If you work for a company that offers you a 401(k) or some other form of workplace retirement savings plan, you can thank Ted Benna.

Ted Benna is the self-professed “actuarial grunt” who, in 1978, recognized the potential of a new clause, the 401(k), that Congress added to the Internal Revenue Code (“the Code”). How it all happened was due to the vision Benna brought to work that for anybody else would have simply been mundane. Otherwise, this small—yet eventually critical—section of the IRS’ Code, would have been (possibly forever) overlooked.

We all have Benna to thank for revolutionizing the way people think about, and save for, retirement—and how important and personal people view the savings in their 401(k) plan.

CNBC, Barron's, Money Magazine, and some national business-to-business trade magazines, including 401(k) Specialist and Money Management Executive, have paid homage to Benna over the years. It was actually Money magazine that dubbed Benna “The Father of the 401(k)” in the 1990s, and the moniker stuck.

Inventor of the 401(k) is, actually, a more accurate name for what Benna did, and what he continues to do. Benna also has written a book that has gone through multiple editions, including this year, "401(k)s for Dummies" (John Wiley & Sons, Inc.).

Congress enacted the 401(k) legislation because executive income in 1965 was taxed at a rate of 75%, Benna points out in a book that he self-published in 2018 “The 401(k) 40 Years Later.” Benna was an actuarial consultant to a number of leading banks in Philadelphia, and so, on behalf of his banking clients, he took the time to read the law carefully—and understood how the 401(k) clause in the Code could be applied not just to his current clients, but ostensibly to every company in America.

Today, of course, it is unfathomable that the U.S. government would tax a person, especially a middle-income person, at a 75% rate, but that was, indeed, the case in the 1960s, Benna notes. This 75% tax rate “also made cash bonus plans unattractive to senior executives,” he says. “Imagine getting a $20,000 bonus—and sending Uncle Sam $15,000 of this amount! Any state or local income taxes would also take more of this bonus.”

In a critical passage in the book, where Benna recalls the real genesis of the 401(k), he writes: “I am often asked to explain how 401(k) came about and why I am often called ‘The Father of 401(k). The roots to 401(k), surprisingly, go back into the 1960s when a hybrid type of profit-sharing plan emerged, primarily at banks. Banks were noted for having lower salaries [paired with] generous benefit programs, usually including a defined benefit [DB] pension plan. The pay structure often also included an end-of-year cash bonus, typically ranging between one and two week’s salary. The intent was to reward employees where there were sufficient profits with a form of pay that was not fixed overhead.”

The Genesis of the 401(k) Hand-Out

During good years, banks would be in a position to reward their top executives with such a bonus, and in lean years, they could pull back, Benna continues. “You should not be surprised that, after a few years of getting cash bonuses near Christmastime, an expectation was established that was difficult to break,” Benna says. “Because these banks were concerned about how a no-bonus year would affect employee morale, they felt trapped into paying the bonuses regardless of profits.”

The key to the 401(k) legislation is that 401(k)s are what is called in the investment management industry “qualified plans.” That means they qualify for tax deferral of one’s salary. By setting money aside for retirement or some other long-term goal in a 401(k) or other qualified account, like a 529 college savings plan, a person can reduce their income and, therefore, their taxes, as well.

401(k)s are also notable for the matches that companies typically give to their employees. These typically run anywhere from 0.5% to as high as 3% or, sometimes, 4%.

In a nutshell—without going into the details of the law and how it tried to create an even playing field for both highly compensated executives (the lingo in the industry is “HCEs”) and the rank-and-file—401(k) plans were the government’s way of making a type of cash-deferred profit sharing plan available to a broader set of employees.

Benna had the foresight to understand that this obscure 401(k) clause could become the genesis for the $32.7 trillion mutual fund industry.

Benna writes that it was fortuitous that he took the time to carefully read the 869-word bill “was worth the effort because I discovered there clearly was an alternative” to a Keogh savings plan (employer-funded, tax-deferred plans primarily intended for self-employed people and businesses that are not incorporated).

