Lump sum distributions from pension plans: Recent evidence and issues for policy and research

We examine preretirement lump sum distributions (LSDs) from pension plans, which have grown significantly in recent years. Most LSD recipients do not roll over the finds into qualified accounts, but the likelihood of rollover vises for larger distributions. We find evidence suggesting that tax penal ties imposed in 1986 on nonrollovers by people younger than 55 raised the l ikelihood of rollovers among this group, but had much less effect on the li kelihood that such households saved the funds, where saving includes invest ing in taxable assets and paying off debt. We estimate that cashouts reduce annual retirement income by up to $1,000-3,000.