PENSION ADVANCE 

TRANSACTIONS

Questionable 

Business Practices

Identified

Report to the Committee on Health, 

Education, Labor, and Pensions, U.S. 

Senate

June 2014

GAO-14-420

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-420, a report to the 

Committee on Health, Education, Labor, and 

Pensions, U.S. Senate

June 2014

PENSION ADVANCE TRANSACTIONS

Questionable Business Practices Identified

Why GAO Did This Study

There have been recent concerns 

about companies attempting to take 

advantage of retirees using pension 

advances. GAO was asked to review 

business practices related to pension 

advances. This report (1) describes the 

number and characteristics of pension 

advance companies and marketing 

practices; (2) evaluates how pension 

advance terms compare with those of 

other products; and (3) evaluates the 

extent to which there is related federal

oversight. GAO identified 38 pension 

advance companies and related 

marketing practices using company 

websites and nonpublic databases. 

GAO conducted a more-detailed 

nongeneralizable assessment of 19 of 

these companies selected based on 

factors such as marketing claims and 

presence of or lack of complaints. GAO

used undercover investigative phone 

calls to identify additional marketing 

practices and to obtain pension 

advance offers. This information was 

compared with the terms of other

financial products, such as personal 

loans. View videos of undercover 

investigative calls to selected pension 

advance companies. GAO also

examined the role of selected federal 

agencies with oversight of consumer 

protection and pension issues.

What GAO Recommends

GAO recommends that CFPB and FTC 

review the pension advance practices 

identified in this report and exercise 

oversight or enforcement as 

appropriate. GAO also recommends

that CFPB coordinate with relevant 

agencies to increase consumer 

education about pension advances. 

CFPB and FTC agreed with GAO’s

recommendations.

What GAO Found

GAO identified at least 38 companies that offered individuals lump-sum 

payments or “advances” in exchange for receiving part or all of their pension 

payment streams. Eighteen of these companies were concentrated in one state, 

and 17 offered a range of other financial products in addition to pension 

advances. The 38 companies used multistep pension advance processes that 

included various other parties (illustrated below). At least 21 of the 38 companies 

were affiliated with each other in ways that were not apparent to consumers. All 

of the companies operated primarily as web-based companies, and some 

targeted financially vulnerable consumers with poor or bad credit nationwide. 

Parties Involved in the Multistep Pension Advance Processes That GAO Reviewed

GAO received offers from 6 out of 19 pension advance companies. These offers

did not compare favorably with other financial products or offerings, such as 

loans and lump-sum options through pension plans. For example, the effective 

interest rates on pension advances offered to GAO during its undercover 

investigation typically ranged from approximately 27 percent to 46 percent, which 

were at times close to two to three times higher than the legal limits set by the 

related states on the interest rates assessed for various types of personal credit.

GAO identified questionable elements of pension advance transactions related to 

the disclosure of rates or fees, and certain unfavorable terms of agreements. The 

Bureau of Consumer Financial Protection (CFPB) and Federal Trade 

Commission (FTC) have oversight responsibility over certain acts and practices 

that may harm consumers. According to CFPB officials, CFPB’s oversight has 

been limited to instances where products met certain characteristics. FTC 

officials stated that FTC has not taken any public enforcement actions because it

has not received many complaints, among other reasons. Six other federal 

agencies have oversight over pensions and provide related education. These 

agencies provided limited consumer education regarding pension advance 

transactions, but almost all agreed that it would be beneficial. Consumers who 

are vulnerable to financial exploitation may lack the information needed to make 

sound decisions. CFPB facilitates coordinating federal financial education and 

could help ensure information reaches relevant pensioners. 

View GAO-14-420. For more information, 

contact Stephen M. Lord at (202) 512-6722 or 

lords@gao.gov.
Page i GAO-14-420 Pension Advance Transactions

Letter 1 

Background 6

A Number of Geographically Concentrated and Affiliated 

Companies Are Involved in Pension Advances and Market to 

Financially Vulnerable Consumers Nationwide 13

The Six Pension Advance Companies That Provided GAO Quotes 

Offered Unfavorable Terms Compared with Other Financial 

Products 23

There Is Limited Federal Oversight of Pension Advances 27

Conclusions 40

Recommendations for Executive Action 41

Agency and Third-Party Comments and Our Evaluation 42

Appendix I Objectives, Scope, and Methodology 45

Appendix II Additional Details on Pension Advance Companies GAO Identified 51

Appendix III Comments from the Bureau of Consumer Financial Protection 58

Appendix IV GAO Contact and Staff Acknowledgments 60

Tables

Table 1: Examples of Usury Rate Comparison for Our Pension 

Advance Offers 25

Table 2: Summary of Pension Advance Quotes as a Percentage 

of Minimum Lump Sum That Would Be Required under 

ERISA Regulations 27

Table 3: Mechanisms for Federal Agencies to Communicate with 

Pensioners 39

Figures

Figure 1: Parties Involved in the Multistep Pension Advance 

Processes That GAO Reviewed 8

Contents
Page ii GAO-14-420 Pension Advance Transactions

Figure 2: Locations of 38 Pension Advance Companies Identified 

by GAO 14

Figure 3: Two Examples of Identified Relationships between 

Companies Offering Pension Advances 17

Abbreviations

1933 Act Securities Act of 1933

1934 Act Securities Exchange Act of 1934

CFPB Bureau of Consumer Financial Protection

DOD Department of Defense

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010

DOL Department of Labor

EBSA Employee Benefits Security Administration

ERISA Employee Retirement Income Security Act of 1974

FINRA Financial Industry Regulatory Authority

FTC Federal Trade Commission

FTC Act Federal Trade Commission Act

IRS Internal Revenue Service

NCLC National Consumer Law Center

OPM Office of Personnel Management

PBGC Pension Benefit Guaranty Corporation

SEC Securities and Exchange Commission

TILA Truth in Lending Act

Treasury Department of the Treasury

UDAP Unfair and Deceptive Acts and Practices

VA Department of Veterans Affairs

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Page 1 GAO-14-420 Pension Advance Transactions

441 G St. N.W.

Washington, DC 20548

June 4, 2014

The Honorable Tom Harkin

Chairman

The Honorable Lamar Alexander

Ranking Member

Committee on Health, Education, Labor, and Pensions

United States Senate

Pensions are the foundation of economic security in retirement for 

millions of middle-class families and play a critical role in ensuring 

financial security at retirement. During an individual’s retirement years, 

pensions are often the key source of income that allows the retiree, along 

with Social Security, to maintain a reasonable standard of living. Thus, a 

partial loss of pension benefits can significantly affect a retiree’s ability to 

pay monthly living expenses, medical bills, or other unexpected 

expenses. Recent media coverage has highlighted marketing efforts of 

companies to encourage borrowing against pensions—generally referred 

to as pension advances—and has indicated that some companies may be 

attempting to take advantage of financially distressed retirees who are in 

immediate need of a large sum of cash.1

 

In 2010, the U.S. Census Bureau reported that the number of Americans 

age 65 and older is projected to more than double over the next 40 years, 

reaching almost 89 million in 2050. Also, a 2011 study by the MetLife 

Mature Market Institute on elder financial abuse reported that older 

Americans lose an estimated $2.9 billion annually to financial exploitation 

 

1

Pension advance transactions have two major components: (1) pension advances—upfront lump-sum payments provided to consumers in exchange for a certain number (and 

dollar amount) of the consumers’ future pension payments plus various fees and (2) 

pension investments—pension stream payments provided to investors in exchange for 

providing the lump sums. For purposes of this report, we focused more on the pension 

advance component of pension advance transactions, rather than on the pension 

investment component, in order to focus on the direct impact on pensioners. 
 

Page 2 GAO-14-420 Pension Advance Transactions

when factoring in estimated unreported losses.

2 These statistics highlight 

that the elderly population will grow significantly in the next few decades 

as well as concerns about the population’s vulnerability to abuse and 

related financial exploitation. The Federal Trade Commission (FTC), 

Bureau of Consumer Financial Protection, commonly known as the 

Consumer Financial Protection Bureau (CFPB), and Securities and 

Exchange Commission (SEC) may have consumer protection and 

investor oversight roles or other responsibilities related to pension 

advances depending on a number of factors, including whether the 

transaction involves consumer financial products and services, other 

consumer products or services, or investment products; or depending on 

the provider of the service. The Department of Labor’s (DOL) Employee 

Benefits Security Administration (EBSA), Department of the Treasury 

(Treasury), Pension Benefit Guaranty Corporation (PBGC), Office of 

Personnel Management (OPM), and Departments of Defense (DOD) and 

Veterans Affairs (VA) may also have pension oversight roles depending 

on whether the pensioner was a private-sector employee, a federal 

government civilian worker (hereafter referred to as a federal pensioner), 

or a military veteran.3

You asked us to examine entities marketing these financial products and 

to provide case-study examples of the practices that are used, and to 

review federal and state laws and regulations that may be applicable. 

This report (1) describes the number and characteristics of entities 

offering pension advances and the marketing practices that pension 

advance companies employ, (2) evaluates how pension advance terms 

compare with those of other financial products, and (3) evaluates the 

 

2

MetLife Mature Market Institute et al., The MetLife Study of Elder Financial Abuse: 

Crimes of Occasion, Desperation, and Predation against America’s Elders, (New York, 

NY: 2011). This estimate is based on a study of media reports from April to June 2010. 

Also, see GAO, Elder Justice: Federal Government Has Taken Some Steps but Could Do 

More to Combat Elder Financial Exploitation, GAO-13-626T (Washington, D.C.: May 16, 

2013) for examples of forms of elder financial exploitation. Elder financial exploitation is 

the illegal or improper use of an older adult’s funds, property, or assets. Perpetrators may 

be family members; paid home care workers; financial advisors or legal guardians; or 

strangers who inundate older adults with mail, telephone, or Internet scams.

3

Treasury’s Internal Revenue Service (IRS) has an oversight role over private-sector 

pensions. IRS also has certain oversight roles over governmental plans other than 

antiassignment provisions. The term governmental plan includes any plan that is 

established and maintained by a state or local government for its employees as well as 

any plan that is specified under 26 U.S.C. § 414(d). 
 

Page 3 GAO-14-420 Pension Advance Transactions

extent to which there are federal oversight mechanisms in place related to 

pension advances.4

To describe the number and characteristics of entities offering pension 

advances and the marketing practices that pension advance companies 

employ, we identified companies that offer pension advances by 

performing a comprehensive search of companies that market these 

products to consumers online, reviewing newspaper and magazine 

articles, conducting queries of federal and public databases that capture 

information on companies, and interviewing officials from agencies and 

organizations that provide information to and collect information from 

retired consumers.5 Pension advance transactions have two major 

components: the up-front lump-sum payment provided to consumers in 

exchange for a certain number (and dollar amount) of the consumer’s 

future pension payments (known as the pension advance) and the 

pension stream payments provided to investors in exchange for providing 

the lump sum (known as the pension investment).6 For purposes of this 

report, we focused more on the pension advance component than on the 

 

4

Because the pension advances described in this report are based on future pension 

payments of a specified amount, they are limited to defined-benefit pensions. Definedbenefit plans generally maintain a fund to provide a fixed level of monthly retirement 

income based on a formula specified in the plan. For purposes of this review, we consider 

pensions to be the defined benefits typically accepted by pension advance companies as 

a payment stream for providing an up-front lump sum. These defined-benefit streams 

include those provided to private-sector retirees through employer-sponsored definedbenefit plans, including plans that have been terminated and are being administered by 

PBGC, as well as those provided to federal retirees through the Civil Service Retirement 

System and Federal Employee Retirement System, and to military retirees and veterans 

through DOD retirement pensions. Although VA does not administer the same kind of 

defined-benefit pension, we also include its needs-based benefit program for veterans and 

their survivors that is called a “pension” in our definition of pension in this report. 

5

For purposes of this review, we consider pension advance companies to be entities 

offering pension advances or an up-front lump-sum payment to consumers in exchange 

for a certain number of (or an amount equivalent to) future pension payments plus various 

fees. Also, for purposes of this review, the term “pension advance” does not refer to lumpsum payment options offered directly by pension plans.

6

For the purposes of this report, we are using the terms “pension advance” and “pension 

investment” to refer to the two types of products that can be marketed in a pension 

advance transaction. First, there is the pension advance that is marketed in a transaction 

between the pension advance company and a pensioner to sell a part of his or her

pension benefit for a specific period in return for a lump sum. Second, there is the pension 

investment that is marketed in a transaction between the pension advance company and 

potential investors to invest a lump sum of money to receive a stream of income derived 

from a pensioner for a specific period. 
 

Page 4 GAO-14-420 Pension Advance Transactions

pension investment component in order to highlight the direct effect on 

pensioners. For the 38 companies that we identified as having offered 

pension advance products, we obtained demographic information using 

public and nonpublic data.7 We also obtained additional data on 19 of the 

38 pension advance companies selected for case studies, which we use 

for illustrative examples in this report. These 19 companies were selected 

based on factors such as varying types of marketing claims, presence of 

or lack of consumer complaints, and varying size of business.8 For these 

19 selected companies, we conducted undercover investigative phone 

calls, submitted online quote requests for pension advances, or obtained 

documentation directly from the companies. Posing as a federal, military, 

or private-sector retiree receiving a pension, our undercover investigator 

solicited information about the companies and their pension advance 

products directly from the companies. Though not generalizable to all 

pension advance companies, this information provided insights into a 

variety of pension advance transactions. To describe the marketing 

practices that pension advance companies employ, we reviewed 

information provided by the 38 companies that we identified as offering 

pension advances, including the terms and agreements and the structure 

of the transactions that they marketed publicly. For the 19 case-study 

companies, we also obtained additional information during our 

undercover investigative phone calls, follow-up online quote requests for 

pension advances, or subsequent documentation that the companies 

provided on the terms of their pension advance offers.

 

7

The 38 companies that we identified and reviewed either currently or have recently 

offered pension advance products within the last 2 years. We describe this group of 

companies throughout the report. However, our list of pension advance companies may 

not capture all companies that exist. Some companies may exist that do not market 

through the Internet or publications that we reviewed or that do not have documented 

complaints or register with any of the sources to which we have access. However, we 

believe that our population effectively describes the minimum level of variation or 

similarities in pension advance companies and transactions. In addition, as we describe 

later in this report, some companies included in this total are affiliated with each other. 

Therefore, the number 38 reflects the number of companies that we identified that present 

themselves to consumers as separate companies. 

8

We were only able to determine the size of 8 out of 38 companies due to limited 

information on this characteristic in public and nonpublic databases or on the companies’ 

own websites that we reviewed. Of the 19 companies selected for case studies, 4 

companies had consumer complaints and 15 companies had no complaints identified on 

the basis of our preliminary research for case-study selection.
 

Page 5 GAO-14-420 Pension Advance Transactions

To evaluate how pension advance terms compare with those of other 

financial products, for the six companies that provided written quotes to 

our undercover investigator, we conducted an actuarial analysis of the 

lump-sum pension advance that we were offered to determine how the 

pension advance products compare with certain other financial products. 

