Retirement Plans’ New Reality: Workers Need the Money Now

For years, one employer sponsoring a retirement plan had a simple philosophy: Money saved for retirement was for retirement.

The company refused to allow participants to borrow from their 401(k) plans. No loans. No hardships. No exceptions. The company’s plan, to an extent, was similar to many others.

Then one of that company’s youngest employees was hit with an unexpected medical emergency, leaving the worker—who participated in the company’s retirement plan—with significant out-of-pocket expenses. The company suddenly found itself confronting a question that retirement plan committees across the country are increasingly asking: What happens when protecting tomorrow’s retirement means making today’s financial crisis even worse?

“At the end of the day, we felt like we were going to do more good than harm,” says Sean Bjork, a financial adviser with Bjork Asset Management who advised the company involved. It ultimately changed course: Rather than opening the floodgates completely, the employer permitted participants to take plan loans, albeit with guardrails. The plan sponsor permitted only one loan at a time, set reasonable interest rates, and required participant education, with the goal of ensuring that loans from participants’ retirement plan balances remained the exception, rather than the rule.

The story reflects a broader shift unfolding inside corporate retirement plans.

As inflation continues to pressure household budgets, wage growth struggles to keep pace with living costs, and millions of borrowers are resuming student loan payments, more workers are tapping retirement accounts to stay afloat. At the same time, Congress has expanded their ability to do so. Laws, including the SECURE 2.0 Act of 2022, have given employers new ways to help workers access money from their defined contribution accounts before retirement.

The result is forcing plan sponsors to rethink one of the retirement industry’s oldest assumptions, that preventing “leakage” from retirement accounts before retirement should always be the primary objective.

Instead, many advisers say the conversation has shifted toward a more nuanced question: If some leakage is unavoidable, how should plans be designed to manage it without letting it undermine participants’ long-term retirement security?

A New Retirement Discussion

The economic backdrop has made that debate difficult to ignore.

Consumer prices climbed 4.2% in the first five months of 2026, according to the Bureau of Labor Statistics. Even as inflation has cooled from its post-COVID-19 peak, many households continue to struggle with higher everyday expenses, and some also have to confront renewed student loan obligations.

The effects of those pressures are increasingly showing up inside workplace retirement plans.

Vanguard found that about 6% of eligible participants took at least one hardship withdrawal in 2025, up from 5% the year before. Nearly half of Vanguard plan participants said they had less than $2,000 in emergency savings, highlighting how little financial cushion many workers have apart from their retirement accounts. Lower-income participants, earning less than $100,000 annually, were roughly three-and-a-half times more likely to take hardship withdrawals, with most citing medical expenses or preventing eviction or foreclosure as their reasons for needing a loan.

Historically, advisers viewed those withdrawals as evidence that something had gone wrong.

Today, they increasingly view them as evidence that workers are confronting financial realities retirement plans were not originally designed to address.

“If you had asked me this question 10 or 15 years ago, leakage would’ve been this big glaring sign in red lights,” says Joel Shapiro, head of Wealthspire Retirement Advisory. “Fast forward to today: What we really see is an evolution.”

That evolution, he argues, reflects a broader change in how employers think about workplace benefits. While retirement remains the primary mission of a 401(k), employers increasingly recognize that workers’ financial challenges do not divide neatly into short-term and long-term buckets.

“It is now really starting to evolve more into a broader financial wellness vehicle, rather than just retirement,” Shapiro says.

From Preventing Leakage to Designing Plans Around It

The philosophical shift has changed the conversations taking place in retirement committee meetings.

Instead of asking how to eliminate leakage altogether, advisers say plan sponsors are increasingly debating which forms of flexibility make sense for their workforces—and how to prevent those tools from becoming routine sources of cash.

For some employers, that means permitting hardship withdrawals but limiting loans. Others are exploring emergency savings accounts, such as those authorized under SECURE 2.0, or expanding financial education before broadening access to retirement funds.

The key, advisers say, is intentional design.

“It doesn’t have to be all or nothing,” Shapiro says. Employers, he adds, should decide what role they want their retirement plan to play before adopting new provisions. “They need to design the plan with intention.”

Bjork has watched that evolution firsthand. He said many sponsors are trying to build into their plans guardrails that preserve flexibility, but do not normalize plan withdrawals. Many employers who once categorically opposed loans, he says, have softened their positions after confronting real-world emergencies among their workforce.

“They’re not publishing it and making it a big thing, announcing that you can now access your money,” Bjork says. “A lot of it is just how, operationally, you put that provision in place, how you monitor it … and educate your team.”

Financial Wellness Growing in Importance

That shift has also reshaped the need for financial wellness tools.

What was once viewed as a supplementary employee benefit has quickly become a central part of many employers’ retirement strategies, as advisers conclude that preserving retirement savings increasingly depends on improving workers’ financial lives outside the plan.

“The No. 1 issue in the workplace today is financial stress,” says Andrew Lendnal, head of financial wellness at Fiducient Advisors.

Rising living costs, flat wage growth and renewed student loan payments are forcing workers to make difficult trade-offs between paying today’s bills and saving for tomorrow, he says. For plan sponsors, that means retirement outcomes can no longer be improved through investment menus and contribution rates alone.

“Improving retirement outcomes now requires addressing financial health outside of the plan, not just inside,” Lendnal says.

Instead of asking how to eliminate leakage altogether, advisers say plan sponsors are increasingly discussing holistic themes such as financial coaching, budgeting tools and participant education, as well as debating which forms of flexibility make sense for their workforces—and how to prevent those tools from becoming routine sources of cash.

The industry’s own research points in the same direction.

Vanguard found that employers offering emergency savings vehicles and integrated health savings accounts saw significantly lower hardship withdrawal rates, suggesting that workers with dedicated sources of short-term liquidity are less likely to raid retirement savings during periods of financial stress. Rather than eliminating hardship withdrawals altogether, the research suggested giving participants alternatives before they reach that point.

Dina Caggiula, Vanguard’s head of participant client experience, says loans and hardship withdrawals often reveal broader financial problems.

“Features like loans and hardship withdrawals can provide important flexibility during times of need, but they are often a signal that participants may be missing the financial support to navigate short-term challenges,” she says. “When plan sponsors pair strong retirement plan design with accessible education and tools that support their full financial picture, they can help participants navigate periods of stress with greater confidence and improve long-term outcomes.”

Retirement’s Newest Chapter

The transformation extends well beyond hardship withdrawals.

SECURE 2.0 introduced a series of optional provisions—including pension-linked emergency savings accounts and expanded emergency withdrawal options—that reflect a broader policy shift. Rather than treating retirement accounts as untouchable until age 59.5, lawmakers are increasingly acknowledging that workers are more likely to save when they know some access exists during genuine emergencies.

That evolution, however, comes with risks.

“Greater access to loans and hardship withdrawals may increase the likelihood that participants view their retirement accounts as a source of emergency funds,” says Olivia Mitchell, a professor of business economics and public policy at the University of Pennsylvania’s Wharton School.

Behavioral research suggests that participants who borrow or withdraw from retirement accounts once are more likely to do so again, while repayment obligations often reduce future retirement contributions. The challenge, Mitchell says, is ensuring that flexibility does not fundamentally change how workers perceive retirement savings.

Some leakage, she argues, is simply unavoidable.

“The key plan design challenge,” Mitchell says, “is finding the right balance between preserving retirement assets and providing flexibility, while avoiding the risk that retirement accounts become general-purpose savings vehicles.”

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