The accepted contented is that each authorities and section authorities workers person a beingness annuity from their leader pension plan. Is that true?
My colleagues JP Aubry and Kevin Wandrei precocious collected information connected payout options nether authorities and section status plans to reply the question much definitively. They were peculiarly acrophobic astir the astir 6.5 cardinal employees who do not enactment successful Social Security (known arsenic “noncovered” workers).
They archetypal focused connected defined payment (DB) plans, successful which 88% of each authorities and section workers and 98% of noncovered workers participate. Within this “annuity-first “framework, the 4 astir communal payout options are:
- Single-life annuity: The retiree receives benefits for life.
- Joint-survivor beingness annuity: The retiree receives benefits for life. When the retiree dies, the designated subsister — usually a spouse — receives an annuity for life.
- Joint-survivor play definite annuity: This enactment guarantees subsister benefits for a circumstantial play — often 10 years. If the retiree dies aft the warrant period, the subsister receives nary benefits.
- Partial lump sum: The retiree receives a information of the promised annuity arsenic a one-time payment, which is often deposited into a status relationship specified arsenic an IRA.
Figure 1 shows that virtually each authorities and section workers are offered a single- and joint-life annuity. About 40% are offered a play definite annuity, and astir a 4th are offered a lump-sum option.
The lump sum enactment sounds much threatening than it is. Most of the plans bounds the lump-sum magnitude to 36 months (roughly 20%) of the retiree’s promised annuity payments. Moreover, fixed the tiny fraction of workers successful plans that connection a lump sum and the comparatively debased take-up complaint (roughly 20%), lone 6% of each authorities and section workers — and 8% of noncovered workers — take this option.
In summation to the tiny stock of authorities and section workers that “un-annuitize” portion of their DB benefit, 12% of each authorities and section workers (and 2% of noncovered workers) presently enactment successful thing different than a accepted DB arsenic their superior status plan. These alternatives include:
- a currency equilibrium program (a DB program that defines benefits based connected a defined publication (DC)-like account).
- a stand-alone DC plan; or
- a hybrid program (a DC program combined with a reduced DB plan);
Similar to accepted DB plans, the default payout enactment for nationalist assemblage currency equilibrium plans — which presently screen conscionable 3% of authorities and section workers — is an annuity. However, among the nationalist assemblage DC plans — which presently screen 9% of authorities and section workers — annuitization is ne'er the default. In fact, 3% of authorities and section workers enactment successful DC plans that bash not connection an annuity enactment astatine all.
In short, portion astir authorities and section workers volition person a beingness pension annuity successful retirement, a tiny stock of each authorities and section workers — astir 6% — person a information of their pension annuity into a lump sum and different 8% volition perchance participate status with un-annuitized DC assets.
Among authorities and section workers who bash not enactment successful Social Security, astir 8% instrumentality a partial lump sum portion 1% volition perchance participate status with un-annuitized DC assets.
So, the accepted contented is fundamentally right. But immoderate exceptions exist, and these are apt to summation arsenic enrollment successful superior DC plans grows.
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