ADP/ACP failures - excess refunds to HCEs?

[SRNPEBT]

I have a situation where an employer failed ADP and ACP testing for 2012 and 2013. In both cases they refunded/forfeited in the 2/1-2 correction period. It turns out that the data relied on for those tests was incomplete. After retesting was performed, it was determined that certain HCEs are (i) due additional refunds for 2012, and (ii) were refunded too much for 2013.

I'm clear on my options for correcting where additional refunds are due, but I'm not as clear on correction where too much was refunded. I found a few threads here that suggest I need to treat the excess refund as an overpayment (under EPCRS), try to collect it back from the HCE for deposit into the HCE's account, and if the HCE doesn't agree, so be it (ordinarily, the sponsor has to make the plan whole for any unreturned overpayments, but since the overpayment would have been returned to the HCE's account, that would be a true windfall). Another poster mentioned that the IRS indicated at an ASPPA conference that the HCE should have to pay the 10% early withdrawal penalty if the excess refund isn't returned (assuming the excess refund was already reported on the HCE's W-2, I guess that means amending the W-2 and reporting the excess refund on 1099-R?).

Does anyone have any other thoughts for correcting the excess refunds? For example, can the employer offset the 2012 refunds by the amount of any 2013 excess refunds due to the HCE? I am inclined to self-correct, but the employer may ultimately go the VCP route to ask for an excise tax waiver.

Thanks in advance for any input.