FICA Alternative Cooperative
The FICA Alternative Cooperative (as displayed in the following examples) will appreciably reduce the cost to the district and allow employees to shelter their part of the trust contribution as pre-tax income. Distributions from the trust will only be made upon a qualifying event, such as death, retirement, marriage, severance from the district, etc.
Distributions can be made directly to the employee or to a qualified retirement account such as an IRA, 457 or 403. Funds can also be used to purchase TRS credit if the employee becomes a TRS member and is eligible to purchase service credits.
Contributions to the 457(b) trust, known as the FICA Alternative Cooperative, will be compliant with the rules and regulations of the Internal Revenue Service (IRS) Code, Chapter 457(b). Management of the investment policies of the trust will be in the hands of the Investment Advisory Committee (IAC), which also advises TERRP investments and the general 457 Cooperative of Region 10 ESC. Contributions to the trust will be invested in mutual funds according to a conservative asset allocation model or a portfolio of government-backed investments per the district's designation. Management of trust assets and investments will be the responsibility of the Recordkeeper/Trust Administrator, Trustee, and RIA, with oversight provided by the IAC.
An interlocal agreement between Region 10 ESC and the local district will allow the IAC to act on behalf of the district.
The service fee to the ESC will be $0.10 per month for each account. The Recordkeeper/Trust Administrator, Trustee and RIA will charge a sliding scale of fees to the trust itself based upon the total assets of the trust: $1 to $500,000 (2% fee), $500,001 to $2,500,000 (1.5% fee), $2,500,001 to $5,000,000 (1.25% fee), $5,000,001 to $10,000,000 (1.0% fee). The RIA will charge 45 basis points.
The FICA Alternative Cooperative is a 457 (b) cooperative plan managed by Region 10 ESC to provide an alternative retirement program for local employees not eligible to participate in the Teacher Retirement System (TRS), such as part-time employees and substitute teachers.
Districts are required to offer a retirement option to employees not eligible for TRS and have traditionally used the social security program. This FICA Alternative Cooperative, or alternative to the social security program, will save the district 6.2% of these combined salaries and wages. Samples of those savings to employees and districts are included below:
Example 1: Savings to a Part-Time Employee or Substitute Teacher Assuming Gross Annual Income of $4,201
|
Part-Time Employee Gross Annual Income |
Contribution Split #1 Employee: 7.5% Employer: 0% |
Contribution Split #2 Employee: 6.2% Employer: 1.3% |
||
|---|---|---|---|---|
Gross Income Less FICA Alt Coop Taxable Income Less Taxes @ 15% Less SS @ 6.2% Net Income |
FICA Alt |
Social Security |
FICA Alt |
Social Security |
$4,201 ($315) $3,886 ($583)
$3,303 |
$4,201
$4,201 ($630) ($260) $3,311 |
$4,201 ($260) $3,941 ($591)
$3,350 |
$4,201
$4,201 ($630) ($260) $3,311 |
|
$8 Decrease in Annual Take-Home Pay |
$39 Increase in Annual Take-Home Pay |
|||
The employee will receive the entire contribution to his/her FICA Alternative account, less account fees, upon separation from district employment. |
||||
In Example 1, Split #1 (above), the employee makes the full contribution of 7.5% to the FICA Alternative and the district contributes nothing, resulting in a decrease in take-home pay. In Split #2, the employee contributes 6.2% and the district contributes 1.3% (equalling 7.5%) and the employee realizes a small increase in take-home pay.
Example 2: Savings to a District Based upon 250 Part-Time Employees or Substitute Teachers Generating Wages and Salaries of $1,050,250
|
Social Security vs. FICA ALT Coop for Part-Time Employees |
Contribution Split #1 Employee: 7.5% Employer: 0% |
Contribution Split #2 Employee: 6.2% Employer: 1.3% |
||
|---|---|---|---|---|
250 Participants $1,050,250 Annual Payroll |
FICA Alt |
Social Security |
FICA Alt |
Social Security |
$0 |
$65,115 |
$13,653 |
$65,115 |
|
$65,115 Annual Savings |
$51,462 Annual Savings |
|||
In Example 2, Split #1 (above), the employees make ALL contributions to FICA Alternative, producing a district savings of $65,115. In Split #2, employees contribute 6.2% and the district contributes 1.3%, producing a district savings of $51,462 over Social Security.
Contact:
Gordon Taylor, (972) 348-1004
Related Links: