Understanding structured settlements



It’s always an honor to be quoted in the media, especially when the author is a well-known legal columnist.

Attorney Dennis Beaver writes a legal advice column, “You & the Law.”  This week, he discussed structured settlements’ role in helping accident victims protect their long-term financial security.  His column, “How to keep ‘friends’ away from settlement money,” was an excellent overview about the perils of accepting a large lump-sum cash settlement to resolve a physical injury or wrongful death claim.

As Beaver notes, “In a structured settlement, instead of receiving a single, lump sum payment, part or all of the money is used to obtain an insurance annuity which provides a guaranteed, long-term stream of tax-free income payments tailored to the accident victim’s specific needs….” He adds, “Most people are not good at managing large amounts of money suddenly received.”

Here’s an excerpt:

“Start giving in, and Ben moves from target to financial victim,” according to Peter Arnold, a longtime structured settlement consultant and former Deputy Executive Director of the structured settlement industry’s trade association. “It’s like throwing a raw steak into the ocean when you know that sharks are there.”

“Often, the temptation to share this sudden wealth overrides better judgment about saving it for the future. A structured settlement is like putting a German Shepherd in front of your money to make sure efforts to grab and spend it easily fail, and allows you to honestly state, ‘I would love to loan you money, but it is beyond my reach,’ he points out.

You can read the full column on the Hartford Sentinel’s website here. (To Peter Swinehart, my excellent Landon School English teacher from the 1980s, you have my apologies for the mixed dog and shark metaphors.)

Also, it’s great to see Dennis quote my longtime friend, Derek Sells, Managing Partner at The Cochran Firm in New York.  Derek and I were in the same class at Dartmouth and he’s a top-notch, widely respected attorney.

And the “Beats” goes on

Filed under: Music Industry


This is too classic a smackdown to ignore.  This week, the marketing profession saw a textbook example of traditional marketing ideology failing to account for social media fall-out.

Last March, Bose sent the NFL a boatload of money and in return became the NFL’s Official Headphone and Headset Sponsor. But last Sunday, 49er Quarterback Colin Kaepernick wore his pink (read: breast cancer awareness) Beats by Dr. Dre headphones at a post-game press event.

The NFL, never one to let a pesky thing like breast cancer awareness get in the way of a sponsorship, slapped Kaepernick with a $10,000 fine.

So at yesterday’s press conference, Kaepernick once again wore his pink Dr. Dre’s but this time had tape over the Beat’s logo. For Beats, this must have seemed like manna from heaven covered in butterscotch sauce. First, its high-end competitor (Bose) became publicly ensnared with the NFL’s old-school, money-grubbing pettiness.  Second, Beats emerged as the choice of the rebellious types.

Guess which image plays better with the under-30 crowd?

The media coverage swirled like a tornado. USA Today: “The conversation has been stolen by Beats by Dre.”  CNet: “NFL players thumb nose at Beats headphones ban.”  AdAge: “NFL Pact With Bose Means Inadvertent Publicity for Beats.”

You get the idea.  Never mind that Dre has paid Kaepernick for years.  From a marketing perspective, and with the NFL’s unwitting (or perhaps “dim-witting” assistance), this is game, set & match for Dre.

“Pride can inspire”

Filed under: Uncategorized


One of the great professional joys of this job has been the opportunity to serve since 2008 as a consultant to Dawson & Associates, the nation’s leading lobbying firm for environmental permitting and water regulation issues.  With more than 10 retired Generals from the U.S. Army Corps of Engineers (including four former Commanding Generals and one Deputy Commanding General), the Dawson team has a stunning depth of experience.

But perhaps more important, they are all genuinely nice people — professional and bluff.

So it’s a special pleasure to offer this new video of our own Lt. Gen. (Ret) Hank Hatch, who was Commanding General of the Corps of Engineers during Gulf War I. Produced by the Society of American Military Engineers (SAME), the video features Gen. Hatch offering this characteristically uplifting advice: “Pride can inspire.”  It’s more than worth 10 minutes of your time:

 

Much ado about… something?



On the Friday before Labor Day (read: the government either wanted to bury it or someone was in a pre-holiday rush to clear out old business), the Internal Revenue Service (IRS) released Private Letter Ruling 143928-13, dated April 14, 2014 and authored by Mike Montemurro, Chief, Branch 4 at the IRS’ Office of the Associate Chief Counsel (Income tax & Accounting).  Montemurro’s letter, apparently requested by Pacific Life, approved favorable tax treatment for a structured settlement annuity with annual payment adjustments based on the S&P 500 Index performance. The letter also included the possibility of a commutation pursuant to a Notice of Hardship.

