The National Association of Insurance Commissioners is sounding the alarm about questionable annuity strategies aimed at helping veterans qualify for pension benefits.
The state insurance regulators' organization released a consumer alert Wednesday which pointed to a May report from the Government Accountability Office warning about planners and attorneys pitching unsuitable retirement products to former members of the armed services.
“We don't want to impede the market, but we want people to make educated decisions," said Sharon P. Clark, insurance commissioner in Kentucky. "We want them to have the comfort [knowing] that anyone who is marketing this is appropriately licensed and totally transparent.”
Low-income veterans who are over 65 or who are disabled are eligible for pension benefits from the Department of Veterans Affairs. They must meet income and net worth limits to qualify. Income includes earnings, disability and retirement payments, as well as interest and dividends payments, and net income from farming, business or rental property. A number of income sources can be excluded from the calculation, however, including Supplemental Security Income and a portion of unreimbursed medical expenses.
Net worth includes bonds, stocks, mutual funds and bank accounts, among other things.
More than 200 organizations across the country have sprung up to help veterans qualify for these pension benefits, mostly by transferring excess assets to annuities or setting up trusts, according to the GAO. While the VA does accredit financial planners and attorneys to help vets file the required government paperwork, the department does not endorse any products employed in these pension strategies.
According to the GAO, some of these advisers and lawyers host presentations at retirement communities and assisted-living facilities to drum up business. The retirement communities often benefit from these presentations, as the additional funds from the benefits make the facilities affordable to retired veterans, thus attracting new residents, the agency observed.
Indeed, the GAO's researchers obtained documentation showing that a retirement community paid one organization's rep a finder's fee for landing a new resident.
The GAO and the NAIC said that veterans are being persuaded to buy an annuity or move assets into a trust in a bid to qualify for VA benefits. Such a decision locks up money the individual might need on short notice. The GAO report referred to a case in which an 86-year-old veteran was sold a deferred annuity that will not begin making payments until well after the client has exceeded his life expectancy.
Inappropriate asset transfers could also interfere with Medicaid eligibility, the NAIC warned. If a veteran needs long-term care and the pension benefit is insufficient, that vet might be ineligible for Medicaid if a substantial amount of assets were transferred within the 60-month look-back period.
Ms. Clark, who also leads the NAIC's market regulation and consumer affairs committee, noted that regulators became aware of questionable benefits-claiming strategies in July and discussed the topic at the NAIC's summer meeting in August.
On Tuesday, Kentucky's insurance department received its first inquiry related to these strategies.
“It's disconcerting to hear that there are 200 organizations involved with these marketing practices,” Ms. Clark said. “The sad thing is that people don't realize that there's potential harm until it's too late, and that could be a few years later. The key to this is for veterans to do research, contact state insurance departments and make sure that people are appropriately licensed.”