Kentucky Deferred Compensation (KDC) Program Summary

Transcription

1 Kentcky Deferred Compensation (KDC) Program Smmary Smmary and Highlights of the Kentcky Deferred Compensation (KDC) Program Simple. Smart. For yo. For life. 457 Plan 401(k) Plan Roth 401(k) Deemed Roth IRA Deemed Traditional IRA Designed especially for employees of state and local governments, pblic school systems, and pblic niversities KentckyUnbridledSpirit.com

2 Introdction Why joining the Kentcky Deferred Comp Program is smart. Kentcky Deferred Compensation (KDC, also officially known as the Kentcky Pblic Employees Deferred Compensation Athority) provides spplemental retirement coverage to thosands of pblic employees in Kentcky. It is fast becoming yor one-stop-shop for retirement planning since it offers the following spplemental retirement plans or programs: Plan 2 401(k) Plan Incldes the following additional options: Roth 401(k) contribtion option Deemed Roth IRA contribtion option Deemed Traditional IRA contribtion option Table of Contents Why joining is smart What is Kentcky Deferred Comp? How does deferred comp work? Why participate now? Available investment options Abot the investment options plan (k) plan Roth 401(k) option Deemed IRA options Benefit payment options Plan comparison chart Consider these benefits: 2 Yo need a long-term investment savings plan to meet yor retirement goals. Chances are, Social Secrity benefits, pls yor state or other system retirement plan, will not provide enogh income to maintain yor crrent standard of living. KDC lets yo spplement yor retirement with yor own volntary savings and investment plan. It is convenient. Yo can invest the easy way... throgh payroll dedction (and direct pay for KDC s Deemed IRA programs). Tax deferral means yor investments have the opportnity to grow faster. Yo pay no federal or state taxes on the portion of yor income yo contribte to the traditional pre-tax 457 and 401(k) plans, or on any of yor investment earnings, ntil the money is paid ot to yo. Yo may also pay lower taxes when yo receive yor distribtions. First, yo may be in a lower tax bracket after yo retire. Second, nder crrent state law, a significant portion of yor deferred compensation distribtions at retirement may be excldable from Kentcky state income tax. Yo may select from a nmber of qality, well known investment options. Throgh KDC, yo can invest in some of the best-known mtal fnds available on a no-load basis.* It is easy to make changes: Over the Web at or with SAVER, or telephone voice response system ( ). Both allow yo to check on yor accont balance, move money between fnds,** and more any time of the day or night (except for brief backp periods). Yo may also make changes by contacting the KDC office in Frankfort, toll free at between the hors of 8 am and 5 pm (ET). Yor Social Secrity and retirement benefits are not affected by yor contribtions nder the Kentcky Deferred Comp Plan(s). * Fnd management fees still apply. Please reqest a prospects for more complete information. ** Certain excessive trading restrictions may apply.

3 Introdction What is Kentcky Deferred Comp? Kentcky Deferred Comp (KDC) is athorized nder Kentcky Revised Stattes (18A A.275) to provide administration of tax sheltered spplemental retirement plans for all state, pblic school and niversity employees and employees of local political sbdivisions that have elected to participate. Plan administration is performed by KDC (an entity of Kentcky State Government), nder the direction of a Board of Trstees. The investment options available nder the Plan(s) are selected by the Board of Trstees, with the assistance of an investment consltant/advisor. Plan recordkeeping, commnication, and enrollment services are performed by Nationwide Retirement Soltions, Inc. (NRS), a FINRA registered broker/dealer. Plan Service Representatives are NRS employees who are athorized and licensed to explain the Deferred Compensation Plans and the available investment options. However, they are not permitted to provide investment advice. To contact yor Plan Service Representative call (toll free) and leave a message. If yo need tax or investment advice, yo shold conslt a tax or financial advisor. An NRS Representative may be contacted at or The tax information in this brochre is only for illstrative prposes. Yo shold conslt a tax advisor to see how participation in a Deferred Comp Plan wold affect yor