Magazine article American Banker

Debit Card Link to 401(k) Touted in Face of Attack

Magazine article American Banker

Debit Card Link to 401(k) Touted in Face of Attack

Article excerpt

Byline: Maria Aspan

Bruce R. Bent, the founder and chairman of Reserve Management Corp., defended his company's debit cards linked to 401(k) plans Thursday by saying that they encourage employees to sign up for the retirement accounts and that they reduce the dollar amount of loans taken out against them.

On Wednesday, Sen. Herb Kohl, D-Wis., and Sen. Charles Schumer, D-N.Y., introduced legislation to ban such cards and limit the number of loans 401(k) participants can take out against their accounts.

Mr. Bent said in an interview that his card "program is extremely helpful to attracting lower-income and younger people into the 401(k) plans" and enabling them to "contribute more amounts because they have access to their funds."

"If they use our program, the money stays within the program until they absolutely need it, which is not the case with traditional loans" taken out against retirement accounts.

Reserve Solutions, the unit that runs the program, takes a 401(k) allocation into a money market account, which earns interest while being available for debit card withdrawals. For example, facing medical expenses totalling several thousand dollars, an account holder could pay smaller initial amounts with debit-card loans instead of taking out one loan up-front to cover the whole amount.

At a Senate hearing Wednesday, Sen. Kohl said 401(k) plans that offer such a card "send the message that it is OK to use your retirement savings for everyday purchases, despite the fact that the high fees associated with its use will drastically diminish savings."

Mr. Bent said the debit cards could be controlled to prevent frivolous spending. "What we can do is put filters that would prevent people from shopping at Starbucks or massage parlors" or from withdrawing more than a set amount at any one time from an automated teller machine. …

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