Beyond Structured Settlements

Settlement Planning 2012 Conferences

During the past two months, S2KM attended and reviewed three national conferences that featured settlement planning issues:

• ASNP 2012 Annual Meeting
• Risk Settlement Planning Practicum - see also: Structured Settlements and Settlement Planning
• SSP 2012 Annual Meeting
  • Part 1
  • Part 2

 In addition to many technical and product presentations (identified and/or summarized in the above links), what did attendees learn about fundamental settlement planning issues?  And what fundamental issues still need to be addressed more directly at future conferences before settlement planning becomes a recognized profession?

Definitions - Three conference participants offered definitions for "settlement planning" and/or "settlement planner":

• Joseph Tombs - "Settlement planning is a profession helping recipients of settlement proceeds use those proceeds to achieve post-loss goals and transition successfully to post-settlement financial life. Settlement planners represent a blend of several professionals: part tax lawyer, trial lawyer, special needs lawyer, financial planner, annuity specialist, social worker, and medical case worker."
• Timothy Morbach - "Settlement planning requires due diligence and informed consent. In that context, settlement planning provides a framework within which settlement stakeholders are able to craft case-specific terms and conditions, legal documents, financial instruments, plus related work product, to resolve claims and achieve safe harbor reflecting their respective best interests."
• Patrick Hindert - "The primary difference between special needs planning and settlement planning is that special needs planning includes clients whose disabilities result from many causes including but not limited to personal injury or workers compensation accidents."
• Note - "Rule 1: Terminology" in the SSP Standards of Professional Conduct provides multiple definitions related to settlement planning including the following for "settlement planner": "a representative who provides advice and other services to a person participating in the design, negotiation or implementation of a settlement or satisfaction of judgment for the benefit of a person claiming a legal entitlement to an award of damages or other compensation. A settlement planner may represent a plaintiff, a defendant, an insurer, a guardian ad litem, an heir of a claimant, an attorney or another person participating in the settlement process."

Emergent Profession - Several conference speakers who discussed settlement planning from a structured settlement perspective described settlement planning as a larger and more complex successor business and profession:

• Joseph DiGangi - "Today we find our industry at a crossroad. In order to move forward, our only choice is to build great business models around the planning first approach. Settlement planning represents a needs-based consultative business model based on benefits, not products."
• Joseph Tombs - "Selling structures is easy. Expectations are low. Any primate can run quote software. A fixed annuity is one of the most simple financial products in the world. We are building a new profession that requires constant education and practice standards. Settlement planning increases expectations and potential liabilities. The more we study and practice settlement planning, the more we realize its complexity and understand its challenges."
• Charles Schell - "The Claims Management model benefits the settlement planning industry and Settlement Planners should acknowledge the benefits which include product marketing and continued protection of IRC sections 104(a)(2) and 130. Concurrently, defense brokers should recognize the benefits of collaborating, rather than competing, with Settlement Planners. These benefits include access to and trust of the customer, an awareness of financial needs and family issues plus multi-product financial solutions that feature structured settlements and enhance their sale."
• Jack Meligan - "SSP and its members have been promoting the practice of Settlement Planning as a more comprehensive solution for the financial issues facing personal injury victims and their families, and the profession of Settlement Planning as the next evolutionary step for members of the financial and legal communities that serve these injured Americans."
• Patrick Hindert - "The structured settlement business models that seem "normal" today began with a choice that made sense in the late 1970s and early 1980s. They have survived despite changes impacting the justification for that choice. Settlement planning is an emergent system in which many different elements interact. Settlement planning is producing a new business model that is influencing all of its constituent elements including structured settlements."

Multi-Professional - The professional backgrounds of conference participants provides some indication of an emerging community of professional practice and its collective knowledge base:

• Special Needs Attorneys - Michele Fuller, David Lillisand; Kevin Urbatsch; Rene Reixach; Jason Lazarus; Annette Hines; Linda Brown; Vincent Russo; Michael Amoruso; Harry Margolis.
• Tax attorneys - Robert Wood; Jeremy Babener; David Higgins.
• Miscellaneous attorneys - Professor Carl Pierce; Richard Risk; Daniel Hindert; Patrick Hindert; Karen Meyers; Mark Popolizio; Steve Riley.
• Settlement Trustees - Travis Finchum; Frank Maguire; Christi Fried; Wesley Cosgriff; James Creel.
• Financial and insurance professionals - Jack Meligan; Charles Schell; Joseph Tombs; Joseph DiGangi; Mark Wahlstrom; Mal Deener; Timothy Morbach; John Woolway; Robert Noack; Paul Hansen; Major General James W. Comstock; Anthony Prieto; Robert Birney; Jerry Hulick.
• Medicare Set-Aside Specialist - Douglas Shaw.
• Lien Resolution Specialist - Daniel Alverez.
• Note: none of the conferences featured guardian ad litems, life care planners or damage allocators as speakers.

