I'm helping a 401(k) plan that provides for matching contributions. It turns out that in a past year the plan administrator used an incorrect limitation on "compensation" (higher than the applicable 401(a)(17) amount), and therefore some employees had elective deferrals (and matching contributions) in excess of what the plan documents allow.

The plan will be refunding the improper contributions to employees, but the question has come up about what options are available for handling the matching contributions. The guidance I've found points to forfeiture, but this is in the context of elective deferral refunds related to 415 failures or ACP/ADP failures -- which, as far as I know, have not occured with this plan.

I'm assuming that forfeiture is the appropriate correction procedure, and that a refund to the employer would be a PT.

Questions:

Is forfeiture appropriate (and if so, is there a citation)?
Should there be a refund to the participant of the excess match to the extent the participant is vested?
If forfeiture is appropriate, should the forfeiture take into account gains and losses?
Assuming the excess match is properly forfeited or distributed, should the excess match nevertheless be taken into account for testing purposes?
Is there anything else I'm missing here?

We forfeit in this situation and the gains or losses go with the forfeiture. I don't have a cite for this, but would rephrase the question to where is the cite to allow a distribution?

Since the participant was not entitled to the match in the first place, he or she should not receive a distribution of it.