THE VANGUARD RETIREMENT AND SAVINGS PLAN SUMMARY PLAN DESCRIPTION APRIL 1, 2010 TABLE OF CONTENTS

Transcription

1 THE VANGUARD RETIREMENT AND SAVINGS PLAN SUMMARY PLAN DESCRIPTION APRIL 1, 2010 TABLE OF CONTENTS INTRODUCTION Introduction...1 PART ONE - SPECIFICS OF THE PLAN A. PLAN PARTICIPATION Q.1 Who is eligible to participate in the Plan?... 2 Q.2 When am I eligible to participate in the Plan?... 2 Q.3 How do I satisfy the Plan s one-year-of-service requirement for Vanguard s matching contributions?... 2 Q.4 What is an hour of service?... 3 Q.5 What is a one-year break in service for participation purposes?... 3 Q.6 What are the eligibility requirements if I previously worked for Vanguard?... 3 Q.7 How do I elect to become a participant in the Plan?... 4 B. CONTRIBUTIONS TO THE PLAN Q.8 What types of contributions may be made to the Plan?... 5 Q.9 What are Employee Pre-Tax Basic and Roth Basic Contributions?... 5 Q.10 How is my base compensation determined?... 6 Q.11 How do Employee Pre-Tax Basic and Roth Basic Contributions affect my taxes?... 6 Q.12 How do I elect to make Employee Pre-Tax Basic and Roth Basic Contributions?... 7 Q.13 How does Vanguard match my contributions to the Plan?... 7 Q.14 What are Employee Pre-Tax Supplemental and Roth Supplemental Contributions?... 8 Q.15 How do Employee Pre-Tax Supplemental and Roth Supplemental Contributions affect my taxes?... 8 Q.16 How do I elect to make Employee Pre-Tax Supplemental and Roth Supplemental Contributions?... 9 Q.17 Are there limits on my contributions to the Plan?... 9 Q.18 May I change my contribution elections?... 10

2 Q.19 What are Retirement Plan Contributions Q.20 Why are there additional contributions for compensation above the Social Security taxable wage base? Q.21 Are there any overall limits on contributions to the Plan C. PLAN ACCOUNTS AND INVESTMENTS Q.22 How are contributions to the Plan held and accounted for? Q.23 In which Vanguard funds may I invest my contributions? Q.24 What if I have questions about the Vanguard funds available under the Plan? Q.25 How often may I change my investment directions? Q.26 How do I keep track of my accounts under the Plan? D. PLAN LOANS Q.27 May I borrow amounts from my accounts under the Plan? Q.28 How much may I borrow from my accounts? Q.29 How do I repay my loan? Q.30 What rate of interest will I be charged on my loan? Q.31 How do I apply for a loan? Q.32 What happens to my loan if I take a leave of absence? Q.33 What happens if I terminate employment with an outstanding loan? Q.34 How are Plan loans treated and accounted for? Q.35 What happens if I fail to make a scheduled loan repayment? Q.36 Will any fees be charged for taking a loan? E. VESTING Q.37 What is vesting?...20 Q.38 How am I credited with a year of service for vesting purposes? Q.39 How is my vested amount determined? Q.40 What is a one-year break in service for vesting purposes? Q.41 How will my vested amount be calculated if I leave Vanguard and later return? Q.42 Can I recover the unvested portion of my accounts if I am later reemployed by Vanguard? F. PLAN DISTRIBUTIONS Q.43 When will I be entitled to distributions under the Plan? Q.44 In what form may I receive my distribution? Q.45 May I defer the distribution of my accounts after terminating employment with Vanguard?... 24

3 Q.46 What happens if I die before the complete pay-out of my Plan accounts? Q.47 Who is my designated beneficiary under the Plan? Q.48 May I take in-service withdrawals from the Plan? Q.49 What does the Plan mean by financial hardship? Q.50 How much may I withdraw as a hardship withdrawal? Q.51 What other conditions apply to hardship withdrawals? Q.52 What are the consequences of taking a hardship withdrawal Q.53 How do I apply for an in-service or hardship withdrawal? G. SPECIAL RULES FOR PRE-2004 RETIREMENT PLAN ACCOUNTS Q.54 Are there any special limits on withdrawals from Pre-2004 Retirement Plan accounts? Q.55 When may I take distributions from these accounts? Q.56 May I withdraw money from my Pre-2004 Retirement Plan accounts while I am still employed by Vanguard? Q.57 What happens if I die while employed by Vanguard? Q.58 How can I waive the qualified preretirement survivor annuity? Q.59 In what form will I receive distributions from my Pre-2004 Retirement Plan accounts? Q.60 How can I waive the qualified joint-and-survivor (QJSA) form of distribution? Q.61 If I waive the annuity form of distribution, in what form may I choose to receive my distribution? H. FEDERAL INCOME TAX CONSEQUENCES Q.62 Am I taxed on the contributions to the Plan on my behalf? Q.63 Am I taxed on the investment earnings credited to my accounts in the Plan? Q.64 How are distributions from the Plan taxed? Q.65 What types of distributions can I roll over to an IRA or other retirement plan? Q.66 How can I make a rollover of my plan distribution? Q.67 What happens if I don t make a direct rollover? Q.68 What penalty taxes will I owe on distributions I receive before age 59½? I. MISCELLANEOUS Q.69 What about amendment or termination of the Plan? Q.70 Are my benefits under the Plan insured? Q.71 What if I participated in another employer s qualified plan before joining Vanguard?... 35

