Overpayment - 1099-R Question

[ERISA25]

I've seen some threads on this, but I can't seem to find any that directly answer my question. Assume that overpayments were made to 401(k) participants as a result of the application of an improper vesting schedule. The custodian issued 1099-Rs for the total distribution (including the overpayment). I am comfortable with the EPCRS correction procedure for this error (which includes the plan notifying the participant that the overpayment is not eligible for rollover and asking for the return of the overpayment [and if not returned, plan needs to be made whole]), but, I'm struggling with the tax reporting.

Assume for purposes of numbered paragraphs below that the distributions were not coded as direct rollovers:

1) Should the plan instruct the custodian to issue amended 1099-Rs to reflect the correct amount of the distribution and issue a 1099-MISC for the overpayment amount?

2) Alternatively, should the plan only issue amended 1099-Rs if the participant returns the overpayment? Under this approach, the plan would do nothing unless the overpayment is returned.

If the distributions were coded as "direct rollovers," I believe the plan would have to issue an amended 1099-R to reflect the amount eligible for direct rollover and the amount not (i.e., overpayment).

Any thoughts would be appreciated.

[BG5150]

I would do 2 1099's. One for the correct, rollover-eligible piece and another code 1 or 7 for the overpayment.

If the participants repay it, it goes back in as basis for an after tax account.