It’s 115 degrees out there, and I’ve driven from pillar to post through it. First went over to GDU’s deferred compensation provider. Turns out this is a benefit available to government employees, which you can add to your 403(b) or state retirement plan, allowing you to shelter more of your money than the modest amount most states match. When the employer emits a piece of compensation that you’d like to defer, the employer has to withhold and pay FICA and Medicare. The guy I talked with said I could indeed defer payment of my $5,300 worth of vacation pay and the first payment toward the $19,000 GDU owes me for unpaid sick leave. However, he did not know whether deferring these chunks of compensation would protect me from having Social Security benefits docked in 2010, a buck for every two bucks of unapproved income.
So, it was off to the Social Security Administration, a hefty drive from the mid-town offices of the insurance company that handles the State of Arizona’s deferred compensation scheme.
There a Social Security CSR, the first person I’ve spoken to about this who seemed to know what he was talking about, said that even though FICA and Medicare are withheld by the employer, deferring the pay does cause Social Security to ignore it when figuring that year’s Social Security benefit.
Hallelujah!
This will allow me to teach as much as I need to without losing a large chunk of Social Security. It means I will not have to use the back vacation pay and the first installment of RASL (unpaid sick leave is paid out over three years) to live on. Though I may not be able to invest the money optimally, at least it won’t go away and it can be folded into retirement savings to help support me through my dotage.
GDU, a.k.a. Our Beloved Employer, has to sign off on Form SSA 131, which states that the RASL and vacation pay is pre-2010 income. Knowing GDU, I will have to find the form, track down someone over there with measurable IQ, and then raise hell and put a block under it to get them to do this. No one at GDU seems to know the answers to these questions; the university has laid off so many people at HR that the survivors have no idea what they’re doing. Sometimes when they don’t know the answer to a question, they’ll guess and tell you something that’s dead wrong. Sometimes they’ll frankly tell you they haven’t a clue.
More about deferred compensation: I learned you can open an account and just have it sit there as a vessel, waiting for the RASL and vacation pay. That is, you don’t have to contribute anything out of your paycheck. That’s a relief! With a major life change looming, one has other things to do with a paycheck than to let it sit for a couple of years. Management costs, BTW, are nominal and in some cases nothing.
So: if anyone reading this is in the same boat…
A government employee faced with early retirement, when the amount you can earn and still receive Social Security benefits is strictly limited, can shelter severance pay with a maneuver like this:
• Open a deferred compensation account, if you don’t already have it.
• Have your employer sign and submit Form SSA 131, which certifies that your severance pay represents payment for work performed before you start receiving Social Security.
• Have the severance pay rolled over into the deferred compensation account, realizing that FICA and Medicare will be withheld.
• Let it sit there until you reach “full” Social Security age.
At that point you can withdraw part or all of it, as you please, without affecting your Social Security benefits. You will have to pay regular income tax on it when you draw it out of the deferred compensation plan, but by then your income will be so penurious the taxes likely won’t matter much.