Exhibit 4.9
SPECIAL TAX NOTICE
REGARDING DISTRIBUTIONS FROM TIP, ESOP AND PENSION
This notice contains important information you will need before you decide how
to receive your payment from the Thrift-Incentive Plan, the Employee Stock
Ownership Plan, or the Pension Plan (the Plans).
SUMMARY
A payment from the Plans that is eligible for "rollover" can be taken in two
ways. You can have all or any portion of your payment either
1) PAID IN A "DIRECT ROLLOVER"
2) PAID TO YOU
A rollover is a payment of your Plan benefits to your individual retirement
arrangement (IRA) or to another employer plan. This choice will affect the tax
you owe.
If you choose a DIRECT ROLLOVER:
- Your payment will not be taxed in the current year and no income tax
will be withheld.
- Your payment will be made directly to your IRA or, if you choose, to
another employer plan that accepts your rollover.
- Your payment will be taxed later when you take it out of the IRA or the
employer plan.
If you choose to have your Plan benefits PAID TO YOU:
- You will receive only 80% of the payment, because the Northern Trust is
required to withhold 20% of the payment and send it to the IRS as income
tax withholding to be credited against your taxes.
- Your payment will be taxed in the current year unless you roll it over.
You may be able to use special tax rules that could reduce the tax you
owe (see pg. 3). However, if you receive the payment before age 59 1/2,
you also may have to pay an additional 10% tax.
- You can roll over the payment to your IRA or to another employer plan
that accepts your rollover within 60 days of receiving the payment. The
amount rolled over will not be taxed until you take it out of the IRA or
employer plan.
- If you want to roll over 100% of the payment to an IRA or an employer
plan, you must find other money to replace the 20% that was withheld. If
you roll over only the 80% that you received, you will be taxed on the
20% that was withheld and that is not rolled over.
NOTE:
Although funds that come out of TIP as an in-service withdrawal are
eligible for rollover, the funds will not be accepted for rollover back
into TIP.
MORE INFORMATION
Page
I. PAYMENTS THAT CAN AND CANNOT BE ROLLED OVER 1
II. DIRECT ROLLOVER 2
III. PAYMENT PAID TO YOU 2
IV. SPECIAL TAX TREATMENT 3
V. OUTSTANDING TIP LOAN BALANCES 4
VI. SURVIVING SPOUSES, ALTERNATE PAYEES, AND OTHER BENEFICIARIES 4
PAYMENTS THAT CAN AND CANNOT BE ROLLED OVER
Payments from the Plans may be "eligible rollover distributions." This means
that they can be rolled over to an IRA or another employer plan that accepts
rollovers. In general, any payment from the Plans (including an inservice
withdrawal) is considered an eligible
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rollover distribution, EXCEPT for the following types of payments which CANNOT
be rolled over:
NON-TAXABLE PAYMENTS
In general, only the "taxable portion" of your payment is an eligible rollover
distribution. If you have made "after-tax" employee contributions to the
Plans, these contributions will be non-taxable when they are paid to you, and
they cannot be rolled over.
REQUIRED MINIMUM PAYMENTS
Beginning in the year you reach age 70 1/2, you are required to take an annual
distribution from each plan. These required minimum distributions cannot be
rolled over.
MONTHLY PAYMENTS FROM THE PENSION PLAN
You cannot roll over monthly annuity payments you receive from the Pension
Plan. These payments are part of a series of equal (or almost equal) payments
that are made at least once a year and that will last for your lifetime, your
and your beneficiary's lifetimes or a period of ten years or more.
ESOP DIVIDEND PAYMENTS
The dividend check you receive each November from the ESOP cannot be rolled
over and is considered taxable income in the year you receive it.
DIRECT ROLLOVER
You can choose a direct rollover of all or any portion of your payment that is
an "eligible rollover distribution," as described above. In a direct rollover,
the eligible rollover distribution is made payable directly from the Plan to an
IRA or another employer plan that accepts rollovers. If you choose a direct
rollover, you are not taxed on a payment until you later take it out of the IRA
or the employer plan.
DIRECT ROLLOVER TO AN IRA
You can open an IRA to receive the direct rollover. (The term "IRA" as used in
this notice, includes individual retirement accounts and individual retirement
annuities.) If you choose to have your payment made directly to an IRA,
contact an IRA sponsor (usually a financial institution) to obtain an account
number. Supply the name of the institution and the institution's federal tax
identification number (FEIN) on your distribution or withdrawal form. The
check and or shares of stock will then be made payable to the IRA and sent to
you for delivery to the IRA institution.
