Pacific Life and their new Index Linked Annuity Payout Adjustment rider by Editorial Staff

As discussed in an earlier post, I am now reporting back with greater detail on the new Index Linked Annuity rider which Pacific Life will be adding to their structured settlement pay out options early in April of 2014. 

Right out of the gate let me qualify this review by stating that Pacific Life is awaiting some final compliance reviews internally so the formal launch date is a bit of a moving target, but I think we can safely assume this will be available on new cases early in Q2 of 2014. 

The product/rider is entitled as the Index Linked Annuity Payout Adjustment rider, or ILAPA. A long name for a very simple concept. The product has some underwriting restrictions, such as the fact that there must be a 60 day period between the contract date and the income start date, that it is not available on cash refund structures and that it is an income rider, not an indexed accumulation product. However, those underwriting and product design elements aside, this is a substantial step forward in product design, options and benefit streams for a profession that hasn't seen a meaningful product innovation in well over 15 years. 

In a nut shell:

  • The product/rider has a 5% annual index cap, based on the S&P index over the 12 months leading up to the 15th of the month immediately prior to the contract anniversary date. If the index goes up 5% or more in the period, the annuitant gets that gain, but always capped at 5%. So, if for example the index goes up 14%, you still only get 5%. Therefore it is important to know how that cap works and is calculated so you can properly explain it to your clients. Also, important to note that it also increases in any increment up to 5%, so If the index goes up 2.4% in a year, you get that 2.4% percentage bump in your payments on the anniversary. The cap is only on the top end and any return under that cap amount is recognized as an increase in that year.
  • The product/rider also has an annual floor of 0%, effectively meaning that what ever the base income is at inception, lets say $100 monthly, then if the market goes down 15% you still are at your based income for that year. No gain that year, but also no loss either, a huge point given the risk profile of the average structured settlement beneficiary. Your income never retreats, it only stays the same or grows. 
  • Once the increase occurs and the base income increases in any year, that now becomes the new base line income level, meaning it will never revert back to the original amount no matter what the market does over that period of time. 
  • The product/rider, as you might expect, is generally priced at somewhere in cost between a straight annuity payment with no compound and a 5% COLA rider product. This allows for some pricing flexibility by the structured settlement planner in design as it gives the ability to get an index of up to 5%, but not having to pay the full price cost of that annual COLA product. 
  • The product/rider is available on both standard and impaired risk mortality.
  • The product/rider is also available on structured legal fees, something I think will appeal to many lawyers and attorneys looking to defer income and also obtain some degree of market exposure on the income portion. 
  • The product/rider is available on period certain, life annuity and joint life annuity options. Again it is not available for lump sums or cash refund benefit options. 

Obviously, there is more detail and as the rider become's officially available, Pacific Life will provide even greater specifics as needed. However, for now it is sufficient to say that the product will be an important discussion option on just about every structured settlement discussion very soon. The vast majority of personal injury victims are risk adverse, conservative individuals who can't financially handle sustained market losses or market risk. To be able to provide an index product, even with a 5% cap, while still maintaining the income tax free cash flow and guaranteed income levels that are not subject to market fluctuations, is an important innovation and one that will certainly generate a great deal of interest and premium for Pacific Life in the coming months. 

Structured sales, the solution for capital gains taxes? Part II by Editorial Staff

Last week I looked at some of the reason's why the structured settlement profession has turned it's back, at least for the time being, on the structured sales market. This market, with fundamentals that seem to scream out for a life insurance company to jump in with both feet, is currently adrift with out a single life insurance company willing to ramp up even a small division to provide annuity funded structured sales for clients. 

However, while the life companies wait for a leader to emerge, the structured sale experts in the country have been busy developing other funding options to allow for structured sales. While I really have no intention of providing free publicity to any of the firms developing alternative assignment and funding options, the most important fact for planners, tax experts and others working with people looking to defer or structure capital gains sales, to know is that there ARE options other than life company funded structured sales. 

The alternative funding options tend to fall into three distinct categories:

  • Private assignment companies located "off shore" in Caribbean nations which have a tax treaty with the US and a reputation for quality banking functions. While this idea of sending your money to an assignment firm in Barbados, Bermuda scares the daylights out of some people, this is actually a very routine transaction and is done by major corporations hundreds of times a day. 
  • European, typically Irish, assignment companies, who take advantage of the same tax treaty used by other major US corporations such as Apple who house financial entities in Ireland or the UK for tax and transactional reasons. These, in the minds of some consumers, carry both political and financial risk, but in fact are generally considered by most settlement experts to be reasonably secure.
  • Those with US assignment companies and US domiciled trust companies which custody and pay out the assets backing up the structured sale. These seem to be far less scary to the average consumer as the funds never leave the US banking, legal and financial supervisory system, an arrangement they are much more comfortable with. 

While the assignment company aspect of the transaction is key, so as to not blow up the tax treatment of the structured installment sale, even more important to the beneficiary of the structured sale is where their assets are being managed and who the custodian is. The increasing use of trust company custodian's is to my mind a positive development and one that allows for a high degree of security as to the custody of the assets, as well as adherence to the terms of the purchase and sales agreement and assignment documents, which govern the payout stream. 

In the standard life company arrangement, you would have a company owned, or partially owned, assignment company that funded virtually all of the structured sales with life company annuity contracts. In the newer versions you have a variety of funding options to back up the payment stream, among them US Treasury obligations, bond's and secondary market annuity streams. The determining factor on which funding option is best suited for the client needs to be discussed in great detail prior to any agreements as it does involve some risk assessment and security regarding payments streams. I'll discuss these options in greater detail in section three of this analysis of structured sales in 2014. 

In conclusion, despite the lack of attention to this growing market by life insurance companies, there is a growing and soon to be thriving market of independent assignment companies which are being developed so as to meet demand. If you have questions regarding structured sales and how they can defer capital gains, contact the author, Mark Wahlstrom at 


BP Oil Spill claims, News for the Medical Benefit only class of claims by Editorial Staff

Late last week, the BP Oil spill claims process was in the news once again, this time with the announcement that the 5th Circuit Court of Appeals had issued a mandate on the Medical Benefit only class of claims. This second class, which is totally seperate from the business economic loss class, is focused on medical reimbursement for three unique groups of claimants who were either clean up workers, support workers or residents in the general zone of clean ups. 

This video features Attorney's Rick Kuykendall, Craig Downs and Daniel Perez in a 15 minute discuss of what this class is, who is eligible, the process by which the claims my be filed and the medical issues that are covered. Also, one of the unique features of this agreement is that for certain claimants there will be a 20 year comprehensive medical monitoring process to determine what, if any, medical issues might appear in the class over time. 

This is an important video in that it lays out the time frame during which claims can and should be made and provides lawyers and claimants with some crucial information as to whether or not people should attempt this process with out the assistance of an attorney. We will also being doing another video next week on the 2-1 decision of the Appeals Court which leans toward the resumption of payments on the BP Oil Spill economic loss claims process. 

The Settlement Channel is a weekly broadcast and commentary program hosted by Mark Wahlstrom, the President of Wahlstrom & Associates, one of the nations leading experts in settlement planning, structured settlements, multi-claimant litigation and QSF Trust administration.