Category: Advocacy

New Report Analyzes Impact of Lingering Pension Reform Impasse in Congress

MCAA, the United Association of Plumbers and Pipefitters (UA), and Horizon Actuarial Services have released a new report, Multiemployer Pension Plan Reform Policy Issues (June 2019). The report analyzes how the impact of the lingering pension reform impasse in Congress adversely affects active participants in MCAA/UA pension plans and highlights inequities in benefit levels.

“Active participants face higher contributions and lower benefit levels as funding challenges mount and are left unaddressed by Congress,” the report and analysis conclude.

MCAA President Brian Helm and UA General President Mark McManus stressed in a joint letter on the report, “Congressional reforms must include judicious consideration and equitable balancing of the burden of reform on all stakeholders in the system, including current active participants, vested/inactives, retirees and their beneficiaries, and contributing employers so as to bolster the sustainability of the system going forward.”

The joint UA/MCAA letter accompanying the report calls for Congressional action this year, with McManus and Helm citing UA and MCAA full support for the Common Sense Principles for Multiemployer Reform issued by the National Coordinating Committee for Multiemployer Plans (NCCMP) and a broad coalition of employer and labor groups across the country.

The report analyzes pension and benefit levels for a sample of representative active participants in plans who began their careers in the 1970s, 1980s, 1990s, 2000s, and 2010s and “reveals that current active participants are contributing more and receiving lower benefits as compared with their predecessors.” The analysis concludes that, “Policy makers should be mindful of these inequities when considering potential changes to the funding rules and should make every effort to minimize the burden placed on the current generation of plan participants.”

MCAA is releasing the report in a meeting with the new Director of the Pension Benefit Guaranty Corporation (PBGC), Gordon Hartogensis, on June 26, 2019, at the PBGC offices.

After that, MCAA and the UA will be distributing the report to Congressional Committees with jurisdiction over pension reform in anticipation of an upcoming hearing on the issue before the House Ways and Means Committee shortly after the Fourth of July Congressional recess.

For More Information

Contact John McNerney (MCAA) at 301-869-5800 or Ben Ablin, ASA, EA (Horizon Actuarial Services), the principal author of the report and analysis, at 240-247-4542 for additional information or assistance with any questions.

MCAA Encourages Member Comments on Proposed Alternative Apprenticeship Registration Regulation

The Mechanical Contractors Association of America (MCAA) advises its members that comments on the U.S. Department of Labor’s (DOL) proposed regulations that were published today are due by August 26, 2019. The proposed regulations are published in 84 Federal Register 29970 and following.

The new alternative apprenticeship registration, approval and operational oversight system creates a new parallel to the traditional Labor Department or State Apprenticeship Council apprenticeship registration, approval and oversight model. Under the regulatory proposal, the Federal apprenticeship regulations would encompass two parts:

  • The traditional system, which for now still includes the traditional construction industry programs in the usual 29 CFR 29 Part A, Registered Apprenticeship Programs
  • A parallel industry-approved system in a new 29 CFR 29 Part B, comprised of Standards Recognition Entities (SREs) of Industry-Recognized Apprenticeship Programs (IRAPs)

The rationale for creating the new system was derived from the Trump Administration’s Executive Order 13801, Expanding Apprenticeship in America, in June 2017. The Executive Order set up a blue-ribbon panel to consider ways to expand apprenticeship in the domestic economy.  The assumption underlying the Administration’s initiative was that the yawning skills gap in the American workforce and consequent unfilled job openings stem from the failure of the large part of the domestic business economy to utilize apprenticeship as a workforce development tool.

The premise was that the complexity of the current DOL/SAC state system embodies a degree of complexity that frustrates large-scale use of the traditional registration process. Allowing a greater degree of flexibility to SREs and IRAPs as compared with the traditional registration process will perforce lead to an exponential growth in the use of apprenticeship across sectors of the economy that have not previously used apprenticeship as a workforce development tool.

Throughout the course of the initial policy-making process, the EO and the DOL process evinced continued assurances that the construction industry would be exempt from incursion by the SRE/IRAP process because the construction industry has the distinction of being the largest and most successful user of the traditional process. Fully 48% of all registered apprentices on average over the past 5 years work in the construction industry, surpassing DOD military apprenticeships, the second largest user, at 32% of all registered apprentices.

