You Can Thank or Blame Richard Stanger for Writing 401(k)


Since it’s creation, section 401(k) has morphed from an irrelevant facility to a financial colossus that holds around $4 trillion in US assets. This is a largely unintended by product of Washington action. At its birth, it was predicted to have a “negligible effect upon budget receipts.” In 2014, it has an estimated revenue loss of $61.4 billion in fiscal.

‘Leverage It’

In an interview in Manhattan, Stranger admitted, “It slowly dawned on me that I was an expert on this — and I should leverage it.”

He began working at the Joint Committee on Taxation in November 1977 after running into Mervin Wilf, a former law lecturer. This committee helps Congress write their tax legislation and projects the costs of doing so.

1978 Act

Former Democratic Congressman Jim Jones, a man who initially rallied support for the plan stated the main goal of the Revenue Act of 1978 wasn’t related to retirement savings.

Instead, the act was directed towards cutting taxes on the middle class and sparking business investment by lowering levies on capital gains.

‘Cleanest Pieces’

Stranger stated, “The 401(k) was by far the smallest and took by far the least time… I think it was one of the cleanest pieces of legislation ever enacted.”

People like Carroll Savage had done so much intensive lobbying through the 1970’s, helping to stop Congress stopping the plans in 1974 in Erisa. This meant the issue was not the focus of lobbying as much as the rest of the law.

Kodak and Xerox were among the first non bank companies to set up the plans. Carroll Savage was a Washington Tax Lawyer and represented these two firms.  His connections in New York gave him some powerful allies in the form of Conable and Daniel Patrick Moynihan, a Democrat in NY.

Not Enough

There are no doubt issues with 401(k). The obvious one is that 401(k) has not provided much of a retirement cushion. In 2010, the average retirement accounts for homes owned by people aged 55-64 with accounts at work was $120,000. These figures are according to research at the Center for Retirement Research at Boston College.

As well as this, many lawsuits have been taken up with 401(k) plans due to the fact they have limited investment choices, excessive fees or simply conflicts of interest.

Will Wait

Richard Stanger doesn’t plan on tapping into his “substantial” 401(k) plan benefits from both his employers until he is 70. He is waiting until then and then taking the taxable distributions as slow as he can.

He said,“A lot of plans have hundreds of choices and most people can’t parse those hundreds of choices,”

In 1978, the 401(k) plans were known as cash or deferred arrangements, he is amazed that the tax code is so infamous it is known by its number. “We thought that the acronym CODA would take off, but it didn’t.”