DIRECT ROLLOVER TO A PLAN
If you are employed by a new employer that has a plan, and you want a direct
rollover to that plan, ask the administrator of that plan whether it will
accept your rollover. If the plan will accept your rollover, supply the name
of the plan and the company name on your distribution or withdrawal form. An
employer plan is not legally required to accept a rollover. If your new
employer's plan does not accept a rollover, you can choose a direct rollover
to an IRA.
Please Note: Although taxable funds that come out of TIP as an in-service
withdrawal are eligible for rollover, the funds will not be accepted for
rollover back into TIP.
PAYMENT MADE PAYABLE TO YOU
If you have the payment made to you, it is subject to 20% income tax
withholding. The payment is taxed in the year you receive it unless, within 60
days, you roll it over to an IRA or another plan that accepts rollovers. If you
do not roll it over, special tax rules may apply.
MANDATORY TAX WITHHOLDING
If any portion of the payment to you is an eligible rollover distribution, the
Plans are required by law to withhold 20% of that amount. This amount is sent
to the IRS as income tax withholding. For example, if your eligible rollover
distribution is $10,000, only $8,000 will be paid to you because the Plan must
withhold $2,000 as income tax. However, when you prepare your income tax
return for the year, you will report the full $10,000 as a payment from the
Plan. You will report the $2,000 as tax withheld, and it will be credited
against any income tax you owe for the year.
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SIXTY-DAY ROLLOVER OPTION
If you have an eligible rollover distribution paid to you, you can still
decide to roll over all or part of it to an IRA or another employer plan that
accepts rollovers. If you decide to roll over, you must make the rollover
within 60 days after you receive the payment. The portion of your payment that
is rolled over will not be taxed until you take it out of the IRA or the
employer plan.
You can roll over up to 100% of the eligible rollover distribution, including
an amount equal to the 20% that was withheld. If you choose to roll over 100%,
you must find other money within the 60-day period to contribute to the IRA or
the employer plan to replace the 20% that was withheld. On the other hand, if
you roll over only the 80% that you received, you will be taxed on the 20%
that was withheld.
EXAMPLE:
Your eligible rollover distribution is $10,000, and you choose to have
it paid to you. You will receive $8,000, and $2,000 will be sent to the
IRS as income tax withholding. Within 60 days after receiving the
$8,000, you may roll over the entire $10,000 to an IRA or employer plan.
To do this, you roll over the $8,000 you received from the Plans, and
you will have to find $2,000 from other sources (your savings, a loan,
etc.). In this case, the entire $10,000 is not taxed until you take it
out of the IRA or employer plan. If you roll over the entire $10,000,
when you file your income tax return you may get a refund of the $2,000
withheld.
If on the other hand, you roll over only $8,000, the $2,000 you did not
roll over is taxed in the year it was withheld. When you file your
income tax return you may get a refund of part of the $2,000 withheld.
(However, any refund is likely to be larger if you roll over the entire
$10,000.)
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ADDITIONAL 10% TAX IF YOU ARE UNDER AGE 59 1/2
If you receive a payment before you reach age 59 1/2 and you do not roll it
over, then, in addition to the regular income tax, you may have to pay an
extra tax equal to 10% of the taxable portion of the payment. The additional
10% tax does not apply to your payment if it is (see IRS Form 5329 for more
information on the additional 10%):
- Paid to you because you separate service with your employer during or
after the year you reach age 55
- Paid because you retire due to disability
- Paid to you as equal (or almost equal) payments over your life or life
expectancy.
- Used to pay certain medical expenses
- Paid to you as the beneficiary of the employee
- Paid to you under a Qualified Domestic Relations Order
SPECIAL TAX TREATMENT
If your eligible rollover distribution is not rolled over, it will be taxed in
the year you receive it. However, if it qualifies as a "lump sum distribution"
it may be eligible for special tax treatment. A lump sum distribution is a
payment, within one year, of your entire balance under the Plans that is payable
to you because you have reached age 59 1/2 or separated from service with your
employer. For a payment to qualify as a lump sum distribution, you must have
been a participant in the Plan for at least 5 years. Prior to the year of
distribution, the special tax treatment for lump sum distributions is described
below.
FIVE-YEAR AVERAGING
If you receive a lump sum distribution after you are age 59 1/2, you may be
able to make a one-time election to figure the tax on the payment by using
"5-year averaging." Five-year averaging often reduces the tax you owe because
it treats the payment much as if it were paid over 5 years.
TEN-YEAR AVERAGING IF YOU WERE BORN BEFORE JANUARY 1, 1936
If you receive a lump sum distribution and you were born before January 1,
1936, you can make a one-time election to figure the tax on the payment by
using "10-year averaging" (using 1986 tax rates). Like the 5-year averaging
rules, 10-year averaging often reduces the tax you owe.
