Plan Imposed Deferral Limit Violation - 1099 code

[Guest robin1968]

I have a Daily Valulation platform 401(k) plan that imposes a 10% deferral limit to HCEs. They have two HCE employees who exceeded this limit in the 2013 plan year.

#1 - Should these excesses be processed and 1099'd like a 402g violation?

(Process by 4/15/14; excess amount taxable in year deferred and 1099'd with tax code P; applicable gain taxable in year distributed and 1099'd with tax code 8)

or

#2 - Should this excess be processed as an EPCRS type correction? (process the excess amount adjusted for gain loss and report the total with tax code E.)

The information I have found in the ERISA outlines and the 1099 instructions seem to lean toward #2 but wanted to see if anyone can provide definitive guidance.

Thank you.

[BG5150]

FWIW, I'd do #2.

[QDROphile]

#2. Failure to follow plan terms.