The Availability and Utilization of 401(k) Loans
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.
The research reported in this paper was supported by a grant from the U.S. Social Security Administration (SSA), administered by the Retirement Research Consortium (RRC). Additional financial support from the National Institute on Aging (grants R01-AG021650 and T32-AG00186) is gratefully acknowledged. The findings and conclusions expressed are solely those of the authors and do not represent the views of SSA, the NIA, any other agency of the Federal Government, the NBER, or the RRC. See the authors' websites for a list of their outside activities. We thank Gopi Shah Goda for useful comments on the paper. We also thank Aon Hewitt for providing data and insights into 401(k) loans from the perspective of a plan administrator. We are particularly grateful to Pam Hess, Yan Xu, and Kirsten Bradford for their feedback. We are also indebted to Yeguang Chi, Eric Zwick, Anna Blank, Patrick Turley, John Klopfer, Jung Sakong, Gwendolyn Reynolds, and Chelsea Zhang for their research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- About 22 percent of eligible participants have a 401(k) loan outstanding at any given time. Borrowing from defined contribution...