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HISTORY OF THE 401-K PLAN

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The whole thing started when congress passed the Revenue Act of 1978. They added a section to the tax Code - Section 401, Paragraph (k). The idea was to try to level the playing field of tax benefits in profit-sharing plans between various levels of pay within a company.

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In 1980, a guy named Ted Benna, who was a pension benefits consultant, found the then-obscure 401-k language when he was working up a revision to a bonus system for one of his clients. He realized that this language could let a company allow its employees to shelter money from federal taxes by contributing it to a plan governed by this part of the Tax Code. Further, it was clear that the employer could offer to put in money on behalf of ONLY THOSE employees who made contributions of their own first, thus the so-called employer match.

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Mr. Hanna's client didn't buy it!! The client's lawyers were afraid of an untried idea and were not willing to let their client be a test case. Eventually, though, the Internal Revenue Service approved this type of plan, and as they say, the rest is history. Millions of employees, thousands of employers and nearly a TRILLION dollars are now wrapped up in these plans.

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14-11102005