The sales pitch may be tempting: trade some or all of your future pension in exchange for a lump sum of cash. You may want to sign over future payments in exchange for immediate cash, especially in tight economic times, but be cautious. In many cases, pension advances carry significant consequences.
In a typical pension advance, the consumer must sign over future monthly payments for five to ten years. The pension advance company also may charge additional fees and require a life insurance policy that lists the company as the consumer’s beneficiary. This would allow the company to obtain future pension payments, even after the consumer’s death.
Before agreeing to a pension advance, review these consumer tips:
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Contact your pension administrator to confirm whether you are allowed to participate in a pension advance agreement. Laws and regulations prohibit some pensions from being signed over to such companies.
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Review all costs and get everything in writing. Obtain a written agreement listing the annual percentage rate (APR), interest rate, commissions, purchase price of any required life insurance policies, and any other costs associated with the deal.
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Review the terms and conditions, and understand the cancellation policies that would apply should you decide the pension advance is not in your best interest.
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Be aware of potential tax impacts, such as the lump sum payment bumping you into a higher tax bracket.
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Research the company by checking complaints filed with the Ohio Attorney General’s Office and the Better Business Bureau. Conduct an online search for complaints using your favorite search engine. Type the company name along with words such as “complaint” and “scam.”
If you suspect a scam or unfair business practice, report it to the Ohio Attorney General’s Office by calling 800-282-0515 or visiting
www.OhioAttorneyGeneral.gov.