personal tax sitation. How does Deferred Compensation work? * Assmes 2008 tax rates for a married Kentcky taxpayer with no children, filing jointly, sing standard dedction, and Kentcky taxes are assmed to be 15% and 5.8% respectively. ** Figres have been ronded for prposes of illstration. Pre-tax ** with DC After-tax** withot DC Gross paycheck (24 pays) $1,250 $1,250 Pre-tax deferred compensation deferral $100 Taxable income $1,150 $1,250 Federal & state taxes (incldes Medicare & Social Secrity)* $240 $260 After-tax dedction $100 Discretionary income $910 $890 $ 480 Annal Tax Savings! $260 - $240 = $20 $20 x 24 pays = $480 The chart to the left explains how pre-tax retirement investing can have a positive impact on yor monthly income. In this example we have assmed a salary of $30,000. In this example an employee contribting $100 per paycheck saves $20 in taxes each paycheck or $480 annally by investing throgh Kentcky Deferred Comp instead of paying taxes before investing. Therefore, the annal redction of takehome pay is $1,920 instead of $2,400 ($100 x 2 pays x 12 months $480 in tax savings). Also, the tax-deferral benefit of deferred comp means that no crrent taxes are de on the interest or earnings ntil money is actally withdrawn. Earnings compond withot taxation, allowing a potentially greater savings accmlation over time. 3

4 Introdction Why shold I participate in Kentcky Deferred Comp now? There are two important factors that may help yor accont grow time and componding. This hypothetical example illstrates the vale of joining early. $250,000 The Power of Time and Componding A Tale of Two Employees $200,000 $214,295 At age 30, Donna began investing $2,000 per year for 10 years ($20,000) and stopped. Matt waited ntil he was 40, then began investing $2,000 per year for 25 years ntil he was age 65 ($50,000). Assming a hypothetical 8% annal retrn on their investments, who do yo think accmlated the larger accont balance at age 65? $150,000 $100,000 $157,908 If yo gessed Donna, who began investing earlier, yo are correct. What made the difference? The power of time and componding. Donna s investments had more time to compond. Componding is simply yor money earning money, and that money earning money, and so on. So, do not ignore the impact that componding and time can have on yor nest egg. Althogh it is never too late to start saving, waiting can be expensive. Use time to yor advantage. $50,000 $0 $20,000 invested Donna $50,000 invested Matt Investments involve market risk inclding possible loss of principal. Past performance cannot garantee ftre reslts. This hypothetical illstration assmes an 8% annal rate of retrn and is intended to illstrate the effects of time and componding on investments. It does not represent the actal performance of any investment or deferred compensation program and therefore, does not reflect any applicable fees or taxes. It is not intended to predict or project investment reslts. Available investment options The investment options featred in Kentcky Deferred Comp s Spectrm of Investment Options are offered for all of the KDC Plans, inclding the Roth 401(k) and Deemed Roth and Traditional IRA separate acconts. 1 Professionally Managed Fnds (Otsorced) 1 Lifecycle Fnds Based on Target Year of Retirement Freedom Income Fnd Freedom 2010 Fnd Freedom 2020 Fnd Freedom 2030 Fnd Freedom 2040 Fnd 2 Do-it-yorself Portfolio Conservative Moderately Conservative Moderate Moderately Aggressive Aggressive Fixed Income/Cash Bonds 3 Balanced Mid-Cap Stocks Small-Cap Stocks 4 Stable Vale Fnd Money Market Fnd 2 Short Government Bond Fnd Intermediate Bond Index Fnd Intermediate Term Bond Fnd High Yield Bond Fnd Moderate Allocation Fnd Large-Cap Stocks Large Vale Fnds Large Blend Fnds Large-Cap Index Large Growth Fnds Mid-Cap Vale Fnd Mid-Cap Index Mid-Cap Growth Fnd Small-Cap Vale Small Blend Fnd Small-Cap Index Small Growth Fnd International Stocks 5 Foreign Stock Fnds 4

