When Ted Benna, aka The Father of the 401(k), examined Section 401(k) of the tax code after it became effective in 1980, he realized that there could be a way for workers to save more money for retirement on a tax-deferred basis. The extra benefit that he saw was that employers could add a match, which would be a perfect way to incentivize all employees to forego some of their weekly pay and divert it towards retirement. The largest companies started the trend, but soon smaller companies, which previously had not offered any retirement savings vehicles, also got into the act. You know what happened after that--deferred savings plans replaced most pension plans and retirement savings became just one more thing that Americans had to do on their own.
The first iteration of the 401(k) was pretty simple--just a couple of investment choices. Benna said that as plans introduced lots of investment choices, they became more confusing. Unfortunately, that opened the door for the financial services industry to pile on fees and also to make itself indispensable in the process. Benna believes that with the DOL's new fiduciary rule, participants should hopefully see a return to simpler plans with far more reasonable fees.
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