For purposes of this report, we considered comparable financial 

“products” to be loans and lump-sum payment options provided directly 

by pension plans, as each of these products or offerings have 

characteristics similar to those of pension advances, such as providing a 

sum of money and effectively charging interest, or providing a sum of 

money in exchange for pension plan payments.9

To evaluate the extent to which there are federal oversight mechanisms 

in place related to pension advances, we reviewed criteria from relevant 

laws and regulations and met with federal and state agencies that have 

oversight over consumer-protection regulations, financial transactions, 

and marketing and sales-practice regulations such as CFPB, FTC, and 

the SEC, as well as members from the North American Securities 

Administrators Association. We also met with federal agencies that have 

pension oversight roles such as EBSA, Treasury, PBGC, OPM, DOD, and 

VA. In addition, we met with advocacy organizations associated with the 

retired population. We used this information to examine the extent to

which federal agencies have undertaken actions to monitor or assess 

pension advance products’ relevance to federal laws and regulations, or 

provide consumer-education outreach, training, or other oversight efforts.

We conducted this performance audit from August 2013 to June 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

 

9

We considered consumer loans and lump-sum payments offered by pension plan 

sponsors to be comparable products for purposes of this report. In general, a loan can be 

defined as money advanced to a borrower, to be repaid at a later date, usually with 

interest. A loan contract specifies the terms and conditions of the repayment, including the 

finance charge or interest rate. A lump-sum payment may be offered by certain pension 

plan sponsors in exchange for an ongoing pension payment. We did not determine 

whether the pension advances were consumer loans for purposes of the usury laws, 

whether the pensioner could qualify for lower-interest-rate products, or whether the 

pensioners were eligible for lump-sum payments from pension plan sponsors. We 

recognize that there are other consumer financial products that may also be comparable, 

such as credit cards and other consumer credit products. For purposes of this report, we 

focus on the two financial products that we believe are most comparable. 
 

Page 6 GAO-14-420 Pension Advance Transactions

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. We conducted our related 

investigative work from September 2013 to June 2014 in accordance with 

the standards prescribed by the Council of the Inspectors General on 

Integrity and Efficiency. For a more-detailed description of our scope and 

methodology, see appendix I.

Pension advances and pension investments are products that, while 

based on or related to pension benefits, are generally distinct from the 

pensions themselves. A pension advance is an up-front lump sum 

provided to a consumer in exchange for a certain number and dollar 

amount of the consumer’s future pension payments plus various fees.10

Pension investments, the related product, provide investors a future 

income stream when they make an up-front lump-sum investment in one 

or more pensioners’ incomes. 

Multiple parties can be involved in pension advance transactions, 

including consumers and investors. A pension advance transaction is 

generally initiated by a pensioner who contacts a pension advance 

company by telephone, or through an online form. The pensioner 

provides personal information to the company, including proof of pension 

payments and the monthly amount the pensioner is currently receiving. 

After the company collects this information, it may provide one or more 

quotes to the pensioner, which include estimated monthly amounts that 

the pensioner is to pay and the lump sum the pensioner will receive. The 

pensioner may need to provide additional information or documentation 

that the pension advance company uses to further evaluate the 

pensioner. Companies perform these evaluations, or underwriting 

functions, either internally or use an external company. If the company 

approves the pensioner, it will extend an offer and provide a contract to 

the pensioner. To move funds among the parties, either the pensioner or 

the pension advance company may set up a bank account or an escrow 

 

10Pension advance companies’ fees could be deducted from the up-front lump sum paid 

to the pensioner.

Background

Pension-Based Products
 

Page 7 GAO-14-420 Pension Advance Transactions

account in which the pensioner deposits the future monthly payments and 

from which the pensioner may receive the lump-sum amount.11 A 

company may also require that the pensioner maintain a life-insurance 

policy to cover the outstanding balance in the event the pensioner dies 

before all payments are made.12 After the pensioner signs the contract, 

the pension advance company gives the lump sum to the pensioner after

deducting, if applicable, life-insurance premiums or other fees from the 

lump sum.

Pension advance companies may also be involved in the related pension 

investment transaction. These companies can identify financing sources 

(investors) to provide the lump-sum monies to a specific pensioner or to 

multiple pensioners. The investor pays the lump-sum amount by 

depositing the funds into the bank or escrow account that was previously 

established, as discussed above. The investor receives periodic 

payments, such as on a monthly basis, over the agreed-upon period

either from the pension advance company or through the escrow account. 

See figure 1 for an illustration of the parties that we identified in the 

multistep pension advance processes that we reviewed.

 

11A company may ask the pensioner to arrange an automated clearing house transaction 

with the bank to make the future monthly deposits. 

12The pensioner can use an existing life-insurance policy or the pension advance 

company can provide assistance to the pensioner in obtaining a new policy. 
 

Page 8 GAO-14-420 Pension Advance Transactions

Figure 1: Parties Involved in the Multistep Pension Advance Processes That GAO Reviewed
 

Page 9 GAO-14-420 Pension Advance Transactions

Various federal laws could potentially apply to pension advances, 

depending on the structure of the product and transaction, among other 

things. For example, certain provisions that prohibit the assignment of 

benefits could apply to pension advances, depending on whether these 

advances involve directly transferring all or part of the pension benefit to a 

third party.13 Applicable federal laws regarding the assignment of pension 

benefits include the Employee Retirement Income Security Act of 1974 

(ERISA); Title 26 of the United States Code (Internal Revenue Code) 

governing the tax treatment of retirement and disability plans and 

payments; Title 5 of the United States Code governing Civil Service 

Retirement funds; Title 37 of the United States Code governing military 

members’ retirement pay; Title 38 of the United States Code governing 

certain military veterans’ disability pay; and the Railroad Retirement Act of 

1974.14 Depending on the structure of the pension advance product and 

transaction, other applicable laws could include the Truth in Lending Act 

(TILA), federal securities laws such as the Securities Act of 1933 (1933 

Act) and the Securities Exchange Act of 1934 (1934 Act), provisions on 

financial education in the Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010 (Dodd-Frank Act), and prohibitions on unfair or 

deceptive acts or practices contained in the Federal Trade Commission 

Act (FTC Act) and the Dodd-Frank Act.15

 

13Federal laws regarding pension benefits use terms such as assignment, alienation, and 

allotment. Black’s Law Dictionary defines “assignment” as the act by which one person 

transfers to another, or causes to vest in that other, the whole of the right, interest, or 

property which he has in any realty or personalty, in possession or in action, or any share, 

interest, or subsidiary estate therein; “alienation” as giving another party a pension or 

retirement plan benefits; and “allot” to mean to apportion, to distribute, to divide property 

previously held in common among those entitled, assigning to each his ratable portion, to 

be held in severalty, or to set apart specific property, a share of a fund, etc., to a distinct 

party. For purposes of this report, we use the term “assignment” to also refer to the related 

terms “alienation” and “allotment.” Traditionally, the assignment of a pension has been 

understood to refer to a substitution of the direct recipient of the pension payments. 

1429 U.S.C. § 1056(d); 26 U.S.C. § 401(a)(13), which provides that retirement plan 

benefits generally may not be assigned or alienated, does not apply to any governmental 

plan (within the meaning of 26 U.S.C. § 414(d)); 5 U.S.C. §§ 8345(h), 8465(b); 5 C.F.R. § 

831.1511; 37 U.S.C. § 701; 38 U.S.C. § 5301(a); and 45 U.S.C. § 231m(a). Also, IRS 

regulations provide a limited exception for arrangements whereby a participant directs the 

plan to pay benefits to a third party if: (1) it is revocable at any time; and (2) the third party 

files a written acknowledgement with the plan that it has no enforceable right to any plan 

benefit payment. 26 C.F.R. § 1.401(a)-13(e). 

1515 U.S.C. § 1605 et seq.; 15 U.S.C. § 78a et seq.; 12 U.S.C. § 5493(d); 15 U.S.C. § 41 

et seq.;15 U.S.C. § 45; and 12 U.S.C. § 5531. 

Federal Laws, 

Regulations, and 

Oversight Roles and 

Responsibilities
 

Page 10 GAO-14-420 Pension Advance Transactions

Various federal agencies have oversight roles and responsibilities related 

to consumer and investor issues. CFPB, FTC, and the SEC may have 

consumer and investor-related oversight roles related to pension advance 

transactions depending on a number of factors, including the structure of 

the pension advance product and transaction.

As previously noted, pension advance transactions typically have two 

sides of the transaction: (1) pension advances and (2) pension 

investments. CFPB or FTC could have oversight roles over the 

transactions, depending on the structure of the pension advance product 

and transaction.16 The SEC and the Financial Industry Regulatory 

Authority (FINRA) could have oversight roles over pension advance 

transactions if the transactions are in connection with the purchase or 

sale of a security, or if the transaction is recommended by an investment 

adviser.

17

Regardless of whether certain pension advance products fall outside the 

scope of pension antiassignment provisions or TILA, the products 

themselves or the way in which the products are marketed, offered, and 

sold could be unfair, deceptive, or abusive.18 The Dodd-Frank Act gives 

CFPB broad oversight authority over consumer financial products and 

services, as well as enforcement and rulemaking authority to prevent 

unfair, deceptive, and abusive practices in connection with such products 

and services, and authority to take actions against violators and to 

 

16For purposes of this report, we use the term oversight to include supervisory, regulatory, 

and enforcement functions. 

17At the federal level, the U.S. securities markets are subject to a combination of industry 

self-regulation (with the SEC’s oversight) and direct SEC regulation. This regulatory 

scheme gives self-regulatory organizations, such as FINRA and national securities 

exchanges, certain responsibilities for oversight of the securities market and brokerdealers under their jurisdiction. FINRA is involved in various aspects of the securities 

business, including registering and educating industry participants; examining securities 

firms; writing and enforcing rules; informing and educating the investing public; providing 

trade reporting and other industry utilities; and administering a dispute-resolution forum for 

investors and registered firms. The SEC oversees these self-regulatory organizations to 

ensure that they are carrying out their regulatory responsibilities.

18Provisions prohibiting certain acts or practices may apply if an act or practice is 

considered: unfair (causes or is likely to cause a consumer reasonably unavoidable 

substantial injury); abusive (takes unreasonable advantage of a consumer’s lack of 

understanding regarding a product’s or service’s material risks, costs, terms, or 

conditions); or deceptive (are misleading, including false representations or misleading 

price claims, among other things). 
 

Page 11 GAO-14-420 Pension Advance Transactions

educate consumers about ways to protect themselves against such 

practices.19 Similarly, FTC has authority to investigate and prosecute 

unfair or deceptive acts or practices under Section 5 of the FTC Act.20

Additional details about the Dodd-Frank Act and FTC Act are provided 

later in this report.

Many other federal agencies may have pension oversight roles related to 

the pension itself depending on whether the pensioner was a privatesector or federal employee or a military veteran: EBSA, Treasury, and 

PBGC have oversight over private-sector pensions; OPM has oversight of 

federal civilian pensions; DOD has oversight over military pensions; and 

VA has oversight over a needs-based benefit program called a 

“pension.”

21 The oversight authority that agencies have includes 

communicating with retirees about matters that affect their pensions.

Certain state laws and regulations could also potentially apply to pension 

advances depending on the way they are marketed, offered, and sold. 

 

19According to section 1031 of the Dodd-Frank Act, CFPB may take an enforcement 

action to prevent a covered person or service provider from committing or engaging in an 

unfair, deceptive, or abusive act or practice under federal law in connection with any 

transaction with a consumer for a consumer financial product or service, or the offering of 

a consumer financial product or service. 12 U.S.C. § 5531. CFPB has the authority to 

enforce rules prescribed under the FTC Act with respect to an unfair or deceptive act or 

practice to the extent that such rule applied to an entity under CFPB jurisdiction with 

respect to the offer or sale of a consumer financial product or service. 12 U.S.C. § 

5581(b)(5)(B)(ii). 

20Under the FTC Act, FTC is empowered, among other things, to (1) prevent unfair 

methods of competition, and unfair or deceptive acts or practices in or affecting 

commerce; (2) seek equitable relief for conduct injurious to consumers; (3) prescribe trade 

regulation rules defining with specificity acts or practices that are unfair or deceptive, and 

establishing requirements designed to prevent such acts or practices; (4) conduct 

investigations relating to the organization, business, practices, and management of 

entities engaged in commerce; and (5) make reports and legislative recommendations to 

Congress. 15 U.S.C. § 45 et. seq. FTC also has the authority to enforce rules prescribed 

by CFPB with respect to entities subject to FTC jurisdiction. 12 U.S.C. § 5581(b)(5)(C)(ii). 

Certain entities, including banks, are excluded from FTC jurisdiction. 15 U.S.C. § 45(a). 

21As previously described, Treasury also has oversight over certain provisions related to 

state and local government pensions, which we do not discuss in the scope of this report. 

Also, VA provides tax-free supplemental income, commonly referred to as VA pension, or 

non-service-connected pension, to some low-income wartime veterans who meet certain 

service, income, and net-worth limits set by law—or people who are surviving family 

members of veterans who meet the criteria. 

State Laws, Regulations, 

and Enforcement
 

Page 12 GAO-14-420 Pension Advance Transactions

For example, potentially applicable state laws include each state’s 

consumer protection laws such as those governing Unfair and Deceptive 

Acts and Practices (UDAP) and usury laws that specify the maximum 

legal interest rate that can be charged on a loan.22 At the state level, 

every state has a consumer protection law known as a UDAP law that 

prohibits unfair and deceptive practices in order to protect consumers, 

among other relevant state laws. Depending on the overall structure of 

the products involved, state securities laws could also apply.23 State 

securities regulators administer state securities laws and regulations.24

During our review, we also identified relevant state investigations and 

legal cases. For example, in 2013, the states of New York and 

Massachusetts launched investigations to examine pension advance 

companies.25 According to the regulators from these states, these 

investigations were still under way as of April 2014. In addition to these 

states’ investigations, there have also been lawsuits filed on behalf of 

military pensioners and veterans against pension advance companies 

and affiliates. These lawsuits include class action cases in California and 

Georgia. Further, the Arkansas Securities Department has conducted an 

 

22Most states have usury statutes, which are regulations governing the amount of interest 

that can be charged on a loan. These laws specifically target the practice of charging 

excessively high rates on loans by setting caps on the maximum amount of interest that 

can be levied. These laws are designed to protect consumers. 

23For state law purposes, whether pension sales products constitute securities depends 

on the definition of a security under a particular state’s securities laws. 

24Every state has its own securities laws, commonly known as “Blue Sky Laws,” that are 

designed to protect investors against fraudulent sales practices and activities. These laws 

vary from state to state, but typically require registration of offerings before they can be 

sold in a particular state, as well as licensing of brokerage firms, their brokers, and 

investment adviser representatives. 

