Incorrect Match Allocation

[Guest ANNEBV]

My client has a 401(k) plan with a discretionary match. The match is limited to deferrals up to 4% of compensation (i.e., the cap is 4%).

It was recently discovered that, in 2001, the match allocation was not properly limited to the 4% cap. Rather, no limit was made. ALL deferrals were matched.

Furthermore, the client contributes a flat dollar amount (say, $50,000) which is then allocated to those who contributed 401(k) deferrals, but only up to 4% of comp. So, any correction to 2001 will result in MORE allocation to some participants and LESS allocation to others.

I am trying to determine if a reasonable correction method would include "taking away" the match from some, while increasing the match for others...or if this "taking away" is not considered permissible, even though it is in connection with correcting a plan to comply with it's terms.

Has anyone dealt with this before? Is self-correction even available? Virtually all plan participants are affected one way or another. I assume that we'd have to also correct for gains/losses from time of original deposit to date of correction?

I'm hoping someone has some practical experience to share...