Financial Safety Net: Alternatives to Using Retirement Plan Loans to Cover Everyday Expenses
ATLANTA (Jan. 9, 2014) – Employers consider retirement plans an important benefit for attracting and retaining employees, yet according to a recent nationwide survey of adults or their spouses employed full-time, 24 percent of those who say that they or their spouse participate in a retirement program through an employer report that they borrowed against or took an early distribution from that retirement program in the past three years.
Employees who borrowed or took early distribution against their retirement plan in the past three years are tapping into their nest egg for their golden years to help with everyday expenses. According to the survey, these employees said they used the money to cover expenses such as mortgage/rent/utilities, medical expenses and even credit card debt. In addition to providing for their employees future through retirement plans, employers should address their employees’ current financial stability by offering voluntary benefits that help employees build a financial safety net.
Those are some of the findings of a white paper released yesterday by Purchasing Power. “Financial Freedom: Helping Employees Save for the Future and Live for Today” uses proprietary and industry research to explore retirement plan loans. The paper examines what employees are saying today about their financial outlook, their participation in retirement plans and whether or not they have taken out loans against them. It also discusses the role of employers in providing for employees’ retirement as well as helping with their financial wellness prior to retirement.
The 401(k) / ATM mentality
“The purpose of the 401(k) is to provide for employees’ golden years. Sometimes employees need cash and believe there are no viable options other than to tap into their nest egg. Taking a loan from a 401(k) is rarely a good idea,” says Richard Carrano, President and CEO, Purchasing Power.
Nearly one-third (31 percent) of adults or their spouses who are employed full-time say they are unable to prepare for long-term financial needs right now, while half (50 percent) indicate they are able to prepare for some long-term financial needs, but wish they could prepare better. The survey was conducted online by Harris Interactive® on behalf of Purchasing Power from October 10-14, 2013, among 2,027 U.S. adults ages 18 and older, of whom 972 are employed full-time and/or whose spouse is employed full-time.
In the same survey, those who said they have retirement plans – 401(k), 403(v) or Roth – with their employer and borrowed or took early distribution from those plans in the past three years (24 percent) reported they used the funds for:
- General household expenses (mortgage/rent, utilities) – 37 percent;
- Medical expenses – 24 percent;
- College tuition/expenses – 22 percent;
- Credit card payment – 22 percent;
- Big ticket items (appliances, electronics, computers) – 18 percent;
- New car purchase – 14 percent;
- Major car repair – 7 percent; and
- Other – 16 percent.
“Employers can help their employees’ current financial wellness not only by providing core benefits, but also by offering voluntary benefits that help them build a financial safety net. For example, there is a way employees can preserve 401(K) savings while still being able to fund some unexpected expenses and reduce their reliance on student loans. Employee purchase programs offered as a voluntary benefit provide a means for workers to obtain items they need without dipping into their financial future,” Carrano explains.
Employees agree that could be an option. More than half (55 percent) said that if they or their spouse had access to an employee purchase program they would be at least somewhat likely to use it to purchase appliances, furniture, computers, electronics, educational services, etc.
The complete white paper, “Financial Freedom: Helping Employees Save for the Future and Live for Today” is available here.
About Purchasing Power, LLC
Headquartered in Atlanta, GA, Purchasing Power is available to six million people through large companies – including Fortune 100s – and government agencies. Purchasing Power is one of the fastest-growing specialty e-retailers in the market offering a leading voluntary benefit program. Honored for “World Class Service” by Smart Business, Purchasing Power was also recognized as one of the fastest-growing companies, ranking as one of “Atlanta’s Best and Brightest Companies to Work For” in 20-13, Purchasing Power is ‘Powering People to a Better Life™’ through its employee purchase program, financial literacy efforts and charitable contributions. Purchasing Power is a Rockbridge Growth Equity, LLC Company. For more information, visit www.PurchasingPower.com.
This survey was conducted online within the United States by Harris Interactive® on behalf of Purchasing Power via its Quick Query omnibus product from October 10-14, 2013 among 2,027 adults ages 18 and older, of whom 972 are employed full-time and/or whose spouse is employed full-time. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables, please contact Diana Mulhall, firstname.lastname@example.org.