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dollar-weighted returns on DB plans are higher than the geometric average of annual returns. Therefore, using dollar-weighted returns as a measure of investment performance, the advantage of DB plans over DC plans is greater than using geometric average returns. Overall, I find that dollar-weighted returns on DB plans are more than one percentage point higher than that on DC plans. KEYWORDS: defined benefit, defined contribution, retirement plans, cyclicality, dollar-weighted returns ∗I would like to thank Eric Zitzewitz (the editor) and an anonymous referee for

, it is possible to estimate that lag. The best way to do so is by comparing the dollar-weighted returns earned by fund shareholders as a group with the time-weighted returns reported on a per- share basis, the conventional way of calculating fund returns. As Table 7.3 shows, the average fund investor lagged the average fund by 3.3 percent- age points per year.* When this shortfall is added to the 2.8 percentage-point shortfall of the average fund to the stock market itself, the gap grows to 6.1 percentage points—only 7.1 percent for the average fund investor