Summary Program Description 401(k) Savings Plan Sponsored by Blue Cross Blue Shield of Arizona An independent licensee of the Blue Cross and Blue Shield Association 7049088.5
OVERVIEW An Investment in Your Future The Blue Cross Blue Shield of Arizona 401(k) Savings Plan (the program ) offers you a unique combination of features that are designed to help you meet your long-range savings and investment goals: you can contribute up to 60% of your eligible earnings to the program your contributions are on a pre-tax basis Blue Cross Blue Shield of Arizona (the employer ) matches a portion of your contributions to the program the company makes additional Retirement Plus contributions to your account if you meet certain eligibility requirements you have a choice of investment options for the investment of your contributions contributions to your account and your program investment earnings accumulate tax-free until you receive them from the program the program has withdrawal and loan provisions About Your Summary Program Description This Summary Program Description (SPD) summarizes your program benefits, but it does not cover all of the details. Please keep in mind that: the full facts and details about your program are contained in the official program documents, which are on file with your employer and the Program Administrator in the event of any conflict between the information shown in an online SPD or the written SPD and the official program documents, the official program documents will always govern. This SPD is effective July 1, 2012 and applies to Blue Cross Blue Shield of Arizona employees who are hired or re-hired after June 30, 2012. A separate SPD applies to Blue Cross Blue Shield of Arizona employees who are employed on June 30, 2012 and who remain continuously employed. i
Program Eligibility and Enrollment Tax Advantages Your Personal Account Information 401(k) Contributions Retirement Plus Contributions Investing Your Account How Vesting Works Table of Contents Eligible Employees Ineligible Employees Joining the Program Tax Benefits Pre-Tax Contributions Tax Deferred Investment Earnings Payment of Taxes Your Personal Identification Number (PIN) Personal Information Naming Your Beneficiary Quarterly Participant Statement Your Contributions Automatic Increase of Your Contributions Employer Match True-Up Employer Match Catch-Up Contributions Rollover Contributions Contribution Limits Your Eligible Earnings Changing, Stopping, or Resuming Your Contributions Information for Veterans Eligibility for Retirement Plus Contributions Amount of Retirement Plus Contributions Vesting Years of Service for Vesting Contribution Limits Making Your Investment Decision Investment Options LifeCycle Investment Funds Core Investment Funds Investment Election Investment Changes, Fund Transfers and Other Transactions Frequent Trading Limits and Other Investment Policies Investment Management Fees Information Resources What is Vesting? Vesting of Your Account 1 1 1 2 2 2 2 3 3 3 3 5 5 5 6 6 6 6 7 7 7 8 8 8 9 9 10 10 11 12 14 14 14 15 15 16 16 ii
Withdrawals While Actively Employed Borrowing From Your Account Receiving Your Program Benefits Break-in-Service Rules Table of Contents Withdrawals of Vested Account Balances Financial Hardship Definition of Financial Hardship Amount of Financial Hardship Withdrawal Permanent Disability Age 59 ½ Distribution Tax Consequences of Withdrawals Taking Out a Loan Types of Loans Number of Loans Allowed Fifteen Day Waiting Period Loan Amount Loan Repayment Loan Fees Interest Rate Termination of Employment Default Tax Consequences of Loans For More Information Applying for Benefits Forms of Payment Lump Sum Payment Installment Payments Retirement Death Taxation of Program Distributions Application of Taxes Forfeited Contributions Returning Veterans 17 17 17 18 18 18 18 19 19 19 19 19 19 20 20 20 21 21 21 22 22 22 22 22 22 23 23 24 24 What To Do If a Claim is Denied Denied Claims Appealing a Denied Claim Review of Appeal 25 26 27 iii
Other Important Information Your Rights as a Program Participant Table of Contents Program Administrator Administrative Expenses Agent for Service of Legal Process Assignment of Benefits Employer Continuance of the Program Employment not Guaranteed Employer Identification Number Program Number Maximum Benefits Participating Companies Program Administrator Program Sponsor Program Documents Program Financing Program Name Program Trustee Program Year Special Rules for Top Heavy Programs Type of Administration Type of Program Participant Control of Investments (ERISA 404(c)) Program Overview Summary Annual Report Benefit Statement Program Fiduciaries Benefit Claims and Legal Actions Questions 29 29 29 29 29 29 30 30 30 30 30 30 30 30 30 31 31 31 31 31 31 31 34 34 34 34 34 35 iv
PROGRAM ELIGIBILITY AND ENROLLMENT Eligible Employees Ineligible Employees You become eligible to participate in the program on your date of hire. You are not eligible to participate in the program during periods in which your employer does not consider you to be an employee. Once your employer begins to treat you as having the status of an employee in all respects, you will be eligible to participate in the program and make contributions to it. You can contact your Human Resources department if you have any questions about your employment classification or your eligibility to participate in the program. Joining the Program You will automatically be enrolled in the program. Once an account has been set up for you at Fidelity, you will receive an Enrollment Kit. Unless you make a change by contacting Fidelity, 3% of your eligible earnings each pay period will be deducted and invested in one of the Fidelity Freedom K Funds, based on your age. If you wish to contribute more or less than 3% to the program, it is your responsibility to change the level of your contributions by contacting Fidelity no later than the date specified in the enrollment materials (generally about 45 days after your hire date). You can also direct how your account is invested or make a change at any time. You are encouraged to take an active role in the program and to choose a contribution rate and investment options that are appropriate for you. Once contributions have been deducted from your pay and deposited into your account, your contributions may not be withdrawn until you qualify for an in-service withdrawal or distribution from your account. You can contact Fidelity Investments at 1-877-980-BLUE (2583) or log on to the Fidelity Web site at www.fidelity.com/atwork to make changes to any one or more of the following: the percentage of your pay you want to contribute; the name of the investment funds you ve selected; and the percentage of your contributions you want to invest in these funds. 1
