Davis Bacon/ Prevailing Wage Plan

[JKW]

We have a Davis Bacon Prevailing Wage Plan we administer. In the past the plan sponsor has contributed 25% of wages (non-elective) into the plan. The plan has immediate eligibility and 100% immediate vesting.

Someone has told The Plan sponsor they can further increase their contributions above 25% to take further advantage of FICA savings and lower workers comp. We were under the belief that these plans must comply with ERISA and 404c deduction limits. Since these are employer contributions and not employee deferrals the deductibility limit should be capped at 25% ? Any thoughts?

[PensionPro]

Contributions to a 401(a) qualified plan are one of the acceptable methods of providing fringe benefits under the Davis Bacon Act. As such, the plan must comply with ERISA, the IRC, etc. just like any other qualified plan. Plus, with the Davis Bacon Act.

[JKW]

Do you agree then that the Max amount they can contribute is 25%?

[austin3515]

I agree with that statement, 25% is the limit.

[Mike Preston]

As long as we all agree that the limit is an employer limit and not an individual employee limit, I also agree. But what if the Davis Bacon wages constitute only 10% of the total wages of the company? In that case, the percentage that could go to the Davis Bacon plan might be well in excess of 25% of the Davis Bacon wages. On an individual level, the limit is 100% of compensation paid. Example: an individual makes $15,000 as Davis Bacon wages and $25,000 otherwise. That would mean the limit of PS contributions for this individual would be $40,000. If there were a contract in place that allowed the employer to take gross Davis Bacon wages of $55,000 for this inidividual and split it up so that $40,000 went to the plan and the net Davis Bacon wages were then the aforementioned $15,000 the individual limit would not be violated. If there were enough other people in the company such that the amount over 25% of pay ($30,000 in this case) did not cause the overall plan contribution to exceed 25% of pay then there is no limitation being violated.

[austin3515]

The plan has immediate eligibility and 100% immediate vesting.

If there were exclusions from the Plan, I agree it could go over the 25%.