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Refund not processed

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In the 2022 plan year, a plan failed ADP, and 20 HCEs had refunds. Total refunds were around $40,000. 
One participant's distribution was not processed, and this was brought to our attention in 2024.  The distribution form was sent to the record keeper but could not be processed as requested. I don’t know where the communication breakdown happened to let someone know. Participant had requested full distribution amount be withheld for federal taxes so they were not expecting a check. 
The plan has liberal eligibility requirements so testing was done on a separate basis to split excludables from non excludable. 
I am being told that the correction now is VCP if run on separate testing or if using SCP we have to test All Together.  The refunds with All Together are triple the amount that were originally processed. So the participants all would need another distribution and a one-to-one QNEC would need to be made. 
This seems like a huge penalty for one participant's distribution out of 20 not being processed. 
Any advice?  Does this sound correct?

Thank you!

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For a VCP application, you can suggest what you'd like and hope the IRS takes the bait.  Why not suggest a 1-to-1 correction based on just the one guy who got missed, and only applying it to the "main test people"?

If the IRS says no you're back where you started, but see what they might go for....

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