Beyond Structured Settlements

Structured Settlements in 2010 - 2

Beginning in 2004, S2KM has utilized this blog ("Beyond Structured Settlements") and related web 2.0 publications to report and analyze strategic developments impacting the structured settlement and special needs settlement planning (aka settlement consulting) industries.

Featuring industry leaders, commentators and professional association conferences, S2KM has attempted to highlight how legal and technology changes are redefining the traditional (pre-2001) structured settlement market including structured settlement public policy as well as structured settlement business standards, business practices and business models.

From S2KM's perspective, the following categories, people and developments defined the structured settlement and special needs settlement planning industries in 2010:

Professional associations

• S2KM attended seven professional educational conferences during 2010 which addressed structured settlement and/or special needs settlement planning issues:
  • National Structured Settlement Trade Association (NSSTA) - 2
  • Society of Settlement Planners (SSP)
  • National Association of Settlement Purchasers (NASP)
  • National Alliance of Medicare Set-Aside Professionals (NAMSAP)
  • National Academy of Elder Law Attorneys (NAELA)
  • Academy of Special Needs Planners (ASNP)
• As a general observation, all of these conferences were valuable and complementary. For S2KM's 2010 (plus historical) conference reports, see S2KM's structured settlement wiki.
• SSP, NASP and NAMSAP deserve special recognition for their 2010 strategic educational discussions featuring industry leaders, commentators and critics who offered alternative perspectives for improving and growing the structured settlement and special needs settlement planning markets.
• By comparison, NSSTA remains reluctant to openly discuss strategic industry issues or to include alternative perspectives in their educational programs. More positively, NSSTA representatives and members increasingly attend and speak at non-NSSTA structured settlement and special needs settlement planning conferences.
• NAELA's educational conferences are noteworthy because they regularly feature sections or entire programs titled "unprograms". NAELA's unprograms are moderated group discussions about specific topics. NAELA's 2010 Special Needs Summit included six separate one hour unprograms with a concluding unprogram wrap-up session. One example of a 2010 NAELA unprogram was titled "Collaboration Opportunities for Special Needs Attorneys and Financial Planners".

Industry leaders

• NSSTA promoted Eric Vaughn, who previously served as NSSTA's lobbyist, to replace Joseph Ricci as NSSTA's new Executive Director effective July 1, 2010. Peter Arnold, previously NSSTA's Marketing Director, was similarly promoted to serve as NSSTA's Associate Executive Director. NSSTA's Board of Directors elected Michael Kelly as its 2010 President and Dan Finn as its President-elect. NSSTA honored Congressman Peter Stark during its Annual Meeting as its 2010 Legislator of the Year. NSSTA also gave special recognition to Karen Meyers and Joseph Bornstein for their contributions to NSSTA's CSSC and NSSTAPAC programs respectively..
• SSP elected Jason Lazarus as its President for 2010-11 and Charles Schell as Vice President. SSP honored Richard Risk with the designation of "life member" for his contributions to SSP and the settlement planning industry. Joseph Tombs continues as Director of SSP's RSP certification program.
• NASP named Matthew Bracy as its new President succeeding Robin Shapiro. Earl Nesbitt continues as NASP's Executive Director.
• NAMSAP elected Michael Westcott as its President.
• NAELA honored Dick Traum as the first recipient of NAELA's Special Needs Leadership Award. Traum is the founder and CEO of Achilles International, a non-profit organization providing community support for athletes with disabilities with members in more than 70 countries.
• Amy Palmiero-Winters, ultra-marathoner and lower-leg amputee, was named during 2010 as the winner of the 2009 James E. Sullivan Award given annually to the top amateur athlete in the United States.

