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Controversial “Pension Buyouts” Offer Cash for Pension Payments

A handful of private companies are targeting pension recipients by offering a controversial and little-known product referred to as “pension buyouts” or “pension advances.” This is where a private company advances a lump-sum of cash to a pension recipient in exchange for a number of years of his or her pension payments.

Internal Revenue Code prohibits pension benefits from being assigned to anyone other than the employee or beneficiary entitled to the benefit. To circumvent this federal law, pension buyout companies typically establish an arrangement whereby the pension recipient redirects monthly payments to a bank account jointly owned with the pension buyout company.

Pension buyout arrangements can be very costly to the pension recipient. It is essential that anyone interested in this type of arrangement read the proposed contract in full to understand the terms, conditions and consequences. It’s also important that the pension recipient seek consultation from outside financial and legal advisors before engaging in a buyout arrangement.

A video from PBS.org (External Link) explores one couple’s experience with this practice.

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