Los Angeles partner Bruce Ashton authored a white paper titled “Participant Loan Leakage: Protecting Participant Accounts and Reducing Fiduciary Risks.”
Plan sponsors may have a false sense of security when it comes to the fiduciary risk related to 401(k) loans. What they may not recognize is that participant loans are plan investments and must be managed with the same prudence and oversight required for any plan investment. The risk is heighted by several factors: the increased focus on 401(k) plans as a source of litigation; an alarming rate of loan defaults, as reflected in academic and industry studies; and a misguided belief that disclosure provides adequate protection. This white paper explores these issues.