EMBARQ Retirement Savings Plan
1 R E T I R E M E N T S A V I N G S P L A N WHAT IS INSIDE Answering Your Needs... 1 Future Of The Plan... 1 A Quick Look At The Plan... 2 History Of The Plan... 3 Embarq Retirement Savings Plan... 3 Sprint Nextel And EMBARQ Stock Fund... 3 Centel Plan... 3 Sprint PCS Plan... 3 US Sprint Plan... 3 TRASOP... 4 TRASOP And CESOP Stock Fund... 4 Merged Plan... 4 Provisions for Special Loan to the Plan (LESOP)... 4 Who Can Join The Retirement Savings Plan... 5 Eligibility... 5 Enrollment... 5 Accessing Your Plan Account... 5 Naming Beneficiaries... 6 Plan Contributions... 6 Your Own Contributions... 6 Basic Employee Contributions... 6 Supplemental Employee Contributions... 6 Catch-Up Contributions... 6 Highly Compensated Employees... 7 Company Matching Contributions... 7 Vesting of Company Matching Contributions... 8 Voting Rights... 9 Rollover Contributions... 9 Changing or Stopping Your Plan Contributions... 9 Tax Advantages... 9 Investing Your Account... 9 Your Investment Election... 9 Performance Record Of Investment Funds... 10 Changing Your Investments... 10 Compliance With Section 404(c) Of ERISA... 11 Loans From Your Account... 11 Withdrawals While You Are Still Working... 12 In-Service Withdrawals... 12 Hardship Withdrawals... 13 Other Withdrawals... 13 Diversification... 14 Plan Distributions... 14 Your Own Contributions... 14 Company Matching Contributions... 14 How Your Plan Account Is Paid... 14 Tax Rules on Plan Payments... 15 Tax on Stock Distributions (TRASOP and/or CESOP)... 16
R E T I R E M E N T S A V I N G S P L A N 2 Prohibition Of Assignment And Qualified Domestic Relations Order (QDRO)... 16 If You Leave The Company And Are Later Rehired... 17 How To Appeal The Denial Of Benefits... 17 Participating Employers Of The Plan... 18 Administrative Information... 19 Plan Sponsor... 19 Plan Administrator... 19 Plan Financing... 19 Service of Legal Process... 20 Plan Document... 20 Termination of Employment... 20 Special Rules For Top Heavy Plans... 20 Your ERISA Rights... 20 Information Incorporated By Reference... 22 Important Definitions... 23 Appendix Amendments... 24 This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933. * This item incorporates, by reference, certain other documents which contain additional information about EMBARQ TM and the Plan and explains how you can obtain copies of the documents at no cost.
1 R E T I R E M E N T S A V I N G S P L A N With benefits like tax advantages, convenient savings through payroll deduction, and a wide range of investment choices, the Embarq Retirement Savings Plan (the Retirement Savings Plan or the Plan ) is designed with your retirement future in mind. In fact, it is one of the better ways to help you build a financial foundation the kind that will make it easier for you to enjoy the life you have always wanted to lead in your retirement years................................................................................ ANSWERING YOUR NEEDS The Plan is an important part of your total retirement program. It enables you, with the help of the company, to add to the retirement benefits provided by the company s pension plan and contributions to Social Security and other personal sources of retirement income. The Plan gives you, with the help of the company, the opportunity to work together to build a financial foundation for your future through: employee pre-tax contributions, matching company contributions, investment fund choices, and tax-deferred growth. FUTURE OF THE PLAN Embarq intends to continue the Plan indefinitely, but reserves the right (by action of Embarq s Board of Directors) to amend or terminate the Plan, or to change the method of providing benefits. Unless required by law, no amendment will be made to the Plan that would deprive any participant or beneficiary of any rights or benefits credited to him or her prior to such amendment; or that would direct any part of the Plan funds to a purpose other than the exclusive benefit of the participants and their beneficiaries or the payment of the expenses of the Plan. If the vesting provisions are amended, and you have completed three years of vesting service at that time, you may elect by notifying the Employee Benefits Committee ( EBC ) within 60 days to have your vesting computed without regard to the amendment. In the event the Plan is terminated, or if the company permanently discontinues Plan contributions, participants will be entitled to 100% of their entire account balances, whether or not they have completed five years of service at that time. In this situation, the company will either distribute account balances in full to all participants, or continue to administer the accounts and make distributions from participants accounts according to the regular payment rules. The Plan is also subject to the continuing approval of the Internal Revenue Service, and may be modified as needed to make or keep the Plan qualified under the Internal Revenue Code. As a defined contribution and 401(k) plan, the Plan is not insured by the Pension Benefit Guaranty Corporation (PBGC). This is because the law that established the PBGC provides that only defined benefit plans be covered. These are plans that provide benefits based on a predetermined mathematical formula.
