Ted Benna, the retirement consultant widely credited with helping create the modern 401(k), now believes the retirement plan has fallen short for many lower-income workers.
Benna, now 84, believes many middle- and lower-income workers cannot afford to contribute to a 401(k), even when their employers offer one, in an interview with Bloomberg published on Tuesday.
“The 401(k) isn’t working really well now for many middle- and lower-income employees,” Benna told Bloomberg, adding that “many of them can’t afford to have money taken out of their paycheck even if they have the opportunity to do so.”
Rather than relying on workers to set aside part of every paycheck, Benna wants employers to help them build savings through a new program called Radish.
What Is Radish?
More than two-thirds of private-sector workers have access to 401(k)-type retirement plans, but only about half of eligible workers participate, according to the U.S. Bureau of Labor Statistics.
Benna’s new idea, Radish, is designed for workers who often miss out on retirement savings. Rather than requiring employees to contribute their own money, employers reward workers for meeting goals such as arriving on time, maintaining strong safety records, staying with the company or achieving performance targets. Those rewards are deposited into a savings account that grows over time.
Benna believes the approach could help workers begin saving without reducing their take-home pay. At the same time, companies could use the program to improve employee retention and encourage better performance.
Looking Back at the 401(k)
The 401(k) became one of the biggest changes in U.S. retirement saving. It has helped about 70 million workers build nearly $10 trillion in retirement savings while giving companies an alternative to traditional pension plans.
Benna developed the idea in the late 1970s while working as a retirement consultant. He wanted more workers to be able to save part of their pay before taxes with employers adding matching contributions. After introducing the plan at his own company in 1981, it quickly spread across the country.
But Benna says the system changed in ways he never expected. Instead of working alongside pensions, the 401(k) gradually replaced them. He now believes it has benefited higher-income workers far more than many lower-income employees who struggle to save from each paycheck.
Can Radish Work?
Benna believes Radish solves that problem by changing who puts money aside. Instead of asking workers to save from their wages, employers reward employees for meeting goals such as showing up on time, working safely or staying with the company. The money is deposited into a savings account that can grow over time.
The idea has attracted interest from insurers, retirement plan providers and other organisations, but no major employer has adopted it yet. Trial programs are being planned with a private school, a retail company and a trucking business.
Some retirement experts aren’t convinced. They argue employers may prefer simply paying workers more instead of creating another savings plan. Others say the rewards may not count toward future Social Security benefits.
Benna sees it differently. “Improved financial security now is more important than larger Social Security benefits 10 to 30 years from now,” he said.
His proposal comes as many Americans still struggle to build retirement savings. Roughly one-third of private-sector workers do not have access to an employer-sponsored retirement plan, meaning they must save on their own without automatic payroll deductions, a challenge that often leads to lower participation in retirement accounts.
At the same time, workers who do have access to workplace retirement plans have continued saving despite market volatility. Fidelity’s latest retirement analysis found record savings rates for both 401(k) and 403(b) plans, suggesting many participants stayed invested and kept contributing even during uncertain markets.
