Beyond Structured Settlements

Re-thinking Structured Settlements

S2KM's strategic analysis of the structured settlement market continues with an update and re-publication of the structured settlement wiki.

S2P2J Release 46

Incisive Media has announced the publication of Release 46 for "Structured Settlements and Periodic Payment Judgments" (S2P2J). Co-authored by Daniel Hindert, Joseph Dehner and Patrick Hindert, S2P2J was first published in 1986 and has since been utilized as a textbook for professional certification programs sponsored by both the National Structured Settlement Trade Association (NSSTA) and the Society of Settlement Planners (SSP).

S2P2J Release 46 Highlights

• New Medicare/Medicaid mandatory reporting rules for insurers and others with full details about the scope of reporting, exclusions and requirements that affect defense attorney obligations and secondary payers in personal injury claim settlements;
• Third Circuit decision affirming addition of "tax offsets" to compensatory damages in an ADA case, with important implications for non-physical injury cases;
• Private Letter Ruling confirming that non-qualified assignment payments are not taxed until the year received;
• Importance of allocating state Medicaid liens and negotiating in advance of settlement with state providers, based on adverse ruling in an Idaho case;
• Up-to-date growth rate figures for medical care expenses and earning for non-farm workers, plus the latest data on structured settlement annuity use;
  
• Factoring company victory in California appeals case concerning right to dismiss cases when trial judges refuse transfer petitions;
• Developments in Australia and the United Kingdom regarding tax-free nature of structured settlement receipts and proper growth rates for periodic payment judgments.

S2P2J Release 47, available March 2010, will introduce Sylvius von Saucken as an S2P2J chapter and subject expert author. von Saucken, a partner in the Garretson Law Firm and Chief Compliance Officer for The Garretson Firm Resolution Group (GFRG), will add his analysis to:

• Chapter 3 - "Financing Alternatives for Structured Settlements";
• Chapter 14 - "Structuring Workers Compensation Claims";
• Chapter 15 - "Government Benefits and Structured Settlements".

S2P2J Release 47 will also feature expanded commentary for:

• Structured settlement public policy;
• Single claimant Qualified Settlement Funds (QSFs); and
• Secondary market developments.

For prior S2KM reports featuring Sylvius von Saucken's analysis of the Deficit Reduction Act of 2005, see the S2KM blog series titled "Inconvenient Questions".

S2P2J Release 45

Release 45 of "Structured Settlements and Periodic Payment Judgments" (S2P2J) is now available from publisher Incisive Media. Incisive Media purchased ALM (American Lawyer Media) in 2008 including publishing rights to S2P2J.

Co-authored by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert, S2P2J was first published in 1986 with 45 semi-annual updates. NSSTA and SSP both utilize S2P2J in their certification programs.

New S2P2J chapters since 2001:

• Chapter 15: "Government Benefits and Structured Settlements"
• Chapter 16: "Transfers of Structured Settlement Payment Rights"

Recently expanded S2P2J sections:

• Section 3.06A: "Non-Qualified Assignments"
• Section 3.07A: "Settlement Trusts"
• Section 6.02: "Structured Settlement Consultants"

S2P2J Release 45 features a new and expanded Section 3.08B discussion of Section 468B settlement funds. This up-to-date analysis includes:

• A practical explanation of Section 468B settlement funds;
• When and how to use them;
• Statutory and regulatory background for designated settlement funds (DSFs) and qualified settlement funds (QSFs);
• Discussion of the Tenth Circuit decision in United States v. Brown validating the settlement QSF regulations;
• Mechanics of settling up, operating and winding down Section 468B settlement funds;
• Summary of how Section 468B settlement funds are taxed under federal and state income tax laws;
• Sample terms of fund administration;
• Recommendations when evaluating the proposed terms of settlement fund administration;
• Practice pointers for courts, litigators, and fund administrators as they define their 468B duties and responsibilities.

Concurrent with the recent publication of Robert W. Wood's legal treatise, "Qualified Settlement Funds and Section 468B", S2P2J Release 45 underscores how important 468B funds are for structured settlements and settlement planning. Both professional communities need more and improved education about 468B funds. So do judges, trial attorneys, mediators, trustees and guardians.

Robert Wood's book and S2P2J Release 45 substantially upgrade the available learning resources.

S2KM's review of Robert Wood's 468B book: "Robert Wood and 468B Funds".

