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					Your Retirement Benefits
TE ACHERS' AND STATE EMPLOY EES'
       RETIREMENT SYSTEM




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                              North Carolina Retirement Systems



J A N U A RY, 2 0 0 6 D E PA R T M E N T O F S TAT E T R E A S U R E R , R A L E I G H , N O R T H C A R O L I N A 2 7 6 0 3 - 1 3 8 5
                       TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




                                      STATE OF NORTH CAROLINA
                                 DEPARTMENT OF STATE TREASURER
                                        RETIREMENT SYSTEMS DIVISION



      RICHARD H. MOORE                                                       MICHAEL WILLIAMSON
         STATE TREASURER                                                        DEPUTY TREASURER




                                  To the Members of the Teachers’ and State Employees’
                                  Retirement System:

                                  It is a great pleasure to present you with your new employee
                                  booklet Your Retirement Benefits. The information in this sum-
                                  mary describes the retirement benefits you can expect to receive
                                  as a member of the Teachers’ and State Employees’ Retirement
                                  System. This summary includes topics such as when you qualify
                                  for benefits and how much you can expect to receive.

                                  To help you build a sound financial future, the State helps you
                                  reach your retirement goal by sharing the cost of the Retirement
     System with you. Your retirement benefit is a part of your compensation earned during
     your active working career that has been deferred until the time you stop working. When
     combined with your Social Security benefits and personal savings, the Retirement System
     provides you financial security for your later years.

     In addition, the Disability Income Plan is a financial benefit the State provides for you in the
     event you become unable to work before you are eligible to retire. This benefit plan is also
     described in this summary.

     I think you will find Your Retirement Benefits a helpful tool in understanding the benefits of
     the Teachers’ and State Employees’ Retirement System. I encourage you to read this entire
     document and to share this information with your family.



     Sincerely,




     Richard H. Moore

     State Treasurer




Your Retirement Benefits                                                              JANUARY, 2006
                                     TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Your Retirement Benefits
Details On: ............................................Are On Page:                Creditable Service And Service Purchase
                                                                                    Provisions ................................................................. 13
Your Retirement System Benefits In Brief ..............2                               Rollovers To Purchase Service Credit ........................17
Becoming A Member Of The System ..................... 2                             Transferring Service And Contributions Between
                                                                                    Systems ....................................................................18
Who Pays For The System .......................................3
                                                                                    Refund Of Contributions ........................................18
Tax-Deferred Savings Advantages ......................... 3
                                                                                       Interest ....................................................................... 18
How Your Benefit Is Calculated .............................. 4
                                                                                    Applying For And Receiving Monthly Benefits ....19
How To Qualify For Benefits................................... 4                       Retirement Application Process ................................ 19
  Becoming Vested.......................................................... 4          Your First Monthly Benefit...................................... 20
  Service Retirement (Unreduced Benefits) ................. 4                          Post-Retirement Increases......................................... 20
  Early Retirement (Reduced Benefits) ........................ 4
                                                                                    Retiree Health Insurance Coverage.......................20
  Disability Retirement ................................................. 5
  Reciprocity Between Retirement Systems................. 5                         Income Tax ...............................................................21
  If You Leave The System Before Retirement ............. 5                            Retirement Benefits ................................................... 21
                                                                                       Death Benefits .......................................................... 23
How Your Beneficiaries Are Protected ....................6
                                                                                       Refunds ..................................................................... 23
  Survivor’s Alternate Benefit ......................................... 6
  Death Benefit ............................................................... 6   Reemployment After Retirement .......................... 24
Example Of How A Benefit Is Calculated ................7                            Important Information To Remember ................... 26
  At Service Retirement ................................................. 7         Disability Income Plan Of North Carolina .............27
  At Early Retirement ......................................................8       Administration And Funding ..................................35
  Early Retirement Percentages ................................... 8                How To Contact Us ................................................ 37
  Examples Of Benefits Paid.......................................... 9
Retirement Benefit Payment Plans..........................9
  Maximum Payment.................................................... 10
  Payment Options ....................................................... 10
  How The Payment Options Work............................ 12




                                                                                    DISCLAIMER: The availability and amount of all benefits you
                                                                                    might be eligible to receive is governed by Retirement System
                                                                                    law. The information provided in this handbook cannot alter,
                                                                                    modify or otherwise change the controlling Retirement System
                                                                                    law or other governing legal documents in any way, nor can
                                                                                    any right accrue to you by reason of any information provided
                                                                                    or omission of information provided herein. In the event of a
                                                                                    conflict between this information and Retirement System law,
                                                                                    Retirement System law governs.




 JANUARY, 2006                                                                                                               Your Retirement Benefits                        1
                             TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




    Your Retirement System Benefits In Brief
    I   Automatic membership for eligible employees.         I   Disability Income Plan benefits. For short-term
        See below.                                               benefit provisions, see page 29. For long-term
    I   You and the State pay the cost of retirement             benefit provisions, see page 31.
        benefits. See page 3.                                I   Survivor monthly income if you die in active
    I   Monthly payments at retirement based on your             service with 20 years of credit regardless of age;
        salary, age, and years of credit. See page 4.            or after age 60 with five years of membership.
                                                                 See page 6.
    I   Unreduced retirement benefit at age 65 with five
                                                             I   Several payment options available to continue
        years of membership, or at age 60 with 25 years
        of credit, or at any age with 30 years of credit;        income to your beneficiary following your
        reduced benefit after age 50 and 20 years of             death after retirement. See pages 10, 11, and
        credit, or at age 60 with five years of member-          12.
        ship. See page 4.                                    I   Death benefit paid to your beneficiary if you die
    I   A right to a reduced benefit at age 60 after five        in active service after one year of membership.
        years of membership, regardless of whether you           See page 6.
        are working. See page 4.
                                                             This section just highlights the System. The
                                                             following pages describe it in detail.




    Becoming A Member Of The System
    You become a member of the System on your date           I   an Agricultural Extension Service employee and
    of hire if you are:                                          a member of the Federal Employees’ Retirement
    I   a permanent full-time teacher or employee                System, you may not join this System.
        of a State-supported board of education or
                                                             You can get more details about the alternate
        community college,
                                                             systems from your employer.
    I   a permanent employee of the State (or any of its
        agencies, departments, bureaus, or institutions)     When you begin working for the State, you will
        and work at least 30 hours per week for nine         be asked to complete a “Notice of Enrollment”
        months per year, or                                  (Form 2). You will also be
    I   a permanent employee of a charter school             asked to name a beneficiary
        whose board has elected to participate in the        to receive a refund of your
        Retirement System, and work at least 30 hours        contributions and a death
        per week for nine months per year.                   benefit if you die before
                                                             retirement. You can change
    However, if you are:                                     your beneficiary at any time
    I   a faculty member, administrator, or other            by completing a “Notice
        eligible employee at a State institution of higher   of Change of Beneficiary”
        education or a community college president,          (Form 2C), available from
        you may join an optional retirement program,         your employer or the
        instead of the System, or                            Retirement System.


2    Your Retirement Benefits                                                                 JANUARY, 2006
                        TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Who Pays For The System
You, and the State, and the investment earnings on      On and after July 1, 1982, your contributions
total contributions pay the cost of providing your      to the Retirement System are tax-sheltered
retirement benefits.                                    for federal and North Carolina income tax
                                                        purposes.
Your share of the cost, which is automatically
deducted from your paycheck, is 6% of your com-         The State bases contributions on the calculations
pensation. Your compensation includes all salaries      prepared by an actuary. The State contribution
and wages paid to you, from public funds, which you     rate for the 2005-2006 fiscal year is 6.82% of all
earn at your covered job while working for the State.   members’ salaries to pay for the benefits for you
                                                        and other members.



Tax-Deferred Savings Advantages
On and after July 1, 1982, special tax advantages       The example below assumes you are married,
apply to the contributions you make to the              earn $30,000 a year, have four people in your
Retirement System because they are made                 family, and contribute 6% of your salary to
on a before-tax basis. This means that your             the Retirement System. The amount of tax you
contributions are deducted from your pay before         actually pay will depend on current tax rates and
taxes are calculated. As a result, your taxable         your own financial situation.
income is lowered and the amount of annual taxes
you pay is less than if you made contributions on
an after-tax basis.



                                                        After-Tax    Tax-Deferred
                                                        Savings        Savings

                         Eligible Pay                   $30,000        $30,000
                         Tax-Deferred Savings                  0         -1,800
                         Taxable Income                 $30,000        $28,200
                         Federal Income
                         Tax Withholding*                 -1,882         -1,612
                         North Carolina State
                         Income Tax Withholding*          -1,259         -1,133
                         After-Tax Savings                -1,800              0
                         Take-Home Pay                  $25,059        $25,455
                         Increased Take-Home Pay                          $396
                         *Estimated




 JANUARY, 2006                                                                    Your Retirement Benefits   3
                            TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




    How Your Benefit Is Calculated
                                                           Creditable service means any period during
               Your annual retirement benefit
                                                           which you contribute to the System, provided you
                  is based on this formula:                do not withdraw your contributions. In addition, if
           1.82% of “average final compensation”           you have unused sick leave, were in military service,
                           TIMES                           or worked out-of-state in related governmental
          years and months of “creditable service.”        employment, special rules may apply in determining
                                                           creditable service. See pages 13 through 17 for
    Average final compensation means the average           more details.
    of your salary during your four highest-paid years     If you left the System
    in a row. If your four highest-paid years in a row     and withdrew any of
    include a final payment for unused vacation leave      your own contributions,
    and/or prorated longevity, your average final          you may restore your
    compensation may be increased by the extra             creditable service by
    payment(s). (Final payments, if any, for unused        making a lump sum
    sick leave or reimbursements for expenses are not      payment, as outlined on
    includable in your average final compensation.)        page 14.




    How To Qualify For Benefits
    Becoming Vested                                        Early Retirement (Reduced Benefits)
    You become vested in the Retirement System             You may retire early with a reduced retirement
    once you have completed a minimum of five years        benefit after:
    of membership service. This means that you are
                                                           I   you reach age 50 and complete 20 years of
    eligible to apply for lifetime monthly retirement
                                                               creditable service, or
    benefits based on the formula, and the age and
    service requirements described in this handbook,       I   you reach age 60 and complete five years of
    provided you do not withdraw your contributions.           membership service.
    You may also be eligible for retiree health coverage
                                                           Your early retirement benefit is determined by
    as described on page 20.
                                                           the same formula as a service retirement benefit
    Service Retirement (Unreduced Benefits)                multiplied by a reduction percentage based on
                                                           your age and/or service at early retirement. Since
    You may retire with an unreduced service
                                                           your benefits may be paid over a longer period of
    retirement benefit after:
                                                           time than if you waited until you were eligible for
    I   you reach age 65 and complete five years of        service retirement, they will be reduced. The table
        membership service,                                on page 8 shows the effect these reductions would
    I   you reach age 60 and complete 25 years of          have on your benefit.
        creditable service, or
    I   you complete 30 years of creditable service, at
        any age.

