Retirees: Don't sell off security of a pension

• The new pitch to retirees%3A Give up your pension check for a lump sum
• Offer might be tempting if you need the cash%2C but think carefully before you act
• Retired government workers and members of the military are targets

Retirees shouldn't be surprised to hear that a pension check is so valuable that now regulators are warning about the risks of schemes that promise a lump sum, if you sell off that income stream.

Ever hear of something called a "mirrored pension" that touts robust returns? If you're not careful, you could be looking at a smoke-and-mirrors kind of a deal.

Offers for upfront cash might sound tempting when budgets are tight. Maybe you do need a lump sum upfront immediately to cover a big medical bill. But think carefully before trying to get a settlement out of a regular pension and do lots of research into various offers.

These deals are far more costly than many realize.

Or on the flip side, potential investors are being warned, too. In a time of ultra-low interest rates, new financial products pop up with big promises. A broker or financial adviser could pitch a financial product that supposedly is tied to an income stream. The promise is a high return, as an alternative to a low-paying CD. But connecting an investment to a structured settlement is risky and complex.

High-yields in general come with high risks for investors and considerable fees.

"Our fear is that people don't understand just how bad these deals can be," said Gerri Walsh, senior vice president for FINRA Investor Education.

And yes, some pushy sales people are getting overly aggressive with the elderly about signing over their pensions. Retired government workers and retired members of the military are now among those being targeted.

A "mirrored pension" shouldn't be confused with the one-time lump sum payouts that have been made to former retirees by their old employers, such as the Ford and General Motors offers that first rolled out last year.

FINRA noted in its report that 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.

The structured settlement industry notes that the federal tax code has recognized and encouraged the use of structured settlements as a way for accident victims to receive guaranteed, tax-free income tailored to their future needs.

FINRA's warning pertains to those who are considering selling away their rights to a pension or structured settlement income and to people who may be considering buying secondary market products that carry various names, including factored structured settlements.

The warnings apply to products that are way more costly for consumers.

Leon LaBrecque, CEO of LJPR, a fee-only financial adviser in Troy, Mich., gave an example of a 70-year-old with a $1,000-a-month pension.

A plan sponsor looking to offer a lump-sum payout might offer a company's retiree something in the $140,000 range. By contrast, that same pension might only net about $75,000 in a structured settlement, LaBrecque said.

These factored settlements can be filled with high fees for brokerage commissions, legal fees and various administrative charges.

"While a lump sum is appealing, you may well effectively be paying too much for that lump sum," Walsh said.

A warning by FINRA said in some cases there may be "outright fraud."

The products carry various names: mirrored pensions, pension income programs, pension loans, secondary-market annuities, and factored structured settlements.

Of course, you're likely to hear the words "safe" and "guaranteed" somewhere along the line too.

"Selling off the security of a steady income stream for a lump sum is a recipe for even greater financial distress in the future," warned Greg McBride, senior financial analyst for Bankrate.com.

"If someone sells their pension-income stream because of a lack of cash today, what is the guarantee they'll have sufficient cash to live on in the future?" he asked.

Walsh recommends first talking to the plan sponsor to find out if opting for a settlement with a pension would even be allowed under the plan.

Regulators say you want to move very carefully if you're being approached to sell rights to an income stream, like a pension or a settlement following a personal injury lawsuit.

Experts say look at other options first. It may be better to find other ways to get cash, maybe even a loan from a 401(k) plan or through special programs at a credit union.

"Anyone with a structured settlement or a pension is potentially a target," Walsh said.

What's most concerning, she said, is that some of the ads may suggest that getting a lump-sum settlement for a pension might be a good way to pay for a vacation.

"The pitch is often for wants, not needs," Walsh said.