5 Yor Investment Options Abot the investment options Yor KDC Plan Service Representative is athorized to provide yo with more information regarding specific investment options. Along with this Program Smmary brochre, yo will receive a Spectrm of Investment Options. Upon reqest, yo will receive the applicable prospects(es). Fnd prospectses can be obtained by calling Read the prospectses careflly before investing, and careflly consider the fnd s investment objectives, risks, charges and expenses. The fnd prospects contains this and other important information. Deferrals Yo may allocate yor deferrals among any of the specific investment options crrently made available throgh the Plan(s). Minimm deferral amonts are $30 monthly, $15 semi-monthly, $14 bi-weekly, or $7.50 weekly. Yo may change yor allocation for ftre deferrals or exchange existing balances between options daily, provided the transactions are completed before 4 p.m. ET. Yor qarterly statement provides accont totals, yor transaction activity, KDC asset fees assessed, and yor selected investment option vales. Asset Fees To help defray the cost of administering the Plans, participant accont(s) are sbject to an asset fee. No state or other employers dollars are sed to pay for administration of this program. Fixed Contract Fnd 3 accont The annal recordkeeping and administrative fee for this accont is.32 percent. The credited interest rate reported on yor qarterly statement is already adjsted for this annal fee. Mtal fnd acconts Beginning one year after the date of yor first deferral, there is an annal recordkeeping and administrative fee, based on the first $125,000 of yor total balance in all mtal fnds. A portion of this fee is collected each month. The fee is described below:.32 percent on the first $25, percent on p to the next $25, percent on p to the next $50, percent on p to the next $25,000 no additional fee on amonts over $125,000 As a reslt, the most yo will pay in annal mtal fnd asset fees is $225. First year free!* Participants are not charged mtal fnd recordkeeping and administrative fees ntil one year after the date of their first investment. * Underlying fnd management fees still apply. The SAVER Line is always available to yo for accont information and to change yor investments if yor objectives change. Or, yo can visit or interactive Web site at Cstom Services Fees The following cstom service fees will be assessed to participant acconts reqiring sch extra services: Mltiple hardships/unforeseeable Financial Emergencies: $100 each Qalified Domestic Relations Orders (QDRO): $300 (split eqally between parties, if possible) Transfers for prchase of service credit: $100 each Loan origination fee: $100 each Loan defalt fee: $50 each Inactive small accont fee $6 per month administrative fee on all acconts of $5,000 or less that have been inactive for six consective months. Insfficient fnds fee (NSF) for bad loan payment check: $50 per retrned check. Note: Investing in mtal fnds involves market risk. Frthermore, no garantees or representations are made by the State, the Athority, Plan representatives or yor employer regarding any of the investment options available nder the Plans. 1) Fidelity Freedom portfolios are designed to provide diversification and asset allocation across several types of investments and asset classes, primarily by investing in nderlying fnds. Therefore, yo are indirectly paying a proportionate share of the applicable fees and expenses of the nderlying fnds. 2) An investment in a money market fnd is not insred or garanteed by the FDIC or any other government agency. Althogh the money market fnd seeks to preserve the vale of yor investment at $1.00 per share, it is possible to lose money by investing in the money market fnd. 3) Bond fnds have the same interest rate, inflation and credit risks that are associated with the nderlying bonds owned by the fnd. Fnds that invest in high-yield secrities are sbject to greater credit risk and price flctations than fnds that invest in higher-qality secrities. 4) Small company fnds involve increased risk and volatility. 5) International investing involves additional risks inclding: political instability, crrency flctations, differences in acconting standards, and foreign reglations. 5

