In my post about Bob Litan and his estimates of 401(k) loan defaults, one of the key bits of weirdness was the way in which he decided that the total number of 401(k) loans outstanding had doubled since 2009. The official Private Pension Plan Bulletin says that 401(k) loans totaled $51.7 million in 2009, but Litan, in his paper on the subject, puts total loans at $104 billion, saying that the 2009 numbers are “outdated”.
Now, Guan Yang points me to some new data from the Labor Department, disclosed in response to a FOIA request. The data is raw, of course, and hard to parse; the loans appear in both Schedule H and Schedule I, for instance. But my colleague Jessica Toonkel asked the chaps at Brightscope to take a look, and this is what they found:
| Year | Schedule H loans, $ | Schedule I loans, $ | Total loans, $ |
|---|---|---|---|
| 2006 | 40,920,193,973 | 1,845,546,770 | 42,765,740,743 |
| 2007 | 43,333,714,360 | 1,815,617,332 | 45,149,331,692 |
| 2008 | 48,736,802,777 | 1,369,538,610 | 50,106,341,387 |
| 2009 | 48,332,673,154 | 1,552,443,970 | 49,885,117,124 |
| 2010 | 52,654,869,898 | 1,428,015,075 | 54,082,884,973 |
| 2011 | 709,094 | 22,082,885 | 22,791,979 |
This is raw data from Form 5500, the form that pension plans have to file with the government. Most 5500s for 2011 haven’t been filed yet, so the numbers for 2011 are only extremely partial and are pretty much useless. But what we can see is that there was no big rise in total loans between 2009 and 2010, as Litan and his co-author, Hal Singer, imply. If total loans did go up, they only went up by a single-digit percentage: there’s no way they more than doubled.
To double-check with the data that we do have for 2011, the Brightscope people also looked at total 401(k) loans as a percentage of total defined-contribution assets. That was 1.76% in 2008, 1.73% in 2009, and 1.75% in 2010: pretty constant. In 2011, as I say, we only have very partial data so far. But from the data we do have, covering just under $2 trillion in assets, that ratio is just 1.17%: it’s low, not high. As more data come in, that ratio will surely rise. But again, there’s no reason at all to believe that the number of 401(k) loans rose sharply in 2011.
In any case, these numbers alone should be enough to persuade anybody that the Litan-Singer estimate of as much as $37 billion in annual 401(k) loan defaults is just silly: $37 billion is more than 60% of the total number of 401(k) loans outstanding in 2010. And most people, of course, do pay back those loans.
You know, the biggest thing missing from this is that 401K loans aren’t like conventional loans from outside sources. They’re loans from the borrowees themselves of their own accounts and no one else’s funds. It wouldn’t matter if the default rate hit 100%. No one is hurt by it really.
When is stops being a loan (hits default), it becomes a withdrawal. How is the withdrawal accounted for in your data? For Andrew, the problem is that when someone takes that “loan” (loan is the bank-derived marketing term) then they default on it, then they have no savings and they need to keep working rather than have a retirement and exit the workforce making way for new workers or other workers without the cash flow to save for retirement which keeps unemployment high which stresses our social system on a macro level.
If you appreciate some sort of sales of the worthwhile, consider pals. [url=http://ruemee.com/]bonprix[/url] bonprix
thank you for share!