Employees in defined contribution plans invested their money wisely enough to reap an average return of 11 percent between 1985 and 1995, on par with the 12 percent return that defined benefit pension plan portfolio managers averaged in those 11 years, according to KPMG, the New York accounting and consulting firm. KPMG based its figures on Form 5500 series reports that companies are required to file with the Internal Revenue Service. KPMG published its findings in the August issue of "Benefits Spectrum", a newsletter it sends to clients.

The findings also showed defined contribution and defined benefit plan performances to virtually parallel each other, with the average spread between the plans being only 1.6 percent.

In three years, investors in defined contribution plans did even better than pension plan managers. In 1988, defined contribution investors averaged a 13 percent return, versus 12.5 percent for defined benefit recipients. In 1992, defined contribution investors averaged an 11 percent return, versus nine percent for defined benefit recipients. And in 1994, the average defined contribution plan was up four percent, versus three percent for the average defined benefit plan.

Defined benefit plan managers significantly outperformed defined contribution investors in only two years - in 1989, defined benefit plans were up 13 percent while defined contribution plans were up nine percent, and in 1991, defined benefit plans were up 20 percent, versus 15 percent for defined contribution plans.

The numbers indicate that mutual fund companies are doing an adequate job of educating investors in defined contribution plans as to how to allocate their money, said Martha Patterson, director of employee benefits policy at KPMG.

"What should worry people is why defined benefit plans don't substantially beat 401(k)'s, with the limited number of choices and experience the individual investor has, as opposed to the professional pension plan money manager."

However, the Department of Labor includes profit-sharing and employee stock option plans in its defined contribution data, which may have inflated those figures, Patterson said.

Also, 401(k) industry leaders said that the seemingly good news for individual investors may be misleading because the extended bull market of the past nine years may have greatly aided individual investors.

The performance of defined contribution plans could be markedly different from the results of defined benefit plans in the future, said David Wray, president of the Profit Sharing/401(k) Council of America, in Chicago.

"During the period of this study, 401(k)s were relatively new, and most employers did not allow participants to self-direct their investments, so it does not surprise me that defined contribution and defined benefit plans would shadow one another," said Wray.

Another reason defined contribution and defined benefit plan performances used to be similar was that during this period, defined contribution and defined benefit investors invested their money in similar styles, said Wray. This is no longer the case, Wray said.

"Both defined contribution and defined benefit plans used to equally invest in equities and fixed income instruments," he said. "But since then, defined contribution plan participants have gravitated to equities, so that today 70 percent of defined contribution plans are in equities and 30 percent in fixed income, while defined benefit plans have remained fifty-fifty [in growth and income instruments]."

Ted Benna, president of the 401(k) Association of Bellefont, Pa., an advocacy group, said mutual fund companies should not interpret this data to mean that individual investors do not need investment advice.

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