PLANSPONSOR - September 2017 - 47

FINANCIAL WELLNESS
Keeping Money in the Plan
Strategies for helping participants avoid loan default
leaves a job or is terminated. This can
lead to a loan default, meaning the loan
is treated as an early plan distribution,
requiring taxes and penalties to be paid.
For that reason, plan sponsors may
choose to design their plan with limitations
on their loan provisions.
According to the Internal Revenue
Service (IRS), a qualified plan may, but
is not required to, provide for loans. The
maximum size loan that a plan may
permit is: 1) the greater of $10,000 or
50% of one's vested account balance,
or 2) $50,000-whichever of the two
options is less.
Besides limiting the amount that
may be borrowed, a plan may limit the
number of loans taken at once. Some
plans allow loans only on participants'
deferred money and not on employer
match dollars.
According to the National Bureau
of Economic Research (NBER), about
86% of people who leave their job with
an outstanding 401(k) plan loan default
on it compared with 10% of all 401(k)
borrowers. The leakage of tax-advantaged
savings out of the system has become a
focal point across the DC retirement plan
industry and social-policy sphere, not to
mention has greatly reduced defaulters'
retirement security.
Drew Carrington, senior vice presiF
or
many years, the prevailing wisdom
about retirement plan participation
was that a segment of the
population would refrain from joining
the company plan unless knowing it had
emergency access to its money.
Therefore, it may be unsurprising
that 70% of defined contribution (DC)
plans allow for participants to take a loan
from their account, according to the 2016
PLANSPONSOR Defined Contribution
Art by Ellen Weinstein
(DC) survey.
The ability to borrow against their
savings can be a valuable benefit to those
wanting to buy a home or cover a large
sudden expense; it also gives participants
flexibility to deal with short-term financial
issues.
But loans may harm participants'
ability to save long term, especially if, as
has traditionally been the case, the loan
must be repaid in full when the employee
dent, head of institutional DC, at Franklin
Templeton Investments in San Mateo
California, says, " Loans aren't bad, but
the consequences are bad when someone
changes jobs and the loan becomes
payable. That's what is bad. That's why
this nuance is really important. "
There are several means-both plan
design and product-based-by which
plan sponsors can help their employees
avoid loan defaults.
PLANSPONSOR.com September 2017 47

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PLANSPONSOR - September 2017

Table of Contents for the Digital Edition of PLANSPONSOR - September 2017

Harvesting the Right Facts and Figures
2017 target-Date Fund Buyer's Guide
Allocating Benefit Dollars
Keeping Money in the Plan
Strategic Timing
Rothification of DC Plans
PLANSPONSOR - September 2017 - Cover1
PLANSPONSOR - September 2017 - Cover2
PLANSPONSOR - September 2017 - 1
PLANSPONSOR - September 2017 - 2
PLANSPONSOR - September 2017 - 3
PLANSPONSOR - September 2017 - 4
PLANSPONSOR - September 2017 - 5
PLANSPONSOR - September 2017 - 6
PLANSPONSOR - September 2017 - 7
PLANSPONSOR - September 2017 - 8
PLANSPONSOR - September 2017 - 9
PLANSPONSOR - September 2017 - 10
PLANSPONSOR - September 2017 - 11
PLANSPONSOR - September 2017 - 12
PLANSPONSOR - September 2017 - 13
PLANSPONSOR - September 2017 - 14
PLANSPONSOR - September 2017 - 15
PLANSPONSOR - September 2017 - 16
PLANSPONSOR - September 2017 - 17
PLANSPONSOR - September 2017 - 18
PLANSPONSOR - September 2017 - 19
PLANSPONSOR - September 2017 - 20
PLANSPONSOR - September 2017 - 21
PLANSPONSOR - September 2017 - 22
PLANSPONSOR - September 2017 - 23
PLANSPONSOR - September 2017 - 24
PLANSPONSOR - September 2017 - 25
PLANSPONSOR - September 2017 - Harvesting the Right Facts and Figures
PLANSPONSOR - September 2017 - 27
PLANSPONSOR - September 2017 - 28
PLANSPONSOR - September 2017 - 29
PLANSPONSOR - September 2017 - 30
PLANSPONSOR - September 2017 - 31
PLANSPONSOR - September 2017 - 2017 target-Date Fund Buyer's Guide
PLANSPONSOR - September 2017 - 33
PLANSPONSOR - September 2017 - 34
PLANSPONSOR - September 2017 - 35
PLANSPONSOR - September 2017 - 36
PLANSPONSOR - September 2017 - 37
PLANSPONSOR - September 2017 - 38
PLANSPONSOR - September 2017 - 39
PLANSPONSOR - September 2017 - 40
PLANSPONSOR - September 2017 - 41
PLANSPONSOR - September 2017 - 42
PLANSPONSOR - September 2017 - 43
PLANSPONSOR - September 2017 - Allocating Benefit Dollars
PLANSPONSOR - September 2017 - 45
PLANSPONSOR - September 2017 - 46
PLANSPONSOR - September 2017 - Keeping Money in the Plan
PLANSPONSOR - September 2017 - 48
PLANSPONSOR - September 2017 - 49
PLANSPONSOR - September 2017 - Strategic Timing
PLANSPONSOR - September 2017 - 51
PLANSPONSOR - September 2017 - Rothification of DC Plans
PLANSPONSOR - September 2017 - 53
PLANSPONSOR - September 2017 - 54
PLANSPONSOR - September 2017 - 55
PLANSPONSOR - September 2017 - 56
PLANSPONSOR - September 2017 - Cover3
PLANSPONSOR - September 2017 - Cover4
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