3121 FICA Alternative (Premier) Plan
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In 1990, the Omnibus Budget Reconciliation Act was passed. Government entities who exercised their Social Security Section 218 exclusion allowance were provided the option of giving their part-time, temporary and seasonal employees a meaningful, defined contribution retirement plan as an alternative to Social Security.
Benefits To The Employer
Social Security contributions for part-time, temporary and seasonal employees are eliminated. The employer immediately begins saving the matching 6.2% of payroll for eligible employees. Medicare contributions of 1.45% continue.
Benefits To The Employee
After-tax 6.2% Social Security contributions are replaced with 7.5% pre-tax employee contributions (7.5% pre-tax is approximately equivalent to 6.2% after-tax). Earnings in a pre-tax account accumulate more rapidly since payment of taxes on the contributions and earnings are deferred. Employees earn market rate of return on their accounts and are 100% vested in the full account value with no penalty for withdrawal upon termination from employment.
MidAmerica, headquartered in Lakeland, Florida was formed in 1995 to provide Social Security Alternative programs. MidAmerica has had great success and now administers approximately 2,200 programs nationwide, representing over 600,000 employees.
The Social Security Alternative Plan is typically structured as an Internal Revenue Code Section 457 plan. Therefore, there is no 10% penalty assessed if employees take a distribution of their account balance before age 59½ . Administration is provided by MidAmerica.
The Social Security Regulations require that participants in a Social Security Alternative program always received 100% of their principal contributions plus interest. Therefore, all contributions are invested in a guaranteed fixed annuity with American United Life Insurance Company, a OneAmerica Financial Partner. There are no surrender charges or fees to employees if they take a distribution from their account.
Effective material is provided to communicate the Social Security Alternative Plan to your employees and will assist in group meetings. All employee needs are serviced by our national service center through a toll-free number and through our web site. In addition, local representatives can be available for employee meetings.
Employee Account Information
Periodic statements are provided to all employees. Employees may contact our service center at any time for up-to-date account balances, distribution information, or to ask questions.
Commonly Asked Questions
Why pay Social Security taxes when you can use the money to build your own, personal retirement savings account instead?
Through the 3121 FICA Alternative Retirement Savings Plan, you contribute 7.5% of your pay to your plan account on a pre-tax basis (That takes roughly the same amount out of your pocket as the 6.2% you pay to Social Security now on an after-tax basis. The example below shows you how this works).
The money in your Plan account earns interest that’s guaranteed. The statements you receive annually show you how your money grows. Best of all, when you stop working, the money in your plan account is yours to take with you (a waiting period may apply).
How 6.2% in after-tax dollars equals 7.5% in pre-tax dollars – and lets you come out ahead.
Normally, the taxes you pay are based on your total income. But through the 3121 Plan and its pre-tax feature, your taxable income is based on your total income minus your 7.5% contribution. Some of the tax dollars you would ordinarily pay Uncle Sam go instead to your own, personal 3121 Plan account.
Before you assume that the 3121 FICA Alternative Plan will cost you more, take a closer look.
In general, that 6.2% of after-tax dollars translates to just about 7.5% in pre-tax dollars! Why? Because you’re reducing the amount of your taxable income through the Plan.
So you’re contributing 7.5% to your 3121 investment account instead of paying 6.2% into Social Security… you’re earning a return on that 7.5%… and your take-home pay remains about the same.
Are there more advantages to the 3121 FICA Alternative Plan? Yes!
You’ll realize many benefits from the 3121 Plan:
- To change from Social Security to the 3121 FICA Alternative Plan, you do absolutely nothing. No forms to fill out. No long documents to read and sign. And it will cost you absolutely nothing. Your enrollment is automatic.
- Your contributions to your 3121 FICA Alternative Plan investment account earn a market rate with a guaranteed minimum rate of return.
- If you should die, your beneficiary receives the full amount in your account.
- Your contributions earn an investment return daily, with the earnings credited to your account monthly.
- When you stop working, you are entitled to all the money in your account — all your contributions and their earnings. You do not have to pay a withdrawal charge, although you will have to pay federal income tax on your contributions and their earnings upon withdrawal, unless you rollover the money into a similar plan. You will never pay Social Security taxes on the money.
- Annually you’ll receive a report of all activity, including how much your contributions have earned. You don’t receive a report from Social Security.
Many experts are currently predicting that Social Security won’t be around or will be severely limited by the time today’s young workers retire.
While these predictions are just educated guesses, contributing to the 3121 FICA Alternative Plan means you won’t have to worry if those experts are right!