Retirement Systems Division Frequently Asked Questions

Are rollovers from other retirement plans accepted to purchase retirement service credit?

Effective January 1, 2003, pre-tax money from an eligible retirement plan or an eligible IRA may be accepted via rollover or in-service plan-to-plan transfer to purchase creditable service. For further information and instructions, please see Form 398, "Using a Distribution of Tax-Sheltered Savings to Purchase Retirement Credit."

Applying For Monthly Retirement Benefits

Once you decide to retire and meet the eligibility requirements for monthly benefits, there are certain steps which must be taken to begin the retirement process.

Monthly retirement benefits are effective the first day of any month; however, a retirement application must be signed, dated, and filed at least one day and not more than 120 days prior to the effective date of retirement.

Approximately 90 to 120 days before your planned retirement date, you should complete a Form 6, "Claiming Your Monthly Retirement Benefit." Please see the guides on the Form 6 for additional detailed information about the retirement process.

If you contribute to the Retirement Systems during the six months before your effective date of retirement, your employer should complete the employer certification section (Section H) of the Form 6, "Claiming Your Monthly Retirement Benefit," before the form is sent to the Retirement Systems.

If you have contributed to the Retirement Systems during the six months before your effective date of retirement and your employer has not completed the employer certification section, the Retirement Systems will then have to request this information from your employer, which will delay the processing of your application.

Upon receipt of your Form 6, "Claiming Your Monthly Retirement Benefit,' the Retirement Systems will send you an acknowledgment letter which will include instructions on your next steps in the retirement process. You will also be sent a Form 170, “Authorizing Direct Deposit,” and, if you are a Teachers' and State Employees' Retirement Systems retiree, you will be sent a Form HM, “Selecting Health Coverage Through The State Health Plan.”

In addition, you will have an opportunity to elect coverage under the optional $10,000 Contributory Death Benefit for Retired Members. Your election must be made within 60 days from the effective date of your retirement. Information about the cost and coverage provisions will be sent to you shortly after the Retirement Systems receives your retirement application.

You will later receive an estimate of the maximum allowance you can receive and the payment options. Along with the estimates, you will receive:“Choosing Your Retirement Payment Option” form (Form 6E sample) and "Choosing Income Tax Withholding Preferences" form (Form 290).

On the “Choosing Your Retirement Payment Option” form (Form 6E sample), you will choose your payment plan. Return the completed Form 6E directly to the Retirement Systems. Please note that the Retirement Systems will not be able to pay monthly retirement benefits to you until we have received your properly completed Form 6E.

Finally, you will receive a "Designating Beneficiary(ies) for the Guaranteed Refund as a Retiree" form (Form 336).

Will I lose benefits if I am late filing my retirement application?

Monthly retirement benefits are effective the first day of any month. A retirement application must be signed, dated, and filed at least one day and not more than 120 days prior to the effective date of retirement.

A delay in filing the “Claiming Your Monthly Retirement Benefit” form, Form 6, could delay the first benefit payment. Since the Retirement Systems processes retirement applications based on the date they are received, the earlier that you file the Form 6 (within the 120-day period), the sooner you will receive the “Choosing Your Retirement Payment Option” form (Form 6E sample) from our office. In other words, even though you are eligible to file your retirement paperwork just one day prior to the effective date of your retirement, the likelihood of your receiving payment of your retirement benefit within the same month of your effective retirement is greatly diminished. If retroactive benefits are payable, your first benefit payment will then include the amount that you are retroactively entitled to receive as of your effective date of retirement. Therefore, we recommend that after you have made your decision to retire, that you file your Form 6 as close to the 120-day advance period as possible in order to increase the likelihood of receiving a retirement payment within the month for which your retirement is effective.

Please also note that if you elect not to respond within 90 days after preliminary option figures for retirement and Form 6E have been mailed to you, then your “Claiming Your Monthly Retirement Benefit” form, Form 6 is void and a new Form 6 must be filed.

Which optional payment arrangement should I elect at retirement?

The optional payment arrangement you elect at retirement is a personal decision. In making this decision, you should consider your financial needs, the possible financial needs of your beneficiary, if any, your health and the health of your beneficiary. Your decision should never be based on what other members have previously done. For more information about the optional payment arrangements available to you, visit our “Estimate of Benefits” program.

May I change the beneficiary or optional payment plan I selected at any time during the retirement process or after retirement?

