The Securities and Exchange Commission is warning participants and investors in the Thrift Savings Plan of a scam targeting federal employees.
SEC filed fraud charges against four former brokers at a consulting group, Federal Employee Benefits Counselors, which created the misleading impression that they were affiliated with or approved by the federal government or TSP.
The brokers convinced federal employees to roll over holdings from their TSP accounts into higher-fee variable annuities, SEC said. The brokers sold about 200 variable annuities worth roughly $40 million and collectively earned $1.7 million in commission.
“These brokers were motivated by the prospects of higher commissions as they targeted federal employees age 59 and a half and over, and intentionally obscured important details when recommending variable annuity purchases,” Aaron Lipson, associated director of SEC’s Atlanta Regional Office.
According to SEC, the brokers managed to convince federal employees that they could offer advice about their retirement savings and TSP accounts. They sent TSP investors incomplete or modified transaction forms that didn’t include information indicating that the investment was, in fact, privately issued and had no connection to the Thrift Savings Plan.
This isn’t the first time federal employees and retirees have been the target of a scam. Federal retirees have been the victims of at least two other schemes this year.
The Office of Personnel Management in June warned the federal workforce of “aggressive marketing push” by companies offering cash payments in exchange for all or part of beneficiaries’ annuity payments.
OPM also warned annuitants in March of another government imposter scam, which threatened to end an annuitant’s retirement unless the retiree immediately sent a payment.
Fraudsters usually chase large pockets of money, and for many, the TSP and its investors are a good target, Owen Donley, chief counsel for the SEC’s Office of Investor Education and Advocacy, said in an interview with Federal News Radio.
“It should not surprise us that these federal employees may become targets, because it’s pretty clear there’s money there,” he said.
Fraudsters often like to target specific groups of people, Donley added.
“We regularly see what we call affinity fraud, that is fraud targeted to particular groups,” he said. “That may be a religious community. … We see fraud even targeting the military, and this is just another example of that. Every year we see fraud targeting different groups, including groups like this.
What should you do?
There are, however, steps federal employees and retirees can take to protect themselves from similar schemes.
First, be skeptical of any phone call or message claiming to be affiliated or approved by the federal government.
No federal agency, including the TSP, will reach out to a person to a push a specific product or service, Donley said.
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“If you receive a communication, whether it be a phone call or an email or a text saying, ‘Hey, I’m from the government and I have a product for you,’ that’s a real red flag that something’s wrong,” he said.
SEC suggests federal employees and retirees first contact the TSP to check the legitimacy of the offer.
Second, never give out personal information in these situations.
Federal organizations won’t ask for personally identifiable information, like an account number, password or Social Security number, on unsolicited phone calls or messages.
Finally, SEC suggests federal employees and retirees learn about their investment opportunities and the terms and conditions associated with them. Having even a general awareness of existing opportunities will help federal employees identify what’s legitimate and what isn’t.
“Some investment opportunities are not meant for short term investing,” Donley said. “Some investment opportunities have charges and surrender fees if they’re used in the first couple of years. Retirees need to be aware of those types of issues.”
Making retirement and investment decisions can be complicated, and federal employees often seek advice from financial planners.
Before choosing to use a financial investment consultant, SEC suggests federal employees ensure he or she is licensed and registered.
SEC has a database on its website, where federal employees can search for an investment professional and learn more about them.
The agency also has advice about using social media, which Donley said is becoming particularly important as more older Americans turn to those sites for interaction.
“What concerns me right now is some of this is moving to social media, where if people are not careful with their privacy settings, for example, fraudsters can learns things about their interests, where they live,” Donley said. “This is the type of information that these fraudsters will use to lure an investor into giving them sensitive account information.”