TAX ADVANTAGES Tax Benefits This program offers you a unique combination of tax advantages. These advantages apply: while you re contributing to the program; and while your savings are growing. Pre-Tax Contributions You can elect to contribute to the program on a pre-tax basis. This means that you will not have to pay any federal taxes on your contributions until you receive them from the program. (Please note that your pre-tax contributions will not reduce your Social Security taxes.) Whether you pay state or local taxes on your contributions depends on your location. You can defer taxes on up to 60% of your eligible earnings from taxes if you are contributing to the program, subject to certain limitations. And, although your participation will lower your taxable income, it generally does not affect your other salary-related benefits, such as retirement, group life insurance, long term disability, or Social Security. Tax Deferred Investment Earnings Payment of Taxes Tax-deferred investment earnings are another major tax advantage. The investment earnings on all of your program savings will accumulate tax-free until you receive them from the program. The program allows you to defer payment of taxes not avoid them. Your savings will accumulate tax-free as long as they stay in the program. However, you will have to pay taxes on any money that you receive from the program. 2
YOUR PERSONAL ACCOUNT INFORMATION Your Personal Identification Number (PIN) Personal Information When you join the program, you ll need to establish a Personal Identification Number (PIN) to access your account information. Your enrollment kit will contain more information about setting up your PIN. It is important for you to keep your personal information up to date. This includes: your mailing address; your beneficiary designation; and name changes or other changes in your personal information. If your mailing address or name changes, you should immediately contact Human Resources. To change your beneficiary, Human Resources will provide you with the necessary form. Naming Your Beneficiary When you join the program, you are asked to name your beneficiary. Your beneficiary is the person or persons who will receive the full vested value of your program accounts if you die. In general, your spouse will be your beneficiary if you are married. If you are not married but get married later, your spouse becomes your beneficiary on your marriage date. Should you wish to name someone other than your spouse, your spouse must give his or her written consent to this election. Your spouse s written consent to your beneficiary designation must be notarized. If you don t name a beneficiary, or if your beneficiary is not living on the date of your death, and you are not married, the full value of your account balance will be paid to your estate. You can change your beneficiary at any time by contacting Human Resources and requesting a form. This change will be effective when your completed form is received and approved by Human Resources. Quarterly Participant Statement After the end of each calendar quarter, you will receive a comprehensive participant statement, or you can request or review this information online. This statement reports your account activity for the quarter, including: your pre-tax contributions (and any catch-up or rollover contributions) during the quarter employer matching contributions Retirement Plus contributions made on your behalf 3
YOUR PERSONAL ACCOUNT INFORMATION your investment gains or losses withdrawals, transfers, loans, or other adjustments to your account Your quarterly participant statement provides a valuable record of your account activities. Keeping these statements in a safe place will help you to track your progress in the program. You are responsible for reviewing your account statement and contacting Fidelity within 90 days of the account statement date if you have questions or if there are errors. 4
401(k) CONTRIBUTIONS Your Contributions Automatic Increase of Your Contributions You can contribute 1% to 60% of your eligible earnings each pay period to the program on a pre-tax basis, subject to certain limits. Your pre-tax contributions will lower your taxable income, because they come out of your pay before federal and (in some cases) state taxes are applied. Your contributions will automatically increase in March of each year, beginning in 2013. Your contribution rate will be increased by 1% if you are contributing between 1% and 4% to the program at the time the automatic increase applies, for a total rate of contribution not to exceed 5%. (You may elect to contribute more than 5%, but your contributions will not increase automatically to more than 5%.) You will be notified prior to the automatic increase date and will have an opportunity to make a different election, including an election to contribute 0%. The automatic increase for a particular year will not apply to you if: the March 1 automatic increase date is less than 6 months after your automatic enrollment date (generally between 45-60 days after you are hired); or your contributions are suspended at the time the automatic increase otherwise applies because you took a hardship withdrawal Even if you are excluded from the automatic increase for a particular year, you will be included in the automatic increase for the subsequent year as long as you otherwise meet the requirements. In addition, you will be permanently excluded from the automatic increase program if: you contact Fidelity via the web at www.fidelity.com/atwork or by calling Fidelity Investments at 1-877-980-BLUE (2583) and opt out of the automatic increase program; or you make a 0% deferral election at any time; or you make an election to participate in a voluntary increase program offered by Fidelity (where you specify an annual contribution increase percentage with an effective date other than March 1) Employer Match Your employer will match $1.00 for each dollar you contribute each pay period. Maximum: The employer match applies to the first 5% of your pre-tax contributions only. Your contributions in excess of 5% of your eligible earnings are not eligible for the employer match. 5
