Aggregate savings in retirement accounts are growing, with nearly $17 trillion invested in 401(k) plans and IRAs, but billions of dollars continue to leave the retirement system early, the Government Accountability Office said in a recent special report to the Senate’s Special Committee on Aging.
Early access to retirement savings in retirement plans may incentivize participation, increase participant contributions and provide participants with a way to address their financial needs, but it can erode or deplete an individual’s savings, especially if the retirement account represents his or her sole source of savings, the report noted.
GAO was asked to look at the incidence and amount of early withdrawals and what factors might prompt individuals to access their retirement savings early, then to suggest policies and strategies to reduce the incidence and amounts of early withdrawals.
Analysts examined data from IRS, the Census Bureau and the Labor Department from 2013, the most recent complete data set, and interviewed a diverse range of stakeholders.
In 2013, individuals ages 25 to 55 pulled some $69 billion out of their retirement savings early, according to GAO’s analysis. Of this amount, about $40 billion came from IRAs — 3% of this age group’s total IRA assets — and exceeded their IRA contributions in 2013.
Participants in employer-sponsored plans, such as 401(k)s, withdrew at least $29 billion early as hardship withdrawals, lump-sum payments, or “cash-outs” made at job separation and loan balances that borrowers did not repay.
Hardship withdrawals in 2013 amounted to about 0.5% of the age group’s total plan assets and about 8% of their contributions.
GAO was unable to determine the incidence and amount of certain unrepaid plan loans because, it reported, Form 5500 — the federal government’s primary source of information on employee benefit plans — does not capture this data. Plan sponsors are generally required to include, but not itemize, the overall extent of unrepaid plan loans on the form.