25In May 2013, the New York Department of Financial Services launched an investigation 

into pension advances and sent subpoenas to 10 companies engaging in pension 

advances. According to its press release, the department’s investigation is targeted at 

determining whether these companies have engaged in fraud or misconduct; violated 

state usury laws; engaged in false, misleading, or deceptive advertising about rates and 

fees; or violated laws prohibiting the harvesting of military pensions. Also in May 2013, the 

Massachusetts Securities Division opened an investigation into companies that seek to 

purchase settlement income streams including pensions of military retirees. As part of this 

investigation, inquiry letters were sent to nine companies seeking information on whether 

the company does business in Massachusetts; how and by whom it is marketed; whether 

residents have been contacted; as well as information needed to determine if the future 

income streams have been securitized. 
 

Page 13 GAO-14-420 Pension Advance Transactions

investigation that resulted in the Commissioner issuing two Cease and 

Desist Orders against a pension advance company in April 2013 and 

March 2014.

The pension advance transactions we reviewed involved a number of 

geographically concentrated and affiliated companies in the multistep 

process that we previously described (see fig. 1 for an illustration of the 

parties that we identified in the multistep pension advance processes that 

we reviewed). We found that the majority of the 38 companies we 

identified were affiliated with each other in ways that were not apparent to 

consumers. Also, the companies that we identified operated primarily as 

web-based companies, and most marketed to consumers in need of cash 

or with poor or bad credit nationwide.

We identified at least 38 companies that offered lump-sum advance 

products in exchange for pension payment streams.26 (App. II provides 

summary information on the 38 companies that we identified.) Eighteen of 

the 38 companies we identified were concentrated in one state, 

California, and 17 offered a range of financial products in addition to 

pension advances. See figure 2 for the physical locations of companies 

that we identified.27

 

26The 38 companies that we identified and reviewed either currently or have recently 

offered pension advance products within the last 2 years. These companies were 

identified during our audit and are not an all-inclusive list of companies offering pension 

advance products. Also, these are not necessarily companies that are independent of one 

another. We discuss affiliations between some of these companies later in this report. 

27For purposes of this report, the company location listed in the graphic is based on: the 

address provided by the company on its website; Accurint, Dun & Bradstreet, and Better

Business Bureau reports, if available; or legal information provided by the company. 

Although almost half of the 38 companies that we identified were located in California, we 

found that most of the 38 companies offered services nationwide, which we further 

describe later in this report.

A Number of 

Geographically 

Concentrated and 

Affiliated Companies 

Are Involved in 

Pension Advances 

and Market to 

Financially Vulnerable 

Consumers 

Nationwide

About Half of Pension 

Advance Companies We 

Identified Were 

Geographically 

Concentrated in One State 

and Offered a Range of 

Financial Products 
 

Page 14 GAO-14-420 Pension Advance Transactions

Figure 2: Locations of 38 Pension Advance Companies Identified by GAO

Note: The 38 companies that we identified and reviewed either currently or have recently offered 

pension advance products within the last 2 years.

In terms of the products and services that these companies offered, we 

found that 17 out of 38 companies did not exclusively offer pension 

advances, but also offered lump-sum cash advances for a wide range of 

income streams, including lottery winnings, insurance settlements, and 
 

Page 15 GAO-14-420 Pension Advance Transactions

inheritances. Another 17 companies exclusively focused on offering 

pension advances.28

We found that at least 30 out of 38 companies that we identified had a 

relationship or affiliation with each other, including working as a 

subsidiary or broker, or the companies were the same entity operating 

with more than one name.29 However, only 9 out of those 30 companies 

clearly disclosed these relationships to consumers on the companies’ 

websites. While companies having affiliations is not uncommon, the lack 

of transparency to consumers regarding with whom they are actually 

conducting business can make it difficult to know whom to file a complaint 

against if the pensioner is dissatisfied or make it difficult to research the 

reputability of the company before continuing to pursue the business 

relationship. In some instances, we found that affiliation disclosures occur 

after a consumer contacts a pension advance company and are not 

disclosed in marketing materials provided on company websites. For 

example, we were able to identify relationships between 14 companies 

through our undercover investigative calls, online quote requests, and 

related e-mail responses from the companies. Similarly, in one complaint 

filed with FTC, a consumer complained about the lack of disclosure of 

these affiliations. Specifically, the consumer expressed concerns that the 

undisclosed relationships between nine pension advance companies on 

their websites were misleading. This consumer reported that he contacted 

Company 1 and two other companies that he determined were affiliated 

with Company 1. It is unclear from the complaint whether the consumer 

directly contacted the other six companies that he claimed were affiliated.

The consumer indicated that his complaint arose after his application was 

turned down by Company 1 and he was told by another company that if 

 

28The remaining four companies currently or recently offered pension advance products, 

but detailed marketing materials were not available for our review in order for us to 

determine whether these companies focused on offering pension advances. 

29For purposes of this report, we use the term “affiliate” to refer to companies that have a 

business relationship. In our examples, we identify the specific type of affiliation between 

companies where it was possible for us to clearly document the specific nature of the 

affiliation from our audit research and investigative work. In some instances, we identified 

a business relationship, but the nature of the affiliation was unclear. Securities regulations 

define a subsidiary as an affiliate controlled by a specific person directly or indirectly 

through one or more intermediaries. 17 C.F.R. § 230.405. A broker is, among other things, 

one who acts as an intermediary or as an agent who negotiates contracts of purchase and 

sale. 

Companies We Identified 

Were Affiliated with Each 

Other in Various Ways 

That Are Not Apparent to 

Consumers
 

Page 16 GAO-14-420 Pension Advance Transactions

Company 1 denied his application, there would be “no chance” at the 

other companies because they were owned by Company 1. It is also 

important to note that complaints may not be accurate or they may not 

represent a law violation. See figure 3 for an illustration of some of the 

relationships between companies that we identified.
 

Page 17 GAO-14-420 Pension Advance Transactions

Figure 3: Two Examples of Identified Relationships between Companies Offering Pension Advances

Notes: We use the term “affiliated” to refer to companies that have a business relationship. In the 

figure above, we identify the specific type of affiliation between companies where it was possible for 

us to clearly document the specific nature of the affiliation from our audit research and investigative 

work. In some instances, we identified a business relationship, but the nature of the affiliation was 

unclear. Also, on the basis of our analysis of pension advance companies, there were other related 
 

Page 18 GAO-14-420 Pension Advance Transactions

companies. However, the specific relationships between these other companies are unclear and 

therefore are not presented in the figure above.

a

This company was formerly known by a different name. 

As highlighted in figure 3, during our audit and undercover investigative 

work we found evidence that several companies were operating as 

subsidiaries of a larger company. 

• For example, Company 8, Company 9, and Company 10, operated as 

subsidiaries of Company 7. We were not able to identify a current 

online presence for Company 7. However, as part of our undercover 

investigative phone calls, we contacted Company 8, Company 9, and 

Company 10 and received an e-mail from one of these companies 

signed by Company 7. Also, during our call with one of those three 

companies, the representative stated that Company 7 is its parent 

company. In addition, on their websites, Company 8, Company 9, and 

Company 10 list the same mailing address. As highlighted in the 

examples in figure 3, Company 7 is one of the two primary entities we 

identified as offering pension advance products to consumers.

On the basis of our undercover investigative phone calls and online quote 

requests to pension advance companies, we identified four instances of 

companies that operated as brokers for other companies.

• In one instance, we separately contacted both Company 27 and 

Company 34, and in both instances received a quote by either e-mail 

or mail from Company 1. These companies did not publicly disclose 

having a relationship to each other, and maintained separate online 

presences. However, in the quote documentation we obtained from 

Company 1, representatives from Company 27 and Company 34 were 

specifically named as its brokers.

• In another instance, after submitting an online quote request to 

Company 29, we received a response from that company that 

contained the logo for Company 1.

• In a third instance, which is not depicted in figure 3, we received emails from a representative of Company 17 in response to online 

quote requests separately submitted to various other companies, 

including Company 19, Company 20, and Company 25. Also, after 

submitting an online quote request to Company 21, we received a 

response that the representative from Company 17 would contact us 

with a quote.
 

Page 19 GAO-14-420 Pension Advance Transactions

• In a fourth instance, a separate company representative that we 

spoke with told us that, although there are many companies with 

websites, most pension advances are ultimately provided through just 

a few companies. His comments indicate that many companies could 

constitute a network of brokers for a few larger companies. (See the 

sidebar for the direct quote from this representative.) We also heard 

similar comments from another company representative that we 

spoke with during our undercover investigative phone calls.

We also identified one company that changed the corporate name that it 

operated under following legal actions. This company began operating 

around 1996. In 2005, a class-action lawsuit was filed against that 

company and its principals for damage restitution, unjust enrichment, and 

declaratory and injunctive relief. In 2011, the court decided that the 

plaintiff and class were entitled to restitution in the sum of almost $3 

million.30 Around the time that company filed for bankruptcy in 2012, 

Company 1 was created under the presidency of one of the executives. 

As highlighted in figure 3, the company continues to offer pension 

advances under the name of Company 1 and its affiliates and brokers.

At least 34 out of 38 pension advance companies that we identified 

marketed and offered their services to customers nationwide, operating 

primarily as web-based companies and marketing through websites and 

other social-media outlets.31 Although almost half of the 38 companies 

that we identified were located in California, we found that most of the 38 

companies offered services nationwide. Specifically, the company 

marketing materials we reviewed did not require customers to come to 

the company’s establishment to complete the pension advance 

transaction or reside in the same state from which the company was 

offering services. None of the companies that we spoke with during our 

 

30The court decision did not direct the company not to engage in pension advances in the 

future. 

31Thirty-six of the 38 companies that we identified had websites, 23 of which provided full 

online applications for lump-sum pension advances and 7 of which requested contact 

information only; the remaining companies did not request any information. The other two 

companies did not have an Internet presence at the time of our review. Although most 

companies did have websites that would allow them to reach pensioners nationwide, 

during our undercover investigative calls and review of company websites we identified up 

to five companies that stated that they do not accept clients either from the states of New 

York, Arkansas, Massachusetts, Iowa, or Missouri. 

A company representative describing 

pension advance company affiliations

Company Representative: “As you go to ... 

their web sites ... they’re all going to be the 

same company pretty much. There’s only a 

couple of companies that do this.”

GAO Undercover Investigator: “Oh, okay. 

Okay. Because I saw a lot of different names.”

Company Representative: “Right ... probably 

80 percent of all the pensions that get sold in 

this country ... are through us. There’s a 

couple other companies out there.”

Source: GAO investigative call to a pension advance 

company.

Note: View clip on relationships among pension 

advance companies. 

Companies Marketed 

Products Nationally to 

Consumers in Need of 

Quick Cash or with Poor 

or Bad Credit
 

Page 20 GAO-14-420 Pension Advance Transactions

undercover investigative calls required that we reside in the location in 

which they were incorporated or established to conduct business.

Twenty-eight of the 38 companies that we identified used marketing 

materials or sales pitches designed to target consumers in need of cash 

to address an urgent need such as paying off credit card debts, tuition 

costs, or medicals bills, or appealed to consumers’ desire to have quick 

access to the cash value of the pension that they have earned. For 

example, during a phone call with Company 9, the representative 

marketed her company by stating that her company is the easiest and the 

quickest to deal with. This theme was also marketed through the 

companies’ websites. Additionally, Company 15 marketed its pension 

advance product specifically to retirees with federally backed pensions 

and PBGC-backed pensions, claiming that the pensioner would receive 

cash quickly. (See the sidebar for an example of one company’s 

marketing on its website.)

Eleven of the 38 companies that we identified used marketing materials 

or sales pitches designed to target consumers with poor or bad credit. 

These 11 companies encouraged those with poor credit to apply, stating 

that poor or bad credit was not a disqualifying factor. Some of these 

companies specifically stated on their website that pensioners “with poor 

credit, judgments, past bankruptcies, or other blemishes” are encouraged 

to apply. We also observed this type of marketing during our undercover 

investigative phone calls. For example, a representative from one 

company stated that the company uses a credit report to determine the 

maximum lump sum that it can provide to the pensioner, and the 

company will provide several options, stating that no application would 

likely be declined. In another example, a representative from Company 30 

noted that people who call regarding obtaining a pension advance 

generally have what is considered bad credit, with scores in the 400s and 

500s. This representative pointed out that pensioners typically are 

interested in pension advances because of a financial need. (See the 

sidebar for the direct quote from this representative.)

Marketing claims featured on a company’s 

website

“Nowhere else can you leverage your federal 

or PBGC-backed retirement income by 

exchanging a future trickle of income for cold, 

hard cash in your hands today. You’ve worked 

hard to earn your money, shouldn’t you have 

control over it?”

Source: A pension advance company.

Note: PBGC is the Pension Benefit Guaranty 

Corporation.

A company representative describing the 

credit scores and needs of typical 

potential customers

“Most of the people that call, they ... have in

4- and 500 score ... which typically it’s 

because they are struggling and they need 

this money.” 

Source: GAO investigative call to a pension advance 

company.

Note: View clip on credit scores and needs of typical 

potential pension advance customers. 
 

Page 21 GAO-14-420 Pension Advance Transactions

During our undercover investigative phone calls, we observed that 2 of 

the 19 companies were transparent about the less than favorable terms 

that the companies offered. For example, one company representative 

told our undercover investigator that it would be “better” to go to a bank, 

but advised us that if we could not go through a bank, his company was 

an option. Another company told our undercover investigator that we 

would be paying back much less if we went through a bank, but if we did 

not have any other option then this pension advance would be a way to 

secure upfront cash. (See the sidebar for the direct quotes from these 

representatives.)

We found that 24 out of 38 companies marketed products to retirees for a 

range of pensions, including private-sector, military, or government 

pensions.32 For example, accepted pensions for the companies we 

reviewed typically included private, corporate, federal, city, state, teacher, 

union, military, VA disability, and others. Two companies especially 

targeted military pensions in that the titles of the companies included 

either the terms “veterans” or “retired military” and their websites showed 

a uniform and displayed an American flag. Also, one of these websites 

included an online shop where one could purchase patriotic merchandise. 

The other 22 companies did not especially target any particular pension 

type in their marketing materials. Ten of the 38 companies specifically 

stated on their websites that they accepted VA disability pensions. 

However, there were some exceptions noted for the types of pensions 

that a pension advance company would accept. During our undercover 

investigative phone calls to 19 companies, one company told us it did not 

accept government pensions. On pension advance companies’ websites, 

19 of the 38 companies stated that they did not accept Social Security 

income, 9 companies stated that they did not accept VA disability 

benefits, and 1 company specifically stated that it could not accept 

military pensions.

 

32We were unable to determine whether 10 companies marketed products to retirees for a 

range of pensions because these companies did not specify what kind of pensions they 

deal with in the materials that we reviewed. The remaining four companies currently or 

recently offered pension advance products, but detailed marketing materials were not 

available for our review in order for us to determine whether these companies marketed 

products to retirees for a range of pensions. 

Two company representatives describing 

how pension advances compare with bank 

loans

“[I]f you could go to the bank and do it, you 

would do better off, but if you can’t this is an 

option.” 