Not surprisingly, this PLR touched a nerve among the structured settlement industry’s commentariat. The industry’s ever-tenacious Watchdog offered insights here and former NSSTA President Pat Hindert suggested a “game-changing” aspect to the commutation language here.

While I respect Pat tremendously – after all, his book Structured Settlements & Periodic Payments is rightly the main textbook for NSSTA’s certification class – I don’t see this language having such a major future impact. Somewhat like Barack Obama’s self-described views on gay marriage, the IRS’ view on the secondary market has been “evolving” in recent years.

A few years ago, Montemurro himself spoke at a NSSTA meeting about structures and the secondary market and his comments that day presaged his language in the new PLR.  Under gentle questioning from Drinker Biddle’s estimable Mike Miller about the assignability of periodic payments, Montemurro replied, in part:

We went through this before [Section] 5891 came into effect. The assignment companies were concerned that if they had these factoring transactions, it could blow up the old [Section] 130 deal.

Certainly the transaction has to be valid under state law. It’s always an assumption that the transaction is going to be enforceable under state law. And one thing we always assume in these rulings too is that these things are ‘sales’ of the periodic payments because there’s another way you could phrase these things and that is that they’re secured loans, where you’d end up with a different answer.

It’s actually important for state law because these [transactions] can be for usurious rates and that causes problems.

We’re very careful to make sure that it has to be an enforceable obligation under state law. We always assume in these transactions that taxpayers are treating them as sales, not as loans [although the IRS] won’t rule on whether it’s a sale or a loan [because] it becomes very difficult to make the distinction.

In short, Montemurro offered a pretty clear recognition of Section 5891’s acceptance of structured settlement sales. In subsequent comments that day, he reaffirmed the IRS’ approval in concept of these transfers, subject to IRC rules. Hence, Montemurro’s PLR, while important, doesn’t strike me as going significantly further than he did in that NSSTA presentation.

Incidentally, if anyone is interested in Montemurro’s comments on this or other topics – for example, non-qualified assignments and single-claimant 468(b) – let me know.

P.S.: To anyone in PacLife’s management who’s reading this, You have the best life company team in the structured settlement industry.

The structured settlement industry’s coming changes



Thanks to everyone who offered comments about my recent blog warning that lobbying Congress to tighten Section 5891 rules governing transfers of future structured settlement payment rights could backfire on the structured settlement industry.

The most interesting feedback (aside from a couple of seriously intriguing PDFs sent anonymously) involved my contention of a coming integration of the structured settlement’s primary and secondary/factoring markets.  That trend, which actually has already begun, has huge implications for any future lobbying effort because it directly affects Congress’ perception that the primary and secondary markets are separate and distinct.

Most who reached out either denied this trend (no, really) or minimized it.  Sorry but they’re both wrong.

To understand what’s driving this change, start with a remarkable speech that Chartis’ (now AIG) President of Claims Rick Woollams delivered at NSSTA’s 2012 fall convention.  A self-described supporter of structures, Woollams nevertheless predicted that by 2017, “The entity count represented by [NSSTA’s members] will probably be two-thirds of what it is now.”

By 2022, Woollams predicted that the number would be half of 2017’s figure.

Today, with industry production down almost 20% from 2008, the consolidation that Woollams predicted is underway. During the past year, Brant Hickey merged with Pension, Integrated Financial snapped up JMW Settlements and the James Street Group disappeared (Rest in peace, James).

Meanwhile, only eight life insurance companies (exactly half the 2004 figure) are issuing structured annuities.

Given this consolidation, no one should be surprised that the primary market (yes, individuals AND companies) is angling for new revenue and efficiencies from the factoring industry. Structure consultants who work with accident victims are building professional arrangements with secondary companies, referring accident victims wishing to sell payment rights in exchange for finder’s fees.

At last month’s Capital Hill session on structured settlements, Mark Perriello, president of the American Association of People with Disabilities, spoke passionately about his support of the primary market and objections to the secondary market. Shelly Buxenbaum from the office of Rep. Matt Cartwright, sponsor of legislation to change Section 5891, also spoke of the two as separate industries.

But Congress and AAPD (among others) must accept that this distinction is increasingly outdated and doesn’t reflect the growing business links between the consultants who work with accident survivors and the secondary market.

Coming after Labor Day: How primary and secondary market companies can integrate operations under a single streamlined management.  And the truth is that, if done correctly, this will benefit structured settlement beneficiaries as they will gain all its advantages while also having ready access to liquidate some or all of their payments when necessary.

