RSA-1 Deferred Compensation Plan

Phone1-800-214-2158

334-832-4140

Emailrsa1info@rsa.state.al.us

When sending an e-mail, please include your fullname, employer, home mailing address and day-

time phone number.

Fax334-240-3032 or 334-240-3230

Mailing AddressThe RSA-1 Deferred Compensation Plan

P.O. Box 302150

Montgomery, AL 36130-2150

Please provide your full name and address on allfaxes and letters.

Web sitewww.rsa.state.al.us

Street Address135 South Union Street

Montgomery, Alabama

Hours8:00 a.m. - 5:00 p.m.

Monday - Friday

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Secure a Better Tomorrow with RSA-1

This brochure provides information about howRSA members or any public employees can:

defer some of their income before taxes and

at the same time, establish a means by whichto enjoy a better retirement.

RSA-1 is a tremendous benefit offered to you bythe Retirement Systems of Alabama. By contribut-ing pre-tax dollars, a member lowers his/her taxableincome and reduces the amount of taxes he/shepays.

Each and every member of TRS and ERS shouldtake advantage of this plan. RSA-1 is payrolldeductible which makes saving easy and conven-ient. There is no minimum amount one must con-tribute each month and the contributions may beincreased, decreased or stopped as often as the pay-roll officer allows.

On the average, Social Security and a retirementpension will make up less than sixty percent of thetotal sources needed for a sound retirement income.This then makes personal savings extremely impor-tant to help members maintain their standard of liv-ing once they retire.

An old adage states: "You should always pay your-self first!" This is true and RSA-1 makes it easierthan ever before. Members can enroll in RSA-1 atanytime.

So - what are you waiting on? Go see your payroll officer today.

Table of Contents

What is RSA-1? . . . . . . . . . . . . . . . . . . . . . . . 3Deferring Equals Tax Savings . . . . . . . . . . . . . 3No Fees! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Power of Compounding . . . . . . . . . . . . . . . . . 5The Advantage of Beginning Early . . . . . . . . . 6Enrolling is Easy . . . . . . . . . . . . . . . . . . . . . . . 6Investing in RSA-1 . . . . . . . . . . . . . . . . . . . . 8Distribution of Your RSA-1 Funds. . . . . . . . . 11Why Save? . . . . . . . . . . . . . . . . . . . . . . . . . . 15Retirement & the Three-Legged Stool . . . . . . 15

The information in this brochure is based on Section 457 of theInternal Revenue Code of the United States and is authorizedby §36-27A-1, et. seq., Code of Alabama 1975. This brochureis not intended as a substitute for the Internal Revenue Codenor will its interpretation prevail should a conflict arisebetween its content and Section 457 of the Internal RevenueCode. Do not rely solely upon the information provided in thispacket to make any decision regarding enrollment in RSA-1,but contact RSA-1 directly with any questions you may have.

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What is RSA-1?

RSA-1 is a deferred compensation plan sometimesreferred to as a 457 plan because its laws aredefined in that section of the Internal RevenueCode. RSA-1 is administered by the Secretary-Treasurer of the Teachers' and Employees'Retirement System under the supervision anddirection of the PEIRAF Board of Control, which iscomposed of members of the investment commit-tees of the Teachers' and Employees' Boards ofControl.

Under the RSA-1 Deferred Compensation Plan, apublic employee may elect to defer receipt of a por-tion of his or her salary until a later determineddate, usually at retirement or other termination ofservice. Because receipt of the income is deferred,the deferred income is not included in your federalor state of Alabama gross taxable income.

Deferring Equals Tax Savings

The deferred income is paid into RSA-1 and invest-ed for your benefit. Investment earnings are accu-mulated in the fund and like the deferred income,are not subject to federal or state of Alabamaincome taxation until distributed to the employee.Deferred income and the investment earnings areheld in the participant's account for the exclusivebenefit of the plan participants and their benefici-aries.

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Saving Taxes with RSA-1The following is an example of how participation inRSA-1 can help you reduce current taxes:

Assume:

An employee earning $1,000 biweekly

Deferring $100 into RSA-1 biweekly

Filing as single with one withholding allowance

With RSA-1 Without RSA-1

Biweekly pay $1,000.00 $1,000.00

RSA-1 Deferral 100.00 0.00

Less 5% Retirement 50.00 50.00

Federal Tax* 79.00 94.00

State Tax* 32.00 36.00

FICA 76.50 76.50

Take Home Pay $662.50 $743.50*Based on the 2006 tax table.