401(k) CONTRIBUTIONS True-Up Employer Match Catch-Up Contributions At the end of the year, your employer will review the percentage of pay you deferred for the year to determine if your total employer matching contribution is less than $1.00 for each dollar you contributed during the year which is eligible for a match (up to the first 5% of your eligible earnings contributed), in which case a true up matching contribution may be made. You may be eligible to make pre-tax catch-up contributions if you are eligible to participate in the program and are age 50 or older during 2012. You may make up to $5,500 of catch-up contributions in 2012 if, at the end of the year, one or more of the following occurs: you make the maximum employee contribution of $17,000 your contributions to the program are limited by a program limit Rollover Contributions You generally may make a direct rollover of a lump sum payment from the following types of programs: 401(a) or 403(a) program; 403(b) annuity program; 457(b) governmental program; You would need to provide information about your retirement program distribution so that it can be determined whether it is eligible for "rollover." In a direct rollover, at your request, your previous employer provides for a transfer of your distribution directly into this program. In this way, your payment will not be taxed in the current year and no income tax will be withheld. Also, if you were employed at any time prior to July 1, 2012 and participated in the Non-Contributory Retirement Program for Employees of Blue Cross Blue Shield of Arizona, you may have the opportunity to roll over all or a portion of your lump sum distribution from the Retirement Program into this 401(k) program when you terminate employment. This option is available to you when you elect to receive your Retirement Program benefit and your 401(k) account balance is more than $1,000. Once you terminate employment, this is the only rollover contribution accepted by the program. Contribution Limits The maximum amount of participant contributions to the program may be limited under current federal law. This includes: a limit on the maximum amount of annual earnings that can be taken into account for program purposes. (In 2012, the limit is $250,000.) a limit on the maximum before-tax amount that a participant can contribute during the calendar year, including before-tax contributions to any other savings program. (This limit is 6
401(k) CONTRIBUTIONS determined each year. In 2012, the limit is $17,000.) The above maximums do not apply to rollover contributions. (See the previous section entitled catch-up contributions for amounts that may be contributed over the 2012 limit if you are age 50 or older.) The employer will notify you if you are affected by the contribution limitations and your excess contributions will be returned to you. Your Eligible Earnings Your pre-tax contributions are based on a percentage of your eligible earnings. Your eligible earnings are your total earnings for each payroll period ending during the program year. Amounts contributed on a pre-tax basis to the program or to a cafeteria plan are also included in your eligible earnings. Eligible earnings do not include: Reimbursements or other expense allowances, cash and noncash fringe benefits, moving expenses, welfare benefits, and deferred compensation. Severance pay or employee contributions to nonqualified deferred compensation plans. Compensation in excess of $250,000 in 2012 (adjusted annually by the IRS). Amounts paid when you are not considered an employee. Changing, Stopping, or Resuming Your Contributions You can elect to change, stop, or resume your contributions as of the first day of the payroll period following your election or as soon as administratively possible thereafter via the web at www.fidelity.com/atwork or by calling Fidelity Investments at 1-877- 980-BLUE (2583). Fidelity will send you either an electronic or paper confirmation form, depending on your election. An electronic confirmation is sent at the time the transaction is executed or a paper confirmation is mailed to your home address within 3 to 5 business days. Information for Veterans Special rules apply if you are a veteran who returns to employment while you have reemployment rights under the law following a period of qualified military service. You may be eligible to make up contributions to the program that you would have been entitled to make during your period of military leave (and to receive matching contributions on those contributions). Also, you may be entitled to any additional contributions the employer made for a plan year during which you were in military service. You should contact Human Resources if you are an employee returning from military service with reemployment rights. 7
RETIREMENT PLUS CONTRIBUTIONS Eligibility for Retirement Plus Contributions The company helps you save for retirement by making additional employer contributions to eligible employees. Retirement Plus contributions are a separate benefit and are provided by the company in addition to the basic benefits available through the program. You are eligible for Retirement Plus contributions if you are eligible to participate in the program, and you were hired or rehired after June 30, 2012; you are not accruing a benefit in the company defined benefit Retirement Program for all or a portion of the program year; and you are employed on the last business day of the year. If you are not accruing a benefit in the defined benefit Retirement Program (referred to as the Non-Contributory Retirement Program for Certain Employees of Blue Cross and Blue Shield of Arizona, Inc.), you are eligible for Retirement Plus contributions, provided you meet the other eligibility requirements specified above. Amount of Retirement Plus Contributions You will receive a 3% Retirement Plus contribution based on your eligible earnings for the year. You will receive this contribution even if you are not contributing to the program, although you are strongly encouraged to participate. If you were accruing a benefit in the defined benefit Retirement Program for a portion of the program year, terminate employment, and were rehired in that same year, you would be eligible for the Retirement Plus contribution for that year. Vesting Retirement Plus contributions made on your behalf (including any associated earnings or losses on these contributions) become vested as follows: Years of Service Vested Percent Less than 1 year 0% 1 year 20% 2 years 40% 3 years 60% 4 years 80% 5 or more years 100% You become fully vested in your Retirement Plus contributions if you terminate employment because of death, disability, or termination of employment on or after age 65. 8
