A participant had a loan from a 401(k) plan. When the loan paid off, the payments were never stopped, resulting in 16 additional payments totaling $7000 going into the plan.

We are taking over this plan and it is not clear to us why this was not noticed either at the payroll level or at the recordkeeper level.

What is the required method to correct this? Have the plan issue a check to the participant?
If the payments were invested in the money market fund, do the interest and earnings on the overpayments need to be refunded? If they invested in funds that are worth less now than the amount of the overpayments, is just the current market value refunded?
Any reporting that needs to take place to get this all straightened out?