Increasingly, retirees will—on average—need to balance income and  expenditures over a longer period of time than in the past. Nearly Half of DB Plans Make Lump Sums Available and Just Over a Third of DC Plans Make Annuities Available

DB plans are more likely than DC plans to make annuities available at  retirement, while DC plans are more likely than DB plans to make lump  sums available. 2). Also, 32 percent of all private sector  workers who participated in DC plans had a lump sum, an annuity and an  installment payout option available at retirement. A funding provider for defined contribution  plans, which used to only offer annuity payouts at retirement, expanded  the payout options it makes available to retiring participants in response  to participants’ desire for more options and control in managing their  pension and retirement savings plan assets. Plans Provide Participants with Notices about Benefit Payout Options, but Information on Managing Assets during Retirement Is Not Widely Available

Plan sponsors we spoke with indicated that they provide retiring  participants with applicable notices about benefit payout options available  under the plan. While plan sponsors we spoke with provided some additional information  on saving for retirement, they generally did not provide information on  considerations relevant to managing pension and retirement savings plan  assets at and during retirement. Although we found that about 60 percent of retirees received  annuities, over time an increasing percentage of more recent retirees  chose to directly roll over their lump sum benefits into an IRA or to defer  their receipt by leaving them in the plan. The growing trend towards payouts other than annuities may reflect, at  least in part, the continuing trend in coverage towards DC plans. However, few retirees use  their pension benefits or other assets to purchase individual life annuities. Range of Actions Available to Help Retiring Participants Preserve Their Pension Assets

Pension experts identified a range of actions that could help retiring  participants preserve their pension and retirement savings plan assets. For example, they noted that participants need to be aware of  various risks that may affect how participants manage and draw down  their pension assets to provide income during retirement. Our analysis shows  that recent experience with retiring participants who have a choice of  payout options indicates that these retirees increasingly choose to directly  roll over their lump sum benefits into an IRA or defer the receipt of  benefits. Almost all of the respondents from our  expert panel rated information on the financial risks individuals face in  retirement (96 percent) and the risk of outliving one’s assets in retirement  (91 percent) as very or extremely effective in helping retiring participants  make decisions about how to manage pension assets. Determining Benefit Payouts Plan Participants Receive at Retirement

We analyzed HRS data to determine the benefit payouts pension plan  participants receive at retirement. Household decisions about retirement income. 1. 3.
Why GAO Did This Study

The decisions that retiring workers make about how and when to draw down their pension plan assets determine in part whether they will have pension income that lasts throughout retirement. Individuals will need pension and other retirement income to sustain them over a longer period of time than in the past. Moreover, the continuing trend towards pension plans with individual accounts has increased participants' responsibility for managing their pension assets during retirement. As such, our objectives were to determine: (1) what benefit payout options and accompanying information pension plans make available to participants at retirement, (2) what benefit payouts plan participants receive at retirement, and (3) the actions available to help retiring participants preserve their pension and retirement savings plan assets.

What GAO Found

Defined benefit (DB) plans make annuities available to all participants at retirement, while defined contribution (DC) plans make lump sums available to almost all participants. Recent data also show that about half of private sector workers who participated in DB plans had a lump sum option at retirement, and over a third of their counterparts in DC plans had an annuity option. Plan sponsors GAO spoke with provide retiring participants with applicable notices about their benefit payout options available under the plan. Additional information provided by plan sponsors GAO spoke with primarily focused on saving for retirement. Risks that can affect retirement income, or other considerations relevant to managing pension assets at and during retirement were generally not discussed. According to GAO's analysis, while 60 percent of recent retirees received annuities, an increasing percentage from 1992 to 2000 directly rolled over lump sum benefits into an individual retirement account or deferred their receipt by leaving these assets in the plan, a trend in part explained by the shift toward retirees with DC plan benefits. Additionally, GAO found that a growing percentage of those retirees who reported having a choice of benefit payouts chose to directly roll over their lump sum benefits or leave benefits in the plan rather than receive annuities. Actions available to help retiring participants preserve their pension and retirement savings plan assets range from options that would encourage the receipt of annuities to providing information to help participants make better decisions about managing their pension assets at and during retirement. According to an expert panel GAO used as part of this study, retirees need to be aware of the risk of outliving one's assets in retirement and the financial risks individuals face in retirement. Over 90 percent of GAO's panelists rated providing information on such risks as very or extremely effective in helping retiring participants make decisions about managing their pension assets.