The 401(k) turned 40 this week. Over the last four decades, the 401(k) has evolved in a number of ways— the development of communication and education programs, call centers, advisory services, online account management and the integration of mobile and digital capabilities—becoming the centerpiece of employer-sponsored retirement benefit programs. It is its own brand, in a way. What other section of the Internal Revenue Code do Americans know, asked Charlie Nelson, CEO of Retirement and Employee Benefits at Voya Financial.
The 401(k) was created by the Revenue Act of 1978, four years after the Employee Retirement Income Security Act of 1974 (ERISA) was signed into law. Passed by the 95th Congress and signed into law by President Jimmy Carter on November 6, 1978, the bill led to the addition of section 401(k) to the Internal Revenue Code, which allowed employees to defer taxation on the portion of income they elected to defer.
On Tuesday, in honor of this occasion, Voya Financial, Inc., along with PLANSPONSOR and PLANADVISER, hosted a small gathering of industry leaders, advisers, consultants and plan sponsors at the New York Stock Exchange (NYSE) to share their unique insights and perspectives on this anniversary. The celebration offered roundtable discussions about the health of the 401(k) industry, the impact of legislation and regulation on retirement policy, and reflections on the plan’s 40 years. Bill Harmon, president of Corporate Markets at Voya Financial and Alison Cooke Mintzer, editor-in-chief of PLANSPONSOR and PLANADVISER led attendees in a roundtable analysis of the 401(k), examining its historical strengths and weaknesses and future opportunities and threats. Attendees were very optimistic about the future opportunities for the plan and surrounding industry, noting that an awareness of the plan’s weaknesses could generally be addressed.
“At Voya, we have been proudly supporting customers with their retirement goals for decades,” said Nelson. “Since they were created 40 years ago, 401(k) plans have evolved from a supplemental program to become a primary way that individuals and families save for their future. As we take a moment to celebrate the strong foundation and accomplishments of the system, let’s also recognize the opportunities we have to help even more employers and workers take advantage of important 401(k) benefits.”
According to the Employee Benefit Research Institute (EBRI) in its “History of 401(k) Plans: An Update,” soon after the regulation was signed, and before it went into effect, companies including Johnson & Johnson, FMC, PepsiCo, JC Penney, Honeywell, Savannah Foods & Industries and Hughes Aircraft Co. began examining the new plan opportunity. In 1981, the IRS issued new rules that allowed employees to fund their 401(k) account through payroll deductions. Many of these companies went on to develop 401(k) plans, which officially began operation in 1982.
According to the latest statistics from the Department of Labor (DOL), 401(k) plans cover more than 65 million workers, represent $4.4 trillion in savings and support upwards of $385 billion each year in retiree needs—that’s up from 7.5 million participants and $92 billion of savings in 1984, according to the DOL’s earliest available data.