Prevailing Wage Participant Count

Client established a separate 401(a) plan just for prevailing wage contributions.  They have a group of SCA employees who are the eligible participants.  Out of 35 total SCA employees only 15 received contributions and have account balances.  The other 20 had no excess after wages and other benefits so they received no prevailing wage contributions.

Question - for the Form 5500-SF, are the 20 who did not receive contributions considered participants?  The compliance and 5500 software we use says yes and I guess it makes sense - you don't have to receive a contribution to be a participant, you only need to satisfy the plan's eligibility requirements.  I wanted to put this out there to see if anyone agrees or disagrees.  The client is getting a large contract that will add more SCA employees and I want to be sure we don't push them into a 5500 audit for the 2021 plan year if it isn't necessary.

16 minutes ago, Catch22PGM said:

Client established a separate 401(a) plan just for prevailing wage contributions.  They have a group of SCA employees who are the eligible participants.  Out of 35 total SCA employees only 15 received contributions and have account balances.  The other 20 had no excess after wages and other benefits so they received no prevailing wage contributions.

Question - for the Form 5500-SF, are the 20 who did not receive contributions considered participants?  The compliance and 5500 software we use says yes and I guess it makes sense - you don't have to receive a contribution to be a participant, you only need to satisfy the plan's eligibility requirements.  I wanted to put this out there to see if anyone agrees or disagrees.  The client is getting a large contract that will add more SCA employees and I want to be sure we don't push them into a 5500 audit for the 2021 plan year if it isn't necessary.

First, always expand initials that are not all that common.  Most people will not know what SCA means and that means they would probably just skip your question.  As someone who has taught ASPPA courses on Davis Bacon/Prevailing Wage rules, I had to figure out what you were talking about myself. It hit me that you are talking about Service Contract Act coverage, right?

Anyway, none of that has anything to do with your question. Your software is correct. 

To avoid that audit, split your PW plan into two plan; employees A-L in one (or January through June birthdays) and M-Z in the other.  Now, you will have much longer before you get to the 120 participant issue. If you run the two plans as one plan with two divisions, you will find it very easy to handle and it shouldn't cost that much more in fees (just an additional 5500 really) other than the setup costs.  All the additional costs this way are almost guaranteed to be substantially less than the cost of an audit. 

That was going to be our recommendation to the client - splitting them into separate plans based upon the contracts they are working. We didn't want to go that route if there was another way to handle the participant count but I feel better making that recommendation now.

I've worked with so many clients that have Service Contract Act employees that I didn't even think to spell it out - but I'll keep that in mind.  Thank you!