RETIREMENT PLUS CONTRIBUTIONS Years of Service for Vesting Contribution Limits Current and prior employment with Blue Cross and Blue Shield of Arizona counts toward vesting. If you were employed by Blue Cross and Blue Shield of Arizona at any time prior to January 1, 2003 and had prior service with another Blue Cross Blue Shield organization, your prior Blue organization service also counts toward vesting. The maximum amount of contributions to the program may be limited under current federal law. This includes: a limit on the maximum amount of annual earnings ($250,000 in 2012) that can be taken into account; and special nondiscrimination tests which monitor the benefits that may be contributed by or on behalf of highly paid employees. 9
INVESTING YOUR ACCOUNT Making Your Investment Decision As a participant, you control the investment of your program account, and are responsible for the investment results and investment performance of your program account. This section provides information about your investment options and how to direct the investment of your program account. If you fail to provide investment instructions, your account will automatically be invested in one of the Fidelity Freedom K Funds, based on your birth date and assuming retirement at age 65. The decision on how and where to invest your program account is entirely up to you. Your employer cannot provide you with personal financial advice. Investment Options The program s investment options offer an array of investment choices and were selected for the program with the advice of a professional investment consultant. The options include: LifeCycle Funds (consisting of the 13 Fidelity Freedom K Funds) Core Investment Funds (consisting of 24 individual funds) This structure is designed to help you determine your investment approach, based on how involved you want to be in choosing your investments and monitoring their performance. A list of the program s investment options is shown on the following pages. Also, a description of each fund is available online at Fidelity NetBenefits (www.fidelity.com/atwork) or in an Enrollment Guide. The investment options are offered through Fidelity Investments and include funds managed by Fidelity as well as non-fidelity managed funds. 10
INVESTING YOUR ACCOUNT LifeCycle Investment Funds The LifeCycle Funds consist of the 13 Fidelity K Freedom Funds. These pre-mixed funds offer a blend of stocks, bonds and shortterm investments. Each Freedom K Fund s asset allocation is based on the fund s target retirement date. The fund will gradually adopt a more conservative asset allocation over time but you will always be invested partially in stocks. The Freedom K Funds are designed for investors who want a simple approach to investing for retirement. You may want to consider these funds if you wish to benefit from asset allocation and diversification, but you feel more comfortable having a professional portfolio manager manage your asset allocation. For example, the Freedom K Income Fund is designed for those already in retirement and reflects that assumption by emphasizing bond and money market mutual funds and seeking to maintain a stable asset allocation from year to year. Fidelity Freedom K Funds Target Retirement Years Fidelity Freedom K Income Fund Retired before 1998 Fidelity Freedom K 2000 Fund 1998-2002 Fidelity Freedom K 2005 Fund 2003-2007 Fidelity Freedom K 2010 Fund 2008-2012 Fidelity Freedom K 2015 Fund 2013-2017 Fidelity Freedom K 2020 Fund 2018-2022 Fidelity Freedom K 2025 Fund 2023-2027 Fidelity Freedom K 2030 Fund 2028-2032 Fidelity Freedom K 2035 Fund 2033-2037 Fidelity Freedom K 2040 Fund 2038-2042 Fidelity Freedom K 2045 Fund 2043-2047 Fidelity Freedom K 2050 Fund Fidelity Freedom K 2055 Fund 2048-2052 2053 and later 11
INVESTING YOUR ACCOUNT Core Investment Funds With the Core Investment Funds, you determine and maintain the mix of investments in your account. A selection of 24 core investment funds is available. The variety of funds available in the Core is designed to offer you an opportunity to create a diversified portfolio. The Core Investment Funds include both passive and actively managed funds, and represent the three major asset classes (shortterm investments, bonds, and stocks). You may want to consider these fund options if you are comfortable managing your own asset allocation. Short-Term Investments Money Market and Fixed Income Fidelity Managed Income Portfolio II Fund (fund closed to new investments effective February 1, 2012; existing balances in the fund may remain in the fund until October 1, 2012 at which time balances will transfer to the Wells Fargo Stable Value Fund) Wells Fargo Stable Value Fund E Fidelity Retirement Money Market Portfolio Vanguard Admiral Treasury Money Market Fund (closed to new contributions) Vanguard Federal Money Market Fund (closed to new contributions) Passive Funds (Index Funds) Index funds are designed to perform in-line with a major stock or bond index by investing in companies that make up the index. Passive funds provide broad market exposure that typically charge lower investment management fees than actively managed funds. Bond Index Fund Spartan U.S. Bond Index Fund - Fidelity Advantage Institutional Class US Stock Funds Spartan 500 Index Fund - Institutional Class Spartan Extended Market Index Fund Fidelity Advantage Class Fidelity U.S. Equity Index Commingled Pool - Class 2 Non-US Stock Fund Spartan International Index Fund - Fidelity Advantage Institutional Class 12
