Davis Bacon Profit Sharing Plans

[Guest gaham]

I have read a number of older posts that indicate that in order for the employer to receive credit for prevailing wage contributions to a plan, those contributions must be fully vested. It is my understanding that this is generally true for a defined benefit or money purchase pension plan. However, according to a knowledgeable DOL person I spoke with a couple of years ago, it is NOT necessary to fully vest profit sharing contributions in order to receive full credit for such under Davis Bacon. The DOL Field Operations Handbook says that compliance with ERISA vesting requirements is all that is necessary. See 15f13(e). It also provides that while profit sharing contributions are not ordinarily creditable toward the employer's prevailing wage obligation this can be remedied by quarterly contributions to a plan or to an escrow account. Does anyone have the bottom line right answer to this issue?

[Guest pensiondoc]

My knowledge of Davis Bacon is growing. I believe it depends whether this depends on whether the employer is doing Federal work or State work. They both WANT to see 100% immediate vesting, but they only ones who, I believe, enforce this is NOT DOL but the State if the State comes in to audit.

Would suggest checking with ASPA. Their C-4 course includes a reading by Barry Kublin on Davis Bacon Plans. He spoke on this at the 1996 Consultant's Conference and the tape is available.

[Guest Edward McElroy]

I recently put in my first Davis-Bacon Plan. The DOL does not require employees to be 100% vested in their plan contributions in order for the employer to satisfy the Davis-Bacon Act. Plan must, however, have a permissible vesting schedule under the IRC.

[Guest gaham]

As a follow up and to clarify my original post: the Davis Bacon enforcement arm of the DOL apparently has a rather strange rule in order for an employer to be able to take FULL credit for prevailing wage purposes for contributions to a pension plan. Let's say the employer wants to take credit for $2/hr for pension contribution under Davis Bacon. If the employer doesn't contribute at least that rate for all hours worked during the year (ie, Davis Bacon and non Davis Bacon service) AND the contributions are not immediately vested, the employer cannot take the full $2/hr credit for the Davis Bacon hours. EXAMPLE: Suppose the employer contributed $1000 for 500 DB hours during the year and $2000 for 1500 non-DB hours. That's a total contribution of $3000 but since the DB hours represented 1/4 of the total hours, the employer can only take credit for 25% X $3000 or $750 for DB purposes even though the employer contributed $1000 for DB hours.

This rule supposedly applies to "defined benefit pension plans" and "defined contribution pension plans". We were told by the DOL 3 years ago that this rule did not apply to profit sharing plans because employers were not REQUIRED to make any contributions to profit sharing plans; hence, this "annualization" requirement was not necessary and employers could take full credit for contributions for DB hours to a profit sharing plan without having to fully vest (assuming other Davis Bacon requirements were also satisfied).

We've been told recently that profit sharing plans may be subject to this "annualization" rule just like other types of pension plans. Does anyone have any thoughts, understandings, ideas, etc?