The National Law Forum

Shorter Path to Green Card: New USCIS Guidance for EB-1 Eligibility for Foreign Nationals With Extraordinary Ability

For foreign nationals with “extraordinary ability” in the sciences, arts, education, business or athletics, the path to a green card normally has a much shorter route. The EB-1 extraordinary ability category is a type of employment-based, first-preference visa that has several advantages for a “small percentage of individuals” positioned to prove their expertise within a specific area. As indicated by the elite immigrant visa category, an extraordinary amount of documentation is required to meet the high threshold for EB-1 eligibility.

To provide an example of the evidentiary criteria, this category reserved for individuals with extraordinary ability requires that individuals demonstrate extraordinary ability through sustained national or international acclaim. To do so, applicants must meet at least three of the 10 criteria, or provide evidence of a major one-time achievement, such as a Pulitzer Prize, Oscar, or Olympic medal. In addition, applicants must provide evidence showing that they will continue to work in the area of expertise.

More specifically, the applicant must provide evidence of at least three of the following:

Receipt of lesser nationally or internationally recognized prizes or awards for excellence
Membership in associations in the field which demand outstanding achievement of their members
Published material about the candidate in professional or major trade publications or other major media
Judgment of the work of others, either individually or on a panel
Original scientific, scholarly, artistic, athletic, or business-related contributions of major significance to the field
Authorship of scholarly articles in professional or major trade publications or other major media
Display of work at artistic exhibitions or showcases
Performance of a leading or critical role in distinguished organizations
Command of a high salary or other significantly high remuneration in relation to others in the field
Commercial successes in the performing arts

While U.S. Citizenship and Immigration Services (USCIS) has been consistent in detailing the criteria to be demonstrated, the specific evidence deemed acceptable has evolved over the lifetime of this visa category. Last September, USCIS updated its policy manual on employment-based first-preference (EB-1) immigrant petitions in the Extraordinary Ability classification. Specifically, USCIS provided examples of comparable evidence and the way in which USCIS will “consider any potentially relevant evidence.”

To further clarify the acceptable types of evidence, USCIS issued another policy manual update on Oct. 2. The most recent update provided additional clarification, stating:

“Confirms that we consider a person’s receipt of team awards under the criterion for lesser nationally or internationally recognized prizes or awards for excellence in the field of endeavor;
Clarifies that we consider past memberships under the membership criterion;
Removes language suggesting published material must demonstrate the value of the person’s work and contributions to satisfy the published material criterion; and
Explains that while the dictionary defines an “exhibition” as a public showing not limited to art, the relevant regulation expressly modifies that term with “artistic,” such that we will only consider non-artistic exhibitions as part of a properly supported claim of comparable evidence.”

These clarifications likely will provide more consistency in the adjudication process.

This article was co-authored by Tieranny Cutler, independent contract attorney.

You See Health, Whistleblower Saw Fraud: Uncovering a $23 Million Healthcare Fraud Scheme

A whistleblower’s vigilance has led to the revelation of alleged Medicare and TRICARE fraud involving UCHealth, a healthcare system with locations throughout the state of Colorado. University of Colorado Health agreed to a $23 million settlement to resolve allegations of improper coding for emergency room visits subsequently billed to government-funded healthcare programs. The qui tam provisions of the False Claims Act empower whistleblowers—individuals with non-public knowledge of fraud against the government—to file a lawsuit on behalf of the government. The qui tam whistleblower in this case will receive $3.91 million or 17% of the settlement.

Summary of the Allegations

According to court documents, from November 1, 2017, through March 31, 2021, certain UCHealth hospitals allegedly engaged in a fraudulent practice concerning Evaluation & Management (E/M) emergency department facility claims. These claims, submitted to both Medicare and TRICARE, are intended to compensate hospitals for resources associated with patient visits, including medical evaluations and management.

UCHealth’s alleged fraudulent activity centered around the misuse of Current Procedural Terminology (CPT) codes, specifically CPT 99285. This code represents the “highest level of severity” in emergency department visits and requires comprehensive medical evaluations and examinations, and high-complexity decision-making. However, UCHealth reportedly manipulated the coding process by automatically assigning the highest severity code, CPT 99285, based on the frequency of vital sign monitoring rather than the actual severity of the patient’s condition or resource utilization. According to the settlement agreement, employees had complained about the overuse of the highest severity code, and the hospital system had been flagged by the Centers for Medicare & Medicaid Services (CMS) as being a “High Outlier” for that CPT code as well.

