Employee Mobility and Employer-Provided Retirement Plans

Abstract

This paper provides new insights into the effect of the widespread transition from defined benefit (DB) to defined contribution (DC) pension plans on employee mobility.  Pension plans may affect employee mobility both through an “incentive effect,” where the bundle of benefit characteristics, such as vesting rules, relative liquidity and the risk/return tradeoff affect turnover directly, and a “selection effect,” where employees with different underlying mobility tendencies select into firms with different types of pension 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 DB to a DC plan was exogenously affected by the default provisions of the transition.  Using a differences-in-regression-discontinuities (DRD) estimator, we find evidence that employees with higher mobility tendencies self-select into the DC plan. Furthermore, we find a negative direct effect of DC enrollment on turnover that takes place within one year.  Our results suggest that selection likely contributes to an observed positive relationship between the transition from DB to DC plans and employee mobility in settings where employees choose plans or employers.