The exclusion applies to retirement benefits received from certain defined benefit plans, such as the North Carolina Teachers' and State Employees' Retirement System, the North Carolina Local Governmental Employees' Retirement System,
the North Carolina Consolidated Judicial Retirement System,
the Federal Employees' Retirement System, or the United States Civil Service Retirement System, if the retiree had five or more years of creditable service as of August 12, 1989. The exclusion also applies to retirement benefits received from the state's §401(k) and §457 plans if the retiree had contributed or contracted to contribute to the plan prior to August 12, 1989.
The exclusion does not apply to retirement benefits paid to former teachers and state employees of other states and their political subdivisions.
If you qualify, when you enter your 1099-R, there will be a question: Where Is This Distribution From?
There is a checkbox on this screen that says Bailey settlement retirement benefits. Make sure you check that box.
Assuming in the past you qualified for Bailey for your Military retirement $$ and used it in the past, I suspect you can use either one now...but don't use both. Not sure what NC would do, or if they would even notice if you change what you used in the past.
I imagine you could call NC and ask if they have a preference, but I suspect they are really overloaded with calls in the next couple days.
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The NC DOR help pages don't detail any preference for your situation.
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Bailey Decision Concerning Federal, State and Local Retirement Benefits | NCDOR