4    Your Retirement Benefits                                                              JANUARY, 2006
                        TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Disability Retirement                                    Reciprocity Between Retirement Systems
After attaining certain service requirements, you        Any credit you may have in the Legislative, Judicial,
may be eligible for short-term disability and/or         or Local Governmental Employees’ Retirement
long-term disability benefits from the Disability        Systems may be counted along with your
Income Plan of North Carolina as described on            credit in this Retirement System for the purpose
pages 27 through 34. However, if you earned five         of determining your eligibility for a reduced or
or more years of membership service with the             unreduced benefit. However, only your creditable
State Retirement System prior to July 1, 1982, you       service in this System will be used in computing
are eligible to receive disability retirement benefits   the amount of your benefit in this System, and
that are based in part on the amount of service          creditable service in any other system will be used
that you would have earned if you had been able to       in computing benefits from that System.
remain in service until age 65, instead of benefits
from the Disability Income Plan.                         If You Leave The System Before Retirement

In addition, if you earned five or more years of         Even if you leave before service or early retirement,
membership service with the State Retirement             you may still receive a benefit. You are entitled to
System prior to January 1, 1988, you are eligible        apply to receive a benefit once you meet eligibility
to receive disability retirement benefits that are       requirements if you leave for any reason after you
based in part on the amount of service that              have completed five years of membership service,
you would have earned if you had been able to            provided you do not withdraw your contributions.
remain in service until you would have otherwise         See page 20 for information regarding retiree
been eligible for an unreduced service retirement        health insurance coverage.
benefit, instead of benefits from the Disability
                                                         Your benefit is determined by the formula in effect
Income Plan.
                                                         on the effective date of your retirement. It is based
In either case, if you had earned five or more years     on your average final compensation and years of
of membership service with the State Retirement          creditable service at that time. You can apply
System prior to January 1, 1988, and subsequently        for deferred payments to begin when you reach
become disabled, you will have the opportunity           age 60.
to elect to receive benefits from the Disability
                                                         If you have at least 20 years of creditable service
Income Plan or to receive disability retirement
                                                         when you leave, you can apply for early payments
benefits from the State Retirement System.
                                                         starting at age 50, however, your benefit is reduced
If you are eligible for and you elect to receive         because you may receive payments for a longer
disability retirement benefits, your payment under       period of time than if you waited until you were
the Maximum Allowance will be calculated using           eligible for service retirement.
the same formula as a service retirement benefit.
                                                         If you leave the System before you have five years
(See pages 10 and 11 for descriptions of retirement
                                                         of membership service, the only payment you can
payment plans.) Under disability retirement, you
                                                         receive is a refund of your contributions. See page
may choose any payment option except Option
                                                         18 regarding a refund of contributions.
4. If you choose a survivorship option, it will be
calculated using disability reduction percentages.




 JANUARY, 2006                                                                    Your Retirement Benefits       5
                            TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




    How Your Beneficiaries Are Protected
    Although the System’s primary purpose is to             your death. If you do not want your beneficiary to
    provide retirement income, it recognizes that           have this choice of receiving a retirement allow-
    some employees will not live to enjoy their             ance provided by Option 2, you should so indicate,
    retirement benefits. So, it provides a death benefit    in writing, to the Retirement System.
    that protects your beneficiary should you die
    before retirement.                                      Death Benefit
                                                            If you die while still in active service (while being
    In addition, your beneficiary will receive a refund     paid salary) after one year as a contributing mem-
    of your contributions (with interest, if applicable).   ber, your beneficiary will receive a single lump
    More details on refunds appear on page 18. If you       sum payment. The payment equals the highest 12
    meet certain age and/or service requirements, a         months of salary in a row during the 24 months
    Survivor’s Alternate Benefit may be paid instead of     before you die, but no less than $25,000 and no
    the refund of contributions if you have named only      more than $50,000. This benefit is also paid if
    one principal beneficiary. See below.                   you die within 180 days of the last day for which
                                                            you were paid salary. It is in addition to any other
    If you die after retirement, depending on the
                                                            benefits to which you may be entitled.
    payment option you chose, your beneficiary may
    receive income following your death. See pages 10
    through 12.

    Survivor’s Alternate Benefit
    Provided you have not retired, if you have named
    one principal beneficiary for the refund of your
    contributions and die while in active service (while
    being paid a salary or within 180 days after salary
    payments cease) after:
    I   completing 20 years of creditable service (not
        including credit for unused sick leave) regard-
        less of age, or
    I   reaching age 60 with five years of membership
        service,

    the principal beneficiary named to receive a refund
    of your contributions and interest may choose
    to receive a monthly benefit for life instead of a
    refund of contributions. The Survivor’s Alternate
    Benefit does not apply if you have named two or
    more persons as principal beneficiaries or your
    estate as beneficiary, or if you have retired. The
    benefit equals the same monthly amount you
    would have been entitled to under Option 2 had
    you retired on the first of the month following




6    Your Retirement Benefits                                                               JANUARY, 2006
                       TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Example Of How A Benefit Is Calculated
To give you an idea of how benefits are calculated,       Because Mary has over 30 years of creditable
let us look at some examples. Assume an employee,         service at retirement, she receives her basic
Mary Benson, who works on a 10 month per year             benefit of about $18,909 annually, or approximately
basis, retires at age 60, with 32 years and two           $1,575 monthly, for the rest of her life under the
months of creditable service. As we go through the        maximum payment, with monthly payments
steps to figure Mary’s benefit, write in your own         ceasing at her death.
figures for an estimate of your benefit.
                                                          In addition, Mary may also be eligible for Social
                                                          Security benefits as early as age 62.




     At Service Retirement                                  Mary                      You
     Step 1
     Add your salary during your four                      $30,600                $
     highest-paid years in a row.                           31,700
                                                            32,900
                                                          + 34,000
                                                          $129,200                $
     Step 2
     Divide Step 1 by four to determine                    $32,300                $
     your average final compensation.

     Step 3
     Multiply Step 2 by .0182 to apply                     $32,300                $
     retirement formula.                              x      .0182                x    .0182
                                                           $587.86                $
     Step 4
     Determine creditable service.                    32.1667 years
     (see pages 13 through 17)

     Step 5
     Multiply Step 3 by Step 4 to determine             $587.86                   $
     your annual retirement benefit.                  x 32.1667
                                                      $18,909.52                  $
     Step 6
     Divide Step 5 by 12 to get                        $1,575.79                  $
     monthly maximum payment.




 JANUARY, 2006                                                                    Your Retirement Benefits      7
                             TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




    At Early Retirement                                       Assume, however, that Fred is age 59 instead of
    Now let us look at an employee, Fred Wise, who            age 61. With 24.25 years of creditable service,
    works on a 12 month per year basis. Assume when           his early service retirement reduction percentage
    Fred retires at age 61, he has:                           is .80 instead of .88. In this case, Fred receives
                                                              a maximum payment of about $11,404 a year, or
    I   average final compensation of $32,300, and            about $950 a month, unless he chooses a specific
    I   24 years and three months of creditable               retirement payment option. His payment will start
        service.                                              at age 59 and continue for the rest of his life.

    Here is how we calculate his benefit:                     In addition, Fred may also be eligible for Social
        $    32,300 (average final compensation)              Security benefits as early as age 62.
        x     .0182
                                                              Early Retirement Percentages
        $    587.86
        x     24.25 (creditable service)                      If you are between ages 60 and 65, with less than
                                                              25 years of creditable service, your early service
        $ 14,255.61
                                                              retirement benefit will be reduced to the following
    Now apply the early retirement reduction                  percentages.
    percentage from the chart below.
                                                                   If you are               You receive this
        $ 14,255.61                                              this age when               percentage of
        x       .88 (percentage at age 61)                       payments start               your benefit
        $ 12,544.94
                                                                         64                      97%
    In this case, Fred receives a maximum payment                        63                      94%
    of about $12,544 a year, or about $1,045 a month,                    62                      91%
    unless he chooses a payment option. His payment                      61                      88%
    will start at age 61 and continue for the rest of his                60                      85%
    life.

                                                Creditable Service
                        29      28      27      26     25    24         23      22     21      20
                 Age
                 59     95%     90%     85%     80%     80%      80%    80%     80%    80%     80%
                 58     95%     90%     85%     80%     75%      75%    75%     75%    75%     75%
                 57     95%     90%     85%     80%     75%      70%    70%     70%    70%     70%
                 56     95%     90%     85%     80%     75%      70%    65%     65%    65%     65%
                 55     95%     90%     85%     80%     75%      70%    65%     60%    60%     60%
                 54     95%     90%     85%     80%     75%      70%    65%     60%    55%     55%
                 53     95%     90%     85%     80%     75%      70%    65%     60%    55%     52%
                 52     95%     90%     85%     80%     75%      70%    65%     60%    55%     50%
                 51     95%     90%     85%     80%     75%      70%    65%     60%    55%     50%
                 50     95%     90%     85%     80%     75%      70%    65%     60%    55%     50%

    If you are between birthdays when payments start, the reduction will be adjusted proportionately.

8    Your Retirement Benefits                                                                JANUARY, 2006
                                             TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




If you are between ages 50 and 59, with less                               Examples Of Benefits Paid
than 30 years of creditable service, your early                            The following chart shows the approximate
retirement will be reduced to the percentages                              monthly benefit paid at various salary levels,
shown in the table on page 8.                                              depending on age and creditable service.

                                                                           Of course, these are only examples. Your own
                                                                           benefit is calculated individually and depends on
                                                                           your age, creditable service, and average final
                                                                           compensation.



                                                  Monthly Retirement Benefit Under Maximum Payment

                                           Age         50          55          60           N/A           N/A
                                        Service        20          28          25            30           40
           Average Final Compensation




                                        $50,000       $758      $1,911       $1,895       $2,275        $3,033
                                         40,000        606       1,528        1,516        1,820         2,426
                                         35,000        530       1,337        1,327        1,592         2,123
                                         30,000        455       1,146        1,137        1,365         1,820
                                         25,000        379         955          947        1,137         1,516
                                         22,000        333         840          834        1,001         1,334
                                         20,000        303         764          758          910         1,213
                                         18,000        273         687          682          819         1,092
                                         16,000        242         611          606          728           970
                                         14,000        212         535          530          637           849
                                         12,000        182         458          455          546           728
                                         10,000        151         382          379          455           606




Retirement Benefit Payment Plans
When you retire you have to decide which monthly                           Before you select a payment plan, you should
payment plan to select. Your decision will be                              know that, on average, each payment plan is
personal and should take into account your needs                           mathematically equal to the other plans. That is,
during retirement and the needs of a dependent,                            each payment plan is calculated so that the total
if any, after your death. Neither the payment plan                         value of the plan you select is the same as the
selected by a co-worker nor the one selected by the                        value of the other plans if you and the beneficiary
largest number of retirees should have any effect                          (if any) you name to receive a monthly payment,
on your personal decision.                                                 live your expected lifespans.




