President Donald Trump is joining world leaders at the Davos Economic Forum in Switzerland this week to discuss a host of major geopolitical issues, ranging from the uncertain fates of Greenland and Venezuela to the president’s aggressive tariff agenda.
While such issues may be the focus of mainstream news coverage, retirement industry experts will be eagerly awaiting information about a topic that came to light late last week: the president’s apparent desire to allow Americans to use retirement savings in 401(k) plans to make down payments on home purchases.
Kevin Hassett, director of the National Economic Council, spoke with Fox Business’ Maria Bartiromo about the plan during an interview on Friday.
"We've got a whole bunch of policies that are going to help people [become homeowners]," Hassett said. “The one you didn't mention that we're also talking about, and the president will put the final plan out in Davos next week, I'll be flying up there with him, is that we're going to allow people to take money out of their 401(k)s and use that for a down payment."
Responding to a question from Bartiromo about such a policy potentially weakening Americans’ retirement readiness, Hassett floated exchanging 401(k) assets used for a down payment for a part of the home’s equity.
“Suppose that you put 10% down on a home, and then you take 10% of the equity of the home and put it in as an asset in your 401(k),” he said. “Then your 401(k) will grow over time.”
Details about the policy remained scant as of Tuesday, but early online reaction from retirement planning experts was skeptical. That was illustrated by a LinkedIn post from Kevin Crain, executive director of the Institutional Retirement Income Council. In the post, Crain said he is “not a fan,” and several dozen commenters largely agreed with the sentiment.
“There is already a way to access 401(k) assets for home purchases, the ability to take a loan from the plan for primary residence purchases,” Crain wrote. “And with that, the participant repays the loan (with interest) to protect the longer-term retirement savings.”
Crain’s broader concern is that the mission of 401(k) plans continues to be blurred by policies likening them to a multifaceted savings plan.
“Its original intent was to be a long-term retirement savings plan,” Crain said. “Now the plan could offer emergency savings withdrawals, potential home residence withdrawals, and other ways to access money before retirement. That creates complexity for employees to understand the plan's purpose and engage.”
Speaking about the proposal with ThinkAdvisor, Crain elaborated on these worries.
“As I wrote, my real skepticism is not because I think it is a bad idea for the government to help people who may have other pools of assets to purchase homes,” Crain said. “There’s nothing wrong with that, and as I noted, we have good ways already in the system to facilitate this via loans. It’s more of an overall directional problem that is muddying the purpose of 401(k) plans. I also have to say, $10,000 is a rather nominal amount for a down payment considering home prices today. I just don't think this policy is worth the potential long-term ramifications.”
Crain said the 401(k) plan may be becoming a victim of its own success, having helped millions of Americans amass trillions of dollars for retirement. The strength of the 401(k), in this sense, makes it seem like a potentially powerful vehicle for solving other economic issues beyond saving for retirement.
“For a long time, the 401(k) was all about retirement, but now it is almost being turned into a more general savings vehicle when you think about things like emergency withdrawals and student loan debt repayment matching,” Crain said. “To be clear, I like the student debt matching as an idea because it gets people saving earlier than they otherwise would. But this general hybridization of the 401(k) plan could grow into a problem if we are not careful.”
Multiple commenters on Crain’s LinkedIn post echoed that idea.
“Not a fan,” wrote Nevin Adams, formerly of the American Retirement Association and the Employee Benefit Research Institute. “The 401(k) has apparently become the nation's piggy bank for all sorts of non-retirement stuff. … We'll see what the particulars are, but I can't imagine this winds up being anything more than a political stunt — and an administrative nightmare.”
Others voiced concerns that such a policy could exacerbate the home affordability issue.
“The consensus view around the world … is that these kinds of withdrawal programs could accelerate home price inflation, and deplete retirement savings,” warned John Mitchem, a nonresident scholar at the Georgetown Center for Retirement Initiatives. “Funded retirement systems are doing things like investing in housing as an asset class in an effort to make more residential real estate available.”
Housing affordability, agreed other commenters, is largely a supply-side challenge, and looking to add another hole to the 401(k) “sieve” and consequently further fuel demand-side house price inflation isn’t the answer.
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