One-Third of Americans Borrow from Retirement Plans

Plan sponsors can help protect retirement assets from early depletion

Stephen Miller, CEBS By Stephen Miller, CEBS June 23, 2014

Nearly one-third (29 percent) of Americans who participate in a 401(k) or other defined contribution retirement plan say they have taken out a loan from the savings in their plan. Yet 44 percent of those who have borrowed against their retirement plan savings regret the decision, according to a study by financial services firm TIAA-CREF released in June 2014.

Among those who took out a loan, 43 percent have taken out two or more loans, according to the survey, conducted in May 2014 among a sample of 1,000 employed adults currently contributing to an employer-sponsored retirement plan.

Borrowing Against the Future

Among the key survey findings:

  • Paying off debt was cited as the top reason for taking out a loan from retirement plan savings (46 percent), yet only 26 percent of respondents said paying off debt was a good reason to take out a loan.

  • Women were more likely than men (52 percent vs. 41 percent) to take out a loan to pay off debt; however, men were more likely (40 percent vs. 29 percent) to take out a loan to pay for an emergency expenditure.

  • Nearly half (47 percent) of those who have taken out a loan from their retirement plan savings borrowed more than 20 percent of their savings, with 9 percent of respondents borrowing more than 50 percent.

Top Reasons for Borrowing from Retirement Savings

Paying off debt


Paying for an emergency expenditure


Home purchase or renovation


Paying bills due to job loss


Education costs for self or children


Special event like a wedding or family vacation


Source: TIAA-CREF 2014 Borrowing Against Your Future Survey.

In addition to borrowing funds from retirement savings plans, many Americans are also contributing less to their plans while they are paying back the loan. More than half of respondents (57 percent) who took out loans decreased their contribution rate during the payback period.

Those age 18-34 were the most likely to decrease their contribution amount (81 percent). Forty-eight percent of women kept the same contribution rate while paying back the loan, compared to only 39 percent of men.

"Too many people have struggled since the 2008 financial crisis and have looked at loans from their retirement plans as a way to ease financial stress. However, individuals should weigh all of their options carefully before borrowing from their plan savings or reducing their contributions," said Teresa Hassara, executive vice president of TIAA-CREF's Institutional Business.

"Loans can undermine retirement savings and cause investors to miss out on earnings from rising markets,” she noted. “It's important to evaluate the benefits of taking a loan now against the need for those earnings to build long-term retirement security.”

Guard Against Loans

There are several ways plan sponsors can help protect employees' retirement assets from early depletion, Hassara pointed out.

For instance, plan sponsors should consider limiting participants to three loans each from their retirement savings. These loans should come from participant contributions rather than employer contributions. This will encourage employees to focus on long-term planning rather than treating the retirement plan as a source of funds during the accumulation years.

Limiting loans also can keep down plan expenses and have a positive impact on overall plan fees.

Plan sponsors also can serve as an important educational resource for employees. According to an earlier TIAA-CREF survey released in February 2014, 81 percent of Americans trust financial information offered by their employer, a greater percentage than those who trusted financial information offered by a traditional financial institution, such as a bank or retirement plan provider (69 percent), or their family (63 percent).

Employers can use this trusted status to provide credible options about alternatives to loans from retirement savings.

"If loans are necessary to cover an emergency or the loss of a job, people should seek advice to minimize the loan's long-term impact on their retirement savings," explained Hassara. "It's a good example of why plan sponsors should make financial education and advice a core component of their plans."

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.


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