 JANUARY, 2006                                                                                     Your Retirement Benefits      9
                             TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




     You should first decide if you need to select a        Maximum Payment
     type of payment plan that provides for a monthly       When you retire on a service retirement
     payment to a beneficiary after your death. If you      allowance, your basic benefit is the maximum
     do not select such a plan, all of your retirement      payment and is calculated under the formula on
     benefit will be used to provide you with a lifetime    page 7. If you retire early, your maximum payment
     monthly payment that ceases at your death.             is calculated using the same formula and then
     There is a Guaranteed Refund feature of                reduced for early retirement. In either case, unless
     your retirement benefits which provides that           you choose a payment option, you will receive
     the total amount paid out after your retire-           your maximum payment for as long as you live. All
     ment will not be less than the amount of your          monthly payments stop at your death.
     contributions and interest, regardless of which        Payment Options
     retirement plan you select. Should your death and
     the death of the beneficiary named to receive a        Instead of the maximum payment, you can choose
     monthly payment, if any, occur before the total        one of the following payment options.
     of all monthly payments equals the amount of
                                                            If you elect to provide a monthly payment to a
     your contributions and interest, the unrecovered
                                                            beneficiary after your death by choosing Option
     portion of your contributions and interest will be
                                                            2, 3, 6-2, or 6-3, you give up some of your retire-
     paid in one lump sum to another beneficiary(ies).
                                                            ment benefit while you are living. The amount
     Payments made to purchase additional creditable
                                                            you give up is placed in reserve to be paid to one
     service after retirement are also covered by the
                                                            beneficiary after your death. (A beneficiary for a
     Guaranteed Refund provisions. You may name one
                                                            monthly benefit cannot be named as beneficiary for
     or more beneficiaries for the Guaranteed Refund
                                                            the Guaranteed Refund.) The amount your retire-
     provision and you may change your beneficiary(ies)
                                                            ment benefit is reduced depends on the amount of
     for this purpose as often as you desire. Of course,
                                                            your maximum payment benefit, your age, and the
     any beneficiary named for the Guaranteed Refund
                                                            age of your beneficiary.
     cannot be named as beneficiary for a monthly
     benefit.

     You may not change the payment plan you                                   Option 2
     select once you cash a retirement check or                       100% Joint And Survivor
     after the 25th of the month following the              You receive reduced monthly payments for life.
     month your first check is mailed (whichever is         After you die, your beneficiary receives the same
     earlier) except under the following conditions:        amount monthly for life.
     I   if you select a payment option that provides
         a monthly benefit to your spouse as named                             Option 3
         beneficiary after your death (i.e., Option 2, 3,              50% Joint And Survivor
         6-2, or 6-3) and later become divorced from        You receive reduced monthly payments for life.
         that spouse, or                                    After you die, one-half of your payment continues
     I   if you are rehired in a position covered by the    to your beneficiary for life.
         Retirement System and contribute to your new
         account for at least three years.




10    Your Retirement Benefits                                                              JANUARY, 2006
                      TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




                    Option 4                                              Option 6
           Social Security Leveling                            Modified Joint And Survivor
You receive larger monthly payments than you          You receive reduced monthly payments under
would otherwise be entitled to receive, until you     a combination of Option 2 and the maximum
become eligible for Social Security at age 62.        payment, or under Option 3 and the maximum
Beginning at age 62, your monthly payments            payment. Your death, or the death of your
will be reduced to an amount that is less than        beneficiary, affects monthly payments as fol-
what you would otherwise be entitled to receive.      lows:
Nevertheless, your reduced retirement payments
                                                      I   Option 6-2 — Under a combination of Option
after age 62 plus your allowance from the Social
                                                          2 and the maximum payment, your death enti-
Security Administration should be approxi-
                                                          tles your beneficiary to receive a monthly pay-
mately the same amount as the inflated payment
                                                          ment for life in the same amount as you received.
you received from the Retirement System before
                                                          However, if your beneficiary dies before you
age 62. However, the actual amount of your
                                                          do, your monthly payments are increased
retirement payments both before and after age
                                                          to the amount payable under the maximum
62 will be based on the estimate of benefits you
                                                          payment.
provide to our office from the Social Security
Administration prior to your retirement. All          I   Option 6-3 — Under a combination of
monthly payments cease at your death.                     Option 3 and the maximum payment, your
                                                          death entitles your beneficiary to receive
The reduction in your monthly retirement                  a monthly payment for life of one-half the
payments after age 62 allows the Retirement               amount you received. However, if your ben-
System to recover the inflated amounts you                eficiary dies before you do, your monthly
received before age 62. Therefore, on the                 payments are increased to the amount pay-
average, the inflated amounts received before age         able under the maximum payment.
62, together with the reduced amounts received
after age 62, are equal in value to the other
                                                      Under Options 2, 3, 6-2, and 6-3, you may
retirement plans over your life expectancy.
                                                      name only one beneficiary to receive a monthly
Under Option 4, any percentage increase you           survivor payment after your death. You may not
are granted in your retirement payments before        change your survivor beneficiary after you
age 62 will be applied to the inflated benefit you    retire except under the following conditions:
are receiving at that time; however, upon reach-      I   if you named your spouse as survivor
ing age 62 your retirement payments will be               beneficiary and later become divorced from
reduced to the original amount promised after             that spouse,
age 62, plus the percentage increases (not the dol-   I   if you return to employment covered under
lar amount of increases) granted before age 62.           this Retirement System and contribute to
For additional information regarding Option 4             a new retirement account for at least three
and Social Security, see pages 19 and 26.                 years, or
                                                      I   if you chose Option 2 or 3 at retirement and
                                                          designated your spouse as survivor beneficiary
                                                          and this spouse dies before you, and you



JANUARY, 2006                                                                   Your Retirement Benefits      11
                               TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




        remarry, you may name your new spouse                         How The Payment Options Work
        as your beneficiary within 90 days of your
                                                                      John Murphy has earned a service retirement ben-
        remarriage under the same option you chose
                                                                      efit under the maximum payment plan of $1,000
        at retirement. This redesignation must be
                                                                      a month. Unless he chooses a payment option, he
        properly filed with the Retirement System
                                                                      will receive $1,000 each month for life with all
        within 120 days of remarriage. Your new
                                                                      monthly payments ceasing at his death.
        benefit will be reduced on the basis of your age
        and the age of your spouse at the time of the                 But let us assume he wants to share his benefit
        change. The benefit payable to you will be the                with his wife, Pam. Pam is 51 when John retires
        benefit you received prior to the death of your               at 57 after 30 years and three months of creditable
        original spouse, additionally reduced in order                service. The table below shows how much John
        to cover your new spouse as beneficiary.                      and Pam would each receive monthly under vari-
                                                                      ous payment options.
     Under Options 6-2 and 6-3, if your survivor
     beneficiary dies before you do, you may not name                 Of course, the actual amounts of the payment
     another.                                                         options you can choose are based on many factors,
                                                                      such as your age, your beneficiary’s age, and when
     Your new beneficiary designation will be
                                                                      payments start. Before you retire, you will receive
     effective on the first day of the month in which it
                                                                      an estimate of the actual amounts payable to you.
     was made, and it will provide retirement benefits
     that are mathematically equal to the retirement
     benefits that were in effect prior to your new
     beneficiary designation.




          To John                                                                      To Pam After John’s Death
          Maximum
          $1,000 monthly                                                                                      $0.00
          Option 2
          $840.40 monthly                                                                          $840.40 monthly
          Option 3
          $913.30 monthly                                                                          $456.65 monthly
          Option 4*
          $1,388.89 up to age 62, $753.89 thereafter                                                          $0.00
          Option 6
          With Option 2:                                                                           $832.10 monthly
          $832.10 monthly; if Pam dies before John, he receives $1,000 monthly thereafter
          With Option 3:                                                                           $454.20 monthly
          $908.40 monthly; if Pam dies before John, he receives $1,000 monthly thereafter


          *Assumes John’s primary Social Security benefit is $635 a month at age 62.




12    Your Retirement Benefits                                                                       JANUARY, 2006
                        TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Creditable Service And
Service Purchase Provisions
Your benefit at retirement is based, in part, on        If you are not eligible for free credit under these
your creditable service. In addition to the years       rules , you may be eligible to buy credit for your
and months you contribute to the System, credit-        first period plus later required periods of active
able service also includes:                             duty by making a lump sum payment. Your cost
                                                        will depend on when you became a member and
Sick Leave. Sick leave earned monthly under a           when you make your payment.
duly adopted policy and for which you would
receive full salary if you were absent from work        If you became a member on or before July 1, 1981,
on account of sickness, counts as creditable            and have contributed to the Retirement System for
service. Sick leave which was converted from excess     five years but less than 10 years, your cost will
vacation leave in accordance with State law is also     be equal to the full actuarial liabilities created
creditable. One month of credit is allowed, at no       on account of the additional credit purchased.
cost to you, for each 20 days of your unused sick       However, as soon as you have contributed to this
leave when you retire. One more month is allowed        Retirement System for 10 years, there immediately
for any part of 20 days left over, provided the         follows a three-year period during which your
remaining portion is at least one hour.                 cost will likely be lower than at any other
                                                        time. If not paid during that three-year period,
Sick leave is used to increase your creditable          your cost will again become equal to the full
service, but sick leave cannot be used to meet          actuarial liabilities created on account of the
the minimum qualifications for a deferred benefit       additional credit purchased.
or the Survivor’s Alternate Benefit. You may use
your sick leave to complete 30 years of service,        If you became a member after July 1, 1981, you
regardless of age; 25 years of service after age 60;    must have contributed to this Retirement System
and 20 years of service after age 50. Please note       for five years. Your cost will be equal to the full
that sick leave does not count toward eligibility       actuarial liabilities created on account of the
for retiree health coverage. See page 20 for            additional credit purchased.
information regarding retiree health coverage.
                                                        If your service is creditable in another retirement
Your employer will certify the amount of sick leave     system, your ability to buy credit in this System
you have on your “Application for Retirement.”          may be restricted.

Military Service. Your periods of active duty in        Your employer and the
the United States military up to the time you were      Retirement System have
first eligible for discharge count as creditable ser-   application forms which
vice at no cost to you if you were a teacher or State   contain more informa-
employee when you entered the military, and:            tion.
I   you returned to employment as a teacher
    or State employee within two years after your
    earliest discharge date, or
I   you returned to employment as a teacher or
    State employee at any time after your discharge
    and completed at least 10 additional years of
    service as a contributing member.

