Key Takeaways
- • A 16-year analysis (2009–2024) of U.S. Department of Labor Form 5500 data and public plans databases found that defined contribution (DC) plans outperformed defined benefit (DB) plans by a substantial margin, contrary to historical performance patterns and industry expectations.
- • Defined benefit plans hold approximately 21 percent of total assets in alternative investments including private equity, while defined contribution plans hold virtually no private market assets, yet DC plans still delivered superior returns over the period studied.
- • The Trump administration has proposed regulatory changes that would permit 401(k) plans and other DC retirement vehicles to invest in high-risk alternative assets such as private equity and private credit, a shift justified by claims of superior private market returns that this analysis directly challenges.
- • Private equity funds have faced mounting headwinds in recent years, including difficulty liquidating underperforming assets and raising capital as institutional investors increasingly withdraw from these funds, undermining the historical performance justification for the proposed DC plan expansion.
- • The research was conducted by Carl Engstrom and Steven J. Eiden of Engstrom Lee, LLC, and Oscar Valdés Viera, Senior Policy Analyst for Private Equity & Capital Markets at Americans for Financial Reform Education Fund.
Summary
Americans for Financial Reform has released a comprehensive analysis comparing the investment performance of defined contribution and defined benefit retirement plans over a 16-year period, with findings that directly challenge industry assumptions underlying a proposed regulatory shift. The study, authored by Carl Engstrom, Steven J. Eiden, and Oscar Valdés Viera, examined Form 5500 filings and public pension plan data from 2009 through 2024 and concluded that DC plans outperformed DB plans by a substantial margin—a result that contradicts both historical patterns and the rationale for expanding alternative asset access to 401(k) plans.
The research carries significant policy implications as the Trump administration has proposed new rules that would permit defined contribution retirement savings plans, including 401(k)s, to allocate capital to high-risk alternative investments such as private equity and private credit. Proponents of these changes have relied on the private equity industry's historical claims of superior returns to justify exposing retail retirement savers to illiquid, opaque, and fee-intensive alternative assets. However, the Americans for Financial Reform analysis undermines this central argument by demonstrating that DC plans without substantial alternative asset exposure have outperformed DB plans that do hold meaningful allocations to private markets—approximately 21 percent of total assets in alternatives for DB plans compared to virtually zero for DC plans.
The study arrives at a particularly consequential moment for the private equity industry. Recent years have seen mounting pressure on private equity funds, which have struggled to exit underperforming investments and to raise fresh capital as institutional investors reassess their commitments. These headwinds suggest that past performance claims may not reflect current market conditions and that the structural challenges facing alternative assets could prove especially costly for retail investors with long time horizons and limited ability to absorb illiquidity or manage opacity.
For hedge fund managers and institutional investors monitoring pension reform and capital allocation trends, this analysis represents a significant empirical challenge to the narrative that has historically justified DB plan exposure to private markets. The finding that DC plans—which must operate under stricter fiduciary standards and regulatory constraints—have nonetheless delivered superior results suggests that lower-cost, more transparent, broadly diversified investment approaches may be more suitable for retirement capital, particularly for less sophisticated investors.
The research carries significant policy implications as the Trump administration has proposed new rules that would permit defined contribution retirement savings plans, including 401(k)s, to allocate capital to high-risk alternative investments such as private equity and private credit. Proponents of these changes have relied on the private equity industry's historical claims of superior returns to justify exposing retail retirement savers to illiquid, opaque, and fee-intensive alternative assets. However, the Americans for Financial Reform analysis undermines this central argument by demonstrating that DC plans without substantial alternative asset exposure have outperformed DB plans that do hold meaningful allocations to private markets—approximately 21 percent of total assets in alternatives for DB plans compared to virtually zero for DC plans.
The study arrives at a particularly consequential moment for the private equity industry. Recent years have seen mounting pressure on private equity funds, which have struggled to exit underperforming investments and to raise fresh capital as institutional investors reassess their commitments. These headwinds suggest that past performance claims may not reflect current market conditions and that the structural challenges facing alternative assets could prove especially costly for retail investors with long time horizons and limited ability to absorb illiquidity or manage opacity.
For hedge fund managers and institutional investors monitoring pension reform and capital allocation trends, this analysis represents a significant empirical challenge to the narrative that has historically justified DB plan exposure to private markets. The finding that DC plans—which must operate under stricter fiduciary standards and regulatory constraints—have nonetheless delivered superior results suggests that lower-cost, more transparent, broadly diversified investment approaches may be more suitable for retirement capital, particularly for less sophisticated investors.
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