SEA BIRDS FLYIN' IN THE SUN:

On Texas' Coast, a Laboratory for Private Accounts (SIMON ROMERO, 3/18/05, NY Times)

As governor of Texas, George W. Bush had an up-close look at what many advocates of individual Social Security investment accounts consider a laboratory for how such a system might work: Galveston County's retirement system.

In 1981 officials in Galveston, a seafront city on the Gulf of Mexico opted out of Social Security along with neighboring Brazoria and Matagorda Counties and chose instead to plunge their county governments into the unknown territory of offering private retirement accounts.

Hundreds of employees in these counties have since retired under the system and more than 4,000 current employees make deposits into their private accounts each month.

But there is intense debate over what lessons to draw from Galveston's experience and whether a government retirement system should help adjust income disparities.

Some prominent retired officials swear by the system, saying it has allowed them to retire richer than if they had stayed with Social Security.

"You basically get back what you put in," said Ray Holbrook, 78, a former county judge who retired in 1995. Mr. Holbrook had been an early supporter of the plan.

Others, mainly retirees with lower income, have found their small nest eggs eroded by inflation or gone altogether after choosing a lump-sum payment instead of monthly checks. [...]

Still, few of the participants in the plan are explicitly critical of the system, perhaps because many say they feel they have greater control over their investments. Most county employees here also benefit from a separate county pension, which gives them a cushion.

The Houston investment firm that designed the Galveston plan invests employees' money mostly in safe but low-yielding securities, providing participants with quarterly updates on their investments and the opportunity to withdraw their money in a lump sum upon retirement or in installments over several years.

Yes, you can't let folks cash out of a universal federal system.

Posted by Orrin Judd at March 18, 2005 6:04 AM