The Society of Settlement Planners (SSP) hosted its 2007 Annual Meeting March 7-8 at the Crystal Gateway Marriott in Arlington, Virginia under the direction of 2006 SSP President Chuck Derenne and Program Chairperson Richard Risk. For the first time, SSP invited non-SSP members to attend its educational program.
The result was an exceptional educational experience with many leaders from the structured settlement and settlement planning industries among approximately 100 participants. The knowledgeable and diverse group included representatives from: plaintiff and defense brokers, annuity providers, factoring companies, trust companies; non-profit consumer advocates; law professors; rating agencies; regulators; lobbyists; and attorneys. The significant number and expertise of the participating attorneys was especially noteworthy. The educational program handouts represent one of the better non-Internet based collections of structured settlement knowledge ever produced.
SSP introduced Anthony Alfieri as the Society's 2007 President plus the following SSP directors, in addition to Alfieri: Richard Bishop; Chuck Derenne; Paul Lesti; and Greg Maxwell.
Highlights from the SSP Educational Program:
- Legal Landscape - Arthur Bryant, Executive Director of Public Justice, and Daniel Cohen, Public Affairs Legal Counsel for American Association for Justice, provided strategic analysis of the current legislative and litigation landscape from a consumer and plaintiff perspective. Bryant and Cohen both highlighted the developing doctrine that federal regulation preempts state laws and state courts as a threat to the legal system. The result, according to Bryant and Cohen, is that many tort victims have no legal remedy. As one response, Cohen recommended greater congressional oversight of federal agencies and predicted such oversight will occur under Democratic party leadership in the current United States Congress. Cohen praised the new Democratic senators and congressmen generally as a strong group of young legislators. Bryant's comments targeted mandatory arbitration language in consumer credit card contracts as another example of consumers losing their rights to trial. In a separate but related speech, plaintiff attorney Robert Spohrer shared his 25 years of experience negotiating structured settlements on behalf of injury victims including current challenges and strategies. Lobbyist James Lombardo gave a status report on California Senate bill 410 which is intended to provide consumer protection for structured settlement recipients.
- Medicaid and Structured Settlements - Matt Garretson and Sylvius von Saucken of the Garretson Law Firm summarized more extensive papers they have written about the United States Supreme Court's 2006 Ahlborn decision and the Deficit Reduction Act of 2005 (DRA). In Ahlborn, the U.S. Supreme Court unanimously affirmed the Eighth Circuit's decision limiting a state Medicaid agency to reimbursement from only that portion of a judgment or settlement that represents payment for medical expenses. Although Ahlborn appears highly favorable to plaintiffs, Garretson predicted a strong political response from state Medicaid agencies including new state legislation. Garretson also recommended specific strategies and techniques for minimizing Medicaid paybacks in the current post-Ahlborn legal environment. von Saucken's DRA presentation represents the first detailed look at how the DRA impacts structured settlements. Enacted February 8, 2006, the DRA creates new requirements for annuities to avoid penalties under Medicaid's asset transfer rules. Neither the DRA legislation nor CMS' July 27, 2006 communication to state Medicaid directors references structured settlements. von Saucken identified and explained key DRA issues for structured settlements whether paid directly to personal injury claimants and their spouses or indirectly through a special needs trust. He summarized arguments for and against application of specific DRA annuity rules to structured settlements and highlighted the dangers and problems the DRA poses for the structured settlement and settlement planning industries.
- Non-qualified Assignments - Brian Ginty of Prudential Life Insurance Company and attorney Mark Muntean of Jeffer, Mangels, Butler & Marmaro addressed non-qualified assignments as a funding vehicle for damage payments, including attorney fees, that do not qualify for tax exclusion under IRC section 104(a). Ginty spoke about the advantages of and applications for non-qualified assignments. He summarized Prudential's non-qualified program, which utilizes a Barbados-based off-shore partner, and highlighted the programs' regulatory and legal protections. Muntean's presentation, and his accompanying written analysis, provided an overview of important tax issues for non-qualified assignments including constructive receipt, economic benefit, assignment of income and cash equivalency. Muntean discussed IRC section 83 and the Childs case as part of his commentary about structured attorney fees. He also recommended and explained the use of 468B trusts with non-qualified assignments.