Unanswered Questions - From S2KM's perspective, future settlement planning conferences need to more directly address the following issues:

• How large is the United States settlement planning market?
• Who comprises (and selects) the settlement planning team?
• What criteria and process (e.g. request for proposal) are appropriate for selecting members of the settlement planning team?
• What professional licenses and certifications are applicable?
• What primary laws and regulations apply to settlement planning?
• What work product does each settlement planning team member provide?
• Who integrates their individual work product into a settlement plan - and how?
• When is a settlement plan appropriate?
• What are the standard components of a settlement plan?
• What are the product suitability and disclosure standards for settlement planning?
• What does a settlement plan cost?
• What other metrics (besides cost) are appropriate for evaluating the success of a settlement plan?
• How are settlement planning team members compensated?
• What alternative compensation methods and/or business models would allow settlement planning to become more efficient and/or reduce costs?
• Once implemented, who has responsibility to monitor and/or amend the settlement plan?
• What are the Defendant’s responsibilities and duties in settlement planning?

For professionals and product providers interested in learning more about settlement planning, see:

• The Society of Settlement Planners (SSP) website.
• The Registry of Settlement Planners (RSP) website
• The structured settlement wiki - settlement planning page

The Kyle Walsh Story

At one time or another, each of us may have become acquainted with an individual who has overcome personal injuries and successfully transformed their disabilities and special needs into special lifetime accomplishments.

Approximately twenty years ago, S2KM blog author Patrick Hindert met such an individual. That individual’s name is Kyle Walsh. Recently, Hindert was able to renew his acquaintance with Kyle over dinner while Kyle was visiting Cincinnati to attend a football coaching clinic.

In 1991, Kyle helped his high school football team, the A&M Consolidated Tigers, win the Texas Division 4 State Championship. The following year, Kyle fulfilled a lifetime dream by successfully trying out for and joining the roster of the University of Texas varsity football team as an undersized "walk-on" center and long snapper.

During his Freshman year at UT, Kyle suffered a catastrophic injury that forever changed his life. While returning to Austin after celebrating his birthday with his family, Kyle broke his neck as a result of an automobile accident caused by a tire blowout. None of the other passengers were seriously injured. At age 19, however, Kyle became a quadriplegic.

Within two weeks of his accident, Kyle had already enrolled in an extensive rehabilitation program. He subsequently returned to UT and graduated with a major in history and a minor in special education. Following graduation, Kyle returned to his hometown of College Station, Texas and accepted a job teaching and coaching football at A&M Consolidated, his former high school. Kyle's new life blossomed in 2004 when he met his future wife Audra. They were married in 2006 and last year adopted their daughter, Adalee Bree.

KBTX-TV featured Kyle, his football team and his family in a 2011 video titled "Coaching from a Different Perspective".

Some members of our industry may remember that Kyle, his father and his mother were guest speakers at the Annual Meeting of the National Structured Settlement Trade Association (NSSTA) following Kyle's graduation from UT. That same year, Kyle served as Honorary Chairman of the Greater Cincinnati Special Olympic Soccer Tournament.

Despite being confined to a wheelchair, Kyle is in good health. He works out daily using a specialized stationary bike that emits electrical discharges to stimulate his leg muscles and allows him to pedal the bike himself. Kyle's favorite individual sport is scuba diving which he pursues internationally and which provides an opportunity for Kyle to experience "normal" physical activity.

During our dinner in Cincinnati, Kyle expressed gratitude and humility while discussing his life and his accomplishments. He enjoys and embraces his roles as husband, father, teacher and coach. Kyle's impact on other people, as mentor and role model, continues to expand. He has twice served as honorary speaker during graduation ceremonies at A&M Consolidated High School.

Congratulations to Kyle for his continuing achievements and contributions to his family, high school, football team and community.

Structured Settlements and Settlement Planning

Selected video presentations from the Risk Settlement Planning Practicum are now posted online including Patrick Hindert's "History of Structured Settlements".  The conference, hosted April 13-14, 2012 by the University of Tulsa College of Law and attended by attorneys and law students, is believed to be the first law school conference about settlement planning.

Additional practicum presenters and topics - with online video links when available:

• Richard Risk - Introduction
• Joseph Tombs - Overview of Settlement Planning
• Professor Carl Pierce - Standards of Professional Conduct
• Jack Meligan - Pitfalls in Settlement Planning
• Jeremy Babener - Taxation in Personal Injury Cases
• Mark Popolizio - How Medicare Impacts Settlement Planning

Hindert, Managing Director of The Settlement Services Group (TSSG), primary author of "Beyond Structured Settlements" and co-author of "Structured Settlements and Periodic Payment Judgments" (S2P2J) provided a 75 minute discussion explaining the historical and evolutionary relationship between structured settlements and settlement planning. The discussion featured  diagrams by Timothy Morbach:

• Traditional Structured Settlement Funding
• Structured Settlement History
• Settlement Planning - with Structured Settlement Funding
• Structured Settlement Transfer

Hindert's discussion:

• Portrayed settlement planning as an emergent system with structured settlements as a core component.
• Highlighted increasing complexity and variations within the structured settlement life cycle.
• Emphasized the concomitant need for compliance and accountability to satisfy changing legislative and regulatory requirements.
• Specifically addressed: qualified settlement funds; special needs trusts; structured settlement transfers; and the ELNY liquidation.

