Participant Loans/Credit Cards

[austin3515]

I've read a couple of articles on the final participant loan regulations and they seem to mention something about "credit card loans." Unfortunately, they assume the reader knows the what the heck they're talking about, and I have no clue.

What is this reference about?

[mbozek]

Some vendors/tpa have proposed that instant loans be issued in a manner similar to cash distributions from an ATM at a worksite location or by providing participants with a credit card which could activate a loan from an ATM.

[austin3515]

That's AWESOME!

I gotta get one of those!

[R. Butler]

That would be an absolute nightmare.

[austin3515]

I wouldn't want to administer it, but I would like to have it as a participant...

[Brian Gallagher]

I can see where the govn't might like the idea. Now more people will take lons from their 401k plan, change jobs and have the loans deemed. More tax revenue at a higher rate (as opposed to taking it out in retirement).

[MGB]

From a national retirement policy standpoint, this is ridiculous. Anyone promoting such cards should be banned from the retirement arena. The high probability of more leakage from the already gruesome outlook of national retirement savings makes me ill.

[Mike Preston]

I understand your ire, MGB, but I've seen some writeups that say the encouraging factors associated with this sort of access will actually increase retirement savings. Remember, the repayments go to the participant's accounts and the interest rates are much lower than other types of credit cards, thereby decreasing the out of pocket expenses for maintaining a credit card balance.

Now, I'm not saying that I am endorsing them in all circumstances, but I think we won't know the impact until they have some sort of critical mass. And that may never happen.

[R. Butler]

I agree with MGB, this is bad idea. Just an example, we have had three people today wanting a loan or some kind of distribution for Christmas. I am not complaining, but it is sad that we feel the need to sacrifice retirement security for a gift. A lot of the people that borrow, won't pay back they will just default.

Also from an administrative standpoint I can't see how this would be done withhout creating a fairly heavy burden on the sponsor.

[Brian Gallagher]

i disagree that it would increase retirement savings. it COULD increase participation.

in these days with turnover at record rates, a lot of these loans are becoming deemed as distributions, or these people have to come up with a lot of cash to pay the loan off.

loans do have a purpose in retirement plans, but giving people such easy access to their money is a recipe for disaster. if these people had to go through their plan administrator to get the loan, they might more fully understand the potenetial tax ramifications. or even if they went thru the internet, there would be something on there about it.

[Guest MaryMac]

At the firm I used to work at, we joked about our clients that allowed so many loans that we might as well just issue ATM cards with the SPD. So ironic to see that our joke is becoming a reality.