Governor Dannel P. Malloy (D) signed into law Public Act 15-167 on July 2, 2015 providing creditor protections to retirees in pension de-risking transfers. Public Act 15-167 takes effect today. Prior to the enactment of this ground-breaking legislation, annuity payments intended for retirement could be garnished by creditors in Connecticut. Edward Stone Law, on behalf of ProtectSeniors.org, a nonprofit retiree advocacy organization, and legislative sponsor Rep. Robert Megna (D-97), Chair of the Connecticut State Insurance Real Estate Committee and co-sponsors Rep. Livvy R. Floren (R-149), Rep. Louis P. Esposito , Jr. (D-116) and Senator Henri Martin (R-31) worked to pass this legislation in record time.
Revisions to the Illinois Structured Settlement Protection Act, 5 ILCS 153/1 went into effect last month in the wake of Settlement Funding, LLC v. Brenston, 998 N.E. 2d 111 (Ill. App. Ct. 2013) where the Illinois Appellate Court held that the trial court erred in permitting a transfer where the settlement agreement contained an anti-assignment clause and the factoring company failed to disclose this to the court. Among the changes to the Illinois Structured Settlement Protection Act are provisions permitting an “interested party” to waive these assignment prohibitions. The revisions to the Illinois Structured Settlement Protection Act also include provisions designed to address “forum shopping” inside the state by requiring that transfer petitions be filed in the county where the payee lives.
Companies continue to de-risk their pension plans at a rapid pace. J.C. Penney Co., based in Plano, Texas offered 31,000 retirees a lump sum buyout offer which expires today. This offer follows an earlier lump sum buyout offer in 2012 that 25,000 retirees elected to take. While the I.R.S. restricted lump sum buyouts with new regulations issued in July of this year, J.C. Penney was permitted to move forward as they apparently met one of the exceptions provided for in I.R.S. Notice 2015-49. This may not be the last pension de-risking move for J.C. Penney Co., and the move may include the purchase of a group annuity contract. Joey Thomas, a spokesman for J.C. Penney is quoted in Pensions & Investments as saying “We monitor the annuitization market on an ongoing basis to evaluate if there are opportunities to further derisk the pension plan in a cost-efficient manner.” In August, E.W. Scripps Co. based in Cincinnati offered the option of a lump sum or immediate annuity to 4,300 retirees. Company funds were not used to make the lump sum distributions, and the Scripps defined benefit plan (DBP) funding ratio remains at 80%. We’ve said this before, but we will say it again – now that the I.R.S. has limited lump sum distributions to retirees we expect to see more pension risk transfers via the purchase of group annuity contracts. This makes pension de-risking legislation protecting retirees all the more important. Connecticut’s new law, Public Law 15-167, An Act Extending Creditor Protection to Amounts Payable to a Participant of or Beneficiary Under an Annuity Purchased to Fund Employee or Retiree Retirement Benefits, goes into effect on October 1, 2015.
The Washington Post reported that “Prince George County Circuit Court has implemented significant reforms” in its handling of structured settlement payment petitions filed pursuant to the Maryland Structured Settlement Protection Act. All sellers and their independent advisors must now appear at the hearings, and all petitions must be filed using the seller’s full name, rather than initials. Judge Herman C. Dawson who previously presided over the transfer petition hearings will no longer do so. Unfortunately, as this latest article on the structured settlement industry by Terrence McCoy points out, loopholes in the Maryland Structured Settlement Protection Act “benefit the companies” purchasing these structured settlement payments. More judicial reforms such as those being implemented in Prince George County would go a long way in protecting the recipients of structured settlements.
Council members Mary M. Cheh (D-Ward 3), Charles Allen (D-Ward 6), Anita Bonds (D-At Large), David Grosso (I-At Large) and Brandon T. Todd (D-Ward 4) introduced a structured settlement protection act to protect District of Columbia residents seeking to sell their structured settlement payment streams. While we agree with the op-ed in The Washington Post on September 11, 2015 by legal aid attorneys Heather Latino and Thomas Papson that the proposed legislation is a “huge step toward ensuring that District residents with structured settlements from personal injury cases are not victimized a second time by a company seeking to purchase their settlement payments” structured settlement protection acts need to ensure that they work to protect the recipients of structured settlements, not the companies purchasing the structured settlement payment streams. This proposed legislation does not do enough.
As the last of the Executive Life cases seem to be winding their way through the court system, the U.S. government escaped liability in Nutt et al v. United States, No. 14-CV-282, 2015 WL 3525191 (Fed. Cl. June 4, 2015) for a contract it purchased in settlement of a wrongful death claim in 1983, where a man was killed by an intoxicated Army employee driving an Army vehicle. Distinguishing what appeared to be strong precedent for holding the U.S. liable for its obligations under the annuity contract it purchased from Executive Life, the U.S. Federal Court of Claims found that the Massie case did not apply as that case involved the Military Claims Act, 10 U.S.C. Section 2731, et seq. rather than the Federal Claims Tort Act. Judge Braden also emphasized that the terms of the settlement language did not evidence the government’s intention to guarantee the annuity payments.
Plaintiffs’ have filed a petition for re-hearing with the 5th Circuit in Lee v. Verizon Communs., Inc., 2015 U.S. App. LEXIS 14588 (5th Cir. Tex. Aug. 17, 2015), asking that the court re-visit its decision and preserving their right to appeal. Hopefully the 5th Circuit will realize that the risks associated with kicking retirees to the curb are just as important as managing pension volatility.
The Wall Street Journal’s CFO Journal reported in “Tax Policies Spur Companies to Offer Pension Buy-outs” that in the wake of the IRS’s recent decision to continue using its current mortality tables and new regulations limiting lump-sum buyouts, Newell Rubbermaid and E.W. Scripps will offer lump-sum buyouts to thousands of former employees, with E.W. Scripps also offering an annuity option. Like many companies, E.W. Scripps froze their defined benefit plan several years ago, but will carry liabilities on its books as members retire and receive pension benefits. Lump-sum distributions are not always the best option for retirees – many would do better with a guaranteed stream of income for life.
The most recent company to jump on the pension de-risking bandwagon is Lincoln Electric Company who announced that it was de-risking over $900 million in pension obligations to 1900 retirees by transferring its pension obligations to The Principal Financial Group by purchasing a group annuity contract to cover those pension obligations. While pension de-risking offers advantages to plan sponsors, de-risking comes at a cost to retirees, who lose ERISA and PBGC protections. Hopefully, the state of Ohio will follow Connecticut’s lead and pass legislation at the state level to protect retirees and their families from risks associated with pension de-risking.
National media coverage of the practices of the structured settlement factoring industry has continued, with MSNBC airing a lengthy segment by reporter Melissa Harris-Perry on August 30, 2015. The segment included a discussion with reporter Terrence McCoy of The Washington Post, Judith Browne Dianis, noted civil rights attorney and Co-Director of the Advancement Project, E.J. Dionne, political commentator with The Washington Post, and William Jawando, Democratic candidate for election to Maryland’s 8th Congressional District. The exploitation of structured settlement recipients by the factoring industry has gone unchecked for years with the structured settlement protection acts doing little to protect the settlement recipients. Tougher legislation and redress for those who have been victimized is in order.