1 / 36

Industry Update

John M, Dave K, Timothy O share industry updates

epsmarketing
Download Presentation

Industry Update

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. EPS Settlements Group/ Drinker Biddle & Reath LLP Industry Update2013 Annual ConferenceJune 28, 2013 JOHN McCULLOCH TIMOTHY O’DRISCOLL DAVE KORCH

  2. Agenda • Solvency/Guaranty Fund Update (Tim) • Factoring Update (Tim) • Structured Settlements • Pensions • Tax Update (John) • Government Benefits (Dave and John) • Exemptions and Bankruptcies (John and Tim)

  3. Insurer Insolvencies ELNY Overview of liquidation proceedings Relevant appeals exhausted; closing anticipated to occur on August 8, 2013, and shortfall payments will begin Reliance Liquidator’s application to transfer annuity ownership Application overview Application currently in abeyance

  4. Guaranty Association Funds – Legislative Developments • AL – HB 403: effective as of 1/1/2013; adopts payee coverage and increases limit to $250,000 in present value annuity benefits; does not adopt full SS subrogation provisions of Model Act. • AZ – HB 2546: sent to the Governor on 6/13/2013; would amend the Act to provide for payee coverage and increase limit to $250,000; would not adopt full SS subrogation provisions of the Model Act. • CO – SB 32: signed by the Governor and effective as of 3/15/2013; repeals existing Model Act SS subrogation provisions. • IN – HB 1321: signed by the Governor on 5/11/2013 and effective as of 7/1/2013; increases limit to $250,000. • MA – HB 3345: not yet passed; would increase limit to $500,000. • MD – Chapter 634: effective as of 10/1/12; explicitly states limit as $250,000 for payees under SS annuities (previous version applied $250,000 limit to “annuity benefits,” but did not explicitly include SS annuities).

  5. Guaranty Association Funds – Legislative Developments • MO – HB 53: passed by the House on April 2, 2013 but not yet by the Senate; would amend the Act to increase the limit to $250,000. • NE – LB 887: effective as of 7/19/2012; increases limit to $250,000. • NV – AB 435: approved by the Governor on 6/11/2013 and effective as of 10/1/2013; increases limit to $250,000. • NY – Bill S06507A: signed by Governor and effective as of 7/18/2012; raises aggregate coverage cap to $558M from $500M. • SD – HB 1102: signed by the Governor on 3/12/2013, and effective as of 7/1/2013; repeals the existing Model Act SS subrogation provisions.

  6. The Rise of Factoring Transaction Volume

  7. Factoring (State of the Industry): Volume Factoring has grown approximately 1,000% since the enactment of IRC 5891 Volume estimates range from 10,000 to 15,000 transactions per year Volume decreased beginning in 2008 as a result of the economy, but has increased to near-record highs Effective interest rates remain high Judicial knowledge and awareness is increasing and improving, but slowly Abuses remain

  8. Factoring SSPA Rulings • In re: Jessica A. Freeman f/k/a Jessica Ann Jones, No. 2013-CA-381 (Fla. Cir. Ct., May 31, 2013) • In the Matter of the Petition of Novation Funding, LLC (Joseph Griffin), No. 504302/12, 2013 N.Y. Slip. OP. 50511U (N.Y. Sup. Ct. Apr. 8, 2013) • In the Matter of Seneca One (Ilma Ramos), No. 14315/12, 2012 NY Slip. Op. 50270U, 2013 WL 657888 (N.Y. Sup. Ct. Feb. 21, 2013) • In the Matter of RSL Funding, LLC, 2012 CV01002671 (Bos. Mun. Ct., Jan. 31, 2013) • In the Matter of the Petition of Fortress Funding, LLC of New York (Dorothy Knox), No. 20674/12E, 2012 NY Slip. Op. 50112U (N.Y. Sup. Ct. Jan. 22, 2013) • In the Matter of the Petition of Settlement Funding, LLC of New York (Christlyne Point du Jour), No. 14452/2010, 2012 NY Slip. Op. 52359U, 2012 WL 6700896 (N.Y. Sup. Ct. Dec. 21, 2012)

