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) than for defined contribution (DC) plans. Small DC plans outperform size-matched DB plans in all the performance measures we consider, but the majority of both types underperform passive benchmarks. Size also drives the plan termination probability and plan sponsors' choice of the pension plan structure. Our results highlight the inefficiency of small DB plans, consistent with the secular shift toward DC plans and the recent trend of consolidation.