“[I]f you have access to, like, a bank loan or 

being able to borrow money from a source 

that you would be paying back much less ... I 

always recommend that first, because this is 

your retirement money that you’re using. It 

can be comparable to, like, a high interest 

credit card. If you don’t have any other options 

or you don’t need the monthly income and 

you’re just wanting to use it for this reason, 

then of course we want to help you any way 

we can.”

Source: GAO investigative calls to select pension advance 

companies.

Note: View clip on comparing pension advances with 

bank loans. 
 

Page 22 GAO-14-420 Pension Advance Transactions

We also found that 5 out of 38 companies marketed to individuals or 

companies to invest in pension advance funding, at times, through 

questionable means. For example, two of these companies compared the 

return on their investment products with other investment products, such 

as immediate annuities, certificates of deposit, and bonds. In an outgoing 

voicemail that we heard during our undercover investigative phone calls, 

one company specifically stated it offered three safe income strategies 

that are focused on keeping investors’ money safe, advertising that it paid 

more than bank certificates of deposit, money market accounts, and 

Treasury securities, without the downside risk and volatility of stocks, 

bonds, and mutual funds. (See the sidebar for a direct quote from this 

outgoing voicemail message.) However, an investor bulletin issued by the 

SEC and FINRA highlighted that there are several complex risks 

associated with investing in pension advances, which we observed that 

the companies do not completely describe.33 The risks described in the 

SEC and FINRA bulletin included: that pension advances are not likely 

registered with the SEC, which limits reliable information about the 

products and ability to resolve disputes if necessary; the potential 

difficulty reselling the product if needed; and potential legal challenges to 

the investor’s “rights” to the income stream that they purchased; among 

other things. In addition, officials from the PBGC Office of Inspector 

General told us that a financial advisor, who they identified as acting as a 

broker, agent, or middleman for a pension sale, fraudulently stated that 

these pensions were made available for sale by PBGC. Such claims 

could lead investors to think that these investments are backed by the 

federal government or PBGC, which is untrue.34

 

33As discussed later in this report, the SEC and FINRA coordinated together to issue an 

Investor Bulletin warning consumers about pension or settlement income streams. 

34In its fall 2013 newsletter to retirees, PBGC reported that its Office of Inspector General 

warns that individuals are “peddling fraudulent investments in pension incomes 

supposedly backed by PBGC.” The PBGC Office of Inspector General specifically cited 

one instance in which a financial advisor claimed that PBGC benefit recipients had sold 

their pension incomes for a lump sum, and that the benefits, still backed by PBGC, were 

made available for sale by PBGC. In this alert, PBGC Office of Inspector General reported 

that this financial advisor further claimed the investments had a guaranteed rate of return 

of more than 6 percent. 

A company representative marketing 

pension advances to investors

“[W]e offer three safe income strategies that 

are focused on keeping your money safe, 

paying more than bank [certificates of 

deposit], money markets, and Treasuries, and 

doing so without the downside risk and 

volatility of stocks, bonds, and mutual funds.” 

“[T]hese strategies work. During the financial 

market meltdown of 2008, none of our clients 

lost money due to market volatility. Their 

money was safe and secure and their income 

was steady and reliable.”

Source: GAO investigative call to a pension advance 

company. 

Note: View clip on marketing pension advances to 

investors. 
 

Page 23 GAO-14-420 Pension Advance Transactions

The terms offered by six pension advance companies that provided our 

undercover investigator with quotes for pension advances did not 

compare favorably with other financial products such as loans and lumpsum payment options provided directly through pension plans.35 We 

compared 99 offers provided to us by six pension advance companies in 

response to undercover investigative phone calls and online quote 

requests with those of other financial products.36 Specifically, we 

compared the terms with: (1) relevant state usury rates for loans and (2) 

lump-sum options offered through defined-benefit pension plans.37 During 

these calls, we pretended to be either a federal, private-sector, or military 

pensioner and, based on our analysis, were offered generally similar 

terms regardless of the type of employer providing the pension. As 

discussed below, we found that most of the six pension advance 

companies’ lump-sum offers (1) had effective interest rates that were 

significantly higher than equivalent regulated interest rates, and (2) were 

significantly smaller than the lump-sum amounts that would have to be 

offered in a pension plan that provided an equivalent lump-sum option.

 

35The other 13 companies that we contacted during our undercover investigative work did 

not provide quotes for pension advances. 

36We received 99 offers from six pension advance companies in response to our 

undercover investigative phone calls and online quote requests. We compared the terms 

of all of these offers to those of other financial products. 

37We did not determine whether pension advance transactions were loans for purposes of 

state usury rates, whether the pensioner could qualify for lower-interest-rate products, or 

whether the pensioner would have been eligible for a lump-sum distribution from the 

pension plan sponsor. 

The Six Pension 

Advance Companies 

That Provided GAO 

Quotes Offered 

Unfavorable Terms 

Compared with Other

Financial Products

Pension Advance Terms 

Were Less Favorable than 

Comparable Regulated 

Interest Rates and LumpSum Calculations
 

Page 24 GAO-14-420 Pension Advance Transactions

When analyzing the effective interest rate for the pension advance offers 

that we received, we calculated the cost of each lump-sum quote to the 

annuitant as an effective interest rate.

38 As highlighted in table 1, we 

determined that the effective interest rate for 97 out of 99 offers provided 

to our undercover investigator by six companies ranged from 

approximately 27 percent to 46 percent.39 Most of these interest rates 

were significantly higher than the legal limits set by some states on 

interest rates assessed for consumer credit, known as usury rates or 

usury ceilings. For example, in comparison to the usury rate for California 

of 12 percent, we determined that the quotes for lump-sum payments that 

we received from three pension advance companies for a resident of 

California had effective interest rates ranging from approximately 27 

percent to 83 percent.40 The effective interest rates on some of these 

offers could be even higher than the rates we calculated to the extent 

some pension advance companies require the pensioner to purchase life 

insurance, and “collaterally assign” the life-insurance policy to the 

company, to protect the company in the event of the pensioner’s death 

during the term of the contract. For many of the quotes we received, it 

was unclear whether the pensioner would be responsible for any lifeinsurance premium payments.41 See table 1 for additional examples of 

usury rate comparisons for states where our fictitious pensioners resided 

for our case studies.

 

38The effective interest rate was calculated by equating the lump sum to the amount of a 

loan, the monthly annuitant payment to a loan repayment amount, and the total number of 

monthly annuitant payments to the repayment period.

39In addition, one company provided us with two other offers, one with an effective interest 

rate of about 83 percent and one with a rate of about 90 percent. These offers were made 

to residents of California and Texas. 

40The quotes that we received from these three pension advance companies included 27 

different offers for varying monthly payment amounts and time frames. Twenty-six of the 

27 offers had effective interest rates ranging from approximately 27 percent to 32 percent; 

the other offer had an effective interest rate of approximately 83 percent. 

41According to Black’s Law Dictionary, collateral assignment refers to assigning an asset 

whose ownership rights are moving only as an additional security for a loan. These rights 

will revert to the assignor when the loan is repaid. 

Comparison to Usury Rates
 

Page 25 GAO-14-420 Pension Advance Transactions

Table 1: Examples of Usury Rate Comparison for Our Pension Advance Offers

State 

Number of companies 

providing offers to fictitious 

residents of the state

Total number of

offers made to fictitious 

residents of the state

Usury rate

of state (percent) a Effective interest rate of offers

from companies (percent)

California

b

3 27 12% 27–83%

Florida

c

2 7 18 27–38

Maryland

d

1 63 24 27–46

Texas

e

2 2 18 27–90

Source: GAO analysis of offers received from select pension advance companies in response to our undercover investigative online 

quote requests and phone calls.

f

Notes: GAO made undercover investigative online quote requests and phone calls using fictitious 

profiles of private-sector, federal, and military pensioners residing in these four states.

a

Companies provided multiple offers to our fictitious pensioners within a single quote request 

response. For example, for our fictitious military pensioner residing in California, one company 

provided 24 different offers, another company provided 2 different offers, and the third company 

provided 1 offer.

b

The results of our calculation of the effective interest rate of offers from companies are not 

generalizable.

c

In its offers, the first company presented the amount of life insurance that would be needed but it is 

unclear whether the pensioner would need to pay this amount separately, and therefore it is unclear 

whether the effective interest rate of the pension advance would be higher than calculated. The 

second company’s lump-sum offers did not deduct an amount for a life-insurance premium, and it is 

unclear whether the pensioner would need to pay this amount separately. Therefore, it is also unclear 

whether the effective interest rate of the pension advance would be higher than calculated. On the 

basis of the offers we received from the third company, no life insurance was required. Therefore, it 

appears that there would be no additional cost to the pensioner for the pension advance.

d

In its offers, the first company stated that, at closing, two-thirds of the life-insurance coverage cost 

would be deducted from the offer. The other one-third of the cost would be paid by the company. On 

the basis of this information, the effective interest rate of the pension advance would be greater than 

calculated. The second company’s lump-sum offers did not deduct an amount for a life-insurance 

premium, and it is unclear whether the pensioner would need to pay this amount separately. 

Therefore, it is unclear whether the effective interest rate would be higher than calculated.

e

In its offers, the company presented the amount of life insurance that would be needed, but it is 

unclear whether the pensioner would need to pay the premium amounts separately, and therefore it is 

unclear whether the effective interest rate would be higher than calculated.

f

On the basis of the offer we received from the first company, no life insurance was required. 

Therefore, it appears that there would be no additional cost to the pensioner for the pension advance 

transaction. In its offer, the second company stated that the investor would request that the pensioner 

have life insurance to “cover the deal in case of ... untimely passing.” 

We compared pension advance offers that our undercover investigator 

received to lump-sum options that can be offered in pension plans, where 

a lump sum can be elected by plan participants in lieu of monthly pension 

payments. The amount of such a lump-sum option of a private-sector plan 

must comply with Employee Retirement Income Security Act of 1974 

(ERISA) and Internal Revenue Code requirements that regulate the 

Comparison to Lump-Sum 

Distributions Offered through 

Pension Plans
 

Page 26 GAO-14-420 Pension Advance Transactions

distribution of the present value of an annuity by defining a minimum 

benefit amount to be paid as a lump sum if a private-sector pensioner 

chooses the lump-sum option.

42 We determined the minimum lump-sum 

amount under ERISA rules for private defined-benefit plan sponsors.43 On 

the basis of our analysis of 99 pension advances we were offered by six 

companies, we determined that the vast majority of the offers we received 

(97 out of 99) were for between approximately 46 and 55 percent of the 

minimum lump sum that would be required under ERISA regulations. This 

means that if these transactions were covered under ERISA regulations, 

the pensioner would receive about double the lump sum that they were 

offered by pension advance companies.44 Again, to the extent pension 

advance companies require the pensioner to pay for life insurance, the 

terms of the deal would be even more unfavorable than indicated by 

these lump sum comparisons. See table 2 for a summary of the pension 

advance quotes as a percentage of the minimum lump sum that would be 

required under ERISA. Offers varied depending on number of years and 

the dollar amount to be paid by the pensioner each month. See appendix 

I for additional information on the basis for the ERISA calculations.

 

4226 U.S.C. § 417(e). The statute also prescribes how the plans must determine the 

present value of future benefits. In lump-sum options offered through pension plans, the 

lump-sum election is typically in lieu of the plan participant’s remaining lifetime of 

payments. Because the pension advances used for these examples are for a 

predetermined number of years, our calculations have been adjusted accordingly. 

43To arrive at the ERISA lump-sum amounts, we followed the Internal Revenue Code, 

section 417(e), which determines, for pension plans that offer lump sums, the minimum 

lump-sum amounts that must be provided for the pension plan to remain tax-qualified. 

These lump sums vary depending on the form and amount of a participant’s promised 

benefit, the participant’s age, and the particular year and month applicable to the 

calculation. See app. I for additional information on our calculations. 

44Two of the offers were more favorable with an amount of approximately 77 percent of 

the minimum lump sum that would be required under ERISA. 
 

Page 27 GAO-14-420 Pension Advance Transactions

Table 2: Summary of Pension Advance Quotes as a Percentage of Minimum Lump 

Sum That Would Be Required under ERISA Regulations

Company Number of offers

Range of pension advance

quote as a percentage of

ERISA minimum lump sum

Company 19 87 46–55% a

Company 15

b

4 49–54

Company 1 

c

3 54 d

Company 27 

e

2 51 f

Company 34

e

2 77 g

Company 6 

h

1 55

Source: GAO analysis of offers received from select pension advance companies in response to our undercover investigative online 

quote requests and phone calls. 

i

Notes: GAO made undercover investigative online quote requests and phone calls using fictitious 

profiles of private-sector, federal, and military pensioners.

a

This company provided 63 offers to a fictitious federal pensioner residing in Maryland and 24 offers 

to a fictitious military pensioner residing in California.

b

In its offers, the company presented the amount of life insurance that would be needed, but it is 

unclear whether the pensioner would need to pay this amount separately, and therefore it is unclear 

whether the ultimate cost of the pension advance would be higher for the pensioner.

c

This company provided four offers to a fictitious federal pensioner residing in Florida. In its offers, the 

company stated that, at closing, two-thirds of the pensioner’s life-insurance coverage cost would be 

deducted from the offer. The other one-third of the cost would be paid by the company. On the basis 

of this information, the cost of the pension advance to the pensioner would be greater than the offers 

presented.

d

This company provided three offers to a fictitious federal pensioner residing in Florida.

e

The company’s lump-sum offers did not deduct an amount for a life-insurance premium, and it is 

unclear whether the pensioner would need to pay this amount separately. Therefore, it is unclear 

whether the ultimate cost of the pension advance would be higher for the pensioner.

f

This company provided two offers to a fictitious military pensioner residing in California.

g

This company provided one offer to a fictitious military pensioner residing in California and one offer 

to a fictitious private-sector pensioner residing in Texas.

h

On the basis of the offers we received, no life insurance is required. Therefore, it appears that there 

would be no additional cost to the pensioner for the pension advance.

i

This company provided one offer to a fictitious private-sector pensioner residing in Texas. In its offer, 

the company stated that the investor would request that the pensioner have life insurance to “cover 

the deal in case of ... untimely passing.” 

We identified questionable elements of pension advances, such as the 

lack of disclosure and certain unfavorable agreement terms; however, 

pension advances currently have limited federal oversight and consumer 

education from consumer protection agencies such as CFPB and FTC. 

Further, a number of federal agencies with oversight over pensions, such 

as EBSA, Treasury, PBGC, OPM, DOD, and VA, reported limited 

There Is Limited 

Federal Oversight of 

Pension Advances
 

Page 28 GAO-14-420 Pension Advance Transactions

oversight because they have not identified many related complaints and 

some were just learning about these products.

We identified questionable practices associated with pension advances 

that currently have little, if any, oversight. Questionable practices that we 

identified included: (1) the lack of disclosure of terms and company 

identity as well as (2) certain unfavorable terms of agreements.