Robert Wood's commentary about 468B funds:"Robert Wood QSF Interview".

ASNP 2009 Annual Meeting

The Academy of Special Needs Planners (ASNP) hosted its Third Annual Meeting March 6-7, 2009 at the Rancho Bernardo Inn in San Diego, California. Titled "Special Needs Planning in an Era of Change", the program devoted one day of educational discussions to "special needs settlement planning" (SNSP) which ASNP characterized as a "new opportunity" for special needs attorneys.

The ASNP speakers included leading special needs attorneys and plaintiff structured settlement consultants who provided detailed analyses of the following SNSP topics:

• Anatomy of a SNSP Case - Frank Johns, Kevin Urbatsch and Patrick Hindert;
• Structured Settlement Annuities in SNSP Practice - Jack Meligan and Michele Whitmore;
• IRC 468B Qualified Settlement Funds (QSFs) - Jason Lazarus and Richard Risk;
• Integrating SNSP with an Elder Law Practice - Tim Nay and Sandy Conley;
• Medicare Secondary Payer Compliance - Mark Popolizio;
• Lien Resolution Strategies - William Browning, Mark Popolizio and Sylvius von Saucken;
• Marketing to the Trial Bar - Frank Johns, Jason Lazarus, and Kevin Urbatsch.

The SNSP program highlighted three basic issues:

• What is SNSP?
  
• What changes are impacting SNSP?
• What new opportunities does SNSP create for special needs attorneys?

What is SNSP?

Surprisingly, none of the speakers attempted to specifically define SNSP. Hindert recommended web 2.0 knowledge maps, wikis and folksonomies as a strategy for defining and growing SNSP.

Meligan and Whitmore described the related topic of "settlement planning" as both a profession and a process. According to Meligan and Whitmore: "Settlement planning is a profession that helps recipients of settlement proceeds use their proceeds to achieve their post-loss goals and transition successfully into their post-settlement financial lives". Meligan and Whitmore recommended utilizing settlement planning professionals with: credentials; loyalty to plaintiffs; planning approach; and experience. Meligan and Whitmore also described "settlement planning" as part of a three-part process preceded by litigation and followed by financial planning.

von Saucken also described "settlement planning" as a process or "continuum" subject to changing rules that require adjustments in settlement planning prototypes. von Saucken presented a settlement planning timeline:

• Agreement on settlement amount;
• Lien reimbursement;
• Medicare/Medicaid preservation trust;
• Structured settlement paperwork;
• Disbursement.

By comparison, during his recent presentation at the NSSTA 2009 Winter Meeting, Joseph DiGangi defined "settlement consulting" as a four-stage process:

• Analysis
• Planning
• Implementation
• Monitoring

Most of the ASNP presenters identified and addressed "structured settlements" as an essential component of SNSP. As part of his 468B QSF comments, Risk reviewed several structured settlement definitions including the tax definition in IRC section 5891(c)(1). To S2KM's knowledge, Risk thereby becomes the first structured settlement primary market participant to review the IRC section 5891 tax definition for "structured settlement" during a national conference. By comparison, not a single NSSTA or SSP conference speaker has reviewed the IRC Section 5891 definition for "structured settlement" since IRC 5891 was enacted in 2001. Risk also becomes, to S2KM's knowledge, the first conference speaker to link IRC 468B and 5891 which S2KM views as a strategic SNSP construct.

Several ASNP speakers addressed various types of settlement trusts in the context of SNSP. Browning highlighted settlement trust "due diligence" as an increasingly important SNSP issue. Three settlement trust providers, but not one structured settlement annuity provider, exhibited at the SNSP conference.

What changes are impacting SNSP?

ASNP speakers identified and highlighted the following changes impacting SNSP:

• Deficit Reduction Act of 2005 (DRA);
• The Ahlborn Case;
• 468B qualified settlement funds (QSFs);
• Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA);
• Recent MSA rules promulgated by CMS;
• The structured settlement secondary market;
• State structured settlement protection statutes;
• Transition of knowledge and knowledge work to the Internet.

Additional changes referenced by ASNP speakers which deserve more detailed analysis in future SNSP discussions:

• Transitional SNSP business models:
  • How the claim management SNSP model differs from the 468B QSF SNSP model; and
  • How to develop multi-professional SNSP teams and knowledge networks.
• How the current financial crisis impacts SNSP;
• Proposed and/or needed SNSP legislative and regulatory changes.

