Nevin's Data "Points"

While each situation is different, in my experience leaving a job brings with it nearly as much paperwork as joining a new employer. Granted, you’re not asked to wade through a kit of enrollment materials, and the number of options are generally fewer, but you do have to make certain benefits-related decisions, including the determination of what to do with your retirement plan distribution(s). Unfortunately, even in the most amicable of partings, workers have traditionally lacked the particulars to facilitate a rollover to either an individual retirement account (IRA) or a subsequent employer’s retirement plan—and thus, the easiest thing to do was simply to request that distribution be paid to him or her in cash. Over the years, a number of changes have been made to discourage the “leakage” of retirement savings at job change: Legal thresholds for mandatory distributions have been set; a requirement established that distributions between $1,000 and $5,000 on which instructions a...

“401(k) breaches undermining retirement security for millions,” was the headline of a recent article in the Washington Post .(1) No, we’re not talking about some kind of data hacking scandal, nor some new identity theft breach. Rather, those “breaches” are loans and withdrawals from 401(k)s. Providing the impetus for the article is a new report by HelloWallet(2) that indicates that “more than one in four workers dip into retirement funds to pay their mortgages, credit card debt or other bills.” While the article primarily deals with the potentially negative aspects of loans and withdrawals, it also touches on some broader concerns—and does so with some factual inaccuracies. For example, the article incorrectly states that “in 1980, four out of five private-sector workers were covered by traditional pensions;” in fact, only about half that many actually were at that point (a correct statement would be that 4 out of 5 covered by a plan at that time were in a traditional pension, whi...

A couple of months back, my wife noticed a water spot on the ceiling of our dining room. Now, it didn’t look fresh, but considering that that ceiling was directly underneath the master bath, she had the good sense to call a plumber. Sure enough, there was a leaky gasket—and from the look of it, one that had been there for some time before we took ownership. Fortunately, the leak was small, and the damage was minimal. Even more fortunately, we took the time to have the plumber check out the other bathrooms, and found the makings of similar, future problems well before the “leakage” became serious. Homes aren’t the only place with the potential for problems with leakage. A recent report on 401(k) loan defaults suggests that “leakage”—the money being drawn out of retirement plans prior to retirement —is a lot larger than a number of industry and government reports have indicated. In fact, the report ( online here ) claims that “the leakage could be as high as $37 billion per...

The headlines last week were all about how new legislation had been introduced to cut down on the “leakage” from 401(k) plans. That leakage, roughly defined as pulling money out of retirement savings before retirement, has been a concern of many for some time. About once a year, someone puts out a report about the number of outstanding loans from these programs and/or the uptick in hardship withdrawals (see IMHO: Double Dipping ) ; and, from 2008, see IMHO: Safety “Net” ). Not surprisingly, with the sluggish U.S. economy and the so-called jobless recovery, people seem to be dipping into these accounts at higher rates. And yet, for all the hyperbole around such things, the actual rate seems to be pretty consistent (allowing for differences in the data samplings). That said, last week, Senators Herb Kohl (D-Wisconsin) and Mike Enzi (R-Wyoming) introduced the Savings Enhancement by Alleviating Leakage in 401(k) Savings Act of 2011 (the SEAL Act), which, among other things, was designe...

Last week, Fidelity published some data from their quarterly analysis of participant activity. For the very most part, the data (see Fidelity Finds Q2 Uptick in 401(k) Withdrawals ) revealed what we have come to expect from such reviews: Participants continue to stay the course, deferral rates are largely unchanged (average was 8%), and more increased their rate of deferral (5.3%) than decreased it (2.9%) in the most recent quarter. Additionally, the balance recovery continues apace, with the average account balance up 15% (though for this good news, you have to reach for a year-over-year comparison, because Q2 figures to be a pretty rough one for participant accounts—down 7.6% in Fidelity’s database). However, this report drew more than the customary amount of coverage for its finding that rates of hardship withdrawals and loans were higher—and by some measures, significantly higher—than they were a year ago.1 My initial reaction was that this latter finding was something of an outl...

Over the past several weeks, I’ve gotten a lot of calls from reporters across the country looking to understand more about what appears to be a recent uptick in the volume of loan and hardship withdrawals from 401(k) plans. By most accounts, those volumes are up—in some cases, perhaps, up by a factor of two—from a year ago. The natural assumption is that some combination of the subprime crisis, the struggling investment markets, and/or just general economic stress is forcing participants to tap into their 401(k)s. Of course, pretty much year-in and year-out, somewhere between 10% and 12% of participants have loans outstanding (though a huge database maintained by the Employee Benefit Research Institute (EBRI) indicates that the percentage with loans outstanding has been in the high teens for a number of years, certainly among larger plans). Still, there is clearly movement afoot. The question, of course, is what should be done about it? If savings rates and accumulated balances ar...