I called the U.S. government office that administers military pensions, the Defense Finance and Accounting Service, and asked whether the pensions can be sold or assigned. The answer is “no.”
Why military pensions can’t be assigned
The government does not recognize an assignment. Federal policy is that the money always belongs to the original beneficiary.
A retiree could theoretically “sell” his or her retirement benefits, but as far as the government is concerned, the benefits still belong to the retiree. In a dispute, the government would be on the beneficiary’s side.
What the VA says about buying benefits
The Veterans Administration calls the purchase of benefits a “financial scam.” It warns veterans to be wary of companies that offer to buy disability benefits or military pensions for a lump sum, sometimes as little as 30 cents on the dollar. The VA says these companies take advantage of veterans who are down on their luck and need quick cash.
“We recommend that veterans avoid these schemes. They certainly border on the precipice of questionable financial judgment and legality,” said Terry Jemison, a VA spokesman in Washington.
The VA, which at the time paid nearly $21.3 billion a year in disability compensation and pensions, prohibits the direct sale of benefits. The agency is also barred from paying pensions or disability to anyone other than a veteran, family member or legal guardian, and benefits cannot be assigned to someone else.
Federal officials admitted the companies buying veterans’ benefits were not doing anything illegal, because they had come up with payment methods that did not appear to violate the law. But officials said the amounts the companies actually paid veterans were a rip-off.
How the benefit-buying deals work
Veterans agree to sign away disability benefits or pensions for a set period, often eight or 10 years. In exchange, the company gives them a lump sum, often 30 to 40 cents on the dollar, according to officials.
- Veterans may have to open a joint bank account with the company and deposit their government checks there, so the company can withdraw the money.
- In some cases, veterans must put up collateral, such as their house, to secure the contract.
- Veterans are often required to take out a life insurance policy payable to the company, in case they die before the contract ends.
In one case, a veteran received $73,000 in return for monthly benefit checks of $2,744 over 10 years, according to a VA spokesman. The veteran’s total repayment over the 10 years was about $256,293, giving the investor a yield of 44.5%.
Political and practical risks
Congressman Clay Shaw (R-FL) said he was “outraged” that companies were buying veterans’ disability payments, and he proposed legislation to stop them. “We’re going to war against these companies,” he said.
“So many of the people getting disability benefits aren’t competent to make decisions themselves,” Shaw said. “These are some really bad actors who are really taking away the future of some of these veterans.”
A reader who works with notes sent me this note on the same subject:
I spoke with someone in the business here in Northern California and he told me it isn’t buying the actual retirement, it is making a loan and having the veteran sign a contract allowing the lender to take the payment from the veteran’s bank account.
Regardless of how a loan is paid, that isn’t buying a retirement. The federal government will not put anyone’s name on the check other than the veteran. Period.
Send all buyers my way, please. If ten will get in line and each give me a check for, say, about $240,000, I’ll let them fight over my house, cars and goats, because that is all they can legally attach.
The bottom line: don’t buy military paper
My advice: don’t try to “buy” or broker military retirement paper. The risk to you is far too great.
