How to Help Participants Balance Current Needs vs Future Security

In my role I have access to unique perspectives. By that I mean the interactions with employees of different companies, sectors and backgrounds give me a sense of what is on the average Joe or Jane’s mind. In conversations with those employees one thing has been very apparent: a sharp uptick in active employees wanting to withdraw from their retirement accounts. The reasons for these withdrawals are widespread, ranging from falling behind on bills to catching up on credit card debt or seeking help with car repairs. It’s clear that high inflation and a general unease about the economy are weighing heavily on all retirement plan participants. While the IRS does allow for withdrawals to satisfy “an immediate and heavy financial need,” it’s important to consider the future costs of such actions as you mortgage your future to fund current expenses. Employers and plan administrators can play a huge role in stemming these trends by offering resources and making plan design changes.

The evidence supporting this trend isn’t just anecdotal. “Vanguard, Fidelity, and Bank of America have all recently reported a rise in hardship withdrawals. Fidelity found that 2.4 percent of 22 million people with retirement accounts in its system took hardship withdrawals in the final quarter of 2022, up half a percentage point from a year earlier. Similarly, Vanguard’s analysis revealed that 2.8 percent of five million people with retirement accounts made a hardship withdrawal last year, up from 2.1 percent a year earlier. In the first three months of 2023 Bank of America found that the number of people taking hardship withdrawals jumped 33 percent from the same period a year earlier, with workers taking out an average of $5,100 each.”1 While recent economic conditions have increased the willingness of employees to turn to hardship withdrawals, economics aren’t solely to blame. Key barriers were removed with legislation in 2019, making it generally easier to access retirement funds. The easing removed the requirement to exhaust loans before withdrawals, made earnings available to be included in withdrawal amounts, and eased hardship verification requirements.

This presents an opportunity as plan design can be used to help steer employees towards the goal of employer qualified plans, which is saving for retirement. It is important to note that although the IRS permits hardship withdrawals, it is by no means required to be part of a retirement plan. On one hand, adding this feature may attract employees to the plan as they would have access to these funds in emergencies. On the other hand, it can quickly become a personal savings account that the employee dips into routinely. Offering loans within the plan can help employees in the long run, as the funds must be paid back into the account rather than withdrawn. Starting in 2024, SECURE 2.0 will allow employers to add a plan feature that enables employees to put aside up to $2,500 in after-tax contributions in an emergency savings vehicle within their retirement plan. Details about how exactly this will be implemented are still being ironed out. Plan features can help guide employees to long-term success in funding retirement, but employers and plan administrators can reinforce these efforts with resources like financial wellness.

Most people think of financial wellness as a buzz phrase, but platforms/tools in this realm can adequately serve in place of a formal financial plan. Both plan administrators and employers are taking notice and partnering with vendors to make these services available. Highlights of these programs include financial literacy and education, access to financial calculators, webinars/podcasts, and more. At Greenleaf Trust, our retirement plan participants have access to the platform Savology, which helps employees create a financial plan and directs them toward actions that can support long-term goals, such as creating an emergency savings fund, saving for their children’s education, tools for estate planning, and retirement planning. Other resources, like Employee Assistance Programs (EAPs) offered in many HR benefits packages, provide access to tools such as financial and credit counseling and referrals to professionals with various areas of expertise. These programs usually offer a certain number of covered sessions or reduced-rate referrals. Lastly, retirement education is offered by most plan administrators, including Greenleaf Trust. This education can be tailored to speak about topics relevant to the employees, such as Social Security readiness or an introduction to Secure 2.0 features. Our team has helped educate employees on these topics. If more employees are exposed to these resources and clearly understand how these withdrawals ultimately affect them, it can push back against this rising trend.

Financial emergencies will always exist, and the hardship withdrawal option helps employees avoid falling into financial peril. It surely has offered a lifeline to many employees and will continue to do so in the future. However, it’s crucial to recognize that these withdrawals should be used as a last resort. The damage that can be done to retirement savings by taking early withdrawals is very difficult to reverse, especially for those further along in their careers. As plan administrators, it’s important for us to partner with employers, leveraging our resources and expertise in designing plans to achieve our goal of helping employees retire with dignity.

1   White, Martha C. “It’s ‘more Expensive to Live,’ and Workers Are Tapping 401(k)s for Help.” The New York Times, 27 May 2023,