The Difference Between a 401(k) and a 401(a) (And Why It Matters)

I’m sure you’ve heard of a 401(k) as the type of retirement plan most commonly utilized by businesses and employers but what do you know about a 401(a)? Read on to learn more about the difference between a 401(k) and a 401(a) and what plan may be most meaningful to you and your business:

Let’s start with what the 401(k) and the 401(a) have in common. Both are workplace retirement plans under Section 401 of the Internal Revenue Code. To be honest, that’s about it. They may stem from the same 401 section of the tax code, but there are some pretty significant differences between the two.

The primary difference between the 401(k) and the 401(a) is the type of employer that is offering them. 401(k) plans are typically offered by private-sector employers. The 401(k) gives employees the option to invest pre-tax dollars out of their paycheck into their retirement. Employees have the option of determining the percentage and some companies further incentivize employees with a matching program. 401(a) plans are normally associated with the following: government agencies, non-profits, and educational institutions. 401(k) plans are open equally to all employees of a particular company. 401(a) plans offer greater opportunity for customization and are only offered to designated employees as an incentive for that employee to stay with an organization. The employer sets the employee contribution amount and the employer is mandated to contribute to the plan.

There are many other noteworthy distinctions between a 401(a) and a 401(k). 401(a) plan contribution amounts are set by the employer, while the 401(k) allows the employee to decide what they prefer to contribute. 401(k) plans present employees with a range of investment products while 401(a) plans turn over control of investment options to the employer. 401(a) plans make participation mandatory whereas 401(k) plans do not.

For a government contractor, there are considerations that go beyond just choosing a retirement plan for your employees. A government contractor is a competitor. Your private business must go toe-to-toe with other contractors. To be in fighting shape, you want your best team with you. You want to look after your valued team members and you want to be driving your costs down so that each bid you place is cost effective and competitive. A 401(a) may be the solution for you.

Why a 401(a)? As we have covered already, 401(a) plans  are the qualified retirement plan of choice for government agencies. It’s the standard for the industry you’re in, as a business that works so closely with these government entities. 401(a) plans are not covered by Title I of ERISA, so that means your state makes the rules. 401(a) plans offer the employer a great deal of control. These sorts of plans lend themselves to being more customizable and one of the greatest boons they offer is that the employer gets to designate which of their employees reap the benefits. Additionally, 401(a) contribution amounts are set by the employer, which provides additional control to the employer over the plan.  Control over the amounts of contributions and mandatory participation make 401(a) plans ideal for government contractors who have a fixed and required spend to provide their employees with benefits.

The Boon Group specializes in flexible, highly customizable retirement plans for small businesses. Our goal is to create a plan that does the most work for you and the employees you want to take care of. We are here to provide the plan design analysis that helps you identify the best way to allocate the money to the people you want and/or maximize your account. Boon can offer government contractors a more targeted plan design that is developed based on the demographics of your company. Our experts understand how to efficiently use the rules of the IRS to maximize your tax deduction and help you create a comfortable retirement for the employees you designate.

Want to learn more? Contact elittle@booninvestmentgroup.com and check us out at www.theboongroup.com.

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What is a Bona Fide Fringe Benefit?

So, you’re entitled to bona fide fringe benefits. What is that? Or maybe you’re an employer double-checking that you are satisfying all SCA benefit compliance requirements? You need to know that your employees are being taken care of!

You know The Boon Group® to be the benefits company focused on meaningful health and welfare benefits for government contractors, so trust us as your resource on bona fide fringe benefits.

Read on to learn more!

A quick lesson in linguistics: bona fide means something that is made in good faith without fraud or deficit; by extension, to be of earnest intent. Really, a great way to think about this is that a bona fide fringe benefit is the way an employer takes care of its employees, beyond the given expectations of wages for their hard work. In government contracting, bona fide benefits are the plans that you use to meet your fringe benefit obligations.