R E T I R E M E N T S A V I N G S P L A N 2 2 A QUICK LOOK AT THE PLAN The Retirement Savings Plan is designed to encourage you to save regularly primarily to provide added income for retirement. Here are some of the major provisions of the Plan: You are eligible to join the Retirement Savings Plan upon date of hire, if you are a regular, full-time employee. You are eligible to join the Plan if you are a regular part-time employee after completing one year of service in which you worked at least 1,000 hours. You can make pre-tax contributions of 1% to 50% of your eligible pay through convenient payroll deductions. After completion of 6 months of continuous service with the company, the company matches a portion of your contributions to the Plan. The match varies annually from 25 to 50 cents for each dollar you contribute, up to the first 6% of your eligible pay each pay period. If you leave the company for reasons other than retirement, disability or death, and you have completed less than five years of vesting service when you leave, you will receive the vested portion of your company matching contributions as outlined in the vesting table below: Years of Service Vested Percentage 1... 0% 2... 20% 3... 40% 4... 60% 5... 100% You can invest your contributions and the company s matching contributions in a diversified portfolio of investment funds. You may increase or decrease the amount you save at the beginning of any payroll period. You do not pay federal income tax on your pre-tax contributions, company contributions, or investment earnings, until you actually receive a distribution or withdrawal from the plan (in most cases, state and local taxes are assessed in the same manner as federal income taxes). You may borrow from your Plan account. Under certain circumstances, you may withdraw money from your account while you are still working. You can elect a distribution of your contributions and their earnings if you leave the company for any reason. You or your beneficiary has a right to the value of the company s matching contributions in your account if you leave the company (subject to vesting schedule) or if, as an active employee, you die, become disabled, or reach age 65.
3 R E T I R E M E N T S A V I N G S P L A N HISTORY OF THE PLAN Embarq Retirement Savings Plan Helpful Numbers Fidelity Investments 300 Puritan Way Marlborough, MA 01752 1-866-792-401k (4015) or www.401k.com EQIP at Employee Resource Center/Retirement, Savings and Financial Planning/Retirement Savings Plan 401(k) The Plan was originally adopted on January 1, 2006 as the Sprint Retirement Savings Plan for the Local Telecommunications Division for the exclusive benefit of eligible employees of the local telecommunications division of Sprint Nextel and employees designated for Embarq. On May 17, 2006, Sprint Nextel Corporation spun-off it s Local Telecommunication Division to form Embarq Corporation. Embarq Corporation adopted the Embarq Retirement Savings Plan. The Plan constitutes a qualified cash or deferred arrangement under Section 401(k) of the Internal Revenue Code. Sprint Nextel And EMBARQ Stock Fund At the time of legal separation, May 18, 2006, any investment in the Company Stock Fund was divided into two funds a Sprint Nextel Stock Fund and an Embarq Company Stock Fund essentially on the same basis that a Sprint Nextel shareholder s investment in Sprint Nextel stock was divided into an investment in Sprint Nextel stock and Embarq stock. Plan participants maintained their investment in the Sprint Nextel Stock Fund until December 31, 2006. If any participant had not voluntarily redirected their investment in the Sprint Nextel Stock Fund to any of the other investment options in the Plan by the end of 2006, the trustee liquidated any remaining Sprint Nextel stock and the proceeds were reinvested in the Plan s default fund for subsequent reinvestment by participants. Plan participants maintained their investment in the EMBARQ Stock Fund until October 31, 2007. If any participant had not voluntarily redirected their investment in the EMBARQ Stock Fund to any of the other investment options in the Plan by October 31, 2007, the trustee liquidated any remaining EMBARQ stock and the proceeds were reinvested in the Plan s default fund for subsequent reinvestment by participants. Centel Plan The Centel Retirement Savings Plan (the Centel Plan ) was adopted effective May 1, 1974 for employees of Centel and most of its subsidiaries. Sprint PCS Plan The Sprint Spectrum Savings and Retirement Plan (the Sprint PCS Plan ) was adopted effective January 1, 1996 for employees of Sprint Spectrum, L.P. US Sprint Plan
R E T I R E M E N T S A V I N G S P L A N 4 4 The US Sprint Savings and Investment Plan (the US Sprint Plan ), also a 401(k) plan, was adopted effective July 1, 1986 for employees of US Sprint Communications Company. The US Sprint Plan was amended on October 17, 1989 to have substantially the same provisions as the Sprint Plan. TRASOP Effective January 1, 1976, the Employee Stock Ownership Plan (the TRASOP ) was established by Sprint to enable non-bargaining and bargaining unit employees of the company to receive shares of company stock without cost. All contributions to the TRASOP were funded by tax credits, which have since been eliminated by the Tax Reform Act of 1986. Therefore, only those employees hired before October 1, 1986 and satisfying the eligibility requirements participate in the TRASOP. It is not anticipated that TRASOP accounts will be credited with additional contributions; however, dividends paid on shares allocated to participants accounts will be credited to the accounts and reinvested in additional shares of company stock. TRASOP And CESOP Stock Fund U.S. Treasury Department regulations do not permit the investment of another employer s securities (such as Sprint Nextel stock) in the ESOP part of a plan maintained by a different company (Embarq) more than 90 days following a spin-off. To comply with the regulations, there was an orderly disposition (sale) of Sprint Nextel stock in the TRASOP and CESOP funds during the 90-day period following the separation. Also by regulation, the proceeds from the sale of Sprint Nextel stock