Prevailing Wage and 401k

[mjf06241972]

1.  Does a client have to set up a retirement plan (with 5500 filing) when starting Prevailing Wage Job?

2.  Is there anyway around this?

3.  Can a Simple 401k Plan have Prevailing Wage?  I dont think so but trying to think out of the box instead of setting up a plan with Prevailing Wage requiring 5500.

They are trying to avoid admin cost of a Prevailing Wage Plan.

Thank you.

[Peter Gulia]

Which possible combinations of money wages, pension benefits, health benefits, and other welfare and fringe benefits might meet a prevailing-wage duty or obligation turns on which law or contract the employer wants to meet.  Not only the United States government but also many State and local governments set prevailing-wage obligations.

 

[401K_AZ]

1. Generally, no.  Prevailing wages may be paid in either cash, benefits, or a combination.  I say 'generally' because I cannot speak to the requirements of every municiaplity and state--but federal and the state jobs that I am familar with do not require a plan. If you pay in cash, then no plan is needed.

2. Yes, they can just pay cash.  But you lose some of the savings on "labor burden" (e.g., contributions to a 401k are not subject to certain payroll taxes).  There can be some real cost savings when you avoid payroll taxes on a significant amount of your labor costs.

3. I don''t see why note.  It just has to be a "bona fide" plan.  To avoid the annualization requirement, defined contributions need immediate eligiblity (at least to the PW contributions), and 100% vesting of those PW contributions.  You could use some PW to fund or offset the employer contribution to a SIMPLE.  In a 401(k), you would often have a seperate source set up for the PW, but not sure you would do that in a SIMPLE--but there is no requirement to actually have a seperate source as long as your employer contributions are immediate eligibilty and 100% vested.

Depending on how many participant subject to PW and you setup the a 401(k) --e.g., what recordkeeper, services, etc. --- the admin costs might be signifcantly outweighed by the savings in payroll taxes.

 

[Larry Starr]

4 hours ago, mjf06241972 said:

1.  Does a client have to set up a retirement plan (with 5500 filing) when starting Prevailing Wage Job?

2.  Is there anyway around this?

3.  Can a Simple 401k Plan have Prevailing Wage?  I dont think so but trying to think out of the box instead of setting up a plan with Prevailing Wage requiring 5500.

They are trying to avoid admin cost of a Prevailing Wage Plan.

Thank you.

1) Absolutely not; it is a provision of the prevailing wage (states) or Davis Bacon (Federal) rules that ALLOWS (but does not require) that contributions properly set up for a retirement plan can count toward the prevailing wage amounts required by the government contracts.  A prevailing wage provision can be part of an existing 401(k) / profit sharing plan and can be used when and if desired.  We do lots of these and I have presented the PW rules at national ASPPA conferences.

2) Not applicable.  If you don't want a plan, you just have to pay the total required between cash wages and any other acceptable benefits the client has.

3)  A number of our PW plans pay the administrative cost out of the plan; it is a " no net cost" to the employer, and with the savings in worker's comp (and some SS tax savings), it is usually a profitable endeavor..  It is clear that you don't have a PW plan knowledgeable consultant working with you, and that's what you really need. 

[Larry Starr]

4 hours ago, 401K_AZ said:

 To avoid the annualization requirement, defined contributions need immediate eligiblity (at least to the PW contributions), and 100% vesting of those PW contributions. 

 

Just an FYI, in NY state PW plans, annualization is ALWAYS required (they do not recognize the exception that other states allow) which makes almost all PW plans not realistic UNLESS the employer ONLY does PW work.  If they have a mix of both PW and non PW work, it almost is never a good idea.

[Larry Starr]

4 hours ago, 401K_AZ said:

2. Yes, they can just pay cash.  But you lose some of the savings on "labor burden" (e.g., contributions to a 401k are not subject to certain payroll taxes).  There can be some real cost savings when you avoid payroll taxes on a significant amount of your labor costs.

Depending on how many participant subject to PW and you setup the a 401(k) --e.g., what recordkeeper, services, etc. --- the admin costs might be signifcantly outweighed by the savings in payroll taxes.

 

The most significant savings in these situations is in the avoidance of worker's comp payments on the compensation that otherwise goes into the PW plan.  Payroll taxes tend to be a small part (but still welcome) but it is the worker's comp savings that tend to drive these plans.

[mjf06241972]

Thanks for info Larry.  Very informative.?