Salaried Investment and Savings Plan Summary Plan Description (SPD)

Transcription

1 Salaried Investment and Savings Plan Summary Plan Description (SPD) As of January 1, 2012 (Including updates through 7/31/2012)

2 TABLE OF CONTENTS TABLE OF CONTENTS... 1 ABOUT THIS SPD... 3 ISP AT A GLANCE... 4 Accessing the Exelis Benefits Center... 4 ELIGIBILITY AND PARTICIPATION... 5 Eligibility... 5 Participation... 5 Automatic Contributions... 6 How to Make Your Elections... 7 Your Beneficiary Designation... 7 The Exelis Benefits Center... 9 YOUR CONTRIBUTIONS Eligible Pay Before-Tax Savings Catch-up Contributions After-Tax Savings Rollover Contributions Other Benefits and Social Security Changing and Suspending Your Savings COMPANY CONTRIBUTIONS Base Contributions Matching Contributions YOUR PLAN ACCOUNTS Limits on Your Accounts YOUR INVESTMENT OPTIONS How Your Account Can Grow Risk vs. Return Diversification Reassessing Your Investment Strategy Investment Elections Investing in Company Stock Self-directed Brokerage Account Investment Assistance Proxy Voting Information Available from the Recordkeeper upon Request How Plan Accounts Are Valued VESTING ACCESSING YOUR ACCOUNT Loans Withdrawals WHEN YOUR ACCOUNT IS PAYABLE Receiving Your Account Balance Requesting Payment of Your Account Partial Withdrawals After Termination of Employment Optional Payment Methods Exelis Salaried Investment and Savings Plan 1

3 Payment if You Become Totally Disabled Payment to Your Beneficiary Deferring Your Account When You Leave the Company Inability to Locate Payee SERVICE Transfers Reemployment WHEN YOU PAY TAXES Taxation of Distributions and Withdrawals Early Withdrawal Penalty Mandatory Withholding Requirements SITUATIONS AFFECTING YOUR BENEFITS How You May Lose Benefits Military Leave Claims Procedures ADMINISTRATIVE INFORMATION Official Plan Name and Number Employer Identification Number Plan Sponsor Plan Administration The Exelis Benefits Center QDRO Administrator Plan Costs Fund Management Plan Trust Fund Type of Plan Plan Records Pension Benefit Guaranty Corporation Legal Service Company Plan Continuance Legal Limitations Assignment of Benefits Plan Documents Your Rights Under ERISA Receive Information About Your Plan and Benefits Prudent Action by Plan Fiduciaries Enforce Your Rights Assistance with Your Questions No Guarantee of Employment ATTACHMENT A Exelis Salaried Investment and Savings Plan (ISP) Investment Lineup ATTACHMENT B Current Investment Funds Subject to 30-day Restriction ATTACHMENT C Target Retirement Funds and Associated Years of Birth Exelis Salaried Investment and Savings Plan 2

4 ABOUT THIS SPD The Exelis Salaried Investment and Savings Plan ((hereinafter referred to as the "Plan" or the ISP ) is designed to enable you and the Company to work together to save money for your future. The Plan makes it easy for you to save through convenient payroll deductions, and the Company adds to your savings with its own contributions. This booklet describes the provisions of the Plan in effect as of January 1, 2012 and includes updates through July 31, Please read it carefully. If you have any questions about the Plan, log onto the Plan s web site, or call the Exelis Benefits Center at Please have your User ID and your Passcode available. Please note: The term Company as used in this booklet, means Exelis Inc. and its participating divisions, subsidiaries, affiliates and units. From June 30, 2006, to October 30, 2011, the term Company referred to ITT Corporation and its participating divisions, subsidiaries, affiliates and units. Exelis Salaried Investment and Savings Plan Page 3

5 ISP AT A GLANCE Plan Participation You become a member of the Plan as soon as administratively possible after your date of hire. Your Savings You can save 1% to 70% of your eligible pay on a before-tax and/or after-tax basis (subject to IRS rules). If you do not make a contribution election, 30 days after your date of hire you will be enrolled for automatic before-tax contributions of 6% of your eligible pay. You can change your savings rate and/or include after-tax contributions at any time. If you will be age 50 or older by the end of any calendar year (December 31), you may be able to make an additional before-tax contribution known as a catch-up contribution of up to the maximum permitted by the IRS for that year (for 2012, the maximum catch-up contribution is $5,500). Company Contributions The Company makes two contributions on your behalf base contributions (determined by your age at the end of the plan year) and a company match. The company will match your contributions dollar for dollar on the first 1% of eligible pay you save, and 50 cents on the dollar on the next 5% you save. That s up to an additional 3.5% of your eligible pay! Investments You can invest your savings and the Company s contribution in one or more of the Plan s investment funds as shown on Attachment A. If you do not make an investment election for your savings and the Company s contributions, they will be invested in the Target Retirement Fund that is appropriate based on your year of birth. You can change your investment election at any time, subject to a limit of four fund transfers/reallocations in a calendar month. Some funds may impose additional transfer restrictions. Vesting You are always vested in the current value of your account, including your contributions, Company contributions and any earnings. Loans You can take up to two loans from your account at any time. Withdrawals You can withdraw your after-tax savings and rollover contributions at any time. You can withdraw your before-tax savings if you meet special IRS rules. Under certain circumstances, you may also withdraw Company contributions and earnings on those contributions. Each of these Plan features, as well as other important provisions, is described in this booklet. Be sure you are familiar with all the details before you take any action under the Plan. Accessing the Exelis Benefits Center You can access the Exelis Benefits Center (the Benefits Center ) 24 hours a day, seven days a week by visiting the Plan s web site, You can also speak with a Benefits Center representative toll-free at , Monday through Friday, 8:00 a.m. to 6:00 p.m. Eastern time, except on holidays. If you are outside the United States, you may call (this number is not toll-free). For TDD communication services for the hearing impaired, call toll-free at Exelis Salaried Investment and Savings Plan Page 4

