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Minnesota Commerce Department warns retirees of pension advance scams

5/2/2016 11:58:23 AM

For Immediate Release:

Saint Paul, MN – The Minnesota Department of Commerce is alerting seniors to protect their investments and avoid pension advance traps. Last year, The Consumer Financial Protection Bureau and New York Department of Financial Services took action against companies that allegedly deceived consumers about the costs of pension advance loans.

“Pension advance scams prey on older adults under financial stress,” said Commerce Commissioner Mike Rothman. “I urge Minnesota retirees to avoid products that promise fast cash for your pension and read the fine print before signing over control of your benefits.”

Pension advance scams often target government retirees or former military service members. The scam involves investors who provide funds to make cash advances and pensioners who are willing to turn over future pension payments in exchange for an immediate lump sum cash payment. The up-front cash comes with a cost in the form of high fees and interest rates.

The Commerce Department offers the following retirees and former service members the following guidance to protect their pensions:

Retirees: Questions to ask before you sell your rights

  • 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 its money? The company typically takes commissions and other fees that may result in the cash payout being lower than the future benefits you are 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 consider this increased 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.

Investors: questions to ask before you invest

  • Is the investment registered? Check with the Minnesota Department of Commerce’s Securities unit by phone: 651-539-1638 or email: Securities.Commerce@state.mn.us. You can check if the security is registered at the federal level using the SEC’s EDGAR tool.
  • Did you do a regulatory check on the background of the principal officers of the company offering the investment? Background information is available by contacting the Department of Commerce, FINRA’s BrokerCheck, the Investment Adviser Public Disclosure, or internet searches.
  • Is the transaction legal? Some pension rights cannot be transferred. As with the case cited above, federal law prohibits the assignment of U.S. government pensions and disability benefits. Check out the source of the pension funds in which you will be investing.
  • Can you afford to lose the money? These are risky investments. You should not invest more than you can afford to lose.
  • Can you get your money if you need it? Many of these investments are liquid and you may not have access to your money.

Commerce is here to help

If you need to check on an investment, adviser, or broker, or believe you may have been the victim of a scam or fraud, contact the Commerce Department’s Consumer Services Center by email at consumer.protection@state.mn.us or by phone at 651-539-1600 or 800-657-3602 (Greater Minnesota).

You can also visit the Serve Our Seniors website at serveourseniors.org for more information for senior investors. The site is an initiative of the North American Securities Administrators Association (NASAA), representing state securities regulators.

Media Contact:
Ross Corson
Director of Communications
Minnesota Department of Commerce
P: 651-539-1463 | C: 651-368-5050 | ross.corson@state.mn.us

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