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Monday, September 28, 2009

GAO suggests change to 401(k) hardship withdrawal rule

Business Insurance

Posted On: Sep. 25, 2009 4:23 PM CENTRAL

Jerry Geisel

WASHINGTON—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. …

Sen. Herb Kohl, D-Wis., 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.