Getting There - A Newsletter for the State of Connecticut Deferred Compensation Plan March 2000

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A Newsletter for the State of Connecticut Deferred Compensation Plan

March 2000

	Looking for another opportunity to help you save more for retirement, while receiving significant tax breaks today? If so, you may want to consider making a "catch-up contribution" through the State of Connecticut's Deferred Compensation Plan. This issue of "Getting There" describes when you may make one and how much you can contribute. It also answers some of the questions you've been asking most often at our investor education seminars.
State Comptroller Nancy Wyman

How to "Catch Up" on Your Contributions

The State of Connecticut's Deferred Compensation Plan makes it easy to save for your retirement. That's because it offers special tax advantages, a wide variety of investment choices and the convenience of automatic payroll deductions.

But did you know that if you're approaching retirement, you may be able to take advantage of a special feature that allows you to make up the contributions you could have made in the past, but didn't? This one-time opportunity to make "catch-up" contributions offers you additional tax savings opportunities and the potential for greater earnings on your investments.

You may be eligible to make catch-up contributions if you have been contributing less than the maximum amount you're allowed each year and are within three years of your normal retirement age.

Terms To Know

"Catch-Up period - If you're eligible, you can make catch-up contributions during the three calendar years immediately before the calendar year in which you reach your normal retirement age.

IRS-Maximum Annual Contribution - The Internal Revenue Service (IRS) establishes the maximum annual contribution you can make to a 457 plan (like the State's Deferred Compensation Plan). That maximum is the lesser of:

$8,000 (for each year after 1998); $7,500 (for each year before 1998) or 25% of your taxable pay.

Normal Retirement Age - For this plan, normal retirement age generally means the age at which you become eligible for full benefits under your State-sponsored pension plan, but no later than age 701/2.

Calculating Catch-Ups

To figure out the maximum catch-up contribution you can make, just follow these five steps:

STEP

WHAT YOU NEED TO DO

AMOUNT

Determine IRS-maximum annual contribution (refer to "Terms to Know") for each year you participated in the plan after 1978.

$__________

How much did you actually contribute to the plan after 1978.

$__________

Calculate difference between Step 1 and Step 2.

$__________

Calculate the following:
$15,000 for each year in 3-year plan catch-up period	Minus	Any contribution you make to a 403(b) plan, 401(k) plan or any other tax-deferred in that year

$__________

Which amount is less Step 3 or Step 4?
That amount is the maximum catch-up contribution you may make.

$__________

Man looking at adding machine tape For Example

Karen is a State employee who started participating in the State's plan on January 1, 1991. Since then, she has continued to contribute $1,200 each year and has not participated in any other tax-deferred plan. Because Karen will reach her normal retirement age on March 12, 2004, her catch-up contributions could start on January 1, 2001.

Now, let's follow the steps outlined above to determine the amount of Karen's catch-up contributions.

	1991	1992 - 1997	1998 - 2000	Total
Taxable Pay Ranges	$29,000	$30,000 to $39,000	$41,000 to $45,000	N/A
Step 1: Maximum contribution allowed (25% of taxable pay, up to IRS maximum)	$7,250 (25% of $29,000)	$45,000 ($7,500* x 6 years) *Maximum allowed before 1998	$24,000 ($8,000* x 3 years) *Maximum allowed starting in 1998	$76,250 ($7,250 + $45,000 + $24,000)
Step 2: Actual amount contributed	$1,200	$7,200 ($1,200 x 6 years)	$3,600 ($1,200 x 3 years)	$12,000 ($1,200 + $7,200 + $3,600)
Step 3: Additional amount Karen could have contributed	$6,050 ($7,250 minus $1,200)	$37,800 ($45,000 minus $7,200)	$20,400 ($24,000 minus $3,600)	$64,250 ($76,250 minus $12,000)
Step 4: Calculate IRS 3-year maximum	$45,000 ($15,000 x 3 years)	Minus	$0 Karen did not make any other tax-deferred plan contributions	$45,000
Step 5: Maximum catch-up contribution amount	Step 4 ($45,000) is less than Step 3 ($64,250) so her catch-up contribution is $45,000 ($15,000 each year during 3-year period of 2001, 2002 and 2003 = $45,000)			$45,000

Investment Fund Performance & Operating Fees

For the Period Ending December 31, 1999

You may invest your contributions with any one of the plan's three financial services organizations: Aetna Investment Services, Inc., Hartford Life Insurance Company and Phoenix Investment Partners.

The following charts will help you evaluate your investment choices - both mutual funds and annuity options. They show the historical rates of return for each financial services organization's available investment options and the various operating fees that may be assessed against these options for the period ending December 31, 1999.

The rates of return columns are "net of expenses" and reflect the actual returns that would be applied to your account. This means that they already exclude the operating fees a financial services organization may charge you for managing, investing or marketing a particular investment option. Operating expenses appear in separate columns.