SSP 2012 Annual Meeting - 1

The French author and poet Victor Hugo has been translated and quoted as saying: "There is nothing more powerful than an idea whose time has come."

Has the time come for "settlement planning" to be recognized as a powerful idea deserving professional study and status in the United States? Recent conferences, including the Society of Settlement Planners (SSP) 2012 Annual Meeting, suggest that settlement planning is becoming both an important profession and an alternative business model for the structured settlement industry.

As a foundation for professional status, SSP has previously developed the Registered Settlement Planner (RSP) Program and adopted Standards of Professional Conduct. The 2012 Annual Meeting, held April 30 - May 1 in Las Vegas, featured presentations by leading settlement planning practitioners and subject matters experts. In addition, several product providers introduced insurance and financial products to complement the traditional structured settlement annuity.

What is settlement planning? Joseph Tombs, a former SSP President and co-founder of the RSP program, defines settlement planning as "... a profession helping recipients of settlement proceeds use those proceeds to achieve post-loss goals and transition successfully to post-settlement financial life."

What is a settlement planner? The SSP Standards of Professional Conduct define "settlement planner" as "... a representative who provides advice and other services to a person participating in the design, negotiation or implementation of a settlement or satisfaction of judgment for the benefit of a person claiming a legal entitlement to an award of damages or other compensation."

SSP conference Keynote Speaker Michael Ellsberg, author of "The Power of Eye Contact" and "The Education of Millionaires", discussed how to "Invest in Your Own Human Capital".

Settlement Planning Practitioners and Subject Matter Experts and Topics:

• 2011 SSP President Jack Meligan - SSP Accomplishments
• 2012 SSP President Charles Schell - SSP Goals
• Joseph DiGangi - Reinventing the Settlement Industry
• Douglas Shaw - Medicare Liens
• Robert Wood - Tax Update
• Jeremy Babener - Settlement Agreements and IRS Challenges
• Karen Meyers - Suitability Standards
• Patrick Hindert - Settlement Planning Business Models
• David Higgins - Litigation Rollover Accounts
• Jason Lazurus - Liability MSAs
• Frank Maguire - Overcoming Stalled Markets
• Mark Wahlstrom - Market Trends and Challenges
• Daniel Hindert - The ELNY Liquidation
• Richard Risk - History of Settlement Planning
• Dan Alverez - Lien Resolution
• Joseph Tombs - The RSP Program

Settlement Planning Product Providers

• Wesley Cosgriff - Secured Futures Trust
• John Woolway - Vantage Investment Partners
• Robert Noack - Aequitas Capital Management
• Christi Fried - Continental Trust Services
• Paul Hansen - Morgan Stanley Smith Barney
• Major General James W. Comstock (ret.) - Alternative Design Insurance Services
• Anthony Prieto - Synergy Settlement Services
• James Creel - First Capital Surety & Trust Co.
• Robert Burney - Integrity Financial, Inc.
• Mal Deener - Symetra Life Insurance Company (on behalf of Berkshire Hathaway Life Insurance and National Indemnity)

In subsequent blog posts, S2KM will review selected SSP conference topics. For S2KM reporting of prior SSP meetings, see the structured settlement wiki.

Risk Settlement Planning Practicum

Sheltered from the violent storms that unleashed dozens of tornadoes across Oklahoma and the plains states on April 13-14, 2012, the University of Tulsa College of Law hosted the Richard B. Risk Jr. Settlement Planning Practicum which organizers believe was the first time any law school has sponsored a settlement planning educational conference.

Risk, a national authority on structured settlement law and one of the founders of the Society of Settlement Planners (SSP), endowed the settlement planning practicum which is expected to become an annual event for attorneys and law students. Risk invited and introduced the practicum presenters in the following speaking order: Joseph Tombs, Patrick Hindert, Mark Popolizio, Jeremy Babener, Jack Meligan and Professor Carl Pierce.

Joseph Tombs

Tombs, a lawyer, certified financial planner and former SSP President who, working with Risk, helped organize the Registered Settlement Planner (RSP) certification program, addressed "Common Issues Attorneys Face When Settling Cases". As part of his presentation, Tombs contrasted settlement planning and financial planning. One primary difference, according to Tombs, is the relative importance in settlement planning of "dissipation risk". Other differentiating factors identified by Tombs include the importance of: government benefits, medical forecasting and special needs legal issues. Tombs discussed structured settlements as a core settlement planning tool that combines relatively low investment and dissipation risks.

Tombs emphasized the multi-professional skill sets settlement planning requires and described settlement planning as an evolving profession stating: "The more we study and practice settlement planning, the more we realize its complexity and understand its challenges." He offered the following definition for settlement planning: "a profession helping recipients of settlement proceeds use those proceeds to achieve post-loss goals and transition successfully to post-settlement financial life."

Patrick Hindert

In his presentation titled "The History of Structured Settlements", Hindert (co-author of "Structured Settlements and Periodic Payment Judgments" and author of S2KM's blog) provided a visual analysis featuring schematic diagrams to explain how structured settlement has evolved from a claim management tool into a core component of the larger and more complex settlement planning profession - and how competing business models have restricted the growth of the structured settlement annuity market.