- Standards of Professional Conduct - Richard Risk of the Risk Law Firm, and Chairperson of the SSP Ethics Project, provided a status report on SSP's Standards of Professional Conduct project. Risk reported on the purpose and process of the SSP project and identified a group of distinguished outside advisors who have agreed to assist SSP. Two additional speakers, James Murphy, Executive Director of the International Business Ethics Institute, and Carl Pierce, Allen Separk Distinguished Professor of Law at the University of Tennessee, also participated in this discussion. Murphy spoke about the importance of having an enforceable ethics code. He addressed the benefits and characteristics of an effective ethics code as well as the importance of implementing and enforcing an ethics code. Pierce spoke about the challenges for SSP specifically and "structured settlement planning" (Pierce's term) stakeholders more generally in developing standards of professional conduct. Among the challenges Pierce identified: competing economic interests; the fractious relationship between plaintiff and defense structured settlement representatives; lack of agreement about settlement planning definitions and participants; differences between legal professionals and non-legal professionals; the role of factoring in settlement planning; compensation issues; disclosure requirements; conflicts of interest; affinity programs; and annuities vs. trusts. In a separate presentation, which underscored the fractious relationships, Lynn Courier summarized the Broker Relationship Initiative. Funded by the National Structured Settlement Trade Association (NSSTA), the Mission of the Broker Relationship Initiative is to improve the reputation and public image of structured settlements by establishing more effective broker to broker communication and understanding. To date, only one SSP member has participated in the Broker Relationship Initiative.
- The Registered Settlement Planner (RSP) - Jim Kendzel, Executive Director of the National Commission for Certifying Agencies, and Joseph Tombs, SSP's Education Committee Chairperson and Adjunct Professor at Texas Tech University, introduced SSP's new certification program, the Registered Settlement Planner. Kendzel, whose organization promotes and certifies professions in 50 industry sectors, emphasized the value of accreditation: third party verification; ensuring validity, reliability and quality; involvement of key stakeholders; credibility and marketability; plus increased protection from legal issues and competitive threats. Tombs announced the first RSP class is scheduled for Fall 2007 at Texas Tech University and will include optional and supplemental Internet training resources. According to Tombs, the RSP certification requirements will include: an educational component; submission and review of a comprehensive personal injury settlement plan; experience requirements; continuing education; and a code of ethics. The RSP program will target structured settlement brokers, special needs attorneys; financial planners; life care planners; and trustees. Although visionary and aspirational, Tombs stated the RSP program is being designed to include formal certification. Tombs emphasized the advantages of SSP associating with Texas Tech University which is recognized as having the top financial planning program in the United States.
- Rating Annuity Providers - Rosemarie Mirabella, a Senior Financial Analyst with A.M. Best's, surveyed business developments which impact the financial ratings of structured settlement annuity providers. She also described A.M. Best's review process and changing rating definitions. In addition to traditional rating criteria which include balance sheet strength, operating performance and business profile, Mirabella emphasized the growing importance of enterprise risk management and international business activities for insurance companies. For structured settlement annuity providers specifically, Mirabella highlighted the highly concentrated market (five companies control 70% of the market) and strong sales trends over the past past seven years (with sales up 134.5% from 1999 to 2005). Although the overall industry outlook is currently stable and earnings and capital continue to improve near term, Mirabella predicted future earnings may be more volatile and capitalization may diminish. Her explanation: insurance companies are now more willing to accept risk and volatility in their financial results in response to shifting consumer demand. Mirabella also highlighted the continuing strength of mutual funds within traditional annuity markets.
- Tax Issues - Richard Risk moderated a panel discussion consisting of Michael J. Montemurro, Chief of Branch 4, Income Tax & Accounting Division, for the Internal Revenue Service, and Mark Muntean, who also spoke about non-qualified assignments (see above). The discussion addressed a wide range of tax issues. Responding to questions, neither Montemurro nor Muntean could identify any tax authority to support:
- The proposition that irrevocable annuity payees or irrevocable assignments of annuity payments to special needs trusts qualify for the IRC section 104(a)(2) tax exclusion. Historically, most commentators have assumed that irrevocable structured settlement payees violate the economic benefit rule. One of the new DRA requirements for excluding annuities from the Medicaid asset transfer rules is that an annuity must be irrevocable. One of the Social Security Administration (SSA) POMS requirements for special needs trusts is that annuities must be irrevocably assigned to the trust. Significantly, the most recent private letter from SSA relied upon by the structured settlement industry to justify the use of annuities to fund special needs trusts does not even mention the Internal Revenue Code; or
- [Introductory note for this paragraph: please see the addendum email from Richard Risk below which corrects and clarifies comments appearing in this paragraph.] The business practices of the Department of Justice (DOJ) torts branch which participates in structured settlements but refuses to: own structured settlement annuities; participate in qualified assignments; or agree to any structured settlement transfers. Montmurro stated the IRS is aware of the DOJ structured settlement funding methodology and expressed concern about potential tax problems such funding might cause for claimants. According to Montemurro: other government agencies besides Treasury, as well as some existing federal and state statutes, do not always recognize or pay attention to tax issues.