6 ELIGIBILITY AND PARTICIPATION Eligibility You are eligible to become a member of the Plan if you are a regular, full-time salaried employee who is on a U.S. payroll, and you are employed by Exelis or a designated division, subsidiary, affiliate or unit of Exelis that is participating in the Plan (a Participating Company ). Your Human Resources representative can tell you if your local unit is a Participating Company in the Plan. Who Is Not Eligible You are not eligible to become a member of the Plan if: The terms and conditions of your employment are determined by a collective bargaining agreement with the Company that does not make this Plan applicable to you You are classified by the Company as a consultant, an independent contractor, or are in any relationship that the Company characterizes as other than an employment relationship You are a leased employee You are a non-resident alien with no U.S. income You are regularly employed in a permanent position, and (ii) your primary place of employment is located outside the United States and your primary residence is outside the United States You are paid on an hourly basis and, under the Company s employment classification practices, are considered an hourly employee for purposes of the Company s employee benefit plans You are currently accruing benefits under a pension plan of the Company or any of its affiliates other than the Exelis Salaried Retirement Plan You are classified by the Company as being in a position which is deemed not eligible to participate in this Plan because you are eligible to participate in another defined contribution plan sponsored by the Company or any Associated Company You are not a U.S. citizen or resident alien and you are employed by the Company or an Associated Company on a temporary assignment in the U.S, or You are a resident of Puerto Rico. Participation Your participation in the Plan automatically begins as soon as administratively possible after your date of hire. You should elect a contribution rate as soon as possible, or 30 days after your date of hire you will be automatically enrolled with a 6% before-tax contribution rate. If you leave the Company and are later rehired, you will re-enter the Plan on your date of rehire. Exelis Salaried Investment and Savings Plan Page 5

7 Automatic Contributions If you do not make an election before your participation date, 30 days after your date of hire you will be automatically enrolled in the Plan with a savings rate of 6% before-tax. You will continue to contribute at this rate until you make a change to your contribution election. In addition, if you do not make an investment election, your automatic contributions, as well as your Company matching and base contributions, will be invested in the Target Retirement Fund in the Plan that is appropriate based on your year of birth. Please note that if you do not wish to save in the Plan, you must change your savings rate to 0% by logging onto or by calling the Benefits Center at To stop automatic contributions, increase your savings rate above the 6% of eligible pay level, add aftertax contributions and/or change how your savings and the Company s contributions are invested to be effective as soon as you become a Plan member, you must make your election by your second week of employment. To make your election, log onto or call the Benefits Center. When you complete and sign the Acknowledgment of ISP Automatic Contributions form, you are acknowledging that you have been informed of the Plan s automatic contribution policy and your ability to change your savings rate and investment elections at any time. Please note that even if you do not sign this form, the automatic contributions will still be deducted from your paychecks. You must log onto or call the Benefits Center to stop the automatic contributions. New Hire Kit Your New Hire Kit, available from your Human Resources representative, contains all the information you need to get started in the Plan. You are encouraged to make your contribution and investment elections on or by calling the Benefits Center as described in the section How to Make Your Elections. Your kit will include: Acknowledgment of ISP Automatic Contributions form, and Previous Participation form. You should complete and return these two forms as soon as possible. Your User ID and Passcode To protect the security of your account information, you must set up a User ID and a Passcode on to access your Plan account. At first, you ll be able to use your Social Security number as your temporary User ID, and a temporary Passcode made up of the last four digits of your Social Security number and the two-digit month and two-digit day of your birth. (If you were a member in the ITT Corporation ISP, you may use the same User ID and Passcode for this Plan.) For example, if your Social Security number is and your birthday is September 7, your temporary User ID would be and your temporary Passcode would be Once you re logged on, you will be prompted to create a new User ID and a new Passcode. You will need your Social Security number and your Passcode to access your Plan account when you call the Benefits Center. Exelis Salaried Investment and Savings Plan Page 6