Those assurances have been confirmed in a §29.31, Scope of Deconfliction between Apprenticeship Programs under Subpart A of the proposal and spelled out in Subpart B of the same section as follows:

“The Department will only recognize Standard Recognition Entities that seek to recognize Industry Programs in sectors without significant registered apprenticeship opportunities.

For purposes of this Section, a sector with significant registered apprenticeship opportunities is one that has had more than 25% of all federal registered apprentices per year on average over the prior 5-year period, or that has had more than 100,000 federal registered apprentices per year on average over the prior 5-year period, or both, as reported through the prior fiscal year by the Office of Apprenticeship.”

However, there is other language that could attract comments seeking regulatory expansion into the Registered Apprenticeship operations for construction, as follows:

“…the Department expects to identify the U.S. Military and construction as contexts where registered apprenticeship opportunities are already significant.  Accordingly, the Department would not, at least initially, accept applications from SREs seeking to recognize apprenticeship programs in the U.S. Military or in construction.” [Emphasis added.]

The 155-page proposed regulations embody a complex alternative private sector registration and oversight regime that is based on a series of underlying assumptions and expectations and cost/benefit and cost assumptions that must be held to very close scrutiny.

It may be expected that proponents of the new alternative system will press in regulatory comments for use of IRAPs across all industries, and to look for ways to more readily convert IRAPs into a traditional registration process.

The initial proposed regulations raise questions about the applicability of related Federal benefits of IRAPs as compared with Registered Programs, and the applicability of grant entitlement and EEO and affirmative action compliance as it relates to both types of programs.  The proposal also says the regulations would not constitute a “major rule” ($100 million economic impact) for purposes of the Congressional Review Act.

MCAA is working with the UA, the North American Building Trades Unions (NABTU) and our sister apprenticeship sponsoring employer associations in the Construction Employers of America (CEA) to provide a comprehensive analysis and comments on the proposal.  We also are asked to refer the proposal to our local affiliates, employers and apprenticeship trustees for their analysis and written comments on the proposal as a comprehensive and unique set of perspectives from across the country will be most helpful in the ongoing regulatory process.

MCAA will provide additional details as they become available.

For More Information

For further information contact John McNerney, MCAA General Counsel, at 301-869-5800.

The UA-MCAA Labor Relations Conference Helps Us Succeed Together

Join your UA and MCAA colleagues for education geared toward making the labor-management relationship a win-win for all parties. The 2019 UA-MCAA Labor Relations Conference: Succeeding Together will take place October 29 – 30, 2019, at The Mirage in Las Vegas, Nevada. This conference provides the unique opportunity to see both sides of the coin as labor and management collaborate on sessions and panel discussions to give attendees an in-depth look at what makes our relationship so important. Registration is now open!

The conference, jointly hosted by the United Association (UA) and MCAA, will feature panel discussions focused on topics such as growing apprenticeships, developing a joint labor-management strategic planning committee and retention of workers.

Acknowledging the importance of engaging the future of our organizations, the UA is asking all locals to bring one apprentice to the conference this year. MCAA will be hosting a breakout session with these apprentices to give them an opportunity to really dig into and ask questions about the management of the business with MCAA leaders one-on-one. Because apprentices are not only the future of the UA, they are the future of the MCAA as well.

To maximize our time together, MCAA is asking its members to plan joint dinners with their local labor partners following Tuesday’s reception. Exchanging ideas and experiences is how we will continue to thrive in this industry we all love, it is how we will be Succeeding Together.

Register Today for the UA-MCAA Labor Relations Conference

The 2019 UA-MCAA Labor Relations Conference: Succeeding Together is scheduled to take place October 29 – 30, 2019, at The Mirage in Las Vegas, Nevada and registration is now open!

The conference, jointly hosted by the United Association (UA) and MCAA, will feature panel discussions focused on topics such as growing apprenticeships, developing a joint labor-management strategic planning committee and retention of workers.

Acknowledging the importance of engaging the future of our organizations, the UA is asking all locals to bring one apprentice to the conference this year. MCAA will be hosting a breakout session with these apprentices to give them an opportunity to really dig into and ask questions about the management of the business with MCAA leaders one-on-one. Because apprentices are not only the future of the UA, they are the future of the MCAA as well.

