401(k) plans underperform traditional pension plans, research shows

Investments in 401(k) retirement-savings plans underperformed the investments of traditional pension plans by one percent from 1988 to 2004, according to research released today.

Researchers at Boston College's Center for Retirement Research found the traditional plans known as "defined benefit,'' managed by professionals, did better even though the individual 401(k) plans now favored by many employers held a higher portion of their assets in equities during the bull market of the 1990s.

One reason might be that 401(k) plans carry higher fees, the authors wrote. But the one percentage point figure understates the typical problems of 401(k) accounts, since most participants don't prudently diversify their holdings, the authors wrote.

Finally, the report found that individual retirement accounts , which now have even more money than either of the other two kinds of accounts, produce even lower returns than 401(k)s. If true, the finding "implies trouble ahead given the massive amount of money that is being rolled over into these accounts,'' wrote the authors, led by center director Alicia H. Munnell.

(By Ross Kerber, Globe staff)