INVESTING YOUR ACCOUNT Core Investment Funds - cont. Actively Managed Funds Active fund management is an investment style that seeks to outperform a particular market, represented by an index. The fund holdings are actively selected by the fund managers using a variety of factors and strategies. Active funds tend to have higher investment management fees than index funds because of the active investment decisions made by the fund managers. Broad Bond Funds (across different bond sectors) Dodge & Cox Income Fund PIMCO Total Return Fund Institutional Class Balanced Bond and Stock Fund Oakmark Equity and Income Fund Class I US All Cap Stock Fund PRIMECAP Odyssey Stock Fund US Large Cap Stock Funds American Beacon Large Cap Value Fund Institutional Class Fidelity Growth Company Fund - Class K Pyramis Large Cap Value II Commingled Pool for BCBS Plans T Rowe Price Growth Stock Fund US Mid Cap Stock Funds Artisan Mid Cap Value Fund Investor Shares TimesSquare MidCap Growth Fund Institutional Class US Small Cap Stock Funds Fidelity Low-Priced Stock Fund - Class K Perimeter Small Cap Growth Fund I Shares Wells Fargo Advantage Small Cap Value Fund Institutional Class Global Stock Fund MSF Global Equity Fund Class R4 Non-US Stock Funds Aberdeen Emerging Markets Fund Harding Loevner International Equity Portfolio Institutional Class Fidelity Diversified International Fund - Class K The program s available investment options may change from time to time. You will be notified of a change in investment options. 13
INVESTING YOUR ACCOUNT Investment Election Investment Changes, Fund Transfers and Other Transactions You can invest your contributions in one or more of the available investment funds in multiples of 1%. Fidelity Retirement Services maintains an automated phone service and Web site that is available to you 24 hours a day, 7 days a week. In addition, Fidelity service representatives are available Monday through Friday, 8:30 a.m. - Midnight ET. By calling 1-877-980-BLUE (2583) or logging on to www.fidelity.com/atwork, you can: view your investment elections transfer money between the investment funds change your investment election for future contributions to the program change your payroll deduction contributions order literature and prospectuses You can also use the automated phone service or Web site to obtain current investment fund prices, check your transaction history, and obtain other valuable information. Program loans may be initiated through the Web site or by speaking to a service representative. Keep in mind that you ll need your PIN to access your personal account information. Generally, changes, transfers and transactions made by 4:00 p.m. ET will be effective that business day. If you call later in the day, your change or transfer will be effective the next business day. Fidelity will send you either an electronic or paper confirmation form, depending on your election. An electronic confirmation is sent at the time the transaction is executed or a paper confirmation is mailed to your home address within 3 to 5 business days. Frequent Trading Limits and Other Investment Fund Policies The investment options offered in this program are subject to the policies and procedures of the mutual fund companies or fund managers offering these options. Many mutual funds have now, or may in the future impose restrictions, limitations or penalties on investors, including retirement programs, that engage in activities they consider to be disruptive, such as frequent short term trading. These restrictions respond to concerns that frequent trading can be harmful to other investors. Some mutual funds could impose restrictions upon an entire retirement program where only some participants engage in such activities. In order to assure that the investment options offered under this program remain available on favorable terms to participants who do not engage in such practices, the program administrator will ordinarily implement any such restrictions or limitations imposed by mutual funds or fund managers. Although the precise rules applied by mutual fund companies and fund managers' policies may differ, the rules followed by a specific fund must be disclosed in its prospectus, which may be viewed online at www.fidelity.com/atwork or by calling 1-877-980-BLUE (2583). 14
INVESTING YOUR ACCOUNT To the extent possible, you will receive advance notice of any new or different trading restrictions or limitations of mutual funds and fund managers. Advance notice may not be practicable in all situations, such as where the mutual fund imposes policies or procedures with limited or no notice to the program administrator. You will receive information about the restrictions or limitations as soon as practicable. Each fund company or fund manager may reserve the right to change its policies and procedures relative to frequent trading at any time. Investment Management Fees Information Resources Generally, investment management fees and other fees related to the operation of the program s investment funds are charged to participant accounts at the fund level as part of the investment process. To obtain further information on these fees and how they are charged, please refer to the prospectus or speak to a Fidelity service representative at 1-877-980-BLUE (2583) if a prospectus is not available. As a participant in the program, you have access to a variety of resources for investment education, personal financial planning, and information on each of the available investment funds. Fund Information: Each of the available funds has important informational material that you should carefully read before deciding to invest in a given fund. www.fidelity.com/atwork: This is Fidelity s Retirement Services web site, which includes: investment fund descriptions on-line fund prospectuses other information of general interest to investors Automated phone service: You can access the automated phone service at any time by calling 1-877-980-BLUE (2583). You can use this system to initiate fund transfers, investment changes, and other transactions related to your program account. Fidelity Retirement Services Specialists: A Fidelity representative is available to answer your questions or provide assistance Monday through Friday, 8:30 a.m. Midnight ET. Fidelity Mailing Address: You can contact Fidelity at the following addresses: For regular mail: Fidelity Investments Attn: FITSCo P. O. Box 770002 Cincinnati, OH 45277-0090 For express mail: Fidelity Investments Institutional Operations Company, Inc. Attn: FITSCo 100 Crosby Parkway, KC1E Covington, KY 41015 15
HOW VESTING WORKS What is Vesting? Vesting of Your Account Vesting is your ownership of or nonforfeitable right to receive a program benefit. You are 100% vested in the value of your own contributions, including any catch-up or rollover contributions, and employer matching contributions. Vesting also applies to the Retirement Plus contributions made to your account. Please refer to pages 8 and 9 for additional information. 16
