ERISA Preemption

[austin3515]

http://www.napa-net.org/News/Browse-Topics/Inside-NAPA/Article/ArticleID/3389

Take a look at thus article. How in the heck would ERISA pre-emption NOT apply?

[QDROphile]

Whether or not a state law of general applicability "relates to" a plan has been a troublesome question.

[david rigby]

Litigation to follow. Maybe.

[MoJo]

This law has been around a long time. When I worked for a large bundled recordkeeping shop, all FL loans were handled separately from the rest.

I think preemption simply doesn't apply as it doesn't affect an ERISA right. A "tax" on a loan doesn't mean you can't take the loan anymore than a loan origination fee or any distribution fee affects loans or distributions.

Just because it touches a retirement plan doesn't mean it's "preempted" by ERISA. If that were a case, then state and local taxes on deferrals and/or distributions would be preempted as well (and I'd argue for that!).

[austin3515]

Here is the next question: how many plan sponsors / service providers actually do this?

[jpod]

Who is the tax imposed on? The lender or the borrower? If it is the lender (i.e., the plan), I would think that any attempt to collect the tax would be unenforceable on preemption grounds, in which case you are then left merely with the theoretical issue of the "loan" not truly being a loan and therefore a taxable distribution, or a prohibited transaction, or both.

[Belgarath]

I find it hard to believe that the IRS or DOL would assert prohibited transaction status if there's no stamp tax paid. Seems like quite a stretch.

[MoJo]

The tax is actually a tax levied on the borrower. Remember, for a loan to be valid under ERISA it must be enforceable UNDER STATE LAW. In Florida, only those loans with "stamps" affixed are actually enforceable.

Austin: In answer to your question about how many service providers do this? Don't know, but Schwab, Wells Fargo and NYLIM do.

[austin3515]

If I were a judge, I would strike this down with the following logic: It is just plain stupid. And that sound logic, combined with practicality, should get me a post on the Supreme Court.

[GMK]

Hey, the States need money.

And from the editorial desk, the just plain stupid part is loans from retirement plans.

[austin3515]

Oh well that's not really fair.

[My 2 cents]

The money is supposed to provide financial support after the person stops working. it is not supposed to sit there as a savings account with extra, awkward rules. That said, human nature being what it is, it would be that much harder to get people to set the money aside in the first place if the rules against pre-retirement access were substantially stricter.

My vote is for preemption because the administrators of the plans shouldn't really have to keep track of several dozen sets of laws. But then, many of the states have special rules for reporting and taxation of death distributions, and (one presumes) the administrators are able to deal with them.

[austin3515]

That said, human nature being what it is

Again, unfair. People are victims of circumstance more often than you give them credit for...

[MoJo]

"enforceable under applicable law (i.e state law) means yes, they have to track the differences in state laws. And many already do so for distribution taxation AND deferral taxation. AND, anyone with employees in variety of other laws they have to contend with. The simple answer is to offer loans....

Austin: Your logic would put you at the top of the heap in the current SCOTUS (says one whose right to cast a vote AFTER work hours were shut down by the Court YESTERDAY)

[GMK]

Human nature being what it is, you get high participation mainly by offering a health match. Doing auto enrollment with an opt-out, rather than an opt-in, helps, as does giving one-on-one pre-enrollment education about how the plan works.

Fair enough, you can't always control the circumstances. But your attitude is your choice.