Erie Indemnity Co 10-Q for FY2023 Q2
Erie Indemnity Co (ERIE)
10-Q
2023-07-27
For: 2023-06-30
View Original
Added on
April 10, 2026
About this 10-Q
Erie Indemnity Co filed this 10-Q on July 27, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $839.87M
- up 15.7% from $726.14M a year earlier
- Net income
- $117.85M
- up 47.0% from net income of $80.15M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2023
OR
For the transition period from___to___
Commission file number 0-24000
| (Exact name of registrant as specified in its charter) | ||||||||
| (State or other jurisdiction of | (IRS Employer | |||||||||||||
| incorporation or organization) | Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
| (Registrant’s telephone number, including area code) | |||||||||||
| Not applicable | ||||||||
| (Former name, former address and former fiscal year, if changed since last report) | ||||||||
Securities registered pursuant to Section 12(b) of the Act:
| stated value $0.0292 per share | |||||||||||||||||
| (Title of each class) | (Trading Symbol) | (Name of each exchange on which registered) | |||||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | ||||||||||||||||||||||
| Smaller reporting company | Emerging growth company | |||||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s Class A Common Stock as of the latest practicable date was 46,189,068 at July 21, 2023.
The number of shares outstanding of the registrant’s Class B Common Stock as of the latest practicable date was 2,542 at July 21, 2023.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ERIE INDEMNITY COMPANY
STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands, except per share data)
| Three months ended | Six months ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Operating revenue | |||||||||||||||||||||||
Management fee revenue - policy issuance and renewal services | $ | $ | $ | $ | |||||||||||||||||||
| Management fee revenue - administrative services | |||||||||||||||||||||||
| Administrative services reimbursement revenue | |||||||||||||||||||||||
| Service agreement revenue | |||||||||||||||||||||||
| Total operating revenue | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Cost of operations - policy issuance and renewal services | |||||||||||||||||||||||
| Cost of operations - administrative services | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Investment income | |||||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||
| Net realized and unrealized investment losses | ( | ( | ( | ( | |||||||||||||||||||
| Net impairment losses recognized in earnings | ( | ( | ( | ( | |||||||||||||||||||
| Total investment income (loss) | ( | ||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share | |||||||||||||||||||||||
| Class A common stock – basic | $ | $ | $ | $ | |||||||||||||||||||
| Class A common stock – diluted | $ | $ | $ | $ | |||||||||||||||||||
| Class B common stock – basic and diluted | $ | $ | $ | $ | |||||||||||||||||||
Weighted average shares outstanding – Basic | |||||||||||||||||||||||
| Class A common stock | |||||||||||||||||||||||
| Class B common stock | |||||||||||||||||||||||
Weighted average shares outstanding – Diluted | |||||||||||||||||||||||
| Class A common stock | |||||||||||||||||||||||
| Class B common stock | |||||||||||||||||||||||
| Dividends declared per share | |||||||||||||||||||||||
| Class A common stock | $ | $ | $ | $ | |||||||||||||||||||
| Class B common stock | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to Financial Statements. See Note 11, "Accumulated Other Comprehensive Income (Loss)", for amounts reclassified out of accumulated other comprehensive income (loss) into the Statements of Operations.
3
ERIE INDEMNITY COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
| Three months ended | Six months ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive (loss) income, net of tax | |||||||||||||||||||||||
| Change in unrealized holding (losses) gains on available-for-sale securities | ( | ( | ( | ||||||||||||||||||||
| Amortization of prior service costs and net actuarial (gain) loss on pension and other postretirement plans | ( | ( | |||||||||||||||||||||
| Total other comprehensive (loss) income, net of tax | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to Financial Statements. See Note 11, "Accumulated Other Comprehensive Income (Loss)", for amounts reclassified out of accumulated other comprehensive income (loss) into the Statements of Operations.
4
ERIE INDEMNITY COMPANY
STATEMENTS OF FINANCIAL POSITION
(dollars in thousands, except per share data)
| June 30, | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Assets | (Unaudited) | |||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Available-for-sale securities | ||||||||||||||
| Receivables from Erie Insurance Exchange and affiliates, net | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Accrued investment income | ||||||||||||||
| Total current assets | ||||||||||||||
| Available-for-sale securities, net | ||||||||||||||
| Equity securities | ||||||||||||||
| Fixed assets, net | ||||||||||||||
| Agent loans, net | ||||||||||||||
| Other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities and shareholders' equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Commissions payable | $ | $ | ||||||||||||
| Agent bonuses | ||||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||
| Dividends payable | ||||||||||||||
| Contract liability | ||||||||||||||
| Deferred executive compensation | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Defined benefit pension plans | ||||||||||||||
| Contract liability | ||||||||||||||
| Deferred executive compensation | ||||||||||||||
| Deferred income taxes, net | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Shareholders’ equity | ||||||||||||||
Class A common stock, stated value $ | ||||||||||||||
Class B common stock, convertible at a rate of | ||||||||||||||
| Additional paid-in-capital | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Retained earnings | ||||||||||||||
| Total contributed capital and retained earnings | ||||||||||||||
Treasury stock, at cost; | ( | ( | ||||||||||||
| Deferred compensation | ||||||||||||||
| Total shareholders’ equity | ||||||||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||||||||
See accompanying notes to Financial Statements.
5
ERIE INDEMNITY COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Three and six months ended June 30, 2023 and 2022
(dollars in thousands, except per share data)
| Class A common stock | Class B common stock | Additional paid-in-capital | Accumulated other comprehensive (loss) income | Retained earnings | Treasury stock | Deferred compensation | Total shareholders' equity | |||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||
| Dividends declared: | ||||||||||||||||||||||||||
Class A $ | ( | ( | ||||||||||||||||||||||||
Class B $ | ( | ( | ||||||||||||||||||||||||
Net purchase of treasury stock (1) | ( | ( | ||||||||||||||||||||||||
| Deferred compensation | ( | |||||||||||||||||||||||||
Rabbi trust distribution (2) | ( | |||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ||||||||||||||||||||||||
| Dividends declared: | ||||||||||||||||||||||||||
Class A $ | ( | ( | ||||||||||||||||||||||||
Class B $ | ( | ( | ||||||||||||||||||||||||
Net purchase of treasury stock (1) | ||||||||||||||||||||||||||
| Deferred compensation | ( | |||||||||||||||||||||||||
Rabbi trust distribution (2) | ( | |||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||
| Class A common stock | Class B common stock | Additional paid-in-capital | Accumulated other comprehensive loss | Retained earnings | Treasury stock | Deferred compensation | Total shareholders' equity | |||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ||||||||||||||||||||||||
| Dividends declared: | ||||||||||||||||||||||||||
Class A $ | ( | ( | ||||||||||||||||||||||||
Class B $ | ( | ( | ||||||||||||||||||||||||
Net purchase of treasury stock (1) | ( | ( | ||||||||||||||||||||||||
| Deferred compensation | ( | |||||||||||||||||||||||||
Rabbi trust distribution (2) | ( | |||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | ||||||||||||||||||||||||
| Dividends declared: | ||||||||||||||||||||||||||
Class A $ | ( | ( | ||||||||||||||||||||||||
Class B $ | ( | ( | ||||||||||||||||||||||||
Net purchase of treasury stock (1) | ||||||||||||||||||||||||||
| Deferred compensation | ( | |||||||||||||||||||||||||
Rabbi trust distribution (2) | ( | |||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||
(1)Net purchases of treasury stock in 2023 and 2022 include the repurchase of our Class A common stock in the open market that were subsequently distributed to satisfy stock-based compensation awards.
(2)Distributions of our Class A shares were made from the rabbi trust to five incentive compensation deferral plan participants in 2023 and two in 2022.
See accompanying notes to Financial Statements.
6
ERIE INDEMNITY COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| Six months ended | ||||||||||||||
| June 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Cash flows from operating activities | ||||||||||||||
| Management fee received | $ | $ | ||||||||||||
| Administrative services reimbursements received | ||||||||||||||
| Service agreement revenue received | ||||||||||||||
| Net investment income received | ||||||||||||||
| Commissions paid to agents | ( | ( | ||||||||||||
| Agents bonuses paid | ( | ( | ||||||||||||
| Salaries and wages paid | ( | ( | ||||||||||||
| Employee benefits paid | ( | ( | ||||||||||||
| General operating expenses paid | ( | ( | ||||||||||||
| Administrative services expenses paid | ( | ( | ||||||||||||
| Income taxes paid | ( | ( | ||||||||||||
| Interest paid | ( | |||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| Cash flows from investing activities | ||||||||||||||
| Purchase of investments: | ||||||||||||||
| Available-for-sale securities | ( | ( | ||||||||||||
| Equity securities | ( | ( | ||||||||||||
| Other investments | ( | ( | ||||||||||||
| Proceeds from investments: | ||||||||||||||
| Available-for-sale securities sales | ||||||||||||||
| Available-for-sale securities maturities/calls | ||||||||||||||
| Equity securities | ||||||||||||||
| Other investments | ||||||||||||||
| Purchase of fixed assets | ( | ( | ||||||||||||
| Proceeds from disposal of fixed assets | ||||||||||||||
| Loans to agents | ( | ( | ||||||||||||
| Collections on agent loans | ||||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| Cash flows from financing activities | ||||||||||||||
| Dividends paid to shareholders | ( | ( | ||||||||||||
| Proceeds from short-term borrowings | ||||||||||||||
| Payments on short-term borrowings | ( | |||||||||||||
| Payments on long-term borrowings | ( | |||||||||||||
| Net cash used in financing activities | ( | ( | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | |||||||||||||
| Cash and cash equivalents, beginning of period | ||||||||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||||||||
| Supplemental disclosure of noncash transactions | ||||||||||||||
| Liability incurred to purchase fixed assets | $ | $ | ||||||||||||
| Operating lease assets obtained in exchange for lease liabilities | $ | $ | ||||||||||||
See accompanying notes to Financial Statements.
7
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Nature of Operations
Erie Indemnity Company ("Indemnity", "we", "us", "our") is a publicly held Pennsylvania business corporation that has since its incorporation in 1925 served as the attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange ("Exchange"). The Exchange, which also commenced business in 1925, is a Pennsylvania-domiciled reciprocal insurer that writes property and casualty insurance.
Our primary function as attorney-in-fact is to perform policy issuance and renewal services on behalf of the subscribers at the Exchange. We also act as attorney-in-fact on behalf of the Exchange with respect to all claims handling and investment management services, as well as the service provider for all claims handling, life insurance, and investment management services for its insurance subsidiaries, collectively referred to as "administrative services". Acting as attorney-in-fact in these two capacities is done in accordance with a subscriber's agreement (a limited power of attorney) executed individually by each subscriber (policyholder), which appoints us as their common attorney-in-fact to transact certain business on their behalf. Pursuant to the subscriber's agreement for acting as attorney-in-fact in these two capacities, we earn a management fee calculated as a percentage of the direct and affiliated assumed premiums written by the Exchange.
The policy issuance and renewal services we provide to the Exchange are related to the sales, underwriting and issuance of policies. The sales related services we provide include agent compensation and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written as well as additional commissions and bonuses to agents, which are earned by achieving targeted measures. The underwriting services we provide include underwriting and policy processing. The remaining services we provide include customer service and administrative support. We also provide information technology services that support all the functions listed above. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions.
The Exchange, by virtue of its legal structure as a reciprocal insurer, does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services in accordance with the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business. Investment management services are related to investment trading activity, accounting and all other functions attributable to the investment of funds. Included in these expenses are allocations of costs for departments that support these administrative functions. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements are settled at cost. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department.
Our results of operations are tied to the growth and financial condition of the Exchange. If any events occurred that impaired the Exchange’s ability to grow or sustain its financial condition, including but not limited to reduced financial strength ratings, disruption in the independent agency relationships, significant catastrophe losses, or products not meeting customer demands, the Exchange could find it more difficult to retain its existing business and attract new business. A decline in the business of the Exchange almost certainly would have as a consequence a decline in the total premiums paid and a correspondingly adverse effect on the amount of the management fees we receive. We also have an exposure to a concentration of credit risk related to the unsecured receivables due from the Exchange for its management fee and cost reimbursements. See Note 12, "Concentrations of Credit Risk".
8
Note 2. Significant Accounting Policies
Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the financial statements and footnotes included in our Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on March 1, 2023.
Use of estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
9
Note 3. Revenue
The majority of our revenue is derived from the subscriber’s agreement between us and the subscribers (policyholders) at the Exchange. Pursuant to the subscriber’s agreement, we earn a management fee calculated as a percentage, not to exceed 25 %, of all direct and affiliated assumed written premiums of the Exchange. We allocate a portion of our management fee revenue, currently 25 % of the direct and affiliated assumed written premiums of the Exchange, between the two performance obligations we have under the subscriber’s agreement. The first performance obligation is to provide policy issuance and renewal services to the subscribers (policyholders) at the Exchange, and the second is to act as attorney-in-fact on behalf of the Exchange, as well as the service provider for its insurance subsidiaries, with respect to all administrative services.
The transaction price, including management fee revenue and administrative services reimbursement revenue, includes variable consideration and is allocated based on the estimated standalone selling prices developed using industry information and other available information for similar services. A constraining estimate of variable consideration exists related to the potential for management fees to be returned if a policy were to be cancelled mid-term. Management fees are returned to the Exchange when policyholders cancel their insurance coverage mid-term and premiums are refunded to them. The constraining estimate is determined using the expected value method, based on both historical and current information. The estimated transaction price, as reduced by the constraint, reflects consideration expected for performance of our services. We update the transaction price and the related allocation at least annually based upon the most recent information available or more frequently if there have been significant changes in any components considered in the transaction price.
The first performance obligation is to provide policy issuance and renewal services that result in executed insurance policies between the Exchange or one of its insurance subsidiaries and the subscriber (policyholder). The subscriber (policyholder) receives economic benefits when substantially all the policy issuance or renewal services are complete and an insurance policy is issued or renewed by the Exchange or one of its insurance subsidiaries. It is at the time of policy issuance or renewal that the allocated portion of revenue is recognized.
The following table disaggregates revenue by our two performance obligations:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Management fee revenue - policy issuance and renewal services | $ | $ | $ | $ | |||||||||||||||||||||||||
| Management fee revenue - administrative services | |||||||||||||||||||||||||||||
| Administrative services reimbursement revenue | |||||||||||||||||||||||||||||
| Total revenue from administrative services | $ | $ | $ | $ | |||||||||||||||||||||||||
10
Note 4. Earnings Per Share
Class A and Class B basic earnings per share and Class B diluted earnings per share are calculated under the two-class method. The two-class method allocates earnings to each class of stock based upon its dividend rights. Class B shares are convertible into Class A shares at a conversion ratio of 2,400 to 1. See Note 10, "Capital Stock".
Class A diluted earnings per share is calculated under the if-converted method, which reflects the conversion of Class B shares to Class A shares. Diluted earnings per share calculations include the dilutive effect of assumed issuance of stock-based awards under compensation plans that have the option to be paid in stock using the treasury stock method.
A reconciliation of the numerators and denominators used in the basic and diluted per-share computations is presented as follows for each class of common stock:
| Three months ended June 30, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands, except per share data) | Allocated net income (numerator) | Weighted shares (denominator) | Per-share amount | Allocated net income (numerator) | Weighted shares (denominator) | Per-share amount | ||||||||||||||||||||||||||||||||
| Class A – Basic EPS: | ||||||||||||||||||||||||||||||||||||||
| Income available to Class A stockholders | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Dilutive effect of stock-based awards | — | — | ||||||||||||||||||||||||||||||||||||
| Assumed conversion of Class B shares | — | — | ||||||||||||||||||||||||||||||||||||
| Class A – Diluted EPS: | ||||||||||||||||||||||||||||||||||||||
Income available to Class A stockholders on Class A equivalent shares | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Class B – Basic and diluted EPS: | ||||||||||||||||||||||||||||||||||||||
| Income available to Class B stockholders | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands, except per share data) | Allocated net income (numerator) | Weighted shares (denominator) | Per-share amount | Allocated net income (numerator) | Weighted shares (denominator) | Per-share amount | ||||||||||||||||||||||||||||||||
| Class A – Basic EPS: | ||||||||||||||||||||||||||||||||||||||
| Income available to Class A stockholders | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Dilutive effect of stock-based awards | — | — | ||||||||||||||||||||||||||||||||||||
| Assumed conversion of Class B shares | — | — | ||||||||||||||||||||||||||||||||||||
| Class A – Diluted EPS: | ||||||||||||||||||||||||||||||||||||||
Income available to Class A stockholders on Class A equivalent shares | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Class B – Basic and diluted EPS: | ||||||||||||||||||||||||||||||||||||||
| Income available to Class B stockholders | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
11
Note 5. Fair Value
Financial instruments carried at fair value
Our available-for-sale and equity securities are recorded at fair value, which is the price that would be received to sell the asset in an orderly transaction between willing market participants as of the measurement date.
Valuation techniques used to derive the fair value of our available-for-sale and equity securities are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources. Unobservable inputs reflect our own assumptions regarding fair market value for these securities. Financial instruments are categorized based upon the following characteristics or inputs to the valuation techniques:
•Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
•Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
•Level 3 – Unobservable inputs for the asset or liability.
Estimates of fair values for our investment portfolio are obtained primarily from a nationally recognized pricing service. Our Level 1 securities are valued using an exchange traded price provided by the pricing service. Pricing service valuations for Level 2 securities include multiple verifiable, observable inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. Pricing service valuations for Level 3 securities are based upon proprietary models and are used when observable inputs are not available or in illiquid markets.
Although virtually all of our prices are obtained from third party sources, we also perform internal pricing reviews, including evaluating the methodology and inputs used to ensure that we determine the proper classification level of the financial instrument and reviewing securities with price changes that vary significantly from current market conditions or independent price sources. Price variances are investigated and corroborated by market data and transaction volumes. We have reviewed the pricing methodologies of our pricing service as well as other observable inputs and believe that the prices adequately consider market activity in determining fair value.
In limited circumstances we adjust the price received from the pricing service when, in our judgment, a better reflection of fair value is available based upon corroborating information and our knowledge and monitoring of market conditions such as a disparity in price of comparable securities and/or non-binding broker quotes. In other circumstances, certain securities are internally priced because prices are not provided by the pricing service.
When a price from the pricing service is not available, values are determined by obtaining broker/dealer quotes and/or market comparables. When available, we obtain multiple quotes for the same security. The ultimate value for these securities is determined based upon our best estimate of fair value using corroborating market information. As of June 30, 2023, nearly all of our available-for-sale and equity securities were priced using a third party pricing service.
12
The following tables present our fair value measurements on a recurring basis by asset class and level of input as of:
| June 30, 2023 | ||||||||||||||||||||||||||
| (in thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Collateralized debt obligations | ||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ||||||||||||||||||||||||||
| Residential mortgage-backed securities | ||||||||||||||||||||||||||
| Other debt securities | ||||||||||||||||||||||||||
| Total available-for-sale securities | ||||||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| Financial services sector | ||||||||||||||||||||||||||
| Utilities sector | ||||||||||||||||||||||||||
| Energy sector | ||||||||||||||||||||||||||
| Consumer sector | ||||||||||||||||||||||||||
| Technology sector | ||||||||||||||||||||||||||
| Industrial sector | ||||||||||||||||||||||||||
| Total equity securities | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| (in thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Collateralized debt obligations | ||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ||||||||||||||||||||||||||
| Residential mortgage-backed securities | ||||||||||||||||||||||||||
| Other debt securities | ||||||||||||||||||||||||||
| Total available-for-sale securities | ||||||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||
| Financial services sector | ||||||||||||||||||||||||||
| Utilities sector | ||||||||||||||||||||||||||
| Energy sector | ||||||||||||||||||||||||||
| Consumer sector | ||||||||||||||||||||||||||
| Communications sector | ||||||||||||||||||||||||||
| Total equity securities | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
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Level 3 Assets – 2023 Quarterly Change:
(in thousands) | Beginning balance at March 31, 2023 | Included in earnings(1) | Included in other comprehensive income | Purchases | Sales | Transfers into Level 3(2) | Transfers out of Level 3(2) | Ending balance at June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale securities | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Level 3 securities | $ | $ | ( | $ | ( | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
Level 3 Assets – 2023 Year-to-Date Change:
| (in thousands) | Beginning balance at December 31, 2022 | Included in earnings(1) | Included in other comprehensive income | Purchases | Sales | Transfers into Level 3(2) | Transfers out of Level 3(2) | Ending balance at June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | ( | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Level 3 securities | $ | $ | ( | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
Level 3 Assets – 2022 Quarterly Change:
| (in thousands) | Beginning balance at March 31, 2022 | Included in earnings(1) | Included in other comprehensive income | Purchases | Sales | Transfers into Level 3(2) | Transfers out of Level 3(2) | Ending balance at June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | ( | $ | ( | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale securities | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Level 3 securities | $ | $ | ( | $ | ( | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
14
Level 3 Assets – 2022 Year-to-Date Change:
| (in thousands) | Beginning balance at December 31, 2021 | Included in earnings(1) | Included in other comprehensive income | Purchases | Sales | Transfers into Level 3(2) | Transfers out of Level 3(2) | Ending balance at June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | ( | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale securities | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Level 3 securities | $ | $ | ( | $ | ( | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||
(1)These amounts are reported as net investment income and net realized and unrealized investment gains (losses) for each of the periods presented above.
(2)Transfers into and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.
Financial instruments not carried at fair value
The following table presents the carrying values and fair values of financial instruments categorized as Level 3 in the fair value hierarchy that are recorded at carrying value as of:
| June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| (in thousands) | Carrying value | Fair value | Carrying value | Fair value | ||||||||||||||||||||||
Agent loans (1) | $ | $ | $ | $ | ||||||||||||||||||||||
(1)The discount rate used to calculate fair value at June 30, 2023 is reflective of an increase in the BB+ financial yield curve from December 31, 2022.
15
Note 6. Investments
Available-for-sale securities
See Note 5, "Fair Value" for additional fair value disclosures. The following tables summarize the amortized cost and estimated fair value, net of credit loss allowance, of our available-for-sale securities as of:
| June 30, 2023 | ||||||||||||||||||||||||||
| (in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | ||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Collateralized debt obligations | ||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ||||||||||||||||||||||||||
| Residential mortgage-backed securities | ||||||||||||||||||||||||||
| Other debt securities | ||||||||||||||||||||||||||
| Total available-for-sale securities, net | $ | $ | $ | $ | ||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| (in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | ||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Collateralized debt obligations | ||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ||||||||||||||||||||||||||
| Residential mortgage-backed securities | ||||||||||||||||||||||||||
| Other debt securities | ||||||||||||||||||||||||||
| Total available-for-sale securities, net | $ | $ | $ | $ | ||||||||||||||||||||||
The amortized cost and estimated fair value of available-for-sale securities at June 30, 2023 are shown below by remaining contractual term to maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| June 30, 2023 | ||||||||||||||
| Amortized | Estimated | |||||||||||||
| (in thousands) | cost | fair value | ||||||||||||
| Due in one year or less | $ | $ | ||||||||||||
| Due after one year through five years | ||||||||||||||
| Due after five years through ten years | ||||||||||||||
| Due after ten years | ||||||||||||||
Total available-for-sale securities, net (1) | $ | $ | ||||||||||||
(1)The contractual maturities of our available-for-sale securities are included in the table. However, given our intent to sell certain impaired securities, these securities are classified as current assets in our Statement of Financial Position at June 30, 2023.
16
The below securities have been evaluated and determined to be temporary declines in fair value for which we expect to recover our entire principal plus interest. The following tables present available-for-sale securities based on length of time in a gross unrealized loss position as of:
| June 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | No. of holdings | |||||||||||||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Collateralized debt obligations | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | ||||||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Quality breakdown of available-for-sale securities: | ||||||||||||||||||||||||||||||||||||||||||||
| Investment grade | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Non-investment grade | ||||||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | No. of holdings | |||||||||||||||||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Collateralized debt obligations | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | ||||||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Quality breakdown of available-for-sale securities: | ||||||||||||||||||||||||||||||||||||||||||||
| Investment grade | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Non-investment grade | ||||||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
Credit loss allowance on investments
The current expected credit loss allowance on agent loans was $1.0 0.4 million at June 30, 2023 and $0.2 million at December 31, 2022.
Net investment income
Investment income (loss), net of expenses, was generated from the following portfolios:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Available-for-sale securities | $ | $ | $ | $ | |||||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||||||||
Limited partnerships (1) | ( | ( | |||||||||||||||||||||||||||
| Cash equivalents and other | |||||||||||||||||||||||||||||
| Total investment income | |||||||||||||||||||||||||||||
| Less: investment expenses | |||||||||||||||||||||||||||||
| Net investment income | $ | $ | $ | $ | |||||||||||||||||||||||||
(1)Equity in earnings (losses) of limited partnerships includes both realized gains (losses) and unrealized valuation changes. Our limited partnership investments are included in the line item "Other assets" in the Statements of Financial Position. We have made no new significant limited partnership commitments since 2006, and the balance of limited partnership investments is expected to decline over time as additional distributions are received.
17
Net realized and unrealized investment losses
Realized and unrealized gains (losses) on investments were as follows:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||||||||||||||
| Gross realized gains | $ | $ | $ | $ | |||||||||||||||||||||||||
| Gross realized losses | ( | ( | ( | ( | |||||||||||||||||||||||||
| Net realized losses on available-for-sale securities | ( | ( | ( | ( | |||||||||||||||||||||||||
| Equity securities | ( | ( | ( | ||||||||||||||||||||||||||
| Miscellaneous | |||||||||||||||||||||||||||||
| Net realized and unrealized investment losses | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
The portion of net unrealized gains (losses) recognized during the reporting period related to equity securities held at the reporting date is calculated as follows:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||||||||
| Net gains (losses) recognized during the period | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||
| Less: net losses recognized on securities sold | ( | ( | ( | ( | |||||||||||||||||||||||||
| Net unrealized gains (losses) recognized on securities held at reporting date | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||
Net impairment losses recognized in earnings
Impairments on available-for-sale securities were as follows:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||||||||||||||
| Intent to sell | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
| Credit impaired | ( | ( | ( | ( | |||||||||||||||||||||||||
| Net impairment losses recognized in earnings | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
18
Note 7. Bank Line of Credit
We have access to a $100 million bank revolving line of credit with a $25 million letter of credit sublimit that expires on October 29, 2026. As of June 30, 2023, a total of $99.1 million remains available under the facility due to $0.9 million outstanding letters of credit, which reduce the availability for letters of credit to $24.1 million. We had no borrowings outstanding on our line of credit as of June 30, 2023. Investments with a fair value of $114.9 million were pledged as collateral on the line of credit at June 30, 2023. These investments have no trading restrictions and are reported as available-for-sale securities and cash and cash equivalents on our Statement of Financial Position as of June 30, 2023. The bank requires compliance with certain covenants, which include leverage ratios and debt restrictions. We are in compliance with all covenants at June 30, 2023.
Note 8. Postretirement Benefits
Pension plans
Our pension plans consist of a noncontributory defined benefit pension plan covering substantially all employees and an unfunded supplemental employee retirement plan ("SERP") for certain members of executive and senior management. Although we are the sponsor of these postretirement plans and record the funded status of these plans, the Exchange and its subsidiaries reimburse us, or are reimbursed for, their allocated share of pension cost or income, respectively. These reimbursements represent pension benefits for employees performing administrative services and an allocated share of plan (income) cost for employees in departments that support the administrative functions. As of June 30, 2023, approximately 60 % of the annual defined benefit pension income and 36 % of the annual SERP cost was reimbursed to and from, respectively, the Exchange and its subsidiaries.
Our funding policy is generally to contribute an amount equal to the greater of the target normal cost for the plan year, or the amount necessary to fund the plan to 100 %. Accordingly, we expect to contribute an estimated $95 million during the third quarter of 2023. Actual contributions may vary from the current estimate depending on changes in assumptions, regulatory requirements and funding decisions, or due to future plan changes.
Pension plan (income) cost includes the following components:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Service cost for benefits earned | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost on benefit obligation | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Prior service cost amortization | ||||||||||||||||||||||||||
| Net actuarial (gain) loss amortization | ( | ( | ||||||||||||||||||||||||
Pension plan (income) cost (1) | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
(1)Pension plan (income) cost represents plan (income) cost before reimbursements between Indemnity and the Exchange and its subsidiaries. The components of pension plan (income) cost other than the service cost components are included in the line item "" in the Statements of Operations, net of reimbursements between Indemnity and the Exchange and its subsidiaries.
19
Note 9. Income Taxes
Income tax expense is provided on an interim basis based upon our estimate of the annual effective income tax rate, adjusted each quarter for discrete items. Our effective tax rate was 21.0 20.9
Note 10. Capital Stock
Class A and B common stock
Holders of Class B shares may, at their option, convert their shares into Class A shares at the rate of 2,400 Class A shares per Class B share. There were no
Stock repurchases
In 2011, our Board of Directors approved a continuation of the current stock repurchase program of $150 million, with no time limitation. There were no 17.8 million of repurchase authority remaining under this program at June 30, 2023.
20
Note 11. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income ("AOCI") (loss) by component, including amounts reclassified to other comprehensive income ("OCI") (loss) and the related line item in the Statements of Operations where net income is presented, are as follows:
| Three months ended | Three months ended | |||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||||
| (in thousands) | Before Tax | Income Tax | Net | Before Tax | Income Tax | Net | ||||||||||||||||||||
| Investment securities: | ||||||||||||||||||||||||||
| AOCI (loss), beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||
| OCI (loss) before reclassifications | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||
| Realized investment losses | ||||||||||||||||||||||||||
| Impairment losses | ||||||||||||||||||||||||||
| OCI (loss) | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||
| AOCI (loss), end of period | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Pension and other postretirement plans: | ||||||||||||||||||||||||||
| AOCI (loss), beginning of period | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||
| Amortization of prior service costs | ||||||||||||||||||||||||||
| Amortization of net actuarial (gain) loss | ( | ( | ( | |||||||||||||||||||||||
| OCI (loss) | ( | ( | ( | |||||||||||||||||||||||
| AOCI (loss), end of period | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||
| Total | ||||||||||||||||||||||||||
| AOCI (loss), beginning of period | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||
| Investment securities | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||
| Pension and other postretirement plans | ( | ( | ( | |||||||||||||||||||||||
| OCI (loss) | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||
| AOCI (loss), end of period | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Six months ended | Six months ended | |||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||||
| (in thousands) | Before Tax | Income Tax | Net | Before Tax | Income Tax | Net | ||||||||||||||||||||
| Investment securities: | ||||||||||||||||||||||||||
| AOCI (loss), beginning of period | $ | ( | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||
| OCI (loss) before reclassifications | ( | ( | ( | |||||||||||||||||||||||
| Realized investment losses | ||||||||||||||||||||||||||
| Impairment losses | ||||||||||||||||||||||||||
| OCI (loss) | ( | ( | ( | |||||||||||||||||||||||
| AOCI (loss), end of period | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Pension and other postretirement plans: | ||||||||||||||||||||||||||
| AOCI (loss), beginning of period | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||
| Amortization of prior service costs | ||||||||||||||||||||||||||
| Amortization of net actuarial (gain) loss | ( | ( | ( | |||||||||||||||||||||||
| OCI (loss) | ( | ( | ( | |||||||||||||||||||||||
| AOCI (loss), end of period | $ | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||
| Total | ||||||||||||||||||||||||||
| AOCI (loss), beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Investment securities | ( | ( | ( | |||||||||||||||||||||||
| Pension and other postretirement plans | ( | ( | ( | |||||||||||||||||||||||
| OCI (loss) | ( | ( | ( | |||||||||||||||||||||||
| AOCI (loss), end of period | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||
21
Note 12. Concentrations of Credit Risk
Financial instruments could potentially expose us to concentrations of credit risk, including our unsecured receivables from the Exchange. The majority of our revenue and receivables are from the Exchange and its affiliates. See also Note 1, "Nature of Operations". Net management fee amounts and other reimbursements due from the Exchange and its affiliates were $591.0 million and $524.9 million at June 30, 2023 and December 31, 2022, respectively, which includes a current expected credit loss allowance of $0.6
Note 13. Commitments and Contingencies
We have an agreement with a bank for an agent loan participation program. The maximum amount of loans to be funded through this program is $100 million. We have committed to fund a minimum of 30 % of each loan executed through this program. As of June 30, 2023, loans executed under this agreement totaled $56.9 million, of which our portion of the loans is $19.9 million. Additionally, we have agreed to guarantee a portion of the funding provided by the other participants in the program in the event of default. As of June 30, 2023, our maximum potential amount of future payments on the guaranteed portion is $6.7 million. All loan payments under the participation program are current as of June 30, 2023.
We are involved in litigation arising in the ordinary course of conducting business. In accordance with current accounting standards for loss contingencies and based upon information currently known to us, we establish reserves for litigation when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss or range of loss can be reasonably estimated. When no amount within the range of loss is a better estimate than any other amount, we accrue the minimum amount of the estimable loss. To the extent that such litigation against us may have an exposure to a loss in excess of the amount we have accrued, we believe that such excess would not be material to our financial condition, results of operations, or cash flows. Legal fees are expensed as incurred. We believe that our accruals for legal proceedings are appropriate and, individually and in the aggregate, are not expected to be material to our financial condition, results of operations, or cash flows.
We review all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in their early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including, but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. In the event that a legal proceeding results in a substantial judgment against, or settlement by, us, there can be no assurance that any resulting liability or financial commitment would not have a material adverse effect on our financial condition, results of operations, or cash flows.
Note 14. Subsequent Events
No items were identified in this period subsequent to the financial statement date that required adjustment or additional disclosure.
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of financial condition and results of operations highlights significant factors influencing Erie Indemnity Company ("Indemnity", "we", "us", "our"). This discussion should be read in conjunction with the historical financial statements and the related notes thereto included in Part I, Item 1. "Financial Statements" of this Quarterly Report on Form 10-Q, and with Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for the year ended December 31, 2022, as contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2023.
INDEX
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:
Statements contained herein that are not historical fact are forward-looking statements and, as such, are subject to risks and uncertainties that could cause actual events and results to differ, perhaps materially, from those discussed herein. Forward-looking statements relate to future trends, events or results and include, without limitation, statements and assumptions on which such statements are based that are related to our plans, strategies, objectives, expectations, intentions, and adequacy of resources. Examples of forward-looking statements are discussions relating to premium and investment income, expenses, operating results, and compliance with contractual and regulatory requirements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Among the risks and uncertainties, in addition to those set forth in our filings with the Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following:
•dependence upon our relationship with the Erie Insurance Exchange ("Exchange") and the management fee under the agreement with the subscribers at the Exchange;
•dependence upon our relationship with the Exchange and the growth of the Exchange, including:
◦general business and economic conditions;
◦factors affecting insurance industry competition;
◦dependence upon the independent agency system; and
◦ability to maintain our reputation;
•dependence upon our relationship with the Exchange and the financial condition of the Exchange, including:
◦the Exchange's ability to maintain acceptable financial strength ratings;
◦factors affecting the quality and liquidity of the Exchange's investment portfolio;
◦changes in government regulation of the insurance industry;
◦litigation and regulatory actions;
◦emergence of significant unexpected events, including pandemics and inflation;
◦emerging claims and coverage issues in the industry; and
◦severe weather conditions or other catastrophic losses, including terrorism;
•costs of providing policy issuance and renewal services to the Exchange under the subscriber's agreement;
•ability to attract and retain talented management and employees;
•ability to ensure system availability and effectively manage technology initiatives;
•difficulties with technology or data security breaches, including cyber attacks;
•ability to maintain uninterrupted business operations;
•outcome of pending and potential litigation;
•factors affecting the quality and liquidity of our investment portfolio; and
•our ability to meet liquidity needs and access capital.
23
A forward-looking statement speaks only as of the date on which it is made and reflects our analysis only as of that date. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions, or otherwise.
OPERATING OVERVIEW
Overview
We serve as the attorney-in-fact for the subscribers (policyholders) at the Exchange, a reciprocal insurer that writes property and casualty insurance. Our primary function as attorney-in-fact is to perform policy issuance and renewal services on behalf of the subscribers at the Exchange. We also act as attorney-in-fact on behalf of the Exchange, as well as the service provider for its insurance subsidiaries, with respect to all administrative services.
The Exchange is a reciprocal insurance exchange, which is an unincorporated association of individuals, partnerships and corporations that agree to insure one another. Each applicant for insurance to the Exchange signs a subscriber's agreement, which contains an appointment of Indemnity as their attorney-in-fact to transact the business of the Exchange on their behalf. Pursuant to the subscriber’s agreement for acting as attorney-in-fact in these two capacities, we earn a management fee calculated as a percentage of the direct and affiliated assumed premiums written by the Exchange.
Our earnings are primarily driven by the management fee revenue generated for the services we provide to the Exchange. The policy issuance and renewal services we provide to the Exchange are related to the sales, underwriting and issuance of policies. The sales related services we provide include agent compensation and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written as well as additional commissions and bonuses to agents, which are earned by achieving targeted measures. Agent compensation generally comprises approximately two-thirds of our policy issuance and renewal expenses. The underwriting services we provide include underwriting and policy processing. The remaining services we provide include customer service and administrative support. We also provide information technology services that support all the functions listed above. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions.
By virtue of its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services in accordance with the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business. Investment management services are related to investment trading activity, accounting and all other functions attributable to the investment of funds. In 2022, approximately 71% of the administrative services expenses were entirely attributable to the respective administrative functions (claims handling, life insurance management and investment management), while the remaining 29% of these expenses were allocations of costs for departments that support these administrative functions. The expenses we incur and related reimbursements we receive for administrative services are presented gross in our Statements of Operations. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements are settled at cost on a monthly basis. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department.
Our results of operations are tied to the growth and financial condition of the Exchange as the Exchange is our sole customer, and our earnings are largely generated from management fees based on the direct and affiliated assumed premiums written by the Exchange. The Exchange generates revenue by insuring preferred and standard risks, with personal lines comprising 69% of the 2022 direct and affiliated assumed written premiums and commercial lines comprising the remaining 31%. The principal personal lines products are private passenger automobile and homeowners. The principal commercial lines products are commercial multi-peril, commercial automobile and workers compensation.
24
Financial Overview
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands, except per share data) | 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||
| Operating income | $ | 134,158 | $ | 104,000 | 29.0 | % | $ | 244,701 | $ | 188,312 | 29.9 | % | ||||||||||||||||||||||||||||||||
| Total investment income (loss) | 11,627 | (2,094) | NM | 6,895 | 915 | NM | ||||||||||||||||||||||||||||||||||||||
| Interest expense | — | 895 | (100.0) | — | 1,894 | (100.0) | ||||||||||||||||||||||||||||||||||||||
| Other income | 3,305 | 337 | NM | 6,642 | 810 | NM | ||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 149,090 | 101,348 | 47.1 | 258,238 | 188,143 | 37.3 | ||||||||||||||||||||||||||||||||||||||
| Income tax expense | 31,238 | 21,201 | 47.3 | 54,145 | 39,377 | 37.5 | ||||||||||||||||||||||||||||||||||||||
| Net income | $ | 117,852 | $ | 80,147 | 47.0 | % | $ | 204,093 | $ | 148,766 | 37.2 | % | ||||||||||||||||||||||||||||||||
| Net income per share – diluted | $ | 2.25 | $ | 1.53 | 47.0 | % | $ | 3.90 | $ | 2.84 | 37.2 | % | ||||||||||||||||||||||||||||||||
NM = not meaningful
Operating income increased in both the second quarter and six months ended June 30, 2023, compared to the same periods in 2022, as growth in operating revenue outpaced the growth in operating expenses. Management fee revenue for policy issuance and renewal services increased 16.3% to $633.3 million in the second quarter of 2023 and 15.4% to $1.2 billion for the six months ended June 30, 2023. Management fee revenue is based upon the management fee rate we charge and the direct and affiliated assumed premiums written by the Exchange. The management fee rate was 25% for both 2023 and 2022. The direct and affiliated assumed premiums written by the Exchange increased 16.3% to $2.6 billion in the second quarter of 2023 and increased 15.5% to $4.9 billion for the six months ended June 30, 2023, compared to the same periods in 2022.
Cost of operations for policy issuance and renewal services increased 13.0% to $521.2 million and 11.8% to $990.3 million in the second quarter and six months ended June 30, 2023, compared to the same periods in 2022, primarily due to higher scheduled commissions driven by direct and affiliated assumed written premium growth, as well as increased employee compensation and technology investments, partially offset by decreased agent incentive compensation driven by higher claims severity and related loss costs experienced by the Exchange.
Management fee revenue for administrative services increased 8.0% to $15.6 million and 7.1% to $30.8 million in the second quarter and six months ended June 30, 2023, compared to the same periods in 2022. The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $184.5 million in the second quarter of 2023 and $357.3 million for the six months ended June 30, 2023, but had no net impact on operating income.
Total investment income increased $13.7 million and $6.0 million in the second quarter and six months ended June 30, 2023, compared to the same periods in 2022. The results from both periods were primarily due to lower net realized and unrealized investment losses in 2023 compared to 2022.
General Conditions and Trends Affecting Our Business
Economic conditions
Unfavorable changes in economic conditions, including declining consumer confidence, inflation, high unemployment, and the threat of recession, among others, may lead the Exchange’s customers to modify coverage, not renew policies, or even cancel policies, which could adversely affect the premium revenue of the Exchange, and consequently our management fee revenue. Inflation remained elevated from historical levels during the second quarter of 2023. Continued elevated inflation could impact the Exchange's operations and our management fees. In particular, unanticipated increased inflation costs including medical cost inflation, building material cost inflation, auto repair and replacement cost inflation, and tort issues may impact adequacy of estimated loss reserves and future premium rates of the Exchange. The extent and duration of the impacts to economic conditions remain uncertain. If any of these items impacted the financial condition or operations of the Exchange, it could have an impact on our financial results. See Financial Condition and Liquidity and Capital Resources contained within this report, as well as Part I. Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the Securities and Exchange Commission on March 1, 2023 for a discussion of the potential impacts to our operations or those of the Exchange.
25
Financial market volatility
Our portfolio of fixed maturity and equity security investments is subject to market volatility, especially in periods of instability in the worldwide financial markets. Over time, net investment income could also be impacted by volatility and by the general level of interest rates, which impact reinvested cash flow from the portfolio and business operations. Depending upon market conditions, which are unpredictable and remain uncertain, considerable fluctuation could occur in the fair value of our investment portfolio and reported total investment income, which could have an adverse impact on our financial condition, results of operations, and cash flows. Various ongoing geopolitical events, the high inflationary environment and recent developments in the banking sector have had a significant impact on the global financial markets. The value of our invested assets could be adversely impacted and there is potential for future losses and/or impairments on our investment portfolio resulting from instability and volatility within the banking sector, further inflationary pressures and rising interest rates.
RESULTS OF OPERATIONS
Management fee revenue
We have two performance obligations in the subscriber’s agreement, providing policy issuance and renewal services and acting as attorney-in-fact for the Exchange, as well as the service provider for its insurance subsidiaries with respect to all administrative services. We earn management fees for acting as the attorney-in-fact for the subscribers at the Exchange in these two capacities, and allocate our revenues between our performance obligations.
The management fee is calculated by multiplying all direct and affiliated assumed premiums written by the Exchange by the management fee rate, which is determined by our Board of Directors at least annually. The management fee rate was set at 25%, the maximum rate, for both 2023 and 2022. Changes in the management fee rate can affect our revenue and net income significantly. The transaction price, including management fee revenue and administrative services reimbursement revenue, includes variable consideration and is allocated based on the estimated standalone selling prices developed using industry information and other available information for similar services. We update the transaction price and the related allocation at least annually based upon the most recent information available or more frequently if there have been significant changes in any components considered in the transaction price.
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The following table presents the allocation and disaggregation of revenue for our two performance obligations:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||||
| Policy issuance and renewal services | |||||||||||||||||||||||||||||
Direct and affiliated assumed premiums written by the Exchange | $ | 2,613,131 | $ | 2,247,766 | 16.3 | % | $ | 4,916,999 | $ | 4,257,963 | 15.5 | % | |||||||||||||||||
| Management fee rate | 24.30 | % | 24.30 | % | 24.30 | % | 24.30 | % | |||||||||||||||||||||
| Management fee revenue | 634,991 | 546,207 | 16.3 | 1,194,831 | 1,034,685 | 15.5 | |||||||||||||||||||||||
Change in estimate for management fee returned on cancelled policies (1) | (1,652) | (1,652) | 0.0 | (3,402) | (2,138) | (59.1) | |||||||||||||||||||||||
| Management fee revenue - policy issuance and renewal services | $ | 633,339 | $ | 544,555 | 16.3 | % | $ | 1,191,429 | $ | 1,032,547 | 15.4 | % | |||||||||||||||||
| Administrative services | |||||||||||||||||||||||||||||
Direct and affiliated assumed premiums written by the Exchange | $ | 2,613,131 | $ | 2,247,766 | 16.3 | % | $ | 4,916,999 | $ | 4,257,963 | 15.5 | % | |||||||||||||||||
| Management fee rate | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | |||||||||||||||||||||
| Management fee revenue | 18,292 | 15,735 | 16.3 | 34,419 | 29,806 | 15.5 | |||||||||||||||||||||||
Change in contract liability (2) | (2,646) | (1,266) | NM | (3,579) | (1,028) | NM | |||||||||||||||||||||||
Change in estimate for management fee returned on cancelled policies (1) | (10) | 7 | NM | (15) | 11 | NM | |||||||||||||||||||||||
| Management fee revenue - administrative services | 15,636 | 14,476 | 8.0 | 30,825 | 28,789 | 7.1 | |||||||||||||||||||||||
Administrative services reimbursement revenue | 184,466 | 160,675 | 14.8 | 357,293 | 324,002 | 10.3 | |||||||||||||||||||||||
Total revenue from administrative services | $ | 200,102 | $ | 175,151 | 14.2 | % | $ | 388,118 | $ | 352,791 | 10.0 | % | |||||||||||||||||
NM = not meaningful
(1)A constraining estimate of variable consideration exists related to the potential for management fees to be returned if a policy were to be cancelled mid-term. Management fees are returned to the Exchange when policies are cancelled mid-term and unearned premiums are refunded.
(2)Management fee revenue - administrative services is recognized over time as the services are provided. See Part I, Item 1. "Financial Statements - Note 3, Revenue, of Notes to Financial Statements" contained within this report.
Direct and affiliated assumed premiums written by the Exchange
Direct and affiliated assumed premiums include premiums written directly by the Exchange and premiums assumed from its wholly owned property and casualty subsidiaries. Direct and affiliated assumed premiums written by the Exchange increased 16.3% to $2.6 billion in the second quarter of 2023 compared to the second quarter of 2022, primarily driven by increased personal lines and commercial multi-peril premiums written. Year-over-year policies in force for all lines of business increased 5.2% in the second quarter of 2023 compared to 3.1% in the second quarter of 2022. The year-over-year average premium per policy for all lines of business increased 7.6% at June 30, 2023 compared to 2.9% at June 30, 2022.
Premiums generated from new business increased 32.6% to $386 million in the second quarter of 2023 compared to the same period in 2022, primarily driven by increased premiums written in the personal auto, commercial multi-peril and homeowners lines. Contributing to this change was a 19.0% increase in new business policies written and a 10.9% increase in year-over-year average premium per policy on new business at June 30, 2023. Premiums generated from new business increased 10.7% to $291 million in the second quarter of 2022 compared to the same period in 2021, primarily driven by increased premium written in the commercial multi-peril and personal auto lines. Contributing to this change was a 7.2% increase in year-over-year average premium per policy on new business and a 1.7% increase in new business policies written in the second quarter of 2022.
Premiums generated from renewal business increased 13.8% to $2.2 billion in the second quarter of 2023 compared to the second quarter of 2022 and increased 8.3% to $2.0 billion in the second quarter of 2022 compared to the second quarter of 2021. Underlying the trend in renewal business premiums in both periods was a 7.1% increase in year-over-year average
27
premium per policy at June 30, 2023, and 2.3% at June 30, 2022, as well as an increase in year-over-year policies in force of 3.7% and 4.0% in the second quarters of 2023 and 2022, respectively, driven by a slight increase in the policy retention ratios.
Personal lines – Total personal lines premiums written increased 17.4% to $1.8 billion in the second quarter of 2023, compared to 7.8% in the second quarter of 2022, driven by a 7.4% increase in total personal lines year-over-year average premium per policy and a 5.6% increase in total personal lines policies in force.
Commercial lines – Total commercial lines premiums written increased 13.6% to $775 million in the second quarter of 2023, compared to 10.3% in the second quarter of 2022, driven by a 10.1% increase in total commercial lines year-over-year average premium per policy and a 2.3% increase in total commercial lines policies in force.
Future trends-premium revenue – Through a careful agency selection and monitoring process, the Exchange plans to continue its effort to expand the size of its agency force to increase market penetration in existing operating territories to contribute to future growth.
