It’s not exactly a shocker that participants with an outstanding 401(k) loan save less – but a surprising number quit saving altogether.
According to Alight Solutions, because workers with loans are allocating funds to repay the loan, they save about 20% less than those without loans – deferring 6.7%, compared with 8.3% for those without loans.
However, Alight notes that roughly 15% of workers with loans stop their retirement contributions. Moreover, they note that workers with the smallest balances are the most likely to stop contributing.
The report also notes that 60% of the time when workers with loans leave their employer, they “default” on the loan – and in the process trigger additional taxes and possible penalties that can amount to thousands of dollars in unplanned expenses.
Alight also cautions that plans that allow for multiple loans have higher loan usage, on average. Additionally, when participants are allowed to take out multiple loans, most loan users have more than one outstanding loan.
