Davis Bacon - HCEs benefitting and impacting test results

We have a Davis Bacon plan that excludes HCEs but the owner's children received Davis Bacon contributions within the plan. We have 2 issues, the plan sponsor did not follow the terms of the plan document and, if these contributions are to stay in the plan, the plan will fail 401(a)(4) testing.

If Davis Bacon contributions are irrevocable, can we even remove these ineligible contributions from the plan? Or must the plan go through VCP to retroactively correct the plan to include these HCEs for the Davis Bacon contributions?  

The plan allows for cross-testing using individual rate groups. Assuming the contributions need to remain in the plan, could the plan fund a rather large contribution percentage to a select group of lower-paid NHCEs to pass the test? Although this isn't an 11g amendment, if the benefit is not meaningful under a cross-tested plan, could it be construed as a scheme or abuse by the IRS?

So you have two separate issues - plan compliance and DBPW compliance. If the Plan excluded HCEs from participation, w/o specific exception for those subject to prevailing wage, then they should not be in the plan and those contributions should be forfeited. That takes care of plan compliance. I expect the Plan has provisions for inclusion of ineligible employees by mistake.

Now you have a DBPW compliance issue, which you need to satisfy by paying these employees cash compensation or some other permissible DBPW benefit.

If the HCEs legitimately remain in the Plan and get these contributions, then you need to look at all the available avenues for passing 401(a)(4). You don't say how you are testing and failing, or by how much, so it's difficult to suggest a course of action - cross-testing, restructuring, 11(g), and whether you also have coverage issues, can satisfy gateway, etc. but you can and should look at all if necessary.