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A Newsletter for the State of Connecticut Deferred Compensation Plan

November 2004

Thinking Ahead: What Will You Do With Your Account Balance if You Leave the State?

	As with any important decision, when planning and saving for retirement, it's always a good idea to be familiar with all your options. That's why when you are a participant in a deferred compensation plan like the State of Connecticut's, it's a good idea to think about "down the road" possibilities, and have a strategy mapped out before you come to any forks in the road. For example, if you think you may leave employment with the State before you reach retirement age, it's to your benefit to think now about what you would do with the money you've accumulated in your State of Connecticut Deferred Compensation Plan account. If you don't consider all your options, you may incur taxes and penalties that you could, with a little foresight, otherwise avoid.
State Comptroller Nancy Wyman

Taxes Can Reduce Your Savings

Let's say you have $80,000 in your Deferred Compensation Plan account when you leave the State's employ before retiring. When you leave, you ask that the money be paid directly to you. In this case, the State would be required, by law, to deduct 20% of your distribution for taxes, so you would receive only $64,000.

Now your nest egg of $80,000 has been reduced to just $64,000. Keep in mind that if you are in a higher tax bracket than the 20% tax bracket, you will have to pay the difference when you file your taxes, further reducing the value of your account. Any way you look at it, that's a disappointing outcome.

Options to Consider

In this scenario, by withdrawing the money directly, you've significantly reduced a valuable and important source of retirement income. So, what are your alternatives?

• Leave your money with the State:

You may leave your money in the Plan, even if you are no longer employed with the State. This can be an especially good choice if your new employer doesn't offer a similar retirement savings plan. Leaving your money in the Plan allows it to keep growing on a tax-deferred basis.

• Roll over your account balance to a new employer's qualified plan:

If your new employer offers a deferred compensation plan, you may want to roll your account balance into that plan. If you decide to take this route, be sure you have your financial services organization make a check out directly to the new plan administrator, not to you. If the distribution check is made out to you, the plan administrator must deduct 20%, as noted in our previous example.

• Roll the money into a rollover IRA:

If your new employer doesn't offer a qualified retirement savings plan, and you don't want to leave the money in the State's Plan, you can open a rollover IRA with a bank or financial institution and have the money transferred directly to that account. As with any other qualified plan, any investment returns on your account will grow tax-free until you take a distribution.

By considering all your options, you will have a better idea of what to do when you take a distribution from the Plan.

Investment Fund Performance & Operating Fees

For the Period Ending September 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 September 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 expenses 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 fourth quarter 2004 is 4.00%. For contributions received prior to January 1, 2004, the Declared Rate is 4.00%. Rates quoted are effective annual yields.

2 The Declared Rate as of October 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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