Beyond Structured Settlements

S2P2J Release 59

Despite historically low interest rates and negative PR (most recently this Washington Post Editorial) resulting from the unconscionable business practices by some secondary market companies, the primary structured settlement market continues to experience incremental growth since hitting an annual annuity premium nadir of $4.82 billion in 2012.

The "Growth Initiative" developed by the National Structured Settlement Trade Association (NSSTA), under the leadership of Presidents Michael Goodman and Len Blonder, has helped to sustain primary market growth by prioritizing specific objectives the first of which have included: 1) rejuvenate defense programs; 2) amend the Federal Employee Compensation Act; and 3) develop convertible deferred lump sum product options.

Other factors contributing to recent primary market growth ($5.3 billion of annuity sales in 2015):

• Increased industry unity - Advocated by the Presidents of NSSTA, the Society of Settlement Planners (SSP) and the National Association of Settlement Purchasers (NASP), these associations recently have taken significant steps to overcome their historic acrimony which had divided plaintiff and defense brokers as well as the primary and secondary markets.
• Legislative collaboration - One result of increased industry unity has been a proactive and collaborative legislative strategy by NSSTA and NASP to add consumer protection amendments to targeted state structured settlement protection statutes with preliminary success in Illinois, Wisconsin, Florida, Maryland and Virginia.
• Expanding education - NSSTA continues to expand and improve its educational offerings adding new programs such as Structures 202, the Masters Structured Settlement Consultant (MSSC) certification and Structured Settlement University. SSP recently sponsored a joint educational program with the Academy of Special Needs Planners (ASNP) providing attendees an opportunity to evaluate structured settlements within the larger, more complex personal injury settlement planning market.

Consistent with these growth initiatives, recent updates of "Structured Settlements and Periodic Payment Judgments" (S2P2J), including newly issued Release 59, highlight multiple opportunities to expand the structured settlement market, providing technical guidance and practice advice, in addition to describing related industry developments and issues.

Publisher Law Journal Press distributed hard copy supplements for S2P2J Release 59 earlier this month with online S2P2J subscribers receiving their update automatically and simultaneously. Online S2P2J includes a search feature and download capability as well as link features to access individual book sections, appendices, footnotes, cases and statutes.

First published in 1986 and updated semi-annually, S2P2J is co-authored by Daniel W. Hindert,  Joseph J. Dehner, and Patrick J. Hindert (S2KM's Managing Director). Both NSSTA and SSP have utilized S2P2J as an educational resource for their certification programs.

Release 59 Highlights

"Release 59 for 'Structured Settlements and Periodic Payment Judgments' features analysis of the Wrongful Convictions Tax Relief Act of 2015. This new federal legislation, enacted December 18, 2015, creates an exclusion from gross income for civil damages, restitution, or other monetary awards that are received as compensation for wrongful incarceration. The Act includes an important one-year time-sensitive retroactivity provision.

"This Release also outlines recommendations to defense counsel for seeking court approval of settlements whenever parties have a duty to consider the provisions of the Medicare Secondary Payer Act (“MSP”). The advice is applicable whether or not the claimant has a legal disability that mandates such court approval or if doing so as a means to reduce risks of a finding of MSP noncompliance and its attendant possible sanctions.
"Noteworthy new case law in Release 59 includes:

• "An important 2015 decision by the U.S. Court of Appeals for the Third Circuit which includes in-depth analysis of 'safe harbor' annuity rules under the Deficit Reduction Act of 2005 when annuities are sought to be used to preserve Medicaid eligibility.
• "Review of new cases under state Structured Settlement Protection Acts ('SSPAs'), where courts have identified standard questions to assist judges in making the determination of whether a proposed transfer of future payment rights is in a given claimant’s 'best interest' as required for court approval under the SSPAs.

Previous S2P2J releases have highlighted and addressed the following recent structured settlement developments and primary market growth opportunities:

• Non-qualified assignment issues - including tax and security issues raised by off-shore assignment companies.
• Templates for: 1) approval of MSAs; and 2) disclosure of consultants' roles and compensation.
• Expanded coverage of Workers Compensation MSAs.
• Summary and discussion of recent PLR for indexed annuities and commutation riders.
• Summarized results of CLM Advisors surveys commissioned by NSSTA to determine the value claims executives, claims professionals and plaintiff attorneys place on structured settlements and structured settlement consultants.
• Introduction to ABLE Accounts.
• A new section to introduce and explain federal and international regulatory developments and entities resulting from the 2008 global financial crisis.
• Updated analysis of the changing role of and standards for plaintiff attorneys engaged in personal injury settlement planning and when negotiating structured settlements.
• Summary and analysis of recent U.S. Treasury Regulations for IRC 104(a)(2).
• Practice tips for minimizing the risk of an IRS settlement challenge.
• Updated summary of lessons learned from the Executive Life Insurance of New York (ELNY) insolvency.
• Periodic payment reinsurance as an alternative means of funding structured settlements.

