That ‘s the title of a just published study by The Center for Retirement Research (CRR) at Boston College. The study compared defined benefit pension plan investment returns with 401(k) plan investment returns. Using data from 1988-2004, the study reports that:

  • Defined benefit plans outperformed 401(k) plans by one percentage point.
  • Part of the explanation may be because of higher fees in 401(k) plans.
  • Another part of explanation may be that more than half of the participants do not follow the prudent investment strategy of diversifying their holdings.
  • The available data suggests that IRAs produce even lower returns than 401(k) plans.

As someone who has been involved with both types of plans during this time period and before, I am not at all surprised at all by the results. That 401(k) plans have underperformed defined benefit plans raises serious concerns for the adequacy of retirement income. The IRA data, by the way, increases these concerns.

That’s history. The study I would like to see? One done 3-5 years from now reporting whether the advent of investment advice to 401(k) participants really made a difference. Let’s all hope so.

Here is the link to the study authored by Alice H. Munnell, Maurico Soto, Jerilyn Libby, and John Prinzivalli of the CRR.

Hat tip to Barry Barnitz’s Financial page.