‘Father’ of the 401(k)’s Tough Love (wants to 'blow them up')

SmartMoney Blogs ^ | Nov 22, 2011, 10:12 AM | Jeremy Olshan

[mwilli20]

Ted Benna, who three decades ago seized on an IRS loophole to transform American retirement savings, says he’s proud to be “father of the 401(k).” He also thinks he created a monster.

...

“I would blow up the system and restart with something totally different,” he told SmartMoney.com. “Blowing up the existing structures is the only way we can simplify them.”

[mwilli20]

Let's see, we also have way too many foods. It used to be so simple, raw meat, greens and roots.

We also have way too many cars, big, small, electric, two wheel, four wheel.

People are too stupid to be able to choose from all these options... they say!

From Bush's "We have to abandon the free market principles in order to preserve them" to Matthews' "give me my orders mein furher" and now to this ninkompoop people reflexively fall into this trap of believeing the government can save them from everything.

It's gotta stop! We have a chance in 2012. I fear it will be one of the last ones we will be given!

[jessduntno]

We don’t all get behind a legitimate candidate (someone who is ready to be CIC from DAY ONE) pretty soon, no one is going to take whoever he or she is seriously...if we aren’t too late already. And we’ll get another four years of Hussein.

[frithguild]

“Blowing up the existing structures is the only way we can simplify them.”

[Silentgypsy]

Ping.

[Silentgypsy]

The complexity of the options induced the spouse of a friend to hire a financial consultant. He lost 50% of his principal during one of the crashes, and hadn’t recovered by the time he was downsized out of the firm.
No one cares as much about your financial well-being than you do.

[class8601_nuke]

What is RULE NUMBER ONE????!!!!

[Vigilanteman]

Anybody who talks about blowing things up and starting over is a fool. What makes them think things will be built better if they started over?

Particularly when the same factors which screwed things up in the first place are still in existence?

A 401(k), however imperfect, is still a huge improvement over a government ponzi scheme.

If you don't believe that, just look at Greece. Or Detroit.

[sodpoodle]

Great post.

IMHO - the human race has become just too untidy for the totalitarians. I am convinced their solution - since they really shouldn’t reduce the numbers of humans running amok - is to control them in neat little communes - with rules and regulations on utility use, lawn maintenance, paint colors, garbage can labels, parking permits, shopping days odd/even, medical exams and pet/children limits/licenses.

Stuff like that;)

[5thGenTexan]

“Blowing up the existing structures is the only way we can simplify them.”

OK, but let's start with the Federal Tax system ,which I have no power over, and leave my 401(k) that I do have power over alone.

Power to the people and all that.

[PieterCasparzen]

Ted Benna, who three decades ago seized on an IRS loophole to transform American retirement savings, says he’s proud to be “father of the 401(k).” He also thinks he created a monster.

From the article...

The consequence of all the complexity is twofold, he says. First, employees felt they could be more active investors. “There is too strong a potential for employees to do the worst thing ever, which is moving in the wrong direction, panicking when things are bad and cashing out after they have been battered.” Secondly, the current plans induce “a kind of gridlock – employees get so overwhelmed they do not participate – they do nothing,” he says.

Education didn’t work to stop employees from sabotaging their own futures, he contends, but legislation might. “We need a legislative mandate that when you change jobs, the money needs to be retained in a retirement account – there cannot be an option of ‘here’s a check, you decide,’” Benna says. He also advocates mandating all employees be auto-enrolled in the plans, and that their contributions be automatically increased one percentage point per year to a maximum of 10% to 15%.

This guy is part of the retail investing industry, which is kind of rigged against the retail investor (rube). It's goals:

a) get more business from rubes with very little money (the retail investor); get every poor slob out there to have money sucked out his paycheck and invested in "funds" he is hawking.

b) move all market risk to the small retail investor - even though the SEC and all it's regulations were formed under the guise of "protecting" the retail investor. They get paid commission based on a percentage of invested assets, not based at all on gains or losses. The scam thickens.

c) keep the small retail investor stupid. what investing always boils down to at the end of the day is understanding a p & l, balance sheet and business operations. get the rubes looking at fund performance and listening to all sorts of gibberish instead of knowing how to evaluate a business and decide when to buy and sell a stock or a bond. Which, in reality, is much easier than evaluating what's going on with "markets", funds, etc., - which have portfolios of investments ! If I can't evaluate an investment in a single company - how can I evaluate an investment in a fund that is investing in myriad investments ? I don't, I just trust them until I get scared and pull out. If you keep the rube always investing in funds - and afraid to buy individual stocks - he's trapped in your fund. And you profit even if he loses money. Sweet.

[PieterCasparzen]

The SEC and all it's related laws and regulations keep small capital from forming unless it goes through big capital and pays a fee.

Neighbor is prevented from investing in neighbor.

Read up on SEC regulations and you'll see how they are designed to lock out individuals. Everyone who does anything in capital markets needs a license.

Read SEC regulations and find out - exactly what protection does the small retail investor have. You'll be amazed.

[af_vet_rr]

People are too stupid to be able to choose from all these options... they say!

It's not that they are stupid it's that some of them are complex. I think the tax code ought to be reformed long before 401(k) but I understand his sentiment - until you've tried to help somebody with a 401(k) who has never had to deal with one before, you don't understand how complex/confusing it can be.

[Eepsy]

If your 401k is your only retirement asset:

1) Pick out your provider’s lowest fee total market funds

2) Put your age-10 into the total bond market, and the remainder into your total stock market fund.

3) Once a year, probably on your birthday, move money from one fund to the other to maintain your ratio.

K.I.S.S.

[Graybeard58]

The complexity of the options induced the spouse of a friend to hire a financial consultant. He lost 50% of his principal during one of the crashes, and hadn’t recovered by the time he was downsized out of the firm. No one cares as much about your financial well-being than you do.

My friend retired about two months ago and moved his 401K to Merrill Lynch and is now wondering why he is missing about 10% of his money, he thinks it was eaten in hidden fees. They promised that the fees would amount to no more than 3% spread over 5 years.

I believe that most are not capable of understanding all the details in such a move and just trust that a big name company won't steer them wrong. It's sad but they will indeed do that and when you are dealing with a salesperson by phone, they have deniability. Commissions, commissions, commissions.

I have been handling my own money and stocks and bonds since I retired 12 years ago and I'm here to tell you, it takes an educated person to do it, I had to educate myself and that education was sometimes expensive, sometimes not.

My friend mentioned above, asked my help and advice and I had to turn him down on both. I have enough on my plate already, plus, I don't want to be responsible in any way, shape or form, for somebody elses money.

I have two sisters who are helping my 91 year old mother manage her money and I'm thankful for that. They are doing a fine job.

[EVO X]

My friend mentioned above, asked my help and advice and I had to turn him down on both. I have enough on my plate already, plus, I don't want to be responsible in any way, shape or form, for somebody elses money.

Great words of wisdom. Even telling somebody to put it in a dated retirement fund could be bad advice for that person...

[EVO X]

Put your age-10 into the total bond market, and the remainder into your total stock market fund.

If your 110 years old, that has been great advice to follow during the last decade..

[mwilli20]

Some are complex and confusing? Don’t participate. Pretty soon the company will realize that the plan does not offer an advantage for their employees and they will change it.

You have the option to not participate, you can participate and put the money in a simple interest-bearing fund or you can treat it as a day-trading opportunity.

But don’t fall prey to the illusion that there is a smart group of people out there that can make it better. Chances are far better than 50/50 that they’ll screw it up.

Remember that this was an UNINTENDED feature of the tax code. I bet that’s why it was so successful. ;-)