ORBIT

Supplemental Retirement Plans

 

A common retirement misconception is that your pension and social security benefits will be enough to replace at least 80 percent of your income after retirement, also known as being “retirement ready.” In reality, only 47 percent of our state and local government employees with just those two accounts are ready for retirement. By contrast, 72 percent of participants who are enrolled in a pension, social security and at least one supplemental retirement plan are on the right track to retirement readiness.

Frequently Asked Questions about the NC 401(k) Plan, NC 457 Plan and NC 403(b) Program

What is the difference between a 401(k) Plan, a 457 Plan and a 403(b) Plan?

What is the difference between a 401(k) Plan, a 457 Plan and a 403(b) Plan?

401(k) Plan: 
The 401(k) Plan is available to both public and private sector employees. 401(k) contributions are taxed when the money is taken out (pre-tax). 401(k) Roth contributions are taxed before the money is put in. Withdrawals before reaching age 59 ½ may be subject to a 10 percent federal tax penalty. Withdrawals after reaching age 59 ½ are allowed without penalty.

Deferred Compensation (457) Plan: 
The 457 Plan was established by state and local governments and tax-exempt governments and tax-exempt employers. Any full-time, temporary, or part-time employee is allowed to make salary deferral contributions. 457 contributions are taxed when the money is taken out (pre-tax). 457 Roth contributions are taxed before the money is put in (effective 4/1/11). Money may be withdrawn, without penalty and regardless of age, when the member retires or separates from service. Withdrawals while employed in the public sector are not allowed until age 70 ½.

403(b) Plan: 
The 403(b) plan is available to certain employees of public schools, tax-exempt organizations, certain ministers, hospitals, charities, research institutes, and other non-profit organizations. 403(b) contributions are taxed when the money is taken out (pre-tax). 403(b) Roth contributions are taxed before the money is put in. Withdrawals before reaching age 59 ½ may be subject to a 10 percent federal tax penalty. Withdrawals after reaching age 59 ½ are allowed without penalty.

What is considered “compensation” that can be contributed to each of the plans?

What is considered “compensation” that can be contributed to each of the plans?

NC 401(k) Plan (Definition of “Compensation” from the plan document)
​“Compensation” means all salaries and wages prior to any reduction pursuant to Sections 125, 132(f), 401(k), 403(b), 414(h)(2), and 457 of the Internal Revenue Code (IRC), not including any terminal payments for unused sick leave derived from public funds, which are earned by a Member while an Employee of an Employer. Compensation shall not include any payment, as determined by the Board of Trustees, for the reimbursement of expenses or payments for housing or any other allowances whether or not classified as salary and wages. However, compensation for a plan year shall not exceed the annual dollar limit.

Notwithstanding the foregoing, effective as of January 1, 2004, with respect to a member who is a member of the NC General Assembly contributing to the Legislative Retirement System, “compensation” means salary and expense allowance paid to a member for service as a legislator in the North Carolina General Assembly, exclusive of travel and per diem. Notwithstanding the foregoing, effective January 1, 2009, compensation shall include differential wage payments within the meaning of Section 3401(h) of the IRC.​

NC 457 Plan (Definition of “Includible Compensation” from the plan document)
The information required to be reported under Code §§ 6041, 6051, and 6052 (i.e., “Wages, Tips and other Compensation” on Form W-2), as modified by Code § 415(c)(3) and the Treasury Regulations and IRS guidance thereunder, and to include post-severance payments as defined by the final Treasury Regulations under Code § 415 and as may be deferred and treated as deemed compensation under Code § 415. Pursuant to the Heroes Earnings Assistance and Relief Tax Act of 2008, amounts paid as differential military pay are included in the Code definition of includible compensation. Includible Compensation does not include amounts treated as “deemed 125 compensation” because of an Employer’s requirement that its Employees participate in an Employer-sponsored health insurance program unless they state that they are provided health care coverage elsewhere.

NC 403(b) Program (Definition of “Benefitable Compensation” from the adoption agreement)
Note: This definition applies only to the extent that an employer uses the plan document offered through the NC 403(b) Program.

“Benefitable Compensation” means all cash compensation for services to the employer, including salary, wages, fees, commissions, bonuses and overtime pay, that is includible in the employee’s gross income for the calendar year and amounts that would be cash compensation includible in gross income but for a reduction election under a cafeteria plan, a qualified transportation fringe benefit plan, a 401(k) plan, a 403(b) plan, or a 457(b) plan, subject to the following elections by the employer, as indicated on the employer’s adoption agreement.

In addition, the following items are included in to the extent elected by an Employer:

  • Regular pay paid after severance from employment to the extent permitted under the IRC.
  • Leave cashouts to the extent permitted under the IRC.
  • Other items specified by the Employer.

In addition, the following items are excluded to the extent elected by the Employer:

  • Amounts classified as overtime by the employer.
  • Amounts classified as bonuses by the employer.
  • Other items specified by the employer.