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A Newsletter for the State of Connecticut Deferred Compensation Plan

Distribution Options:

Planning for Your Retirement

	Whether you're planning to retire in one year or 20 years, it's important that you be familiar with the kinds of decisions you'll have to make when that time comes. One of the most significant decisions you will face as you plan for your retirement will be how you want to receive your distribution from the State of Connecticut Deferred Compensation Plan.
State Comptroller Nancy Wyman

Your Choices

You can receive the full value of your account when you retire. As an alternative, you may leave all or part of your account balance in the Plan, so that you can continue to take advantage of accumulating investment earnings on a tax-deferred basis. (However, to comply with the federal required minimum distribution (RMD) tax law, you must begin receiving payment of your benefit by April 1 of the calendar year following the year you reach age 70 ˝ or the year you retire, whichever is later.) Leaving your money in the Plan may make sense for you if you have other sources of retirement income to tap into when you first retire.

Once you have set a date for your retirement and have decided when you would like to start receiving payment, you have several payment options.

• Lump Sum or Partial Lump Sum Distribution: You receive all or a portion of your account balance in a single payment. If you elect a partial lump sum, the remaining balance must be distributed to meet the RMD law noted above.
• One-Time Distribution plus a Periodic Distribution: You receive a portion of your account balance in a single payment, with the remainder of your account balance distributed to you in periodic payments.
• Periodic Distribution: You have a choice of several types of periodic distributions, including monthly installments that are payable over your lifetime, and monthly installments payable over a specific period of time.

If you would like to know more about these payment options, please contact your financial services organization (FSO). Your FSO can provide you with details about the payment options that are available to you, and the minimum distributions required by federal tax law.

In addition, once you have begun receiving payment of your benefit, you may be able to change the terms of certain periodic distributions. Your FSO will be able to advise you as to whether the periodic distribution you have chosen can be changed.

Tax Considerations

When planning for retirement, it may be a good idea to consult a financial advisor. There are many factors to take into consideration, including the tax implications of certain distributions.

For instance, keep in mind that if you choose a payment form that includes a one-time distribution, 20% of the lump sum payment will be withheld and sent to the IRS for income tax purposes unless you make a direct rollover to another eligible retirement plan, including an individual retirement account (IRA). In addition, if you rolled money into the Deferred Compensation Plan from another qualified retirement plan (such as a 403(b) or 401(k) plan or an IRA), depending on the type of plan, that amount may be subject to a 10% IRS penalty tax.

In addition, once you retire and begin to receive your distribution, your benefit will be treated as taxable income and will be subject to the tax laws in effect when you receive the payments.

Investment Fund Performance & Operating Fees

For the Period Ending June 30, 2004

You may invest your contributions with any one of the plan's three financial services organizations: The Hartford, ING Financial Advisers, LLC (member SIPC), and Phoenix Investment Partners.

The following charts will help you evaluate your investment choices. 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 June 30, 2004.

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.

Results are historical and not intended to portray future performance. Current performance may be less than figures shown.

Please note that investment benchmarks may differ from the benchmarks provided in the funds' prospectuses.

About Your Fund Choices

When comparing two similarly styled mutual funds, 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 is 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.

1 The Declared Rate is credited through the close of the calendar year on contributions received during the designated quarter. The rate for the third quarter 2004 is 4.00%. For contributions received prior to July 1, 2004, the Declared Rate is 4.00%. Rates quoted are effective annual yields.

2 The Declared Rate as of July, 2004 is 3.70%, expressed as an annual effective yield, and is guaranteed not to drop below 3.70% through December 31, 2004.

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