What new opportunities does SNSP create for special needs attorneys?

Traditional special needs legal practice and education have focused on special needs trusts, estate planning, government benefits and probate. As the ASNP conference demonstrated, SNSP encompasses traditional special needs expertise, but also new fields of related legal practice.

Four leading SNSP legal treatises (listed alphabetically by title) define these new fields of SNSP legal practice:

• "Negotiating and Settling Tort Cases" - by Matt Garretson and Guy O. Kornblum;
• "Qualified Settlement Funds and Section 468B" - by Robert W. Wood;
• "Structured Settlements and Periodic Payment Judgments" - by Daniel W. Hindert, Joseph J. Dehner and Patrick J. Hindert;
• "Taxation of Damage Awards and Settlement Payments" - by Robert W. Wood.

The ASNP presentation by speakers Johns, Lazarus and Urbatsch titled "Marketing to the Trial Bar" offered valuable advice for special needs attorneys as well as other SNSP stakeholders. S2KM's structured settlement transaction diagram, developed in 2005 with graphic artist Keith Burtoft, may help special needs attorneys identify other potential SNSP clients and roles. In addition, as S2KM's blog post "Structured Settlement Surveys" demonstrates, further market research would be useful to define and grow the SNSP market.

Congratulations to ASAP and SNSP program Chairperson Tim Nay for the timely and educational SNSP program. Prior S2KM blog posts about ASNP:

• 2008 ASNP Conference;
• 2007 ASNP Conference.

For additional information about settlement consulting, see S2KM's four-part blog series "Settlement Consulting".

Settlement Trust Due Diligence

One of the strategic developments distinguishing the settlement planning structured settlement business model from the claim management model is the interaction of annuities (insurance products) with trusts and custodial accounts (banking products). All structured settlement and settlement planning professionals should understand and utilize settlement trusts.

S2KM has written previously about settlement trusts:

• Settlement Trusts Revisited - 2008
• IRC 468B Funds Revisited - 2008
• Special Needs Trusts X - 2008
• Medicare Set-Aside Update - 2008
  
• Settlement Trusts - 2004
• Selecting a Settlement Trustee - 2004

Releases 44 and 45 of "Structured Settlements and Periodic Payment Judgments" (Section 3.07A), co-authored by Daniel Hindert, Joseph Dehner and Patrick Hindert, feature expanded S2P2J analysis of settlement trusts and structured settlement annuities.

With input from, and thanks to, Benjamin Malsch of First Capital Surety and David Cover of Peoples Bank, S2KM has compiled the following questions and information requests for settlement planning advisers to assist their due diligence about specific settlement trustees. S2KM welcomes additional questions and recommendations.

Trust Company

• What type of company is the trustee?
• How long has the trustee been in business?
• Where is the trustee incorporated?
• Does the trustee have a federal banking charter?
• Where is the trustee qualified to do business?
• Where is the trustee currently doing business?
• Who owns the trustee - or for whom does the trustee work?
• Have ownership changes occurred during the last 5 years?
• Does the trustee have ownership interests in other companies?

Products and Services

• What settlement trust products does the trustee sell or service?
• What non-settlement trusts and/or non-trust products does the trustee sell or service?
  

Legislation and Regulation

• What laws and regulations apply to the trustee's settlement trust products and services?
• What legislative and regulatory authority supports the trustee's settlement trust products?
• Who regulates the trustee?
• How frequently does the regulator audit the trustee?
• When did the last regulatory audit occur?
• What were the results?

Business Conduct

• Obtain and review copies of:
  • Trust company's operating charter;
  • Latest financial, investment and regulatory audits;
  • Internal audit (SAS70);
  • Marketing materials targeting investment returns;
  • Complete information about fees and expenses;
  • References from clients similarly situated to actual or anticipated clients.
• Which bank(s) share custody of the trustee's funds?
• What lawsuits, if any, have involved the trustee during the past 5 years?
• How many trust accounts does the trustee administer?
• How many of these trust accounts are settlement trusts?
• What amount of assets does the trustee manage?
• What type of insurance coverage does the trustee maintain and in what amounts?

Business Policies

• What are the trustee's policies for:
  • Structured settlement annuities;
  • Annuity funding of attorney fees and other non (IRC 130) qualified assignments?
  • IRC section 468B;
  • The secondary life and annuity markets;

• What professional associations does the trustee support?

