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Highly compensated employee

Section 414(q) of the tax code defines a “highly compensated employee” (HCE) as an employee with yearly income at or above a certain level, which is adjusted annually by the IRS ($120,000 in 2018). Benefits under qualified plans must adhere to the IRS nondiscrimination rules on the amount of benefits your company can provide to highly compensated employees in proportion to those benefits provided to other employees. This is another reason companies have nonqualified plans.