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A Davis Bacon Plan is a qualified employer sponsored plan. This type of plan is named after the Davis-Bacon Act which requires contractors to pay workers the prevailing wage rate on certain federally funded projects. The prevailing wage rate is usually a combination of a base rate and a fringe benefit. Fringe benefits can be paid as wages or paid to a retirement plan on the participant’s behalf. If the fringe benefit portion is paid as wages, then it is subject to the normal payroll taxes. However, if it is paid to a retirement plan, this money will not be subject to FUTA, FICA, SUTA, Medicare and Workers’ Compensation premiums and the employer will spend less on payroll taxes.

For simplicity, the Davis-Bacon portion is usually subject to immediate eligibility. Otherwise the fringe benefit must be paid in cash until eligibility is met. The Plan will also apply immediate vesting since this benefit is in lieu of income.

A Davis Bacon plan can be a profit sharing plan, a 401(k) plan or a money purchase plan. Vesting schedules and end of year requirements can be applied to employer contributions.

 

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