PLANADVISER - March/April 2021 - 30
plan design | education
A Plan Feature Run Wild
Advisers should tell their clients about the risks of taking plan loans
I
n the 1980s, when 401(k) plans were a new idea for
financing retirement, a provision to borrow against them
was an inducement to get participants in the door.
" We sold the idea as, 'Hey, if you ever need it, your savings
will be available to you in the form of a loan,' " recalls Jamie
Greenleaf, lead adviser at Cafaro Greenleaf, in Red Bank,
New Jersey. " Unfortunately, that plan design became the
norm, " she adds.
Participant loans were allowed by 82% of about 3,500
plans responding to the 2020 PLANSPONSOR Defined Contribution
(DC) Survey and, at plans with over $200 million in
assets, by more than 90%. About 11% of participants had
outstanding loans at that point-also, more frequently at
larger plans-with a median balance of about $9,000.
But 401(k) loans put a portion of participants' invested
assets on hold and can deal setbacks to contributions and
participation. Accordingly, many advisers see these diminishments
as working against the goals of financial wellness
programs and retirement readiness. " My opinion is that
taking loans is at odds with financial wellness, " says Josh
Dietch, head of retirement thought leadership at T. Rowe
Price Group, Baltimore. Invoking a football image, Dietch
observes, " Wellness is offense, meant to build people's financial
resilience. Loans and hardship withdrawals are defense. "
Given that so many plan sponsors have designed loans
and hardship withdrawals into their defined contribution
plan, what do the few holdouts have in mind? " We have a few
sponsors that don't allow them, " Greenleaf says. " Their view
is that ERISA [Employee Retirement Income Security Act]
says they are fiduciaries and must act in the best interest of
the beneficiaries. They see that DC plans have replaced traditional
pensions, and thinking back to those days, if a participant
needed money, he couldn't raid the pension plan. "
But most sponsors did build in loan provisions, allowing
two or three loans. " They quickly realized they were becoming
banks and loan administrators, " notes Gregg Levinson, senior
30 | planadviser.com March-April 2021 Art by Claudi Kessels
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PLANADVISER - March/April 2021
Table of Contents for the Digital Edition of PLANADVISER - March/April 2021
A Season for Change
Through the Ages
Overcoming Obstacles
A Plan Feature Run Wild
Not Just Retirement Services
Take It Past the Limit
Lifetime Income Illustrations
Wanna Be a PPP?
PLANADVISER - March/April 2021 - Cover1
PLANADVISER - March/April 2021 - Cover2
PLANADVISER - March/April 2021 - 1
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PLANADVISER - March/April 2021 - 15
PLANADVISER - March/April 2021 - A Season for Change
PLANADVISER - March/April 2021 - 17
PLANADVISER - March/April 2021 - 18
PLANADVISER - March/April 2021 - 19
PLANADVISER - March/April 2021 - Through the Ages
PLANADVISER - March/April 2021 - 21
PLANADVISER - March/April 2021 - 22
PLANADVISER - March/April 2021 - 23
PLANADVISER - March/April 2021 - 24
PLANADVISER - March/April 2021 - 25
PLANADVISER - March/April 2021 - Overcoming Obstacles
PLANADVISER - March/April 2021 - 27
PLANADVISER - March/April 2021 - 28
PLANADVISER - March/April 2021 - 29
PLANADVISER - March/April 2021 - A Plan Feature Run Wild
PLANADVISER - March/April 2021 - 31
PLANADVISER - March/April 2021 - 32
PLANADVISER - March/April 2021 - 33
PLANADVISER - March/April 2021 - Not Just Retirement Services
PLANADVISER - March/April 2021 - 35
PLANADVISER - March/April 2021 - Take It Past the Limit
PLANADVISER - March/April 2021 - 37
PLANADVISER - March/April 2021 - Lifetime Income Illustrations
PLANADVISER - March/April 2021 - Wanna Be a PPP?
PLANADVISER - March/April 2021 - 40
PLANADVISER - March/April 2021 - Cover3
PLANADVISER - March/April 2021 - Cover4
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