Let’s start with the good news: The average account balance for 401(k) plans managed by Vanguard rose by 13% last year, reaching a record high of $167,970 by the end of 2025. The share of plans with automatic enrollment continued to grow, and a majority of those plans (62%) enrolled their employees in them at a default savings rate of 4% or higher.

The bad news? Hardship withdrawal rates also increased from 5% to 6% year over year, a record high, as more participants took money out of their 401(k) accounts to avoid foreclosure, or eviction, for example, or cover medical expenses.

While this uptick may seem alarming, there are likely other factors contributing to it besides a tough economy, David Stinnett, a principal with Vanguard’s strategic retirement consulting, said.

What’s driving the uptick in hardship withdrawals? One non-economic factor likely prompting this uptick is the growing prevalence of automatic enrollment. As more employers default their workers into 401(k) plans, the share of lower-compensated workers in those plans is growing, Stinnett explained.

“When you look at who’s taking out hardship withdrawals…it certainly does skew towards those making $100,000 or less,” he said.

It’s also become easier to make an early withdrawal from a 401(k) plan thanks to new legislation that’s taken effect in recent years. The SECURE 2.0 Act, which was enacted in 2022, allows 401(k) participants to withdraw $1,000 from their account for financial emergencies each year without incurring a penalty. Plans may allow participants to “self-certify” the reason for which they’re taking an early withdrawal, which is less onerous from a documentation perspective.

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Additionally, SECURE 2.0 expanded the number of reasons for which participants can take a hardship withdrawal, such as in cases of domestic abuse.

How HR leaders can respond. While Vanguard is still unpacking the reasons driving higher hardship withdrawal rates, Stinnett pointed to robust financial wellness benefits as a potential solution. Emergency savings accounts, for example, might provide another avenue for workers to tap into before they look at their 401(k) accounts.

HR teams can dig deeper into the data of their own workforces to gain insight into the most common reasons workers take hardship withdrawals, Stinnett added. This may help them tailor financial wellness benefits that meet the needs of their employee population.

“If they have a bigger section on tuition reimbursement or medical expenses, that is often instructive when they think about how their total benefit strategy should evolve,” he said.