Investment Returns: Defined Benefit vs. 401(k) Plans

Alicia H. MunnellJerilyn LibbyJohn Prinzivalli Mauricio Soto

IB#52

Introduction

Pension coverage in the private sector has shifted from defined benefit plans where professionals manage the money to 401(k) plans where participants invest their own accounts. The supposition is that individuals are not very good at investing their own money. The question is whether the supposition is borne out by the facts. That is, are returns on 401(k) plans markedly lower than those on traditional defined benefit plans?…