When the students in Harvard's master level course API-304--Behavioral Economics and Public Policy--show up for class this afternoon, professor Brigitte Madrian plans to give them a new assignment: What would they advise Congress to do to improve America's retirement savings system?
The task is particularly relevant to behavioral economics students. The widespread shortcomings in Americans' retirement readiness include several key behavioral failures: not beginning to save early enough, not saving enough, cashing in retirement accounts when moving to new jobs, making poor investment decisions with retirement funds, and not having solid retirement plans or goals.
Finding ways to effectively change human behavior has become a big deal in economics. And it has already been applied to 401(k) retirement accounts with impressive results. With one simple but tortuously negotiated change in the law, Congress agreed several years ago that 401(k) plans could automatically enroll employees unless they opted out of participating. Prior law had said employees could not participate unless they opted into the plans. The change has led to big gains in plan participation rates.
If the subject is on target, the source of the professor's request adds a compelling incentive to the work. In testifying last week at a retirement hearing before the U.S. Senate Committee on Health, Education, Labor and Pensions, ranking Republican member Lamar Alexander from Tennessee asked Madrian to report back to him about what Congress should do to help more Americans achieve successful retirements. Her immediate response to the committee was that she would put her class on the case.
While Alexander's request may have been a memorable moment for Madrian, the entire 90-minute hearing was a highlight reel for any American who wished elected representatives got along better and showed they could buckle down and work cooperatively to address the nation's long list of serious social and economic needs.
Whatever the cause--a new session of Congress, many new faces in the Senate, a reappraisal by both parties of their bitter stalemates in recent years--the hearing was heartening to any individual or seniors' group concerned about the well-being of older Americans.
The hearing was well-attended by Senators. The four witnesses--Madrian and representatives from TIAA-CREF, Fidelity Investments, and the Women's Institute for a Secure Retirement--knew their stuff and provided clear and on-target summaries of their prepared statements. Committee members listened carefully and their questions were, without exception, informed and all about finding ways for government to do its job better and to help. More to the point, there was no appearance of partisan politics.
I later asked Madrian whether she agreed at all with this assessment. "This hearing was definitely not on the same planet that gave us the fiscal cliff and sequestration," she wrote in an e-mail. "My impression as well was that it was strikingly non-partisan ... They asked many good questions that were spot-on in terms of identifying issues that are important for making good public policy. I talked with several of the senators after the hearing, and they did seem to be genuinely interested in improving the retirement savings system and optimistic that this was an area where there was plenty of room for bipartisan agreement."
As someone who closely follows retirement issues, I have not been so encouraged in years that government might just be part of the solution and not part of the problem. I highly recommend viewing the webcast of the hearing.
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