- Producer Issues - Chuck Derenne moderated a panel discussion focusing on producer issues with annuity providers. In advance of its meeting, SSP sollicited questions from its members and submitted those questions to all structured settlement annuity providers. Two annuity providers, John Hancock and Pacific Life, agreed to allow their representatives to respond to the questions at the SSP meeting. Christi Fried represented John Hancock and Geoff Kissel represented Pacific Life. The questions and responses addressed many annuity provider policy and practice issues including: acceptable cases; single claimant 468B funds; structuring attorney fees; documentation errors; HIPAA requirements; sharing rated ages; producer disputes; and lock-ins.
- Litigation Update - David Colapinto, of Kohn, Kohn & Colapinto, lead attorney for the plaintiff in Murphy v. United States, provided his analysis of this controversial tax case which is scheduled for rehearing in April 2007. On August 22, 2006, the U.S. Court of Appeals for the D.C. Circuit decided that federal law allowing taxation of damage awards for emotional distress violates the 16th Amendment because such awards are not income if they are unrelated to lost wages or earnings. The IRS petitioned for a rehearing which the D.C. Circuit Court approved. If the ruling is upheld on appeal, it will significantly impact the taxation of non-physical personal injury damages. Colapinto's analysis highlighted the role of bloggers in attacking the D.C. judges who issued the ruling. Colapinto characterized these commentators as "losing their minds" because a court declared a tax law unconstitutional. If the D.C. Circuit Court does not uphold its earlier ruling, Colapinto urged Congress to correct the earlier mistake it made in the Small Business Job Protection Act of 1996 and to restore a tax exclusion for non-physical personal injury damages. Tony Alfieri summarized the Spencer v. Hartford case, a class action filed in Connecticut that alleges Hartford's structured settlement program violated several laws: breach of contract; common law fraud; civil conspiracy; and RICO violations. Alfieri reported the court has denied Hartford's motion to dismiss and the case is now focused on whether to certify the case as a class action.
Congratulations to SSP for its outstanding educational program and also for inviting all structured settlement stakeholders to attend.
For additional S2KM coverage of SSP, see:
For additional S2KM coverage of the DRA, see:
For additional information about the DOJ S2 program, see:
- Richard Risk's website - articles about the Justice Department.
Addendum 03192007
Richard Risk, who moderated the SSP Taxation panel, sent me the following email which corrects and clarifies comments above concerning the DOJ's structured settlement program. Thank you, Dick. Please add comments anytime to S2KM's blog posts. Your comments are always welcome here.
Pat,
Thanks for
sharing your blog. Recapping the SSP seminar, you
wrote:
The
business practices of the Department of Justice (DOJ) torts branch which
participates in structured settlements but refuses to: own structured settlement
annuities; participate in qualified assignments; or agree to any structured
settlement transfers. Montmurro stated the IRS is aware of the DOJ structured
settlement funding methodology and expressed concern about potential tax
problems such funding might cause for claimants. According to Montemurro: other
government agencies besides Treasury, as well as some existing federal and state
statutes, do not always recognize or pay attention to tax
issues.
The issue
is not that DOJ refuses to own the annuities. They insist on owning them. The
issue is that they insist on assigning the obligation to the annuity issuer,
without also transferring ownership of the annuity. Under that arrangement,
there is no authority for a payee to receive periodic payments excluded from
gross income under section 104(a)(1) or (2) because there was no “qualified
assignment” pursuant to section 130. The original obligor may purchase and own
an annuity, as you know, without assigning the obligation. This is how all
structures were done prior to 1983. But, if the original obligor purchases and
owns an annuity, but makes the payee look only to the annuity issuer for future
payments, the obligation is transferred to the annuity issuer. Section 130
requires that the assignee/obligor must also own the “qualified funding asset.”
The payments are excluded under section 104 only if the assignment was made
under the provisions of section 130.
That’s my
take.
Dick
Richard B. Risk, Jr.,
Esq. 3417 East
76th Street Tulsa , Oklahoma 74136-8064
Risk Law Firm
918.494.8025
office
918.494.5819 fax
918.740.5470 cell
[email protected]
www.risklawfirm.com
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