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Jürges, Hendrik

The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Ludwig, Sandra / Schmitz, Hendrik

Ed. by Barigozzi, Francesca / Brunner, Johann / Fleck, Robert / Mastrobuoni, Giovanni / Mendola, Mariapia / Requate, Till / de Vries, Frans / Wenzel, Tobias


IMPACT FACTOR 2017: 0.306
5-year IMPACT FACTOR: 0.492

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SCImago Journal Rank (SJR) 2017: 0.414
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Online
ISSN
1935-1682
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Volume 12, Issue 1

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Volume 19 (2019)

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Volume 4 (2004)

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Volume 1 (2001)

Timing of Retirement Plan Contributions and Investment Returns: The Case of Defined Benefit versus Defined Contribution

Tomas Dvorak
Published Online: 2012-05-29 | DOI: https://doi.org/10.1515/1935-1682.3110

Abstract

This paper examines the impact of the timing of contributions to defined benefit (DB) and defined contribution (DC) plans on investment returns. I show that net contributions to DB plans are counter-cyclical, while net contributions to DC plans are uncorrelated with the business cycle. Given the past mean reversion in equity prices, the counter-cyclicality of net contributions to DB plans means that 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.

This article offers supplementary material which is provided at the end of the article.

Keywords: defined benefit; defined contribution; retirement plans; cyclicality; dollar-weighted returns

About the article

Published Online: 2012-05-29


Citation Information: The B.E. Journal of Economic Analysis & Policy, Volume 12, Issue 1, ISSN (Online) 1935-1682, DOI: https://doi.org/10.1515/1935-1682.3110.

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