Defined Contribution Plan Distribution Choices at Retirement

Transcription

1 Investment Company Institute Research Series Defined Contribution Plan Distribution Choices at Retirement A Survey of Employees Retiring Between 995 and 2000 INVESTMENT COMPANY INSTITUTE

2 Investment Company Institute Research Series Defined Contribution Plan Distribution Choices at Retirement A Survey of Employees Retiring Between 995 and 2000 INVESTMENT COMPANY INSTITUTE FALL 2000

3 Copyright 2000 by the Investment Company Institute

4 Table of Contents List of Figures Introduction Summary of Findings Chapter Distribution Options Available at Retirement Summary Types of Plans and Their Distribution Options Retirees Who Had a Single Distribution Option Retirees Who Had Multiple Distribution Options Chapter 2 Distribution Choices of Retirees Who Had Multiple Options Summary Distribution Options Selected by Retirees Who Had Multiple Options Reasons Given for Distribution Choices Characteristics of Retirees Who Had Multiple Distribution Options Financial Investments of Retirees Who Had Multiple Distribution Options Chapter 3 Disposition of Lump-sum Distributions at Retirement Summary Frequency and Magnitude of Full and Partial Lump-sum Distributions Reinvestment and Use of Lump-sum Distributions Sources of Advice for Reinvestment of Lump-sum Distributions Expenditures Made with Lump-sum Distributions Characteristics of Lump-sum Distribution Recipients by Use of Proceeds Reinvestment of Lump-sum Distributions in IRAs Appendix A Survey Methodology and Characteristics of Survey Respondents Appendix B Description of Distribution Options and Plans Covered in the Survey Appendix C Exhibits Used in the Research Appendix D Choice Between the Lump-sum Distribution and Annuity Options Defined Contribution Plan Distribution Choices at Retirement iii

5 List of Figures Summary of Findings Figure Number and Type of Distribution Options that Were Available to Retirees Figure 2 Distribution Options Selected by Retirees Who Had Multiple Options Figure 3 Selected Characteristics of Retirees Who Had Multiple Options, by Option Selected Figure 4 Use of Proceeds from Lump-sum Distributions Figure 5 Relationship Between Size and Reinvestment Rate of Lump-sum Distributions Figure 6 Reinvestment of Lump-sum Distributions in IRAs Figure 7 Summary of Allocation of Investments Purchased with Lump-sum Distributions Chapter Distribution Options Available at Retirement Figure 8 Types of Plans in Which Retirees Had Participated Figure 9 Number of Distribution Options that Were Available to Retirees, by Size of Employer....4 Figure 0 Number of Distribution Options that Were Available to Retirees, by Type of Plan Figure Type of Distribution Provided to Retirees Who Had a Single Option Figure 2 Number of Distribution Options that Were Available to Retirees Who Had Multiple Options Figure 3 Types of Distribution Options that Were Available to Retirees Who Had Multiple Options Chapter 2 Distribution Choices of Retirees Who Had Multiple Options Figure 4 Distribution Option Selected Among Multiple Choices Figure 5 Reasons for Choosing a Distribution Option Figure 6 Characteristics of Retirees Who Had Multiple Distribution Options, by Option Selected Figure 7 Financial Investments of Retirees Who Had Multiple Distribution Options, by Option Selected Chapter 3 Disposition of Lump-sum Distributions at Retirement Figure 8 Type and Value of Lump-sum Distributions at Retirement Figure 9 Use of Lump-sum Distributions, by Type of Lump-sum Distribution Figure 20 Use of Lump-sum Distributions, by Options Available Figure 2 Use of Lump-sum Distributions, by Value of Proceeds Figure 22 Percentage of Lump-sum Distribution Spent, by Value of Proceeds Figure 23 Value of Full Lump-sum Distributions, by Use of Proceeds Figure 24 Sources of Advice for Reinvesting Lump-sum Distributions Defined Contribution Plan Distribution Choices at Retirement

