Sell Pension Payments
Many Americans have adhered to the values of hard work and loyalty. They have dedicated their working lives to one entity, be that public service, the military or a private company. For their loyalty, many have been rewarded with a defined-benefit retirement package, typically a pension.
What is a Pension?
A pension is an annuity, a stream of future payments coming from a former employer or insurance company. These payment benefits are a result of years of service to a company or organization. Many have paid into the pension plan through their own contributions as well as their employers.
Pension plans are a bit of a dying breed. Many employers consider them a prohibitively expensive benefit. Rather than directing their resources towards ensuring a retirement benefit for their employees (and bearing all the investment risk), many have shifted to defined contribution style plans like 401(k)s. In these plans, the employer has shifted the investing responsibility to the individuals. But pensions still apply to millions of retirees and workers.
Can I Sell My Pension?
Military servicemen can sell their pensions under most circumstances. In fact, pension purchasing companies are typically very interested in buying military pensions given their security, so a buyout offer should be attractive and competitive.
You should be able to sell your VA disability pension for a lump sum of cash. Waiting for disability payments can be painfully slow and many are sick of tracking down VA disability payments when they move or fora variety of reasons. Many would rather just get a lump sum of cash up front.
Private Sector Pensions
You can typically sell your private pension for a lump sum payment. In fact, many private companies are actively trying to buyout current plan participants to save money. They know that making these payments for years to come may be difficult. You can always get a quote to see how much you can get for all, or just part, of your private pension.
Public Sector Pensions
While workers for private sector companies and military are typically able to sell their future pension payments, government pensions may be trickier to sell. You may not be able to formally assign benefits without a court order.1 And even so, it may be only to current or ex-family members. If this is the case and you are in need money, you can often obtain a loan against your future pension benefits from a pension purchasing company (if you can’t sell the pension payments directly).
Sometimes, pension purchasing companies may have to get creative in assigning pension benefits. These reportedly include requiring the pension seller open up a separate bank account which the purchasing company controls or having the payment seller purchase a life insurance policy and list the pension buying company as beneficiary.2
The selling of pension payments is not always as cut and dry as retirement annuities or structured settlements, it makes sense to spend a few minutes with an attorney to verify the legality of selling any pension payments. You can still get a free quote at many companies to see how much you could get for your pension payments and speak to someone about your options. Many annuity and pension purchasing companies have attorneys on staff.
Why Sell Pension Payments?
Many private sector workers and servicemen can sell their pension payments for up-front cash. The need for up-front cash is all too frequent. It happens. Maybe you’ve been laid off, experiencing unforeseen medical issues or have gotten behind on mortgage payments. Or you might want to just knock out existing high-interest credit card or student loan debt. Receiving a lump sum of cash might take care of the problem.
In many cases, it may not be necessary to sell all of your pension payments. You could sell a partial amount, take care of the financial need, and still have pension income coming in to supplement social security and whatever other retirement income you have. The selling of pension payments is a big decision and one that should not be taken lightly. We encourage prospects to get as much information as possible on the funding companies. Also, get quotes from multiple funding companies.
You may also consider selling pension payments if you’re concerned about the claims-paying ability of your pension plan. While employers are required to fund pensions to a certain level, this ability can get strained in times of financial trouble, resulting in plans that are underfunded. According to data from Bloomberg, Illinois, Connecticut and Kentucky are the three worst-funded states for pensions.3
If private pension plans get into serious financial trouble, they can be taken over by the Pension Benefit Guaranty Corporation (PBGC), a government agency. While pensions are back-stopped by the PBGC this agency may not be able to honor future claims.
By the PBGC’s own account, they may run out of money by 2025, less than a decade from now.4 Even if it can honor the claims, it will likely honor vested pension benefit amounts, but future benefits will be frozen and their value will be stuck at the level when the pension plan was taken over.
Pension Risk Transfers
Many private companies realize the severity of their current underfunded status and have chosen ‘pension risk-transfers’ to insurance companies. In these cases, the company transfers the future pension benefit obligations to a third-party, often an insurance company. These are being done by well-known corporations including General Motors, Verizon and Astra-Zeneca and the practice is expected to continue in the future. Now, the claims paying entity is an insurance company.
When a company transfers their pension plan to an insurer, they lose the PBGC backing and are subject to the credit risk of the insurance company. There is state guarantee associations (GA) but these are completely funded by their member life insurance companies. So if the insurers get into trouble, the GAs face the same risks as the PBGC.
If you are concerned that your corporate pension payments may be reduced, you might consider inquiring about selling your pension payments now. You will get a discounted amount on the value and it will likely be taxable, but if you fear that your pension benefits will be cut at some point in the future you would receive a discounted amount anyway, or worse.