To maximize our time together, MCAA is asking its members to plan joint dinners with their local labor partners following Tuesday’s reception. Exchanging ideas and experiences is how we will continue to thrive in this industry we all love, it is how we will be Succeeding Together.

MCAA PAC Appreciates Your Support

Members of the MCA of Connecticut’s Board recently continued the long-standing tradition of Board support for the MCAA PAC. They join a long list of supporters who have provided funds to ensure that the MCAA PAC can continue its efforts to gain our members and our industry a fair hearing in federal public policy decisions.

Those supporting the MCAA PAC from January 1, 2018 – November 30, 2018 were:

  • Kristin Abrahamson
  • Anthony J. Ahern
  • John E. Ahern
  • John E. (Tripp) Ahern
  • Keith Atteberry
  • John Baker
  • Robert M. Berkmoes
  • Robert Bolton
  • John W. Brainerd, Jr.
  • James W. Bruner
  • Katherine & Todd Bruno
  • Pete Buongiorno
  • David G. Cannistraro
  • Joseph & Susan Cannistraro
  • Robert & Robin Carder
  • Don Chase
  • Jay Chase
  • Daniel Cheresko
  • Matt & Lori Clarke
  • Lonnie Coleman
  • Richard Cook
  • Steve Cornelius
  • Dennis G. Corrigan
  • Matt Cunningham
  • Steve Dawson
  • James Deflavio
  • Carl & Jackie Evans
  • Carl M. Evans
  • Mason & Mary Evans
  • John Feikema
  • Mark Felio
  • Robert Felix
  • Charles Fell
  • John & Valerie Ferrucci
  • Robert & Deborah Fisher
  • Christopher P. Fitch
  • James & Sara Ford
  • Steve Fosdick
  • Christopher J. Freeman
  • James P. Gaffney
  • Michael & Christine Gallagher
  • Don Giarratano
  • Jason Gordon
  • John Green
  • Jeffrey & Margery Grodsky
  • Carl Grolle
  • George Hamori
  • George Mulvaney Revocable Trust
  • Curtis Harbour
  • Kenneth Harbour
  • Brian Helm
  • Duane & Linda Hendricks
  • Jace & Rachel Hierlmeier
  • James & Lisa Hill
  • Todd Joseph Hoyt
  • Brian Hughes
  • James R. Jarvis
  • Scott E. Johnson
  • Armand H. Kilijian
  • Robert A. Lake, CPA
  • Scott & Rhonda Limbacher
  • Jay Lusita
  • William Lynch
  • Sheri L. McGinty-Flesher
  • John & Bridget McKenney
  • Beni Menaco
  • The Miles Family Revocable Trust
  • Barry Moore
  • Jose Moreno
  • Patrick & Laura Murphy
  • Clifton D. O’Donal
  • Randall Pagel, Sr.
  • Michael Reed
  • Glenn Rex
  • James R. Reynolds
  • Mark Rogers
  • Chris Saldecke
  • Richard J. Sawhill
  • Timothy & Jennifer Schneider
  • Robert Snyder, Jr.
  • Bryan Suttles
  • Krista & Raphael Tahlman
  • Kathleen & Timothy Taylor
  • Michael & Brenda Tobin
  • Lawrence Verne
  • Frank Wall
  • Thomas Wanner
  • Graham Williams
  • Paul & Jillian Wing
  • Adam & Paula Wunderlin

MCAA PAC appreciates your support.

Learn More and Contribute

ARCA/MCA Continues Unanimous Board Support of MCAA PAC

ARCA/MCA Executive Vice President Dick Sawhill and the ARCA/MCA Board made substantial contributions to the MCAA Political Action Committee again this year. This ongoing commitment, along with commitments from several other MCA local affiliate Boards and other groups across the country, ensure that MCAA’s Government Affairs Committee has sufficient resources to deploy on a non-partisan basis to advance key MCAA member interests on Capitol Hill.

MCAA and the UA Form Alliance

MCAA and the UA have partnered with the Society of American Military Engineers (SAME) in a new alliance focused on building our national security by contributing to America’s infrastructure development. The groups will collaborate on workforce development, educating influencers and decision makers, and education and training.

MCAA Releases In-Depth Risk Analysis of Alternative Retirement Plan Designs WebBook

In response to a request from the MCAA Board of Directors following discussion of the stalled legislative proposal allowing new Composite Plan options, Horizon Actuarial Services provided an in-depth analysis of Alternative Retirement Plan Designs. The report, authored by actuaries Cary Franklin and Jonathan Feldman, offers a general risk-factor analysis for plan trustees to consider in any more in-depth analysis of particular plan circumstances and plan design options. It focuses on six areas: 1) traditional defined benefit (DB) plans; 2) variable DB plans; 3) cash balance plans; 4) money purchase plans; 5) profit sharing plans; and, 6) proposed new composite plans (not yet enacted into law). Cary Franklin will be making a presentation on this analysis at the National Issues Conference.

Joint MCAA/UA Brief Supports NLRB Determination on Worker Misclassification

MCAA and the United Association (UA) filed a joint brief in the Velox Express, Inc. case (Case No. 15-CA-184006) pending before the National Labor Relations Board (NLRB). The organizations voiced support for an NLRB Administrative Law Judge’s (ALJ) opinion that worker misclassification itself is an independent violation of workers’ rights under the National Labor Relations Act. The act includes provisions barring employer interference, restraints or coercion with respect to a worker’s right to engage in protected concerted activity.

In the case at issue, Velox Express classified couriers who pick up and deliver medical diagnostic test samples from physician sites and testing labs as independent contractors rather than as employees.

The ALJ noted that the NLRA contains an exception allowing for exclusion of legitimate independent contractors from protected “employee” status. The ALJ also stressed that the Supreme Court has directed that such exceptions are not to be expansively interpreted so as not to deprive legitimate employees of their rights under the NLRA.

Applying the NLRB’s multifactor analysis to the facts of the courier’s work with the company, the ALJ held that the balance of the factors swayed the judgment toward finding misclassification of the worker as an independent contractor rather than as an employee.

The ALJ went on to determine that, “By misclassifying its drivers, Velox restrained and interfered with their ability to engage in protected activity by effectively telling them that they are not protected by Section 7 and thus could be disciplined or discharged for trying to form, join or assist a union or act together with other employees for their benefit and protection.”

Expressing full support for the ALJ’s holding, the MCAA/UA brief, prepared by the O’Donohue law firm, concluded that “. . . a determination by the Board that improper misclassification of employees as independent contractors constitutes a stand-alone Section 8(a)(1) violation does not in any way restrict or interfere with an employer’s legitimate use of entities that are actual, bona fide [independent] contractors.”

Amicus briefs supporting the employer’s appeal of the ALJ decision argue that misclassification alone cannot be the basis for an independent violation of protected rights. They state that in all cases, the misclassification charge must be joined with some other related unfair labor practice charge.

MCAA will monitor developments on the matter and report on the final NLRB determination.

Report Points to Resilience in Multiemployer Defined Benefit Pension System

The construction industry’s multiemployer defined benefit pension system is showing signs of resilience, according to the recently revised Inventory of Construction Industry Pension Plans, MCAA and Horizon Actuarial Services’ groundbreaking analysis of historical trends in pension plans’ key operating data. Roughly 75% of all construction industry multiemployer plans are projected to be fully funded within 15 years according to the inventory, which is based on the annual reports (Form 5500) filed with the Labor and Treasury Departments for Plan Years 2006 through 2015.

Horizon Actuarial’s Cary Franklin, principal author of the report, notes that “plan resilience is the hallmark of the jointly sponsored construction industry plans,” which represent some 55% of all multiemployer plans nationally. Franklin also noted that the new data shows improved median plan funding status, reaching 82% in 2015, and modest growth in active participants in construction plans in years after 2011, all “modestly positive trends.”

“The 10-year data trends reflect the sound work plan trustees and bargaining parties continue to do to make sure the plan participants have good, hard-earned lifetime benefits they can rely on,” Franklin said, concluding that “labor and management plan trustees would benefit further if Congress would enact new options for plans to consider to help keep the system sustainable on a long-term basis.”

MCAA President Mike Brandt noted that, “Cary Franklin and his associates at Horizon have done a remarkable job – again – in producing this one-of-a-kind MCAA industry service and analysis, which is designed to help labor and management trustees benchmark their plan performance, help MCAA employers meet their year-end accounting disclosure requirements, and just as importantly – to guide national policy makers in enacting sound public policy decisions to allow plan trustees new options to improve the sustainability of the plans for the benefit of both employees and their families and their employers.”

“While the Fifth Edition of the Inventory shows some signs of steady improvement given the market rebounds since the 2008 Great Recession,” Brandt said, he cautioned that “there still is much underlying data in the Inventory underscoring the imperative need for deliberate legislative action – enacting the GROW Act H.R. 4997 – to give plan trustees more options and flexibility to keep these valuable benefits on a stronger and sustainable basis going into the indefinite future.”

Local Affiliate Boards Continue to Support the MCAA PAC

All members of the MCA of Detroit’s Board of Directors recently contributed to the MCAA PAC, continuing a long-held tradition of unanimous Board support. The boards of the MCA of Connecticut, M&SCA of Eastern Pennsylvania, MCA of Houston, ARCA/MCA, CPMCA, New England MCA and MCA of South Florida also contributed to the MCAA PAC recently, as have the members of many Peer Groups. This support enables the MCAA PAC to gain MCAA members and our industry a fair hearing in federal public policy decisions.

Get the “Nitti-Gritty” on Tax Reform at MCAA18

Tony NittiLooking for the light at the end of the tax reform tunnel? Anthony Nitti will give you the “Nitti-Gritty” on the new tax reform act. His insights and analyses will show you how the changes in the tax law affect your company and your customers.

Some of the topics to be covered include:

  • The impact of the new tax law on your type of entity (C-Corp, S-Corp, partnership, or sole proprietor)
  • Changes to the rules for cash vs. accrual accounting
  • Bonus depreciation vs. Section 179 expensing of business assets
  • Changes in the deductibility of entertainment costs

Anthony “Tony” Nitti, CPA, is a Tax Partner in the Aspen, CO office of WithumSmith+Brown’s National Tax Service Group. His practice primarily focuses on corporate and partnership tax planning. He’s well known in the industry as a writer for both the firm’s blog and for Forbes.

This session will be hosted and moderated by MCAA Management Methods Committee Chairman Robert Lindbloom of Apollo Mechanical Contractors. He will also unveil the next generation of MCAA’s Management Methods Manual.

Learn More About Tax Reform’s Impact on the Construction Industry

Check Out Tony Nitti’s Blog

Bipartisan Multiemployer Pension Reform Bill Introduced in House

The long-awaited multiemployer pension reform legislation championed by MCAA, the UA and virtually the entire organized construction community has been introduced in the House by Representative Dr. Phil Roe (R-TN). The legislation, H.R. 4997, the Giving Retirement Options to Workers Act of 2018 (GROW Act) is now pending in the House Education and Workforce Committee, and has been referred to the House Ways and Means Committee as well.

Dr. Roe was formerly the Chair of the House Education and Workforce Committee Pension Subcommittee, and was instrumental in pension reform issues over the past many years.

The Composite Plan measure has had a tortuous history over the past several years. It was originally one of the three parts of the NCCMP/MCAA/industry consensus measure called Solutions Not Bailouts, a legislative proposal that was enacted in December 2014 as the Kline-Miller Multiemployer Pension Reform Act (MPRA). The Composite Plan part of the proposal was held back from the law in 2014 because of committee jurisdictional conflicts, with a Congressional leadership commitment (at that time) for relatively quick enactment in 2015. But, circumstances changed in a variety of ways, and MCAA has been working doggedly since then to redeem that promise of action on the basic Composite Plan reform.

The Composite Plan is an option for trustees to consider (not a mandate) to convert their traditional defined benefit plan to the new Composite Plan model. If the trustees choose to convert, the old plan – the Legacy Plan – is frozen, and further benefits accruals under that plan are stopped. New benefits under the Composite plan are accrued going forward upon the conversion, with required minimum contributions being paid back to the legacy plan to remedy any underfunding as called for the 2006 Pension Protection Act’s Red, Yellow and Green one funding rules.

The new Composite Plan must be overfunded at 120% at a minimum, and annual and 15-year funding projections and adjustments to meet the overfunding standards are called for to forestall deep funding problems before they develop. The substantially reduced risk of underfunding is further ameliorated by a set of graduated benefits adjustment options in cases of projected shortfalls (increased contributions, cuts in future accruals, adjustments of ancillary benefits, and then core benefits suspensions only as a last resort) much along the lines of the Pension Protection Act and the MPRA law to forestall the development of serious funding shortfalls as are possible under the traditional plan funding model.

This new, equitable risk sharing model is designed to further ensure plan sustainability by stemming the loss of contributing employers from the traditional plans, and allowing for organizing of new employers into the new risk sharing model plan. This new plan model is predicted to be much more attractive to plan participants as it provides the best features of a traditional defined benefit plan – lifetime benefits, shared longevity risk, professional asset management and safeguards against early withdrawals. For contributing employers, the risk of overall plan underfunding and consequent individual employer withdrawal liability is substantially removed over time – stanching the retreat of employers from traditional plans and allowing new employer entrants without risk of uncontrollable contingent funding liability.

Pension Benefit Guaranty Corp (PBGC) insurance premiums are still payable on legacy plan benefits; whereas new benefit accruals under the Composite Plan are not PBGC insured. However, the annual projections and mandatory overfunding safeguards more than substitute for that premium security , and are a better guaranty against ultimate plan insolvency than was provided under the traditional  model, where the possibility of falling into critical and declining funding status with a diminished PBGC payment are becoming ever more prevalent possibilities.

MCAA is working to line up co-sponsors for the GROW Act on both sides of the aisle, and is striving to gain enactment in the waning days of the 115th Congress – a heavy lift for sure – but our ardent goal. MCAA continues to lobby Administration officials at the Labor, Treasury and Commerce Departments and White House policy councils to gain their support for enactment of Composite Plan legislation, hopefully this year.

MCAA has long taken the position that Composite Plan reforms are an essential and separate reform apart from various proposals to provide additional resources to shore up critical and declining plans in other industries that themselves immediately threaten the long-term solvency of the PBGC. MCAA also is working with select MCAA affiliates to reach out to specific lawmakers on key committees to press for passage of reform this year.

Go to: www.saveourfutures.com for further details on the GROW Act and a link to Congressional outreach.

BLS Reports Uptick in Union Representation

Union representation in the construction industry ticked up slightly in 2017, tallying 14.7%

(1.156 million among the 7.844 million total employees) according to the Bureau of Labor Statistics. The findings are outlined in Union Members 2017, USDL Release 18-0080, Jan. 19, 2018.

This compares with a 14.6% representation rate in 2016, with 1.095 million union represented workers among 7.488 million total employees. The data show a gain of some 356,000 in overall industry employment in 2017 as compared with a year earlier.

In all private sector employment, union representation remained static in 2017, totaling 7.3%, the same as in 2016. Some 8.4 million employees had union representation among 116.9 million employees.

Union representation is highest among public sector employees, at 37.9% in 2017 (7.9 million of 20.9 million employees), the same rate logged in 2016.

Read the Report

Contacting Congress for the First Time? Help is Here!

Congress is back in session! This is your chance to get in touch with your House representative or Senators about the industry and business issues that concern you. If this is your first time advocating for a cause, a newly revised Management Methods Bulletin is available to show you the ropes.

Business and Politics has been updated to provide you with advice, tools and information about the federal legislative process to help you be effective in presenting and discussing industry issues with your House and Senate representatives. From sending electronic messages to arranging personal meetings, the bulletin suggests how, when and where to communicate your concerns about legislation and/or regulations to your elected Members. Useful tools on MCAA’s website under the Advocacy menu, the MCAA PAC and the National Issues Conference direct your path to the legislators you need to reach. And, helpful information included in the bulletin will guide you through the bill making process.

The advocacy menu on our website also has a direct link to Congress.gov, where you can research current legislation and follow its progress through Congress.

Download your copy and start contacting your Congressional representatives today.