8 How to Make Your Elections You can find out how to enroll in your New Hire Kit or by contacting the Benefits Center. You will need to select: The percentage of eligible pay you want to save each pay period Whether to save before-tax dollars, after-tax dollars, or a combination of both If eligible, whether or not you want to make Catch-up Contributions One or more beneficiaries to receive your account if you die How you want to invest your savings and the Company s contributions, and Whether you want the dividends on your balances that you have elected to have invested in the Exelis Stock Fund (if any) reinvested in the Plan or paid to you in cash. To make your elections, log onto or call the Benefits Center. Your elections will take effect with the second or third payroll paid after the date you made your election. NOTE: If you elect not to contribute to the Plan when you are first eligible and then later on wish to start contributing, you simply need to follow the instructions indicated above. Whether or not you elect to contribute to the Plan when first eligible, you should make your investment election for your Company contributions and designate your beneficiary (or beneficiaries) in the event of your death. Your Beneficiary Designation You must also designate a beneficiary for your account, either on or by completing the Beneficiary Designation form. If you are married, by law you must name your spouse as your beneficiary unless your spouse provides written, notarized, and irrevocable consent for you to name someone else. If you are not married, you may name anyone as your beneficiary. Whether you are married or single, you may also name a contingent beneficiary who will receive your account balance if your primary beneficiary dies before you do. If you name more than one beneficiary, you must list the percentage payable to each one. Otherwise, all beneficiaries will share equally in the value of your account. You may change your beneficiary at any time. If you are single and later marry, your beneficiary designation becomes void, and your spouse automatically becomes your beneficiary unless, with your spouse s written, notarized and irrevocable consent, you name someone else as your beneficiary. Important: Please remember that if you die without a valid beneficiary designation on file and: you are married, your spouse will automatically be your beneficiary; you are unmarried, your account balance will be payable to your estate. Exelis Salaried Investment and Savings Plan Page 7

9 So, it is important to keep your beneficiary designations up-to-date, especially if your marital status changes. Designating Your Beneficiary To designate your beneficiary: on click on Personal Information, then Beneficiaries, and follow the simple instructions. Once you have designated your beneficiary, you will be able to view and edit this information on at any time. If you are married and name someone other than your spouse as your sole primary beneficiary, your spouse must provide written, notarized and irrevocable consent to your designation. (For a copy of the form, call the Benefits Center or download a copy from Documents & Forms in the Savings Plan section ofwww.benefitsweb.com/exelis.html. by completing the Beneficiary Designation form, first obtain a copy of the form from or the Benefits Center. If you are married and name someone other than your spouse as your sole primary beneficiary, your spouse must complete and sign the spousal consent section of the form, with your spouse s signature witnessed by a notary public. Your completed, signed, and notarized form should be returned to the Benefits Center at the address shown on the form. This form should be completed and signed by your spouse, with your spouse s signature witnessed by a notary public. The completed, signed, and notarized form should then be returned to the Benefits Center at the address shown on the form. Please note that your beneficiary designation of someone other than your spouse will not be valid until your completed, signed, and notarized Beneficiary Designation form has been reviewed and approved. Your beneficiary designation will also be available for viewing on Designating a Trust as Your Beneficiary If you name a trust as your beneficiary (primary or contingent), you must complete the Beneficiary Designation form, and submit it, along with a copy of the trust document for approval, to the Benefits Center at the address shown on the form. If you are married and are designating a trust as your primary beneficiary, your spouse must sign the spousal consent section of the form, with your spouse s signature witnessed by a notary public. Please note that your beneficiary designation of a trust for all or any part of your Plan account will not be valid until the trust agreement and your properly completed Beneficiary Designation form have been reviewed and approved. In addition, you must provide a letter from your attorney indicating that the trust and the intended beneficiaries are valid under the law of your applicable state. Upon approval, your beneficiary designation will be available for viewing onwww.benefitsweb.com/exelis.html. Exelis Salaried Investment and Savings Plan Page 8

10 The Exelis Benefits Center When you log onto or call the Exelis Benefits Center (the Benefits Center ), you will be able to: Change how much you are saving Change the way current and future savings will be invested Request loans and withdrawals or obtain information about them Change your beneficiary designation Get information about Plan features, obtain fund performance and account information, and request specific Plan forms and documents. You will receive a confirmation statement for any transaction you make, generally within 10 business days of the date you requested the transaction. You can access the Benefits Center 24 hours a day, seven days a week by visiting You can also speak with a Benefits Center representative toll-free at , Monday through Friday, 8:00 a.m. to 6:00 p.m. Eastern time, except on holidays. If you are outside the United States, you may call (this number is not toll-free). For TDD communication services for the hearing impaired, call toll-free at Exelis Salaried Investment and Savings Plan Page 9