6 457 Plan Highlights Spplemental Retirement Plan The 457 Plan, offered since 1975, is a deferred compensation plan for Kentcky State Government, schools and niversities, and local governments athorized by Section 457 of the U.S. Internal Revene Code. Featres of the 457 Plan are detailed below. 457 Plan Featres Generally, yo may defer p to 100% of yor incldible compensation, after dedcting contribtions to the state retirement plan(s). Yo mst, however, also allow for the withholding of FICA, local, and similar taxes which do not recognize pre-tax contribtions. There is an annal dollar limit of $16,500 in Deferrals and earnings are pt in trst in yor name immediately after clearing the State Treasry and pon completion of the investment process. A special three-year catch-p provision (p to twice the annal maximm in deferrals per year) is available in the three calendar years prior to yor planned normal retirement age. A separate Baby Boomer catch-p may be available for participants age 50 and over, bt cannot be sed in the same year the three-year catchp is sed. This Baby Boomer catch-p is $5,500 in 2010 and increases the annal deferral limit to $22,000 for participants who are age 50 or older in Benefits mst begin by April 1 of the calendar year after the calendar year in which yo reach age 70½.* There is no penalty tax for early (before age 55) distribtions pon termination of employment. Rollovers are permitted 2, pon the occrrence of a benefit event, to a 401(a), 401(k), 403(b) Plan or IRA, and assets may be transferred to or from another 457 Plan. 457 Plan assets may be transferred to KERS, KTRS, or Jdicial and Legislative Retirement Systems to prchase service credits 3 (inclding air time ). Cafeteria Plan (or benefits) money cannot be invested in this Plan. Loan provisions and eligible nforeseen financial emergency withdrawals are available. The minimm loan amont is $1,000 (and the accont balance mst be at least $2,000). The maximm loan amont is 50% of yor eligible accont balance (not to exceed $50,000 for all otstanding loans). Participants may borrow only against their before-tax accont balance. Both the 457 and 401(k) Plans offer yo: IRS approved pre-tax deferrals. Easy investing throgh payroll redctions. Diversified investment options and the ease of daily exchanges among them with no exchange fee. However, redemption fees may apply. Several benefit payment options. Flexibility in changing ftre deferrals. Ability to transfer assets from prior plans into the respective Plan offered by KDC. 457 Benefit Events Benefits are available after the occrrence of a benefit event. The types of benefit events for those with 457 acconts are listed below: 1) Severance from employment (not working for a participating employer in any capacity) 2) Age 70½ (regardless of whether yo are still working). Benefits mst begin by April 1 of the calendar year after the calendar year in which yo reach age 70½. 3) Death or total disability 4) Unforeseeable financial emergency 4 If it cannot be relieved by other means, yo may withdraw fnds sfficient to cover: Uninsred medical cost to yo or yor legal dependents (see yor benefit payment options) Uninsred property damage to yor primary residence de to casalty or extraordinary and nforeseeable circmstances beyond yor control Unforeseeable loss of family income Fneral expenses for a family member Imminent foreclosre on, or eviction from, yor primary residence 5) Minimm (De Minims) accont payot is also available for certain acconts to which no contribtions have been made within the preceding 24 months. * Unless sspended by federal law. Footnote references are featred at the end of page 7.

7 401(k) Plan Highlights 401(k) Spplemental Retirement Plan The 401(k) Plan, offered since 1985, is a cash or deferral arrangement athorized nder Section 401(k) of the United States Internal Revene Code. This plan is available to the same entities as the 457 Plan. Featres of the 401(k) Plan are detailed below. 401(k) Plan Featres Generally, yo may defer p to 100% of yor incldible compensation, after dedcting contribtions to the state retirement plan(s). Yo mst, however, allow for the withholding of FICA, local, and similar taxes which do not recognize pretax contribtions. There is an annal dollar limit of $16, Any contribtions to a 403(b) Plan mst be inclded in meeting the annal dollar limit. Deferrals and earnings are pt in trst in yor name immediately after clearing the State Treasry and pon completion of the investment process. A Baby Boomer catch-p provision is available on Janary first of the year yo trn age 50. The catch-p amont for 2010 is $5,500. Loan provisions and eligible financial hardship withdrawals are available. The minimm loan amont is $1,000 (provided yor accont balance is $2,000). The maximm loan amont is 50% of yor eligible accont balance (not to exceed $50,000 for all otstanding loans). Participants may borrow only against their before-tax accont balance. Yo cannot borrow from any vested employer matching or Roth 401(k) accont balance(s). Benefits