FICA Alternative "OBRA" Plan

[oldman]

We have a governmental 401 P/S FICA Alternative Plan with mandatory pick-up contributions of 7.5% of compensation. Plan wishes to allow participants to take distributions on account of a serious financial hardship. In order for an employer to avoid FICA tax liability, its FICA Alternative Plan must satisfy certain design and benefit requirements. A FICA Alternative Plan:

-must provide a benefit of at least 7.5% of compensation;

-contributions must be credited with a reasonable rate of interest; and

-benefits must be 100% nonforfeitable

In reviewing Treas. Reg. §31.3121(b)(7)-2 and IRS Publication 963, I was not able to determine if such distributions would be permitted under such an arrangement.

Do you know of any reason why such distributions would not be allowed?

[oldman]

We have a governmental 401 P/S FICA Alternative Plan with mandatory pick-up contributions of 7.5% of compensation. Plan wishes to allow participants to take distributions on account of a serious financial hardship. In order for an employer to avoid FICA tax liability, its FICA Alternative Plan must satisfy certain design and benefit requirements. A FICA Alternative Plan:

-must provide a benefit of at least 7.5% of compensation;

-contributions must be credited with a reasonable rate of interest; and

-benefits must be 100% nonforfeitable

In reviewing Treas. Reg. §31.3121(b)(7)-2 and IRS Publication 963, I was not able to determine if such distributions would be permitted under such an arrangement.

Do you know of any reason why such distributions would not be allowed?

A follow-up question to this situation.

Generally, contributions to a FICA alternative Plan would not be subject to FICA, but would the fact that these are "pick-up"contributions make them subject to FICA?