A Significant Number of Employees Will Take Lifetime Income When Given The Choice – Agilis

34% of employees choose to receive their retirement dollars as lifetime income versus a 401(k)/IRA account balance

While the risks of retirees outliving a retirement account balance are material and well documented, converting account balances to lifetime income to mitigate these risks is simply not popular.  Anecdotally, 401(k) plan sponsors have offered in-plan insurance company annuity conversions for quite some time, however utilization has been very low (less than 5% and many within the industry say less than 1%).  Retail annuity offers to convert 401(k) balances are also said to have very low utilization rates.

Insurance company annuity offers through the retail market or within a 401(k) plan lineup are not always viewed as competitively priced.  In addition, the products offered by insurance companies may have features that sound good but are not well understood by employees causing a general consumer stigma against jumping into an insurance product.


There are, however, a large number of employees that are choosing lifetime income from insurance companies over managing 401(k) / IRA balances to provide them with financial security in retirement.  The choice between managing an account balance of retirement dollars or a lifetime income option to be provided by an insurance company after a competitive bidding process overseen by an employer is actually very common.  Volumes of data exist.  This choice is offered in most defined benefit plan terminations which have increased in number over the last decade.  We analyzed plan termination data for 14 recent defined benefit plan terminations to assess employee behavior when presented with an option for lifetime retirement income or a retirement account balance.

In a defined benefit plan termination, employees are generally given the choice to take their benefit as a lifetime annuity provided by an insurance company or an account balance that they can deposit into an IRA or other retirement plan and manage on their own. While employees with smaller benefits tend to take the account balance option, 34% of the dollars for employees over age 55 were moved to insurance companies to provide lifetime income.  This is a much larger utilization rate than seen in the retail annuity market or in-plan defined contribution plan offerings.


The larger utilization rate can be attributed to the differences in the offerings:

  1. Time-limited decision offered to participants with specific dollar amounts shown in detailed communication packages help drive higher utilization rates for lifetime income options in plan terminations.
  2. Employer-backed fiduciary review of the insurance companies and apples-to-apples lifetime income offerings.
  3. Competitively bid pricing which has shown to be materially better than retail or in-plan defined contribution pricing for many employees.

What the data shows is that lifetime income options are of interest to employees.  How those options are presented to employees can make all the difference in employee behavior. This means that the design, approach, and substance of the lifetime income offer can make a huge impact on the actual utilization. Employers should look for ways that they can offer these lifetime income opportunities to their employees.

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