In program-after-program at the Plan Sponsor University (TPSU), one of the most vexing issues is the notion of retirement plan/ 401k loans. Borrowing against a retirement plan is often referred to as a “smart” borrowing strategy, the real costs of borrowing from a plan such as a 401k, is not smart and not cheap!
The focus of the TPSU program is to allow retirement plan sponsors to interact, share experiences and challenges and explore possible solutions. When it comes to loans, there is an almost unanimous conclusion that it should be discouraged. However, there are times when it is absolutely necessary and participants should not be made to feel pressured when taking a loan.
That said, sponsor education regarding the cost of retirement plan loans, especially 401k loans is apparently reaching participants.
In a new study by the Investment Company Institute (ICI) 401k loans and withdrawals dipped in 2016, according to the study:
Defined contribution (DC) plan withdrawal activity in the first three quarters of 2016 remained low and was similar to the activity observed in the first three quarters of 2015. In the first three quarters of 2016, 2.8 percent of DC plan participants took withdrawals, compared with 2.9 percent during the first three quarters of 2015. Levels of hardship withdrawal activity also remained low. Only 1.2 percent of DC plan participants took hardship withdrawals during the first three quarters of 2016, similar to the pace observed over the first three quarters of 2015.
