Unless you are an active member of the structured settlement trade association, NSSTA, one of the impacted ELNY annuity owners or an insurance industry geek, there is an excellent chance you have no clue that there is about to be the first significant shortfall in promised payments to structured settlement beneficiaries since our industry was established in the late 1970's. Our profession will be quick to point out that it only impacts 15% of the total policyholders of ELNY, but it is significant none the less and even one policyholder being impacted is one too many.

The total lack of coverage of this by the main stream financial press is amazing to say the least, as the insurance and financial industry has closed ranks with some very nervous politicians from New York State to do their best Leslie Neilsen "Naked Gun" imitation by claiming there is "nothing to see here" as the fireworks factory explodes behind him. Nothing to see here...the ELNY rehab is fait accompli..

A couple of the industry insiders who have reported on this and done a good job laying out the mess of the last 21 years and the "plan" to liquidate the remaining assets, are listed below:

Patrick Hindert and his coverage of the hearings on the S2KM Blog

Insurance Advocate Magazine and their details analysis of the cause, impact and results of the ELNY failure authored by NY Attorney Peter Bickford.

Court House News coverage and hearing summary of March 22, 2012.

Additionally NSSTA has provided an information page for those who are facing a shortfall in payments to apply for assistance from the $100 million hardship fund established by the insurance industry.

However, beyond that it is slim pickings to find any meaningful in depth reporting on this issue and it is hard not to draw the conclusion that is exactly the way the structured settlement profession wants it. Lets face it, the fact that even a small number of annuity beneficiaries are going to be facing a substantial cut in benefits is not exactly a big flag we want to wave in front of past or future clients. One of our profession's proudest claims has been that no structured settlement beneficiary has ever not gotten 100% of their promised payments. This no longer is true and that is going to be an albatross around our necks for some time going forward. 

Yet what I find amazing in all of this is if you go to an industry meeting, either the SSP or NSSTA and ask brokers if THEY ever sold an ELNY contract, it's sort of like getting people to admit they voted for Nixon in 1974 after he resigned due to Watergate. No one claims they supported him, yet Nixon won 49 states and was elected in a landslide. Similarly BILLIONS of ELNY premium was written in the late 1980's and early 1990's, and thousands of annuitants are at risk of losing benefits, yet brokers are strangely silent on their role in this fiasco, as if it was someone else, way over there, who pour billions in premium into a highly risky company to fund long term life time payments and huge balloon payments at future dates, which are now coming due and can't be honored. 

As I thankfully never sold an Executive Life of NY annuity, or Executive Life of California, I have been spared the trauma of having to deal with any of my personal clients experiencing a payment shortfall. ( In fact I have old letters begging clients to not use these firms as it was clear the junk bonds supporting these annuities were built on sand.) Still, I wonder what other brokers who clearly sold a LOT of these contracts are doing to work with or service those clients who are dealing with this mess. Are they contacting them to discuss and explain options, or are they hiding in their storm bunkers hoping this all blows over and that the "industry" solves the issue and it simply goes away? I suspect the names of those facing shortfall's, who are primarily those who executed qualified assignments, are public record now and are the big settlement firms going back and cross checking to see if they can get their clients to be first in line for the hardship dollars? I would certainly hope so, but I doubt that is the case.

I wonder about a lot when it comes to ELNY, but the biggest question I have, which is only going to be answered going forward, is what kind of stain is this going to put on our profession and our foundational product, the structured settlement annuity? Obviously a huge number of safe guards and regulatory changes have been put in place since 1992, all for the protection of consumers and policy holders, and it has made the structured settlement annuity probably the single most secure insurance product available. That's all great and I share that data with clients every day.

However, to cover up or to try and minimize the impact to the ELNY beneficiaries, or to pretend this is just a tiny sliver of all annuity holders is irresponsible on the part of our profession in my opinion, and I hope that a brighter light is shown on the entire 21 year ELNY rehab process. What ever plan is approved by the Judge in NY State on the liquidation, and there are clearly no good choices at this point, that we as a profession get a full and transparent post mortem on the obvious mismanagement of the fund, so that we as advisors and stakeholders never have to repeat this process or subject any other annuitant to the fear and confusion many are facing today as this "rehab" crawls to it's painful conclusion. 

Learn more about the author of this page, Mark Wahlstrom by visiting Wahlstrom & Associates web page.

