Faced with a weakening economy and increasing layoffs, a rising number of affected workers have been making hardship withdrawals from their 401(k) plans. The number rose 21 percent during the first half of 2008 compared to the same period last year. The number of new loans taken out during the same period increased by 4.5 percent.

The fact that the hardship withdrawals are outnumbering the loans may mean that employees have maxed out their loans. By law, 401(k) plan participants are allowed to take out a loan of $50,000 or up to 50 percent of their vested balance up to that amount.

A lot of the employees making hardship withdrawals could be terminated employees, who are no longer eligible for loans.

While the number of participants making hardship withdrawals has jumped, it still represents only a small percentage of the plan participant population, with only two percent of all participants making this type of withdrawal.

Employers might want to offer additional education and counseling about the impact of hardship withdrawals, which can result in the participant paying income taxes plus a 10 percent penalty for withdrawing before age 59 ½. Depending on how much money is withdrawn, the sum could also push them into a higher tax bracket.