WILLIAMSPORT, Pa. _ Longtime Pennsylvania resident Ted Benna invented the 401(k) plan more than 35 years ago. Now, he has written a road map to cheaper, less complex retirement-savings plans for small businesses and employers.
The 401(k) has become ubiquitous as a tax-efficient method of retirement planning for American corporate employees. Since 1980, when Benna's invention debuted, other savings vehicles have become popular, as well, including IRAs (individual retirement accounts) and 529 plans (college savings accounts).
And yet, the 401(k) prevails. Earlier this month, incoming Securities and Exchange Commission Chairman Walter J. Clayton referred to typical investors as "Mr. and Ms. 401(k)," a nod to the fact that the bulk of Americans sock away savings in corporate 401(k) investment plans, as opposed to having traditional pension plans accumulate retirement savings for them.
What does Benna propose? First of all, cheaper 401(k) plans for small businesses.
"Many small employers haven't established 401(k)s because they are too expensive, complex and have too much liability exposure," he said in an interview from his farm outside Williamsport. Close to half the U.S. private workforce doesn't have access to employer-sponsored retirement plans.
The new iteration, the Benna 401(k), is an answer to these problems, he said. Earlier this month, he released a guidebook explaining how small-business owners can set up their own Benna 401(k)s while avoiding substantial fees. These days, Benna runs a retirement-consulting firm; the guidebook is available for $18.99 at his website, 401kbenna.com.
"It typically costs $1,000 to $1,500 to set up a 401(k) and $1,000 to $3,000 in annual administrative fees for smaller employers," Benna estimated. Employees covered by small-business retirement plans typically pay between 1.5 percent and 2.75 percent annually in fees _ many of which are hidden and hard to understand.
"The new Benna 401(k) plans do not have any set-up or administrative fees, and your employees will have access to a wide range of investment opportunities for only 0.25 percent or less, a small fraction of typical 401(k) plan packages," he added.
Benna has drawn up three new retirement-savings models that he contends offer the same benefits as a traditional 401(k). One is best suited for married employees with less than $100,000 of adjusted gross income and single employees with less than $62,000 of adjusted gross income. Another avoids the payroll taxes applicable to employer contributions. The third model allows employees to sock away pretax contributions of up to $12,500 under age 50 and $15,500 over age 50, compared with only $5,500 and $6,500 for some other models.
What's his goal? Attract more Mr. and Mrs. Small Business into retirement plans for their employees.
"The 401(k) has helped more than 50 million employees save for retirement and to accumulate more than $15 trillion in retirement savings," he estimated. "The matching employer was a big factor. I knew tax savings alone wasn't a big enough deal to get broad employee participation.
"My primary goal is to show there are attractive alternatives available to the smallest of employers that don't cost a lot to set up and maintain."
