401(k) Plan Loans Are Not A Substitute for Short-Term Credit Needs

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Mar 25, 2016, 04:30 ET

ATLANTA, March 25, 2016 /PRNewswire/ -- March is National Credit Education Month, a time when consumers are reminded about the importance of smart money management and a good credit score. But credit is an issue for the 33% of U.S. consumers who are living paycheck to paycheck.¹ When they don't have affordable financing options they often go to a source – a withdrawal from their 401(k)/retirement savings – that warrants a second look.

For many employees, paying cash is not an option when it comes to making purchases. Their financing options are limited to credit cards; bank loans; payday, pawn and title loans. For every dollar employees try to finance to make purchases, they are charged high interest and financing charges, and risk incurring late fees and other penalty fees.

A retirement plan is supposed to be an employee's nest egg for their golden years. However, some employees are using those funds prior to retirement to cover expenses such as housing, medical care and even credit card debt.

"Taking a loan from a 401(k) plan is rarely a good idea," Elizabeth Halkos, Purchasing Power's Chief Revenue Officer, said. "It jeopardizes their long-term savings and employees often incur penalties, taxes and high interest on repayment," she added.

What can be done to address employees' current financial stability, particularly for those employees living paycheck to paycheck, struggling to meet monthly expenses or unable to save $2,000 for emergencies? Progressive employers are adding employee purchase programs to help employees stretch their current cash flow and, hopefully, prevent borrowing from their 401(k) savings. An employee purchase program promotes disciplined purchasing through manageable payments; a 12-month payment term; and pre-set spending limits and controls to prevent over-spending. For the employee, there is no down payment or ballooning interest, no late fees and no additional fees beyond the all-inclusive price.

"Those employees who are dipping into their retirement funds for loans to use for expenses today are only compounding the problem," Halkos explained. "Offering an employee purchase program as a voluntary benefit can help by easing employees' fiscal stress; aiding them in getting back on a firmer financial footing; and preserving existing retirement funds," she added.

The Retirement Withdrawals infographic outlines how the money that employees withdrew from their retirement funds was used.

About Purchasing Power, LLC
Purchasing Power is one of the fastest-growing voluntary benefit companies in the industry, offering a leading employee purchase program for consumer products and services as well as providing financial tools and resources to improve employees' financial wellness. Purchasing Power is available to 7.8 million people through large companies – including Fortune 100s – and government agencies. Headquartered in Atlanta, Purchasing Power is 'Powering People to a Better Life™' through its employee purchase program, financial literacy efforts and charitable contributions. Purchasing Power is a Rockbridge Growth Equity, LLC Company. For more information, visit www.PurchasingPower.com.

"A Better Way to Buy" and "Powering People to a Better Life" are trademarks, and "Purchasing Power" is a registered trademark, of Purchasing Power, LLC.

¹ http://money.cnn.com/2014/04/25/news/economy/middle-class-paycheck/

Media Contact:
Juliann Kaiser, 770.643.0615
[email protected]

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SOURCE Purchasing Power, LLC