Borrowing from the Future: 401(k) Plan Loans and Loan Defaults / Timothy (Jun) Lu, Olivia S. Mitchell, Stephen P. Utkus, Jean A. Young.

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Lu, Timothy (Jun)

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w21102.Publication details: Cambridge, Mass. National Bureau of Economic Research 2015.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Tax-qualified retirement plans seek to promote saving for retirement, yet most employers permit pre- retirement access by letting 401(k) participants borrow plan assets. This paper examines who borrows and why, and who defaults on their loans. Our administrative dataset tracks several hundred plans over 5 years, showing that 20% borrow at any given time, and almost 40% do at some point over five years. Employer policies influence borrowing behavior, in that workers are more likely to borrow and borrow more in aggregate, when a plan permits multiple loans. We estimate loan default "leakage" at $6 billion annually, more than prior studies.

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April 2015.

Tax-qualified retirement plans seek to promote saving for retirement, yet most employers permit pre- retirement access by letting 401(k) participants borrow plan assets. This paper examines who borrows and why, and who defaults on their loans. Our administrative dataset tracks several hundred plans over 5 years, showing that 20% borrow at any given time, and almost 40% do at some point over five years. Employer policies influence borrowing behavior, in that workers are more likely to borrow and borrow more in aggregate, when a plan permits multiple loans. We estimate loan default "leakage" at $6 billion annually, more than prior studies.