In this weeks “ Speaking of Settlements “ video broadcast, Mark Wahlstrom looks at the recent case of annuity agent Glen Neasham, a 52 year old annuity agent in California, who was recently convicted of felony theft charge and sentenced to 90 days in jail for selling a $175,000 annuity to an 83 year old woman who prosecutors alleged exhibited signs of dementia at the time of the sale. He was prosecuted under what are broadly referred to as “Elder Abuse” statutes that cover not only physical or nursing home abuse, but increasingly exploitation of seniors in the decision process of handling investments, savings and financial planning. 

The article, written by WSJ staff reporter Leslie Scism, does an excellent job of covering the facts of the case and looking at the issues involved. You can read the full article by clicking here.

However, in this weeks broadcast Mark Wahlstrom elaborates on how this might impact structured settlement planners, annuity agents and others who deal with anyone over the age of 65. A great number of laws have been passed that REQUIRE banks and other’s to report suspected elder abuse or inappropriate influence in the planning or sales prospect, as happened in this case, making the likelihood of other such cases being pressed in other states quite high.

Some of the issues at stake here for structured settlement planners going forward are:

• If state laws now indicate that any person doing planning over the age of 65 is considered elderly and is thus covered under these statutes, do planners and agents need to take particular care in dealing with anyone 65 or older if recommending a structured settlement annuity?
• If the compensation for annuity sales in the form of a commission is going to be used to establish “criminal intent” as was the case in the Neasham prosecution, are there additional disclosures necessary on how an agent is compensated when dealing with any impaired claimant or senior?
• How might this decision impact the structured settlement factoring business? If the high cost of “getting out of the product” is used as evidence of harming the clients, as it was in this case, what does this say about factoring company advertising and inducements to “ get your cash now” when it causes demonstrated financial loss to claimants in many cases to proceed down that path?

We anticipate there will be a great deal of follow up on this case and others like it around the country and we will continue to follow it and comment on how it might impact structured settlement sales and consulting moving forward.

In this weeks edition of Speaking of Settlements we look at one of the more innovative programs in the non-qualified market and that is the structuring of oil and gas lease bonus payments through the use of a structured settlement annuity device.

As many people in the structured settlement profession know, Allstate Financial has been a consistent innovator in the area of structured taxable damage awards, as well as structuring the sales of appreciated real estate through their structured sales program. They continue their progressive ways with the announced ability to now structure oil and gas lease bonus payments, allowing people who are leasing their land for oil and gas drilling to defer bonus payments into future years tax returns.

Oil and Gas lease bonus payments, how to structure them for tax savings

The reason this is so important and valuable is that the bonus payment is on top of the annual or quarterly lease payments and is typically a one time bonus up front. By being able to move those dollars into future years, you are able to spread the tax hit over time, earn interest on the funds while deferring, guarantee payments on a fixed schedule and ideally receive them when you are in a lower tax bracket or have other off setting deductions. Of course, on top of the tax benefits, many people just find the idea of being able to secure future payments with the bonus funds to simply be prudent financial planning and want to take advantage of that option now.

To learn more about the Allstate Financial Oil and Gas leasing bonus program, you can go to my firms website at www.wahlstromandassociates.com.

The use of the structured sale has been on the back burner for several years now, largely as a result of the collapse of the real estate market and financing options for both buyers and sellers. It was a product originally conceived and used successfully for several years when people who own highly appreciated, low cost basis real estate, want to cash out and sell, but don’t want to write huge tax checks to the state and federal government on the capital gain. While we can all agree it makes a lot more sense to use 100% of your net sale proceeds and spread the money out over years, many people are still wondering what a structured sale is, and why it makes sense for those selling farm property.

In almost every case that has been referred to my office over the last year in which farm land is being sold or is under consideration for sale, it is a family owned farm that has almost no cost basis and close to 100% of the sale is going to be subject to capital gains tax. While the tax is a big issue, what is a larger problem is that with the sale of the farm, most farmers or their families are also losing their source of annual income, something they need to sustain through the investment income on the sale proceeds.

The structured sale allows them to design guaranteed payments, on a schedule that makes sense for their situation, paid monthly, annually and for years if not decades into the future. Combined with spreading out the tax hit, putting 100% of the net proceeds to work and creating a guaranteed cash flow and payment stream that provides income to the family, you can see why this is becoming increasingly popular during these uncertain market conditions.