WITHDRAWALS WHILE ACTIVELY EMPLOYED Withdrawals of Vested Account Balances This program is intended to provide retirement benefits and build retirement savings. Therefore, you generally cannot withdraw funds from your vested account balance while you are employed. The following are exceptions to this rule: withdrawals for financial hardship total and permanent disability withdrawals after age 59-1/2 Financial Hardship All requests for a financial hardship withdrawal are subject to approval. There are several important points to remember in connection with financial hardship withdrawals: You must first take the maximum loan amount available to you under the program. Your withdrawal request must meet specific rules established by the IRS for financial hardship. The amount of your withdrawal cannot exceed the amount necessary to meet your financial need and may include funds necessary to pay any income taxes and penalties that you reasonably expect to incur. Your participation in the program will be suspended for 6 months after you take a hardship withdrawal. Your contributions will automatically recommence following the 6-month suspension period. Employer matching contributions made on or after January 1, 1999 and earnings may not be withdrawn due to a financial hardship. Retirement Plus contributions may not be withdrawn due to a financial hardship (or upon reaching age 59-1/2). A hardship withdrawal is not eligible for rollover. Definition of Financial Hardship Under the program, you may qualify for a financial hardship withdrawal only for the following reasons: uninsured medical expenses for yourself, spouse or dependents (as defined by the IRS); the purchase of a principal residence; rent or mortgage payments needed to prevent the eviction from or the foreclosure on the mortgage of a principal residence; 17
WITHDRAWALS WHILE ACTIVELY EMPLOYED tuition, education-related fees and room and board expenses for the next twelve months of post-secondary education for yourself, spouse or dependents (as defined by the IRS); burial or funeral expenses for your parents, spouse, children, or dependents (as defined by the IRS); repairs of damage to a primary residence that would qualify as a casualty deduction under IRS rules (determined without regard to whether the loss exceeds 10% of adjusted gross income); or any other expenses specified in the future by the IRS. Amount of Financial Hardship Withdrawal A financial hardship withdrawal must be for a minimum of $1000. If you qualify for a financial hardship withdrawal, you may withdraw an amount up to the lesser of: the amount necessary to meet your financial need, plus an amount needed to cover taxes or penalties that you reasonably expect to incur on the withdrawal; or the amount available in your account for withdrawal. Distribution of your financial hardship withdrawal will be made as soon as reasonably possible after your withdrawal request is received and approved, and will be based on your account balance as of the date that your hardship withdrawal request is approved. For information about withdrawals, including the amount you have available for a financial hardship withdrawal, you should call Fidelity at 1-877-980-BLUE (2583). Permanent Disability Age 59-1/2 Distribution Tax Consequences of Withdrawals You may qualify for a withdrawal of your vested account balance if you become disabled while employed and meet the definition of permanent disability, as determined by the Program Administrator. Permanent disability means an illness or injury of a potentially permanent nature that prevents you from working, as determined under section 72(m) of the Internal Revenue Code. If you are an active employee age 59-1/2 or over, you may request a withdrawal from the vested value of your plan account, except for Retirement Plus contributions, without having to prove financial hardship. Your application for an age 59-1/2 distribution will not affect your continued participation in the plan. If you are under age 59-1/2, with limited exceptions, you will be required to pay a 10% tax in addition to ordinary income taxes on a withdrawal. You should check with your tax advisor concerning the current rules at the time of the withdrawal. 18
BORROWING FROM YOUR ACCOUNT Taking Out a Loan The program s loan feature allows you to borrow from your account (excluding your Retirement Plus Contributions account) while still actively employed. You must sign a promissory note at the time you take a loan. In the case of a paperless loan, your endorsing, depositing or cashing the loan check acts as a signature to a promissory note. By signing this note, you commit to the loan payment terms and the loan interest rate to which you agreed. Taking out a loan will not affect your ability to make continued contributions to the program. Types of Loans There are two types of loans: general-purpose loan principal residence loan General Purpose Loan: A general-purpose loan may be taken for any reason. The maximum term for a general purpose loan is five years. Principal Residence Loan: A principal residence loan is available only for the purchase of a home as a principal residence. It cannot be used to refinance or remodel an existing home. The maximum term for a principal residence loan is 30 years. Number of Loans Allowed Fifteen Day Waiting Period Loan Amount Only three loans may be outstanding at any given time. You may not take out more than one loan in any 12-month period. After paying off an existing loan, you will need to wait 15 days before requesting or initiating a new loan. This waiting period is to facilitate administration and help ensure 401(k) loans are administered in compliance with IRS requirements. A loan may be made from your vested account balance (excluding your Retirement Plus Contributions account). The minimum loan amount is $1,000. The maximum loan amount is set by law and is equal to the lesser of: $50,000 reduced by your highest outstanding loan balance in the last twelve months; or 50% of your total vested account balance in the program (excluding your Retirement Plus Contributions account), less your current outstanding loan balance. Loan Repayment Your loan is repaid with interest via after-tax payroll deductions and your repayments will go back into your program account. These repayments will be made in approximately equal installments. 19