The devil is in the details, in particular the legalese. Per the Code of Federal Regulations, for a fringe benefit to be considered “bona fide” under the Occupational Safety and Health Act of 1970 the benefit must meet a particular criteria.

The first item on the checklist boils down to basic contract law. The provisions of your benefit plan must be clearly specified in writing. An employer, under the Service Contract Act or Davis Bacon Act(s), can sponsor and require participation in a plan using fringe dollars. Any contributions made by an employee to that plan must be totally voluntary and cannot be involuntarily deducted from the employee’s wages or used by an employer in satisfying any part of the fringe benefit obligation.

The fringe and prevailing wage regulations specify that any benefits provided by a government contractor must be benefits separate from or made in addition to the employee’s wages. It’s also permitted that fringe benefits can be furnished by cash or the equivalent benefits; payments on these benefits must be segregated as benefits, not as wages. Providing a benefit plan can reduce costs for contractors on bids, increase competitiveness against peers, all while simultaneously providing employees with best in class benefits. These benefits may be what give you the competitive edge in recruiting and retention of key employees. How do these bona fide fringe benefits make you more competitive? We’re glad you asked!

By entrusting your administrative needs to a third-party, rather than maintaining your own in-house team, you lower your personal costs which brings down the total of your bid. In the world of government contracts; winners are made on these small percentages. Use Boon’s superior administrative services, stand a head above your competition.

So what kind of benefits make up bona fide fringe benefits? Here are a few of our favorite examples:

  • Health Insurance
  • Disability Insurance
  • Retirement
  • Vision
  • Dental
  • Life
  • HRA and HSA plan

What is NOT considered a bona fide benefit? Basically, anything that your employer should be providing anyway:

  • Use of a company truck
  • Travel expenses
  • Statutory benefits like worker’s compensation, unemployment compensation, and social security contributions.
  • Tickets to theme parks and other entertainment venues
  • Use of company sponsored cafeterias

Fringe benefit contributions may be paid to an independent trustee or third-party pursuant to a bona fide fund, plan or trust. Fully Insured health plans have been a staple in government contracting. Self-funded plans have recently picked up in popularity, but are owed special attention. For example, unfunded “self-insured” plans, where a contractor typically pays claims out-of-pocket, require advance approval from the DOL’s administrator of the Wage and Hour Division.

So where do bona fide fringe benefit requirements come from? Well, there are two ruling acts that govern these standards for government contractors, at the federal level: The McNamara-O’Hara Service Contract Act of 1965, as amended (SCA) and the Davis-Bacon Act of 1931. States and other localities have multiple prevailing wage laws of their own.

The SCA, perhaps, has the longest reach of the two; the SCA applies to any employees working on a government contract for services valued at more than $2500. Generally, service contractors have minimum hourly requirements for wages and benefits. These hourly requirements for benefits are called fringe rates.

You can check out the rest of our blog for more info on the SCA and SCA compliance!

The Davis-Bacon Act (DBA) applies primarily to construction contracts and requires the payment of locally prevailing wages and fringe benefits. The intention of this piece of legislation is to prevent private contractors from under-bidding the unions.

Still have questions? At The Boon Group, our consultative business development team is specifically trained to answer any questions you or your broker have regarding your benefits and compliance. Reach out to The Boon Group, today!

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SCA: What Is It and How Do You Comply?

Government service contractors everywhere know the looming letters, S-C-A. This small acronym packs a big punch and can have a huge impact on government contractors and their projects. At The Boon Group®, we’re here to support our clients, not just in providing excellent, competitive benefits packages but in the nuts and bolts of this rapidly changing industry. Read on for your crash course in SCA standards and compliance, and how Boon is here to help you!

