A bipartisan bill has been introduced in the Senate that would limit the number of loans workers can take from their 401(k) retirement plans.
See also: 5 common retirement planning mistakes.
The bill, announced Wednesday by Sen. Herb Kohl (D-Wis.), chairman of the Senate Special Committee on Aging, and Sen. Mike Enzi (R-Wy.), is designed to stop Americans from borrowing from their accounts early and wiping out assets that they will need when they stop working.
"A 401(k) savings account should not be used as a piggy bank," Kohl said in a statement.
The proposed bill, called the Savings Enhancement by Alleviating Leakage in 401(k) Savings Act of 2011, or the SEAL Act, is designed to make loan repayment more flexible and also limit the easy access to retirement funds, which tends to add costs and fees to the plan.
The recession led many Americans to raid their 401(k) plans. As the economy continued to sputter in 2010, a record number of plan participants — more than one in four — had an outstanding loan at year's end, according to a study of about 1.8 million employees by benefits consultant Aon Hewitt.
The study, released Wednesday, said the average outstanding loan balance was $7,860.
The SEAL Act would limit to three the number of loans that workers can take from their 401(k) accounts. But employers could opt to reduce that number for the plans they offer.
The bill would also give borrowers more time to repay those loans if they lost their jobs and would ban linking debit cards to the accounts.
Currently, there are no laws capping the number of times workers can borrow from their 401(k)s.