Plansponsor highlights a critical issue facing our 401k accounts: too much borrowing. Now, legislators in Florida want to shore up 401k’s with “SEAL” legislation. SEAL aims to provide flexibility to loan repayment hardship tax rules and limit 401(k) loan practices that provide easy access to retirement funds at a cost.
Full article here.
The legislators noted that because of the difficult economic times, more and more Americans are treating their retirement accounts as rainy day funds by taking out withdrawals and loans from their employer sponsored 401(k)’s and then are unable to pay themselves back, a result frequently referred to as “ “leakage.”
“While our nation’s 401(k) retirement system is providing greater opportunities for individuals to save, there is still room for improvement. Recent studies have shown that money saved in retirement accounts sometimes ‘leaks’ out of the system and is never put back,” said Senator Mike Enzi (R-Wyoming). “Today, I am joining with Senator Kohl to take the first step to help to stop leakage in the retirement system by introducing legislation to help workers and their families to pay back loans from retirement accounts when a worker leaves a job. Our bill would allow for a greater period of time for the loan to be paid back thereby helping families pay back the loan and allowing the funds to be put back into their retirement savings and avoid the tax penalty.”