(a) To be considered a ``bona fide'' fringe benefit for purposes of
the Act, a fringe benefit plan, fund, or program must constitute a
legally enforceable obligation which meets the following criteria:
(1) The provisions of a plan, fund, or program adopted by the
contractor, or by contract as a result of collective
bargaining, must be specified in writing, and must be communicated in
writing to the affected employees. Contributions must be made pursuant
to the terms of such plan, fund, or program. The plan may be either
contractor-financed or a joint contractor-employee contributory plan.
For example, employer contributions to Individual Retirement Accounts
(IRAs) approved by IRS are permissible. However, any contributions made
by employees must be voluntary, and if such contributions are made
through payroll deductions, such deductions must be made in accordance
with Sec. 4.168. No contribution toward fringe benefits made by the
employees themselves, or fringe benefits provided from monies deducted
from the employee's wages may be included or used by an employer in
satisfying any part of any fringe benefit obligation under the Act.
(2) The primary purpose of the plan must be to provide
systematically for the payment of benefits to employees on account of
death, disability, advanced age, retirement, illness, medical expenses,
hospitalization, supplemental unemployment benefits, and the like.
(3) The plan must contain a definite formula for determining the
amount to be contributed by the contractor and a definite formula for
determining the benefits for each of the employees participating in the
plan.
(4) Except as provided in paragraph (b), the contractor's
contributions must be paid irrevocably to a trustee or third person
pursuant to an insurance agreement, trust or other funded arrangement.
The trustee must assume the usual fiduciary responsibilities imposed
upon trustees by applicable law. The trust or fund must be set up in
such a way that the contractor will not be able to recapture any of the
contributions paid in nor in any way divert the funds to its own use or
benefit.
(5) Benefit plans or trusts of the types listed in 26 U.S.C. 401(a)
which are disapproved by the Internal Revenue Service as not satisfying
the requirements of section 401(a) of the Internal Revenue Code or which
do not meet the requirements of the Employee Retirement Income Security
Act of 1974, 29 U.S.C. 1001, et seq. and regulations thereunder, are not
deemed to be ``bona fide'' plans for purposes of the Service Contract
Act.
(6) It should also be noted that such plans must meet certain other
criteria as set forth in Sec. 778.215 of 29 CFR part 778 in order for
any contributions to be excluded from computation of the regular rate of
pay for overtime purposes under the Fair Labor Standards Act
(Secs. 4.180-4.182).
(b)(1) Unfunded self-insured fringe benefit plans (other than fringe
benefits such as vacations and holidays which by their nature are
normally unfunded) under which contractors allegedly make ``out of
pocket'' payments to provide benefits as expenses may arise, rather than
making irrevocable contributions to a trust or other funded arrangement
as required under Sec. 4.171(a)(4), are not normally considered ``bona
fide'' plans or equivalent benefits for purposes of the Act.
(2) A contractor may request approval by the Administrator of an
unfunded self-insured plan in order to allow credit for payments under
the plan to meet the fringe benefit requirements of the Act. In
considering whether such a plan is bona fide, the Administrator will
consider such factors as whether it could be reasonably anticipated to
provide the prescribed benefits, whether it represents a legally
enforceable commitment to provide such benefits, whether it is carried
out under a financially responsible program, and whether the plan has
been communicated to the employees in writing. The Administrator in his/
her discretion may direct that assets be set aside and preserved in an
escrow account or that other protections be afforded to meet the plan's
future obligation.
(c) No benefit required by any other Federal law or by any State or
local law, such as unemployment compensation, workers' compensation, or
social security, is a fringe benefit for purposes of the Act.
(d) The furnishing to an employee of board, lodging, or other
facilities under the circumstances described in Sec. 4.167, the cost or
value of which is creditable toward the monetary wages specified under
the Act, may not be used to offset any fringe benefit obligations, as
such items and facilities are not fringe benefits or equivalent benefits
for purposes of the Act.
(e) The furnishing of facilities which are primarily for the benefit
or convenience of the contractor or the cost of which is properly a
business expense of the contractor is not the furnishing of a ``bona
fide'' fringe benefit or equivalent benefit or the payment of wages.
This would be true of such items, for example, as relocation expenses,
travel and transportation expenses incident to employment, incentive or
suggestion awards, and recruitment bonuses, as well as tools and other
materials and services incidental to the employer's performance of the
contract and the carrying on of his business, and the cost of
furnishing, laundering, and maintaining uniforms and/or related apparel
or equipment where employees are required by the contractor, by the
contractor's Government contract, by law, or by the nature of the work
to wear such items. See also Sec. 4.168.
(f) Contributions by contractors for such items as social functions
or parties for employees, flowers, cards, or gifts on employee
birthdays, anniversaries, etc. (sunshine funds), employee rest or
recreation rooms, paid coffee breaks, magazine subscriptions, and
professional association or club dues, may not be used to offset any
wages or fringe benefits specified in the contract, as such items are
not ``bona fide'' wages or fringe benefits or equivalent benefits for
purposes of the Act.
