Towers-Watson: DB plans outperform DC plans

However, the Towers report notes that DC plans achieved higher investment returns than their DB counterparts only four times going back to 1995. In addition to 2009, the years include:

• 1999 (14.41 percent vs. 13.23 percent);
• 1998 (15.24 percent vs. 14.22 percent); and
• 1997 (19.65 percent vs. 18.80 percent).

“The lower level of benefits typically offered in [DC] plans, combined with weaker investment returns, means that fewer employees are likely to be prepared for retirement and that we’ll see a growing population of the ‘working retired,’” the report states. “To address this concern, DC plans have been taking on more characteristics of DB plans.”

The reports observes, for example, that some DC plans now offer auto-enrollment, automatic increases in participants’ plan contributions, professional investment management services and target-date funds — mutual fund portfolios whose asset allocation becomes more conservative as the target date (usually retirement) approaches.

Taken together, the report states, “these things can help plan participants improve their investment returns, which will become even more important as more workers without DB plans approach retirement.”