Deferrals based on clawed-back bonus

A participant made an elective deferral election of 25% of his bonus.  The bonus was $4,000, so $1,000 was deferred under the 401(k).

However, the bonus was subject to the participant remaining employed with our company for at least one year.  The participant has chosen to leave the company after 6 months, and is required to pay back $2,000 of the bonus.

How does this affect the $1,000 deferred under the 401(k)?  Since half the bonus was forfeited, does that mean we have to remove half the deferral that was based on the bonus before forfeiture?  In other words, do we kick $500 out of the plan?

*Please note:  The numbers are made up, so to the extent some de minimis rule applies to the figures above, it is probably not applicable in this situation.

Interesting question. Others may be able to provide some more nuance, but my recollection is that a repayment in a later tax year is treated as a separate "transaction" such that the first year would be unaffected, i.e., they are repaying with entirely "different" money. If a repayment is made during the same tax year, I believe it's not reported on the employee's W-2 at all, i.e., it's as if the payment never happened.

In the later-year scenario, I would think the deferral pretty clearly stays in the plan. It was compensation paid, withheld from, deferred from, taxed, and reported in one year. The employee just happened to pay the employer 50% of the bonus amount from their other assets in the next year. (The individual income tax treatment of that scenario is complicated.)

In the same-year scenario, my initial reaction would also be to keep the deferral in the plan. The payment was "compensation" when paid to the employee at the time of deferral; it's not as if it initially came from ineligible compensation, e.g., if the plan stated that participants could not defer from bonuses at all. Could depend on the plan's definition of compensation as well (3401(a) may be an easier argument than W-2). 

This feels like "negative 401k" like when a payroll adjustment of any sort has to be processed.

Agree with EBEC on the issues of different tax years. I think that's important if relevant here. Also, how is the money going to be "paid back" and in what amount? Reduced final check? Actually writing a check back? and is that amount the gross amount of the bonus or the after tax amount?

Based on the responses I'm getting, here is some additional information:

• The Bonus was paid this year and is being clawed back this year.
• The Bonus is going to be paid back directly by the employee (we aren't reducing any compensation payments).
• The amount in the example above is the full amount of the bonus (gross, not after tax amount).

Thank you again!