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

66 Pages Posted: 6 Oct 2020 Last revised: 22 Apr 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: April 20, 2021

Abstract

Using a comprehensive sample of over 160 thousand U.S. private pension plans, we find significant economies of scale in investment performance and administrative expenses that are more prominent for defined benefit (DB) than for defined contribution (DC) plans. Small DB plans underperform size-matched DC plans and face the highest termination probability, and the majority of both types underperform passive benchmarks. Small plans and small sponsors prefer the DC structure more strongly than large ones do. Our results highlight the inefficiency of small DB plans, which is consistent with the secular shift toward DC plans and the recent trend of consolidation.

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 (April 20, 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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
83
Abstract Views
459
rank
362,235
PlumX Metrics