mst begin by April 1 of the calendar year after the calendar year in which yo reach age 70½. May be eligible for favorable tax treatment of lmp-sm distribtions. Rollovers are permitted to a 401(a), 401(k), 457, 403(b) Plan or IRA (k) Plan assets may be transferred to KERS, KTRS or Jdicial and Legislative Retirement Systems to prchase service credits 3. Both Roth 401(k) and Deemed IRA (Roth and Traditional) acconts are available throgh the 401(k) Plan. See pages 8-9 for details abot the Roth 401(k) option and Deemed IRA acconts available throgh the 401(k) Plan. 401(k) Benefit Events Benefits are available after the occrrence of a benefit event. The types of benefit events for those with 401(k) acconts are listed below: 1) Severance from employment (not working for a participating employer in any capacity) 2) Age 59½ (regardless of whether yo are still working) 3) Death or total disability 4) Unforeseeable financial emergency distribtion 4 After exhasting all other financial resorces, yo may withdraw only yor cmlative deferrals (exclding any earnings, employer matching contribtions, Roth 401(k) contribtions, and spplemental contribtions or cafeteria plan/benefits money) and yor rollover accont, if applicable, for: Uninsred medical cost to yo or yor legal dependents Prevention of eviction from or foreclosre on yor primary residence Uninsred property damage to yor primary residence de to nforeseeable circmstances beyond yor control Unforeseeable loss of family income College edcation for yo or a legal dependent Prchase of yor primary residence 5) Benefits mst begin by April 1 of the calendar year after the calendar year in which yo reach age 70½, whether or not yo contine to work. Note: Crrent deferrals to another tax deferred plan sch as a 403(b) plan cold redce the annal dollar limit nder the KDC 401(k) Plan (bt not the 457 Plan). Roth 401(k) contribtions also coordinate with traditional pre-tax 401(k) contribtions. 1) May be sbject to change every Janary 1. Jan. 1, 2010 = $16,500, and indexed thereafter. 2) 457 Plan assets rolled to a qalified plan will assme the characteristics of a qalified plan and will, pon withdrawal, be taxed as 401(k) assets, i.e.: 457 Plan assets rolled over to a 401(k) Plan will be commingled with the 401(k) Plan assets and taxed as 401(k) assets. 3) A $75 fee is assessed to all KERS, KTRS and Jdicial & Legislative Retirement Systems rollovers. 4) A 10% penalty tax may apply on nforeseeable financial emergency distribtion. Yo mst also sspend contribtions to the plan for 6 months after a hardship withdrawal. A fee of $75 may be assessed against yor accont for this withdrawal. 7

8 Roth 401(k) and Deemed IRAs Roth 401(k) Contribtion Option Roth 401(k) Highlights If yo are or become a participant in the KDC 401(k) Plan and yo are actively employed by a participating employer, yo may elect to make designated Roth 401(k) contribtions. Unlike a Roth Individal Retirement Accont (IRA), yo can elect to make Roth 401(k) contribtions regardless of yor income level. Contribtions are made throgh payroll dedctions jst like yor other KDC acconts, except yor contribtions are made after-tax. Yo may divide yor contribtions between Traditional and Roth 401(k) acconts bt yo cannot recharacterize the assets in those acconts after yor initial designation of pre-tax or after-tax contribtion is made. Becase yor Roth 401(k) contribtion is taxed differently, yor Roth 401(k) contribtions and any earnings are maintained in a separate accont. The total combined amont yo may contribte into traditional 401(k) and Roth 401(k) acconts is $16,500 in 2010 (nless yo will be at least age 50 in which case the annal contribtion limit becomes $22,000). Any matching employer contribtions are always made on a pre-tax basis, regardless of whether yo are contribting on a pre-tax or after-tax basis. Deemed Roth and Traditional IRA Contribtion Options Similar to traditional pre-tax 401(k) plan acconts, payot from a Roth 401(k) accont may begin at 59½ or after retirement, whichever comes first. The difference is that no federal or potentially state taxes are de on the earnings if 1) the Roth 401(k) accont has been in existence for a five-year period (five-year period begins Jan. 1 of the year participant first makes a Roth 401(k) contribtion into the plan) and 2) the participant is age 59½, or has died or becomes disabled. Reqired minimm distribtions (RMD) begin at age 