Loans from defined contribution plans like 401(k)s can be the bane of many HR and benefits specialists existence –not only can it be an administrative nightmare, it can subvert the efficacy of the retirement plan. Yet according to the Investment Company Institute which tracks 26 million participants, loans remained high at 17.5% for the 1st half of 2015 down from a peak of 18.5% in 2011 but up from a pre-recession low of 15.3%.
Some employers debate whether they should even allow loans but are concerned that fewer workers would participate if they did not. Best practices as outlined by a plan sponsor at a recent TPSU program held at Rice University include allowing only one loan at a time and providing fair but strict requirements to take the loan which does not include buying a boat.
Other findings from the ICI report:
- The vast majority of DC plan participants continued contributing to their plans. Only 1.8 percent of DC plan participants stopped contributing in the first half of 2015, compared with 2.1 percent in the first half of 2014.
- Most DC plan participants stayed the course in their asset allocations, as stock values increased slightly. In the first half of 2015, 6.6 percent of DC plan participants changed the asset allocation of their account balances, the same share as in the first half of 2014. Nearly 6 percent changed the asset allocation of their contributions, a small increase from 5.1 percent in the first six months of 2014.
- DC plan withdrawal activity remained low and was in line with the prior year’s first half activity. Only 2.2 percent of DC plan participants took withdrawals in the first half of 2015, compared with 2.3 percent in the first half of 2014. Only 0.9 percent took hardship withdrawals during the first six months of this year, the same share as in comparable periods over the past three years.
