Coverage by the Pension Benefit Guaranty Corporation (PBGC) ultimately is intended to make it possible for individuals to be able to obtain distributions from the plan in which they have been participating. A recent study looks at what kinds of distributions individuals covered by the PBGC choose. 
In the National Bureau of Economic Research (NBER) paper “An Analysis of Benefit Distribution Options Selected by Individuals Covered by the PBGC,” three North Carolina State University researchers—Robert Clark, Denis Pelletier, and Beth Ritter, a Professor of Practice and at the Department of Management, Innovation, and Entrepreneurship in NC State’s Poole College of Management—examine the PBGC distributions chosen over the last decade.
Background
The PBGC becomes the trustee when a private-sector pension plan has defaulted. It pays retirement benefits through a variety of distribution options, and there may be a maximum monthly benefit.
When the PBGC becomes responsible for a plan, some participants likely will already have retired from the employer and will be receiving pension benefits; the other plan participants will be claiming benefits after PBGC assumption and can choose a distribution method.
Lump sum distributions are not an option when the PBGC has assumed responsibility for a plan. There are three basic distributions the PBGC offers:
1. A straight-life annuity, which provides fixed monthly benefit payments for the lifetime of the retiree. No survivor benefit will be paid after the death of the retiree.
2. A certain-and-continuous annuity, which provides a benefit that will last for the lifetime of the retiree. If that individual dies before the end of the 5-, 10- or 15-year period, the designated beneficiary will receive the same monthly benefit for the remainder of it; if he or dies after the end of the period, the benefit payments end with the death of the retiree.
3. A joint-and-survivor annuity (J&S), which provides fixed monthly benefit payments for the lifetime of the retiree and continues to do so to designated beneficiaries for the rest of their lives after the death of the retiree.
The Data
The researchers invoked the Freedom of Information Act and obtained information on all individuals who received retirement benefits from the PBGC between 2012 and 2021—a total of just over a quarter of a million plan participants.
The researchers note that the number of PBGC-insured active participants has declined since 1980 as a percentage of single-employer private-sector wage and salary workers. That figure stood at 28.8% in 1980, at 16.4% in 2000, and 7.3% in 2018. Similarly, the number of plans the PBGC covers has dropped: in 1985, the number of insured plans was 112,208; in 2000, 35,375; in 2020, 23,477.
The Findings
Clark, Pelletier, and Ritter say that during the period 2012-2021:
- just over half of all claimants requested a J&S distribution;
- 42% chose a straight-life annuity; and
- less than 10% chose a certain-and-continuous annuity distribution.
Drilling down, of the 127,503 retirees who chose a J&S distribution, 48% selected the 50% payout option to the survivor, and 45% chose the 100% survivor benefit.
Consistent pattern. The researchers report that the proportion of new retirees selecting those options remained relatively constant during the period.
Gender-based differences. The researchers found that men were much more likely to choose a J&S annuity than women, and that age heightens the disparity. They found that 58% of men choose a J&S option and 38% of women do so. Men and women also responded differently concerning how they preferred to receive the distributions. Forty-nine percent of men asked for a 100% payout, and 43% chose a 50% payout, while women showed the converse: 32% wanted a 100% payout, while 62% chose a 50% payout.
Further, men were more likely to request the longer number of guaranteed months of payments among those who chose the certain-and-continuous annuity option. And women were more likely to select the straight life annuity option with no survivor benefit.
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