Pension & Benefits News 401(k) loan usage declines
Tuesday, July 16, 2019

401(k) loan usage declines

By Pension and Benefits Editorial Staff

The use of 401(k) loans reached a nine-year low of 22.5 percent in 2018 and continued a steady six-year decline of nearly 10 percent, according to T. Rowe Price’s annual Reference Point report. The report also found that the percentage of participants who took a hardship withdrawal fell for the ninth consecutive year, declining from 1.9 percent in 2010 to 1.3 percent in 2018. However, both loan balances and the average amount of hardship withdrawals increased.

“Overall, we’ve seen an increase in positive participant behavior; however, there are still opportunities for continued improvement,” said Kevin Collins, head of retirement plan services at T. Rowe Price. “Changing employee behavior requires simple solutions and engaging them in a way that motivates them to act. Plan sponsors can provide this support through plan design and by integrating financial wellness programs into their plan offering. We’ve seen firsthand the positive impact that approachable and easy-to-use resources have on employee behavior.”

The survey also found the following:

  • Participation declined slightly. The participation rate dropped by nearly 2 percent from 2017 to 2018. Plans that did not have auto-enrollment saw participation drop at more than twice the rate of those without auto-enrollment.
  • Auto-enrollment continued to significantly impact positive participant behavior. Participation was over 40 percentage points higher in plans with auto-enrollment compared with plans without it.
  • Pretax deferral rates continued to rise. The average pretax deferral rate increased slightly to 8.6 percent, reaching the all-time high for a second year in a row.
  • Employer match increased. Plans offering a 4 percent employer match surpassed those offering a 3 percent match for the first time.
  • Plan adoption and participant usage of target date products reached an all-time high. Plan adoption of target date products reached an all-time high at 95 percent. Participant usage also increased in 2018 across all age groups but was highest among younger workers. Additionally, the percentage of participants with their entire account balance in a target date product has grown by 20 percent since 2014.
  • 401(k) Roth contributions increased. The number of participants making Roth contributions increased by nearly 10 percent compared with 2017; however, overall usage remains low at 7.6 percent. Millennials age 30-39 are using Roth the most, at nearly 10 percent, with younger workers age 20-29 following at 8.8 percent. In 2018, nearly 75 percent of plans offered the Roth option.

SOURCE:  T. Rowe Price’s annual Reference Point report.

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