8786 / Who are considered key employees for purposes of the nondiscrimination requirements that apply to Section 79 plans?

For purposes of the nondiscrimination requirements that apply to IRC Section 79 plans (see Q 8785), a key employee is an employee who, at any time during the employer’s tax year was:

(1)  an officer of an employer having annual compensation greater than $230,000 in 2025. No more than the greater of (a) three individuals or (b) 10 percent of employees need to be treated as officers, but in any event no more than 50 individuals may be considered officers;

(2)  a more-than-5 percent owner of an employer; or

(3)  a more-than-1 percent owner, determined without considering those employees who are not counted in testing for discriminatory eligibility, having an annual compensation from an employer of more than $160,000 in 2025.¹