Retirement wealth, including 401(k) and IRA balances and assets in corporate and state and local pension plans, represents a significant fraction of global financial wealth. The U.S. and many other countries around the world have been undergoing fundamental change in this arena. In addition, the economic crisis of 2008-9 introduced a new set of challenges for the retirement wealth system. In this course, we will use the tools and insights from a variety of fields in economics and finance: macroeconomics, behavioral economics, consumer finance, corporate finance, and asset pricing. The issues we’ll address have implications for virtually all firms and financial institutions, for public policy, and for personal financial planning.
Some of the questions we’ll examine include the following. What has caused the dramatic shift away from traditional pensions toward 401(k) type plans? How well are households able to handle the increased financial responsibility, including saving and asset allocation decisions, associated with 401(k)s? How can we improve 401(k) plan design, and can the lessons from behavioral economics help? Traditional pension plans still hold trillions of dollars of assets. How should firms and pension fund managers responsible for these plans allocate assets across different asset classes, and to what extent should the risk structure of the liabilities be taken into account? Should state and local public pension plans invest in equities to the degree that they currently do? Is U.S. global competitiveness threatened by the unfunded pension and health promises made by U.S. corporations? Should financial markets be established to trade securitized pension liabilities? National saving is affected by current and future government budget deficits. What is the long run fiscal outlook for the United States, and are we headed for a “fiscal train wreck”? Is the Social Security system in “crisis” and should we follow the path of some other countries and shift a portion of the system into one of personal accounts?
The course will be highly interactive. It will include class discussions, guest panelists, and case analyses. In addition, students will work in teams on a project developing a new financial product, financial market, or policy reform that could be adopted in the U.S. or elsewhere around the world. These projects will be presented to the class toward the end of the semester.