The Defined Contribution Plan (DCP) is a savings plan that allows participants to accumulate tax‐ sheltered money for retirement. Each pay period, 7.5% of salary will be deposited automatically in the Defined Contribution Plan and credited to an individual tax‐sheltered account. The contributions are made on a pre‐tax basis, which means they are deducted from salary before income taxes are calculated, so taxable income is reduced. Income taxes on the DC Plan contributions, as well as any earnings, are deferred (i.e., postponed) until the money is withdrawn. The money accumulated in the DC Plan is intended primarily for use when an employee retires. When a student employee leaves University service, the account balance may be withdrawn and rolled over into another employer's 401(a) or 401(k) retirement plan (or an IRA) to retain the tax‐deferred status. Student employees may also choose to cash out the account balance when they leave University service; however they may have to pay federal and state penalty taxes (currently amounting to 22%) in addition to federal/state income taxes (12.5%) which would be due upon tax filing. You may not decline this withholding.
While many student employees are exempt from FICA or “Safe Harbor” during the academic year, those who hold full time appointments over the summer may continue to be DCP eligible for August if their total percentage of paid time is at 80% or higher for the month.
You are exempt from the Federal Insurance Contribution Act (FICA) taxes if you are registered:
During the Academic Year:
- As an undergraduate student enrolled in at least 8 units; or
- As a graduate student enrolled in at least 4 units.
- Less than 80% for any portion of the month.
During Summer Session:
- As an undergraduate student enrolled in at least 6 units; or
- As a graduate student enrolled in at least 2 units.
- Less than 80% for any portion of the month.
FICA Eligible: If you do not meet the requirements listed above, you will contribute the following percentages from your pay:
- 7.50% ‐ To an individual retirement account in the UC's Defined Contribution Plan (DC Plan) as an alternative to paying Social Security taxes.
- 1.45% ‐ To Medicare
Additional information related to DCP/Safe Harbor is listed below for your reference.
