Public Sector Gen X Workers Face More Outstanding Retirement Plan Loans

Public sector Generation X workers have taken more retirement plan loans than any other age group, according to a recent survey by the Public Retirement Research Lab (PRRL) that measured data in public sector defined contribution (DC) plans.

The survey, which was made in collaboration with the Employee Benefit Research Institute (EBRI) and the National Association of Government Defined Contribution Administrators (NAGDCA), was discussed during a webinar hosted by the PRRL. Jack VanDerhei, research director at EBRI, said the organizations reviewed plans based on age, tenure and plan type, which included 213 457(b), 401(a), 403(b), 401(k) and other public DC plans of state, county, city and subdivision government employees.

Out of all the age groups (defined as workers in their 20s, 30s, 40s, 50s, 60s, etc.), those in their 40s had the highest number of outstanding retirement plan loans, at 7.3% of the total for all age groups. Only about 1% of workers in their 20s had an outstanding loan, with 4.1% of those in their 30s, 6.1% of those in their 50s and 3% of those in their 60s having outstanding loans.

Findings from the PRRL survey show Gen Xers are also contributing less to their retirement savings than those in most other age groups. The report shows that those in their 40s are contributing a mean rate of 5.5% to their retirement, while those in their 20s are contributing 5.9%. Those in their 50s are contributing an average rate of 6.6% and those in their 60s are contributing 8%. Workers in their 30s are contributing the lowest amount, at 5%.

It is likely that Gen X workers in the public sector feel the same financial squeeze as workers in the private sector, juggling mortgages, children’s education expenses, their own student loan debt and caretaking for elderly parents. It has left some to forgo crucial financial needs such as emergency savings or retirement funds.

A 2019 Schwab Retirement Plan Services study found 42% off Gen Xers surveyed said they are more focused on paying off debt than saving for retirement. Because of this, many in this age group are nervous that they will outlive their savings during retirement.

While Gen X had the highest percentage of workers with outstanding loans, the survey found older workers tend to have a larger loan amount than younger workers. “For those with loans, the older the age, the bigger the loan,” VanDerhei said. “Average loans as a percentage of account balance by age were smaller for younger workers rather than for older workers.”

Workers in their 50s and 60s had retirement plan loan amounts ranging from $7,000 to about $8,500, while workers in their 20s had an average loan amount of $1,680. Those in their 30s had an average loan amount of $3,963, while those in their 40s were borrowing an average of $6,184.

Average loans as a percentage of account balance were smaller for younger workers as well. Those in their 20s had an average loan amount of 10.9% when compared with their account balance. Loans were 14.9% of account balances for workers in their 30s, 16.1% for those in their 40s, 16.6% for those in their 50s and 19.2% for workers in their 60s.

When it comes to total contributions, including any employer contributions employees might receive, those in their 20s largely outpaced workers in all other age groups. These workers have a mean total of 9% of their salary being contributed toward their retirement, with just 6.7% for those in their 30s and 40s, 7.5% for those in their 50s and 8.8% of those in their 60s.