Deferrals Made Before Employee Was a Participant

[mming]

An employee was permitted to defer in 2024 prior to her actual date of participation.  The trustee did not want to retroactively amend the plan to allow her to be a valid participant when her early deferrals were made, instead the early deferrals were refunded to her in 2026.  The document does not address the remedy for this situation.  I'm guessing the refunded deferrals would be included in her 2026 W-2 - would a 2026 1099-R need to issued to her for this refund?  All help is appreciated.   

[BG5150]

The affected deposits, +/- earnings should be refunded to participant and reported on a 2026 1099-R.  (Code E, I think, EPCRS correction, so no 10% penalty tax will be assessed.)

[mming]

Thank you BG5150.  If I could also ask - the sponsor would rather not have to redo the 2025 W-2s and is asking whether the particpant could just list the refund as income elsewhere on their personal tax return.  Do you know if it can be done that way?  

[John Feldt ERPA CPC QPA]

The refunded deferrals and earnings are both reported on Form 1099-R, no changes are needed on the W-2. I don’t see any reason to provide a W-2c.