Some public employers have created FICA alternative plans to provide all employees the opportunity to have retirement savings and to lessen the employer's tax burden. Depending on your plan demographics, substantial savings can be achieved by adding a FICA Alternative Plan to your benefit program. Common FICA Alternative Plans include:
- 457(b) deferred compensation plans
- 401(a) plans
The Omnibus Budget Reconciliation Act of 1990 (OBRA) expanded the definition of "employment" for Social Security coverage and FICA tax purposes to include service performed after July 1, 1991 by a state or local government employer. This is true unless the employee is a member of the employer's retirement system at the time the service is rendered or is covered under a Section 218 agreement.
Most full-time, state or local public employees are members of their employer's retirement system. By merit of that membership, full-time service is not covered employment for purposes of the Old Age Survivors and Disability Insurance (OASDI) portion of taxes under FICA.
Generally temporary, seasonal and part-time employees are not members of their employer's retirement system and their employment may be excluded from mandatory Social Security coverage as long as they participate in an appropriate alternative plan under OBRA regulation.
OBRA permits a variety of alternative plans to function as retirement systems for purposes of excluding service from mandatory Social Security coverage, as long as it meets certain requirements. With the passing of EGTRRA legislation, FICA alternative plans remain a viable solution available to plan sponsors.
We at RPS are one of the most experienced consulting firms in establishing and managing the complex nature of FICA Alternative Plans. FICA Alternative Plans, can satisfy state and federal tax requirements and provide enhanced retirement savings opportunities for certain employees. We can help you assess whether a FICA Alternative Plan can work for your benefit program.
