THE OWNERSHIP SOCIETY:

First, it would feature a stronger Social Security system. I once believed Social Security needed to be moderately pared back. Now I'm convinced we should close its financing gap by raising additional revenues--mainly by lifting or eliminating the cap on earnings subject to its payroll tax and extending that tax to investment earnings. And we need to boost Social Security payouts for some vulnerable populations, such as women who were caregivers during their working lives.

Moreover, we should not raise the retirement age. A wave of startling studies have shown that workers in the bottom half of the wage distribution have experienced virtually no increase in life expectancy over the past two decades. Instead of subjecting these workers to ever more penurious post-work years, we should maintain earlier retirement as an option but increase the incentives for later retirement by boosting benefits for those who are able to wait.

Second, we need to fix 401(k)s. Too few workers are offered them, enroll in them or put enough in them--a reflection of perverse incentives built into their very structure. We should build on what people are familiar with, but 401(k)s need a major overhaul, not modest tweaks.

Step No. 1 of that overhaul is to make a 401(k)-style plan available to all workers, whether or not their employer offers one. Step No. 2 is to automatically enroll workers and set a default contribution rate. Workers could opt out only if they showed they had adequate retirement savings from other sources.

In turn, employers would be encouraged to match worker contributions to these plans, and government would offer additional matching funds for less affluent workers. These public contributions could and should replace the highly regressive tax subsidies now offered. In other words, tax breaks for higher-income workers should be capped to provide greater support for lower-income workers.

Universal 401(k)s with required contributions and public matching would represent a fundamental change for the better. Everyone would be covered; people would save much more. Moreover, because the accounts would be universal, workers wouldn't have to roll their benefits over when they lost or changed jobs; they could just keep the account. (Not surprisingly, many workers don't roll over balances today--faced with a job change, they spend rather than save the often modest sums in their accounts.)

Unlike the present system, however, revamped 401(k)s would be governed by the same rules that protect traditional pension plans against excessive investment in company stock (the problem, recall, that took down Enron's 401(k) plan). And the default investment option under 401(k)s would be a low-cost index fund with a mix of stocks and bonds that automatically shifts over time as workers age to limit market risk as workers approach retirement.

Finally, I would take one more step--OK, leap--toward a guaranteed benefit. Under this proposal, 401(k) accounts would be converted into a lifetime guaranteed income at retirement. These new annuities would be provided directly by Social Security. Today, 401(k)s can't offer a simple defined benefit, because private employers don't want to take on this task and private insurers lack the ability to spread risks over time and across large numbers of people. But that's something the federal government has the ability to do. If Social Security allowed people to convert some or all of their 401(k) accounts into a defined benefit, then 401(k)s could provide the same reliable monthly check that Social Security does.

Yale legal scholar Ian Ayres and I call this new public option "Social Security Plus." 

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