A good and caring employer is often frustrated when they see their employees failing to save for retirement and therefore put their futures as well that of their families’ in jeopardy. Additionally, the amount of pay owners and certain employees can defer to the company’s 401K is tied to the amount hourly workers put away. Thus, it affects everyone’s ability to save for retirement.
Many Americans are at risk for not saving enough for retirement. Not having enough money for retirement can be scary, but for too many, instant gratification with use of their paycheck is all too hard to resist. One way to help workers save for retirement for companies that do prevailing wage work, is to use the fringe portion of the prevailing wage as it was intended. This intention is to provide bona fide benefits such as, you guessed it, retirement. When done right, this makes a difference for hourly workers and the amounts owners, key employees and non-prevailing wage workers can defer can be increased by prevailing wage contributions to retirement plans.
The Davis-Bacon Act requires all contractors and sub contractors working on federally funded projects to pay their employees prevailing wage rates and fringe benefits. The base wage rate is usually paid in wages to the employee but the fringe portion may be used to provide benefits, one such being, retirement. It can also be paid as additional wages and it’s all the decision of the employer. When employers choose to pay the fringe portion by way of benefits instead of extra wages, these moneys are taken off the payroll and exempt from taxes such as FICA, FUTA and SUCA. This creates an advantage for employers in immediate reduction in payroll burden. This means lower project costs which in turn means offering better bids which results in more winning more jobs.
Employers must have a traditional 401K plan, not a SIMPLE plan, to maximize the advantages of prevailing wage contributions made to retirement plans for hourly workers. Government contractors face unique challenges such as stopping contributions when a job ends and starting them again when a new one begins. Someone like Davis-Bacon Pension Plans, Inc. has the expertise to set up a specific plan just for prevailing wage contributions.
Companies specializing in prevailing wage benefit plans can help contractors use their contributions to retirement to benefit the whole company. The contributions can be looked at as if the employees chose to defer them. This increases the amount owners and key employees can contribute. These contributions can also decrease the cost of profit sharing for companies who do that while also increasing profit sharing amounts that can be contributed for other employees. Using the fringe portion as bona fide benefits is an affordable way to help employees save for retirement.
The fringe amount can be pretty high for some job classifications. Employers taking credit against their fringe amount when offering medical insurance often find themselves with leftover benefit dollars that can be used toward retirement. Some plan providers automatically allocate remaining fringe dollars to a prevailing wage retirement plan. This protects employees, promotes saving for retirement and maximizes payroll and tax savings for the employer.
Paying fringes is a requirement so why not do the right thing by your employees by safeguarding their future, especially if they won’t do it for themselves?