According to recent analysis by Watson Wyatt Worldwide, a leading global consulting firm, defined benefit pension plans tend to have higher rates of return than 401(k) plans.
In 2006, the most recent year where U.S. Department of Labor statistics were available, the median rate of return was 12.9% for a defined benefit plan whereas the median rate of return was 11.3% for 401(k) plans. Long term analysis also confirms this trend.
From 1995 until 2006, the median annual rate of return for defined benefit plans was 1.09% higher than that of 401(k) plans.
Alan Glickstein, a senior retirement consultant for Watson Wyatt, is not terribly surprised by the results because the professionals that employers hire to handle defined benefit plans "have considerable financial education, experience and discipline, as well as access to sophisticated investment tools," whereas 401(k) participants do not have "the time to actively manage their investments and lack professional investment experience."
"These advantages, coupled with a much longer investment time horizon, help DB plan sponsors maximize their returns and maintain well-diversified portfolios," Glickstein added.
All analysis was based on the Department of Labor's Form 5500 financial and pension disclosure data.