'Ownership society': why the US can't buy in

Workers are "overwhelmed" by them, argues Boston College's Alicia Munnell, who with Annika Sundén wrote a new book, "Coming Up Short," on these popular retirement plans. For example:

• Only 25 percent of eligible workers join the plan. (The Bush private accounts will be voluntary for younger workers.)

• Ninety percent of those participating contribute less than the maximum.

• Almost 60 percent of participants have undiversified portfolios, with almost all their money in stocks, or in bonds and other fixed-income investments. About 20 percent of 401(k) assets are invested in the stock of the company employing the workers - risky indeed, as Enron employees found out.

• Hardly any participants take time to rebalance their portfolios as they age or the market changes. About 55 percent of them cash out their accumulated funds when they leave a job, instead of saving the money for retirement.

The result is that those currently approaching retirement (aged 55 to 64) have, on average, about $50,000 in their 401(k) plans. That's only enough to generate $300 a month - little to top up the $900 average Social Security payment.

So, if Americans are really hungering for the new options offered by the ownership society, wouldn't a larger number of them be invested in 401(k) plans or other plans, such as Individual Retirement Accounts?

"People are quite comfortable with collective insurance plans," such as Social Security or Medicare, Mr. Reischauer says. Thus he doubts Congress will take the risk of privatizing them, even if Bush is reelected.

At least one conservative offers a solution to some of these shortcomings. The ownership society is "an attempt to modernize early and mid-20th century institutions" to take account of differences in today's demography, health system, and retirement patterns, says Michael Boskin, chairman of the Council of Economic Advisers under the first President Bush and an adviser to his son.

A variety of protections could be built into a system of private accounts, he says in a telephone interview, such as limiting investments to only a few generic, indexed investments, or a default mix of stocks and bonds.

"People could be prevented from taking extreme fliers," he says. And if invested in private accounts, people would have an incentive to learn more about how to invest safely and wisely.

Of course, investing in the markets always carries risk, as Americans found out with the recent dotcom bubble. Should people be fooled again by "irrational exuberance" or misleading financial ads, millions of people could end up with slim savings at retirement.

Would they starve? Probably not. The nation might revive the means-tested support of pre-Depression days. It would be a costly choice.

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