4 Q.72 May I assign my benefits under the Plan? Q.73 What is a qualified domestic relations order ( QDRO ) Q.74 What if I am away on uniformed-services leave? PART TWO - ADMINISTRATIVE AND ERISA INFORMATION Administrative Facts Statement of Rights Under ERISA...38 Special Tax Notice Regarding Plan Distributions... 41

5 INTRODUCTION The Vanguard Retirement and Savings Plan ( Plan ) is designed to encourage long-term savings by Vanguard employees for retirement or other purposes. The Plan is a defined contribution 401(k) profit sharing plan that permits employees to save on a tax-favored basis. This means it does not guarantee a fixed benefit at retirement. Instead, the benefit you ultimately receive will depend on the total contributions that you and Vanguard make to the Plan on your behalf and the earnings or losses on the investment of those contributions. This Summary Plan Description is designed to introduce you to the most important features of the Plan as in effect on April 1, The Plan is the product of a merger of the Vanguard Retirement Plan into the Vanguard Thrift Plan. Throughout this Summary, the accounts that were transferred to the Plan from the Vanguard Retirement Plan are referred to as Pre-2004 Retirement Plan accounts or sometimes, simply, Pre-2004 accounts. The Summary is divided into two parts: 1. Part One gives you detailed information about the Plan s provisions on participation, contributions, investments, loans, and distributions. 2. Part Two gives you information about how the Plan is administered and tells you about your rights under the Employee Retirement Income Security Act of 1974, as amended ( ERISA ). You should take the time to review this Summary carefully. Your benefits under the Plan can play an important role in your (and your family s) financial future. You should understand the benefits available and the choices you can make under the Plan. Please remember that this is a summary of the provisions of the Plan. It is not the Plan document itself. A summary cannot explain how each Plan provision might apply in every situation, nor can it explain all of the conditions and exceptions that might apply to the Plan provisions that are covered. If you have any questions about the Plan that are not addressed in this Summary or you would like to order your own copy of the Plan document, please contact: Vanguard Human Resources Dept., M-22 P.O. Box 876 Valley Forge, PA Telephone: (610) (610) Your rights under the Plan are governed exclusively by the provisions of the Plan document and related Trust Agreement. If there is any conflict between the provisions of this Summary and the Plan document, the provisions of the Plan document will control. 1

6 PART ONE SPECIFICS OF THE PLAN This Part discusses the specific provisions of the Plan. The provisions of the Plan are explained in question-and-answer format. The questions are listed in the Table of Contents at the beginning of the Summary. By referring to the Table of Contents, you should be able to locate quickly the answers to any specific questions you might have. A. PLAN PARTICIPATION Q.1 Who is eligible to participate in the Plan? A. In general, all employees of Vanguard may participate in the Plan, except employees who are classified as interns and employees whose service with Vanguard is governed by a collective bargaining agreement that does not allow them to participate in the Plan. Individuals who are not treated by Vanguard as employees for purposes of income and employment-tax withholding, such as independent contractors and leased employees, are not eligible to participate in the Plan. Q.2 When am I eligible to participate in the Plan? A. Employees who are eligible to participate in the Plan may choose to begin contributing from their pay upon hire and Vanguard will make quarterly Retirement Plan Contributions (subject to the vesting rules described in Questions 37-42). After you have completed one year of service (see Question 3), Vanguard will begin to match your Employee Pre-Tax Basic and/or Roth Basic Contributions. Q.3 How do I satisfy the Plan s one-year-of-service requirement for Vanguard s matching contributions? A. You will satisfy the Plan s one-year-of-service requirement by completing a 12-month period of employment with Vanguard called an eligibility computation period during which you are credited with at least 1,000 hours of service as a Vanguard employee. Your first 12- month eligibility computation period begins on your date of hire. Example: Mary is hired by Vanguard on February 3, During her first 12 months of employment, Mary is paid for 1,950 hours of service, including vacation, holidays, and sick pay. On February 3, 2012, Mary has completed a 12- month eligibility computation period during which she has been credited with at 2

7 least 1,000 hours of service. Mary will be credited with one year of service for Plan participation purposes on February 3, If you do not complete at least 1,000 hours of service during your initial 12-month eligibility computation period beginning on your date of hire, your subsequent eligibility computation periods for Vanguard s contributions will be the calendar years, starting with the first calendar year that begins after your date of hire. EXAMPLE: Joe is hired by Vanguard on February 3, During his first 12 months of employment, Joe is paid for 950 hours of service, including vacation, holidays, and sick pay, and therefore he has failed to satisfy the one-year-of-service requirement during his first eligibility computation period (ending February 3, 2012). Joe s second eligibility computation period would be calendar year 20012, and, if he again fails to complete 1,000 hours of service in 2012, his succeeding eligibility computation periods would be the calendar years 2013, 2014, etc. Q.4 What is an hour of service? A. In general, an hour of service means any hour for which you are paid for services performed for Vanguard. In addition, you will be credited with an hour of service for every hour for which Vanguard pays you due to vacation, holiday, illness (including disability), layoff, jury duty, military duty, or other approved leave of absence. However, you will not be credited with more than 501 hours of service for any continuous period during which you perform no services for Vanguard as a result of one of the events listed above. Q.5 What is a one-year break in service for participation purposes? A. For participation purposes, a one-year break in service is an eligibility computation period (see Question 3) during which you complete 500 or fewer hours of service. However, you will not incur a break in service during any approved leave of absence (even if unpaid) granted by Vanguard, regardless of your actual hours of service. Q.6 What are the eligibility requirements if I previously worked for Vanguard? A. In general, the eligibility requirements upon rehire vary with each type of Plan contribution: Pre-Tax Basic, Supplemental, and Roth Contributions. If you are rehired as an eligible employee (see Question 1), you may choose to begin contributing immediately from your salary. 3

