Energy Transfer Partners Deferred Compensation Plan Summary Plan Document 2013

Transcription

1 Energy Transfer Partners Deferred Compensation Plan Summary Plan Document 2013 Lockton Financial Advisors, LLC. L O C K T O N F I N A N C I A L A D V I S O R S, L L C

2 ENERGY TRANSFER PARTNERS DEFERRED COMPENSATION PLAN SUMMARY PLAN DOCUMENT 2013 This Plan was designed and implemented to enhance your savings and retirement accumulation on a tax-advantaged basis, beyond the limits of traditional qualified retirement plans. The following plan summary outlines important details of the plan and your participation. DEFERRED COMPENSATION PLAN With This Plan You Can: Defer compensation from multiple sources (salary, nonvested unit distribution, and/or bonus). Create wealth through tax-deferred investments. Save and invest on a pretax basis to meet accumulation and retirement planning needs. Utilize a diverse choice of investment options to maximize your returns and manage your account. Track your account and the plan details via the Internet on a 24/7 basis. When Can You Enroll? The ongoing plan year commences on January 1 of each year. To defer a portion of your compensation, you must enroll in the Plan and make your election during the annual open enrollment periods. Newly eligible participants will have 30 days from eligibility to enroll in the plan. To participate in the plan and defer compensation in any given plan year, a minimum deferral of 2 percent of salary or bonus is required. *Discretionary Bonus elections enrollment will occur annually in the spring. This election will be for performance based bonus earned in 2013 payable in All deferrals are pretax and will be withheld at the time such amounts will be paid to you. Your annual elections are irrevocable for each plan year. Employer Contributions Energy Transfer Partners may make an annual discretionary matching contribution to your personal plan deferrals. You will be informed annually during the open enrollment period as to the amount, if any, of corporate match for the coming plan year, if eligible. For the 2013 Plan Year, no company contributions are planned. What Is Eligible For Deferral? You may elect to defer up to: Salary 50% of your salary compensation. Discretionary Bonus* 50% of your bonus compensation (if applicable). Quarterly Nonvested Unit Distribution Income 50% of your nonvested distribution income. BENEFITS OF A DEFERRED COMPENSATION PLAN Similar Attributes to a 401(k) with Enhanced Opportunity Many features of a deferred compensation plan are similar to a 401(k) plan. This chart highlights the general similarities and differences between 401(k) and Deferred Compensation Plans. It is not intended to be a specific comparison to any Energy Transfer Partners Qualified Plan. Please reference the Deferred Compensation Plan Document for further details. Attributes 401(k) Plans Deferred Compensation Plans Deferral Amount Limits: Tax-Deferred Status: Access to Your Money: Portability: Distribution Options at Termination: Typically, limited to $17,500 for 2013 ($23,000 for those age 50 and over). May be less due to 401(k) plan discrimination testing. Savings and investment earnings are tax-deferred until withdrawal. Withdrawals before age 59 1/2 may result in penalty. Some plans offer loan capabilities. If not, you have to wait until termination or apply for a hardship withdrawal. Tax penalties may apply. You may roll your balance over to an IRA or another qualified plan. Lump sum is most common. May be rolled over to an IRA or other qualified plan within 60 days. Taxes are due upon distribution. If distributed prior to age 59 1/2 (in some cases 55), a 10 percent penalty may also apply. 2 Virtually unlimited dependant on plan document and design. Typically, a substantial amount of cash compensation may be deferred with no statutory dollar limit. Savings and investment earnings are tax-deferred until withdrawal. Withdrawals may be taken at any age; however, they must be prescheduled to avoid penalty. No plan loans are available. Hardship withdrawals may be available depending on plan document. Distributions prior to age 59 1/2 are not subject to additional penalties. You cannot roll your balance over to an IRA or another deferred compensation plan. Lump sum or installment payments over a designated number of years are the most common distribution options. Taxes are due when distributed. With installment payments, your balance continues to grow tax-deferred. Investing: You specify among different investment options. You specify among different investment options. Risk: Investment risk based on fund selection and market performance. Plan assets are maintained in a separate qualified trust and protected from corporate creditors. Investment risk based on fund selection and market performance. Additional risk of being a general unsecured creditor, which may result in a loss of plan values and benefits in the event of bankruptcy or insolvency of the corporation.

