Discovery of "Non-record keeping" Loan to HCE - how to correct?

[Guest rfemmons]

Long story short: national tpa w/ standardized prototype plan sponsor is a small business. One of the owners have one loan that is kept by the tpa. He also has a second loan of about $30,000 amortized over 5 years w/ $400 monthly payment and a balloon payment at the end. Clearly not a qualified loan in fact appears to be an interest only loan. I am not sure why this second loan was ever granted. When I question the tpa, they state that they do not record keep that loan and need to get any information from the plan sponsor?

Question is: can this be corrected without the participant having to pay taxes short of repaying? can this loan be reamoritized? Also, doesn't the tpa have some culpability here?

[Belgarath]

The employer had better seek legal counsel. There are all kinds of potential problems here if it really is an impermissible loan - prohibited transactions, taxation, penalties, etc... - and I don't see an easy "fix" with no costs involved!

As far as TPA "culpability," that's a facts and circumstances issue for the attorneys as well. It would seem that if the TPA didn't know, and had no reason to know, that the TPA can't/shouldn't be held responsible. Impossible to say from this end.