Borrowing from the Future: 401(K) Plan Loans and Loan Defaults

42 Pages Posted: 20 Apr 2015

See all articles by Timothy (Jun) Lu

Timothy (Jun) Lu

Peking University HSBC Business School

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Stephen P. Utkus

Vanguard Center for Investor Research

Jean A. Young

The Vanguard Group, Inc. - Center for Retirement Research

Multiple version iconThere are 2 versions of this paper

Date Written: April 2015

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.

Suggested Citation

Lu, Timothy (Jun) and Mitchell, Olivia S. and Utkus, Stephen P. and Young, Jean A., Borrowing from the Future: 401(K) Plan Loans and Loan Defaults (April 2015). NBER Working Paper No. w21102. Available at SSRN: https://ssrn.com/abstract=2596431

Timothy (Jun) Lu (Contact Author)

Peking University HSBC Business School ( email )

University Town
Nanshan District
Shenzhen, Guang Dong 518055
China

Olivia S. Mitchell

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stephen P. Utkus

Vanguard Center for Investor Research ( email )

100 Vanguard Boulevard, M38
Malvern, PA 19355
United States
610-669-6308 (Phone)

Jean A. Young

The Vanguard Group, Inc. - Center for Retirement Research ( email )

PO Box 1110
Valley Forge, PA 19482-1110

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