Performance and Fees

• Review the trustee's most recent audited financial and investment reports;
• Confirm all fees paid to the trustee, the trustee’s affiliated companies and outside vendors and partners.
• How do mutual fund providers compensate the trustee?
• If the trustee utilizes proprietary mutual funds, will management fees be offset against trustee fees?
• Does the trustee assess any penalties, redemption fees, check processing fees, tax preparation fees, termination fees or fees for extraordinary expenses?

Sales and Distribution

• Who sells the trustee's products?
• What licensing is required to sell the products?
• Who regulates the sellers of such products?
• What consumer protections exist for malfeasance or poor performance?
• What insurance do the trustee and its sales network maintain to protect purchasers?
• What educational programs does the trustee provide and/or support for settlement trusts and settlement planning?
• Does the trustee support structured settlement annuities and integrate annuities with  settlement trusts?
• Does the trustee have an “approved list” of structured settlement annuity providers and/or producers?

NSSTA 2009 Winter Meeting

"Protect the business model and prepare for the future" was the unstated theme as the National Structured Settlement Trade Association (NSSTA) hosted its 2009 Winter Meeting in Orlando, Florida January 28-30.

From NSSTA's perspective, the structured settlement model depends upon:

• Helping injury victims and improving dispute resolution;
• IRC sections 130 and 104(a)(2);
• Integrating these tax preferences with other government benefits including:
  
  • Social Security;
  • Medicare;
  • Medicaid;
  • Veterans benefits; and
  • Federally-assisted housing.
• Cooperation among defense and plaintiff intermediaries;
• Bi-partisan political support in Washington, D.C.;
• Controlling negative secondary market conduct and publicity;
• Continuing payment performance by all annuity providers.

The challenges facing NSSTA, and the structured settlement industry, include:

• The impact of the financial crisis;
• Anticipated legislative and regulatory changes;
• Identifying new leaders;
• Growing the market;
• Addressing 468B and the secondary market;
• Reconciling claim management and settlement planning;
• Transitioning to Internet-based technologies and business models.

Directly or indirectly, NSSTA's educational program in Orlando addressed all of these issues.

Educational program highlights:

Injury Victims

• Andrew Imparato - Imparato, President and CEO of the American Association for Persons with Disabilities (AAPD), was NSSTA's keynote speaker in Orlando. Imparato praised structured settlements as one possible model for modernizing other federal entitlement programs. NSSTA and AAPD have collaborated previously on legislative initiatives including IRC 5891. NSSTA participated as an event sponsor at the 2008 AAPD Gala Leadership Dinner. Imparato spoke previously at NSSTA's 2007 Fall Meeting. The 2009 AAPD Gala Leadership Dinner is scheduled for March 4 in Washington, D.C.
• Eric Vaughn - NSSTA's lobbyist summarized existing federal consumer protection legislation and highlighted some of the consumer and investment protection legislative proposals and issues now before Congress. Although he anticipates federal reforms, Vaughn did not predict whether the primary or secondary structured settlement markets will end up inside or outside any legislative and regulatory net.

Washington Reports

• Congressman Kendrick Meek - Congress Kendrick B. Meek, a Democrat representing Florida's 17th district, addressed economic challenges facing President Obama and Congress. TARP has not served the purpose Congress intended according to Congressman Meek. He predicted continued economic problems "for at least 15 months" including the structured settlement industry. To be effective legislatively, Congressman Meek recommended NSSTA feature "real stories and real people". Congressman Meek further stated: "now is the time to come together" legislatively to protect and improve the structured settlement industry. Congressman Meek also confirmed his candidacy for the U.S. Senate seat which will be vacated when Florida Republican Mel Martinez retires in 2010.
• Eric Vaughn - Vaughn's summaries of NSSTA's political challenges and strategies highlight every NSSTA meeting. In Orlando, Vaughn discussed lobbying opportunities for structured settlements both in Congress and within the Obama Administration. Vaughn provided his political analysis of current Congressional committees as well as proposed legislation important for structured settlements. Vaughn urged all NSSTA members to attend NSSTA's 2009 Annual Meeting April 29 to May 1 in Washington, D.C.

Plaintiff and Defense Brokers - NSSTA's educational program featured two panels addressing plaintiff and defense structured settlement cooperation.

