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If memory serves me right i think the 4wd light is turned on when the actuator in the front axle engages, there are no electrical connections at the transfere case.
the switch is mounted on the axle. the is a pin that moves a sleeve in the axle to couple the shaft together. when the sleeve is moved over it pushes a switch to indicate 4wd. my 98 truck broke the pin and the transfer case would go in 4wd but the axle would not. had to replace the vacuum cylinder and clean out the axle tube to fix it... dont know how it broke!
The switch is mounted on the front axle next to the CAD actuator. Same thing happened on my truck. I unplugged the switch, unscrewed the switch from the axle and cleaned it. I then screwed the the switch back in and hit the plug with contact cleaner before plugging it back onto the switch. It's worked fine ever since.
Turns out to be the wires got pulled out where they run through under the radiator. I spliced them back together and it works fine now. Thanks for yalls help!