11 YOUR CONTRIBUTIONS You can generally save 1% to 70% of your eligible pay, in whole percentages. Once you decide on the total percentage of your pay that you want to save, you must decide whether to save before-tax dollars, after-tax dollars, or a combination of both. The difference between before-tax and after-tax savings is when your savings are taxed. In addition, if you will be age 50 or older by the end of a given calendar year (December 31), and you are saving the maximum before-tax amount allowed under the Plan or under IRS regulations, you may elect to save an additional before-tax dollar amount known as a catch-up contribution up to the maximum permitted by the IRS for that year. A Closer Look: Highly Compensated Employee Before-tax and after-tax savings by Plan members who are considered highly compensated as defined by the IRS may be limited under the Plan. Currently, highly compensated members can save up to 70% of their eligible pay on a before-tax basis (not to exceed the IRS limits). If the highly compensated member also wishes to save on an after-tax basis, he or she can save up to 12% of the eligible pay as after-tax less any amount contributed on a before-tax basis. However, the combined amount of savings (before-tax and/or after-tax) cannot exceed 70% of the member s eligible pay or the IRS limits. For 2012, you are considered to be a highly compensated employee under the Plan if, during the previous plan year, you were a five-percent owner or you earned $110,000 or more from Exelis. This dollar amount is subject to change annually. The Benefits Center will let you know if you are affected by this limitation. In addition, the IRS imposes other limitations on the amount of contributions that may be made to the Plan. If these limitations affect you, you will be notified so that your contributions can be adjusted. Eligible Pay Eligible pay means your annual base pay plus overtime, shift differentials, commissions, regularly occurring incentive pay and differential wage payments. It does not include foreign service allowances, separation pay, special bonuses or commissions, or any other special pay or allowances of a similar nature. The IRS limits the amount of pay that may be considered each year for purposes of the Plan. This dollar amount may be changed each year (for example, the 2012 IRS limit is $250,000). If you receive at least part of your compensation in the form of sales incentives or commissions, see your Human Resources representative to determine what your eligible pay will be for purposes of the Plan. Please note that severance and/or vacation paid as a result of employment termination are not considered eligible compensation for purposes of the Plan. Therefore, your savings will not be deducted from these payments. Exelis Salaried Investment and Savings Plan Page 10

12 Before-Tax Savings Before-Tax savings are deducted from your eligible pay before your federal and in most cases, state and local income taxes are calculated. You may contribute up to 70% of eligible pay on a before-tax basis, subject to IRS limitations ($17,000 for 2012, plus an additional $5,500 in 2012 if you elect Catchup Contributions). Note: These dollar amounts are subject to change each year. The Advantage of Before-Tax Savings: An Example Suppose you are married, filing jointly, your eligible pay is $50,000, and you are in the 15% tax bracket. The following table shows the difference in your take-home pay (spendable income) and contributions into the Plan when you elect to save 6% on a before-tax basis versus saving on an after-tax basis in the Plan. Save 6% Before-Tax Save 6% After-Tax Your annual eligible pay $50,000 $50,000 Before-tax savings $3, Taxable income $47,000 $50,000 Tax (15% tax bracket) -$7,050 - $7,500 After-tax savings -- - $3,000 Net take-home pay (spendable income) $39,950 $39,500 As you can see, saving on a before-tax basis actually increases your take-home pay. Limits on Before-Tax Savings Once your before-tax savings reach the annual IRS limit, your savings will automatically stop. If you want to continue contributing, you will have to elect after-tax savings for the rest of the year. Other limits on regular before-tax savings depend on the Plan s compliance with certain limitations imposed by the Internal Revenue Code. The Benefits Center will let you know if you are affected by these limitations. Please note that if you make any changes in your savings rate after your contributions have been stopped, you will have to remember to log onto or contact the Benefits Center to resume savings at your elected before-tax rate at the start of the next calendar year. Exelis Salaried Investment and Savings Plan Page 11

13 NOTE (for new hires and rehires): If you contributed before-tax dollars to your previous employer s 401(k) plan or to another Exelis 401(k) plan in the year in which you first begin saving in the Plan, you must complete the Previous Participation form and return it to your Human Resources representative along with a copy of your final pay stub from your prior employer showing your total before-tax contribution to your prior employer s plan. Based on the information you provide, the Company will limit your before-tax contributions to the Plan so that you do not exceed the IRS annual maximum before-tax contribution for that year. If you do not let the Company know that you participated in another employer s 401(k) plan in the same year in which you begin saving in the Plan, or you do not provide accurate information, you may owe unexpected taxes for the tax year in which you first begin saving in the Plan. The Previous Participation form is available on under Documents & Forms in the Savings Plan section, and in the New Hire Kit. Catch-up Contributions If you will be age 50 or older by the end of the calendar year, you may be eligible to make additional before-tax contributions (limited to $5,500 in 2012) to the Plan in excess of the annual IRS limit ($17,000 for 2012). These additional contributions are referred to as Catch-up Contributions. To be eligible for Catch-up Contributions, you must also meet either the IRS limit on before-tax contributions or the Plan s limit on contributions (see below for an explanation of these limits). Keep in mind that these dollar limits may change each year. You can elect or change your Catch-up Contributions at any time during the year in which you are eligible. NOTE: Catch-up contributions are not eligible for Company Matching Contributions. Limits on Catch-Up Contributions Once your Catch-up Contributions reach the annual IRS limit, your Catch-up Contributions will stop for the rest of that calendar year. Your Catch-up Contributions will automatically resume, at the same dollar amount per paycheck, at the beginning of the next calendar year. Please note that if: you elect to have your Catch-up Contributions spread over the entire year, the maximum allowable catch-up contribution limit increases in the next calendar year, and you want to contribute the new maximum allowable catch-up contribution amount in the next year, you must log onto or contact the Benefits Center at the beginning of the next calendar year to increase the catch-up contribution dollar amount per paycheck. Exelis Salaried Investment and Savings Plan Page 12

