Fact Check: Were 401(k)s Really An ‘Accident Of History’?

“401(k)s are an accident of history”: That’s the title of a 2017 article at the Economic Policy Institute, which goes on to say that “401(k)s were never intended to replace pensions.”

In a 2015 CNBC article with the shorthand title (that is, in the URL), “The 401k is a failure,” that news site cited another expert:

“’401(k)s were never designed as the nation’s primary retirement system,’ said Anthony Webb, a research economist at the Center for Retirement Research. ‘They came to be that as a historical accident.’”

And also at CNBC, in 2017, reporter Kathleen Elkins called it an “accidental retirement revolution,” citing a recent Wall Street Journal article interviewing the so-called “father of the 401(k),” Ted Benna. Here are Elkins’ excerpts:

“The original proponents of the 401(k) plan, which has become the dominant source of retirement savings for most Americans, are rueful about the revolution they unintentionally began.

“’[Many early backers of the 401(k)] say it wasn’t designed to be a primary retirement tool and acknowledge they used forecasts that were too optimistic to sell the plan in its early days,’ The Wall Street Journal reports. ‘Others say the proliferation of 401(k) plans has exposed workers to big drops in the stock market and high fees from Wall Street money managers.’

“Even the ‘father of the 401(k),’ Ted Benna, tells The Journal with some regret that he ‘helped open the door for Wall Street to make even more money than they were already making.’”

Here’s the story of the “invention of the 401(k)” as told by the inventor himself, that is, at the website Benna401k LLC:

“The 401K name comes from a section of the IRS code. This section was added in 1978 but for 2 years no one paid much attention to it. A creative interpretation of that provision by a smart consultant gave birth to first 401k savings plan. The government tried to repeal the 401K provision twice once it realized the enormous tax loss from the 401K provision.

“401K plans as they evolved today are a brainchild of Ted Benna, a retirement benefit consultant working for a Pennsylvania based Johnson Cos. (not Johnson and Johnson as most sites wrongly claim). He devised the plan for a client who declined to use it because of the fear that once the government realized the tax loss potential of the plan the 401k provision would be repealed. After the client rejected it, Ted Benna persuaded his own company to use it.” 

But this new conventional wisdom is missing several key points: