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401(k) Inventor Says Retirement Plan Rules Need to be Changed

As lawmakers debate possible reforms to 401(k) rules in the wake of Enron's financial collapse, Ted Benna, who launched the first 401(k) more than two decades ago, has suggested that workers be barred from spending their own money on stock in their companies.

Benna says Enron's employees lost millions when their company became the largest in the nation's history to declare bankruptcy partly because they had spent too much of their own money on Enron stock and failed to diversify their retirement portfolios.

Benna doesn't want to see so many rules imposed on companies that they decide not to contribute stock to their employee's retirement accounts. Rather, he wants to prevent investors from over-allocating their own assets in those equities.

"Employees are given enough stock via the company contribution," he said. "It's stupid to allow employees to put 80% or 90% of their plans in company stock."

Workers often get caught up in the success of their firms and continue to buy their company's stock until it makes up the majority of their portfolio, he said. For example, Benna remembers working for a giant technology firm that began advising its older workers to sell some of its stock and diversify their holdings. The workers were nearing retirement age, the firm warned, and couldn't afford much volatility in their portfolios.

Many of the employees ignored the advice.

So Benna sees his proposal as a simple measure to protect investors from their own poor decisions. "We have safety belt laws because people sit on them instead of wearing them," he said. "It's time to change the law to prevent employees from putting any of their own money in company stock."