The plan loan activity of participants in employer-sponsored 401(k) plans that allow it declined slightly in the first three quarters of 2015, but remained steady with the previous-year period’s levels, according to a recent survey.
As of September 2015, the latest available data when the Investment Company Institute issued the report, 17.6 percent of defined contribution plan participants had loans outstanding, compared with 18 percent at the end of September in 2014. This report, the latest in a series, is based on a sampling of recordkeepers surveyed by ICI, the national association of U.S. investment companies.
In tandem, defined contribution plan hardship withdrawals by those not yet 59½ years old remained low in the three-quarter 2015 period at 1.3 percent of participants, consistent with the pace of the same 2014 period.
However, the rate of borrowing remains above levels at the end of 2008, at the start of the Great Recession, the ICI Research report explained. At that time, 15.3 percent of DC plan participants had outstanding plan loans. The report attributed participants’ loan activity in recent years to two factors: reaction to financial difficulties and a seasonal pattern.
Reasons Why
“Likely responding to financial stresses,” ICI said, the percentage of plan loans outstanding rose from the end of 2008 through 2011, when it reached 18.5 percent. The share of participants with loans outstanding leveled off from 2012 to 2014, “perhaps reflecting loans supporting resumed consumer spending or home purchases,” the report continued. But it’s returned to highs in the post-recession era.
ICI also suggested that the quarterly loan activity that it monitors has historically displayed a seasonal pattern in which the first quarter of the year tends to have lower percentages of participants with loans outstanding, compared with later quarters.
The report noted that, according to the Employee Benefits Research Institute/ICI 401(k) database, at the end of 2013 87 percent of plan participants in the database were in plans with loan options. Among those participants, 21 percent had loans outstanding, which translates to 18 percent of all active 401(k) participants having loans outstanding, the ICI report said. The database at that time included statistical information about 26.4 million 401(k) participants in 72,676 plans.
The ICI report didn’t include information as of September 2015 about average unpaid plan-loan balances or borrower demographics.