New Report Examines ‘Retirement Plan Leakage,’ a Barrier to Retirement Security

Washington, D.C. — A new report authored by the Government Accountability Office (GAO) sheds light on “retirement plan leakage,” whereby individuals withdraw money from their 401k or IRA accounts prior to retirement.  The report, titled “Retirement Savings: Additional Data and Analysis Could Provide Insight into Early Withdrawals,” was requested by U.S. Senators Susan Collins (R-ME) and Bob Casey (D-PA).  It examines the motivations of Americans who withdraw from their savings early and identifies retirement plan characteristics that may inadvertently lead participants to deplete their nest egg.  Improving retirement security is one of Senator Collins’ top priorities as the Chairman of the Senate Aging Committee.

Americans tap their retirement savings prematurely for a variety of reasons, ranging from financial hardship to failing to reinvest lump sum payments made at job separation.  In 2013 alone, individuals in their prime working years withdrew approximately $69 billion of their retirement savings early. 

“Far too often, Americans in their prime working years are faced with difficult financial circumstances, which can lead them to withdraw retirement savings earlier than expected,” said Senator Collins.  “GAO found that in 2013, Americans ages 25 to 55 withdrew roughly $69 billion of their retirement savings early, putting them at financial risk in the long run.  The GAO report highlights this critical issue and examines ways to bolster Americans’ retirement security.”      

GAO’s report focuses on three areas:

• The incidence, amount, and significance of 401(k) plan leakage and its effect on account balances;

• The primary reasons individuals access their retirement savings early and the characteristics of employment transitions and the rollover process which push workers to cash-out their savings; and

• The actions that sponsors, regulators, and policymakers can implement to reduce the amount of leakage from 401(k) plans.   

In order to improve data on this issue, the GAO recommended that the Department of Labor and the IRS require retirement plan sponsors to report the incidence and the amount of all 401(k) loans that are not repaid.