 JANUARY, 2006                                                                  Your Retirement Benefits      13
                              TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




     Withdrawn Service. If you ever received a refund           in this System. However, only your creditable
     of your contributions from:                                service in this System will be used in computing
                                                                the amount of your benefit in this System, and
     I   this Retirement System,
                                                                creditable service in any other system will be used
     I   the Local Governmental Employees’ Retirement           in computing benefits from that System.
         System, or
     I   the former Law         Enforcement       Officers’     Your cost, which must be paid in a lump sum,
         Retirement System,                                     will be calculated using the withdrawn service
                                                                purchase provisions in the System under which
     you may be eligible to make a lump sum payment             you are purchasing the service credit.
     and restore to this System the creditable service
     you lost when you received your refund. Before             Your employer and the Retirement System
     you are eligible to pay for this service, you must be      have application forms which contain more
     rehired and contribute to this System for five years       information.
     or have a combination of five years of currently
                                                                Out-Of-State Service. If you have performed
     creditable service in the Judicial, Legislative, Local
                                                                out-of-state public employment, you may be
     Governmental, or this Retirement System.
                                                                eligible to buy credit for that service. Credit that
     Effective July 1, 2001, your cost, which must be           can be purchased must have been with:
     paid in a lump sum, will be equal to the amount of         I   another state or governmental subdivision of a
     contributions withdrawn, plus interest at the rate             state,
     of six and one-half percent compounded annually
                                                                I   a federal, overseas dependent or military
     from the year of withdrawal to the year of repay-
                                                                    dependent school,
     ment, plus an administrative fee of $25.
                                                                I   the Public Health Service,
     Other Withdrawn Service Purchase Provisions.               I   the Merchant Marine (if you were also in the
     If you ever received a refund of your contributions            Naval Reserve), or
     from:
                                                                I   the International Cooperation Administration
     I   the Consolidated Judicial Retirement System,               or Agency for International Development,
     I   the Legislative Retirement System, or                      while on an approved leave of absence.
     I   the Local Governmental Employees’ Retirement           If you became a member on or before July 1, 1981,
         System,                                                and have contributed to the Retirement System for
                                                                five years but less than 10 years since completing
     you may be eligible to make a lump sum payment
                                                                your out-of-state service, your cost will be equal to
     and restore the creditable service to the System
                                                                the full actuarial liabilities created on account of
     from which it was withdrawn. Before you are
                                                                the additional credit purchased. However, as soon
     eligible to pay for this service, you must have five
                                                                as you have contributed to the Retirement System
     years of currently creditable service in this
                                                                for 10 years, there immediately follows a three-year
     Retirement System or in the Judicial, Legislative,
                                                                period during which your cost will likely be lower
     or Local Governmental Retirement Systems, or
                                                                than any other time. If not paid during that three-
     have a combination of five years of credit in any
                                                                year period, your cost will again become equal to
     of these Systems. Service purchased under this method
                                                                the full actuarial liabilities created on account of
     may be used in determining your eligibility for benefits
                                                                the additional credit purchased.


14    Your Retirement Benefits                                                                   JANUARY, 2006
                       TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




If you became a member after July 1, 1981,             contributions will be refunded and the service
you must have contributed to the Retirement            credits canceled. If your employer will not make
System for a total of five years with at least one     the employer contributions, you may make them
year of membership service after completing your       in addition to the employee contributions.
out-of-state service. Your cost will be equal to the
full actuarial liabilities created on account of the   Regardless of when the educational program was
additional credit purchased.                           completed, the maximum allowable credit for
                                                       educational leave or interrupted service for educa-
If your service is creditable in another retirement    tional purposes is six years.
system, your ability to buy credit in this System
will be restricted. If you are eligible, you may       Your employer and the Retirement System
buy credit at the rate of one year of out-of-state     have application forms which contain more
service for each year of service under this System.    information.
You may purchase a maximum of 10 years of
                                                       Temporary Local And State Service. You may
out-of-state service credit.
                                                       purchase credit for full-time temporary local and
Your employer and the Retirement System                State government employment if you have com-
have application forms which contain more              pleted five years of service as a contributing
information.                                           member after the temporary employment. Your
                                                       cost will be a lump sum payment equal to the full
Educational Leave. If you have interrupted             actuarial liabilities created on account of the
service or approved leave of absence for               additional credit purchased.
educational purposes prior to July 1, 1981, credit
may be purchased if you returned to service as a       Your employer and the Retirement System
contributing member within 12 months after             have application forms which contain more
completing an educational program; have contrib-       information.
uted to the Retirement System for at least 10 years
                                                       Probationary Or Waiting Period Service. You
after returning to service; and, make a lump sum
                                                       may purchase credit for a period of service
payment equal to the full actuarial liabilities
                                                       you performed with a unit of the Local
created on account of the additional credit
                                                       Retirement System, during which time you were
purchased.
                                                       in a probationary or employer imposed waiting
If you have interrupted service or approved leave of   period status between your date of employment
absence for educational purposes after July 1, 1981,   and date of membership in the Retirement System.
credit may be purchased if regular employee and        In order to be eligible to purchase this credit, the
employer contributions are paid by the 15th of the     employer must have revoked its probationary or
month following the month for which service            waiting period policy. Your cost will be a lump
credit is allowed. If contributions are not made by    sum payment equal to the full actuarial liabilities
the 15th of the month, a penalty of 1% per month       created on account of the additional credit
shall be assessed to the total costs. In addition,     purchased.
unless you return to service as a contributing
                                                       Your employer and the Retirement System
member within 12 months after completion of
                                                       have application forms which contain more
your educational program and contribute to the
                                                       information.
Retirement System for at least three more years
(except in the event of death or disability), your


 JANUARY, 2006                                                                 Your Retirement Benefits       15
                            TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




     Workers’ Compensation Leave. If you are                purchase credit for it in the State Retirement
     granted a leave of absence to receive benefits under   System, if you have completed five years of service
     the North Carolina Workers’ Compensation Act,          as a contributing member. In order to be eligible
     you may make a lump sum payment to purchase            to purchase this credit in the State Retirement
     credit for the period of time you received those       System, the service must not be creditable in the
     benefits.                                              Local Governmental Employees’ Retirement
                                                            System. Your cost will be a lump sum payment
     If your leave ended before January 1, 1988, your       equal to the full actuarial liabilities created on
     cost will be a lump sum payment that includes the      account of the additional credit purchased.
     total amount required to cover the employee and
     employer funding. If your leave ends on or after       Your employer and the Retirement System
     January 1, 1988, the cost will be shared by you        have application forms which contain more
     and your employer. For any leave ending on or          information.
     after July 1, 1983, if payments are not made within
     six months of your return to service, a penalty of     Service With The Federal Government. You
     1% per month shall be assessed to the total cost.      may purchase credit for service you performed on
                                                            a full-time basis with the federal government, if
     Your employer and the Retirement System                you have completed five years of service as a
     have application forms which contain more              contributing member of this Retirement System
     information.                                           since performing the federal service. In order to be
                                                            eligible to purchase this credit, your federal service
     Part-Time Local And State Service. You may             must not be creditable in any other retirement
     purchase credit for part-time local and State gov-     system. Your cost will be a lump sum payment
     ernment service if you have completed five years of    equal to the full actuarial liabilities created on
     service as a contributing member. If your purchase     account of the additional credit purchased.
     of credit for part-time service makes you eligible
     to retire and you do so immediately after your         Your employer and the Retirement System
     purchase, the five years of service as a contribut-    have application forms which contain more
     ing member may be performed at any time before         information.
     and/or after completion of the part-time employ-
     ment. Otherwise, the five years of service must        Public Community Service. If you worked on
     be performed since completion of the part-time         a full-time basis with a public community service
     employment. Your cost will be a lump sum pay-          entity in North Carolina that was funded entirely
     ment equal to the full actuarial liabilities created   with federal funds, and are not otherwise eligible
     on account of the additional credit purchased.         for credit for that service, you may be eligible to
                                                            purchase credit for it in this Retirement System.
     Your employer and the Retirement System                To do so, you must have completed five years of
     have application forms which contain more              service as a contributing member since completing
     information.                                           the public community service employment. Your
                                                            cost will be a lump sum payment equal to the
     Service With A Local Governmental Employer.            full actuarial liabilities created on account of the
     If you worked on a permanent, full-time basis          additional credit purchased.
     with a unit of local government, and are not oth-
     erwise eligible for credit for that service, you may



16    Your Retirement Benefits                                                               JANUARY, 2006
                        TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Your employer and the Retirement System                 Extended Illness Leave. If your membership
have application forms which contain more               service was interrupted by one or more periods of
information.                                            leave without pay due to extended injury or illness,
                                                        excluding maternity leave, you may purchase
Omitted Service. You may purchase credit for            credit for each separate period during which you
a period of eligible service to a participating         lost at least two months of membership credit. To
employer, if during that period of eligible service,    be eligible, you must be a contributing member at
you should have been a contributing member of the       the time of purchase and have at least five years
State or Local Governmental Retirement System           of service as a contributing member. Your cost will
but were omitted from contributing membership           be a lump sum payment equal to the full
through error.                                          actuarial liabilities created on account of the
                                                        additional credit purchased.
Your cost, which must be paid in a lump sum
payment, will probably be much lower if you buy         Your employer and the Retirement System
credit within 90 days of the omission. It is optional   have application forms which contain more
with your employer whether to share the cost with       information.
its employees.
                                                        Parental Leave. If your membership service was
Your employer and the Retirement System                 interrupted by one or more periods of parental or
have application forms which contain more               maternity leave, pregnancy, or childbirth, you may
information.                                            purchase credit for each separate period during
                                                        which you lost at least one month of membership
Service As A Member Of The General
                                                        credit. The maximum amount of credit you may
Assembly. You may purchase credit for service as
                                                        purchase for each separate period is six months.
a member of the General Assembly if that service
                                                        To be eligible, you must be a contributing member
is not creditable in the Legislative Retirement
                                                        at the time of purchase and have at least five years
Fund or the Legislative Retirement System. Your
                                                        of service as a contributing member. Your cost
cost will be a lump sum payment equal to the full
                                                        will be a lump sum payment equal to the full
actuarial liabilities created on account of the
                                                        actuarial liabilities created on account of the
additional credit purchased.
                                                        additional credit purchased.
You should contact the Retirement System for
                                                        Your employer and the Retirement System
additional information.
                                                        have application forms which contain more
Service As A Member Of A Charter School.                information.
You may purchase credit for service if you were a
                                                        Rollovers To Purchase Retirement
permanent employee of a charter school whose
                                                        Service Credit
Board has elected not to participate in the
Retirement System. You must have completed              Effective January 1, 2003, pre-tax money from an
five years as a contributing member after the           eligible retirement plan or an eligible IRA may be
charter school employment. Your cost will be a          accepted via rollover or in-service plan-to-plan
lump sum payment equal to the full actuarial lia-       transfer to purchase creditable service. For further
bilities created on account of the additional credit    information and instructions, please see form Ret-
purchased.                                              398, “Application to Purchase Creditable Service
                                                        Using a Rollover or Plan-to-Plan Transfer from an
                                                        Eligible Retirement Plan or an IRA.”

 JANUARY, 2006                                                                  Your Retirement Benefits       17
                               TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




     Transferring Service And Contributions
     Between Systems
     You can transfer your contributions and credit-            Effective January 1, 2004, after completing five
     able service between this Retirement System and            years of membership service in the Teachers’
     the Local Governmental Employees’ Retirement               and State Employees’ Retirement System, you
     System as long as you are an eligible member of            may transfer contributions and creditable service
     the System to which you are transferring; do not           from the Consolidated Judicial and Legislative
     receive a refund of your contributions from the            Retirement Systems to this Retirement System.
     System from which you are transferring; and, file a        Please contact the Retirement System for addi-
     Form 5TR which is available from the Retirement            tional information and instructions.
     System or your employer.
                                                                NOTE: A transfer can affect your eligibil-
     Creditable service transferred counts toward               ity for retiree group coverage under the State’s
     eligibility for monthly benefits and is used in            Comprehensive Major Medical Plan. Please see
     computing the amount of your benefit. (See page            page 20 for further information.
     5 concerning reciprocity.)