  9. Factoring SSPA Rulings • In re: Stone Street Capital, LLC, No. 12182, 2012 Mass. Super. LEXIS 347, 2012 WL 6765573 (Ma. Sup. Ct. Dec. 27, 2012) • Matter of Washington Square v. Mejia, 2012 N.Y. Misc. LEXIS 5712, 2012 NY Slip Op 52329U, 2012 WL 6698348 (N.Y. Sup. Ct., Nov. 26, 2012) • Fortress Funding NY, LLC v. Hawkins-Lee, No. 500851/12, 2012 WL 6969525 (N.Y. Sup. Ct. Dec. 20, 2012) • Matter of Peachtree v. Ramirez, 2012 N.Y. Misc. LEXIS 5717, 2012 NY Slip Op 52330U, 2012 WL 6632697 (N.Y. Sup. Ct., Nov. 21, 2012)

  10. FactoringExpansion into Workers’ Comp • Liberty Assignment Corp. v. Bluegrass Capital Group, No. 2011-CA-000852-MR, 2013 Ky. App. Unpub. LEXIS 268 (Ky. Ct. App. Apr 5. 2013) (reversing circuit court’s approval of transfer petition involving workers’ compensation payments based upon anti-assignment language contained in qualified assignment “without proof that it was intended to benefit [Liberty] or that [Liberty] has a legitimate interest in avoiding an assignment”)

  11. FactoringExpansion into Workers’ Comp • In re: Approval for Transfer of Structured Settlement Proceeds by Derrick Robotham, No. 2012-CA-1494, 2013 WL 127134 (Fla. Cir. Ct. Jan. 7, 2013) (denying petition for court approval of a transfer of structured settlement payment rights where the transfer would violate the prohibition on the assignment of workers’ compensation payments under the Longshore Act and the Florida Structured Settlement Protection Act) • In re: Rudy Andrade, No. B5139876 (Superior Court, Los Angeles County) Transfer of workers’ compensation payments denied

  12. Pension Factoring • The Story in Headlines: • “Investing in a Stranger’s Retirement” – Wall Street Journal, November 8, 2011 • “Sale of Pension Income Targeted by Senator” – Wall Street Journal, November 21, 2011 • “Loans Borrowed Against Pensions Squeeze Retirees” – New York Times, April 27, 2013 • “New York State Investigating Pension-Advance Firms” – New York Times Deal Book, May 7, 2013 • “Pension or Settlement Income Streams” – SEC Investor Bulletin (SEC Pub. No. 143), May 9, 2013

  13. Pension Factoring: Where Do We See It?Military Pensions

  14. Pension Factoring: Where Do We See It?Civil Pensions

  15. Pension Factoring: Where Do We See It?Corporate Pensions

  16. Pension Factoring: Federal Anti-Assignment Statutes (Military) • Federal law prohibits members of the military from “assigning” their pension payments to other parties • 38 USC § 5301: Nonassignability and exempt status of benefits • (a)(1): “Payments of benefits due or to become due under any law administered by the Secretary shall not be assignable except to the extent specifically authorized by law ….” (Emphasis added). • 37 USC § 701(c): “An enlisted member of the Army, Navy, Air Force, or Marine Corps may not assign his pay, and if he does so, the assignment is void.” (Emphasis added). • A military pension is considered deferred “pay” for past services. Barker v. Kansas, 503 U.S. 594 (1992).

  17. Pension Factoring: The Lawsuits(upholding anti-assignment provisions) • In re: Price, 2004 Bankr. LEXIS 1210 (E.D. Ark. 2004) • Explained that “a sale of Price’s future pension rights is specifically prohibited by federal law.” • In re: Bowden, 2004 Bankr. LEXIS 1293 (W.D. Wash. 2004) • Court found that SICO’s claim was time-barred, and that even if it were not, the debtor “had no then-existing interest in his future retirement pay or veterans’ benefits” and that “an effectual declaration of trust would transfer legal title from Bowden as individual to Bowden as trustee, and transfer an equitable interest to SICO, contrary to 37 U.S.C. s. 701(c) and 38 U.S.C. s. 5301(a)(1).” • In re: Webb, 2007 Bankr. LEXIS 3463 (W.D. Okla. 2007) • “Based upon the plain language of s. 701(c) [military anti-assignment provision], the Court holds that the contract is unenforceable . . . .” • Henry v. SICO, Case No. 05CC00167 (Cal. Sup. Ct. 2011) • Finding that “because the Agreements violate federal law, they are unlawful” and that “because the defendant SICO used the unlawful Agreements to obtain the class members’ government benefits which the law meant to protect, . . . the defendant’s program constitutes a sharp practice and is unfair . . . .” • In re: Dunlap, 2011 Bankr. LEXIS (E.D. Va. 2011) • Holding that “the instant Agreement’s attempt to transfer rights in Mr. Dunlap’s Pension Payments when those payments were not yet due and payable was in contravention of 37 U.S.C. s. 701(a) because, at the time the Agreement was entered into, Mr. Dunlap had no rights in his future Pension Payments to convey to SICO.”

