Which of the following would be an example of a safe harbor exclusion specific to Highly Compensated Employees (HCEs)?

The safe harbor exclusion specific to Highly Compensated Employees (HCEs) refers to certain benefits that can be excluded when determining compliance with discrimination testing under retirement plans. Fringe benefits, such as health insurance, life insurance, and certain other perks, often fall into this category. These exclusions are intended to simplify compliance with non-discrimination requirements by allowing employers to exclude certain classes of employees—like HCEs—from certain contributions or benefits when evaluating whether their retirement plan discriminates in favor of highly compensated individuals.

This concept is essential in ensuring that retirement plans remain equitable and do not favor those who earn higher salaries at the expense of lower-paid employees. The rationale is that by excluding specific benefit types for HCEs, employers can more easily meet the legal requirements and create a more balanced plan without being excessively penalized due to the high salaries of certain employees.

In contrast, salary bonuses, overtime pay, and retirement plan contributions are typically considered in the overall compensation package and do not specifically fall under the same safe harbor exclusions directed at HCEs. Therefore, they do not achieve the same outcome related to non-discriminatory practices in plan design.