Many Americans heard the term “private investment accounts” — or the White House’s preferred phrase, “personal investment accounts” — for the first time in the context of a Social Security overhaul. But such accounts have already acquired a track record outside the Beltway, and it’s not real encouraging.
Today, Peter G. Gosselin of the Los Angeles Times delivers a look at how the accounts fared in seven states where they were offered to state employees.
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 the accounts were offered to public employees in the seven states, participation was “closer to 5 percent,” writes Gosselin.
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.
The accounts Bush is proposing are not a precise match to the ones states have offered in recent years. And the low signup rate for accounts among state workers may be partly because more of them are covered by generous pensions than are American workers generally, so they may feel less need for the accounts. But the tepid response to accounts in some places casts doubt on one of the central premises of the Bush plan: that Americans are clamoring to join the investor class.
Gosselin talks to state officials who administered the private accounts, including Anna Sullivan, executive director of the Nebraska Public Employees Retirement Systems, which replaced its private account system with a centrally managed plan in 2003.
“If people have private accounts in Social Security and they’re left to make the decisions themselves, the results likely will not be positive,” Sullivan told Gosselin.
Among the states, by far the biggest test of private accounts’ popularity in recent years has come in Florida, where Gov. Jeb Bush, the president’s brother, proposed replacing public employees’ defined benefit pensions with a mandatory defined contribution plan.
Although the governor eventually compromised on a voluntary plan, state officials still predicted a stampede. Early surveys of Florida’s 600,000-plus public employees suggested that more than half would go for accounts. But since the accounts’ introduction in 2002, 43,000 employees, or about 7 percent, have enrolled.
At a time when President Bush has taken his Social Security bandwagon on tour, Gosselin’s reporting is more germane than ever. (Separately, the Washington Post reports that at least one congressman who went on the road over the holiday weekend to push for private accounts discovered exactly what Gosselin writes about — it’s a hard sell, to a skeptical crowd.)
Gosselin has carefully walked around the intensely partisan fight over the future of Social Security and delivered something critical to informed debate: Facts.
–Susan Q. Stranahan
Susan Q. Stranahan wrote for CJR.