Joe Bonfiglio, a spokesman for the Senate Special Committee on Aging, for which Kohl is chairman, told Bloomberg News the bill would reduce the number of loans workers may take from a 401(k) to three and give participants more time to repay after losing a job. It will allow savers to contribute to their plan after taking a hardship withdrawal and ban debit cards linked to the accounts, Bonfiglio said in the Bloomberg report.
For workers who lose their jobs before repaying a loan, the bill would let them pay down their balances into an individual retirement account before filing their taxes for that year, in order to not incur a withdrawal tax penalty on those funds. The IRS and Treasury Department would need to issue guidance on how the process will work, Bonfiglio said.
The legislation would also allow participants to continue to contribute to their retirement accounts during the six months following a hardship withdrawal because the loss of employee and company matching contributions during that period can further erode retirement savings, according to a statement from Kohl obtained by Bloomberg.
The bill also would ban plan debit cards products.Text of the legislation is at http://aging.senate.gov/issues/FSA.pdf.