CAPITAL GAINS TREATMENT IF YOU WERE BORN BEFORE JANUARY 1, 1936
In addition, if you receive a lump sum distribution and you were born before
January 1, 1936, you may elect to have the part of your payment that is
attributable to your pre-1974 participation in the Plans (if any) taxed as
long term capital gain at a rate of 20%.
There are other limits on the special tax treatment for lump sum
distributions. For example, you can generally elect this special tax treatment
only once in your lifetime and the election applies to all lump sum
distributions you receive in that same year. If you have previously rolled
over a payment from the Plans, you cannot use this special tax treatment for
later payments from the Plans. If you roll over your payment to an IRA, you
will not be able to use this special tax treatment for later payments from the
IRA. Also, if you roll over only a portion of your payment to an IRA, this
special tax treatment is not available for the rest of the payment. Additional
restrictions are described in IRS Form 4972, which has more information on
lump sum distributions and how you elect the special tax treatment.
EMPLOYER STOCK OR SECURITIES
There is a special tax rule that applies to distributions of Northern Trust
Common Stock from ESOP and from TIP Fund D. To use this special rule, the
payment must qualify as a lump sum distribution, as described above (except
that you do not have to have 5 years participation in the plan). Under this
special rule, you may have the option of not paying tax on the "net unrealized
appreciation" of the stock until you sell the stock. Net unrealized
appreciation generally is the increase in the value of the employer stock
while it was held by the Plans. For example, if the stock was worth $1,000
when it was contributed to the Plan, but it was worth $1,200 when you received
it, you would not have to pay tax on the $200 increase in value until you
later sold the stock.
The stock can be rolled over to an IRA or another employer plan either in a
direct rollover or a rollover that you make yourself. If you choose to have
your shares registered in your name, rather than direct transferred, the Plans
are required by law to withhold 20% of the cost basis of the shares in income
taxes. However, the taxes
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will be withheld only to the extent there is cash available in the
distribution. Shares will not be sold to satisfy the withholding requirement.
See "Payment Paid To You" for more details on how the withholding works. The
special tax treatment options described above may also apply to shares that
are not rolled over.
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OUTSTANDING TIP LOAN BALANCES
A loan from TIP is not considered a taxable payment unless the entire balance is
not repaid to the plan.
ACTIVE EMPLOYEES
If a loan amount is not repaid and is declared defaulted while you are
employed, the defaulted amount that was originally from taxable funds, is
reported as a taxable loan distribution. The taxable loan distribution is not
subject to the 20% withholding and is not eligible for rollover.
TERMINATED EMPLOYEES
If a loan is not repaid in full by the 5th business day following the month in
which you terminate, the remaining balance that originally came from taxable
funds will be taxable.
The election you make regarding the payment of your remaining account balances
will determine the tax withholding on the taxable loan distribution amount.
TAXABLE LOAN DISTRIBUTION
================================================================================
20% Tax Withholding Eligible for Rollover
Payment Options Yes No Yes No
- --------------------------------------------------------------------------------
1. Defer payment of account balance X X
- --------------------------------------------------------------------------------
2. Direct Rollover account balance
to IRA/Employer Plan X X
- --------------------------------------------------------------------------------
3. Distribute account balance
payable to you (or any portion
paid to you) X X
================================================================================
SURVIVING SPOUSES, ALTERNATIVE PAYEES, AND OTHER BENEFICIARIES
In general the rules summarized above that apply to payments to employees also
apply to spouses and former spouses who receive payments on account of an
employee's death under a "Qualified Domestic Relations Order". Some of the rules
summarized above also apply to a deceased employee's beneficiary who is not a
spouse.
If you are a spouse or former spouse who received a payment under the Qualified
Domestic Relations Order, you may choose to have an eligible rollover
distribution paid in a direct rollover to an IRA or paid to you. If you are a
beneficiary other than the surviving spouse, you CANNOT choose a direct
rollover, and you CANNOT roll over the payment yourself.
If you are a surviving spouse, an alternate payee, or another beneficiary, your
payment is not subject to the additional 10% tax described above, even if you
are younger than age 59 1/2 and you may be able to use the special tax treatment
for lump sum distributions and distributions in employer stock also described
above.
HOW TO OBTAIN ADDITIONAL INFORMATION
This notice summarizes only the federal (not state or local) tax rules that
might apply to your payment. The rules described above are complex and contain
many conditions and exceptions that are not included in this notice. Therefore,
you may want to consult with a professional tax advisor before you take payment
of your benefits from the Plans. Also, you can find more specific information on
the tax treatment of payments from qualified retirement plans in IRS Publication
575, PENSION AND ANNUITY INCOME, and IRS Publication 590, INDIVIDUAL RETIREMENT
ARRANGEMENTS. These publications are available from your local IRS office or by
calling 1-800-TAX-FORMS.
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