• James Early and Ronald Sullivan - Early (defense) and Sullivan (plaintiff) agreed on most issues: their collaborative objectives include facilitating settlements and taking care of injury victims; both plaintiff and defense brokers are needed; clients should not be able to dictate whether and how brokers share commissions; most brokers are "good people"; 468B funds should be limited to multi-claimant cases and not utilized to eliminate defense brokers. Their only stated disagreement concerned "approved lists" with Sullivan asking what is wrong with injury victims selecting their own annuity providers?
• Roger Bernstein; Bruce DeBacher; and Michael Goodman - Bernstein (special needs attorney), DeBacher (defense) and Goodman (plaintiff) discussed how each helps to settle cases by adding value. Bernstein deconstructed a sample life care plan and integrated collateral benefits to reach "reasonable" settlement expectations. DeBacher and Goodman explained how to build a settlement in an adversarial context, emphasized the need for early involvement and agreed upon the advantages of having both a plaintiff and defense structured settlement broker. They expressed shared concerns: trust companies using factoring to sell against structured settlements; and the decline in small cases resulting from defendants' de-emphasis of structured settlements.

Settlement Consulting - Joseph DiGangi addressed problems the structured settlement industry faces with its historic "annuity broker" business model. According to DiGangi, these problems include a stagnant market, negative perceptions of roles and value, limited knowledge base and resources as well as a single product offering. DiGangi proposed an alternative "consultant" business model with multiple products and services providing added value. Using a case example, DiGangi constructed a planning solution matching the injury victim's "needs and wants" for which he utilized a structured settlement annuity as the foundation product. For structured settlement professionals who lack the expertise or licensing to offer comprehensive solutions, DiGangi recommended teaming up with other professionals.

IRC Section 468B - With Henry Strong moderating, William Winslow and James Klapps discussed the use of 468B funds in cases involving multiple claimants. Their presentation objectives included helping brokers use 468B to expand their structured settlement business and highlighting errors that brokers and their clients should avoid. The presentation purposely omitted references to controversial single claimant 468B issues as well as technical tax and administrative issues. Instead, Winslow and Klapps provided a general introduction to IRC 468 plus encouragement for uninitiated structured settlement professionals that IRC 468B business opportunities and issues do, in fact, exist.

Note: for persons interested in understanding the single claimant 468B controversy, see: Robert Wood's article titled "Single-Claimant (468B) Qualified Settlement Funds?" and Richard Risk's article titled "A Case for the Urgent Need to Clarify Tax Treatment of a Qualified Settlement Fund Created for a Single Claimant" ". For information about technical 468B tax and administrative issues, see Wood's new book "Qualified Settlement Fund & 468B". For information about structured settlements and 468B funds, see Section 3.08B of "Structured Settlements and Periodic Payment Judgments" (Release 44) written by Daniel Hindert, Joseph Dehner and Patrick Hindert.

The Secondary Market

• As part of the NSSTA Legal Committee's "All Things Considered" presentation, Illana Hanau and Michael Miller spoke about structured settlement secondary market issues. Hanau summarized historic abuses and continuing bad business practices by structured settlement factoring companies. Her examples: In re Wiggins, a 2001 Idaho case involving Peachtree Settlement Funding, and the Fresno County cases involving 321 Henderson (a J.G. Wentworth affiliate). Henderson is appealing the Fresno County cases. Hanau also summarized results from a "random sample" of factoring cases as evidence of bad business practices by factoring companies. Miller summarized other business activities in which some structured settlement companies engage: the secondary market for life insurance; the purchase of taxable annuity products; and litigation funding.
• During his "Business Ethics" discussion, Rev. Oliver Williams asked the audience to identify structured settlement business conduct that has caused "shocked disbelief" among NSSTA members. As one example of such "shocked disbelief", NSSTA attendees identified structured settlement factoring. More specifically, that factoring has dismantled many "permanent" structured settlement case "solutions" and that NSSTA's "proscriptive" political strategy for factoring (IRC 5891and the state protection statutes) has resulted unexpectedly in substantial secondary market growth.

Internet Transition - Patrick Hindert, S2KM's blog author, led a discussion titled "Web 2.0: How to Improve NSSTA's Online Communication. Learning and Collaboration". Hindert introduced and proposed a NSSTA wiki prototype designed to support NSSTA's committee policies and procedures.

