Overpayment due to ADP Excess Failure

[PMC]

An Employer provided incorrect data and the Plan failed ADP for the 2007 plan year. Excess distributed to the HCEE. 1099 done reflecting the distribution.

Error was discovered in 2008 and using correct data the Plan re-tested and passed ADP. Employer requested and received the overpayment from the HCEE in 2009.

Is the correction method for the participant to redo 1040 for 2007 and issue a corrected 1099? Is the employer required to contribute any earnings from the time the incorrect distribution was made until the time of the repayment?

Or is a vaiable alternative just to treat the repayment as after-tax creating basis for the employee, no revising tax forms or corrected 1099? Would the employer owe any earnings in this scenario?