Beware of Structured Settlement Secondary Market Scams!

Scams in the structured settlement secondary market abound.

If you are the recipient of a structured settlement annuity and receive a phone call from someone who says “I work with your insurance company and you are owed money” just hang up the phone.  The caller doesn’t work with your insurance company, and you aren’t “owed any money.”  The caller wants you to sell your annuity payments, and will likely offer you just pennies on the dollar.

Likewise, if you receive a phone call from someone who says “I work with your insurance company and we can restructure your annuity” just hang up the phone.  The caller doesn’t work with your insurance company and they can’t “restructure” your annuity.  The caller wants you to sell your annuity payments, and will likely offer you just pennies on the dollar.

Senator Gounardes Sponsors “Same As” Bill in NY

Senator Andrew Gounardes (D. 22nd) has sponsored a “same as” bill – S4864 to accompany A5818 – “AN ACT to amend the insurance law, in relation to providing protection to certain retirees from pension de-risking transactions; and to amend the civil practice law and rules, in relation to statutorily exempt payments” sponsored by Assemblyman Peter Abbate.   This bill has been referred to the Insurance Committee.  The introduction of the “same as” bill in the New York Senate is very important.  In New York State, both the Senate and Assembly must pass a bill before the Governor can sign the bill into law.

Pension de-risking through the purchase of a group annuity contract is a concern to retirees because retirees lose all of the uniform protections intended by Congress under ERISA and their rights become subject to non-uniform state laws. Enactment of legislation at the state level is needed to replace these protections.  NY’s proposed legislation will provide those protections to New York retirees impacted by pension de-risking transfers.  This legislation will provide basic financial disclosures, protections of annuity benefits from creditors, and reasonable restrictions on subsequent transfers.

Download text of New York Senate Bill 4864.

Download text of New York Assembly Bill A5818.

Pension de-risking protections have already been enacted in Connecticut and Virginia.  Read more about pension de-risking here and here.

IRS Reverses Its Position on Lump Sum Buyouts

The IRS released a new notice earlier this month, which will allow defined benefit plan (DBP) sponsors to once again offer lump-sum buyouts to retirees who are receiving pension benefits. This practice of lump-sum buyouts was effectively halted in 2015  with the release of IRS Notice 2015-49. Prior to the 2015 IRS Notice, DBP’s regularly offered lump-sum buyouts to retirees in an effort to reduce their pension liabilities.  Lump-sum buyout’s are lucrative for the DBP’s but are often detrimental to retirees.  As stated in Forbes: “The idea of an employer-sponsored defined benefit pension plan is that you (and your spouse) get guaranteed payouts for life. As the plans became a drag on corporate balance sheets, companies started shedding pension liabilities by offering participants the option of taking a lump-sum buyout (cash) or transferring their pension to an insurer who would continue the lifetime payments. For retirees who say yes to the lump-sum offers, it wipes out federal protections of ERISA and turns lifetime retirement income into a one-time chunk that can easily be outlived.”

IRS Notice 2019-18 supersedes IRS Notice 2015-49.

Structured Settlement Secondary Market Fraud in Illinois

A recent Appellate Court opinion from the 4th District in Illinois highlights more structured settlement factoring fraud.  In this instance, Stone Street Capital, LLC purchased payments in four separate transactions from 2010 – 2013 filed in Sangamon County, Illinois.  Stone Street filed four transfer petitions seeking to purchase structured settlement annuity payment streams from a “seller”, each of which was granted by the Sangamon County Circuit Court.  The fraudulent transfer petitions were filed by Chicago attorney, Brian Mack.  In the petitions, Mack failed to inform the court that the “seller’s” annuity contract contained an anti-assignment provision. As it turned out, the real recipient of the structured settlement annuity knew nothing of the transactions.  The signatures on the affidavits and petitions were forged by the seller’s mother, and falsely notarized by a friend of the seller’s mother.

In 2016, the victim of this fraud filed lawsuits claiming the Sangamon Circuit Court orders were void ab initio due to lack of jurisdiction and fraud on the court. Despite the evidence, it was 17 months before Stone Street agreed to vacate the transfer orders and return the funds to the “seller.”  After the settlement the court retained jurisdiction to adjudicate any petition filed for sanctions pursuant to Illinois statute.  The victim filed a motion for sanctions against Stone Street in September, 2017,, which was denied.  On appeal, the trial court’s decision was reversed.

The Appellate Court stated:

We find the trial court abused its discretion in denying the motion for sanctions on this issue.  Since 1999, the Illinois Appellate Court has repeatedly held that where a structured settlement agreement contains an anti-assignment provision, that provision must be enforced an renders any attempt to assign structured settlement payments void.  Stone Street cannot plead ignorance of this case law as attorney Mack was heavily involved in many of those cases.  More importantly, Stone Street was thus bound by that case law when it presented its petitions to the trial court. However, in its first two petitions, Stone Street did not reference the possible existence of an anti-assignment clause, suggesting an attempt to  hide this fact from the court. Such conduct cannot be countenanced.

Given the totality of Stone Street’s conduct in connection with the four petitions at issue in this appeal, we find sanctions under Supreme Court Rule 137 (eff. July 1, 2013) are appropriate. As the trial court abused its discretion in denying [the victim’s] motion for sanctions, we remand for further proceedings on her motion.

Not all of the fraud here can be blamed on the factoring company – Stone Street.  The victim’s mother had a hand in this as well. However, it is the duty of the petitioner – Stone Street to comply with the Illinois Structured Settlement Protection Act (215 ILCS 153/1 to 35 (West 2010)).