About Your Fund Choices

To help you identify between these two types of options, variable annuities appear in italic print. When comparing two similarly styled mutual funds or annuity options, be sure to:

Recognize that while a fund's past performance may help you understand how well or poorly it has performed over a period of time, it's no guarantee of future results.

Consider the total expenses each fund charges as well as the kinds of services or benefits it provides. Keep in mind that you can reduce your overall investing costs by monitoring these expenses and taking them into account in your investment selection process.

Since each financial services organization offers similar investment opportunities, it's a good idea to review the materials from each of these organizations before you make your decision as to where to invest your money. Then, select the one financial services organization that offers the investment options and products that best match your personal financial goals.

Aetna Investment Services
		Return on Investments (net of expenses)			Operating Expenses
		Last Quarter	Annual Rates of Return		Operating Expenses
Level of Risk	Investment Options	10/1/99-12/31/99	1 Year	5 Years	Management Fees	Other Expenses	Total Expenses
High	Janus Aspen Series Aggressive Growth Portfolio	59.14%	124.60%	35.43.%	0.72%	0.83%	1.55%
	Janus Aspen Series Worldwide Growth Portfolio	42.04	63.65	32.80	0.67	0.85	1.52
	PPI MFS Emerging Equities Portfolio	34.13	50.08	28.77	0.68	0.93	1.61
	PPI Scudder International Growth Portfolio	30.72	57.61	20.26	0.80	1.00	1.80
Medium	Aetna Index Plus Large Cap VP	16.92	23.50	N.A	0.35	0.90	1.25
	Aetna Growth and Income VP	12.22	16.62	22.71	0.50	0.88	1.38
	Aetna Small Company VP	24.35	30.05	N.A	0.75	0.94	1.69
	AIM VI Growth Fund	22.34	34.43	28.84	0.64	0.88	1.52
	Fidelity VIP Equity-Income Portfolio	3.14	5.53	17.81	0.49	0.89	1.38
	Fidelity VIP II Contrafund Portfolio	17.15	23.45	N.A	0.59	0.87	1.46
	Janus Aspen Series Growth Portfolio	23.35	43.18	29.09	0.72	0.76	1.48
Low	Aetna Balanced VP, Inc	9.80	12.81	18.18	0.50	0.89	1.39
	Aetna Bond VP	-0.65	-1.54	6.52	0.40	0.90	1.30
	Aetna Money Market VP	1.21	4.28	4.69	0.25	0.89	1.14
	Aetna Fixed Account	5.85	N.A	N.A	0.00	0.00	0.00
	Calvert Social Balanced Portfolio	9.66	11.43	17.22	0.70	0.96	1.66
	Janus Aspen Series Balanced Portfolio	16.13	25.96	23.88	0.72	0.82	1.54

HARTFORD LIFE Insurance Company
		Return on Investments (net of expenses)			Operating Expenses
		Last Quarter	Annual Rates of Return		Operating Expenses
Level of Risk	Investment Options	10/1/99-12/31/99	1 Year	5 Years	Management Fees	Other Expenses	Total Expenses
High	American Century Ultra	31.86%	40.51%	28.83%	1.00%	0.70%	1.70%
	The Hartford International Opportunities Y	22.15	38.67	N.A	0.85	1.21	2.06
	The Hartford Small Company YY	35.75	65.20	N.A	0.85	0.87	1.72
	Janus Worldwide	41.86	63.22	29.97	0.65	0.97	1.62
Medium	American Century Income & Growth	13.62	17.13	27.13	0.69	0.70	1.39
	American Century Value	-1.80	-1.48	15.90	1.00	0.70	1.70
	Fidelity Advisor Growth Opportunities	5.94	3.11	20.09	0.46	1.43	1.89
	Hartford Capital Appreciation HLS	24.09	36.43	24.08	0.62	0.77	1.39
	The Hartford Dividend and Growth Y	6.47	4.39	N.A	0.75	0.86	1.61
	The Hartford Midcap Y	29.76	49.81	N.A	0.85	0.97	1.82
	Hartford Index HLS	14.53	19.59	26.86	0.38	0.77	1.15
	Hartford Stock HLS	13.05	18.89	27.53	0.44	0.77	1.21
	Janus Twenty	38.11	63.76	44.21	0.65	0.96	1.61
Low	Hartford Advisers HLS	7.55	9.76	19.86	0.62	0.77	1.39
	General Account	6.00	N.A	N.A	0.00	0.00	0.00
	The Hartford Bond Income Strategy Y	-0.32	-2.99	N.A	0.65	0.89	1.54

