C. AMOUNTS AND USES OF LUMP SUM DISTRIBUTIONS

The amounts of the lump sum distributions that are being received by workers as they approach retirement provide an important indication of the extent to which workers can expect these types of pension payouts to provide retirement income.

Responses to the survey questions about the amount of these distributions indicated that the amounts that have been received by workers as they near retirement are relatively modest. Median value of lump sum distributions that have been received at any time by workers 40 and over was $7,711 (in 1994 dollars).

The median distributions have been relatively constant since they became widespread, varying from a value of about $6,000 (in 1994 dollars) for those received before 1980 to $9,600 (in 1994 dollars) for those received between 1985 and 1989.

There is a considerable difference, however, in the value of distributions that have been received by men and women. The median payout for men ($11,373) was over twice as much as the median distribution ($5,005) received by women.

Among retirees and workers ages 40 and over who received lump sum distributions, over half were taken prior to age 50, generally by workers changing jobs. Those under 50 received median payments of $6,000, compared to $24,000 for persons ages 60-64.

Equally important to the capacity of the defined contribution system to provide retirement income is the degree to which distributions from these plans are preserved for retirement rather than spent for some other purpose.

Survey data from the April 1993 CPS indicate that a majority of those receiving these payouts did not report that they had directly transferred the funds into some form of retirement savings. As shown below, among retirees and workers ages 40 and over who received lump sum distributions, 32% rolled the entire amount over into retirement savings; 14% put it all into other savings or investments; 16% put it into a business, house, or paid off debts; and 20% spent the distribution.

For workers under age 40 who received lump sum distributions, only 16% rolled the entire amount over into retirement savings, 11% put it into other savings or investment: 27% put it into a business, house, or paid off debts: and 32% spent the distribution.

The data do confirm, as has been previously reported, that there is a strong relationship between the amount of distributions and the extent of their preservation for retirement. The September 1994 CPS data show that among workers and retirees receiving distributions exceeding $10,000, fewer than one in ten reported that they had spent the funds. In terms of the total dollars involved, the degree of preservation of these assets for retirement will be greater than might be indicated by simply looking at the numbers of distributions, the majority of which are relatively small.

The amounts of the account balances that are transferred directly to retirement savings and those that are retained by leaving the funds in the DC plan of a former employer also provide a more optimistic view of asset preservation. The median value of the balances rolled over and those retained in a former plan is about $15,000 in both cases, indicating the potential for increased levels in future payouts.

The widespread reliance on DC plans is a relatively recent phenomenon in the context of the period of time in which retirement savings are accumulated. The value of these payouts should increase as workers who have had longer periods to accumulate funds approach retirement. The extent to which the payouts increase beyond the levels that are observed over the last decade will depend substantially on whether these assets are preserved to a greater extent than has apparently been occurring.