KnowHow Archive

Plan Sponsor Guide Participant Guide

Pocket "Watch"

Keeping an eye on that retirement plan distribution

Illustration by Aya Kakeda

The Employee Benefit Research Institute (EBRI) has reported that about 16.2 million working-age Americans reported ever having received a lump-sum distribution from a retirement plan when changing jobs, and that, through April of 2006, the average amount of these distributions was $32,219 (in 2006 dollars), while the median (mid-point) amount was $10,000.  Now, most of these were small—a little more than 21% of the distributions were less than $2,500, in fact—and EBRI’s data indicate that an increasing percentage of retirement plan participants are rolling over all of their lump-sum distributions on job change, and fewer are spending any of their distributions on consumption.

That said, the data also show that approximately 60% of those who took a lump-sum payment did not roll all of it into tax-­qualified savings.  In addition, while a more recent report from the Government Accountability Office (GAO) noted that cashouts of account balances at job separation have remained relatively steady over time, it also said those cashouts “can result in the largest amounts of leakage and the greatest proportional loss in retirement savings.”  Fidelity Investments recently reported an uptick in loans and hardship withdrawals during the second quarter of 2010. 

For plan sponsors, the message is both optimistic and ominous. Retirement savings efforts are paying off but, in too many cases, that “payoff” is coming years before the participant’s actual retirement. Moreover, good intentions and prior behaviors notwithstanding, once that money is “in hand,” it all too frequently becomes a tempting target for some “here and now” consumption.

This month’s Know How outlines the options most participants have for those distributions, with the hope that it will encourage more to leave those savings invested, rather than spend them too soon. As always, we look forward to your reactions and comments.

The EBRI report is online at

The GAO report is at

Nevin E. Adams