Excess withdrawal from Rollover IRA due to employer contribution

The amount that was over-contributed by your employer is an amount that was ultimately not eligible rollover and now represents an excess contribution to your IRA.  If the rollover occurred in 2016 or the rollover occurred in 2015 and you timely filed your 2015 tax return or requested a filing extension, the excess can be removed by a return of contribution, required to be accompanied by any earnings attributable to the excess contribution.  The earnings required to be distributed will be subject to tax and possible early-distribution penalty, but the distribution of the excess contribution itself will be tax and penalty free.  The deadline for making a return of contribution for a portion of rollover that occurred in 2015 is October 17, 2016 (provided you timely filed your 2015 tax return or requested a filing extension).

If the deadline for making a return of contribution before the due date of the tax return has passed, say, because the rollover to the IRA occurred before 2015, you can still remove the excess (without earnings) and avoid the distribution being taxable because the excess was the result of incorrect rollover information provided by the 401(k) plan.  However, you'll have 6% excess contribution penalties for each year that the excess was in the IRA account at year-end.

See Internal Revenue Code sections 408(d)(4) and 408(d)(5)(B):  https://www.law.cornell.edu/uscode/text/26/408