Legislation Targets 401(k) Plan Leakage
The following is a statement from Brian H. Graff, Executive Director & CEO of The American Society of Pension Professionals & Actuaries (ASPPA) in support of the Shrinking Emergency Account Losses in 401(k) Savings Act of 2013 (SEAL Act) filed today in the U.S. Senate.
“As the United States Senate Committee on Health, Education, Labor, and Pensions (HELP) meets to discuss actions that can be taken to keep more savings in our employer based retirement system, Senators Nelson (D-FL) and Enzi (R-WY) have introduced legislation that would help safeguard the savings American workers have placed in their 401(k) plans. The Shrinking Emergency Account Losses in 401(k) Savings Act of 2013 (SEAL Act), contains provisions that reduce the loss of savings from early hardship withdrawals and 401(k) plan loans outstanding when employment is terminated.
More Americans save at work through an employer sponsored retirement plan than in any other way. The power of their compounding retirement savings is weakened when the individual takes a hardship withdrawal from retirement savings or does not repay a loan from a 401(k) plan because it came due when employment was terminated. We are mindful that some employees have serious immediate financial needs. Therefore, we believe it is important to minimize the harm that comes from accessing retirement funds for non-retirement purposes. The SEAL Act would be an important step toward addressing this problem.
The SEAL Act proposes simple changes that will lessen the loss of retirement savings when an employee terminates employment with an outstanding loan balance, and reduce the long-term impact of hardship withdrawals. Specifically the bill extends the period that an individual retirement account (IRA) can accept repayment of outstanding loan balances as a rollover from a qualified retirement plan. The bill also includes a provision that would allow participants to continue to make elective contributions during the six months following a hardship withdrawal. These provisions are sensible improvements to current law that will allow many Americans to keep more of their retirement savings working for them.
As an organization of more than 11,000 members that helps American workers prepare for retirement, we commend Senators Nelson (D-FL) and Enzi (R-WY) for offering this legislation, and urge its consideration to improve retirement security for our nation’s workers.”