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

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  • Gopi Shah Goda
  • Damon Jones
  • Colleen Flaherty Manchester

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18902.

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Date of creation: Mar 2013
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Handle: RePEc:nbr:nberwo:18902

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  1. Gustman, Alan L. & Steinmeier, Thomas L., 1993. "Pension portability and labor mobility : Evidence from the survey of income and program participation," Journal of Public Economics, Elsevier, vol. 50(3), pages 299-323, March.
  2. Gopi Shah Goda & Colleen Flaherty Manchester, 2010. "Incorporating Employee Heterogeneity Into Default Rules for Retirement Plan Selection," Working Papers, Center for Retirement Research at Boston College wp2010-5, Center for Retirement Research.
  3. Richard A. Ippolito, 2002. "Stayers as "Workers" and "Savers": Toward Reconciling the Pension-Quit Literature," Journal of Human Resources, University of Wisconsin Press, vol. 37(2), pages 275-308.
  4. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
  5. David H. Autor & Susan N. Houseman, . "Do Temporary-Help Jobs Improve Labor Market Outcomes for Low-Skilled Workers? Evidence from "Work First"," Upjohn Working Papers and Journal Articles dhasnh2010, W.E. Upjohn Institute for Employment Research.
  6. Birgitta Rabe, 2007. "Occupational Pensions, Wages, And Job Mobility In Germany," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(4), pages 531-552, 09.
  7. Colleen Flaherty Manchester, 2010. "The Effect of Pension Plan Type on Retirement Age: Distinguishing Plan Incentives from Career Length Preferences," Southern Economic Journal, Southern Economic Association, vol. 77(1), pages 104-125, July.
  8. Henry S. Farber, 2007. "Is the Company Man an Anachronism? Trends in Long Term Employment in the U.S., 1973-20061," Working Papers 1039, Princeton University, Department of Economics, Industrial Relations Section..
  9. Olivia S. Mitchell, 1982. "Fringe Benefits and Labor Mobility," Journal of Human Resources, University of Wisconsin Press, vol. 17(2), pages 286-298.
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Cited by:
  1. Rachel Griffith & Sarah Smith & Stephanie von Hinke Kessler Scholder, 2014. "Getting a healthy start? Nudge versus economic incentives," The Centre for Market and Public Organisation 13/328, Department of Economics, University of Bristol, UK.

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