3 THE BENEFITS OF PRETAX INVESTING Saving $20,000 pretax in a deferred compensation plan annually, earning 7.0% for 15 years would accumulate $537,761*. Taxed at 35%, the $20,000 is reduced to an annual after-tax savings of $13,000. The annual 7.0% taxable rate of return is reduced by taxes to 5.25% (assumes 25% effective tax rate; half capital gains and half ordinary income taxes under current taxable effects). After 15 years, the after-tax comparative alternative produces only $300,865. *Assumes a lump-sum payout, which would equal $349,544 assuming then current equivalent 35% federal income taxes. State income tax is not factored due to variations among states; if it were, the benefits of deferring compensation are further enhanced. Additionally, the election to distribute deferred compensation benefits in installment payout form creates additional comparative advantage. Deferring taxes on compensation not only reduces your current tax liability, it can also help you achieve greater capital accumulation for tomorrow. The following table illustrates how saving $20,000 on a pretax basis can increase your wealth significantly faster than after-tax savings: Saving After-Tax Saving Pretax Annual savings amount: $20,000 $20,000 Income taxes on savings: 35% N/A Estimated income tax amount: $7,000 $0 Net amount saved (annually): $13,000 $20,000 Investment return: 7% 7% Taxes on investment return:* 25% N/A Investment period: 15 Years 15 Years Distribution period: 10 Years 10 Years Annual distribution after tax: $37,450 $46,475 *Assumes half capital gains, half ordinary federal income tax. To calculate the impact of higher pretax savings, multiply the above example by the desired number (e.g., multiply by 2 to see the impact of saving $40,000). Taxable vs. Tax-Deferred Investment Returns Because investment earnings on your account are taxdeferred (i.e., you only pay income tax when you receive a distribution from your account), deferrals made on a pretax basis accumulate faster than they would if made on an after-tax basis. Let us assume: $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $- Growth (Invested at 7% Annually) Pretax Deferred Compensation Savings After-Tax Taxable Savings A 45-year-old executive defers $25,000 annually into the plan until retirement at age 65, versus deferring $15,000 (the same amount in after-tax dollars) into a personal investment. The personal investment alternative assumes a 27 percent blended tax rate on investment gains. A 6 to 8 percent investment return. A personal income tax rate of 40 percent (federal and state). The table below compares the results of investing pretax and after-tax dollars. Deferred Compensation Plan Personal Investment Alternative Investment Returns Investment Returns Plan Year 6% 8% 6% 8% 1 $26,500 $27,000 $15,657 $15,876 2 $54,590 $56,160 $32,000 $32,679 3 $84,365 $87,653 $49,058 $50,464 4 $115,927 $121,665 $66,864 $69,287 5 $149,383 $158,398 $85,450 $89, $349,291 $391,137 $191,326 $207, $974,818 $1,235,573 $485,054 $574,062 After-tax annual retirement benefit at age 65, payable for 10 years: $74,970 $102,298 $58,382 $73,135 Note: Account values will vary depending upon individual tax rates and actual investment performance. Maximizing Your Benefit It is important to recognize the potential benefit of allowing deferrals to compound on a tax-deferred basis. Let us assume: A 45-year old executive elects a one-time deferral of $25,000 into the plan. An 8 percent investment return. A personal income tax rate of 40 percent (federal and state) on distributions from the plan. The chart below illustrates how four different accumulation periods and distribution elections would affect the total after-tax benefit. $100,000 $80,000 $60,000 $40,000 $20,000 $0 Accumulation Period: Distribution Election: $32,384 $47,583 $69,914 Note: Account values will vary depending upon individual tax rates and actual investment performance. *Total amount that would be paid on a cumulative basis over a 10-year period, assuming returns of 8 percent on any remaining unpaid balance. $96, years 15 years To age 65 To age 65 Lump Sum (Paid in year 11) Lump Sum (Paid in year 16) Lump Sum (Paid at age 65) 10 Annual Installments (Beginning at age 65) 3

