To enable employees to replenish their 401(k) plan
account balances more quickly after they take hardship withdrawals, Congress
should consider changing current law that bars plan participants from making new
contributions until six months after a hardship withdrawal, the Government
Accountability Office suggests in a report.
The GAO also recommends that the Labor Department
encourage employers to post on participant Web sites information on the
long-term impact preretirement withdrawals of funds can have on their 401(k)
plan account balances.
For example, employers could provide participants with
modeling tools to help them calculate the impact of a preretirement withdrawal
of funds, the GAO said.
In addition, the Labor Department could encourage
employers to provide employees who terminate employment with projections showing
how their account balances would compare at retirement if left in the plan or
taken as a lump-sum distribution, the GAO said.
Sen. Herb Kohl, D-Wisconsin, who chairs the Senate Special
Committee on Aging and who requested the GAO report, said in a statement that he
intends to introduce legislation to reduce preretirement “leakage” from 401(k)
plans.
“Despite the financial hardships many are facing, people
need to resist raiding their 401(k), because it can be a really bad deal for
them over the long run,” Sen. Kohl said.
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