  18. Pension Factoring: The Lawsuits(not upholding anti-assignment provisions) • At least two courts have declined to uphold the anti-assignment provisions at issue under similar facts. • In re: Weber, 2009 Bankr. LEXIS 4458 (D. Neb. 2009) • In re: Pierson, 2011 Bankr. LEXIS 1291 (N.D. Ohio 2011)

  19. Pension Factoring: The Lawsuits(other important cases) • “Investor Lawsuits” • Haferbecker v. Voyager Fin. Group, Case No. 13-1888 (Wis. Cir. Ct. (Dane County) June 7, 2013) • Investors (husband and wife) sued Voyager and their financial advisor for violation of the Wisconsin Securities Laws, fraud, negligent misrepresentation and unfair trade practices related to the solicitation of the plaintiffs to invest in two pension factoring transactions in which the pensioner allegedly diverted the payment streams back to themselves, allegedly depriving the plaintiffs of the benefit of their investment. • Vicari v. Voyager Fin. Group, LLC, 13-cv-00671 (C.D. Cal. 2013) • Class action complaint against broker who matched pensioners and investors. Complaint asserts causes of action by investors based on violation of Section 10(b) of the Exchange Act and Rule 10b-5. • Snowden v. Voyager Fin. Group, LLC, Case No. 1212-15772 (Or. Cir. Ct. Dec 10, 2012) • Former governor of Oregon and his wife sued Voyager for violation of the Oregon Securities Laws and for fraud related to their involvement in a pension factoring transaction which Voyager allegedly refused to unwind. • Tisdale v. VFG, LLC, Case No. 12-CV-166 (S.D. Miss. 2012) • Involves allegations that Voyager “failed to make certain disclosures concerning the investment, including the risk of default, the risk that [pensioner] would redirect his retirement payments, the illegality of assigning military retirement pensions, and the risk that [pensioner]’s obligations to her could be discharged or reduced through bankruptcy.”

  20. Pension Factoring: Federal Anti-Assignment Statutes (Corporate) • 29 U.S.C. § 1056(d)(1) – “Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.” • Internal Revenue Code § 401(a)(13) – “A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that benefits provided under the plan may not be assigned or alienated.” • Plus, anti-assignment language in plan/annuity documents.

  21. Pension Factoring: Parallels to Structured Settlement Factoring • In the early days of structured settlement factoring, because the transactions were prohibited by the anti-assignment language of the underlying settlement documents, factoring companies utilized subterfuge. For example: • No notice was provided to the insurance carrier; • Affirmative steps were taken to conceal the existence of the transaction; • Commonly involved change of address to a post office box controlled by factoring company or direct deposit request to a bank account controlled by factoring company; • Factoring company used rubber stamped signature block to cash checks sent to post office box.

  22. Pension Factoring: Parallels to Structured Settlement Factoring • Contravention of anti-assignment language • Resulting risks to favorable tax treatment • Double payment risks • Risk of litigation between payee and factoring company • Administrative burdens • Jeopardized product integrity • Potential for regulatory scrutiny • Same faces

  23. Pension Factoring: Regulatory Scrutiny • Recent Agency Investigations & Enforcement • Federal Agencies • SEC/FINRA Bulletin • Consumer Financial Protection Bureau • Senate HELP Committee • State Regulator Involvement • Massachusetts Secretary of the Commonwealth, Securities Division Investigation – May 13, 2013 • New York Department of Financial Services Investigation – May 7, 2013

  24. Also addressed in May 2013 SEC/FINRA bulletin. Brokers (both in and outside the industry) have been offering factored structured settlements to compete with traditional structured settlements. Same life companies, but with higher payouts/interest rates, but taxable gain. Investor Issues/Concerns: Investor’s reliance on solvency of factoring company Payment streams unlikely to be customized Once factored, any previously applicable GA coverage might not extend to the investor Transfer might be invalid due to previous transfer of the same payments Payments may be an illiquid asset Part of each payment will be taxable to the investor Original payee likely unaware of amount paid by investor for payments Overall effect on the industry Selling Structured SettlementsThat Have Already Been Factored

