Need help with 25% Concentration Test Failure!

[Guest Kristine]

I am running discrimination testing on a plan who has not had testing done all year (we just aquired them- unfortunately). Their plan ends on Dec. 31st and they are failing the 25% tests for elections, contributions and reimbursements.

How do I go about fixing this? Should I tell the employer they need to bump up the key employees pay to cover the 25% they would have saved with this plan, have them pay taxes on their full annual elections or what!????? HELP!

[JanetM]

If memory serves me, the only correction is to have the keys pay tax on the contributed amounts so they are not tax deferred.

[Jacmo]

How much did they fail the test by? I.E., was it 30%, 50%, etc? To find out how much the keys must pay tax on, back down their total annual contributions in the formula until they pass. Then you'll know how much to add back to their W-2s.