Service Contract Act contributions

[Guest dhall111]

We do a lot of SCA work for the gov't. Under the SCA rules employers must provide benefits based on number of hours worked (up to 40/week) times the SCA wage determination fringe amount. Currently that amount is $3.01 per hour. So just under $500/month on average. If the employer doesn't provide benefits (health, dental, 410k, etc) that are equal to or above that, the employer must pay the employee the cash equivalent. To date, our company has provided the cash.

We would like to move to putting that cash amount directly in to the 401k plan on behalf of the employee. DoL's opinion on this is that it is perfectly legal and meets the SCA requirements and they know several employers that do just that. The only "rule" is that this pot of money must be 100% vested immediately.

I'm struggling with how to accomplish this administratively. I haven't found anyone out there that has done this, despite DoL's claim that it is being done. And I haven't found a 401k plan that has worked with this before. I may not be asking the right questions. I'm solid in 401k basics, but this is a bit beyond me.

Would this contribution be considered a discretionary contribution? If not, what would you call it?

We currently vest 20% per year to 5 years. But this would be a seperate bucket of money, so I don't think it will matter as long as we structure the plan document correctly.

We have also traditionally failed the ADP and ACP tests (however we passed this year for the first time ever, YEAH). Does the ACP test take in to account a contribution such as this? Could this contribution be included in our testing or is the seperate bucket it will reside in not accounted for in testing?

Thanks in advance.

[Jim Chad]

Would you put it in as a QNEC?

[Guest dhall111]

Would you put it in as a QNEC?

I don't know. We've never done a QNEC before. The only form of a QNEC I'm familiar with is a bottom up QNEC to help pass discrim testing. This wouldn't work for what I want to accomplish because it's for only some employees.

[Below Ground]

Prevailing Wage Contributions are sort of like a Cross Tested Group Allocation where each person is their own group.

Example:

Bob is paid $10/hour. He needs to be paid $11 under the "wage standard". For February he works 40 hours on "rated jobs". His contribution is therefore $40 (40 * 1). Tom gets paid $9/hour. He works 80 hours. His contribution is $160 (80 * 2). Basically, the variance between actual pay and rated pay is contributed for that person, given the hours worked on rated jobs.

Yes, I've done a number of plans like this, that have been reviewed and "blessed" by both the DOL and IRS. You can even "offset" these Prevailing Wage Contributions against other nonelective contributions, but that is for another day.

I note that many prototypes and volume submitter plans have language for this type of contribution.

Hope this helps.

[Guest dhall111]

Prevailing Wage Contributions are sort of like a Cross Tested Group Allocation where each person is their own group.

Example:

Bob is paid $10/hour. He needs to be paid $11 under the "wage standard". For February he works 40 hours on "rated jobs". His contribution is therefore $40 (40 * 1). Tom gets paid $9/hour. He works 80 hours. His contribution is $160 (80 * 2). Basically, the variance between actual pay and rated pay is contributed for that person, given the hours worked on rated jobs.

Yes, I've done a number of plans like this, that have been reviewed and "blessed" by both the DOL and IRS. You can even "offset" these Prevailing Wage Contributions against other nonelective contributions, but that is for another day.

I note that many prototypes and volume submitter plans have language for this type of contribution.

Hope this helps.

Thanks Below Ground. That does help. We already offset part of the health and welfare contributions with our insured benefit employer costs. But we still spend around $22k in cash every month. We just want the best bang for our bucks - and for the employees.

Thanks again!