Considering a Loan Cure Period to Avoid Participant Loan Defaults

“Defined contribution (DC) plan participant loan defaults can be a big setback to retirement savings. A Deloitte analysis found a typical defaulting borrower could lose $300,000 in retirement savings over his career. This includes taxes, early withdrawal penalties, lost earnings and, for terminated or retired participants, any early cash-out of a defaulting participant’s full plan balance.

For participants who terminate employment or retire, some plan sponsors have adopted the ability for participants to continue to make loan repayments after termination, and when loan repayments are payroll deducted, it is less likely active participants will default on loans. However, there are still situations in which active participants may default.

One solution plan sponsors can consider is allowing for a loan cure period.” Continue reading.

Source: PLAN SPONSOR