A recent study found that a record number of people (around 28%) with 401(k) retirement funds had loans (averaging $7,860) outstanding on them in 2010, meaning that these same folks will not have as much money set aside when it does come time to retire. That’s why a pair of Senators have introduced legislation that would make it more difficult for people to tap their 401(k)s.
The Savings Enhancement by Alleviating Leakage in 401(k) Savings Act of 2011 — or SEAL Act — was proposed by Wisconsin Senator Herb Kohl and Wyoming Senator Mike Enzi as a way to dissuade people from cracking into their retirement savings.
The SEAL Act would cut the number of loans a 401(k) holder takes to three at any one time. That number is currently set by each employer.
The legislation also calls for the ban of debit and credit cards that withdrawal money directly from the holder’s 401(k).
“While having access to a loan in an emergency is an important feature for many participants, a 401(k) savings account should not be used as a piggy bank,” explains Kohl.
For 401(k) holders that lose their job, the bill proposes extending the deadline for paying back the outstanding amount on their loan without having to pay steep tax penalties.
“Paying back a loan after just losing your job can be difficult, so our bill would give people more time to pay themselves back,” writes Kohl.
Additionally, the bill would do away with the prohibition against making contributions to one’s 401(k) for six months after receiving a hardship withdrawal.
Kohl, Enzi Offer Legislation to Protect 401(k) Retirement Savings [Official Statement via