The Availability and Utilization of 401(K) Loans

36 Pages Posted: 14 Jun 2011

See all articles by John Beshears

John Beshears

Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)

James J. Choi

Yale School of Management; National Bureau of Economic Research (NBER)

David Laibson

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Brigitte C. Madrian

Brigham Young University Marriott School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 13, 2011

Abstract

We document the loan provisions in 401(k) savings plans and how participants use 401(k) loans. Although only about 22% of savings plan participants who are allowed to borrow from their 401(k) have such a loan at any given point in time, almost half had used a 401(k) loan over a longer, seven-year horizon. The probability of having a loan follows a hump-shaped pattern with respect to age, job tenure, account balance, and salary, but conditional on having a loan, loan size as a fraction of 401(k) balances declines with respect to these variables. Participants are less likely to use loans in plans that charge a higher interest rate, and loans are smaller when plans allow fewer simultaneously outstanding loans, impose a shorter maximum possible loan duration, or charge a lower interest rate.

Keywords: retirement economics, 401(k) loans, employment benefits

Suggested Citation

Beshears, John and Choi, James J. and Laibson, David I. and Madrian, Brigitte C., The Availability and Utilization of 401(K) Loans (June 13, 2011). HKS Working Paper No. RWP11-023. Available at SSRN: https://ssrn.com/abstract=1864124 or http://dx.doi.org/10.2139/ssrn.1864124

John Beshears (Contact Author)

Harvard University - Business School (HBS) ( email )

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National Bureau of Economic Research (NBER) ( email )

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James J. Choi

Yale School of Management ( email )

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David I. Laibson

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Brigitte C. Madrian

Brigham Young University Marriott School of Business ( email )

Provo, UT 84602
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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