If you want to learn more about structured sales and it’s use when selling farm property, contact my office through our web site at www.wahlstromandassociates.com and we will be happy to assist you.

New York Life was dropped to a AA+

Northwestern Mutual Life Insurance was dropped to a AA+

USAA was dropped to a AA+.

Knights of Columbus was dropped to a AA+.

Teachers Insurance and Annuity. TIAA, was dropped to a AA+.

So what exactly does this mean and what are the implications for the life insurance industry and structured settlements in general? I address some of the concerns in this weeks video broadcast of Speaking of Settlements but in short the impact should be minimal other than to the pride of the companies listed above.

It is a sickening process in that each of those five firms went to great lengths over the last three years to do the things needed to retain a coveted AAA rating and in some cases make it a key element of their marketing campaigns, only to suffer this immediate down grade as a result of the fact that they hold a large portion of US government obligations precisely because they are so conservative and careful.

As I have been saying for years, our industry uses these ratings at our peril as the rating firms really could care less about the impact of their down grades on companies marketing and reputations and the idea of using S&P as a rating agency for life markets has been a bad idea for decades. I have always preferred AM Best as the best source of information on insurance company standards and solvency and they are not as reactive as the other firms.

Enjoy today’s video on the S&P down grade and it’s impact on the insurance and structured settlement profession, but it would be wise to stop using rating agency rankings as some sort of validation of safety and instead do your own research on markets and firm to match the right company to the right risk.

While seemingly obscure to those who do not have land upon which they lease oil or gas rights to drilling or production companies, this market has substantial potential given the wide number of privately held or closely held businesses, as well as individuals, who might be interested in spreading the bonus payments they get in some years over a several year period. The fact is in an era of rising oil and gas prices, these lease bonus payments can be substantial and many owners of the leases would prefer to spread those big bonus years where oil and gas prices spike, over several years if possible, or even defer it far into the future when the oil or gas lease might be played out or sold. This is going to be a really solid planning tool in this niche market.

This particular product has one key feature in that there is a revenue ruling, RR 68-606, which specifically addresses the tax treatment of this technique, something that has inhibited the use of structured sales and income deferral strategies in the areas such as celebrity endorsements and divorce settlements.

Learn more about this announcement by viewing this weeks edition of Speaking of Settlements, where Mark Wahlstrom discusses some of the basic issues and for whom this product or strategy might be suitable. 

Mark Wahlstrom on Allstate Oil and Gas lease Bonus, structured settlement program

You can learn more about how the new Allstate Structured Settlement product for Oil and Gas Lease Bonus payments works by contacting Mark Wahlstrom at Wahlstrom & Associates in Scottsdale, AZ

Based out of Des Moines, Iowa, Summit Settlements is Iowa's top resource for structured settlements, settlement planning and annuity products and services for trial lawyers, claims professionals, self insureds and others who wish to use structured settlements to resolve difficult personal injury claims.

Stan Harlan's back ground and expertise in investments, annuities and settlement planning is available for anyone based in Iowa, with the cutting edge experience to handle all types of settlement planning issues.

Be sure to watch this initial video and learn how you can get your questions about structured settlements answered by the leading expert in the state of Iowa, Stan Harlan.

Marvin Smith, Utah Structured Settlement Expert

One of the unique aspects of Marv's practice and service to those looking for structured settlements in the state of Utah is his willingness to meet in person with trial lawyers, injury victims or the families of those hurt or killed in an accident to review in detail their options regarding their personal injury settlement. Few areas of finance require a companion knowledge of the insurance claims process, something that Marv provides given his decades of work in and around the claim community.

Marv Smith is available for consultation on all aspects of structured settlements, structured legal fee, multi-claimant cases and taxable damage settlements, which may also be structured if designed by a professional with expertise in that area. You may find his information and contact profile here on The Structured Settlement Expert Directory.

Please watch and enjoy this video of Utah's leading structured settlement expert, Marvin Smith, who has for years worked with lawyers, insurance companies, self insureds and plaintiffs in every kind of case. If you are searching for information on what a structured settlement is, or simply looking to speak with a local expert or broker in the Utah area, Marv Smith can assist you.

For those of you who are unfamiliar with the situation, I point you to the excellent historical chronology at 4structures.com in which the sordid past of the ELNY  failure and reorganization. John does a fine job showing how this mess got started and what has brought us to this day.

