Retirement Plan Type and Employee Mobility: the Role of Selection and Incentive Effects

51 Pages Posted: 22 Mar 2013 Last revised: 25 Mar 2013

See all articles by Gopi Shah Goda

Gopi Shah Goda

Stanford University

Damon Jones

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies

Colleen Flaherty Manchester

University of Minnesota

Date Written: March 2013

Abstract

Employer-provided pension plans may affect employee mobility both through an "incentive effect," where the bundle of benefit characteristics such as vesting rules, pension wealth accrual, risk, and liquidity affect turnover directly, and a "selection effect," where employees with different underlying mobility tendencies select across plans or across firms with different types of plans. In this paper, we quantify the role of selection by exploiting a natural experiment at a single employer in which an employee's probability of transitioning from a defined benefit (DB) to a defined contribution (DC) pension plan was exogenously affected by default rules. Using regression discontinuity as well as differences-in-regression-discontinuities (DRD) methods, we find evidence that employees with higher mobility tendencies self-select into the DC plan. Our results suggest that selection likely contributes to the observed positive relationship between the transition from DB to DC plans and employee mobility in settings where employees sort into plans or employers. Counter to conventional wisdom, we find a negative direct effect of the DC plan on turnover relative to the DB plan, which underscores the multi-dimensional difference between these plans.

Suggested Citation

Goda, Gopi Shah and Jones, Damon and Manchester, Colleen Flaherty, Retirement Plan Type and Employee Mobility: the Role of Selection and Incentive Effects (March 2013). NBER Working Paper No. w18902. Available at SSRN: https://ssrn.com/abstract=2237815

Gopi Shah Goda (Contact Author)

Stanford University ( email )

SIEPR
366 Galvez St.
Stanford, CA 94305
United States
6507360480 (Phone)

Damon Jones

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Colleen Flaherty Manchester

University of Minnesota ( email )

3-300R CarlSMgmt
Minneapolis, MN 55455
United States
612 625-9667 (Phone)

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