Changes in premium levels attributable to the growth in policies in force and rate changes affect the profitability of the Exchange and have a direct bearing on our management fee revenue. Future premiums could be impacted by potential regulatory changes and continued inflationary trends, among others. Inflation-driven severity continued to impact underwriting results in the second quarter of 2023, and will continue to impact future rate decisions. See also Part I. Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the Securities and Exchange Commission on March 1, 2023.
Policy issuance and renewal services
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||||
| Management fee revenue - policy issuance and renewal services | $ | 633,339 | $ | 544,555 | 16.3 | % | $ | 1,191,429 | $ | 1,032,547 | 15.4 | % | |||||||||||||||||
| Service agreement revenue | 6,429 | 6,437 | (0.1) | 12,788 | 12,915 | (1.0) | |||||||||||||||||||||||
| 639,768 | 550,992 | 16.1 | 1,204,217 | 1,045,462 | 15.2 | ||||||||||||||||||||||||
| Cost of operations - policy issuance and renewal services | 521,246 | 461,468 | 13.0 | 990,341 | 885,939 | 11.8 | |||||||||||||||||||||||
Operating income - policy issuance and renewal services | $ | 118,522 | $ | 89,524 | 32.4 | % | $ | 213,876 | $ | 159,523 | 34.1 | % | |||||||||||||||||
Policy issuance and renewal services
The management fee revenue allocated for providing policy issuance and renewal services was 24.30% of the direct and affiliated assumed premiums written by the Exchange for both three and six month periods ended June 30, 2023 and 2022. This portion of the management fee is recognized as revenue when the policy is issued or renewed because it is at that time that the services we provide are substantially complete and the executed insurance policy is transferred to the customer. The increase in management fee revenue for policy issuance and renewal services was driven by the increase in the direct and affiliated assumed premiums written by the Exchange discussed previously.
Service agreement revenue
Service agreement revenue primarily consists of service charges we collect from subscribers/policyholders for providing multiple payment plans on policies written by the Exchange and its property and casualty subsidiaries and also includes late payment and policy reinstatement fees. The service charges are fixed dollar amounts per billed installment. The decrease in service agreement revenue for the three and six month periods ended June 30, 2023 compared to the same periods in 2022 is primarily due to the continued shift to payment plans that do not incur service charges or offer a premium discount for certain payment methods.
28
Cost of policy issuance and renewal services
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||||
| Commissions: | |||||||||||||||||||||||||||||
| Total commissions | $ | 351,144 | $ | 307,483 | 14.2 | % | $ | 659,952 | $ | 588,618 | 12.1 | % | |||||||||||||||||
| Non-commission expense: | |||||||||||||||||||||||||||||
| Underwriting and policy processing | $ | 46,514 | $ | 42,802 | 8.7 | % | $ | 90,237 | $ | 83,856 | 7.6 | % | |||||||||||||||||
| Information technology | 54,414 | 51,106 | 6.5 | 111,609 | 96,772 | 15.3 | |||||||||||||||||||||||
| Sales and advertising | 16,041 | 14,271 | 12.4 | 28,928 | 26,996 | 7.2 | |||||||||||||||||||||||
| Customer service | 8,338 | 8,738 | (4.6) | 16,423 | 17,085 | (3.9) | |||||||||||||||||||||||
| Administrative and other | 44,795 | 37,068 | 20.8 | 83,192 | 72,612 | 14.6 | |||||||||||||||||||||||
| Total non-commission expense | 170,102 | 153,985 | 10.5 | 330,389 | 297,321 | 11.1 | |||||||||||||||||||||||
| Total cost of operations - policy issuance and renewal services | $ | 521,246 | $ | 461,468 | 13.0 | % | $ | 990,341 | $ | 885,939 | 11.8 | % | |||||||||||||||||
Commissions – Commissions increased $43.7 million in the second quarter of 2023 and $71.3 million for the six months ended June 30, 2023 compared to the same periods in 2022, primarily driven by the growth in direct and affiliated assumed written premium, partially offset by a decrease in agent incentive compensation. The estimated agent incentive payouts at June 30, 2023 are based on actual underwriting results for the two prior years and current year-to-date and forecasted results for the remainder of 2023. The profitability component of agent incentive compensation decreased due to higher claims severity and related loss costs in the three-year period ending 2023 compared to the three-year period ended 2022.
Non-commission expense – Non-commission expense increased $16.1 million in the second quarter of 2023 compared to the second quarter of 2022. Underwriting and policy processing expense increased $3.7 million primarily due to increased personnel and postage costs. Information technology costs increased $3.3 million primarily due to increased personnel costs and professional fees. Sales and advertising expense increased $1.8 million primarily due to increased agent related costs. Administrative and other costs increased $7.7 million primarily due to an increase in personnel costs, partially offset by a decrease in professional fees.
Non-commission expense increased $33.1 million in the six months ended June 30, 2023 compared to the same period in 2022. Underwriting and policy processing expense increased $6.4 million primarily due to increased personnel and postage costs. Information technology costs increased $14.8 million primarily due to increased professional fees, personnel costs, and hardware and software costs. Sales and advertising expense increased $1.9 million primarily due to increased personnel and agent related costs. Administrative and other costs increased $10.6 million primarily due to an increase in personnel costs, partially offset by a decrease in professional fees. Personnel costs in both the second quarter and six months ended June 30, 2023 were impacted by increased compensation including higher estimated costs for incentive plan awards due to increased direct written premium and policies in force growth, partially offset by lower pension costs due to an increase in the discount rate compared to 2022.
Administrative services
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||||||||||||||
| Management fee revenue - administrative services | $ | 15,636 | $ | 14,476 | 8.0 | % | $ | 30,825 | $ | 28,789 | 7.1 | % | |||||||||||||||||
Administrative services reimbursement revenue | 184,466 | 160,675 | 14.8 | 357,293 | 324,002 | 10.3 | |||||||||||||||||||||||
Total revenue allocated to administrative services | 200,102 | 175,151 | 14.2 | 388,118 | 352,791 | 10.0 | |||||||||||||||||||||||
Administrative services expenses | |||||||||||||||||||||||||||||
Claims handling services | 159,595 | 138,890 | 14.9 | 307,795 | 281,386 | 9.4 | |||||||||||||||||||||||
Investment management services | 8,473 | 9,100 | (6.9) | 17,218 | 18,991 | (9.3) | |||||||||||||||||||||||
Life management services | 16,398 | 12,685 | 29.3 | 32,280 | 23,625 | 36.6 | |||||||||||||||||||||||
Operating income - administrative services | $ | 15,636 | $ | 14,476 | 8.0 | % | $ | 30,825 | $ | 28,789 | 7.1 | % | |||||||||||||||||
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Administrative services
The management fee revenue allocated to administrative services was 0.70% of the direct and affiliated assumed premiums written by the Exchange for both the three and six month periods ended June 30, 2023 and 2022. This portion of the management fee is recognized as revenue over a four-year period representing the time over which the services are provided. We also report reimbursed costs as revenues, which are recognized monthly as services are provided. The administrative services expenses we incur and the related reimbursements we receive are recorded gross in the Statements of Operations.
Cost of administrative services
By virtue of its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services in accordance with the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements due from the Exchange and its insurance subsidiaries are recorded as a receivable and settled at cost.
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Total investment income (loss)
A summary of the results of our investment operations is as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||||||||
| Net investment income | $ | 13,535 | $ | 8,268 | 63.7 | % | $ | 15,718 | $ | 18,772 | (16.3) | % | ||||||||||||||||||||||||||
| Net realized and unrealized investment losses | (1,737) | (10,324) | 83.2 | (7,019) | (17,603) | 60.1 | ||||||||||||||||||||||||||||||||
| Net impairment losses recognized in earnings | (171) | (38) | NM | (1,804) | (254) | NM | ||||||||||||||||||||||||||||||||
| Total investment income (loss) | $ | 11,627 | $ | (2,094) | NM | % | $ | 6,895 | $ | 915 | NM | % | ||||||||||||||||||||||||||
NM = not meaningful
Net investment income
Net investment income includes interest and dividends on our fixed maturity and equity security portfolios and the results of our limited partnership investments, net of investment expenses. Net investment income increased $5.3 million in the second quarter of 2023 and decreased $3.1 million for the six months ended June 30, 2023, compared to the same periods in 2022. The increase in the second quarter of 2023 was primarily due to an increase in bond income due to higher yields and cash and cash equivalent income driven by an increase in rates. The decrease for the six months ended June 30, 2023 was primarily due to lower equity in earnings of limited partnerships, partially offset by an increase in bond and cash and cash equivalent income driven by higher yields and increased rates. Net investment income included less than $0.1 million of limited partnership earnings in the second quarter of 2023 compared to losses of $0.3 million for the same period in 2022 and $10.7 million of limited partnership losses for the six months ended June 30, 2023, compared to earnings of $2.5 million for the same period in 2022.
Net realized and unrealized investment losses
A breakdown of our net realized and unrealized investment (losses) gains is as follows:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
| Securities sold: | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
| Available-for-sale securities | $ | (2,096) | $ | (2,422) | $ | (3,715) | $ | (4,502) | |||||||||||||||||||||
| Equity securities | (78) | (51) | (2,704) | (409) | |||||||||||||||||||||||||
| Equity securities change in fair value | 437 | (7,851) | (600) | (12,694) | |||||||||||||||||||||||||
| Miscellaneous | 0 | 0 | 0 | 2 | |||||||||||||||||||||||||
| Net realized and unrealized investment losses | $ | (1,737) | $ | (10,324) | $ | (7,019) | $ | (17,603) | |||||||||||||||||||||
Net realized and unrealized losses during the three and six months ended June 30, 2023 were primarily due to disposals of available-for-sale securities. The six months ended June 30, 2023 also included disposals of equity securities impacted by the recent banking industry events. Net realized and unrealized losses during the same periods in 2022 were primarily due to market value adjustments on equity securities and disposals of available-for-sale securities.
Net impairment losses recognized in earnings
Net impairment losses during the three and six months ended June 30, 2023 and 2022 were related to available-for-sale securities in an unrealized loss position where we had the intent to sell prior to recovery of our amortized cost basis as well as credit impairment losses.
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Financial condition of Erie Insurance Exchange
Serving in the capacity of attorney-in-fact for the Exchange, we are dependent on the growth and financial condition of the Exchange, who is our sole customer. The strength of the Exchange and its wholly owned subsidiaries is rated annually by A.M. Best Company through assessing its financial stability and ability to pay claims. The ratings are generally based upon factors relevant to policyholders and are not directed toward return to investors. The Exchange and each of its property and casualty subsidiaries are rated A+ "Superior", the second highest financial strength rating, which is assigned to companies that have achieved superior overall performance when compared to the standards established by A.M. Best and have a superior ability to meet obligations to policyholders over the long term. On August 9, 2022, the outlook for the financial strength rating was affirmed as stable. As of December 31, 2022, only approximately 12% of insurance groups, in which the Exchange is included, are rated A+ or higher.
The financial statements of the Exchange are prepared in accordance with statutory accounting principles prescribed by the Commonwealth of Pennsylvania. Financial statements prepared under statutory accounting principles focus on the solvency of the insurer and generally provide a more conservative approach than under U.S. generally accepted accounting principles. Statutory direct written premiums of the Exchange and its wholly owned property and casualty subsidiaries grew 15.5% to $4.9 billion in the first six months of 2023 compared to the first six months of 2022. These premiums, along with investment income, are the major sources of cash that support the operations of the Exchange. Policyholders’ surplus determined under statutory accounting principles was $9.7 billion at June 30, 2023 and $10.1 billion at December 31, 2022. The Exchange and its wholly owned property and casualty subsidiaries' year-over-year policy retention ratio continues to be high at 90.8% at June 30, 2023 and 90.5% at December 31, 2022.
We have prepared our financial statements considering the financial strength of the Exchange based on its A.M. Best rating and strong level of surplus. See Part I. Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the Securities and Exchange Commission on March 1, 2023 for possible outcomes that could impact that determination.
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FINANCIAL CONDITION
Investments
Our investment portfolio is managed with the objective of maximizing after-tax returns on a risk-adjusted basis. The following table presents the carrying value of our investments as of:
| (dollars in thousands) | June 30, 2023 | % to total | December 31, 2022 | % to total | ||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| Fixed maturities | $ | 920,952 | 85 | % | $ | 894,661 | 84 | % | ||||||||||||||||||
| Equity securities | 77,220 | 7 | 72,560 | 7 | ||||||||||||||||||||||
Agent loans (1) | 68,903 | 6 | 69,476 | 7 | ||||||||||||||||||||||
| Other investments | 18,528 | 2 | 30,511 | 2 | ||||||||||||||||||||||
| Total investments | $ | 1,085,603 | 100 | % | $ | 1,067,208 | 100 | % | ||||||||||||||||||
(1)The current portion of agent loans is included in the line item "Prepaid expenses and other current assets" in the Statements of Financial Position.
Fixed maturities
Under our investment strategy, we maintain a fixed maturity portfolio that is of high quality and well diversified within each market sector. This investment strategy also achieves a balanced maturity schedule. Our fixed maturity portfolio is managed with the goal of achieving reasonable returns while limiting exposure to risk.
Fixed maturities are carried at fair value with unrealized gains and losses, net of deferred taxes, included in shareholders’ equity. Net unrealized losses on fixed maturities, net of deferred taxes, totaled $43.8 million at June 30, 2023, compared to $52.5 million at December 31, 2022.
The following table presents a breakdown of the fair value of our fixed maturity portfolio by industry sector and rating as of:
| (in thousands) | June 30, 2023 (1) | |||||||||||||||||||||||||||||||||||||
| AAA | AA | A | BBB | Non- investment grade | Fair value | |||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Basic materials | $ | 0 | $ | 0 | $ | 0 | $ | 4,432 | $ | 6,019 | $ | 10,451 | ||||||||||||||||||||||||||
| Communications | 0 | 2,849 | 15,574 | 9,354 | 14,734 | 42,511 | ||||||||||||||||||||||||||||||||
| Consumer | 0 | 4,881 | 17,598 | 72,044 | 36,450 | 130,973 | ||||||||||||||||||||||||||||||||
| Diversified | 0 | 0 | 0 | 0 | 305 | 305 | ||||||||||||||||||||||||||||||||
| Energy | 0 | 0 | 3,815 | 20,167 | 8,186 | 32,168 | ||||||||||||||||||||||||||||||||
| Financial | 0 | 2,031 | 95,390 | 119,672 | 11,000 | 228,093 | ||||||||||||||||||||||||||||||||
| Industrial | 0 | 0 | 10,124 | 16,364 | 22,720 | 49,208 | ||||||||||||||||||||||||||||||||
Structured securities (2) | 126,876 | 185,330 | 18,202 | 20,494 | 0 | 350,902 | ||||||||||||||||||||||||||||||||
| Technology | 1,877 | 0 | 3,844 | 20,887 | 13,040 | 39,648 | ||||||||||||||||||||||||||||||||
| Utilities | 0 | 0 | 2,374 | 30,781 | 3,538 | 36,693 | ||||||||||||||||||||||||||||||||
Total | $ | 128,753 | $ | 195,091 | $ | 166,921 | $ | 314,195 | $ | 115,992 | $ | 920,952 | ||||||||||||||||||||||||||
(1)Ratings are supplied by S&P, Moody’s, and Fitch. The table is based upon the lowest rating for each security.
(2)Structured securities include residential and commercial mortgage-backed securities, collateralized debt obligations, and asset-backed securities.
33
Equity securities
Equity securities primarily include nonredeemable preferred stocks and are carried at fair value in the Statements of Financial Position with all changes in unrealized gains and losses reflected in the Statements of Operations.
The following table presents an analysis of the fair value of our equity securities by sector as of:
| (in thousands) | June 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||
| Financial services | $ | 62,475 | $ | 61,084 | ||||||||||||||||||||||
| Utilities | 7,408 | 5,708 | ||||||||||||||||||||||||
| Energy | 4,113 | 3,576 | ||||||||||||||||||||||||
| Consumer | 2,561 | 1,854 | ||||||||||||||||||||||||
| Technology | 500 | 0 | ||||||||||||||||||||||||
| Industrial | 163 | 0 | ||||||||||||||||||||||||
| Communications | 0 | 338 | ||||||||||||||||||||||||
Total | $ | 77,220 | $ | 72,560 | ||||||||||||||||||||||
LIQUIDITY AND CAPITAL RESOURCES
We continue to monitor the sufficiency of our liquidity and capital resources given the potential impact of current economic conditions, including volatility within the banking sector, inflationary pressures, and rising interest rates. We maintain relationships and cash balances at diversified and well-capitalized financial institutions and have established processes to monitor them. While we did not see a significant impact on our sources or uses of cash in the first half of 2023, future market disruptions could occur, which may affect our liquidity position. If our normal operating and investing cash activities were to become insufficient to meet future funding requirements, we believe we have sufficient access to liquidity through our cash position, diverse liquid marketable securities and our $100 million bank revolving line of credit that does not expire until October 2026. See broader discussions of potential risks to our operations in the Operating Overview contained within this report and Part I. Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the Securities and Exchange Commission on March 1, 2023.
Sources and Uses of Cash
Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet the short- and long-term cash requirements of its business operations and growth needs. Our liquidity requirements have been met primarily by funds generated from management fee revenue and income from investments. Cash provided from these sources is used primarily to fund the costs of our management operations including commissions, salaries and wages, pension plans, share repurchases, dividends to shareholders, the purchase and development of information technology, and other capital expenditures. See Part I, Item 1. "Financial Statements - Note 8, Postretirement Benefits, of Notes to Financial Statements" contained within this report for our defined benefit pension plan funding policy and expected pension contribution during the third quarter of 2023. We expect that our operating cash needs will be met by funds generated from operations. Cash in excess of our operating needs is primarily invested in investment grade fixed maturities. As part of our liquidity review, we regularly evaluate our capital needs based on current and projected results and consider the potential impacts to our liquidity, borrowing capacity, financial covenants and capital availability.
Volatility in the financial markets presents challenges to us as we do occasionally access our investment portfolio as a source of cash. Some of our fixed income investments, despite being publicly traded, may be illiquid. Volatility in these markets could impair our ability to sell certain fixed income securities or cause such securities to sell at deep discounts. We believe we have sufficient liquidity to meet our needs from sources other than the liquidation of securities.
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Cash flow activities
The following table provides condensed cash flow information as follows for the six months ended June 30:
| (in thousands) | 2023 | 2022 | ||||||||||||
| (Unaudited) | ||||||||||||||
| Net cash provided by operating activities | $ | 180,007 | $ | 106,274 | ||||||||||
| Net cash used in investing activities | (68,264) | (42,196) | ||||||||||||
| Net cash used in financing activities | (110,837) | (157,456) | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 906 | $ | (93,378) | ||||||||||
Net cash provided by operating activities was $180.0 million in the first six months of 2023, compared to $106.3 million for the same period in 2022. Increased cash provided by operating activities was primarily due to an increase in management fees received of $143.6 million driven by growth in direct and affiliated assumed premiums written by the Exchange and a decrease in agent bonuses paid of $20.9 million. Partially offsetting this increase in cash provided by operating activities was an increase in cash paid for agent commissions of $71.2 million due to higher scheduled commissions driven by premium growth, and an increase in general operating expenses paid of $19.7 million.
Net cash used in investing activities was $68.3 million in the first six months of 2023, compared to $42.2 million for the same period in 2022. Increased cash used in investing activities was primarily due to an increase in fixed asset purchases of $17.0 million and an increase in purchases of equity securities of $11.5 million. The decrease in proceeds from sales and maturities/calls of available-for-sale securities was mostly offset by a similar decrease in purchases of those securities.
Net cash used in financing activities was $110.8 million in the first six months of 2023, compared to $157.5 million for the same period in 2022. Decreased cash used in financing activities was primarily due to activity during the first six months of 2022, which included repayment of the remaining $93.2 million balance on the term loan credit facility in May 2022, partially offset by $40 million in net proceeds from our bank revolving line of credit.
Capital Outlook
We regularly prepare forecasts evaluating the current and future cash requirements for both normal and extreme risk events, including under current inflationary conditions, rising interest rates, and recent banking industry events. Should an extreme risk event result in a cash requirement exceeding normal cash flows, we have the ability to meet our future funding requirements through various alternatives available to us.
Outside of our normal operating and investing cash activities, future funding requirements could be met through: 1) unpledged cash and cash equivalents, which totaled approximately $128.6 million at June 30, 2023, 2) $100 million bank revolving line of credit, and 3) liquidation of unpledged assets held in our investment portfolio, including preferred stock and investment grade bonds, which totaled approximately $766.1 million at June 30, 2023. Volatility in the financial markets could impair our ability to sell certain fixed income securities or cause such securities to sell at deep discounts. Additionally, we have the ability to curtail or modify discretionary cash outlays such as those related to shareholder dividends and share repurchase activities.
As of June 30, 2023, we have access to a $100 million bank revolving line of credit with a $25 million letter of credit sublimit that expires on October 29, 2026. As of June 30, 2023, a total of $99.1 million remains available under the facility due to $0.9 million outstanding letters of credit, which reduce the availability for letters of credit to $24.1 million. We had no borrowings outstanding on our line of credit as of June 30, 2023. Investments with a fair value of $114.9 million were pledged as collateral on the line of credit at June 30, 2023. These investments have no trading restrictions and are reported as available-for-sale securities and cash and cash equivalents in the Statement of Financial Position. The bank requires compliance with certain covenants, which include leverage ratios and debt restrictions. We were in compliance with all covenants at June 30, 2023.
35
CRITICAL ACCOUNTING ESTIMATES
We make estimates and assumptions that have a significant effect on the amounts and disclosures reported in the financial statements. The most significant estimates relate to investment valuation and retirement benefit plans for employees. While management believes its estimates are appropriate, the ultimate amounts may differ from estimates provided. Our most critical accounting estimates are described in Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for the year ended December 31, 2022 of our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 1, 2023. See Part I, Item 1. "Financial Statements - Note 5, Fair Value, of Notes to Financial Statements" contained within this report for additional information on our valuation of investments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is primarily related to fluctuations in interest rates and prices. Quantitative and qualitative disclosures about market risk resulting from changes in interest rates, prices, and other risk exposures for the year ended December 31, 2022 are included in Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 1, 2023.
The current inflationary environment, rising interest rates and recent banking industry events may create future volatility; however, there have been no material changes that impacted our portfolio or reshaped our periodic investment reviews of asset allocations during the six months ended June 30, 2023. We continue to closely monitor events in the banking industry and take appropriate measures, when necessary, to minimize potential risk exposure to our cash and investment balances. For a recent discussion of conditions surrounding our investment portfolio, see the "Operating Overview", "Results of Operations", and "Financial Condition" discussions contained in Part I, Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" contained within this report.
ITEM 4. CONTROLS AND PROCEDURES
We carried out an evaluation, with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
Our management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, any change in our internal control over financial reporting and determined there has been no change in our internal control over financial reporting during the six months ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
36
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Erie Indemnity Company ("Indemnity") was named as a defendant in a complaint filed on August 24, 2021, by alleged subscribers of the Erie Insurance Exchange (the "Exchange") in the Court of Common Pleas Civil Division of Allegheny County, Pennsylvania captioned TROY STEPHENSON, CHRISTINA STEPHENSON, SUSAN RUBEL, and STEVEN BARNETT, individually and on behalf of all others similarly situated (Plaintiffs) v. Erie Indemnity Company (Defendant).
The complaint seeks relief for alleged breaches of fiduciary duty by Indemnity in connection with the setting of the management fee it receives, pursuant to the terms of the Subscribers Agreement executed between Indemnity and all policyholders of the Exchange, as compensation for acting as the attorney-in-fact in the management of the Exchange. The relief sought is for the period beginning two years prior to the date of the filing of the complaint and continuing through 2021.
The complaint seeks (i) a finding that Indemnity has breached its fiduciary duties; (ii) an award of damages in an amount to be determined at trial; and (iii) such other relief, including disgorgement of profits or other injunctive relief, that the Court deems just and proper.
Service of the complaint was effectuated on September 20, 2021. A Notice of Removal to the United States District Court for the Western District of Pennsylvania was filed on October 20, 2021. On November 2, 2021, Plaintiffs filed a Notice of Voluntary Dismissal. As a result, the action was dismissed without prejudice.
On December 6, 2021, another Complaint was filed in the Court of Common Pleas of Allegheny County, Pennsylvania captioned ERIE INSURANCE EXCHANGE, an unincorporated association, by TROY STEPHENSON, CHRISTINA STEPHENSON, and STEVEN BARNETT, trustees ad litem, and alternatively, ERIE INSURANCE EXCHANGE, by TROY STEPHENSON, CHRISTINA STEPHENSON, and STEVEN BARNETT, (Plaintiff), v. ERIE INDEMNITY COMPANY, (Defendant).
This most recent complaint has the same allegation of breach of fiduciary duty by Indemnity in connection with the setting of the management fee it receives, pursuant to the terms of the Subscribers Agreement executed between Indemnity and all policyholders of the Exchange, as compensation for acting as the attorney-in-fact in the management of the Exchange.
This most recent complaint seeks the same relief, specifically, (i) a finding that Indemnity has breached its fiduciary duties; (ii) an award of damages in an amount to be determined at trial; and (iii) such other relief, including disgorgement of profits or other injunctive relief, that the Court deems just and proper.
A Notice of Removal to the United States District Court for the Western District of Pennsylvania was filed on January 27, 2022. Indemnity intends to vigorously defend against all of the allegations and requests for relief in the complaint.
By Memorandum Opinion and Order dated September 28, 2022, the Court granted the Motion for Remand and directed the case be remanded to the Court of Common Pleas of Allegheny County, Pennsylvania. On September 30, 2022, Indemnity filed a Motion to Stay the Remand Order pending an appeal to the United States Court of Appeals for the Third Circuit. On October 3, 2022, the Court granted the Stay. On October 11, 2022, Indemnity filed a Petition for Permission to Appeal the Remand Order with the Third Circuit. By Order dated November 7, 2022, a three judge panel of the Court denied the Petition to Appeal.
On November 21, 2022, Indemnity filed a Petition for Rehearing requesting that the Third Circuit permit the appeal. By Order dated January 9, 2023, the Court granted the petition for rehearing and vacated the prior Order of October 7, 2022, denying permission to appeal. On April 20, 2023, argument was held before a three-judge panel of the Third Circuit. By Opinion dated May 22, 2023, the Court affirmed the decision of the District Court finding that there was no basis for federal court jurisdiction and that the matter had been properly remanded to state court. On June 5, 2023, Indemnity filed a Petition for Panel Rehearing or Rehearing En Banc. By Order dated June 22, 2023, the Court denied the Petition.
Indemnity intends to vigorously defend against all of the allegations and requests for relief in the complaint.
Separately, Indemnity filed a Complaint in Federal Court to invoke certain provisions of the “All Writs Act” and the “Anti-Injunction Act.” By filing this complaint, Indemnity seeks to protect the federal court’s prior binding, final judgments in favor of Indemnity and thereby foreclose further litigation of the claims and issues pertaining to the compensation practices that were the subject of the prior judgments.
For additional information on contingencies, see Part I, Item 1. "Financial Statements - Note 13, Commitment and Contingencies, of Notes to Financial Statements".
37
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the Securities and Exchange Commission on March 1, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
In 2011, our Board of Directors approved a continuation of the current stock repurchase program, authorizing repurchases for a total of $150 million with no time limitation. This repurchase authority included, and was not in addition to, any unspent amounts remaining under the prior authorization.
The following table provides information regarding our Class A nonvoting common stock share repurchases during the quarter ending June 30, 2023:
| (dollars in thousands, except per share data) | ||||||||||||||||||||||||||
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced program | Dollar value of shares that may yet be purchased under the program | ||||||||||||||||||||||
| April 1-30, 2023 | — | $ | — | — | $ | 17,754 | ||||||||||||||||||||
May 1-31, 2023 (1) | 1,905 | 225.87 | — | 17,754 | ||||||||||||||||||||||
| June 1-30, 2023 | — | — | — | 17,754 | ||||||||||||||||||||||
| Total | 1,905 | 225.87 | — | |||||||||||||||||||||||
(1)Represents shares purchased on the open market to fund the rabbi trust for both the outside director deferred stock compensation plan (1,610 shares at an average price of $225.87 per share) and the incentive compensation deferral plan (295 shares at an average price of $225.87 per share).
38
ITEM 6. EXHIBITS
| Exhibit | ||||||||
| Number | Description of Exhibit | |||||||
| 10.1 | ||||||||
| 10.2* | ||||||||
| 10.3+* | ||||||||
| 10.4+* | ||||||||
| 31.1+ | ||||||||
| 31.2+ | ||||||||
| 32++ | ||||||||
| 101.INS+ | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH+ | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL+ | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF+ | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB+ | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE+ | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104+ | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
* Indicates management compensatory plan, contract, or arrangement.
+ Filed herewith.
++ Furnished herewith.
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Erie Indemnity Company | ||||||||||||||
| (Registrant) | ||||||||||||||
| Date: | July 27, 2023 | By: | /s/ Timothy G. NeCastro | |||||||||||
| Timothy G. NeCastro, President & CEO | ||||||||||||||
| By: | /s/ Julie M. Pelkowski | |||||||||||||
| Julie M. Pelkowski, Executive Vice President & CFO | ||||||||||||||
40
Exhibit 10.3
ERIE INSURANCE GROUP
EMPLOYEE SAVINGS PLAN
As Amended and Restated
Effective as of January 1, 2023
INTRODUCTION
The Erie Indemnity Company (the “Company”) adopted the Erie Insurance Group Employee Savings Plan (the “Plan”) effective January 1, 1989. The Company has subsequently amended the Plan from time to time and last amended and restated the Plan effective as of January 1, 2015.
This amendment and restatement of the Plan shall constitute an amendment, restatement and continuation of the Plan. This amendment and restatement is generally effective as of January 1, 2023. However, certain provisions of this amendment and restatement are effective as of some other date. The provisions of this amendment and restatement with stated effective dates prior to January 1, 2023, shall be deemed to amend the corresponding provisions, if any, of the Plan as in effect before this amendment and restatement and all amendments thereto as of such dates. Events occurring before the applicable effective date of any provision of this amendment and restatement shall be governed by the applicable provision of the Plan as in effect on the date of the event.
The purpose of the Plan is to provide a pre-tax long term savings vehicle for eligible employees and to provide participants with an opportunity to contribute toward additional retirement security according to the provisions of Sections 401(a), 401(k) and 402A of the Internal Revenue Code of 1986, as amended.
TABLE OF CONTENTS
Page
| INTRODUCTION | |||||||||||
| ARTICLE ONE - DEFINITIONS | |||||||||||
| 1.1 | Administrator or Plan Administrator | 1 | |||||||||
| 1.2 | Affiliate | 1 | |||||||||
| 1.3 | Beneficiary | 1 | |||||||||
| 1.4 | Board | 1 | |||||||||
| 1.5 | Catch-Up Contribution | 1 | |||||||||
| 1.6 | Code | 1 | |||||||||
| 1.7 | Company | 1 | |||||||||
| 1.8 | Compensation | 1 | |||||||||
| 1.9 | Covered Employee | 2 | |||||||||
| 1.9A | Discretionary Non-elective Contribution | 2 | |||||||||
| 1.9B | DNEC Eligible Participant | 2 | |||||||||
| 1.10 | Elective Deferral | 2 | |||||||||
| 1.11 | Eligible Applicant | 3 | |||||||||
| 1.12 | Employee | 3 | |||||||||
| 1.13 | Employer(s) | 3 | |||||||||
| 1.14 | Erie Indemnity Stock | 3 | |||||||||
| 1.15 | Erie Indemnity Stock Fund | 3 | |||||||||
| 1.16 | ERISA | 3 | |||||||||
| 1.17 | Highly Compensated | 3 | |||||||||
| 1.18 | Hour of Service | 3 | |||||||||
| 1.19 | Interactive Electronic Communication | 3 | |||||||||
| 1.20 | Leased Employee | 4 | |||||||||
| 1.21 | Normal Retirement Date | 4 | |||||||||
| 1.22 | Notice | 4 | |||||||||
| 1.23 | Participant | 4 | |||||||||
| 1.24 | Plan | 5 | |||||||||
| 1.25 | Plan Year | 5 | |||||||||
| 1.26 | Qualified Domestic Relations Order or QDRO | 5 | |||||||||
| 1.27 | Rollover Contribution | 5 | |||||||||
| 1.28 | Roth Catch-Up Contribution | 5 | |||||||||
| 1.29 | Roth Elective Deferral | 5 | |||||||||
| 1.30 | Roth Rollover Contribution | 6 | |||||||||
| 1.31 | Safe Harbor Matching Contribution | 6 | |||||||||
| 1.32 | Spousal Consent | 6 | |||||||||
| 1.33 | Spouse | 6 | |||||||||
| 1.34 | Tax Deferred Catch-Up Contribution | 6 | |||||||||
| 1.35 | Tax Deferred Contribution | 6 | |||||||||
| 1.36 | Test Compensation | 6 | |||||||||
| 1.37 | Total Account | 7 | |||||||||
| 1.38 | Trust Agreement | 8 | |||||||||
| 1.39 | Trust Fund | 8 | |||||||||
| 1.40 | Trustee | 8 | |||||||||
| 1.41 | Valuation Date | 8 | |||||||||
| 1.42 | Year of Eligibility Service | 8 | |||||||||
| ARTICLE TWO - PARTICIPATION | |||||||||||
| 2.1 | Participation | 10 | |||||||||
| 2.2 | Rehired Employees | 11 | |||||||||
| 2.3 | Employment Transfers | 11 | |||||||||
| 2.4 | Covered Employees Returning from Leave | 11 | |||||||||
| ARTICLE THREE - EMPLOYER CONTRIBUTIONS | |||||||||||
| 3.1 | Elective Deferrals | 13 | |||||||||
| 3.2 | Dollar Limitation on Elective Deferrals | 15 | |||||||||
| 3.3 | Catch-Up Contributions | 17 | |||||||||
| 3.4 | Safe Harbor Matching Contributions | 17 | |||||||||
| 3.4A | Discretionary Non-elective Contribution | 18 | |||||||||
| 3.5 | Source of Employer Contributions | 19 | |||||||||
| 3.6 | Investment of Employer Contributions | 19 | |||||||||
| 3.7 | Recovery of Contributions | 19 | |||||||||
| 3.8 | Other Provisions Relating to Employer Contributions | 20 | |||||||||
| 3.9 | Roth In-Plan Conversions | 20 | |||||||||
| ARTICLE FOUR - ROLLOVER CONTRIBUTIONS | |||||||||||
| 4.1 | Rollover Contributions | 22 | |||||||||
| 4.2 | Vesting of Rollover Contributions | 22 | |||||||||
| ARTICLE FIVE - PARTICIPANT ACCOUNTS AND VALUATION OF FUNDS | |||||||||||
| 5.1 | Establishment of Participant Accounts | 23 | |||||||||
| 5.2 | Valuation Date Adjustments | 23 | |||||||||
| 5.3 | Investment Elections | 23 | |||||||||
| 5.4 | Erie Indemnity Stock Fund | 26 | |||||||||
| 5.5 | Temporary Suspension of Certain Administrative Activities | 27 | |||||||||
| ARTICLE SIX - VESTING & DISTRIBUTIONS | |||||||||||
| 6.1 | Vesting | 28 | |||||||||
| 6.2 | Distributions Upon Retirement or Other Termination of Employment | 28 | |||||||||
| 6.3 | Payment of Amounts Distributed | 29 | |||||||||
| 6.4 | Direct Rollovers | 32 | |||||||||
| ARTICLE SEVEN – WITHDRAWALS AND LOANS | |||||||||||
| 7.1 | Withdrawals Generally | 34 | |||||||||
| 7.2 | Hardship Withdrawal | 34 | |||||||||
| 7.3 | Safe Harbor Distribution | 35 | |||||||||
| 7.4 | Hardship Withdrawal Priority | 35 | |||||||||
| 7.5 | Modifications to Hardship Withdrawal Standards | 36 | |||||||||
| 7.6 | In-Service Withdrawals for Reasons Other than Hardship | 36 | |||||||||
| 7.7 | Availability of Loans | 37 | |||||||||
| 7.8 | Terms and Conditions of Participant Loans | 38 | |||||||||
| 7.9 | Loan Accounts | 40 | |||||||||
| ARTICLE EIGHT - THE TRUST FUND | |||||||||||
| 8.1 | Trust Agreement | 41 | |||||||||
| 8.2 | Appointment of Independent Accountants | 41 | |||||||||
| 8.3 | Appointment of Investment Manager | 41 | |||||||||
| 8.4 | Role of Administrator in Operation of the Trust Fund | 41 | |||||||||
| 8.5 | Voting of Erie Indemnity Stock | 42 | |||||||||
| ARTICLE NINE - ADMINISTRATION OF THE PLAN | |||||||||||
| 9.1 | The Administrator | 44 | |||||||||
| 9.2 | Powers of Administrator | 45 | |||||||||
| 9.3 | Delegation of Duties | 47 | |||||||||
| 9.4 | Conclusiveness of Various Documents | 47 | |||||||||
| 9.5 | Actions to be Uniform | 47 | |||||||||
| 9.6 | Liability and Indemnification | 47 | |||||||||
| ARTICLE TEN - CLAIMS PROCEDURE AND CLAIMS LITIGATION | |||||||||||
| 10.1 | Claims Review Procedure | 48 | |||||||||
| 10.2 | Determination by the Administrator Conclusive | 48 | |||||||||
| 10.3 | Exhaustion of Administrative Remedies | 48 | |||||||||
| 10.4 | Arbitration | 49 | |||||||||
| 10.5 | Forum Selection | 49 | |||||||||
| 10.6 | Deadline to File Civil Action or Demand Arbitration | 49 | |||||||||
| ARTICLE ELEVEN - MISCELLANEOUS | |||||||||||
| 11.1 | Non-Alienation of Benefits | 50 | |||||||||
| 11.2 | Risk to Participants and Source of Payments | 51 | |||||||||
| 11.3 | Expenses | 51 | |||||||||
| 11.4 | Rights of Participants | 51 | |||||||||
| 11.5 | Statement of Accounts | 52 | |||||||||
| 11.6 | Designation of Beneficiary | 52 | |||||||||
| 11.7 | Payment to Incompetents | 52 | |||||||||
| 11.8 | Authority to Determine Payee | 53 | |||||||||
| 11.9 | Severability | 53 | |||||||||
| 11.10 | Employer Records | 53 | |||||||||
| 11.11 | Limitation on Contributions | 53 | |||||||||
| 11.12 | IRC 414(u) Compliance Provision | 55 | |||||||||
| 11.13 | Governing Law | 56 | |||||||||
| ARTICLE TWELVE - AMENDMENT, TERMINATION OR MERGER OF THE PLAN | |||||||||||
| 12.1 | Right to Amend | 57 | |||||||||
| 12.2 | Right to Terminate | 57 | |||||||||
| 12.3 | Merger, Transfer of Assets or Liabilities | 58 | |||||||||
| ARTICLE THIRTEEN - TOP HEAVY PROVISIONS | |||||||||||
| 13.1 | Top Heavy Provisions Inapplicable | 59 | |||||||||
ARTICLE ONE
DEFINITIONS
As used in this Plan, the following terms shall have the following meanings unless a different meaning is clearly required by the context. Any terms herein used in the masculine shall be read and construed in the feminine where they would so apply and any terms used in the singular shall be read and construed in the plural if so applicable.
1.1“Administrator” or “Plan Administrator” means the administrative committee described in Article Nine.
1.2“Affiliate” means any other employer which, together with the Company, is a member of a controlled group of corporations or of a commonly controlled trade or business (as defined in Code Sections 414(b) and (c) and as modified, where appropriate, by Code Section 415(h)) or of an affiliated service group (as defined in Code Section 414(m)) or other organization described in Code Section 414(o). Each such Affiliate shall be treated as an Affiliate only during such period as it is or was an Affiliate as defined above.
1.3“Beneficiary” means any person who, by reason of a designation made by a Participant under Plan procedures or by operation of the Plan, is or will be entitled to receive any amount or benefit hereunder upon the death of such Participant. Any attempt to designate a person as Beneficiary hereunder orally, or by means other than that permitted under the Plan shall be void and have no effect.
1.4“Board” means the Board of Directors of the Company. References to actions or decisions by the Board include actions or decisions by the Board’s authorized designee.
1.5“Catch-Up Contribution” means, with respect to a given Participant, the total amount of the Participant’s Tax Deferred Catch-Up Contributions and the Participant’s Roth Catch-Up Contributions.
1.6“Code” means the Internal Revenue Code of 1986, as amended from time to time.
1.7“Company” means Erie Indemnity Company, a corporation organized and existing under the laws of Pennsylvania.
1.8“Compensation” for any period on and after January 1, 2019 means the rate of base salary or the wages paid by an Employer to an Employee during the period. For this purpose, the “rate of base salary or the wages paid” shall exclude Form W-2 income in the form of overtime compensation, bonuses, commissions, deferred compensation plan payments, severance pay under any severance benefit plan and any other form of special or extraordinary compensation, but shall include Form W-2 income paid as a lump sum in lieu of merit increase and compensation excluded from Form W-2 income because of salary reduction agreements in connection with plans described in Sections 125, 132(f)(4) or 401(k) of the Code or resulting from deferred compensation contracts for the period in question. For Plan Years beginning on and after January 1, 2015, the “rate of base salary or the wages paid” shall include an amount, determined under the Company’s vacation
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conversion program, that is paid to the Employee as Form W-2 income and/or is excluded from Form W-2 income on account of such Employee’s salary reduction agreement applicable to such amount. Compensation shall exclude any differential wage payments made on behalf of a Covered Employee who is on military leave. Effective for each Plan Year beginning on and after December 31, 1989, in no event shall the amount of Compensation taken into account under the Plan exceed the adjusted annual limitation permitted under Section 401(a)(17) of the Code for such Plan Year. Such adjusted annual limitation shall be, for each Plan Year beginning on and after December 31, 2022, $330,000 (as adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code). However, for the sole purpose of computing Plan contributions that are based on an Employee’s percentage of Compensation election, such adjusted annual limitation may be ignored; provided, the Employee does not receive a higher allocation of any type of contribution than the Employee could have received under the Plan had the adjusted annual limitation been considered.
1.9“Covered Employee” means any Employee of an Employer, excluding any such Employee whose employment is governed by the terms of a collective bargaining agreement under which retirement benefits were the subject of good faith bargaining.
Notwithstanding any provision of the Plan to the contrary, any individual who an Employer determines to be a contract employee, independent contractor, leased employee (including a Leased Employee as defined hereunder), leased owner, leased manager, shared employee or person working under a similar classification shall not become a Covered Employee hereunder, regardless of whether any such individual is ultimately determined to be a common law employee, unless and until the Employer shall otherwise determine. An Employee shall be considered a Covered Employee only during such period in which the individual satisfies the requirements defined above.
1.9A “Discretionary Non-elective Contribution” means the Employer contribution made pursuant to Section 3.4A.
1.9B “DNEC Eligible Participant” means:
(a) Each Covered Employee who is eligible to make Elective Deferrals under the Plan on April 26, 2018 or who otherwise would be eligible to make Elective Deferrals under the Plan on such date except for the six month suspension period identified in Section 7.3(c); and
(b) Unless otherwise required by the application of guidance promulgated by the Secretary of the Treasury or his delegate, each former Covered Employee who incurred a severance from employment on or after March 21, 2018 and before April 26, 2018 under the early retirement or normal retirement provisions of the Erie Insurance Group Retirement Plan for Employees and who, immediately prior to such severance from employment, was eligible to make Elective Deferrals under the Plan.
1.10“Elective Deferral” means, with respect to a given Participant, the total amount of the Participant’s Tax Deferred Contributions and the Participant’s Roth Elective Deferrals.
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1.11“Eligible Applicant” means a Participant who is actively employed with the Company or an Affiliate; provided, however, that for purposes of Sections 7.1 through 7.6, an Eligible Applicant shall also include a Participant who is on a disability leave of absence.
1.12“Employee” means any common-law employee of an Employer or an Affiliate; provided, however, that for purposes of Section 1.17 “Employee” shall include any self-employed individual performing services for an Employer or Affiliate who is treated as an employee under Section 401(c)(1) of the Code.
1.13“Employer(s)” means the Company, Erie Family Life Insurance Company, Erie Insurance Exchange, Erie Insurance Company, EI Holding Corp., EI Service Corp., Erie Insurance Company of New York, Erie Insurance Property & Casualty Company, Flagship City Insurance Company, Erie Resource Management Corp. and any other Affiliate which may adopt this Plan.
1.14“Erie Indemnity Stock” means the Class A common stock of the Company which is a qualifying employer security within the meaning of Section 407(d)(5) of ERISA.
1.15“Erie Indemnity Stock Fund” means the investment fund described in Section 5.4.
1.16“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
1.17“Highly Compensated” means any Employee who is a more than five percent (5%) owner of an Employer or earned $150,000 or more in Test Compensation from the Employer in the lookback year; provided, however, that such $150,000 figure shall be adjusted for cost of living at the same time and in the same manner as determined under Code Section 415(d).
1.18“Hour of Service” shall include the following:
(a)Each hour for which an Employee is directly or indirectly paid or entitled to payment from an Employer or an Affiliate as an Employee for the performance of duties during an applicable computation period (these hours must be credited to the Employee in the computation period during which the duties were performed and not when paid, if different); and
(b)Each hour for which back pay, irrespective of mitigation of damages, has been awarded or agreed to by an Employer or an Affiliate (these hours must be credited in the computation period or periods to which the award or agreement pertains rather than that in which the payment, award or agreement was made); and
(c)Each hour for which an Employee is directly or indirectly paid or entitled to payment from an Employer or an Affiliate for reasons, such as vacation, sickness or disability, other than for the performance of duties (these hours shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor regulations which are incorporated herein by reference).
1.19“Interactive Electronic Communication” means a communication between a Participant or Beneficiary and the person or entity designated by the Administrator to perform recordkeeping
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and other administrative services on behalf of the Plan pursuant to a system maintained by such person or entity and communicated to each Participant and Beneficiary whereby each such individual may make elections and exercise options as described herein with respect to all or a portion of his Total Account through the use of such system and a personal identification number. If a Participant or Beneficiary (i) consents to participate in Interactive Electronic Communication procedures adopted by the Administrator and (ii) acknowledges that actions taken by him through the use of his personal identification number pursuant to the Interactive Electronic Communication procedure constitute his signature for purposes of initiating transactions such as investment option changes, and increases, decreases, and suspensions of Elective Deferrals, the Participant or Beneficiary, as the case may be, will be deemed to have given his written consent and authorization to any such action resulting from the use of the Interactive Electronic Communication system by the Participant or Beneficiary.
1.20“Leased Employee” means any person (other than an Employee of an Employer) who pursuant to an agreement between the Employer and any other person (“leasing organization”) has performed services for the Employer (or for the Employer and related persons determined in accordance with Section 414(n)(6) of the Code) on a substantially full-time basis for a period of at least one year and such services are performed under primary direction or control by the recipient. Except as provided below, any person satisfying the foregoing criteria shall be treated as an Employee. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer.
Notwithstanding the foregoing, a Leased Employee shall not be considered an Employee of an Employer if: (i) such Leased Employee is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least 10 percent of compensation, (2) immediate participation, and (3) full and immediate vesting; and (ii) Leased Employees do not constitute more than 20 percent of the Employer’s non-Highly Compensated workforce.
1.21“Normal Retirement Date” means the first day of the month next following the month in which the Participant attains age 65 (his “Normal Retirement Age”).
1.22“Notice” means, unless otherwise specifically provided herein, (i) written notice on an appropriate form provided by the Administrator that is, at the discretion of the Administrator, properly completed and executed by the party giving such notice and which is delivered by hand or by mail to the Administrator or to such party designated by the terms of the Plan or by the Administrator to receive the notice, or (ii) notice provided by Interactive Electronic Communication to or from to the person or entity designated by the Administrator to perform recordkeeping and other administrative services on behalf of the Plan. The form of Notice satisfactory in any given circumstance under the Plan shall be determined by the Administrator, in its discretion, and shall be applied uniformly to all Participants and Beneficiaries. Notice to any party as provided herein shall be deemed to be given when it is actually received (either physically or by Interactive Electronic Communication, as the case may be) by the party to whom such Notice is given.
1.23“Participant” means any Covered Employee who participates in the Plan as provided in Section 3.1 and/or Section 3.4A (an “active” Participant) or as provided in Section 4.1, and further, shall include any current or former Covered Employee who has suspended his Elective Deferrals or has
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terminated or retired if such individual has a vested Total Account balance maintained on his behalf under the Plan.
1.24“Plan” means this Erie Insurance Group Employee Savings Plan as herein set forth with all amendments, modifications and supplements hereafter made.
1.25“Plan Year” means the calendar year.
