Key Many Test

[Guest Neno]

I am new to flex administration so please bear with me. If the Key Man test fails, and a HCE contributes to both an FSA and DCAP, are all monies salary reduced through these benefits taxable?

[papogi]

If the 25% Key Employee test is failed, then all key employees must be taxed on all amounts which were otherwise available as cash. That includes FSA and DCAP amounts, as well as other pre-taxed amounts which could have been taken as cash. That test applies only to key employees. HCE's and NHCE's really don't enter into this. Those definitions are used for the eligibility and benefits test, not the 25% key employee test.

[Guest Neno]

Thank you pagogi, that was my understanding. Just one more clarification on this issue. When running the 25% test, would I also take into account premiums paid for health and dental insurance as well as FSA and DCAP to determine the total benefits used by both key and non-key?

[papogi]

Yes. The test basically looks at all dollars being sent though the 125 plan. Those dollars include pre-tax payroll deductions and any flex credits (even those provided by the employer) for which there was a cash option.

[Guest Neno]

Thank you for your quick response. That helps a lot.