Watson: Big DB Pension Plans Get Best Returns

By Allison Bell

November 24, 2004 at 07:00 PM

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The typical member of a defined benefit pension plan has been getting better investment returns than the typical member of a defined contribution retirement plan.[@@]

Analysts at Watson Wyatt & Company, Washington, have published data supporting that conclusion in a paper in an in-house newsletter.

The analysts used Internal Revenue Service tax return data to compare overall returns at defined benefit plans and defined contribution plans. Analysts also broke results down by plan size.

Between 1992 and 2002, the median annual return at defined benefit plans was 7.42%, compared with a median annual return of 6.86% at defined contribution plans. Over the course of a 30-year career, that could give defined benefit plan members a 16% higher return.

For members of the plans that ranked in the bottom sixth in terms of plan size, defined contribution plan returns were higher than returns at comparable defined benefit plans. The median return at small defined contribution plans was 6.3%, and the median was 5.91% at small defined benefit plans.

But median defined benefit returns were higher than median defined contribution returns at big plans during the 10-year period covered, and the defined benefit plans outperformed the defined contribution plans in all but 2 of the years included.

The Watson Wyatt researchers also found that bigger plans usually outperformed smaller plans. The most successful plan members, those who belonged to defined benefit plans that ranked in the top sixth in terms of size, enjoyed a median annual return of 8.73%.

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