RADIAN GROUP INC (Form: 10-K, Received: 02/25/2022 18:11:40)

RADIAN GROUP 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-11356

____________________________

RADIAN GROUP INC.

(Exact name of registrant as specified in its charter)

____________________________

Delaware

23-2691170

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

550 East Swedesford Road, Suite 350, Wayne, PA 19087

(Address of principal executive offices) (Zip Code)

(215) 231-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 par value per share	RDN	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

____________________________________________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer

☒

Accelerated Filer o

Non-Accelerated Filer o

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of June 30, 2021, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $4,164,813,673 based on the closing sale price as reported on the New York Stock Exchange. Excluded from this amount is the value of all shares beneficially owned by executive officers and directors of the registrant. These exclusions should not be deemed to constitute a representation or acknowledgment that any such individual is, in fact, an affiliate of the registrant or that there are not other persons or entities who may be deemed to be affiliates of the registrant.

The number of shares of common stock, $0.001 par value per share, of the registrant outstanding on February 23, 2022 was 175,525,591 shares.

_______________________________

DOCUMENTS INCORPORATED BY REFERENCE


			Form 10-K Reference Document
Definitive Proxy Statement for the Registrant’s 2022 Annual Meeting of Stockholders			Part III (Items 10 through 14)

Table of Contents


		Page
Glossary of Abbreviations and Acronyms		3
Cautionary Note Regarding Forward-Looking Statements—Safe Harbor Provisions		8
Summary of Risk Factors		10

PART I
Item 1	Business	12
Item 1A	Risk Factors	45
Item 1B	Unresolved Staff Comments	63
Item 2	Properties	63
Item 3	Legal Proceedings	63
Item 4	Mine Safety Disclosures	63

PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	64
Item 6	[Reserved]	64
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	65
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	98
Item 8	Financial Statements and Supplementary Data	99
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	154
Item 9A	Controls and Procedures	154
Item 9B	Other Information	155
Item 9C	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	155

PART III
Item 10	Directors, Executive Officers and Corporate Governance	155
Item 11	Executive Compensation	155
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	155
Item 13	Certain Relationships and Related Transactions, and Director Independence	156
Item 14	Principal Accountant Fees and Services	156

PART IV
Item 15	Exhibits and Financial Statement Schedules	156
Item 16	Form 10-K Summary	156

Index to Exhibits		157
Signatures		163


Table of Contents

Glossary of Abbreviations and Acronyms

The following list defines various abbreviations and acronyms used throughout this report, including the Business Section, the Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Consolidated Financial Statements, the Notes to Consolidated Financial Statements and the Financial Statement Schedules.


Term			Definition

1995 Equity Plan			The Radian Group Inc. 1995 Equity Compensation Plan, as amended
2008 Equity Plan			The Radian Group Inc. 2008 Equity Compensation Plan, as amended
2014 Equity Plan			The Radian Group Inc. 2014 Equity Compensation Plan
2017 Equity Plan			The Radian Group Inc. Equity Compensation Plan, which amended and restated the 2014 Equity Plan and was approved by our stockholders on May 10, 2017, as further amended on May 13, 2020
2021 Equity Plan			The Radian Group Inc. 2021 Equity Compensation Plan, as approved by our stockholders on May 12, 2021
2014 Master Policy			Radian Guaranty’s master insurance policy, setting forth the terms and conditions of our mortgage insurance coverage, which became effective October 1, 2014
2020 Master Policy			Radian Guaranty’s master insurance policy, setting forth the terms and conditions of our mortgage insurance coverage, which became effective March 1, 2020
2016 Single Premium QSR Agreement			Quota share reinsurance agreement entered into with a panel of third-party reinsurance providers in the first quarter of 2016 and subsequently amended in the fourth quarter of 2017
2018 Single Premium QSR Agreement			Quota share reinsurance agreement entered into with a panel of third-party reinsurance providers in October 2017 to cede a portion of Single Premium NIW beginning January 1, 2018
2020 Single Premium QSR Agreement			Quota share reinsurance agreement entered into with a panel of third-party reinsurance providers in January 2020 to cede a portion of Single Premium NIW beginning January 1, 2020
ABS			Asset-backed securities
All Other			Radian’s non-reportable operating segments and other business activities, including: (i) income (losses) from assets held by Radian Group, our holding company; (ii) related general corporate operating expenses not attributable or allocated to our reportable segments; (iii) income and expenses related to Clayton for all periods prior to our sale of this business in the first quarter of 2020; (iv) the income and expenses related to our traditional appraisal services, which we wound down beginning in the fourth quarter of 2020; and (v) certain other immaterial activities, including investments in new business opportunities
ASU			Accounting Standards Update, issued by the FASB to communicate changes to GAAP
Available Assets			As defined in the PMIERs, assets primarily including the most liquid assets of a mortgage insurer, and reduced by, among other items, premiums received but not yet earned and reinsurance funds withheld
CARES Act			Coronavirus Aid, Relief, and Economic Security Act signed into law on March 27, 2020
CFPB			Consumer Financial Protection Bureau
Claim Curtailment			Our legal right, under certain conditions, to reduce the amount of a claim, including due to servicer negligence
Claim Denial			Our legal right, under certain conditions, to deny a claim
Claim Severity			The total claim amount paid divided by the original coverage amount
Clayton			Clayton Services LLC, a former indirect subsidiary of Radian Group that was sold on January 21, 2020, through which we provided services related to loan acquisition, RMBS securitization and distressed asset reviews and servicer and loan surveillance
CLO			Collateralized loan obligations
CMBS			Commercial mortgage-backed securities
COVID-19			The novel coronavirus disease declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention in March 2020


Table of Contents


Term			Definition

COVID-19 Amendment			Amendment to the PMIERs effective June 30, 2020, primarily to recognize the COVID-19 pandemic as a nationwide “FEMA Declared Major Disaster” and to set forth guidelines on the application of the Disaster Related Capital Charge to COVID-19 Defaulted Loans
COVID-19 Crisis Period			Time period extending from March 1, 2020 to March 31, 2021
COVID-19 Defaulted Loans			All non-performing loans that either: (i) have an Initial Missed Payment occurring during the COVID-19 Crisis Period or (ii) are subject to a forbearance plan granted in response to a financial hardship related to COVID-19 (which is assumed under the COVID-19 Amendment to be the case for any loan that has an Initial Missed Payment occurring during the COVID-19 Crisis Period and is subject to a forbearance plan), the terms of which are materially consistent with the terms of forbearance plans offered by the GSEs
Cures			Loans that were in default as of the beginning of a period and are no longer in default because payments were received such that the loan is no longer 60 or more days past due
Default to Claim Rate			The percentage of defaulted loans that are assumed to result in a claim
Demotech			Demotech, Inc.
Disaster Related Capital Charge			Under the PMIERs, multiplier of 0.30 applied to the required asset amount factor for each non-performing loan: (i) backed by a property located in a FEMA Designated Area and (ii) either subject to a certain forbearance plan or with an initial default date occurring within a certain timeframe
Dodd-Frank Act			Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended
Eagle Re Issuer(s)			A group of unaffiliated special purpose insurers (VIEs) domiciled in Bermuda, comprising Eagle Re 2018-1 Ltd., Eagle Re 2019-1 Ltd., Eagle Re 2020-1 Ltd., Eagle Re 2020-2 Ltd., Eagle Re 2021-1 Ltd. and/or Eagle Re 2021-2 Ltd., which provide reinsurance coverage under Radian Guaranty’s Excess-of-Loss Program
ECF			Enterprise Capital Framework, which establishes a new regulatory capital framework for the GSEs
Equity Plans			The 1995 Equity Plan, the 2008 Equity Plan, the 2017 Equity Plan and the 2021 Equity Plan, together
ERM			Enterprise Risk Management
ESPP			The Radian Group Inc. Employee Stock Purchase Plan, as amended and restated, which was approved by our stockholders on May 9, 2018
Excess-of-Loss Program			The credit risk protection obtained by Radian Guaranty in the form of excess-of-loss reinsurance, which indemnifies the ceding company against loss in excess of a specific agreed limit, up to a specified sum. The program includes reinsurance agreements with the Eagle Re Issuers in connection with various issuances of mortgage insurance-linked notes. The program also included a separate agreement with a third-party reinsurer, representing a pro rata share of the credit risk alongside the risk assumed by Eagle Re 2018-1 Ltd., an Eagle Re Issuer.
Exchange Act			Securities Exchange Act of 1934, as amended
Extraordinary Distribution			A dividend or distribution of capital that is required to be approved by an insurance company’s primary regulator that is greater than would be permitted as an ordinary distribution (which does not require regulatory approval)
Fannie Mae			Federal National Mortgage Association
FASB			Financial Accounting Standards Board
FEMA			Federal Emergency Management Agency, an agency of the U.S. Department of Homeland Security
FEMA Designated Area			Generally, an area that has been subject to a disaster, designated by FEMA as an individual assistance disaster area for the purpose of determining eligibility for various forms of federal assistance
FHA			Federal Housing Administration
FHFA			Federal Housing Finance Agency
FHLB			Federal Home Loan Bank of Pittsburgh


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Term			Definition

FICO			Fair Isaac Corporation (“FICO”) credit scores, for Radian’s portfolio statistics, represent the borrower’s credit score at origination and, in circumstances where there are multiple borrowers, the lowest of the borrowers’ FICO scores is utilized
Fitch			Fitch Ratings, Inc.
Flow Basis			With respect to mortgage insurance, includes mortgage insurance policies that are written on an individual loan basis as each loan is originated or on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically shortly after the loans have been originated). Among other items, Flow Basis business excludes Pool Mortgage Insurance, which we originated prior to 2009.
Foreclosure Stage Default			The stage of default of a loan in which a foreclosure sale has been scheduled or held
Freddie Mac			Federal Home Loan Mortgage Corporation
GAAP			Generally accepted accounting principles in the U.S., as amended from time to time
GSE(s)			Government-Sponsored Enterprises (Fannie Mae and Freddie Mac)
HARP			Home Affordable Refinance Program
homegenius			Radian’s business segment that offers an array of title, real estate and technology products and services to consumers, mortgage lenders, mortgage and real estate investors, GSEs, real estate brokers and agents
HPA			Homeowners Protection Act of 1998
HUD			U.S. Department of Housing and Urban Development
IBNR			Losses incurred but not reported
IIF			Insurance in force, equal to the aggregate unpaid principal balances of the underlying loans
Initial Missed Payment			The first missed monthly payment, which would be reported to us as delinquent as of the last day of the month for which it was due. (For example, for a loan first reported to the approved insurer in May as having missed its payments due on April 1 and May 1, the Initial Missed Payment shall be deemed to have occurred on April 30.)
LAE			Loss adjustment expenses, which include the cost of investigating and adjusting losses and paying claims
LIBOR			London Inter-bank Offered Rate
Loss Mitigation Activity/Activities			Activities such as Rescissions, Claim Denials, Claim Curtailments and cancellations
LTV			Loan-to-value ratio, calculated as the ratio of the original loan amount to the original value of the property, expressed as a percentage
Master Policies			The Prior Master Policy, the 2014 Master Policy and the 2020 Master Policy, together
Minimum Required Asset(s)			A risk-based minimum required asset amount, as defined in the PMIERs, calculated based on net RIF (RIF, net of credits permitted for reinsurance) and a variety of measures related to expected credit performance and other factors, including the impact of the Disaster Related Capital Charge
Model Act			Mortgage Guaranty Insurance Model Act, as issued by the NAIC to establish minimum capital and surplus requirements for mortgage insurers
Monthly and Other Recurring Premiums (or Recurring Premium Policies)			Insurance premiums or policies, respectively, where premiums are paid on a monthly or other installment basis, in contrast to Single Premium Policies
Monthly Premium Policies			Insurance policies where premiums are paid on a monthly installment basis
Moody’s			Moody’s Investors Service
Mortgage			Radian’s mortgage insurance and risk services business segment, which provides credit-related insurance coverage, principally through private mortgage insurance on residential first-lien mortgage loans, as well as other credit risk management, contract underwriting and fulfillment solutions, to mortgage lending institutions and mortgage credit investors
MPP Requirement			Certain states’ statutory or regulatory risk-based capital requirement that the mortgage insurer must maintain a minimum policyholder position, which is calculated based on both risk and surplus levels
NAIC			National Association of Insurance Commissioners


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Term			Definition

NIW			New insurance written, representing the aggregate original principal amount of the mortgages underlying the Primary Mortgage Insurance
NOL			Net operating loss; for tax purposes, accumulated during years a company reported more tax deductions than taxable income. NOLs may be carried back or carried forward a certain number of years, depending on various factors which can reduce a company’s tax liability.
PDR			Premium deficiency reserve
Persistency Rate			The percentage of IIF that remains in force over a period of time
PMIERs			Private Mortgage Insurer Eligibility Requirements issued by the GSEs under oversight of the FHFA to set forth requirements an approved insurer must meet and maintain to provide mortgage guaranty insurance on loans acquired by the GSEs. The current PMIERs requirements, sometimes referred to as PMIERs 2.0, incorporate the most recent revisions to the PMIERs that became effective on March 31, 2019, as amended.
PMIERs Cushion			Under PMIERs, Radian Guaranty’s excess of Available Assets over Minimum Required Assets
Pool Mortgage Insurance			Insurance that provides a lender or investor protection against default on a group or “pool” of mortgages, rather than on an individual mortgage loan basis, generally subject to an aggregate exposure limit, or “stop loss,” and/or deductible applied to the initial aggregate loan balance of the entire pool, pursuant to the terms of the applicable insurance agreement
Primary Mortgage Insurance			Insurance that provides a lender or investor protection against default on an individual mortgage loan basis, at a specified coverage percentage for each loan, pursuant to the terms of the applicable Master Policy
Prior Master Policy			Radian Guaranty’s master insurance policy, setting forth the terms and conditions of our mortgage insurance coverage, which was in effect prior to the effective date of the 2014 Master Policy
PSPAs			Senior preferred stock purchase agreements, pursuant to which the U.S. Department of the Treasury owns the preferred stock of the GSEs
QM			Qualified mortgage; a mortgage that possesses certain low-risk characteristics that enable it to qualify for lender protection under the ability to repay rule instituted by the Dodd-Frank Act
QSR Program			The quota share reinsurance agreements entered into with a third-party reinsurance provider in the second and fourth quarters of 2012, collectively
Radian			Radian Group Inc. together with its consolidated subsidiaries
Radian Group			Radian Group Inc., our insurance holding company
Radian Guaranty			Radian Guaranty Inc., a Pennsylvania domiciled insurance subsidiary of Radian Group and our approved insurer under the PMIERs, through which we provide mortgage insurance products and services
Radian Reinsurance			Radian Reinsurance Inc., a Pennsylvania domiciled insurance subsidiary of Radian Group, through which we provide mortgage credit risk insurance and reinsurance, including through participation in credit risk transactions issued by the GSEs
Radian Settlement Services			Radian Settlement Services Inc., an indirect subsidiary of Radian Group, through which we provide title services
Radian Title Insurance			Radian Title Insurance Inc., an Ohio domiciled insurance company and an indirect subsidiary of Radian Group, through which we offer title insurance
RBC States			Risk-based capital states, which are those states that currently impose a statutory or regulatory risk-based capital requirement
Red Bell			Red Bell Real Estate, LLC, an indirect subsidiary of Radian Group, through which we provide real estate brokerage services and other related products and services
Reinstatements			Reversals of previous Rescissions, Claim Denials and Claim Curtailments
REO			Real estate owned
Rescission			Our legal right, under certain conditions, to unilaterally rescind coverage on our mortgage insurance policies if we determine that a loan did not qualify for insurance
RESPA			Real Estate Settlement Procedures Act of 1974, as amended


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Term			Definition

RIF			Risk in force; for Primary Mortgage Insurance, RIF is equal to the underlying loan unpaid principal balance multiplied by the insurance coverage percentage, whereas for Pool Mortgage Insurance, it represents the remaining exposure under the agreements
Risk-to-capital			Under certain state regulations, a maximum ratio of net RIF calculated relative to the level of statutory capital
RMBS			Residential mortgage-backed securities
RSU			Restricted stock unit
S&P			Standard & Poor’s Financial Services LLC
SaaS			Software-as-a-Service
SAFE Act			Secure and Fair Enforcement for Mortgage Licensing Act, as amended
SAP			Statutory accounting principles and practices, including those required or permitted, if applicable, by the insurance departments of the respective states of domicile of our insurance subsidiaries
SEC			United States Securities and Exchange Commission
Securities Act			Securities Act of 1933, as amended
Senior Notes due 2024			Our 4.500% unsecured senior notes due October 2024 ($450 million original principal amount)
Senior Notes due 2025			Our 6.625% unsecured senior notes due March 2025 ($525 million original principal amount)
Senior Notes due 2027			Our 4.875% unsecured senior notes due March 2027 ($450 million original principal amount)
Single Premium NIW / IIF			NIW or IIF, respectively, on Single Premium Policies
Single Premium Policy / Policies			Insurance policies where premiums are paid in a single payment, which includes policies written on an individual basis (as each loan is originated) and on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically shortly after the loans have been originated)
Single Premium QSR Program			The 2016 Single Premium QSR Agreement, the 2018 Single Premium QSR Agreement and the 2020 Single Premium QSR Agreement, collectively
SOFR			Secured Overnight Financing Rate
Stage of Default			The stage a loan is in relative to the foreclosure process, based on whether a foreclosure sale has been scheduled or held
Statutory RBC Requirement			Risk-based capital requirement imposed by the RBC States, requiring a minimum surplus level and, in certain states, a minimum ratio of statutory capital relative to the level of risk
Surplus Note due 2027			The $100 million 0.0% intercompany surplus note issued by Radian Guaranty to Radian Group, due December 31, 2027
Time in Default			The time period from the point a loan reaches default status (based on the month the default occurred) to the current reporting date
VA			U.S. Department of Veterans Affairs
VIE			Variable interest entity


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Cautionary Note Regarding Forward-Looking Statements
—Safe Harbor Provisions

All statements in this report that address events, developments or results that we expect or anticipate may occur in the future are “forward-looking statements” within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. In most cases, forward-looking statements may be identified by words such as “anticipate,” “may,” “will,” “could,” “should,” “would,” “expect,” “intend,” “plan,” “goal,” “contemplate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “seek,” “strategy,” “future,” “likely” or the negative or other variations on these words and other similar expressions. These statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management’s current views and assumptions with respect to future events. These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment where new risks emerge from time to time and it is not possible for us to predict all risks that may affect us. The forward-looking statements are not guarantees of future performance, and the forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. These risks and uncertainties include, without limitation:

■the COVID-19 pandemic, which has created periods of significant economic disruption, high unemployment, volatility and disruption in financial markets and required adjustments in the housing finance system and real estate markets. The COVID-19 pandemic has adversely impacted our businesses, and could further impact our business and subject us to certain risks, including those discussed in “Item 1A. Risk Factors—The COVID-19 pandemic adversely impacted us and, in the future, could again adversely affect our business, results of operations or financial condition;”

■changes in economic conditions that impact the size of the insurable mortgage market, the credit performance of our insured mortgage portfolio and our business prospects;

■changes in the way customers, investors, ratings agencies, regulators or legislators perceive our performance, financial strength and future prospects;

■Radian Guaranty’s ability to remain eligible under the PMIERs and other applicable requirements imposed by the FHFA and by the GSEs to insure loans purchased by the GSEs;

■our ability to maintain an adequate level of capital in our insurance subsidiaries to satisfy existing and future regulatory requirements, including the PMIERs and any changes thereto and potential changes to the Model Act;

■changes in the charters or business practices of, or rules or regulations imposed by or applicable to, the GSEs or loans purchased by the GSEs, which may include further changes in response to the COVID-19 pandemic, changes in furtherance of housing policy objectives such as the current FHFA focus on increasing the accessibility and affordability of homeownership for low- and moderate-income borrowers and minority communities, or changes in the requirements for Radian Guaranty to remain an approved insurer to the GSEs such as changes in the PMIERs or the GSEs’ interpretation and application of the PMIERs;

■the effects of the ECF which, in the form finalized in December 2020, increases the capital requirements for the GSEs and reduces the credit they receive for risk transfer, and among other things, could impact the GSEs’ operations and pricing as well as the size of the insurable mortgage market, and which may form the basis for future changes to the PMIERs;

■changes in the current housing finance system in the United States, including the roles of the FHA, the GSEs and private mortgage insurers in this system;

■our ability to successfully execute and implement our capital plans, including our risk distribution strategy through the capital markets and traditional reinsurance markets, and to maintain sufficient holding company liquidity to meet our liquidity needs;

■our ability to successfully execute and implement our business plans and strategies, including plans and strategies that require GSE and/or regulatory approvals and licenses, are subject to complex compliance requirements that we may be unable to satisfy, or may expose us to new risks including those that could impact our capital and liquidity positions;

■uncertainty from the upcoming discontinuance of LIBOR and transition to one or more alternative benchmarks that could cause interest rate volatility and, among other things, impact our investment portfolio, cost of debt and cost of reinsurance through mortgage insurance-linked notes transactions;

■any disruption in the servicing of mortgages covered by our insurance policies, as well as poor servicer performance, which could be impacted by the burdens placed on many servicers due to the COVID-19 pandemic;

■a decrease in the Persistency Rates of our mortgage insurance on Monthly Premium Policies;


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■competition in the private mortgage insurance industry generally, and more specifically: price competition in our mortgage insurance business, including as a result of formulaic, granular risk-based pricing methodologies that are less transparent than historical rate-card-based pricing practices; and competition from the FHA and VA as well as from other forms of credit enhancement, such as GSE-sponsored alternatives to traditional mortgage insurance;

■legislative and regulatory activity (or inactivity), including the adoption of (or failure to adopt) new laws and regulations, or changes in existing laws and regulations, or the way they are interpreted or applied, including potential changes in tax law and other matters currently under consideration in the U.S. Congress;

■legal and regulatory claims, assertions, actions, reviews, audits, inquiries and investigations that could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief that could require significant expenditures, new or increased reserves or have other effects on our business;

■the amount and timing of potential payments or adjustments associated with federal or other tax examinations;

■the possibility that we may fail to estimate accurately, especially in the event of an extended economic downturn or a period of extreme market volatility and economic uncertainty, the likelihood, magnitude and timing of losses in establishing loss reserves for our mortgage insurance business or to accurately calculate and/or project our Available Assets and Minimum Required Assets under the PMIERs, which will be impacted by, among other things, the size and mix of our IIF, the level of defaults in our portfolio, the reported status of defaults in our portfolio, including whether they are subject to mortgage forbearance, a repayment plan or a loan modification trial period granted in response to a financial hardship related to COVID-19, the level of cash flow generated by our insurance operations and our risk distribution strategies;

■volatility in our financial results caused by changes in the fair value of our assets and liabilities, including with respect to our use of derivatives and within our investment portfolio;

■changes in GAAP or SAP rules and guidance, or their interpretation;

■risks associated with investments to grow our existing businesses, or to pursue new lines of business or new products and services, including our ability and related costs to develop, launch and implement new and innovative technologies and digital products and services, and whether these products and services will receive broad customer acceptance;

■the effectiveness and security of our information technology systems and digital products and services, including the risk that these systems, products or services fail to operate as expected or planned or expose us to cybersecurity or third party risks, including due to malware, unauthorized access, cyber-attack, natural disasters or other similar events;

■our ability to attract and retain key employees; and

■legal and other limitations on amounts we may receive from our subsidiaries, including dividends or ordinary course distributions under our internal tax- and expense-sharing arrangements.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Summary of Risk Factors, to the more detailed discussion of our Risk Factors included in Item 1A, and to subsequent reports and registration statements filed from time to time with the SEC. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which we issued this report. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason.


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Summary of Risk Factors

Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows, and prospects. These risks are discussed more fully under “Item 1A. Risk Factors” of this Annual Report on Form 10-K and include, but are not limited to, the following material risks and uncertainties:

Risks Related to the COVID-19 Pandemic

■The COVID-19 pandemic adversely impacted us and, in the future, could again adversely affect our business, results of operations or financial condition.

Risks Related to Regulatory Matters

■Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity.

■Our insurance subsidiaries are subject to comprehensive state insurance regulations and other requirements, which we may fail to satisfy.

■Changes in the charters, business practices or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses.

■Legislation and administrative and regulatory changes and interpretations could impact our businesses.

■Our success depends on our ability to assess and manage our underwriting risks; the premiums we charge may not be adequate to compensate us for our liability for losses and the amount of capital we are required to hold against our insured risks. We expect to incur losses for future defaults beyond what we have reserved for in our financial statements.

■If the estimates we use in establishing loss reserves are incorrect, we may be required to take unexpected charges to income, which could adversely affect our results of operations.

■Our Loss Mitigation Activity is not expected to mitigate mortgage insurance losses to the same extent as in prior years; Loss Mitigation Activity could continue to negatively impact our customer relationships.

■Reinsurance may not be available, affordable or adequate to protect us against losses.

■An extension in the period of time that a loan remains in our defaulted loan inventory may increase the severity of claims that we ultimately are required to pay.

■If the length of time that our mortgage insurance policies remain in force declines, it could result in a decrease in our future revenues.

■Our delegated underwriting program may subject our mortgage insurance business to unanticipated claims.

■Our mortgage insurance business faces intense competition.

■Our NIW and franchise value could decline if we lose business from significant customers.

■The current financial strength ratings assigned to our mortgage insurance subsidiaries could weaken our competitive position and potential downgrades by rating agencies to these ratings and the ratings assigned to Radian Group could adversely affect the Company.

■Our business depends, in part, on effective and reliable loan servicing.

■We face risks associated with our contract underwriting business.

■A decrease in the volume of mortgage originations could result in fewer opportunities for us to write new mortgage insurance business and conduct our homegenius business.

■We are exposed to risks associated with our homegenius business that could negatively affect our results of operations and financial condition.

■We rely upon proprietary technology and information, and if we are unable to protect our intellectual property rights, it could have a material adverse effect on us.


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■The credit performance of our mortgage insurance portfolio is impacted by macroeconomic conditions and specific events that affect the ability of borrowers to pay their mortgages.

■Our success depends, in part, on our ability to manage risks in our investment portfolio.

■Climate change and extreme weather events could adversely affect our businesses, results of operations and financial condition.

■Our reported earnings, stockholders’ equity and book value per share are subject to fluctuations based on changes in our investments that require us to adjust their fair market value.

■The discontinuance of LIBOR may adversely affect us.

■Radian Group’s sources of liquidity may be insufficient to fund its obligations.

■Our revolving credit facility contains restrictive covenants that could limit our operating flexibility. A default under our credit facility could trigger an event of default under the terms of our senior notes. We may not have access to funding under our credit facility when we require it.

■Our information technology systems may fail or become outmoded, be temporarily interrupted or otherwise cause us to be unable to meet our customers’ demands.

■We could incur significant liability or reputational harm if the security of our information technology systems is breached, including as result of a cyberattack, or we otherwise fail to protect confidential information, including personally identifiable information that we maintain.

■We may not continue to pay dividends at the same rate we are currently paying them, or at all, and any decrease in or suspension of payment of a dividend could cause our stock price to decline.

■We are subject to litigation and regulatory proceedings.

■We rely on our management team and our business could be harmed if we are unable to retain qualified personnel or successfully develop and/or recruit their replacements.

■Investments to grow our existing businesses, pursue new lines of business or new products and services within existing lines of business subject us to additional risks and uncertainties.


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PART I

Item 1. Business

Index to Item 1


Item			Page
General			12
Mortgage			15
homegenius			22
All Other			24
Competition			24
Customers			26
Sales and Marketing			26
Investment Policy and Portfolio			27
Enterprise Risk Management			28
Human Capital Management			30
Regulation			32

General

Overview

We are a diversified mortgage and real estate services business. We provide mortgage insurance and other products and services to the real estate and mortgage finance industries through our two business segments—Mortgage and homegenius. While we manage and report on these two segments separately, we take an enterprise approach under our “One Radian” strategy, which leverages the value of our employees across our diversified businesses to better serve our customers.

Our Mortgage segment aggregates, manages and distributes U.S. mortgage credit risk on behalf of mortgage lending institutions and mortgage credit investors, principally through private mortgage insurance on residential first-lien mortgage loans, and also provides other credit risk management, contract underwriting and fulfillment solutions to our customers. Our homegenius segment offers an array of title, real estate and technology products and services to consumers, mortgage lenders, mortgage and real estate investors, GSEs and real estate brokers and agents. See Notes 1 and 4 of Notes to Consolidated Financial Statements for further details of our businesses, including the renaming of the homegenius segment in 2021 to align with updates to our brand strategy.

Radian Group serves as the holding company for our insurance and other subsidiaries, through which we offer our products and services, and does not have any operations of its own. Our principal executive offices are located at 550 East Swedesford Road, Suite 350, Wayne, PA 19087, and our telephone number is (215) 231-1000.

Available Information

Our website address is www.radian.com. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC.

In addition, our guidelines of corporate governance, code of business conduct and ethics (which includes the code of ethics applicable to our chief executive officer, principal financial officer and principal accounting officer) and the governing charters for each standing committee of Radian Group’s board of directors are available free of charge on our website, as well as in print, to any stockholder upon request.

The public may read materials we file with the SEC, including reports, proxy and information statements, and other information, on the Internet site maintained by the SEC. The address of that site is www.sec.gov.


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The above references to our website and the SEC’s website do not constitute incorporation by reference of the information contained on the websites and such information should not be considered part of this document.

Business Strategy

We are strategically focused on supporting the American dream of affordable and sustainable homeownership by delivering innovative solutions combined with superior levels of service to our customers across the residential mortgage and real estate spectrum through our two business segments. In pursuing these objectives, we expect to increase value creation for our stakeholders.

Consistent with these objectives, our business strategy, as highlighted below, is focused on growing our businesses, diversifying our revenue sources and seeking to optimize our capital and liquidity, while maintaining an emphasis on risk management, human capital management and long-term profitability. To help achieve these objectives, we seek to continuously improve and leverage our operational excellence and the strength of our “One Radian” brand.

A key element of our business strategy is to complement and diversify our business and revenue streams by increasing our participation in multiple facets of the residential real estate and mortgage finance markets while also building competitive differentiation within our Mortgage business. Under our homegenius brand, we are focused on growing our homegenius businesses to meet increased market demand for digital products and services across our title, real estate and technology business platforms. See “homegenius—homegenius Business Overview” for additional information about our homegenius business. With respect to our Mortgage business, we continue to seek and develop new and innovative opportunities to build upon our core mortgage credit risk competencies by expanding our mortgage market presence and further diversifying our revenue streams.


Radian’s Long-Term Strategic Objectives
■Grow and diversify our Mortgage and homegenius businesses through innovative business models that leverage the strength of our One Radian brand and the value of operating excellence to: ▪Continue to grow the economic value of our insured mortgage portfolio by writing profitable NIW ▪Leverage our industry knowledge, core competencies and strong market position to develop opportunities to expand our mortgage market presence ▪Build the homegenius brand and continue to position our title, real estate and technology products and services for long-term growth in revenues and value contribution ▪Continue to expand our Mortgage and homegenius market presence by leveraging the value of our One Radian enterprise sales relationships and our multi-channel marketing model ▪Further utilize the quality, performance and scale of our operations and delivery of products and services as a strategic and competitive differentiator ■Maintain strong comprehensive enterprise risk management and risk/return discipline based on sound data and analytics ■Optimize our capital and liquidity position to ensure ongoing compliance with PMIERs, build strategic financial flexibility to support our growth and diversification plans and increase stockholder value ■Strengthen our One Radian team by building upon our inclusiveness and diversity, developing our talent for future success, fostering a culture based on our values and mission and utilizing data and analytics to adapt for the future

In our mortgage insurance business, we evaluate the projected long-term economic value of our insured portfolio by using a measure that incorporates expected lifetime returns for our insurance policies, taking into consideration projected premiums, credit losses, investment income, operating expenses, taxes and an assumed cost of capital. This projected economic value is then discounted to arrive at an estimated present value of the long-term economic value of our insured portfolio. We use this economic value to assist us in evaluating various portfolio strategies and identify opportunities to create stockholder value. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Mortgage Insurance Portfolio” for more information about our insured portfolio.

2021 Highlights

Below are highlights of key accomplishments that contributed to our financial and operating results during 2021 in support of our long-term strategic objectives.


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Key Accomplishments for 2021
■Delivered strong financial results, driven by improved credit performance in our Mortgage segment and accelerating revenue growth in our homegenius segment ▪Earned consolidated pretax income of $764.8 million and net income of $600.7 million, or $3.16 net income per diluted share, in 2021, compared to consolidated pretax income of $479.4 million and net income of $393.6 million, or $2.00 net income per diluted share, in 2020, aided by significant improvement in our provision for losses from $485.1 million in 2020 to $20.9 million in 2021 ▪Adjusted pretax operating income(1) was $757.7 million, or $3.15 per diluted share, in 2021 compared to $432.1 million, or $1.74 per diluted share, in 2020 ▪Wrote $91.8 billion of NIW, the second highest annual volume in our 45-year history, contributing to our IIF of $246.0 billion at December 31, 2021 ▪Increased homegenius revenues by 45.5%, from $102.4 million in 2020 to $149.1 million in 2021 ▪Book value per share at December 31, 2021 was $24.28, an increase of 8.6% compared to $22.36 at December 31, 2020
■Executed on our strategic plan to grow and diversify our businesses by leveraging our One Radian model and strengthening our operations ▪Rebranded our suite of title, real estate and technology products and services as homegenius ▪Grew our title revenues in 2021 by 72.6%, closing 58 thousand title orders in 2021 ▪Increased our revenue from real estate services, which include asset management and valuation products and services, 26.1% from 2020 ▪Developed several new technology products, including a property intelligence platform and a smart workflow system for real estate brokers, agents and lenders
■Maintained a strong risk culture, as demonstrated by ongoing risk distribution strategies, disciplined and granular risk-based pricing and expanded use of data and analytics to inform decision making ▪Executed two insurance-linked note reinsurance transactions in 2021, providing Radian Guaranty with approximately $1 billion of additional credit-risk protection, enhancing our PMIERs Cushion and improving our risk profile ▪Continued to monitor and grow the economic value of our insured mortgage portfolio by leveraging granular, risk-adjusted pricing and new technologies to identify strategies to maximize the economic value of projected NIW ▪Expanded our risk informed underwriting program to cover a majority of mortgage insurance applications, leveraging analytics to identify efficiency opportunities ▪Continued to enhance our risk analytics, including customer and servicer segmentation, loss mitigation reporting, servicer dashboards and underwriting surveillance
■Further strengthened our capital and liquidity profile, while enhancing financial flexibility and returning value to stockholders ▪Resumed our share repurchase program, repurchasing 17.8 million shares in 2021 for a total of $399.1 million, at an average share price of $22.48, including commissions ▪Increased our quarterly cash dividend by 12% from $0.125 to $0.14 per share, beginning with the dividend declared in the second quarter of 2021 ▪Increased the excess of Available Assets over Minimum Required Assets under PMIERs by $738.6 million to $2.1 billion at December 31, 2021, or 62% more than the Minimum Required Assets under PMIERs ▪Maintained available holding company liquidity of $604.9 million at December 31, 2021 ▪Entered into a new, five-year $275 million unsecured revolving credit facility in December 2021
■Continued to prioritize the well-being and development of our people, by fostering and promoting initiatives to employ diverse talent and ensure an inclusive workforce that can work safely and flexibly ▪Developed and deployed a new people plan, including the creation of employee and leader profiles to serve as guideposts for capabilities to build throughout our workforce ▪Completed talent reviews and succession planning for leaders throughout the Company ▪Supported an organizational effectiveness assessment and internal realignment to ensure our businesses are well positioned to focus and deliver on key priorities ▪Implemented a diversity, equity and inclusion (“DEI”) roadmap, including DEI training for all employees, expansion of our employee resource group program and completion of a pay equity analysis ▪Ensured thoughtful business resiliency and safety controls for our employees through our COVID crisis management team, with active communications and strong support for remote working arrangements

(1)Adjusted pretax operating income is a non-GAAP measure. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Consolidated—Use of Non-GAAP Financial Measures” for the definition and reconciliation of this measure to the most comparable GAAP measure, consolidated pretax income.


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See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information on our results of operations and other details related to our Mortgage and homegenius businesses.

Mortgage

Mortgage Business Overview

Private mortgage insurance plays an important role in the U.S. housing finance system because it promotes affordable home-ownership and helps protect mortgage lenders and investors, as well as other beneficiaries such as the GSEs, by mitigating default-related losses on residential mortgage loans. Generally, these loans are made to home buyers who make down payments of less than 20% of the purchase price for their home or, in the case of refinancings, have less than 20% equity in their home. Private mortgage insurance also facilitates the sale of these loans in the secondary mortgage market, most of which are currently sold to the GSEs.

The performance of our Mortgage business is particularly influenced by macroeconomic conditions and specific events that impact the housing finance and real estate markets, including events that impact mortgage originations and the credit performance of our mortgage insurance portfolio, most of which are beyond our control, including housing prices, inflationary pressures, unemployment levels, interest rate changes, the availability of credit and other national and regional economic conditions. In Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, see “Results of Operations—Mortgage” and “Key Factors Affecting Our Results—Mortgage.”

Our Mortgage business is subject to comprehensive regulation by federal and state regulatory authorities and the GSEs. As the largest purchasers of conventional mortgage loans, and therefore, the main beneficiaries of private mortgage insurance, the GSEs impose eligibility requirements, known as PMIERs, that private mortgage insurers must satisfy in order to be approved to insure loans purchased by the GSEs. These requirements and practices, as well as those of the federal regulators that oversee the GSEs and lenders, impact the operating results and financial performance of private mortgage insurers. See “Regulation” for a comprehensive description of the significant state and federal regulations and other requirements of the GSEs that are applicable to our businesses.

Mortgage Insurance Products

Primary Mortgage Insurance

We generally provide Primary Mortgage Insurance on an individual loan basis as each mortgage is originated, but we also can provide Primary Mortgage Insurance on individual loans in an aggregate group of mortgages after they have been originated. We primarily write insurance in a “first loss” position, where we are responsible for the first losses incurred on an insured loan subject to a policy limit. See “—Mortgage Insurance Portfolio Characteristics—Mortgage Loan Characteristics.”

The terms of our Primary Mortgage Insurance coverage are set forth in a Master Policy that we enter into with each of our customers. Among other things, our Master Policies set forth the applicable terms and conditions of our mortgage insurance coverage, including among others: loan eligibility requirements; premium payment requirements; coverage terms, including cancellation of coverage; provisions for policy administration; mortgage servicing standards and requirements; exclusions or reductions in coverage under certain circumstances; insurance rescission and rescission relief provisions; claims payment and settlement procedures; and dispute resolution procedures. Our Master Policy forms, which are updated periodically, including in response to requirements issued by the GSEs, are filed in each of the jurisdictions in which we conduct business. Our Master Policy form was last updated on a broad basis in 2020, when most private mortgage insurers adopted a uniform master policy. See “—Defaults and Claims—Claims Management—Rescissions.”

Primary Mortgage Insurance provides protection against mortgage defaults at a specified coverage percentage. When there is a valid claim under Primary Mortgage Insurance, the maximum liability is determined by multiplying the claim amount, which consists of the unpaid loan principal, plus past due interest and certain expenses associated with the default, by the coverage percentage. Claims may be settled for the maximum liability or for other amounts. See “—Defaults and Claims—Claims Management” below. Although the Primary Mortgage Insurance we write protects lenders from a portion of losses resulting from mortgage defaults, it generally does not provide protection against property loss or physical damage, including damage caused by hurricanes or other severe weather events or natural disasters.

We wrote $91.8 billion and $105.0 billion of first-lien Primary Mortgage Insurance in 2021 and 2020, respectively. Substantially all of our Primary Mortgage Insurance written during 2021 and 2020 was written on a Flow Basis. After taking into consideration insurance cancellations and other adjustments within our existing portfolio, our 2021 NIW resulted in IIF of $246.0 billion at December 31, 2021, compared to $246.1 billion at December 31, 2020. Our total direct Primary Mortgage Insurance RIF was $60.9 billion at December 31, 2021, compared to $60.7 billion at December 31, 2020.


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Other Mortgage Insurance Products

GSE Credit Risk Transfer. Part of our business strategy includes leveraging our core expertise in credit risk management to expand our presence in the mortgage finance industry, including by pursuing alternatives to traditional mortgage insurance execution to expand our insured portfolio of mortgage credit. We have in the past and may in the future participate in credit risk transfer programs developed by the GSEs as part of their programs to further distribute mortgage credit risk and increase the role of private capital in the mortgage market. These programs transfer additional credit risk, on an excess of loss basis, to insurance and reinsurance providers on pools of mortgage loans, which may contain loans that are already covered by private mortgage insurance. Our total RIF under these credit risk transfer transactions was $417.7 million as of December 31, 2021, compared to $392.0 million as of December 31, 2020.

Given the remote nature of this risk, we will not experience claims under these credit risk transfer transactions unless the borrower’s equity in the home, any existing private mortgage insurance (if applicable and which could be provided by us) and the GSEs’ retained risk are first depleted. Through our participation in these GSE transactions, we assume additional types of risk (beyond that which we typically cover in our traditional mortgage insurance business) associated with the risk of defaults caused by physical damage, including natural disasters such as hurricanes and wildfires, which generally are not covered by the underlying private mortgage insurance. In addition to the projected returns we may achieve on this business, we regularly evaluate this exposure, including the geographic diversity of the loans included in these transactions and the protection provided by the GSEs’ first-loss risk position, in assessing our participation in these transactions. Based on our view of the projected returns on this business, including consideration of the collateral and capital required by the GSEs to support this RIF, we discontinued our participation in the GSEs’ credit risk transfer transactions in 2021, but we could resume our participation in these transactions in the future.

Pool Mortgage Insurance. Prior to 2008, we wrote Pool Mortgage Insurance on a limited basis. At December 31, 2021, our total direct first-lien Pool Mortgage Insurance RIF was $245.5 million, as compared to $281.0 million at December 31, 2020, and represented less than 1% of our total direct first-lien insurance RIF. With respect to our Pool Mortgage Insurance, an aggregate exposure limit, or “stop loss” (usually between 1% and 10%), is generally applied to the initial aggregate loan balance on a group or “pool” of mortgages. In addition, an insured pool of mortgages may contain mortgages that are already covered by Primary Mortgage Insurance. In these transactions, Pool Mortgage Insurance is secondary to any Primary Mortgage Insurance that exists on mortgages within the pool. Our Pool Mortgage Insurance policies are privately negotiated and are separate from the Master Policies that we use for our Primary Mortgage Insurance.

Pricing

Primary Mortgage Insurance Premiums

We apply premium rates to our insurance coverage at the time coverage is requested by our lender customers, which is generally near the time of loan origination. Premiums for our mortgage insurance products are generally established based on performance models that consider a broad range of borrower, loan and property characteristics as well as current and projected market and economic conditions. Our premium rates are subject to regulation, and in most states where our insurance subsidiaries are licensed, the formulations by which we derive our premiums must be filed, and in some cases approved, before their use. See “Regulation—State Regulation.”

We have developed our pricing strategy to manage the risk/return profile and maximize the long-term economic value of our insured portfolio by balancing credit risk, profitability and volume considerations in light of the current and projected competitive environment. Consistent with this strategy, our premium rates are based on a broad range of factors including our expectations about competitive and economic conditions and cost of capital, as well as other factors and risk attributes that we consider in developing our assumptions about loan and policy performance.

Premiums on our mortgage insurance products generally are written on either: (i) a recurring basis, which can be monthly or annual premiums, pursuant to our Monthly and Other Recurring Premium Policies or (ii) as a single premium generally paid at the time of loan origination pursuant to our Single Premium Policies. We also offer products where premiums are paid as a combination of an up-front premium at origination, plus a monthly installment. In addition, premiums may include a refundable component. While the majority of our policies terminate when certain criteria, such as prescribed LTV levels, are met, some of our products provide coverage for the life of the loan, subject to certain conditions. There are many factors that influence the types of premiums we receive, including, among others: (i) the preference of customers with whom we do business; (ii) the relative premium levels we and our competitors set for the various forms of premiums offered; and (iii) the percentage of mortgage originations derived from new home purchases versus refinancing transactions, as refinances have historically been more likely to be written as Single Premium Policies.

Mortgage insurance premiums can be funded through a number of methods, and while the coverage remains for the benefit of the insured lender or third-party beneficiary, the premiums may be paid by the borrower or by the lender. Borrower-paid Monthly and Other Recurring Premiums are generally paid to us as part of the borrower’s monthly mortgage payment, while borrower-paid premiums under our Single Premium Policies are paid to us at the time of closing on the home purchase.


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Lender-paid mortgage insurance premiums are paid by the lender and are typically passed through to the borrower in the form of additional origination fees or a higher interest rate on the mortgage note.

The premium rates on a majority of our Monthly and Other Recurring Premium Policies were established as a fixed percentage of the initial loan balance for a set period of time (typically 10 years), after which the premium generally declines to a lower fixed percentage for the remaining life of the policy. The premium rates on the remaining Monthly and Other Recurring Premium Policies within our insured portfolio were established as a fixed percentage of the loan’s amortizing balance over the life of the policy.

Historically, premiums in the mortgage insurance industry were primarily established through filed rate-cards. Beginning on a broad basis in 2019, the mortgage insurance industry began to widely use various pricing methodologies with differing degrees of risk-based granularity. Although these more recent pricing frameworks are based upon the same general risk attributes that historically have been a part of mortgage insurance pricing, they are incorporating into the underlying pricing tools more granular risk-based pricing factors based on multiple loan, borrower and property attributes.

The shift away from a predominantly rate-card based pricing model and the increase in “black box” pricing frameworks throughout the mortgage insurance industry provides a more dynamic pricing capability that allows for more frequent pricing changes that can be implemented quickly and has contributed to a reduction in overall pricing transparency. Further, in addition to the growing proliferation of black box pricing, industry pricing practices in recent years have also included an increased use of customized rate plans for certain customers, pursuant to which rates may be awarded to customers for only a limited period of time. With the increased prevalence of granular, “black box” pricing and the greater uniformity of master policy terms throughout the industry, pricing has become the predominant competitive market factor for private mortgage insurance and an increasing number of customers are making their choice of mortgage insurance providers primarily based on the lowest price available for any particular loan.

Overall, our approach to pricing is customer-centric and flexible; therefore, we offer a spectrum of risk-based pricing solutions for our customers. This approach represents a continuation of our strategy to pursue multiple pricing delivery options that are best suited to a lender’s loan origination process and balanced with our own objectives for managing our volume of NIW and the economic value derived from our mortgage insurance portfolio. See “Item 1A. Risk Factors—Our mortgage insurance business faces intense competition.”

GSE Credit Risk Transfer Premiums

Premium rates for credit risk transfer transactions are established through a sealed-bid auction process in which we and other potential insurers/reinsurers provide their desired allocation of the offering(s) at a specified premium rate to the GSE. We evaluate each transaction, and if we choose to participate, we develop our bid based on performance models that consider a broad range of borrower, loan and property characteristics as well as market and forecasted future economic conditions. After completion of the auction process, the GSEs set a uniform premium based on an assessment of the bids received and, based on their desired counterparty exposure, assign allocations to insurers/reinsurers up to their requested bid amounts, if the pricing is at or above their specified premium rate. As noted above, we discontinued our participation in these transactions in 2021, but we could resume our participation in these transactions in the future.

Underwriting

Mortgage loan applications are underwritten to determine whether they are eligible for our mortgage insurance. We perform this function directly or, alternatively, we delegate to our insured lenders the ability to underwrite the mortgage loans based on compliance with our underwriting guidelines.

Delegated Underwriting. Through our delegated underwriting program, we approve insured lenders to underwrite mortgage loan insurance applications based on our mortgage insurance underwriting guidelines. Each lender participating in the delegated underwriting program must be approved by our risk management group. Utilization of our delegated underwriting program enables us to meet lenders’ demands for immediate mortgage insurance coverage and increases the efficiency of the underwriting process. We use quality control sampling and performance monitoring to manage the risks associated with delegated underwriting. Under the terms of the program, we have certain rights to rescind coverage if there has been a deviation from our underwriting guidelines. For a discussion of these limited Rescission rights, see “—Defaults and Claims—Claims Management—Rescissions.” As of December 31, 2021 and 2020, 69% and 67% of our total first-lien IIF had been originated on a delegated basis, respectively.

Non-Delegated Underwriting. Approved insured lenders may submit mortgage loan applications to us so that we may perform the mortgage insurance underwriting. Some customers prefer our non-delegated underwriting program because we assume responsibility for underwriting the mortgage insurance and, subject to the terms of our Master Policies, generally have less ability to rescind coverage if there is an underwriting error. We leverage loan application data and analytics to categorize mortgage insurance applications based on credit risk and underwriting complexity to improve efficiency in our process and to ensure a heightened focus on the higher risk, complex applications. We use quality control sampling, loan performance monitoring and training to manage the risks associated with our non-delegated underwriting program. As of December 31, 2021 and 2020, 26% and 28% of our total first-lien IIF had been originated on a non-delegated basis, respectively.


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Contract Underwriting. We also provide third-party contract underwriting services to our mortgage insurance customers pursuant to which we underwrite the mortgage loan for compliance with investor guidelines, which if necessary, may be separate from or in addition to underwriting for our mortgage insurance eligibility. Generally, we offer limited indemnification to our contract underwriting customers. To manage the risks associated with contract underwriting, we train our underwriters, require them to complete continuing education and routinely audit performance to monitor the accuracy and consistency of underwriting practices. As of both December 31, 2021 and 2020, 5% of our total first-lien IIF had been underwritten through contract underwriting.

Mortgage Insurance Portfolio Characteristics

Direct Risk in Force

Exposure in our mortgage insurance business is measured by RIF, which for Primary Mortgage Insurance is equal to the unpaid principal balance of the loan multiplied by our insurance coverage percentage. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Mortgage Insurance Portfolio—Insurance and Risk in Force” for additional information about the composition of our Primary RIF.

We analyze our mortgage insurance portfolio in a number of ways to identify any concentrations or imbalances in risk dispersion. We believe that, among other factors, the credit performance of our mortgage insurance portfolio is affected significantly by:

■general economic conditions (in particular, interest rates, home prices and unemployment);

■the age and performance history of the loans insured;

■the geographic dispersion and other characteristics of the properties securing the insured loans, such as the primary purpose of the properties, and the condition of local housing markets, including whether the properties are increasing or decreasing in value over time;

■the quality of loan underwriting and servicing; and

■the number of borrowers and credit characteristics of the borrower(s) and the characteristics of the loans insured, including the amount of the loan compared to the value of the home.

Persistency Rate

The Persistency Rate is the measure that assesses the amount of time that our insurance is remaining in force. The amount of time that our insurance certificates remain in force has a significant impact on our revenues and our results of operations. Because premiums on our Recurring Premium Policies are earned over time, higher Persistency Rates on these policies increase the premiums we receive and generally result in increased profitability and returns. Conversely, assuming all other factors remain constant, higher Persistency Rates on Single Premium business lower the overall returns from our insured portfolio, as the premium revenue for our Single Premium Policies is the same regardless of the actual life of the insurance policy.

The Persistency Rate reflects the impact that certificate cancellations have on our IIF and the future premiums that we expect to earn over time. Provided that all required premiums are paid, coverage for a loan under our Master Policy generally will be cancelled on the first of the following to occur: (i) the loan insured under the certificate is paid in full; (ii) we settle a claim with respect to the certificate; (iii) we act upon the insured’s or its servicer’s instruction to cancel coverage under the certificate, including as may be required by the HPA or pursuant to GSE guidelines; (iv) the term of coverage expires under the premium plan or upon the terms specified in the certificate; or (v) we cancel, rescind or deny coverage under the certificate.

Loan payoff following a refinance will result in cancellation of coverage and, as a result, historically there is a close correlation between interest rates and Persistency Rates, with lower interest rate environments generally increasing refinancings that increase the cancellation rate of our insurance and therefore lower our Persistency Rate. See “Regulation— Federal Regulation—Mortgage Insurance Cancellation” for more information regarding cancellation and termination requirements for borrower-paid private mortgage insurance meeting certain criteria under the HPA. Additionally, in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, see “Key Factors Affecting Our Results—Mortgage—IIF and Related Drivers” and “Mortgage Insurance Portfolio—Insurance and Risk in Force” for more information.

Geographic Dispersion

Radian Guaranty is authorized to write mortgage insurance in all 50 states, the District of Columbia and Guam. We have a geographically diversified mortgage insurance portfolio and we proactively monitor the portfolio for concentration risks at both the state level and metropolitan area level known as Core Based Statistical Areas (“CBSAs”). As of December 31, 2021, three states with the highest amounts of RIF accounted for 24.7% of our RIF, with the highest state concentration being 9.3% in California.


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See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Mortgage Insurance Portfolio—Insurance and Risk in Force—Geographic Dispersion” for additional information about the geographic dispersion of our direct Primary Mortgage Insurance. Also, in Item 1A. Risk Factors, see “The credit performance of our mortgage insurance portfolio is impacted by macroeconomic conditions and specific events that affect the ability of borrowers to pay their mortgages” and “Climate change and extreme weather events could adversely affect our businesses, results of operations and financial condition.”

Mortgage Loan Characteristics

Factors that contribute significantly to our overall risk diversification and the credit quality of our RIF include, among others, geographic dispersion, as discussed above, as well as our mix of mortgage insurance products, underwriting and our risk management practices. In evaluating the credit quality of our portfolio and developing our pricing and risk management strategies, we consider a number of borrower, loan and property characteristics in assessing our risk of loss, including LTV and FICO score, as well as a number of other loan and property characteristics, including, without limitation, debt-to-income ratio, average loan size, property type, occupancy type, loan purpose and number of borrowers. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Mortgage Insurance Portfolio” for additional information about the credit quality and characteristics of our direct Primary Mortgage Insurance.

Defaults and Claims

Defaults

In our Mortgage segment, the default and claim cycle begins with the receipt of a default notice from the loan servicer. We consider a loan to be in default for financial statement and internal tracking purposes upon receipt of notification by servicers that a borrower has missed two monthly payments. Defaults can occur due to a variety of specific events affecting borrowers, including death or illness, divorce or other family problems, unemployment, factors impacting economic conditions (e.g., regional economic disruptions or disaster related events such as epidemics/pandemics, hurricanes, floods, tornados and wildfires) or other events. Regional economic disruptions derived from natural disasters may be exacerbated by climate change and related environmental factors, which could increase the frequency, scope and intensity of such disasters.

The default rate in our mortgage insurance business is subject to seasonality. Historically, our mortgage insurance business experiences a fourth quarter seasonal increase in the number of defaults and a first quarter seasonal decline in the number of defaults and increase in the number of Cures. While historically this has been the case, macroeconomic factors in any given period may influence the default rate in our mortgage insurance business more than seasonality.

Currently, a segment of U.S. residential mortgage loans may be subject to, or eligible for, certain types of relief as a result of the legislative response to COVID-19, including the CARES Act. Upon request by borrowers of federally or GSE-backed mortgage loans who attest to financial hardship related to the pandemic, the CARES Act requires mortgage servicers to provide these borrowers with up to 180 days forbearance on their mortgage payments, which may be extended for an additional 180 days upon request. The permissible forbearance period of 12 months under the CARES Act has been lengthened by various federal agencies and the length of the period varies depending on the agency, type of mortgage at issue and the date when the borrower initially requested the forbearance. The CARES Act does not provide a defined end date for when the 180-day forbearance must initially be offered. It is possible that the ability to request an initial forbearance may cease when the COVID-19 National Emergency ends. COVID-19 was most recently declared a continuing national emergency on February 24, 2021.

As COVID-19 forbearances end, federal law requires servicers to discuss forbearance and loss mitigation options with their borrowers and afford additional protections to borrowers before their loans are referred to foreclosure. Additionally, the CARES Act provided a temporary foreclosure and eviction moratorium for residential mortgagors with certain federally or GSE-backed mortgages. After being extended multiple times, these moratoriums have expired; however, the existence of these moratoriums significantly impacted the claims process in 2020 and 2021 by preventing the procedural steps necessary for a claim under our insurance policies to be filed, as discussed below under “—Claims.” See “Regulation—Federal Regulation—CARES Act.” While the CARES Act and related federally mandated borrower relief has provided critical support to the housing finance system throughout the pandemic, the ultimate performance of loans that remain in forbearance is not yet known. See “Item 1A. Risk Factors—An extension in the period of time that a loan remains in our defaulted loan inventory may increase the severity of claims that we ultimately are required to pay.”

Claims

Defaulted loans that fail to become current, or “cure,” may result in a claim under our mortgage insurance policies. Mortgage insurance claim volume is determined by the circumstances surrounding the default. The rate at which defaults cure, or do not go to claim, depends in large part on a borrower’s financial resources and circumstances (including whether the borrower is eligible for a loan modification), local housing prices (i.e., whether borrowers are able to cure defaults by selling the property in full satisfaction of all amounts due under the mortgage), interest rates, unemployment, inflationary pressures and other factors impacting economic conditions.


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In our first-lien Primary Mortgage Insurance business, in order to submit a claim, the insured must first either acquire title to the property (typically through a foreclosure proceeding) or we must approve a third-party sale of the property. The time for a lender to acquire title to a property through foreclosure varies depending on the state, and in particular whether a state requires a lender to proceed through the judicial system to complete the foreclosure. Claim activity is not spread evenly throughout the coverage period of a book of business. Historically, except for periods of economic distress, we have experienced relatively few claims during the first two years following issuance of a policy.

In recent years, the average time for us to receive a claim has increased as a result of COVID-19-related relief programs discussed above. For example, payment and foreclosure forbearance programs instituted at the federal and state levels in response to the COVID pandemic have caused defaulted loans to remain in our defaulted loan inventory for a protracted period of time. See “Item 1A. Risk Factors—An extension in the period of time that a loan remains in our defaulted loan inventory may increase the severity of claims that we ultimately are required to pay.”

For Pool Mortgage Insurance, which represents less than 1% of our RIF at December 31, 2021, our policies typically require the insured to not only acquire title but also to actively market and ultimately liquidate the real estate asset before filing a claim, which generally lengthens the time between a default and a claim submission.

In addition to claim volume, Claim Severity is another significant factor affecting losses. We calculate the Claim Severity by dividing the claim paid amount by the original coverage amount. Factors that impact the severity of a claim include, but are not limited to, the size of the loan, the amount of mortgage insurance coverage placed on the loan, the amount of time between default and claim during which we are expected to cover certain interest (capped at two years under our Prior Master Policy and capped at three years under our 2014 and 2020 Master Policies) and expenses, and the impact of our Loss Mitigation and other loss management activities with respect to the loan.

Home price appreciation as well as pre-foreclosure sales, acquisitions and other early workout efforts help to reduce overall Claim Severity, as do actions we may take to reduce a claim payment due to servicer negligence, as discussed below in “—Claims Management.” See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Mortgage—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020—Provision for Losses.”

Claims Management

Our claims management process is focused on analyzing and processing claims to ensure that we pay valid claims in accordance with our policies. Our mortgage insurance claims management department pursues opportunities to mitigate losses both before and after claims are received.

In our mortgage insurance business, upon receipt of a valid claim, we have a range of settlement options for calculating the claim amount (also referred to as calculated loss), as set forth in our Master Policies. Most frequently, we settle a valid claim with the “Percentage Option” by paying the maximum liability and allowing the insured lender to keep title to the property. For this purpose, the maximum liability is determined by multiplying (x) the claim amount (which consists of the unpaid loan principal, plus past due interest for a period of time specified in our Master Policies, plus certain expenses associated with the default, and minus certain deductions) by (y) the applicable coverage percentage. We also have the following alternative settlement options:

(i)Approved Sale Option: Subject to any reduction provided for elsewhere in our policy, we may pay the claim amount (not to exceed the lender’s entire loss or our maximum liability under the Percentage Option) by taking into account the net proceeds received by the lender following an approved sale such as a “short sale” or “deed-in-lieu” transaction;

(ii)Acquisition Option: Subject to any reduction provided for elsewhere in our policy, we may pay the entire claim amount (as described above but without application of the coverage percentage) upon the conveyance to us of good and marketable title to the property; or

(iii)Anticipated Loss Option: In certain circumstances, as outlined in our Master Policies, the settlement is primarily based on the claim amount minus the net proceeds we reasonably anticipate would be generated if the property, in its original condition on the effective insurance commitment date, reasonable wear and tear excepted, were sold to a third party for fair market value.

Approved sales in which the underlying property has been sold for less than the outstanding loan amount are commonly referred to as “short sales.” Although short sales may have the effect of reducing our ultimate claim obligation, in many cases, a short sale will result in the payment of a claim in an amount that is equal to the maximum liability amount under the Percentage Option.

Under our Master Policies, we retain the right to consent prior to consummation of any short sale. We have entered into agreements with each of the GSEs pursuant to which we delegate to the GSEs our prior consent rights with respect to short sales on loans owned by the GSEs, as long as the short sales meet applicable GSE guidelines and processes for short sales and subject to certain other factors set forth in these agreements.


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We also provide for limited delegation authority to certain loan servicers for short sales under specific circumstances. For loans that are not owned by the GSEs and for which we have not granted specific delegation authority to the loan servicer, we perform an individual analysis of each proposed short sale and provide our consent to these sales when appropriate. Historically, we have consented to a short sale only after reviewing various factors, including among other items, the sale price relative to market and the ability of the borrower to contribute to any shortfall in the sale proceeds as compared to the outstanding loan amount.

After a claim is received, our loss management specialists may focus on:

■a review to determine compliance with applicable loan origination programs and our mortgage insurance policy requirements, including: (i) whether the loan qualified for insurance at the time the certificate of coverage was issued; (ii) whether the insured has satisfied its obligation in meeting all necessary conditions in order for us to pay a claim, including submitting all necessary documentation in connection with the claim (commonly referred to as “claim perfection”); and (iii) whether the loan was appropriately serviced in accordance with the standards set forth in our Master Policies;

■analysis and prompt processing to ensure that valid claims are paid in an accurate and timely manner;

■responses to loss mitigation opportunities presented by the insured; and

■management and disposal of acquired real estate.

Radian Guaranty has entered into a Factored Claim Administration Agreement with Fannie Mae that applies to certain loans owned by Fannie Mae that were insured under our Master Policies for which a claim is submitted on or after October 1, 2018. Pursuant to the agreement, for the loans subject to the agreement, Radian Guaranty will determine the amount of covered expenses forming part of a loss (other than unpaid principal balance and delinquent interest) using prenegotiated expense factors. The expense factors are based on certain characteristics of each covered loan, including the unpaid principal balance at the time of default, property type and location, and property disposition.

Claim Denials

We have the legal right under our Master Policies to deny a claim under certain conditions, such as when the loan servicer does not produce documents necessary to perfect a claim (e.g., evidence that the insured has acquired title to the property) within the time period specified in our Master Policies. Most often, a Claim Denial is the result of a servicer’s failure to provide the loan origination file or other critical servicing documents for review.

If, after requests by us, the loan origination file or other servicing documents are not provided to us, we generally deny the claim. If we deny a claim, we may continue to allow the insured the ability to perfect the claim for a limited period of time, as specified in our Master Policies. If the insured successfully perfects the claim on a timely basis, we will process the claim, including, as appropriate, by conducting a review of the loan file to ensure that underwriting and loan servicing were conducted properly.

If, after completion of this process, we determine that the claim was not perfected, other conditions precedent to coverage have not been met, or any exclusions apply, the insurance claim is denied and we consider the Claim Denial to be final and resolved. Although we may make a final determination with respect to a Claim Denial, it is possible that after we have denied coverage a legal challenge to our decision may be brought within a period of time specified under the terms of our Master Policies.

Rescissions

Mortgage insurance master policies generally protect mortgage insurers from the risk of material misrepresentations and fraud in the origination of an insured loan by establishing the right, under certain conditions, to unilaterally rescind coverage. Under the terms of our Master Policies, typical events that may give rise to our right to rescind coverage include: (i) we insured a loan in reliance upon an application for insurance that contains a material misstatement, misrepresentation or omission, whether intentional or otherwise, or that was issued as a result of an act of fraud or (ii) we find that there was negligence in the origination of a loan that we insured. We also have rights of Rescission arising from a breach of the insured’s representations and warranties that are contained in our Master Policies or endorsements thereto and are required with our delegated underwriting program.

If we rescind coverage based on a determination that a loan did not qualify for insurance, we provide the insured with a period of time to challenge, or rebut, our decision. If a rebuttal to our Rescission is received and the insured provides additional information supporting the continuation (i.e., non-rescission) of coverage, we have the claim re-examined internally by a separate, independent investigator. If the additional information supports the continuation of coverage, the insurance is reinstated and if there is a claim, it proceeds to the next step in our claims review process. Otherwise, if we determine that the loan did not qualify for coverage, the insurance certificate is rescinded (and we issue a premium refund under the terms of our Master Policies), and we consider the Rescission to be final and resolved. Although we may make a final determination internally with respect to a Rescission, it is possible that a legal challenge to our decision to rescind coverage may be brought after we have rescinded coverage during a period of time that is specified under the terms of our Master Policies.


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Following the financial crisis, the FHFA and the GSEs identified minimum standards and specific requirements for private mortgage insurer master policies, including rescission relief principles that limit the right to rescind coverage when certain conditions are met. These rescission relief principles have limited the potential for Loss Mitigation Activity throughout the private mortgage insurance industry.

In accordance with these rescission relief principles, we have incorporated provisions into our 2014 Master Policy and 2020 Master Policy that generally provide rescission relief based on the number of months that borrowers remain current on their mortgage loans. As a consequence, our rights to conduct Loss Mitigation Activity involving rescission as a remedy generally are more limited under these more recent Master Policies as compared to our Prior Master Policy, but our more recent Master Policies continue to include certain life-of-loan reservation of rescission rights specified in the Master Policy, including fraud and certain patterns of fraud. See “Item 1A. Risk Factors—Changes in the charters, business practices or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses.”

Claim Curtailments

We depend on third-party servicing of the loans that we insure. Servicers are responsible for being the primary contact with borrowers regarding their loans, and we generally do not have first-party contact with borrowers. Dependable loan servicing is necessary for, among other things, timely billing and premium payments to us and effective loss mitigation opportunities for delinquent or near-delinquent loans. As such, proper loan servicing is critical to the performance of our insured mortgage portfolio, especially when borrowers experience difficulty paying their mortgages.

Our Master Policies require servicers to service our insured loans in a reasonable, prudent manner consistent with the highest standards of servicing in use in the residential mortgage industry, and we have rights under our Master Policies to curtail, and in some circumstances, deny claims due to servicer negligence. Examples of servicer negligence may include, without limitation:

■a failure to report information to us on a timely basis as required under our Master Policies;

■a failure to pursue loss mitigation opportunities presented by borrowers, realtors and/or any other interested parties;

■a failure to pursue loan modifications and/or refinancings through programs available to borrowers or an undue delay in presenting claims to us (including as a result of improper handling of foreclosure proceedings), which increases the interest or other components of a claim we are required to pay; and

■a failure to initiate and diligently pursue foreclosure or other appropriate proceedings within the timeframe specified in our Master Policies.

Although we could seek post-claim recoveries from the beneficiaries of our policies if we later determine that a claim was not valid, because our loss mitigation process is designed to ensure compliance with our policies prior to payment of a claim, historically we have not sought recoveries from the beneficiaries of our mortgage insurance policies once a claim payment has been made.

From time to time, claims management may result in disputes with our customers that ultimately produce litigation or other legal proceedings. See Note 13 of Notes to Consolidated Financial Statements.

homegenius

homegenius Business Overview

A key element of our overall business strategy is to use our homegenius segment to diversify our business and revenue streams by increasing our participation in multiple facets of the residential real estate and mortgage finance markets. Our homegenius businesses are comprised of title, real estate and technology products and services. Through this business segment, we offer an array of products and services to market participants across the real estate value chain, including consumers, mortgage lenders, mortgage and real estate investors, GSEs and real estate brokers and agents. We believe that the combination of our mortgage insurance business with our unique set of diversified homegenius products and services provides us with an opportunity to become more relevant to our customers and is a competitive differentiator for us compared to other private mortgage insurance companies.

The macroeconomic conditions and other events that impact the housing, mortgage finance and related real estate markets affect the demand for the products and services we offer through our homegenius business. Sales volume in our homegenius business varies based on the overall activity in the housing and mortgage finance markets and the health of related industries. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results—homegenius” for additional information.


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Services Offered

Title Services

We provide a comprehensive suite of insurance and non-insurance title, closing and settlement services for purchase, refinance and home equity transactions to mortgage lenders, mortgage investors and GSEs as well as directly to consumers for residential mortgage loans.

Title insurance is a contract of indemnity for losses stemming from a covered defect in title to real property, such as adverse ownership interests, liens, or other encumbrances, that predates the policy and is not otherwise excluded or excepted from coverage. Our title policies are issued following a determination of insurability, which is based on a title search that may include review of the public land records, court filings, maps, surveys, previously issued title policies, and any other documentation that may contain information concerning interests in real property.

There are two types of title insurance policies. Lenders’ policies insure the validity and priority of the insured mortgage and typically provide coverage up to the outstanding mortgage loan balance, until the loan is paid off. Owners’ policies are issued directly to the real estate purchaser and provide coverage to the owner in an amount equal to the purchase price of the property. Both types of policies are issued for a one-time premium paid at closing of the home purchase. Premium amounts vary across jurisdictions and also depend on the amount of coverage given and the type of policy being issued.

Losses on policies occur in the form of claims payouts and/or the cost of defending or establishing title. Title claims may arise from a number of factors, such as title search and examination errors, fraud, forgery, incorrect legal descriptions, and failure to pay off existing liens. Title insurers are also responsible for the cost of defending the insured in litigation alleging covered title defects, regardless of the merits of the allegations.

In addition to title insurance, we offer a full complement of title services that include tax reports; recording services; document retrieval; default title services; deed reports and property reports. Our closing and settlement services include electronic execution of some or all mortgage loan closing documents (eClosing), as well as traditional signing services.

Real Estate Services

We provide real estate services, including real estate asset management and real estate valuation services, to our customers. Our asset management solutions help real estate investors and lenders improve execution on their real estate properties. Through these asset management services, we manage properties owned primarily by financial institutions and mortgage investors by overseeing the REO disposition process. We conduct this work primarily by engaging third-party independent contractors to perform the eviction and redemption process, as well as property preservation and repairs on behalf of our customers. In addition, we offer a web-based asset management workflow solution to assist in managing REO assets, rental properties, due diligence for bulk acquisitions of multiple properties, loss mitigation efforts and short sales.

We also offer a full range of services that serve the single-family rental asset class. This asset class primarily involves the securitization of a single loan backed by multiple rental properties owned primarily by large institutional investors. Our comprehensive single family rental services provide a centralized, single point of contact for facilitating the property valuation and diligence services needed to support single family rental warehouse lending and securitization activity. Our warehouse lending valuation and diligence reviews also serve institutional iBuyers, who use technology to value, purchase and thereafter securitize, rent or sell homes.

Through our licensed real estate broker subsidiary, Red Bell, we also provide a suite of real estate valuation products and services to lenders, servicers, investors and GSEs, including broker price opinions (i.e., price estimates provided by real estate brokers familiar with the particular market) and various valuations that utilize technology, including hybrid appraisals (where licensed appraisers complement their efforts by accessing technology enabled valuation services), automated valuation services (enabling a qualified user to obtain an estimated value based on a technology driven analysis of data and information about comparable transactions) and interactive valuation services (where a qualified user can utilize their knowledge and preferences as inputs to technology tools to obtain a valuation estimate).

Technology Services

In addition to the services described above, we are developing a growing suite of real estate technology products and services that are designed to facilitate real estate transactions and are provided as proprietary SaaS solutions.

These digital services and solutions, which will be offered primarily through our licensed real estate broker subsidiary, Red Bell, include:

■geneuity, a SaaS smart workflow system that integrates features such as task management, pipeline tracking, contacts, document storage, e-signature and communication into a single platform enabling real estate brokers and agents to manage real estate transactions more efficiently;

■geniusprice technology, a SaaS property intelligence platform that combines predictive modeling, artificial intelligence, automation and imaging review capabilities with a real estate broker’s access to local data to create price estimates and property condition reports; and


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■homegenius connect, a service that helps match interested homebuyers with local real estate agents.

Revenue Drivers

We earn net premiums on title insurance written by Radian Title Insurance. For our other homegenius offerings, we primarily use fixed-price contracts, pursuant to which we agree to perform the specified services and deliverables for a pre-determined per-unit price. To a lesser extent, for a portion of our REO management services and our real estate brokerage services, we utilize percentage-of-sale contracts, under which we are paid a contractual percentage of the sale proceeds upon the sale of each property.

In most cases, our contracts with our clients do not include minimum volume commitments and can be terminated at any time by our clients. Although some of our contracts and assignments are recurring in nature, and include repetitive monthly assignments, a significant portion of our current homegenius revenues are transactional in nature and may be performed in connection with securitizations, real estate purchases and sales or other transactions.

We expect our revenue from our technology products and services to grow in future periods, which would result in a higher percentage of total revenues being recurring in nature. Due to the transactional nature of our current business, our homegenius segment revenues may fluctuate from period to period as transactions are commenced or completed. In addition, our segment revenues are impacted by the volume of real estate transactions in the marketplace, which may fluctuate from period to period. See “Item 1A. Risk Factors—We face risks associated with our homegenius business.”

For additional information on the most significant factors affecting our homegenius business, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results—homegenius.”

All Other

All Other Overview

All Other activities include: (i) income (losses) from assets held by Radian Group, our holding company; (ii) related general corporate operating expenses not attributable or allocated to our reportable segments; (iii) income and expenses related to Clayton for all periods prior to our sale of this business in the first quarter of 2020; (iv) the income and expenses related to our traditional appraisal services, which we wound down beginning in the fourth quarter of 2020; and (v) certain other immaterial activities, including investments in new business opportunities.

See Note 4 of Notes to Consolidated Financial Statements for additional information regarding the basis of our segment reporting, including the related allocations and the impacts of the sale of Clayton and subsequent organizational changes made in the first quarter of 2020, as well as the wind down of our traditional appraisal business, announced in the fourth quarter of 2020. See Note 7 of Notes to Consolidated Financial Statements for additional information on the Clayton sale and the related financial impacts.

Competition

Mortgage

We operate in the highly competitive U.S. mortgage insurance industry. Our competitors primarily include other private mortgage insurers and federal and state governmental agencies, principally the FHA and VA.

Including us, there are currently six active participants in the private mortgage industry that are approved and eligible to write business for the GSEs. The other participants are:

■Arch Capital Group Ltd. (includes both Arch Mortgage Insurance Company and United Guaranty Residential Insurance Company);

■Enact Holdings, Inc. (formerly Genworth Mortgage Holdings, Inc.);

■Essent Group Ltd.;

■MGIC Investment Corporation; and

■NMI Holdings, Inc.


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We compete directly with other private mortgage insurers primarily on the basis of price, underwriting guidelines, overall service, customer relationships, perceived financial strength (including comparative credit ratings) and reputation. Overall customer service competition in our mortgage insurance business is based on, among other things, effective and timely delivery of products, timeliness of claims payments, customer service, timely and accurate administration of policies, training, loss mitigation efforts and management and field service expertise.

For Radian, customer service also includes our ability to offer products and services through our homegenius business that are relevant to our mortgage insurance customers and complement our mortgage insurance products.

Pricing has always been competitive in the mortgage insurance industry, but as discussed above under “Mortgage—Pricing,” with the increased prevalence of granular, “black box” pricing and custom rate cards throughout the industry and the greater uniformity of master policy terms throughout the industry, pricing has become the predominant competitive market factor for private mortgage insurance. We monitor various competitive and economic factors while seeking to enhance the long-term value of our portfolio by balancing credit risk, profitability, and volume and capital considerations in developing our pricing strategies.

We take a disciplined approach to establishing our premium rates and seek to write a mix of business that we expect to produce our desired level of NIW while managing the risk/return profile and maximizing the long-term economic value of our insured mortgage portfolio, taking into consideration the competitive environment. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results—Mortgage—Premiums.” Based on publicly available information, we estimate that our share of NIW within the private mortgage insurance market was approximately 16% for 2021.

Certain of our private mortgage insurance competitors currently have better financial strength ratings than we have and/or are subsidiaries of larger corporations, which may give them a competitive advantage.

Private mortgage insurance competes for a share of the insurable mortgage market with the single-family mortgage insurance programs of the FHA and VA. Private mortgage insurance execution competes with the programs offered by the FHA on the basis of loan limits, pricing, credit guidelines, terms of our insurance policies and loss mitigation practices.

Since the 2007-2008 financial crisis, the private mortgage insurance industry has improved its share of the insurable, low down payment market, primarily due to: (i) improvements in the financial strength of private mortgage insurers; (ii) the development of new products, pricing delivery tools and marketing efforts directed at competing with FHA programs and execution; (iii) increases in the FHA’s pricing; (iv) the U.S. government’s pursuit of legal remedies against FHA-approved lenders related to loans insured by the FHA; and (v) various policy changes at the FHA, including the general elimination of the premium cancellation provision that exists for borrower-paid private mortgage insurance.

We believe that better execution for borrowers with higher FICO scores, lender preference and the inability to cancel FHA insurance for certain loans have provided a competitive advantage for private mortgage insurers. The FHA’s share of the total insured mortgage market (which includes FHA, VA and private mortgage insurers) was reported to be 25% in 2021, compared to 24% in 2020. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results—Mortgage—NIW and Related Drivers.”

If the competitive position of the FHA is enhanced, it could have a negative effect on our ability to compete with the FHA. See “Regulation—Federal Regulation—Housing Finance Reform and the GSEs’ Business Practices” for a discussion of several recent developments that could enhance the FHA’s competitive position relative to private mortgage insurance.

We also have faced increasing competition from the VA. Based on publicly available information, the VA’s share of the total insured mortgage market was 31% in 2021, compared to 32% in 2020. We believe that the VA remains a strong participant in the overall market because the VA offers 100% LTV loans and charges a one-time funding fee that can be included in the loan amount with no separate monthly expense, and because of an increase in the number of borrowers that are eligible for the VA’s program.

In addition, as market conditions change, alternatives to traditional private mortgage insurance may become more prevalent, which could reduce the demand for private mortgage insurance. These alternatives have included structures commonly referred to as “investor paid mortgage insurance” in which affiliates of traditional mortgage insurers that are not subject to the PMIERs directly insure the GSEs against loss. For additional information about these structures, see “Regulation—Federal Regulation—Housing Finance Reform and the GSEs’ Business Practices.”

It is difficult to predict what other types of credit risk transfer transactions and structures or other forms of credit enhancement, including GSE-sponsored alternatives to traditional mortgage insurance, might be used in the future. If any of these alternatives were to displace standard primary loan level private mortgage insurance, the amount of insurance we write may be reduced and our future prospects could be negatively impacted.

See “Item 1A. Risk Factors—Our mortgage insurance business faces intense competition.”


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homegenius

We believe our homegenius business is uniquely positioned as a provider of an array of products and services to participants across the real estate value chain. While we are not aware of any other single company that provides a comparable range of services to the residential mortgage and real estate industries, our homegenius business has multiple strong competitors within each of its individual lines of business.

Significant competitors for our homegenius business include:

Title Services – Blend Labs, Inc.; Fidelity National Title Insurance Company; First American Financial Corporation; First National Title Insurance Company; Mortgage Connect, LP; National Title Insurance Company; North American Title Insurance Company; Old Republic Title Insurance Group, Inc.; OS National LLC; Selene Title LLC; ServiceLink IP Holding Company, LLC; Spruce Title Company; Stewart Title Guaranty Company; Summit Title Services, LLC; Westcor Land Title Insurance Company; and WFG National Title Insurance Company.

Real Estate Services – Black Knight, Inc.; ClearCapital.com, Inc.; CoreLogic, Inc.; Covius Holdings, Inc.; Equator, an Altisource Business Unit; First American Financial Corporation; First American Mortgage Solutions, LLC.; HouseCanary, Inc.; Keystone Asset Management; Pro Teck Valuation Intelligence; Res.Net; ServiceLink IP Holding Company, LLC; SingleSource Property Solutions, LLC (Resolute Diligence Solutions); VRM Mortgage Services; and Xome Inc.

In addition, we believe that our technology services and products currently under development will compete with offerings from various real estate SaaS companies. Across all business lines in our homegenius segment, we compete on the basis of industry expertise, price, technology, data access, service levels and relationships.

Customers

Mortgage

The principal customers of our mortgage insurance business are mortgage originators such as mortgage banks, commercial banks, savings institutions, credit unions and community banks.

We actively monitor our customer concentration and regularly engage in efforts to diversify our customer base. Our largest single mortgage insurance customer (including branches and affiliates) measured by NIW, accounted for 13.9% of NIW during 2021, compared to 13.3% and 7.2% in 2020 and 2019, respectively. The percentage of NIW generated by our top 10 customers was 38.3% in 2021. No single customer contributed earned premiums that accounted for more than 10% of our consolidated revenues in 2021, 2020 or 2019. See “Item 1A. Risk Factors—Our NIW and franchise value could decline if we lose business from significant customers.”

homegenius

We have a broad range of customers in our homegenius segment, including many of our Mortgage customers, due to the products and services we offer across the mortgage and real estate value chain. Our principal customers (non-affiliated) are:

■Mortgage originators such as mortgage banks, commercial banks, savings institutions, credit unions and community banks;

■Aggregators, issuers and investors in RMBS, whole loans and other mortgage-related debt instruments, including the GSEs, private equity, hedge funds, real estate investment trusts and investment banks;

■Single family rental warehouse lenders, owner/operators, builders, capital markets institutional investors and securitization issuers;

■Mortgage servicers;

■Real estate brokers and agents; and

■Consumers.

Our customers include many of the largest financial institutions and participants in the mortgage sector and, as such, our services revenue is concentrated among our largest customers. For the year ended December 31, 2021, the top 10 homegenius customers generated approximately 57.9% of the homegenius segment’s services revenue.

Sales and Marketing

Our sales and marketing efforts are focused on establishing, building and maintaining valuable customer relationships. Given the range of solutions we offer across mortgage and real estate, we believe we have significant opportunity to expand our sales to our existing customer base as well as to new customers. We have a core team of account managers who sell all


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products and solutions across our businesses, as well as sales teams with subject matter expertise in particular services and the related needs of the customers we serve.

Marketing and communications activities include direct marketing; print and digital advertising; digital marketing including email, web, content and social media; public relations and thought leadership; brand strategy and expression; event marketing including customer meetings, conferences and trade shows and other targeted initiatives designed to generate new sales opportunities, drive customer adoption of our services and retain our existing customers. We continue to adapt our sales and marketing efforts based on the current environment to offer tools and techniques to connect virtually and engage with current and potential customers.

All sales and marketing efforts are supported by functional areas that provide additional touch points for our customers. For example, our Inside Sales Team is responsible for managing and growing customer relationships and promoting increased customer adoption and our Client Success, Customer Service and Training Teams provide customized service as well as educational sessions to our customers.

We expect that our approach to selling our products across our mortgage and real estate services businesses will strengthen our relationships with customers, attract new customers and enhance our ability to compete.

Investment Policy and Portfolio

Our investment portfolio is our primary source of claims paying resources and also contributes to our earnings. We seek to manage our investment portfolio within our targeted risk and return tolerances based on our current liability projections and business and economic outlook to maintain sufficient liquidity levels to satisfy our current and future operating requirements and other financial needs.

Our investment strategy uses an asset allocation methodology that takes into consideration regulatory constraints, our business environment and consolidated risks as well as current investment conditions. With respect to our fixed income investments, the following internal investment policy guidelines, among others, are applied at the time of investment and continually monitored.


Internal investment policy guidelines

NAIC Designation	Ratings Equivalent	Internal Policy
1	“A-” and above	At least 75% of the portfolio Fair Value
2	“BBB+” to “BBB-”	Not more than 25% of portfolio Fair Value
3 to 6	“BB+” and below	Not more than 10% of portfolio Fair Value

Our portfolio has been constructed to maximize long-term expected returns while maintaining an acceptable risk level. Our investment objectives are to utilize appropriate risk management oversight to optimize after-tax returns, while preserving capital. We calibrate the level of our short-term investments based on our overall investment portfolio duration, risk appetite and expected short-term cash requirements.

Our investment policies and strategies are subject to change, depending on regulatory, economic and market conditions and our then-existing or anticipated financial condition and operating requirements, including our current and future tax positions. The investments held at our insurance subsidiaries are also subject to insurance regulatory requirements applicable to such insurance subsidiaries.

Oversight responsibility of our investment portfolio rests with management, and allocations are set by periodic asset allocation studies, calibrated by risk and after-tax return considerations. The risks we consider include, among others, duration, convexity, liquidity, market, sector, structural, interest rate and credit risks. As of December 31, 2021, we internally managed 8.0% of the investment portfolio (the portion of the portfolio largely consisting of U.S. Treasury securities, money market funds, equities and certain exchange-traded funds), with the remainder primarily managed by three external managers. External managers are selected by management based primarily upon their ability to meet our investment goals and objectives, based upon factors such as historical returns and the stability of their management teams. Management’s selections of external managers are presented to, approved and monitored by the Finance and Investment Committee of our board of directors.

At December 31, 2021, our investment portfolio had a cost basis of $6.3 billion and a carrying value of $6.6 billion. At December 31, 2021, 95.5% of our investment portfolio was rated investment grade. The weighted-average duration of the assets in our investment portfolio as of December 31, 2021 was 4.5 years. For additional information about our investment portfolio, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Investment Portfolio,” as well as Notes 5 and 6 of Notes to Consolidated Financial Statements.


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Enterprise Risk Management

Risk Philosophy, Vision and Appetite

As a financial services organization, risk management is a critical part of our business. The following goals guide our strategy and actions as a risk management organization:

■Embed and continually reinforce a disciplined, corporate-wide risk culture that utilizes an understanding of risk/return trade-offs to drive quality decisions and achieve long-term, through-the-cycle profitability;

■Maintain credit, underwriting, pricing and risk/return disciplines based on sound data and analytics and continuous feedback throughout the organization;

■Proactively monitor business, counterparty, economic, housing and regulatory trends to identify and mitigate emerging risks;

■Continually refine analytical and technological capabilities, processes and systems to effectively identify, assess and manage risks; and

■Develop and leverage tools and capabilities to inform and optimize capital allocation within our risk appetite in support of our corporate strategy.

Risk Categories

Our risk appetite, or the amount of risk we are willing to take on in pursuit of value, is driven by our business strategy, which is established by executive management and overseen by our board of directors. We define our risk appetite qualitatively through the following key risk categories where strategic execution occurs: credit; financial; strategic; operational and regulatory and compliance. We do not treat reputational risk as a distinct category of risk; rather, we view reputational risk as pervasive throughout our entire risk portfolio, as each risk on its own can impact our reputation if not mitigated or managed properly.

Risk Governance

Board of Directors

Our board of directors is responsible for the general oversight of risks. Our board of directors seeks to understand and oversee the most critical risks relating to our business, allocates responsibilities for the oversight of risks among the full board and its committees, and reviews the systems and processes that management has in place to manage current risks, as well as those that could arise in the future.

The board regularly meets with management to receive reports derived from: (i) our ERM function regarding the most significant risks we are facing, and the steps being taken to assess, manage and mitigate those risks; (ii) our information security function regarding cybersecurity risks and our efforts to mitigate such risks; and (iii) our compliance programs and our efforts to embed a culture of compliance throughout the organization to encourage ethical behavior and mitigate risks of regulatory non-compliance. The full board further considers current and potential future strategic risks as part of its annual strategic planning session with management.

Executive Management

Our senior executive management team regularly monitors and discusses risks related to our businesses through various management committees. Our Pricing and Risk Committee, Capital and Liquidity Review Committee and Model Governance Committee (these committees collectively comprise our Asset Liability Committee) focus on identifying risks and decision-making related to pricing, credit, capital, liquidity and model management, including risk/return analysis associated with different business opportunities. Other management committees focused on risk management include, but are not limited to, our ERM Council, Executive Information Security Committee, Regulatory Compliance Council and Enterprise Information Governance Committee.

Integrated ERM Framework

We have adopted an integrated approach to risk management, which includes, among other things: (i) a centralized ERM function that resides within the office of our General Counsel and is responsible for overseeing the process for risk identification, assessment, management and mitigation across the organization and (ii) an internal audit function that performs periodic, independent reviews and tests compliance with risk management policies, procedures and standards across the Company.

Our ERM framework is designed to provide executive management with the ability to identify and evaluate the most significant risks we face and to calibrate risk mitigation strategies to account for challenges in the current business environment, as well as external factors that may negatively impact our operations. In practice, our ERM function represents a cross-functional and enterprise-wide effort, consisting of subject matter experts and experienced managers, that utilizes a


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systematic method to identify, evaluate and monitor both known and emerging risks. Risk assessments and mitigation plans are developed to address these risks. Risk scoring and validation of the effectiveness of risk management plans through management reporting facilitate program sustainability and promote accountability for risk management activities throughout the Company.

As part of our ERM program, our mortgage insurance and title insurance businesses employ comprehensive risk management functions, which, in conjunction with the oversight of the Risk Committee of our board of directors, are responsible for monitoring compliance with our risk-related policies, managing our insured portfolios and communicating credit related issues to management, our board of directors and our customers.

Mortgage Insurance Risk Management

Risk Origination and Servicing. We believe that understanding our business partners and customers is a key component of managing risk. Accordingly, we have a Counterparty Risk Management team that leverages our Customer and Servicer Segmentation Framework so that we can more effectively perform ongoing monitoring of loan performance, underwriting quality and the risk profile and mix of business of a customer’s mortgage insurance applications. The Counterparty Risk Management team monitors trends at the customer level, identifies customers who may exceed certain risk tolerances and shares meaningful performance data with our customers to help them improve. The team is also responsible for lender corrective action in the event we discover credit performance issues, such as high early payment default levels.

Portfolio Management. We have developed risk and capital allocation models to support our mortgage insurance business. These models provide comprehensive analytics that help us establish portfolio limits for product type, loan attributes, geographic concentrations and counterparties. We proactively monitor market concentrations across these and other attributes. We also identify, evaluate and negotiate potential transactions for terminating insurance risk and for distributing risk to third parties, including through reinsurance arrangements. See “—Risk Distribution” below for more information about the use of reinsurance as a risk management tool in our mortgage insurance business. As part of our portfolio management function, we monitor and analyze the performance of various risks in our mortgage insurance portfolio. We use this information to develop our mortgage credit risk and counterparty risk policies, and as a component of our default and prepayment analytics.

Credit Policy. We maintain mortgage-related credit risk policies that reflect our tolerance levels regarding counterparty, portfolio and operational risks involving mortgage collateral. Based on our policies and risk tolerances, our credit policy function develops and updates our mortgage insurance eligibility requirements and guidelines through regular monitoring of competitor offerings, customer input regarding lending needs, analysis of historical performance and portfolio trends, quality assurance results and underwriter experience and observations. The credit policy function works closely with our mortgage insurance underwriters to ensure that underwriting decisions align with risk tolerances and principles.

Quality Assurance. Our Quality Assurance function supports our credit analytics function by auditing individual loan files to examine underwriting decisions for compliance with agreed-upon underwriting guidelines. These audits are conducted across loans submitted through our delegated and non-delegated underwriting channels. Our quality assurance team also audits our customers and our underwriters to monitor quality in our NIW.

Loss Mitigation. We have a dedicated loss mitigation group that works with servicers to identify and pursue loss mitigation opportunities for loans in both our performing and non-performing (defaulted) portfolios. This includes regular surveillance and benchmarking of servicer performance with respect to default reporting, borrower retention efforts, foreclosure alternatives and foreclosure processing. Through this process, we seek to hold servicers accountable for their performance and communicate to servicers identified best practices for servicer performance. See “Mortgage—Defaults and Claims—Claims Management” above for more information.

Risk Modeling. Our risk modeling team uses analytical techniques to develop and maintain economic scenario generation models and loan level default and prepayment models for a wide range of risk management applications, including portfolio analysis, credit decision making, forecasting and loss reserving.

Risk Distribution. In our mortgage insurance business, we use reinsurance as a capital and risk management tool to lower the risk profile and financial volatility of our mortgage insurance portfolio through economic cycles. We have distributed risk through third-party quota share and excess-of-loss reinsurance arrangements, including through the capital markets using mortgage insurance-linked notes transactions. In recent years, we have expanded our risk distribution strategy in an effort to optimize the amounts and types of capital and risk distribution deployed against insured risk. The objectives of our risk distribution strategy include: (i) supporting our overall capital plan by reducing our cost of capital, increasing capital efficiency and enhancing our projected returns on capital and (ii) reducing portfolio risk and financial volatility through economic cycles. For additional information regarding our reinsurance programs, see Note 8 of Notes to Consolidated Financial Statements.

Title Insurance Risk Management

We take a prudent approach to assessing and managing risk in our title insurance business through the use of well-trained underwriters, stringent underwriting guidelines and the imposition of per file risk limits and third-party reinsurance on a per policy basis, over certain policy limits.


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Underwriting and Quality Assurance. Our agents, underwriters and title examiners receive training and feedback in the examining and underwriting of residential and commercial title insurance for both refinance and purchase transactions. Specific title commitments are selected for further review to ensure that underwriting decisions comply with agreed-upon underwriting guidelines and that the policies are within single risk limits.

Credit Policy. We have developed and maintain policies for our title insurance business, which reflect our risk tolerance levels. Risk limits are imposed on selected loan types and reinsurance is currently required on all policies with loan amounts above a specified amount.

Ceded Reinsurance. In our title insurance business, we use reinsurance as part of our capital and risk management activities, including a loss portfolio transfer reinsurance agreement that transfers a portion of the risk associated with the legacy title insurance in our portfolio (insurance written prior to the acquisition of our title insurance subsidiary) to a third party up to a specified dollar limit. We also currently maintain an excess of loss policy with a third-party reinsurer that covers losses on our entire title insurance legacy portfolio above a specified limit.

Cybersecurity Risk Management

Information security is a significant operational risk for financial institutions such as Radian and includes the risk of loss resulting from cyber-attacks. In an effort to mitigate this risk, we have an Information Security Program that is dedicated to protecting our corporate data as well as data entrusted to us by our customers and partners. At the core of our program is a defense-in-depth strategy, which utilizes multiple layers of security controls to protect data and solutions.

We use the National Institute of Standards and Technology Cybersecurity Framework (the “NIST CSF”), as a guideline to manage our cybersecurity-related risk. The NIST CSF outlines information security measures and controls over five functions: Identify, Protect, Detect, Respond and Recover. We have developed key security services, including Enterprise Data Protection, Vulnerability Management and Application Security, Managed Threat Detection and Incident Response. We test our incident response readiness and reporting through tabletop exercises, external and internal penetration testing and continuous internal security testing in our efforts to ensure that risks and incidents are identified, escalated and communicated for appropriate remediation activities to reduce risk to an acceptable level.

Our commitment to growing and maintaining our Information Security Program extends across all business lines. We have an Information Security Committee comprised of Company executives, cross-functional Incident Response teams and strong governance mechanisms designed to ensure compliance with our security policies and protocols. See “Item 1A. Risk Factors—We could incur significant liability or reputational harm if the security of our information technology systems is breached, including as result of a cyberattack, or we otherwise fail to protect confidential information, including personally identifiable information that we maintain.”

Human Capital Management

For nearly 45 years at Radian, our products and services have responsibly helped millions of families achieve their dream of homeownership. This company-wide commitment to affordable and sustainable homeownership, along with our support of our customers and the communities where we live and work, defines who we are as an enterprise and aligns with our core organizational values: Deliver the Brand Promise, Innovate for the Future, Create Shareholder Value, Our People are the Difference, Do What’s Right and Partner to Win.

We value our employees by supporting a healthy work-life balance and a team-oriented, One Radian environment. We strive to offer competitive compensation and benefits programs as well as development opportunities, while fostering a community where everyone feels included and empowered to do their best work and is encouraged to give back to their communities to make a social impact. As of December 31, 2021, we had approximately 1,800 employees of Radian Group and its subsidiaries.

COVID-19 Response

In response to the COVID-19 pandemic, we took a number of actions to focus on protecting and supporting our workforce. We seamlessly transitioned to a work-from-home virtual workforce model and throughout 2021 continued to offer the flexibility of remote work options for most employees and safe in-office opportunities for those employees with a desire to work outside their homes. Those activities requiring in-office work were supported by limited staff in office environments that comply with CDC guidelines and applicable state and local requirements. These efforts were further supported through regular COVID-19 testing regimes. In order to promote our company culture and encourage frequent communication and camaraderie, we established frequent virtual connections through weekly CEO messages, CEO and senior management roundtables and employee surveys to encourage feedback.

We continue to reinforce our employee health and wellness benefits and mental health program resources by implementing benefit program changes to accommodate COVID-19-related leaves and hardships, amending our savings and retirement plans to comply with legislation that allows for greater flexibility in response to the pandemic and providing access to third-party caregiver and household support services.


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During the second quarter of 2021, in response to Radian’s transition to a mainly virtual work environment and employees voicing their preference for increased flexibility and opportunities to work remotely, we made the decision to exit, and to actively market for sublease, all office space in our former corporate headquarters in downtown Philadelphia. As part of this change, we entered into two new leases with overall reduced square footage, including our new corporate headquarters in Wayne, Pennsylvania and a Cherry Hill, New Jersey location.

Compensation and Benefits Program

Our compensation programs are designed to attract, retain and reward talented individuals who possess the skills and qualities necessary to support our business objectives, demonstrate our values, assist in the achievement of our strategic goals and create long-term value for our stockholders. Our compensation programs include base salary, annual incentive bonuses and for certain employees, other performance-related cash-incentives such as commissions and long-term equity incentive awards.

Our annual short-term incentive or bonus program is designed and approved by the Compensation and Human Capital Management Committee of our board of directors to incent achievement of our financial objectives and execution of our strategic plan in alignment with our organizational values. Compliance with our values and efforts to advance our human capital management efforts are considered as part of our employees’ performance evaluations and are taken into consideration in determining each employee’s annual short-term incentive award.

In addition to our cash and equity compensation programs, we offer employees a comprehensive benefits package, including, among others, life and health (medical, dental and vision) insurance, paid time off, paid parental leave and caregiver leave, a 401(k) plan with an employer matching contribution and tuition reimbursement. In addition, in order to support our employees and advance our mission to promote affordable, sustainable homeownership, we offer all eligible employees the opportunity to save on Radian mortgage insurance with partial reimbursement of their mortgage insurance expense. We are exploring alternatives to expand upon this employee affinity program in 2022.

Diversity, Equity and Inclusion

At Radian, we are committed to an inclusive and diverse workplace, as represented by our theme We Are Many, We Are One Radian. We believe that an equitable and inclusive environment with diverse teams produces more creative solutions, results in better, more innovative products and services and is crucial to our efforts to attract and retain key talent.

In 2019, we established a Diversity, Equity and Inclusion (“DEI”) Council that is sponsored by our CEO, led by senior management and consists of leaders and employees from across the Company to advance the program and its efforts. In 2020, we created a framework for and launched Radian’s Employee Resource Group (“ERG”) program, which is an important aspect of Radian’s DEI efforts because it not only creates inclusive communities where employees feel support, but it enriches our overall company culture. These ERGs have taken root throughout 2021, and Radian currently has three active ERGs: TrueColors, which brings together our LGBTQIA+ employees and allies; Women Heard as our Women’s group; and Vibrant Crossroads, which highlights intersectionality and multiculturalism.

We are committed to providing equal employment opportunities and promoting inclusive hiring practices, developing targeted recruitment strategies and improving internal reporting capabilities. In 2020, we trained all managers on unconscious bias and, in 2021, we hired a recruiter dedicated to DEI and deployed mandatory DEI training for all employees. We also completed a pay equity analysis in partnership with an external expert to ensure an objective review of our pay practices. We are committed to enhancing our DEI maturity, and have developed our DEI Roadmap to execute our multi-year DEI strategy. Our roadmap commits us to progress, and we report on this progress to our workforce on a quarterly basis.

In terms of gender equality, Radian has been making strides in advancing women in the workplace and in December 2021 was recognized by the Bloomberg Gender Equality Index for the fourth consecutive year. At December 31, 2021, women represented 59.9% of our workforce, 44.4% of the direct reports to our Chief Executive Officer and 40.5% of our senior management team comprising officers at the Assistant Vice President level and above. In addition, based on the number of women on Radian Group’s board of directors, Radian was awarded a ‘W’ by 2020 Women on Boards for being a ‘winning company’ and was named one of the Forum of Executive Women’s 2021 Champions of Board Diversity.

Finally, we know that advancing a culture of inclusion takes every single employee. For 2022 goal setting, all employees have been asked to include a DEI goal in their goal plan. By focusing all employees on the importance of our DEI efforts, we can continue to advance a culture of inclusion and respect.

Talent Development and Employee Engagement

We invest in our people to provide opportunities for career growth. Talent development, annual performance reviews that are focused in part on living our company values and succession planning are all important aspects of this investment. These processes help management identify and nurture top talent for leadership opportunities and support the growth and development of knowledge and skills of Radian employees, managers and leaders.


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In order to measure engagement and culture across the organization, we use employee experience surveys. Our most recent employee experience survey was conducted in 2021 with a 70% employee participation rate (versus a benchmark of 65%) and responses revealed an Engaged-to-Disengaged Ratio of 21.5 to 1 (versus a benchmark of 2.1 to 1). In addition to our experience surveys, we frequently use employee pulse surveys to gather employee feedback.

Community Involvement

Radian’s financial strength and growth depend on the well-being of our employees, and therefore, the communities in which they live and we operate. Our Corporate Citizenship Program was developed to encourage and support the generosity and community involvement of our employees. Since its inception, the program – through both company and employee contributions – has provided significant financial support to charities across the country. The program consists of three pillars: charitable contributions, matching gifts and community connection.

Following the onset of the COVID-19 pandemic, we implemented a number of initiatives to help alleviate the impact of the COVID-19 pandemic, including doubling our matching gift program for employees and passing on some of our savings from reduced travel and entertainment expenses to organizations supporting essential workers. Our community-based program, Radian Connected, provides opportunities for employee engagement and community involvement, including volunteerism and opportunities for learning and skill development, as well as social opportunities to network and build stronger working relationships. We believe that this commitment to our communities helps in our efforts to attract and retain employees.

Regulation

We are subject to comprehensive regulation by both federal and state regulatory authorities. Set forth below is a description of significant state and federal regulations and other requirements of the GSEs that are applicable to our businesses. The descriptions below are qualified in their entirety by reference to the full text of the laws and regulations discussed. In Item 1A. Risk Factors, see “—Our insurance subsidiaries are subject to comprehensive state insurance regulations and other requirements, which we may fail to satisfy” and “—Legislation and administrative and regulatory changes and interpretations could impact our businesses.”

State Regulation

Overview of State Insurance Regulation and Our Insurance Subsidiaries

We and our insurance subsidiaries are subject to comprehensive regulation by the insurance departments in the various states where they are licensed to transact business. Insurance laws vary from state to state, but generally grant broad supervisory powers to agencies or officials to examine insurance companies and enforce rules or exercise discretion affecting almost every significant aspect of the insurance business. These regulations principally are designed for the protection of policyholders, rather than for the benefit of investors.

Insurance regulations address, among other things, the licensing of companies to transact business, claims handling, reinsurance requirements, premium rates and policy forms offered to customers, financial statements, periodic reporting, permissible investments and adherence to financial standards relating to surplus, dividends and other measures of solvency intended to assure the satisfaction of obligations to policyholders.

Our insurance subsidiaries’ premium rates and policy forms are generally subject to regulation in every state in which they are licensed to transact business. These regulations are intended to protect policyholders against excessive, inadequate or unfairly discriminatory rates and to encourage competition in the insurance marketplace. In most states where our insurance subsidiaries are licensed, premium rates and policy forms must be filed with the state insurance regulatory authority and, in some states, must also be approved before their use.

With respect to mortgage insurance, premium rates may be subject to actuarial justification, generally on the basis of the mortgage insurer’s loss experience, expenses and future projections. In addition, states may assess how rates are being charged to various customers based on whether they are “similarly situated” and also may evaluate general default experience in the mortgage insurance industry in assessing the premium rates charged by mortgage insurers. In many states, the filed forms allow for a deviation from the filed rates within a certain range to take into consideration various factors linked to the credit being insured.

As to title insurance, premium rates and policy forms must be filed with state insurance regulatory authorities and, in some states, must also be approved before their use. Policy forms require approval to ensure that the coverage and exceptions conform to state insurance regulations. Premium rates subject to approval often must be supported by actuarial data or a study of financial impact of the premium rate on the Company. In September of 2017, the New York State Department of Financial Services (“DFS”) issued 11 NYCRR 228 (“Regulation 208”) which regulates title insurance marketing practices, expenses and transaction related charges in the state of New York. Regulation 208 limits or bans title underwriters and agents from charging consumers certain title- and closing-related fees, and Regulation 208 contains strict rules around marketing expenses aimed at restricting or stopping certain marketing practices in the title industry. While Regulation 208


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currently is one of the most strict title marketing regulations, a number of other states impose similar restrictions on such activity, either through regulations that are specific to title marketing or through broader state insurance anti-inducement and anti-rebating laws. Radian Settlement Services and Radian Title Insurance have adjusted their transaction fees and marketing practices and expenses to comply with Regulation 208 and other similar state laws.

Each insurance subsidiary is required by the insurance regulatory authority of its state of domicile, and the insurance regulatory authority of each other jurisdiction in which it is licensed to transact business, to make various filings with those insurance regulatory authorities and with the NAIC, including quarterly and annual financial statements prepared in accordance with SAP. In addition, our insurance subsidiaries are subject to examination by the insurance regulatory authority of their state of domicile, as well as each of the states in which they are licensed to transact business.

Radian Group is an insurance holding company and our mortgage insurance subsidiaries and title insurance company belong to an insurance holding company system. We are subject to the insurance holding company laws of Pennsylvania and Ohio because all of our mortgage insurance subsidiaries are domiciled in Pennsylvania and Radian Title Insurance is domiciled in Ohio. These insurance holding company laws regulate, among other things, certain transactions between Radian Group, our insurance subsidiaries and affiliates. The holding company laws of Pennsylvania and Ohio also govern certain transactions involving Radian Group’s common stock, including transactions that constitute a “change of control” of Radian Group and, consequently, a “change of control” of its insurance subsidiaries. Specifically, no person may, directly or indirectly, seek to acquire “control” of Radian Group or any of its mortgage insurance subsidiaries unless that person received prior approval after filing a statement and other documents with the Pennsylvania Insurance Department and, in the case of a change of control involving Radian Group or Radian Title Insurance, the Ohio Department of Insurance. Under Pennsylvania’s and Ohio’s insurance statutes, “control” is defined broadly and is “presumed to exist if any person, directly or indirectly, owns, controls, holds with power to vote or holds proxies representing 10% or more of the voting securities” of a holding company of a Pennsylvania or Ohio domiciled insurer. The statute further defines “control” as the “possession, direct or indirect, of the power to direct or cause the direction of the management and policies of” an insurer.

In addition, material transactions between us or our affiliates and our insurance subsidiaries or among our insurance subsidiaries are subject to certain conditions, including that they be “fair and reasonable.” These conditions generally apply to all persons controlling, or who are under common control with, us or our insurance subsidiaries. Certain transactions between us or our affiliates and our insurance subsidiaries may not be entered into unless the Pennsylvania Insurance Department or Ohio Department of Insurance, as applicable, is given 30 days’ prior notice and does not disapprove the transaction during that 30-day period.

Our two principal mortgage insurance companies as of December 31, 2021 are:

Radian Guaranty – Radian Guaranty is our primary mortgage insurance company, and is a direct wholly-owned subsidiary of Radian Group. Radian Guaranty is our only mortgage insurance company that is currently eligible to provide first-loss mortgage insurance on GSE loans. It is a monoline insurer, restricted by the laws of certain states to writing first-lien residential mortgage guaranty insurance. Radian Guaranty is authorized to write mortgage guaranty insurance (or in states where there is no specific authorization for mortgage guaranty insurance, the applicable line of insurance under which mortgage guaranty insurance is regulated) in all 50 states, the District of Columbia and Guam.

