It's lump: Massachusetts latest to probe pension advances

Massachusetts is the latest state looking into upfront pension payments to retirees amid concerns that the payment may be less than a plan's future value.
OCT 20, 2013
By  DJAMIESON
Massachusetts regulators have jumped into the fray over the sale of pension income streams in exchange for lump sums. Secretary of the Commonwealth William F. Galvin announced today that the Massachusetts securities division has opened an inquiry into nine firms that offer lump sums to pensioners. State investigators have contacted the firms seeking information on whether the companies do business in Massachusetts and how the lump-sum offers are marketed. Massachusetts is concerned that the amounts offered are significantly less than the value of the future income. “It's a novel industry and it seems to be flourishing,” Mr. Galvin told InvestmentNews. “I understand the pressure someone may have to sell [their pension],” he added, “and we're not saying it's never appropriate [but] obviously you're going to get less” than the value of future payments. The state also wants to know if the deals are structured as securities. Massachusetts' action follows a similar move last Tuesday by New York Governor Andrew M. Cuomo, who said the state's Department of Financial Services was investigating 10 companies that sell pension advances. New York is looking into possible fraud, misrepresentation and violation of usury laws. Also last week, the Financial Industry Regulatory Authority Inc. and the Securities and Exchange Commission issued a joint warning to investors about selling their structured settlements or pension income streams. Like Massachusetts and New York, Finra and the SEC said many of the retirees being targeted for lumps sums were retired government employees or military personnel, who risked getting a relatively small lump sum in exchange for their periodic payments. “It's a topic that a number of securities regulators are looking at,” Mr. Galvin said. “It's a response to what's going on in the marketplace.”

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