     Refund Of Contributions
     If you leave the System for any reason other than          Interest
     retirement or death, you can either:                       The interest credited on your contributions and
     I   receive a refund of your contributions (plus           paid with a refund is set by State law. The amount
         interest, if you have at least five years of service   is 4% per year on your balance at the first of each
         as a contributing member), or                          calendar year, compounded annually. Interest is a
     I   leave your contributions in the System and keep        benefit to you only if you leave the System, get a
         all the creditable service you earned to that          refund, and qualify for an interest payment. The
         date. See page 5.                                      difference between the total investment earnings
                                                                on your contributions and the 4% paid with your
     To receive a refund, simply complete an                    refund is kept by the System to help pay the cost
     “Application for Retirement Contributions                  of retirement benefits for career employees. If the
     Refund” (Form 5), and file it with the Retirement          law allowed a higher rate of interest to be paid
     System. You can get the form from your employer            with refunds, retirement benefits and other career
     or the Retirement System. State law does not               employee benefits would be lower.
     permit the Retirement System to make a refund
     earlier than 60 days after your separation from
     covered employment. Upon receipt of your refund
     of contributions, you waive any rights to the
     employer contributions or any other benefit from
     the Retirement System. (See pages 20 through 23
     for information about retiree medical benefits and
     taxation.)


18    Your Retirement Benefits                                                                 JANUARY, 2006
                        TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Applying For And Receiving Monthly Benefits
Retirement Application Process                          Next, you will have a one-time opportunity to elect
Once you decide to retire and meet the eligibil-        coverage under the optional $9,000 Contributory
ity requirements for monthly benefits, there are        Death Benefit for Retired Members. Your election
certain steps which must be taken to begin the          must be made within 60 days from the effective
retirement process.                                     date of your retirement. Information about the
                                                        cost and coverage provisions will be sent to you
Monthly retirement benefits are effective the           shortly after the Retirement System receives your
first day of any month; however, a retirement           retirement application.
application must be signed, dated, and filed at least
one day and not more than 90 days prior to the          You will later receive an estimate of the maximum
effective date of retirement.                           payment you can receive and the payment options.
                                                        Along with the estimates, you will receive:
Approximately 60 to 90 days before your planned         I   an “Election of Benefits” form (Form 6E), and
retirement date, you should complete:
                                                        I   an “Income Tax Withholding Election” form
I   an “Application for Retirement” (Form 6),               (form Ret-290).
I   an “Authorization Agreement for Direct
    Deposit” (form Ret-170), and                        On the “Election of Benefits” form, you will choose
                                                        your payment plan. Return the completed Form
I   a State Health Plan “Retired Group Enrollment/      6E directly to the Retirement System. Please note
    Change Application” (form Ret-HM).                  that the Retirement System will not be able to
These forms are available from your employ-             pay monthly retirement benefits to you until
er or the Retirement System’s Web site at               we have received your properly completed
www.myncretirement.com.                                 Form 6E. If you want an estimate under Option
                                                        4, you must furnish the Retirement System with
If you contribute to the Retirement System              an estimate, obtained from the Social Security
during the six months before your effective             Administration, of the Social Security benefit
date of retirement, your employer should                available to you at age 62. This estimate should be
complete the “Employer Certification” section           obtained within one year prior to your effective
of the “Application for Retirement” before the          date of retirement.
form is sent to the Retirement System.

You must live until the effective date of retirement
in order to be legally retired. If your death occurs
before the effective date of your retirement, your
beneficiary would not be eligible for a monthly
retirement allowance, based on your retirement
account, except as provided under “Survivor’s
Alternate Benefit” on page 6.

Upon receipt of your “Application for Retirement,”
the Retirement System will send you an acknowl-
edgement letter.




 JANUARY, 2006                                                                  Your Retirement Benefits      19
                            TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




     Your First Monthly Benefit                            Post-Retirement Increases
     Your first monthly retirement benefit will be         Your benefit may be increased periodically after
     mailed to you. Thereafter, it is the policy of the    retirement to help you keep up with the cost-
     Retirement Systems Division for your monthly          of-living. Increases depend on changes in the
     payment to be directly deposited in your account      Consumer Price Index, the availability of funds,
     when your financial institution opens for busi-       and how much active working members of the
     ness on the 25th day of each month, except in         System receive in salary raises.
     December, when it will be deposited on the
     20th. If the day the Retirement System would          The cost-of-living increases granted are usually
     normally make your deposit is a Saturday, Sunday,     figured as a percentage increase in your monthly
     or holiday, then your deposit will be made on         benefit. That percentage increase becomes a per-
     the last workday before that Saturday, Sunday, or     manent part of your monthly benefit, under all
     holiday. Direct deposit is fast, automatic, and is    payment plans, and the monthly benefit to be
     free of cost to you.                                  paid to your beneficiary, after your death, under
                                                           Options 2, 3, 6-2, and 6-3. (See page 11 regarding
                                                           Option 4 increases.)



     Retiree Health Insurance Coverage
     When you retire, you are eligible for coverage        order to maintain the same level of coverage
     under the State’s Comprehensive Major Medical         provided before retirement.
     Plan, if you contributed to this Retirement System
     for at least five years while employed as a teacher   For information on prescription drug coverage
     or State employee. (Credit received for unused        under the State Comprehensive Major Medical
     sick leave, or credit transferred from the Local      Plan and Medicare Part D (Prescriptions), please
     Governmental Employees’ Retirement System             contact the State Health Plan at 1-800-422-
     does not count toward eligibility for health insur-   4658 or visit the State Health Plan Web site at
     ance coverage.)                                       www.statehealthplan.state.nc.us.

     At the time you complete your “Application for        Coverage under the retiree group of the State’s
     Retirement,” be sure to complete an application       Major Medical Plan begins on the first day of
     to enroll in the retiree group of the State’s         the month following
     Comprehensive Major Medical Plan.                     the effective date of
                                                           retirement. For exam-
     Under current law, the State pays the full cost of    ple, if your effective
     your individual coverage under the regular State      date of retirement is
     insured plan. The full cost of dependent coverage,    January 1, 2006, your
     if elected, must be paid by you.                      retiree group health
                                                           coverage will begin
     As a retiree, when you or covered dependents          on February 1, 2006.
     become eligible for Medicare, both Parts A
     (Hospital) and B (Medical) must be elected in



20    Your Retirement Benefits                                                           JANUARY, 2006
                       TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Income Tax
Benefits from the Retirement System receive spe-      When you retire, you will receive a statement that
cial income tax treatment. The following is a brief   shows the total amount of your retirement benefits
outline of current tax laws as they apply to System   not subject to federal income tax. That figure will
benefits. However, tax laws often change. You         be referred to as your “federal tax base.”
should consult your tax advisor for more details.
                                                      Under federal law, the majority of each and every
Retirement Benefits                                   retirement check is includable as taxable income
Each year by January 31, a Form 1099-R (similar       on your federal tax Form 1040. This does not
to Form W-2, Statement of Income and Tax              mean that you will pay tax again on the contribu-
Withheld, that you received annually while you        tions on which you have already paid tax. It does
were working) will be sent to you. Shown on the       mean, however, that you may exclude only a small
Form 1099-R are the amount of your retirement         portion of your previously taxed contributions
benefits, the taxable portion (if any), the amount    each month throughout a period of time specified
of tax withheld (if any), and related informa-        by the federal government.
tion. Copies will also be sent to the Internal
                                                      The Retirement System computes the non-taxable
Revenue Service and North Carolina Department
                                                      portion of your monthly benefit by using the
of Revenue. Therefore, you should report your
                                                      Internal Revenue Service “Simplified General
retirement benefits on your federal and North
                                                      Rule.” Under this method of computation, your
Carolina tax returns regardless of whether you
                                                      “federal tax base” is divided by a specified number,
owe any income tax.
                                                      based on your option and your nearest age at
Federal Income Tax. Part of your retirement           retirement, to determine the non-taxable amount
benefit may not be subject to federal income tax      of your monthly benefit.
because the tax was withheld while you were
                                                      In order to determine in advance the portion of
working. Included in the non-taxable part of your
                                                      your monthly benefit that is not taxable, refer to
retirement benefits are contributions made by you
                                                      the tables on the following page. Use Table 1 if
before July 1, 1982, and any non-rollover service
                                                      you select the Maximum Allowance or Option 4;
purchases made by you.
                                                      use Table 2 if you choose Option 2, 3, 6-2, or 6-3.
All or part of your retirement benefit may be sub-    Based on your nearest age at retirement for Table
ject to federal income tax because it has not been    1 or for your and your beneficiaries combined age for
taxed before. Included in the taxable part of your    Table 2, determine the number of expected pay-
retirement benefits are contributions made by you     ments in column two opposite your age bracket.
after July 1, 1982, any rollover service purchases,   Divide the number of expected payments into your
and all benefits paid by the employer contributions   “federal tax base” (as shown in your Final Report
and investment earnings.                              of Retirement Benefits). The result is the amount
                                                      of your monthly benefit that is not taxable.




 JANUARY, 2006                                                                 Your Retirement Benefits       21
                             TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




                                                          FOR EXAMPLE —
         Table 1 — For Maximum Allowance And Option 4
                                                          Options 2, 3, 6-2, And 6-3:
        Your Nearest Age   Number Of Expected Payments
         At Retirement        To Be Divided Into Your     If your “federal tax base” is $13,950 and your age
                                 Federal Tax Base         at retirement is 56 and your spouse’s age is 63,
                                                          you would divide $13,950 by 360 to obtain your
         55 and under                    360              non-taxable figure of $38.75 per month. Therefore
                                                          regardless of the post-retirement increases you
         over 55 to 60                   310              may receive in the future, $38.75 of your monthly
         over 60 to 65                   260              benefit would be exempt from federal income tax
                                                          for 360 months. If you fail to live 360 months,
         over 65 to 70                   210              the beneficiary to whom you have left a monthly
            over 70                      160              benefit, can claim the $38.75 monthly exclusion
                                                          for the balance of the 360 months. The amount
                                                          of your or your survivor’s monthly benefit in excess
             Table 2 — For Options 2, 3, 6-2, And 6-3     of $38.75 would be immediately includable for
                                                          federal income tax purposes, and after 360 months
          Combined Age     Number Of Expected Payments
           Nearest At         To Be Divided Into Your     your total monthly benefit would be includable.
           Retirement            Federal Tax Base
                                                          The illustrations on this page are only examples.
                                                          Your non-taxable amount will be based on your
         110 and under                   410              nearest age and the age of your survivor, if
         over 110 to 120                 360              applicable, at retirement and the amount of your
                                                          “federal tax base.”
         over 120 to 130                 310
                                                          North Carolina Income Tax. If you are a North
         over 130 to 140                 260
                                                          Carolina resident and have maintained five or more
            over 140                     210              years of retirement service credit as of August 12,
                                                          1989, your retirement benefit paid by this System
                                                          is not subject to North Carolina income tax. If you
     FOR EXAMPLE —                                        do not have five years of maintained retirement
     Maximum Allowance And Option 4:                      service credit as of August 12, 1989, you will be
     If your “federal tax base” is $13,950 and your age   required to pay North Carolina income tax on the
     at retirement is 60, you would divide $13,950 by     taxable portion of your retirement benefit. The
     310 to obtain your non-taxable figure of $45 per     amount of retirement benefits subject to North
     month. Therefore, regardless of the post-retire-     Carolina income tax is the same amount of retire-
     ment increases you may receive in the future, $45    ment benefits on which federal income tax must be
     of your monthly benefit would be exempt from         paid, less a $4,000 annual exclusion. If the taxable
     federal income tax for 310 months. The amount        portion of your annual retirement benefits is less
     of your monthly benefit in excess of $45 would       than $4,000, you will not owe any North Carolina
     be immediately includable for federal income tax     income tax on your retirement benefits.
     purposes, and after 310 months your total monthly
     benefit would be includable.



