Purpose of a Loan Feature

A loan option can reduce employees’ fear of ‘locking up’ savings, increasing participation. When used sparingly and repaid on schedule, loans need not derail long‑term outcomes.

Risk Management

Limit number of outstanding loans and set minimum amounts to reduce leakage.

Coordinate payroll systems for timely repayments; define cure periods for missed payments.

Educate participants on opportunity cost and default taxation.

Policy Design Tips

Consider allowing loans only after a minimum participation period, and restrict loans during hardship withdrawals to prevent compounding leakage.

Plan Sponsor Action Checklist

References

• IRS rules on plan loans (IRC 72(p)) and plan document provisions (general guidance).