New plan member - didn't want to defer

[fiona1]

1/1 plan year, participant is eligible on 7/1/08. No automatic enrollment feature is in place and the participant has not made an election - but the employer deducts 5% from the paycheck into the 401(k) plan.

I'm assuming this is an operational failure - because the participant has not made an election. Is this corrected in the Self Correction program? Is the correction to simply refund that money back to the participant? Are there any other penalties?

[QDROphile]

Possible penalty under state payroll law.