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C. – 86%

While, on average, the annual default rate is 10-12 percent for all 401(k) borrowers, that number spikes to 86 percent for participants with loans outstanding following termination. The taxes and penalties that defaulting borrowers owe the IRS often lead them to withdraw their full remaining account balances sooner than expected, because they typically are under financial stress at the time. That lost retirement savings is money (and time) they can never get back. Over time, their account balance could have grown to provide a nice retirement cushion.

How can this setback be avoided? Plan sponsors can prevent 401(k) loan defaults through simple, automatic and low cost loan insurance.

Source: Borrowing from the Future: 401(k) Plan Loans and Loan Defaults, Wharton/Vanguard Pension Research Council Working Paper

INCORRECT – The correct answer is C. – 86%

While, on average, the annual default rate is 10-12 percent for all 401(k) borrowers, that number spikes to 86 percent for participants with loans outstanding following termination. The taxes and penalties that defaulting borrowers owe the IRS often lead them to withdraw their full remaining account balances sooner than expected, because they typically are under financial stress at the time. That lost retirement savings is money (and time) they can never get back. Over time, their account balance could have grown to provide a nice retirement cushion.

How can this setback be avoided? Plan sponsors can prevent 401(k) loan defaults through simple, automatic and low cost loan insurance.

Source: Borrowing from the Future: 401(k) Plan Loans and Loan Defaults, Wharton/Vanguard Pension Research Council Working Paper

#1 What percentage of 401(k) loan borrowers default following separation?

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