Pension Consultants Inc. recently shared its 2025 edition of the 401(k) Investment Lineup vs. Passive Scorecard Annual Report, now in its 10th year of publication. The report examines the fundamental question in retirement plan management: whether or not 401(k) investment lineups outperform an all-index lineup.
The results, which analyze data from approximately 5,000 defined contribution plans covering the 2022 year, show that 57.49% of plans outperformed their all-index benchmark based on expected return. Notably, the results also show that smaller plans were more likely to outperform.
However, when risk was taken into account, the results became more complex. When examining Sharpe Ratio (return vs. total risk) only 30.59% of plans outperformed and examining Sortino Ratio (return vs. downside risk) outperformance increased to 62.18%, again favoring smaller plans.
“These results reinforce a critical reality: how we measure investment performance matters,” said Zach Allen, CFA, Chief Investment Officer at PCI and President of RetireAdvisers. “Looking at expected returns alone doesn’t tell the full story – especially in the context of retirement planning. Risk-adjusted performance, particularly downside risk, has a real impact on whether participants stay on track for retirement.”
While 2022 marked a relatively strong year compared to index benchmarks, the study results tell a different story. According to the report, only 3 of the last 10 years saw the majority of plans outperform their index benchmarks – 2017, 2020 and 2022. In the other 7 years, the report reveals that most plans fell short, often by a wide margin. For example, in 2016, just 10.59% of plans managed to beat the index. While 2022 was a bright spot, it remains clear that consistent outperformance is not the norm.
“Our industry lacks accountability when it comes to performance,” Allen said. “Without a consistent standard, underperformance can be hidden behind lineup changes or selective snapshots. That’s a disservice to plan participants who depend on these investments for a secure retirement.”
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