We’ve heard incessantly how half the workers in America don’t have access to a retirement savings plan through their employer.
It’s not that they don’t have access to a retirement savings plan. Since 1974, all Americans have had access to a retirement savings plan – the IRA.
In fact, initially, the IRA was only available to those who weren’t covered by corporate retirement plans.
Yet, despite this multi-year head start, it was the 401(k), not the IRA, that became the standard for retirement saving. This makes sense because the 401(k) had the advantage of payroll deduction (thus making things easier) and matching contributions from the employer (thus providing a financial incentive).
IRAs have always been burdened by the need for retirement savers to behave proactively. IRAs require initiative, discipline, and responsibility. Culturally, they would have fit better in the America of the nineteenth century, not in an America increasing dependent on the kindness of strangers (i.e., third-party institutions).
But the lack of 401(k) offerings by, in particular, small businesses, isn’t an employee story, it’s an employer story. Ted Benna, credited with discovering and then starting the first 401(k) plan, identifies three reasons the owners of small businesses are reluctant to start retirement plans (see “Ted Talks! The Benna 401(k) Comes Alive,” FiduciaryNews.com, September 19, 2017).
The 401(k) plan has long had an appeal to everyone. It’s a standard benefit employers want to offer.
For larger firms, the implications of providing a 401(k) plan aren’t significant. For smaller companies, though, the cost, complexity, and liability exposure represent insurmountable impediments.
The burden of this perilous trilogy is often enough to dissuade small business owners from starting 401(k) plans – even if it’s in their own best interests to have a 401(k) plan.
Now, here’s the strange thing.
We’ve had IRA alternatives of all kinds that eliminate or reduce these problems for employers. In addition, half the workers would rather not have a retirement plan than start their own IRA.
Oh, they’ll bend over backward to complain about how they really want a 401(k) plan, but, as usual, the perfect is the enemy of the good.
If you understand all this, then you understand the genius of the “Benna 401(k).” In terms of branding, you can’t get more 401(k) than the words “Benna” and “401(k).”
With this one-two punch, employers will certainly take notice and may even buy Benna’s guide “How to Set Up Your 401(k) (And Save a Lot of Money).” Savvy professionals, on the other hand, know Benna’s “401(k)” models are really nothing more than IRAs (perhaps with an important twist), but they also know there’s something universally compelling about “401(k)” compared to “IRA.”
In the interview with Benna, Benna clearly states a traditional 401(k) is better for companies looking to capture the benefits of a traditional 401(k). But when a traditional 401(k) isn’t a viable option, then the “Benna401(k)” might fit the bill. Employers and employees seeking to have a “401(k)” can do so, even though the Benna401(k) models are really IRAs.
The difference, according to Benna, is these retirement saving vehicles allow for payroll deduction and company matching, something many IRA owners don’t currently have.
It's easy to envision the decentralization created by the Benna 401(k) becoming the next step in the evolution of retirement plans. Although the Benna 401(k) uses existing structures and doesn’t require any regulatory changes, the movement towards more individualization in retirement savings will ultimately require changes in retirement law (see “401(k) 2.0 – A Proposal,” FiduciaryNews.com, December 7, 2010).
But any changes like that are a far way off. In the meantime, Benna appears to have opened a hole in the line for retirement plan service providers hoping to expand into the small business market. If enough practitioners see the light, then we may be able to say that Benna lightning has struck twice.