Question
Whether claimant S~’s structured settlement agreement with the Allstate Life Insurance
Company (Allstate), governed by New York’s Structured Settlement Protection Act (SSPA),
is a resource for purposes of Supplemental Security Income (SSI) eligibility under
§ 1613(a) of the Social Security Act (the Act).
Opinion
SSPA, N.Y. Gen. Oblig. Law §§ 5-1701 et seq., allows transfer agreements in which
the payee obtains an immediate lump sum payment in exchange for the rights to future
guaranteed settlement payments. However, the need for judicial approval of the transfer
restricts the payee’s legal right to access the future structured settlement payments
under Program Operations Manuel System (POMS) SI 01120.010. Therefore, a settlement agreement that permits such transfers would not be counted
as a resource.
Background
1. Claimant S~’s Structured Settlement Agreement
Claimant S~ entered into a structured settlement agreement with the Allstate in 2004,
when she was 16 years old. The agreement stipulates that Allstate will make three
payments to S~. The first of these payments, totaling $5,000 was paid on November
17, 2010. The agreement calls for further payments of $10,000 on November 17, 2014
and $42,059.14 on November 17, 2019. In addition, the agreement describes the process
by which a payee may transfer her rights to future settlement payments in order to
receive an immediate lump sum through a program known as the Allstate Advanced Funding
Exchange:
. . . Allstate Settlement Corporation, in certain circumstances, will consider permitting
an arrangement whereby a structured settlement payee may obtain an immediate lump
sum payment (based on a specific discount rate) in exchange for the rights to future
guaranteed structured settlement payments. . . . Only those Advanced Funding Exchanges
that are approved by a court or applicable administrative authority are permitted.
An Advanced Funding Exchange is only an option in states that have a structured settlement
transfer act. . . . Allstate Settlement will consider each Advanced Funding Exchange
request on a case-by-case basis and reserves the right to decline any request.
According to information received from Allstate, in order to obtain Advanced Funding,
an individual payee must first request such funding from Allstate. The company has
a minimum requirement of $25,000, and the same amount has to be available in the structured
settlement. Proof of need must be shown in order to gain approval by Allstate. If
all these criteria are met, Allstate may agree to provide Advanced Funding using an
8% annual discount rate to calculate present value. The company will then petition
the court on behalf of the individual payee to approve the transfer, and will charge
a $2,500 attorney fee. Depending on the state where the payee resides, the process
of obtaining court approval for this transfer could take 4-6 months.
S~ is currently applying for SSI benefits as an adult. As far as we are aware, she
has not taken any action to exercise the options described in the Allstate Advanced
Funding Exchange.
2. New York’s Structured Settlement Protection Act (SSPA)
Generally, a structured settlement agreement results from the resolution of a tort
claim, and arranges periodic payment of damages. See N.Y. Gen. Oblig. Law §§ 5-1701(l), (m). In some cases, individual payees may try
to circumvent the agreement by transferring their rights to future payments in exchange
for an immediate lump sum. However, such transfers may leave the payees vulnerable
to businesses that demand unfair concessions, leaving payees with a substantially
discounted lump sum and depriving them of long-term financial security. See 27 A.L.R.6th 323; In re Settlement Capital Corp., 1 Misc. 3d 446, 448 n.1 (N.Y. Sup. 2003). Many state legislatures, concerned about
the hazards posed by such transfers, have enacted legislation to limit their use by
requiring court approval. See, e.g., Fla. Stat. Ann. § 626.99296; Mass. Gen. Laws Ann. ch. 231C, § 2; Tex. Civ. Prac.
& Rem. Code Ann. § 141.004.
In 2002, New York enacted the SSPA due to concern that structured settlement payees
were prone to being victimized. See 73 N.Y. Jur. 2d Judgments § 34; see also In re Petition of Settlement Funding of New York, LLC, 195 Misc. 2d 721, 722 (N.Y. Sup. 2003). The SSPA requires judicial approval for
all proposed transfers The statute defines a transfer as “any sale, assignment, pledge,
hypothecation, or other alienation or encumbrance of structured settlement payment
rights made by a payee for consideration[.]” N.Y. Gen. Oblig. Law § 5-1701(q). of
structured settlement payment rights. N.Y. Gen. Oblig. Law § 5-1706. In addition to
meeting certain procedural requirements, the transfer must be in the best interest
of the payee, and its terms, including the discount rate, must be fair and reasonable.
N.Y. Gen. Oblig. Law § 5-1706(b).
3. Resources
An individual’s assets and property are evaluated under § 1613(a) of the Act to determine
whether they may be counted as resources for the purposes of SSI eligibility. See § 1613(a); 42 U.S.C. § 1382b. Not all of an individual’s assets are resources. See POMS SI 01110.100. The Social Security regulations define a resource as “cash or other liquid assets
or any real or personal property that an individual . . . owns and could convert to
cash to be used for his or her support and maintenance.” 20 C.F.R. § 416.1201(a);
see also POMS SI 01110.100(B)(1).
When determining whether an asset may be counted as a resource in a month for purposes
of SSI eligibility, POMS SI 01120.010 outlines three criteria that must be satisfied as of the first moment of that month.
First, the individual must have some form of ownership interest in the property. Second,
he or she must have the legal right to access the property, which refers to the ability
to spend or convert the property to cash. Third, the individual must have the legal
ability to use the property for his or her own support and maintenance. See POMS SI 01120.010(B)(1)-(3). An asset that fails to satisfy any one of these criteria may not be counted
as a resource.
Although the POMS requires a legal right to access in order to count property as a
resource, it also recognizes the significance of certain impediments to access. In
particular, an individual need not undertake litigation to gain access where there
is a legal bar to the sale of property. In such circumstances, the property will not
be a resource. POMS SI 01120.010(C)(2).
