Teresa Ghilarducci, an economist at the New School for Social Research, has emerged as the primary exponent of â€œGuaranteed Retirement Accounts,â€ or G.R.A.â€™s. The way they work is simple: workers who donâ€™t have access to a conventional defined-benefit plan would contribute 2.5 percent of their income (with the government seeding the first $600 of that amount). Their employers would then kick in another 2.5 percent. Itâ€™s similar to a 401(k), except that the money would be deposited into an individual account with the Social Security Administration, which would pool the money and put it into relatively conservative investments.
In administering the pool, the government would guarantee a 3 percent rate of return above and beyond inflation. On retirement, participants would receive an inflation-indexed annuity that Ghilarducci calculates would replace a quarter of the wages or salary an average worker was earning. For example, someone who contributed to a G.R.A. for 40 years and retired with a final salary of $60,000 would get an annual payment of $15,500, or 26 percent of the preretirement income. (Social Security currently provides another 45 percent of workersâ€™ preretirement income.)