Last year, Pacific Life unveiled a new product, the Index-Linked Annuity Payment Adjustment Rider (ILAPA). The ILAPA product is an optional rider for claimants who choose to purchase structured settlement annuities and attorneys who structure their fees through Pacific Life. Individuals who select the ILAPA product will see a tax-free increase in structured annuity payments if the market rises, while if the market declines or remains flat, structured annuity payments will not be affected.

How Does it Work?

The ILAPA product is tied directly to the performance of the S&P 500 index. Pacific Life uses an “Index Measurement Period” of 12 months to determine whether the S&P has risen, decreased, or remained flat. The Index Measurement Period is not a calendar year—it begins when the annuity payments begin.

IF THE S&P RISES: At the end of the Index Measurement Period, if the S&P has risen, the annuity payments will also be increased by the same percentage (up to 5%). Once the payment adjustment has been made, it remains level for the next 12 months.

IF THE S&P DECLINES/REMAINS FLAT: If the S&P experiences a decline or remains flat, there will be no impact on the annuity payments. Instead, they remain as is for the next 12 months.


Let’s assume your client has purchased a structured settlement annuity with Pacific Life that will provide a monthly payment of $2000. If your client chooses to add the ILAPA product as a rider, here is how the annuity payments could be affected:

S&P 500 Index Return (hypothetical)3%-3%9%4%
Payment Adjustment (5% cap)3%0%5%4%
Monthly Payment Amount$2060.00$2060.00$2163.00$2249.52

In this scenario, if your client had chosen to add the ILAPA product, by the end of year 4, they would have seen a monthly payment increase of $249.52. That means for the fifth year of payments, rather than receiving a gross amount of $24,000 (the original payment of $2,000 per month), your client would receive a gross amount of $26,994.24. For an injured claimant, that additional $3,000 a year can make a big difference in their quality of life.

Tax Implications

Pacific Life requested a Private Letter Ruling from the IRS in 2014, and received a favorable response in relation to the ILAPA product. In part, PLR 143928-13 ruled that:

  1. The periodic payments of damages that Claimant will receive are fixed and determinable as to amount and time of payment within the meaning of § 130(c)(2)(A) even though they are calculated pursuant to an objective formula based on the performance of the S&P 500 Index.
  2. The Structured Settlement Indexed Annuity which Assignee will acquire from either Issuer 1 or Issuer 2 will not fail to qualify as a qualified funding asset under § 130(d) solely by reason of annuity’s variable payments.

What does all of this mean? It means that any increase in annuity payment that the claimant receives as the result of the ILAPA product will be treated in the same manner as the regular annuity payment—100% exempt from federal and state income taxes. For an attorney, any increase in the annuity payment will receive the same tax deferral treatment as the structured attorney fee.


It’s no secret that structured settlement annuities and structured attorney fees are two of the best tools for wealth preservation. The ILAPA product can be a useful add-on that offers the potential for additional income on top of the structured annuity payment.

As is the case with any financial product, all options should be carefully considered before committing to a decision. The experts at The Settlement Alliance can run the numbers and help determine whether or not a structured annuity with Pacific Life will provide the best return. For more information about the ILAPA product, download Pacific Life’s brochure.