Incorrect refund of deferrals

[Belgarath]

A new one to me. Employer gives incorrect payroll data - essentially added back in deferrals twice, thus overstating comp for many participants. As it happens, this excess amount put one person over the top to be considered a HC. And this person, as incorrectly being considered HC, caused an ADP failure, resulting in refunds!

So, question is, can this be corrected as a valid self-correction under RP 2016-51, Section 6.06(4), by notifying the affected participants, and giving them the option to repay, or not, and for those who do, issuing corrected 1099-R's showing zero? Other solutions? Even if you went through VCP, I'm not sure what other reasonable solution could be proposed anyway?

This business is rarely dull.

P.S. - I just found this:

 

[401_noob]

FWIW, this is what the EOB says:

 

Part G., Distributing too much

Suppose the plan distributes more than is required to correct the ADP test or ACP test? An overpayment is an operational violation of the terms of the plan and can be a potentially disqualifying event. The plan should take reasonable steps to get repayment of the overpayment. The HCE could remit the excess payment back to the plan or might work out an arrangement to have the overpayment withheld from his next paycheck. Relief under the IRS' Employee Plans Compliance Resolution System (EPCRS) is available. EPCRS is explained in Part B of Section VI of Chapter 15.

[Belgarath]

Thanks.

[msmith]

I have an overpayment of an Excess Aggregate contribution (incorrect data given for the 2015 Calendar Plan Year). If the overpayment is $100.00 or less, can I disregard trying to have the funds returned to the Plan? Section 6.02 (5)(c) of Rev. Proc. 2016-51 seems to indicate it can be disregarded.