Retirement & Financial Planning Report

Many participants in defined benefit retirement plans will choose to forgo an annuity and pull out a lump-sum payment instead unless they are discouraged or prevented, according to a study by the Employee Benefits Research Institute that underscores the value of taking an annuity.

The study examined behavior of participants in defined benefit plans, which are becoming more rare outside government, where a certain level of benefits is paid according to a formula using salary and years of service. While the formulas vary, the essential design is the same as that of the civil service annuities under the CSRS and FERS retirement systems—benefits are based on service time and salary.


Given the choice to take a lump-sum payment rather than an annuity, it found, 56 percent chose the one-time payment and passed by a benefit that would guarantee them—and, potentially, survivors—an income for life.

It further found, though, that the older the employee at separation and the longer the tenure, the greater the likelihood of that person choosing an annuity.

Some defined benefit plans – including CSRS and FERS — require an annuity payment and do not offer a lump-sum choice, it added.