Industry commentators

• For the past several years, Robert Wood has been the preeminent tax commentator and author for the structured settlement and settlement planning industries. Wood's publications appear on the Wood & Porter website.
• During 2010, Jeremy Babener emerged as an important new structured settlement tax commentator and author specializing in public policy and proposing an expanded structured settlement tax subsidy. In addition to authoring several structured settlement articles for tax and legal journals, Babener participated as a featured speaker at both the SSP and NASP 2010 Annual Meetings and authored two blog posts for S2KM during 2010. Babener discussed his structured settlement writing (accessible on S2KM's structured settlement public policy wiki and Babener's Tax Structuring website) in this 2010 S2KM interview.
• Additional authors who wrote and published 2010 legal articles about structured settlement and special needs settlement planning issues included: Daniel Hindert, Matt Garretson, Sylvius von Saucken, Peter Wayne, Mark Popolizio, Gregg Polsky and Brant Hellwig.
• Both the Legal Broadcast Network and Ringler Radio continued to produce and distribute podcasts featuring structured settlement commentators during 2010.
• An increasing number of structured settlement and special needs settlement planning professionals published blogs during 2010 joining industry blogging pioneers such as John Darer, Mark Wahlstrom, Matthew Bracy and Jack Meligan.
• Incisive Media published two new updates (Release 47 and Release 48) for "Structured Settlements and Periodic Payment Judgments" during 2010.

Legislation

• Both the Patient Protection and Affordable Care Act (Health Care Reform) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) redesign the legal environment in which the structured settlement and personal injury settlement planning markets operate.
• Among the anticipated strategic consequences of health care reform:
  • An estimated 16 million more Medicaid participants - and therefore:
  • More special needs trusts;
  • More special needs attorneys;
  • More structured settlement annuities payable to trustees.
• Dodd-Frank re-writes federal banking law and creates a new Bureau of Consumer Financial Protection. A key question, as yet unanswered, is whether the sale and/or purchase of structured settlement annuities constitutes a "financial product or service" under Dodd-Frank requiring regulatory supervision by the Bureau.

Regulations

• The United States Department of Treasury held a public hearing on February 23, 2010 focused on proposed new regulations for Internal Revenue Code section 104(a)(2). The proposed regulations, if enacted, would:
  • Eliminate the requirement that damages be based on “tort or tort type rights” in order to qualify for the section 104(a)(2) tax exclusion, and
  • Incorporate 1996 legislation requiring that personal injuries and sickness damages be “physical” in order to qualify for the section 104(a)(2) tax exclusion.
  • A subsequent S2KM interview featured John McCullough and Richard Risk, two of the structured settlement industry members who spoke at the hearing.
• The Centers for Medicare and Medicaid Services (CMS) continued to issue administrative guidance during 2010 for enforcement of the Medicare Secondary Payer (MSP) Act of 1980 and the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) reporting requirements for insurers. Featured discussions during the NAMSAP 2010 Annual meeting highlighted:
  • The increasing importance and complexity of the MSP statute for all personal injury stakeholders;
  • The need for these personal injury stakeholders (and their professional associations) to cooperate politically and educationally;
  • The challenges of integrating structured settlements, including rated ages, with Medicare set-aside arrangements (MSAs) in the context of health care reform, CMS MSA regulations and related judicial rulings;
  • The evolving business models, claim management strategies and professional skill sets which are now emerging to address these challenges.

Case law

• The Spencer v. Hartford class action lawsuit which settled in 2010 represents one of the most important legal developments in the history of the structured settlement industry.
• Hartford's gross settlement payment of $72.5 million represents 4.5% of total premium dollars Hartford used to purchase structured settlement annuities for class members from January 1, 1997 to June 7, 2010.
• Among the plaintiffs allegations:
  • Hartford and its attorneys, brokers and agents violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and committed common law fraud in structuring its settlements.
  • Hartford's structured settlements were priced so Hartford retained 15% of the value of the structured settlements.
  • Hartford and its attorneys, brokers and agents misrepresented structured settlements including explicit or implicit reference to:
    • The "cost" of the annuity or structured settlement or portion of the settlement being structured; and/or
    • The "value" of the annuity or structured settlement or portion of the settlement being structured.
• Hartford, which stopped writing new structured settlement business in 2009, denied the allegations.

Technology

• Despite the accelerating technology advances revolutionizing society generally, the structured settlement and special needs settlement planning industries have been slow to study and incorporate these advances into their educational programs and business models.
• The best industry-sponsored technology education programs during 2010 were offered by Mark Miller during a NAELA webinar and Harry Margolis at the ASNP 2010 Annual Meeting. Both presentations provided introductory overviews of web 2.0 and including recommendations for integrating specific social networking tools into special needs legal practices.
• NSSTA initiated a NSSTA blog during 2010 and offered an educational program about Internet marketing during its 2010 Fall Education program.

