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Re: Wall St. Suffers Worst Day in Two Years

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  • Ram Lau
    Bush Points to a Retirement System With Mixed Results By Peter G. Gosselin and Edwin Chen, Times Staff Writers KIRTLAND, Ohio — President Bush came to Ohio
    Message 1 of 2 , Apr 16, 2005
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      Bush Points to a Retirement System With Mixed Results
      By Peter G. Gosselin and Edwin Chen, Times Staff Writers

      KIRTLAND, Ohio — President Bush came to Ohio on Friday to highlight a
      state retirement savings system that he said showed that Americans
      would be better off handling their own old-age investments through
      personal accounts than relying on traditional Social Security.

      But that state's version of personal accounts has attracted few takers
      among the people eligible — Ohio's 750,000 public employees. And
      records show that the most widely chosen version of the state-offered
      accounts has racked up a five-year earning record of 1.86%, about the
      same return that the president says Social Security produces.

      "Boy, does he have a hard sell ahead of him in using Ohio as his
      example," said Keith Brainard, research director of the National Assn.
      of State Retirement Directors, which represents virtually all of the
      nation's public employee pension plans.

      "Ohio's individual account programs are only a few years old, and in
      the short time they've been around, investment returns have been
      relatively weak." Brainard said.

      Coming two weeks before the end of his "60 Stops in 60 Days" campaign
      to convince the nation that Social Security needs to be reshaped,
      Bush's Ohio appearance illustrated the difficulty the president faced
      in promoting his plan to a nation edgy about a still-uncertain
      economic recovery and a stock market that had taken a steep dive in
      recent days.

      Bush has proposed allowing workers under 55 to divert a portion of
      their Social Security taxes into private stock and bond accounts. In
      return, they would agree to a cut in their traditional Social Security

      The president has said the private accounts should be part of a
      broader plan to shore up the shaky finances of the Social Security
      system. That broader, still-undefined plan might include further
      benefit cuts or tax increases.

      But several recent polls show the president's proposal losing ground
      amid concerns that private accounts would require Americans to
      shoulder more economic risk for the possibility of a greater reward.

      And the president's cause was unlikely to be helped by a stock market
      that wrapped up its worst week in two years Friday, with the Dow Jones
      industrial average diving 191 points. The Dow slumped 3.6% for the
      week, and the tech-heavy Nasdaq index fell nearly 5%.

      None of this appeared to faze Bush, however, as he took the stage at
      Lakeland Community College in Kirtland to lavish praise on an Ohio
      public employee retirement system that he said held important lessons
      for the White House and Congress in how to restructure Social Security.

      "We need to come together in Washington … to work on a permanent fix
      [for Social Security]. All options are on the table," Bush declared.

      But he quickly suggested that any overhaul include personal accounts,
      which congressional Democrats have said they will adamantly oppose if
      — as Bush has proposed — they involve diverting payroll tax revenue
      from the existing system.

      Part of any Social Security fix, the president told his audience,
      should be "to trust people with their own money, to devise a system
      that would work similar to the state of Ohio, that would say, 'We're
      going to let you earn a better rate of return for your money.' "

      But in the biggest of Ohio's several state retirement programs, the
      popularity of the private accounts and the returns they produce are
      relatively low.

      Ohio is one of half a dozen states that have begun to offer
      401(k)-like retirement accounts through which eligible employees can
      invest in a handful of state-screened mutual funds or other portfolios.

      Employees who choose accounts risk losing money if the value of their
      investments falls, but reap most of the reward if the value rises.

      Ohio has continued to offer traditional pensions, where the state
      bears the risk and promises to pay retirees a certain amount for as
      long as they live. Employees can choose between the traditional
      pension and the private accounts, or pick a plan that mixes the two.

      The state began offering the private accounts to state college
      faculties in 1998, and extended them to other workers early in this
      decade. Ohio has five major retirement systems for teachers, police,
      firefighters and other public employees.

      It was unclear from the president's remarks and from an
      administration-issued news release which of the five plans Bush was
      discussing in his appearance Friday, or what option he was focusing
      on. The White House referred calls to spokesman Trent Duffy, who could
      not be reached.

      But in the biggest of the state's plans — the 522,000-member Ohio
      Public Employees Retirement System, or OPERS — the personal account
      option has not proven particularly popular among state workers, or
      delivered a particularly good rate of return.

      About 10,000 of those eligible for personal accounts — less than 5% —
      have signed up for the accounts since they became available at the
      start of 2003, according to Laurie Fiori Hacking, OPERS' executive

      Of those who have chosen the accounts, most have directed that their
      money be invested in the system's "moderate" or "aggressive" pre-mixed
      portfolios, according to spokesman Richard Baker.

      OPERS records show that the "moderate" account lost money in two of
      the last four years and during the first three months of this year. It
      posted a five-year annualized return of 1.86%.

      That compares to the 1.8% that Bush said Friday was the rate of return
      for Social Security.

      The OPERS "aggressive" portfolio had a five-year return of 0.26%.

      By contrast, the fund that pays for the system's traditional pensions,
      which is handled by professional money managers, had a five-year
      return of 3.52%.

      Personal accounts have also had relatively few takers in the state's
      other big plan, the State Teachers Retirement System of Ohio, where
      12,500 of the plan's 225,000 members — less than 6% — have chosen
      personal accounts, said Laura Ecklar, spokeswoman for the teachers' system

      Ecklar said it was impossible to tell how personal account holders had
      fared, because no single investment option offered by the teachers'
      retirement system was so favored by participants that it could serve
      as a representative for all.

      During his Ohio appearance, the president was accompanied by several
      retirement plan participants.

      Among them was a University of Cincinnati employee who said she was
      making 6% on a "guaranteed" account that sets a floor under and a cap
      on what people can make. Another person said he was making 7.1% on a
      hybrid plan.

      In a pitch directed to Democratic lawmakers, who are nearly unanimous
      in opposing Bush's plan to create Social Security personal accounts,
      the president called for "political amnesty" for those who joined his
      drive to retool the retirement program.

      "All ideas are on the table," he asserted at several points in his

      His declaration appeared to reinforce a suggestion made Thursday by
      his top economic advisor, Allan B. Hubbard, that the voluntary
      retirement accounts might be acceptable to Bush even if they were
      offered as an "add-on" to Social Security, instead of being financed
      by current payroll taxes, as the president was advocating.
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