Meeting Date: November 07, 2017
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AGENDA ITEM: City Council Authorization to Implement a FICA Plan.
MEETING DATE: November 7, 2017
PREPARED BY: Ana Zarate, Intern
REVIEWED BY: Brad Grant and Danna Rasmussen
Staff recommends to the City Council that they authorize the implementation of a FICA Alternative Plan 457 Part-time, Temporary, and Seasonal (PTS) Program.
Furthermore, staff recommends ICMA-RC be approved as the provider of the 457 PTS Program.
The Federal Insurance Contribution Act (FICA) is a federal law that requires the withholding of 6.2% Social Security Tax of an employee’s wages. FICA also requires the employer to match the 6.2% tax. In total, the Social Security Tax contribution is 12.4%. The City currently operates under this system for part-time, seasonal and temporary employees.
The recommended program is an internal revenue service alternative program to Social Security. This program would replace the 6.2% social security contribution provided by the City while at the same time provide retirement benefits comparable to the benefits under social security.
The 457 PTS Program is offered specifically for employees who are part-time, temporary, or seasonal. The 457 Program details are the following:
A minimum contribution of 7.5 % of a participant’s gross wage is required. The participant may choose to increase the percentage contribution. Percentage contributions may be made to the program by the participant, or the employer.
Contributions are pre-taxed hence when taking this factor into account net pay is not much different from employee’s regular Social Security contribution.
When an employee separates from employment the employee is entitled to withdraw the assets their account at any time or transfer them into a retirement savings account without a penalty tax.
Fees associated with the program would are paid from employee contribution and investment earnings.
Staff analyzed and compared four program providers; ICMA-RC, Edminister Financial Services- Security Benefit, PARS, and Nationwide. The factors we analyzed were the following: Cost associated with the program
Availability and Communication efforts Company Size
Cost associated with the program
After careful consideration, the recommended vendor for this program is ICMA-RC based on the following benefits.
Account maintenance and administration fees
o $18 annual fee per participant paid in the amount of $4.50 per quarter
o .55% of the amount of program assets invested
Contributions will be invested in a VT PLUS Fund. This fund is composed of various stable contracts to achieve higher fund returns over the long run than those of money market funds and short-term bank rates.
Employer and participant have online portal access to account. City staff online portal familiarity.
Informational webinars by ICMA-RC representative for City employees.
About 60 City employees are eligible for this program and could potentially see immediate benefits upon separation as opposed to Social Security. Under this program, the City would save the Social Security contribution to FICA; average estimated savings of $4,000 annually.
Slide presentation ICMA-RC Contract