Prohibited Transaction

[Guest elang]

Small PSP plan and the owner has lent $30k to his son from the plan. Naturally I assumed this was a prohibited transaction; but was told that the so long as the loan falls within the loan guidelines for the participant himself, in this case the owner, that the loan is allowable. Can anybody verify this one way or another? Thanks

[QDROphile]

ERISA section 408(b)(1) is the usual exemption for plan loans to parties in interest and it is unlikely that the loan met the requirements. That may be where the "loan guidelines for the participant himself" suggestion comes from. A loan to the owner/participant could fit under the exemption, but the loan to a nonparticpant would not have the same required terms and would not follow the "loan guidelines" for a participant.

Assuming that the owner is a fiduciary, one would have to get around the ERISA section 406(b) proscriptions.

The loan is a prohibited transaction. The question becomes one of finding an exemption.

[masteff]

but was told

You were told by whom? What authority or relation does the person giving this legal advice have to the plan? (ie, was it someone who has the capacity to give a legal opinion on which you might reasonably rely?) If necessary, I'd put it back to them to provide a citation or source "so you'll have it for your files".