Adding loans to a 401(k) plan may not do much to increase participation rates.[@@]

Researchers at Principal Financial Group Inc., Des Moines, Iowa, reach that point in the company’s annual retirement plan trends report.

The researchers drew on data from Principal’s own retirement services operation as well as data from government agencies and private groups to compile the report.

The researchers note that plan participants with $25,000 to $49,999 in assets are especially likely to use professional asset-allocation services; that the typical plan with an automatic-enrollment features offers participants a 3% match; and that more than 95% of Principal 401(k) plans offer catch-up provisions.

When the researchers analyzed Principal 401(k) plan loan data, they found that 68% of Principal’s standard, “prototype” plans allow loans. But the participation rate at plans that allow loans is only 0.4% higher than the rate at plans that make no allowances for loans, the researchers write.

At plans with a loan feature, 22% of the participants have outstanding loans, and the average outstanding balance is $5,534, the researchers write.

The percentage of baby boomer plan members ages 45 to 54 with outstanding loans increased to 12.1% in 2004, from 10.5% in 2002, the researchers write.