When talking with prospective clients, the subject inevitably turns to 401(k) or similar retirement plans, and more often than not the response we get is, “I don’t want to discuss my pension plan.” Of course, we always follow that with the obvious “why?” The responses we get back? “I just moved my plan and I’m not interested in doing THAT again” or “I REALLY love my TPA and wouldn’t think of moving it” or “I like having everything in one place (Paychex does my payroll AND my 401(k)!)” You get the idea.
Which is all well and good. But when it comes to benefits strategies for prevailing wage contractors, there are common misunderstandings surrounding 401(k) plans. First, not all plans can receive prevailing wage fringe contributions. Given all the rules and regulations surrounding the Davis-Bacon Act, that can’t come as a surprise… To be in compliance, your plan must have prevailing wage language within the plan document allowing for prevailing wage pension contributions. No specific language, no compliance. No compliance… well, that can be problematic enough.
But there’s a second and potentially more expensive problem – you could be double paying if your plan cannot accommodate prevailing wage pension contributions or your plan is not designed properly. Forget audit risk – this is about money. And it can happen to anyone. We just enrolled a new client who had a 401(k) plan in place with one of the major payroll companies. You can only imagine his surprise when we had to inform him that he would be double-bonusing his prevailing wage employees if the employees participated in the 401(k) plan. Why? Well, as it turns out, the employer had a safe harbor plan in place requiring that he match the employees’ 401(k) contributions in addition to paying out the employee’s prevailing wage fringe dollars. And, to make it even more complicated, he also had a profit sharing provision in the plan – which meant that that any time he made a profit sharing distribution, if he continued to use the same generic 401(k) plan, he would be double-bonusing the prevailing wage field employees as well.
The lesson? Whether you’re doing Davis-Bacon work or state Prevailing Wage, you should make sure that all of your employee benefits – including your 401(k) or other retirement plans – are in compliance… AND saving you money