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'Father of 401k' disowns it

The man credited with creating the employee retirement savings plan evaluates the concept 30 years later. Would he do it again?

By MSN Money Partner Nov 23, 2011 3:28PM
This post comes from Jeremy Olshan at partner siteSmartMoney.


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 401k." 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 SmartMoney. "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 that section 401k could allow an entirely new option.


The original 401k plans "could be explained to employees in just a minute," Benna, now 69 and semiretired 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."


Plans became too complicated

As the plans were embraced by employers and financial institutions, Benna says 401k'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, then 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 pretax 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." Post continues below.

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.


Overwhelmed, employees made mistakes

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 401k 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."


More on SmartMoney and MSN Money:

Nov 24, 2011 11:45AM
I love how people have the audacity to complain about having too many options and things are too "complicated".  If they're too complicated, then don't invest in them.  Pretty simple.  Invest in what you can  understand.  If you don't understand anything, then don't invest.  Don't punish people who have an ounce of intelligence and eliminate our options simply because some people are willfully unintelligent and refuse to learn basic economics and google what their fund is invested in.  I think the problem is that we have too few options.  We should be allowed to pick whatever fund we want at any company.  The problem is that we really have no options to invest in ETFs, Index Funds, REIT funds, etc.  For the idiots (who are clearly commenting below), displaying your idiocy as if its something to be proud of doesn't make any sense.  Ignorance is not a medal to be worn on your chest as you blame the government for your ills.
Nov 24, 2011 11:29AM
No one has ever got rich off the government.


Tell that to Lockheed Martin , Daimler Chrysler, Boeing and of course the winner of all the no bid contracts for rebuilding Iraq , Halliburton. Not to mention GE , Bank of America and Verizon who not only paid no taxes last year, but got millions back from the government. I'd say getting millions in subsidies qualifies as "rich".

Nov 24, 2011 11:21AM
Yes, lots of people have gotten rich off the government. Those that are in a position to manipulate the laws and "rules" they pass. Haliburton has made billions, Exxon has done quite well, so have those in congress that represent the monied interests above the vast majority of citizens. This is the conservative Fascism they have created. We must end it. 
Nov 24, 2011 11:13AM
Strange, how easy it is for most of you to blame average people for not being sophisticated enough to understand the machinations of these "retirement plans". As with anything, it is over complictaed by those seeking to profit from them, even though they contribute nothing. It is the over all GREED in our society that gives these souless, heartless individuals cover for taking advantage of the system they helped to create at the expense of "average" working people.
Nov 24, 2011 11:13AM

Noone has ever got rich off the government.

Nov 24, 2011 11:09AM
Let if fall, let it fall, let it fall, and let them all fail.  You put your money in a retirement account and inadvertently give it to corp. america to inflate the value of their companies then they spend it and steal it ultimately.  And then their value drops and they need more retirement investors to keep their game going.  Stop investing in the stock market put it somewhere else, anywhere is better than helping wall street or Corp America.  I'd say they have more than proven they only care about themselves, not America or American workers. 
Nov 24, 2011 10:36AM

People will never get their house in order.  Young people don't think they need healthcare then it's to late.  People want more so they take risk, then it's to late.  People say it's not my fault that other people don't have their house in order,  but then the economy falls apart because people didn't have their house in order, then it's to late.  Wake up people you are your brother keeper because if you are not the house will fall in on you, then it's to late.  Let the government do its job and oversee unfair practice and provide security for all, not promote  con men that prey on the innocent and naive, so it will not be to late.  Get rid of bums in congress and elect people that believe in government and work to make it work.

Nov 24, 2011 10:30AM
The biggest shortcoming of 401ks in my opinion is you're stuck with your plan's investment options and fees until you leave that job. Why do they get to decide what investment options are best for me? It's my money!
The right fix for 401k plans is to allow the employee once a year to do a full or partial rollover to a self-directed IRA!!!

Nov 24, 2011 10:28AM
401Ks are just another of a long list of Ponzi schemes, courtesy of Fraud Street. Eye-rolling Poor, poor foolish suckers! Sick
Nov 24, 2011 10:25AM
after reading many of the comments i think people might now see that if you keep control of your money you  control your future. remember all the people who used to hide there money in there mattress. they made there own bed and our still sleeping in it.
Nov 24, 2011 10:19AM
401k's have become another avenue for wall street to steal.  When are we going to wake up and realize that the government is not our enemy.  SS has been successful and is funded until 2027.  Changes always have to be made to meet the changes in the future,  so let us elect capable representatives that embrace change to meet the future and not destroy and privatize.  Government is here for oversight, let us elect representative that embrace oversight, not suggest that we would be best served by letting the fox watch over the hen house.  The first thing this congress did was to cut their work weeks and then they did not work on the days the where in session.  Get rid of the bums. 
Nov 24, 2011 10:14AM
i am proud to say that i seen thru the 401k when it was first introduced. i told my wife that we should take our money and put it into something that we have total control over. we bought real estate and other investments where the government does not have control over your money. we did real well and now are retired in florida. my wife still works and has contact with many older retirement age people. i have not heard a good story yet about some one who did well on a 401k. everyday my wife says there are people in the condo that are down to there last dollar and going to loose everything. these are people who thought they had enough money to live and now are really destitute. never trust anything the government has its hands in. 401k is just socialized gambling and it is tied to your politicians beware don't look for things to get any better until our political clowns are all removed from office. believe me when i say they are not in your best interest.
Nov 24, 2011 10:07AM

Words from an even bigger economic downturn:


The poet with his pen, the peasant with his plow;

It makes no difference who you are, it's all the same somehow.

