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Federal regulators renew warnings about pension advance deals

The attraction of apparent ready money in the face of mounting financial pressure can lead people to make decisions they otherwise probably would not. Perhaps one of the best examples of this phenomenon in practice can be seen in the existence of so-called pension advance companies.

These operations have been around for a lot of years. Typically, the pitch they offer is that they will "convert tomorrow's pension checks into hard cash today." On the other side of the coin, according to regulators, the firms seek to attract operating cash by offering investors big returns.

The problem with these deals, according to the Federal Trade Commission and other agencies, is that the takers often wind up being taken and fall victim to financial fraud that may cost them a pretty penny. This has prompted officials to issue warnings about pension advance operations before and the alert was recently renewed.

Pension advances may come in many guises. Some offerings call them pension sales, pension loans or pension buyouts. But the FTC says they all commonly expect the consumer to relinquish monthly pension payments for between five or 10 years. The return is a lump sum payment that winds up being less than what would have been received otherwise.

In addition to being effectively shortchanged, retirees may face fees and interest rates that result in an effective annual percentage rate of more than 100 percent. They might also have to take out a life insurance policy naming the advance company as beneficiary.

Investors who might be thinking about buying into such schemes should be careful, too. The Financial Industry Regulatory Authority and the Securities and Exchange Commission are on record as saying that those who might be tempted by high yield offerings from pension advance firms should be aware that they could be hit with big fees and suffer big losses.

Proving financial fraud and investment loss due to company wrongdoing can be difficult. But that doesn't mean you should simply take the lumps. Contacting an experienced securities law attorney is always advisable.

Source: FTC.gov, "Pension Advances: Not So Fast," accessed July 17, 2014

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