You can change your beneficiary for a monthly survivor benefit or payment option at any time prior to cashing your first retirement check but no later than the 25^th of the month following the month your first check is mailed. After this time, you will not be allowed to change your beneficiary or payment option, unless: (i) you have elected a survivorship benefit and your beneficiary is your spouse from whom you become divorced after retirement, or (ii) you return to employment covered by the Retirement System from which you retired and contribute to a new retirement account for at least three years. Also, under Options 2 (100% survivorship) and 3 (50% survivorship), if at retirement, you designated your spouse for your survivor benefits and this spouse dies before you, and you subsequently remarry, you may name your new spouse as your beneficiary within 90 days of your marriage (and if properly filed with the Retirement System within 120 days of remarriage) under the same option with an additional reduction in your benefit amount. As a retiree, you can change your beneficiary for the guaranteed refund at any time by completing and submitting Form 336 to the Retirement System.

I had been retired just a few months when the amount of my retirement benefit changed. Why?

Your retirement benefit is generally based, in part, upon the salary earned and reported to the Retirement Systems during your last 48 months of employment. Many times, verification of the salary paid for your final month of employment is not received in the Retirement Systems Division until after your first retirement payment has been issued. Consequently, your retirement benefit must be adjusted, either up or down, in the event projected salary figures (provided by your employer prior to your retirement) do not equal the actual payments of salary you received.

Teachers and State Employees' Health Coverage

Will the state pay for my health insurance coverage after I retire?

When you retire, you are eligible for coverage under the State Health Plan if you have at least 5 years of retirement membership service earned as a teacher or state employee. (Credit for unused sick leave or credit transferred from the Local Governmental Employees’ Retirement Systems does not count toward this 5-year requirement.)

Under current law, if you were first hired prior to 10/1/06, and retire with 5 or more years of state system membership service, the state will pay either all or most of the cost, depending on the plan chosen, for your individual coverage under one of the Preferred Provider Organization (PPO) plans. Based on the conditions described above, if you were first hired on or after 10/1/06, in order to receive individual coverage at no cost, you must retire with 20 or more years of retirement service credit; if you have 10 but less than 20 years of retirement service credit, you will have to pay 50% of the cost for your coverage, and with 5 but less than 10 years, you will have to pay the full cost for your coverage. In all cases, the full cost of dependent coverage, if elected, must be paid by you.

The Guidance on State Health Plan Changes Effective October 2006 goes into greater detail about this question.

May I continue to cover my spouse as a dependent on my health insurance policy?

Yes. Dependent coverage is available provided you pay the appropriate cost. In the event of your death, your surviving spouse and/or dependent children may continue coverage by paying the appropriate cost of the coverage, provided you are covering your spouse as a dependent at the time of your death. The surviving spouse and/or dependent children will be contacted by the State Health Plan for enrollment for full contributory coverage as survivor's benefit, should they choose to continue coverage.

Must I complete an application form for health insurance coverage when I apply for retirement even though I have been covered and am not changing insurance carriers?

Yes. Changing your coverage from the active group to the retiree group is not automatic. You must complete an enrollment form (Form HM) to enroll in the retired group. Also, please note that the retiree group coverage begins on the first day of the month following the effective date of retirement. For example, if your effective date of retirement is January 1, 2008, your retiree group health coverage will begin on February 1, 2008. If you work through the end of the month prior to your effective date of retirement, generally, your employer will pay (under current law) for your individual coverage during your first month of retirement.

Why should I elect Part B of Medicare?

As a retiree, when you or a covered dependent become eligible for Medicare, both parts A and B must be elected in order to maintain the same level of coverage you had before becoming Medicare eligible.

I am having difficulty getting my health insurance carrier to pay some of my medical bills. Can the Retirement Systems help me with this problem?

Although the Retirement Systems Division has been designated as the Health Benefits Representative (HBR) for retired teachers and state employees, our duties do not include claims processing or appeals. As the HBR, the Retirement Systems Division is responsible for processing the enrollment forms of new retirees, reporting type-of-contract changes, determining premium amounts, making premium deductions from retirement benefits checks, reconciling group billings, and remitting premiums to the claims processing contractor. Claims disputes should be resolved in accordance with the procedures outlined in the booklet provided by the claims processing contractor.

The 1997 session of the General Assembly created a long-term care program for retired employees who receive monthly benefits from the Teachers’ and State Employees’ Retirement Systems and the Local Governmental Employees’ Retirement Systems. Can you give me information about this Plan?

