FICA Inclusion

[Dawn Hafner]

What should be done in the situation of a nonqualfied deferred comp plan where none of the amounts have been included for FICA wages?

The first retiree under the plan is now retired and going to receive annual payments. This is a non-account balance plan, so the actuarial calculation should have been done in the year in which he became vested. It was not. How to correct for this - is there a difference for certain years? Do we go back and calculate his vested amount each year and amend returns for the open years? What about amounts that should have been inlcuded during closed years? Or do we calculate the present value now and include that amount as FICA in the current year?

If anyone has suggestions for correcting this I would appreciate it. There are also other employees covered by the plan, earning benefits, none of which have ever included any amount as FICA wages.

[Guest Harry O]

Actually, you really have nothing to worry about. The final regs essentially provide that for a DB-like plan you simply determine FICA liability at retirement. You collect your FICA at that point and usually never look back! Just do your FICA calculation now for the recently retired employee . . .

(As an alternative, you can do an "early inclusion" calculation as the benefit is being earned but this still requires a "true up" at retirement.)