1.26“Qualified Domestic Relations Order” or “QDRO” means any judgment, decree or order (including approval of a property settlement agreement) which is made pursuant to a State Domestic Relations Law (including a community property law) and which:
(a) relates to provision of child support, alimony payments, or marital property rights of a Spouse, former Spouse, child or other dependent of a Participant;
(b) recognizes or creates an alternate payee’s right to, or assigns to an alternate payee the right to receive all or a portion of the benefits payable with respect to a Participant under this Plan; and
(c) clearly specifies:
(i) name and last known address of the Participant and of each alternate payee;
(ii) the amount, percentage, or manner in which such could be determined, of the Participant’s benefits to be paid to such alternate payee by the Plan;
(iii) the number of payments or time periods the QDRO covers; and
(iv) each plan to which the QDRO applies.
A QDRO cannot require the Plan to provide a type or form of benefit, or any option not otherwise provided by the Plan, nor can it require the Plan to provide increased benefits. A QDRO cannot require payment to an alternate payee by virtue of a previous QDRO.
A written procedure will be established to determine the qualified status of domestic relations orders and to administer distributions thereunder.
1.27“Rollover Contribution” means the Rollover Contribution or Roth Rollover Contribution made by a Covered Employee pursuant to Section 4.1.
1.28“Roth Catch-Up Contribution” means, effective with respect to pay periods ending on or after January 1, 2007, or such later date as the Administrator shall determine, that portion of the Employer contribution made pursuant to Section 3.3 that is, at the election of the Participant, includible in the Participant’s gross income at the time the contribution is made.
1.29“Roth Elective Deferral” means, effective with respect to pay periods ending on or after January 1, 2007, or such later date as the Administrator shall determine, the Employer contribution made pursuant to a Participant’s election under Section 3.1(a) to contribute a stated percentage, from one
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percent (1%) to one hundred percent (100%) of his future Compensation in lieu of receiving such amount directly in cash and to have such amount contributed to a Designated Roth Account maintained on his behalf under the Plan. A Roth Elective Deferral shall be includible in the Participant’s gross income at the time of deferral and shall be irrevocably designated as a Roth Elective Deferral by the Participant in his election.
1.30“Roth Rollover Contribution” means that portion of a Covered Employee’s Rollover Contribution that is attributable to a designated Roth account under an eligible retirement plan.
1.31“Safe Harbor Matching Contribution” means the Employer contribution made pursuant to Section 3.4.
1.32“Spousal Consent” means a written consent given by a Participant’s Spouse to a Participant’s designation of a specified Beneficiary or Beneficiaries (including the designation of any class of Beneficiaries or any contingent Beneficiaries) under Section 11.6(a). Any Spousal Consent shall be effective only with respect to such Spouse. Such consent shall be duly witnessed by a Plan representative or a notary public and shall acknowledge the effect on the Spouse of the Participant’s election. The Participant may revoke, without limitation, any such designation without the need for Spousal Consent. Any new designation will require a new Spousal Consent. The requirement for Spousal Consent may be waived by the Administrator if it is established that there is no Spouse, the Spouse cannot be located, the Participant has a court order evidencing a legal separation from or abandonment by the Spouse, or for such other circumstances as shall be prescribed by applicable law.
1.33“Spouse” means, with respect to any Participant, the person to whom the Participant is married at a given determination date, as determined under applicable law.
1.34“Tax Deferred Catch-Up Contribution” means that portion of the Employer contribution made pursuant to Section 3.3 that is, at the election of the Participant, not includible in the Participant’s gross income at the time the contribution is made.
1.35“Tax Deferred Contribution” means the Employer contribution made pursuant to a Participant’s election under Section 3.1(a) to reduce his future taxable Compensation by a stated percentage, from one percent (1%) to one hundred percent (100%), in lieu of receiving such amount directly in cash and to have such amount contributed to a Tax Deferred Account maintained on his behalf under the Plan. Effective on and after March 1, 2013, a Tax Deferred Contribution may also mean the automatic Employer contribution made pursuant to Section 2.1(b). A Tax Deferred Contribution shall not be includable in the Participant’s gross income at the time of deferral.
1.36“Test Compensation” means, for any Plan Year, an Employee’s compensation, reported
under Sections 6041 and 6051 of the Code on Form W-2, as paid by an Employer or an
Affiliate for the calendar year ending with or within such Plan Year, including any amounts contributed pursuant to a salary reduction election on behalf of a Covered Employee to a
plan described in Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b), or 457(b) of the
Code for the period in question. Test Compensation shall include any differential wage
payments, as defined in Section 3401(h) of the Code, that are paid by an Employer during a
period of qualified military service as defined in Section 414(u) of the Code. Test
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Compensation in any given year shall not exceed the adjusted annual limitation in effect for such year (as set forth in Section 1.8), provided that such limitation shall not be applied in determining the status of an Employee as a Highly Compensated Employee. . To the extent permitted under regulations and other guidance promulgated by the Internal Revenue Service, the Administrator may elect to determine Test Compensation on a basis other than that provided above.
1.37“Total Account” means the total amounts held under the Plan for a Participant, consisting of the following accounts:
(a)“Designated Roth Account” the portion of the Participant’s Total Account consisting of Roth Elective Deferrals plus (minus) any investment earnings (losses) on such contributions and less any distributions or withdrawals made from this account in accordance with Articles Six and Seven, respectively.
(b)“Employer Account” the portion of the Participant’s Total Account consisting of employer matching contributions made under the Plan with respect to Plan Years beginning before January 1, 2001, plus (minus) any investment earnings (losses) on such contributions and less any distributions or withdrawals made from this account in accordance with Articles Six and Seven, respectively.
(c)“Rollover Account” the portion of the Participant’s Total Account consisting of Rollover Contributions other than that portion of any Rollover Contribution that is attributable to a Roth Rollover Contribution plus (minus) any investment earnings (losses) on such contributions and less any distributions or withdrawals made from this account in accordance with Articles Six and Seven, respectively.
(d)“Roth Catch-Up Account” the portion of the Participant’s Total Account consisting of Roth Catch-Up Contributions plus (minus) any investment earnings (losses) on such contributions and less any distributions or withdrawals made from this account in accordance with Article Six and Seven, respectively.
(e)“Roth Rollover Account” the portion of the Participant’s Total Account consisting of Roth Rollover Contributions plus (minus) any investment earnings (losses) on such contributions and less any distributions or withdrawals made from this account in accordance with Article Six and Seven, respectively.
(f)“Safe Harbor Matching Account” the portion of the Participant’s Total Account consisting of Safe Harbor Matching Contributions, any Discretionary Non-elective Contributions, plus (minus) any investment earnings (losses) on such contributions and less any distributions or withdrawals made from this account in accordance with Articles Six and Seven, respectively.
(g)“Tax Deferred Account” the portion of the Participant’s Total Account consisting of Tax Deferred Contributions plus (minus) any investment earnings (losses) on such contributions and less any distributions or withdrawals made from this account in
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accordance with Articles Six and Seven, respectively.
(h)“Tax Deferred Catch-Up Account” the portion of the Participant’s Total Account consisting of Tax Deferred Catch-Up Contributions plus (minus) any investment earnings (losses) on such contributions and less any distributions or withdrawals made from this account in accordance with Article Six and Seven, respectively.
(i)“Roth In-Plan Conversion Account”, effective on and after January 1, 2016, the portion of the Participant’s Total Account consisting of amounts converted pursuant to Section 3.9 plus (minus) any investment earnings (losses) on such amounts and less any distributions or withdrawals made from this account in accordance with Articles Six and Seven respectively.
1.38 “Trust Agreement” means the Trust Agreement entered into with a Trustee as provided in Section 8.1, together with all amendments, modifications and supplements thereto.
1.39 “Trust Fund” means the fund established under the terms of the Trust Agreement for the purpose of holding and investing the assets of the Plan. The Trust Fund shall consist of such investment funds or vehicles as the Administrator may, in its discretion, designate from time to time and may include such investments as may be selected by a Participant or Beneficiary under a self-directed “open option” arrangement authorized by the Administrator.
Nothing herein shall prohibit the Trust Fund from holding reasonable amounts of Plan assets in cash or cash equivalents in any fund or vehicle offered under the Plan. The portion of the Trust Fund to be invested in the various funds or vehicles shall be determined by Participant
investment elections made pursuant to Article Five. The Administrator may, in its discretion, offer additional investment funds or vehicles to all Participants and may cease to offer any investment fund or vehicle at such time as it deems appropriate.
For period prior to June 1, 2009 or such later date as the Administrator, in its discretion, shall provide, and except as otherwise indicated, the Trust Fund shall be deemed to include that
portion of a Total Account which a Participant and Beneficiary elects to invest in a group annuity contract provided by the Erie Family Life Insurance Company.
1.40 “Trustee” means the Trustee or Trustees acting as such under the Trust Agreement, including any successor or successors.
1.41 “Valuation Date” means the close of business as of each business day.
1.42 “Year of Eligibility Service” means an “Eligibility Computation Period” in which an Employee completes at least 1,000 Hours of Service.
The “Eligibility Computation Period” with respect to an Employee shall mean the 12 consecutive month period that begins on the first day on which the Employee is credited with an Hour of Service in the employment of an Employer or Affiliate (“Employment Commencement Date”) and ends on the first anniversary thereof, and each Plan Year thereafter beginning with the Plan Year that includes the first anniversary of the Employee’s Employment Commencement Date. In the
The “Eligibility Computation Period” with respect to an Employee shall mean the 12 consecutive month period that begins on the first day on which the Employee is credited with an Hour of Service in the employment of an Employer or Affiliate (“Employment Commencement Date”) and ends on the first anniversary thereof, and each Plan Year thereafter beginning with the Plan Year that includes the first anniversary of the Employee’s Employment Commencement Date. In the
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event an Employee completes 1,000 Hours of Service during the Eligibility Computation Period that begins on his Employment Commencement Date and completes 1,000 Hours of Service during the Eligibility Computation Period that begins on the January 1 that next follows his Employment Commencement Date, such Employee shall be credited with two Years of Eligibility Service.
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ARTICLE TWO
PARTICIPATION
2.1Participation
(a)Any Employee shall be eligible to participate in the Plan on the first day of a pay period, provided he is a Covered Employee and is actively employed by an Employer on such date and, provided further, that he makes proper application for participation within a reasonable time prior to the start of such pay period by furnishing Notice in accordance with procedures established by the Administrator and communicated to Covered Employees.
(b)A Covered Employee who is hired on or after March 1, 2013 and who does not make an affirmative election to participate in the Plan pursuant to paragraph (a) above within the 30-day period following notice of his eligibility shall be enrolled automatically to participate in the Plan effective as of the beginning of the first pay period following the expiration of such 30-day period. Such automatic enrollment shall be at the rate of five percent (5%) of Compensation and, except as provided in Section 3.1(c) with respect to automatic increases in rates of Elective Deferrals applicable to Participants hired on and after January 2, 2018, such five percent (5%) rate shall remain in effect during such Participant’s period of employment until such time as the Participant affirmatively acts to change such percentage. The Administrator shall comply with the notice requirements of Section 414(w)(4) of the Code and may establish additional procedures, in its discretion, to administer the automatic enrollment of Covered Employees. For all purposes hereunder, contributions made pursuant to automatic enrollment hereunder shall be treated as Tax Deferred Contributions.
(c)Notwithstanding the foregoing and effective on and after January 1, 2021, any Covered Employee who is compensated on an hourly basis and who is classified by an Employer as other than a regular hourly employee shall be eligible to participate in the Plan on the first day of a pay period coincident with or next following the January 1 or July 1 on which (or which next follows the date) such Employee completes the requirements under either (i) or (ii) below, provided the Covered Employee remains a Covered Employee as of such January 1 or July 1:
(i)Attains 21 years of age and completes one Year of Eligibility Service; or
(ii)Attains 21 years of age and completes three consecutive Eligibility Computation Periods (as defined in Section 1.42) during each of which such Covered Employee has at least 500 Hours of Service.
A Covered Employee who is described in this paragraph (c) and who satisfies the conditions set forth above may participate in the Plan by making proper application for participation within a reasonable time prior to the start of a given pay period by furnishing Notice in accordance with procedures established by the Administrator and communicated to Covered Employees. The automatic enrollment provisions of
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paragraph (b) and the automatic increase provisions of Section 3.1(c) shall not apply to a Covered Employee who is described in this paragraph (c).
If an Employee described in this paragraph (c) is not a Covered Employee on the date he otherwise would have become eligible to participate in the Plan, such Employee shall be eligible to participate in the Plan pursuant to this Section 2.1 upon his return to employment as a Covered Employee.
(d) Independent of the preceding provisions of this Section 2.1, a Covered Employee may participate in the Plan pursuant to the provisions of Section 3.4A.
2.2 Rehired Employees
An Employee who had been an “active” Participant in the Plan, who terminates his employment and is subsequently re-employed may become eligible to participate in the Plan under Section 3.1 on the first day of any pay period following re-employment, provided he is a Covered Employee and is actively employed by an Employer on such date and, provided further, that he makes proper application for participation within a reasonable time prior to the start of such pay period by furnishing Notice in accordance with procedures established by the Administrator and communicated to Covered Employees. The automatic enrollment provisions of Section 2.1(b) and the automatic increase provisions of Section 3.1(c) shall not apply in connection with the re-employment of a Covered Employee.
2.3 Employment Transfers
(a) Upon the transfer of a Covered Employee to other employment with an Employer or Affiliate whereby he ceases to be a Covered Employee hereunder, such individual’s ability to have Elective Deferrals made to the Plan on his behalf (and to receive Safe Harbor Matching Contributions) with respect to Compensation earned on and after this date of transfer shall cease and such Participant shall be considered an “inactive” Participant under the Plan.
(b) Upon the transfer of an individual from other employment with an Employer or Affiliate such that the individual becomes a Covered Employee hereunder, such individual shall be eligible to participate in the Plan as provided in Section 2.1 hereof and, except for individuals who transfer to the employment classification described in Section 2.1(c), the automatic enrollment provisions of Section 2.1(b) and the automatic increase provisions of Section 3.1(c) shall apply following such transfer.
2.4 Covered Employees Returning from Leave
Effective January 2, 2018, as soon as administratively practicable following the return of a Covered Employee from a leave of absence which has resulted in a suspension of such Covered Employee’s Elective Deferrals, the Administrator shall reinstate the Elective Deferral election of the Covered Employee that was in effect immediately before the suspension of the Elective Deferrals. The Elective Deferrals of such a Covered Employee shall be increased automatically as of the March 1 that next follows the Covered Employee’s return from the leave of absence, and as of each March 1 thereafter, in accordance with the procedures provided in Section 3.1(c).
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Any such action of the Administrator, however, shall be subject to a Covered Employee’s affirmative election in accordance with Section 3.8(a).
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ARTICLE THREE
EMPLOYER CONTRIBUTIONS
3.1Elective Deferrals
(a) Each Covered Employee who is eligible to participate in the Plan and who has elected to become a Participant (in accordance with Section 2.1(a)) may, at the time of making application to become a Participant, elect to make Elective Deferrals in a fixed, whole percentage, from one percent (1%) to one hundred percent (100%) of Compensation otherwise payable to such Covered Employee in future pay periods. Effective on and after January 2, 2018, a Participant may elect to have his Elective Deferrals automatically increased at such time or times as provided in such election. Any such election shall be made in accordance with procedures adopted by the Administrator and communicated to Participants.
Subject to the automatic enrollment provisions of Section 2.1(b) and the limitations set forth in Sections 3.2 and 11.11, Elective Deferrals shall be made pursuant to the Participant’s election and shall be designated as either Tax Deferred Contributions or Roth Elective Deferrals in accordance with such election; providing however, that the Administrator, in its discretion may authorize at any time a suspension or reduction of Elective Deferrals, or any part thereof, with respect to any Participant. Elective Deferrals shall be withheld by the Participant’s Employer each pay period by regular payroll deduction in accordance with the Employer’s payroll withholding procedures and shall be credited to the Participant’s Tax Deferred Account or Designated Roth Account as of the date the contributions are received by the Trustee or otherwise deposited in the Trust Fund. Such contributions shall be deposited in the Trust Fund as soon as such amounts can reasonably be segregated from the Employer’s general assets.
In all events, a Covered Employee who is eligible to participate in the Plan pursuant to Article Two shall be permitted to (i) begin making Elective Deferrals, (ii) change an existing election to make Elective Deferrals, and (iii) cease making Elective Deferrals at least once each Plan Year.
(b) Effective for each Plan Year beginning on and after January 1, 2015, a Covered Employee may make an annual, one-time election to convert a portion of the vacation accrued on his behalf into cash and/or an Elective Deferral. Such Covered Employee election shall be given effect provided that such election is made in a manner satisfactory to the Administrator during the election period described in subparagraph (i) below, the Covered Employee satisfies the eligibility requirements of subparagraph (ii) below, and, provided further, that the total amount of vacation accrual converted into cash and/or an Elective Deferral for any given Plan Year shall not exceed the maximum vacation conversion amount described in subparagraph (iii) below. Any payment in cash or Elective Deferral to the Plan pursuant to an election under this Section 3.1(b) shall be made at the time or times provided in subparagraph (iv) below.
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(i) A Covered Employee must make the election under this Section 3.1(b) during an election period established by the Company. Such election period shall begin and end in the calendar year that precedes the beginning of the Plan Year for which the election is being made. Such election shall state the number of accrued vacation hours the Covered Employee wishes to convert during such Plan Year, subject to the limitations of subparagraph (iii) below, and his choice of conversion medium (cash, Elective Deferral, or both as delineated on the basis of hours or other reasonable criteria established by the Company). A Covered Employee may not change or discontinue his election after the election period for such Plan Year ends. Any election under this Section 3.1(b) shall be made in such manner provided by the Company and communicated to Covered Employees.
(ii) Notwithstanding subparagraph (i) above, a Covered Employee’s election to convert an amount of vacation accrual into cash and/or an Elective Deferral shall be given effect only if the Covered Employee has used a minimum allotment of his accrued vacation during the Plan Year for which the election has been made, as determined under the Company’s vacation conversion program as of the Vacation Conversion Date applicable to such Covered Employee, as determined under subparagraph (iv) below. The Company, in its sole discretion, shall determine whether a Covered Employee has used a minimum allotment of accrued vacation as of any given time.
(iii) Any Covered Employee who chooses to convert accrued vacation under this Section 3.1(b) shall designate, in his election under subparagraph (i) above, to convert an amount not less than one hour of accrued vacation and not more than such amount permitted under the Company’s vacation conversion program.
(iv) The conversion of accrued vacation into a cash payment and/or an Elective Deferral on behalf of a Covered Employee who satisfies the terms of this Section 3.1(b) shall occur as of the Vacation Conversion Date applicable to the Covered Employee. For purposes hereof, the “Vacation Conversion Date” applicable to a Covered Employee means the June 1 or October 1 of the Plan Year for which the election has been made and which next follows the date the Covered Employee has used a minimum allotment of accrued vacation as described in subparagraph (ii). For any given Plan Year, there shall not exceed one Vacation Conversion Date applicable to a given Covered Employee. The amount of accrued vacation that is actually converted into a cash payment and/or an Elective Deferral on behalf of a Covered Employee as of a Vacation Conversion Date shall not exceed the amount of accrued vacation credited to such Covered Employee as of the Vacation Conversion Date applicable to such Covered Employee. To the extent that a Covered Employee who makes an election under this Section 3.1(b) terminates employment with an Employer before the Vacation Conversion Date applicable to the Covered Employee or fails to use a minimum allotment of accrued vacation as of the October 1 of the Plan Year for which the election has been made, the Covered Employee’s entire election under this Section 3.1(b) shall be nullified and any opportunity to convert accrued vacation for such Plan Year shall be forfeited.
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Although an Elective Deferral made under this Section 3.1(b) shall be independent from other Elective Deferrals under the Plan, such an Elective Deferral shall be treated as an Elective Deferral for all purposes hereunder, including without limitation, the dollar limitation described in Section 3.2 and eligibility for Safe Harbor Matching Contributions under Section 3.4.
(c)The Elective Deferrals of a Participant who is hired on or after January 2, 2018 and who is making Elective Deferrals at a rate greater than 0% and less than 10% shall be increased automatically as of the March 1 that next follows such Participant’s date of hire by at least six months, and as of each subsequent March 1 thereafter. Such automatic rate of increase shall be one percent (1.0%) of the Participant’s Compensation as of the given March 1 and such automatic rate of increase shall remain in effect for each subsequent March 1 until the Participant’s rate of Elective Deferrals is equal to ten percent (10%) of Compensation; provided, however, that effective January 1, 2023, a Participant enrolled in the automatic increase provisions of the Plan shall have Elective Deferrals continue to increase automatically beyond ten percent (10%) of Compensation until the Participant’s rate of Elective Deferrals is equal to fifteen percent (15%) of Compensation, and provided further, the Participant may affirmatively elect to change such automatic rate of increase, or to decline an automatic increase, at any time in accordance with the provisions of Section 3.8(a).
(d)Elective Deferrals constitute Employer contributions under the Plan and are intended to qualify as elective contributions under Sections 401(k) and 402A of the Code. Elective Deferrals may be made only with respect to an amount which the Participant could otherwise elect to receive in cash and which is not currently available to the Participant as of the date an election specified in this Section 3.1 is made. In the event a Participant has no Compensation for any payroll period, no Elective Deferral may be made for such period.”
3.2Dollar Limitation on Elective Deferrals
(a) Any provision of this Plan to the contrary notwithstanding, no Employer shall be permitted, during any calendar year, to make, with respect to such calendar year, Elective Deferrals on behalf of a Participant under the Plan (when combined with the Participant’s elective deferrals under any other plans, contracts, or arrangements) that will exceed the limitation in affect for such year under Section 402(g)(1) of the Code, as adjusted in accordance with Section 402(g)(4) of the Code. Make-up contributions on account of qualified military service under Section 414(u) of the Code shall not be recognized as elective deferrals for purposes of this section.
(b) In the event any amount of Elective Deferrals for a calendar year exceeds the limitation applicable under this Section 3.2 for such calendar year, such excess amount (hereafter described for purposes of this Section, as “Excess Deferrals”), as adjusted for any income or loss allocable thereto in accordance with regulations, shall to the extent possible be distributed to such Participant, as provided in subparagraphs (i), (ii), (iii) and (iv) below:
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(i) At a date not later than the March 1st of the calendar year immediately following the calendar year to which such Excess Deferrals are attributable, any Participant to whom this Section 3.2 applies may notify, in writing, the Administrator by submitting a form as may be provided by the Administrator which shall specify the amount of the Participant’s Excess Deferrals for the given calendar year and shall contain a certified statement by the Participant indicating that if such amount is not distributed, such Excess Deferrals will exceed the limit imposed on the Participant by Section 402(g) of the Code for the year in which the Elective Deferrals occurred.
Notwithstanding the foregoing and solely for the purpose of facilitating a distribution of Excess Deferrals as required by regulation, in the event a Participant has Excess Deferrals in a given year calculated by taking into account his Elective Deferrals hereunder and his elective deferrals under any other plan, contract, or arrangement maintained by an Employer or Affiliate, the Participant will be deemed to have notified the Administrator in the manner provided in this subparagraph.
Notwithstanding the foregoing and solely for the purpose of facilitating a distribution of Excess Deferrals as required by regulation, in the event a Participant has Excess Deferrals in a given year calculated by taking into account his Elective Deferrals hereunder and his elective deferrals under any other plan, contract, or arrangement maintained by an Employer or Affiliate, the Participant will be deemed to have notified the Administrator in the manner provided in this subparagraph.
(ii) At a date not later than the April 15 of the calendar year immediately following the calendar year to which such Excess Deferrals are attributable, the Plan may distribute to the Participant the amount of the Excess Deferrals allocated to the Plan as adjusted for any income or loss allocable to such excess. Any Excess Deferrals distributed pursuant to this subparagraph that have not previously been included in income are to be included in the gross income of the Participant for the year to which such Excess Deferrals relate. Any income that is allocable to Excess Deferrals (as determined in accordance with rules promulgated by the Secretary of the Treasury or his delegate) that is distributed pursuant to this subparagraph is to be included in the gross income of the Participant for the year in which such amount is distributed. In making a distribution as permitted under this Section, the Administrator shall first allocate the Excess Deferral to any Roth Elective Deferrals for such year and shall allocate the Excess Deferral to Tax Deferred Contributions only to the extent the Excess Deferral exceeds such Roth Elective Deferrals. The Administrator shall designate the distribution as that consisting of Excess Deferrals within the meaning of Section 402(g)(1) of the Code. Any distribution of less than the entire amount of Excess Deferrals plus income or loss attributable to such deferral contributions shall be treated as a pro rata distribution of such excess deferral contributions and income/loss. No corrective distribution under this Section shall be recognized for purposes of determining whether the minimum distribution requirements of Section 401(a)(9) of the Code are satisfied with respect to any Participant.
(iii)Any distribution in accordance with this Section 3.2 shall be made without regard to any notice or consent otherwise required under Sections 411(a)(11) or 417 of the Code.
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3.3Catch-Up Contributions
(a)A Participant who is a Covered Employee and who is age 50 or older at any time during a given Plan Year shall be eligible to elect to make a Tax Deferred Catch-Up Contribution for such Plan Year or, for Plan Years beginning on and after January 1, 2007, a Roth Catch-Up Contribution for such Plan Year. Such election shall be made, and may be changed prospectively, in accordance with procedures adopted by the Administrator and communicated to Covered Employees.
(b)A Catch-Up Contribution is an Employer contribution that is actually made on behalf of a Participant described in Section 3.3(a) whose Elective Deferrals for the give Plan Year are otherwise limited as provided in Section 3.2. and that is in an amount that does not exceed the dollar limit under Section 414(v)(2)(B)(i) of the Code, as adjusted in accordance with Section 414(v)(2)(C) of the Code. A Catch-Up Contribution is not taken into account for purposes of the limitations provided in Sections 3.2 and 11.11 of the Plan and the Plan shall not be treated as failing the requirements identified in Section 414(v)(3) of the Code, as applicable, by reason of such Catch-Up Contributions.
3.4Safe Harbor Matching Contributions
(a)The Employer shall contribute an amount to the Trust Fund equal to the sum of those amounts individually determined with respect to each Participant, as follows:
(i)One hundred percent (100%) of the Elective Deferrals made with respect to the Participant during such pay period which do not exceed three percent (3%) of the Participant’s Compensation during such pay period; and
(ii)Fifty percent (50%) of the Elective Deferrals made with respect to the Participant during such pay period which exceed three percent (3%), but do not exceed five percent (5%), of the Participant’s Compensation during such pay period.
Such contributions shall be designated as Safe Harbor Matching Contributions and shall be 100% vested and nonforfeitable when made. The Employer shall make Safe Harbor Matching Contributions as soon as practicable following the end of the pay period to which they relate and such contributions shall be credited to Participants’ Safe Harbor Matching Accounts as of the date they are received by the Trustee or otherwise deposited in the Trust Fund. Notwithstanding the foregoing provisions, Catch-Up Contributions shall be treated as Elective Deferrals under this Section 3.4 solely to the extent a Participant’s Elective Deferrals (exclusive of Catch-Up Contributions) for a given Plan Year do not equal or exceed five percent (5%) of the Participant’s Compensation during the Plan Year and provided that any such inclusion of Catch-Up Contributions in Elective Deferrals will not cause the amount of Elective Deferrals that are recognized for purposes of the Safe Harbor Matching Contribution formula to exceed five percent (5%) of the Participant’s Compensation during the Plan Year. The Safe Harbor Matching Contribution made on behalf of each Participant shall be adjusted as of the last day of a Plan Year to ensure that the actual Safe Harbor Matching Contribution made equals the
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appropriate percentages set forth in this Section 3.4(a), as determined on the Plan Year basis.
(b)Effective with respect to each Plan Year in which the provisions of Section 3.4 are applicable, the Administrator shall provide Notice during the “Safe Harbor Notice Period” (as hereinafter defined) to each Covered Employee who is eligible to participate in the Plan during such Plan Year. Such Notice shall describe the following:
(i)The formula used to determine the Safe Harbor Matching Contribution to be made on behalf of such Employee for such Plan Year;
(ii)Any requirements that such Employee must satisfy to become entitled to receive such contributions;
(iii)The type and amount of Compensation that may be deferred under the Plan as Elective Deferrals and Catch-Up Contributions;
(iv)The procedures for making or changing an election to make Elective Deferrals and Catch-Up Contributions, including the periods available for making or changing such elections;
(v)The withdrawal and vesting provisions applicable to contributions under the Plan; and
(vi)A means by which Covered Employees may easily obtain additional information about the Plan.
For purposes hereof, the “Safe Harbor Notice Period” shall mean a period beginning 90 days before the first day of the applicable Plan Year and ending 30 days before the first day of the applicable Plan Year; provided, however, with respect to a Covered Employee who becomes eligible to participate in the Plan during a given Plan Year in which the provisions of Section 3.4 are applicable, the “Safe Harbor Notice Period” shall begin 90 days before the day such Employee may first participate in the Plan and shall end on the day such Employee may first participate in the Plan.
(c)The Employer elects to treat the Plan as automatically satisfying the nondiscrimination in amount of employer contribution requirements of Section 401(a)(4) of the Code. Notwithstanding any provision of this Section 3.4 to the contrary, the Employer reserves the right to suspend future Safe Harbor Matching Contributions at any time provided that the procedures for implementing such suspension are consistent with Section 1.401(k)- 3(g) of the Income Tax Regulations.
3.4A Discretionary Non-elective Contribution
The Employer shall contribute to the Trust Fund, on behalf of each DNEC Eligible Participant, a one-time discretionary, non-elective contribution of $1,000. The Employer shall make such contributions as soon as reasonably practicable following the April 26, 2018 allocation date
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applicable to such contributions. Such non-elective contributions shall be credited to DNEC Eligible Participants’ Safe Harbor Matching Accounts as of the date they are received by the Trustee or otherwise deposited in the Trust Fund and, for purposes of determining the applicability of Plan features regarding such contributions, shall be treated equivalent to Safe Harbor Matching Contributions. Such non-elective contributions shall be100% vested and nonforfeitable when made.
3.5Source of Employer Contributions
(a) The Employer shall make all contributions to the Plan without regard to current or accumulated net profits. Notwithstanding the foregoing, for purposes of Sections 401(a)(27) and 401(k) of the Code, the Plan shall continue to be considered a profit sharing plan. Effective January 1, 2007, this Plan is also intended to be a qualified Roth contribution program under Section 402A of the Code. All Employer contributions shall be made in cash and shall be conditioned on the deductibility of the contribution.
(b) Any provision of the Plan to the contrary notwithstanding, the total Employer contribution made with respect to any Plan Year, when added to any other contributions made by the Employer to a plan qualified under Section 401(a) of the Code, shall not exceed such amount which is deductible for such Plan Year pursuant to Sections 404(a)(3) or 404(a)(7) of the Code. In any event, all contributions for a Plan Year shall be paid within the regular or extended time for filing the Employer’s federal income tax return for the fiscal year which includes the Plan Year end.
3.6Investment of Employer Contributions
The Employer contributions made on behalf of a Participant shall be invested by the Trustee in accordance with the Participant’s election under Sections 5.3(a) and 5.4(a).
3.7Recovery of Contributions
Except as provided in this Section 3.7, the assets of the Plan shall never inure to the benefit of an Employer or Affiliate and shall be held for the exclusive purpose of providing benefits under the Plan and defraying reasonable expenses of the Plan. However, no provision of this Plan shall:
(a) prohibit the return of a contribution to an Employer or a Participant within one year after payment if such contribution was made by a mistake of fact; or
(b) prohibit the return of a contribution that is determined to be nondeductible (to the extent disallowed as a deduction);
provided, however, in the case of the return of a contribution which was made as a result of a mistake of fact, the amount which shall be returned is the excess of the amount contributed over the amount which would have been contributed had the mistake of fact not occurred. Further, in the case of the return of a contribution that is determined to be nondeductible, and in the case of a contribution made as the result of a mistake of fact, earnings attributable to the excess contribution may not be returned, but losses attributable thereto must reduce the amount to be
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returned. Further, in both such cases, if the withdrawal of the amount attributable to the mistaken or nondeductible contribution would cause the balance of the account of any Participant to be reduced to less than the balance which would have been in the account had the mistaken or nondeductible amount not been contributed, then the amount to be returned to the Employer will be limited so as to avoid such reduction.
3.8Other Provisions Relating to Employer Contributions
(a) Except as otherwise provided in accordance with procedures adopted by the Administrator and communicated to applicable Participants, a Participant may as of any time:
(i)suspend the Elective Deferrals and/or Catch-Up Contributions being made on his behalf;
(ii)increase or decrease the rate of Elective Deferrals and/or Catch-Up Contributions made on his behalf or have such contributions resumed after a period of suspension;
(iii)change the allocation of the Elective Deferrals made on his behalf from Tax Deferred Contributions to Roth Elective Deferrals, or vice versa; or
(iv)change the allocation of the Catch-Up Contributions made on his behalf from Tax Deferred Catch-Up Contributions to Roth Catch-Up Contributions, or vice versa.
Such suspension or change in rate or allocation shall be effective as of the first day of the pay period next following the date the Participant delivers Notice of the same to the Administrator, provided such Notice is delivered to the Administrator in such time as to allow the Administrator a reasonable period within which to act on the election contained therein.
During any period of suspension, regardless of the length of its duration, the Participant’s Account shall be maintained in accordance with the procedure set forth in Article Five.
(b) In the event Safe Harbor Matching Contributions have been made with respect to Elective Deferrals that are subsequently determined to fail to meet the annual dollar limitation specified in Section 3.2(a) (and if such Excess Deferrals are distributed pursuant to Section 3.2(b)), such Safe Harbor Matching Contributions (and any income or loss attributable thereto determined in accordance with regulations) shall be forfeited and applied to reduce future Safe Harbor Matching Contributions.
3.9Roth In-Plan Conversions
Effective for Plan Years beginning on and after January 1, 2016, a Participant may elect to have all or any portion of his Accounts under Sections 1.37(c), (f), (g), (h) and, if the Participant has attained age 59-1/2, under Section 1.37(b), other than any portion of such Accounts that is part of an outstanding loan, converted to a Roth account under Section 402A of the Code (such process
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herein called a “Roth In-Plan Conversion”). Any Roth In-Plan Conversion shall be effected within such time and in accordance with such procedures as are designated by the Administrator and communicated to Participants and the resulting Roth In-Plan Conversion Account shall be separately accounted for and maintained as necessary for the proper reporting thereof. Any investment, withdrawal, or distribution restrictions applicable to amounts that are to be converted under this Section 3.9 shall continue to be subject to those same restrictions after the conversion. If a Participant makes an election pursuant to this Section 3.9, such election shall be irrevocably designated as being made pursuant to, and intended to comply with, Section 402A of the Code, and the value of Accounts converted in the Roth In-Plan Conversion shall be included in the Participant’s gross income for the taxable year in which the conversion is made.
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ARTICLE FOUR
ROLLOVER CONTRIBUTIONS
4.1Rollover Contributions
(a)Under such rules and procedures as the Administrator may establish, any Covered Employee may make a cash Rollover Contribution to this Plan of all or a portion of the amount received by the Covered Employee in the form of an eligible rollover distribution from an eligible retirement plan (as such terms are defined in Section 6.4); provided, however, that the Plan shall not accept (i) a rollover of after-tax employee contributions; (ii) a rollover from an individual retirement account or annuity that is other than a conduit IRA, as determined by the Administrator, or (iii) a rollover from such other source, and/or under such circumstances, as the Administrator, in its discretion, shall determine to be ineligible. Effective January 1, 2007, that portion of a Rollover Contribution that is attributable to a designated Roth account under an eligible retirement plan shall be accepted provided it meets the other requirements of this section and is made as a direct rollover to a Roth Rollover Account hereunder. Such Roth Rollover Contribution shall be subject to separate accounting, including accounting for the amount of such contribution not includable in income. Any portion of a Rollover Contribution that is not a Roth Rollover Contribution and that is accepted by the Administrator shall be allocated to a Rollover Account established on behalf of the Covered Employee. No Rollover Contribution may be made to the Plan unless the Covered Employee had demonstrated to the Administrator’s satisfaction that the contribution satisfies the conditions for tax-free rollover treatment under the applicable provisions of the Code.
(b)In the event the Administrator has reasonably concluded that an amount may be accepted by the Plan as a Rollover Contribution under Section 4.1(a) but later determines that all or a portion of such amount fails to satisfy the provisions of Section 4.1(a), the Administrator shall cause such ineligible amount and related investment earnings to be distributed to the Covered Employee (or, if applicable, Beneficiary) as soon as administratively feasible.
4.2Vesting of Rollover Contributions
Amounts contributed under Section 4.1 hereof shall at all times be 100% vested.
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ARTICLE FIVE
PARTICIPANT ACCOUNTS AND VALUATION OF FUNDS
5.1Establishment of Participant Accounts
(a) There shall be established and maintained for each Participant a Total Account. A Total Account may consist of the following accounts:
(i)a Tax Deferred Account;
(ii)a Safe Harbor Matching Account;
(iii)an Employer Account;
(iv)a Rollover Account;
(v)a Tax Deferred Catch-Up Account;
(vi)a Designated Roth Account;
(vii)a Roth Catch-Up Account;
(viii)a Roth Rollover Account; and
(ix)for periods on and after January 1, 2016, one or more Roth In-Plan Conversion Accounts.
(b) Within each of the accounts listed in Section 5.1(a) that are applicable to a given Participant, separate records shall be kept of the portion, if any, of each account invested in each investment fund or vehicle then offered under the Plan. The Administrator may adopt rules, consistent with income tax regulations, that designate certain accounts as constituting a separate contract for purposes of Section 72 of the Code.
5.2Valuation Date Adjustments
As of each Valuation Date, each Participant’s balance in his various accounts shall be adjusted in accordance with the valuation procedure adopted by the Administrator.
5.3Investment Elections
(a) When a Covered Employee submits his application to become a Participant, he shall give Notice regarding the investment of contributions to be made on his behalf under the Plan. Such Notice shall be provided to the Administrator or its designee within such time and in accordance with such means as are designated by the Administrator and communicated to Participants and Covered Employees. Subject to such procedural rules as may be established by the Administrator from time-to-time, such Notice shall specify, in 1%
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increments from 0% to 100%, the percentage of each applicable contribution source which is to be invested in each investment option then made available.
A Covered Employee who is enrolled automatically in the Plan pursuant to Section 2.1(b) and who does not give Notice to the Administrator or its designee regarding the investment of the Tax Deferred Contributions and/or the Safe Harbor Matching Contributions to be made on his behalf hereunder shall be deemed to have chosen to invest such contributions in such default fund as is set forth in the Trust Agreement or as otherwise determined by the Administrator.
A Participant may change the investment elections or default investment elections made under this Section 5.3(a) at any time by giving Notice to the Administrator or its designee within such time and in accordance with such means as are designated by the Administrator and communicated to Participants and Covered Employees. Such Notice of change shall be subject to the procedural specifications set forth above (and, if applicable, subject to the limitations set forth in Section 5.4) and, except as may otherwise be provided in the Trust Agreement, shall be effective with respect to contributions received by the Trustee (or otherwise deposited into the Trust Fund) as of the Valuation Date on which the Notice is received or as of the next following Valuation Date, in accordance with procedures established by the Administrator, and communicated to Participants and Covered Employees.
A Covered Employee making a Rollover Contribution shall give Notice regarding the investment of such contribution. Such Notice shall be delivered on or prior to the date the Rollover Contribution is effective and shall specify, in 1% increments from 0% to 100%, the percentage of the Rollover Contribution to be invested in each investment option which is then made available for the investment of Rollover Contributions. To the extent that the Covered Employee does not give Notice to the Administrator or its designee regarding the investment of the Rollover Contribution the Covered Employee shall be deemed to have chosen to invest such contributions in such default fund as is set forth in the Trust Agreement or as otherwise determined by the Administrator.
(b) Each Participant and Beneficiary shall have the opportunity to change the manner in which the Total Account maintained on his behalf under the Plan is invested. Such opportunity shall be exercised by giving Notice to the Administrator or its designee within such time and in accordance with such means as are designated by the Administrator and communicated to Participants, Covered Employees and affected Beneficiaries. Subject to such procedural rules as may be established by the Administrator from time-to-time, such Notice shall specify, in a whole dollar amount or in 1% increments from 0% to 100%, the dollar amount, or percentage, of the Total Account maintained on behalf of the Participant or Beneficiary which is to be invested in each investment option then made available. Except as may otherwise be set forth in the Trust Agreement, such Notice shall be effective as of the Valuation Date on which the Notice is received by the Trustee or as of the next following Valuation Date, in accordance with procedures established by the Administrator and communicated to Participants, Covered Employees and affected Beneficiaries. Notwithstanding any provision of this paragraph (b) to the contrary, (i) the election under this Section 5.3(b)
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shall be subject to any contractual limitations imposed on the direct transfer of assets between given investment funds or such other reasonable limitation on exchanges as may be agreed to between the Administrator and the person or entity designated by the Administrator to perform administrative services on behalf of the Plan (ii) the election under this Section 5.3(b) shall be subject to any regulatory restrictions on transfers, as determined by the Administrator, in its discretion, (iii) prior to March 1, 2009 or such later date as the Administrator, in its discretion shall provide, in no event shall any portion of the Total Account maintained on behalf of a Participant or Beneficiary in the Erie Family Life Group Annuity Fund be transferred to any other investment fund and (iv) in no event shall any portion of the Total Account maintained on behalf of a Participant be transferred to the Erie Indemnity Stock Fund.
(c) Any investment elections or changes in elections under this Section 5.3 may be limited or delayed by the Administrator or Trustee, if, in the judgment of such party, giving immediate effect to such elections would adversely affect the Total Account balances of a significant number of Participants.
(d) In the event a Participant’s, Covered Employee’s or Beneficiary’s investment election under the Plan is incomplete, the Participant, Covered Employee or Beneficiary will be deemed to have chosen to invest in such default fund as is set forth in the Trust Agreement or as otherwise determined by the Administrator.
(e)Any investment election or deemed investment election under the Plan shall remain in effect until changed by an election under this Section. Notwithstanding any provision of this Article Five to the contrary, the Administrator, in its discretion, may offer such investment options to Participants and Beneficiaries as it deems appropriate and may cease to offer any such options as it deems appropriate. In the event the Administrator decides to discontinue offering an investment option under the Plan, those Participants on whose behalf Total Accounts are being maintained that are invested in the discontinued investment option may be required, at the discretion of the Administrator, to have affected amounts consolidated with (or “mapped” to) a replacement investment option selected by the Administrator or may be provided an opportunity to designate, from such selection of investment options as may be offered by the Administrator, an investment option or options as a replacement for the investment option being discontinued. Any such designation by a Participant shall be made in accordance with paragraph (b) above. If a Participant who is affected by the discontinuation of an investment option fails to make any replacement designation offered in this paragraph (e), the Participant’s interest in such discontinued fund, shall be consolidated with (or “mapped” to) such replacement investment option selected by the Administrator, in its discretion. Any changes under this paragraph (e) shall take effect as of such times and under such rules as shall be established by the Administrator.
(f)Each Participant, Covered Employee and Beneficiary is solely responsible for the selection of his investment option. The Trustee, the Administrator, the Employer, and the directors, officers, supervisors and other employees of the Employer are not empowered to advise a Participant, Covered Employee or Beneficiary as to the manner in which any portion of his Total Account shall be invested. The fact that an investment option is
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available under the Plan shall not be construed as a recommendation for investment in that investment option.
(g)The Plan is intended to constitute a plan described in Section 404(c) of ERISA and Title 29 of the Code of Federal Regulations Section 2550.404c-1. As a consequence, Plan fiduciaries shall be relieved of liability for any losses resulting from any investment election by a Participant and/or Beneficiary to the fullest extent permitted by law.
5.4Erie Indemnity Stock Fund
The provisions of this Section shall become applicable to the extent to which Participants’ and Beneficiaries’ Employer Accounts and/or Safe Harbor Matching Accounts under the Plan are invested in the Erie Indemnity Stock Fund.
(a) The Administrator shall make available under the Plan an investment fund which shall consist exclusively of Erie Indemnity Stock; provided, however, that in the discretion of the Trustee, within guidelines set by the Administrator, a portion of such fund may be held in short-term interest-bearing investments or cash pending purchase of Erie Indemnity Stock and to provide sufficient liquidity for exchanges out of the fund, withdrawals and loans. Such investment fund shall be referred to as the “Erie Indemnity Stock Fund.” Except as otherwise provided in this Section 5.4, a Participant shall be permitted to invest all or a portion of the Safe Harbor Matching Contributions, made on his behalf in the Erie Indemnity Stock Fund in accordance with the provisions of Section 5.3. A Participant shall not be permitted to invest any portion of the Elective Deferrals or Catch-Up Contributions made on his behalf in the Erie Indemnity Stock Fund nor shall any Participant or Covered Employee be permitted to invest any portion of a Rollover Contribution in the Erie Indemnity Stock Fund. No Participant, Covered Employee or Beneficiary may transfer any portion of the Total Account maintained on his behalf to the Erie Indemnity Stock Fund. For purposes of implementing Participant investment elections under Section 5.3, or a Participant’s or Beneficiary’s distribution election under Section 6.3, the Trustee may, in its discretion, purchase or sell Erie Indemnity Stock on the open market or by privately-negotiated transaction; provided however, that any such purchase or sale shall be made only in exchange for fair market value as determined by the Trustee and, provided further that, no commission shall be charged to or paid by the Plan with respect to any purchase or sale of Erie Indemnity Stock between the Plan and a party in interest (as defined in Section 3(14) of ERISA). Any distributions, dividends or other income received by the Trustee with respect to the Erie Indemnity Stock Fund shall be reinvested by the Trustee in the Erie Indemnity Stock Fund.
(b) The restrictions contained in this paragraph (b) shall apply to that portion of the Employer Accounts and/or Safe Harbor Matching Accounts maintained on behalf of Participants or Beneficiaries which are invested in the Erie Indemnity Stock Fund and, if and to the extent necessary, any election made by a Participant or Beneficiary under the Plan shall be deemed modified to be consistent with this paragraph (b).
Notwithstanding the provisions of Section 5.4 and Articles Seven and Fourteen:
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(i)No Participant or Beneficiary shall, on the basis of material nonpublic information with respect to the Company or its affiliates, make an election permitted by that Section or those Articles if (1) such election would result in an exchange into or out of, loans from, withdrawals from, or an increase or decrease in the amount of contributions to the Erie Indemnity Stock Fund, and (2) the transaction resulting from such election is prohibited by Rule 10b-5.
(ii) No officer shall make an election permitted by that Section or those Articles if such election would result in a transaction involving the Erie Indemnity Stock Fund which is not an exempt transaction pursuant to Rule 16b-3.
For purposes of this paragraph (b), the terms “Rule 10b-5” and “Rule 16b-3” shall mean the rules, as amended, having those designations promulgated by the United States Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, and the terms “affiliate” and “officer” shall have the meanings set forth in Rule 12b-2 and Rule 16a-1(f), respectively, both as so promulgated and amended.
(c) Notwithstanding anything in this Article Five to the contrary, Participants and Beneficiaries whose Total Account consists of Erie Indemnity Stock Fund shall be offered the opportunity to divest any amount held in the Erie Indemnity Stock Fund into such other investment options at any time as herein provided. At least three investment options (other than the Erie Indemnity Stock Fund) shall be offered at all times to Participants and Beneficiaries. Each such investment option shall be diversified and have materially different risk and return characteristics. Except as provided in Treasury Regulations Section 1.401(a)(35)-1(e)(2) and (3), restrictions (either direct or indirect) or conditions will not be imposed on investments held in the Erie Indemnity Stock Fund if such restrictions or conditions are not imposed on the investment in other Plan assets.
5.5Temporary Suspension of Certain Administrative Activities
In the event of a change in the investment options available under the Plan, a change in vendors providing services to the Plan, or a change in the Plan’s administrative procedures, the Administrator may establish procedures for temporarily suspending certain activities under the Plan, as the Administrator may determine are necessary or appropriate, in its discretion. Such temporary suspension shall be conditioned upon any notification to Participants required by law. The activities that may be suspended include, but are not limited to, changes in Elective Deferrals, Rollover Contributions, investment elections or transfers, distributions, in-service withdrawals and loans.
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ARTICLE SIX
VESTING & DISTRIBUTIONS
6.1Vesting
A Participant shall be fully vested in all contributions made and investment earnings credited under the provisions of the Plan.
