SEAL Act Would Help DC Leakage Problems

In 2011, Senators Herb Kohl (D-WI) and Mike Enzi (R-WY) introduced their version of the SEAL Act. Now, two years later, Enzi and Bill Nelson (D-FL) have introduced a nearly identical bill, the Shrinking Emergency Account Losses Act (SEAL Act) into the Senate Health Education Labor and Pensions (HELP) Committee.

Essentially, the bill would accomplish two key purposes:

• Participants who elect to take hardship withdrawals will not have their rights to defer to a 401(k) plan suspended.
• Participants who terminate employment while having an outstanding loan balance in a qualified plan will have additional time to repay that loan before having a deemed distribution.

These are both positive steps that would help more participants to be prepared for retirement.

Philosophically, I have an issue with the first provision, however. A participant who has recently taken a hardship withdrawal has bigger issues than saving for retirement. Typically, that person would not be in a position to be taking money out of income for purposes other than keeping up currently.

The second provision makes sense. Currently, many administrative systems would not be equipped to handle such a provision, but certainly this could be fixed.

We'll see if the 2013 SEAL Act fares any better than its namesake did in the last Congress.