Size and Investment Performance: Defined Benefit vs. Defined Contribution Pension Plans

68 Pages Posted: 6 Oct 2020 Last revised: 23 Aug 2021

See all articles by Donghyeok Jang

Donghyeok Jang

University of Oregon - Lundquist College of Business

Youchang Wu

University of Oregon - Lundquist College of Business

Date Written: August 21, 2021

Abstract

Using a comprehensive sample of 160,000 defined benefit (DB) and defined contribution (DC) plans, we examine systematically the investment performance and administrative expenses of U.S. private pension plans, and the determinants of plan terminations and plan structure. We find significant economies of scale that are substantially stronger for DB plans. While the majority of both types underperform passive benchmarks, small DB plans perform the worst and face the highest probability of being terminated. Revealed preferences through the choice of organizational form at plan birth further confirm the relative disadvantage of the DB structure for small plans and sponsors.

Keywords: pension fund, 401(k) plan, asset management, performance measurement, economy of scale

JEL Classification: G11, G23, G50, J32, D14

Suggested Citation

Jang, Donghyeok and Wu, Youchang, Size and Investment Performance: Defined Benefit vs. Defined Contribution Pension Plans (August 21, 2021). Available at SSRN: https://ssrn.com/abstract=3697711 or http://dx.doi.org/10.2139/ssrn.3697711

Donghyeok Jang

University of Oregon - Lundquist College of Business ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
5413469117 (Phone)

HOME PAGE: http://business.uoregon.edu/faculty/donghyeok-jang

Youchang Wu (Contact Author)

University of Oregon - Lundquist College of Business ( email )

1280 University of Oregon
Eugene, OR 97403
United States

HOME PAGE: http://www.youchangwu.com

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