Institutional Care: America's Most Vulnerable Seniors Raped and Sexually Abused

The headline alone is nauseating.  "SICK, DYING AND RAPED IN AMERICA'S NURSING HOMES," screams the headline of the recent CNN report detailing the incidence of sexual assaults in America's nursing homes, and the indifference of the government and regulators to the epidemic of violence visiting the most vulnerable in America's nursing homes. The facts elicited by CNN reporters in individual cases sicken and disturb. 

That such a story even exists is maddening.  More than 16,000 cases of sexual abuse have been reported in nursing homes and assisted living communities since 2000, according to the CNN report.  But the figures do not tell the complete story.  They don't even come close. The reason is that the government does not specifically track sexual abuse.  Despite the frequency, and indeed, the devastating impact upon victims and their families, state and federal government simply does not track or keep statistics of sexual assault.  CNN explains: 

Despite the litany of abuses detailed in government reports, there is no comprehensive, national data on how many cases of sexual abuse have been reported in facilities housing the elderly.

State health investigators examine all types of abuse reported at nursing homes and assisted living facilities, whether reported by the facilities or flagged by complaints to the state from witnesses, family members or victims. In the case of nursing homes, state officials typically conduct these investigations, as well as routine inspections, on behalf of the federal Centers for Medicare & Medicaid Services (CMS), which regulates the more than 15,000 facilities that receive government reimbursements that pay for many residents' care. Both state health agencies and the federal government then use the information to rate facilities and issue financial penalties for the worst offenders.

*          *         * 

CNN surveyed the health departments and other agencies that oversee long-term care facilities in all 50 states. Of the states that could provide at least some data, the responses varied widely. 

Illinois, for example, said 386 allegations of sexual abuse of nursing home residents had been recorded since 2013, 201 of which involved a caretaker. Hawaii said eight allegations of sexual abuse were investigated between 2011 and 2015 -- five of which involved a caregiver. And when states provided a further breakdown of how many allegations had been substantiated, the results demonstrate just how few accusations end up being proven -- whether it's because of the extreme hurdles posed by aging victims, the destruction of evidence, or half-hearted investigations by facilities and regulators.

Of the 386 cases in Illinois, 59 were considered substantiated. And in Texas, 11 of 251 sexual complaints in the 2015 fiscal year were substantiated. Wisconsin said it didn't have a single substantiated report of abuse in the last five years.

But most states could not say how frequently abuse investigations involved sexual allegations, often stating that sex abuse allegations are not categorized separately from other forms of abuse.

The federal government doesn't specifically track all sexual allegations either.

The reported figure comes from federal data maintained by the U.S. Department of Health and Human Services' Administration for Community Living (ACL), the cable network said, noting that ACL officials said that it includes only cases that involved state long-term ombudsmen.

To arrive at the figure reported, CNN reviewed civil and criminal court documents, state health investigations and CMS information (which included data only on nursing homes), and also interviewed experts, regulators and the families of victims. Although the investigation focused on nursing homes it also addressed assisted living communities, singling out two specific cases.

In one such case, a former cook at a Louisiana assisted living community,  was indicted and charged with first-degree rape of a resident. An executive at the community has also been charged for  failing to report abuse of adults and obstruction of justice, a charge she and the community that hired her denies.  

CNN also cited a 2013 case in Minnesota in which an 89-year-old assisted living resident with dementia was transferred to the mental health ward of a local hospital after she said she had been raped. A certified nursing assistant said he had consensual sex with the resident, and a director at the community believed him, according to CNN.

Most of the report focused on the abuse in nursing homes.  Before reciting specific, repeated, and heart-wrenching details of case after case, the news organizations made a stark and horrific assessment of its findings:

The unthinkable is happening at facilities throughout the country: Vulnerable seniors are being raped and sexually abused by the very people paid to care for them.

It's impossible to know just how many victims are out there. But through an exclusive analysis of state and federal data and interviews with experts, regulators and the families of victims, CNN has found that this little-discussed issue is more widespread than anyone would imagine.

Even more disturbing: In many cases, nursing homes and the government officials who oversee them are doing little -- or nothing -- to stop it.  

Sometimes pure -- and even willful -- negligence is at work. In other instances, nursing home employees and administrators are hamstrung in their efforts to protect victims who can't remember exactly what happened to them or even identify their perpetrators.

