Using Your Retirement Plan to Make Your Bids More Competitive
by: Jeremy Rivers, CFP®, Stonebridge Financial Group
In today’s world, retirement plans such as a 401(k) are not only commonplace, but are almost a requirement. Whether you are talking about attracting new talent or retaining your current employees, giving people the opportunity to save for their retirement is something most employers need to consider. Defined benefit plans are far less common these days. As such, most employees are realizing the need to plan for their own retirement. Sure, employers will reap the benefits of their company contributions being tax deductible, but what if there was another way a contractor could leverage their retirement plan to help make bids more competitive? The Davis Bacon Act can allow employers to do just that.
The Davis Bacon Act, which is a federal prevailing wage law, involves contractors who work on federal contracts. In general, projects subject to prevailing wage must provide wages and benefits that would be provided to a union contractor. This total prevailing wage compensation has two parts: the prevailing wage and the prevailing wage fringe. Contactors have the option of paying both pieces in cash or electing to pay part in cash and part as a retirement plan contribution.
Some of the benefits of using this strategy are:
- Cost savings. Payments made into the retirement plan save the company in payroll taxes.
- More competitive bids. The cost savings can help translate to a lower and more attractive bid.
- Discrimination testing. These payments can help business owners pass the required discrimination testing for their retirement plans.
- Increasing contributions for owners. Because of the nature of these payments, owners who were previously restricted in their own contributions will have more flexibility.
Prevailing wage retirement plans can be established easily, and in the event a contractor stops performing prevailing wage work, can also be closed down.
Securities offered through Triad Advisors, LLC, Member FINRA/SIPC. Advisory services offered through Triad Hybrid Solutions, LLC, a registered investment advisor. Stonebridge Financial Group, LLC and Triad Advisors, LLC are not affiliated.
Posted June 25, 2022