What You need to Know Before Buying or selling Them

Investor Assistance (800) 732-0330  www.investor.gov
Investor BulletIn 
Pension or settlement Income streams  
What You need to Know Before Buying or selling Them
Do you receive a monthly pension from a former  
employer? Are you getting regular distributions from 
a settlement following a personal injury lawsuit? If 
so, you may be targeted by salespeople offering you a 
lump sum today to buy the rights to some or all of the 
payments you would otherwise receive in the future. 
retired government employees and retired members  
of the military are among those being approached with 
such offers. typically the lump sum offered will be 
less—sometimes much less—than the total of the  
periodic payments you would otherwise receive. 
After acquiring the rights to a future income stream 
(such as a retiree’s pension payments), these pension 
purchasing or structured settlement companies, some-
times called “factoring companies,” may turn around 
and sell these income streams to retail investors, often 
through a financial advisor, broker or insurance agent. 
these products go by various names—pension loans, 
pension income programs, mirrored pensions, factored 
structured settlements or secondary-market annuities. 
they may be pitched to investors with words like 
“guaranteed” and “safe”—and may tout robust returns 
that outpace more traditionally conservative investments 
such as CDs or money market accounts. the advertised 
returns may sound enticing, but investors should be 
aware that these investments can be risky and complex.
FInrA and the seC’s office of Investor education and 
Advocacy are issuing this Investor Alert to inform anyone 
considering selling their rights to an income stream—or 
investing in someone else’s income stream—of the risks 
involved and to urge investors to proceed with caution.
What Is a Structured Settlement? 
A typical structured settlement involves the  
resolution of a personal injury or workers  
compensation lawsuit, which often takes the  
form of “structured” or periodic payments made 
to the injured party. the periodic payments are 
commonly funded by an annuity issued by an 
insurance company, and are often structured to 
provide a dependable stream of income and a 
degree of financial security to the injured party. 
Selling Your Pension or Structured  
Settlement Income Stream
In a typical transaction, the recipient of a pension or 
structured settlement will sign over the rights to some 
or all of his or her monthly payments to a factoring 
company in return for a lump-sum amount. And the 
lump-sum amount that factoring companies offer will 
almost always be significantly lower than the present 

Investor Assistance (800) 732-0330  www.investor.gov
2
value of that future income stream. (simply put, present 
value is the amount of current money needed to obtain 
the future stream of payments and is based on a periodic 
rate of return, such as an interest rate). 
Most states require factoring companies that purchase 
structured settlements to disclose this difference. In 
California, for example, the disclosure must identify the 
dollar amount of the payments being sold, the present 
value of those payments based on a federally established 
interest rate, the amount being paid to the seller, and 
the interest rate calculated as if the transfer were a loan 
and not a sale of the payment rights.
Factors to Consider When Selling  
Your Income Stream
In uncertain financial times, you may find yourself 
searching for immediate cash to help pay for rising or 
unanticipated expenses. For example, even though your 
pension provides steady income, you may not feel it’s 
enough to make ends meet. At first glance, selling your 
future pension benefits might seem attractive, especially 
if mortgage, medical or other expenses loom. under 
certain circumstances, these transactions may have  
their benefits. 
However, there are several factors to consider before 
selling away the rights to your pension or structured 
settlement income. transaction costs—including  
brokerage commissions, legal and notary fees, and 
administrative charges—can be high. You will need to 
think about how to replace the cash flow your pension 
or structured settlement income provides, especially if 
you depend on that income stream to pay monthly  
or other expenses. Furthermore, be aware that some  
salespeople can be aggressive or persuasive when trying  
to get you to sell your income stream and, in some 
cases, there may be outright fraud. 
Before selling away an income stream you currently 
receive, ask the following questions: 
n
  Is the transaction legal? Federal law may restrict or 
prohibit retirees from “assigning” their pension to 
someone else.
1
 Furthermore, the secondary sale of  
a structured settlement often must be approved by  
a court, in keeping with the uniform Periodic  
Payment of Judgments Act (uPPJA). Before selling 
your pension or structured settlement, you may 
wish to ask your pension administrator what  
restrictions may apply, review the terms of your 
settlement or consult an attorney. 
n
  Is the transaction worth the cost? Find the discount 
rate that the factoring company has applied to your 
income stream to arrive at the lump-sum amount. 
this is in essence the interest rate that is used to 
bring the future dollars you will receive from your 
pension into today’s present value. the larger the 
discount rate applied to your pension payments, the 
lower its value in today’s dollars. so, if the factor-
ing company is using a high discount rate, you can 
expect to receive a lower lump sum. Compare this 
rate to alternatives such as a bank loan or other  
options that may be less costly. You should also  
take into account commissions, fees, and other 
administrative costs. 
n
  What is the reputation of the company offering 
the lump sum? Check the factoring company’s record 
with the Better Business Bureau, and research the 
firm on the Internet and with a financial professional. 
What complaints have been filed against the  
company? Were complaints resolved to the  
customers’ satisfaction? 
 
