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How to Take Advantage of the Economic Stimulus Act - While Following the Rules

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Many Americans are looking to the American Recovery and Reinvestment Act (ARRA) for business opportunities – and agents are no exception. With $308 billion allocated to infrastructure projects, working with contractors who bid on public works projects may offer one of the most promising opportunities.

The ARRA includes a provision that all resultant projects fall under the provisions of the Davis-Bacon Act. The Davis-Bacon Act, passed in 1931, requires payment of locally “prevailing wages” including the “anticipated cost of prevailing benefits.” This is generally expressed as a per-hour wage and per-hour cash equivalent value of benefits, and is often based on a union scale. Prevailing wages are included in the bid specifications of covered contracts and are usually set by the U.S. Department of Labor for federal jobs and by the individual states for state level work. Some states use the Davis-Bacon wage determinations instead of performing their own wage surveys for state-level work.

Many contractors pay the fringe benefit portion of the prevailing wage as additional cash wages, believing it’s the easiest way to comply with the law. This is, however, the most expensive way to comply. Allocating the fringe amount to a bona fide benefit plan or plans results in significant cost savings on payroll burden because these monies are not subject to FICA, FUTA, state unemployment taxes, or workers’ compensation insurance. Retirement, medical, dental, vision, and life insurance plans are among the benefits that might be included in a bona fide benefit plan offering. Lower costs mean lower bids and a better chance of winning jobs.

Prevailing wage contributions made for hourly employees can also drastically increase the amount that owners and key employees can put away for their own retirement. Most traditional retirement plan administrators don’t use this simple yet powerful feature. By putting these contributions to work, business owners can reduce their profit-sharing costs while increasing the amount of profit sharing they can allocate to themselves and other key employees. Showing contractors how they can save money on payroll expenses and invest in their retirement by allocating the fringe portion of the wage to a bona fide benefit plan (or plans) is a tremendous way for brokers to add value for clients.

The need to be cautious

This is, however, a complex and highly regulated niche. The Obama administration has been vocal about its commitment to accountability and transparency regarding projects funded by the ARRA, and the DOL has already begun hiring hundreds of additional investigators.

Brokers considering entering this market are advised to partner with a firm that specializes in benefit plans for government contractors. Traditional benefit plan providers often struggle with prevailing wage plans because of the seasonal nature of construction work, and a company that specializes in bona fide benefit plans for government contractors can easily discontinue contributions to the plan when a job is finished and resume them when the next prevailing wage job starts.

Another important differentiator in prevailing wage benefit plans is hour-banking, which enables employers to offer medical benefits for hourly workers even during slow times or layoffs.

In a slow economy, agents are looking for ways to diversify. ARRA’s opportunities are attractive, but given the complexity of this market, it’s advisable to work with an experienced partner that can provide guidance and support.

Adam Bonsky is executive vice president of Fringe Benefit Group. He can be reached at 800-662-6177 or [email protected].