Whether certain disclosure laws apply to pension advance products 

depends partly on whether the product and its terms meet the definition of 

“credit” as set in the Truth in Lending Act (TILA). Although pension 

advance transactions may resemble loans because a sum of money is 

provided to a recipient for which the recipient agrees to return a stream of 

future payments, some companies explicitly stated that their product was 

not a loan, which, if legally accurate, could exempt them from regulations 

that require transparency and disclosure under TILA and usury laws. (See 

additional discussion concerning inconsistencies among companies on 

whether pension advance products are considered to be loans on page 

31.) The federal TILA requires creditors to provide consumers with certain 

disclosures when they offer or extend consumer credit transactions so as 

to help consumers understand the terms of the products.45 Also, as 

previously described, most states have usury statutes that set the legal 

limit on finance charges that may be assessed for certain types of credit.

Whether pension advances are actually loans and should be subject to 

relevant TILA laws is a long-standing unsettled question. In May 2003, 

the National Consumer Law Center (NCLC) reviewed pension advance 

company transactions targeting veterans’ benefits and reported that, 

through these product offerings, pension advance companies attempt to 

circumvent disclosure laws that exist to help consumers make informed 

 

45Whether a pension advance will be subject to TILA’s requirements depends on whether 

it meets the definitions set out in TILA, including “creditor” and whether the credit is 

provided for a “consumer” purpose. In July 2011, pursuant to the Dodd-Frank Act, 

rulemaking, supervision, and enforcement authority for consumer protection laws were 

generally transferred to CFPB. This includes responsibility for implementing TILA. 

Questionable Practices 

Related to Unregulated 

Transactions Pose 

Consumer Risks 

Lack of Disclosure of Terms 

and Company Identity
 

Page 29 GAO-14-420 Pension Advance Transactions

decisions about the cost of credit.46 According to NCLC, by referring to 

pension advance transactions as something other than loans (for 

example, one contract it reviewed explicitly stated that the product was 

not a loan, while another characterized the transaction as a purchase), 

NCLC asserts that pension advance companies attempt to circumvent 

TILA consumer protections. More recently, in its 2012 response to 

CFPB’s request for information regarding elder financial exploitation, 

NCLC reported similar findings. During our own review, we observed that 

one pension advance company explicitly stated on its website that “in the 

U.S. pledging one’s future pension benefits as collateral for a loan is not 

legal ... so funding sources must structure their transactions in a strictly 

unsecured manor [sic].” 

We also found that the costs of pension advances were not always clearly 

disclosed to the consumer and some companies were inconsistent about 

whether the product is actually a loan.47 The questionable disclosure 

practices we identified included the following:

• Thirty-one out of the 38 companies we identified did not disclose to 

pensioners an effective interest rate or comparable terms on their 

websites.48 For loans, under TILA, companies would be required to 

disclose an effective interest rate for the transaction.

 

46National Consumer Law Center, In Harm’s Way—At Home: Consumer Scams and the 

Direct Targeting of America’s Military and Veterans, (Boston, MA: May 2003). NCLC 

provides legal and technical consulting and assistance on consumer law issues to legal 

services, government, and private attorneys representing low-income consumers across 

the country as well as publishes information on consumer credit laws and unfair and 

deceptive practices. The organization’s attorneys have written and advocated on aspects 

of consumer law affecting elders and low-income people, including pension advance 

issues. NCLC attorneys have testified before Congress on these topics and have provided 

comments to federal agencies on the regulations under consumer laws that affect elders.

47As previously described, we reviewed information provided by 38 companies that we 

identified as offering pension advances, including the terms and agreements and the 

structure of the transactions that they marketed publicly. For 19 of these 38 companies, 

we also obtained additional information during our undercover investigative phone calls, 

follow-up online quote requests for pension advances, or subsequent documentation that 

the companies provided on the terms of their pension advance offers. In addition, six of 

these pension advance companies provided written quotes to our undercover investigator. 

48Three companies did disclose to pensioners an effective interest rate or comparable 

terms on their websites. The remaining four companies currently or recently offered 

pension advance products, but detailed marketing materials were not available for our 

review in order for us to determine whether these companies disclosed an effective 

interest rate or comparable terms. 
 

Page 30 GAO-14-420 Pension Advance Transactions

• We also found that some of the offers provided to us by six pension 

advance companies were not clearly presented.49 Specifically, these 

companies provided a variety of offers based on differing number of 

years for the term as well as differing amounts of the monthly pension 

to be paid to the company. For example, one company provided a 

quote including 63 different offers with varying terms and monthly 

payment amounts to our fictitious federal pensioner residing in 

Maryland. We considered this volume of information to be 

overwhelming while not including very basic disclosures, such as the 

effective interest rate or an explanation of the additional costs of life 

insurance.

• The full amount of additional fees was not always transparently 

disclosed in the written quotes that six pension advance companies 

provided to our undercover investigator. For example, some of these 

quotes required life insurance for the pensioner. This, in effect, is an 

added fee for a pension advance if the life insurance had to be paid 

for by the pensioner. This type of fee would likely need to be disclosed 

if this were a loan under TILA. For example, for four of the eight 

written quotes that companies provided to our undercover 

investigator, we determined that the companies did not disclose 

whether the cost of life insurance was deducted from the lump-sum 

advance or whether the pensioner would need to pay this amount 

separately, and therefore it was not clear whether the total cost of the 

pension advance transaction to the pensioner would be higher than 

quoted. Also, in one of the eight written quotes provided to our 

undercover investigator, a pension advance company claimed that life 

insurance is paid for, at least in part, by the pension advance 

company. However, it was unclear how any pensioner’s fees are 

included in the transaction.50

 

49As previously described, we received 99 offers from six pension advance companies in 

response to our undercover investigative phone calls and online quote requests. 

50In one other written quote, the pension advance company disclosed that life insurance 

must be in place already. For the remaining two written quotes, the pension advance 

company disclosed that it did not require life insurance.
 

Page 31 GAO-14-420 Pension Advance Transactions

• We also found that some of the 38 companies we reviewed were not 

consistent in identifying whether pension advances are loans. For 

example, while nine companies referred to these products as a loan 

or “pension loan” on their websites, six of these companies stated 

elsewhere on their websites that these products are not loans. For 

example, Company 1 stated several times throughout its website that 

its transaction is not considered a loan. However, on one of its 

webpages, the company directly referred to one of its pension 

advance products as a pension loan. Further, two other pension 

advance companies even have the word “loan” in their name. In 

addition, during undercover investigative calls to 19 of the companies, 

we found examples of companies that were not consistent in 

identifying whether pension advances are loans. In one example, a 

representative from Company 31 specifically stated that its pension 

advance is not a loan. In another example, a representative from 

Company 11 that we spoke with stated that this product was a highinterest loan. He also stated that, for one of the companies he worked 

with, the pensioner would pay anywhere from 13 to 20 percent 

interest. In addition, the company’s website characterizes the product 

as a loan in several places. In a third example, a representative from 

Company 30 did not clearly disclose to our undercover investigator 

whether or not its pension advance was a loan, when asked. (See the 

sidebar for the direct quotes from these representatives.)

As previously discussed, in addition to disclosure of terms, we identified 

limited disclosure of company affiliations. At least 21 pension advance 

companies were also affiliated in a number of ways that were not 

apparent to consumers. These companies may be run by just a few 

parent companies that operate behind the scenes, which makes it unclear 

with whom the consumer is dealing. This lack of transparency may also 

affect a consumer’s ability to know whom to contact regarding any 

problems encountered during the transaction or which regulator to contact 

to file a complaint, if necessary. As previously described, on the basis of 

our undercover investigative phone calls and online quote requests to 19 

pension advance companies, we identified instances where the company 

that a consumer contacts may be acting on behalf of another company 

that provides the pension advance service, or may be operating under 

multiple names. Regulators from four states that we spoke with that had 

knowledge of or experience with pension advance products have also 

observed that these companies are set up in an elusive way, deliberately 

designed so it is unclear who is involved.

The terms and agreements of pension advances that we reviewed could 

be unfavorable to consumers, given high effective interest rates. As 

Company representatives provided 

differing responses regarding whether a 

pension advance is a loan

Representative from Company 31: “It is not a 

loan to you ... in the purest sense of an 

American loan it is not.”

Example 1

GAO Undercover Investigator: “Okay. What is 

it?”

Company Representative: “It is an advance ... 

it is treated differently legally.”

Representative from Company 11:

Example 2

“Oh it is going to cost you. It really does. It— 

you are going to pay anywhere on the first 

company—it is outrageous because see they 

don’t take any collateral, they don’t 

collateralize your pension. They just trust you 

that you are going to pay it out. What they do 

is they take an [automated clearing house] 

and once a month your money comes out of 

your checking account to them. So it is a highinterest loan. There is no question about it. If 

you go with the first company it is very high. If 

you go with the second company you will pay 

anywhere from 13 to 20 percent interest.”

GAO Undercover Investigator: “I’m trying to 

find out ... what you offer... is it a loan ... 

what is it?”

Example 3

Representative from Company 30: “Well, it’s 

kind of a—they don’t call it a loan. It’s—it’s 

a—it’s rated as a cash advance ... depending 

on how you look at it, you can say it’s a loan.” 

Source: GAO investigative calls to select pension advance 

companies.

Note: View clip on differing responses regarding 

whether a pension advance is a loan. 

Certain Unfavorable Terms of 

Agreements
 

Page 32 GAO-14-420 Pension Advance Transactions

previously discussed, we calculated that the lump-sum amounts offered 

by the six pension advance companies to our undercover investigator had 

effective interest rates that were at times close to two to three times 

higher than the comparable usury rates legally allowed in the states that 

these consumers resided in, and that these rates were not clearly 

disclosed to consumers. NCLC reported, as a result of its review of 

transactions targeting veterans’ benefits, that pension advance 

companies may be violating state UDAP laws prohibiting fraudulent, 

unfair, or deceptive practices in the marketplace.51 In addition, as a result 

of a class-action lawsuit, a state court also found the characteristics that 

we identified in pension advances to be unfair. For example, in a classaction suit in California, one of the plaintiffs would have had an imputed 

interest rate of between approximately 27 and 31 percent. While it found 

that the agreements at issue in that case are not loans, the court decided 

that the mischaracterized agreements in the transaction were “unlawful” 

and “unfair” under California’s Unfair Competition Law. The court also 

found the practice to be “unscrupulous and substantially injurious to 

consumers.”

52 In this case and another lawsuit, pensioners cited that, as a 

result of these usurious or unfair practices, they paid excess interest to 

the pension advance companies. Paying excess interest is one type of 

elder financial exploitation, among others. According to CFPB, elders who 

lose their life savings as a result of financial elder abuse usually have little 

or no opportunity to regain what they have lost. Another concern is that, in 

at least one instance, it appeared that the consumer is limited in his or her

ability to challenge the legality of the pension advance agreement. For 

example, one contract that was submitted as an exhibit of a class-action 

lawsuit that we reviewed contained language requiring the participant to 

agree not to raise a claim or defense based on antiassignment laws.

As previously mentioned, there are federal laws and regulations in place 

to protect consumers from unfair, abusive, or deceptive acts that may be 

applicable to the questionable practices that we identified. For example, 

as previously described, the Dodd-Frank Act and the FTC Act contain 

various provisions prohibiting unfair, abusive, or deceptive acts or 

practices. Some of the characteristics of pension advance products and 

 

51NCLC, In Harm’s Way—At Home: Consumer Scams and the Direct Targeting of 

America’s Military and Veterans. 

52Henry v. Structured Investments Co., LLC, No. 05CC00167, Statement of Decision on 

Phases 2 and 3 of Bifurcated Trial (Cal. Super. Ct., Sept. 7, 2011). 
 

Page 33 GAO-14-420 Pension Advance Transactions

their marketing raise questions as to whether they violate these 

prohibitions. However, there has been no direct federal oversight or public 

enforcement actions to determine whether pension advance practices 

violate any of these prohibitions.

There is limited federal oversight related to pension advances, which may 

be in part because, depending on how the product is structured, different 

federal agencies may have jurisdiction over that particular product.

53 The 

Dodd-Frank Act gives CFPB broad oversight authority over consumer 

financial products and services, including enforcement authority to 

prevent a covered person or service provider from committing or 

engaging in an unfair, deceptive, or abusive act or practice under federal 

law in connection with any transaction with a consumer for a consumer 

financial product or service, or the offering of a consumer financial 

product or service. The act authorizes CFPB both to take actions against 

violators and to educate consumers about ways to protect themselves 

against such practices.54 In addition, in July 2011, the Dodd-Frank Act 

also transferred responsibility for implementing TILA, and its consumer 

protection disclosure requirements, to CFPB. FTC also has authority to 

enforce TILA and to investigate and prosecute unfair or deceptive acts 

 

53For purposes of this report, we use the term oversight to include supervisory, regulatory, 

and enforcement functions. 

54According to section 1031 of the Dodd-Frank Act, CFPB may take enforcement action to 

prevent a covered person or service provider from committing or engaging in an unfair, 

deceptive, or abusive act or practice under federal law in connection with any transaction 

with a consumer for a consumer financial product or service or the offering of a consumer 

financial product or service. 12 U.S.C. § 5531. CFPB has the authority to enforce rules 

prescribed under the FTC Act with respect to an unfair or deceptive act or practice to the 

extent that such rule applied to an entity under CFPB jurisdiction with respect to the offer 

or sale of a consumer financial product or service. 12 U.S.C. § 5581(b)(5)(B)(ii). 

Limited Federal Oversight 

and Consumer Education 

Related to Pension 

Advances

Oversight
 

Page 34 GAO-14-420 Pension Advance Transactions

under Section 5 of the FTC Act.55 Both the Dodd-Frank Act and FTC Act 

describe actions that CFPB and FTC are authorized to take to protect 

consumers and the types of financial and commercial practices that 

consumers should be protected against, some of which appear to be 

relevant to practices that we describe in this report. However, neither 

agency has undertaken any direct oversight or public enforcement actions 

regarding pension advances. According to CFPB officials, they have 

provided oversight only in situations where financial products met certain 

characteristics. According to FTC officials, the agency has not taken any 

public law-enforcement action and has not received many complaints 

regarding this issue. 

According to CFPB officials, they are concerned about the effect of 

pension advances on consumers, but stated that they have not taken an 

official position or issued any regulations regarding pension advance 

transactions or products, or taken any related enforcement actions. CFPB 

officials reported that the Assistant Director of its Office of 

Servicemember Affairs has received a few complaints directly from 

individual military pensioners, but they are unable to determine if there 

are more complaints about pension advances because their complaint 

database does not allow consumers to specifically submit complaints 

about this type of product.56 In responding to a draft of our report, CFPB 

asserted that it has authority over these types of consumer-protection 

issues and is studying the structure of certain pension advance products 

and whether activities related to the offering of certain financial products 

violated any federal consumer financial law within CFPB’s authority.

