There’s a disturbing trend going on in the U.S. workplace — more and more employees are raiding their 401(k) plans for a quick buck.
Here are some numbers on the uptick from the Wall Street Journal today:
Eighteen percent of workers had a loan outstanding from their retirement plan in 2007, up from 11% in 2006, according to a survey to be released today by the Transamerica Center for Retirement Studies, a nonprofit corporation funded by Aegon NV’s Transamerica Life Insurance Co.
Major retirement-plan providers are reporting a similar trend. The number of participants taking a loan from their 401(k) plans rose by 7% at the end of last year from six months earlier, according to J.P. Morgan Chase & Co.’s analysis of 350 plans nationwide that cover 1.3 million people. Those results followed a period from January 2005 through June 2007 when loans from these 401(k) plans fell by 15%.
There are a host of reasons for why you guys are tapping into your retirement plans, everything from the housing crunch to consumers loaded with too much debt. But cashing out, even a bit of money, can come back to haunt you.
In today’s who-knows-what-the-heck-will-happen economy, you could loose your job tomorrow, or realize you should changes jobs for whatever reason. That means you’ll have to pay back what you took out of the 401(k) in full or risk major penalties.
I know times are tough for many of us, but robbing Peter to pay Paul is never a good idea. It seems like easy cash because you don’t have to beg a bank for money or further max out credit cards, but this money is for your retirement, which unfortunately comes faster than any of us can imagine.
This is a great time to scale back spending, get on a budget and downsize your life.
Maybe it’s time to sit down with your boss and ask for that raise you deserve. Or maybe you should consider looking for another gig, which is how workers typically end up boosting their earnings significantly. Looking for a quick fix, which is your retirement savings, could spell doom. People, this is a temporary Band-aid, and it’s going to hurt when you have to rip it off.
February 28th, 2008 at 11:29 am
It all comes from economic pressures and cost cutting. A lot of people think in the time being and not the future. Those who save up for their retirement will be in good shape, while others will be working till they die.
February 28th, 2008 at 11:58 am
Let’s face it, if borrowing from the 401(k) means I can pay off a 16% (or higher) credit card by borrowing from my savings and paying myself back a meager interest rate, then I’m all for it.
What really ticked me off was when, a few years back, the funance in our house died in the middle of winter (in Minnesota). I was *DENIED* a hardship withdrawal to pay for replacing the furnace (which, due to the age of the home, also involved abatement of the asbestos duct work). We went two months without our funace (relying on four space heaters in different parts of the house) until we were able save and borrow enough to pay for the abatement and furnace replacement. All that time, I had THOUSANDS sitting in my employer’s 401(k) plan, but they DECLINED my request (and subsequent appeal) for a hardship withdrawal.
They stated that the tax code did not allow them to approve a hardwhip withdrawal under my circumstances, even after I cited (and provided URLs to) Federal websites that indicated that hardships may be defined on a case by case basis (instead, they opted to accept only the few listed examples the government provided to illustrate the hardship withdrawal provision as reasons for granting a hardship withdrawal).
February 29th, 2008 at 3:14 pm
Eve:
Great post yesterday. Your post is what I wrote about today on my own blog, RetirementPlanBlog.com.
Regards,
Jerry Kalish
March 7th, 2008 at 4:22 am
I had very similar problems trying to acquire money from my former employers 401k. It also took almost a whole tear for the bankruptcy court to approve the rollover from the employer before that. And oddly, this was due to the fact that initially they were not going to allow any ‘matching’ funds be part of the rollover. A group of 30 of us former employees had to retain our own attorney and in the end his fees wiped out about half the rollover money. We lost at least 15 months of interest because of that. And those who were retained by the new owners were eventually issued checks from yhe whole plan because they refused to participant in that plan and expected the new employees to sign it over to them to be reinvested. One fellow with over twenty years had over $100,000 given back to him and the new employer said they would not allow that sum so he had to invest in his own plan. The twist came when that new owner went bankrupt and in about five years still has not settled as far as I know. What bothered me is new rules were put in effect about ‘99, and changed again around ‘04. Yet the new rules do not apply. The rules of ‘96 when the company I had worked for do apply.
One thing about pensions that are paid by the employee and matched by the employer. My granddad worked in Pittsburgh mills for 45 years. When he retiredat 65, his money and life were good. When he tirned 80, his pension was reduced about 40%. We found out that is the way it is designed yo do. Then at 85, 50%. He passed away at 86. My Grandmother collected it till she was 90, they reduced it 25%. She will be 95 on October. She will recieve a whopping $5 per month. I work for a school district now. What I put in the pension is matched by the district and then matched by the state. I recalled my Grandmothers plight and made an inquiry. Every person there thought that this will not happen to this plan. Sure enough, the pension plan will decline at 75 then 80 then 85 then 90 and so on but only by 20%. What is eye opening is we have only one over 80 pensioner. The average pensioner lives to be 77 and our school district is exactly 40 years old in ‘08. Makes you think.