The difference between funded and unfunded fringe benefit plans** lies in how the benefits are provided and managed. Here’s a clear breakdown:
✅ Funded Fringe Benefit Plans
Definition: The employer makes actual contributions to a third-party fund, trust, or insurance provider on behalf of the employee.
Examples:
- Health insurance premiums paid to a health insurance company
- Pension or 401(k) contributions sent to a retirement fund
- Vacation or holiday pay contributions made to a union trust fund
Compliance: These are the most common and easiest to verify under Davis-Bacon and other prevailing wage laws.
Verification: Documentation typically includes statements from the third-party plan administrator.
⚠️ Unfunded Fringe Benefit Plans
Definition: The employer claims a credit for the cost of benefits they provide directly, but does not contribute to an outside fund.
Examples:
- Paid time off (PTO) or vacation that is handled internally (not through a separate fund)
- Employer-provided health coverage that is self-administered
Requirements: These plans must be legitimate, regularly maintained, and documented. They also require prior approval from the U.S. Department of Labor to claim as a fringe credit under 29 CFR §5.28.
Risk: More scrutiny and higher documentation burden; noncompliance can lead to wage restitution or penalties.