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Across the entire U.S. household population who has used a defined contribution plan for retirement, nearly 20 percent have at some point taken a full distribution of one or more of their DC balances.

New research released Jan. 16 by HelloWallet finds that more than 25 percent of U.S. workers participating in a 401(k) plan will access their 401(k) savings before they reach retirement, now withdrawing $70 billion annually.
The study, which analyzed consumer finance data from the Federal Reserve and the U.S. Census Bureau, raises significant questions about the future of the bedrock retirement program as more workers move from traditional pension benefits towards tax-incented defined contribution programs.
The survey results also hold significant implications for employers, who collectively invest $118 billion annually in 401(k) programs for their workers’ retirement.
The research finds that one out of four participants in 401(k) retirement programs will either cash-out their savings before retirement — incurring substantial penalties and taxes — or forfeit them to loans.
Among the other findings:
* More than 25 percent of households that use a 401(k) or similar defined contribution plan have used all or some of their savings for non-retirement needs, amounting to more than $70 billion in annual withdrawals.; 
* 75 percent report that they breached their savings because of basic money management problems; 
* Workers now withdraw or breach over $70 billion annually out of their 401(k)s for non-retirement needs;
* Penalized withdrawals increased from $36 billion to about $60 billion between 2004 and 2010; *
Workers in their 40s are most likely to breach their savings for non-retirement needs.
“This research shows that employers are not getting the return on investment that they may think they are from their retirement investments,” said HelloWallet founder and CEO Matt Fellowes, a former Brookings Scholar who led the study. “Investing in retirement savings is essential for all Americans, but this study demonstrates that a large share of U.S. workers lack the basic financial skills needed to actually benefit from those savings, and it’s costing both them and their employer dearly.”
“While there is no question about the need for retirement savings, the issue raised by our research is whether employees are given the financial tools, including unbiased guidance, to make the best decisions every step of the way,” said Fellowes. “These data strongly indicate that, for many workers, investment advice is misaligned with their investment needs and, as importantly, with their basic day-to-day financial needs.”
The research also finds that only a small percentage of employees (8 percent) are withdrawing funds because they have lost their jobs. Instead, 75 percent of those who have made early withdrawals have done so because they lack basic money management skills and need to meet basic money management challenges, such as emergencies, credit-card payments, and health care.
In many cases, better planning and guidance would put them on a track to avoid costly mistakes, take advantage of the tax incentives, and accumulate the savings needed for retirement.
For employers, the implications of the research are substantial. American companies now spend $118 billion annually on retirement contributions with the expectation that employees will take maximum advantage of these programs to improve their financial well-being. The new research suggests that employers’ massive investment is not always delivering the intended results.
To aid employers in evaluating the effectiveness of their retirement and other Rewards programs, HelloWallet is providing an online diagnostic. Called the “Financial Wellness Diagnostic,” this free tool provides employers with insight into the needs of their workforce.