Advisors, plan sponsors, recordkeepers and policymakers should take steps to reduce loan leakage structurally, according to Deloitte, by limiting loan options to plan participants, for example, capping loans to a specific allowable amount, or restricting loans to a particular purpose, or limiting the number of loans allotted to a participant.
Structural fixes are probably not enough to curb the problem, said Deloitte, arguing that most defaults are caused by participants under significant financial stress. The report also offers financial wellness plans, debt-management programs, 401(k) loan insurance, emergency loan options with automatic withdrawal payment plans and rainy day savings plans as products that could stem the tide of 401(k) loan defaults.