Investment Performance of Private Pension Plans: Defined Benefit vs. Defined Contribution

Using data on over 160,000 U.S. private pension plans, we analyze the investment performance of defined benefit (DB) and defined contribution (DC) plans. We find a positive asset size effect in performance, stronger in DB plans partly because of greater economies of scale in administrative expenses. Small DB plans underperform small DC plans on various performance metrics and face the highest termination risk. After adjusting for investable passive benchmarks, DC plans outperform DB plans in all but the largest size decile. Our findings suggest that plan consolidation and converting small DB plans to the DC structure are likely to improve the efficiency of pension financing. This paper was accepted by Camelia Kuhnen, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.05241 .