Defined benefit pension plans outperformed 401(k) plans by a wide margin in 2011.
New research by Towers Watson looked at the investment returns of more than 2,000 plan sponsors. It found that the median investment return for DB plans was 2.74 percent in 2011, while DC plans had median returns of -0.22 percent.
The nearly 3-percentage-point difference is the widest margin by which DB plans outperformed DC plans since 1995, when Towers Watson first analyzed the rates of returns for both types of plans.
It also found that despite the large performance difference in 2011, the gap between DB and DC plans narrowed during the previous five-year period. Since 1995, DB plans have outperformed DC plans by 76 basis points annually, but in the last five years for which data is available, the difference shrank by about half, to 39 basis points.
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The smaller gap is mostly due to the strong stock market performance in 2009, when DC plans returned 20.86 percent while DB plans gained 15.46 percent.
DB plans actually realized higher returns than DC plans in all other years between 2007 and 2011.
The analysis notes that performance in some DB plans was helped by sponsors shifting assets from equities to long-duration bonds in an effort to better match the value of plan liabilities with respect to interest rate changes. That move proved to be successful from a total investment return perspective, as the performance of long-duration bonds far outpaced that of equity markets during 2011.
This analysis was based on Form 5500 financial and pension disclosure data through 2011, as released by the Department of Labor. The analysis only looked at companies that sponsor only one DB plan and one 401(k) plan, each with at least 100 participants.