Upcoding Fraud Scheme

Upcoding and improper billing to Medicare and TRICARE are forms of healthcare fraud that involve misrepresenting the services provided to obtain higher reimbursements than justified. Upcoding occurs when a healthcare provider submits claims for more expensive services or procedures than were actually performed, such as billing for a comprehensive exam when only a basic consultation was provided. Improper billing includes practices such as double billing for the same service, billing for services not rendered, or charging for medically unnecessary procedures. These fraudulent activities exploit government-funded programs, increasing costs for taxpayers and undermining the integrity of healthcare systems.

The Whistleblower’s Journey

The case began when Timothy Sanders, a concerned individual, filed a qui tam lawsuit on April 28, 2021, under the False Claims Act. This legal action initiated an investigation into UCHealth’s billing practices. Whistleblowers are integral in exposing fraudulent activities within healthcare systems, as they possess insider knowledge that can lead to substantial recoveries for the government. By filing a qui tam lawsuit, individuals, such as the healthcare fraud whistleblower in this case, can bring fraudulent activities to light, potentially leading to significant financial repercussions for the involved parties. With whistleblowers, as the Principal Deputy Assistant Attorney General said, “We will pursue health care providers that defraud the taxpayers by knowingly submitting inflated or unsupported claims.”

Website Use of Third-Party Tracking Software Not Prohibited Under Massachusetts Wiretap Act

The Supreme Judicial Court of Massachusetts, the state’s highest appellate court, recently held that website operators’ use of third-party tracking software, including Meta Pixel and Google Analytics, is not prohibited under the state’s Wiretap Act.

The decision arose out of an action brought against two hospitals for alleged violations of the Massachusetts Wiretap Act. The complaint alleged that the hospitals’ websites collected and transmitted users’ browsing activities (including search terms and web browser and device configurations) to third parties, including Facebook and Google, for advertising purposes.

Under the Wiretap Act, any person that “willfully commits [, attempts to commit, or procures another person to commit] an interception. . . of any wire or oral communication” is in violation of the statute.

In its opinion, the Court observed the claims at issue involved the interception of person-to-website interactions, rather than person-to-person conversations or messages the law intended to cover. The Court held, “we cannot conclude with any confidence that the Legislature intended ‘communication’ to extend so broadly as to criminalize the interception of web browsing and other such interactions.”

This decision arrives as similarly situated lawsuits remain pending in courts across the nation.

Department of Labor’s New Overtime Rule Overturned by Federal Court in Texas

On November 15, 2024, in State of Texas v. Dep’t of Labor, the US District Court for the Eastern District of Texas overturned a Department of Labor rule that would have increased the number of employees subject to the Fair Labor Standards Act (FLSA). The rule established by the Department of Labor in April of 2024 increased the minimum salary at which executive, administrative, and professional (EAP) employees are exempt from minimum wage and overtime pay under the Fair Labor Standards Act (FLSA). In their opinion, the court held that the Department of Labor’s 2024 rule should be overturned because it was an unlawful exercise of agency power that went beyond the scope of the authority granted to them by Congress.

Impact of the Ruling

The ruling in State of Texas v. Dep’t of Labor impacts the entire nation because it prevents the Department of Labor’s 2024 rule from going into effect. As a result, the minimum salary threshold reverts back to $35,568 per year for executive, administrative, and professional employees to be exempt from overtime pay. The Department of Labor can still appeal this decision but with the impending change of administration, they are unlikely to do so.

Still, employers should keep in mind that despite this ruling, states are allowed to set a higher minimum salary for exemption than the ones set by federal law. In Massachusetts, an employee has a right to overtime pay if they work more than forty hours in one week and are not on the list of exempted workers. In Rhode Island, the minimum weekly salary for exempt executive employees is $200 per week. However, employers cannot use the exemption unless the employees are paid at least the standard minimum wage if their salaries are computed on an hourly basis.

Practical Takeaways

In light of the court’s ruling law, employers should:

Review the job descriptions and salaries of your employees to see if they are exempt from the federal standards set forth in the Fair Labor Standards Act.
Review your state laws regarding overtime pay.

