Short Plan Year - Match correction

Appreciate some insight into this situation.

Calendar year 401(k) plan.  Company is sold in March, 2018.  Company terminates 401(k) plan effective 3/18/2018. 

A participant had already earned over the annual comp limit, deferred the max, and received the max match based on the annual limit, prior to plan term.

I believe due to the short plan year that we now have to prorate limits, including the comp limit?  If that is correct, the participant's match deposited exceeds the allowable amount using the prorated comp limit.

If that is all correct, is it acceptable to treat the overage as a mistake of fact, given that the match was calculated using an incorrect compensation amount, and return the overage to the employer?  Or must the overage be moved to the forfeiture account. 

Thanks very much.

possibly more information is needed, something like 'will all the assets be paid out within 1 year of the term date'.

at the 2010 ASPPA Conference Q and A #3 the following was asked (the question applied to top heavy, but the same concept applies)

DC plan is top heavy and has a plan year ending 12/31. The plan terminates on September 15, 2010. Normally, TH minimums are provided only if the employee is employed on the last day of the plan year. (Assume that there are salary deferrals during the year so that, if a top-heavy minimum is required, it needs to be made.)

The IRS response was:

Of course, if there is no employer contribution, there would not be an obligation to provide top-heavy minimum contribution. But, if there were contributions to keys during the year, including elective deferrals, there is a top-heavy minimum based on compensation and employment through 9/15/10. Plan must liquidate within a reasonable time under Rev. Rul. 89-87 or else 9/15 date may not be reasonable. There is effectively a short plan year for top-heavy purposes.

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I guess that means if assets aren't paid out then you only have a frozen plan instead of a terminated plan

Hello Tom, thanks for the response.

Yes, the intention is to get the assets out of the Plan as soon as administratively possible, which will be further delayed if we have additional forfeitures to reallocate.