The McNamara – O’Hara Service Contract Act of 1965, as amended, also known as the “SCA,” is a US labor law and implementing regulations that dictates the wage, hour, and benefit standards that service contractors and subcontractors must adhere to when performing services on contracts valued in excess of $2500. This is the basis for compliance that binds the vast majority of government contractors. Generally, service contractors have minimum requirements that must be met for their employees’ wages and benefits. The hourly requirement for benefits is called a fringe rate and, because benefits are required to be tracked on an hourly basis, fringe rates can be a source of anxiety for contractors who are trying to fit more traditional monthly benefit plans into the hourly requirements associated with government contracts.

(Boon Tip: Fringe Rates are set, on a national scale, and change each summer. The current rate for 2017/2018 is either $4.41 or $4.13 depending upon applicability of EO 13706. Keep up with our blog for the latest industry updates.)

So what are the rules and requirements laid out n the SCA? The terms reside in Title 41 § 6702 of the U.S. Code and in the Code of Federal Regulations (29 CFR § 4.01, et seq.) but we’re going to break it down for you here!

At the most basic level, the SCA applies to any federal government or District of Columbia contract that involves a monetary value exceeding $2500 and its purpose is providing services in the US through the performance and use of service employees. Construction projects do not apply and adhere to chapter 65 of Title 41, but that’s another blog post! The SCA requires that service employees performing within an eligible government contract must be paid monetary wages and must be provided with fringe benefits in specified amounts. The following is a breakdown of requirements for contractors, with respect to how they satisfy the SCA’s fringe benefit obligation:

  • That fringe benefits be furnished separately from and in addition to specific wages;
  • The requirement may be discharged by providing equivalent benefits or direct cash payment in lieu of benefits;
  • Tracking and maintaining proof of fringe benefit compliance;
  • Benefits must be bona fide;
  • And payments must be segregated as benefits, not wages.

If a contractor is found to be in violation, the SCA provides the authority to withhold contract funds, hold the contractor liable for any associated costs to the government, terminate the contract, and (worst of all) debar that contractor from future government contracts for three years!

At The Boon Group, we are here to help you navigate your way to the health and welfare benefit plan that best suits your needs and the needs of your employees. Government contractors choose Boon for three reasons: 1) Cost Savings, 2) Competitiveness, and 3) Compliance. We offer competitive rates and comprehensive care, with affordability and flexibility in mind. Boon has dedicated account representatives and counselors on call to help you choose the plan that is right for you. A little goes a long way and Boon recognizes that lowering costs on a contract today means bigger savings tomorrow.

Not only is The Boon Group competitive in our industry, but we want to help you be competitive in yours by offering you benefit plans that facilitate the savings that lead to lower contractor bids and more opportunity. At Boon, we understand that benefits are more than just solutions; when it comes to employee care, they are a boon to contractors, themselves.

Which brings us full circle to compliance. Boon’s in-house compliance department is there to provide support for any compliance issues that may arise, handling each situation with the utmost discretion and efficiency. Our team is here, adjusting to each new executive order and change in legislation and offering full support in the constantly evolving field of compliance and government contract standards.

Curious about EO 13706? Stay tuned.

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The DOL Rule is Mostly Dead, The SEC Proposal is Out There, and The Future is Murky

A death. A failed rescue attempt. An eleventh hour development on the horizon. Who says the world of healthcare is boring!?

The attempts of the AARP and three state attorneys general were unsuccessful in reviving the dying Department of Labor (DOL) fiduciary rule. In an attempt to save the rule, on April 26, a coalition of attorneys general from California, New York, and Oregon filed to intervene, in a lawsuit challenging the DOL regulation and requested an en banc rehearing of the March 16 decision that vacated the fiduciary rule. On Thursday, May 3, the court denied both of these motions unceremoniously.

It is possible the court may decide to re-hear the case on its own, but that is unlikely. However, the rule is not officially dead until the First Circuit issues its mandate vacating the rule. The Court was expected to issue its mandate on May 7, 2018, but it did not.