In this example, deferring $100 only decreases yourtake-home pay by $81 while saving you $19 intaxes.

No Fees!

Unlike other funds, there are no administrative,membership, investment, transaction, sales or com-mission fees for participating in the RSA-1Deferred Compensation Plan. All the money youdefer and all investment earnings are placed intoyour account and invested by RSA-1.

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Power of Compounding

Many retirees frequently say their biggest regret isthat they did not start saving earlier. By commit-ting to a savings plan early, a person can contributeless but save more.

How does this work?This financial phenomena is known as the Power ofCompounding. As the years pass, the money youinvest in the RSA-1 Deferred Compensation Planwill continue to earn tax-free monies. By reinvest-ing these monies, additional funds are earned, con-tinuing this cycle year after year.

The following examples illustrate the power ofcompounding*:

Will started deferring $25 a paycheckinto his RSA-1 Deferred CompensationPlan account when he was 25 years old.At age 55, Will's account balance will be$48,963.

Katherine started deferring $37.50 apaycheck into her RSA-1 DeferredCompensation Plan account when shewas 35 years old. At age 55,Katherine's account balance will be$34,173.

* These examples assume a 6% rate of interest and is for illus-trative purposes only. It is in no way indicative of the futureperformance of any of the investment options available throughRSA-1.

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The Advantage of Beginning Early

The earlier you begin participating in the DeferredCompensation Plan, the bigger the difference inlong-term accumulation. The chart below is anexample based on a monthly contribution of $100earning an assumed interest rate of 7%.Beg. Value at Tot. Amt. Cost of

Age Age 65 Contrib. Waiting 1 Yr.

25 $264,012 $48,000

26 $245,051 $46,800 $18,961

35 $122,709 $36,000

36 $113,274 $34,800 $ 9,435

45 $52,397 $24,000

46 $47,702 $22,800 $ 4,695*This chart is for illustrative purposes only and should not beconsidered indicative of the future performance of any of theinvestment options available through RSA-1.

Enrolling is Easy

Who is eligible to join RSA-1?Any public official or employee of the state ofAlabama or any political subdivision thereof is eli-gible to participate in the RSA-1 DeferredCompensation Plan, regardless of age or participa-tion in the Retirement Systems of Alabama (RSA).Participation in RSA-1 is strictly voluntary.

How do I enroll?You can enroll in RSA-1 at any time. Request anEnrollment Packet from RSA-1 by completing thecard at the back of this brochure. Just drop the cardin the mail because no postage is required.

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To participate in RSA-1, an employee must:

Complete the MEMBER RECORD form and theINVESTMENT OPTION ELECTION form and submitthe completed forms to the RSA-1 DeferredCompensation Plan office at the RSA to estab-lish an account.

Once an account is established, the employeeinitiates salary deferrals by filing anAUTHORIZATION TO DEFER COMPENSATION formwith his or her payroll officer.

You can only defer contributions to RSA-1through payroll deductions. Do not send theAUTHORIZATION TO DEFER COMPENSATION formto RSA-1 or the RSA.

Easy to Make DeferralsDeferrals may be in any amount desired (forexample, $10, $20, $50, etc.) by the participantas long as the participant does not exceed themaximum deferral allowable.

The amount of the participant's deferral may beincreased, decreased or suspended as often asthe participant wishes, subject only to employerpayroll requirements.

Statements will be mailed semi-annually in Apriland October. To request your balance, please callor email RSA-1 at rsa1info@rsa.state.al.us.

Note: Balances are not given out over the phone orthrough email. Once the request is received, a bal-ance letter is sent to the address on file.

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Investing in RSA-1

What are my options on investing mycontributions?RSA-1 funds are invested under the same authorityand restrictions that govern investments made bythe Teachers' and Employees' Retirement Systems.The RSA-1 Deferred Compensation Plan offers theoption to invest in either fixed income investments,stocks, or a combination of both. The funds in boththe RSA-1 fixed and stock investment option arenot self-directed; rather they are invested as a pool.The RSA-1 fixed portfolio is invested in fixedincome investments such as corporate bonds, U.S.agency obligations, government national mortgageassociation securities, and commercial paper. Thestock portfolio is invested in an S&P 500 IndexFund, which invests in the stock of America's 500largest companies.

