Only one loan allowed. Plan sponsor allowed participant to take more than 50% of his vested account balance. Loan was for $2,500 and done back in July 2004. The plan document and the loan policy do not have the $10,000 minimum langauge.

Based on my research, I believe the excess over the 50% of vested account balance is a deemed distribution at the time the loan was issued. It also appears that this would be a prohibited transaction since it would not meet the prohibited transaction exemption since the loan was not adequately secured.

Anyone know a way around this? Can I rely on the 10,000 miniumum under 72(p) even if it is not in the document or loan policy?

Even if you took the position that the loan satisfied the requirements of 72(p) and therefore was not a deemed distribution, you still would have an operational failure that would need to be corrected under ECPRS.

I agree with your statement regarding the prohibited transaction exemption.

So, if I went with the 72(p) 10,000 minimum and had documentation on outside collateral for the loan, could I also avoid the prohibited transaction issue since it would be secured just not with 50% on the vested account balance?

I know I would still have issue of not operating in accordance with the loan policy/document.

I do not think that what you suggest avoids a prohibited transaction. IRC Section 4975(d)(1)© provides for an exemption from the applicable tax only if the loan "is made in accordance with specific provisions regarding such loans set forth in the plan."