Radian Reinsurance – Radian Reinsurance is a direct wholly-owned subsidiary of Radian Group and is a licensed credit insurer in Pennsylvania. We have used Radian Reinsurance to participate in the credit risk transfer programs developed by Fannie Mae and Freddie Mac, and therefore, Radian Reinsurance currently provides mortgage credit risk insurance on GSE loans through these programs. See “Mortgage—Mortgage Insurance Products—Other Mortgage Insurance Products—GSE Credit Risk Transfer” for more information about these programs.

We also have the following mortgage insurance subsidiaries: Radian Insurance, a direct wholly-owned subsidiary of Radian Group that insures a small amount of second-lien mortgage loan risk written prior to the financial crisis; and Radian Mortgage Assurance, a direct wholly-owned subsidiary of Radian Group which had no RIF as of December 31, 2021.

As part of our title services business, we offer title insurance through Radian Title Insurance, which we acquired in March 2018. Radian Title Insurance is an Ohio domiciled title insurance underwriter and settlement services company that is licensed to issue title insurance policies in 41 states and the District of Columbia. Radian Title Insurance is an indirect subsidiary of Radian Group and is wholly owned by Radian Title Services Inc.

Mortgage Insurance Capital Requirements and Dividends

Under state insurance regulations, Radian Guaranty is required to maintain minimum surplus levels and, in certain states, a Statutory RBC Requirement that is based on maximum ratio of net RIF relative to statutory capital, or Risk-to-capital. The most common Statutory RBC Requirement is that a mortgage insurer’s Risk-to-capital may not exceed 25 to 1, while in certain other RBC States, Radian Guaranty must satisfy a MPP Requirement. As of December 31, 2021, Radian Guaranty’s Risk-to-capital was 11.1 to 1, and Radian Guaranty was in compliance with all applicable Statutory RBC Requirements. See Note 16 of Notes to Consolidated Financial Statements for more information on statutory capital requirements, including potential changes under consideration by the NAIC to the minimum capital and surplus requirements for mortgage insurers included in the Model Act. The ultimate outcome of the Model Act and new capital framework remains uncertain, including the


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form of requirements and how they may be implemented and potentially enforced. See “Item 1A. Risk Factors—Our insurance subsidiaries are subject to comprehensive state insurance regulations and other requirements, which we may fail to satisfy.”

Under Pennsylvania’s insurance laws, dividends and other ordinary distributions may only be paid out of an insurer’s positive unassigned surplus unless the Pennsylvania Insurance Department approves the payment of dividends or other distributions from another source. At December 31, 2021, Radian Guaranty had a negative unassigned surplus balance of $562.8 million, primarily due to the need for mortgage guaranty insurers to establish and maintain contingency reserves, as further discussed below. Therefore, no dividends or other ordinary distributions can be paid by Radian Guaranty without prior approval from the Pennsylvania Insurance Department.

For statutory reporting, mortgage insurance companies are required annually to set aside contingency reserves in an amount equal to 50% of earned premiums. The contingency reserve, which is designed to be a reserve against catastrophic losses, essentially restricts dividends and other ordinary distributions by mortgage insurance companies as such amounts cannot be released into surplus for a period of 10 years, except when loss ratios exceed 35%, in which case the amount above 35% can be released under certain circumstances.

In light of Radian Guaranty’s negative unassigned surplus and the ongoing need to set aside contingency reserves, we do not anticipate that Radian Guaranty will be permitted under applicable insurance laws to pay ordinary dividends to Radian Group for the next several years. However, under Pennsylvania’s insurance laws, an insurer may request to pay an Extraordinary Distribution, subject to the approval of the Pennsylvania Insurance Department. See Note 16 of Notes to Consolidated Financial Statements for more information on contingency reserve requirements and statutory dividend restrictions, as well as additional information about distributions of capital paid from our insurance subsidiaries in recent years and the approval in February 2022 of a $500 million return of capital from Radian Guaranty to Radian Group.

Title Insurance Capital Requirements and Dividends

Radian Title Insurance is required to maintain Statutory Premium Reserves (“SPR”), calculated as a percentage of gross premiums collected. The SPR requirements are set by each state, with the most common being 7%. The SPR is then recovered based on a release schedule, amortized over 20 years. In addition to the SPR, Radian Title Insurance is subject to periodic reviews of certain financial performance ratios, and the states in which it is licensed can impose capital requirements on Radian Title Insurance based on the results of those ratios.

Under Ohio’s insurance laws, dividends and other ordinary distributions may only be paid out of an insurer’s positive unassigned surplus unless the Ohio Department of Insurance approves the payment of dividends or other ordinary distributions from another source. While all proposed dividends and distributions to stockholders must be filed with the Ohio Department of Insurance prior to payment, if an Ohio domiciled insurer had positive unassigned surplus, such insurer can pay dividends or other distributions during any 12-month period in an aggregate amount less than or equal to the greater of: (i) 10% of the preceding year-end statutory policyholders’ surplus or (ii) the preceding year’s statutory net income, in each case without the prior approval of the Ohio Department of Insurance. Radian Title Insurance had negative unassigned surplus at December 31, 2021 of $13.8 million, therefore it is unable to pay dividends or other ordinary distributions without prior approval from the Ohio Department of Insurance.

Other Services

In addition to our insurance subsidiaries, certain of our other subsidiaries are subject to regulation and oversight by the states where they conduct their businesses, including requirements to be licensed and/or registered in the states in which they conduct operations.

Our real estate brokerage business conducted through Red Bell provides services in all 50 states and the District of Columbia, and Red Bell and its designated broker in each state are required to hold licenses and conduct their brokerage business in conformity with the applicable license laws and administrative regulations of the states in which they are conducting their business. As a licensed real estate brokerage, Red Bell receives residential real estate information from various multiple listing services (“MLS”) through agreements with these MLS providers, which it uses to broker real estate transactions and provide valuation products and services, pursuant to the terms of these agreements. These MLS agreements include restrictions on the permitted use of the MLS information obtained through these agreements and impose requirements on the business of real estate brokerages in order to maintain eligibility to continue to receive the MLS information. If these agreements were to terminate or Red Bell otherwise were to lose access to this information, it could negatively impact Red Bell’s ability to conduct its business.

Radian Mortgage Capital LLC (“RMC”) is an indirect wholly-owned subsidiary of Radian Group that has been formed as a vehicle for exploring opportunities to leverage our industry knowledge and customer relationships to opportunistically expand our channels for aggregating, managing and distributing mortgage credit risk, including potentially purchasing residential mortgage loans and issuing residential mortgage-backed securities. RMC is not yet conducting business, but is licensed in 14 states and positioned to purchase and hold residential mortgages on a nationwide basis. See “Item 1A. Risk Factors—Investments to grow our existing businesses, pursue new lines of business or new products and services within existing lines of business subject us to additional risks and uncertainties.”


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Radian Lender Services LLC provides third-party underwriting and loan processing services to lenders. This entity and its employees that provide our contract underwriting and loan processing services are eligible to provide these services in compliance with the SAFE Act for underwriting in all 50 states and the District of Columbia and in compliance with loan processing requirements in 45 states and the District of Columbia. See “—Federal Regulation—The SAFE Act.”

Radian Settlement Services and its subsidiaries provide title and escrow services and these entities are required to hold licenses in the jurisdictions where they operate their business. Title insurance agency and escrow licensing is primarily regulated by states in which the services are being offered, with licensing and registration typically within the jurisdiction of each state’s department of insurance. Radian Settlement Services is domiciled and licensed in Pennsylvania as a resident title insurance agency and, together with its subsidiaries, is licensed in 43 additional states.

Radian Valuation Services LLC is an appraisal management company, licensed in all 50 states and the District of Columbia, that supports certain valuation services provided by Red Bell. Real estate appraisal management statutes and regulations vary from state to state, but generally grant broad supervisory powers to agencies or officials to examine companies and enforce rules. While these businesses are generally state regulated, the Dodd-Frank Act established minimum requirements to be implemented by states regarding the registration and supervision of appraisal management companies. Most states have based their legislation on model legislation developed by the Appraisal Institute for the registration and oversight of appraisal management companies.

Information Security

The DFS issued cybersecurity regulations known as “Part 500” that became effective March 1, 2017 and apply to all financial institutions and insurance companies licensed under the New York Banking, Insurance, and Financial Services Laws, including Radian Guaranty and certain of our other subsidiaries. The regulations require covered entities to, among other things: establish a cybersecurity program; adopt a written cybersecurity policy; designate a Chief Information Security Officer responsible for implementing, overseeing and enforcing the cybersecurity program and policy; and have policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by, third-parties, along with a variety of other requirements to protect the confidentiality, integrity and availability of information systems. Also in 2017, the NAIC issued an Insurance Data Security Model Law, which was modelled after Part 500, and which several states have adopted. The stated intention of that Model Law is that if a covered insurance company is compliant with Part 500, it also would be in compliance with the NAIC Insurance Data Security Model Law.

Privacy

The State of California enacted the California Consumer Privacy Act (“CCPA”), which became effective in 2020 and applies to any company that does business in California and meets certain threshold requirements. We believe Radian Group and certain of its affiliates may be deemed covered businesses under the CCPA.

The CCPA creates a new privacy framework for covered businesses that collect, sell or disclose personal information of California consumers. Companies subject to the CCPA are required to establish procedures to enable them to comply with a California consumer’s data privacy rights, including by disclosing the privacy practices of the entity and responding to consumer requests within prescribed timeframes. The CCPA provides a private right of action for data breaches, including statutory or actual damages, and public enforcement by the California Attorney General for other violations.

On November 3, 2020, California voters approved a ballot initiative known as Proposition 24, which created a new privacy law known as the California Privacy Rights Act (“CPRA”). The CPRA is designed to enhance certain of the privacy protections for California consumers that were created by the CCPA. Although most of the CPRA’s provisions will not go into effect until January 1, 2023, the CPRA is an expansive privacy law which will create additional compliance obligations for covered entities.

We have put policies and procedures in place to comply with the CCPA. In addition to California, other states have started to move forward with new privacy regulations and federal regulators have proposed draft federal privacy legislation, all of which, to the extent they are adopted, could impose additional compliance obligations on covered entities beyond those currently in effect and could impact our businesses or those of our customers. The earliest that these other laws are scheduled to go into effect is January 2023.

Federal Regulation

CARES Act

Since the outbreak of the pandemic, there have been a number of governmental efforts to implement programs designed to assist individuals and businesses impacted by the COVID-19 virus, including the CARES Act that was enacted on March 27, 2020. The CARES Act provided a temporary foreclosure and eviction moratorium for residential mortgagors with certain federally- or GSE-backed mortgages. After being extended multiple times, the GSEs’ moratorium on single-family real estate owned (REO) evictions expired on September 30, 2021. The GSEs’ moratoriums on most single-family foreclosures also were


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extended multiple times before expiring December 31, 2021, which was the expiration date of the foreclosure moratorium imposed by the CFPB.

In addition, under the CARES Act, upon request by borrowers of federally-backed mortgage loans who attest to financial hardship related to the pandemic, mortgage servicers are required to provide these borrowers with up to 180 days forbearance on their mortgage payments, which may be extended for an additional 180 days upon request, without requiring validation by the borrowers of their hardship. The CARES Act provides no end date for when the 180 days forbearance must initially be offered. The permissible forbearance period of 12 months under the CARES Act has been lengthened by various federal agencies and the length of the period varies depending on the agency and type of mortgage at issue. For example, the GSEs extended the allowable forbearance period from 12 months to 18 months for those borrowers who were in an active COVID-19-related forbearance program as of February 28, 2021.

The GSEs have announced that, at the end of a forbearance plan, the homeowner may not be required to pay back their reduced or suspended mortgage payments in one lump sum, but may be eligible for a number of different options offered by their mortgage servicer, including repayment plans, resuming normal payments or lowering the monthly loan payment through a modification. For additional information on the potential impacts of the CARES Act on the GSEs, loan servicers and our PMIERs financial requirements, in Item 1A. Risk Factors, see “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity,” “—Changes in the charters, business practices or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses,” and “—Our business depends, in part, on effective and reliable loan servicing.”

GSE Requirements for Mortgage Insurance Eligibility

As the largest purchasers of conventional mortgage loans, and therefore, the main beneficiaries of private mortgage insurance, the GSEs impose eligibility requirements that private mortgage insurers must satisfy in order to be approved to insure loans purchased by the GSEs. The PMIERs initially became effective December 31, 2015 and aim to ensure that approved insurers will possess the financial and operational capacity to serve as strong counterparties to the GSEs throughout various market conditions. The PMIERs are comprehensive, covering virtually all aspects of the business and operations of a private mortgage insurer of GSE loans, including internal risk management and quality controls, the relationship between the GSEs and the approved insurer and the approved insurer’s financial condition. The PMIERs contain extensive requirements related to the conduct and operations of our mortgage insurance business, including operational requirements in areas such as claim processing, loss mitigation, document retention, underwriting, quality control, reporting and monitoring, among others. Radian Guaranty currently is an approved mortgage insurer under the PMIERs.

The PMIERs’ financial requirements require that a mortgage insurer’s Available Assets meet or exceed its Minimum Required Assets. The PMIERs’ financial requirements include increased financial requirements for defaulted loans, as well as for performing loans with a higher likelihood of default and/or certain credit characteristics, such as higher LTVs and lower FICO credit scores. With respect to defaulted loans, the PMIERs recognize that loans that have become non-performing as a result of a FEMA Declared Major Disaster generally have a higher likelihood of curing following the conclusion of the event and therefore applies a Disaster Related Capital Charge to reduce the Minimum Required Asset factor for these loans.

In 2020, in response to the COVID-19 pandemic, the GSEs issued guidelines (“National Emergency Guidelines”) that became effective June 30, 2020 and, among other things, adopted the COVID-19 Amendment to the PMIERs to apply the Disaster Related Capital Charge nationwide to certain non-performing loans that we refer to as COVID-19 Defaulted Loans, which comprise non-performing loans that either: (i) have an Initial Missed Payment occurring during the COVID-19 Crisis Period or (ii) are subject to a forbearance plan granted in response to a financial hardship related to COVID-19 (which is assumed under the COVID-19 Amendment to be the case for any loan that has an Initial Missed Payment occurring during the COVID-19 Crisis Period and is subject to a forbearance plan), the terms of which are materially consistent with the terms of forbearance plans offered by the GSEs.

Under the COVID-19 Amendment, the Disaster Related Capital Charge applies for three calendar months beginning with the month the loan becomes non-performing (i.e., missed two monthly payments), or if greater, the period of time that the loan is subject to a forbearance plan, repayment plan or loan modification trial period granted in response to a financial hardship related to COVID-19. After being extended once in December 2020, the COVID-19 Crisis Period expired as of March 31, 2021. As a result, as of April 1, 2021, the Disaster Related Capital Charge is no longer applied to all new defaults, and instead is applied only to new defaults if they are subject to a COVID-19 forbearance plan, regardless of whether the forbearance plan was entered into before or after the expiration of the COVID-19 Crisis Period.

The Disaster Related Capital Charge will continue to be applied to these COVID-19 Defaulted Loans for as long as they remain in the COVID-19 forbearance plan, repayment plan or loan modification trial period. Further, if the National Emergency Guidelines and the COVID-19 Amendment are terminated, the Disaster Related Capital Charge would then be applied to defaulted loans in accordance with the PMIERs’ provision pertaining to loans that have become non-performing as a result of a FEMA Declared Major Disaster, to the extent these provisions are still applicable in the state where the property is located. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Mortgage.”


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In addition to the increased financial requirements for defaulted loans and certain performing loans, the PMIERs financial requirements also impose limitations on the credit that is granted for certain Available Assets. For example, the PMIERs limit the amount of credit given to surplus notes issued by a mortgage insurer to 9% of Minimum Required Assets. In addition, the PMIERs prohibit Radian Guaranty from engaging in certain activities such as insuring loans originated or serviced by an affiliate (except under certain circumstances) and require Radian Guaranty to obtain the prior consent of the GSEs before taking many actions, which may include, among other things, entering into various intercompany agreements, settling loss mitigation disputes with customers and commuting risk.

The GSEs have significant discretion under the PMIERs and may amend the PMIERs at any time, although the GSEs have communicated that for material changes, including large-scale material changes affecting Minimum Required Assets, they will generally provide written notice 180 days prior to the effective date and engage in a discussion and comment process with the private mortgage insurers regarding the proposed changes prior to finalizing them. The most recent large-scale revisions to PMIERs, or PMIERs 2.0, became effective on March 31, 2019, and the PMIERs were further updated in June 2020 to specifically address the COVID-19 pandemic.

It is possible that the GSEs may seek to amend PMIERs 2.0 in the future to align the financial requirements of the PMIERs with the capital requirements for the GSEs set forth in the ECF. The ECF was finalized in December 2020, but further potential changes have since been publicly proposed and are under evaluation by the FHFA. See “—Housing Finance Reform and the GSEs’ Business Practices” below for additional information on the ECF.

As part of our capital and risk management activities, including to manage Radian Guaranty’s capital position under the PMIERs financial requirements, we have distributed risk through third party quota share and excess-of-loss reinsurance arrangements, including through the capital markets using insurance-linked-notes transactions. The initial and ongoing credit that we receive under the PMIERs financial requirements for these risk distribution transactions is subject to the periodic review of the GSEs and could be influenced by the ECF which, as finalized in December 2020, provides the GSEs with a reduced amount of credit for their own credit risk transfer activities.

See “Item 1A. Risk Factors—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity.”

Housing Finance Reform and the GSEs’ Business Practices

Legislative Reform

The federal government plays a significant role in the U.S. housing finance system through, among other things, the involvement of the FHFA and GSEs, the FHA and the VA. The GSEs’ charters, which cannot be altered outside of federal legislation, generally prohibit them from buying low down payment mortgage loans without certain forms of credit enhancement, the most common form of which has been private mortgage insurance.

Since FHFA was appointed as conservator of the GSEs in September 2008, there has been a wide range of legislative proposals to reform the U.S. housing finance market, including proposals for GSE reform ranging from some that advocate nearly complete privatization and elimination of the role of the GSEs to others that support a system that combines a federal role with private capital. While many legislative proposals have been debated and occasionally advanced through various legislative procedures, no reform proposal has reached an advanced legislative stage. As a consequence, most reform related actions with respect to the housing finance system have occurred administratively through regulatory actions.

Administrative Reform

The executive branch of the government (the “Administration”), typically through its Departments and regulatory agencies, offers perspectives on the future of housing finance in the U.S., including objectives for future strategic direction and areas of focus. As a result, a change in Administrations can significantly alter the strategic direction of housing finance in the U.S.

Although many Departments or agencies impact housing finance in some manner, the most prominent and directly impactful are the FHFA, HUD, the U.S. Department of the Treasury (“Treasury”) and the CFPB. In June 2021, following a Supreme Court decision that determined that the FHFA director may be removed by the President other than for cause, President Biden removed the FHFA director appointed by President Trump and appointed Sandra Thompson as acting director of the FHFA. Since assuming the role of acting director of the FHFA, Ms. Thompson has taken a number of actions that represent a reversal of the previous FHFA leadership’s primary focus on preparing the GSEs to exit from conservatorship by increasing the GSEs’ overall capital levels and reducing their credit risk profile. In contrast, the FHFA under acting director Thompson has been focused on increasing the accessibility and affordability of mortgage credit, in particular to low- and moderate-income borrowers and underserved communities, in addition to ensuring the safety and soundness of the GSEs. The Supreme Court’s decision providing that the FHFA director may be removed by the President without cause creates a higher likelihood that the direction of the FHFA and its oversight over the GSEs may be impacted by elections and the then political leanings of the Administrations in power than previously was the case.

Senior Preferred Stock Purchase Agreements. The Treasury currently owns the preferred stock of the GSEs pursuant to the terms of PSPAs, and therefore, has significant influence over the fate and direction of the GSEs. Prior to a December


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2017 amendment to the PSPAs, which allowed each GSE to retain a $3 billion capital reserve, the GSEs were required under the PSPAs to sweep all profits to Treasury. In September 2019, Treasury and the FHFA further amended the PSPAs to suspend the quarterly “net worth sweep” and allow the GSEs to build a capital reserve of up to $45 billion collectively, and in January 2021, prior to the change in Administration, the PSPAs were amended again to allow the GSEs to continue to retain capital up to the amounts prescribed in newly revised GSE capital requirements, pursuant to the ECF and as discussed below.

As part of the January 2021 amendment to the PSPAs, the Trump appointed leadership in Treasury and FHFA also agreed that the GSEs must restrict their acquisition of higher-risk single-family mortgage loans, including in particular the acquisition of investor loans and single-family mortgage loans with two or more higher risk characteristics (i.e., LTVs greater than 90%, debt-to-income ratios greater than 45% and FICO credit scores less than 680), to their then current levels. The January 2021 PSPA amendment further restricted the quality of loans that may be purchased by the GSEs by limiting the GSEs’ purchases to, among other enumerated types, loans that meet the QM definition. In September 2021, the Biden appointed leadership in Treasury and the FHFA suspended the limitations on GSE purchases of loans deemed higher risk, set forth in the January 2021 amendments to the PSPAs.

Enterprise Capital Framework. Throughout 2020, under the Trump appointed leadership, the FHFA advanced certain initiatives to develop new capital and liquidity requirements for the GSEs, which were viewed as critical to any future release of the GSEs from conservatorship. In December 2020, the FHFA finalized a new ECF for the GSEs and also proposed new liquidity requirements.

Among other things, as compared to the prior version of the ECF, the ECF finalized in 2020: (i) significantly increased the capital requirements of the GSEs; (ii) decreased the capital credit provided to the GSEs for credit risk transfer transactions, which have been a significant component of the GSEs capital and risk management strategy for the past several years; and (iii) reduced the overall capital relief extended to the GSEs for loans with private mortgage insurance.

In December 2020, the FHFA also proposed new liquidity requirements for the GSEs, which impose a mix of new cash-flow based requirements and long-term liquidity and funding requirements. The liquidity requirements were proposed to be effective in September 2021, but to date have not been adopted. Under acting director Thompson, the FHFA evaluated the ECF that was finalized in 2020 for further changes, and in September 2021 proposed changes that would have the effect of reducing the GSEs’ total capital requirements from those finalized, including by giving greater credit to credit risk transfer. In December 2021, the FHFA also issued a proposed rule that would require the GSEs to submit annual capital plans to the FHFA and to provide the agency with advance notification of certain capital activities.

The ECF and proposed new liquidity requirements could significantly alter the business practices and operations of the GSEs. There are many considerations related to financial, underwriting, risk management, counterparty and operational areas that likely will need to be addressed by the GSEs in order to come into compliance with the ECF new capital requirements and the proposed liquidity requirements, regardless of the form ultimately adopted, which could have a material effect on the conventional mortgage market and potentially our business with the GSEs.

Access and Affordability. The Biden Administration has proposed a housing plan focused on: (i) increasing access to sustainable homeownership and making housing more affordable for low- and moderate-income borrowers; (ii) ensuring the housing finance system is equitable, by identifying and eliminating discriminatory or unfair practices in the housing system; (iii) increasing the supply, lowering the cost and improving the quality of housing, including through investments in resilience, energy efficiency, and accessibility of homes; and (iv) providing financial assistance to help Americans buy or rent safe, quality housing, including down payment assistance.

Since assuming leadership over the FHFA in June 2021, in addition to amending the PSPAs and proposing revisions to the ECF, the Biden appointed FHFA leadership team has instituted changes to further advance mortgage access and affordability, including the following actions:

■In August 2021, entered into a memorandum of understanding with HUD to collaborate in addressing fair housing and fair lending;

■In August 2021, cancelled a 50-basis point adverse market fee on refinance transactions;

■In October 2021, raised the area median income limitations from 80% to 100% for the GSEs’ special refinance programs aimed at supporting low- and moderate-income borrowers’ ability to take advantage of the low interest rate environment; and

■In October 2021, announced that “desktop appraisals,” which represent an alternative to traditional home appraisals, would be incorporated into the GSEs’ guidelines for many new purchases beginning in early 2022.

In addition to these actions, the FHFA has requested the GSEs to produce three-year plans focused on equitable housing.

Radian Guaranty and other private mortgage insurance companies have been engaged in discussions with the GSEs regarding how the industry may support the GSEs to advance these objectives. Depending on the outcome of such dialogue, one or both of the GSEs, together or in conjunction with one or more private mortgage insurers, could implement further initiatives in pursuit of housing policy objectives that could require changes to the GSEs’ business practices and impact our


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businesses. See “Item 1A. Risk Factors—Changes in the charters, business practices, or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses.”

New Products. In October 2020, the FHFA leadership released for comment a proposed rule regarding the process for how it will consider and approve new GSE activities and products. Among other things, the proposed rule would redefine criteria for determining what constitutes a new activity that requires prior notice to the FHFA and for determining whether the activity constitutes a “new product” that requires public notice and comment, describing a new product as “any new activity that FHFA determines merits public notice and comment on matters of compliance with the applicable sections of [a GSE’s] authorizing statute, safety and soundness, or public interest.” Given the size and market influence of the GSEs, this new proposed rule is generally viewed as important to ensure that the GSEs are not otherwise encroaching on areas that may be more appropriately served by private capital.

It is difficult to predict what types of new products and activities may be proposed in the future and, if applicable, whether they may be approved by the FHFA. For example, if any existing or future credit risk transfer transactions and structures were to displace primary loan level or standard levels of mortgage insurance, the amount of mortgage insurance we write may be reduced, which could negatively impact our franchise value, results of operations and financial condition.

In 2018, Freddie Mac and Fannie Mae announced the launch of pilot programs, IMAGIN and EPMI, respectively, as alternative ways for lenders to obtain credit enhancement and sell loans with LTVs greater than 80% to the GSEs. These investor-paid mortgage insurance programs, in which insurance was acquired directly by each GSE through entities that were not subject to compliance with the PMIERs, have many of the same features as private mortgage insurance and represent an alternative to traditional private mortgage insurance products that are provided to individual lenders. These programs experienced limited volumes and in June 2021 were discontinued for new business, although they could be relaunched in the future. Further, the proposed rule regarding new products states that it is intended to apply to any future pilot programs, so it is unclear whether the same standards and procedures proposed in the new rule also would apply to existing pilots such as IMAGIN and EPMI if they are relaunched.

COVID-19. In addition to the matters discussed above, the future of the GSEs is likely to continue to be impacted by the ongoing COVID-19 pandemic. In light of the COVID-19 pandemic, the FHFA has adjusted its oversight over the GSEs to ensure the GSEs are able to support borrowers impacted by the pandemic and protect the ongoing functioning of the housing finance system.

In response to the pandemic, the FHFA and the GSEs temporarily suspended all foreclosures and evictions; temporarily instituted mortgage forbearance; temporarily streamlined the appraisal, employment verification and loan closing processes to address frictions in the mortgage origination process created by social distancing and stay-at-home orders; implemented a four-month limit on servicer advance obligations for loans in forbearance; adopted the COVID-19 Amendment to the PMIERs effective June 30, 2020; and provided that loans in COVID-19 forbearance will remain in mortgage-backed securities pools for at least the duration of the forbearance. To assist borrowers exiting COVID-19 forbearance plans, the GSEs have also provided options to address forborne payments, which include payment deferral, borrower repayment plans and loan modifications. The GSEs have updated servicer guidelines regarding options specific to COVID-19-related forbearance, including borrower eligibility for these programs.

In June 2021, the CFPB issued a final rule amending Regulation X, which provides servicers with the option to provide certain streamlined loan modification options to borrowers based on the evaluation of an incomplete loss mitigation application for those with COVID-19-related hardships. This rule also addresses temporary servicer communication requirements for borrowers approaching the end of a COVID-19 forbearance plan.

As the situation continues to evolve, the actions or potential inactions of the FHFA and GSEs in response to COVID-19 are likely to continue to have a significant impact on the overall functioning of the housing finance system. In Item 1A. Risk Factors, see “—Changes in the charters, business practices or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses” and “—Our mortgage insurance business faces intense competition.”

HUD/FHA

Private mortgage insurance competes for a share of the insurable mortgage market with the single-family mortgage insurance programs of the FHA, including on the basis of loan limits, pricing, credit guidelines, terms of our insurance policies and loss mitigation practices.

Since the financial crisis, the private mortgage insurance industry has improved its share of the insurable, low down payment market, primarily due to: (i) improvements in the financial strength of private mortgage insurers; (ii) the development of new products, pricing delivery tools and marketing efforts directed at competing with FHA programs and execution; (iii) increases in the FHA’s pricing; (iv) the U.S. government’s pursuit of legal remedies against FHA-approved lenders related to loans insured by the FHA; and (v) various policy changes at the FHA, including the general elimination of the premium cancellation provision that still exists for borrower-paid private mortgage insurance.

As discussed above, the Biden Administration has been pursuing actions that will further its stated objective of increasing access to affordable mortgages for low- and moderate-income borrowers. In this regard, the Biden Administration may choose to reduce the FHA’s annual or upfront premiums and/or eliminate the life-of-loan premium requirement for FHA


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insured loans. It is uncertain if and when the FHA may change its pricing and what form this price reduction could take; however, any change in the FHA’s pricing that would improve FHA execution compared to execution through the GSEs with private mortgage insurance could negatively impact our NIW volume.

As last reported in November 2021, the FHA’s Mutual Mortgage Insurance (MMI) Fund had a combined capital ratio for fiscal year 2021 of 8.03%, above the 2% ratio that the FHA is required to maintain. While this would suggest that it may be more likely that the FHA will lower pricing, the pandemic has had a significant negative impact on the FHA’s insured portfolio, including a significant increase in the total percentage of severely delinquent loans, making it more difficult to predict any future pricing actions the FHA may pursue.

In addition, in 2019, HUD issued a Memorandum of Understanding (“MOU”) with the Department of Justice (“DOJ”) that provides guidance on the process for enforcing the False Claims Act (“FCA”), and revisions of annual and loan-level certifications which became effective January 1, 2020. The MOU provides that alleged violations of the FCA will be primarily addressed through HUD administrative proceedings and only referred to the DOJ under certain circumstances. While we do not believe the MOU has had a significant impact on the pool of lenders doing business with the FHA, it could make the FHA more attractive to lenders who previously reduced their business with the FHA because of concerns regarding the DOJ’s pursuit of legal remedies against FHA lenders.

The Dodd-Frank Act

The Dodd-Frank Act mandates significant rulemaking by several regulatory agencies to implement its provisions. The Dodd-Frank Act established the CFPB to regulate the offering and provision of consumer financial products and services under federal law, including residential mortgages, and transferred authority to the CFPB to enforce many existing consumer related federal laws, including the Truth in Lending Act and RESPA.

Among the most significant provisions for private mortgage insurers under the Dodd-Frank Act are the ability to repay mortgage provisions (“Ability to Repay Rule”), including a related safe harbor set forth in the QM Rule (defined below), the securitization risk retention provisions and the expanded mortgage servicing requirements under the Truth in Lending Act and RESPA.

Qualified Mortgage Requirements—Ability to Repay Requirements

The Ability to Repay Rule requires mortgage lenders to make a reasonable and good faith determination that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan. The Dodd-Frank Act provides that a creditor may presume that a borrower will be able to repay a loan if the loan has certain low-risk characteristics that meet the definition of a qualified mortgage (“QM Rule”). This QM presumption is generally rebuttable, however, loans that are deemed to have the lowest risk profiles are granted a safe harbor from liability (“QM Safe Harbor”) related to the borrower’s ability to repay the loan.

In implementing the QM Rule, the CFPB established rigorous underwriting and product feature requirements for loans to be deemed qualified mortgages (“Original QM Definition”), including that the borrower does not exceed a 43% debt-to-income ratio after giving effect to the loan. As part of the Original QM Definition, the CFPB also created a special exemption for the GSEs, which is generally referred to as the “QM Patch,” that allows any loan that meets the GSE underwriting and product feature requirements to be deemed to be a qualified mortgage, or QM, regardless of whether the loan exceeds the 43% debt-to-income ratio.

In December 2020, the CFPB finalized two new definitions of QM. One of these new QM definitions (the “New General QM Definition”) is intended to replace the underwriting focused approach of the Original QM Definition, including the 43% debt-to-income ratio limitation, with a new pricing-based approach to QM. Under the New General QM Definition, certain underwriting considerations are retained, but QM status generally is achieved if the loan is priced at no greater than 2.25% above the Average Prime Offer Rate (“APOR”). Loans priced at or less than 1.5% above APOR are subject to the QM Safe Harbor, while all other QM loans would receive the general rebuttable presumption that the loans met the ability to repay standard.

Separately, the CFPB created another new QM definition (“Seasoned QM”) for first-lien, fixed-rate loans that meet certain performance requirements over a 36-month seasoning period and are held in the lender’s portfolio until the end of the seasoning period. Both new QM definitions became effective on March 1, 2021. The New General QM Definition originally had a mandatory compliance date of July 1, 2021, after which the Original QM Definition and QM Patch would no longer apply. In April 2021, the CFPB issued a new rule delaying the mandatory compliance deadline for the New General QM Definition until October 1, 2022, thereby preserving the Original QM Definition and QM Patch until such date.

On April 8, 2021, the GSEs announced that for loan applications received on or after July 1, 2021, they will only purchase loans satisfying the New General QM Definition. As a result, even though the CFPB has delayed the mandatory compliance date for the New General QM Definition until October 1, 2022, for GSE-acquired loans with applications received on or after July 1, 2021, the QM Patch is effectively limited to loans that satisfy the New General QM Definition. This decision by the GSEs reduced the number of loans that otherwise would have been designated QM compared to those receiving QM designation under the QM Patch, although not materially.


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The QM Rule requires that points and fees paid at or prior to closing cannot exceed 3% of the total loan amount, with higher points and fees thresholds provided for loan amounts below $114,847. Any mortgage insurance premiums paid by the borrower at or before the time of loan closing must be applied toward the 3% points and fee calculation, unless such premiums are in excess of the FHA upfront premium amount and are automatically refundable on a pro-rata basis. There are no similar restrictions on the points and fees associated with FHA premiums, and thus FHA has a market advantage for smaller balance loans where the 3% cap is more easily reached.

The Dodd-Frank Act also granted the FHA, VA and the USDA flexibility to establish their own definitions of qualified mortgages for their insurance guaranty programs. Both the FHA and VA have created their own definition of qualified mortgages that differ from both the CFPB’s Original QM Definition and New General QM Definition. For example, the FHA’s QM Safe Harbor definition currently applies to loans priced at or less than APOR plus the sum of 115 basis points and the FHA’s annual mortgage insurance premium rate, which is effectively broader than the QM Safe Harbor adopted under the New General QM Definition. These alternate definitions of qualified mortgages are more favorable to lenders and mortgage holders than the CFPB’s Original QM Definition and the New General QM Definition that apply to loans purchased by the GSEs, which could drive business to these agencies and have a negative impact on our mortgage insurance business.

For more information regarding the CFPB’s proposed New General QM Definition and the risks it may present for us, see “Item 1A. Risk Factors—A decrease in the volume of mortgage originations could result in fewer opportunities for us to write new mortgage insurance business and conduct our homegenius business.”

Qualified Residential Mortgage Regulations—Securitization Risk Retention Requirements

The Dodd-Frank Act requires securitizers to retain at least 5% of the credit risk associated with mortgage loans that they transfer, sell or convey, unless the mortgage loans are qualified residential mortgages (“QRMs”) or are insured by the FHA or another federal agency (the “QRM Rule”). Under applicable federal regulations, a QRM is generally defined as a mortgage meeting the requirements of a qualified mortgage under the CFPB’s QM Rule described above. Because of the capital support provided by the U.S. government to the GSEs, the GSEs currently satisfy the proposed risk retention requirements of the Dodd-Frank Act while they are in conservatorship, so sellers of loans to the GSEs currently are not subject to the risk retention requirements referenced above. This means that securitizers would not be required to retain risk under the QRM Rule on loans that are guaranteed by the GSEs while in conservatorship.

The QRM Rule requires the agencies that implemented the rule to review the QRM definition no later than four years after its effective date (i.e., December 2018) and every five years thereafter, and allows each agency to request a review of the definition at any time. On December 20, 2019, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the SEC, the FHFA and HUD announced the commencement of a review of the QRM Rule. In December 2021, following completion of this review, the agencies released the findings of this review and determined not to propose any changes to the definition of qualified residential mortgage at this time.

Other

The Dodd-Frank Act establishes a Federal Insurance Office within the U.S. Department of the Treasury (the “FIO”). While the FIO does not have a general supervisory or regulatory authority over the business of insurance, the director of this office performs various functions with respect to insurance, such as serving as a non-voting member of the Financial Stability Oversight Council. It is difficult to predict whether legislators or other executive agencies will pursue the development and implementation of federal standards for the mortgage insurance industry outside of the FHFA. Any divergence from the current system of state regulation could significantly change compliance burdens and possibly impact our financial condition.

In addition, Section 1473 of the Dodd-Frank Act establishes minimum requirements to be implemented by states regarding the registration and supervision of appraisal management companies (“AMCs”), including Radian Valuation Services. In 2015, six federal regulatory agencies (the Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration, CFPB and the FHFA) approved final rules creating federal minimum requirements for state registration and supervision of AMCs.

All AMCs subject to state registration, including Radian Valuation Services, must satisfy certain minimum standards, including requirements to: (i) establish and comply with processes and controls designed to ensure that an AMC only engages an appraiser who has the appropriate education, expertise and experience necessary to competently complete a particular appraisal assignment and (ii) establish and comply with processes and controls reasonably designed to ensure that the AMC conducts its appraisal management services in accordance with applicable appraisal independence standards and regulations.

RESPA

Settlement service providers in connection with the origination or refinance of a federally regulated mortgage loan are subject to RESPA and Regulation X. Under the Dodd-Frank Act, the authority to implement and enforce RESPA was transferred to the CFPB. RESPA authorizes the CFPB, the U.S. Department of Justice, state attorneys general and state insurance commissioners to bring civil enforcement actions, and also provides for criminal penalties and private rights of action.


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Mortgage insurance, title insurance and other products and services provided by Radian’s affiliates are considered settlement services for purposes of RESPA. The anti-referral fee and anti-kickback provisions of Section 8 of RESPA generally provide, among other things, that settlement service providers are prohibited from paying or accepting anything of value in connection with the referral of a settlement service or sharing in fees for those services. RESPA also prohibits requiring the use of an affiliate for settlement services and requires certain information to be disclosed if an affiliate is used to provide the settlement services. In addition to mortgage insurance, through our homegenius business, we offer an array of services to our customers, including real estate, valuation, hybrid appraisal, title and closing services, many of which are considered settlement services for purposes of RESPA, and therefore, are subject to the anti-referral fee, anti-kickback and required use provisions of RESPA.

In the past, we and other mortgage insurers have faced lawsuits alleging, among other things, that our captive reinsurance arrangements constituted unlawful payments to mortgage lenders under RESPA. We also have been subject to lawsuits alleging that our Pool Mortgage Insurance and contract underwriting services violated RESPA. In addition, we and other mortgage insurers have been subject to inquiries and investigative demands from state and federal governmental agencies, including the CFPB, requesting information relating to captive reinsurance.

In April 2013, we reached a settlement with the CFPB that concluded its investigation with respect to Radian Guaranty without any findings of wrongdoing. As part of the settlement, Radian Guaranty paid a civil penalty and agreed that it would not enter into any new captive reinsurance agreement or reinsure any new loans under any existing captive reinsurance agreement for a period of 10 years ending in 2023. In June 2015, Radian Guaranty executed a Consent Order with the Minnesota Department of Commerce that resolved the Minnesota Department of Commerce’s outstanding inquiries related to captive reinsurance arrangements involving mortgage insurance in Minnesota without any findings of wrongdoing. As part of the Consent Order, Radian Guaranty paid a civil penalty and agreed not to enter into new captive reinsurance arrangements until June 2025. We have not entered into any new captive reinsurance arrangements since 2007. In addition, under the PMIERs, the GSEs prohibit private mortgage insurers from entering into captive insurance arrangements.

Homeowner Assistance Programs

The American Rescue Plan Act of 2021 authorizes approximately $9.9 billion to fund a Homeowner Assistance Fund for “the purpose of preventing homeowner mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, and displacements of homeowners experiencing financial hardship after January 21, 2020.” Since the enactment of this legislation, Treasury has issued guidance on this program and announced expected allocations by state, with a statutory minimum requirement of $50 million for each state, the District of Columbia and Puerto Rico. According to the guidance issued by Treasury, eligible use of these funds may include mortgage payment assistance, assistance for housing-related costs related to a period of forbearance, delinquency, or default, facilitating mortgage interest reductions, assistance with insurance payments, including mortgage insurance, utility and tax payments, among others. See “—Housing Finance Reform and the GSEs’ Business Practices—Administrative Reform—COVID-19” above for additional information on efforts to support borrowers impacted by the pandemic.

The SAFE Act

The SAFE Act and its state law equivalents require mortgage loan originators to be licensed with state agencies in the states in which they operate and/or registered with the Nationwide Mortgage Licensing System and Registry (the “Registry”). The Registry is a database established by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators that tracks the licensing and eligibility requirements of loan originators. Among other things, the database was established to support the licensing of mortgage loan originators by each state.

As part of this licensing and registration process, loan originators who are employees of institutions other than depository institutions or certain of their subsidiaries that, in each case, are regulated by a federal banking agency, must generally be licensed under the SAFE Act guidelines enacted by each state in which they engage in loan origination activities and registered with the Registry. Additionally, most states define underwriting and loan processing as a clerical and administrative duty, performed under the supervision of a licensed mortgage loan originator. The entity and its employees that provide our contract underwriting and loan processing services are compliant with the SAFE Act for underwriting in all 50 states and the District of Columbia and compliant for loan processing in 45 states and the District of Columbia.

Mortgage Insurance Cancellation

The HPA imposes certain cancellation and termination requirements for borrower-paid private mortgage insurance with respect to “residential mortgage transactions” as defined in the HPA, and requires certain disclosures to borrowers regarding their rights under the law. Specifically, provided that certain conditions are satisfied, the HPA provides that private mortgage insurance on most loans may be cancelled at the request of the borrower once the principal balance of the mortgage is first scheduled to reach 80% of the home’s original value based on the loan’s initial amortization schedule, or reaches 80% of the home’s original value based on actual payments.

In addition, provided that certain conditions are satisfied, the HPA provides that private mortgage insurance on most loans is subject to servicer-initiated automatic termination once the principal balance of the mortgage is first scheduled to


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reach 78% of the home’s original value based on the loan’s initial amortization schedule (or, if the loan is not current on that date, on the date that the loan becomes current). The HPA further provides that private mortgage insurance on most loans is subject to final termination following the date that is the midpoint of the loan’s amortization period (or, if the loan is not current on that date, on the date that the loan becomes current).

The HPA also establishes special rules for the termination of private mortgage insurance in connection with loans that are “high risk.” The HPA does not define “high risk” loans, but leaves that determination to the GSEs for loans up to the GSE conforming loan limits and to lenders for any other loan. For “high risk” loans originated in excess of conforming loan limits, provided that certain conditions are satisfied, the servicer is required to initiate termination once the principal balance of the mortgage is first scheduled to reach 77% of the home’s original value based on the loan’s initial amortization schedule. It is the servicer’s obligation to verify the date when a loan meets all HPA requirements for termination of borrower-paid private mortgage insurance and to promptly instruct the private mortgage insurer to terminate coverage.

Although not provided in the HPA, the GSEs’ guidelines also currently provide that when certain conditions are satisfied, borrowers can request cancellation of borrower-paid mortgage insurance for most loans when the LTV, based upon the current value of the home, is: either 75% or less or 80% or less, depending on the seasoning of the loan and other factors. The GSEs may change these guidelines in the future, including by expanding their mortgage insurance cancellation requirements, which could negatively impact our businesses. In Item 1A. Risk Factors, see “—Changes in the charters, business practices or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses.” and “—Our mortgage insurance business faces intense competition.”

The Fair Credit Reporting Act (the “FCRA”)

The FCRA imposes restrictions on the permissible use of credit report information and disclosures that must be made to consumers when information from their credit reports is used. The FCRA has been interpreted by some Federal Trade Commission staff to require mortgage insurance companies to provide “adverse action” notices to consumers in the event an application for mortgage insurance is declined or a higher premium is charged based on the use, wholly or partly, of information contained in the consumer’s credit report.

Privacy and Information Security - Gramm-Leach-Bliley Act of 1999 (the “GLBA”) and Other Regulatory Requirements

As part of our business, we, and certain of our subsidiaries, maintain large amounts of confidential information, including non-public personal information on consumers and our employees. We and our customers are subject to a variety of privacy and information security laws and regulations. The GLBA imposes privacy requirements on financial institutions, including obligations to protect and safeguard consumers’ nonpublic personal information and records, and limitations on the re-use of such information. The GLBA is enforced by state insurance regulators and by federal regulatory agencies.

In addition, many states have enacted privacy and data security laws that impose compliance obligations beyond the GLBA, such as: requiring notification in the event that a security breach results in a reasonable belief that unauthorized persons may have obtained access to consumer nonpublic personal information; imposing additional restrictions on the sale and use of consumers’ personal information; affording consumers new rights of both access and deletion of their personal information; and creating new private rights of action for data breaches. See “—State Regulation—Privacy.”

Federal and state agencies have increased their focus on compliance obligations related to privacy, data security and cybersecurity. The CFPB, Office of the Comptroller of the Currency and non-governmental regulatory agencies, such as the Financial Industry Regulatory Authority (“FINRA”), have announced new compliance measures and enforcement efforts designed to monitor and regulate the protection of personal consumer data, including with respect to: the development and delivery of financial products and services; underwriting; mortgage servicing; credit reporting; digital payment systems; and vendor management. For information regarding the DFS’ cybersecurity regulations and the California Consumer Privacy Act, under “—State Regulation” above, see “—Information Security” and “—Privacy.”

Fair Lending and Fair Servicing

The federal Fair Housing Act, part of the Civil Rights Act of 1968, makes it unlawful for any person whose business includes engaging in residential real estate related transactions to: (i) discriminate in housing-related lending activities against any person on a prohibited basis, or (ii) for any person to discriminate in the sale or rental of housing “or in the provision of services or facilities in connection therewith,” to any person because of a prohibited basis.

Similarly, the Equal Credit Opportunity Act and Regulation B make it unlawful for a creditor to discriminate in any aspect of a credit transaction against an applicant on a prohibited basis during any aspect of a consumer or business credit transaction or make any oral or written statement to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.

These laws seek to address discrimination in lending and other housing related activity by prohibiting discrimination that is intentional or where a facially neutral policy or practice has a “disparate impact;” that is, that it disproportionately excludes or burdens persons on a prohibited basis without a need to demonstrate intentional discrimination.


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In September 2020, HUD issued a Final Rule (2020 Rule) which modified the requirements for demonstrating disparate impact claims. In June 2021, HUD published a notice of proposed rulemaking (“NPRM”) proposing to rescind its 2020 Rule, which was criticized as making it more difficult to bring disparate impact claims, and restore HUD’s prior interpretation of the disparate impact rule. To this end, the Biden Administration has indicated that it intends to focus heavily on discriminatory and unfair housing practices.

As a provider of products and services that support residential real estate transactions and the mortgage production and financing process, fair lending and servicing laws may impact the way we deliver or conduct our products and services, including in response to customer requirements.

Mortgage Insurance Tax Deduction

In 2006, Congress enacted the private mortgage insurance tax deduction in order to foster homeownership. The deduction was enacted on a temporary basis and it expired at the end of 2011. Since 2011, the private mortgage insurance tax deduction has been extended six times, most recently for insurance premiums paid through December 31, 2021. It is difficult to predict whether the deduction will be extended in the future.

Federal Consumer Protection Laws

As certain of our current and potential future business activities are directed at consumers or affect the provision of real estate and mortgage related services provided to consumers by others, we may be subject to a number of federal consumer protection laws, including, laws that could apply to us more directly. In addition to the laws and regulations discussed elsewhere in this Regulation section, these laws may include:

■The Truth in Lending Act and Regulation Z, requiring disclosures of mortgage loan costs and other notices to consumers;

■The Equal Credit Opportunity Act and Regulation B, prohibiting discrimination based on age, race and other characteristics in the extension of credit;

■The Fair Housing Act, prohibiting discrimination based on race, sex, national origin and other characteristics in connection with purchasing a home, obtaining a mortgage or other housing-related activities;

■The Fair Debt Collection Practices Act, regulating debt collection communications and other activities;

■Prohibition on Unfair, Deceptive or Abusive Acts or Practices, prohibiting unfair, deceptive or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service;

■CAN-SPAM Act, regulating commercial and marketing email including the right of recipients to have the sender stop sending emails; and

■The Telephone Consumer Protection Act, regulating and restricts certain marketing related phone calls, text messages and facsimiles.

We may also be required to comply with state laws similar to these federal consumer protection laws which, to the extent applicable to our businesses.

Basel III

Over the past few decades, the Basel Committee on Banking Supervision (the “Basel Committee”) has established international benchmarks for assessing banks’ capital adequacy requirements (“Basel III”). Included within those benchmarks are capital standards related to residential lending and securitization activity and, importantly for private mortgage insurers, the capital treatment of mortgage insurance on those loans. These benchmarks are then interpreted and implemented via rulemaking by U.S. banking regulators.

In July 2013, the U.S. banking regulators promulgated regulations, referred to as the “U.S. Basel III Rules,” to implement significant elements of the Basel framework. The U.S. Basel III Rules, among other things, revise and enhance the U.S. banking agencies’ general risk-based capital rules. Today, the U.S. Basel III Rules assign a risk weight to loans secured by one-to-four-family residential properties. Generally, under the U.S. Basel III Rules in place today, the explicit government guarantees (FHA/VA/USDA) receive a 0% risk weight, and Fannie Mae and Freddie Mac related loans receive a 20% risk weight. Non-government related mortgage exposures secured by a first lien on a one-to-four family residential property that are prudently underwritten and that are performing according to their original terms receive a 50% risk weighting. All other one-to-four family residential mortgage loans are assigned a 100% risk weight.

In December 2014, the Basel Committee issued a proposal for further revisions to Basel III. It proposed adjustments to the risk weights for residential mortgage exposures that take into account LTV ratio and the borrower’s ability to service a mortgage, which were not previously addressed by Basel III. The proposed LTV ratio did not take into consideration any credit enhancement, including private mortgage insurance, but in March 2015, the U.S. banking regulators clarified that for purposes of the U.S. Basel III Rules, calculation of LTV ratios can account for credit enhancement such as private mortgage insurance in


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determining whether a loan is made in accordance with prudent underwriting standards for purposes of receiving the preferred 50% risk weight. The comment period for this proposal closed in March 2015, and in December 2015, the Basel Committee released a second proposal which retained the LTV provisions of the initial draft, but not the provisions pertaining to a borrower’s ability to service a mortgage (the “2015 Basel Committee Proposal”). The comment period for the 2015 Basel Committee Proposal closed in March 2016. To date, federal regulators have not adopted or implemented any new regulations, including based on these proposals, that update or modify the U.S. Basel III Rules.

The revised and final recommendations from the Basel Committee with respect to Basel III were published in December 2017 (the “2017 Basel Committee III Recommendations”), and included finalized risk weighting guidelines for residential mortgage exposures. These rules recognize guarantees provided by sovereign governments (such as FHA, VA, USDA and Ginnie Mae) as off-setting the capital requirements, resulting in a 0% risk weight. While the 2017 Basel Committee III Recommendations include consideration of LTV ratios, including the impact of credit enhancement provided by third-party private mortgage insurance and the GSEs on LTV ratios, the credit enhancement provided by third-party private mortgage insurance and the GSEs would have higher risk weightings than the explicitly government guaranteed products, putting loans insured by private mortgage insurance at a disadvantage. It remains unclear whether new guidelines will be proposed or finalized in the U.S. in response to the most recent 2017 Basel III Committee Recommendations.

Item 1A. Risk Factors

Index to Risk Factors


Item			Page
Risks Related to the COVID-19 Pandemic			45
Risks Related to Regulatory Matters			46
Risks Related to our Mortgage and homegenius Business Operations			50
Risks Related to the Economic Environment			58
Risks Related to Liquidity and Financing			60
Risks Related to Information Technology and Cybersecurity			61
Risks Related to Us and Our Subsidiaries Generally			62

Risks Related to the COVID-19 Pandemic

The COVID-19 pandemic adversely impacted us and, in the future, could again adversely affect our business, results of operations or financial condition.

The onset of the COVID-19 pandemic created periods of significant economic disruption, high unemployment, volatility and disruption in financial markets and required adjustments in the housing finance system and real estate markets. Uncertainty regarding the pandemic’s scope, severity and duration, and its resulting impact on the economy, continues to persist as the pandemic evolves, and it is difficult to predict the ultimate impact of the COVID-19 pandemic on our business.

In 2020, in response to the pandemic, among other things, we raised additional capital, aligned our business with the temporary origination and servicing guidelines announced by the GSEs, and activated our business continuity program by transitioning to a work-from-home virtual workforce model with the exception of certain essential activities. Further, as a result of the COVID-19 pandemic and its impact on the economy, including the significant increase in unemployment and the implementation of mortgage forbearance programs by the GSEs, we experienced a material increase in new defaults in 2020 which resulted in a significant increase in our loss reserves and had a negative effect on our results of operations. If we experience another period of increased defaults stemming from the pandemic in future periods, our loss reserves may again increase which would negatively impact our results of operations and financial condition.

The COVID-19 pandemic may again impact our business in various ways, including the following, which are further described in the remainder of our risk factors in this report:

■We may be required to maintain more capital against COVID-19-related defaults under the PMIERs, in which case Radian Group may choose or be required to contribute additional capital to Radian Guaranty to remain in compliance with the PMIERs financial requirements;

■As a result of COVID-19-related relief programs, we anticipate that defaults related to the pandemic, if not cured, could remain in our defaulted loan inventory for a protracted period of time, potentially resulting in higher levels of claims and Claim Severity for those loans that ultimately result in a claim;


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■Our access to the reinsurance and capital markets may be limited and the terms on which we are able to access such markets may be negatively impacted;

■The GSEs’ business practices have changed in response to the COVID-19 pandemic, with the primary objectives of supporting borrowers impacted by the pandemic and protecting the ongoing functioning of the housing finance system. In response to the ongoing pandemic, the FHFA and GSEs are likely to continue to take actions that impact the housing finance system. Because traditional mortgage insurance is an important component of this system, these actions have had, and may continue to have, a significant impact on our mortgage insurance operations and performance; and

■Volatility in the financial markets may impact the performance of our investment portfolio and could increase the risk that we will not achieve our investment objectives.

Although we are uncertain of the ultimate magnitude or duration of the business and economic impacts of the COVID-19 pandemic, their long-term effect on our businesses will depend on, among other things: the extent, evolution and duration of the pandemic; the severity of and the number of people infected with the virus and the widespread availability of anti-viral treatments and vaccines, especially as new strains of COVID-19 have been discovered; the wider economic effects of the pandemic and the scope and duration of governmental and other third-party measures restricting day-to-day life and business operations; the impact of economic stimulus efforts to support the economy through the pandemic; and governmental and GSE programs implemented to assist borrowers experiencing a COVID-19-related hardship, including forbearance programs. Due to the unprecedented and continually evolving social and economic impacts associated with the COVID-19 pandemic on the U.S. and global economies generally, and in particular on the U.S. housing, real estate and housing finance markets, there is significant uncertainty regarding the ultimate impact on our business, business prospects, operating results and financial condition and our estimates or predictions regarding such impact may be materially wrong.

Risks Related to Regulatory Matters

Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity.

In order to be eligible to insure loans purchased by the GSEs, mortgage insurers such as Radian Guaranty must meet the GSEs’ eligibility requirements, or PMIERs. The PMIERs are comprehensive, covering virtually all aspects of the business of a private mortgage insurer, including internal risk management and quality controls, the relationship between the GSEs and the approved insurer and the approved insurer’s financial condition. In addition, the PMIERs contain requirements related to the operations of our mortgage insurance business, including extensive operational requirements in areas such as claim processing, loss mitigation, document retention, underwriting, quality control, reporting and monitoring, among others. These extensive operational requirements have resulted in additional expenses and require substantial time and effort from management and our employees. If Radian Guaranty is unable to satisfy the requirements set forth in the PMIERs, including the financial requirements discussed below, the GSEs could restrict it from conducting certain types of business with them or take actions that may include not purchasing loans insured by Radian Guaranty.

The PMIERs include financial requirements incorporating a risk-based framework that requires a mortgage insurer’s Available Assets to meet or exceed its Minimum Required Assets. The PMIERs financial requirements include increased financial requirements for defaulted loans, as well as for performing loans with a higher likelihood of default and/or certain credit characteristics, such as higher LTVs and lower FICO credit scores. Radian Guaranty’s ability to continue to comply with the PMIERs financial requirements could be impacted by, among other factors: (i) the volume and product mix of our NIW; (ii) factors affecting the performance of our mortgage insurance portfolio, including the level of new defaults and prepayments; (iii) for existing defaults, the aging of these existing defaults and whether they are subject to, and remain in, mortgage forbearance programs, and the ultimate losses we incur on new or existing defaults; (iv) the application of the Disaster Related Capital Charge (as discussed below) under the PMIERs; (v) the amount of credit that we receive under the PMIERs financial requirements for our third-party reinsurance transactions (which is subject to initial and ongoing review by the GSEs); and (vi) potential amendments or updates to the PMIERs. If our mix of business includes more loans that are subject to the increased financial requirements under the PMIERs, we may limit the type and volume of business we are willing to write for certain of our products based on the increased financial requirements associated with certain loans. This could reduce the amount of NIW we write, which could reduce our future revenues.

As a result of the COVID-19 pandemic and its impact on the economy beginning in March 2020, we experienced a material increase in new defaults in 2020, substantially all of which related to defaults of loans subject to mortgage forbearance programs implemented in response to the COVID-19 pandemic. The overall volume of pandemic-related new defaults resulted in a corresponding significant increase in Radian Guaranty’s Minimum Required Assets, which negatively impacted Radian Guaranty’s PMIERs Cushion beginning in 2020. Since then, Radian Guaranty’s Minimum Required Assets have been decreasing as the economy has been recovering, the rate of new defaults has largely returned to pre-pandemic levels and many pandemic-related defaulted loans have cured. However, Radian’s Minimum Required Assets remain elevated compared to pre-pandemic levels and the amount of Minimum Required Assets that Radian Guaranty is and will be required to maintain, will depend on the number, timing and duration of defaults, including those defaulted loans participating in mortgage forbearance programs. This, in turn, will depend on the scope, severity, evolution and duration of the pandemic, its resulting impact on the economy, including unemployment and housing prices, and the effectiveness of current and any future


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government and GSE programs to provide economic and individual relief and long-term assistance to homeowners, all of which will likely have an impact on the ability of borrowers to remain current on their mortgage payments and, if they have entered into forbearance or other relief programs, to resume making payments upon the expiration of the forbearance period. See “Item 1. Business—Regulation—Federal Regulation—CARES Act” and “Item 1. Business—Regulation—Federal Regulation—GSE Requirements for Mortgage Insurance Eligibility” for information regarding forbearance programs for borrowers experiencing financial hardship related to the pandemic.

The PMIERs apply a 0.30 multiplier to the Minimum Required Asset factor for loans that have become non-performing as a result of a “FEMA Declared Major Disaster” event, including as a result of participation in a mortgage forbearance program. This effectively reduces the Minimum Required Asset amount for these loans by 70%. Under National Emergency Guidelines issued by the GSEs, the PMIERs were amended so that the Disaster Related Capital Charge applies nationwide to all non-performing loans that are subject to a COVID-19 forbearance plan. For more information about the application of the Disaster Related Capital Charge see “Item 1. Business—Regulation—Federal Regulation—GSE Requirements for Mortgage Insurance Eligibility.”

The application of the Disaster Related Capital Charge has materially reduced the total amount of Minimum Required Assets that Radian Guaranty is required to hold against COVID-19 Defaulted Loans. While we expect that application of the Disaster Related Capital Charge will continue to materially reduce Radian Guaranty’s Minimum Required Assets for loans subject to a COVID-19 forbearance plan, the benefit that Radian Guaranty currently is receiving from the Disaster Related Capital Charge is expected to diminish over time. The reduction of this benefit could be accelerated if the GSEs were to terminate the COVID-19 Amendment to the PMIERs issued under their National Emergency Guidelines.

As the benefits of the Disaster Related Capital Charge diminish, or if existing and future new defaults materially increase Radian Guaranty’s Minimum Required Assets, we may be required or otherwise choose to: (i) contribute capital to Radian Guaranty; (ii) alter our strategy with respect to our NIW; or (iii) seek additional capital relief through reinsurance or otherwise, which may not be available on acceptable terms or on terms that would be approved by the GSEs.

The GSEs may amend the PMIERs at any time and also have broad discretion to interpret the PMIERs, which could impact the calculation of Radian Guaranty’s Available Assets and/or Minimum Required Assets. The most recent large-scale revisions to PMIERs, or PMIERs 2.0, became effective on March 31, 2019 and the PMIERs were further updated as part of the COVID-19 Amendment under the National Emergency Guidelines. We expect the GSEs to continue to update the PMIERs in the future, including potentially to align the PMIERs 2.0 financial requirements with the increased capital requirements for the GSEs under the ECF and/or the proposed new liquidity requirements for the GSEs. See “Item 1. Business—Regulation—Federal Regulation—GSE Requirements for Mortgage Insurance Eligibility” and “Item 1. Business—Regulation—Federal Regulation—Housing Finance Reform and the GSEs’ Business Practices” for additional information on the ECF and proposed GSE liquidity requirements.

Compliance with the PMIERs financial requirements could impact our holding company liquidity if additional capital support for Radian Guaranty is required for it to maintain this compliance. The amount of capital that Radian Group could be required to contribute to Radian Guaranty for this purpose is uncertain, but could be significant and, under extreme economic scenarios, could exhaust Radian Group’s available liquidity. See “—Radian Group’s sources of liquidity may be insufficient to fund its obligations.” Further, if Radian Guaranty becomes capital constrained, it may be more difficult for Radian Guaranty to return capital to Radian Group, which would compound the negative liquidity impact to Radian Group of the contributions it may be required to make to Radian Guaranty and leave less liquidity to satisfy Radian Group’s other obligations. Depending on the amount of liquidity that is utilized from Radian Group, we may be required (or may decide) to seek additional capital by incurring additional debt, issuing additional equity or selling assets, which we may not be able to do on favorable terms, if at all.

The PMIERs prohibit Radian Guaranty from engaging in certain activities such as insuring loans originated or serviced by an affiliate (except under certain circumstances) and require Radian Guaranty to obtain the prior consent of the GSEs before taking many actions, which may include, among other things, entering into certain intercompany agreements, settling loss mitigation disputes with customers and commuting risk. These restrictions could prohibit or delay Radian Guaranty from taking certain actions that would be advantageous to it or to Radian Group.

Although we expect Radian Guaranty to retain its eligibility status with the GSEs and to continue to comply with the PMIERs financial requirements, including as potentially updated in the future, we cannot provide assurance that this will occur. Loss of Radian Guaranty’s eligibility status with the GSEs would have an immediate and material adverse impact on the franchise value of our Mortgage business and our future prospects, as well as a material negative impact on our future results of operations and financial condition.

Our insurance subsidiaries are subject to comprehensive state insurance regulations and other requirements, which we may fail to satisfy.

We and our insurance subsidiaries are subject to comprehensive, detailed regulation by the insurance regulators in the states where they are domiciled or licensed to transact business. These regulations are principally designed for the protection of our insurance policyholders rather than for the benefit of our investors. Insurance laws vary from state to state, but generally grant broad supervisory powers to examine insurance companies and enforce rules or exercise discretion affecting almost


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every significant aspect of the insurance business, including the power to revoke or restrict an insurance company’s ability to write new business.

Among other matters, the state insurance regulators impose various capital requirements on our insurance subsidiaries. State insurance capital requirements for our mortgage insurance subsidiaries include Risk-to-capital ratios, other risk-based capital measures and surplus requirements that may limit the amount of insurance that our mortgage insurance subsidiaries write or the ability of our insurance subsidiaries to distribute capital to Radian Group. Similarly, our title insurance subsidiary is required to maintain statutory premium reserves that vary by state and are subject to periodic reviews of certain financial performance ratios, the results of which could result in additional capital requirements in states where it is licensed. See “Item 1. Business—Regulation—State Regulation” for more information on existing regulatory requirements and potential changes to the capital and surplus requirements under the Model Act that the NAIC has been reviewing for many years.

Among other things, our failure to maintain adequate levels of capital in our mortgage insurance and title insurance subsidiaries could lead to intervention by the various insurance regulatory authorities, which could materially and adversely affect our business, business prospects and financial condition. In addition, the GSEs and our mortgage lending customers may decide not to conduct new business with Radian Guaranty (or may reduce current business levels) or impose restrictions on Radian Guaranty if it is not in compliance with applicable state insurance requirements. The franchise value of our mortgage insurance business likely would be significantly diminished if we were prohibited from writing new business or restricted in the amount of new business we could write in one or more states. For additional information about statutory surplus and other state insurance requirements, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Mortgage,” as well as Note 16 of Notes to Consolidated Financial Statements.

The mortgage insurance industry has always been highly competitive with respect to pricing. Our mortgage insurance subsidiaries’ premium rates and policy forms are generally subject to regulation in every state in which they are licensed to transact business. These regulations are intended to protect policyholders against the adverse effects of excessive, inadequate or unfairly discriminatory rates and to encourage fair competition in the insurance marketplace. We may be subject to regulatory inquiries or examinations with respect to our mortgage insurance premium rates and policy forms. Similarly, our title insurance business is subject to extensive rate regulation by the applicable state agencies in the states in which it operates. Given that the premium rates for our insurance subsidiaries are highly regulated, we could lose business opportunities and fail to successfully implement our business strategies if our rates are deemed non-compliant or are subject to investigation, if new rates and policy forms are not approved as may be required, or if we are otherwise unable to respond to competitor pricing actions and our customers’ demands in a timely and compliant manner.

Changes in the charters, business practices or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses.

Our current business structure is highly dependent on the GSEs, as the GSEs are the primary beneficiaries of most of our mortgage insurance policies. Changes in the business practices of the GSEs, which can be implemented by the GSEs acting independently or through their conservator, the FHFA, could negatively impact our businesses and financial performance. Examples of potential changes that could impact our business, may include, without limitation:

■eligibility requirements for a mortgage insurer to become and remain an approved eligible insurer for the GSEs;

■underwriting standards on mortgages they purchase;

■policies or requirements that may result in a reduction in the number of mortgages they acquire;

■the national conforming loan limit for mortgages they acquire;

■the level of mortgage insurance they require;

■the terms on which mortgage insurance coverage may be canceled before reaching the cancellation thresholds established by law;

■the terms required to be included in master policies for the mortgage insurance policies that cover the loans they acquire, including limitations on our ability to mitigate losses on insured mortgages that are in default;

■the amount of loan level price adjustments or guarantee fees, which often result in a higher cost to borrowers, that the GSEs charge on loans that require mortgage insurance; and

■the degree of influence that the GSEs have over a mortgage lender’s selection of the mortgage insurer providing coverage.

In addition, the GSEs’ business practices have changed in response to the COVID-19 pandemic, primarily to support borrowers impacted by the pandemic and protect the ongoing functioning of the housing finance system. As the COVID-19 pandemic continues to evolve, the actions or potential inactions of the FHFA and GSEs in response to COVID-19 may continue to have a significant impact on the overall functioning of the housing finance system. Because traditional mortgage insurance is an important component of this system and because our businesses depend on the health of the housing finance


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system and housing markets in particular, these actions have impacted, and may continue to impact, our business operations and performance.

The structure of the residential housing finance system could be altered in the future, including as a result of comprehensive housing reform legislation. Since the FHFA was appointed as conservator of the GSEs, there has been a wide range of legislative proposals to reform the U.S. housing finance market. In conjunction with these proposals, there has been ongoing debate about the roles that the federal government and private capital should play in the housing finance system. To the extent new legislative action alters the existing GSE charters without explicit preservation of the role of private mortgage insurance for high-LTV loans, our business could be adversely affected. See “Item 1. Business—Regulation—Federal Regulation—Housing Finance Reform and the GSEs’ Business Practices” for a discussion of the future of housing finance in the U.S., including potential objectives for future reform.

In December 2020, the FHFA finalized the ECF, which establishes new increased capital requirements for the GSEs, and the FHFA also has proposed new liquidity requirements for the GSEs. In September 2021, the FHFA proposed further amendments to the ECF, and it is uncertain if and when these proposed amendments may be incorporated into the ECF and the form that they may take. See “Item 1. Business—Regulation—Federal Regulation—Housing Finance Reform and the GSEs’ Business Practices” for further information about the requirements established by the ECF, the September 2021 proposed amendments to the ECF and the proposed new liquidity requirements for the GSEs. Taken together, compliance with the increased capital requirements imposed by the ECF and the proposed new GSE liquidity requirements could significantly alter the business practices and operations of the GSEs, including potentially resulting in an increase in GSE pricing and a decrease in their use of credit risk transfer. An increase in GSE pricing could make alternatives to the GSEs such as FHA insured loans or the private securitization market more attractive, which could reduce the GSEs’ market position and reduce the number of loans available for private mortgage insurance. Further, the GSEs may seek to amend the PMIERs financial requirements in the future, including potentially to align with the ECF and the GSE liquidity requirements, once finalized. It remains uncertain if, when and how the PMIERs ultimately may be amended; however, changes to the PMIERs to align with the ECF could include: (i) an increase in the level of Radian Guaranty’s required capital and (ii) a decrease in the amount of PMIERs’ capital relief that Radian Guaranty receives for existing or future reinsurance or insurance-linked notes transactions.

The GSEs have in the past and may in the future pursue new products and activities in pursuit of their business strategies, including credit risk transfer transactions and structures that compete with private mortgage insurance. In 2018, Freddie Mac and Fannie Mae launched pilot programs, IMAGIN and EPMI, respectively, as alternative ways for lenders to obtain credit enhancement and sell loans with LTVs greater than 80% to the GSEs. These programs were discontinued in 2021, but could be relaunched in the future. If these programs or any future credit risk transfer transactions and structures were to materially displace primary loan level or standard levels of mortgage insurance, the amount of mortgage insurance we write may be reduced, which could negatively impact our franchise value, results of operations and financial condition. The FHFA previously released for comment a proposed rule regarding the process for how it will consider and approve new GSE activities and products; however, this proposed rule has not been finalized. In addition, the proposed rule is intended to apply to any future pilot programs, and therefore, it is not certain whether the same standards and procedures proposed in the new rule also would apply to pilots such as IMAGIN and EPMI if they are relaunched in the future. See “Item 1. Business—Regulation—Federal Regulation—Housing Finance Reform and the GSEs’ Business Practices” for further discussion of IMAGIN and EPMI and additional information about the proposed rule discussed above.

Since assuming leadership over the FHFA in June 2021, the Biden Administration appointed FHFA leadership has taken actions that represent a reversal of the previous FHFA leadership’s primary focus on preparing the GSEs to exit from conservatorship by increasing the GSEs’ overall capital levels and reducing their credit risk profile. In contrast, the current FHFA leadership has been focused on increasing the accessibility and affordability of mortgage credit, in particular to low- and moderate-income borrowers and underserved communities. Radian Guaranty and other private mortgage insurance companies have been engaged in discussions with the GSEs regarding how the industry may support the GSEs to advance these objectives. In addition, in furtherance of these policy objectives, Radian Guaranty and/or one or more of the mortgage insurers may pursue initiatives outside of their customary business activities, the success of which may be measured based on how well the initiative was able to advance accessibility and affordability of mortgage credit rather than by traditional profitability and return measures. In addition, the FHFA has required the GSEs to prepare and file three-year Equitable Housing Finance Plans that describe each GSE’s planned efforts to advance equity in housing finance. The action plans, when finalized, may include methods to reduce mortgage costs for historically underserved borrowers, including mortgage insurance costs. To implement these plans or to otherwise support the FHFA’s mandate regarding increasing the accessibility and affordability of mortgage credit, the GSEs may pursue new products and activities, or alter existing policies and practices in ways that could require changes to the GSEs’ business practices, including in ways that could negatively impact Radian Guaranty’s IIF, results of operations or financial condition.

Although we believe that traditional private mortgage insurance will continue to play an important role in any future housing finance structure, developments in the practices of the GSEs, including potentially new federal legislation, changes to existing statutes, rules or regulations, or changes in the GSEs’ business practices that reduce the level of private mortgage insurance coverage used by the GSEs as credit enhancement, or even eliminate the requirement, may diminish the franchise value of our mortgage insurance business and materially and adversely affect our business prospects, results of operations and financial condition.


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Legislation and administrative and regulatory changes and interpretations could impact our businesses.

Our businesses are subject to and may be impacted by many federal and state lending, insurance and consumer laws and regulations. See “Item 1. Business—Regulation” for a discussion of significant state and federal regulations and other requirements of the GSEs that are applicable to our businesses. Changes in these laws and regulations or the way they are interpreted or applied, as well as changes in other laws and regulations that may affect corporations more generally, could adversely affect our results of operations, financial condition and business prospects. In addition, our businesses could be impacted by new legislation or regulations, including changes that are not currently contemplated and which could occur at any time. While we have established policies and procedures to comply with applicable laws and regulations, many such laws and regulations are complex, and it is not possible to predict the eventual scope, duration or outcome of any reviews or investigations nor is it possible to predict their effect on us or the industries in which we participate.

Risks Related to our Mortgage and homegenius Business Operations

Our success depends on our ability to assess and manage our underwriting risks; the premiums we charge may not be adequate to compensate us for our liability for losses and the amount of capital we are required to hold against our insured risks. We expect to incur losses for future defaults beyond what we have reserved for in our financial statements.

The estimates and expectations we use to establish premium rates in our mortgage insurance business are based on assumptions made at the time our insurance is written. Our mortgage insurance premium rates are based on, among other items, our expectations about competitive and economic conditions and our cost of capital, as well as a broad range of other factors and risk attributes that we consider in developing our assumptions about the credit performance of the loans we insure and the economic benefits we expect to receive from our insurance policies. Our assumptions may ultimately prove to be inaccurate, especially in a period of high market volatility and economic uncertainty, or if there is a change in law or the GSEs’ business practices that alter the performance of the loans we have insured in ways that are inconsistent with our assumptions, including the amount of premium we expect to receive from such insurance. The risk of inaccurate or unreliable data may have an adverse impact on our ability to effectively perform critical business operations, such as servicing, loss management, external reporting or data-driven internal analysis. The premium structure we apply is subject to approval by state regulatory agencies, which can delay or limit our ability to increase our premiums if further filings or approvals are necessary to institute pricing adjustments.

If the risk underlying a mortgage loan that we have insured develops more adversely than we anticipated, we generally cannot increase the premium rates on this in-force business, or cancel coverage or elect not to renew coverage, to mitigate the effects of such adverse developments. Similarly, we cannot adjust our premiums if the amount of capital we are required to hold against our insured risks increases from the amount we were required to hold at the time a policy was written or if the premiums we expected to receive from such insurance are less than anticipated due to a change in the GSEs’ business practices or otherwise. As a result, if we are unable to compensate for or offset the increased capital requirements in other ways, the returns on our business may be lower than we assumed or expected. Our premiums earned and the associated investment income on those premiums may ultimately prove to be inadequate to compensate for the losses that we may incur and may not provide an adequate return on increased capital that may be required. As a result, our results of operations and financial condition could be negatively impacted.

Additionally, in accordance with industry practice, we do not establish reserves in our mortgage insurance business until we are notified that a borrower has failed to make at least two monthly payments when due. Because our mortgage insurance reserving does not account for the impact of future losses that we expect to incur with respect to performing (non-defaulted) loans, our obligation for ultimate losses that we expect to incur at any period end is not reflected in our financial statements, except if a premium deficiency exists. A premium deficiency reserve would be recorded if the present value of expected future losses and expenses exceeds the present value of expected future premiums and already established loss reserves on the applicable loans. As future defaults are not currently reflected in our mortgage insurance loss reserves, our loss reserves could increase significantly in future periods if we experience a high volume of new defaults in future periods, which would negatively impact our results of operations and financial condition.

If the estimates we use in establishing loss reserves are incorrect, we may be required to take unexpected charges to income, which could adversely affect our results of operations.

We establish loss reserves in our mortgage insurance business to provide for the estimated cost of future claims on defaulted loans. Setting our loss reserves requires significant judgment by management with respect to the likelihood, magnitude and timing of each potential loss, including an estimate of the impact of our Loss Mitigation Activities with respect to defaulted loans. The models, assumptions and estimates we use to establish loss reserves may not prove to be accurate, especially in the event of an extended economic downturn or a period of market volatility and economic uncertainty, such as we have experienced due to the COVID-19 pandemic. Because of this, claims paid may be substantially different than our loss reserves and these reserves may be insufficient to satisfy the full amount of claims that we ultimately have to pay. Changes to our loss reserve estimates could adversely impact our results of operations and financial condition. In addition, although the rate of new defaults has largely returned to pre-pandemic levels and many pandemic-related defaulted loans have cured,


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many defaulted loans in our insured portfolio remain in COVID-19 mortgage forbearance programs that are expected to expire in the near future. Forbearance for federally-insured mortgages (including those delivered to or purchased by the GSEs) allows for mortgage payments to be suspended for up to 18 months, subject to certain limitations such as when the forbearance plan was initiated. Historically, forbearance plans have reduced the frequency of our losses on affected loans. However, given the uncertainty regarding the long-term economic impact of COVID-19, it is difficult to predict the likelihood of default on loans that remain in COVID-19 related forbearance. Whether a defaulted loan will cure, including through modification, when forbearance ends will depend on the economic circumstances of the borrower at that time. The GSEs have introduced specific loan workout options for borrowers whose COVID-19 forbearance plans end. If a servicer is unable to contact a borrower to determine a loan workout option, the forbearance plan will end and the loan may remain in default. If a greater number of defaulted loans in COVID-19 forbearance programs ultimately result in claims than we anticipate, we may be required to increase our loss reserves.

We anticipate that defaults related to the pandemic, if not cured, could remain in our defaulted loan inventory for a protracted period of time, resulting in a higher likelihood of claim and higher levels of Claim Severity for those loans that ultimately result in a claim. See “—An extension in the period of time that a loan remains in our defaulted loan inventory may increase the severity of claims that we ultimately are required to pay.”

A portion of the defaulted loans in our portfolio originated in the years prior to and including 2008 have been in default for an extended period of time. While these loans are generally assigned a higher loss reserve based on our belief that they are more likely to result in a claim, we also assume, based on historical trends, that a significant portion of these loans will cure or otherwise not result in a claim. Given the significant period of time that these loans have been in default, it is possible that the ultimate cure rate for these defaulted loans will be less than our current estimates of Cures for this inventory of defaults.

If our loss reserve estimates are inadequate, we may be required to increase our reserves, which could have a material adverse effect on our results of operations and financial condition.

Our Loss Mitigation Activity is not expected to mitigate mortgage insurance losses to the same extent as in prior years; Loss Mitigation Activity could continue to negatively impact our customer relationships.

As part of our claims management process we pursue opportunities to mitigate losses both before and after we receive claims, including processes to ensure claims are valid. Following the financial crisis, our Loss Mitigation Activities, such as Rescissions, Claim Denials and Claim Curtailments, increased significantly in response to the poor underwriting, servicer negligence and other instances of non-compliance with our insurance policies that was prevalent in the period leading up to the financial crisis. These Loss Mitigation Activities materially mitigated our paid losses for loans originated and serviced during this period and resulted in a significant reduction in our loss reserves. Following the financial crisis, mortgage underwriting and servicing have generally improved, and the amount of Loss Mitigation Activity required with respect to the claims on loans originated and serviced in more recent periods has significantly decreased. As a result, our future Loss Mitigation Activity is not expected to mitigate our paid losses to the same extent as it did in the years following the financial crisis. In addition, we have incorporated provisions into our 2014 Master Policy and 2020 Master Policy that generally provide rescission relief based on the number of months that borrowers remain current on their mortgage loans, and Radian Guaranty has entered into a Factored Claim Administration Agreement with Fannie Mae for certain loans that predetermines the amount of covered expenses forming part of a loss using prenegotiated expense factors. As a consequence, our rights to conduct Loss Mitigation Activity generally are more limited for loans covered by more recent Master Policies and for more recent defaults as compared to the past.

Our Loss Mitigation Activities and claims paying practices have resulted in disputes with certain of our customers and in some cases, damaged our relationships with customers, resulting in a loss of business. While we have resolved all material disputes, a risk remains that our Loss Mitigation Activities or claims paying practices could continue to have a negative impact on our relationships with customers or potential customers. Further, disputes with our customers that are not resolved could result in additional arbitration or judicial proceedings, requiring significant legal expenses. To the extent that past or future Loss Mitigation Activities or claims paying practices impact our customer relationships, our competitive position could be adversely affected, resulting in the potential loss of business and impacting our results of operations.

Reinsurance may not be available, affordable or adequate to protect us against losses.

We use reinsurance as a capital and risk management tool. We have distributed risk through third-party quota share and excess-of-loss reinsurance arrangements, as well as through the capital markets using mortgage insurance-linked notes transactions.

The availability and cost of reinsurance are subject to market conditions beyond our control, including factors that impact the demand of investors for mortgage credit. No assurance can be given that reinsurance will remain available to us in amounts that we consider sufficient and at rates and upon terms that we consider acceptable. Accordingly, we may be forced to incur additional expenses for reinsurance or may not be able to obtain sufficient reinsurance on acceptable terms, which could cause us to increase the amount of risk we retain, negatively affect the returns we are able to achieve on the business we write and adversely affect our ability to write future business. Further, reinsurance does not relieve us of our direct liability to policyholders, therefore, if the reinsurer is unable or unwilling to meet its obligations to us, we remain liable to make claims


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payments to our policyholders. As a result, our reinsurance arrangements do not fully eliminate our obligation to pay claims, and we have assumed counterparty credit risk with respect to our inability to recover amounts due from reinsurers.

We use reinsurance to manage Radian Guaranty’s capital position under the PMIERs financial requirements. Among other benefits, our risk distribution transactions reduce our required capital, including by significantly reducing our Required Minimum Assets under the PMIERs. The initial and ongoing credit that we receive under the PMIERs financial requirements for these risk distribution transactions is subject to the periodic review of the GSEs and could be influenced by the ECF, which, in the form finalized in December 2020, significantly increases the capital requirements for the GSEs and provides the GSEs with a reduced amount of credit for their own credit risk transfer activities. Although the FHFA has since proposed further amendments to the ECF in September 2021, including to provide more credit for risk transfer transactions, it is uncertain if and when these proposed amendments may be incorporated into the ECF and the form that they may ultimately take. See “—Changes in the charters, business practices or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses.” If the GSEs revise the PMIERs in the future to align with a form of the ECF that provides less capital relief for credit risk transfer transactions, such alignment could reduce the credit that Radian Guaranty receives for reinsurance under the PMIERs, which could negatively impact our strategic approach to risk management and risk distribution.

If we are unable to obtain sufficient reinsurance on acceptable terms or to collect amounts due from our reinsurers, or if we receive less PMIERs capital relief for our reinsurance transactions, it could have a material adverse effect on our business, financial condition and results of operations.

An extension in the period of time that a loan remains in our defaulted loan inventory may increase the severity of claims that we ultimately are required to pay.

High levels of defaults and corresponding delays in foreclosures could delay our receipt of claims, resulting in an increase in the period of time that a loan remains in our defaulted loan inventory, and as a result, the Claim Severity. Generally, foreclosure delays do not stop the accrual of interest or affect other expenses on a loan, and unless a loan is cured during such delay, once title to the property ultimately is obtained and a claim is filed, our paid claim amount may include additional interest and expenses, increasing the Claim Severity.

In response to the COVID-19 pandemic, numerous federal and state regulatory agencies have instituted borrower relief programs, including mortgage payment forbearance and foreclosure and eviction moratoriums, with the objective of supporting borrowers through the economic hardship resulting from the pandemic and allowing borrowers to remain in their homes. After being extended multiple times, the foreclosure and eviction moratoriums have now expired; however, the existence of these moratoriums significantly impacted the claims process in 2020 and 2021 by preventing the procedural steps necessary for the filing of a claim under our insurance policies. Further, when loans subject to COVID-19 mortgage forbearance programs reach the end of their forbearance period, federal law requires servicers to discuss forbearance and loss mitigation options with their borrowers and afford additional protections to borrowers before their loans are referred to foreclosure, which further extends the period in which these loans remain in defaulted status. As a result of COVID-19-related relief programs, defaults related to the pandemic, if not cured, may remain in our defaulted loan inventory for a protracted period of time, which could result in higher levels of Claim Severity for those loans that ultimately result in a claim. Higher levels of Claim Severity would increase our incurred losses and could negatively impact our results of operations and financial condition.

If the length of time that our mortgage insurance policies remain in force declines, it could result in a decrease in our future revenues.

Most of our primary IIF consists of policies for which we expect to receive premiums in the future, typically through Monthly Premium Policies, and as a result, a significant portion of our earned premiums are derived from insurance that was written in prior years, often with premium rates that are greater than those prevailing in the market today. The length of time that this insurance remains in force, which we refer to as the Persistency Rate, is a significant driver of our future revenues, with a lower overall Persistency Rate generally reducing our future revenues. As a result, the ultimate profitability of our mortgage insurance business is affected by the impact of mortgage prepayment speeds on the mix of business we write.

Prevailing mortgage interest rates compared to the mortgage rates on our IIF and the level of home price appreciation occurring since origination of the loan affect the incentive for borrowers to refinance and therefore our Persistency Rate, with lower current interest rates and a greater level of home price appreciation making it more attractive for borrowers to refinance. Borrowers with significant equity may be able to refinance their loans without requiring mortgage insurance. The impact of the COVID-19 pandemic, including the government stimulus efforts in response to the pandemic, has resulted in a historically low interest rate environment, which in combination with the significant level of home price appreciation that has occurred over recent years, has led to elevated policy cancellations associated with a high level of refinance activity. The increase in policy cancellations associated with this high level of refinance activity has reduced our Persistency Rate compared to historic levels, and in turn, limited the growth of our IIF, which is one of the primary drivers of future premiums that we expect to earn over time. If the length of time that our mortgage insurance policies remain in force continues to remain low for a protracted period of time or further declines, and such decline is not offset by a sufficient level of NIW, it could result in a further decrease in our future revenues, particularly from our Recurring Premium Policies.


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Other factors affecting the length of time that our insurance remains in force include:

■the HPA requirement that servicers cancel mortgage insurance when a borrower’s LTV ratio meets or is scheduled to meet certain levels, generally based on the original value of the home and subject to various conditions;

■the GSEs’ mortgage insurance cancellation guidelines, which apply more broadly than the HPA, and also consider a home’s current value. For example, borrowers may request cancellation of mortgage insurance based on the home’s current value if certain LTV and seasoning requirements are met and the borrowers have an acceptable payment history. For loans seasoned between two and five years, the LTV ratio must be 75% or less, and for loans seasoned more than five years, the LTV ratio must be 80% or less. For more information about the GSEs’ guidelines and business practices and how they may change, see “—Changes in the charters, business practices or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses.”

■the credit policies of certain lenders, which may make it more difficult for homeowners to refinance loans; and

■economic conditions that can affect a borrower’s decision to pay off a mortgage earlier than required, including the strength of the housing market, which impacts a borrower’s prospects for selling their existing home and finding a suitable and affordable new home.

If these or other factors cause a decrease in the length of time that our Recurring Premium Policies, for which we expect to receive premiums in the future, remain in force, our future revenues could be negatively impacted, which could negatively impact our results of operations and financial condition.

Our delegated underwriting program may subject our mortgage insurance business to unanticipated claims.

In our mortgage insurance business, we permit lenders to obtain mortgage insurance for residential mortgage loans originated and underwritten by them using Radian’s pre-established underwriting guidelines. Once we accept a lender into our delegated underwriting program, we generally insure a mortgage loan originated by that lender based on our expectation that the lender has followed our specified underwriting guidelines. Under this program, a lender could commit us to insure a material number of loans with unacceptable risk profiles before we discover the problem and are able to terminate that lender’s delegated underwriting authority or pursue other rights that may be available to us, such as our rights to rescind coverage or deny claims.

Our mortgage insurance business faces intense competition.

The U.S. mortgage insurance industry is highly competitive. Our competitors primarily include other private mortgage insurers and governmental agencies, principally the FHA and VA.

We currently compete with other private mortgage insurers that are eligible to write business for the GSEs primarily on the basis of price, underwriting guidelines, overall service, customer relationships, perceived financial strength (including comparative credit ratings) and reputation. Overall service competition is based on, among other things, effective and timely delivery of products, responsiveness to compliance audits, timeliness of claims payments, customer service, timely and accurate administration of policies, training, loss mitigation efforts and management and field service expertise. We also believe that our service proposition to customers includes our ability to offer services to customers through our homegenius business that are relevant to our mortgage insurance customers and complement our mortgage insurance products. For more information about our competitive environment, including pricing competition, see “Item 1. Business—Competition.”

Pricing strategies continue to evolve in the mortgage insurance industry. In recent years, mortgage insurers generally have migrated away from a predominantly rate-card-based pricing model and toward the use of proprietary, “black box” pricing frameworks that use a spectrum of filed rates to allow for formulaic, risk-based pricing based on multiple loan, borrower and property attributes that may be quickly adjusted within certain parameters. The shift toward the use of these granular risk-based pricing methodologies has contributed to a pricing environment that is more dynamic with more frequent pricing changes that can be implemented quickly, as well as an overall reduction in pricing transparency. As a result, we may not be aware of rate changes in the industry until we observe that our volume of NIW has changed. Further, in addition to the growing proliferation of black box pricing, industry pricing practices in recent years have also included an increased use of customized rate plans for certain customers, pursuant to which rates may be awarded to customers for only a limited period of time. The evolution of pricing strategies throughout the industry has resulted in greater volatility in our NIW and a reduction in industry pricing, including our pricing, due to the heightened competition inherent in the use of these pricing tools as compared to prior periods when standard rate cards were most prevalent.

With the increased prevalence of granular, “black box” pricing and the greater uniformity of master policy terms throughout the industry, pricing has become the predominant competitive market factor for private mortgage insurance and an increasing number of customers are making their choice of mortgage insurance providers primarily based on the lowest price available for any particular loan. Our approach to pricing is customer-centric and flexible, as we offer a spectrum of risk-based pricing solutions for our customers that are designed to be balanced with our objectives for managing our volume of NIW and the risk/return profile of our insured portfolio. Although we believe we are well-positioned to compete effectively, our pricing strategy may not be successful and we may lose business to other competitors.


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The reduction in our premium rates due to heightened competition is expected to decrease the premium yield of our insured portfolio over time as older vintage insured loans with higher premium rates run-off and are replaced with insured loans with premium rates that are generally lower. It is possible that pricing competition could further intensify, which could result in a decrease in our projected returns. Despite our pricing actions, we may experience returns below our targeted returns. Our increased use of reinsurance over the past several years has helped to mitigate the negative effect of declining premium rates on our expected returns. However, reinsurance may not always be available or available on terms attractive to us. See “—Reinsurance may not be available, affordable or adequate to protect us against losses.”

Certain of our private mortgage insurance competitors may have access to greater amounts of capital and financial resources than we do at a lower cost of capital (including through affiliated off-shore reinsurance vehicles) and some competitors currently have better financial strength ratings than we have. As a result, they may be better positioned to compete outside of traditional mortgage insurance, including by participating in alternative forms of credit enhancement that the GSEs may pursue outside of private mortgage insurance in its traditional form. In addition, because of tax advantages associated with being off-shore, which may become more pronounced if tax laws change in the future, certain of our competitors have been able to reinsure to their offshore affiliates and achieve higher after-tax rates of return on the NIW they write compared to mortgage insurers such as Radian Guaranty that do not have access to offshore affiliates. This tax structuring benefit could allow these off-shore competitors to leverage reduced pricing to gain market share, while continuing to achieve acceptable returns on NIW.

We also compete with governmental entities, such as the FHA and VA, primarily on the basis of loan limits, pricing, credit guidelines, terms of our insurance policies and loss mitigation practices. These governmental entities typically do not have the same capital requirements or business objectives that we and other private mortgage insurance companies have, and therefore, may have greater financial flexibility in their pricing guidelines and capacity that could put us at a competitive disadvantage. If these entities lower their pricing or alter the terms and conditions of their mortgage insurance or other credit enhancement products in furtherance of political, social or other goals rather than a profit motive, we may be unable to compete in that market effectively, which could have an adverse effect on our business, financial condition and operating results. See “Item 1. Business—Regulation—Federal Regulation—Housing Finance Reform and the GSEs’ Business Practices” for further discussion of factors that could impact the FHA’s competitive position relative to private mortgage insurance.

In addition, as market conditions change, alternatives to private mortgage insurance may become more prevalent, which could reduce the demand for private mortgage insurance in its traditional form. For example, alternatives to private mortgage insurance could include: investors using risk mitigation and credit risk transfer techniques other than private mortgage insurance (or accepting credit risk without credit enhancement); lenders and other investors holding mortgages in portfolio and self-insuring; and/or lenders originating mortgages using “piggyback” structures to avoid private mortgage insurance. See “—Changes in the charters, business practices or role of the GSEs in the U.S. housing market generally, could significantly impact our businesses” for risks related to changes in the GSEs’ business practices that could impact our competitive position, including the use of alternatives to traditional mortgage insurance to satisfy their charter requirements related to credit risk.

The competitive environment is extremely challenging given the multitude of factors discussed above. This environment, as well as potential further changes to this evolving environment, could negatively impact our franchise value, business prospects, results of operations and financial condition.

Our NIW and franchise value could decline if we lose business from significant customers.

Our mortgage insurance business depends on our relationships with our customers. Our customers place insurance with us directly on loans they originate and they also do business with us indirectly through purchases of loans that already have our mortgage insurance coverage. Our relationships with our customers may influence both the amount of business they conduct with us directly and their willingness to continue to approve us as a mortgage insurance provider for loans that they purchase. The loss of business from significant customers could have an adverse effect on the amount of new business we are able to write, and consequently, our franchise value.

If we were to lose a significant customer, including as a result of customer consolidation, it is unlikely that the loss could be completely offset by other customers in the near-term, if at all. Lending customers may decide to write business only with a limited number of mortgage insurers or only with certain mortgage insurers, based on their views with respect to an insurer’s information security and other compliance programs, pricing levels and pricing delivery methods, service levels, underwriting guidelines, loss mitigation practices, financial strength or other factors. With respect to pricing, industry pricing practices in recent years have also included an increased use of customized rate plans for many customers, pursuant to which rates may be awarded to customers for only a limited period of time. This has led to greater volatility in our customer relationships as we may retain, gain or lose customers based on the competitiveness of our proposed pricing levels over the proposed period, regardless of the other factors cited above that may influence a lender’s decision whether to continue or commence doing business with us. See “—Our mortgage insurance business faces intense competition.”

Our lending customers also may choose for risk management purposes to diversify the mortgage insurers with which they do business. Given that many of our customers currently give us a significant portion of their total mortgage insurance business, it is possible that further diversification could have a negative impact on our NIW if we are unable to mitigate the


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market share loss through new customers or increases in business with other customers. Further, we actively engage with our customers to ensure that we are receiving an appropriate mix of business at acceptable projected returns, and depending on the circumstances, we could take action with respect to customers (e.g., limiting the type of business we accept from them or instituting pricing changes that impact them) that could result in customers reducing the amount of business they do with us or deciding not to do business with us altogether. Finally, although we develop our product offerings and strategies to be complementary to our customers, we currently offer and may offer in the future, products that could be viewed as competitive to products offered by certain of our customers, which could influence a customer’s decision as to whether to do business with us. Any significant loss in our market share could negatively impact our mortgage insurance franchise, results of operations and financial condition.

The current financial strength ratings assigned to our mortgage insurance subsidiaries could weaken our competitive position and potential downgrades by rating agencies to these ratings and the ratings assigned to Radian Group could adversely affect the Company.

Radian Guaranty has been assigned a rating of Baa1 by Moody’s, a rating of BBB+ by S&P and a rating of A- by Fitch. While Radian Guaranty’s financial strength ratings currently are investment grade, certain of these ratings are below the ratings assigned to some of our competitors. We do not believe our ratings have had a material adverse effect on our relationships with existing customers. However, if financial strength ratings become a more prominent consideration for lenders, we may be competitively disadvantaged by customers choosing to do business with private mortgage insurers that have higher financial strength ratings. In addition, while the current PMIERs do not include a specific ratings requirement with respect to eligibility, if this were to change in the future, we may become subject to a ratings requirement in order to retain our eligibility status under the PMIERs. The ECF, in the form finalized in December 2020, generally provides more capital credit for transactions with more highly rated counterparties, which if translated to the PMIERs in the future, could potentially become a competitive disadvantage for us.

The GSEs currently consider financial strength ratings, among other items, to determine the amount of collateral that an insurer must post when participating in their credit risk transfer transactions. As a result, the returns that we are able to achieve if and when we participate in these transactions are dependent, in part, on our financial strength ratings. Further, a downgrade in our financial strength ratings could result in increased scrutiny of our financial condition by the GSEs and/or our customers, potentially resulting in a decrease in the amount of our NIW. Market participants with higher ratings than us are assigned lower collateral requirements by the GSEs for these transactions and generally have a lower cost of capital, which may give them a competitive advantage, including the ability to price more aggressively for these transactions.

We believe that financial strength ratings remain a significant consideration for participants seeking to secure credit enhancement in the non-GSE mortgage market, which includes most non-QM loans. While this market has remained limited since the financial crisis, we view this market as an area of potential long-term future growth, and our ability to successfully insure loans in this market could depend on our ability to secure higher ratings for our mortgage insurance subsidiaries. In addition, if legislative or regulatory changes were to alter the current state of the housing finance industry such that the GSEs no longer operate in their current capacity, we may be forced to compete in a new marketplace in which financial strength ratings may play a greater role.

The rating agencies continually review the financial strength ratings assigned to Radian Group and its mortgage insurance subsidiaries, and the ratings are subject to change. Downgrades to the ratings of our mortgage insurance subsidiaries and Radian Group could adversely affect our cost of funds, liquidity, access to capital markets and competitive position. In December 2021, S&P announced a proposed change to its rating methodologies for insurers, including mortgage insurers. It is uncertain whether it will be adopted in its current form, whether it will prompt similar moves at other rating agencies, or what impact the proposed change would have on us and on the way external parties evaluate the different rating levels. If we are unable to compete effectively in the current or any future markets as a result of the financial strength ratings assigned to our mortgage insurance subsidiaries, the franchise value and future prospects for our mortgage insurance business could be negatively affected.

Our business depends, in part, on effective and reliable loan servicing.

We depend on third-party servicing of the loans that we insure. Dependable servicing is necessary for timely billing and premium payments to us and effective loss mitigation opportunities for delinquent or near-delinquent loans. Servicers are required to comply with a multitude of legal and regulatory requirements, procedures and standards for servicing residential mortgages, such as the CFPB’s mortgage servicing rules. While these requirements are intended to ensure a high level of servicing performance, they also impose a high cost of compliance on servicers that may impact their financial condition and their operating effectiveness. The COVID-19 pandemic has placed additional burdens on many servicers. Challenging economic and market conditions or periods of economic stress and high mortgage defaults such as we have experienced due to the COVID-19 pandemic make it more difficult for servicers to effectively service the loans that we insure. Further, the various servicing-related requirements imposed by the CARES Act, the GSEs, the FHA, CFPB and other federal and state governmental and regulatory bodies and agencies to address the impact of the COVID-19 pandemic on mortgage borrowers heighten the burdens placed on servicers in the current environment and the potential scrutiny they face for their actions, which could influence their approach to the loans they are servicing.


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Information with respect to the mortgage loans we insure is based in large part on information reported to us by third parties, including the servicers and originators of the mortgage loans, and information provided may be subject to lapses or inaccuracies in reporting from such third parties. In many cases, we may not be aware that information reported to us is incorrect until such time as a claim is made against us under the relevant insurance policy. We do not receive monthly information from servicers for single premium policies, and may not be aware that the mortgage loans insured by such policies have been repaid. We periodically attempt to determine if coverage is still in force on such policies by asking the last servicer of record or through the periodic reconciliation of loan information with certain servicers. It may be possible that our reports continue to reflect, as active, policies on mortgage loans that have been repaid.

Our policies allow us to cancel coverage on loans that are not delinquent if the premiums are not paid within a grace period. However, in response to the COVID-19 pandemic, many states have enacted moratoriums on the cancellation of insurance due to non-payment. The specific provisions of the moratoriums vary from state to state. In the event a borrower fails to make mortgage payments, including as the result of a forbearance program, servicers often are required to advance such amounts, including principal and interest on the mortgage and amounts to cover taxes and insurance, for a period of time, including with respect to loans purchased by the GSEs. These required “advances” may increase the financial strain on servicers, which could negatively impact their financial condition or otherwise disrupt their operations; although currently, in response to the pandemic, the FHFA and GSEs have implemented a four-month limit on servicer advance obligations for loans in forbearance which has reduced this financial burden. If we experience a disruption in the servicing of mortgage loans covered by our insurance policies or a failure by servicers to appropriately report the status of a loan, including whether the loan is subject to a COVID-19-related forbearance program, this, in turn, could impact the amount of assets Radian Guaranty is required to hold under the PMIERs or ultimately contribute to a rise in claims among those loans, which could have a material adverse effect on our business, financial condition and operating results.

Under the terms of our 2014 Master Policy and 2020 Master Policy, mortgage insurance premiums are not required to be paid following an event of default. However, if a defaulted loan then cures, all mortgage insurance premiums must be brought current for our insurance coverage to continue, including all premiums that were not paid during the period following the event of default and through the date of cure. Because premiums must be brought current upon a cure, mortgage servicers typically continue to pay mortgage insurance premiums while loans remain in default, understanding that Radian Guaranty will refund these premiums if the loans fail to cure and ultimately go to claim. If we fail to receive mortgage insurance premiums following mortgage defaults, Radian Guaranty’s cash flow could be materially reduced, potentially requiring Radian Guaranty to liquidate investments at a loss to pay future claims or otherwise requiring us to alter our investment strategy.

We face risks associated with our contract underwriting business.

We provide third-party contract underwriting services for our mortgage insurance customers. Generally, we offer limited indemnification to our contract underwriting customers. In addition to indemnification, we typically have limited loss mitigation defenses available to us for loans that we have underwritten through our contract underwriting services. As a consequence, our results of operations could be negatively impacted if we are required to indemnify our customers for material underwriting errors in our contract underwriting services.

A decrease in the volume of mortgage originations could result in fewer opportunities for us to write new mortgage insurance business and conduct our homegenius business.

The amount of new mortgage insurance business we write and real estate transactions we support through our homegenius title, real estate and technology products and services depends, among other things, on a steady flow of low down payment mortgages that benefit from our mortgage insurance and the volume of real estate transactions that require our services or products. The volume of mortgage originations is impacted by a number of factors, including:

■restrictions on mortgage credit due to changes in lender underwriting standards, capital requirements affecting lenders, regulatory requirements such as the QM designation for mortgage loans and the health of the private securitization market;

■mortgage interest rates;

■the level of consumer confidence and the health of the domestic economy generally, as well as specific conditions in regional and local economies;

■housing supply and affordability;

■tax laws and policies and their impact on, among other things, deductions for mortgage insurance premiums, mortgage interest payments and real estate taxes;

■demographic trends, including the rate of household formation;

■the rate of home price appreciation;

■government housing policy encouraging loans to first-time homebuyers; and


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■the practices of the GSEs, including the extent to which the guaranty fees, loan level price adjustments, credit underwriting guidelines and other business terms provided by the GSEs affect the cost of mortgages and lenders’ willingness to extend credit for low down payment mortgages.

The U.S. housing and real estate markets generally have been strong in recent years, with markets supported by low interest rates, favorable demographics supporting growth in the population of first-time homebuyers and a relatively constrained supply of homes available for sale. While we expect demographic trends to continue to be favorable to housing and real estate, rising interest rates and the potential for economic uncertainty, as well as the persistent effects of the COVID-19 pandemic, could affect the number of new mortgages available for us to insure and real estate transactions available for our services.

If the overall volume of new mortgage originations declines, we would likely be subject to increased competition and we could experience a reduced opportunity to write new insurance business and provide our homegenius products and services, which could negatively affect our business prospects, results of operations and financial condition.

We are exposed to risks associated with our homegenius business that could negatively affect our results of operations and financial condition.

Our homegenius business exposes us to certain risks that may negatively affect our results of operations and financial condition, including, among others, the following:

■Our homegenius business is driven primarily by digital products and services, including software as a service solutions and proprietary technology platforms that depend on our ability to develop, launch and implement new and innovative technologies and digital solutions. As a result, this business is particularly exposed to challenges associated with new and rapidly evolving technologies and business environments, customer acceptance of our digital product and service offerings, the costs associated with the development and launch of these technologies and products, our failure to successfully integrate new technologies into our existing systems and the risk that our digital product and services offerings fail to operate as expected or planned or that expose us to additional cybersecurity or third party risks;

■Our homegenius business depends on our relationships with our customers. Our homegenius revenue is dependent on a limited number of large customers that represent a significant proportion of our homegenius total revenues. The loss or reduction of business from one or more of these significant customers could adversely affect the level of our homegenius revenues. In addition, Radian Guaranty does business with many of these significant customers. In the event of a dispute between a significant customer and either of our business segments, the overall customer relationship for Radian could be negatively impacted;

■Due to the transactional nature of our business, our homegenius segment revenues are subject to fluctuation from period to period and are difficult to predict;

■The services we offer through our homegenius business are influenced by the level of overall activity in the mortgage, real estate and mortgage finance markets generally. If real estate transaction volumes decline, we could experience less demand for our real estate and title services;

■Red Bell is a licensed real estate brokerage and provides real estate brokerage services in all 50 states and the District of Columbia. As a licensed real estate brokerage, Red Bell receives residential real estate information from various multiple listing services. Red Bell receives this information, which it uses in its business to broker real estate transactions and provide valuation products and services that comprise many of our homegenius product offerings, pursuant to the terms of agreements with the MLS providers. If these agreements were to terminate or Red Bell otherwise were to lose access to this information, it could negatively impact Red Bell’s ability to conduct its business and our future real estate strategies. In addition to MLS data, we depend on access to data from a variety of other external sources to maintain our databases and grow our businesses. If we were to lose access to one or more of these data sources, the quality, pricing and availability of our homegenius products and services may be negatively impacted;

■By their nature, title claims are often complex, vary greatly in dollar amounts and are affected by economic and market conditions and the legal environment existing at the time of settlement of the claims. Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which claims are administered and paid, significantly varying dollar amounts of individual claims and other factors. From time to time, we could experience large losses or an overall worsening of our loss payment experience in regard to the frequency or severity of claims that require us to record additional charges to our claims loss reserve. These loss events are unpredictable and may require us to increase our title loss reserves and could adversely affect the financial performance of our homegenius business; and

■Our homegenius business operates in a highly competitive environment. Our competitors vary in size and in the scope and breadth of the services they offer, and many have substantial resources. We expect that the markets in which we compete will continue to attract new competitors and technologies. There can be no assurance that our homegenius business will be able to compete successfully.


Table of Contents Glossary Part I. Item 1A. Risk Factors

Any of these factors could negatively effect on our homegenius business and could have a material adverse effect on our results of operations and financial condition.

We rely upon proprietary technology and information, and if we are unable to protect our intellectual property rights, it could have a material adverse effect on us.

Our success depends, in part, upon our intellectual property rights. We rely primarily on a combination of patents, copyrights, trade secrets, trademarks, nondisclosure and other contractual restrictions on copying, distribution and creation of derivative products to protect our proprietary technology and information. This protection is limited, and our intellectual property could be used by others without our consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may not prevent the development of competitive products. Any infringement, disclosure, loss, invalidity of or failure to protect our intellectual property could have a material adverse effect on our business, financial condition and results of operations. Moreover, litigation may be necessary to enforce or protect our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could be time-consuming, result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to the Economic Environment

The credit performance of our mortgage insurance portfolio is impacted by macroeconomic conditions and specific events that affect the ability of borrowers to pay their mortgages.

