Davis Bacon/Prevailing Wage

Employer make prevailing wage profit sharing contribution. That is the only profit sharing contribution.  Is it subject to General Testing? If yes, Gateway if using accrual basis? In this plan's case, there is an HCE who receive the PW contribution.

Also, how do you determine who is "eligible" for the prevailing wage?

Yes. Prevailing wage contributions are employer contributions subject to nondiscrimination testing.

So what is the correction if it fails? One HCE received a 24% contribution...never going to pass.

I'd guess you are looking at an -11(g) amendment to bring some other folks in and it may be expensive. I believe this is why HCEs are often excluded from Davis-Bacon contributions to avoid nasty end of year surprises on testing.

Ok..so crazy question...If I am allowed to shift the Davis Bacon as a qnec for the ADP, what amounts are then required to be included in the general tests?  Do I need to pass the general test with and without the amounts shifted to adp?

For example if I use the entire HCE DB contribution in adp testing, what amount is included in general testing?

I realize it will negatively impact the ADP, but that seems to be an easier correction then fixing the General test.

By any chance are you using a pre-approved plan document? In ours the default for prevailing wage excludes HCE. You may have to check the basic plan document (if your plan has one) for this provision. For our document - we have to specifically mark a section to allow HCE to receive PW. 

If the plan document excludes the HCE from PW and they received one - you have a different kind of error. I would remove the PW from their account as an impermissable allocation. 

I apologize I don't have the citation - but there is some limit to how much of the PW can used as ADP QNEC - I believe it's 10%? If my recollection is accurate, you'd still have 14% subject to general testing, which sounds like would still fail, even if the HCE isn't an excluded class from PW. 

For plans with PW we try to make sure their discretionary employer contribution allocation method is everyone in their own group, then anyone who needs to receive extra to pass the testing can. If the HCE received 24% PW, and is allowed to receive it, I'd say you need to allocate enough profit sharing to the other folks to pass testing. 

Since plan contributions of Davis-Bacon amounts are only one way to meet the employer's obligation to meet the Prevailing Wage, I'd suggest reviewing whether or not the employer (in the future) might simply *opt* to provide the benefits to the HCE in any other manner besides a plan contribution.  Unless it's spelled out somewhere else, why not pay the amounts to the HCE as additional wages instead of as a plan contribution?  Sure, there are payroll taxes, but it sounds like those might be less than the contributions necessary to bring the plan into 401a4 compliance.

Did you run 401(a)4 on a contributions basis vs benefits basis?  All of our PW plans are cross -tested so that gives us more options to correct and tested on a contributions basis to avoid Min Gateway.

Also, the 10% limit applies only to NHCE.  

Aaaarrrggggggghhhhhhhh. Strong letter to follow or not. 

While it may not help at this point, as others note, we have several clients who offer prevailing wage contributions and they all limit the PW contributions to non-HCEs in the plan document to avoid this exact issue. Anyone on a PW contract who is an HCE has to be provided the required fringe amounts another way. This seems to be the accepted means of addressing the issue, so (hopefully) shouldn't cause too much pushback from the plan sponsor. 

I would agree that giving the HCEs a PW is not a good idea.  They specifically opted in the document to  "allow" HCEs to get the contribution.  In this case, it is an owner's son who got contribution and is only 27 years old making only $16k.   

I have attempted to run on accrual, but can't get it passed gateway.  In addition, the owner's wife contributed 30% in pretax (only 6 HCEs) so my ABPT percent is very high...in comparison to my NCHEs.

The employer contribution provision is TWB not individual groups.  They are just in a really bad place currently.

We are going to recommend HCE do not receive the contribution going forward to avoid this.