BORROWING FROM YOUR ACCOUNT You may repay either the entire balance of your outstanding loan or a portion of the balance at any time without penalty for prepayment. If you take an unpaid leave of absence of one year or less, you may stop making loan repayments temporarily. The missed loan payments, including interest, are added to the end of the loan period, except that the term of a general purpose loan may not extend beyond 5 years. For a military leave of absence, special rules apply and loan repayments are not required during the military leave of absence. Loan repayments must resume upon the employee s return from military leave, however, and the entire loan must be repaid within five years from the original date of the loan, not taking into account the period of military leave during which payments were suspended. The missed payments, including interest, are added to the end of the loan period. The interest rate applied to the period of missed payments is the lesser of the rate established when the loan was first taken or 6%. Loan Fees Interest Rate There is a loan origination fee of $35 that will be deducted from your account balance when you take a new loan. In addition, a quarterly administrative fee of $3.75 is deducted from your account balance for each outstanding loan. The interest rate charged for a program loan will be equal to the prime rate quoted in the Wall Street Journal on the first business day of the month plus 1%. Under current tax laws, loan interest payments are not tax deductible. Termination of Employment You have several options if you terminate employment while you have an outstanding loan. The first option is that you may repay the outstanding balance on your loan before the grace period ends and before you have taken a distribution. The grace period ends on the last day of the calendar quarter following the calendar quarter in which a scheduled loan repayment is not made. You also have the option to continue to repay your loan through an electronic loan payment service. The electronic loan payment service uses the Automated Clearing House Association (ACH). If you decide to use this service, loan payments would be debited directly from your bank account on a monthly basis. Electronic payment of loans using ACH is the only loan repayment method that may be used if you choose to continue to repay your loan. Contact Fidelity at 1-877-980- BLUE (2583) for more information on the electronic payment service and how to enroll. If you choose to use this service, you must set it up promptly so that your loan does not go into default. A loan is considered in default if the scheduled loan payment is not received by the end of the grace period described above. For example, if your last loan repayment was made April 15, all remaining loan repayments due through June 30 must be made no later than 20
BORROWING FROM YOUR ACCOUNT September 30. If you terminate employment and either fail to pay off the outstanding loan before the end of the loan grace period, or you use ACH and the loan goes into default, the following will occur: the outstanding loan balance will be deducted from your account balance and will reduce any Program benefit that you or your beneficiary may be eligible to receive, and the outstanding loan balance will be considered a distribution, subject to applicable taxes and penalties. You may be entitled to roll over the entire amount of your distribution, including the amount of the loan balance, to an IRA or another employer-sponsored program. To roll over the amount of your loan balance to an IRA, you would need to repay the loan using funds from another source (such as your savings or a commercial loan) within the 60-day rollover period. Default Active employees are generally required to make loan repayments through payroll deductions. If payment is not received by the end of the calendar quarter following the first calendar quarter in which a scheduled loan repayment is not made, your loan will be considered in default. The program will use up to 50% of your vested account balance as security for your loan. In the event that an outstanding loan is declared in default, the following will take place: the outstanding loan balance will be considered a distribution under tax laws, subject to applicable taxes and penalties. the loan remains part of your account until you are eligible for a complete distribution from the program. you must agree to and make loan repayments through payroll deductions for any subsequent loan, otherwise the subsequent loan will also be declared in default. Tax Consequences of Loans For More Information Loans taken from your account are not subject to income taxes unless you fail to make your loan repayments and your loan goes into default. If this occurs, your outstanding balance will become taxable and you may also be subject to an additional 10% tax penalty. For information about program loans, including the amount you have available for a loan, you should call Fidelity at 1-877-980-BLUE (2583) or log on to www.fidelity.com/atwork. 21
RECEIVING YOUR PROGRAM BENEFITS Applying for Benefits You need to call Fidelity to initiate a distribution. A brochure with general information about your distribution options and a Special Tax Notice describing your tax considerations will be sent to you from Fidelity. If your account balance is more than $1,000, you may elect to receive your benefits under the program at any time following termination of employment, but not later than age 70 ½. Forms of Payment After you terminate employment, if the full vested value of your program account is $1,000 or less, you (or your beneficiary, if you are deceased) will receive a lump sum payment of the entire amount. This payment is considered an automatic distribution. Also, if the full vested value of your program account is more than $1,000, you may elect to have your account paid to you either in a lump sum payment or installment payments. If you don t make an election, your account will be paid to you in a lump sum. Lump Sum Payment Installment Payments You may elect to receive the vested value of your program account in a single lump sum. You may choose to have the vested value of your program account paid to you in monthly, quarterly, semi-annual, or annual installments or in a specific dollar amount. The installment period, subject to certain limits, will depend on your age. After you begin receiving