Sometimes history is made by presidents, revolutionaries, artists, or groundbreaking scientists.

But at least once it was altered by a pension benefits consultant sitting at his desk in Pennsylvania studying the tax code in the late 1970s.

Today, Ted Benna is known as the “father of the 401(k),” the investment vehicle that has become the default retirement plan for 55 million people, a $5 trillion market that has, for better or worse, completely altered the way many Americans spend, save and view aging. So important is the 401(k), it has been ensnared in political debate over tax reform with President Donald Trump tweeting assurances that “there will be NO change to your 401(k).”  

A 401(k) is essentially a basket of mutual funds intended to help people save for retirement. As pensions fade, and qualms about the future of social security rise, more and more Americans are relying on the 401(k) plans they typically access through their employers—and not without controversy. Advocates say that they provide a way for everyday employees to reap benefits of compound interest, the stock market’s booms, and get ahead of inflation and soaring healthcare costs.

HISTORY Vault: America the Story of Us

America The Story of Us is an epic 12-hour television event that tells the extraordinary story of how America was invented.

Critics argue that they make individual investors vulnerable to twists and turns of daily stock and bond market activity. High fees have lined the pockets of asset management firms, but may leave would-be retirees poorer and with crummy returns. According to a January 2016 report from Pew Charitable Trusts, only one in five Americans believes they’ll have enough money to comfortably retire.

Today, Benna is among the loudest critics of 401(k)s. He still works as a retirement benefit consultant in Pennsylvania, and is somewhat baffled by the outcome, saying he had “no idea” his creation would balloon to what it is today.

Before Benna pitched his idea, retirement in America scarcely existed as a concept. The idea of offering financial support for the elderly began in Europe in the late 19th century when German chancellor Otto von Bismarck began offering pensions to elderly Germans who no longer worked. Prior to that, and in most places in the world at the time, if one was fortunate enough to become old, work happened until death, the elderly moved in with their offspring, or maybe a combination of the two.

In the U.S., many of those attitudes carried over from Europe and a handful of government workers or members of the military received pensions, many of which set their retirement dates to 65. By the 1920s, some large companies had followed suit. By the middle of the century, retirement culture—exemplified by timeshares in Florida, the golf industry, and AARP membership—was booming. Americans, it turned out, were pretty good at figuring out how not to do anything in their twilight years.

But yet, “the idea of saving for retirement at the time was strange,” Benna says of the 1970s and 1980s. Americans with pensions expected those pensions to cover everything.

Trouble is, many of these pension plans were (and are) underfunded. They often had terms that tethered people to jobs for decades they would have otherwise left, thus locking people into workplace misery. In some cases, men could benefit earlier than women even though both worked the same number of years. People of color or at smaller businesses were often left out of the system altogether.

Elderly people doing outdoor early morning exercises in a class on Miami Beach
Nathan Benn/Corbis via Getty Images
Elderly people doing outdoor early morning exercises in a class on Miami Beach

“There’s a widely-held myth that we once had a wonderful retirement program where everyone got a pension and it was happily ever after,” Benna says. “But it’s just that—a huge myth.”

Benna, then working for the Pennsylvania-based Johnson Cos., had a bank as a client that was trying to create its own retirement plan with an interest in curbing the taxes senior executives paid on their bonuses. Benna knew that by deferring how cash was paid out, employees could reduce the amount of tax they paid.

While Congress had added Section 401(k) to the Internal Revenue Code, which was passed in the fall of 1978, that provision did not become effective until January 1, 1980. Benna’s innovation was adding employer matching contributions and employee pre-tax contributions, neither of which had been included when Section 401(k) was added by Congress. Whether or not those types of contributions could be included, Benna says, was left to Treasury.

At first, Benna says lawyers for the bank rejected his pitch, but his company, Johnson, went forward with it in 1981. Other companies found it to be a hard sell. When pitching the idea, Benna was met with stares and comments about how employees didn’t need to save for retirement.

“They were locked into where they were,” Benna says. The mutual fund industry was largely mom and pop operations at the time. “There was a whole industry shift, not only at the employer level, but the financial structure. A lot of it didn’t exist.”

Individual participation in the stock market through 401(k)s helped fuel the go-go days of Wall Street in the 1980s and birthed asset management juggernauts like Fidelity, Vanguard, Pimco, BlackRock, and dozens of others. By the mid-1980s, the mutual fund industry had multiplied many times over, along with the ranks of well-paid professionals on Wall Street peddling the funds and taking high management fees for doing so. More and more Fortune 500 companies began adding the plan and employees poured their assets in.

Today it’s normal for workers to be saddled with arcane mutual fund prospectuses, financial jargon, and potentially conflicted sources for advice when they sign up for their company 401(ks). But the system has also hurt them.

Throughout the Great Recession of 2008, the average 401(k) balance lost anywhere from 25 to 40 percent of value. Nobody was more harmed than baby boomers or recent retirees, who unlike younger workers, didn’t have the time for the market to rebound, or were no longer contributing and therefore unable to invest when stocks were cheap. Investors were left without money, but the money management firms still gathered their management fees.

“Too many people had the highest risk exposure during their working careers at the wrong time,” Benna says. “These people took a hit they’re never going to recover from. They’re told to hang in there and be alright, but I’ve gone through the math. They may not recover and may not be alright.”

Today, Benna, perhaps ironically, isn’t really retired. He continues to offer retirement advice to individuals and companies and is staggered by his offbeat place in financial history.

“It was never intended to be what it is today,” says Benna. “It wasn’t expected to be a big thing.”