8 Employer Matching Contributions. Whether Vanguard immediately begins to match your contributions will depend on whether you met the requirements to receive Vanguard s matching contribution during your previous employment with Vanguard. If you were eligible to receive matching contributions before your termination (see Question 3), you will automatically be eligible to receive matching contributions upon rehire. If you did not meet the one-year-of-service requirement to receive matching contributions during your previous employment with Vanguard, you will generally be considered a new employee, and you will have to meet the one-year-of-service requirement before Vanguard will match your contributions. Retirement Plan Contributions. If you are rehired as an eligible employee, you will receive quarterly Retirement Plan Contributions immediately upon rehire (subject to the Plan s vesting requirement; see Questions 37-42). Q.7 How do I elect to become a participant in the Plan? A. You are eligible to contribute to the Plan as early as your date of hire. Vanguard automatically enrolls new employees in the Plan at a pre-tax contribution rate of 4%. Depending on when you are hired, it may take one or two payroll periods to establish your account. If you want to change your contribution rate, annual increases, or investment options, or opt out of the RSP, you can: Log on to Vanguard Web Account Access at Call the 24-hour Vanguard VOICE Network, using a Touch-tone telephone and the Personal Identification Number (PIN) provided to you by Vanguard, by dialing (outside Vanguard) or extension (inside Vanguard). You should receive your PIN (by mail) within 10 business days of your date of hire. You should call Vanguard Participant Services if you do not receive your PIN within that time frame. Call the Vanguard Participant Services Department, using a Touch-tone telephone by dialing (outside Vanguard) or extension (inside Vanguard). Once you are eligible to receive Retirement Plan Contributions, an account to hold those contributions will be established for you, regardless of whether you are otherwise contributing to the Plan. 4

9 B. CONTRIBUTIONS TO THE PLAN Q.8 What types of contributions may be made to the Plan? A. The Plan generally permits five types of contributions: Employee Pre-Tax Basic Contributions (up to 4% of pay)*; Employer Matching Contributions; Employee Pre-Tax Supplemental Contributions (up to 46% of pay)*; Employee Catch-Up Contributions (for employees age 50 and over); and Retirement Plan Contributions. * Employee Basic and Supplemental Contributions may also be made on an after-tax basis as Roth contributions. See Question 9.) Q.9 What are Employee Pre-Tax Basic and Roth Basic Contributions? A. In general, if you are eligible to participate in the Plan, you may elect to make Employee Pre- Tax or Roth Basic Contributions to the Plan in a amount equal to 1%, 2%, 3%, or 4% of your base compensation from Vanguard (i.e., your combined total of Employee Pre-Tax Basic and Roth Basic Contributions cannot exceed 4% of your base compensation). After you complete one year of service (see Question 3), your Employee Pre-Tax & Roth Basic Contributions to the Plan are matched each payroll period dollar-for-dollar by Vanguard s contributions to the Plan on your behalf. (See Question 13 for more information about how Vanguard s matching contributions are calculated.) Pre-Tax You may choose to contribute from your pay in the form of Employee Pre-Tax Basic Contributions, which are deducted from your pay on a pre-tax basis, reducing the amount of tax you pay in the current year. Roth Instead of making contributions on a pre-tax basis, you may instead contribute from your pay on an after-tax basis. Although Roth contributions are taxable at the time you make them, distributions of Roth amounts and earnings may be tax-free if certain criteria are met. (See Question 64.) 5

10 Q.10 How is my base compensation determined? A. For purposes of determining the amount of contributions that may be made to the Plan on your behalf, your base compensation is generally defined as your gross pay (including vacation, sick, overtime, performance bonuses, and short-term disability pay) from Vanguard before any reduction for your Employee Pre-Tax Contributions to the Plan or any pre-tax contributions to The Vanguard Group, Inc. Benefit Plan. However, your base compensation does not include certain taxable items, including, but not limited to, awards under the Vanguard Partnership Plan, non-performance-related bonuses (including but not limited to sign-on bonuses, departmental awards, and crew referral awards), tuition reimbursements, relocation-assistance payments, foreign assignment-related expense allowance or reimbursements, and dependent-care subsidy payments. In addition, federal tax law limits the amount of compensation that may be taken into account when determining the amount of plan contributions on behalf of any participant to $245,000 (for 2010). If your annual base compensation exceeds this federal compensation limit, contributions to the Plan on your behalf will be calculated based on the federal compensation limit instead. Q.11 How do Employee Pre-Tax Basic and Roth Basic Contributions affect my taxes? A. Pre-Tax Your Employee Pre-Tax Basic Contributions reduce the amount of your compensation subject to current-year federal income taxes (although your gross pay remains the same). Since your taxable compensation is reduced, you save on current-year federal income taxes. EXAMPLE: Sue, a Vanguard employee earning $40,000 a year, has 4% of her base compensation or $1,600 contributed to the Plan as Employee Pre-Tax Basic Contributions. As a result of this election, Sue will reduce her pay subject to federal income taxes by $1,600. If Sue is in the 25% tax bracket, this reduction could save Sue up to $400 on current-year federal income taxes. You should also recognize that the investment earnings on your Plan contributions including dividends and capital gains are not subject to federal income taxes until you withdraw those amounts from the Plan. Thus, another important benefit of the Plan is that your Plan savings grow on a tax-deferred basis. Note: Although Employee Pre-Tax Basic Contributions reduce the amount of your pay subject to current-year federal income taxes, they do not reduce the amount of your pay subject to current-year FICA taxes (Social Security and Medicare) or (possibly) state income taxes. 6

