Benefit extension would help today and tomorrow

Do members of Congress read daily newspapers and watch the evening news?

Do members of Congress read daily newspapers and watch the evening news? If they did, they would know that the American economy has been shedding jobs for four straight months. April saw 20,000 job losses, on top of the 240,000 jobs that disappeared in the first three months of the year.

The sharp drop in income that results from losing one’s job means that American families are struggling to find ways to save their homes from foreclosure and put food on the table.

For far too many families, one “solution” — and, believe me, that word absolutely must be surrounded by quotation marks — has been to raid the breadwinner’s 401(k) retirement nest egg to pay the bills, most importantly the mortgage. Borrowing from these retirement plans is surging, according to a recent study by the Transamerica Center for Retirement Studies, a Los Angeles-based non-profit firm funded by Aegon NV’s Transamerica Life Insurance Co. of The Hague, Netherlands.

With home prices falling nationwide, tapping into a retirement account may be a sign that cash-strapped consumers are desperate to stay afloat, the study concluded. Apparently, desperate times call for desperate measures, as many Americans who have lost their jobs can no longer tap their homes for cash and are up against their credit card limits.

The retirement account borrowing and unemployment statistics should serve as a wake-up call to Washington.

Rather than devise some complex bureaucratic response, Congress need only take a bold yet simple step: extend jobless benefits for those who have exhausted their initial 26 weeks of unemployment benefits. Doing so would stimulate the economy and possibly slow the rise of early retirement account withdrawals.

A few months ago, Senate Finance Committee Chairman Max Baucus, D-Mont., proposed a plan that would have extended unemployment insurance benefits to 39 weeks in an attempt to stimulate the economy. Other members of Congress, however, concluded that unemployed workers didn’t need the extra help.

Memo to Washington: Desperate times call for desperate measures.

Last month, the number of Americans who had been out of work for at least 27 weeks increased to 1.35 million. What’s more, 2.7 million Americans have exhausted their unemployment benefits in the past 12 months.

There is ample precedent for an extension of benefits. In response to the 2001 recession, for instance, Congress allowed unemployed workers to collect more than six months’ worth of benefits. The extended benefits didn’t expire until 2004.

It’s time for Congress to open its eyes and see the toll that the economic/credit/housing slump has been taking on the American family — as well as the potential for devastating consequences in the future if consumers keep raiding their hardly robust 401(k) accounts.

Since it is national policy through the Pension Protection Act of 2006 to encourage savings through 401(k) plans, you would think that Congress would do as much as it could to dissuade workers from behavior that directly countermands the intent of the law.

Let’s face it: Those who are tapping their 401(k) accounts to meet mortgage payments and food bills are desperate. Depleting savings is not the kind of measure anyone truly wants to take. But if the choice is between going bust now and going bust 15 or 20 years from now, Americans will do what they have to do.

While it isn’t a cure-all, one way to stop individuals from raiding their retirement accounts is for Congress to throw a lifeline. Extending unemployment benefits would help millions immediately, and it could save the day for years to come.

Jim Pavia is the editor of InvestmentNews.