6 Figure 25 Goods or Services Purchased with Lump-sum Distributions Figure 26 Characteristics of Lump-sum Distribution Recipients, by Use of Proceeds Figure 27 Financial Investments of Lump-sum Distribution Recipients, by Use of Proceeds Figure 28 Reinvestment of Lump-sum Distributions in IRAs at Retirement Figure 29 Allocation of Investments Purchased with Lump-sum Distributions Figure 30 Characteristics of Lump-sum Distribution Recipients Who Reinvested Proceeds Figure 3 Financial Investments of Lump-sum Distribution Recipients Who Reinvested Proceeds...37 Appendix A Survey Methodology and Characteristics of Survey Respondents Figure 32 Sampling Error at the 95 Percent Confidence Level for Selected Percentages of Responses, by Sample Size Figure 33 Selected Characteristics of Survey Respondents and All Retired U.S. Household Financial Decisionmakers Figure 34 Financial Situation at the Time of the Survey and Immediately Before Retirement Figure 35 Views About Financial Situation in Retirement Figure 36 Issues of Concern in Retirement Appendix B Description of Distribution Options and Plans Covered in the Survey Appendix C Exhibits Used in the Research Appendix D Choice Between the Lump-sum Distribution and Annuity Options Figure 37 Selection of Lump-sum Distribution or Annuity Option Figure 38 Demographic Characteristics of Retirees Who Had at Least the Lump-sum Distribution and Annuity Options, by Distribution Choice Figure 39 Financial Investments of Retirees Who Had at Least the Lump-sum Distribution and Annuity Options, by Distribution Choice Defined Contribution Plan Distribution Choices at Retirement

7 Introduction Defined contribution plans have become an integral part of the U.S. private pension system. Between 980 and 996, the latest year for which data are available, the number of participants in defined contribution plans increased from 20 million to 5 million, a gain of 55 percent. By comparison, participants in defined benefit plans increased from 38 million to 4 million, or only 8 percent. 2 With the shift in retirement plan coverage to defined contribution plans, U.S. workers have become increasingly responsible for managing the assets that will finance their retirements. Defined contribution plans are typically funded during an employee s working years by employee and employer contributions. The employee is responsible for deciding whether to make contributions, determining their size, and selecting the options in which the contributions are invested. Consequently, the size of a worker s account balance at retirement and subsequent retirement income depends upon accumulated contributions, investment choices, and the performance of financial markets. In defined benefit plans, however, employers bear all the funding and investment risk. In addition to the choices made during employment, defined contribution plan participants must also make decisions about the management of their accumulated assets throughout retirement. While defined benefit plan participants typically are provided with annuities that guarantee income throughout retirement, 3 defined contribution plan participants typically are offered See Private Pension Plan Bulletin, No. 9, Winter (U.S. Department of Labor, 996), at opr/bullet996/table_e5.htm. 2 The relative growth in defined contribution plan participants reflects demographic changes in the workforce, such as the shift in the employment mix from manufacturing to the service industry, as well as the shift from large firms to small firms, and from union positions to nonunion positions. For business establishments, defined contribution plans are attractive because they have lower administrative costs than defined benefit plans. Indeed, most small firms are likely to offer their employees only a defined contribution plan. See William F. Bassett, Michael J. Fleming, and Anthony P. Rodrigues, How Workers Use 40(k) Plans: The Participation, Contribution, and Withdrawal Decisions, Federal Reserve Bank of New York Staff Reports, No. 38, March 998, p. 6; Catherine L. Heron and Russell G. Galer, The American Pension System: The Growth of the Section 40(k) Plan and Mutual Fund Success in the 40(k) Market (Investment Company Institute, 997) p. ; and Richard A. Ippolito, The New Pension Economics: Defined Contribution Plans and Sorting, Dallas L. Salisbury, ed., The Future of Private Pension Plans (Employee Benefit Research Institute, 2000), p Seventy-six percent of defined benefit plans offered by medium and larger business establishments distribute plan proceeds at retirement only in an annuity. See Employee Benefits in Medium and Large Private Establishments, 997 (U.S. Department of Labor, 999), p. 07. Defined Contribution Plan Distribution Choices at Retirement 3