For S2KM's most recent analysis of the structured settlement industry, see: "Structured Settlements 2015":

• Part 1 - Market Metrics
• Part 2 - Market Issues and Developments

NSSTA 2015 Fall Conference

Although the National Structured Settlement Trade Association (NSSTA) did not promote a specific theme for its 2015 Fall Educational Conference, one of the speakers succinctly captured the program's overall purpose and accomplishment when he described NSSTA's new Industry Growth Initiative as "changing the focus of our future."

Industry Growth Initiative

NSSTA's website description of its Industry Growth Initiative highlights "a significant decline in production since its peak at $6.3 Billion in 2008" and asserts "we do an excellent job protecting our industry" before announcing that "this year we want all NSSTA members to focus their time, energy and resources on new opportunities to expand the use of structured settlements-to grow our industry."

NSSTA President Michael Goodman utilized his Opening Conference Comments in Phoenix (as well as a preconference interview with S2KM) to describe the status and organizational structure of the NSSTA Industry Growth Initiative.

"My first priority as President of NSSTA," Goodman stated, "is to identify growth opportunities for the structured settlement industry. First, we asked all NSSTA members to submit ideas for growth at [email protected]. . Second, I tried to put together a NSSTA Growth Committee consisting of a highly talented cross section of industry leaders with diverse perspectives. Third, the Committee evaluated all of the 28 (to date) NSSTA member growth proposals and selected three for NSSTA Board of Directors approval to develop immediate implementation plans with success metrics."

Goodman introduced the NSSTA Growth Committee members including co-Chairmen William Goodman, Sean Coleman, John McCulloch and John Arendt. Speaking for the Committee, Coleman enthused: "I love our change of focus. Historically, NSSTA has been reactive, dodging bullets. The Growth Initiative redirects our mindset and focus. It encourages us to become proactive. The Growth Committee has already surpassed by highest expectations."

Goodman and the Committee co-Chairmen identified the following three NSSTA Growth Initiatives already selected and approved:

• Rejuvenate Defense Programs (including casualty insurers, commercial insureds and TPAs) - Originally the prime movers for structured settlements, many defense insurers have reduced or completely abandoned their structured settlement programs citing a variety of reasons. Beginning with three target carriers, the Committee plans to analyze the causes, and ultimately revitalize the programs, to create new prototype defense program models. Note: NSSTA recently commissioned surveys of Senior Claims Executives; and front line Claims Professionals which S2KM summarized and evaluated in prior blog posts.
• Amend the Federal Employee Compensation Act (FECA) - FECA, which provides workers compensation like benefits for federal workers, currently does not permit structured settlements. With payouts totally approximately $4.5 billion per year, FECA represent an attractive potential market for structured settlements with administrative cost savings being one justification for a legislative amendment. Based upon preliminary interviews, the Growth Committee believes FECA stakeholders view structured settlements favorably. The Committee is gathering statistical data to support its proposal and building grassroots support.
• Convertible Deferred Lump Sums - As a sales response to "low interest rates", the Growth Committee is proposing a new structured settlement feature. As envisioned, the convertible deferred lump sum would allow a structured settlement recipient to select a future lump sum that would automatically convert on its payment date into a series of predetermined periodic payments payable at whatever annuity rates offered at the time of conversion by the issuing life company. A Canadian broker attending the NSSTA conference stated that at least one Canadian life company already offers this structured settlement product feature. The Committee anticipates whichever annuity provider introduces this product feature in the U.S. will probably also seek an IRS private letter ruling.
• Note: NSSTA's Growth Committee identified a fourth preliminary initiative (Dissipation Study) - to confirm that injury victims squander lump sums. However, this initiative is currently on hold. For background, see this 2009 S2KM review of Jeremy Babener's legal research paper analyzing historic dissipation studies.

Factoring Update

Goodman also addressed the state of the structured settlement industry including a "factoring update". As part of this report, Goodman confirmed that NSSTA and the National Association of Settlement Purchasers (NASP) have agreed to cooperate legislatively in several states to seek the following consumer protection amendments for state structured settlement protection statutes:

• No forum shopping.
• Payee required to attend hearing.
• Stricter application of approval requirements.
• Advanced notice of transfer.
• Required disclosure of prior transfers.

Supporting this cooperative initiative, NSSTA has begun offering its members a new Judicial Education Training Seminar - taught in Phoenix by John McCulloch and Stephen Harris. Goodman also announced he will be a featured speaker at NASP's 2015 Annual Conference next week in Las Vegas - the first serving NSSTA President to do so. Perhaps anticipating his NASP appearance, and cognizant of the recent Washington Post article ("a perfect storm for factoring"), Goodman advised the NSSTA Conference attendees: "Factoring is not a zero sum game. What is bad for them is not always good for us."

