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

Abstract

Using a comprehensive sample of over 160,000 defined benefit (DB) and defined contribution (DC) plans, we provide the first comprehensive analysis of the investment performance of U.S. private pension plans. We find a strongly positive size effect in investment performance. This effect is more pronounced in DB plans than in DC plans, partly due to the more significant decreases in administrative expense ratios with increasing plan size among DB plans. While the majority of both types of plans underperform investable passive benchmarks, small DB plans perform the worst based on various metrics and face the highest probability of being terminated. Our results suggest that consolidation of pension plans, especially of the DB type, is efficiency-improving.

Keywords: G11, G23, G50, J32, D14 pension fund, 401(k) plan, asset management, performance measurement, size effect

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