Wells Fargo Reports Increase in Participant Loans

There was a 28% increase in the number of participants taking loans from their 401(k)s, according to an analysis of Wells Fargo-administered plans.

Average new loan balances increased to $7,126 from those taken out in the fourth quarter of 2011—a 7% increase from $6,662.      

Of the participants who took out loans, the greatest percentage were people in their 50s (34.2%), followed by those in their 60s (28.9%) and those in their 40s (27.3%). The increase among participants in their 50s was nearly double the increase among those younger than 30. This is based on an analysis of a subset of 1.9 million eligible participants in retirement plans that Wells Fargo administers.     

“The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ‘catch-up’ contributions and really need to focus on preparing for retirement,” said Laurie Nordquist, director of Wells Fargo Retirement. “However, we know that this age is also the ‘sandwich’ generation, caught between paying for their kids’ education and supporting elderly parents, which makes saving for retirement even more challenging.”  

According to the Wells Fargo data, nearly one fifth (19.2%) of people with money in a 401(k) plan had at least one outstanding loan, and of the outstanding loans, the average balance was $7,764. While older participants are taking more loans out than their younger colleagues, the younger a participant is, the greater the loan tends to be as a percentage of their 401(k) account balance.

For those younger than 30, the outstanding loan balance is 38.2% of their remaining untouched balance. For those older than 60, it drops to 21.1%. However, only about 9% of all participants younger than 30 have an outstanding loan, compared to almost 25% of participants in their 40s.  

Although loan activity is on the rise, people are contributing more of their income to their 401(k) plan. In the fourth quarter, there was a slight decrease (-1.8%) in participants deferring 3% or less and an increase in those contributing 10% or more (+1.3%).     

Other trends identified in the analysis include:  

  • Of the participants who increased their deferral rates from 3% to a range of 4% to 6%, significant numbers were in their 20s and 30s.   
  • Of the participants who increased rates from the 4% to 6% range into the 7% to 9% range, most were in their 30s.   
  • Participants older than 50 increased rates from the 7% to 9% range to 10% or more. 
  • 25.2% of all 401(k) plan assets are now in managed investment options, up 4.1% from a year ago 
  • Nearly 20% of participants 65 and older have their entire balance in a single investment, and more than 70% of those (or 14% of all participants older than 65) have all their money in fixed-income investments. 
Wells Fargo ranks seventh in the number of plan participants and assets in the 2012 PLANSPONSOR magazine recordkeeping survey (see “RK Survey 2012”), with 3.7 million retirement plan participants, and $265.7 billion in retirement plan assets.