11 Roth Roth contributions are taxable when made so they do not reduce your current taxes. However, when you take a distribution, your Roth contributions are not taxed and, if certain criteria are met, the earnings on your Roth contributions are tax-free also. (See Question 64 regarding taxation of Roth distributions.) Q.12 How do I elect to make Employee Pre-Tax Basic and Roth Basic Contributions? A. You may elect to make Employee Pre-Tax Basic and/or Roth Basic Contributions to the Plan by enrolling through Vanguard Web Account Access at or by calling the VOICE Network or Participant Services. (To enroll through the VOICE system, you will need to provide your Personal Identification Number (PIN), which Vanguard will provide to you upon hire. (It is NOT the same as your Crew Member Identification Number.) Your contributions will automatically be made to the Plan each payroll period through convenient payroll deduction. To encourage employee savings, Vanguard automatically enrolls new employees in the Plan so that they make the maximum 4% Pre-Tax Basic Contributions. This automatic enrollment program will also increase your annual contributions at a rate of 2% each year up to a maximum of 12% per year. Employees who do not wish to participate in the Plan may opt out of automatic enrollment on line or by calling Participant Services. (See Question 24 for contact information). Any contributions you made before stopping participation will continue to be held in your accounts under the Plan and may not be refunded to you. Q.13 How does Vanguard match my contributions to the Plan? A. To encourage employee savings, Vanguard will match your Employee Basic Contributions (Pre-Tax or Roth) to the Plan with Employer Matching Contributions on a dollar-for-dollar basis after you meet the one-year-of-service requirement. This means that for every dollar of Employee Basic Contributions that you contribute to the Plan, Vanguard will contribute a matching dollar of Employer Matching Contributions on your behalf up to a total of 4% of your base compensation from Vanguard. EXAMPLE: In the preceding example (Question 11), Sue elected to make Employee Pre-Tax Basic Contributions to the Plan in the amount of $1,600 (4%) for the current year and, by so doing, saved on current-year federal income taxes. She has also met the one-year-of-service requirement What s more, as a result of Sue s election, Vanguard will match Sue s Employee Pre-Tax Basic Contributions with Employer Matching Contributions on her behalf in the same amount $1,600 (4% base compensation). As a result, the total contributions to the Plan on behalf of Sue for the current year will be $3,200. Therefore, if Sue is in the 25% tax 7

12 bracket, and saves $400 in taxes as a result of her Pre-Tax Basic Contributions, it really only costs Sue $1,200 of her taxable income to receive $3,200 in total contributions to the Plan. Note: Vanguard calculates its matching contribution on a payroll-by-payroll basis, so as a general rule you will not receive a matching contribution unless you are also making an employee contribution during the pay period. However, if your contributions to the Plan are suspended due to the IRS contribution limits on employee deferrals ($16,500 in 2010), you will continue to receive matching contributions from Vanguard equal to up to 4%* of your eligible income each pay period until the earlier of the last pay period of the year, or when you have received the maximum allowable match for the Plan Year. *The matching contribution you receive will be equal to your employee deferral percentage while you were actively contributing to the Plan, up to a maximum of 4%. Q.14 What are Employee Pre-Tax Supplemental and Roth Supplemental Contributions? A. If you elect to make Employee Pre-Tax or Roth Basic Contributions to the Plan at the maximum 4% rate, you may also elect to make non-matched Employee Pre-Tax Supplemental or Roth Supplemental Contributions to the Plan in an amount up to an combined additional 46% of your base compensation from Vanguard. Q.15 How do Employee Pre-Tax Supplemental and Roth Supplemental Contributions affect my taxes? A. Pre-Tax As in the case of your Employee Pre-Tax Basic Contributions, your Employee Pre-Tax Supplemental Contributions further reduce the amount of your pay subject to current-year federal income taxes. EXAMPLE: The following federal income-tax savings are available for participants who elect to have 4% Employee Pre-Tax Basic Contributions and 21% Employee Pre-Tax Supplemental Contributions made to the Plan for a total of 25%. (Note: For simplicity, this example assumes that all of a participant s income is taxed at the same rate. If your taxable income crosses multiple tax brackets, your actual tax savings could be larger or smaller.) 8

13 Tax Savings Base Pay 15% Bracket 25% Bracket 28% Bracket $25,000 $938 $1,563 $1,750 $30,000 $1,125 $1,875 $2,100 $35,000 $1,313 $2,188 $2,450 $40,000 $1,500 $2,500 $2,800 In addition, the investment earnings on your Employee Pre-Tax Basic and Supplemental Contributions (including dividends and capital gains) are not subject to current-year federal income taxes until you withdraw those amounts from the Plan. Note: As indicated earlier, Employee Pre-Tax Basic and Supplemental Contributions do not reduce the amount of your compensation subject to Social Security and Medicare taxes (FICA) or (possibly) state income taxes. Roth Like Roth Basic Contributions, Roth Supplemental Contributions are taxable when made so they do not reduce your current taxes. However, when you take a distribution, your Roth contributions are not taxed and, if certain criteria are met, the earnings on your Roth contributions are tax-free also. (See Question 64 regarding taxation of Roth distributions.) Q.16 How do I elect to make Employee Pre-Tax and Roth Supplemental Contributions? A. You may elect to make from 1% to 46% Employee Pre-Tax or Roth Supplemental Contributions to the Plan each year (if you have also elected to make 4% Employee Pre-Tax Basic Contributions) by enrolling through Web Account Access at the automated Vanguard VOICE Network, or Participant Services. Your Employee Pre-Tax Supplemental Contributions will be automatically made to the Plan each payroll period through convenient payroll deduction. (See Question 12.) Q.17 Are there limits on my contributions to the Plan? A. As explained above, you may make Employee Pre-Tax and Roth Basic Contributions to the Plan in an amount up to 4% of pay and Employee Pre-Tax and Roth Supplemental Contributions to the Plan in an amount up to 46% of pay, for a combined total of 50% Employee Pre-Tax and Roth Contributions. However, federal tax law imposes several other limits that might reduce the amount of contributions that may be made to the Plan on your behalf. 9

