Special Pay Plan
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When Employees retire, they are frequently entitled to receive “special pay.” Special Pay can take the form of accumulated terminal leave sick pay, annual leave, or incentive pay. When this money is paid to the Retiree, both the Retiree and the Employer must pay the 7.65% FICA tax. Additionally, the Retiree has no choice but to pay income taxes on the money in the year it is received.
The Solution
The Key Special Pay Plan® utilizes the tax law to structure a Plan that eliminates the 7.65% FICA tax for both the Retiree and the Employer, while also providing the Retiree the opportunity to defer income tax on the payment to a more convenient year. How The Program Works The key Special Pay Plan® combines MidAmerica’s proprietary IRS approved 401(a) Plan and a 403(b) Post-Employment Plan. By using this combination, up to $80,000 can be contributed per Employee in the first year and up to $40,000 per year for the next four years. These contributions are not subject to Employer or Employee FICA taxes. In addition, Federal and possibly state taxes will be deferred until the Retiree is in a lower tax bracket. The Plan can be offered to different classes of Employees and eligibility can be limited to certain ages and minimum account balances.
We realize that a number of Retirees have other plans for their special pay payments and want immediate access to them. Therefore, we have structured our Plan so a Retiree may immediately withdraw 100% of his money without any charges, fees or costs. Even in that case, the Retiree and Employer each save the 7.65% FICA tax.
Additional opportunities
Participants can invest their funds in high quality annuities with various investment providers. Funds may also be rolled into the Retiree’s own IRA or the Retiree can borrow against his account. For the Employer, the Plan can be custom designed to meet unique needs, requirements and specifications. The Plan can be designed to not only accommodate Retirees, but current Employees as well.
Other Details
The Key Special Pay Plan® is provided at no costs to either the Employer, Employee, or Retiree. While there is no investment solicitation, registered financial representatives are available to explain the investment options to the Retirees. Toll free phone access, as well as secure internet service, is available to the Retirees to answer all of their questions and provide real-time account information.