 

55The FTC Act empowers FTC to, among other things, (1) prevent unfair methods of 

competition, and unfair or deceptive acts or practices in or affecting commerce; (2) seek 

equitable relief for conduct injurious to consumers; (3) prescribe trade regulation rules 

defining with specificity acts or practices that are unfair or deceptive, and establishing 

requirements designed to prevent such acts or practices; and (4) conduct investigations 

relating to the organization, business, practices, and management of entities engaged in 

commerce. 15 U.S.C. § 45 et. seq. FTC also has the authority to enforce rules prescribed 

by CFPB with respect to entities subject to FTC jurisdiction. 12 U.S.C. § 5581(b)(5)(C)(ii).

Certain entities, including banks, are excluded from FTC jurisdiction. 15 U.S.C. § 45(a).

56According to a CFPB official, CFPB’s consumer database has pre-defined categories 

from which consumers can choose in order to submit complaints. These fields include 

categories such as bank account, credit card, money transfer, payday and student loan, or 

vehicle or other consumer loan. There is no category related to pension advances or 

option to select “other.” Therefore, according to this CFPB official, a consumer would not 

have an option to directly submit a complaint regarding pension advances in CFPB’s

database.
 

Page 35 GAO-14-420 Pension Advance Transactions

FTC administers the Consumer Sentinel Network, which houses millions 

of consumer complaints pertaining to a wide range of industries and 

practices.57 At our request, FTC officials provided complaint data from the 

Consumer Sentinel Network about either a list of entities that we initially 

identified as being involved in pension advances, or complaints 

containing specific search parameters such as “pension advance” and 

“pension sale.” Through our analysis of these data, we identified 25

complaints related to companies that we determined were involved in 

pension advances.58 According to FTC officials, the agency was aware of 

a few complaints prior to our request, and the number of complaints 

received is one of several factors used when determining whether to 

conduct an investigation. It has not undertaken any public lawenforcement actions pertaining to pension advances and noted that it was 

unable to discuss whether any law-enforcement actions were under way. 

However, FTC officials reiterated that they identified very few consumer 

complaints and noted that FTC is governed by a public-interest provision, 

rather than an obligation to investigate each and every complaint it 

receives. It therefore focuses its limited resources on matters that tend to 

affect large numbers of consumers.

By conducting a review to identify whether some questionable practices—

such as the ones described in this report—are unfair or deceptive or are 

actually loans that should be subject to disclosure rules under TILA, and 

taking oversight or enforcement action if necessary, CFPB and FTC could 

help ensure that vulnerable pensioners are not harmed by companies 

trying to exploit them.

As previously mentioned, federal laws prohibiting the assignment of 

benefits could also be applicable to pension advance transactions, if 

these transactions involve directly transferring all or part of the benefit to 

a third party. The transactions that we assessed during our investigative 

 

57FTC’s Consumer Sentinel Network is an online database, available to law-enforcement 

agencies, that compiles consumer complaints received by FTC and law-enforcement and 

other organizations, including other federal and state agencies and nonprofit 

organizations. According to FTC officials, complaints from CFPB's complaint database are 

included in the Consumer Sentinel Network, and, like CFPB's database, the Consumer 

Sentinel Network does not contain a specific category for pension advance complaints.

58On the basis of our analysis of these data, we determined that 12 of the 25 complaints 

related to pension advances. The remaining 13 complaints do not appear to be related to 

pension advances but were related to the pension advance companies that we identified. 
 

Page 36 GAO-14-420 Pension Advance Transactions

calls did not involve a direct transfer of funds from pension administrators 

to third parties except for one instance where a company representative 

acknowledged that this would depend on who is funding the pension. 

Courts have varied in their interpretation of whether antiassignment laws 

apply to pension advances, even when they include an indirect transfer of 

pension benefits.59

The securities laws have not been applied to pension advance products. 

SEC’s oversight of companies that issue securities focuses on reviewing 

the companies’ required disclosures rather than examining or supervising 

the companies. Every offer and sale of a security must be registered with 

the SEC or exempt from registration under the Securities Act of 1933 

(1933 Act).60 The Securities Exchange Act of 1934 (1934 Act) generally 

requires brokers or dealers that effect securities transactions, or that 

induce or attempt to induce the purchase or sale of securities, to register 

with the SEC.61 Generally, all registered broker-dealers that deal with the 

public must become members of FINRA. Member broker-dealers must 

comply with FINRA rules, which, among other things, require 

communications used with investors to promote the offer and sale of 

securities to be fair and balanced, not misleading, and to include certain 

disclosures regarding the risks and fees associated with the products they 

offer and sell. Disclosures made under the federal securities laws are also 

subject to the antifraud provisions of the 1933 Act and 1934 Act, which 

 

59See examples of variations in rulings on whether pension advances violate 

antiassignment laws in In re Pierson, 447 B.R. 840 (Bankr. N.D. Ohio March 25, 2011); In 

re Dunlap, 458 B.R. 301 (Bankr. E.D. Va. Sept. 13, 2011); and Henry v. Structured 

Investments Co., LLC, No. 05CC00167, Statement of Decision on Phases 2 and 3 of 

Bifurcated Trial (Cal. Super. Ct., Sept. 7, 2011). 

60Securities Act of 1933, 48 Stat. 74 (1933) (codified as amended at 15 U.S.C. §§ 77a et 

seq.). The 1933 Act includes an investment contract in the definition of what constitutes a 

security. 15 U.S.C. § 77b(a)(1). The Supreme Court held that an investment contract is: 

(1) an investment of money; (2) in a common enterprise; (3) with the expectation of profits 

derived from the efforts of others. SEC v. W.J. Howey Co., 328 U.S. 293, 298-299 (1946). 

61Securities Exchange Act of 1934, 48 Stat. 881 (1934) (codified as amended at 15 U.S.C. 

§§ 78a et seq.). The 1934 Act generally defines a “broker” as “any person engaged in the 

business of effecting transactions in securities for the accounts of others,” and a “dealer” 

as “any person engaged in the business of buying and selling securities for such person’s 

own account through a broker or otherwise.” 15 U.S.C. § 78c(a)(4)(A), (a)(5)(A).
 

Page 37 GAO-14-420 Pension Advance Transactions

prohibit material misrepresentations or omissions and provide a general 

antifraud remedy for purchasers and sellers of securities.62

Consumer financial education can play a key role in helping consumers 

understand the advantages and disadvantages of financial products, such 

as pension advances. As we reported in 2013, it can be particularly 

important for older adults to be informed about potentially risky financial 

products, given that this population can be especially vulnerable to 

financial exploitation.63 The federal government plays a wide-ranging role 

in promoting financial literacy, with a number of agencies providing 

financial education initiatives that seek to help consumers understand and 

choose among financial products and avoid fraudulent and abusive 

practices.64 CFPB plays a role in financial education, having been 

charged by statute to develop and implement initiatives to educate and 

empower consumers (in general) and specific target groups to make 

informed financial decisions.65 The multiagency Financial Literacy and 

Education Commission, which is chaired by the Secretary of the Treasury 

and vice-chaired by the director of CFPB, is responsible for coordinating 

federal financial education efforts.66

We found that CFPB and four other agencies had taken actions to 

provide consumer education on pension advances:67

• CFPB’s website has a page entitled “Spotlight on Scams That Target 

Older Adults,” added in June 2013, which provides information about 

 

6215 U.S.C. §§ 77q, 78j(b).

63GAO-13-626T. 

64GAO, Financial Literacy: Overlap of Programs Suggests There May Be Opportunities for 

Consolidation, GAO-12-588 (Washington, D.C.: July 23, 2012).

6512 U.S.C. § 5493(d).

66In 2003, Congress created the multiagency Financial Literacy and Education 

Commission, the responsibilities of which include developing a national strategy to 

promote financial literacy and education, coordinating federal efforts, and identifying areas 

of overlap and duplication. Pub. L. No. 108-159, Title V, 117 Stat. 1952, 2003 (codified at 

20 U.S.C. §§ 9701–08). 

67The four other agencies that had taken actions to provide consumer education on 

pension advances included three agencies included in our review—SEC, FINRA, and 

PBGC—as well as the Federal Deposit Insurance Corporation, which was not included in 

our review. 

Consumer Education
 

Page 38 GAO-14-420 Pension Advance Transactions

the risks of pension advance loans and advice to consumers who are 

considering them. CFPB also has a short article in the “Ask CFPB” 

section of its website, added in October 2013, similarly cautioning 

consumers to be wary of pension advance products, noting product 

costs can be high. The Federal Deposit Insurance Corporation and 

CFPB released the training course “Money Smart for Older Adults” in 

June 2013, which provides information on topics such as common 

frauds and scams targeting older adults. One of the course’s modules 

covers scams that target veteran benefits and includes information 

about a pension advance scheme.

• The SEC and FINRA issued a joint Investor Bulletin in May 2013 

entitled “Pension or Settlement Income Streams—What You Need to 

Know Before Buying or Selling Them.” The bulletin addresses both 

pensioners who are considering selling their pensions and investors 

who are considering acquiring the rights to such pension payments.68

• PBGC’s fall 2013 newsletter to retirees warned against individuals 

peddling investments in pension incomes and falsely claiming that 

PBGC backs them.

However, several other federal agencies—including some that regularly 

communicate with pensioners as part of their mission—do not provide 

information about pension advance products and their associated risks 

and were not aware of CFPB publications at the time of our review.69

Also, these agencies reported that they have not identified many related 

complaints and some were just learning about pension advance products. 

FTC educates consumers on consumer products and avoiding scams 

through multimedia resources—including its website, print publications, 

and videos—but it has not provided any specific consumer education 

about pension advances to date. FTC officials reported that they have not 

ruled out providing consumer education and the agency is considering 

taking actions. We also did not identify material on pension advance 

products in the information or educational material provided by federal 

agencies in our review that oversee pensions—including EBSA and 

Treasury, which have oversight over private-sector pensions; OPM, which 

 

68Securities and Exchange Commission, Office of Investor Education and Advocacy, 

Pension or Settlement Income Streams: What You Need to Know Before Buying or Selling 

Them, Investor Bulletin (Washington, D.C.: May 2013). 

69Officials from FTC, EBSA, Treasury, PBGC, OPM, and VA were not aware of CFPB’s 

various consumer-education publications on pension advances at the time of our review.
 

Page 39 GAO-14-420 Pension Advance Transactions

has oversight of federal civilian pensions; DOD, which has oversight over 

military pensions; and VA, which has oversight over a needs-based 

benefit provided to veterans called a “pension.”

70 While each of these 

agencies have existing mechanisms used to inform and educate 

pensioners (see table 3), only PBGC has used these mechanisms to alert 

its constituencies to the risks related to pension advance companies.71

Also, a DOD official told us he contacted CFPB in June 2013 to seek 

assistance on educational content that might be useful for its pensioners, 

and CFPB provided this information. However, as of March 2014, DOD 

had not yet determined how it will use this information.

Table 3: Mechanisms for Federal Agencies to Communicate with Pensioners

Agency Mechanisms for communicating with pensioners

Employee Benefits Security Administration 

(EBSA) 

EBSA’s Office of Outreach, Education, and Assistance fields questions and publishes 

educational materials and literature to help private-sector pensioners. 

Department of the Treasury (Treasury) Treasury’s Internal Revenue Service (IRS) provides educational material on retirement 

plans to retirees on its website.

Pension Benefit Guaranty Corporation 

(PBGC) 

PBGC publishes a retiree newsletter and makes information available for beneficiaries 

on its website. 

Office of Personnel Management (OPM) OPM sends benefits administration letters and periodically provides literature as part 

of outreach efforts after an individual’s retirement.

Department of Defense (DOD) DOD provides education to military members through family centers, which provide 

family counseling and education. DOD also publishes a retiree newsletter. In addition, 

DOD officials told us that they could add a warning about pension advance 

transactions to the bottom of Retiree Account Statements.

Department of Veterans Affairs (VA) VA provides fact sheets and other educational material to beneficiaries, and posts 

alerts on its website about matters that may be harmful to beneficiaries. 

Source: GAO interviews with federal agencies and review of publicly available educational resources on some of the agencies’ 

websites.

Officials from five of these six agencies agreed that it would be beneficial 

to use their existing communication methods to inform their respective 

constituents about pension advances. We have cautioned against 

overlap—multiple programs with similar goals and activities—in federal 

 

70Pension plans overseen by these agencies are subject to antiassignment provisions 

described earlier in this report.

71In its fall 2013 newsletter to retirees, PBGC reported that its Office of Inspector General 

warns that individuals are peddling fraudulent investments in pension incomes supposedly 

backed by PBGC and clarified that PBGC does not sell, or make available for purchase, 

pensions or pension incomes.
 

Page 40 GAO-14-420 Pension Advance Transactions

financial education efforts.72 However, we also have recognized that 

financial education programs may be more effective if the program’s 

delivery method is adapted so that it is appropriate to its target 

demographic.73 Working through the Financial Literacy and Education 

Commission, CFPB could help ensure that existing consumer-education 

materials on pension advances are reaching the populations most likely 

to consider such products by coordinating distribution of such materials 

with agencies that have oversight over pensions to provide education on 

the pros and cons and relevant consumer protections associated with 

pension advances.

Some older Americans are both at greater risk of being in financial 

distress and of being financially exploited as they typically live off incomes 

below what they earned during their careers and assets that took a 

lifetime to accumulate. Some pension advance companies market their 

products as a quick and easy financial option that retirees may turn to 

when in financial distress from unexpected costly emergencies or when in 

need of immediate cash for other purposes. However, pension advances 

may come at a price that may not be well understood by retirees. As 

illustrated by examples in this report and by related consumer complaints 

and lawsuits, the lack of transparency and disclosure about the terms and 

conditions of these transactions, and the questionable practices of some 

pension advance companies, could limit consumer knowledge in making 

informed decisions, put retirement funds at risk, and make it more difficult 

for consumers to file complaints with federal agencies, if needed.

Given the risks associated with pension advance products, the 

questionable practices that we identified, and the increasing population of 

retirees, a CFPB review of whether these products violated consumer 

laws within CFPB’s authority could help ensure consumers are not 

harmed by companies trying to exploit them. Similarly, a formal evaluation

by FTC of known information about pension advance companies to 

determine whether practices such as the ones described in this report are 

unfair or deceptive, and therefore may warrant related enforcement 

actions, would contribute to protecting consumers.

 

72GAO-12-588. 

73GAO, Financial Literacy: A Federal Certification Process for Providers Would Pose 

Challenges, GAO-11-614 (Washington, D.C.: June 28, 2011).

Conclusions
 

Page 41 GAO-14-420 Pension Advance Transactions

While it is important to recognize that even informed people can 

voluntarily enter into agreements that may not ultimately be in their best 

long-term financial interests, and therefore bear some responsibility for 

their choices, awareness of the pros and cons could help in mitigating 

potential exploitation. More consumer education about the pros and cons 

associated with pension advances could help consumers understand any 

associated risks of undertaking these financial transactions, as well as the 

related consumer protections afforded to them. While CFPB and selected 

other federal agencies have developed some information and education 

for consumers on pension advances and the risks they pose, that 

information is not being disseminated by several federal agencies that 

regularly communicate with pensioners, in part because the agencies 

were not aware of these resources. CFPB and the Financial Literacy and 

Education Commission represent the nexus for interagency coordination 

on financial education. Working through the commission to coordinate 

distribution of existing materials on pension advances with the agencies 

overseeing pensions, CFPB could help ensure that the materials reached 

the populations most likely to consider such products. Such dissemination 

also could help increase knowledge about pension advances among 

federal agency staff interacting with these consumer populations. Finally, 

these efforts would contribute to a federal financial literacy goal—that 

consumers have the tools to evaluate whether financial products, such as 

pension advances, are in their best interests.