Mortgage defaults occur due to a variety of specific events affecting individual borrowers, including death or illness, divorce or other family related factors, and unemployment, among other events. While mortgage defaults can and do occur in any economic environment, there is a high correlation between the overall health of the economy and the performance of our mortgage insurance portfolio. As a result, our results are particularly influenced by macroeconomic conditions and specific events that impact the housing finance and real estate markets, including events that impact mortgage originations and the credit performance of our mortgage insurance portfolio, most of which are beyond our control, including housing prices, inflationary pressures, unemployment levels, interest rate changes, the availability of credit and other national and regional economic conditions. These conditions may be created or exacerbated by acts of terrorism, war or other conflicts, event-specific economic depressions, severe weather events and natural disasters, which may continue to increase in severity and frequency due to climate change, and other catastrophic events such as the COVID-19 pandemic or other future epidemics or pandemics. In general, challenging economic conditions increase the likelihood that borrowers will not have sufficient income to satisfy their mortgage obligations.

In addition, a deteriorating economy also can adversely affect housing values, which in turn can influence the willingness of borrowers to continue to make mortgage payments despite having the financial resources to do so. In addition, a decline in home values typically makes it more difficult for borrowers to sell or refinance their homes, increasing the likelihood that a default will result in a claim. Declining housing values may impact the effectiveness of our loss mitigation actions. The amount of the loss we could suffer depends in part on whether the home of a borrower who defaults on a mortgage can be sold for an amount that will cover the unpaid principal balance, interest and the expenses of the sale. Any of these events may have a material adverse effect on our business, results of operations and financial condition.

Unfavorable macroeconomic developments, including the ongoing economic uncertainty related to the COVID-19 pandemic and the other factors cited above, may again have a material negative impact on our results of operations and financial condition.

Our success depends, in part, on our ability to manage risks in our investment portfolio.

Our investment portfolio is an important source of revenue and is our primary source of claims paying resources. Although our investment portfolio consists primarily of highly-rated fixed income investments, our investment strategy is affected by general economic conditions, which may adversely affect the markets for credit and interest-rate-sensitive securities, including the extent and timing of investor participation in these markets, the level and volatility of interest rates and credit spreads and, consequently, the value of our fixed income securities, and as such, we may not achieve our investment objectives. Volatility or lack of liquidity in the markets in which we invest has at times reduced the market value of some of our investments, including most recently as a result of the disruption in the financial markets due to the COVID-19 pandemic. The value of our investment portfolio may also be adversely affected by ratings downgrades, bankruptcies and credit spreads


Table of Contents Glossary Part I. Item 1A. Risk Factors

widening in distressed industries. In addition, when the credit environment deteriorates, the risk of impairments of our investments increases. If the financial markets experience disruption and volatility, it could have a material adverse effect on our liquidity, financial condition and results of operations.

Interest rates and investment yields on our investments continue to be low compared to historical averages, which has reduced the investment yield on our investment portfolio. For the significant portion of our investment portfolio held by our insurance subsidiaries, to receive favorable treatment under insurance regulatory requirements and full credit as Available Assets under the PMIERs, we generally are limited to investing in investment grade fixed income investments that are unlikely to increase our overall investment yields. Because we depend on our investments as a source of revenue, a prolonged period of lower than expected investment yields would have an adverse impact on our revenues and could adversely affect our results of operations. Further, future updates to the Model Act or PMIERs, including potentially to align with the ECF or proposed liquidity requirements for the GSEs, could restrict our investment choices, which could negatively impact our investment strategy.

In addition, we structure our investment portfolio to satisfy our expected liabilities, including claim payments in our mortgage insurance business. If we underestimate our future claim payments or other liabilities or improperly structure our investments to meet these liabilities, we could have unexpected losses resulting from the forced liquidation of investments before their maturity, which could adversely affect our results of operations.

Climate change and extreme weather events could adversely affect our businesses, results of operations and financial condition.

Our businesses, results of operations and financial performance could be adversely impacted by climate change and extreme weather events, especially if these occurrences negatively impact the overall real estate market and the broader economy. Climate change may increase the frequency and severity of natural disasters such as hurricanes, tornadoes, floods and forest fires and drive other ecologically related changes such as rising sea waters, which in turn could negatively affect regional economies in ways that impact home values or unemployment, and therefore, the credit performance of the mortgages we insure in affected areas. Further, climate change and natural disasters may impact the value of and cause volatility in our investment portfolio, and we might not achieve our investment objectives. Climate change and the frequency, severity, duration, and geography of severe weather events and other ecological related changes are inherently uncertain, and we cannot predict the ultimate impact these events may have on our business and financial condition.

Our reported earnings, stockholders’ equity and book value per share are subject to fluctuations based on changes in our investments that require us to adjust their fair market value.

We have significant holdings of trading securities, equity securities and short-term investments that we carry at fair value. Because the changes in fair value of these financial instruments are reflected on our statements of operations each period, they affect our reported earnings and can create earnings volatility. In addition, we increase or decrease our stockholders’ equity by the amount of change in the unrealized gain or loss (the difference between the fair value and the amortized cost) of our available for sale securities portfolio, net of related tax, under the category of accumulated other comprehensive income (loss). As a result, a decline in the fair value of our available for sale portfolio may result in a decline in reported stockholders’ equity, as well as book value per common share. Among other factors, interest rate changes, market volatility and declines in the value of underlying collateral will impact the value of our investments, potentially resulting in unrealized losses that could negatively impact our results of operations and stockholders’ equity. These negative impacts will occur even though the securities are not sold. Also, in the event there are credit loss related impairments, the credit loss component and subsequent recoveries, if any, are recognized in earnings.

The discontinuance of LIBOR may adversely affect us.

In 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that after 2021, it would no longer compel banks to submit rate quotations required to calculate LIBOR. The FCA no longer publishes one-week and two-month U.S. dollar LIBOR rates and plans to cease publishing all other LIBOR tenors (overnight, one-month, three-month, six-month and 12-month) on June 30, 2023. In addition, the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a committee consisting of representatives of large U.S. financial institutions, has recommended replacing U.S. dollar LIBOR with a rate based on the Secured Overnight Financing Rate, or SOFR. SOFR is the rate charged on overnight repurchase obligations collateralized by Treasury securities, and is compiled by the New York Federal Reserve Bank. It is not presently known whether SOFR or any other alternative reference rates will attain broad market acceptance as replacements of LIBOR. There remains uncertainty as to how the financial services industry will address the discontinuance of LIBOR in financial instruments that are indexed to LIBOR. Further, various financial instruments indexed to LIBOR could experience different outcomes based on their contractual terms, ability to amend those terms, market or product type, legal or regulatory jurisdiction, and other factors. Alternative reference rates that replace LIBOR may not yield the same or similar economic results over the lives of the financial instruments, which could adversely affect the value of and return on these instruments.

The discontinuation of LIBOR may have an adverse effect on the premium rates we are required to pay in connection with certain of our excess-of-loss reinsurance agreements associated with our existing insurance-linked notes transactions,


Table of Contents Glossary Part I. Item 1A. Risk Factors

which are tied to LIBOR, or may negatively impact the value of other assets or liabilities whose value is tied to LIBOR or to a LIBOR alternative, including floating rate bonds that we hold in our investment portfolio. The discontinuation of LIBOR also could increase the cost of borrowings under our credit facility, which currently uses LIBOR as a benchmark for establishing the interest rate. Although our insurance-linked notes transactions and our credit facility provides for a transition from LIBOR upon the occurrence of specified events, there is substantial uncertainty as to the effect of such replacement. Furthermore, in addition to potential impacts on our investment portfolio and our cost of debt, the discontinuation of LIBOR may impact other aspects of our business, such as our insurance products, the pricing we charge and the models we use to support our business decisions. It is possible that the discontinuance of LIBOR, including the implementation of alternative benchmark rates to LIBOR, could have an adverse effect on our business, results of operations or financial condition.

Risks Related to Liquidity and Financing

Radian Group’s sources of liquidity may be insufficient to fund its obligations.

Radian Group serves as the holding company for our operating subsidiaries and does not have any operations of its own. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity Analysis—Holding Company” for more information on our available liquidity and short-term and long-term liquidity demands.

As discussed above under “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity,” the COVID-19 pandemic produced periods of significant economic disruption that resulted in an elevated number of mortgage defaults, including defaults derived from mortgage forbearance programs that were instituted to support borrowers experiencing COVID-19 related hardships. Uncertainty regarding the pandemic’s scope, severity and duration, and its resulting impact on the economy, continues to persist as the pandemic evolves, and it is difficult to predict the ultimate impact that the COVID-19 pandemic may have on the credit performance of our mortgage insurance portfolio. If additional capital support for Radian Guaranty is required to maintain compliance with the PMIERs financial requirements, we may be required or otherwise choose to contribute capital to Radian Guaranty. The amount that Radian Group could be required to contribute to Radian Guaranty could be significant and, under extreme economic scenarios, exhaust Radian Group’s available liquidity. See “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity” above for additional information.

In addition to available cash and marketable securities, Radian Group’s most significant near-term sources of cash to fund future liquidity needs include: (i) payments made to Radian Group by its subsidiaries under expense- and tax-sharing arrangements; and (ii) net investment income earned on its cash and marketable securities. Radian Group’s expense-sharing arrangements with its principal operating subsidiaries require those subsidiaries to pay their allocated share of certain holding-company-level expenses, including interest payments on Radian Group’s outstanding senior notes. The expense-sharing arrangements between Radian Group and our mortgage insurance subsidiaries, as amended, have been approved by the Pennsylvania Insurance Department, but such approval may be modified or revoked at any time.

In light of Radian Group’s short- and long-term needs, it is possible that our sources of liquidity could be insufficient to fund our obligations. If this were to occur, we may choose not to pursue certain actions, such as issuing dividends or repurchasing shares of our common stock, or we may elect to reduce the levels of these activities to preserve our available liquidity. In addition, we may seek to increase our available liquidity, which we may be unable to do on favorable terms, if at all.

Our revolving credit facility contains restrictive covenants that could limit our operating flexibility. A default under our credit facility could trigger an event of default under the terms of our senior notes. We may not have access to funding under our credit facility when we require it.

Radian Group is a party to a $275.0 million unsecured revolving credit facility with a syndicate of bank lenders. As of December 31, 2021, no borrowings were outstanding under the credit facility.

The credit facility contains customary representations, warranties, covenants, terms and conditions. Our ability to borrow under the credit facility is conditioned on the satisfaction of certain financial and other restrictive covenants, including covenants related to minimum net worth and statutory capital, a maximum debt-to-capitalization level, repayment or refinancing of a portion of our senior debt maturities prior to their maturity, and limitations on our ability to incur additional indebtedness, make investments, create liens, transfer or dispose of assets and merge with or acquire other companies. The credit facility also requires that Radian Guaranty remain eligible under the PMIERs to insure loans purchased by the GSEs. A failure to comply with these covenants or the other terms of the credit facility could result in an event of default, which could: (i) result in the termination of the commitments by the lenders to make loans to Radian Group under the credit facility and (ii)


Table of Contents Glossary Part I. Item 1A. Risk Factors

enable the lenders to declare, subject to the terms and conditions of the credit facility, any outstanding obligations under the credit facility to be immediately due and payable.

Further, the occurrence of an event of default under the terms of our credit facility may trigger an event of default under the terms of our senior notes. An event of default would occur under the terms of our senior notes if a default: (i) in any scheduled payment of principal of other indebtedness by Radian Group or its subsidiaries of more than $100 million principal amount occurs, after giving effect to any applicable grace period or (ii) in the performance of any term or provision of any indebtedness of Radian Group or its subsidiaries in excess of $100 million principal amount occurs that results in the acceleration of the date such indebtedness is due and payable, subject to certain limited exceptions. See Note 12 of Notes to Consolidated Financial Statements for more information on the carrying value of our senior notes.

If the commitments of the lenders under the credit facility are terminated or we are unable to satisfy certain covenants or representations, we may not have access to funding in a timely manner, or at all, when we require it. If funding is not available under the credit facility when we require it, our ability to continue our business practices or pursue our current strategy could be limited. If the indebtedness under the credit facility or our senior notes is accelerated, we may not be able to repay our debt or borrow sufficient funds to refinance it.

Risks Related to Information Technology and Cybersecurity

Our information technology systems may fail or become outmoded, be temporarily interrupted or otherwise cause us to be unable to meet our customers’ demands.

Our business is highly dependent on the effective operation of our information technology systems, which are vulnerable to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber-attacks and security incidents or breaches, catastrophic events and errors in usage. Although we have disaster recovery and business continuity plans in place, we may not be able to adequately execute these plans in a timely fashion.

Additionally, our ability to meet the needs of our customers depends on our ability to keep pace with technological advances and to invest in new technology as it becomes available or to otherwise upgrade our technological capabilities. We rely on e-commerce and other technologies to provide our products and services to our customers, and they generally require that we provide an increasing number of our products and services electronically. Accordingly, we may not satisfy our customers’ requirements if we fail to invest sufficient resources or are otherwise unable to maintain and upgrade our technological capabilities. Further, customers may choose to do business only with business partners with which they are technologically compatible and may choose to retain existing relationships with mortgage insurance or mortgage and real estate services providers rather than invest the time and resources to on-board new providers. As a result, technology can represent a potential barrier to signing new customers.

Because we rely on our information technology systems for many critical functions, including connecting with our customers, if such systems were to fail, experience a prolonged interruption or become outmoded, we may experience a significant disruption in our operations and in the business we receive, which could have a material adverse effect on our business, financial condition and operating results.

We could incur significant liability or reputational harm if the security of our information technology systems is breached, including as result of a cyberattack, or we otherwise fail to protect confidential information, including personally identifiable information that we maintain.

We rely on information technology systems to process, transmit, store and protect the electronic information, financial data and proprietary models that are critical to our business. Furthermore, a significant portion of the communications between us and our employees, customers, business partners and service providers depends on information technology and electronic information exchange.

Our reliance on information technology has been further accelerated by the widespread transition to work-from-home measures following the outbreak of COVID-19. In response to the COVID-19 pandemic, in order to protect our employees and in response to governmental and other third-party measures restricting interpersonal contact, travel and business operations, we activated our business continuity program by transitioning to a work-from-home virtual workforce model. Remote working arrangements may increase the risk of cyber-security attacks or data security incidents.

Our information technology systems may be vulnerable to physical or electronic intrusions, malware or other attacks, including cyberattacks. In recent years, cyberattacks such as distributed denial of service attacks, hacking, malware, ransomware, phishing or other forms of social engineering and insider threats designed to obtain confidential information, destroy data, disrupt or degrade service, sabotage systems or to cause other damage have grown in volume and level of sophistication. Security incidents have from time to time occurred and may occur in the future. Although to date security incidents have not had a material impact on us, the risks of cyberattacks and information security incidents and breaches continue to increase in businesses such as ours due to, among other things, the proliferation of new technologies and the use of digital channels to conduct our business, including connectivity with customer devices that are beyond our security control systems and the use of portable computers or mobile devices which can be stolen, lost or damaged. Globally, attacks are


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expected to continue accelerating in both frequency and sophistication with increasing use by actors of tools and techniques that could hinder our ability to identify, investigate and recover from incidents.

As part of our business, we, and certain of our subsidiaries, affiliates and third-party vendors, maintain large amounts of confidential information, including personally identifiable information on borrowers, consumers and our employees. If the security of our information technology or the technology of our third-party vendors is breached, including as a result of a cyberattack, it could result in the loss or misuse of this information, which could, in turn, result in potential regulatory actions or litigation, including material claims for damages, as well as interruption to our operations and damage to our customer relationships and reputation. While we have information security policies, controls and systems in place in order to attempt to prevent, detect and respond to unauthorized use or disclosure of confidential information, including personally identifiable information, there can be no assurance that such use or disclosure will not occur. Any cybersecurity event or other compromise of the security of our information technology systems, or unauthorized use or disclosure of confidential information, could subject us to liability, regulatory scrutiny and action, damage our reputation and negatively affect our ability to attract and maintain customers, and could have a material adverse effect on our business prospects, financial condition and results of operations.

Risks Related to Us and Our Subsidiaries Generally

We may not continue to pay dividends at the same rate we are currently paying them, or at all, and any decrease in or suspension of payment of a dividend could cause our stock price to decline.

Effective February 9, 2022, Radian Group’s board of directors authorized an increase in the Company’s quarterly dividend from $0.14 per share to $0.20 per share, effective for the quarterly dividend payable on March 3, 2022. The payment of future cash dividends is subject to the determination each quarter by our board of directors that the dividend remains in the best interests of the Company and our stockholders, which determination will be based on a number of factors, including, among others, economic conditions, our earnings, financial condition, actual and forecasted cash flows, capital resources, capital requirements and alternative uses of capital, including potential investments to support our business strategy and possible acquisitions or investments in new businesses. Any decrease in the amount of the dividend, or suspension or discontinuance of payment of a dividend, could cause our stock price to decline.

We are subject to litigation and regulatory proceedings.

We operate in highly regulated industries that are subject to a heightened risk of litigation and regulatory proceedings. From time to time we are a party to material litigation and also are subject to legal and regulatory claims, assertions, actions, reviews, audits, inquiries and investigations. Additional lawsuits, legal and regulatory proceedings and inquiries and other matters may arise in the future. The outcome of existing and future legal and regulatory proceedings and inquiries and other matters could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief which could require significant expenditures or have a material adverse effect on our business prospects, results of operations and financial condition. See “Item 3. Legal Proceedings” and Note 13 of Notes to Consolidated Financial Statements.

We rely on our management team and our business could be harmed if we are unable to retain qualified personnel or successfully develop and/or recruit their replacements.

Our success depends, in part, on the skills, working relationships and continued services of our management team and other key personnel, any of whom could terminate his or her relationship with us at any time. Competition for personnel is intense and has increased in light of evolving labor and employment trends, including but not limited to the increase in employee resignations throughout the United States, as well as the increase in remote, hybrid or other alternative flexible work arrangements. The COVID-19 pandemic and the resulting increase in work from home arrangements within many industries, including ours, has increased the likelihood that highly skilled individuals may seek to change employers in pursuit of greater opportunities or greater benefits. In this environment, it may be more difficult to retain key personnel or to attract new resources who now may have greater optionality among potential employers given the ability to work from home. The unexpected departure of key personnel could adversely affect the conduct of our business. In such event, we would be required to obtain other personnel to manage and operate our business. In addition, we will be required to replace the knowledge and expertise of our workforce as our workers retire. In either case, there can be no assurance that we will be able to develop or recruit suitable replacements for the departing individuals, that replacements could be hired, if necessary, on terms that are favorable to us, or that we can successfully transition such replacements in a timely manner. Failure to effectively implement our succession planning efforts and to ensure effective transfers of knowledge and smooth transitions involving members of our management team and other key personnel could adversely affect our business and results of operations. Without a properly skilled and experienced workforce, our costs, including costs associated with a loss of productivity and costs to replace employees, may increase, and this could negatively impact our earnings.

Investments to grow our existing businesses, pursue new lines of business or new products and services within existing lines of business subject us to additional risks and uncertainties.

In support of our growth and diversification strategy, we may make investments to grow our existing businesses, pursue new lines of business or new products and services within existing lines of business. We may do this through strategic


Table of Contents Glossary Part I. Item 1A. Risk Factors

transactions, including investments and acquisitions, or pursue other transformative actions and initiatives. These activities expose us to additional risks and uncertainties that include, without limitation:

■the use of capital and potential diversion of other resources, such as the diversion of management’s attention from our core businesses and potential disruption of those businesses;

■the assumption of liabilities in connection with any strategic transaction, including any acquired business;

■our ability to comply with additional regulatory requirements associated with new products, services, lines of business or other business or strategic initiatives;

■our ability to successfully integrate or develop the operations of any new business initiative or acquisition;

■new business initiatives may be disruptive to, or competitive with, our existing customers;

■we may fail to realize the anticipated benefits of a strategic transaction or initiative, including expected synergies, cost savings or sales or growth opportunities, within the anticipated timeframe or at all;

■new business initiatives may expose us to liquidity risk, risks associated with the use of financial leverage, and market risks, including risk resulting from changes in the fair values of assets in which we invest. Further, new business initiatives may increase our exposure to interest rate risk and may involve changes in our investment, financing and hedging strategies;

■we may fail to achieve forecasted results for a strategic transaction or initiative that could result in lower or negative earnings contribution and/or impairment charges associated with intangible assets acquired; and

■the risk of reputational harm if the strategic transaction or initiative fails to increase our market value.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

In addition to leases of other properties and facilities to support our business operations, the Company currently leases approximately 65,000 square feet of office and storage space at our corporate headquarters, located at 550 East Swedesford Road, Suite 350, in Wayne, Pennsylvania. This property is used by both our reportable segments and our corporate functions.

We believe our existing properties are suitable and adequate for their intended use. Despite nearly all of our employees currently working remotely during the COVID-19 pandemic, the longer-term strategy is for our current sites and offices to be re-occupied with more flexible work arrangements for our employees.

Item 3. Legal Proceedings

We are routinely involved in a number of legal actions and proceedings, including reviews, audits and inquiries by various regulatory entities, as well as litigation and other disputes arising in the ordinary course of our business. These legal proceedings and regulatory matters could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief that could require significant expenditures or have other effects on our business. Management believes, based on current knowledge and after consultation with counsel, that the outcome of such actions will not have a material adverse effect on our consolidated financial condition. The outcome of litigation and other legal and regulatory matters and proceedings is inherently uncertain, and it is possible that any one or more of these matters currently pending or threatened could have an adverse effect on our liquidity, financial condition or results of operations for any particular period. See Note 13 of Notes to Consolidated Financial Statements for additional information regarding legal proceedings and regulatory matters.

Item 4. Mine Safety Disclosures

Not applicable.


Table of Contents Glossary

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “RDN.” At February 23, 2022, there were 175,525,591 shares of our common stock outstanding and 59 holders of record.

During the first quarter of 2021 and each quarter of 2020, we declared quarterly cash dividends on our common stock equal to $0.125 per share. On May 4, 2021, Radian Group’s board of directors authorized an increase to our quarterly dividend from $0.125 to $0.14 per share, beginning with the dividend declared in the second quarter of 2021. On February 9, 2022, Radian Group’s board of directors authorized an increase to our quarterly cash dividend from $0.14 to $0.20 per share. We presently expect to continue to declare a regular quarterly dividend on our common stock. For information on Radian Group’s ability to pay dividends, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Reference is made to the information in Item 12 of this report under the caption “Equity Compensation Plans,” which is incorporated herein by reference.

Issuance of Unregistered Securities

During the last three years, no equity securities of the Company were sold that were not registered under the Securities Act.

Issuer Purchases of Equity Securities

The following table provides information about purchases of Radian Group common stock by us (and our affiliated purchasers) during the three months ended December 31, 2021.


Share repurchase program

($ in thousands, except per-share amounts)	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (2)
Period:
10/1/2021 to 10/31/2021	1,966,569	$	23.72	1,964,061	$	95,484
11/1/2021 to 11/30/2021	3,790,848	21.68		3,788,714	13,401
12/1/2021 to 12/31/2021	655,036	20.96		639,560	—
Total	6,412,453			6,392,335

(1)Includes 20,118 shares tendered by employees as payment of taxes withheld on the vesting of certain RSUs granted under the Company’s equity compensation plans.

(2)On August 14, 2019, Radian Group’s board of directors approved a share repurchase program authorizing the Company to spend up to $200 million, excluding commissions, to repurchase Radian Group common stock. Since then, Radian Group’s board of directors has authorized several increases to the program along with extensions of the program’s expiration date. Most recently, in August 2021, Radian Group’s board of directors approved a $200 million increase to this program, bringing the cumulative authorization to repurchase shares up to $675 million, excluding commissions, and extended the expiration of this program to August 31, 2022. During the three months ended December 31, 2021, the Company purchased 6.4 million shares at an average price of $22.23, including commissions. No purchase authority remains available under this program. See Note 14 of Notes to Consolidated Financial Statements for additional information.

Item 6. [Reserved]


Table of Contents Glossary

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report on Form 10-K. Certain terms and acronyms used throughout this report are defined in the Glossary of Abbreviations and Acronyms included as part of this report.

Some of the information in this discussion and analysis or included elsewhere in this report, including information with respect to our projections, plans and strategy for our business, are forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under “Cautionary Note Regarding Forward-Looking Statements—Safe Harbor Provisions” and in the Risk Factors detailed in Item 1A of this Annual Report on Form 10-K.

Index to Item 7


Item			Page
Overview			65
Key Factors Affecting Our Results			66
Mortgage Insurance Portfolio			71
Results of Operations—Consolidated			77
Results of Operations—Mortgage			81
Results of Operations—homegenius			87
Results of Operations—All Other			88
Liquidity and Capital Resources			89
Critical Accounting Estimates			95

Overview

We are a diversified mortgage and real estate business with two reportable business segments—Mortgage and homegenius.

See Note 4 of Notes to Consolidated Financial Statements for additional information about our reportable segments, including the renaming of the homegenius segment in 2021 to align with updates to our brand strategy. See “Key Factors Affecting Our Results” for information about current business conditions and other factors that affect the performance of our Mortgage and homegenius businesses.

COVID-19 Impacts

The onset of the COVID-19 pandemic created periods of significant economic disruption, high unemployment, volatility and disruption in financial markets and required adjustments in the housing finance system and real estate markets. In addition, the pandemic has resulted in travel restrictions, temporary business shutdowns, and stay-at-home, quarantine, and similar orders, all of which contributed to a rapid and significant rise in unemployment that peaked in the second quarter of 2020.

Many of these restrictions have been lifted and businesses have been reopening, but numerous limitations, such as extensive health and safety measures and overall supply constraints and labor shortages, continue to limit operations. Further, while unemployment levels have declined from their peak, they continue to remain elevated compared to pre-pandemic levels, and may remain elevated or may rise depending on the pandemic’s scope, severity and duration, and its resulting impact on the economy. See Note 1 of Notes to Consolidated Financial Statements and “Item 1A. Risk Factors—The COVID-19


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

pandemic adversely impacted us and, in the future, could again adversely affect our business, results of operations or financial condition.”

As a result of the COVID-19 pandemic and its impact on the economy, including the significant increase in unemployment, we experienced a material increase in new defaults in 2020, substantially all of which related to defaults of loans subject to forbearance programs implemented in response to the COVID-19 pandemic. Beginning in the second quarter of 2020, the increase in the number of new mortgage defaults resulting from the COVID-19 pandemic had a negative effect on our results of operations and our reserve for losses. However, more recent trends in Cures have been more favorable than original expectations, resulting in favorable loss reserve development in 2021. See Note 11 for details on reserve development trends.

Our primary default rate was 2.9% at December 31, 2021, down from a peak of 6.5% at June 30, 2020 reflecting the material increase in new defaults in the three months ended June 30, 2020. Favorable trends in the number of new defaults and Cures were the primary drivers of the decline in our default inventory and default rate, compared to their peaks at June 30, 2020.

The number, timing and duration of new defaults and, in turn, the number of defaults that ultimately result in claims will depend on a variety of factors, including the scope, severity and duration of the COVID-19 pandemic, the resulting impact on the economy, including with respect to unemployment and housing prices, and the effectiveness of forbearance and other government efforts such as financial stimulus programs, to provide long-term economic and individual relief to assist homeowners. Consequently, the number and rate of total defaults is difficult to predict and will depend on the foregoing and other factors, including the number and timing of Cures and claims paid and the net impact on IIF from our Persistency Rate and future NIW. See “Item 1A. Risk Factors” for additional discussion of these factors and other risks and uncertainties.

Increases in new defaults may affect our ability to remain compliant with the PMIERs financial requirements. Once two missed payments have occurred on an insured loan, the PMIERs characterize the loan as “non-performing” and require us to establish an increased Minimum Required Asset factor for that loan regardless of the reason for the missed payments. During the COVID-19 Crisis Period, pursuant to the COVID-19 Amendment to the PMIERs, a Disaster Related Capital Charge that effectively reduces the Minimum Required Asset factor by 70% has been applied nationwide to all COVID-19 Defaulted Loans. For more information about the application of the Disaster Related Capital Charge see “Item 1. Business—Regulation—Federal Regulation—GSE Requirements for Mortgage Insurance Eligibility” for more information. The reduction in Radian Guaranty’s Minimum Required Assets from this Disaster Related Capital Charge was approximately $300 million as of December 31, 2021, compared to approximately $650 million at December 31, 2020. Inclusive of this benefit in both periods, Radian Guaranty’s PMIERs Cushion increased to $2.1 billion as of December 31, 2021, from $1.3 billion as of December 31, 2020. While we expect Radian Guaranty to continue to maintain its eligibility status with the GSEs, there are possible scenarios in which the number of new defaults could impact Radian Guaranty’s ability to comply with the PMIERs financial requirements. See “Item 1A. Risk Factors—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity.”

In response to the COVID-19 pandemic, we raised additional capital, temporarily suspended purchases under our share repurchase program, aligned our business with the temporary origination and servicing guidelines announced by the GSEs, and made adjustments to our pricing and our underwriting guidelines to account for the increased risk and uncertainty associated with the COVID-19 pandemic. In addition, we took a number of actions to focus on protecting and supporting our workforce, while continuing to serve our customers effectively and support our communities. We activated our business continuity program by transitioning to a work-from-home virtual workforce model with certain essential activities supported by limited staff in office environments that comply with CDC guidelines and applicable state and local requirements. Based on our successful transition to a virtual work environment, we made the decision to reduce our office space and exit our former corporate headquarters in Philadelphia. See Note 9 of Notes to Consolidated Financial Statements for additional information on our lease right-of-use assets.

In order to support our communities during this unprecedented time, we have, among other things, pledged financial support to certain charitable organizations focused on assisting first responders, health care workers and their families. Further actions to respond to the COVID-19 pandemic and comply with governmental regulations and government and GSE programs adopted in response to the pandemic may be necessary as conditions continue to evolve.

Despite the risks and uncertainties posed by COVID-19, we believe that the steps we have taken in recent years, such as improving our debt maturity profile, enhancing our financial flexibility, implementing greater risk-based granularity into our pricing methodologies and increasing our use of risk distribution strategies to lower the risk profile and financial volatility of our mortgage insurance portfolio, has helped position the Company to better withstand the negative effects from macroeconomic stresses such as those that resulted from the COVID-19 pandemic.

Key Factors Affecting Our Results

The following sections discuss certain key drivers affecting our Mortgage and homegenius businesses, as well as other key factors affecting our results.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Mortgage

IIF and Related Drivers

Our IIF is one of the primary drivers of our future premiums that we expect to earn over time. Although not reflected in the current period financial statements, nor in our reported book value, we expect our IIF to generate substantial earnings in future periods, due to the high credit quality of our current mortgage insurance portfolio and expected Persistency Rate over multiple years.

Based on the current composition of our mortgage insurance portfolio, with Monthly Premium Policies comprising a larger proportion of our total portfolio than Single Premium Policies, an increase or decrease in IIF generally has a corresponding impact on premiums earned. Cancellations of our insurance policies as a result of prepayments and other reductions of IIF, such as Rescissions of coverage and claims paid, generally have a negative effect on premiums earned over time. See “Mortgage Insurance Portfolio—Insurance and Risk in Force” for more information about the levels and characteristics of our IIF.

The ultimate profitability of our mortgage insurance business is affected by the impact of mortgage prepayment speeds on the mix of business we write. The measure for assessing the impact of policy cancellations on our IIF is our Persistency Rate, defined as the percentage of IIF that remains in force over a period of time. Assuming all other factors remain constant, over the life of the policies, prepayment speeds have an inverse impact on IIF and the expected revenue from our Monthly Premium Policies. Slower loan prepayment speeds, demonstrated by a higher Persistency Rate, result in more IIF remaining in place, providing increased revenue from Monthly Premium Policies over time as premium payments continue. Earlier than anticipated loan prepayments, demonstrated by a lower Persistency Rate, reduce IIF and the revenue from our Monthly Premium Policies. Among other factors, prepayment speeds may be affected by changes in interest rates and other macroeconomic factors. A rising interest rate environment generally will reduce refinancing activity and result in lower prepayments, whereas a declining interest rate environment generally will increase the level of refinancing activity and therefore increase prepayments.

In contrast to Monthly Premium Policies, when Single Premium Policies are cancelled by the insured because the loan has been paid off or otherwise, we accelerate the recognition of any remaining unearned premiums, net of any refunds that may be owed to the borrower. Although these cancellations reduce IIF, assuming all other factors remain constant, the profitability of our Single Premium business increases when Persistency Rates are lower. As a result, we believe that writing a mix of Single Premium Policies and Monthly Premium Policies has the potential to moderate the overall impact on our results if actual prepayment speeds are significantly different from expectations. However, the impact of this moderating effect may be affected by the amount of reinsurance we obtain on portions of our portfolio, with the Single Premium QSR Program currently reducing the proportion of retained Single Premium Policies in our portfolio.

NIW and Related Drivers

NIW increases our IIF and our premiums written and earned. NIW is affected by the overall size of the mortgage origination market, the penetration percentage of private mortgage insurance into the overall mortgage origination market and our market share of the private mortgage insurance market. The overall mortgage origination market is influenced by macroeconomic factors such as household formation, household composition, home affordability, interest rates, housing markets in general, credit availability and the impact of various legislative and regulatory actions that may influence the housing and mortgage finance industries. The penetration percentage of private mortgage insurance is mainly influenced by: (i) the competitiveness of private mortgage insurance for GSE conforming loans compared to FHA and VA insured loans and (ii) the relative percentage of mortgage originations that are for purchased homes versus refinances. We believe, for example, that better execution for borrowers with higher FICO scores, lender preference and the inability to cancel FHA insurance for certain loans are factors that currently provide a competitive advantage for private mortgage insurers. See “Mortgage Insurance Portfolio—New Insurance Written.”

Private mortgage insurance penetration in the insurable market has generally been significantly higher on new mortgages for purchased homes than on the refinance of existing mortgages, because average LTVs are typically higher on home purchases and therefore these lower down payment loans are more likely to require mortgage insurance. Radian Guaranty’s share of the private mortgage insurance market is influenced by competition in that market. See “Item 1. Business—Competition.”

The following charts provide a historical perspective on certain key market drivers, including:

■the mortgage origination volume from home purchases and refinancings; and

■private mortgage insurance penetration as a percentage of the mortgage origination market.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Mortgage origination market (1)


	Origination Market ($ in billions)	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020	Q4 2020	Q1 2021	Q2 2021	Q3 2021	Q4 2021
¢	Refinance	$120	$193	$350	$435	$412	$699	$773	$876	$858	$645	$579	$472
¢	Purchase	$230	$365	$371	$319	$284	$353	$466	$444	$354	$492	$505	$454
	Total	$350	$558	$721	$754	$696	$1,052	$1,239	$1,320	$1,212	$1,137	$1,084	$926


Private mortgage insurance penetration of mortgage origination market (1)


	Market Penetration (%)	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020	Q4 2020	Q1 2021	Q2 2021	Q3 2021	Q4 2021
ò	Purchase (2)	23.5%	23.2%	25.1%	24.1%	22.7%	24.3%	26.9%	27.0%	27.2%	26.2%	26.6%	26.3%
ò	Overall (2)	17.0%	17.3%	16.4%	14.5%	13.5%	14.0%	14.6%	13.4%	12.2%	13.9%	13.7%	14.0%
ò	Refinance (2)	4.6%	6.1%	7.1%	7.5%	7.2%	8.9%	7.1%	6.5%	6.1%	4.5%	2.5%	2.1%

(1)Based on actual dollars generated in the credit enhanced market as reported by HUD and publicly reported industry information. Mortgage originations are based upon the average of originations reported by the Mortgage Bankers Association, Freddie Mac and Fannie Mae in their most recent published industry reports.

(2)Excluding originations under HARP.

Premiums

The premium rates we charge for our insurance are based on a number of borrower, loan and property characteristics. The mortgage insurance industry is highly competitive and private mortgage insurers compete with each other and with the FHA and VA with respect to price and other factors. We expect price competition to continue throughout the mortgage insurance industry and future price changes from private mortgage insurers or the FHA could impact our future premium rates or our ability to compete.

Our pricing is risk-based and is intended to generally align with the capital requirements under the PMIERs, while also considering pricing trends within the private mortgage insurance industry. As a result, our pricing is expected to generate relatively consistent returns across the credit spectrum and to provide stable expected loss ratios regardless of further credit expansion or contraction. In developing our pricing strategies, we monitor various competitive and economic factors while seeking to maximize the long-term economic value of our portfolio by balancing credit risk, profitability and volume


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

considerations, and aim to achieve an overall risk-adjusted rate of return on capital given our modeled performance expectations. Our actual portfolio returns will depend on a number of factors, including economic conditions, the mix of NIW that we are able to write, our pricing, the amount of reinsurance we use and the level of capital required under the PMIERs financial requirements.

Our pricing actions gradually affect our results over time, as existing IIF cancels and is replaced with NIW at current pricing. See “Liquidity and Capital Resources—Mortgage” and “Mortgage Insurance Portfolio—New Insurance Written” for additional information.

As described above, premiums on our mortgage insurance products are generally paid either on an installment basis, pursuant to Monthly Premium Policies, or in a single payment at the time of loan origination, pursuant to Single Premium Policies. See “Item 1. Business—Mortgage—Pricing—Primary Mortgage Insurance Premiums.” Our expected premium yield on our Single Premium Policies is lower than on our Monthly Premium Policies because our premium rates for the life of the policy are generally lower for our Single Premium Policies. However, as discussed above, the ultimate profitability of Single Premium Policies may be higher or lower than expected due to the impact of prepayment speeds. See “—IIF and Related Drivers” above.

Approximately 78.6% of the loans in our total Primary Mortgage Insurance portfolio at December 31, 2021 are Monthly Premium Policies that provide a level monthly premium for the first 10 years of the policy, followed by a lower level monthly premium thereafter. For loans that have been refinanced under HARP, the initial 10-year period is reset. Generally, a borrower is able to cancel the policy when the LTV reaches 80% of the original value, and the policy automatically cancels on the date the LTV is scheduled to reach 78% of the original value. As a result, the volume of loans that remain insured after 10 years and would be subject to the premium reset is generally not material in relation to the total loans originated. However, to the extent the volume of loans resetting from year to year varies significantly, the trend in earned premiums may also vary.

Losses

Incurred losses represent the estimated future claim payments on newly defaulted insured loans as well as any change in our claim estimates for existing defaults, including changes in the estimates we use to determine our expected losses, and estimates with respect to the frequency, magnitude and timing of anticipated losses on defaulted loans. Other factors influencing incurred losses include:

■The mix of credit characteristics in our total direct RIF (e.g., loans with higher risk characteristics, or loans with layered risk that combine multiple higher-risk attributes within the same loan, generally result in more delinquencies and claims). See “Mortgage Insurance Portfolio—Insurance and Risk in Force;”

■The average loan size (relatively higher priced properties with larger average loan amounts may result in higher incurred losses);

■The percentage of coverage on insured loans (higher percentages of insurance coverage generally correlate with higher incurred losses) and the presence of structural mitigants such as deductibles or stop losses;

■Changes in housing values (declines in housing values generally make it more difficult for borrowers to sell a home to avoid default or for the property to be sold to mitigate a claim, and also may negatively affect a borrower’s willingness to continue to make mortgage payments when the home value is less than the mortgage balance; conversely, increases in housing values tend to reduce the level of defaults as well as make it more likely that foreclosures will result in the loan being satisfied);

■The distribution of claims over the life cycle of a portfolio (historically, claims are relatively low during the first two years after a loan is originated and then increase over a period of several years before declining; however, several factors can impact and change this cycle, including the economic environment, the quality of the underwriting of the loan, characteristics of the mortgage loan, the credit profile of the borrower, housing prices and unemployment rates); and

■Our ability to mitigate potential losses through Rescissions, Claim Denials, cancellations and Claim Curtailments on claims submitted to us. These actions all reduce our incurred losses. However, if these Loss Mitigation Activities are successfully challenged at rates that are higher than expected or we agree to settle disputes related to our Loss Mitigation Activities, our incurred losses will increase. We may enter into specific agreements that govern activities such as claims decisions, claim payments, Loss Mitigation Activities and insurance coverage. As our portfolio originated through 2008 has become a smaller percentage of our overall insured portfolio, there has been a decrease in the amount of Loss Mitigation Activity with respect to the claims we receive, and we expect this trend to continue, particularly given the limitations on our Loss Mitigation Activities imposed in both the 2014 Master Policy and 2020 Master Policy. See Note 2 of Notes to Consolidated Financial Statements for additional information on Loss Mitigation Activities and “Item 1A. Risk Factors—Our Loss Mitigation Activity is not expected to mitigate mortgage insurance losses to the same extent as in prior years; Loss Mitigation Activity could continue to negatively impact our customer relationships.”


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Risk Distribution

We use third-party reinsurance in our mortgage insurance business to manage capital and risk in an effort to optimize the amounts and types of capital and risk distribution deployed against insured risk. See “—IIF and Related Drivers” above. Currently, we distribute risk in our mortgage insurance portfolio through quota share and excess-of-loss reinsurance programs.

When we enter into a quota share reinsurance agreement, the reinsurer receives a premium and, in exchange, agrees to insure an agreed upon portion of incurred losses. These arrangements reduce our earned premiums but also reduce our net RIF, which provides capital relief, including under the PMIERs financial requirements. Our incurred losses are reduced by any incurred losses ceded in accordance with the reinsurance agreement, and we often receive ceding commissions from the reinsurer as part of the transaction, which, in turn, reduce our reported operating expenses and policy acquisition costs.

Our Excess-of-Loss Program primarily accesses the capital markets (through the Eagle Re Issuers’ issuance of mortgage insurance-linked notes). Our Excess-of-Loss Program reduces our earned premiums, but also reduces our net RIF, PMIERs financial requirements and incurred losses, which are allocated in accordance with the structure of the transaction. The Eagle Re Issuers are special purpose VIEs that are not consolidated in our consolidated financial statements because we do not have the unilateral power to direct those activities that are significant to their economic performance.

Our use of risk distribution structures has reduced our required capital and enhanced our projected return on capital, and we expect these structures to provide a level of credit protection in periods of economic stress. As of December 31, 2021, 73% of our primary RIF is subject to a form of risk distribution and our estimated reinsurance recoverables related to our mortgage insurance portfolio was $66.7 million. See Note 8 of Notes to Consolidated Financial Statements for more information about our reinsurance arrangements, including the total assets and liabilities of the Eagle Re Issuers.

Investment Income

Investment income is determined primarily by the investment balances held and the average yield on our overall investment portfolio.

Other Operating Expenses

Our other operating expenses are affected by the amount of our NIW, as well as the amount of IIF. Our other operating expenses may also be affected by the impact of performance on our incentive compensation programs, as a result of our pay-for-performance approach to compensation that is based on the level of achievement of both short-term and long-term goals.

homegenius

Premiums

We earn net premiums on title insurance through Radian Title Insurance. Demand for title insurance may be impacted by general marketplace competition in the real estate title industry, coupled with housing market related conditions such as new home sales, the sizes of the real estate purchase and refinance markets and interest rate fluctuations.

Services Revenue

Our homegenius segment is dependent upon overall activity in the mortgage, real estate and mortgage finance markets, as well as the overall health of the related industries. Due, in part, to the transactional nature of the business, revenues for our homegenius segment are subject to fluctuations from period to period, including seasonal fluctuations that reflect the activities in these markets. Sales volume is also affected by the number of competing companies and alternative products offered in the market. We believe the diversity of services we offer has the potential to produce fee income from the homegenius segment throughout various mortgage finance environments and economic cycles, although market conditions can significantly impact the mix and amount of fee income we generate in any particular period. See “Item 1. Business—homegenius—homegenius Business Overview” for more information on our homegenius services.

The homegenius segment is dependent on a limited number of large customers that represent a significant portion of its revenues. Generally, our contracts do not contain volume commitments and may be terminated by clients at any time. While access to Radian Guaranty’s mortgage insurance customer base provides additional opportunities to expand the homegenius segment’s existing customers, an unexpected loss of a major customer could significantly impact the level of homegenius revenue. Access to Radian Guaranty’s mortgage insurance customer base provides additional opportunities to expand the homegenius segment’s existing customers.

Our homegenius revenue is primarily generated under fixed-price contracts. Under fixed-price contracts, we agree to perform the specified services and deliverables for a predetermined per-unit price. To the extent our actual direct and allocated indirect costs decrease or increase from the estimates upon which the price was negotiated, we will generate more or less profit, respectively, or could incur a loss. See Note 2 of Notes to Consolidated Financial Statements for more information on revenue recognition policies for our homegenius segment.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cost of Services

Our cost of services is primarily affected by our level of services revenue and the number of employees providing products and services for our homegenius businesses. Our cost of services primarily consists of employee compensation and related payroll benefits, and to a lesser extent, other costs of providing services such as travel and related expenses incurred in providing client services, costs paid to outside vendors, data acquisition costs and other compensation-related expenses to maintain software application platforms that directly support our businesses. The level of these costs may fluctuate as market rates of compensation change, or if there is decreased availability or a loss of qualified employees.

Operating Expenses

Our operating expenses primarily consist of salaries and benefits not classified as cost of services because they are related to employees, such as sales and corporate employees, who are not directly involved in providing client services. Operating expenses also include other selling, general and administrative expenses, depreciation and allocations of corporate general and administrative expenses.

See “Item 1. Business—homegenius—homegenius Business Overview” and Note 1 of Notes to Consolidated Financial Statements for additional information regarding the homegenius segment.

Other Factors Affecting Consolidated Results

In addition, the following items also may impact our consolidated results in the ordinary course. The items listed are not representative of all potential items impacting our consolidated results. See “Item 1A. Risk Factors” for additional information on the risks affecting our business.

Net Gains (Losses) on Investments and Other Financial Instruments. The recognition of realized investment gains or losses can vary significantly across periods, as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized gains and losses arise primarily from changes in the market value of our investments that are classified as trading or equity securities. These valuation adjustments may not necessarily result in realized economic gains or losses.

Loss on Extinguishment of Debt. Gains or losses on early extinguishment of debt and losses incurred to purchase our debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial and capital positions.

Impairment of Goodwill or Other Acquired Intangible Assets. The periodic review of goodwill and other acquired intangible assets for potential impairment may impact consolidated results. Our goodwill and other acquired intangible assets analysis is based on management’s assumptions, which are inherently subject to risks and uncertainties. See Note 7 of Notes to Consolidated Financial Statements for additional information.

Mortgage Insurance Portfolio


IIF by origination vintage (1)


		Insurance in Force as of:
	Vintage written in: ($ in billions)	December 31, 2021			December 31, 2020			December 31, 2019
¢	2021	$87.4	35.5	%	$—	—	%	$—	—	%
¢	2020	74.3	30.2		98.8	40.2		—	—
¢	2019	24.0	9.8		44.6	18.1		67.3	28.0
¢	2018	12.4	5.0		23.5	9.5		42.9	17.8
¢	2017	11.5	4.7		21.2	8.6		37.9	15.8
¢	2016	10.1	4.1		17.5	7.1		29.5	12.2
¢	2009 - 2015	14.9	6.1		25.7	10.5		44.0	18.3
¢	2008 & Prior (2)	11.4	4.6		14.8	6.0		19.0	7.9
	Total	$246.0	100.0	%	$246.1	100.0	%	$240.6	100.0	%

(1)Policy years represent the original policy years and have not been adjusted to reflect subsequent refinancing activity under HARP.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(2)Adjusted to reflect subsequent refinancing activity under HARP, this percentage would decrease to 3.0%, 3.7%, and 4.7% as of December 31, 2021, December 31, 2020 and December 31, 2019, respectively.

New Insurance Written

A key component of our current business strategy is to write NIW that we believe will generate future earnings and economic value while effectively maintaining the portfolio’s health, balance and profitability. Consistent with this objective, we wrote $91.8 billion of primary new mortgage insurance in 2021, compared to $105.0 billion of NIW in 2020. The NIW written in 2021 was Radian’s second highest volume in its history.

Our 2021 NIW, offset by cancellations and amortization within our existing portfolio, resulted in IIF of $246.0 billion at December 31, 2021, compared to $246.1 billion at December 31, 2020, as shown in the chart above. Our NIW decreased by 12.6% in 2021 as compared to 2020, due to lower refinance activity and lower private mortgage insurance penetration on refinances as well as lower market share, partially offset by increased purchase originations.

Among other factors, private mortgage insurance industry volumes are impacted by total mortgage origination volumes and the mix between mortgage originations that are for home purchases versus refinancings of existing mortgages. Historically, the penetration rate for private mortgage insurance was generally three to five times higher for purchase transactions than for refinancings. However, with significant home price appreciation in the past year, penetration on purchase transactions has increased while penetration on refinancings has decreased, and the penetration rate for private mortgage insurance has shifted to six to ten times higher for purchase transactions than for refinancings.

According to industry estimates, total mortgage origination volume was slightly lower in 2021 as compared to 2020 due to lower refinance activity, partially offset by a strong purchase market. Although it is difficult to project future volumes, recent market projections for 2022 estimate total mortgage originations of approximately $3.0 trillion, which would represent a decline in the total annual mortgage origination market of approximately 31% as compared to 2021, with a private mortgage insurance market of $500 to $550 billion. This outlook anticipates a decrease in refinance originations in 2022 resulting from expected increases in interest rates. While expectations for refinance volume vary, there is consensus around a large purchase market driven by increased home sales, which is a positive for mortgage insurers given the higher likelihood that purchase loans will utilize private mortgage insurance as compared to refinance loans. If refinance volume declines, we would expect the Persistency Rate for our portfolio to increase, benefiting the size of our IIF portfolio. See “Item 1A. Risk Factors” for more information.

Our total mix of Single Premium Policies decreased to 7.2% of our NIW for 2021, compared to 12.3% for 2020. Borrower-paid Single Premium Policies were 96.3% of our total direct Single Premium NIW for 2021 compared to 90.2% for 2020. We expect our production level for Single Premium Policies to fluctuate over time based on various factors, which include risk/return considerations and market conditions.

The following table provides selected information as of and for the periods indicated related to our mortgage insurance NIW. For direct Single Premium Policies, NIW includes policies written on an individual basis (as each loan is originated) and on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically after the loans have been originated).


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations


NIW

	Years Ended December 31,
($ in millions)	2021			2020			2019
NIW	$	91,830		$	105,024		$	71,327
Primary risk written	$	22,591		$	24,540		$	17,163
Average coverage percentage	24.6		%	23.4		%	24.1		%

NIW by loan purpose
Purchases	80.5		%	64.8		%	81.1		%
Refinances	19.5		%	35.2		%	18.9		%

Total borrower-paid	99.2		%	98.2		%	96.7		%

NIW by premium type
Direct Monthly and Other Recurring Premiums	92.8		%	87.7		%	83.5		%
Direct single premiums (1)	7.2		%	12.3		%	16.5		%

NIW by FICO score (2)
>=740	58.6		%	66.0		%	63.3		%
680-739	34.2		%	30.8		%	31.9		%
620-679	7.2		%	3.2		%	4.8		%


NIW by LTV
95.01% and above	12.0		%	9.2		%	16.7		%
90.01% to 95.00%	40.7		%	37.1		%	37.7		%
85.01% to 90.00%	28.3		%	29.4		%	28.0		%
85.00% and below	19.0		%	24.3		%	17.6		%

(1)Borrower-paid Single Premium Policies were 6.9%, 11.1% and 14.2% of NIW for the periods indicated, respectively. See “Item 1. Business—Regulation—Federal Regulation—GSE Requirements for Mortgage Insurance Eligibility” for additional information.

(2)For loans with multiple borrowers, the percentage of NIW by FICO score represents the lowest of the borrowers’ FICO scores.

Insurance and Risk in Force

Our IIF is the primary driver of the future premiums that we expect to earn over time. IIF at December 31, 2021 was flat as compared to the same period last year, as the positive impact from our NIW in 2021 was offset primarily by cancellations of existing policies associated with refinancings, as reflected in our Persistency Rates and further discussed below.

Historically, there is a close correlation between interest rates and Persistency Rates. Lower interest rate environments generally increase refinancings, which increase the cancellation rate of our insurance and negatively affect our Persistency Rates. As shown in the table further below, our 12-month Persistency Rate at December 31, 2021 increased as compared to the same period in 2020 but remains lower than Persistency Rates experienced prior to the pandemic. The increase in our Persistency Rate in 2021 was primarily attributable to the decline in refinance activity as compared to the prior year. As refinance activity began to moderate in the second half of 2021, those trends contributed to the increase in our Persistency Rate at December 31, 2021 as compared to the same period in 2020, as well as growth in our IIF in the second half of 2021.

The net change in our IIF during 2021 reflects a 5.8% increase in Monthly Premium Policies in force, offset by a 21.1% decline in Single Premium Policies in force. Single Premium Policy cancellations were the primary driver of the decrease in unearned premiums on our consolidated balance sheet at December 31, 2021 as compared to December 31, 2020.

We continue to believe that the long-term housing market fundamentals and outlook remain positive, including low interest rates, demographics supporting growth in the population of first-time homebuyers and a relatively constrained supply of homes available for sale. However, our earnings in future periods are subject to elevated risks and uncertainties related to macroeconomic conditions and specific events that impact the housing finance and real estate markets, including housing prices, inflationary pressures, unemployment levels, interest rate changes and the availability of credit, as well as the potential impact of the unprecedented and continually evolving social and economic impacts associated with the COVID-19 pandemic.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

For additional information about the COVID-19 pandemic, see “Overview—COVID-19 Impacts,” Note 1 of Notes to Consolidated Financial Statements and “Item 1A. Risk Factors—The credit performance of our mortgage insurance portfolio is impacted by macroeconomic conditions and specific events that affect the ability of borrowers to pay their mortgages.”

Historical loan performance data indicates that credit scores and underwriting quality are key drivers of credit performance. As of December 31, 2021, our portfolio of business written subsequent to 2008, including refinancings under HARP, represented approximately 97.0% of our total primary RIF. Loan originations after 2008 have consisted primarily of high credit quality loans with significantly better credit performance than loans originated during 2008 and prior periods. However, the impact to our future losses from, among other things, the COVID-19 pandemic remains uncertain, although trends in 2021 have been positive.

The following table illustrates the trends of our cumulative incurred loss ratios by year of origination and development year.


Cumulative incurred loss ratio by vintage (1)

Vintage	Dec 2012	Dec 2013	Dec 2014	Dec 2015	Dec 2016	Dec 2017	Dec 2018	Dec 2019	Dec 2020 (2)	Dec 2021 (2)
2012	2.0%	3.2%	3.6%	2.7%	2.9%	2.8%	2.8%	2.8%	3.2%	3.0%
2013		2.5%	4.0%	3.4%	3.7%	3.5%	3.4%	3.3%	4.2%	4.1%
2014			2.7%	4.1%	4.9%	5.0%	5.1%	5.2%	6.9%	6.8%
2015				2.1%	4.8%	5.2%	5.0%	4.7%	7.4%	6.8%
2016					2.9%	5.0%	4.8%	4.7%	9.7%	8.0%
2017						4.7%	5.1%	6.1%	14.3%	11.9%
2018							3.0%	6.4%	22.8%	19.0%
2019								2.8%	35.6%	23.5%
2020									25.6%	14.9%
2021										7.9%

(1)Represents inception-to-date losses incurred as a percentage of net premiums earned.

(2)Losses incurred in 2020 and 2021 across all vintages were elevated due to the impact of the COVID-19 pandemic.

Throughout this report, unless otherwise noted, RIF is presented on a gross basis and includes the amount ceded under reinsurance. RIF and IIF for direct Single Premium Policies include policies written on an individual basis (as each loan is originated) and on an aggregated basis (in which each individual loan in a group of loans is insured in a single transaction, typically after the loans have been originated).


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following tables provide selected information as of and for the periods indicated related to mortgage insurance IIF and RIF.


IIF and RIF

	Years Ended December 31,
($ in millions)	2021			2020			2019
Primary IIF	$	245,972		$	246,144		$	240,558
Primary RIF	$	60,913		$	60,656		$	60,921
Average coverage percentage	24.8		%	24.6		%	25.3		%


Persistency Rate (12 months ended)	64.3		%	61.2		%	78.2		%
Persistency Rate (quarterly, annualized) (1)	71.7		%	60.4		%	75.0		%

Total borrower-paid RIF	90.6		%	86.3		%	78.9		%

Primary RIF by Premium Type
Direct Monthly and Other Recurring Premiums	83.9		%	79.1		%	72.4		%
Direct single premiums (2)	16.1		%	20.9		%	27.6		%

Primary RIF by FICO score (3)
>=740	56.9		%	57.5		%	56.9		%
680-739	35.0		%	34.6		%	34.2		%
620-679	7.6		%	7.3		%	8.2		%
<=619	0.5		%	0.6		%	0.7		%

Primary RIF by LTV
95.01% and above	15.1		%	14.4		%	14.2		%
90.01% to 95.00%	48.9		%	49.3		%	51.3		%
85.01% to 90.00%	27.7		%	28.0		%	27.9		%
85.00% and below	8.3		%	8.3		%	6.6		%

(1)The Persistency Rate on a quarterly, annualized basis is calculated based on loan-level detail for the quarter ending as of the date shown. It may be impacted by seasonality or other factors, including the level of refinance activity during the applicable periods and may not be indicative of full-year trends.

(2)Borrower-paid Single Premium Policies were 8.5%, 9.4% and 9.1% of primary RIF for the periods indicated, respectively.

(3)For loans with multiple borrowers, the percentage of primary RIF by FICO score represents the lowest of the borrowers’ FICO scores.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table shows our direct Primary Mortgage Insurance RIF by year of origination and selected information related to that risk as of December 31, 2021 and 2020.


Year of origination - RIF

	December 31,
	2021							2020
($ in millions)	RIF		Number of Defaults	Delinquency Rate		Percentage of Reserve for Losses		RIF		Number of Defaults	Delinquency Rate		Percentage of Reserve for Losses
2008 and prior	$	2,865	7,385	9.3	%	24.5	%	$	3,733	12,046	12.1	%	26.2	%
2009-2015	3,904		3,719	4.4		13.7		6,840		7,948	5.7		14.3
2016	2,684		2,255	4.3		8.5		4,616		5,243	6.2		9.6
2017	2,998		3,399	5.7		12.2		5,495		7,652	7.5		13.1
2018	3,158		4,342	6.8		16.4		5,973		9,974	9.0		16.7
2019	5,892		4,078	3.7		15.0		10,832		9,741	5.3		15.5
2020	17,789		2,938	1.1		8.3		23,167		2,933	0.9		4.6
2021	21,623		945	0.3		1.4		—		—	—		—
Total	$	60,913	29,061			100.0	%	$	60,656	55,537			100.0	%

Geographic Dispersion

The following table shows, as of December 31, 2021 and 2020, the percentage of our direct Primary Mortgage Insurance RIF and the associated percentage of our mortgage insurance reserve for losses (by location of property) for the top 10 states in the U.S. (as measured by our direct Primary Mortgage Insurance RIF as of December 31, 2021).


Top 10 U.S. states - RIF

	December 31,
	2021				2020
Top 10 States	RIF		Reserve for Losses		RIF		Reserve for Losses
California	9.3	%	11.0	%	9.9	%	11.2	%
Texas	8.5		9.7		8.7		10.0
Florida	6.9		10.8		7.5		11.4
Illinois	4.6		5.3		4.4		4.9
New York	4.4		7.7		3.8		7.0
Virginia	3.8		2.7		3.8		2.6
New Jersey	3.8		5.1		3.4		4.9
Pennsylvania	3.6		2.6		3.3		2.5
Washington	3.5		2.0		3.3		1.9
Maryland	3.3		3.9		3.4		3.4
Total	51.7	%	60.8	%	51.5	%	59.8	%

The following table shows, as of December 31, 2021 and 2020, the percentage of our direct Primary Mortgage Insurance RIF and the associated percentage of our mortgage insurance reserve for losses (by location of property) for the top 10 Core Based Statistical Areas, referred to as “CBSAs,” in the U.S. (as measured by our direct Primary Mortgage Insurance RIF as of December 31, 2021).


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Top 10 Core Based Statistical Areas - RIF

	December 31,
	2021				2020
Top 10 CBSAs (1)	RIF		Reserve for Losses		RIF		Reserve for Losses
New York-Newark-Jersey City, NY-NJ-PA	5.4	%	10.0	%	4.7	%	9.1	%
Chicago-Naperville-Elgin, IL-IN-WI	4.2		5.2		4.1		4.7
Washington-Arlington-Alexandria, DC-VA-MD-WV	4.0		4.1		4.0		3.7
Dallas-Fort Worth-Arlington, TX	2.9		3.4		3.2		3.5
Los Angeles-Long Beach-Anaheim, CA	2.6		3.3		2.6		3.4
Philadelphia-Camden-Wilmington, PA-NJ-DE-MD	2.6		2.3		2.5		2.1
Houston-The Woodlands-Sugar Land, TX	2.5		3.3		2.3		3.3
Minneapolis-St. Paul-Bloomington, MN-WI	2.3		1.3		2.1		1.2
Miami-Fort Lauderdale-Pompano Beach, FL	2.2		4.4		2.2		4.8
Atlanta-Sandy Springs-Alpharetta, GA	2.1		3.3		2.5		3.6
Total	30.8	%	40.6	%	30.2	%	39.4	%

(1)CBSAs are metropolitan areas and include a portion of adjoining states as noted above.

Risk Distribution

We use third-party reinsurance in our mortgage insurance business as part of our risk distribution strategy, including to manage our capital position and risk profile. When we enter into a reinsurance agreement, the reinsurer receives a premium and, in exchange, insures an agreed upon portion of incurred losses. While these arrangements have the impact of reducing our earned premiums, they also reduce our required capital and are expected to increase our return on required capital for the related policies.

The impact of these programs on our financial results will vary depending on the level of ceded RIF, as well as the levels of prepayments and incurred losses on the reinsured portfolios, among other factors. See “Key Factors Affecting Our Results—Mortgage—Risk Distribution” and Note 8 of Notes to Consolidated Financial Statements for more information about our reinsurance transactions.

The table below provides information about the amounts by which Radian Guaranty’s reinsurance programs reduced its Minimum Required Assets as of the dates indicated.


PMIERs benefit from risk distribution

	December 31,
($ in thousands)	2021			2020			2019
PMIERs impact - reduction in Minimum Required Assets (1)
Excess-of-Loss Program	$	995,171		$	912,734		$	738,386
Single Premium QSR Program	314,183			423,712			511,695
QSR Program	12,541			22,712			35,382
Total PMIERs impact	$	1,321,895		$	1,359,158		$	1,285,463
Percentage of gross Minimum Required Assets	28.4		%	28.8		%	27.4		%

(1)Excludes the impact of intercompany reinsurance agreement with Radian Reinsurance, which was terminated in January 2020.

Results of Operations—Consolidated

Radian Group serves as the holding company for our operating subsidiaries and does not have any operations of its own. Our consolidated operating results for 2021 primarily reflect the financial results and performance of our two business segments—Mortgage and homegenius. See “Results of Operations—Mortgage,” and “Results of Operations—homegenius” for the operating results of these business segments.

In addition to the results of our operating segments, pretax income (loss) is also affected by other factors. See “Key Factors Affecting Our Results—Other Factors Affecting Consolidated Results” and “—Use of Non-GAAP Financial Measures” below for more information regarding items that are excluded from the operating results of our operating segments.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table highlights selected information related to our consolidated results of operations for the years ended December 31, 2021, 2020 and 2019.


Summary results of operations - Consolidated

										$ Change
	Years Ended December 31,									Favorable (Unfavorable)
($ in millions, except per-share amounts)	2021			2020			2019			2021 vs. 2020			2020 vs. 2019
Pretax income	$	764.8		$	479.4		$	849.0		$	285.4		$	(369.6)
Net income	600.7			393.6			672.3			207.1			(278.7)

Diluted net income per share	3.16			2.00			3.20			1.16			(1.20)
Book value per share at December 31	24.28			22.36			20.13			1.92			2.23
Net premiums earned (1)	1,037.2			1,115.3			1,145.3			(78.1)			(30.0)
Services revenue (2)	125.8			105.4			154.6			20.4			(49.2)
Net investment income (1)	147.9			154.0			171.8			(6.1)			(17.8)
Net gains on investments and other financial instruments	15.6			60.3			51.7			(44.7)			8.6



Provision for losses (1)	20.9			485.1			132.0			464.2			(353.1)

Cost of services (2)	103.7			86.1			108.3			(17.6)			22.2
Other operating expenses (3)	323.7			280.7			306.1			(43.0)			25.4

Interest expense (1)	84.3			71.2			56.3			(13.1)			(14.9)


Loss on extinguishment of debt	—			—			22.7			—			22.7
Impairment of goodwill	—			—			4.8			—			4.8
Amortization and impairment of other acquired intangible assets	3.5			5.1			22.3			1.6			17.2
Income tax provision	164.2			85.8			176.7			(78.4)			90.9
Adjusted pretax operating income (4)	757.7			432.1			854.6			325.6			(422.5)
Adjusted diluted net operating income per share (4)	3.15			1.74			3.21			1.41			(1.47)
Return on equity	14.1		%	9.4		%	17.8		%	4.7		%	(8.4)		%
Adjusted net operating return on equity (4)	14.0		%	8.2		%	17.9		%	5.8		%	(9.7)		%

(1)Relates primarily to the Mortgage segment. See “Results of Operations—Mortgage” for more information.

(2)Relates primarily to our homegenius segment. See “Results of Operations—homegenius” and “Results of Operations—All Other” for more information.

(3)See “Results of Operations—Mortgage,” “Results of Operations—homegenius” and “Results of Operations—All Other” for more information on both direct and allocated operating expenses.

(4)See “—Use of Non-GAAP Financial Measures” below.

This section of our Annual Report on Form 10-K generally discusses our consolidated results of operations for the years ended December 31, 2021 and 2020 and a year-over-year comparison between 2021 and 2020. Detailed discussions of our consolidated results of operations for the year ended December 31, 2019, including the year-over-year comparisons between 2020 and 2019, that are not included in this Annual Report on Form 10-K can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 26, 2021.

Net Income. As discussed in more detail below, our net income increased for 2021 compared to 2020, primarily reflecting a decrease in provision for losses related to our Mortgage segment. Partially offsetting this item was: (i) an increase in our income tax provision; (ii) a decrease in our Mortgage segment net premiums earned; (iii) a decrease in net gains on investments and other financial instruments; and (iv) an increase in other operating expenses.

Diluted Net Income Per Share. The increase in diluted net income per share for 2021 compared to 2020 is primarily due to the change in net income, as discussed above.

Adjusted Diluted Net Operating Income Per Share. The increase in adjusted diluted net operating income per share for 2021 compared to 2020 is primarily due to the increase in our Mortgage segment’s adjusted pretax operating income, which increased to $781.5 million in 2021, from $453.3 million in 2020. See “Results of Operations—Mortgage—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020—Adjusted Pretax Operating Income” for more information on our Mortgage segment’s results.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Book Value Per Share. The increase in book value per share from $22.36 at December 31, 2020 to $24.28 at December 31, 2021, is primarily due to our net income for the year ended December 31, 2021. Partially offsetting this item is: (i) a decrease of $0.75 per share due to unrealized losses in our available for sale securities, recorded in accumulated other comprehensive income and (ii) a decrease of $0.54 per share from the impact of dividends and dividend equivalents.

Return on Equity. The changes in return on equity across all periods presented are primarily due to the changes in net income and, to a lesser extent, changes in stockholders’ equity. See “—Net Income” above for more information on the changes in net income.

Adjusted Net Operating Return on Equity. The changes in adjusted net operating return on equity across all periods presented are primarily due to the changes in our adjusted pretax operating income.

Net Gains on Investments and Other Financial Instruments. Net gains on investments and other financial instruments for 2021 decreased as compared to 2020 primarily due to: (i) a decrease in net realized gains on our fixed-maturities available for sale; (ii) a decrease in net unrealized gains on our trading securities; (iii) a decrease in gains on other financial instruments; and (iv) a decrease in the fair value of our embedded derivatives. These decreases were partially offset by: (i) an increase in net realized gains on equity securities and (ii) a decrease in impairments recorded in earnings. The primary driver of the decreased gains on our fixed-income securities in 2021 was the impact of the rising interest rate environment experienced during the year, as compared to the positive effects of a declining interest rate environment in 2020. See Note 6 of Notes to Consolidated Financial Statements for additional information about our net gains on investments.

Income Tax Provision. Variations in our effective tax rates, combined with differences in pretax income, were the drivers of the changes in our income tax provision between periods. Our 2021 effective tax rate was 21.5%, which approximated the federal statutory rate of 21%, as compared to 17.9% for 2020. Our effective tax rate in 2020 was lower than the federal statutory tax rate of 21% primarily due to decreases in our liability for uncertain tax positions.

Use of Non-GAAP Financial Measures. In addition to the traditional GAAP financial measures, we have presented “adjusted pretax operating income (loss),” “adjusted diluted net operating income (loss) per share” and “adjusted net operating return on equity,” which are non-GAAP financial measures for the consolidated company, among our key performance indicators to evaluate our fundamental financial performance. These non-GAAP financial measures align with the way our business performance is evaluated by both management and by our board of directors. These measures have been established in order to increase transparency for the purposes of evaluating our operating trends and enabling more meaningful comparisons with our peers. Although on a consolidated basis “adjusted pretax operating income (loss),” “adjusted diluted net operating income (loss) per share” and “adjusted net operating return on equity” are non-GAAP financial measures, for the reasons discussed above we believe these measures aid in understanding the underlying performance of our operations.

Total adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and adjusted net operating return on equity are not measures of overall profitability, and therefore should not be considered in isolation or viewed as substitutes for GAAP pretax income (loss), diluted net income (loss) per share or return on equity. Our definitions of adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and adjusted net operating return on equity, as discussed and reconciled below to the most comparable respective GAAP measures, may not be comparable to similarly-named measures reported by other companies.

Our senior management, including our Chief Executive Officer (Radian’s chief operating decision maker), uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of the Company’s business segments and to allocate resources to the segments.

Adjusted pretax operating income (loss) is defined as GAAP consolidated pretax income (loss) excluding the effects of: (i) net gains (losses) on investments and other financial instruments, except for certain investments attributable to our reportable segments; (ii) loss on extinguishment of debt; (iii) amortization and impairment of goodwill and other acquired intangible assets; and (iv) impairment of other long-lived assets and other non-operating items, such as impairment of internal-use software, gains (losses) from the sale of lines of business and acquisition-related income and expenses.

Although adjusted pretax operating income (loss) excludes certain items that have occurred in the past and are expected to occur in the future, the excluded items represent those that are: (i) not viewed as part of the operating performance of our primary activities or (ii) not expected to result in an economic impact equal to the amount reflected in pretax income (loss). These adjustments, along with the reasons for their treatment, are described in Note 4 of Notes to Consolidated Financial Statements.

The following table provides a reconciliation of consolidated pretax income to our non-GAAP financial measure for the consolidated Company of adjusted pretax operating income.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Reconciliation of consolidated pretax income to adjusted pretax operating income
	Years Ended December 31,
(In thousands)	2021		2020		2019
Consolidated pretax income	$	764,832	$	479,441	$	848,993
Less income (expense) items:
Net gains on investments and other financial instruments	14,094		60,277		51,719
Loss on extinguishment of debt	—		—		(22,738)

Impairment of goodwill	—		—		(4,828)
Amortization and impairment of other acquired intangible assets	(3,450)		(5,144)		(22,288)
Impairment of other long-lived assets and other non-operating items	(3,561)		(7,759)		(7,507)
Total adjusted pretax operating income (1)	$	757,749	$	432,067	$	854,635

(1)Total adjusted pretax operating income on a consolidated basis consists of adjusted pretax operating income (loss) for our Mortgage segment, homegenius segment and All Other activities, as further detailed in Note 4 of Notes to Consolidated Financial Statements.

Adjusted diluted net operating income (loss) per share is calculated by dividing (i) adjusted pretax operating income (loss) attributable to common stockholders, net of taxes computed using the Company’s statutory tax rate, by (ii) the sum of the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. The following table provides a reconciliation of diluted net income (loss) per share to our non-GAAP financial measure for the consolidated Company of adjusted diluted net operating income (loss) per share.


Reconciliation of diluted net income per share to adjusted diluted net operating income per share

	Years Ended December 31,
	2021		2020		2019
Diluted net income per share	$	3.16	$	2.00	$	3.20
Less per-share impact of reconciling income (expense) items:
Net gains on investments and other financial instruments	0.08		0.31		0.25
Loss on extinguishment of debt	—		—		(0.11)
Impairment of goodwill	—		—		(0.02)
Amortization and impairment of other acquired intangible assets	(0.02)		(0.03)		(0.11)
Impairment of other long-lived assets and other non-operating items	(0.02)		(0.04)		(0.04)
Income tax (provision) benefit on other income (expense) items (1)	(0.01)		(0.05)		0.01
Difference between statutory and effective tax rate	(0.02)		0.07		0.01
Per-share impact of other income (expense) items	0.01		0.26		(0.01)
Adjusted diluted net operating income per share (1)	$	3.15	$	1.74	$	3.21

(1)Calculated using the Company’s federal statutory tax rate of 21%. Any permanent tax adjustments and state income taxes on these items have been deemed immaterial and are not included.

Adjusted net operating return on equity is calculated by dividing annualized adjusted pretax operating income (loss), net of taxes computed using the Company’s statutory tax rate, by average stockholders’ equity, based on the average of the beginning and ending balances for each period presented. The following table provides a reconciliation of return on equity to our non-GAAP financial measure for the consolidated Company of adjusted net operating return on equity.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations



Reconciliation of return on equity to adjusted net operating return on equity

	Years Ended December 31,
	2021		2020		2019
Return on equity (1)	14.1	%	9.4	%	17.8	%
Less impact of reconciling income (expense) items: (2)
Net gains on investments and other financial instruments	0.4		1.4		1.4
Loss on extinguishment of debt	—		—		(0.6)
Impairment of goodwill	—		—		(0.1)
Amortization and impairment of other acquired intangible assets	(0.1)		(0.1)		(0.6)
Impairment of other long-lived assets and other non-operating items	(0.1)		(0.2)		(0.2)
Income tax (provision) benefit on reconciling income (expense) items (3)	—		(0.2)		—
Difference between statutory and effective tax rate (3)	(0.1)		0.3		—
Impact of reconciling income (expense) items	0.1		1.2		(0.1)
Adjusted net operating return on equity	14.0	%	8.2	%	17.9	%

(1)Calculated by dividing net income by average stockholders’ equity.

(2)As a percentage of average stockholders’ equity.

(3)Calculated using the Company’s federal statutory tax rates of 21%. Any permanent tax adjustments and state income taxes on these items have been deemed immaterial and are not included.

Results of Operations—Mortgage

The following table summarizes our Mortgage segment’s results of operations for the years ended December 31, 2021, 2020 and 2019.


Summary results of operations - Mortgage

							$ Change
	Years Ended December 31,						Favorable (Unfavorable)
(In millions)	2021		2020		2019		2021 vs. 2020		2020 vs. 2019
Adjusted pretax operating income (1)	$	781.5	$	453.3	$	852.9	$	328.2	$	(399.6)
Net premiums written	944.5		1,011.0		1,075.5		(66.5)		(64.5)
Decrease in unearned premiums	53.7		81.8		58.8		(28.1)		23.0
Net premiums earned	998.3		1,092.8		1,134.2		(94.5)		(41.4)
Services revenue	17.7		14.8		8.1		2.9		6.7
Net investment income	132.9		137.2		151.5		(4.3)		(14.3)

Provision for losses	19.4		483.3		131.5		463.9		(351.8)
Policy acquisition costs	29.0		31.0		25.3		2.0		(5.7)
Cost of services	13.9		10.0		5.0		(3.9)		(5.0)
Other operating expenses	223.3		198.7		225.7		(24.6)		27.0
Interest expense	84.3		71.2		56.3		(13.1)		(14.9)

(1)Our senior management uses adjusted pretax operating income as our primary measure to evaluate the fundamental financial performance of our business segments. See Note 4 of Notes to Consolidated Financial Statements for more information.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Adjusted Pretax Operating Income. The increase in our Mortgage segment’s adjusted pretax operating income for 2021, compared to 2020, primarily reflects a decrease in provision for losses. Partially offsetting this item is: (i) a decrease in net premiums earned; (ii) an increase in other operating expenses and (iii) an increase in interest expense.

Net Premiums Written and Earned. Net premiums written for 2021 decreased compared to 2020. This decrease primarily reflects lower direct premium rates on our IIF portfolio compared to 2020, as well as a lower proportion of Single Premium Policies, partially offset by improvement in accrued profit commissions in 2021. For 2020, higher recorded ceded


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

losses resulted in elevated ceded premiums due to a reduction in accrued profit commissions, which lowered net premiums written in that period.

Net premiums earned decreased for 2021 compared to 2020, primarily due to: (i) a decrease in premiums earned on our in-force Single Premium Policies and Monthly Premium Policies and (ii) a decrease in the impact, net of reinsurance, from Single Premium Policy cancellations, due to decreased refinance activity as compared to 2020. These decreases were partially offset by a decrease in ceded premiums, which were elevated in 2020 due to reduced profit commissions as a result of higher ceded losses in 2020.

The table below provides additional information about the components of mortgage insurance net premiums earned for the periods indicated, including the effects of our reinsurance programs.


Net premiums earned

	Years Ended December 31,
($ in thousands, except as otherwise indicated)	2021		2020		2019
Direct
Premiums earned, excluding revenue from cancellations	$	988,472	$	1,070,335	$	1,154,045	(1)
Single Premium Policy cancellations	116,224		193,349		79,483
Direct	1,104,696		1,263,684		1,233,528		(1)
Assumed (2)	7,066		12,214		10,382
Ceded
Premiums earned, excluding revenue from cancellations	(108,692)		(107,451)		(134,946)		(1)
Single Premium Policy cancellations (3)	(33,388)		(55,483)		(23,766)
Profit commission—other (4)	28,600		(20,197)		49,016		(1)
Ceded premiums, net of profit commission	(113,480)		(183,131)		(109,696)		(1)
Total net premiums earned	$	998,282	$	1,092,767	$	1,134,214	(1)

In force portfolio premium yield (in basis points) (5)	40.5		44.5		50.4		(1)
Direct premium yield (in basis points) (6)	45.2		52.4		53.8		(1)
Net premium yield (in basis points) (7)	40.6		44.9		49.1		(1)
Average primary IIF (in billions)	$	246.1	$	243.4	$	231.0

(1)Includes a cumulative adjustment to unearned premiums recorded in the second quarter of 2019 related to an update to the amortization rates used to recognize revenue for Single Premium Policies. This adjustment increased the 2019 direct premium yield and net premium yield by 1.9 and 1.4 basis points, respectively. See Note 2 of Notes to Consolidated Financial Statements for further information.

(2)Primarily includes premiums from our participation in certain credit risk transfer programs.

(3)Includes the impact of related profit commissions.

(4)Represents the profit commission on the Single Premium QSR Program, excluding the impact of Single Premium Policy cancellations.

(5)Calculated by dividing direct premiums earned, including assumed revenue and excluding revenue from cancellations, by average primary IIF.

(6)Calculated by dividing direct premiums earned, including assumed revenue, by average primary IIF.

(7)Calculated by dividing net premiums earned by average primary IIF. The calculation for all periods presented incorporates the impact of profit commission adjustments related to our Single Premium QSR Program. For the year ended December 31, 2020, these profit commission adjustments were significantly impacted by the increased ceded losses in 2020. See Note 8 of Notes to Consolidated Financial Statements for further information.

Over the past several years, we have experienced a decline in our in force portfolio premium yield due to a number of factors, including the pricing and credit mix of recent NIW compared to the policies that have cancelled. Based on the characteristics of more recent vintages in our portfolio coupled with expectations for higher interest rates that we believe will increase Persistency Rates, we currently expect a decline in our in force portfolio premium yield in 2022 of approximately two basis points, which is a slower rate of decline than we have experienced in recent years. Assuming current pricing levels and our current expectations for future NIW, Persistency Rates and other assumptions, which could change over time, we expect the rate of any future declines in the in force portfolio premium yield after 2022 to further diminish. Due to the impacts of Single Premium Policy cancellations and reinsurance, among other things, the net premium yield may continue to fluctuate from period to period.

The level of mortgage prepayments affects the revenue ultimately produced by our mortgage insurance business and is influenced by the mix of business we write. We believe that writing a mix of Single Premium Policies and Monthly Premium Policies has the potential to moderate the overall impact on our results if actual prepayments are significantly different from expectations. However, the impact of this moderating effect is affected by the amount of reinsurance we obtain on portions of


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

our portfolio, with the Single Premium QSR Program currently reducing the proportion of retained Single Premium Policies in our portfolio. See “Key Factors Affecting Our Results—Mortgage—IIF and Related Drivers” for more information.

The following table provides information related to the impact of our reinsurance transactions on premiums earned. See Note 8 of Notes to Consolidated Financial Statements for more information about our reinsurance programs.


Ceded premiums earned

	Years Ended December 31,
($ in thousands)	2021			2020			2019
Excess-of-Loss Program	$	62,153		$	37,053		$	25,483
Single Premium QSR Program	47,226			137,198			69,632
QSR Program	3,675			8,418			13,979
Other	426			462			602
Total ceded premiums earned (1)	$	113,480		$	183,131		$	109,696



Percentage of total direct and assumed premiums earned	9.9		%	14.2		%	8.8		%

(1)Does not include the benefit from ceding commissions on our Single Premium QSR Programs, which are included in other operating expenses on the consolidated statements of operations. See Note 8 of Notes to Consolidated Financial Statements for additional information.

Net Investment Income. Lower investment yields, partially offset by higher average investment balances, resulted in decreases in net investment income for 2021 compared to 2020. Our higher investment balances were a result of investing our positive cash flows from operations.

Provision for Losses. The following table details the financial impact of the significant components of our provision for losses for the periods indicated.


Provision for losses

	Years Ended December 31,
($ in millions, except reserve per new default)	2021			2020			2019
Current year defaults (1)	$	160.5		$	517.8		$	146.7
Prior year defaults (2)	(141.1)			(34.5)			(14.7)
Second-lien mortgage loan PDR and other	—			—			(0.5)
Provision for losses	$	19.4		$	483.3		$	131.5
Loss ratio (3)	1.9		%	44.2		%	11.6		%
Reserve per new default (4)	$	4,283		$	4,793		$	3,579

(1)Related to defaulted loans with a most recent default notice dated in the year indicated. For example, if a loan had defaulted in a prior year, but then subsequently cured and later re-defaulted in the current year, that default would be considered a current year default.

(2)Related to defaulted loans with a default notice dated in a year earlier than the year indicated, which have been continuously in default since that time.

(3)Provision for losses as a percentage of net premiums earned. See below and “—Net Premiums Written and Earned” for further discussion of the components of this ratio.

(4)Calculated by dividing provision for losses for new defaults, net of reinsurance, by new primary defaults for each period.

Our mortgage insurance provision for losses for 2021 decreased by $463.9 million as compared to 2020. Reserves established for new default notices were the primary driver of our total incurred losses for 2021 and 2020. Current year new primary defaults decreased significantly for 2021, compared to 2020, as shown below. The decreases primarily relate to a decrease in the number of new default notices related to the effects of the COVID-19 pandemic, as compared to last year. Our gross Default to Claim Rate assumption for new primary defaults was 8.0% at December 31, 2021, compared to 8.5% as of December 31, 2020.

Our provision for losses during 2021, most notably in the fourth quarter, benefited from favorable reserve development on prior period defaults, primarily as a result of more favorable trends in Cures than originally estimated, due to favorable outcomes resulting from forbearance programs implemented in response to the COVID-19 pandemic as well as positive trends in home price appreciation. Among other assumption changes, these favorable observed trends resulted in reductions in our Default to Claim Rate assumptions for prior year default notices, particularly for those defaults first reported in 2020 following the start of the COVID-19 pandemic. See Notes 1 and 11 of Notes to Consolidated Financial Statements and “Item 1A. Risk Factors” for additional information.

To a lesser extent, our provision for losses during 2020 also benefited from favorable reserve development on prior period defaults, primarily due to favorable cure activity.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our primary default rate at December 31, 2021 was 2.9% compared to 5.2% at December 31, 2020. The following table shows a rollforward of the number of our primary loans in default.


Rollforward of primary loans in default

	Years Ended December 31,
	2021	2020	2019
Beginning default inventory	55,537	21,266	21,093
New defaults	37,470	108,025	40,985
Cures	(62,970)	(72,404)	(38,005)
Claims paid (1)	(937)	(1,330)	(2,747)
Rescissions and Claim Denials, net of (Reinstatements) (2)	(39)	(20)	(60)

Ending default inventory	29,061	55,537	21,266

(1)Includes those charged to a deductible under Pool Mortgage Insurance arrangements as well as commutations. Excludes the impact of claims settled related to certain previously disclosed legal proceedings.

(2)Net of any previous Rescission and Claim Denials that were reinstated during the period. Such reinstated Rescissions and Claim Denials may ultimately result in a paid claim.

We develop our Default to Claim Rate estimates on defaulted loans based on models that use a variety of loan characteristics to determine the likelihood that a default will reach claim status. Our gross Default to Claim Rate estimates on defaulted loans are mainly developed based on the Stage of Default and Time in Default of the underlying defaulted loans, as measured by the progress toward foreclosure sale and the number of months in default. See Note 11 of Notes to Consolidated Financial Statements for the table detailing our Default to Claim Rate assumptions.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following tables show additional information about our primary loans in default as of the dates indicated.


Primary loans in default - additional information

	December 31, 2021
	Total			Foreclosure Stage Defaulted Loans	Cure % During the 4th Quarter		Reserve for Losses		% of Reserve
($ in thousands)	#	%		#	%		$		%
Missed payments
Three payments or less	7,267	25.0	%	47	39.4	%	$	62,103	7.9	%
Four to eleven payments	8,088	27.8		84	27.6		146,872		18.6
Twelve payments or more	13,389	46.1		784	29.0		565,192		71.5
Pending claims	317	1.1		N/A	10.4		16,213		2.0
Total	29,061	100.0	%	915			790,380		100.0	%
IBNR and other							2,886
LAE							19,859
Total primary reserves							$	813,125


	December 31, 2020
	Total			Foreclosure Stage Defaulted Loans	Cure % During the 4th Quarter		Reserve for Losses		% of Reserve
($ in thousands)	#	%		#	%		$		%
Missed payments
Three payments or less	12,504	22.5	%	64	36.5	%	$	99,491	12.4	%
Four to eleven payments	37,691	67.9		190	26.3		512,248		64.1
Twelve payments or more	5,067	9.1		861	5.4		172,161		21.5
Pending claims	275	0.5		N/A	8.2		15,614		2.0
Total	55,537	100.0	%	1,115			799,514		100.0	%
IBNR and other							9,966
LAE							20,172
Total primary reserves							$	829,652

N/A – Not applicable

Our aggregate weighted-average net Default to Claim Rate assumption for our primary loans used in estimating our reserve for losses, which is net of estimated Claim Denials and Rescissions, was approximately 46% and 24%, at December 31, 2021 and 2020, respectively. This increase was primarily due to a shift in the mix of defaults as of December 31, 2021, given the larger proportion of loans with more missed payments.

Our net Default to Claim Rate and loss reserve estimate incorporate our expectations with respect to future Rescissions, Claim Denials and Claim Curtailments. Our estimate of such net future Loss Mitigation Activities, inclusive of claim withdrawals, reduced our loss reserve as of December 31, 2021 and 2020 by $27.3 million and $29.1 million, respectively. These expectations are based primarily on recent claim withdrawal activity and our recent experience with respect to the number of claims that have been denied due to the policyholder’s failure to submit sufficient documentation to perfect a claim within the time period permitted under our Master Policies, as well as our recent experience with respect to the number of insurance certificates that have been rescinded due to fraud, underwriter negligence or other factors.

Our reported Rescission, Claim Denial and Claim Curtailments activity in any given period is subject to challenge by our lender and servicer customers through our claims rebuttal process. In addition, we are at times engaged in discussions with our lender and servicer customers regarding our Loss Mitigation Activities. Unless a liability associated with such activities or discussions becomes probable and can be reasonably estimated, we consider our claim payments and our Rescissions, Claim Denials and Claim Curtailments to be resolved for financial reporting purposes. In accordance with the accounting standard regarding contingencies, we accrue for an estimated loss when we determine that the loss is probable and can be reasonably estimated.

We expect that a portion of previously rescinded policies will be reinstated and previously denied claims will be resubmitted with the required documentation and ultimately paid; therefore, we have incorporated this expectation into our


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

IBNR reserve estimate. Our IBNR reserve estimate was $2.9 million and $10.0 million at December 31, 2021 and 2020, respectively. See Note 11 of Notes to Consolidated Financial Statements for additional information.

Factors that impact the severity of a claim include, but are not limited to: (i) the size of the loan; (ii) the amount of mortgage insurance coverage placed on the loan; (iii) the amount of time between default and claim during which we are expected to cover interest (capped at two years under our Prior Master Policy and capped at three years under our 2014 Master Policy and 2020 Master Policy) and certain expenses; and (iv) the impact of certain loss management activities with respect to the loan. The average Claim Severity experienced for loans covered by our primary insurance was 83.2% for 2021, compared to 101.4% in 2020. Given the low volume of claims paid in 2021 due to the ongoing effects of foreclosure moratoriums, our average Claim Severity for claims paid in 2021 may not be indicative of future results.

Our mortgage insurance total loss reserve as a percentage of our mortgage insurance total RIF was 1.4% at both December 31, 2021 and 2020, respectively. See Note 11 of Notes to Consolidated Financial Statements for information regarding our reserves for losses and a reconciliation of our Mortgage segment’s beginning and ending reserves for losses and LAE.

Total mortgage insurance claims paid in 2021 of $35.3 million have decreased from claims paid of $97.6 million in 2020. The decrease in claims paid is primarily attributable to COVID-19-related forbearance plans and moratoriums suspending foreclosures and evictions. Claims paid in both periods also include the impact of commutations and settlements, including for payments made in 2021 and 2020 to settle certain previously disclosed legal proceedings. Although expected claims are included in our reserve for losses, the timing of claims paid is subject to fluctuation from quarter to quarter, based on the rate that defaults cure and other factors, including the impact of foreclosure moratoriums (as further described in “Item 1. Business—Mortgage—Defaults and Claims”), that make the timing of paid claims difficult to predict.

The following table shows net claims paid by product and the average claim paid by product for the periods indicated.


Claims paid

	Years Ended December 31,
(In thousands)	2021		2020		2019
Net claims paid (1)



Total primary claims paid	$	21,111	$	66,186	$	118,548
Total pool and other	(258)		(432)		3,162


Subtotal	20,853		65,754		121,710
Impact of commutations and settlements (2)	14,464		31,847		10,517
Total net claims paid	$	35,317	$	97,601	$	132,227





Total average net primary claim paid (1) (3)	$	44.8	$	46.7	$	49.0
Average direct primary claim paid (3) (4)	$	46.3	$	49.4	$	50.0

(1)Net of reinsurance recoveries.

(2)Includes payments to commute mortgage insurance coverage on certain performing and non-performing loans. For the year ended December 31, 2020, primarily includes payments made to settle certain previously disclosed legal proceedings.

(3)Calculated without giving effect to the impact of commutations and settlements.

(4)Before reinsurance recoveries.

Other Operating Expenses. The increase in other operating expenses for 2021, as compared to 2020, is primarily due to: (i) an increase in variable and share-based compensation expense in 2021, including as part of allocated corporate operating expenses and (ii) a decrease in ceding commissions.

Our expense ratio on a net premiums earned basis represents our Mortgage segment’s operating expenses (which include policy acquisition costs and other operating expenses, as well as allocated corporate operating expenses), expressed as a percentage of net premiums earned. Our expense ratio on this basis was 25.3% for 2021, compared to 21.0% for 2020. The increase in the expense ratio for 2021 as compared to 2020 was driven by: (i) an increase in total other operating expenses and (ii) a decrease in net premiums earned during 2021, both as compared to 2020.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following tables show additional information about Mortgage other operating expenses.


Other operating expenses

	Years Ended December 31,
(In millions)	2021		2020		2019
Direct
Salaries and other base employee expenses	$	52.5	$	57.6	$	60.3
Variable and share-based incentive compensation	17.2		13.7		21.5
Other general operating expenses	50.8		53.7		74.0
Ceding commissions	(24.7)		(41.1)		(34.2)
Total direct	95.8		83.9		121.6

Allocated (1)
Salaries and other base employee expenses	$	42.5	$	37.5	$	31.0
Variable and share-based incentive compensation	33.9		23.7		26.5
Other general operating expenses	51.1		53.6		46.6
Total allocated	127.5		114.8		104.1
Total Mortgage	$	223.3	$	198.7	$	225.7

(1)See Note 4 of Notes to Consolidated Financial Statements for more information about our allocation of corporate operating expenses.

Interest Expense. The increase in interest expense for 2021, as compared to 2020, primarily reflects an increase in our average senior notes outstanding for the full year in 2021 compared to 2020. See Note 12 of Notes to Consolidated Financial Statements for additional information on our senior notes.

Results of Operations—homegenius

The following table summarizes our homegenius segment’s results of operations for the years ended December 31, 2021, 2020 and 2019.


Summary results of operations - homegenius

							$ Change
	Years Ended December 31,						Favorable (Unfavorable)
(In millions)	2021		2020		2019		2021 vs. 2020		2020 vs. 2019
Adjusted pretax operating income (loss) (1)	$	(27.3)	$	(23.2)	$	(18.0)	$	(4.1)	$	(5.2)
Net premiums earned	38.9		22.6		12.0		16.3		10.6
Services revenue	108.3		79.5		76.9		28.8		2.6
Cost of services	89.7		61.5		56.6		(28.2)		(4.9)


Other operating expenses	85.1		62.3		50.2		(22.8)		(12.1)

(1)Our senior management uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of our business segments. See Note 4 of Notes to Consolidated Financial Statements.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Adjusted Pretax Operating Loss. As described in more detail below, the increase in our homegenius segment’s adjusted pretax operating loss for 2021, compared to 2020, primarily reflects increases in: (i) cost of services and (ii) other operating expenses. Partially offsetting these items were increases in: (i) services revenue and (ii) net premiums earned.

Net Premiums Earned. Net premiums earned for 2021 increased compared to 2020. This increase reflects an increase in new title policies written and closed orders in our title insurance business.

Services Revenue. Services revenue for 2021 increased compared to 2020, primarily due to the increase in closed orders in our title services business. In addition, we increased revenue in our real estate services, including increases from valuation and single family rental products and services, as compared to 2020.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cost of Services. Cost of services for 2021 increased compared to 2020, primarily due to the increase in services revenue and a corresponding increase in staffing levels to help build capacity to accommodate the growing demand for our homegenius products and services. Our cost of services is primarily affected by our level of services revenue and the number of employees providing those services.

Other Operating Expenses. The increase in other operating expenses for 2021, as compared to 2020, primarily reflects: (i) an increase in variable and share-based incentive compensation expense in 2021, including as part of allocated corporate operating expenses; (ii) continued strategic investments focused on our title and digital real estate businesses, including an increase in staffing levels; and (iii) an increase in title agent commissions.

The following tables show additional information about homegenius other operating expenses.


Other operating expenses

	Years Ended December 31,
(In millions)	2021		2020		2019
Direct
Salaries and other base employee expenses	$	24.0	$	21.1	$	14.9
Variable and share-based incentive compensation	14.6		7.2		6.6
Other general operating expenses	21.3		16.0		14.4
Title agent commissions	6.7		5.2		4.1
Total direct	66.6		49.5		40.0

Allocated (1)
Salaries and other base employee expenses	$	6.3	$	3.8	$	1.5
Variable and share-based incentive compensation	4.9		3.1		4.1
Other general operating expenses	7.3		5.9		4.6
Total allocated	18.5		12.8		10.2
Total homegenius	$	85.1	$	62.3	$	50.2

(1)See Note 4 of Notes to Consolidated Financial Statements for more information about our allocation of corporate operating expenses.

Results of Operations—All Other

The following table summarizes our All Other results of operations for the years ended December 31, 2021, 2020 and 2019.


Summary results of operations - All Other

							$ Change
	Years Ended December 31,						Favorable (Unfavorable)
(In millions)	2021		2020		2019		2021 vs. 2020		2020 vs. 2019
Adjusted pretax operating income (1)	$	3.5	$	2.0	$	19.8	$	1.5	$	(17.8)
Services revenue	0.2		12.5		71.0		(12.3)		(58.5)
Net investment income	14.6		16.5		19.6		(1.9)		(3.1)
Cost of services	0.1		15.6		47.6		15.5		32.0
Other operating expenses	11.9		11.9		23.0		—		11.1

(1)Our senior management uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of the Company’s business segments. See Note 4 of Notes to Consolidated Financial Statements.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Adjusted pretax operating income increased in 2021 as compared to 2020 primarily as a result of the net changes in services revenue and cost of services due to the sale of Clayton in 2020 as well as the wind down of the traditional appraisal business starting in the fourth quarter of 2020, among other adjustments that impacted services revenue. Partially offsetting these items was a decrease in net investment income, resulting from lower investment yields in 2021 compared to 2020.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

Consolidated Cash Flows

The following table summarizes our consolidated cash flows from operating, investing and financing activities.


Summary cash flows - Consolidated

	Years Ended December 31,
(In thousands)	2021		2020		2019
Net cash provided by (used in):
Operating activities	$	557,112	$	658,434	$	694,431
Investing activities	(1,862)		(883,180)		(302,049)
Financing activities	(496,776)		222,618		(403,106)
Effect of exchange rate changes on cash and restricted cash	—		—		(4)

Increase (decrease) in cash and restricted cash	$	58,474	$	(2,128)	$	(10,728)

Operating Activities. Our most significant source of operating cash flows is from premiums received from our mortgage insurance policies, while our most significant uses of operating cash flows are for our operating expenses and claims paid on our mortgage insurance policies. Net cash provided by operating activities totaled $557.1 million for 2021, compared to $658.4 million in 2020. This decrease was principally due to lower direct premiums written, partially offset by a reduction in claims paid. See Notes 8 and 11 of Notes to Consolidated Financial Statements for additional information on direct premiums written and claims paid, respectively.

Investing Activities. Net cash used in investing activities decreased in 2021, compared to 2020, primarily as a result of: (i) a decrease in purchases of fixed-maturity investments available for sale and (ii) an increase in sales and redemptions, net of purchases, of short-term investments.

Financing Activities. Net cash used in financing activities for 2021 was $496.8 million, as compared to net cash provided by financing activities for 2020 of $222.6 million. For 2021, our primary financing activities included: (i) repurchases of our common shares; (ii) payment of dividends; and (iii) net changes in secured borrowings. For 2020, cash provided by financing activities included the issuance of Senior Notes due 2025, partially offset by: (i) repurchases of our common shares and (ii) payments of dividends. See Notes 12 and 14 of Notes to Consolidated Financial Statements for additional information regarding our borrowings and share repurchases, respectively.

See “Item 8. Financial Statements and Supplementary Data—Consolidated Statements of Cash Flows” for additional information.

Investment Portfolio

At December 31, 2021 and December 31, 2020, the following tables include $104.0 million and $57.5 million, respectively, of securities loaned to third-party borrowers under securities lending agreements, which are classified as other assets in our consolidated balance sheets. See Note 6 of Notes to Consolidated Financial Statements for more information about our investment portfolio, including our securities lending agreements.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The composition of our investment portfolio, presented as a percentage of overall fair value at December 31, 2021 and December 31, 2020, was as follows.


Investment portfolio diversification

	December 31,
	2021				2020
($ in millions)	Fair Value		Percent		Fair Value		Percent
Corporate bonds and commercial paper	$	3,261.4	49.3	%	$	3,527.7	51.5	%
RMBS	714.5		10.8		846.9		12.4
CMBS	745.5		11.3		715.5		10.5
CLO	530.0		8.0		568.6		8.3
State and municipal obligations (1)	284.2		4.3		307.5		4.5
Money market instruments and certificates of deposit	275.6		4.2		270.0		3.9
Other ABS	211.2		3.2		252.7		3.7
U.S. government and agency securities	316.4		4.8		174.1		2.5
Equity securities	222.2		3.3		172.5		2.5
Mortgage insurance-linked notes (2)	47.0		0.7		—		—
Other investments	9.5		0.1		10.4		0.2
Total	$	6,617.5	100.0	%	$	6,845.9	100.0	%

(1)Primarily consists of taxable state and municipal investments.

(2)Comprises the notes purchased by Radian Group in connection with the Excess-of-Loss Program. See Note 8 for more information about our reinsurance programs.

The following table shows the scheduled maturities of the securities held in our investment portfolio at December 31, 2021 and December 31, 2020.


Investment portfolio scheduled maturity

	December 31,
	2021				2020
($ in millions)	Fair Value		Percent		Fair Value		Percent
Short-term investments	$	551.5	8.3	%	$	618.0	9.0	%
Due in one year or less (1)	254.3		3.8		132.5		1.9
Due after one year through five years (1)	1,176.9		17.8		1,165.0		17.0
Due after five years through 10 years (1)	1,246.6		18.8		1,357.5		19.8
Due after 10 years (1)	916.5		13.9		1,014.9		14.8
Asset-backed and mortgage-backed securities (2)	2,245.3		33.9		2,383.5		34.9
Equity securities (3)	222.2		3.4		172.5		2.5
Other investments (3)	4.2		0.1		2.0		0.1
Total	$	6,617.5	100.0	%	$	6,845.9	100.0	%

(1)Actual maturities may differ as a result of calls before scheduled maturity.

(2)Includes RMBS, CMBS, CLO, Other ABS and mortgage insurance-linked notes, which are not due at a single maturity date.

(3)No stated maturity date.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table provides the ratings of our investment portfolio, from a nationally recognized statistical ratings organization, presented as a percentage of overall fair value, as of December 31, 2021 and December 31, 2020.


Investment portfolio by rating

	December 31,
	2021				2020
($ in millions)	Fair Value		Percent		Fair Value		Percent
U.S. government / AAA	$	2,476.4	37.4	%	$	2,420.6	35.4	%
AA	1,016.0		15.3		1,095.5		16.0
A	1,940.2		29.3		2,128.6		31.1
BBB	894.6		13.5		999.7		14.6
BB and below	63.9		1.0		24.0		0.3
Equity securities	222.2		3.4		172.5		2.5
Other invested assets	4.2		0.1		5.0		0.1
Total	$	6,617.5	100.0	%	$	6,845.9	100.0	%

Liquidity Analysis—Holding Company

Radian Group serves as the holding company for our operating subsidiaries and does not have any operations of its own. At December 31, 2021, Radian Group had available, either directly or through unregulated subsidiaries, unrestricted cash and liquid investments of $604.9 million. Available liquidity at December 31, 2021 excludes certain additional cash and liquid investments that have been advanced to Radian Group from our subsidiaries to pay for corporate expenses and interest payments. In addition, available liquidity at December 31, 2021 does not take into consideration transactions subsequent to December 31, 2021, including a $500 million return of capital from Radian Guaranty to Radian Group paid in February 2022. Total liquidity, which includes our undrawn $275.0 million unsecured revolving credit facility, as described below, was $879.9 million as of December 31, 2021.

During 2021, Radian Group’s available liquidity decreased by $497.8 million, due primarily to payments for share repurchases and dividends, as described below.

In addition to available cash and marketable securities, Radian Group’s principal sources of cash to fund future liquidity needs include: (i) payments made to Radian Group by its subsidiaries under expense- and tax-sharing arrangements; (ii) net investment income earned on its cash and marketable securities; (iii) to the extent available, dividends or other distributions from its subsidiaries; and (iv) amounts, if any, that Radian Guaranty is able to repay under the Surplus Note due 2027.

In December 2021, Radian Group entered into a new $275.0 million unsecured revolving credit facility with a syndicate of bank lenders. The revolving credit facility has a five year term, provided that under certain conditions Radian Group is required to offer to terminate the facility earlier than the maturity date. This facility replaced Radian Group’s $267.5 million unsecured revolving credit facility with a syndicate of bank lenders, which had a maturity date of January 2022. Subject to certain limitations, borrowings under the credit facility may be used for working capital and general corporate purposes, including, without limitation, capital contributions to our insurance subsidiaries as well as growth initiatives. At December 31, 2021, the full $275.0 million remains undrawn and available under the facility. See Note 12 of Notes to Consolidated Financial Statements for additional information on the unsecured revolving credit facility.

We expect Radian Group’s principal liquidity demands for the next 12 months to be: (i) the payment of corporate expenses, including taxes; (ii) interest payments on our outstanding debt obligations; (iii) subject to approval by our board of directors and our ongoing assessment of our financial condition and potential needs related to the execution and implementation of our business plans and strategies, the payment of quarterly dividends on our common stock, which we increased in May 2021 from $0.125 to $0.14 per share and in February 2022 to $0.20 per share; and (iv) the potential continued repurchases of shares of our common stock pursuant to share repurchase authorizations, as described below.

In addition to our ongoing short-term liquidity needs discussed above, our most significant need for liquidity beyond the next 12 months is the repayment of $1.4 billion aggregate principal amount of our senior debt due in future years. See “—Capitalization—Holding Company” below for details of our debt maturity profile. Radian Group’s liquidity demands for the next 12 months or in future periods could also include: (i) early repurchases or redemptions of portions of our debt obligations; (ii) additional investments to support our business strategy; and (iii) additional capital contributions to its subsidiaries. See “Item 1A. Risk Factors,” including “—Radian Group’s sources of liquidity may be insufficient to fund its obligations.” and “—Radian Guaranty may fail to maintain its eligibility status with the GSEs, and the additional capital required to support Radian Guaranty’s eligibility could reduce our available liquidity.” See also Note 1 of Notes to Consolidated Financial Statements and “Overview—COVID-19 Impacts” for further information.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We believe that Radian Group has sufficient current sources of liquidity to fund its obligations. If we otherwise decide to increase our liquidity position, Radian Group may seek additional capital, including by incurring additional debt, issuing additional equity, or selling assets, which we may not be able to do on favorable terms, if at all.

Share Repurchases. During 2021 and 2020, the Company repurchased 17.8 million shares and 11.0 million shares of Radian Group common stock, respectively, under programs authorized by Radian Group’s board of directors, at a total cost of $399.1 million and $226.3 million, respectively, including commissions. No purchase authority remains available under these programs. On February 9, 2022, Radian Group’s board of directors approved a new share repurchase program authorizing the company to spend up to $400 million, excluding commissions, to repurchase Radian Group common stock. See Note 14 of Notes to Consolidated Financial Statements for additional details on our share repurchase programs.

Dividends and Dividend Equivalents. Throughout 2020, and for the first quarter of 2021, our quarterly common stock dividend was $0.125 per share. Effective May 4, 2021, Radian Group’s board of directors authorized an increase in the Company’s quarterly dividend to $0.14 per share. On February 9, 2022, Radian Group’s board of directors authorized an increase to the Company’s quarterly dividend from $0.14 to $0.20 per share. Based on our current outstanding shares of common stock and RSUs, we expect to require approximately $140 million in the aggregate to pay dividends and dividend equivalents for the next 12 months. Radian Group is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in Delaware. Delaware corporation law provides that dividends are only payable out of a corporation’s capital surplus or (subject to certain limitations) recent net profits. As of December 31, 2021, our capital surplus was $4.2 billion, representing our dividend limitation under Delaware law. The declaration and payment of future quarterly dividends remains subject to the board of directors’ determination.

Corporate Expenses and Interest Expense. Radian Group has expense-sharing arrangements in place with its principal operating subsidiaries that require those subsidiaries to pay their allocated share of certain holding-company-level expenses, including interest payments on Radian Group’s outstanding debt obligations. Corporate expenses and interest expense on Radian Group’s debt obligations allocated under these arrangements during 2021 of $147.4 million and $82.8 million, respectively, were substantially all reimbursed by its subsidiaries. We expect substantially all of our holding company expenses to continue to be reimbursed by our subsidiaries under our expense-sharing arrangements. The expense-sharing arrangements between Radian Group and its mortgage insurance subsidiaries, as amended, have been approved by the Pennsylvania Insurance Department, but such approval may be modified or revoked at any time.