In cases reviewed by CNN, victims and their families were failed at every stage. Nursing homes were slow to investigate and report allegations because of a reluctance to believe the accusations -- or a desire to hide them. Police viewed the claims as unlikely at the outset, dismissing potential victims because of failing memories or jumbled allegations. And because of the high bar set for substantiating abuse, state regulators failed to flag patterns of repeated allegations against a single caregiver.

It's these systemic failures that make it especially hard for victims to get justice -- and even easier for perpetrators to get away with their crimes.

According to the report, perpetrators get away with their crimes in too many instances, sometimes through the intentional or negligent handling of the nursing homes themselves. Some perpetrators are first reported by other employees for assaults upon them, causing the nursing home to treat the issue as a labor matter, leaving vulnerable residents under the perpetrator's care. If you want to read more about the specific cases, go here.  The news network recommended that facility owners and operators investigate all incidents, preserve evidence, train employees on reporting practices, and employ sufficient staff to enable proper supervision of workers.

If you are a senior, a family member of a senior, or a caregiver, advocate, or fiduciary for a senior, it is imperative that you evaluate carefully institutional care.  Sexual abuse is only one of many risk factors about which you should be aware. This blog has included articles detailing many of these risk factors, warning that institutional care should be a last resort, and not an ordinary health care option as it is utilized by Medicare, Medicaid, and the current health care system.  These articles include the following:  

• COPD Patients Discharged to a Skilled Nursing Have Two Times the Risk of Death Within Year Compared to Those Who Go Home
• One-Third of Nursing Home Residents Injured or Killed In Treatment
• Hapatitis Infection Risk in Nursing Homes Up 50%; Infection Risk Across the Board Increases
• Resident's Death Caused By Nursing Home Failing to Follow Advanced Directives Requesting CPR
• Nursing Home Involvement in Patient's Death Object Lesson on Aging-in-Place Planning
• Nursing Home Worker Faces Homicide Charges in Violent Death of Resident
• Paramedics Often Obstructed, Provided Insufficient Information On Nursing Home Calls
• Hospice Patients in SNFs Less Likely to be Visited by Professional Staff the Last Two Days of Life
• Non-Profit Long-Term Care Safer than For-Profit
• Nursing Home Residents Twice as Likely to Suffer Fractures
• Habits Are Hard to Break: Nursing Homes Habitually Violate Federal Standards Year After Year
• CDC Reports That SNF Workers Most Likely Among Health Care Workers to Forego Recommended Vaccinations
• New Controversial Sign-Off Rule Increases Burdens On Skilled Nursing Facilities- Threatens Transfer To Hospitals
• Don't Let Institutions Plan for You: Medicaid-Eligible Nursing Home Resident Stuck With Costs of Private-Pay Room
• Many Skilled Care Providers Still Unaware of New Medicare Rules Permitting Chronic Condition Care
• Ohio Ranks Poorly on Long-Term Care Services Scorecard
• Hospice Costs Medicare Less Notwithstanding that Hospice Patients Live Longer

You should ensure that you, or those for whom you are or may be responsible,  adopt a comprehensive estate plan adopting and implementing an "Aging in Place" plan, and providing both guardianship planning and guardianship protection. Guardianship and institutionalization are cruelly related in that court appointed guardians often prefer institutional care for their wards, and institutions often refer residents for guardianship. For more information regarding the risks associated with guardianship, visit the National Association to STOP Guardianship Abuse.  Among the best planning tools developed to avoid the risk of institutional care is avoiding institutional care altogether. 


If you want to attend in person or online a seminar on "Aging in Place," its meaning, its importance, and how to incorporate it into your estate and financial plan, simply send us an email with your name and location.   

Congress Considering Removing Medicaid Eligibility Planning Opportunities- Spousal Income Annuities Targeted

Congress is considering making it harder to qualify for Medicaid if a community spouse has an annuity.  The change is part of an effort to close what Congress considers "loopholes" in Medicaid law.

