The Reserve, the company that created the money market fund to aid consumers in savings, ironically launched recently ReservePlus, which administers 401(k) loans through debit cards.

Although Bill McClain, a principal in the defined contribution practice at Mercer, believes "most 401(k) people would say, Are you kidding?' to this kind of plan," Kyle Brown, retirement council for Watson Wyatt, sees both positives and negatives.

"This is a tool," he says. "Just like a hammer can be used to build a house or smash your finger, you really have to trust folks that they're using this hammer' to build their retirement savings, not to smash it."

According to IRS rules, if the participant has had no other plan loan in the 12-month period ending the day before application, they are allowed to borrow 50% of their vested account balance, or a maximum of $50,000. If the participant had another loan within the 12-month period, they are generally limited to 50% of their account balance (minus the outstanding loan balance) or $50,000 (minus the outstanding balance) in the preceding 12-month period, whichever is less.

If a plan already allows loans, there might not be any restriction on what a person can buy with the funds. A plasma TV? New shoes? Lattes from Starbucks? All are fair game, although the most common expenses involve medical bills, college tuition and funds to purchase a home. However, if participants are given a debit card that works similarly to ones they use for everyday purchases, their attitudes and habits may shift.

Although a similar concept was attempted nearly a decade before by Banc One, through a credit program with Visa cards, but it never fully got off the ground, in part due to a move by then-Representative Charles Schumer of New York to restrict such cards.

Regardless of whether the program is a good idea for participants, director of ReservePlus' current program, David Young, doesn't fear any legal issues. "Our program is completely compliant with the rules [for loans from] qualified plans," he says.

Loans made painless with plastic

Despite plan sponsors' understandable concerns about a debit loan progam, Barry Kublin, president of BPA-Harbridge, who has made ReservePlus available to over 150,000 participants in 1,400 plans over the past two-and-a-half years, says that loan repayment is 110% faster than those made by traditional loan methods. He estimates that his company's use of ReservePlus loans has been in the thousands.

ReservePlus' debit card program also features three additional characteristics that are appealing to both employers and participants. Unlike with a traditional plan loan, the loan is made portable by outsourcing administration and eliminating payroll deduction. Because repayment isn't done through payroll deduction, which only allows for a standard monthly repayment, participants may actually repay the loan faster because they are able, when able, to add additional funds to the repayment at will.

Additionally, plan sponsors no longer have the hassle of dealing with an amortization schedule, and incur no annual fee for the program - ReservePlus generates income by keeping a percentage of the interest on loan repayments from participants.

Lastly, an important difference between traditional repayment and a debit program involves how the money is removed. With traditional loans, as well as with the original "credit card" scheme, the entire loan amount is liquidated immediately upon approval, meaning the plan participant loses interest accruals on the amount of the loan.

With the debit card program, the entire loan amount is merely moved to a money market or other stable account, and funds are made available per purchase, with interest generated from the principal loan amount being returned to the remaining 401(k) balance daily.

Once approved, participants can also increase their credit line to an employer-determined amount through a simple online process, reducing the need to take out a potentially larger loan amount than necessary. On average, Young says, ReservePlus participants borrow 35% less over time.

In addition to increased ease of use, some experts say the availability of a loan actually makes participants - particularly younger participants - more likely to enroll in and contribute to their 401(k) plan.

"Everybody in the industry is focused on increasing participation rates," Young says, calling ReservePlus "a logical solution to an archaic process."

Kublin agrees. "I see this as just another trend in empowerment in DC plans," he says. "I'm not disagreeing that this may be inappropriate for certain groups of employees, but ... the people [resisting this kind of program] are fighting the tide of technology."