as plaintiffs and their attorneys now retain their own structured settlement advisors. From the plaintiff perspective, a structured settlement annuity looks less like an all or nothing settlement proposition and more like a strategic product that can be combined with other financial products, government benefits and trusts into comprehensive settlement plans. National associations of plaintiff structured settlement brokers (SSP), special needs attorneys (SN Alliance and ASNP), and other professionals, as well as traditional structured settlement participants (NSSTA) increasingly recognize a much larger and more complex market (personal injury settlement planning) within which structured settlement annuities represent a core strategic product.
Since it was first published in 1986, "Structured Settlements and Periodic Payment Judgments" (S2P2J), has provided structured settlement stakeholders and settlement planning professionals with an authoritative reference guide, consisting of 16 chapters with extensive footnotes and Appendix documents, to help them understand issues and fashion settlements and judgments utilizing periodic payments. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) have utilized S2P2J as an educational resource for their certification programs.
Co-authored and updated semi-annually by Daniel W. Hindert, Joseph J. Dehner and , S2P2J now features an online version as well as the traditional hardcopy. Online S2P2J includes a search feature and download capability as well as link features to access individual book sections, appendices, footnotes, cases and statutes. In addition to contributing authors recognized below, the book authors acknowledge and thank the NSSTA and SSP Legal Committees for sharing case and industry updates.
Publisher Law Journal Press anticipates a March 2018 distribution date for hardcopy supplements for S2P2J Release 63 with online S2P2J subscribers receiving their update simultaneously with no additional subscription charge. Competent professionals confronted by structured settlement issues should have access to an up-to-date copy (or the online version) of this indispensable source book.
Release 63 Highlights - Release 63 will feature new, updated and/or expanded sections addressing the following structured settlement topics:
- Historical Analysis - To help structured settlement stakeholders analyze the comprehensive changes impacting their industry, Release 63 adds three new subsections to Chapter 1 expanding its historical analysis of the U.S. structured settlement market including: "Historical Trends and Transitions"; "Legislative History"; and "Significant Historical Developments."
- ABLE Accounts - The "Achieving a Better Life Experience Act of 2014" (ABLE Act) created an important new option (ABLE accounts) for qualifying individuals (disabled prior to age 26) to save and accumulate money while preserving eligibility to receive means-tested government benefits. In the personal-injury context, ABLE accounts cannot be funded directly with a structured settlement, but can be funded indirectly using a special needs trust. Contributing author David Lillesand, a nationally recognized special needs legal expert, highlights Release 63 with a comprehensive introduction to ABLE accounts for structured settlement and settlement planning professionals. Among the topics attorney Lillesand addresses: 1) Federal laws and regulations - including Congressional improvements in 2017; 2) State ABLE programs; 3) ABLE accounts in practice; and 4) a comparison of special needs trusts and ABLE accounts.
- Market-based Programs - One result of settlement planning has been the development of an increasing number of products and financial vehicles directly and indirectly related to structured settlements. Contributing author Serena Fitchard introduces and explains "market-based programs" which provide periodic payments linked to the performance of an underlying investment portfolio. At one time, most industry participants assumed market-based programs did not meet IRC 130's "fixed and determinable" test. In multiple PLRs, however, the IRS has concluded that the variable nature of a payment does not preclude it from being fixed and determinable if the payment obligation is fixed at the time of settlement and the amount can be calculated pursuant to an objective formula.
- Rating Agencies - Contributing author Michael Cohen, former head of A.M. Best's U.S. Life Insurance Industry rating division, provides an extensive update in Release 63 to S2P2J's summary and analysis of financial rating agencies relevant to structured settlements. Mr. Cohen's commentary: 1) introduces new companies that provide ratings for insurers; 2) discusses the quantitative and qualitative factors rating agencies utilize when they apply their rating methodologies; and 3) emphasizes the importance of risk based capital in life insurer evaluations. He further explains why A.M. Best has two rating scales (Financial Strength Rating and Issuer Strength Rating) and how those rating scales interact.
