United States: Health Care Dollars At Work: How Self-Funded Plan Dollars Can Fulfill Prevailing Wage Requirements

The Infrastructure Investment and Jobs Act (2021) and the Inflation Reduction Act (2022) provide ample opportunity for construction industry employers to win government contracts. For some employers, one hindrance to competing for government construction contracts is that under the Davis-Bacon Act, all government construction-related contracts require employers to pay their laborers and mechanics not less than the prevailing wage and fringe benefits. Often, employers who have chosen to provide self-funded benefits struggle to have such benefits credited toward the fringe benefit requirement.

However, for those employers offering self-funded health and welfare benefits, there are options to credit such benefits toward the prevailing wage requirements by qualifying the plan as a "bone fide" fringe benefit plan. One way to qualify as a bone fide fringe benefit plan under 29 C.F.R. 4.171 is for the employer to make an irrevocable contribution to cover potential benefits under the plan to a trust controlled by either a voluntary employees' beneficiary association (VEBA) or an independent trustee. However, making such contributions is irreversible and forces the employer sponsoring the plan to give up the flexibility to pay claims out of their general assets as they arise, which is often one of the attractions of a self-funded plan. Another option is to submit to the U.S. Department of Labor (DOL) an application requesting a determination that the plan is a bona fide fringe benefit plan under the Davis-Bacon Act. The process is straightforward and efficient, requiring the employer to gather and provide information showing that the plan satisfies the usual requirements for a welfare plan under ERISA. In most cases, the required information is readily available to the employer. Upon approval by the DOL, payments under the approved plan can be credited toward prevailing wage requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.