Employment structured settlements help resolve conflicts, effectively reduce litigation expenses and create long-term financial security for people involved in injury claims through our settlement consulting services.  Structured settlement internal rates of return are excellent and represent substantial value for stakeholders, both claimants, employers and lawyers.  Let us show you how.

What Types of Employment Lawsuit Settlements Can be Structured?

Structured settlements are a great tax deferral solution for employment related settlements, such as:

• Emotional distress
• Discrimination by Race or Ethnicity, Gender, Gender Identity, Age, Disability, Religion
  
• Sexual harassment
• Sexual assault
  
• Wrongful termination
• Failure to promote
• Failure to accomodate (ADA claims)
• Lost pension differential; and many other employment related claims.
  

Private Letter Ruling (PLR 200836019) supports use of structured settlements

 to resolve employment claims.

A former employee entered into a employment structured settlement with her employer relating to mental anguish and emotional distress from a claimed hostile work environment. The IRS held that the economic benefit and constructive receipt doctrines would not apply to cause the employee to report income prior to her actual receipt of cash. The Settlement Agreement and Release which the employer and employee entered into required up-front cash paid in a lump sum, and periodic payments for the other claims. The agreement precluded the employee from accelerating, deferring or otherwise changing the periodic payments. The employee cannot elect to receive the commuted value of the periodic payments. The employer could enter into a non-qualified assignment with a company that will make the payments. No assets were set aside to secure these payments. The employee is not deemed to have received any property when the employer pays the assignment company funds. Because of the restrictions on the employee, she cannot be deemed to constructively receive the funds, there is no current taxation.

Why Employment Structured Settlements?  What Are the Advantages?

Consider that an employment settlement is a taxable settlement. Therefore, the net amount of the receovery could be ALOT smaller in year one after applying Federal and State and any applicable local income taxes. The settlement could push the plaintiff into a higher tax bracket. By structuring your employment related settlement, more of the money is working for the plaintiff right away. With a properly structured employment settlement, income is deferred and resulting tax is deferred until the year payments are received.

• Employment structured settlements offer the Claimant/Plaintiff stable secure income and peace of mind
  
• Cash flow can be customized and structured exactly the way the employee wants it
• Discount future cash flows at competitive rates.  Bridge gaps.
  
• Employer can make Plaintiff whole without a gross up for taxes. For example, $X is the PV of the lost pension paying $Y per year for life, beginning at age 65. If paid in a lump sum more needs to be paid now to make the plaintiff whole because of the income taxes that would be due on the lump sum leaving less to invest to produce income. Said another way, If the pension loss is $Y per year beginning in 10 years, we can calculate that cost and it will cost the Employer or Insurer a meaningful amount less than the present value $X grossed up to account for the taxes
  
• Employee may be able to mitigate Alternative Minimum Tax (AMT), where applicable, by spreading settlement payments over time
  

Employment Lawyers have options for attorney fee deferral

• Plaintiff lawyers on employment cases who earn contingency fees have attorney fee deferral options. More details here

Ways of structuring employment settlements

• Non-qualified assignments using fixed structured settlement annuities to fund the obligation. Annuity funded non-qualified assignments using a domestic assignment company must begin no more than a year out to comply with IRC 72(u).
  
• For those seeking growth, with downside protection, non-qualified assignments using index linked structured settlement annuities to fund the obligation. Capped and uncapped alternatives are available. Note that some products may not be available in all states.
• Non-qualified assignment using Treasury Funded Structured Settlements
  
• Periodic Payment Reinsurance, when the paying party for the employment settlement is an insurer; and, for those with a greater level of risk tolerance
  
• Non-qualified assignment using alternative independent non-qualified assignment entities not associated with insurers, based in Barbados, Republic of Ireland, or Switzerland
  
• Funding Agreement structured settlement.
  

What's the Best Size Case for an Employment Structured Settlement?

Employment structured settlements are appropriate on cases of all sizes. We have concluded them on employment cases ranging from a modest settlement to multi-million dollar employment structured settlements.

4structures® can assist parties in employment litigation to help bridge gaps, to "do the math", to educate parties on either side to better understand how this valuable employment settlement financial tool works, the financial security of the transaction and the required documentation.

81% of Employment Plaintiff Attorneys Express Concern Over Lump Sum Settlement Depletion MetLife 2023 Structured Settlements Poll (yahoo.com)  July 25, 2023

Notes

1. Certain components of employment settlements cannot currently be structured (i.e. back pay and front pay).
   
2. Employment structured settlements must be created as part of the consideration for the settlement. They cannot be created after actual or constructive receipt has occurred
3. Helpful resource:   Income and Employment Tax Consequences and Proper Reporting of Employment Related Judgments and Settlements IRS Office of Chief Counsel Memorandum Employment Tax Branch 2, October 22, 2008
4. "Structuring an Employment Settlement : A Tax Efficient Solution" MetLife October 28, 2020

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Last updated March 13. 2024

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