Lump-Sum Distributions at Job Change

This paper focuses on the decisions that workers at job change make on receipt of a lump-sum payment from an employment-based retirement plan: whether to roll the account balance over to another tax-qualified savings vehicle, spend the assets, or invest/save the assets in another manner. The number and amounts of lump-sum distributions are estimated, followed by a discussion of what individuals are doing with these distributions and an analysis of important determinants of the decision to roll over the distribution versus using the assets for other reasons. These results are derived from recently released data from the U.S. Census Bureau -- The Pension and Retirement Plan Coverage Topical Module 7 of the 2004 Survey of Income and Program Participation (SIPP) -- which includes lump-sum data for individuals through 2006. This research updates prior studies on lump-sum distributions done by the Employee Benefit Research Institute. About 16.2 million working-age Americans reported ever having received a lump-sum distribution from a retirement plan when changing jobs, through April of 2006. The average amount of these distributions was $32,219 (in 2006 dollars) and the median (mid-point) amount was $10,000. For the most part, the amounts of the lump-sum distributions were relatively small -- just over 21 percent of the distributions were less than $2,500. Just over 16 percent were $50,000 or more. The rest of the distributions (about 63 percent) were between $2,500 and $50,000. The data show that an increasing percentage of retirement plan participants are rolling over all of their lump-sum distributions on job change, and fewer are spending any of their distributions on consumption. However, the data also show that approximately 60 percent of those who took a lump-sum payment did not roll all of it into tax-qualified savings, although not all of those distributions were spent exclusively on consumption but instead were used for home purchases, starting a business, or paying down debt. This behavior varied significantly across participants' ages and the amount of the distribution, with older individuals (up to age 65) and those with higher balances more likely to roll over their assets