Hindert stated key structured settlement stakeholders have succumbed to "path dependence" by failing to strategically study and analyze continuing industry changes. Structured settlement business models and practices that once made sense and represented "industry standards", according to Hindert, have survived despite the eclipse of their justification, benefit and/or better alternatives.

Hindert described settlement planning as an "emergent system" and quoted John McWhorter, a linguist at Columbia University, to help explain the significance for structured settlements:

"Emergent systems [settlement planning] are ones in which many different elements interact. The pattern of interaction then produces a new element [settlement planning] that is greater than the sum of the parts, which then exercises a top-down influence on the constituent elements [including structured settlements]."

To improve and grow the structured settlement market, Hindert recommended more detailed and comprehensive study of alternative structured settlement payment models and life cycles within the broader context of settlement planning as an important and necessary first step.

Mark Popolizio

A nationally recognized legal authority in Medicare Secondary Payer (MSP) compliance and a current board member of the National Alliance of Medicare Set-Aside Professionals (NAMSAP), Popolizio addressed how Medicare impacts settlement planning. Starting with an introductory Medicare road map, he next discussed CMS' reimbursement rights for conditional Medicare payments - who is at risk; what is Medicare's recovery amount; how to challenge conditional payments; how to obtain information; CMS' most recently announced policies and payment options; and recent case law developments.

Popolizio also discussed Medicare set-aside arrangements (MSAs), in the context of both workers compensation and liability cases, as CMS' recommended method for protecting Medicare's future interests under the MSP Act. For liability cases, he began by emphasizing why the key issue is not: "Are liability MSAs required?" Instead, Popolizio reviewed two recent CMS memoranda providing informal information about how CMS looks at liability MSAs. Finally, Popolizio offered his own recommendations (a three-step process) for approaching the liability MSA issue and also reviewed recent related case law.

Jeremy Babener

Babener, a rising star among structured settlement legal and tax experts, offered a comprehensive overview of "Taxation in Personal Injury Cases". He began by outlining sources for tax authority, the variables for tax liability and the character of income. Next, he discussed the exclusion for personal injury damages and explained the language of IRC 104(a)(2) before addressing other damages in personal injury cases - past and future medical expenses; punitive damages; and pre and post-judgment interest.

Babener explained the importance of documentation, including the complaint and the settlement agreement, to maximize the exclusion for personal injury damages. He highlighted specific facts that frequently create problems with the IRS and conversely how to encourage the IRS to respect the documents so as to obtain the preferred tax result. Babener concluded by addressing these additional settlement tax considerations: legal expenses; structured settlements; qualified settlement funds; and transfers of structured settlement payment rights.

Jack Meligan

Meligan, a founder and current President of the SSP, discussed "Pitfalls in Settlement Planning and How to Avoid Malpractice"; offered reasons why personal injury claimants and their attorneys need settlement planning advice from a qualified professional or team of professionals; and reviewed an example of a settlement plan. In addition, Meligan:

• Summarized three cases (Grillo; Lyons; and Spencer) to demonstrate why structured settlements need to be considered and risks associated with certain business behavior;
• Cited statistics from American Bar Association studies to underscore the frequency and risk of malpractice cases against personal injury attorneys;
• Spotlighted danger areas for plaintiff attorneys: MSP compliance; deductability of attorney fees; and documentation of confidentiality clauses; and
• Cautioned plaintiff attorneys against failing to retain an independent settlement advisor; or to advise their clients about all settlement options (including the pros and cons of structured settlements); or to completely document their files as proof of their best practices.

Professor Carl Pierce

Professor Pierce is the W. Allen Separk Distinguished Professor of Law and Director of the Howard Baker, Jr. Center for Public Policy at the University of Tennessee. Among his professional activities, Professor Pierce has served as Reporter for the Tennessee Bar Association Standing Committee on Ethics and Professionalism and as Associate Reporter for the American Bar Association Special Commission on Evaluation of the Rules of Professional Conduct. During 2007-2008, Professor Pierce served as Consultant to the Society of Settlement Planners (SSP) and helped review and draft the SSP's Standards of Professional Conduct for Settlement Planners (SSP Standards).

Professor Pierce provided a summary comparative analysis of both the National Structured Settlement Trade Association (NSSTA) Statement of Ethics and Professional Responsibility (NSSTA Code of Ethics) and the SSP Standards. Despite substantial experience working with litigators, Professor Pierce acknowledged surprise by the degree of hostility between some plaintiff and defense structured settlement consultants. Professor Pierce:

• Observed that all law school graduates need some exposure to structured settlements and settlement planning;
• Suggested that the business collaboration models among insurance companies, plaintiff attorneys and settlement planners could look very different in the future; and
• Recommended that representatives of NSSTA and SSP meet to discuss and compare their respective statements of ethics and standards.

Congratulations to Richard Risk, the University of Tulsa College of Law and the guest speakers who participated in the Settlement Planning Practicum. S2KM understands that Tulsa College of Law will publish a video compilation of the practicum speaker presentations on YouTube.