With the DOL rule essentially out of the picture, all eyes turn to the Securities and Exchange Commission (SEC) proposal. The SEC now has responsibility for setting fiduciary and “best interest” standards. Their latest proposal sets that standard for “best interest” and calls on brokers to establish policies to identify and avoid conflicts. The SEC proposal also maintains a FINRA arbitration process. This standard could potentially have far-reaching influence on how the NAIC regulates the sale of securities, if adopted.

The Labor Department and Internal Revenue Service clarify that brokers can continue to earn income through commissions when offering mutual funds and other savings products. While the Fifth Circuit Court of Appeals’ decision eliminated those new fiduciary requirements that went into effect this year, it does away with the “Best Interest Contract Exemption.” The BIC provides a means for advisors to offer advice as an ERISA fiduciary and still receive commissions.

The Department of Labor has until June 13, 2018 to appeal the Fifth Circuit’s decision to the Supreme Court. However, given the fact that they passively allowed the deadline to appeal the decision to pass, it’s unlikely they will move on this issue. Meanwhile, the SEC proposal is open for public comment and the Department of Labor has suggested that financial institutions continue to rely on the temporary enforcement policy.

This is a developing issue. Follow the Boon Blog for the most current updates as the situation unfolds.

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2019 HSA Limits Announced by the IRS

This update is hot off the presses! On May 10, the IRS announced that the annual limit on Health Savings Account contributions will increase by $50 for individuals and $100 for families next year.

In 2019, the annual contribution limit for individuals has been set at $3500 for self-only coverage, versus the 2018 rate of $3450. For family coverage, that limit ha gone from $6900 to $7000.

An HSA must be combined with a high deductible health plan. The IRS also announced the 2019 High Deductible Health Plan minimum deductible amounts. The minimum deductible for a qualifying high-deductible health plan has not changed for 2019. For 2019, the minimum annual deductible for a HDHP (individual) is $1350, unchanged from last year. For families, the minimum annual deductible rate remains consistent at $2700.

Under the Affordable Care Act, a group health plan cannot require an individual to spend more than a specified annual maximum amount on covered services. The IRS announced that for 2019, the maximum annual out-of-pocket on individual plans is $6750, an increase of $100 from 2018. For 2019, the maximum annual out-of-pocket amount for family plans is $13,500, an increase of $200 from 2018.

The Boon Blog is your resource for the latest in industry news. Follow the Boon Blog and catch us on Facebook, Twitter, and LinkedIn for all things Boon!

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Fiduciary Responsibility, Your Third-Party Services Provider, and You

Fiduciary responsibility. Liability under ERISA. Compliance.

Seems a little daunting when it’s laid out like that, doesn’t it? As a government contractor it’s important to understand the risks and benefits associated with choosing a third-party provider to administer your benefits plans. Read on to learn more:

Plan fiduciaries are the individuals or entities that manage an employee benefit plan and its assets. Per ERISA, a plan must have at least one fiduciary named in the plan, in writing. Most often, the employer is the Plan Administrator, or named fiduciary. Additionally, Trustees, investment advisers, and other entities or individuals who exercise discretion over plan assets may also be plan fiduciaries; attorneys and accountants that are acting solely within their professional capacity, or others who are providing ministerial services only, are not plan fiduciaries.

It is imperative to understand that even if an employer uses a third-party service provider, that employer, as the Plan Administrator named fiduciary, has fiduciary responsibilities. In fact, the named fiduciary has the most extensive responsibility, which includes all phases of plan management. Failure to properly exercise that fiduciary responsibility can make the employer culpable for any negligence or wrong-doing on the part of the third-party service provider the employer chose to provide the services.

ERISA defines the responsibilities of the plan fiduciary as follows:

  • The Duty of Loyalty: The Duty of Loyalty requires the fiduciary to act solely in the interest of the plan participants.
  • The Duty of Care: This duty requires a fiduciary to act with the care, diligence, and skill under the circumstances that a prudent person, acting in a like capacity and with the same expertise, would use in a similar enterprise.
  • The Duty to Provide Investment Diversification: This duty requires the diversification of plan investments to minimize the risk of large losses unless it is not prudent to do so, under the circumstances.
  • The Duty to Adhere to Plan Documents: This duty requires that the fiduciary must act in accordance with governing plan documents and instruments that are consistent with ERISA.