The proposed bill aims to prevent married couples from using assets to purchase an annuity for the community spouse, so that the institutionalized spouse can apply for Medicaid. The bill would count half of the income from a community spouse's annuity as income available to the institutionalized spouse for purposes of Medicaid eligibility. The House Energy and Commerce Committee held a hearing on February 1, 2017, to consider the changes.  It is unclear how eligibility will be changed since income can not be "liquidated" to pay for care.  Regardless, the proposed changes would mean that married couples would have one less tool available to create an adequate safety net for a community spouse affected by nursing home spend down.  

Along with limiting spousal annuities, Congress is also considering bills to count lottery winnings as income and require Medicaid applicants to prove U.S. citizenship or residency before receiving benefits.

For more information about the proposed legislation, click here.

Patient Discharged to Nursing Home 300 Miles Away

McKnight's has reported that a Georgia hospital discharged and transported a patient to a nursing home 300 miles away, resulting in a lawsuit filed by the patient's sister. 

Johnny Lee Bryant was admitted to Doctors Hospital in Augusta, GA, in early January 2015 from  a nearby long-term care facility. He was treated at the hospital for sepsis and pneumonia for less than two weeks before he was discharged.

Instead of returning to the nearby facility, Bryant was transported by Gold Cross EMS to a nursing home nearly 300 miles away. Once there, the nursing home refused to admit Bryant.   Bryant was eventually taken back to Augusta and admitted to a different hospital, where he died in February 2015.

The lawsuit, filed by Bryant's sister accuses the hospital, the ambulance company and Hetal Thakore, M.D., of negligence, wrongful death and causing emotional distress.

For more information, go here. 

Seniors Should Review Medications for Fall Risk

Falls remain by far the leading cause of injuries among adults age 65 and older in the U.S, according to the Centers for Disease Control and Prevention (CDC).  The January Newsletter of Worst Pills Best Pills includes an excellent article warning the elderly of the importance of reviewing medication for increasing fall risk.   The article explains that: 

The most recent CDC statistics reveal that during 2014, approximately 27,000 older adults died because of falls. Overall, nearly 3 million older adults were treated in emergency rooms for fall-related injuries, such as fractures and head trauma, and about 800,000 of these patients subsequently were hospitalized. The costs to Medicare to care for patients who have been injured in falls are estimated to be $31 billion annually. And for many elderly people, fall-related injuries can lead to a loss of independence and placement in an assisted-living facility or nursing home.

Many falls are preventable. In 2011, the CDC launched an initiative called STEADI — Stopping Elderly Accidents, Deaths, and Injuries — to reduce preventable falls in older adults. STEADI provides health care professionals with tools to screen and assess older patients for risk of falls and guidance on how to reduce this risk. A key part of the STEADI program involves health care professionals reviewing and managing patients’ medications that might increase the risk of falling. 

The list of drugs that can make patients susceptible to falling is lengthy.  Use of these drugs by older adults should be avoided whenever possible, and many have been designated as "Do Not Use" by Public Citizen’s Health Research Group [link added]. Older adults requiring treatment with one or more of these drugs should use the lowest dose necessary to achieve the desired clinical benefit in order to lower the risk of falling. Note that the table does not include drugs used to treat high blood pressure, all of which can increase the risk of falling.

Seniors, their family, friends, and caregivers are well-advised to review medications regularly.   

The New Special Needs Trust Fairness Act

The Special Needs Trust Fairness Act, federal legislation that allows people with disabilities to create their own special needs trusts instead of having to rely on others, is now law.  The measure was included in the 21st Century Cures Act, a $6.3 billion package of health-related initiatives signed by President Obama on December 13, 2016. 

The National Academy of Elder Law Attorneys (NAELA)  press release announcing the Fairness Act’s clearing its final legislative hurdle, explains that the measure “corrects a patently false and degrading error in the law that presumed all individuals with disabilities lacked the capacity to handle their own affairs.”  The legislation, which Rep. Glenn Thompson (R-Pa.) introduced in 2013, will finally allow beneficiaries with capacity to create and fund their own special needs trusts with the same treatment and protections available for trusts created by others on behalf of the beneficiaries. 

In addition to Rep. Thompson, NAELA applauded Frank Pallone (D-N.J.) along with Sens. Chuck Grassley (R-Ia.) and Bill Nelson (D-Fl.) “for their bipartisan dedication to ensuring this common sense fix became law.”

The Fairness Act will apply to trusts established on or after the date that the Cures Act was enacted.  

