May 27, 2003
Traditionally, annuities have been the main method of distributing retirement income, especially in defined benefit plans. In recent years, the growth of cash-balance versions of defined benefit plans and of defined contribution plans has made lump-sum payments a more prominent distribution method.
In 2000, 20.6 million workers participated in defined benefits retirement plans. Such plans must make an annuity option available to retirees. Traditional pension plans sometimes offer one form of lump-sum payment or another and 35 percent of workers participate in traditional plans with such an option.
Workers in cash balance plans, another style of defined benefit package, are about twice as likely to be participating in a plan that offers a lump-sum option: 71 percent of workers in cash balance plans have a lump-sum option.
Under defined contribution plans, the employee is likely to be offered more than one payment option at retirement. Lump-sum payouts are offered to almost all defined contribution plan participants.
These data are from the National Compensation Survey. For more information about how retirement plans distribute benefits, see Allan P. Blostin, "Distribution of retirement benefits," Monthly Labor Review, April 2003.