8 several ways to receive retirement benefits. An annuity is often one of the options. In addition, most defined contribution plans allow participants to take all or some of their account balances as lump-sum payments, either as cash or rollovers into Individual Retirement Accounts (IRAs). Defined contribution plans also may allow retiring workers to receive their account balances as a series of regular installments or permit retirees to leave their balances with the employer to accumulate until they elect a distribution at a later date. 4 A retiree s selection of a distribution option involves a variety of considerations, including the availability of other sources of income; preservation of assets for future use; an immediate need for cash to pay bills, debts, or large purchases; the security provided by regular income payments; estate planning; taxation of benefit payments; and management of invested assets. Research on defined contribution plan participants primarily has focused on participants decisionmaking during their working years and on lump-sum distributions from pensions. 5,6 Only recently has attention turned to analyzing pension distribution decisions made by participants at retirement. 7 As increasing numbers of participants in defined contribution plans reach retirement age, it is important to have a greater understanding about the approaches that retirees take to manage balances from these plans. This study reports the findings of a survey of recent retirees who had participated in defined contribution plans, focusing on the decisions they made at retirement. The study explores two particular aspects of retirees decisions. The first concerns their distribution choice, including an analysis of the choice itself, the reasons for the choice, and retirees financial and 4 A retiree s deferral of a distribution generally is constrained by the Internal Revenue Code s income distribution requirements, which mandates that distributions begin at age 70½. See IRC 40 (a) (b). 5 See Jack VanDerhei, Russell Galer, Carol Quick, and John Rea, 40(k) Plan Asset Allocation, Account Balances, and Loan Activity, Perspective, Vol. 5, No. (Investment Company Institute, January 999), pp. -9; and Jack VanDerhei, Sarah Holden, and Carol Quick, 40(k) Plan Asset Allocation, Account Balances, and Loan Activity in 998, Perspective, Vol. 6, No. (Investment Company Institute, January 2000), pp For recent examples, see Paul Yakoboski, Lump-Sum Distributions Total $87.2 Billion in 995, EBRI Notes (Employee Benefit Research Institute, October 999); Paul Yakoboski, Large Plan Lump-Sums: Rollovers and Cashouts, EBRI Issue Brief, No. 88 (Employee Benefit Research Institute, August 997); Leonard E. Burman, Norma B. Coe, and William G. Gale, What Happens When You Show Them the Money?: Lump-Sum Distributions, Retirement Income Security, and Public Policy, Department of Treasury and The Brookings Institution, Report for the U.S. Department of Labor (Final Report No ), November 999; and John Sabelhaus and David Weiner, Disposition of Lump-Sum Pension Distributions: Evidence from Tax Returns, National Tax Journal, Vol. LII, No. 3 (September 999), pp In addition, the following papers estimate the impact of cash-out behavior on asset accumulation at retirement: James M. Poterba, Steven F. Venti, and David A. Wise, Pre-Retirement Cashouts and Foregone Retirement Saving: Implications for 40(k) Asset Accumulation, NBER Working Paper, No. 734 (National Bureau of Economic Research, August 999); and Alan L. Gustman and Thomas L. Steinmeier, Effects of Pensions on Saving: Analysis with Data from the Health and Retirement Study, NBER Working Paper, No. 668 (National Bureau of Economic Research, August 998). 7 The following paper focuses on the multiple options facing people changing jobs or retiring, including receiving a lump-sum distribution: Michael Hurd, Lee Lillard, and Constantijn Panis, An Analysis of the Choice of Cash Out Pension Rights at Job Change or Retirement (Rand Institute, October 998), unrestricted draft series. The following papers examine choices with emphasis on the annuitization decision of retirees: John Ameriks, The Retirement Patterns and Annuitization Decisions of a Cohort of TIAA-CREF Participants, TIAA-CREF Research Dialogues, No. 60 (TIAA-CREF, August 999); Jeffrey R. Brown, Private Pensions, Mortality Risk, and the Decision to Annuitize, NBER Working Paper, No. 79 (National Bureau of Economic Research, June 999); and Jeffrey R. Brown and James M. Poterba, Joint Life Annuities and Annuity Demand by Married Couples, NBER Working Paper, No. 799 (National Bureau of Economic Research, June 999). 4 Defined Contribution Plan Distribution Choices at Retirement

