- 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
- Today, however, he says the fees charged to employees have become too high
He is credited with overhauling 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 am very concerned about what is happening with the investment costs,” the 82-year-old told DailyMail.com.
“Originally, under our plan, all administrative costs would be covered by the employer, but that has all changed now.”
Benna, a Christian who worked as an employment benefits consultant in the 1970s, had grown tired of helping clients maximize their own tax benefits while doing little for their 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 employee benefits consultant in the 1970s, had grown tired of helping clients maximize their own tax benefits while doing little for their employees.
He then discovered a creative way to reinterpret the eponymous section of a 1978 tax law. It allowed employees to put their pre-tax salaries into 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, which became a success.
In 1981, only 8 percent of Americans contributed to a defined contribution plan. By 2023, 56 percent of workers were participating in some kind of retirement plan, according to the Labor Statistics Bureau.
But Benna argues that companies have become too greedy by charging high administration fees – while their employees don’t know any better.
He told DailyMail.com: ‘I know of one employer charging an administration fee of 2.75 per cent. It’s something I see more and more often.’
Fees for 401(K) plans can significantly dampen investment returns. There are three types of fees: administration costs, service costs and investments.
Although administrative costs are generally non-negotiable, savers do have more control over service and investment costs.
Service fees are only payable if you choose to activate certain features of your plan, such as by taking out a 401(K) plan.
The 401(K) is credited with reshaping the way millions of Americans think about and save for retirement. A recent survey by Northwestern Mutual shows how much employees think they need for a comfortable retirement
Benna (pictured) told DailyMail.com: ‘I know of one employer charging an administration fee of 2.75 per cent. It’s something I see more and more
The investment costs are charged based on the available funds in your plan. Savers can find funds with a low expense ratio, such as broad-based index funds.
Benna’s original vision called for employers to pay all costs associated with administration and conducting audits. The employer would also pay between $10 and $20 per year for its employees to receive investment advice.
But mutual fund providers raised concerns 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 that employees have the option to withdraw their 401(K) completely if they change jobs.
This is something he believes needs to be “eliminated” to ensure Americans keep money in their retirement pots. Employees have the option to transfer the money to an individual retirement account (IRA).
However, Benna warns, “A 30-year-old who changes jobs will hardly think about retirement if he has the option to withdraw $10,000.”
Today, he’s working on a new “Wheat Grains Incentive Plan,” a type of defined contribution plan that makes it easier for low- and middle-income workers to withdraw money.
The concept comes as more Americans are taking hardship withdrawals from their 401(K)s to cope with higher costs of living.