The Experts
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Ted
Benna says his passion is "helping those who need it the most." It was this
drive, and a healthy dose of divine inspiration, that led him to figure out a way to help
the average worker save more for retirement - the 401(k) plan.
Back in the late 1970s, just before creating the new plan, Mr. Benna was actually thinking
of quitting benefits consulting altogether. He was dissatisfied because companies wanted
him to design retirement plans that were more advantageous to top professionals than to
their lower-paid employees.
"I had been thinking of getting out of consulting and working for a ministry of some
type, and that's where the prayer came in. It was during this period that the 401(k) hit
out of the blue." |
While designing a retirement plan for a client, he cast a creative eye on section 401(k)
of the tax code, which had been part of the 1978 Tax Reform Act. In all the arcane
language he saw a way to help the little guy save more, and he was the first to translate
that into the concrete measures of pre-tax saving and employer matching contributions. The
tax code did not prescribe these measures, but it did not proscribe them either.
"My approach was that if the code doesn't say thou shalt not, then thou should be
able to," he says.
In 1981 the IRS provisionally approved the plan, and a year later it gave a clear
go-ahead. The
official regulations were issued in 1991.
Mr. Benna says he always knew his idea had the potential to be "huge," but that
initially it was met with skepticism because lawyers and benefits experts thought it was
illegal. "But as the IRS began to say it was potentially legal, attitudes
changed," he says.
"What's been most rewarding for me is that this is a program for the average worker,
not the top characters. I've had people come up to me and thank me for inventing the plan
because they could not have saved as much, or at all, otherwise," Mr. Benna says.
Given the media interest in the plan today, it is amusing that one of the biggest hurdles
Mr. Benna says he faced at first was getting journalists to pay attention to the plan.
Mr. Benna now runs the 401(k) Association. 401k Forum is proud to have him as a member of
its board of directors. We asked Mr. Benna to share his thoughts on some 401(k) topics:
On having invented the first 401(k) plan:
"I don't take credit personally for developing the plan. I feel that I was
divinely led to the 401(k)."
On why people don't contribute to a 401(k) even if their employer offers one:
"The number one issue is economic wherewithal. Many employees are in a work
situation where they can't afford to save."
"A real challenge is to get people who do have some discretionary income to fund
their 401(k) plans. I usually challenge people by saying 'Look, start saving even if it's
only 1% of
your pay.'"
On the proposed Roth 401(k):
"Senator Roth's proposals are a mixed bag. The 'catch-up' contribution would be a
big plus for those who don't start saving until later in life. Eliminating the Section 415
limit (IRS limits on contributions and benefits of qualified plans) will simplify plan
administration and help middle income employees. Increasing the $10,000 contribution limit
to $15,000 will benefit higher-income employees. Unfortunately, Roth's bill doesn't do
anything for those who need help the most - lower income employees who can't afford to
save and employees who work for employers that don't offer any retirement plan."
On the major issues facing 401(k)s over the next 5-10 years:
"People will need advice on how to invest the money. There will be more people
with $100,000 or more in their accounts, and they will need advice. This is where
companies like 401k Forum will play a major role."
On keeping your investment risk at a reasonable level:
Rule one: Diversify your investments.
Rule two: Be shrewd in choosing any investment.
Rule three: Understand the risk of being too conservative.
Rule four: Work as long as you can.
Rule five: Start saving early and be consistent.
(Source: Escaping the Coming Retirement Crisis)  Ted's
Table Archives
Ted Benna, creator of the first 401(k) retirement savings
plan, answers intriguing questions every Tuesday. With over 30 years of experience as an
employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He
has authored two books, Helping Employees Achieve Retirement Income Security and Escaping
the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a
frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and
comments have appeared in numerous publications, including The New York Times and The Wall
Street Journal. |
The information provided here is
intended to help you understand the general issue and does not constitute any tax,
investment or legal advice. Consult your financial, tax or legal advisor regarding your
own unique situation and your company's benefits representative for rules specific to your
plan. |
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