Senators Herb Kohl, D-Wis., and Mike Enzi, R-Wyo., on Wednesday introduced legislation that would reduce the number of loans that participants could take out of their 401(k)s as well as giving employees more time to pay back a loan.
In introducing the bill, the Savings Enhancement by Alleviating Leakage in 401(k) Savings Act of 2011, or the SEAL Act, Kohl, chairman of the Senate Special Committee on Aging, said that “because of the difficult economic times, more and more Americans are treating their retirement accounts as rainy day funds by taking out withdrawals and loans from their employer sponsored 401(k)s and then are unable to pay themselves back,” which he said is commonly referred to as “401(k) leakage.”
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,” Kohl said.
Enzi added that “While our nation’s 401(k) retirement system is providing greater opportunities for individuals to save, there is still room for improvement. Recent studies have shown that money saved in retirement accounts sometimes 'leaks' out of the system and is never put back.”
The SEAL Act would do the following:
Extends rollover period for plan loan amounts.
The SEAL Act allows an employee to contribute the amount outstanding on their loan to an IRA by the time they file their taxes for that year.