Plan Sponsors Ask…

Question: We are considering a plan design change regarding loans. Are there any data that supports offering just one loan per participant versus offering multiple loan options?

Answer: According to T. Rowe Price’s 2022 “Reference Point”, plans that allow multiple loans tend to have lower savings rates — dropping from an average deferral of 7.9% to 6.8%. Allowing a greater number of loans is also correlated with higher average loan balances: $10,162 for one loan, $12,424 for two loans, and $13,698 for three or more loans. The study suggests that given the negative potential impact that allowing multiple loans has on savings, plan sponsors could consider limiting them to one per participant. This solution could satisfy the participant need while also limiting the possibility of loans being used for less essential reasons, preserving important retirement savings. You can access the report at: click here.

Pattern

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