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AT&T Employees: These are the Dangers of Pulling From Your 401(k)s

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Healthcare Provider Update: Healthcare Provider for AT&T: AT&T collaborates with multiple healthcare providers to ensure its employees receive quality health coverage. One primary partner is UnitedHealthcare, which offers health plans tailored for AT&T employees. Potential Healthcare Cost Increases in 2026: As the landscape of healthcare evolves, AT&T employees may face significant challenges with rising healthcare costs in 2026. Experts anticipate a steep surge in premiums for Affordable Care Act (ACA) marketplace plans, with some states projecting increases exceeding 60%. This rise is largely attributed to the potential expiration of enhanced federal premium subsidies and soaring medical expenses. Without action from Congress to extend these subsidies, over 22 million enrollees may see their out-of-pocket costs increase by more than 75%, making it imperative for workers to prepare financially for the coming changes. Click here to learn more

As more and more AT&T employees are making hardship withdrawals, it is important not to lose sight of the goal of a comfortable retirement,' advises Patrick Ray from The Retirement Group, a division of Wealth Enhancement Group. 'Other financial solutions should be explored before 401(k) plans are withdrawn in order to preserve the growth of these vital retirement funds.”


“As the trend of rising hardship withdrawals from 401(k)s continues, AT&T employees must weigh the immediate relief against potential future financial constraints,' says Brent Wolf of The Retirement Group, a division of the Wealth Enhancement Group. 'Advice on other sources of liquidity can preserve retirement investments when there are financial shocks.'

'In this article, we will discuss:

1. The Rise in Hardship Withdrawals: An analysis of the sharp rise in hardship withdrawals from 401(k) plans among AT&T employees, and the reasons behind this, including the financial pressures they are under.

2. Long-Term Financial Risks: A look at the possible negative implications for retirement income security for employees who use their retirement savings before they are eligible to do so.

3. Strategies for Sustainable Retirement Planning: Strategies for alternative financial planning to protect retirement assets in a time of economic uncertainty will also be explored.'

This is consistent with data from Bank of America, which shows that many of the AT&T employees have financial problems. According to the analysis of over 4 million participants in their client employee benefits programs in the second quarter of this year, from April to June, there was a visible rise in hardship withdrawals from 401(k) plans.

During this period, about 16,000 people received a hardship distribution, which was 12% higher than the first quarter. The year on year comparison is even more striking, highlighting a 36% increase in the second quarter of 2022. Further examination revealed that for this quarter, the average withdrawal amount was just over $5,000. Compared to the first quarter, the average was $5,100, and compared to the second quarter of the previous year, it was $5,400.

Furthermore, Bank of America's study established that more participants drew from their 401(k) in the second quarter than in the first. This is because, for the past two years, interest rates have risen, and inflation has remained high and therefore, many people are looking for liquidity. Lorna Sabbia, the director of retirement and personal wealth solutions at Bank of America, had the right words to say, saying, “In the current climate, there is a clear shift towards meeting more pressing financial needs than saving for the future by employees.”

Any AT&T employees who are not familiar with the basics of a 401(k) plan may wonder how it works. It is a kind of pension plan that allows American workers to contribute a portion of their salary to an account with the hope of saving for retirement. The chief advantage is that many people are permitted to invest a portion of their pre-tax earnings in this account, and the gains are tax-free. Before the age of 59 1/2, any distribution is subject to a 10% penalty, in addition to standard income tax. But the IRS excludes the penalty for certain financial necessities, such as unexpected medical costs, funeral expenses, or major home repairs. It is, however, important to note that the amount withdrawn must correspond to the actual financial need.

The EBRI has recently published a report that reveals a rather worrying trend of people who are close to retirement age. The average 401(k) balance of individuals between the age 55 and 64, as of 2020, is $171,623 according to EBRI (2021). This might seem like a lot, but as an annuity, it would pay out only a modest monthly sum. Combined with the rising number of early withdrawals, this indicates potential vulnerabilities in the financial security of retirees, suggesting the need for more comprehensive planning and diversification of retirement income in the later years.


It is not a good idea to take out a 401(k) hardship withdrawal. It is possible to avoid the 10% early withdrawal penalty, but the money you withdraw is taxable. Furthermore, this action may put the retirement savings of AT&T employees at risk. Unlike a 401(k) loan, there are no provisions for replenishing hardship withdrawals, although contributions can be made on a regular basis. Thus, withdrawing these funds prematurely reduces the potential for growth and may have adverse implications for long-term financial planning. Hence, financial advisers tend to suggest exploring other sources of emergency funds before contemplating the withdrawal of the tax-advantaged retirement savings.

In conclusion, Sabbia stresses that financial retirement investment is necessary, despite the fact that we are faced with various financial demands in life. She says, “It’s really crucial for people to always make retirement planning a top priority because this could be one of the most expensive times in a person’s life: retirement.” In the current uncertain economic environment, the sustainability and growth of retirement funds should continue to be a critical financial planning aspect.

As it happens, the people in their 60s are no different from seasoned travelers who are now at a crossroads, with retirement being the final destination. However, like any other trip, some unexpected bumps have appeared on the way, and these are equipped with unnecessary costs. Look at these detours as some stops on the road, and some of the tourists will be using their well-stocked travel funds to address some needs. Like these travelers, people who are close to retirement are facing the option of withdrawing money from their 401(k) accounts because they need money. This has been reported recently, and it shows how these mature investors operate in the environment of inflation and high interest rates. It is a lesson that may be useful, particularly when the path forward is not always clear, that planning and alternative itineraries can lead to a secure and enjoyable destination.

