414(s) Compensation Exclusion for "Fringe Benefits"

"Fringe benefits" may be excluded to determine 414(s) compensation. My question is what types of compensation can reasonably be treated by the employer as being "fringe benefits"?

I don't see that the IRS has a clear definition of "fringe benefits”. For example, Pub 15-B, which provides guidance on how certain fringe benefits are taxed, simply states, "A fringe benefit is a form of pay for the performance of services."

"Fringe benefits" seems to be a business term. Thus, it would seem that almost any form of wages other than regular pay can arguably be considered by an employer as a "fringe benefit" in interpreting their 401(k) plan document.

Take "paid leave" for example. Can the employer adopt a written policy regarding whether to include “paid leave” as compensation under the Plan or exclude “paid leave” as “fringe benefits”. The issue can go either way. But adopt a policy and then be consistent in how you apply the policy.

Thoughts? Thank you.

Try here https://www.irs.gov/publications/p15b

I think you'd have a hard time justifying anything that is paid to the employee in cash for services as a fringe benefit. If you try to exclude anything that is not part of regular wages then that takes you down the rabbit hole of things like overtime, shift differentials, bonuses, etc. 

Cash-like items such as gift cards is probably as far as I would push that envelope. If you're willing to test rather than lump in with all safe harbor exclusions then you can pick and choose what to exclude. When I think of fringe benefits it's non-cash items like car usage, gym or country club membership, etc. 

I'd limit it to the categories listed in Publication 15-B. I think the explanation in de minimis benefits is helpful. This is also referenced in Notice 2024-2 (financial incentives for participation. Imagine the taxes that could be avoided if paid vacation were a non-taxable fringe benefit or if all pay for an employee could be made in the form of gift cards.  

De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Cash and cash equivalent fringe benefits (for example, gift certificates, gift cards, and the use of a charge card or credit card), no matter how little, are never excludable as a de minimis benefit. However, meal money and local transportation fare, if provided on an occasional basis and because of overtime work, may be excluded, as discussed later.

G8Rs -- Just to clarify, I'm not suggesting that certain fringe benefits might be taxable or non-taxable. That's not the question here. I'm asking about excluding fringe benefits from the definition of Compensation under the Section 414(s) safe harbor definition.

CuseFan might have a useable bright line test, i.e., if the fringe benefit is payable in cash, include it. If it's not payable in cash, exclude it.

I realize taxation is a separate issue. So is is cash vs non-cash per the parentheticals in the regulation. But I would still limit this exclusion to one of the fringe benefits listed in 15-B. Of course we have no guidance from the IRS on the issue. 

(3) Safe harbor alternative definition.Under the safe harbor alternative definition in this paragraph (c)(3), compensation is  compensation as defined in paragraph (c)(2) of this section, reduced by all of the following items (even if includible in gross income): reimbursements or other expense allowances, fringe  benefits(cash and noncash), moving expenses, deferred compensation, and welfare benefits.