Senators seek to cap loans from 401(k)s

Legislation setting limits on the number of loans that can be taken from 401(k) plans as well as prohibitions on 401(k) debit cards is to be introduced today by Senate Special Committee on Aging Chairman Herbert Kohl, D-Wis., and Sen. Charles Schumer, D-N.Y. Loans taken from 401(k) plans are increasing in number as well as size, according to a study released at a Senate hearing today. The legislation “will protect people’s nest eggs from companies peddling debit cards that deplete their retirement savings with a simple swipe,” Mr. Schumer said in a statement. Loans from defined contribution plans rose sharply, increasing almost fivefold in inflation-adjusted terms to $31 billion in 2004 from $6 billion in 1989, according to a report, “Robbing Tomorrow to Pay for Today,” released at the hearing by the Center for American Progress Action Fund of Washington. While money is withdrawn from retirement accounts it doesn’t earn any returns, according to the report. Over the past few years, many account holders have used their retirement savings plans to “bridge the gap between slow income growth and rapidly rising prices” for houses, food, energy and health care, according to the report. Loans from retirement savings plans can substantially reduce retirement income, according to the report. “401(k) and similar defined contribution plans were created to ensure that people would have adequate savings for retirement, not a source of credit to use casually,” Mr. Kohl said in a statement.