Spousal Consent

[Guest Thornton]

A profit sharing plan without QJSA does not require spoual consent for a participant loan. If a participant borrows 50% of his or her account balance without spousal consent and secures it solely with the account balance, is the loan inadequately secured? Also, even though spousal consent may not be required, do state community/marital property laws still require consent, or are they preempted by ERISA? Thanks.

[Guest rdrenfro]

Generally, the answer to your question whether state community property or marital property laws with respect to requiring spousal consent to otherwise acceptable plan practices would be preempted by ERISA is probably. ERISA section 514 preempts all state law insofar as they relate to an employee benefit plan covered by ERISA. Having stated that general rule, you should be aware that the courts are in the process of reevaluating the scope of ERISA preemption. So what was once clearly preempted, such may not be the case in the near future where the state law's connection to the ERISA plan is too tenous to be within the purview of congressional intent. Moreover, under your example, if the participant borrows up to 50% of his/her "vested" interest in the plan, and pledges the remain 50% as collateral securing its repayment, the loan more likely than not be deemed adequately secured. Some argue, however, if the participant is not otherwise entitled to a distribution of the entire vested benefit at the time of the making of the loan, it may be an unlawful use of a participant's accrued benefit. Hope this helps.