Tuesday, September 30, 2008 

Topic: Employee Benefits

Reference: Marquez, Jessica. “Rate of 401(k) Hardship Withdrawals Jump.” Workforce Management: http://www.workforce.com/section/00/article/25/68/57.php.  August 5, 2008.

Recently the federal bailout (or almost bailout) of the financial services industry has been all over the news. It is a deeply enthralling subject with wild twists and turns, villains, victims, and shameless self promoters. Sadly, as of yet there are no heroes. The burning question people may be asking is how will this impact me? For C-level executives the answers will vary, but most likely it will depend on a number of variables including the need for credit, existing cash position, and whether your banker is still around to negotiate credit lines and other related credit terms. For your employees the credit crisis may manifest itself in the form of additional raids on their retirement savings accounts. With the end of easy credit, a steep drop in real estate values, and higher family costs at the gas pump and the grocery store, employees are stretching to balance budgets and retain their standard of living. In the referenced article the commentator indicates that these factors are having an impact on plan administration. “Amid a weakening economy and rising layoffs, the percentage of 401(k) plan participants who have made hardship withdrawals from their accounts jumped 21 percent during the first six months of 2008 compared with the same period last year according to Mercer.” As a result of these loans you are more likely to see a heavier administrative burden, increased plan analysis and the need to maintain consistency and integrity with plan requirements. It is essential to track these transactions and to retain good records for your files. The burdens on the employees may also be substantial as withdrawals taken before age 59 ½ carry with it an income tax hit and a 10% penalty in the tax year that the money is withdrawn. It is strongly suggested that employees look at other potential sources before participating in these retirement loans. Starving your future to feed your present is never a great idea. As a result, during these times employers may need to more clearly educate their employees about their options and the potential impact of these retirement loans. Let me know your thoughts on this subject and steps that you have taken to address employee concerns.

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