14 Important: Beginning in 2012, if you elect to make both regular before-tax contributions and Catch-up Contributions to the plan but do not reach the IRS maximum on before-tax contributions by the end of the year, your Catch-up Contributions will be reclassified as regular before-tax contributions (but only to the extent of the IRS maximum). If you are eligible for matching contributions, these reclassified before tax contributions will be included when determining if you are eligible for a year end Company true- up matching contribution. After-Tax Savings After-tax savings come out of eligible pay that has already been taxed. When you take your savings out of the Plan, these savings are not taxed again. However, investment earnings on after-tax savings are taxed when they are taken out of the Plan. In addition, if you are a non-highly compensated employee, you may contribute up to 25% of your eligible pay on an after-tax basis as long as your combined before-tax and after-tax contributions are not more than 70% of your eligible pay. On the other hand, if you are considered a highly compensated employee, you may contribute up to 12% of your eligible pay on an after-tax basis as long as your combined before-tax and after-tax contributions are not more than 70% of your eligible pay. The Plan requires a minimum savings rate of 1% for before-tax and after-tax savings. The savings rate must be in whole percentages. Rollover Contributions If you received a qualified lump-sum distribution from another employer s eligible retirement plan, you can make a rollover contribution into your account in the Plan. You may also roll over the non-taxable portion of your distribution into your Plan account. However, you must be an active Plan member when you make the rollover contribution. The distribution may come from either another employer s eligible retirement plan, or an Individual Retirement Account that was used to hold only assets from another employer s eligible retirement plan and their earnings (a conduit IRA ). Note that Roth contributions are not eligible for rollover. To make a rollover contribution, you must complete the Rollover form, which is available on under Documents & Forms in the Savings Plan section. You can also call the Benefits Center to request a form be mailed to you. Other Benefits and Social Security Your decision to save on a before-tax or after-tax basis will not affect your other Company benefits that are based on salary, such as life insurance, disability and retirement benefits. Also, your decision will not affect the amount of your Social Security taxes or future benefits. Exelis Salaried Investment and Savings Plan Page 13

15 Changing and Suspending Your Savings You may increase or decrease your overall savings rate, stop saving altogether, or change your beforetax or after-tax savings rates, including catch-up contribution rates, at any time by logging onto or by calling the Benefits Center. Your election to change or suspend your savings will take effect as soon as administratively possible after you make your election, depending on your payroll schedule. If you suspend your savings, you may start saving again at any time by logging onto or by calling the Benefits Center. Your savings will resume as soon as administratively possible, depending on your payroll schedule. If you suspend your savings, the Company s matching contributions on your behalf will also stop, but the base contribution will continue. Any amounts that are already credited to you will continue to share in the investment results of the Plan. If your savings are suspended because you received a hardship withdrawal, you may resume savings as of any date following the six-month suspension period by logging onto or calling the Benefits Center. Your savings will resume as soon as administratively possible, depending on your payroll schedule. Exelis Salaried Investment and Savings Plan Page 14

16 COMPANY CONTRIBUTIONS The Company makes two types of contributions on your behalf: Base contributions and Matching contributions. Base Contributions The Company makes a base contribution of: 2% of eligible pay, if you are less than 35 years of age 3% of eligible pay if you are at least 35 but younger than age 45 4% of eligible pay if you are age 45 or older. These contributions are based on your age at the end of the plan year. For example, if you will turn age 35 in 2012, you will receive the 3% base contribution for the entire year. Matching Contributions The Company will also make a matching contribution of 100% up to the first 1% of your eligible pay and 50% of the next 5% of eligible pay that you save, whether your savings are before-tax, after-tax or a combination of both. For example, if your eligible pay is $50,000, and you save 6% of your eligible pay, you will contribute $3,000 a year. The Company would add $1,750 per year in matching contributions. The Company does not match your savings above 6% of your eligible pay. The Company also does not match your Catch-up Contributions. However, both of these amounts share fully in the Plan s investment results and enjoy its tax advantages. Beginning in 2012 and as of the last day of the Plan Year, if the amount of matching contribution that the Company made that year on your behalf is less than the maximum matching contribution to which you are entitled (i.e., 100% of the first 1% and 50% of the next 5% of your eligible pay you contributed to the plan during that entire plan year), the Company will make a single true-up contribution to your account in an amount equal to the difference. Exelis Salaried Investment and Savings Plan Page 15

