Loan Repayments

[Guest Serena]

Would payroll deduction loan repayments cause a non ERISA voluntary 403(b) plan to become ERISA? I believe many non ERISA plans use repayment by check or "home" billing method, but does anyone have thoughts about payroll deduction?

Thanks!

[TLGeer]

Would payroll deduction loan repayments cause a non ERISA voluntary 403(b) plan to become ERISA? I believe many non ERISA plans use repayment by check or "home" billing method, but does anyone have thoughts about payroll deduction?

Thanks!

Good question. FAB 2010-01 is silent on the issue. The DOL Regulation allows: "Collecting annuity or custodial account considerations as required by salary reduction agreements or by agreements to forego salary increases, remitting such considerations to annuity contractors and maintaining records of such considerations." FAB 2007-02 bars the employer, specifically, from "enforcement of loans," on the theory that this involves discretionary determinations.

I take "considerations" to mean "contributions," but there may be wiggle room here. I certainly would not require it in the plan document or by administrative fiat, but an aggressive employer might allow revocable withholding arrangements.

Tom Geer

[Guest Serena]

Thanks Tom.

Can you clarify what you are referring to when you say "revocable withholding arrangements" - do you mean loan repayments that start out via payroll deduction but the participant can elect to be billed instead?

[TLGeer]

Thanks Tom.

Can you clarify what you are referring to when you say "revocable withholding arrangements" - do you mean loan repayments that start out via payroll deduction but the participant can elect to be billed instead?

Yes. Or perhaps just to revoke the payroll withholding, whatever effect that might have on the loan. This is a moderately aggressive position, so bear that in mind.