The king upon his throne, the beggar at his feet;

The shopgirl, the actress, the woman on the street.

It's a life of smiles, and a life of tears,

A life of hope, and a life of fears;

A blinding torrent of rain, and a brilliant burst of sun;

A biting, tearing pain, and bubbling, sparkling fun.

So no matter what you have, don't envy those you meet --

It's all the same, it's in the game, the bitter and the sweet.

And if things don't look too cheerful, just show a little fight!

For every bit of darkness, there's a little bit of light;

For every bit of hatred, there's a little bit of love;

For every cloudy morning, there's a midnight moon...above.


from "The Bluebird of Happiness,"

written for and sung by Jan Peerce, 1936 and 1945


Happy Thanksgiving 2011!  This country has gotten through worse times.  We'll get through this.



Nov 24, 2011 9:54AM
Well its always been said " The more complicated the plumbing, the easier it is to clog up".
Nov 24, 2011 9:43AM
One issue I've had with the 401k is the expense ratios.   The advertised strategy is to be 'most diversified' but this translates into more mutual funds or fixed rate (bond) funds within a 401k.  This is part of the complication in that each fund in a 401k has its own expense ratio rather than an IRA which can be fee only or based on amount traded.  My wife was offered a 401k with funds that had expense ratios of 1.45% and 1.67%.....  Sorry folks, but if you have a fund in a 401k with an expense ratio over .8% you'll never make any money.  My suggestion is to get a Roth401k an limit expense ratios to .8%. 
Nov 24, 2011 9:25AM

       I work in alternative investing in 401k's (i.e. Real Estate, Options) the problem with society and the 401k is everyone wants a quick fix. Any progress requires you to educate yourself and make choices- sometimes these choices don't pan out. I feel sympathy for all those who lost their retirement due to the stock market but that doesn't' mean these people are owed anything. People seem to have forgotten that all the Stock market (or most any type of investing) is, is just high stakes gambling!

        In cases such as Enron where there was obvious illegality then yes- I believe you are entitled to your money back. Other than that make a conscious decisions with your 401k and be smart! FYI, my 401k based in the stock market lost 40% this year- I monitored it, took responsibility and moved my funds to a more lucrative investment instead of pointing the finger at someone else.

Nov 24, 2011 9:24AM
here's one, my brother died a few years back, left me his 401, I called them and stated "just leave it in there and i'll get it when i retire.  Nope they wouldn't do it, they told me i had to close the account, so I did, then they charged me a great deal of money for closing the account early.  I stated i didn't close it voluntary, he died.  to make a long story short, got screwed.  You just can't trust anybody now a days.  If it's hidden away in your mattress and you get robbed at least you have a chance of killing the person who's trying to take it away from you.  Now all you get is and unanswered phone call.
Nov 24, 2011 9:23AM
The sad thing is not about whether 401ks are good or bad. The sad thing is that many people in this country have no plan for their own retirement other than SS which was never meant to be a total retirement package. Why is it that everyone have money to buy a cell phone, car, home, education, alarm system, I Pad, wifi, internet connection, eat out every other day, go on vacation twice a year, have a laptop, etc....but they don't have time or the money to plan their retirement. This is not a political issue (it's not the demos or repubs faults). This is the people's problem and until the people get their own house in order, stop complaining about everything and everyone else.
Nov 24, 2011 9:12AM
Interesting spin this article takes. When are too much information and too many options ever a bad thing?  But it's true, not everyone wants all the choices or can handle all the information.  Do you dumb it down for everybody in response?  Do you de facto appoint someone -- it sounds as if Congress is being proposed in this case -- to make the choices for everyone? 
Nov 24, 2011 9:09AM

401K: The second biggest scam of the century!  I did what every other normal hard working
American with little knowledge of the stock market did.  I put money into my companies 401K, spread it around a little, some of it in safe portfolios and some in the risky ones, and guess what?  It tanked and I lost 40% of what I had saved, while the people that got rich on Wall Street and caused the mess were handed billions of my tax dollars to bail them out.  What a joke!!!


And, by the way, the biggest scam is gasoline prices.  Once again, you can point your finger right at the Wall Street slime bags for that too.  They manipulate prices through speculation, making billions on the backs of people just trying to get to work.  The entire Stock Market is just a legal avenue for millionaires to steal your money one way or another.

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