6.2Distributions Upon Retirement or Other Termination of Employment
(a)Subject to the provisions of paragraph (b) below, upon the termination of a Participant’s employment with the Company and Affiliates for any reason, the Participant (or, if the Participant is deceased, his Beneficiary) shall be paid the entire vested Total Account maintained on behalf of the Participant as provided in subparagraph (i), (ii) or (iii) below:
(i)If the vested Total Account exceeds $3,500 as of the determination date chosen by the Administrator or its designee, the Participant (or Beneficiary) may elect, in such manner as provided by the Administrator or its designee, to either take or commence an immediate distribution of such vested Total Account in a form permitted under Section 6.3 or to defer receipt of the same until a later date, but not beyond the end of the calendar year in which the Participant attains age 72 (age 70-1/2 with respect to a Participant born before July 1, 1949) and not beyond such other required commencement date under Section 401(a)(9) of the Code. The failure of any terminated Participant (or terminated Participant’s Beneficiary) to make an election with respect to a vested Total Account in excess of the $3,500 threshold shall be deemed an election by the Participant (or Beneficiary) to defer receipt of such vested Total Account. A Participant or Beneficiary who elects (or is deemed to have elected) to defer receipt of the vested Total Account may request a distribution of the vested Total Account in a form permitted under Section 6.3 at a subsequent date permitted under Section 401(a)(9) of the Code. Pending distribution of his Total Account, such Participant or Beneficiary shall be permitted to change the manner in which such Total Account is invested in accordance with Section 5.3(b).
(ii)If the vested Total Account does not exceed $3,500 as of the determination date chosen by the Administrator or its designee, such vested Total Account shall be paid in a lump sum to the Participant (or Beneficiary) on the conditions that the Participant (or Beneficiary) is alive as of the applicable payment date and, except as otherwise provided in this subparagraph (ii), that the Participant (or Beneficiary) affirmatively elects payment in cash or as a direct rollover. If the vested Total Account maintained on behalf of the Participant (or Beneficiary) does not exceed $1,000 as of the applicable determination date and the Participant (or Beneficiary) fails to make an affirmative election to receive cash or make a direct rollover within 60 days of being apprised of his distribution options, the Plan shall pay such vested Total Account to the Participant (or Beneficiary) as a lump sum in cash.
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(iii)For purposes of this Section 6.2(a), the value of a vested Total Account shall be determined with regard to that portion, if any, that is attributable to a Rollover Contribution (and earnings allocated thereon).
(b)The Administrator or its designee shall notify a Participant or Beneficiary of his election right under Section 6.2(a) and, in the case of a Participant who may defer payment of the vested portion of his Total Account in accordance with Section 6.2(a), of his right to defer payment and, for Plan Years beginning after December 31, 2006, a description of the consequences of a failure to defer payment. Such notification shall be provided to the Participant or Beneficiary not less than 30 days and not more than 90 days before payment is made; provided, however, that a Participant or Beneficiary may affirmatively elect to be paid the vested Total Account being maintained on his behalf within 30 days after the Participant or Beneficiary received the notice described in this Section 6.2(b).
(c)A Participant who returns to employment with the Employer on a full or part-time basis prior to distribution of his vested Total Account under paragraph (a) shall be deemed to have cancelled his distribution election as of his date of reemployment.
(d)All payments made pursuant to this Article Six shall be based on the Participant’s vested Total Account balance on the Valuation Date as of which payment is made. Payment shall be made from the accounts comprising the Participant’s (or Beneficiary’s) Total Account and from the investment funds in which such Total Account is invested in such order of priority as the Administrator, pursuant to a uniform and nondiscriminatory policy, shall direct.
6.3 Payment of Amounts Distributed
(a)Distributions to a Participant or Beneficiary may be paid in the form of:
(i)a lump sum;
(ii)bi-weekly, bi-monthly, monthly, quarterly, semi-annual or annual installments that will provide a fixed amount per pay period;
(iii)bi-weekly, bi-monthly, monthly, quarterly, semi-annual or annual installments that will provide a fixed percentage of the Total Account maintained on behalf of the recipient per pay period;
(iv)bi-weekly, bi-monthly, monthly, quarterly, semi-annual or annual installments that will provide substantially equal payments over a fixed period that is not in excess of the lesser of fifteen (15) years or the recipient’s life expectancy, as determined by the Administrator as of the date the payments begin; or
(v)bi-weekly, bi-monthly, monthly, quarterly, semi-annual or annual installments that will provide payments of a variable amount over the recipient’s life expectancy, as determined in accordance with tables promulgated by the Internal Revenue Service.
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Pursuant to such uniform and nondiscriminatory policy as Administrator, in its discretion, shall determine, a Participant or Beneficiary who has elected payment in an installment form under Section 6.3(a)(ii) through (v) may elect, at some future date, to have the balance of the vested Total Account maintained on his behalf paid in the form of a lump sum or to change the frequency of the installments within the payment form the Participant or Beneficiary has chosen. Except as provided in the preceding sentence, a Participant or Beneficiary may not change his elected form of distribution following the date Plan payments begin. A Participant who returns to employment with the Employer on a full or part-time basis following commencement of an installment form of distribution shall be deemed to have cancelled his distribution election as of his date of reemployment. In no event may distributions from the Plan be made in the form of an annuity.
(b)A distributee who is receiving payment in the form of a lump sum shall elect to have that portion of his Employer Account and Safe Harbor Matching Account which is invested in the Erie Indemnity Stock Fund paid either (i) in whole units of Erie Indemnity Stock (with fractional units being distributed in cash) or (ii) in cash. The election of a Participant or Beneficiary under this Section 6.3(b) shall be made in connection with the Participant’s or Beneficiary’s lumps sum election under Section 6.2. In the event distribution is made in the form of installments or is made in the form of a lump sum, but such lump sum is paid in the absence of a Participant’s or Beneficiary’s distribution election, that portion of an Employer Account and Safe Harbor Matching Account which is invested in the Erie Indemnity Stock Fund at the time of distribution shall be paid in cash.
(c) Notwithstanding any inconsistent provision of the Plan, all distributions under the Plan shall be made in accordance with Code Section 401(a)(9), including the incidental death benefit requirement of Code Section 401(a)(9)(G), and Treasury Regulations Sections 1.401(a)(9)-1 through 1.401(a)(9)-9. Specifically, distribution of the Participant’s interest shall:
(i) be completed no later than the required beginning date; or
(ii) commence not later than the required beginning date with distribution to the Participant made over the life of the Participant or joint lives of the Participant and a designated Beneficiary or a period not longer than the life of the Participant or joint lives of the Participant and a designated Beneficiary.
For purposes of this Section 6.3, “required beginning date” shall mean April 1 of the calendar year following the later of the calendar year in which the Participant attains age 72 (age 70½ with respect to a Participant born before July 1, 1949) or the calendar year in which the Participant terminates employment or retires; provided, however, if the Participant is a five-percent owner (as defined in Code Section 416), the required beginning date shall be April 1 of the calendar year following the calendar year in which the Participant attains age 72 (age 70½, with respect to a
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Participant born before July 1, 1949) regardless of the date that the five-percent owner terminates employment or retires.
Notwithstanding the foregoing, unless the Participant elects otherwise, distribution of benefits under Section 6.2 will begin no later than the 60th day after the latest of the close of the Plan Year in which:
(i) the Participant attains age 65;
(ii) occurs the fifth anniversary of the Plan Year in which the Participant commenced participant in the Plan; or
(iii) the Participant terminated employment with the Company and Affiliates.
(d) In the event that a Participant dies prior to the date that distribution commences:
(i) any portion of the Participant’s interest that is not payable to a designated Beneficiary shall be distributed not later than the end of the calendar year which includes the fifth anniversary of the date of the Participant’s death;
(ii) any portion of the Participant’s interest that is payable to a designated Beneficiary that is not an “eligible designated Beneficiary” under Treasury Regulations shall be distributed not later than the end of the calendar year which includes the tenth anniversary of the date of the Participant’s death; and
(ii) any portion of the Participant’s interest that is payable to a designated Beneficiary that is an “eligible designated Beneficiary” under Treasury Regulations shall be distributed in accordance with subparagraph (ii) above or over the life of the eligible designated Beneficiary (or over a period not extending beyond the life expectancy of such Beneficiary), commencing not later than the end of the calendar year following the calendar year of the Participant’s death or, if the eligible designated Beneficiary is the Participant’s surviving Spouse, commencing not later than the last day of the later of the calendar year in which the Participant would have attained age 72 (age 70½, with respect to a Participant born before July 1, 1949) or the calendar year following the calendar year which includes the date of the Participant’s death.
(e) In the event a Participant dies after distribution of his interest has begun, but prior to distribution of his entire interest, the remaining portion of such interest shall be distributed, at the election of the Participant’s Beneficiary, in a lump sum or in a method that is at least as rapid as the method being used at the date of the Participant’s death; provided, however, that unless the Participant’s Beneficiary is an “eligible designated Beneficiary” under Treasury Regulations, the period over which such remaining interest is distributed shall not exceed the end of the calendar year which includes the tenth anniversary of the date of the Participant’s death.
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6.4 Direct Rollovers
(a) A distributee may elect, subject to provisions adopted by the Administrator which shall be consistent with income tax regulations, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. The Administrator shall notify a distributee of his right to elect a direct rollover; such notice shall be furnished to the distributee between 30 days and 180 days prior to the date as of which the distributee is to receive a distribution from the Plan, provided that the distributee may affirmatively elect a distribution or direct rollover to occur within 30 days after the furnishing of such notice.
(b) Definitions.
(i) Eligible Rollover Distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee other than (A) any distribution that is one of a series of substantially equal periodic payments made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and his designated Beneficiary, or for a specified period of ten (10) years or more; (B) any distribution to the extent such distribution is required under Code Section 401(a)(9); and (C) any portion of a hardship withdrawal. In addition, a portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be paid only to an individual retirement account or annuity described in Code Sections 408(a) or (b), respectively, or (for distributions on and after January 1, 2008) to a Roth IRA described in Section 408A of the Code, to a qualified trust defined in Section 401(a) of the Code, or to an annuity contract described in Section 403(b) of the Code provided such account, annuity, IRA, trust or annuity contract agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.
An eligible rollover distribution with respect to a distributee who is not the Employee’s or former Employee’s Spouse must be made by a direct trustee-to-trustee transfer.
(ii) Eligible Retirement Plan: An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity described in Code Section 403(a), an annuity contract described in Code Section 403(b), an eligible plan under Code Section 457(b) which is maintained by a state or a political subdivision of a state, and which agrees to separately account for amounts transferred, a qualified trust described in Code Section 401(a), and for periods on and after January 1, 2008, a Roth IRA under Code Section 408A, that accepts the distributee’s eligible rollover distribution. However, in the case of an eligible rollover distribution: (A)
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that includes after-tax employee contributions, an eligible retirement plan is an individual retirement account or annuity described in Code Section 408(a) or (b), or a qualified defined contribution plan described in Code Sections 401(a) or 403(a) that agrees to separately account for such eligible rollover distributions, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, (B) that includes a Designated Roth Account, an eligible retirement plan is an individual retirement plan described in Code Section 408A or a qualified defined contribution plan described in Code Section 401(a) that agrees to separately account for such eligible rollover distribution, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is part not so includible, and (C) that is made on behalf of a distributee that is not the Employee’s or former Employee’s Spouse, an eligible retirement plan shall mean an individual retirement account described in Code Section 408(a) or an individual retirement annuity described in Code Section 408(b) established for the purpose of receiving a distribution on behalf of a Beneficiary, which will be treated as an inherited IRA pursuant to Code Section 402(c)(11).
(iii) Distributee: A distributee includes an Employee or former Employee. In addition, the Employee’s or former Employee’s surviving Spouse and the Employee’s or former Employee’s Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the Spouse or former Spouse. With respect to distributions made on or after July 1, 2007, a distributee shall also include an Employee’s Beneficiary who is not the Employee’s Spouse.
(iv) Direct Rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.
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ARTICLE SEVEN
WITHDRAWALS AND LOANS
7.1Withdrawals Generally
An Eligible Applicant may make written application to the Administrator for withdrawal of a portion of his account balance without terminating his employment, but only in such amounts and under such conditions as specified in this Article Seven. All such applications for a withdrawal made by an Eligible Applicant shall be approved or denied by the Administrator in accordance with a uniform, non-discriminatory policy and such action by the Administrator shall be final.
7.2Hardship Withdrawal
Upon proper written application of an Eligible Applicant in such form as the Administrator may specify, the Administrator may permit the Eligible Applicant to withdraw in cash the portion of the balance of his Total Account representing his Rollover Account (if applicable), his Roth Rollover Account (if applicable), his Employer Account, his Roth In-Plan Conversion Account (to the extent not otherwise restricted), and his Elective Deferrals and Catch-Up Contributions without earnings thereon, provided that the reason for such withdrawal is to enable the Eligible Applicant to meet unusual or special situations in his financial affairs resulting in immediate and heavy financial needs of the Eligible Applicant and, provided further, that the Administrator must be satisfied that any withdrawal hereunder is not in excess of the amount necessary to meet the immediate and heavy financial need and that such need cannot be met from other resources of the Eligible Applicant. The amount available for withdrawal shall be based on the balances of the applicable accounts (and the Elective Deferrals made) as of the Valuation Date on which payment is made. Amounts required to meet the following items are deemed to be for immediate and heavy financial needs:
(a)payments necessary to prevent the eviction of the Eligible Applicant from, or foreclosure of the mortgage on, his principal residence;
(b)expenses for medical care described in Code Section 213(d) incurred by the Eligible Applicant, his Spouse, his children, or his dependents as defined in Code Section 152, or necessary for these persons to obtain medical care described in Section 213(d) of the Code;
(c)costs directly related to the purchase of an Eligible Applicant’s principal residence;
(d)payment of tuition, related educational fees and room and board expenses, for the next 12 months of post-secondary education for the Eligible Applicant, his Spouse, his children, or his dependents (as defined in Code Section 152 without regard to Code Sections 152(b)(1), (b)(2), and (d)(1)(B)); or
(e)payments for burial or funeral expenses for the Eligible Applicant’s deceased parent, his Spouse, his children, or his dependents as defined in Code Section 152, without regard to
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Code Section 152(d)(1)(B) of the Code; or
(f)expenses for the repair of damage to the Eligible Applicant’s principal residence that would qualify for a casualty deduction under Code Section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income).
7.3 Safe Harbor Distribution
A distribution shall be deemed necessary to satisfy an immediate and heavy financial need of an Eligible Applicant if each of the following requirements is satisfied:
(a) the distribution is not in excess of the amount of the immediate and heavy financial need of the Eligible Applicant including any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from such distribution; and
(b) the Eligible Applicant has obtained all other forms of distribution and nontaxable loans currently available from all plans maintained by an Employer.
For periods before January 1, 2019, an Eligible Applicant making a hardship withdrawal under this Article Seven was suspended from making Elective Deferrals to the Plan until the first day of the pay period occurring six full months after the effective date of the withdrawal or, if the effective date of the withdrawal was on or after July 1, 2018, until the first day of the first pay period beginning after January 1, 2019. For the period beginning on January 1, 2019, Eligible Applicants making a hardship withdrawal under this Article Seven will not be suspended from making Elective Deferrals to the Plan.
7.4Hardship Withdrawal Priority
(a)A hardship withdrawal pursuant to Section 7.2 shall be made from the Total Account maintained on behalf of an Eligible Applicant in the order of priority set forth in this Section 7.4. That portion of a Eligible Applicant’s Total Account which is of a lower priority shall be withdrawn only after those portions of the Total Account which are of higher priority have been completely withdrawn:
(i)Designated Roth Account (excluding earnings);
(ii)Roth Catch-Up Account (excluding earnings);
(iii)Roth Rollover Account;
(iv)Roth In-Plan Conversion Account (to the extent not otherwise restricted)
(v)Rollover Account;
(vi)Employer Account;
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(vii)Tax-Deferred Account (excluding earnings); and
(viii)Tax-Deferred Catch-Up Account (excluding earnings).
In no event shall a hardship withdrawal be taken from the Safe Harbor Matching Account maintained on behalf of an Eligible Applicant.
(b)Subsequent to the determination under paragraph (a), withdrawals shall be made out of those investment options in which the applicable account is invested according to the withdrawal hierarchy designated by the Administrator and communicated to Participants.
7.5 Modifications to Hardship Withdrawal Standards
The Company may amend the provisions of this Article in accordance with Article 12. The Administrator may amend the policies adopted hereunder in its discretion, provided that it acts in a reasonable and non-discriminatory fashion in making such changes.
7.6In-Service Withdrawals for Reasons Other than Hardship
Upon proper written application of an Eligible Applicant in such form as the Administrator may specify, the Administrator shall permit the Eligible Applicant to withdraw all or a portion of the Total Account maintained on his behalf as provided in this Section 7.6.
(a) Subject to the provisions of paragraphs (c) through (f) below, an Eligible Applicant on whose behalf a Rollover Account or Roth Rollover Account is maintained may elect to withdraw all or a portion of such accounts without regard to whether the Eligible Applicant has attained a given age or completed a given period of service with the Company or other Employer. For purposes of this Section 7.6, the portion of a Roth In-Plan Conversion Account that is attributable to a Rollover Contribution shall be considered a Rollover Account.
(b) Subject to the provisions of paragraph (c) through (f) below, an Eligible Applicant who has attained age 59-1/2 may elect to withdraw all or a portion of the Total Account maintained on his behalf.
(c) A withdrawal under this Section 7.6 shall be effective as of the date set forth in the Eligible Applicant’s application for withdrawal, as approved by the Plan Administrator. The Administrator shall endeavor to cause the payment of the withdrawal to be made on, or as soon as practicable following, such effective date.
(i) The amount available for withdrawal will be based on the balance(s) of the Eligible Applicant’s applicable accounts or sub-accounts on the Valuation Date as of which the payment of the withdrawal is made.
(ii) Withdrawals shall be made from the applicable accounts and sub-accounts maintained under the Plan on behalf of the Eligible Applicant in such order as the
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Administrator, pursuant to a uniform and nondiscriminatory policy, shall direct and communicate to Eligible Applicants.
(iii) Withdrawals shall be made from the investment funds maintained under the Plan in such order as the Administrator, pursuant to a uniform and nondiscriminatory policy, shall direct and communicate to Eligible Applicants.
(iv) Withdrawals may be paid in the form of a cash payment and/or as a direct rollover at the election of the Eligible Applicant. However, to the extent all or a portion of the applicable account(s) of an Eligible Applicant subject to the withdrawal election are invested in the Erie Indemnity Stock Fund, the Eligible Applicant may elect to receive the withdrawal either (A) in whole units of Erie Indemnity Stock (with fractional units distributed in cash) or (B) in cash.
(v) The minimum amount of withdrawal under this Section 7.6 shall be the lesser of (A) $500 and (B) the balance(s) of the applicable account(s) of the Eligible Applicant from which a withdrawal is requested under paragraphs (a) and/or (b) above.
(d) Notice shall be provided to an Eligible Applicant in connection with any withdrawal and such Notice shall be consistent with rules promulgated by the Secretary of the Treasury or his delegate.
(e) The Administrator, in its discretion, may provide that a reasonable administrative fee be charged to an Eligible Applicant who elects a withdrawal under this Section 7.6. Any such administrative fee shall be pursuant to a uniform and nondiscriminatory policy that is communicated to Eligible Applicants.
(f) The Company may amend the provisions of this Article in accordance with Article 12. The Administrator may amend the policies adopted hereunder in its discretion, provided that it acts in a reasonable and non-discriminatory fashion in making such changes.
7.7 Availability of Loans
Subject to the provisions of Sections 7.7, 7.8 and 7.9, an Eligible Applicant may apply for a loan from the Plan. Any such application shall be approved or denied by the Administrator in accordance with a uniform, non-discriminatory policy and such action by the Administrator shall be final. Plan loans shall be available for the purpose of enabling an Eligible Applicant to meet one of the following unusual or special financial needs of the Eligible Applicant and the Administrator must be satisfied that any loan hereunder is not in excess of the amount necessary to meet the unusual or special financial need:
(a)purchase or construction of the Eligible Applicant’s principal residence;
(b)substantial capital improvements to the Eligible Applicant’s principal residence;
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(c)payment of tuition, related educational fees and room and board expenses, for the next 12 months of post-secondary education for the Eligible Applicant, his Spouse, his children, or his dependents (as defined in Code Section 152 without regard to Code Sections 152(b)(1), (b)(2), and (d)(1)(B));
(d)unreimbursed expenses for medical care described in Code Section 213(d) incurred by the Eligible Applicant, his Spouse, his children, or his dependents as defined in Code Section 152, or necessary for these persons to obtain medical care described in Section 213(d) of the Code;
(e)unreimbursed expenses related to the upcoming adoption of a child who will become the Eligible Applicant’s dependent; or
(f)payment of burial or funeral expenses for the Eligible Applicant’s deceased parent, his Spouse, his children, or his dependents as defined in Code Section 152, without regard to Code Section 152(d)(1)(B).
All loans approved shall be effective as of the “loan effective date” (as hereinafter defined) provided the loan application was submitted to the Administrator within a reasonable time (as determined by the Administrator) prior to the loan effective date. All loans shall be made only in consideration of adequate security. For purposes hereof the term “loan effective date” shall mean the date, mutually agreed upon by the Participant and the Administrator, on which the loan shall be considered effective.
The Administrator may establish rules governing the granting of loans, provided (i) that such rules are not inconsistent with the provisions of Sections 7.7, 7.8 and 7.9, (ii) that any such rules adopted by the Administrator shall be described in the documents supporting the loan transaction and (iii) that loans are made available to all Eligible Applicants on a reasonably equivalent basis and are not made available to Eligible Applicants who are Highly Compensated in an amount greater than the amount made available to other Eligible Applicants.
7.8 Terms and Conditions of Participant Loans
(a) Amount of Loan. At the time the loan is made, the principal amount of the loan, when added to all other outstanding loans of the Participant from the Plan and any other qualified plan of an Employer and Affiliates, shall not exceed the lesser of:
(i) $50,000, as reduced by the excess, if any, of the Eligible Applicant’s highest outstanding loan balance from the Plan during the one-year period ending on the day before the date such new loan is secured over the outstanding balance of loans from the Plan on the date such loan is made; or
(ii) one-half of the current value of the Total Account maintained on behalf of the Eligible Applicant under the Plan.
The current value of a Total Account shall be determined as of the Valuation Date on which the Eligible Applicant initiates the loan process by providing Notice to the
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Administrator or its designee. No loan shall be made in an amount less than $1,000. Any loan amount shall be made in accordance with Section 7.9.
(b) Application for Loan. The Eligible Applicant must give the Administrator adequate written notice, as determined by the Administrator, of the requested amount and desired time for receiving a loan.
(c) Length of Loan. The Eligible Applicant and the Administrator shall arrange for the repayment of a Plan loan. The period of repayment shall not exceed five years from the date the loan is made. All repayment schedules (whether by payroll withholding or otherwise) shall commence as of the next administratively feasible pay period following the disbursement of the loan and shall provide for substantially level amortization of principal and interest. An Eligible Applicant who is on a military leave of absence may elect to extend the term of the loan by the length of such absence. In all other cases, an Eligible Applicant who is on a leave of absence or who terminates employment with the Company and Affiliates must make principal and interest payments in the amount and on such dates as otherwise due. In the event such payments are not made the maturity of the loan shall be accelerated and the outstanding principal amount of the loan, together with all accrued interest, shall be deemed immediately due and distributable at such date or dates as the Administrator deems reasonable and as may be specified by applicable law and regulation. Except as otherwise permitted in Income Tax Regulations, in no event shall the date of deemed distribution extend beyond the end of the calendar quarter next following the calendar quarter in which the payment was not made.
(d) Prepayment. The Eligible Applicant shall be permitted to repay the loan in total as of any date prior to maturity without penalty.
(e) Note. The loan shall be evidenced by a promissory note executed by the Eligible Applicant and delivered to the Administrator. The Eligible Applicant will agree to execute any other documents (e.g., payroll withholding forms) that may be necessary or appropriate to effect the loan.
(f) Interest. All loans shall be considered investments of the Trust and interest shall be charged on the loan at the rate set by the Administrator as of the loan effective date. Such rate, applicable to loans effective in a given calendar quarter, shall be the prime lending rate as determined by the Administrator as of the last business day of the previous calendar quarter, plus 100 basis points, provided that such interest rate may be limited in accordance with law during a period of qualifying military service.
(g) Security. Subject to the extent required under regulations promulgated by the Secretary of Labor or his delegate, a Plan loan shall be secured by an assignment of the Eligible Applicant’s right, title and interest in that portion of his Total Account under the Plan as shall adequately secure the loan, provided such security shall not exceed one-half of the current value of the Eligible Applicant’s vested Total Account. The Administrator may also require such additional collateral as may be deemed necessary to adequately secure repayment of the loan.
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(h) Default. The Administrator shall take reasonable steps to secure repayment of any loan granted hereunder in accordance with its terms; however, when the Administrator declares a loan to an Eligible Applicant to be in default, the outstanding balance of the loan, together with unpaid, accrued interest, shall be deemed a lien against the Total Account maintained on behalf of the Eligible Applicant. The Administrator shall take such reasonable steps as it shall deem necessary or appropriate to eliminate the default before causing an offset distribution to be made with respect to the Eligible Applicant for the purpose of fully amortizing the loan outstanding; however, should the loan remain in default after these administrative procedures are taken, the Administrator will consider the entire amount of the loan outstanding (including all accrued interest to date) as a distribution as of the first date, on or following the administrative procedures, on which the Eligible Applicant has a distributable event and will process the Total Account of the Eligible Applicant accordingly.
(i)Other Terms and Conditions. The Administrator shall fix such other terms and conditions of the loan as it deems necessary to comply with legal requirements, to maintain the qualification of the Plan and Trust Fund under Code Section 401(a), to exempt the loan transaction from the prohibited transaction rules of under Code Section 4975, or to prevent the treatment of the loan for tax purposes as a distribution to the Eligible Participant. The Administrator may fix other terms and conditions of the loan, not inconsistent with the provisions of this Article Fourteen.
(j)No Prohibited Transactions. No loan shall be made unless such loan is exempt from the tax imposed on prohibited transactions by Code Section 4975 or would be exempt from such tax (if the Eligible Participant were a disqualified person as defined in Section 4975(e)(2) of the Code) by reason of Code Section 4975(d)(1).
7.9 Loan Accounts
A loan made by the Plan to a Eligible Applicant in accordance with Sections 7.7 and 7.8 shall be from the Total Account maintained on behalf of such Eligible Applicant and from the investment funds in which such Total Account is invested in such order of priority as the Administrator, pursuant to a uniform and nondiscriminatory policy, shall direct. Payments of principal and interest on loans shall be paid over to the Trustee as soon as possible after each payroll deduction or other repayment and shall be credited to the Total Account of the Eligible Applicant as of the date the repayments are received by the Trustee. An Eligible Applicant’s loan repayments will be credited to such individual’s Total Account in such manner as determined by the Administrator and communicated to Eligible Applicants. The Administrator shall have the authority to establish other reasonable rules, not inconsistent with the provisions of the Plan, governing the establishment and maintenance of loan accounts.
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ARTICLE EIGHT
THE TRUST FUND
8.1 Trust Agreement
The Company has established a trust for the purpose of holding assets of the Trust Fund, and the trust is administered and invested pursuant to a Trust Agreement. The Trust Agreement provides, among other things, that all funds received by the Trustee thereunder shall be held, administered, invested and distributed by the Trustee, and that no part of the corpus or income of the Trust Fund held by the Trustee shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their Beneficiaries. The Administrator may remove such Trustee or any successor Trustee, and any Trustee or any successor Trustee may resign. Upon removal or resignation of a Trustee, the Administrator shall appoint a successor Trustee.
The Administrator shall have authority to direct that there shall be more than one Trustee under the Trust Agreement (or to enter into additional Trust Agreements with respect to separate portions of the Trust Fund) and to determine the portion of the assets under the Trust Agreement to be held by each such Trustee. If such action is taken, the Administrator shall designate the additional Trustee or Trustees, and each Trustee shall hold and invest and keep records with respect to the portion of such assets held by it.
With respect to any Trust Agreement, the Company may be a party with respect to the Company’s rights and obligations as settlor of the Plan’s Trust Fund, but is not a Plan fiduciary. In the event that any Trust Agreement grants powers to the Company (other than powers relating to the Company’s corporate obligations or role as settlor of the Plan’s Trust Fund), the Company shall act as the Administrator’s agent and shall act for and solely at the direction of the Administrator in exercising such powers.
8.2Appointment of Independent Accountants
The Administrator may select a firm of independent public accountants to examine and report on the financial position and the results of the operations of the Trust Fund created under the Plan, at such times as it deems proper and/or necessary.
8.3 Appointment of Investment Manager
The Administrator may select an independent investment manager to invest the portion of the Trust Fund in each of the various funds. Such investment manager shall be either registered as an investment manager under the Investment Adviser’s Act of 1940, a bank, a mutual fund or an insurance company, and as required by the Administrator, shall acknowledge in writing that he is a fiduciary with respect to the Plan.
8.4Role of Administrator in Operation of the Trust Fund
The Administrator shall perform such duties relating to the operation of the Trust Fund as it deems appropriate and shall perform the duties specified in this Section 8.4.
The Administrator shall perform such duties relating to the operation of the Trust Fund as it deems appropriate and shall perform the duties specified in this Section 8.4.
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The Administrator shall have the following responsibilities:
(a)to appoint and remove Trustees;
(b)to appoint investment and fund managers;
(c)to allocate the duties and procedures for the Trustee and investment fund managers;
(d)to select investment funds or other investments to offer under the Plan;
(e)to establish an investment philosophy and goals for each of the investment and fund managers;
(f)to monitor the Trustee with respect to servicing the Trust Fund in a fiduciary capacity; and
(g)to monitor the investment and fund managers including, without limitation, their investment philosophies, goals, and rates of return.
The Administrator may, from time-to-time, designate another person (including, without limitation, an individual, a committee or subcommittee, or a vendor) to carry out any of the Administrator’s responsibilities under this Section 8.4, subject to the limitations imposed by Section 405 of ERISA. The person so designated will have full authority, or such limited authority as the Administrator may specify, to take such actions as are necessary or appropriate to carry out the duties delegated by the Administrator.
8.5Voting of Erie Indemnity Stock
(a) Each Participant or Beneficiary who has an Employer Account or Safe Harbor Matching Account maintained under the Plan on his behalf with an investment in the Erie Indemnity Stock Fund shall have the powers and responsibilities set forth in this Section 8.5.
(b) Prior to each meeting of the Class A shareholders of the Company during which a vote of Class A shares is to be taken, the Company shall cause to be sent to each person described in Section 8.5(a), a copy of the proxy solicitation material for such meeting, together with a form requesting confidential voting instructions for the voting of Erie Indemnity Stock held in the Erie Indemnity Stock Fund in proportion to the number of shares or units of the Erie Indemnity Stock Fund held in such person’s Employer Account. Upon receipt of such a person’s instructions, the Trustee shall then vote in person, or by proxy, such Erie Indemnity Stock as so instructed.
(c) Instructions received from the persons described in Section 8.5(a) by the Trustee regarding the voting of Erie Indemnity Stock held in the Erie Indemnity Stock Fund shall be held in strictest confidence and shall not be divulged to any other person, including directors, officers or employees of the Company, or any Affiliate, except as otherwise required by law.
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(d) Except as otherwise set forth in the Trust Agreement, the Trustee shall vote Erie Indemnity Stock which represents those shares or units of the Erie Indemnity Stock Fund for which the Trustee does not receive affirmative direction from Participants and Beneficiaries in the same proportion as the Trustee votes those shares of Erie Indemnity Stock held in the Erie Indemnity Stock Fund for which it has received voting instructions.
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ARTICLE NINE
ADMINISTRATION OF THE PLAN
9.1The Administrator
The Plan shall be administered by a committee that shall act as Plan Administrator. The members of the administrative committee shall be appointed and removed from time to time by the Vice President, Corporate HR Officer (or, if there is no person holding that title, the person holding a successor title or acting in a similar capacity with respect to the oversight of the Company’s retirement plans), such person to be referred to herein as the “Appointing Officer.” The Company is the Plan sponsor, but it is intended that full fiduciary authority be vested in the administrative committee (and with respect to appointment and oversight of its members, the Appointing Officer), so that neither the Company nor any Affiliate is a fiduciary of the Plan, and the Plan shall be construed accordingly.
(a) Any member of the committee who ceases to be an Employee (or, if appointment was made by job title, who ceases to hold the relevant title or a successor title) will automatically cease to be a committee member unless otherwise expressly agreed.
(b) Any individual who is a member of the administrative committee may resign by delivering his written resignation to the Appointing Officer.
(c) The Appointing Officer may add or remove committee members in his or her sole discretion. In making appointments, the Appointing Officer shall not be limited to any particular person or group, and nothing herein contained shall be construed to prevent any Participant, director, officer, employee or shareholder of the Employers from serving as a member of the administrative committee.
(d) Members of the administrative committee will not be compensated from the Trust Fund for services performed in such capacity, but the Company or Trust Fund will reimburse such individual for expenses reasonably incurred by them in such capacity, subject to compliance with such expense reimbursement policies as may be established from time to time.
(e) The Administrator shall be the “named fiduciary” for purposes of ERISA; provided, however, that Participants and Beneficiaries with Employer Accounts under the Plan shall be considered “named fiduciaries” solely to the extent of those fiduciary duties and responsibilities which are directly related to the exercise of voting rights with respect to Plan interests invested in the Erie Indemnity Stock Fund (and not to other aspects of Plan operation and/or administration). .
(f) The Appointing Officer shall maintain such documentation of committee membership as may be necessary or advisable, and shall provide any notice of membership changes that may be required to the Trustee and other persons.
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9.2Powers of Administrator
The Administrator will have full power to administer the Plan in all of its details, subject, however, to the requirements of ERISA. This power shall include having the sole and absolute discretion to interpret and apply the provisions of the Plan, to determine the rights and status hereunder of any individual, to decide disputes arising under the Plan, and to make any determinations and findings of fact with respect to benefits payable hereunder and the persons entitled thereto as may be required for any purpose under the Plan. Without limiting the generality of the above, the Administrator is hereby granted the following authority which it shall discharge in its sole and absolute discretion in accordance with Plan provisions as interpreted by the Administrator:
(a)To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan, including the modification of the claims procedure under Article Ten in accordance with any regulations issued under Section 503 of ERISA.
(b)To interpret the Plan.
(c)To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan, his period of participation and/or service under the Plan, his date of birth, the value of the Total Account, or any part thereof, maintained on behalf of the person and the rights of any person to receive a distribution from the Plan and the amount of such distribution.
(d)To determine the character and amount of Tax Deferred Contributions, Roth Elective Deferrals, Tax Deferred Catch-Up Contributions, Roth Catch-Up Contributions and Safe Harbor Matching Contributions to be made on behalf of any Participant in accordance with the provisions of the Plan.
(e)To identify the proper payee of any portion of a Total Account, to authorize the payment of Plan benefits and to direct cessation of benefit payments.
(f)To appoint, employ or engage such other agents, counsel, accountants, consultants and actuaries as may be required to assist in administering the Plan.
(g)To establish procedures to determine whether a domestic relations order is a qualified domestic relations order within the meaning of Section 414(p) of the Code, to determine under such procedures whether a domestic relations order is a qualified domestic relations order and whether a putative alternate payee otherwise qualifies for benefits hereunder, to inform the parties to the order as to the effect of the order, and to direct the Trustee to hold in escrow or pay any amounts so directed to be held or paid by the order.
(h)To obtain from the Employers, Employees, Participants, Spouses and Beneficiaries such information as shall be necessary for the proper administration of the Plan.
(i)To perform all reporting and disclosure requirements imposed upon the Plan by ERISA, the Code or any other lawful authority.
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(j)To ensure that procedures are established which are sufficient to safeguard the confidentiality of information relating to the purchase, holding, and sale of Erie Indemnity Stock held in the Erie Indemnity Stock Fund and the exercise of shareholder rights with respect to Erie Indemnity Stock held in the Erie Indemnity Stock Fund and to ensure such procedures are being followed.
(k)To appoint and remove an independent fiduciary for the purpose of carrying out activities relating to any situations which the Administrator determines involves an unreasonable potential for undue Employer influence with regard to the direct or indirect exercise of shareholder rights with respect to Erie Indemnity Stock holdings in the Erie Indemnity Stock Fund.
(l)To take such steps as it, in its discretion, considers necessary and/or appropriate to remedy an inequity under the Plan that results from incorrect information received or communicated or as the consequence of administrative error including, but not limited to, recouping benefit overpayments.
(m)To correct any defect, reconcile any inconsistency or supply any omission under the Plan.
(n)To delegate its powers and duties to others in accordance with Section 9.3.
(o)To exercise such other authority and responsibility as is specifically assigned to it under the terms of the Plan or the provisions of the Administrator’s charter and to perform any other acts necessary to the performance of its powers and duties.
(p)To determine if and when Participants and Beneficiaries must be notified of any temporary suspension, limitation or restriction of their ability to execute various transactions under the Plan (including any notice required by Section 101(i) of ERISA) and to determine the content and method of distribution of any such notification.
The Administrator at its discretion may either request the Company or direct the Fund to pay for any or all services rendered by the Trustee, any investment manager, and by persons appointed, employed or engaged under Section 9.2(f) or under the terms of the Trust Agreement.
The Administrator’s interpretations, decisions, computations and determinations under this Section 9.2 which are made in good faith will be final and conclusive upon the Employers, all Participants and all other persons concerned. Any action taken by the Administrator with respect to the rights or benefits of any person under the Plan shall be revocable by the Administrator as to payments or distributions not theretofore made, pursuant to such action, from the Trust Fund; and appropriate adjustments may be made in future payments or distributions to a Participant, Spouse or Beneficiary to offset any excess payment or underpayment previously made to such Participant, Spouse or Beneficiary from the Trust Fund. No ruling or decision of the Administrator in any one case shall create a basis for a retroactive adjustment in any other case prior to the date of a written filing of each specific claim.
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9.3Delegation of Duties
The Administrator may, from time to time, designate any person (including, without limitation, an individual, a committee or subcommittee, or a vendor) to carry out any of the responsibilities of the Administrator, subject to the limitations imposed by Section 405 of ERISA. The person so designated will have full authority, or such limited authority as the Administrator may specify, to take such actions as are necessary or appropriate to carry out the duties delegated by the Administrator.
9.4Conclusiveness of Various Documents
The Administrator and the Company and its directors and officers will be entitled to rely upon all tables, valuations, certificates and reports furnished by any actuary, accountant, counsel or other expert appointed, employed or engaged by the Administrator or the Company.
9.5Actions to be Uniform
Any discretionary actions to be taken under the Plan by the Administrator will be nondiscriminatory and uniform with respect to all persons similarly situated.
9.6Liability and Indemnification
To the full extent allowed by law, the Administrator shall not incur any liability to any Participant or Beneficiary, or to any other person, by reason of any act or failure to act on the part of the Administrator if such act or omission is not the result of the Administrator’s gross negligence, willful misconduct or exercise of bad faith. To the full extent allowed by law, the Company agrees to indemnify the Administrator against all liability and expenses (including reasonable attorney’s fees and other reasonable expenses) occasioned by any act or omission to act if such act or omission is not the result of the Administrator’s gross negligence, willful misconduct or exercise of bad faith. Neither this Section 9.6 nor any other provision of this Plan
shall be applied to invalidate, modify, or limit in any respect any contract, agreement, or arrangement for indemnifying or insuring the Administrator against, or otherwise limiting, such liability or expense, or for settlement of such liability, to the extent such contract, agreement, or arrangement is not precluded by the terms of Section 410 of ERISA.
shall be applied to invalidate, modify, or limit in any respect any contract, agreement, or arrangement for indemnifying or insuring the Administrator against, or otherwise limiting, such liability or expense, or for settlement of such liability, to the extent such contract, agreement, or arrangement is not precluded by the terms of Section 410 of ERISA.
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ARTICLE TEN
CLAIMS PROCEDURE AND CLAIMS LITIGATION
10.1 Claims Review Procedure
The Administrator shall be responsible for the claims procedure under the Plan. The claims procedure established by the Administrator shall comply with regulations adopted by the Secretary of Labor of the United States. This procedure shall require the Administrator to provide adequate written notice to any person whose claim is denied in whole or in part, specifying the reasons for denial in a manner calculated to be understood by such person. The Administrator shall give any person whose claim has been denied a reasonable opportunity for a full and fair review by the Administrator of its decision, and shall inform the claimant of the steps he must take to obtain a review of the Administrator’s decision. The Administrator shall provide the claimant with reasonable access to, and copies of, all relevant documents and other information in accordance with regulatory requirements, provided that unless otherwise required by ERISA, the claimant’s rights shall be limited by applicable attorney-client privilege, attorney work-product privilege, and other applicable privilege rules.
10.2 Determination by the Administrator Conclusive
The Administrator’s determination of factual matters relating to Participants, Beneficiaries and alternate payees shall be conclusive. The Administrator and the Company and its respective officers and directors shall be entitled to rely upon all tables, valuations, certificates and reports furnished by any accountant for the Plan, the Trustee or any investment managers and upon opinions given by any legal counsel for the Plan insofar as such reliance is consistent with ERISA. The Trustee and other service providers may act and rely upon all information reported to them by the Administrator and/or the Company and need not inquire into the accuracy thereof nor shall be charged with any notice to the contrary. In accordance with Section 11.10, the Administrator may rely on the Employer’s records, and to the extent a claimant asserts entitlement to benefits or other rights based upon facts not contained in the Plan’s records, such person shall be required to provide satisfactory affirmative evidence of such facts, and the Administrator shall have the sole and exclusive discretion to determine whether the affirmative evidence is satisfactory.
The Administrator’s determination of factual matters relating to Participants, Beneficiaries and alternate payees shall be conclusive. The Administrator and the Company and its respective officers and directors shall be entitled to rely upon all tables, valuations, certificates and reports furnished by any accountant for the Plan, the Trustee or any investment managers and upon opinions given by any legal counsel for the Plan insofar as such reliance is consistent with ERISA. The Trustee and other service providers may act and rely upon all information reported to them by the Administrator and/or the Company and need not inquire into the accuracy thereof nor shall be charged with any notice to the contrary. In accordance with Section 11.10, the Administrator may rely on the Employer’s records, and to the extent a claimant asserts entitlement to benefits or other rights based upon facts not contained in the Plan’s records, such person shall be required to provide satisfactory affirmative evidence of such facts, and the Administrator shall have the sole and exclusive discretion to determine whether the affirmative evidence is satisfactory.
10.3 Exhaustion of Administrative Remedies.
The exhaustion of the claims review procedure is mandatory for resolving every claim and dispute involving the Plan. As to such claims and disputes:
The exhaustion of the claims review procedure is mandatory for resolving every claim and dispute involving the Plan. As to such claims and disputes:
(a)No claimant shall be permitted to commence any civil action or demand arbitration to recover Plan benefits or to enforce or clarify rights under the Plan under Section 502 or Section 510 of ERISA or under any other provision of law, whether or not statutory, until the claims review procedure set forth herein has been exhausted in its entirety; and
(b)In any such civil action or arbitration proceeding all explicit and all implicit determinations by the Administrator (including, but not limited to, determinations as to
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whether the claim, or a request for a review of a denied claim, was timely filed) shall be afforded the maximum deference permitted by law.
10.4 Arbitration
In the event that a claimant’s claim is denied by the Administrator and the claimant has exhausted all remedies (including all mandatory levels of appeal) under the Plan’s claims procedures, the claimant or the Administrator will have the right to compel binding arbitration with respect to the claim. The process and procedure shall be governed by the Employer’s arbitration policy, if any, and if none, by the rules of the American Arbitration Association for commercial transactions. The arbitrator will be bound by the substantive terms of the Plan and ERISA (including, but not limited to, the standard of review required by ERISA, which requires the arbitrator to defer to the Administrator and its factual findings and interpretations unless such findings and interpretations are arbitrary and capricious and requires that any assertions the claimant wishes to present to an arbitrator or court first have been presented in the claims and appeals process). Claims may not be litigated or arbitrated on a class action basis or on bases involving claims brought in a representative capacity on behalf of any other similarly situated party. All claims pertaining to the Plan shall be required to be submitted to binding arbitration in this manner, unless such a requirement is prohibited by applicable law or regulation. Except with respect to claims as to which binding arbitration may not be compelled, no claim may be brought in any other manner.
10.5 Forum Selection
Any arbitration proceeding or civil action with respect to a claim involving the Plan must, unless otherwise agreed by the Administrator or required by law, take place in Erie, Pennsylvania (and, in the case of a civil action, in the federal district court serving Erie, Pennsylvania). Enforcement of an arbitrator’s award may be sought in federal court in accordance with the Federal Arbitration Act, with any such enforcement action to be filed in the federal district court serving Erie, Pennsylvania.
10.6 Deadline to File Civil Action or Demand Arbitration
No civil action or arbitration proceeding, as applicable, to recover Plan benefits or to enforce or clarify rights under the Plan under Section 502 or Section 510 of ERISA or under any other provision of law, whether or not statutory, may be brought by any claimant on any matter pertaining to the Plan unless the civil action or arbitration proceeding, as applicable, is commenced in the proper forum before the earlier of:
No civil action or arbitration proceeding, as applicable, to recover Plan benefits or to enforce or clarify rights under the Plan under Section 502 or Section 510 of ERISA or under any other provision of law, whether or not statutory, may be brought by any claimant on any matter pertaining to the Plan unless the civil action or arbitration proceeding, as applicable, is commenced in the proper forum before the earlier of:
(a)Twelve months after the claimant knew or reasonably should have known of the principal facts on which the claim is based; or
(b)Ninety days after the claimant has exhausted the claims review procedure.
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ARTICLE ELEVEN
MISCELLANEOUS
11.1Non-Alienation of Benefits
(a)Except as provided in Section 11.1(b) or 11.1(c), no benefit payable under the Plan shall be subject in any manner to anticipation, sale, transfer, assignment, pledge, encumbrance, security interest or charge, and any action by way of anticipating, alienating, selling, transferring, assigning, pledging, encumbering, charging or granting a security interest in the same shall be void and of no effect; nor shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit.
(b)Section 11.1(a) shall not apply to the creation, assignment, or recognition of a right to any benefit payable pursuant to a Qualified Domestic Relations Order. The Administrator shall establish reasonable procedures to determine the status of domestic relations orders and to administer distributions under such orders which are deemed to be Qualified Domestic Relations Orders. Such procedures shall be in writing and shall comply with the provisions of Section 414(p) of the Code. To the extent that, because of a Qualified Domestic Relations Order, more than one individual is to be treated as a surviving Spouse, the total amount payable from the Plan as a result of the death of a Participant shall not exceed the amount that would be payable from the Plan if there were only one surviving Spouse.
(c)Notwithstanding the provisions of Section 11.1(a), the Plan may offset any portion of the Total Account maintained on behalf of a Participant or Beneficiary against a claim of the Plan arising:
(i)as a result of the Participant’s or Beneficiary’s conviction of a crime involving the Plan; or
(ii)with regard to the Participant’s or Beneficiary’s violation of ERISA’s fiduciary provisions upon:
(A)the entry of any civil judgment, consent order, or decree against the Participant or Beneficiary; or
(B)the execution of any settlement agreement between the Participant and the Department of Labor or Pension Benefit Guaranty Corporation.
The provisions of this Section 11.1(c) shall apply only to orders, judgments, decrees and settlements issued or entered into which expressly provide for such offset.
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11.2Risk to Participants and Source of Payments
Each Participant assumes all risk in connection with any decrease in the value of any investment fund in the Trust Fund, and the Trust Fund shall be the sole source of any payments to be made to Participants or their Beneficiaries as a result of any right specifically granted under the terms of the Plan.
11.3 Expenses
Subject to any restriction applicable under Section 5.4(a), brokerage fees, transfer taxes and other expenses incurred by the Trustee in connection with the purchase or sale of securities may be added to the cost of such securities or deducted from the proceeds thereof, as the case may be. Earnings credited to accounts invested in mutual funds shall be net of direct fund management expenses. Refunds of fund management expenses shall be allocated to Participant and Beneficiary accounts as earnings in such manner as provided by the Administrator. Recordkeeping fees shall be assessed directly against the Total Accounts maintained on behalf of Participants and Beneficiaries and expenses associated with specified Plan transactions shall be assessed directly against the Total Account maintained on behalf of the Participant or Beneficiary participating in such a transaction pursuant to a uniform and nondiscriminatory policy adopted by the Administrator in its discretion and communicated to Participants and Beneficiaries.
All other costs and expenses incurred in administering the Plan shall be paid by the Company or an Employer, unless the Administrator authorizes the payment of such expenses from the Trust Fund.
11.4Rights of Participants
No Participant or Beneficiary shall have any right or interest under the Plan unless and until he becomes entitled thereto as provided in the Plan. The adoption and maintenance of the Plan shall not be deemed to constitute a contract between an Employer and any Employee or Participant. Inclusion in the Plan will not affect an Employer’s right to discharge or otherwise discipline Employees and membership in the Plan will not give any Employee the right to be retained in the service of an Employer nor any right or claim to a benefit unless such right is specifically granted under the terms of the Plan.
