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 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