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Bush Points to a Retirement System With Mixed Results

Times Staff Writers

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.

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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 benefit.

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.

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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.

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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 director.

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.

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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 remarks.

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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