The inventor of the 401(k) is now critical of it
Ted Benna is widely regarded as the father of the 401, which was born 40 years ago with the passage of the Revenue Act of 1978. The former benefits consultant didn’t write the 869-word section of tax code that paved the way for the plan. Nor did he set out to reimagine how American’s saved for retirement. Yet through what he calls a political “fluke” and his own interest in helping a client, Benna played a role in doing just that.
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We also had great difficulty getting media attention for this. Eventually, it started to get a little traction in that regard, and the first significant piece was run in the Philadelphia Inquirer, which then got picked up. The guy who wrote that article got hundreds of calls after it ran, saying, “This is illegal; you can’t do that.”
Definitely, more isn’t better. The first plans typically had two options: a Guaranteed Investment Contract and an equity option, and participants could do 100% in either, split 50/50, or 75/25. And then you went to four, five, six [options], and so on. The primary reason this happened over the years is that employers got pressured [by employees who wanted to add specific mutual funds] into including more and more funds. That’s when employers needed more help managing these choices.
Had that type of structure been available back at the beginning when this whole thing started, that would have been the way to go. Rather than attempting to create huge portfolios that have the kind of diversity recommended, and expecting participants to apply that on their own, these take the decision out of it.
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