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Retirement

The 'Father of the 401(k)' Has a New Idea to Get You Saving for Retirement

Money; illustration AI-generated with Gemini

The creator of the 401(k) has a new idea to help low- and middle-income workers save for retirement.

Ted Benna, an employee benefits consultant who created the now-ubiquitous 401(k) plan in the late ‘70s, is trying to convince employers to offer a separate savings benefit: the Radish plan.

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In short, the Radish plan is an employer-funded savings account that can be used to incentivize workers to hit specific targets, such as attendance, safety or performance goals.

It’s separate from a cash bonus because the contributions into a Radish account aren’t taxed. And it’s different from a 401(k) plan because those contributions must come out of a worker’s paycheck, even if the company decides to match contributions.

Despite being its creator, Benna has long been critical of 401(k) plans. He argues that the retirement accounts tend to help workers with six-figure incomes or higher, who are able to make retirement contributions that come from their paycheck.

Benna designed the 401(k) plan in 1979, earning him the title of "father of 401(k)," as Money Magazine first used in a 1992 award honoring his contributions to personal finance. In recent decades, 401(k) usage has skyrocketed. Some 70 million Americans have more than $9 trillion of investments in 401(k)s.

But access is far from universal. About 6 in 10 workers still do not have 401(k)-like retirement savings accounts, according to U.S. Census data.

Benna argues that even workers who do have access can’t always afford to make contributions, stifling their retirement savings at a time when Americans believe they'll need nearly $1.5 million to retire comfortably.

The Radish plan is Benna’s latest idea to fill those gaps.

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Radish vs. the 401(k)

The Radish plan markets itself as a way for employers to reward good behavior and performance while saving on their taxes.

For instance, a storeowner can incentivize good attendance by giving workers $5 for every shift they show up to on time. The contribution into the account is separate from regular wages, so the employer saves on payroll taxes, such as Social Security, Medicare, workers compensation and unemployment taxes.

Meanwhile, the worker gets a rainy day fund that doesn’t have to come out of their paycheck — and they don't pay a dime in taxes until they withdraw.

Radish recommends the account itself be a money market account to keep investment options simple, but the funds can be rolled over ultimately into a bona fide retirement plan like a 401(k) or individual retirement account (IRA) later on.

A key component of the Radish account is that it's highly flexible, and employers can tweak the metrics they reward and the amount of the contributions to meet their needs.

The benefit itself is legally considered a qualified retirement plan and is only available to workers who earn $155,000 a year or less, meaning it’s exclusive to workers who Benna says often miss out on the perks of 401(k)s. However, it doesn’t have to be an either-or scenario, employers are free to offer a Radish plan and a 401(k) simultaneously.

Radish boasts that the money deposited in the accounts is also far more accessible than 401(k) funds. But as a legal retirement plan, there are still withdrawal caveats worth considering.

Unlike 401(k)s, employers have flexibility in determining the reasons an employee can dip into Radish funds, such as for emergency car repairs or medical bills. However, what’s universal is that withdrawals before the age of 59 and a half are taxed as federal income, plus a 10% early withdrawal penalty.

Although Benna has struck gold once before by creating the most popular private retirement plan to date, Radish has an uphill battle with adoption. According to Bloomberg, Radish has only a couple clients thus far.

In the coming months, the company says it’s partnering with a 200-worker trucking firm as part of a pilot program. Employers interested in offering the benefit to their workers can contact Radish for help with setting up a plan.