Tough question.

I actually have a question to you. Are you sure the account was overfunded?

My understanding of the rules is that the total amount of money that could have been contributed into your employer's defined contribution retirement plan each year is limited - up to $44k in 2006 and $45k in 2007. And that total factors in your salary deferrals as well as contributions made on your behalf by your employer.

Any money you put in as salary deferrals, therefore, generally reduce the amount your employer can put away on your behalf.

The best people to talk to are the plan's "Third Party Administrator". Every plan uses TPA's to records all the activity within the plan, and to make sure the plan stays in compliance with the complicated rules applicable to retirement plans. They will be able to get you the best answer, since they are the ones who should be most familiar with your employer's plan. (Plus, there is a very good chance that they helded set up the plan.)

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