Fraud in the structured settlement secondary market is rampant. If you have a been a victim of fraud, please call us at (203) 504-8425 or (646) 933-3143.

 

Prudential Takes on W.R. Grace Pensions

In its 2018 10-K, Maryland based chemical conglomerate, W.R. Grace & Co. reported that it has purchased a group annuity contract from Prudential Life Insurance Co. of America, transferring $117.4 million in pension liabilities.  W.R. Grace recognized a $1.0 million gain on that transaction. Earlier in 2018, W.R. Grace’s U.S. pension plans paid $42.2 million in lump sum distributions to retirees not yet in pay status reducing its pension obligations by $43.5 million and resulted in a $1.3 million gain.  W.R. Grace’s defined benefit plan closed to new participants in 2017.  The company now sponsors a defined contribution plan for U.S. employees, currently contributing an amount equal to 100% of employee contributions, up to 6% of an individual employee’s salary or wages.

Sherwin Williams Pension De-risking Plans for 2019

In its recent SEC filing, paint giant Sherwin Williams disclosed that it had distributed lump sums to some of its pension plan participants in late 2018, and intended to continue its pension de-risking in 2019 via more lump-sum payments or the purchase of a group annuity contract.  At the end of 2017, Sherwin William’s three defined benefit plans were actually over-funded, with assets of $1.19 billion, with projected benefit obligations of $916.2 million.  After additional lump-sum payments in 2019 and the purchase of an annuity contract, Sherwin William’s plans to use the remaining cash to fund future contributions to a defined contribution pension plan that will replace its current defined benefit plans.  Unlike a defined benefit plan, a defined contribution plan does not promise or guarantee a specific amount of benefits at retirement.  A contribution plan invests either or both of the employer and employee contributions in a retirement account on the employee’s behalf, with the employee to receive the balance upon retirement.

NY – 2019 Proposed Pension De-Risking Legislation

New York Assemblyman Peter Abbate has sponsored 2019 legislation to protect retirees in pension de-risking transfers.  Assembly Bill A5818 – “AN ACT to amend the insurance law, in relation to providing protection to certain retirees from pension de-risking transactions; and to amend the civil practice law and rules, in relation to statutorily exempt payments” has been referred to the Insurance Committee.  This bill was introduced on February 19, 2019, and is the first step in gaining much needed protections for retirees impacted by pension de-risking transfers.

Pension de-risking through the purchase of a group annuity contract is a concern to retirees because retirees lose all of the uniform protections intended by Congress under ERISA and their rights become subject to non-uniform state laws. Enactment of legislation at the state level is needed to replace these protections.  NY’s proposed legislation, A5818, will provide those protections to New York retirees impacted by pension de-risking transfers.  This legislation will provide basic financial disclosures, protections of annuity benefits from creditors, and reasonable restrictions on subsequent transfers.

Pension de-risking protections have already been enacted in Connecticut and Virginia.  Read more about pension de-risking here and here.

The Impact of Deregulation on Pension De-Risking

Check out Edward Stone’s letter to the editor, appearing in the January 25, 2019 online edition of Crain’s New York Business, commenting upon the article “Trump deregulation binge puts state agencies on the spot”.  Following up on Crain’s assertion that the New Jersey Department of Banking and Insurance is over matched when it comes to overseeing “complex financial behemoths like Prudential” Edward Stone points out that: “we may not yet know what happens when an insurer the size of a Prudential or MetLife isn’t policed adequately, we know for sure that the seeds of the next financial meltdown are being sown with deliberate attempts to avoid transparency and accountability at the expense of retirees and their families.”

MetLife Settles with NY over Lost Retirees

On January 28, 2019, Superintendent of Financial Services for the State of New York, Maria Vullo, announced that the Department of Financial Services (DFS) had settled its dispute with MetLife over the insurers failure to make payments to thousands of retirees owed benefits under pension risk transfer annuity contracts that dated back to 1992.  Under the terms of the consent order, MetLife will pay a penalty of $19.75 Million and restitution in the form of retroactive benefits totaling more than $189 Million.  MetLife was cited for violations from 1992 – 2017 including: (1) improperly released reserves for 13,712 group annuity certificates; (2) failure to adequately search for group annuity certificate  holders;  (3) failure to perform a cross-check against the Social Security master death index; (4) failure to take reasonable efforts to confirm the death of an insured; (5) failure to research and timely commence outreach where variations of an insured’s information existed; (6) failure to ensure that disclosure statements were accurate and complaint with law; and (7) failure to present consumers with an accurate comparison of the fees between existing and proposed variable annuity contracts.  MetLife has been directed to take corrective measures and to retain a third-party servicer specializing in locating beneficiaries who are due pension benefits and have not been paid.  Edward Stone Law reported earlier on MetLife’s settlement with Massachusetts,

Weyerhauser Transfers Obligations for 28,500 Retirees to Athene

On January 23, 2019, Weyerhaeuser  announced that it had entered into an agreement with Athene Annuity and Life Company to purchase a group annuity contract that will transfer Weyerhaeuser’s pension benefit obligations for approximately 28,500 Weyerhaeuser retirees to Athene. This pension de-risking transfer will reduce Weyerhaeuser’s pension plan benefit obligations by approximately $1.5 billion.  In anticipation of this pension de-risking transfer, Weyerhaeuser contributed an additional $300 Million to its pension plan last year.  Click here for our earlier post on Weyerheauser’s pension de-risking plans.