The Advantage of Putting Fringe Benefits Towards a Retirement Plan

The Advantage of Putting Fringe Benefits Towards a Retirement Plan

In the government contracting space, contracts are won on narrow margins of dollars and cents – and good sense! Utilizing the fringe dollars required by government contracts on employee benefits allows these dollars to be used to the contractor’s advantage. Simply put, applying fringe benefits towards a retirement plan can offer advantages to the savvy contractor.

Fringe Benefits Offer an Advantage

Contractors that are subject to the prevailing wage of the Service Contract Act are obligated to utilize the fringe rate in the form of either cash paid to the employee or as a bona fide health and welfare benefit. Fortunately, government contractors get to choose how to spend the fringe dollars. While there are arguably pros and cons to each option, choosing to provide benefits comes with certain unique advantages to the employer.

A contractor that opts to pay the fringe benefit out in cash must take on the burden of payroll taxes, workers’ compensation, etc. – each an additional cost that can quickly add up! Alternatively, using the fringe to provide employee benefits allows a contractor to avoid the additional payroll taxes and worker’s compensation applicable to the fringe, and also offer valuable employee benefits, such as a healthcare or retirement plan, to the workforce that can help attract and retain employees. The cost savings and talent retention may lead to better bids and higher odds of winning a contract.

Putting Fringe Benefits Towards a Retirement Plan

When we think of bona fide fringe benefits, healthcare is usually the first benefit that comes to mind. However, rising healthcare costs and the fringe rate’s failure to keep up, often make health insurance a complicated choice. Even if an employer chooses to provide healthcare, depending on the plan chosen, the fringe amount required in the contract may fall short of the amount required to satisfy the health premium. In this situation, or others such as small employers or employers with a substantial workforce of former military members that already have access to benefits, a retirement benefit may be the better solution.

Employers often find themselves at odds with the desire to provide benefits that attract employees and the employees that push to have the fringe paid out in cash. Putting the fringe towards a retirement plan, is an alternative that allows employees to more clearly see the monetary investment that the employer is making in its employees.

Designing Retirement Solutions for the Government Contractor

Designing a customized retirement plan for the government contracting industry can be different from creating a retirement plan for the commercial world. Government contractors have unique compliance concerns and additional obligations that must be accounted for. For example, a 401(a) may be a preferable alternative to the 401(k) for contractors. This is because the contributions are made on a non-elective basis.

As with any aspect of government contracting, rigorous administrative work, including plan reporting and documentation is required. Both cornerstone components of compliance. This level of administrative burden can deter contractors from opting to contribute the fringe benefits to retirement. However, with the help of a third-party administrator or a registered investment advisor, contractors can relax.

Rest Easy With Our Retirement Plans

Boon’s retirement services provide a variety of solutions to meet the needs of the government contractor. As a registered advisor, Boon Investment Group, Inc. provides transparent, effective, and professional investment management services to retirement plans. Boon builds customizable solutions to fit each contractor’s specific needs – with advantages to both the employer and employee.

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