Additional Conference Presentations

Many structured settlement participants believe control of the primary structured settlement market, and future market growth, have shifted from the defense to plaintiff attorneys and their injury victim clients. Although NSSTA has been slow to embrace plaintiff-focused personal injury settlement planning, NSSTA's Fall Conference included two presentation featuring plaintiff representatives:

• A Trial Lawyer Panel - moderated by Ryan Garrison with plaintiff attorneys Julio Zapata and Francisco Gutierrez; plus
• An introduction to the National Association of Trial Lawyers Executives (NATLE) by Gayle Bennett, Deputy Director of the New Mexico Trial Lawyers Association.

Both plaintiff presentations emphasized opportunities to expand the market for structured attorney fees. Both plaintiff attorneys expressed a preference for advisors who are "knowledgeable not just about structured settlements but also other investment vehicles."

In addition to the Judicial Education Training session mentioned above, three other NSSTA presentations addressed educational issues and programs:

• Best Practices for Structured Settlement Case Resolution - During her excellent review of structured settlement fundamentals, Betty Gregware expressed serious concern about the general quality of structured settlement documentation and the need to increase competence across the industry.
• Professional Broker Education - Gregware, Melissa Price and Debbie Sink introduced a new educational program NSSTA is developing primarily for individuals who are new to the structured settlement industry. They also provided an administrative overview of "NSSTA University" whereby NSSTA partners with members to secure CE credits for member-sponsored educational seminars for insurance claims departments or law firms.
• MSSC Paper Presentation - Mal Deener moderated a panel featuring Trish Fairhurst, Richard Carroll and other members of the first graduating class of NSSTA's new Masters Structured Settlement Consultant (MSSC) professional designation. Each MSSC graduate is required to submit a paper and these papers will be published on NSSTA's website. NSSTA will offer its next MSSC program beginning April 27, in conjunction with its Certified Structured Settlement Consultant (CSSC) program, at the University of Notre Dame

Separate from, but related to, NSSTA Growth Initiative, NSSTA's Board of Directors has appointed a Special Needs Attorney Task Force to develop strategic relationships with special needs attorney professional associations and to identify collaborative marketing opportunities with special needs attorneys more generally. NSSTA member Carola Davis and Special Needs Alliance attorney Patty Sitchler initiated a NSSTA presentation/discussion in Phoenix which hopefully will continue and expand to the benefit of both professional communities.

A critical factor, both challenge and opportunity, for growing the primary structured settlement market concerns succession planning. What new generation of distributors, or distribution channel(s), or business models, will emerge (and when) to replace and build upon the accomplishments of the pioneering generation (now in their 60s and 70s) who originated the structured settlement market in the late 1970s? NSSTA's Fall Conference featured two presentations addressing these issues:

• Succession Planning - Presenter Jim Early looked at the succession issue primarily from the point of view of the individual producer. Among his observations: "nepotism works in the structured settlement industry" and "a lack of capital has prevented the primary market from bringing in and training new people."
• Diversity Discussion - Angel Viera and Stacy McCall offered a convincing case for promoting greater diversity among new structured settlement professionals as a key component for future growth. Their presentation included and elicited several thought-provoking observations including: 1) "From a demographic perspective, our industry should mirror the people we serve" and 2) "Our industry suffers from a lack of diversity of thinking. Where do we find new voices and perspectives?"

Lifetime payments represent a valuable, optional structured settlement benefit which can be further enhanced from a pricing perspective when rated ages are applicable. Kevin Puckett and Ken Kiefer expounded on these important issues during their presentation about Mortality, Morbidity & Rated Ages.

NSSTA members Susan Clark and Robert Caples introduced Arnie Begler and Scott Henry, representing Pipitone Group, NSSTA's new public relations firm, and together they discussed NSSTA's Communications Program. Because journalists, as well as their readers, frequently confuse the primary and secondary structured settlement markets, Pipitone's "first test" was responding to the aforesaid Washington Post article. Pipitone's stated assignment is "to find the best communications practices and bring them to NSSTA" which will include designing a new NSSTA website. Among NSSTA's priorities, and Pipitone's challenges, will be attempting to reclaim the "structured settlement" brand inclusive of Google searches which currently are dominated by secondary market companies.

NSSTA Executive Director Eric Vaughn concluded NSSTA's Fall Conference with a Government Relations Update - his characteristically insightful and energizing overview of structured settlement legislative and regulatory activities. Among other accomplishments, Vaughn was recently named Vice Chairman of the American Association of People with Disabilities (AAPD).

Other recent NSSTA-related S2KM blog posts:

• Michael Goodman Interview
• NSSTA Marketing Surveys
  • Senior Claim Executives
  • Claim Professionals
  • Plaintiff Attorneys
• NSSTA 2015 Structures 202 Conference
• NSSTA 2015 Annual Conference