Plan Loans - Participant Reaction to Elimination

[Guest jkirschbaum]

Does anyone have any experience with a 401(k) plan that has eliminated plan loan availability?

I am curious as to what you think would be the reaction if we eliminated plan loans - but adopted a safe harbor plan with the safe harbor match and a discretionary profit sharing contribution. Our current design has a match and profit sharing - together in the last few years if participants contributed 4% they would get about 7% in employer contributions to the plan.

If we went with a safe harbor match, old participants would not care too much about the immediate vesting - would they give much credence to the guaranteed 4%? How about if we added, at the same time, some type of broad-based stock plan - like an ESOP or maybe stock options for all employees? We'll keep hardship distributions available so in a real pinch they can get something.

With a safe harbor we obviously don't need to entice people to participate (although we do want them to) and the loans are just a bear to administer and are the source of lots of complaints (besides being a stupid thing to do - but if people want to do it - its their decision). Besides the screams from the few who abuse the program - how negatively would this be perceived?