Loan program violation, 2 loans issued

[Guest Pension Girl]

We have an ERISA 403b plan that issued a second loan to a participant while only one loan is authorized under the terms of the plan. How do we correct this defect? I do not believe 403b plans are subject to the Code's prohibited transaction rules and excise tax penalties under 4975, but ERISA prohibited transaction rules apply. However, what does ERISA violation do, other than make plan vulnerable if there is a DOL audit? But there has been an unauthorized distribution under the terms of the plan which could cause plan disqualification and ERISA prohib. transaction violation too. So to correct you try to recoup money from participant, and if no success, can plan sponsor repay the amount to a forfeiture account to make the plan whole and undo the prohib. transaction? And then 1099 the participant for the distribution? Thanks for any comments you may have!