Exempt Loan Status

[Oh so SIMPLE]

I'm hoping someone here has done something like what I'm facing, or can give me some good suggestions at least.

A small bank has a 401k plan for its employees. It also has IRAs of customers. Some of the customers' IRAs hold stock in the bank. The bank converted to be an S corporation. That caused UBTI to the IRAs. So the bank's 401k plan purchases the bank stock from the customers' IRAs. To do so, the bank lent its 401k plan $2,100,000 without taking any security. The TPA is telling the bank that the loan needs to be secured to be exempt from prohibited transaction rules. According to the TPA, the loan can be securitized now and 'cure' the problematic loan.

This is outside my experience, and am hoping for any direction that anyone can give me.

[rcline46]

Get an ERISA attorney NOW. It looks like the plan was converted into an ESOP or KSOP. Something smells in Denmark (to quote the Bard). I see fair market value problems with the purchase, more than 10% of employer money invested in corporate (and non-liquid) assets, to many S corp owners on the conversion.......