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

69 Pages Posted: 6 Oct 2020 Last revised: 9 Oct 2020

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: October 6, 2020

Abstract

We examine the investment performance of over 160 thousand U.S. private pension plans. We find significant economies of scale in performance and administrative expenses, which are more prominent for defined benefit (DB) plans than for defined contribution (DC) plans. DC plans outperform size-matched DB plans in most size ranges in benchmark-adjusted returns. Size also drives the plan termination probability, especially among DB plans, and the sponsor's choice between the DB and DC structures. Our results suggest a size-based explanation for the great shift toward DC plans centering on the relative efficiency of these two organizational forms in pension asset management.

Keywords: pension fund, defined benefit plan, defined contribution plan, performance evaluation, 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 (October 6, 2020). 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

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