Pension Rules Drive Annuity Decision

January 17, 2013 ( – New research examines why some retirees with a pension take a lifetime income stream while others cash out their benefit in a lump-sum distribution.

A report from the Employee Benefit Research Institute (EBRI), “Annuity and Lump-Sum Decisions in Defined Benefit Plans: The Role of Plan Rules,” claims that whether or not a pension plan allows or restricts lump-sums can affect the rate at which workers choose to take their benefit as an annuity.

“Whether people annuitize depends to a large extent on whether or not they are allowed to choose some other option,” said Sudipto Banerjee, EBRI research associate and author of the study. 

The EBRI analyzed data from more than 80 different pension plans to compare the annuitization rate among individuals at various ages, tenures and account balances, as well as the rules and distribution choices within their pension plans. Between 2005 and 2010, pension plans with no lump-sum options had annuitization rates very close to 100%, while defined benefit (DB) and cash balance plans with no restrictions on lump-sums reported an annuitization rate of only 27.3%. 

The full report, published in the January 2013 EBRI Issue Brief no. 381, is available here.


Sara Kelly