This program is administered by the State Health Plan. Information about this program is available through the State Health Plan, the coverage provider, and the Retired Governmental Employees’ Association.

Local Government Employees Health Coverage

As a retired member of the Local Governmental Employees’ Retirement System, am I eligible for health insurance coverage through the Retirement Systems?

No. Health insurance coverage for retired members is not provided through the Local Governmental Employees’ Retirement Systems. You should, however, check with your former employer about the availability of health insurance coverage, if any, for its retired employees.

Direct Deposit

When will my monthly retirement payment be deposited in my account?

Benefits are deposited on the 25^th of each month unless the 25^th is on the weekend or a holiday. In that case, your benefit will be deposited on the last business day before the weekend or holiday. In December, however, your benefit will be deposited on the 20^th or before if the 20^th is on a weekend.

Do I receive a “Notification of Direct Deposit” of my retirement benefit payment every month?

No. A “Notification of Direct Deposit” of your monthly benefit payment is mailed the first month your payment is directly deposited to your bank account and any month, thereafter, only if the amount of your deposit changes. A “Notification of Direct Deposit” is not automatically mailed every month.

How do I notify the Retirement System of a change in the account to which my monthly payment is being deposited?

In order to change your bank account designation, you should complete a Form 170, "Authorizing Direct Deposit," signed by you, that includes your name, Member ID Number, and the route transit number for the new financial institution (a deposit slip or voided check has this information). Requests that are received in our office by the last business day of the month will be processed the following month.

What if I notice an error or have a question about deductions coming out of my check?

Pay close attention to the deductions coming out of your payment checks each month. If you feel there is an error or you have a question, please contact Member Services at 1-877-627-3287 (toll-free outside of Raleigh area) or 919-807-3050 (within local calling distance of Raleigh.)

Post-Retirement Increases

When will I qualify for a post-retirement increase and how much will it be?

All post-retirement increases are provided by action of the North Carolina General Assembly and/or the board of trustees governing the Retirement Systems. Although post-retirement increases are not guaranteed, they are typically provided at July 1 of each year and are paid as a percentage increase in benefits.

New retirees who have been retired for less than a year will receive a prorated increase based on how long they have been retired since the legislation passed. For example, for a 2.2% cost-of-living increase passed on July 1, a member who has been retired for 11 months will receive 2.0167%.

Are my retirement benefits subject to North Carolina state income tax?

As a result of the “Bailey” tax case, retirement benefits that are payable to members of the Retirement Systems who have maintained five or more years of retirement service credit as of August 12, 1989 are not subject to North Carolina state income tax. If you did not have five years of maintained retirement service credit as of August 12, 1989, your retirement benefits are subject to North Carolina state income tax, less a $4,000.00 annual exclusion when you file your North Carolina state income tax return. The taxable portion is equal to the portion of your benefit that is taxable for federal tax purposes.

Do I have to pay Federal or North Carolina state income tax on my retirement contributions on which I have already paid income tax?

No. Retirement contributions which have been previously taxed will not be taxed again. If you have previously paid tax on all or some of your contributions, a very small portion of your retirement benefit will be excluded from federal income taxes each month for your expected lifetime. When you receive your annual 1099-R from the Retirement Systems, the non-taxable and taxable portions are shown for tax purposes.

Block 5 on my income tax form 1099-R, which I received from the Retirement Systems, includes an amount described as "Non-Taxable amount." What does this mean?

The amount shown in Block 5 of a 1099-R issued by the Department of State Treasurer is the amount of retirement contributions paid by you that is not taxable.

Why is no federal tax being withheld from my monthly retirement benefit even though I checked the box on the "Choosing Income Tax Withholding Preferences” form (Form 290), requesting federal tax withholding?

The Retirement Systems withholds federal tax from your monthly benefit based upon the taxable amount of your monthly benefit, the standard withholding tables, your marital status, and the number of allowances you may claim. If your marital status and the allowances do not require any federal tax to be deducted based upon your taxable portion, then, no federal tax will be deducted. If you need federal tax withheld, you can always complete a Form 290 to give us a minimum monthly withholding amount. We can honor your request for a minimum monthly withholding as long as the amount is greater than the amount required by the tax table. All retirement benefits are subject to federal tax, but you do have a choice as to whether or not you want the amount withheld monthly by the Retirement Systems. Your Form 1099R will reflect your gross retirement benefit, the taxable amount, and non-taxable amount (if any), as well as the total amount withheld for federal tax. The Retirement Systems is not in a position to offer tax advice to you. Please check with a tax preparer as to your tax liability and how to complete your Form 290 should you require additional assistance.

