I work for a local municipality who offers employees a FICA Replacement Plan (401a) in lieu of social security. Since I also have other employment history that entitles me to social security based on my other (non-municipal) earnings record, I am aware that my SSA benefits will be lowered due to the Windfall Elimination Provision. The benefits manager at the plan sponsor implied that if I were to withdraw funds from my 401a plan after my retirement (at age 55+) but before my full retirement age (67) for social security purposes, SSA might deem my age at withdrawal the age that I effectively applied for benefits, thereby lowering my future SSA benefit. I can not find any information on the SSA site or any other website suggesting as much. Can you help clarify this? Thanks.

Hi,

I'll try, but what you're asking about is a complex issue that involves many technicalities. Withdrawals from Social Security tax exempt retirement plans are considered as lump sum distributions in lieu of a pension unless the withdrawal is made prior to when the employee is eligible to receive a pension and only if the employee forfeits all rights to the pension, and if the withdrawal includes only the employees own contributions plus interest (https://secure.ssa.gov/apps10/poms.nsf/lnx/0300605364). Lump sum distributions are then prorated based on Social Security regulations in order to arrive at a monthly rate for purposes of determining the amount of any WEP reduction (https://secure.ssa.gov/apps10/poms.nsf/lnx/0300605364).

I assume based on what you were told by your benefits manager that your first eligibility to retire and make withdrawals from your 401a plan would occur when you reach age 55, so any withdrawal of funds from the plan that occurs after that date would likely result in your Social Security retirement benefit rate being potentially subject to reduction based on the Windfall Elimination Provision (WEP) (https://www.ssa.gov/pubs/EN-05-10045.pdf).
Our software is programmed to handle WEP cases including the proration of lump sum distributions, so you may want to strongly consider using the software to help with your retirement planning.

Best, Jerry