On Wednesday, Senators Herb Kohl (D-WI) and Mike Enzi (R-WY) introduced S. 1020, the “Savings Enhancement by Alleviating Leakage in 401(k) Savings Act of 2011” (the SEAL Act), which is intended to prevent permanent leakage from Americans’ retirement savings. The bill would do so by modifying loan repayment hardship tax rules and limiting 401(k) loan practices that provide easy access to retirement funds and add costs and fees to pension plans. Kohl’s and Enzi’s effort is based on the findings of a 2009 GAO report on the long-term effects of 401(k) loans and leakage on workers’ retirement savings.

According to Kohl, “during these difficult economic times, we are increasingly seeing 401(k) funds being treated as rainy day funds…a 401(k) account should not be used as a piggy bank for revolving loans.” His and Enzi’s bill would reduce the number of loans individuals may take out of their 401(k) plans to a maximum of three (though employers would have the option of reducing this further), and give them more time to return the funds after losing a job. The bill would also ban debit cards linked to the accounts, and would allow individuals to contribute to the plan after taking a hardship withdrawal. According to an Aon Hewitt study also released on Wednesday, at the end of 2010 almost 28% of individuals with 401(k)-type accounts had outstanding loans, with an average outstanding loan balance of $7,860.