Question

• What role does Social Security play in employee retirement?

• What is the relationship between FICA, ERISA, and Social Security? Include an example of fiduciary responsibility under ERISA.

  
  

Answer 1

1- What role does Social Security play in employee retirement?

When first adopted, Social Security covered about 60 percent of the work force. Over the years, it has expanded coverage to include the self-employed, many state and local government employees, federal workers and employees of nonprofit organizations. Today, approximately 95 percent of all workers are covered by Social Security. Social Security is a lot like the TSP in the fact that the age at which you start receiving it can have a long-range impact on your retirement savings, good or bad.

Social security tax is what workers and employers pay to the retired, or disable employees to survive off of for the rest of their lifetime. The amount they would receive only accounts for at least 40% of their income. To increase their income, individuals would need to have an additional income with IRA or a 401k in place.

These benefits are financed by payroll taxes, broken into two components of "Social Security" taxes:

• Old Age, Survivor and Disability Insurance (OASDI)
• Medicare Hospital Insurance (HI)

For employees, these components are called the Federal Insurance Contribution Act (FICA) tax, and half is paid by the employee and half by the employer. For calendar year 2013, the OASDI employee portion is 6.2% of the employee's wages, while the employer's portion is 6.2%, for a total OASDI tax of 12.4%. The HI tax is 1.45% for both the employee and the employee.

For self-employed individuals, the tax is called the Self-Employed Contribution Act (SECA) tax, and "both halves" (employer & employee) are paid by the self-employed individual. For calendar year 2013, the SECA tax rate is 12.40% for OASDI and 2.9% for HI, resulting in a total tax burden of 15.3%.

2-What is the relationship between FICA, ERISA, and Social Security? Include an example of fiduciary responsibility under ERISA.

FICA stands for Federal Insurance Contribution Act. FICA is comprised of two parts which is the combination of Social Security tax and Medicare tax or hospital insurance tax. The current social security tax rate is 12.4% total, which means that the employer has to pay 6.2% and the employee has to pay 6.2%. The current Medicare tax is 2.9%, so the employers have to spit the percentage they will have to pay towards this tax which would be 1.45% each. If an individual is self-employed, there are responsible for paying the full amount of FICA tax every year.

ERISA stands for the Employee Retirement Income Security Act. This federal law was enacted in 1974which set standards for already established pension and health plans to provide protections for those who have these plans. The plans that the individual have are responsible for providing plan information about the plan features, provides fiduciary responsibilities who manage and control the plan assets, establish appeals, grievances and right to sue. Between FICA, ERISA AND Social Security, the programs are put in place to protect and help the individuals going in retirement .