@article {Banerjee100, author = {Sudipto Banerjee}, title = {A Piece of the Annuitization Puzzle: The Role of Plan Rules in Annuitization Decisions in DB and CB Plans }, volume = {2}, number = {1}, pages = {100--114}, year = {2014}, doi = {10.3905/jor.2014.2.1.100}, publisher = {Institutional Investor Journals Umbrella}, abstract = {In spite of the valuable longevity insurance annuities provide, actual annuitization rates of retiree wealth remain low. Previous studies investigating what economists term the {\textquotedblleft}annuity puzzle{\textquotedblright} have focused on workplace pension plans because they offer a choice between an annuity and a lump-sum distribution. These studies found large variations in annuitization rates among employer-provided defined-benefit (DB) and cash-balance (CB) plans but did not provide a concise explanation. This article does provide an explanation{\textemdash}in particular, variations in plan rules can explain the variation in annuitization rates. The rates vary directly with the degree of restriction imposed on lump-sum distributions. Plans with no option for a lump-sum distribution have annuitization rates of close to 100\%, whereas plans with no restrictions on lump-sum distributions have annuitization rates of between 20\% and 40\%. Given an unrestricted choice, only a minority of plan participants choose an annuity.TOPICS: Retirement, pension funds}, issn = {2326-6899}, URL = {https://jor.pm-research.com/content/2/1/100}, eprint = {https://jor.pm-research.com/content/2/1/100.full.pdf}, journal = {The Journal of Retirement} }