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Retirement Planning > Retirement Investing > Annuity Investing

Congress Restricts Structured Settlement Deals

By Staff Writer

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NU Online News Service, Dec. 21, 2:55 p.m. – The National Structured Settlements Trade Association, Washington, says a new bill will discourage recipients of annuity-based settlements, or “structured settlements,” from exchanging the annuity income for lump-sum payments.

H.R. 2884, a bill that creates tax breaks for victims of the Sept. 11 attacks, also includes a section that requires recipients to get court approval before selling settlement income rights to outside companies.

The section lets the government impose an excise tax on any company that tries to purchase income rights without getting court approval, the settlements association says.

The House and Senate approved the bill Thursday. President Bush is expected to sign the bill in the next few days.

The structured settlement section affects consumers who receive large out-of-court settlements as a result of acts of negligence or intentional wrongdoing.

Lawyers often set up annuity-based payment mechanisms to fund the settlements, especially when the recipients are victims of serious, permanently disabling injuries.

Supporters say use of annuities keeps victims, parents and guardians from blowing settlement cash on bad investments and extravagant purchases, but some finance companies now compete to buy the income rights.

The lump-sum payment is usually a percentage of the present value of the annuity income stream.

Insurers, consumer groups and other organizations that support rthe restrictions in H.R. 2884 say the lump-sum payments are often a very low percentage of the present value of the annuity. The deals prey upon consumer desperation, and they jeopardize the tax breaks normally accorded to annuities, restriction supporters argue.

But the companies that buy the income rights say they help recipients who have an immediate need for large sums of cash. Requiring court approval will simply force recipients to spend more time and money struggling to come up with cash, the companies contend.

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