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I wanted to clarify a couple of things about my original question: (1) we are in the midst of delving into the facts surrounding the timing of when the distribution was directed by the plan sponsor and when the actual distribution was made. Therefore, it is likely that the interval between the date the distribution was directed and the date that the distribution was actually made could be much less than a few months. I recall that earlier in 2025, there were some wide swings in the securities markets resulting from a great deal of uncertainty and complete confusion about the short-term and possibly long-term direction of the global economy which likely caused dramatic swings in value. Luckily, for those not taking distributions, history has shown that, over the long haul, investing in the equity markets not only evens out any short-term spikes in losses but far exceeds the rate of return over any other investment vehicle, notwithstanding the Great Depression. However, it is a frequent occurrence that the timing of a participant's decision to request a distributions when the market is at a high point and the time it takes to process the payment could include very sharp downward swings. It is hoped that if there are substantial upward swings during the period between the initiation of a distributions and the participant's receipt of the payment, in an involuntary cash-out scenario, that the fact that the value of the account balance upon receipt of the distribution being in excess of the involuntary cash-out threshold would not be considered an operational failure. Regarding correction, Rev. Proc. 2021-30, Appendix A, .07 deals with situations in which the distribution is made without the participant's (and, where applicable, spouse's) consent. However, it is not helpful as applied to a 401(k) plan in which the only distribution option is a lump sum. The prescribed correction method is an after-the-fact consent, an election to receive distribution as a QJSA or the distribution of a single sum equal to the present value of the survivor annuity payable upon the participant's death. The problem is that annuities are not an allowable form of distribution under the plan and the participant has received his/her entire account balance. It would be hoped that when the IRS ever gets around to superseding the Rev. Proc. in light of SECURE 2.0 and other recent developments, it would allow the plan to merely seek an after-the-fact consent from the participant. The reason I said tender is that the participant may decide that since s/he got the money, it is a useless gesture to sign the consent form. I apologize for being overly wordy here, but I felt that these points were important to add.

I can imagine "the worst part" being, you check the balance every day, but because it's in mutual funds or pooled separate accounts, the first day it shows as $6998 and the sponsor tries to force it out then they'll find at the close of business they're back to $7004. But that's because I ascribe to the idea that the value when it actually occurs is the value that matters. I remember when the 3,500 law used to say that once you crossed it, it is deemed to always be crossed regardless of market drops. I wouldn't mind a ruling clarifying that if it were under the limit within the last 30 days or something.....

Return and re-issue proper checks is probably the best way to fix.

You can't force the participant to receive payment until they hit MRD. You also don't need to purchase an annuity as the plan can make the payments directly, but if the sponsor wants to de-risk and move the liability to someone else, the plan can purchase an annuity for terminated vested participants. Many plans have "de-risked" and purchased annuities for some / all of their retired and/or terminated vested populations. What you are looking for is called a "single premium annuity" and it it purchased by the plan sponsor, typically through a broker, but the sponsor can work directly with the carrier and save the broker's commission. No participant signature is required. Since you have only one participant that you are trying to annuitize, there are probably only a few carriers that will be interested. Try Mutual of Omaha, MIdland National, or OneAmerica. They are generally the best players in the small market. I can't give you direct contacts, but if you want to pay the broker's commission you can send me a DM and we can get you a quote.

Consider thinking about it this way: If the employer were seeking the Internal Revenue Service’s letter ruling that the change in the employer’s obligation to pay deferred compensation is not an acceleration but rather is no more than a reformation of the written plan to state what was both parties’ actual intent when they made their contract, what “clear and convincing evidence” would you show to prove what had been the parties’ true intent? Would that evidence persuade an IRS reviewer? If the evidence wouldn’t persuade an IRS reviewer, or doesn’t persuade you, that tells you some useful information about how to shape your advice. This is not advice to anyone.

FWIW, and I understand this isn’t helpful, I despise everything about this rule; especially the application of the unique compensation amount.

Regarding door number 1, are you suggesting/asking the following?: a highly paid employee is expected to receive $300,000 in eligible pay in 2026 and has a 20% percent pre-tax deferral election on file. The employer will change the deferral election to be 2.5% Roth ($7,500/$300,000) and 17.5% pre-tax as of January 1, 2026? If my above interpretation is accurate, then I would choose door number 2 because door number 1 is a bad idea (in my view). Problems I see with option 1 are: correctly determining expected pay, termination before year end, ensuring the Roth portion is still matched even if the plan does not match catch-up, and not correctly processing a deferral election of 20% and deeming it before any dollars are required to become Roth. Door number 2 is preferred. I have spoken with many large employers (+1000 ee's) and for those who currently have a single deferral election process (i.e., spillover), they are going with the second option. For employers that currently use a separate/dual election process, it is a different story (but still not option 1).