Spring 2012 Conferences

During the next four weeks, S2KM will attend and review three professional educational conferences addressing structured settlement and settlement planning issues:

• Richard B. Risk Jr. Settlement Planning Practicum
• National Structured Settlement Trade Association (NSSTA) Annual Meeting
• Society of Settlement Planners (SSP) Annual Meeting

Risk Practicum

A national authority on structured settlement law, Richard Risk has endowed a series of annual settlement planning "practicums" at his law school alma mater, The University of Tulsa College of Law. Risk believes the 2012 practicum, scheduled for April 13-14, will represent the first time any law school in the country has formally recognized settlement planning as a topic of legal education. Speakers: Joseph Tombs; Patrick Hindert; Mark Popolizio; Jeremy Babener; Jack Meligan; Carl Pierce.

NSSTA Annual Meeting

NSSTA's Annual Meeting, scheduled for April 25-27 in Washington, D.C., will feature a mixed agenda of business and political meetings; NSSTA "Takes the Hill" meetings with Members of Congress and senior Congressional Staffers; plus an educational program headlined by Senator Max Baucus, Congressman Richard Neal, NOLHGA Chairman Thomas Ronce and President Peter Gallanis, Mike Montemurro of the IRS, a Congressional Chiefs of Staff panel, plus various NSSTA leaders and property & casualty insurance representatives.

SSP Annual Meeting

SSP will host its Annual Meeting April 29-May 1 in Las Vegas. The SSP educational program will feature 27 speakers discussing strategies to improve and grow the settlement planning market. Some of the SSP presentation categories:

• Revitalizing and reinventing structured settlements
• New NAIC annuity regulations
• Insurance, investment and administrative options
• Tax developments, strategies and legislative proposals
• Medicare (MSA) and Medicaid (SNT) updates
• What ELNY means for settlement planners

In addition to these three 2012 conferences, S2KM previously attended and reviewed the Academy of Special Needs Planners (ASNP) 2012 Annual Meeting. For S2KM's complete reporting about professional associations whose members participate in structured settlements and settlement planning, see the structured settlement wiki.

S2P2J Release 51

Publisher Law Journal Press anticipates an April 2012 distribution date for hardcopy supplements for Release 51 of "Structured Settlements and Periodic Payment Judgments" (S2P2J). Online S2P2J will also be updated April 2012 to include Release 51 materials. First published in 1986, S2P2J is co-authored and updated semi-annually by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert. Both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP) utilize S2P2J as an educational resource for their certification programs.

Release 51 Highlights

Release 51 for "Structured Settlements and Periodic Payment Judgments" features a comprehensive Executive Life update including expanded and updated coverage for the Executive Life of New York (ELNY) liquidation proceedings now in progress. In related reporting, Release 51 also:

• Expands and updates prior reporting for life insurance insolvency procedures and state guaranty association laws;
• Offers advice to plaintiff attorneys about how to address the risk of non-payment by annuity providers; and
• Summarizes recent case developments impacting Aurora, the successor company to Executive Life Insurance Company of California (ELIC),

Release 51 also updates Medicare Secondary Payer (MSP) developments and conditional Medicare payment requirements. Contributing author Peter H. Wayne IV provides current analysis and advice about Medicare Set-Aside (MSA) arrangements in liability cases discussing new and related case law, new CMS pronouncements and new CMS field office guidance with practice tips for structured settlement and settlement planning consultants, attorneys and claim supervisors.

Release 51 expands existing coverage of structured settlement business standards and practices including analysis of the following legislation impacting settlement planners:

• The NAIC Suitability in Annuity Transactions Model Regulation;
• The NAIC Annuity Disclosure Model Regulation;
• Dodd-Frank's impact on fiduciary and suitability standards; and
• The Uniform Prudent Investor Act.

Other topics addressed in Release 51:

• Structured settlement metrics for defendants and liability insurers.
• The Treasury's final regulations for IRC section 104(a)(2) incorporating amendments resulting from the Small Business Job Protection Act of 1996.
• The new IRS Lawsuits, Awards and Settlements Audit Techniques Guide.

"Structured Settlements and Periodic Payment Judgments" is now available in both hardcopy and online versions. For summaries of prior Release Highlights, see the structured settlement wiki.

ELNY Liquidation - 5

Acting as agent for the Receiver of Executive Life Insurance Company of New York (ELNY), the New York Liquidation Bureau (NYLB) mailed letters (shortfall letters) on December 7, 2011 to many individual ELNY structured settlement annuity (SSA) payees notifying them about the proposed ELNY liquidation and restructuring agreement as well as the amount of their anticipated shortfalls.

The ELNY shortfall letters also encourage ELNY SSA payees with anticipated shortfalls to contact their ELNY SSA owner "who may be responsible for supplemental payments, depending upon the terms of the structured settlement agreement, to the extent full payments are not made under the Restructuring Agreement."

Many SSA recipients of the NYLB letters are understandably confused because their annuity contracts identify "First Executive Corporation" (FEC) as the owner of their SSAs. Unfortunately for these ELNY payees and their beneficiaries, FEC declared bankruptcy in 1991 and no longer exists. For a background summary about the rise and fall and ultimate bankruptcy of FEC, see this prior S2KM blog post.

