401(k) debit cards: Worst retirement planning idea ever?
August 13, 2008 by Sam NarisiPosted in: In this week's e-newsletter, Latest News & Views, Payroll software
Employees have always been able to borrow money from their 401k funds. But now for some, it’s as easy as going to an ATM machine.
Earlier this year, Reserve Solutions, Inc., launched a service that allows employees to link a debit card to their 401k funds — allowing them to electronically withdraw money set aside for an approved 401k loan.
The general consensus: It’s a terrible idea. Few employers offer the service, for obvious reasons. Most think it would be too easy for people to make impulse purchases with money they should be keeping for retirement.
Employees seem to like the ability to withdraw from the funds, though. An estimated 20% of people have gone through the hoops and paperwork needed to take out a 401k loan. Still, financial experts don’t predict the debit card idea will ever sit well with employers.
How about you? Would your company ever consider giving employees this option? Let us know by writing a comment below.
Tags: 401k, 401k loans, debit cards, retirement
August 19th, 2008 at 1:59 pm
This is definitely a terrible idea. The way a lot of people spend today without regard for their credit, let alone their retirement, scares me enough as it is. These are the people we will be bailing out with some sort of government subsidy or another because they cannot or will not handle their finances in a responsible manner. Meanwhile, those of us who are responsible and try to put aside money for our retirement will end up suffering in the long run. I really hope employers do not give in to pressure from employees to institute a 401K debit card because it just spells trouble.
August 19th, 2008 at 5:15 pm
This is a very bad idea. 401k loans are misused often enough, and the debit card sounds like it would make it extremely easy to withdraw money for an impulse purchase or as an easy fix to a financial problem when other solutions might be available. My organization would never consider this. We only allow loans for hardship reasons. It is very important for retirement funds to be saved for retirement.
August 25th, 2008 at 8:15 am
401K loans have run rampant in our company this year. I can’t imagine giving people a piece of plastic with license to withdraw at will - what a disaster!
August 26th, 2008 at 2:13 pm
Today, my company already allows 2 outstanding loans to be held (residential and/or general loans) at any one time (with some monitary restrictions) and I have many employees that ALWAYS have 2 loans out. As soon as they pay off one, they apply for another one. This is a disaster for a 401K plan. We make it too easy and a “debit” card would cause a catastrophe for many employees who already have trouble “planning” for their future. I constantly preach to my employees that they have to actually think and plan to get where they want to be, it isn’t going to happen by accident or in a vacuum.
August 26th, 2008 at 2:16 pm
Oh, Jackie I absolutely feel your pain! I have the same problems and do the same preaching to no avail. And we also have employees who pay off loans and take another almost immediately. They think of it as a savings account rather than a retirement account, which is just frightening to me!