The Davis-Bacon Act is federal legislation that was enacted during the depression era in 1931 to prevent unfair labor practices in nonunion situations. Amended in 1935, it established a system of setting wage rates in advance of the contract bidding and in 1964 it was amended to include fringe benefits as well. The purpose of the Act was to support labor unions by protecting workers from the economic disruption caused by out of town contractors coming into an area and securing federal construction contracts by underbidding local wage levels. In a Davis-Bacon retirement plan, workers are provided with deferred compensation and tax favored accumulation while avoiding the costly ramifications of the fringe benefit component being classified as wages. This cost avoidance feature is advantageous to both the contractor and the employee. The contractor will recognize payroll tax savings, and Davis-Bacon fringe wages can also be contributed to a qualified plan and used as the required contributions for a safe-harbor 401(k) or the gateway allocation in a cross-tested defined contribution plan.

With a properly crafted plan, the contractor can discharge his or her Davis-Bacon obligation and at the same time set the foundation for maximizing deferrals and other contributions on their own behalf. Let us help you determine which plan best meets your needs.