Loan taken which exceeds borrowing limitation

A doctor called requesting a loan, without saying how much.  I sent a blank application.  I mentioned in the email to complete, return, we would review, get Trustee authorization and direct Merrill to issue a check (the doctor has a plan brokerage account.)  This doctor is one of many doctors and only those on the Executive Committee serve as trustee and he is not one.  He completed the application and just gave it to Merrill who issued a check for $20,000 which is $16,000 over his borrowing limit due to the 12-month lookback rule. 

I emailed him today and the Practice Administrator saying he must pay back the excess right away.  If he refuses to pay, the plan provides for hardship distribution and he could self-certify hardship eligibility.  In-service distributions are not available at his age. But if he will not complete the hardship form, then we have an uncorrected prohibited transaction.  I'm guessing just issuing a 1099 as taxable for 2023 will not solve this problem.   I thought about the group withholding $16,000 from an upcoming bonus but I doubt that is legal to withhold from pay without consent.

The doctor seems very reasonable from past dealings so my hope is he will quickly pay it back but I question his ability despite a high income as he borrowed $50,000 not long ago and I suspect something is going on like a divorce.  This just happened within the last 2 weeks.  So maybe not yet spent.

Comments are appreciated as always.

You're correct that the fix for this is to have the participant repay the amount that was in excess of the available limit, with accrued interest.

However, the bigger question to me is why did the brokerage house accept direction from an individual who is not a trustee?

If you can post here the broker-dealer’s agreement—redacting names, and without breaking the participant’s, the plan administrator’s, and any trustee’s privacy,

we might learn something about instructions the agreement permits the broker-dealer to rely on: from which person, and for which transaction.