ADP failure and 415 excess

Morning brain cramp. Say you have an ADP failure and a 415 failure for a participant. Not catch-up eligible.

The ADP refund amount is still considered an "annual addition" for 415 purposes as per 1.415(c)-1(b)(1)(ii). So suppose there is an ADP refund of $5,000, and the 415 excess is determined to be $10,000. Do you have to reduce the participant's account by another $10,000, or only $5,000, since $5,000 has been distributed under the ADP refund?

From memory, (always dangerous) it is the former, but I'm somehow missing the appropriate regulatory citation to support that, so I'm questioning my sanity. TGIF!

I have notes from a Sungard/Relius presentation titled "ADP/ACP Testing Techniques 2012" that says to fix 415 failures first because that pulls them out of 402(g) and ADP. 

Hope that this helps.

So in an "ordering" process, you would first distribute the 415 excess, THEN do your ADP test. And if ADP still fails, you refund the deferrals, BUT the refunded deferrals still count as annual additions for 415 purposes. That seems much more logical. Thanks for the comment.

I like belgraths answer.