Spousal Benefits - FICA Replacement Plan

[JJRetirement]

Client is a local government entity that has a FICA replacement plan, so employees who participate in the plan don't pay into Social Security OASDI or receive those benefits.  

My question is - the requirements for replacement plans are framed in terms of what the employee must receive.  Is there any requirement that a replacement plan provide spousal benefits?    

Thanks - 

 

 

[JJRetirement]

I should add that I have searched for any guidance indicating that spousal benefits are required, I have not found any.  The question I am interested in is whether the local government and the bargaining unit could bargain away the spousal benefits that are currently in the plan.  

 

[Peter Gulia]

A local-government employer, as a political subdivision, agency, or instrumentality of the State (or of the State's political subdivision or its agency or instrumentality) has only the powers provided by State (and local) law.

And a local-government employer's duties or obligations, if any, concerning collective bargaining or collective discussion, if any, is governed by State law.

The employer will want its lawyers' advice on those sources of law. 

[JJRetirement]

Understood.  But - assume that state law doesn't have any prohibition to bargaining to remove or reduce spousal benefits.  Would a lack of spousal benefits affect social security exemption?  

[Peter Gulia]

In the Federal employment-tax rule, 26 C.F.R. § 31.3121(b)(7)-2

https://www.ecfr.gov/cgi-bin/text-idx?SID=7c05ec91250a858b871fea37a8379202&mc=true&node=se26.17.31_13121_2b_3_27_3_62&rgn=div8,

my word-processing search found no use of the word "spouse".

 

[Carol V. Calhoun]

There is no federal requirement that any governmental plan (Social Security replacement or otherwise) provide a spousal benefit.  If such a requirement exists, it would have to come from the plan document or applicable state or local law.

[JJRetirement]

Thanks.  I couldn't find anything myself.  The statute, regulations and Rev. Proc 91-40 are all directed at protecting the employee who is not eligible for social security benefits.  Seems a little unfair sitting here now that a spouse would lose spousal benefits if the employee had a replacement plan that didn't include spousal benefits.  

The circumstances involve a rather long story, but the quick story is that certain spousal benefits disappeared from the written collective bargaining agreement.  The mark-up shows that they were intentionally removed.  However, there is some disagreement whether the change was truly bargained or if the omission was the result of a misunderstanding that those benefits duplicated those in another section.  Plan administrator was looking for support that removal of these benefits was not possible because they were required in a replacement plan.  I don't think there is any such support, but I do think the omission of the benefits was a drafting error.  

 

 

[Peter Gulia]

Here's a link to an advisory committee's report on a need to update the Treasury department's rule.

https://www.irs.gov/pub/irs-pdf/p4344.pdf