Loan fee as % of loan amount

[Guest Calimayhew]

I have a plan that has been using the same interest rate for years... it has never changed. In addition, half of the amount being paid as interest is going to the Plan Administrator as a loan fee. (Example: a $10,000 loan repayable over 5 years at an interest rate of 10%. Total interest over the loan is $2748.20. So, loan fees are 1374.10 - just under $275 a year). [Please forgive my math if it's not accurate... you get the idea, though]

1. I'm concerned that the loan fees are too high for the administration of the loan and that the Plan Administrator cannot substantiate the cost, leading to a prohibited transaction.

2. I'm concerned that the interest rate never changing will result in a prohibited transaction.

Any thoughts out there?

[Mike Preston]

10% is too high in today's economy. Never heard of a loan fee being 50% of loan interest. Interesting concept. Can I be the administrator on all $50,000 loans? Or is there a cap?