Ted Benna, the Father of the 401(k), is 84 years old and has a regret. The 401(k) he helped create has worked well for higher earners, but it hasn’t delivered the same results for lower-paid workers, many of whom can’t afford to have money taken out of their paycheck even when a plan is available. Now he’s trying to fix that.
A recent Bloomberg piece published in Wealth Management profiles Mr. Benna’s latest project: Radish, an employer-funded incentive savings plan designed for the truckers, warehouse workers, retail staff, and hourly employees who haven’t benefited from the 401(k) system.
More than two-thirds of private-sector workers have access to a 401(k)-type plan, according to the Bureau of Labor Statistics. But only about half of those eligible actually participate. Mr. Benna believes the 401(k) has become too complex and expensive, and that the workers who most need financial security are the ones least able to use it.
Radish is structured as a 401(a) profit-sharing plan, specifically designed for employees earning less than $160,000. Unlike a traditional 401(k), Radish doesn’t require employees to contribute from their paychecks. Instead, employers deposit money into a worker’s account when they hit performance goals—things like safety milestones, tenure, or on-time delivery. Workers track their rewards through an app and can watch their balance grow over time.
The accounts grow tax-free until withdrawal, though workers do pay income taxes and a 10% penalty if they take the money out before age 59½. Mr. Benna recommends keeping things simple and investing the contributions in a money-market fund.
For employers, Radish is pitched as a retention and performance tool. Because contributions don’t pass through payroll, companies avoid payroll taxes on the rewards, similar to how 401(k) matching contributions are treated. A company could offer $5 a day for meeting goals, or $1,000 as an annual retention bonus.
Mr. Benna says a company could offer both a 401(k) and Radish—using the 401(k) for all employees and Radish incentives only for lower earners. The hope is that workers develop savings habits and eventually roll their accumulated rewards into a 401(k) or IRA.
Radish is still in the early stages. Mr. Benna and his partners are working with a North Carolina private school, an Oklahoma retail operation, and a pilot with about 200 workers at a trucking firm. They’ve pitched large insurers, recordkeepers, and a major university, but no big clients have signed on yet.
Not everyone is convinced. Joshua Gotbaum of the Brookings Institution says employers may prefer to reward workers through payroll. Alicia Munnell of Boston College’s Center for Retirement Research questions whether Radish rewards come at the cost of higher wages. She also notes that since the rewards aren’t considered cash compensation, they won’t count toward Social Security benefits.
Mr. Benna sees it differently. “Improved financial security now is more important than larger Social Security benefits 10 to 30 years from now,” he said.
Whether Radish takes off or not, Mr. Benna is clear-eyed about his legacy. “I probably won’t be alive when this takes off,” he said. But he’s betting that the same herd instinct that eventually made the 401(k) ubiquitous could work again—if he can just get the first few employers on board.
