| Davis Bacon / Prevailing-Wage Plans
WHAT IT IS:
The Federal government will set wages & fringes for mechanics & laborers (not admin, exec or clerical) for certain jobs. These apply to federal projects where payment of local Prevailing wage (PW) & fringe benefits employed on direct federal contracts in excess of $2000. Davis Bacon Act (DBA) applies to construction alteration and/or repair of public buildings or public works in the U.S.
The Paragon Alliance Group specializes in customized plan design and will assist you in establishing and administering a Retirement Plan for the deposit of the Fringe Benefit portion of the Prevailing Wage as set by the government.
Example:
- Base Pay - $20.00 / Hour
- Fringe Benefit - $7.00 / Hour
- Prevailing Wage - $27.00 / Hour
Fringe Benefits can be paid as wages and/or to pay benefits, which includes a retirement plan.
PRIMARY BENEFIT: A contractor can save money by funding the fringe portion of the established prevailing rate into a benefit plan (health, retirement, life, vacation, etc.) instead of having the entire rate be paid as compensation.
REASONS TO ESTABLISH RETIREMENT PLAN:
- Reduce payroll overhead (payroll taxes, workers comp, unemployment comp)
- State may require it
- Prevailing rate plan funding creates excellent opportunities for owners to maximize their own retirement savings very cost effectively through use of our creative plan design techniques
- Retirement savings plan for the well-being of employees
- Tax savings for employees
TYPES OF PLANS: A Davis-Bacon Retirement plan can be:
- Money Purchase Pension Plan
- Profit Sharing Plan
- 401(k) Plan
Notes:
- Defined Benefit Plans typically are not practical due to predictability of prevailing wage work, turnover issues & full funding requirements.
- Employees’ mentality is that the fringe benefit is actually their pay, so maximum flexibility needs to be built into the plan.
PLAN DESIGN COMMENTS
- Eligibility: Immediate eligibility is normal in these plans
- Trustee(s): Normally the owners are the trustees
- Vesting: 100% full & immediate vesting is the norm
CONTRIBUTION RATES AND DEPOSITS:
- Davis-Bacon contributions must be deposited no less frequently than quarterly.
Note: Currently Davis-Bacon contributions (not deferrals) are not subject to labor regulations that require employee contributions to be deposited as soon as they can be segregated from the general assets of the employer
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