9 demographic characteristics according to their choices. The second aspect of the analysis focuses on retirees use of lump-sum distributions, with a distinction drawn between those reinvesting and those spending the proceeds. The survey was conducted during April and May It included 659 primary or co-decisionmakers for household savings and investments who retired between 995 and the time of the survey. Each survey respondent had assets in defined contribution plans or similar employer-sponsored, individual account-type plans at retirement. The majority of the retirees surveyed had participated in 40(k) plans, but respondents also included those who had been in 403(b) plans, the federal government s Thrift Savings Plan, 457 plans, and employer-sponsored IRA retirement plans. 8 The sample was selected to be representative of the national population of recently retired participants in such plans. 8 See Appendix A for a description of the survey methodology and characteristics of the survey respondents; Appendix B for a detailed discussion of the characteristics of the various types of plans in which respondents indicated they had participated before retirement; and Appendix C for descriptive materials provided to survey respondents on the types of retirement plans available. Defined Contribution Plan Distribution Choices at Retirement 5

10 Summary of Findings Defined contribution plan participants made sensible decisions about their plan balances at retirement, according to the survey findings. Surveyed retirees appeared to have considered carefully the distribution options available for withdrawing and using their assets and, generally, selected distribution options consistent with their personal financial circumstances. Retirees with sizable household financial assets and income, for example, typically postponed use of their plan balances either by reinvesting their assets in IRAs or deferring their distributions. Retirees with strong needs for current income and income security typically annuitized plan assets or withdrew them in installment payments. Retirees who received lump-sum distributions acted prudently with the assets: the majority were guided by professional financial advisers and reinvested all their proceeds in IRAs. Their IRA portfolios typically were well diversified, with the largest percentage of assets, on average, allocated to equities. Even lump-sum distribution recipients who did not reinvest all of their plan proceeds typically reinvested the vast majority of the distribution. The few retirees who spent their entire defined contribution plan lump sums generally had received small distributions. In many instances, these recipients used the proceeds sensibly, such as buying a primary residence, repaying debt, paying for health care, or making home repairs. On average, these retirees derived a sizeable portion of their household incomes from defined benefit plan and Social Security payments. Defined Contribution Plan Distribution Choices at Retirement 7

11 FIGURE Number and Type of Distribution Options that Were Available to Retirees Number of Distribution Options Types of Distribution Options that Were Available that Were Available, 2 (percent of respondents) (percent of respondents who had multiple options) One More than one Lump-sum distribution Annuity Installment payments Deferral of distribution 3 Number of respondents = 624 Number of respondents = 435 Based upon respondents recall. 2 Multiple responses included. 3 Distributions must begin on April of the year following a retired person s attainment of age 70½. Distribution Choices Made at Retirement. Seventy percent of defined contribution plan participants recalled having multiple distribution options at retirement. More than 90 percent of this group reported having a lump-sum distribution option (Figure ). Between two-thirds and threequarters said they had at least one of the following options: annuity, installment payments, and deferral of the distribution. Among the 30 percent of retirees reporting only a single distribution option, five in seven received plan proceeds in lump sums. 2. Retirees who had distribution choices most frequently selected the lump-sum option. Forty-seven percent selected a lump-sum distribution, 26 percent chose to defer the distribution, 23 percent opted for an annuity, and 0 percent chose installment payments (Figure 2) Retirees selected their distribution options based on their economic circumstances and personal preferences for control over asset management or income security: Retirees who opted to receive their plan balances in lump-sum distributions expressed a desire to manage their own assets. These recipients typically had relatively high levels of financial assets and income (Figure 3). Retirees who chose to defer their distributions (i.e., leave their balances in their plans) said they currently had no need to use account assets for income. Similar to lump-sum recipients, those who deferred the distribution were relatively affluent. 9 These percentages add to more than 00 percent because some retirees who had multiple options chose to receive partial lump-sum distributions with either reduced annuity or installment payments, or chose to defer receiving part of the proceeds. 8 Defined Contribution Plan Distribution Choices at Retirement

