Refunding more than deferrals than necessary

[Guest Grumpy456]

A 401(k) plan must refund excess contributions to an HCE. The amount of the excess contributions, correctly computed, is $8,000.

Scenario #1.

The TPA makes a mistake and refunds $8,500 to the HCE. After the refund has been made, the mistake is discovered. Should the plan sponsor correct the mistaken refund?

Scenario #2.

The HCE asks the TPA to add an extra $2,000 to the $8,000 refund. The TPA refunds $10,000 to the HCE. Should the plan sponsor correct the mistaken refund?

When the actual excess contribution refund exceeds the correct amount, how, if at all, is the excess amount recovered/corrected?

Thanks in advance for any suggestions.

[BG5150]

is the HCE over 59 1/2? Does the plan allow for in-service withdrawals?

[Guest Grumpy456]

No and No.

[BG5150]

Gotta get the money back, in my opinion. No other way to characterize the distributions under the plan.

[12AX7]

If the participant was at least 59 1/2 and the plan allowed for in-service distributions, you have to be mindful that the excess amount distributed is an ERD and subject to mandatory withholding. I had that happen last year and recovered the money for the plan and had the vendor correct the 1099-R.

[Guest Grumpy456]

OK, thanks!