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Borrowing through the Future: 401(k) Loans and Their effects

The loans people take from their 401(k) pension plans, why they take these loans and what happens when these borrowers leave their jobs in a new paper titled, “Borrowing from the Future: 401(k) Plan Loans and Loan Defaults, ” Olivia S. Mitchell, Wharton professor of business economics and public policy, analyzes. The paper ended up being co-authored by Timothy (Jun) Lu from Peking University, HSBC company School, and Stephen P. Utkus and Jean A. Younger, both from Vanguard Center for Retirement analysis.

Knowledge@Wharton asked Mitchell to close out her research and talk about its implications for company practitioners, customers and regulators.

An transcript that is edited of conversation follows.

Knowledge@Wharton: Please briefly describe your quest.

Olivia Mitchell: My research of this type happens to be centering on the loans that individuals just take from their k that is 401 plans. It’s quite common for companies to permit loans through the retirement benefits, plus in reality, we discover that at any time, about one 5th of a loan have been taken by all workers. Over a period that is five-year up to 40% take loans. So it’s a practice that is common.

We now have examined why people simply take loans, what goes on if they do, as well as in specific, what are the results once they terminate their jobs. At that time, they need to spend their loans back in complete or incur tax along with a 10% penalty. Therefore, we’re worried about whether individuals are employing their s cartitleloansextra.com/ that are 401(k piggy banking institutions. (more…)