If you find that a participant has received a loan for more than the allowable limits under section 72(p) and the loan is only secured by the participant's vested interest in the plan, is the excess treated as a prohibited transaction subject to an excise tax? I know the the excess is considered a deemed distribution and the participant is taxed. Are there any other consequences to the plan or the plan sponsor?

The plan may be disqualified because of terms that say that loans will not exceed the section 72(p) limits. Failure to follow plan terms will disqualifiy.

As long as the loan complies with the ERISA 408 rules (which do not contain the same amount limitation), the loan should not be a prohibited transaction.