America’s retirement plan leakage crisis
Retirement plan leakage from 401(k) loan defaults and cash outs continues to dominate the news. Anne Tergesen of the Wall Street Journal reports that workers are treating their 401(k) savings like ATM machines.
Tergesen’s article “401(k) or ATM? Automated Retirement Savings Prove Easy to Pluck Prematurely” (subscription required) states that the tapping of retirement funds early through borrowing or cash outs threatens to reduce the wealth in U.S. retirement accounts by about 25% when lost savings are compounded over 30 years.
We agree. A major cause of retirement plan leakage is loan defaults and subsequent cash outs. We believe that a sensible approach to plan leakage is prevention of loan defaults when workers lose their jobs. By adopting simple 401(k) loan insurance, America’s retirement plan sponsors will provide a true safety net that addresses this serious challenge.