Tag Archives: injured

A Crucial Role for Annuity ‘Structures’

Every year millions of injured Americans confront critically important financial decisions as their personal injury litigation draws to a close. In planning the path forward and beyond their injuries, the stability and security of ongoing, lifelong income from their settlement, judgment or award proceeds becomes absolutely paramount. The money simply needs to last.

Only one post-injury investment option – – structured settlement annuities or “structures” – – provides a continuing tax exemption for the growth of such benefits.  If the injured individual agrees to a lump sum settlement, the tax exemption for lifelong income disappears.

As of 1983, the Periodic Payment Settlements Act (see also IRS regulation Sec. 104(a)(2)) has made all income from a structured settlement annuity over the lifetime of that individual entirely, unequivocally and absolutely tax-free. Contrasted with a lump sum payment in which only the initial payment is tax free and all subsequent earnings are subject to all applicable forms of state and federal taxation, the structured settlement is considered an insurance policy for payments rather than asset to be taxed upon growth. This view, accepted by Congress in that 1983 Act, makes the value of a structure staggering.

For example, if the injured individual deposits the lump sum settlement proceeds in a bank account, any interest earned would be taxed accordingly. If the injured individual invests the money in taxable bonds or stocks, the interest and dividends would also be classified as taxable income. However, with structured settlement annuity payments, neither the growing COLA payments nor the lump sum scheduled payments, nor the payments beyond life expectancy are ever taxable. If the injured party were to decide on an annuity payout after receiving the funds, the tax benefit would be lost because the funds were accepted separately from the settlement. The critical element is that the structure must be accepted as the payout vehicle initially.

The Tremendous Value of Tax-Free Status

The tax-free effect is quite dramatic. Consider an injured individual in the 28% tax bracket with a 2% fee for a traditional, market-based investment portfolio. In addition to having the risk of a significant reduction or entire loss of funds, the individual’s income from the investment when they are successful will face federal taxes that can reduce actual net income by 30% before accounting for state and local taxes that could tack on another 5% reduction. None of these risks or reductions exists with income from a structured settlement.

For an individual in the 10% tax bracket, earning a 4% return would have the equivalent pre-tax return of 4.44%, and a 15% tax bracket would mean an equivalent pre-tax return of 4.7%.

While a peripheral advantage, the tax-free nature of the structure payout means the individual recipient is not required to deal with the timing and accounting issues associated with the need to pay estimated taxes on this money. With a taxable event, the taxes would be the quarterly responsibility of the recipient. An error in dealing with the estimated taxes could create recurring tax problems.

Therefore, structures not only safeguard the injured individual from the volatility of the stock market, they provide continuing income that one can count on down to the penny and to the day. No wild, market-swing surprises. No reductions in income for taxes. No tax filings and accounting homework.

The Gift That Keeps Giving (and Gives in Other Ways)

In addition to the tax-free opportunity, there are other critical reasons to value the structured settlement for the injured individual. First and foremost, the structure enables the individual to couple the tax advantages with the capacity to schedule weekly income and significant payouts for any future expenses like college tuition, wedding costs or retirement needs to the day and to the penny without any worry about market or 401(k) performance. In addition, because structures are considered a policy for payment rather than an asset, such proceeds generally do not affect eligibility for needs-based public assistance programs like AFDC or Medicaid, as lump sums do. Even if the injured individual is not on Medicaid at the time of the injury, eligibility for many programs — in-facility care, for example — often requires the absence of any significant assets.   As a policy rather than an asset, structure income would be immune from eligibility consideration. Lump sums such as an investment account or a bank account are highly likely to be considered assets that must be eliminated for Medicaid eligibility.

Quite simply, structures may very well be the best way to make sure that the money is peace-of-mind predictable, maximizes other income and benefits and lasts for a lifetime. However, with only 5% of eligible dollars placed in structured settlement annuities, billions in tax exemptions — as well as the opportunity for continuing income security — are squandered every year.

Is a Post-Injury Financial Portfolio “Balanced” Without a Structured Settlement?

While frequently considered an all-or-nothing option, the structured settlement annuity can be used for whatever portion of the settlement, judgment or award that the injured individual chooses.  As with all responsible portfolio plans, balance is a critical value.

With a structure, an injured individual can tailor and fund her entire financial future. In addition to continuing payments, what is scheduled today will be there, exactly as needed, for a lifetime of tomorrows. It is possible to establish a college fund, for example, as part of the settlement that would both schedule and quantify tuition — all tax-free.

Given its value, security and stability, is any post-injury financial plan truly “balanced” without taking advantage of structured settlements? As a highly unusual, tax-free, benefits-exempted gift from the U.S. Congress to the nation’s injured individuals, structures should be a critical feature to secure their financial futures.

