Get Your Piece of the Stimulus

We are in the midst of a perfect storm in the benefits industry. Government contractors—and the independent insurance agents who serve them—have never had so much opportunity mixed with so much challenge. If you’re looking for new clients or even new ways to help your existing clients, consider the opportunity created by the American Recovery and Reinvestment Act of2009 (ARRA). Contractors working on government jobs being created by the ARRA have serious needs and this is a great opportunity for agents and brokers to add value.

The economic stimulus money from the ARRA is flowing into individual states, and the total budget for infrastructure projects is $308 billion with the goal of creating 678,000 new construction-related jobs. Residential and commercial construction projects are scarce, so the public works bid lists for these jobs are overcrowded. In the past year, more than 50,000 new contractors have registered to perform public works and bids that used to have six to 10 bidders now have 20 to 30 or even close to 100 in some states. Even the largest contractors are losing bids on a consistent basis given the lowest bidder wins aspect of public works projects.

And while competition for ARRA jobs is fierce, government compliance has never been tougher because of the new administration’s increased scrutiny. The Department of Labor (DOL) is hiring 300 new investigators and 100 of them will be in the wage and hour department. Further, the DOL has increased its goal for Davis-Bacon Act contractor investigations from400 per year to 1,100 per year. In the past all investigations were complaint driven, but they will now be directed. Government contractors need a partner that can help keep them comply with wage and hour expectations and the individual state laws that will govern much of this work.

The ARRA includes a section requiring Davis-Bacon Act coverage, which mandates payment of locally “prevailing wages” and fringe benefits to workers employed on direct federal contracts in excess of $2,000 for construction, alteration or repair of public buildings or public works. All projects resulting from the ARRA will include Davis-Bacon coverage. Just to clarify the potential, more than $35 billion was spent on infrastructure projects in 2009 and $111 billion has been allotted for 2010. This is a significant opportunity for agents who already serve government contractor clients—or agents seeking new business.

Many contractors pay the fringe benefit portion of the prevailing wage as additional cash wages, believing it’s the easiest way to comply with the law. In reality, this is the most expensive way to comply. Allocating the fringe amount to a bona fide benefit plan or plans results in significant cost savings on payroll burden because these monies are not subject to FICA, FUTA, state unemployment taxes and workers compensation insurance. Benefits that might be included in a bona fide benefit plan offering are retirement, medical, dental, vision and life insurance plans.

Showing contractors how they can save money on payroll expenses by allocating the fringe portion of the wage to a bona fide benefit plan is a tremendous way for agents and brokers to add value. Contractors must find ways to cut costs, particularly in the area of payroll burden, to compete for and win these ARRA jobs. Lower costs mean lower bids and a better chance of winning jobs. What’s potentially even more attractive for business owners is the fact that that offering these bona fide benefit plans can save them thousands or tens of thousands in tax dollars, enabling them to leverage the fringe to boost what they can put away for retirement. Many company owners and traditional 401(k) plan administrators don’t realize that prevailing wage contributions can be counted as elective deferrals for the hourly workers who receive them.

A huge opportunity exists for agents and brokers serving contractors working on ARRA projects. Given the administration’s increased focus on compliance and audits, these government contractors are looking for experienced partners to assist them. Agents interested in assisting government contractor clients should look for carriers that specialize in prevailing wage work. Using a firm that understands federal and state regulations, is familiar with recordkeeping requirements, and offers a full complement of benefits to allocate the full fringe amount can give your contractor clients the advantage needed to compete in a crowded bidding environment.

The ARRA is providing agents with a perfect storm of opportunity—act now to learn about how you can get your piece of the stimulus package.

Adam Bonsky (abonsky@fibi.com) is executive vice president of government markets for Fringe Benefit Group.