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The inventor of the 401(k) says he created a ‘monster’

Jeremy Olshan

May 165, 2016

‘The 401(k)’s biggest value is that it turns spenders into savers’

Most religious men find the answers to their prayers in scripture. Ted Benna found them in the U.S. tax code.

Fed up with clients only interested in getting the maximum tax break for themselves while doing as little as possible for their employees, he began to feel he could either remain a workplace benefits consultant or a Christian, but not both. In fact, just weeks before his life’s eureka moment came in September 1980, he thought about leaving the Johnson Companies, his suburban Philadelphia firm, to take a job at a local Christian college.

Instead of quitting, Benna, 74, helped turn a little-noticed new subsection of the tax code into the least likely of household names: the 401(k).

American workers now take for granted they can sock away pretax earnings (with a company match), but at the time many couldn’t imagine Benna’s idea, slapped together like regulatory papier-mâché, would hold up under IRS scrutiny, let alone replace pensions as the bedrock of American retirement.

Read: How to decide how much of your 401(k) should be in stocks

“I had only one thought at the time,” Benna told MarketWatch. “How could I make this sucker fly?”

He had help. His boss, Edwin Johnson called in a chit from a friend in the Reagan administration, who arranged a meeting with “the right people at the IRS,” said John Wright, then an employee at the firm and now its president. “We sensed that if Ted’s idea was legitimate it could be something big — just not how big,” he said.

Though Benna wasn’t the only one to see potential in section 401(k), there were far more naysayers at the time. Even with preliminary approval from the IRS (full regulations weren’t written for another decade), “many of the big consulting firms still came out and said it was all a scam,” Wright said. In fact, the original purpose of section 401(k) was to limit the use of executive cash-deferred plans.

http://www.marketwatch.com/story/the-inventor-of-the-401k-says-he-created-a-monster-2016-05-16

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