The Social Security Administration has published an emergency memorandum incorporating the change into the Program Operations Manual System (POMS) ( with thanks to Attorney Donald D. Vanarelli, whose blog post can be found here).

The SNT Fairness Act can be found in Title V, Section 5007 (page 440), of the Cures Act.  To read the 21st Century Cures Act, click here.

Antipsychotics and Psychotropic Drugs Increase Fall Risks in Nursing Homes

McKnight's Long Term Care News reports that psychotropic drugs, including antipsychotics and antidepressants, increase the risk of falls among nursing home residents, according to a recently published study.

Previous research suggested a link between psychotropic prescriptions and falls in nursing home residents, but little was known of how "as-needed" prescriptions impacted fall rates. The study, published in the December issue of JAMDA - The Journal of Post-Acute and Long-Term Care Medicine by Dutch researchers, not only backed up earlier research, but found a relationship between falls and drugs taken on an as-needed basis as well.

Of the 2,368 nursing home residents in the study, nearly 70% had a prescription for at least one psychotropic drug per day. An additional 8.8% had an as-needed psychotropic prescription. The study's authors found that 33.5% of residents had at least one fall, which most often occurred on days when a psychotropic drug was prescribed on a scheduled basis.

Residents receiving the drugs on a scheduled basis had a nearly threefold increase in falls. An increase in fall incidence also was noted in residents prescribed the drugs on an as-needed basis. Results of the study also showed that male residents had a fall risk nearly two times higher than female residents.

Study results showed no link between fall incidence and the prescription of benzodiazepines, drugs commonly used to treat anxiety and insomnia.

An Ohio appeals court has ruled that a Medicaid applicant did not transfer assets for less than fair market value even though he sold property at below the appraised price because the sale was an arms-length transaction. Lawrence v. Ohio Department of Job and Family Services (Ohio Ct. App., 6th Dist., No. H-15-020, Sept. 2, 2016).

Eugene Lawrence owned a rental property that he could no longer maintain, so he sold it in 2011 for $22,720, which was the remaining balance on the mortgage. The auditor had appraised the property at $66,800. In 2014, he entered a nursing home and applied for Medicaid. The state determined that because Mr. Lawrence sold the property for less than the fair market value, it was an improper transfer, and it imposed a penalty period.

Mr. Lawrence appealed the decision. After a hearing, the state upheld the penalty period, and Mr. Lawrence appealed to court. The trial court found that Mr. Lawrence sold the property in an arms-length transaction, so the state should not have imposed a penalty period. The state appealed.

The Ohio Court of Appeals, Sixth District, affirmed, holding that Mr. Lawrence did not transfer assets for less than market value. According to the court, "the market conditions at the time of the sale combined with the condition of the property and circumstances of the sale demonstrated an arms-length transaction for fair market value."

Although the result is comforting for those who must plan for Medicaid eligibility, the case is instructive of the difficulties applicants may face.  The state upheld the decision on appeal to an Administrative Law Judge, but the Common Please Court held in favor of the applicant.  The applicant then was forced to defend the decision in the Court of Appeals.  Proceeding through the court system is not easy, or inexpensive.  

For the full text of this decision, go here.

ACLU Takes On Nursing Homes

McKnight's has published an excellent and illuminating editorial regarding how some seniors who need institutional care are routinely frustrated in seeking and obtaining care by the very institutions themselves.  The editorial explains, using a specific example, how the ACLU has finally involved itself in skilled nursing home placement decisions or refusals.  The editorial reads: 

As in all cases involving a resident who wasn't accepted at a nursing home, each side has a different take on what happened.

According to the Lincoln Star-Journal, Nebraska resident Courtney Shelor says her father wasn't accepted at six nursing homes because he had HIV. A statement from the ACLU followed this week, via a letter to the homes in question reminding them of state and federal law.If you missed the basic tenants around the Americans with Disabilities Act (or Section 504 of the Rehabilitation Act of 1973), it's here.  