70½, nless the Roth 401(k) is rolled into a Roth IRA, which does not reqire minimm distribtions, except to beneficiaries. *Qalified Distribtions Generally, a Roth 401(k) accont distribtion is a qalified distribtion if: 1) the Roth 401(k) accont has been in existence for a five-year period (five-year period begins Jan. 1 of the year a participant first makes a Roth contribtion into the plan), and 2) a participant is age 59½, or has died or become disabled nder IRC Section 72(m)(7). Distribtions made prior to these reqirements being met are nonqalified distribtions, and earnings cold be taxable. Shold yo elect to establish a designated Roth 401(k) accont, the accont will not be sbject to federal taxes. State taxes may apply. 8 What is Kentcky Deferred Comp s Deemed IRA? A Deemed Individal Retirement Accont (IRA) which allows yo to contribte and invest money in a separate individal retirement accont throgh a retirement plan sch as the KDC 401(k) Plan. In contrast, a reglar IRA is opened throgh a bank or other financial instittion. Deemed IRA contribtions are not conted toward the annal contribtion limits associated with yor 457 and 401(k) KDC Plans and are separately acconted for in participant records. What are the primary differences between the Roth 401(k) and Deemed Roth IRA? Roth 401(k) Plans have higher annal contribtion limits than the Deemed Roth IRA. The after-tax aggregate contribtion of $5,000 earned income to all IRAs is allowed in 2010 and may be indexed in $500 increments thereafter. In addition, annal catch-p contribtions p to $1,000 in aggregate from all IRAs (both Traditional and Roth) are allowed in Roth 401(k) annal contribtions do coordinate with traditional annal contribtions and Deemed Roth IRA contribtions do not. Deemed Roth IRA contribtions do not have to be payroll dedcted. A direct pay option is available. Roth 401(k) acconts are sbject to the 401(k) Plan withdrawal rles. Deemed Roth IRA withdrawals can be made at any time and withot reason. Roth 401(k) Plans have reqired minimm distribtions (RMD); Deemed Roth IRAs are not sbject to RMDs dring the participant s lifetime. Deemed Roth IRAs are sbject to Internal Revene Code (IRC) section 408A, while the Roth 401(k) is sbject to IRC section 401(k).

9 Yor Benefit Payment Options Deemed IRA Highlights Yo receive the same benefits as those associated with yor 457 and 401(k) Plans low fees, qality investment options, Kentcky s sperior cstomer service, and simplification throgh the consolidation of yor spplemental retirement saving programs. Yo contribte into yor Deemed IRA throgh payroll dedction, direct payment (reglar personal checks, money orders, certified checks), sbject to IRA annal limits. Asset fees will be based on the total vale of all yor Athority accont balances, inclding the Deemed IRA(s). This will enable yo to lower yor spplemental retirement savings expenses. KDC separately acconts for assets and activity in a Deemed IRA accont. Yo access all of yor accont information with one website, one VRU nmber, and one qarterly statement. Yor Benefit Payment Options Both the 457 and 401(k) plans offer flexible payment options inclding the following: Total distribtion payment Partial distribtion payment Installment payments for a fixed period (sch period may be p to yor expected lifetime and is sbject to legal limits) Fixed dollar payments Benefit Payment Information Yo may choose (or change) yor method of payment for each Plan at any time. To do so, yo mst complete a Benefit Payment Election Form. Both Plans provide for an atomatic payot process if yo do not choose a method of payment by yor reqired beginning date. Yo will choose a beneficiary (to receive yor benefits if yo die) at the time yo enroll. Yo may change yor beneficiary at any time by completing and having the Athority accept a new Beneficiary Designation Form (BDF), which will spersede any previos BDF. Legal dependent is defined by Internal Revene Code section 152. Deemed IRA contribtions are not conted toward the annal 457/401(k) plan annal limits. Other Important Deemed IRA Information KDC's 457 and 401(k) Plans' first year free provision on mtal fnd investments does not apply to the Deemed IRA. Yo may designate a beneficiary for yor Deemed IRA. If yo do not designate a separate beneficiary, yor 401(k) Plan beneficiary designation will also apply to yor Deemed IRA accont(s). Employees of participating employers that