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Sen. James Lankford, R-Okla., introduced legislation on June 1 that would let retirement plan participants to dip into their savings for emergencies.
The Enhancing Emergency and Retirement Savings Act of 2021 would "encourage participation in retirement plans" by giving individuals penalty-free access to funds should a family emergency hit, Lankford said in introducing the bill alongside Sen. Michael Bennet, D-Colo., both members of the Senate Finance Committee.
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The bill would provide a penalty-free "emergency distribution" option from employer-sponsored retirement accounts and IRAs.
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, according to the bill.
The bill also "requires that the individual replenish the withdrawn amount back to the plan before an additional emergency distribution from that same plan is allowed. Together, this will provide flexibility while also ensuring that individuals continue to save for retirement."
The bill is backed by the American Retirement Association, Nationwide Retirement Solutions, LPL Financial, State Street Global Advisors, the American Benefits Council and the ERISA Industry Committee (ERIC).
Brian Graff, ARA's executive director and CEO, said in a statement that the bill "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."
It also "creates a new category of distribution in a 401(k) 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," Graff said.
Bennet added that "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."
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Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
