By Paula Aven Gladych
When given the choice between a lifetime retirement income
option — like an annuity — or taking a lump sum payout from their defined benefit pension plan, few consider the annuity.
That’s according to the folks at the Employee Benefit Research Institute, who found that between 2005 and 2010, just 27.3 percent of those covered by a DB pension plan chose the annuity option.
Not surprisingly, the study found that plans that don’t offer a lump-sum distribution have the highest annuitization rate
of 65.8 percent.
In 2010, the annuitization rate for all plans combined was 65.5 percent, while for plans with no lump-sum distribution options it was 98.8 percent. The rate for defined benefit plans with no restrictions on lump-sum payouts was 44.3 percent. For cash-balance plans with no restrictions on lump-sum payouts, it was 22.3 percent.
Older workers were more likely to roll-over their defined benefit pension plan assets into an annuity than younger workers, but annuitization
rates peak between age 65 and 69.
The study was based on data from 84 ERISA-qualified plans from Aon Hewitt, and included a total of 118,730 payout decisions. The data included both traditional pension and cash balance plans.
The EBRI is a private, nonpartisan, nonprofit research institute based in Washington, D.C., that focuses on health, savings, retirement and economic security issues.
Originally published on BenefitsPro.com