Davis Bacon

[Belgarath]

Just want to see if I'm off base here.

Suppose you have a plan for a business, say a construction company or something like that, that is subject to Davis Bacon for certain projects. So, they elect to satisfy Davis Bacon obligations, or part of them anyway, by making contributions to their PS plan - let's assume for these purposes that plan permits, or is amended to permit this.

For compensation testing, am I correct that there is no special dispensation/exclusion for 414(s) purposes for Davis Bacon wages, so that you couldn't exclude Davis Bacon wages without passing compensation testing? So for elective deferral purposes, you couldn't exclude the Davis Bacon wages without passing compensation testing?

This applies to other coverage/nondiscrimination testing as well, right - no special exclusions?

However, the Davis Bacon contributions can offset other employer contributions, such as PS, Safe Harbor, Gateway, etc. I believe.

[ETA Consulting LLC]

You are correct. Look at it like this:

Davis Bacon is primarily a DOL requirement in that you must show that for each hour of work under the contract, the employee receives the prevailing wage benefit. That benefit may be in the form of cash paid to the employee or some other form of benefit (i.e. contribution to a plan).

The IRS's standard does not change. All the IRS wants is 1) for the plan to operate pursuant to its written terms; 2) contributions to be made pursuant to a definitely determinable allocation formula; and 3) for the contributions (or benefits) to pass non-discrimination.

So, the key is to ensure the plan's language and operation would accommodate everything the DOL would require for the contributions to actually be considered as benefiting the employee under the prevailing wage rate. Remember, the DOL doesn't delve into non-discrimination, but employees' rights.

So, from the IRS's perspective, they're just contributions like any other contributions. From the DOL's perspective, you want to ensure you meet every requirement (i.e. immediately eligibility, 100% vesting; etc...) to have the contributions treated as credit for prevailing wage benefit. When you do this, you merely cannot violate the terms of the plan.

Now, there are some special rules by the IRS is determining how much may be used as a QNEC in the ADP/ACP test (e.g. 10% limit), but you'd generally want to appease the DOL while the IRS would just see another contribution. This is why you should always be careful before proving a Prevailing Wage Contribution to an HCE.

Good Luck!

[Belgarath]

Muchas Gracias!