Author Topic: 401(k) "leakage"  (Read 1882 times)

FireLane

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401(k) "leakage"
« on: April 06, 2017, 07:33:45 PM »
I saw this article about companies trying to take steps to stem 401(k) "leakage":

http://www.morningstar.com/advisor/t/118917447/the-rising-retirement-perils-of-401-k-leakage.htm?&single=true

The word "leakage" makes it sound like money is just dribbling out the bottom of these plans all on its own. What's really happening is that too many workers are borrowing against their retirement accounts for short-term needs. Here's the obligatory facepalm-worthy quote:

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"People are getting statements telling them they have $5,000 in this account and they are asking themselves, 'How can I get my hands on this money?" said Rob Austin, director of retirement research at Aon Hewitt, a human-resources consulting firm.

Sure, you can use these loans for real hardships, but you shouldn't have to. That's what an emergency fund is for. If you use your retirement account like a piggy bank, don't complain that you can never quit work!

For bonus comedy/horror, there's this:

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Home Depot in recent years launched several initiatives aimed at "getting people out of the habit of going from one [401(k)] loan to the next," says director of benefits Don Buben.

The home-improvement chain recently started making employees wait at least 90 days after paying off one 401(k) loan before initiating another.

Taking out even one loan against your 401(k) is bad enough. Some people have multiple loans at the same time?! Talk about bad planning..

It's good that some employers are taking steps to discourage this, but it's bad enough that this is necessary at all. It's a perfect illustration of the FIRE dictum that people borrow from their own future selves, impoverishing themselves later in life for the sake of a short-term desire.

Kimera757

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Re: 401(k) "leakage"
« Reply #1 on: April 06, 2017, 08:41:05 PM »
I keep reading posts about people not contributing to 401ks. (Including a hilarious post about a person who couldn't take a 401k loan because they'd forgotten that they had never contributed!)

My job has a defined benefit plan, and short of religious reasons I can't decide to not contribute. (Not that I would ever drop a DBPP.)