Employees across all industries want to ensure that when it’s finally time to retire, they can do so comfortably. However, a piece in Time Magazine discussed certain drawbacks to 401(k) planning, and said that money often leaks out of 401(k) plans before retirement in three basic ways. They include hardship withdrawals, loans that do not get repaid and cash-outs when workers switch jobs.
Furthermore, a study from Robert Litan at Brookings and Hal Singer at Navigant Economics found that defaults on 401(k) loans account for up to $37 billion of leakage annually. In 2010, Fidelity reported that a record 22 percent of 401(k)-plan participants had a loan outstanding and that the default rate on those loans was skyrocketing.
However, those numbers have since plateaued, according to the Employee Benefit Research Institute, due in large part to the economy slowly recovering.
Time added that with so many questions surrounding current 401(k) options, it is further proof how the system has failed so many American workers.
“If so much money earmarked for retirement is going to be pulled out early, 401(k) plans would seem to be a terribly inefficient tool,” the article said. “The high costs of leakage point up the value of building and maintaining an emergency fund even before building a nest egg.”
This is an attitude that no business wants its employees to have. However, when companies invest in HRIS software, it can help them outline a comprehensive retirement planning system. That way, should workers have questions about their options for 401(k) planning, they can easily access the data and remain fully informed.
Additionally, when HR managers are no longer bogged down with administrative paperwork, it can free up more of their time to work with employees face-to-face, and assist in retirement planning. An HR software solution can have far-reaching benefits that will help workers far into their futures.