401(k) Loan Activity Trends Lower

While 401(k) participants were less slightly likely to have loans outstanding at year-end 2014 than at year-end 2013, they were still at about 2008 levels.

At year-end 2014 one in five still had an outstanding loan, according to a report based on the EBRI/ICI 401(k) database. That was down from 21% at year-end 2013, but up from 18% at year-end 2008. Loans outstanding amounted to 11% of the remaining account balance, on average, at year-end 2014, down 1 percentage point from year-end 2013. Nevertheless, loan amounts edged up a bit in 2014, according to the report by the nonpartisan Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI).

However, overall, loans from 401(k) plans tended to be small, with a sizable majority of 401(k) participants in all age groups having no loan outstanding at all. For example, 89% of participants in their 20s, 74% of participants in their 40s, and 87% of participants in their 60s had no loans outstanding at year-end 2014.

Loan Availability

Just over half (54%) of the 401(k) plans for which loan data were available in the 2014 EBRI/ICI 401(k) database offered a plan loan provision to participants. Loans were more commonly associated with large plans (as measured by the number of participants in the plan); about 90% of plans with more than 1,000 participants included a loan provision, compared with 31% of plans with 10 or fewer participants.

Participant loan activity varied modestly by plan size, ranging from 18% of participants with loans outstanding in 401(k) plans with 26 to 100 participants to 24% of participants in 401(k) plans with 10 or fewer participants.

Among those in plans with 500 or fewer participants, the loan ratio (outstanding loan compared with total 401(k) balance) was 13% of the remaining assets in 2014, while in plans with more than 5,000 participants, the loan ratio was 11%.

From 1996 through 2008, on average, less than one-fifth of 401(k) participants with access to loans had loans outstanding. At year-end 2009, the percentage of participants who were offered loans with loans outstanding ticked up to 21% and remained at that level from year-end 2010 through year-end 2013 before falling to 20% at year-end 2014. On average, over the past 19 years, among participants with loans outstanding, about 14% of the remaining account balance remained unpaid.

Loan Variability

As in previous years, loan activity varies with age, tenure, account balance, and salary. Of those participants in plans offering loans, the highest percentages of participants with outstanding loan balances were among participants in their 30s, 40s, or 50s. Additionally, participants with five or fewer years of tenure or with more than 30 years of tenure were less likely to use the loan provision than other participants. Thirteen percent of participants with account balances of less than $10,000 had loans outstanding.

Among participants with outstanding 401(k) loans at the end of 2014, the average unpaid balance was $7,780, compared with $7,421 in the year-end 2013 database. The median loan balance outstanding was $4,239 at year-end 2014, compared with $3,973 in the year-end 2013 database. Nevertheless, the ratio of the loan outstanding to the remaining account balance decreased slightly, from 12% at year-end 2013 to 11% at year-end 2014.

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