Has anyone seen any authority for (or against) the proposition that a plan may, by its terms, require distributions to be made via direct deposit, where the participant or beneficiary has a checking account to which the direct deposit may be made? The anti-alienation regs permit direct deposits, but are vague as to whether a direct deposit must be initiated by the participant. I'm guessing state laws probably require the employee's consent to direct deposit, but I'm also guessing these state laws would be preempted (I think the DOL opined several years ago that state laws concerning wage withholding were preempted to the extent they would frustrate an ERISA plan's recoupment of plan loan repayments). Any thoughts on the permissibility of requiring that distributions be effected through direct deposit?

[This message has been edited by Ed F (edited 06-23-2000).]

I also am curious whether a governmental employer can requrie mandatory direct deposits of distributions even if the terms of the plan do not specify such and if the participant does not otherwise consent.

You're in a better place because, unless the plan provides otherwise, you're not subject to the 411 regs nor to ERISA's fiduciary duties. I can't recall whether you're even subject to the 401(a)(13) regs.

We concluded in the end that a private employer could not force a direct deposit.

This thread is very old and I'm wondering if anyone has any new thoughts on this question? I have heard recently of pension plans paying annuities requiring that retirees receive their benefit only via direct deposit. Social Security's recent decision to transition its entire population to mandatory direct deposit is also increasing interest in this. I agree with Ed F re: the background on this issue - no changes there re: the anti-alienation regs or the preemption issue (I believe that state laws otherwise prohibiting this would be preempted by ERISA if the plan required direct deposit).

In Michigan, we had a statute that prohibited mandatory direct deposit of wages but that was recently changed to allow for mandatory direct deposit provided the employee is given the choice in advance between a payroll debit card or direct deposit to an existing account. Presumably this was to eliminate concerns about employees who have no banking relationship and who would be forced to incur account charges if the employer forced them to open a bank account. The arrangement also must protect the earnings of the employee from garnishment as required by 15 USC 1673, to the same extent they would be exempt while held by the employer, which seems difficult to implement, but that's another discussion.

These protections that are required for wages in our state make me consider similar concerns in a mandatory direct deposit of pension payments. If we force the payment into a bank account that is subject to levy or garnishment, have we violated anti-alienation?