the assignability of pension benefits is addressed in the united 
states Code, including provisions governing military benefits 
within 38 usC §5301, civil service benefits within 5 usC 
§8346(a) and private pension benefits within 29 usC §1056(d).
1  

Investor Assistance (800) 732-0330  www.investor.gov
3
n
  Will the factoring company require life insurance? 
When you sell your pension, or even a portion of 
your pension payments, the factoring company may 
require you to purchase a life insurance policy. they 
may require you to name the factoring company, or 
the investor buying the income stream from them, 
as the beneficiary of the policy. should you die 
before all payments you assigned to the factoring 
company have been received, funds will be paid out 
from the life insurance policy to cover any remaining 
balance. Keep in mind that purchasing a life insurance 
policy will add to your transaction expenses and 
reduce your payout.
n
  What are the tax consequences? the lump-sum 
payment you collect may be taxable. Discuss the tax 
implications of any transaction you are considering 
with a tax professional. 
n
  Does the sale fit your longer-term financial 
goals? While you may feel you need money now, 
take time to evaluate your financial objectives down 
the road. It can be helpful to work with a financial 
professional who will not receive compensation 
from, or will not otherwise be involved in, the 
transaction. You may find that there are other  
alternatives to deal with your immediate needs. 
Don’t necessarily take the first offer that comes  
your way.
Investing in Pension or Structured  
Settlement Income-Stream Products
recent stock market volatility and a low interest-rate 
environment have caused investors to look for investments 
with attractive returns. Buying the rights to someone 
else’s pension or structured settlement income stream 
may look like a good alternative to other options 
because advertised yields from 5.75 percent to 7.75 
percent are common.
In a typical transaction, the investor buys an income 
stream product from a financial salesperson for a specific 
amount. In return, he receives a specific monthly income 
for a set number of years. While the yield in such a 
transaction may be attractive, investors should be aware 
of the following:
n
  these products can be expensive. You may encounter 
ommissions of 7 percent or higher. c
n
  Pension and structured settlement income-stream 
products may or may not be securities and likely 
are not registered with the seC. As such, reliable 
information about these products may be difficult 
to find and resolving disputes should an investment 
go sour may also be difficult. 
n
  these products are illiquid, which means that they 
could be difficult to sell. In the event you need money 
and want to sell the product, you might not be able 
to do so or you may only be able to do so at a loss.
n
  Your “rights” to the income stream you purchased 
could face legal challenges. It may not be legal to 
purchase someone’s pension. And it may be difficult 
to legally force the original owner of a pension or 
structured settlement to forward or assign their 
income to a factoring company or investor. 
Before You Invest 
Given these risks and complexities, ask the following 
questions before you invest: 
n
  Is the financial professional selling the product 
registered with a state or federal regulator or 
with FINRA? use the resources below to check the 
registration status of the salesperson.
●
  visit the seC’s Investment Adviser Public 
Disclosure (IAPD) website.