14 1. Indexed Limit on Employee Pre-Tax and Roth Contributions. Federal tax law imposes an indexed dollar limit on the total amount of Employee Contributions that may be made to the Plan on your behalf for any calendar year. It is important to recognize that this indexed dollar limit applies only to your combined Employee Basic and Supplemental Contributions (Pre-Tax and Roth) to the Plan. It does not apply to Vanguard s Employer Matching Contributions and Retirement Plan Contributions to the Plan on your behalf. The combined annual limit on Employee Contributions is $16,500 (for 2010). Employees age 50 or older may contribute up to an additional $5,500 (for 2010) as catch-up contributions. You may start taking advantage of this catch-up rule as early as the beginning of the year in which you turn 50. Note: These limits on employee contributions apply to your aggregate contributions to all employer retirement plans during the year (excluding rollover contributions), even if the employers are not related. For example, if you are under age 50, worked until March 2010 for another employer and contributed $6,500 to that employer s plan, and were hired by Vanguard in April 2010, you could only contribute another $10,000 to Vanguard s Plan, even if you otherwise receive enough compensation from Vanguard to contribute $16,500. Some examples of other retirement plans to which you might have contributed include: 401(k) plans, 403(b) plans (sometimes called tax-sheltered annuities ), SIMPLE IRAs, and SARSEPs. 2. Limits Based on Non-Discrimination Tests. For certain highly compensated employees as defined by federal tax law, there are other limitations that might reduce the total amount of contributions that may be made to the Plan for them. These limitations are not based on specific dollar figures but rather are based on quantitative nondiscrimination tests designed to make sure that employees at all pay levels benefit from the Plan on a relatively equivalent basis. Generally, if you would exceed these limits, the Vanguard Human Resources Department will notify you. However, if you have made contributions to another employer s retirement plan during the year, it is your responsibility to notify the Human Resources Department as soon as possible to ensure that your total contributions do not exceed limit (1) above. As a result of these limits, it is possible that you will not be permitted to make the full amount of Employee Pre-Tax and Roth Contributions to the Plan for any calendar year or that certain excess contributions previously made to the Plan on your behalf will be returned to you (adjusted for earnings and losses). In addition, any Matching Contributions attributable to those excesses must be forfeited back to the Plan. Q.18 May I change my contribution elections? A. You may change at any time the amounts of Employee Basic and Supplemental Contributions (Pre-Tax or Roth) that you would like to make to the Plan. (In general, your changes will be effective for the following payroll period.) You may change your contribution election 10

15 through Web Account Access at by calling the Vanguard VOICE Network or the Vanguard Participant Services Department. Q.19 What are Retirement Plan Contributions? A. Retirement Plan Contributions begin upon hire as an eligible employee. (See Question 1.) Vanguard makes Retirement Plan Contributions to the Plan on your behalf for each calendar quarter in an amount equal to 10% of your base compensation (see Question 10) from Vanguard for the calendar quarter, subject to certain legal limitations explained in Question 21 below. If your base compensation exceeds the taxable wage base under Social Security for old-age, survivors, and disability insurance, Vanguard makes additional contributions on your behalf in an amount equal to 5.7% of the amount of your base compensation in excess of the Social Security taxable wage base. To be eligible for a Retirement Plan Contribution for any calendar quarter, you must be employed on the last business day of that calendar quarter. EXAMPLE: Kathy earns base compensation of $120,000 for She is paid $30,000 each quarter. For 2010, the Social Security taxable wage base (SSTWB) is $106,800. The total Retirement Plan contribution to the Plan on Kathy s behalf for the year would be $12,752, calculated as follows: 1 St Quarter Contribution 10% of 1 st Quarter Compensation ($30,000) $3,000 2 nd Quarter Contribution 10% of 2 nd Quarter Compensation ($30,000) $3,000 3 rd Quarter Contribution 10% of 3 rd Quarter Compensation ($30,000) $3,000 4 th Quarter Contribution 10% of 4 th Quarter Compensation ($30,000) $3, % of Compensation over SSTWB ($120,000 - $106,800) $ 752 Total Contributions: $12,752 Q.20 Why are there additional contributions for compensation above the Social Security taxable wage base? A. Vanguard makes old-age insurance contributions on behalf of employees to Social Security our public retirement system based on employee compensation up to the 11

