SAN FRANCISCO — Like any proud father, Ted Benna takes pride in the accomplishments of his brainchild, the 401(k) account.

        But that doesn't mean he ignores his progeny's shortcomings — flaws facing more scrutiny as the nation's once-ballooning 401(k) savings deflate under the weight of a bearish stock market and corrupt companies.

        Yes, Mr. Benna says, it was a bad idea to let so many 401(k) investors buy the stocks of their employers. Employees at scandal-ridden Enron Corp. hammered this point home when they loaded up on company stock and lost a collective $1.3 billion after the energy trader collapsed last year.

        And Mr. Benna knows that many of the nation's 48 million 401(k) participants might not have lost so much money during the past two years had they been given more guidance and choices by their employers.

        He will even bluntly admit that 401(k) accounts “stink” when it comes to helping financially struggling workers making less than $10 per hour.

        What you won't hear Mr. Benna say is that the country would have been better off if he hadn't unveiled the first 401(k) plan nearly 22 years ago.

        “People can beat up the 401(k) all they want, but this is the only retirement plan a lot of employees are ever going to have,” Mr. Benna said after a recent financial seminar in San Francisco.

        “I've had people come up to me to complain they only have $70,000 in a 401(k) account that had $100,000 a couple of years ago and I say, "Well, how much would you have saved now without the account?' That usually makes them stop and think.”

        A closer look at 401(k) plans is long overdue, said Karen Friedman, director of policy strategy for the Pension Rights Center, a Washington watchdog group. She thinks the stock market's recent troubles have proven that most people aren't ready to manage their own retirement accounts, a skill 401(k) plans require.

        “There really has never been a policy debate about this because no one really criticized 401(k)s during the 1990s when the stock market was raging and everyone thought their accounts would just keep rising with the tide,” Ms. Friedman said. “Now, a lot of people are discovering that 401(k)s might not be quite what they are cracked up to be.”

        Ms. Friedman and others believe the rise of 401(k) plans has encouraged more companies to drop their defined benefit plans. Mr. Benna disagrees, arguing that most companies with pension plans have introduced the 401(k) as an additional benefit.

Educating investors

        Mr. Benna, 60, is doing his part to help people.

        He has a new book scheduled for release next month and he conducts financial seminars throughout the country. While he supports efforts to better educate 401(k) investors, Mr. Benna believes most employers sponsoring the plans aren't up to the challenge and probably never will be.

        About 97 percent of the nation's 400,000 401(k) plans are offered by small and medium-sized businesses with fewer than 500 employees, Mr. Benna said, leaving them “no better equipped for making investment decisions than the participants are.”

        Congress is considering a variety of 401(k) changes, including limits on the amount of employer stock that can be held in the plans and reforms in the way the plans are run. Mr. Benna agrees some changes may be in order, but prefers a free-market approach.

        Ms. Friedman believes the government should play a greater role because 401(k) accounts provide one of the nation's biggest tax breaks — about $60 billion annually. That figure likely will rise over the next few years as the maximum annual 401(k) contribution per investor rises from $11,000 this year to $15,000 in 2006.

        Although it's been a while, this isn't the first time Mr. Benna has heard second guessing about the 401(k) — a concept he developed in 1980 while working as a disillusioned retirement plan adviser.

        After realizing paragraph (k) of Section 401 in the Internal Revenue Code had unintentionally opened the door for tax-deferred retirement accounts, Mr. Benna unsuccessfully tried to get several large employers to embrace the plan.

Early skepticism

        Even after he introduced a 401(k) at his own 75-employee firm in January 1981, Mr. Benna faced resistance from attorneys and personnel managers convinced his idea was an illegal tax dodge. Other skeptics doubted rank-and-file workers would ever contribute.

        Those notions seem inconceivable today, with 401(k) plans entrenched as a major source of individual wealth. An estimated $1.5 trillion is held in 401(k) accounts, down from $1.65 trillion in 2000.

        Mr. Benna has shared in the recent losses. He says his own 401(k) account — fully invested in the stock market — has dropped by more than 10 percent so far this year. He isn't cashing out of his positions, nor is he blaming his invention.

        “The problem isn't the 401(k). It isn't broke,” Mr. Benna said. “The issue is the investing decisions that we make.”

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