Mark Wahlstrom discusses the Executive Life of New York structured settlements

The problem that annuity beneficiaries and owners of Executive Life of NY contracts face now is pretty simple in concept and stunning in scope. The assets that were being managed by the State of New York Liquidation Department for the last 20+ years are now going to be totally inadequate to make all of the remaining payments in full as has been assumed for years now. The politics, inflated investment assumptions, failure to communicate the potential of a future shortfall and a lack of will by those in charge to honestly address the problem, have created a perfect storm where some estimates indicate there could be a 25% to 45% reduction in future payments given the actuarial reality of this situation.  The result is that the State of New York may no longer have the option of keeping the rehabilitation and payment plan in place as is, but may be forced to commence a liquidation, with all of the negative elements that implies yet to be determined.

This will be the first of many on going video updates and interviews on Speaking of Settlements to provide context, resources and information to those impacted by the potential shortfall of Executive Life of New York.

A lot of financial writers and bond managers keep talking as if the trillions in debt being issued, and brought, by the US Government and the resultant low interest rates, are here to stay for awhile, when the facts are that we are likely in for a swift and rude awakening regarding interest rates, the value of the dollar and the rate of inflation once this Ponzi Scheme, (Gross’ term, not mine) comes to it’s inevitable conclusion.

For those of us who are somewhat mathematically challenged, you arrive at the effective rate of return on an investment by taking the actual yield on a bond or structure, lets use 4%, and then measuring the actual or projected rate of inflation during the duration of the payments. By both established and colloquial measurements of inflation, we are seeing the cost of living in areas such as gas, insurance, food, commodities, utilities, etc, running well north of 4% right now. When matched against the yield on most structures of 3% to 4%, thanks to the continued plunge in interest rates toward zero, it is clear that most clients obtaining a structured settlement right now is essentially realizing a zero return on their allocation of funds.

Painful to admit, but intellectual and financial honesty require it.

That said, this situation will likely end soon, and change course quickly and dramatically, once the Federal Reserve and the US Treasury end the Quantitative Easing, i.e. QE II, and the Fed no longer buys 70% of the US Treasury Debt being issued like a flood into financial markets.

For a look at the scale and scope of this Ponzi Scheme of cycling debt click to the PIMCO site and commentary here.

The point being is that while I don’t pretend to be a market genius, I am pretty good at listening to the people in our midst who are the true geniuses, such as Bill Gross and Jim Druckenmiller, both of whom see this as the looming disaster it is about to become. Therefore, for those of us in the settlement profession who are advising people on allocating their one time settlement proceeds into structured settlement we need to be exceptionally careful about long term commitments at these rates and use designs that allow for reinvestment of funds in the near future when rates are higher.

We also need to be exceptionally careful to warn clients to NOT utilize outside managers for their funds who are buying bonds, bond funds, or any investment vehicle that would be impacted by a rise in rates. The carnage in bond funds that is about to occur, as well as asset value loss in a long bond’s market value, is going to be brutal.

The solution that we are recommending to clients who are receiving settlements and have to do SOMETHING with the money they are awarded, is to carefully structure payments monthly payments over the short and medium term to cover living costs, but then provide for lump sums to be reinvested in non-qualified accounts over 3 to 7 years at what are certain to be higher interest rates. While they will theoretically give up some of the tax advantage of a structure on the reinvestment, it is my experience that most of our clients are in a no tax or low tax rate scenario due to a very low real income and what they need more than tax free money is maximum cash flow and return from a highly secure investment. ( Ideally a non-qualified immediate annuity if suitable.)

The net result should be insuring the bills are paid today, no long term interest rate risk or exposure and large sums to reinvest when rates are higher. Not a perfect solution but one that works for the vast majority of our clients.

In summary, don’t be fooled by todays rates and the media reports of a resurgent economy. Interest rates have been cynically kept so low that people were forced to move funds into bonds and stocks, but the result over the next few years is that unless those stocks are in companies that benefit from inflation and the bonds are VERY short term in duration, those portfolios are going to be hammered. My advice is get liquid, cut debt and prepare to reinvest when the rates jump up dramatically in the next six to 12 months.

We won’t be selling zero yield structures for too much longer but in the mean time we need to prepare todays clients to reinvest when rates or risk further alienating our current and future clients through poor planning.