Billions of dollars are leaking from 401(k) plans every year,draining millions of Americans' retirement savings and potentiallydelaying their retirements by years. It's an opportunity forfinancial advisors to grab a metaphorical pipe wrench and playplumber to stem the leak and protect workers' retirements.

The Pension Research Council (PRC) at the Wharton School,University of Pennsylvania reports that one in 10 401(k) plan loanswind up in default, sucking $6 billion a year from definedcontribution plans (Borrowing from the Future:401(k) Plan Loans andLoan Defaults, Pension Research Council, Wharton School, Universityof Pennsylvania). Often, the unpaid loans are by employees whohave tight financial circumstances and lack liquidity options toaddress financial emergencies.

Many middle-income workers – those with annual household incomesof between $35,000 and $150,000 – struggle to deal with financialemergencies, according to the 2017 MassMutual Middle America Financial SecurityStudy. Often, the choices they make are harmful from along-term financial perspective.

When faced with a $500 emergency, for instance, 58 percent woulduse a credit card, the Middle America study shows. While 14 percentoverall say they would withdraw or borrow money from their 401(k),one in four (24 percent) of those with less than $45,000 inhousehold income would go that route.

The statistics grow bleaker with a $5,000 emergency. While38 percent would hit up family or friends and 37 percent would usea credit card, one in four (25 percent) would tap their 401(k).Remarkably, the worst offenders were those with household incomesof between $75,000 and $150,000. If left unattended, the leak couldbecome a flood.

It's a concern not only for workers who took money from theirretirement plan but for their employers as well. There are somestrategies for employers to tighten the 401(k) spigot as well asprovide alternative sources of cash to help employees better manageemergencies as they crop up.

Employers have different views when it comes to makingretirement plan savings available to employees in the form ofhardship loans, withdrawals or both. While not all employers allowsuch activities, many do and often have liberal rules, allowingmultiple loans and relatively high dollar limits.

Financial advisors can suggest that sponsors limit loans andwithdrawals. For instance, if loans are allowed, restrictparticipants to a single outstanding loan at any given time. Dollaramounts for both loans and withdrawals can be capped as well.

But what happens when an employee is faced with a financialemergency and has few other choices than to tap his or herretirement savings? It's a legitimate concern.

Some employers are making available voluntary benefits that aredesigned to help employees address financial emergencies,especially those that stem from medical emergencies:

• Pre-approved emergency loans: Some programsallow employees to obtain credit online without having to fill outforms or visit a bank. The most helpful programs prequalifyemployees for credit based on their employment and their ability torepay. Often, employees can repay the loans through payrolldeduction. The rates on these loans can often have relatively lowinterest rates when compared to credit cards. While that rate maybe higher than the rates assessed on many retirement plan loans, itmay be low enough to discourage borrowing from retirement plans andpotentially missing out on market experience.

• Critical illness insurance coverage: Medicaltreatment and other expenses related to a serious illness canquickly run into several thousands of dollars, especially with thegrowing prevalence of high-deductible health care coverage.Critical illness insurance policies provide cash for insureds touse for a myriad of expenses, from medical deductibles and co-paysto pharmaceuticals and comfort-related costs if an employee or afamily member suffers a covered illness.

• Accident insurance: Few emergencies can derailpersonal finances more quickly than an accidental injury,especially for those who live paycheck to paycheck. And, injuriesare more prevalent than many people realize. The U.S. Centersfor Disease Control reports that emergency rooms treat more than 40million injuries a year across the country (Centers for Disease Control, Home &Recreational Safety). Policies typically pay benefits in a lumpsum, which can be used to help cover any expense, including medicalinsurance deductibles, co-pays, lost income from down time fromwork and other unanticipated expenses.

All of these benefits are available on a voluntary basis,meaning the employee is responsible for the premiums at group ratesor other costs. Employers can also choose to make the benefitsavailable on a contributory basis, meaning the employer andemployee share the costs, or on an employer-paid basis.

Taken together or individually, these protection benefits mayhelp provide workers with financial tools to better manage thecosts associated with some misfortunes rather than tapping theirretirement or personal savings. Protecting savings – especiallyretirement savings – may promote long-term financial wellness andcan help reduce stress at the workplace.

The ultimate goal is to discourage employees from siphoningmoney from already-modest 401(k) balances and seal up as muchleakage as possible. By helping employees better cope withshorter-term financial challenges, they may be better able tocontribute to and preserve their existing retirement savings.

To learn more, visit http://www.massmutualatwork.com/ or call1-855-877-6161.

E. Thomas Foster Jr. is head of strategic relationships forretirement plans for Massachusetts

Mutual Life Insurance Co. (MassMutual).

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