Senators James Lankford, R-Oklahoma, and Michael Bennet, D-Colorado, both members of the Senate Finance Committee, introduced the Enhancing Emergency and Retirement Savings Act of 2021.

The aim of the bill is to help families save for retirement and prepare for emergencies at the same time. It would encourage participation in retirement plans by giving individuals penalty-free access to funds should an emergency arise.

“I’ve heard from Oklahomans who experience sudden, unexpected emergencies and need a little flexibility to quickly access their own money,” Lankford said in a statement. “I’ve also heard from Oklahoma employers that offer retirement plans and have employees who don’t participate because they don’t have enough money to save for retirement and build up their savings. So many Oklahomans live paycheck to paycheck. They want to start saving for retirement, but they can’t take the risk of losing access to their money in case of an emergency.”

Bennet added: “Nearly four in 10 Americans can’t afford a $400 emergency expense. I hear all the time from Coloradans who get hit with an unexpected car repair they can’t afford and then lose their job because they can’t make it to work. Millions of families are trapped in this cycle of economic insecurity—one emergency away from everything falling apart. This bipartisan legislation will help give workers more flexibility to foot the bill for an unexpected emergency expense.”

The bill would permit retirement plan participants and holders of individual retirement accounts (IRAs) to take one penalty-free “emergency distribution” each calendar year. That distribution would be limited to vested amounts greater than $1,000, with an annual maximum withdrawal of $1,000. It would also require the person taking the distribution to repay the money before taking out an additional distribution from the same plan.

The ERISA (Employee Retirement Income Security Act) Industry Committee (ERIC) commended the bill, with Aliya Robinson, senior vice president of retirement and compensation policy, saying, “The ERISA Industry Committee applauds Senators Lankford and Bennet for addressing critical retirement and savings needs. The Act serves as a complement to the many financial wellness programs and tools offered by large plan sponsors, like ERIC member companies, and will help millions of working Americans better prepare for their financial futures. ERIC pledges to work with lawmakers to advance this legislation and encourage emergency savings and retirement security for all working Americans.”

Eric Stevenson, president of Nationwide Retirement Solutions, also applauded the bill, remarking how it “will remove a significant barrier for low- and middle-income workers to save for retirement in the first place. Most critically … it will help prevent people from digging themselves into a financial hole due to an unplanned emergency expense.”

Brian Graff, executive director and chief executive officer of the American Retirement Association, says, “The Enhancing Emergency and Retirement Savings Act smartly leverages the existing workplace-based retirement plan system to address this emergency savings problem while also ensuring Americans continue to save for a secure retirement following an emergency. The legislation creates a new category of distribution in a 401(k) or similar plan that would allow workers who have a certain balance in these accounts to quickly access their savings … without an additional tax penalty.”