Plan Sponsors Ask- Q&A Q3 2025

Q: We are interested in any data you have regarding employees who take loans from their account. Specifically, do they tend to stop or reduce their current contributions while paying back the loan?
A: According to Principal’s recent research report, “401(k) Loans: Debunking the Myths,” participants borrowing from their account continue to save for retirement while paying back their loan. A strong majority, 83%, continued contributing to their retirement account at the same deferral rate as before taking the loan, whereas only 4% stopped deferring. The survey cites this as a strong indication that many participants can manage their short-term financial needs while keeping their long-term retirement goals.

Q: Is there any industry information available on employee utilization of hardship withdrawal provisions?
A: The International Foundation’s 2024 Employee Benefits Survey found that utilization of hardship withdrawal provisions averaged 5.6% of participants for 401(k) plans, 4.9% for Roth 401(k) plans and 2.3% for 403(b) plans. In addition, a preview of Vanguard’s How America Saves 2025 report showed that 4.8% of participants used hardship withdrawals when offered in 2024, up from 3.6% in 2023 and 2.8% in 2022. The increase in hardship withdrawals was particularly notable in the second half of 2024, largely due to natural disaster declarations that enable participants to take out money to repair homes following natural disasters.

Q: Can you provide information on plan adoption of an employee match on student loan payments?
A: The Plan Sponsor Council of America (PSCA) has been tracking interest in the optional SECURE 2.0 Act provisions, reporting on what plan sponsors are adopting, and what they are waiting on for now. Although the student loan employee match provision is the one that may have generated the most media attention, plan sponsor interest in adoption has been minimal and seems to be waning. PSCA survey data shows that plan sponsors who responded “yes, have or will implement this year” dropped to 2.6% in 2025, down from 4.7% in 2024. Those that responded “no, will not add the provision” rose to nearly 75%, up from 64% in 2024.

2023, July, 401(k) loans: Debunking the myths https://secure02.principal.com/publicvsupply/GetFile?fm=PQ13498A&ty=VOP

2024, November/December, Hardship Distributions https://www.reinhartlaw.com/uploads/images/24-NovDec-Mohs.pdf

20205, January, Declining Interest in Student Loan Matches, PSCA Finds https://www.asppa-net.org/news/2025/1/declining-interest-in-student-loan-matches-psca-finds/

2025, March, Vanguard Sees All-Time High Deferral Rates, Plan Design Improvements in 2024 https://www.plansponsor.com/vanguard-sees-all-time-high-deferral-rates-plan-design-improvements-in-2024/?oly_enc_id=5790E8399767G2Z

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.

Kmotion, Inc., 12336 SE Scherrer Street, Happy Valley, OR 97086; www.kmotion.com

©2025 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.