●
  visit FInrA BrokerCheck or call FInrA 
toll-free at (800) 289-9999.
●
  Contact your state securities regulator. 
●
  Contact your state’s insurance commission by 
visiting the website of the national Association 
of Insurance Commissioners or calling toll-free 
(866) 470-6242.
n
  How is the salesperson being compensated? Ask 
the salesperson how he is compensated and how 
this impacts the purported rate of return.
 
n
  Is the salesperson authorized to sell this product? 
If registered, ask if the salesperson’s compliance 
department has reviewed the product and allows  
it to be sold.
n
  What is the reputation of the company selling 
the product to me? In addition to checking out the 
person selling the product, check out the factoring 
company’s record with the Better Business Bureau 
and research the firm online and with a financial 
professional. 
n
  What are the tax consequences? Consult with 
a tax advisor about the possible tax implications 
of purchasing pension or structured settlement 
income-stream products.
n
  What organization is ultimately paying you? 
regardless of who is selling you the product, or the 
original recipient of the income stream, the ultimate 
source of payment is likely to be a pension fund  
(if you are purchasing a pension income stream)  
or an insurance company (if you are purchasing a 
structured settlement income stream). You will want 
to check the financial stability of the organization, 
because if that entity goes bankrupt or becomes 
insolvent, it may stop paying the income stream. 
research an organization’s credit rating and 
company filings.
n
  Who is sending the check? In some cases, instead 
of receiving checks directly from the pension fund 
or insurance company, it has been reported that 
some pension sales arrangements allow for the 
pensioner to manually forward his or her checks to 
the investor. As a result, in addition to the risk the 
investment may be difficult to sell and the risk that 
the pension fund or insurance company’s financial 
position may deteriorate, investors are exposed to 
the risk that the original pension holder may refuse  
to forward checks to the buyer. You should make sure 
that the contract spells out who will be responsible 
for sending you the payments. 
 Whether you are thinking about selling a pension  
or structured settlement, or buying one from some-
one else, remember that the risks in doing so are 
substantial and the safety net if things go wrong may 
not be very strong. Don’t shy away from asking  
probing questions—and shop around. there may 
be less risky alternatives to help you achieve your 
financial objectives.
The  Securities  and  Exchange  Commission’s  
Office  of  Investor  Education  and  Advocacy  
has  provided  this  information  as  a  service  to  
investors. It is neither a legal interpretation nor 
a  statement  of  SEC  policy.  If  you  have  ques-
tions  concerning  the  meaning  or  application  
of a particular law or rule, please consult with 
an attorney who specializes in securities law.
SEC Pub. No. 143 (5/13)

Investor Assistance (800) 732-0330  www.investor.gov

Investor BulletIn 
Pension or settlement Income streams  
What You need to Know Before Buying or selling Them

Do you receive a monthly pension from a former  
employer? Are you getting regular distributions from 
a settlement following a personal injury lawsuit? If 
so, you may be targeted by salespeople offering you a 
lump sum today to buy the rights to some or all of the 
payments you would otherwise receive in the future. 
retired government employees and retired members  
of the military are among those being approached with 
such offers. typically the lump sum offered will be 
less—sometimes much less—than the total of the  
periodic payments you would otherwise receive. 

After acquiring the rights to a future income stream 
(such as a retiree’s pension payments), these pension 
purchasing or structured settlement companies, some-
times called “factoring companies,” may turn around 
and sell these income streams to retail investors, often 
through a financial advisor, broker or insurance agent. 
these products go by various names—pension loans, 
pension income programs, mirrored pensions, factored 
structured settlements or secondary-market annuities. 
they may be pitched to investors with words like 
“guaranteed” and “safe”—and may tout robust returns 
that outpace more traditionally conservative investments 
such as CDs or money market accounts. the advertised 
returns may sound enticing, but investors should be 
aware that these investments can be risky and complex.

FInrA and the seC’s office of Investor education and 
Advocacy are issuing this Investor Alert to inform anyone 
considering selling their rights to an income stream—or 
investing in someone else’s income stream—of the risks 
involved and to urge investors to proceed with caution.

What Is a Structured Settlement? 
A typical structured settlement involves the  
resolution of a personal injury or workers  
compensation lawsuit, which often takes the  
form of “structured” or periodic payments made 
to the injured party. the periodic payments are 
commonly funded by an annuity issued by an 
insurance company, and are often structured to 
provide a dependable stream of income and a 
degree of financial security to the injured party. 

Selling Your Pension or Structured  
Settlement Income Stream
In a typical transaction, the recipient of a pension or 
structured settlement will sign over the rights to some 
or all of his or her monthly payments to a factoring 
company in return for a lump-sum amount. And the 
lump-sum amount that factoring companies offer will 
almost always be significantly lower than the present 

www.investor.gov


Investor Assistance (800) 732-0330  www.investor.gov

2

value of that future income stream. (simply put, present 
value is the amount of current money needed to obtain 
the future stream of payments and is based on a periodic 
rate of return, such as an interest rate). 

