This will be evidence of buffer-stock behavior throughout the multiple-loan plans. Yet the total amount borrowed has also been highest from inside the numerous loan plans, illustrating you to pros understand the multiple-financing rules while the an acceptance promising 401(k) borrowing from the bank in the ple, with a simultaneous-financing plan leads to professionals borrowing from the bank a higher fraction regarding advancing years wealth than if you don’t. Bundle interest rates charged is actually adversely and you can notably on the credit number, nevertheless the rates is actually quantitatively brief.

Accordingly, we ending that sponsors dont structure plan financing rules to fulfill participant features with the credit needs

Participant characteristics along with number. Experts ages thirty fiveforty five borrowed the most significant small fraction of the money, for new money plus in overall, if you are personnel decades 4555 was indeed next highest classification. Surprisingly, members ages 5560, who are excused away from any 10 % penalty tax whenever they independent from services, were slightly prone to acquire as compared to reference class, participants less than ages twenty-five. However, workers sixty+ borrowed during the lowest cost of all a long time. It since such workers are commonly able to make penalty-free distributions off 401(k) discounts if you are doing work, not related for the loan element. We and see that higher-paid and you can wealthier participants borrowed big fractions of their bundle money, versus middle/ lower-earnings and you may wide range teams. Which, when you find yourself our very own earlier performance indicated that lower income minimizing riches house was in fact very likely to acquire on extensive margin, the greater earnings/wealth players borrowed proportionally significantly more, depending on borrowing.

C. Endogeneity Assessment

Up until now, you will find presumed you to companies build the bundle loan guidelines individually out-of worker demand. However, a potential option need to the observed aftereffect of plan financing have into new member borrowing from the bank was one to bundle sponsors build their firms’ mortgage regulations responding to staff member exchangeability needs. That is, some firms you are going to notice teams having an inherently highest need for borrowing from the bank (on account of lifecycle reasons otherwise behavioral biases), in which case they might promote multiple loan features to draw including some body. Therefore, the good relationship between fellow member borrowing and also the amount of bundle financing greeting do reflect package mentor expectation regarding employee borrowing means, in place of staff responses so you can manager package construction choices.

While we dont entirely exclude so it chance, you will find undertaken a couple screening for endogeneity, about what we have now report. Including, if package sponsors did lay financing rules inside the expectation from fellow member means, we might anticipate that preparations and therefore enjoy numerous funds perform differ systematically off unmarried-mortgage plans, with each other observable qualities. By comparison, in the event that differences in borrowing behavior was in fact on account of users reacting by themselves to bundle mortgage procedures, there needs to be zero logical differences round the plans. To check on which hypothesis, i run another regression:

The dependent variable takes the value of one if the plan allowed its participants to hold multiple loans, and 0 if it allowed only a single loan. The PLAN_CHAR_j vector consists of characteristics including the mean and standard deviation of participant age, tenure, household income, financial wealth, the plan loan interest rate, the number of participants in the plan, and controls for the firm’s industrial sector. Our hypothesis is that there should be no statistically significant difference in observable characteristics between plans allowing multiple loans and plans allowing only one loan. What we find is that only factor, the standard deviation of tenure, is occasionally significant (full results appear in Online Appendix Table 3), while no other factors are statistically significant. 22

Once the another robustness sample, we hypothesize if preparations acceptance several fund due to participant consult, the fresh new proportion regarding members holding numerous fund in those preparations is become relatively large. Alternatively, only 13.8 percent got a lot more finance when allowed to exercise; this means, 86.dos per cent away from qualified borrowers took simply one loan, even when the arrangements desired numerous funds. We do not take notice of the counterfactual figure getting players into the solitary-loan arrangements; which is, we can not measure the relative need for extra money one of members from inside the single-loan preparations. Yet we can take a look at the brand new demand for then money by sequential individuals into the solitary-financing arrangements. Sequential borrowers are those just who, into the single-financing agreements, bring you to loan, pay it off, and then grab a separate mortgage instantaneously. We find one merely thirteen.nine percent from participants was indeed sequential individuals inside the unmarried-mortgage agreements, a rate virtually identical on thirteen.8 percent regarding several-financing takers in preparations enabling several loan. This indicates you to new member mortgage interest in multiple finance from the extensive margin isnt drastically some other across plans, regardless of whether they allow merely an individual otherwise multiple loans. It is to your rigorous margin away from numerous-financing mortgage request, just like the shown from the fraction from membership wide range borrowed, that two types of plans differ.