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401(k)

The Supplemental Retirement Income Plan of North Carolina – 401(k) is a State sponsored retirement savings program that allows employees to save and invest for retirement on a tax deferred basis. This plan is governed by the Department of State Treasurer and the Plan’s Board of Trustees, which contracted with Prudential Retirement Services to be the Plan Administrator.

The North Carolina General Assembly has enacted legislation conforming North Carolina to the federal tax provision changes that were imposed by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). NC 401(k) Plan participants can now take advantage of the new and improved opportunities that EGTRRA provides for 401(k) participants to save for retirement. These new opportunities are:

(1) Increased Contribution Limits
401(k) participants can contribute up to 80% of salary, not to exceed $12,000 in 2004. The maximum annual contribution limit will be increased to $15,000 over the next four years as follows:

2004 - $13,000

2005 - $14,000

2006 - $15,000

indexed in increments of $500 after 2006

(2) Catch-Up Contributions
Participants who are age 50 or older are allowed to make additional catch-up contributions as follows. Catch-up contributions can only be made after the maximum allowable contributions have been made.

2004 - $3,000

2005 - $4,000

2006 - $5,000

indexed in increments of $500 after 2006

(3) Coordination of Deferrals between 401(k), 457(b), and 403(b) Plans
Many of you have the opportunity to participate, through your employer, in tax deferral programs other than the NC 401(k) Plan (i.e., 457 Deferred Compensation Plans and 403(b) Tax Sheltered Annuities). Recent tax law changes have enhanced opportunities for tax deferred savings for participants in more than one supplemental plan. Beginning in 2002, 401(k) deferrals do not have to be coordinated with deferrals to a 457 plan. For 2004, a participant may contribute up to 80% of salary not to exceed $13,000 in the 401(k), regardless of his/her contribution to a 457 plan. For example, a participant in both plans may be eligible to defer as much as $26,000 - $13,000 to 401(k) and $13,000 to 457. Plus, a participant who is age 50 or older may be eligible to defer an additional $2,000 or more if he or she takes advantage of the catch-up contributions described above. Coordination is required between 401(k) and 403(b) plans. The maximum combined deferral amount in 2004 for an eligible participant who is contributing to both a 401(k) and a 403(b) plan is $13,000.

(4) Portability Opportunities
Under EGTRRA, eligible rollover distributions* may be made to and from any combination of eligible plans which includes 401(k) plans, 401(a) retirement, profit sharing, stock bonus plans and special pay plans, 403(b) plans, governmental 457(b) plans or IRAs. A participant who receives an eligible rollover distribution due to divorce or the death of a spouse will be able to roll the distribution over into his/her NC 401(k) Plan account. Rollovers from other plans exclude after-tax amounts.

To insure IRS compliance, all rollovers into the Plan must be preapproved by Prudential 401(k) Services. A minimum of $1,000 is required for a rollover into the NC 401(k) Plan. One must be properly enrolled with a balance in the 401(k) Plan in order to roll funds over into the Plan.

*Participants in the NC 401(k) Plan can only receive eligible rollover distributions if they have separated from service or reached age 59½.

(5) Tax Credits

Beginning in 2002, a tax credit is available for contributions made to 401(k) plans by low and middle-income earners. Eligible participants will receive a non-refundable tax credit of up to 50 percent on contributions up to $2,000 in addition to the tax deferral benefits already received for contributing to the NC 401(k) Plan. The amount of credit is based on the first $2,000 in contributions and the adjusted gross income as follows:

Some reductions in the tax credit are applicable if plan distributions are made during the year for which credit is claimed, the two years prior to that year, and between the end of the year and the time the tax return is filed. The tax credit is available from 2002 through 2006.

(6) Hardship Withdrawals

Suspension of voluntary contributions will be reduced from 12 months to 6 months following the receipt of a hardship withdrawal. Any distribution made upon the hardship of an employee is not an eligible rollover distribution. Thus, hardship withdrawals from the 401(k) plan are ineligible to be rolled over beginning in 2002.

Participants may want to consult a tax advisor about EGTRRA's impact on their personal situations and contact Prudential 401(k) Services about the opportunity to increase retirement savings through the NC 401(k) Plan.

Procedures for Withdrawals/Rollovers Out of the Plan

Completion of a NC 401(k) Plan withdrawal form is required for all withdrawals or rollovers out of the Plan. (You are eligible to make withdrawals or to roll funds out of the Plan once you leave employment or reach age 59½.) The withdrawal form may be requested by calling the Interactive Voice Response (1-866-NC-401K1), visiting the Plan's web site (www.prudential.com/ncplans).  State 401(k) Services is unable to honor or respond to rollover requests received directly from your IRA custodian or new plan administrator. To initiate the rollover, you must first request and complete the NC 401(k) withdrawal form.

Web Site, Action Line, and Service Center

Remember that you can access your 401(k) account and make various transactions using the Plan's web site or Action Line, 24 hours a day, 7 days a week. Prudential 401(k) Services would like to remind you that telephone calls to the Service Center are typically heavy on the days immediately following participants' receipt of quarterly statements. Your patience is appreciated.

Action Line: 1-866-NC-401K1 [Press *0 or hold to speak with a representative] Web site: www.prudential.com/ncplans