Beginning March 29: To help insurance agents and financial advisors like you guide clients in making critical wealth, health and life decisions we will be moving our coverage from to

Our comprehensive coverage will help you expand your knowledge base and adapt a new client-centric approach that incorporates both insurance and investment solutions.

ThinkAdvisor’s new Life/Health channel is your roadmap to thriving in a disrupted environment.


Filed Under:Annuities, Fixed Indexed

Differences in pension plan rules determine annuitization rates

Differences in defined benefit plan rules or features result in different annuitization rates in defined benefit plans, new research shows.

The Employee Benefits Research Institute, Washington, D.C. arrives at this conclusion in the January 2013 edition of EBRI Issue Briefs, a monthly publication that evaluates employee benefits issues and trends. The periodical also analyzes employee benefit policies and proposals.

The brief shows that the annuitization rate varies directly with the degree to which plan rules restrict the ability to choose a partial or lump-sum distribution. The study also shows that annuitization rates vary significantly across different plan types.

Combining all plans covering the years 2005-2010, the report shows that workers who made their payout decision between ages 50 and 75 had a minimum job tenure of five years and a minimum account balance of $5,000 had an annuitization rate of 65.8 percent. But within this group of workers, those who had no plan restrictions on a lump sum distribution had an annuitization rate of only 27.3 percent.

In all the years studied by EBRI, plans with no lump-sum distribution (LSD) options have the highest annuitization rates (close to 100 percent). Traditional defined benefit and cash balance plans with no restriction on LSDs had the lowest annuitization rates.

In 2010, the annuitization rate for all plans combined was 65.5 percent, but the annuitization rate for defined benefit plans with no restrictions on LSDs was 44.3 percent, while for cash balance (CB) plans with no restrictions on LSDs, it was 22.3 percent.

For older workers across most plan types, the report states, annuitization rates increase steadily with account balance, but this is not true for younger workers.

The brief adds that annuitization rates also increase with tenure, but for younger workers (ages 20-50) with low tenure (less than 10 years), annuitization rates are very low. For older workers (50-75), annuitization rates are higher, even in cases of low tenure.

The report notes also that annuitization rates are very low for those below age 40. Above age 40, annuitization rates increase for all types of plans. Annuitization rates peak between ages 65 and 69, then fall sharply. 

Featured Video

Most Recent Videos

Behind the scenes with Vicki Gunvalson [VIDEO]


In this exclusive interview, Vicki Gunvalson shares how she built a $15 million a year annuity business by planning for...

Regulator: Market may need to reinvent LTCI


Cioppa says Maine's governor wants to spur the creation of better products.

Dementia: It's more than Alzheimer's


An association calls for policymakers to remember lesser-known neurodegenerative conditions.

Protesters Disrupt WellPoint Annual Meeting


Hecklers call for more disclosures of information about political contributions.

Related resources

More Resources


Power your business with up-to-the-minute insurance news, analysis, and best practices from LifeHealthPro Daily eNewsletter – FREE.

Power your business with LifeHealthPro Daily eNewsletter – FREE.

Enter a valid email address.
Nichole Morford

Nichole Morford
Managing Editor

Thank you for subscribing to LifeHealthPro Daily!

Check Out More eNewsletters Now! Close

Advertisement. Closing in 15 seconds.