22    Your Retirement Benefits                                                            JANUARY, 2006
                        TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




If you are not a resident of North Carolina, you         withheld for federal income tax purposes
may not owe North Carolina income tax on your            Withholding is mandatory unless the taxable
retirement benefits from this System. However,           portion of your refund is directly transferred.
you may owe state income tax in the state in which
you live. You should contact your tax advisor,           In addition to income tax, you may owe a 10%
the North Carolina Department of Revenue,                excise tax on the taxable portion of a refund which
or the Department of Revenue in the state in             is made prior to death, disability, or the attainment
which you live for specific information relative         of age 59½. You can defer the income tax and
to your situation. Our System can only withhold          avoid the 10% excise tax by transferring the tax-
North Carolina income tax. We cannot withhold            able portion of your refund to an IRA or another
any other state’s income tax from your monthly           qualified retirement plan. You should consult the
benefit.                                                 Internal Revenue Service, your attorney, or your
                                                         accountant for specific information relative to
Death Benefits                                           your particular situation.
Your beneficiary pays no income tax on death ben-
                                                         North Carolina Income Tax. The amount of the
efits. They are treated as life insurance benefits.
                                                         refund subject to North Carolina income tax is the
Refunds                                                  amount of the refund on which federal income tax
                                                         must be paid, less a $4,000 exclusion. Refunds of
By January 31 of the year following the year of          retirement contributions paid by the Retirement
your refund, you will be sent a Form 1099-R on           System to former employees who maintained five
which is shown the amount of your refund, the            or more years of retirement service credit as of
taxable portion, the amount of tax withheld (if          August 12, 1989, are not subject to North Carolina
any), and related information. Copies will also be       income tax. Employees who do not have five
sent to the Internal Revenue Service and North           years of maintained retirement service credit as
Carolina Department of Revenue.                          of August 12, 1989, will be required to pay North
                                                         Carolina income tax on the taxable portion of
Federal Income Tax. You pay no federal income
                                                         their retirement benefits refunds. If the taxable
tax on the amount you contributed prior to July 1,
                                                         portion of your refund is less than $4,000 for
1982; however, the amount you contribute after
                                                         federal income tax purposes, you will not owe any
July 1, 1982, is subject to federal income tax. Also,
                                                         North Carolina income tax on your refund.
any interest earned by your contributions before
and after July 1, 1982, is subject to federal income
tax.

Federal income tax laws require withholding from
the taxable portion of your refund unless that portion
of your refund is directly transferred (i.e., trustee
to trustee transfer) to an IRA or another qualified
retirement plan that will accept your transfer. If
you do not elect to transfer the taxable portion of
your refund directly to an IRA or another qualified
retirement plan that will accept your transfer, 20% of
the taxable portion of your refund will be



 JANUARY, 2006                                                                    Your Retirement Benefits       23
                             TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




     Reemployment After Retirement
     Some employees will officially retire and receive        following the effective date of retirement or during
     monthly benefits from the System and later be            any calendar year exceed your earnings limitation,
     reemployed as teachers or State employees.               which is calculated as the greater of the following:
                                                              I   $26,280, or
     Reemployment After Receiving Early Or
     Service Retirement Benefits. If you retired              I   50% of your compensation, excluding termi-
     before November 1, 2005, with monthly early or               nation payments, reported to the Retirement
     service retirement benefits from the System and              System during the 12 months of service preced-
     are reemployed by an employer that participates              ing the effective date of your retirement.
     in the Teachers’ and State Employees’ Retirement
     System, the following applies:                           The above amounts are increased on January 1 each
                                                              year by the percentage increase in the Consumer
     If you are reemployed in a position that requires        Price Index, which is a national measure of the
     membership in the Teachers’ and State Employees’         increase in the cost of living from one year to the
     Retirement System, your retirement payment will          next.
     be stopped on the first day of the month following
     the month of reemployment and you will again             Your retirement payment will be stopped for the
     become a contributing member in the month in             remainder of the calendar year on the first day
     which you are restored to service.                       of the month following the month in which your
                                                              earnings exceed the greater of the two limits
     At any time you are reemployed and become a              stated above. Your retirement payment will start
     member of the Retirement System again, your              again on January 1 of the year after your benefit
     retirement benefits will be greater at the time          is stopped. If you exceed your earnable allowance
     of your second early/service retirement. If you          during the month of December, your benefits will
     return to service and contribute for at least three      be suspended for 12 months.
     additional years, your service from your first and
     second periods of employment will be combined            Reemployment which causes suspension of your
     and you can change the retirement payment plan           retirement allowance will also cause the suspen-
     and/or beneficiary you selected at the time of your      sion of your health coverage under the retired
     original retirement. If you return to service for less   group of the Teachers’ and State Employees’
     than three years, your first retirement benefit will     Comprehensive Major Medical Plan (State Health
     be reinstated and you will have a choice of either       Plan). Before accepting such reemployment, you
     receiving a lump sum refund of contributions or          should ask the new employer if you will qualify
     another (generally smaller) monthly benefit from         for continued coverage under the active group
     your second period of employment.                        of the State Comprehensive Major Medical Plan,
                                                              and if you will qualify for the State’s contribution
     If you are reemployed on a part-time, interim,           toward your coverage. Upon restoration of your
     temporary, or contractual basis, or are otherwise        retirement allowance, your health coverage under
     engaged to perform services on any basis that does       the retired group will be reinstated the first of
     not require membership in the Retirement System,         the month following the month your retirement
     your retirement payment will be stopped if your          allowance is restored.
     earnings during the 12-month period immediately




24    Your Retirement Benefits                                                                JANUARY, 2006
                       TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




If you retire on or after November 1, 2005,            A return to work earlier than six months will
in addition to the above provisions, the following     revoke your retirement benefit retroactively to
applies:                                               your retirement date and all benefits paid to
                                                       you must be repaid to the Retirement System.
A six-month period during which no service is          Activities such as substitute teaching and part-time
rendered to an employer in the Teachers’ and State     tutoring are not permitted during the six-month
Employees’ Retirement System must immediately          period. Establishing a pre-existing agreement for
precede a return to employment. A return to work       post-retirement employment with an employer in
earlier than six months will revoke your retire-       the Teachers’ and State Employees’ Retirement
ment benefit retroactively to your retirement date     System is prohibited and will cause retroactive
and all benefits paid to you must be repaid to the     revocation of retirement benefits, as well. Unless
Retirement System. Establishing a pre-existing         legislation extends this reemployment exception
agreement for post-retirement employment with          for classroom teachers, the above provisions are in
an employer in this System is prohibited and will      effect through June 30, 2007.
cause retroactive revocation of retirement benefits,
as well.                                               If you retired before November 1, 2005, dif-
                                                       ferent provisions apply. Please see “Guidance on
For additional information, please see “Guidance       2005 Return to Work Law Changes” on our Web
on 2005 Return to Work Law Changes” on our             site at www.myncretirement.com for additional
Web site at www.myncretirement.com.                    information.
Reemployment Exception for Classroom                   Reemployment After Receiving Disability
Teachers. If you retire on or after November           Payments. If you accept public or private employ-
1, 2005, and you wish to return to work as             ment, contact the Retirement System for informa-
a classroom teacher exempt from the earnings           tion on provisions that apply to you.
limitation, you may do so provided you meet all of
the following conditions:                              Reemployment Under the Legislative or
                                                       Consolidated Judicial Retirement Systems.
I   you have a six-month separation from service       Please contact the Retirement Systems Division
    immediately preceding your return to employ-       for information on provisions that apply to you.
    ment, during which time no service is rendered
    to an employer in this System in any capacity,
I   you return to teach in a public school, in a
    permanent position, at more than fifty-percent
    time, and
I   you are certified by the Department of Public
    Instruction to teach exempt from the earnings
    limitation.




 JANUARY, 2006                                                                 Your Retirement Benefits       25
                             TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM



     Important Information To Remember
     REMEMBER                                                  Medicare starting at age 65. More information
                                                               can be obtained from the Social Security
     I   In all correspondence with the Retirement             Administration. Their toll-free telephone
         System, give your Social Security number. With        number is 1-800-772-1213.
         more than 700,000 accounts and many duplicate
                                                           I   Your benefit from the Retirement System and
         names, it is essential that your inquiries be
         identified with your Social Security number.          your benefit from Social Security are not paid
                                                               automatically — you or your beneficiary must
     I   Keep your beneficiary designation up-to-date.         apply for them.
         “Notice of Change of Beneficiary” (Form 2C)
                                                           I   If you become disabled, you should apply for
         is used for this purpose.
                                                               disability benefits from all available sources,
     I   No application, form, or other type of document       including the Disability Income Plan of North
         can be effective until it has been filed and          Carolina through your employer, and the Social
         accepted by the Retirement System.                    Security Administration.
     I   At your request, the Retirement System
         will gladly send you any form, application,
         or other information it has developed for
         use by members. Please note that many of
         our forms are available on our Web site at
         www.myncretirement.com.
     I   Any error concerning your retirement account
         should be brought to the attention of the
         Retirement System, in writing, immediately.
     I   If you are fully insured, you are guaranteed a
         monthly retirement income for life from Social
         Security starting as early as age 62. Social
         Security also provides medical benefits through




26   Your Retirement Benefits                                                             JANUARY, 2006
                                     TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM



Disability Income Plan Of North Carolina
Details On:........................................... Are On Page:                   Long-Term Disability Benefits.............................. 31
                                                                                         Eligibility.................................................................. 31
Covered Participants ............................................ 28                     Benefit Amount ........................................................ 31
   Termination Of Coverage ....................................... 28                    Salary Continuation During
   Who Pays For The Plan? ........................................ 28                    The Long-Term Period........................................... 32
   Claim Forms ............................................................ 28           Earnings ................................................................... 32
What Constitutes Disability?................................ 28                          Duration Of Benefits ............................................... 32
Salary Continuation — (Waiting Period) ............. 29                               Other Disability Information ................................. 33
Short-Term Disability Benefits ............................. 29                          Post-Disability Benefit Increases ............................ 33
   Eligibility.................................................................. 29      Report Of Earnings ................................................. 33
   Benefit Amount ........................................................ 30            Income Tax ............................................................... 33
   Salary Continuation During                                                         Other Benefits And Restrictions .......................... 34
   The Short-Term Period .......................................... 30                   Accrual Of Service Credits ...................................... 34
   Earnings And Trial Rehabilitation .......................... 30                       Death Benefit ........................................................... 34
   Extended Short-Term Disability Benefits .............. 30                             Survivor’s Alternate Benefit ..................................... 34
                                                                                         Health Insurance ..................................................... 34
                                                                                         Restrictions.............................................................. 34
                                                                                      Administration And Funding ................................ 35
                                                                                      How to Contact Us ................................................37




 JANUARY, 2006                                                                                                               Your Retirement Benefits                       27
                            TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM



     Covered Participants
     You are covered under the Plan if you are (or          I   your becoming a beneficiary under the Plan,
     become) a State teacher or State employee and              or
     you are in service and a member of the Teachers’       I   your death.
     and State Employees’ Retirement System or a
     participant of the University Optional Retirement      Who Pays For The Plan?
     Program.                                               If you meet these requirements, you will automati-
                                                            cally become a participant of the Disability Income
     Termination Of Coverage
                                                            Plan of North Carolina. Your participation in the
     Your coverage under the Plan will cease upon:          Plan is free to you as an eligible State teacher or
     I   the termination of your employment as a State      State employee. Your employer will make the
         teacher or State employee,                         necessary contributions on your behalf to provide
                                                            for your participation in the Plan.
     I   your retirement under the provisions of the
         Teachers’ and State Employees’ Retirement          Claim Forms
         System or the University Optional Retirement
                                                            The appropriate forms to file for benefits are avail-
         Program,
                                                            able through the Retirement Systems Division or
                                                            your employer.




