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The right of the employee to end 401(k) loan repayment withholding
Andrew & Ellen:
I wish you well in the battle, but every client I have had facing the same situation, their employer has taken the same position as the County of
Ventura. They maintain that the plan language does not allow an employee to
default on payments while an employee continues receiving paychecks. If
they quit they can default or if they are on some sort of unpaid leave they
can default. I never understood how the The Ninth Circuit in Egebjerg
magically came to the conclusion that Egebjerg could voluntarily chose to default
on the 401-k loan payments. Perhaps his particular plan allowed that
option without ending his employment. but I really see no analysis to support
that conclusion. Perhaps this was covered in the briefs in Egebjerg. Regardless, even if Egebjerg's particular plan allowed for voluntarily
defaulting on 401-k loan payments while still employed, the 9th Circuit's decision
seems oblivious to the way 401-k loans are treated by most employer plans:They are in fact mandatory payroll deductions as long as employees receivea paycheck. On that basis I have always found Egebjerg poorly reasoned. That said however, I'm not sure the Egebjerg opinion ultimately would havebeen any different even if the 9th Circuit had realized employees would
generally not have an option to voluntarily terminate 401-k loan payroll
deductions.
The consequences of the Egebjerg holding very much leave debtors, like
yours, between a rock and a hard place. At least yours was still eligible for
the Chapter 7 and able to receive a discharge. Small countenance when
there still is not enough money in the paycheck to live on.
Mark T. Jessee
Law Offices of Mark T. Jessee
"A Debt Relief Agency"
50 W. Hillcrest Drive, Suite 200
Thousand Oaks, CA 91360
(805) 497-5868 (805) 497-5864 (Facsimile)
NOTICE TO RECIPIENT: THIS E-MAIL IS MEANT FOR ONLY THE INTENDED RECIPIENTOF THE TRANSMISSION, AND THIS COMMUNICATION IS INTENDED TO BE PRIVILEGED BY
LAW. IF YOU RECEIVED THIS E-MAIL IN ERROR, ANY REVIEW, USE, DISSEMINATION,DISTRIBUTION, OR COPYING OF THIS E-MAIL IS STRICTLY PROHIBITED. PLEASE
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In a message dated 3/4/2016 8:47:42 A.M. Pacific Standard Time,
cdcbaa@yahoogroups.com writes:
I am in need of help on a factual survey of our collective knowledge to
support (or not support) an adversary action in which I represent the debtor.
The issue is that the debtor, after his Chapter 7 bankruptcy, instructedhis employer to stop withholding his 401(k) loan payments. He did not
discharge them. He did not seek to use the stay to stop the deductions.
The Ninth Circuit has prohibited the deduction of "mandatory" 401(k) loan payments on the means test (as a way to qualify for a Chapter 13) because
the Ninth Circuit found as a matter of fact that California employees have an
absolute right to tell their employers to stop withholding 401(k)
payments and simply take the tax and saving hit.
The case is In re Egebjerg.
I have a very specific question. The County of Ventura is taking the
following position:
&q uot;[This] action can be resolved by answering a single legal question- does an employee have the right to compel his employer to stop deducting401 (k) plan loan payments from his bi-weekly paycheck. The answer to thatsingle question is no. Neither federal law nor the documents that governthe County's 401(k) plan and loans thereunder ("plan documents") allow the
cessation of bi-weekly payroll deductions for repayment of a 401(k) plan
loan in these circumstances."
Basically, they are saying it is just against Federal law, period, to do
what the Ninth Circuit said every person can do. To make matter worse, iffolks cannot do this, Egebjerg makes no sense.
Does anyone have any information on whether it is illegal, as a matter ofFederal law, for an employer to honor an employee's instruction to stop
withholding 401(k) loan payments? I am looking for anecdotal examples, with
some pointers, to anyone who knows of any company that has allowed this. I
think it is beyond obvious that employees have the right to default. Evenmore do they have the right to demand an end to withholding. But specificexamples or counter-examples would help.
If interested, more information is _here_
(http://www.mcpcla%20wfirm.com/401k-loans-and-bankruptcy) .