Accepting a person with a terminal illness into your nursing home also would hopefully be found within your own moral code.While it was 68 miles away from his family, Shelor was finally accepted at Golden Living Center in Broken Bow. I suspect that administrator or admissions director was simply doing her job, but let me say publicly: Good for you for making his last days good ones. Shelor writes that this facility “welcomed us with open arms!” While the center had never had anyone with HIV, it was able to make it work, including helping the elder Shelor be approved for Medicaid.You can read the rest of the younger Shelor's letter here, in which she talks about her father being her hero. He died at the end of July.

Go here to read the rest of the article.

Bill Offers Tax Credit for Aging In Place Improvements

Making your home more accessible for your long term care needs may soon be incentivized by a $30,000 tax credit.

Rep. Patrick Murphy, D-Fla., recently introduced H.R. 5254, entitled, “Senior Accessible Housing Act,” which would incentivize individuals 60 years of age and older to “age in place” by way of a $30,000 tax credit for home modifications. Potential modifications include the widening of doorways and the installation of ramps, handrails, grab bars and non-slip flooring.

The Congressional Research Service (CRS) summary of the Bill reads as follows:

This bill amends the Internal Revenue Code to create a nonrefundable personal tax credit for senior citizens who modify their residences to enhance their ability to remain living safely, independently, and comfortably in the residences.  

The credit applies to up to $30,000 of the expenses that individuals who are at least 60 years old incur over their lifetime to make modifications to their residences, including: 

•  the installation of entrance and exit ramps;

• the widening of doorways;

• the installation of handrails or grab bars

• the installation of non-slip flooring, and;

• other modifications that the Internal Revenue Service (IRS) includes on a list of modifications that would enhance the ability of the individuals to remain living safely, independently, and comfortably in their residences.

The IRS must establish and maintain the list of acceptable modifications after consulting with the Department of Health and Human Services (HHS) and receiving input from the public. 

The Bill and credit would certainly be more meaningful if current HHS policy was not hostile to home bound health care or home bound hospice care.  For more information regarding HHS policy of actively discouraging use of the Medicare home health care and hospice benefits, go here and here.  Regardless, the Bill currently has 19 co-sponsors.

To follow activity on the bill, go here.

To read the text of the bill, go here. 

HHS Can't Delay Medicare Appeals Backlog Case While Backlog Worsens

The Department of Health and Human Services (HHS) won't be able to push off litigation over its overwhelming backlog of Medicare appeals, a federal court ruled on Monday.  The HHS had asked the Court to stay the litigation, which was filed by the American Hospital Association and three other hospital organizations, until Sept. 30, 2017. HHS asked for the delay to allow the agency to move ahead on administrative and legislative efforts designed to tackle the backlog of more than 700,000 appeals, including implementation of a set of strategies proposed as recently as June.

The U.S. District Court for the District of Columbia's denied HHS' motion to stay the litigation, after describing the agency's proposed fixes as “impressive-sounding action items” that won't do much to curb the backlog as it grows to more than 1 million appeals in fiscal year 2020."  Judge James E. Boasberg wrote:  

“The best medicine can sometimes be hard to swallow,” wrote  “... the backlog and delays have only worsened since [HHS] first sought the Court's help, and the Secretary's proposed solutions are unlikely to turn the tide.”  

In denying the HHS' request, the court nonetheless turned down the hospital groups' request that the Court order the agency to resolve the appeals.     The Court explained that:

“[t]he Court, however, does not possess a magic wand that, when waved, will eliminate the Backlog.  Plaintiffs' suggestion that the Court simply order HHS to resolve each of the pending appeals by the statutorily prescribed  deadlines is extremely wishful thinking."

Of course, among the proposed strategies, one will not find a reversal of HHS opposition to lawful home health care and hospice care.  In other words, HHS appears satisfied with strategies designed to reduce the backlog of cases, but unwilling to reverse the positions that cause the backlog of cases in the first place.  For more information regarding the HHS position on home and hospice care, go here.   

Class Action Alleges Medicare Has Policy of Denying Home Health Appeals

A U.S. district court has recently ruled that there is evidence that Medicare has a policy of routinely upholding denials of home health services at the first two levels of review. Sherman v. Burwell (U.S. Dist. Ct., D. Conn., No. 3:15-CV-01468(JAM), Aug. 8, 2016).  The court certified a class and denied a motion to dismiss a claim against the Department of Health and Human Services.

