EBRI Issue Brief

The Impact of Adding an Automatically Enrolled Loan Protection Program to 401(k) Plans

Feb 23, 2022 9  pages


A key contributor to the existing U.S. retirement deficit is leakage from 401(k) plans upon job change. While overall, U.S. Department of Labor data indicate that loan amounts tend to be a negligible portion of total plan assets, EBRI research has shown that defaulting on retirement plan loans can produce significant reductions in retirement balances. One approach to reducing such leakage is to add some type of automatically enrolled 401(k) loan insurance that prevents defaults.

In this study we used the accumulation module of the Retirement Security Projection Model® (RSPM) to simulate the increase in the present value of the 401(k) account balances with and without the automatically enrolled loan protection program. We used these results to simulate the aggregated present value of the improvement in plan balance for all current 401(k) participants assumed to have at least one loan default in the baseline scenario. Basing our analysis on assumptions from Lu et al., the resulting increase in the present value of balances is $1.96 trillion, representing up to 40 years of loan default experience.