To help SSA recipients of the NYLB shortfall letters better understand their situation, this blog post explains the difference between two alternative methods utilized to fund ELNY SSAs:

• Traditional annuity financing (aka "buy and hold"); and
• Qualified assignments - as defined in Internal Revenue Code Section 130.

Here is a graphic comparison of the "buy and hold" and qualified assignment financing alternatives, courtesy of The Settlement Services Group (TSSG), as set forth in Chapter 3 of "Structured Settlements and Periodic Payment Judgments" (S2P2J). Note: Patrick Hindert, author of "Beyond Structured Settlements", is also Managing Director of TSSG and co-author of S2P2J.

Annuity Financing ("Buy and Hold")

As defined in S2P2J, “ 'annuity financing' [buy and hold] means that a defendant or its liability insurer (the 'obligor') (1) gives the claimant an unfunded, unsecured promise to pay money in the future and (2) purchases and owns an annuity to provide a source of funds to meet this obligation."

Applied to ELNY, the owner of the annuity (defendant or its liability insurer) is the obligor and, if ELNY cannot pay, then the owner is obligated to make the periodic payments or make up the difference.

S2P2J further explains the rights and duties of the parties resulting from annuity financing:

1. "In exchange for a release from tort liability, the obligor promises to make periodic payments to the claimant and purchases an annuity to provide a source of funds to meet this obligation.
2. "The obligor owns the annuity, and as such, retains all incidents of annuity ownership, including the right to change the payee of annuity benefits. Of its own volition, the obligor directs that annuity benefits be paid by the annuity issuer to the claimant.
3. "The claimant has the right to receive periodic payments as due and may rely only on the general credit of the obligor for the collection of such payments. The claimant does not have rights in any property or investments owned by the obligor that are greater than rights of the obligor’s other general creditors.
4. "The claimant has no express rights against the annuity issuer because there is no privity of contract between them. Nonetheless, the claimant receives annuity benefits directly from the annuity issuer, and has no reason to complain to the obligor as long as the benefits are received as promised."

Qualified Assignment

As defined in S2P2J, “ 'qualified assignment' means that the defendant or its liability insurer (1) first gives the claimant a promise to pay money in the future; (2) then transfers that obligation to a substituted obligor pursuant to [Internal Revenue Code] Section 130; and (3) thus extinguishes its contractual liability for the obligation so transferred."

Applied to ELNY, the substituted obligor/assignee/annuity owner is FEC and, assuming the qualified assignment complied with all of the statutory requirements, the original obligor/assignor (defendant or liability insurer) thereby extinguished (or intended to extinguish) its contractual liability for the transferred periodic payment obligation.

S2P2J further explains the rights and duties of the parties resulting from a qualified assignment:

1. "In exchange for a release from tort liability, the defendant or its liability insurer or both (the 'assignor') promise to make specified periodic payments to the claimant.
2. "The claimant agrees to discharge the assignor’s duty provided an acceptable new obligor (an 'assignee') promises to make the periodic payments to the claimant.
3. "The assignee makes this promise to the claimant, the claimant accepts the assignee’s promise, and the assignor’s duty is discharged.
4. "For qualified assignments entered into on or before November 10, 1988: The claimant has the right to receive periodic payments as due and may rely only on the general credit of the assignee for the collection of the payments. The claimant does not have rights in any property or investments owned by the assignee that are greater than rights of the assignee’s other general creditors."
5. Note: because of a change in the tax law, for qualified assignments entered into after November 10, 1988, claimants may have a security interest in property owned by the substituted obligor without jeopardizing the tax-free status of the promised payments. If applicable to specific ELNY SSA payees, such a security interest could raise interesting legal issues because FEC also owed Executive Life of California (ELIC).

So what should ELNY SSA payees who received NYLB shortfall letters do?

• First, they should try to locate copies of their annuity contracts, settlement agreements and, if applicable, qualified assignment agreements. If they have not personally retained these documents, they might try contacting:
  • The attorney who represented them in their original lawsuit; or
  • The structured settlement agent who helped purchase their annuity from ELNY; or
  • Metropolitan Life Insurance Company which has been administering ELNY annuities since 1991.
• Second, they should retain legal counsel to review their documents and recommend options keeping in mind:
  • The January 16, 2012 deadline (Martin Luther King Day) for filing objections to the proposed ELNY Liquidation Petition and Restructuring Agreement; and
  • The announced ELNY "Hardship Fund" of at least $100 million (not a component of the Restructuring Agreement) created by a consortium of life insurance companies with a toll-free information line at 1-888-809-2254.

For additional information about FEC and ELNY, see the structured settlement wiki.

For additional information about annuity financing and qualified assignments, see Chapter 3 of "Structured Settlements and Periodic Payment Judgments" (S2P2J).

NASP 2011 Annual Meeting - 2

S2KM has received both positive and negative private feedback about S2KM's coverage of the National Association of Settlement Purchasers (NASP) 2011 Annual Meeting. Although S2KM welcomes any feedback, private or public, negative feedback generally provides greater focus and incentive for afterthoughts.

Among the private criticisms S2KM has received:

• S2KM is biased toward (or has an affinity for) the secondary market at the expense of the primary market.
• S2KM criticizes primary market business conduct without reporting secondary market bad business behavior.
• S2KM should be more of a positive voice for change and not a muckraker.

