In the wake of The Washington Post article by Terrence McCoy on the exploitation of lead-poisoning victims by the structured settlement factoring industry, Rep. Louise M. Slaughter (D-NY), Rep. Elijah E. Cummings (D-MD), and Rep. Chris Van Hollen (D-MD) have called for an investigation into the practices of the companies that buy lawsuit settlements at steep discount rates for one-time lump sum payments. In an interview with The Washington Post, Rep. Cummings said “[W]e need to look at the laws that are out there, both state and federal, and try to come up with some reforms to protect these folks.” Revisions to the current state structured settlement protection acts and Section 5891 of the Internal Revenue Code are no doubt in order. While judicial scrutiny of transfers seems to take place in some jurisdictions – certain courts in Texas, California and New York being known for their intense scrutiny of settlement transfer applications – other courts seem to turn a blind eye to the transfer applications, permitting the “sale” of payments without a court appearance by the seller, no disclosure of prior transactions, and without legal counsel or financial guidance. Surely that lack of scrutiny is not what was intended when Congress and 48 states enacted protective legislation with a “best interests” standard.
Sony Pictures released the trailer for Will Smith’s new film, “Concussion” on Monday, just days before the 2015 football season begins. “Concussion” stars Will Smith as Dr. Bennet Omalu, a Nigerian born neuropathologist credited with discovering chronic traumatic encephalopathy (CTE) in the brains of former NFL players. Among its shortcomings, the NFL concussion settlement currently being appealed does not provide any benefits for former NFL players who die from CTE in the future. Appeals in the NFL concussion settlement are scheduled to be heard this fall, just before “Concussion” opens in theaters on Christmas Day. The science behind the plot of “Concussion” is well explained in the amicus brief filed by the Brain Injury Association of America in the NFL concussion litigation.
In Lee v. Verizon Communs., Inc., 2015 U.S. App. LEXIS 14588 (5th Cir. Tex. Aug. 17, 2015), a case closely watched by defined benefit plan (DBP) sponsors, the insurance industry, and ProtectSeniors.org, a retiree advocacy group, a three judge panel rejected the plaintiffs’ challenges to Verizon’s decision to de-risk its pension obligations by removing over 41,000 retirees from the DBP and purchasing a group annuity contract to cover their pension payments. The 5th Circuit concluded that Verizon’s decision to amend its DBP to permit the annuity purchase was not a fiduciary decision and did not require that the annuity remain an asset of the DBP. Once Verizon had purchased the group annuity contract, the 41,000 retirees who were “lifted out” of the DBP no longer had any of the protections offered by ERISA or the Pension Benefit Guaranty Corporation (PBGC). While pension de-risking is advantageous to plan sponsors, it has serious risks to plan participants, retirees, and their families, some of which may not be felt for years to come. Will it take the collapse of another life insurer for folks to care?
A recent article in The Washington Post by Terrence McCoy “How companies make millions off lead-poisoned, poor blacks” highlights the problems plaguing the structured settlement factoring industry, where recipients of structured settlements are often urged to “sell” their payment streams in exchange for lump sums of cash at steep discount rates. Structured settlement protection acts which have been enacted by 48 states were designed to protect those seeking to sell their payments by providing court oversight and disclosures to sellers. All 48 statutes that have been enacted require that the sale be in the “best interests” of the seller, taking into account the needs of his/her dependents. Unfortunately, many of the structured settlement acts are not doing a good job of protecting anyone. According to the Washington Post, one company has had 160 petitions before the same judge in Prince George Circuit Court in Maryland, with the petitions approved 90% of the time. Eric Vaughn, executive director of the National Structured Settlements Trade Association (NSSTA) is quoted in the article as saying “And these companies are getting around the intents of the law….And when that happens, people get hammered.” After the article appeared in The Washington Post, Attorney General Brian E. Frosh (D) and Maryland legislators vowed to tighten restrictions on transfers. While “best interests” may be interpreted differently by different courts in different states, it clearly cannot mean “self-interest” of the factoring companies. When factoring companies prey upon seriously injured individuals and consummate multiple transactions over a short period of time, something is clearly wrong.
The NFL concussion settlement approved in April by U.S. District Court Judge Anita Brody has been appealed and the Third Circuit Court of Appeals is expected to hear these appeals sometime this fall. No payments will be made under the settlement until all appeals have been exhausted. The advocacy group, the Brain Injury Association of America filed an amicus brief supporting a reversal of the settlement asserting that the settlement “neither recognizes nor compensates the majority of players suffering long-term consequences of brain trauma, but merely rewards certain, small, discrete groups.”
In July 2015, the IRS announced new regulations (Notice 2015-49) limiting a company’s ability to de-risk its pension liabilities by making lump sum distributions to participants in pay status. While lump-sum payments may be a cost effective way of de-risking pension obligations, they may not be the best thing for retirees. Taking away the lump sum option from the defined benefits plan sponsor will likely result in more de-risking transfers via annuities.
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. Prior to the enactment of this ground-breaking legislation, annuity payments intended for retirement could be garnished by creditors in Connecticut. While the bill was pared down from that originally proposed to legislators, it is an important step in the right direction. 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. Public Act 15-167 takes effect on October 1, 2015.
Lawmakers in Connecticut have passed de-risking legislation that has been sent on to Governor Dannel Malloy for signature. Stone is quoted as saying “This bill is an important step in the right direction for retirees.” See “De-Risking Bill Sent to Connecticut Governor; N.Y. Measure Stalled in Insurance Committee”, by Sean Forbes. Reproduced with permission from BNA Pension & Benefits Reporter, 42 BPR 1008 (June 9, 2015). Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com.
On Wednesday, June 3rd, 2015 the Connecticut Senate unanimously voted to pass H.B. 6772, providing creditor protections to retirees in pension de-risking transactions. The bill will now be presented to Governor Malloy for signature. ProtectSeniors.org, a non-profit group advocating for retirees in Connecticut and across the nation led the charge in passing this legislation. As special counsel to ProtectSeniors.org, Edward Stone Law worked with this retiree group in advocating for the passage of this important legislation.
Edward Stone testified before the U.S. Department of Labor’s Advisory Council on Employee Welfare and Pension Benefit Plans (ERISA Advisory Council) on May 28, 2015. Stone testified on the need for disclosures to retirees both pre and post pension risk transfers. Recommended disclosures prior to pension risk transfer included:
- A detailed disclosure statement that contains information regarding the loss of federal ERISA protections, including Pension Benefit Guaranty Corporation (“PBGC”) protection and the applicable state laws that will govern their future annuity payments;
- The amount, scope and conditions precedent for state guaranty association coverage in the event of an insurance company insolvency;
- The extent to which annuity payments become subject to creditor claims or avoidance actions by bankruptcy trustees;
- Disclosure related to any changes that might result in the tax treatment of retiree benefits under an annuity contract;
- Lump sum options and conditions, if any;
- Detailed information on the group annuity contract structure, including a schedule of all costs and expenses paid in connection with the transaction;
- A copy of any fairness opinions or solvency analysis done in connection with the choice of annuity or other benefit provider.
Stone’s recommendation on post transfer disclosures to retirees included requiring all annuity providers, or subsequent benefit providers to provide impacted retirees with at least the following mandatory annual disclosures:
- Funding levels of all assets relative to expected liabilities under the assumed pension benefit schedules;
- Investment performance summary by asset class;
- Investment performance detail by asset class;
- Expenses associated with any group annuity contract; and
- Material changes in actuarial assumptions, if any.