17 YOUR PLAN ACCOUNTS When you become a Plan member, you will have one or more accounts established in your name. Because there are numerous references to these accounts throughout this booklet, it is important to know what each of these accounts means. Employee Contribution Account for your before-tax and after-tax savings, your Catch-up Contributions (if eligible and if elected), plus any investment gains or losses on these amounts Company Contribution Account for the Company s matching and base contributions, plus any investment gains or losses on those contributions. Your savings and the Company s contributions are credited each pay period and posted to your account as soon as administratively possible thereafter. The Plan s trustee invests the money in one or more of the Plan s investment funds, based on the elections you have made. Some Plan members may also have the following accounts if they have money from another plan that was transferred or rolled over to the Plan: Rollover Contribution Account for amounts you elected to rollover into the Plan from another employer s eligible retirement plan or from a plan of a company acquired by the Company, plus any investment gains or losses on those amounts Prior Plan Account for amounts transferred into the Plan from a plan of a company acquired by the Company, plus any investment gains or losses on those amounts. Limits on Your Accounts The IRS also imposes limits on the total amount of contributions that can be made on your behalf in any Plan Year. This includes your Before-Tax Contributions, After-Tax Contributions, Company Base Contributions, Company Matching Contributions and other contributions, if any. This IRS limit is known as the annual addition limit. Note that the annual addition limit does not include any Catch-up Contributions. For 2012, the limit on your total annual additions is $50,000 (as indexed in the future by the IRS). Exelis Salaried Investment and Savings Plan Page 16

18 YOUR INVESTMENT OPTIONS The Plan offers a variety of investment funds to meet your individual needs. Attachment A provides highlights of the investment funds available in the Plan including fund name, fund manager, benchmark, investment management fee, and a brief description of the fund. The funds are listed in order of relative degree of investment risk and return. More detailed information on each of the funds is available on or by calling the Benefits Center. You may invest your savings and the Company contributions made to your account in one or more of the Plan s investment funds, including the Exelis Stock Fund and a self-directed brokerage account, subject to the Exelis Stock Fund and self-directed brokerage account limitations described later in this section. The Plan also offers access to online investment advice, as well as a managed account program option, both through Financial Engines Advisors, LLC. Note: The Plan is meant to constitute a plan described in Section 404(c) of ERISA and Title 29 of the Code of Federal Regulations Section c-1 and, therefore, the Company, the Trustee, the Recordkeeper and the fiduciaries of the Plan may be relieved of liability for any losses that are the direct and necessary result of investment instructions you or your beneficiary may give. The Company does not guarantee the performance of these investment funds and is not liable for any losses you may experience due to investment performance. How Your Account Can Grow The growth of your account depends on several factors: How much and how long you save The amount of Company contributions made on your behalf Dividends and interest on investments held for you in the Plan, and Performance of the funds in which you invest. Although no one can predict exactly what will happen in the future, you can model how your Plan account may grow using various assumptions. Log onto and select the Savings page, click on Resource Materials, and then Calculators & Tools to get started. Risk vs. Return Be sure to think about each of these points as you choose your investments: Your investment time horizon how long you have to save and invest your money before you will need it. Your risk tolerance your ability to accept uncertainty in the value of your investments (keep in mind that investments with high potential returns typically carry higher levels of risk). The balance between risk and return the risk and expected return associated with each investment measured against your investment goals, and the actual rate of return you will need to outpace inflation. Exelis Salaried Investment and Savings Plan Page 17

19 To receive the higher returns of a more aggressive mix, you take the risk of incurring a short-term loss. But, with a longer investment horizon, you may be comfortable with a more aggressive investment approach. Diversification The saying don t put all your eggs in one basket is particularly important for investors. Spreading your money over several types of investments is called diversification. Diversification can help you achieve a favorable rate of return, while reducing your overall risk of losing money. This is because market or other economic conditions that cause one category of assets, or one particular security, to perform very well, will often cause another asset category, or particular security, to perform poorly. If you invest more than 20% of your retirement savings in any one company or industry, you may not be properly diversified. Although diversification may not guarantee against loss, it is an effective strategy to help you manage risk. In deciding how to invest your Plan account, you should take into consideration all of your assets, including your retirement savings outside of the Plan. No single approach is right for everyone since, among other factors, individuals have different financial goals, different time horizons for meeting those goals, and different tolerances for risk. The diversified investment options in the Plan cover a broad range of risk and reward profiles, enabling you to create a unique and diversified portfolio that reflects your retirement investment strategy. Reassessing Your Investment Strategy Investing is not a one-time activity. You should continually review your goals and strategy to make sure your investment choices reflect your current goals and circumstances. The Exelis Pension Fund Trust and Investment Committee (PFTIC) is responsible for the choice of the investment funds, investment managers and the Trustee for the Plan. However, you are solely responsible for how your account is invested among the various investment funds available in the Plan. The decisions you make will have a direct impact on the value of your Plan account. You should weigh your own circumstances, goals and risk tolerance in view of the objectives and risk and return characteristics of each of the Plan s investment funds before making or changing your investment elections. You may also want to consult with a financial advisor, or use the Financial Engines Advisors, LLC investment tools available in the Plan before you make your investment decisions. Investment Elections Your investment elections apply to both your savings and the Company s contributions to your account. If you do not have an investment election on file with the Plan, both your savings and the Company contributions will be invested in the Target Retirement Fund in the Plan which is appropriate based on your year of birth. Target Retirement Funds are funds made up of multiple asset classes. The funds offer a professionally managed, diversified investment in a single fund. The allocation of different asset classes will change over time, so the funds will become increasingly conservative as your target retirement date approaches. Exelis Salaried Investment and Savings Plan Page 18