With New Tax Legislation, MCAA Contractors are Still Able to Claim R&D Tax Credits for BIM and Design

During the negotiation process of the Tax Cuts and Jobs Act at the end of 2017, the tax credit for R&D spending was temporarily removed. Fortunately, MCAA and others worked hard to ensure that the final bill re-inserted the language for the Research Tax Credit (“RTC”) and made changes that potentially increase the credit by more than 20%. With the RTC in place, contractors are able to continue to claim tax credits for qualifying BIM and design work. Unfortunately, many mechanical and plumbing contractors are unaware that they can even claim part of their design and bid work for these tax credits.

This article is intended to offer an overview of the Research Tax Credit for mechanical contracting personnel presented in general non-tax terms, wherever possible. The credit is, however, “tax based”, and as such, the inclusion of all of the applicable rules for every situation is not possible in a brief discussion.

In order to qualify for the research tax credit, activities must pass several tests. Although these tests are fairly specific, “qualifying activities” are generally much broader than many people think. When contractors hear the term “research” they often associate the term with scientists wearing white lab coats who are mixing chemicals in beakers. However, the Internal Revenue Code definition of research, as defined under IRC §41, is much broader than this traditional definition. As a result, many contractors may typically associate a large portion of their research activities as “routine” or “ordinary”, when in fact many of these activities might qualify for the Research Tax Credit.

To successfully build a structure, there may be experimentation or an iterative process on technical design issues and the installation process to properly build it. Although it might seem complicated if you are not claiming these credits, many contractors have been doing so for years. Before you begin, it is recommended that MCAA members contact their tax professionals to ensure that they are properly claiming the appropriate costs and activities under the RTC.

To begin, the Internal Revenue Code states that the activities “must be intended to discover information to eliminate technical uncertainty concerning the capability or method for developing or improving a product or process, or the appropriateness of the product design”. The Code also requires a “process of experimentation” involving the evaluation of alternatives, confirmation of hypotheses through trial and error, testing and/or modeling (this can include iterative steps in evaluating design alternatives, alpha/beta tests, pilot trials, scale-up testing, marketing/field tests directly associated with the R&D efforts, qualification Trials, etc.). Finally, wages, supplies, and contracts associated with qualifying activities qualify. The expenditures can also be either capital or expensed items.

Broadly, this includes any activity where there is some technical uncertainty involved in the development or improvement efforts- i.e., is there a technical problem that needs to be solved before you can effectively launch/implement this equipment design, software, product, process, prototype, etc.? Personnel who are directly engaged in resolving the technical issues will qualify and those individuals who have a support role will also qualify (i.e., performing alpha/beta/unit testing, collecting data or writing programs to collect data, supervision, technical project management, etc.)

Uncertainty exists if the information available to the contractor does not establish the capability or method for developing or improving the product/process or the appropriate design of the product/process. The required level of uncertainty may be established in instances where your work requires the resolution of technical issues when either designing the mechanical and plumbing system or working from a set of drawings that are incomplete or need modification to function.

The definition of activities that qualify for the credit is fairly broad and the driver for the effort can be to produce a new, better or more competitive product/process, to increase reliability/quality, to increase general product/process safety, to respond to new federal/state requirements, to reduce costs or increase speed/efficiency, etc. Furthermore, the success or the degree of technological advancement is not a factor.

Below is a representative sample of activities a taxpayer would typically perform, which often times are misclassified as “routine” or “non R&D” related:

  • Evolutionary advancements to the functionality, performance, reliability or quality of an existing product (Change orders for process improvement);
  • Development of prototypes or models to prove out conceptual ideas (Including BIM);
  • Experimentation to verify if an existing construction technique or process can support a new product with differing characteristics (Testing point loads);
  • Experimentation to verify if a new or existing construction technique or process can be implemented in a new or different geographic region, new environment, or different industry/application;
  • The design and development of custom equipment, tooling, molds and/or dies;
  • The development of microcode used within machinery or robotics;
  • The redesign of an existing construction or building process to improve efficiencies, increase safety or reduce operating expense;
  • Testing to prove out the use of new materials in existing products;
  • Plant and/or Process scale-up activities;
  • Qualifying “Bid and Proposal” efforts; and
  • The development of custom software that is either intended to be used internally or sold, leased or licensed to third parties as a commercial product offering.

