It’s not entirely a lose-lose. At least with cashing out, I would get to keep some of my money for myself. With allowing confiscation, the government effectively owns all my money, and can use it to pay down debt, engage in corporate welfare, squander on the poor, women, and minorities (rich in Dem votes), or whatever. Or did you think they would actually keep the money for you eventual retirement???
By pursuing this idea, they can get a huge infusion of cash without having to pass anything. They could even add a provision that forbids early withdrawal once the bill is passed. That would send people running for the exit and send cash streaming to Washington. Then they don't even need to bill to pass. Mission accomplished.
They might as well have an idea that anyone with over a million dollar in assets must immediately liquidate their 401k's and pay the early withdrawal penalty.
So I guess lose-lose is the wrong name; How about lose - lost? You lose if forced to withdraw early. Your money is lost if the government confiscates it.