16 current-year Social Security taxable wage base, which is adjusted each year for cost-of-living increases. (The Social Security taxable wage base for 2010 is $106,800.) Since Vanguard s oldage insurance contributions to Social Security are cut off at the Social Security taxable wage base, the Plan provides for additional contributions for base compensation above the wage base. The reason for these additional contributions is to make sure that the total amount of retirement and old-age insurance contributions by Vanguard to the Plan and Social Security on behalf of a participating employee is approximately the same percentage of each participating employee s base compensation from Vanguard. Q.21 Are there any overall limits on contributions to the Plan? A. Yes. Federal tax law does not permit your and Vanguard s combined total contributions to the Plan on your behalf for any year to exceed the lesser of: (1) $49,000 (for 2010); or (2) 100% of your compensation for the year. (The catch-up contributions available to participants age 50 or over are not subject to the $49,000 limit.) As a result, Vanguard maybe required to reduce its and/or your contributions to the extent needed to ensure that these limitations are not exceeded. C. PLAN ACCOUNTS AND INVESTMENTS Q.22 How are contributions to the Plan held and accounted for? A. All contributions to the Plan on your behalf will be credited to one or more separate accounts established in your name. Plan contributions are held in trust by Vanguard Fiduciary Trust Company, the Plan Trustee, for the exclusive benefit of participating employees and their beneficiaries. Q.23 In which Vanguard funds may I invest my contributions? A. You may direct the investment of the contributions to the Plan on your behalf among the following Vanguard fund portfolios: Money Market/Savings Trust Funds Vanguard Money Market Reserves Vanguard Retirement Savings Trust Prime Portfolio Income Funds Vanguard Fixed Income Securities Short-Term Investment-Grade Portfolio 12

17 Long-Term Investment-Grade Portfolio GNMA Portfolio High Yield Corporate Portfolio Vanguard Bond Index Fund Total Bond Market Portfolio Vanguard Inflation-Protected Securities Fund Target Retirement Funds Vanguard Target Retirement Income Fund Vanguard Target Retirement 2005 Fund Vanguard Target Retirement 2010 Fund Vanguard Target Retirement 2015 Fund Vanguard Target Retirement 2020 Fund Vanguard Target Retirement 2025 Fund Vanguard Target Retirement 2030 Fund Vanguard Target Retirement 2034 Fund Vanguard Target Retirement 2040 Fund Vanguard Target Retirement 2045 Fund Vanguard Target Retirement 2050 Fund Balanced Funds Vanguard Asset Allocation Fund Vanguard/Wellesley Income Fund Vanguard Life Strategy Fund Conservative Growth Portfolio Growth Portfolio Income Portfolio Moderate Growth Portfolio Vanguard Balanced Index Fund Vanguard/Wellington Fund Stock Funds Vanguard Explorer Fund Vanguard Morgan Growth Fund Vanguard Windsor II Fund Vanguard Selected Value Fund Vanguard Index Trust Vanguard PRIMECAP Fund Extended Market Portfolio Vanguard U.S. Growth Portfolio 500 Portfolio Vanguard/Windsor Fund Small Cap Stock Portfolio Vanguard Calvert Social Index Fund Total Stock Market Portfolio International Stock Funds Vanguard International Growth Portfolio Vanguard International Value Portfolio Vanguard Total International Portfolio 13

18 You may choose any number of the above options for the investment of your Plan contributions, but you must make your choices in whole percentages. You should initially designate your investment directions when you enroll in the Plan. If you do not provide investment directions, all of your contributions to the Plan will be automatically invested in the Vanguard Target Retirement Fund with a Target Retirement Date closest to the date that you attain normal retirement age under the plan (age 65). For example, if you were born in 1970, you would be placed in the Vanguard Target Retirement Fund You may exchange out of the Vanguard Target Retirement Fund at any time by contacting Vanguard. See Questions 24 and 25 about providing investment instructions. Please note that the Plan intends to operate as an ERISA Section 404(c) Plan. Because the Plan allows and encourages you to direct your investments among a broad range of options and to have access to all pertinent information concerning your investments, the fiduciaries of the Plan will be relieved of liability for the results of your investment decisions, as provided under Section 404(c) of the Employee Retirement Income Security Act of 1974 ( ERISA ) and Title 29 of the Code of Federal Regulations Section c-1. Q.24 What if I have questions about the Vanguard funds available under the Plan? A. When you become eligible to participate in the Plan, you will be given comprehensive information about the Vanguard funds available under the Plan, including an explanation of their investment objectives and policies, risk and return characteristics, past and current investment performance (net of expenses), operating expenses, and the type and diversification of assets held in the portfolio of each fund. You will also receive ongoing updates of this information in the form of prospectuses and shareholder reports for each of the Vanguard fund portfolios that you have selected for the investment of your Plan contributions. If you have any questions about the Vanguard funds available under the Plan or you would like more detailed information concerning any specific Vanguard fund portfolio (including a copy of the fund s current prospectus), you may: Call Vanguard Participant Services from 8:30 a.m. to 9:00 p.m. (Eastern Time), or use the 24-hour Vanguard VOICE Network, using a Touch-tone telephone and the Personal Identification Number (PIN) provided to you by dialing: Inside Vanguard: Extension Outside Vanguard:

19 Use Vanguard Web Account Access (with your Web Account Access password) by contacting Vanguard at Q.25 How often may I change my investment directions? A. Two sets of rules apply, depending on whether your are changing the investment of your future contributions or changing the investment your current balance. Directing the investment of future contributions The general rule is that you may change your investment directions with respect to your future Plan contributions through Vanguard Web Account Access or the 24-hour Vanguard VOICE Network. Changes to your investment directions may take several days to implement. Directing the investment of your current balance You are generally free to direct the investment of your account subject to the following restrictions: Code of Ethics. Under Vanguard s Code of Ethics, you are generally prohibited from exchanging out of any Vanguard fund within 30 days of investing in it. Additional information about the Vanguard Code of Ethics may be located on Crewnet or by calling the Code of Ethics hotline at extension Fund Prospectus Guidelines. Each Vanguard fund offered under the plan has restrictions on exchanging into and out of the fund. Currently, if you exchange out of a Vanguard fund, you may not exchange back into that same fund within 60 days. (This exchange restriction applies only to existing balances and will not prevent you from directing future contributions into the fund, however.) Currently, the Vanguard Prime Money Market and Short-Term Investment Grade Funds are not subject to this limit. If you have any questions about a fund s exchange policy, contact Participant Services or check on the Vanguard website. (See Question 24 about contacting Vanguard.) Retirement Savings Trust. Accounts in the Vanguard Retirement Savings Trust are subject to special investment exchange limitations. Contact the Participant Services Department for more details. Q.26 How do I keep track of my accounts under the Plan? A. Quarterly participant statements will be provided to you through Web Account Access. These statements will show the total amount credited to your accounts under the Plan as of the end of each calendar quarter and will reflect all Plan activities including contributions, earnings, investment exchanges, loans, and distributions occurring within your Plan accounts during 15

20 the most recent calendar quarter. In addition, you may use Web Account Access ( or call the 24-hour Vanguard VOICE Network to obtain your current account balance and the value of the shares of any Vanguard fund held in your account. D. PLAN LOANS Q.27 May I borrow amounts from my accounts under the Plan? A. Current employees of Vanguard may borrow amounts from their accounts under the Plan for any reason (see below concerning principal residence loans). However, participants who have terminated employment with Vanguard are not eligible to take loans. In addition, a beneficiary of a deceased participant and an alternate payee of a participant (as a result of a divorce decree, for example) may not take loans from the Plan. You may request one new loan per calendar year, but you may not have more than two loans outstanding at any one time. Only one of these outstanding loans may be for a principal residence. (See Question 29.) In addition, after you pay off one loan, you must wait 30 days before requesting a new loan. Principal residence loans: Loans directly used to purchase a principal residence may be paid off over an extended period of time (see Question 29), but are subject to additional requirements. To qualify, the loan must be requested and processed before settlement, and you will be required to provide a copy of the contract or agreement of sale or other written documentation acceptable to Vanguard to support the claim. Due to the documentation and other administrative requirements for principal residence loans, it may take several business days to process a principal-residence loan request so it is vital that you do not wait until only a few days before settlement to file your request. Otherwise, your only option will be a generalpurpose loan with the standard repayment term. NOTE: While the Plan does permit loans, it is important to recognize that there are risks to borrowing from your account and that severe adverse tax consequences could result under certain circumstances (described below). Therefore, while a Plan loan can be a valuable option, you should always carefully consider whether another source of funds might be more appropriate (for instance, a home-equity loan, the interest on which might be tax-deductible), particularly if the amounts needed are small. Q.28 How much may I borrow from my accounts? A. Generally, the maximum amount that you may borrow from the Plan is limited to the lesser of: (1) $50,000; or (2) 50% of the total balance in your accounts under the Plan for Employee 16

21 Pre-Tax and/or Roth Contributions, Matching Contributions, and Rollover contributions. The general minimum amount of any new loan from the Plan is $1,000 and the minimum loan installment per payroll period is $25. (If you request a loan of $1,000 over five years, and the repayments would be less than $25 per pay period, you will have to reduce the term of the loan sufficiently to result in at least a $25 payment; alternatively, you could increase the amount of your loan request.) You may have up to two outstanding loans from the Plan at any given time. Example 1: Mike has accumulated a total of $12,000 in his Employee Pre-Tax Contribution and Matching Contribution accounts under the Plan. He has no outstanding loans from the Plan. The maximum amount that Mike may borrow from the Plan is $6,000 (50% of his $12,000 total account balance). The minimum amount that Mike can borrow is $1,000. Example 2: Janice has a total of $30,000 in her Employee Pre-Tax, Matching Contribution, and Rollover accounts under the Plan. Janice s total account balance includes an existing Plan loan with a current outstanding balance of $6,000. (In other words, Janice s accounts consist of $24,000 invested in the Vanguard funds and a $6,000 Plan loan for a total balance of $30,000.) The maximum amount that Janice may borrow from the Plan is $9,000. That amount is 50% of Janice s total loan-eligible balance of $30,000 or $15,000 minus her $6,000 outstanding Plan loan. The minimum amount that Janice may borrow is $1,000. If Janice takes out a second Plan loan, she will not be permitted to take out another loan from the Plan until she has completely repaid one of her existing Plan loans. Example 3: Tom has accumulated a total of $120,000 in his Employee Pre-Tax and Matching Contribution accounts under the Plan. He has no outstanding loans from the Plan. The maximum amount that Tom may borrow from the Plan is $50,000. That amount is the lesser of 50% of his $120,000 eligible account balances ($60,000) or $50,000. For purposes of the $50,000 limit on Plan loans, if you had an outstanding loan from the Plan at any time during the preceding 12 months, the maximum amount that you may borrow as a new Plan loan is limited to the $50,000 limit reduced by your highest outstanding loan balance on your prior Plan loan (or loans) during the preceding 12 months. Example 4: Cathy has accumulated a total of $150,000 in her Employee Pre- Tax and Matching Contribution accounts under the Plan. Cathy s accounts include an existing Plan loan with a current outstanding balance of $20,000. Cathy s existing Plan loan had a highest outstanding loan balance during the preceding 12 months of $30,000. The maximum amount that Cathy may borrow from the Plan as a second Plan loan is $20,000. That amount is $50,000 minus 17

