erroneous testing refund

[Kimberly S]

Client has a safe harbor 401(k) plan. TPA misses that detail, prepares an ADP/ACP and instructs client to take refunds due to a failed test. Client processes the refunds as instructed. TPA later discovers its error and instructs client to deposit the refunds back to the plan. Client has spent the cash and refuses.

How do you fix this mess?

[Ron Snyder]

In a lawsuit, the TPA would be held liable for reimbursing the erroneous refunds to the plan. However, the TPA has an offsetting claim against whoever received the funds. Your post curiously makes it sound like the refund went to the employer rather than to the HCEs.

[Kimberly S]

Small employer -- the owner is the only HCE.