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.