Unfunded Fringe Benefit Plans on Davis-Bacon Work: The 29 CFR 5.28 Tests
When bidding or working on prevailing wage projects, contractors often look for ways to meet Davis-Bacon fringe benefit obligations without writing checks to third-party trust funds. Under federal labor standards, employers may provide benefits directly out of their general assets through an unfunded program. However, federal rules set very strict tests before these costs can count as credit toward prevailing wage requirements.
Here is an explainer of the rules set forth in 29 CFR 5.28 regarding unfunded fringe benefit plans and what a contractor or subcontractor must demonstrate to receive credit.
What Is an Unfunded Fringe Benefit Plan Under Davis-Bacon?
Under 29 CFR 5.28(a), an unfunded plan involves benefits that are provided from the general assets of a contractor or subcontractor rather than through payments deposited into an outside trust or fund. The costs that may be reasonably anticipated in providing benefits of the types described in the Act—pursuant to an enforceable commitment to carry out a financially responsible plan or program—are considered fringe benefits within the meaning of the Act (see 40 U.S.C. 3141(2)(B)(ii)).
Legislative history reveals that these statutory provisions were intended to allow the consideration of fringe benefits meeting these standards when paid directly from the company's own general assets. Calculating these benefit obligations accurately is a key piece of establishing an overall labor burden rate when building construction estimates.
What Are the Five Tests an Unfunded Plan Must Meet?
According to 29 CFR 5.28(b), an unfunded benefit program does not constitute a valid fringe benefit under the Act unless it meets five explicit conditions:
- Reasonably anticipated: It could be reasonably anticipated to provide the benefits described in the Act.
- Legally enforceable: It represents a commitment that can be legally enforced.
- Financially responsible: It is carried out under a financially responsible plan or program.
- Written communication: The plan or program providing the benefits has been communicated in writing to the laborers and mechanics affected.
- Secretary approval: The contractor or subcontractor requests and receives approval of the plan or program from the Secretary of Labor.
How Does a Contractor Request Approval From the Secretary?
A contractor or subcontractor cannot simply start taking credit for an unfunded benefit on certified payroll without prior government consent. To receive approval under 29 CFR 5.28(c), the employer must demonstrate in its request to the Secretary that the unfunded plan or program, and the benefits provided, are "bona fide," satisfy the requirements in paragraphs (b)(1) through (4), and remain consistent with the Act.
The request must contain sufficient documentation so that the Secretary can evaluate all criteria. Contractors and subcontractors may submit this written request in one of three ways:
- By mail: United States Department of Labor, Wage and Hour Division, Director, Division of Government Contracts Enforcement, 200 Constitution Ave. NW, Room S-3502, Washington, DC 20210.
- By email: unfunded@dol.gov (or its successor email address).
- Alternative methods: By any other means directed by the Administrator.
What Does Actuarial Soundness Require?
Paragraph (d) of 29 CFR 5.28 explicitly warns that unfunded plans or programs cannot be used to avoid the Act's requirements. The regulatory phrase "reasonably anticipated" requires that any unfunded plan or program be able to withstand a test of actuarial soundness.
Just as with any other fringe benefit payable on covered projects, an unfunded program must be bona fide rather than a mere simulation or sham designed to bypass compliance. When submitting proposals, firms must make sure they understand all baseline Davis-Bacon wages and fringe benefits rules so that their certified payroll numbers withstand federal scrutiny.
Can the Secretary Require a Separate Set-Aside Account?
Yes. To prevent these provisions from being abused to avoid legal compliance, the Secretary has the authority to intervene. Under 29 CFR 5.28(d), the Secretary may direct a contractor or subcontractor to set aside assets in an account.
These assets must, under sound actuarial principles, be sufficient to meet future obligations under the plan. Once established, such an account must be preserved strictly for the purpose intended, protecting the workers' eventual benefits.
Sources
eCFR: 29 CFR 5.28 - Unfunded plans
Published November 9, 2026. No affiliate links on this page. Facts come from the sources linked above; check them for updates.