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Secondary Market Pensions- Buyer Beware!

Seal of the United States Internal Revenue Ser...

The market for Secondary Market Annuities is established, legal, and mature, however there is another secondary market that retirement investors would be wise to avoid.  A new article by Forbes highlights this marketplace.  It is a market that we have seen for over a year, and had several investors inquire about, and have consistently recommended that people avoid it until there is more clarity on the legal structure and defensibility of the purchase.

The market is for pensions bought and sold on the secondary market basis.  The premise is simple – a retiree has a pension cash flow, and needs a lump sum of cash.  A new investor offers a lump sum of cash in exchange for the future monthly payments.  It should work, except for pesky little thing called the law.

The article appeared here in a recent Forbes issue.  Here’s the best quote:

The problem? The contracts with pensioners that were supposed to fund that steady stream of income for investors are, according to legal experts and a growing number of judges, illegal and unenforceable. Federal laws clearly prohibit military retirees from assigning their pensions and the Internal Revenue Service code that covers private pensions also prohibits the practice.

There’s really not much more to say after that however if you’re interested in the article follow this link here.  This is another one of the good quotes from the article referencing SICO, a seller of secondary market pension cash flows:

A 26-page SICO agreement with pensioners reviewed by FORBES is called an “Annuity Utilization Contract” and attempts to get around laws prohibiting the assignment of pensions by requiring borrowers to route their checks into a bank account SICO jointly controls. The arrangement allows SICO to claim it isn’t buying a pension, but merely collecting payments after they come to the borrower. “It’s cute—very cute,” says Richard Leonard, the Beverly Hills lawyer who won a $5 million arbitration award for Lipschitz and Radford. (Note: These are Investors who lost money)

The SICO contracts feature other clauses that are likely unenforceable—such as one that prohibits the pensioner from challenging the contract as unenforceable. And when pensioners have stopped paying or have sought to have their debt to SICO discharged in bankruptcy, the company has mounted an aggressive legal response. The company has brought almost 100 challenges in bankruptcy cases, typically arguing borrowers lied about their financial status (debts incurred through fraud can’t be discharged in bankruptcy) or citing default judgments SICO obtained in California after borrowers failed to mount a defense.

If you are interested in exploring a high-yield, safe investment that is legal, fully transparent, and where your payments are backed by a ruling in a court of law, then give us a call about secondary market annuities.  You will find that these investments are everything we say they are, and invite you to speak with past clients and legal counsel to verify that as well.

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“For all time periods and for all portfolios, the addition of the annuity leads to a decline in the portfolio failure rates.”

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