Andrew Mansfield
Andrew & Ellen:
I wish you well in the battle, but every client I have had facing the same
situation, their employer has taken the same position as the County of
Ventura. They maintain that the plan language does not allow an employee
to default on payments while an employee continues receiving
paychecks. If they quit they can default or if they are on some sort of
unpaid leave they can default. I never understood how the The Ninth
Circuit in Egebjerg magically came to the conclusion that Egebjerg could
voluntarily chose to default on the 401-k loan
payments. Perhaps his particular plan allowed that optionwithout ending his employment. but I really see no analysis to support that
conclusion. Perhaps this was covered in the briefs in
Egebjerg. Regardless, even if Egebjerg's particular plan allowed
for voluntarily defaulting on 401-k loan payments while still employed, the 9th
Circuit's decision seems oblivious to the way 401-k loans are treated by most
employer plans: They are in fact mandatory payroll deductions as longas employees receive a paycheck. On that basis I have always found
Egebjerg poorly reasoned. That said however, I'm not sure
the Egebjerg opinion ultimately would have been any different even
if the 9th Circuit had realized employees would generally not have an
option to voluntarily terminate 401-k loan payroll deductions.
The consequences of the Egebjerg holding very much leave
debtors, like yours, between a rock and a hard place. At least yours was
still eligible for the Chapter 7 and able to receive a discharge. Small
countenance when there still is not enough money in the paycheck to live
on.
Mark T.
JesseeLaw Offices of Mark T. Jessee"A Debt Relief Agency"50 W.Hillcrest Drive, Suite 200Thousand Oaks, CA 91360(805) 497-5868 (805)
497-5864 (Facsimile)NOTICE TO RECIPIENT: THIS E-MAIL IS MEANT FOR ONLY
THE INTENDED RECIPIENT OF THE TRANSMISSION, AND THIS COMMUNICATION IS INTENDED
TO BE PRIVILEGED BY LAW. IF YOU RECEIVED THIS E-MAIL IN ERROR, ANY REVIEW, USE,
DISSEMINATION, DISTRIBUTION, OR COPYING OF THIS E-MAIL IS STRICTLY PROHIBITED.
PLEASE NOTIFY US IMMEDIATELY OF THE ERROR BY RETURN E-MAIL AND PLEASE DELETE
THIS MESSAGE FROM YOUR SYSTEM. THANK YOU IN ADVANCE FOR YOUR COOPERATION
In a message dated 3/4/2016 8:47:42 A.M. Pacific Standard Time,
cdcbaa@yahoogroups.com writes:
I am in need of help on a factual survey of our collective knowledge
to support (or not support) an adversary action in which I represent the debtor. The issue is that the debtor, after his Chapter 7 bankruptcy,
instructed his employer to stop withholding his 401(k) loan payments. He
did not discharge them. He did not seek to use the stay to stop the deductions.
The Ninth Circuit has prohibited the deduction of "mandatory" 401(k) loan
payments on the means test (as a way to qualify for a Chapter 13) because the
Ninth Circuit found as a matter of fact that California employees have an absolute right to tell their employers to stop withholding 401(k)
payments and simply take the tax and saving hit.
The case is In re Egebjerg.
I have a very specific question. The County of Ventura is taking the
following position:
&q uot;[This] action can be resolved by answering a single legal
question - does an employee have the
right to compel his employer to stop deducting 401 (k) plan loan payments from his bi-weekly
paycheck. The answer to that single
question is no. Neither federal
law nor the documents that govern the County's 401(k) plan and
loans thereunder ("plan documents") allow the cessation of
bi-weekly payroll deductions for repayment of a 401(k) plan loan in these
circumstances."
Basically, they are saying it is just
against Federal law, period, to do what the Ninth Circuit said every person
can do. To make matter worse, if folks cannot do this, Egebjerg makes no
sense.
Does anyone have any information on
whether it is illegal, as a matter of Federal law, for an employer to honor an
employee's instruction to stop withholding 401(k) loan payments? I am
looking for anecdotal examples, with some pointers, to anyone who knows of any
company that has allowed this. I think it is beyond obvious that
employees have the right to default. Even more do they have the right to
demand an end to withholding. But specific examples or counter-examples would
help.
If interested, more information is here.
Andrew Mansfield
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