were reinvested in Embarq stock in the TRASOP or CESOP fund. TRASOP and/or CESOP balances can be withdrawn at any time. You can request that your TRASOP and/or CESOP balance(s) be rolled to an IRA, in cash or in-kind or you can request that the balance be paid to you directly in cash or in-kind. Please be aware that there may be tax consequences associated with Plan withdrawals. Merged Plan A number of separate plans were merged into the Plan as follows: October 10, 1989 TRASOP January 1, 1991 US Sprint Plan December 31, 1993 Centel Plan December 31, 1998 Sprint PCS Plan November 1, 2000 CESOP Provisions for Special Loan to the Plan (LESOP) The Sprint Plan was amended effective October 10, 1989 to permit the Plan to borrow funds to purchase company stock. No loans are currently outstanding. In the event that the Plan would borrow money and purchase shares, the shares would be held in a suspense account and serve as collateral for the loan. The amendment provides that, while the loan is outstanding, dividends on shares held in the suspense account and on certain shares held in participants TRASOP accounts, and dividends on shares which have been released from the suspense account for allocation to participants company matching accounts, will be used by the Plan to make loan payments. Each time a loan payment is made a portion of the shares purchased with the loan proceeds is released from the suspense account and held
5 R E T I R E M E N T S A V I N G S P L A N for allocation to participants company matching accounts and TRASOP accounts. This is referred to as LESOP company match. The unallocated shares remaining in the suspense accounts would be collateral for the loan. WHO CAN JOIN THE RETIREMENT SAVINGS PLAN Eligibility You are eligible to join the Retirement Savings Plan upon your date of hire if you are employed on a regular, full-time basis. Other employees of the company become eligible to join the Plan after completing one year of service in which they worked at least 1,000 hours. As an employee of the company, you may join the Retirement Savings Plan unless you: are a non-resident alien, work for a non-participating employer (a company not included in the list of participating employers found at the end of this document) or are covered by a collective bargaining agreement that does not specifically provide for participation in the Embarq Retirement Savings Plan. Enrollment Once you are eligible, you may begin participating in the Plan by logging on to NetBenefits at www.401k.com or calling the Retirement Savings Plan Service Center at 1-866-792-401k (4015) to enroll. You will need to: indicate the total percentage you wish to contribute each pay period, make your investment election (if you do not make an investment election at the time you enroll, your funds will automatically be allocated into the Plan s default fund), and designate a beneficiary. Accessing Your Plan Account There are many ways to manage your Plan account. When changing your deferral percentage, redirecting your fund allocations, requesting a loan, or requesting a distribution from the plan, you can access your account virtually 24 hours a day just decide which of the following services is most convenient for you. Way To Access Your Account Retirement Savings Plan Service Center 1-866-792-401k (4015) www.401k.com EQIP at Employee Resource Center/Retirement, Savings and Financial Planning/Retirement Savings Plan 401(k)
R E T I R E M E N T S A V I N G S P L A N 6 6 Naming Beneficiaries When you become a participant, you should name a beneficiary to receive payment of your Plan account balance in the event of your death. You name a beneficiary by completing a separate Designation of Beneficiary form. Although you can name anyone as your beneficiary, if you are married, your spouse will be your sole primary beneficiary unless he or she gives notarized written consent to another beneficiary designation in the manner required by IRS rules. You also can designate a beneficiary by logging on to your account via NetBenefits at www.401k.com. Under the Accounts tab, go to My Profile, then click on Beneficiaries. Or, you may call the Retirement Savings Plan Service Center toll-free at 1-866-792-401k (4015) to request a beneficiary form. You can change your beneficiary at any time by logging on to www.401k.com or by submitting a new Designation of Beneficiary form. The beneficiary designation becomes effective when received by the recordkeeper. If you do not have a Beneficiary Designation form on file at the time of your death, or your designated beneficiary dies before you, your account will be paid in the following sequence: 1) your spouse; 2) your children; 3) your parents; 4) your estate. PLAN CONTRIBUTIONS Your Own Contributions When you join the Plan, an individual account is set up in your name. Through convenient payroll deductions you can save 1% to 50% of your eligible pay in pre-tax contributions each payroll period. Be sure to review the definition of eligible pay. If you do not make such an election when you are first eligible to participate, you can begin participating in the Plan at any time in the future. The Internal Revenue Service (IRS) rules limit pre-tax contributions annually. The maximum annual elective deferral per person is $16,500. The maximum deferral amount may be increased each year, as determined by the IRS. Basic Employee Contributions The first 6% of your contribution is known as Basic Contributions. After completion of 6 months of continuous service with the company, the company may match your basic contribution. The annual match varies from 25 to 50 cents for each dollar you contribute on the first 6% of your eligible pay each pay period. Supplemental Employee Contributions Any contribution you make in excess of 6%, up to 50%, is known as Supplemental Contributions. There is no company match on supplemental contributions. Catch-Up Contributions Catch-up contributions are additional pre-tax contributions to a retirement plan account. An employee who will reach age 50 (or older) by the end of a plan year and who is making the maximum elective contribution for the year may make additional, pre-tax, catch-up contributions.
