Broken Piggy Bank: 'Leaky' 401(k)s Worry Congress

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The problem is payback. Says Bonfiglio, "The chance for people in tough economic times to pay the money back isn't good, and it's getting worse. I was most struck by the default rate in their [the Aon] report. After people who've borrowed lose their job, the default rate is huge -- around 70 percent."

Under present rules, a borrower who loses his job must repay the entire loan, typically within 60 days, or else default and pay tax penalties. The Kohl-Enzi bill would give such borrowers longer to repay. They would have up until they filed their federal taxes to pay down their debt, by putting money into an IRA. The details, says Bonfiglio, would have to be worked out by the IRS and the Treasury Department.

Debit cards linked to 401(k)s aren't in wide use right now, says Bonfiglio, but have been marketed in the past. "The companies come and go," he says. Using such a card, a consumer can pay for something as small as a supermarket purchase by tapping into his retirement savings, which Bonfiglio calls folly.

"That's not what 401(k)s were created for," he says. The Kohl-Enzi bill explicitly prohibits employer plans from making such loans through cards.

Hess says that employers could do much more to reduce leakage, including adding to their programs online tools that savers could use to see, in advance, the long-term harm done their retirement savings by making a withdrawal. Aon is currently developing such tools.

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