  25. Tax Update • PLR 201311006, (released Mar. 15, 2013) continued the trend of generally favorable section 104(a)(2) rulings. • The PLR concluded that damages payable to a nonresident alien pursuant to104(a)(2) are not subject to a 30% withholding tax under IRC section 1441, or tax reporting obligation under section 6041). • “Each Victim either (i) suffered a cut, scrape, bruise, or other visible physical injury…(ii) was a close relative (spouse, parent, child, or sibling) of the person who was killed… or (iii) was the estate of a person who was killed in the Incident.” • Note the factual representations closely follow the “bruise ruling” (PLR 20041022). • CCA 201248019, November 30, 2012. Unwanted medical procedure is tax exempt under Section 104(a)(2).

  26. Tax Update • Bradison v. Comm’r, 825 N.W. 2d 747 (Minn. Sup. Ct. Feb. 6, 2013) • Affirming determinations that (i) value of future structured settlement annuity benefits was properly included in the estate of a deceased minor payee and subject to Minnesota estate tax, and (ii) payee’s domicile was that of her custodial parent, not the State that retained jurisdiction over the payee’s guardianship. • Blackwood v. Comm'r, Docket No. 23530-10, T.C. Memo 2012-190 (T.C. July 11, 2012) • Settlement was not excludable under 104(a)(2) because depression and physical symptoms did not qualify.  Court also upheld 20% penalty.

  27. Tax Update • Ahmed v. Commissioner, No. 12-11337 (11th Cir. Nov. 21, 2012) • Affirmed the Tax Court’s conclusion that settlement funds were taxable and not excludable under 104(a)(2) where the only reference to personal injuries was in boilerplate, the settlement agreement did not allocate any portion of the payment to compensate for personal injuries, and settlement was also considered a partial severance package. • Lesson: Carefully craft the settlement language. The court relied heavily on the fact that “… no portion of the $150,000 payment was specifically designated as compensation for a physical injury or sickness.” PLR 201322035, May 31, 2013.  Determination on whether ELNY annuities retained their Section 130 status upon assumption.

  28. Government Benefits • Taylor v. Gen. Elec. Co. (In re Asbestos Prods. Liab. Litig.), 2013 U.S. Dist. LEXIS 76346 (E.D. Pa. May 8, 2013). Loss of consortium is reportable under SCHIP. • Wos v. E.M.A., No. 12-98, 2013 WL 1131709 (U.S. Sup. Ct. March 20, 2013) The court affirmed a 4thCircuit ruling finding that the federal Medicaid anti-lien statute pre-empts North Carolina’s statute presuming that one third of any tort recovery is attributable to medical expenses.

  29. Government Benefits • First Capital v. Elliot, No. 4194-VCG, 2012 WL 4471244.  • State Medicaid could only recover from the SNT those Medicaid expenditures made after the creation of the SNT and not all Medicaid expenditures made during the beneficiary’s lifetime. • Duhamell v. Renal Care Group East, Inc., Docket No. L-871-09/Docket No. L-1138-09, Superior Court of New Jersey, Law Division, Atlantic County, 2012 N.J. Super. LEXIS 2012.  • First decision in NJ approving Liability MSA.  • Parties were able to arrive at a settlement in September 2012, but were unable to consummate the settlement because the settlement “contemplated a determination by the Department of Health and Human Services, Center for Medicare and Medical Services” and CMS refused to review the LMSA.   • Given that it had no reason or basis to question the LMSAs presented, the court found that the proposed set-aside amount in each case “fairly took Medicare’s interests into account in that the figures are both reasonable and reliable” and was therefore “satisfied that Medicare’s interests have been adequately protected pursuant to the MSP.”

  30. Strengthening Medicare and Repaying Taxpayers Act • Sec. 201 – Contingent Payment prior to settlement • Allows the parties to obtain the conditional payment number prior to settlement, if all time frames and conditions are met. • .Beneficiaries, or their representatives, will be able to query a secure Web site and receive an estimate of Medicare’s conditional payments. • Appeal process – It also requires Medicare to provide a timely appeals process if the settling parties believe there is a discrepancy in the conditional payment statement. (Does not include MSA) • Sec. 202 –Reporting Threshold for Contingent Payments • actuarial single threshold amount be set for exemption • only apply to matters without ongoing responsibility for medical • Sec. 203 –Penalty Modifications on Mandatory Insurance Reporting • Discretion was given to the Secretary with respect to the $1,000 per day per claim penalty established under Section 111. Sec. 204 – • Use of SSN or HICN Prohibited on Mandatory Insurance Reporting • optional the use of beneficiaries’ Social Security Numbers or Health Insurance Claim Numbers. • Sec. 205 – 3 Year Statute of Limitations on Liens • Medicare is limited to a 3 year statute of limitations on conditional payment lines.

