Wharton Pension Research Council Working Papers

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Working Paper

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Most active 401(k) participants have the option of borrowing from their retirement accounts, and nearly 40 percent do so over a five-year period. We show that employers’ loan rules have a strong endorsement effect on borrowing patterns; that is, in plans allowing multiple loans, participants are more likely to borrow and take out larger loans. While the liquidity-constrained are most likely to borrow, better-off employees take out larger loans when they do borrow. We also provide a new estimate of loan default “leakage” at $6 billion annually. Our results show that defined contribution retirement plans, while designed mainly to support old-age financial security, include important features for financing current consumption.

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Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2014 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 Retirement Research Consortium. The authors also acknowledge support provided by the Pension Research Council/Boettner Center at the Wharton School of the University of Pennsylvania, and the Vanguard Group. Programming assistance from Yong Yu is also appreciated. Opinions and conclusions expressed herein are solely those of the authors and do not represent the opinions or policy of the SSA, any other Federal agency, or any institution with which the authors are affiliated. Opinions and errors are solely those of the authors and not of the institutions providing funding for this study or those with which the authors are affiliated. © 2014 Jun, Mitchell, Utkus, and Young. All rights reserved.

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Date Posted: 12 March 2019