How to Prepare for the Upcoming Filing Deadline Under the Corporate Transparency Act (CTA)

The January 1, 2025 filing deadline under the CTA for filing beneficial ownership information reports (BOI reports) for reporting companies formed prior to January 1, 2024 is rapidly approaching.

January 1, 2025 Filing Deadline

The CTA became effective on January 1, 2024. If you have filed a BOI report in the last 11 months, it may have been in connection with BOI reporting requirements for entities formed in 2024, because any reporting company formed on or after January 1, 2024 is required to submit its initial BOI report within 90 days of the filing of formation documents. However, the CTA’s BOI report requirements also apply to entities formed before 2024 (as well as to entities formed in 2025 and beyond), and the deadline for filing BOI reports for these entities is fast approaching. BOI reports for entities formed before 2024 must be filed by January 1, 2025, and as further discussed below, BOI reports for entities formed on or after January 1, 2025 must be filed within 30 days of the filing of formation documents.

Compliance with the Corporate Transparency Act

Below are several initial steps to take to prepare for this upcoming deadline:

1. Exemptions. Assuming your entity was formed by the filing of a document with a secretary of state or any similar office under the law of a State or Indian Tribe, your entity may be a reporting company subject to the CTA. If so, review the 23 exemptions to being a reporting company and confirm if any of these exemptions apply to any of your entities.

An entity formed as noted above that qualifies for any of these 23 exemptions is not required to submit a BOI report to the Financial Crimes Enforcement Network (FinCEN).
An entity formed as noted above that does not qualify for any exemption is referred to as a “reporting company” and will be required to submit a BOI report to FinCEN.

2. Entity Records. Review the entity records for each reporting company and confirm that these records reflect accurate, up to date information with respect to the ownership percentages, management, etc. of each entity within the structure.

3. Determine Beneficial Owners. There are two types of reporting company beneficial owners: (i) any individual (natural person) who directly or indirectly owns 25% or more of a reporting company, and (ii) any individual (including any individual who owns 25% or more of the reporting company) who directly or indirectly exercises substantial control over the reporting company. FinCEN expects that every reporting company will be substantially controlled by at least one individual, and therefore will have at least one beneficial owner. There is no maximum number of beneficial owners who must be reported.

4. FinCEN Identifiers. Once the individual(s) who qualify as beneficial owners of any of your reporting companies have been identified, you may obtain FinCEN identifiers for these individuals. Although this step is not required, obtaining a FinCEN identifier will allow you to report an individual’s FinCEN identifier number in lieu of his or her personal beneficial ownership information in the BOI report filed for the reporting company in which he or she has been determined to be a beneficial owner. If/when any beneficial ownership information changes for that individual, the individual will be required to update the beneficial ownership information associated with his or her FinCEN identifier, but each reporting company which this individual is a beneficial owner of will not be required to file a corresponding update (unless an update is required for a separate reason).

5. Prepare to File BOI Reports Sooner Rather than Later. With the January 1, 2025 filing deadline fast approaching and over 32 million entities expected to be impacted by the CTA, we recommend taking the steps to prepare and file BOI reports for your reporting companies as soon as possible. While awareness of the CTA and its requirements continues to grow, people still have questions and concerns regarding how their personal information will be handled, and it can take time to collect the necessary information. Accordingly, identifying any beneficial owners and requesting their beneficial ownership information as soon as possible will help to avoid any last-minute scrambles to prepare and file your reporting companies’ BOI reports. Some have questioned whether BOI reports are subject to disclosure under the Freedom of Information Act (FOIA). FinCEN has pointed out that these reports are exempt from disclosure under FOIA.

6. Reach Out With Questions. We have a team of attorneys, paralegals and support staff that would be happy to help guide you through this process.

The Corporate Transparency Act in 2025 and Beyond

In addition to reporting requirements for reporting companies formed before 2024 and during 2024 as outlined above, all entities formed in 2025 and beyond that qualify as reporting companies will be required to submit BOI reports within 30 days of the filing of formation documents. This is a significantly shorter filing window than what was imposed on entities formed before and during 2024. Accordingly, moving forward, for entities formed in 2025 and beyond, the CTA should be viewed as an additional step in the entity formation process.

