Friday May 9

County considers allowing retirement fund loans

Experts caution against borrowing from accounts

By Shaun Bishop / Daily News Staff Writer

To help its employees through financial hardships, San Mateo County soon may allow them to borrow from their deferred compensation accounts.

A human resources committee met Thursday to discuss a program that would let workers take up to 50 percent or $50,000 - whichever is larger - from their retirement accounts for a fixed period.

County Supervisor Adrienne Tissier said she got the idea for the program from an anonymous note suggesting the loans be obtainable from the county's two providers - The Hartford and Nationwide Financial.

Such loans can be used for any purpose but must be paid back in five years with a prime interest rate plus 1 percent. Loans used to make payments for a primary residence wouldn't have to be repaid for 20 years, said Human Resources Director Donna Vaillancourt.

If a loan isn't repaid, however, the employee would face tax penalties on the balance, she said.

Vaillancourt noted that employees will be warned about the pitfalls of dipping into the accounts unnecessarily.

"We wouldn't recommend that anybody do this," she said. "We think that this should be a tool to overcome a financial challenge."

Vaillaincourt said the program likely will go to the San Mateo County Board of Supervisors in June for approval.

Tissier pressed for an urgent adoption of the program so people with hardships - such as falling behind on mortgage payments - can get some immediate relief. Similar options exist for employees of Alameda and Santa Clara counties, according to Tissier's office.

"In an area with such high living costs, it takes very little for a family to suddenly find itself having to prioritize among food, gas and the monthly mortgage," Tissier said in a written statement. "Plus, this is money the employee has already earned. The loan is just a different form of access."

Santa Clara County's program has been well-received since it started in 2005, said Luke Leung, a deputy county executive. He said 793 employees out of about 8,000 with deferred compensation accounts took out loans last year.

Still, financial advisors generally counsel against withdrawing retirement funds prematurely, said Mike Cianfrocca, a spokesman for Charles Schwab.

"It's almost always a bad idea," Cianfrocca said.

Anyone who considers taking a loan from deferred compensation accounts should have a long-term plan for how to pay it back, Cianfrocca said.

Vaillancourt said the county will include a "significant education piece about what the implications are" of taking out the loans.

Currently, employees have the option of making a "hardship withdrawal" from their accounts under very specific circumstances, including imminent foreclosure or eviction.

"The problem with that is they're already on the brink of losing their home," Vaillancourt said.



E-mail Shaun Bishop at sbishop@dailynewsgroup.com.