Size and Investment Performance: Defined Benefit vs. Defined Contribution Pension Plans
68 Pages Posted: 6 Oct 2020 Last revised: 23 Aug 2021
Date Written: August 21, 2021
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
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