August 1, 2013
Department of Labor Data Shows ESOPs Outperform 401(k) Plans
Loren Rodgers
Executive Director
The U.S. Department of Labor released data on retirement plans with 100 or more participants that shows ESOPs generally provided a greater aggregate rate of return than 401(k) plans. The average rate of return over the 15-year period from 1996 to 2010 was 6.9% for ESOPs, versus 5.8% for 401(k) plans. Both leveraged and nonleveraged ESOPs outperformed 401(k) plans, though leveraged plans had a higher average return (7.8% versus 6.6% for nonleveraged plans). The report also found that:
- Data over 20 years (from 1991 to 2010) shows ESOPs outperforming 401(k) plans in 15 years and underperforming in 4.
- ESOPs outperformed 401(k) plans by the smallest margin in 2006 to 2010 and by the largest margin in the 1990s.
- The standard deviation for returns to ESOPs was slightly lower than for 401(k) plans; over the 15-year period, it was 12.0% for ESOPs overall, versus 12.3% for 401(k) plans.
- The return on leveraged ESOPs had less year-to-year variation and lower standard deviations than nonleveraged ESOPs.
The table below has some highlights from the report.
| Aggregate Rates of Return Earned, ESOPs and 401(k) Plans with 100 or More Participants, 1996 to 2010 | ||||
|---|---|---|---|---|
| All ESOPs | Leveraged ESOPs | Nonleveraged ESOPs | 401(k) Plans | |
| Geometric mean: 1996 - 2010 | 6.9% | 7.8% | 6.6% | 5.8% |
| Geometric mean: 2006 - 2010 | 4.1% | 5.5% | 3.6% | 3.9% |
| Geometric mean: 2008 - 2010 | 0.5% | 2.2% | 0.1% | 0.0% |
| Standard deviation: 1996 - 2010 | 12.0% | 10.4% | 13.0% | 12.3% |
The report, titled Private Pension Plan Bulletin Historical Tables and Graphs, was released in November 2012. The relevant tables are E21 and E23.