Employer Withheld Too Much 401k - correction required?

For 2020, a Participant elected $1,625.00 401k plus 541.66 catch-up withheld per pay.

December 29, 2020, Participant completed another election form electing $19,500 annual 401k plus $6,500 annual catch-up withheld (proportionately from each pay).  The employer provides 24 payrolls per year, therefore the 2021 per pay withholding should change to $812.50 + $270.83 respectively.  Unfortunately, it was not changed and for both of January 2021's payrolls the previous election stood.

Both of January 2021's 401k deferrals have been remitted over to the plan (same day as pay dates) making this not only a payroll issue but a plan correction issue.

How best is this corrected?  Should the employee be provided a special paycheck equal to the over contributions with taxes withheld (recognizing FICA will be overpaid)? And then to correct the Plan, should the contributions to the Participant's account be removed and placed in a forfeiture account? 

The employer realized the error and spoke with the Participant who is okay with what happened, does not want a correction, and simply wants to skip 401k deferrals for the month of Feb and restart again in March (plan does permit this frequency for changes) - is this acceptable?

Thank you.

It's not perfect.  I'd try to figure out the appropriate earnings, and transfer the excess+gain amount to forfeitures.  Make the guy whole through payroll with some "negative 401k".  And then use the excess (including those earnings) towards funding the new deferrals from subsequent checks.  (So he doesn't specifically get the "benefit" of the market exposure on the extra amounts sitting in his account early.)

Plan custodian may "freak" a bit about using the forfeiture account to fund deferrals.  But that's not their problem.

It may be the payroll provider (and someone else) is unclear what a "catch-up" contribution really is.  It does not exist until hitting a limit (eg, the 402g deferral limit, or a plan-imposed limit, etc.)

18 hours ago, cheersmate said:

The employer realized the error and spoke with the Participant who is okay with what happened, does not want a correction, and simply wants to skip 401k deferrals for the month of Feb and restart again in March (plan does permit this frequency for changes) - is this acceptable?

If the employee is ok with it it's ok by me.  The time involved to correct this would be ridiculous compared to the harm (none).

Agree with Bird.

22 hours ago, david rigby said:

It may be the payroll provider (and someone else) is unclear what a "catch-up" contribution really is.  It does not exist until hitting a limit (eg, the 402g deferral limit, or a plan-imposed limit, etc.)

Agreed...it is the way it is reflected on the election form generated by a national document vendor.

2 hours ago, Bill Presson said:

Agree with Bird.

5 hours ago, Bird said:

If the employee is ok with it it's ok by me.  The time involved to correct this would be ridiculous compared to the harm (none).

Thank you. I agree, too, hence my asking in this forum.

Thank you everyone for your input.