In recent years, regulators have also entered the mix, among other things issuing a Request for Information (RFI) regarding the "desirability and availability of lifetime income alternatives in retirement plans," conducting a two-day hearing on the topic, and – as recently as last year – issuing both final and proposed regulatory guidance.

Yet today the annuity "puzzle" remains largely unsolved. And, amidst growing concerns about workers outliving their retirement savings, a key question—both as a matter of national retirement policy and understanding the potential role of plan design and education in influencing individual decision-making—is how many retiring workers actually choose to take a stream of lifetime income, vs. opting for a lump sum.

As outlined in a recent Employee Benefit Research Institute Issue Brief, the evidence on annuitization in workplace pension plans has been mixed. But the EBRI report provides an important new perspective to a 2011 paper titled "Annuitization Puzzles" by Shlomo Benartzi, Alessandro Previtero and Richard H. Thaler, which analyzed 112 different DB plans provided by a large plan administrator.

Focusing on those who retired between ages 50 and 75 with at least five years of job tenure and a minimum account balance of $5,000, they noted that "virtually half of the participants (49 percent) selected annuities over the lump sum," further observing that, "When an annuity is a readily available option, many participants who have non-trivial account balances choose it."

The study's authors went on state that "The notion that consumers are simply not interested in annuities is clearly false," adding that "the common view that there is little demand for annuities even in defined benefit plans is largely driven by looking at the overall population of participants, including young and terminated employees and others with small account balances who are either required to take a lump-sum distribution or simply decide to take the money."

In essence, Benartzi's "Annuitization Puzzles" study says that much of the existing research draws inaccurate conclusions by mixing the behaviors of younger workers with smaller balances with those who might, based on their age and financial status, be expected to choose an annuity.

In effect, the Benartzi study blends the behaviors of participants who have the ability to choose an annuity with those who have either no choice or are restricted by their plans.

The full study, "Annuitization Puzzles," by Shlomo Benartzi, Alessandro Previtero and Richard H. Thaler is online here. 

What kind of difference might choice and/or the lack of restrictions make?

Well, taking into account the same types of filter on tenure, balance, and age employed by the Benartzi study, as well as a series of plan design restrictions, EBRI in an analysis has found that for traditional defined benefit plans that imposed no restriction on doing so, fewer than a third of those with balances greater than $25,000 opted for an annuity, as did only about 1 in 5 whose balances were between $10,000 and $25,000. Those with balances between $5,000 and $10,000 were even less likely to do so. 

In sum, even filtering to focus on the behaviors of individuals seen as most likely to choose an annuity distribution, we found that, given an unfettered choice, the vast majority do not.

Ultimately, the EBRI analysis shows that, to a large extent, plan design drives annuitization decisions.  We know that plan design changes have been successful in influencing participant behavior in DC plans via auto-enrollment and auto-escalation, and the new EBRI study suggests that plan design can also play a critical role in influencing distribution choices.

It also shows the importance of taking into account the whole picture when you're trying to solve a puzzle.