For S2KM reports about prior NSSTA meetings as well as other settlement planning professional associations, see S2KM's structured settlement wiki.

Structured Settlements in 2009 - 1

S2KM's first reporting and analysis for the structured settlement industry in 2009.

Prior S2KM analysis

• The Future of Structured Settlements
• Structured Settlement Transaction Diagram
• Knowledge Management and Structured Settlements
• Structured Settlements in 2008
  • Part 1 - Historic Context
  • Part 2 - Professional Associations
  • Part 3 - Industry Challenges
  • S2P2J Release 44
• Structured Settlements in 2007
• Structured Settlements in 2006
• Structured Settlement History - up to 2005

Preliminary 2009 Calendar

• January 28-30 - NSSTA Winter Meeting in Orlando
• February 7-11 - AAJ and NATLE Winter Meetings in New Orleans
• March 6-7 - ASNP Annual Meeting in San Diego
• March 31-April 5 - NAELA Annual Meeting in Washington D.C.
• April 27-28 - SSP Annual Meeting in Washington D.C.
• April 28 - May 1 - NSSTA Annual Meeting in Washington, D.C.

S2KM 2009 Knowledge Work - by Patrick Hindert, S2KM's Managing Director:

• NSSTA Winter Meeting - Hindert will lead a discussion titled "Web 2.0: How NSSTA Members Can Improve their Online Communication, Learning and Collaboration Skills".
• ASNP Annual Meeting - Hindert will introduce a wiki to support a presentation by Frank Johns, Kevin Urbatsch and Hindert titled "Special Needs Settlement Planning (SNSP) Case Anatomy".
• S2P2J Release 45 - Hindert will help update existing analysis in "Structured Settlement and Periodic Payment Judgments" (S2P2J) about settlement planning due diligence.
• S2KM Blog - structured settlement industry issues S2KM will continue to report and analyze:
  • Transition from
    • Claim management to settlement planning
    • Web 1.0 to web 2.0
  • Impact of the
    
    • Financial crisis - including insolvencies, guarantee funds, investment performance and rating agencies;
    • Obama administration - including new legislation and regulations.
  • Interaction between
    • Insurers (annuities) and banks (trusts, accounts, funds)
    • Primary and secondary markets
    • Structured settlements and government benefits

J.G. Wentworth Survey - 4

Three prior S2KM blog posts:

• Introduced the J.G. Wentworth (JGW) 2008 structured settlement survey;
• Summarized other related and recent structured settlement reports and surveys; and
• Identified the nine (9) JGW survey questions JGW has given S2KM permission to publish.

This S2KM blog post summarizes responses to five JGW survey questions directly related to the primary structured settlement market. A subsequent S2KM blog post will summarize responses to four JGW survey questions about the secondary structured settlement market.

According to Ken Murray, JGW's chief marketing officer, the JGW structured settlement survey resulted from recommendations made during the 2008 Structured Settlement Thought Leadership Conference. The JGW survey included 115 structured settlement recipients who have sold some or all of their structured settlement payment rights to JGW.  Not all survey participants responded to all questions.

JGW Primary Market Survey Questions

• Question 1: How many years ago did you settle your original lawsuit?
• Question 2: When you settled your original lawsuit, why did you accept payments over time rather than a single lump sum of cash?
• Question 3: How satisfied are you that you accepted a structured settlement?
• Question 4: Do you wish you and your attorney had negotiated for a single lump sum settlement?
• Question 5: When you settled your original lawsuit, how well informed were you about structured settlements?

Question 1: How many years ago did you settle your original lawsuit?

Responses:

• More than 10 years ago - 70.9%
• 5 to 10 years ago - 14.5%
• 1 to 5 years ago - 13.6%
• Past 12 months - 0.9%

S2KM comments:

• Based upon industry estimates, "Structured Settlements and Periodic Payment Judgments" (S2P2J) reports approximately $107 billion of structured settlement annuity premium from 1976 to 2007.
• Of this $107 billion, $54.3 billion (approximately 51%) was produced during the past 10 years (1998 to 2007) and $52.4 billion (approximately 49%) was produced during the prior 22 years (1976 to 1997).
• Industry sources report that $4.4 billion of structured settlement annuity premium has been produced during the first nine months of 2008 for an estimated $111 of historical structured settlement annuity premium.
• Transfers of structured settlement payment rights began in the late 1980s. IRC section 5891 was enacted in 2002. 46 states have enacted structured settlement protection statutes.
• Various sources have provided S2KM with estimates of historical structured settlement transfers ranging between 2% ($2.2 billion) and 6% ($6.6 billion) of historical structured settlement premium ($111 billion) as measured by payments made by transfer (factoring) companies to original structured settlement recipients.
• The responses to this JGW survey question conflict with one study by one structured settlement annuity provider released privately in 2008. This annuity provider reported at the National Settlement Consultants (NSC) 2008 Annual Meeting that most transfers of its structured settlement annuities occur during the first 10 years following origination.

