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STRUCTURED SETTLEMENTS: BENEFITS FOR THE EMPLOYER AND EMPLOYEE
"Structured settlements have enjoyed widespread acceptance and have become an established part of our legal landscape over the past twenty-five years. More than $6 billion is now paid each year to fund new structured settlements in the United States, and an estimated $100 billion or more has been paid in the aggregate to fund structured settlements that are in force today."*
Successful claimants in tort injury cases and workers' compensation injury claimants typically receive their settlements as a lump sum. In a structured settlement, the victim and defendant agree to a schedule of periodic payments. This arrangement has benefits to both employees and employers. The National Structured Settlements Trade Association, whose members help arrange financing for structured settlements, says, "Independent surveys show that the more serious the injury, the greater the likelihood that a structured settlement will be used." Advantages for Employees The Internal Revenue Code specifically excludes "damages received by an individual on account of personal injuries or sickness" from gross income. Why would a claimant want periodic payments instead of a lump sum? Anyone receiving a sudden financial windfall can make unwise spending choices. A lottery winner might blow his winnings on cars and boats, but still return to work. In the case of a workers' compensation claimant, that lump sum could represent the cash she needs to live on the rest of her life. A structured settlement ensures that the victim of an occupational accident or illness will have income for life. The Periodic Payment Act of 1982 encourages structured settlements by specifically excluding compensation for tort or workers' compensation injuries and illnesses from gross income whether paid as lump sums or over time. It also generally excludes amounts an injury victim receives for agreeing to undertake an assignment when he/she uses that money to buy an annuity. This allows an accident victim to receive the earnings on his/her settlement tax-free, with a properly structured settlement. Advantages for Employers A structured settlement has benefits for employers and their insurers as well. - Lower litigation costs. A structured settlement involves negotiations between the injured worker, the insurer and sometimes the employer. Bringing all parties to the table can reduce the possibility of litigation. - Less animosity. Knowing he/she has income for life can reduce an injured worker's animosity toward the employer. And because negotiating a structured settlement involves experts, the process can enlighten a worker who might have unrealistic expectations of what he/she might expect to receive in a settlement. - Certainty. A structured settlement typically closes a disability claim, although an injured worker may still be eligible for workers' compensation medical payments. - Savings. Because a structured settlement uses the present value of money, it typically costs less to provide benefits over time than in a lump sum. - Security. Insurers or self-insured employers buy an annuity to fund the settlement, thus guaranteeing the funds will be available as scheduled. Structured settlements are just one tool an insurer or claims administrator can use to help employers manage the cost of claims. For more information, please contact the PCOC Insurance Program department of Jenkins Leavitt Insurance Services at (877) 860-7378 or, email us @ ProPest@Leavitt.com. *Source: ABA Judges' Journal, Spring 2005, "Transfers of Structured Settlement Payment Rights..." by Daniel W. Hindert and Craig H. Ulman |
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