Defined benefit pension plans are consistently earning higher rates of return than 401(k) plans, according to an analysis released Wednesday.

The median annual rate of return for defined benefit plans averaged 10.13% compared with 9.06% for 401(k) plans from 1995 through 2007, according to consulting firm Towers Watson.

Towers Watson consultants say it isn't surprising that rates of return in defined benefit plans have topped those of 401(k) plans.

Participants in 401(k) plans “often do not optimize their investment strategies. Even with investment education and better default investment options for 401(k) plan participants, DC plans plans do not replicate all the advantages of DB plans and are unlikely to outperform DB plans, which generally have extended investment horizons and economies of scale,” said Mark Warshawsky, Towers Watson's director of retirement research in Arlington, Va., in a statement.

Looking at individual years, the analysis, which is based on pension plan reports employers file with the federal government, found in 2007—the most recent year included in the analysis—that the median rate of return for defined benefit plans was 7.71% compared with 6.78% for 401(k) plans.

The biggest difference during the 13-year period was in 2000 when the median rate of return for defined benefit plans was -0.01% compared with a 401(k) plan loss of 2.76%.

The highest rate of return for defined benefit plans during the 13 years was in 2003, with a median rate of return of 21.35%. During the same period, 401(k) plans registered a 19.68% median rate of return.

The top year for 401(k) plans was 1997 when the median rate of return was 19.73%, compared with 18.82% for defined benefit plans.

In all, median rates of return for defined benefit plans were higher than 401(k) plans in nine of the 13 years analyzed by Towers Watson.

Still, despite generating higher investment returns, the number of defined benefit plans open to new employees continues to fall. As of May 2009, 45% of Fortune 100 companies offered a defined benefit plan to new salaried employees, down from 90% in 1998, according to an analysis last year by Watson Wyatt Worldwide prior to its merger with Towers Perrin. By contrast, 55% of Fortune 100 companies offered only a defined contribution plan to new salaried employees last year, compared with 10% in 1998.

Reasons employers frequently cite for moving away from defined benefit plans include the unpredictability of the amount of required contributions due to the swings of investment results and interest rates, and concerns about future costs as plan participants live longer.

The analysis is available online at www.towerswatson.com/research/845.