Bradley Olsen-Ecker was a Medicare beneficiary who required home care after a hospitalization. He received care from a Medicare-certified home health agency, including skilled nursing visits and physical therapy. After a few months, Medicare informed him that it would no longer cover home care because unskilled caregivers could meet his needs. Mr. Olsen-Ecker appealed the decision. Medicare denied the appeals at three levels of review. Finally, Mr. Olsen-Ecker's physical therapist submitted a "demand bill" to Medicare, and Medicare reimbursed the physical therapist for its services. Mr. Olsen-Ecker passed away during the appeal process.

The current Medicare appeals process involves four separate levels of review.  First, Medicare beneficiaries who wish to appeal a decision receive a paper review redetermination by the original contractor who made the determination. A "paper review" is a review of the documents alone, without an in-person hearing. If that review fails, the beneficiary requests reconsideration by a separate entity that contracts with HHS (known as the Qualified Independent Contractor, or QIC). If a beneficiary does not obtain relief from the QIC‘s review, he may request a hearing before an Administrative Law Judge (ALJ). Finally, if the claim is denied by the ALJ, a beneficiary may receive a paper review by the Medicare Appeals Council. There is also an expedited process available, of which Olsen-Ecker took advantage of in his appeals process.

The current review process went into effect in 2010. Previously, a Medicare beneficiary who wanted to appeal an initial adverse determination first obtained a paper review by the original contractor. If that appeal was denied, then the beneficiary could either receive a hearing in front of an ALJ or a "carrier hearing" involving a complete review of the record before a hearing officer, depending on the type of Medicare benefits the beneficiary received. Either way, the second level of review under the old review system involved a hearing and not just another paper review. Then, if the beneficiary still wanted to appeal, he either received a paper review by the Medicare Appeals Council, or an ALJ hearing if he had not had one before, and then a paper review by the Medicare Appeals Council.  

Changes in the review  process have resulted in a drastic reduction in the number of appeals that result in a favorable coverage determination for beneficiaries at the first two levels of review, i.e., the redetermination by paper review by the original contractor, and the reconsideration by paper review by the QIC. These two levels of reconsideration have success rates for claimants as low as .61% each year, or as high as 2.2%. The total number of redetermination requests has also increased nearly ten-fold from 13,385 in 2008 to 112,844 in 2012. The change has also placed a great burden on the ALJs, increasing their workload by 184%. In the meantime, the reversal rate by ALJs -resulting in favorable coverage decisions- is about 70% across all of Medicare, and 62% on home health care and hospice decisions, according to HHS.  Simply, despite rhetoric of HHS to the contrary, it appears that HHS is agressively hostile to both home health care, and hospice care. 

Mr. Olsen-Ecker's estate filed a class action lawsuit against the Department of Health and Human Services (HHS) for violating Mr. Olsen-Ecker's constitutional  due process rights, alleging that the agency has a secret policy to deny home health services claims at the first two levels of review. According to the estate, HHS denies up to 99 percent of claims at the first two levels of review and that at the administrative hearing level of review, administrative law judges (ALJs) reverse the lower levels of review 62 percent of the time. HHS filed a motion to dismiss for failure to state a claim.

The U.S. District Court, District of Connecticut, denied the motion to dismiss. The court certified the class and ruled that there is plausible evidence that policies exist that deprive some Medicare beneficiaries of meaningful review.  According to the court, the high number of reversals at the ALJ level of review suggests that "whatever review occurred at the first two levels of review could have plausibly contained defects, because absent some aberration, the first two levels of review should have granted coverage to a far greater proportion of beneficiaries."  Moreover, the Court cited the "somewhat unnerving alleged facts...that his first two levels of review found that tasks like assessing the effectiveness of medication and performing body system assessments could be performed by [Mr.  Olsen-Ecker] or by unskilled care," suggesting to the Court that "it is not implausible to believe that there may have been some policy put in place that, when administered by the care providers and QICs, resulted in improper denials.  Sherman v. Burwell at p. 13.

Attorneys from the Center for Medicare Advocacy represented the estate. “We hope,” said Judith Stein, the Center’s Executive Director, “that this case will eventually result in Medicare beneficiaries’ receiving fair and accurate appeal decisions, without having to present their case at a hearing.”  

For information what Medicare's homebound or home health care benefits "should" be, go here.