The Plan shall be binding on all Participants and their Spouses and Beneficiaries and upon heirs, executors, administrators, successors, and assigns of all persons having an interest herein. The provisions of the Plan in no event shall be considered as giving any such person any legal or equitable right against the Company, an Employer or an Affiliate, any of its officers, employees, directors, or shareholders, or against the Trustee, except such rights as are specifically provided for in the Plan or created in accordance with the terms of the Plan.
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11.5Statement of Accounts
As soon as practicable after the last day of March, June, September and December, or such other time or times as the Administrator shall designate, the Administrator shall cause to be sent to each current or former Participant a written statement of his account.
11.6Designation of Beneficiary
(a)Each Participant shall give Notice regarding the designation of a Beneficiary or Beneficiaries who shall receive payment of the Participant’s interest under the Plan in the event of his death. Such Notice shall be provided to the Administrator or its designee within such time and in accordance with such means as are designated by the Administrator and communicated to Participants. If the Participant is married, the Participant’s Beneficiary must be his Spouse (in accordance with Code Section 401(a)(11)(B)(iii)) unless Spousal Consent requirements are satisfied. In the event a Participant dies and there is no properly designated Beneficiary then living, the interest of the Participant under the Plan shall be paid in a lump sum to his surviving Spouse, or, if there is no surviving Spouse, to his estate or other successor, all as the Administrator may determine.
(b)A Beneficiary entitled to a payment of all or a portion of a Participant’s Total Account due to the death of the Participant may disclaim his interest therein subject to the following requirements. To be eligible to disclaim, a Beneficiary must be a natural person, must not have received a distribution of all or any portion of said Total Account at the time such disclaimer is executed and delivered, and must have attained at least age twenty-one (21) years as of the date of the Participant’s death. Any disclaimer must be in writing and must be executed personally by the Beneficiary before a notary public. A disclaimer shall state that the Beneficiary’s entire interest is disclaimed or shall specify what portion thereof is disclaimed. To be effective, an original executed copy of the disclaimer must be both executed and actually delivered to the Administrator after the date of the Participant’s death but not later than one hundred eighty (180) days after the date of the Participant’s death. A disclaimer shall be irrevocable when delivered to the Administrator. A disclaimer shall be considered to be delivered to the Administrator only when actually received by the Administrator. The Administrator shall be the sole judge of the content, interpretation and validity of a purported disclaimer. Upon the filing of a valid disclaimer, the Beneficiary shall be considered not to have survived the Participant as to the interest disclaimed. A disclaimer by a Beneficiary shall not be considered to be a transfer of an interest or an assignment or alienation of benefits in violation of Section 11.1 hereof. No other form of attempted disclaimer shall be recognized by the Administrator.
11.7Payment to Incompetents
If any person entitled to receive any benefits hereunder is a minor, or is in the judgment of the Administrator, legally, physically, or mentally incapable of personally receiving and receipting for any distribution, the Administrator may instruct the Trustee to make distribution to such other person, persons or institutions who, in the judgment of the Administrator, are then maintaining or
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have custody of such distributee. As a condition to the issuance of such instruction for the distribution to such other person or institution, the Administrator may require such person or institution to exhibit or to secure an order, decree or judgment of a court of competent jurisdiction with respect to the incapacity of the person who would otherwise be entitled to receive the benefits.
11.8Authority to Determine Payee
The determination of the Administrator as to the identity of the proper payee of any benefit under the Plan and the amount of such benefit properly payable shall be conclusive, and payment in accordance with such determination shall constitute a complete discharge of all obligations on account of such benefit.
11.9Severability
If any provision of this Plan is held to be invalid or unenforceable, such determination shall not affect the other provisions of this Plan. In such event, this Plan shall be construed and enforced as if such provision had not been included herein.
11.10Employer Records
The records of a Participant’s Employer shall be presumed to be conclusive of the facts concerning his employment or non-employment, periods of service and Compensation unless shown beyond a reasonable doubt to be incorrect.
11.11Limitation on Contributions
(a) In no event shall the total annual additions on behalf of a Participant under this Plan and under any other defined contribution plan or plans maintained by the Employer with respect to any limitation year exceed the lesser of $66,000 (or such dollar figure, as increased in accordance with Section 415(d) of the Code for years up to and including the given limitation year) or 100% of the Test Compensation, paid to the Participant by an Employer within such limitation year. All amounts contributed to any defined contribution plan maintained by an Employer or an Affiliate (taking into account Section 415(h) of the Code) other than any rollover contribution and any salary reduction contribution to a simplified employee pension shall be aggregated with contributions made by an Employer under this Plan in computing any Employee’s total annual additions limitation. For purposes hereof, the limitation year shall be the calendar year.
For purposes of this section, “total annual additions” for any limitation year shall mean the sum of the following:
(i) Employer contributions under this Plan and under any other defined contribution plan maintained by an Employer or Affiliate;
(ii) Reallocated forfeitures under any defined contribution plan maintained by an Employer or Affiliate;
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(iii) After-tax contributions under any other defined contribution plan maintained by an Employer or Affiliate; and
(iv) Amounts allocated to an individual medical account, as defined in Section 415(1)(2) of the Code, as part of a pension or annuity plan and amounts derived from contributions paid or accrued which are attributable to post-retirement medical benefits described in Section 419A(d) of the Code, under a welfare benefit fund (as defined in Section 419(e) of the Code) maintained by an Employer or Affiliate.
Catch-Up Contributions under Section 3.3, make-up contributions on account of qualified military service under Section 414(u) of the Code and loan repayments under Section 7.8 shall not be recognized as annual additions for purposes of this section.
(b) In the event that a Participant’s total annual additions for any limitation year exceed the limitations of Section 11.11(a) because of a reasonable error in estimating the Participant’s Compensation, a reasonable error in determining the amount of Elective Deferrals that a Participant may make within the limitations of paragraph (a) above or due to such other facts and circumstances as the Commissioner of Internal Revenue finds justifiable, the excess amount shall be eliminated and/or the error corrected in a manner prescribed under the IRS Employee Plans Compliance Resolution System.
(c) Notwithstanding anything herein to the contrary, in no event shall Test Compensation, for purposes of this Section 11.11, include severance pay. However, the following types of remuneration, if includible for purposes of Test Compensation as described in paragraph (a) above, shall be taken into account only if paid by the later of the date that is 2-1/2 months after the date of severance from employment with an Employer or the end of the limitation year that includes the date of severance from employment with the Employer, if the amounts would have been included in compensation had they been paid before the severance from employment date:
(i) The payment for services rendered during the Participant’s regular working hours, or for services outside of the Participant’s regular working hours such as overtime or shift differential, commissions, bonuses or other similar payments that would have been paid had the Participant not incurred a severance from employment.
(ii) Payments of unused accrued bona fide sick, vacation or other leave provided the Participant would have been able to use the leave if employment had continued, or payments from a nonqualified unfunded deferred compensation plan, provided the payment would have been paid had the Participant not incurred a severance from employment and such payment would have been includible in gross income had such payment been made.
(iii) If the Employer continues to provide remuneration to a Participant due to the Participant’s disability or to a Participant who is not performing services because of qualified military service, as defined in Code Section 414(u), in an amount that
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is not in excess of that which would have been payable to the Participant as compensation had the Participant not entered qualified military service, such amounts will be included in Test Compensation for purposes of this Section.
(d) The sole purpose of this Section is to comply with the formal requirements of Section 415(c) of the Code and the terms of this Section shall be interpreted, applied and if and to the extent necessary, shall be deemed modified so as to satisfy solely the minimum requirements of Section 415(c) of the Code and the regulations promulgated with respect thereto.
11.12IRC 414(u) Compliance Provision
Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service (as hereinafter defined) shall be provided in accordance with Section 414(u) of the Code.
(a)As provided by Section 414(u) of the Code, “qualified military service” means service in the uniformed services (as defined in Chapter 43 of Title 38, United States Code) by an individual if he is qualified under such chapter to reemployment rights with the Company or an Affiliate following such military service.
(b)“USERRA” means the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended.
(c)If an individual returns to employment with the Company or an Affiliate following a period of qualified military service under circumstances such that he has reemployment rights under USERRA, and the individual reports for said reemployment within the time frame required by USERRA, the following provisions apply:
(i) The Employee may elect to have “make up” Elective Deferrals made on his behalf following his period of qualified military service to the extent he could have made Elective Deferrals had he remained a Covered Employee under the Plan during his qualified military service. To the extent such “make up” Elective Deferrals are made by the Employee within such period as provided by law, such contributions shall be matched under this Plan according to the same conditions and at the same rate as the Elective Deferrals would have been matched had they actually been made during the period of qualified military service.
(ii) The period of qualified military service shall be recognized for purposes of determining Years of Eligibility Service under the Plan to the same extent it would have been had the Employee remained continuously employed with the Company or an Affiliate rather than leaving active employment to go into qualified military service.
(iii)Compensation and Test Compensation shall be determined for the individual during the period of qualified military service. The amount of Compensation and Test Compensation shall be determined by the Administrator consistent with the
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requirements of the USERRA, and shall reflect the Administrator’s best estimate of the earnings the individual would have received but for the qualified military service.
(iv) Notwithstanding the foregoing, investment earnings or losses applicable to any contributions hereunder shall be credited only with respect to periods following the actual deposit of such contributions.
(d)The Plan shall comply with the provisions of the Heroes Earnings Assistance and Relief Tax Act of 2008 (the “HEART Act”), which amended certain provisions of USERRA.
(i) If a Participant dies while performing qualified military service and such death occurs on or after January 1, 2007, the Participant’s Beneficiary shall receive the same benefits under the Plan as if the Participant had returned to employment as a Covered Employee immediately prior to his death and then terminated employment on account of his death.
(ii) A Participant performing qualified military service on or after March 1, 2009 for a period of at least 30 days and who has not incurred a severance from employment may elect to withdraw in cash all or a portion of his Tax Deferred Account. Such a Participant shall be suspended from making Elective Deferrals to the Plan until the first day of the pay period occurring six full months after the effective date of the withdrawal.
(iii) Effective March 1, 2011, a Participant who is called to qualified military service for a period in excess of 179 days, or for an indefinite period, and who has not incurred a severance from employment, may elect to withdraw in cash all or a portion of his Tax Deferred Account.
(iv) A withdrawal under this Section 11.12(d) must be effective during a Participant’s period of qualified military service and before the Participant has otherwise incurred a severance from employment with the Employer and Affiliates.
(v) The provisions of Sections 7.6(c) through 7.6(f) shall apply to the withdrawals under this Section 11.12(d), substituting “Participant” for “Eligible Applicant” thereunder.
(e) The foregoing provisions are intended to provide the benefits required by USERRA and the HEART Act, and are not intended to provide any other benefits. This Section shall be construed consistent with said intent.
11.13Governing Law
Except as provided under federal law, the provisions of the Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania.
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ARTICLE TWELVE
AMENDMENT, TERMINATION OR MERGER OF THE PLAN
12.1Right to Amend
The Company reserves the right at any time or times to modify or amend the Plan; provided, however, that no such modification or amendment shall be made which would:
(a) increase the duties or liabilities of the Trustee without its written consent; or
(b) impermissibly divest a Participant of any portion of his Total Account hereunder that has accrued to him prior to the effective date of such amendment, or reduce or eliminate such Participant’s vested status or other rights pertaining thereto in violation of Section 411(d)(6) of the Code (provided that otherwise-protected rights may be reduced, modified or eliminated as permitted by the Treasury Regulations); or
(c) cause or permit any portion of the Trust Fund to be converted to or become the property of the Company; or
(d) cause any portion of the Trust Fund to be used for purposes other than the exclusive benefit of the Participants or their Beneficiaries;
unless such modification or amendment is necessary or appropriate to enable the Plan or Trust Fund to qualify under Section 401 of the Code, as amended from time to time, or to retain for the Plan or Trust Fund such qualified status.
Any such modification or amendment to this Plan shall be evidenced by a written instrument adopted by the Board. Any such written instrument shall recite at which time the amendments contained therein shall become effective.
Promptly after an amendment to this Plan shall have become effective, the Company, or Administrator, as the case may be, shall cause a copy of such amendment to be filed with the Administrator and with the Trustee. The Administrator shall take such steps as it may deem appropriate and reasonable to communicate the amendment to Participants.
12.2Right to Terminate
(a) Although it is the expectation of the Company that it will continue the Plan as a permanent retirement program for the benefit of the Employees eligible hereunder, the Company reserves the right at any time, by action of its Board, at its sole discretion, to terminate the Plan in whole or in part. There shall be no liability or obligation on the part of an Employer to make any further contributions to the Trust Fund in the event of the termination of the Plan.
(b) Notwithstanding anything to the contrary contained herein, Trustee’s fees and other expenses incident to the operation and management of the Plan incurred after the
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termination of the Plan may, at the discretion of the Administrator, be paid from assets of the Trust Fund that are not part of any Participant’s Total Account.
(c) In the event of the termination of the Plan in whole or in part or in the event of the complete discontinuance of Employer contributions under the Plan, each affected Participant’s interest in the Trust Fund shall become 100% vested and shall be nonforfeitable.
12.3Merger, Transfer of Assets or Liabilities
The Company may merge or consolidate the Plan with, transfer assets and liabilities of the Plan to, or receive a transfer of assets and liabilities from, any other plan without the consent of any other Employer or other person, if such transfer is effected in accordance with applicable law and if such other plan meets the requirements of Code Sections 401(a) and 501(a), permits such transfer or the receipt of such transfer and, with respect to liabilities to be transferred from this Plan to such other plan, satisfies the requirements of Code Sections 411(d)(6). This Plan may not be merged or consolidated with any other plan, nor may any assets or liabilities of this Plan be transferred to any other plan, unless the terms of the merger, consolidation or transfer are such that each Participant in the Plan would, if the Plan were terminated immediately after such merger, consolidation or transfer, receive a benefit equal to or greater than the benefit he would have been entitled to receive if this Plan had terminated immediately prior to the merger, consolidation or transfer.
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ARTICLE THIRTEEN
TOP HEAVY PROVISIONS
13.1Top Heavy Provisions Inapplicable
The Plan is a cash or deferred arrangement described in Section 416(g)(4)(H) of the Code and, as a result, is deemed to not be a top heavy plan.
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Executed at Erie, Pennsylvania, this 19th day of June, 2023.
| ERIE INDEMNITY COMPANY | ||||||||||||||
| ATTEST: | /s/ Nathaniel Ehrman | By: | /s/ Brian W. Bolash | |||||||||||
| Title: | Executive Vice President Secretary & General Counsel | |||||||||||||
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Exhibit 10.4
Erie Insurance Group
RETIREMENT PLAN FOR EMPLOYEES
As Amended and Restated Effective December 31, 2022
Erie Insurance Group
RETIREMENT PLAN FOR EMPLOYEES
As Amended and Restated Effective December 31, 2022
Table of Content
| ARTICLE I - INTRODUCTION | 1 | |||||||
| ARTICLE II - DEFINITIONS | 2 | |||||||
| 2.1 | “Accrued Pension” | 2 | ||||||
| 2.2 | “Actuary” | 2 | ||||||
| 2.3 | “Administrator” | 2 | ||||||
| 2.4 | “Affiliate” | 2 | ||||||
| 2.5 | “Anniversary Date” | 2 | ||||||
| 2.6 | “Annuity Starting Date” | 2 | ||||||
| 2.7 | “Beneficiary” | 3 | ||||||
| 2.8 | “Board of Directors” or “Board” | 3 | ||||||
| 2.9 | “Code” | 3 | ||||||
| 2.10 | “Company” | 3 | ||||||
| 2.11 | “Compensation” | 3 | ||||||
| 2.12 | “Covered Employee” | 4 | ||||||
| 2.13 | “Credited Service” | 4 | ||||||
| 2.14 | “Date of Hire” | 5 | ||||||
| 2.15 | “Date of Severance” | 5 | ||||||
| 2.16 | “Earliest Retirement Age” | 5 | ||||||
| 2.17 | “Effective Date” | 5 | ||||||
| 2.17A | “Eligibility Service” | 5 | ||||||
| 2.18 | “Employee” | 5 | ||||||
| 2.19 | “Employer(s)” | 6 | ||||||
| 2.19A | “Entry Date” | 6 | ||||||
| 2.20 | “ERISA” | 6 | ||||||
| 2.21 | “Final Average Earnings” | 6 | ||||||
| 2.22 | “Highly Compensated” | 6 | ||||||
| 2.23 | “Hour of Service” | 7 | ||||||
| 2.24 | “Leased Employee” | 7 | ||||||
| 2.25 | “Maternity or Paternity Absence” | 8 | ||||||
| 2.26 | “Normal Retirement Age” | 8 | ||||||
| 2.27 | “Normal Retirement Date” | 8 | ||||||
| 2.28 | “Participant” | 8 | ||||||
| 2.28A | “Part-Time Employee” | 8 | ||||||
| 2.29 | “Period of Severance” | 8 | ||||||
| 2.30 | “Plan” or “Pension Plan” | 9 | ||||||
| 2.31 | “Plan Year” | 9 | ||||||
| 2.32 | “Service” | 9 | ||||||
| 2.33 | “Social Security Covered Compensation” | 9 | ||||||
| 2.34 | “Spouse” | 9 | ||||||
i
| 2.35 | “Test Compensation” | 9 | ||||||
| 2.36 | “Total and Permanent Disability” | 11 | ||||||
| 2.37 | “Trust Agreement” | 11 | ||||||
| 2.38 | “Trustee” | 11 | ||||||
| 2.39 | “Trust Fund” or “Fund” | 11 | ||||||
| ARTICLE III - ADMINISTRATION OF THE PLAN | 12 | |||||||
| 3.1 | Pension Administrator | 12 | ||||||
| 3.2 | Powers | 13 | ||||||
| 3.3 | Delegation of Duties | 15 | ||||||
| 3.4 | Administrator as Named Fiduciary | 15 | ||||||
| 3.5 | Conclusiveness of Various Documents | 15 | ||||||
| 3.6 | Actions to be Uniform | 15 | ||||||
| 3.7 | Liability and Indemnification | 15 | ||||||
| 3.8 | Claims Review Procedure | 16 | ||||||
| 3.9 | Exhaustion of Administrative Remedies | 17 | ||||||
| 3.10 | Deadline to File Civil Action | 18 | ||||||
| 3.11 | Waiver of Participation | 18 | ||||||
| 3.12 | Participation Date of Covered Employee | 18 | ||||||
| ARTICLE IV - SERVICE PROVISIONS | 19 | |||||||
| 4.1 | Service | 19 | ||||||
| 4.1A | Eligibility Service | 19 | ||||||
| 4.2 | Credited Service | 19 | ||||||
| 4.3 | Loss and Reinstatement of Service | 20 | ||||||
| 4.4 | Transfer To Other Employment | 20 | ||||||
| 4.5 | Transfer From Other Employment | 21 | ||||||
| ARTICLE V - ELIGIBILITY FOR PENSIONS | 22 | |||||||
| 5.1 | Normal Retirement | 22 | ||||||
| 5.2 | Early Retirement | 22 | ||||||
| 5.3 | Disability Retirement | 22 | ||||||
| 5.4 | Vesting | 23 | ||||||
| ARTICLE VI - AMOUNT OF PENSIONS | 24 | |||||||
| 6.1 | Normal Retirement Pension | 24 | ||||||
| 6.2 | Early Retirement Pension | 24 | ||||||
| 6.3 | Disability Retirement Pension | 24 | ||||||
| 6.4 | Deferred Pension Upon Termination of Service | 25 | ||||||
| 6.5 | Increase in Pension for Certain Retired Participants | 26 | ||||||
| 6.6 | Offset of Accruals by Plan Distributions | 26 | ||||||
| 6.7 | Non-Duplication of Benefits | 26 | ||||||
| ARTICLE VII - COMMENCEMENT AND DURATION OF PENSIONS | 27 | |||||||
| 7.1 | Normal and Early Retirement Pensions | 27 | ||||||
| 7.2 | Disability Retirement Pension | 27 | ||||||
| 7.3 | Deferred Vested Pension | 28 | ||||||
| 7.4 | Reemployment of a Retired Participant | 29 | ||||||
| 7.5 | Automatic Surviving Spouse’s Pension | 31 | ||||||
| 7.6 | Requirement for Spouse Consent | 33 | ||||||
| 7.7 | Optional Forms of Pensions | 33 | ||||||
| 7.8 | Payment of Small Pension | 35 | ||||||
| 7.9 | Repayment of Cashout on Reemployment | 37 | ||||||
ii
| 7.10 | Delay in Commencement of Pension Payments | 37 | ||||||
| 7.11 | Direct Rollover of Eligible Rollover Distributions. | 39 | ||||||
| 7.12 | Change to Pension Payments in Connection with Qualifying Event | 42 | ||||||
| 7.13 | 2019 Lump Sum Payment Option Window | 45 | ||||||
| 7.14 | Payment Option Window for Eligible Persons | 51 | ||||||
| 7.15 | 2021 Lump Sum Payment Option Window | 58 | ||||||
| ARTICLE VIII - DEATH BENEFITS | 66 | |||||||
| 8.1 | Death Prior to Retirement or Severance | 66 | ||||||
| 8.2 | Death Prior to Commencement of Early or Disability Pensions | 67 | ||||||
| 8.3 | Death Prior to Commencement of Vested Pensions | 67 | ||||||
| 8.4 | Effect of Valid Joint and Survivor Election | 68 | ||||||
| 8.5 | Death on or After Annuity Starting Date | 69 | ||||||
| 8.6 | Death Benefit for Vested Participants Who Terminated After September 1, 1974 | |||||||
| and Prior to August 23, 1984 | 69 | |||||||
| ARTICLE IX - TRUST FUND AND THE TRUSTEE | 70 | |||||||
| 9.1 | Trust Fund | 70 | ||||||
| 9.2 | Irrevocability | 71 | ||||||
| 9.3 | Contributions by the Company | 71 | ||||||
| 9.4 | Contributions by Participants | 73 | ||||||
| 9.5 | Benefits Payable Only From Trust Fund | 73 | ||||||
| 9.6 | Plan Expenses | 73 | ||||||
| ARTICLE X - BENEFIT LIMITATIONS | 74 | |||||||
| 10.1 | Maximum Limitation Under Section 415(b) of the Code (Effective January 1, 2008) | 74 | ||||||
| 10.2 | Limitaions Based on Funding Status | 77 | ||||||
| ARTICLE XI - MISCELLANEOUS PROVISIONS | 86 | |||||||
| 11.1 | Plan Non-Contractual | 86 | ||||||
| 11.2 | Non-Alienation of Retirement Rights or Benefits | 86 | ||||||
| 11.3 | Payment of Pension to Others | 87 | ||||||
| 11.4 | Prohibition Against Reversion | 87 | ||||||
| 11.5 | Merger, Transfer of Assets or Liabilities | 87 | ||||||
| 11.6 | Actuarial Equivalence | 88 | ||||||
| 11.7 | Change of Vesting Schedule | 88 | ||||||
| 11.8 | Controlled Group | 89 | ||||||
| 11.9 | Severability | 89 | ||||||
| 11.10 | Employer Records | 89 | ||||||
| 11.11 | Application of Plan Provisions | 89 | ||||||
| 11.12 | Missing Participants and Beneficiaries. | 90 | ||||||
| 11.13 | IRC 414(u) Compliance Provision | 90 | ||||||
| ARTICLE XII - AMENDMENT AND TERMINATION | 92 | |||||||
| 12.1 | Amendment and Termination of the Plan | 92 | ||||||
| 12.2 | Administration of the Plan in Case of Termination | 92 | ||||||
| 12.3 | Internal Revenue Service Limitations | 93 | ||||||
| ARTICLE XIII - TOP-HEAVY PROVISIONS | 94 | |||||||
| 13.1 | General | 94 | ||||||
| 13.2 | Definitions Relating to Top-Heavy Provisions | 94 | ||||||
| 13.3 | Top-Heavy Plan Vesting Requirements | 96 | ||||||
| 13.4 | Top-Heavy Plan Minimum Benefit Requirements | 96 | ||||||
| 13.5 | Limited Application of this Article. | 98 | ||||||
iii
| ARTICLE XIV - JURISDICTION | 99 | |||||||
| 14.1 | Jurisdiction | 99 | ||||||
iv
Erie Insurance Group
RETIREMENT PLAN FOR EMPLOYEES
Effective December 31, 1946
As Amended and Restated Effective December 31, 2022
ARTICLE I - INTRODUCTION
The Erie Insurance Group adopted a Retirement Plan, effective December 31, 1946. Such Plan, which has been heretofore amended from time to time by action of the Board of Directors in accordance with the provisions of the Plan, is herein amended and restated.
This amendment and restatement of the Plan shall constitute an amendment, restatement and continuation of the Plan. This amendment and restatement is generally effective December 31, 2022. However, certain provisions of this amendment and restatement are effective as of some other date. The provisions of this amendment and restatement with stated effective dates prior to December 31, 2022 shall be deemed to amend the corresponding provisions, if any, of the Plan as in effect before this amendment and restatement and all amendments thereto as of such dates. Events occurring before the applicable effective date of any provision of this amendment and restatement shall be governed by the applicable provision of the Plan as in effect on the date of the event. The object of the Plan is to provide retirement pensions for eligible employees.
1
ARTICLE II - DEFINITIONS
For the purposes of this Retirement Plan for Employees, the following words and phrases shall have the following meanings unless a different meaning is clearly required by the context. Any terms herein used in the masculine shall be read and construed in the feminine where they would so apply, and any terms used in the singular shall be read and construed in the plural if again so applicable.
2.1 “Accrued Pension” shall mean a pension amount determined with respect to a Participant in accordance with Section 6.2(a) of the Plan using the date of determination for the date of early retirement.
2.2 “Actuary” shall mean the actuary or firm of actuaries chosen with respect to settlor functions by the Company, and chosen with respect to fiduciary functions by the Administrator, but in all cases independent of the Company or Administrator, who is, or in the case of a firm one or more of whose members is, an enrolled actuary under the provisions of Section 3042 of the Employee Retirement Income Security Act of 1974.
2.3 “Administrator” shall mean the administrative committee described in Article III of the Plan.
2.4 “Affiliate” means any other employer which, together with the Company, is a member of a controlled group of corporations or of a commonly controlled trade or business (as defined in Code Sections 414(b) and (c) and as modified, where appropriate, by Code Section 415(h)) or of an affiliated service group (as defined in Code Section 414(m)) or other organization described in Code Section 414(o). Each such Affiliate shall be treated as an Affiliate only during such period as it is or was an Affiliate as defined above.
2.5 “Anniversary Date” shall mean any December 31 occurring after the Effective Date.
2.6 “Annuity Starting Date” shall mean the first day of the first period for which an amount is received as an annuity (whether by reason of retirement or other termination of employment) or, in the case of a benefit not payable as an annuity, the first day on which all events have occurred which entitle the Participant, or other distributee, to such benefit. A Participant whose benefit is suspended under any provision of the Plan shall
2
not be deemed to have reached a new Annuity Starting Date when such benefit again becomes payable. The Annuity Starting Date for benefits accrued after an earlier Annuity Starting Date shall be determined in accordance with Treasury Regulations. The Annuity Starting Date for a benefit payable under Section 7.10 shall be the applicable date described therein.
2.7 “Beneficiary” shall mean any person who, by reason of a designation made by a Participant under Plan procedures or by operation of the Plan, is or will be entitled to receive any amount or benefit hereunder upon the death of the Participant. Any attempt to designate a person as Beneficiary hereunder orally, or by means other than that permitted under the Plan, shall be void and have no effect.
2.8 “Board of Directors” or “Board” shall mean the Board of Directors of the Company. References to actions or decisions by the Board include actions or decisions by the Board’s authorized designee.
2.9 “Code” shall mean the Internal Revenue Code of 1986, as amended.
2.10 “Company” shall mean Erie Indemnity Company, a corporation organized and existing under the laws of Pennsylvania.
2.11 “Compensation” for any period shall mean the rate of base compensation of a Covered Employee from the Employers during the period. For this purpose, “base compensation” shall mean regular base salary in the case of an employee compensated on a salaried basis, and regular base wages in the case of an employee compensated on an hourly basis, and in all cases shall exclude Form W-2 income in the form of overtime compensation, bonuses, commissions, deferred compensation plan payments severance pay under any severance benefit plan and any other form of special or extraordinary compensation, but shall include Form W-2 income paid as a lump sum in lieu of merit increase and compensation excluded from Form W-2 income because of salary reduction agreements in connection with plans described in Section 125, 132(f)(4) or 401(k) of the Code, or resulting from deferred compensation contracts for the period in question. Compensation shall exclude any differential wage payments made on behalf of a Covered Employee who is on military leave. Effective for each Plan Year beginning on and after December 31, 1989, in no event shall the amount of Compensation taken into account under the Plan exceed the adjusted annual limitation
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permitted under Section 401(a)(17) of the Code for such Plan Year. Such adjusted annual limitation shall be, for each Plan Year beginning on and after December 31, 2022, $305,000 (as adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code). For purposes of determining benefit accruals in any given Plan Year beginning after December 31, 2001, the annual compensation limitation for any determination period after December 31, 1993 and before December 31, 2001, shall be $200,000.
2.12 “Covered Employee” shall mean any Employee of an Employer, excluding:
(a) any such Employee whose employment is governed by the terms of a collective bargaining agreement under which retirement benefits were the subject of good faith bargaining,
(b) any such Employee who has voluntarily waived participation in the Plan,
(c) for periods before May 5, 2011, any such Employee who is compensated on an hourly basis, and
(d) for periods on and after May 5, 2011, and such Employee who is classified by his Employer as a docent, an intern,, or a driver-catastrophe response unit.
For periods on and after May 5, 2011, an Employee who is compensated on an hourly basis shall be treated as a Covered Employee and shall become a Participant in the Plan in accordance with Section 3.12.
Notwithstanding any provision of the Plan to the contrary, an individual who an Employer determines to be a contract employee, independent contractor, leased employee (including a Leased Employee as defined hereunder), leased owner, leased manager, shared employee or person working under a similar classification shall not become a Covered Employee hereunder, regardless of whether any such individual is ultimately determined to be a common law employee, unless and until the Employer shall otherwise determine. An individual shall be treated as a Covered Employee only during such period as he is or was a Covered Employee as defined above.
2.13 “Credited Service” shall mean a Participant’s service determined in accordance with Article IV hereof for the purpose of calculating the amount of benefit earned under the Plan.
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2.14 “Date of Hire” shall mean the date on which an Employee first commences employment or reemployment and works at least one Hour of Service for an Employer or an Affiliate.
2.15 “Date of Severance” shall mean the earliest to occur of the following dates:
(a) date of retirement,
(b) date of voluntary employment termination,
(c) date of discharge by an Employer unless he is subsequently reemployed and given pay back to the date of discharge,
(d) date of death,
(e) the first anniversary of a date of absence from active employment for any other reason; provided, however, that a later Date of Severance shall apply with respect to a leave of absence which, under Employer policy, provides for a later Date of Severance and, provided further, that the second anniversary of a date of absence from active employment shall be used for an Employee who is absent by reason of a Maternity or Paternity Absence which commenced on or after December 31, 1985, or who is absent by reason of Total and Permanent Disability.
An Employee shall not incur a Date of Severance while he is in the active service of the United States Armed Forces if his reemployment rights are protected by law.
2.16 “Earliest Retirement Age” shall mean the earliest date on which, under the Plan, the Participant could elect to receive retirement benefits in accordance with Section 5.1 or 5.2 hereof.
2.17 “Effective Date” shall mean December 31, 1946.
2.17A “Eligibility Service” shall mean an Employee’s service determined in accordance with Article IV hereof for the purpose of determining the participation date of certain Employees as otherwise provided hereunder.
2.18 “Employee” shall mean any common-law employee of an Employer or an Affiliate; provided, however, that for purposes of Section 2.22; “Employee” shall include any self-employed individual performing services for an Employer or Affiliate who is treated as an employee under Section 401(c)(1) of the Code.
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2.19 “Employer(s)” shall mean the Company, Erie Family Life Insurance Company, Erie Insurance Exchange, Erie Insurance Company, EI Holding Corp., EI Service Corp., Erie Insurance Company of New York, Erie Insurance Property & Casualty Company, Flagship City Insurance Company, Erie Resource Management Corp. and any other Affiliate which may adopt this Plan.
2.19A “Entry Date” shall mean, with respect to a Covered Employee who is a Part-Time Employee, the December 31 or June 30 next following the later of:
a.the date the Covered Employee attains age 21; and
b.the date the Covered Employee completes one year of Eligibility Service.
2.20 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.
2.21 “Final Average Earnings” shall mean 1/36th of the Participant’s aggregate Compensation during the thirty-six consecutive calendar months as both a Covered Employee and a Participant which produces the greatest aggregate Compensation out of the one hundred twenty calendar month period as both a Covered Employee and a Participant ending on the earlier of the date on which the Participant retires or terminates employment with the Employers or on such other date on which the Participant is no longer considered both a Covered Employee and a Participant. In the event a Participant does not have thirty-six consecutive calendar months of Compensation as both a Covered Employee and a Participant (i) months in which the Participant is not a Covered Employee and months in which the Participant has no Compensation will be excluded for purposes of determining consecutive months for the thirty-six and one hundred twenty month periods and (ii) with respect to a Participant with fewer than thirty-six total calendar months of Compensation as both a Covered Employee and a Participant, Final Average Earnings will be determined as the average monthly Compensation over the Participant’s entire period of employment as both a Covered Employee and a Participant.
2.22 “Highly Compensated” shall mean any Employee who is a more than five percent (5%) owner of an Employer or earned $135,000 or more in Test Compensation from the Employer in the calendar year that begins in the twelve month period that precedes the current Plan Year (the “lookback year”); provided, however, that such $135,000 figure
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shall be adjusted for cost of living at the same time and in the same manner as determined under Code Section 415(d).
2.23 “Hour of Service” shall include the following:
(a) each hour for which an Employee is directly or indirectly paid or entitled to payment from an Employer or an Affiliate as an Employee for the performance of duties during an applicable computation period (these hours must be credited to the Employee in the computation period during which the duties were performed and not when paid, if different); and
(b) each hour for which back pay, irrespective of mitigation of damages, has been awarded or agreed to by an Employer or an Affiliate (these hours must be credited in the computation period or periods to which the award or agreement pertains rather than that in which the payment, award or agreement was made); and
(c) each hour for which an Employee is directly or indirectly paid or entitled to payment from an Employer or an Affiliate for reasons, such as vacation, sickness or disability, other than for the performance of duties (these hours shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor regulations which are incorporated herein by reference).
2.24 “Leased Employee” shall mean any person (other than an Employee of an Employer) who pursuant to an agreement between the Employer and any other person (“leasing organization”) has performed services for the Employer (or for the Employer and related persons determined in accordance with Section 414(n)(6) of the Code) on a substantially full-time basis for a period of at least one year and such services are performed under primary direction or control by the recipient. Except as provided below, any person satisfying the foregoing criteria shall be treated as an Employee. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the Employer shall be treated as provided by the Employer.
Notwithstanding the foregoing, a Leased Employee shall not be considered an Employee of an Employer if: (i) such Leased Employee is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least 10 percent of compensation, (2) immediate participation, and (3) full and
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immediate vesting; and (ii) Leased Employees do not constitute more than 20 percent of the Employer’s non-Highly Compensated workforce.
2.25 “Maternity or Paternity Absence” shall mean an absence from work by an Employee for any period:
(a) by reason of pregnancy of the Employee,
(b) by reason of the birth of a child of the Employee,
(c) by reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee, or
(d) for purposes of caring for such child for a period immediately following such birth or placement.
An absence will not be considered a “Maternity or Paternity Absence” unless the Employee provides the Administrator with such timely information as the Administrator may reasonably require to establish that the absence from work is for one of the four permitted reasons outlined above. Nothing in this Plan shall require an Employer to grant a paid leave of absence to any Employee.
2.26 “Normal Retirement Age” of a Participant shall be age 65.
2.27 “Normal Retirement Date” of a Participant shall be the first day of the month next following the month in which his sixty-fifth birthday occurs.
2.28 “Participant” shall mean any Covered Employee who participates in the Plan in accordance with Section 3.12 and any former Covered Employee who is entitled to, or who is receiving, a retirement benefit or deferred vested pension under the Plan.
2.28A “Part-Time Employee” shall mean an Employee who is regularly scheduled to work for fewer than thirty-seven and one-half (37 ½) hours per work week, with respect to the period before November 1, 2015, and twenty-five (25) or fewer hours per work week, with respect to the period on and after November 1, 2015.
2.29 “Period of Severance” shall mean the period of time between an Employee’s Date of Severance and the date as of which he performs his first Hour of Service following reemployment.
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2.30 “Plan” or “Pension Plan” shall mean this “Erie Insurance Group Retirement Plan for Employees” as herein set forth with all amendments, modifications, appendices, and supplements hereafter made.
2.31 “Plan Year” shall mean any period of 12 consecutive calendar months next preceding an Anniversary Date of the Plan.
2.32 “Service” shall mean an Employee’s service determined in accordance with Article IV hereof for the purpose of meeting the vesting requirements for a benefit under the Plan.
2.33 “Social Security Covered Compensation” shall mean, for any Plan Year, the average (without indexing) of the Social Security taxable wage bases in effect for each calendar year during the 35-year period ending with the last day of the calendar year in which the Participant attains (or will attain) Social Security Retirement Age (as such term is defined in Section 10.1(a)(iv) hereof). In determining a Participant’s Social Security Covered Compensation for a Plan Year, the Social Security taxable wage base for the current Plan Year and any subsequent Plan Year shall be assumed to be the same as in effect for the Plan Year for which the determination is being made. A Participant’s Social Security Covered Compensation shall be automatically adjusted for each Plan Year in accordance with these provisions, up to and including the Plan Year in which the Participant attains Social Security Retirement Age.
2.34 “Spouse” shall mean, with respect to any Participant, the person to whom the Participant is married at a given determination date, as determined under applicable law.
2.35 “Test Compensation” shall mean, for any Plan Year, an Employee’s compensation, reported under Sections 6041 and 6051 of the Code on Form W-2, as paid by the Company or other Employer for the calendar year ending with or within such Plan Year, including any amounts contributed pursuant to a salary reduction election on behalf of a Covered Employee to a plan described in Sections 125, 132(f), 402(e)(3), 402(h)(1)(B), 403(b), or 457(b) of the Code for the period in question. Effective January 1, 2009, Test Compensation shall include any differential wage payments, as defined in Section 3401(h) of the Code, that are paid by an Employer during a period of qualified military service as defined in Section 414(u) of the Code. Test Compensation in any given year shall not exceed the adjusted annual limitation in effect for such year (as set forth in Section 2.11), provided that such
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limitation shall not be applied in determining the status of an Employee as a Highly Compensated Employee or Key Employee. To the extent permitted under regulations and other guidance promulgated by the Internal Revenue Service, the Administrator may elect to determine Test Compensation on a basis other than that provided above.
Notwithstanding the preceding paragraph, in no event shall Test Compensation include severance pay. However, the following types of remuneration, if includible for purposes of Test Compensation as described above, shall be taken into account only if paid by the later of the date that is 2-1/2 months after the date of severance from employment with an Employer or the end of the limitation year that includes the date of severance from employment with the Employer, if the amounts would have been included in Test Compensation had they been paid before the severance from employment date:
(a) Regular Pay After Severance from Employment. The payment for services rendered during the Participant’s regular working hours, or for services outside of the Participant’s regular working hours such as overtime or shift differential, commissions, bonuses or other similar payments that would have been paid had the Participant not incurred a severance from employment.
(b) Leave Cash Outs and Deferred Compensation. Payments of unused accrued bona fide sick, vacation or other leave provided the Participant would have been able to use the leave if employment had continued, or payments from a nonqualified unfunded deferred compensation plan, provided the payment would have been paid had the Participant not incurred a severance from employment and such payment would have been includible in gross income had such payment been made.
(c) Post-Severance from Employment Salary Continuation Payments. If the Employer continues to provide remuneration to a Participant due to the Participant’s disability or to a Participant who is not performing services because of qualified military service, as defined in Code Section 414(u), in an amount that is not in excess of that which would have been payable to the Participant as compensation had the Participant not entered qualified military service, such amounts will be included in Test Compensation for purposes of this Section.
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2.36 “Total and Permanent Disability” shall mean such condition of disability which results in a Covered Employee being eligible for disability benefits under the Erie Insurance Group Long Term Disability Income Benefits Program.
2.37 “Trust Agreement” shall mean the trust agreement entered into with a Trustee as provided in Section 9.1, together with all amendments, modifications and supplements, thereto.
2.38 “Trustee” shall mean the Trustee or Trustees designated under a Trust Agreement including any successor or successors.
2.39 “Trust Fund” or “Fund” shall mean the retirement plan trust fund established by the Company in accordance with Article IX.
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ARTICLE III - ADMINISTRATION OF THE PLAN
3.1 Pension Administrator
The Plan shall be administered by a committee that shall act as Plan Administrator. The members of the administrative committee shall be appointed and removed from time to time by the Vice President, Corporate HR Officer (or, if there is no person holding that title, the person holding a successor title or acting in a similar capacity with respect to the oversight of the Company’s retirement plans), such person to be referred to herein as the “Appointing Officer.” The Company is the Plan sponsor, but it is intended that full fiduciary authority be vested in the administrative committee (and with respect to appointment and oversight of its members, the Appointing Officer), so that neither the Company nor any Affiliate is a fiduciary of the Plan, and the Plan shall be construed accordingly.
(a) Any member of the committee who ceases to be an Employee (or, if appointment was made by job title, who ceases to hold the relevant title or a successor title) will automatically cease to be a committee member unless otherwise expressly agreed.
(b) Any individual who is a member of the administrative committee may resign by delivering his written resignation to the Appointing Officer.
(c) The Appointing Officer may add or remove committee members in his or her sole discretion. In making appointments, the Appointing Officer shall not be limited to any particular person or group, and nothing herein contained shall be construed to prevent any Participant, director, officer, employee or shareholder of the Employers from service as a member of the administrative committee.
(d) Members of the administrative committee will not be compensated from the Trust Fund for services performed in such capacity, but the Company or Trust Fund will reimburse such individuals for expenses reasonably and necessarily incurred by them in such capacity, subject to compliance with such expense reimbursement policies as may be established from time to time.
(e) The Appointing Officer shall maintain such documentation of committee membership as may be necessary or advisable, and shall provide any notice of membership changes that may be required to the Trustee and other persons.
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3.2 Powers
The Administrator will have full power to administer the Plan in all of its details, subject, however, to the requirements of ERISA. This power shall include having the sole and absolute discretion to interpret and apply the provisions of the Plan to determine the rights and status hereunder of any individual, to decide disputes arising under the Plan, and to make any determinations and findings of fact with respect to benefits payable hereunder and the persons entitled thereto as may be required for any purpose under the Plan. Without limiting the generality of the above, the Administrator is granted the following authority which it shall discharge in its sole and absolute discretion in accordance with Plan provisions as interpreted by the Administrator:
(a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan, including the modification of the claims procedure under Section 3.8 in accordance with any regulations issued under Section 503 of ERISA.
(b) To interpret the Plan.
(c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan, his period of participation and/or service under the Plan, his date of birth, his eligibility to accrue a benefit under the Plan and to receive a distribution from the Plan.
(d) To compute the amount of benefits which will be payable to any Participant or other person in accordance with the provisions of the Plan, and to determine the identity of the person or persons to whom such benefits will be paid.
(e) To authorize the payment of Plan benefits and to direct cessation of benefit payments.
(f) To appoint one or more investment managers to manage the investment and reinvestment of the Fund and to enter into management contracts on behalf of the Plan with respect to such appointments. Except to the extent that power is reserved to the Administrator or other named fiduciary under the Trust Agreement, unless and until the Administrator appoints an investment manager with respect to all or a specific portion of the Fund, the Trustee shall have exclusive authority to manage and control all or such portion of the Fund.
(g) To appoint, employ or engage such other agents, counsel accountants, consultants and actuaries as may be required to assist in administering the Plan.
(h)To establish procedures to determine whether a domestic relations order is a qualified domestic relations order within the meaning of Section 414(p) of the
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Code, to determine under such procedures whether a domestic relations order is a qualified domestic relations order and whether a putative alternate payee otherwise qualifies for benefits hereunder, to inform the parties to the order as to the effect of the order, and to direct the Trustee to hold in escrow or pay any amounts so directed to be held or paid by the order.
(i)To determine whether the Plan has incurred a partial termination.
(j) To obtain from the Employers, Employees, Participants, Spouses and Beneficiaries such information as shall be necessary for the proper administration of the Plan.
(k) To perform all reporting and disclosure requirements imposed upon the Plan by ERISA, the Code or any other lawful authority.
(l) To take such steps as it, in its discretion, considers necessary and/or appropriate to remedy any inequity under the Plan that results from incorrect information received or communicated or as the consequence of administrative error including, but not limited to, recouping benefit overpayments.
(m) To correct any defect, reconcile any inconsistency or supply any omission under the Plan.
(n) To delegate its powers and duties to others in accordance with Section 3.3.
(o) To exercise such other authority and responsibility as is specifically assigned to it under the terms of the Plan or the provisions of the Administrator’s charter and to perform any other acts necessary to the performance of its powers and duties.
The Administrator at its discretion may either request the Company or direct the Fund to pay for any or all services rendered by the Trustee and by persons appointed, employed or engaged under Section 3.2(f) or (g) or under the terms of the Trust Agreement.
The Administrator’s interpretations, decisions, computations and determinations under this Section 3.2 which are made in good faith will be final and conclusive upon the Employers, all Participants and all other persons concerned. Any action taken by the Administrator with respect to the rights or benefits of any person under the Plan shall be revocable by the Administrator as to payments or distributions not theretofore made, pursuant to such action, from the Trust Fund; and appropriate adjustments may be made in future payments or distributions to a Participant, Spouse or Beneficiary to offset any excess payment or underpayment previously made to such Participant, Spouse or
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Beneficiary from the Trust Fund. No ruling or decision of the Administrator in any one case shall create a basis for a retroactive adjustment in any other case prior to the date of written filing of each specific claim.
3.3 Delegation of Duties
The Administrator may, from time to time, designate any person (including, without limitation, an individual, a committee or subcommittee, or a vendor) to carry out any of the responsibilities of the Administrator, subject to the limitations imposed by Section 405 of ERISA. The person so designated will have full authority or such limited authority as the Administrator may specify, to take such actions as are necessary or appropriate to carry out the responsibilities assigned by the Administrator.
3.4 Administrator as Named Fiduciary
The Administrator will be a “named fiduciary” for purposes of section 402(a)(1) of ERISA with authority to control and manage the operation and administration of the Plan.
3.5 Conclusiveness of Various Documents
The Administrator and the Company and its directors and officers will be entitled to rely upon all tables, valuations, certificates and reports furnished by any actuary, accountant, counsel or other expert appointed, employed or engaged by the Administrator or the Company.
3.6 Actions to be Uniform
Any discretionary actions to be taken under the Plan by the Administrator will be nondiscriminatory and uniform with respect to all persons similarly situated.
3.7 Liability and Indemnification
To the full extent allowed by law, the Administrator shall not incur any liability to any Participant or Beneficiary, or to any other person, by reason of any act or failure to act on the part of the Administrator if such act or omission is not the result of the Administrator’s gross negligence, willful misconduct or exercise of bad faith. To the full extent allowed by law, the Company agrees to indemnify the Administrator against all liability and expenses (including reasonable attorney’s fees and other reasonable expenses) occasioned by any act or omission to act if such act or omission is not the result of the Administrator’s gross negligence, willful misconduct or exercise of bad
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faith. Neither this Section 3.7 nor any other provision of this Plan shall be applied to invalidate, modify, or limit in any respect any contract, agreement, or arrangement for indemnifying or insuring the Administrator against, or otherwise limiting, such liability or expense, or for settlement of such liability, to the extent such contract, agreement, or arrangement is not precluded by the terms of Section 410 of ERISA.
3.8 Claims Review Procedure
The Administrator shall be responsible for the claims procedure under the Plan. The claims procedure established by the Administrator shall comply with regulations adopted by the Secretary of Labor of the United States. This procedure shall require the Administrator to provide adequate written notice to any person whose claim is denied in whole or in part, specifying the reasons for denial in a manner calculated to be understood by such person. The Administrator shall give any person whose claim has been denied a reasonable opportunity for a full and fair review by the Administrator of its decision, and shall inform the claimant of the steps he must take to obtain a review of the Administrator’s decision. The Administrator shall provide the claimant with reasonable access to, and copies of, all relevant documents and other information in accordance with regulatory requirements, provided that unless otherwise required by ERISA, the claimant’s rights shall be limited by applicable attorney-client privilege, attorney work-product privilege, and other applicable privilege rules.