     What Constitutes Disability?
     Disability under the Plan is the mental or physical    The definition of long-term disability changes
     incapacity for the further performance of duty         from “mentally or physically incapacitated for
     (the usual occupation) of a participant; provided      the further performance of duty” to “unable to
     that such disability was not the result of terrorist   perform any occupation or employment commen-
     activity, active participation in a riot, committing   surate to the beneficiary’s or participant’s educa-
     or attempting to commit a felony, or an intentional    tion, training, or experience, which is available
     self-inflicted injury.                                 in the same commuting area for State employees
                                                            or within the same local school administrative
     NOTE: The North Carolina General Assembly              unit for school personnel, without an adverse
     passed legislation effective August 1, 2006, which     impact on the beneficiary’s or participant’s
     changes the definition of long-term disability for     career status, and in which the beneficiary or
     members who are not vested in the Disability           participant can be expected to earn not less
     Income Plan on August 1, 2006. For the purpose         than 65% of that beneficiary’s or participant’s
     of this August 1, 2006 legislative change in the       pre-disability earnings.”
     definition of long-term disability, being vested
     under the Disability Income Plan means that the        Members having less than five years of member-
     member has five or more years of membership ser-       ship on August 1, 2006 must meet the new defini-
     vice as of August 1, 2006 for long-term disability     tion of long-term disability in order to be entitled
     eligibility.                                           to long-term disability benefits.




28    Your Retirement Benefits                                                              JANUARY, 2006
                        TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Entitlement to long-term disability for members        The information which follows in this sec-
having five or more years of membership service        tion is based on the definition of long-term
on August 1, 2006 will be based upon the previous      disability for members who are vested prior to
definitions.                                           August 1, 2006.




Salary Continuation — (Waiting Period)
You are not entitled to receive any benefits from      leave, vacation leave, or some other salary continu-
the Plan for a period of 60 continuous calendar        ation as may be provided by your employer.
days from the onset of disability. The 60-day wait-
ing period is determined from the last actual day of   During the waiting period, you may return to
service, the day of the disabling event if the         service for trial rehabilitation for periods of not
disabling event occurred on a day other than a         more than five continuous days of service. Such
normal workday, or the day succeeding at least         a return to service will not cause a new waiting
365 calendar days after service as a State teacher     period to begin but will extend the waiting period
or State employee, whichever is later. During this     by the number of days of the return to service.
waiting period you may be paid such continuation       Trial rehabilitation during the waiting period is a
of compensation by exhausting accumulated sick         return to service in any capacity.




Short-Term Disability Benefits
Short-term disability benefits are payable after the   I   your disability was incurred at the time of
conclusion of the waiting period for a period not          active employment, and
exceeding 365 calendar days provided you meet          I   your disability has been continuous.
the following requirements.
                                                       Short-term disability benefits are paid by your
Eligibility                                            employer; therefore, you should contact your
You are eligible if:                                   employer to make application for benefits. The
                                                       determination of disability and eligibility for
I   you have at least one year of contributing         short-term benefits is made by your employer and
    membership service in the Retirement System        physician. In disputed cases, either you or your
    earned within the 36 calendar months preced-       employer may request a determination of disability
    ing your disability,                               by the Plan’s Medical Board.
I   you are determined to be mentally or physically
    disabled for the further performance of your
    usual occupation,




 JANUARY, 2006                                                                 Your Retirement Benefits       29
                             TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




     Benefit Amount                                          Earnings And Trial Rehabilitation
     The monthly short-term benefit will equal 50% of        Earnings are permitted during the short-term
     1/12 th of your annual base rate of compensation last   disability period not to exceed the amount of the
     payable to you prior to the beginning of the short-     short-term benefit without causing a reduction in
     term benefit period (for teachers, annual base rate     your benefit amount. If your earnings exceed the
     of compensation includes any local supplement           amount of the short-term benefit, your short-term
     or coaches supplement) plus 50% of 1/12 th of your      benefit will be reduced on a dollar-for-dollar
     annual longevity payment, if any, to a maximum          basis.
     of $3,000 per month. The monthly benefit will be
     reduced by any monthly payments you are entitled        Trial rehabilitation during the short-term period
     to receive for Workers’ Compensation (exclud-           is defined as a return to service in the same capac-
     ing permanent partial Workers’ Compensation             ity that existed prior to the disability. Short-term
     awards). The monthly benefit will be further            disability benefits cease upon a return to your
     reduced by any monthly payments from the federal        usual occupation. If you return to service for
     Veterans Administration, any other federal agency,      trial rehabilitation, a new waiting period will not
     or payments made under the provisions of General        begin unless your return to service exceeds 40
     Statute 127A-108 to which you may be entitled if        continuous days or a different disability occurs.
     these payments are based on the same disability         Any period of rehabilitative employment will not
     for which you are receiving Plan benefits.              extend the short-term disability period.

     For the first six months beginning the first of the     Extended Short-Term Disability Benefits
     month after the last month worked, any benefits         Short-term disability benefits may be extended
     payable under the Plan are subject to FICA (Social      for as many as 365 days beyond the short-term
     Security) taxes. Payments made more than six            period in cases where the Medical Board finds
     months after the last calendar month you worked         that the disability continues to be temporary and is
     are not subject to FICA taxes.                          likely to end during the extended period. You must
                                                             complete an application for extended short-term
     Salary Continuation                                     disability benefits and forward the application
     During The Short-Term Period                            and the appropriate medical documentation to the
     In lieu of short-term disability benefits, you may      Retirement Systems Division.
     elect to continue to exhaust any accumulated sick
     leave, vacation leave, or any other salary continu-
     ation as may be provided by your employer. Such
     an election will not extend the 365 days duration
     of the short-term benefit period. An election to
     receive salary continuation for any part of a given
     day is in lieu of any short-term benefit otherwise
     payable for that day. An election to receive a lump
     sum payout for vacation leave is treated as if you
     had exhausted the leave and is in lieu of any short-
     term benefit otherwise payable.




30    Your Retirement Benefits                                                               JANUARY, 2006
                        TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Long-Term Disability Benefits
Long-term disability benefits are payable after the     The determination of disability and eligibility
conclusion of the short-term disability period or       for long-term benefits will be made by the Plan’s
after salary continuation payments cease, which-        Medical Review Board. The Medical Review
ever is later, for as long as you are permanently       Board may not determine any person to be eligible
disabled provided you meet the requirements             for long-term benefits who is in receipt of any
described below.                                        payments on account of the same disability that
                                                        existed upon entrance into membership in the
Eligibility                                             Retirement System.
To be eligible:
                                                        Benefit Amount
I   you must have at least five years of contributing
                                                        During the first 36 months of the long-term
    membership service in the Retirement System
                                                        disability period, the monthly long-term benefit
    earned within the 96 calendar months prior to
                                                        will equal 65% of 1/12 th of your annual base rate
    becoming disabled or upon cessation of contin-
                                                        of compensation that was last payable to you prior
    uous salary continuation payments, whichever
                                                        to the beginning of the short-term benefit period
    is later,
                                                        (for teachers, annual base rate of compensation
I   you must make application to receive long-term      includes any local supplement or coaches supple-
    benefits within 180 days after the conclusion of    ment) plus 65% of 1/12 th of your annual longev-
    the short-term disability period or after salary    ity payment, if any, to a maximum of $3,900 per
    continuation payments cease, or after monthly       month. The monthly benefit will be reduced by
    payments for Workers’ Compensation cease            any monthly payments you are entitled to receive
    (excluding monthly pay for permanent partial        for Workers’ Compensation (excluding permanent
    benefits), whichever is later,                      partial Workers’ Compensation awards) and by any
I   you must be certified by the Medical Board to       primary Social Security benefits you are entitled
    be mentally or physically disabled for the fur-     to receive including age 62 retirement Social
    ther performance of your usual occupation,          Security benefits, regardless of whether you elect to
I   your disability must have been continuous,          receive these benefits. The monthly benefit will be
    likely to be permanent, and incurred at the time    further reduced by any monthly payments from
    of active employment,                               the federal Veterans Administration, any other
                                                        federal agency, or payments made under the provi-
I   you must terminate employment as a perma-
                                                        sions of General Statute 127A-108 to which you
    nent full-time teacher or State employee, and
                                                        may be entitled if these payments are based on the
I   you are not eligible to receive an unre-            same disability for which you are receiving Plan
    duced retirement benefit from the Teachers’         benefits. However, the benefit payable will be no
    and State Employees’ Retirement System, or if       less than ten dollars ($10) a month.
    you are a participant of the Optional Retirement
    Program, you must not meet the age and ser-
    vice requirements to qualify for an unreduced
    benefit from the Teachers’ and State Employees’
    Retirement System.




