Posted on 08/21/2010 5:22:10 PM PDT by 2ndDivisionVet
As the economy continues to worsen under Obama's "recovery" plan, more disturbing news emerges. A record number of workers made hardship withdrawals from their 401(k) retirement plans. In fact, "the number of workers borrowing from their accounts reached a 10-year high" and reflects "the financial stress many workers" are experiencing according to Beth McHugh, Fidelity's vice president of marketing insight.
The report was made by Fidelity Investments which administers 17,000 plans and represents 11 million participants. The number of people initiating the hardship distributions has risen from 45,000 in 2009 to 62,000 in 2010. Equally alarming is that "45 percent of participants who took a hardship withdrawal a year ago, took another one this year."
These 401(k) withdrawals are a result of the increasing unemployment in the country as well as companies cutting back on "overtime or overall hours" of their workers.
401(k) plans have "a provision that allows withdrawal of money from the plan" if an individual "can demonstrate ‘heavy and immediate financial need' and there is no other resource that an individual can use to meet the need." Many employers allow hardship withdrawals only for the following reasons:
•To pay the medical expenses of the worker, his/her spouse, or dependents •To pay costs related to the purchase of a principal residence •To pay a maximum of 12 months worth of tuition and related educational expenses for post-secondary education for an individual, his/her spouse, or dependents •To make payments to prevent eviction from or foreclosure on the principal residence
An employer will generally require that the employee submit a written request for a hardship withdrawal.
The disadvantages of withdrawing money from the 401(k) before it was intended include an overall reduction in the size of a person's retirement nest egg. Moreover, the funds that were withdrawn will no longer grow tax deferred. Additionally, hardship withdrawals are generally subject to federal (and possibly state) income tax in the year the money is withdrawn. A ten percent federal penalty tax may also apply if an individual is under 59 ½ years old. In addition, an individual may not be able to contribute to the 401(k) plan for six months following a hardship distribution.
The economic downturn has rippling effects in other ways as well. A survey conducted by the International Foundation of Employee Benefit Plans in May 2009 found that "the [economic] crisis has forced both defined benefit (DB) plan sponsors and defined contribution (DC) plan sponsors to make changes to their retirement coverage and plan design." The reexamination of offering pension benefits has resulted in "27 percent of DB plan sponsors [discontinuing] offering pension benefits for all or some employees and 21 percent have closed their plan to new participants."
Furthermore, there is also an impact on the employer match as DC plan sponsors "reduced or eliminated employer matches as a result of the economic situation." Sally Natchek, Senior Director of Research at the International Foundation of Employee Benefit Plans has said that "although the number of plan sponsors who have reduced or eliminated their employer match is relatively small, the number is still significant since any change tends to result in the employee lowering his or her contribution."
Thus, as companies make less profit, they decrease their overall retirement plan contributions; this, in turn, makes it less advantageous for employees to contribute to their own retirement plans. In some cases, the number of participants completely stopping plan contributions altogether has increased.
Moreover, in a study entitled 401(k) Plans in Living Color: A Study of 401(k) Savings Disparities Across Racial and Ethnic Groups ~ The Ariel/Hewitt Study found that:
African-Americans are also more likely than the study population overall to have a loan and are more than twice as likely to take a hardship withdrawal from their 401(k) plans. Nearly two of every five African-American workers and almost a third of Hispanic workers borrowed from their retirement accounts compared to just one in five white workers. By contrast, Asian workers were the least likely to take a loan against their 401(k) plans, with less than one in five doing so. ‘These statistics are troubling because loans and withdrawals jeopardize long-term financial security to satisfy immediate needs. The impact is heightened during an economic downturn, when unemployment rises and withdrawals and loan defaults increase. We now realize this risk is magnified for African-American and Hispanic workers based on the results of our study,' said Barbara Hogg, principal at Hewitt Associates and co-leader of The Ariel/Hewitt Study.
All these factors result in a "substantial impact on employee efforts to save for retirement."
As Americans become more mired in financial hardship and worry, there is a domino effect which leads to even more stress and anxiety. The short term and long term financial effects are quite serious as people worry about layoffs coupled with a diminished ability to plan for retirement.
