With some 3.47 million people (up nearly 60,000 in April) currently receiving emergency unemployment benefits and a total of 8 million receiving benefits from all programs, it only makes sense that despondent Americans are tapping all available means to maintain some semblance of normalcy.

According to AON Hewitt, Americans are taking loans from their 401(k) accounts now more than ever before in an effort to stay afloat:

This report explores the magnitude of the problems, their impact to participant savings and ideas to curb these behaviors.More than 1.8 million employees were examined across over 110 large defined contribution plans. Participant data wasanalyzed through year-end 2010.

…

Through the mid-2000s, loan usage was fairly steady.However, in the years following the 2008 financial crisis, loan usage has steadily climbed. As of year-end 2010, nearly28% of active participants had a loan outstanding, which is a record high. Nearly 14% of participants initiated newloans during 2010, slightly higher than previous years. The average balance of the outstanding amount was $7,860,which represented 21% of these participants’ total plan assets. Although the majority of the participants (68.3%) hadonly one loan outstanding, 29.2% had two loans outstanding simultaneously and 2.5% had more than two loans.

Source: AON Hewitt (pdf)

What choice do people have when they can’t find jobs, unemployment compensation is not enough or runs out, and the price of everything important is rising?

And what, pray tell, is the solution from Congress? Simple. Restrict Americans’ ability to take out loans from their own accounts (but it’s ok for the government to raid pension funds when they need money!).

As is generally the case, government must get involved. The proposed legislation will extend the time a borrower has to pay back their own money, but makes it more difficult to borrow:

“Because of the difficult economic times, more and more Americans are treating their retirement accounts as rainy day funds,” Senator Herb Kohl, a Wisconsin Democrat, said in a statement today. “A 401(k) savings account should not be used as a piggy bank.”

Kohl, 76, who’s chairman of the Senate Special Committee on Aging, introduced the “SEAL 401(k) Savings Act” with Senator Mike Enzi, 67, a Wyoming Republican. The bill would reduce the number of loans workers may take from a 401(k) and give participants more time to repay after losing a job. It will allow savers to contribute to their plan after taking a hardship withdrawal and ban debit cards linked to the accounts, according to the legislation.

Source: Bloomberg

Who better to take the lead the Senator Kohl (D-WI)? Mr. Kohl, of course, has an in depth understanding of what Main Street Americans must be going through considering his net worth is reported to be a paltry $231 million as of 2009 (ranked #3 in the Senate).

It’s curious that, while the US government commits to forgiving $1 billion dollars in Egyptian debt and sends multiple billions of dollars in aid to Jordan and Tunisia in the form of debt cancellation, loan guarantees and trade agreements, Americans are treated like second class citizens – employment benefits are being cut, taxes are being raised, jobs are being exported, and now it will be more difficult to pull emergency loans from 401(k) accounts.

Somewhere along the way Congress and the Office of the President got their priorities mixed up.