Phoenix Investment Partners
		Return on Investments (net of expenses)			Operating Expenses
		Last Quarter	Annual Rates of Return		Operating Expenses
Level of Risk	Investment Options	10/1/99-12/31/99	1 Year	5 Years	Management Fees	Other Expenses	Total Expenses
High	Phoenix-Aberdeen Worldwide Opportunities A	15.96%	18.07%	18.52%	0.75%	0.70%	1.45%
	Phoenix-Seneca Mid Cap Edge A	44.83	44.58	N.A	0.80	1.71	2.51
	Phoenix-Engemann Small-Mid Cap Growth A	71.42	84.59	N.A	0.97	0.86	1.83
	Phoenix-Aberdeen International A	18.99	27.27	18.01	0.75	0.62	1.37
Medium	Phoenix Duff & Phelps Core Equity A	10.77	8.16	N.A	0.75	2.20	2.95
	Phoenix-Engemann Nifty Fifty A	22.44	32.47	28.19	0.82	0.78	1.60
	Phoenix-Engemann Capital Growth*	26.66	29.01	25.94	0.66	0.42	1.08
	Phoenix-Oakhurst Growth & Income A	13.33	18.69	N.A	0.75	1.13	1.88
	Phoenix-Seneca Growth A	27.55	38.91	N.A	0.70	0.74	1.44
	Phoenix-Zweig Managed Assets A	5.40	8.81	13.00	1.00	0.51	1.51
Low	Phoenix-Engemann Balanced Return A	13.60	18.10	22.14	0.76	0.87	1.63
	Phoenix Multi-Sector Short Term Bond A	1.56	4.49	7.95	0.55	1.00	1.55
	Phoenix-Duff & Phelps Core Bond**	-0.39	-2.96	6.17	0.45	0.55	1.00
	Phoenix-Goodwin Money Market A	1.16	4.49	4.90	0.40	0.33	0.73

* Formerly Phoenix-Goodwin Growth A

** Formerly Phoenix-Goodwin U.S. Government Securities

Here's What You've Been Asking

As you may know, the State has recently resumed its investor education seminars. These meetings are designed to help you learn more about the plan and the many advantages it can offer. Here are some of the questions asked most often.

How are the plan's investment options selected?

The State chooses investment options based on a formal investment policy adopted in 1998. The policy specifies that the plan's investment options must:

meet certain performance standards,

include a diverse range of investment types, and

have reasonable expenses.

The plan monitors the investment options every quarter to ensure that they continue to meet investment policy guidelines. Funds are changed or added as necessary. The investment performance summary you receive every quarter shows performance and expenses so that you can see how the plan's options compare.

How do plan expenses compare to the expenses of dealing directly with a broker or the fund itself?

Since broker and fund expenses vary, it's difficult to compare them to plan expenses. However, you should know that based on survey data, expenses for the State's plan are lower than the average for deferred compensation plans in other states.

How does a 457 deferred compensation plan compare with the 403(b) plan non-profit organizations can offer? Image of person looking out from mountain top

Federal government rules determine whether your employer can offer a 457 plan or 403(b) plan or both. Although both plans offer similar tax advantages on your contributions and any investment earnings, there are differences. Legislation has been introduced that would make plan features similar for both 457 and 403(b) plans.

Here are some ways in which the plans differ:

Who's Eligible - Generally 457 plans are available to government employees, while 403(b) plans are available to employees at non-profit organizations, such as hospitals and colleges.

Maximum Contribution Limits - The IRS determines the maximum amount that participants can contribute to each plan in a calendar year. For 2000, the maximums are $8,000 for a 457 plan; $10,500 for a 403(b) plan. In either case, the maximum annual contribution is 25% of taxable pay.

New Newsletter Format

You've probably noticed that this issue of "Getting There" also includes the performance results for the State's Deferred Compensation Plan investment options. By consolidating the newsletter and the performance summary, you now get all the latest information about the plan in one spot and on a regular, quarterly basis.

symbol of dollar sign with tree growing out of top Note: If your employer offers both types of plans, the IRS limits the combined contributions you can make in a calendar year. If you make contributions to both types of plans, the plan with the lowest limit is the total you may contribute to all the tax-deferred plans.

Penalty Tax On Distributions Before Age 591/2 - If you make a withdrawal from your 457 plan account before age 591/2, you will not be subject to paying any penalty taxes on the amount you receive. On the other hand, if you make a withdrawal from your 403(b) plan account before age 591/2, you will be subject to paying a 10% penalty tax on your distribution.

And in both cases, your distribution would be subject to withholding tax.

Rollovers To Other Plans - You may roll over a 403(b) distribution to an Individual Retirement Account (IRA) or into another 403(b) plan. You may transfer amounts between eligible 457 plans, but may not roll over a distribution from a 457 plan into an IRA or another 457 plan.

IMPORTANT NOTE: The information presented in this newsletter is not intended as investment advice. Its purpose is to help you understand the investment choices available through the State of Connecticut's Deferred Compensation Plan. Your financial strategy and investment choices are entirely your own and should reflect your personal needs and circumstances.

State of Connecticut personnel, including the Human Resources Department staff, cannot provide investment advice. For more information, you may want to consult with a professional financial advisor.

The investment information is current as of December 31, 1999.

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