22 $30,000, the highest outstanding loan balance on her existing Plan loan during the preceding 12 months. Q.29 How do I repay my loan? A. As required by federal tax law, all loans from the Plan must be repaid within 5 years, except that a loan used to acquire your principal residence may be repaid over a longer period of time determined by the Vanguard Benefits Committee. All Plan loans must be repaid through automatic payroll deduction. You may prepay all of the unpaid principal balance of your Plan loan at any time (within payroll deadline limitations) without penalty. You may also make partial repayments of the loan. Contact Vanguard Participant Services or visit to make a full or partial prepayment. Note: Unlike a plan withdrawal, a plan loan is not taxed but it may present tax disadvantages. For instance, if you make pre-tax contributions to the plan, your current tax liability is reduced. However, you make loan repayments with after-tax dollars, so you lose an opportunity to save on taxes. In addition, you pay taxes on the repaid loan amount again when you begin to take distributions from your account. Q.30 What rate of interest will I be charged on my loan? A. You will be charged a fixed rate of interest on your Plan loan based on current market rates as determined by the Vanguard Benefits Committee. The interest rate for new Plan loans is determined monthly and is currently based on the current prime interest rate plus 100 basis points. You may contact the Participant Services Department for the current interest rate being charged for new Plan loans. Q.31 How do I apply for a loan? A. Loans may be requested by contacting: Vanguard Web Account Access, at using your assigned password Vanguard VOICE Network Internally: Extension 42000, or Externally: Depending upon the type of loan you request, you will receive either a check or a loan application. Principal residence loans must always be requested through a written loan application due to the additional documentation required. You will also receive a promissory 18

23 note in which you will authorize automatic payroll deductions to repay your loan and pledge your eligible accounts under the Plan as security for the loan. All Plan loans are administered by the Vanguard Human Resources Department. Plan loans are approved on a uniform and nondiscriminatory basis with respect to all participants. Q.32 What happens to my loan if I take a leave of absence? A. If you take an approved unpaid leave of absence with a loan outstanding, your repayments may be suspended for up to 12 months or until you return from leave, whichever is earlier. Although your repayments are suspended, interest will continue to accrue on your loan. Also, you must still repay the loan within the original term; the suspension does not extend the time period you have to repay the loan. When you return from leave, a new installment amount will be calculated (through a process called reamortization ) to reflect the additional interest that accrued during the leave, as well as the number of payments left in the original term of the loan. Example. In January 2011, John takes a loan with a five-year term (ending January 2016). His biweekly installment payment deducted from his paycheck is $412. In February 2013, he goes on unpaid leave for a year. Vanguard grants his request to suspend loan repayments during his period of leave (up to 12 months). When he returns in February 2014, the outstanding loan balance, including interest that accrued during his period of leave, is reamortized, and his installments are increased to $510 so that the loan will be repaid by January Q.33 What happens if I terminate employment with an outstanding loan? A. If you terminate employment with an outstanding Plan loan, all remaining installment payments on your Plan loan will be immediately due and payable. If you do not repay your loan in full upon termination of employment, your accounts under the Plan will be reduced by your outstanding loan balance and you will be treated as having received a taxable distribution of the outstanding loan balance. If you are under age 59½, you generally would be subject to an additional 10% IRS penalty tax on the unpaid loan balance. If the total amount of your accounts under the Plan (including your outstanding loan balance) exceeds $1,000, you may choose to repay your loan in full upon termination of employment to avoid current taxation of your outstanding loan balance. In that case, your loan repayment will be reinvested in the Vanguard funds in accordance with your current investment directions and distributed to you at the time you elect (or are required) to receive a distribution of your accounts under the Plan. 19

24 Q.34 How are Plan loans treated and accounted for? A. It is important to recognize that a Plan loan is considered an investment of your accounts under the Plan (and not a taxable distribution or withdrawal at the time you receive your loan proceeds). The security for your Plan loan is the pledge of your interest in your loan-eligible accounts under the Plan. All repayments on your Plan loan will be credited to your Plan accounts and reinvested in the Vanguard funds in accordance with your current investment directions for Plan contributions. Q.35 What happens if I fail to make a scheduled loan repayment? A. Although this is unlikely to occur because loan payments are made through payroll deduction, if you do fail to make a scheduled loan repayment (and you are not on an approved leave of absence), your loan will be in default. However, you might be allowed a cure period to make up the missed payment(s) and cure the default. This cure period cannot extend past the end of the calendar quarter following the calendar quarter in which the missed payment was due. If the default is not cured, the outstanding loan balance will be deemed a taxable distribution to you (a deemed distribution ) and will be reported on IRS Form 1099-R for the year in which it occurred. You will not be allowed to take out a new loan following a deemed distribution until you have repaid the outstanding balance of the prior loan, including accrued interest from the date of the deemed distribution, in full. Q.36 Will any fees be charged for taking a loan? A. To defray expenses, you may be charged a reasonable fee for the origination and maintenance of each loan. Currently, the fee is $40 for loans initiated through Vanguard.com or the automated VOICE Network. The fee is $90 for loans initiated by phone through a Participant Services associate. There is a $25 annual maintenance fee for all loans. These fees are subject to change at any time. Contact the Participant Services Department to learn the fees currently being charged for loans. E. VESTING Q.37 What is vesting? A. Vesting refers to whether you are entitled to keep the amounts allocated to your accounts if your employment with Vanguard is terminated, whether or not voluntarily. Your vested 20