EBRI Issue Brief

Retirement Program Lump-Sum Distributions: Hundreds of Billions in Hidden Pension Income

Feb 1, 1994 20  pages


  • This Issue Brief presents data on the number and amounts of lump-sum total distributions made from retirement programs and also on the number and amounts of rollover contributions made to individual retirement accounts (IRAs) for the years 1987-1990. It also discusses the implications of workers' rollover decisions for retirement income security and the legislative history of benefit preservation.
  • The number of lump-sum total distributions rose from 11.4 million in 1987 to 12.2 million in 1988 and then declined to 10.8 million in 1990. While the number of distributions declined over this period, the amount distributed increased steadily from $80.3 billion in 1987 to $125.8 billion in 1990. By comparison, retirement benefit annuity payments from employment-based plans totaled $197 billion in 1987 and $234 billion in 1990.
  • While 61 percent of all 1990 distributions were premature, i.e., they occurred before the recipients reached age 59 1/2, 38 percent of all funds distributed were from a premature distribution. Normal distributions, i.e., those made to recipients who were at least aged 59 1/2, accounted for 25 percent of all distributions and 34 percent of all funds distributed in 1990.
  • Twenty-nine out of every 100 lump-sum total distributions in 1990 resulted in an IRA rollover contribution, indicating that more than 70 percent of all distributions were not even partially rolled over into an IRA in that year. Focusing on the funds involved, 57 percent of all money distributed in a lump-sum total distribution was rolled over into IRAs.
  • More and better data are needed to fully assess the preservation issue. To the extent we are better able to gauge the perceptions and expectations of distribution recipients, a clearer picture emerges as to the extent that distributions are being preserved, invested in other ways, used for consumption in hard times, or used simply for current gratification. Whether a lack of preservation is due to shortsightedness or current hardship, it may be at the expense of future retirement income security. A deeper understanding of these issues is needed for informed policy decisions