Data & Research April 1, 2011

NAGDCA Offers Statistical Snapshot of Government Plans

An average 22% of eligible participants participated in state and local government plans during 2010, down from 29% a year before, according to a report.
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The National Association of Government Defined Contribution Administrators (NAGDCA) published its analysis of 401(k), 401(a) and 457 programs. The data show that at the end of 2010, 457 plans had 4.9 million eligible employees and 1.1 million of them actively made deferrals; a participation rate of 22%. The 401(k) respondents had 2.7 million eligible employees and of those, 512,998 employees actively made deferrals; a participation rate of 19%. And 401(a) respondents had 885,817 eligible employees and of those, 218,047 actively made deferrals; a participation rate of 25%.

NAGDCA also found that as of December 31, 2010, the average participant account balance for the responding state and local government plans was $41,243, with a median of $23,497.  The average participant account balance for responding 457 plans was $42,468 and the average for 401(k) plans was $39,285. The average for 401(a) plans was $38,301, and the average participant account balance for responding 403(b) plans was $40,889.

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The average annual deferral for the responding state and local government plans was $3,884.

As of December 31, 2010, 33% of all responding government plans had assets valued between $101 and $499 million and 25% were valued between $1 and $5 billion. Eighteen percent of plans assets were valued between $500 and $999 million and 18% had $100 million or less in plan assets. Six percent of responding plans had assets valued over $5 billion.

The 2011 NAGDCA Defined Contribution Plan survey covered 111 government defined contribution plans, including: 457 – 76 plans (43 state, 32 local, 1 education); 401(k) – 16 plans (11 state, 5 local); 401(a) – 17 plans (9 state, 5 local, 2 education, independent agency);403(b) – 2 plans (2 state). These plans had approximately 1.8 million active participants in 2010 compared to 1.5 million in 2009.

Ninety-two percent of these plans also offer a defined benefit plan, 90% offer retiree health insurance benefits, and 84% of plans reported their employer participates in Social Security.

The complete survey results are available here.

Data & Research April 1, 2011

Research Suggests a "One Loan Per Person" Rule

A Financial Literacy Center research paper found that one in ten plan loans results in a default, and eight of ten workers who leave a job with a plan loan outstanding will default on that loan.
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The researchers found “deemed distributions” due to loan defaults amounted to $600 million in 2007, representing 0.2% of $3.7 trillion in assets held in DC plans – proving that loan defaults in aggregate terms are relatively small compared to total assets held in DC plans. However, the analysis found loan defaults may be costly for particular groups of participants such as the economically vulnerable or financially unsophisticated.  

The researchers analyzed data from more than 100,000 retirement plan participants whose employment ended while they had an outstanding loan during the three-year period July 2005 – June 2008. Among 401(k) plan borrowers terminating employment, approximately 80% defaulted on their loans and 20% repaid them.  

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The working paper said participants who defaulted on their loan were more likely to have larger loan balances than those who repaid; defaulters also had lower household incomes, smaller 401(k) balances, and lower non-pension financial wealth. “This suggests that loan defaults may arise from liquidity constraints around the time of employment termination,” the researchers wrote. 

Other plan and participant factors also have an affect, according to the Financial Literacy Center. Participants leaving their employer with multiple loans outstanding are more likely to default, compared to those with a single loan (even after controlling for total amount borrowed and demographics). This suggests that there is unobserved heterogeneity in credit demand or in behavioral factors such as self control among plan borrowers; therefore, participants who take one large loan may be more likely to plan for the need to repay in the event of job termination.   

Alternatively, participants with several loans might fail to plan ahead, and thus take several small loans as the need arises, or perhaps they keep borrowing as their plan balance rises over time. In other words, having a one-loan per person limit might protect participants from accumulating more debt than they otherwise might, the research concluded.

The researchers found local economic conditions have little impact on 401(k) loan defaults during the period analyzed.  

The paper, "An Empirical Analysis of 401(k) Loan Defaults" is available here. 

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