Davis-Bacon Prevailing Wage Retirement Plans
Ascensus administers Davis-Bacon prevailing wage retirement plans. The plan is named after the Davis-Bacon Act which was signed into law in 1931. Employer retirement contributions, or pension benefits, are one of the fringe benefits addressed by the Davis-Bacon Act.
An introduction to Davis-Bacon prevailing wage retirement plans
- Plans can be established as either a base profit sharing only plan or a money purchase plan. They may also be paired with a 401(k) provision (including a safe harbor feature).
- Generally, the plan should be designed to provide for immediate eligibility and full immediate vesting on the Davis-Bacon component of the plan.
- Contributions to retirement fringe benefit plans must be made at least quarterly.
- Prevailing wages include 1) the hourly rate that is paid directly to the worker and 2) the amount contributed for certain fringe benefits. An employer is allowed to credit against the fringe portion any items deemed acceptable under the Davis-Bacon regulations (ex: cost of life or health insurance, pension, etc.).
- Employer can gain significant advantages by making Davis-Bacon contributions to a qualified retirement plan as opposed to paying out these funds as wages. Lower wages can result in lower FICA taxes, workman’s compensation premiums, and liability insurance.
- Similar to other types of retirement plans, nondiscrimination testing must be done to ensure that benefits do not favor highly compensated employees (HCEs). Usually this is accomplished by designing the plan so HCEs (owners, officers of the business) are not eligible to participate in the Davis-Bacon component of the plan.
- Davis-Bacon plans can be designed to include hardship withdrawals and loans, similar to other types of retirement plans.
- Employers who have both Davis-Bacon workers and non-Davis Bacon workers may benefit from having a profit sharing contribution that is "off-set" by Davis-Bacon contributions. This allows both sets of workers to benefit from the plan equally and in a cost effective manner for the employer.
Davis-Bacon prevailing wage retirement plan compliance is monitored by the wage and hour division of the Department of Labor and must also operate in compliance with the Internal Revenue Code.
Our services included
- Plan design
- Plan document and amendments
- Plan administration
- Compliance testing
- Annual valuation report preparation
- Form 5500 preparation