Participant loans

[rlb64]

Must a participant loan policy allow a participant to revoke payroll deductions for repayment and force it to go into default?

[E as in ERISA]

Many do because there are STATE law questions about whether they must be allowed to revoke it, etc.

[RCK]

We have employees living in 44 states plus DC. We use essentially the same promissory notes in all states (there are minor differences due to different plans). No one has the right to revoke their repayments--if they are being paid out of the payroll system, they have to make the loan payments. I don't know quite where the loan payments fit into the priority list, but if the pay was used up before we got to the loan repayment then we'd have to let it slide.

Our outside counsel is relatively conservative, so I'd be surprised if they put us in an aggressive position. I do not have a cite either way though.

[Guest mjb]

There have been numerous discussions of this issue in prior postings. The DOL position is that state labor laws requiring employees consent are preempted by ERISA. See Opinion 96-01 which cites prior opinions. The Supreme ct view is that state laws are preempted if they prevent uniform administration of a plan, Egelhoff v. Egelhoff, 532 US 141, which would result if employees could revoke loan repayments based on state laws. Section 361 of the Bankruptcy Reform Act provides that plan loans are not dischargeable debts in bankruptcy and the participant cannot stop repayment.