Ted Benna, the pension consultant who in 1978 discovered a loophole in the tax code that would allow for the creation of the 401(k), thinks that current retirement plans have gotten too complicated for employees to understand. In an interview with Smart Money’s Jeremy Olshan, Benna blames the system for making 401(k) plans to complex. “We’re throwing tons of money away trying to teach participants how to become skilled investors-we said, we are going to make people smart and savvy enough to make the right investment decisions, but it just hasn’t worked.”
The self-proclaimed “Father of the 401(k)” mentions two consequences from this complexity. “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.” He also mentions that the current 401) k environment has caused many employees to be so confused that they chose not to invest in the plan at all.
Olshan’s article highlights the major point that employees don’t understand the complexity of their investments and often simply choose not to participate in retirement savings. With the upcoming changes in retirement plan regulations, it’s imperative that plan sponsors work their retirement plan providers to offer education programs that will not only demystify the complexity of their 401(k) s, but also hire advisors who can thoroughly educate employees on the importance of saving for their future.