20 The Target Retirement Funds, and the years of birth associated with each of these Funds is shown on Attachment C. Making Your Investment Elections You can elect to have your savings and your Company contributions invested in one or more of the investment funds shown on Attachment A in multiples of 1%. For example, you may invest in just one of the funds, split your investment between two or more of the funds, or invest in all of the funds, in 1% multiples, adding up to 100%. Your investment elections are subject to the limitations described in Exelis Stock Fund Rules and Self-directed Brokerage Account. Changing Your Future Investment Election You can change the way your future savings and your future Company contributions are to be invested at any time, in 1% multiples, and as often as you would like. You change your future investment election by visiting or by calling the Benefits Center. All changes in your future investment elections are effective on the next business day. Reallocating or Transferring Your Existing Balances You can reallocate the existing balance in your account among any of the Plan funds in 1% multiples. Alternatively, you may transfer balances between Plan funds. Both fund reallocations and fund transfers are subject to the fund transfer rules described below. You may make up to four fund reallocations/transfers in any calendar month. (A fund reallocation/transfer is defined as a single reallocation/transfer or a series of reallocations/transfers taking place on a single day.) Once you have reached this limit, you may not request additional fund reallocations/transfers until the first business day of the following month. Take Action: You may request a fund reallocation or a fund transfer by logging onto or by calling the Benefits Center. The transaction is effective at the end of the business day you make your election (if you make your election before 4 p.m. Eastern time or, if earlier, the time the New York Stock Exchange closes for that business day). Otherwise, the change will become effective at the end of the next business day. The ISP Stock Funds If you were with the former ITT Corporation when it split into three independent companies on October 31, 2011, you know that the spinoff had a special impact on the Company stock fund. Specifically, the spinoff of Exelis and Xylem from ITT meant that you received within your ISP account one share of each of the two new companies for each share of the former ITT Corporation stock you held. As a result, your ISP account today includes shares in the Exelis Stock Fund and may also include shares in the Xylem and ITT Stock Funds, which are considered non-employer stock funds. You may continue to maintain balances in the Xylem and ITT Stock Funds until Exelis decides to completely shut down (sunset) the non-employer stock funds. You may transfer balances from those non-employer stock funds into the Exelis Stock Fund, but you may not transfer balances into or make contributions into those funds. Here is a summary of the guidelines: Exelis Salaried Investment and Savings Plan Page 19

21 New Contributions Are And You May Transfer Existing Account Balances Exelis Stock Fund Allowed, subject to the 20% rule From Xylem and ITT Stock Funds into this fund Xylem Stock Fund Not allowed Into Exelis Stock Fund without regard to the 20% rule and any other fund except the ITT Stock Fund ITT Stock Fund Not allowed Into Exelis Stock Fund without regard to the 20% rule and any other fund except the Xylem Stock Fund Investing in Company Stock Financial advisors generally suggest diversification when investing for retirement, since placing all of your retirement savings in a single stock is the highest risk investment strategy. In order to encourage diversification, the Plan limits the percentage of your Plan account that can be invested in the Exelis Stock Fund. If less than 20% of your total Plan account is invested in Exelis stock, you will be able to have up to 20% of your future Plan contributions invested in the Exelis Stock Fund, and you will be able to transfer funds into the Exelis Stock Fund, as long as your Exelis stock position in the Plan does not exceed 20% after the transfer. If your Exelis Stock Fund balance is 20% or more of your total Plan account, you will not be able to invest future contributions in Exelis stock, and you will not be able to transfer funds into the Exelis Stock Fund. To determine whether or not you can invest future contributions in the Exelis Stock Fund, your balance in that Fund is tracked as of the last business day of each calendar quarter. If 20% or more of your total Plan account balance is invested in the Exelis Stock Fund on that day, you will not be able to invest any future contributions (employee and Company) in the Exelis Stock Fund for the following quarter. To determine if you can transfer funds into the Exelis Stock Fund, your balance in that Fund is tracked at the close of each prior business day. If 20% or more of your total Plan account balance is invested in the Exelis Stock Fund, you will not be able to transfer additional amounts into that Fund. 30-Day Restriction A 30-day restriction is applied to certain transfers and reallocations between investment funds in the Plan. This means that if you elect to transfer or reallocate money out of an affected investment fund in the Plan, you cannot transfer or reallocate money back into that same investment fund for at least 30 calendar days. This restriction does not apply to future contributions made through your savings, loan repayments, Company contributions or rollover contributions. The investment funds in the Plan that are currently subject to the 30-day restriction are shown on Attachment B. Please note: Fund managers periodically monitor trading activity within their funds, and may, from time to time, apply additional restrictions if they see excessive trading. If you are participating in the Personal Asset Manager Program, transactions initiated by that Program are not subject to the 30-day restriction, as you do not direct these transactions. Additionally, while investments in your Self-directed Brokerage Account through the Plan may be subject to similar rules, they are not subject to the Plan s fund transfer rules. Exelis Salaried Investment and Savings Plan Page 20

