Defined benefit plans better prepare workers for retirementthrough higher returns than defined contribution plans, accordingto a brief from the Center for Retirement Research atBoston College.

The brief compared returns by plan type from 1990 through 2012,using data from the U.S. Department of Labor’s Form 5500.

During that period, it said, DB plans “outperformed401(k)s by an average of 0.7 percentper year, even after controlling for plan size and assetallocation.”

Individual retirement accounts (IRAs) performed even worse thanDC plans, it found.

Through analysis, researchers determined that the poor returnsof both DC and IRA plans were not due to individuals’often-reported poor showing in investing their own money.

Instead, the report pointed at the higher fees charged DCaccounts as the factor that drove returns down.

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“Investment fees, which typically account for 80–90 percent oftotal expenses, are the most likely reason that DC plans earn lowerreturns than DB plans,” the brief said, because DC plans’ heavyreliance on mutual funds result in fees “for selecting the stocksand undertaking the research that leads to buy and selldecisions.”

Those fees are then typically charged as a percentage ofinvested assets and come out of account holders’ investmentreturns.

DB plans are also charged someinvestment fees. However, the study said, those fees are “smallcompared to those associated with DC plans.”

Since the assets in IRA accounts now exceed holdings in eitherDB or DC plans, largely due to rollovers from employer-sponsoredplans, the brief said, that “implies trouble ahead given themassive amount of money that is being rolled over into IRAs.”

Data from the Investment Company Institute indicated that IRAreturns are running approximately one percent lower than returns inDC plans. And that return, the brief concluded, “will have asubstantial impact on [IRA holders’] retirement security.”