The Treasury Department and Internal Revenue Service amended Treasury regulations last week to stop companies from offering lump-sum buyouts to retirees who already receive a monthly pension.

The agencies’ new guidance will apply to plans going forward and not to employers that have amended their plans to make lump-sum buyout offers to retirees prior to July 9, 2015.

Norman Stein, senior policy advisor to the Pension Rights Center and a law professor at Drexel University, said that the Center is “gratified that Treasury has moved to stop these lump-sum buyouts, which are truly among the most cynical and dangerous pension abuses we’ve seen.”

The Pension Rights Center has criticized these so-called “de-risking” transactions, which it says “erase the federal private pension protections of [the Employee Retirement Income Security Act], turn guaranteed lifetime retirement income into a onetime chunk of money that can easily be outlived, and often result in a significant loss of retirement wealth for elderly Americans.”

Earlier this year Stein authored a policy paper on lump-sum buyouts and annuity transfers — another form of so-called “de-risking” activities. The paper asks whether pension plan de-risking is bad, whether it’s legal, and whether it can be stopped, slowed or moderated.

Stein notes that the offer of a lump sum can create considerable confusion and anxiety for older Americans, “who are often not in a position to appreciate the risks they face and the losses they might suffer.”

Retirees who choose a lump sum “have to invest the money at the same time they are drawing it down, which is even harder than investing money before retirement,” he said. “They will have to pay new fees, which will reduce their account balance, and fluctuations in the markets can destroy their investment portfolio with no time to make up the losses.” 

Some retirees may also be exploited by unethical financial advisors who gain to profit from a lump sum’s resulting fees.

By taking a lump sum, retirees also lose any guaranteed benefit for their spouses, should they die first. In fact, “offering a lump sum can be a form of corporate elder abuse,” Stein said.