do not offer payroll dedction may establish and maintain a Deemed IRA accont throgh the direct pay option ($100 minimm check amont and direct payments can be made no more freqently than monthly). Deemed IRA accont balances (Traditional or Roth) cannot be sed to prchase service credits. A minimm monthly contribtion of $30 is reqired per plan or IRA. A 10% federal excise tax may apply if payment is made to yo from yor 401(k) Plan prior to age 59½ and becase yo separated from service with yor employer before the year yo reached age 55. A 10% penalty tax may apply on hardship distribtions available throgh the 401(k) Plan. Yo mst also sspend contribtions to the plan for 6 months after a hardship withdrawal. A fee of $75 will be assessed against yor accont if more than one nforseeable emergency withdrawal is made. Tax rles vary for each of the Plans. See pages 6-8 for details regarding taxation on distribtions. Contact yor tax advisor for more information regarding the tax implications reslting from a particlar payot. The Internal Revene Code provides that none of the Plans may be sed as a temporary, short-term savings accont where yo withdraw deposits whenever yo want. The prpose and benefit of these plans is to help ensre that yor retirement savings will be available at yor retirement. Or Payot Conselors can assist yo with yor payot options. Call or inside Frankfort. Or visit kentckydcp.com for additional payot information, inclding forms. 9

10 Plan Comparison Chart Eligibility 457(b) Pre-Tax Contribtions Any employee of the Commonwealth of Kentcky as well as all pblic schools and niversities. Other pblic employers are eligible nder state statte and may elect to participate. Traditional 401(k) Pre-Tax Contribtions Any employee of the Commonwealth of Kentcky as well as all pblic schools and niversities. Other pblic employers are eligible nder state statte and may elect to participate. Maximm Annal Contribtion $16,500 in 2010 and indexed in annal $500 increments thereafter. KDC reqires a minimm $30 per month contribtion. $16,500 total in 2010 for all 401(k) plans and indexed in $500 increments thereafter. 401(k) and Roth 401(k) combined contribtions may total no more than $16,500. KDC reqires a minimm $30 per month contribtion. Contribtion Method Payroll dedction Payroll dedction Rollovers In Yes Yes Age 50 Catch-p Contribtion $5,500 in 2010 for Age 50 Baby Boomer catch-p. Doble annal maximm ($33,000 in 2010) for threeyear special catch-p. Cannot se both catch-p provisions in same year. $5,500 in 2010 and indexed in $500 annal increments thereafter. Dedctibility of Contribtions No No Earnings Grow tax-deferred while in accont Grow tax-deferred while in accont Kentcky Employer Match Not applicable Available sbject to employer participation Distribtions Taxes on Distribtions Available pon termination of employment, regardless of age. Withdrawals taxed as ordinary income. Not sbject to 10% early withdrawal penalty. Available pon termination of employment or fll retirement or in the year age 59½ is attained. Withdrawals are taxed as ordinary income. If withdrawn before age 59½ a 10% penalty may apply if termination or fll retirement occrs before age 55. Reqired Minimm Distribtions Reqired at age 70½ Reqired at age 70½ Loans Allowed Allowed Hardship Withdrawals Allowed Allowed 5 Year Holding Reqirement Not applicable Not applicable 10 10

11 Plan Comparison Chart Roth 401(k) After-Tax Contribtions Mst be eligible to participate in the Athority 401(k) Plan. After-tax contribtion of $16,500 in 2010 [total 401(k) accont(s) contribtions], and indexed in $500 annal increments thereafter. KDC reqires a minimm $30 per month contribtion. Payroll dedction Yes, bt only a direct rollover from another Roth 401(k) or Deemed Roth IRA accont $5,500 in 2010 for total catch-p contribtions for all 401(k) plans, exclding the additional Age 50 catch-p, if applicable. Deemed Roth IRA After-Tax Contribtions Eligible and Active employees of a Participating Employer in the Athority s Program. or Terminated and retired employees who desire to establish a Deemed Roth IRA accont mst have a minimm $5,000 aggregate KDC accont balance. May participate only throgh rollover/transfer. Annal contribtions cannot be made. After-tax, aggregate contribtion of $5,000 earned income in 2010 (indexed in $500 increments thereafter). Maximm annal contribtions coordinate with the Deemed Traditional