Service contract Act and 401k

[Liam]

I understand this is a complicated topic regarding Service Contract Act.

Our client about to engage in a contract that covered under SCA and asked us how this will impact the current 401k

My understanding is SCA makes employer to pay certain wage rate and fringe benefit ( health and welfare payments) to certain service employees.

And the employer has 2 options: either to pay cash or contribute to fringe benefit. If they pay cash, it will be subject to FICA tax and employer has to pay their portion??

"Two options for paying out H&W to your service employees:

1.      Pay H&W in the form of cash. With the changes in ACA, we are hearing from our benefits partners that cash in lieu of benefits can seem as an incentive to not enroll in organizational benefits and contradicts the ACA regulations. It is important to know that if you do pay H&W in the form of cash it must be paid as a separate line item on the pay stub clearly designated as H&W.  If you incorporate it into an employee’s normal wages it is not considered H&W pay.

2.      Contribute H&W to a 401k account. Your organization can contribute the monetary value into a 401k account and remain compliant with the regulations.  It is important that your 401k plan document is set up so that H&W contributions can begin immediately through immediate entry into the plan.  The immediate entry does not mean the employee can self-contribute to the 401k immediately; it means that they are set up with an individual account on your 401k Plan.  In addition, it is recommended that your plan clearly spell out that employer contributions are not eligible for any discretionary matches provided by the organization. Lastly, the employee should be informed of how to access his/her H&W funds.  "

If they pay cash: My questions are if they pay cash toward 401k plan, then how this will affect vesting?. Will this "employer contribution" 100% vested or based on current vesting schedule (I read somewhere that this is 100 vested)? How this "employer contribution" will affect that employee current 401k deferral? And I don't think this "employer contribution" is subject to any matching? 

So how the employer knows which fringe benefit to pick including group health insurance, life insurance, and a 401(k) savings plan? Can employer chooses whatever they like?

Thank you and I appreciate all the inputs.

 

[PensionPro]

This link should provide some answers but feel free to post more questions.

[justanotheradmin]

You should look up prevailing wage, and Davis Bacon 401(k) plans, which I believe are part of SCA. There are service providers out there that specialize in plans with those provisions and have some good articles and resources. Or you can search here on benefits link, as there are quite a few threads about those contribution types. 

Yes, they are usually 100% immediately vested. I have seen two plans with prevailing wage provisions audited in the last few years (by the state) and the 100% immediate vesting was something they paid very close attention to since neither plan sponsor wanted to do it. 

[Below Ground]

Davis Bacon Plans and McNamara O'Hare Plans.