What is a FICA Alternative Retirement Plan?
What is a FICA Alternative Retirement Plan?
A FICA Alternative Plan allows qualifying governmental employers the ability to set-up a Social Security Alternative plan for their part-time, seasonal or temporary employees (PST). This type of plan was started in 1990 when the Omnibus Reconciliation Act was passed, authorizing government entities who exercised their Social Security Section 218 exclusion under the IRS Code Section 3121 the option to give their PST employees a defined contribution retirement plan as an alternative to Social Security. This means qualifying governmental employers can save their portion of social security (6.2%) on PST employee wages by establishing a FICA Alternative Retirement Plan.
Benefits of the FICA Alternative Plan
A FICA Alternative Plan can provide a solution which aids both the employee and the qualifying governmental employer. The employee makes a 7.5% pre-tax contribution into the FICA Alternative Retirement Plan instead of a 6.2% after-tax contribution to Social Security, so there is minimal impact on take-home pay. Funds are invested and bear interest, which means an increased value due to earnings over time; investments may also be self-directed to meet personal retirement goals. The employee has the ability to access their monies in the FICA Alternative Retirement Plan at termination of employment, in the event of disability, death or at normal retirement age. If an employee changes jobs, they may be eligible to leave their funds in the plan until a withdrawal is requested. Funds contributed to a FICA Alternative Plan are always 100% vested, meaning all contributions belong to the participant, and this makes it an attractive retirement option for qualified employees.
The qualifying governmental employer benefits from the FICA Alternative Plan by saving the 6.2% it would have paid into Social Security on the employee’s behalf. The unique retirement advantage of this plan also attracts talent and can be used as a leverage point in recruiting. Since many employers often struggle to provide meaningful benefits to part-time, seasonal or temporary employees, the FICA Alternative Plan is a great option to provide impactful solutions for these personnel.
Administration and Compliance
KerberRose is able to provide cities, counties, municipalities, school districts and other government entities with plan administration, compliance and education for FICA Alternative Retirement Plans. If this plan sounds like a good solution for your organization, reach out to KerberRose at 401kservices@kerberrose.com or visit us at www.kerberrose401k.com for more information.