An Analysis of the Updated ABLE POMS Guidance

The Social Security Administration (SSA) has published updated Program Operation Manual System (POMS) guidance for Achieving a Better Life Experience (ABLE) accounts effective March 13, 2020.

POMS represent a primary source of information used by Social Security employees to process claims for Social Security benefits.

The Direct Funding Debate 

Unfortunately, the updated POMS neither mention structured settlements nor clarify the “direct funding debate”.

As a positive development for structured settlements, the updated ABLE POMS have added an expanded definition of “person” under “B” (“Definition of Terms”) 2 (“Contributions to ABLE Account”).

The revised POMS state: “Contributions may be made by any person. (“Person,” as defined by the Internal Revenue Code (IRC), includes an individual, trust, estate, partnership, association, company, or corporation.)” Therefore, qualified assignment companies would appear to be allowed to make direct contributions to an ABLE account.

However, the revised ABLE POMS also carry forward from the previous ABLE POMS Section C titled “When to Exclude ABLE Account Contributions, Balances, Earnings, and Distributions.” Section C includes the following statement: “Examples of payments that might be direct-deposited into an ABLE account, but still are counted as income as they otherwise would be, include:

  • “Wages;
  • “Benefit payments (Title II, Veterans Administration, pensions, etc.); and
  • “Mandatory Support payments (child support or alimony).”

Multiple state Medicaid agencies have interpreted structured settlements to be analogous to “benefit payments” and/or “mandatory support payments”. They have thereby determined that structured settlement payments paid directly into an ABLE account constitute income under the Social Security law – which is different than the tax law.

The result: in those states, direct payment of structured settlement into an ABLE account can disqualify a beneficiary from receiving Medicaid and other means-tested public benefits.

Popularity of ABLE 

ABLE accounts have become popular financial and settlement planning tools for qualifying disabled individuals. The ABLE Act which created IRC 529A in 2014 allows states to create tax-advantaged savings programs for eligible people with disabilities. Funds from these 529A ABLE accounts can help designated beneficiaries pay for qualified disability expenses. Distributions are tax-free if used for qualified disability expenses

49 states have passed legislation to implement ABLE and most ABLE programs accept qualified individuals regardless of their state of residence. Here are some recent ABLE statistics (as of December 31, 2019), provided by Doug Jackson, Deputy Director of Ohio’s STABLE Account, the first and largest state ABLE program:

  • Total number of ABLE accounts in the nation:  56,632
  • Total number of STABLE Accounts: 14,267
  • National ABLE Assets Under Management:  $ 354,803,932
  • STABLE Account Assets Under Management:  $89,336,519

From both a public policy perspective and from more practical administrative considerations, direct payment of structured settlements into ABLE account would appear to be beneficial to all stakeholders.

A commonly used workaround for structured settlements to indirectly fund ABLE accounts is to first fund a special needs trust (SNT). However, allowing structured settlements to directly fund ABLE accounts would not only expand the structured settlement market, it would also expand the settlement planning options for qualifying personal injury claimants as well as the ABLE market.

Arguments Favoring Direct Funding 

Here are some of the alternative arguments in favor of permitting direct payment of structured settlements to fund ABLE accounts:

  • The public policy supporting the ABLE Act includes language (“to provide secure funding for disability expenses”) that seems to support the “secure funding” provided by structured settlements.
  • The ABLE POMS permit special needs trusts and pooled trusts to fund ABLE accounts – apparently so long as the payments are irrevocably assigned to the ABLE account.
  • Likewise, structured settlements are permitted to fund special needs trusts and/or pooled trusts so long as the payments are irrevocably assigned to the trust.
  • Therefore, structured settlements arguably should be allowed to directly fund ABLE accounts so long as the payments are irrevocably assigned to the ABLE account.
  • Representatives of at least two ABLE funds (Ohio and Texas) have previously informed this author their funds have accepted direct payments of structured settlement payments.

Strategic Options for Structured Settlements 

What strategic options are available to structured settlement professionals to allow qualifying personal injury claimants the option to directly fund ABLE accounts with structured settlement payments?

In a word, lobbying. As one parallel and positive example, in 2006 the National Structured Settlement Trade Association (NSSTA) obtained letters from the national Social Security Administration (SSA) office clarifying and reaffirming the role of structured settlements in SNTs.  A similar approach might produce a similar solution for ABLE accounts.  An SSA-published ABLE letter might state something like: “Structured settlement periodic payments, pursuant to IRC 104(a)(2), when irrevocably assigned and direct-deposited into ABLE accounts shall not be considered SSI countable income.”

An alternative strategy with the same objective would be to seek assistance directly from. Congress (e.g. an amendment to Senate Bill 651.)

Regardless of the ultimate approach, lobbying on behalf of disabled persons and personal injury victims for direct funding of ABLE accounts represents an opportunity for NSSTA to expand both its goodwill and the structured settlement market.