When in need of emergency funds, lots of employees turn to their retirement plans for a loan—but that can threaten their eventual retirement security, since sometimes workers fail to pay them back—either because of job changes that escalate the repayment schedule or due to financial hardship.
But there's another option in town: Kashable, an online loan service launched last year that provides loans to the employees of participating employers and repaid via automatic payroll deductions.
While Kashable launched in 2015 as a socially responsible alternative to high-cost payday lenders, it's now available through MassMutual Life Insurance Co.'s BeneClick! employee benefits exchange.
The advantages to employees are obvious: Kashable's loan program is available as an employer-sponsored voluntary benefit. Loans can be obtained online directly through Kashable without having to fill out forms or visit a bank. Employees are prequalified for credit, based on their employment, and the amount of credit they qualify for is based on their ability to repay. And the interest rates are certainly cheaper than payday loans: rates start at 6% APR with a 6- to 12-month term.
But loans from retirement plans often charge the prime rate plus 1% interest—and then there's the tax penalty should an employee change jobs and simply not pay back the loan. Add to that the lost opportunity cost of pulling money out of investments—often early in a career, when money may be tighter but the value of compounding is high—and the lower interest rate may prove to be the least of the costs involved in a retirement plan loan.
Adding Kashable's credit service to BeneClick! is aimed at tackling one of the biggest sources of stress in the workplace: personal financial issues. The 2015 MassMutual Employee Benefits Security study found that 37% of workers find managing their personal finances “somewhat” or “very difficult” and 40% say personal financial problems are a distraction at work.
BeneClick!, powered by Maxwell Health's benefits technology platform, is an integrated employee benefits exchange that integrates MassMutual's MapMyBenefits tool to help employees prioritize retirement savings, health care, and insurance protection benefits based on their individual life stages.
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