A corrective distribution from a qualified retirement plan like a 401(k) should never have a code 1 along with code 8 because such distributions are never subject to an early distribution penalty. Code 1 should only be used with code 8 for some returns of contributions from IRAs, indicated by the IRA/SEP/SIMPLE box being marked, and only those made before December 29, 2022 when such penalties were eliminated by the SECURE 2.0 Act. If the Form 1099-R has both codes 1 and 8 but the IRA/SEP/SIMPLE box is not marked, I would probably claim an exception to the early-distribution penalty with code 12 (incorrectly indicated as an early distribution) on line 2 of Form 5329.
ADP and ACP tests were put into the tax code because Congress thought that HCEs could benefit from the plan inequitably compared to non-HCEs in the same plan if there were not some limitations. Moving below the HCE income threshold would require being paid less. Another option would be to promote the plan more vigorously to non-HCEs to raise their percentage.
