Effective March 16, 2017: The U.S. Prime Rate Has Increased from 3.75% to 4.00%. 

Davis Bacon / Prevailing-Wage Plans

WHAT IT IS:

Construction contractors that do business with governmental entities are required to pay workers (typically laborers and mechanics, but not office staff) a certain level of wages for projects that apply to alteration and/or repair to public buildings or public works. These pre-determined wages, known as prevailing wages, are supplied by the applicable public authorities and regulated by the U.S. Wage and Hour Division and equivalent State Departments of Labor. The rules relating to prevailing wage are governed by the Davis-Bacon Act and similar legislation.

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. Proper design will allow your company to maximize tax savings and enable you to be more competitive in the bidding process.

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 significant amounts of money by funding the fringe portion of the established prevailing rate into a benefit plan (retirement, health, 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