4 SAVING FOR FUTURE USE For many, a deferred compensation plan can be the best way to supplement retirement savings. Most experts agree that the average individual will need to replace 70 to 90 percent of their final year s income during retirement (annually). At your level of income, Social Security may likely play an insignificant role in providing for your monthly retirement income needs. Other qualified plans Company Name and personal savings may not fully provide for your retirement needs. Income Replacement To illustrate the critical role supplemental savings can play in your retirement goals, this chart summarizes the traditional various sources of income available to you. Your participation in the Deferred Compensation Plan can help to fill the retirement gap and reach your retirement goals. Higher Rates of Return? As pointed out in the chart above, your investments grow without being taxed within the Deferred Compensation Plan. The effects of compounding interest are substantial. To maintain equivalent capabilities, after-tax savings must be invested more aggressively with consistently higher returns than pretax savings. VESTING, DISTRIBUTIONS, TAXES, AND RISKS Vesting Pre-Tax Investment (Deferred Compensation Plan) Retirement Gap Qualified Plans Personal Savings Social Security After-Tax Investments (Required Equivalent Return) 6% 8% 8% 10.7% 10% 13.3% 12% 16% Your contributions and any associated earnings are always 100 percent vested. Separation of Service: Disability and Change of Control Distributions You may elect to receive your Plan account upon separation from service in a lump sum, or in annual installments over a period of three or five years (based on your annual election). Each Plan Year, you may choose a different payment method. This election is for one Plan Year only and does not carry forward. Your lump sum or Retirement Goal installment payment will be made within 60 days (unless you are a key employee) of separation from service. In the event of total disability while employed, your vested account will be distributed within 60 days in a lump-sum payment. The definition of disability to be utilized will be based on regulatory requirements at the time (as outlined in the plan document). In the event of change of control you can choose to receive your account balance as a lump sum or to retain your originally elected payment schedules. Your distribution can be delayed six months if you are a key employee. Death Benefits Distributions If you die before your separation from service, your beneficiary will receive the value of your account balance in a lump sum within 60 days of the qualifying event. Taxes on Deferrals, Investment Returns, and Distributions Deferrals The compensation you defer is not subject to current income taxation, but will be subject to current Social Security, Medicare, and other statutory employment taxes (FICA/FUTA) in the year of the deferral. Investment Returns All associated investment earnings on your plan account values are deferred until such time 0 that you are paid benefits (separation from service, change of control, death, or disability.) Distributions All distributions from the Plan are treated as ordinary income subject to then current federal, state (if applicable), and local (if applicable) income taxation at the time of distribution. Account distributions (including investment earnings) will not be included in your Social Security or Medicare wages (FICA/FUTA) for the year in which the distributions are made. Risks of a Deferred Compensation Plan In the unlikely event of the Company s bankruptcy or insolvency, Deferred Compensation Plan assets are treated like any other corporate assets, and as such are subject to the claims of the general creditors of the Company. This substantial risk of forfeiture is required under regulations of Nonqualified Plans in order to provide all highly compensated select participants the ability to enhance retirement savings in the tax-advantaged manner the plan provides. The unsecured nature of the Deferred Compensation Plan should be considered prior to your election to participate. 4

