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

64 Pages Posted: 6 Oct 2020 Last revised: 17 Nov 2022

See all articles by Donghyeok Jang

Donghyeok Jang

American University of Sharjah (AUS)

Youchang Wu

University of Oregon - Lundquist College of Business

Date Written: November 15, 2022

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 positive size effect in plan performance that is significantly stronger for DB than for DC plans. The majority of both types of plans underperform investable passive benchmarks. Small DB plans underperform size-matched DC plans and face the highest probability of being terminated. Revealed preferences through the choice of organizational form at plan birth further confirm the disadvantage of the DB structure for small plans and small 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 (November 15, 2022). Available at SSRN: https://ssrn.com/abstract=3697711 or http://dx.doi.org/10.2139/ssrn.3697711

Donghyeok Jang

American University of Sharjah (AUS) ( email )

United Arab Emirates

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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