  31. Government Benefits • Medicare Secondary Payer and Workers’ Compensation Settlement Agreements Act of 2013.  • On May 15, 2013, Congressmen Reichert and Thompson introduced H.R. 1982 into the House of Representatives.  This is the third version of the old UWC/AIA bill.  • Includes the detrimental "write a check to Medicare" provision in lieu of a MSA.  • Is this legal? Can the government force you to prepay years or decades in advance? • Guadalupe Caldera v. The Insurance Company of the State of Pennsylvania, No. 12-40192, United States Court of Appeals for the Fifth Circuit, 2013 U.S. App. LEXIS 9706, May 14, 2013.  • As medical benefits were not payable under Texas state workers' compensation law, the carrier is not obligated to repay Medicare as absent a valid claim, the carrier is not the primary payer over Medicare.

  32. Government Benefits • Clifford Sterrett et al. v. Thomas T. Klebart et al.LLICV126007442S • SUPERIOR COURT OF CONNECTICUT, JUDICIAL DISTRICT OF LITCHFIELD AT LITCHFIELD2013 Conn. Super. LEXIS 245 • The parties settled for $550,000 at mediation, agreeing that the payment to plaintiff does not address any future medical expenses that may be covered by Medicare and that the defendants lack liability for any such expenses.  A Connecticut court telling us that it agrees with the parties in that an MSA is not needed in a $550,000 settlement because none of the $550,000 represents compensation for future medical costs.  The Connecticut court held that a LMSA is not needed in a $550,000 settlement because none of the $550,000 represents compensation for future medical costs. • Welch v. American Home Assurance, Civil Action no: 3:11-cv-668-FKB, United States District Court for the Southern District of Mississippi, Jackson Division, 2013 U.S. Dist. LEXIS 25948, February 26, 2013.   • Mississippi federal court approved a LMSA, since CMS provides no procedure for determining the adequacy of protecting Medicare’s interests for future medical and considering the strong public policy interest in resolving lawsuits through settlements.

  33. Early v. Carnival Corporation, Case No. 1220478CIVGOODMAN, United States District Court for the Southern District of Florida, Miami Division, 2013 U.S. Dist. LEXIS 16711 • The parties settled at mediation subject to court retaining jurisdiction to enforce terms and determine the issue of Medicare set aside. • Parties asked court to determine the need for MSA as they could not agree if the MSA was legally required. • Court analyzed that several federal courts have determined whether a settlement requires MSA and in some cases determined the amount. • The court refused to approve the settlement as it determined that no settlement had been reached as the parties did not agree as to Medicare issue and returned the case to the dockets.

  34. Exemptions and Bankruptcy • In Re: Scholz, No. 11-60023, 699 F.3d 1167 (9th Cir. 2012) Annuity payments due under Railroad Retirement Act must be considered in projecting payee’s net disposable income and that, contrary to payee’s argument, including payments in calculation of net disposable income did not constitute a prohibited “assignment.” • In Re: Lyn, No. 10-13214, 2012 WL 5553692, 483 BR 440 (Bankr. D. Del. Nov. 14, 2012) The courtdismissed the claim by the creditor seeking to reform loan document with debtors’ company and assign to creditor annuity owned by individual debtors where creditor misjoined individual debtors and failed to join bankruptcy trustee as indispensable party.

  35. Exemptions and Bankruptcy • In Re: Baldwin, No. 12-40060, 2012 Bankr. LEXIS 5376, 2012 WL 5513347 (Bankr. D. Idaho Nov. 13, 2012) The court held that while structured settlement annuity benefits within statutory minimum were exempt under Idaho law, debtor had not demonstrated that she qualified for an exemption in excess of the minimum. • Sterrett v. Klebart, 2013 Conn. Super. LEXIS 245 (February 5, 2013) The court found that the settlement parties were not required to set aside any settlement proceeds for future medical benefits, despite the fact that the injured party became a paraplegic as a result of the alleged injury in this liability lawsuit.

  36. THE END

More Related