The CTA also imposes requirements for updating BOI reports following any changes to the beneficial ownership information reported on a BOI report. Any changes to the beneficial ownership information must be reflected in an updated BOI reports filed with FinCEN no later than 30 days after the date on which the change occurred (note, the same 30-day timeline applies to changes in information submitted by an individual in order to obtain a FinCEN identifier).

AI Transcripts and Investment Advisers: Embracing Technology While Meeting SEC Requirements

AI Transcripts in Investment Advisory

There has been a boom recently regarding investment advisers’ use of artificial intelligence (“AI”) to transcribe client and internal meetings. Among other applications, AI features such as Zoom AI Companion, Microsoft Copilot, Jump, and Otter.ai (collectively, “AI Meeting Assistants”) can assist with drafting, transcribing, summarizing and prompting action items based on conversation content in the respective application. For instance, Zoom AI Companion and Microsoft Copilot can draft communications, generate transcriptions of conversations, identify points of agreement and disagreement of a discussion and summarize action items.

Overview of SEC Recordkeeping Requirements for AI Transcripts

As of now, there are no specific artificial intelligence regulations pertaining to the use of AI transcripts or the recordkeeping obligations that would follow. However, there are several SEC recordkeeping provisions that may be implicated by use of the AI capabilities offered by the AI Meeting Assistants. Rule 204-2 requires investment advisers to maintain certain records “relating to [their] investment advisory business” including “written communications sent by such investment adviser relating to” such enumerated subjects as: (i) any recommendation made or proposed to be made and any advice given or proposed to be given; (ii) any receipt, disbursement or delivery of funds or securities; (iii) the placing or execution of any order to purchase or sell any security; and (iv) predecessor performance and the performance or rate of return of any or all managed accounts, portfolios, or securities recommendations (subject to certain exceptions).

Every registered investment adviser is required to keep true, accurate and current books and records. The approach at this juncture would be to adopt these AI Meeting Assistant transcripts into the firm’s books and records. Once translated into written form, the SEC could consider the transcripts and summaries to be written communications regarding investment advice. Such transcripts and summaries should be kept in their original form, together with notes (if any) as to any corresponding inaccuracies produced by the AI content. Registered investment advisers are fiduciaries and should not utilize any information in conjunction with providing client services or communications that it does not reasonably believe is accurate. Thus, if the firm was to use the content of AI transcripts and/or summaries in conjunction with client services or communications that was incorrect, the onus would remain on the firm to demonstrate as to how it reasonably relied upon the content. It is inconsequential whether these transcripts and summaries make it into your CRM software or are maintained in the AI Meeting Assistants program. Regardless of whether the content is a meeting summary or list of action items, the transmission would likely constitute a communication for purposes of Rule 204-2 due to implicating an already established recordkeeping requirement.

Implementing Effective AI Strategies in Investment Advisory

A firm must eliminate or neutralize the effect of conflicts of interest associated with the firm’s use of artificial intelligence in investor interactions that place the firm’s or its associated person’s interest ahead of investors’ interests.
A firm that has any investor interaction using covered technology (AI) to have written policies and procedures reasonably designed to prevent violations of the proposed rules.
Adopt AI Meeting Assistant transcripts into books and records.

Trump Administration Tariffs: Considerations for U.S. and Global Companies

Donald Trump’s reelection as president of the United States raises considerations for both U.S. and non-U.S. companies importing goods into the country. Specifically, given Trump’s plan to impose “universal baseline tariffs on most foreign products” to “reward[] domestic production while taxing foreign companies,” what tariffs will be imposed, and what can importers do to protect themselves from the increased financial burden tariffs create? After Trump takes office on Jan. 20, 2025, supply chains most likely will be more expensive, with any additional tariffs likely impacting U.S. retailers, wholesalers, and manufacturers. During the campaign, Trump announced he would impose an additional 10-20% on global products and an additional 60% on products of China. Presidents have broad authority to impose tariffs and there are numerous legal authorities the Trump administration can rely on to impose them. In this GT Alert, we address those statutes and discuss strategies importers should consider to protect themselves from the increased financial burden. Statutory legal authority includes:

