Net c is lower than expected for a new 401k plan

A new one for me

Client has an existing fully funded DB plan.

For 2022, I was told that the schedule c income would be 60k.

Suggested a new 401k set up for 2022. Did so and deposited full deferral prior to 12/31/2022.

I just got the net c and it is $600 (thankfully db has no required contribution).

So, now have a 27k deposit as of 12/31/2022 but no income to support it.

What to do?

Argue "mistake of fact" under Rev. Rul. 91-4 interpreting ERISA Section 403(c)(2)(A): The schedule C income was calculated incorrectly (i.e., there was a mathematical error) which caused the 27K contribution in error. Return the 27k minus the $600 (or whatever amount they can defer from compensation under the plan). Need more facts to paint a full picture, but this would be my first line of defense.

Thank you but will use it as last line of defense and after giving the client the option.

It's not just fixable as 415(c) excess?

Yes, all but $600 is an annual addition in excess of the section 415(c) limitation.  Rev. Proc. 2021-30, Appendix A.08, provides that an excess annual addition caused by elective deferrals can be corrected by refunding the excess, adjusted for attributable income.  There's no need for a "mistake of fact" argument.

This is what distribution Code E was made for on the 1099-R.