Senators Herb Kohl (D-WI) and Mike Enzi (R-WY) have proposed the Savings Enhancement by Alleviating Leakage in 401(k) Savings Act (SEAL), which would limit the number of loans that participants can take from their 401(k) to no more than three at a time.

Currently, an employee with an outstanding loan who loses their job must pay back the loan within 60 days. The SEAL Act would give them until their tax deadline for that year to repay the loan and allow them to deduct the early withdrawal penalty from the loan balance.

Further, while those who have an outstanding loan currently may not contribute to their 401(k) for six months, SEAL would lift that ban. And SEAL would ban the used of debit cards linked to 401(k) accounts.

“While having access to a loan in an emergency is an important feature for many participants, a 401(k) savings account should not be used as a piggy bank,” Kohl said. “As the frequency of retirement fund loans have gone up, the amount of money people are saving for their retirement has gone down.”

Enzi added: “Our bill would allow for a greater period of time for the loan to be paid back, thereby helping families pay back the loan and allowing the fund to be put back into their retirement savings.”

According to Aon Hewitt, 28% of 401(k) participants had an outstanding loan in 2010, up from 22% in 2005. The average loan was $7,860.