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(b) deduct ~ederal ~nd'~t~te Withholding ~ax on an empioye~'s gross salary less the retirement cortribution; (c) deduct social security tax, if covered, on ar employee's gross salary; (d) report an employee's gross salary to the Retirement System and, continue to report and remit the employee's retirement deduction in the same manner as previously required; (e) remit social security contributions on covered wages as an employee's gross salary (subject to the maximum taxable covered wages under social security); (f) at year end, report on an employee's W-2 form for Federal and State income tax purposes for taxable salary an employee's gross salary ]ess the retirement contribution deducted from an employee's gross salary after the date of election; (g) at year end, report social security wages as the salary on which social security contributions were deducted and, in the case of an employee who had not reached the maximum taxable covered wage, the reported amount on the W-2 form would be the gross salary paid to ap employee. After this tax sheltering arrangement is effective, the Retirement System will continue to credit the amount of ar employee's contribution to his account in the Retirement System. Also, the Retirement System would continue to recognize an employee's full salary for purposes of compensation Should an employee terminate and request a refund, the total of contributions both before and after the election would be refunded. Upon a refund, the System will report to the Internal Revenue Service an employee's contributions made after the election of the pick up as taxable income in the year of the refund. At retirement, an employee will have to pay Federal income tax on all amounts received over and above the contributions made prior to the date of election to tax shelter the contributions. It is important to note that this tax sheltering arrangement is available only for employees of a participating employer who are members of the North Carolina Local Governmental Employees' Retirement System. The arrangement is not optional among members of the System in the employ of a participating employer making the election. This tax sheltering arrangement is not applicable to any employees who are members of the Law Enforcement Officers' Benefit and Retirement Fund. A separate memorandum on this subject regarding members of this Fund wilt be provided to local government employers with employees in Lhe Law Enforcement Officers' Benefit and Retirement Fund~ Questions regarding this new tax sheltering arrangement should be directed to the Member Services Section of this Division at (919) 733-4191. ETB:esh Attachments: 2 Please Route to: Chief Administrative OFficer Chief Financial Officer Budget Officer Personnel Officer