Investment Returns: Defined Benefit vs. Defined Contribution Plans

Source: Alicia H. Munnell, Jean-Pierre Aubry and Caroline V. Crawford, Center for Retirement Research at Boston College (CRR), Issue Brief, IB#15-21, December 2015

The brief’s key findings are:
• The analysis compares returns by plan type from 1990-2012 using data from the U.S. Department of Labor’s Form 5500.
• During this period, defined benefit plans outperformed 401(k)s by an average of 0.7 percent per year, even after controlling for plan size and asset allocation.
• In addition, much of the money accumulated in 401(k)s is eventually rolled over into IRAs, which earn even lower returns.
• One reason for the lower returns in 401(k)s and IRAs is higher fees, which should be a major concern as they can sharply reduce a saver’s nest egg over time.
Figure .xls file