1. 401(k) Plans
and Prevailing Wage Fringe Benefits
Leslie O’Bryan, ERPA

2. Purpose of Presentation
This presentation discusses the 401(k) plan arena and specifically how
prevailing wage fringe benefits affect plan design.

3. What is Prevailing Wage?
• Prevailing Wage is defined as the hourly wage,
usual benefits and overtime, paid in the
largest city in each county, to the majority of
workers, laborers, and mechanics.
• Prevailing wages are established, by the
Department of Labor & Industries, for each
trade and occupation employed in the
performance of public work.
• A portion of the prevailing wage is designated
as a fringe benefit and can be used to pay for
benefits including contributions to qualified
retirement plans.

4. 401(k) Plan Matching
• A 401(k) plan also allows the opportunity for the employer to do a
company match, which can be completely discretionary and made per
payroll period or annually. The formula is determined by the
employer.
• This type of company match can also be subject to a vesting schedule.

5. 401(k) Plan Matching
Special nondiscrimination tests,
called Average Deferral Percentage
tests (ADP) and Average
Contribution Percentage (ACP),
require the Highly Compensated
Employee’s (HCE’s) and Non Highly
Compensated Employee’s (NHCE’s)
to be no more than 2% different.

6. Just the Facts about 401(k) Plan
• The company that employs people
working on projects qualifying for
prevailing wages must establish the
401(k) plan.
• The rules of the plan are defined by
the company owner.
• Prevailing wage contributions are not
optional by each participant.
• Every plan is different.
• It is a common misconception
that the rules say “you must” do
certain things. There are no
“musts”, just decisions to be
made by the company.

7. Just the Facts about 401(k) Plan
• The company is required to draft
an adoption agreement outlining
the rules of the plan.
• A summary plan description will
be provided to employees which
describes the options chosen by
the company.

8. Prevailing Wage & 401(k) Plan
• Construction projects for governmental entities require prevailing
wage fringe benefits as a component of hourly wages.
• It can be paid to the employees or contributed to a 401(k) plan.
• Using a 401(k) plan reduces FICA and unemployment taxes paid by
the employer.

9. Prevailing Wage Contributions
• Prevailing wage fringe benefit contributions can be used in several
ways in a 401(k) plan by the choice of the company. This could:
• Offset company contributions
• Pass discrimination testing which is required by some 401(k) plan design
options

10. Prevailing Wage & 401(k) Plan
• Prevailing wage contributions is a big decision as it determines if
participants may have access to the prevailing wage contributions in
time of hardship or it may save the company in matching
contributions which would have been required to be paid.

11. 401(k) Plan Provisions
• There are different types of contributions allowed in a 401(k) plan.
There could be the following:
• Prevailing wage contributions: an employer contribution
• Salary deferral: pretax or Roth
• Company Match
• Company Profit Sharing
• Rollover from another company or an IRA

12. We would be happy to answer your questions about prevailing wages
and 401(k) plans.
Feel free to give us a call. We love to inform companies about their
plan options.
Lobryan@benadms.com 859.255.1154