Benefits December 13, 2005

EBRI: Fewer Participants Cashing Out Distributions

December 13, 2005 (PLANSPONSOR.com) - Despite many plan sponsors' fear that departing participants will spend their lump-sum distributions, a new study shows a growing number are rolling over those distributions to another retirement savings account.
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A news release from the nonpartisan Employee Benefit Research Institute (EBRI) said fewer participants are spending their distributions.

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This choice can profoundly affect participants’ financial resources in retirement, particularly in the case of young workers, the EBRI study said. For example, a 25-year-old who leaves an employer after accumulating a $5,000 account balance would have about $24,600 at age 65, assuming a constant 4% rate of return compounded monthly.

Other findings included:

  • 43.4% of lump-sum recipients who received their most recent distribution through 2003 placed all of their distributions in a tax-qualified savings plan such as an individual retirement account or another employment-based plan. This was up from 19.3% through 1993.
  • 25.2% of lump-sum recipients who received their most recent distribution through 2003 used any portion of their distribution for new consumption such as buying a home or boat or medical or dental expenses. This was down from 38.3% through 1993.
  • $30,072 was the mean (average) distribution; $8,118 was the median distribution. For the most part, lump-sum distributions were relatively small, with a total of 26.2% amounting to less than $2,500. Another 29% were from $2,500 to $10,000.
  • Two-thirds of the most recent lump-sum distributions took place from 1994-2003. Nearly 60% of those receiving a lump-sum distribution were ages 21 to 40 when they received the distribution.

The report is here .

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