US - 401(k) plans outearned professionally managed traditional pension plans in 1997 and 1998, reversing a seven-year trend according to an analysis by Watson Wyatt.
The median rate of return for 401(k) plans was 14.27% in 1998 versus 12.31% for DB plans. In 1997, the median return for 401(k)s was 17.32% versus 16.47% for DB plans.
Two factors are likely at play:
* Individual investors rode the wave of a booming stock market in 1997 and 1998, while DB investment advisers maintained a more diverse portfolio.
*Employer efforts to improve retirement education have helped participants gain a better understanding of the financial risks associated with the stock market, so participants have achieved higher returns in recent years.
The analysis is based on the most recently available data from Form 5500 filings. Future analysis will show if 401(k) plans continued to outpace DB plans during the market decline of the past two years.
By Luke Clancy
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