State Experiments with Private Pensions are a Flop

President Bush claims two-thirds of Americans would opt for private Social Security accounts given the chance, but a Los Angeles Times report this week shows that participation was far lower - as little as 5 percent - when public employees in seven states were offered the opportunity for similar accounts.

Further, those participating in the accounts had far less success than Bush is claiming the federal program would provide.

"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," the Times story stated, saying the poor track record led the Nebraska Legislature to scrap the program for new employees.

The Times said employees and retirement officials in Michigan, Montana, Washington, West Virginia and other states have learned similar lessons. Even the president's brother has failed to meet privatization goals. Florida Gov. Jeb Bush wanted a mandatory private account program but settled on a voluntary one, and expected overwhelming support. The Times reports that since the accounts' introduction in 2002, only 7 percent of public workers have enrolled.

As for returns, investors are largely earning about the same or less than they would have under their traditional systems. In West Virginia, for instance, the Times said, "teachers who shifted from pensions to accounts plowed 40 percent of their money into investments so conservative that they effectively ensured that they would get a pension-like payment in old age - but at a lower benefit level than in the system they had left behind."