CRITICS OF REFORMING SOCIAL SECURITY are using scare tactics to argue that allowing workers to use some of their payroll taxes to set up personal retirement accounts will expose them to unpredictable stock market risks. But there are real-world examples showing that doesn’t have to happen, from the retirement programs set up for federal employees to an innovative Texas plan that has outperformed Social Security without undue risk. The Texas program is worth a close look because it now has a track record of nearly a quarter century of consistent results.

In 1980, 72 % of municipal employees in Galveston County, Texas, approved creation of a privately funded retirement plan that also included life insurance and disability components similar to Social Security. Over the next two years, Brazoria and Matagorda counties joined Galveston’s plan. At the time, local governments could opt out of the Social Security system if they provided an alternative retirement plan (that loophole was closed in 1983).

Galveston’s plan has been a success on every level. Since 1981, over 5,000 retirees in the three counties have enjoyed market retirement yields averaging 7.5 %, compared to less than 2 % under Social Security. Here’s how the Galveston Plan works: Workers’ payroll taxes are deposited in personal retirement accounts that are then used to purchase commercial banking and life insurance products, such as certificates of deposit and annuities, as well as conservative government and commercial bonds. Former Galveston County Judge Roy Holbrook, who helped implement the idea, says workers backed it “because it essentially eliminated risk from the program.”

“Our plan provides better retirement, survivorship and disability benefits than Social Security,” says Mr. Holbrook. “And our plan uses no risky investments, only commercial banking products, annuities and bonds that provide guaranteed fixed interest rates and no risk.” And unlike Social Security, the Galveston Plan accounts are individually owned, and accumulated savings can be passed on to heirs.

THAT MAKES A HUGE DIFFERENCE in individual lives. When a Galveston county commissioner died in 2001, his widow received a $255 death benefit from Social Security — and nothing else. The Galveston Plan, however, paid her a lump-sum survivorship benefit of $150,000, plus she is entitled to a reserve account of $125,000, available to her at any time. Her benefits are more than 1,000 times better than what Social Security offered.

The actual retirement benefits of participants in the Galveston plan also outstrip Social Security. Someone earning $51,000 a year would retire with a lifetime income of $3,800 a month or roughly 90 % of their pre-retirement income. That compares to the $1,500 a month (36 % of pre-retirement income) they would get under Social Security.

The program also benefits lower-income workers. A worker with an annual income of $18,000 takes in some $1,400 a month from the Galveston plan — 90 % of his pre-retirement level. That same person would get only $782 a month (54.8 % of his pre-retirement earnings) from Social Security.

The Galveston plan began in 1979 when County Attorney Bill Decker began thinking about a substitute for Social Security, which was then teetering on the verge of bankruptcy. Don Kebodeaux and Rick Gornto, two successful Houston businessmen, took up the challenge and formed the First Financial Group.

THE LOCAL UNIONS FOUGHT THE IDEA at first, as did several local officials. But after county employees endorsed the concept by 3 to 1, opposition melted away and disappeared completely as the higher returns rolled in. Mr. Decker, now retired, likes to say that he has been approached by county employees who voted against the plan but now want to thank him for his far-sighted vision.

Other jurisdictions took note of Galveston’s innovation and began planning to emulate it. Over 200 other counties, as well as many cities, entered into discussions with First Financial Group about joining the plan. Then Congress intervened and killed expansion of the idea as part of its 1983 plan to rescue Social Security from bankruptcy.

Legislators had already decided to dragoon all federal employees into the Social Security system when they discovered that hundreds of thousands of county and city workers around the country were preparing to leave and set up versions of the Galveston plan. Congress swiftly closed the barn door and canceled the opt-out for local governments in 1983. Fortunately, Galveston, Brazoria, and Matagorda counties were allowed to continue their plans under a grandfather clause.

The Galveston Plan isn’t the only example of local and state governments running superior retirement systems outside of Social Security. Five states — California, Nevada, Maine, Ohio, and Colorado — run their own retirement plans, as do many local police and fire departments. All of these plans show what Americans can do to create better and more flexible retirement systems if they are left alone to innovate.

“It’s time for the rest of us to follow the 25-year- old example of Galveston, and get back to the future,” says Steve Forbes, the publisher of Forbes magazine. “Personal retirement accounts such as those proposed by President Bush will give every American the opportunity to secure some of the benefits people in three Texas counties enjoy.”