The irony is that saving into 401(k) was supposed to be the solution for a successful retirement for Americans and this dream is evaporating for too many.
When will Congress and the president put the brakes on an economic philosophy that is bringing misery to so many American workers?
REMEMBER NOVEMBER!!! Folks, vote on election day to destroy the entire Democrat Party and....with it anti-American, POTUS Barack Hussein Obama!!! November is coming fast!!! And.....remember there is no such thing or being as a good Democrat!!!
People - the ones on the edge - and some further in - are starting to give up...
NerO-bama
No more house payments?
So where are we supposed to hide our money, and I don’t mean in an illegal way. I have been thinking about getting out of the market for months, precisely because of this possibility.
I’ve predicted that this would happen and that the “unexpected” funds to the government through the taxes and penalty would be a very slight aid toward the deficit.
I’ve also predicted that it wouldn’t be nearly enough and as far back as 2008 predicted that the government will confiscate all private retirement (401Ks and IRAs) and roll them in to SS.
People thought I was crazy when I made that prediction, but the Statists are kicking the idea around with such velocity that it is already becoming commonly accepted as a very real possibility.
If any bank is TBTF, then SS and/or Medicare is much more so.
I still stand by the prediction.
Sometime soon, the zer0 will lock them up ......................... FRegards
1) If you take out a loan and are employed, the money comes back out of your payroll and goes back into the plan - as does the interest on the loan - since you are essentially borrowing money from yourself. Yes, it hurts your nest egg temporarily and over the long run, but it isn’t fatal as long as you stay employed and the debt gets paid.
Yes. We did that 10 - 15 years ago to pay off credit cards and came out with more money each paycheck. Best thing we ever did.
Here ya go. Our old friend, economist Teresa Ghilarducci of the New School is in here too.
http://www.sacbee.com/2010/08/20/2970854/dont-blame-pension-woes-on-unions.html
I can’t answer for him, but I believe the impulse is that people don’t believe they are going to be able to retire. So they use those funds to get by today, figuring they’ll just keep working and paying as they go for as long as possible.
The stupid and the greedy are those who stop paying their mortgages and then just blow that money they used to spend on their mortgages for toys and other wasteful purposes (which, incidentally, is contributing to the anemic sustainment of some retail numbers, though even they are through the floor).
If you’re going to do strategically default on a mortgage, at least put that money into something that will sustain you when financial Armageddon strikes.
I took out half between the election and Hussein's Immaculation. Just finished off the other half.
I too took out loans because I am barely making it. I took money from my 401k and it is being paid back by deductions in my paycheck. Since I just requested my second loan I won’t be able to take out anymore. Though the way things are going and I may hit a bigger hardship and may stop contributing and maybe withdraw everything if I can.
I dam sure know I will not have those Democraps lay one finger on my hard earn money.
What do you want me to say?
This Nov most of the current Congress will get re-elected in easy ballot fights.
I guess Americans like high taxes and government corruption.
They’re just striping what little money/investments the middle class has...
Steve Wynn Takes On Washington
Wynn is obviously very angry with the children who are in charge of our govt. King 0 parties in Marthas' Vineyard and gobbles ice cream on vacation. Bernanke wants to dump more $ Billions or $ Trillions into the economy. Pathetic crooks want to play more money games.
Why do you think the Government is more likely to steal retirement savings instead of regular savings?
I don’t blame you.
Right now people are doing what they have to to survive. It’s not about spending and fun. It’s about having a roof over your head and having food in your belly.
I do not think that the Democrat bill will pass. The bill provides an alternative to traditional 401K plans. I think that the rats would like to like eventually make the alternative plan mandatory. In the short term, the Democrat bill is no threat.
I would not be influenced by the introduction of this bill. Asset allocation decsisions at least in the short term should not be influenced by this proposed bill.
For those who can't do both, saving for a rainy day tops that big-screen TV or the pricey vacation or the car with all the luxury extras. To those who can't resist the latest goodies, I say, "Quit whining---no sympathy here."
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