Despite reports this year that more people were borrowing from their 401(k) plans to cover daily expenses, the latest data from several plan providers show the number of loans has fallen in some cases.
However, most companies still show an increase in the number of participants taking hardship withdrawals. In those cases, they say, most people desperately need the money to prevent home foreclosures.
Companies that have shown a decrease in 401(k) loans so far this year include T. Rowe Price Group Inc., Baltimore; Fidelity Investments, Boston; Great-West Retirement Services of Greenwood Village, Colo.; Charles Schwab Corp. of San Francisco; The Vanguard Group Inc., Malvern, Pa.; and Merrill Lynch & Co. Inc., New York.
The number of new 401(k) loans overall for the first six months of the year declined 7%, compared with the first half of 2007, according to data compiled by Hewitt Associates LLC, Lincolnshire, Ill.
“It does show the decline in the number of new loans, which is contrary to what the press and all of the noise has been showing,” said Alison Borland, who is in charge of Hewitt's defined contribution consulting business and is based in Nashville, Tenn.
Retirement leaders began to fear that consumers were borrowing from their retirement funds to pay for expenses, and that hasn't held true, she said. “The good news is, the fears that people who were raiding their 401(k) just to cover daily expenses for food and gas doesn't tend to be happening,” Ms. Borland said.
No groups track 401(k) loans on an updated quarterly basis, although major fund companies track their own loan data.
During the past two years, loans per total participants at T. Rowe Price have risen about 2% to 3%, but year-to-date through June, new loans per total participants had fallen 7%, compared with the first half of 2007.
The good news is that the data show participants are still protecting their retirement savings on the whole, said Stuart Ritter, a certified financial planner with T. Rowe Price.
“There's not a wholesale move to drain retirement accounts, and people aren't mortgaging their future just to get through,” he said.
Loans remain historically low at Fidelity Investments, whose data show the percentage of workers initiating a loan during the second quarter was 2.8%, down from 3.1% a year earlier.
Data from Great-West Retirement Services, which combines its loans and hardship withdrawals, show that the new loans and new hardship withdrawals in the second quarter were at 1.1%, compared with 1.15% a year earlier. However, the loans and withdrawals were higher in the first quarter of this year, compared with a year ago.
At Schwab, there has been a slight decrease in new loans every quarter since the third quarter of 2007. In the first quarter of this year, 0.9% of participants took out new loans from their 401(k) plans, compared with 1% of new participants in the first quarter of 2007.
Vanguard's new loans in the first quarter fell 3.12% from a year earlier.