Question 2: When you settled your original lawsuit, why did you accept payments over time rather than a single lump sum of cash?

Responses:

• Due to status as a minor, structured settlement considered best option - 38.3%
• Lump sum was not offered - 23.4%
• Payments over time seemed like a better deal - 23.4%
• Not sure I could manage a large amount of cash - 7.4%
• To pay future medical expenses or special needs - 6.4%
• Faster way to settle - 1.1%

S2KM comments:

• In response to this question, 61.7% of the structured settlement recipients in JGW's survey said they never were given a lump sum option.
• 38.3% of those structured settlement recipients were minors whose settlements presumably were approved and/or selected by judges and guardians. An additional 23.4% of the structured settlement survey respondents (presumably not minors) stated they were not offered a lump sum alternative to a structured settlement.
• Only 38.3% of the JGW survey respondents (23.4% + 7.4% + 6.4% + 1.1%) identified a positive reason for accepting a structured settlement.
• Compare these JGW results with the results of a structured settlement survey sponsored by NSSTA in 2006.
• As reported by Joseph Costello at NSSTA's 2007 Winter Meeting and 2007 Annual Meeting, 95% of the attorneys NSSTA surveyed in 2006 said they are proponents of structured settlements.
• And yet, as also reported by Costello, NSSTA's study found that only 7% of personal injury settlements between $75,000 and $100,000 include structured settlements; and only 30% of personal injury settlements above $1 million include structured settlements.
• Based upon a 2002 Towers Perrin "best estimate" of U.S. tort cost categories and percentages applied to the results of Towers Perrin's study of 2006 U.S. tort costs, $161 billion (65%) of 2006 U.S. tort costs represented payments to injury victims and their attorneys.

Question 3: How satisfied are you that you accepted a structured settlement?

Responses:

• As a minor, a structured settlement was considered the best option - 25.0%
• Mostly satisfied - 24.1%
• Neither satisfied nor dissatisfied - 21.3%
• Completely satisfied - 18.5%
• Slightly dissatisfied - 6.5%
• Completely dissatisfied - 4.6%

S2KM comments:

• 42.6% of JGW's survey respondents said they were "completely satisfied" (18.5%) or "mostly satisfied" (24.1%) that they accepted a structured settlement.
• 46.3% either stated they were not satisfied or dissatisfied (21.3%) or they were minors (25%) for whom courts and guardians selected a structured settlement.
• 11.1% stated they were either slightly dissatisfied (6.5%) or completely dissatisfied (4.6%) with their structured settlement.
• Note: 100% of the JGW survey respondents have sold some or all of their structured settlement payment rights to JGW.
• By comparison, the NSSTA survey found 75% of its survey respondents who received structured settlements said they were very happy their settlement included structured settlement annuities. The same percentage (75%) said they would recommend a structured settlement.

Question 4: Do you wish you and your attorney had negotiated for a single lump sum settlement?

Responses:

• No - 31.5%
• As a minor, I was unable to negotiate my settlement terms - 27.8%
• Maybe - 20.4%
• Yes - 10.2%
• I don't know - 10.2%

S2KM comments:

• 31.5% of the JGW survey respondents (all of whom have previously sold payment rights to JGW) expressed no second or negative thoughts about their decision to negotiate a structured settlment instead of a lump sum settlement.
• 27.8% of the respondents, as minors, were unable to negotiate their own settlement terms - but subsequently decided to sell some or all of their payment rights to JGW.
• 40.8% of the respondents express regrets or uncertainty about structured settlements without any positive endorsement of structured settlements.
• Among the important structured settlement issues the JGW survey highlights are structured settlements for minors. More than 25% of the JGW survey respondents are minors who did not personally negotiate their own settlements.