Public policy

• Both SSP and NASP featured specific discussions and presentations about structured settlement public policy during their 2010 Annual Meetings. The discussions included industry commentators representing diverse viewpoints and priorities.
• Jeremy Babener followed his 2009 paper debunking industry myths concerning "structured settlement dissipation studies" with several 2010 articles and papers addressing structured settlement public policy issues. Babener's public policy writing is featured on S2KM's structured settlement public policy wiki.
• Release 47 of "Structured Settlements and Periodic Payment Judgments" re-examined several structured settlement public policy issues related to single claimant 468B funds, structured settlement factoring transactions, dissipation by personal injury victims, the Deficit Reduction Act of 2005, special needs trusts and Medicare set-aside arrangements.
• In a 2010 Boston College Law Review article, professors Gregg Polsky and Brant Hellwig challenged the application of any structured settlement tax benefit for deferring attorney fees or payments to non-physically injured tort plaintiffs under general common law tax principles.

Business standards and practices

• The Spencer v. Hartford case raises many issues about structured settlement business standards and practices which require greater education and analysis if the primary market expects to improve and grow. For example;
  • Is the primary structured settlement market capable of self-regulation?
  • Why shouldn't key elements of the state structured settlement protection statutes (judicial approval; best interest test; compensation disclosure) be applied to primary market transactions?
  • As an additional requirement, or as an alternative, why haven't plaintiff attorneys and plaintiff consultants insisted upon a claimant's written informed consent before entering into a structured settlement?
  • Why haven't the SSP's Standards of Professional Conduct received more public discussion and analysis within the structured settlement industry?
• "Cash now" advertising represents one of the most highly criticized secondary market business practices. Although this practice continues to exist, NASP took an important educational step during its 2010 Annual Meeting by highlighting this issue and inviting secondary market critics to participate in the discussion.

Business models

• While other segments of, and products within, the special needs settlement planning market have expanded and improved in recent years, the structured settlement primary market in general has stagnated and retrenched.
• During 2010, however, representatives of the primary structured settlement market increasingly recognized their interdependency, and interacted, with other settlement planning professionals and professional associations such as special needs attorneys, life care planners, Medicare set-aside professionals and secondary structured settlement market participants.
• Future industry improvement and growth will require even greater appreciation and identification of shared interests as well as expanded implementation of shared political strategies, educational programs and business models.

Prior S2KM annual reports about the structured settlement industry and reports about industry association conferences are available on S2KM's structured settlement wiki.

SSP and NSSTA 2010 Annual Meetings - 7

Tax laws and tax policy are critically important for structured settlements. Based upon interviews he conducted with structured settlement industry leaders, Jeremy Babener states in his recently published article about "Structured Settlements and Single-Claimant Qualified Settlement Funds":

"It seems roundly agreed that the ......structured settlement market owes its existence almost entirely to the tax subsidy."

With major tax reform predicted for 2011, both the SSP and NSSTA tax panels provided valuable and generally positive news and information plus new tax ideas for growing the structured settlement market. For a list of the SSP and NSSTA tax panel participants, see SSP and NSSTA - 6.

The most positive tax information was the declaration of support for structured settlements during the NSSTA meeting by key Congressmen including Max Baucus, Chairman of the Senate Finance Committee; Sander Levin, Chairman of the House Ways and Means Committee; and David Camp, ranking Republican on the House Ways and Means Committee.

Congressman Camp provided the most concise tax-oriented legislative endorsement of structured settlements. Camp stated: "With tax reform, everything is on the table. But structured settlements are not on the table. Congress has a long history of support for structured settlements on a bi-partisan basis. Don't expect much debate over structured settlements."

The new tax ideas for growing the structured settlement market were highlighted by Babener in his precursor presentation to the SSP tax panel titled: "Justifying and Expanding the Structured Settlement Tax Subsidy". Among Babener's ideas for improving and growing the structured settlement market, he recommends changing the current tax subsidy into a tax credit. According to Babener, who outlines his proposal in an article published in Tax Notes titled "Expanding the Structured Settlement Tax Exclusion", the current tax subsidy provides no benefit for structured settlement recipients unless they pay taxes - which many of whom do not. Babener's article is available on his Tax Structuring website.

