ESOPs Have Higher Rate of Return Than 401(k) Plans

According to data from the Department of Labor's Private Pension Plan Bulletin 2004, the rate of return for ESOPs with more than 100 participants during the 1990s was about 10% better than for 401(k) plans with more than 100 participants. The 1999 data are the most recent available from the DOL's Form 5500 analysis. Given that ESOPs are not as diversified as 401(k) plans, they should have a higher rate of expected return for any individual company to compensate for greater risk. On the other hand, many of these plans are leveraged, and their rates of return have to overcome initial debt.