5 INVESTMENTS AND PLAN FUNDING Choice of Investments You may elect to allocate both your current and future account values among a variety of investment options. This set of investment choices provides you with an array of asset classes and the opportunity for diversification. The investment return of your selected funds(s) will be valued daily. All performance returns are provided to participants on an NAV basis (no loads or associated fees outside of the normal fund manager expenses are applied). Please review the information in your enrollment materials and/or on the plan Web site, which describe each associated benchmark fund, before making an investment election. Your Investment Allocations Your account is valued daily reflecting the performance of the investment funds you selected. A funds list, monthly returns, and Morningstar data sheets are provided on the plan Web site at Once your account is established, you may change all of your investment allocations daily either online or by using an Investment Election Change Form. You may select different allocations for your new or future deferrals versus your existing funded deferral account balance. The investment funds offered under the Plan are deemed investments and used solely to measure the amounts to be credited or debited to your account. You have no right or interest in any of the selected funds other than the promise by Energy Transfer Partners to credit your account with the amount that would be credited had such amounts actually been invested in accordance with your direction. Deemed Investments Fund Style/Type Fund Name Money Market Fidelity VIP Money Market Portfolio Intermediate Government Intermediate-Term Large Value Large Blend Large Blend Mid-Cap Value Mid-Cap Blend Mid-Cap Growth Small Value Small Blend Small Growth Foreign Large Value MFS Government Securities Portfolio PIMCO Total Return Portfolio MFS Value Portfolio Dreyfus VIF Appreciation Fidelity VIP Contrafund Portfolio Janus Aspen Perkins Mid Cap Value Portfolio Invesco VI Mid Cap Core Equity Fidelity VIP Mid Cap Portfolio Delaware VIP Small Cap Value Series Royce Small-Cap Inv MFS New Discovery MFS International Value Portfolio Foreign Large Blend American Funds Ins Ser International 2 World Stock Emerging Markets Real Estate Moderate Allocation Target Funds Target Funds Target Funds Oppenheimer Global Fund/VA MFS Emerging Markets Equity Portfolio Delaware VIP REIT Series MFS Var Insur Tr II Total Return - IC Fidelity VIP Freedom 2015 Portfolio Fidelity VIP Freedom 2020 Portfolio Fidelity VIP Freedom 2030 Portfolio Corporate-Owned Life Insurance It is the intent of Energy Transfer Partners to invest in company-owned tax-advantaged investment vehicle as a means of informally funding the deferred compensation plan. Corporate-Owned Life Insurance (COLI) was chosen as this vehicle to efficiently accrue assets and informally finance future participant benefit obligations. All active eligible participants may be insured by the Company and are required to provide a Consent to Insurance upon enrollment in the plan. Rabbi Trust The Rabbi Trust protects plan assets for the sole benefit of participants in the event of a change of control in the ownership or management of the Company. In the unlikely event of the Company s bankruptcy or insolvency, Deferred Compensation Plan assets in the Rabbi Trust are treated like all other corporate assets and are subject to the claims of the general creditors of the Company. PLAN ADMINISTRATION The plan is administered by the Investment Committee, which has discretionary authority to interpret and apply management of the plan, and make rules necessary for the day-to-day operations of the plan. The company has the right to amend or terminate the plan, in whole or in part, at any time. No amendment or termination of the plan shall retroactively reduce any amounts allocated to a participant s account. The company may change the terms of the investment crediting options that are available under the Deferred Compensation Plan. Any changes will be prospective only and every attempt will be made to notify plan participants in advance to permit them to change their allocations if desired. Statements To Participants You may access your account details via the Internet at once you have activated your online account. Your quarterly statement will be posted online. However, you are able to download your statement at anytime. If you would like to receive a hard copy of your statement sent to your home, please contact Lockton Financial Advisors. Plan Web site Access Web access is facilitated for all active participants in the plan. Information on the Web site includes: 24/7 daily access to plan information Forms and plan documents Ability to reallocate your account balance Participant Plan account values Investment information and fund details Plan assistance and contact information Rate of Return 5

6 Q&A FOR ENERGY TRANSFER PARTNERS DEFERRED COMPENSATION PLAN Enrollment Q. How do I enroll in the Plan for 2013? A. To enroll in the Plan, visit the following Web site: If you are new to the plan, you can access the Web site by using your Social Security number as your username (XXX- XX-XXXX) and DOB (YYYYMMDD) as your password. If you have previously logged into the site you will use the username and password already created. If you have forgotten your username and password, please click Forgot Username or Forgot Password. Q. When do I make my deferral election for 2013 Salary/ Discretionary Bonus? A. To defer a portion of your 2013 Salary you must make an election in November (unless you become eligible mid-year). Discretionary bonus (earned in 2013 payable in 2014) must be made by June 30 th. If you do not submit a deferral election by the enrollment deadline, none of that compensation will be considered deferred for 2013 plan year. Q. May I change or revoke my election for a given Plan year? A. No, you may not change or revoke your deferral election after the enrollment deadline for a given Plan year. You may change the timing of payment of your deferrals under limited circumstances, as described in this summary. Q. Do I need to access the enrollment site if I do not wish to defer for 2013? A. No action is required if you do not wish to defer Salary, discretionary bonus or your quarterly Nonvested Unit Distribution Income for Investment Options Q. How do I make my initial investment elections with respect to 2013 deferrals? A. You may make your initial investment elections at the same time you enroll. When you make your deferral election, you may elect any of the investment options offered on the funds list. Elections must be made in 1 percent increments totaling 100 percent. Q. Are there any fees charged to my account? A. There are no commission fees or account maintenance fees charged to participants. Q. Will I own shares of the investment options I select? A. No. The investment funds offered under the Plan are deemed investments and used solely to measure the amounts to be credited or debited to your account. Distributions From Your Account Q. What if I experience an unforeseeable financial emergency? Can I withdrawal money from my account? A. An unforeseeable financial emergency is an unanticipated emergency that would cause you to suffer severe financial hardship. The emergency must result from (i) an illness or accident to you, your spouse, or one of your dependents or (ii) a loss of your property due to unforeseen circumstances and be the result of events beyond your control, as determined under law and in the sole discretion of the Administrator. You will be required to provide documentation substantiating your financial hardship. Q. Can I take a loan from my Deferred Compensation Plan? A. No. Loans are not available. Q. Will I receive a confirmation of my enrollment for 2013? A. Yes, confirmation of your enrollment for 2013 will be sent electronically to your address. Lockton Financial Advisors will also be able to provide you with a copy if requested. Q. May I name a beneficiary to receive my account balance in the event of my death? A. Yes, you may designate a primary and contingent beneficiary(ies) at any time. There will be a section for you to elect a beneficiary for this plan on the Lockton Financial Advisors Web site. Q. If I enroll in the Plan, may I assign or dispose of my interest in the Plan? A. No. You may not sell, assign, transfer, or convey in advance of receipt any of your rights under the plan. 6

