401(k) piggy bank

When the “father of 401(k)s” talks about changes that are needed to these retirement programs that 54 million people in United States use, the industry should listen.

“[I want] to challenge you to think more deeply about the future of this business and your role in it than you ever have thought of before,” Ted Benna, who received the first approval for a  401(k) defined contribution plan, told the audience as he gave a closing talk at the Envestnet Advisor Summit 2018.

With the 40th anniversary of 401(k)s coming up, Benna went over some of the history of how these retirement plans were developed. They began, he said, as a page-and-a-half addition to the Revenue Act of 1978, and from that a $5.3 trillion savings and retirement business has developed.

“It was a most significant thing that has transformed what’s happening with retirement, good or bad … but it wasn’t intended, it was a fluke,” he said.

He pointed out the three key areas that have shaped the 401(k) business, and will continue to shape it going forward: 1) legislation and regulation, 2) marketplace pressure and 3) technology.

Benna has been instrumental in other major financial developments, including helping the Labor Department with developing fee disclosure and launching target maturity funds. With that vast experience in working with the Legislature, he warned the audience that legislation is very unpredictable because typically it is written by staffers who may or may not have an agenda, and members of Congress usually don’t know what they are voting on.

He stated that marketplace pressure added to the complexity of 401(k)s, as it was a small group of people who influenced the additions of all the various choices there are today, as well as the higher fees.

As with everything, technology has advanced how participants can see their 401(k) funds in real time, “when it used to take months to see transactions and was horribly inaccurate. All that has changed with technology.”

He says the two largest threats to 401(k) growth are 1) state plans that are being developed for small employers, and 2) federal thrift plans that anyone with retirement money can invest in.

He also said he realizes the 401(k) structure needs some changing. “What would I change if start over again? I would blow up the investment structure if I was starting over today because it’s terribly inefficient and ineffective and expensive,” he said, emphasizing that he would not blow up 401(k)s, “But the reality is there are things definitely wrong with 401(k)s and they should be corrected.”

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