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401(k) leakage happens when you or your employer cashes out some of your 401(k) funds before retirement Asset leakage is an important issue for plan sponsors because larger retirement plans are better positioned to negotiate with recordkeepers and investment providers to secure institutionally priced investment products. Consider plan leakage when designing your retirement plan when you're designing a 401 (k) or other retirement plan, offering flexibility and options may seem like the obvious choice

However, some plan leakage can be avoided by carefully choosing the terms under which employees can take money out of their account. This leakage is driven by financial need, small balances, and complex rollover processes, but new initiatives aim to simplify transfers and protect future wealth. Workers cash out billions of dollars from 401 (k) plans each year when they change jobs.

Many employees tap into their 401(k)s early, but the real cost goes beyond lost savings

Leakage impacts financial stability, workplace productivity, and retention. This cash out leakage can undermine savings goals and bring unexpected tax bills While accessing these funds might seem like a quick fix during financial difficulties or job transitions, doing so prematurely often carries a significant cost. Our survey results show that having emergency savings can help participants smooth income shocks and reduce 401(k) leakage.

This leakage is driven by immediate financial pressures, perceived small balances, and complex rollovers, but new solutions aim to improve portability.

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