Taxes. Pursuant to our tax-sharing agreements, our operating subsidiaries pay Radian Group an amount equal to any federal income tax the subsidiary would have paid on a standalone basis if they were not part of our consolidated tax return. As a result, from time to time, under the provisions of our tax-sharing agreements, Radian Group may pay to or receive from its operating subsidiaries amounts that differ from Radian Group’s consolidated federal tax payment obligation. During 2021, Radian Group received $11.7 million of tax-sharing agreement payments from its operating subsidiaries.

Capitalization—Holding Company

The following table presents our holding company capital structure.


Capital structure

	December 31,
($ in thousands)	2021			2020
Debt
Senior Notes due 2024	$	450,000		$	450,000
Senior Notes due 2025	525,000			525,000
Senior Notes due 2027	450,000			450,000
Deferred debt costs on senior notes	(15,527)			(19,326)
Revolving credit facility	—			—
Total	1,409,473			1,405,674
Stockholders’ equity	4,258,796			4,284,353
Total capitalization	$	5,668,269		$	5,690,027
Debt-to-capital ratio	24.9		%	24.7		%

Stockholders’ equity decreased by $25.6 million from December 31, 2020 to December 31, 2021. The net decrease in stockholders’ equity resulted primarily from share repurchases of $399.1 million, net unrealized losses on investments of $143.6 million primarily as a result of an increase in market interest rates during the year, and dividends of $104.4 million, partially offset by our net income of $600.7 million.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

We regularly evaluate opportunities, based on market conditions, to finance our operations by accessing the capital markets or entering into other types of financing arrangements with institutional and other lenders and financing sources, and consider various measures to improve our capital and liquidity positions, as well as to strengthen our balance sheet, improve Radian Group’s debt maturity profile and maintain adequate liquidity for our operations. In the past we have repurchased and exchanged, prior to maturity, some of our outstanding debt, and in the future, we may from time to time seek to redeem, repurchase or exchange for other securities, or otherwise restructure or refinance some or all of our outstanding debt prior to maturity in the open market through other public or private transactions, including pursuant to one or more tender offers or through any combination of the foregoing, as circumstances may allow. The timing or amount of any potential transactions will depend on a number of factors, including market opportunities and our views regarding our capital and liquidity positions and potential future needs. There can be no assurance that any such transactions will be completed on favorable terms, or at all.

Mortgage

The principal demands for liquidity in our Mortgage business currently include: (i) the payment of claims and potential claim settlement transactions, net of reinsurance; (ii) expenses (including those allocated from Radian Group); (iii) repayments of FHLB advances; (iv) repayments, if any, associated with the Surplus Note due 2027; and (v) taxes, including potential additional purchases of U.S. Mortgage Guaranty Tax and Loss Bonds. See Notes 10 and 16 of Notes to Consolidated Financial Statements for additional information related to these non-interest bearing instruments. In addition to the foregoing liquidity demands, other payments have included and, in the future could include, returns of capital from Radian Guaranty to Radian Group, subject to approval by the Pennsylvania Insurance Department, as discussed below.

The principal sources of liquidity in our mortgage insurance business currently include insurance premiums, net investment income and cash flows from: (i) investment sales and maturities; (ii) FHLB advances; and (iii) capital contributions from Radian Group. We believe that the operating cash flows generated by each of our mortgage insurance subsidiaries will provide these subsidiaries with a substantial portion of the funds necessary to satisfy their needs for the foreseeable future. However, see “Overview—COVID-19 Impacts” and Note 1 of Notes to Consolidated Financial Statements for discussion about the elevated risks and uncertainties associated with the COVID-19 pandemic, including the impact on our PMIERs Cushion.

As of December 31, 2021, our mortgage insurance subsidiaries maintained claims paying resources of $5.9 billion on a statutory basis, which consist of contingency reserves, statutory policyholders’ surplus, premiums received but not yet earned and loss reserves. In addition, our reinsurance programs are designed to provide additional claims-paying resources during times of economic stress and elevated losses. See Note 8 of Notes to Consolidated Financial Statements for additional information.

Radian Guaranty’s Risk-to-capital as of December 31, 2021 was 11.1 to 1. Radian Guaranty is not expected to need additional capital to satisfy state insurance regulatory requirements in their current form. At December 31, 2021, Radian Guaranty had statutory policyholders’ surplus of $778.1 million. This balance includes a $354.1 million benefit from U.S. Mortgage Guaranty Tax and Loss Bonds issued by the U.S. Department of the Treasury, which mortgage guaranty insurers such as Radian Guaranty may purchase in order to be eligible for a tax deduction, subject to certain limitations, related to amounts required to be set aside in statutory contingency reserves. See Note 16 of Notes to Consolidated Financial Statements and “Item 1A. Risk Factors” for more information.

Radian Guaranty currently is an approved mortgage insurer under the PMIERs. Private mortgage insurers, including Radian Guaranty, are required to comply with the PMIERs to remain approved insurers of loans purchased by the GSEs. At December 31, 2021, Radian Guaranty’s Available Assets under the PMIERs financial requirements totaled approximately $5.4 billion, resulting in a PMIERs Cushion of $2.1 billion, or 62%, over its Minimum Required Assets. Those amounts compare to Available Assets and a PMIERs cushion of $4.7 billion and $1.3 billion, respectively, at December 31, 2020.

The primary driver of the increase in Radian Guaranty’s PMIERs Cushion during 2021 is the increase in Available Assets, reflecting positive cash flows from operating activities, combined with a decrease in Minimum Required Assets. During 2021, Radian Guaranty’s Minimum Required Assets decreased primarily as a result of a decrease in the number of primary loans in default. Radian Guaranty’s Minimum Required Assets include a benefit as a result of reinsurance agreements, including the addition of the Eagle Re 2021-1 Ltd. and Eagle Re 2021-2 Ltd. reinsurance agreements in April 2021 and November 2021, respectively. See Note 8 of Notes to Consolidated Financial Statements for additional information on our reinsurance agreements.

Our PMIERs Cushion at December 31, 2021 also includes a benefit from the current broad-based application of the Disaster Related Capital Charge that has reduced the total amount of Minimum Required Assets that Radian Guaranty otherwise would have been required to hold against pandemic-related defaults by approximately $300 million and $650 million as of December 31, 2021 and 2020, respectively, taking into consideration our risk distribution structures in effect as of those dates. We expect that application of the Disaster Related Capital Charge will continue to reduce Radian Guaranty’s PMIERs Minimum Required Assets, but this impact will diminish over time.

Notwithstanding the continued application of the Disaster Related Capital Charge, the total amount of Minimum Required Assets we may be required to hold against defaulted loans will increase over time, because the 0.30 multiplier is applied to a higher base factor for the defaulting loans (including those in forbearance) as they age, with increases taking place upon four,


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

six and 12 missed monthly payments. Additionally, given the lack of an expiration date under the CARES Act, it is difficult to estimate how long the GSEs may continue to offer COVID-19 forbearance programs for new defaults. It is also difficult to assess how long the GSEs may continue to apply the COVID-19 Amendment to loans in a COVID-19-related forbearance program. The COVID-19 Crisis Period expired March 31, 2021.

See “Item 1. Business—Regulation—Federal Regulation—GSE Requirements for Mortgage Insurance Eligibility.” for more information about the Disaster Related Capital Charge, and for further information, including on the expiration of the COVID-19 Crisis Period.

Even though they hold assets in excess of the minimum statutory capital thresholds and PMIERs financial requirements, the ability of Radian’s mortgage insurance subsidiaries to pay dividends on their common stock is restricted by certain provisions of the insurance laws of Pennsylvania, their state of domicile. Under Pennsylvania’s insurance laws, ordinary dividends and other distributions may only be paid out of an insurer’s positive unassigned surplus unless the Pennsylvania Insurance Department approves the payment of dividends or other distributions from another source.

In light of Radian Guaranty’s negative unassigned surplus related to operating losses in prior periods, the ongoing need to set aside contingency reserves, and the current ongoing economic uncertainty related to the COVID-19 pandemic, which increased losses in 2020 and could cause losses in future periods, we do not anticipate that Radian Guaranty will be permitted under applicable insurance laws to pay dividends or other distributions for the next several years without prior approval from the Pennsylvania Insurance Department. Under Pennsylvania’s insurance laws, an insurer must obtain the Pennsylvania Insurance Department’s approval to pay an Extraordinary Distribution. Radian Guaranty has sought and received such approval to return capital by paying Extraordinary Distributions to Radian Group, most recently in February 2022. See Note 16 of Notes to Consolidated Financial Statements for additional information on our Extraordinary Distributions, statutory dividend restrictions and contingency reserve requirements.

Radian Guaranty and Radian Reinsurance are both members of the FHLB. As members, they may borrow from the FHLB, subject to certain conditions, which include requirements to post collateral and to maintain a minimum investment in FHLB stock. Advances from the FHLB may be used to provide low-cost, supplemental liquidity for various purposes, including to fund incremental investments. Radian’s current strategy includes using FHLB advances as financing for general cash management purposes and for purchases of additional investment securities that have similar durations, for the purpose of generating additional earnings from our investment securities portfolio with limited incremental risk. As of December 31, 2021, there were $151.0 million of FHLB advances outstanding. See Note 12 of Notes to Consolidated Financial Statements for additional information.

homegenius

As of December 31, 2021, our homegenius segment maintained cash and liquid investments totaling $79.3 million, primarily held by Radian Title Insurance.

Title insurance companies, including Radian Title Insurance, are subject to comprehensive state regulations, including minimum net worth requirements. Radian Title Insurance was in compliance with all of its minimum net worth requirements at December 31, 2021. In the event the cash flows from operations of the homegenius segment are not adequate to fund all of its needs, including the regulatory capital needs of Radian Title Insurance, Radian Group may provide additional funds to the homegenius segment in the form of an intercompany note or other capital contribution, and if needed for Radian Title Insurance, subject to the approval of the Ohio Department of Insurance. Additional capital support may also be required for potential investments in new business initiatives to support our strategy of growing our businesses.

Liquidity levels may fluctuate depending on the levels and contractual timing of our invoicing and the payment practices of our homegenius clients, in combination with the timing of our homegenius segment’s payments for employee compensation and to external vendors. The amount, if any, and timing of the homegenius segment’s dividend paying capacity will depend primarily on the amount of excess cash flow generated by the segment.

Ratings

Radian Group, Radian Guaranty, Radian Reinsurance and Radian Title Insurance have been assigned the financial strength ratings set forth in the chart below. We believe that ratings often are considered by others in assessing our credit strength and the financial strength of our primary insurance subsidiaries. The following ratings have been independently assigned by third-party statistical rating organizations, are for informational purposes only and are subject to change. See “Item 1A. Risk Factors—The current financial strength ratings assigned to our mortgage insurance subsidiaries could weaken our competitive position and potential downgrades by rating agencies to these ratings and the ratings assigned to Radian Group could adversely affect the Company.”


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Ratings

Subsidiary

Moody’s (1)

S&P (2)

Fitch (3)

Demotech (4)

Radian Group

Ba1

BB+

BBB-

N/A

Radian Guaranty

Baa1

BBB+

A-

N/A

Radian Reinsurance

N/A

BBB+

N/A

Radian Title Insurance

N/A

(1)Based on the August 27, 2021 update, Moody’s outlook for Radian Group and Radian Guaranty currently is Stable.

(2)Based on the April 28, 2021 update, S&P’s outlook for Radian Group, Radian Guaranty and Radian Reinsurance is currently Stable.

(3)Based on the May 3, 2021 release, Fitch’s outlook for Radian Group and Radian Guaranty is currently Stable.

(4)Based on the December 1, 2021 release.

Critical Accounting Estimates

SEC guidance defines Critical Accounting Estimates as those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operation of the registrant. These items require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing our consolidated financial statements in accordance with GAAP, management has made estimates, assumptions and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

In preparing these financial statements, management has utilized available information, including our past history, industry standards and the current and projected economic and housing environments, among other factors, in forming its estimates, assumptions and judgments, giving due consideration to materiality. Because the use of estimates is inherent in GAAP, actual results could differ from those estimates. In addition, other companies may utilize different estimates, which may impact comparability of our results of operations to those of companies in similar businesses. A summary of the accounting estimates that management believes are critical to the preparation of our consolidated financial statements is set forth below. See Note 2 of Notes to Consolidated Financial Statements for additional disclosures regarding our significant accounting policies.

Mortgage Insurance Portfolio

Reserve for Losses and LAE

We establish reserves to provide for losses and LAE, which include the estimated costs of settling claims in our mortgage insurance portfolio, in accordance with the accounting standard regarding accounting and reporting by insurance enterprises. In our mortgage insurance business, the default and claim cycle begins with the receipt of a default notice from the loan servicer. We maintain an extensive database of default and claim payment history, and use models based on a variety of loan characteristics to determine the likelihood that a default will reach claim status.

With respect to loans that are in default, considerable judgment is exercised as to the adequacy of reserve levels. We use an actuarial projection methodology referred to as a “roll rate” analysis that uses historical claim frequency information to determine the projected ultimate Default to Claim Rates based on the Stage of Default and Time in Default as well as the date that a loan goes into default. The Default to Claim Rate also includes our estimates with respect to expected Rescissions and Claim Denials, which have the effect of reducing our Default to Claim Rates. See Note 11 of Notes to Consolidated Financial Statements for the table detailing our Default to Claim Rate assumptions.

After estimating the Default to Claim Rate, we estimate Claim Severity based on recently observed severity rates within product type, type of insurance and Time in Default cohorts, as adjusted to account for anticipated differences in future results compared to recent trends. These severity estimates are then applied to individual loan coverage amounts to determine reserves. Similar to the Default to Claim Rate, Claim Severity also is impacted by the length of time that loans are in default and by our Loss Mitigation Activity. For claims under our Primary Mortgage Insurance, the coverage percentage is applied to the claim amount, which consists of the unpaid loan principal, plus past due interest (for which our liability is contractually capped in accordance with the terms of our Master Policies) and certain expenses associated with the default, to determine our maximum liability. Therefore, Claim Severity generally increases the longer that a loan is in default.

We considered the sensitivity of first-lien loss reserve estimates at December 31, 2021 by assessing the potential changes resulting from a parallel shift in Claim Severity and Default to Claim Rate estimates for primary loans, excluding any potential benefits from reinsurance. For example, assuming all other factors remain constant, for every one percentage point change in primary Claim Severity (which we estimate to be 98.7% of defaulted risk exposure at December 31, 2021), we estimated that our loss reserves would change by approximately $8.0 million at December 31, 2021. Assuming all other factors remain constant, for every one percentage point change in our overall primary net Default to Claim Rate (which we estimate to


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

be 46% at December 31, 2021, including our assumptions related to Loss Mitigation Activities), we estimated a $17.1 million change in our loss reserves at December 31, 2021.

Senior management regularly reviews the modeled frequency, Claim Severity and Loss Mitigation Activity estimates, which are based on historical trends, as described above. If recent emerging or projected trends differ significantly from the historical trends used to develop the modeled estimates, management evaluates these trends and determines how they should be considered in its reserve estimates.

Estimating our case reserve for losses involves significant reliance upon assumptions and estimates with regard to the likelihood, magnitude and timing of each potential loss. The models, assumptions and estimates we use to establish loss reserves may prove to be inaccurate, especially during an extended economic downturn or a period of market volatility and economic uncertainty such as we have experienced due to the COVID-19 pandemic. These assumptions require management to use considerable judgment in estimating the rate at which these loans will result in claims. As such, given the current environment, there is significant uncertainty around our reserve estimate.

Premium Revenue Recognition

Key assumptions supporting our estimate include a collection rate and average life. During 2021 and 2020, we adjusted our assumptions for collectability and average life, which had an impact of increasing the net premium receivable and net premiums earned by $2.3 million and $11.3 million, respectively. If the collection rate assumption increased or decreased by 500 basis points, it would result in a $2.5 million increase or decrease, respectively, in the net premium receivable and net premiums earned. If the average life assumption increased or decreased by one year, it would result in an approximate $2.5 million decrease or increase, respectively, in the net premium receivable and net premiums earned. Additionally, given the difference between the present value of the net premium receivable recorded and the contractual premiums due, changes in our servicing guide, operations or collection practices could have up to a $43.7 million pre-tax benefit to our results of operations in periods when any changes are implemented.

Single premiums written are initially recorded as unearned premiums and earned over time based on the anticipated loss pattern and the estimated period of risk exposure, which is primarily derived from historical experience and other factors such as projected losses, premium type and projected contractual periods of risk based on original LTV. Our estimate for the single premium earnings pattern is updated periodically and subject to change given uncertainty as to the underlying loss development and duration of risk.

During 2019, we updated our estimated period of risk exposure due to the continuing increase in the significance of borrower-paid Single Premium Policies as well as our estimated anticipated loss pattern due to changes in observed and projected losses. During 2019, this change in estimate resulted in a $32.9 million increase in net premiums earned. There were no changes to our single premium earnings pattern estimate in 2020 or 2021.

Actual future experience that is different than expected loss development or policy cancellations could result in further material increases or decreases in the recognition of net premiums earned. Based on historical experience, losses are relatively low during the first two years after a loan is originated and then increase over a period of several years before declining; however, several factors can impact and change this cycle, including the economic environment, the quality of the underwriting of the loan, characteristics of the mortgage loan, the credit profile of the borrower, housing prices and unemployment rates. If the timing of losses were to shift, it could accelerate or decelerate our recognition of net premiums earned and could have a material impact on our results of operations.

Credit Losses and Other Impairments

Investments

We perform an evaluation of fixed-maturity securities available for sale each quarter to assess whether any decline in their fair value below cost is deemed to be a credit impairment recognized in earnings. Factors considered in our assessment for impairment include the extent to which the amortized cost basis is greater than fair value and the reasons for the decline in value. As of December 31, 2021, our gross unrealized losses on available for sale securities was $38.0 million, which can fluctuate materially over time based on changes in market conditions. During 2021 and 2020, we recognized a $0.7 million credit recovery and a $1.0 million credit loss, respectively, related to our fixed-maturity securities available for sale. See Note 6 of Notes to Consolidated Financial Statements for additional information regarding impairments related to investments.


Table of Contents Glossary Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Fair Value of Financial Instruments

Our estimated fair value measurements are intended to reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and the risks inherent in the inputs to the model. Changes in economic conditions and capital market conditions, including but not limited to, benchmark interest rate changes, credit spread changes, market volatility and changes in the value of underlying collateral, could cause actual results to differ materially from our estimated fair value measurements.

Nearly all of our financial instruments recorded at fair value relate to our investment portfolio, which totaled $6.5 billion as of December 31, 2021. The primary risks in our investment portfolio are interest-rate risk and credit-spread risk, namely the fair value sensitivity of our fixed income securities to changes in interest rates and credit spreads, respectively. We regularly analyze our exposure to interest-rate risk and credit-spread risk and have determined that the fair value of our investments is materially exposed to changes in both interest rates and credit spreads. For additional information regarding the sensitivity of our investment portfolio to these inputs, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

See also Note 5 of Notes to Consolidated Financial Statements for additional information pertaining to financial instruments at fair value and our valuation methodologies.

Liability for Legal Contingencies

As discussed in Note 13 of Notes to Consolidated Financial Statements, we are subject to various legal proceedings and claims that arise in the ordinary course of business. We establish accruals only when we determine both that it is probable that a loss has been incurred and the amount of the loss is reasonably estimable, which requires significant judgment.

As described in Note 13 of Notes to Consolidated Financial Statements, we believe there was not at least a reasonable possibility we may have incurred a material loss, or a material loss greater than a recorded accrual, concerning loss contingencies for asserted legal and other claims. Due to the inherently subjective nature of these estimates and the uncertainty and unpredictability surrounding the outcome of legal and other proceedings, actual results may differ materially from any amounts that have been accrued. If one or more legal matters were resolved against the Company in a reporting period for amounts above management’s expectations, actual results could differ materially from any amounts that have been accrued.

Income Taxes

We are required to establish a valuation allowance against our deferred tax assets when it is more likely than not that all or some portion of our deferred tax assets will not be realized. At each balance sheet date, we assess our need for a valuation allowance and this assessment is based on all available evidence, both positive and negative, and requires management to exercise judgment and make assumptions regarding whether such deferred tax assets will be realized in future periods. Future realization of our deferred tax assets will ultimately depend on the existence of sufficient taxable income of the appropriate character (ordinary income or capital gains) within the applicable carryback and carryforward periods provided under the tax law. In making our assessment of the more likely than not standard, the weight assigned to the effect of both positive and negative evidence is commensurate with the extent to which such evidence can be objectively verified.

We have determined that certain non-insurance entities within Radian may continue to generate taxable losses on a separate company basis in the near term and may not be able to fully utilize certain state and local NOLs on their state and local tax returns. Therefore, with respect to deferred tax assets relating to these state and local NOLs and other state timing adjustments, we retained a valuation allowance of $83.4 million at December 31, 2021 and $77.7 million at December 31, 2020.

Estimated factors in this assessment include, but are not limited to, forecasts of future income and actual and planned business and operational changes. An amount up to the total valuation allowance currently recorded could be recognized if our assessment of realizability changes. Our assumptions around these items and the weight assigned to them have remained consistent in recent periods. See Note 10 of Notes to Consolidated Financial Statements for additional information.


Table of Contents Glossary

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the potential for loss due to adverse changes in the value of financial instruments as a result of changes in market conditions. Examples of market risk include changes in interest rates, credit spreads, foreign currency exchange rates and equity prices. We perform sensitivity analyses to determine the effects of market risk exposures on our investment securities by determining the potential loss in future earnings, fair values or cash flows of market-risk-sensitive instruments resulting from one or more selected hypothetical changes in the above mentioned market risks.

Interest-Rate Risk and Credit-Spread Risk

The primary market risks in our investment portfolio are interest-rate risk and credit-spread risk, namely the fair value sensitivity of our fixed income securities to changes in interest rates and credit spreads, respectively. We regularly analyze our exposure to interest-rate risk and credit-spread risk and have determined that the fair value of our investments is materially exposed to changes in both interest rates and credit spreads. As of December 31, 2021, we held $257 million of investment securities for trading purposes, representing less than 5% of our total investment portfolio. Accordingly, in presenting this discussion, we have not distinguished between trading and non-trading instruments.

We calculate the duration of our fixed income securities, expressed in years, in order to estimate the interest-rate sensitivity of these securities. The average duration of our total fixed income portfolio was 4.5 years at December 31, 2021 and 4.7 years at December 31, 2020. To assist us in setting duration targets for the investment portfolio, we analyze: (i) the interest-rate sensitivities of our liabilities, including prepayment risk associated with premium cash flows and credit losses; (ii) entity specific cash flows under various economic scenarios; (iii) return, volatility and correlation of specific asset classes and the interconnection with our liabilities; and (iv) our current risk appetite.

Our stress analysis for interest rates is based on the change in fair value of our fixed income securities, assuming a hypothetical instantaneous and parallel 100-basis point increase in the U.S. Treasury yield curve, with all other factors remaining constant. The carrying value of our fixed income securities has a balance of $6.5 billion and $6.8 billion as of December 31, 2021 and 2020, respectively. If interest rates experienced an increase of 100 basis points, our fixed income portfolio would decrease by $281.7 million and $300.4 million of the market value of the related fixed income portfolio for 2021 and 2020, respectively.

Credit spread represents the additional yield on a fixed income security, above the risk-free rate, that is paid by an issuer to compensate investors for assuming the credit risk of the issuer and market liquidity of the fixed income security. We manage credit-spread risk on both an entity and group level, across issuer, maturity, sector and asset class. Our stress analysis for credit-spread risk is based on the change in fair value of our fixed income securities, assuming a hypothetical 100-basis point increase in all credit spreads, with the exception of U.S. Treasury and agency RMBS obligations for which we have assumed no change in credit spreads, and assuming all other factors remain constant. If credit spreads experienced an increase of 100 basis points, our fixed income portfolio would decrease by $262.8 million and $285.4 million of the market value of the related fixed income portfolio for 2021 and 2020, respectively.

Actual shifts in credit spreads generally vary by issuer and security, based on issuer-specific and security-specific factors such as credit quality, maturity, sector and asset class. Within a given asset class, investment grade securities generally exhibit less credit-spread volatility than securities with lower credit ratings. At December 31, 2021, 95.5% of our investment portfolio was rated investment grade.

Our sensitivity analyses for interest-rate risk and credit-spread risk provide an indication of our investment portfolio’s sensitivity to shifts in interest rates and credit spreads. However, the timing and magnitude of actual market changes may differ from the hypothetical assumptions used in our sensitivity calculations.

See “Item 1. Business—Investment Policy and Portfolio” for a discussion of portfolio strategy and risk exposure.

Securities Lending Agreements. Radian Group, Radian Guaranty and Radian Reinsurance from time to time enter into short-term securities lending agreements with third-party borrowers for the purpose of increasing the income on our investment securities portfolio with limited incremental risk. Market factors, including changes in interest rates, credit spreads and equity prices, may impact the timing or magnitude of cash outflows for the return of cash collateral. As of December 31, 2021 and 2020, the carrying value of these securities included in the sensitivity analyses above was $86.0 million and $53.7 million, respectively.

We also have the right to request the return of the loaned securities at any time. For additional information on our securities lending agreements, see Note 6 of Notes to Consolidated Financial Statements.


Table of Contents Glossary

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements


			Page
Annual Financial Statements
Report of Independent Registered Public Accounting Firm—PricewaterhouseCoopers LLP (PCAOB ID 238)			100

Financial Statements as of December 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019
Consolidated Balance Sheets			102
Consolidated Statements of Operations			103
Consolidated Statements of Comprehensive Income			104
Consolidated Statements of Changes in Common Stockholders’ Equity			105
Consolidated Statements of Cash Flows			106

Notes to Consolidated Financial Statements
Note 1 - Description of Business			108
Note 2 - Significant Accounting Policies			109
Note 3 - Net Income Per Share			117
Note 4 - Segment Reporting			117
Note 5 - Fair Value of Financial Instruments			121
Note 6 - Investments			125
Note 7 - Goodwill and Other Acquired Intangible Assets, Net			129
Note 8 - Reinsurance			130
Note 9 - Other Assets			134
Note 10 - Income Taxes			135
Note 11 - Losses and Loss Adjustment Expenses			137
Note 12 - Borrowings and Financing Activities			142
Note 13 - Commitments and Contingencies			143
Note 14 - Capital Stock			145
Note 15 - Accumulated Other Comprehensive Income (Loss)			147
Note 16 - Statutory Information			148
Note 17 - Share-Based Compensation and Other Benefit Programs			151


Table of Contents Glossary

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Radian Group Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Radian Group Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income, changes in common stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedules listed in the index appearing under Item 15(a)3 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Table of Contents Glossary

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of First-Lien Primary Case Reserves for Mortgage Insurance Policies

As described in Notes 2 and 11 to the consolidated financial statements, the Company establishes case reserves for losses on mortgage insurance policies for loans that are considered to be in default, as well as reserves for loss adjustment expenses, losses incurred but not reported (“IBNR”) and other reserves. As of December 31, 2021, first-lien primary case reserves were $790.4 million of the total $823.1 million of mortgage insurance loss reserves. Management’s estimate of the case reserves for losses involves significant reliance upon assumptions and estimates with regard to the likelihood, magnitude and timing of each potential loss. Management uses an actuarial projection methodology referred to as a “roll rate” analysis that uses historical claim frequency information to determine the projected ultimate Default to Claim Rates based on the Stage of Default and Time in Default as well as the date that a loan goes into default. After estimating the Default to Claim Rate, management estimates Claim Severity based on the average of recently observed severity rates within product type, type of insurance, and Time in Default cohorts.

The principal considerations for our determination that performing procedures relating to the valuation of first-lien primary case reserves for mortgage insurance policies is a critical audit matter are (i) the significant judgment by management when developing their estimates of the Default to Claim Rates and Claim Severity, which in turn led to a high degree of auditor subjectivity and judgment in performing procedures relating to such estimates; (ii) the significant audit effort and subjectivity in evaluating the audit evidence related to the Default to Claim Rates and Claim Severity; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s valuation of first-lien primary case reserves for mortgage insurance policies, including controls over the development of the Default to Claim Rates and Claim Severity. These procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist in developing an independent estimate of the case reserves for first-lien primary mortgage insurance policies using actual historical data, comparing this independent estimate to management’s determined case reserves, and evaluating the reasonableness of management’s assumptions related to the Default to Claim Rates and Claim Severity. Performing these procedures involved testing the completeness and accuracy of data provided by management and independently developing Default to Claim Rates and Claim Severity assumptions based on data provided by management.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

February 25, 2022

We have served as the Company’s auditor since 2007.

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Radian Group Inc. and Subsidiaries
Consolidated Balance Sheets


	December 31,
(In thousands, except per-share amounts)	2021		2020
Assets
Investments (Notes 5 and 6)
Fixed-maturities available for sale—at fair value, net of allowance for credit losses of $0 and $948 (amortized cost of $5,367,729 and $5,393,623)	$	5,517,078	$	5,723,340
Trading securities—at fair value (amortized cost of $234,382 and $260,773)	256,546		290,885
Equity securities—at fair value (cost of $176,229 and $145,501)	184,245		151,240
Short-term investments—at fair value (includes $48,652 and $15,587 of reinvested cash collateral held under securities lending agreements)	551,508		618,004
Other invested assets—at fair value	4,165		4,973
Total investments	6,513,542		6,788,442
Cash	151,145		87,915
Restricted cash	1,475		6,231
Accrued investment income	32,812		34,047
Accounts and notes receivable	124,016		121,294
Reinsurance recoverables (includes $51 and $32 for paid losses)	67,896		73,202
Deferred policy acquisition costs	16,317		18,305
Property and equipment, net (Note 2)	75,086		80,457
Goodwill and other acquired intangible assets, net (Note 7)	19,593		23,043
Other assets (Note 9)	837,303		715,085

Total assets	$	7,839,185	$	7,948,021

Liabilities and Stockholders’ Equity
Liabilities
Unearned premiums	$	329,090	$	448,791
Reserve for losses and LAE (Note 11)	828,642		848,413
Senior notes (Note 12)	1,409,473		1,405,674
FHLB advances (Note 12)	150,983		176,483
Reinsurance funds withheld	228,078		278,555
Net deferred tax liability (Note 10)	337,509		213,897
Other liabilities	296,614		291,855
Total liabilities	3,580,389		3,663,668
Commitments and Contingencies (Note 13)
Stockholders’ equity
Common stock: par value $0.001 per share; 485,000 shares authorized at December 31, 2021 and 2020; 194,408 and 210,130 shares issued at December 31, 2021 and 2020, respectively; 175,421 and 191,606 shares outstanding at December 31, 2021 and 2020, respectively	194		210
Treasury stock, at cost: 18,987 and 18,524 shares at December 31, 2021 and 2020, respectively	(920,798)		(910,115)
Additional paid-in capital	1,878,372		2,245,897
Retained earnings	3,180,935		2,684,636
Accumulated other comprehensive income (loss) (Note 15)	120,093		263,725
Total stockholders’ equity	4,258,796		4,284,353
Total liabilities and stockholders’ equity	$	7,839,185	$	7,948,021

See Notes to Consolidated Financial Statements.

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Radian Group Inc. and Subsidiaries
Consolidated Statements of Operations


	Years Ended December 31,
(In thousands, except per-share amounts)	2021		2020		2019
Revenues
Net premiums earned (Note 8)	$	1,037,183	$	1,115,321	$	1,145,349
Services revenue (Note 4)	125,825		105,385		154,596
Net investment income (Note 6)	147,909		154,037		171,796
Net gains on investments and other financial instruments (includes net realized gains on investments of $20,842, $35,826 and $10,843)	15,603		60,277		51,719
Other income	3,412		3,597		3,495
Total revenues	1,329,932		1,438,617		1,526,955

Expenses
Provision for losses	20,877		485,117		132,031
Policy acquisition costs	29,029		30,989		25,314
Cost of services	103,714		86,066		108,324
Other operating expenses	323,686		280,710		306,129

Interest expense	84,344		71,150		56,310
Loss on extinguishment of debt (Note 12)	—		—		22,738
Impairment of goodwill (Note 7)	—		—		4,828
Amortization and impairment of other acquired intangible assets	3,450		5,144		22,288
Total expenses	565,100		959,176		677,962

Pretax income	764,832		479,441		848,993
Income tax provision (Note 10)	164,161		85,815		176,684
Net income	$	600,671	$	393,626	$	672,309

Net Income Per Share
Basic	$	3.19	$	2.01	$	3.22
Diluted	$	3.16	$	2.00	$	3.20

Weighted-average number of common shares outstanding—basic	188,370		195,443		208,773
Weighted-average number of common and common equivalent shares outstanding—diluted	190,263		196,642		210,340

See Notes to Consolidated Financial Statements.

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Radian Group Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income


	Years Ended December 31,
(In thousands)	2021		2020		2019

Net income	$	600,671	$	393,626	$	672,309
Other comprehensive income (loss), net of tax (Note 15)

Unrealized holding gains (losses) on investments arising during the period for which an allowance for expected losses has not been recognized	(138,435)		178,761		180,441
Less: Reclassification adjustment for net gains (losses) on investments included in net income
Net realized gains on disposals and non-credit related impairment losses	4,472		26,440		8,897
Net decrease (increase) in expected credit losses	725		(991)		—
Net unrealized gains (losses) on investments	(143,632)		153,312		171,544
Other adjustments to comprehensive income, net	—		(75)		(136)
Other comprehensive income (loss), net of tax	(143,632)		153,237		171,408
Comprehensive income	$	457,039	$	546,863	$	843,717

See Notes to Consolidated Financial Statements.

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Radian Group Inc. and Subsidiaries
Consolidated Statements of Changes in Common Stockholders’ Equity


	Years Ended December 31,
(In thousands)	2021		2020		2019
Common Stock
Balance, beginning of period	$	210	$	219	$	231
Issuance of common stock under incentive and benefit plans	2		2		1
Shares repurchased under share repurchase program (Note 14)	(18)		(11)		(13)
Balance, end of period	194		210		219

Treasury Stock
Balance, beginning of period	(910,115)		(901,657)		(894,870)
Repurchases of common stock under incentive plans	(10,683)		(8,458)		(6,787)
Balance, end of period	(920,798)		(910,115)		(901,657)

Additional Paid-in Capital
Balance, beginning of period	2,245,897		2,449,884		2,724,733
Issuance of common stock under incentive and benefit plans	3,114		3,143		3,925
Share-based compensation	28,443		19,164		21,414
Shares repurchased under share repurchase program (Note 14)	(399,082)		(226,294)		(300,188)
Balance, end of period	1,878,372		2,245,897		2,449,884

Retained Earnings
Balance, beginning of period	2,684,636		2,389,789		1,719,541
Net income	600,671		393,626		672,309
Dividends and dividend equivalents declared	(104,372)		(98,779)		(2,061)
Balance, end of period	3,180,935		2,684,636		2,389,789

Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period	263,725		110,488		(60,920)
Net unrealized gains (losses) on investments, net of tax	(143,632)		153,312		171,544
Other adjustments to other comprehensive income (loss)	—		(75)		(136)
Balance, end of period	120,093		263,725		110,488

Total Stockholders’ Equity	$	4,258,796	$	4,284,353	$	4,048,723

See Notes to Consolidated Financial Statements.

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Radian Group Inc. and Subsidiaries
Consolidated Statements of Cash Flows


	Years Ended December 31,
(In thousands)	2021		2020		2019
Cash flows from operating activities
Net income	$	600,671	$	393,626	$	672,309
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net (gains) losses on investments and other financial instruments	(15,603)		(60,277)		(51,719)
Loss on extinguishment of debt	—		—		22,738





Impairment of goodwill	—		—		4,828
Amortization and impairment of other acquired intangible assets	3,450		5,144		22,288
Depreciation, other amortization, and other impairments, net	72,020		66,585		50,439
Deferred income tax provision	161,793		102,079		157,162
Change in:
Accrued investment income	1,235		(1,714)		2,545
Accounts and notes receivable	(2,722)		(29,280)		(25,504)
Reinsurance recoverables	5,306		(56,226)		(2,574)
Deferred policy acquisition costs	1,988		2,454		(3,448)
Other assets	(78,163)		38,680		(77,181)
Unearned premiums	(119,701)		(178,031)		(112,535)
Reserve for losses and LAE	(19,771)		443,648		3,404
Reinsurance funds withheld	(50,477)		(13,274)		(29,383)
Other liabilities	(2,914)		(54,980)		61,062
Net cash provided by (used in) operating activities	557,112		658,434		694,431

Cash flows from investing activities
Proceeds from sales of:
Fixed-maturities available for sale	735,340		963,589		986,647
Trading securities	7,952		11,602		130,537
Equity securities	36,748		90,450		69,779
Proceeds from redemptions of:
Fixed-maturities available for sale	1,225,626		645,068		464,777
Trading securities	16,668		22,913		37,684
Purchases of:
Fixed-maturities available for sale	(1,980,155)		(2,449,762)		(1,913,703)
Equity securities	(105,649)		(85,014)		(57,422)

Sales, redemptions and (purchases) of:
Short-term investments, net	68,083		(82,925)		8,017
Other assets and other invested assets, net	6,126		1,434		(739)
Proceeds from sale of subsidiary, net of cash sold	—		16,481		—
Purchases of property and equipment	(12,601)		(17,016)		(27,626)

Net cash provided by (used in) investing activities	(1,862)		(883,180)		(302,049)

See Notes to Consolidated Financial Statements.

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	Years Ended December 31,
(In thousands)	2021		2020		2019
Cash flows from financing activities
Dividends and dividend equivalents paid	(103,298)		(97,458)		(2,061)
Issuance of common stock	1,382		1,553		2,416
Repurchases of common stock	(399,100)		(226,305)		(300,201)
Issuance of senior notes, net	—		515,567		442,439
Repayments and repurchases of senior notes	—		—		(610,763)
Credit facility commitment fees paid	(3,325)		(2,292)		(989)
Change in secured borrowings, net (with terms three months or less)	13,565		(37,475)		13,862
Proceeds from secured borrowings (with terms greater than three months)	42,000		207,034		115,275
Repayments of secured borrowings (with terms greater than three months)	(48,000)		(137,927)		(62,932)
Repayments of other borrowings	—		(79)		(152)
Net cash provided by (used in) financing activities	(496,776)		222,618		(403,106)

Effect of exchange rate changes on cash and restricted cash	—		—		(4)
Increase (decrease) in cash and restricted cash	58,474		(2,128)		(10,728)
Cash and restricted cash, beginning of period	94,146		96,274		107,002
Cash and restricted cash, end of period	$	152,620	$	94,146	$	96,274

Supplemental disclosures of cash flow information
Income taxes paid (Note 10)	$	143,973	$	81,404	$	71,469
Interest paid	78,704		60,564		45,762

See Notes to Consolidated Financial Statements.

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Table of Contents Glossary			Radian Group Inc. and Subsidiaries Notes to Consolidated Financial Statements

1. Description of Business

We are a diversified mortgage and real estate business, providing both credit-related mortgage insurance coverage and an array of other mortgage, risk, title, real estate and technology products and services. We have two reportable business segments—Mortgage and homegenius. Our homegenius segment was previously named “Real Estate,” and during the second quarter of 2021, we renamed it “homegenius” to align with updates to our brand strategy for the segment’s products and services.

Mortgage

Our Mortgage segment provides credit-related insurance coverage, principally through private mortgage insurance on residential first-lien mortgage loans, as well as other credit risk management, contract underwriting and fulfillment solutions, to mortgage lending institutions and mortgage credit investors. We provide our mortgage insurance products and services mainly through our wholly-owned subsidiary, Radian Guaranty.

Private mortgage insurance plays an important role in the U.S. housing finance system because it promotes affordable home ownership and helps protect mortgage lenders and investors, as well as other beneficiaries, by mitigating default-related losses on residential mortgage loans. Generally, these loans are made to homebuyers who make down payments of less than 20% of the purchase price for their home or, in the case of refinancings, have less than 20% equity in their home. Private mortgage insurance also facilitates the sale of these low down payment loans in the secondary mortgage market, most of which are currently sold to the GSEs.

Our total direct primary mortgage IIF and RIF were $246.0 billion and $60.9 billion, respectively, as of December 31, 2021, compared to $246.1 billion and $60.7 billion, respectively, as of December 31, 2020. In addition to providing private mortgage insurance, we have participated in credit risk transfer programs developed by the GSEs as part of their initiative to distribute mortgage credit risk and increase the role of private capital in the mortgage market. Our additional RIF under credit risk transfer transactions, resulting from our participation in these programs with the GSEs, totaled $417.7 million as of December 31, 2021, compared to $392.0 million as of December 31, 2020.

The GSEs and state insurance regulators impose various capital and financial requirements on our mortgage insurance subsidiaries. These include Risk-to-capital, other risk-based capital measures and surplus requirements, as well as the PMIERs financial requirements. Failure to comply with these capital and financial requirements may limit the amount of insurance that our mortgage insurance subsidiaries write or may prohibit them from writing insurance altogether. The GSEs and state insurance regulators possess significant discretion with respect to our mortgage insurance subsidiaries and all aspects of their business. See Note 16 for additional information on PMIERs and other regulatory information, and “—Recent Developments” below for a discussion of the elevated risks posed by the COVID-19 pandemic, which has led to an increase in mortgage defaults in our insured portfolio and a resulting increase in our Minimum Required Assets.

homegenius

Our homegenius segment is primarily a fee-for-service business that offers an array of products and services to market participants across the real estate value chain. Our homegenius products and services include title, real estate and technology products and services offered primarily to consumers, mortgage lenders, mortgage and real estate investors, GSEs, real estate brokers and agents. These products and services help lenders, investors, consumers and real estate agents evaluate, manage, monitor, acquire and sell properties, and include SaaS solutions and platforms, as well as managed services, such as real estate owned asset management, single family rental services and real estate valuation services. In addition, we provide title insurance and non-insurance title, closing and settlement services to mortgage lenders, GSEs and mortgage investors, as well as directly to consumers for residential mortgage loans.

See Note 4 for additional information about our reportable segments and All Other business activities, including the sale of Clayton, as well as other changes impacting our reportable segments in 2021 and 2020.

COVID-19 Developments

As a seller of mortgage credit protection, our results are subject to macroeconomic conditions and specific events that impact the housing finance and real estate markets, including events that impact mortgage originations and the credit performance of our RIF. Many of these conditions are beyond our control, including housing prices, unemployment, interest rate changes, the availability of credit and other national and regional economic conditions.

In general, a deterioration in economic conditions increases the likelihood that borrowers will be unable to satisfy their mortgage obligations. A deteriorating economy can adversely affect housing values, which in turn can influence the willingness of borrowers to continue to make mortgage payments regardless of whether they have the financial resources to do so. Mortgage defaults can also occur due to a variety of specific events affecting borrowers, including death or illness, divorce or

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other family problems, unemployment or other events. In addition, factors impacting regional economic conditions, acts of terrorism, war or other severe conflicts, event-specific economic depressions or other catastrophic events, such as natural disasters and pandemics, could result in increased defaults due to the impact of such events on the ability of borrowers to satisfy their mortgage obligations and on the value of affected homes.

The unprecedented and continually evolving social and economic impacts associated with the COVID-19 pandemic on the U.S. and global economies that began in early 2020 had a negative effect on our business and our financial results for the second quarter of 2020, and since then to a lesser extent. Specifically, and primarily as a result of a sharp increase in the number of new defaults during the second quarter of 2020, our financial results in 2020 included: (i) an increase in both provision for losses and reserve for losses and (ii) an increase in our Minimum Required Assets under the PMIERs. However, beginning in the third quarter of 2020 and continuing throughout 2021, the number of new defaults has decreased significantly and has now returned to levels experienced prior to the start of the pandemic. These trends, combined with strong home price appreciation and favorable outcomes from mortgage forbearance programs implemented during the pandemic to assist homeowners, have led to favorable reserve development during 2021 on prior year defaults. See Note 11 for additional information on our reserve for losses.

In addition, in response to the threat posed to the economy from the COVID-19 pandemic, in early 2020 the Federal Reserve enacted certain protective measures to support the economy that resulted in a drop in interest rates generally, and in mortgage rates specifically, resulting in increased mortgage refinance activity. While these developments have benefited our NIW volumes, the low interest rate environment also resulted in a high level of refinance activity and associated increase in policy cancellations, which has reduced our Persistency Rate and in turn contributed to a reduction in our IIF, particularly as a result of a decline in our Single Premium Policies. In the second quarter of 2021 this refinance activity began to moderate, and this trend continued in the second half of 2021.

While recent trends have been favorable, the long-term impact of the COVID-19 pandemic on our businesses will depend on, among other things: the extent and duration of the pandemic, the severity of illness and number of people infected with the virus and the acceptance and long-term effectiveness of anti-viral treatments and vaccines, especially as new strains of COVID-19 have emerged; the wider economic effects of the pandemic and the scope and duration of governmental and other third-party measures restricting day-to-day life and business operations; the impact of economic stimulus efforts to support the economy through the pandemic; and governmental and GSE programs implemented to assist borrowers experiencing a COVID-19-related hardship, including forbearance programs, as well as suspensions of foreclosures and evictions.

2. Significant Accounting Policies

Basis of Presentation

Our consolidated financial statements are prepared in accordance with GAAP and include the accounts of Radian Group Inc. and its subsidiaries. All intercompany accounts and transactions, and intercompany profits and losses, have been eliminated. Certain prior period amounts have been reclassified to conform to current period presentation.

We refer to Radian Group Inc. together with its consolidated subsidiaries as “Radian,” the “Company,” “we,” “us” or “our,” unless the context requires otherwise. We generally refer to Radian Group Inc. alone, without its consolidated subsidiaries, as “Radian Group.” Unless otherwise defined in this report, certain terms and acronyms used throughout this report are defined in the Glossary of Abbreviations and Acronyms included as part of this report.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of our contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. While the amounts included in our consolidated financial statements include our best estimates and assumptions, actual results may vary materially.

Investments

We group fixed-maturity securities in our investment portfolio into trading or available for sale securities. Trading securities are reported at fair value, with unrealized gains and losses reported as a separate component of income. Investments in fixed-maturity securities classified as available for sale are reported at fair value, with unrealized gains and losses (net of tax) reported as a separate component of stockholders’ equity as accumulated other comprehensive income (loss). Equity securities primarily consist of our interests in a variety of broadly-diversified exchange traded funds, which are recorded at fair value with unrealized gains and losses reported in income. Short-term investments consist of money market instruments, certificates of deposit and highly liquid, interest-bearing instruments with an original maturity of 12 months or less at the time of purchase. Amortization of premium and accretion of discount are calculated principally using the interest method

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over the term of the investment. Realized gains and losses on investments are recognized using the specific identification method. See Notes 5 and 6 for further discussion on investments.

We recognize an impairment as a loss for fixed-maturities available for sale on the statement of operations if: (i) we intend to sell the impaired security; (ii) it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis; or (iii) the present value of cash flows we expect to collect is less than the amortized cost basis of a security. In those instances, we record an impairment loss through earnings that varies depending on specific circumstances. If a sale is likely, the full amount of the impairment is recognized as a loss in the statement of operations. Otherwise, unrealized losses on securities are separated into: (i) the portion of loss that represents the credit loss and (ii) the portion that is due to other factors. In evaluating whether a decline in value for other securities relates to an existing credit loss, we consider several factors, including, but not limited to, the following:

■the extent to which the amortized cost basis is greater than fair value;

■reasons for the decline in value (e.g., adverse conditions related to industry or geographic area, changes in financial condition to the issuers or underlying loan obligors);

■any changes to the rating of the security by a rating agency;

■the failure of the issuer to make a scheduled payment;

■the financial position, access to capital and near-term prospects of the issuer, including the current and future impact of any specific events; and

■our best estimate of the present value of cash flows expected to be collected.

If a credit loss is determined to exist, the impairment amount is calculated as the difference between the amortized cost and the present value of future expected cash flows, limited to the difference between the carrying amount (i.e., fair value) and amortized cost. This credit loss impairment is included in net gains (losses) on investments and other financial instruments in the statement of operations, with an offset to an allowance for credit losses. Subsequent changes (favorable and unfavorable) in expected credit losses are recognized immediately in net income as a credit loss impairment or a reversal of credit loss impairment.

Prior to the adoption of ASU 2016-13, Financial Instruments—Credit Losses, effective January 1, 2020, subsequent increases in the fair value of any other-than-temporarily impaired securities were recognized as a component of other comprehensive income until such gains were realized through cash collection or sale, rather than through net income.

Fair Value of Financial Instruments

Our estimated fair value measurements are intended to reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and the risks inherent in the inputs to the model. Changes in economic conditions and capital market conditions, including but not limited to, credit spread changes, benchmark interest rate changes, market volatility and changes in the value of underlying collateral, could cause actual results to differ materially from our estimated fair value measurements. We define fair value as the current amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In accordance with GAAP, which establishes a three-level valuation hierarchy, we disclose fair value measurements based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to unobservable inputs (Level III measurements). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the measurement in its entirety. The three levels of the fair value hierarchy are defined below:

Level I — Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level II — Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities; and

Level III — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. Level III inputs are used to measure fair value only to the extent that observable inputs are not available.

For markets in which inputs are not observable or are limited, we use significant judgment and assumptions that a typical market participant would use to evaluate the market price of an asset or liability. Given the level of judgment necessary, another market participant may derive a materially different estimate of fair value. These assets and liabilities are classified in Level III of our fair value hierarchy.

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Available for sale securities, trading securities, equity securities and certain other assets are recorded at fair value as described in Note 5. All changes in fair value of trading securities, equity securities and certain other assets are included in our consolidated statements of operations.

Restricted Cash

Included in our restricted cash balances as of December 31, 2021 were cash funds held in trusts for the benefit of certain policyholders.

Accounts and Notes Receivable

Accounts and notes receivable primarily consist of accrued premiums receivable, amounts billed and due from our customers for services performed, and certain receivables related to our reinsurance transactions. Accounts and notes receivable are carried at their estimated collectible amounts, net of any allowance for doubtful accounts, and are periodically evaluated for collectability based on past payment history and current economic conditions. See “—Revenue Recognition—Mortgage Insurance” below for information on our deferred premiums and Note 8 for details on our reinsurance agreements.

Income Taxes

We provide for income taxes in accordance with the provisions of the accounting standard regarding accounting for income taxes. As required under this standard, our deferred tax assets and deferred tax liabilities are recognized under the balance sheet method, which recognizes the future tax effect of temporary differences between the amounts recorded in our consolidated financial statements and the tax bases of these amounts. Deferred tax assets and deferred tax liabilities are measured using the enacted tax rates that are expected to apply to taxable income in the periods in which the deferred tax asset or deferred tax liability is expected to be realized or settled. In regard to accumulated other comprehensive income, the Company’s policy for releasing disproportionate income tax effects is to release the effects as individual items are sold.

See Note 10 for further discussion on income taxes.

Reserve for Losses and LAE

Mortgage Insurance

We establish reserves to provide for losses and LAE on our mortgage insurance policies, which include the estimated costs of settling claims, in accordance with the accounting standard regarding accounting and reporting by insurance enterprises (ASC 944). Although this standard specifically excludes mortgage insurance from its guidance relating to the reserve for losses, because there is no specific guidance for mortgage insurance, we establish reserves for mortgage insurance as described below, using the guidance contained in this standard supplemented with other accounting guidance.

In our mortgage insurance business, the default and claim cycle begins with the receipt of a default notice from the loan servicer. Case reserves for losses are established upon receipt of notification from servicers that a borrower has missed two monthly payments, which is when we consider a loan to be in default for financial statement and internal tracking purposes. We also establish reserves for associated LAE, consisting of the estimated cost of the claims administration process, including legal and other fees and expenses associated with administering the claims process.

We do not establish reserves for loans that are in default if we believe that we will not be liable for the payment of a claim with respect to that default. We generally do not establish loss reserves for expected future claims on insured mortgages that are not in default. See “—Reserve for Premium Deficiency” below for an exception to these general principles.

With respect to loans that are in default, considerable judgment is exercised as to the adequacy of reserve levels. We use an actuarial projection methodology referred to as a “roll rate” analysis that uses historical claim frequency information to determine the projected ultimate Default to Claim Rates based on the Stage of Default and Time in Default as well as the date that a loan goes into default. The Default to Claim Rate also includes our estimates with respect to expected Loss Mitigation Activities, which have the effect of reducing our Default to Claim Rates.

After estimating the Default to Claim Rate, we estimate Claim Severity based on observed severity rates within product type, type of insurance and Time in Default cohorts. These severity estimates are then applied to individual loan coverage amounts to determine reserves.

The impact to our reserve due to estimated future Loss Mitigation Activities incorporates our expectations regarding the number of policies that we expect to be reinstated as a result of our claims rebuttal process. Rescissions, Claim Denials and

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Claim Curtailments may occur for various reasons, including, without limitation, underwriting negligence, fraudulent applications and appraisals, breach of representations and warranties and inadequate documentation, primarily related to our insurance written in years prior to and including 2008.

Unless a liability associated with such activities or discussions becomes probable and can be reasonably estimated, we consider our claim payments and our Rescissions, Claim Denials and Claim Curtailments to be resolved for financial reporting purposes. An estimated loss is accrued only if we determine that the loss is probable and can be reasonably estimated. For populations of disputed Rescissions, Claim Denials and Claim Curtailments where we determine that a settlement is probable and that a loss can be reasonably estimated, we reflect our best estimate of the expected loss related to the populations under discussion in our financial statements, primarily as a component of our IBNR reserve. While our reserves include our best estimate of such losses, the outcome of the discussions or potential legal proceedings that could ensue is uncertain, and it is reasonably possible that a loss exists in excess of the amount accrued.

Estimating our case reserve for losses involves significant reliance upon assumptions and estimates with regard to the likelihood, magnitude and timing of each potential loss. The models, assumptions and estimates we use to establish loss reserves may not prove to be accurate, especially in the event of an extended economic downturn or a period of market volatility and economic uncertainty such as we have experienced due to the COVID-19 pandemic. For example, the ultimate cure rate for loan defaults resulting from the pandemic may be lower or higher than our expectations. These assumptions require management to use considerable judgment in estimating the rate at which these loans will result in claims. As such, given the current environment, there is significant uncertainty around our reserve estimate.

Title Insurance

We establish reserves for estimated future claims payments on our title insurance policies at the time the related policy revenue is recorded. Our title insurance reserve for losses and LAE comprises estimates of both known claims and incurred but unreported claims expected to be paid in the future for policies issued as of the balance sheet date. Title insurance policies typically insure against prior events affecting the quality of real estate titles, rather than against unforeseen, and therefore less avoidable, future events. As such, claims payments often result from either judgment errors or mistakes made in the title search and examination process or the escrow process.

We provide for losses associated with these policies based upon our historical experience and other factors. However, by their nature, title claims can often be complex, vary greatly in dollar amounts, vary in number due to economic and market conditions such as an increase in mortgage foreclosures, and involve uncertainties as to ultimate exposure. Due to the length of time over which claim payments are made and regularly occurring changes in underlying economic and market conditions, these estimates are subject to variability.

Reserve for Premium Deficiency

Insurance enterprises are required to establish a PDR if the net present value of the expected future losses and expenses for a particular product line exceeds the net present value of expected future premiums and existing reserves for that product line. We reassess our expectations for premiums, losses and expenses for our mortgage insurance business at least quarterly and update our premium deficiency analyses accordingly. For our mortgage insurance business, we group our mortgage insurance products into two categories: first-lien and second-lien mortgage loans.

As of December 31, 2021 and 2020, the combination of the net present value of our expected future premiums and existing reserves (net of reinsurance recoverables) significantly exceeded the net present value of our future expected losses and expenses associated with our first-lien mortgage insurance portfolio. Our remaining second-lien mortgage insurance exposure is immaterial. We had a second-lien PDR of $0.1 million as of December 31, 2020, and did not require a second-lien PDR as of December 31, 2021.

Revenue Recognition

Mortgage Insurance

Premiums on mortgage insurance products are written on a recurring basis, either as monthly or annual premiums, or on a multi-year basis as a single premium. Monthly premiums written are earned as coverage is provided each month. For certain monthly policies where the billing is deferred for the first month’s coverage period, currently to the end of the policy, we record a net premium receivable representing the present value of such deferred premiums that we estimate will be collected at that future date. As of December 31, 2021 and 2020, this net premium receivable was $30.3 million and $29.7 million, respectively, representing the present values of $74.0 million and $77.0 million, respectively, in contractual deferred monthly premiums, after adjustments for the estimated collectability and timing of future billing. We recognize changes in this receivable based on changes in the estimated amount and timing of such collections, including as a result of changes in observed trends as well as our periodic review of our servicing guide and our operations and collections practices. Given the difference between the present value of the net premium receivable recorded and the contractual premiums due, such changes to the preceding factors could have a material effect on our results of operations in future periods if any changes are implemented.

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Annual premiums written are initially recorded as unearned premiums and amortized on a monthly, straight-line basis. Single premiums written are initially recorded as unearned premiums and earned over time based on the anticipated claim payment pattern, which includes historical industry experience and is updated periodically. During 2019, we updated the amortization rates due to the continuing increase in the significance of borrower-paid Single Premium Policies in our portfolio following our rate reductions on borrower-paid Single Premium Policies in 2018. Under HPA, most borrower-paid policies must be canceled automatically on the date the LTV is scheduled to reach 78% of the original value (or, if the loan is not current on that date, on the subsequent date that the loan becomes current). As a result, given the shift in our mix of Single Premium Policies toward more borrower-paid Single Premium Policies than lender-paid, the average anticipated term of our Single Premium IIF is declining compared to historical levels. We updated our analysis to reflect not only this anticipated effect of HPA cancellations on borrower-paid policies, but also changes in observed and projected loss patterns for both borrower-paid and lender-paid policies. Our results for 2019 include a $32.9 million increase in net premiums earned and a $0.12 increase in net income per share, resulting from a cumulative adjustment related to the updated amortization rates used to recognize revenue for Single Premium Policies.

When we rescind insurance coverage on a loan, we refund all premiums received in connection with such coverage. When insurance coverage on a loan is canceled due to claim payment, we refund all premiums received since the date of delinquency. When insurance coverage is cancelled for a reason other than Rescission or claim payment, all premium that is nonrefundable is immediately earned. Premium revenue is recognized net of our accrual for estimated premium refunds due to Rescissions or other factors.

With respect to our reinsurance transactions, ceded premiums written on an annual or multi-year basis are initially set up as prepaid reinsurance and are amortized in a manner consistent with the recognition of income on direct premiums.

Title Insurance and Related Services

Title insurance premiums are recognized as revenue upon closing and completion of the real estate transaction. Premiums generally are calculated with reference to the policy amount. Premiums are charged to customers based on rates predetermined in coordination with each state’s respective Department of Insurance. Such regulations vary from state to state. Premium revenues from agency title operations are primarily comprised of premiums recognized upon title order and completion of real estate transaction closing.

Other title-related fees and income are closely related to title insurance premiums and are primarily associated with managing the closing of real estate transactions. As such, revenue is primarily recognized upon closing of the real estate transaction or completion and billing of services. We offer title services that include tax and title data services; centralized recording services; document retrieval; default curative title services; deed reports; property reports and other real estate or title-related activities. Expenses typically associated with premiums include third-party agent commissions and premium taxes.

Other Services

We recognize revenue representing the transfer of services to customers in an amount that reflects the consideration that we expect to be entitled to receive in exchange for those services, which are recognized as the performance obligations are satisfied. Due to the transactional nature of our business, our services revenue may fluctuate from period to period as transactions are commenced or completed.

Prior to our January 2020 sale of Clayton, our services included transaction management services related to loan acquisition, RMBS securitization and distressed asset reviews and servicer and loan surveillance services. Also, through December 2020, we offered residential real estate appraisal services through a panel of independent contractor appraisers; however, consistent with increased market demand for technology-driven solutions, in October 2020 we announced the wind down of this traditional appraisal business, in order to focus on our digital valuation services that are expected to produce higher growth. Our remaining services and related revenue recognition considerations are as follows:

Real Estate Services. We provide real estate services, including asset management and valuation services. Asset management services include management of the entire REO disposition process, services such as diligence and underwriting that serve the single family rental asset class, and a web-based asset management workflow solution for task driven asset management, including the management of REO assets, rental properties, due diligence for bulk acquisitions, loss mitigation efforts and short sales. Revenue attributable to REO services provided is based on a percentage of the sale and recognized over time, measured based on the progress to date and typically coincides with the client’s successful closing on the property. In certain instances, fees are received at the time that an asset is assigned to Radian for management. These fees are recorded as deferred revenue and are recognized over time based on progress to date and the availability to customers.

For valuation services, we leverage technology and a quality control process to deliver real estate valuation products and services to our customers, which include: appraisal review products; hybrid/ancillary appraisal products; automated valuation products; interactive valuation products; and broker price opinions. Each service qualifies as a separate performance obligation for which revenue is recognized as the service is performed and made available to the client.

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Mortgage Services. We provide third-party contract underwriting and fulfillment solutions to our mortgage customers. Generally, revenue is recognized when contract underwriting results are made available to the customer or fulfillment services are completed.

Cost of Services

Cost of services consists primarily of costs paid for employee compensation and related payroll benefits, as well as corresponding travel and related expenses incurred in providing such services to clients.

Leases

We determine if an arrangement includes a lease at inception, and if it does, we recognize a right-of-use asset and lease liability. Right-of-use assets represent our right to use an underlying asset for the lease term and are recognized net of any payments made or received from the lessor. Lease liabilities represent our obligation to make lease payments and are based on the present value of lease payments over the lease term. In determining the net present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date.

Lease expense is recognized on a straight-line basis over the expected lease term. Lease and non-lease components are generally not accounted for separately. We have elected the short-term exemption for contracts with lease terms of 12 months or less.

Our lease agreements primarily relate to operating leases for office space we use in our operations. Certain of our leases include renewal options and/or termination options that we did not consider in the determination of the right-of-use asset or the lease liability as we did not believe it was reasonably certain that we would exercise such options.

See Note 13 for additional information on our lease liabilities.

Reinsurance

We cede insurance risk through the use of reinsurance contracts and follow reinsurance accounting for those transactions where significant risk is transferred. Loss reserves and unearned premiums are established before consideration is given to amounts related to our reinsurance agreements.

In accordance with the terms of the Single Premium QSR Program, rather than making a cash payment or transferring investments for ceded premiums written, Radian Guaranty holds the related amounts to collateralize the reinsurers’ obligations and has established a corresponding funds withheld liability. Any loss recoveries and any potential profit commission to Radian Guaranty will be realized from this account. The reinsurers’ share of earned premiums is paid from this account on a quarterly basis. This liability also includes an interest credit on funds withheld, which is recorded as ceded premiums at a rate specified in the agreement and, depending on experience under the contract, may be paid to either Radian Guaranty or the reinsurers.

The ceding commission earned for premiums ceded pursuant to this transaction is attributable to other underwriting costs (including any related deferred policy acquisition costs). The unamortized portion of the ceding commission in excess of our related acquisition cost is reflected in other liabilities. Ceded premiums written are recorded on the balance sheet as prepaid reinsurance premiums and amortized to ceded premiums earned in a manner consistent with the recognition of income on direct premiums. See Note 8 for further discussion of our reinsurance transactions.

Variable Interest Entities

In connection with our reinsurance programs for our mortgage insurance business, we may enter into contracts with VIEs. VIEs include corporations, trusts or partnerships in which: (i) the entity has insufficient equity at risk to allow it to finance its activities without additional subordinated financial support or (ii) at-risk equity holders, as a group, do not have the characteristics of a controlling financial interest.

We perform an evaluation to determine whether we are required to consolidate the VIE’s assets and liabilities in our consolidated financial statements, based on whether we are deemed to be the primary beneficiary. The primary beneficiary of a VIE is the variable interest holder that is determined to have the controlling financial interest as a result of having both: (i) the power to direct the activities of a VIE that most significantly impact the economic performance of the VIE and (ii) the obligation to absorb losses or right to receive benefits from the VIE that potentially could be significant to the VIE. See Note 8 for additional information.

Goodwill and Other Acquired Intangible Assets, Net

Goodwill is an asset representing the estimated future economic benefits arising from the assets we have acquired that were not individually identified and separately recognized. We generally perform our annual goodwill impairment test during the fourth quarter of each year, using balances as of the prior quarter. Goodwill is deemed to have an indefinite useful life and is subject to review for impairment annually, or more frequently, whenever circumstances indicate potential impairment at the

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reporting unit level. A reporting unit represents a business for which discrete financial information is available. We have concluded that we have one reporting unit, the homegenius segment, for purposes of our goodwill impairment assessment.

Acquired intangible assets, other than goodwill, primarily consist of customer relationships and represent the value of the specifically acquired customer relationships. For financial reporting purposes, intangible assets with finite lives are amortized over their applicable estimated useful lives in a manner that approximates the pattern of expected economic benefit from each intangible asset.

The calculation of the estimated fair value of goodwill and other acquired intangibles is performed primarily using an income approach and requires the use of significant estimates and assumptions that are highly subjective in nature, such as future expected cash flows, discount rates, attrition rates and market conditions. The most significant assumptions relate to the valuation of customer relationships. For more information on our accounting for goodwill and other acquired intangibles, see Note 7.

Property and Equipment

We capitalize certain costs associated with the development of internal-use software and the purchase of property and equipment. Software, property and equipment are carried at cost, net of accumulated depreciation and amortization. Amortization and depreciation are calculated on a straight-line basis over the estimated useful life of the respective assets and commence during the month of our placement of the assets into use.

The estimated useful life used to calculate the amortization of internal-use software is generally seven years. Leasehold improvements are depreciated over the lesser of the estimated useful life of the asset improved or the remaining term of the lease. The estimated useful life used to calculate the depreciation of furniture and equipment is generally three years. Depreciation and amortization expense associated with property and equipment for the years ended December 31, 2021, 2020 and 2019 was $15.9 million, $18.3 million and $20.8 million, respectively.

The following is a summary of the gross and net carrying amounts and accumulated amortization / depreciation (including impairment) of our property and equipment as of the periods indicated.


Property and equipment

	December 31, 2021						December 31, 2020
(In thousands)	Gross Carrying Amount		Accumulated Amortization / Depreciation		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization / Depreciation		Net Carrying Amount
Internal-use software	$	145,248	$	(91,542)	$	53,706	$	136,033	$	(81,724)	$	54,309
Leasehold improvements	34,805		(18,108)		16,697		32,975		(15,608)		17,367
Furniture and equipment	67,322		(62,639)		4,683		65,478		(56,697)		8,781
Total	$	247,375	$	(172,289)	$	75,086	$	234,486	$	(154,029)	$	80,457

Deferred Policy Acquisition Costs

Incremental, direct costs associated with the successful acquisition of mortgage insurance policies, consisting of compensation, premium tax and other policy issuance and underwriting expenses, are initially deferred and reported as deferred policy acquisition costs. Consistent with industry accounting practice, amortization of these costs for each underwriting year book of business is recognized in proportion to estimated gross profits over the estimated life of the policies.

Estimated gross profits are composed of earned premium, interest income, losses and LAE. Estimates of expected gross profit, including the Persistency Rate and loss development assumptions for each underwriting year used as a basis for amortization, are evaluated quarterly and the total amortization recorded to date is adjusted by a charge or credit to our consolidated statements of operations if actual experience or other evidence suggests that previous estimates should be revised. Considerable judgment is used in evaluating these estimates and the assumptions on which they are based. The use of different assumptions may have a significant effect on the amortization of deferred policy acquisition costs. Ceding commissions received under our reinsurance arrangements related to these costs are also deferred and accounted for using similar assumptions. See Note 8 for additional information.

Earnings per Share

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding, while diluted net income per share is computed by dividing net income attributable to common stockholders by

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the sum of the weighted-average number of common shares outstanding and the weighted-average number of dilutive potential common shares.

Dilutive potential common shares relate primarily to our share-based compensation arrangements. In computing diluted net income per share, we use the treasury stock method, which is computed by assuming the issuance of common stock for the potential dilution of our unvested RSUs. For all calculations, the determination of whether potential common shares are dilutive or anti-dilutive is based on net income.

Share-Based Compensation

The cost related to share-based equity instruments is measured based on the grant-date fair value at the date of issuance, which for RSU awards is primarily determined by our common stock price on the date of grant. For share-based awards with performance conditions related to our own operations, the expense recognized is dependent on the probability of the performance measure being achieved. Compensation cost is generally recognized over the periods that an employee provides service in exchange for the award. Any forfeitures of awards are recognized as they occur. See Note 17 for further information.

Recent Accounting Pronouncements

Accounting Standards Adopted During 2021

In December 2019, the FASB issued ASU 2019-12, Income Taxes—Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes by removing certain exceptions to the general principles of ASC Topic 740 in GAAP and clarifies certain aspects to promote consistency among reporting entities. We adopted this update effective January 1, 2021. The adoption of this update did not have an impact on our financial statements and disclosures.

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs. This update clarifies that, for each reporting period, to the extent the amortized cost basis of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess (i.e., the premium) should be amortized to the next call date. We adopted ASU 2020-08 on January 1, 2021 on a prospective basis. The adoption of this update did not have a material impact on our financial statements and disclosures.

Accounting Standards Not Yet Adopted

In August 2018, the FASB issued ASU 2018-12, Financial Services—Insurance—Targeted Improvements to the Accounting for Long-Duration Contracts. The new standard: (i) requires that assumptions used to measure the liability for future policy benefits be reviewed at least annually; (ii) defines and simplifies the measurement of market risk benefits; (iii) simplifies the amortization of deferred acquisition costs; and (iv) enhances the required disclosures about long-duration contracts. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. We continue to evaluate the impact the new accounting guidance will have on our financial statements and disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform—Facilitation of the Effects of Reference Reform on Financial Reporting. This new guidance provides optional practical expedients and exceptions for applying GAAP requirements to investments, derivatives or other transactions affected by reference rate reform such as those that impact the assessment of contract modifications. The amendments in this update are optional and may be elected from the date of issuance through December 31, 2022, as reference rate reform activities occur. We continue to evaluate the impact the discontinuance of LIBOR and the new accounting guidance will have on our financial statements and disclosures.

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3. Net Income Per Share

The calculation of basic and diluted net income per share is as follows.


Net income per share

	Years Ended December 31,
(In thousands, except per-share amounts)	2021		2020		2019
Net income—basic and diluted	$	600,671	$	393,626	$	672,309

Average common shares outstanding—basic	188,370		195,443		208,773
Dilutive effect of stock-based compensation arrangements (1)	1,893		1,199		1,567
Adjusted average common shares outstanding—diluted	190,263		196,642		210,340

Net income per share:
Basic	$	3.19	$	2.01	$	3.22
Diluted	$	3.16	$	2.00	$	3.20

(1)The following number of shares of our common stock equivalents issued under our share-based compensation arrangements are not included in the calculation of diluted net income per share because they are anti-dilutive.


	Years Ended December 31,
(In thousands)	2021	2020	2019
Shares of common stock equivalents	28	865	221

4. Segment Reporting

We have two strategic business units that we manage separately—Mortgage and homegenius. Our Mortgage segment derives its revenue from mortgage insurance and other mortgage and risk services, including contract underwriting and fulfillment solutions provided to mortgage lending institutions and mortgage credit investors. Our homegenius segment offers an array of title, real estate and technology products and services to consumers, mortgage lenders, mortgage and real estate investors, GSEs, real estate brokers and agents.

In addition, we report as All Other activities that include: (i) income (losses) from assets held by Radian Group, our holding company; (ii) related general corporate operating expenses not attributable or allocated to our reportable segments; (iii) income and expenses related to Clayton for all periods prior to our sale of this business in the first quarter of 2020; (iv) the income and expenses related to our traditional appraisal services, which we wound down beginning in the fourth quarter of 2020; and (v) certain other immaterial activities, including investments in new business opportunities.

During the second quarter of 2021, our Real Estate segment was renamed “homegenius” to align with updates to our brand strategy for the segment’s products and services. The homegenius segment name change had no impact on the composition of our segments or on our previously reported historical financial position, results of operations, cash flow or segment level results.

We allocate corporate operating expenses to both reportable segments based on each segment’s forecasted annual percentage of total revenue, which approximates the estimated percentage of management time spent on each segment. In addition, we allocate all corporate interest expense to our Mortgage segment, due to the capital-intensive nature of our mortgage insurance business.

With the primary exception of goodwill and other acquired intangible assets, which all relate to our homegenius segment and are reviewed as part of our annual goodwill impairment assessment, we do not manage assets by segment.

See Note 1 for additional details about our Mortgage and homegenius businesses.

Adjusted Pretax Operating Income (Loss)

Our senior management, including our Chief Executive Officer (Radian’s chief operating decision maker), uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of each of Radian’s business segments and to allocate resources to the segments.

Adjusted pretax operating income (loss) is defined as pretax income (loss) excluding the effects of: (i) net gains (losses) on investments and other financial instruments, except for certain investments attributable to our reportable segments; (ii) loss on extinguishment of debt; (iii) amortization and impairment of goodwill and other acquired intangible assets; and (iv)

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impairment of other long-lived assets and other non-operating items, such as impairment of internal-use software, gains (losses) from the sale of lines of business and acquisition-related income and expenses.

(1) Net gains (losses) on investments and other financial instruments. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized gains and losses arise primarily from changes in the market value of our investments that are classified as trading or equity securities. These valuation adjustments may not necessarily result in realized economic gains or losses.

Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized and unrealized gains or losses and changes in fair value of other financial instruments. Except for certain investments attributable to our reportable segments, we do not view them to be indicative of our fundamental operating activities.

(2)Loss on extinguishment of debt. Gains or losses on early extinguishment of debt and losses incurred to purchase our debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial and capital positions; therefore, we do not view these activities as part of our operating performance. Such transactions do not reflect expected future operations and do not provide meaningful insight regarding our current or past operating trends.

(3)Amortization and impairment of goodwill and other acquired intangible assets. Amortization of acquired intangible assets represents the periodic expense required to amortize the cost of acquired intangible assets over their estimated useful lives. Acquired intangible assets are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. We do not view these charges as part of the operating performance of our primary activities.

(4)Impairment of other long-lived assets and other non-operating items. Includes activities that we do not view to be indicative of our fundamental operating activities, such as: (i) impairment of internal-use software and other long-lived assets; (ii) gains (losses) from the sale of lines of business: and (iii) acquisition-related income and expenses.

The reconciliation of adjusted pretax operating income (loss) for our reportable segments to consolidated pretax income is as follows.


Reconciliation of adjusted pretax operating income (loss) by segment

	December 31,
(In thousands)	2021		2020		2019
Adjusted pretax operating income (loss)
Mortgage	$	781,546	$	453,294	$	852,854
homegenius	(27,324)		(23,240)		(17,987)
Total adjusted pretax operating income for reportable segments	754,222		430,054		834,867
All Other adjusted pretax operating income	3,527		2,013		19,768
Net gains on investments and other financial instruments (1)	14,094		60,277		51,719
Loss on extinguishment of debt	—		—		(22,738)
Impairment of goodwill	—		—		(4,828)
Amortization and impairment of other acquired intangible assets	(3,450)		(5,144)		(22,288)
Impairment of other long-lived assets and other non-operating items	(3,561)		(7,759)		(7,507)
Consolidated pretax income	$	764,832	$	479,441	$	848,993

(1)For 2021, excludes $1.5 million in net gains on investments attributable to our homegenius segment and included in adjusted pretax operating income (loss) for that reportable segment.

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Revenue and Other Segment Information

The following tables reconcile reportable segment revenues to consolidated revenues and summarize interest expense, depreciation expense, allocation of corporate operating expenses and adjusted pretax operating income for our reportable segments as follows.


Reportable segment revenue and other segment information

	December 31, 2021
(In thousands)	Mortgage		homegenius		Reportable Segment Total		All Other		Inter-segment		Adjustments		Consolidated Total
Net premiums earned	$	998,282	$	38,901	$	1,037,183	$	—	$	—	$	—	$	1,037,183
Services revenue	17,670		108,282		125,952		154		(281)		—		125,825
Net investment income	132,929		358		133,287		14,622		—		—		147,909
Net gains on investments and other financial instruments	—		1,509		1,509		—		—		14,094		15,603
Other income	2,678		—		2,678		734		—		—		3,412
Total revenues	$	1,151,559	$	149,050	$	1,300,609	$	15,510	$	(281)	$	14,094	$	1,329,932
Other segment information:
Interest expense	$	84,344	$	—	$	84,344
Direct depreciation expense	9,580		2,452		12,032
Allocation of corporate operating expenses (1)	127,482		18,482		145,964

(1)Includes allocated depreciation expense of $3.2 million, $0.5 million and $3.7 million allocated to Mortgage, homegenius and Reportable Segment Total, respectively.


	December 31, 2020
(In thousands)	Mortgage		homegenius		Reportable Segment Total		All Other		Inter-segment		Adjustments		Consolidated Total
Net premiums earned	$	1,092,767	$	22,554	$	1,115,321	$	—	$	—	$	—	$	1,115,321
Services revenue	14,765		79,524		94,289		12,535		(1,439)		—		105,385
Net investment income	137,195		361		137,556		16,481		—		—		154,037
Net gains on investments and other financial instruments	—		—		—		—		—		60,277		60,277
Other income	2,816		—		2,816		534		—		247		3,597
Total revenues	$	1,247,543	$	102,439	$	1,349,982	$	29,550	$	(1,439)	$	60,524	$	1,438,617
Other segment information:
Interest expense	$	71,150	$	—	$	71,150
Direct depreciation expense	12,387		2,857		15,244
Allocation of corporate operating expenses (1)	114,802		12,807		127,609

(1)Includes allocated depreciation expense of $2.6 million, $0.3 million and $2.9 million allocated to Mortgage, homegenius and Reportable Segment Total, respectively.

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	December 31, 2019
(In thousands)	Mortgage		homegenius		Reportable Segment Total		All Other		Inter-segment		Adjustments		Consolidated Total
Net premiums earned	$1,134,214		$	11,976	$	1,146,190	$	(841)	$	—	$	—	$	1,145,349
Services revenue	8,134		76,941		85,075		70,961		(1,440)		—		154,596
Net investment income	151,491		680		152,171		19,625		—		—		171,796
Net gains on investments and other financial instruments	—		—		—		—		—		51,719		51,719
Other income	2,798		—		2,798		697		—		—		3,495
Total revenues	$	1,296,637	$	89,597	$	1,386,234	$	90,442	$	(1,440)	$	51,719	$	1,526,955
Other segment information:
Interest expense	$	56,310	$	—	$	56,310
Direct depreciation expense	15,323		2,321		17,644
Allocation of corporate operating expenses (1)	104,078		10,165		114,243

(1)Includes allocated depreciation expense of $1.6 million, $0.1 million and $1.7 million allocated to Mortgage, homegenius and Reportable Segment Total, respectively.

There was no single customer that accounted for more than 10% of our consolidated revenues (excluding net gains on investments and other financial instruments) in 2021, 2020 or 2019. There was one customer that accounted for more than 10% of NIW in 2021, as compared to one in 2020 and none in 2019.

The table below represents the disaggregation of services revenues by revenue type.


Services revenue

	Years Ended December 31,
(In thousands)	2021		2020		2019
homegenius
Title	$	40,202	$	23,265	$	14,185
Real estate
Valuation	32,459		21,749		27,549
Single family rental	27,291		17,159		16,011
Asset management workflow platform	5,348		7,707		9,951
REO asset management	2,381		5,518		5,930
Other real estate services	320		2,770		2,862
Mortgage	17,670		14,682		7,632
All Other (1)	154		12,535		70,476
Total services revenue	$	125,825	$	105,385	$	154,596

(1)Includes services revenue from Clayton prior to its sale in January 2020 and amounts related to our traditional appraisal business, which we wound down beginning in the fourth quarter of 2020.

Revenue recognized related to services made available to customers and billed is reflected in accounts and notes receivable. Accounts and notes receivable includes $20.0 million and $18.8 million as of December 31, 2021 and 2020, respectively, related to services revenue contracts. Revenue recognized related to services performed and not yet billed is recorded in unbilled receivables and reflected in other assets. Deferred revenue, which represents advance payments received from customers in advance of revenue recognition, is immaterial for all periods presented. We have no material bad-debt expense.

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5. Fair Value of Financial Instruments

The following tables include a list of assets that are measured at fair value by hierarchy level as of December 31, 2021 and 2020.


Assets carried at fair value by hierarchy level

	December 31, 2021
(In thousands)	Level I		Level II		Level III		Total
Investments
Fixed-maturities available for sale
U.S. government and agency securities	$	192,452	$	29,278	$	—	$	221,730
State and municipal obligations	—		177,257		—		177,257
Corporate bonds and notes	—		2,910,231		—		2,910,231
RMBS	—		705,117		—		705,117
CMBS	—		709,203		—		709,203
CLO	—		530,040		—		530,040
Other ABS	—		211,187		—		211,187
Foreign government and agency securities	—		5,296		—		5,296
Mortgage insurance-linked notes (1)	—		47,017		—		47,017

Total fixed-maturities available for sale	192,452		5,324,626		—		5,517,078

Trading securities

State and municipal obligations	—		94,637		—		94,637
Corporate bonds and notes	—		119,186		—		119,186
RMBS	—		9,438		—		9,438
CMBS	—		33,285		—		33,285



Total trading securities	—		256,546		—		256,546

Equity securities	176,828		7,417		—		184,245

Short-term investments
U.S. government and agency securities	94,665		—		—		94,665
State and municipal obligations	—		12,270		—		12,270
Money market instruments	274,535		—		—		274,535
Corporate bonds and notes	—		65,191		—		65,191

CMBS	—		3,023		—		3,023



Other investments (2)	—		101,824		—		101,824
Total short-term investments	369,200		182,308		—		551,508

Other invested assets (3)	—		—		3,000		3,000

Total investments at fair value (3)	738,480		5,770,897		3,000		6,512,377

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Assets carried at fair value by hierarchy level

	December 31, 2021
(In thousands)	Level I		Level II		Level III		Total
Other
Embedded derivatives (4)	—		—		4,200		4,200
Loaned securities (5)

Corporate bonds and notes	—		65,994		—		65,994

Equity securities	38,002		—		—		38,002
Total assets at fair value (3)	$	776,482	$	5,836,891	$	7,200	$	6,620,573

(1)Comprises the notes purchased by Radian Group in connection with the Excess-of-Loss Program. See Note 8 for more information about our reinsurance programs.

(2)Comprising short-term certificates of deposit and commercial paper.

(3)Does not include other invested assets of $1.2 million that are primarily invested in limited partnership investments valued using the net asset value as a practical expedient.

(4)Embedded derivatives related to our Excess-of-Loss Program are classified as other assets in our consolidated balance sheets. See Note 8 for more information about our reinsurance programs.

(5)Securities loaned to third-party borrowers under securities lending agreements are classified as other assets in our consolidated balance sheets. See Note 6 for more information.


Assets carried at fair value by hierarchy level

	December 31, 2020
(In thousands)	Level I		Level II		Level III		Total

Investments
Fixed-maturities available for sale
U.S. government and agency securities	$	140,034	$	29,189	$	—	$	169,223
State and municipal obligations	—		165,271		—		165,271
Corporate bonds and notes	—		3,047,189		—		3,047,189
RMBS	—		833,939		—		833,939
CMBS	—		681,265		—		681,265
CLO	—		568,558		—		568,558
Other ABS	—		252,457		—		252,457
Foreign government and agency securities	—		5,438		—		5,438

Total fixed-maturities available for sale	140,034		5,583,306		—		5,723,340

Trading securities

State and municipal obligations	—		120,449		—		120,449

Corporate bonds and notes	—		123,142		—		123,142
RMBS	—		13,000		—		13,000
CMBS	—		34,294		—		34,294



Total trading securities	—		290,885		—		290,885

Equity securities	142,761		8,479		—		151,240

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Assets carried at fair value by hierarchy level

	December 31, 2020
(In thousands)	Level I		Level II		Level III		Total

Short-term investments

State and municipal obligations	—		21,819		—		21,819
Money market instruments	268,900		—		—		268,900
Corporate bonds and notes	—		30,495		—		30,495


Other ABS	—		219		—		219

Other investments (1)	—		296,571		—		296,571
Total short-term investments	268,900		349,104		—		618,004

Other invested assets (2)	—		—		3,000		3,000

Total investments at fair value (2)	551,695		6,231,774		3,000		6,786,469

Other
Embedded derivatives (3)	—		—		5,513		5,513
Loaned securities (4)
U.S. government and agency securities	4,876		—		—		4,876
Corporate bonds and notes	—		31,324		—		31,324

Equity securities	21,299		—		—		21,299
Total assets at fair value (2)	$	577,870	$	6,263,098	$	8,513	$	6,849,481

(1)Comprising short-term certificates of deposit and commercial paper.

(2)Does not include other invested assets of $2.0 million that are primarily invested in limited partnership investments valued using the net asset value as a practical expedient.

(3)Embedded derivatives related to our Excess-of-Loss Program are classified as other assets in our consolidated balance sheets. See Note 8 for more information about our reinsurance programs.

(4)Securities loaned to third-party borrowers under securities lending agreements are classified as other assets in our consolidated balance sheets. See Note 6 for more information.

There were no transfers to or from Level III for the years ended December 31, 2021 and 2020. Activity related to Level III assets and liabilities (including realized and unrealized gains and losses, purchases, sales, issuances, settlements and transfers) was immaterial for the years ended December 31, 2021 and 2020.

Valuation Methodologies for Assets Measured at Fair Value

We are responsible for the determination of the value of all investments carried at fair value and the supporting methodologies and assumptions. To assist us in this responsibility, we utilize independent third-party valuation service providers to gather, analyze and interpret market information and estimate fair values based upon relevant methodologies and assumptions for various asset classes and individual securities.

We perform monthly quantitative and qualitative analyses on the prices received from third parties to determine whether the prices are reasonable estimates of fair value. Our analysis includes: (i) a review of the methodology used by third-party pricing services; (ii) a comparison of pricing services’ valuations to other independent sources; (iii) a review of month-to-month price fluctuations; and (iv) a comparison of actual purchase and sale transactions with valuations received from third parties. These processes are designed to ensure that our investment values are accurately recorded, that the data inputs and valuation techniques utilized are appropriate and consistently applied and that the assumptions are reasonable and consistent with the objective of determining fair value.

The following are descriptions of our valuation methodologies for financial assets measured at fair value.

U.S. Government and Agency Securities. The fair value of U.S. government and agency securities is estimated using observed market transactions, including broker-dealer quotes and actual trade activity as a basis for valuation. U.S. government and agency securities are categorized in either Level I or Level II of the fair value hierarchy.

State and Municipal Obligations. The fair value of state and municipal obligations is estimated using recent transaction activity, including market observations. Valuation models are used, which incorporate bond structure, yield curve, credit spreads and other factors. These securities are generally categorized in Level II of the fair value hierarchy or in Level III when market-based transaction activity is unavailable.

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Money Market Instruments. The fair value of money market instruments is based on daily prices, which are published and available to all potential investors and market participants. As such, these securities are categorized in Level I of the fair value hierarchy.

Corporate Bonds and Notes. The fair value of corporate bonds and notes is estimated using recent transaction activity, including market observations. Spread models are used that incorporate issuer and structure characteristics, such as credit risk and early redemption features, where applicable. These securities are generally categorized in Level II of the fair value hierarchy or in Level III when market-based transaction activity is unavailable.

Asset-backed and Mortgage-backed Securities. The fair value of these instruments, which include RMBS, CMBS, CLO, Other ABS and mortgage insurance-linked notes, is estimated based on prices of comparable securities and spreads and observable prepayment speeds. These securities are generally categorized in Level II of the fair value hierarchy or in Level III when market-based transaction activity is unavailable. The fair value of any Level III securities is generally estimated by discounting estimated future cash flows.

Foreign Government and Agency Securities. The fair value of foreign government and agency securities is estimated using observed market yields used to create a maturity curve and observed credit spreads from market makers and broker-dealers. These securities are categorized in Level II of the fair value hierarchy.

Equity Securities. The fair value of these securities is generally estimated using observable market data in active markets or bid prices from market makers and broker-dealers. Generally, these securities are categorized in Level I or II of the fair value hierarchy, as observable market data are readily available. From time to time, certain equity securities may be categorized in Level III of the fair value hierarchy due to a lack of market-based transaction data or the use of model-based valuations.

Other Investments. These securities primarily consist of commercial paper and short-term certificates of deposit, which are categorized in Level II of the fair value hierarchy. The fair value of these investments is estimated using market data for comparable instruments of similar maturity and average yield.

Other Invested Assets. These assets consist of interests in private debt or equity investments. The estimated fair value of these other invested assets is primarily based on the private company’s performance, as well as the terms of the instrument and general market benchmarks. As such, these investments are categorized in Level III of the fair value hierarchy.

Embedded Derivatives. The estimated fair value related to our embedded derivatives generally reflects the present value impact of the variation in investment income on the assets held by the reinsurance trusts and the contractual reference rate used to calculate the reinsurance premiums we will pay. These assets are categorized in Level III of the fair value hierarchy.

Other Fair Value Disclosure

The carrying value and estimated fair value of other selected liabilities not carried at fair value in our consolidated balance sheets were as follows as of the dates indicated.


Financial liabilities not carried at fair value

	December 31, 2021				December 31, 2020
(In thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Senior notes	$	1,409,473	$	1,534,378	$	1,405,674	$	1,563,503
FHLB advances	150,983		152,117		176,483		179,578

The fair value of our senior notes is estimated based on quoted market prices. The fair value of our FHLB advances is estimated based on expected cash flows for similar borrowings. These liabilities are categorized in Level II of the fair value hierarchy. See Note 12 for further information about these borrowings.

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6. Investments

Available for Sale Securities

Our available for sale securities within our investment portfolio consisted of the following as of the dates indicated.


Available for sale securities

	December 31, 2021
(In thousands)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed-maturities available for sale
U.S. government and agency securities	$	221,407	$	—	$	1,719	$	(1,396)	$	221,730
State and municipal obligations	162,964		—		14,694		(401)		177,257
Corporate bonds and notes	2,867,063		—		133,665		(24,886)		2,975,842
RMBS	697,581		—		14,313		(6,777)		705,117
CMBS	690,827		—		21,444		(3,068)		709,203
CLO	529,906		—		1,032		(898)		530,040
Other ABS	210,657		—		1,142		(612)		211,187
Foreign government and agency securities	5,109		—		187		—		5,296
Mortgage insurance-linked notes (1)	45,384		—		1,633		—		47,017
Total securities available for sale, including loaned securities	5,430,898		$	—	$	189,829	$	(38,038)	5,582,689
Less: loaned securities (2)	63,169								65,611
Total fixed-maturities available for sale	$	5,367,729							$	5,517,078
(1)Comprises the notes purchased by Radian Group in connection with the Excess-of-Loss Program. See Note 8 for more information about our reinsurance programs. (2)Included in other assets in our consolidated balance sheets as further described below. See below for a discussion of our securities lending agreements.
	December 31, 2020
(In thousands)	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed-maturities available for sale
U.S. government and agency securities	$	176,033	$	—	$	1,677	$	(3,611)	$	174,099
State and municipal obligations	149,258		—		16,113		(100)		165,271
Corporate bonds and notes	2,832,350		(948)		250,771		(3,758)		3,078,415
RMBS	799,814		—		34,439		(314)		833,939
CMBS	645,071		—		39,495		(3,301)		681,265
CLO	569,173		—		2,026		(2,641)		568,558
Other ABS	249,988		—		2,901		(432)		252,457
Foreign government and agency securities	5,100		—		338		—		5,438
Total securities available for sale, including loaned securities	5,426,787		$	(948)	$	347,760	$	(14,157)	5,759,442
Less: loaned securities (1)	33,164								36,102
Total fixed-maturities available for sale	$	5,393,623							$	5,723,340
(1)Included in other assets in our consolidated balance sheets as further described below. See below for a discussion of our securities lending agreements.

The following table provides a rollforward of the allowance for credit losses on fixed-maturities available for sale, which relates entirely to corporate bonds and notes for the periods indicated.

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Rollforward of allowance for credit losses on fixed-maturities available for sale

	Years Ended December 31,
(In thousands)	2021		2020
Beginning balance	$	948	$	—
Current provision for securities without prior allowance	—		1,254
Net increases (decreases) in allowance on previously impaired securities	(918)		—
Reduction for securities sold	(30)		(306)
Ending balance	$	—	$	948

Gross Unrealized Losses and Related Fair Value of Available for Sale Securities

For securities deemed “available for sale” that are in an unrealized loss position and for which an allowance for credit loss has not been established, the following tables show the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates indicated. Included in the amounts as of December 31, 2021 and 2020, are loaned securities under securities lending agreements that are classified as other assets in our consolidated balance sheets, as further described below.


Unrealized losses on fixed-maturities available for sale by category and length of time

	December 31, 2021
($ in thousands)	Less Than 12 Months					12 Months or Greater					Total
Description of Securities	# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses
U.S. government and agency securities	14	$	101,602	$	(1,165)	2	$	6,937	$	(231)	16	$	108,539	$	(1,396)
State and municipal obligations	20	32,721		(401)		—	—		—		20	32,721		(401)
Corporate bonds and notes	209	864,355		(16,799)		34	99,475		(8,087)		243	963,830		(24,886)
RMBS	57	365,476		(6,749)		3	1,543		(28)		60	367,019		(6,777)
CMBS	81	188,457		(2,053)		9	22,050		(1,015)		90	210,507		(3,068)
CLO	84	313,380		(675)		11	35,612		(223)		95	348,992		(898)
Other ABS	54	138,851		(603)		1	631		(9)		55	139,482		(612)

Total	519	$	2,004,842	$	(28,445)	60	$	166,248	$	(9,593)	579	$	2,171,090	$	(38,038)

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	December 31, 2020
($ in thousands)	Less Than 12 Months					12 Months or Greater					Total
Description of Securities	# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses		# of securities	Fair Value		Unrealized Losses
U.S. government and agency securities	4	$	90,591	$	(3,611)	—	$	—	$	—	4	$	90,591	$	(3,611)
State and municipal obligations	4	9,626		(100)		—	—		—		4	9,626		(100)
Corporate bonds and notes	60	174,848		(3,758)		—	—		—		60	174,848		(3,758)
RMBS	5	42,003		(305)		2	915		(9)		7	42,918		(314)
CMBS	43	118,345		(3,035)		6	8,312		(266)		49	126,657		(3,301)
CLO	52	173,459		(970)		25	137,506		(1,671)		77	310,965		(2,641)
Other ABS	26	70,759		(322)		3	12,119		(110)		29	82,878		(432)


Total	194	$	679,631	$	(12,101)	36	$	158,852	$	(2,056)	230	$	838,483	$	(14,157)

See “—Net Gains on Investments” below for additional details on our net gains (losses) on investments, including the changes in the allowance for credit losses on fixed-maturities available for sale and other impairments due to our intent to sell securities in an unrealized loss position. See Note 2 for a discussion of our accounting policy for impairments.

Securities Lending Agreements

We participate in a securities lending program whereby we loan certain securities in our investment portfolio to third-party borrowers for short periods of time. These securities lending agreements are collateralized financing arrangements whereby we transfer securities to third parties through an intermediary in exchange for cash or other securities. However, pursuant to the terms of these agreements, we maintain effective control over all loaned securities. Although we report such securities at fair value within other assets in our consolidated balance sheets, rather than in investments, the detailed information provided in this Note includes these securities. See Note 9 for additional information.

Under our securities lending agreements, the borrower is required to provide to us collateral, consisting of cash or securities, in amounts generally equal to or exceeding: (i) 102% of the value of the loaned securities (105% in the case of foreign securities) or (ii) another agreed-upon percentage not less than 100% of the market value of the loaned securities. Any cash collateral we receive may be invested in liquid assets. Cash collateral, which is reinvested for our benefit by the intermediary in accordance with the investment guidelines contained in the securities lending and collateral agreements, is reflected in short-term investments, with an offsetting liability recognized in other liabilities for the obligation to return the cash collateral. Securities collateral we receive is held on deposit for the borrower’s benefit and we may not transfer or loan such securities collateral unless the borrower is in default. Therefore, such securities collateral is not reflected in our consolidated financial statements given that the risks and rewards of ownership are not transferred to us from the borrowers.

Fees received and paid in connection with securities lending agreements are recorded in net investment income and interest expense, respectively, on the consolidated statements of operations.

All of our securities lending agreements are classified as overnight and revolving. Securities collateral on deposit with us from third-party borrowers totaling $57.8 million and $43.3 million as of December 31, 2021 and December 31, 2020, respectively, may not be transferred or re-pledged unless the third-party borrower is in default, and is therefore not reflected in our consolidated financial statements.

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Net Investment Income

Net investment income consisted of the following.


Net investment income

	Years Ended December 31,
(In thousands)	2021		2020		2019
Investment income
Fixed-maturities	$	145,613	$	148,127	$	155,104
Equity securities	8,158		6,378		7,028
Short-term investments	817		5,774		17,255
Other	368		354		545
Gross investment income	154,956		160,633		179,932
Investment expenses	(7,047)		(6,596)		(8,136)
Net investment income	$	147,909	$	154,037	$	171,796

Net Gains on Investments

Net gains on investments consisted of the following.


Net gains on investments

	Years Ended December 31,
(In thousands)	2021		2020		2019
Net realized gains (losses)
Fixed-maturities available for sale (1)	$	5,661	$	34,869	$	11,262
Trading securities	390		4		(303)
Equity securities	10,820		353		(719)
Other investments	3,971		600		603
Net realized gains on investments	20,842		35,826		10,843
Impairment losses due to intent to sell	—		(1,401)		—
Net decrease (increase) in expected credit losses	918		(1,254)		—
Net unrealized gains (losses) on investments	(4,661)		10,960		33,220
Total net gains on investments	$	17,099	$	44,131	$	44,063

(1)Components of net realized gains (losses) on fixed-maturities available for sale include the following.


	Years Ended December 31,
(In thousands)	2021		2020		2019
Gross investment gains from sales and redemptions	$	22,766	$	37,431	$	17,663
Gross investment losses from sales and redemptions	(17,105)		(2,562)		(6,401)

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The net changes in unrealized gains (losses) recognized in earnings on investments that were still held at each period-end were as follows.


Net changes in unrealized gains (losses) on investments still held

	Years Ended December 31,
(In thousands)	2021		2020		2019
Net unrealized gains (losses) on investments still held
Trading securities	$	(7,330)	$	10,583	$	16,346
Equity securities	10,210		1,759		11,906
Other investments	1,173		248		(174)
Net unrealized gains (losses) on investments still held	$	4,053	$	12,590	$	28,078

Contractual Maturities

The contractual maturities of fixed-maturities available for sale were as follows.


Contractual maturities of fixed-maturities available for sale

	December 31, 2021
(In thousands)	Amortized Cost		Fair Value
Due in one year or less	$	182,884	$	183,770
Due after one year through five years (1)	1,116,102		1,150,676
Due after five years through 10 years (1)	1,191,992		1,228,959
Due after 10 years (1)	765,565		816,720
Asset-backed and mortgage-backed securities (2)	2,174,355		2,202,564
Total	5,430,898		5,582,689
Less: loaned securities	63,169		65,611
Total fixed-maturities available for sale	$	5,367,729	$	5,517,078

(1)Actual maturities may differ as a result of calls before scheduled maturity.

(2)Includes RMBS, CMBS, CLO, Other ABS and mortgage insurance-linked notes, which are not due at a single maturity date.

Other

For the years ended December 31, 2021, 2020 and 2019, we did not transfer any securities to or from the available for sale or trading categories.

Our fixed-maturities available for sale include securities totaling $14.3 million and $16.9 million at December 31, 2021 and 2020, respectively, on deposit and serving as collateral with various state regulatory authorities. Our fixed-maturities available for sale and trading securities also include securities serving as collateral for our FHLB advances. See Note 12 for additional information about our FHLB advances.

7. Goodwill and Other Acquired Intangible Assets, Net

All of our goodwill and other acquired intangible assets relate to our homegenius segment. There was no change to our goodwill balance of $9.8 million during the years ended December 31, 2021 and 2020.

The following is a summary of the gross and net carrying amounts and accumulated amortization (including impairment) of our other acquired intangible assets as of the periods indicated.

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Other acquired intangible assets

	December 31, 2021						December 31, 2020
(In thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Client relationships	$	43,550	$	(34,620)	$	8,930	$	43,550	$	(31,559)	$	11,991
Technology	8,285		(7,675)		610		8,285		(7,370)		915
Licenses	463		(212)		251		463		(128)		335



Total	$	52,298	$	(42,507)	$	9,791	$	52,298	$	(39,057)	$	13,241

For the years ended December 31, 2021, 2020 and 2019, amortization expense (including impairment) was $3.4 million, $5.1 million and $8.6 million, respectively. The estimated amortization expense for 2022 and thereafter is as follows.


Estimated amortization expense

(In thousands)	Estimated Amortization Expense
2022	$	3,397
2023	3,361
2024	3,033


Thereafter	—
Total	$	9,791

Impairment Analysis

As part of our 2021 annual goodwill impairment assessment performed during the fourth quarter, we estimated the fair value of the reporting unit using primarily an income approach. The key factor in our fair value analysis was forecasted future cash flows. We considered both positive and negative factors and concluded that, after considering all of the factors and evidence available, there was no impairment of goodwill indicated as of the measurement date because the estimated fair value of the reporting unit exceeded our carrying amount. Additionally, there was no impairment indicated for the remaining other acquired intangible assets as of December 31, 2021.

Based primarily on the wind down of our traditional appraisal business in the fourth quarter of 2020, we recognized impairments of $1.0 million and $0.3 million related to client relationships and technology, respectively, as of December 31, 2020.

In January 2020, we completed the sale of Clayton, through which we provided mortgage services related to loan acquisition, RMBS securitization and distressed asset reviews and servicer and loan surveillance services. We recognized an impairment charge of $4.8 million for goodwill allocated to the Clayton asset group and an impairment of other acquired intangible assets for $13.7 million as of December 31, 2019.

8. Reinsurance

In our mortgage insurance and title insurance businesses, we use reinsurance as part of our risk distribution strategy, including to manage our capital position and risk profile. The reinsurance arrangements for our mortgage insurance business include premiums ceded under the QSR Program, the Single Premium QSR Program and the Excess-of-Loss Program. The amount of credit that we receive under the PMIERs financial requirements for our third-party reinsurance transactions is subject to ongoing review and approval by the GSEs.

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The effect of all of our reinsurance programs on our net income is as follows.


Reinsurance impacts on net premiums written and earned

	Net Premiums Written						Net Premiums Earned
	Years Ended December 31,						Years Ended December 31,
(In thousands)	2021		2020		2019		2021		2020		2019
Direct
Mortgage insurance	$	984,995	$	1,085,670	$	1,120,996	$	1,104,696	$	1,263,684	$	1,233,528	(1)
Title insurance	39,665		22,843		11,342		39,665		22,843		11,342
Total direct	1,024,660		1,108,513		1,132,338		1,144,361		1,286,527		1,244,870		(1)
Assumed (2)
Mortgage insurance	7,066		12,197		10,379		7,066		12,214		10,382


Ceded
Mortgage insurance (3)	(47,515)		(86,912)		(55,925)		(113,480)		(183,131)		(109,696)		(1)
Title insurance	(764)		(289)		(207)		(764)		(289)		(207)
Total ceded (3)	(48,279)		(87,201)		(56,132)		(114,244)		(183,420)		(109,903)		(1)
Total net premiums	$	983,447	$	1,033,509	$	1,086,585	$	1,037,183	1,115,321		$	1,145,349	(1)

(1)Includes a cumulative adjustment to unearned premiums related to an update to the amortization rates used to recognize revenue for Single Premium Policies. See Note 2 for further information.

(2)Primarily includes premiums from our participation in certain credit risk transfer programs.

(3)Net of profit commission, which is impacted by the level of ceded losses recoverable, if any, on reinsurance transactions. See Note 11 for additional information on our reserve for losses and reinsurance recoverables.


Other reinsurance impacts

	Years Ended December 31,
(In thousands)	2021		2020		2019
Ceding commissions earned (1)	$	31,745	$	53,654	$	48,659
Ceded losses (2)	(4,570)		58,266		5,859

(1)Ceding commissions earned are primarily related to mortgage insurance and are included as an offset to expenses primarily in other operating expenses on our consolidated statements of operations. Deferred ceding commissions of $38.6 million and $52.5 million are included in other liabilities on our consolidated balance sheets at December 31, 2021 and 2020, respectively.

(2)Primarily all related to mortgage insurance.

Single Premium QSR Program

Radian Guaranty entered into each of the 2016 Single Premium QSR Agreement, 2018 Single Premium QSR Agreement and 2020 Single Premium QSR Agreement with panels of third-party reinsurers to cede a contractual quota share percent of our Single Premium NIW as of the effective date of each agreement (as set forth in the table below), subject to certain conditions. Radian Guaranty receives a ceding commission for ceded premiums written pursuant to these transactions. Radian Guaranty also receives a profit commission annually, provided that the loss ratio on the loans covered under the agreement generally remains below the applicable prescribed thresholds. Losses on the ceded risk up to this level reduce Radian Guaranty’s profit commission on a dollar-for-dollar basis.

Each of the agreements is subject to a scheduled termination date as set forth in the table below; however, Radian Guaranty has the option, based on certain conditions and subject to a termination fee, to terminate any of the agreements at the end of any calendar quarter on or after the applicable optional termination date. If Radian Guaranty exercises this option in the future, it would result in Radian Guaranty reassuming the related RIF in exchange for a net payment to the reinsurer calculated in accordance with the terms of the applicable agreement. Radian Guaranty also may terminate any of the agreements prior to the applicable scheduled termination date under certain circumstances, including if one or both of the GSEs no longer grant full PMIERs capital relief for the reinsurance.

As of January 1, 2022, Radian Guaranty is no longer ceding NIW under the Single Premium QSR Program.

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The following table sets forth additional details regarding the Single Premium QSR Program.

Single Premium QSR Program

2020 Single Premium QSR Agreement

2018 Single Premium QSR Agreement

2016 Single Premium QSR Agreement

NIW policy dates

Jan 1, 2020-Dec 31, 2021

Jan 1, 2018-Dec 31, 2019

Jan 1, 2012-Dec 31, 2017

Effective date

January 1, 2020

January 1, 2018

January 1, 2016

Scheduled termination date

December 31, 2031

December 31, 2029

December 31, 2027

Optional termination date

January 1, 2024

January 1, 2022

January 1, 2020

Quota share %

65%

20% - 65% (1)

Ceding commission %

25%

Profit commission %

Up to 56%

Up to 55%

(In millions)

As of December 31, 2021

RIF ceded

2,198

1,117

1,913

(In millions)

As of December 31, 2020

RIF ceded

1,597

1,979

3,071

(1)Effective December 31, 2017, we amended the 2016 Single Premium QSR Agreement to increase the amount of ceded risk on performing loans under the agreement from 35% to 65% for the 2015 through 2017 vintages. Loans included in the 2012 through 2014 vintages, and any other loans subject to the agreement that were delinquent at the time of the amendment, were unaffected by the change and therefore the amount of ceded risk for those loans continues to range from 20% to 35%.

Excess-of-Loss Program

Radian Guaranty has entered into six fully collateralized reinsurance arrangements with the Eagle Re Issuers. For the respective coverage periods, Radian Guaranty retains the first-loss layer of aggregate losses, as well as any losses in excess of the outstanding reinsurance coverage amounts. The Eagle Re Issuers provide second layer coverage up to the outstanding coverage amounts. For each of these six reinsurance arrangements, the Eagle Re Issuers financed their coverage by issuing mortgage insurance-linked notes to eligible capital markets investors in unregistered private offerings. The aggregate excess-of-loss reinsurance coverage for these arrangements decreases over the maturity period of the mortgage insurance-linked notes (either a 10-year or 12.5-year period depending on the transaction) as the principal balances of the underlying covered mortgages decrease and as any claims are paid by the applicable Eagle Re Issuer or the mortgage insurance is canceled. Radian Guaranty has rights to terminate the reinsurance agreements upon the occurrence of certain events.

