HCE took a loan from his profit sharing plan in prior year.
Now he wants to repay the loan in part by transferring an investment into the plan.
Is that allowed?
He wants to use an investment in a limited partnership.

Thanks for any guidance on this!

General rule: no contributions of property to a PENSION plan. That's a prohibited transaction. General rule for a PROFIT SHARING plan - discretionary contributions of unencumbered property are allowed.

Your question gets dicey, and I'd recommend seeking the advice of ERISA counsel before doing it. Is repaying a loan considered a discretionary contribution? I believe Morrissey v. Commissioner said no, it would be a prohibited transaction, but I don't recall if that applies only to pension plans, or if it applies equally to profit sharing plans. Someone else here on these boards probably does remember.

See DOL regulation 2509.94-3 and IRC 4975(f)(3) for some background.

Even if you determine that it is allowed, unless it is a widely traded limited partnership, it is going to be difficult to value. It may also be difficult to liquidate, should that become necessary. Limited partnerships in retirement plans tend to cause problems.

Don't do it, period. This would be a a PT (if for no other reason than that the participant's obligation is a specific, established obligation, much like the corporation's obligation in a pension plan).

Besides, there's the issue of whether others (i.e., NHCEs) are permitted under the Plan to invest in (i.e., hold for their account) limited partnerships. And then, as K2 indicated, limited partnerships and qualified plans do not mix well.

Lots of reasons to steer clear.