The Father of the 401(K) Wants to Kill Them Off and Start Over

November 23, 2011

NOTE: My wife is off work this week and the kids are out of school. My family is coming to town on Wednesday. So…I’m spending time with the family. I’ll be back next week. I’ll also announce the book winner next week.

Interesting piece on 401(K) plans and the guy who helped create them, Ted Benna. He thinks they have become too complex. What was the cause for the complexity? I’ll let him tell you…

Benna blames the newfound complexity on what he says was the small percentage of employees who wanted it. “What triggered this whole mess is that some of the more sophisticated participants were a pain in the butt,” he says. “You’d have these troublemaker loudmouths push human resources, and say, ‘why don’t we have this ‘flavor of the month.’ fund” These sophisticated employees are also the ones taking advantage of the education and advice being offered, he says.


Honestly, I don’t think that’s the problem at all. I think it’s just the nature of the game. You have lots of companies competing for the business and offering more and more choices. I don’t think you can blame that on “troublemake loudmouths.” These same “troublemaker loudmouths” are the ones asking for more index choices and fewer managed funds.

I think the problem is that people just don’t want to save. Either that, or they simply can’t afford (or don’t think they can afford) to save. The other reasons are simply excuses.

I do like his suggestions:

“We need a legislative mandate that when you change jobs, the money needs to be retained in a retirement account – there cannot be an option of ‘here’s a check, you decide,’” Benna says. He also advocates mandating all employees be auto-enrolled in the plans, and that their contributions be automatically increased one percentage point per year to a maximum of 10% to 15%.

Those are all good ideas. Too many people cash out their 401(K) plans when they change jobs.

15 responses to The Father of the 401(K) Wants to Kill Them Off and Start Over

  1. What would be the correct thing to do is have government stop taxing us so we wouldn’t even want a 401k to begin with. And it would also be nice if we could do whatever we want with our own money, it’s not the government’s position to tell me what is best to do with my own money, to tell me to invest or not to.

    I own myself and can make the decisions I want to make for myself. I am an adult. I don’t need some false parent figure.

  2. When I left my first job at the age of 23, I had a couple hundred bucks in a 401(k). I just cashed it out and the guy that does my taxes chewed me out big time next year. I realized later it wasn’t the amount of money that was a concern, it was setting up the bad habit that would hurt me later down the road. After that, I’ve always rolled my 401(k) into my next employers plan.

  3. JLP, I am frankly astonished that you would support legislative mandates about retirement accounts. Yes – *doing* the things, personally, that he suggests (ie, rolling over retirement accounts, upping percentages to 10-15%) are all great choices, but government required?

    • Anna,

      What would you rather have: rules that require people to roll over their 401(K)s into retirement plans or let them do whatever they want and then have to deal with them when they retire with nothing and become people (VOCAL PEOPLE, mind you) dependent on social security?

  4. I think that given the singular choices (and this is a false binary), of mandated 401k donation + rollover, versus SS, I would honestly rather take SS. 401K are somewhat gimmicky, and also basically dependent on having an employer to set them up! What about self-employed people? They currently pay into SS (at a higher rate out of pocket than corporately employed people). Do self-employed people have to set up a solo 401k? Do the people who opt out of auto-enrollment have no recourse in the same situation now? Are people not allowed to opt-out? How does this then end up different, basically, than SS? The primary differences , as I see them are : maintenance by financial institutions rather than the SSA, and choice of funds. Now – those are pretty legitimate differences, agreed, but what I’ve largely read (and please forgive me for painting you with this brush, possibly unfairly), but the main idea of those opposed to SS is that earned money should be *left in the hands of the person who earned it*. Required enrollment + rollover in a 401k is not different in fundamental principle, just in execution. Anyway – that is why I was surprised that you would advocate such a thing 🙂 Unless you are just looking at it as the lesser of two evils, but your initial post didn’t include that level of detail.

  5. The father of 401ks, doesn’t like that people can control their own money. Good thing the ‘father’ isn’t in charge.

  6. I’m with Jon. If we just go to a consumption tax, the government would have no business in our business.

  7. Sigh. Sometimes your readership really discourages me–particularly when even you can see the value in some level of governmental oversight. I am a relatively unsophisticated investor. My father had a longshoreman’s pension and never worried about retirement. I make more money than he ever did, but there’s only SS and my 403(b) to cover my retirement. The choices make my head spin, and the ones that sound the best often turn out not to be–i.e. lifecycle funds, which are not faring as well as S & P index funds. At age 62 I feel barely able to make the sensible choices; at 29, I eagerly cashed out my funds when I changed jobs. I knew (kinda) not to do that, but I was 29 and I was going to work forever (which was somewhere north of 50 which was an unimaginable age). I do think we can put in some restrictions now or face the consequences (welfare) later. Personally, I’d never be able to say to someone who didn’t save, “yYu screwed up when you were young and dumb so now you can starve, get sick and die, whatever.”

  8. Well, Grace, why don’t you just take your retirement money directly from your children and grandchildren? They’re the ones paying for it anyway, so you might as well cut out the government bureaucracy!

  9. I have made a few job changes over the last few years. I have been APPALLED at how hard it is to get this money moved from one place to another, whether into a new 401(k) or into an IRA. I do not know where the barriers come from (i.e. are they part of the tax code? or do the companies make it hard so that they can hang onto the investments), but I would clean that up. Should be easy to take the money and move it into another tax-sheltered vehicle- no reason to make it hard.

  10. I’ve had no such problems transferring 401(k) money to an IRA.

  11. I agree with the government mandates as long as their is an opt out function.

  12. I had a 401k with Fidelity that I wanted to roll into a 403B with Fidelity. They said do to the plans I had to cash out (sent me a check) and then I could send them back the check to have it deposited into a 403B. There needs to be some legislation.

  13. If one can opt out, it’s not a mandate.

  14. Sure it can, the mandate part is that you must be initially enrolled in a 401k at X% and that will increase 1% a year up to X%. The mandate is in the setup phase.

    Once the account has been setup the employee can go in and change it.