Get a Refund of My Contributions Consequences of Taking a Refund of Contributions Member Handbooks Refunds Online (coming soon) As a member of a North Carolina Retirement System, you contribute 6% of your monthly salary to your pension. The North Carolina pension is a 401(a) Defined Benefit Plan, does not have a provision that allows for you to take a loan from your account, and you cannot receive a partial refund. If you leave your current employer and do not go to work for another participating employer, you have a some options to consider. If you have five or more years of membership service, you are vested and may be entitled to a monthly retirement benefit (and health insurance, if applicable) once you reach an age that qualifies you. This potentially extends to your elected beneficiaries and survivors. If you think you may return to work as a North Carolina public servant for a participating employer in the future and do not take a refund, your contributions, employer contributions, interest, time and service accrued will remain in your account. Your new position will continue to add to your previous pension balance and service. You may request a refund of your contributions. Consequences of Taking a Refund of Contributions If you withdraw your contributions (receive a refund), you will forfeit all rights to your retirement service credit and any pending or accrued benefits, including any state-paid health coverage, if applicable, provided by the Retirement System, and/or the Disability Income Plan of North Carolina. If you have 5 or more years of retirement service credit, you may be forfeiting your potential monthly retirement benefit for yourself, once your age qualifies you, as well as any survivor and/or beneficiary benefits. As a contributing member who is no longer employed with a participating employer, you are eligible to receive a refund for the contributions you have made each month to the North Carolina Retirement Systems and 4% interest on those contributions. You are not eligible to receive a refund of employer contributions made on your behalf. By law, no refund checks can be issued until 60 days after your effective date of termination. Your refund will not be reviewed or processed until your application has been completed correctly and all necessary information and documentation has been received from you and/or your employer. Below you'll find some information that will help inform your decision. If you have any additional questions after reading this material, please email the Retirement Systems Division at NC.Retirement@nctreasurer.com or call 919-814-4590. We encourage members who are considering a refund to consult with their tax preparer for more information before making a decision. What is the procedure for a refund? Once 60 days has passed since the termination of your employment, a properly completed Form 5 (Application for Retirement Contributions Refund) is required. If you have difficulty downloading the application, please contact our office at 919-814-4590 to request an application be mailed to you. As instructed on Form 5, a Letter of Acceptance must be submitted with the application for the refund to be paid as a rollover. Why must I wait 60 days in order to receive a refund of my contributions from the Retirement System? The 60-day period is required by state law and generally provides the Retirement System with sufficient time to receive and process your individual contribution (payroll) information provided to us by your former employer. This period of time ensures that you are paid all of your contributions. It also gives you time to consider your decision. What are my options? When you leave your employment, you have two options: get a refund (withdraw your contributions) or keep your money in the retirement systems. There is a lot of information to consider before you make your choice, so please read this entire page to make sure you're making an informed decision. What are the benefits to keeping my contributions in the system? If you have five or more years of retirement service credit. you may be eligible to apply for monthly retirement benefits as soon as your age qualifies you, provided you have not taken a refund. All employees who leave their contributions in the system retain their first-hired date which is often used to determine whether or not you are eligible for certain benefits or employment rights. If you take a refund, you are forfeiting that first-hire date. If you currently have less than five years of eligible retirement service credit. and you do not withdraw your contributions, you will maintain your retirement contributions and service. This means that you can come back to work for the same system in the future and use your past service to count toward your future retirement eligibility. Are there any drawbacks to getting a refund? Potentially. If you get a refund, you will forfeit: all rights to your retirement service credit and any pending or accrued benefits (you will no longer be eligible for a monthly retirement benefit) all benefits for any survivors or beneficiaries any state-provided health coverage, if applicable, provided by the Retirement Systems Division and/or the Disability Income Plan of North Carolina If you are specifically forfeiting extended short-term or long-term disability benefits, you will be asked to sign a waiver letter to confirm that you understand that you are forfeiting those benefits as well (if you are receiving short-term disability benefits, you are not eligible for a refund). Additionally, if you return to service with a participating state or local government employer at a later date, and have received a refund of your previous service, it will cost significantly more to purchase this withdrawn service than the amount that was refunded (based on the lost interest and investment earnings to the pension fund). If I choose to get a refund, how soon can I get the money? A refund of your contributions (along with four percent interest compounded annually) is available to you 60 days after your effective date of resignation or termination. The 60-day waiting period is required by the General Statutes of North Carolina. Members should fill out and submit Form 5 (Withdrawing Your Retirement Service Credit and Contributions) to the Retirement Systems Division. After your Form 5 is processed, you will receive a paper check by mail unless you request that your contributions be rolled into another type of eligible retirement account. What happens if I receive a refund, then later become employed by a participating employer? If you again become employed by an employer who participates in one of North Carolina's retirement systems, you may be interested in purchasing your previous service and contributions that you are withdrawing when you receive this refund. However, you will not be eligible to purchase withdrawn service until you return to service and contribute to a retirement system for another five years. If you become employed at a later date with a participating employer, and have received a refund of your previous service, it will cost significantly more to purchase this withdrawn service than the amount that was refunded (based on lost interest and investment earnings to the pension fund). What happens after I submit my Form 5 to the Retirement Systems Division? When we have received your Form 5, we will send you a letter confirming that we are processing your refund. It’s important to note that a refund of your contributions will be subject to taxes and will be reported