History of 401k Plans
A bit of history on the 401K, it is a tax deferred, defined contribution retirement plan.The name comes from a section of the Internal Revenue Code that permits an employer to create a retirement plan to which employees may contribute a portion of their wages on a pretax basis.
This section allows the employer to match employee contributions with tax-deductible company contributions. Earnings on all contributions are allowed to accumulate in a tax-deferred trust.
If you read books on 401K or internet sites on 401K, most will tell you that Congress enacted 401K law when it modified ERISA in 1978.
That is not true. It is completely wrong information and it gets circulated again and again.
401K
was not the idea of some smart legislator, the 401K name comes from a
section of the IRS code.
This section was added in 1978 but for 2 years no one paid much attention to it. A creative interpretation of that provision by a smart lawyer gave birth to first 401k plan.
The govt tried to repeal the 401K provision twice once it realized the enormous tax loss from the 401K provision.
401K plans as they evolved today are a brainchild of Ted Benna, a retirement benefit consultant working for a Pennsylvania based Johnson Cos. (not Johnson and Johnson as most sites wrongly claim).
He devised the plan for a client who declined to use it because of the fear that once Govt realized the tax loss potential of the plan the 401k provision will be repealed.
After the client rejected it, Ted Benna persuaded his own company to use it.
This section was added in 1978 but for 2 years no one paid much attention to it. A creative interpretation of that provision by a smart lawyer gave birth to first 401k plan.
The govt tried to repeal the 401K provision twice once it realized the enormous tax loss from the 401K provision.
401K plans as they evolved today are a brainchild of Ted Benna, a retirement benefit consultant working for a Pennsylvania based Johnson Cos. (not Johnson and Johnson as most sites wrongly claim).
He devised the plan for a client who declined to use it because of the fear that once Govt realized the tax loss potential of the plan the 401k provision will be repealed.
After the client rejected it, Ted Benna persuaded his own company to use it.
That started the first 401K plan in 1981. The 401K plan will be 32 years old next year or in 2012 and is currently estimated to have around 3 Trillion invested in them.
The 401K programs have revolutionized the retirement planning approach.
Now most employees offer a 401K plan of some type.
