Some public employers have created FICA Alternative plans to provide all employees the opportunity to have retirement savings and to lessen the employer's Social Security tax burden. Participating employees are not subject to Social Security taxes while covered by this plan. Contributions to this plan are made on a pretax basis.
Legislation passed as part of the Omnibus Budget Reconciliation Act of 1990 (OBRA 90) mandated that all employees of state and local governments, including public school employers, colleges and universities, either cover their employees under Social Security or provide a retirement plan that the Internal Revenue Service (IRS) determines is comparable to Social Security. Since the Teacher Retirement System of Texas (TRS) meets the comparability requirement, full time employees covered by TRS do not have to be covered by Social Security. Since substitute teachers, temporary employees and part-time employees are not covered by TRS, the law requires that they participate in either FICA (Social Security Tax) or an alternative retirement plan set up under guidelines established by the Internal Revenue Service. A “FICA Alternative Plan” meets these requirements if at least 7.5% of the employee’s compensation is contributed to a defined contribution retirement plan. The contribution can be made by the employee, employer or any combination. The plan can be set up under Sections 401(a), 403(b) or 457(b) of the Internal Revenue Code (IRC).
The Region 10 FICA Alternative Plan is set up under Section 457(b) of the IRC. This Plan is a part of the Retirement Asset Management Services (RAMS) program. The deductions for the FICA Alternative Plan are taken out of your paycheck in lieu of deductions normally made to FICA (Social Security taxes). Since contributions are made to the FICA Alternative Plan on a pretax basis and Social Security taxes are after‑tax, the employee pays less income tax on the deductions for the FICA Alternative Plan.
You are eligible to participate in the Plan if you are an active employee and are not eligible to participate in the TRS Pension Plan.
Social Security requires that the equivalent of 12.4% of an employee’s salary be contributed each month (6.2% employee, 6.2% employer). However, the FICA Alternative Plan requires only a 7.5% contribution to a retirement account. The Employer determines the amount of the contribution made by the employee. You are always 100% vested in your account balance in the Plan, whether contributions are made by you or your Employer.
The contribution to the Region 10 FICA Alternative Plan will be deducted from your paycheck on a pretax basis, so you are not taxed on the gross amount. Funds remain tax-sheltered until they are withdrawn. Unlike Social Security withholding, if your employment with your Employer ends, you may withdraw funds subject to the Internal Revenue Code distribution guidelines under a 457(b) Deferred Compensation Plan.
Enrollment in the Plan is automatic for eligible employees.
Yes, Medicare withholding will be made from your paycheck in addition to the contribution to the Region 10 457(b) FICA Alternative Plan.
The portfolio is a fund similar to the one offered under the Teacher/Employee Retention and Recruitment Program (TERRP) managed by the ESC Region 10 Investment Advisory Committee assisted by the investment advisor to the Plan, TCG Advisors, LP. It is also very similar to the Signature Portfolio which is the automatic investment option in the Region 10 457(b) Retirement Savings Plan.
You will receive annual statements from TCG Administrators, the Third Party Administrator for the Plan (an affiliate of TCG Advisors, LP) outlining your account activity. You may also call TCG Administrators to receive your account balance at (800) 943-9179 or log into your account at www.region10rams.org.
Upon termination of employment, attainment of retirement age, or in the event of death, you will have access to your account. You will also have access to your funds if you have a change of employment status at your Employer to a position covered by TRS, if there have been no contributions to the account for two (2) years, and if the account balance is less than $5,000. If the account balance is greater than $5,000, the account will only be eligible for distribution due to termination, retirement, or death.