Under each of the reinsurance agreements, the outstanding reinsurance coverage amount will begin amortizing after an initial period in which a target level of credit enhancement is obtained and will stop amortizing if certain thresholds, or triggers, are reached, including a delinquency trigger event based on an elevated level of delinquencies as defined in the related insurance-linked notes transaction agreements. With the exception of insurance-linked notes issued by Eagle Re 2020-2 Ltd., Eagle Re 2021-1 Ltd. and Eagle Re 2021-2 Ltd., the insurance-linked notes issued by the Eagle Re Issuers in connection with our Excess-of-Loss Program are currently subject to a delinquency trigger event, which was first reported to the insurance-linked note investors on June 25, 2020. For the insurance-linked notes that are subject to a delinquency trigger event, both the amortization of the outstanding reinsurance coverage amount pursuant to our reinsurance arrangements with the Eagle Re Issuers and the amortization of the principal amount of the related insurance-linked notes issued by the Eagle Re Issuers have been suspended and will continue to be suspended during the pendency of the trigger event.

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The following tables set forth additional details regarding the Excess-of-Loss Program as of December 31, 2021 and December 31, 2020.


Excess-of-Loss Program

(In millions)	Eagle Re 2021-2 Ltd.		Eagle Re 2021-1 Ltd.			Eagle Re 2020-2 Ltd.		Eagle Re 2020-1 Ltd.		Eagle Re 2019-1 Ltd.		Eagle Re 2018-1 Ltd.
Issued	November 2021		April 2021			October 2020		February 2020		April 2019		November 2018
NIW policy dates	Jan 1, 2021- Jul 31, 2021		Aug 1, 2020- Dec 31, 2020			Oct 1, 2019- Jul 31, 2020		Jan 1, 2019- Sep 30, 2019		Jan 1, 2018- Dec 31, 2018		Jan 1, 2017- Dec 31, 2017
Initial RIF	$	10,758	$	11,061		$	13,011	$	9,866	$	10,705	$	9,109
Initial coverage	484		498		(1)	390		488		562		434		(2)
Initial first layer retention	242		221			423		202		268		205

(In millions)	As of December 31, 2021
RIF	$	10,379	$	9,496		$	7,623	$	3,241	$	2,429	$	2,117
Remaining coverage	484		498			144		488		385		276
First layer retention	242		221			423		202		264		201

(In millions)	As of December 31, 2020
RIF	$	—	$	—		$	11,748	$	6,121	$	4,657	$	3,986
Remaining coverage	—		—			390		488		385		276		(2)
First layer retention	—		—			423		202		265		201

(1)Radian Group purchased $45.4 million original principal amount of these mortgage insurance-linked notes, which are included in fixed-maturities available for sale on our consolidated balance sheet at December 31, 2021. See Notes 5 and 6 for additional information.

(2)Excludes a separate excess-of-loss reinsurance agreement entered into by Radian Guaranty with coverage of $21.4 million. This agreement was terminated in December 2021.

The Eagle Re Issuers are not subsidiaries or affiliates of Radian Guaranty. Based on the accounting guidance that addresses VIEs, we have not consolidated any of the assets and liabilities of the Eagle Re Issuers in our financial statements, because Radian does not have: (i) the power to direct the activities that most significantly affect the Eagle Re Issuers’ economic performances or (ii) the obligation to absorb losses or the right to receive benefits from the Eagle Re Issuers that potentially could be significant to the Eagle Re Issuers. See Note 2 for more information on our accounting treatment of VIEs.

The reinsurance premium due to the Eagle Re Issuers is calculated by multiplying the outstanding reinsurance coverage amount at the beginning of a period by a coupon rate, which is the sum of one-month LIBOR (or an acceptable alternative to LIBOR) or SOFR, as applicable, plus a contractual risk margin, and then subtracting actual investment income collected on the assets in the reinsurance trust during the preceding month. As a result, the premiums we pay will vary based on: (i) the spread between LIBOR (or an acceptable alternative to LIBOR) or SOFR, as provided in each applicable reinsurance agreement, and the rates on the investments held by the reinsurance trust and (ii) the outstanding amount of reinsurance coverage.

As the reinsurance premium will vary based on changes in these rates, we concluded that the reinsurance agreements contain embedded derivatives, which we have accounted for separately as freestanding derivatives and recorded in other assets or other liabilities on our consolidated balance sheets. Changes in the fair value of these embedded derivatives are recorded in net gains (losses) on investments and other financial instruments in our consolidated statements of operations. See Note 5 for more information on our fair value measurements of financial instruments, including our embedded derivatives.

In the event an Eagle Re Issuer is unable to meet its future obligations to us, if any, our insurance subsidiaries would be liable to make claims payments to our policyholders. In the event that all of the assets in the reinsurance trust (consisting of U.S. government money market funds, cash or U.S. Treasury securities) become worthless and the Eagle Re Issuer is unable to make its payments to us, our maximum potential loss would be the amount of mortgage insurance claim payments for losses on the insured policies, net of the aggregate reinsurance payments already received, up to the full aggregate excess-of-loss reinsurance coverage amount. In the same scenario, the related embedded derivative would no longer have value.

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The Eagle Re Issuers represent our only VIEs as of December 31, 2021 and December 31, 2020. The following table presents the total assets and liabilities of the Eagle Re Issuers as of the dates indicated.


Total VIE assets and liabilities of Eagle Re Issuers (1)

	December 31,
(In thousands)	2021		2020
Eagle Re 2021-2 Ltd.	$	484,122	$	—
Eagle Re 2021-1 Ltd.	497,735		—
Eagle Re 2020-2 Ltd.	143,986		390,324
Eagle Re 2020-1 Ltd.	488,385		488,385
Eagle Re 2019-1 Ltd.	384,602		384,602
Eagle Re 2018-1 Ltd.	275,718		275,718
Total	$	2,274,548	$	1,539,029

(1)Assets held by the Eagle Re Issuers are required to be invested in U.S. government money market funds, cash or U.S. Treasury securities. Liabilities of the Eagle Re Issuers consist of their mortgage insurance-linked notes described above. Assets and liabilities are equal to each other for each of the Eagle Re Issuers.

QSR Program

In 2012, Radian Guaranty entered into the QSR Program with a third-party reinsurance provider. Radian Guaranty has ceded the maximum amount permitted under the QSR Program and is no longer ceding NIW under this program. RIF ceded under the QSR Program was $207.1 million and $381.8 million as of December 31, 2021 and 2020, respectively.

Other Collateral

Although we use reinsurance as one of our risk management tools, reinsurance does not relieve us of our obligations to our policyholders. In the event the reinsurers are unable to meet their obligations to us, our insurance subsidiaries would be liable for any defaulted amounts. However, consistent with the PMIERs reinsurer counterparty collateral requirements, Radian Guaranty’s reinsurers have established trusts to help secure our potential cash recoveries. In addition to the total VIE assets of the Eagle Re Issuers discussed above, the amount held in reinsurance trusts was $167.9 million as of December 31, 2021, compared to $228.6 million as of December 31, 2020. In addition, for the Single Premium QSR Program, Radian Guaranty holds amounts related to ceded premiums written to collateralize the reinsurers’ obligations, which is reported in reinsurance funds withheld on our consolidated balance sheets. Any loss recoveries and profit commissions paid to Radian Guaranty related to the Single Premium QSR Program are expected to be realized from this account.

9. Other Assets

The following table shows the components of other assets as of the dates indicated.


Other assets

	December 31,
(In thousands)	2021		2020
Prepaid federal income taxes (Note 10)	$	354,123	$	210,889
Prepaid reinsurance premiums (1)	201,674		267,638
Company-owned life insurance (2)	113,386		115,586
Loaned securities (Notes 5 and 6)	103,996		57,499
Right-of-use assets (Note 13)	31,878		32,985
Other	32,246		30,488
Total other assets	$	837,303	$	715,085

(1)Relates primarily to our Single Premium QSR Program.

(2)We are the beneficiary of insurance policies on the lives of certain of our current and past officers and employees. The balances reported in other assets reflect the amounts that could be realized upon surrender of the insurance policies as of each respective date.

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Right-of-Use Assets

We assess our various asset groups, which include right-of-use assets, for changes in grouping and for potential impairment when certain events occur or when there are changes in circumstances, including potential alternative uses. If circumstances require a change in asset groupings or a right-of-use asset to be tested for possible impairment, and the carrying value of the right-of-use asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value.

During the second quarter of 2021, in response to the COVID-19 pandemic and our successful transition to a virtual work environment, we made the decision to exit, and to actively market for sublease, all office space in our former corporate headquarters in downtown Philadelphia. As part of this change, we entered into two new leases with overall reduced square footage, including our new corporate headquarters, effective September 2021, in Wayne, Pennsylvania and a Cherry Hill, New Jersey location.

As a result, during the three months ended June 30, 2021, we recognized an impairment of $3.5 million related to our former corporate headquarters leases, reducing the carrying value of certain lease assets and the related property and equipment to its estimated fair value. The right-of-use asset fair value was estimated using an income approach based on forecasted future cash flows expected to be derived from the property based on current sublease market rent, which could differ from actual results and require us to revise our initial estimates. Following this impairment, which was recorded within other operating expenses in our consolidated statements of operations, the aggregate carrying value of the right-of-use assets and leasehold improvements related to the former corporate headquarters leases that we plan to sublease was $26.4 million as of December 31, 2021.

10. Income Taxes

Income Tax Provision

The components of our consolidated income tax provision from continuing operations are as follows.


Income tax provision

	Years Ended December 31,
(In thousands)	2021		2020		2019
Current provision (benefit)	$	2,368	$	(16,264)	$	19,522
Deferred provision	161,793		102,079		157,162
Total income tax provision	$	164,161	$	85,815	$	176,684

The reconciliation of taxes computed at the statutory tax rate of 21% in 2021, 2020 and 2019 to the provision for income taxes is as follows.


Reconciliation of provision for income taxes

	Years Ended December 31,
(In thousands)	2021		2020		2019
Provision for income taxes computed at the statutory tax rate	$	160,615	$	100,683	$	178,289
Change in tax resulting from:

Valuation allowance	5,700		11,290		1,941
Uncertain tax positions	853		(14,784)		1,202
State tax benefit, net of federal impact	(1,714)		(9,062)		(293)
Other, net	(1,293)		(2,312)		(4,455)





Provision for income taxes	$	164,161	$	85,815	$	176,684

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Deferred Tax Assets and Liabilities

The significant components of our net deferred tax assets and liabilities from continuing operations are summarized as follows.


Deferred tax assets and liabilities

	December 31,
(In thousands)	2021		2020
Deferred tax assets

State income taxes, net of federal impact	$	77,637	$	75,499
Goodwill and intangibles	29,744		32,673
Unearned premiums	23,699		27,703
Accrued expenses	16,584		11,140
Lease liability	11,240		11,214
Loss reserves	6,286		4,578








Other	18,967		25,066
Total deferred tax assets	$	184,157	$	187,873

Deferred tax liabilities

Contingency reserve	$	368,000	$	216,122
Net unrealized gain on investments	31,876		70,057
Depreciation	12,775		13,029
Differences in fair value of financial instruments	7,763		9,087




Other	17,824		15,747
Total deferred tax liabilities	438,238		324,042
Less: Valuation allowance	83,428		77,728
Net deferred tax asset (liability)	$	(337,509)	$	(213,897)

Current and Deferred Taxes

As of December 31, 2021, we recorded a net current federal income tax payable of $19.9 million, which primarily relates to applying the standards of accounting for uncertainty in income taxes.

Certain entities within our consolidated group have generated net deferred tax assets of approximately $76.1 million, relating primarily to state and local NOL carryforwards which, if unutilized, will expire during various future tax periods. We are required to establish a valuation allowance against our deferred tax assets when it is more likely than not that all or some portion of our deferred tax assets will not be realized. At each balance sheet date, we assess our need for a valuation allowance. Our assessment is based on all available evidence, both positive and negative. This requires management to exercise judgment and make assumptions regarding whether our deferred tax assets will be realized in future periods. We have determined that certain non-insurance entities within Radian may continue to generate taxable losses on a separate company basis in the near term and may not be able to fully utilize certain state and local NOLs on their state and local tax returns. Therefore, with respect to deferred tax assets relating to these state and local NOLs and other state timing adjustments, we retained a valuation allowance of $83.4 million at December 31, 2021 and $77.7 million at December 31, 2020.

As a mortgage guaranty insurer, we are eligible for a tax deduction, subject to certain limitations, under Internal Revenue Code Section 832(e) for amounts required by state law or regulation to be set aside in statutory contingency reserves. The deduction is allowed only to the extent that we purchase non-interest bearing U.S. Mortgage Guaranty Tax and Loss Bonds issued by the U.S. Department of the Treasury in an amount equal to the tax benefit derived from deducting any portion of our statutory contingency reserves. As of December 31, 2021, we held $354.1 million of these bonds, which are included as prepaid income taxes within other assets in our consolidated balance sheets. The corresponding deduction of our statutory contingency reserves resulted in the recognition of a net deferred tax liability. See Note 16 for additional information about our U.S. Mortgage Guaranty Tax and Loss Bonds.

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Unrecognized Tax Benefits

As of December 31, 2021, we have $3.9 million of net unrecognized tax benefits, including $2.3 million of interest and penalties, that would affect the effective tax rate, if recognized. Our policy for the recognition of interest and penalties associated with uncertain tax positions is to record such items as a component of our income tax provision, of which $0.7 million and $0.3 million were recorded for the years ended December 31, 2021 and 2020, respectively.

A reconciliation of the beginning and ending gross unrecognized tax benefits is as follows.


Reconciliation of gross unrecognized tax benefits

	Years Ended December 31,
(In thousands)	2021		2020
Balance at beginning of period	$	20,249	$	37,208
Tax positions related to the current year:
Increases	267		250
Decreases	(858)		(1,788)
Tax positions related to prior years:
Increases	230		16,568
Decreases	—		(171)


Lapses of applicable statute of limitation	—		(31,818)
Balance at end of period	$	19,888	$	20,249

Our total unrecognized tax benefits decreased by $0.4 million from December 31, 2020 to December 31, 2021, primarily due to a net decrease in unrecognized tax benefits associated with our recognition of certain premium income. Over the next 12 months, our unrecognized tax benefits may decrease by approximately $1.2 million due to the expiration of the applicable statute of limitations relating to the 2018 tax year. The statute of limitations related to our federal consolidated income tax return remains open for tax years 2018-2021. Additionally, among the entities within our consolidated group, various tax years remain open to potential examination by state and local taxing authorities.

11. Losses and LAE

Our reserve for losses and LAE, at the end of each period indicated, consisted of the following.


Reserve for losses and LAE

	December 31,
(In thousands)	2021		2020
Mortgage insurance loss reserves (1)	$	823,136	$	844,107
Title insurance loss reserves	5,506		4,306
Total reserve for losses and LAE	$	828,642	$	848,413

(1)Primarily comprises first-lien primary case reserves of $790.4 million and $799.5 million at December 31, 2021 and 2020, respectively.

For the periods indicated, the following table presents information relating to our mortgage insurance reserve for losses, including our IBNR reserve and LAE.

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Rollforward of mortgage insurance reserve for losses

	Years Ended December 31,
(In thousands)	2021		2020		2019
Balance at January 1,	$	844,107	$	401,273	$	397,891
Less: Reinsurance recoverables (1)	71,769		14,594		11,009
Balance at January 1, net of reinsurance recoverables	772,338		386,679		386,882
Add: Losses and LAE incurred in respect of default notices reported and unreported in:
Current year (2)	160,565		517,807		146,733
Prior years	(141,126)		(34,547)		(14,709)
Total incurred	19,439		483,260		132,024
Deduct: Paid claims and LAE related to:
Current year (2)	1,112		4,148		4,220
Prior years	34,205		93,453		128,007
Total paid	35,317		97,601		132,227
Balance at end of period, net of reinsurance recoverables	756,460		772,338		386,679
Add: reinsurance recoverables (1)	66,676		71,769		14,594
Balance at December 31,	$	823,136	$	844,107	$	401,273

(1)Related to ceded losses recoverable, if any, on reinsurance transactions. See Note 8 for additional information.

(2)Related to underlying defaulted loans with a most recent default notice dated in the year indicated. For example, if a loan had defaulted in a prior year, but then subsequently cured and later re-defaulted in the current year, that default would be considered a current year default.

Reserve Activity

Incurred Losses

Case reserves established for new default notices have been the primary driver of our total incurred losses in recent years, and they were primarily impacted by the number of new primary default notices received in the period and our related gross Default to Claim Rate assumption applied to those new defaults.

New primary default notices totaled 37,470 for the year ended December 31, 2021, compared to 108,025 for the year ended December 31, 2020 and 40,985 for the year ended December 31, 2019. For the year ended December 31, 2020, the significant increase in the number of new primary default notices was substantially all related to defaults of loans subject to forbearance programs implemented in response to the COVID-19 pandemic.

Our gross Default to Claim Rate assumption applied to new defaults was 8.0% as of December 31, 2021, compared to 8.5% as of December 31, 2020 and 7.5% as of December 31, 2019. The combination of fewer new default notices and a lower Default to Claim Rate assumption on new defaults was the primary driver of the decrease in losses incurred related to current year defaults for the year ended December 31, 2021, as compared to the year ended December 31, 2020.

Our provision for losses during 2021, most notably in the fourth quarter, was positively impacted by favorable reserve development on prior year defaults, primarily as a result of more favorable trends in Cures than originally estimated, due to favorable outcomes resulting from forbearance programs implemented in response to the COVID-19 pandemic as well as positive trends in home price appreciation. These favorable observed trends resulted in reductions in our Default to Claim Rate assumptions for prior year default notices, particularly for those defaults first reported in 2020 following the start of the COVID-19 pandemic.

Our provision for losses during 2020 and 2019 were also positively impacted by favorable reserve development on prior year defaults, primarily driven by a reduction in certain Default to Claim Rate assumptions for those prior year defaults based on observed trends.

See also Note 1 for additional information on the elevated risks and uncertainties resulting from the COVID-19 pandemic to our business.

Default to Claim Rate. Our Default to Claim Rate estimates on defaulted loans are mainly developed based on the Stage of Default and Time in Default of the underlying defaulted loans grouped according to the period in which the default occurred, as measured by the progress toward foreclosure sale and the number of months in default. While our estimates of ultimate losses on defaults from prior years declined in 2021 due to elevated Cures, which reduced our inventory of primary

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defaults, COVID-19-related hardship forbearance plans and foreclosure moratoriums resulted in delays in resolving the remaining defaults, leading to an increase in the Default to Claim Rates applied to the remaining inventory.

The following table shows our gross Default to Claim Rates on our primary portfolio based on the Time in Default and as of the dates indicated.


Default to Claim Rates

	December 31,
	2021		2020		2019
Default to Claim Rate on:
New defaults	8.0	%	8.5	%	7.5	%
Defaults not in Foreclosure Stage
Time in Default: < 2 years (1)	41.6	%	21.0	%	22.0	%
Time in Default: 2 - 5 years	75.0	%	62.5	%	48.0	%
Time in Default: > 5 years	80.0	%	70.0	%	63.0	%
Foreclosure Stage Defaults	85.0	%	75.0	%	70.0	%

(1)Represents the weighted average Default to Claim Rate for all defaults not in foreclosure stage that have been in default for up to two years, including new defaults. The estimated Default to Claim Rates applied to defaults within this population vary by Time in Default, and range from the Default to Claim Rates on new defaults shown above, up to 80.1%, 55.0% and 55.6% for more aged defaults in this category as of December 31, 2021, 2020 and 2019, respectively.

Our estimate of expected Rescissions and Claim Denials (net of expected Reinstatements) embedded in our estimated net Default to Claim Rate is generally based on our recent experience. Consideration is also given to differences in characteristics between those rescinded policies and denied claims and the loans remaining in our defaulted inventory.

Claims Paid

Total claims paid decreased in 2021 compared to 2020. The decrease in claims paid is primarily attributable to COVID-19-related hardship forbearance plans and suspensions of foreclosures and evictions, as well as a reduction in payments made to settle certain previously disclosed legal proceedings.

Concentration of Risk

As of December 31, 2021 and 2020, there was no state that accounted for more than 10% of our mortgage insurance business measured by primary RIF. California accounted for 10.9% of our direct NIW for the year ended December 31, 2021, compared to 10.4% and 10.6% for the years ended December 31, 2020 and 2019, respectively.

Additional Disclosures

The following tables provide information as of and for the periods indicated about: (i) incurred losses, net of reinsurance; (ii) the total of IBNR liabilities plus expected development on reported claims, included within the net incurred loss amounts; (iii) the cumulative number of reported defaults; and (iv) cumulative paid claims, net of reinsurance. The default year represents the period that a new default notice is first reported to us by loan servicers, related to borrowers who missed two monthly payments.

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The information about net incurred losses and paid claims development for the years ended prior to 2021 is presented as supplementary information.


Incurred losses, net of reinsurance

																					Total of IBNR Liabilities Plus Expected Development on Reported Claims (1)		Cumulative Number of Reported Defaults (2)
($ in thousands)			Years Ended December 31,
	Unaudited
Default Year	2012		2013		2014		2015		2016		2017		2018		2019		2020		2021		As of December 31, 2021
2012	$	803,831	$	763,969	$	711,213	$	720,502	$	715,646	$	714,783	$	713,750	$	713,839	$	713,146	$	713,057	$	7	73,517
2013			505,732		405,334		401,444		404,333		402,259		400,243		399,356		399,317		398,820		6		58,577
2014					337,784		247,074		265,891		264,620		260,098		261,507		261,377		260,254		7		47,976
2015							222,555		198,186		178,042		183,952		183,546		184,066		182,647		12		42,607
2016									201,016		165,440		149,753		148,811		148,640		148,349		18		40,503
2017											180,851		151,802		133,357		130,274		126,989		28		42,888
2018													131,513		116,634		95,534		88,252		51		37,369
2019															143,475		136,860		109,416		150		40,985
2020																	504,160		408,809		786		108,025
2021																			156,328		1,771		37,470
Total																			$	2,592,921

(1)Represents reserves as of December 31, 2021 related to IBNR liabilities.

(2)Represents total number of new primary default notices received in each calendar year as compiled monthly based on reports received from loan servicers. As reflected in our Default to Claim Rate assumptions, a significant portion of reported defaults generally do not result in a claim. In certain instances, a defaulted loan may cure, and then re-default in a later period. Consistent with our reserving practice, each new event of default is treated as a unique occurrence and therefore certain loans that cure and re-default may be included as a reported default in multiple periods.

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Cumulative paid claims, net of reinsurance

(In thousands)			Years Ended December 31,
	Unaudited
Default Year	2012		2013		2014		2015		2016		2017		2018		2019		2020		2021
2012	$	19,200	$	295,332	$	528,744	$	631,982	$	672,271	$	692,291	$	702,136	$	704,770	$	708,528	$	708,929
2013			34,504		191,040		307,361		357,087		379,036		388,688		392,818		395,093		395,292
2014					13,108		115,852		200,422		233,607		246,611		252,619		255,742		256,107
2015							10,479		84,271		142,421		163,916		172,645		174,812		175,874
2016									11,061		76,616		119,357		134,115		137,306		138,525
2017											24,653		66,585		99,678		108,484		111,458
2018													5,584		36,066		54,625		60,926
2019															4,220		18,703		28,896
2020																	4,148		9,867
2021																			1,112
Total																			$	1,886,986
All outstanding liabilities before 2012, net of reinsurance																			30,421
Liabilities for claims, net of reinsurance (1)																			$	736,356

(1)Calculated as follows:


(In thousands)
Incurred losses, net of reinsurance	$	2,592,921
All outstanding liabilities before 2012, net of reinsurance	30,421
Cumulative paid claims, net of reinsurance	(1,886,986)
Liabilities for claims, net of reinsurance	$	736,356

The following table provides a reconciliation of the net incurred losses and paid claims development tables above to the mortgage insurance reserve for losses and LAE at December 31, 2021.


Net outstanding liabilities - mortgage insurance

(In thousands)	December 31, 2021
Reserve for losses and LAE, net of reinsurance	$	736,356
Reinsurance recoverables on unpaid claims	66,676
Unallocated LAE	20,104
Total gross reserve for losses and LAE (1)	$	823,136

(1)Excludes title insurance reserve for losses and LAE of $5.5 million.

The following is supplementary information about average historical claims duration as of December 31, 2021, representing the average distribution of when claims are paid relative to the year of default.


Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)

Years	1	2	3	4	5	6	7	8	9	10
Mortgage insurance	6.1%	31.6%	26.4%	10.8%	4.2%	1.9%	1.0%	0.4%	0.3%	0.1%

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12. Borrowings and Financing Activities

The carrying value of our debt at December 31, 2021 and 2020 was as follows.


Borrowings

	December 31,
(In thousands)	2021		2020
Senior notes
Senior Notes due 2024	$	446,631	$	445,512
Senior Notes due 2025	518,405		516,634
Senior Notes due 2027	444,437		443,528
Total senior notes	$	1,409,473	$	1,405,674

FHLB advances
FHLB advances due 2021	$	—	$	67,500
FHLB advances due 2022	71,050		61,050
FHLB advances due 2023	52,995		27,995
FHLB advances due 2024	13,954		9,954
FHLB advances due 2025	9,984		9,984
FHLB advances due 2027	3,000		—
Total FHLB advances	$	150,983	$	176,483

Senior Notes

Senior Notes due 2024. In September 2017, we issued $450 million aggregate principal amount of Senior Notes due 2024 and received net proceeds of $442.2 million. These notes mature on October 1, 2024 and bear interest at a rate of 4.500% per annum, payable semi-annually on April 1 and October 1 of each year, with interest payments commencing on April 1, 2018.

Senior Notes due 2025. In May 2020, we issued $525 million aggregate principal amount of Senior Notes due 2025 and received net proceeds of $515.6 million. These notes mature on March 15, 2025 and bear interest at a rate of 6.625% per annum, payable semi-annually on March 15 and September 15 of each year, with interest payments commencing on September 15, 2020.

Senior Notes due 2027. In June 2019, we issued $450 million aggregate principal amount of Senior Notes due 2027 and received net proceeds of $442.2 million. These notes mature on March 15, 2027 and bear interest at a rate of 4.875% per annum, payable semi-annually on March 15 and September 15 of each year, with interest payments commencing on March 15, 2020.

Redemption Terms in Senior Notes. We have the option to redeem the Senior Notes due 2024, 2025 and 2027, in whole or in part, at any time, or from time to time, prior to July 1, 2024 (the date that is three months prior to the maturity date of the Senior notes due 2024), September 15, 2024 (the date that is six months prior to the maturity date of the Senior notes due 2025) and September 15, 2026 (the date that is six months prior to the maturity date of the Senior notes due 2027) (in each case, the “Par Call Date”), respectively, at a redemption price equal to the greater of: (i) 100% of the aggregate principal amount of the notes to be redeemed and (ii) the make-whole amount, which is the sum of the present values of the remaining scheduled payments of principal and interest in respect of the notes to be redeemed from the redemption date to the Par Call Date discounted to the redemption date at the applicable treasury rate plus 50 basis points, plus, in each case, accrued and unpaid interest thereon to, but excluding, the redemption date. At any time on or after the Par Call Date, we may, at our option, redeem the notes in whole or in part, at a redemption price equal to 100% of the aggregate principal amount of the notes to be redeemed, plus accrued and unpaid interest thereon to, but excluding, the redemption date.

Covenants in Senior Notes. The indentures governing the Senior Notes due 2024, 2025 and 2027 contain covenants customary for securities of this nature, including covenants related to the payments of the notes, periodic reporting and certificates to be issued and covenants related to amendments to the indentures. Additionally, the indentures include covenants restricting us from encumbering the capital stock of a designated subsidiary (as defined in the indenture for the notes) or disposing of any capital stock of any designated subsidiary unless either all of the stock is disposed of or we retain more than 80% of the stock. We were in compliance with all covenants as of December 31, 2021.

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FHLB Advances

In August 2016, Radian Guaranty and Radian Reinsurance became members of the FHLB. As members, they may borrow from the FHLB, subject to certain conditions, which include the need to post collateral and the requirement to maintain a minimum investment in FHLB stock, in part depending on the level of their outstanding FHLB advances.

As of December 31, 2021, we had $151.0 million of fixed-rate advances outstanding with a weighted average interest rate of 0.97%. Interest on the FHLB advances is payable quarterly, or at maturity if the term of the advance is less than 90 days. Principal is due at maturity. For obligations with maturities greater than or equal to 90 days, we may prepay the debt at any time, subject to a prepayment fee.

The principal balance of the FHLB advances is required to be collateralized by eligible assets with a market value that must be maintained generally within a minimum range of 103% to 114% of the amount borrowed, depending on the type of assets pledged. Our fixed-maturities available for sale and trading securities include securities totaling $167.3 million and $188.0 million at December 31, 2021 and 2020, respectively, which serve as collateral for our FHLB advances to satisfy this requirement.

Revolving Credit Facility

In December 2021 Radian Group entered into a new $275.0 million unsecured revolving credit facility with a syndicate of bank lenders. The revolving credit facility has a five year term, provided that under certain conditions Radian Group is required to offer to terminate the facility earlier than the maturity date. This replaced Radian Group’s $267.5 million unsecured revolving credit facility with a syndicate of bank lenders, which was set to expire in January 2022. Terms of the credit facility include an accordion feature that allows Radian Group, at its option, to increase the total borrowing capacity during the term of the agreement, subject to our obtaining the necessary increased commitments from lenders (which may include then existing or other lenders), up to a total of $400.0 million.

Subject to certain limitations, borrowings under the credit facility may be used for working capital and general corporate purposes, including capital contributions to Radian Group’s insurance subsidiaries as well as growth initiatives. The credit facility contains customary representations, warranties, covenants, terms and conditions. Our ability to borrow under the credit facility is conditioned on the satisfaction of certain financial and other covenants, including covenants related to minimum net worth and statutory surplus, a maximum debt-to-capitalization level, limits on certain types of indebtedness and liens, and Radian Guaranty’s eligibility as a private mortgage insurer with the GSEs. At December 31, 2021, Radian Group was in compliance with all the covenants and there were no amounts outstanding under this revolving credit facility.

13. Commitments and Contingencies

Legal Proceedings

The outcome of litigation and other legal and regulatory matters and proceedings is inherently uncertain, and it is possible that any one or more of these matters currently pending or threatened could have an adverse effect on our liquidity, financial condition or results of operations for any particular period. In accordance with applicable accounting standards and guidance, we establish accruals only when we determine both that it is probable that a loss has been incurred and the amount of the loss is reasonably estimable. We accrue the amount that represents our best estimate of the probable loss; however, if we can only determine a range of estimated losses, we accrue an amount within the range that, in our judgment, reflects the most likely outcome, and if none of the estimates within the range is more likely, we accrue the minimum amount of the range.

In the course of our regular review of pending legal and regulatory matters, we determine whether it is reasonably possible that a potential loss may have a material impact on our liquidity, results of operations or financial condition. If we determine such a loss is reasonably possible, we disclose information relating to such potential loss, including an estimate or range of loss or a statement that such an estimate cannot be made. On a quarterly basis, we review relevant information with respect to loss contingencies and update our accruals, disclosures and estimates of reasonably possible losses or range of losses based on such reviews. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts and the progress of settlement negotiations. In addition, we generally make no

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disclosures for loss contingencies that are determined to be remote. For matters for which we disclose an estimated loss, the disclosed estimate reflects the reasonably possible loss or range of loss in excess of the amount accrued, if any.

Loss estimates are inherently subjective, based on currently available information and are subject to management’s judgment and various assumptions. Due to the inherently subjective nature of these estimates and the uncertainty and unpredictability surrounding the outcome of legal and other proceedings, actual results may differ materially from any amounts that have been accrued.

We also are periodically subject to reviews and audits, as well as inquiries, information-gathering requests and investigations, by regulatory entities. In connection with these matters, from time to time we receive requests and subpoenas seeking information and documents related to aspects of our business.

Our Master Policies establish the timeline within which any suit or action arising from any right of an insured under the policy generally must be commenced. In general, any suit or action arising from any right of an insured under the policy must be commenced within two years after such right first arose for primary insurance and within three years for certain other policies, including certain Pool Mortgage Insurance policies. Although we believe that our Loss Mitigation Activities are justified under our policies, from time to time we face challenges from certain lender and servicer customers regarding our Loss Mitigation Activities. These challenges could result in additional arbitration or judicial proceedings and we may need to reassume the risk on, and increase loss reserves for, the associated policies or pay additional claims.

The legal and regulatory matters discussed above could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief that could require significant expenditures or have other effects on our business in excess of amounts we have established as reserves for such matters.

Lease Liability

Our lease liability represents the present value of future lease payments over the lease term. Our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate, on a collateralized basis, to discount the lease payments based on information available at lease commencement. Our leases expire periodically through August 2032 and contain provisions for scheduled periodic rent increases. We estimate the incremental borrowing rate based on the yields of Radian Group corporate bonds, as adjusted to reflect a collateralized borrowing rate, resulting in discount rates ranging from 4.37% to 7.08%. While the majority of our lease population expires within one year of one of Radian Group’s corporate bonds, our more significant leases do not. For those leases, we adjust the corporate bond rate for both U.S. Department of the Treasury rate yields, and a corporate spread adjustment determined from recent market data.

The following tables provide additional information related to our leases, including: (i) the components of our total lease cost; (ii) the cash flows arising from our lease transactions; (iii) supplemental balance sheet information; (iv) the weighted-average remaining lease term; (v) the weighted-average discount rate used for our leases; and (vi) the remaining maturities of our lease liabilities, as of and for the periods indicated.


Total lease cost

	Years Ended December 31,
(In thousands)	2021		2020
Operating lease cost	$	9,333	$	8,798
Short-term lease cost	384		13
Total lease cost	$	9,717	$	8,811

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(9,060)	$	(9,595)

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Operating leases

	December 31,
($ in thousands)	2021			2020
Operating leases
Operating lease right-of-use assets (1)	$	31,878		$	32,985
Operating lease liabilities (2)	53,523			53,399
Weighted-average remaining lease term - operating leases (in years)	7.9 years			9.3 years
Weighted-average discount rate - operating leases	6.21		%	6.72		%
Remaining maturities of lease liabilities for future years is as follows:
2022	$	12,033
2023	12,191
2024	11,952
2025	9,704
2026	7,225
2027 and thereafter	32,646
Total lease payments	85,751
Less: Imputed interest	(32,228)
Present value of lease liabilities (2)	$	53,523

(1)Classified in other assets in our consolidated balance sheets. See Note 9.

(2)Classified in other liabilities in our consolidated balance sheets.

The table above excludes approximately $5.8 million of future payment obligations related to an additional operating lease, which had not yet commenced as of December 31, 2021.

At December 31, 2021 and 2020, there were no future minimum receipts expected from sublease rental payments. We entered into a sublease agreement in January 2022 for a portion of the office space in our former corporate headquarters in Philadelphia and are actively marketing all remaining space in that location for sublease. Upon entering a sublease agreement, we do not anticipate being relieved of our primary obligation under the original lease and will act as a lessor recognizing any sublease income in other income on a straight-line basis over the remaining lease term.

Other

We provide contract underwriting to our mortgage insurance customers. Generally, under our current contract underwriting program the remedy we offer is limited indemnification. In 2021 and 2020, our provision for contract underwriting expenses and our payments for losses related to contract underwriting remedies were de minimis. We monitor this risk and negotiate our underwriting fee structure and recourse agreements on a client-by-client basis. We also routinely audit the performance of our contract underwriters.

14. Capital Stock

Share Repurchase Activity

On August 14, 2019, Radian Group’s board of directors approved a share repurchase program authorizing the Company to spend up to $200 million, excluding commissions, to repurchase Radian Group common stock in the open market or in privately negotiated transactions, based on market and business conditions, stock price and other factors. Radian generally operates its share repurchase programs pursuant to a trading plan under Rule 10b5-1 of the Exchange Act, which permits the Company to purchase shares, at predetermined price targets, when it may otherwise be precluded from doing so.

Since then, Radian Group’s board of directors has authorized several increases to the program along with extensions of the program’s expiration date. Most recently, in August 2021, Radian Group’s board of directors approved a $200 million increase to this program, bringing the cumulative authorization to repurchase shares up to $675 million, excluding commissions, and extended the expiration of this program to August 31, 2022. During the year ended December 31, 2021, the Company purchased 17.8 million shares at an average price of $22.48 per share, including commissions. As of December 31, 2021, no purchase authority remained available under this program.

On February 9, 2022, Radian Group’s board of directors approved a share repurchase program authorizing the Company to spend up to $400 million, excluding commissions, to repurchase Radian Group common stock in the open market or in

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privately negotiated transactions, based on market and business conditions, stock price and other factors. Radian plans to utilize a trading plan under Rule10b5-1 of the Exchange Act, which, once implemented, permits the Company to purchase shares, at predetermined price targets, when it may otherwise be precluded from doing so. The authorization will expire in February 2024.

Other Purchases

We may purchase shares on the open market to settle stock options exercised by employees and purchases under the ESPP. In addition, upon the vesting of certain RSUs under our equity compensation plans, we may withhold from such vested awards shares of our common stock to satisfy the tax liability of the award recipients.

Dividends and Dividend Equivalents

On February 9, 2022, Radian Group’s board of directors authorized an increase to our quarterly dividend from $0.14 to $0.20 per share, beginning with dividends declared in the first quarter of 2022.

Dividend equivalents are accrued on RSUs when dividends are declared on the Company’s common stock, subject to certain exclusions. See Note 17 for information about our dividend equivalents on RSU awards.

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15. Accumulated Other Comprehensive Income (Loss)

The following tables show the rollforward of accumulated other comprehensive income (loss) as of the periods indicated.


Rollforward of accumulated other comprehensive income

	Year Ended December 31, 2021
(In thousands)	Before Tax		Tax Effect		Net of Tax
Balance at beginning of period	$	333,829	$	70,104	$	263,725
Other comprehensive income (loss)
Unrealized holding gains (losses) on investments arising during the period for which an allowance for expected credit losses has not been recognized	(175,234)		(36,799)		(138,435)
Less: Reclassification adjustment for net gains (losses) on investments included in net income: (1)
Net realized gains on disposals and non-credit related impairment losses	5,661		1,189		4,472
Net decrease (increase) in expected credit losses	918		193		725
Net unrealized gains (losses) on investments	(181,813)		(38,181)		(143,632)

Other comprehensive income (loss)	(181,813)		(38,181)		(143,632)
Balance at end of period	$	152,016	$	31,923	$	120,093

	Year Ended December 31, 2020
(In thousands)	Before Tax		Tax Effect		Net of Tax
Balance at beginning of period	$	139,858	$	29,370	$	110,488
Other comprehensive income (loss)
Unrealized holding gains (losses) on investments arising during the period for which an allowance for expected credit losses has not been recognized	226,280		47,519		178,761
Less: Reclassification adjustment for net gains (losses) included in net income (1)
Net realized gains on disposals and non-credit related impairment losses	33,468		7,028		26,440
Net decrease (increase) in expected credit losses	(1,254)		(263)		(991)
Net unrealized gains on investments	194,066		40,754		153,312
Other adjustments to comprehensive income, net	(95)		(20)		(75)
Other comprehensive income (loss)	193,971		40,734		153,237
Balance at end of period	$	333,829	$	70,104	$	263,725

	Year Ended December 31, 2019
(In thousands)	Before Tax		Tax Effect		Net of Tax
Balance at beginning of period	$	(77,114)	$	(16,194)	$	(60,920)
Other comprehensive income (loss)

Unrealized holding gains (losses) arising during the period	228,406		47,965		180,441
Less: Reclassification adjustment for net gains (losses) included in net income (1)	11,262		2,365		8,897
Net unrealized gains on investments	217,144		45,600		171,544
Other adjustments to comprehensive income, net	(172)		(36)		(136)
Other comprehensive income (loss)	216,972		45,564		171,408
Balance at end of period	$	139,858	$	29,370	$	110,488

(1)Included in net gains on investments and other financial instruments in our consolidated statements of operations.

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16. Statutory Information

Radian Group serves as the holding company for our insurance subsidiaries, through which we conduct our mortgage insurance and title insurance businesses. These insurance subsidiaries are subject to comprehensive, detailed regulation by the insurance departments in the various states where our insurance subsidiaries are domiciled or licensed to transact business. Insurance laws vary from state to state, but generally grant broad supervisory powers to state agencies or officials to examine insurance companies and enforce rules or exercise discretion affecting almost every significant aspect of the insurance business, including the power to revoke or restrict an insurance company’s ability to write new business.

In addition, in order to be eligible to insure loans purchased by the GSEs, mortgage insurers such as Radian Guaranty must meet the GSEs’ eligibility requirements, or PMIERs. The PMIERs are comprehensive, covering virtually all aspects of the business and operations of a private mortgage insurer, including internal risk management and quality controls, the relationship between the GSEs and the approved insurer, as well as the approved insurer’s financial condition.
See “—PMIERs” below for additional information.

The PMIERs and state insurance regulations include various capital requirements and dividend restrictions based on our insurance subsidiaries’ statutory financial position and results of operations, as described below. Our failure to maintain adequate levels of capital could lead to intervention by the various insurance regulatory authorities, which could materially and adversely affect our business, business prospects and financial condition.

Statutory Financial Statements

We prepare our statutory financial statements in accordance with the accounting practices required or permitted, if applicable, by the insurance departments of the respective states of domicile of our insurance subsidiaries. Required SAP are established by the NAIC, as well as state laws, regulations and general administrative rules. In addition, insurance departments have the right to permit other specific practices that may deviate from prescribed practices. As of December 31, 2021, we did not have any prescribed or permitted SAP that resulted in reported statutory surplus or risk-based capital being materially different from what would have been reported had NAIC statutory accounting practices been followed.

Reflecting the principal differences between SAP and GAAP, statutory financial statements typically do not include unrealized gains or losses on fixed-maturity securities, deferred policy acquisition costs, certain net deferred tax assets and certain other less readily marketable assets that are designated as non-admitted assets. In addition to these general differences, SAP also requires that mortgage insurance companies establish a special contingency reserve equal to 50% of premiums earned in each year, generally to be maintained for 10 years, to protect policyholders against loss during adverse economic cycles.

As a result of the requirement to establish and maintain this statutory liability, contingency reserves affect the ability of a mortgage insurer to pay dividends, as described below. With regulatory approval, a mortgage insurance company may make early withdrawals from this contingency reserve when incurred losses exceed 35% of net premiums in a calendar year. Due to elevated losses in 2020, Radian Guaranty received regulatory approval to release $93.0 million from contingency reserves for that year. Radian Guaranty did not release any amounts from their contingency reserves in 2021. Based on the typical 10-year holding requirement, Radian Guaranty is scheduled to release contingency reserves to unassigned surplus beginning in 2024. See “—Statutory Dividend Restrictions” below for additional information.

As a mortgage guaranty insurer, we are eligible for a tax deduction, subject to certain limitations, related to amounts required to be set aside in statutory contingency reserves to the extent we purchase U.S. Mortgage Guaranty Tax and Loss Bonds issued by the U.S. Department of the Treasury. Under SAP, this deduction reduces the tax provision reflected in the statutory financial statements, which in turn increases statutory net income and surplus as well as Available Assets under the PMIERs. As of December 31, 2021, Radian Guaranty held $354.1 million of these bonds, which have a 10-year original maturity but may generally be redeemed in any tax year prior to maturity.

All of our mortgage insurance subsidiaries are domiciled in Pennsylvania, and we currently write new business using two principal subsidiaries, Radian Guaranty and Radian Reinsurance. Radian Guaranty, our only approved insurer under the PMIERs, is authorized as a monoline insurer to write mortgage guaranty insurance (or in states where there is no specific authorization for mortgage guaranty insurance, the applicable line of insurance under which mortgage guaranty insurance is regulated) in all 50 states, the District of Columbia and Guam. Radian Reinsurance is licensed only in Pennsylvania as a stock casualty insurance company authorized to carry on the business of credit insurance, which includes the authority to write direct mortgage guaranty insurance. We use Radian Reinsurance to participate in the credit risk transfer programs developed by Fannie Mae and Freddie Mac.

Additionally, as part of our title services, we offer title insurance through Radian Title Insurance, an Ohio domiciled title insurance underwriter and settlement services company that is licensed to issue title insurance policies in 41 states and the District of Columbia.

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Our insurance subsidiaries’ statutory net income and statutory policyholders’ surplus for the years ended and as of December 31, 2021, 2020 and 2019 were as follows.


Statutory net income (loss)

	Years Ended December 31,
(In thousands)	2021			2020		2019
Radian Guaranty	$	753,506		$	441,947	$	703,380
Radian Reinsurance	9,103			32,484		101,591
Other mortgage subsidiaries	1,669			1,086		144
Radian Title Insurance	6,862			2,126		331

Statutory policyholders’ surplus

	December 31,
(In thousands)	2021			2020		2019
Radian Guaranty	$	778,148		$	481,484	$	637,718
Radian Reinsurance	327,118			360,704		455,594
Other mortgage subsidiaries	14,524		(1)	41,327		45,672
Radian Title Insurance	36,599			28,849		27,349

(1)Two previous insurance subsidiaries, Radian Mortgage Guaranty Inc. and Radian Investor Surety Inc., were dissolved in 2021.

Statutory Capital Requirements

Under state insurance regulations, Radian Guaranty is required to maintain minimum surplus levels and, in certain states, a maximum ratio of net RIF relative to statutory capital, or Risk-to-capital. There are 16 RBC States that currently impose a Statutory RBC Requirement. The most common Statutory RBC Requirement is that a mortgage insurer’s Risk-to-capital may not exceed 25 to 1. In certain of the RBC States, a mortgage insurer must satisfy a MPP Requirement. Unless an RBC State grants a waiver or other form of relief, if a mortgage insurer, such as Radian Guaranty, is not in compliance with the Statutory RBC Requirement of that state, the mortgage insurer may be prohibited from writing new mortgage insurance business in that state.

The statutory capital requirements for the non-RBC States are de minimis (ranging from $1 million to $5 million); however, the insurance laws of these states generally grant broad supervisory powers to state agencies or officials to enforce rules or exercise discretion affecting almost every significant aspect of the insurance business, including the power to revoke or restrict an insurance company’s ability to write new business. Radian Guaranty’s domiciliary state, Pennsylvania, is not one of the RBC States.

Radian Guaranty was in compliance with all applicable Statutory RBC Requirements or MPP Requirements, as applicable, in each of the RBC States as of December 31, 2021. Radian Guaranty’s Risk-to-capital calculation was 11.1:1 and 12.7:1 as of December 31, 2021 and 2020, respectively. For purposes of the Risk-to-capital requirements imposed by certain states, statutory capital is defined as the sum of statutory policyholders’ surplus plus statutory contingency reserves.

Our other mortgage insurance and title insurance subsidiaries were also in compliance with all statutory and counterparty capital requirements as of December 31, 2021 and 2020.

For many years, the NAIC has been reviewing the minimum capital and surplus requirements for mortgage insurers and considering changes to the Model Act. In December 2019, a working group of state regulators released exposure drafts of a revised Model Act, including new proposed mortgage guaranty insurance capital requirements for mortgage insurers. Since that time, the process for developing the Model Act largely has been inactive, although work has proceeded on developing a new, legally non-binding capital monitoring framework that regulators could use as an alternative for assessing the capital adequacy of a mortgage insurer. The requirements set forth in the most recent exposure draft of the non-binding capital adequacy tool are impacted, among other things, by changes in the economic and housing environment, including changes in home prices and incomes.

PMIERs

The PMIERs financial requirements require that a mortgage insurer’s Available Assets meet or exceed its Minimum Required Assets. At December 31, 2021, Radian Guaranty is an approved mortgage insurer under the PMIERs and is in compliance with the current PMIERs financial requirements.

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The GSEs may amend the PMIERs at any time, and they have broad discretion to interpret the requirements, which could impact the calculation of Radian Guaranty’s Available Assets and/or Minimum Required Assets. In addition, the GSEs have a broad range of consent rights under the PMIERs and require private mortgage insurers to obtain the prior consent of the GSEs before taking certain actions. If Radian Guaranty is unable to satisfy the requirements set forth in the PMIERs, the GSEs could restrict it from conducting certain types of business with them or take actions that may include not purchasing loans insured by Radian Guaranty.

Statutory Dividend Restrictions

As of December 31, 2021, the amount of restricted net assets held by our consolidated insurance subsidiaries (which represents our equity investment in those insurance subsidiaries) totaled $4.8 billion of our consolidated net assets. Despite holding assets above the minimum statutory capital thresholds and PMIERs financial requirements, the ability of Radian’s mortgage insurance subsidiaries to pay dividends on their common stock is restricted by certain provisions of the insurance laws of Pennsylvania, their state of domicile.

Under Pennsylvania’s insurance laws, ordinary dividends and distributions may only be paid out of an insurer’s positive unassigned surplus unless the Pennsylvania Insurance Department approves the payment of extraordinary dividends or other distributions from another source. While all proposed dividends and distributions to stockholders must be filed with the Pennsylvania Insurance Department prior to payment, if a Pennsylvania domiciled insurer had positive unassigned surplus, such insurer can pay dividends or other distributions during any 12-month period in an aggregate amount less than or equal to the greater of: (i) 10% of the preceding year-end statutory policyholders’ surplus or (ii) the preceding year’s statutory net income, in each case without the prior approval of the Pennsylvania Insurance Department.

As of December 31, 2021, Radian Guaranty had negative unassigned surplus of $562.8 million. Therefore, no dividends or other ordinary distributions can be paid by Radian Guaranty. In light of Radian Guaranty’s negative unassigned surplus related to operating losses in prior periods and the ongoing need to set aside contingency reserves, we do not anticipate that Radian Guaranty will be permitted under applicable insurance laws to pay ordinary dividends to Radian Group for the next several years.

In September 2021, Radian Reinsurance paid an ordinary dividend of $36.0 million to Radian Group. As of December 31, 2021, Radian Reinsurance had positive unassigned surplus of $286.1 million. As a result, Radian Reinsurance does have the ability to pay ordinary dividends in 2022. Under Pennsylvania’s insurance laws, Radian Reinsurance can distribute up to $32.7 million in 2022 without prior approval from the Pennsylvania Insurance Department.

As of December 31, 2021 and 2020, Radian Guaranty had contingency reserves of $3.9 billion and $3.4 billion, respectively. As discussed above, absent early releases related to elevated incurred losses such as occurred in 2020, Radian Guaranty is scheduled to release contingency reserves to unassigned surplus beginning in 2024, which should accelerate the reduction of its negative unassigned surplus. Under Pennsylvania’s insurance laws, an insurer may request approval to pay an Extraordinary Distribution, subject to the approval of the Pennsylvania Insurance Department. Radian Guaranty sought and received such approval to return capital by paying Extraordinary Distributions to Radian Group in the past, most recently in February 2022, as discussed below. Radian Reinsurance sought and received approval to return capital by paying an Extraordinary Distribution to Radian Group in January 2020.

The surplus additions (distributions) between Radian Group and Radian Guaranty and our other insurance subsidiaries for the years ended December 31, 2021, 2020 and 2019 were as follows.


Surplus additions (distributions)

	Years Ended December 31,
(In thousands)	2021		2020		2019
Additions to Radian Guaranty surplus	$	—	$	200,000	$	—
Distributions from Radian Guaranty surplus	—		—		(375,000)
Additions to other insurance subsidiaries’ surplus	250		—		65,200
Distributions from other insurance subsidiaries’ surplus	(40,000)		(465,000)		(14,000)

In February 2022, the Pennsylvania Insurance Department approved a $500 million return of capital from Radian Guaranty to Radian Group, which was paid on February 11, 2022 in cash and marketable securities. This transfer was approved by the Pennsylvania Insurance Department as an Extraordinary Distribution in the form of a return of paid-in capital and will result in a $500 million decrease in Radian Guaranty’s statutory policyholders’ surplus.

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17. Share-Based Compensation and Other Benefit Programs

All outstanding awards granted under the Equity Plans are performance-based or time-based awards in the form of RSUs, non-qualified stock options or phantom stock. The maximum contractual term for stock options and similar instruments under the Equity Plans is 10 years, although awards of these instruments may be granted with shorter terms.

On May 12, 2021, our stockholders approved the 2021 Equity Plan. The terms of the 2021 Equity Plan apply to awards granted on or after May 12, 2021, the effective date of the plan (the “Effective Date”). In addition to the 2021 Equity Plan, we also have awards outstanding under the 1995 Equity Plan, the 2008 Equity Plan and the 2017 Equity Plan (collectively, the “Prior Equity Plans”).The last awards granted pursuant to the 2008 and 1995 Equity Plans were granted in 2014 and 2008, respectively.

The 2021 Equity Plan authorizes the issuance of up to 8.3 million new shares of our common stock, plus: (i) any shares of our common stock that remained available for awards under the 2017 Equity Plan as of the Effective Date; and (ii) any shares of our common stock subject to outstanding awards under the Prior Equity Plans as of the Effective Date that are payable in shares and that terminate, expire, or are canceled without having been exercised, vested, or settled in full (as applicable) on or after the Effective Date, subject to certain adjustments set forth in the 2021 Equity Plan (“Prior Plans Shares”). There were 10.2 million shares available for grant under the 2021 Equity Plan, including Prior Plans Shares, as of December 31, 2021.

Most awards vest at the end of the performance or service period and will vest earlier under certain circumstances. In the event of a grantee’s death or disability, awards generally vest immediately. Upon retirement, if certain conditions are met, awards generally vest immediately or at the end of the performance period, if any. Certain time-based RSU awards granted to officers under our 2021 Equity Plan and 2017 Equity Plan will vest in whole or in part in the event the grantee’s employment is terminated by us without cause or for “good reason.” Awards granted to officers will vest in connection with a change of control only in the event the grantee’s employment is terminated by us without cause or the grantee terminates employment for “good reason,” in each case within 90 days before or one year after the change of control. Awards to our non-employee directors will vest in connection with a change of control only in the event the grantee fails to be appointed to the board of directors of the surviving entity or is not nominated for reelection, or fails to be reelected after nomination, to the board of directors of the Company or the surviving entity.

The following table summarizes the compensation cost recognized and additional information regarding all share-based awards for the years indicated.


Share-based compensation expense

	Years Ended December 31,
(In thousands)	2021		2020		2019
Compensation cost recognized (1)
RSUs	$	27,803	$	18,403	$	20,694
ESPP	589		671		444
Non-Qualified Stock Options and Other	(29)		119		276
Total compensation cost recognized	28,363		19,193		21,414
Less: Costs deferred as acquisition costs	—		—		373
Share-based compensation expense	28,363		19,193		21,041
Income tax benefit related to share-based compensation expense	7,168		4,264		6,343
Share-based compensation expense, net	$	21,195	$	14,929	$	14,698

(1)Compensation cost is generally recognized over the periods that an employee provides service in exchange for the award. For purposes of calculating compensation cost recognized for retirement eligible grantees, we consider the service condition to be met (and recognize the full compensation costs) as of the date when a grantee becomes retirement eligible.

As of December 31, 2021, unrecognized compensation expense for all of our outstanding share-based awards was $26.4 million. Absent a change of control under the Equity Plans, this expense is expected to be recognized over a weighted-average period of approximately 1.9 years. The ultimate unrecognized expense associated with our outstanding awards could differ, depending upon whether or not the performance and service conditions are met.

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RSUs

Information with regard to RSUs to be settled in stock for the periods indicated is as follows.


Rollforward of RSUs

	Performance-Based			Time-Vested
	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Outstanding, December 31, 2020 (1)	2,186,244	$	15.71	2,118,885	$	13.16
Granted (2)	578,790	20.39		557,216	21.71
Performance adjustment (3)	421,357	—		—	—
Vested (4)	(811,598)	15.98		(832,351)	13.59
Forfeited	(34,120)	18.14		(35,199)	17.99
Outstanding, December 31, 2021 (1)	2,340,673	$	16.76	1,808,551	$	15.51

(1)Outstanding RSUs represent shares that have not yet been issued because not all conditions necessary to earn the right to benefit from the instruments have been satisfied. For performance based awards, the final number of RSUs distributed depends on the cumulative growth in Radian’s book value over the respective three-year performance period and, with the exception of certain retirement-eligible employees, continued service through the vesting date, which could result in changes in vested RSUs.

(2)For performance-based RSUs, amount represents the number of target shares at grant date.

(3)For performance-based RSUs, represents the difference between the number of target shares at grant date and the number of shares vested at settlement, which can range from 0 to 200% of target depending on results over the applicable performance periods.

(4)Represents amounts vested during the year, including the impact of performance adjustments for performance-based awards.

The weighted-average grant date fair value of performance-based RSUs granted during 2020 and 2019 was $11.91 and $21.45, respectively. The weighted-average grant date fair value of time-vested RSUs granted during 2020 and 2019 was $13.49 and $22.76, respectively.

The fair value as of the respective vesting dates of performance-based RSUs vested during 2021, 2020 and 2019 was $18.9 million, $17.2 million and $10.6 million, respectively. The fair value as of the respective vesting dates of time-vested RSUs vested during 2021, 2020 and 2019 was $18.1 million, $7.6 million and $10.9 million, respectively.

Beginning in the first quarter of 2020, dividend equivalents are accrued on all awards when dividends are declared on the Company’s common stock and will generally be paid in cash when the awards are settled.

Performance-Based RSUs. In 2021, 2020 and 2019, the vesting of the performance-based RSUs granted to each executive officer and non-executive will be based upon the cumulative growth in Radian’s book value per share, adjusted for certain defined items, over a three-year performance period. The payout at the end of the three-year performance period can range from 0% to a maximum payout of 200% of the award’s target number of RSUs. Performance-based RSUs granted to executive officers are subject to a one-year post vesting holding period.

The grant date fair value of the performance-based RSUs that are based on the cumulative growth in Radian’s book value per share is calculated based on the stock price as of the grant date, discounted for executives for the one-year-post-vesting holding period.

Time-Vested RSUs. With the exception of certain time-vested RSUs granted in 2021, 2020 and 2019 to non-employee directors, the time-vested RSU awards granted in 2021, 2020 and 2019 are scheduled to vest in: (i) pro rata installments on each of the first three anniversaries of the grant date or (ii) generally at the end of three years. Certain time-vested RSU awards granted in 2021, 2020 and 2019 to non-employee directors generally are subject to one-year cliff vesting; however, awards granted to non-employee directors in 2019 and earlier periods remain outstanding and the shares are not issued until the non-employee director retires or certain conditions related to a change in control are met, as described above.

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Non-Qualified Stock Options

Information with regard to stock options for the periods indicated is as follows.


Rollforward of non-qualified stock options

($ in thousands, except per-share amounts)	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (1)
Outstanding, December 31, 2020	773,519	$	10.73
Granted	—	—
Exercised	(209,613)	6.75
Forfeited	—	—
Expired	—	—
Outstanding, December 31, 2021	563,906	$	12.21	2.4 years	$	5,032
Exercisable, December 31, 2021	563,906	$	12.21	2.4 years	$	5,032

(1)Based on the market price of $21.13 at December 31, 2021.

The following table summarizes additional information concerning stock option activity for the periods indicated.


Additional information

	Years Ended December 31,
(In thousands)	2021		2020		2019
Aggregate intrinsic value of options exercised	$	3,354	$	3,344	$	4,984
Tax benefit of options exercised	704		702		1,047
Cash received from options exercised	1,382		1,553		2,416

Upon the exercise of stock options, we generally issue shares from the authorized, unissued share reserves when the exercise price is less than the treasury stock repurchase price and from treasury stock when the exercise price is greater than the treasury stock repurchase price.

Generally, the stock option awards have a four-year vesting period, with 50% of the award vesting on or after the third anniversary of the grant date and the remaining 50% of the award vesting on or after the fourth anniversary of the grant date, provided the applicable stock price performance hurdle is met. There were no stock options granted in 2021, 2020 or 2019.

Employee Stock Purchase Plan

The ESPP is designed to allow eligible employees to purchase shares of our common stock at a discount of 15% off the lower of the fair market value of our common stock at the beginning or end of a six-month offering period (each period being the first and second six months in a calendar year).

Under this plan, we issued 116,024; 100,022; and 107,009 shares to employees during the years ended December 31, 2021, 2020 and 2019, respectively. As of February 2022, 1,669,317 shares remain available for issuance under the ESPP.

Benefit Plans

The Radian Group Inc. Savings Incentive Plan (“Savings Plan”) covers substantially all of our full-time and our part-time employees. Participants can contribute up to 100% of their eligible earnings as pretax and/or after-tax (“Roth IRA”) contributions up to a maximum Internal Revenue Service annual limit, which was $19,500 for 2021. The Savings Plan also includes a catch-up contribution provision whereby participants who are or will be age 50 and above during the Savings Plan year may contribute an additional contribution. The maximum catch-up contribution for the Savings Plan in 2021 was $6,500. We match up to 100% of the first 6.0% of eligible compensation contributed in any given year. Our expense for matching funds for the years ended December 31, 2021, 2020 and 2019 was $7.8 million, $7.8 million and $5.6 million, respectively.

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Glossary

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2021 pursuant to Rule 15d-15(b) under the Exchange Act. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature, can provide only reasonable assurance regarding management’s control objectives. Management does not expect that our disclosure controls and procedures will prevent or detect all errors and fraud. A control system, irrespective of how well it is designed and operated, can only provide reasonable assurance and cannot guarantee that it will succeed in its stated objectives.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting, as of December 31, 2021, using the criteria described in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the updated internal control framework in Internal Control-Integrated Framework (2013), management concluded that our internal control over financial reporting was effective as of December 31, 2021. The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing in Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There was no change in the internal control over financial reporting that occurred during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

154

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Glossary

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated by reference to, and will be contained in, our definitive proxy statement, which will be filed within 120 days after December 31, 2021. Accordingly, we have omitted the information from this Item pursuant to General Instruction G (3) of Form 10-K.

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plans

The following table sets forth certain information relating to the Company’s equity compensation plans as of December 31, 2021. Each number of securities reflected in the table is a reference to shares of our common stock.


Equity compensation plans

Plan category (1)	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights		(b) Weighted-average exercise price of outstanding options, warrants and rights			(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by stockholders (2)	4,774,947	(3)	$	1.44	(4)	11,877,901	(5)
Equity compensation plans not approved by stockholders	—		—			—
Total	4,774,947	(3)	$	1.44	(4)	11,877,901	(5)

(1)The table does not include information for equity compensation plans assumed by us in mergers, under which we do not grant additional awards.

(2)These plans consist of our Equity Plans and our ESPP.

(3)Represents 12,265 shares of phantom stock issued under our 1995 Equity Plan, 49,552 shares of phantom stock, 229,227 non-qualified stock options and 389,294 RSUs issued under our 2008 Equity Plan, 334,679 non-qualified stock options and 2,691,465 RSUs issued under our 2017 Equity Plan and 1,068,465 RSUs issued under our 2021 Equity Plan. Of the RSUs included herein, 2,340,673 are performance-based stock-settled RSUs that could potentially pay out between 0% and 200% of this represented target.

155

(4)The shares of phantom stock and RSUs were granted at full value, and therefore, have a weighted-average exercise price of $0. Excluding shares of phantom stock and RSUs from this calculation, the weighted-average exercise price of outstanding non-qualified stock options was $12.21 at December 31, 2021.

(5)Includes 10,152,156 shares available for issuance under our 2021 Equity Plan and Prior Equity Plans, and 1,725,745 shares available for issuance under our ESPP, in each case as of December 31, 2021. In January 2022, we issued 56,428 shares from the shares available for issuance under our ESPP. As of February 2022, 1,669,317 shares remain available for issuance under the ESPP.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)

1.Financial Statements—See the “Index to Consolidated Financial Statements” included in Item 8 on page 99 of this report for a list of the financial statements filed as part of this report.

2.Exhibits—See “Index to Exhibits” on page 157 of this report for a list of exhibits filed as part of this report.

3.Financial Statement Schedules—The following financial statement schedules are filed as part of this Form 10-K and appear immediately following the signature page.


Schedule I—Summary of investments—other than investments in related parties (December 31, 2021)			165
Schedule II—Financial information of Radian Group Inc., Parent Company Only (Registrant)			166
Condensed Balance Sheets as of December 31, 2021 and 2020			166
Condensed Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019			167
Condensed Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019			168
Supplemental Notes to Condensed Financial Statements			169
Schedule IV—Reinsurance (December 31, 2021, 2020 and 2019)			170

All other schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in our Consolidated Financial Statements and notes thereto.

Item 16. Form 10-K Summary

None.

156

Table of Contents

Glossary

Index to Exhibits


Exhibit Number			Exhibit

3.1			Third Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated May 11, 2004 and filed on May 12, 2004)
3.2			Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated May 22, 2008 and filed on May 29, 2008)
3.3			Second Amendment to the Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated May 12, 2010 and filed on May 18, 2010)
3.4			Certificate of Amendment of Certificate of Incorporation of the Registrant effective as of May 15, 2013 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated May 14, 2013 and filed on May 20, 2013)
3.5			Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Registrant effective as of May 11, 2016 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated May 11, 2016 and filed on May 17, 2016)
3.6			Certificate of Change of Registered Agent and Registered Office of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated November 10, 2010 and filed on November 16, 2010)
3.7			Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated October 9, 2009 and filed on October 13, 2009)
3.8			Certificate of Elimination of the Series A Junior Participating Preferred Stock of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated March 19, 2019 and filed on March 19, 2019)
3.9			Second Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated November 11, 2020 and filed on November 16, 2020)
4.1			Specimen certificate for Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K (file no. 1-11356) for the year ended December 31, 1999)
4.2			Senior Indenture dated as of March 4, 2013 between the Registrant and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated February 27, 2013 and filed on March 4, 2013)
4.3			Fifth Supplemental Indenture dated as of September 26, 2017 between the Registrant and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated September 26, 2017 and filed on September 26, 2017)
4.4			Form of 4.500% Senior Notes due 2024 (included within Exhibit 4.3)
4.5			Sixth Supplemental Indenture dated as of June 24, 2019 between the Registrant and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated June 20, 2019 and filed on June 24, 2019)

157

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Glossary


Exhibit Number			Exhibit

4.6			Form of 4.875% Senior Notes due 2027 (included within Exhibit 4.5)
4.7			Seventh Supplemental Indenture dated as of May 15, 2020 between the Registrant and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated May 12, 2020 and filed on May 15, 2020)
4.8			Form of 4.875% Senior Notes due 2027 (included within Exhibit 4.7)
4.9			Description of Registrant’s Securities (incorporated by reference to Exhibit 4.7 to the Registrant’s Annual report on Form 10-K (file no. 1-11356) for the year ended December 31, 2019)
*+10.1			Comprehensive 401(k) Profit Sharing Plan Nonstandard Adoption Agreement, effective January 1, 20 22 , a s amended
*+10.2			Qualified Retirement Plan and Trust Defined Contribution Basic Plan Document, adopted by Radian Group Inc. effective January 1, 2022
10.3			Radian Group Inc. 1995 Equity Compensation Plan (Amended and Restated May 9, 2006) (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement for the 2006 Annual Meeting of Stockholders (file no. 1-11356), as filed with the Securities and Exchange Commission on April 18, 2006)
+10.4			Amendment to Radian Group Inc. 1995 Equity Compensation Plan (Amended and Restated May 9, 2006) dated February 5, 2007 (incorporated by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K (file no. 1-11356) for the year ended December 31, 2006)
+10.5			Amendment No. 2 to Radian Group Inc. 1995 Equity Compensation Plan, dated November 6, 2007 (incorporated by reference to Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K (file no. 1-11356) for the year ended December 31, 2007)
+10.6			Form of Phantom Stock Agreement for Non-Employee Directors under 1995 Equity Compensation Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated February 8, 2005 and filed on February 14, 2005)
+10.7			Radian Group Inc. Amended and Restated 2008 Equity Compensation Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-8 (file no. 333-174428) filed on May 23, 2011)
+10.8			Form of Phantom Stock Agreement for Non-Employee Directors under 2008 Equity Compensation Plan (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended September 30, 2008)
+10.9			Amendment to Form of 2008 Phantom Stock Agreement for Non-Employee Directors under the 2008 Equity Compensation Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2009)
+10.10			Form of 2009 Restricted Stock Unit Award Agreement for Non-Employee Directors under the 2008 Equity Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2009)
+10.11			Amended and Restated Radian Voluntary Deferred Compensation Plan for Officers (incorporated by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K (file no. 1-11356) for the year ended December 31, 2014)

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Glossary


Exhibit Number			Exhibit

+10.12			Radian Group Inc. Employee Stock Purchase Plan, as amended and restated as of May 9, 2018 (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A (file no. 1-11356) filed on April 9, 2018 for the 2018 Annual Meeting of Stockholders)
10.13			Global Expense Allocation and Services Agreement, effective as of January 1, 2016, between the Registrant and each of its insurance subsidiaries: Radian Guaranty Inc., Radian Insurance Inc., Radian Mortgage Assurance Inc., Radian Mortgage Insurance Inc., Radian Guaranty Reinsurance Inc., Radian Reinsurance Inc., Radian Mortgage Guaranty Inc. and Radian Investor Surety Inc. (incorporated by reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K (file no. 1-11356) for the year ended December 31, 2019)
10.14			Radian Group Inc. Amended and Restated Allocation of Consolidated Tax Liability Agreement between the Registrant and each of its subsidiaries, dated December 19, 2014, including Amendments 1 through 4 (incorporated by reference to Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K (file no. 1-11356) for the year ended December 31, 2019)
+10.15			Form of 2012 Stock Option Agreement under the 2008 Equity Compensation Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2012)
+10.16			Form of 2013 Stock Option Agreement under the 2008 Equity Compensation Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2013)
+10.17			Form of 2014 Stock Option Agreement under the 2014 Equity Compensation Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2014)
+10.18			Confidential Settlement Agreement and Release, dated as of September 16, 2014 by and among Radian Guaranty Inc., Countrywide Home Loans, Inc., and Bank of America, N.A., as a successor to BofA Home Loans Servicing f/k/a Countrywide Home Loans Servicing LP on its own behalf and as successor in interest by de jure merger to Countrywide Bank FSB, formerly Treasury Bank (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated September 16, 2014 and filed on September 19, 2014)
10.19			Letter Agreement, effective as of December 10, 2014, between the Registrant and J. Franklin Hall (including Attachment A - Severance Agreement and Attachment B - Restrictive Covenant Agreement) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated December 10, 2014 and filed on December 15, 2014)
+10.20			Radian Group Inc. 2014 Equity Compensation Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A (file no. 1-11356) filed on April 7, 2014 for the 2014 Annual Meeting of Stockholders)
+10.21			Form of 2015 Stock Option Agreement under the 2014 Equity Compensation Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended September 30, 2015)
+10.22			Form of Amendment to Restricted Stock Unit Award Agreement for Non-Employee Directors under the 2008 Equity Compensation Plan (incorporated by reference to Exhibit 10.91 to the Registrant’s Annual Report on Form 10-K (file no. 1-11356) for the year ended December 31, 2015)
+10.25			Form of 2016 Stock Option Agreement under the 2014 Equity Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2016)

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Glossary


Exhibit Number			Exhibit

+10.26			Form of Executive Severance Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended September 30, 2016)
+10.27			Form of Restrictive Covenant Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended September 30, 2016)
+10.28			Employment Agreement, dated as of November 19, 2019, between the Registrant and Richard G. Thornberry (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated November 19, 2019 and filed on November 19, 2019)
+10.29			Restrictive Covenants Agreement, dated as of February 8, 2017, between the Registrant and Richard G. Thornberry (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated February 7, 2017 and filed on February 13, 2017)
+10.30			Form of Restricted Stock Unit Agreement between the Registrant and Richard G. Thornberry (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated February 7, 2017 and filed on February 13, 2017)
+10.31			Radian Group Inc. STI/MTI Incentive Plan for Executive Employees, as amended and restated (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated February 7, 2017 and filed on February 13, 2017)
+10.32			Radian Group Inc. Equity Compensation Plan (Amended and Restated as of May 10, 2017 and May 13, 2020) (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended March 31, 2021)
+10.33			2018 Performance-Based Restricted Stock Unit Grant Letter (book value) under the Radian Group Inc. Equity Compensation Plan between the Registrant and Richard G. Thornberry (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (file 1-11356) for the period ended June 30, 2018)
+10.34			2018 Time-Based Restricted Stock Unit Grant Letter under the Radian Group Inc. Equity Compensation Plan between the Registrant and Richard G. Thornberry (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (file 1-11356) for the period ended June 30, 2018)
+10.35			Form of Executive Officer 2018 Performance-Based Restricted Stock Unit Grant Letter (book value) under the Radian Group Inc. Equity Compensation Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (file 1-11356) for the period ended June 30, 2018)
+10.36			Form of Executive Officer 2018 Time-Based Restricted Stock Unit Grant Letter under the Radian Group Inc. Equity Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q (file 1-11356) for the period ended June 30, 2018)
10.37			Form of Radian Group Inc. Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated April 8, 2019 and filed on April 10, 2019)
+10.38			Amended and Restated Radian Group Inc. Voluntary Deferred Compensation Plan for Directors (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended March 31, 2020)
+10.39			2020 Performance-Based Restricted Stock Unit Grant Agreement (book value) under the Radian Group Inc. Equity Compensation Plan between the Registrant and Richard G. Thornberry (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2020)

160

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Glossary


Exhibit Number			Exhibit

+10.40			2020 Time-Based Restricted Stock Unit Grant Agreement under the Radian Group Inc. Equity Compensation Plan between the Registrant and Richard G. Thornberry (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2020)
+10.41			Form of Executive Officer 2020 Performance-Based Restricted Stock Unit Grant Agreement (book value) under the Radian Group Inc. Equity Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2020)
+10.42			Form of Executive Officer 2020 Time-Based Restricted Stock Unit Grant Agreement under the Radian Group Inc. Equity Compensation Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2020)
+10.43			Form of Executive Officer 2021 Performance-Based Restricted Stock Unit Grant Agreement (book value) under the Radian Group Inc. Equity Compensation Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2021)
+10.44			2021 Performance-Based Restricted Stock Unit Grant Agreement (book value) under the Radian Group Inc. Equity Compensation Plan between the Registrant and Richard G. Thornberry (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2021)
+10.45			2021 Time-Based Restricted Stock Unit Grant Agreement (book value) under the Radian Group Inc. Equity Compensation Plan between the Registrant and Richard G. Thornberry (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2021)
+10.46			Form of Executive Officer 2021 Time-Based Restricted Stock Unit Grant Agreement under the Radian Group Inc. Equity Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended June 30, 2021)
+10.47			Radian Group Inc. Equity Compensation Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A (file no. 1-11356) filed on April 9, 2021 for the 2021 Annual Meeting of Stockholders)
+10.48			Amendment 2021-1 to Employment Agreement, dated as of March 26, 2021, between the Registrant and Richard G. Thornberry (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (file no. 1-11356) for the period ended March 31, 2021)
+10.49			Credit Agreement by and among the Registrant, Royal Bank of Canada, as Administrative Agent, U.S. Bank National Association (“U.S. Bank”), as Syndication Agent, RBC Capital Markets and U.S. Bank as Joint Lead Arrangers and Joint Book Runners, Associated Bank, National Association, as Documentation Agent, and certain other banks and financial institutions serving as lenders (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated December 7, 2021 and filed on December 8, 2021)
+10.50			Radian Group Inc. Short-Term Incentive Plan for employees (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (file no. 1-11356) dated November 30, 2021 and filed on December 3, 2021)
*21			Subsidiaries of the Registrant
*23.1			Consent of PricewaterhouseCoopers LLP
*31			Rule 13a-14(a) Certifications

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Glossary


Exhibit Number			Exhibit

**32			Section 1350 Certifications
*101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*101.SCH			Inline XBRL Taxonomy Extension Schema Document
*101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
*101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
*104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)

* Filed herewith.

** Furnished herewith.

+ Management contract, compensatory plan or arrangement

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Glossary

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 25, 2022.


Radian Group Inc.

By:			/s/ Richard G. Thornberry
			Richard G. Thornberry Chief Executive Officer

163

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Glossary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 25, 2022, by the following persons on behalf of the registrant and in the capacities indicated.


Name						Title
/s/ RICHARD G. THORNBERRY						Chief Executive Officer (Principal Executive Officer) and Director
Richard G. Thornberry

/s/ J. FRANKLIN HALL						Senior Executive Vice President, Chief Financial Officer (Principal Financial Officer)
J. Franklin Hall

/s/ ROBERT J. QUIGLEY						Executive Vice President, Corporate Controller (Principal Accounting Officer)
Robert J. Quigley

/s/ HOWARD B. CULANG						Non-Executive Chairman of the Board
Howard B. Culang

/s/ BRAD L. CONNER						Director
Brad L. Conner

/s/ DEBRA HESS						Director
Debra Hess

/s/ LISA W. HESS						Director
Lisa W. Hess

/s/ BRIAN D. MONTGOMERY						Director
Brian D. Montgomery

/s/ LISA MUMFORD						Director
Lisa Mumford

/s/ GAETANO J. MUZIO						Director
Gaetano J. Muzio

/s/ GREGORY V. SERIO						Director
Gregory V. Serio

/s/ NOEL J. SPIEGEL						Director
Noel J. Spiegel

164

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Glossary

Radian Group Inc. and Its Consolidated Subsidiaries

Schedule I
Summary of Investments—Other Than Investments in Related Parties
December 31, 2021


(In thousands)	Amortized Cost		Fair Value			Amount Reflected on the Consolidated Balance Sheet
Type of Investment
Fixed-maturities available for sale
Bonds
U.S. government and agency securities	$	221,407	$	221,730		$	221,730
State and municipal obligations	162,964		177,257			177,257
Corporate bonds and notes	2,867,063		2,975,842			2,975,842
RMBS	697,581		705,117			705,117
CMBS	690,827		709,203			709,203
CLO	529,906		530,040			530,040
Other ABS	210,657		211,187			211,187
Foreign government and agency securities	5,109		5,296			5,296
Mortgage insurance-linked notes (1)	45,384		47,017			47,017

Total securities available for sale	5,430,898		5,582,689		(2)	5,582,689		(2)
Trading securities	234,757		256,929		(3)	256,929		(3)
Equity securities
Common stocks	211,905		222,247			222,247

Total equity securities	211,905		222,247		(4)	222,247		(4)
Short-term investments (5)	551,516		551,508			551,508
Other invested assets	3,575		4,165			4,165
Total investments other than investments in related parties	$	6,432,651	$	6,617,538		$	6,617,538

(1)Comprises the notes purchased by Radian Group in connection with the Excess-of-Loss Program. See Note 8 for more information about our reinsurance programs.

(2)Includes $65.6 million of fixed-maturity securities available for sale loaned under securities lending agreements that are classified as other assets in our consolidated balance sheets.

(3)Includes $0.4 million of trading securities loaned under securities lending agreements that are classified as other assets in our consolidated balance sheets.

(4)Includes $38.0 million of equity securities loaned under securities lending agreements that are classified as other assets in our consolidated balance sheets.

(5)Includes cash collateral held under securities lending agreements of $48.7 million that is reinvested in money market instruments.

165

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Glossary

Radian Group Inc.

Schedule II—Financial Information of Registrant

Condensed Balance Sheet
Parent Company Only


(In thousands, except per-share amounts)	December 31, 2021		December 31, 2020
Assets
Investments
Fixed-maturities available for sale—at fair value (amortized cost of $485,727 and $836,191)	$	481,659	$	844,393



Short-term investments—at fair value	120,601		233,569
Other invested assets—at fair value	3,511		3,000
Total investments	605,771		1,080,962
Cash	38,846		20,141

Investment in subsidiaries, at equity in net assets (Note C)	5,210,917		4,545,508

Accounts and notes receivable	100,002		300,656


Other assets (Note C)	65,923		75,305
Total assets	$	6,021,459	$	6,022,572

Liabilities and Stockholders’ Equity



Liabilities
Senior notes	$	1,409,473	$	1,405,674

Net deferred tax liability (Note A)	283,585		272,868
Other liabilities	69,605		59,677
Total liabilities	1,762,663		1,738,219
Common stockholders’ equity
Common stock: par value $0.001 per share; 485,000 shares authorized at December 31, 2021 and 2020; 194,408 and 210,130 shares issued at December 31, 2021 and 2020, respectively; 175,421 and 191,606 shares outstanding at December 31, 2021 and 2020, respectively	194		210
Treasury stock, at cost: 18,987 and 18,524 shares at December 31, 2021 and 2020, respectively	(920,798)		(910,115)
Additional paid-in capital	1,878,372		2,245,897
Retained earnings	3,180,935		2,684,636
Accumulated other comprehensive income (loss)	120,093		263,725
Total common stockholders’ equity	4,258,796		4,284,353
Total liabilities and stockholders’ equity	$	6,021,459	$	6,022,572

See Supplemental Notes.

166

Table of Contents

Glossary

Radian Group Inc.

Schedule II—Financial Information of Registrant
Condensed Statements of Operations
Parent Company Only


	Years Ended December 31,
(In thousands)	2021		2020		2019
Revenues
Net investment income	$	7,540	$	19,459	$	19,751
Net gains on investments and other financial instruments	980		5,682		12,863
Other income	11		101		218
Total revenues	8,531		25,242		32,832

Expenses
Loss on extinguishment of debt	—		—		22,738


Other operating expenses	3,163		2,619		—
Total expenses (Note B)	3,163		2,619		22,738

Pretax income	5,368		22,623		10,094
Income tax provision (benefit)	1,167		(3,165)		(19,997)
Equity in net income of affiliates	596,470		367,838		642,218
Net income	600,671		393,626		672,309
Other comprehensive income (loss), net of tax	(143,632)		153,237		171,408
Comprehensive income	$	457,039	$	546,863	$	843,717

See Supplemental Notes.

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Table of Contents

Glossary

Radian Group Inc.

Schedule II—Financial Information of Registrant
Condensed Statements of Cash Flows
Parent Company Only


	Years Ended December 31,
(In thousands)	2021		2020		2019

Cash flows from operating activities
Net cash provided by (used in) operating activities (1)	$	66,317	$	(13,741)	$	143,664

Cash flows from investing activities
Proceeds from sales of:
Fixed-maturities available for sale	195,452		304,737		296,171
Trading securities	—		—		56,787
Equity securities	—		13,401		16,916
Proceeds from redemptions of:
Fixed-maturities available for sale	301,788		238,161		149,767
Trading securities	—		—		114

Purchases of:
Fixed-maturities available for sale	(156,344)		(691,874)		(293,284)


Sales, redemptions and (purchases) of:
Short-term investments, net	113,939		(53,024)		157,045
Other assets, net	(864)		(6,068)		(6,958)
Capital distributions from subsidiaries	44,951		19,000		6,000
Capital contributions to subsidiaries	(43,250)		(5,050)		(65,879)


Net cash provided by (used in) investing activities	455,672		(180,717)		316,679

Cash flows from financing activities
Dividends and dividend equivalents paid	(103,298)		(97,458)		(2,061)
Issuance of common stock	1,382		1,553		2,416
Repurchases of common stock	(399,100)		(226,305)		(300,201)
Issuance of senior notes, net	—		515,567		442,439
Repayments and repurchases of senior notes	—		—		(610,763)
Credit facility commitment fees paid	(3,325)		(2,292)		(989)
Change in secured borrowings	1,057		—		—
Net cash provided by (used in) financing activities	(503,284)		191,065		(469,159)
Effect of exchange rate changes on cash and restricted cash	—		—		(2)
Increase (decrease) in cash and restricted cash	18,705		(3,393)		(8,818)
Cash and restricted cash, beginning of period	20,141		23,534		32,352
Cash and restricted cash, end of period	$	38,846	$	20,141	$	23,534

(1)Includes cash distributions received from subsidiaries of $85.0 million, $1.7 million and $26.6 million in 2021, 2020 and 2019, respectively. Excludes non-cash distributions received from subsidiaries of $92.3 million, $484.1 million and $362.4 million in 2021, 2020 and 2019, respectively.

See Supplemental Notes.

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Table of Contents

Glossary

Radian Group Inc.

Schedule II—Financial Information of Registrant
Parent Company Only
Supplemental Notes

Note A

The Radian Group Inc. (the “Parent Company,” “we” or “our”) financial statements represent the stand-alone financial statements of the Parent Company. These financial statements have been prepared on the same basis and using the same accounting policies as described in the consolidated financial statements included herein, except that the Parent Company uses the equity-method of accounting for its majority-owned subsidiaries. These financial statements should be read in conjunction with our consolidated financial statements and the accompanying notes thereto.

See Notes 12 and 14 of Notes to Consolidated Financial Statements for additional information on the Parent Company’s debt obligations and capital stock.

The Parent Company has entered into the following intercompany guarantees with certain of our subsidiaries:

■Radian Group and Radian Mortgage Assurance are parties to a guaranty agreement, which provides that Radian Group will make sufficient funds available to Radian Mortgage Assurance to ensure that Radian Mortgage Assurance has a minimum of $5.0 million of statutory policyholders’ surplus every calendar quarter. Radian Mortgage Assurance had $9.0 million of statutory policyholders’ surplus and no RIF exposure as of December 31, 2021.

■To allow our mortgage insurance customers to comply with applicable securities regulations for issuers of ABS (including mortgage-backed securities), Radian Group has guaranteed two structured transactions for Radian Guaranty with $63.3 million of aggregate remaining credit exposure as of December 31, 2021.

As of December 31, 2021, Radian Group recorded a net deferred tax liability of $283.6 million. This balance includes liabilities related to certain of our subsidiaries, which have incurred federal NOLs that could not be carried-back and utilized on a separate company tax return basis. As a result, we are not currently obligated under our tax-sharing agreement to reimburse these subsidiaries for their separate company federal NOL carryforward. However, if in a future period one of these subsidiaries utilizes its share of federal NOL carryforwards on a separate entity basis, then Radian Group may be obligated to fund such subsidiary’s share of our consolidated tax liability to the Internal Revenue Service.

Note B

The Parent Company provides certain services to its subsidiaries. The Parent Company allocates to its subsidiaries expenses it incurs in the capacity of supporting those subsidiaries, including operating expenses, which are allocated based on the forecasted annual percentage of total revenue, which approximates the estimated percentage of time spent on certain subsidiaries, and interest expense, which is allocated based on relative capital. These expenses are presented net of allocations in the Condensed Statements of Operations. Substantially all operating expenses and interest expense have been allocated to the subsidiaries for 2021, 2020 and 2019.

Amounts allocated to the subsidiaries for expenses are based on actual cost, without any mark-up. The Parent Company considers these charges to be fair and reasonable. The subsidiaries generally reimburse the Parent Company for these costs in a timely manner, which has the impact of temporarily improving the cash flows of the Parent Company, if accrued expenses are reimbursed prior to actual payment.

The following table shows the components of our Parent Company expenses that have been allocated to our subsidiaries for the periods indicated.


Total allocated expenses

	Years Ended December 31,
(In thousands)	2021		2020		2019
Allocated operating expenses	$	147,386	$	129,870	$	124,412
Allocated interest expense	82,833		68,938		53,692
Total allocated expenses	$	230,219	$	198,808	$	178,104

Note C

During 2021, certain non-insurance subsidiaries had not generated sufficient cash flow to reimburse the Parent Company for its share of its direct and allocated operating expenses, and therefore the Parent Company effectively contributed a total of $48.5 million to these subsidiaries to reflect the impairment of the intercompany receivables representing unreimbursed direct and allocated costs.

See Note 16 of Notes to Consolidated Financial Statements for additional information related to capital transactions between the Parent Company and its consolidated insurance subsidiaries, including a $500 million return of capital from Radian Guaranty to Radian Group, which was paid on February 11, 2022.

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Glossary

Radian Group Inc.

Schedule IV—Reinsurance
Insurance Premiums Earned
Years Ended December 31, 2021, 2020 and 2019




($ in thousands)	Gross Amount		Ceded to Other Companies		Assumed from Other Companies		Net Amount		Assumed Premiums as a Percentage of Net Premiums
2021
Mortgage insurance	$	1,104,696	$	113,480	$	7,066	$	998,282	0.71%
Title insurance	39,665		764		—		38,901		0.00%
Total	$	1,144,361	$	114,244	$	7,066	$	1,037,183	0.68%

2020
Mortgage insurance	$	1,263,684	$	183,131	$	12,214	$	1,092,767	1.12%
Title insurance	22,843		289		—		22,554		0.00%
Total	$	1,286,527	$	183,420	$	12,214	$	1,115,321	1.10%

2019
Mortgage insurance	$	1,233,528	$	109,696	$	10,382	$	1,134,214	0.92%
Title insurance	11,342		207		—		11,135		0.00%
Total	$	1,244,870	$	109,903	$	10,382	$	1,145,349	0.91%

170

The Vanguard Group

NONSTANDARDIZED PROFIT SHARING/401(k) PLAN ADOPTION AGREEMENT #001

By executing this Nonstandardized Profit Sharing/401(k) Plan Adoption Agreement (the "Adoption Agreement" or “AA”), the undersigned Employer agrees to establish or continue a Profit Sharing/401(k) Plan. The Profit Sharing/401(k) Plan adopted by the Employer consists of the Defined Contribution Pre-Approved Plan Basic Plan Document #01 (the "BPD") and the elections made under this Adoption Agreement (collectively referred to as the "Plan"). An Employer may jointly co-sponsor the Plan by signing a Participating Employer Adoption Page, which is attached to this Adoption Agreement. This Plan is effective as of the Effective Date identified under §2-1 of this Adoption Agreement.

In completing the provisions of this Adoption Agreement, unless designated otherwise, selections under the Deferral column apply to all Salary Deferrals (including Roth Deferrals and Catch-Up Contributions) and After-Tax Employee Contributions. In addition, selections under the Deferral column apply to any Safe Harbor Contributions, unless designated otherwise under AA §6C, and also apply to any QNECs and/or QMACs made under the Plan, unless designated otherwise under AA §6D. The selections under the Match column apply to Matching Contributions under AA §6B and selections under the ER column apply to Employer Contributions under AA §6.

1-1EMPLOYER INFORMATION.

Name: Radian Group Inc. Address: 5 50 E. Swedesford Road, Suite 350

Wayne, PA 19087 Telephone: 215-564-6600

1-2EMPLOYER IDENTIFICATION NUMBER (EIN). 2 3-2691170

1-3FORM OF BUSINESS.

•C-Corporation S-Corporation

•Partnership / Limited Liability Partnership Limited Liability Company

•Sole Proprietor Tax-Exempt Entity

•Other:

[Note: Any entity entered under “Other” must be a legal entity recognized under federal income tax laws.] 1-4 EMPLOYER’S TAX YEAR END. The Employer’s tax year ends December 31

1-5RELATED EMPLOYERS. Is the Employer part of a group of Related Employers (as defined in Section 1.124 of the Plan)?

•Yes

•No

If yes, Related Employers may be listed below. A Related Employer must execute a Participating Employer Adoption Page for Employees of that Related Employer to participate in this Plan. The failure to cover the Employees of a Related Employer may result in a violation of the minimum coverage rules under Code §410(b). (See Section 2.02(c) of the Plan.)

Radian Real Estate Management, Homegenius LLC, Radian Lender Services, Radian Group, Radian Guaranty Inc., Radian

Settlement Services Inc., Radian Title Agency of Texas LLC, Radian Title Insurance Inc., Red Bell Real Estate, LLC, and

Radian Mortgage Captial

[Note: This AA §1-5 is for informational purposes and the Employer need not list Related Employers. The failure to identify all Related Employers under this AA §1-5 will not jeopardize the qualified status of the Plan.]

2-1PLAN NAME. R adian Group Inc. Savings Incentive Plan Original Effective Date: N ovember 1, 1992 Restatement Effective Date: January 1, 2021

2-2PLAN NUMBER. 001

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan

Section 2 – Plan Information

2-3TYPE OF PLAN. Profit Sharing (PS) Plan only PS and 401(k) Plan PS and Safe Harbor 401(k) Plan

2-4PLAN YEAR.

•(a) Calendar year.

•(b) The 12-consecutive month period ending on each year.

•(c) The Plan has a Short Plan Year running from to .

2-5FROZEN PLAN. Check this AA §2-5 if the Plan is a frozen Plan to which no contributions will be made.

•This Plan is a frozen Plan effective . (See Section 3.02(a)(7) of the Plan.)

[Note: As a frozen Plan, the Employer will not make any contributions with respect to Plan Compensation earned after such date and no Participant will be permitted to make any contributions to the Plan after such date. In addition, no Employee will become a Participant after the date the Plan is frozen.]

2-6MULTIPLE EMPLOYER PLAN. Is this Plan a Multiple Employer Plan as defined in Section 1.85 of the Plan? (See Section

16.07 of the Plan for special rules applicable to Multiple Employer Plans.)

•Yes

•No

2-7PLAN ADMINISTRATOR.

•(a) The Employer identified in AA §1-1.

•(b) Name: Address: Telephone:

[Note: This AA §2-7 may be used to designate an individual who is acting as Plan Administrator under ERISA §3(16). To the extent an individual named in this AA §2-7 does not take on all responsibilities of Plan Administrator, the Employer will retain those responsibilities as Plan Administrator. See Section 1.98 of the Plan.]

2-8DEFINITION OF DISABLED. An individual is considered Disabled for purposes of applying the provisions of this Plan if:

•(a) The individual is covered by the Employer’s disability insurance plan and is determined to be disabled under such plan.

•(b) The individual is determined to be disabled by the Social Security Administration under Section 223(d) of the Social Security Act for purposes of determining eligibility for Social Security benefits.

•(c) The Plan Administrator determines an individual is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. The permanence and degree of such impairment shall be supported by medical evidence. The Plan Administrator may establish reasonable procedures for determining whether a Participant is Disabled. [Selection of this subsection (c) requires the Plan to apply the Department of Labor’s disability claims procedures as set forth in DOL Regulation §2560.503-1, as effective on April 1, 2018.]

[Note: An Employer may elect any or all of the elections above. If more than one is selected, the hierarchy for determining whether an individual is considered Disabled is in the order listed above, unless described otherwise under separate administrative procedures or as described below.]

•(d) Alternative definition of Disabled: T he inability to engage in any substantial, gainful activity in the Employee's trade or

profession for which the Employee is best qualified through training or experience or as defined under the Employer's

long term disability program.

[Note: Any alternative definition described in this subsection will apply uniformly to all Participants under the Plan. In addition, any alternative definition of Disabled may not discriminate in favor of Highly Compensated Employees. The Employer may describe different definitions of Disabled for different purposes under the plan.]

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan

Section 3 – Eligible Employees

3-1ELIGIBLE EMPLOYEES. In addition to the Employees identified in Section 2.02 of the Plan, the following Employees are excluded from participation under the Plan with respect to the contribution source(s) identified in this AA §3-1. See Sections 2.02(e) and (f) of the Plan for rules regarding the effect on Plan participation if an Employee changes between an eligible and ineligible class of employment.

Deferral

Match

(a)

No exclusions

(b)

Collectively Bargained Employees

(c)

Non-resident aliens who receive no compensation from the Employer which constitutes U.S. source income

(d)

Leased Employees

(e)

Employees paid on an hourly basis

(f)

Employees paid on a salaried basis

(g)

Commissioned Employees

(h)

Highly Compensated Employees

(i)

Key Employees

(j)

Non-Key Employees who are Highly Compensated

(k)

Employees eligible for another qualified plan sponsored by the Employer or a Related Employer

Specify name of other qualified plan (optional):

(l)

Other: T emporary Employees, Interns

[Note: A class of Employees excluded under the Plan must be defined in such a way that it precludes Employer discretion, and may not provide for an exclusion designed to cover only Nonhighly Compensated Employees with the lowest amount of compensation and/or the shortest periods of service who may represent the minimum number of Nonhighly Compensated Employees necessary to satisfy the coverage requirements under Code §410(b). See Section 2.02(b)(6) of the Plan for special rules that apply to service-based exclusions (e.g., part-time Employees). Also see Section 2.02(b) of the Plan for rules regarding the automatic exclusion/inclusion of other Employees.]

3-2EMPLOYEES OF AN EMPLOYER ACQUIRED AS PART OF A CODE §410(b)(6)(C) TRANSACTION. [Note: For this

purpose, a Code §410(b)(6)(C) transaction includes an asset sale, stock sale or other disposition or acquisition that results in the movement of Employees from one Employer to another Employer or causes a change in status as a Related Employer group.]

•(a) An Employee acquired as part of a Code §410(b)(6)(C) transaction will become an Eligible Employee as of the date of the transaction (unless otherwise excluded under AA §3-1 or this AA §3-2). (See Section 2.02(d) of the Plan.)

•(b) Employees of an Employer acquired as part of a Code §410(b)(6)(C) transaction will not become an Eligible Employee until after the expiration of the transition period described in Code §410(b)(6)(C)(ii) (i.e., the period beginning on the date of the transaction and ending on the last day of the first Plan Year beginning after the date of the transaction). (See Section 2.02(d) of the Plan.)

•(c) All Employees of any Employer acquired as part of a Code §410(b)(6)(C) transaction are excluded and will NOT become an Eligible Employee upon the expiration of the transition period described in Code §410(b)(6)(C)(ii), unless otherwise provided elsewhere under the Plan.

•(d) The following Employees of acquired employers are excluded/included under the Plan:

[Note: This subsection may be used to provide for the inclusion or exclusion of Employees with respect to specific Employers at a time other than provided under this AA §3-2.]

•(e) Describe any special rules that apply for purposes of applying the rules under this AA §3-2:

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan

Section 3 – Eligible Employees

[Note: Employees acquired under a Code §410(b)(6)(C) transaction are eligible or not eligible to participate under the Plan, as provided under this AA §3-2. However, see Section 2.02(c) of the Plan for rules regarding the coverage of Employees of a Related Employer and AA §4-5 for rules regarding the crediting of service with a Predecessor Employer. Any special rules are subject to the minimum coverage requirements under Code §410(b) and the nondiscrimination rules under Code §401(a)(4). For Related Employers, elections under this AA §3-2 are subject to the completion of a Participation Agreement.]

4-1ELIGIBILITY REQUIREMENTS – MINIMUM AGE AND SERVICE. An Eligible Employee (as defined in AA §3-1) who satisfies the minimum age and service conditions under this AA §4-1 will be eligible to participate under the Plan as of his/her Entry Date (as defined in AA §4-2 below).

(a)Service Requirement. An Eligible Employee must complete the following minimum service requirements to participate in the Plan. If a different minimum service requirement applies for the same contribution type for different groups of Employees or for different contribution formulas, such differences may be described below.

Deferral Match ER

• (1) There is no minimum service requirement for participation in the Plan.

• (2) One Year of Service (as defined in Section 2.03(a)(1) of the Plan and AA §4-

3).

• (3) The completion of at least [cannot exceed 1,000] Hours of Service during

the first [cannot exceed 12] months of employment (or the first [cannot exceed 365] days of employment) or the completion of a Year of Service (as defined in AA §4-3), if earlier.

•(i) An Employee who completes the required Hours of Service satisfies eligibility at the end of the designated period, regardless if the Employee actually works for the entire period.

•(ii) An Employee who completes the required Hours of Service must also be employed continuously during the designated period of employment. See Section 2.03(a)(2) of the Plan for rules regarding the application of this subsection (ii).

• (4) The completion of [cannot exceed 1,000] Hours of Service during an

Eligibility Computation Period. [Note: An Employee satisfies the service requirement immediately upon completion of the designated Hours of Service rather than at the end of the Eligibility Computation Period.]

• (5) Full-time Employees are eligible to participate as set forth in subsection (i).

Employees who are “part-time” Employees must complete a Year of Service (as defined in AA §4-3). For this purpose, a full-time Employee is any Employee not defined in subsection (ii).

(i)Full-time Employees must complete the following minimum service requirements to participate in the Plan:

•(A) There is no minimum service requirement for participation in the Plan.

•(B) The completion of at least [cannot exceed 1,000] Hours of Service during the first [cannot exceed 12] months of employment or the completion of a Year of Service (as defined in AA §4-3), if earlier.

•(C) Under the Elapsed Time method as defined in AA §4-3 below.

•(D) Describe:

[Note: Any conditions provided under (D) must satisfy the requirements of Code §410(a).]

(ii)Part-time Employees must complete a Year of Service (as defined in AA

§4-3). [Note: Generally, an Employee earns a Year of Service for eligibility purposes upon completing 1,000 Hours of Service (or fewer Hours of Service designated under AA §4-3) during an Eligibility

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 4 – Minimum Age and Service Requirements

Computation Period.]

•(A) For this purpose, a part-time Employee is any Employee (including a temporary or seasonal Employee) whose normal work schedule is less than:

•(I) hours per week.

•(II) hours per month.

•(III) hours per year.

•(B) Describe part-time Employees for this purpose:

[Note: A part-time employee must be described as an individual who works less than a specified number of hours (no greater than 40) during a standard work week.]


N/A	(6)	Two (2) Years of Service. [Full and immediate vesting must be chosen under AA §8-2.]
	(7)	Under the Elapsed Time method as defined in AA §4-3 below.
	(8)	Describe eligibility conditions:
		Describe eligibility conditions:
		[Note: Any conditions on eligibility must satisfy the requirements of Code §410(a). An eligibility condition under this AA §4-1 may not cause an Employee to enter the Plan later than the first Entry Date following the completion of a Year of Service (as defined in AA §4-3). Also see Section 2.02(b)(5) and (6) for rules regarding the exclusion of certain “short-service” Employees and disguised service conditions.]

(b)Minimum Age Requirement. An Eligible Employee (as defined in AA §3-1) must have attained the following age with respect to the contribution source(s) identified in this AA §4-1(b).

Deferral

Match

(1)

There is no minimum age for Plan eligibility.

(2)

Age 21.

(3)

Age 20½.

(4)

Age (not later than age 21).

•(c) Special eligibility rules. The following special eligibility rules apply with respect to the Plan:

[Note: This subsection (c) may be used to apply the eligibility conditions selected under this AA §4-1 separately with respect to different Employee groups or different contribution formulas under the Plan. Any special eligibility rules must satisfy the requirements of Code §410(a).]

4-2ENTRY DATE. An Eligible Employee (as defined in AA §3-1) who satisfies the minimum age and service requirements in AA

§4-1 shall be eligible to participate in the Plan as of his/her Entry Date. For this purpose, the Entry Date is the following date with respect to the contribution source(s) identified under this AA §4-2.

Deferral Match ER

• (a) Immediate. The date the minimum age and service requirements are satisfied (or date of

hire, if no minimum age and service requirements apply).

• (b) Semi-annual. The first day of the 1st and 7th month of the Plan Year.

• (c) Quarterly. The first day of the 1st, 4th, 7th and 10th month of the Plan Year.

• (d) Monthly. The first day of each calendar month.

• (e) Payroll period. The first day of the payroll period.

• (f) The first day of the Plan Year. [See Section 2.03(b)(2) of the Plan for special rules that

apply.]

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 4 – Minimum Age and Service Requirements

• (g) Describe Entry Date.

[Note: Any Entry Date under this subsection (g) must be within the dates described under subsections (a) – (f).]

An Eligible Employee’s Entry Date (as defined above) is determined based on when the Employee satisfies the minimum age and service requirements in AA §4-1. For this purpose, an Employee’s Entry Date is the Entry Date:

Deferral Match ER

• (h) next following satisfaction of the minimum age and service requirements.

• (i) coinciding with or next following satisfaction of the minimum age and service

requirements.

N/A (j) nearest the satisfaction of the minimum age and service requirements.

N/A (k) preceding the satisfaction of the minimum age and service requirements.

This section may be used to describe any special rules for determining Entry Dates under the Plan. For example, if different Entry Date provisions apply for the same contribution sources with respect to different groups of Employees, such different Entry Date provisions may be described below.


Deferral	Match	ER	(l) Describe any special rules that apply with respect to the Entry Dates under this AA §4-
			2:

[Note: Any special rules under this subsection must satisfy the requirements of Code §410(a) and may not cause an Employee to enter the Plan later than the first Entry Date following the completion of a Year of Service (as defined in AA §4-3).]

4-3DEFAULT ELIGIBILITY RULES. In applying the minimum age and service requirements under AA §4-1 above, the following default rules apply with respect to all contribution sources under the Plan:

•Year of Service. An Employee earns a Year of Service for eligibility purposes upon completing 1,000 Hours of Service during an Eligibility Computation Period. Hours of Service are calculated based on actual hours worked during the Eligibility Computation Period. (See Section 1.72 of the Plan for the definition of Hours of Service.)

•Eligibility Computation Period. If one Year of Service is required for eligibility, the Plan will determine subsequent Eligibility Computation Periods on the basis of Plan Years. (See Section 2.03(a)(3)(i) of the Plan.) If more than one Year of Service is required for eligibility, the Plan will determine subsequent Eligibility Computation Periods on the basis of Anniversary Years. However, if the Employee fails to earn a Year of Service in the first or second Eligibility Computation Period, the Plan will determine subsequent Eligibility Computation Periods on the basis of Plan Years beginning in the first or second Eligibility Computation Period, as applicable. (See Section 2.03(a)(3)(iii) of the Plan.)

•Break in Service Rules. The Nonvested Participant Break in Service rule and the One-Year Break in Service rule do NOT apply. (See Section 2.07 of the Plan.)

To override the default eligibility rules, complete the applicable sections of this AA §4-3. If this AA §4-3 is not completed for a particular contribution source, the default eligibility rules apply.


Deferral	Match	ER
			(a) Year of Service. Instead of 1,000 Hours of Service, an Employee earns a Year of Service upon the completion of [must be less than 1,000] Hours of Service during an Eligibility Computation Period.
			(b) Eligibility Computation Period (ECP). The Plan will use Anniversary Years for all Eligibility Computation Periods. (See Section 2.03(a)(3) of the Plan.)

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 4 – Minimum Age and Service Requirements

• (c) Elapsed Time method. Eligibility service will be determined under the Elapsed

Time method. An Eligible Employee (as defined in AA §3-1) must complete a period of service, as designated below, to participate in the Plan. (See Section 2.03(a)(6) of the Plan.)


			(1)			For Deferral, must complete a period of service
			(2)			For Match, must complete a period of service
			(3)			For ER, must complete a period of service

[Note: Under the Elapsed Time method in this subsection, service will be measured from the Employee’s employment commencement date (or reemployment commencement date, if applicable) without regard to the Eligibility Computation Period designated in Section 2.03(a)(3) of the Plan. The period of service may not exceed 12 months for eligibility for Salary Deferrals or After-Tax Employee Contributions. If a period greater than 12 months is entered and the Salary Deferral column is checked, the period of service will be deemed to be a 12-month period. If a period greater than 12 months applies to Matching Contributions or Employer Contributions, 100% vesting must be selected under AA §8 for those contributions.]

• (d) Equivalency Method. For purposes of determining an Employee’s Hours of

Service for eligibility, the Plan will use the Equivalency Method (as defined in Section 2.03(a)(5) of the Plan). The Equivalency Method will apply to:

•(1) All Employees.

•(2) Only Employees for whom the Employer does not maintain hourly records. For Employees for whom the Employer maintains hourly records, eligibility will be determined based on actual hours worked.

Hours of Service for eligibility will be determined under the following Equivalency Method.

•(3) Monthly. 190 Hours of Service for each month worked.

•(4) Weekly. 45 Hours of Service for each week worked.

•(5) Daily. 10 Hours of Service for each day worked.

•(6) Semi-monthly. 95 Hours of Service for each semi-monthly period worked.

N/A (e) Nonvested Participant Break in Service rule applies. Service earned prior to a

Nonvested Participant Break in Service will be disregarded in applying the eligibility rules. (See Section 2.07(b) of the Plan.)

•The Nonvested Participant Break in Service rule applies to all Employees, including Employees who have not terminated employment.

• (f) One-Year Break in Service rule applies. The One-Year Break in Service rule

(as defined in Section 2.07(d) of the Plan) applies to temporarily disregard an Employee’s service earned prior to a one-year Break in Service. (See Section 2.07(d) of the Plan if the One-Year Break in Service rule applies to Salary Deferrals.)

•The One-Year Break in Service rule applies to all Employees, including Employees who have not terminated employment.

• (g) Special eligibility provisions.

[Note: Any conditions provided under this AA §4-3 must satisfy the requirements of Code §410(a) and may not cause an Employee to enter the Plan later than the first Entry Date following the completion of a Year of Service (as defined in this AA §4-3).]

