Abstract
Using a comprehensive sample of over 160 thousand U.S. private pension plans, we find significant economies of scale in investment performance and administrative expenses that are more prominent for defined benefit (DB) than for defined contribution (DC) plans. Small DB plans underperform size-matched DC plans and face the highest termination probability, and the majority of both types underperform passive benchmarks. Small plans and small sponsors prefer the DC structure more strongly than large ones do. Our results highlight the inefficiency of small DB plans, which is consistent with the secular shift toward DC plans and the recent trend of consolidation.
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