(a)Determination by the Administrator Conclusive. The Administrator’s determination of factual matter relating to Participants, Beneficiaries and alternate payees including, without limitation, a Participant’s Credited Service, Service and any other factual matters, shall be conclusive. The Administrator and the Company and its respective officers and directors shall be entitled to rely upon all tables, valuations, certificates and reports furnished by an actuary, any accountant for the Plan, the Trustee or any investment managers and upon opinions given by any legal counsel for the Plan insofar as such reliance is consistent with ERISA. The actuary, the Trustee and other service providers may act and rely upon all information reported to them by the Administrator and/or the Company and need not inquire into the accuracy thereof nor shall be charged with any notice to the contrary. In accordance with Section 11.10, the Administrator may rely on the Employer’s records, and to the extent a claimant asserts entitlement to benefits or other rights based upon facts not contained in the Plan’s records, such person shall be
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required to provide satisfactory affirmative evidence of such facts, and the Administrator shall have the sole and exclusive discretion to determine whether the affirmative evidence is satisfactory.
(b)Arbitration. In the event that a claimant’s claim is denied by the Administrator and the claimant has exhausted all remedies (including all mandatory levels of appeal) under the Plan’s claims procedures, the claimant or the Administrator will have the right to compel binding arbitration with respect to the claim. The process and procedure shall be governed by the Employer’s arbitration policy, if any, and if none, by the rules of the American Arbitration Association for commercial transactions. Claims may not be litigated or arbitrated on a class action basis or on bases involving claims brought in a representative capacity on behalf of any other similarly situated party. The arbitrator will be bound by the substantive terms of the Plan and ERISA (including, but not limited to, the standard of review required by ERISA, which requires the arbitrator to defer to the Administrator and its factual findings and interpretations unless such findings and interpretations are arbitrary and capricious and requires that any assertions the claimant wishes to present to an arbitrator or court first have been presented in the claims and appeals process). All claims pertaining to the Plan shall be required to be submitted to binding arbitration in this manner, unless such a requirement is prohibited by applicable law or regulation. Except with respect to claims as to which binding arbitration may not be compelled, no claim may be brought in any other manner.
(c)Forum Selection. Any arbitration proceeding or civil action with respect to a claim involving the Plan must, unless otherwise agreed by the Administrator or required by law, take place in Erie, Pennsylvania (and, in the case of a civil action, in the federal district court serving Erie, Pennsylvania). Enforcement of an arbitrator’s award may be sought in federal court in accordance with the Federal Arbitration Act, with any such enforcement action to be filed in the federal district court serving Erie, Pennsylvania.
3.9 Exhaustion of Administrative Remedies
The exhaustion of the claims review procedure is mandatory for resolving every claim and dispute involving the Plan. As to such claims and disputes:
(a) No claimant shall be permitted to commence any civil action or arbitration proceeding to recover Plan benefits or to enforce or clarify rights under the
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Plan under Section 502 or Section 510 of ERISA or under any other provision of law, whether or not statutory, until the claims review procedure set forth herein has been exhausted in its entirety; and
(b) In any such civil action or arbitration proceeding all explicit and all implicit determinations by the Administrator (including, but not limited to, determinations as to whether the claim, or a request for a review of a denied claim, was timely filed) shall be afforded the maximum deference permitted by law.
3.10 Deadline to File Civil Action or Demand Arbitration
No civil action to recover Plan benefits or to enforce or clarify rights under the Plan under Section 502 or Section 510 of ERISA or under any other provision of law, whether or not statutory, may be brought by any claimant on any matter pertaining to the Plan unless the civil action is commenced in the proper forum before the earlier of:
(a) Twelve months after the claimant knew or reasonably should have known of the principal facts on which the claim is based; or
(b) Ninety days after the claimant has exhausted the claims review procedure.
3.11 Waiver of Participation
It is the purpose of this Plan to provide for the accrual of retirement benefits for all Covered Employees. Notwithstanding the foregoing, any Covered Employee may waive participation in this Plan by executing a Waiver of Participation on a form provided by the Administrator for such purpose. Any Waiver of Participation shall be effective for the Plan Year in which it is executed and shall be irrevocable. During any Plan Year for which a Waiver of Participation is in effect, no Service, Credited Service or Compensation shall be recognized under the Plan for the Employee and the Employee shall be considered as other than a Covered Employee.
3.12 Participation Date of Covered Employee
(a) For periods before May 5, 2011, a Covered Employee entered the Plan and became a Participant on such Covered Employee’s Date of Hire.
(b) Effective on and after May 5, 2011, a Covered Employee shall first enter the Plan and shall become a Participant hereunder as provided below:
(i) A Covered Employee who is not a Part-time Employee shall enter the Plan and become a Participant on such Covered Employee’s Date of Hire.
(ii) A Covered Employee who is a Part-time Employee shall enter the Plan and become a Participant on such Covered Employee’s Entry Date.
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ARTICLE IV - SERVICE PROVISIONS
4.1 Service
Service shall be used to determine a Participant’s vested rights under the Plan. An Employee shall receive Service for the period of time between his Date of Hire and his Date of Severance, provided that no Service shall be received for the period of continued absence between the first and second anniversary of the date of first absence from work by reason of a Maternity or Paternity Absence. Service shall be counted for full years only. Service shall include any prior periods of Service that are reinstated in accordance with Section 4.3 below. Service shall include any Period of Severance which has continued for less than one year.
Notwithstanding the foregoing, Service shall include periods of absence granted under The Family and Medical Leave Act of 1993, to the extent of the minimum service credit required by said Act.
4.1A Eligibility Service
Eligibility Service shall be used to determine the time at which a Covered Employee who is Part-time Employee shall enter the Plan and become a Participant hereunder. Eligibility Service shall be counted in full years only with one year of Eligibility Service credited for each “Eligibility Computation Period” in which an Employee completes at least 1,000 Hours of Service.
The initial “Eligibility Computation Period” with respect to an Employee shall mean the 12 consecutive month period that begins on the Employee’s Date of Hire and ends on the first anniversary thereof. If the Employee fails to complete a year of Eligibility Service during the initial “Eligibility Computation Period”, the subsequent “Eligibility Computation Periods” shall be each Plan Year thereafter beginning with the Plan Year that includes the first anniversary of the Employee’s Date of Hire. An Employee will not be considered to have completed a year of Eligibility Service until the expiration of the first Eligibility Computation Period during which the Employee completes at least 1000 Hours of Service.
4.2 Credited Service
Credited Service shall be used to compute the amount of a Participant’s benefit and to determine a Participant’s eligibility for an early retirement and a disability retirement
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under the Plan. Credited Service shall be based on Service but shall not include (i) any period of Service in which a Participant is not a Covered Employee, (ii) any period of Service that precedes the date a Covered Employee first becomes a Participant, and (iii) any Period of Severance; provided, however, that a Participant’s Credited Service shall include that Credited Service accumulated during the period in which the Participant is eligible for a disability retirement pension (as determined under Sections 5.3, 6.3 and 7.2 hereof). Solely for purposes of computing the amount of a Participant’s benefit under Section 6.1 and subject to the foregoing provisions of this Section, Credited Service shall include a year of credit for any fraction of a year of Service.
4.3 Loss and Reinstatement of Service
In the event a Participant incurs a Date of Severance prior to his becoming eligible for a retirement benefit or deferred vested pension under the Plan, he shall be deemed to receive a distribution equal to the actuarial equivalent value of the entire vested pension earned through his Date of Severance. In such a case, the Participant shall lose his Service and Credited Service and his Accrued Pension shall be forfeited as of such date of deemed distribution. If such individual is subsequently reemployed as a Covered Employee, the individual, after again completing one year of Service, shall be considered a Plan Participant retroactively as of such date of reemployment and have his forfeited Service, Credited Service and Accrued Pension reinstated if his last Period of Severance is less than the greater of:
(a) five years, or
(b) the Participant’s forfeited Service (including any periods of Service previously reinstated under the provisions of this Section 4.3 or its predecessor).
4.4 Transfer To Other Employment
Upon the transfer of a Participant covered by the Plan to other employment with an Employer or Affiliate whereby he ceases to be a Covered Employee hereunder, his Accrued Pension based on his Credited Service and Final Average Earnings as of the transfer date shall be frozen and Credited Service shall cease to accrue for purposes of the Plan. In the event such Participant remains in the employment of an Employer until such time as, except for such transfer, he would have met the age, service and/or other eligibility requirements for any pension under the Plan, such frozen Accrued Pension shall become payable in accordance with the appropriate provisions of the Plan as in effect on the date of transfer.
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4.5 Transfer From Other Employment
Upon transfer or retransfer of an individual from other employment with an Employer or Affiliate such that the individual becomes a Covered Employee hereunder, his years of Service and, if applicable, his years of Eligibility Service as otherwise computed under this Article IV will include the period of his employment with an Employer or Affiliate prior to such transfer or retransfer for the purpose of meeting the vesting and participation requirements under this Plan; provided, however, that only years of Credited Service acquired while employed as both a Covered Employee and a Participant under this Plan shall be used to compute the amount of any pension under this Plan.
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ARTICLE V - ELIGIBILITY FOR PENSIONS
5.1 Normal Retirement
A Participant whose employment with an Employer and all Affiliates is terminated when or after he attains Normal Retirement Age shall be eligible for a normal retirement pension in the amount as provided in Section 6.1 hereof. A Participant’s right to his normal retirement pension shall be nonforfeitable upon the attainment of his Normal Retirement Age provided he is an Employee on such date. A Participant continuing in employment with an Employer after his Normal Retirement Date in a capacity such that he completes 40 or more Hours of Service per month will be provided with a notice incorporating the substance of the notification described in Section 2530.203-3(b)(4) of the Code of Federal Regulations. Such notice shall include a statement that the Participant’s pension will be suspended and permanently withheld for months in which he completes 40 or more Hours of Service. Any benefit accrual earned by a Participant for any given Plan Year ending on or after the date on which the Participant attains Normal Retirement Age shall be reduced (but not below zero) by the amount of any actuarial adjustment which may be required in connection with a delay in payment of a Participant’s normal retirement benefit or the suspension of benefits otherwise payable after the Participant attains Normal Retirement Age.
5.2 Early Retirement
A Participant with 15 or more years of Credited Service whose employment with an Employer and all Affiliates is terminated when or after he reaches the age of 55 but prior to the attainment of his Normal Retirement Age, shall be eligible for an early retirement pension in the amount as provided in Section 6.2 hereof.
5.3 Disability Retirement
A Participant whose status as a Covered Employee is terminated due to his Total and Permanent Disability after 15 or more years of Credited Service, and who is receiving disability benefits under the Erie Insurance Group Long Term Disability Income Benefits Program, shall be eligible for a disability retirement pension in an amount as provided in Section 6.3 hereof beginning at his Normal Retirement Date or later disability retirement date providing he remains subject to a Total and Permanent Disability and receives said disability income benefits continuously through his Normal Retirement Age or later disability retirement date.
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5.4 Vesting
A Participant with 5 years or more of Service and whose employment with an Employer and all Affiliates is terminated at a time when he is ineligible for any retirement pension under the Plan shall be eligible for a deferred vested pension as computed under Section 6.4.
If a Participant is reemployed as a Covered Employee by an Employer after having qualified for a deferred vested pension in accordance with this Section 5.4, such Participant shall retain his right to receive such deferred vested pension and he shall be reinstated with the Service and Credited Service to which he was entitled at the time of his prior termination of employment. Any benefits to which the Participant may be entitled upon his subsequent retirement or termination of employment shall be reduced actuarially, as provided in Section 7.4, to reflect any deferred vested pension benefits paid prior to reemployment.
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ARTICLE VI - AMOUNT OF PENSIONS
6.1 Normal Retirement Pension
Subject to the provisions of Articles VII and X, the monthly pension of a Participant who is eligible for a normal retirement pension under the provisions of Section 5.1 (as stated in the form of a life annuity) shall be one-twelfth (1/12) of the result obtained by multiplying the sum of (a) and (b) by (c), where:
(a) equals 1.0% of the Participant’s Final Average Earnings not in excess of Social Security Covered Compensation;
(b) equals 1.5% of the Participant’s Final Average Earnings in excess of Social Security Covered Compensation; and
(c) equals the Participant’s Credited Service not in excess of 30 years.
In no event shall the overall permitted disparity limits of Section 1.401(l)-5 of the Income Tax Regulations be exceeded.
6.2 Early Retirement Pension
Subject to the provisions of Articles VII and X, the monthly early retirement pension of a Participant eligible for an early retirement pension under the provisions of Section 5.2 shall be, at the option of the Participant, either (a) or (b) as set forth below:
(a) A deferred pension, commencing as of the Participant’s Normal Retirement Date, equal to the amount of pension, determined under Section 6.1, to which he is entitled based upon his Credited Service and Final Average Earnings as of his date of early retirement and the level of Social Security Covered Compensation in effect on such date.
(b) An immediate pension, commencing as of any month following the month in which such Participant retires early, determined as provided in (a) above, but reduced by 1/4 of 1 percent for each complete calendar month up to 60 such months and by 3/8ths of 1 percent for each complete calendar month in excess of 60 months, by which his early retirement pension commencement date precedes his Normal Retirement Date.
6.3 Disability Retirement Pension
Subject to the provisions of Articles VII and X, a Participant eligible for disability benefits under the provisions of Section 5.3 shall receive a disability retirement pension beginning as of his Normal Retirement Date, or later disability retirement date. Such
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disability retirement pension shall be in an amount determined in accordance with Section 6.1 assuming that:
(a) Service and Credited Service are granted for each calendar year (and part thereof) during which he continues to be subject to a Total and Permanent Disability, and
(b) his Compensation continues unchanged from the calendar year including his date of disability to the calendar year including his Normal Retirement Age or later disability retirement date, and
(c) his Social Security Covered Compensation is based on the level in effect at the time he becomes disabled.
6.4 Deferred Pension Upon Termination of Service
Subject to the provisions of Articles VII and X, the monthly pension, commencing as of Normal Retirement Date, of a former Covered Employee whose employment with an Employer and Affiliates has terminated after he has become eligible for a deferred vested pension in accordance with Section 5.4, shall be equal to the pension such Participant would have been entitled to under Section 6.2(a) as of his termination of employment, multiplied by a vesting percentage determined in accordance with the table immediately below:
| Years of Service | Vesting Percentage | ||||
| Less than 5 | 0% | ||||
| 5 or more | 100% | ||||
Except as otherwise provided under Section 8.1, any Participant having less than five years of Service at the time of his death or other termination of employment with the Employers or an Affiliate shall have no vested rights under this Plan and neither he nor his Spouse or Beneficiary shall be entitled to any benefits under this Plan.
A former Covered Employee who is eligible for a deferred vested pension and who is credited with 15 or more years of Credited Service may elect (by written application) to commence his deferred vested pension in a reduced amount at any time between the ages of 55 and 65, in which case the monthly pension amount as determined above shall be reduced in accordance with the provisions of subsection (b) of Section 6.2 based on the number of months that his Annuity Starting Date precedes his Normal Retirement Date.
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6.5 Increase in Pension for Certain Retired Participants
(a) Notwithstanding the foregoing provisions of this Article VI and effective for Plan payments made on or after January 1, 1996, the monthly pension payable to a Qualified Pensioner (or to the Beneficiary of a Qualified Pensioner) shall be increased by the greater of five percent (5%) or twenty dollars ($20.00). For purposes of this subsection (a), a “Qualified Pensioner” means a Participant who retired under the normal retirement, early retirement, or disability retirement provisions of the Plan prior to January 1, 1994.
(b) Notwithstanding the foregoing provisions of this Article VI and effective for Plan payments made on or after January 1, 1999, the monthly pension payable to a Qualified Pensioner (or to the Beneficiary of a Qualified Pensioner) shall be increased by the greater of four percent (4%) or fifteen dollars ($15.00). For purposes of this subsection (b), a “Qualified Pensioner” means a Participant who retired under the normal retirement, early retirement, or disability retirement provisions of the Plan and commenced Plan payment prior to January 1, 1997.
6.6 Offset of Accruals by Plan Distributions
In the event distribution of benefits commence to an employed Participant pursuant to Section 7.10 or for any other reason after the employed Participant has attained his Normal Retirement Age, any increase in the Participant’s monthly benefit which accrues in any Plan Year in which such distribution is made shall be reduced (but not below zero) by the Actuarial Equivalent of total Plan benefit distributions made to such Participant by the close of such Plan Year.
6.7 Non-Duplication of Benefits
(a) There shall be no duplication of any retirement benefit or deferred vested pension benefit payable under this Plan, and any pension or retirement benefit payable under any other qualified defined benefit pension, retirement, or similar plan to which an Employer or predecessor Employer of the particular Participant has contributed, based upon the same period of service. Unless such other benefits are clearly intended to be in addition to benefits under this Plan, the Administrator shall make or cause to be made appropriate adjustments in the retirement benefit or deferred vested pension benefit payable under this Plan in respect to any Participant to carry out the provisions of this paragraph.
(b) No benefit shall be payable to any Participant under more than one Section of the Plan for the same period of time.
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ARTICLE VII - COMMENCEMENT AND DURATION OF PENSIONS
7.1 Normal and Early Retirement Pensions
(a) Any normal or early retirement pension shall be payable to a retired Participant who has applied therefor in accordance with the rules established by the Administrator, commencing as of the later of the Participant’s Normal Retirement Date or the first day of the month next following the date as of which the Participant makes proper application to commence retirement payments. A Participant who is eligible for an early retirement pension may elect payment prior to Normal Retirement Date and receive a reduced pension under the provisions of Section 6.2. Subject to Sections 7.10(b) and 11.12, a Participant who fails to elect such payment as provided in this Section 7.1 will be deemed to have made an election to defer distribution.
(b) Subject to Sections 7.8 and 7.10, a normal or early retirement pension shall be payable monthly for the remaining life of such retired Participant. The last payment to the retired Participant under this form shall be for the month in which the death of such retired Participant occurs. However, if the retired Participant duly accepted the Automatic Surviving Spouse’s Pension as set forth in Section 7.5 or elected an optional form of pension in Section 7.7 and is receiving his retirement pension pursuant to such election, then any pension payments to him and his surviving Spouse or Beneficiary shall be as set forth in Section 7.5 or 7.7, whichever applicable.
7.2 Disability Retirement Pension
A disability retirement pension shall be payable to a disabled Participant who has applied therefor in accordance with the rules established by the Administrator, commencing as of the Participant’s Normal Retirement Date or later disability retirement date (or, if later, commencing as of the first day of the month next following the date as of which application for the disability retirement pension was made), provided the Participant has remained continuously disabled (within the meaning of Section 5.3) up to his Normal Retirement Date or later disability retirement date.
To ascertain whether a Participant retains his eligibility for a disability retirement pension, the Administrator shall rely on the determination of the Participant’s continuing eligibility for disability benefits under the Erie Insurance Group Long Term Disability Income Benefits Program. If it is determined by the Administrator that the
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Participant is no longer eligible for and receiving disability benefits under the Erie Insurance Group Long Term Disability Income Benefits Program, the Participant’s eligibility for a disability retirement pension will end and the Participant’s Credited Service and Final Average Earnings accumulated to that time shall be reinstated, whether or not the Participant returns to employment as a Covered Employee. Such Participant shall be eligible for a retirement or deferred vested pension, based on such Credited Service and Final Average Earnings, under the provisions of Section 5.1, 5.2, or 5.4.
If a participant who is disabled (within the meaning of Section 5.3) chooses to begin a retirement or deferred vested pension prior to his Normal Retirement Date and prior to a determination by the Administration that he is no longer disabled, the retirement or deferred vested pension shall be based on the Participant’s Credited Service and Final Average Earnings as of his termination of employment due to disability.
Subject to Section 7.8, a disability pension shall be payable monthly for the remaining life of such retired Participant. The last payment to the retired Participant under this form shall be for the month in which the death of such retired Participant occurs. However, if the Participant duly accepted the Automatic Surviving Spouse’s Pension as set forth in Section 7.5 or elected an optional form of pension in Section 7.7 and is receiving his retirement pension pursuant to such election, then any pension payments to him and his surviving Spouse or Beneficiary shall be as set forth in Section 7.5 or 7.7, whichever applicable.
7.3 Deferred Vested Pension
A deferred vested pension shall be payable to a Participant who has met the criteria provided in Section 5.4 and who has applied therefore in accordance with rules established by the Administrator, commencing as of the later of the Participant’s Normal Retirement Date, or the first day of the month next following the date as of which the Participant makes proper application to commence payment. A Participant who has at least 15 years of Credited Service as of his termination of employment may elect to commence payment as of the first day of any month between the age of 55 and his Normal Retirement Date in accordance with an eligible Participant’s election to receive a reduced amount under the provisions of Section 6.4. Subject to Sections 7.10(b) and 11.12, a Participant who fails to elect payment as provided in this Section 7.3 will be deemed to have made an election to defer distribution. Subject to Section
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7.8, a deferred vested pension shall be payable monthly for the remaining life of the Participant. The last payment to the Participant under this form shall be for the month in which the death of such Participant occurs. However, if the Participant duly elected the Automatic Surviving Spouse’s Pension as set forth in Section 7.5 or elected an optional form of pension in Section 7.7 and is receiving his deferred vested pension pursuant to such election, then any pension payments to him and his surviving Spouse or Beneficiary shall be as set forth in Section 7.5 or 7.7, whichever applicable.
7.4 Reemployment of a Retired Participant
The pension payable to any Participant receiving retirement benefits or deferred vested pension benefits shall cease and be permanently withheld if and when such Participant is reemployed by an Employer; provided, however, that no pension shall be withheld by the Plan pursuant to this Section 7.4 if such reemployed Participant has been employed in a classification which is not covered under the Plan or if such reemployed Participant has been employed in a classification that is a part-time position that has an agreed-upon end date of six months or less. Notwithstanding the preceding sentence, no payment shall be withheld by the Plan pursuant to this Section 7.4 unless the Plan notifies the reemployed Participant that his benefits are suspended by personal delivery or first class mail before or during the first calendar month in which the Plan withholds payments. Such notification shall contain a description of the specific reasons why benefit payments are being suspended, a general description of the Plan provisions relating to the suspension of payments, a copy of such provisions, and a statement to the effect that applicable Department of Labor regulations may be found in Section 2530.203-3 of the Code of Federal Regulations. In addition, the suspension notification shall inform the reemployed Participant of the Company’s procedure for affording a review of the suspension of benefits.
The retirement benefit or deferred vested pension of a reemployed Participant whose pension has been suspended pursuant to this Section 7.4 shall resume with the month following the Participant’s subsequent retirement or termination of employment. Any retirement benefit or deferred vested pension payable upon such subsequent retirement or termination shall be determined as provided in Article VI on the basis of the Participant’s Credited Service, Final Average Earnings and Social Security Covered Compensation at the time of his subsequent retirement or termination; provided, however, that such retirement benefit or deferred vested pension shall be reduced by the actuarial equivalent
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of the retirement or deferred vested pension benefits, if any, that the Participant received prior to the suspension of payment as provided hereunder.
The retirement benefit or deferred vested pension of a reemployed Participant whose pension has not been suspended pursuant to this Section 7.4 shall be recalculated following the Participant’s subsequent retirement or termination of employment. Such recalculated retirement benefit or deferred vested pension shall be determined as provided in Article VI on the basis of the Participant’s Credited Service, Final Average Earnings and Social Security Covered Compensation at the time of his subsequent retirement or termination; provided, however, that such retirement benefit or deferred vested pension shall be reduced by the actuarial equivalent of the retirement or deferred vested pension benefits that the Participant received through the effective date of such recalculation.
Notwithstanding the foregoing, in no event shall a retirement benefit or deferred vested pension payable to or on behalf of a reemployed Participant under this Section 7.4 following the Participant’s subsequent retirement or termination be less than that retirement benefit or deferred vested pension payable to the Participant prior to his reemployment. In the determination of the Final Average Earnings of a Participant who is reemployed and who again becomes an active Participant, the thirty-six month period to be considered shall be the number of months in such period of reemployment prior to his subsequent date of retirement or termination, plus such number of months immediately prior to his earlier retirement or termination as shall total thirty-six months.
Except as provided under Section 7.9, if a former Participant is reemployed by an Employer as a Covered Employee after having received payment of his retirement benefit or deferred vested pension under the Plan in the form of a lump sum:
(a) Such former Participant shall re-enter the Plan effective as of his date of reemployment as a Covered Employee, and his Service and Credited Service (for purposes of determining eligibility for early and disability retirement benefits only) earned during his prior period of Plan participation shall be reinstated on such date;
(b) The Credited Service earned during such former Participant’s prior period of Plan participation, and which had been reflected in the lump sum paid to the former
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Participant, shall not be recognized for purposes of computing the amount of any benefit under the Plan;
(c) The Compensation earned during such former Participant’s prior period of Plan participation, and which had been reflected in the lump sum paid to the former Participant, shall not be recognized for purposes of computing the amount of any benefit under the Plan; and
(d) Such former Participant may not repay to the Plan all or any portion of the lump sum previously paid from the Plan to the former Participant.
7.5 Automatic Surviving Spouse’s Pension
A married Participant who is eligible to commence payments pursuant to the normal, early or disability retirement provisions of the Plan or pursuant to the deferred vested pension provisions of the Plan and whose benefit may not be paid under the provisions of Section 7.8 shall automatically be deemed to have elected, at the commencement dates otherwise specified herein, an immediate monthly pension during his lifetime with the provision that, following his death, a monthly survivor’s pension equal to 50 percent of his reduced pension shall be payable to his surviving Spouse during the further lifetime of the Spouse (the “Automatic Surviving Spouse’s Pension”). Such pension shall be actuarially equivalent to an immediate single life annuity. The automatic election provided in this Section 7.5 shall become effective as of the Participant’s Annuity Starting Date.
An unmarried Participant who retires pursuant to the normal, early or disability retirement provisions of the Plan or pursuant to the deferred vested pension provisions of the Plan and whose benefit may not be paid under the provisions of Section 7.8 shall automatically be deemed to have elected a monthly pension payable for his lifetime as a single life annuity.
A Participant may prevent the automatic election provided in this Section 7.5 at any time within the “applicable election period” (as hereafter defined) by executing a specific written rejection of such an election on a form approved by the Administrator and filing it with the Administrator; provided that such rejection shall not take effect unless the Participant’s Spouse, if applicable, consents to such rejection in accordance with Section 7.6 of the Plan. Any election to revoke the Automatic Surviving Spouse’s Pension and any Spouse’s consent thereto must specify the particular optional form of benefit elected by the Participant and, if applicable, must state the specific non-Spouse
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Beneficiary or Beneficiaries (including any class of Beneficiaries or any contingent Beneficiaries) who may be entitled to any benefits upon the Participant’s death. Any subsequent change in optional form of benefit or in a non-Spouse Beneficiary selected shall be valid only if accompanied by the written and witnessed consent of the Participant’s Spouse in the manner described in Section 7.6.
During the period beginning no more than 180 days and ending no less than 30 days prior to the Participant’s Annuity Starting Date, the Administrator shall furnish to the Participant a written general description of the automatic election provided in this Section 7.5. The general description shall include a written explanation of the Participant’s and Spouse’s rights under the Automatic Surviving Spouse’s Pension, including the availability and effect of the election to reject the Automatic Surviving Spouse’s Pension. Such description shall also provide information as to the material features of the optional forms of benefit as well as a brief explanation of their relative values as compared to the Automatic Surviving Spouse’s Pension. In addition, in the event the Participant’s Annuity Starting Date is prior to his attainment of Normal Retirement Age, such description shall inform the Participant of his right to defer commencement of the Plan distribution (including, for Plan Years beginning after December 31, 2006, a description of the consequences of failing to defer commencement). A Participant may make and revoke his written rejection of an Automatic Surviving Spouse’s Option at any time and any number of times within the “applicable election period”. The “applicable election period” shall commence 180 days prior to the Participant’s Annuity Starting Date and shall end on the Participant’s Annuity Starting Date. Distribution to the Participant may commence after seven days have elapsed from the date the Administrator provides the written description provided that the Participant has received information that clearly indicates his right to at least 30 days to consider the contents of the description, the Participant affirmatively elects distribution and any required spousal consent is satisfied.
A Participant who retires pursuant to the normal, early or disability retirement provisions of the Plan or pursuant to the deferred vested pension provisions of the Plan and who is entitled, under such provisions, to a pension with a lump sum actuarial equivalent value not in excess of $5,000 shall receive his pension in accordance with Section 7.8 hereof.
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7.6 Requirement for Spouse Consent
Any election of a married Participant under Sections 7.5 and 7.7 (other than an election to revoke a rejection of the Automatic Surviving Spouse’s Pension under Section 7.5) shall require the consent of the Participant’s Spouse unless it is established to the satisfaction of the Administrator that the consent required under this Section 7.6 may not be obtained:
(a)because there is no Spouse or because the Spouse cannot be located,
(b)because the Participant is legally separated from the Spouse,
(c)because the Participant has been abandoned by his Spouse (within the meaning of local law) and such Participant has a court order to that effect, or
(d)because of such other circumstances as the Secretary of the Treasury may by regulations prescribe.
Any consent by a Spouse shall be in writing acknowledging the effect of such election or revocation and witnessed by a notary public or such Plan representatives as may be designated for this purpose by the Administrator. Any Spouse’s consent (or establishment that the Spouse’s consent may not be obtained) shall be effective only with respect to such Spouse.
7.7 Optional Forms of Pensions
In lieu of a benefit in the form of payment determined in Section 7.5, a Participant may, with the consent of his Spouse as described in Section 7.6, if applicable, elect an actuarially equivalent benefit described below. This election is effective as of a Participant’s Annuity Starting Date.
(a) Option A: 10-Year Certain and Life Option - A reduced monthly retirement income is payable to the Participant during his remaining lifetime, and upon his death prior to receiving payment for a period equivalent to 120 months, monthly payments of the same reduced amount will be made to his Beneficiary until the number of monthly payments made to the Beneficiary, when added to the number of monthly payments made to the Participant, is equivalent to 120 monthly payments.
(b) Option B: 15-year Certain and Life Option - A reduced monthly retirement income is payable to the Participant during his remaining lifetime, and upon his death prior to receiving payment for a period equivalent to 180 months, monthly payments of the same reduced amount will be made to his Beneficiary until the number of monthly payments made to the Beneficiary, when added to the
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number of monthly payments made to the Participant, is equivalent to 180 monthly payments.
(c) Option C: 50% Joint and Survivor Option - a reduced monthly retirement income is payable to the Participant for his remaining lifetime, and upon his death, monthly income of 50% of such reduced monthly income previously paid to the Participant shall be paid to his Beneficiary for as long thereafter as that person shall live.
(d) Option D: 75% Joint and Survivor Option - effective for Plan Years beginning after December 31, 2007, a reduced monthly retirement income is payable to the Participant for his remaining lifetime, and upon his death, monthly income of 75% of such reduced monthly income previously paid to the Participant shall be paid to his Beneficiary for as long thereafter as that person shall live.
(e) Option E: 100% Joint and Survivor Option - a reduced monthly retirement income is payable to the Participant for his remaining lifetime, and upon his death, monthly income of 100% of such reduced monthly income previously paid to the Participant shall be paid to his Beneficiary for as long thereafter as that person shall live.
(f) Option F: Joint and Survivor Pop-Up Option - a reduced monthly retirement income is payable to the Participant for his remaining lifetime, and upon his death, monthly income of either 50% or 100% (as elected by the Participant) of such reduced monthly income previously paid to the Participant shall be paid to the Participant’s Spouse for as long thereafter as such Spouse shall live; provided, however, that in the event the Spouse of the Participant predeceases the Participant and such Spouse’s death occurs within 60 months of the Participant’s Annuity Starting Date, the provisions of Section 7.12 shall apply. Notwithstanding any provision of the Plan to the contrary (i) the Joint and Survivor Pop-Up Option shall be available only with respect to a Participant who has retired under the normal retirement provisions of Section 5.1 or the early retirement provisions of Section 5.2, and (ii) actuarial equivalence of a benefit payable under the Joint and Survivor Pop-Up Option shall be determined under Section 11.6; provided, however, that in the event an annuity contract is purchased from an insurance company with respect to such benefit, actuarial equivalence shall thereafter be determined by reference to the specific annuity contract which will be purchased by the Plan to provide the monthly retirement income payable under this form of payment.
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Election of these options must be made during the applicable election period described in Section 7.5. Except to the extent otherwise provided under Section 8.4, if either the Participant or his Beneficiary dies after the election of an option is made but before the Annuity Starting Date such option will not become effective. If the Beneficiary shall die after commencement of the joint and survivor pension, but before the death of the retired Participant, the Participant shall continue to receive the reduced pension payable in accordance with such option. An option may be cancelled by the Participant prior to the Annuity Starting Date. The effect of such cancellation shall be to reinstate the life annuity specified in Section 7.1, 7.2 or 7.3, whichever applicable, or, if the Participant is married, the Automatic Surviving Spouse’s Pension under Section 7.5 (in which case any subsequent option election must satisfy the requirements of Section 7.5). Except to the extent expressly permitted under the Plan, no election regarding an optional form of payment may be made by a Participant following the Participant’s Annuity Starting Date. If the Beneficiary designated by a Participant in connection with the election of an optional form of benefit is not the Spouse of the Participant, then the election shall be effective only if the minimum distribution incidental benefit requirements of Section 1.401(a)(9)-6 of the Income Tax Regulations are satisfied with respect to such distribution.
7.8 Payment of Small Pension
(a)Notwithstanding any provision of the Plan to the contrary, if the actuarial equivalent present value of any retirement benefit, deferred vested pension or survivor benefit does not exceed $5,000 such benefit shall be paid as soon as practicable in a lump sum equal to such present value. Except as otherwise provided in this Article VII, no lump sum payments shall be made if the actuarial equivalent present value of the benefit is in excess of this threshold.
(b) Effective for any distribution to a Participant under this Section 7.8 on and after March 28, 2005, the lump sum payment described above shall be made on the conditions that the Participant is alive as of the applicable Annuity Starting Date and, except as otherwise provided in this subsection (b), that the Participant affirmatively elects payment in cash or as a Direct Rollover (as defined in Section 7.11). No further election or consent shall be required or permitted with respect to such distribution. Effective for any distribution to a Participant under this Section 7.8 on and after February 1, 2006, if the Participant fails to affirmatively elect payment in cash or as a Direct Rollover within the 60-day period following the Administrator’s distribution of the Direct Rollover explanation and election,
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as applicable to a benefit with an actuarial equivalent present value in excess of $1,000, the Administrator shall direct distribution of the lump sum payment in the form of a Direct Rollover to an individual retirement plan or annuity selected by the Administrator. If the actuarial equivalent present value of the retirement benefit or deferred vested pension does not exceed $1,000 as of the applicable Annuity Starting Date and the Participant fails to make a cash/Direct Rollover election within such 60-day period, the Plan shall pay such benefit in the form of an actuarial equivalent cash lump sum as soon as practicable following the expiration of such 60-day period.
(c) The actuarial equivalent present value of a retirement benefit, deferred vested pension or survivor benefit shall be calculated and paid on the basis of the “applicable mortality table”, as defined in Section 417(e)(3)(B) of the Code, and the “applicable interest rate”, as defined in Section 417(e)(3)(C) of the Code, for the fourth calendar month preceding the first day of the Plan Year in which the distribution is payable; provided, however, that actuarial equivalent present value determinations under this Section 7.8 for the period beginning December 31, 2019 and ending December 30, 2020 shall be calculated and paid on the basis of the “applicable mortality table”, as defined in Section 417(e)(3)(B) of the Code, and the “applicable interest rate”, as defined in Section 417(e)(3)(C) of the Code for the second calendar month preceding the month in which the distribution is payable if such determination results in a larger present value and, provided further, that in the event the Alternative Present Value (as hereinafter defined) of the applicable benefit is a larger amount, such larger amount shall be paid (provided such Alternative Present Value calculation does not exceed $5,000). For purposes of this Section 7.8, the “Alternative Present Value” of a retirement benefit, deferred vested pension or survivor benefit shall be based on the Accrued Pension earned by the Participant at the earlier of his termination of employment, or December 30, 1995, determined by using the UP-1984 mortality table (reflecting a one-year setback for Participants and a two-year setback for Beneficiaries) and a 6% interest rate.
(d) The provisions of this Section 7.8 shall likewise apply to any Participant who terminates his employment with an Employer and all Affiliates prior to his completion of such period of Service as is required for a deferred vested pension under the Plan. In such case the terminated Participant shall be deemed to receive a lump sum distribution of the actuarial equivalent present value of his entire vested pension as of his date of termination of employment. Subject to Section
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7.9 hereof, a Participant who receives a distribution (or deemed distribution) under this Section 7.8 shall lose his Credited Service (and Service, in the case of a deemed distribution) under the Plan, shall forfeit his nonvested Accrued Pension and shall no longer be considered a Participant hereunder after such date of distribution (or deemed distribution).
7.9 Repayment of Cashout on Reemployment
Notwithstanding any provision of Section 7.8 to the contrary, in the event a Participant described in Section 7.8 receives a distribution described thereunder and is subsequently reemployed by an Employer as a Covered Employee, such Participant’s Credited Service and Accrued Pension earned before his termination of employment shall be reinstated for all purposes of the Plan if the Participant repays to the Plan the full amount of his distribution with interest, compounded annually from the date of distribution to December 30, 1988 at the rate of five percent (5%) per annum and from December 31, 1988 to the date of repayment at the rate determined for each Plan Year within such period under Section 411(c)(2)(C) of the Code. With respect to a former Participant who has been deemed to receive a distribution of his entire vested pension upon his termination of employment in accordance with Section 7.8(d), such individual shall be deemed to have repaid such distribution, with interest, as of his date of rehire and such Participant’s Service, Credited Service and Accrued Pension earned before his termination of employment shall be reinstated as of such date. For purposes of the foregoing, the period in which the Participant’s repayment or deemed repayment must occur shall end on the earlier of the fifth anniversary of the Participant’s reemployment or the date on which the Participant’s Period of Severance extends to five consecutive years.
7.10 Delay in Commencement of Pension Payments
(a)Unless the Participant otherwise elects, payment of any pension under the provisions of this Article VII shall commence as of a date that is no later than 60 days after the later of the close of the Plan Year during which a Participant: (i) attains his Normal Retirement Age or, (ii) terminates his employment with an Employer and Affiliates. A Participant who has terminated employment with an Employer and Affiliates may not affirmatively elect to defer payment of any retirement or deferred vested benefit beyond the Participant’s Normal Retirement Date; provided, however, that a Participant who is receiving benefits under a long-term disability benefit contract or plan to which an Employer or Affiliate has
37
contributed may affirmatively elect to defer payment beyond Normal Retirement Date until the earlier of (A) the month following the month in which such long-term disability benefit payments cease, and (B) the Participant’s Required Beginning Date under Section 7.10(b). Notwithstanding the foregoing and subject to Sections 7.10(b) and 11.12, the failure of a Participant, surviving Spouse or Beneficiary to properly complete and file the required application materials shall be deemed to be an election to defer commencement of payment. No payment under the Plan will be increased on account of any delay in payment due to a Participant’s or Beneficiary’s failure to properly file the required application forms or to otherwise accept such payment. No payment to an alternate payee under a qualified domestic relations order may be made before the affected Participant’s earliest retirement age under the Code.
(b) Notwithstanding any inconsistent provision of the Plan and effective January 1, 2003, all distributions under the Plan shall be made in accordance with Code Section 401(a)(9), including the incidental death benefit requirement of Code Section 401(a)(9)(G), and Sections 1.401(a)(9)-1 through 1.401(a)(9)-9 of the Income Tax Regulations. Specifically, distribution of the Participant’s interest shall:
(i) be completed no later than the Required Beginning Date; or
(ii) commence not later than the Required Beginning Date with distribution to the Participant made over the life of the Participant or joint lives of the Participant and a designated Beneficiary or a period not longer than the life of the Participant or joint lives of the Participant and a designated Beneficiary.
For purposes of this Section 7.10, Required Beginning Date shall mean:
(iii) for Participants born before July 1, 1949, April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70½ or the calendar year in which the Participant terminates employment or retires; and
(iv) for Participants born after June 30, 1949, April 1 of the calendar year following the later of the calendar year in which the Participant attains age 72 or the calendar year in which the Participant terminates employment or retires;
provided, however, if the Participant is a five-percent owner (as defined in Section 416 of the Code), the Required Beginning Date shall be April 1 of the calendar year following the calendar year in which the Participant attains age 70½
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or age 72, as applicable based on the Participant’s date of birth, regardless of the date that the five-percent owner terminates employment or retires. In the case of a Participant who terminates employment or retires in a calendar year after the calendar year in which he attains age 70½ or age 72, as applicable based on the Participant’s date of birth, and who has not commenced payments as of the first day of such later calendar year, the Plan benefit accrued by the Participant shall be actuarially increased, to the extent required by regulations, to take into account the period (commencing on the April 1st of the calendar year following the calendar year in which the Participant attains age 70½ and ending on the date payment commences) during which the Participant did not receive any benefits under the Plan; provided, however, that such actuarial increase, to the extent permitted by regulations, shall reduce the benefit accrual otherwise occurring during such period.
(c) In the event that a Participant dies prior to the date that distribution commences:
(i) any portion of the Participant’s interest that is not payable to a designated Beneficiary shall be distributed not later than the end of the calendar year which includes the fifth anniversary of the date of the Participant’s death; and
(ii)any portion of the Participant’s interest that is payable to a designated Beneficiary shall be distributed in accordance with subsection (i) above or over the life of the designated Beneficiary (or over a period not extending beyond the life expectancy of the Beneficiary), commencing not later than the end of the calendar year following the calendar year of the Participant’s death or, if the Beneficiary is the Participant’s surviving Spouse, commencing not later than the last day of the later of the calendar year in which the Participant would have attained age 70½ or the calendar year following the calendar year which includes the date of the Participant’s death.
(d)In the event that a Participant dies after distribution of his interest has begun, but prior to distribution of his entire interest, the remaining portion of such interest shall be distributed in a method that is at least a rapid as the method in effect at the date of the Participant’s death.
7.11 Direct Rollover of Eligible Rollover Distributions.
Notwithstanding any provision of the Plan to the contrary, a Distributee may elect, subject to provisions adopted by the Administrator which shall be consistent with
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income tax regulations, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover to such plan. The Administrator shall notify a Distributee of his right to elect a Direct Rollover. Such notice shall be provided to the Distributee between 30 days and 180 days prior to the Distributee’s Annuity Starting Date. A Distributee’s affirmative election to make or not make a Direct Rollover may be implemented by the Administrator less than 30 days after the Distributee receives such notice of his Direct Rollover rights, but only if the Administrator notifies the Distributee that he has the right to consider the decision of whether or not to elect a Direct Rollover for up to 30 days. For purposes of this Section:
(a) The term “Distributee” shall mean an Employee or former Employee. In addition, such an individual’s surviving Spouse or such an individual’s Spouse or former Spouse who is an alternate payee within the meaning of Section 414(p)(8) of the Code are Distributees with respect to the interest of the Spouse or former Spouse. With respect to distributions made on or after December 31, 2009, a Distributee shall also include an Employee’s or former Employee’s Beneficiary who is not the Employee’s or former Employee’s Spouse.
(b) The term “Eligible Rollover Distribution” shall mean any distribution of all or any portion of the balance to the credit of the Distributee other than: (i) any distribution that is one of a series of substantially equal periodic payments made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and his Beneficiary, or for a specified period of ten years or more; (ii) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and, (iii) any portion of a hardship withdrawal. In addition, a portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be paid only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, respectively, or (for distributions on and after January 1, 2008) to a Roth IRA described in Section 408A of the Code, to a qualified trust defined in Section 401(a) of the Code, or to an annuity contract described in Section 403(b) of the Code provided such account, annuity, IRA, trust or annuity contract agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so
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includible.
An Eligible Rollover Distribution with respect to a Distributee who is not the Employee’s or former Employee’s Spouse must be made by a direct trustee-to-trustee transfer.
(c)The term “Eligible Retirement Plan” shall mean an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity described in Section 403(a) of the Code, an annuity described in Section 403(b) of the Code, an eligible plan under Section 457(b) of the Code which is maintained by a state or a political subdivision of a state and which agrees to separately account for amounts transferred, a qualified trust described in Section 401(a) of the Code, and for periods on and after January 1, 2008, a Roth IRA under Section 408A of the Code, that accepts the Distributee’s Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution: (i) that includes after-tax employee contributions, an Eligible Retirement Plan is an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or a qualified defined contribution plan or annuity described in Section 401(a) or 403(a) of the Code that agrees to separately account for such Eligible Rollover Distributions, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, (ii) that includes a Designated Roth Account, an Eligible Retirement Plan is an individual retirement plan described in Section 408A of the Code or a qualified defined contribution plan described in Section 401(a) of the Code that agrees to separately account for such Eligible Rollover Distribution, including separately accounting for the portion of such distribution which is includible in gross income and the potion of such distribution which is not so includible, and (iii) that is made on behalf of a Distributee who is not the Employee’s or former Employee’s Spouse, an Eligible Retirement Plan shall mean an individual retirement account described in Section 408(a) of the Code or an individual retirement annuity described in Section 408(b) of the Code established for the purpose of receiving a distribution on behalf of a Beneficiary, which will be treated as an inherited IRA pursuant to Section 402(c)(11) of the Code.
(d)The term “Direct Rollover” shall mean a payment by the Plan to the Eligible Retirement Plan specified by the Distributee.
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7.12 Change to Pension Payments in Connection with Qualifying Event.
(a)In the event an Eligible Retiree (as hereinafter defined) experiences a Qualifying Event (as hereinafter defined), the provisions of this Section 7.12 shall apply, provided that the Eligible Retiree furnishes the Administrator with reasonable notice of the Qualifying Event within 120 days of the Qualifying Event and provides such further information applicable hereunder as the Administrator may reasonably require. For purposes of this Section:
(i) “Eligible Retiree” shall mean a Participant who has retired under the normal retirement provisions of Section 5.1 or the early retirement provisions of Section 5.2 and who, as of his Annuity Starting Date, was either:
(A) legally married and commencing receipt of his retirement income in the form of an Automatic Surviving Spouse’s Pension (as defined in Section 7.5), under the 100% Joint and Survivor Option (with his Spouse as Beneficiary thereunder) or under the Joint and Survivor Pop-Up Option; or
(B) unmarried and commencing receipt of his retirement income in the normal form of benefit provided under Section 7.1 (a life annuity).
(ii) “Qualifying Event” shall mean an event described in (A), (B) or (C) below:
(A) The Spouse of an Eligible Retiree who is receiving retirement income under the Joint and Survivor Pop-Up Option under Section 7.7(e) predeceases the Eligible Retiree and such Spouse’s death occurs within 60 months of the Eligible Retiree’s Annuity Starting Date;
(B) The marital status of an Eligible Retiree who is receiving retirement income under any of the forms of payment described in subparagraph (a)(i)(A) of this Section 7.12 changes within 120 months of his Annuity Starting Date due to the Eligible Retiree’s divorce, marital dissolution, or legal separation; or
(C) The marital status of an Eligible Retiree who is described under subparagraph (a)(i)(B) of this Section
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7.12 changes and within 120 months of his Annuity Starting Date due to the Eligible Retiree’s marriage.
(iii) “Qualifying Event Election Period” shall mean the 90-day period beginning on the date on which the Eligible Retiree timely notifies the Administrator of a Qualifying Event, as provided in Section 7.12(a) above.
(iv) The determination of an Eligible Retiree’s marital status and the determination of whether a divorce, marital dissolution or legal separation has occurred shall be made on the basis of the laws of the Commonwealth of Pennsylvania unless preempted by federal law.
(b) In the event of the occurrence of a Qualifying Event described in subparagraphs (a)(ii)(A) or (a)(ii)(B) of this Section 7.12, and contingent upon the Eligible Retiree’s timely notification to the Administrator, the retirement income payable to the affected Eligible Retiree shall revert to the normal form of benefit provided under Section 7.1 (a life annuity) as of the first day of the month following the expiration of the Qualifying Event Election Period; provided, however, that:
(i) The amount of such monthly life annuity shall be the actuarial equivalent of the Eligible Retiree’s benefit, determined as of the time of calculation hereunder, under the form of payment in effect as of his Annuity Starting Date; provided, however, that such monthly amount shall not exceed the amount of the monthly life annuity which the Eligible Retiree was entitled to as of his Annuity Starting Date; and
(ii) In the case of a Qualifying Event described in subparagraph (a)(ii)(B) of this Section 7.12, the Spouse or ex-Spouse of the Eligible Retiree, as part of the division of marital property (or other determination which is not subject to modification under state law), expressly waives all interest in the Eligible Retiree’s pension under the Plan and such waiver is incorporated into a document which satisfies the formal requirements of a “Qualified Domestic Relations Order” as defined in Section 414(p) of the Code; and
(iii) In the case of a Qualifying Event described in subparagraph (a)(ii)(B) of this Section 7.12, the Spouse or ex-Spouse of the
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Eligible Retiree shall secure such proof of insurability as the Administrator may require, in its discretion.