How to Think About Marijuana and Work

With a flip of the calendar, on July 1, Oregon became the fourth state in which recreational marijuana use became legal. For many Oregon employers, this status change from illegal to legal wasn’t a big deal. Medical marijuana is already legal in 24 states, including the Beaver State, and possessing less than an ounce was decriminalized in Oregon 40 years ago.

Recreational marijuana is just a new twist on an old story. All it really means is you can’t go to jail (or be fined) for smoking pot recreationally.

However, this “non-event” has made risk managers ponder the ramifications of recreational use, especially for their employees who work in the manufacturing industry. Manufacturers have strict policies to ensure a safe work environment. It goes without saying that people who are under the influence at work in a manufacturing or an industrial setting are far more likely to be injured on the job.

Being stoned at work should be treated no differently than being under the influence of alcohol or prescription medication. You certainly can’t show up drunk for work.

The employer is responsible for that employee as soon as he walks on to the job. Any drug use that affects an employee’s ability to perform the job should be a genuine concern for the employer.

The difficulty for employers is that there is no scientific method to determine a marijuana intoxication level, unlike a blood-alcohol level. Until there is definitive scientific evidence, employers are being advised to err on side of safety and forbid an employee to be under the influence of marijuana.

To do that, the employer needs a crystal-clear, zero-tolerance policy. Unless the employer has been living in a cave the past 50 years, it already has such a policy. But it should be updated to specifically address marijuana use, both on the job and recreationally, because it could affect the employee’s job performance.

It is predicted that in 2016 – the third election cycle in which marijuana legalization measures will be on ballots across the country – as many as seven more states could allow recreational use of marijuana. As each state approves the recreational use of marijuana, there looms in the background the knowledge, that under federal law, its use remains illegal.

Whether that will eventually force the feds to take a stand remains to be seen. Right now, the feds have just rolled over to let you scratch their belly.

But as each state joins the ranks of approving pot use recreationally, what was a minor irritant to the feds could grow too large for them to ignore.

The bottom line is that a stoned CPA might drop a number or two, but a stoned assembly line worker might drop a few fingers. It doesn’t matter if the cause is pot, alcohol or prescription medication. Smoke cannabis at work – or show up stoned – and you’ll be disciplined. It’s not about a worker’s rights; it’s about workplace safety.

Redefining Success

Redefining Success in Workers’ Comp

As is often said, beauty is in the eye of the beholder. To me, that means your personal context colors your perspective; similar people can look at similar circumstances and reach dissimilar conclusions. In workers’ comp, that axiom applies to “success.”

Various stakeholders define success differently. To an injured worker, success could be regaining health to his or her pre-injury state while building a retirement nest egg. To a treating physician, success could be restoring health to the patient at a fair price. To an employer, success could be the quick and safe return to work of a colleague that does not raise its workers’ comp premiums. To a carrier or third-party administrator (TPA), success could be the proper management of a claim that yields a satisfied customer while maximizing profit. To an attorney representing the injured worker, success could be maximizing the financial payoff for the client and the law firm. To a vendor (pharmacy benefit manager, bill review, utilization review, transportation/translation or surveillance company), success could be providing services that provide recognized value to a customer.

In some cases, the definition of success can be both positive (appropriate services for a fair price) and negative (maintaining the revenue stream through means that might be inconsistent with “appropriate services” or “fair prices”). It is the business conundrum in workers’ comp – how to balance the need to provide appropriate services with the need to stay financially viable in a system that sometimes rewards the latter more than the former.

Let’s simplify what true success is for workers’ comp: restoring the health of the injured worker and settling the claim efficiently.

Realistically, the worker might not be restored fully to pre-injury health, but regaining as much as possible is certainly the goal. When it comes to managing chronic pain that will likely never completely go away, good treatment can be inadvertently sabotaged by issues of tolerance, dependence and addiction. The prescription drug abuse epidemic illustrates that the outcome of overtreatment and inappropriate treatment can often create more problems than it resolves.

For those who have received inappropriate treatment with sub-optimal results, success may be less about a full return to health and more about a return to some level of function. That could be something as simple as taking 500 steps a day (thewalkingsite.com offers guidelines for 10,000 steps a day). Maybe return to work is no longer viable, so success is now more about being a meaningful member of family and community. Maybe detoxification is appropriate, but abstinence is not attainable, so finding a lower number and dosage of appropriate drugs is success. For those stuck in a cycle of victimization, low self-esteem and poor socioeconomic circumstances, perhaps success is more about acquiring skills to properly cope with pain and change (and life in general).

In other words, maybe success is a lot simpler than we think – if the injured worker wins by regaining health and function, then everyone else wins too.