I made a personal loan to an employee, and then she quit. Can I withdraw the funds from her retirement plan account?
Q: A longtime employee from my practice was suffering because her husband was laid off and they began falling behind on their mortgage. I agreed to loan her $7,000 from my practice and intended to withdraw repayment from future payroll. Shortly after the loan, however, she quit, so now I would like to take the balance from her retirement plan account. Can I withdraw the money?
A: Retirement plan assets are generally exempt from the claims of creditors, including you. Unless you can convince her to borrow from her plan and pay you with the loan proceeds, you are likely stuck. You made a personal loan and are an unsecured creditor. Although you may be the trustee of the plan, it is illegal for you to remove funds to repay her private debt to you. Any time you loan money to an employee, you must assume the risk that you will not be repaid, as the retirement plan is not security for repayment.