(c) In the case of any Qualifying Event described in subparagraph (a)(ii)(C) of this Section 7.12 and contingent upon the Eligible Retiree’s timely notification to the Administrator, the affected Eligible Retiree shall be permitted to elect, within the Qualifying Event Election Period, to receive his future retirement income from the Plan in one of the forms of payment described in paragraphs (c), (d), or (e) of Section 7.7 (a 50% or 100% Joint and Survivor Option or a 50% or 100% Joint and Survivor Pop-Up Option) with his Spouse as Beneficiary thereunder; provided, however, that:
(i)Payments under any elected form of payment shall commence as of the first day of the month next following the month in which the Eligible Retiree makes full and complete application to the Administrator in accordance with rules established by the Administrator (such commencement date referred to herein as the “Adjusted Commencement Date”); and
(ii)Payments under any elected form of payment shall be the actuarial equivalent of the Eligible Retiree’s benefit, determined as of the time of calculation hereunder, under the form of payment in effect as of his Annuity Starting Date; provided, however, that such monthly amount shall not exceed the amount of the monthly benefit under the elected form of payment which the Eligible Retiree was entitled to as of his Annuity Starting Date; and
(iii)The Eligible Retiree shall secure such proof of insurability of the Eligible Retiree and/or the Eligible Retiree’s Spouse as the Administrator may require, in its discretion; and
(iv)The provisions of Sections 7.5 and 7.6 hereof shall apply with respect to any Eligible Retiree who is married as of the Adjusted Commencement Date and, for purposes of such Sections and Section 7.7, the Adjusted Commencement Date shall be deemed the Annuity Starting Date for the elected form of payment described in this Section 7.12(c); and
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(v)In no event shall more than one election be made under this Section 7.12(c) by an Eligible Retiree with respect to any single Qualifying Event nor shall this Section 7.12 be applicable more than twice with respect to any Eligible Retiree, Section 7.12(c), irrespective of the number of Qualifying Events affecting such Eligible Retiree; and
(vi)A Participant’s status as an Eligible Retiree must be independently satisfied with respect to each Qualifying Event (substituting, where applicable, the Adjusted Commencement Date for the Annuity Starting Date under Section 7.12(a)(i)).
7.13 2019 Lump Sum Payment Option Window.
During the limited period defined herein, a Qualifying Participant (as defined below) may elect to receive his retirement benefit or deferred vested pension under the conditions set forth in this Section 7.13.
(a)Definitions. For purposes of this Section 7.13, the terms set forth below shall have the meanings set forth below.
(i) The term “Lump Sum Payment Option Window” shall mean the special election period during which a Qualifying Participant may elect to receive payment or commence to receive payment of his retirement benefit or deferred vested pension, even if such Qualifying Participant has not satisfied the eligibility conditions that would otherwise be required to commence payment of his retirement benefit or deferred vested pension (determined without regard to this Section 7.13). The Lump Sum Payment Option Window shall begin on September 17, 2019 and shall end on October 22, 2019.
(ii) The term “Qualifying Participant” shall mean a Participant who satisfies each of the following:
(A) has terminated employment with the Company and all Affiliates, for any reason other than death, on or before the Window Determination Date, and who has not re-entered employment as an employee of the Company or an Affiliate;
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(B) has not experienced an Annuity Starting Date or an actual or otherwise required beginning date under Section 7.10(b) of the Plan prior to the Window Election Commencement Date;
(C) whose lump sum payment determined under the provisions of Section 7.8 is greater than $5,000;
(D) whose retirement benefit or deferred vested pension can reasonably be determined based on data available to the Administrator; and
(E) can be located by the Administrator after a diligent search.
(F) Notwithstanding the foregoing, the term “Qualifying Participant” shall exclude:
(1) any Participant who is not eligible for a retirement benefit or deferred vested pension benefit under the Plan;
(2) any Participant for whom the Administrator has been provided with documentation evidencing that such Participant’s retirement benefit or deferred vested pension is subject to a qualified domestic relations order as defined in Section 414(p) of the Code or to a pending domestic relations order, temporary restraining order, or other lien (including the order of a court or other state authority assigning any portion of the Participant’s benefit to an alternate payee for which the Plan has not received a domestic relations order) at any time before the Window Election Commencement Date;
(3) any alternate payee under a qualified domestic relations order;
(4) any surviving Spouse or other designated Beneficiary who is eligible for a survivor benefit or a death benefit pursuant to any section of the Plan; and
(5) any Participant whose participation in the Lump Sum Payment Option Window would administratively be impracticable, as the Administrator may advise the Company.
(iii) The term “Special Benefit Election” shall mean the written election made by a Qualifying Participant, in accordance with such rules and procedures as the Administrator may apply to the Lump Sum Payment Option Window, to receive or commence to receive
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his retirement benefit or deferred vested pension pursuant to the Lump Sum Payment Option Window. For a Special Benefit Election to be valid, the Special Benefit Election for any married Participant must satisfy the requirements for spousal consent, if otherwise applicable under Section 7.6, the completed Special Benefit Election form must be signed and dated on or before October 22, 2019 and such election form must be received by the Administrator or its delegate within an administratively feasible time period, as determined by the Administrator.
(iv) The term “Window Determination Date” shall mean December 31, 2018.
(b) Window Election Commencement Date. Notwithstanding any provision of the Plan to the contrary, any Qualifying Participant who makes a valid Special Benefit Election (as determined by the Administrator) shall receive distribution of his retirement benefit or deferred vested pension in the form of a lump sum or annuity (calculated as set forth below) effective as of December 1, 2019 (the “Window Election Commencement Date”), although the actual payment may be delayed to later in December, 2019 for administrative purposes.
(c) Lump Sum Payment Determination. For any Qualifying Participant who makes a valid Special Benefit Election and elects to receive payment of his retirement benefit or deferred vested pension in the form of a lump sum, the lump sum payment shall be determined as follows:
(i) Participants Otherwise Eligible for Immediate Commencement. With respect to a Qualifying Participant who is eligible for immediate commencement of payment as of the Window Election Commencement Date under the provisions of the Plan other than this Section 7.13, the lump sum payment shall be the greater of the actuarial equivalent present values of the following amounts, each determined by using the applicable interest rate promulgated by the Secretary of the Treasury under Section 417(e)(3)(C) of the Code for November 2018 and the mortality assumptions prescribed by the Secretary of the Treasury pursuant to Section 417(e)(3)(B) of the Code:
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(A) the Qualifying Participant’s retirement benefit or deferred vested pension under the Plan, payable in the form of a single life annuity as of his Normal Retirement Date; and
(B) the Qualifying Participant’s retirement benefit or deferred vested pension under the Plan, payable in the form of a single life annuity as of the Window Election Commencement Date.
Notwithstanding the foregoing provisions, the lump sum payment with respect to a Qualifying Participant who has attained Normal Retirement Date shall be the actuarial equivalent present value determined under subparagraph (c)(i)(A) above, increased by an amount equal to the product of the Qualifying Participant’s monthly normal retirement benefit and the number of months, if any, between the Qualifying Participant’s Normal Retirement Date and the Window Election Commencement Date.
(ii) Participants Not Otherwise Eligible for Immediate Commencement. With respect to a Qualifying Participant who is not eligible for immediate commencement of payment as of the Window Election Commencement Date under the provisions of the Plan other than this Section 7.13, the lump sum payment shall be the actuarial equivalent present value of the Qualifying Participant’s retirement benefit or deferred vested pension under the Plan, payable in the form of a single life annuity as of his Normal Retirement Date, determined by using the applicable interest rate promulgated by the Secretary of the Treasury under Section 417(e)(3)(C) of the Code for November 2018 and the mortality assumptions prescribed by the Secretary of the Treasury pursuant to Section 417(e)(3)(B) of the Code.
Any lump sum payment pursuant to this Section 7.13 shall fully settle the Plan’s liability with respect to a Qualifying Participant and no further benefit of any type shall be payable to, or on behalf of, such Qualifying Participant hereunder, except to the extent the Qualifying Participant is a surviving Spouse or Beneficiary with respect to a benefit earned by another Participant under the terms of the Plan (or as provided in Section 7.4 in the event that the Qualifying Participant is rehired after receiving payment and resumes participation in the Plan).
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(d) Immediate Annuity Payment. For any Qualifying Participant who makes a valid Special Benefit Election and elects to receive payment of his retirement benefit or deferred vested pension in a form other than a lump sum payment, the Qualifying Participant shall be entitled to elect payment in an immediately commencing annuity in the following optional forms and determined in accordance with the following provisions:
(i) Participants Otherwise Eligible for Immediate Commencement. With respect to a Qualifying Participant who is eligible for immediate commencement of payment as of the Window Election Commencement Date under the provisions of the Plan other than this Section 7.13, such Qualifying Participant’s retirement benefit or deferred vested pension shall be payable in one of the following optional annuity forms as the Qualifying Participant may elect, and the following early reduction factors and actuarial factors shall apply in the determination of such payment:
(A) Forms. The optional forms from which the Qualifying Participant may elect payment of his immediately commencing annuity shall be all of the annuity payment forms that would otherwise have been available to such Qualifying Participant under the Plan had he made a valid election to commence payment of his retirement benefit or deferred vested pension as of the Window Election Commencement Date (determined without regard to this Section 7.13).
(B) Early Reduction and Actuarial Factors. To the extent otherwise applicable under the Plan, actuarial factors for determining the reduction of the Qualifying Participant’s pension due to early commencement, and for determining actuarial equivalent benefits between available forms of annuity, shall be the factors that would have applied if the Qualifying Participant had made a valid election to commence payment of his retirement benefit or deferred vested pension under the Plan, with a benefit commencement date of the Window Election Commencement Date, and had elected the same form of immediately commencing annuity elected by the
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Qualifying Participant in his Special Benefit Election (all determined without regard to this Section 7.13).
(ii) Participants Not Otherwise Eligible for Immediate Commencement. With respect to a Qualifying Participant who is not eligible for immediate commencement of payment as of the Window Election Commencement Date under the provisions of the Plan other than this Section 7.13, such Qualifying Participant’s retirement benefit or deferred vested pension shall be payable in one of the following optional annuity forms as the Qualifying Participant may elect, and the following early reduction factors and actuarial factors shall apply in the determination of such payment:
(A) Forms. The optional forms from which the Qualifying Participant may elect payment of his immediately commencing annuity shall be the Automatic Surviving Spouse’s Pension described in Section 7.5 of the Plan, the 75% Joint and Survivor Option described in Section 7.7 with his Spouse as Beneficiary (provided, for both such options, the Qualifying Participant is married to a Spouse as of the Window Election Commencement Date) and the single life annuity described in Section 7.3 of the Plan.
(B) Early Reduction and Actuarial Factors. Actuarial factors for determining the reduction to be applied to the Qualifying Participant’s retirement benefit or deferred vested pension at Normal Retirement Date to reflect early commencement, and for determining actuarial equivalent benefits between available forms of annuity, shall be based on the applicable interest rate promulgated by the Secretary of the Treasury under Section 417(e)(3)(C) of the Code for November 2018 and the mortality assumptions prescribed by the Secretary of the Treasury pursuant to Section 417(e)(3)(B) of the Code.
(e) Form and Validity of Elections. All Special Benefit Elections must be made in writing on a form and in a manner provided by the Administrator, and mailed to the Administrator or its designee, as set forth on such form, on or before October 22, 2019. The Administrator shall have the authority to determine the validity and sufficiency of any Special Benefit Election
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made during the Lump Sum Payment Option Window. Notwithstanding the foregoing, any Special Benefit Election made by a Qualifying Participant on or before October 22, 2019, as set forth herein, may be revoked by the Qualifying Participant on or before November 30, 2019, in the form and manner provided by the Administrator.
(f) Death After Valid Election and Before Commencement. Subject to the provisions of Article VIII, in the event a Qualifying Participant who has made a valid Special Benefit Election dies before the Window Election Commencement Date, the Qualifying Participant’s surviving Spouse, or in the absence of a surviving Spouse the Qualifying Participant’s estate, shall be paid the lump sum for which such Qualifying Participant was otherwise eligible under this Section 7.13. Such payment shall be made as soon as administratively practicable following the Window Election Commencement Date.
(g) Administration. The Administrator shall have the authority to make and enforce all such rules and procedures as it deems necessary or proper for the administration of the Lump Sum Payment Option Window.
7.14 Payment Option Window for Eligible Persons.
Under the terms of this Section 7.14, an Eligible Person may make an EP Window Benefit Election during the EP Window Election Period to commence payment of the Plan interest maintained on his behalf in the form of a lump sum or an annuity (each as determined below) as of an EP Window Commencement Date. The provisions of this Section 7.14 shall be an alternative method by which an Eligible Person may receive his Plan interest and does not change or eliminate payment options otherwise available to an Eligible Person under Plan provisions other than this Section 7.14.
(a)Definitions. For purposes of this Section 7.14, the terms set forth below shall have the meanings set forth below.
(i) The term “Designated Period” shall mean the period beginning on December 31, 2020 and ending on December 30, 2023.
(ii) The term “Eligible Person” shall mean an individual on whose behalf a benefit interest is maintained under the Plan and who satisfies (A), (B) and (C) below, as determined solely in the discretion of the Administrator:
(A) The individual is either:
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(1) a Participant who has terminated employment with the Company and all Affiliates during the Designated Period;
(2) a surviving Spouse of a Participant who experiences his Date of Severance due to death during the Designated Period or of a Participant who both has terminated employment with the Company and all Affiliates during the Designated Period for a reason other than death and then dies during his EP Window Election Period; or
(3) an alternate payee under a qualified domestic relations order (as defined in Section 414(p) of the Code) that is qualified by the Administrator during the Designated Period and which assigns, as a separate interest, all or a portion of the Plan benefit maintained on behalf of a Participant (“Alternate Payee”); and
(B) The actuarial equivalent present value of the vested Plan interest maintained on behalf of such individual, determined under this Section 7.14 as of the Present Value Determination Date, is in excess of $5,000 and not in excess of $100,000; and
(C) As of the Present Value Determination Date, or such other date of determination as determined by the Administrator, the individual’s Plan interest can reasonably be determined based on data available to the Administrator, the individual can be located by the Administrator after a diligent search and the individual has not commenced payment of his Plan interest under the provisions of the Plan other than this Section 7.14;
provided, however, that an Eligible Person shall not include any individual whose participation in the Payment Option Window described in this Section 7.14 would administratively be impracticable, as the Administrator may advise the Company.
(iii) The term “EP Window Benefit Election” shall mean the written election made by an Eligible Person, in accordance with such rules and procedures as the Administrator may apply, to receive or commence to receive his Plan interest under the terms of this Section 7.14. For an EP Window Benefit Election to be valid, the EP Window Benefit Election by any Eligible Person who is a Participant must satisfy the requirements for spousal consent, if otherwise applicable under Section 7.6, the completed
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EP Window Benefit Election form must be signed and dated within the EP Window Election Period and such election form must be received in good form by the Administrator or its delegate within an administratively feasible time period following the EP Window Election Period, as determined by the Administrator. Notwithstanding the foregoing, any Eligible Person who makes an election to receive payment or commence to receive payment pursuant to this Section 7.14 shall have the ability to revoke any such election by contacting the Administrator or its delegate on or before the EP Window Commencement Date applicable to that Eligible Person in the means described in communications provided to the Eligible Person.
(iv) The term “EP Window Commencement Date” shall mean the date elected by an Eligible Person to commence payment under this Section 7.14, although the date of actual payment may be delayed for administrative reasons. The EP Window Commencement Date for any given Eligible Person shall be the first day of a month that both (A) is a month that begins within the EP Window Election Period or is the month next following the close of the EP Window Election Period and (B) follows the date the Administrator or its delegate furnishes the Eligible Person with the election materials described in Section 7.5.
(v) The term “EP Window Election Period” shall mean the special election period during which an Eligible Person may elect to receive payment or commence to receive payment of the Plan interest maintained on his behalf as of an EP Window Commencement Date, even if such Eligible Person has not satisfied the eligibility conditions that otherwise would be required to commence payment of such Plan interest (determined without regard to this Section 7.14). The EP Window Election Period for any given Eligible Person shall begin on the date the Administrator or its delegate issues a Plan benefit statement or notice to the Eligible Person and shall end on the 180th day following the date such statement is issued or such later date established by the Administrator in a uniform and nondiscriminatory manner.
(vi) The term “Present Value Determination Date” shall mean the date the Administrator or its delegate determines the actuarial equivalent present value of an Eligible Person’s Plan interest pursuant to a nondiscriminatory and uniform procedure adopted by the Administrator.
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(vii) The term “Section 417(e) Assumptions” shall mean the applicable interest rate promulgated by the Secretary of the Treasury under Section 417(e)(3)(C) of the Code for the fourth calendar month preceding the first day of the Plan Year in which the distribution is payable and the mortality assumptions prescribed by the Secretary of the Treasury for such Plan Year pursuant to Section 417(e)(3)(B) of the Code.
(b) Lump Sum Payment Determination. For any Eligible Person who makes a valid EP Window Benefit Election and elects to receive payment of the Plan interest maintained on his behalf in the form of a lump sum, the lump sum payment shall be determined as follows:
(i) Participants Otherwise Eligible for Immediate Commencement. With respect to an Eligible Person who is a Participant and who is eligible for immediate commencement of payment as of the EP Window Commencement Date under the provisions of the Plan other than this Section 7.14, the lump sum payment shall be the greater of the actuarial equivalent present values of the following amounts, each determined by using the Section 417(e) Assumptions:
(A) the Eligible Person’s Plan interest, payable in the form of a single life annuity for the Eligible Person’s life, commencing as of the Normal Retirement Date of the Participant who is the Eligible Person; and
(B) the Eligible Person’s Plan interest, payable in the form of a single life annuity for the Eligible Person’s life commencing as of the EP Window Commencement Date.
(ii) Participants Not Otherwise Eligible for Immediate Commencement. With respect to an Eligible Person who is a Participant and who is not eligible for immediate commencement of payment as of the EP Window Commencement Date under the provisions of the Plan other than this Section 7.14, the lump sum payment shall be the actuarial equivalent present value of the Eligible Person’s Plan interest, payable in the form of a single life annuity for the Eligible Person’s life, commencing as of the Normal Retirement Date of the Participant who is the Eligible Person, determined by using the Section 417(e) Assumptions.
(iii) Eligible Persons Who are Not Participants. The following provisions shall apply with respect to an Eligible Person who is not a Participant:
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(A)Surviving Spouse. With respect to an Eligible Person who is a surviving Spouse, the lump sum payment shall be the actuarial equivalent present value of such Eligible Person’s Plan interest, payable in the form of a survivor annuity commencing as of the earliest date commencement is permitted under Article VIII, determined by using the Section 417(e) Assumptions.
(B)Alternate Payees. With respect to an Eligible Person who is an Alternate Payee, the lump sum payment shall be the actuarial equivalent present value of such Eligible Person’s Plan interest, payable in the form of a life annuity payable over such Eligible Person’s lifetime only, commencing as of the earliest retirement age (as defined in Section 414(p) of the Code) of the Participant with respect to whom the Alternate Payee has a Plan interest, determined by using the Section 417(e) Assumptions.
Any lump sum payment pursuant to this Section 7.14 shall fully settle the Plan’s liability with respect to an Eligible Person and no further benefit of any type shall be payable to, or on behalf of, such Eligible Person hereunder with respect to the Plan interest paid as a lump sum.
(c) Immediate Annuity Payment. For any Eligible Person who makes a valid EP Window Benefit Election and elects to receive payment of the Plan interest maintained on his behalf in a form other than a lump sum payment, the Eligible Person shall be entitled to elect payment in an immediately commencing annuity in the following optional forms and determined in accordance with the following provisions:
(i) Participants Otherwise Eligible for Immediate Commencement. With respect to an Eligible Person who is a Participant and who is eligible for immediate commencement of payment as of the EP Window Commencement Date under the provisions of the Plan other than this Section 7.14, such Eligible Person’s Plan interest shall be payable in one of the following optional annuity forms as such Eligible Person may elect, and the following early reduction factors and actuarial factors shall apply in the determination of such payment:
(A) Forms. The optional forms from which such Eligible Person may elect payment of his immediately commencing annuity shall be all of the annuity payment forms that would otherwise have been available to such Eligible Person under the Plan had he made a
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valid election to commence payment of his Plan interest as of the EP Window Commencement Date (determined without regard to this Section 7.14).
(B) Reduction for Early Commencement, Increase for Late Commencement and Actuarial Factors. To the extent otherwise applicable under the Plan, actuarial factors for determining the reduction of such Eligible Person’s Plan interest due to early commencement, any increase of such Eligible Person’s Plan interest due to late commencement and for determining actuarial equivalent benefits between available forms of annuity, shall be the factors that would have applied if such Eligible Person had made a valid election to commence payment of his Plan interest, with a benefit commencement date of the EP Window Commencement Date, and had elected the same form of immediately commencing annuity elected by such Eligible Person in his EP Window Benefit Election (all determined without regard to this Section 7.14).
(ii) Participants Not Otherwise Eligible for Immediate Commencement. With respect to an Eligible Person who is a Participant and who is not eligible for immediate commencement of payment as of the EP Window Commencement Date under the provisions of the Plan other than this Section 7.14, such Eligible Person’s Plan interest shall be payable in one of the following optional annuity forms as such Eligible Person may elect, and the following early reduction factors and actuarial factors shall apply in the determination of such payment:
(A) Forms. The optional forms from which such Eligible Person may elect payment of his immediately commencing annuity shall be the Automatic Surviving Spouse’s Pension described in Section 7.5 of the Plan, the 75% Joint and Survivor Option described in Section 7.7 with his Spouse as Beneficiary (provided, for both such options, such Eligible Participant is married to a Spouse as of the EP Window Commencement Date) and the single life annuity described in Section 7.3 of the Plan.
(B) Early Reduction and Actuarial Factors. Actuarial factors for determining the reduction to be applied to such Eligible Person’s Plan interest payable at Normal Retirement Date to reflect early commencement, and for determining actuarial equivalent benefits
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between available forms of annuity, shall be based on the Section 417(e) Assumptions.
(iii) Eligible Persons Who are Not Participants. The following provisions shall apply with respect to an Eligible Person who is not a Participant:
(A)Surviving Spouse. With respect to an Eligible Person who is a surviving Spouse, such Eligible Person may elect, in lieu of the lump sum benefit provided under subparagraph (b)(iii)(A) above, to receive payment as a survivor annuity determined in accordance with Article VIII. If such Eligible Person is not otherwise eligible to commence a survivor annuity as of the EP Window Commencement Date under Article VIII, such Eligible Person may elect under this Section 7.14 to receive a survivor annuity payable over such Eligible Person’s lifetime only, commencing as of the EP Window Commencement Date, which shall be the actuarial equivalent of such lump sum benefit determined by using the Section 417(e) Assumptions.
(B)Alternate Payees. With respect to an Eligible Person who is an Alternate Payee, such Eligible Person may elect, in lieu of the lump sum benefit provided under subparagraph (b)(iii)(B) above, to receive payment at such time and in such form of benefit as otherwise provided in the qualified domestic relations order that has assigned a Plan interest to the Alternate Payee. If such Eligible Person is not otherwise eligible to commence his Plan interest as of the EP Window Commencement Date under the terms of the applicable qualified domestic relations order, such Eligible Person may elect under this Section 7.14 to receive his Plan interest as an annuity payable over such Eligible Person’s lifetime only, commencing as of the EP Window Commencement Date, which shall be the actuarial equivalent of such lump sum benefit determined by using the Section 417(e) Assumptions.
(d) Form and Validity of Elections. All EP Window Benefit Elections must be made in writing on a form and in a manner provided by the Administrator as set forth on such form, and must be received in good form by the Administrator or its delegate within an administratively feasible time period following the EP Window Election Period, as determined by the Administrator. The Administrator shall have the
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authority to determine the validity and sufficiency of any EP Window Benefit Election.
(e) Death of Eligible Person After Valid Election and Before Commencement. Subject to the provisions of Article VIII, in the event an Eligible Person who is a Participant and who has made a valid EP Window Benefit Election to receive a lump sum payment dies before the EP Window Commencement Date, the Participant’s surviving Spouse shall be paid the lump sum to which such Participant was otherwise eligible under this Section 7.14 or, in lieu thereof, such Spouse may elect to receive a survivor annuity payable over such Spouse’s lifetime only, commencing as of the EP Window Commencement Date, which shall be the actuarial equivalent of such lump sum benefit using the Section 417(e) Assumptions. If such deceased Participant has no surviving Spouse, the lump sum shall be paid to such Participant’s estate. Any such payment shall be made as soon as administratively practicable following such Participant’s EP Window Commencement Date. In the event an Eligible Person who is a not Participant and who has made a valid EP Window Benefit Election dies before the EP Window Commencement Date, the Eligible Person’s EP Window Benefit Election shall become null and void and such Eligible Person shall be entitled to such Plan interest as may be provided under the provisions of the Plan other than this Section 7.14.
(f) Administration. The Administrator shall have the authority to make and enforce all such rules and procedures as it deems necessary or proper for the administration of this Section 7.14.
7.15 2021 Lump Sum Payment Option Window.
During the limited period defined herein, a 2021 Qualifying Person (as defined below) may elect to receive the Plan interest maintained on his behalf under the conditions set forth in this Section 7.15. The provisions of this Section 7.15 shall be an alternative method by which a 2021 Qualifying Person may receive his Plan interest and does not change or eliminate payment options otherwise available to a 2021 Qualifying Person under Plan provisions other than this Section 7.15.
(a)Definitions. For purposes of this Section 7.15, the terms set forth below shall have the meanings set forth below.
(i) The term “2021 Designated Period” shall mean the period beginning on December 31, 2018 and ending on December 30, 2020.
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(ii) The term “2021 Lump Sum Payment Option Window” shall mean the special election period during which a 2021 Qualifying Person may elect to receive payment or commence to receive payment of the Plan interest maintained on his behalf, even if such 2021 Qualifying Person has not satisfied the eligibility conditions that would otherwise be required to commence payment of such Plan interest (determined without regard to this Section 7.15). The 2021 Lump Sum Payment Option Window shall begin on July 8, 2021 and shall end on August 20, 2021 or such later date established by the Administrator in a uniform and nondiscriminatory manner.
(iii) The term “2021 Qualifying Person” shall mean an individual on whose behalf a benefit interest is maintained under the Plan and who satisfies (A), (B) and (C) below, as determined solely in the discretion of the Administrator:
(A) The individual is either:
(1) a Participant on whose behalf the Plan maintains a vested retirement benefit or deferred vested pension benefit and who satisfies each of the following:
(aa) has terminated employment with the Company and all Affiliates, for any reason other than death, during the 2021 Designated Period and who has not re-entered employment as an employee of the Company or an Affiliate; and
(bb) has not experienced an Annuity Starting Date or an actual or otherwise required beginning date under Section 7.10(b) of the Plan prior to the 2021 Window Election Commencement Date; or
(2) a surviving Spouse of a Participant who experiences his Date of Severance due to death during the 2021 Designated Period or of a Participant who both has terminated employment with the Company and all Affiliates during the 2021 Designated Period for a reason other than death and then dies before commencement and before the beginning of the 2021 Lump Sum Payment Option Window; and
(B) The actuarial equivalent present value of the vested Plan interest maintained on behalf of such individual, determined under this
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Section 7.15 as of the 2021 Window Election Commencement Date, is in excess of $5,000 and not in excess of $100,000; and
(C) As of the beginning of the 2021 Lump Sum Payment Option Window, or such other date of determination as determined by the Administrator, the individual’s Plan interest can reasonably be determined based on data available to the Administrator, the individual can be located by the Administrator after a diligent search and the individual has not commenced payment of his Plan interest under the provisions of the Plan other than this Section 7.15;
provided, however, that a 2021 Qualifying Person shall not include any individual whose participation in the 2021 Lump Sum Payment Option Window would administratively be impracticable, as the Administrator may advise the Company.
(iv) The term “2021 Section 417(e) Assumptions” shall mean the applicable interest rate promulgated by the Secretary of the Treasury under Section 417(e)(3)(C) of the Code for August 2020 and the mortality assumptions prescribed by the Secretary of the Treasury for the Plan Year beginning December 31, 2020 pursuant to Section 417(e)(3)(B) of the Code.
(v) The term “2021 Special Benefit Election” shall mean the written election made by a 2021 Qualifying Person, in accordance with such rules and procedures as the Administrator may apply, to receive or commence to receive his Plan interest under the terms of this Section 7.15. For a 2021 Special Benefit Election to be valid, the 2021 Special Benefit Election by any 2021 Qualifying Person who is a Participant must satisfy the requirements for spousal consent, if otherwise applicable under Section 7.6, the completed 2021 Special Benefit Election form must be signed and dated within the 2021 Lump Sum Payment Option Window and such election form must be received in good form by the Administrator or its delegate within an administratively feasible time period following the 2021 Lump Sum Payment Option Window, as determined by the Administrator. Notwithstanding the foregoing, any 2021 Qualifying Person who makes an election to receive payment or commence to receive payment pursuant to this Section 7.15 shall have the ability to revoke any such election by contacting the Administrator or its delegate on or before
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the 2021 Window Election Commencement Date in the means described in communications provided to the 2021 Qualifying Person.
(vi) The term “2021 Window Election Commencement Date” shall mean October 1, 2021, the date as of which any 2021 Qualifying Person who makes a valid 2021 Special Benefit Election (as determined by the Administrator) shall receive distribution of the Plan interest maintained on his behalf in the form of a lump sum or annuity (calculated as set forth below), although the actual payment may be delayed for administrative reasons.
(b) Lump Sum Payment Determination. For any 2021 Qualifying Person who makes a valid 2021 Special Benefit Election and elects to receive payment of the Plan interest maintained on his behalf in the form of a lump sum, the lump sum payment shall be determined as follows:
(i) Participants Otherwise Eligible for Immediate Commencement. With respect to a 2021 Qualifying Person who is a Participant and who is eligible for immediate commencement of payment as of the 2021 Window Election Commencement Date under the provisions of the Plan other than this Section 7.15, the lump sum payment shall be the greater of the actuarial equivalent present values of the following amounts, each determined by using the 2021 Section 417(e) Assumptions:
(A) the 2021 Qualifying Person’s Plan interest, payable in the form of a single life annuity for the 2021 Qualifying Person’s life, commencing as of the Normal Retirement Date of the Participant who is the 2021 Qualifying Person; and
(B) the 2021 Qualifying Person’s Plan interest, payable in the form of a single life annuity for the 2021 Qualifying Person’s life commencing as of the 2021 Window Election Commencement Date.
Notwithstanding the foregoing provisions, the lump sum payment with respect to a 2021 Qualifying Person who is a Participant and has attained Normal Retirement Date shall be the actuarial equivalent present value determined under subparagraph (b)(i)(A) above, increased by an amount equal to the product of such 2021 Qualifying Person’s monthly normal retirement benefit and the number of months, if any, between such 2021 Qualifying Person’s Normal Retirement Date and the 2021 Window Election Commencement Date.
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(ii) Participants Not Otherwise Eligible for Immediate Commencement. With respect to a 2021 Qualifying Person who is a Participant and who is not eligible for immediate commencement of payment as of the 2021 Window Election Commencement Date under the provisions of the Plan other than this Section 7.15, the lump sum payment shall be the actuarial equivalent present value of the 2021 Qualifying Person’s Plan interest, payable in the form of a single life annuity for the 2021 Qualifying Person’s life, commencing as of the Normal Retirement Date of the Participant who is the 2021 Qualifying Person, determined by using the 2021 Section 417(e) Assumptions.
(iii) 2021 Qualifying Persons Who are Surviving Spouses. With respect to a 2021 Qualifying Person who is a surviving Spouse, the lump sum payment shall be the actuarial equivalent present value of such 2021 Qualifying Person’s Plan interest, payable in the form of a survivor annuity commencing as of the earliest date commencement is permitted under Article VIII, determined by using the 2021 Section 417(e) Assumptions.
Any lump sum payment pursuant to this Section 7.15 shall fully settle the Plan’s liability with respect to a 2021 Qualifying Person and no further benefit of any type shall be payable to, or on behalf of, such 2021 Qualifying Person hereunder with respect to the Plan interest paid as a lump sum.
(c) Immediate Annuity Payment. For any 2021 Qualifying Person who makes a valid 2021 Special Benefit Election and elects to receive payment of the Plan interest maintained on his behalf in a form other than a lump sum payment, the 2021 Qualifying Person shall be entitled to elect payment in an immediately commencing annuity in the following optional forms and determined in accordance with the following provisions:
(i) Participants Otherwise Eligible for Immediate Commencement. With respect to a 2021 Qualifying Person who is a Participant and who is eligible for immediate commencement of payment as of the 2021 Window Election Commencement Date under the provisions of the Plan other than this Section 7.15, such 2021 Qualifying Person’s Plan interest shall be payable in one of the following optional annuity forms as such 2021 Qualifying Person may elect, and the following early reduction factors and actuarial factors shall apply in the determination of such payment:
(A) Forms. The optional forms from which such 2021 Qualifying Person may elect payment of his immediately commencing annuity
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shall be all of the annuity payment forms that would otherwise have been available to such 2021 Qualifying Person under the Plan had he made a valid election to commence payment of his Plan interest as of the 2021 Window Election Commencement Date (determined without regard to this Section 7.15).
(B) Reduction for Early Commencement and Actuarial Factors. To the extent otherwise applicable under the Plan, actuarial factors for determining the reduction of such 2021 Qualifying Person’s Plan interest due to early commencement, and for determining actuarial equivalent benefits between available forms of annuity, shall be the factors that would have applied if such 2021 Qualifying Person had made a valid election to commence payment of his Plan interest, with a benefit commencement date of the 2021 Window Election Commencement Date, and had elected the same form of immediately commencing annuity elected by such 2021 Qualifying Person in his 2021 Special Benefit Election (all determined without regard to this Section 7.15).
(ii) Participants Not Otherwise Eligible for Immediate Commencement. With respect to a 2021 Qualifying Person who is a Participant and who is not eligible for immediate commencement of payment as of the 2021 Window Election Commencement Date under the provisions of the Plan other than this Section 7.15, such 2021 Qualifying Person’s Plan interest shall be payable in one of the following optional annuity forms as such 2021 Qualifying Person may elect, and the following early reduction factors and actuarial factors shall apply in the determination of such payment:
(A) Forms. The optional forms from which such 2021 Qualifying Person may elect payment of his immediately commencing annuity shall be the Automatic Surviving Spouse’s Pension described in Section 7.5 of the Plan, the 75% Joint and Survivor Option described in Section 7.7 with his Spouse as Beneficiary (provided, for both such options, such 2021 Qualifying Participant is married to a Spouse as of the 2021 Window Election Commencement Date) and the single life annuity described in Section 7.3 of the Plan.
(B) Early Reduction and Actuarial Factors. Actuarial factors for determining the reduction to be applied to such 2021 Qualifying
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Person’s Plan interest payable at Normal Retirement Date to reflect early commencement, and for determining actuarial equivalent benefits between available forms of annuity, shall be based on the 2021 Section 417(e) Assumptions.
(iii) 2021 Qualifying Persons Who are Surviving Spouses. With respect to a 2021 Qualifying Person who is a surviving Spouse, such 2021 Qualifying Person may elect, in lieu of the lump sum benefit provided under subparagraph (b)(iii) above, to receive payment as a survivor annuity determined in accordance with Article VIII. If such 2021 Qualifying Person is not otherwise eligible to commence a survivor annuity as of the 2021 Window Election Commencement Date under Article VIII, such 2021 Qualifying Person may elect under this Section 7.15 to receive his Plan interest as a survivor annuity payable over such 2021 Qualifying Person’s lifetime only, commencing as of the 2021 Window Election Commencement Date, which shall be the actuarial equivalent of such lump sum benefit determined by using the 2021 Section 417(e) Assumptions.
(d) Form and Validity of Elections. All 2021 Special Benefit Elections must be made in writing on a form and in a manner provided by the Administrator as set forth on such form, and must be received in good form by the Administrator or its delegate within an administratively feasible time period following the 2021 Lump Sum Payment Option Window, as determined by the Administrator. The Administrator shall have the authority to determine the validity and sufficiency of any 2021 Special Benefit Election.
(e) Death of 2021 Qualifying Person After Valid Election and Before Commencement. Subject to the provisions of Article VIII, in the event a 2021 Qualifying Person who is a Participant and who has made a valid 2021 Special Benefit Election dies before the 2021 Window Election Commencement Date, the Participant’s surviving Spouse shall be paid the lump sum to which such Participant was otherwise eligible under this Section 7.15 or, in lieu thereof, such Spouse may elect to receive a survivor annuity payable over such Spouse’s lifetime only, commencing as of the 2021 Window Election Commencement Date, which shall be the actuarial equivalent of such lump sum benefit using the 2021 Section 417(e) Assumptions. If such deceased Participant has no surviving Spouse, the lump sum shall be paid to such Participant’s estate. Any such payment shall be made as soon as administratively practicable following the 2021
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Window Election Commencement Date. In the event a 2021 Qualifying Person who is a a surviving Spouse and who has made a valid 2021 Special Benefit Election dies before the 2021 Window Election Commencement Date, the 2021 Qualifying Person’s 2021 Special Benefit Election shall become null and void and such 2021 Qualifying Person shall be entitled to such Plan interest as may be provided under the provisions of the Plan other than this Section 7.15.
(f) Administration. The Administrator shall have the authority to make and enforce all such rules and procedures as it deems necessary or proper for the administration of this Section 7.15.
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ARTICLE VIII - DEATH BENEFITS
8.1 Death Prior to Retirement or Severance
(a) Upon the death of a Participant prior to his Date of Severance and prior to the date on which the Participant has attained either Normal Retirement Age or eligibility for an early retirement pension under Section 5.2, the Participant’s surviving Spouse, if any, shall be eligible to receive a monthly surviving Spouse’s benefit under the assumption that the Participant had retired the day prior to his death with an Accrued Pension under the Plan as determined in accordance with the provisions of Section 6.2(a), and under the further assumption that the automatic election of a surviving Spouse’s benefit pursuant to subsection 7.5 was in effect at the time of death. Such surviving Spouse’s benefit shall commence as of the first day of the month following the Participant’s death, shall be unreduced for early commencement and shall be payable for the lifetime of the surviving Spouse.
(b) Upon the death of a Participant prior to his Date of Severance and on or after the date on which the Participant has attained either Normal Retirement Age or eligibility for an early retirement pension under Section 5.2, the Participant’s surviving Spouse, if any, shall be eligible to receive a monthly surviving Spouse’s benefit equal to the larger of (i) and (ii) below:
(i) the surviving Spouse’s benefit provided under Section 8.1(a); and
(ii) the surviving Spouse’s benefit under the assumption that the Participant had retired the day prior to his death with an Accrued Pension under the Plan as determined in accordance with the provisions of Section 6.1 or Section 6.2(b), as applicable, and under the further assumption that the Participant had elected Option E, the 100% Joint and Survivor Option under Section 7.7 with his Spouse as Beneficiary thereunder immediately prior to his death. Such surviving Spouse’s benefit shall commence as of the first day of the month following the Participant’s death, shall be reduced for commencement prior to the Participant’s Normal Retirement Date in accordance with the factors set forth in Section 6.2(b), and shall be payable for the lifetime of the surviving Spouse.
(c) For purposes of Sections 8.1, 8.2 and 8.3, the interest that is payable to the Participant’s surviving Spouse shall be distributed over a period not in excess of the life expectancy of such surviving Spouse and shall commence no later than the December 31 of the calendar year in which the Participant would have
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attained age 65 (or the December 31 of the calendar year immediately following the calendar year of the Participant’s death, if later).
8.2 Death Prior to Commencement of Early or Disability Pensions
Upon the death of a Participant after his Date of Severance, and prior to his Annuity Starting Date and while the Participant is awaiting the commencement of payment of either: (1) an early retirement pension pursuant to Section 6.2(a) above, or (2) a disability pension after attainment of age 55 but prior to the attainment of his Normal Retirement Date, his surviving Spouse, if any, shall receive a monthly surviving Spouse’s benefit under the assumption that the Participant had retired the day prior to his death with an Accrued Pension under the Plan as determined in accordance with the provisions of Section 6.2(a), and under the further assumption that the automatic election of a surviving Spouse’s benefit pursuant to subsection 7.5 was in effect at the time of death. Following proper application, such surviving Spouse’s benefit shall commence as of the first day of the month following the Participant’s death unless the surviving Spouse elects a later commencement date. Subject to Sections 7.10(c) and 11.12, a surviving Spouse who fails to make proper application for payment will be deemed to have made an election to defer distribution. Such surviving Spouse’s benefit shall be reduced for early commencement in accordance with the provisions of Section 6.2(b) and shall be payable for the lifetime of the surviving Spouse.
Upon the death of a disabled Participant who is awaiting commencement of his pension at his Normal Retirement Date and who has not incurred his Date of Severance at the time of his death, his surviving Spouse, if any, shall receive a monthly surviving Spouse’s benefit determined under the provisions of Section 8.1.
If a Participant incurs his Date of Severance when eligible for a disability retirement pension under Section 5.3 and at a time during which he is receiving long term disability benefits under the Erie Insurance Group Long Term Disability Income Benefits Program, then service to date of death will be included for benefit purposes.
8.3 Death Prior to Commencement of Vested Pensions
If a vested former Participant who has at least one Hour of Service on or after December 31, 1976, and who has been married for at least one year on his date of death, dies on or after August 23, 1984 but prior to his Annuity Starting Date, then his
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surviving Spouse shall be provided with a preretirement survivor annuity determined as follows:
(a) in the case of a Participant who dies after the date on which the Participant attained his Earliest Retirement Age as though such Participant had retired on the day before the Participant’s date of death, with an immediate benefit determined under the provisions of Section 6.2(a) and payable under the Automatic Surviving Spouse’s Pension in Section 7.5 of the Plan, or
(b) in the case of a Participant who dies on or before the date on which the Participant would have attained his Earliest Retirement Age, as though such Participant had:
(i) separated from Service on his Date of Severance,
(ii) survived to his Earliest Retirement Age,
(iii) retired with an immediate benefit determined under the provisions of Section 6.4 and payable under the Automatic Surviving Spouse’s Option in Section 7.5 of the Plan at the Earliest Retirement Age, and
(iv) died on the day after the day on which such Participant would have attained the Earliest Retirement Age.
Following proper application, a monthly surviving Spouse’s benefit shall commence under this Section 8.3 as of the first day of the month following the later of the month of the Participant’s death or the month in which the Participant would have attained his Earliest Retirement Age under the Plan unless the surviving Spouse elects a later commencement date (which shall not be later than the Participant’s Normal Retirement Date. Subject to Section 7.10(a) and 11.12, a surviving Spouse who fails to make proper application for payment will be deemed to have made an election to defer distribution. Such surviving Spouse’s benefit shall be reduced for early commencement in accordance with Section 6.2(b) and shall be payable thereafter for the remainder of the surviving Spouse’s lifetime.
8.4 Effect of Valid Joint and Survivor Election
Notwithstanding the foregoing, in the event a Participant described in Section 8.1, 8.2 or 8.3 above has made a valid election of either Option D or Option E under Section 7.7 and names his Spouse as Beneficiary thereunder, or a valid election of a 100% Joint and Survivor Pop-Up Option under Section 7.7, the amount of the surviving Spouse’s benefit under Section 8.1, 8.2 or 8.3 shall be based on the survivor percentage applicable to the Participant’s elected option.
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8.5 Death on or After Annuity Starting Date
Upon the death of a Participant on or after his Annuity Starting Date, payments, if any, to a Beneficiary shall be made in accordance with the form of benefit in effect on the date of the Participant’s death. If the Beneficiary of the deceased Participant is entitled to receive the remaining certain period payments from the 10-Year or 15-Year Certain and Life forms of payment, the Administrator shall instruct the Trustee to pay to such Beneficiary the actuarial equivalent value of the monthly payments to which the Beneficiary is entitled in a single sum. Actuarial equivalence for this purpose shall be determined under the assumptions set forth in Section 7.8. If the Beneficiary under such form of payment is the surviving Spouse of the deceased Participant, then any amounts payable may be converted to an actuarially equivalent life annuity to such Spouse provided the Spouse requests payment in such form. Notwithstanding the foregoing, in all events the deceased Participant’s remaining interest in the Plan shall be distributed at least as rapidly as under the form of distribution in operation as of the date of the Participant’s death.
8.6 Death Benefit for Vested Participants Who Terminated After September 1, 1974 and Prior to August 23, 1984
Any vested former Participant who terminated after September 1, 1974 and prior to August 23, 1984 and whose benefits are not in pay status as of August 23, 1984 is to be provided with the right to elect to receive such benefits reduced and payable in the form of a qualified 50% joint and survivor annuity as defined by ERISA and the Internal Revenue Code as in effect prior to August 23, 1984, including the right to revoke such coverage without spousal consent if such former Participant:
(a) completed at least one Hour of Service under the Plan after September 1, 1974, and
(b) survives to his Annuity Starting Date.
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ARTICLE IX - TRUST FUND AND THE TRUSTEE
9.1 Trust Fund
(a)The Company has established a trust with a Trustee for the purpose of receiving and holding contributions made by the Company as well as interest and other income on investments of such funds, and for the purpose of paying the pensions and other benefits provided by the Plan and paying any expenses incident to the operation of the Plan or Trust Fund as otherwise provided herein. The Trustee is to manage and operate the Trust Fund in accordance with the terms of the Trust Agreement and to receive, hold, invest and reinvest the funds of the Trust.
(b)The Trust Agreement may be modified as provided therein. The Administrator may remove any Trustee and may select any successor trustee. Pensions under the Plan may alternatively be provided through the purchase of annuity contracts issued by an insurance company. In lieu of a Trust Agreement and Trust Fund, the Administrator may elect to have the Plan utilize a contract or contracts of insurance for the purpose of receiving and holding contributions made by the Company and for the purpose of paying pensions and other benefits provided by the Plan, and in such event the references hereunder to “Trust Agreement”, “Trustee” and “Trust Fund” shall be deemed to be references to “Insurance Contract”, “Insurance Carrier” and “Insured Fund” respectively. With respect to any Trust Agreement or Insurance Contract, the Company may be a party with respect to the Company’s rights and obligations as settlor of the Plan’s Trust Fund or Insured Fund, but is not a Plan fiduciary. In the event that any Trust Agreement or Insurance Contract grants powers to the Company (other than powers relating to the Company’s corporate obligations or role as settlor of the Plan’s Trust Fund or Insured Fund), the Company shall act as the Administrator’s agent and shall act for and solely at the direction of the Administrator in exercising such powers.
(c)The Administrator may select an independent investment manager to invest any portion of the Trust Fund in each of the various funds. Such investment manager shall be either registered as an investment manager under the Investment Adviser’s Act of 1940, a bank, a mutual fund, or an insurance company, and as required by the Administrator, shall acknowledge in writing that he is a fiduciary with respect to the Plan.
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(d)The Administrator shall perform such duties relating to the operation of the Trust Fund as it deems appropriate and shall perform the duties specified in this Section 9.1.
The Administrator shall have the following responsibilities:
The Administrator shall have the following responsibilities:
(i)to appoint and remove Trustees;
(ii)to appoint investment managers;
(iii)to select investment funds or other investments under the Plan;
(iv)to allocate the duties and procedures for the Trustee and investment managers;
(v)to establish an investment philosophy and goals for each of the investment managers;
(vi)to monitor the Trustee with respect to servicing the Trust Fund in a fiduciary capacity; and
(vii)to monitor the investment managers including, without limitation, their investment philosophies, goals, and rates of return.
The Administrator may, from time-to-time, designate another person (including, without limitation, an individual, a committee or subcommittee, or a vendor) to carry out any of the Administrator’s responsibilities under this Section 9.1, subject to the limitations imposed by Section 405 of ERISA. The person so designated will have full authority, or such limited authority as the Administrator may specify, to take such actions as are necessary or appropriate to carry out the duties delegated by the Administrator.
9.2 Irrevocability
The Trust Fund shall be used to pay pensions and other benefits as provided in the Plan and, as provided in Section 9.6, those reasonable expenses, taxes and fees incurred in the administration of the Plan and Trust Fund which are not paid directly by the Company. No part of the principal or income of the fund shall be used for or diverted to purposes other than those provided in the Plan and no part of the Trust Fund shall revert to the Company for the benefit of the Company, except as permitted under Sections 9.3, 11.4 and 12.2 hereof.