7 R E T I R E M E N T S A V I N G S P L A N You can make your election at any time throughout the year. You can elect to contribute between 1% and 50% of your eligible pay each pay period. Your catch-up contributions will be allocated to the same investment options as your regular pre-tax contributions. The description on your paycheck for this contribution is RSP Catch. Like supplemental contributions, catch-up contributions are not matched by the company. You can enroll by logging on to Fidelity NetBenefits at www.401k.com. Under the Accounts tab, go to Deductions where you can make an election at Employee Pre-Tax Catch Up. You may also enroll by contacting the Retirement Savings Plan Service Center toll-free at 1-866-792-401k (4015). Your maximum annual catch-up contribution is limited to $5,500. These catch-up contribution limits may be increased each year, as determined by the IRS. You only should elect catch-up contributions if you expect to reach the IRS annual limit on employee pre-tax contributions. If, by the end of the year, you did not contribute the maximum elective contributions, your catch-up contributions will be moved into your regular pre-tax contribution source. If you are a highly-compensated employee, as defined by the IRS, and you do not contribute the maximum elective contributions due to the restriction on the amount of compensation which may be counted under the Plan, you can elect to make additional catch-up contributions. Highly Compensated Employees Because of the tax advantages available under the Plan, IRS regulations may restrict the amount of Plan contributions and company matching contributions for certain higher-paid employees in a particular year. Most employees are not subject to this restriction, and the company will notify affected employees in the event that the restriction applies to their contributions. Company Matching Contributions One of the advantages of participating in the Plan is that after you complete 6 months of company service, the company adds a company matching contribution to your account each pay period that you contribute to the Plan. The first 6% of eligible pay that you elect to save is called your basic contribution. For each dollar of your current basic contribution, the company may add from 25 to 50 cents to your account. You may contribute more than 6% of your eligible pay into your Plan account. Any amount in excess of 6% is known as supplemental contributions. Such contributions have the same advantages of deferred tax and investment options but are not matched by a company contribution. The table below shows the different possible pre-tax contributions with a company matching contribution of 25% during one calendar year for an employee with a pay level of $36,000. If Pre-Tax Contributions Are This % Of Pay Contribution Examples For Annual Pre-Tax Savings Of Company Match Will Be For Combined Savings That Year Of 0 0 0 0 1 360 90 450 2 720 180 900
R E T I R E M E N T S A V I N G S P L A N 8 8 3 1,080 270 1,350 4 1,440 360 1,800 5 1,800 450 2,250 6 2,160 540 2,700 7 2,520 540 3,060 8 2,880 540 3,420 9 3,240 540 3,780 10 3,600 540 4,140 15 5,400 540 5,940 20 7,200 540 7,740 25 9,000 540 9,540 30 10,800 540 11,340 35 12,600 540 13,140 40 14,400 540 14,940 45 16,200 540 16,740 50 16,500 (maximum) 540 17,040 You will receive at least a 25% match on your basic contribution from the company. However, the match may go as high as 50%. The company announces the amount of the performance-based match annually. Here s how the performance-based company match works. Before each plan year, Embarq s stock performance is compared to a leading industry index. The Employee Benefits Committee uses the Standard & Poor s Integrated Telecom Index, without regard to EMBARQ s performance, as the benchmark. For the 12-month period ending the last business day of November, Embarq s stock performance must outperform the index in order for plan participants to receive any performancebased company match. Subject to the approval of the Employee Benefits Committee (The EBC ), for every 100 basis points that Embarq stock outperforms the index, the performance-based company match would generate an additional one percent (1%) contribution. The maximum performance-based company match will be 25%. The method of determining the performance-based match authorized by the EBC can be changed in the future. Vesting of Company Matching Contributions If you leave the company for reasons other than retirement, disability or death, and you have completed less than five years of vesting service when you leave, you will receive the vested portion of your company matching contributions as outlined in the following vesting table: Years of Service Vested Percentage 1... 0% 2... 20% 3... 40% 4... 60% 5... 100%
9 R E T I R E M E N T S A V I N G S P L A N Voting Rights The Plan grants voting rights to participants. Shares allocated to participants accounts are voted by the Trustees in accordance with instructions from participants. All unallocated shares (including the shares held as collateral) are voted proportionally in the same way as the allocated shares for which instructions have been received from participants. Rollover Contributions If you participated in a qualified retirement plan with a previous employer and received a distribution from that plan, you may be permitted to transfer part or all of that payout to your Plan account. For income tax purposes, any amounts directly or indirectly transferred or rolled over into the Plan will be treated the same as pre-tax plan contributions. For this reason, you can only transfer the part of your old plan account that represents funds subject to ordinary income tax. If you wish to roll over a distribution from another qualified plan, call the Retirement Savings Plan Service Center toll-free at 1-866-792-401k (4015) for further information. Changing or Stopping Your Plan Contributions You may change your contribution rate either increase or decrease at any time. To make these changes, contact the Retirement Savings Plan Service Center toll-free at 1-866-792-401k (4015) or log on to NetBenefits at www.401k.com. (If you take an approved unpaid leave of absence, your contributions will automatically stop.) No company matching contributions are made to your account for the period when your contributions are suspended. Nor can you make up any suspended contributions in the future. Keep in mind that since your contributions are based on a fixed percentage of your eligible pay, the dollar amount of your contributions will change whenever your eligible pay level changes. Tax Advantages Your pre-tax contributions are not considered part of your federal (and in most cases, state and local) taxable income for the calendar year in which the contributions are made. Income taxes are deferred on this money until you take it out of your account later on. You and the company do pay Social Security and Medicare taxes on your pre-tax contributions. Income taxes are deferred on the company s contributions to your account. You do not pay income tax on company contributions until you actually receive them. Another tax advantage under the Plan is that investment earnings on your contributions and company matching contributions are tax-sheltered until you take them out of the account. INVESTING YOUR ACCOUNT Your Investment Election Your contributions and the company matching contributions will be invested by the Plan Trustee in the funds you select.