7 Taxes Q. What is the tax effect of electing to defer income? A. Amounts you defer under the Plan will not be taxed for federal income tax purposes in the year these amounts would otherwise have been paid to you. In addition, earnings on your account will not be taxed for federal, state, or local income tax purposes in the year they are credited to your account. Rather, these amounts will be subject to tax when they are paid to you. You are responsible for paying all applicable taxes. Q. Will my deferrals be subject to FICA and FUTA taxes? A. Yes, your deferrals are subject to FICA and FUTA taxes at the time of deferral. Additionally, any company contributions will be subject to FICA and FUTA at the time of vesting. You are responsible for paying all applicable taxes. Q. How are my annual deferral amounts taxed when they are distributed? A. Your annual deferral amounts, plus or minus earnings or losses, are subject to tax as ordinary income when they are distributed to you. FICA and FUTA taxes, however, are not payable when you receive a distribution. You are responsible for paying all applicable taxes on your distribution. Q. If I receive a distribution, may I roll over my account balance to another plan or an IRA to avoid current taxation? A. No. There are no rollover or other options available with a distribution from a nonqualified plan. All distributions have to be taken as ordinary income. Q. Is payment of the death benefit taxable to my beneficiary? A. Yes. The death benefit payable to your beneficiary is taxable as ordinary income and, under certain circumstances, may be subject to estate taxes. Please contact a tax advisor who can provide you with more information. Plan Funding Q. What is the nature of the Plan s funding? A. The Company s obligation is that of an unsecured promise to pay money in the future. Amounts payable to a participant or his or her beneficiaries will be paid from the general assets of the Company. Q. What happens to the Plan benefits if the Company goes into bankruptcy? A. In the event the Company becomes insolvent or files for protection under federal bankruptcy laws, your rights to your account balance will equal those of an unsecured general creditor of the Company. Plan Contact Information Q. Where can I get more information about the Plan? A. Lockton Financial Advisors assists the Company with the administration of the Plan, including account balance and account operation inquiries. For additional information or assistance relating to enrollment, your account, or plan details please contact Lockton Financial Advisors. Suzette Clark Liza Wilhite Lockton Financial Advisors, LLC Executive Benefits Division 444 W. 47th Street, Suite 600 Kansas City, MO Executive.Benefits-KC@lockton.com These questions and answers provide a summary description of the Energy Transfer Partners Nonqualified Deferred Compensation Plan. If any conflicts arise between this summary description and the Plan document, the Plan document will prevail. 7

8 Our Mission To be the worldwide value and service leader in insurance brokerage, employee benefits, and risk management Our Goal To be the best place to do business and to work Securities offered through Lockton Financial Advisors, LLC, a registered broker-dealer and member of FINRA, SIPC. Investment advisory services offered through Lockton Investment Advisors, LLC, an SEC-registered investment advisor. For California, Lockton Financial Advisors, LLC, d.b.a. Lockton Insurance Services, LLC, license number 0G Lockton, Inc. All rights reserved. (Rev. 02/24/12) Images 2012 Thinkstock. All rights reserved.