 JANUARY, 2006                                                                   Your Retirement Benefits       31
                             TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




     After the first 36 months of the long-term dis-         Earnings
     ability period, the long-term benefit is calculated     Earnings, not to exceed the amount of the differ-
     in the same manner as described previously except       ence between the net long-term disability benefit
     that the benefit is reduced by an amount equal to a     and the compensation you were earning when
     primary Social Security disability benefit to which     you became disabled, do not affect the amount of
     you might be entitled had you been awarded Social       your long-term disability benefit. If your earnings
     Security disability benefits.                           exceed this difference, your long-term benefit
     If you have applied and been approved for long-         will be reduced on a dollar-for-dollar basis. If you
     term disability benefits, you may make an irrevo-       return to your usual occupation in a position
     cable election to forfeit the long-term disability      eligible for membership in the Teachers’ and State
     benefit, including any ancillary benefits, and retire   Employees’ Retirement System or the Optional
     on an early service retirement allowance, or receive    Retirement Program, your long-term disability
     a return of accumulated contributions from the          benefits will end immediately upon your return to
     Retirement System. Any such election must be            service.
     made within 90 days from the date of notification       Duration Of Benefits
     of the approval for long-term disability benefits
     and prior to your receipt of any long-term dis-         When you reach the age and/or service require-
     ability benefit payments.                               ments to qualify for an unreduced service retire-
                                                             ment allowance from the Retirement System, your
     Salary Continuation During The                          long-term benefits will cease and you will com-
     Long-Term Period                                        mence a service retirement under the Retirement
     In lieu of long-term disability benefits, you may       System. If you were a participant of the University
     elect to continue to exhaust any accumulated sick       Optional Retirement Program, you will receive
     leave, vacation leave, or any other salary continua-    long-term benefits until the time you would have
     tion as provided by your employer. Such an election     qualified for an unreduced service retirement
     will not extend the first 36 consecutive months of      allowance from the Retirement System had you not
     the long-term disability period. An election to         elected to be a participant of the Optional
     receive salary continuation for any part of a given     Retirement Program.
     day is in lieu of any long-term benefit otherwise
     payable for that day. An election to receive a lump
     sum payment for vacation leave is treated as if you
     had exhausted the leave and is in lieu of any long-
     term benefit otherwise payable.




32    Your Retirement Benefits                                                               JANUARY, 2006
                        TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Other Disability Information
Post-Disability Benefit Increases                       Income Tax
Post-disability benefit increases may be granted by     Benefits from the Plan
the General Assembly by increasing the compen-          are subject to federal
sation upon which your short-term or long-term          income tax. Benefits
disability benefit is calculated. Your benefit will     paid to employees
be reduced by any increases in Social Security          who have maintained
benefits, if applicable.                                five or more years of
                                                        service as of August 12,
Report Of Earnings                                      1989, are not subject
Persons in receipt of benefits under the Plan must      to North Carolina
annually report earnings to the Plan by completing      income tax. Employees
a “Statement of Income” form which is annually          who do not have five
mailed to each Plan recipient. The Plan may require     years of maintained
other statements of earnings as are necessary. If you   retirement service credit as of August 12, 1989, will
exceed the allowable earnings limitations, you must     be required to pay North Carolina income tax on
notify the Plan by the fifth of the month following     their benefits. For further information regarding
the month in which the earnings were received           the taxation of these benefits, you should contact
of the amount of the excess earnings. Failure to        the Internal Revenue Service, the North Carolina
report excess earnings may result in a suspension       Department of Revenue, your attorney, or your
or termination of benefits.                             accountant.




 JANUARY, 2006                                                                   Your Retirement Benefits       33
                             TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




     Other Benefits And Restrictions
     Accrual Of Service Credits                              I   reaching age 60 with five years of membership
     While you are receiving benefits under the Plan,            service (age 55 with five years of membership
     you earn creditable service in the Retirement               service as a law enforcement officer),
     System for each month you are eligible and paid         I   completing 20 years of creditable service regard-
     a benefit under the Plan. Creditable service is             less of age, or
     not earned if you are in service and earning            I   reaching age 50 with 15 years of creditable
     creditable service for the same month in any State-         service as a law enforcement officer.
     administered retirement system, or if you were a
     participant of the University Optional Retirement       The beneficiary named to receive a refund of your
     Program. For purposes of calculating a retire-          contributions and interest under the Retirement
     ment benefit under the Retirement System, your          System (provided you have named only one prin-
     average final compensation will be determined           cipal beneficiary who is living at the time of your
     as the higher of your actual compensation or the        death) may choose to receive a monthly benefit
     compensation used in calculating benefits under         for life instead of a refund. If you have named
     the Plan as adjusted for increases in post-disability   two or more persons or your estate as principal
     benefits.                                               beneficiary, the Survivor’s Alternate Benefit does
                                                             not apply. The benefit equals the same monthly
     Death Benefit                                           amount you would have been entitled to under
     A person in receipt of benefits under the Plan is       Option 2 (100% Joint and Survivor) had you
     considered to be in service and covered under           retired on the first of the month following your
     the Death Benefit Plan. The payment is equal            death. If you do not want your beneficiary to have
     to the highest 12 months of salary during the 24        this choice, you should so indicate, in writing, to
     months preceding your death or the compensation         the Retirement System.
     used in calculating benefits under this Plan as
                                                             Health Insurance
     adjusted for percentage increases in post-disability
     benefits, but no less than $25,000 and no more          You are eligible for coverage under the Teachers’
     than $50,000. To be eligible, your death must           and State Employees’ Comprehensive Major
     occur after one year of contributing membership         Medical Plan while you are in receipt of benefits
     service in the Retirement System. This death ben-       under the Plan provided you have at least five
     efit does not apply to persons in receipt of benefits   years of retirement membership service earned as
     who were participants of the University Optional        a teacher or State employee. If you do not meet
     Retirement Program or persons in receipt of long-       the retirement membership service requirement,
     term benefits due to the transition rules.              you may continue coverage by paying the full
                                                             premium.
     Survivor’s Alternate Benefit
                                                             Restrictions
     A person in receipt of benefits under the Plan, who
     is a member of the Teachers’ and State Employees’       A person in receipt of benefits from the Plan is
     Retirement System, is considered to be in service       not permitted to receive a refund of accumulated
     and covered by the Survivor’s Alternate Benefit         contributions or to commence retirement benefits
     under the Retirement System provided the person         from the Retirement System.
     meets the age and/or service requirements as
     follows:



34    Your Retirement Benefits                                                                JANUARY, 2006
                       TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




Administration And Funding
Administration                                        Medical Review Board
The Retirement System is administered by the          The Medical Review Board determines eligibility
Board of Trustees. The Board members are:             for disability benefits. The members of the Board
               Richard H. Moore,                      are:
           State Treasurer, Chairman                              Dr. George S. Edwards, Sr.
                                                                   Dr. Robert H. Fleming
             Norwood G. Clark, Jr.                                  Dr. Ernest B. Page, Jr.
              Daniel H. DeVane                                     Dr. Joseph B. Parker, Jr.
                Joyce H. Elliott                                  Dr. Nathaniel L. Sparrow
              Edward S. Goode
               Shirley E. Harris                      Future Of The System
                 Scott Hunter                         The State expects to continue the System indefi-
                Harold T. Keen                        nitely. However, because future conditions cannot
              Allen C. Meadors                        be foreseen, the State General Assembly reserves
             Leslie Leroy Pittman                     the right to modify the provisions of the System.
              Paschal W. Swann
              Michael Thornton                        System Documents
              Gloria Upperman
                                                      This booklet summarizes the main features of the
                                                      Teachers’ and State Employees’ Retirement System
System Assets
                                                      of North Carolina. The official text governing the
The State Treasurer is the custodian of the Plan      operations of the System and the payment of all
assets and serves as the Chief Investment Officer.    benefits is found in Chapter 135 of the General
                                                      Statutes and Title 20 of the North Carolina
Equity assets (i.e., common stock, preferred stock,   Administrative Code.
and debentures convertible into common stock)
are invested in conjunction with policies adopted     Funded Status
by the Equity Investment Advisory Committee.
                                                      The Retirement System has been labeled as
The Committee members are:
                                                      “actuarially sound” because of the consistent use
               Richard H. Moore,                      over the years of:
           State Treasurer, Chairman
                                                      I   actuarial assumptions based on experience,
             Norwood G. Clark, Jr.                    I   an approved actuarial funding method, and
               Leigh Hammond                          I   the recognition of all promised benefits in the
                Steve Nelson                              actuarial liabilities.
              Paschal W. Swann




 JANUARY, 2006                                                                Your Retirement Benefits      35
                             TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




     Funded Ratio                                             Member Contributions
     A generally accepted measure of the soundness of         Members contribute 6% of gross salary each
     any retirement system is to relate the total assets      month to the System.
     to the total accrued liabilities. This determines the
     funded ratio or percentage of the System.                Employer Contributions
                                                              For the 2005-2006 fiscal year, employers contrib-
     The total of the accrued liabilities is found by         ute 6.82% of the gross payroll of members each
     adding the total assets and the unfunded accrued         month to the System for benefits.
     liabilities. Shown are the assets and unfunded
     liabilities for the past several years, as of December
     31 of each year. Beside the figures is a graph which
     shows the funded ratio of the Retirement System
     (the percentage of the assets to the total accrued
     liabilities).

                 Assets            Unfunded Accrued
                                       Liabilities
                                                                %
     2004      $47,383,509,397        $(3,555,655,121)        Funded

     2003      $45,117,507,733        $(3,383,806,385)        120                    Funded Ratio

     2002      $43,226,837,217        $(3,362,853,828)        110                          112% 111%
                                                                                    110%
     2001      $42,104,086,026        $(4,390,422,826)                                                 108% 108% 108%
                                                              100            104%
     2000      $39,773,747,165        $(4,524,977,179)                 99%

     1999      $36,119,250,376        $(3,332,142,109)         90

     1998      $31,847,438,198        $(1,493,216,523)         80
     1997      $27,765,057,195        $306,098,931
                                                               70

                                                               60

                                                               50

                                                               40

                                                               30

                                                               20

                                                               10

                                                                0
                                                                       ’97 ’98 ’99 ’00          ’01 ’02 ’03      ’04




36    Your Retirement Benefits                                                                    JANUARY, 2006
                        TEACHERS' AND STATE EMPLOYEES' RETIREMENT SYSTEM




How To Contact Us
System Internet Address                                Due to the large volume of calls that are received
www.myncretirement.com                                 in the Member Services Section, we recommend
                                                       that you do not call during the following times:
Visit our Internet Web site to learn more about the    I   Mondays,
benefits that are available to you:
                                                       I   other days between the hours of noon and
I   estimate your monthly retirement benefits by           2:00 p.m., and
    using our “Retirement Estimator,”                  I   the day following the mailing of monthly
I   download and complete applications and                 retirement checks.
    forms used by the Retirement System,
I   download and view Your Retirement Benefits         If you believe that the nature of your inquiry will
    handbooks, and                                     result in a lengthy conversation or will require
                                                       research by our staff, we recommend that you
I   review “Frequently Asked Questions.”               submit your questions in writing and we will
These are some of the options that are currently       respond accordingly.
available to you on our Internet Web site. Please      NOTE: The Retirement System provides members
feel free to visit and use this site whenever it may   who wish to visit our office with one-on-one and
be of assistance to you.                               group consultations by appointment only. Please
System E-Mail                                          call or e-mail our office to schedule an appointment.

nc.retirement@nctreasurer.com

System Address
The address of the Retirement System is:

Teachers’ and State Employees’
Retirement System
Department of State Treasurer
Albemarle Building
325 North Salisbury Street
Raleigh, North Carolina 27603-1385

System Telephone Number
1-877-627-3287
(toll-free outside of Raleigh area)

919-807-3050
(within local calling distance of Raleigh)




 JANUARY, 2006                                                                  Your Retirement Benefits       37

				
DOCUMENT INFO
Description: North Carolina State Employees Retirement System document sample