The plan that today forms the backbone of the nation's retirement system ironically came about as a fluke.
When Congress amended the tax code in 1978, it never intended to turn the retirement world upside down. It merely wanted to right an imbalance in the use of cash-deferred profit-sharing plans.
Ted Benna, an actuarial and benefits wizard considered the father of the 401(k), found a way to apply the 869-word addition to the tax code not to profit-sharing plans as intended but to thrift plans in vogue at the time. His meanderings led to the 1981 launch of the nation's first 401(k).
As Mr. Benna tells it, the idea for the 401(k) emerged as he tinkered with ways to help a bank client ensure that its cash-deferred profit-sharing plan complied with the new 401(k) requirement that the amounts deferred by high-paid workers did not greatly exceed what lower-paid workers deferred.
As he tried to help the client, he was struck with an entirely different idea: Why not marry the benefit of pre-tax employee contributions that were part of profit-sharing plans with a popular benefit of thrift plans that large employers offered at the time — an employer matching contribution.
"When that light went on to do that, I realized this had the potential to be something really big."