Legal Analysis
New York’s SSPA, N.Y. Gen. Oblig. Law §§ 5-1701 et seq., would allow transfer agreements
in which the payee obtains an immediate lump sum payment in exchange for the rights
to future guaranteed settlement payments. However, the need for judicial approval
of the transfer restricts the payee’s legal right to access under POMS SI 01120.010. Therefore, a settlement agreement that permits such transfers would not be counted
as a resource.
As discussed above, property cannot be a resource in a month unless, as of the first
moment of that month, the individual claimant has an ownership interest, a legal right
to access (spend or convert) the property, and the legal ability to use the property
for his or her personal support and maintenance. POMS SI 01120.010(B). Concerning the future structured settlement payments, S~ has an ownership interest
in these funds. Under the various state structured settlement protection laws, the
payee transfers that ownership interest in future payments in exchange for an immediate
discounted lump sum. See N.Y. Gen. Oblig. Law § 5-1701(q). Similarly, as far as we are aware, there are no
restrictions on her use of the funds for her own support and maintenance. In one POMS
example, subtitled “Insurance Settlement Restricts Use,” an SSI recipient is injured
in an accident and awarded damages by a court to be used solely for medical expenses
relating to the accident. There, the award of damages is not a resource since the
SSI recipient is not free to use them for her own support and maintenance. POMS SI 01120.010(D)(5). There is no indication that any such limitation exists here. However, the
requirement of access poses more difficult questions.
Access refers to the ability to spend or convert the property to cash. POMS SI 01120.010(B)(2). Accordingly, it does not matter that S~ has not yet received the future structured
settlement payments. If she has the ability to spend or convert the property to cash
as of the first moment of the month, the requirement of access is satisfied and the
future payment rights may be counted as a resource for that month. Such a conversion
may be possible under the Allstate Advanced Funding Exchange.
As a preliminary matter, we must first determine whether Advanced Funding would be
an available option for a payee like S~, whose structured settlement agreement is
governed by New York law. The Allstate structured settlement agreement indicates that
such a transfer “is only an option in states that have a structured settlement transfer
act.” New York’s SSPA qualifies as such a statute because it mandates court approval
for any proposed transfer of structured settlement rights. See N.Y. Gen. Oblig. Law § 5-1706. Further, Allstate has submitted similar transfers for
judicial approval pursuant to the statute, confirming that the Advanced Funding option
is viable under New York law. See, e.g., In re L~, 28 Misc. 3d 1203(A) (N.Y. Sup. Ct. 2010).
Some businesses, known as “factoring companies,” may offer to purchase structured
settlement payment rights in exchange for discounted lump sums. Such a transfer would
allow the payee to circumvent Allstate’s veto power, even if the structured settlement
agreement prohibits assignment, so long as the requirements of the SSPA are satisfied.
See In re Settlement Funding of New York, LLC, 2 Misc. 3d 872, 877 (Sup. Ct. 2003). Therefore, Allstate’s ability to decline a
requested transfer under the Advanced Funding Exchange does not restrict the payee’s
access to future settlement payments, and would not prevent SSA from counting those
payment rights as a resource for purposes of SSI eligibility.
However, as noted above, an individual need not undertake litigation to gain access
where there is a legal bar to the sale of property. In such circumstances, the property
will not be a resource. POMS SI 01120.010(C)(2). Both Allstate’s policy and the SSPA require judicial approval for the transfer
of settlement payment rights to be effective. See N.Y. Gen. Oblig. Law § 5-1706. The SSPA specifies, “[a]n action for approval of a
transfer of a structured settlement shall be by a special proceeding brought on only
by order to show cause.” N.Y. Gen. Oblig. Law § 5-1705(a). Such an action may constitute
“litigation” under the POMS, even though it differs from the divorce proceedings given
as an illustrative example. See POMS SI 01120.010(D)(7). The proceedings are not necessarily adversarial in either case; an uncontested
divorce might operate in much the same way, with the parties agreeing to a set of
terms and submitting them to the court. An SSPA action arguably has an even greater
impact on an individual’s ability to access property because it requires a showing
of best interest as well as fairness and reasonableness. See N.Y. Gen. Oblig. Law § 5-1706(b). Judicial approval is by no means automatic. See Petition of 321 Henderson Receivables L.P. v. Martinez, 11 Misc. 3d 892, 895 (Sup. Ct. 2006) (noting that courts are not intended to be
“mere rubber stamps” and should analyze whether the proposed transfer agreement is
truly in the best interests of the payee). Although the POMS offers no definition
of “litigation,” at least one court has declined to construe the term narrowly. See Kubetin v. Astrue, 637 F. Supp. 2d 59, 65 (D. Mass. 2009) (“[T]he text of the POMS instruction makes
no such distinction between types of “litigation” and the court declines to read that
limitation into an otherwise clear policy statement.”). Accordingly, we believe that
an SSPA action is “litigation” within the meaning of POMS SI 01120.010, and the requirement of court approval constitutes a legal bar to access. Therefore,
the future structured settlement payments are not a resource.
Conclusion
New York’s SSPA, N.Y. Gen. Oblig. Law §§ 5-1701 et seq., would allow transfer agreements
in which the payee obtains an immediate lump sum payment in exchange for the rights
to future guaranteed settlement payments. However, the need for judicial approval
of the transfer restricts the payee’s legal right to access under POMS SI 01120.010. Therefore, a settlement agreement that permits such transfers would not be counted
as a resource.
Stephen P. Conte
Regional Chief Counsel, Region II
By: Peter Jewett
Assistant Regional Counsel