International Emergency Economic Powers Act of 1977 (IEEPA) provides the president with the authority to address unusual and extraordinary threats to national security through economic sanctions. According to the IEEPA, “Any authority granted to the President by section 1702 of this title may be exercised to deal with any unusual and extraordinary threat . . . if the President declares a national emergency with respect to such threat.” President Trump may use this act to address U.S. trade deficits.
Section 232 of the Trade Expansion Act of 1962 grants the president the power to impose restrictions on imports that pose a threat to national security, including through the imposition of tariffs. Previous legal challenges to the use of Section 232 have been unsuccessful.
Section 301 of the Trade Act of 1974 allows the president to respond to foreign trade practices that disadvantage the United States, authorizing the executive to (1) impose duties or other import restrictions, (2) withdraw or suspend trade agreement concessions, or (3) enter into binding agreements with foreign governments to eliminate the conduct in question or provide compensation. In his first term, President Trump used Section 301 beginning in July 2018 to impose additional tariffs of 25% or 7.5% on four lists of products from China. To date, the tariffs are still in place.
Section 338 of the Tariff Act of 1930 allows the president to impose additional tariffs of up to 50% on any country that discriminates against U.S. goods.
Section 122 of the Trade Act of 1974 provides the president with a “balance of payments” authority, allowing the imposition of an additional 15% tariff on imports for 150 days “[w]henever fundamental international payments problems require special import measures to restrict imports—(1) to deal with large and serious United States balance-of-payments deficits, (2) to prevent an imminent and significant depreciation of the dollar in foreign exchange markets.”

Prior to the implementation of additional tariffs, U.S. companies should consider increasing visibility into their supply chains. Importers may wish to review each imported product and confirm its country of origin. Specifically, if an additional 10% is added to products of the European Union and 60% is added to products of China, and a purchase agreement states the country of origin is the EU, U.S. companies should consider confirming the bill of materials and production steps to ensure that the product is in fact manufactured in the EU and not merely assembled there.

In addition, U.S. importers should consider reviewing incoterms (international commercial terms) on all purchase orders to determine which party is responsible for the tariffs. Note that tariffs are assessed based on the date of entry of goods into the United States and not the purchase order date. If a U.S. importer and non-U.S. supplier are currently negotiating a master purchase agreement that will take effect between now and the implementation of new tariffs under the Trump administration, importers may wish to add language so that the purchase price does not include the additional duties at whatever date the goods enter the United States.

Finally, there are numerous duty-mitigation strategies importers can consider to potentially blunt the impact of increased costs, including the use of “first sale” in a multi-tier transaction. Imported merchandise may have been the subject of more than one sale, with the middleman buyer adding an amount for profit and expenses to the price paid by the U.S. importer at entry. For example, merchandise may be manufactured in China, sold to a middleman in Hong Kong, and then sold to a buyer/importer in the United States. Under certain circumstances, importers can declare the value of the goods on the “first” or earlier sale, rather than on the last one, thereby reducing the declared value of the goods upon which duty payments are based. In addition, importers may consider taking legal deductions from the declared value, such as foreign inland and international freight.

The implementation of tariffs in the Trump administration seems likely, although the specifics have yet to be disclosed. In the meantime, companies should consider increasing transparency into their global supply chains and employing duty-mitigation strategies.

Holy Hemp: New Jersey Court Partially Invalidates Hemp Law

On Oct. 10, 2024, a New Jersey Federal District Court made a big decision on hemp. The Court largely invalidated New Jersey’s recent attempt to tighten controls on “intoxicating hemp products” like Delta-8 and Delta-10, which were previously sold in gas stations, smoke shops, and convenience stores without much oversight. The state had put forward amendments aimed at restricting these products to those over 21 and regulating them like cannabis. New Jersey argued that it was time to clamp down on these sales, citing public health concerns and the rising number of minors getting their hands on these potent, unregulated products.

NJ Gov. Phil Murphy had signed off on these amendments despite admitting the law wasn’t perfect. For him, protecting minors was the priority. And today, the Court shared that sentiment—partially. It kept in place only the part that prevents the sale of these products to minors.

As for the rest of the amendment? The Court struck it down. The reason? It found that New Jersey’s approach violated federal law, essentially treating hemp products from out-of-state differently from those produced locally under the New Jersey Cannabis Regulatory Commission’s new process. This selective control crossed the line, according to the Dormant Commerce Clause of the Constitution and provisions in the Federal Farm Act, which stops states from blocking the transport of hemp products.

