In running the key employee test, do you include the amounts withheld

[Guest Neno]

In running the Key Man test, do you include the amounts withheld on a pre-tax basis or the amount of reimbursements received by a key person. Example: Key person was employed from January through April, 2002. She elected to withhold $600 over the course of the year for Health FSA, however only $200 was actually withheld prior to her leaving the company. However, she did submit and receive reimbursement for the full $600. Just trying to determine the correct amount to include in the test.

Any help would be most appreciated.

[SLuskin]

We do our initial testing on the annual election. The testing should occur prior to the start of the plan year, so that any adjustments that need to be made to the key and hce participants can be communicated before the plan year starts.

In your example, I think that the disbursement of $600 (which matches the election) fits the definition of pretax benefit, as that person will never be taxed on the $400 received but not contributed.