R E T I R E M E N T S A V I N G S P L A N 10 10 You have a choice of various investment funds and pre-mixed portfolios. The Plan s investment funds are established and discontinued at the discretion of the EBC. You may invest your contributions in one fund, or divide them among the various funds in increments of 5%. To view investment options available in the Plan, go to EQIP at Employee Resource Center/ Retirement, Savings and Financial Planning/Retirement Savings Plan 401(k) and click on Investment Fund Overview. Performance Record Of Investment Funds For the most updated performance record of the investment funds offered, access NetBenefits by logging on to www.401k.com or by contacting the Retirement Savings Plan Service Center toll-free at 1-866-792-401k (4015). Changing Your Investments Investment changes can be made by contacting the Retirement Savings Plan Service Center toll-free at 1-866-792-401k (4015) or on the Internet at www.401k.com or by using the Embarq Intranet go to EQIP at Employee Resource Center/Retirement, Savings and Financial Planning/Retirement Savings Plan 401(k). In addition, you can change the way your existing account is invested on any Valuation Date. You elect a percentage (in increments of 1%) or a specific dollar amount of your existing account in one or more of the specific investment funds to be transferred to one or more of the other investment funds. Your requests for transfer among funds which are received by the Trustee before 3:00 p.m. Central Time on any business day and available liquidity is sufficient to honor the trade after the hierarchy rules are applied, will be processed as of the date of the request. Requests received after 3:00 p.m. Central Time will be processed on the following Valuation Date subject to available liquidity for such day after application of specified hierarchy rules. Important Note Regarding Short-Term Trading Short-term, or excessive, trading can negatively affect fund performance by increasing transaction costs, which can result in a lower investment return of the fund for all participants who invest in the fund. Plan participants involved in short-term or excessive trading may be subject to a 3-month suspension of their trading privileges. This suspension is intended to protect the interests of all shareholders from activities that are disruptive to the fund. It is important that you understand the terms and conditions of investing by carefully reading each fund s prospectus. To request a prospectus for any of the funds in the Retirement Savings Plan, please call 1-866-792-401k (4015) or visit Fidelity NetBenefits at www.401k.com. Information regarding excessive trading can also be found in the Exchanging Shares section of a fund s prospectus. The Trustee requires that a participant electing to transfer all or part of his existing balance of any fund into another fund must transfer a minimum of $250. However, if the existing balance of any fund from which a transfer is made is less than $250, the Trustee requires a minimum transfer of the entire balance of such fund, and the entire balance may be transferred into only one fund. Finally,
11 R E T I R E M E N T S A V I N G S P L A N there may be additional limitations on transfers described in the prospectuses for the investment options in Tier II and Tier III. COMPLIANCE WITH SECTION 404(C) OF ERISA The Plan is intended to comply with section 404(c) of ERISA. (See the Your ERISA Rights for a discussion of ERISA). The EBC believes that the manner in which the Plan s investment funds were selected, the diversity of choice which they represent, the frequency in which participants are permitted to make investment changes among those funds and the manner in which the Plan is administered, fully comply with section 404(c) and the Department of Labor regulations describing the requirements of that section. Therefore, the Plan s EBC cannot be held liable for any financial losses you may incur as a result of adverse fund performance or personal investment decisions. LOANS FROM YOUR ACCOUNT If you need money while you are working for the company, you may borrow from your pre-tax and rollover contributions. You are allowed to have only two loans outstanding at a time. The minimum loan is $1,000. The most you can borrow depends on the vested value of your account. The maximum loan available is the lesser of: 50% of the vested value of your account, $50,000 less the highest outstanding balance of any other loan you had during the one-year period ending on the date the loan is made, or the value of your pre-tax and rollover savings. To apply for a loan, you can log on to NetBenefits at www.401k.com or call the Retirement Savings Plan Service Center using procedures established by our Plan s recordkeeper, Fidelity, and the Plan Administrator. Contact the Retirement Savings Plan Service Center toll-free at 1-866-792-401k (4015). All loans must be approved by the EBC, whose decisions are based on non-discriminatory rules and regulations. The EBC cannot approve a loan for anyone who is in default on any loan from the Plan. All loans will bear a reasonable interest rate as determined by the Citibank Prime Interest Rate. The interest rate is updated quarterly. If a loan is approved, you will receive the requested funds within two weeks following the date you apply for the loan. Any amount you borrow from rollovers in your account, supplemental pre-tax contributions, and basic pre-tax contributions (in that order) will be transferred to a special loan fund. The loan will be taken proportionally from each of your investment funds. Your loan payments of both principal and interest will be allocated to your basic pre-tax, supplemental pre-tax, and rollover contributions (in that order), and to the investment funds in the same proportion as your ongoing contributions. These may or may not be the investment funds from which your loan was taken.