- Non-Qualified Assignments - Release 63 continues to track developments in the non-qualified structured settlement market which features an increasing number of non-traditional product providers as well as funding options where non-U.S. companies serve as obligors. S2P2J's analysis highlights many of tax and non-tax issues that these "off-shore" products raise which structured settlement professionals should evaluate and be able to explain to clients.
- Guaranty Association Model Act - As one result of the ELNY liquidation, the NAIC updated its "Model Life and Health Insurance Association Model Act" in 2017. Release 63 addresses the sections specifically impacting structured settlements including a clarification that Guaranty Association coverage under this newest version of the Model Act does not extend to "persons" who acquire rights to receive structured settlement annuity benefits via factoring transactions or to the "rights" so acquired. Louisiana became the first state to enact the new Model Act provision specifically excluding factored benefits.
- Lanclos v. United States - To its extensive coverage of the ELNY insolvency and liquidation, Release 63 provides a summary of Lanclos v. United States, a case decided by the U.S. Court of Federal Claims in 2017, in which an ELNY shortfall victim successfully argued that the U.S. government should be held liable for the shortfall because it "guaranteed" the structured settlement payments. To support her position, the plaintiff relied on Massie v. United States, where a Federal Circuit Court relied on a plain reading of the contract terms which stated the payments were “guaranteed” and “shall be paid.” Because of this language, the Court in Massie rejected the government’s argument that it had discharged its duty under the settlement agreement by “purchasing an annuity.”
- Privacy Issues - Professional structured structured practitioners must be aware of various federal and state privacy laws that may impact the gathering and/or sharing of medical or other personal information belonging to a claimant during the course of a personal injury settlement negotiation. Release 63 continues S2P2J's coverage of these privacy laws which can include not only HIPAA and the Gramm-Leach-Bliley Act but also state legislation similar to the NAIC's Model Act entitled "Privacy of Consumer Protection and Health Information Regulation" which may apply to all entities licensed by the State Department of Insurance.
- Deferred Attorney Fees - Plaintiff attorneys who wish to defer part or all of their fees in a contingent fee case have multiple product options depending upon whether the underlying case involves non-taxable personal physical injuries. For non-taxable injury cases, most structured settlement annuity providers allow attorney fees to be structured using an IRC 130 qualified assignment even on a "stand alone" basis. Release 63 updates S2P2J's analysis of qualified assignment applications to deferred attorney fees and questions whether the Childs case on its own represents appropriate tax authority.
- Settlement Planning Practice Standards - More recent S2P2J updates have recognized the evolution of personal injury settlement planning and its strategic relationship with structured settlements. Originally composed primarily of plaintiff structured settlement brokers, the Society of Settlement Planners (SSP) has played a leading role in defining this new profession. Release 63 highlights SSP's most recent contribution, their "Settlement Planning Practice Standards," and also includes a copy of these Standards in S2P2J's Appendix.
- CMS WCMSA Reference Guide - Medicare Set-Asides (MSAs) have become an important sub-market for structured settlements. Release 63 summarizes sections applicable to structured settlements within the most recent (2017) update of the CMS Workers Compensation (WC) MSA Reference Guide. Significantly, this newest version of the Reference Guide continues to incorporate the October 15, 2004 CMS Memo that provides structured settlement annuities with an inherent cost advantage compared with lump sums for funding most WCMSAs. Every structured settlement professional should be aware of this cost advantage and be able to explain it to their clients.
- Secondary Market Business Practices - Successful cooperation between NSSTA and the National Association of Settlement Purchasers (NASP) has resulted in greater consumer protections within the Model Act and multiple state structured settlement protection statutes. Unfortunately, the conduct of some secondary market participants continues to result not only in negative national publicity but also government actions against certain factoring companies alleging fraud and other deceptive business practices. Among other additions, Release 63 summarizes two recent criminal cases involving forgeries of protection act transfer orders to S2P2J's already extensive chapter addressing "Transfers of Structured Settlement Payment Rights."
For additional coverage of historical structured settlement issues and developments, see the structured settlement wiki.