Do Required Minimum Distributions Matter? The Effect of the 2009 Holiday on Retirement Plan Distributions

45 Pages Posted: 8 Sep 2014

See all articles by Jeffrey R. Brown

Jeffrey R. Brown

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); University of Illinois College of Law; University of Illinois at Urbana-Champaign - Institute of Government and Public Affairs (IGPA); University of Illinois at Urbana-Champaign - Department of Economics

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

David P. Richardson

TIAA-CREF Institute

Date Written: September 2014

Abstract

This paper investigates how the 2009 one-time suspension of the Required Minimum Distribution (RMD) rules associated with qualified retirement plans affected plan distributions at TIAA-CREF, a large retirement services provider. Using panel data on retirement plan participants at TIAA-CREF, we find that roughly one third of those who were affected by minimum distribution rules discontinued their distributions in 2009. The results also show relatively small differences in the suspension probability between those who had 2008 distributions equal to the RMD amount, and might be classified as facing a binding RMD constraint, and those who were taking distributions in excess of the RMD amount before the distribution holiday. The probability of suspension declines substantially with age and rises modestly with economic resources. We find that individuals taking monthly distributions are less likely to suspend distributions than those taking annual distributions, particularly at higher wealth levels. This pattern is consistent with those who choose monthly distributions being more likely to use their distributions to finance consumption. We supplement these results based on administrative record data on retirement plan participants with survey evidence on participant attitudes that affected decisions about suspending distributions. Our findings provide guidance on the revenue consequences of changing RMD rules and offer insights about the role of various behavioral considerations, such as inertia, in modeling distribution behavior.

Suggested Citation

Brown, Jeffrey R. and Poterba, James M. and Richardson, David P., Do Required Minimum Distributions Matter? The Effect of the 2009 Holiday on Retirement Plan Distributions (September 2014). NBER Working Paper No. w20464. Available at SSRN: https://ssrn.com/abstract=2492974

Jeffrey R. Brown (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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National Bureau of Economic Research (NBER) ( email )

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University of Illinois College of Law ( email )

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University of Illinois at Urbana-Champaign - Institute of Government and Public Affairs (IGPA) ( email )

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James M. Poterba

National Bureau of Economic Research (NBER) ( email )

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David P. Richardson

TIAA-CREF Institute ( email )

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