12 FIGURE 2 Distribution Options Selected by Retirees Who Had Multiple Options, 2 (percent of respondents who had multiple options) Lump-sum distribution Deferral of distribution 3 Annuity Installment payments Number of respondents = 48 Based upon respondents recall. 2 Multiple responses included because 29 respondents who had multiple options chose to receive partial lump-sum distributions with either reduced annuity or installment payments, or chose to defer receiving part of the proceeds. 3 Distributions must begin on April of the year following a retired person s attainment of age 70½. FIGURE 3 Selected Characteristics of Retirees Who Had Multiple Options, by Option Selected Option Selected Lump-sum Deferral of Installment Distribution Distribution Annuity Payments 2 Most frequently mentioned reason for selecting option Wanted to Did not need Wanted Wanted manage the the money at regular regular money retirement income income themselves Median Age at retirement 62 years 62 years 60 years 62 years Household income 3 $47,00 $56,500 $4,900 $44,900 Household financial assets 3, 4 $297,500 $342,700 $33,800 $224,300 Years planning ahead financially 6 years 7 years 6 years 2 years Percent Male b 5 Married or living with a partner b 76 Currently employed full- or part-time Have college or postgraduate degree Have spouse or partner who currently works full- or part-time 5 32 a Based upon respondents recall. 2 Small sample size. 3 At the time of the survey. 4 Includes assets held in employer-sponsored retirement plans but excludes primary residence. 5 Of those married or living with a partner. a Responses of respondents who had multiple options and chose the lump-sum distribution option are statistically different at the 95 percent confidence level from those who chose the deferral option. b Responses of respondents who had multiple options and chose the annuity option are statistically different at the 95 percent confidence level from those who chose the lump-sum distribution or deferral options. Note: Number of respondents varies. Defined Contribution Plan Distribution Choices at Retirement 9

13 Retirees who took the annuity option expressed a preference for income security and regular income payments. They tended to have relatively low levels of household income. Retirees who elected to receive installment payments also wanted the security of regular payments during retirement. Members of this group were typically older and had slightly higher household incomes than retirees who selected annuities. FIGURE 4 Use of Proceeds from Lump-sum Distributions (percent of respondents who received lump-sum distributions) Reinvested some proceeds, spent some proceeds Spent all proceeds Number of respondents = 296 Reinvested all proceeds These respondents spent a median of 2 percent, a mean of 25 percent, and a dollar-weighted mean of 5 percent. FIGURE 5 Relationship Between Size and Reinvestment Rate of Lump-sum Distributions Reinvestment of Entire Lump-sum Distribution by Amount of Proceeds (percent of respondents who received lump-sum distributions and reinvested entire amount) Less than $0,000 $0,000 to $24,999 $25,000 to $49,999 $50,000 to $99,999 $00,000 to $249,999 $250,000 or more Mean Percentage of Lump-sum Distribution Reinvested by Amount of Proceeds (for respondents who reinvested and spent some of the proceeds) Less than $0,000 $0,000 to $24,999 $25,000 to $49,999 $50,000 to $99,999 $00,000 to $249,999 $250,000 or more Sample sizes for this analysis are small. Note: Number of respondents varies. 0 Defined Contribution Plan Distribution Choices at Retirement

14 Use of Proceeds from Lump-sum Distributions 4. Ninety-two percent of retirees who received a lump-sum distribution reinvested all or most of the proceeds. Two-thirds who received a lump-sum distribution at retirement reinvested the entire amount (Figure 4). Twenty-six percent reinvested some proceeds and, on average, spent 25 percent of the distribution. Only eight percent spent all of the proceeds. 5. Retirees who reinvested lump-sum distributions generally sought and acted on investment advice from professional financial advisers. Three-quarters of this group obtained investment advice from professional financial advisers. Of those who obtained professional investment advice, 7 percent said they followed it to a great extent. 6. The greater the value of the lump-sum distribution at retirement, the more likely a recipient was to reinvest all or most of the proceeds. Three-quarters of recipients with lump-sum distributions of $250,000 or more reinvested all proceeds, compared with two out of five recipients with lump-sum distributions of less than $0,000. Among recipients who reinvested and spent some proceeds, those who received distributions of $250,000 or more, on average, reinvested 92 percent and spent 8 percent of the proceeds. Those receiving proceeds of less than $0,000 typically reinvested 56 percent and spent 44 percent of the proceeds (Figure 5). Rollovers into Individual Retirement Accounts 7. Lump-sum distributions typically were rolled over into Individual Retirement Accounts (IRAs) and allocated to a well-diversified mix of investments. Of the 92 percent of lump-sum distribution recipients who reinvested all or some of the proceeds, more than four-fifths rolled over all or some of the proceeds into IRAs (Figure 6). On average, more than two-fifths of IRA assets were in stocks, either directly or through mutual funds (Figure 7); about one-fifth was in liquid assets. FIGURE 6 Reinvestment of Lump-sum Distributions in IRAs (percent of respondents who received lump-sum distributions and reinvested all or some of the proceeds) Reinvested proceeds, but not in IRAs Number of respondents = 266 Includes respondents who reinvested some proceeds in IRAs and some outside IRAs Reinvested proceeds in IRAs Defined Contribution Plan Distribution Choices at Retirement

