Few policymakers talk positively, if at all, about “the ownership society,” the term coined to describe President Bush's effort to introduce private accounts to Social Security and expand the use of defined contribution programs for retirement and health savings.
But Edward A. Zelinsky, professor of law at the Benjamin N. Cardozo School of Law of Yeshiva University, New York, in his new book points out we have been moving inescapably toward that society, and that its origins go back in earnest to the Employee Retirement Income Security Act of 1974's creation of the individual retirement account. The development of the defined contribution society has advanced steadily in a bipartisan fashion and far more broadly than 401(k) plans.
In an enlightening and succinct book — “The Origins of the Ownership Society: How the Defined Contribution Paradigm Changed America,” published by Oxford University Press Inc., New York — Mr. Zelinsky observes: “To some, these proposals represent radical departures from the status quo. I offer a different perspective: The president's proposals continue the process of the last three decades by which the defined contribution paradigm has become the primary framework for retirement savings, and more broadly, a fundamental tenet of tax and social policy.”
It is a nifty book: short, only 171 pages; and surprisingly engaging despite his scholarly analysis. Almost every one of the pages — easy to read in their small-size format — has footnotes, sometimes containing interesting observations. Mr. Zelinsky thoroughly sources the origins and developments of the movement toward the ownership society — citing legislation, regulation and court opinion, as well as academic research and other commentary.
He shows how the radical idea of the “ownership society” is overturning the DB paradigm, not only in traditional pensions, but also in health-care financing, such as with health savings accounts, and higher-education savings programs. It is advancing into ideas of creating “re-employment accounts” to replace conventional unemployment compensation programs and “individual developmental accounts” used by some states “to encourage self-reliance and entrepreneurial efforts among the poor.”
On the setback in Social Security personal accounts, Mr. Zelinsky has a chapter on the issue. Even so, expansion of the program is not likely, he notes.
The DC society has become “deeply rooted and now self-reinforcing,” he writes.
“There will be no resurrection of traditional defined benefit plans.” As evidence, he cites the policymaking reaction to Enron Corp.'s collapse, wiping out 401(k) accounts of many of its employees. Enron's aftermath “did not trigger a reassessment of the defined contribution road,” he writes, adding, “There has been neither a popular or political backlash against the defined contribution paradigm nor a concerted effort to resuscitate defined benefit pensions.”
The challenge now should be directed to improving the new model. Mr. Zelinsky offers some prescriptions, often refreshingly skeptical, such as on 401(k) investment education programs or annuities for retiree payouts. Even recognizing the implications of the behavioral finance research, such as the “framing” effects on participant decision-making, Mr. Zelinsky argues, “Before mandating such education, we need rigorous proof that the results are likely to justify the expense.” Without such data, it “looks suspiciously like a windfall for the providers of that mandated education.”
In any case, the development of the DC society is fascinating. As Mr. Zelinsky writes, “No one believed they were inaugurating the revolution they were in fact starting.”