R E T I R E M E N T S A V I N G S P L A N 12 12 You repay the loan, plus interest, to your account through convenient payroll deductions. You have up to five years to repay your loan or 25 years (one loan only) if the loan is used to purchase your primary residence. Loans cannot be prepaid in the first six months of a loan period. If you wish, after six months you may prepay the entire loan balance by: cash payment, or an eligible withdrawal of your after-tax contributions or vested company contributions (see Withdrawals While You Are Still Working in the following section) as long as the unpaid loan balance is not greater than one-half the value of the vested amounts remaining in your Plan account after the withdrawal. If you leave the company before your loan is repaid, you must immediately repay the entire outstanding loan balance. If you do not do so within 60 days, the Plan will foreclose on your Plan account, which is collateral for your loan, by using your Plan account to repay the loan. If you receive a final Plan payout before your account is used to repay the loan, your outstanding loan balance is deducted from your distribution. However, if you are involuntarily separated without cause and have an outstanding 401(k) loan, you are allowed to continue making monthly loan payments directly to the Trustee following the end of your separation period. At the end of your separation period, Fidelity will contact you to establish an ACH (electronic) payment from your bank account which will allow you to continue making your loan payments directly to Fidelity. If you pay off one 401(k) loan and have a second loan outstanding, there will be a twenty (20) day waiting period before you can request another loan. If you take leave without pay, you are responsible for making monthly payments for your loan. Failure to make a timely payment will result in your loan being in default. If you are an active employee and payroll deductions stop for any reason, you must make up missed payments and resume payments within 90 days of your last payroll deduction or your loan will be in default. In that case, the outstanding balance of the loan will be treated as a distribution for tax purposes. The amount of the distribution will be reported to you and the IRS on a Form 1099-R. A loan shall not be made to a participant who is in default on any loan under this Plan, the Embarq Retirement Savings Plan for Bargaining Unit Employees or the Centel Retirement Savings Plan for Bargaining Unit Employees. You are not eligible to make contributions if you are in default on a loan. WITHDRAWALS WHILE YOU ARE STILL WORKING In-Service Withdrawals While you are still employed by the company, or if you are a retired employee, you may withdraw vested company contributions except those deposited to your account in the current and two previous calendar years. (If you made after-tax supplemental contributions to your account when they were previously allowed by the Plan, those contributions and attributable earnings must be withdrawn first.) In-Service Withdrawals may be made twice during a calendar year. You continue participating in the Plan even though you have made a withdrawal. The minimum withdrawal is the lesser of:
13 R E T I R E M E N T S A V I N G S P L A N $1,000, or 50% of the maximum amount you have available to withdraw. Hardship Withdrawals If you have withdrawn your after-tax supplemental savings, if any, and allowable company contributions, and taken all permissible Plan loans from your account, you may also withdraw pre-tax contributions in case of a financial hardship. Such a withdrawal amount is limited to the pre-tax contributions you have made to the Plan, and interest that had accrued on pre-tax contributions as of December 31, 1988. Financial hardship refers to a substantial and immediate financial need where other funds you may have are not immediately available to you. Withdrawals cannot exceed the amount necessary to meet the expense involved. However, the amount withdrawn may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated as a result of the withdrawal. Here are the situations that qualify for financial hardship: purchase of your primary residence, prevention of eviction from or foreclosure of your residence, post-secondary education tuition for the next 12 months, for you, your spouse, children or dependents, unreimbursed family medical expenses, and any other need designated as financial hardship for this purpose by the Internal Revenue Service. The EBC will make the final determination regarding the existence of a financial hardship in accordance with federal guidelines. The withdrawal is made on a pro rata basis from each of the Plan s investment funds in which you have an account balance at the time. If you make such a withdrawal: you will not be able to contribute pre-tax contributions (including Catch-Up contributions) to the Plan (or any other company savings plan) for 6 months. At the end of the suspension period, it is your responsibility to contact Fidelity to re-enroll in the Plan, and if you are participating in the Employee Stock Purchase Plan (ESPP), you must stop contributing to the ESPP and you will not be permitted to enroll in a new offering for six months, and your annual pre-tax contributions limit for the following year will be reduced by the amount you contributed during the year of withdrawal. Other Withdrawals After age 59-1/2 or if you become disabled, you may withdraw all or part of your pre-tax and rollover contributions once every three years even if you are not experiencing a financial hardship. TRASOP and Centel ESOP balances can be withdrawn at any time. You can request that your TRASOP and/or Centel ESOP balance(s) be rolled to an IRA, in cash or in-kind or you can request that
R E T I R E M E N T S A V I N G S P L A N 14 14 the balance be paid to you directly in cash or in-kind. Please be aware that there may be tax consequences associated with Plan withdrawals. DIVERSIFICATION Effective May 18, 2006 participants have total discretion over the investment of company matching contributions. This means that the value of company matching contributions may be transferred to any investment option in the Plan without any limitation on the amount or percentage exchanged. PLAN DISTRIBUTIONS Your Own Contributions You are entitled to the account value of your own contributions when you leave the Company for any reason, regardless of your age or length of service when you leave. Company Matching Contributions You (or your designated beneficiaries) qualify for the full account value of company contributions: if you attain normal retirement age (age 65) while employed, if you die while employed, if you become disabled while employed, or if you leave the company for any other reason after completing five years of vesting service. If you leave the company for reasons other than retirement, disability or death, and you have completed less than five years of vesting service when you leave, you will receive the vested portion of your company matching contributions as outlined in the vesting schedule on page 9. How Your Plan Account Is Paid After you terminate employment with the Company your Plan benefits are not paid automatically to you. You must apply for them. By requesting a distribution, you will be paid the value of your contributions and vested company matching contributions in a single lump sum. Any non-vested company matching contributions in the Plan will be forfeited. Generally, your account balance will be distributed to you in a single lump sum payment. If the value of your account is $1,000 or less (or such greater amount if permitted by Section 411(a)(11) of the Internal Revenue Code), you will receive payment as a single lump sum only. If you are no longer employed with the company and you have an account balance in the Plan, you will receive a yearly minimum distribution beginning at least by April 1 of the year after the year you reach age 70 ½. The minimum distribution is based on your life expectancy. If you defer receiving payment of your account, be sure to keep the company advised of any change of address.