However, simply because some items may be new, unique, customized or involve special problems does not mean that they will automatically qualify for a credit. For instance, there may be options or choices in regard the application of standard engineering techniques, but no uncertainty in regard to the resolution of a technical issue facing the project team. Qualifying activities that are intended to resolve technical uncertainties should also involve some iterative type of testing, experimentation, the consideration of alternatives, trial and error evaluations, prototyping, validation, etc.

Thus, although no qualifying activity might occur for most HVAC systems (even where custom designs are involved), technical uncertainty might arise on mechanical engineering and/or design efforts in instances where there are unusual requirements involving, for example: complex temperature, humidity, pressure, ambient air ratio range controls with differing protocols for numerous chambers/rooms; the need to design for particulate and/or chemical fume control/mitigation where the chemistry might require special construction materials; unusual space limitations, local regulations, cost mandates, etc.; instances where numerous alternative methodologies for technical solutions are necessary; development of technical alternatives to address repeated system failures; etc.

The PATH Act of 2015 made the Research Tax Credit permanent but also broadened the impact of the credit for many small to mid-sized businesses. Starting January 1, 2016, small businesses that meet certain criteria can also use the Research Tax Credit to offset the FICA employer portion of payroll tax, with a credit cap of $250,000 for each eligible year.

 

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Mike Foley is the Managing Partner at Foley & Smith, LLC, a firm specializes in Research Tax Credits.

Mike D’Allesandro is the Managing Director at Research Tax Credits, LLC

 

 

Want to Know More about the Impact of Tax Reform on the Construction Industry?

The Tax Reform legislation just enacted by Congress and signed into law transforms the landscape for construction contractors. Check out this summary of provisions important to our industry, compiled by Withum Smith + Brown, PC construction tax experts. And for more detailed information, we will have a workshop on this important topic in San Antonio, so more information to come!

Emily Murphy Confirmed to Lead the U.S. General Services Administration

Emily Murphy, a former procurement policy consultant for the MCAA Government Affairs Committee and daughter of former MCAA President Jim Murphy and Mimi Murphy, was confirmed by the Senate as the new leader of the U.S. General Services Administration. The GSA is the lead civilian agency focusing on procurement policy and government operations.

Ms. Murphy’s confirmation hearing was held on October 18, 2017. She was introduced by Missouri Senator Claire McCaskill, the Ranking Democrat on the Senate Homeland Security and Governmental Affairs Committee.

Lawmakers on both sides of the aisle were supportive of Ms. Murphy’s appointment and exceptionally strong credentials for the position.

Watch the confirmation hearing

Regulatory Update

The Occupational Safety and Health Administration’s (OSHA) internet reporting rules and overtime pay regulations are under review by the Department of Labor, but two other Obama Administration rules of interest to the industry remain in uncertain status—the non-discrimination and affirmative action requirements for registered apprenticeship programs and the paid sick leave (EO 13706) rules for direct federal prime contractors and subcontractors.

The registered apprenticeship program rules remain only partially in effect awaiting additional guidance from the Labor Department. The Obama paid sick leave requirement was set for implementation in federal contract solicitations issued on or after January 1, 2017. So far, MCAA contractors have not encountered the required EO 13706 contract clause required in project specifications – so it remains unclear what course the Administration will take with respect to the new paid sick leave requirements.

John W. Danforth Company Hosts Fundraiser for New York Congressman Chris Collins

The John W. Danforth Company, a charter member of MCAA and a leading northeast US regional mechanical construction company, hosted a fundraiser for New York Congressman Chris Collins on May 31st in Buffalo, NY.

Danforth company principals, Kevin “Duke” Reilly, CEO and Chairman, along with Robert Beck, President and MCAA Board Member, hosted some 15 Buffalo area construction and engineering firm principals for the meeting with Congressman Collins to discuss his agenda for the constituents of New York’s 27th Congressional District.

Congressman Collins discussed his amendment in the House-passed health care measure to alleviate the local county tax burden in financing health care subsidies. The third-term lawmaker, last elected with 86% of the vote, also discussed his support for the Trump Administration’s economic and tax reform agenda.

The local area construction firms also highlighted issues related to multiemployer pension reform and the need for quick Congressional proactive policy changes. As presented to Congressman Collins, these changes are needed to forestall a crisis in the multiemployer system for pension plan contributing employers in the Buffalo area and nationwide.