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Just Put It on My 401(k) Debit Card

But easy access to money can be a double-edge sword. Employees pay for the convenience: The interest rate on ReservePlus loans is 2.9% higher than the prime rate, which is higher than traditional loans, and employees pay an initial set-up fee. And, according to a federal government study into the country's low retirement savings rate, though there is no data, loan defaults are "expected to be much lower where repayments are made by payroll withholding." ReservePlus currently offers no payroll withholding option, but the company says it will introduce one shortly.

And critics argue that in some cases debit cards may encourage unnecessary borrowing. "By making it a debit card, you make it sound like the loan that you take on the 401(k) for everyday purchases," says AARP's Setzfand. "In our opinion, a 401(k) loan should only be taken as a loan of last resort, for a dire medical situation, or if there's no other way to get a home loan, not to go shopping."

Indeed, a November study by the U.S. Government Accountability Office into the country's low retirement savings rate found that preretirement access to funds may lead to lower retirement savings, though it also cited evidence that a loan feature increases retirement plan participation.

Using ReservePlus loans as a mechanism to increase retirement savings participation just makes sense for some demographics, says Young. The participation rate for the GenY age group is low because people "don't want to tie their money up in a program they can never access during their working years. People want to be in control of their retirement plan savings, and when they feel in control, they're more likely to participate or contribute at higher levels." And it makes stable lending possible for seasonal employees and industries with high employee turnover.
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