401k Father Ted Benna Disowns Them

February 19, 2012 by staff 

401k Father Ted Benna Disowns Them, 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.”

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.”

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