Most states require factoring companies that purchase 
structured settlements to disclose this difference. In 
California, for example, the disclosure must identify the 
dollar amount of the payments being sold, the present 
value of those payments based on a federally established 
interest rate, the amount being paid to the seller, and 
the interest rate calculated as if the transfer were a loan 
and not a sale of the payment rights.

Factors to Consider When Selling  
Your Income Stream
In uncertain financial times, you may find yourself 
searching for immediate cash to help pay for rising or 
unanticipated expenses. For example, even though your 
pension provides steady income, you may not feel it’s 
enough to make ends meet. At first glance, selling your 
future pension benefits might seem attractive, especially 
if mortgage, medical or other expenses loom. under 
certain circumstances, these transactions may have  
their benefits. 

However, there are several factors to consider before 
selling away the rights to your pension or structured 
settlement income. transaction costs—including  
brokerage commissions, legal and notary fees, and 
administrative charges—can be high. You will need to 
think about how to replace the cash flow your pension 
or structured settlement income provides, especially if 
you depend on that income stream to pay monthly  
or other expenses. Furthermore, be aware that some  
salespeople can be aggressive or persuasive when trying  
to get you to sell your income stream and, in some 
cases, there may be outright fraud. 

Before selling away an income stream you currently 
receive, ask the following questions: 

n  Is the transaction legal? Federal law may restrict or 
prohibit retirees from “assigning” their pension to 
someone else.1 Furthermore, the secondary sale of  
a structured settlement often must be approved by  
a court, in keeping with the uniform Periodic  
Payment of Judgments Act (uPPJA). Before selling 
your pension or structured settlement, you may 
wish to ask your pension administrator what  
restrictions may apply, review the terms of your 
settlement or consult an attorney. 

n  Is the transaction worth the cost? Find the discount 
rate that the factoring company has applied to your 
income stream to arrive at the lump-sum amount. 
this is in essence the interest rate that is used to 
bring the future dollars you will receive from your 
pension into today’s present value. the larger the 
discount rate applied to your pension payments, the 
lower its value in today’s dollars. so, if the factor-
ing company is using a high discount rate, you can 
expect to receive a lower lump sum. Compare this 
rate to alternatives such as a bank loan or other  
options that may be less costly. You should also  
take into account commissions, fees, and other 
administrative costs. 

n  What is the reputation of the company offering 
the lump sum? Check the factoring company’s record 
with the Better Business Bureau, and research the 
firm on the Internet and with a financial professional. 
What complaints have been filed against the  
company? Were complaints resolved to the  
customers’ satisfaction? 

 

the assignability of pension benefits is addressed in the united 
states Code, including provisions governing military benefits 
within 38 usC §5301, civil service benefits within 5 usC 
§8346(a) and private pension benefits within 29 usC §1056(d).

1  

www.investor.gov
http://www.sec.gov/cgi-bin/goodbye.cgi?www.bbb.org


Investor Assistance (800) 732-0330  www.investor.gov

3

n  Will the factoring company require life insurance? 
When you sell your pension, or even a portion of 
your pension payments, the factoring company may 
require you to purchase a life insurance policy. they 
may require you to name the factoring company, or 
the investor buying the income stream from them, 
as the beneficiary of the policy. should you die 
before all payments you assigned to the factoring 
company have been received, funds will be paid out 
from the life insurance policy to cover any remaining 
balance. Keep in mind that purchasing a life insurance 
policy will add to your transaction expenses and 
reduce your payout.

n  What are the tax consequences? the lump-sum 
payment you collect may be taxable. Discuss the tax 
implications of any transaction you are considering 
with a tax professional. 

n  Does the sale fit your longer-term financial 
goals? While you may feel you need money now, 
take time to evaluate your financial objectives down 
the road. It can be helpful to work with a financial 
professional who will not receive compensation 
from, or will not otherwise be involved in, the 
transaction. You may find that there are other  
alternatives to deal with your immediate needs. 
Don’t necessarily take the first offer that comes  
your way.

