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FICA Alternative Plans


Guest jamie
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I'm in need of some assistance regarding FICA alternative plans. The question has been asked of me by a client who currently maintains a 401(a) FICA alternative plan, if there is a way to allow participants to defer a part of their wages under an additional plan 457? perhaps? without messing up the current plan as it stands? The gov. entity currently makes a 10% contribution to the money purchase. I do not deal with these types of plans very often, so I would appreciate any help anyone can give .

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FICA alternative plans are required to provide certain minimum benefits, but the maximums are the same as for any other plan of the same type. Thus, for example, if your FICA alternative plan is a qualified (401(a)) defined benefit plan, and the minimum benefit is generated entirely by employer contributions, employees could be permitted also to make deferrals under a 403(B) plan, a 457(B) plan, or a grandfathered 401(k) plan. Indeed, they could make deferrals under both a 403(B) plan and a 457(B) plan, now that the limits for those two types of plans are no longer aggregated.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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And with the addition of this plan, be it a 403(B) or a 457(B), participants would be able to choose if they want to defer dollars, nothing mandatory, and the entity would still not have to withhold for FICA. Just want to be sure I'm following you. I have read just enough about pickups to be rather confused and want to have my facts straight.

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Just to clarify: a plan is never really a complete FICA alternative; the employer must still withhold and pay the Medicare portion of FICA taxes, just not the Social Security portions. And with a 403(B) or 457(B) plan with employee pretax deferrals, the employee's deferrals are subject to the Medicare portion of FICA taxes, even though not to federal income taxes. With those clarifications, your understanding is correct.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Just to clarify even further ... the employer need not withhold and pay the Medicare portion of FICA taxes if the employee is grandfathered as Medicare exempt under the pre 4/1/86 continuing employment exception (section 3121(u)(2)©).

Sorry if I've "beat this horse to death"!

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