How do I select my investment option?New participants must complete the INVESTMENT

OPTION ELECTION form and submit it with yourMEMBER RECORD to the RSA-1 office to open anaccount.

Existing participants will be able to change theirinvestment option every 365 days. The electionwill remain in effect until a subsequent eligibleelection is made, but it must remain in effect for365 days. If you do not wish to change your invest-ment option, the election will remain in effect untilsubsequently revoked. You may stop deferrals atany time, but the election will remain in effect ifyou subsequently resume deferrals.

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Are my investment earnings taxed?You do not pay current income taxes on your invest-ment earnings. RSA-1 deferrals and earnings areonly subject to taxes when they are withdrawn fromRSA-1.

How much will my investments earn?Your earnings are based on market conditions. Formonthly total yields on investments, visit our Website or call RSA-1.

Are there any limits on what I cancontribute to RSA-1?The maximum amount you may defer per year is100% of your includable compensation reduced byother tax-deferred retirement contributions and pre-tax salary reductions, but not more than the follow-ing annual contribution maximums:

Annual Contribution MaximumYear Under 50 50 and Over

2007 $15,500 $20,500

There is no minimum amount you may defer.Deferrals to RSA-1 do not affect retirement bene-fits because retirement benefits are calculated onyour gross salary.

If you are making deferrals to another Section 457plan, the annual contribution maximum applies toall 457 plans. For example, if you are deferring$9,000 in 2007 to RSA-1, you are limited to a totalof $6,500 (or $11,500 age 50 and over) with anyother 457 plan in that calendar year. If you are con-tributing to a 403(b) or a 401(k), the limits to thoseplans will not be affected by deferrals to the RSA-1 Deferred Compensation Plan.

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Can I catch-up contributions for yearsI did not participate?If you did not defer the maximum deferral amountin the years beginning with 1986 and were eligibleto participate, you may "catch-up" unused eligibleamounts for one to three years if you are withinthree years of normal retirement age and are eligi-ble for an unreduced pension.

The following limits apply:

Year Catch-up Maximum

2007 $31,000

Normal retirement age is age 60 with at least 10years of service credit or an age you may retire andreceive immediate unreduced benefits under yourpension plan (i.e., 25 or 30 years). This age may beearlier than 60 but not later than 70-1/2. The par-ticipant may make catch-up deferrals during thethree calendar years prior to retirement or the threeyears prior to the year the participant becomes eli-gible to retire.

The following rules apply to the catch-up provi-sion:

The catch-up provision cannot be used morethan once, whether or not the participant uti-lizes the maximum catch-up deferrals in allthree of the catch-up years.

The designated catch-up period cannot bechanged once the participant begins catch-updeferrals.

The participant does not have to retire on thedate indicated; however, the catch-up periodbased on the date cannot be changed.

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The member may not catch-up during the cal-endar year in which he or she actually retires.

Catch-up deferrals must be payroll deducted.

RSA-1 must approve the CATCH-UP PROVISION

ELECTION AND WORKSHEET before catch-up defer-rals can be made.

Distribution of Your RSA-1 Funds

When can I withdraw my funds fromRSA-1?RSA-1 is not a savings account in which partici-pants make periodic withdrawals. Rather, it is aretirement account that is available only after theparticipant has either retired or otherwise terminat-ed employment.

A participant may not withdraw his account unlesshe meets one of the following conditions:

Separation from service through retirement ortermination from employment

The attainment of age 70-1/2

Unforeseeable Emergency (Contact RSA-1)

Cash-out provision for small account balances(Contact RSA-1)

RSA-1 funds cannot be assigned or alienated.Contact RSA-1 for more information on distribu-tion of your account.

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Can I use my RSA-1 funds to pur-chase service credit with the ERS orTRS?You may use your RSA-1 funds to purchase per-missive service credit with a governmental definedbenefit plan such as ERS and TRS. If you wish topurchase permissive service credit with the ERS orTRS, please contact the ERS or the TRS at (800)214-2158 for information on how to make this pur-chase. Please complete the IN-SERVICE TRANSFER

form to purchase permissive service credit.

