Failure of Discrimination Testing

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A POP cafeteria plan fails the key employee 25% concentration test. Would the acceptable correction method be to make all benefits taxable in the calendar year they are attributable to?

[papogi]

Yes. All key employees must be taxed on their option to receive cash or other taxable benefits in place of non-taxable benefits. In other words, all pre-taxed monies in that POP plan year are now taxable to all key employees.