JEFFERSON CITY, Mo.- Missouri becomes the first state to prohibit "pension advances" for public employees.State leaders say House Bill 1217 will keep companies from preying on retirees, who may be in vulnerable situations.
"Pension advance is sort of like a payday loan, on your pension, so it's doubly worse than a pay day loan," Missouri Treasurer Clint Zweifel said. "Not only are the terms terrible for consumers, but really your retirement security is at risk."
Zweifel said "pension advances" often target public employees like teachers, police and firefighters. He said retirees receive a one-time lump sum, and in return, sign over their pensions for years.
"These entities really fall underneath the radar screen, they're not regulated by traditional banking regulations," Zweifel said. "They have no documented interest rate, [the retiree is] required to take out a life insurance policy, and make the heir the company they're doing business with."While the law only applies to public retirees, RLB Financial Advisor Robert Baltzell said he doesn't suggest a "pension advance" for anyone.
"That pension is your income, for the rest of your life," Baltzell said. "That's a very big deal."
Baltzell says the one-time advance can look enticing because it averages between $40,000-50,000. He said in some cases, that's only 50% of what the overall pension would have paid in the long run.
"A lot of these have as high as a 106% interest rate," Baltzell said.He said the key is to take steps beforehand, so retirees aren't forced to considered a "pension advance."
Baltzell said, "Making the plan so well diversified that you can handle storms, you can handle downturns in the market, you can put a plan together where you can insulate yourself."
Missouri Treasure Clint Zweifel said the Attorney General will now be allowed to investigate and prosecute "pension advance" companies.
Zweifel said the law will also allow public retirees to terminate the contract with companies, and also begin the process of retrieving lost funds.