MidAmerica’s 3121 FICA Alternative Plan is a unique retirement benefit specifically designed for part-time, seasonal, and temporary employees. Known as the APPLE plan to our Californian clients, the FICA Alternative Plan replaces Social Security, creating a powerful retirement benefit that has the potential to grow over time. If you’re a participant and are new to your FICA Alternative Plan, or simply need some quick reminders, we’ve outlined the need-to-know details of this valuable benefit below.
What is a 3121 FICA Alternative Plan?
A FICA Alternative retirement plan is an interest-bearing account that replaces Social Security for part-time, seasonal, and temporary employees. The plan is a type of 3121 retirement plan which substitutes the Social Security portion of the FICA tax requirement with a pre-tax contribution to a FICA Alternative account. Essentially, the benefit not only enables significant tax savings for both the employer and the employee, but allows the account to potentially grow over time through investments. Best of all, MidAmerica assures peace of mind when it comes to the administration of your hard-earned funds through our PeopleFirst customer service philosophy and more than 25 years of experience. In fact, the FICA Alternative plan was MidAmerica’s first-ever plan introduced at our founding in 1995!
How does it work?
Once you become a plan participant, the FICA Alternative retirement plan immediately replaces the 6.2% Social Security tax on payroll with a 7.5% pre-tax contribution to your account. Even though the contribution to the benefit increases to 7.5%, your net paycheck remains virtually unchanged due to the pre-tax nature of the contribution. To understand how a 6.2% tax and a 7.5% contribution can have the same effect on your paycheck, please see the graph below.
How 7.5% Equals 6.2%
Employer after-tax Social Security contributions of 6.2% are replaced with pre-tax employee contributions of 7.5% into a FICA Alternative retirement plan, to potentially grow over time. This actually leaves employees with around the same take-home pay as contributing to Social Security would. Why? Because FICA Alternative Plan contributions are pre-tax.
|FICA||FICA Alternative Retirement Plan|
|Less 7.5% contribution into retirement plan||—||$75.00|
|Less 15% Income Tax||$150.00||$138.75|
|Less 6.2% Social Security||$62.00||—|
|Less 1.45% Medicare||$14.50||$14.50|
Furthermore, your employer permanently saves the matching 6.2% FICA tax which adds to your organization’s budget, freeing up funds to potentially use for needed projects or initiatives. Finally, with MidAmerica, your FICA Alternative plan is invested for potential growth over time with a minimum guaranteed annual rate of return. As a participant, you may also, depending upon plan design, have the freedom to self-direct the investment of your funds to meet personal retirement goals.
When can I access my funds?
You are immediately vested in your FICA Alternative plan (which means you fully own your account) upon retirement, separation of employment, or transfer to full-time employment from a part-time, seasonal or temporary status. Once you are vested (and deemed eligible according to IRS age requirements), you are able to withdraw your retirement funds or roll over your account to a different retirement benefit. Please note certain waiting periods may apply, depending on your unique plan design. To learn more about your unique plan, review your employer’s Plan Highlights.
Understanding the IRS Rules
IRS rules state that participants achieve penalty-free access to their funds when they reach certain age requirements based on the underlying Internal Revenue Code (IRC) section for the unique plan. Under law, regardless of the IRC section, participants are obligated to withdraw a certain percentage of their funds each year after reaching age 72. To learn more about the IRS age requirements for your plan, review your employer’s Plan Highlights.
If you still have questions about your 3121 FICA Alternative Plan or need additional resources, MidAmerica’s Participant Services (PSR) team is here to help. We provide nationwide coverage for participant education, ensuring you understand how to manage and access your benefit. In addition to our service team, you always have access to your benefit online by selecting Access Account from the top right-hand corner of the website.*
The PSR team is happy to answer any questions at (800) 430-7999 Monday through Thursday from 8:30 a.m.-8:00 p.m. ET and Friday from 8:30 a.m.–6:00 p.m. ET. You can also reach us by email at [email protected].
*Please note you will not have access to your account online until MidAmerica receives your first plan contribution.