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 4 – Minimum Age and Service Requirements

4-4EFFECTIVE DATE OF MINIMUM AGE AND SERVICE REQUIREMENTS. The minimum age and/or service requirements under AA §4-1 apply to all Employees under the Plan. An Employee will participate with respect to all contribution sources under the Plan as of his/her Entry Date, taking into account all service with the Employer, including service earned prior to the Effective Date.

To allow Employees hired on a specified date to enter the Plan without regard to the minimum age and/or service conditions, complete this AA §4-4.

Deferral Match ER

• An Eligible Employee who is employed by the Employer on the following designated date will enter the Plan on the designated date without regard to minimum age and/or service requirements (as designated below):

•(a) the Effective Date of this Plan (as designated on the Employer Signature Page).

•(b) the date the Plan is executed by the Employer (as indicated on the Employer Signature Page).

•(c) [insert date no earlier than the Effective Date of this Plan]

An Eligible Employee who is employed on the designated date will enter the Plan on the designated date without regard to the minimum age and service requirements under AA §4-1. If both minimum age and service conditions are not waived, select (d) or (e) to designate which condition is waived under this AA §4-4.

•(d) This AA §4-4 only applies to the minimum service condition.

•(e) This AA §4-4 only applies to the minimum age condition.

The provisions of this AA §4-4 apply to all Eligible Employees employed on the designated date unless designated otherwise under subsection (f) or (g) below.

•(f) The provisions of this AA §4-4 apply to the following group of Employees employed on the designated date:

•(g) Describe special rules:

[Note: An Employee who is employed as of the designated date described in this AA

§4-4 will enter the Plan as of such date unless a different Entry Date is designated under subsection (g). The provisions of this AA §4-4 may not violate the minimum age or service rules under Code §410 or violate the nondiscrimination requirements under Code §401(a)(4).]

4-5SERVICE WITH PREDECESSOR EMPLOYER. If the Employer is maintaining the plan of a Predecessor Employer, service with such Predecessor Employer is automatically counted for eligibility, vesting and for purposes of applying any allocation conditions under AA §6-5 and AA §6B-7.

In addition, this AA §4-5 may be used to identify any Predecessor Employers for whom service will be counted for purposes of determining eligibility, vesting and allocation conditions under this Plan. (See Sections 2.06, 3.09(c) and 7.08 of the Plan.)

If this AA §4-5 is not completed, no service with a Predecessor Employer will be counted except as otherwise required under this AA §4-5.

•(a) Identify Predecessor Employer(s):

•(1) The Plan will count service with all Employers which have been acquired as part of a transaction under Code

§410(b)(6)(C).

•(2) The Plan will count service with the following Predecessor Employers:

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Name of Predecessor Employer Eligibility Vesting

Allocation Conditions

•(i)

•(ii)

•(iii)

Reliance Insurance Company

Global Financial Advisors, Inc. C layton Holdings, LLC and its subsidiaries

•(iv)

Entitle Direct Group, Inc. (effective 3/28/2018 with

respect to individuals employed immediately prior to

3/28/2018)

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 4 – Minimum Age and Service Requirements

•(v)

E ntitle Insurance Company (effective 3/28/2018 with

respect to individuals employed immediately prior to

3/28/2018)

•(vi)

Entitle, LLC (effective 3/28/2018 with respect to

individuals employed immediately prior to 3/28/2018)

•(vii)

Independent Settlement Services (effective 10/30/2018

with respect to individuals employed immediately prior

to 10/30/2018)

•(viii)

E xaTech, LLC (effective 10/30/2018 with respect to

individuals employed immediately prior to 10/30/2018)

•(ix)

FiveBridges Capital LLC (effective 1/1/2019 with

respect to individuals employed immediately prior to

12/21/2018)

•(x)

F iveBridges Advisors, LLC (effective 1/1/2019 with

respect to individuals employed immediately prior to

12/21/2018)

•(b) Describe any special provisions applicable to Predecessor Employer service:

[Note: Any special provisions under this subsection may not violate the nondiscrimination requirements under Code

§401(a)(4).]

5-1TOTAL COMPENSATION. Total Compensation is based on the definition set forth under this AA §5-1. See Section 1.142 of the Plan for a specific definition of the various types of Total Compensation.

•(a) W-2 Wages

•(b) Code §415 Compensation

•(c) Wages under Code §3401(a)

[Note: For purposes of determining Total Compensation, each definition includes Elective Deferrals as defined in Section 1.47 of the Plan, pre-tax contributions to a Code §125 cafeteria plan or a Code §457 plan, and qualified transportation fringes under Code §132(f)(4).]

5-2POST-SEVERANCE COMPENSATION. Total Compensation includes post-severance compensation, to the extent provided in Section 1.142(b) of the Plan, unless otherwise elected below.

•(a) Exclusion of post-severance compensation from Total Compensation. The following amounts paid after a Participant’s severance of employment are excluded from Total Compensation:

•(1) Unused leave payments. Payment for unused accrued bona fide sick, vacation, or other leave, but only if the Employee would have been able to use the leave if employment had continued.

•(2) Deferred compensation. Payments received by an Employee pursuant to a nonqualified unfunded deferred compensation plan, but only if the payment would have been paid to the Employee at the same time if the Employee had continued in employment and only to the extent that the payment is includible in the Employee’s gross income.

[Note: Plan Compensation (as defined in Section 1.99 of the Plan) includes any post-severance compensation amounts that are includible in Total Compensation. The Employer may elect to exclude all compensation paid after severance of employment or may elect to exclude specific types of post-severance compensation from Plan Compensation under AA

§5-3.]

•(b) Continuation payments for disabled Participants. If this subsection is not elected, Total Compensation does not include continuation payments for disabled Participants. If this subsection is elected, Total Compensation shall include post-severance compensation paid to a Participant who is permanently and totally disabled, as provided in Section 1.142(c) of the Plan. For this purpose, disability continuation payments will be included for:

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•(1) Nonhighly Compensated Employees only.

•(2) All Participants who are permanently and totally disabled for a fixed or determinable period.

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 5 – Compensation Definitions

5-3PLAN COMPENSATION. Plan Compensation is Total Compensation (as defined in AA §5-1 above) with the following exclusions.


Deferral N/A	Match	ER	(a)No exclusions. (b)Elective Deferrals (as defined in Section 1.47 of the Plan), pre-tax contributions to a cafeteria plan or a Code §457 plan, and qualified transportation fringes under
			Code §132(f)(4) are excluded.
			(c) All fringe benefits (cash and noncash), reimbursements or other expense
			allowances, moving expenses, deferred compensation, and welfare benefits are
			excluded.
			(d) Compensation above $ is excluded. (See Section 1.99 of the Plan.)
			(e) Amounts received as a bonus are excluded.
			(f) Amounts received as commissions are excluded.
			(g) Overtime payments are excluded.
			(h) Amounts received for services performed for a non-signatory Related Employer
			are excluded. (See Section 2.02(c) of the Plan.)
			[Note: If this subsection is not elected, amounts received for services performed
			for a non-signatory Related Employer are INCLUDED in Plan Compensation.]
			(i) “Deemed §125 compensation” as defined in Section 1.142(d) of the Plan.
			(j) Amounts received after termination of employment are excluded. (See Section
			1.142(b) of the Plan.)
			(k) Differential Pay (as defined in Section 1.142(e) of the Plan).
			(l) Describe adjustments to Plan Compensation: Other Bonuses, other than
			subjective bonuses payable under the Employer's management based objective
			plan;commissions other than those paid under the Employer's sales
			compensation; special pay

[Note: Any exclusions selected under this AA §5-3 that do not meet the safe harbor exclusions under Treas. Reg. §1.414(s)-1, as described in Section 1.99(a) of the Plan, may cause the definition of Plan Compensation to fail to satisfy a safe harbor definition of compensation under Code §414(s). Certain exclusions above are safe harbor exclusions. (See Section 1.138 of the Plan.) Other exclusions may require the Plan to additional nondiscrimination testing, including the compensation ratio test under Treas. Reg.

§1.414(s)-1(d)(3). Failure to use a definition of Plan Compensation that satisfies the nondiscrimination requirements under Code §414(s) will cause the Plan to fail to qualify for any contribution safe harbors, such as the permitted disparity allocation or Safe Harbor 401(k) Plan safe harbors. Any adjustments to Plan Compensation under this AA §5-3 must be definitely determinable and preclude Employer discretion. See AA §6C-5 for the definition of Plan Compensation as it applies to Safe Harbor Contributions.]

5-4PERIOD FOR DETERMINING COMPENSATION.

(a)Compensation Period. Plan Compensation will be determined on the basis of the following period(s) for the contribution sources identified in this AA §5-4. [Note: If a period other than Plan Year applies for any contribution source, any reference to the Plan Year as it refers to Plan Compensation for that contribution source will be deemed to be a reference to the period designated under this AA §5-4.]

Deferral Match ER

• (1) The Plan Year.

• (2) The calendar year ending in the Plan Year.

• (3) The Employer's fiscal tax year ending in the Plan Year.

• (4) The 12-month period ending on which ends during the Plan Year.

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 5 – Compensation Definitions

(b)Compensation while a Participant. Unless provided otherwise under this subsection (b), in determining Plan Compensation, only compensation earned while an individual is a Participant under the Plan with respect to a particular contribution source will be taken into account.

To count compensation for the entire Plan Year for a particular contribution source, including compensation earned while an individual is not a Participant with respect to such contribution source, check below. (See Section 1.99 of the Plan.)

Deferral Match ER

• All compensation earned during the Plan Year will be taken into account,

including compensation earned while an individual is not a Participant.

(c)Few weeks rule. The few weeks rule (as described in Section 5.03(c)(7)(ii) of the Plan) will not apply unless designated otherwise under this subsection (c).

•Amounts earned but not paid during a Limitation Year solely because of the timing of pay periods and pay dates shall be included in Total Compensation for the Limitation Year, provided the amounts are paid during the first few weeks of the next Limitation Year, the amounts are included on a uniform and consistent basis with respect to all similarly situated Employees, and no amounts are included in more than one Limitation Year.

6-1EMPLOYER CONTRIBUTIONS. Is the Employer authorized to make Employer Contributions under the Plan (other than Safe Harbor Employer Contributions or QNECs)?

•Yes

•No [If No, skip to Section 6A.]

[Note: See AA §6C below for rules regarding Safe Harbor Employer Contributions and AA §6D-3 for rules regarding Qualified Nonelective Contributions (QNECs).]

6-2EMPLOYER CONTRIBUTION FORMULA. For the period designated in AA §6-4 below, the Employer will make the following Employer Contributions on behalf of Participants who satisfy the allocation conditions designated in AA §6-5 below. Any Employer Contribution authorized under this AA §6-2 will be allocated in accordance with the allocation formula selected under AA §6-3.

•(a) Discretionary contribution. The Employer will determine in its sole discretion how much, if any, it will make as an Employer Contribution.

•(b) Fixed contribution.

•(1) % of each Participant’s Plan Compensation.

•(2) $ for each Participant.

•(c) Contributions under Collective Bargaining Agreement, employment contract or equivalent arrangement. The Employer will make an Employer Contribution based on a Collective Bargaining Agreement, employment agreement or equivalent arrangement as follows:

[Note: Insert the appropriate contribution formula (and allocation formula, if applicable) from the Collective Bargaining Agreement, employment agreement or equivalent arrangement. The formula must be definitely determinable as required under Treas. Reg. §1.401-1.]

•(d) Service-based contribution. The Employer will make the following contribution:

•(1) Discretionary. A discretionary contribution determined as a uniform percentage of Plan Compensation for each period of service designated below.

•(2) Fixed percentage. % of Plan Compensation paid for each period of service designated below.

•(3) Fixed dollar. $ for each period of service designated below.

The service-based contribution will be based on the following periods of service:

•(4) Each Hour of Service

•(5) Each week of employment

•(6) Describe period:

The service-based contribution is subject to the following rules.

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6 – Employer Contributions

•(7) Describe any special provisions that apply to a service-based contribution:

[Note: Any period described in subsection (6) must apply uniformly to all Participants and cannot exceed a 12-month period. Any special provisions under subsection (7) may only describe the basis for determining a discretionary service- based contribution, such as a uniform dollar amount, and must satisfy the nondiscrimination requirements under Code

§401(a)(4) and the regulations thereunder.]

•(e) Year of Service contribution. The Employer will make an Employer Contribution based on Years of Service with the Employer.


	Years of Service	Contribution %
•(1)	For Years of Service between and	%
•(2)	For Years of Service between and	%
•(3)	For Years of Service between and	%
•(4)	For Years of Service and above	%

For this purpose, a Year of Service is each Plan Year during which an Employee completes at least 1,000 Hours of Service. Alternatively, a Year of Service is:

[Note: Any alternative definition of a Year of Service must meet the requirements of a Year of Service as defined in Section 2.03 of the Plan.]

•(f) Prevailing Wage Formula. The Employer will make a contribution for each Participant’s Prevailing Wage Service based on the hourly contribution rate for the Participant’s employment classification. (See Section 3.02(a)(5) of the Plan.)

•(1) Amount of contribution. The Employer will make an Employer Contribution based on the hourly contribution rate for the Participant’s employment classification. The Prevailing Wage Contribution will be determined as follows:

•(i) The Employer Contribution will be determined based on the required contribution rates for the employment classifications under the applicable federal, state or municipal prevailing wage laws. For any Employee performing Prevailing Wage Service, the Employer may make the required contribution for such service without designating the exact amount of such contribution.

•(ii) The Employer will make the Prevailing Wage Contribution based on the hourly contribution rates as set forth in the Addendum attached to this Adoption Agreement. However, if the required contribution under the applicable federal, state or municipal prevailing wage law provides for a greater contribution than set forth in the Addendum, the Employer may make the greater contribution as a Prevailing Wage Contribution.

•(2) Offset of other contributions. The contributions under the Prevailing Wage Formula will offset the following contributions under this Plan. (See Section 3.02(a)(5) of the Plan.)

•(i) Employer Contributions (other than Safe Harbor Employer Contributions)

•(ii) Safe Harbor Employer Contributions.

•(iii) Qualified Nonelective Contributions (QNECs)

•(iv) Matching Contributions (other than Safe Harbor Matching Contributions)

•(v) Safe Harbor Matching Contributions.

•(vi) Qualified Matching Contributions (QMACs)

[Note: If subsection (ii) or (v) is checked, the Prevailing Wage contribution must satisfy the requirements for a Safe Harbor Contribution.]

•(3) Modification of default rules. Section 3.02(a)(5) of the Plan contains default rules for administering the Prevailing Wage Formula. Complete this subsection (3) to modify the default provisions.

•(i) Application to Highly Compensated Employees. Instead of applying only to Nonhighly Compensated Employees, the Prevailing Wage Formula applies to all eligible Participants, including Highly Compensated Employees.

•(ii) Minimum age and service conditions. Instead of no minimum age or service condition, Prevailing Wage contributions are subject to a one Year of Service (as defined in AA§4-3) and age 21 minimum age and service requirement with semi-annual Entry Dates.

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6 – Employer Contributions

•(iii) Allocation conditions. Instead of no allocation conditions, the Prevailing Wage contributions are subject to a 1,000 Hours of Service and last day employment allocation condition, as set forth under Section 3.09 of the Plan.

•(iv) Vesting. Instead of 100% immediate vesting, Prevailing Wage contributions will vest under the following vesting schedule (as defined in Section 7.02 of the Plan):

•(A) 6-year graded vesting schedule

•(B) 3-year cliff vesting schedule

•(v) Describe:

[Note: Overriding the default provisions under this subsection (3) may restrict the ability of the Employer to take full credit for Prevailing Wage Contributions for purposes of satisfying its obligations under applicable federal, state or municipal prevailing wage laws. Subsection (v) may only describe modifications to the default provisions relating to minimum age and service conditions, Hour of Service and last day employment allocation conditions and vesting schedules, must satisfy the nondiscrimination requirements under Code

§401(a)(4) and should be consistent with the applicable federal, state or municipal prevailing wage laws. See Section 3.02(a)(5) of the Plan.]

•(g) Describe special rules for determining contributions under Plan:

[Note: Any special rules must be described in a manner that precludes Employer discretion and must satisfy the nondiscrimination requirements of Code §401(a)(4) and the regulations thereunder.]

6-3ALLOCATION FORMULA.

•(a) Pro rata allocation. The discretionary Employer Contribution under AA §6-2 will be allocated:

•(1) as a uniform percentage of Plan Compensation.

•(2) as a uniform dollar amount.

•(b) Fixed contribution. The fixed Employer Contribution under AA §6-2 will be allocated in accordance with the selections made with respect to fixed Employer Contributions under AA §6-2.

•(c) Permitted disparity allocation. The discretionary Employer Contribution under AA §6-2 will be allocated under the two-step method (as defined in Section 3.02(a)(1)(ii)(A) of the Plan), using the Taxable Wage Base (as defined in Section 1.137 of the Plan) as the Integration Level. However, for any Plan Year in which the Plan is Top Heavy, the four-step method (as defined in Section 3.02(a)(1)(ii)(B) of the Plan) applies, unless provided otherwise under subsection (2) below.

To modify these default rules, complete the appropriate provision(s) below.

•(1) Integration Level. Instead of the Taxable Wage Base, the Integration Level is:

•(i) % of the Taxable Wage Base, increased (but not above the Taxable Wage Base) to the next higher:


•(A)	N/A	•(B)	$1
•(C)	$100	•(D)	$1,000

•(ii) $ (not to exceed the Taxable Wage Base)

•(iii) 20% of the Taxable Wage Base

[Note: See Section 3.02(a)(1)(ii) of the Plan for rules regarding the Maximum Disparity Rate that may be used where an Integration Level other than the Taxable Wage Base is selected.]

The Maximum Disparity Rate is the maximum amount that may be allocated with respect to Excess Compensation. If the two-step allocation method is used, under step one of the two-step formula, the amount allocated as a percentage of Plan Compensation and Excess Compensation may not exceed the following percentage:

Integration Level Maximum

(as a percentage of the Taxable Wage Base) Disparity Rate 100% 5.7%

More than 80% but less than 100% 5.4%

More than 20% and not more than 80% 4.3%

20% or less 5.7%

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6 – Employer Contributions

If the four-step allocation formula is used, under step three of the four-step formula, the amount allocated as a percentage of Plan Compensation and Excess Compensation may not exceed the following percentage:


		Integration Level (as a percentage of the Taxable Wage Base)	Maximum Disparity Rate
		100%	2.7%
		More than 80% but less than 100%	2.4%
		More than 20% and not more than 80%	1.3%
		20% or less	2.7%
•(2)	Four-step method.

•(i) Instead of applying only when the Plan is top heavy, the four-step method will always be used.

•(ii) The four-step method will never be used, even if the Plan is Top Heavy.

•(iii) In applying step one and step two under the four-step method, instead of using Total Compensation, the Plan will use Plan Compensation. (See Section 3.02(a)(1)(ii)(B) of the Plan.)

•(d) Uniform points allocation. The discretionary Employer Contribution designated in AA §6-2 will be allocated to each Participant in the ratio that each Participant's total points bears to the total points of all Participants. A Participant will receive the following points:

•(1) point(s) for each year(s) of age (attained as of the end of the Plan Year).

•(2) point(s) for each $ (not to exceed $200) of Plan Compensation.

•(3) point(s) for each Year(s) of Service. For this purpose, Years of Service are determined:

•(i) In the same manner as determined for eligibility.

•(ii) In the same manner as determined for vesting.

•(iii) Points will not be provided with respect to Years of Service in excess of .

•(e) Employee group allocation. The Employer may make a separate Employer Contribution to the Participants in the following allocation groups. The Employer must notify the Trustee in writing of the amount of the contribution to be allocated to each allocation group.

•(1) A separate discretionary Employer Contribution may be made to each Participant of the Employer (i.e., each Participant is in his/her own allocation group).

•(2) A separate discretionary or fixed Employer Contribution may be made to the following allocation groups. If no fixed amount is designated for a particular allocation group, the contribution made for such allocation group will be allocated as a uniform percentage of Plan Compensation to all Participants within that allocation group, unless otherwise designated as a uniform dollar amount below.

•The contribution made for each allocation group will be allocated as a uniform dollar amount to all Participants within the allocation group.

•Group 1:

[Note: The allocation groups designated above must be clearly defined in a manner that will not violate the definite allocation formula requirement of Treas. Reg. §1.401-1(b)(1)(ii). See Section 3.02(a)(1)(iv)(B)(V) of the Plan for restrictions that apply with respect to “short-service” Employees. In the case of self-employed individuals (i.e., sole proprietorships or partnerships), the requirements of 1.401(k)-1(a)(6) continue to apply, and the allocation method should not be such that a cash or deferred election is created for a self-employed individual as a result of application of the allocation method.]

•(3) Special rules. The following special rules apply to the Employee group allocation formula.

•(i) Family Members. In determining the separate groups under (2) above, each Family Member (as defined in Section 1.66 of the Plan) of a Five Percent Owner is always in a separate allocation group. If there is more than one Family Member, each Family Member will be in a separate allocation group.

•(ii) Benefiting Participants who do not receive Minimum Gateway Contribution. In determining the separate groups under (2) above, Benefiting Participants who do not receive a Minimum Gateway Contribution are always in a separate allocation group. If there is more than one Benefiting Participant who does not receive a Minimum Gateway Contribution, each will be in a separate allocation group. (See Section 3.02(a)(1)(iv)(B)(III) of the Plan.)

•(iii) More than one Employee group. Unless designated otherwise under this subsection (iii), if a Participant is in more than one allocation group described in (2) above during the Plan Year, the Participant will receive an Employer Contribution based on the Participant’s status on the last day of the Plan Year. (See Section 3.02(a)(1)(iv)(A) of the Plan.)

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6 – Employer Contributions

•(A) Determined separately for each Employee group. If a Participant is in more than one allocation group during the Plan Year, the Participant’s share of the Employer Contribution will be based on the Participant’s status for the part of the year the Participant is in each allocation group.

•(B) Describe:

[Note: This subsection (B) may only describe the amount of the Employer Contribution a Participant will receive when such Participant is in more than one allocation group. Any language under this subsection (B) must be definitely determinable and may not violate the nondiscrimination requirements under Code §401(a)(4).]

•(f) Age-based allocation. The discretionary Employer Contribution designated in AA §6-2 will be allocated under the age- based allocation formula so that each Participant receives a pro rata allocation based on adjusted Plan Compensation. For this purpose, a Participant’s adjusted Plan Compensation is determined by multiplying the Participant’s Plan Compensation by an Actuarial Factor (as described in Section 1.04 of the Plan).

A Participant’s Actuarial Factor is determined based on a specified interest rate and mortality table. Unless designated otherwise under (1) or (2) below, the Plan will use an applicable interest rate of 8.5% and a UP-1984 mortality table.

•(1) Applicable interest rate. Instead of 8.5%, the Plan will use an interest rate of % (must be between 7.5% and 8.5%) in determining a Participant’s Actuarial Factor.

•(2) Applicable mortality table. Instead of the UP-1984 mortality table, the Plan will use the following mortality table in determining a Participant’s Actuarial Factor:

•(3) Describe special rules applicable to age-based allocation:

[Note: See Appendix A of the Plan for sample Actuarial Factors based on an 8.5% applicable interest rate and the UP-1984 mortality table. If an interest rate or mortality table other than 8.5% or UP-1984 is selected, appropriate Actuarial Factors must be calculated. Any alternative interest or mortality factors must meet the requirements for standard interest and mortality assumptions as defined in Treas. Reg. §1.401(a)(4)-12. Any special rules described under subsection (3) may only describe an alternative method for determining adjusted Plan Compensation and may not violate the nondiscrimination requirements under Code §401(a)(4). In addition, subsection (3) may describe a definitely determinable allocation method that was specified in a previously-approved pre-approved plan document.]

•(g) Service-based allocation formula. The service-based Employer Contribution selected in AA §6-2 will be allocated in accordance with the selections made under the service-based allocation formula in AA §6-2.

•(h) Year of Service allocation formula. The Year of Service Employer Contribution selected in AA §6-2 will be allocated in accordance with the selections made under the Year of Service allocation formula in AA §6-2.

•(i) Prevailing Wage allocation formula. The Prevailing Wage Employer Contribution selected in AA §6-2 will be allocated in accordance with the selections made under the Prevailing Wage allocation formula in AA §6-2. The Employer may attach an Addendum to the Adoption Agreement setting forth the hourly contribution rate for the employment classifications eligible for Prevailing Wage contributions.

•(j) Describe special rules for determining allocation formula:

[Note: This subsection (j) may only be used to describe a definite allocation formula that was included in a previously- approved pre-approved plan. Any special rules under this subsection must be described in a manner that precludes Employer discretion and must satisfy the nondiscrimination requirements of Code §401(a)(4) and the regulations thereunder.]

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6 – Employer Contributions

6-4SPECIAL RULES. No special rules apply with respect to Employer Contributions under the Plan, except to the extent designated under this AA §6-4. Unless designated otherwise, in determining the amount of the Employer Contributions to be allocated under this AA §6, the Employer Contribution will be based on Plan Compensation earned during the Plan Year. (See Section 3.02(c) of the Plan.)

•(a) Period for determining Employer Contributions. Instead of the Plan Year, Employer Contributions will be determined based on Plan Compensation earned during the following period: [Note: Plan Year must be used if the permitted disparity allocation method is selected under AA §6-3 above.]

•(1) Plan Year quarter

•(2) calendar month

•(3) payroll period

•(4) Other:

[Note: Although Employer Contributions are determined on the basis of Plan Compensation earned during the period designated under this subsection, this does not require the Employer to actually make contributions or allocate contributions on the basis of such period. Employer Contributions may be contributed and allocated to Participants at any time within the contribution period permitted under Treas. Reg. §1.415(c)-1(b)(6)(B), regardless of the period selected under this subsection. Any alternative period designated under subsection (4) may not exceed a 12-month period and will apply uniformly to all Participants.]

•(b) Limit on Employer Contributions. The Employer Contribution elected in AA §6-2 may not exceed:

•(1) % of Plan Compensation

•(2) $

•(3) A discretionary amount determined by the Employer applied in a uniform manner for all eligible Participants for the Plan Year.

(c)Offset of Employer Contribution.

•(1) A Participant’s allocation of Employer Contributions under AA §6-2 of this Plan is reduced by contributions under [insert name of plan(s)]. (See Section 3.02(d)(2) of the Plan.)

6-5ALLOCATION CONDITIONS. A Participant must satisfy any allocation conditions designated under this AA §6-5 to receive an allocation of Employer Contributions under the Plan.

[Note: Any allocation conditions set forth under this AA §6-5 do not apply to Prevailing Wage Contributions under AA §6-2, Safe Harbor Employer Contributions under AA §6C, or QNECs under AA §6D, unless provided otherwise under those specific sections. See AA §4-5 for treatment of service with Predecessor Employers for purposes of applying the allocation conditions under this AA §6-5.]

•(a) No allocation conditions apply with respect to Employer Contributions under the Plan.

•(b) Safe harbor allocation condition. An Employee must be employed by the Employer on the last day of the Plan Year OR must complete more than:

•(1) (not to exceed 500) Hours of Service during the Plan Year.

•(i) Hours of Service are determined using actual Hours of Service.

•(ii) Hours of Service are determined using the following Equivalency Method (as defined under AA §4- 3):

•(A) Monthly (B) Weekly

•(C) Daily (D) Semi-monthly

•(2) (not more than 91) consecutive days of employment with the Employer during the Plan Year.

[Note: Under this safe harbor allocation condition, an Employee will satisfy the allocation conditions if the Employee completes the designated Hours of Service or period of employment, even if the Employee is not employed on the last day of the Plan Year. See Section 3.09 of the Plan for rules regarding the application of this allocation condition to the minimum coverage test.]

•(c) Employment condition. An Employee must be employed with the Employer on the last day of the Plan Year.

•(d) Minimum service condition. An Employee must be credited with at least:

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•(1)

1 000 (not to exceed 1,000) Hours of Service during the Plan Year.

•(i) Hours of Service are determined using actual Hours of Service.

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6 – Employer Contributions

•(ii) Hours of Service are determined using the following Equivalency Method (as defined under AA §4- 3):


•(A)	Monthly	•(B)	Weekly
•(C)	Daily	•(D)	Semi-monthly

•(2) (not more than 182) consecutive days of employment with the Employer during the Plan Year.

•(e) Application to a specified period. The allocation conditions selected under this AA §6-5 apply on the basis of the Plan Year. Alternatively, if an employment or minimum service condition applies under this AA §6-5, the Employer may elect under this subsection to apply the allocation conditions on a periodic basis as set forth below. See Section 3.09(a) of the Plan for a description of the rules for applying the allocation conditions on a periodic basis.

•(1) Period for applying allocation conditions. Instead of the Plan Year, the allocation conditions set forth under subsection (2) below apply with respect to the following periods:

•(i) Plan Year quarter

•(ii) calendar month

•(iii) payroll period

•(iv) Other:

•(2) Application to allocation conditions. If this subsection (2) is checked to apply allocation conditions on the basis of specified periods, to the extent an employment or minimum service allocation condition applies under this AA §6-5, such allocation condition will apply based on the period selected under subsection (1) above, unless designated otherwise below:

•(i) Only the employment condition will be based on the period selected in subsection (1) above.

•(ii) Only the minimum service condition will be based on the period selected in subsection (1) above.

•(iii) Describe any special rules:

[Note: Any special rules under this subsection (iii) must satisfy the nondiscrimination requirements of Code §401(a)(4).]

•(f) Exceptions.

•(1) The above allocation condition(s) will not apply if the Employee, during the Plan Year:

•(i) dies.

•(ii) terminates employment due to becoming Disabled.

•(iii) becomes Disabled.

•(iv) terminates employment after attaining Normal Retirement Age.

[Note: This waiver of allocation conditions applies only once during the Participant’s employment with the Employer. Thus, if an Employee is rehired after such a waiver was applied to such Employee, the waiver of allocation conditions will not apply to a subsequent termination of employment. The Employer may modify this rule below.]

•(v) terminates employment after attaining Early Retirement Age.

•(vi) is on an authorized leave of absence from the Employer.

•(2) The exceptions selected under subsection (1) will apply even if an Employee has not terminated employment at the time of the selected event(s).

•(3) The exceptions selected under subsection (1) do not apply to:

•(i) an employment condition designated under this AA §6-5.

•(ii) a minimum service condition designated under this AA §6-5.

•(g) Describe any special rules governing the allocation conditions under the Plan:

[Note: Any special rules must satisfy the nondiscrimination requirements under Code §401(a)(4).]

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6A – Salary Deferrals

6A-1 SALARY DEFERRALS. Are Employees permitted to make Salary Deferrals under the Plan?

•Yes

•No [If “No” is checked, skip to Section 6B.]

6A-2 MAXIMUM LIMIT ON SALARY DEFERRALS. Unless designated otherwise under this AA §6A-2, a Participant may defer any amount up to the Elective Deferral Dollar Limit and the Code §415 Limitation (as set forth in Sections 5.02 and 5.03 of the Plan).

•(a) Salary Deferral Limit. A Participant may not defer an amount in excess of:

•(1) 1 00 % of Plan Compensation

•(2) $ .

[Note: If both subsection (1) and subsection (2) are checked, the deferral limit is the lesser of the amounts selected.] Any limit described in subsection (1) or subsection (2) above applies with respect to the following period:

•(3) Plan Year.

•(4) the portion of the Plan Year during which the individual is eligible to participate.

•(5) each separate payroll period during which the individual is eligible to participate.

•(b) Different limit for Highly Compensated Employees and Nonhighly Compensated Employees. The Salary Deferral Limit described above applies only to Employees who are Highly Compensated Employees as of the first day of the Plan Year. For Nonhighly Compensated Employees, the following limit applies:

•(1) No limit (other than the Elective Deferral Dollar Limit and the Code §415 Limitation).

•(2) Nonhighly Compensated Employee limit.

•(i) % of Plan Compensation

•(ii) $ during the following period:

•(iii) Plan Year.

•(iv) the portion of the Plan Year during which the individual is eligible to participate.

•(v) each separate payroll period during which the individual is eligible to participate.

[Note: Any percentage or dollar limit imposed on Nonhighly Compensated Employees under (i) and/or (ii) above may not be lower than the percentage or dollar limit imposed on Highly Compensated Employees under

(a) above. If both (i) and (ii) are checked, the deferral limit is the lesser of the amounts selected.]

•(c) Limits on deferrals on bonus payments. [Note: This subsection may only be selected if bonus payments are not excluded under AA §5-3.]

•(1) The same limits specified above apply to bonus and non-bonus Plan Compensation. Employees may defer any amounts out of bonus payments, subject to the Elective Deferral Dollar Limit and the Code §415 Limitation (as defined in Sections 5.02 and 5.03 of the Plan) and any other limit on Salary Deferrals under this AA 6A-2. The Employer may impose special limits on bonus payments under the Salary Deferral Election. (See Section 3.03(a) of the Plan.)

•(2) A Participant may defer up to % (not to exceed 100%) of any bonus payment (subject to the Elective Deferral Dollar Limit and the Code §415 Limitation) without regard to any other limits described under this AA

§6A-2. The Employer may impose special limits on bonus payments under the Salary Deferral Election. (See Section 3.03(a) of the Plan.)

•(3) Describe special rules applicable to deferrals on bonus payments:

[Note: If any selection under this subsection is checked, bonus payments may not be excluded from Plan Compensation in the Deferral column under AA §5-3.]

•(d) Describe any other limits that apply with respect to Salary Deferrals under the Plan:

[Note: Any other limits provided under this subsection must satisfy the nondiscrimination requirements under Code

§401(a)(4).]

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6A – Salary Deferrals

6A-3 MINIMUM DEFERRAL RATE. Unless designated otherwise under this AA §6A-3, no minimum deferral requirement applies under the Plan. Alternatively, a Participant must defer at least the following amount in order to make Salary Deferrals under the Plan.

•(a) % of Plan Compensation for a payroll period.

•(b) $ for a payroll period.

•(c) Describe: D eferrals are permitted from 1-100% in increments of 0.5%.

[Note: If more than one limit applies under this AA §6A-3, the minimum deferral rate is the lesser of the amounts designated under this AA §6A-3. Any minimum deferral rates provided under this AA §6A-3 must comply with the nondiscrimination requirements under Code §401(a)(4).]

6A-4 CATCH-UP CONTRIBUTIONS. Catch-Up Contributions (as defined in Section 3.03(d) of the Plan) are permitted under the Plan, unless designated otherwise under this AA §6A-4.

•Catch-Up Contributions are not permitted under the Plan.

6A-5 ROTH DEFERRALS.

(a)Availability of Roth Deferrals.

•(1) Roth Deferrals are permitted under the Plan.

•(2) Roth Deferrals are not permitted under the Plan.

[Note: If Roth Deferrals are effective as of a date later than the Effective Date of the Plan, designate such special Effective Date in AA §6A-9 below.]

(b)Distribution of Roth Deferrals. Unless designated otherwise under this subsection, to the extent a Participant takes a distribution or withdrawal from his/her Salary Deferral Account(s), the Participant may designate the extent to which such distribution is taken from the Pre-Tax Deferral Account or from the Roth Deferral Account. (As described under Section 8.11(b)(2) of the Plan, if a Participant fails to designate the appropriate Account for corrective distributions from the Plan, such distribution may be withdrawn equally from both the Pre-Tax Salary Deferral Account and the Roth Deferral Account, or the Employer may withdraw such amounts first from either the Pre-Tax Salary Deferral Account or the Roth Deferral Account.)

Alternatively, the Employer may designate the order of distributions for the distribution types listed below:

•(1) Distributions and withdrawals.

•(i) Any distribution will be taken on a pro rata basis from the Participant’s Pre-Tax Deferral Account and Roth Deferral Account.

•(ii) Any distribution will be taken first from the Participant’s Roth Deferral Account and then from the Participant’s Pre-Tax Deferral Account.

•(iii) Any distribution will be taken first from the Participant’s Pre-Tax Deferral Account and then from the Participant’s Roth Deferral Account.

•(2) Distribution of Excess Deferrals.

•(i) Distribution of Excess Deferrals will be made from Roth and Pre-Tax Deferral Accounts in the same proportion that deferrals were allocated to such Accounts for the calendar year.

•(ii) Distribution of Excess Deferrals will be made first from the Roth Deferral Account and then from the Pre-Tax Deferral Account.

•(iii) Distribution of Excess Deferrals will be made first from the Pre-Tax Deferral Account and then from the Roth Deferral Account.

•(3) Distribution of Salary Deferrals to Highly Compensated Employees to correct ADP or ACP Test failure.

•(i) Distribution of Excess Contributions (or Excess Aggregate Contributions) will be made from Roth and Pre-Tax Deferral Accounts in the same proportion that deferrals were allocated to such Accounts for the Plan Year.

•(ii) Distribution of Excess Contributions (or Excess Aggregate Contributions) will be made first from the Roth Deferral Account and then from the Pre-Tax Deferral Account.

•(iii) Distribution of Excess Contributions (or Excess Aggregate Contributions) will be made first from the Pre-Tax Deferral Account and then from the Roth Deferral Account.

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6A – Salary Deferrals

(c)In-Plan Roth Conversions. Unless elected under this subsection, the Plan does not permit a Participant to make an In- Plan Roth Conversion under the Plan.

•(1) Effective date. Effective [not earlier than 1/1/2013], a Participant may elect to convert all or any portion of his/her non-Roth vested Account Balance to an In-Plan Roth Conversion Account.

[Note: The Plan must provide for Roth Deferrals under AA §6A-5 as of the effective date designated in this subsection (1). An election under this subsection does not affect an In-Plan Roth Conversion that was allowed under prior Plan provisions.]

(2)In-service distribution.

•(i) For a Participant to convert his/her eligible contributions to Roth Deferrals through an In-Plan Roth Conversion, the Participant need not be eligible to take a distribution from the Plan. [Note: If this subsection (i) is checked, a Participant may convert any or all of the eligible contribution sources to Roth Deferrals through an In-Plan Roth Conversion.]

•(ii) For a Participant to convert his/her eligible contributions to Roth Deferrals through an In-Plan Roth Conversion, a Participant must be eligible for a distribution of any amounts converted to Roth Deferrals through an In-Plan Roth Conversion. Thus, only amounts that are eligible for distribution under AA §9 or AA §10 are eligible for In-Plan Roth Conversion.

(3)Contribution sources. An Employee may elect to make an In-Plan Roth Conversion from all available contribution sources under the Plan.

To override this default provision to limit the contributions sources available for In-Plan Roth Conversion, select the applicable contribution sources from which an In-Plan Roth Conversion is available:

•(i) Pre-tax Salary Deferrals

•(ii) Employer Contributions

•(iii) Matching Contributions

•(iv) Safe Harbor Contributions

•(v) QNECs and QMACs

•(vi) After-Tax Contributions

•(vii) Rollover Contributions

(4)Limits applicable to In-Plan Roth Conversions. No special limits apply with respect to In-Plan Roth Conversions, unless designated otherwise under this subsection.

•(i) Roth conversions may only be made from contribution sources that are fully vested (i.e., 100% vested).

[Note: If an In-Plan Roth Conversion is permitted from partially-vested sources, special rules apply for determining the vested percentage of such amounts after conversion. See Section 7.11 of the Plan.]

•(ii) A Participant may not make an In-Plan Roth Conversion of less than $ (may not exceed $1,000).

•(iii) A Participant may not make an In-Plan Roth Conversion of any outstanding loan amount.

[Note: If this subsection (iii) is not checked, a Participant may convert amounts that are attributable to an outstanding loan, to the extent the loan relates to a contribution source that is eligible for conversion under subsection (3) above.]

•(iv) Describe:

[Note: Any selection in subsection (iv) must be definitely determinable and not subject to Employer discretion.]

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6A – Salary Deferrals

(5)Amounts available to pay federal and state taxes generated from an In-Plan Roth Conversion. No special provisions apply to allow Participants to withdraw funds to pay federal or state taxes generated from an In-Plan Roth Conversion, except as provided otherwise under this subsection.

•(i) In-service distribution. If the Plan does not otherwise permit an in-service distribution at the time of the In-Plan Roth Conversion and this subsection (i) is checked, a Participant may elect to take an in-service distribution solely to pay taxes generated from the In-Plan Roth Conversion to the extent such in-service distribution would otherwise be permitted under Section 8.10 of the Plan.

[Note: If this subsection (i) is checked, a Participant may take an in-service distribution only to the extent such distribution would otherwise be permitted under the provisions of Section 8.10 of the Plan. Thus, for example, a Participant may not take an in-service distribution of amounts attributable to Salary Deferrals (including any QNECs, QMACs or Safe Harbor contributions) prior to age 59½.]

•(ii) Participant loan. Generally, a Participant may request a loan from the Plan to the extent permitted under Section 13 of the Plan and AA Appendix B. However, to the extent a Participant loan is not otherwise allowed, and this subsection (ii) is selected, a Participant may receive a Participant loan solely to pay taxes generated from an In-Plan Roth Conversion.

[Note: If this subsection (ii) is selected, and Participant loans are not otherwise authorized under the Plan, any Participant loan made pursuant to this subsection (ii) will be made in accordance with the default loan policy described in Section 13 of the Plan.]

(6)Distribution from In-Plan Roth Conversion Account. Distributions from the In-Plan Roth Conversion Account will be permitted at the same time as permitted for Roth Deferrals, as set forth under AA §10-1, unless designated otherwise under this subsection. However, earlier distribution of certain converted amounts may be required to the extent necessary to protect distribution options that were available with respect to such converted amounts prior to the In-Plan Roth Conversion.

•(i) In-service distributions will not be permitted from an In-Plan Roth Conversion Account. However, as set forth in Section 3.03(f)(1)(vi) of the Plan, a distribution must continue to be offered for any converted amounts as of the earliest date a distribution would otherwise be permitted for such converted amounts, had they not been converted.

•(ii) An in-service distribution may be made from the In-Plan Roth Conversion Account at any time.

•(iii) Describe distribution options:

[Note: This subsection (6) may not be used to eliminate an in-service distribution option that was otherwise available at the time of the In-Plan Roth Conversion. Thus, for example, if a Participant is permitted to make an In-Plan Roth Conversion of After-Tax Employee Contributions or Rollover Contributions, and such contributions are eligible for immediate distribution at the time of the In-Plan Roth Conversion, those amounts must continue to be available for distribution after the In-Plan Roth Conversion. To the extent a selection in this subsection (6) results in an improper elimination of a distribution right, the provisions of this subsection (6) will not apply.]

•(d) Describe any special rules that apply to Roth Deferrals under the Plan:

[Note: Any special rules must satisfy the nondiscrimination requirements under Code §401(a)(4).]

6A-6 ADP TESTING. The ADP Test will be performed using the testing method designated below: (See Section 6.01(a) of the Plan.)

[Note: If the Plan is a Safe Harbor 401(k) Plan (as designated in AA §6C below), the Plan must use the Current Year Testing Method. Thus, for any year the Plan is a Safe Harbor 401(k) Plan, the Current Year Testing Method applies, regardless of any selection under this AA §6A-6.]

•(a) Current Year Testing Method. The Plan will use the Current Year Testing Method in running the ADP test. If the Current Year Testing Method is elected, the ADP of the Nonhighly Compensated Group for the first Plan Year is calculated using current year data, unless otherwise designated below.

•Deemed 3% used for first Plan Year. Instead of using actual current year data for the first Plan Year, the ADP of the Nonhighly Compensated Group for the first Plan Year the 401(k) Plan is effective is deemed to be 3%.

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6A – Salary Deferrals

•(b) Prior Year Testing Method. The Plan will use the Prior Year Testing Method in running the ADP Test. If the Prior Year Testing Method is elected, the ADP of the Nonhighly Compensated Group for the first Plan Year is deemed to be 3%, unless otherwise designated below.

•Current year data used for first Plan Year. Instead of deeming the ADP of the Nonhighly Compensated Group to be 3% for the first Plan Year for which the 401(k) Plan is effective, the Plan will use the actual current year data for the first Plan Year.

•(c) Application of Current Year Testing Method. The Current Year Testing Method has applied since the Plan Year. [Note: If the Plan has switched from the Prior Year Testing Method to the Current Year Testing Method, this subsection may be checked to designate the first Plan Year for which the Current Year Testing Method applies.]

6A-7 SALARY DEFERRAL ELECTIONS.

(a)Change or revocation of deferral election. In addition to the Participant’s Entry Date under the Plan, a Participant’s election to change or resume a deferral election will be effective as set forth under the Salary Reduction Agreement or other written procedures adopted by the Plan Administrator. A Participant must be permitted to change or revoke a deferral election at least once per year. Unless the Salary Reduction Agreement or other written procedures adopted by the Plan Administrator provide otherwise, a Participant may revoke a deferral election (on a prospective basis) at any time.

(b)Salary deferral elections of rehired Participants. Unless designated otherwise below, a Participant’s affirmative election to defer (or to not defer) will cease upon termination of employment and the Participant will need to make a new election upon rehire. [Note: If this Plan is a QACA Safe Harbor Plan, the Employer must make an election that is consistent with the election in AA §6C-3(c)(5).]

•Participant’s affirmative election does not cease upon termination of employment. If this subsection (b) is selected, a terminated Participant’s affirmative election to defer (or to not defer) will not cease upon termination of employment and the Participant’s affirmative election to defer (or to not defer) in effect at the time of employment termination will apply upon rehire.

[Note: The Employer may modify the rules applicable to rehired employees under the Salary Reduction Agreement or other administrative procedures.]

6A-8 AUTOMATIC CONTRIBUTION ARRANGEMENT (other than a QACA Safe Harbor 401(k) Plan). No automatic contribution provisions apply under Section 3.03(c) of the Plan, unless provided otherwise under this AA §6A-8. (If the Employer wishes to adopt a QACA Safe Harbor Plan, the Employer should not complete this AA §6A-8 and instead complete AA §6C-3.)

•(a) Type of Automatic Contribution Arrangement.

•(1) Eligible Automatic Contribution Arrangement. Check this subsection (1) if the Employer intends for the Plan to be an Eligible Automatic Contribution Arrangement (EACA), as described in Section 3.03(c)(2). If this subsection (1) is checked, the selections in this AA §6A-8 must be consistent with the requirements of an EACA. As an EACA, the Employer also must complete AA §6A-8(c) relating to permissible withdrawals.

•(2) Automatic Contribution Arrangement other than an EACA. Check this subsection (2) if the Employer intends for the Plan to be an Automatic Contribution Arrangement other than an EACA.

•(b) Automatic deferral election. Upon becoming eligible to make Salary Deferrals under the Plan (pursuant to AA §3 and AA §4), a Participant will be deemed to have entered into a Salary Deferral Election for each payroll period, unless the Participant completes a Salary Deferral Election (subject to the limitations under AA §6A-2 and AA §6A-3) in accordance with procedures adopted by the Plan Administrator.

•(1) Effective date of Automatic Contribution Arrangement or EACA. The automatic deferral provisions under this AA §6A-8 are effective as of:

•(i) The Effective Date of this Plan as set forth under the Employer Signature Page.

•(ii) [insert date no earlier than the Effective Date of this Plan]

•(iii) As set forth under a prior Plan document. [Note: If this subsection (iii) is checked, the automatic deferral provisions under this AA §6A-8 will apply as of the original Effective Date of the automatic contribution arrangement. Unless provided otherwise under this AA §6A-8, an Employee who is automatically enrolled under a prior Plan document will continue to be automatically enrolled under the current Plan document.]

•(iv) If the Employer is amending the provisions applicable to the ACA or EACA, the amended provisions are effective as of [insert date]

•(2) Automatic Contribution Arrangement deferral amount and automatic increase.

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6A – Salary Deferrals

•(i) Automatic deferral amount.

•(A) 3 % of Plan Compensation

•(B) $

•(ii) Automatic increase. If elected under this subsection (ii), the automatic deferral amount will increase each Plan Year by the following amount. (See Section 3.03(c) of the Plan.)

•(A) 1 % of Plan Compensation

•(B) $

•(C) If this (C) and subsection (3)(iii) below (relating to the expiration of affirmative deferral elections) are both elected, the automatic increase will apply to all Participants, including those Participants whose affirmative deferral elections have expired and no subsequent affirmative election is made.

Any automatic increase elected under this subsection (ii) will not cause the automatic deferral amount to exceed:

•(D) 1 0 % of Plan Compensation

•(E) $

•(iii) Special application of automatic increase provisions. The Employer may describe under this subsection (iii) special rules applicable to automatic increase provisions:

[Note: Any special application of the automatic increase provisions must be definitely determinable and must not discrimination in favor of Highly Compensated Employees.]

(3)Application of automatic deferral provisions. The automatic deferral election under subsection (2) will apply to new Participants (i.e., Participants who enter the Plan after the automatic deferral provisions are effective) and current Participants (i.e., Participants who were eligible to participate in the Plan at the time the automatic deferral provisions are effective) as set forth under this subsection (3).

(i)New Participants. The automatic deferral provisions apply to all Participants who become eligible on or after the effective date of the automatic deferral provisions.

(ii)Current Participants. The automatic deferral provisions apply to all other eligible Participants as follows:

•(A) Automatic deferral provisions apply to all current Participants who have not entered into a Salary Deferral Election (including an election not to defer under the Plan).

•(B) Automatic deferral provisions apply to all current Participants who have not entered into a Salary Deferral Election that is at least equal to the automatic deferral amount under subsection (2)(i). Current Participants who have made a Salary Deferral Election that is less than the automatic deferral amount, or who have not made a Salary Deferral Election, will automatically be increased to the automatic deferral amount unless the Participant enters into a new Salary Deferral election on or after the effective date of the automatic deferral provisions.

•(C) Automatic deferral provisions do not apply to current Participants. Only new Participants described in subsection (3)(i) are subject to the automatic deferral provisions. [Note: See Section 3.03(c)(2)(i) of the Plan for the application of this subsection under an EACA.]

•(D) Describe:

[Note: Any special provisions under subsection (D) must comply with the nondiscrimination requirements under Code §401(a)(4).]

•(iii) Expiration of affirmative deferral elections. Unless this subsection (iii) is elected, for purposes of the automatic deferral provisions of the Plan, a Participant’s affirmative elective deferral election will not expire. If this subsection (iii) is elected, a Participant’s affirmative deferral election will expire:

•(A) at the end of each Plan Year.

•(B) Describe date that the affirmative election will expire:

[Note: The date must be definite and not discriminate in favor of Highly Compensated Employees.]

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6A – Salary Deferrals

If a Participant fails to complete a new affirmative deferral election subsequent to the prior election expiring, the Participant becomes subject to the automatic deferral percentage as specified in the Plan pursuant to the automatic contribution arrangement provisions. Each year, the Participant can always complete a new affirmative election and designate a new deferral percentage.

(iv)Treatment of automatic deferrals. Any Salary Deferrals made pursuant to an automatic deferral election will be treated as Pre-Tax Salary Deferrals, unless designated otherwise under this subsection (iv).

•Any Salary Deferrals made pursuant to an automatic deferral election will be treated as Roth Deferrals. [Note: This subsection (iv) may only be checked if Roth Deferrals are permitted under AA §6A-5.]

[Note: Any Salary Deferral Election (including an election not to defer under the Plan) made after the effective date of the automatic deferral provisions will override such automatic deferral provisions. See Section 6.04(b)(1)(iii) of the Plan for the application of this provision to rehired Employees.]

(4)Application of automatic increase. Unless designated otherwise under this subsection (4), if an automatic increase is selected under subsection (2)(ii) above, the automatic increase will take effect as of the first day of the second Plan Year following the Plan Year in which the automatic deferral election first becomes effective with respect to a Participant. (See Section 3.03(c)(2)(i) of the Plan.)

•(i) First Plan Year. Instead of applying as of the second Plan Year, the automatic increase described in subsection (2)(ii) takes effect as of the appropriate date (as designated under subsection (iii) below) within the first Plan Year following the date automatic contributions begin.

•(ii) Designated Plan Year. Instead of applying as of the second Plan Year, the automatic increase described in subsection (2)(ii) takes effect as of the appropriate date (as designated under subsection

(iii) below) within the Plan Year following the Plan Year in which the automatic deferral election first becomes effective with respect to a Participant.

•(iii) Effective date. The automatic increase described under subsection (2)(ii) is generally effective as of the first day of the Plan Year. If this subsection (iii) is checked, instead of becoming effective on the first day of the Plan Year, the automatic increase will be effective on:

•(A) The anniversary of the Participant's date of hire.

•(B) The anniversary of the Participant's first automatic deferral contribution.

•(C) The first day of each calendar year.

•(D) Other date: On or around April 1

•(iv) Special rules:

[Note: Any special rules under this subsection (iv) must satisfy the rules applicable to automatic increases under Treas. Reg. §1.401(k)-3, if applicable, and must satisfy the nondiscrimination requirements under Code §401(a)(4).]

(5)Treatment of terminated Employees who are rehired. Unless designated otherwise below, in applying the automatic deferral provisions under this AA§6A-8, including the automatic increase provisions, a rehired Participant is treated as a new Employee (regardless of the amount of time since the rehired Employee terminated employment).

•(i) Rehired Employees not treated as new Employee. In applying the automatic deferral provisions under this AA§6A-8, including the automatic increase provisions, a rehired Participant is not treated as a new Employee. Thus, for example, a rehired Participant’s deferral percentage will be calculated based on the date the individual first began making automatic deferrals under the Plan.

•(ii) Describe special rules applicable to rehired employees:

[Note: Any special rules under this subsection (ii) must satisfy the rules applicable to automatic enrollment under Treas. Reg. §1.401(k)-1, if applicable, and must satisfy the nondiscrimination requirements under Code §401(a)(4).]

•(c) Permissible Withdrawals under an Eligible Automatic Contribution Arrangement (EACA).

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6A – Salary Deferrals

does not make automatic deferrals to the Plan for an entire Plan Year (e.g., due to termination of employment), the Plan may allow such Employee to take a permissive withdrawal, but only with respect to default contributions made after the Employee’s return to employment.

•The ability to take permissible withdrawals does not apply to rehired Employees, even if such Employees have not made automatic deferrals to the Plan for an entire Plan Year due to termination of employment.

•(2) No permissible withdrawals. Although the Plan contains an automatic deferral election that is designed to satisfy the requirements of an EACA, the permissible withdrawal provisions under this subsection (c) are not available.

•(3) Time period for electing a permissible withdrawal. Instead of a 90-day election period, a Participant must request a permissible withdrawal no later than [may not be less than 30 nor more than 90] days after the date the Plan Compensation from which such Salary Deferrals are withheld would otherwise have been included in gross income.

•(d) Other automatic deferral provisions:

[Note: Any language added under this subsection must comply with the nondiscrimination requirements under Code

§401(a)(4) and the regulations thereunder.]

6A-9 SPECIAL DEFERRAL EFFECTIVE DATES. Unless designated otherwise under this AA §6A-9, a Participant is eligible to make Salary Deferrals under the Plan as of the Effective Date of the Plan (as designated on the Employer Signature Page).

However, in no case may a Participant begin making Salary Deferrals prior to the later of the date the Employee becomes a Participant, the date the Participant executes a Salary Reduction Agreement or the date the Plan is adopted or effective. (See Section 3.03(a) of the Plan.)

To designate a later Effective Date for Salary Deferrals or Roth Deferrals, complete this AA §6A-9.

•(a) Salary Deferrals. A Participant is eligible to make Salary Deferrals under the Plan as of:

•(1) the date the Plan is executed by the Employer (as indicated on the Employer Signature Page).

•(2) (insert date no earlier than the date the Plan is executed by the Employer).

•(b) Roth Deferrals. The Roth Deferral provisions under AA §6A-5 are effective as of . [If Roth Deferrals are permitted under AA §6A-5 above, Roth Deferrals are effective as of the Effective Date applicable to Salary Deferrals under this AA §6A-9, unless a later date is designated under this subsection.]

6A-10 SIMPLE 401(k) PLAN PROVISIONS. The SIMPLE 401(k) provisions under Section 6.05 of the Plan do not apply unless specifically elected under this AA §6A-10.

•(a) By checking this box the Employer elects to have the SIMPLE 401(k) provisions described in Section 6.05 of the Plan apply.

•(1) Employer will make Matching Contributions under Section 6.05(b)(3) of the Plan.

•(2) Employer will make Employer Contributions under Section 6.05(b)(4) of the Plan.

•(b) Other SIMPLE 401(k) provisions:

[Note: This AA §6A-10 may only be checked if the Plan uses a calendar-year Plan Year and the Employer is an Eligible Employer as defined in Section 6.05(a)(1) of the Plan. All contributions under the SIMPLE 401(k) Plan are 100% vested at all times. If this AA §6A-10 is selected, no contributions may be authorized under AA §6 and AA §6B- §6D. Any special rules under subsection (b) must satisfy the nondiscrimination requirements under Code §401(a)(4).]

6B-1 MATCHING CONTRIBUTIONS. Is the Employer authorized to make Matching Contributions under the Plan?

•Yes. [Check this box if Matching Contributions may be made under the Plan, including Matching Contributions that satisfy the ACP safe harbor (i.e., Matching Contributions that are made in addition to the Safe Harbor Contributions required to satisfy the ADP safe harbor under AA §6C-2(a)).]

•No. [Check this box if there are no Matching Contributions or the only Matching Contributions are Safe Harbor Matching Contributions that satisfy the ADP safe harbor under AA §6C-2(a). If “No” is checked, skip to Section 6C.]

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6B – Matching Contributions

6B-2 MATCHING CONTRIBUTION FORMULA. For the period designated in AA §6B-5 below, the Employer will make the following Matching Contribution on behalf of Participants who satisfy the allocation conditions under AA §6B-7 below. (See AA

§6B-3 for the definition of Eligible Contributions for purposes of the Matching Contributions under the Plan. If the Plan provides for After-Tax Employee Contributions, also see AA §6D-2 to determine the application of the Matching Contribution formulas to After-Tax Employee Contributions.)

[Note: A contribution will not be considered a Matching Contribution if such contribution is contributed before the underlying Salary Deferral or After-Tax Employee Contribution election is made or before an Employee performs the services with respect to which the underlying Salary Deferrals or After-Tax Employee Contributions are made (or when the cash that is subject to such election would be currently available, if earlier).]

•(a) Discretionary match. The Employer will determine in its sole discretion how much, if any, it will make as a Matching Contribution. Such amount will be allocated as a uniform percentage of Eligible Contributions, unless designated otherwise below. (See AA §6B-5 relating to period for determining Matching Contributions and true-up requirements.)

•(1) Discretionary matching contributions will be allocated as a flat dollar amount.

•(2) Allocation of discretionary Matching Contribution determined by written instructions to Plan Administrator (or Trustee). If a discretionary Matching Contribution formula applies (i.e., a formula that provides an Employer with discretion regarding how to allocate a Matching Contribution to Participants) and the Employer makes a discretionary Matching Contribution to the Plan, the Employer must provide the Plan Administrator (or Trustee, if applicable), written instructions describing: (1) how the discretionary Matching Contribution formula will be allocated to Participants (e.g., a uniform percentage of Eligible Contributions or a flat dollar amount), (2) the computation period(s) to which the discretionary Matching Contribution formula applies (unless otherwise designated under AA §6B-5), and (3) if applicable, a description of each business location or business classification subject to separate discretionary Matching Contribution allocation formulas.

Such instructions must be provided no later than the date on which the discretionary Matching Contribution is made to the Plan. A summary of these instructions must be communicated to Participants who receive discretionary Matching Contributions no later than 60 days following the last date on which the discretionary Matching Contribution is made to the Plan for the Plan Year. If this AA §6B-2(a)(2) is elected, the written instruction requirement does not take effect until the first day of the Plan Year following the Plan Year in which this Plan’s Cycle 3 restatement is executed.

•(b) Fixed match. The Employer will make a Matching Contribution for each Participant equal to:

•(1) % of Eligible Contributions made for each period designated in AA §6B-5 below.

•(2) $ for each period designated in AA §6B-5 below.

•(3) % of Eligible Contributions made for each period designated in AA §6B-5 below. However, to receive the Matching Contribution for a given period, a Participant must contribute Eligible Contributions equal to at least % of Plan Compensation for such period.

•(4) $ for each period designated in AA §6B-5 below. However, to receive the Matching Contribution for a given period, a Participant must contribute Eligible Contributions equal to at least % of Plan Compensation for such period.

•(c) Matching Contributions under Collective Bargaining Agreement, employment contract or equivalent arrangement. The Employer will make a Matching Contribution based on a Collective Bargaining Agreement, employment agreement or equivalent arrangement as follows:

[Note: Insert the appropriate Matching Contribution formula from the Collective Bargaining Agreement, employment agreement or equivalent arrangement. The formula must be definitely determinable as required under Treas. Reg.

§1.401-1.]

•(d) Tiered match. The Employer will make a Matching Contribution to all Participants based on the following tiers of Eligible Contributions. If discretionary Match is elected, the discretionary Matching Contribution will be allocated as a uniform percentage of Eligible Contributions within each tier.

•(1) Tiers as percentage of Plan Compensation.


Eligible Contributions			Fixed Match			Discretionary Match


•(i) Up to % of Plan Compensation			%
•(ii) From % up to % of Plan Compensation			%

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6B – Matching Contributions


Eligible Contributions			Fixed Match			Discretionary Match


	•(iii) From % up to % of Plan Compensation	%
•(2)	•(iv) From % up to % of Plan Compensation Tiers as dollar amounts.	%


Eligible Contributions			Fixed Match			Discretionary Match


•(i) Up to $			%
•(ii) From $ up to $			%
•(iii) From $ up to $			%
•(iv) Above $			%

[Note: If the Employer elects to make tiered Matching Contributions under subsection (1) or (2) above, funding will be made in the following non-discretionary order. First, all Matching Contributions under the first tier will be completely funded, but if the Employer’s contribution is not sufficient to fully fund those contributions, then Matching Contributions will be made as a uniform percentage of eligible Participant contributions. Then, all Matching Contributions under the second tier will be fully funded, but if the Employer’s contribution is not sufficient to fully fund the second-tier contributions, then Matching Contributions at the second tier will be made as a uniform percentage of eligible Participant contributions. The same approach will be followed for the third and fourth tiers.]

•(3) Discretionary tiered match. The Employer will determine in its sole discretion how much, if any, it will make as a tiered Matching Contribution. (See AA §6B-5 relating to period for determining Matching Contributions and true-up requirements.)

[Note: If the Plan is designed to satisfy the ACP safe harbor with respect to the Matching Contributions, the rate of Matching Contribution may not increase as the rate of Eligible Contributions increases.]

•(e) Year of Service match. The Employer will make a Matching Contribution as a uniform percentage of Eligible Contributions to all Participants based on Years of Service with the Employer. If discretionary Match is elected, the discretionary Matching Contribution will be allocated as a uniform percentage of Eligible Contributions within each Year of Service level.


Years of Service			Fixed Match			Discretionary Match


•(1)	From up to Years of Service	%
•(2)	From up to Years of Service	%
•(3)	From up to Years of Service	%
•(4)	From up to Years of Service	%
•(5)	Years of Service equal to and above	%

For this purpose, a Year of Service is each Plan Year during which an Employee completes at least 1,000 Hours of Service. Alternatively, a Year of Service is:

[Note: Each separate rate of Matching Contribution must satisfy the nondiscrimination requirements under Treas. Reg.

§1.401(a)(4)-4 as a separate benefit, right or feature. Any alternative definition of a Year of Service must meet the requirements of a Year of Service as defined in Section 2.03 of the Plan.]

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6B – Matching Contributions

•(f) Different Employee groups. The Employer may make a different Matching Contribution to the Employee groups designated under subsection (1) below. The Matching Contribution will be allocated separately to each designated Employee group in accordance with the formula designated under subsection (2).

(1)Designated Employee groups.

[Note: Each group designation must describe a group of Employees which is definitely determinable with no Employer discretion.]

(2)Matching Contribution formulas.

•(i) Discretionary Matching Contribution. The Employer may make a different discretionary Matching Contribution for each Employee group designated under subsection (1). The discretionary Matching Contribution will be allocated as a uniform percentage of Eligible Contributions within each Employee group. (See AA §6B-5 relating to period for determining Matching Contributions and true- up requirements.)

•(ii) Different Matching Contribution formula. The following Matching Contribution will apply for each Employee group designated under subsection (1).

[Note: Each separate rate of Matching Contribution must satisfy the nondiscrimination requirements under Treas. Reg. §1.401(a)(4)-4 as a separate benefit, right or feature.]

•(g) Describe special rules for determining allocation formula:

[Note: Any special rules may not provide for a discretionary Matching Contribution allocation formula and must be described in a manner that precludes Employer discretion and must satisfy the nondiscrimination requirements of Code

§401(a)(4) and the regulations thereunder.]

6B-3 CONTRIBUTIONS ELIGIBLE FOR MATCHING CONTRIBUTIONS (“ELIGIBLE CONTRIBUTIONS”). Unless

designated otherwise under this AA §6B-3, all Salary Deferrals, including any Roth Deferrals and Catch-Up Contributions, are eligible for the Matching Contributions designated under AA §6B-2.

•(a) Matching Contributions. Only the following contribution sources are eligible for a Matching Contribution under AA

§6B-2:

•(1) Pre-tax Salary Deferrals

•(2) Roth Deferrals

•(3) Catch-Up Contributions

[Note: Any amounts excluded under this subsection do not apply to Safe Harbor Matching Contributions under AA

§6C-2. See AA §6D-2 to determine eligibility of After-Tax Employee Contributions for Matching Contributions.]

•(b) Application of Matching Contributions to elective deferrals made under another plan maintained by the Employer. If this subsection is checked, the Matching Contributions described in AA §6B-2 will apply to elective deferrals made under another plan maintained by the Employer.

•(1) The Matching Contribution designated in AA §6B-2 above will apply to elective deferrals under the following plan maintained by the Employer:

•(2) The following special rules apply in determining the amount of Matching Contributions under this Plan with respect to elective deferrals under the plan described in subsection (1):

[Note: This subsection (2) may be used to describe special provisions applicable to Matching Contributions provided with respect to elective deferrals under another plan maintained by the Employer, including another qualified plan, Code §403(b) plan or Code §457(b) plan.]

(c)Calculation of Matching Contributions if Plan uses dual eligibility and/or different entry dates. Unless designated otherwise below, if the Plan has dual eligibility and/or different entry dates (or the Employer chooses to use the Plan’s optional true-up provisions), the Matching Contribution formula(s) will be based on Eligible Contributions and Plan Compensation for the period designated under AA §6B-5.

•The Plan will make Matching Contributions only on Salary Deferrals and After-Tax Employee Contributions (if applicable) made after the Participant becomes eligible for Matching Contributions, regardless of the period designated under AA §6B-5. [Note: The election of this option may require additional or more complex nondiscrimination testing.]

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6B – Matching Contributions

•(d) Special rules. The following special rules apply for purposes of determining the Matching Contribution under this AA

§6B-3:

[Note: Any special rules must satisfy the nondiscrimination requirements under Code §401(a)(4) and the regulations thereunder. If contribution sources are limited for only certain Matching Contributions, those limitations may be described under this subsection.]

6B-4 LIMITS ON MATCHING CONTRIBUTIONS. In applying the Matching Contribution formula(s) selected under AA §6B-2 above, all Eligible Contributions are eligible for Matching Contributions, unless elected otherwise under this AA §6B-4. (See AA

§6D-2 for any limits that apply with respect to After-Tax Employee Contributions.)

•(a) ACP safe harbor match. The Matching Contribution formula(s) selected in AA §6B-2 are designed to satisfy the ACP Safe Harbor as described in Section 6.04(i) of the Plan. Therefore, any fixed Matching Contribution selected in AA

§6B-2 will only apply with respect to Eligible Contributions that do not exceed 6% of Plan Compensation. To the extent any Matching Contribution formula is discretionary under AA §6B-2, the discretionary Matching Contributions will not exceed 4% of Plan Compensation for the Plan Year.

[Note: If this subsection is checked, no allocation conditions should be selected under AA §6B-7. If allocation conditions are selected under AA §6B-7, the Matching Contributions under AA §6B-2 may not qualify for the ACP safe harbor. See Section 6.04(i) of the Plan.]

•(b) Limit on the amount of Eligible Contributions. The Matching Contribution formula(s) selected in AA §6B-2 above apply only to Eligible Contributions that do not exceed:

•(1) % of Plan Compensation.

•(2) $ .

•(3) A discretionary amount determined by the Employer that will be applied in a uniform manner for all eligible Participants for the Plan Year.

[Note: If both subsection (1) and subsection (2) are selected, the limit under this subsection is the lesser of the percentage selected in subsection (1) or the dollar amount selected in subsection (2).]

•(c) Limit on Matching Contributions. The total Matching Contribution provided under the formula(s) selected in AA

§6B-2 above will not exceed:

•(1) % of Plan Compensation.

•(2) $ .

•(d) Application of limits. The limits identified under this AA §6B-4 do not apply to the following Matching Contribution formula(s):

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

•(1) Any limit on the amount of Eligible Contributions does not apply to:

•(i) Discretionary match

•(ii) Fixed match

•(iii) Tiered match

•(iv) Year of Service match

•(v) Employee group match

•

•(2) Any limit on Matching Contributions does not apply to:

•

(i) Discretionary match

•(ii) Fixed match

•(iii) Tiered match

•(iv) Year of Service match

•(v) Employee group match

•(e) Special limits applicable to Matching Contributions:

[Note: Any special provisions under this subsection must comply with the nondiscrimination requirements under Code

§401(a)(4).]

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6B – Matching Contributions

6B-5 PERIOD FOR DETERMINING MATCHING CONTRIBUTIONS. The Matching Contribution formula(s) selected in AA

§6B-2 above (including any limitations on such amounts under AA §6B-4) are based on Eligible Contributions and Plan Compensation for the Plan Year. To apply a different period for determining the Matching Contributions and limits under AA

§6B-2 through AA §6B-4, complete this AA §6B-5.

•(a) payroll period

•(b) Plan Year quarter

•(c) calendar month

•(d) Other:

[Note: Although Matching Contributions (and any limits on those Matching Contributions) will be determined on the basis of the period designated under this AA §6B-5, this does not require the Employer to actually make contributions or allocate contributions on the basis of such period. Matching Contributions may be contributed and allocated to Participants at any time within the contribution period permitted under Treas. Reg. §1.415-6, regardless of the period selected under this AA §6B-5. Any alternative period designated under this AA §6B-5 may not exceed a 12-month period and will apply uniformly to all Participants.]

[Note: In determining the amount of Matching Contributions for a particular period, if the Employer actually makes Matching Contributions to the Plan on a more frequent basis than the period selected in this AA §6B-5, a Participant will be entitled to a true-up contribution to the extent he/she does not receive a Matching Contribution based on the Eligible Contributions and/or Plan Compensation for the entire period selected in this AA §6B-5. If a period other than the Plan Year is selected under this AA

§6B-5, the Employer may make an additional discretionary Matching Contribution equal to the true-up contribution that would otherwise be required if Plan Year was selected under this AA §6B-5. See Section 3.04(c) of the Plan. Discretionary “true-up” contributions are not available for Safe Harbor Plans.]

6B-6 ACP TESTING. The ACP Test will be performed using the testing method designated below: (See Section 6.02(a) of the Plan.)

•(a) Current Year Testing Method. The Plan will use the Current Year Testing Method in running the ACP test. If the Current Year Testing Method is elected, the ACP of the Nonhighly Compensated Group for the first Plan Year is calculated using current year data, unless otherwise designated below.

•Deemed 3% used for first Plan Year. Instead of using actual current year data for the first Plan Year, the ACP of the Nonhighly Compensated Group for the first Plan Year the 401(k) Plan is effective is deemed to be 3%.

•(b) Prior Year Testing Method. The Plan will use the Prior Year Testing Method in running the ACP Test. If the Prior Year Testing Method is elected, the ACP of the Nonhighly Compensated Group for the first Plan Year is deemed to be 3%, unless otherwise designated below.

•Current year data used for first Plan Year. Instead of deeming the ACP of the Nonhighly Compensated Group to be 3% for the first Plan Year for which the 401(k) Plan is effective, the Plan will use the actual current year data for the first Plan Year.

6B-7 ALLOCATION CONDITIONS. A Participant must satisfy any allocation conditions designated under this AA §6B-7 to receive an allocation of Matching Contributions under the Plan.

[Note: Any allocation conditions set forth under this AA §6B-7 do not apply to Safe Harbor Matching Contributions under AA

§6C or QMACs under AA §6D, unless provided otherwise under those specific sections. See AA §4-5 for treatment of service with Predecessor Employers for purposes of applying the allocation conditions under this AA §6B-7.]

•(a) Application of allocation conditions

•(1) No allocation conditions apply with respect to Matching Contributions under the Plan.

•(2) Allocation conditions only apply to discretionary Matching Contributions under the Plan.

•(3) Allocation conditions only apply to fixed Matching Contributions under the Plan.

[Note: (2) or (3) above should be selected only if the Plan provides for both Fixed and Discretionary Matching Contributions.]

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6B – Matching Contributions

•(b) Safe harbor allocation condition. An Employee must be employed by the Employer on the last day of the Plan Year OR must complete more than:

•(1) (not to exceed 500) Hours of Service during the Plan Year.

•(i) Hours of Service are determined using actual Hours of Service.

•(ii) Hours of Service are determined using the following Equivalency Method (as defined under AA §4- 3):


•(A)	Monthly	•(B)	Weekly
•(C)	Daily	•(D)	Semi-monthly

•(2) (not more than 91) consecutive days of employment with the Employer during the Plan Year.

•(c) Employment condition. An Employee must be employed with the Employer on the last day of the Plan Year.

•(d) Minimum service condition. An Employee must be credited with at least:

•(1) Hours of Service (not to exceed 1,000) during the Plan Year.

•(i) Hours of Service are determined using actual Hours of Service.

•(ii) Hours of Service are determined using the following Equivalency Method (as defined under AA §4- 3):


•(A)	Monthly	•(B)	Weekly
•(C)	Daily	•(D)	Semi-monthly

•(2) (not more than 182) consecutive days of employment with the Employer during the Plan Year.

•(e) Application to a specified period. The allocation conditions selected under this AA §6B-7 apply on the basis of the Plan Year. Alternatively, if an employment or minimum service condition applies under this AA §6B-7, the Employer may elect under this subsection to apply the allocation conditions on a periodic basis as set forth below. (See Section 3.09(a) of the Plan for a description of the rules for applying the allocation conditions on a periodic basis.)

•(1) Period for applying allocation conditions. Instead of the Plan Year, the allocation conditions set forth under subsection (2) below apply with respect to the following periods:

•(i) Plan Year quarter

•(ii) calendar month

•(iii) payroll period

•(iv) Other:

•(2) Application to allocation conditions. To the extent an employment or minimum service allocation condition applies under this AA §6B-7, such allocation condition will apply based on the period selected under subsection (1) above, unless designated otherwise below:

•(i) Only the employment condition will be based on the period selected in subsection (1) above.

•(ii) Only the minimum service condition will be based on the period selected in subsection (1) above.

•(iii) Describe any special rules:

[Note: Any special rules under this subsection (iii) must satisfy the nondiscrimination requirements of Code §401(a)(4).]

•(f) Exceptions.

•(1) The above allocation condition(s) will not apply if the Employee, during the Plan Year:

•(i) dies.

•(ii) terminates employment due to becoming Disabled.

•(iii) becomes Disabled.

•(iv) terminates employment after attaining Normal Retirement Age.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6B – Matching Contributions

•(v) terminates employment after attaining Early Retirement Age.

•(vi) is on an authorized leave of absence from the Employer.

•(2) The exceptions selected under subsection (1) above will apply even if an Employee has not terminated employment at the time of the selected event(s).

•(3) The exceptions selected under subsection (1) above do not apply to:

•(i) an employment condition designated under this AA §6B-7.

•(ii) a minimum service condition designated under this AA §6B-7.

•(iii) the following Matching Contributions:

•(A) Discretionary match

•(B) Fixed match

•(C) Tiered match

•(D) Year of Service match

•(E) Employee group match

•(g) Describe any special rules governing the allocation conditions under the Plan:

[Note: Any special rules must satisfy the nondiscrimination requirements under Code §401(a)(4).]

6C-1 SAFE HARBOR 401(k) PLAN. Is the Plan intended to be a Safe Harbor 401(k) Plan?

•(a) Yes, the Plan is intended to be a Traditional Safe Harbor 401(k) Plan under Code §401(k)(12) [Complete AA §6C-2 below.]

•(b) Yes, the Plan is intended to be a QACA Safe Harbor 401(k) Plan under Code §401(k)(13) [Complete AA §6C-3 below.]

•(c) No [If “No” is checked, skip to Section 6D.]

6C-2 TRADITIONAL SAFE HARBOR CONTRIBUTIONS. To qualify as a Traditional Safe Harbor 401(k) Plan, the Employer must make a traditional Safe Harbor Matching Contribution or Safe Harbor Employer Contribution. The Safe Harbor Contribution elected under this AA §6C-2 will be in addition to any Employer Contribution or Matching Contribution elected in AA §6 or AA §6B above.

•(a) Traditional Safe Harbor Matching Contribution.

(1)Safe Harbor Matching Contribution formula.

•(i) Basic match: 100% of Salary Deferrals up to the first 3% of Plan Compensation, plus 50% of Salary Deferrals up to the next 2% of Plan Compensation.

•(ii) Enhanced match: 1 00 % of Salary Deferrals up to 6 % of Plan Compensation.

•(iii) Tiered match: % of Salary Deferrals up to the first % of Plan Compensation,

•(A) plus % of Salary Deferrals up to the next % of Plan Compensation,

•(B) plus % of Salary Deferrals up to the next % of Plan Compensation.

[Note: The enhanced match under subsection (ii) and the tiered match under subsection (iii) must provide a matching contribution that is at least equivalent to the basic match described in subsection (i). If the enhanced match or tiered match applies to Salary Deferrals in excess of 6% of Plan Compensation or if the tiered match provides for a greater level of match at higher levels of Salary Deferrals, the Matching Contribution will be subject to ACP Testing. See Section 6.04(i)(2) of the Plan.]

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

The Vanguard Group Nonstandardized PS/401(k) Plan Section 6C – Safe Harbor 401(k) Contributions

(2)Period for determining Safe Harbor Matching Contributions. Instead of the Plan Year, the Safe Harbor Matching Contribution formula selected in (1) above is based on Salary Deferrals for the following period:

•(i) payroll period

•(ii) Plan Year quarter

•(iii) calendar month

•(iv) Other:

[Note: In determining the amount of Safe Harbor Matching Contributions for a particular period, if the Employer actually makes Safe Harbor Matching Contributions to the Plan on a more frequent basis than the period selected in this subsection (2), a Participant will be entitled to a “true-up” contribution to the extent he/she does not receive a Safe Harbor Matching Contribution based on the Salary Deferrals and/or Plan Compensation for the entire period selected in this subsection (2). Thus, for example, if Plan Year applies under this subsection (2), additional Safe Harbor Matching Contributions may be required if the Safe Harbor Matching Contributions are made on a more frequent basis than annually. If true-up contributions will not be made for any Participant under the Plan, payroll period should be selected under this subsection (2).]

•(b) Traditional Safe Harbor Employer Contribution: % (not less than 3%) of Plan Compensation.

•(1) Supplemental Safe Harbor notice. Check this selection if the Employer will make the Safe Harbor Employer Contribution pursuant to a supplemental notice, as described in Section 6.04(a)(4)(iii) of the Plan.

[Note: If this subsection (1) is checked, the Safe Harbor Employer Contribution described above will be required for a Plan Year only if the Employer provides a supplemental notice (as described in Section 6.04(a)(4)(iii) of the Plan). If the Employer properly provides the Safe Harbor notice, but does not provide a supplemental notice, the Employer need not provide the Safe Harbor Employer Contribution described above. In such a case, the Plan will not qualify as a Safe Harbor 401(k) Plan for that Plan Year and will be subject to ADP/ACP testing, as applicable. See Section 6.04(a)(4)(iii) of the Plan for rules that apply in subsequent Plan Years.]

•(c) Other plan: Check this subsection if the Safe Harbor Employer Contribution or Safe Harbor Matching Contribution will be made under another plan maintained by the Employer and identify the plan:

6C-3 QACA SAFE HARBOR CONTRIBUTIONS. To qualify as a QACA Safe Harbor 401(k) Plan, the Employer must make a QACA Safe Harbor Matching Contribution or QACA Safe Harbor Employer Contribution. The Safe Harbor Contribution elected under this AA §6C-3 will be in addition to any Employer Contribution or Matching Contribution elected in AA §6 or AA §6B above. As a QACA Safe Harbor 401(k) Plan, the Employer also must complete the QACA automatic deferral percentage and automatic increase subsection below.

•(a) QACA Safe Harbor Matching Contribution.

(1)QACA Safe Harbor Matching Contribution formula.

•(i) Basic match: 100% of Salary Deferrals up to the first 1% of Plan Compensation, plus 50% of Salary Deferrals up to the next 5% of Plan Compensation.

•(ii) Enhanced match: % of Salary Deferrals up to % of Plan Compensation.

•(iii) Tiered match: % of Salary Deferrals up to the first % of Plan Compensation,

•(A) plus % of Salary Deferrals up to the next % of Plan Compensation,

•(B) plus % of Salary Deferrals up to the next % of Plan Compensation.

[Note: The enhanced match under subsection (ii) and the tiered match under subsection (iii) must provide a matching contribution that is at least equivalent at all deferral levels to the basic match described in subsection (i). If the enhanced match or tiered match applies to Salary Deferrals in excess of 6% of Plan Compensation, or if the tiered match provides for a greater level of match at higher levels of Salary Deferrals, the Matching Contribution will be subject to ACP Testing. See Section 6.04(i)(2) of the Plan.]

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•(2) Period for determining Safe Harbor Matching Contributions. Instead of the Plan Year, the Safe Harbor/QACA Safe Harbor Matching Contribution formula selected in (1) above is based on Salary Deferrals for the following period:

•(i) payroll period

•(ii) Plan Year quarter

•(iii) calendar month

•(iv) Other:

[Note: In determining the amount of QACA Safe Harbor Matching Contributions for a particular period, if the Employer actually makes QACA Safe Harbor Matching Contributions to the Plan on a more frequent basis than the period selected in this subsection (2), a Participant will be entitled to a “true-up” contribution to the extent he/she does not receive a QACA Safe Harbor Matching Contribution based on the Salary Deferrals and/or Plan Compensation for the entire period selected in this subsection (2). Thus, for example, if Plan Year applies under this subsection (2), additional QACA Safe Harbor Matching Contributions may be required if the QACA Safe Harbor Matching Contributions are made on a more frequent basis than annually. If true-up contributions will not be made for any Participant under the Plan, payroll period should be selected under this subsection (2).]

•(3) Other plan. Check this subsection (3) if the QACA Safe Harbor Matching Contribution will be made under another plan maintained by the Employer and identify the plan:

•(b) QACA Safe Harbor Employer Contribution: % (not less than 3%) of Plan Compensation.

•(1) Supplemental Safe Harbor notice. Check this selection if the Employer will make the QACA Safe Harbor Employer Contribution pursuant to a supplemental notice, as described in Section 6.04(a)(4)(iii) of the Plan.

[Note: If this subsection (1) is checked, the QACA Safe Harbor Employer Contribution described above will be required for a Plan Year only if the Employer provides a supplemental notice (as described in Section 6.04(a)(4)(iii) of the Plan). If the Employer properly provides the Safe Harbor notice, but does not provide a supplemental notice, the Employer need not provide the QACA Safe Harbor Employer Contribution described above. In such a case, the Plan will not qualify as a Safe Harbor 401(k) Plan for that Plan Year and will be subject to ADP/ACP testing, as applicable. See Section 6.04(a)(4)(iii) of the Plan for rules that apply in subsequent Plan Years.]

•(2) Other plan. Check this subsection (2) if the QACA Safe Harbor Employer Contribution will be made under another plan maintained by the Employer and identify the plan:

(c)QACA automatic deferral percentage and automatic increase.

•(1) Automatic deferral percentage. % [must be at least 3% and no more than 10%] of Plan Compensation.

•(2) Automatic increase. If elected under this subsection (2), the automatic deferral amount will increase each Plan Year by the following amount:

•(i) % of Plan Compensation but not in excess of

•(ii) % [not less than 6% nor more than 10%] of Plan Compensation

[Note: If the percentage under subsection (1) is less than 6% of Plan Compensation, an automatic deferral of at least 1% must apply under subsection (2)(i). If no percentage is entered under subsection (2)(ii), any automatic increase selected under subsection (2)(i) will not exceed 10% of Plan Compensation.]

(3)Application of automatic deferral provisions. The automatic deferral election under subsection (1) will apply to new Participants and existing Participants as set forth under this subsection (3).

(i)New Participants. The automatic deferral provisions apply to all Participants who become eligible on or after the effective date.

(ii)Current Participants. The automatic deferral provisions apply to all other eligible Participants as follows:

•(A) Automatic deferral provisions apply to all current Participants who have not entered into a Salary Deferral Election (including an election not to defer under the Plan).

•(B) Automatic deferral provisions apply to all current Participants who have not entered into a Salary Deferral Election that is at least equal to the automatic deferral amount under

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subsection (2)(i). Current Participants who have made a Salary Deferral Election that is less than the automatic deferral amount or who have not made a Salary Deferral Election will automatically be increased to the automatic deferral amount unless the Participant enters into a new Salary Deferral election on or after the effective date of the automatic deferral provisions.

•(C) Describe:

[Note: Any special provisions under subsection (C) must comply with the nondiscrimination requirements under Code §401(a)(4).]

(iii)Treatment of automatic deferrals. Any Salary Deferrals made pursuant to an automatic deferral election will be treated as Pre-Tax Salary Deferrals, unless designated otherwise under this subsection (iii).

•Any Salary Deferrals made pursuant to an automatic deferral election will be treated as Roth Deferrals. [This subsection (iii) may only be checked if Roth Deferrals are permitted under AA §6A-5.]

•(4) Application of automatic increase. Unless designated otherwise under this subsection (4), if an automatic increase is selected under subsection (c)(2) above, the automatic increase will take effect as of the first day of the second Plan Year following the Plan Year in which the automatic deferral election first becomes effective with respect to a Participant. (See Section 6.04(b)(1)(i) of the Plan.)

•(i) First Plan Year. Instead of applying as of the second Plan Year, the automatic increase described in subsection (2) above takes effect as of the appropriate date (as designated under subsection (iii) below) within the first Plan Year following the date automatic contributions begin.

•(ii) Designated Plan Year. Instead of applying as of the second Plan Year, the automatic increase described in subsection (2) above takes effect as of the appropriate date (as designated under subsection (iii) below) within the Plan Year following the Plan Year in which the automatic deferral election first becomes effective with respect to a Participant.

[Note: The Plan must satisfy the minimum deferral requirements applicable to a QACA Safe Harbor 401(k) Plan. See Section 6.04(b)(1)(i) of the Plan for special rules that apply if this subsection (ii) is checked. Also see Rev. Rul. 2009-30.]

•(iii) Effective date. The automatic increase described under subsection (2) above is generally effective as of the first day of the Plan Year. If this subsection (iii) is checked, instead of becoming effective on the first day of the Plan Year, the automatic increase will be effective on:

•(A) The anniversary of the Participant's date of hire.

•(B) The anniversary of the Participant's first automatic deferral contribution.

•(C) The first day of each calendar year.

•(D) Other date:

•(iv) Special rules:

(5)Treatment of terminated Employees who are rehired. Unless designated otherwise under subsection (i) below, a Participant’s affirmative election to defer (or to not defer) will cease upon termination of employment. In addition, unless designated otherwise under subsection (ii) below, in applying the automatic deferral provisions under the Plan, a rehired Participant is treated as a new Employee if the Participant is precluded from making automatic deferrals to the Plan for an entire Plan Year.

•(i) Participant’s affirmative election does not cease upon termination of employment. If this subsection (i) is selected, a terminated Participant’s affirmative election to defer (or to not defer) will not cease upon termination of employment. Thus, a Participant who entered into an election to

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defer (or not to defer) prior to termination of employment will not be subject to the automatic deferral provisions upon rehire. (See Section 6.04(b)(1)(iii) of the Plan.)

•(ii) Rehired Employees not treated as new Employee. If this provision applies, a Participant who is precluded from making automatic deferrals to the Plan for an entire Plan Year will not be treated as a new Employee for purposes of applying the automatic deferral provisions under the Plan. Thus, a rehired Participant’s minimum deferral percentage will continue to be calculated based on the date the individual first began making automatic deferrals under the Plan. (See Section 6.04(b)(1)(iii) of the Plan.)

•(d) Permissible Withdrawals under a Qualified Automatic Contribution Arrangement.

•(1) Permissible withdrawals allowed. If the QACA Safe Harbor 401(k) Plan satisfies the requirements for an EACA, the permissible withdrawal provisions under Section 3.03(c)(2)(ii) of the Plan apply. Thus, a Participant who receives an automatic deferral may withdraw such contributions (and earnings attributable thereto) within the time period set forth under Section 3.03(c)(2)(ii) of the Plan, without regard to the in- service distribution provisions selected under AA §10-1. Unless elected otherwise below, if an Employee does not make automatic deferrals to the Plan for an entire Plan Year (e.g., due to termination of employment), the Plan may allow such Employee to take a permissive withdrawal, but only with respect to default contributions made after the Employee’s return to employment.

•(2) No permissible withdrawals. Although the QACA Safe Harbor 401(k) Plan contains an automatic deferral election that is designed to satisfy the requirements of an EACA, the permissible withdrawal provisions under this subsection are not available.

•(e) Other automatic deferral provisions:

[Note: Any language added under this subsection must comply with the nondiscrimination requirements under Code

§401(a)(4) and the regulations thereunder.]

6C-4 ELIGIBILITY FOR SAFE HARBOR CONTRIBUTION. (Complete this 6C–4 only if eligibility rules for Traditional Safe Harbor 401(k) Plans or QACA Safe Harbor 401(k) Plans are different than for Salary Deferrals.) The Safe Harbor Contribution selected in AA §6C-2 or §6C-3 above will be allocated to all Participants who are eligible to make Salary Deferrals under the Plan, unless designated otherwise under this AA §6C-4.

•(a) Availability of Safe Harbor Contributions. Instead of being allocated to all eligible Participants, the Safe Harbor Contribution selected in AA §6C-2 or §6C-3 will be allocated only to:

•(1) Nonhighly Compensated Participants

•(2) Nonhighly Compensated Participants and any Highly Compensated Non-Key Employees

•(b) Eligible Employees. Unless designated otherwise under this subsection, any Excluded Employees will be determined under the Deferral column under AA §3-1. If this subsection is checked, the following Employees will be excluded for purposes of receiving the Safe Harbor Contribution. [Note: The exclusion of Employees under this subsection may require additional nondiscrimination testing. See Section 6.04(c) of Plan.]

•(1) Same exclusions as designated for Matching Contributions under AA §3-1.

•(2) Same exclusions as designated for Employer Contributions under AA §3-1.

•(3) The following Employees are Excluded Employees for purposes of receiving the Safe Harbor Contribution:

•(i) Collectively Bargained Employees

•(ii) Non-resident aliens who receive no compensation from the Employer which constitutes U.S. source income

•(iii) Leased Employees

•(iv) Describe:

[Note: If this subsection (iv) is completed to designate a class of Excluded Employees, such Employee class must be defined in such a way that it precludes Employer discretion and may not be based on time or service (e.g., part-time Employees) and may not provide for an exclusion designed to cover only Nonhighly Compensated Employees with the lowest amount of compensation and/or

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 6C – Safe Harbor 401(k) Contributions

the shortest periods of service which may represent the minimum number of Nonhighly Compensated Employees necessary to satisfy the coverage requirements under Code §410(b).]

(c)Minimum age and service conditions. Unless designated otherwise under this subsection, the minimum age and service conditions applicable to Salary Deferrals under AA §4 will apply for purposes of any Safe Harbor Contributions selected under AA §6C-2 or §6C-3. If this subsection is checked, the following minimum age and service conditions apply for Safe Harbor Contributions. [Note: The addition of minimum age or service conditions under this subsection may require additional nondiscrimination testing. See Section 6.04(d) of the Plan.]

•(1) Minimum service requirement.

•(i) No minimum service conditions apply.

•(ii) The minimum service conditions applicable to Matching Contributions (as selected in AA §4).

•(iii) The minimum service conditions applicable to Employer Contributions (as selected in AA §4).

•(iv) One Year of Service using shifting Eligibility Computation Period. (See Section 6.04(d) of the Plan.)

•(v) The completion of at least [cannot exceed 1,000] Hours of Service during the first

months of employment or the completion of a Year of Service (as defined in AA §4-3), if earlier.

•(vi) Describe:

[Note: For purposes of determining eligibility for Safe Harbor Contributions, an Employee may not be required to complete more than one Year of Service.]

•(2) Minimum age requirement.

•(i) No minimum age requirement

•(ii) Age 21

•(iii) Age (not later than age 21)

•(3) Entry Date.


•(i)	Immediate	•(ii)	Semi-annual
•(iii)	Quarterly	•(iv)	Monthly

•(v) Describe Entry Date:

[Note: Entry Date under subsection (v) must be within the dates described under subsections (i) – (iv).]

An Eligible Employee’s Entry Date (as defined above) is determined based on when the Employee satisfies the minimum age and service requirements in AA §4-1 or subsections (1) and (2) above. For this purpose, an Employee’s Entry Date is the Entry Date:

•(vi) next following satisfaction of the minimum age and service requirements.

•(vii) coinciding with or next following satisfaction of the minimum age and service requirements.

•(viii) nearest the satisfaction of the minimum age and service requirements.

•(ix) preceding the satisfaction of the minimum age and service requirements.

•(d) Describe eligibility conditions:

[Note: Any additional eligibility conditions under this subsection must satisfy the requirements of Code §410(a) and may not violate the nondiscrimination requirements of Code §401(a)(4).]

6C-5 DEFINITION OF PLAN COMPENSATION. Unless designated otherwise under this AA §6C-5, Plan Compensation is the same definition as selected under the Deferral column of AA §5-3 and AA §5-4. (See Note below for special rules applicable to definition of Plan Compensation.)

•(a) Modification of Plan Compensation. Instead of using the definition of Plan Compensation used for Salary Deferrals under AA §5-3, the following exclusions apply for Safe Harbor Contributions:

•(1) No exclusions.

. (2) All fringe benefits, expense reimbursements, deferred compensation, moving expenses, and welfare benefits are excluded.

•(3) Amounts received as a bonus are excluded.

•(4) Amounts received as commissions are excluded.

•(5) Overtime payments are excluded.

•(6) Describe adjustments to Plan Compensation:

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[Note: Any exclusions selected under subsections (3) – (6) may cause the definition of Plan Compensation to fail to satisfy a safe harbor definition of compensation under Code §414(s). Any modification under this subsection (6) must be definitely determinable and preclude Employer discretion.]

•(b) Exclusions applicable only to Highly Compensated Employees. If this subsection is checked, any non-safe harbor adjustments selected under AA §5-3 or under this AA §6C-5, to the extent the adjustments apply to Safe Harbor 401(k) Plan Contributions, will apply only to Highly Compensated Employees. [Note: If this subsection is checked, the definition of Plan Compensation that applies for purposes of determining the amount of Safe Harbor Contributions under the Plan will be deemed to satisfy a safe harbor definition of compensation under Code §414(s). See Section

1.138 of the Plan for a description of non-safe harbor compensation adjustments.]

•(c) Compensation while a Participant. Instead of using the period of compensation designated under AA §5-4 for Salary Deferrals, the following Plan Compensation will be taken into account for Safe Harbor Contributions:

•(1) Only Plan Compensation earned while the Employee is eligible to receive a Safe Harbor Contribution.

•(2) Plan Compensation for the entire Plan Year, including compensation earned while an individual is not eligible to receive the Safe Harbor Contribution.

[Note: In order to qualify as a Safe Harbor 401(k) Plan, the Plan must use a definition of Plan Compensation that satisfies a nondiscriminatory definition under Code §414(s). If the definition of Plan Compensation used for determining Safe Harbor Contributions or QACA Safe Harbor Contributions under the Plan does not satisfy a nondiscriminatory definition under Code

§414(s) for a given Plan Year, the Employer will be deemed to have elected to use Total Compensation for purposes of determining the Traditional Safe Harbor or QACA Safe Harbor Contribution for such Plan Year. See Section 1.99(a) of the Plan.]

6C-6 OFFSET OF ADDITIONAL EMPLOYER CONTRIBUTIONS. Any additional Employer Contributions under AA §6 will be allocated to all eligible Participants in addition to the Safe Harbor Employer Contribution, unless selected otherwise under this AA §6C-6.

•Check this AA §6C-6 to provide that the Safe Harbor Employer Contribution offsets any additional Employer Contributions designated under AA §6. For this purpose, if the permitted disparity allocation method is selected under AA

§6-3, this offset applies only to the second step of the two-step permitted disparity formula or the fourth step of the four- step permitted disparity formula. (See Section 3.02(d)(1) of the Plan.)

6C-7 DELAYED EFFECTIVE DATE. The Safe Harbor provisions under this AA §6C are effective as of the Effective Date of the Plan (or the Effective Date of any Plan amendment or restatement, if applicable), as designated on the Employer Signature Page. To provide for a delayed effective date for the Safe Harbor provisions, check this AA §6C-7.

•The Safe Harbor provisions under this AA §6C are effective beginning . Prior to this delayed effective date, the provisions of this AA §6C do not apply. Thus, prior to the delayed effective date, the Employer is not obligated to make a Safe Harbor Contribution and the Plan is subject to ADP and ACP Testing, to the extent applicable.

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Section 6D – Special Contributions

6D-1 SPECIAL CONTRIBUTIONS. The following Special Contributions may be made under the Plan:

•(a) No Special Contributions are permitted. [Skip to Section 7.]

•(b) After-Tax Employee Contributions

[Note: After-Tax Employee Contributions are not considered Roth Deferrals. The Employer may elect Roth Deferrals under AA §6A-5.]

•(c) Fixed Qualified Nonelective Contributions (QNECs), as elected under AA §6D-3.

[Note: Under the Plan, the Employer may always make a discretionary QNEC to the Plan as a uniform percentage of Plan Compensation, a uniform dollar amount, or as a Targeted QNEC. See Section 3.02(a)(6) of the Plan.]

•(d) Qualified Matching Contributions (QMACs)

[Note: Regardless of any elections under this AA §6D-1, the Employer may make additional QNECs or QMACs to the Plan on behalf of the Nonhighly Compensated Employees and use such amounts to correct an ADP or ACP Test violation. See Sections 6.01(b)(3) and 6.02(b)(3) of the Plan for special rules regarding the allocation of QNECs/QMACs under the Plan.]

6D-2 AFTER-TAX EMPLOYEE CONTRIBUTIONS. If After-Tax Employee Contributions are authorized under AA §6D-1, a Participant may contribute any amount as After-Tax Employee Contributions up to the Code §415 Limitation (as defined in Section 5.03 of the Plan), except as limited under this AA §6D-2.

•(a) Limits on After-Tax Employee Contributions. If this subsection is checked, the following limits apply to After-Tax Employee Contributions:

•(1) Maximum limit. A Participant may make After-Tax Employee Contributions up to

•(i) % of Plan Compensation

•(ii) $

for the following period:

•(iii) the entire Plan Year.

•(iv) the portion of the Plan Year during which the Employee is eligible to participate.

•(v) each separate payroll period during which the Employee is eligible to participate.

•(2) Minimum limit. The amount of After-Tax Employee Contributions a Participant may make for any payroll period may not be less than:

•(i) % of Plan Compensation.

•(ii) $ .

(b)Eligibility for Matching Contributions. Unless designated otherwise under this subsection, After-Tax Employee Contributions will not be eligible for Matching Contributions under the Plan.

•(1) After-Tax Employee Contributions are eligible for the following Matching Contributions under the Plan:

•(i) All Matching Contributions elected under AA §6B and AA §6C.

•(ii) All Matching Contributions elected under AA §6B (other than Safe Harbor/QACA Safe Harbor Matching Contributions elected under AA §6C).

•(iii) Only Safe Harbor/QACA Safe Harbor Matching Contributions under AA §6C.

•(iv) All Matching Contributions designated under AA §6B-2 and/or AA §6C, except for the following Matching Contributions:

•(2) The Matching Contribution formula only applies to After-Tax Employee Contributions that do not exceed:

•(i) % of Plan Compensation.

•(ii) $ .

•(iii) A discretionary amount determined by the Employer.

(c)Change or revocation of After-Tax Employee Contributions. In addition to the Participant’s Entry Date under the Plan, a Participant’s election to change or resume an after-tax election will be effective as set forth under the After-Tax Employee Contributions election form or other written procedures adopted by the Plan Administrator. A Participant must be permitted to change or revoke an after-tax election at least once per year. Unless the After-Tax Contributions

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Section 6D – Special Contributions

election form or other written procedures adopted by the Plan Administrator provide otherwise, a Participant may revoke an after-tax election (on a prospective basis) at any time. Unless designated otherwise in a Participant’s after-tax election form, a Participant’s affirmative election to make an After-Tax Employee Contribution will cease upon termination of employment and the Participant will need to make a new election upon rehire.

(a)ACP Testing Method. The same ACP Testing Method will apply to After-Tax Employee Contributions as applies to Matching Contributions, as designated under AA §6B-6. If no method is selected under AA §6B-6, designate the testing method below.

[Note: If the Plan is a Safe Harbor 401(k) Plan (as designated in AA §6C), the Plan must use the Current Year Testing Method.]

•(1) Current Year Testing Method. The Plan will use the Current Year Testing Method in running the ACP test. If the Current Year Testing Method is elected, the ACP of the Nonhighly Compensated Group for the first Plan Year is calculated using current year data, unless otherwise designated below.

•(2) Prior Year Testing Method. The Plan will use the Prior Year Testing Method in running the ACP Test. If the Prior Year Testing Method is elected, the ACP of the Nonhighly Compensated Group for the first Plan Year is deemed to be 3%, unless otherwise designated below.

•(3) Application of Current Year Testing Method. The Current Year Testing Method has applied since the

Plan Year. [Note: If the Plan has switched from the Prior Year Testing Method to the Current Year Testing Method, this subsection (3) may be checked to designate the first Plan Year for which the Current Year Testing Method applies.]

•(e) Other limits:

[Any other limits under this subsection must comply with the nondiscrimination requirements under Code §401(a)(4).]

6D-3 QUALIFIED NONELECTIVE CONTRIBUTIONS (QNECs). Notwithstanding any contrary selections in the Adoption Agreement, for any Plan Year, the Employer may make a discretionary QNEC on behalf of Nonhighly Compensated Participants under the Plan to correct a violation of the ADP and/or ACP tests. (See Sections 6.01(b)(3) and 6.02(b)(3).) Such corrective QNEC may be allocated to all Nonhighly Compensated Participants as a uniform percentage of Plan Compensation or a uniform dollar amount or as a Targeted QNEC, without regard to any allocation conditions selected in AA §6-5. The allocation method chosen by the Employer for a corrective QNEC will be uniformly applied to all Participants receiving the corrective QNEC for the Plan Year. The Employer also may make a discretionary QNEC that is not a corrective QNEC and allocate such discretionary QNEC as a uniform percentage of Plan Compensation to Nonhighly Compensated Employees. If the Employer decides to make a discretionary QNEC, the Employer must designate the contribution as a QNEC prior to making such contribution to the Plan. (See Section 6.01(a)(4) and 6.02(a)(4) of the Plan for a description of the amount of QNEC that may be used in the ADP Test and/or ACP Test.)

The Employer may elect under this AA §6D-3 to make a fixed QNEC to the Plan.

Unless provided otherwise under this AA §6D-3, any QNEC authorized under AA §6D-1 will be allocated to Nonhighly Compensated Employees who are eligible to make Salary Deferrals, without regard to the allocation conditions selected in AA

§6-5. Any contribution designated as a QNEC will automatically be subject to the requirements for QNECs (as described in Section 3.02(a)(6) of the Plan). QNECs will be eligible for in-service distribution under the same conditions as elected for Salary Deferrals under AA §10 (other than hardship distributions), unless designated otherwise under AA §10.

To modify these default allocation provisions, complete the applicable provisions under this AA §6D-3.

•(a) All Participants. Any QNEC made pursuant to this AA §6D-3 will be allocated to all Participants who are eligible to defer, including Highly Compensated Employees.

•(b) Fixed QNEC.

•(1) The Employer will make a QNEC each Plan Year equal to % of Plan Compensation.

•(2) The Employer will make a QNEC each Plan Year equal to $ .

[Note: A flat dollar QNEC may only be used in the ADP Test to the extent the QNEC does not violate the Targeted QNEC requirements as set forth in Section 3.02(a)(6)(ii)(B) of the Plan.]

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Section 6D – Special Contributions

•(c) Allocation conditions. Any QNEC made pursuant to this AA §6D-3 will be allocated only to Participants who have satisfied the following allocation conditions:

•(1) Safe harbor allocation condition. An Employee must be employed by the Employer on the last day of the Plan Year OR must complete more than 500 Hours of Service. (See Section 3.09 of the Plan.)

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•(2) Employment condition. An Employee must be employed with the Employer on the last day of the Plan Year.

•(3) Minimum service condition. An Employee must be credited with at least 1,000 HOS during the Plan Year.

•(4) Describe any special rules governing the allocation conditions relating to QNECs:

[Note: Any special rules under this subsection must satisfy the nondiscrimination requirements under Code

§401(a)(4).]

•(d) Eligibility for QNECs. In determining eligibility for QNECs, only those Participants who are eligible for the following contributions will share in the allocation of QNECs (subject to the selections in this AA §6D-3):

•(1) Employer Contributions

•(2) Matching Contributions

•(3) Describe any special rules governing eligibility relating to QNECs:

[Note: Any special rules under this subsection must satisfy the nondiscrimination requirements under Code

§401(a)(4).]

6D-4 QUALIFIED MATCHING CONTRIBUTIONS (QMACs). Notwithstanding any contrary selections in the Adoption Agreement, for any Plan Year, the Employer may make a discretionary QMAC on behalf of Nonhighly Compensated Participants under the Plan to correct a violation of the ADP and/or ACP tests. (See Sections 6.01(b)(3) and 6.02(b)(3).) Such corrective QMAC may be allocated to all Nonhighly Compensated Participants as a uniform percentage of Eligible Contributions or a uniform dollar amount or as a Targeted QMAC, without regard to any allocation conditions selected in AA §6-5. The allocation method chosen by the Employer for a corrective QMAC will be applied uniformly to all Participants receiving the corrective QMAC for the Plan Year.

If QMACs are authorized under AA §6D-1, the Employer may make a non-corrective discretionary QMAC as a uniform percentage of Eligible Contributions. If the Employer decides to make a discretionary QMAC, the Employer must designate the contribution as a QMAC prior to making such contribution to the Plan. Unless provided otherwise under this AA §6D-4, any discretionary QMAC authorized under AA §6D-1 will be allocated only to Nonhighly Compensated Employees, without regard to the allocation conditions selected in AA §6B-7. Any discretionary Matching Contribution designated as a QMAC will automatically be subject to the requirements for QMACs (as described in Section 3.04(d) of the Plan). QMACs will be eligible for in-service distribution under the same conditions as elected for Salary Deferrals under AA §10 (other than hardship distributions). (See Section 6.01(a)(4) and 6.02(a)(1) of the Plan for a description of the amount of QMAC that may be used in the ADP Test and/or ACP Test.)

To modify these default allocation provisions, complete the applicable provision under this AA §6D-4.

•(a) Eligibility for QMAC. The discretionary QMAC will be allocated to all Participants (instead of only to Nonhighly Compensated Employees).

•(b) Designated QMACs. The Employer may designate under this subsection to treat specific Matching Contributions under AA §6B-2 as QMACs. [Note: Any Matching Contributions designated as QMACs will automatically be subject to the requirements for QMACs (as described in Section 3.04(d) of the Plan), notwithstanding any contrary selections in this Adoption Agreement.]

•(1) All Matching Contributions are designated as QMACs.

