penalties for failure to issue 1099

So, employee defaults on a loan, and no 1099 issued for deemed distribution.

Payer penalty for failure to issue 1099 (let's suppose it was defaulted in 2016) before August 1 (from memory) is I think $260.00. I can look that up. But here's my question - since participant didn't get 1099, taxes filed incorrectly, since participant didn't "know" it was a distribution.

How do you typically see this handled? By that I mean, does the employer/plan administrator/TPA/guilty party pony up any expenses top reimburse the participant for refiling expenses, if any, and interest/penalties? Could be expensive if it happened years ago...