FBG Responds to Department’s NPRM
June 15, 2022
In response to the Department of Labor’s (Department’s) notice of proposed rulemaking (NPRM), updating the Davis-Bacon and Related Acts Regulations, Fringe Benefit Group worked with The Groom Law Group on comments promoting retirement savings and limiting the administrative burden on contractors.
In March, the Department issued the NPRM, representing the most comprehensive review of the Davis-Bacon Act regulations in 40 years. The Department encouraged interested parties to submit comments on this proposal by May 17, 2022.
The proposed updates were extensive and involved a broad range of changes. Our expertise allowed us to focus on the proposed rules that would have the greatest impact to our clients and their benefit plans. Based on our years of experience and countless conversations with contractors, we knew it was imperative to provide comments on two fundamental aspects: encouraging retirement benefits and addressing the advantage of simplifying administrative requirements.
Our comments emphasize that the Departments proposed updates can be enhanced for both covered workers and contractors. We underscore that covered workers should have access to the highest quality benefits, such as retirement savings. In addition, these benefits should be portable, so they do not risk losing access to them when moving from project to project. We also reiterate that covered contractors want to meet their DBRA requirements and use their fringe benefit programs to attract and retain superior workers.
These interests align with a regulatory scheme that appropriately protects workers’ interests but does not create excessive administrative requirements. Therefore, it is essential that requirements are consistent and streamlined, ultimately minimizing the potential of high administrative costs so as not to limit contractors’ ability to offer such benefits but rather to encourage them to provide the highest-quality benefits and workers’ access to them.
In direct support of congressional efforts to boost retirement savings, we encourage the Department to include a safe harbor provision to automatically qualify defined contribution pension plans (DCPPs) for the annualization exception when they meet the exception requirements. This change would help eliminate an unnecessary burden on contractors and administrators who would otherwise prepare submissions for all fringe benefit plans seeking an exception from an annualization requirement.
Having a safe harbor included in the DCPP would also help address time constraints and administrative complexity, which would help encourage small businesses or new entrants to pursue opportunities covered by the DBA or DBRA. And demographically, covered workers in these scenarios are the ones who could benefit the most by achieving improved financial security.
Alternatively, we proposed that the Department adopt a concept that has been used successfully in other contexts by federal agencies for many years and allow contractors to adopt “pre-approved” plans that have met the annualization requirements. This, again, benefits both covered workers and contractors by supporting the provision of worker benefits and affording timely and efficient administrative requirements for the contractors.
The proposed regulations also include a new provision that a contractor or subcontractor may not take Davis-Bacon credit for its administrative expenses incurred with the administration of fringe benefits. The Department has specially requested comments concerning “whether it should clarify this principle further concerning third-party administrative costs.”
In our response, we stressed that the Department should confirm that reasonable administrative expenses paid to a third party and directly related to the provision of fringe benefits should be creditable. Essentially, if the third party expense would not have been incurred “but for” the provision of fringe benefits, it should be creditable, encompassing administrative costs associated with providing fringe benefits to employees and the administration and delivery of benefits.
This recommendation is consistent with ERISA, the governing statute of employee benefit plans, allowing plan assets to “defray reasonable expenses of administrating the plan.” In other words, Congress and the Department have determined that benefit plan assets can be used to pay for plan administrative expenses. In addition, allowing employers to receive credit for reasonable expenses paid to third-party providers encourages them to utilize providers who can efficiently maximize the value to covered employees. Furthermore, any additional costs would disproportionately impact smaller businesses, which often struggle the most in absorbing added expenses.
We hope that the Department will incorporate our suggestions, making it easier to access retirement savings benefits and less burdensome for contractors to administer benefits and overall compliance.