9.3 Contributions by the Company
The Company will pay to the Trustee, subject to all the other provisions of the Plan, such amounts as its Board determines, authorizes and directs; provided that as a minimum contribution, the Company intends to pay to the Trustee such amounts as may
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be necessary to meet the minimum funding standards established under the Employee Retirement Income Security Act of 1974; provided further, any Company contribution will take into account any contribution made to the Trustee by an Employer. The Company also intends to pay all expenses incident to the operation of the Plan that are not paid directly from the Trust Fund. Any forfeitures arising from the severance of employment or death of a Participant, or for any other reason, shall be used to reduce the contributions of the Company under the Plan and shall not be applied to increase the pensions or benefits any Participant would otherwise receive under the Plan at any time prior to the termination of the Plan.
Payments made to meet the minimum funding standards established under ERISA shall, to the maximum extent permitted by valid provisions of ERISA, be in complete discharge of the financial obligation of the Company under this Plan. The pension benefits of the Plan shall, subject to valid provisions of ERISA, be only such as can be provided by the assets of the Trust and there shall be no further liability or obligation on any Employer to make any further contributions to the Trust for any reason. Except as prescribed by valid provisions of ERISA, the Company does not guarantee continuity of payment of any benefits under the Plan. The Company does not, in any event, guarantee that its contributions or the Trust Fund will be sufficient to provide the benefits hereunder. All rights of Participants and Beneficiaries, and of any person claiming under any Participant or Beneficiary, shall be enforceable only against the Trust Fund, except as ERISA may otherwise provide.
Notwithstanding any provisions of the Plan to the contrary, each contribution made by the Company or Employer shall be conditioned upon the deductibility of the contribution under Section 404 of the Code. If the deduction of all or part of the contribution is disallowed, the contribution shall, to the extent disallowed, be repaid to the Company or Employer, as applicable, within one year after the date of disallowance. A contribution also may be repaid to the Company or Employer, as applicable, within one year after the date made, to the extent it exceeded the full funding limitation or otherwise was made in error because of a mistake in fact. Amounts returned under this Section 9.3 shall recognize any net losses attributable to the returned contribution but shall not include any net earnings thereon.
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9.4 Contributions By Participants
No Participant shall be required or allowed to make any contribution to the Trust Fund established under the Plan.
9.5 Benefits Payable Only From Trust Fund
Payment of benefits under the Plan to Participants and Beneficiaries will be made only by the Trustee from the funds or securities held by the Trust and/or the annuity contract or contracts held by the Trust. Except as may be provided by law, no liability for the payment of benefits to Participants or their Beneficiaries hereunder shall be imposed upon the Company, any Employer or the officers or shareholders of the Company or any Employer, and there shall be no liability or obligation on the part of the Company or any Employer, to make any further contributions in the event of termination of the Plan.
9.6 Plan Expenses
All reasonable expenses, taxes and fees of the Plan, the Administrator and the Trustee incurred in the administration of the Plan and Trust Fund shall be paid from the Trust Fund; provided, however, that the obligation of the Trust Fund to pay such expenses, taxes and fees shall cease to exist to the extent that the same are paid, at the discretion of the Company, by the Employers.
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ARTICLE X - BENEFIT LIMITATIONS
10.1 Maximum Limitation Under Section 415(b) of the Code (Effective January 1, 2008)
This Section 10.1 is intended to comply with Section 415(b) of the Code, the terms of which are incorporated herein by reference and this Section shall be so construed. Any provisions of the Plan to the contrary notwithstanding, benefits accrued and benefits payable under the Plan shall be subject to the following limitations, effective for limitation years on or after July 1, 2007:
(a) In no event shall the annual benefit accrued, distributed or otherwise payable to any Participant exceed the Section 415 limit described in subsection (b). To the extent necessary to comply with Section 411(b) of the Code, if the benefit the Participant would otherwise accrue in a limitation year would produce an annual benefit in excess of the Section 415 limit described in subsection (b), the benefit will be limited (or the rate of accrual reduced) to a benefit that does not exceed such limit.
(b) The Section 415 limit is the lesser of (i) and (ii) below:
(i)The dollar limitation set forth in Section 415(b)(1)(A) of the Code, or
(ii)100% of the Participant’s average annual Test Compensation for the three consecutive calendar years (or, if his period of employment is less than three years, for his entire period of employment) as a Participant during which he received the greatest aggregate Test Compensation.
(c) In no event shall the limitations in subsection (b) be less than $10,000 if the Participant has not at any time participated in a defined contribution plan maintained by the Employer.
(d) For purposes of the maximum limitation of this Article, all qualified defined benefit plans (whether or not terminated) maintained by an Employer or any Affiliate shall be treated as a single plan. For purposes of applying the limitations of Section 415, the terms “Employer” and “Affiliate” shall be construed in light of Sections 414(b) and 414(c) of the Code, as modified by Section 415(h) of the Code.
(e) The dollar limitation described in paragraph (b)(i) above shall be increased by the cost of living adjustment factor prescribed by the Secretary of the Treasury under Section 415(d) of the Code. Such adjustment factor shall be applied to Participants and to such items as the Secretary of the Treasury shall prescribe.
(f) If the benefit payable to a Participant commences prior to age 62, the dollar limitation specified under paragraph (b)(i) above as adjusted by subsection (e)
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shall be the lesser of: (A) the dollar limitation specified under paragraph (b)(i) above as adjusted by subsection (e) multiplied by the ratio of the annual amount of the straight life annuity commencing at his Annuity Starting Date, over the annual amount of the straight life annuity commencing at age 62 (both determined without regard to the limitations of Section 415 of the Code), or (B) such limit, after the application of an actuarially equivalent reduction from age 62 to his age as of his Annuity Starting Date, using a 5% interest rate assumption and the applicable mortality table under Section 417(e)(3)(B) of the Code. No adjustment shall be made to reflect the probability of a Participant’s death after the Annuity Starting Date and before age 62.
(g) If the benefit payable to a Participant commences after age 65, the dollar limitation specified under paragraph (b)(i) above as adjusted by subsection (e) shall be the lesser of : (A) the dollar limitation specified under paragraph (b)(i) above as adjusted by subsection (e) multiplied by the ratio of the annual amount of the immediately commencing straight life annuity payable to the Participant (ignoring accruals after age 65) using the actuarial adjustments in Section 11.6 over the annual amount of the straight life annuity that would have been payable at age 65, or (B) the dollar limitation specified under paragraph (b)(i) above as adjusted by subsection (e) actuarially increased using a 5% interest rate assumption and the applicable mortality table under Section 417(e)(3)(B) of the Code. The probability of the Participant dying after age 65 and before the age at which the payment of benefits would commence shall not be taken into account in increasing the dollar limitation under this subsection (g).
(h) The annual benefit is a retirement benefit under the Plan which is payable annually in the form of a single life annuity.
(i)If the benefit payable to a Participant is not in the normal form of payment nor in the form of a qualified joint and survivor annuity, and it is not payable in a form to which Section 417(e)(3) of the Code applies, then the maximum annual amount determined under subsection (b) above shall be adjusted such that it is the greater of:
(A) the actuarially equivalent straight life annuity commencing at the same Annuity Starting Date as the form of benefit payable to the Participant using the Plan’s factors for determining actuarial equivalence, and
(B) the actuarially equivalent straight life annuity commencing at the same Annuity Starting Date as the form of benefit payable to the
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Participant using an interest rate of 5% and the applicable mortality table under Section 417(e)(3)(B) of the Code.
(ii)If the benefit is payable in a form to which Code Section 417(e)(3) applies, the actuarially equivalent straight life annuity benefit shall be the greatest of:
(A) the annual amount of the straight life annuity commencing at the Annuity Starting Date that has the same actuarial present value as the particular form of benefit payable, computed using the Plan’s factors for determining actuarial equivalence;
(B) the annual amount of the straight life annuity commencing at the Annuity Starting Date that has the same actuarial present value as the particular form of benefit payable, computed using a 5.5% interest assumption and the applicable mortality table under Section 417(e)(3)(B) of the Code; or
(C) the annual amount of the straight life annuity commencing at the Annuity Starting Date that has the same actuarial present value as the particular form of benefit payable, computed using the applicable interest rate under Section 417(e)(3)(C) of the Code and the applicable mortality table specified in Revenue Ruling 2001- 62, divided by 1.05.
(iii)Notwithstanding the foregoing, for a benefit that has an Annuity Starting Date in 2004 or 2005, the actuarially equivalent straight life annuity benefit shall be the greater of:
(A) the annual amount of the straight life annuity commencing at the Annuity Starting Date that has the same actuarial present value as the particular form of benefit payable, computed using the Plan’s actuarial equivalence factors; or
(B) the annual amount of the straight life annuity commencing at the Annuity Starting Date that has the same actuarial present value as the particular form of benefit payable, computed using a 5.5% interest assumption and the applicable mortality table for the distribution under Treasury Regulation Section 1.417(e)-1(d)(2).
Benefits with an Annuity Starting Date in 2004 shall be calculated in accordance with the requirements of Notice 2004-78, the terms of which are hereby incorporated by reference.
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(i) If the Participant has completed less than 10 years of Plan participation, the dollar limitation determined under paragraph (b)(i) above shall be adjusted by multiplying such amount by a fraction, the numerator of which is the Participant’s number of years of Plan participation (or parts thereof) and the denominator of which is 10.
(j) If the Participant has completed less than 10 years of Credited Service, the maximum amount determined under paragraph (b)(ii) and subsection (c) (without regard to paragraph (b)(i) above) shall be adjusted by multiplying such amount by a fraction, the numerator of which is the Participant’s number of years of Credited Service (or parts thereof) and the denominator of which is 10.
(k) In no event shall the provisions of subsection (i) or subsection (j) above reduce the limitations in subsection (b) to an amount less than one tenth of such limitations, determined without regard to the provisions of subsection (i) and (j).
(l) For purposes of applying the benefit limitations set forth herein, the “limitation year” shall be the calendar year.
10.2 Limitations Based on Funding Status
(a) Limitations Applicable If the Plan’s Adjusted Funding Target Attainment Percentage Is Less Than 80 Percent, But Not Less Than 60 Percent. Notwithstanding any other provisions of the Plan, if the Plan’s adjusted funding target attainment percentage for a Plan Year is less than 80 percent (or would be less than 80 percent to the extent described in Section 10.2(a)(ii) below) but is not less than 60 percent, then the limitations set forth in this subsection (a) apply.
(i) 50 Percent Limitation on Single Sum Payments, Other Accelerated Forms of Distribution, and Other Prohibited Payments. A Participant or Beneficiary is not permitted to elect, and the Plan shall not pay, a single sum payment or other optional form of benefit that includes a prohibited payment with an annuity starting date on or after the applicable Section 436 measurement date, and the Plan shall not make any payment for the purchase of an irrevocable commitment from an insurer to pay benefits or any other payment or transfer that is a prohibited payment, unless the present value of the portion of the benefit that is being paid in a prohibited payment does not exceed the lesser of:
(A) 50 percent of the present value of the benefit payable in the optional form of benefit that includes the prohibited payment; or
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(B) 100 percent of the PBGC maximum benefit guarantee amount (as defined in Treasury Regulations Section 1.436-1(d)(3)(iii)(C)).
The limitation set forth in this Section 10.2(a)(i) does not apply to any payment of a benefit which under Section 411(a)(11) of the Code may be immediately distributed without the consent of the Participant. If an optional form of benefit that is otherwise available under the terms of the Plan is not available to a Participant or Beneficiary as of the annuity starting date because of the application of the requirements of this Section 10.2(a)(i), the Participant or Beneficiary is permitted to elect to bifurcate the benefit into unrestricted and restricted portions (as described in Treasury Regulations Section 1.436-1(d)(3)(iii)(D)). The Participant or Beneficiary may also elect any other optional form of benefit otherwise available under the Plan at that annuity starting date that would satisfy the 50 percent/PBGC maximum benefit guarantee amount limitation described in this Section 10.2(a)(i), or may elect to defer the benefit in accordance with any general right to defer commencement of benefits under the Plan.
(ii) Plan Amendments Increasing Liability for Benefits. No amendment to the Plan that has the effect of increasing liabilities of the Plan by reason of increases in benefits, establishment of new benefits, changing the rate of benefit accrual, or changing the rate at which benefits become nonforfeitable shall take effect in a Plan Year if the adjusted funding target attainment percentage for the Plan Year is:
(A) Less than 80 percent; or
(B) 80 percent or more, but would be less than 80 percent if the benefits attributable to the amendment were taken into account in determining the adjusted funding target attainment percentage.
The limitation set forth in this Section 10.2(a)(ii) does not apply to any amendment to the Plan that provides a benefit increase under a Plan formula that is not based on compensation, provided that the rate of such increase does not exceed the contemporaneous rate of increase in the average wages of Participants covered by the amendment.
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(b) Limitations Applicable If the Plan’s Adjusted Funding Target Attainment Percentage Is Less Than 60 Percent. Notwithstanding any other provisions of the Plan, if the Plan’s adjusted funding target attainment percentage for a Plan Year is less than 60 percent (or would be less than 60 percent to the extent described in Section 10.2(b)(ii) below), then the limitations in this subsection (b) apply.
(i) Single Sums, Other Accelerated Forms of Distribution, and Other Prohibited Payments Not Permitted. A Participant or Beneficiary is not permitted to elect, and the Plan shall not pay, a single sum payment or other optional form of benefit that includes a prohibited payment with an annuity starting date on or after the applicable Section 436 measurement date, and the Plan shall not make any payment for the purchase of an irrevocable commitment from an insurer to pay benefits or any other payment or transfer that is a prohibited payment. The limitation set forth in this Section 10.2(b)(i) does not apply to any payment of a benefit which under Section 411(a)(11) of the Code may be immediately distributed without the consent of the Participant.
(ii) Shutdown Benefits and Other Unpredictable Contingent Event Benefits Not Permitted to Be Paid. An unpredictable contingent event benefit with respect to an unpredictable contingent event occurring during a Plan Year shall not be paid if the adjusted funding target attainment percentage for the Plan Year is:
(A) Less than 60 percent; or
(B) 60 percent or more, but would be less than 60 percent if the adjusted funding target attainment percentage were redetermined applying an actuarial assumption that the likelihood of occurrence of the unpredictable contingent event during the Plan Year is 100 percent.
(iii) Benefit Accruals Frozen. Benefit accruals under the Plan shall cease as of the applicable Section 436 measurement date. In addition, if the Plan is required to cease benefit accruals under this Section 10.2(b)(iii), then the Plan is not permitted to be amended in a manner that would increase the liabilities of the Plan by reason of an increase in benefits or establishment of new benefits.
(c) Limitations Applicable If the Plan Sponsor Is In Bankruptcy.
Notwithstanding any other provisions of the Plan, a Participant or Beneficiary is not permitted to elect, and the Plan shall not pay, a single sum payment or other optional form of benefit that includes a prohibited payment with an annuity
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starting date that occurs during any period in which the Company is a debtor in a case under Title 11, United States Code, or similar Federal or State law, except for payments made within a Plan Year with an annuity starting date that occurs on or after the date on which the Plan’s enrolled actuary certifies that the Plan’s adjusted funding target attainment percentage for that Plan Year is not less than 100 percent (without regard to the interest stabilization rules under Section 430(h)(2)(C)(iv) for Plan Years beginning on or after January 1, 2015). In addition, during such period in which the Company is a debtor, the Plan shall not make any payment for the purchase of an irrevocable commitment from an insurer to pay benefits or any other payment or transfer that is a prohibited payment, except for payments that occur on a date within a Plan Year that is on or after the date on which the Plan’s enrolled actuary certifies that the Plan’s adjusted funding target attainment percentage for that Plan Year is not less than 100 percent. The limitation set forth in this Section 10.2(c) does not apply to any payment of a benefit which under Section 411(a)(11) of the Code may be immediately distributed without the consent of the Participant.
(d) Provisions Applicable After Limitations Cease to Apply.
(i) Resumption of Prohibited Payments. If a limitation on prohibited payments under Section 10.2(a)(i), Section 10.2(b)(i) or Section 10.2(c) applied to the Plan as of a Section 436 measurement date, but that limit no longer applies to the Plan as of a later Section 436 measurement date, then that limitation does not apply to benefits with annuity starting dates that are on or after that later Section 436 measurement date.
(ii) Resumption of Benefit Accruals. If a limitation on benefit accruals under Section 10.2(b)(iii) applied to the Plan as of a Section 436 measurement date, but that limitation no longer applies to the Plan as of a later Section 436 measurement date, then benefit accruals shall not automatically resume on a prospective basis unless otherwise provided by the Company. The Plan shall comply with the rules relating to partial years of participation and the prohibition on double proration under Department of Labor regulation 29 CFR Section 2530.204-2(c) and (d).
(iii) Shutdown and Other Unpredictable Contingent Event Benefits. If an unpredictable contingent event benefit with respect to an unpredictable contingent event that occurs during the Plan Year is not permitted to be paid after the occurrence of the event because of the limitation of Section 10.2(b)(ii), but is permitted to be paid later in the same Plan Year (as a
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result of additional contributions or pursuant to the enrolled actuary’s certification of the adjusted funding target attainment percentage for the Plan Year that meets the requirements of Treasury Regulations Section 1.436-1(g)(5)(ii)(B)), then that unpredictable contingent event benefit shall be paid, retroactive to the period that benefit would have been payable under the terms of the Plan (determined without regard to Section 10.2(b)(ii)). If the unpredictable contingent event benefit does not become payable during the Plan Year in accordance with the preceding sentence, then the Plan is treated as if it does not provide for that benefit.
(iv) Treatment of Plan Amendments That Do Not Take Effect. If a Plan amendment does not take effect as of the effective date of the amendment because of the limitation of Section 10.2(a)(ii) or Section 10.2(b)(iii), but is permitted to take effect later in the same Plan Year (as a result of additional contributions or pursuant to the enrolled actuary's certification of the adjusted funding target attainment percentage for the Plan Year that meets the requirements of Treasury Regulations Section 1.436- 1(g)(5)(ii)(C)), then the Plan amendment must automatically take effect as of the first day of the Plan Year (or, if later, the original effective date of the amendment). If the Plan amendment cannot take effect during the same Plan Year, then it shall be treated as if it were never adopted, unless the Plan amendment provides otherwise.
(e) Notice Requirement. The Administrator shall provide a written notice in accordance with Section 101(j) of ERISA to Participants and Beneficiaries within 30 days after certain specified dates if the Plan has become subject to a limitation described in Section 10.2(a)(i), Section 10.2(b) or Section 10.2(c).
(f) Methods to Avoid or Terminate Benefit Limitations. The Company may apply methods prescribed under Section 436(b)(2), (c)(2), (e)(2), and (f) of the Code and Treasury Regulations Section 1.436-1(f) to avoid or terminate the application of the limitations set forth in Sections 10.2(a), (b) and (c) for a Plan Year. In general, the methods the Company may use to avoid or terminate one or more of the benefit limitations under Sections 10.2(a), (b) and (c) for a Plan Year include employer contributions and elections to increase the amount of Plan assets which are taken into account in determining the adjusted funding target attainment percentage, making an employer contribution that is specifically designated as a current year contribution that is made to avoid or terminate application of certain of the benefit limitations, or providing security to the Plan.
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(g) Special Rules.
(i) Rules of Operation for Periods Prior to and After Certification of Plan’s Adjusted Funding Target Attainment Percentage.
(A) In General. Section 436(h) of the Code and Treasury Regulations Section 1.436-1(h) set forth a series of presumptions that apply (1) before the Plan’s enrolled actuary issues a certification of the Plan’s adjusted funding target attainment percentage for the Plan Year and (2) if the Plan’s enrolled actuary does not issue a certification of the Plan’s adjusted funding target attainment percentage for the Plan Year before the first day of the 10th month of the Plan Year (or if the Plan’s enrolled actuary issues a range certification for the Plan Year pursuant to Treasury Regulations Section 1.436-1(h)(4)(ii) but does not issue a certification of the specific adjusted funding target attainment percentage for the Plan by the last day of the Plan Year). For any period during which a presumption under Section 436(h) of the Code and Treasury Regulations Section 1.436-1(h) applies to the Plan, the limitations under Sections 10.2(a), (b) and (c) are applied to the Plan as if the adjusted funding target attainment percentage for the Plan Year were the presumed adjusted funding target attainment percentage determined under the rules of Section 436(h) of the Code and Treasury Regulations Section 1.436-1(h)(1), (2), or (3). These presumptions are set forth in Section 10.2(g)(i)(B), (C) and (D).
(B) Presumption of Continued Underfunding Beginning First Day of Plan Year. If a limitation under Section 10.2(a), (b) or (c) applied to the Plan on the last day of the preceding Plan Year, then, commencing on the first day of the current Plan Year and continuing until the Plan’s enrolled actuary issues a certification of the adjusted funding target attainment percentage for the Plan for the current Plan Year, or, if earlier, the date Section 10.2(g)(i)(C) or Section 10.2(g)(i)(D) applies to the Plan:
(1) The adjusted funding target attainment percentage of the Plan for the current Plan Year is presumed to be the adjusted funding target attainment percentage in effect on the last day of the preceding Plan Year; and
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(2) The first day of the current Plan Year is a Section 436 measurement date.
(C) Presumption of Underfunding Beginning First Day of 4th Month. If the Plan’s enrolled actuary has not issued a certification of the adjusted funding target attainment percentage for the Plan Year before the first day of the 4th month of the Plan Year and the Plan’s adjusted funding target attainment percentage for the preceding Plan Year was either at least 60 percent but less than 70 percent or at least 80 percent but less than 90 percent, or is described in Treasury Regulations Section 436-1(h)(2)(ii), then,commencing on the first day of the 4th month of the current Plan Year and continuing until the Plan’s enrolled actuary issues a certification of the adjusted funding target attainment percentage for the Plan for the current Plan Year, or, if earlier, the date Section 10.2(g)(i)(D) applies to the Plan:
(1) The adjusted funding target attainment percentage of the Plan for the current Plan Year is presumed to be the Plan’s adjusted funding target attainment percentage for the preceding Plan Year reduced by 10 percentage points; and
(2) The first day of the 4th month of the current Plan Year is a Section 436 measurement date.
(D) Presumption of Underfunding On and After First Day of 10th Month. If the Plan’s enrolled actuary has not issued a certification of the adjusted funding target attainment percentage for the Plan Year before the first day of the 10th month of the Plan Year (or if the Plan’s enrolled actuary has issued a range certification for the Plan Year pursuant to Treasury Regulations Section 1.436-1(h)(4)(ii) but has not issued a certification of the specific adjusted funding target attainment percentage for the Plan by the last day of the Plan Year), then, commencing on the first day of the 10th month of the current Plan Year and continuing through the end of the Plan Year:
(1) The adjusted funding target attainment percentage of the Plan for the current Plan Year is presumed to be less than 60 percent; and
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(2) The first day of the 10th month of the current Plan Year is a section 436 measurement date.
(ii) New Plans, Plan Termination, Certain Frozen Plans, and Other Special Rules.
(A) First 5 Plan Years. The limitations in Section 10.2(a)(ii), Section 10.2(b)(ii), and Section 10.2(b)(iii) do not apply to a new plan for the first 5 plan years of the plan, determined under the rules of Section 436(i) of the Internal Revenue Code and Treasury Regulations Section 1.436-1(a)(3)(i).
(B) Plan Termination. The limitations on prohibited payments in Section 10.2(a)(i), Section 10.2(b)(i), and Section 10.2(c) do not apply to prohibited payments that are made to carry out the termination of the Plan in accordance with applicable law. Any other limitations under this section of the Plan do not cease to apply as a result of termination of the Plan.
(C) Exception to Limitations on Prohibited Payments Under Certain Frozen Plans. The limitations on prohibited payments set forth in Sections 10.2(a)(i), 10.2(b)(i) and 10.2(c) do not apply for a Plan Year if the terms of the Plan, as in effect for the period beginning on September 1, 2005, and continuing through the end of the Plan Year, provide for no benefit accruals with respect to any Participants. This Section 10.2(g)(ii)(C) shall cease to apply as of the date any benefits accrue under the Plan or the date on which a Plan amendment that increases benefits takes effect.
(D) Special Rules Relating to Unpredictable Contingent Event Benefits and Plan Amendments Increasing Benefit Liability. During any period in which none of the presumptions under Section 10.2(g)(i) apply to the Plan and the Plan’s enrolled actuary has not yet issued a certification of the Plan’s adjusted funding target attainment percentage for the Plan Year, the limitations under Section 10.2(a)(ii) and Section 10.2(b)(ii) shall be based on the inclusive presumed adjusted funding target attainment percentage for the Plan, calculated in accordance with the rules of Treasury Regulations Section 1.436-1(g)(2)(iii).
(iii) Special Rules Under PRA 2010.
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(A) Payments Under Social Security Leveling Options. For purposes of determining whether the limitations under Section 10.2(a)(i) or Section 10.2((b)(i) apply to payments under a social security leveling option, within the meaning of Section 436(j)(3)(C)(i) of the Code, the adjusted funding target attainment percentage for a Plan Year shall be determined in accordance with the “Special Rule for Certain Years” under Section 436(j)(3) of the Code and any Treasury Regulations or other published guidance thereunder issued by the Internal Revenue Service.
(B) Limitation on Benefit Accruals. For purposes of determining whether the accrual limitation under Section 10.2(b)(iii) applies to the Plan, the adjusted funding target attainment percentage for a Plan Year shall be determined in accordance with the “Special Rule for Certain Years” under Section 436(j)(3) of the Code (except as provided under Section 203(b) of the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010, if applicable).
(iv) Interpretation of Provisions. The limitations imposed by this section of the Plan shall be interpreted and administered in accordance with Section 436 of the Code and Treasury Regulations Section 1.436-1.
(h) Definitions. The definitions in the following Treasury Regulations apply for purposes of Sections 10.2(a) through (g): Section 1.436-1(j)(1) defining adjusted funding target attainment percentage; Section 1.436-1(j)(2) defining annuity starting date; Section 1.436-1(j)(6) defining prohibited payment; Section 1.436- 1(j)(8) defining Section 436 measurement date; and section 1.436-1(j)(9) defining an unpredictable contingent event and an unpredictable contingent event benefit.
(i) Effective Date. The rules in Sections 10.2(a) through (h) are effective for Plan
Years beginning after December 31, 2007.
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ARTICLE XI - MISCELLANEOUS PROVISIONS
11.1 Plan Non-Contractual
No Participant or Beneficiary shall have any right or interest under the Plan unless and until he becomes entitled thereto as provided in the Plan. The adoption and maintenance of the Plan shall not be deemed to constitute a contract between an Employer and any Employee. Inclusion in the Plan will not affect an Employer’s right to discharge or otherwise discipline Employees and membership in the Plan will not give any Employee the right to be retained in the service of an Employer nor any right or claim to a pension or other benefit unless such right is specifically granted under the terms of the Plan.
11.2 Non-Alienation of Retirement Rights or Benefits
(a)Except as provided in Section 11.2(b) or 11.2(c), no benefit payable under the Plan shall be subject in any manner to anticipation, sale, transfer, assignment, pledge, encumbrance, security interest or charge, and any action by way of anticipating, alienating, selling, transferring, assigning, pledging, encumbering, charging or granting a security interest in the same shall be void and of no effect; nor shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit.
(b)Section 11.2(a) shall not apply to the creation, assignment, or recognition of a right to any benefit payable pursuant to a qualified domestic relations order as defined in Section 414(p) of the Code. The Administrator shall establish reasonable procedures to determine the status of domestic relations orders and to administer distributions under such orders which are deemed to be qualified domestic relations orders. Such procedures shall be in writing shall comply with the provisions of Section 414(p) of the Code and shall be incorporated into this plan document. To the extent that, because of a qualified domestic relations order, more than one individual is to be treated as a surviving Spouse, the total amount payable from the Plan as a result of the death of a Participant shall not exceed the amount that would be payable from the Plan if there were only one surviving Spouse.
(c)Notwithstanding the provisions of Section 11.2(a), the Plan may offset any portion of the Accrued Pension of a Participant or the Participant’s Beneficiary against a claim of the Plan arising:
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(i)as a result of the Participant’s or Beneficiary’s conviction of a crime involving the Plan; or
(ii)with regard to the Participant’s or Beneficiary’s violation of ERISA’s fiduciary provisions upon:
(A)the entry of any civil judgment, consent order, or decree against the Participant or Beneficiary; or
(B)the execution of any settlement agreement between the Participant or Beneficiary and the Department of Labor or Pension Benefit Guaranty Corporation.
11.3 Payment of Pension to Others
In the event that the Administrator shall find that any Participant or Beneficiary to whom a pension is payable, is unable to care for his affairs because of illness, accident or incapacity, any payment due (unless prior claim therefor shall have been made by a duly qualified guardian or other legal representative) may, in the discretion of the Administrator, be paid to the Spouse, parent, child, brother or sister of such Participant or Beneficiary or to any other person deemed by the Administrator to be maintaining or responsible for the maintenance of such Participant or Beneficiary. Any such payment shall be a payment for the account of the Participant or Beneficiary and shall be a complete discharge of any liability of the Plan and any Employer therefor.
11.4 Prohibition Against Reversion
Except as provided in Section 9.2 hereof, in no event shall any funds held in the Trust Fund revert to the Company or be diverted to purposes other than the exclusive benefit of Participants or their Beneficiaries prior to the satisfaction of all liabilities under the Plan; provided, however, that in the event the Plan is terminated, if, after all plan liabilities are satisfied, there remains a balance in the Fund as a result of actuarial error, such balance shall be returned to the Company.
11.5 Merger, Transfer of Assets or Liabilities
The Company may merge or consolidate the Plan with, transfer assets and liabilities of the Plan to, or receive a transfer of assets and liabilities from, any other plan without the consent of any other Employer or other person, if such transfer is effected in accordance with applicable law and if such other plan meets the requirements of Code Sections 401(a) and 501(a), permits such transfer or the receipt of such transfer and, with respect to liabilities to be transferred from this Plan to such other plan, satisfies the
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requirements of Code Sections 411(d)(6) and 417. This Plan may not be merged or consolidated with any other plan, nor may any assets or liabilities of this Plan be transferred to any other plan, unless the terms of the merger, consolidation or transfer are such that each Participant in the Plan would, if the Plan were terminated immediately after such merger, consolidation or transfer, receive a pension having a value equal to or greater than the pension he would have been entitled to receive if this Plan had terminated immediately prior to the merger, consolidation or transfer.
11.6 Actuarial Equivalence
(a) For periods before December 31, 2019, any determination of actuarial equivalence required by the provisions of this Plan, when not otherwise specified in the Plan, shall be made on the basis of the mortality table referenced in IRS Revenue Ruling 2001-62, (GAR ’94) with an annual interest rate of 6%.
(b) For periods on and after December 31, 2019, any determination of actuarial equivalence required by the provisions of this Plan, when not otherwise specified in the Plan, shall be made on the basis of the “applicable mortality table” for such period, as defined in Section 417(e)(3)(B) of the Code and the “applicable interest rate”, as defined in Section 417(e)(3)(C) of the Code, for the fourth calendar month preceding the first day of the Plan Year for which the determination is being made; provided, however, that with respect to any Plan benefit payable on or after December 31, 2019 to a Participant in the Plan on December 30, 2019, the application of this subsection (b) shall not result in the payment of a Plan benefit that is less favorable to the Participant than the benefit determined as of the same determination date, using the factors identified in subsection (a) above.
11.7 Change of Vesting Schedule
If the Plan’s vesting schedule is amended or if the Plan is deemed amended by an automatic change to or from a Top-Heavy Plan vesting schedule (Section 13.3), each Participant with at least three years of Service with an Employer may elect, within a reasonable period after the adoption of the amendment or change, to have his nonforfeitable pension computed under the Plan without regard to such amendment or change.
The period during which the election may be made shall commence at the date the amendment is adopted or deemed to be made and shall end on the latest of:
(a) 60 days after the amendment is adopted;
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(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of the amendment by the Administrator.
Notwithstanding the foregoing provisions of this Section 11.7, the vested interest of any Participant on the date such amendment is effective shall not be less than his vested interest under the Plan as in effect immediately prior to the effective date of such change.
11.8 Controlled Group
For purposes only of determining eligibility to participate in the Plan and eligibility for any pension (but not the amount thereof) under the Plan, all employment with an Employer or an Affiliate shall be deemed to be employment with an Employer in computing Hours of Service and Service.
11.9 Severability
If any provision of this Plan is held to be invalid or unenforceable, such determination shall not affect the other provisions of this Plan. In such event, this Plan shall be construed and enforced as if such provision had not been included herein.
11.10 Employer Records
The records of a Participant’s Employer shall be presumed to be conclusive of the facts concerning his employment or non-employment, Service, Credited Service and Compensation unless shown beyond a reasonable doubt to be incorrect.
11.11 Application of Plan Provisions
This Plan shall be binding on all Participants and their Spouses and Beneficiaries and upon heirs, executors, administrators, successors, and assigns of all persons having an interest herein. The provisions of the Plan in no event shall be considered as giving any such person any legal or equitable right against the Company, an Employer or an Affiliate, any of its officers, employees, directors, or shareholders, or against the Trustee, except such rights as are specifically provided for in the Plan or hereafter created in accordance with the terms of the Plan.
11.12 Missing Participants and Beneficiaries.
Notwithstanding Section 7.10, if a Participant who has left employment with the Company and Affiliates (or a surviving Spouse or Beneficiary who is eligible for a
Notwithstanding Section 7.10, if a Participant who has left employment with the Company and Affiliates (or a surviving Spouse or Beneficiary who is eligible for a
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death benefit or survivor benefit) has failed to file an application for benefits within 120 days after attainment of the Participant’s Normal Retirement Date, the Administrator shall treat the Participant’s retirement benefit and vested Accrued Pension (or the surviving Spouse’s or Beneficiary’s death benefit or survivor benefit) as forfeited; provided, however, that such retirement benefit, Accrued Pension, death benefit or survivor benefit shall be reinstated retroactive to the commencement date set forth below upon the subsequent filing of a completed application with the Administrator and shall commence within ninety (90) days after such application is filed. For purposes of this Section 11.12, the commencement date shall be the later of:
(a) the Participant’s Normal Retirement Date; and
(b) the date on which the Participant terminated employment with the Employer and Affiliates.
No payment under the Plan will be increased on account of any delay in payment due to a Participant’s, surviving Spouse’s or Beneficiary’s failure to properly file the required application forms furnished by the Administrator or to otherwise accept such payments.
11.13 IRC 414(u) Compliance Provision
Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service shall be provided in accordance with Section 414(u) of the Code.
(a) As provided by Section 414(u) of the Code, “qualified military service” means service in the uniformed services (as defined in Chapter 54 of Title 38, United Stated Code) by an individual if the individual is qualified under such chapter to reemployment rights with the Company or an Affiliate following such military service.
(b) “USERRA” means the Uniformed Services Employment and Reemployment Rights Act of 1994 as amended.
(c) If an individual returns to employment with the Company or an Affiliate following a period of qualified military service under circumstances such that the individual has reemployment rights under USERRA, and the individual reports for said reemployment within the time frame required by USERRA, the following provisions shall apply:
(i) The qualified military service shall be recognized as Credited Service and Service to the same extent as it would have been if the individual had remained continuously employed with the Company or an Affiliate rather than leaving active employment to go into qualified military service.
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(ii) Compensation shall be determined by the Administrator consistent with the requirements of USERRA, and shall reflect the Administrator’s best estimate of the earnings the individual would have received but for the qualified military service.
(d) If a Participant fails to return to employment with the Company or an Affiliate on account of the Participant’s death in qualified military service on or after January 1, 2007, the surviving Spouse of such Participant shall be eligible to receive any death benefit provided under the Plan as if the Participant had returned to employment as a Covered Employee immediately prior to his death and then terminated employment on account of his death.
(e) If a Participant fails to return to employment with the Company or an Affiliate on account of either the Participant’s incurring a disability in qualified military service or the Participant’s death in qualified military service, the Participant (or the surviving Spouse of the Participant, in the event of the Participant’s death) shall be eligible for a benefit under the Plan determined by using the Credited Service the Participant would have had hereunder had the Participant returned to employment as a Covered Employee immediately prior to his date of disability or death and then terminated employment on the date of his disability or death.
(f) The foregoing provisions are intended to provide the benefits required by USERRA and the Heroes Earnings Assistance and Relief Tax Act of 2008, and are not intended to provide any other benefits. This section shall be construed consistently with said intent.
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ARTICLE XII - AMENDMENT AND TERMINATION
12.1 Amendment and Termination of the Plan
The Company hopes and expects to continue the Plan, but expressly reserves the right at any time and from time to time, without the consent of Participants:
(a) to reduce or discontinue payments to the Plan;
(b) to terminate the Plan;
(c) to amend the Plan, retroactively or otherwise, in such manner as it may deem necessary or advisable in order to qualify the Plan and any trust established in conjunction therewith under the provisions of Sections 401(a) and 501(a) of the Code, or any similar Code provisions from time to time in effect;
(d) to amend the Plan in any other respect, provided, however, that no such amendment shall forfeit or diminish the interest of any Participant in the Trust Fund to the extent that such interest has become vested in such Participant, except as may be permitted under the Code or ERISA.
Any such amendment to or termination of this Plan shall be evidenced by a written instrument adopted by the Board. Any such written instrument shall recite at which time the amendments contained therein shall become effective.
Promptly after an amendment of this Plan shall have become effective, the Company, or Administrator, as the case may be, shall cause a copy of such amendment to be filed with the Administrator and with the Trustee. The Administrator shall take such steps as it may deem appropriate and reasonable to communicate the amendment to Participants.
12.2 Administration of the Plan in Case of Termination
Upon termination of the Plan, as determined by the Pension Benefit Guaranty Corporation, the assets of the Trust Fund shall be liquidated and distributed in accordance with Section 4044 of ERISA and applicable regulations issued thereunder. In the event of the termination of the Plan or a partial termination of the Plan, the rights of all affected Participants to Accrued Pensions determined as of the date of such termination or partial termination, to the extent funded, or as further adjusted by the Pension Benefit Guaranty Corporation as of such date, shall be nonforfeitable. Notwithstanding the foregoing, upon Plan termination, the benefit of any Highly Compensated Employee shall be limited to a benefit that is nondiscriminatory under Section 401(a)(4) of the Code.
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Upon termination of the Plan, after the satisfaction of all liabilities of the Plan to its Participants, Beneficiaries and surviving Spouses, the Company shall receive any remaining amount resulting from any variations between actual requirements and actuarially expected requirements.
12.3 Internal Revenue Service Limitations
(a) Except in such cases where the circumstances described in subsection (b) apply, the annual payments under the Plan to any one (1) of the twenty-five (25) highest paid Highly Compensated Employees (and Highly Compensated former Employees), ranked by Test Compensation, shall not exceed the sum of:
(i) those payments that would be made on behalf of such Employee under a single life annuity that is the Actuarial Equivalent of the sum of the Employee’s Accrued Pension and the Employee’s Other Benefits (as defined in subsection (c) below) under the Plan; and
(ii) those payments the Employee is entitled to receive under a social security supplement.
(b) The provisions of subsection (a) above shall not apply if:
(i) after payment of all such benefits to an Employee described in subsection (a), the value of Plan assets equals or exceeds 110% of the value of current liabilities (as defined in Code Section 412(l)(7) under the Plan;
(ii) the value of all such benefits to an Employee described in subsection (a) above is less than one percent of the value of current liabilities under the Plan prior to the payment of all such benefits to such Employee; or
(iii) the value of all such benefits to an Employee described in subsection (a) does not exceed $5,000 or such other amount as may be prescribed under Section 411(a)(11)(A) of the Code as the maximum amount that may be paid out without the Participant’s consent.
(c) For purposes of this Section 12.3, “Other Benefits” shall include any loan in excess of the amounts set forth in Code Section 72(p)(2)(A), any periodic income, any withdrawal values payable to a living Employee and any death benefits not provided for by insurance on the Employee’s life. “Other Benefits” for this purpose shall not include any social security supplements.
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ARTICLE XIII - TOP-HEAVY PROVISIONS
13.1 General
Notwithstanding any provision of this Plan to the contrary, the provisions of this Article XIII shall apply with respect to any Plan Year provided the Plan is a Top-Heavy Plan (as defined in Section 13.2(c) below) for such Plan Year.
13.2 Definitions Relating to Top-Heavy Provisions
For purposes of this Article XIII:
(a) “Key Employee” means any Employee (including any deceased Employee) who at any time during the Plan Year that includes the determination date was an officer of the Employer having annual Test Compensation greater than $200,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2021), a five percent (5%) owner of the Employer, or a one percent (1%) owner of the Employer having annual Test Compensation of more than $150,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2021). The determination of who is a key employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.
(b) “Determination Date” means, with respect to any Plan Year, the last day of the immediately preceding Plan Year.
(c) “Top-Heavy Plan” means a plan where, as of the Determination Date, the present value of the cumulative accrued benefits (including any part of any accrued benefit distributed in the five-year period ending on the Determination Date) under the Plan for Key Employees exceeds sixty percent (60%) of the present value of the cumulative accrued benefits (including any part of any accrued benefit distributed in the five-year period ending on the Determination Date) under the Plan for all Employees. The present values of accrued benefits and the amounts of account balances of an Employee as of the Determination Date shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the one-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for
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a reason other than severance from employment, death or disability, this provisions shall be applied by substituting “five-year period” for “one-year period”. However, the accrued benefits of any individual who has not performed services for the Employer or any Affiliate during the one-year period ending on the Determination Date shall not be taken into account.
(i) If this Plan is in a Required Aggregation Group, each Plan of an Employer required to be in such group will be a Top-Heavy Plan if such group is a Top-Heavy Group.
(ii) If this Plan is in a Permissive Aggregation Group which is not a Top-Heavy Group, no Plan of an Employer in such group will be a Top-Heavy Plan.
(d) “Required Aggregation Group” means:
(i) each plan of an Employer in which a Key Employee is a participant (regardless of whether the plan has terminated), and
(ii) each other plan of an Employer which enables a plan in which a Key Employee is a participant to meet the requirements of Internal Revenue Code Sections 401(a)(4) or 410.
(e) “Permissive Aggregation Group” means any plan of an Employer which is not part of the Required Aggregation Group, but is treated as if it were at the option of the Administrator, provided such group continues to meet the requirements of Internal Revenue Code Sections 401(a)(4) and 410.
(f) “Top-Heavy Group” means any Required or Permissive Aggregation Group, if as of the Determination Date, the sum of the present value of cumulative accrued benefits for Key Employees under all defined benefit plans included in such Group and the aggregate of the accounts of Key Employees under all defined contribution plans included in such Group exceeds sixty percent (60%) of the similar sum determined for all Employees.
(g) “Present Value of Accrued Benefits” shall be determined as of the most recent valuation date within a twelve-month period ending on the Determination Date, but for the purposes of determining whether this Plan is a Top-Heavy Plan, shall not include:
(i) Any rollover contribution initiated by the Employee.
(ii) Any accrued benefit or account attributable to an Employee who is not a Key Employee, but who was a Key Employee in any prior Plan Year. To the extent that a Key Employee is deemed to be a Key Employee if he meets the definition of Key Employee within any of the four (4)
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preceding Plan Years, this provision shall apply following the end of such period of time.
(iii) Any accrued benefit or account attributable to any individual who has not performed any services for an Employer at any time during the five-year period ending on the Determination Date.
Solely for purposes of determining if the Plan is a Top Heavy Plan as described above, the Present Value of Accrued Benefits shall be determined by using the single accrual method which is used for all plans of the Company and of any Affiliate. If no such single method exists, benefits shall be determined as if they accrued not more rapidly than the lowest accrued rate permitted under Section 411(b)(1)(C) of the Code.
(h) “Valuation Date” means December 31.
(i) “Non-Key Employee” means any Employee who is not a Key Employee.
13.3 Top-Heavy Plan Vesting Requirements
(a) For any Plan Year in which the Plan is a Top-Heavy Plan, the following vesting schedule will apply to benefits derived from Employer contributions. The nonforfeitable interest in a Participant’s accrued benefit will be determined as follows:
Years of Service | Nonforfeitable Percentage of Accrued Benefit | ||||
| 0 but less than 2 | 0% | ||||
| 2 but less than 3 | 20% | ||||
| 3 but less than 4 | 40% | ||||
| 4 but less than 5 | 60% | ||||
| 5 or more | 100% | ||||
This Section 13.3 does not apply to any Participant who does not have an Hour of Service after the Plan becomes a Top-Heavy Plan.
(b) If the vesting schedule under the Plan shifts in or out of the above schedule due to determination of whether or not the Plan is a Top-Heavy Plan, such shift shall be an amendment to the vesting schedule and Section 11.7 shall apply.
13.4 Top-Heavy Plan Minimum Benefit Requirements
(a) For any Plan Year in which the Plan is determined to be a Top-Heavy Plan, each Non-Key Employee Participant who has completed a year of service will accrue a minimum annual benefit (derived from Employer contributions and expressed
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as a life annuity beginning at Normal Retirement Age and determined without regard to any Social Security contribution or benefit).
(b) Such accrual of a minimum annual benefit will be the lesser of:
(i) Two percent (2%) of the Participant’s highest average compensation for the five consecutive years during which the Participant had the greatest compensation from the Employer multiplied by the years of service as defined in (c) below, or
(ii) Twenty percent (20%) times the Participant’s highest average compensation for the five consecutive years during which the Participant had the greatest compensation from an Employer.
(c) (i) For the purpose of the accrual of minimum annual benefit, year of service shall mean a year of Credited Service as defined in Article IV, but will exclude years when the Plan was not a Top-Heavy Plan for any Plan Year ending during such year of Credited Service, as well as years of Credited Service in a Plan Year beginning before December 31, 1984. Notwithstanding the above, each Non-Key Employee Participant who has completed 1,000 Hours of Service in a year in which the Plan is a Top-Heavy Plan shall be entitled to the minimum annual benefit regardless of the level of such Non-Key Employee’s compensation.
(ii) The compensation required to be taken into account for purposes of this Section 13.4 is Test Compensation; provided, however, that such compensation shall not exceed the adjusted annual limitation in effect for the given year (as set forth in Section 2.11) and compensation in years after the close of the last Plan Year in which the Plan is a Top-Heavy Plan shall be disregarded.
(d) Notwithstanding any other provision of the Plan, an Employee shall be a Participant for the purposes of this Section 13.4, and a Participant shall be entitled to an accrual under this Section 13.4, even if he would not otherwise be entitled to receive an accrual or would have received a lesser accrual for the year because the Non-Key Employee Participant is not employed on a specified date.
(e) If the annual retirement pension payable under the Plan to a Participant who has accrued a minimum annual benefit under this Article XIII commences at a date other than at Normal Retirement Age, such Participant shall receive at least an amount that is the actuarial equivalent of the minimum annual benefit commencing at Normal Retirement Age as provided under this Section 13.4 using a five percent (5%) interest rate assumption for such determination. If the
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annual retirement pension payable to a Participant who has accrued a minimum annual benefit under this Article XIII is in a form other than a single life annuity, such Participant shall receive an amount that is not less than the minimum annual benefit as otherwise provided in this Section 13.4 adjusted to be the actuarial equivalent of a single life annuity commencing at the same age using the provisions of Section 11.6 of the Plan for such determination.
(f) In the case of Employees covered under both this Plan and any other plan maintained by an Employer, this Plan will provide the top heavy minimum benefit which shall be offset by the benefit, if any, provided under such other plans.
13.5 Limited Application of this Article.
The sole purpose of this Article is to comply with Section 416 of the Code and the terms of this Article shall be interpreted, applied, and if and to the extent necessary, shall be deemed modified so as to satisfy solely the minimum requirements of Section 416 of the Code and the regulations promulgated with respect thereto.
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ARTICLE XIV - JURISDICTION
14.1 Jurisdiction
The provisions of the Plan shall be construed in accordance with ERISA, the Code, and, where not superseded by ERISA, the laws of the Commonwealth of Pennsylvania.
Executed at Erie, Pennsylvania, this 19th day of June, 2023.
| ERIE INDEMNITY COMPANY | ||||||||||||||
| ATTEST: | /s/ Nathaniel Ehrman | By: | /s/ Brian W. Bolash | |||||||||||
| Title: | Executive Vice President Secretary & General Counsel | |||||||||||||
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy G. NeCastro, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Erie Indemnity Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | July 27, 2023 | |||||||
| /s/ Timothy G. NeCastro | ||||||||
| Timothy G. NeCastro | ||||||||
| President & CEO | ||||||||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Julie M. Pelkowski, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Erie Indemnity Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | July 27, 2023 | |||||||
| /s/ Julie M. Pelkowski | ||||||||
| Julie M. Pelkowski | ||||||||
| Executive Vice President & CFO | ||||||||
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
We, Timothy G. NeCastro, Chief Executive Officer of the Erie Indemnity Company (the "Company"), and Julie M. Pelkowski, Chief Financial Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, that:
(1)The Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2023 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Timothy G. NeCastro | |||||
| Timothy G. NeCastro | |||||
| President & CEO | |||||
| /s/ Julie M. Pelkowski | |||||
| Julie M. Pelkowski | |||||
| Executive Vice President & CFO | |||||
| July 27, 2023 | |||||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.