By Jason Fichtner

Insight Overview

IDEAS IN THIS INSIGHT YOU CAN PUT INTO ACTION

Sudipto Banerjee finds that employers’ retirement plan rules can drive annuitization decisions and that the participant’s age and account balance are also important factors affecting annuitization decisions. Changing pension payout rules can therefore change annuitization behavior. Based on our review of the author’s research findings, we suggest pursuing the following ideas: (1) encourage defined-benefit pension plan administrators to establish plan rules that encourage annuitization and restrict lump-sum offerings; (2) with the passage of the SECURE Act, and the continued trend away from defined-benefit plans to defined-contribution plans, encourage defined-contribution plan administrators to offer more options for full or partial annuitization and restrict full or partial lump sum options; (3) change pension plan rules to restrict the lump-sum payout option, which can positively impact annuitization rates; and (4) lowering plan account balance requirements for annuitization, or lowering the involuntary cash-out threshold, could positively impact annuitization rates among workers under 40 who change jobs frequently.