President Bush's vision of an “ownership society” continues 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. In a defined contribution society, the policies more likely to be adopted are those which channel government subsidies for retirement, health care, and educational savings through individual accounts controlled by the taxpayer himself. In contrast, defined benefit arrangements—as exemplified by the traditional pension plan and the feder ... More

President Bush's vision of an “ownership society” continues 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. In a defined contribution society, the policies more likely to be adopted are those which channel government subsidies for retirement, health care, and educational savings through individual accounts controlled by the taxpayer himself. In contrast, defined benefit arrangements—as exemplified by the traditional pension plan and the federal Social Security system—are less likely to be proposed, adopted or expanded. Individual retirement accounts (IRAs) and 401(k) arrangements are today central features of American life. The growth of cash balance pensions and their cousins—new comparability plans—is best understood as reflecting the prevailing defined contribution ethos. Equally striking is the extent to which the defined contribution format has, in the last several years, reconfigured many state retirement programs. Moreover, individual accounts have spread beyond the realm of retirement savings to other arenas of social and tax policy. Section 529 accounts are today the predominant instrument by which Americans save for college. We are now in the early stages of a comparable transformation of medical coverage—the flexible spending account (FSA), the health reimbursement arrangement (HRA), and the health savings account (HSA) emerging as important devices for financing routine medical care.