Investing in Pension or Structured  
Settlement Income-Stream Products
recent stock market volatility and a low interest-rate 
environment have caused investors to look for investments 
with attractive returns. Buying the rights to someone 
else’s pension or structured settlement income stream 
may look like a good alternative to other options 
because advertised yields from 5.75 percent to 7.75 
percent are common.

In a typical transaction, the investor buys an income 
stream product from a financial salesperson for a specific 
amount. In return, he receives a specific monthly income 
for a set number of years. While the yield in such a 
transaction may be attractive, investors should be aware 
of the following:

n  these products can be expensive. You may encounter 
ommissions of 7 percent or higher. c

n  Pension and structured settlement income-stream 
products may or may not be securities and likely 
are not registered with the seC. As such, reliable 
information about these products may be difficult 
to find and resolving disputes should an investment 
go sour may also be difficult. 

n  these products are illiquid, which means that they 
could be difficult to sell. In the event you need money 
and want to sell the product, you might not be able 
to do so or you may only be able to do so at a loss.

n  Your “rights” to the income stream you purchased 
could face legal challenges. It may not be legal to 
purchase someone’s pension. And it may be difficult 
to legally force the original owner of a pension or 
structured settlement to forward or assign their 
income to a factoring company or investor. 

Before You Invest 
Given these risks and complexities, ask the following 
questions before you invest: 

n  Is the financial professional selling the product 
registered with a state or federal regulator or 
with FINRA? use the resources below to check the 
registration status of the salesperson.

●  visit the seC’s Investment Adviser Public 
Disclosure (IAPD) website.

www.investor.gov
http://www.adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx
http://www.adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx


●  visit FInrA BrokerCheck or call FInrA 
toll-free at (800) 289-9999.

●  Contact your state securities regulator. 

●  Contact your state’s insurance commission by 
visiting the website of the national Association 
of Insurance Commissioners or calling toll-free 
(866) 470-6242.

n  How is the salesperson being compensated? Ask 
the salesperson how he is compensated and how 
this impacts the purported rate of return.

 
n  Is the salesperson authorized to sell this product? 

If registered, ask if the salesperson’s compliance 
department has reviewed the product and allows  
it to be sold.

n  What is the reputation of the company selling 
the product to me? In addition to checking out the 
person selling the product, check out the factoring 
company’s record with the Better Business Bureau 
and research the firm online and with a financial 
professional. 

n  What are the tax consequences? Consult with 
a tax advisor about the possible tax implications 
of purchasing pension or structured settlement 
income-stream products.

n  What organization is ultimately paying you? 
regardless of who is selling you the product, or the 
original recipient of the income stream, the ultimate 
source of payment is likely to be a pension fund  
(if you are purchasing a pension income stream)  
or an insurance company (if you are purchasing a 
structured settlement income stream). You will want 
to check the financial stability of the organization, 

because if that entity goes bankrupt or becomes 
insolvent, it may stop paying the income stream. 
research an organization’s credit rating and 
company filings.

n  Who is sending the check? In some cases, instead 
of receiving checks directly from the pension fund 
or insurance company, it has been reported that 
some pension sales arrangements allow for the 
pensioner to manually forward his or her checks to 
the investor. As a result, in addition to the risk the 
investment may be difficult to sell and the risk that 
the pension fund or insurance company’s financial 
position may deteriorate, investors are exposed to 
the risk that the original pension holder may refuse  
to forward checks to the buyer. You should make sure 
that the contract spells out who will be responsible 
for sending you the payments. 

 Whether you are thinking about selling a pension  
or structured settlement, or buying one from some-
one else, remember that the risks in doing so are 
substantial and the safety net if things go wrong may 
not be very strong. Don’t shy away from asking  
probing questions—and shop around. there may 
be less risky alternatives to help you achieve your 
financial objectives.

The Securities and Exchange Commission’s 
Office of Investor Education and Advocacy 
has provided this information as a service to 
investors. It is neither a legal interpretation nor 
a statement of SEC policy. If you have ques-
tions concerning the meaning or application 
of a particular law or rule, please consult with 
an attorney who specializes in securities law.

SEC Pub. No. 143 (5/13)

http://www.sec.gov/cgi-bin/goodbye.cgi?www.finra.org/Investors/ToolsCalculators/BrokerCheck/
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