401(k) Plans: Policy Changes Could Reduce the Long-Term Effects of Leakage on Workers┐ Retirement Savings
DIANE Publishing, 2010 - 52 pages
Under federal regulations, 401(k) participants may tap into their accrued retirement savings before retirement under certain circumstances, including hardship. This "leakage" from 401(k) accounts can result in a permanent loss of retirement savings. This report analyzes: (1) the incidence, amount, and relative significance of the different forms of 401(k) leakage; (2) how plans inform participants about hardship withdrawal provisions, loan provisions, and options at job separation, including the short- and long-term costs of each; and (3) how various policies may affect the incidence of leakage. To address these matters, the report analyzed federal and 401(k) industry data and interviewed federal officials, pension experts, and plan administrators. Illus.
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2009 OASDI Trustees account balance age indicated amounts of leakage analyzed assumptions as reported balance at age balance at job beginning of 1970 call center confidence intervals defined contribution plans early withdrawal penalty effect employee’s employer matching contribution experts noted forms of 401(k forms of leakage GAO analysis Government Accountability Office impact incidence and amount individual reaches individual retirement account Internal Revenue Code Internal Revenue Service job separation Leakage Type loan default loan provisions loans and hardship lump-sum distribution Medium-Income options partial cashout participant contributions participant loans participant’s retirement savings past and projected penalties paid penalty for early percent employer matching percent penalty percent tax penalty plan administrators plan assets plan at age Plan officials told plan participants plan sponsors plan’s plans inform participants principal forms rate-of-return assumptions reaches the age reported in past retirement income retirement plans SIPP data Social Security’s taking a cashout taking a hardship tax-deferred