IRA. Contribtions allowed at any age, provided yo are actively working for a participating employer. KDC reqires a minimm $30 per month payroll contribtion or a $100 minimm direct contribtion via personal check, money order, or certified check payable to Kentcky Deferred Compensation. Indicate year contribtion is to be applied and last for (4) digits of social secrity nmber. Payroll dedction or direct pay (incremental or lmp sm direct pay may be made no more freqently than monthly). Can accept a direct rollover from another Roth IRA or Roth 401(k) accont, bt not from a Traditional IRA accont. Effective Jan. 1, 2008, can accept rollover from a qalified plan (bt is sbject to income tax). $1,000 in aggregate from all IRAs (both Traditional and Roth) Deemed Traditional IRA After-Tax Contribtions Eligible and Active employees of a Participating Employer in the Athority s Program. or Terminated and retired employees who desire to establish a Deemed Traditional IRA accont mst have a minimm $5,000 aggregate KDC accont balance. May participate only throgh rollover/transfer. Annal contribtions cannot be made. After-tax, aggregate contribtion of $5,000 earned income in 2010 (indexed in $500 increments thereafter). Maximm annal contribtions coordinate with the Deemed Roth IRA. Contribtions allowed p to the year yo attain age 70½, provided yo are actively working for a participating employer. KDC reqires a minimm $30 per month payroll contribtion or a $100 minimm direct contribtion via personal check, money order, or certified check payable to Kentcky Deferred Compensation. Indicate year contribtion is to be applied and last for (4) digits of social secrity nmber. Payroll dedction or direct pay (incremental or lmp sm direct pay may be made no more freqently than monthly). Can accept a direct rollover from another Traditional IRA accont or another qalified retirement plan [e.g., 401(k)], bt not a Roth IRA. $1,000 in aggregate from all IRAs (both Traditional and Roth) No No Yes, bt limited de to participation in an employer sponsored retirement plan and AGI limits. Does not apply to non-dedctible contribtions. Grow tax-free while in accont and there is no tax on qalified distribtions Grow tax-free while in accont and there is no tax on qalified distribtions Grow tax-deferred while in accont Available sbject to employer participation Not applicable Not applicable Sbject to same rle as the 401(k) Plan. Qalified distribtions are not sbject to federal income tax. If not a qalified distribtion, investment earnings are sbject to ordinary income tax and possibly a 10% early withdrawal penalty. Reqired at age 70½. However, a Roth 401(k) accont may crrently be rolled into a Roth IRA, which has no RMD reqirement dring participant s lifetime. Available at any time. (See Taxes on Distribtions) Contribtions and earnings can be withdrawn at any time. However, earnings may be sbject to federal taxes or penalities if the money has not been maintained in the accont for 5 years, and the owner has not attained age 59½. Other exceptions may also apply. Participants are not sbject to RMDs dring their lifetime. Beneficiaries are sbject to RMDs. Available at any time. (See Taxes on Distribtions) Withdrawals may be sbject to reglar income tax. Withdrawals taken before age 59½ may be sbject to a 10% early withdrawal penalty. Other exceptions may also apply. Reqired pon reaching age 70½ Not allowed Not allowed Not allowed Not allowed Not allowed Not allowed Yes, for tax-free distribtions. Other factors also apply to qalify for the tax free distribtion. Yes, for tax-free distribtions. Other factors also apply to qalify for the tax free distribtion. No 11 11

12 The Kentcky Pblic Employees Deferred Compensation Athority 101 Sea Hero Road, Site 110 Frankfort, KY ( in Frankfort) Kentcky Deferred Comp s 457 and 401(k) plans are sponsored by the Commonwealth of Kentcky This docment is only a smmary of Plan provisions, which are sbject to change. Every effort has been made to accrately state Plan provisions in this Smmary. However, shold there be an error, misstatement or omission in this material, the Plan docments will always prevail. For a complete description of Plan rles, conslt the crrent Plan docment. A crrent Plan docment is available from the Athority. Plan Service Representatives are Registered Representatives of Nationwide Investment Secrities Corporation, member FINRA. NRM-3281KY-KY.6 (04/10)