VFC Program---available to correct problems with participant loans?

[Guest Sandi Russell]

One of the transactions available for correction under the VFC Program is for loans made at a fair market interest rate to a party in interest. Assume that a plan has made loans to a participant, but that the loans were not made in accordance with the plan document. That would be a qualification failure. However, it also appears that this loan would not qualify for the prohibited transaction exemption for participant loans because the loan was not made in accordance with the plan document. Please note that ERISA Section 408(b)(1)© states that, to be exempt, the participant loan "must be made in accordance with specific provisions regarding such loans set forth in the plan". As a result, it would appear that a participant loan not made in accordance with the provisions of the plan would be a prohibited transaction (since it does not satisfy the requirements to be exempt). Can you use the VFC Program to correct this prohibited transaction? Thanks for any help you can provide.

[Alf]

I can't say for sure that I understand your question, but I assume that any fiducary breach or prohibited transaction would always contravene the plan document. It shouldn't itself be a defect you have to correct. Now, I don't understand the error you are calling a prohibited transcation, so I may not get your point in the first place. It is not a qualification defect or prohibited transaction to make loans at a fair market interest rate to a party in interest, is it?