Father of 401(k) defends account's concept

By Michael Liedtke
Associated Press

SAN FRANCISCO — Like any proud father, Ted Benna takes pride in the accomplishments of his brainchild, the 401(k) account.

Ted Benna, who invented the 401(k) nearly 22 years ago, acknowledges its shortcomings but is proud to say "this is the only retirement plan a lot of employees are ever going to have." He supports efforts to better educate 401(k) investors. Associated Press

Yes, Benna says, it was a bad idea to let so many 401(k) investors buy the stocks of their employers. The employees at scandal-ridden Enron Corp. hammered this point home when they loaded up on company stock and lost a collective $1.3 billion after the energy trader collapsed late last year.

And Benna knows that many of the nation's 48 million 401(k) participants might not have lost so much money during the past two years had they been given more guidance and choices by their employers. He will even bluntly admit that 401(k) accounts "stink" when it comes to helping financially struggling workers making less than $10 per hour.

What you won't hear Benna say is that the country would have been better off if he hadn't unveiled the first 401(k) plan nearly 22 years ago.

"People can beat up the 401(k) all they want, but this is the only retirement plan a lot of employees are ever going to have," Benna said in an interview after a recent financial seminar in San Francisco.

"I've had people come up to me to complain they only have $70,000 in a 401(k) account that had $100,000 a couple of years ago and I say, 'Well, how much would you have saved now without the account?' That usually makes them stop and think."

A closer look at 401(k) plans is long overdue, said Karen Friedman, director of policy strategy for the Pension Rights Center, a Washington, D.C. watchdog group. She thinks the stock market's recent troubles have proven that most people aren't ready to manage their own retirement accounts, a skill that 401(k) plans require.

"There really has never been a policy debate about this because no one really criticized 401(k)s during the 1990s when the stock market was raging and everyone thought their accounts would just keep rising with the tide," Friedman said. "Now, a lot of people are discovering that 401(k)s might not be quite what they are cracked up to be."

Benna, 60, is doing his part to help people learn more. His latest book, "401(k) for Dummies" will be released next month by Wiley Publishing.

While he supports efforts to better educate 401(k) investors, Benna believes most employers sponsoring the plans aren't up to the challenge and probably never will be.

About 97 percent of the nation's 400,000 401(k) plans are offered by small and medium-sized businesses with fewer than 500 employees, Benna said, leaving them "no better equipped for making investment decisions than the participants are."

Congress is considering a variety of 401(k) changes, including limits on the amount of employer stock that can be held in the plans and reforms in the way the plans are run.

Friedman believes the government should play a greater role because 401(k) accounts provide one of the nation's biggest tax breaks — about $60 billion annually. That figure likely will rise over the next few years as the maximum annual 401(k) contribution per investor rises from $11,000 this year to $15,000 in 2006.

"We should make sure the benefits are worth the tax breaks we are doling out," Friedman said.

Benna has shared in the recent losses. He says his own 401(k) account — fully invested in the stock market — has dropped by more than 10 percent so far this year, marking his first significant setback since the 1980s. He isn't cashing out of his positions, nor is he blaming his invention. "The problem isn't the 401(k). It isn't broke," Benna said. "The issue is the investing decisions that we make."