News & Information

 

FEATURED PRODUCT

5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.

Learn More »

CCH® PENSION — 09/01/10

Fidelity’s 401(k) Data Show Loans And Hardship Withdrawals Rising

from Spencer’s Benefits Reports: Over the past year, loans initiated by participants in Sec. 401(k) plans grew to 11% of total active participants, up from about 9% one year ago, according to a survey by Fidelity Investments. The portion of participants with loans outstanding also increased two full percentage points in the second quarter to 22%.The survey also found that the average initial loan amount as of the end of the second quarter was $8,650, with an average loan duration of three and half years.

During the second quarter of this year, 62,000 participants initiated a hardship withdrawal, compared to 45,000 participants who initiated one during the previous quarter. As of the second quarter, 2.2% of Fidelity’s active participants took a hardship withdrawal, up from 2.0% in the prior year. Additionally, 45% of participants who took hardship withdrawals in the previous year also took a hardship withdrawal in the 12-month period ending in the second quarter of this year. Plan sponsors report that the top reasons why participants are taking hardship withdrawals are to prevent foreclosure or eviction, pay for college, and the purchase of a primary residence.

Fidelity has found that the average age of those taking a loan or hardship withdrawal is between 35 and 55 years old.

“We recognize that for some, taking a loan or a hardship withdrawal from their 401(k) may be their only option because it’s their only form of savings,” said James M. MacDonald, president of workplace investing at Fidelity Investments. “The current economy has forced some workers to borrow from their 401(k) accounts in order to pay for critical living expenses, ultimately jeopardizing their future retirement. However, the majority of participants continue to make saving through their workplace plans a priority.”

The average 401(k) account balance as of the end of the second quarter was $61,800, up 15% from the same time last year, but down from the end of the first quarter of 2010. The average deferral rate held steady during the quarter at about 8% with one-in-three (32%) participants deferring at 10% or higher. Similar to the first quarter, more participants increased their deferrals (5.3%) than decreased (2.9%) in the second quarter.

The Fidelity survey included responses from nearly 17,000 corporate defined contribution plans with 11 million participants, and the data is current through June 30, 2010.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

Visit our News Library to read more news stories.