Interest Rate on Plan Loans

[Guest At Peace]

We have a take-over plan that, in past years, allowed participants to have loans amortized at 3%, with the exception of one participant who had 6%. There was not a loan policy on file.

First question: If all participants are allowed loans at less than prime, is that O.K? Can that be written into a loan policy?

Second queston: How to correct the person with 6%? Assumably, should be at 3% which is what everyone else got. Refinance balance, or redo schedule completely and apply payments already made?

My understanding is that the rate of interest must be comparable with area practice (banks, etc.). Does anyone have a reference that provides guidance on this issue?

Thanks so much for your help!

[Guest Kevin A. Wiggins]

Look at Sections 2550.408b-1(b) and (e) of the ERISA regulations. You may have a prohibited transaction.