The Court’s decision made it clear that New Jersey does have the power to regulate these sales, but the amendments need legislative fine-tuning to meet federal standards. So, while New Jersey’s push to regulate intoxicating hemp is on pause, this is far from over.

Here’s where the decision makes things complicated for sellers: By Oct. 12, shops were supposed to pull these hemp products from the shelves, including Delta-8 drinks and THC-A gummies. That means, until New Jersey’s Cannabis Regulatory Commission issues new rules, those products are off-limits.

For anyone in the hemp or cannabis business in New Jersey, it’s a loud reminder—stay compliant, stay updated, and be ready to adapt quickly to changes.

by: Benjamin Sheppard of Norris McLaughlin P.A.
©2024 Norris McLaughlin P.A., All Rights Reserved

For more news on Hemp Legality, visit the NLR Biotech, Food, & Drug section.

The Rise of Annuities – A Riddle Wrapped in a Mystery Inside an Enigma? [Podcast]

“A riddle wrapped in a mystery inside an enigma.” That’s Winston Churchill describing Russia in 1939. The words puzzle and paradox have long been associated with annuities, marking them as one of the most difficult financial products to demystify. Recently, there has been a significant increase in annuity sales, which has added to the enigma. Why are they suddenly becoming so popular? Estate planning attorneys should know at least some basics.

The Original Annuity Riddle

The original annuity puzzle (the annuity market participation puzzle) refers to the economic paradox where retirees rarely choose to annuitize their wealth despite theoretical models suggesting this would be optimal for lifetime consumption smoothing and longevity risk protection. Classical economic theory, particularly as developed by Yaari (1965) (1), suggests that risk-averse individuals without strong bequest motives should convert a substantial portion of their wealth into lifetime annuities to hedge against outliving their assets; this optimizes their economic utility. They benefit from the insurance aspect of an annuity. Payouts are generally guaranteed for a lifetime, but the contract is priced according to average life expectancies.

However, in practice, voluntary annuity participation rates remain remarkably low across most developed countries. This discrepancy between theoretical predictions and observed behavior has sparked extensive research into potential explanations, including behavioral biases, bequest motives, concerns about healthcare costs, mistrust of insurance companies, desire for liquidity, existing annuities through Social Security and pensions, and the role of family risk-sharing.

The disinterest in annuities seems to be changing. Figure 1 shows a very recent trend of significantly increased annuity sales.

Figure 1: Growth in Annuity Sales Volume since 2004. Data from LIMRA. © wealthcarelawyer.com

The New Annuity Mystery – Why are Annuities Suddenly so Attractive?

There is no definitive answer. However, it is interesting that growth is driven almost exclusively by fixed annuities. A fixed annuity provides a guaranteed interest rate and principal protection since the insurance company bears the investment risk, but it typically offers lower potential returns with simpler features and lower fees. This maximizes the insurance aspect of an annuity.

In contrast, the returns of a variable annuity are tied to the performance of an investment portfolio chosen by the owner who bears the investment risk. These annuities offer higher potential returns and associated downside risk but with more complex features, higher management fees, and optional features like guaranteed income riders.

Figure 2: The most recent record federal deficit increase (red) seems to precede the increase in annuity sales. In contrast, good stock market performance should reduce the interest in annuities.

Annuities are priced by calculating the present value of future payment obligations, adjusted for mortality risk, expenses, and profit margins. Insurance companies start with the principal investment and determine what payment stream they can provide based on current interest rates, actuarial tables (which predict how long they will need to make payments), their operating costs, and their desired profit margin. Higher interest rates generally allow for larger payments. In contrast, longer life expectancies, additional guarantee features, and higher expenses reduce the payment amounts the insurer can offer for a given principal investment.

In the first quarter of 2024, annuity sales reached a record $113.5 billion, marking the highest first-quarter sales figure in the 40-year history of Limra’s data tracking. While it is unclear what caused the sudden increase in the popularity of annuities, we believe that concern for the viability of Social Security because of the ballooning deficit may have contributed to it. LIMRA offers an alternative evaluation:

“Favorable economic conditions and demographic shifts have driven demand for investment protection and guaranteed lifetime income solutions that are unique to annuity products. During their discussion, Hodgens focused on the economic factors, such as higher interest rates and prolonged market volatility, which have enhanced the value and appeal of fixed annuity products, particularly fixed-rate deferred (FRD) and fixed indexed annuities (FIA).” (2).

