Reference Point April 2016

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1 T. Rowe Price Defined Contribution Plan Data As of December 31, LOANS CAN STRONGLY IMPEDE RETIREMENT SAVINGS GROWTH POTENTIAL Most employers feel that having a loans provision as part of their retirement plan is important for their participants. This is evident by the 87% of plans that permitted loans in. What may not be understood is the effect taking a loan can have on a participant s ability to save over time, such as missing out on potential market gains. There is also the interest the participant must pay back on top of the loan amount. In, we saw the average participant loan balance continue to trend upward to $9,075. The percent of participants with loans has stayed consistent for the past six years with 24% of participants maintaining an outstanding loan. While the number of participants taking loans has not changed dramatically, those participants are borrowing larger amounts. We are encouraged to see that more employers are permitting participants to have only one outstanding loan at a time. In, 55.9% of plans allowed only one outstanding loan, up 2.6% from. Looking at the various age groups, the and age groups continued to maintain the highest outstanding loan balances, having increased each of the past two years to $10,000 and $10,780, respectively. Participants within those age ranges typically have conflicting priorities, including sending a child off to college or taking care of an elderly parent. Although the age group does not take many loans, sponsors should take the opportunity to educate them about the perils of borrowing from their account early on in their careers. This can help younger participants establish good saving habits that give their retirement assets the maximum opportunity for tax deferred growth. YOUNG INVESTORS ARE CASHING OUT THEIR RETIREMENT The <20 age group took a step backward in, with their cash-outs increasing by 35 percentage points! Perhaps it s the small balances that are prompting them to retain the cash rather than rolling it over, or they could be using those assets to pay down student loan debt. This generation, often recognized as millennials, tends to change jobs frequently, so it s important that they roll over their 401(k) assets as their careers progress. Employers can help by providing education that describes participant options, giving new importance to what might seem like a relatively small sum. Sponsors must counter the perception among young people that retirement is far into the future and that they have plenty of time to save. Reframing this conversation through targeted messaging or financial wellness programs to make it more real could help retain these assets in a tax-deferred vehicle, whether it s a 401(k) plan or an IRA. POTENTIAL STRATEGIES Add a financial wellness program to provide participants a holistic view of personal money management Promote tools that educate participants on the implications of cashing out of their account Want to learn more? Contact your T. Rowe Price representative. Visit troweprice.com/referencepoint 1

2 No. 1 LOANS Percent of Plans that Permit Loans 80.9% 80.9% 82.9% 83.6% 83.2% 84.3% 86.5% 87.3% 87.0% Average Participant Loan Balance $7,749 $7,599 $7,522 $7,677 $7,933 $8,098 $8,438 $8,831 $9,075 Percent of Participants With Loans 19.3% 20.0% 22.3% 24.3% 24.7% 24.3% 24.9% 24.7% 24.3% No. 2 AVERAGE PARTICIPANT LOAN BALANCES BY AGE $2,555 <20 3, TRP 3,713 3,895 3,834 7,096 7,534 7,772 9,419 9,721 10,000 10,264 10,560 10,780 8,692 8,911 9,146 8,344 8,600 8,415 7,120 7,320 7,502 8,438 8,831 9, ,000 4,000 6,000 8,000 10,000 $12,000 Data set includes only plans that allow at least one loan. The and age groups continued to maintain the highest outstanding loan balances, showing increasing balances each of the past two years. Visit troweprice.com/referencepoint 2

3 No. 3 PERCENTAGE OF PARTICIPANTS WITH OUTSTANDING LOANS BY AGE 0.2% < TRP % Data set includes only plans that allow at least one loan. The percentage of participants with outstanding loan balances held steady at 24% in. No. 4 MAXIMUM NUMBER OF LOANS ALLOWED 4.5% 1.8% 1.8% 1.7% 1.7% 4.4% 53.3% 55.9% 38.6% 36.3% 1 Any Type* 2 Any Type* 3 Any Type* More Than 3 Any Type* No Limit Any Type* * Any type plan may offer primary residence, standard, or both loan types. Data set includes only plans that allow at least one loan. Numbers may not total 100% due to rounding. In, we began to see positive movement as the number of employers allowing two or more loans decreased over 2%. Visit troweprice.com/referencepoint 3

4 No. 5 PARTICIPANT DISTRIBUTIONS DIRECT ROLLOVERS VS. CASH-OUTS 80% 78% 78% 35% 77 75% 27% 29% 28% 28% 75% 76% % 73% 71% 72% 72% 25% 24% 22% 22% Percent Rollover (left axis) Percent Cash-Out (right axis) No. 6 PARTICIPANT DISTRIBUTIONS BY AGE 100% 80 82% 73% 80% 85% 86% 90% 69% 78% 60 55% 45% % 27% 20% 15% 14% 10% 31% 22% 0 < TRP Percent Direct Rollover Percent Cash-Out The direct rollover-to-cash-out ratio held steady in at nearly four to one, with almost 80% of participants choosing to roll over their retirement plan accounts. Visit troweprice.com/referencepoint 4

5 No. 7 PARTICIPANT ROLLOVERS COMPARISON BY AGE 33% < TRP % We are encouraged to see positive movement within most age groups as participants continue to choose rolling over their retirement accounts versus cashing out. Visit troweprice.com/referencepoint 5

6 No. 8 PARTICIPANT CASH-OUTS COMPARISON BY AGE 67% < TRP % Participants under age 20 increased their cash-out rate by 35 percentage points in. No. 9 HARDSHIP WITHDRAWALS Average Number of Hardship Withdrawals Average Hardship Withdrawal Amount $6,272 $6,020 $5,628 $5,905 $5,632 $5,703 $5,810 $6,469 $6,685 After holding steady for six years, the average number of hardship withdrawals decreased by 10% in. Visit troweprice.com/referencepoint 6

7 Methodology Unless otherwise noted, all data included in this report are drawn from the following sources: Data are based on the large-market, full-service universe TRP of T. Rowe Price Retirement Plan Services, Inc., retirement plans (401(k) and 457 plans), consisting of 662 plans and over 1.6 million participants. Loan availability and usage results are based on active participants with outstanding loan balances at calendar years ended December 31, 2007, through December 31,. Numbers may not total 100% due to rounding. Distribution data represent all distributions and hardship withdrawals from qualified 401(k) and 457 plan types for various time periods from calendar years ended December 31, 2007, through December 31,. Visit troweprice.com/referencepoint 7 CYN6ES7E AX-17646