In order to strengthen federal oversight or enforcement of pension 

advance products, we recommend that

• the Director of CFPB review pension advance practices, such as 

those highlighted in this report, and exercise oversight as appropriate; 

and

• the Chairwoman of FTC review pension advance companies and the 

questionable practices that we highlight in this report, and exercise

enforcement as appropriate.

To help ensure that consumer-education materials on pension advances 

reach their target audiences, we recommend that

• the Director of CFPB, through the Financial Literacy and Education 

Commission, coordinate with the federal agencies that regularly 

communicate with pensioners—such as EBSA, Treasury, PBGC, 

OPM, DOD, and VA—on the dissemination of existing consumereducation materials on pension advances.

Recommendations for 

Executive Action
 

Page 42 GAO-14-420 Pension Advance Transactions

We provided a draft of this report to CFPB and FTC for comment. We 

also provided relevant sections of a draft of this report to EBSA, Treasury, 

PBGC, OPM, DOD, VA, the SEC, and FINRA for comment. In addition, 

we provided selected excerpts of the draft report to NCLC and the North 

American Securities Administrators Association to obtain their views and 

verify the accuracy of the information provided. 

In its written comments, which are reproduced in appendix III, CFPB 

concurred with our recommendations that CFPB review pension advance 

practices and exercise oversight as appropriate and coordinate with the 

federal agencies that regularly communicate with pensioners on the 

dissemination of existing consumer-education materials on pension 

advances. In its response, CFPB stated that it believes that this report 

provides important insight into potentially questionable activities with 

respect to pension advance transactions and how they can negatively

affect consumers, including older Americans and military veterans. CFPB 

also stated that it is currently examining potentially improper practices in 

this area. This action, if implemented effectively and including the 

practices highlighted in this report, would address the intent of our 

recommendation. In addition, CFPB stated that it agrees that consumer 

education must play a key role in helping consumers understand the 

advantages and disadvantages of financial products, such as pension 

advances, and that collaboration and coordination among agencies and 

stakeholders can help educate consumers and prevent future threats to 

financial stability. In technical comments, CFPB noted that it would not be 

accurate to say that CFPB has not made a determination about whether it 

has authority over pension advance products. CFPB clarified that, 

depending on the structure of a particular pension advance product, 

CFPB would have authority over certain types of such products and will 

act on that authority if the offer of a particular product violates applicable 

federal consumer financial law. In response, we removed language from 

our recommendation to CFPB that it should make a determination about 

whether it has authority over these products. Other CFPB technical 

comments were incorporated into the report, as appropriate.

In an e-mailed response on May 19, 2014, the Director of FTC’s Bureau 

of Consumer Protection agreed with our recommendation and said that 

she shares GAO’s concerns about pension advance products and has 

directed staff to review this industry and its practices, and, if warranted, to 

take appropriate law-enforcement action, as we recommended. This 

Agency and ThirdParty Comments and 

Our Evaluation
 

Page 43 GAO-14-420 Pension Advance Transactions

action, if implemented effectively, would address the intent of our 

recommendation. The Director also stated that FTC will coordinate its 

efforts, where appropriate, with CFPB, pursuant to the memorandum of 

understanding between the two agencies. In addition, the Director noted 

that, in determining whether to take enforcement or other action in any 

particular situation, FTC may consider a number of factors, including the 

type of violation alleged; the nature and amount of consumer injury at 

issue and the number of consumers affected; and the likelihood of 

preventing future unlawful conduct and securing redress or other relief. 

Further, the Director stated that FTC staff will be accelerating plans to 

publish consumer-education materials designed to help consumers better 

understand how these pension advance products work, the advantages 

and disadvantage of these products, and how consumers can protect 

themselves when using these products. In technical comments, FTC 

emphasized that it is primarily a law-enforcement agency with authority 

over most sectors of the economy and does not have any supervisory 

authority. In response, we modified the recommendation to FTC to 

exercise enforcement, as appropriate, rather than oversight. We also 

clarified in the report that we use the term oversight to include 

supervisory, regulatory, and enforcement functions. Other FTC technical 

comments were incorporated into the report, as appropriate. 

EBSA, Treasury, PBGC, VA, the SEC, and the North American Securities 

Administrators Association also provided technical comments that were 

incorporated into the report, as appropriate. OPM, DOD, FINRA, and 

NCLC reported that they had no comments.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the 10 federal agencies 

and organizations we reviewed, relevant congressional committees, and 

other interested parties. In addition, the report will be available at no 

charge on the GAO website at http://www.gao.gov. 

If you or your staff members have any questions about this report, please 

contact me at (202) 512-6722 or lords@gao.gov. Contact points for our 
 

Page 44 GAO-14-420 Pension Advance Transactions

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix IV. 

Stephen M. Lord

Managing Director

Forensic Audits and Investigative Service
Appendix I: Objectives, Scope, and 

Methodology

Page 45 GAO-14-420 Pension Advance Transactions

This report (1) describes the number and characteristics of entities 

offering pension advances and the marketing practices that pension 

advance companies employ; (2) evaluates how pension advance terms 

compare with those of other financial products; and (3) evaluates the 

extent to which there are federal oversight mechanisms in place related to 

pension advances.

To describe the number and characteristics of entities offering pension 

advances and the marketing practices that pension advance companies 

employ, we conducted four steps: (1) identifying companies that offered 

pension advances using public and nonpublic data; (2) obtaining 

demographic information about these companies; (3) obtaining additional 

information directly from a subset of companies selected for illustrative 

example; and (4) reviewing information provided by companies offering 

pension advances, including the terms and agreements and the structure 

of the transactions.

1. We identified 38 companies that offered pension advance products 

by: (1) performing a comprehensive search of companies that market 

these products to consumers online; (2) conducting queries of public 

and nonpublic databases that capture information on companies, such 

as Accurint, the Federal Trade Commission’s (FTC) Consumer 

Sentinel Network, LexisNexis, Dun & Bradstreet, Better Business 

Bureau, and Proquest databases; (3) conducting library searches of 

publications that may capture print ads; and (4) interviewing officials 

from agencies and organizations that provide and collect information 

to and from retired consumers.1 We conducted these searches using 

search criteria such as “pension advances,” “pension loans,” “pension 

sales,” “cash for pensions,” “pension lump sum,” “pension buyouts,” 

 

1

The 38 companies that we identified and reviewed either currently or have recently 

offered pension advances within the last 2 years. We describe this group of companies 

throughout the report. Also, the agencies and organizations that we met with are identified 

later in this appendix. 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 46 GAO-14-420 Pension Advance Transactions

and “structured settlements.”2 For purposes of this report, we focused 

more on the pension advance component than on the pension 

investment component in order to highlight the direct effect on 

pensioners.

2. For the 38 companies that we identified as having offered pension 

advance products, we obtained demographic information using public 

and nonpublic data, including: (1) location, (2) size, (3) annual sales, 

(4) whether they appear to be affiliated or run by the same owner, (5) 

range of various types of financial products they offer, and (6) 

consumer complaints or lawsuits filed against them.3 To gather 

demographic data on the entities we identified, we used information 

provided by the companies on their websites, corroborated and 

supplemented to the greatest extent possible with public or nonpublic 

data provided in Accurint, LexisNexis, FTC’s Sentinel Network, and 

any other official databases that we identified with relevant 

information. On the basis of complaint data that we received from FTC 

as well as publicly available complaint data, we also identified whether 

companies had pension advance complaints filed by consumers 

against them and the nature of such complaints.

3. We obtained additional data on 19 of the 38 pension advance 

companies selected for case studies, which we use for illustrative 

examples in this report. To select the case-study companies, we 

 

2

Our list of pension advance companies may not capture all companies that exist. Some 

companies may exist that do not market through the Internet or publications that we 

reviewed or that do not have documented complaints or did not register with any of the 

sources for which we had access. However, we believe that our population effectively 

describes the minimum level of variation or similarities in pension advance companies and 

transactions. In addition, as we describe in this report, some companies included in this 

total are affiliated with each other. Therefore, the number 38 reflects the number of 

companies that we identified that present themselves to consumers as separate 

companies. 

3

For purposes of this report, the company location is based on: the address provided by 

the company on its website; Accurint, Dun & Bradstreet, and Better Business Bureau 

reports, if available; or legal information provided by the company. Also, we were only able 

to determine the size of 8 out of 38 companies due to limited information on this 

characteristic in public and nonpublic databases or on the companies’ own websites that 

we reviewed. 
Appendix I: Objectives, Scope, and 

Methodology

Page 47 GAO-14-420 Pension Advance Transactions

chose companies within 10 selected states4 based on: (1) varying 

types of marketing claims or pitches, such as offers, service 

guarantees, or targeting of specific groups of consumers; (2) 

presence of or lack of consumer complaints through sources like 

FTC’s database;5 (3) a range of represented size of businesses;6 and 

(4) availability of consumer-friendly information on the company. For 

these 19 selected companies, we conducted undercover investigative 

phone calls, submitted online quote requests for pension advances, or 

obtained documentation directly from the companies. Posing as a 

federal, military, or private-sector retiree receiving a pension, our 

undercover investigator solicited information about the companies and 

their pension advance products directly from the companies. Though 

not generalizable to all pension advance companies, this information 

provided insights into pension advance transactions.

4. We reviewed the public marketing strategies employed by the 38 

companies, including: (1) what venues they used to market their 

products; (2) whether any particular group was being targeted; (3) 

whether companies operated by the same owner were marketing 

themselves differently; and (4) whether what they included in the 

advertising clearly disclosed the actual terms they offered. For the 19 

case-study companies, we also obtained additional information during 

undercover investigative phone calls, follow-up online quote requests 

for pension advances, or subsequent documentation that the 

companies provided on the terms of these agreements or offers.

 

4

The following states were selected based on the number of complaints identified in FTC’s 

consumer complaint database, number of pension advance companies that we identified 

located in the state, number of residents over age 65 (potential pensioners), and our 

access to existing licenses or templates for creating licenses for the state—Arizona, 

Arkansas, California, Delaware, Florida, Georgia, Illinois, Indiana, New Jersey, and 

Oklahoma. For variation in consumer-protection information outside the states where 

companies were located, we also selected Maryland and Texas for our review of 

consumer-protection laws. We also considered whether these states had a larger number 

of military personnel and represented states with varying degrees of stringency regarding 

consumer-protection laws. We found that California, Florida, and Texas reflected our 

desired variation related to these additional considerations. 

5

Of the 19 companies selected for case studies, 4 companies had consumer complaints 

and 15 companies had no complaints identified on the basis of our preliminary research 

for case-study selection. 

6

This included both small companies (with up to 500 employees and annual sales below 

$35.5 million) and companies for which we were unable to determine the size. We did not 

identify any companies that specifically met our definition of large (more than 500 

employees and annual sales greater than $35.5 million). 
Appendix I: Objectives, Scope, and 

Methodology

Page 48 GAO-14-420 Pension Advance Transactions

To evaluate how pension advance terms compare with those of other 

financial products, for the six companies that provided written quotes to 

our undercover investigator, we conducted an actuarial analysis of the 

lump sum that fictitious pensioners were offered to determine how the 

pension advance products compare with other financial products. For 

purposes of this report, we considered comparable financial “products” to 

be loans and lump-sum payment options provided directly through 

pension plans, as each of these products or offerings have characteristics 

similar to pension advances.7 We assessed the pricing of lump-sum 

quotes provided by pension advance companies to these two comparable 

products. In our comparison with loan rates, we calculated the cost of 

each lump-sum quote to the annuitant as an effective interest rate. The 

effective interest rate was calculated by equating the lump sum to the 

amount of a loan, the monthly annuitant payment to a loan repayment 

amount, and the total number of monthly annuitant payments to the 

repayment period. We compared the resulting effective interest rate

calculations with the usury rate (the legal limit on loan interest rates that 

can be charged) in the state where the pensioner who received the 

pension advance offer resided. In our comparison with lump-sum 

payment options provided directly through pension plans, we determined 

what the minimum lump-sum amount would be if the lump-sum rules of 

the Employee Retirement Income Security Act of 1974 (ERISA), which 

apply to private-sector defined-benefit plans, were applicable to pension 

advances. We compared the resulting minimum lump-sum calculation 

under ERISA guidelines with the lump-sum amount offered to our 

undercover investigator by pension advance companies. To arrive at the 

ERISA lump-sum amounts, we followed the Internal Revenue Code 

requirements that determine, for plans that offer lump sums, the minimum 

amount of such lump sums for the pension plan to remain tax-qualified.8

 

7

We considered consumer loans and lump-sum payments offered by pension plan 

sponsors to be comparable products for purposes of this report. In general, a loan can be 

defined as money advanced to a borrower, to be repaid at a later date, usually with 

interest. A loan contract specifies the terms and conditions of the repayment, including the 

finance charge or interest rate. A lump-sum payment may be offered by certain pension 

plan sponsors in exchange for an ongoing pension payment. We did not determine 

whether the pension advances were consumer loans for purposes of the usury laws, 

whether the pensioner could qualify for lower-interest-rate products, or whether the 

pensioners were eligible for lump-sum payments from pension plan sponsors. We 

recognize that there are other consumer financial products that may also be comparable, 

such as credit cards and other consumer credit products. For purposes of this report, we 

focus on the two financial products that we believe are most comparable.

8

26 U.S.C. § 417(e). 
Appendix I: Objectives, Scope, and 

Methodology

Page 49 GAO-14-420 Pension Advance Transactions

These minimum lump sums vary depending on the form and amount of a 

participant’s promised benefit, the participant’s age, and the particular 

year and month applicable to the calculation, as the interest rates used in 

the calculation depend on bond market interest rates published by the 

Department of the Treasury (Treasury), which change from month to 

month. For this purpose, we used the interest rates applicable to a 

December 2013 calculation, the most recent rates available at the time of 

our calculations. In practice, pension plan sponsors that amend their 

plans to provide onetime offers of lump sums to plan participants (known 

as lump sum “windows”) have some ability to time the applicable month of 

the calculation, which can sometimes allow sponsors to select a prior 

month in which interest rates are higher than current interest rates, which 

lowers the calculated lump-sum amount, to the plan sponsor’s benefit.9

Conversely, sponsors of plans that offer an ongoing lump-sum option do 

not have this ability, as interest rates in the applicable month of the 

calculation could be either higher or lower than current interest rates on 

an ongoing basis. For our calculations, we used interest rates current as 

of the month of the offer (for almost all of the offers we received, in 

December 2013) or the month prior to the offer (for a few offers that were 

obtained in January 2014), so that our hypothetical ERISA lump-sum 

amounts are most comparable, conceptually, to what pension plans that 

have an ongoing lump-sum option would offer because we are taking out 

the intentional variation that a window may have built in.

