Defined Benefit Plans Outperform 401(k) Plans
June 22, 2008
Rates of return for defined benefit (DB) pension plans significantly exceeded those for employee-directed 401(k) plans during the latest bull market, according to Watson Wyatt Worldwide.
DB plans outperformed defined contribution (DC) plans by 1.7% in 2003, 2% in 2004, 1.1% in 2005 and 1.6% in 2006, the firm’s analysis showed. The difference was attributed to the fact that skilled professionals manage DB plans while 401(k) plans are directed by their participants.
Over a recent 12-year period, DB plans outperformed DC plans by nearly 14%. Watson Wyatt also found that larger plans—DB and DC—outperformed smaller ones. The analysts said the “research underscores the important and continuing role DB plans play in providing efficient and secure retirement benefits.”
Alan Glickstein, senior retirement consultant at Watson Wyatt, said the difference was not surprising, considering that the “professionals who manage pension funds have considerable financial education, experience and discipline as well as access to sophisticated investment tools.”
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