For the Center’s news alerts on the decision, click here.

DOL Conflict of Interest Rule Impede Management of Retirement Funds

The $7.3 trillion IRA market is the largest and fastest-growing segment of the U.S. retirement market.  The Department of Labor’s (DOL) new conflict of interest rule will, however, impose greater scrutiny and complexity on the rollover market and potentially disrupt proper management of these assets.  These are the conclusions of global analytics firm Cerulli Associates in a new survey, “U.S. Evolution of the Retirement Investor 2016: Regulation and investor addressability.” The report explores the future of the IRA rollover market following implementation of the DOL’s fiduciary rule.

Jessica Sclafani, associate director at Cerulli, explained:

“There is general consensus in the retirement industry that more assets will remain in employer-sponsored DC [defined contribution] plans because of the rule.  While Cerulli generally agrees with this statement, there are additional considerations, such as the influence of existing advisor relationships, which is the greatest driver of IRA rollover assets, in addition to DC-plan-specific considerations, such as current DC plan design and lack of in-plan retirement income solutions, that may continue to support the migration of DC plan assets to the retail IRA market.”

Using Cerulli’s proprietary IRA rollover model, their research seeks to quantify the degree to which assets traditionally pegged as headed toward the IRA market may now be “at risk” and more likely to remain in employer-sponsored DC plans.  Cerulli’s IRA-focused research also examines how IRA providers that are also retirement plan providers will negotiate this new landscape in which it will be more challenging to direct DC plan participants to move assets from a low-cost account with institutional pricing to a higher-cost retail account.

Common wisdom has long held that most investors benefit from rolling over an employer-sponsored 401(k) to a self-directed IRA when permissible.  CPA Ed Slott, author of "The Retirement Savings Time Bomb ... and How to Defuse It,"  told Bankrate.com  that IRAs offer "more choice, more control" for consumers than company-sponsored 401(k) plans. "In most cases, a rollover is better," says Slott, author of "The Retirement Savings Time Bomb ... and How to Defuse It." But, he admits, there are some issues -- like holding company stock, early retirement, or threats of law suits, that in specific situations mitigate against roll-over.  Of course, for the consumer, the important take-away is that the consumer needs to get good advice.

Unfortunately, the new conflict of interest rules mean, if the study is correct, that consumers are less likely to get that advice, and therefore, are less likely to make the proper investment and management choices.

The reasons are myriad and complex.  One example identified in the study is the heavy reliance by consumers accustomed to dealing with institutional employer-sponsored defined contribution plans on call centers for advice and counsel.  According to industry reports,  the most frequently cited reasons for participants to contact their 401(k) plan call center are to change investments (47%).  Plan participants may fear making a mistake online or they may want reassurance throughout the process, so they turn to the 401(k) call center. The topic of investments, whether transactional or informational, can be a precarious one for call centers, especially with the recent regulations passed down from the Department of Labor (DOL). Just because call center representatives are registered does not necessarily mean they can provide investment advice to 401(k) plan participants. As a result, consumer's are left with bad advice, or refusal to give proper advise due to threatened or potential liability for suggesting better alternatives.

Another example is in naming beneficiaries.  Even competent investment advisors have difficulty advising plan participants properly, particularly when they are unaware of the specifics of an investor's estate plan.  Should a trust be a beneficiary of a qualified plan?  As most clients getting proper estate planning advice know, the answer to that question depends upon a variety of factors, including the objectives of the investor, the type of trust, and the availability of other options.  The new rules only make it more likely that an investor will be advised to "stay the course," potentially assuring the investor in improper management and investment decisions.

Obviously, the solution for the consumer is to build a team of professional financial and legal advisors working together, and sharing information regarding goals, philosophies, tools, and alternatives.  In that way, both the consumer and the participating professionals can be assured that their clients are receiving and implementing proper management and investment decisions.

For more information, go here.

Contesting Guardianship or Challenging Guardians Is Problematic

Nina A. Kohn, Associate Dean for Research,  David M. Levy,  Professor of Law at the Syracuse University College of Law, and Catheryn Koss, Founder and former Executive Director of the Senior Law Resource Center, have written an excellent and revealing article describing the challenges for seniors and the disabled in obtaining counsel in modern guardianship cases. The article, "LAWYERS FOR LEGAL GHOSTS: THE LEGALITY AND ETHICS OF REPRESENTING PERSONS SUBJECT TO GUARDIANSHIP, is published in the Washington Law Review.

