Incorrect adp refund

[Santo Gold]

Plan fails 2007 401k test, refunds are calculated, and the HCE's get paid out the excess. However, the 401(k) test was done incorrectly and the new result is that the plan did not fail; No refunds should have been done.

Do the HCEs have to pay back the excess amounts? If so, are they (or someone - sponsor, TPA, recordkeeper) responsible for also calculating and depositing "lost plan earnings" on the excess amounts and having those deposited into the plan as well? Is this a VCP or SCP correction issue?

Thanks

[fiona1]

I believe this is referred to as an overpayment and is an operational failure of the plan. Because it's an operational failure, it can be corrected through the SCP. There is information in the EPCRS on how to correct overpayments. But to answer your question - yes, the HCE's need to pay back the excess amounts.

The EPCRS says "the employer takes reasonable steps to have the overpayment, plus appropriate interest from the date of the distribution to the date of the repayment, returned by the employee to the plan. To the extent the amount returned by the employee is less than the overpayment adjusted for earnings at the plan's earning rate, then the employer or another person contributes the difference to the plan."