•(2) The following Matching Contributions described in AA §6B-2 are designated as QMACs:

•(3) Any discretionary QMAC made pursuant to this AA §6D-4 will be allocated as a Targeted QMAC, as described in Section 3.04(d)(2) of the Plan.

•(c) Allocation conditions. Any QMAC made pursuant to this AA §6D-4 will be allocated only to Participants who have satisfied the following allocation conditions:

•(1) Safe harbor allocation condition. An Employee must be employed by the Employer on the last day of the Plan Year OR must complete more than 500 Hours of Service. (See Section 3.09 of the Plan.)

•(2) Employment condition. An Employee must be employed with the Employer on the last day of the Plan Year.

•(3) Minimum service condition. An Employee must be credited with at least 1,000 HOS during the Plan Year.

•(4) Describe:

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 6D – Special Contributions

•(d) Special rules:

[Note: Any special provisions under this AA §6D-4 must satisfy the nondiscrimination requirements of Code §401(a)(4) and the regulations thereunder.]

7-1NORMAL RETIREMENT AGE. Normal Retirement Age under the Plan is:

•(a) Age 6 5 (not to exceed 65).

•(b) The later of age (not to exceed 65) or the (not to exceed 5th) anniversary of the Employee’s:

•(1) Participation commencement date (as defined in Section 1.91 of the Plan).

•(2) Employment date.

•(c) Describe:

[Note: If this subsection is completed, the Normal Retirement Age may not be later than the later of age 65 or the 5th

anniversary of the Employee’s participation commencement date.]

[Note: Effective May 22, 2007 (for Plans initially adopted on or after May 22, 2007), and effective for the first Plan Year beginning on or after July 1, 2008 (for Plans initially adopted prior to May 22, 2007), if the Plan contains any assets transferred from a Money Purchase Plan (or any other pension plan described in Treas. Reg. §1.401–1(a)(2)(i)), the Normal Retirement Age selected in this AA §7-1 must be reasonably representative of the typical retirement age for the industry in which the Plan Participants work. An NRA under age 55 is presumed not to satisfy this requirement while a Normal Retirement Age of at least age 62 is deemed to be reasonable. See Section 1.91 of the Plan.]

7-2EARLY RETIREMENT AGE. Unless designated otherwise under this AA §7-2, there is no Early Retirement Age under the Plan.

•(a) A Participant reaches Early Retirement Age if he/she is still employed after attainment of each of the following:

•(1) Attainment of age 5 5

•(2) The anniversary of the date the Employee commenced participation in the Plan, and/or

•(3) The completion of 6 Years of Service, determined as follows:

•(i) Same as for eligibility.

•(ii) Same as for vesting

•(b) Describe:

[Note: Any special rules under this subsection must preclude Employer discretion and must satisfy the nondiscrimination requirements of Code §401(a)(4) and the regulations thereunder.]

8-1CONTRIBUTIONS SUBJECT TO VESTING. Does the Plan provide for Employer Contributions under AA §6, Matching Contributions under AA §6B, or QACA Safe Harbor Contributions under AA §6C that are subject to vesting?

•Yes

•No [If “No” is checked, skip to Section 9.]

[Note: “Yes” should be checked under this AA §8-1 if the Plan provides for Employer Contributions and/or Matching Contributions that are subject to a vesting schedule, even if such contributions are always 100% vested under AA §8-2. “No” should be checked if the only contributions under the Plan are Salary Deferrals, Safe Harbor Contributions (other than QACA Safe Harbor Contributions), QNECs, QMACs and/or After-Tax Employee Contributions. If the Plan holds Employer Contributions and/or Matching Contributions that are subject to vesting, but the Plan no longer provides for such contributions, see Sections 7.04(e) and 7.13(e) of the Plan for default rules for applying the vesting and forfeiture rules to such contributions.]

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 8 – Vesting and Forfeitures

8-2VESTING SCHEDULE. The vesting schedule under the Plan is as follows for both Employer Contributions and Matching Contributions, to the extent authorized under AA §6 and AA §6B. See Section 7.02 of the Plan for a description of the various vesting schedules under this AA §8-2. [Note: Any Prevailing Wage Contributions under AA §6-2, any Safe Harbor Contributions under AA §6C and any QNECs or QMACs under AA §6D are always 100% vested, regardless of any contrary selections in this AA §8-2 (unless provided otherwise under AA §6-2 for Prevailing Wage Contributions or under this AA §8-2 for any QACA Safe Harbor Contributions).]

•(a) Vesting schedule for Employer Contributions and Matching Contributions:


ER	Match
		(1)	Full and immediate vesting.
		(2)	3-year cliff vesting schedule
		(3)	6-year graded vesting schedule
		(4)	5-year graded vesting schedule
		(5)	Modified vesting schedule % immediately on Plan participation % after 1 Year of Service % after 2 Years of Service % after 3 Years of Service % after 4 Years of Service % after 5 Years of Service

100% after 6 Years of Service

[Note: If a modified vesting schedule is selected, the vested percentage for every Year of Service must satisfy the vesting requirements under the 6-year graded vesting schedule, unless 100% vesting occurs after no more than 3 Years of Service.]

(b)Special vesting schedule for QACA Safe Harbor Contributions. Unless designated otherwise under this subsection, any QACA Safe Harbor Contributions will be 100% vested. However, if this subsection is checked, the following vesting schedule applies for QACA Safe Harbor Contributions. [Note: This subsection may be checked only if a QACA Safe Harbor Contribution is selected under AA §6C-3.]

•Instead of being 100% vested, QACA Safe Harbor Contributions are subject to the following vesting schedule:

•(1) 2-year cliff vesting

•(2) 1-year cliff vesting

•(3) Graduated vesting

% after 1 Year of Service 100% after 2 Years of Service

•(c) Special provisions applicable to vesting schedule:

[Note: Any special provisions must satisfy the nondiscrimination requirements under Code §401(a)(4) and must satisfy the vesting requirements under Code §411.]

8-3VESTING SERVICE. In applying the vesting schedules under this AA §8, all service with the Employer counts for vesting purposes, unless designated otherwise under this AA §8-3.

•(a) Service before the original Effective Date of this Plan (or a Predecessor Plan) is excluded.

•(b) Service completed before the Employee's (not to exceed 18th) birthday is excluded.

[Note: See Section 7.08 of the Plan and AA §4-5 for rules regarding the crediting of service with Predecessor Employers for purposes of vesting under the Plan.]

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 8 – Vesting and Forfeitures

8-4VESTING UPON DEATH, DISABILITY OR EARLY RETIREMENT AGE. An Employee's vesting percentage increases to 100% if, while employed with the Employer, the Employee:

•(a) dies

•(b) terminates employment due to becoming Disabled

•(c) becomes Disabled

•(d) reaches Early Retirement Age

•(e) Not applicable. No increase in vesting applies.

8-5DEFAULT VESTING RULES. In applying the vesting requirements under this AA §8, the following default rules apply. [Note: No election should be made under this AA §8-5 if all contributions are 100% vested. ER and Match columns also apply to any Safe Harbor QACA Contributions to the extent a vesting schedule applies under AA §8-2 above.]

•Year of Service. An Employee earns a Year of Service for vesting purposes upon completing 1,000 Hours of Service during a Vesting Computation Period. Hours of Service are calculated based on actual hours worked during the Vesting Computation Period. (See Section 1.72 of the Plan for the definition of Hours of Service.)

•Vesting Computation Period. The Vesting Computation Period is the Plan Year.

•Break in Service Rules. The Nonvested Participant Break in Service rule and One-Year Break in Service rules do NOT apply. (See Section 7.09 of the Plan.)

To override the default vesting rules, complete the applicable sections of this AA §8-5. If this AA §8-5 is not completed, the default vesting rules apply.

ER Match

• (a) Year of Service. Instead of 1,000 Hours of Service, an Employee earns a Year of Service upon the completion of Hours of Service during a Vesting Computation Period.

• (b) Vesting Computation Period. Instead of the Plan Year, the Vesting Computation Period is:

•(1) The 12-month period beginning with the Employee’s Employment Commencement Date and, for subsequent Vesting Computation Periods, the 12- month period beginning with the anniversary of the Employee’s Employment Commencement Date.

•(2) Describe:

[Note: Any Vesting Computation Period described in this subsection (2) must be a 12- consecutive month period and must apply uniformly to all Participants.]

• (c) Elapsed Time Method. Instead of determining vesting service based on actual Hours of Service, vesting service will be determined under the Elapsed Time method. If this subsection is checked, service will be measured from the Employee’s employment commencement date (or reemployment commencement date, if applicable) without regard to the Vesting Computation Period designated in Section 7.06 of the Plan. (See Section 7.05(b) of the Plan.)

• (d) Equivalency Method. For purposes of determining an Employee’s Hours of Service for vesting, the Plan will use the Equivalency Method (as defined in Section 7.05(a)(2) of the Plan). The Equivalency Method will apply to:

•(1) All Employees.

•(2) Only to Employees for whom the Employer does not maintain hourly records. For Employees for whom the Employer maintains hourly records, vesting will be determined based on actual hours worked.

Hours of Service for vesting will be determined under the following Equivalency Method.

•(3) Monthly. 190 Hours of Service for each month worked.

•(4) Weekly. 45 Hours of Service for each week worked.

•(5) Daily. 10 Hours of Service for each day worked.

•(6) Semi-monthly. 95 Hours of Service for each semi-monthly period.

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 8 – Vesting and Forfeitures

• (e) Nonvested Participant Break in Service rule applies. Service earned prior to a Nonvested Participant Break in Service will be disregarded in applying the vesting rules. (See Section 7.09(c) of the Plan.)

•The Nonvested Participant Break in Service rule applies to all Employees, including Employees who have not terminated employment.

• (f) One-Year Break in Service rule applies. The One-Year Break in Service rule (as defined in Section 7.09(b) of the Plan) applies to temporarily disregard an Employee’s service earned prior to a one-year Break in Service.

•The One-Year Break in Service rule applies to all Employees, including Employees who have not terminated employment.

• (g) Special rules:

[Note: Any special rules under this subsection must satisfy the nondiscrimination requirements of Code §401(a)(4) and the regulations thereunder.]

8-6ALLOCATION OF FORFEITURES.

The Employer may decide in its discretion how to treat forfeitures under the Plan. Alternatively, the Employer may designate under this AA §8-6 how forfeitures occurring during a Plan Year will be treated. (See Section 7.13 of the Plan.) [Note: ER and Match columns also apply to any Safe Harbor QACA Contributions to the extent a vesting schedule applies under AA §8-2 above.]


ER	Match
		(a) N/A. All contributions are 100% vested. [Do not complete the rest of this AA §8-6.]
		(b) Reallocated as additional Employer Contributions or as additional Matching Contributions.
		(c) Used to reduce Employer and/or Matching Contributions.

For purposes of subsection (b) or (c), forfeitures will be applied:

• (d) for the Plan Year in which the forfeiture occurs.

• (e) for the Plan Year following the Plan Year in which the forfeitures occur.

[Note: In any event, forfeitures must be used by the end of the Plan Year following the Plan Year in which the forfeitures occur.]

Prior to applying forfeitures under subsection (b) or (c):

• (f) Forfeitures may be used to pay Plan expenses. (See Section 7.13(d) of the Plan.)

• (g) Forfeitures may not be used to pay Plan expenses.

In determining the amount of forfeitures to be allocated under subsection (b), the same allocation conditions apply as for the source for which the forfeiture is being allocated under AA §6-5 or AA §6B-7, unless designated otherwise below.

• (h) Forfeitures are not subject to any allocation conditions.

• (i) Forfeitures are subject to a last day of employment allocation condition.

• (j) Forfeitures are subject to a Hours of Service minimum service requirement.

In determining the treatment of forfeitures under this AA §8-6, the following special rules apply:

• (k) Describe:

[Note: Any language added under this subsection (k) may not result in a discriminatory allocation of forfeitures in violation of the requirements of Code §401(a)(4).]

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The Vanguard Group Nonstandardized PS/401(k) Plan

Section 8 – Vesting and Forfeitures

8-7SPECIAL RULES REGARDING CASH-OUT DISTRIBUTIONS.

(a)Additional allocations. If a terminated Participant receives a complete distribution of his/her vested Account Balance while still entitled to an additional allocation, the Cash-Out Distribution forfeiture provisions do not apply until the Participant receives a distribution of the additional amounts to be allocated. (See Section 7.12(a)(1) of the Plan.)

To modify the default Cash-Out Distribution forfeiture rules, complete this AA §8-7(a).

•The Cash-Out Distribution forfeiture provisions will apply if a terminated Participant takes a complete distribution, regardless of any additional allocations during the Plan Year.

(b)Timing of forfeitures. A Participant who receives a Cash-Out Distribution (as defined in Section 7.12(a) of the Plan) is treated as having an immediate forfeiture of his/her nonvested Account Balance.

To modify the forfeiture timing rules to delay the occurrence of a forfeiture upon a Cash-Out Distribution, complete this AA §8-7(b).

•A forfeiture will occur upon the completion of [cannot exceed 5] consecutive Breaks in Service (as defined in Section 7.09(a) of the Plan).

8-8SPECIAL RULE FOR FORFEITURE UPON DEATH OF A PARTICIPANT. Unless elected below, no vested benefits are forfeited upon the death of a Participant.

To modify this default forfeiture rule, check the box below.

•The Plan will forfeit benefits (including vested benefits) upon the death of a Participant, as permitted under Code

§411(a)(3)(A). In no event may the Plan forfeit any benefits required by the Qualified Joint and Survivor Annuity requirements under Section 9 of the Plan and Code §401(a)(11). In addition, in no event may the Plan forfeit any amounts attributable to a Participant’s Salary Deferrals or After-Tax Employee Contributions under the Plan or if the Plan has commenced distributions prior to the Participant’s death.

9-1AVAILABLE FORMS OF DISTRIBUTION.

Lump sum distribution. A Participant may take a distribution of his/her entire vested Account Balance in a single lump sum upon termination of employment. In addition, the Plan Administrator may permit a Participant to take partial distributions or installment distributions solely to the extent necessary to satisfy the required minimum distribution rules under Section 8 of the Plan.

Additional distribution options. To provide for additional distribution options to the extent available under the Investment Arrangement(s), check the applicable distribution forms under this AA §9-1.

•(a) Installment distributions. A Participant may take a distribution over a specified period not to exceed the life or life expectancy of the Participant (and a designated beneficiary).

•(b) Partial lump sum. A Participant may take a distribution of less than the entire vested Account Balance upon termination of employment.

•Minimum distribution amount. A Participant may not take a partial lump sum distribution of less than $ .

•(c) Annuity distributions. A Participant may elect to have the Plan Administrator use the Participant’s vested Account Balance to purchase an annuity as described in Section 8.02 of the Plan. [Note: This annuity distribution option is in addition to any QJSA distribution required under AA §9-2.]

•(d) Describe distribution options:

[Note: Any additional distribution options under this subsection may not be subject to the discretion of the Employer or Plan Administrator.]

9-2QUALIFIED JOINT AND SURVIVOR ANNUITY RULES. This Plan is not subject to the Qualified Joint and Survivor Annuity rules, except to the extent required under Section 9.01 of the Plan (e.g., if the Plan is a Transferee Plan). Upon termination of employment, a Participant may receive a distribution from the Plan, in accordance with the provisions of AA §9-3, in any form allowed under AA §9-1. (If any portion of this Plan is subject to the Qualified Joint and Survivor Annuity rules, the QJSA and QPSA provisions will automatically apply to such portion of the Plan.)

To override this default provision, complete the applicable sections of this AA §9-2.

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 9 – Distribution Provisions – Termination of Employment

•(a) Qualified Joint and Survivor Annuity rules. Check this subsection to apply the Qualified Joint and Survivor Annuity rules to the entire Plan. If this subsection is checked, all distributions from the Plan must satisfy the QJSA requirements under Section 9 of the Plan, with the following modifications:

•(1) No modifications.

•(2) Modified QJSA benefit. Instead of a 50% survivor benefit, the Spouse’s survivor benefit is:

(i) 100% (ii) 75% (iii) 66-2/3%

•(b) Modified QPSA benefit. Instead of a 50% QPSA benefit, the QPSA benefit is 100% of the Participant’s vested Account Balance.

9-3TIMING OF DISTRIBUTIONS UPON TERMINATION OF EMPLOYMENT.

(a)Distribution of vested Account Balances exceeding $5,000. A Participant who terminates employment with a vested Account Balance exceeding $5,000 may receive a distribution of his/her vested Account Balance in any form permitted under AA §9-1 within a reasonable period following:

•(1) the date the Participant terminates employment.

•(2) the last day of the Plan Year during which the Participant terminates employment.

•(3) the first Valuation Date following the Participant's termination of employment.

•(4) the completion of Breaks in Service.

•(5) the end of the calendar quarter following the date the Participant terminates employment.

•(6) attainment of Normal Retirement Age, death or becoming Disabled.

•(7) Describe:

[Note: Any distribution event under this subsection (a) will apply uniformly to all Participants under the Plan and may not be subject to the discretion of the Employer or Plan Administrator. See AA §11-7 for special rules that may apply to distributions of Qualifying Employer Securities and/or Qualifying Employer Real Property.]

(b)Distribution of vested Account Balances not exceeding $5,000. A Participant who terminates employment with a vested Account Balance that does not exceed $5,000 may receive a lump sum distribution of his/her vested Account Balance within a reasonable period following:

•(1) the date the Participant terminates employment.

•(2) the last day of the Plan Year during which the Participant terminates employment.

•(3) the first Valuation Date following the Participant's termination of employment.

•(4) the end of the calendar quarter following the date the Participant terminates employment.

•(5) Describe: t he date the Participant terminates employment. Such distribution may occur in any form permitted

under Section 9-1 of this Adoption Agreement. This provision supersedes any contrary language under

Section 8.07(a) of the Plan. In addition, Participants who are deemed to receive a total Cash-Out Distribution

(no vested benefit as described in Section 7.12(a) of the Plan) will forfeit the nonvested portion of their

Account Balance as soon as administratively feasible following the date of the deemed distribution. This

provision supersedes any contrary language under Section 7.12(a)(1) of the Plan. If a Participant dies before

commencing distribution of his/her benefits under the Plan (or, if a Participant commences distribution prior

to death only with respect to a portion of his/her Account Balance) and the value of the death benefit does not

exceed $5,000, such benefit will be paid to the Participant's Beneficiary(ies) in accordance with Section 8.12

of the Plan. This provision supersedes any contrary language under Section 8.08(b)(1) of the Plan.

[Note: Any distribution event under this subsection (b) will apply uniformly to all Participants under the Plan and may not be subject to the discretion of the Employer or Plan Administrator. See AA §11-7 for special rules that may apply to distributions of Qualifying Employer Securities and/or Qualifying Employer Real Property.]

9-4DISTRIBUTION UPON DISABILITY. Unless designated otherwise under this AA §9-4, a Participant who terminates employment on account of becoming Disabled may receive a distribution of his/her vested Account Balance in the same manner as a regular distribution upon termination.

•(a) Immediate distribution upon termination of employment. Distribution will be made as soon as reasonable following the date the Participant terminates employment on account of becoming Disabled.

•(b) Following year distribution upon termination of employment. Distribution will be made as soon as reasonable following the last day of the Plan Year during which the Participant terminates on account of becoming Disabled.

•(c) Describe:

[Note: Any distribution event described in this subsection will apply uniformly to all Participants under the Plan and may not be subject to the discretion of the Employer or Plan Administrator.]

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 9 – Distribution Provisions – Termination of Employment

9-5DETERMINATION OF BENEFICIARY.

(a)Default beneficiaries. Under Section 8.08(c) of the Plan, to the extent a Beneficiary has not been named by the Participant (subject to the spousal consent rules) and is not designated under the terms of the Investment Arrangement(s) to receive all or any portion of the deceased Participant’s death benefit, such amount shall be distributed to the Participant’s surviving Spouse (if the Participant was married at the time of death) who shall be considered the designated Beneficiary. If the Participant does not have a surviving Spouse at the time of death, distribution will be made to the Participant’s surviving children (including legally adopted children, but not including step-children), as designated Beneficiaries, in equal shares. If the Participant has no surviving children, distribution will be made to the Participant’s estate.

•If this subsection (a) is checked, the default beneficiaries under Section 8.08(c) of the Plan are modified as follows:

•(1) The Plan adopts the default beneficiary rules under Section 8.08(c) of the Plan, except, if the Participant does not have a surviving Spouse at the time of death, distribution will be made to the Participant’s children (including legally adopted children, but not including step-children), as designated Beneficiaries, per stirpes.

•(2) Describe other modifications to the default beneficiaries under Section 8.08(c) of the Plan:

D istributions will be made to the Participant's surviving spouse and, if no spouse exists at the time

of the Participant's death, then to the Participant's estate.

[Note: The description of the modifications to the default beneficiaries must be sufficiently clear for the Plan Administrator to determine the beneficiaries and the method of distribution of the Participant’s death benefit.]

(b)One-year marriage rule. For purposes of determining whether an individual is considered the surviving Spouse of the Participant, the determination is based on the marital status as of the date of the Participant’s death, unless designated otherwise under this subsection (b).

•If this subsection (b) is checked, in order to be considered the surviving Spouse, the Participant and surviving Spouse must have been married for the entire one-year period ending on the date of the Participant’s death. If the Participant and surviving Spouse are not married for at least one year as of the date of the Participant’s death, the Spouse will not be treated as the surviving Spouse for purposes of applying the distribution provisions of the Plan. (See Section 9.04(c)(2) of the Plan.)

(c)Divorce of Spouse. Unless elected otherwise under this subsection (c), if a Participant designates his/her Spouse as Beneficiary and subsequent to such Beneficiary designation, the Participant and Spouse are divorced, the designation of the Spouse as Beneficiary under the Plan is automatically rescinded as set forth under Section 8.08(c)(6) of the Plan.

•If this subsection (c) is checked, a Beneficiary designation will not be rescinded upon divorce of the Participant and Spouse.

[Note: Section 8.08(c)(6) of the Plan and this subsection (c) will be subject to the provisions of a Beneficiary designation entered into by the Participant. Thus, if a Beneficiary designation specifically overrides the election under this subsection (c), the provisions of the Beneficiary designation will control. See Section 8.08(c)(6) of the Plan.]

9-6SPECIAL RULES.

(a)Availability of Involuntary Cash-Out Distributions. A Participant who terminates employment with a vested Account Balance of $5,000 or less will receive an Involuntary Cash-Out Distribution, subject to the Automatic Rollover provisions under Section 8.06 of the Plan.

Alternatively, an Involuntary Cash-Out Distribution will be made to the following terminated Participants:

•(1) No Involuntary Cash-Out Distributions. The Plan does not provide for Involuntary Cash-Out Distributions. A terminated Participant must consent to any distribution from the Plan. (See Section 14.03(b) of the Plan for special rules upon Plan termination.)

•(2) Lower Involuntary Cash-Out Distribution threshold. A terminated Participant will receive an Involuntary Cash-Out Distribution only if the Participant’s vested Account Balance is less than or equal to:

•(i) $1,000

•(ii) $ (must be less than $5,000)

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 9 – Distribution Provisions – Termination of Employment

(b)Application of Automatic Rollover rules. The Automatic Rollover rules described in Section 8.06 of the Plan do not apply to any Involuntary Cash-Out Distribution below $1,000 (to the extent available under the Plan).

To override this default provision, check below.

•(1) The Automatic Rollover provisions under Section 8.06 of the Plan apply to all Involuntary Cash-Out Distributions (including those below $1,000).

•(2) The Automatic Rollover provisions under Section 8.06 of the Plan do not apply to Involuntary Cash-Out Distributions below $ (must be between $0 and $1,000).

(c)Treatment of Rollover Contributions. Unless elected otherwise under this subsection (c), Rollover Contributions will be included in determining whether a Participant’s vested Account Balance exceeds the Involuntary Cash-Out threshold for purposes of applying the distribution rules under this AA §9 and Section 8.04(b) of the Plan. To exclude Rollover Contributions for purposes of applying the Plan’s distribution rules, check below.

•In determining whether a Participant’s vested Account Balance exceeds the Involuntary Cash-Out threshold, Rollover Contributions will be excluded.

[Note: This subsection (c) should not be checked if a lower Involuntary Cash-Out Distribution is selected in subsection

(a) above in order to avoid the Automatic Rollover provisions described in Section 8.06 of the Plan.]

(d)Distribution upon attainment of stated age. The Participant consent requirements under Section 8.04 of the Plan apply for distributions occurring prior to attainment of the Participant’s Required Beginning Date.

To allow for involuntary distribution upon attainment of Normal Retirement Age (or age 62, if later), check below.

•Subject to the spousal consent requirements under Section 9.04 of the Plan, a distribution from the Plan will be made to a terminated Participant without the Participant’s consent, regardless of the value of such Participant’s vested Account Balance, upon attainment of Normal Retirement Age (or age 62, if later).

(e)In-kind distributions. Section 8.02(b) of the Plan allows the Plan Administrator to authorize an in-kind distribution of property, including Qualifying Employer Securities and Qualifying Employer Real Property, to the extent the Plan holds such property.

To modify this default rule, check below.

•A Participant may not receive an in-kind distribution in the form of property or securities, even if the Plan holds such property on behalf of any Participant.

10-1AVAILABILITY OF IN-SERVICE DISTRIBUTIONS. A Participant may withdraw all or any portion of his/her vested Account Balance, to the extent designated, upon the occurrence of any of the event(s) selected under this AA §10-1. If more than one option is selected for a particular contribution source under this AA §10-1, a Participant may take an in-service distribution upon the occurrence of any of the selected events, unless designated otherwise under this AA §10-1. [Note: If special in-service distribution rules apply to Accounts that hold inactive sources of contributions, the Employer may designate such rules under AA §10-3.]


Deferral	Match	ER
			(a) No in-service distributions are permitted.
			(b) Attainment of age 59½.
			(c) Attainment of age . [Note: No in-service distribution of Salary Deferral is permitted prior to age 59½.]
			(d) A Hardship that satisfies the safe harbor rules under Section 8.10(e)(1) of the Plan.
			(e) A non-safe harbor Hardship described in Section 8.10(e)(2) of the Plan.
			(f) Attainment of Normal Retirement Age.
			(g) Attainment of Early Retirement Age.

[Note: Any distribution event described in this AA §10-1 may not discriminate in favor of Highly Compensated Employees. No in- service distribution of Salary Deferrals is permitted prior to age 59½, except for Hardship, Disability, as a Qualified Reservist Distribution or on a deemed separation of employment. If Normal Retirement Age or Early Retirement Age is earlier than age 59½, such age is deemed to be age 59½ for purposes of determining eligibility to distribute Salary Deferrals. If this Plan has accepted a transfer of assets from a pension plan (e.g., a Money Purchase Plan), no in-service distribution from amounts attributable to such transferred assets is permitted prior to age 62, except for Disability. See AA §11-7 for special rules that may apply to distributions of Qualifying Employer Securities and/or Qualifying Employer Real Property.]

10-2APPLICATION TO OTHER CONTRIBUTION SOURCES. If the Plan allows for Rollover Contributions under AA §C-2 or After-Tax Employee Contributions under AA §6D, unless elected otherwise under this AA §10-2, a Participant may take an in- service distribution from his/her Rollover Account and After-Tax Employee Contribution Account at any time. If the Plan

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

provides for Traditional/QACA Safe Harbor Contributions under AA §6C, unless elected otherwise under this AA §10-2, a Participant may take an in-service distribution from his/her Traditional/QACA Safe Harbor Contribution Account at the same time as elected for Salary Deferrals under AA §10-1.

Alternatively, if this AA §10-2 is completed, the following in-service distribution provisions apply for Rollover Contributions, After-Tax Employee Contributions, and/or Safe Harbor Contributions:

Rollover After- SH

Tax

• (a) No in-service distributions are permitted.

• (b) Attainment of age 59½.

• (c) Attainment of age .

• N/A (d) A Hardship that satisfies the safe harbor rules under Section 8.10(e)(1) of the

Plan.

• N/A (e) A non-safe harbor Hardship described in Section 8.10(e)(2) of the Plan.

• (f) Attainment of Normal Retirement Age.

• (g) Attainment of Early Retirement Age.

• (h) Upon a Participant becoming Disabled.

• (i) Describe:

[Note: Any distribution event described in this AA §10-2 may not discriminate in favor of Highly Compensated Employees. No in- service distribution of Safe Harbor/QACA Safe Harbor Contributions is permitted prior to age 59½, except upon Participant becoming Disabled.]

10-3SPECIAL DISTRIBUTION RULES. No special distribution rules apply, unless specifically provided under this AA §10-3.

•(a) In-service distributions will only be permitted if the Participant is 100% vested in the source from which the withdrawal is taken.

•(b) A Participant may take no more than in-service distribution(s) in a Plan Year.

•(c) A Participant may not take an in-service distribution of less than $ .

•(d) A Participant may not take an in-service distribution of more than $ .

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•(e) Unless elected otherwise under this subsection, the hardship distribution provisions of the Plan are not expanded to cover primary beneficiaries as set forth in Section 8.10(e)(5) of the Plan. If this subsection is checked, the hardship provisions of the Plan will apply with respect to individuals named as primary beneficiaries under the Plan.

•(f) In determining whether a Participant has an immediate and heavy financial need for purposes of applying the non-safe harbor Hardship provisions under Section 8.10(e)(2) of the Plan, the following modifications are made to the permissible events listed under Section 8.10(e)(1)(i) of the Plan:

[Note: This subsection may only be used to the extent a non-safe harbor Hardship distribution is authorized under AA

§10-1 or AA §10-2.]

•(g) If a plan does not otherwise provide for Employer Contributions, but must make Top-Heavy contributions to the Plan, the Employer may designate under this AA §10-3(g) the in-service distribution options available under the Account holding the Top Heavy contributions:

•(h) If the Plan includes Accounts that hold inactive sources of contributions, the Employer may designate under this AA

§10-3(h) the in-service distribution options available to such Accounts:

•(i) Other distribution rules: P articipants are limited to one in-service withdrawal per Plan Year from Employer Profit

Sharing Contributions; If a Participant dies before distributions begin and there is a Designated Beneficiary, the

Participant or Beneficiary may elect on an individual basis whether the 5-year rule (as described in Section 8.12(f)(1) of

the Plan) or the life expectancy method described under Sections 8.12(b) and (d) of the Plan apply. This election must

be made no later than the earlier of December 31 of the calendar year in which distribution would be required to begin

under Section 8.12(b) of the Plan, or by December 31 of the calendar year which contains the fifth anniversary of the

Participant's (or, if applicable, surviving Spouse's) death. If neither the Participant nor Beneficiary makes an election,

distributions will be made in accordance with the life expectancy method under Sections 8.12(b) and (d) of the Plan.

This provision supersedes any contrary language under Section 8.12(f)(2) of the Plan or this Adoption Agreement.

[Note: Any other distribution rules described in this subsection may not discriminate in favor of Highly Compensated Employees. This subsection may be used to apply the limitations under this AA §10-3 only to specific in-service distribution options (e.g., hardship distributions).]

10-4REQUIRED MINIMUM DISTRIBUTIONS.

(a)Required Beginning Date – non-5% owners. In applying the required minimum distribution rules under Section 8.12 of the Plan, the Required Beginning Date for non-5% owners is the later of attainment of age 70½ or termination of employment. To override this default provision, check this subsection (a).

•The Required Beginning Date for a non-5% owner is the date the Employee attains age 70½, even if the Employee is still employed with the Employer.

(b)Required distributions after death. If a Participant dies before distributions begin, and there is a Designated Beneficiary, the Participant or Beneficiary may elect on an individual basis whether the 5-year rule (as described in Section 8.12(f)(1) of the Plan) or the life expectancy method described under Sections 8.12(b) and (d) of the Plan apply. See Section 8.12(f)(2) of the Plan for rules regarding the timing of an election authorized under this AA §10-4.

Alternatively, if selected under this subsection (b), any death distributions to a Designated Beneficiary will be made only under either the 5-year rule or the life expectancy method, as elected below:

•(1) The 5-year rule under Section 8.12(f)(1) of the Plan applies (instead of the life expectancy method). Thus, the entire death benefit must be distributed by the end of the fifth year following the year of the Participant’s death. Death distributions to a Designated Beneficiary may not be made under the life expectancy method.

•(2) The life expectancy method under Sections 8.12(b) and (d) of the Plan (and not the 5-year rule).

11-1PLAN VALUATION. The Plan is valued annually, as of the last day of the Plan Year.

•(a) Additional valuation dates. In addition, the Plan will be valued on the following dates:

Deferral Match ER

• (1) Daily. The Plan is valued at the end of each business day during which

the New York Stock Exchange is open.

• (2) Monthly. The Plan is valued at the end of each month of the Plan Year.

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The Vanguard Group Nonstandardized PS/401(k) Plan Section 11 – Miscellaneous Provisions

• (3) Quarterly. The Plan is valued at the end of each Plan Year quarter.

• (4) Describe:

[Note: The Employer may elect operationally to perform interim valuations, provided such valuations do not result in discrimination in favor of Highly Compensated Employees.]

•(b) Special rules. The following special rules apply in determining the amount of income or loss allocated to Participants’ Accounts:

[Note: This subsection may be used to describe special rules for different investment options, such as Qualifying Employer Securities and Qualifying Employer Real Property or other specific investment options. Any special rules may not violate the nondiscrimination rules under Code §401(a)(4).]

11-2DEFINITION OF HIGHLY COMPENSATED EMPLOYEE. In determining which Employees are Highly Compensated (as defined in Section 1.70 of the Plan), the Top-Paid Group Test does not apply, unless designated otherwise under this AA §11-2.

•(a) The Top-Paid Group Test applies.

•(b) The Calendar Year Election applies. [Note: This subsection may be chosen only if the Plan Year is not the calendar year. If this subsection is not selected, the determination of Highly Compensated Employees is based on the Plan Year. See Section 1.70(c) of the Plan.]

11-3SPECIAL RULES FOR APPLYING THE CODE §415 LIMITATION. The provisions under Section 5.03 of the Plan apply for purposes of determining the Code §415 Limitation.

Complete this AA §11-3 to override the default provisions that apply in determining the Code §415 Limitation under Section 5.03 of the Plan.

•(a) Limitation Year. Instead of the Plan Year, the Limitation Year is the 12-month period ending .

[Note: If the Plan has a short Plan Year for the first year of establishment, the Limitation Year is deemed to be the 12- month period ending on the last day of the short Plan Year.]

•(b) Imputed compensation. For purposes of applying the Code §415 Limitation, Total Compensation includes imputed compensation for a Nonhighly Compensated Participant who terminates employment on account of becoming Disabled, as described under Section 5.03(c)(7)(iii) of the Plan.

•(c) Special rules:

[Note: Any special rules under this subsection must be consistent with the requirements of Code §415 and the regulations thereunder and must comply with the nondiscrimination requirements under Code §401(a)(4).]

11-4SPECIAL RULES FOR TOP-HEAVY PLANS. No special rules apply with respect to Top-Heavy Plans, unless designated otherwise under this AA §11-4.

•(a) Top Heavy contribution. If this subsection is checked, any Top Heavy minimum contribution required under Section 4 of the Plan will be allocated to all Participants, including Key Employees. [If this subsection is not checked, any Top Heavy minimum contribution will be allocated only to Non-Key Employees.]

(b)Vesting rules applicable to Top Heavy Plans. Generally, if a Top Heavy minimum contribution is made for a Plan Year, such contribution will be subject to the vesting schedule selected in AA §8-2 applicable to Employer Contributions. If no Employer Contributions are made to the Plan, any Top Heavy minimum contribution will be subject to a 6-year graded vesting schedule.

•Alternatively, if elected under this subsection, the following vesting schedule will apply to any Top Heavy minimum contributions under the Plan. (See Section 4.04(h) of the Plan.)

•(1) Full and immediate vesting.

•(2) 3-year cliff vesting schedule

•(3) Describe:

[Note: Any vesting schedule under this subsection (3) must be a permissible vesting schedule, as described in Section 7.02 of the Plan.]

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11-5SPECIAL RULES FOR MORE THAN ONE PLAN.

(a)Top Heavy minimum contribution – Defined Contribution Plan. If the Employer maintains this Plan and one or more Defined Contribution Plans, any Top Heavy minimum contribution will be provided under this Plan, provided the Top Heavy minimum contribution is not otherwise provided under the other Defined Contribution Plans. (See Section 4.04(f)(1) of the Plan.)

To provide the Top Heavy minimum contribution under another Defined Contribution Plan, complete this subsection (a).

•(1) The Top Heavy minimum contribution will be provided in the following Defined Contribution Plan maintained by the Employer:

•(2) Describe the Top Heavy minimum contribution that will be provided under the other Defined Contribution Plan:

•(3) Describe Employees who will receive the Top Heavy minimum contribution under the other Defined Contribution Plan:

(b)Top Heavy minimum contribution – Defined Benefit Plan. If the Employer maintains this Plan and one or more Defined Benefit Plans, any Top Heavy minimum contribution will be provided under this Plan, provided the Top Heavy minimum benefit is not otherwise provided under the other Defined Benefit Plans. If the Top Heavy minimum contribution is provided under this Plan, the minimum required contribution is increased from 3% to 5% of Total Compensation for the Plan Year. (See Section 4.04(f)(2) of the Plan.)

To provide the Top Heavy minimum benefit under a Defined Benefit Plan, complete this subsection (b).

•(1) The Top Heavy minimum benefit will be provided in the following Defined Benefit Plan maintained by the Employer:

•(2) Describe the Top Heavy minimum benefit that will be provided under the Defined Benefit Plan:

•(3) Describe Employees who will receive Top Heavy minimum benefit under the Defined Benefit Plan:

11-6FAIL-SAFE COVERAGE PROVISION. If the Plan fails the minimum coverage test under Code §410(b)(1)(A) or (B) due to the application of an allocation condition under AA §6-5 or AA §6B-7, the Employer must amend the Plan in accordance with the provisions of Section 14.02(a) of the Plan to correct the coverage violation.

Alternatively, the Employer may elect under this AA §11-6 to apply a Fail-Safe Coverage Provision that will allow the Plan to automatically correct the minimum coverage violation.

•The Fail-Safe Coverage Provision (as described under Section 14.02(b)(1) of the Plan) applies.

[Note: If the Fail-Safe Coverage Provision applies, the Plan may not perform the average benefit test to demonstrate compliance with the coverage requirements under Code §410(b), except as provided in Section 14.02 of the Plan.]

11-7QUALIFYING EMPLOYER SECURITIES AND QUALIFYING REAL PROPERTY. See Section 10.06(c) of the Plan for

the limits that apply with respect to investments in Qualifying Employer Securities and Qualifying Real Property.

The following special rules apply regarding the purchase of Qualifying Employer Securities and Qualifying Real Property:

•(a) Investment in Qualifying Employer Securities and/or Qualifying Employer Real Property may only be made from the following Accounts:

•(b) The following distribution restrictions apply to Qualifying Employer Securities and/or Qualifying Employer Real Property held by a Participant under the Plan:

•(c) The following special rules apply with respect to the investment in Qualifying Employer Securities and/or Qualifying Employer Real Property:

[Note: Any provisions entered under this AA §11-7 must satisfy the nondiscrimination requirements under Code §401(a)(4) and the regulations thereunder.]

11-8ELECTION NOT TO PARTICIPATE. (See Section 2.08 of the Plan). All Participants share in any allocation under this Plan and no Employee may waive out of Plan participation.

To allow Employees to make a one-time irrevocable waiver, check below.

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•An Employee may make a one-time irrevocable election not to participate under the Plan at any time prior to the time the Employee first becomes eligible to participate under the Plan. [Note: Use of this provision could result in a violation of the minimum coverage rules under Code §410(b).]

11-9ERISA SPENDING ACCOUNTS. Section 11.05(d) of the Plan authorizes the Employer to establish an ERISA Spending Account to hold certain miscellaneous amounts that are remitted to or received by the Plan.

•If the Employer maintains an ERISA Spending Account, the following special rules apply:

11-10MILITARY SERVICE PROVISIONS.

(a)Benefit accruals. The benefit accrual provisions under Section 15.06 of the Plan do not apply. To apply the benefit accrual provisions under Section 15.06, check the box below.

•Eligibility for Plan benefits. Check this box if the Plan will provide the benefits described in Section 15.06 of the Plan. If this box is checked, an individual who dies or becomes disabled in qualified military service will be treated as reemployed for purposes of determining entitlement to benefits under the Plan.

(b)Deemed separation from service. Unless elected otherwise under AA §10-1 above, an individual shall not be treated as having been severed from employment during any period the individual is performing service in the Uniformed Services for purposes of receiving a Plan distribution under Code §401(k)(2)(B)(i)(I).

11-11PROTECTED BENEFITS. There are no protected benefits (as defined in Code §411(d)(6)) other than those described in the Plan.

To designate protected benefits other than those described in the Plan, complete this AA §11-11.

•(a) Additional protected benefits. In addition to the protected benefits described in this Plan, certain other protected benefits are protected from a prior plan document. See the Addendum attached to this Adoption Agreement for a description of such protected benefits.

•(b) Money Purchase Plan assets. This Plan contains assets that were held under a Money Purchase Plan (e.g., Money Purchase Plan assets were transferred to this Plan by merger, trust-to-trust transfer or conversion). See the Addendum attached to this Adoption Agreement for a description of any special provisions that apply with respect to the transferred assets. See Section 14.05(c) of the Plan for rules regarding the treatment of transferred assets.

[Note: If a 411(d)(6) protected benefit in the Plan or a plan being merged into the Plan is not either (i) available as a provision through the Pre-Approved Plan or (ii) the subject of a prior determination, advisory, or opinion letter, the Employer cannot rely on the Pre-Approved Plan Provider’s opinion letter for qualification with respect to such benefit. If a 411(d)(6) protected benefit in the Plan or a plan being merged into the Plan is not permitted in a pre-approved plan, as described in Section 6.03 of Revenue Procedure 2017-41, such provision must be discontinued no later than the date the Employer adopts this Pre-Approved Plan or, in the case of a merger, the merger date and shall apply only to the extent required under Code Section 411(d)(6).]

•(c) Elimination of distribution options. Effective , the distribution options described in subsection (1) below are eliminated.

•(1) Describe eliminated distribution options:

•(2) Application to existing Account Balances. The elimination of the distribution options described in subsection (1) applies to:

•(i) All benefits under the Plan, including existing Account Balances.

•(ii) Only benefits accrued after the effective date of the elimination (as described above).

[Note: The elimination of distribution options must not violate the “anti-cutback” requirements of Code §411(d)(6) and the regulations thereunder. See Section 14.01(d) of the Plan.]

11-12SPECIAL RULES FOR MULTIPLE EMPLOYER PLANS. If the Plan is a Multiple Employer Plan (as designated under AA

§2-6), the rules applicable to Multiple Employer Plans under Section 16.07 of the Plan apply.

•The following special rules apply with respect to Multiple Employer Plans:

[Note: Any special rules under this AA §11-12 must satisfy the nondiscrimination requirements under Code §401(a)(4) and must satisfy the rules applicable to Multiple Employer Plans under Code §413(c).]

11-13CLAIMS PROCEDURES. The Plan Administrator shall establish and maintain reasonable claims procedures as described in Section 11.07 of the Plan. Special rules may be described below.

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•The following special rules apply with respect to claims procedures under Section 11.07 of the Plan:

[Note: Any special rules under this AA §11-13 must satisfy the requirements under ERISA Reg. §2560.503-1 and any other applicable guidance. If the Employer adds an arbitration clause to resolve benefit claim disputes, the Employer may not rely on the Plan’s opinion letter as to the acceptability of such arbitration clause. The addition of an arbitration clause does not otherwise affect the Employer’s reliance on the Plan’s opinion letter.]

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[Note: This Appendix A may be used to memorialize prior Plan provisions that pertain to sources that no longer accept new contributions under the Plan.]

•A-1 Eligible Employees. The definition of Eligible Employee under AA §3 is effective as follows:

•A-2 Minimum age and service conditions. The minimum age and service conditions and Entry Date provisions specified in AA

§4 are effective as follows:

•A-3 Compensation definitions. The compensation definitions under AA §5 are effective as follows:

•A-4 Employer Contributions. The Employer Contribution provisions under AA §6 are effective as follows:

•A-5 Salary Deferrals. The provisions regarding Salary Deferrals under AA §6A are effective as follows:

•A-6 Matching Contributions. The Matching Contribution provisions under AA §6B are effective as follows:

•A-7 Safe Harbor 401(k) Plan provisions. The Safe Harbor 401(k) Plan provisions under AA §6C are effective as follows:

•A-8 Special Contributions. The Special Contribution provisions under AA §6D are effective as follows:

•A-9 Retirement ages. The retirement age provisions under AA §7 are effective as follows:

•A-10 Vesting and forfeiture rules. The rules regarding vesting and forfeitures under AA §8 are effective as follows:

•A-11 Distribution provisions. The distribution provisions under AA §9 are effective as follows:

•A-12 In-service distributions and Required Minimum Distributions. The provisions regarding in-service distributions and Required Minimum Distributions under AA §10 are effective as follows:

•A-13 Miscellaneous provisions. The miscellaneous provisions under AA §11 are effective as follows:

•A-14 Special effective date provisions for merged plans. If any qualified retirement plans have been merged into this Plan, the provisions of Section 14.04 of the Plan apply, as follows:

•A-15 Other special effective dates:

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•A-16 Special effective dates for restated pre-approved plans. Use this A-16 to memorialize plan operational changes that have occurred after the general effective date of the plan and the actual plan restatement adoption date. Adopting employers may use the above Special Effective Date options (A-1 through A-15) to memorialize these changes or they may use this A-16. If the adopting employer uses A-16, the changes will be part of the Plan, but will not be reflected in the SPD or plan summary:

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Use this Appendix B to identify elections dealing with the administration of Participant loans. These elections may be changed without amending this Adoption Agreement by substituting an updated Appendix B with new elections. Any modifications to this Appendix B or any modifications to a separate loan policy describing the loan provisions selected under the Plan will not affect an Employer's reliance on the IRS Favorable Letter.

B-1Are PARTICIPANT LOANS permitted? (See Section 13 of the Plan.)

•(a) Yes

•(b) No

B-2LOAN PROCEDURES.

•(a) Loans will be provided under the default loan procedures set forth in Section 13 of the Plan, unless modified under this Appendix B.

•(b) Loans will be provided under a separate written loan policy. [If this subsection is checked, do not complete the rest of this Appendix B.]

B-3AVAILABILITY OF LOANS. Participant loans are available to all Participants and Beneficiaries who are parties in interest. Participant loans are not available to a former Employee or Beneficiary (including an Alternate Payee under a QDRO) except in those limited situations where the former Employee or Beneficiary is also considered to be a “party in interest” as defined in ERISA §3(14). To override this default provision, complete this AA §B-3.

•(a) A former Employee or Beneficiary (including an Alternate Payee) who has a vested Account Balance may request a loan from the Plan.

•(b) A “limited participant” as defined in Section 3.07 of the Plan may not request a loan from the Plan.

•(c) An officer or director of the Employer, as defined for purposes of the Sarbanes-Oxley Act, may not request a loan from the Plan.

•(d) Describe limitations on receiving loans under the Plan:

[Note: Any limitation under subsection (d) must meet the nondiscrimination requirements under Code §401(a)(4).]

B-4LOAN LIMITS. The default loan policy under Section 13.03 of the Plan allows Participants to take a loan provided all outstanding loans do not exceed 50% of the Participant’s vested Account Balance. To override the default loan policy to allow loans up to $10,000, even if greater than 50% of the Participant’s vested Account Balance, check this AA §B-4.

•A Participant may take a loan equal to the greater of $10,000 or 50% of the Participant's vested Account Balance. [Note: If this AA §B-4 is checked, the Participant may be required to provide adequate security as required under Section 13.06 of the Plan.]

B-5NUMBER OF LOANS. The default loan policy under Section 13.04 of the Plan restricts Participants to one loan outstanding at any time. To override the default loan policy and permit Participants to have more than one loan outstanding at any time, complete (a) or (b) below.

•(a) A Participant may have loans outstanding at any time, subject to any internal administrative limitations imposed by the Investment Arrangement, the service provider or platform.

•(b) There are no restrictions on the number of loans a Participant may have outstanding at any time.

B-6LOAN AMOUNT. Subject to any internal administrative limitations imposed by the Investment Arrangement, or the service provider or platform, the default loan policy under Section 13.04 of the Plan provides that a Participant may not receive a loan of less than $1,000. To modify the minimum loan amount or to add a maximum loan amount, complete this AA §B-6.

•(a) There is no minimum loan amount.

•(b) The minimum loan amount is $ .

•(c) The maximum loan amount is $ .

B-7INTEREST RATE. The default loan policy under Section 13.05 of the Plan provides for an interest rate commensurate with the interest rates charged by local commercial banks for similar loans. To override the default loan policy and provide a specific interest rate to be charged on Participant loans, complete this AA §B-7.

•(a) The prime interest rate plus percentage point(s).

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•(b) The interest rate is determined in accordance with the terms of the Investment Arrangement, service provider procedures, or other loan policy document adopted by the Plan Administrator.

•(c) Describe:

[Note: Any interest rate described in this AA §B-7 must be reasonable and must apply uniformly to all Participants.]

B-8PURPOSE OF LOAN. The default loan policy under Section 13.02 of the Plan provides that a Participant may receive a Participant loan for any purpose. To modify the default loan policy to restrict the availability of Participant loans to hardship events, check this AA §B-8.

•(a) A Participant may only receive a Participant loan upon the demonstration of a hardship event, as described in Section 8.10(e)(1)(i) of the Plan.

•(b) A Participant may only receive a Participant loan under the following circumstances:

B-9APPLICATION OF LOAN LIMITS. If Participant loans are not available from all contribution sources, the limitations under Code §72(p) and the adequate security requirements of the Department of Labor regulations will be applied by taking into account the Participant’s entire Account Balance. To override this provision, complete this AA §B-9.

•The loan limits and adequate security requirements will be applied by taking into account only those contribution Accounts which are available for Participant loans.

B-10CURE PERIOD. The Plan provides that a Participant incurs a loan default if a Participant does not repay a missed payment by the end of the calendar quarter following the calendar quarter in which the missed payment was due. To override this default provision to apply a shorter cure period, complete this AA §B-10.

•(a) The cure period for determining when a Participant loan is treated as in default will be days (cannot exceed 90) following the end of the month in which the loan payment is missed.

•(b) The cure period for determining when a Participant loan is treated as in default will be the greater of days (cannot exceed 90) following the end of the month in which the loan payment is missed or the last day of the second calendar quarter following the calendar quarter in which the missed payment was due.

•(c) The cure period for determining when a loan is treated as in default will be days (cannot exceed 90) following the first missed loan payment.

B-11PERIODIC REPAYMENT – PRINCIPAL RESIDENCE. If a Participant loan is for the purchase of a Participant’s primary residence, the loan repayment period for the purchase of a principal residence may not exceed ten (10) years. To override this default provision, complete this AA §B-11.

•(a) The Plan does not permit loan payments to exceed five (5) years, even for the purchase of a principal residence.

•(b) The loan repayment period for the purchase of a principal residence may not exceed years (may not exceed 30), subject to any internal limitations imposed by the Investment Arrangement(s) or the service provider or platform.

•(c) Loans for the purchase of a Participant’s primary residence may be payable over any reasonable period commensurate with the period permitted by commercial lenders for similar loans, subject to any internal limitations imposed by the Investment Arrangement or the service provider or platform.

B-12TERMINATION OF EMPLOYMENT. Section 13.11 of the Plan provides that a Participant loan becomes due and payable in full upon the Participant’s termination of employment. To override this default provision, complete this AA §B-12.

•A Participant loan will not become due and payable in full upon the Participant’s termination of employment.

B-13DIRECT ROLLOVER OF A LOAN NOTE. Section 13.11(b) of the Plan provides that upon termination of employment a Participant may request the Direct Rollover of a loan note. To override this default provision, complete this AA §B-13.

•A Participant may not request the Direct Rollover of the loan note upon termination of employment.

B-14LOAN RENEGOTIATION. The default loan policy provides that a Participant may renegotiate a loan, provided the renegotiated loan separately satisfies the reasonable interest rate requirement, the adequate security requirement, the periodic repayment requirement and the loan limitations under the Plan. The Employer may restrict the availability of renegotiations to prescribed purposes provided the ability to renegotiate a Participant loan is available on a non-discriminatory basis. To override the default loan policy and restrict the ability of a Participant to renegotiate a loan, complete this AA §B-14.

•(a) A Participant may not renegotiate the terms of a loan.

•(b) The following special provisions apply with respect to renegotiated loans:

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B-15SOURCE OF LOAN. Participant loans may be made from all available contribution sources, to the extent vested, unless designated otherwise under this AA §B-15. If selected, complete either (a) or (b).

•(a) Participant loans will not be available from the following contribution sources:

•(b) Participant loans will only be available from the following contribution sources:

B-16SPOUSAL CONSENT. If this Plan is subject to the Joint and Survivor Annuity requirements under Section 9 of the Plan, a Participant may not use his/her Account Balance as security for a Participant loan unless the Participant’s Spouse, if any, consents to the use of such Account Balance as security for the loan. If the Plan is not subject to the Joint and Survivor Annuity requirements under Section 9 of the Plan, a Spouse’s consent is not required to use a Participant’s Account Balance as security for a Participant loan. However, the Employer may elect under this AA §B-16 to require spousal consent for loans, even though the Plan is not subject to the Joint and Survivor Annuity requirements of Section 9 of the Plan.

•Even though the Plan is not subject to the Joint and Survivor Annuity requirements under Section 9 of the Plan, spousal consent is required for a loan, if the Participant’s Account Balance exceeds $ .

[Note: An election under this AA §B-16 does not subject the Plan to the Qualified Joint and Survivor Annuity rules and the Plan Administrator may determine the manner and timing of receiving spousal consent.]

B-17MODIFICATIONS TO DEFAULT LOAN PROVISIONS.

•The following special rules will apply with respect to Participant loans under the Plan:

[Note: Any provision under this AA §B-17 must satisfy the requirements under Code §72(p) and the regulations thereunder and will control over any inconsistent provisions of the Plan dealing with the administration of Participant loans.]

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The Vanguard Group Nonstandardized PS/401(k) Plan Appendix C – Administrative Elections

Use this Appendix C to identify certain elections dealing with the administration of the Plan. These elections may be changed without amending this Adoption Agreement by substituting an updated Appendix C with new elections. The provisions selected under this Appendix C do not create qualification issues and any changes to the provisions under this Appendix C will not affect the Employer's reliance on the IRS Favorable Letter.

C-1DIRECTION OF INVESTMENTS. Are Participants permitted to direct investments? (See Section 10.07 of the Plan.)

•(a) No

•(b) Yes, but subject to the following restrictions:

•(1) No restrictions apply

•(2) Only for Accounts that are 100% vested

•(3) Specify Accounts: A ll Accounts

•(4) Check this selection if the Plan is intended to comply with ERISA §404(c). (See Section 10.07(d) of the Plan.)

•(5) Describe any special rules that apply for purposes of direction of investments:

[Note: This subsection (5) may be used to describe special investment provisions for specific types of investments, such as Qualifying Employer Securities or Qualifying Real Property, or for specific Accounts, such as the Rollover Contribution Account. Any provisions added under this subsection (5) will be subject to the nondiscrimination requirements under Code §401(a)(4).]

C-2ROLLOVER CONTRIBUTIONS. Does the Plan accept Rollover Contributions? (See Section 3.07 of the Plan.)

•(a) No

•(b) Yes

•(1) If this subsection (1) is checked, an Employee may make a Rollover Contribution to the Plan prior to becoming a Participant in the Plan. (See Section 3.07 of the Plan.)

•(2) Check this subsection (2) if the Plan will accept Rollover Contributions from former Employees with an Account Balance under the Plan.

•(3) Describe any special rules for accepting Rollover Contributions: An Employee that is a member of an

excluded class of Employees may not make a Rollover Contribution to the Plan.

[Note: The Employer may designate in this subsection (3) or in separate written procedures the extent to which it will accept rollovers from designated plan types. For example, the Employer may decide not to accept rollovers from certain designated plans (e.g., 403(b) plans, §457 plans or IRAs). Any special rollover procedures will apply uniformly to all Participants under the Plan.]

C-3LIFE INSURANCE. Are life insurance investments permitted? (See Section 10.08 of the Plan.)

•(a) No

•(b) Yes

C-4QDRO PROCEDURES. Do the default QDRO procedures under Section 11.06 of the Plan apply?

•(a) No

•(b) Yes

•(1) The provisions of Section 11.06 of the Plan are modified as follows:

•(2) Alternate Payee shall not be entitled to payment prior to the Participant’s earliest retirement date, which is the earlier of the date the Participant has a present entitlement to a distribution or the earliest date on which the Participant would be entitled to a distribution after separation from service.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Employer Signature Page

PURPOSE OF EXECUTION. This Signature Page is being executed for Radian Group Inc. Savings Incentive Plan to effect:

•(a) The adoption of a new plan, effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) The restatement of an existing plan in order to comply with the requirements for Cycle 3 Pre-Approved Plans, pursuant to Rev. Proc. 2017-41.

(1)Effective date of restatement: 1-1-2021 . [Note: Date can be no earlier than the first day of the Plan Year in which the restatement is adopted.]

(2)Name of plan(s) being restated: Radian Group Inc. Savings Incentive Plan

(3)The original effective date of the plan(s) being restated: 11-1-1992

•(c) An amendment or restatement of the Plan (other than to comply with the requirements for Cycle 3 Pre-Approved Plans under Rev. Proc. 2017-41). If this Plan is being amended, a snap-on amendment may be used to designate the modifications to the Plan or the updated pages of the Adoption Agreement may be substituted for the original pages in the Adoption Agreement. All prior Employer Signature Pages should be retained as part of this Adoption Agreement.

(1)Effective Date(s) of amendment/restatement:

(2)Name of plan being amended/restated:

(3)The original effective date of the plan being amended/restated:

(4)If Plan is being amended, identify the Adoption Agreement section(s) being amended:

PRE-APPROVED PLAN PROVIDER INFORMATION. The Pre-Approved Plan Provider (or authorized representative) will inform the Employer of any amendments made to the Plan and will notify the Employer if it discontinues or abandons the Plan. To be eligible to receive such notification, the Employer agrees to notify the Pre-Approved Plan Provider (or authorized representative) of any change in address. The Employer may direct inquiries regarding the Plan or the effect of the IRS Opinion Letter to the Pre-Approved Plan Provider (or authorized representative) at the following location:

Name of Pre-Approved Plan Provider (or authorized representative): The Vanguard Group Address: P.O. Box 2600 Valley Forge, PA 19482 Telephone number: 800-662-0106

IMPORTANT INFORMATION ABOUT THIS PRE-APPROVED PLAN. A failure to properly complete the elections in this Adoption Agreement or to operate the Plan in accordance with applicable law may result in disqualification of the Plan. The Employer may rely on the Favorable IRS Letter issued by the Internal Revenue Service to the Pre-Approved Plan Provider as evidence that the Plan is qualified under Code §401(a), to the extent provided in Rev. Proc. 2017-41. The Employer may not rely on the Favorable IRS Letter in certain circumstances or with respect to certain qualification requirements, which are specified in the Favorable IRS Letter issued with respect to the Plan and in Rev. Proc. 2017-41. In order to obtain reliance in such circumstances or with respect to such qualification requirements, the Employer may need to apply to the Internal Revenue Service for a determination letter.

By executing this Adoption Agreement, the Employer intends to adopt the provisions as set forth in this Adoption Agreement and the related Plan document. By signing this Adoption Agreement, the individual below represents that he/she has the authority to execute this Plan document on behalf of the Employer. This Adoption Agreement may only be used in conjunction with Basic Plan Document #01. The Employer understands that the Pre-Approved Plan Provider has no responsibility or liability regarding the suitability of the Plan for the Employer’s needs or the options elected under this Adoption Agreement. It is recommended that the Employer consult with legal counsel before executing this Adoption Agreement.

Radian Group Inc.

(Name of Employer)

Cheryl Jacobs

VP, Total Rewards

(Name of authorized representative) (Title)

11-30-2021 | 12:48 EST

(Signature) (Date)

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Employer Signature Page

Check the appropriate selection below and complete this page if a Participating Employer (other than the Employer that signs the Signature Page above) will participate as a Participating Employer.

•(a) Participating Employer is a Related Employer.

•(b) Participating Employer is an unrelated Employer participating under a Multiple Employer Plan.

[Note: See Section 16 of the Plan for rules relating to the adoption of the Plan by a Participating Employer. If there is more than one Participating Employer, each one should execute a separate Participating Employer Adoption Page. Any reference to the “Employer” in this Adoption Agreement is also a reference to the Participating Employer, unless otherwise noted.]

PARTICIPATING EMPLOYER INFORMATION.

Name: R adian Real Estate Management Address: 7 730 South Union Park Ave, #400

City, State, Zip Code: M idvale, UT 84047

EMPLOYER IDENTIFICATION NUMBER (EIN). 45-3933740 FORM OF BUSINESS. LLC

EFFECTIVE DATE. The Effective Date should be completed to document whether this Plan is a new plan, restatement or amendment of a prior plan with respect to the Participating Employer. (Additional special Effective Dates may apply under Modifications to Adoption Agreement below.)

•(a) New plan. The Participating Employer is adopting this Plan as a new Plan effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) Restated or amended plan. The Participating Employer is adopting this Plan as a restatement or amendment of a prior plan.

(1)Name of plan(s) being restated or amended: Radian Group Inc. Savings Incentive Plan

(2)This restatement/amendment is effective 1-1-2021 [Note: Date can be no earlier than the first day of the Plan Year in which the restatement/amendment is adopted.]

(3)The original effective date of the plan(s) being restated or amended is: 1-1-2016

•(c) Cessation of participation. The Participating Employer is ceasing its participation in the Plan effective as of:

ALLOCATION OF CONTRIBUTIONS. Any contributions made under this Plan (and any forfeitures relating to such contributions) will be allocated to all Participants of the Employer (including the Participating Employer identified on this Participating Employer Adoption Page).

To override this default provision, check below.

•Check this box if contributions made by the Participating Employer signing this Participating Employer Adoption Page (and any forfeitures relating to such contributions) will be allocated only to Participants actually employed by the Participating Employer making the contribution. If this box is checked, Employees of the Participating Employer signing this Participating Employer Adoption Page will not share in an allocation of contributions (or forfeitures relating to such contributions) made by the Employer or any other Participating Employer. [Note: Use of this section may require additional testing. See Section 16.04 of the Plan.]

MODIFICATIONS TO ADOPTION AGREEMENT. The selections in the Adoption Agreement (including any special effective dates identified in Appendix A) will apply to the Participating Employer executing this Participating Employer Adoption Page.

To modify the Adoption Agreement provisions applicable to a Participating Employer, designate the modifications in subsection (a) or (b) below.

•(a) Special Effective Dates. Check this subsection (a) if different special effective dates apply with respect to the Participating Employer signing this Participating Employer Adoption Page. Attach a separate Addendum to the Adoption Agreement entitled “Special Effective Dates for Participating Employer” and identify the special effective dates as they apply to the Participating Employer.

•(b) Modification of Adoption Agreement elections. Section(s) of the Adoption Agreement are being modified for this Participating Employer. The modified provisions are effective . [Note: Attach a description of the modifications under this subsection (b) to this Participating Employer Adoption Page.]

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Employer Signature Page

SIGNATURE. By signing this Participating Employer Adoption Page, the Participating Employer agrees to adopt (or to continue its participation in) the Plan identified on page 1 of this Adoption Agreement. The Participating Employer agrees to be bound by all provisions of the Plan and Adoption Agreement as completed by the signatory Employer, unless specifically provided otherwise on this Participating Employer Adoption Page. The Participating Employer also agrees to be bound by any future amendments (including any amendments to terminate the Plan) as adopted by the signatory Employer. By signing this Participating Employer Adoption Page, the individual below represents that he/she has the authority to sign on behalf of the Participating Employer.

R adian Real Estate Management

(Name of Participating Employer)

Cheryl Jacobs

VP, Total Rewards

12:48 EST

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Employer Signature Page

Check the appropriate selection below and complete this page if a Participating Employer (other than the Employer that signs the Signature Page above) will participate as a Participating Employer.

•(a) Participating Employer is a Related Employer.

•(b) Participating Employer is an unrelated Employer participating under a Multiple Employer Plan.

PARTICIPATING EMPLOYER INFORMATION.

Name: H omegenius LLC Address: 7 730 South Union Park Ave, #400

City, State, Zip Code: M idvale, UT 84047

EMPLOYER IDENTIFICATION NUMBER (EIN). 83-2032439 FORM OF BUSINESS. LLC

•(a) New plan. The Participating Employer is adopting this Plan as a new Plan effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) Restated or amended plan. The Participating Employer is adopting this Plan as a restatement or amendment of a prior plan.

(1)Name of plan(s) being restated or amended: Radian Group Inc. Savings Incentive Plan

(2)This restatement/amendment is effective 1-1-2021 [Note: Date can be no earlier than the first day of the Plan Year in which the restatement/amendment is adopted.]

(3)The original effective date of the plan(s) being restated or amended is: 1-1-2019

•(c) Cessation of participation. The Participating Employer is ceasing its participation in the Plan effective as of:

To override this default provision, check below.

To modify the Adoption Agreement provisions applicable to a Participating Employer, designate the modifications in subsection (a) or (b) below.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Employer Signature Page

H omegenius LLC

(Name of Participating Employer)

Cheryl Jacobs

VP, Total Rewards

12:48 EST

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Employer Signature Page

Check the appropriate selection below and complete this page if a Participating Employer (other than the Employer that signs the Signature Page above) will participate as a Participating Employer.

•(a) Participating Employer is a Related Employer.

•(b) Participating Employer is an unrelated Employer participating under a Multiple Employer Plan.

PARTICIPATING EMPLOYER INFORMATION.

Name: R adian Lender Services Address: 5 50 E. Swedesford Rd., #350

City, State, Zip Code: W ayne, PA 19087

EMPLOYER IDENTIFICATION NUMBER (EIN). 23-1936987 FORM OF BUSINESS. LLC

•(a) New plan. The Participating Employer is adopting this Plan as a new Plan effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) Restated or amended plan. The Participating Employer is adopting this Plan as a restatement or amendment of a prior plan.

(1)Name of plan(s) being restated or amended: Radian Group Inc. Savings Incentive Plan

(2)This restatement/amendment is effective 1-1-2021 [Note: Date can be no earlier than the first day of the Plan Year in which the restatement/amendment is adopted.]

(3)The original effective date of the plan(s) being restated or amended is: 4-1-1999

•(c) Cessation of participation. The Participating Employer is ceasing its participation in the Plan effective as of:

To override this default provision, check below.

To modify the Adoption Agreement provisions applicable to a Participating Employer, designate the modifications in subsection (a) or (b) below.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Employer Signature Page

R adian Lender Services

(Name of Participating Employer)

Cheryl Jacobs VP, Total Rewards

(Name of authorized representative) (Title)

11-30-2021 | 12:48 EST

(Signature) (Date)

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Employer Signature Page

Check the appropriate selection below and complete this page if a Participating Employer (other than the Employer that signs the Signature Page above) will participate as a Participating Employer.

•(a) Participating Employer is a Related Employer.

•(b) Participating Employer is an unrelated Employer participating under a Multiple Employer Plan.

PARTICIPATING EMPLOYER INFORMATION.

Name: R adian Group Address: 5 50 E. Swedesford RD., #350

City, State, Zip Code: W ayne, PA 19087

EMPLOYER IDENTIFICATION NUMBER (EIN). 23-2691170

FORM OF BUSINESS. Corporation

•(a) New plan. The Participating Employer is adopting this Plan as a new Plan effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) Restated or amended plan. The Participating Employer is adopting this Plan as a restatement or amendment of a prior plan.

(1)Name of plan(s) being restated or amended: Radian Group Inc. Savings Incentive Plan

(2)This restatement/amendment is effective 1-1-2021 [Note: Date can be no earlier than the first day of the Plan Year in which the restatement/amendment is adopted.]

(3)The original effective date of the plan(s) being restated or amended is: 4-1-1999

•(c) Cessation of participation. The Participating Employer is ceasing its participation in the Plan effective as of:

To override this default provision, check below.

To modify the Adoption Agreement provisions applicable to a Participating Employer, designate the modifications in subsection (a) or (b) below.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Employer Signature Page

R adian Group

(Name of Participating Employer)

Cheryl Jacobs VP, Total Rewards

12:48 EST

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Employer Signature Page

Check the appropriate selection below and complete this page if a Participating Employer (other than the Employer that signs the Signature Page above) will participate as a Participating Employer.

•(a) Participating Employer is a Related Employer.

•(b) Participating Employer is an unrelated Employer participating under a Multiple Employer Plan.

PARTICIPATING EMPLOYER INFORMATION.

Name: R adian Guaranty Inc. Address: 5 50 E. Swedesford Rd., #350

City, State, Zip Code: W ayne, PA 19087

EMPLOYER IDENTIFICATION NUMBER (EIN). 23-2018130

FORM OF BUSINESS. Corporation

•(a) New plan. The Participating Employer is adopting this Plan as a new Plan effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) Restated or amended plan. The Participating Employer is adopting this Plan as a restatement or amendment of a prior plan.

(1)Name of plan(s) being restated or amended: Radian Group Inc. Savings Incentive Plan

(2)This restatement/amendment is effective 1-1-2021 [Note: Date can be no earlier than the first day of the Plan Year in which the restatement/amendment is adopted.]

(3)The original effective date of the plan(s) being restated or amended is: 4-1-1999

•(c) Cessation of participation. The Participating Employer is ceasing its participation in the Plan effective as of:

To override this default provision, check below.

To modify the Adoption Agreement provisions applicable to a Participating Employer, designate the modifications in subsection (a) or (b) below.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Participating Employer Adoption Page

R adian Guaranty Inc.

(Name of Participating Employer)

Cheryl Jacobs

VP, Total Rewards

(Name of authorized representative) (Title)

11-30-2021 | 12:48 EST

(Signature) (Date)

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Participating Employer Adoption Page

Check the appropriate selection below and complete this page if a Participating Employer (other than the Employer that signs the Signature Page above) will participate as a Participating Employer.

•(a) Participating Employer is a Related Employer.

•(b) Participating Employer is an unrelated Employer participating under a Multiple Employer Plan.

PARTICIPATING EMPLOYER INFORMATION.

Name: R adian Settlement Services Inc. Address: 1 000 GSK Blvd., #210 City, State, Zip Code: C oraopolis, PA 15108 EMPLOYER IDENTIFICATION NUMBER (EIN). 25-1781079

FORM OF BUSINESS. Corporation

•(a) New plan. The Participating Employer is adopting this Plan as a new Plan effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) Restated or amended plan. The Participating Employer is adopting this Plan as a restatement or amendment of a prior plan.

(1)Name of plan(s) being restated or amended: Radian Group Inc. Savings Incentive Plan

(2)This restatement/amendment is effective 1-1-2021 [Note: Date can be no earlier than the first day of the Plan Year in which the restatement/amendment is adopted.]

(3)The original effective date of the plan(s) being restated or amended is: 11-1-2018

•(c) Cessation of participation. The Participating Employer is ceasing its participation in the Plan effective as of:

To override this default provision, check below.

To modify the Adoption Agreement provisions applicable to a Participating Employer, designate the modifications in subsection (a) or (b) below.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Participating Employer Adoption Page

R adian Settlement Services Inc.

(Name of Participating Employer)

Cheryl Jacobs

VP, Total Rewards

12:48 EST

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Participating Employer Adoption Page

Check the appropriate selection below and complete this page if a Participating Employer (other than the Employer that signs the Signature Page above) will participate as a Participating Employer.

•(a) Participating Employer is a Related Employer.

•(b) Participating Employer is an unrelated Employer participating under a Multiple Employer Plan.

PARTICIPATING EMPLOYER INFORMATION.

Name: R adian Title Agency of Texas LLC Address: 1 4241 N. Dallas Parkway City, State, Zip Code: D allas, TX 75254 EMPLOYER IDENTIFICATION NUMBER (EIN). 82-0637957 FORM OF BUSINESS. LLC

•(a) New plan. The Participating Employer is adopting this Plan as a new Plan effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) Restated or amended plan. The Participating Employer is adopting this Plan as a restatement or amendment of a prior plan.

(1)Name of plan(s) being restated or amended: Radian Group Inc. Savings Incentive Plan

(2)This restatement/amendment is effective 1-1-2021 [Note: Date can be no earlier than the first day of the Plan Year in which the restatement/amendment is adopted.]

(3)The original effective date of the plan(s) being restated or amended is: 4-1-2017

•(c) Cessation of participation. The Participating Employer is ceasing its participation in the Plan effective as of:

To override this default provision, check below.

To modify the Adoption Agreement provisions applicable to a Participating Employer, designate the modifications in subsection (a) or (b) below.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Participating Employer Adoption Page

R adian Title Agency of Texas LLC

(Name of Participating Employer)

Cheryl Jacobs VP, Total Rewards

(Name of authorized representative) (Title)

11-30-2021 | 12:48 EST

(Signature) (Date)

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Participating Employer Adoption Page

Check the appropriate selection below and complete this page if a Participating Employer (other than the Employer that signs the Signature Page above) will participate as a Participating Employer.

•(a) Participating Employer is a Related Employer.

•(b) Participating Employer is an unrelated Employer participating under a Multiple Employer Plan.

PARTICIPATING EMPLOYER INFORMATION.

Name: R adian Title Insurance Inc. Address: 6 100 Oak Tree Blvd., #200 City, State, Zip Code: I ndependence, OH 44131 EMPLOYER IDENTIFICATION NUMBER (EIN). 34-1252928

FORM OF BUSINESS. Corporation

•(a) New plan. The Participating Employer is adopting this Plan as a new Plan effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) Restated or amended plan. The Participating Employer is adopting this Plan as a restatement or amendment of a prior plan.

(1)Name of plan(s) being restated or amended: Radian Group Inc. Savings Incentive Plan

(2)This restatement/amendment is effective 1-1-2021 [Note: Date can be no earlier than the first day of the Plan Year in which the restatement/amendment is adopted.]

(3)The original effective date of the plan(s) being restated or amended is: 4-1-2018

•(c) Cessation of participation. The Participating Employer is ceasing its participation in the Plan effective as of:

To override this default provision, check below.

To modify the Adoption Agreement provisions applicable to a Participating Employer, designate the modifications in subsection (a) or (b) below.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Participating Employer Adoption Page

R adian Title Insurance Inc.

(Name of Participating Employer)

Cheryl Jacobs VP, Total Rewards

12:48 EST

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Participating Employer Adoption Page

Check the appropriate selection below and complete this page if a Participating Employer (other than the Employer that signs the Signature Page above) will participate as a Participating Employer.

•(a) Participating Employer is a Related Employer.

•(b) Participating Employer is an unrelated Employer participating under a Multiple Employer Plan.

PARTICIPATING EMPLOYER INFORMATION.

Name: R ed Bell Real Estate, LLC Address: 7 730 South Union Park Ave, #400

City, State, Zip Code: M idvale, UT 84047

EMPLOYER IDENTIFICATION NUMBER (EIN). 26-0888688 FORM OF BUSINESS. LLC

•(a) New plan. The Participating Employer is adopting this Plan as a new Plan effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) Restated or amended plan. The Participating Employer is adopting this Plan as a restatement or amendment of a prior plan.

(1)Name of plan(s) being restated or amended: Radian Group Inc. Savings Incentive Plan

(2)This restatement/amendment is effective 1-1-2021 [Note: Date can be no earlier than the first day of the Plan Year in which the restatement/amendment is adopted.]

(3)The original effective date of the plan(s) being restated or amended is: 1-1-2016

•(c) Cessation of participation. The Participating Employer is ceasing its participation in the Plan effective as of:

To override this default provision, check below.

To modify the Adoption Agreement provisions applicable to a Participating Employer, designate the modifications in subsection (a) or (b) below.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Participating Employer Adoption Page

R ed Bell Real Estate, LLC

(Name of Participating Employer)

Cheryl Jacobs

VP, Total Rewards

12:48 EST

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Participating Employer Adoption Page

Check the appropriate selection below and complete this page if a Participating Employer (other than the Employer that signs the Signature Page above) will participate as a Participating Employer.

•(a) Participating Employer is a Related Employer.

•(b) Participating Employer is an unrelated Employer participating under a Multiple Employer Plan.

PARTICIPATING EMPLOYER INFORMATION.

Name: R adian Mortgage Capital Address: 1 700 Lincoln St., #2500 City, State, Zip Code: D enver, CO 80203 EMPLOYER IDENTIFICATION NUMBER (EIN). 85-0764244 FORM OF BUSINESS. LLC

•(a) New plan. The Participating Employer is adopting this Plan as a new Plan effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) Restated or amended plan. The Participating Employer is adopting this Plan as a restatement or amendment of a prior plan.

(1)Name of plan(s) being restated or amended: Radian Group Inc. Savings Incentive Plan

(2)This restatement/amendment is effective 1-1-2021 [Note: Date can be no earlier than the first day of the Plan Year in which the restatement/amendment is adopted.]

(3)The original effective date of the plan(s) being restated or amended is: 7-1-2020

•(c) Cessation of participation. The Participating Employer is ceasing its participation in the Plan effective as of:

To override this default provision, check below.

To modify the Adoption Agreement provisions applicable to a Participating Employer, designate the modifications in subsection (a) or (b) below.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Participating Employer Adoption Page

R adian Mortgage Capital

(Name of Participating Employer)

Cheryl Jacobs VP, Total Rewards

12:48 EST

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Trust Declaration

This Trust Declaration may be used to identify and adopt the Trust associated with the Plan.

[Note: The Internal Revenue Service does not review the Trust Declaration, or the trust provisions associated with Pre-Approved Plans. Therefore, the provisions of the Trust Declaration, ASC Trust Agreement or any separate Trust agreement have not been approved by the IRS and the IRS opinion letter does not cover such Trust Agreement. The Provider, the Trustee and the adopting Employer should review the applicable Trust provisions, and any modifications thereto, with legal counsel to ensure the provisions are appropriate for the Plan and consistent with Employer elections.]

Name of Plan. Radian Group Inc. Savings Incentive Plan Name of Employer. Radian Group Inc. Effective date of Trust Agreement: 1 -1-2021

(a)The Trust terms are:

•(1) Determined under the Trust provisions contained in the ASC Trust Agreement - Standard.

[Note: Trustee must complete the Trustee Signature section under Section (b) below.]

•(i) Directed Trustee. The Trustee may only invest Plan assets as directed by the Plan Administrator, the Employer, an Investment Manager or other Named Fiduciary or, to the extent authorized under the Plan, a Plan Participant.

•(ii) Discretionary Trustee. The Trustee has discretion to invest Plan assets, unless specifically directed otherwise by the Plan Administrator, the Employer, an Investment Manager or other Named Fiduciary or, to the extent authorized under the Plan, a Plan Participant.

[Modification of ASC Trust Agreement Provisions. The Employer may amend the Trust provisions as provided under Section 1.19 of the ASC Trust Agreement. Plan provisions will override any conflicting provisions in the Trust Agreement, including any modification thereto. The Provider and the adopting Employer should review any modifications of the ASC Trust Agreement with legal counsel to ensure the provisions are appropriate for the Plan and consistent with Employer elections.]

•(2) Determined under a separate Trust agreement(s). The Trust provisions are contained in a separate Trust Agreement that has been furnished to the Employer. Notwithstanding the terms of the Plan, the terms of the Trust Agreement shall control the rights and responsibilities of the Trustee with respect to the Trust and the assets held in such Trust.

Name of Trustee. Vanguard Fiduciary Trust Company Title of Trust Agreement. Trust Agreement for the Radian Group Inc. Savings Incentive Plan Address of Trustee. 100 Vanguard Blvd., Malvern, PA 19355

[Note: In using a separate Trust Agreement, the Trustee may adopt such Trust Agreement by either completing the Trustee Signature section under Section (b) below or may execute the separate Trust Agreement. In either case, the information above – Name of Trustee, Title of Trust Agreement and Address of Trustee – must be completed.]

•(3) Plan is funded with custodial accounts, annuity contracts and/or insurance contracts. There is no Trust associated with the Plan because the Plan is funded exclusively with custodial accounts, annuity contracts and/or insurance contracts.

[Note: No signature is required under this Trust Declaration if the Plan is funded exclusively with custodial accounts, annuity contracts and/or insurance contracts. The Employer or Plan Administrator may enter into a separate agreement with the custodian or insurance company. Such separate agreement must be consistent with the terms of the Plan.]

Cycle 3 Nonstandardized PS/401(k) Plan #01-001


The Vanguard Group Nonstandardized PS/401(k) Plan Addendum

In addition to the protected benefits described in this Plan, certain other benefits are protected from a prior plan document. This Addendum describes any additional benefits protected under this Plan.

Additional protected benefits: Participants of the former Enhance Financial Services Group, Inc. 401(k) Savings Plan can withdraw matching contributions transferred from the Enhance Plan at any time. Prior Matching Contributions (non-safe harbor) are available for in-service withdrawal at Age 59 1/2 and hardship.

Prior to January 1, 1994, the Plan permitted participants to make after-tax contributions to the Plan. A Participant may request a withdrawal from their after-tax account at any time, limited to one per calendar year.

With respect to assets transferred from the Clayton Holdings LLC 401(k) Plan, normal retirement age is age 59 ½ and the early retirement age is age 55 and three (3) Years of Service.

Cycle 3 Nonstandardized PS/401(k) Plan #01-001

AMENDMENT TO RADIAN GROUP INC. SAVINGS INCENTIVE PLAN (“the Plan”)

WHEREAS, Radian Group Inc. (the “Employer”) maintains the Radian Group Inc. Savings Incentive Plan (the “Plan”) for its employees;

WHEREAS, Radian Group Inc. has decided that it is in its best interest to amend the Plan;

WHEREAS, Section 14.01(b) of the Plan authorizes the Employer to amend the selections under the Radian Group Inc.

Savings Incentive Plan Adoption Agreement.

NOW THEREFORE BE IT RESOLVED, that the Radian Group Inc. Savings Incentive Plan Adoption Agreement is amended as follows. The amendment of the Plan is effective as of 1-1-2022.

1.The Adoption Agreement is amended to read:

5-1TOTAL COMPENSATION. Total Compensation is based on the definition set forth under this AA §5-1. See Section 1.142 of the Plan for a specific definition of the various types of Total Compensation.

•(a) W-2 Wages

•(b) Code §415 Compensation

•(c) Wages under Code §3401(a)

2.The Adoption Agreement is amended to read:

5-3PLAN COMPENSATION. Plan Compensation is Total Compensation (as defined in AA §5-1 above) with the following exclusions.

Deferral Match ER

• (a) No exclusions.

N/A (b) Elective Deferrals (as defined in Section 1.47 of the Plan), pre-tax contributions

to a cafeteria plan or a Code §457 plan, and qualified transportation fringes under Code §132(f)(4) are excluded.

• (c) All fringe benefits (cash and noncash), reimbursements or other expense

allowances, moving expenses, deferred compensation, and welfare benefits are excluded.

• (d) Compensation above $ is excluded. (See Section 1.99 of the Plan.)

• (e) Amounts received as a bonus are excluded.

• (f) Amounts received as commissions are excluded.

• (g) Overtime payments are excluded.

• (h) Amounts received for services performed for a non-signatory Related Employer

are excluded. (See Section 2.02(c) of the Plan.)

[Note: If this subsection is not elected, amounts received for services performed for a non-signatory Related Employer are INCLUDED in Plan Compensation.]

• (i) “Deemed §125 compensation” as defined in Section 1.142(d) of the Plan.

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• (j) Amounts received after termination of employment are excluded. (See Section

1.142(b) of the Plan.)

• (k) Differential Pay (as defined in Section 1.142(e) of the Plan).

• (l) Describe adjustments to Plan Compensation:

3.The Adoption Agreement is amended to read:

•(a) Type of Automatic Contribution Arrangement.

•(2) Automatic Contribution Arrangement other than an EACA. Check this subsection (2) if the Employer intends for the Plan to be an Automatic Contribution Arrangement other than an EACA.

•(1) Effective date of Automatic Contribution Arrangement or EACA. The automatic deferral provisions under this AA §6A-8 are effective as of:

•(i) The Effective Date of this Plan as set forth under the Employer Signature Page.

•(ii) [insert date no earlier than the Effective Date of this Plan]

•(iv) If the Employer is amending the provisions applicable to the ACA or EACA, the amended provisions are effective as of 1-1-2022 [insert date]

•(2) Automatic Contribution Arrangement deferral amount and automatic increase.

•(i) Automatic deferral amount.

•(A) 6 % of Plan Compensation

•(B) $

•(ii) Automatic increase. If elected under this subsection (ii), the automatic deferral amount will increase each Plan Year by the following amount. (See Section 3.03(c) of the Plan.)

•(A) 2 % of Plan Compensation

•(B) $

•(C) If this (C) and subsection (3)(iii) below (relating to the expiration of affirmative deferral elections) are both elected, the automatic increase will apply to all Participants, including

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those Participants whose affirmative deferral elections have expired and no subsequent affirmative election is made.

Any automatic increase elected under this subsection (ii) will not cause the automatic deferral amount to exceed:

•(D) 15 % of Plan Compensation

•(E) $

•(iii) Special application of automatic increase provisions. The Employer may describe under this subsection (iii) special rules applicable to automatic increase provisions: Participants automatically enrolled prior to 1-1-2022 will be increased by 1% each year up to 10%.

[Note: Any special application of the automatic increase provisions must be definitely determinable and must not discrimination in favor of Highly Compensated Employees.]

(i)New Participants. The automatic deferral provisions apply to all Participants who become eligible on or after the effective date of the automatic deferral provisions.

(ii)Current Participants. The automatic deferral provisions apply to all other eligible Participants as follows:

•(A) Automatic deferral provisions apply to all current Participants who have not entered into a Salary Deferral Election (including an election not to defer under the Plan).

•(D) Describe:

[Note: Any special provisions under subsection (D) must comply with the nondiscrimination requirements under Code §401(a)(4).]

•(A) at the end of each Plan Year.

•(B) Describe date that the affirmative election will expire:

[Note: The date must be definite and not discriminate in favor of Highly Compensated Employees.]

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(iii) below) within the Plan Year following the Plan Year in which the automatic deferral election first becomes effective with respect to a Participant.

•(A) The anniversary of the Participant's date of hire.

•(B) The anniversary of the Participant's first automatic deferral contribution.

•(C) The first day of each calendar year.

•(D) Other date: On or around April 1

•(iv) Special rules:

•(ii) Describe special rules applicable to rehired employees:

•(c) Permissible Withdrawals under an Eligible Automatic Contribution Arrangement (EACA).

•(1) Permissible withdrawals allowed. If the Plan satisfies the requirements for an EACA (as set forth in Section 3.03(c)(2) of the Plan), the permissible withdrawal provisions under Section 3.03(c)(2) of the Plan apply. Thus, a Participant who receives an automatic deferral may withdraw such contributions (and earnings attributable thereto) within the time period set forth under Section 3.03(c)(2) of the Plan, without regard to the in-service distribution provisions selected under AA §10-1. Unless elected otherwise below, if an Employee does not make automatic deferrals to the Plan for an entire Plan Year (e.g., due to termination of employment), the Plan may allow such Employee to take a permissive withdrawal, but only with respect to default contributions made after the Employee’s return to employment.

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•(d) Other automatic deferral provisions:

[Note: Any language added under this subsection must comply with the nondiscrimination requirements under Code

§401(a)(4) and the regulations thereunder.]

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PURPOSE OF EXECUTION. This Signature Page is being executed for Radian Group Inc. Savings Incentive Plan to effect:

•(a) The adoption of a new plan, effective . [Note: Date can be no earlier than the first day of the Plan Year in which the Plan is adopted.]

•(b) The restatement of an existing plan in order to comply with the requirements for Cycle 3 Pre-Approved Plans, pursuant to Rev. Proc. 2017-41.

(1)Effective date of restatement: . [Note: Date can be no earlier than the first day of the Plan Year in which the restatement is adopted.]

(2)Name of plan(s) being restated:

(3)The original effective date of the plan(s) being restated:

(1)Effective Date(s) of amendment/restatement: 1-1-2022

(2)Name of plan being amended/restated: Radian Group Inc. Savings Incentive Plan

(3)The original effective date of the plan being amended/restated: 11-1-1992

(4)If Plan is being amended, identify the Adoption Agreement section(s) being amended: Section 5; §6A-8

Name of Pre-Approved Plan Provider (or authorized representative): The Vanguard Group Address: P.O. Box 2600 Valley Forge, PA 19482 Telephone number: 800-662-0106

Radian Group Inc.

(Name of Employer)

Cheryl Jacobs

VP, Total Rewards

(Name of authorized representative) (Title)

12-17-2021 | 9:04 EST

(Signature) (Date)

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CYCLE 3

PRE-APPROVED DEFINED CONTRIBUTION PLAN

BASIC PLAN DOCUMENT

[DC-BPD #01]

TABLE OF CONTENTS

PLAN DEFINITIONS


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1.01Account. 1

1.02Account Balance 1

1.03ACP Test (Actual Contribution Percentage Test) 1

1.04Actuarial Factor 1

1.05Adoption Agreement (“Agreement” or “AA”) 1

1.06ADP Test (Actual Deferral Percentage Test) 1

1.07After-Tax Employee Contributions 1

1.08Alternate Payee 1

1.09Anniversary Years 1

1.10Annual Additions 2

1.11Annuity Contract 2

1.12Annuity Starting Date 2

1.13Automatic Contribution Arrangement 2

1.14Automatic Rollover 2

1.15Average Contribution Percentage (ACP) 2

1.16Average Deferral Percentage (ADP) 2

1.17Beneficiary 2

1.18Benefiting Participant 2

1.19Break in Service 2

1.20Cash-Out Distribution 2

1.21Catch-Up Contributions 2

1.22Catch-Up Contribution Limit 3

1.23Code 3

1.24Code §415 Limitation 3

1.25Collectively Bargained Employee 3

1.26Compensation Limit 3

1.27Computation Period 3

(a)Eligibility Computation Period 3

(b)Vesting Computation Period 3

1.28Current Year Testing Method 3

1.29Custodian 3

1.30Defined Benefit Plan 3

1.31Defined Contribution Plan 3

1.32Designated Beneficiary 3

1.33Determination Date 4

1.34Determination Year 4

1.35Differential Pay 4

1.36Directed Account 4

1.37Directed Trustee 4

1.38Direct Rollover 4

1.39Disabled 4

1.40Discretionary Trustee 4

1.41Distribution Calendar Year 4

1.42Early Retirement Age 4

1.43Earned Income 4

1.44Effective Date 4

1.45Elapsed Time 4

1.46Elective Deferral Dollar Limit 4

1.47Elective Deferrals 4

1.48Eligible Automatic Contribution Arrangement (EACA) 4

1.49Eligible Employee 4

1.50Eligible Retirement Plan 4

1.51Eligible Rollover Distribution 4

1.52Employee 5

1.53Employer 5

1.54Employer Contributions 5

1.55Employment Commencement Date 5

1.56Entry Date 5

1.57Equivalency Method 5

1.58ERISA 5

1.59ERISA Spending Account 5

1.60Excess Aggregate Contributions 5

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1.61Excess Amount 5

1.62Excess Compensation 5

1.63Excess Contributions 5

1.64Excess Deferrals 5

1.65Fail-Safe Coverage Provision 5

1.66Family Members 5

1.67Favorable IRS Letter 5

1.68General Trust Account 5

1.69Hardship 5

1.70Highly Compensated 5

(a)Five-Percent Owner 5

(b)Compensation limit 6

(c)Determination Year 6

(d)Lookback Year 6

(e)Total Compensation 6

(f)Top Paid Group 6

1.71Highly Compensated Group 6

1.72Hour of Service 6

(a)Performance of duties 6

(b)Nonperformance of duties 6

(c)Back pay award 6

(d)Related Employers/Leased Employees 6

(e)Maternity/paternity/FMLA/military leave 6

1.73In-Plan Roth Conversion Account 7

1.74Insurer 7

1.76Integration Level 7

1.77Key Employee 7

1.78Leased Employee 7

1.79Limitation Year 7

1.80Lookback Year 7

1.82Matching Contributions 7

1.83Maximum Disparity Rate 8

1.84Minimum Gateway Contribution 8

1.85Multiple Employer Plan 8

1.86Named Fiduciary 8

1.87Nonhighly Compensated 8

1.88Nonhighly Compensated Group 8

1.89Nonvested Participant Break in Service 8

1.90Non-Key Employee 8

1.91Normal Retirement Age 8

1.92Participant 8

1.93Participating Employer 9

1.94Participating Employer Adoption Page 9

1.95Period of Severance 9

1.96Permissive Aggregation Group 9

1.97Plan 9

1.98Plan Administrator 9

1.99Plan Compensation 9

(a)Application to safe harbor formulas 9

(b)Determination period 10

(c)Partial period of participation 10

1.100Plan Year 10

1.101Predecessor Employer 10

1.102Predecessor Plan 10

1.103Pre-Tax Deferrals 10

1.104Prevailing Wage Formula 11

1.105Prevailing Wage Service 11

1.106Prior Year Testing Method 11

1.107Provider 11

1.108QACA Safe Harbor Contribution 11

1.109QACA Safe Harbor Employer Contribution 11

1.110QACA Safe Harbor Matching Contribution 11

1.111Qualified Automatic Contribution Arrangement (QACA) 11

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Table of Contents

1.112Qualified Domestic Relations Order (QDRO 11

1.113Qualified Election 11

1.114Qualified Joint and Survivor Annuity (QJSA) 11

1.115Qualified Matching Contribution (QMAC) 11

1.116Qualified Nonelective Contribution (QNEC) 11

1.117Qualified Optional Survivor Annuity (QOSA) 11

1.118Qualified Preretirement Survivor Annuity (QPSA) 11

1.120Qualified Transfer 11

1.121Qualifying Employer Real Property 11

1.122Qualifying Employer Securities 11

1.123Reemployment Commencement Date 12

1.124Related Employer 12

1.125Required Aggregation Group 12

1.126Required Beginning Date 12

1.127Rollover Contribution 12

1.128Roth Deferrals 12

1.129Safe Harbor 401(k) Plan 12

1.130Salary Deferral Election 12

1.131Salary Deferrals 12

1.132Self-Employed Individual 12

1.133Short Plan Year 12

1.134Spouse 12

1.135Targeted QMACs 13

1.136Targeted QNECs. 13

1.137Taxable Wage Base 13

1.138Testing Compensation 13

1.139Top Paid Group 13

1.140Top Heavy 13

1.141Top Heavy Ratio 13

1.142Total Compensation 14

(a)Total Compensation definitions 14

(b)Post-severance compensation 14

(c)Continuation payments for disabled Participants 15

(d)Deemed §125 compensation 15

(e)Differential Pay 15

1.143Traditional Safe Harbor Contribution 16

1.144Traditional Safe Harbor Employer Contributions 16

1.145Traditional Safe Harbor Matching Contributions 16

1.146Trust 16

1.147Trustee 16

1.148Valuation Date 16

1.149Year of Service 16

SECTION 2 ELIGIBILITY AND PARTICIPATION

2.01Eligibility 17

2.02Eligible Employees 17

(a)Only Employees may participate in the Plan 17

(b)Excluded Employees 17

(c)Employees of Related Employers 18

(d)Employees of an Employer acquired as part of a Code §410(b)(6)(C) transaction 19

(e)Ineligible Employee becomes Eligible Employee 19

(f)Eligible Employee becomes ineligible Employee 19

(g)Improper exclusion of eligible Participant 19

2.03Minimum Age and Service Conditions 19

(a)Application of age and service conditions 19

(b)Entry Dates 22

2.04Participation on Effective Date of Plan 23

2.05Rehired Employees 23

2.06Service with Predecessor Employers 23

2.07Break in Service Rules 24

(a)Break in Service 24

(b)Nonvested Participant Break in Service rule 24


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(c)Special Break in Service rule for Plans using Two Years of Service for eligibility 24

(d)One-Year Break in Service rule 24

2.08Waiver of Participation 25

SECTION 3

PLAN CONTRIBUTIONS

3.01Types of Contributions 26

3.02Employer Contribution Formulas 26

(a)Employer Contribution formulas (Profit Sharing/401(k) Plan) 26

(b)Employer Contribution formulas (Money Purchase Plan) 34

(c)Period for determining Employer Contributions 37

(d)Offset of Employer Contributions. 37

3.03Salary Deferrals 37

(a)Salary Deferral Election 37

(b)Change in deferral election 38

(c)Automatic Contribution Arrangements (other than QACA Safe Harbor 401(k) Plans) 38

(d)Catch-Up Contributions 42

(e)Roth Deferrals 42

(f)In-Plan Roth Conversions. 44

3.04Matching Contributions 45

(a)Contributions eligible for Matching Contributions 45

(b)Period for determining Matching Contributions 45

(c)True-up contributions 46

(d)Qualified Matching Contributions (QMACs) 46

3.05Traditional Safe Harbor/QACA Safe Harbor Contributions 47

3.06After-Tax Employee Contributions 47

3.07Rollover Contributions 48

3.08Deductible Employee Contributions 49

3.09Allocation Conditions 49

(a)Application to designated period 49

(b)Special rule for year of Plan termination 50

(c)Service with Predecessor Employers 50

3.10 Contribution of Property 50

SECTION 4

TOP HEAVY PLAN REQUIREMENTS

4.01Top Heavy Plan 51

4.02Top Heavy Ratio 51

(a)Defined Contribution Plan(s) only 51

(b)Maintenance of Defined Benefit Plan 51

(c)Determining value of Account Balance or accrued benefit 51

4.03Other Definitions 52

(a)Key Employee 52

(b)Non-Key Employee 52

(c)Determination Date 52

(d)Permissive Aggregation Group 52

(e)Required Aggregation Group 52

(f)Present Value 52

(g)Total Compensation 52

(h)Valuation Date 52

4.04Minimum Allocation 52

(a)Determination of Key Employee contribution percentage 53

(b)Determining of Non-Key Employee minimum allocation 53

(c)Certain allocation conditions inapplicable 53

(d)Participants not employed on the last day of the Plan Year 53

(e)Collectively Bargained Employees. 53

(f)Participation in more than one Top Heavy Plan 53

(g)No forfeiture for certain events 54

(h)Top Heavy vesting rules 54

SECTION 5

LIMITS ON CONTRIBUTIONS

5.01Limits on Employer Contributions 55

(a)Limitation on Salary Deferrals 55


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(b)Limitation on total Employer Contributions 55

5.02Elective Deferral Dollar Limit 55

(a)Excess Deferrals 55

(b)Correction of Excess Deferrals 55

5.03Code §415 Limitation 56

(a)No other plan participation 56

(b)Participation in another plan 57

(c)Definitions 57

(d)Restorative payments 59

(e)Corrective provisions 60

(f)Change of Limitation Year 60

SECTION 6

SPECIAL RULES AFFECTING 401(K) PLANS

6.01Nondiscrimination Testing of Salary Deferrals – ADP Test 61

(a)ADP Test 61

(b)Correction of Excess Contributions 63

(c)Adjustment of deferral rate for Highly Compensated Employees 64

(d)Special testing rules 64

6.02Nondiscrimination Testing of Matching Contributions and After-Tax Employee Contributions – ACP Test 65

(a)ACP Test 65

(b)Correction of Excess Aggregate Contributions 67

(c)Adjustment of contribution rate for Highly Compensated Employees 69

(d)Special testing rules 69

6.03Disaggregation of Plans 69

(a)Plans covering Collectively Bargained Employees and non-Collectively Bargained Employees 69

(b)Otherwise excludable Employees 69

(c)Corrective action for disaggregated plans 70

6.04Safe Harbor 401(k) Plan Provisions 70

(a)Traditional Safe Harbor 401(k) Plan requirements 70

(b)Qualified Automatic Contribution Arrangement (QACA) Safe Harbor 401(k) Plan requirements 72

(c)Eligibility for Traditional Safe Harbor/QACA Safe Harbor Contributions 74

(d)Different eligibility conditions 74

(e)Provision of Safe Harbor Contribution in separate plan 75

(f)Mid-Year Changes to Safe Harbor 401(k) Plan 75

(g)Reduction or suspension of Traditional Safe Harbor/QACA Safe Harbor Contributions 75

(h)Deemed compliance with ADP Test 75

(i)Deemed compliance with ACP Test 75

(j)Rules for applying the ACP Test 76

(k)Application of Top Heavy rules 76

(l)Plan Year 76

6.05SIMPLE 401(k) Plan contributions 77

(a)Definitions 77

(b)Contributions 77

(c)Limit on Contributions 78

(d)Election and notice requirements 78

(e)Vesting requirements 78

(f)Top Heavy rules 78

(g)Nondiscrimination tests 78

(h)SIMPLE Compensation 78

SECTION 7

PARTICIPANT VESTING AND FORFEITURES

7.01Vesting of Contributions 79

7.02Vesting Schedules 79

(a)Full and immediate vesting schedule 79

(b)6-year graded vesting schedule 79

(d)5-year graded vesting schedule 79

(e)Modified vesting schedule 79

7.03Different Vesting Schedules for Different Sources 79

7.04Special vesting rules 79

(a)Normal Retirement Age 79


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(b)100% vesting upon death, disability, or Early Retirement Age 79

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(c)Safe Harbor 401(k) Plans 79

(d)Vesting upon merger, consolidation or transfer 80

(e)Vesting schedules applicable to prior contributions 80

7.05Year of Service 80

(a)Hours of Service 80

(b)Elapsed Time method 80

(c)Change in service crediting method 81

7.06Vesting Computation Period 82

7.07Excluded service 82

(a)Service before the Effective Date of the Plan 82

(b)Service before a specified age 82

7.08Service with Predecessor Employers 82

7.09Break in Service Rules 82

(a)Break in Service 82

(b)One-Year Break in Service rule 82

(c)Nonvested Participant Break in Service rule 83

(d)Five-Year Forfeiture Break in Service 83

7.10Amendment of Vesting Schedule 83

7.11Special Vesting Rule - In-Service Distribution When Account Balance is Less than 100% Vested 83

7.12Forfeiture of Benefits 84

(a)Cash-Out Distribution 84

(b)Five-Year Forfeiture Break in Service 85

(c)Missing Participant or Beneficiary 85

(d)Excess Deferrals, Excess Contributions, and Excess Aggregate Contributions 86

(e)Forfeiture upon death of a Participant. 86

7.13Allocation of Forfeitures 87

(a)Reallocation as additional contributions under Profit Sharing/401(k) Plan Adoption Agreement 87

(b)Reallocation as additional Employer Contributions under Money Purchase Plan Adoption Agreement 87

(c)Reduction of contributions 87

(d)Payment of Plan expenses 87

(e)Forfeiture rules for other contribution types 87

SECTION 8 PLAN DISTRIBUTIONS

8.01Deferred distributions 89

8.02Available Forms of Distribution 89

(a)Installment or annuity forms of distribution 89

(b)In-kind distributions 89

8.03Amount Eligible for Distribution 89

8.04Participant Consent 90

(a)Involuntary Cash-Out threshold 90

(b)Rollovers disregarded in determining value of Account Balance for Involuntary Cash-Outs 90

(c)Participant notice 90

(d)Special rules 90

8.05Direct Rollovers 90

(a)Definitions 91

(b)Direct Rollover notice 92

(c)Direct Rollover by non-Spouse beneficiary 92

(d)Direct Rollover of non-taxable amounts. 92

(e)Rollovers to Roth IRA 92

8.06Automatic Rollover 92

(a)Automatic Rollover requirements 92

(b)Involuntary Cash-Out Distribution 93

(c)Treatment of Rollover Contributions 93

8.07Distribution Upon Termination of Employment 93

(a)Account Balance not exceeding $5,000 93

(b)Account Balance exceeding $5,000 93

8.08Distribution Upon Death 93

(a)Death after commencement of benefits 93

(b)Death before commencement of benefits 93


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(c)Determining a Participant’s Beneficiary 94

8.09Distribution to Disabled Employees 96

8.10In-Service Distributions 96

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(a)After-Tax Employee Contributions and Rollover Contributions 96

(b)Employer Contributions and Matching Contributions 96

(c)Salary Deferrals, QNECs, QMACs, and Traditional Safe Harbor/QACA Safe Harbor Contributions 96

(d)Penalty-free withdrawals for individuals called to active duty 96

(e)Hardship distribution 97

8.11Sources of Distribution 99

(a)Exception for Hardship withdrawals 99

(b)Roth Deferrals 99

8.12Required Minimum Distributions 99

(a)Period of distribution 99

(b)Death of Participant before required distributions begin 100

(c)Required Minimum Distributions during Participant’s lifetime 100

(d)Required Minimum Distributions after Participant’s death 101

(e)Definitions 102

(f)Special Rules 103

(g)Transitional Rule 105

(h)Modification of Minimum Distribution Rules Relating to Qualified Longevity Annuity Contracts. 105

SECTION 9

JOINT AND SURVIVOR ANNUITY REQUIREMENTS

9.01Application of Joint and Survivor Annuity Rules 110

(a)Money Purchase Plan 110

(b)Profit Sharing/401(k) Plan 110

(c)Exception to the Joint and Survivor Annuity Requirements 110

(d)Administrative procedures 110

(e)Accumulated deductible employee contributions 110

(f)Plans that offer life annuity option or deferred annuity contract 110

9.02Pre-Death Distribution Requirements 110

(a)Qualified Joint and Survivor Annuity (QJSA) 111

(b)Qualified Optional Survivor Annuity (QOSA) 111

(c)Notice requirements 111

(d)Annuity Starting Date 111

9.03Distributions After Death 111

(a)Qualified Preretirement Survivor Annuity (QPSA) 112

(b)Notice requirements 112

9.04Qualified Election 112

(a)QJSA 112

(b)QPSA 113

(c)Identification of surviving Spouse 113

9.05Transitional Rules 113

(a)Automatic joint and survivor annuity 113

(b)Election of early survivor annuity 114

(c)Qualified Early Retirement Age 114

SECTION 10

PLAN ACCOUNTING AND INVESTMENTS

10.01Participant Accounts 115

10.02Valuation of Accounts 115

(a)Periodic valuation 115

(b)Daily valuation 115

(c)Interim valuations 115

10.03Adjustments to Participant Accounts 115

(a)Distributions and forfeitures from a Participant’s Account 115

(b)Life insurance premiums and dividends 115

(c)Contributions and forfeitures allocated to a Participant’s Account 115

(d)Net income or loss 115

10.04Share or unit accounting 116

10.05Suspense accounts. 116

10.06Investments under the Plan 116


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(a)Investment options 116

(b)Investment of tax deductible Employee contributions in life insurance and collectibles 116

(c)Limitations on the investment in Qualifying Employer Securities and Qualifying Employer Real Property 117

(d)Diversification requirements for Defined Contribution Plans invested in Employer securities 117

10.07Participant-directed investments 119

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(a)Limits on participant investment direction 119

(b)Failure to direct investment. 119

(c)Disclosure requirements. 119

(d)ERISA §404(c) protection 119

10.08Investment in Life Insurance 120

(a)Incidental Life Insurance Rules 120

(b)Ownership of Life Insurance Policies 121

(c)Evidence of Insurability 121

(d)Distribution of Insurance Policies 121

(e)Discontinuance of Insurance Policies 121

(f)Protection of Insurer 121

(g)No Responsibility for Act of Insurer 121

SECTION 11

PLAN ADMINISTRATION AND OPERATION

11.01Plan Administrator 122

11.02Designation of Alternative Plan Administrator 122

(a)Acceptance of responsibility by designated Plan Administrator 122

(b)Multiple alternative Plan Administrators. 122

(c)Resignation or removal of designated Plan Administrator 122

(d)Employer responsibilities 122

(e)Indemnification of Plan Administrator 122

11.03Named Fiduciary 122

11.04Duties, Powers and Responsibilities of the Plan Administrator 122

(a)Delegation of duties, powers and responsibilities 122

(b)Specific Plan Administrator responsibilities 122

11.05Plan Administration Expenses 123

(a)Reasonable Plan administration expenses 123

(b)Plan expense allocation 123

(d)ERISA Spending Account 123

11.06Qualified Domestic Relations Orders (QDROs) 124

(a)In general 124

(b)Definitions related to Qualified Domestic Relations Orders (QDROs) 124

(c)Recognition as a QDRO 124

(d)Contents of QDRO 124

(e)Impermissible QDRO provisions 124

(f)Immediate distribution to Alternate Payee 125

(g)Fee for QDRO determination 125

(h)Default QDRO procedure 125

11.07Claims Procedure 126

11.08Operational Rules for Short Plan Years 127

SECTION 12

TRUST AND OTHER PLAN FUNDING

12.01Establishment of Trust or Other Funding Mechanism 128

12.02Conflicting Trust Provisions 128

12.03More than One Trustee 128

12.04Annual Valuation 128

12.05Appointment of Custodian 128

12.06Custodial Accounts, Annuity Contracts and Insurance Contracts 128

SECTION 13 PARTICIPANT LOANS

13.01Availability of Participant Loans. 129

13.02Must be Available in Reasonably Equivalent Manner 129

13.03Loan Limitations 129


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13.04Limit on Amount and Number of Loans. 129

(a)Loan renegotiation 129

(b)Participant must be creditworthy 130

13.05Reasonable Rate of Interest 130

13.06Adequate Security 130

13.07Periodic Repayment 130

(a)Leave of absence 130

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(b)Military leave 130

13.08Spousal Consent 131

13.09Designation of Accounts. 131

13.10Procedures for Loan Default 131

(a)Offset of defaulted loan 131

(b)Subsequent loan following defaulted loan 131

13.11Termination of Employment 132

(a)Offset of outstanding loan 132

(b)Direct Rollover 132

13.12Mergers, Transfers or Direct Rollovers from another Plan/Change in Loan Record Keeper 132

13.13Amendment of Plan to Eliminate Participant Loans 132

SECTION 14

PLAN AMENDMENTS, TERMINATION, MERGERS AND TRANSFERS

14.01Plan Amendments 133

(a)Amendment by the Provider 133

(b)Amendment by the Employer 133

(c)Method of amendment 134

(d)Reduction of accrued benefit 134

(e)Amendment of vesting schedule 134

(f)Effective date of Plan Amendments 134

14.02Amendment to Correct Coverage or Nondiscrimination Violation 135

(a)Amendment within correction period under Treas. Reg. §1.401(a)(4)-11(g) 135

(b)Fail-Safe Coverage Provision 135

14.03Plan Termination 136

(a)Full and immediate vesting 136

(b)Distribution upon Plan termination 136

(c)Termination upon merger, liquidation or dissolution of the Employer 137

(d)Partial Termination 137

14.04Merger or Consolidation 137

14.05Transfer of Assets 138

(a)Protected benefits 138

(b)Application of QJSA requirements. 138

(c)Transfers from a Defined Benefit Plan, Money Purchase Plan or 401(k) Plan 138

(d)Qualified Transfer 139

(e)Trustee’s right to refuse transfer 140

(f)Transfer of Plan to unrelated Employer 140

SECTION 15 MISCELLANEOUS

15.01Exclusive Benefit 141

15.02Return of Employer Contributions 141

(a)Mistake of fact 141

(b)Disallowance of deduction 141

(c)Failure to initially qualify 141

15.03Alienation or Assignment 141

15.04Offset of benefits 141

15.05Participants’ Rights 142

15.06Military Service 142

(a)Death benefits under qualified military service 142

(b)Benefit accruals 142

(c)Plan distributions 142

(d)Make-Up Contributions 143

15.07Annuity Contract 143


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15.08Use of IRS Compliance Programs 143

15.09Governing Law 143

15.10Waiver of Notice 143

15.11Use of Electronic Media 143

15.12Severability of Provisions 143

15.13Binding Effect 144

SECTION 16 PARTICIPATING EMPLOYERS

16.01Participation by Participating Employers 145

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16.02Participating Employer Adoption Page 145

(a)Application of Plan provisions 145

(b)Plan amendments. 145

(c)Trustee designation 145

16.03Compensation of Related Employers. 145

16.04Allocation of Contributions and Forfeitures 145

16.05Discontinuance of Participation by a Participating Employer 145

16.06Operational Rules for Related Employer Groups. 146

16.07Multiple Employer Plans 146

(a)Application of qualification rules to Multiple Employer Plans 146

(b)Definitions that apply to Multiple Employer Plans. 147

(c)Special rules for Multiple Employer Plans 147

16.08Special Rules for Standardized Plan Adoption Agreement 148

(a)Change in status - new Related Employer 148

(b)Change in status – cessation of Related Employer relationship 149

APPENDIX A ACTUARIAL FACTORS

Actuarial Factor Table 150

APPENDIX B INTERIM AMENDMENT #1

FINAL REGULATIONS RELATING TO HARDSHIP DISTRIBUTIONS

B-1.01 Change in Hardship Distribution Requirements 151

B-2.01 Acceptance of Rollover Contributions 151

B-3.01 Relief for Victims of Certain Qualified Natural Disasters 153

B-3.02 Qualified Natural Disasters 153

B-3.03 General Rules 153


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PLAN DEFINITIONS

This Section contains definitions for common terms that are used throughout the Plan. All capitalized terms under the Plan are defined in this Section or in the relevant section of the Plan document where such term is used.

