Individuals also receive tax incentives to save for retirement outside of an  employer-sponsored plan. The Form 5500 serves as the primary source of information  collected by the federal government regarding the operation, funding,  expenses, and investments of employee benefit plans. At Least $29 Billion Withdrawn Early from 401(k) Plans in 2013

At least $29.2 billion left 401(k) plans in 2013 in the form of hardship  withdrawals, cashouts at job separation, and unrepaid plan loans,  according to our analysis of 2013 SIPP data and data from DOL’s Form  5500. The amount of hardship withdrawals was equivalent to 0.5  percent (+/- 0.06) of the cohort’s total plan assets and 8 percent (+/-  0.9) of the cohort’s plan contributions made in 2013. The amounts cashed out  and not rolled over were equivalent to 0.3 percent (+/- 0.05) of the  cohort’s total plan assets and 4 percent (+/- 0.75) of the cohort’s total  contributions made in 2013. Age. Plan Rule Flexibilities and Use of Retirement Assets for Pressing Financial Needs Said to Result in Early Withdrawals

		Stakeholders Said Plan Rules Governing Early Withdrawals May Lead to Reduced Savings for Some Participants

Stakeholders we interviewed said that plan rules related to the disposition  of account balances at job separation can lead participants to remove  more than they need, up to and including their entire balance. Stakeholders Suggested Strategies to Balance Access to Early Withdrawals with the Need to Build Long-term Retirement Savings

		Some Plan Sponsors Have Implemented Policies to Preserve the Benefits of Early Withdrawals While Reducing Their Long-term Effects

			Preserving 401(k) Account Balances at Job Separation

Some plan sponsors we interviewed had policies in place that may  reduce the long-term impact of early withdrawals of retirement savings  taken at job separation. 2). They noted that any of these proposed  strategies, if implemented, could (1) increase the costs of administering  IRAs and plans, (2) require changes to federal law or regulations, and (3)  involve tradeoffs between providing access to retirement savings and  preserving savings for retirement. Allowing individuals to roll existing plan loans into an IRA: Some  stakeholders said that allowing individuals to include an existing plan  loan as part of a rollover into an IRA, although currently not allowed,  would likely reduce plan loan defaults by giving individuals a way to  continue repaying the loan balance. However, this strategy could result in participants  overseeing and monitoring several retirement accounts. Conclusions

In the United States, the amount of aggregate savings in retirement  accounts continues to grow, with nearly $17 trillion invested in 401(k)  plans and IRAs. Recommendation for Executive Action

To better identify the incidence and amount of loan offsets in 401(k) plans  nationwide, we recommend that the Secretary of Labor direct the  Assistant Secretary for EBSA, in coordination with IRS, to revise the Form  5500 to require plan sponsors to report qualified plan loan offsets as a  separate line item distinct from other types of distributions. In its written comments, reproduced in appendixes IV and  V, respectively, DOL and IRS generally agreed with our findings, but  neither agreed nor disagreed with our recommendation. Appendix I: Objectives, Scope, and Methodology

The objectives of this study were to determine: (1) what are the incidence  and amount of retirement savings being withdrawn early; (2) what is  known about the factors that might lead individuals to access their  retirement savings early; and (3) what strategies or policies, if any, might  reduce the incidence and amount of early withdrawals of retirement  savings. Data Analysis

To examine the incidence and amount of early withdrawals from  individual retirement accounts (IRA) and 401(k) plans, we analyzed the  most recent nationally representative data available in three relevant  federal data sources, focusing our analysis on individuals in their prime  working years (ages 25 to 55), when possible. Requirements   Allows eligible individuals to make contributions to a Roth IRA that are not tax- deductible. GAO-17-69. GAO-15-556.
Why GAO Did This Study

Federal law encourages individuals to save for retirement through tax incentives for 401(k) plans and IRAs—the predominant forms of retirement savings in the United States. In 2017, U.S. plans and IRAs reportedly held investments worth nearly $17 trillion dollars. Federal law also allows individuals to withdraw assets from these accounts under certain circumstances. DOL and IRS oversee 401(k) plans, and collect annual plan data—including financial information—on the Form 5500. For both IRAs and 401(k) plans, GAO was asked to examine: (1) the incidence and amount of early withdrawals; (2) factors that might lead individuals to access retirement savings early; and (3) policies and strategies that might reduce the incidence and amounts of early withdrawals.
To answer these questions, GAO analyzed data from IRS, the Census Bureau, and DOL from 2013 (the most recent complete data available); and interviewed a diverse range of stakeholders identified in the literature, including representatives of companies sponsoring 401(k) plans, plan administrators, subject matter experts, industry representatives, and participant advocates.

What GAO Found

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.

What GAO Recommends

GAO recommends that, as part of revising the Form 5500, DOL and IRS require plan sponsors to report the incidence and amount of all 401(k) plan loans that are not repaid. DOL and IRS neither agreed nor disagreed with our recommendation.