Refund of Salary Deferrals?

We administer a 20 participant 401(k) plan that restricts salary deferrals to no more than 25% of W-2 Salary. 

The plan made a mistake and allowed a participant to have salary deferrals of more than 25% of W-2 salary. I would think that this needs to be corrected by refunding the amount over 25% back to the participant as it is a violation of the terms of the document. In other words, the amount over 25% of W-2 salary should not have been contributed to or been in the plan in the first place.

Would this extra amount of salary deferrals be counted in the 401(a)4 test? I would think not since it does not belong in the plan per the terms of the document. Anyone agree or disagree?

Thank you.

These would be considered excess deferrals and generally they are included in testing if the participant is an HCE and excluded if the participant is an NHCE.

They're not 402(g) excess deferrals, though, so I'm not sure the parallel works.

@Bri good point.  Since this is a violation of the plan limit it could be considered an excess allocation.  EPCRS 6.06(2) says to distribute the excess allocation to the participant along with related earnings, and the amount is not considered in testing.

Specifically: "For qualification purposes, an Excess Allocation that is corrected pursuant to this paragraph is disregarded for purposes of 402(g) and 415, the ADP test of 401(k)(3), and the ACP test of 401(m)(2)."

Looks like @Dougsbpc is all good.

Is the participant eligible for catch up?