Ted Benna, inventor of the 401(k), exhibits the characteristics one would expect an inventor to exhibit.
He is a non-stop font of compelling ideas. His enthusiasm for discovery cannot be denied. And his straight-talk nature refreshes in a way that only honesty can.
It’s an honesty that sometimes frightens those who prefer the worldview of the mass media echo chamber. You want the truth? Ted Benna spouts the truth.
The more pertinent question is “Can you handle the truth?” If you think you’re ready for the truth, read it directly from Ted’s own words in “Exclusive Interview with Ted Benna: Quits Supporting Fiduciary Rule, says ‘Not Sufficient’,” (FiduciaryNews.com, February 22, 2017).
If you read like any other normal person, you conclude the 401(k) is a terrible thing that has robbed the working public of their deserved retirement. To Benna, this is revisionist history.
And he ought to know. In the era prior to ERISA, he used to sell defined benefit plans. He knew what pension plans were. Pension plans were neither universal nor guaranteed. Indeed, if we’re honest enough to recall our ERISA history, we’d remember the need for ERISA arose precisely because pensions failed to offer the protection many thought they did.
According to Benna, the increased restrictions introduced by ERISA, and also by the PBGC, made pension plans less attractive to corporate executives.
In other words, unlike what many have reported, the 401(k) plan didn’t kill the pension plan, ERISA and the PBGC did.
Not only were pensions never all they were cracked to be, they’re a lot worse now.
Benna explains, to realize the maximum advantage from a pension, an employee must work at the same single company for several decades. In today’s job-hopping environment, it is rare for (especially young) employees to work at the same company for several years. Given the real-life demographics of today’s employee universe, it’s not realistic to return to the mythical world where everyone had a pension.
It gets worse still for pensions. They’re not even as safe as advertised. In truth, according to Benna, defined benefit plans (like pensions) possess as much risk as people associate with defined contribution plans (like 401(k) plans).
The difference is the risk is transparent when it comes to 401(k) plans and regulations have only made it harder to hide that risk. With pension plans, on the other hand, it is legally permissible to hide that risk by promising benefits that aren’t fully funded.
Furthermore, in the case of pensions, there is no such thing as “too big to fail.” In the August 23, 2010 US News article “The 10 Biggest Failed Pensions,” Emily Brandon reveals “just ten companies make up 63% of all claims paid out by the PBGC.”
The story places Bethlehem Steel as the third largest pension failure. It might interest you to know that Bethlehem Steel was one of the first companies Benna approached about setting up a 401(k) plan for their employees.
This is what Benna told me: “Bethlehem Steel’s HR director told me their employees didn’t need to save for retirement because Bethlehem took care of their employees forever.”
Rich Smith wrote in The Motley Fool (“Your Incredible Vanishing Pension,” July 15, 2015), “When Bethlehem Steel went bankrupt, not only did the company die, not only did workers lose their jobs -- but also retirees who had thought themselves "set for life" found themselves left out in the cold instead.”
Do you still think pensions are the way to go?
Since Bethlehem Steel gave Benna the cold shoulder, his idea to help employees become self-reliant when it comes to retirement has turned savers into spenders. In the 36 years since Benna created the first 401(k) plan, the savings vehicle has allowed individuals to amass more than $15 trillion in personal retirement accounts.
And it’s all their money. No company can take if from them. No government bureaucracy can strip them of the full benefit of that money. No pension plan can do that.
That’s the truth. If you can handle it.