Question 5: When you settled your original lawsuit, how well informed were you about structured settlements?

Responses:

• Due to my status as a minor, I was not informed - 30.5%
• Very well informed - 27.6%
• Not well informed - 24.8%
• Well informed but still had questions post-settlement - 17.1%

S2KM comments:

• Only 27.6% of the respondents to JGW's survey believe they were "very well informed" about structured settlements when they settled their lawsuits.
• 30.5% said they were minors when their case was settled meaning they did not personally approve their own settlement. Questions: what information about structured settlements does the industry provide to minor recipients of structured settlements when they attain their age of majority? Should every minor structured settlement recipient be allowed to sell his or her payment rights when they reach the age of majority? Why not?
• 41.9% reported an inadequate education about structured settlements.
• Compare the JGW survey results with these results from the NSSTA survey: 65% of injury victim respondents to the NSSTA survey said they had not heard about structured settlements prior to settlement; most injury victim respondents to the NSSTA survey were uncertain whether a structured settlement consultant was involved with their case; only 34% recalled receiving educational information; 75% of this 34% who recalled receiving structured settlement educational information said the information was helpful; 66% of the injury victim respondents first learned about structured settlements from their trial attorney; 95% of the attorneys NSSTA surveyed said they are proponents of structured settlements.

In a subsequent S2KM blog post, S2KM will summarize responses to four JGW survey questions about structured settlement transfer decisions.

S2P2J Release 44

Release 44 of "Structured Settlements and Periodic Payment Judgments" (S2P2J) will be available in December 2008.

Since S2P2J was first published in 1986, the authors have attempted to provide balanced and comprehensive coverage of structured settlement industry developments from a legal perspective.

S2P2J's co-authors, Daniel Hindert, Joseph Jules Dehner and Patrick Hindert have each studied, worked and written about structured settlements since the 1970s.

S2P2J's authors thank and acknowledge information and insights they continue to receive from many structured settlement trade associations and industry knowledge leaders. Special thanks to the National Structured Settlement Trade Association (NSSTA) Legal, Government Benefits and Certification Committees; and, more recently, to the Society of Settlement Planners (SSP). The authors appreciate and welcome your continuing contributions to S2P2J.

For S2KM reports about NSSTA, SSP and other professional structured settlement stakeholder associations, see S2KM's structured settlement wiki.

Since 2001, the authors have added two new chapters to S2P2J:

• Chapter 15: "Government Benefits and Structured Settlements"; and
• Chapter 16: "Transfers of Structured Settlement Payment Rights".

These new S2P2J chapters capture, organize and explain some of the strategic changes re-defining traditional (pre-2001) structured settlements. Release 44 features updates for both chapters.

S2P2J Release 44 also features new and updated sections titled:

• Section 3.07A: "Settlement Trusts"; and
• Section 6.02: "Structured Settlement Consultants".

All of these new chapters and sections re-enforce the growing "settlement planning" context for structured settlements.

The emerging profession of settlement planning:

• Increases the importance and complexity of structured settlements;
• Expands the knowledge requirements for structured settlement professionals;
• Encompasses non-qualified assignments and the secondary structured settlement market; and
• Integrates structured settlement annuities with government benefits, settlement trusts and custodial accounts.

S2P2J Release 44 updates structured settlement and settlement planning professionals about these continuing industry changes and developments. In addition to the new chapters and sections highlighted above, S2P2J Release 44 features updated commentary for:

• Non-qualified assignments;
• Punitive vs. compensatory tax allocations;
• The Murphy case;
• Frank Johns' proposed RFP for QSFs;
• The Medicare, Medicaid & SCHIP Extension Act of 2007 (MMSEA);
• New CMS rules for WCMSA annuities;
• The AIG bailout;
• The Fresno County factoring cases.

To order your updated copy of S2P2J, see this link. NSSTA members and SSP members receive purchasing discounts for S2P2J.

NASP 2007 Annual Meeting - 1

The National Association of Settlement Purchasers (NASP) hosted its 2007 Annual Meeting October 18-19 at the Grand Hyatt in Washington, D.C.   This author was privileged to participate. 

S2KM's reporting about NASP's 2007 Annual Meeting begins with this blog post and this wiki which summarizes NASP's 2007 Educational Program -  a learning conversation about "The Structured Settlement Market". 

For prior S2KM commentary about NASP, see this S2KM blog post.