Working Paper: NBER ID: w21102
Authors: Timothy Jun Lu; Olivia S. Mitchell; Stephen P. Utkus; Jean A. Young
Abstract: Tax-qualified retirement plans seek to promote saving for retirement, yet most employers permit pre- retirement access by letting 401(k) participants borrow plan assets. This paper examines who borrows and why, and who defaults on their loans. Our administrative dataset tracks several hundred plans over 5 years, showing that 20% borrow at any given time, and almost 40% do at some point over five years. Employer policies influence borrowing behavior, in that workers are more likely to borrow and borrow more in aggregate, when a plan permits multiple loans. We estimate loan default “leakage” at $6 billion annually, more than prior studies.
Keywords: 401k; loans; defaults; retirement security; employer policies
JEL Codes: D04; D14; H24; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Employer policies allowing multiple loans (G51) | Increase in borrowing likelihood (G51) |
| Employer policies allowing multiple loans (G51) | Aggregate amount borrowed (H74) |
| Employer policies allowing multiple loans (G51) | Default rates (E43) |
| Job termination (J63) | Loan repayment failure (G51) |
| Loan defaults (G33) | Aggregate leakage (E10) |