Would Safe Harbor Contributions Detrimentally Affect My Social Security Benefits?

Oct 2 2019 - 7:26am

Hi,

Great website with loads of useful information! I have a couple questions about "Safe Harbor" contributions that I hope you can answer. I want to determine whether or not I'm facing a potential 401(a) "horror story"....

I am 67 years old and just recently retired from a university after 30 years of service. I have already started receiving monthly payments from the university's defined benefit pension plan but haven't yet tapped into my 403(b) and 401(a) accounts that are also associated with my university employment. All of my university wages during my career at the university were subject to Social Security, as were wages from other employers prior to my university employment. I have not yet filed for my Social Security benefit, preferring to wait until age 70. The university recently requested that I return part-time to guide the new employee chosen to replace me. Because I want to maintain my status as a retiree and continue to receive my monthly university pension income, the university said that my recall employment must be temporary (limited to a maximum of one year), I will be restricted to less than 43% effort, and I will be ineligible for any worker benefits. I also was told that my wages for the part-time effort will not be subject to Social Security taxes, but will instead be subject to a mandatory 7.5% pre-tax "DCP - Safe Harbor" deduction that will be deposited into my existing 401(a) account (all prior contributions to the 401(a) account were from pre-tax deductions from wages subject to Social Security). So I have two questions:

1) Because I have already reached full retirement age, but have not yet elected to receive Social Security benefits, and because I have 45+ years of substantial earnings subject to Social Security, can the "Safe Harbor" DCP contributions in any way detrimentally affect Social Security benefits I have already earned (e.g. via the Windfall Elimination Provision)?

2), Will the Safe-Harbor deductions deposited into the 401(a) account be problematic for existing deposits in the account that were deducted from wages subject to Social Security (e.g,, if WEP must be considered)?

Thanks

Hi,

I'm not familiar with 'safe harbor' contributions and there is no mention of them in Social Security's regulations. However, as long as you have at least 30 years of Social Security covered earnings that would be defined as substantial earnings under the Windfall Elimination Provision (WEP), your Social Security benefits will be exempt from any WEP reduction (https://www.ssa.gov/pubs/EN-05-10045.pdf).

Best, Jerry