Retirement Savings: Additional Data and Analysis Could Provide Insight into Early Withdrawals

60 Pages Posted: 5 Jun 2019

See all articles by Charles Jeszeck

Charles Jeszeck

Government Accountability Office (GAO)

David Lehrer

Government Accountability Office (GAO); National Academy of Social Insurance (NASI)

Jonathan McMurray

Government Accountability Office (GAO)

Gustavo Fernandez

Government Accountability Office (GAO)

Sean Miskell

Government Accountability Office (GAO)

Jeff Tessin

Government Accountability Office (GAO)

Adam Wendel

Government Accountability Office (GAO)

Date Written: March 28, 2019

Abstract

In 2013 individuals in their prime working years (ages 25 to 55) removed at least $69 billion (+/- $3.5 billion) of their retirement savings early, according to GAO's analysis of 2013 Internal Revenue Service (IRS) and Department of Labor (DOL) data. Withdrawals from individual retirement accounts (IRA) — $39.5 billion (+/- $2.1 billion) — accounted for much of the money removed early, were equivalent to 3 percent (+/- 0.15 percent) of the age group's total IRA assets, and exceeded their IRA contributions in 2013. Participants in employer-sponsored plans, like 401(k) plans, withdrew at least $29.2 billion (+/- $2.8 billion) early as hardship withdrawals, lump sum payments made at job separation (known as cashouts), and loan balances that borrowers did not repay. Hardship withdrawals in 2013 were equivalent to about 0.5 percent (+/-0.06 percent) of the age group's total plan assets and about 8 percent (+/- 0.9 percent) of their contributions. However, the incidence and amount of certain unrepaid plan loans cannot be determined because the Form 5500 — the federal government's primary source of information on employee benefit plans — does not capture these data.

Stakeholders GAO interviewed identified flexibilities in plan rules and individuals' pressing financial needs, such as out-of-pocket medical costs, as factors affecting early withdrawals of retirement savings. Stakeholders said that certain plan rules, such as setting high minimum loan thresholds, may cause individuals to take out more of their savings than they need. Stakeholders also identified several elements of the job separation process affecting early withdrawals, such as difficulties transferring account balances to a new plan and plans requiring the immediate repayment of outstanding loans, as relevant factors.

Stakeholders GAO interviewed suggested strategies they believed could balance early access to accounts with the need to build long-term retirement savings. For example, plan sponsors said allowing individuals to continue to repay plan loans after job separation, restricting participant access to plan sponsor contributions, allowing partial distributions at job separation, and building emergency savings features into plan designs, could help preserve retirement savings (see figure). However, they noted, each strategy involves tradeoffs, and the strategies' broader implications require further study.

Keywords: Retirement, 401(k), IRA, GAO

Suggested Citation

Jeszeck, Charles and Lehrer, David and McMurray, Jonathan and Fernandez, Gustavo and Miskell, Sean and Tessin, Jeff and Wendel, Adam, Retirement Savings: Additional Data and Analysis Could Provide Insight into Early Withdrawals (March 28, 2019). Available at SSRN: https://ssrn.com/abstract=3389474 or http://dx.doi.org/10.2139/ssrn.3389474

Charles Jeszeck (Contact Author)

Government Accountability Office (GAO) ( email )

441 G St., NW
Washington, DC 20548
United States

David Lehrer

Government Accountability Office (GAO) ( email )

441 G St., NW
Washington, DC 20548
United States

National Academy of Social Insurance (NASI) ( email )

1776 Massachusetts Avenue, NW
Suite 615
Washington, DC 20036-1904
United States

Jonathan McMurray

Government Accountability Office (GAO) ( email )

441 G St., NW
Washington, DC 20548
United States

Gustavo Fernandez

Government Accountability Office (GAO) ( email )

441 G St., NW
Washington, DC 20548
United States

Sean Miskell

Government Accountability Office (GAO) ( email )

441 G St., NW
Washington, DC 20548
United States

Jeff Tessin

Government Accountability Office (GAO) ( email )

441 G St., NW
Washington, DC 20548
United States

Adam Wendel

Government Accountability Office (GAO) ( email )

441 G St., NW
Washington, DC 20548
United States

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