The article begins by describing the landmark guardianship battle fought in 2012 by Jenny Hatch, a 28-year-old woman with Down syndrome. Ms. Hatch was placed in a group home by her parents, who were appointed as her guardians. Ms Hatch grew despondent about the restrictive placement, the loss of her independent lifestyle, and that she was no longer permitted to work at a local thrift store. She retained an attorney to challenge both the existence of the guardianship and the appointment of her parents as guardians.

She prevailed. In a landmark decision, a Virginia court removed her parents as guardians, appointed Ms. Hatch's close friends in their place, and held that the guardianship itself would terminate after a year. A year later, she was legally reincarnated, restored from being a ward of the state to full legal personhood. The Hatch case was reported on this blog.

The authors next describe why the Hatch case was so extraordinary:

Jenny’s story captured national attention in large part because it is so unusual. Few persons subject to guardianship are able to change the terms and conditions of their guardianships, let alone regain legal capacity after a court has determined that they lack capacity to make decisions for themselves. Jenny [Ms. Hatch] was able to do both.  

A key factor in this success was that Jenny had access to legal representation. Unfortunately, many people in Jenny’s position do not. A major factor contributing to this lack of access is that attorneys are unsure whether they may legally and ethically represent a person subject guardianship.  Attorney reluctance to undertake such representation is understandable.  [emphasis added]. A person subject to guardianship has, by definition, been judicially determined to lack legal capacity and his or her decisions have been delegated to a third party... Through this process, the person has not only been declared by a court to be incapable of directing his or her own affairs but has typically been stripped of the capacity to enter into a legally binding contract. Both may appear to be insurmountable barriers [to effective legal representation]. Attorneys generally can only represent clients who have the capacity to enter into a contract to hire the attorney and the capacity to direct the attorney during the course of the representation. Moreover, in some jurisdictions, probate courts have taken the position that they can prevent a lawyer from representing a person subject to guardianship who wishes to challenge the guardianship.

The authors agree that, especially under these circumstances, guardianship can be a devastating result with significant consequence.  The abstract to the article explains:

Stripped of legal personhood, the individual becomes a ward of the state and his or her decisions are delegated to a guardian. If the guardian abuses that power or the guardianship has been wrongly imposed — as research suggests is not infrequently the case [emphasis added] — the person subject to guardianship may rightly wish to mount a legal challenge. However, effectively doing so requires the assistance of an attorney, and persons subject to guardianship typically have not only been declared by a court to be incapable of directing their own affairs but have been stripped of the capacity to contract. As a result, those who wish to challenge the terms and conditions of their guardianship, or even merely to exercise unrelated retained rights, can be stymied because attorneys are unwilling to accept representation for fear that it is unlawful or unethical.

The aging of the population means the number of persons potentially subject to guardianship is likely increasing. Although precise figures are unknown, estimates suggest that about 1.5 million adults are subject to guardianships in the United States. Many of these are older persons who suffer from Alzheimer’s disease or other forms of dementia. The number of persons subject to guardianship may grow as the number of persons with such conditions increases.  The number of older individuals over age sixty-five in the United States diagnosed with Alzheimer’s disease is projected to reach more than seven million by the year 2025, a forty percent increase over 2014 figures.

"Perhaps more importantly, there is a growing recognition that many guardianships have been wrongly imposed or are overbroad."  This recognition, encouraged in part by the United Nation’s adoption of the Convention on the Rights of Persons with Disabilities (CRPD), has, according to the authors, led to increased interest from the disability rights community in restoring the rights of persons subject to guardianship by challenging judicial determinations of incapacity.

For more information regarding guardianship, see the following articles:

• Estate Plans Should Consider and Attempt to Resolve Guardianship;
• Illinois Permits Guardian Authority to Petition for Termination of a Ward's Marriage; 
• GAO reports on Guardianship Abuse;
• National Groups Acknowledge Need for Guardianship Reform;
• Report on Abuse by Guardians and the Guardianship Process Released;
• Another Reason for Guardianship Planning: Guardian Convicted of Homicide in Death of Ward