Is this an Overpayment under EPCRS? How correct if rolled to IRA?

[Guest TaxedToDeath]

A participant took an inservice distribution from his employer's 401(k) plan, but the plan did not permit inservice distributions. Is this an "Overpayment" for purposes of EPCRS?

If it is an Overpayment, EPCRS says that to correct, the employer has to ask for the participant to pay it back, plus interest. It also says the employer must notify the participant that the distribution wasn't eligible for tax-free rollover. What form must this notification take? A letter? An amended 1099-R? If an amended 1099-R is required, and the participant pays the overpayment back, does that mean an amended 1099-R is no longer required?

What if the participant rolled the Overpayment to an IRA, and it is after the deadline under IRC 408(d)(4) to remove the excess contribution?

[tghooper]

I'm curious too as we have the same situation.

I don't believe this would fall under EPCRS overpayment under rev proc 2015-27 since it doesn't meet the definition. Curious what others have done, other then to notify the participant this need to be put back.

[Belgarath]

Unless I missed something (very possible) I don't think 2015-27 modified the definition of "Overpayment" found in 2013-12, Section 5.01(3)©. So this is still an "Overpayment." But I do think 2015-27 provides for some possibility of additional flexibility in the correction method available under Section 6.06(4). I think an amendment to conform the terms of the plan to its operation as described in Section 4.05 might well be acceptable, but I haven't really given it a lot of thought - this is just an initial impression.

[tghooper]

Correct...2015-27 didn't modify the definition of "overpayment"...sorry.

Unfortunately, an amendment would not fix our problem. The amount in question is quite large and it's an HCE, which makes it worse.