Will push on purchasing regulations backfire on structured settlements?



Yesterday morning, the American Association of People with Disabilities and the National Consumer League held a panel discussion on Capitol Hill about problems that structured settlement beneficiaries can encounter when selling future payment rights.  It was an interesting discussion and may presage heightened federal attention to the structured settlement industry in general and settlement purchasing specifically.

As usual when discussing structures, context is important: In recent years, the structured settlement marketplace has seen a drop in production.  This has created an economic dynamic that’s pushing broker companies and purchasing companies toward a single merged industry.

Industry watchdog John Darer recently reported that a structured settlement provider company has purportedly entered into a formal arrangement with a settlement purchasing company to sell “contacts and/or other nonpublic information.”

NSSTA Board member Randy Dyer of Ringler Associates told me last November that he’d picked up a heightened amount of industry chatter about settlement purchasing companies angling to purchase broker operations.

Yesterday’s panelists were AAPD President Mark Perriello, Shelly Buxenbaum, legislative assistant to Rep. Matt Cartwright and NSSTA member Marty Jacobson.  Perriello began by noting that on average, about 5,000-6,000 people each year sell their rights to future payments and therefore settlement purchasing “is critical for us to look at.”

Both he and Ms. Buxenbaum indicated upfront that settlement purchasing had value for accident victims in certain circumstances.  “It probably needs to remain a perfectly legal practice,” said Perriello.

Ms. Buxenbaum went further, saying, “We want factoring to remain legal.”  She later added that an example of a legitimate reason for a beneficiary to sell future payment rights might be to pay down a student loan.

Still, both Perriello and Ms. Buxenbaum spent most of their time urging Congress to strengthen federal oversight of settlement transfers. Perriello added that AAPD had expressed concerns about settlement purchasing to the Consumer Financial Protection Bureau.

Marty Jacobson, for whom I have tremendous respect, echoed the other speakers’ comments by cautioning against “too much regulation” on settlement purchasing, even as he encouraged passage of Rep. Cartwright’s bill.

Much more went on, including Marty describing why a New York judge describes the current regulatory framework for payment rights transfers provided by Section 5891 of the federal tax code as a “rubber stamp.”

I plan to write more about the event but for now, a few thoughts:

  • If NSSTA and the primary market push for new federal regulations on settlement purchasing, they could be in for a rude awakening.   Capitol Hill history is littered with examples of companies that start a lobbying effort to put competitors under a regulatory yoke only to see themselves put in regulators’ crosshairs.

Look at Google, which tried to saddle Internet service providers with online “neutrality” regulations and quickly found itself in trouble at the FTC for its privacy policies.

  • Regulators looking at structured settlements are unlikely to respect arbitrary lines between “primary” and “secondary” market activities – especially as the two markets merge.  Some in the primary market may believe that a “bright line” exists between the primary and secondary markets but don’t expect Federal regulators to believe it. Also, it’s just not true. Pat Hindert has been exceptionally keen on documenting this point.  If Congress starts probing transfer fees, it’s likely also to focus on the primary market’s standard 4% annuity commission.
  • Boon for plaintiff brokers?  If Congress believes that annuitants don’t have structures designed to meet their needs, it’s likely to focus on efforts to facilitate plaintiffs’ access to structure consultants. There was a brief discussion yesterday morning of Rep. Brian Higgins’ bill to encourage exactly that.
  • Trouble for Liberty, AIG & life insurance companies? In 2010, Hartford paid $74 million to settle claims that it defrauded thousands of structured settlement annuitants who did not have the benefit of a plaintiff broker.  Other life insurance companies (Liberty, AIG and others) may have had internal policies similar to those of Hartford. It’s a near-certainty that if Congress probes settlement transfers, it will also look at how life insurance companies have conducted themselves in disclosing fees.

There’s a lot more to write but this is a blog, not War & and Peace.  More to come in due course.  If anyone wants the recording of yesterday’s session, let me know.

UPDATE: The esteemed structured settlement consultant Dan Finn of Finn Financial Group informs me that there is no ampersand in the title of Tolstoy’s epic. Apologies to Dan and to Leo.

An aging Apple?



According to a new report from Nielsen SoundScan, for the first time since 2003, when the iTunes store opened, annual U.S. digital music sales have declined. Digital track sales fell from 1.34 billion units in 2012 to 1.26 billion in 2013, a decline of about six percent.  Digital album sales fell 0.1% while CD sales went into free fall – down nearly 15% last year.

