Benefits & ERISA Law

Loans from Qualified Plans Generating Unprecedented Buzz

By Suzanne Wynn

With the economy headed south, or already at rock bottom, depending upon where you live, it is not surprising that participants are borrowing from their retirement plans. What is surprising is the amount of buzz suddenly appearing in the popular media on this topic. Since most of the public seems to actively ignore ERISA unless they are divorcing, retiring, or changing jobs, I was a little surprised to see articles about plan loans in both the Washington Post and the New York Times over the weekend.

In the Washington Post on Sunday, reporter Michelle Singletary writes about Raiding the Retirement Stash, discussing the variety of issues regarding participants borrowing from their 401(k) plans. In that article, Ms. Singletary mentions both a recommendation from the Pension Rights Center that loans should be prohibited by Congress as well as a study by the Center for American Progress finding that participants are borrowing from their 401(k) plans as the only stash of cash they have access to when they have reached rock bottom.

In the New York Times on Saturday, reporter Ron Lieber wrote about New Proposed Legislation on 401(k) Debit Cards. In his article, he publishes conversations he had with both Senator Charles Schumer (D. NY) and the founder and chairman of Reserve Solution’s parent company, The Reserve. Reserve Solution’s is the company offering debit cards to participants so they can access their 401(k) loan via ATMs or merchants who accept Visa. Senator Shumer is the sponsor of S.3278, the bill to amend the Internal Revenue Code to prohibit loans from qualified plans using a credit card or other intermediary which he introduced on July 17, 2008.

Senator Schumer’s comments in the New York Times that participants and beneficiaries should be prohibited from having debit card access to their plan loans because 401(k) plans should be not available for impulse spending makes me wonder if Senator Schumer read the Washington Post on Sunday.

Full post as published by Pension Protection Act Blog on July 21, 2008 (boomark / email).