February 23, 2005
Peter Gosselin on State-Level Private Accounts
He writes, in the LA Times:
States' Private Pensions Make a Weak Showing : President Bush believes Americans are so eager to join the 'ownership society' that, given a chance, two-thirds of those eligible would divert funds from Social Security into the personal investment accounts he proposes. But when public employees in seven states were offered the opportunity for similar accounts during the last decade, nowhere near two-thirds signed up for them. In many instances, the figure was closer to 5%.... Nebraska's state and county workers were given do-it-yourself accounts... made so many investment errors that they ended up making less than colleagues with fixed-benefit pensions — and less than what analysts have said is needed for old age. Their poor performance led the Nebraska Legislature two years ago to junk the accounts for new employees.
While Americans are just beginning to grapple with the president's proposal for private accounts, employees and retirement officials in Michigan, Montana, Washington, West Virginia and other states have discovered that the accounts can fall far short of their promise. Their experiences sound a cautionary note for Bush as well as for California Gov. Arnold Schwarzenegger.... The poor performance of many of the accounts leaves experts to wonder whether most people, even among those who want to make their own retirement investments, have the time or knowledge to do so successfully. 'If people have private accounts in Social Security and they're left to make the decisions themselves, the results likely will not be positive,' said Anna Sullivan, executive director of the Nebraska Public Employees Retirement Systems, which replaced its private account system with a centrally managed plan in 2003.
Joseph Jankowski, executive director of the West Virginia Consolidated Public Retirement Board, said: 'The vast majority of people don't have the inclination or comfort level to be responsible for their own retirements.' West Virginia board officials are debating whether to drop the state's private account plan as Nebraska did.
This is the reason that I am for very tightly constraining where privatized accounts go: one stock fund, one bond fund, and fix the percentage allocation to each according to a rule so that beneficiaries can't churn their accounts against themselves. But then the account is not very private or personal, is it?
Posted by DeLong at February 23, 2005 10:53 AM