GAO Suggests Change To 401(k) Hardship Withdrawal Rule

By Staff Report

Sep. 25, 2009

To enable employees to replenish their 401(k) plan account balances more quickly after they take hardship withdrawals, Congress should consider changing current law that bars plan participants from making new contributions until six months after a hardship withdrawal, the Government Accountability Office suggests in a report.

The GAO also recommends that the Labor Department encourage employers to post on participant Web sites information on the long-term impact preretirement withdrawals of funds can have on their 401(k) plan account balances.

For example, employers could provide participants with modeling tools to help them calculate the impact of a preretirement withdrawal of funds, the GAO said.

In addition, the Labor Department could encourage employers to provide employees who terminate employment with projections showing how their account balances would compare at retirement if left in the plan or taken as a lump-sum distribution, the GAO said.

Sen. Herb Kohl, D-Wisconsin, who chairs the Senate Special Committee on Aging and who requested the GAO report, said in a statement that he intends to introduce legislation to reduce preretirement “leakage” from 401(k) plans.

“Despite the financial hardships many are facing, people need to resist raiding their 401(k), because it can be a really bad deal for them over the long run,” Sen. Kohl said.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail

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