It is also possible that current affluent baby boomers, as the sandwich generation, see value in diversifying with annuities: The annuity is considered spending money to help assure a certain standard of living, while investments are invaded only sparingly to allow for a growing legacy for the next generation. A guaranteed income stream from an annuity can provide psychological permission for retirees to spend more freely on themselves. Without an annuity, many retirees tend to be overly conservative with spending, worried about depleting their savings too quickly or not having enough for longevity and emergencies.

The Annuity Product Enigma

In an effort to make annuities more attractive, the industry has developed numerous products that address various concerns and preferences clients may have. As a general rule, many of the special flavors partially defeat the economic purpose of an annuity, which is utility maximization for persons without a strong bequest motive.

Annuity contracts have evolved from basic guaranteed income instruments into complex financial products, each structured to address specific risk-transfer and income objectives. This evolution has produced three distinct primary classifications: Fixed, Variable, and Indexed annuities.

Fixed Annuities represent the foundational form. The Single Premium Immediate Annuity (SPIA) facilitates direct risk transfer through immediate income guarantees, leveraging mortality credits to enhance returns. Deferred Income Annuities (DIAs) modify this framework by introducing a time delay element, optimizing for future income maximization. Qualified Longevity Annuity Contracts (QLACs) emerged as a specialized adaptation to retirement account regulations, permitting Required Minimum Distribution deferral to age 85, subject to statutory limitations ($200,000). Multi-Year Guaranteed Annuities (MYGAs) provide fixed-rate guarantees over specified periods, offering liquidity features absent in traditional fixed annuities.

Variable Annuities evolved to incorporate market exposure through separate account structures. The basic Investment-Only variant provides tax-deferred market participation, while Living Benefit riders introduced protective features:

Guaranteed Lifetime Withdrawal Benefits (GLWB) ensure sustained withdrawal rates
Guaranteed Minimum Income Benefits (GMIB) protect future income bases
Guaranteed Minimum Accumulation Benefits (GMAB) provide principal protection parameters

Indexed Annuities represent a hybrid development, linking returns to market indices while maintaining principal protection. Structured/Buffered variants modify this framework by accepting defined downside exposure in exchange for enhanced participation rates.

Tax treatment bifurcates between:

Qualified: Pre-tax funding, full distribution taxation
Non-Qualified: After-tax funding, exclusion ratio calculations

Contract modifications across all variants may include:

Mortality benefit enhancements
Inflation adjustment mechanisms
Long-term care provisions
Premium return options
Distribution structure alternatives

This taxonomic framework provides the foundation for analyzing suitability, tax implications, and regulatory considerations across various client objectives and constraints.

Client Self Help

More information about annuities is not necessarily more helpful to consumers: “More complete, and therefore more complex information about annuity products leads to reduced attention and produces worse consumer choices. In an eye-tracking experiment comparing consumer response to a real, relatively brief annuity brochure and an edited and shortened version of the same brochure, we find that the more complex the materials, the faster attention declines.” (3).

This underscores the need for a learned intermediary to digest the information and to tailor it to the individual’s needs, preferences, and financial situation, who can ask clarifying questions to ascertain understanding.

Given a certain contract amount and their ages, many clients want to know what monthly or annual income they can expect given the current rate structures. The Annuity Calculator by annuity.org promises to do that. Others, such as Schwab, have similar annuity calculators, and results may differ.

How to Help Your Estate Planning Clients

The increasing complexity and popularity of annuity products present both opportunities and challenges for estate planning attorneys. Given the recent surge in annuity sales and evolving product complexity, attorneys must establish clear parameters for client discussions regarding these financial instruments.

Estate planning attorneys can appropriately address annuities by maintaining strict professional boundaries while providing valuable guidance. The fundamental framework involves three key components: permissible discussion parameters, professional referral protocols, and risk management considerations.

Permissible Discussion Parameters: Estate planning attorneys may appropriately discuss the theoretical foundations of annuities, including their role in consumption smoothing and longevity risk protection as established in classical economic theory. Discussions may encompass general tax implications, basic product classifications (fixed, variable, and indexed), and integration with estate planning objectives.

