Political subdivision allows unused vacation time to be converted into a contribution into a 457 plan at the end of each year. I believe this would be an employer contribution subject to FICA. Question: Assume $1,000 at issue. Would FICA be imposed in such a way so that the plan receives $1,000 minus FICA? Or does $1,000 go into the plan, with FICA on the 457 contribution effectively coming off of the employee's salary? Or can the employee have a choice (especially if there is a collectively-bargained agreement covering employees)? We foresee that if $1,000 goes into the plan, employees will gripe that FICA from the contribution will leave them short that pay period.

The employer has choices. The section 409A regulations have some material of interest about how to charge the benefit for the FICA withhollding and ther rleated pyramiding of taxable income. Before anyone barks, I am not saying that 409A applies to 457(b) arrangements.