To evaluate the extent to which there are federal oversight mechanisms 

in place related to pension advances, we (1) reviewed criteria from

relevant laws and regulations regarding pension advances, including 

those relevant to pension assignments and securities; and (2) identified 

and assessed federal oversight or consumer-education initiatives related 

to pension advances.

1. To determine which federal or state laws and regulations are relevant 

to pension advances, we met with federal and state agencies, and 

related organizations, that have oversight over consumer-protection 

regulations, financial transactions, and marketing and sales practice 

regulations. These entities included Treasury, the Bureau of 

Consumer Financial Protection (CFPB), FTC, Securities and 

Exchange Commission (SEC), and the Financial Industry Regulatory 

 

9

We have ongoing work related to these onetime offers to plan participants. 
Appendix I: Objectives, Scope, and 

Methodology

Page 50 GAO-14-420 Pension Advance Transactions

Authority (FINRA), as well as the National Association of Attorneys 

General, North American Securities Administrators Association, and 

state regulators from Arkansas, California, Florida, and 

Massachusetts. We also met with federal agencies that have 

oversight over pensions, such as the Department of Labor’s (DOL) 

Employee Benefits Security Administration (EBSA), Pension Benefit 

Guaranty Corporation (PBGC), Office of Personnel Management 

(OPM), Departments of Defense (DOD) and Veterans Affairs (VA), 

and Treasury. In addition, we met with advocacy organizations 

associated with the retired population, such as the Pension Rights 

Center and the National Consumer Law Center. We also identified 

important state legal cases and investigations to identify the laws or 

regulations applied in legal or investigative actions taken against 

pension advance companies.

2. To identify and describe federal oversight initiatives, we interviewed 

the aforementioned federal agencies about the extent to which they 

are aware of pension advances, whether they have undertaken any 

actions to monitor or assess relevance to federal laws and regulations 

under their jurisdiction, or provided education outreach, training, or 

other oversight efforts. As part of this assessment, we identified 

systems and processes at federal agencies that can collect

information about complaints on pension advances, and identified 

whether or how officials used this information to inform their oversight 

activities. Finally, we reviewed agency documentation to determine 

what oversight or consumer-education actions agencies have taken.

We conducted this performance audit from August 2013 to June 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. We conducted our related 

investigative work from September 2013 to June 2014 in accordance with 

the standards prescribed by the Council of the Inspectors General on 

Integrity and Efficiency.
Appendix II: Additional Details on Pension 

Advance Companies GAO Identified

Page 51 GAO-14-420 Pension Advance Transactions

Company 

number Location

Life 

insurance 

requirement

(yes/no)

Affiliated 

companies 

identified 

(company 

number) 

Reference to 

product as a 

loan (yes/no)

Part of investigative 

phone callsa 

Disposition

of phone call

(yes/no)

(if applicable, 

type of undercover 

profile used)

Written quote 

provided

(yes/no)

1 CA Yes 2 

3 

4 

5 

6 

27

29

34

Yesb Yes

(Federalc

, Private 

Sectord

, and Militarye) 

Company provided 

a written quote for 

the federal profile 

but did not provide 

one for the private 

sector or military 

profiles. The 

company told the 

private-sector 

profile that he did 

not qualify for the 

program because 

he did not have 

income other than 

the pension and 

Social Security. 

The company failed 

to send us a quote 

as agreed for the 

military profile.

Yes—three

offers provided 

for selling three 

differing 

amounts of the 

monthly 

pension 

payment for the 

federal profile

2 CA Unknown 1 Unknown No n/a n/a

3 CA Unknown 1 No No n/a n/a

4 CA Unknown 1 

5 

Unknown No n/a n/a

5 CA Unknown 1 

4 

Yesb No n/a n/a

6 FL Yes 1 

13

No Yes

(Private Sectord

) 

Company provided 

a written quote.

Yes—one offer 

provided for a 

portion of the 

monthly 

pension 

payment

7 CA Unknown 8

9 

10

14

Unknown No n/a n/a

8 CA No 7 

9 

10

No Yes

(Private Sectord

)

Company unwilling 

to provide a quote 

without performing 

an instant credit 

check.

n/a

Appendix II: Additional Details on Pension 

Advance Companies GAO Identified
Appendix II: Additional Details on Pension 

Advance Companies GAO Identified

Page 52 GAO-14-420 Pension Advance Transactions

Company 

number Location

Life 

insurance 

requirement

(yes/no)

Affiliated 

companies 

identified 

(company 

number) 

Reference to 

product as a 

loan (yes/no)

Part of investigative 

phone callsa 

Disposition

of phone call

(yes/no)

(if applicable, 

type of undercover 

profile used)

Written quote 

provided

(yes/no)

9 CA No 7 

8 

10

11

Yes Yes

(Private Sectord

)

Company unwilling 

to provide a quote 

without performing 

an instant credit 

check. 

n/a

10 CA No 7 

8 

9 

No Yes

(Militarye

) 

Company unwilling 

to provide a quote 

without performing 

an instant credit 

check. 

n/a

11 GA Yes 9 Yesb Yes

(Federalc

)

Company advised 

us to complete an 

online quote 

request. However, 

the company’s 

online quote 

request form was 

limited to submitting

contact information

rather than 

submitting an 

online quote 

request.

n/a

12 CA Unknown 34 No No n/a n/a

13 AR Unknown 6 

15

17

18

19

23

24

Unknown Yes

(Federalc

)

Company claimed 

to never have 

worked with 

pensions. However, 

this company was 

named in two 

Cease and Desist 

Orders issued by 

the Arkansas 

Securities 

Department for 

violating provisions 

of the Arkansas 

Securities Act. This 

company’s pension 

advance products 

are described in 

these orders. 

n/a

14 Unknown Unknown 7 Unknown No n/a n/a
Appendix II: Additional Details on Pension 

Advance Companies GAO Identified

Page 53 GAO-14-420 Pension Advance Transactions

Company 

number Location

Life 

insurance 

requirement

(yes/no)

Affiliated 

companies 

identified 

(company 

number) 

Reference to 

product as a 

loan (yes/no)

Part of investigative 

phone callsa 

Disposition

of phone call

(yes/no)

(if applicable, 

type of undercover 

profile used)

Written quote 

provided

(yes/no)

15 CA Yes 13 No Yes

(Federalc and Private 

Sectord

)

Company provided 

a written quote for 

the federal profile. 

The company told 

the private-sector 

profile that he 

would not be 

eligible for a 

pension advance 

because of his 

income, his age, 

and the cost of life 

insurance. 

Yes—four 

offers provided 

for differing 

amounts of the 

monthly 

pension 

payment and 

differing 

number of 

years for the 

terms for the 

federal profile

16 IL Yes 17 No No n/a n/a

17 CA Yes 13

16

18

19

20

21

22

25

No No n/a n/a

18 CA Yes 13

17

No No n/a n/a

19 CA Yes 13

17

20

No Yes

(Federalc and Militarye

)

Company provided 

written quotes in 

response to the 

investigative phone 

call with the military 

profile as well as a 

separate online 

quote request 

submitted by the 

federal profile. 

Yes—87 offers 

providedf
Appendix II: Additional Details on Pension 

Advance Companies GAO Identified

Page 54 GAO-14-420 Pension Advance Transactions

Company 

number Location

Life 

insurance 

requirement

(yes/no)

Affiliated 

companies 

identified 

(company 

number) 

Reference to 

product as a 

loan (yes/no)

Part of investigative 

phone callsa 

Disposition

of phone call

(yes/no)

(if applicable, 

type of undercover 

profile used)

Written quote 

provided

(yes/no)

20 AZ Yes 17

19

21

22

Yes Yes

(Federalc

)

Company advised 

us to fill out an 

online quote 

request. We then 

received a 

response stating 

that the fictitious 

pensioner had 

already been 

provided with a 

quote by a related 

company. 

n/a

21 AZ Yes 17

20

22

No No n/a n/a

22 AZ Yes 17

20

21

No No n/a n/a

23 AR Yes 13 No No n/a n/a

24 Unknown Yes 13 No No n/a n/a

25 GA Yes 17 No No n/a n/a

26 CA No 27 Yesb Yes

(Militarye

)

We were unable to 

reach this company 

by phone. We 

submitted an online 

quote request and 

received a written 

quote from 

Company 27. 

n/a

27 CA Unknowng 1 

26

28

Unknown Yes

(Private Sectord

)

We were unable to 

reach this company 

by phone. We 

submitted an online 

quote request to 

affiliated Company 

26, and Company 

27 provided a 

written quote for 

our military profile.

g

Yes—two offers 

provided for 

selling two 

differing 

amounts of the 

monthly 

pension 

payment for the 

military profile 

listed under 

Company 26 

above

28 CA No 27 No No n/a n/a
Appendix II: Additional Details on Pension 

Advance Companies GAO Identified

Page 55 GAO-14-420 Pension Advance Transactions

Company 

number Location

Life 

insurance 

requirement

(yes/no)

Affiliated 

companies 

identified 

(company 

number) 

Reference to 

product as a 

loan (yes/no)

Part of investigative 

phone callsa 

Disposition

of phone call

(yes/no)

(if applicable, 

type of undercover 

profile used)

Written quote 

provided

(yes/no)

29 OK Yes 1 No Yes

(Militarye

)

We were unable to 

reach this company 

by phone. We 

submitted an online 

quote request and 

received an e-mail 

from this company 

restating the 

information 

provided in the 

written quote with 

the header of 

Company 1. The 

actual quotes were 

not provided. 

n/a

30 FL Yes Unknownh No Yes

(Private Sectord)

Company 

requested that we 

send them an 

e-mail with our 

profile information. 

We did so but did 

not receive a 

response.

n/a

31 CA No Unknowni No Yes

(Militarye

)

Company advised 

us to submit an 

online quote.

However, the 

company’s online 

quote request form 

was limited to 

requesting contact 

information rather 

than submitting an 

online quote 

request.

n/a

32 DE Unknown Unknown Yesb Yes

(Federalc

)

We were not able 

to reach this 

company by phone. 

We submitted an 

online quote 

request and 

received 

information on 

terms and 

requirements by

e-mail but did not 

receive a written 

quote.i

n/a
Appendix II: Additional Details on Pension 

Advance Companies GAO Identified

Page 56 GAO-14-420 Pension Advance Transactions

Company 

number Location

Life 

insurance 

requirement

(yes/no)

Affiliated 

companies 

identified 

(company 

number) 

Reference to 

product as a 

loan (yes/no)

Part of investigative 

phone callsa 

Disposition

of phone call

(yes/no)

(if applicable, 

type of undercover 

profile used)

Written quote 

provided

(yes/no)

33 DE No Unknown No Yes

(Federalc and Private 

Sectord

)

During these calls, 

the company either 

claimed to buy 

pensions but not 

“government 

pensions” or to no 

longer work with 

pensions.

n/a

34 IN Yesj 1 

12

Yesb Yes

(Private Sectord and 

Militarye

)

We were not able 

to reach this 

company by phone

for the military 

profile. We 

submitted online 

quote requests for 

both our private 

sector and military 

profiles, and the 

company provided 

written quotes. 

Yes—two offers 

providedk

35 NJ Yes Unknown No Yes

(Private Sectord

)

Received voicemail 

saying company 

does not purchase 

pensions. However, 

we observed from 

the company’s 

online marketing 

that this company 

did appear to offer 

pension advances 

but it did not have 

an online quote 

request application. 

n/a

36 CO No Unknown Yes No n/a n/a

37 CO Yes Otherl No No n/a n/a

38 OR Yes Unknown No No n/a n/a

Source: GAO analysis of pension advance company information and results of undercover investigative online quote requests and

phone calls.

Notes: n/a = not applicable.

a

We conducted undercover investigative phone calls to 19 pension advance companies using profiles 

for fictitious retirees receiving federal, military, or private-sector pensions. We also submitted 

undercover online quote requests as follow-up in some cases.

b

Six of the 38 companies we reviewed referred to these pension advance products as a loan or 

“pension loan” on their websites and stated elsewhere on their websites that these products are not 

loans. 

c

The federal profile used was a 67-year-old male who carried a life-insurance policy and earned a net 

pension of $2,567 per month. This fictitious federal pensioner was a resident of either Maryland or 
Appendix II: Additional Details on Pension 

Advance Companies GAO Identified

Page 57 GAO-14-420 Pension Advance Transactions

Florida. Also, we did not make an investigative phone call to Company 19 using the federal profile 

and instead submitted a separate online quote quest.

d

The private-sector profile used was 71-year-old male residing in Texas who carried a life-insurance 

policy and earned a net pension of $733 per month. Also, we did not make an investigative phone call 

to Company 34 using the private-sector profile and instead submitted a separate online quote quest.

e

The military profile was a 44-year-old male residing in California who carried a life-insurance policy 

and earned a net pension of $925 per month.

f

This company provided 24 offers to a fictitious military pensioner residing in California and 63 offers 

to a fictitious federal pensioner residing in Maryland. These offers were for differing amounts of the 

monthly pension payment and differing numbers of years for the term.

g

This company did not have an online presence during the time of our review but it operated through 

Company 26 and Company 28. We submitted an online quote request to Company 26 and received a 

written quote from Company 27 as a broker to Company 1. 

h

During our undercover investigative phone call with this company, the representative indicated that 

the company has a working relationship with one or more companies but did not provide additional 

details about these affiliations.

i

In the e-mail it sent to the fictitious pensioner, this company claimed to have two lenders interested in 

speaking with the pensioner about a “pension loan,” and outlined basic terms and requirements that 

the pensioner would need to meet before continuing with the assessment. 

j

This company’s website stated that life insurance was required for pensioners receiving pension 

advances for terms of a certain number of years, but that the investor providing the funding would pay 

for the life insurance in total. 

k

This company provided one offer to a fictitious military pensioner residing in California and one offer 

to a fictitious private-sector pensioner residing in Texas. Both of these offers were for a portion of the 

monthly pension payments. 

l

During our audit research, we determined that this company acknowledged an affiliation with another 

company; however, the affiliated company does not appear to offer pension advance products and is 

therefore not included in on our list.
Appendix III: Comments from the Bureau of 

Consumer Financial Protection

 Page 58 GAO-14-420 Pension Advance Transactions

Appendix III: Comments from the Bureau of 

Consumer Financial Protection
Appendix III: Comments from the Bureau of 

Consumer Financial Protection

 Page 59 GAO-14-420 Pension Advance Transactions
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 60 GAO-14-420 Pension Advance Transactions

Stephen M. Lord, (202) 512-6722 or lords@gao.gov

In addition to the contact named above, Latesha Love, Assistant Director; 

Gabrielle Fagan; Angela Pun; Nada Raoof; and Nikole Solomon made 

key contributions to this report. Also contributing to the report were Paul 

Desaulniers, Barbara Lewis, David Lin, Jeffrey McDermott, Maria 

McMullen, Aron Szapiro, Frank Todisco, and Helina Wong.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(192434)
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