15 R E T I R E M E N T S A V I N G S P L A N If you are still employed with the company and reach age 70 ½, you will have the option to: defer your yearly minimum distribution or elect to receive it beginning at least by April 1 of the year after the year you reach age 70 ½. Once you make an election to receive an annual distribution it is irrevocable which means you can not elect to defer payment Tax Rules on Plan Payments Income Tax Generally, payments you receive from your Plan account are subject to income tax unless they are rolled to an IRA or another qualified plan. This includes your pre-tax contributions and company matching contribution, as well as all accumulated investment earnings on your account. All distributions made to a participant from the Plan are eligible for rollover except for: distributions which are made in a series of payments over 10 years or more, distributions which are required because you have reached age 70-1/2, amounts treated as distributions due to a loan default by an active employee, hardship distributions, distribution of any after-tax contributions, and dividends not reinvested but paid out in cash. At the time of the distribution, you may request a direct rollover to a traditional IRA or another qualified plan. This means the check will be made out to the Trustee of your IRA or new qualified plan. Your distribution cannot be rolled to a Roth IRA, a SIMPLE IRA, or a Coverdell Education Savings Account. If you do not make a direct rollover (i.e., the check is made payable to you or your beneficiary), the Plan is required to withhold federal income tax in the amount of 20% of the distribution at the time of the payment. Even if the distribution is made to you and federal income tax is withheld, you may still roll over the distribution so long as it is accomplished within 60 days of the date of distribution from the Plan. If you wish to roll over 100% of the distribution, you will have to make up the 20% amount that was withheld by the company. This amount can be recovered when you file your personal tax return. If you were born prior to 1936 and received a lump sum distribution which is not rolled over to an IRA or another qualified plan, you may be able to reduce the tax due on your distribution through a technique known as ten-year forward averaging. Please consult your tax advisor or IRS publication 575 (Pensions & Annuities) for additional information. Additional Tax Keep in mind that the favorable tax treatment provided to Plan participants under federal law is designed to encourage long-term savings. IRS rules provide that if you receive a payment from the
R E T I R E M E N T S A V I N G S P L A N 16 16 Plan before you are age 59-1/2, you may have to pay a penalty equal to 10% of the amount that is paid from the Plan (in addition to regular income tax). This tax would also apply to hardship withdrawals before age 59-1/2. Specifically, you will have to pay the 10% penalty on any Plan payment you receive prior to age 59-1/2 unless: you are disabled, the payment is made to your beneficiary in the event of your death, you roll over or transfer your distribution within 60 days to a qualified employer plan or an IRA, you elect to receive dividends paid to you in cash, you have separated from service after reaching age 55, the payment is used to pay for certain medical expenses, or the payment is made on account of an IRS levy. Tax on Stock Distributions (TRASOP and/or CESOP) When you elect to receive the value of your Embarq TRASOP and/or CESOP Stock Fund in shares and you do not roll the shares over into an IRA, these shares will be valued for income tax purposes at the trustee s cost basis, if lower than market value. You will then be able to defer the tax on the difference between the market value and the trustee s cost (unrealized appreciation) until you dispose of the shares. You may, however, elect to include the unrealized appreciation in income in the year of the distribution. It is important to point out that this brief review is intended only as a general overview of certain federal income tax rules currently in effect. However, tax rules change, and IRS interpretation of existing rules may also change. And because state and local tax laws vary, it is impossible to describe them all here. In addition, no Plan Administrator or other representative of the company is authorized to advise you about your taxes. For specific tax advice about your own personal situation, you are advised to consult a qualified tax advisor. PROHIBITION OF ASSIGNMENT AND QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) For protection of your interest and those of your dependents, your benefits under this Plan cannot be assigned and are not subject to garnishment or attachment, except in certain circumstances. One circumstance is a Qualified Domestic Relations Order (QDRO). QDROs are processed by the recordkeeper, Fidelity. There is a charge for QDRO processing. For QDRO fees, please review the procedures. QDRO procedures can be obtained by logging on to EQIP. Go to Employee Resource Center/ Retirement, Savings and Financial Planning/Retirement Savings Plan 401(k) and Click on Qualified Domestic Relations Order or contact the Retirement Savings Plan Service Center. For questions regarding the QDRO process, contact the Retirement Savings Plan Service Center tollfree at 1-866-792-401k (4015).
