Prevailing Wage Retirement Plans

Prevailing Wage is the minimum hourly wage rate, including all fringe benefits, that must be paid to workers on public works projects, as determined by the US Dept of Labor.

The wage determination obligation may be satisfied by:

• Paying the benefit in cash
• Contributing payments to a bona fide plan.
• You as the Employer can choose a combination of those two options.

Contractors typically pay the “base” amount in cash and then choose how to pay the “fringe” portion.

• Example: if a worker’s base pay on a project is $30 an hour and the fringe benefits amount is $10 an hour, the contractor can pay out the $10 in fringe benefits as wages, essentially increasing the worker’s hourly pay to $40, or they can elect to put that $10 into a benefits plan for their employee.
• Paying the fringe portion in cash is the most expensive way since cash wages are subject to payroll taxes.

The employer advantage of depositing "fringe" benefit into a retirement plan?

• Prevailing Wage contributions can be used to satisfy discrimination testing in a retirement plan which increases the amount the highly compensated employees can defer into the 401k plan.
• Prevailing Wage contributions can be used to offset profit sharing contributions by the amount of the prevailing wage contribution.

Benefits to the employee

• 100% Vested Immediately
• Tax Deferred Contributions
• Tax Deferred Earnings