Plan was amended to change what events constitute an event of default, but existing loans were not grandfathered. Now the plan has a default event that is not in the note, so which controls? Although we need the notes to be vaild under state law to be eligible for the statutory PTE, can we argue that the plan controls over the note because of preemption?

The loan is a contract. The plan cannot unilaterally change the terms of the contract to create a new event of default unless the terms of the contract give the plan this extraordinary power.

Can the plan administrator issue a loan contract (OK, "issue" is not the correct term) that is in violation of the plan provisions?

That was not the question. The answer to your question is affirmative, but then the next natural question will ask about the consequences of the impropriety.

Ok, thanks! If new loan notes are issued that are inconsistent with the terms of the plan, I would be worried about it either being an operational defect problem with the QP or an invalid note under state law which would not qualify for the PT exemption.

Our situation is much more straightforward. The plan's provisions were changed and existing notes were not grandfathered. The amendment will be fixed to grandfather outstanding notes. This should have been considered when it was decided to allow loan terms greater than 5 years for primary residences, I guess.