The driving force behind these numbers appears to be the growth of streaming music sites which suggests that creative destruction in the music industry is alive and well.

But that aside, the more interesting tech parlor game is how this change will affect Apple.  After all, no other company has used the music industry’s current business model more effectively and more profitably.  Apple has married innovative hardware and elegant software into first-class (read: expensive, high-margin) products.

This strategy worked because everyone needed personal hardware (iPods, iPhones, Macs) to access entertainment.  The “cloud” was not a viable mass-market option for most of the past decade and Steve Jobs many times dismissed the concept of streaming music services.

But with Spotify, Pandora, Vevo (the web’s #3 video publisher behind YouTube and Facebook) and others offering attractive services to fit changing demands, the concept of buying single songs no longer has the same allure.  Yes, Apple Radio is a good entrant but it was woefully late.

In the past, Apple cannibalized sales in order to create new products.  The iPhone did that with the iPod.  But Apple back then was a different company.  Its near-death experience in 1997 was still recent history when the company began work on the iPhone in 2004, despite protests from the iPod division.

With the music industry seeing the impact of cloud-based services, Apple’s model no longer looks as imposing.  Moreover, a $487 billion company (Apple today) doesn’t necessarily act with the quickness of a $2.3 billion company (Apple in 1997).

The song will not remain the same.  Stay tuned.

The cutest commercial you’ll see this weekend

Filed under: Uncategorized


Question: How does a Fortune 15 telecommunications company differentiate itself from the competition?

Answer: By creating a really well-done TV commercial that can’t help but create smiles.  Here you go:

Disclosure: Yes, the company has been a client since 1998.

In the beginning…



claims-journal-spring-2013It’s always a pleasure and usually a bit humbling to be cited favorably in a news article.  Claims Journal just posted a long article about the legal and insurance dynamics during the 1970s and early 1980s that resulted in Congress passing legislation to recognize and encourage the use of structured settlements.  Titled “The Beginnings of Structured Settlements,” the article’s author is Claims Journal editor Denise Johnson, an attorney and respected commentator on insurance.  I am cited twice, in my capacity as a consultant to the National Structured Settlements Trade Association (NSSTA).

For anyone who has been physically injured in an accident, the structured settlement offers unmatched advantages including the opportunity to design a stream of guaranteed payments to meet future medical and living needs.  Moreover, per the federal tax code, all income is completely exempt from federal and state taxes.

As U.S. Rep. Jim Langevin (RI), the only quadriplegic ever to serve in Congress, states in the article:

I always take the opportunity to educate my colleagues on the benefits of structured settlements to injured victims. These settlements ensure that victims have enough funds not only to pay their bills today, but also in the future. They provide economic security not found in a normal legal settlement.

More information about structured settlements is available at the NSSTA website or by clicking here.

“Get in. I’ll give you a ride.”

Filed under: Frank Lautenberg


LAUTENBERGWith the passing of Senator Frank Lautenberg, the U.S. Senate is a poorer place and not in the financial sense.  In a city where ego is rarely in short supply, Mr. Lautenberg stood out as truly gracious and a real gentlemen.  He was also the last member of the “Greatest Generation” to walk the halls as a Member of the Senate.

If you spend enough time in Washington, you typically have some good stories about well-known people.  Senator Lautenberg’s passing brings back a memorable anecdote from the winter of 1987-88.  It was early evening — probably around 7 or 7:30 pm — when a young speechwriter to George H.W. Bush walked out of the Old Executive Office Building and began the walk up 17th Street to the Farragut North metro station.  It was raining and the hapless speechwriter had naturally forgotten his umbrella.

As he was walking past the front door of the New Executive Office Building, a car pulled alongside.  The front, passenger side window went down and the 60-something driver inside called out, “Is this how you get to The Mayflower?”  It was and a short back-and-forth ensued about the best way to the hotel since road construction had made 17th Street a nightmare.

Finally, the driver asked, “Are you going that way?”  Yes, sir, replied the twentysomething government worker in the dark (and increasingly wet) wool suit who still didn’t have any idea to whom he was talking.  “Get in.  I’ll give you a ride,” the driver snapped.

When we got to the hotel, I hopped out and thanked the driver for the lift.  His reply: “You can tell your friends you got a ride from the Senator from New Jersey.”

In different circumstances, the logical rejoinder would involve a Soprano-esque snark about New Jersey and “going for a ride.”  But not today. R.I.P., Mr. Lautenberg.

 
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