The wisdom of offering 401(k) loans has long been debated, with some arguing that allowing them is an incentive for employees to participate in the plan, while others believe they do more harm than good since employees often reduce or stop saving in their 401(k) plan after taking a loan from it.

The majority (87.8%) of 401(k) plans do permit loans, according to the Plan Sponsor Council of America’s 56th Annual Survey of Profit Sharing and 401(k) Plans. Nearly 40% of plans, meanwhile, permit up to two loans.

New research from Fidelity Investments released this week shows employees are less likely to take a loan from their 401(k) account if their company also offers an employee stock purchase plan. In addition, employees with access to both an ESPP and a 401(k) tend to borrow a smaller amount from their 401(k), and had a lower outstanding loan amount.

Also see: How to reduce employee cravings for 401(k) loans

The research analyzed companies offering both an ESPP and a 401(k), and companies that only offer a 401(k). While the positive impact of ESPPs on 401(k) loans was evident in companies of all sizes, the difference was notable in small companies (less than 500 employees), where only 9% of workers took out new 401(k) loans when an ESPP was also available, compared to 14% for employers that only offered a 401(k). The outstanding loan rate at small companies was also significantly lower, with only 14% of ESPP/401(k) workers having an outstanding 401(k) loan balance, compared with 23% of employees at 401(k)-only companies.

Employees at large companies (more than 10,000 employees) with both an ESPP and 401(k) borrowed an average of $2,000 less than employees with only a 401(k), and had an average outstanding loan balance of $3,000 less than employees without access to an ESPP.

Also see: ESPPs see resurgence

“Company stock, which is often purchased at a discount and is kept in an account outsideof an employee’s 401(k) account, can be cashed in without the risks and tax implications sometimes associated with tapping a 401(k) account and the money does not have to be repaid if an employee changes jobs,” says Kevin Barry, executive vice president, stock plan services, at Fidelity Investments.

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