Guest MES Posted March 13, 2001 Posted March 13, 2001 A large 401(k)plan does not currently allow for loans, and does not intend to add a loan feature. (The plan is already a nightmare administratively with its hardship provisions.) A participant is in bankruptcy (since 1996). The Plan Administrator received a copy of a ruling on a motion to borrow money from the 401(k) plan from the bankruptcy court. The order approves the request to borrow from the 401(k). Does the plan have to allow the loan? If the plan is to allow the loan for this individual, doesn't it have to incorporate a loan policy and make loans to all participants on a reasonably equivalent basis? Does ERISA (and the plan's choice not to allow loans) pre-empt the bankruptcy court's order in this case?
KIP KRAUS Posted March 14, 2001 Posted March 14, 2001 MES: I’m not an attorney, but I love this one. If a QDRO can’t force a plan to provide benefits that are not normally provided by the plan I would apply the same logic in this case. Right or wrong I just wanted to put my two cents in. If this one goes down we might as well not have ERISA or IRS regulations.
Guest Benefits Maven Posted March 14, 2001 Posted March 14, 2001 I agree absolutely, Kip. No court order except a QDRO can supercede ERISA in a qualified plan. This does not keep the courts from trying now and again. If you have an ERISA attorney, I would advise you have him draft a response to the court that issued the order citing the specific laws in question here. Under no circumstances can you issue a loan from a plan without a loan provision.
MoJo Posted March 14, 2001 Posted March 14, 2001 I think the clear answer is no, the bankruptcy court can't do anything the plan doesn't provide for, nor can it cause the plan to violate ERISA. But.... That said, the court could probably force the company to amend the plan to provide for loans - if its consistent with the Code and ERISA (ie, in the best intersts of the plan and the participants, provided on a relatively equal basis, yada yada yada). It would be an extraordinary step, but possible. Also keep in mind, under ERISA you may be able to refuse to comply with the order, but the order is the order of a judge, and they take those things personally. Pack your toothbrush when you appear to show cause why you shouldn't be held in contempt.... ;-)
KIP KRAUS Posted March 14, 2001 Posted March 14, 2001 Very funny MoJo, but I don’t think one would have to be nasty about refusing to comply with the order. Simply put, you tell the judge that it would be a violation under ERISA for you to comply with the order.
MoJo Posted March 14, 2001 Posted March 14, 2001 Been there, done that (very politely, I might add) and still threatened with jail. Depends on the judge!
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