SmartMoney Blogs

A blog about living in and planning for retirement

‘Father’ of the 401(k)’s Tough Love

Ted Benna

Ted Benna, who three decades ago seized on an IRS loophole to transform American retirement savings, says he’s proud to be “father of the 401(k).” He also thinks he created a monster.

The plans, which he intended to be as simple for employees as pensions, now offer  too many investing options and too many opportunities to make mistakes, he says. “I would blow up the system and restart with something totally different,” he told “Blowing up the existing structures is the only way we can simplify them.”

In 1978, when Congress passed the section of IRS code for which the plans are named, lawmakers aimed to limit the scope of cash-deferred plans being offered by some companies, but had no intent to revolutionize retirement. Benna, then the co-owner of the Johnson Companies, a benefits consultancy in suburban Philadelphia, was developing such a plan for a bank client when he happened on the idea section 401(k) could allow an entirely new option.

The original 401(k) plans “could be explained to employees in just a minute,” Benna, now 69 and semi-retired himself, says. “There were two options, a guaranteed fund and an equity fund,” he says. “With the guaranteed investment fund, we’d tell them this is what you will have when you retire. With the equity fund – which was usually something like the Fidelity Magellan fund – we’d say, you might have more, but you might have less. Most people would split their contributions 50-50 between the two.”

As the plans were embraced by employers and financial institutions, Benna says 401(k)s were made so complex one needed to be an investing pro to make sense of them. “Now this monster is out of control. We went to three options, them to six, then to seven, then to 15 – it is far beyond what most participants were able to deal with,” Benna says. “And I am not convinced we have added value by getting more complicated.”

Better education was supposed to be the solution to intricacies of the plans, Benna says. If employees understood the options, the power of compound interest and dollar-cost averaging, and the advantages of making pre-tax contributions, it was believed they would do the right thing. “We’re throwing tons of money away trying to teach participants how to become skilled investors – we said, we are going to make people smart and savvy enough to make the right investment decisions, but it just hasn’t worked.”

Benna blames the newfound complexity on what he says was the small percentage of employees who wanted it. “What triggered this whole mess is that some of the more sophisticated participants were a pain in the butt,” he says. “You’d have these troublemaker loudmouths push human resources, and say, ‘why don’t we have this ‘flavor of the month.’ fund” These sophisticated employees are also the ones taking advantage of the education and advice being offered, he says.

The consequence of all the complexity is twofold, he says. First, employees felt they could be more active investors. “There is too strong a potential for employees to do the worst thing ever, which is moving in the wrong direction, panicking when things are bad and cashing out after they have been battered.” Secondly, the current plans induce “a kind of gridlock – employees get so overwhelmed they do not participate – they do nothing,” he says.

Education didn’t work to stop employees from sabotaging their own futures, he contends, but legislation might. “We need a legislative mandate that when you change jobs, the money needs to be retained in a retirement account – there cannot be an option of ‘here’s a check, you decide,’” Benna says. He also advocates mandating all employees be auto-enrolled in the plans, and that their contributions be automatically increased one percentage point per year to a maximum of 10% to 15%.

Despite these misgivings, Benna insists the plans are benefiting millions of employees. He gets rankled whenever someone suggests the workforce would be better off had the 401(k) never been born, noting that the pension system was more fraught that many remember. “I am not anti-defined-benefit plan – in fact I sold them for decades– they are great, but only for those who stay with the same company for 20 or 30 years.”

For More:


We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comments (5 of 166)

View all Comments »
    • Annuities are (very generally) a bad idea unesls you are already old, or you are the agent selling them. (They pay terrific commissions to the salesperson!) A Roth (invested in growth or growth income stocks) will make you far richer later on

    • Europe’s top human rights watchdog has urged Germany to stop offering sexual offenders the choice of surgical castration.
      The Council of Europe’s anti-torture committee stated within a report issued Wednesday that the practice, which aims to help convicted sex criminals rein in their sex drives and lower their danger of reoffending, could effortlessly be regarded as “degrading therapy.” According to Germany’s 1969 Law on Voluntary Castration, a person more than the age of 25 may possibly be subjected to surgical castration if he “displays an abnormal sex drive, which … provides reason to suspect that he will commit one particular or a lot more criminal offenses.” The controversial process just isn’t mandatory as well as a consensual offender can only have the operation right after becoming informed of all the implications from the choice and immediately after medical approval has been obtained, Germany stated in its response, adding that it would consider reviewing the problem.
      But Berlin also cited the treatment’s effectiveness, saying that of the 104 those who underwent the process in the 1970s, only 3 folks committed sexual crimes once again. Nearly half with the 53 other people who refused or had been denied therapy ultimately reoffended.
      Voluntary castration is nevertheless really rare in Germany, with fewer than five instances per year inside the last decade.
      The only other country inside the 47-nation bloc with the Council of Europe that provides the method will be the Czech Republic, which has also been the subject of criticism in current years for permitting sex offenders to opt for castration, a process it utilizes far more frequently than Germany.

    • Avalanches killed at least 37 people Tuesday in a remote northeastern province of Afghanistan and officials feared the death toll would rise.
      About 20 houses were smothered with snow in the village of Shirinazen in Badakshan province, mentioned Abdul Maroof Raseq, spokesman for the governor.
      He mentioned women and children had been among the dead and no less than six others were injured.
      The Badakshan governor, who was stranded by the avalanches, was taken by helicopter to neighboring Tajikistan, which was simpler to reach than nearby regions of Afghanistan.Afghans have already been suffering by way of a brutal winter with bitterly cold temperatures and heavy snowfall.

    • There are pros and cons to all retirement plans. One challenge of 401Ks is that participants must decide how to invest their funds, a not-so-easy task even for professional investors. Some say it is simple but it is not always so simple in my experience.

    • I very much disagree with Ted Benna. I don’t want government controlling my decisions with what I do with my money! No no no. Individuals need to get financially savvy. That is just the world we live in! Ignorance is no longer bliss. Finance and technology, two areas that everybody needs to feel comfortable with, whether you are a graduate in math or a graduate in English. I don’t even get why people think 401(k)s are so complicated? If they want to just be conservative, stick 80% in a bond fund and stick 20% in a S&P500 fund and be done with it. Why must the politicians get involved (again) to pass more stupid legislation (again) to dumb down the plan when in my opinion they are already dumb enough.

About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.