Can I withdraw my money if there isan emergency?There are conditions that permit the member towithdraw his/her account for hardships. Hardshipsthat do not fall into the unforeseeable category donot qualify for withdrawal. Withdrawals will not beallowed for buying a home, college expenses orother similar purposes. Please contact RSA-1 tosee if your emergency will allow for distribution ofyour RSA-1 funds.

How are distributions of my fundsmade?Distributions must be at least annually in frequen-cy. No interest will be paid on the monthly interestposting date after the account has been distributedin full. There is no penalty for early distributionfrom a Section 457 plan.

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Can I roll over my RSA-1 funds toanother plan?Participants may roll over their RSA-1 funds to aSection 401(k), 403(b), 457 plan or a TraditionalIRA if they are eligible to take a distribution. RSA-1 allows transfers to other plans.

Does RSA-1 accept rollovers?RSA-1 accepts rollovers from members' RSADROP accounts once the member has terminatedemployment. Members must establish an accountprior to the rollover.

Beginning January 1, 2007, RSA-1 will accepttrustee-to-trustee transfers from other Section 457plans. An RSA-1 account must be established priorto the transfer. Funds transferred from otherSection 457 accounts must never have been fromany source other than 457(b).

May I defer my sick and annual leave?If you are eligible to receive payment for sick andannual leave at termination of employment, youmay defer up to the maximum limit in the year youterminate employment. For example, if you retirein 2007 and receive payment for sick and annualleave, you can defer up to the limit of $15,500($20,500 for age 50 and older) less any deferral youhave already made to RSA-1 within that same cal-endar year.

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If you have not made a deferral to RSA-1 in the cal-endar year of termination of employment, you maydefer the full $15,500 ($20,500) for 2007. If youretire on January 1 of a year, you may defer up tothe limit of the new calendar year. Deferring sickand annual leave payments to your RSA-1 accountinstead of receiving it in a lump-sum payment cansave you 28% in taxes.

When I withdraw my funds, how arethey taxed?Distributions of amounts previously deferred aswell as interest earned are subject to federal incometax withholding. Amounts deferred after January 1,1997, as well as any interest earned, will be subjectto state of Alabama income tax upon distribution.

At the time the participant applies for RSA-1 bene-fits, the participant will complete a form W-4P andA-4 Withholding Certificate. The participant maysubmit a new form W-4P or A-4 WithholdingCertificate at any time. Distributions are subject tothe withholding rules applicable to qualified plans.For lump-sum payments, federal regulationsrequire a flat 20% withholding (this will also applyto withdrawals for unforeseeable emergencies). Forperiodic payments, withholding will be based onthe participant's marital status and the number ofwithholding allowances claimed. If a WithholdingCertificate is not filed, withholding will be basedon single filing status with no allowances.

Deferred income and investment earnings distrib-uted from RSA-1 will be taxed to the employee orbeneficiary as ordinary income in the year of dis-tribution. Payments to RSA-1 recipients and tobeneficiaries are reported on a form 1099R in theyear of distribution. There is no penalty for earlydistribution from a Section 457 DeferredCompensation Plan such as RSA-1 regardless ofthe recipient's age at the time of distribution.

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Why Save?

Experts estimate you'll need around 70 - 80%of your final income at retirement.

If you live to age 65, you could expect to live 20more years. Most people spend 1/3 of theirlives in retirement.

Inflation reduces your purchasing power; amovie ticket costing $7 today might cost $14 in20 years if you factor in inflation!

While some expenses will decrease when youretire, others such as medical expenses couldincrease.

Retirement and the Three-Legged Stool

We encourage you to think of your retirement interms of a three-legged stool. Each leg of the stoolrepresents a source of your retirement income. Thefirst leg of your stool is your retirement benefitfrom your employer(s). Your pension benefit istypically calculated based on years of service, abenefit factor, and your ending salary. The secondleg of your stool is your Social Security benefit.You can begin receiving a reduced benefit fromSocial Security as early as age 62. The third leg ofyour stool is some type of a personal savings plan.Many retirees find that with the growing concernover the future of Social Security a personal savingsprogram is the best way to take control of theirfuture.

Let the RSA -1 Deferred Compensation Plan be the third leg of your stool.

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Notes

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