Legislation that would provide a penalty-free “emergency distribution” option from 401ks and IRAs was unveiled today by Senator James Lankford (R-OK) as he participated in the Tulsa Economic Empowerment Day with Nationwide.
Lankford’s Enhancing Emergency and Retirement Savings Act of 2021 would encourage participation in employer-sponsored retirement plans by giving individuals additional flexibility and penalty-free access to funds should a family emergency hit.
The bill was introduced last week with Senator Michael Bennet (D-CO). Both Lankford and Bennet serve on the Senate Finance Committee.
Under the proposed legislation, one emergency distribution would be permitted per calendar year, and that distribution would be limited to vested amounts over $1,000, with an annual maximum withdrawal of $1,000.
Additionally, the legislation requires that the individual replenish the withdrawn amount back to the plan before an additional emergency distribution from that same plan is allowed. Together, the senators say this will provide flexibility while also ensuring that individuals continue to save for retirement.
“I’ve heard from Oklahomans who experience sudden, unexpected emergencies and need a little flexibility to quickly access their own money. I’ve also heard from Oklahoma employers who offer retirement plans and have employees who don’t participate because they don’t have enough money to save for retirement and build up their savings,” Lankford said. “So many Oklahomans live paycheck to paycheck. They want to start saving for retirement, but they can’t take the risk of losing access to their money in case of an emergency. Our commonsense bill provides Americans the flexibility to save for retirement now, knowing they have access to some of their money for an emergency, and be able to pay that money back into their retirement plan.”
Adding that flexibility will help encourage workers, who might not otherwise feel comfortable participating in their personal or companies’ retirement savings program, to put money in those accounts with a little more peace of mind, Lankford continued, while also crediting Bennet and Nationwide for their work on the bill.
“Nearly four in 10 Americans can’t afford a $400 emergency expense. I hear all the time from Coloradans who get hit with an unexpected car repair they can’t afford and then lose their job because they can’t make it to work. Millions of families are trapped in this cycle of economic insecurity—one emergency away from everything falling apart,” Bennet said. “This bipartisan legislation will help give workers more flexibility to foot the bill for an unexpected emergency expense.”
Eric Stevenson, President, Nationwide Retirement Solutions, said he often hears a reluctance—particularly among lower-income workers—to participate in their workplace retirement plan because they are afraid they will not be able to access their money in the event of an emergency. By removing that obstacle, he said this legislation has the potential to boost 401k participation.
“I am excited to support this new bipartisan emergency savings proposal that will enhance America’s retirement security system. It’s the kind of innovation we need to create a more financially resilient country,” Stevenson said. “By providing more employees financial flexibility and opportunities to save for retirement, we can help more people prepare for short-term emergencies while they stay on track for retirement. In fact, a recent Nationwide Retirement Institute survey found 94% of advisors and financial professionals agree emergency savings access of this nature would help improve Americans’ financial security.”
The American Retirement Association is another supporter.
“The Enhancing Emergency and Retirement Savings Act smartly leverages the existing workplace-based retirement plan system to address this emergency savings problem while ensuring Americans continue to save for a secure retirement following an emergency,” said ARA Executive Director/CEO Brian H. Graff, Esq. “The legislation creates a new category of distribution in a 401k or similar plan that would allow workers who have a certain balance in these accounts to quickly access their savings to address a personal financial emergency without an additional tax penalty and a minimal amount of paperwork.”
View the ARA’s full letter of support HERE. Other supporters include the American Benefits Council, the ERISA Industry Committee, State Street Global Advisors, and LPL Financial.
The proposed bill joins a growing list of retirement reform legislation that has been introduced in Congress so far this year, including among others:
- Securing a Strong Retirement Act of 2021 (commonly known as SECURE 2.0)
- Retirement Security & Savings Act
- Improving Access to Retirement Savings Act
- The Protecting Retirement Savers and Everyday Investors Act
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
