401(k) is Primary Beneficiary on a whole life policy

If a client is paying out of pocket (not from plan assets) for a whole life policy, but for some reason has named the plan as primary beneficiary of the policy, is the plan entitled to the cash surrender value?  Do any loans from the policy need to be reported?  I've seen plans buy life insurance before but never have seen someone buy life insurance and name the plan so I'm not sure what the reporting requirements are.  

That would be incredibly unusual. Who owns the policy?

I’ve seen “key man” policies owned inside a plan before (though unusual) but the plan pays the premiums. 

It actually says the 401k plan is the owner of the policy but I'm not seeing where they paid the premiums with plan assets or contributions.  

1 hour ago, JEBMRC said:

If a client is paying out of pocket (not from plan assets) for a whole life policy, but for some reason has named the plan as primary beneficiary of the policy ...

Does this turn after-tax dollars into pre-tax dollars?

Is it possible, the policy is supposed to be allocated to a single participant? Probably the one paying the premium personally?

which shouldn’t be happening.

Yeah that is possible, but it says the owner of the policy is the plan.  Insured is an individual that is named.  I think they are using plan assets to buy this but not disclosing it anywhere to me as TPA.  They report no 401k deferrals but the premiums are suspiciously close to a deferral amount.  I don't have W2s and go with what they tell me.  I got an insurance statement included in the annual packet I think by mistake.  

Time to have them lay all the cards on the table. 

These are whole life policies so the cash surrender value should be reported as part of plan assets.  Is that correct?