Both the SSP and NSSTA 2010 tax panels featured Michael Montemurro, Branch Chief, Office of Associate General Counsel of the IRS. SSP has featured Montemurro on two prior tax panels.

Both the SSP and NSSTA tax panels addressed many of the same issues:

• Single claimant 468B settlement funds;
• Physical vs. non-physical personal injuries;
• Non-qualified assignments - including structured attorney fees;

NSSTA's tax panel also discussed tax issues related to confidentiality agreements and factoring by assignment companies.

By contrast with NSSTA, SSP allotted more than two hours (compared with NSSTA's one hour) for its tax panel. In addition, SSP offered Babener's introductory public policy discussion plus 40 minutes of follow-up discussion. The added time allowed SSP to incorporate Michael Montemurro into a broader discussion which included practical advice (Dan Hindert discussing 468B QSFs), criticism of current tax laws (Professors Gregg Polsky and Brant Hellwig attacking tax deferrals for non-physical injuries and plaintiff attorneys fees) plus extended public policy discussions including secondary market issues.

Both SSP and NSSTA deserve congratulations for their 2010 structured settlement tax panels. SSP's tax panel (organized and moderated by Richard Risk) has become the new industry standard - surpassing what NSSTA formerly and regularly featured as its "Tax Posse". NSSTA's 2010 tax panel (organized and moderated by Michael Miller) re-established NSSTA as an important educational resource for structured settlement tax issues.

For prior S2KM reporting about SSP and NSSTA, see S2KM's structured settlement wiki.

SSP and NSSTA 2010 Annual Meetings - 6

This S2KM blog post is the first of two S2KM blog posts about the SSP and NSSTA 2010 tax panels and is also part of S2KM's blog series about the SSP and NSSTA 2010 annual meetings.

The SSP and NSSTA tax panels offered the industry's best-ever discussions about structured settlement tax issues. This S2KM post introduces the SSP and NSSTA tax panel participants. Subsequent S2KM blog posts will summarize the tax panel discussions and provide additional S2KM commentary. For prior S2KM reporting about the SSP and NSSTA, see S2KM's structured settlement wiki.

SSP's tax panel

• Richard Risk as organizer and moderator. One of the plaintiff attorneys in the Spencer v. Hartford class action and honored as an SSP "Life Member" during the SSP 2010 meeting.
• Michael Montemurro - Branch Chief, Office of Associate General Counsel of the IRS.
• Daniel Hindert - Trial attorney based in Salt Lake City. Co-author of "Structured Settlements and Periodic Payment Judgments" with Joseph Dehner and S2KM's Managing Director, Patrick Hindert. Co-author with Craig Ulman of a 2005 American Bar Association article for judges about structured settlement factoring. Author of a 2010 article about Section 468B Settlement Funds for the Utah Association for Justice.
• Gregg Polsky - Law professor formerly at Florida State University and now teaching at the University of North Carolina. Co-author with Brant Hellwig of a 2010 law review article titled "Taxing Structured Settlements" published in the January 2010 edition of the Boston College Law Review.
• Brant Hellwig - Law professor at the University of South Carolina
• Jeremy Babener - author during 2010 of several public policy articles about structured settlements. Babener's articles are available on his website Tax Structuring. S2KM's reviews of Babener's writing and interviews with Babener are featured on S2KM's structured settlement public policy wiki. In addition to participating on the SSP tax panel, Babener spoke separately at the SSP meeting about "Justifying and Expanding the Structured Settlement Tax Subsidy".

NSSTA's tax panel

• Michael Miller as organizer and moderator. Former co-chairman of NSSTA's legal committee. Also summarized the Spencer v. Hartford settlement at the NSSTA meeting.
• Michael Montemurro - Branch Chief, Office of Associate General Counsel of the IRS.
• Kirk Van Brunt - a member of the NSSTA legal committee and a structured settlement taxation subject matter expert.