Do I have to pay North Carolina state income tax on my North Carolina state retirement benefit when I am living in another state?

The N.C. Department of Revenue has advised our office that permanent out-of-state residents are not subject to North Carolina state income tax imposed on benefits from our Systems. You should contact the Department of Revenue where you live to inquire about your state tax liability there. The Retirement Systems is unable to withhold taxes from another state.

Although I enjoy my retirement, I am considering several re-employment opportunities. How will re-employment affect the monthly retirement benefit I receive from the Department of State Treasurer?

If you are receiving early or service retirement benefits and you become employed with any employer that does not participate in the Retirement Systems from which you retired (except the Consolidated Judicial Systems and Legislative Retirement Systems), your new earnings will not affect your retirement benefits.

Re-employment under the Teachers' and State Employees' Retirement Systems: If you return to employment with an employer that does participate in the Retirement Systems from which you retired, the following information applies after October 1, 2005: A six month period during which no service is rendered to an employer in the Teachers’ and State Employees’ Retirement Systems (TSERS) must immediately precede a return to employment. A return to work earlier than six months will revoke your retirement benefit retroactively to your retirement date and all benefits paid to you must be repaid to the Retirement Systems. Establishing a pre-existing agreement for post-retirement employment with an employer in TSERS is prohibited and could cause retroactive revocation of retirement benefits, as well.

If you are reemployed after six months from your retirement date for a TSERS-covered employer in a position not eligible for participation in TSERS, you will be subject to earnings restrictions of 50% of your gross 12-month pre-retirement salary (excluding termination payments) or $28,060.00, whichever is higher. The dollar figure is adjusted annually according to the Consumer Price Index, which is a national measure of increase in the cost of living from one year to the next. These earnings restrictions apply for the 12 months immediately following retirement and for each calendar year following the year of retirement.

If you exceed your earnings limitations, your retirement benefit will be suspended the first day of the month following the month in which you exceed the limit for the remainder of the calendar year. Your retirement payment will start again on January 1 of the year after your benefit is stopped. If your earnings exceed the allowable amount in the month of December, your benefit will not be suspended.

Reemployment which causes suspension of your retirement allowance will also cause the suspension of your health coverage under the retiree group of the State Health Plan. Before accepting such reemployment, you should ask the new employer if you will qualify for continued coverage under the active group of the State Health Plan, and if you will qualify for the state’s contribution toward your coverage. Upon restoration of your retirement allowance, your health coverage under the retiree group will be reinstated the first of the month following the month your retirement allowance is restored.

You may return to work for a TSERS-covered employer in a permanent full-time position after a six-month break, but your retirement benefit will be suspended and you must enroll in TSERS as an active employee. If you return to service and contribute for at least three additional years, your service from your first and second periods of employment will be combined at the time of your second retirement, and you can change the retirement payment plan and/or beneficiary you selected at the time of your original retirement. If you return to service for less than three years, your first retirement benefit will be reinstated and you will have a choice of either receiving a lump sum refund of contributions or another (generally smaller) monthly benefit from your second period of employment.

Reemployment exception for classroom teachers: You may return to work as a teacher and be exempt from the earnings restrictions if you retired after October 1, 2005, but on or before October 1, 2007 with a reduced or unreduced benefit, or if you retire after October 1, 2007 with an unreduced benefit under the TSERS, and return to teach in a permanent position at more than 50% time after a six-month break during which no service is rendered to a TSERS employer immediately preceding your return to employment. A return to work earlier than six months will revoke your retirement benefit retroactively to your retirement date and all benefits paid to you must be repaid to the Retirement Systems. Activities such as substitute teaching and part-time tutoring are NOT permitted during the six month period. Establishing a pre-existing agreement for post-retirement employment with an employer in the Teachers’ and State Employees’ Retirement Systems is prohibited and could cause retroactive revocation of retirement benefits, as well. Under this special exception, the teacher’s employer must contribute 11.7% of the teacher’s salary to TSERS. The earnings cap exemption for teachers meeting these requirements expires on October 1, 2009, unless further legislative action is taken.