Extra 401k deposited, but not withheld - how to show on 5500

Ok, so always something new, at least for me....

In the last month of the plan year, the payroll company correctly withheld 401k from paychecks, but deposited a multiple of 2 payroll withholdings into the participant accounts.

This was discovered during the next plan year and pulled out of participant accounts. 

No 1099-R was issued since it was not a distribution.  However, some participants took distributions before this was corrected. Due to the relatively small amounts, the Employer will not be asking for the money to be returned.

This leads to 2 initial questions:

1. How to show this on the 5500, I'm thinking: Year 1: instead of Employee contributions, show as 'Other Income'? Year 2: Show as 'Admin Expenses - Other'?
2. For those who took distributions - show their extra deposited amounts instead in Year 1 as an 'Employer Contribution' instead of 'Other Income'?  (treating this as Non Elective Contributions may lead to other issues, but still contemplating that).

Before focusing on how to report everything on the 5500, consider getting everyone including the plan administrator, recordkeeper and payroll to agree on what will be done to complete the correction.  Some questions to which you may want to have answers are:

• What happened to the money taken out of participant accounts?  Was it held at the trust and taken as a credit against another payroll (if yes, keep an audit trail)?  Was it returned to the company?  What about earnings?
• Are participant W-2's impacted in any way?
• Will participant compensation reported for nondiscrimination testing be impacted in any way?
• What appears in each participant's plan accounting records? How are the corrective transactions labeled? 

When you have consensus from everyone on how this is being accounted for across payroll, the trust and the recordkeeper, the 5500 reporting should be readily apparent.

• For example, the 5500 has a line for Other contributions (commonly used for rollovers but not limited to rollovers). 
• Participants who received distributions should be included on the Benefits Paid line.
• Participants who had amounts removes from their accounts but not paid out may have the contribution included along with other deferrals (if the extra amount was used to offset a subsequent payroll) or this may be included in the Other contributions if it was not used. 
• The earnings could wind up in the Other income line.

Document, document, document everything that was done too make the correction and that should protect the plan from anyone not familiar with the circumstances second-guessing what happened.

[Edited for clarity]

Paul - thanks much for your thoughtful time.

fwiw - we were not involved with the plan when this happened, so everything described happened historically and is one of the reasons they are no longer with both the prior TPA and recordkeeper. We are currently reviewing what did happen and anything that may still need to happen, including possibly correcting 5500s.

nonetheless, because the extra 401k was never withheld from paychecks, it did not affect their w2 at all. when it was taken out, it was returned to ER with related earnings. it was recorded btw as negative 401k transactions so that on an accrued basis the correct amounts would show.

part of our challenge is that this spanned two plan years, so there is no clean zeroing out. 

question is for those who did receive distributions (they took their full account balance which included the erroneous deposit) - these distributions were shown in full on the Benefits Paid line for the second year.  For the first year then maybe Other Contributions makes sense, but it was so arbitrary, wondering if a QNEC needs to be made for everyone else after all.  this btw is only the beginning of the problems related to the negligence of the original TPA's, which we had no clue when we took over.