17 R E T I R E M E N T S A V I N G S P L A N IF YOU LEAVE THE COMPANY AND ARE LATER REHIRED If you leave the Company and are later rehired, there are special rules about credit for the service you earned before you left. Your service with the Company before you left will count as vesting service and service for determining eligibility, unless you were previously employed by the company for less than five years and are rehired five or more years after you left the company. In addition, if you are rehired within one year after you leave the company, your vesting service and service for determining eligibility will include the period between the day you left the company and the day you are rehired. You may join the Retirement Savings Plan upon satisfying the requirements described earlier in this document. All company matching contributions made to your Plan account after you are rehired will be vested according to the service vesting schedule based on combined service time. If you left the company while participating in this Plan, received a distribution of your vested amount which was less than the full amount, and you are rehired, any company matching contributions you forfeited when you left will be restored if you repay the full amount of your distribution no later than five years after the distribution was made. Repayments may be made in cash or in the form of rollover amounts. HOW TO APPEAL THE DENIAL OF BENEFITS In accordance with ERISA, you have the right to appeal a denied benefit from this Plan by writing to the Plan Administrator (see the section in this Summary Plan Description titled Plan Administrator, page 19). Your request should include your name, address and social security number, the details of why your claim should be considered, and copies of any supporting documentation relevant to your claim. If your request is denied in whole or in part, you or your beneficiary will receive a written notice from the Plan Administrator. This notice will explain: the specific Plan provisions on which the denial is based, any additional information (such as proof of age or information about your spouse) needed to reconsider the application, and an explanation of why this information is needed; and the Plan s appeal procedures to the Benefit Administrative Committee ( BAC ). Written notice will be provided to you within 90 days after you apply for a plan benefit unless special circumstances require more time and the Plan Administrator informs you within the 90-day period in writing of the reason for the delay and the date you can expect to receive the notice.
R E T I R E M E N T S A V I N G S P L A N 18 18 You may file an appeal with the BAC, in writing, within 60 days of receiving a denial notice from the Plan Administrator. Your appeal should request a review of your benefits application by the BAC and explain the grounds for your request, along with any relevant facts or comments. The BAC will then reconsider the application and give written notice of the decision. This second notice will be furnished within 60 days or within 120 days if special circumstances require more time and the BAC informs you within the first 60-day period in writing of the reason for the delay and the date you can expect to receive the notice. The second notice will include the reason for the decision, with special reference to pertinent plan provisions. This decision of the BAC will be final determination of the Plan. PARTICIPATING EMPLOYERS OF THE PLAN Embarq Corporation Carolina Telephone and Telegraph Company Central Telephone Company Central Telephone Company of Virginia Embarq Florida, Inc. Embarq Management Company Embarq Mid-Atlantic Management Services Comany Embarq Midwest Management Services Company Embarq Minnesota, Inc. Embarq Missouri, Inc. United Telephone Southeast, Inc. United Telephone Company of Indiana, Inc. United Telephone Company of Kansas United Telephone Company of New Jersey, Inc. United Telephone Company of Ohio United Telephone Company of Pennsylvania, The United Telephone Company of Texas, Inc. United Telephone Company of the Carolinas United Telephone Company of the Northwest United Telephone Company of the West
19 R E T I R E M E N T S A V I N G S P L A N ADMINISTRATIVE INFORMATION Plan Sponsor The Plan Sponsor is EMBARQ Corporation. The Plan Number is 002. The IRS Employer Identification Number is 20-2923630 The Plan is a defined contribution plan. Plan Administrator The Embarq Retirement Savings Plan is administered by the EBC. The EBC has named the Director Benefits as Plan Administrator. The address of the EBC is: Embarq Corporation Employee Benefits Committee 5454 West 110 th Street Overland Park, Kansas 66211 As provided in the Plan, the EBC has sole discretion in interpreting the terms and provisions of the Plan. For routine questions about the Plan, check with the Plan Administrator. To carry out its responsibility in administering the Plan, the EBC has the following duties: interpreting and construing the Plan, determining any questions concerning an employee s eligibility for participation and benefits under the Plan, appointing local administrators, determining the amounts of Plan benefits, prescribing Plan administrative procedures, requiring any person to furnish information it requests as a condition to receiving benefits under the Plan, preparation of Plan reports, the authority to delegate administrative responsibility in connection with the Plan, establishing and determining the investment policy and objectives, as well as the number and type of investment funds for the Trust Fund, and reviewing the performance of the investment funds and appointing or removing the investment managers for the funds. Plan Financing The Retirement Savings Plan is classified as a defined contribution plan with 401(k) plan provisions qualified under the Internal Revenue Code. Benefits under the Plan are based solely on the value of participants contributions and company matching contributions. Employee and company matching contributions are deposited in a special