Helping Workers Rebuild Retirement Accounts? Don’t Hold Your Breath

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Aug 21, 2013

I read an article last week on SHRM’s website titled Help ‘Displaced’ Workers Safeguard Their Nest Eggsby Stephen Miller, and it gave me a chuckle.

I’ve no desire to make fun of Mr. Miller. I’m sure his heart is in the right place. And the topic — how unemployed or underemployed workers are raiding their retirement accounts — is important.

It’s just that I couldn’t help reading the piece and thinking that, (a) employers don’t give a rat’s behind if an employee is fired or otherwise let go and has to take a distribution from his retirement account to pay his bills; and, (b) read (a) again.

Do employers really care about this?

And here Miller is suggesting that employers do something about this sad state of affairs, like provide workers more generous severance packages (is he serious??) or perhaps financial education.

The article quotes Catherine Collinson, President of the Transamerica Center for Retirement Studies, as saying:

During the economic downturn, many displaced workers have depleted their retirement accounts in order to pay for basic living expenses while they seek meaningful employment. It’s important that employers take the opportunity to help this group rebuild their long-term financial futures.”

And I’m reminded of those actors pretending to be actors in the movies who say, “What’s my motivation?” because again, I just don’t see employers caring about this.

Being fair to displaced workers

To be sure, I think they should. Once re-entering the workplace, employees who have depleted or otherwise compromised their retirement accounts will have to stay in the workforce longer to regain those funds. And, that could cause a logjam in the worker pipeline, such as we’re already seeing as a result of the market losses in 2009. Also, financially stressed workers bring their stress to work, and it tends not to enhance performance.

(Actually, that’s the reason I started a financial education program at my last job. I really do believe in financial education. I just think it’s too little too late if someone hasn’t been employed in two years and needs to pay his mortgage. He may realize he’s going to take a hit on his taxes for an early 401(k) or 403(b) withdrawal, but he needs a place to live, too.)

There was one suggestion in the article I could get behind though, and that’s for policymakers to consider extending the 401(k) loan repayment period for terminated plan participants.

It really does seem unfair for an employee to get laid off or otherwise forced out of his position and then be faced with having to pay penalties and taxes on a remaining loan balance he had every intention of repaying over time via payroll deduction.

They may never stop working

Many employees in this position simply can’t afford to repay the loan in a lump sum, so they either have to borrow the money from someplace else, or pay the 10 percent penalty and taxes. And yeah, I know the employee got the benefit of the cash without having to pay taxes, but still, a little bit more time to help this individual get back on track would be a good public policy move is all I’m saying.

Says Collinson:

If displaced workers fail to overcome retirement savings setbacks due to unemployment or underemployment, society may ultimately bear the cost when future generations of senior citizens run out of savings.”

That scenario doesn’t sound all that far-fetched. Collinson’s group did a study last year titled Transamerica Study Reveals the New Retirement: Working, which found that a high percentage of workers of varying ages and income levels who don’t believe they’ll ever be ready for retirement and just plan to keep on working, period.

An issue everyone should care about

Here are some stats from the study.

  • 69 percent of those in their 20’s and 72 percent of those in their 30’s agree they could work until age 65 and still not have enough money saved;
  • 80 percent of those with a household income (HHI) of less than $50,000 agree;
  • 74 percent of those with an HHI $50-$100,000 agree; and,
  • 59 percent of those with an HHI over $100,000 also agree.

So again, I think this is an important issue all the way around and one that policymakers and employers should care about.

But will they? Your guess is as good as mine.