Bias Toward the Secondary Market

S2KM believes that IRC 5891 and the state protection statutes have radically changed and improved both the structured settlement product and the structured settlement market. To paraphrase NASP President Matt Bracy: structured settlement recipients, in compliance with federal and state laws, now have the right to sell their asset (payment rights) provided a state judge approves the sale in advance as being in the "best interest" of the transferor/payee taking into account the welfare and support of the payee's dependents. Instead of the "grey" secondary structured market that existed from 1986 to 2000, the secondary market is now regulated by state judges and the Internal Revenue Service with substantial penalties for transfer companies who do not comply with federal and state statutes.

Many primary market participants will disagree with portions of the above paragraph. They do not view structured settlements transfers either as a product improvement or as a recipient's "right" however that right may be qualified by statute. In S2KM's opinion, the primary market's general attitude toward and perspective of the secondary market since 2001 represent a serious strategic mistake that has caused considerable harm to the primary structured settlement market. Instead of improving their own products by adding commutation or transfer features, and re-learning how to sell their product in a statutorily re-defined market, the primary market continues to criticize and shun the secondary market.

By comparison, NASP regularly invites and welcomes critics to speak at its educational conferences. These critics have included blogger John Darer, two current co-chairpersons of the NSSTA Legal Committee Peter Vodola and Stephen Harris, and current SSP President Jack Meligan, as well as judges from states where structured settlement transfers are viewed most negatively. Among NASP presentations by S2KM author Patrick Hindert (Hindert), see "How the Primary Market Views Factoring".

Criticizing Business Conduct

Beginning in 2004, S2KM has reported and discussed both primary and secondary structured settlement market business practices and business models. For compilations of S2KM's reporting about secondary market business practices (good and bad), see the Secondary Market page on the structured settlement wiki. For detailed information about pre-2001 secondary market business practices and issues, see section 16.02[2] of "Structured Settlements and Periodic Payment Judgments" (S2P2J) of which Hindert is a co-author.

For S2KM reporting and commentary about primary market business standards and practices, see also the structured settlement wiki:

• Business Standards and Practices .
• Primary Market - includes IRC 468B Qualified Settlement Funds.
• Spencer v. Hartford .

Readers can judge for themselves whether S2KM criticizes primary market business conduct without reporting secondary market bad business behavior.

Positive Voice for Change vs. Muckraker

Wikipedia defines the contemporary use of the term "muckraker" to mean "a journalist who writes in the adversarial or alternative tradition or a non-journalist whose purpose in publication is to advocate reform and change." When S2KM began publishing in 2004, social media (including blogs, wikis and podcasts) represented an "alternative" to traditional print media and educational conferences. Social media provides an opportunity for unpopular or minority ideas and viewpoints to gain an audience not otherwise available. Unfortunately, social media also has a dark side which can include personal attacks and bullying.

In advocating for improved structured settlement business practices and business models, S2KM has attempted (with a few exceptions which S2KM regrets), to follow the lessons taught in "Getting to Yes" which at one time represented a guidebook of sorts for the primary structured settlement market. Perhaps the "Getting to Yes" method can still be useful to help a divided structured settlement industry improve and grow:

• Separate the people from the problem.
• Focus on interests not positions.
• Invent options for mutual gain.
• Insist on using objective criteria.

Without more strategic conversations that include all structured settlement stakeholders and perspectives, the structured settlement industry will never achieve its full potential. To the extent possible, S2KM intends to encourage and to be part of those strategic industry conversations. Some of S2KM's preliminary contributions appear on the following pages of the structured settlement wiki:

• Re-thinking Structured Settlements .
• Growing the Market .

NASP 2011 Annual Meeting

Highlighting a year during which the secondary structured settlement market is exceeding previous annual transfer totals, the National Association of Settlement Purchasers (NASP) cautiously celebrated its seventh Annual Meeting November 9-11, 2011 in Las Vegas with record conference attendance including member company representatives, affiliate attorneys and invited guests.

Recognizing its legislative successes, NASP honored its Executive Director Earl Nesbitt for his past lobbying efforts by awarding him with NASP's 2011 Alexander Hamilton Award. Nesbitt represented NASP in helping to enact Internal Revenue Code section 5891 and the Model State Structured Settlement Protection Act upon which are based most of the related state structured settlement protection statutes.

NASP President Matthew Bracy additionally praised NASP's founders stating: "Through their vision, guts and determination, we have not only persevered but flourished. Today NASP celebrates the fact that structured settlement recipients, in compliance with federal and state laws, have the right to sell their asset when needed."

NASP Educational Program

Maintaining its tradition of inviting judges representing different states to speak, NASP's 2011 educational program featured a panel discussion of judges from New York (Honorable Judith McMahon), Texas (Honorable Alexandra Smoots-Hogan) and Mississippi (Honorable Denise Owens) moderated by Patricia LaBorde. Among other issues, the judges discussed how they interpret the "best interest" standard as well as their expectations for transfer company counsel, transfer documentation, disclosure of prior transfers and levels of proof in transfer cases.

