Dear Banker, Aren’t 401Ks Protected Assets?
Dear Banker,
OK, here is the third rail–a defaulting borrower’s 401k and a protected IRA.
The bank looks at these and frequently expects the borrower in default to willingly cash them in and hand the money over, even sometimes refusing to allow the borrower to retain enough to pay the penalties and taxes. It is my sincere belief that this is way out of bounds and should not be part of the bank’s liquidation objective. Yet, bankers do this all the time believing they are serving the bank’s purpose.
Congress determined that these assets were not to be vulnerable to the collection process. They were intended to be out of reach, protected is the word, available only for retirement, not available to be reached by creditors, secured or otherwise. Doesn’t this also mean that the bank has no right to demand the borrower to liquidate it themselves and “voluntarily” turn it over?
When a banker suggests, or outright states, that they will not cooperate with an Offer In Compromise in an SBA guaranteed loan unless the borrower in default liquidates his 401k, isn’t this in direct opposition to the purpose that Congress granted in protecting these accounts? I believe so, yet we encounter this assault on these funds all the time. Frankly, it is not good banking practice. There must be some level of integrity in the system and it must be self-regulated. There must be an understanding that some collection procedures ought not be done. Regardless, this tactic is frequently exploited, sometimes subtly, sometimes overtly. There needs to be a modicum of fair play, doing what is right not just collecting anything and any way, and this is where self regulation, self control, is needed .
I have witnessed abuse to this principle even with the ‘little old lady’ who has nothing else in the world and who guaranteed her child’s loan, and then when in default being intimidated by the bank into liquidating her 401k so the bank could get a few more dollars. This is shameful and the banks must show some restraint here. It is not the right thing to do.
Respecting these protected assets is the right thing to do.