for federal and North Carolina income tax purposes (see Tax Information section below). The check’s pay stub will include the amount reported. By January 31 of the next year, the Retirement Systems Division will mail you a 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, which will also show the following: the gross distribution, the taxable amount, the federal income tax withheld, the non-taxable amount, and the State of North Carolina income tax withheld. If you are taking a refund prior to the age of 59 ½ and are not rolling the money into an eligible retirement fund, you may also be subject to and responsible for early withdrawal penalties. We encourage members who are considering a refund to consult with their tax preparer for more information before making a decision. What could delay my refund? Your refund may be delayed if: You change addresses and do not inform us Your last employer in the Retirement System does not report your final earnings You do not complete the Form 5 correctly. You do not provide additional documents which may be necessary if you wish to rollover your contributions. You may contact the Retirement Systems Division to check the status of your refund by calling (919) 814-4590. How is the amount of my refund calculated? The amount of your refund is the amount of contributions and interest you have in the Retirement System. Interest on your contributions, which is calculated at the rate of four percent compounded annually on your prior year ending balance, is included in your refund. Monthly contributions made by your employer on your behalf and by pension investment returns will not be refunded to you. Besides getting a check, are there other options for how I can move my contributions out of the retirement system? You may roll over your refund to an eligible individual retirement account (IRA) or another eligible employer plan. The North Carolina Supplemental Retirement Plans (NC 401(k) and NC 457 Plans and the NC 403(b) Program) offered to public employees in North Carolina are eligible plans. If you choose to proceed with a rollover, please advise your plan administrator that our plan is a 401(a) defined benefit plan under the Internal Revenue Code. You must also provide the Retirement Systems Division with a letter from your financial institution that manages your eligible plan. This letter should accompany your Form 5. The purpose of this letter is to ensure the division that the institution will accept the rollover of your refund (financial institutions are not legally required to accept roll-overs of refunds). This letter must meet the following requirements: Be from the financial institution (on its letterhead) Give your name and your account number of the eligible IRA or employer plan Give the type of retirement plan, such as IRA or another qualified employer plan Clearly state that the institution will accept a rollover Clearly state how to make the check payable Have an authorized signature of an agent of the institution. What about taxes on refunds? If you choose to have the accumulated contributions paid to you: The Retirement Systems Division is required to withhold 20 percent of the taxable portion and send it to the IRS as income tax withholding. Residents of North Carolina should note that income tax laws generally require the Retirement System to withhold 4% of the remaining taxable portion. However, per the Bailey Class Action Settlement, no North Carolina income tax will be withheld if the member maintained five or more years of creditable service in the Retirement System as of August 12, 1989. The Retirement System is unable to withhold income tax for other states. If you are not a resident of North Carolina, you have a choice to have North Carolina income taxes withheld. If you are under age 59 ½, you will have to pay the 10 percent additional income tax on early distributions on the taxable portion of accumulated contributions from the retirement system (including amounts withheld for income tax) that you do not roll over, unless you qualify for an exception. You should consult with your tax preparer for details about exceptions. You have 60 days to change your mind and have your contributions rolled over into a qualifying plan. If you choose to rollover part or all of the accumulated contributions: You can choose a direct rollover of all or any portion of your payment that is eligible for rollover distribution (described above). You can also open a new eligible IRA to accept the direct rollover. If you take a job with an employer that offers an eligible employer plan and you wish to rollover to that plan, you need to contact the plan administrator and ask whether it will accept your rollover. If you choose a direct rollover to a traditional IRA or eligible employer retirement plan: Your payment will not be taxed in the current year and no income tax will be withheld. Your payment will be made directly payable to an eligible IRA or eligible employer plan that accepts your rollover. Your payment will be taxed later when you take it out of the eligible IRA or eligible employer plan. Depending on the type of plan, the later distribution may be subject to different tax treatment than it would be if you had received a taxable distribution from the Retirement System. Are there special for rollovers to a Roth IRA? Eligible distributions paid from the retirement system may be rolled over to a Roth individual retirement account ("Roth IRA") either directly from the retirement system or within 60 days after you receive the distribution. Please note, an eligible distribution that you wish to roll over to a Roth IRA may only be rolled over directly from the retirement system to a Roth IRA. Why doesn’t the Retirement System credit my account with a higher rate of interest? The basic purpose of the Retirement System is to provide monthly retirement benefits to career employees. The Retirement System is a “defined benefit plan” which means that the benefit you receive at retirement is based on a defined formula. The formula is: (i) the average of your highest consecutive four years of salary (average final compensation), times (ii) an accrual rate established by the North Carolina General Assembly, times (iii) your years of creditable service. The contributions and interest accumulated in your account have no direct relationship to the basic benefit you will receive at retirement. Higher interest rates on contributions would benefit only those employees who terminate employment and withdraw their contributions. In order to pay a higher interest rate on member contributions, the Retirement System would have to use funds which would otherwise be used to enhance retirement benefits for career employees. Does the Retirement System pay interest on my refund of contributions? Yes. Interest on your contributions, which is included in your refund, is calculated at the rate of 4% compounded annually on your prior year ending balance. If I elect to receive a refund of my contributions, will I receive the matching contributions paid by my employer to the Retirement System? No. Employer contributions remain in the Retirement System for payment of future retirement benefits for career employees. Since employee and employer accounts are maintained separately, you will not reap the benefit of monies paid to the Retirement System by your employer until you begin receiving a monthly retirement allowance. The employer rate of contributions to the Retirement System is adjusted periodically to reflect the necessary funding to provide future benefits.