ERISA Jurisdiction May Not Apply

Katt, Peter C.
March 2003
Journal of Financial Planning;Mar2003, Vol. 16 Issue 3, p40
Academic Journal
This article addresses several issues related to the implementation of the Employee Retirement Income Security Act (ERISA) in the U.S. and its impact on the financial planning industry as of March 2003. The author notes that when ERISA jurisdiction applies, punitive damages aren't allowed and that this creates a moral hazard because it removes the risk of serious financial punishment. There are two types of life settlement firms. One type purchases policies for their own investment purposes. Another group purchases policies and repackages them to sell to investors. Firms buying policies for their own account may securitize them by selling investment units to investors, but investors aren't buying a particular policy or a portion of a particular policy. It is reasonable to believe that firms buying policies for their own accounts will be more prudent in pricing them. Conversely, firms that are essentially playing a middleman role have the potential incentive to be less prudent in pricing policies so they can expand their inventories of policies to package and sell to investors.


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