Another highlight of NASP's 2011 educational program was NASP's decision to organize smaller breakout group discussions consisting primarily of NASP member general counsel and affiliate NASP member attorneys to discuss:

• Issues in Obtaining Court Approval of the Transaction; and
• Issues in Underwriting Structured Settlement Transactions.

Other Speaker and Topics

Robin Shapiro - Shapiro, Chairman of NASP's Legal Committee, summarized historical and 2011 secondary structured settlement legislative and case law developments. Among the specific cases and issues:

• Symetra v. Rapid - This ongoing litigation appears likely to be completed in 2011 with injunctions prohibiting Rapid Settlement's prior business practices of using arbitration to by-pass state structured settlement protection statutes and taking security interests to gain rights of first refusal for future transfers.
• Conflicts between "incumbents" and "insurgents" in the secondary structured settlement market with a substantial portion of new transfers including individual investors not just institutional investors.
• Confusion between transfers of structured settlement payment rights and "settlement liquidity" businesses involving other asset classes such as the increasing sale of veterans' benefits.
• At least one (unnamed) annuity provider that refuses to release guaranteed payments to investors when a payee dies resulting in delays and legal costs for transfer companies.

Leonard Bernstein - Bernstein, a financial services regulatory attorney, presented separate discussions about how 1) Dodd-Frank and 2) advertising laws impact structured settlements. Although both discussions were directed toward a secondary market audience, each also contained valuable information for primary market participants.

• Dodd-Frank - Bernstein's Dodd-Frank update focused on the Consumer Financial Protection Bureau (CFPB), a new federal agency . CFPB's central mission is "to make markets for consumer financial products and services work for Americans ....." Among its core functions are to take consumer complaints and to restrict unfair, deceptive or abusive acts or practices under the Federal consumer financial laws. Dodd-Frank provides CFPB with authorities that go beyond the existing consumer protection statutes. CFPB has broad authority to ask questions and demand information including consumer complaints. Dodd-Frank also establishes the Federal Insurance Office (FIO) with the authority to monitor all aspects of the insurance industry.
• Advertising - Bernstein's advertising discussion referenced sections of the Better Business Bureau's Code of Advertising that could impact structured settlement purchasing transactions (or primary market transactions) by prohibiting advertisements which are untrue, misleading, deceptive, fraudulent, falsely disparaging of competitiors, or insincere offers including deception through omission. As one strategy to protect against false advertising, Bernstein recommended using disclaimers whose effectiveness depends upon their prominence and location.

Elizabeth Yingling - Yingling, a securities attorney, discussed how federal and state securities laws can impact structured settlements. In defining what constitutes a "security", Yingling focused on the meaning of an "investment contract" as that term was defined in SEC v. Howey, a 1946 U.S. Supreme Court decision. Yingling offered several practical tips for transfer companies to avoid the mine fields of the securities laws when marketing to individual investors and also emphasized the serious risks involved when dealing with unsophisticated investors.

Earl Nesbitt - Nesbitt discussed the concepts of "discount rate" and "discounted present value" both of which play an important role in court hearings to evaluate structured settlement transfer proposals. The Model State Structured Settlement Protection Act defines "discounted present value" to mean: "the present value of future payments determined by discounting such payments to the present using the most recently published Applicable Federal Rate for determining the present value of an annuity, as issued by the United States Internal Revenue Service." In addition to identifying many factors that can determine the discount rate for a specific case, Nesbitt summarized the results of a recent survey he conducted of the discount rates approved by judges in Harris County Texas. Results:

• The average discount rate: 15.8 percent;
• The weighted average (i.e. taking into consideration the relative case size): 12.96 percent;
• The lowest discount rate: 7.4 percent; and
• The highest discount rate ($3494 paid for $7282 due in less than one year): 61.3 percent.

Patrick Hindert - Hindert (author of S2KM's blog "Beyond Structured Settlements") provided a "Primary Market Report" addressing current industry challenges and issues. In addition to explaining why primary market annuity premium could fall below $5 billion for 2011, Hindert summarized the historical background and current status of Executive Life of New York (ELNY). The impact of the secondary structured settlement market on the ELNY liquidation has been underestimated in most ELNY reporting by primary market sources. According to reliable secondary market sources, however, payment rights from as many as 1000 of ELNY's remaining structured settlements are currently owned by secondary market companies and/or investors.

Joe Feltes - Feltes, an attorney whose clients include health care providers and whose legal expertise includes social media, e-mail and Internet use, spoke about privacy issues in structured settlement transactions. Based upon his research, Feltes expressed surprised at the paucity of information available about structured settlements and privacy issues. As one example, Feltes pointed out the Model State Structured Settlement Protection Act does not address privacy. Before seeking and transmitting private medical information about structured settlement candidates and/or recipients, Feltes recommended obtaining purpose-specific written authorization including a waiver and release. In addition to HIPAA, Feltes discussed the privacy provisions contain in Graham Leach Bliley.

Congratulations to NASP for continuing its high educational standards with an outstanding 2011 Annual Meeting. Conference Chairperson Patricia LaBorde prepared helpful and related handout summaries for several of the presentations.

For S2KM reporting about prior NASP annual meetings plus additional analysis about the ELNY liquidation, see the structured settlement wiki.