ADP Refund

My plan has failed the ADP test, resulting in a refund. The HCE receiving the refund has both pre-tax (deferral) and Roth contributions.

Is the refund amount discretionary for the employee to choose between pre-tax deferral and Roth contributions, or is there a specific sequential order for deducting it (e.g., first from pre-tax deferrals and then from Roth)?

Are there any IRS rules governing the sequential order for processing such refunds?

Does the plan document address it?

No. The plan document doesn't address it.

I find that surprising. But in that case, the plan administrator should adopt some reasonable and non-discriminatory procedure. This may include allowing participants to elect to have the refund taken from pre-tax or Roth contributions or both.

2 hours ago, TH 401k said:

No. The plan document doesn't address it.

Check the base plan document. 

Here's what our BPD says 

"Refunds. If the Plan permits Roth Elective Deferrals, the Participant may elect to have refunds made either from his Pre-tax Elective Deferrals or Roth Elective Deferrals or any combination thereof. Unless a Participant otherwise specifies, a distribution of Excess Elective Deferrals for a year shall be made first from the Participant's pre-tax Elective Deferral account, to the extent such deferrals were made for the year."

If the plan does not address it, give the participant the choice, but make a deadline that is imposed so you can meet the 3/15 deadline if the participant does not respond.

Then have the Plan Administrator make an administrative election as to how refunds will be handled absent an employee election: pre-tax first, roth first, or proration. Document  election and follow that going forward.