True or false: Only excess contributions that cannot be recharacterized as catch-up contributions are subject to corrective distribution or recharacterization as after-tax employee contributions.

The statement is true because it addresses the specific guidelines surrounding excess contributions in a 401(k) plan. When employees exceed the contribution limits, they may have options for correcting those excess contributions. If these excess contributions cannot be recharacterized as catch-up contributions, which are contributions made by participants aged 50 or older, they must either be distributed back to the employee or recharacterized as after-tax contributions.

This is important because understanding the distinction between catch-up contributions and other types of contributions is crucial for compliance with IRS regulations. Only excess contributions that do not qualify for catch-up recharacterization fall under the mandate for corrective distributions or recharacterization to after-tax contributions. Therefore, the correct answer clearly aligns with the defined procedure for handling excess contributions within a 401(k) plan.

This highlights the importance of managing contribution limits effectively and ensuring that participants understand their options when they exceed these limits, avoiding potential tax penalties or issues with compliance.