15 FIGURE 7 Summary of Allocation of Investments Purchased with Lump-sum Distributions (mean percent) Reinvested Proceeds in IRAs Reinvested Proceeds Outside IRAs Individual stocks and stock mutual funds a 8 Individual bonds and bond mutual funds 3 Liquid assets 4 Other 4 38 a Number of respondents = 92 Number of respondents = 36 Includes respondents who reinvested some proceeds in IRAs and some outside IRAs. 2 Includes 60 percent of respondents balanced mutual fund holdings. 3 Includes 40 percent of respondents balanced mutual fund holdings. 4 Includes bank deposits and money market mutual funds. a Responses of respondents who reinvested lump-sum distribution proceeds in IRAs are statistically different from those who reinvested the proceeds but not in IRAs. 8. Lump-sum distributions reinvested outside IRAs typically were smaller and allocated more conservatively. On average, 38 percent of lump sums invested outside IRAs was in liquid assets and 20 percent was in individual stocks or stock funds (Figure 7). The allocation of retirees who reinvested proceeds outside IRAs appears consistent with their economic circumstances. Compared with retirees who reinvested in IRAs, this group generally had more moderate income and assets, were more risk-averse, had more health concerns, and had shorter financial planning horizons. 2 Defined Contribution Plan Distribution Choices at Retirement

16 Chapter Distribution Options Available at Retirement Summary Thirty percent of retirees recalled having a single payment option at retirement, most often taking the form of a lump-sum distribution. Of the 70 percent who reported having more than one option, nearly all said they were provided with a lump-sum distribution option. Between 68 and 72 percent of those with multiple distribution options said their choices included annuity, installment payment, and deferral options. Types of Plans and Their Distribution Options Retirees were asked to indicate the types of plans in which they had participated and the distribution options provided by the plan. Fifty-nine percent were enrolled in 40(k) plans at retirement (Figure 8). Fourteen percent were in 403(b) plans; 9 percent in the federal government s Thrift Savings Plan (TSP); 8 percent in state and local government-sponsored 457 plans; and FIGURE 8 Types of Plans in Which Retirees Had Participated (percent of respondents) 40(k) plan (b) plan 4 Federal TSP plan 8 Employer-sponsored IRA 3 Other 7 Number of respondents = 626 Includes responses from respondents that could not be categorized into any identifiable plan type. Defined Contribution Plan Distribution Choices at Retirement 3

17 3 percent in employer-sponsored IRAs. 0 Responses from 7 percent of retirees could not be placed in any of these plan types. Seventy percent of retirees said they had more than one distribution option at retirement, and 30 percent indicated their employers provided a single payment option (Figure 9). Significantly more retirees who had worked for small employers reported having only a single payment option. No noticeable differences in the number of distribution options emerged when the data were analyzed by the types of plans in which retirees had participated (Figure 0). Retirees Who Had a Single Distribution Option Of retirees reporting only a single distribution option, 70 percent indicated that the option was a lump-sum distribution (Figure ). Almost all of the remaining 30 percent indicated that an annuity was the only available option. Retirees who had participated in either a 403(b) plan, 457 plan, or the Federal TSP plan generally reported that their only option was an annuity. Most of those who had been in 40(k) plans said their only option was a lump-sum distribution. FIGURE 9 Number of Distribution Options that Were Available to Retirees, by Size of Employer (percent of respondents) Size of Employer Less than 00 to 500 to,000 or All more Retirees Employees Employees Employees Employees Number of Options One More than one Number of respondents Based upon respondents recall. 0 For a description of the features of these retirement plans, see Appendix B: Description of Distribution Options and Plans Covered in the Survey. The number of distribution options reported is based upon respondents recall and, consequently, may understate the actual number offered by their plans. For example, the federal government TSP allows retiring federal employees to take plan proceeds as a lump-sum distribution, annuity payments, or installment payments. Nonetheless, 29 percent of retired federal workers said they had only a single option. It would thus appear that some individuals may focus on a particular distribution method at retirement and over time cannot recall having had any other options. 4 Defined Contribution Plan Distribution Choices at Retirement

