- Ted Benna, 82, is credited with creating the 401(K) as it is known today.
- It has changed the way millions of Americans think about their retirement funds.
- However, today he says the rates charged to workers have become too high.
He is credited with reshaping the way millions of Americans think about and save for retirement.
But today Ted Benna, known as the “father of the 401(K),” has some reservations about his own creation.
“I’m very worried about what’s happening with investment spending,” the 82-year-old told DailyMail.com.
“Originally, in our plan, all administrative fees would be covered by the employer, but now that has all changed.”
Benna, a Christian who worked as an employment benefits consultant in the 1970s, had grown tired of helping clients maximize their own tax breaks while doing little for his employees.
‘Father of the 401(K)’ Ted Benna (pictured) says he has some reservations about his own creation
Benna, a Christian who worked as an employment benefits consultant in the 1970s, had grown tired of helping clients maximize their own tax breaks while doing little for his employees.
Then he stumbled upon a creative way to reinterpret the eponymous section of a 1978 tax law. It allowed employees to save their pre-tax pay in a retirement account while receiving a matching contribution from their workplace.
He implemented the strategy into his own company’s retirement plan, and soon after the Internal Revenue Service (IRS) and the Treasury Department approved his idea, it took off.
Only 8 percent of Americans contributed to a defined contribution plan in 1981. By 2023, 56 percent of workers participated in a retirement plan of some type, according to the Bureau of Labor Statistics.
But Benna argues that companies have become too greedy by charging high administrative fees, while their employees know nothing better.
He told DailyMail.com: ‘I know one employer was charging administration fees of 2.75 per cent. It’s something I see more and more.”
401(K) plan fees can significantly reduce investment returns. There are three types of fees that cover administrative fees, service fees and investment fees.
Although administrative fees tend to be non-negotiable, savers have more control over service and investment charges.
Service fees are only payable when you want to activate certain features of your plan, for example by signing up for a 401(K) plan.
The 401(K) is credited with changing the way millions of Americans think about and save for retirement. A recent survey by Northwestern Mutual shows how much workers believe they need for a comfortable retirement.
Benna (pictured) told DailyMail.com: ‘I know one employer was charging administration fees of 2.75 per cent. It’s something I’m seeing more and more’
Investment costs are charged to the funds available in your plan. Savers can find funds with a low expense ratio, such as broad-based index funds.
Benna’s original vision required employers to pay all fees associated with administering and maintaining audits. The employer would also pay between $10 and $20 a year for its workers to receive investment advice.
But mutual fund providers expressed concern that their financial results could be affected by an independent adviser, before realizing they could make money by adding another layer of fees.
Benna also says a flaw in the current system is the fact that employees have the option of withdrawing from their 401(K) entirely when they change jobs.
This is something he says should be “eliminated” to ensure Americans keep funds in their retirement funds. Workers have the option to transfer the funds to an Individual Retirement Account (IRA).
However, Benna warns: “A 30-year-old who changes jobs is unlikely to think about retirement when he has the option of withdrawing $10,000 ahead of him.”
Today it is working on a new ‘Wheat Grain Incentive Plan’, which is a type of defined contribution plan that makes it easier for low- and middle-income workers to withdraw funds.
The concept arises as more Americans take hardship withdrawals from their 401(K)s to cope with higher living costs.