Size and Investment Performance: Defined Benefit vs. Defined Contribution Pension Plans

We examine the investment performance of over 160 thousand U.S. private pension plans. We find significant economies of scale in performance and administrative expenses, which are more prominent for defined benefit (DB) plans than for defined contribution (DC) plans. DC plans outperform size-matched DB plans in most size ranges in benchmark-adjusted returns. Size also drives the plan termination probability, especially among DB plans, and the sponsor's choice between the DB and DC structures. Our results suggest a size-based explanation for the great shift toward DC plans centering on the relative efficiency of these two organizational forms in pension asset management.