installment payments, you may choose to receive your remaining account balance in a lump sum. You should always consult with a tax advisor before making any changes to your payment schedule. Certain changes to your payment schedule may have severe tax consequences. Retirement Death You will be eligible to receive the full value of your program account if you terminate employment on or after the date that you reach normal retirement age (age 65). In the event of your death during active employment, the full value of your program account will be paid to your beneficiary. This applies regardless of your length of service at the time of death. Any person who would qualify as a surviving spouse or beneficiary shall be disqualified to receive a survivor benefit from this Program on your behalf if it is determined by a criminal court that such person was responsible for your death as a result of a criminal act which involved the intentional or reckless taking of your life. In such a case that person will be treated as if he or she predeceased you. 22
RECEIVING YOUR PROGRAM BENEFITS Taxation of Program Distributions Application of Taxes All of your contributions and employer contributions will accumulate tax-free as long as they stay in the program. However, you will have to pay taxes on any money that you eventually receive from the program. Distributions from qualified programs (such as this program) are generally treated as ordinary income for tax purposes. Federal law requires a 20% withholding payment on the cash amount of distributions to you instead of being directly rolled over to an IRA or another plan that accepts direct rollovers. An additional 10% tax is also imposed on certain program distributions. More information will be provided to you at the time distribution begins. The tax laws that apply to benefit program distributions are complicated, and the employer cannot provide you with specific tax advice. You should always consult with a competent tax advisor before deciding when and how you want your account balance to be paid. 23
BREAK-IN-SERVICE RULES Forfeited Contributions If you are not fully vested in your employer Retirement Plus contributions when you terminate employment: you will forfeit the value of any non-vested Retirement Plus contributions, if any; and if you are later rehired and you repay the full amount of your Retirement Plus contributions received as part of a distribution from the program before the fifth anniversary of your rehire date, the forfeited Retirement Plus contribution amount will be restored to your account (subject to the exception described below). If you return to work after an absence of five consecutive years, the Retirement Plus contribution amount you forfeited at termination will not be restored. Some periods of leave, layoff or disability are not counted in determining if you have been gone for five years. In the event you were 0% vested in your Retirement Plus contributions and forfeit those contributions when you terminate employment, the Retirement Plus contributions (without an adjustment for any subsequent gains or losses), will be restored to your account, provided you are rehired before the fifth anniversary of your termination date. If you terminate employment and are later rehired, you should contact Human Resources if you have any questions about your participation in the program, including the restoration of previously forfeited benefits, including Retirement Plus contributions. Returning Veterans Special rules apply if: you leave the employer for qualified service in the Armed Forces of the United States; and you return to work with the employer while you have reemployment rights under the law. In this case the period of qualified military service may not be treated as a break in service. You should contact Human Resources if you are an employee returning from military service with reemployment rights. 24
WHAT TO DO IF A CLAIM IN DENIED Denied Claims The Program Administrator is responsible for reviewing program claims. You should receive word on your claim within 60 days after the Program Administrator has received your claim. Sometimes the review may take longer than 60 days, but if this happens you will receive a written explanation for the delay and a projected date for the decision. Regardless of the circumstances, you will receive a decision on your claim within 120 days of the initial receipt of your paperwork by the Administrator. In the case of a claim for disability benefits, you should receive word on your claim within 45 days after the Program Administrator has received your claim. If matters beyond the control of the Administrator prevent a decision from being made within 45 days, the period maybe extended for up to 30 days. You will be notified in writing of the 30-day extension prior to expiration of the initial 45-day period, the circumstances requiring the extension of time and the date when you can expect a decision. A second 30-day extension period may occur if, due to matters beyond the control of the Administrator, a decision cannot be made within the extension period. You will be notified in writing, prior to the extension of the first 30-day extension period, of the circumstances requiring the extension and the date as of which the Administrator expects to render a decision. In the case of an extension, the notice of extension will specifically explain the standards on which the entitlement is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve the issues, and you will be afforded at least 45 days within which to provide the specific information. If your claim for benefits under the program is wholly or partially denied, the Administrator will send you a written notice of the denial. This notice will include: the specific reason(s) for the denial; reference to the specific program provisions on which the denial is based; a description of the program s review procedures and the time limits applicable to these procedures, including a statement that you have the right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act following an adverse benefit determination on review; a description of any additional material or information necessary for you to complete your claim, as well as an explanation of why this additional material or information is necessary. In the case of disability benefits: if an internal rule, guideline, protocol, or other similar criterion was 25