WASHINGTON, D.C. —
In addition, employers often are subsidizing the accounts with matching contributions on the assumption that the money is helping to secure their employees' retirements.
"What you have is 401(k) participants voting with their wallets saying they would much rather use this money for other purposes. I don't think this can be ignored. Employers are dramatically overpaying for retirement, but it is not benefitting the employee," said Matt Fellowes, a former Brookings Institution researcher who is chief executive of HelloWallet. "In many cases, the only one benefiting is the vendor."
Since 401(k)s were created by Congress in 1978, concern about the pervasive use of retirement funds for other expenses has grown as other means of retirement security have dwindled.
In 1980, four out of five private-sector workers were covered by traditional pensions that paid them a fixed benefit based on their salary and length of service once they retired. Now, just one in five workers has a pension, leaving 401(k)s and similar retirement savings accounts as the primary vehicles for retirees to supplement their Social Security benefits.
"Encouraging or enabling people to spend down retirement money in anything other than the most severe circumstances is a terrible mistake," said David John, a senior fellow at the Heritage Foundation who studies retirement policy.
But millions of Americans, caught between flat wages and high expenses for everything from sending children to college to making home repairs, feel as though they have little choice. The withdrawals have grown substantially in the wake of the financial crisis.
In 2010, 28 percent of participants reported having an outstanding loan against their retirement accounts, an all-time high, according to a survey of 110 large employers by Aon Hewitt, a human resources consultancy. And nearly 7 percent of employees took hardship withdrawals that year — roughly a 40 percent increase since the recession, while 42 percent of workers cashed out their plans rather than rolling them over when they changed jobs.