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Mid-size 401(k) Plan (773 Participants) had ADP and ACP Testing done in late February 2020 for 2019 calendar year. Plan did fail testing and remedial distributions were paid timely to correct failure. Subsequent review of participant accounts found that Compensation and Deferrals Values provided by the Client's payroll system were wrong! Corrected values were finally provided (August 2020, delays were related to "COVID impact" at Client), so testing was rerun. End result is that testing results were improved for both ADP and ACP; therefore, remedial distributions paid were in excess of amounts defined by corrected testing. It is my understanding that the Plan Sponsor is expect to collect the over payments, and return those monies to the accounts of the impacted people. (Amounts range from $2 to $100.) Questions are (1) is this correct, (2) how would this be done, and (3) how are taxes impacted/addressed by these refunds to the Plan? Any assistance is most gratefully appreciated!
