Tips to Avoid Pension Advance Scams

The Idaho Department of Finance recently released a financial literacy tip alerting retirees to pension advance scams.

Promoters initiate these scams by persuading pensioners to turn over future pension payments, promising immediate cash advances in return. The promoters purchase the future pension payments for a fraction of their actual value, leaving the pensioners with little or no income once they’ve spent the lump sum payment.

In some instances, unlicensed financial “professionals” approach retirees to convince them they can make a lot more money if they cash in their retirement and reinvest the lump sum with the promoter.

To avoid falling prey to scams like these, investors and retirees should consider a few questions before selling the rights to their future cash flows:

  • How financially secure is the company offering to buy your entitlement? Is the company registered to offer the product? Check the background of the principals before entering into the agreement.
  • How does the company make money? Often, the company takes commissions and other fees that may result in the cash payout being lower than the future benefits you’re assigning.
  • Do these costs outweigh the convenience of a lump-sum payment?
  • Do you know what restrictions, if any, apply to your ability to assign your pension benefits?
  • Check with your pension administrator to determine what restrictions apply. The transaction could be illegal and therefore void.
  • Does the company require you to purchase life insurance naming it as the beneficiary? If so, you should factor in this cost when considering whether the payout is worth it.
  • Did you consider the tax consequences? The lump-sum payment you receive may be taxable as income.

Compliance Question of the Week

If a husband makes a deposit of $4,000 cash to his individual account, and later in the same day his wife makes a $6,500 cash deposit to their joint account, do we file a CTR?

Yes, the transactions must be aggregated if they are by or on behalf of the same person and the credit union has knowledge of them. Deposits to a joint account are considered to be on behalf of all owners of the account. In this case it would be both a multiple person and multiple transaction CTR.

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Legal Briefs

National Credit Union Administration (NCUA)

The NCUA announced that qualifying credit unions have until May 31, 2017 to apply for consulting assistance. In order to qualify, a credit union must have assets totaling less than $100 million, been chartered for less than ten years, be designated a minority depository institution, or have a low-income designation from the NCUA.

Consumer Financial Protection Bureau (CFPB)

The CFPB announced that it is seeking comments on its plan for assessing the mortgage servicing rule.

Federal Trade Commission (FTC)

The FTC released the agenda for its Identity Theft Conference scheduled for May 24, 2017 in Washington D.C. The conference will discuss the various ways that identity is stolen and used by thieves.

Federal Financial Institutions Examination Council (FFIEC)

The FFIEC released the preview of the field changes for the 2017 census file.

Federal Reserve Board (FRB)

The FRB announced the release of a video that explains the proper technique for financial institutions to use when packaging and shipping contaminated currency.

The FRB’s Federal Open Market Committee announced that it decided to maintain the target range for the federal funds rate at 3/4 to 1 percent.

The May issue of FedFocus is now available.

Conference of State Bank Supervisors (CSBS)

The CSBS filed a complaint against the Office of the Comptroller of the Currency (OCC) because the OCC attempting to create a new special purpose charter for nonbank companies that do not take deposits. The CSBS complaint states that by creating a national bank charter for nonbank companies, the OCC has gone far beyond the limited authority granted to it by Congress under the National Bank Act and other federal banking laws.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of May 5, 2017. The last update prior to this was April 27, 2017.

Questions? Contact the Compliance Hotline: 1.800.546.4465;

Posted in Compliance News, Compliance News, Fraud Alert.