Ted Benna: Creator of the First 401(k) Plan
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. mPower 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 mPower 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)
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