Wharton Pension Research Council Working Papers

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Working Paper

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Many 401(k) pensions allow plan participants access to their pension saving before retirement via a plan loan. This paper investigates the determinants of defaults on such loans, using a rich dataset of over 100,000 participants who terminate employment with a plan loan outstanding. Overall, one in ten plan loans results in a default, and eight of ten workers who leave a job with a plan loan outstanding then default on that loan. Explanations relate to employee characteristics and plan design features: those with little non-retirement wealth, low income, and smaller 401(k) balances, are more likely to default than repay their loans at job termination. Moreover, borrowers with several smaller loans are more likely to default than are participants with a single loan of the same total size, perhaps due to heterogeneity in credit demand or lack of self-control. Local economic conditions have little impact on 401(k) loan defaults during the period we analyze

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Opinions and errors are solely those of the authors and not of the institutions providing funding for this study or with which the authors are affiliated. Copyright 2010 © Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Financial Literacy Research Consortium. The opinions and conclusions expressed herein are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the Federal Government, The Wharton School, or any other institution with which the authors may be affiliated. The authors also acknowledge support provided by the Pension Research Council and Boettner Center at the Wharton School of the University of Pennsylvania, and the Vanguard Group.

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Date Posted: 07 August 2019