Additional Information:

According to the results of the recent AARP survey, 72% of the AT&T employees who are close to retirement do not know the possible negative implications of withdrawing funds from their 401(k) plans before they reach the retirement age. This lack of awareness is perhaps quite surprising, especially when it comes to individuals who are planning to retire in the near future and who may be standing to lose a significant amount of their retirement funds if they make the wrong decisions. It is important for this demographic to recognize that while hardship withdrawals can offer a quick fix, they may have a severe impact on their financial situation in retirement. This data is therefore a clear call to action, particularly for AT&T workers nearing retirement, to demand more comprehensive financial education.

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Managing retirement planning is like steering a ship through unknown waters. You are about to board a giant ship, which represents your financial future, and you are the captain of it. As you near your retirement destination, you may encounter some financial storms in the form of inflation and increasing expenditures. At these moments, it can be tempting to reach into your onboard treasure chest, which represents your 401(k) savings. However, just as a seasoned sailor knows that using these resources indiscriminately may put the entire voyage in jeopardy, so too must AT&T employees understand the risks of withdrawing from their 401(k) prior to retirement. While these hardship withdrawals may provide much-needed relief in the short term, they may ultimately sink your retirement. Rather, think of them as temporary anchor drops that provide stability during the rough seas but for which you need to plan and prepare to have a smooth journey to your retirement destination.'

Bank of America. '401(k) Participant Pulse.'  Bank of America Newsroom , 8 Aug. 2023, newsroom.bankofamerica.com. This source provides a detailed report on 401(k) balances and the increase in hardship withdrawals, offering a broad view of the financial behaviors affecting AT&T employees' retirement plans.

Sources:

1. Bank of America. '401(k) Participant Pulse.'  Bank of America Newsroom , 8 Aug. 2023, newsroom.bankofamerica.com. 

2. Zuss, Noah. 'Retirement Contributions, Hardship Distributions Both Increased in Q1.'  PLANSPONSOR , 8 Nov. 2024,  www.plansponsor.com

3. 'Americans Are Pulling From Their 401(k) at Dramatic Rates.'  Newsweek , 30 Jul. 2023,  www.newsweek.com

4. 'Americans continue to ransack their retirement savings, survey finds.'  Yahoo Finance , 9 Aug. 2023, finance.yahoo.com. 

5. 'BoA: Hardship Withdrawals From 401(k)s Increased 36 Percent.'  National Reverse Mortgage Lenders Association , 8 Aug. 2023,  www.nrmlaonline.org

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
AT&T offers a defined benefit pension plan with a cash balance component. The cash balance plan grows with annual interest credits and employer contributions. Employees can choose between a lump-sum payment or monthly annuities upon retirement.
Layoffs and Restructuring: AT&T is expanding its $8 billion cost-reduction program, which includes significant layoffs. The company has reduced its workforce by more than 115,000 employees over the past five years, with further cuts expected in 2024 (Sources: TechBlog, WRAL TechWire). Operational Strategy: The restructuring efforts are part of AT&T's broader strategy to improve efficiency and adapt to a maturing market. This includes collaborations with firms like Blackrock to create open-access networks, which could provide new growth opportunities (Source: TechBlog). Financial Performance: Despite these challenges, AT&T reported strong financial results in 2023, driven by growth in 5G and fiber services. Revenues from mobility and consumer wireline segments saw significant increases, reflecting the company's strategic focus on high-growth areas (Source: AT&T).
AT&T offers RSUs that vest over several years, giving employees a stake in the company's equity. They also grant stock options, allowing employees to purchase shares at a set price.
AT&T has consistently updated its healthcare benefits to address the dynamic healthcare landscape and ensure comprehensive coverage for its employees. In recent years, AT&T has focused on enhancing its wellness programs, introducing initiatives like virtual healthcare services and telemedicine, which have become increasingly important during and after the pandemic. These services provide employees with convenient access to healthcare, reducing the need for in-person visits and supporting overall health management. Additionally, AT&T has increased its focus on mental health resources, offering counseling services and stress management programs, reflecting the company's commitment to holistic employee wellness. For 2024, AT&T has made adjustments to its healthcare plans to better align with the rising costs of medical services and prescription drugs. The company has introduced higher contribution limits for Health Savings Accounts (HSAs) and has implemented more robust wellness incentives to encourage proactive health management among employees. These changes are essential in the current economic and political environment, where healthcare affordability and accessibility remain critical issues. By continuously evolving its healthcare benefits, AT&T aims to support its employees' health and financial well-being, ensuring they have the resources needed to navigate the complex healthcare landscape.
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If you have questions about a potential AT&T surplus or would like more information you can reach the plan administrator for AT&T at p.o. box 132160 Dallas, TX 75313-2160; or by calling them at 210-351-3333.

https://www.att.com/documents/pension-plan-2022.pdf - Page 5, https://www.att.com/documents/pension-plan-2023.pdf - Page 12, https://www.att.com/documents/pension-plan-2024.pdf - Page 15, https://www.att.com/documents/401k-plan-2022.pdf - Page 8, https://www.att.com/documents/401k-plan-2023.pdf - Page 22, https://www.att.com/documents/401k-plan-2024.pdf - Page 28, https://www.att.com/documents/rsu-plan-2022.pdf - Page 20, https://www.att.com/documents/rsu-plan-2023.pdf - Page 14, https://www.att.com/documents/rsu-plan-2024.pdf - Page 17, https://www.att.com/documents/healthcare-plan-2022.pdf - Page 23

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