Davis Bacon / Prevailing Wage Plan with safe harbor nonelective offset

[mattmc82]

I am curious how others set up and track these plans. Assume individual accounts.

So prevailing wage contributions are made to offset 3% SNHE contributions. All non PW EEs receive 3% SHNE from the employer. However, as I understand it, any PW contribution in excess of 3% of pay would be classified as discretionary profit sharing. 

Should I be attempting to set up two DB/PW buckets? Or is it allowable to re-source the money into SHNE / discretionary?

The reason I ask is because down the line, it may get tricky with determining amounts available for hardship or early in-svc withdrawals and the like.

Thanks

[ETA Consulting LLC]

"Prevailing Wage" is treated as Employer Nonelective to the IRS for all intents and purposes.  All that is happening here is that the DOL is requiring a certain level of benefit for each of these employees (and that level of benefit is being met with contributions to the plan).  It is, ultimately, incumbent on the Employer to demonstrate to the DOL that those benefits were indeed provided.  The IRS just sees a contribution.

So, to your question:  How is a re-source necessary?  If you're giving a 3% SHNEC to each employee, then that 3% merely gets used to satisfy the DOL's requirement that the employee receives a certain level of contribution.  There are other requirements (e.g. immediate entry) that the DOL imposes in order for those contributions to be accepted as fulfilling the Employers responsibility to the employee, but the level of contribution is merely one.  Again, the IRS doesn't care as long as the amounts being provided are made pursuant to a definitely determinable formula and does not discriminate in favor of HCEs.  

Good Luck!

[John Feldt ERPA CPC QPA]

My understanding is that when prevailing wage contributions are used to offset another type ofemployer  contribution, the prevailing wage contribution must take on certain attributes of the contribution that it is offsetting.

Thus, if an employee receives 2% of pay for the year as a prevailing wage contribution, and that offsets the 3% safe harbor nonelective so the employer only has to contribute an additional 1% of pay to satisfy that safe harbor, then the 2% prevailing wage contribution is not eligible for a regular in-service distribution before age 59.5 - same as safe harbor contributions.

Similarly, instead of safe harbor, if the employer plan uses prevailing wage to offset profit sharing and the employer provides 6% profit sharing, then the 2% prevailing wage contribution plus the remaining 4% are both eligible for regular in-service  before age 59.5 if the plan has such an in-service option.

[ETA Consulting LLC]

That's true, as is the case for all contributions;  the plan terms will control how they are treated.  But, if you want to get those amounts 'credited' as fulfilling the prevailing wage contract, then certain items must be in place.  For instance, in order for a contribution to be used to satisfy prevailing wage, it must be 100% vested.  So, if you have a Profit Sharing into an account that is not 100% vested, then it's a no-go (unless you create a separate account that is).  You can even label the separate account 'Prevailing Wage" and make it 100% vested.

You have two distinct equations and are working simultaneously: 1) the plan's operations and 2) the prevailing wage required contributions.  All you're doing is ensuring that dollars deposited meet both.  

Good Luck!