Fiduciaries can also be held liable for the acts, errors, and omissions of outside entities that provide services to the benefit plan. This can include organizations that service pension and benefit plans, consulting firms, law firms, accounting firms, investment advisers, and trust departments.

When choosing an employee benefits company, you’re choosing more than just an entity to handle your administrative and employee benefit needs. You’re choosing to take part in a working relationship that requires trust. For 35+ years, The Boon Group has succeeded with a model of creating strong relationships and providing meaningful benefits. We believe healthcare should be flexible, affordable, and, most of all, transparent and compliant.

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SEC Proposes its Own Fiduciary Rule

The DOL’s fiduciary rule has been a point of contention in the industry. Many financial groups claimed that the rule was overly burdensome and there was a fear of the rule driving up the cost of providing financial advice regarding retirement. The 2-1 decision from the U.S. Fifth Circuit Court of Appeals voiding the rule was a big win and it looks like there may be another one on the horizon!

That potential victory comes in the form of a fiduciary rule proposed by the Securities and Exchange Commission (SEC). Issued on Thursday, this rule would not pile on restrictions for brokers and advisors. The rule was approved by the SEC in a 4-1 vote and leans greatly in the favor of the industry, which is what critics of the rule are hanging their hat on.    The SEC proposed rule continues the status quo. Of course, this is a battle won in a long war and we will have to wait and see how the new rule stands up against Congress.

But, for now, let’s talk about what’s in the proposed SEC fiduciary rule and what it could mean for brokers and advisors!

The proposed rule puts forth different standards for brokers and advisors, in acknowledgment of the differences between how the two maintain relationships and dispense advice. For brokers, the SEC rule requires the “best interest” standard that we all know well by this point; no broker can put their own interests or the interests of the firm they represent over the interests of their client. The SEC proposal also provides some flexibility in terms of conflicts for brokers. The rule does not prohibit a broker-dealer from having conflicts, so long as the broker-dealer discloses those conflicts when making a recommendation. These disclosures would include those related to compensation and in-house products.

Advisors must abide by a more-stringent fiduciary standard. Critics of the rule claim that the proposal blurs the distinction between standards of care between brokers and investment advisors. The rule also provides no clarification on the difference between a sales and an advisory relationship. This has cast some doubt as to whether the rule will ever be successfully implemented.

Another point that the proposed SEC fiduciary rule addresses is the occasionally muddy waters of titles. Per the SEC rule, brokers and broker-dealer firms cannot call themselves “advisors/advisers.” However, hybrid RIA/brokers are exempt from this and open to some flexibility.

Both advisors and brokers will be required, under the new rule, to provide clients with a relationship-summary disclosure. This would detail the nature of their relationship, the services and costs associated, any existing conflicts of interest, an expected standard of conduct, and any legal or disciplinary events or actions.

It remains to be seen what the future of the SEC proposed fiduciary role will be.  The proposal is currently in a public comment period that will last 90 days from the date the proposal was issued (Apr. 18). Additionally, the AARP has thrown their hat into the ring with an attempt to revive the DOL fiduciary rule. The AARP, backed by attorney generals from various states, have appealed to the Fifth Circuit and are requesting permission for an en banc review of the ruling against the DOL rule.

The Boon Group is dedicated to providing effective investment management services. Asset allocation? You bet. Performance monitoring and portfolio analysis? We got this! At Boon, we are set up to be a Fiduciary and always act in the best interest of our clients; the one constant in these uncertain times. Boon isn’t shaken by these changes and are steady in our commitment to you!

This is a developing issue that we will be watching closely. Follow the Boon Blog for the latest in industry updates and all things Boon! You can also catch us on Facebook, Twitter, and LinkedIn!

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