Hardship Withdrawals

Improving the wellness of those who take them

WORKPLACE THOUGHT LEADERSHIP

At Fidelity Investments, we understand that people who take hardship withdrawals are often experiencing significant financial stress. Our research shows this stress also has a far-reaching impact on their health, work, and life1. Since the passing of the Bipartisan Budget Act (“BBA”) of 2018, which eliminated the requirement to take all available plan loans before obtaining a hardship withdrawal, we have seen a shift in participant behavior. While the percentage of participants taking loans and hardships overall hasn’t increased, of those withdrawing money from the plan, fewer are taking loans and more are taking hardships.

While we believe that taking money from one’s retirement savings should be a last resort, we recognize that participants in financial distress may have no other option but to tap into their DC plan. Taking a loan will have less of an impact on participants’ long-term savings and is generally a better option than taking a hardship. Although the BBA no longer requires plan loans before taking a hardship, plan sponsors can still consider requiring a loan before requesting a hardship. However, we know that for some participants, taking a hardship may be their only option and may be a “lifesaver.” To understand how we can help those who are in financial distress, we looked at the changes to hardship withdrawal rules, recent participant behavior, and the well-being of those taking hardships. Hardship_Withdrawals
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1Fidelity Investments Total Well-Being Research online survey of 9,315 active Fidelity 401(k) and 403(b) participants from across the United States. The survey was conducted by Greenwald and Associates, an independent third-party research firm, on behalf of Fidelity in September 2017.

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