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Private Accounts: Tried and Failed
By Kevin Drum, Political Animal
February 22, 2005
When Nebraska's state and county workers were given do-it-yourself accounts, they 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.
...."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 not an apples-to-apples comparison with George Bush's plan, but it's still instructive. The overall signup rate for public employees who were offered private accounts has been an anemic 8%, even in cases where there were significant incentives for doing so. Generally speaking, people prefer guaranteed benefits and don't trust their ability to manage their own retirement investments.
Of course, if you slash guaranteed benefits enough, that would probably motivate people to sign up - and as near as I can tell, that's Bush's plan. It's not his public plan, but it appears to be his plan nonetheless.
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