Professional Referral Protocols: Given the product complexity illustrated in the annuity taxonomy, specific product recommendations should be deferred to qualified specialists. Appropriate referral channels include:

Independent Annuity Brokers
Independent Insurance Advisors
Certified Financial Planners (CFPs)
Chartered Life Underwriters (CLUs)

Risk Management Considerations Documentation protocols should include:

Contemporaneous recording of annuity-related discussions
Specific referral documentation
Clear delineation of scope limitations regarding product recommendations

The attorney’s role should focus on identifying how annuity contracts may integrate with broader estate planning objectives while ensuring clients receive specialized guidance for product selection. This approach aligns with the current market dynamics where product complexity demands specialized expertise beyond the scope of general estate planning practice.

Professional network development should emphasize relationships with independent advisors who maintain appropriate licensing and demonstrate expertise in the evolving annuity marketplace. This network enables appropriate delegation of product-specific guidance while maintaining the attorney’s role in the overall estate planning strategy.

This framework enables estate planning attorneys to address the increasing relevance of annuity products while maintaining appropriate professional boundaries and ensuring clients receive comprehensive guidance from qualified specialists regarding specific product selection and implementation.

Podcast

References

Yaari, M.E., 1965. Uncertain lifetime, life insurance, and the theory of the consumer. The Review of Economic Studies, 32(2), pp.137-150.
LIMRA, Building on the Record Annuity Sales Momentum, LIMRA (May 22, 2024), https://www.limra.com/en/newsroom/industry-trends/2024/building-on-the-record-annuity-sales-momentum/.
Harvey, Joseph, John G. Lynch, Philip Fernbach, and Ji Hoon Jhang. “Information Overload in Consumer Response to Annuities: Eye-Tracking and Behavioral Evidence.” Consumer Financial Protection Bureau Office of Research Working Paper 23-01 (2023).

https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=4394792

SEC Enforcement Director Highlights Increased Penalties for Violations of Whistleblower Rule

Recently, the U.S. Securities and Exchange Commission (SEC) has increased enforcement efforts around the whistleblower protection rule Rule 21F-17(a) which prohibits companies from impeding the ability of individuals to blow the whistle on potential securities law violations to the Commission. Most notably, the rule prohibits overly broad non-disclosure agreements and other employment agreements which restrict whistleblowing.

In remarks delivered November 6 at Securities Enforcement Forum D.C. 2024, Sanjay Wadhwa, the SEC’s Acting Director of the Division of Enforcement noted the importance of these enforcement efforts and highlighted the increased penalties levied by the Commission in Rule 21F-17(a) cases.

“The SEC’s whistleblower program plays a critical role in our ability to effectively detect wrongdoing, protect investors and the marketplace, and hold violators accountable.” Wadhwa said. “But that program only works if whistleblowers have unfettered ability to share with the SEC information about possible securities law violations. However, all too often we have seen, for example, confidentiality agreements and employment agreements by various advisory firms and public companies that impede that ability, including by limiting customers’ ability to voluntarily contact the SEC or by requiring employees to waive the right to a monetary award for participating in a government investigation. So this past fiscal year, and the year prior, the Commission brought a series of enforcement actions to address widespread violations.”

“There was a similar series of actions addressing this issue some years back,” Wadhwa continued. “And I think for a while there was better compliance, but then things slipped and we’re back here. So, this time around the Commission authorized what I view to be fittingly robust remedies, including the largest penalty on record for a standalone violation of the whistleblower protection rule. It is my hope that these enforcement actions will have a significant deterrent effect and will lead to greater and sustained proactive compliance.”

The record penalty referenced by Wadhwa was an $18 million penalty levied against J.P. Morgan in January. According to the SEC, J.P. Morgan regularly had retail clients sign confidential release agreements which did not permit clients to voluntarily contact the SEC.

In enforcing Rule 21F-17(a), the SEC has found illegal language in severance or separation agreements, employee contracts, settlement agreements and compliance manuals. Language in the various types of contracts found to violate Rule 21F-17(a) has included requiring the prior consent of the company before disclosing confidential information to regulators, preventing the employee from initiating contact with regulators, requiring the employee to waive their right to awards from whistleblowing award programs, including a “non-disparagement clause” that specifically included the SEC as a party the employee could not “disparage” the company to, and requiring the employee to inform the company soon after reporting information to the SEC.

The National Law Forum