Yet, Ted Benna himself  could not be more down to earth and self-effacing. He is very willing to share that he is a man of faith and that, while he is aware of the ripple effect of his work in 1978, he does not really like to take credit. That said, Benna welcomed the “Father of the 401(k)” moniker. To be called its “Inventor” or, even, its "Pioneer," is also fine by him.

Bringing 401(k)s Down Market

Benna is currently working with a team of software developers and financiers on developing four different, low-cost alternatives to 401(k)s for companies with 100 or fewer employees, primarily through individual retirement accounts (IRAs). The name of Ted Benna's start-up is Penelope.  He tells Newsmax Finance: “I have been involved with a new entity in the discussion stage. It is a high-tech start-up focusing on helping the mini-employer market pick the right plan, and to help them set it up and operate it for them.”

The concept is not new. Many other companies have tried to offer low-cost 401(k) alternatives, but nothing has caught on in a big way. Large investment houses that provide mutual funds for 401(k)s, the likes of Fidelity Investments, Vanguard, American Funds, Empower Retirement and T. Rowe Price, to name a few, are for the most part more focused on the larger end of the market, i.e. companies with 100 or more employees.

However, Benna thinks he and his partners may have found the right approach. He tells Newsmax Finance: “There are now four types of 401(k)s and three types of IRA-based plans available. I have spent the past three years finding better ways to utilize the IRA-based plans because the 401(k) is the wrong type of plan for most small employers whose owners earn less than $100,000. There are tons of such employers.”

Ted Benna & ‘Divine Help’

At 79, Benna shows no signs of quitting work, or his mission to bring retirement savings options to every American. He resides in North-Central Pennsylvania with his wife Ellie, to whom he has been married for 61 years. He has never pursued an executive position with an asset management firm or launched a consultancy of his own—both of which would have earned him a considerable sum of money. Instead, he offers that his faith is central to his life, as well as his four children and nine grandchildren.

Asked what it feels like to be responsible for launching a trillion-dollar industry, i.e. retirement savings, Benna answers: “That is not an issue probably because I have been involved with the 401(k) for 40-plus years, and since I continue to be actively involved, it makes it hard to get away from the fact that I played a major role in making 401k what it is today. It is a fact of life that I don't dwell on.”

As to what advice he would give to the youngest generation in the workforce, Gen Z (ages 9 to 24) about how they should view the career and earnings they have before them, Benna says: “There are spenders and savers at all income levels. Savers learn to save regardless of how much they make, while spenders have a hard time doing that because they believe the answer is to have a bit more income. More income rarely results in more savings.

“New employees entering the work force need to decide which they will be: spenders or savers. Many 401(k) participants have thanked me because a 401(k) helped them save money they would have otherwise spent by making saving the first priority; therefore look for an employer that offers a 401(k). Start saving early. Do not wait!”

As to what other benefits besides 401(k)s that he thinks companies could consider offering their employees, Benna says: “Basic financial education is still needed and can be a valuable benefit employers can offer—as long as the education is provided by someone who isn't trying to sell investment or insurance products. This should include finance basics like budgeting, debt management, how to turn discretionary spending into savings, etc.”

Best advice Benna ever got? “Learn from your mistakes because we all make them. Some can be very painful but learning from them will help you do better. I have done some very successful things, but I have also attempted many things that haven't been successful. One very bad experience taught me to put little or none of my money into new ventures.”

What is Benna most proud of? “I learned a long time ago that I need to keep my ego in check. As a result, I avoid getting too puffed up about my 401(k) involvement. I think it was Money Magazine that gave me the 'Father of 401(k)' label. I have become comfortable with that label because as is detailed in the book '401(k) - Forty Years Later'— I was the one who created the first 401(k) savings plan with matching employer contributions and pre-tax employee contributions. I also was the one who—with the help of my associates—worked hard to bring it to market.

“But as noted in the book, I received divine help doing that.”