Hardship withdrawals among the 2.8 million participants in 1,500 plans served by Bank of America Merrill Lynch increased 23 percent year to date through August 31 compared with the year-earlier period, said Kevin Crain, managing director of plan participant solutions at Bank of America Merrill Lynch, the institutional retirement, philanthropy and investments business unit at Bank of America.

In addition, in-service withdrawals, used by employees who are still at their jobs and contributing to the plans, were up 27 percent through August 31.

Workers can pull money from their retirement plans for reasons of eviction, medical expenses or college tuition bills. However, there is a penalty and a tax unless they pay the money back by the end of the calendar year.

In-service withdrawals may also be used for some of the same reasons.

“I think the economy has had an impact on both categories,” said Kevin Crain, managing director of plan participant solutions at Bank of America Merrill Lynch.

Still, he noted, the transactions are being made by only about 3 to 4 percent of total participants.

Other record keepers also noted the trend.

In data collected through May 31, hardship withdrawals increased by 18 percent compared with a year earlier, reported Hewitt Associates Inc., a global human resources consulting firm that has a database of 2.7 million plan participants.

By the end of 2008, hardship withdrawals already had increased 16 percent from the previous year, which marked the first time in a decade that that number increased significantly, said Catherine Brandt, a spokeswoman for Hewitt.

Going forward, the rate of withdrawals may be slowing, Crain said.

“People are getting more optimistic about the economy and saving more money,” he said.

Still, for August, hardship withdrawals were up 14 percent compared with a year earlier, and in-service withdrawals were up 11 percent, he said.

Filed by Sue Asci of InvestmentNews, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com

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