Defined benefit plans delivered an average return of 10.13 percent between 1995 and 2007, whereas 401(k) plans rose an average of 9.06 percent a year, Towers Watson reports.
While that differential is just over one percentage point, the six largest defined benefit plans analyzed outperformed the six smallest by three percentage points in that timeframe.
The 1 percent average long-term edge continued in 2008, even though both types of plans lost value. However, whereas defined contribution plans lost 10 percent or more--some plummeting by as much as 40 percent--some pension plans reported small positive returns. In fact, the median investment return of defined benefit plans in 2008 was 25.27 percent, whereas the median return of defined contribution plans was -26.20 percent.
The 2008 results were based on a survey of 79 employers that sponsor both a pension and a 401(k), based on a Towers Perrin survey of firms' Form 5500.
A broader analysis of more than 2,000 plan sponsors, based on Form 5500 filed with the Department of Labor, found defined benefit plans had a median return average of 7.71 percent, and defined contribution plans 6.78 percent. This finding is consistent with earlier analyses that showed defined benefit plans outperforming defined contribution plans by one percentage point in both bull and bear stock markets.