00:00Joining us now is financial expert and co-creator of Radish, Ted Bennett. Ted,
00:04explain to us what this is about and what did you see as the inherent problem with the current state
00:11of the 401k? Well, the problem, Christina, is it's reached a point now where many middle and
00:19low-income employees can't afford to have money taken out of their paycheck. And, you know,
00:24with cost of living, you know, housing, you know, education, medical care, food, et cetera,
00:30even when they have the opportunity, they just can't afford to do it. So, you know, I came up with
00:35this new plan, you know, as a way to help middle and low-income employees because it's solely employer
00:43funded. And, you know, rather than it being a plan that's intended to help, you know, 20, 30 years
00:50from now, employees can have access to it when they have financial need. So if they need $500 or
00:58$1,000 to, you know, repair a car to be able to get to work or for medical expenses, other
01:06significant
01:07financial needs, you know, they can dip into it and take money to provide for those type of needs.
01:13I mean, that makes sense because, you know, I've been through phases of my life where I thought
01:17it really made more sense for me to have the liquidity rather than put it in my 401k because
01:21there were bills, there were uncertainties. So is there, there's no penalty when you need to take
01:25those funds out? Well, there will be a 10% penalty like other qualified plans unless it, you know,
01:35meets one of the exemptions like, you know, buying a new home, you know, education, medical expenses,
01:40those types of things. But, Christina, what happens is the employer contribution goes in pre-tax. So
01:49as a result, neither the employer or the employees pay FICA tax on it. So, you know, that's 7.65%.
01:59So if the employee has to take it out and pay the 10% penalty tax, it's not that big
02:05a difference.
02:06It's, you know, and in some states, the withdrawal from retirement account may be exempt from state
02:13tax. So in those type of states, you know, the employees actually end up paying, you know,
02:20no more or maybe even less tax than if they got paid cash compensation.
02:25I want to ask you to kind of get retrospective if you're willing to. And as you were designing what
02:30became the 401k, if the way that it's played out is in line with what you expected. In other words,
02:35this is something that I think benefits a lot of Americans who are kind of middle or higher end
02:39earners, obviously those who are not able to access it. Is that something that you foresaw or
02:44forecasted would happen here? How is the level of access that we've seen? Yes, the level of adoption
02:49as well kind of matched with what you anticipated when you were creating that first product so many
02:53decades ago? Well, I think 401k definitely worked the way anticipated, you know, since its inception,
03:00it's probably helped workers accumulate about $15 trillion or so when you count, you know, all the
03:08money that's been rolled out into IRAs and taken as benefits and so forth. And it, you know, played a
03:16big role in helping turn lower paid employees and from spenders into savers. But, you know, we've
03:22reached a point now where that's changed, where many just can't afford to have money taken out of their
03:27paycheck. You know, they have no assets. You know, they have absolutely nothing. And many of them have
03:33negative, you know, credit card debt with high interest rates and, you know, a lot of financial
03:39stress that, you know, they have to deal with. How has the feedback been for this new project? Because
03:46it does put the onus, obviously, more on employers. What is the benefit to them for engaging in this kind
03:52of
03:52product? I know they can reward good behavior, things they like to see from employees. What's the
03:57feedback been? And do you think it will get adopted by enough companies to make it viable?
04:01Well, we're getting some employers to adopt it in quite a bit of interest. And, you know, trucking
04:08industry is one example. And, you know, there for the drivers, typically what they're interested in is
04:16safety, on-time delivery, maybe, you know, for shorter term haulers, you know, one more delivery
04:25a week and whatever. So, the employer is able to set whatever incentives the employees have to meet
04:32in order to get the contributions. And so, the benefit to the company is to improve performance,
04:41potentially, you know, reduce turnover a bit, you know, those types of things. And, you know,
04:48for the employees is to give them additional financial security.
04:52I want to go back to something you mentioned a moment ago, which is kind of developing saving
04:56habits or becoming a saver. And I'm curious what you've learned over your career about that
05:02particular kind of psychology. So, obviously, the 401k has had an impact on that. People are
05:06thinking more seriously, I think, largely about saving for retirement. I know that that's an
05:11ambition of this new project as well. Yes, there's an incentive here for employers to have employees
05:17who have good habits and do good work. Talk a bit about sort of your thinking when it comes to
05:22how
05:23you foster a savings psychology in workers today. What works in that regard?
05:29Well, definitely 401k and now the, you know, the state mandated IRA plans are a big step in that
05:38because, you know, it requires employees, you know, to take money out of their paycheck before they have
05:46the opportunity to spend it. And I know for me personally, many younger employees over the years,
05:53you know, retirees as well have said, hey, look, I want to thank you, you know,
05:57for making this available because I would have never been able to do this on my own if I had
06:02to do it without the 401k. I'm wondering what your advice would be to some people on the younger
06:10side. When I got my first full-time job, I remember all the guys in the office, got to max
06:15it out,
06:15max out that 401k, the company matches, this will set you up, you got to do it, you got to
06:19do it.
06:19When I talk now to people in their 20s who do have full-time job, they are reticent to pour
06:25a
06:25bunch of money into something like a 401k because they're just not sure that that program,
06:31the system we know it, is going to be there when they need it decades from now. What would you
06:35say
06:35to them? Is that a safe bet still if you can do it? Or do they have a right to
06:39think there's more
06:40risk there than there used to be? Well, the plan, you know, is going to be there as far as
06:45the money
06:45they have put it in it. Longer term, Christina, whether, you know, things happen to make 401ks,
06:55you know, be less attractive and for employers to not maintain them, which certainly is a possibility,
07:01that wouldn't affect the money that's already been accumulated. So for younger workers, there's no
07:07reason for them to be concerned now about the fact that, you know, five, 10, 20 years from now,
07:14they may not be able to put money into the plans, you know, have the kind of benefits,
07:20you know, going forward that they have now.
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