Advisers Eye Lump-Sum DB Payouts

Separated defined benefit (DB) plan participants have been on the rise since 2004—a sweet spot for advisers targeting lump-sum distributions, research found.

“The number of separated participants in private DB plans totaled more than 12.4 million at the end of 2011, up from 10 million in 2004,” said Kevin Chisholm, associate director at Cerulli Associates in Boston.


According to Chisolm, the number of lump-sum distributions taken over the past year has increased steadily, and Cerulli expects that number to continue rising. “It is likely plan participants will select a lump sum, rather than a monthly payout,” Chisolm said.


Lump-sum distributions put a significant amount of assets in motion, Chisolm pointed out. When a DB participant leaves the plan, the sponsor can offer lump sums that amount to larger payouts, creating a new pool of prospects for financial advisers or providers of individual retirement accounts (IRAs). Advisers whose current clients accept the one-time payment could see an infusion of cash, Chisolm said.


Cerulli’s report frames lump-sum distributions as an opportunity for advisers and IRA providers to develop marketing plans to reach separated participants in private DB plans, as lump-sum offers are more prevalent. It is important to note that these participants are not retired, but separated—and they are likely to also be contributing to a defined contribution (DC) plan that will yield additional rollover dollars in the future.


The first quarter 2013 issue of The Cerulli Edge-Retirement Edition is dedicated to DB plans and takes a close look at DB plan participants and lump-sum distribution trends, including de-risking. The report examines major challenges to increasing financial planning engagements and factors that could have an impact on 401(k) plan participants delaying retirement.

More information, including how to purchase a copy, is here.