On the other hand, easing withdrawals may require too many low-income workers to treat their 401(k) like a savings account or emergency fund, said Nolan.
“When participants tap into their savings for a financial crisis, they can easily look at their 401(k) as a type of savings account ad be unwilling to take an appropriate level of investment risk,” Nolan said.
That also registered as a concern for Miller.
“You have to be careful about creating the perception of easy access to these funds,” said Miller. “I agree that there’s a benefit to making these funds more readily available during someone’s accumulation phase, but these accounts were intended to help people cover expenses in the retirement phase of their lives.”
The IRS’s decision to shift the burden of proof for hardship verification from participants to sponsors really doesn’t change much, said Nolan, as many plans already operate in such a manner.
Nolan also said that for most participants, the combination of taxes and penalties, which could come to significantly more than 30% of the withdrawal, serves as a reliable deterrent from taking early plan withdrawals.