A one participant plan invested in loans.

That is, they did what appears to be a private promissory note and loan that was secured by real estate.

The appeal is interest rates on the loans of above 10%.

Does anyone detect any problem with such arrangement?

The loans are to non parties in interest.

Thanks.

Is the one participant an owner of the sponsoring employer?

Yes he owns the company that sponsors plan.

Most of the concerns are allayed by the fact that it is a non-ERISA plan.

The management of the loans and their repayment might pose a problem if performed by the one participant. There is a business corollary in the commercial sector. If a third-party company is not hired by the plan and paid to manage these loans and their repayment by the obligors, you could possibly have a UBTI concern. Also, if the one participant performs those tasks, it could be a prohibited transaction per IRC § 4975(c)(1)(C), unless it could fit within IRC § 4975(d)(11).

In the olden days (pre-PPA), you could have factored in the high rate of return into your investment rate assumption to avoid overfunding.

With PPA, you have to be careful that the plan does not push the 415 envelope because it could become overfunded with the high rate of return. In particular, if the sponsor departs the earth prematurely. Also, and this is a legal question, can a plan distribute a loan as an asset in-kind? I.e., if the plan terminates before the loan is repaid, what happens (this question was relevant pre-PPA)?