22 In addition to the above, please note that the Exelis Stock Fund rules continue to apply as does the rule limiting fund transfers and reallocations to four in any calendar month (see Reallocating or Transferring Your Existing Balances ). Dividends You decide how the dividends on all contributions (employee and Company) invested in the Exelis Stock Fund are handled. You can have these dividends reinvested in the Plan, or have them paid to you in cash on a quarterly basis. When you elect to reinvest your dividends, they are reinvested in the Exelis Stock Fund in your account. Please note that if you elect to have your dividends paid to you in cash, and the amount of the quarterly cash payment is less than $10, your dividends will be automatically reinvested in the Exelis Stock Fund in your Plan account for that quarter. If you do not make a dividend election, your dividends will be automatically reinvested in the Exelis Stock Fund in your Plan account. Note that dividends with respect to ITT common stock and Xylem common stock will be reinvested in the ITT Stock Fund and Xylem Stock Fund, respectively. Dividends with respect to Exelis Stock will be subject to the provisions indicated above. Self-directed Brokerage Account The Plan offers a self-directed brokerage account, the Schwab Personal Choice Retirement Account (PCRA), through Charles Schwab & Co., Inc. This option provides experienced investors with additional investment flexibility. With a PCRA, you have access to thousands of investments, including mutual funds, stocks and bonds. Please note that you cannot purchase Exelis stock through your PCRA in the Plan. You pay regular retail brokerage fees and commissions when you perform a transaction in your PCRA. You can find a schedule of these commissions and fees at or by calling Schwab at You can transfer up to 20% of your total Plan account balance to your PCRA. Unlike the other investment choices in the Plan, you cannot elect to have future contributions deposited into your PCRA; you must transfer balances from the other funds (known as core funds ) in your Plan account. This means that to open a PCRA, and to have any additional amounts invested in this account, you must transfer balances from your core funds in the Plan. There is no minimum transfer amount for the initial and subsequent transfers. Transfers to and from your PCRA are subject to the limitations described in Reallocating or Transferring Your Existing Balances on page 25. Transactions within your PCRA are not subject to these limitations. To open a PCRA, log onto or call the Benefits Center to request an Enrollment Kit which includes the necessary paperwork as well as additional information and restrictions. Once your PCRA is opened, you can manage it online at or by calling Schwab s Dedicated PCRA Call Center at Exelis Salaried Investment and Savings Plan Page 21

23 Investment Assistance Plan members have access to tools, through Financial Engines Advisors, LLC, that can help them determine how to best invest their Plan assets to meet their retirement goals. Financial Engines is an online investment advisory service that provides unbiased and personalized recommendations for your Plan account, and more. Financial Engines provides the Personal Online Advisor and Personal Asset Manager programs to Plan members. More details on these valuable tools are provided below. Personal Online Advisor The Plan offers you access to Financial Engines Personal Online Advisor for personalized recommendations and advice on goal-setting, risk level, savings rates and investments. This program makes recommendations not only for your Plan account, but also for your other tax-deferred account holdings (for example, an IRA, your spouse s 401(k) plan, etc.). Members also have the option to purchase Total Portfolio Advice. Total Portfolio makes recommendations not only for your Plan account and your other tax-deferred accounts, but also for your taxable accounts. The annual cost for Total Portfolio Advice is $50. Take Action To access Personal Online Advisor, log onto select the Savings page, click on Plan Your Financial Future, then review the Investment Services Agreement, and click I Agree to begin. You will need to log ontowww.benefitsweb.com/exelis.html or call the Benefits Center if you want to change your investment elections or reallocate existing balances. Personal Asset Manager If you prefer to have someone else handle your Plan investments, Financial Engines Personal Asset Manager may be right for you. Personal Asset Manager is a voluntary managed account program that uses sophisticated financial models and the latest research to allocate, diversify and monitor your Plan account for you. If you elect to participate in this program, you will be charged a fee based on your Plan account balance. If you enroll in the Personal Asset Manager program, professionals will evaluate the personal information you provide and create a personalized investment strategy for you. You review and approve your new strategy before it is implemented. Once your new strategy is implemented, professionals will monitor your Plan account and manage all transactions; you will not be able to initiate any investment transactions (reallocate or transfer existing balances, or change your future investment election) while you are a member in the Personal Asset Manager program. If, before April 1, 2006, you held and want to continue to hold more than 20% of your Plan account in the Exelis Stock Fund, please be aware that the Personal Asset Manager program will reduce your stock holdings. Once your stock holdings in the Plan are reduced, you will not be able to increase your stock holdings if you have more than 20% of your Plan account invested in the Exelis Stock Fund. Exelis Salaried Investment and Savings Plan Page 22