Increase in Participants Taking Loans from Their 401(k) Plans, Wells Fargo Finds

Average loan balances increase as well as frequency of 401(k) loans taken by people ages 50s and 60s

CHARLOTTE - April 11, 2013

Through an analysis of participants enrolled in Wells Fargo-administered defined contribution plans, the bank announced today that in the fourth quarter of 2012, there was a 28 percent increase in the number of people taking loans out from their 401(k) and that the 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 to people in their 50s (34.2%), followed by those in their 60s (28.9%) and then by those in their 40s (27.3%). The increase among participants in their 50s was nearly double the increase among those under 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.”

In addition to the 2012 new loan activity, 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 under 30, the outstanding loan balance is 38.2% of their remaining untouched balance. For those over 60, it drops to 21.1%. However, only about 9% of all participants under 30 have an outstanding loan, compared to almost 25% of participants in their 40s.

“While the increase in loan activity is concerning, we know that loans are not the biggest driver of leakage from retirement savings,” said Nordquist. “In fact, employees cashing out their 401(k) when they leave an employer are a greater concern. Those dollars are often spent whereas with loans the funds are often repaid and stay in the retirement nest egg.”

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%).

“It is encouraging that people are saving at higher rates by putting a higher percentage of their income into their 401(k) plans,” said Nordquist. “Participating in an employer-sponsored retirement plan is a good first step, but we want to make sure that people are saving an adequate amount as well.”

Additional trends include

  • Of the participants who increased their deferral rates from 3% to a range of 4-6%, significant numbers were in their 20s and 30s.
  • Of the participants who increased rates from the 4-6% range into the 7-9% range, most were in their 30s.
  • Participants over 50 increased rates from the 7-9% 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
  • Despite this progress, almost 20% of those 65 and older have their entire balance in a single investment. Over 70% of those (or 14% of all participants over 65) have all their money in fixed-income investments.

About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.4 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, the Internet (, and has offices in more than 35 countries to support the bank’s customers who conduct business in the global economy. With more than 265,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 26 on Fortune’s 2012 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially

About Wells Fargo Institutional Retirement and Trust
Wells Fargo Institutional Retirement and Trust is a national leader in providing total retirement management, investments and trust and custody solutions tailored to meet the needs of institutional clients. Wells Fargo ranks seventh in the number of plan participants and assets in the 2012 PLANSPONSOR Magazine Recordkeeping survey, with 3.7 million retirement plan participants, and $265.7 billion in retirement plan assets.

Leslie Ingberg