PSP/Universal individual life insurance/premiums charged to participant

Closely held company. PSP Trustee, who is also the key person in company and a participant in plan, purchases universal individual life insurance policy naming plan as owner and beneficiary. For unknown reasons, annual premiums for policy charged to Trustee's individual account. Thoughts on plan self-correcting by crediting him the premiums paid with interest?

That's actually the right way to set it up. Nothing wrong/nothing to correct.

But per Rev. Rul. 2004-21, wouldn't the transaction be deemed discriminatory?

Looking at the Rev. Rul. describes a plan where everyone has a life insurance policy but some that are provided are of different types with different types of options available for participants that might be interested in buying the policies out of the plan. I'm not aware of this having any applicability to a plan where the initial purchase of the insurance policy was done at the request and option of the participant. 

Plus the other things I said. 😇

If the employer is paying the premiums on life insurance owned by the plan the premium payments are employer contributions to the plan. 

Having the premiums paid by the other dollars in the participant's account is no different from a participant investing in something with fees and the fees are taken from that person's account. Or a participant who is transferring dollars from investment A to investment B. Just because the participant wants more dollars in investment B doesn't mean the employer is going to put the dollars into investment B for the participant. 

Just to expand and clarify, in an individual account plan, where a participant elects to purchase insurance, the money comes from that participant's account. The plan is named as owner and beneficiary. (To name anyone else as owner, say, the participant, would effectively be a transfer of assets, i.e. a distribution, which would be wrong.) If and when the participant dies, the plan collects the money as beneficiary and credits the participant's account accordingly. The proceeds then flow through the plan to the participant's plan beneficiary.