18 FIGURE 0 Number of Distribution Options that Were Available to Retirees, by Type of Plan (percent of respondents) Type of Plan Federal Employer- All 40(k) 403(b) 457 Government sponsored IRA and Retirees Plan Plan Plan TSP Other 2 Number of Options One More than one Number of respondents Based upon respondents recall. 2 Includes responses that could not be categorized into any identifiable plan type. FIGURE Type of Distribution Provided to Retirees Who Had a Single Option (percent of respondents who had a single option) Type of Plan 403(b), 457, All Retirees or Federal Employer- Who Had a Single Government sponsored IRA and Option 40(k) TSP 2 Other 3 Lump-sum distribution a 63 Annuity a 2 Installment payments Number of respondents Based upon respondents recall. 2 Of the 38 responses reported in this column, 5 were from respondents who received proceeds from the federal TSP nine who said they could only receive plan proceeds in a lump-sum distribution, and six who said they could only receive plan proceeds as an annuity. 3 Includes responses that could not be categorized into any identifiable plan type. a Responses of respondents who received proceeds from 40(k) plans are statistically different at the 95 percent confidence level from those of respondents who received proceeds from 403(b) plans, 457 plans, or the federal government s Thrift Savings Plan. Defined Contribution Plan Distribution Choices at Retirement 5

19 Retirees Who Had Multiple Distribution Options Among retirees reporting multiple distribution options, 30 percent indicated they had two options, 33 percent said they had three options, and 37 percent stated they had four options (Figure 2). Of those with two options, 4 percent indicated that one of the options was to defer the distribution. Among retirees with multiple options, 94 percent indicated that they had the choice of a lump-sum distribution (Figure 3). Relatively high percentages of retirees with multiple options also cited that they had annuity, installment payment, and deferral options; the frequency of these options ranged from 68 to 72 percent. Retirees who had been enrolled in 40(k) plans were the most likely to say they had a lump-sum distribution option, whereas those who had participated in 403(b) plans, 457 plans, and the TSP were the retirees who most frequently reported that they had an annuity option. FIGURE 2 Number of Distribution Options that Were Available to Retirees Who Had Multiple Options (percent of respondents who had multiple options) Four Based upon respondents recall Three Two Number of respondents = 43 6 Defined Contribution Plan Distribution Choices at Retirement

20 FIGURE 3 Types of Distribution Options that Were Available to Retirees Who Had Multiple Options (percent of respondents who had multiple options) All Retirees Type of Plan Who Had Federal Employer- Multiple 40(k) 403(b) 457 Government sponsored IRA and Options Plan Plan Plan TSP Other 2 Lump-sum distribution a Annuity b Installment payments Deferral of distribution c Number of respondents Multiple responses included. Based on respondents recall. 2 Includes responses that could not be categorized into any identifiable plan type. 3 Distributions must begin on April of the year following a retired person s attainment of age 70½. a Responses of respondents who received proceeds from 40(k) plans are statistically different at the 95 percent confidence level from those of respondents who received proceeds from 403(b) plans or 457 plans. b Responses of respondents who received proceeds from 40(k) plans are statistically different at the 95 percent confidence level from those of respondents who received proceeds from 403(b) plans, 457 plans, or the federal government s Thrift Savings Plan. c Responses of respondents who received proceeds from 40(k) plans are statistically different at the 95 percent confidence level from those of respondents who received proceeds from 457 plans. Defined Contribution Plan Distribution Choices at Retirement 7