1.01Account. The separate Account maintained for each Participant under the Plan by the Plan Administrator, Plan service provider, Custodian or insurance company. Under a Profit Sharing/401(k) Plan, a Participant may have any (or all) of the following separate Accounts:

•Pre-Tax Salary Deferral Account

•Roth Deferral Account

•Employer Contribution Account

•Matching Contribution Account

•Qualified Nonelective Contribution (QNEC) Account

•Qualified Matching Contribution (QMAC) Account

•Traditional Safe Harbor Employer Contribution Account

•Traditional Safe Harbor Matching Contribution Account

•QACA Safe Harbor Employer Contribution Account

•QACA Safe Harbor Matching Contribution Account

•After-Tax Employee Contribution Account

•Rollover Contribution Account

•Roth Rollover Contribution Account

•In-Plan Roth Conversion Account

•Transfer Account

The Plan Administrator may establish other Accounts, as it deems necessary, for the proper administration of the Plan.

1.02Account Balance. Account Balance shall mean a Participant's balances in all of the Accounts maintained by the Plan on his or her behalf.

1.03ACP Test (Actual Contribution Percentage Test). The special nondiscrimination test that applies to Matching Contributions and/or After-Tax Employee Contributions. See Section 6.02(a).

1.04Actuarial Factor. A Participant’s Actuarial Factor is used for purposes of determining the Participant’s allocation under the age-based allocation formula under a Profit Sharing/401(k) Plan Adoption Agreement or under the age-based contribution formula under the Money Purchase Plan Adoption Agreement. See Section 3.02(a)(1)(v)(B) or 3.02(b)(4)(ii).

1.05Adoption Agreement (“Agreement” or “AA”). The Adoption Agreement contains the elective provisions that an Employer may complete to supplement or modify the provisions under the Plan. Each adopting Employer must complete and execute the Adoption Agreement. If the Plan covers Employees of an Employer other than the Employer that executes the Employer Signature Page of the Adoption Agreement, such additional Employer(s) must execute a Participating Employer Adoption Page under the Adoption Agreement. (See Section 16 for rules applicable to adoption by Participating Employers.) An Employer may adopt more than one Adoption Agreement associated with this Plan document. Each executed Agreement is treated as a separate Plan. The Employer may adopt either a Nonstandardized or Standardized Plan document.

1.06ADP Test (Actual Deferral Percentage Test). The special nondiscrimination test that applies to Salary Deferrals under a Profit Sharing/401(k) Plan. See Section 6.01(a).

1.07After-Tax Employee Contributions. Employee Contributions that may be made to the Plan by a Participant that are included in the Participant’s gross income in the year such amounts are contributed to the Plan and are maintained under a separate After-Tax Employee Contribution Account to which earnings and losses are allocated. See Section 3.06. For this purpose, Roth Deferrals are not considered as After-Tax Employee Contributions.

1.08Alternate Payee. A person designated to receive all or a portion of the Participant’s benefit pursuant to a QDRO. See Section 11.06.

1.09Anniversary Years. An alternative period for measuring Eligibility Computation Periods (under Section 2.03(a)(3)) and Vesting Computation Periods (under Section 7.06). An Anniversary Year is any 12-month period which commences with the Employee’s Employment Commencement Date or which commences with the anniversary of the Employee’s Employment Commencement Date.


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1.10Annual Additions. The amounts taken into account under a Defined Contribution Plan for purposes of applying the limitation on allocations under Code §415. See Section 5.03(c)(1) for the definition of Annual Additions.

1.11Annuity Contract. A nontransferable group annuity certificate or individual contract as defined in Code §401(g) that is issued by an insurance company qualified to issue annuities in a State and that includes payment in the form of an annuity and that meets the following requirements: (a) An Annuity Contract may only be offered by an Insurance Company; (b) The Annuity Contract may be owned by the Participant, and a group Annuity Contract may be held by the Trustee or Employer (if a qualified trust substitute under Code §401(f)); and (c) An Annuity Contract may be fixed, variable, or a combination of fixed and variable.

A life insurance contract, an endowment contract, a health or accident insurance contract, or a property, casualty, or liability insurance contract do not constitute an Annuity Contract. However, this does not apply for contracts issued before September 24, 2007.

1.12Annuity Starting Date. The date an Employee commences distribution from the Plan. If a Participant commences distribution with respect to a portion of his/her Account Balance, a separate Annuity Starting Date applies to any subsequent distribution. If distribution is made in the form of an annuity, the Annuity Starting Date is the first day of the first period for which annuity payments are made. See Section 9.02(d).

1.13Automatic Contribution Arrangement. An Automatic Contribution Arrangement is a 401(k) plan that provides for automatic deferrals for eligible Participants who do not make an affirmative election to defer (or not to defer) under the Plan. The Employer may elect under AA §6A-8 of the Profit Sharing/401(k) Plan Adoption Agreement to designate the Plan as an Automatic Contribution Arrangement, including an Eligible Automatic Contribution Arrangement (EACA). If the Employer designates the Plan as an Automatic Contribution Arrangement, the Employer will automatically withhold the amount designated under AA §6A-8 from a Participant’s Plan Compensation, unless the Participant completes a Salary Deferral Election electing a different deferral amount (including a zero-deferral amount).

1.14Automatic Rollover. For Involuntary Cash-Out Distributions (as defined in Section 8.06(b)) made on or after March 28, 2005, the Plan Administrator will make a Direct Rollover to an individual retirement plan (IRA) designated by the Plan Administrator. See Section 8.06.

1.15Average Contribution Percentage (ACP). The average of the contribution percentages for the Highly Compensated Employee Group and the Nonhighly Compensated Employee Group, which are tested for nondiscrimination under the ACP Test. See Section 6.02(a)(1).

1.16Average Deferral Percentage (ADP). The average of the deferral percentages for the Highly Compensated Employee Group and the Nonhighly Compensated Employee Group, which are tested for nondiscrimination under the ADP Test. See Section 6.01(a)(1).

1.17Beneficiary. A person designated by the Participant (or by the terms of the Plan) to receive a benefit under the Plan upon the death of the Participant. See Section 8.08(c) for the applicable rules for determining a Participant’s Beneficiaries under the Plan.

1.18Benefiting Participant. A Participant who receives an allocation of Employer Contributions or forfeitures as described in Section 3.02(a)(1)(iv)(B)(II). See Section 3.02(a)(1)(iv)(B)(III) for special rules that apply where a Benefiting Participant does not receive the Minimum Gateway Contribution described in Section 3.02(a)(1)(iv)(B)(III)(a) under the Employee group allocation formula.

1.19Break in Service. The Computation Period (as defined in Section 2.03(a)(3) for purposes of eligibility and Section 7.06 for purposes of vesting) during which an Employee does not complete more than five hundred (500) Hours of Service with the Employer. However, if the Employer elects under AA §4-3(a) or AA §8-5(a) to require less than 1,000 Hours of Service to earn a Year of Service for eligibility or vesting purposes, a Break in Service will occur for any Computation Period during which the Employee does not complete more than one-half (1/2) of the Hours of Service required to earn a Year of Service for eligibility or vesting purposes, as applicable. However, if the Elapsed Time method applies under AA §4-3(c) (for purposes of eligibility) or AA §8-5(c) (for purposes of vesting), an Employee will incur a Break in Service if the Employee incurs at least a one-

year Period of Severance. (See Section 2.07 for a discussion of the eligibility Break in Service rules and Section 7.09 for a discussion of the vesting Break in Service rules.)

1.20Cash-Out Distribution. A total distribution made to a terminated Participant in accordance with Section 7.12(a).

1.21Catch-Up Contributions. Salary Deferrals made to the Plan that are in excess of an otherwise applicable Plan limit and that are made by a Participant who is age 50 or over by the end of his/her taxable year. See Section 3.03(d).


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1.22Catch-Up Contribution Limit. The annual limit applicable to Catch-Up Contributions as set forth in Section 3.03(d)(1).

1.23Code. The Internal Revenue Code of 1986, as amended.

1.24Code §415 Limitation. The limit on the amount of Annual Additions a Participant may receive under the Plan during a Limitation Year. See Section 5.03.

1.25Collectively Bargained Employee. An Employee who is included in a unit of Employees covered by a collective bargaining agreement between the Employer and Employee representatives and whose retirement benefits are subject to good faith bargaining. Such Employees may be excluded from the Plan if designated under AA §3-1(b). See Section 2.02(b)(1) for additional requirements related to the exclusion of Collectively Bargained Employees.

1.26Compensation Limit. The maximum amount of compensation that can be taken into account for any Plan Year for purposes of determining a Participant’s Plan Compensation. The Compensation Limit is adjusted for cost-of-living increased in accordance with Code §401(a)(17)(B). For 2020, the Compensation Limit is $285,000. In determining the Compensation Limit for any applicable period (the "determination period"), the cost-of-living adjustment in effect for a calendar year applies to any determination period that begins with or within such calendar year.

If a determination period consists of fewer than 12 months, the Compensation Limit for such period is an amount equal to the otherwise applicable Compensation Limit multiplied by a fraction, the numerator of which is the number of months in the short determination period, and the denominator of which is 12. A determination period will not be considered to be less than 12 months merely because compensation is taken into account only for the period the Employee is a Participant. If Salary Deferrals, Matching Contributions, or After-Tax Employee Contributions are separately determined on the basis of specified periods within the determination period (e.g., on the basis of payroll periods), no proration of the Compensation Limit is required with respect to such contributions.

If compensation for any prior determination period is taken into account in determining a Participant’s allocations for the current Plan Year, the compensation for such prior determination period is subject to the applicable Compensation Limit in effect for that prior period.

In determining the amount of a Participant’s Salary Deferrals under a Profit Sharing/401(k) Plan, a Participant may defer with respect to Plan Compensation that exceeds the Compensation Limit, provided the total deferrals made by the Participant satisfy the Elective Deferral Dollar Limit and any other limitations under the Plan.

1.27Computation Period. The 12-consecutive month period used for measuring whether an Employee completes a Year of Service for eligibility or vesting purposes.

(a)Eligibility Computation Period. The 12-consecutive month period used for measuring Years of Service for eligibility purposes. See Section 2.03(a)(3).

(b)Vesting Computation Period. The 12-consecutive month period used for measuring Years of Service for vesting purposes. See Section 7.06.

1.28Current Year Testing Method. A method for applying the ADP Test and/or the ACP Test under a Profit Sharing/401(k) Plan wherein the Salary Deferrals taken into account under the ADP Test and the Matching Contributions and/or After-Tax Employee Contributions taken into account under the ACP Test are based on deferrals and contributions in the current Plan Year. See Section 6.01(a)(2)(ii) for a discussion of the Current Year Testing Method under the ADP Test and Section 6.02(a)(2)(ii) for a discussion of the Current Year Testing Method under the ACP Test.

1.29Custodian. An organization that has custody of all or any portion of the Plan assets in a custodial account as described in Code

§401(f).

1.30Defined Benefit Plan. A plan under which a Participant’s benefit is based solely on the Plan’s benefit formula without the establishment of separate Accounts for Participants.

1.31Defined Contribution Plan. A plan that provides for individual Accounts for each Participant to which all contributions, forfeitures, income, expenses, gains and losses under the Plan are credited or deducted. A Participant’s benefit under a Defined Contribution Plan is based solely on the fair market value of his/her vested Account Balance.

1.32Designated Beneficiary. A Beneficiary who is designated by the Participant (or by the terms of the Plan) and whose life expectancy is taken into account in determining minimum distributions under Code §401(a)(9) and Treas. Reg. §1.401(a)(9)-4. See Section 8.12(e)(1).


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1.33Determination Date. The date as of which the Plan is tested for Top Heavy purposes. See Section 4.03(c).

1.34Determination Year. The Plan Year for which an Employee’s status as a Highly Compensated Employee is being determined. See Section 1.70(c).

1.35Differential Pay. Certain payments made by the Employer to an individual while the individual is performing service in the Uniformed Services. See Section 1.142(e).

1.36Directed Account. The Plan assets under a Trust which are held for the benefit of a specific Participant. See Section 10.03(d)(2).

1.37Directed Trustee. A Trustee is a Directed Trustee to the extent that the Trustee’s investment powers are subject to the direction of another person.

1.38Direct Rollover. A rollover, at the Participant’s direction, of all or a portion of the Participant’s vested Account Balance directly to an Eligible Retirement Plan. See Section 8.05.

1.39Disabled. An individual is considered Disabled for purposes of applying the provisions of this Plan if the individual meets the definition of Disabled elected by the Employer under AA §2-8. If the Plan references a third-party determination of a Participant being Disabled, the Plan Administrator may rely on such determination.

1.40Discretionary Trustee. A Trustee is a Discretionary Trustee to the extent the Trustee has exclusive authority and discretion to invest, manage or control the Plan assets without direction from any other person.

1.41Distribution Calendar Year. A calendar year for which a minimum distribution is required. See Section 8.12(e)(2).

1.42Early Retirement Age. The age and/or Years of Service set forth in AA §7-2. Early Retirement Age may be used to determine distribution rights and/or vesting rights. If a Participant separates from service before satisfying the age requirement for early retirement, but has satisfied the service requirement, the Participant will be entitled to elect an early retirement benefit upon satisfaction of such age requirement. The Plan is not required to have an Early Retirement Age.

1.43Earned Income. Earned Income is the net earnings from self-employment in the trade or business with respect to which the Plan is established, and for which personal services of the individual are a material income-producing factor. Net earnings will be determined without regard to items not included in gross income and the deductions allocable to such items. Net earnings are reduced by contributions by the Employer to a qualified plan to the extent deductible under Code §404. Net earnings shall be determined after the deduction allowed to the taxpayer by Code §164(f).

1.44Effective Date. The date this Plan, including any restatement or amendment of this Plan, is effective. The Effective Date of the Plan is designated on the Employer Signature Page under the Adoption Agreement.

1.45Elapsed Time. A special method for crediting service for eligibility or vesting. See Section 2.03(a)(6) for more information on the Elapsed Time method of crediting service for eligibility purposes and Section 7.05(b) for more information on the Elapsed Time method of crediting service for vesting purposes. Also see Section 3.09 for the ability to use the Elapsed Time method for applying allocation conditions under the Plan.

1.46Elective Deferral Dollar Limit. The maximum amount of Elective Deferrals a Participant may make for any calendar year. See Section 5.02.

1.47Elective Deferrals. A Participant's Elective Deferrals is the sum of all Salary Deferrals (as defined in Section 1.131) and other contributions made pursuant to a Salary Deferral Election under a SARSEP described in Code §408(k)(6), a SIMPLE IRA plan described in Code §408(p), a plan described under Code §501(c)(18), and a custodial account or other arrangement described in Code §403(b). Elective Deferrals shall not include any amounts properly distributed as an Excess Amount under Code §415.

1.48Eligible Automatic Contribution Arrangement (EACA). An Automatic Contribution Arrangement that satisfies the requirements for an EACA under Section 3.03(c)(2)(i).

1.49Eligible Employee. An Employee who is not excluded from participation under Section 2.02 of the Plan or AA §3-1.

1.50Eligible Retirement Plan. A qualified retirement plan or IRA that may receive a rollover contribution. See Section 8.05(a)(2).

1.51Eligible Rollover Distribution. An amount distributed from the Plan that is eligible for rollover to an Eligible Retirement Plan. See Section 8.05(a)(1).


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1.52Employee. An Employee is any individual employed by the Employer (including any Related Employers). An independent contractor is not an Employee. An Employee is not eligible to participate under the Plan if the individual is not an Eligible Employee under Section 2.02. For purposes of applying the provisions under this Plan, a Self-Employed Individual is treated as an Employee. A Leased Employee is also treated as an Employee of the recipient organization, as provided in Section 2.02(b)(4).

1.53Employer. Except as otherwise provided, Employer means the Employer that adopts this Plan and any Related Employer. The term Employer also includes an Employee organization (as defined in ERISA §3(4)) and a Lead Employer of a Multiple Employer Plan (as defined in Section 16.07(b)(1). (See Section 2.02(c) for rules regarding coverage of Employees of Related Employers. Also see Section 16 for rules that apply to Employers that execute a Participating Employer Adoption Page.)

1.54Employer Contributions. Contributions the Employer makes pursuant to AA §6. Under a Profit Sharing/401(k) Plan, Employer Contributions also include any QNECs the Employer makes to the Plan and any Traditional Safe Harbor/QACA Safe Harbor Employer Contributions the Employer makes pursuant to AA §6C-2 of the Profit Sharing/401(k) Plan Adoption Agreement. See Section 3.01

1.55Employment Commencement Date. The date the Employee first performs an Hour of Service for the Employer.

1.56Entry Date. The date on which an Employee becomes a Participant upon satisfying the Plan’s minimum age and service conditions. See Section 2.03(b).

1.57Equivalency Method. An alternative method for crediting Hours of Service for purposes of eligibility and vesting. See Section 2.03(a)(5) for eligibility provisions and Section 7.05(a)(2) for vesting provisions.

1.58ERISA. The Employee Retirement Income Security Act of 1974, as amended.

1.59ERISA Spending Account. An account established to hold excess fees that are remitted to the Plan. See Section 11.05(d).

1.60Excess Aggregate Contributions. Amounts which are distributed to correct the ACP Test. See Section 6.02(b)(1).

1.61Excess Amount. Amounts which exceed the Code §415 Limitation. See Section 5.03(c)(4).

1.62Excess Compensation. The amount of Plan Compensation that exceeds the Integration Level for purposes of applying the permitted disparity allocation formula. See Section 3.02(a)(1)(ii) (Profit Sharing/401(k) Plan) and Section 3.02(b)(2) (Money Purchase Plan).

1.63Excess Contributions. Amounts which are distributed to correct the ADP Test. See Section 6.01(b)(1).

1.64Excess Deferrals. Elective Deferrals that exceed the Elective Deferral Dollar Limit (as defined in Section 5.02). (See Section 5.02(b) for rules regarding the correction of Excess Deferrals.)

1.65Fail-Safe Coverage Provision. A correction provision that permits the Plan to automatically correct a coverage violation resulting from the application of a last day of employment or Hours of Service allocation condition. See Section 14.02.

1.66Family Members. For purposes of applying the Employee group allocation formula under AA §6-3(e) of the Profit Sharing/401(k) Plan Adoption Agreement, Family Members include the Spouse, children, parents and grandparents of a Five- Percent Owner, as defined in Section 1.70(a). See Section 3.02(a)(1)(iv)(B)(I).

1.67Favorable IRS Letter. An opinion letter issued by the IRS pursuant to Rev. Proc. 2017-41 (or its successor) to a Provider as to the qualified status of a Pre-Approved Plan.

1.68General Trust Account. The Plan assets under a Trust which are held for the benefit of all Plan Participants as a pooled investment. See Section 10.03(d)(1).

1.69Hardship. A heavy and immediate financial need which meets the requirements of Section 8.10(e).

1.70Highly Compensated. An Employee or Participant is Highly Compensated for a Plan Year if he/she is a Five-Percent Owner (as defined in subsection (a)) or has Total Compensation above the compensation limit (as defined in subsection (b)).

(a)Five-Percent Owner. An individual is Highly Compensated if at any time during the Determination Year or Lookback Year, such individual owns (or is considered as owning within the meaning of Code §318) more than five (5) percent of the outstanding stock of the Employer or stock possessing more than five (5) percent of the total combined voting


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power of all stock of the Employer. If the Employer is not a corporation, an individual is treated as Highly Compensated if such individual owns more than five (5) percent of the capital or profits interest of the Employer.

(b)Compensation limit. An individual is Highly Compensated if, at any time during the Lookback Year, such individual has Total Compensation from the Employer in excess of $130,000 for 2020 and, if elected under AA §11-2, is in the Top Paid Group, as defined in subsection (f) below. The amount is adjusted at the same time and in the same manner as under Code §415(d). A Highly Compensated former employee is based on the rules applicable to determining Highly Compensated Employee status as in effect for the applicable Determination Year.

In determining whether an Employee or Participant is Highly Compensated, the following definitions apply:

(c)Determination Year. The Determination Year is the Plan Year for which the Highly Compensated determination is being made.

(d)Lookback Year. The Lookback Year is the 12-month period immediately preceding the Determination Year. If the Plan Year is not the calendar year, the Employer may elect in AA §11-2(b) to use the calendar year that begins in the Lookback Year. This election to use the calendar year as the Lookback Year only applies for purposes of applying the compensation limit under subsection (b) above and not for purposes of applying the Five-Percent Owner test in subsection (a) above.

(e)Total Compensation. Total Compensation as defined under Section 1.142.

(f)Top Paid Group. The Top Paid Group is the top 20% of Employees ranked by Total Compensation. In determining the Top Paid Group, any reasonable method of rounding or tie-breaking may be used. In determining the number of Employees in the Top Paid Group, Employees described in Code §414(q)(5) or applicable regulations may be excluded.

1.71Highly Compensated Group. The group of Highly Compensated Employees who are included in the ADP Test and/or the ACP Test. See Sections 6.01(a) and 6.02(a).

1.72Hour of Service. Each Employee of the Employer will receive credit for each Hour of Service he/she works for purposes of applying the eligibility and vesting rules under the Plan. An Employee will not receive credit for the same Hour of Service under more than one category listed below.

(a)Performance of duties. Hours of Service include each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. These hours will be credited to the Employee for the computation period in which the duties are performed. In the case of Hours of Service to be credited to an Employee in connection with a period of no more than 31 days which extends beyond one computation period, all such Hours of Service may be credited to the first computation period or the second computation period. Hours of Service under this subsection (a) must be credited consistently for all Employees within the same job classifications.

(b)Nonperformance of duties. Hours of Service include each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 hours of service will be credited under this paragraph for any single continuous period (whether or not such period occurs in a single Computation Period). Hours under this paragraph will be calculated and credited pursuant to §2530.200b-2 of the Department of Labor Regulations which is incorporated herein by this reference.

(c)Back pay award. Hours of Service include each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service will not be credited both under subsection (a) or subsection (b), as the case may be, and under this subsection (c). These hours will be credited to the Employee for the Computation Period(s) to which the award or agreement pertains rather than the Computation Period(s) in which the award, agreement or payment is made.

(d)Related Employers/Leased Employees. Hours of Service will be credited for employment with any Related Employer. Hours of Service also include hours credited as a Leased Employee or as an employee under Code §414(o).

(e)Maternity/paternity/FMLA/military leave. Solely for purposes of determining whether a Break in Service has occurred in a Computation Period, an individual who is absent from work for maternity or paternity reasons will receive credit for the Hours of Service which would otherwise have been credited to such individual but for such absence, or in any case in which such hours cannot be determined, 8 Hours of Service per day for such absence. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence:


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(1)by reason of the pregnancy of the individual;

(2)by reason of a birth of a child of the individual;

(3)by reason of the placement of a child with the individual in connection with the adoption of such child by such individual; or

(4)for purposes of caring for such child for a period beginning immediately following such birth or placement.

The Hours of Service credited under this paragraph will be credited in the Computation Period in which the absence begins if the crediting is necessary to prevent a Break in Service in that period, or in all other cases, in the following Computation Period.

In addition, solely for purposes of determining whether a Break in Service has occurred in a Computation Period, an individual who is absent from work due to events described under the Family and Medical Leave Act (FMLA) and as required under DOL Reg. §825.215 will receive credit for the Hours of Service which would have been credited to such individual but for the absence. In addition, solely for purposes of determining whether a Break in Service has occurred in a Computation Period, an individual who is absent from work due to military leave described under the Uniformed Services Employment and Reemployment Rights Act and as required under Code §414(u)(8)(A) and DOL Reg. 20 CFR §1002.259 will receive credit for the Hours of Service which would have been credited to such individual but for the absence.

1.73In-Plan Roth Conversion Account. An Account to hold amounts that are converted to Roth Deferrals as part of an In-Plan Roth Conversion, as set forth in 3.03(f).

1.74Insurer. Any insurance company or affiliate or subsidiary thereof, or any legal reserve insurance company, which issues one or more contracts under the Plan in accordance with the requirements under Sections 10.07 and 10.08.

1.75Investment Arrangement. The investments under the Plan as described in Section 10.06 of this Plan document. The terms governing each Investment Arrangement under the Plan, excluding those terms that are inconsistent with Code Section 401(a), are hereby incorporated by reference into the Plan. In the event of any conflict between the terms of the Plan (including, but not limited to, any elections under the Adoption Agreement) and the terms of the Investment Arrangement, the terms of the Plan shall control, except that the terms of the Plan may not alter or construe the terms of the Investment Arrangement or enlarge the obligations of the issuer or provider of the Investment Arrangement without the consent of the issuer or provider.

1.76Integration Level. The amount used for purposes of applying the permitted disparity allocation formula. The Integration Level is the Taxable Wage Base, unless the Employer designates a different amount under the Adoption Agreement. See Section 3.02(a)(1)(ii) (Profit Sharing/401(k) Plan) and Section 3.02(b)(2) (Money Purchase Plan).

1.77Key Employee. Employees who are taken into account for purposes of determining whether the Plan is a Top Heavy Plan. See Section 4.03(a).

1.78Leased Employee. An individual who performs services for the Employer pursuant to an agreement between the Employer and a leasing organization, and who satisfies the definition of a Leased Employee under Code §414(n). See Section 2.02(b)(4) for rules regarding the treatment of a Leased Employee as an Employee of the Employer.

1.79Limitation Year. The measuring period for determining whether the Plan satisfies the Code §415 Limitation under Section

5.03.See Section 5.03(c)(5).

1.80Lookback Year. The 12-month period immediately preceding the current Plan Year during which an Employee’s status as Highly Compensated Employee is determined. See Section 1.70(d).

1.81Mass Submitter. The Mass Submitter, as described under Rev. Proc. 2017-41 or its successor, of this Pre-Approved Plan is ASC Institute, LLC.

1.82Matching Contributions. Matching Contributions are contributions made by the Employer on behalf of a Participant on account of Salary Deferrals or After-Tax Employee Contributions made by such Participant, as designated under AA §6B of the Profit Sharing/401(k) Plan Adoption Agreement. Matching Contributions may only be made under the Profit Sharing/401(k) Plan. Matching Contributions also include any QMACs the Employer makes pursuant to AA §6D-4 of the Profit Sharing/401(k) Plan Adoption Agreement and any Traditional Safe Harbor/QACA Safe Harbor Matching Contributions the Employer makes pursuant to AA §6C of the Profit Sharing/401(k) Plan Adoption Agreement. See Section 3.04.


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1.83Maximum Disparity Rate. The maximum amount that may be allocated with respect to Excess Compensation under the permitted disparity allocation formula. See Section 3.02(a)(1)(ii) (Profit Sharing/401(k) Plan) and Section 3.02(b)(2) (Money Purchase Plan).

1.84Minimum Gateway Contribution. The minimum allocation described in Section 3.02(a)(1)(iv)(B)(III)(a) that must be provided to each Benefiting Participant (as defined in Section 1.18) in order to use cross-testing to demonstrate compliance with the nondiscrimination requirements under Treas. Reg. §1.401(a)(4)-8.

1.85Multiple Employer Plan. A Plan that covers Employees of an Employer that does not qualify as a Related Employer. To be a Multiple Employer Plan, an unrelated Employer must execute a Participating Employer Adoption Page. See Section 16.07 for special rules and definitions that apply to Multiple Employer Plans.

1.86Named Fiduciary. The Plan Administrator or other fiduciary designated under Section 11.03.

1.87Nonhighly Compensated. An Employee or Participant who is not a Highly Compensated Employee. See Section 1.70 for the definition of Highly Compensated Employee.

1.88Nonhighly Compensated Group. The group of Nonhighly Compensated Employees included in the ADP Test and/or the ACP Test. See Sections 6.01(a) and 6.02(a).

1.89Nonvested Participant Break in Service. Break in Service rule that applies for eligibility and vesting under Sections 2.07(b) and 7.09(c).

1.90Non-Key Employee. Any Employee who is not a Key Employee. See Section 4.03(b).

1.91Normal Retirement Age. The age selected under AA §7-1. For purposes of applying the Normal Retirement Age provisions under AA §7-1, an Employee’s participation commencement date is the first day of the first Plan Year in which the Employee commenced participation in the Plan. If the Employer enforces a mandatory retirement age, the Normal Retirement Age is the lesser of that mandatory age or the age specified in AA §7-1.

If the Plan is a Money Purchase Plan or is a Profit Sharing/401(k) Plan that accepted a transfer of assets from a pension plan (e.g., a money purchase plan or target benefit plan), then effective May 22, 2007 (for Plans initially adopted on or after May 22, 2007) and effective for the first Plan Year beginning on or after July 1, 2008 (for Plans initially adopted prior to May 22, 2007), or as of the effective date of the transfer of assets, if later, the Normal Retirement Age applicable under AA §7-1 must be reasonably representative of the typical retirement age for the industry in which the Plan Participants work. For this purpose, a Normal Retirement Age of age 62 or above will be deemed to be a reasonable Normal Retirement Age and a Normal Retirement Age under age 55 will be presumed not to satisfy this requirement. If the Normal Retirement Age under AA §7-1 is not reasonably representative of the typical retirement age for the industry in which the Plan Participants work, then, effective as of the first day of the first Plan Year beginning after June 30, 2008, the Normal Retirement Age shall automatically be changed so that any age selected in AA §7-1 is no earlier than age 62 or an age that is determined to be reasonably representative of the typical retirement age for the industry in which the Plan Participants work.

If the Plan is amended to change the Normal Retirement Age to comply with the requirements of this Section 1.91, such amendment may not result in a violation of Code §§411(a)(9), 411(a)(10), 411(d)(6) or 4980F. Thus, for example, the vested percentage of any Participant may not be reduced solely by a change in the Normal Retirement Age. For this purpose, the amendment to a later Normal Retirement Age will not violate the anti-cutback requirements of Code §411(d)(6) merely because it eliminates the right to an in-service distribution prior to the later Normal Retirement Age.

1.92Participant. Except as provided under AA §3-1, a Participant is an Employee (or former Employee) who has satisfied the conditions for participating under the Plan, as described in Section 2.03 and AA §4-1. A Participant also includes any Employee (or former Employee) who has an Account Balance under the Plan, including an Account Balance derived from a rollover or transfer from another qualified plan or IRA. A Participant is entitled to share in an allocation of contributions or forfeitures under the Plan for a given year only if the Participant is an Eligible Employee as defined in Section 2.02, and satisfies the allocation conditions set forth in Section 3.09.

An Employee is treated as a Participant with respect to Salary Deferrals and After-Tax Employee Contributions once the Employee has satisfied the eligibility conditions under AA §4-1 for making such contributions, even if the Employee chooses not to actually make such contributions to the Plan. An Employee is treated as a Participant with respect to Matching Contributions under a Profit Sharing/401(k) Adoption Agreement once the Employee has satisfied the eligibility conditions under AA §4-1 for receiving such contributions, even if the Employee does not receive a Matching Contribution because of the Employee’s failure to make contributions eligible for the Matching Contribution.


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1.93Participating Employer. An Employer (including an unrelated Employer in a Multiple Employer Plan) that adopts this Plan by executing the Participating Employer Adoption Page under the Adoption Agreement. See Section 16 for the rules applicable to contributions and deductions for contributions made by a Participating Employer. Also see Section 16.07 for rules regarding the adoption of a Multiple Employer Plan.

1.94Participating Employer Adoption Page. The signature page in the Adoption Agreement for a Related Employer (or unrelated employer in a Multiple Employer Plan) to adopt the Plan as a Participating Employer.

1.95Period of Severance. A continuous period of time during which the Employee is not employed by the Employer and which is used to determine an Employee’s Participation under the Elapsed Time method. See Section 2.03(a)(6) for rules regarding eligibility and Section 7.05(b) for rules regarding vesting.

1.96Permissive Aggregation Group. Plans that are not required to be aggregated to determine whether the Plan is a Top Heavy Plan. See Section 4.03(d).

1.97Plan. The Plan is the retirement plan established or continued by the Employer for the benefit of its Employees under this Plan document. The Plan consists of the basic plan document and the elections made under the Adoption Agreement. The basic plan document is the portion of the Plan that contains the non-elective provisions. The Employer may supplement or modify the basic plan document through its elections in the Adoption Agreement or by separate governing documents that are expressly authorized by the Plan. If the Employer adopts more than one Adoption Agreement under this Plan, then each executed Adoption Agreement represents a separate Plan. The Employer may adopt the Plan, under the appropriate Adoption Agreement, as a Standardized or Nonstandardized Plan. Cross citations under this basic plan document cite to the nonstandardized Profit Sharing/401(k) Plan Adoption Agreement. Such citations also refer to the comparable section, if applicable, of the Standardized Adoption Agreement.

1.98Plan Administrator. The Plan Administrator is the person designated to be responsible for the administration and operation of the Plan. Unless otherwise designated by the Employer, and until such designation is accepted by the designee, the Plan Administrator is the Employer. The Employer may designate under AA §2-7 another person to take on the role of Plan Administrator as set forth under ERISA §3(16). To the extent an individual named as Plan Administrator does not take on all responsibilities of the Plan Administrator as set forth in Section 11.04, the Employer will remain as Plan Administrator with respect to such responsibilities. If another Employer has executed a Participating Employer Adoption Page, the Employer referred to in this Section is the Employer that executes the Employer Signature Page of the Adoption Agreement. A Plan Administrator also includes a Qualified Termination Administrator (QTA) that assumes the responsibilities of Plan Administrator pursuant to Section 14.03(c).

1.99Plan Compensation. Plan Compensation is Total Compensation, as modified under AA §5-3, which is actually paid to an Employee during the determination period (as defined in subsection (b) below). In determining Plan Compensation, the Employer may elect under AA §5-3(b) to exclude all Elective Deferrals (as defined in Section 1.47), pre-tax contributions to a cafeteria plan or a Code §457 plan, and qualified transportation fringes under Code§132(f)(4). In addition, the Employer may elect under AA §5-3 to exclude other designated elements of compensation.

Plan Compensation generally includes amounts an Employee earns with a Participating Employer and amounts earned with a Related Employer (even if the Related Employer has not executed a Participating Employer Adoption Page under the Adoption Agreement). However, the Employer may elect under AA §5-3(h) to exclude all amounts earned with a Related Employer that has not executed a Participating Employer Adoption Page.

Generally, the Plan may use any definition of Plan Compensation for allocation purposes, even if such definition does not meet the requirements of Code §414(s). However, if Plan Compensation is also used as Testing Compensation for purposes of demonstrating compliance with the nondiscrimination requirements under Code §401(a)(4) or the ADP and/or ACP Tests, or if the contribution formulas under the Plan is designed to satisfy a nondiscrimination safe harbor, and compensation elements are excluded from the definition of Plan Compensation that do not meet the safe harbor exclusions set forth in Treas. Reg.

§1.414(s)-1, additional nondiscrimination testing may be required. (See the discussion under Testing Compensation in Section

1.138 and the discussion regarding safe harbor formulas under subsection (a) below.)

In no case may Plan Compensation for any Participant exceed the Compensation Limit (as defined in Section 1.26).

(a)Application to safe harbor formulas. If the Plan provides for Employer Contributions using the permitted disparity allocation method or if the Plan is a Safe Harbor 401(k) Plan, the compensation used for Plan Compensation must meet a definition of compensation as set forth in Treas. Reg. §1.414(s)-1, as described in Section 1.138. Failure to use a definition of Plan Compensation that satisfies the nondiscrimination requirements under Treas. Reg. §1.414(s)-1 will cause the Plan to fail to qualify for any contribution safe harbors, such as the permitted disparity allocation or Safe Harbor 401(k) Plan safe harbors. To ensure the definition of Plan Compensation satisfies a nondiscriminatory definition under Code §414(s), the Employer may elect to exclude only compensation elements that meet the safe harbor


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exclusions set forth in Treas. Reg. §1.414(s)-1, as described under Section 1.138. Alternatively, the Employer may elect under AA§5-3(l) or under AA §6C-5 of the Profit Sharing/401(k) Plan Adoption Agreement, as applicable, to restrict the application of any compensation adjustments only to Highly Compensated Employees. (If the Employer adopts the Standardized Plan Adoption Agreement, the definition of Plan Compensation must satisfy a safe harbor definition of compensation for all purposes under the Plan. Thus, the only exclusions allowed under the Standardized Profit Sharing/401(k) Plan Adoption Agreement are safe harbor exclusions permitted under Treas. Reg. §1.414(s)-1(c). Any additional exclusions under the Standardized Profit Sharing/401(k) Plan Adoption Agreement will apply solely to Highly Compensated Employees.)

If the Employer elects to apply a definition of Plan Compensation under a Safe Harbor 401(k) Plan that does not satisfy a nondiscriminatory definition under Code §414(s) for a given Plan Year, the Employer will be deemed to have elected to use Total Compensation for purposes of determining the Traditional Safe Harbor/QACA Safe Harbor Contribution under the Plan for such Plan Year. In addition, any election to exclude compensation above a specific dollar amount under AA §5-3(d) or under AA §6C-5(a)(6) will not apply for purposes of determining Traditional Safe Harbor/QACA Safe Harbor Contributions for Nonhighly Compensated Employees. The Employer may elect to restrict any of the exclusions under AA §5-3 or AA §6C-5 solely to Highly Compensated Employees by designating such restriction in AA §5-3(l) or AA §6C-5(b).

The Employer may elect to exclude specific types of compensation for purposes of determining the amount that may be made as Salary Deferrals under a Safe Harbor 401(k) Plan, provided that each eligible Nonhighly Compensated Employee is permitted to make Salary Deferrals under a definition of Plan Compensation that would be a reasonable definition of compensation within the meaning of Treas. Reg. §1.414(s)-1(d)(2). Thus, the definition of Plan Compensation from which Salary Deferrals may be made is not required to satisfy the nondiscrimination requirement of §1.414(s)-1(d)(3). See Section 6.04(b)(6) for special rules that apply with respect to Salary Deferrals under a QACA Safe Harbor 401(k) Plan. (If the Employer adopts the Standardized Profit Sharing/401(k) Plan Adoption Agreement, Plan Compensation is determined on the basis of the Plan Year.)

(b)Determination period. Unless designated otherwise under AA §5-4(a), Plan Compensation is determined based on the Plan Year. Alternatively, the Employer may elect under AA §5-4 to determine Plan Compensation on the basis of the calendar year ending in the Plan Year or any other 12-month period ending in the Plan Year. If the determination period is the calendar year or other 12-month period ending in the Plan Year, for any Employee whose date of hire is less than 12 months before the end of the designated 12-month period, Plan Compensation will be determined over the Plan Year.

(c)Partial period of participation. If an Employee is a Participant for only part of a Plan Year, Plan Compensation may be determined over the entire Plan Year or over the period during which such Employee is a Participant. In determining whether an Employee is a Participant for purposes of applying this subsection (c), the Employee’s status will be determined solely with respect to the contribution type for which the definition of Plan Compensation is being determined. To the extent this subsection (c) applies to Salary Deferrals, any limitations on the amount of Salary Deferrals permitted under AA §6A-2 of the Profit Sharing/401(k) Plan Adoption Agreement will be determined using the definition of Plan Compensation as determined under AA §5-4. However, this subsection (c) does not affect the amount of Salary Deferrals elected under the Salary Deferral Election which is generally determined for each separate payroll period. Plan Compensation does not include any amounts earned for any period while an individual is not an Eligible Employee (as defined in Section 2.02).

1.100Plan Year. The 12-consecutive month period designated under AA §2-4 in which the records of the Plan are maintained. The Plan Year can be a 52-53-week period by designating the appropriate ending date in AA §2-4(b). If the Plan Year is amended to create a Short Plan Year or if a new Plan has an initial Short Plan Year, the Employer may document such Short Plan Year under AA §2-4(c). (See Section 11.08 for special rules that apply to Short Plan Years.)

1.101Predecessor Employer. An employer that previously employed the Employees of the Employer. See Sections 2.06 (eligibility), 3.09(c) (allocation conditions) and 7.08 (vesting) for the rules regarding the crediting of service with a Predecessor Employer.

1.102Predecessor Plan. A Predecessor Plan is a qualified plan maintained by the Employer that is terminated within the 5-year period immediately preceding or following the establishment of this Plan. A Participant’s service under a Predecessor Plan must be counted for purposes of determining the Participant’s vested percentage under the Plan. See Section 7.07(a).

1.103Pre-Tax Deferrals. Pre-Tax Deferrals are a Participant's Salary Deferrals that are not includible in the Participant's gross income at the time deferred.


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1.104Prevailing Wage Formula. The Employer may elect under AA §6-2 to provide an Employer Contribution for each Participant who performs Prevailing Wage Service. (See Sections 3.02(a)(5) and 3.02(b)(6) for special rules regarding the application of the Prevailing Wage Formula.)

1.105Prevailing Wage Service. A Participant’s service used to apply the Prevailing Wage Formula under Sections 3.02(a)(5) and 3.02(b)(6). Prevailing Wage Service is any service performed by an Employee under a public contract subject to the Davis- Bacon Act or any other federal, state or municipal prevailing wage law.

1.106Prior Year Testing Method. A method for applying the ADP Test and/or the ACP Test under a Profit Sharing/401(k) Plan. See Section 6.01(a)(2)(i) for a discussion of the Prior Year Testing Method under the ADP Test and Section 6.02(a)(2)(i) for a discussion of the Prior Year Testing Method under the ACP Test.

1.107Provider. An entity defined under §4.08 of Rev. Proc. 2017-41, or its successor, that provides this Plan to adopting Employers.

1.108QACA Safe Harbor Contribution. A contribution authorized under AA §6C-3 of the Profit Sharing/401(k) Plan Adoption Agreement that allows the Plan to qualify as a Qualified Automatic Contribution Arrangement. A QACA Safe Harbor Contribution may be a QACA Safe Harbor Matching Contribution or a QACA Safe Harbor Employer Contribution. See Section 6.04(b)(2).

1.109QACA Safe Harbor Employer Contribution. An Employer Contribution that satisfies the requirements under Section 6.04(b)(2)(i).

1.110QACA Safe Harbor Matching Contribution. A Matching Contribution that satisfies the requirements under Section 6.04(b)(2)(ii).

1.111Qualified Automatic Contribution Arrangement (QACA). A 401(k) plan that satisfies the conditions under Section 6.04(b).

1.112Qualified Domestic Relations Order (QDRO). A domestic relations order that provides for the payment of all or a portion of the Participant’s benefits to an Alternate Payee and satisfies the requirements under Code §414(p). See Section 11.06.

1.113Qualified Election. An election to waive the QJSA or QPSA under the Plan. See Section 9.04.

1.114Qualified Joint and Survivor Annuity (QJSA). A QJSA is an immediate annuity payable over the life of the Participant with a survivor annuity payable over the life of the Spouse. If the Participant is not married as of the Annuity Starting Date, the QJSA is an immediate annuity payable over the life of the Participant. See Section 9.02(a).

1.115Qualified Matching Contribution (QMAC). A Matching Contribution made by the Employer that satisfies the requirements under Section 3.04(d).

1.116Qualified Nonelective Contribution (QNEC). An Employer Contribution made by the Employer that satisfies the requirements under Section 3.02(a)(6).

1.117Qualified Optional Survivor Annuity (QOSA). A QOSA is an annuity for the life of the Participant with a survivor annuity for the life of the Participant’s Spouse that is equal to the applicable percentage of the amount of the annuity that is payable during the joint lives of the Participant and the Spouse, as determined under Section 9.02(b).

1.118Qualified Preretirement Survivor Annuity (QPSA). A QPSA is an annuity payable over the life of the surviving Spouse that is purchased using 50% of the Participant’s vested Account Balance as of the date of death. The Employer may modify the 50% QPSA level under AA §9-2. See Section 9.03(a).

1.119Qualifying Longevity Annuity Contract (QLAC). An annuity contract that is purchased from an insurance company for a Participant and that satisfies the requirements under Treas. Reg. §1.401(a)(9)-6, Q&A-17. (See Section 8.12(h)(4)).

1.120Qualified Transfer. A transfer of assets that satisfies the requirements under Section 14.05(d).

1.121Qualifying Employer Real Property. Parcels of real property that are leased from the Plan to the Employer (or to an affiliate of the Employer). The parcels of Employer real property must be geographically dispersed, and any improvements on the real property must be suitable for more than one use. Investments in Qualifying Employer Real Property are exempt from the diversification requirements under ERISA §404. See Section 10.06(c) for limits on the amount of Qualifying Employer Real Property that may be held by the Plan.

1.122Qualifying Employer Securities. A stock or marketable obligation (i.e., a bond, debenture, note, certificate or other evidence of indebtedness) of the Employer. A marketable obligation must satisfy the requirements of ERISA §407(e)(1) and DOL Reg.


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§2550.407d-5(b). See Section 10.06(c) for limits on the amount of Qualifying Employer Securities that may be held by the Plan.

1.123Reemployment Commencement Date. The first date upon which an Employee is credited with an Hour of Service following a Break in Service (or Period of Severance, if the Plan is using the Elapsed Time method of crediting service).

1.124Related Employer. A Related Employer includes all members of a controlled group of corporations (as defined in Code

§414(b)), all commonly controlled trades or businesses (as defined in Code §414(c)) or affiliated service groups (as defined in Code §414(m)) of which the Employer is a part, and any other entity required to be aggregated with the Employer pursuant to regulations under Code §414(o). For purposes of applying the provisions under this Plan, the Employer and any Related Employers are treated as a single Employer, unless specifically stated otherwise. See Section 16.06 for operating rules that apply when the Employer is a member of a Related Employer group. Also see Section 16 for rules regarding participation of Employees of Related Employers.

1.125Required Aggregation Group. Plans which must be aggregated for purposes of determining whether the Plan is a Top Heavy Plan. See Section 4.03(e).

1.126Required Beginning Date. The date by which minimum distributions must commence under the Plan. See Section 8.12(e)(5).

1.127Rollover Contribution. A contribution made by an Employee to the Plan attributable to an Eligible Rollover Distribution (as defined in Section 8.05(a)(1) from another qualified plan or IRA. See Section 3.07 for rules regarding the acceptance of Rollover Contributions under this Plan.

1.128Roth Deferrals. Roth Deferrals are Salary Deferrals that are includible in the Participant's gross income at the time deferred and have been irrevocably designated as Roth Deferrals in the Participant’s Salary Deferral Election. A Participant's Roth Deferrals will be maintained in a separate Account containing only the Participant's Roth Deferrals and gains and losses attributable to those Roth Deferrals. See Section 3.03(e).

1.129Safe Harbor 401(k) Plan. A 401(k) plan that satisfies the requirements of a Traditional Safe Harbor 401(k) Plan under Section 6.04(a) of the Plan or the requirements of a QACA Safe Harbor 401(k) Plan under Section 6.04(b) of the Plan.

1.130Salary Deferral Election. An agreement between a Participant and the Employer, whereby the Participant elects to have a specific percentage or dollar amount withheld from his/her Plan Compensation and the Employer agrees to contribute such amount into a Profit Sharing/401(k) Plan. See Section 3.03(a).

1.131Salary Deferrals. Amounts contributed to a Profit Sharing/401(k) Plan at the election of the Participant, in lieu of cash compensation, which are made pursuant to a Salary Deferral Election or other deferral mechanism. Salary Deferrals include Roth Deferrals and Pre-Tax Deferrals. Salary Deferrals shall not include any amounts properly distributed as an Excess Amount under Code §415 pursuant to Section 5.03(e). An Employee’s Salary Deferrals are treated as employer contributions for all purposes under this Plan, except as otherwise provided under the Code or Treasury regulations. See Section 3.03.

1.132Self-Employed Individual. An individual who has Earned Income (as defined in Section 1.43) for the taxable year from the trade or business for which the Plan is established, or an individual who would have had Earned Income but for the fact that the trade or business had no net profits for the taxable year.

1.133Short Plan Year. Any Plan Year that is less than 12 months long, either because of the amendment of the Plan Year, or because the Effective Date of a new Plan is less than 12 months prior to the end of the first Plan Year. See Section 11.08 for the operational rules that apply if the Plan has a Short Plan Year.

1.134Spouse. Subject to any additional guidance by the IRS or other agency or court, a Spouse is any individual who is lawfully married to the Participant under a state or foreign jurisdiction. However, a former Spouse of the Participant will be treated as the Spouse or surviving Spouse and any current Spouse will not be treated as the Spouse or surviving Spouse to the extent provided under a valid QDRO.

(a)Definition of Spouse to be interpreted consistent with same-sex rules. The term Spouse shall be interpreted consistent with same-sex marriage rules as provided under United States v. Windsor (Windsor), IRS Revenue Ruling 2013-17, IRS Notice 2014-19, IRS Notice 2019-37, Obergefell v. Hodges (Obergefell) and any other applicable guidance.

(b)Operation of the Plan to reflect same-sex rules. The Plan will not be treated as failing to meet the requirements of Code §401(a) merely because it did not recognize the same-sex Spouse of a Participant as a Spouse before June 26, 2013. Effective as of September 16, 2013 (as provided under IRS Revenue Ruling 2013-17), the Plan recognizes a marriage of same-sex individuals that is validly entered into in a state or foreign jurisdiction whose laws authorize the


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marriage of two individuals of the same sex, even if the individuals are domiciled in a state that does not recognize the validity of same-sex marriages. However, the Plan does not treat as married individuals (whether part of an opposite- sex or same-sex couple) those who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state.

Accordingly, the Plan will not be treated as failing to meet the requirements of Code §401(a) merely because the Plan, prior to September 16, 2013, recognized the same-sex Spouse of a Participant only if the Participant was domiciled in a state that recognized same-sex marriages.

(c)Operation of the Plan to reflect Obergefell decision. To the extent the Employer was not subject to the Windsor decision, but is subject to the Obergefell decision that requires States to allow and recognize same-sex marriage, the Plan must be operated in compliance with the Obergefell decision.

1.135Targeted QMACs. QMACs that are allocated under the Targeted QMAC allocation method under Section 3.04(d)(2).

1.136Targeted QNECs. QNECs that are allocated under the Targeted QNEC allocation method under Section 3.02(a)(6)(ii)(B).

1.137Taxable Wage Base. The maximum amount of wages taken into account for Social Security purposes. The Taxable Wage Base is used to determine the Integration Level for purposes of applying the permitted disparity allocation formula. See Section 3.02(a)(1)(ii) (Profit Sharing/401(k) Plan) and Section 3.02(b)(2) (Money Purchase Plan).

1.138Testing Compensation. The compensation used for purposes of the nondiscrimination tests under Code §401(a)(4) and the ADP and ACP Tests. In determining the Testing Compensation used for purposes of applying the nondiscrimination and ADP and ACP Tests, the Plan Administrator is not bound by any elections made under AA §5 with respect to Total Compensation or Plan Compensation under the Plan. Thus, the Plan Administrator may use Total Compensation or any other nondiscriminatory definition of compensation under Code §414(s) and the regulations thereunder. The Plan Administrator may determine on an annual basis (and within its discretion) the components of Testing Compensation, provided such definition is applied consistently to all Participants.

In determining whether a definition of Plan Compensation or Testing Compensation satisfies a nondiscriminatory definition of compensation under Code §414(s), the Plan may use any allowable exclusion under Treas. Reg. §1.414(s)-1. For this purpose, an exclusion of any of the following compensation items is deemed to qualify as a safe harbor nondiscriminatory definition of compensation under Code §414(s):

(a)All Elective Deferrals (as defined in Section 1.47 of the Plan), pre-tax contributions to a cafeteria plan or a Code §457 plan, and qualified transportation fringes under Code §132(f)(4);

(b)All fringe benefits (cash and noncash), reimbursements or other expense allowances, moving expenses, deferred compensation, and welfare benefits;

(c)Differential Pay as defined in Section 1.142(e);

(d)Compensation above a specific dollar amount; and

(e)Any other amounts to the extent such exclusions are limited to only Highly Compensated Employees.

In addition, a definition of Plan Compensation or Testing Compensation will satisfy a nondiscriminatory definition of compensation under Code §414(s) if the definition of compensation qualifies as a reasonable definition of compensation as set forth in Treas. Reg. §1.414(s)-1(d), including the additional nondiscrimination testing required under Treas. Reg. §1.414(s)- 1(d)(3).

Testing Compensation may be determined over the Plan Year for which the applicable test is being performed or the calendar year ending within such Plan Year. In determining Testing Compensation, the Plan Administrator may take into consideration only the compensation received while the Employee is a Participant under the component of the Plan being tested. In no event may Testing Compensation for any Participant exceed the Compensation Limit defined in Section 1.26.

1.139Top Paid Group. The top 20% of Employees ranked by Total Compensation for purposes of determining status as a Highly Compensated Employee. See Section 1.70(f).

1.140Top Heavy. A Plan is Top Heavy if it satisfies the conditions under Section 4.01. A Top Heavy Plan must provide certain minimum benefits to Non-Key Employees. See Section 4.04.

1.141Top Heavy Ratio. The ratio used to determine whether the Plan is a Top Heavy Plan. See Section 4.02.


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1.142Total Compensation. A Participant’s compensation for services with the Employer, as defined in this Section 1.142. Total Compensation may be defined in AA §5-1 to be either W-2 Wages, Wages under Code §3401(a), or Code §415 Compensation. Each definition of Total Compensation includes Elective Deferrals (as defined in Section 1.47), elective contributions to a cafeteria plan under Code §125 or to an eligible deferred compensation plan under Code §457, and elective contributions that are not includible in the Employee’s gross income as a qualified transportation fringe under Code §132(f)(4).

For a Self-Employed Individual, Total Compensation means Earned Income (as defined in Section 1.43).

(a)Total Compensation definitions. The Employer may elect under AA §5-1 to define Total Compensation as any of the following definitions:

(1)W-2 Wages. Wages within the meaning of Code §3401(a) and all other payments of compensation to an Employee by the Employer (in the course of the Employer’s trade or business) for which the Employer is required to furnish the Employee a written statement under Code §6041(d), 6051(a)(3), and 6052, determined without regard to any rules under Code §3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed.

(2)Wages under Code §3401(a). Wages within the meaning of Code §3401(a) for the purposes of income tax withholding at the source but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed.

(3)Code §415 Compensation. Wages, salaries, fees for professional services and other amounts received for personal services actually rendered in the course of employment with the Employer (without regard to whether or not such amounts are paid in cash) to the extent that the amounts are includible in gross income, including amounts that are includible in the gross income of an Employee under the rules of Code §409A or

§457(f)(1)(A) or because the amounts are constructively received by the Employee. Such amounts include, but are not limited to, commissions, compensation for services on the basis of a percentage of profits, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Treas. Reg. §1.62-2(c)), and excluding the following:

(i)Employer contributions (other than elective contributions described in Code §402(e)(3), §408(k)(6),

§408(p)(2)(A)(i), or §457(b)) to a plan of deferred compensation (including a SEP described in Code

§408(k) or a SIMPLE IRA described in Code §408(p), and whether or not qualified) to the extent such contributions are not includible in the Employee’s gross income for the taxable year in which contributed, and any distributions (whether or not includible in gross income when distributed) from a plan of deferred compensation (whether or not qualified);

(ii)Amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture;

(iii)Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and

(iv)Other amounts which received special tax benefits, or contributions made by the Employer (other than Elective Deferrals) towards the purchase of an annuity contract described in Code §403(b) (whether or not the contributions are actually excludable from the gross income of the Employee).

(b)Post-severance compensation. Total Compensation includes compensation that is paid after an Employee severs employment with the Employer, provided the compensation is paid by the later of 2½ months after severance from employment with the Employer maintaining the Plan or the end of the Limitation Year that includes such date of severance from employment. For this purpose, compensation paid after severance of employment may only be included in Total Compensation to the extent such amounts would have been included as compensation if they were paid prior to the Employee’s severance from employment.

For purposes of applying this subsection (b), unless designated otherwise under AA §5-2, the following amounts that are paid after a Participant’s severance of employment are included in Total Compensation:

(1)Regular pay. Compensation for services during the Employee’s regular working hours, or compensation for services outside the Employee’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments;


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(2)Unused leave payments. Payment for unused accrued bona fide sick, vacation, or other leave, but only if the Employee would have been able to use the leave if employment had continued; and

(3)Deferred compensation. Payments received by an Employee pursuant to a nonqualified unfunded deferred compensation plan, but only if the payment would have been paid to the Employee at the same time if the Employee had continued in employment and only to the extent that the payment is includible in the Employee’s gross income.

Other post-severance payments (such as severance pay, parachute payments within the meaning of Code §280G(b)(2), or post-severance payments under a nonqualified unfunded deferred compensation plan that would not have been paid if the Employee had continued in employment) are not included as Total Compensation, even if such amounts are paid within the time period described in this subsection (b).

In determining the amount of a Participant’s Employer Contributions, Matching Contributions or Salary Deferrals, Plan Compensation may not include any amounts that do not satisfy the requirements of this subsection (b) or subsection (c). If Total Compensation is defined to include post-severance compensation, the Employer may elect to exclude all such compensation paid after termination of employment from the definition of Plan Compensation under AA §5-3(j) or may elect to exclude any of the specific types of post-severance compensation defined in subsections (1), (2) and/or (3) above, by designating such compensation types under AA §5-3(l). The exclusion of post-severance compensation from the definition of Plan Compensation that is otherwise includible in Total Compensation may cause the Plan to fail the nondiscriminatory compensation rules under Treas. Reg. §1.414(s)-1.

(c)Continuation payments for disabled Participants. Unless designated otherwise under AA §5-2(b), Total Compensation does not include compensation paid to a Participant who is permanently and totally disabled (as defined in Code §22(e)(3)). If elected under AA §5-2(b), the Plan may take into account compensation the Participant would have received for the year if the Participant was paid at the rate of compensation paid immediately before becoming permanently and totally disabled (if such compensation is greater than the Participant’s compensation determined without regard to this subsection (c)), provided contributions made with respect to amounts treated as compensation under this subsection (c) are nonforfeitable when made.

If so elected under AA §5-2(b), payment to disabled Participants will be included as Total Compensation, notwithstanding the rules under subsection (b). The Employer may elect under AA §5-2(b) to apply this rule only to Nonhighly Compensated Employees or to all Participants.

(d)Deemed §125 compensation. A reference to elective contributions under a Code §125 cafeteria plan includes any amounts that are not available to a participant in cash in lieu of group health coverage because the Participant is unable to certify that he or she has other health coverage. Such deemed §125 compensation will be treated as an amount under Code §125 only if the Employer does not request or collect information regarding the Participant’s other health coverage as part of the enrollment process for the health plan. If the Employer elects under AA §5-3(i) to exclude deemed §125 compensation from the definition of Plan Compensation, such exclusion also will apply for purposes of determining Total Compensation under this Section 1.142.

(e)Differential Pay. Effective for years beginning on or after January 1, 2009, in the case of an individual who receives Differential Pay from the Employer:

(1)such individual will be treated as an Employee of the Employer making the payment; and

(2)the Differential Pay shall be treated as wages and will be included in calculating an Employee’s Total Compensation under the Plan.

If all Employees performing service in the Uniformed Services are entitled to receive Differential Pay on reasonably equivalent terms and are eligible to make contributions based on the payments on reasonably equivalent terms, the Plan shall not be treated as failing to meet the requirements of any provision described in Code §414(u)(1)(C) by reason of any contribution or benefit based on Differential Pay. However, for purposes of applying this subparagraph, the provisions of Code §§410(b)(3), (4), and (5) shall apply. The Employer may elect to exclude Differential Pay from the definition of Plan Compensation under AA §5-3(k).

For purposes of this subsection (e), Differential Pay means any payment which is made by an Employer to an individual while the individual is performing service in the Uniformed Services while on active duty for a period of more than 30 days, and represents all or a portion of the wages the individual would have received from the Employer if the individual were performing services for the Employer. In applying the provisions of this subsection (e), Uniformed Services are services as described in Code §3401(h)(2)(A).


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1.143Traditional Safe Harbor Contribution. A contribution authorized under AA §6C-2 of the Profit Sharing/401(k) Plan Adoption Agreement that allows the Plan to qualify as a Traditional Safe Harbor 401(k) Plan. A Traditional Safe Harbor Contribution may be a Traditional Safe Harbor Matching Contribution or a Traditional Safe Harbor Employer Contribution. See Sections 6.04(a)(1)(i) and 6.04(a)(1)(ii).

1.144Traditional Safe Harbor Employer Contributions. An Employer Contribution that satisfies the requirements under Section 6.04(a)(1)(i).

1.145Traditional Safe Harbor Matching Contributions. A Matching Contribution that satisfies the requirements under Section 6.04(a)(1)(ii).

1.146Trust. The Trust is the separate funding vehicle under the Plan. For Plan purposes, the term Trust may include trust substitutes including Annuity Contracts and custodial accounts as described in Code §401(f).

1.147Trustee. The Trustee is the person or persons (or any successor to such person or persons) identified in the Adoption Agreement or under a separate Trust document. The Trustee may be a Discretionary Trustee or a Directed Trustee. See Section 12 for the rights and duties of a Trustee under this Plan.

1.148Valuation Date. The date or dates upon which Plan assets are valued. Plan assets will be valued as of the last day of each Plan Year. In addition, the Employer may elect under AA §11-1 to establish additional Valuation Dates. Notwithstanding any election under AA §11-1, Plan assets may be valued on a more frequent basis within the complete discretion of the Employer. See Section 10.02.

1.149Year of Service. A Year of Service is a 12-consecutive month Computation Period during which an Employee completes 1,000 Hours of Service. For purposes of applying the eligibility rules under Section 2.03 of the Plan, an Employee will earn a Year of Service if he/she completes 1,000 Hours of Service with the Employer during an Eligibility Computation Period (as defined in Section 2.03(a)(3)). For purposes of applying the vesting rules under Section 7.05, an Employee will earn a Year of Service if he/she completes 1,000 Hours of Service with the Employer during a Vesting Computation Period (as defined in Section 7.06). The Employer may elect under AA §4-3(a) (for eligibility purposes) and AA §8-5(a) (for vesting purposes) to require the completion of any lesser number of Hours of Service to earn a Year of Service. Alternatively, the Employer may elect to apply the Elapsed Time method (for eligibility and/or vesting purposes) in calculating an Employee’s Years of Service under the Plan.


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SECTION 2 ELIGIBILITY AND PARTICIPATION

2.01Eligibility. In order to participate in the Plan, an Employee must be an Eligible Employee (as defined in Section 2.02) and must satisfy the Plan’s minimum age and service conditions (as defined in Section 2.03). Once an Employee satisfies the Plan’s minimum age and service conditions, such Employee shall become a Participant on the appropriate Entry Date (as selected in AA §4-2). An Employee who meets the minimum age and service requirements set forth herein, but who is not an Eligible Employee, will be eligible to participate in the Plan only upon becoming an Eligible Employee. For purposes of determining eligibility to make Salary Deferrals, an Employee will be deemed to commence participation on a timely basis if the Employee is permitted to commence making Salary Deferrals as soon as administratively feasible after satisfying the eligibility conditions under the Plan.

2.02Eligible Employees. Unless specifically excluded under AA §3-1 or AA §6C-4 of the Profit Sharing/401(k) Plan Adoption Agreement or under this Section 2.02, all Employees of the Employer are Eligible Employees. AA §3-1 lists various classes of Employees that may be excluded from Plan participation. If an Employee is not an Eligible Employee (e.g., such Employee is a member of a class of Employees excluded under AA §3-1), that individual may not participate under the Plan, unless he/she subsequently becomes an Eligible Employee.

(a)Only Employees may participate in the Plan. To participate in the Plan, an individual must be an Employee. If an individual is not an Employee (e.g., the individual performs services with the Employer as an independent contractor), such individual may not participate under the Plan. If an individual who is classified as a non-Employee is later determined by the Employer or by a court or other government agency to be an Employee of the Employer, the reclassification of such individual as an Employee will not create retroactive rights to participate in the Plan. Thus, for example, if the IRS or DOL should find that an independent contractor is really an Employee, such individual will be eligible to participate in the Plan as of the date the IRS or DOL issues a final determination declaring such individual to be an Employee (provided the individual has satisfied all conditions for participating in the Plan (as described in this Section 2)). For periods prior to the date of such final determination, the reclassified Employee will not have any rights to accrued benefits under the Plan, except as agreed to by the Employer or mandated by a court or government agency, or as set forth in an amendment adopted by the Employer.

(b)Excluded Employees. The Employer may elect under AA §3-1 to exclude designated classes of Employees. Under a Profit Sharing/401(k) Plan Adoption Agreement, the Employer may elect to exclude different classes of Employees for Salary Deferrals, Matching Contributions, and Employer Contributions. Unless provided otherwise under AA §3-1(l) of the Profit Sharing/401(k) Plan Adoption Agreement, for purposes of determining Excluded Employees, any selections under the Deferral column apply to all Salary Deferrals (including Roth Deferrals and In-Plan Roth Conversions) and After-Tax Employee Contributions. In addition, selections under the Deferral column apply to any Traditional Safe Harbor/QACA Safe Harbor Contributions, unless designated otherwise under AA §6C, and also apply to any QNECs and/or QMACs made under the Plan, unless designated otherwise under AA §6D. The selections under the Match column apply to Matching Contributions under AA §6B and selections under the ER column apply to Employer Contributions under AA §6.

(1)Collectively Bargained Employees. The Employer may elect under AA §3-1(b) or under AA §6C-4(b)(3)(i) of the Profit Sharing/401(k) Plan Adoption Agreement to exclude Collectively Bargained Employees. For this purpose, a Collectively Bargained Employee is an Employee who is included in a unit of Employees covered by a collective bargaining agreement between the Employer and Employee representatives and whose retirement benefits are subject to good faith bargaining. Unless designated otherwise under AA §3-1(l) or AA

§6C-4(b)(3)(iv), any exclusion of Collectively Bargained Employees will not include any unit of Employees to the extent the collective bargaining agreement specifically provides for coverage of such Employees under the Plan. For this purpose, an Employee will not be considered a Collectively Bargained Employee for a Plan Year if more than two percent of the Employees who are covered pursuant to the collective bargaining agreement are professionals as defined in Treas. Reg. §1.410(b)-9. For this purpose, the term Employee representatives does not include any organization more than half of whose members are Employees who are owners, officers, or executives of the Employer. If Employees of only certain bargaining agreements are excluded, the Employer may list those agreements in AA §3-1(l) or AA §6C-4(b)(3)(iv), as applicable.

(2)Nonresident aliens. The Employer may elect under AA §3-1(c) or under AA §6C-4(b)(3)(ii) of the Profit Sharing/401(k) Plan Adoption Agreement to exclude Employees who are nonresident aliens. For this purpose, a nonresident alien is neither a citizen of the United States nor a resident of the United States for U.S. tax purposes (as defined in Code §7701(b)), and who does not have any earned income (as defined in Code §911) for the Employer that constitutes U.S. source income (within the meaning of Code §861). If a nonresident alien Employee has U.S. source income, he/she is treated as satisfying this definition if all of his/her U.S. source income from the Employer is exempt from U.S. income tax under an applicable income tax treaty. If a nonresident alien is not a Participant in the Plan, such individual’s compensation may be excluded from Total


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Compensation to the extent such compensation is not included in gross income and is not effectively connected with the conduct of a trade or business within the United States. Any such exclusion must be applied uniformly to all similarly-situated Employees.

(3)Puerto Rican Employees. Unless elected otherwise in AA §3-1(l), Employees who are residents of Puerto Rico are not Eligible Employees and may not participate in the Plan. Thus, unless elected otherwise under AA

§3-1, no contributions will be made to the Plan by, or on behalf of, residents of Puerto Rico. In addition, unless elected otherwise under AA §5-3, Plan Compensation does not include any amounts paid to a Puerto Rican Employee who is not covered under the Plan. If Puerto Rican Employees are permitted to participate under AA

§3-1(l), additional requirements may apply to ensure the Plan is qualified under Puerto Rican law. See ERISA

§1022(i).

(4)Leased Employees. The Employer may elect under AA §3-1(d) or under AA §6C-4(b)(3)(iii) of the Profit Sharing/401(k) Plan Adoption Agreement to exclude Leased Employees. (The exclusion of Leased Employees is not available under the Standardized Plan Adoption Agreement.) Unless designated otherwise under AA §3- 1(d) or AA §6C-4(b)(3)(iii), a Leased Employee is treated as an Eligible Employee for purposes of applying the eligibility rules under this Section 2. For this purpose, a Leased Employee is any person (other than an Employee of the Employer) who, pursuant to an agreement between the recipient Employer and a leasing organization, performs services for the recipient Employer on a substantially full-time basis for a period of at least one year, and such services are performed under the primary direction or control of the recipient Employer. Contributions or benefits provided to a Leased Employee under a plan of the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer.

A Leased Employee shall not be considered an Employee of the recipient Employer if:

(i)Such Employee is covered by a money purchase pension plan providing:

(A)a non-integrated Employer contribution of at least ten percent (10%) of compensation, as defined in Code §415(c)(3), but including amounts contributed pursuant to a Salary Deferral Election which are excludable from gross income under Code §§125, 402(e)(3), 402(h)(1)(B), 132(f)(4), 403(b) or 457(b);

(B)immediate participation; and

(C)full and immediate vesting.

(ii)Leased Employees do not constitute more than twenty percent (20%) of the recipient's Employer’s Nonhighly Compensated workforce.

The exclusion of Leased Employees is not available under the Standardized Plan Adoption Agreement.

(5)Special restrictions that apply to “short-service” Employees. The Employer may designate additional excluded classes of Employees under AA §3-1(l) or AA §6C-4(b)(3)(iv). If the Employer elects under AA §3- 1(l) or AA §6C-4(b)(3)(iv) to exclude an additional class of Employees, such Employee class must be defined in such a way that it precludes Employer discretion and may not be based on time or service (e.g., part-time Employees). The Employer may not use AA §3-1(l) or AA §6C-4(b)(3)(iv) to cover only Nonhighly Compensated Employees with the lowest amount of compensation and/or the shortest periods of service in order to satisfy the minimum coverage rules.

(6)Disguised service conditions. An exclusion of employees by job category may not indirectly impose an impermissible service condition (i.e., a service condition that fails to satisfy the requirements of Code §410(a)). The exclusion of part-time Employees, seasonal Employees, temporary Employees or other job categories may be considered a disguised service condition where such categories are based solely on the amount of service performed by those Employees. A disguised service condition will not violate the minimum service conditions if such Employees are eligible to participate upon completion of a Year of Service. If the Employer excludes Employees under AA §3-1 or under AA §6C- of the Profit Sharing/401(k) Plan Adoption Agreement using a disguised service condition, such as part-time or seasonal Employee status, and any such Employee completes a Year of Service, such Employee will no longer be treated as an Excluded Employee.

(c)Employees of Related Employers. If the Employer is a member of a Related Employer group, Employees of each member of the Related Employer group may participate under this Plan, provided the Related Employer executes a Participating Employer Adoption Page under the Adoption Agreement. If a Related Employer does not execute a


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Participating Employer Adoption Page, any Employees of such Related Employer are not eligible to participate in the Plan. See Section 16.06 for operating rules that apply when the Employer is a member of a Related Employer group. Also see Section 16 for rules regarding participation of Employees of Related Employers. Section 16.08 contains special rules that apply if the Employer adopts the Standardized Plan Adoption Agreement.

(d)Employees of an Employer acquired as part of a Code §410(b)(6)(C) transaction. The Employer may designate under AA §3-2 to include/exclude Employees acquired as part of a Code §410(b)(6)(C) transaction. The Employer may elect under AA §3-2 that an Employee acquired as part of a Code §410(b)(6)(C) transaction will or will not become an Eligible Employee until after the expiration of the transition period described in Code §410(b)(6)(C)(ii) (i.e., the period beginning on the date of the transaction and ending on the last day of the first Plan Year beginning after the date of the transaction). For this purpose, a Code §410(b)(6)(C) transaction includes an asset sale, stock sale or other disposition or acquisition that results in the movement of Employees from one Employer to another Employer or causes a change in status as a Related Employer group. (See AA §4-5 for rules regarding the crediting of service with a Predecessor Employer to determine if an Employee has satisfied the Plan’s minimum age and service conditions).

Regardless of any selection under AA §3-2, an Employee of a Related Employer will be eligible to participate under the Plan only if the Related Employer executes a Participating Employer Adoption Agreement as set forth in subsection

(e)Ineligible Employee becomes Eligible Employee. If an Employee changes status from an ineligible Employee to an Eligible Employee, such Employee will become a Participant immediately on the date he/she changes status to an Eligible Employee, provided the Employee has satisfied the Plan’s minimum age and service conditions and has passed the Entry Date (as defined in AA §4-2) that would otherwise have applied had the Employee been an Eligible Employee. If the Employee’s original Entry Date (determined as if the Employee was always an Eligible Employee) has not passed as of the date the Employee becomes an Eligible Employee, the Employee will not become a Participant until such Entry Date. If an ineligible Employee has not satisfied the Plan’s minimum age and service conditions at the time such Employee becomes an Eligible Employee, such Employee will become a Participant on the appropriate Entry Date following satisfaction of the Plan’s minimum age and service requirements. The requirements for the timing of participation under this subsection (e) is deemed satisfied with respect to Salary Deferrals if the Employee is permitted to commence making Salary Deferrals under the Plan as soon as administratively feasible after the Employee is eligible to participate in the Plan.

(f)Eligible Employee becomes ineligible Employee. If an Employee ceases to qualify as an Eligible Employee (i.e., the Employee changes status from an eligible class to an ineligible class of Employees), such Employee will immediately cease to receive contributions (including contributions of salary Deferrals) under the Plan. If such Employee should subsequently become an Eligible Employee, he/she will be able to participate in the Plan in accordance with subsection

(e) above.

(g)Improper exclusion of eligible Participant. If the Plan improperly excludes a Participant who has satisfied the requirements under this Section 2 for participating under the Plan, the Employer may take reasonable action to correct such violation, provided such corrective action is consistent with the requirements of the Employee Plans Compliance Resolution System (EPCRS) program.

2.03Minimum Age and Service Conditions. AA §4-1 contains specific elections as to the minimum age and service conditions which an Employee must satisfy prior to becoming eligible to participate under the Plan.

Different age and service conditions may be selected under AA §4-1 of the Profit Sharing/401(k) Plan Adoption Agreement for Salary Deferrals, Matching Contributions, and Employer Contributions. For purposes of applying the eligibility conditions under AA §4-1, unless designated otherwise, any selection made under the Deferral column applies to all Salary Deferrals (including Roth Deferrals and In-Plan Roth Conversions) and After-Tax Employee Contributions. In addition, selections under the Deferral column apply to any Traditional Safe Harbor/QACA Safe Harbor Contributions, unless designated otherwise under AA §6C, and also apply to any QNECs and/or QMACs made under the Plan, unless designated otherwise under AA

§6D. The selections under the Match column apply to Matching Contributions under AA §6B and selections under the ER column apply to Employer Contributions under AA §6.

The Employer may elect to apply different minimum age and service requirements for different groups of Employees or for different contribution formulas under AA §4-1(c).

(a)Application of age and service conditions. The Employer may elect under AA §4-1 to impose minimum age and service conditions that an Employee must satisfy in order to participate under the Plan. The Plan may not require an Employee to attain an age older than age 21 or to complete more than one Year of Service. However, the Plan may require an Employee to complete two Years of Service prior to participating in the Plan if the Employer elects full and


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immediate vesting under AA §8. (The Employer may not require an Employee to complete more than one Year of Service to be eligible to make Salary Deferrals under a Profit Sharing/401(k) Plan Adoption Agreement.)

(1)Year of Service. In applying the minimum service requirements under AA §4-1, an Employee will earn a Year of Service if the Employee completes at least 1,000 Hours of Service with the Employer during an Eligibility Computation Period (as defined in subsection (3) below). The Employer may modify the definition of Year of Service under AA §4-3(a) to require a lesser number of Hours of Service to earn a Year of Service. An Employee will receive credit for a Year of Service, as of the end of the Eligibility Computation Period during which the Employee completes the required Hours of Service needed to earn a Year of Service. An Employee need not be employed for the entire Eligibility Computation Period to receive credit for a Year of Service, provided the Employee completes the required Hours of Service during such period.

(2)Months of service. The Employer may elect under AA§4-1(a)(3) to require a specific number of Hours of Service during a designated number of months of employment. If an Employee is required under AA §4-1(a)(3) to complete a certain number of Hours of Service during a designated period, an Employee generally will satisfy the eligibility conditions as of the end of the designated period, regardless of whether the Employee is employed during the entire period. Alternatively, the Employer may elect under AA §4-1(a)(3)(ii) to require an Employee to be employed continuously throughout the designated period, provided the Employee is eligible to participate in the Plan upon completing a Year of Service as defined in subsection (1) above.

If an Employee does not complete the required Hours of Service during the designated period or does not work continuously during the designated period, if required under AA §4-1(a)(3)(ii), the Employee will satisfy eligibility upon completion of a Year of Service as defined in subsection (1) above. For purposes of applying the Year of Service requirement, an Employee need not be employed during the entire measuring period as long as the Employee completes the required Hours of Service, as specified under subsection (1) above. For example, an Employee who is not employed throughout the designated period, if required under AA §4- 1(a)(3)(ii), would still satisfy the eligibility conditions as of the end of the Eligibility Computation Period if the Employee completes a Year of Service, regardless of whether the Employee is employed during the entire period.

(3)Eligibility Computation Periods. In determining whether an Employee has earned a Year of Service for eligibility purposes, an Employee’s initial Eligibility Computation Period is the 12-month period beginning on the Employee’s Employment Commencement Date. Subsequent Eligibility Computation Periods will either be based on Plan Years or Anniversary Years (as set forth in AA §4-3).

(i)Plan Years. If the Employer elects under AA §4-3 to base subsequent Eligibility Computation Periods on Plan Years, the Plan will begin measuring Years of Service on the basis of Plan Years beginning with the first Plan Year commencing after the Employee’s Employment Commencement Date. Thus, for the first Plan Year following the Employee’s Employment Commencement Date, the initial Eligibility Computation Period and the first Plan Year Eligibility Computation Period may overlap. (See Section 11.08 for rules that apply if there is a Short Plan Year.)

(ii)Anniversary Years. If the Employer elects under AA §4-3(b) to base subsequent Eligibility Computation Periods on Anniversary Years, the Plan will measure Years of Service after the initial Eligibility Computation Period on the basis of 12-month periods commencing with the anniversary of the Employee’s Employment Commencement Date.

(iii)Two Years of Service requirement. If a Two Years of Service eligibility condition applies under AA

§4-1(a)(6), subsequent Eligibility Computation Periods will be based on Anniversary Years as defined in subsection (ii) above. However, if an Employee fails to earn a Year of Service during the first or second Eligibility Computation Period, subsequent Eligibility Computation Periods will be determined on the basis of the Plan Year commencing within the first or second Eligibility Computation Period, as applicable, and subsequent Plan Years. The Employer may elect under AA §4-3(b) to determine subsequent Eligibility Computation Periods on the basis of Anniversary Years, rather than Plan Years.

(iv)Rehired Employee. If an Employee is rehired following a Break in Service, the Employee’s initial Eligibility Computation Period following the Employee’s return to employment will be measured from the Employee’s Reemployment Commencement Date. Subsequent Eligibility Computation Periods will be measured based on the Plan Year or anniversary of the Reemployment Commencement Date, as designated under subsection (i) or (ii) above. For this purpose, an Employee's Reemployment Commencement Date is the first day the Employee is entitled to be credited with an Hour of Service after the first Eligibility Computation Period in which the Employee incurs a Break in Service.


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(4)Hours of Service. In calculating an Employee’s Hours of Service for purposes of applying the eligibility rules under this Section 2.03, the Employer will count the actual Hours of Service an Employee works during the year. (See Section 1.72 for the definition of Hours of Service). The Employer may elect under AA §4-3(c) or

(d) to use the Equivalency Method or Elapsed Time method (instead of counting the actual Hours of Service an Employee works). (See subsections (5) and (6) below for a description of the Equivalency Method and Elapsed Time method of crediting service.)

(5)Equivalency Method. Instead of counting actual Hours of Service in applying the minimum service conditions under this Section 2.03, the Employer may elect under AA §4-3(d) to determine Hours of Service based on the Equivalency Method. Under the Equivalency Method, an Employee receives credit for a specified number of Hours of Service based on the period worked with the Employer.

(i)Monthly. Under the monthly Equivalency Method, an Employee is credited with 190 Hours of Service for each calendar month during which the Employee completes at least one Hour of Service with the Employer.

(ii)Daily. Under the daily Equivalency Method, an Employee is credited with 10 Hours of Service for each day during which the Employee completes at least one Hour of Service with the Employer.

(iii)Weekly. Under the weekly Equivalency Method, an Employee is credited with 45 Hours of Service for each week during which the Employee completes at least one Hour of Service with the Employer.

(iv)Semi-monthly. Under the semi-monthly Equivalency Method, an Employee is credited with 95 Hours of Service for each semi-monthly period during which the Employee completes at least one Hour of Service with the Employer.

(6)Elapsed Time method. Instead of counting actual Hours of Service in applying the minimum service requirements under this Section 2.03, the Employer may elect under AA §4-3(c) to apply the Elapsed Time method for calculating an Employee’s service with the Employer. Under the Elapsed Time method, an Employee receives credit for the aggregate period of time worked for the Employer commencing with the Employee's first day of employment (or reemployment, if applicable) and ending on the date the Employee begins a Period of Severance which lasts at least 12 consecutive months. In calculating an Employee’s aggregate period of service, an Employee receives credit for any Period of Severance that lasts less than 12 consecutive months. If an Employee’s aggregate period of service includes fractional years, such fractional years are expressed in terms of days.

(i)Period of Severance. For purposes of applying the Elapsed Time method, a Period of Severance is any continuous period of time during which the Employee is not employed by the Employer. A Period of Severance begins on the date the Employee retires, quits or is discharged, or if earlier, the 12-month anniversary of the date on which the Employee is first absent from service for a reason other than retirement, quit or discharge.

In the case of an Employee who is absent from work for maternity or paternity reasons, the

12-consecutive month period beginning on the first anniversary of the first date of such absence shall not constitute a Period of Severance. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence:

(A)by reason of the pregnancy of the Employee;

(B)by reason of the birth of a child of the Employee;

(C)by reason of the placement of a child with the Employee in connection with the adoption of such child by the Employee; or

(D)for purposes of caring for a child of the Employee for a period beginning immediately following the birth or placement of such child.

(ii)Related Employers/Leased Employees. For purposes of applying the Elapsed Time method, service will be credited for employment with any Related Employer. Service also will be credited for any service as a Leased Employee or as an employee under Code §414(o).


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(7)Amendment of age and service requirements. If the Plan’s minimum age and service conditions are amended, an Employee who is a Participant immediately prior to the effective date of the amendment is deemed to satisfy the amended requirements. This provision may be modified under the special Effective Date provisions under Appendix A of the Adoption Agreement or under a separate amendment implementing the updated minimum age and service provisions.

(i)Change to Elapsed Time method. If the service crediting method is changed from an Hours of Service method to the Elapsed Time method, the amount of service credited to an Employee will equal the sum of the service under subsections (A) and (B) below. For this purpose, a change in service crediting method will occur if the Plan is amended to change the service crediting method or if the service crediting method is changed as a result of an Employee’s change in employment status.

(A)The number of Years of Service equal to the number of Years of Service credited under the Hours of Service method before the Eligibility Computation Period during which the change to the Elapsed Time method occurs.

(B)For the Eligibility Computation Period in which the change occurs, the greater of:

(I)the period of service that would be credited under the Elapsed Time method from the first day of that Eligibility Computation Period through the date of the change, or

(II)

the service that would be taken into account under the Hours of Service method for the Eligibility Computation Period which includes the date of the change.

If the period of service described in subsection (I) is the greater amount, then subsequent periods of service are credited under the Elapsed Time method beginning with the date of the change. If the period of service described in subsection (II) applies, the Elapsed Time method will be used beginning with the first day of the Eligibility Computation Period that would have followed the Eligibility Computation Period in which the change to the Elapsed Time method occurred.

If the change to the Elapsed Time method occurs as of the first day of an Eligibility Computation Period, the use of the Elapsed Time method begins as of the date of the change, and the calculation in subsection (B) above does not apply. In such case, the Employee’s service is determined under subsection (A) above plus the subsequent periods of service determined under the Elapsed Time method, starting with the effective date of the change.

(ii)Change to Hours of Service method. If the service crediting method is changed from the Elapsed Time method to an Hours of Service method, the Employee's Elapsed Time service earned as of the date of the change is converted into Years of Service under the Hours of Service method, determined as the sum of subsections (A) and (B), below. For this purpose, a change in service crediting method will occur if the Plan is amended to change the service crediting method or if the service crediting method is changed as a result of an Employee’s change in employment status.

(A)A number of Years of Service is credited that equals the number of 1-year periods of service credited under the Elapsed Time method as of the date of the change.

(B)For the Eligibility Computation Period which includes the date of the change, the Employee is credited with an equivalent number of Hours of Service, using one of the Equivalency Methods defined in subsection (5) above for any fractional year that was credited under the Elapsed Time method as of the date of the change.

For the portion of the Eligibility Computation Period following the date of the change, actual Hours of Service are counted. The Hours of Service credited for the portion of the Eligibility Computation Period in which the Elapsed Time method was in effect are added to the actual Hours of Service credited for the remaining portion of the Eligibility Computation Period to determine if the Employee has a Year of Service for that Eligibility Computation Period.

(b)Entry Dates. Once an Eligible Employee satisfies the minimum age and service conditions (as set forth in AA §4-1), the Employee will be eligible to participate under the Plan as of his/her Entry Date (as set forth in AA §4-2). In applying the Entry Date provisions under this subsection (b), an Employee will be deemed to satisfy the eligibility requirements of this Section 2 if the Participant is permitted to begin making Salary Deferrals as soon as administratively feasible following the Entry Date.


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If the Employer adopts a Profit Sharing/401(k) Plan Adoption Agreement, the Employer may elect different Entry Dates with respect to Salary Deferrals, Matching Contributions, and Employer Contributions. Unless designated otherwise, the Entry Date selected under the Deferral column apply to all Salary Deferrals (including Roth Deferrals and In-Plan Roth Conversions) and After-Tax Employee Contributions. In addition, selections under the Deferral column apply to any Traditional Safe Harbor/QACA Safe Harbor Contributions, unless designated otherwise under AA

§6C, and also apply to any QNECs and/or QMACs made under the Plan, unless designated otherwise under AA §6D. The selections under the Match column apply to Matching Contributions under AA §6B and selections under the ER column apply to Employer Contributions under AA §6.

(1)Entry Date requirements. In no event may a Participant’s Entry Date be later than the earlier of:

(i)the first day of the Plan Year beginning after the date on which the Participant satisfies the minimum age and service conditions described in subsection (a) above; or

(ii)six months after the date the Participant satisfies such age and service conditions.

An Eligible Employee must be employed by the Employer on his/her Entry Date to begin participating in the Plan on such date.

(2)Single annual Entry Date. If the Employer elects a single annual Entry Date under AA §4-2(f), the maximum permissible age and service conditions described in subsection (a) above are reduced by one-half (1/2) year, unless:

(i)the Employer elects under AA §4-2(j) to use the Entry Date nearest the date the Employee satisfies the Plan’s minimum age and service conditions and the Entry Date is the first day of the Plan Year; or

(ii)the Employer elects under AA §4-2(k) to use the Entry Date preceding the date the Employee satisfies the Plan’s minimum age and service conditions.

2.04Participation on Effective Date of Plan. Unless designated otherwise under AA §4-4, an Eligible Employee who has satisfied the minimum age and service conditions and reached his/her Entry Date as of the Effective Date of the Plan will be eligible to participate in the Plan as of such Effective Date. If an Employee has satisfied the minimum age and service conditions as of the Effective Date of the Plan but has not yet reached his/her Entry Date, the Employee will be eligible to participate on the appropriate Entry Date. The Employer may modify this rule under AA §4-4 by electing to treat all Employees employed on the Effective Date of the Plan as Participants (regardless of whether they have satisfied the Plan’s minimum age and service conditions) or by designating a specific date as of which all Eligible Employees will be deemed to be a Participant, (regardless of whether the Employee has otherwise satisfied the minimum age and service conditions).

2.05Rehired Employees. Subject to the Break in Service rules under Section 2.07, if a terminated Employee is subsequently rehired, such Employee will be eligible to participate in the Plan on his/her reemployment date, if the Employee is an Eligible Employee and the Employee had satisfied the Plan’s minimum age and service conditions and reached his/her Entry Date prior to termination of employment. If the Employee had satisfied the Plan’s minimum age and service conditions, but terminated prior to reaching his/her Entry Date, the Employee will be eligible to participate on his/her reemployment date or the original Entry Date, if later. If a rehired Employee had not satisfied the Plan’s minimum age and service conditions prior to termination of employment, such Employee is eligible to participate in the Plan on the appropriate Entry Date following satisfaction of the eligibility requirements under this Section 2. For purposes of Salary Deferrals, the requirement to participate on the reemployment date is deemed satisfied if a rehired Employee is permitted to commence making Salary Deferrals within a reasonable period following reemployment.

2.06Service with Predecessor Employers. If the Employer maintains the plan of a Predecessor Employer, any service with such Predecessor Employer is treated as service with the Employer for purposes of applying the provisions of this Plan. If the Employer does not maintain the plan of a Predecessor Employer, service with such Predecessor Employer does not count for eligibility purposes under this Section 2, unless the Employer specifically designates under AA §4-5 to credit service with such Predecessor Employer for eligibility. Unless designated otherwise under AA §4-5, if the Employer takes into account service with a Predecessor Employer, such service will count for purposes of eligibility under this Section 2, vesting under Section 7 (see Section 7.08) and for purposes of the minimum allocation conditions under Section 3.09 (see Section 3.09(c)).

The Employer may designate under AA §4-5(a)(1) to count service with all Employers acquired as part of a Code

§410(b)(6)(C) transaction, as defined under Section 2.02(d) or may elect specific Employers for whom service will not be credited. Alternatively, the Employer may designate under AA §4-5(a)(2) specific Predecessor Employers for which service will be credited. The Employer may designate to credit predecessor service only for purposes of eligibility, vesting and/or any minimum allocation conditions under the Plan.


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2.07Break in Service Rules. Generally, an Employee will be credited with all service earned for the Employer, including service earned prior to the effective date of the Plan and service earned while the Employee is an ineligible Employee. However, the Employer may elect under AA §4-3 to disregard an Employee’s service with the Employer under the Break in Service rules set forth in this Section 2.07.

(a)Break in Service. An Employee incurs a Break in Service for any Eligibility Computation Period (as defined in Section 2.03(a)(3)) during which the Employee does not complete more than five hundred (500) Hours of Service with the Employer. However, if the Employer elects under AA §4-3(a) to require less than 1,000 Hours of Service to earn a Year of Service for eligibility purposes, a Break in Service will occur for any Eligibility Computation Period during which the Employee does not complete more than one-half (1/2) of the Hours of Service required to earn an eligibility Year of Service.

(b)Nonvested Participant Break in Service rule.

(1)Nonvested Participant Break in Service rule. Under the Nonvested Participant Break in Service rule, if a Participant is totally nonvested (i.e., 0% vested) in his/her Account Balance attributable to Employer and Matching Contributions, and such Participant incurs five (5) or more consecutive one-year Breaks in Service (or, if greater, a consecutive period of Breaks in Service at least equal to the Employee’s aggregate number of Years of Service with the Employer), the Plan will disregard all service earned prior to such consecutive Breaks in Service for purposes of determining eligibility to participate in the Plan. If the Employer elects the Elapsed Time method of crediting service (as authorized under Section 2.03(a)(6)), an Employee will be treated as incurring five consecutive Breaks in Service when he/she incurs a Period of Severance of at least 60 months.

(2)Election to apply the Nonvested Participant Break in Service rule. If the Employer elects to apply the Nonvested Participant Break in Service rule under AA §4-3(e), then, if the Employee continues in employment with the Employer after incurring the requisite Break in Service under the Nonvested Participant Break in Service rule, such Employee will be treated as a new Employee for purposes of determining eligibility under the Plan. Unless elected otherwise under AA §4-3(e), the Nonvested Participant Break in Service rule applies only with respect to a Participant who has terminated employment.

(3)Impact of making Salary Deferrals on the application of the Nonvested Participant Break in Service rule. For purposes of the Nonvested Participant Break in Service rule, a Participant who has made Salary Deferrals under the Plan will be treated as having a vested interest in the Plan. Thus, the Nonvested Participant Break in Service rule may not be used with respect to any contributions under the Plan (even if such Participant is totally nonvested in his/her Account Balance attributable to Employer and Matching Contributions) for a Participant who has made Salary Deferrals under the Plan.

(c)Special Break in Service rule for Plans using Two Years of Service for eligibility. If the Employer has elected under AA §4-1(a)(6) to require Employees to complete Two Years of Service to become eligible to participate in the Plan, any Employee who incurs a one-year Break in Service before satisfying the Two Years of Service eligibility condition will not be credited with service earned before such one-year Break in Service.

(d)One-Year Break in Service rule. Under the One-Year Break in Service rule, if a Participant incurs a one-year Break in Service, such Participant will not be credited with any service earned prior to such one-year Break in Service for purposes of determining eligibility to participate under the Plan until the Participant has completed a Year of Service after the Break in Service. The Employer must elect to apply the One-Year Break in Service rule under AA §4-3(f). Unless elected otherwise under AA §4-3(f), the One-Year Break in Service rule applies only with respect to a Participant who has terminated employment. The One-Year Break in Service rule is not available under the Standardized Plan Adoption Agreement.

(1)Temporary disregard of service. If a Participant has service disregarded under the One-Year Break in Service rule, such Participant will have his/her service reinstated as of the first day of the Eligibility Computation during which the Participant completes a Year of Service following the Break in Service. For this purpose, the Eligibility Computation Period is the 12-month period commencing on the date the Participant first performs an Hour of Service following the Break in Service. If a Participant does not complete a Year of Service during the first Eligibility Computation Period following the Break in Service, subsequent Eligibility Computation Periods will be determined based on Plan Years beginning with the first Plan Year following the Break in Service (unless the Employer selects Anniversary Years as the Eligibility Computation Period under AA §4-3(b)).

(2)Application to a Profit Sharing/401(k) Plan. If the Employer elects under AA §4-3(f) of the Profit Sharing/401(k) Plan Adoption Agreement to have the One-Year Break in Service rule apply to Salary Deferrals, an Employee who is precluded from making Salary Deferrals as a result of this Break in Service rule is eligible to recommence Salary Deferrals under the Plan immediately upon completing 1,000 Hours of


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Service with the Employer during a subsequent measuring period (as determined under subsection (1) above). No additional contribution need be made to an Employee due to the application of this subsection (2) as a result of the failure to retroactively permit the Employee to make Salary Deferrals under the Plan.

2.08Waiver of Participation. An Employee may not waive participation under the Plan unless specifically permitted under AA

§11-8. For this purpose, the mere failure to make Salary Deferrals or After-Tax Employee Contributions under the 401(k) plan is not a waiver of participation. The Employer may elect under AA §11-8 to permit Employees to make a one-time irrevocable election to not participate under the Plan. Such election must be made upon inception of the Plan or at any time prior to the time the Employee first becomes eligible to participate under any plan maintained by the Employer. An Employee who makes a one-time irrevocable election not to participate may not subsequently elect to participate under the Plan.

If the Plan permits Employees to waive participation, any Employee who elects not to participate will be treated as a non- benefiting Participant for purposes of the minimum coverage requirements under Code §410(b). An Employee who makes a one-time irrevocable election not to participate, as described in the preceding paragraph, is not included for purposes of applying the ADP Test or ACP Test under the 401(k) Agreement. See Sections 6.01 and 6.02.


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SECTION 3

PLAN CONTRIBUTIONS

This Section 3 describes the type of contributions that may be made to the Plan. The type of contributions that may be made to the Plan and the method for allocating such contributions may vary depending on the type of Plan involved. (See Section 5 for a discussion of the limits that apply to any contributions made under the Plan.)

3.01Types of Contributions. An Employer may designate under AA §6 (including AA §§6A – 6D of the Profit Sharing/401(k) Plan Adoption Agreement) the amount and type of contributions that may be made under this Plan. If the Plan is a Money Purchase Plan or is a Profit Sharing Plan only (i.e., the Adoption Agreement provides for only Profit Sharing contributions (without a 401(k) feature)), the Plan may provide for Employer Contributions (as authorized under AA §6) and, if so elected under AA §6-6, After-Tax Employee Contributions. If the Employer adopts a Profit Sharing/401(k) Plan Adoption Agreement, the Plan may permit Salary Deferrals, Employer Contributions (including QNECs and Traditional Safe Harbor/QACA Safe Harbor Employer Contributions), Matching Contributions (including QMACs and Traditional Safe Harbor/QACA Safe Harbor Matching Contributions) and After-Tax Employee Contributions. To share in a contribution under the Plan, an Employee must satisfy all of the conditions for being a Participant (as described in Section 2) and must satisfy any allocation conditions (as described in Section 3.09) applicable to the particular type of contribution.

The Employer may designate under AA §2-5 that the Plan is a frozen Plan. As a frozen Plan, the Employer will not make any Employer Contributions or Matching Contributions with respect to Plan Compensation earned after the date identified in AA

§2-5 and no Participant will be permitted to make Salary Deferrals or Employee After-Tax Employee Contributions to the Plan for any period following the effective date of the freeze as identified in AA §2-5.

3.02Employer Contribution Formulas. If permitted under AA §6, the Employer may make an Employer Contribution to the Plan, in accordance with the contribution formula selected under AA §6-2. Subsection (a) below describes the Employer Contributions that may be selected under a Profit Sharing/401(k) Plan Adoption Agreement and subsection (b) below describes the Employer Contributions that may be made under the Money Purchase Plan Adoption Agreement. Any Employer Contribution authorized under a Profit Sharing/401(k) Plan must be allocated in accordance with a definite allocation formula as set forth in AA §6-3. To receive an allocation of Employer Contributions, a Participant must satisfy any allocation conditions designated under the Plan, as described in Section 3.09 below.

(a)Employer Contribution formulas (Profit Sharing/401(k) Plan). The Employer may elect under AA §6-2 of the Profit Sharing/401(k) Plan Adoption Agreement to make any of the following Employer Contributions. If the Employer elects more than one Employer Contribution formula, each formula is applied separately. The Employer’s aggregate Employer Contribution for a Plan Year will be the sum of the Employer Contributions under all such formulas. Any reference to the Adoption Agreement under this subsection (a) is a reference to the Profit Sharing/401(k) Plan Adoption Agreement, as applicable.

(1)Discretionary Employer Contribution. If a discretionary contribution is selected under AA §6-2(a), the Employer may decide on an annual basis how much (if any) it wishes to contribute to the Plan as an Employer Contribution. If the Employer elects to make a discretionary contribution, such amount may be allocated under the pro rata, permitted disparity, Employee group, age-based or uniform points allocation method (as selected in AA §6-3).

(i)Pro rata allocation formula. Under the pro rata allocation formula, a pro rata share of the Employer Contribution is allocated to each Participant’s Employer Contribution Account. A Participant's pro rata share may be determined based on the ratio such Participant's Plan Compensation bears to the total Plan Compensation of all Participants or as a uniform dollar amount, as designated in AA §6-3(a). This allocation formula will satisfy a design-based safe harbor under Treas. Reg. §1.401(a)(4)-2(b) provided if the allocation is based on Plan Compensation, the Plan uses a definition of Plan Compensation that satisfies the nondiscrimination requirements under Treas. Reg. §1.414(s)-1.

(ii)Permitted disparity allocation formula. Under the permitted disparity allocation formula, the Employer Contribution is allocated to Participants’ Employer Contribution Accounts using a two-step or four-step method. Unless provided otherwise under AA §6-3(c), the two-step method will apply for any Plan Year in which the Plan is not Top Heavy. For any Plan Year in which the Plan is Top Heavy, the four-step method will apply, unless provided otherwise under AA §6-3(c). This allocation formula is designed to satisfy a design-based safe harbor under Treas. Reg. §1.401(a)(4)-2(b).

The Employer may not elect the permitted disparity allocation formula under the Plan if the Employer maintains another qualified plan, covering any of the same Employees, which uses permitted disparity in determining the allocation of contributions or the accrual of benefits under such plan.


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(A)Two-step method. Under the two-step method, the discretionary Employer Contribution is allocated under the following method:

(I)Step one. The Employer Contribution is allocated to each Participant’s Employer Contribution Account in the ratio that the sum of each Participant’s Plan Compensation plus Excess Compensation (as defined in subsection (C) below) bears to the sum of the total Plan Compensation plus Excess Compensation of all Participants, but not in excess of the Maximum Disparity Rate (as defined in subsection (E) below).

(II)Step two. Any Employer Contribution remaining after the allocation in subsection (I) above will be allocated in the ratio that each Participant’s Plan Compensation bears to the total Plan Compensation of all Participants.

(B)Four-step method. Under the four-step method, the discretionary Employer Contribution is allocated under the following method:

(I)Step one. The Employer Contribution is allocated to each Participant's Employer Contribution Account in the ratio that each Participant’s Total or Plan Compensation (as specified in AA §6-3(c)(2)) bears to the Total or Plan Compensation of all Participants, but not in excess of 3% of each Participant’s Total or Plan Compensation.

(II)Step two. Any Employer Contribution remaining after the allocation in subsection (I) above will be allocated to each Participant’s Employer Contribution Account in the ratio that each Participant’s Excess Compensation (as defined in subsection (C) below) bears to the Excess Compensation of all Participants, but not in excess of 3% of each Participant’s Excess Compensation. For purposes of this step two, Excess Compensation will be determined using Total or Plan Compensation (as specified in AA §6-3(c)(2)) for the Plan Year.

(III)Step three. Any Employer Contribution remaining after the allocation in subsection

(II) above will be allocated to each Participant’s Employer Contribution Account in the ratio that the sum of each Participant’s Plan Compensation plus Excess Compensation bears to the sum of the total Plan Compensation plus Excess Compensation of all Participants, but not in excess of the Maximum Disparity Rate (as defined in subsection

(E) below).

(IV)Step four. Any Employer Contribution remaining after the allocation in subsection

(III) above will be allocated to each Participant’s Employer Contribution Account in the ratio that each Participant’s Plan Compensation bears to the total Plan Compensation of all Participants.

(C)Excess Compensation. The amount of Plan Compensation that exceeds the Integration Level.

(D)Integration Level. The Taxable Wage Base, unless specified otherwise under AA §6-3(c)(1).

(E)Maximum Disparity Rate. The Maximum Disparity Rate is the maximum amount that may be allocated with respect to Excess Compensation. If the two-step allocation method is used under subsection (A) above, under step one of the two-step formula, the amount allocated as a percentage of Plan Compensation and Excess Compensation may not exceed the following percentage:

Integration Level Maximum

(as a percentage of the Taxable Wage Base) Disparity Rate

100% 5.7%

More than 80% but less than 100% 5.4%

More than 20% and not more than 80% 4.3%

20% or less 5.7%


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If the four-step allocation formula is used under subsection (B) above, under step three of the four-step formula, the amount allocated as a percentage of Plan Compensation and Excess Compensation may not exceed the following percentage:

Integration Level Maximum

(as a percentage of the Taxable Wage Base) Disparity Rate

100% 2.7%

More than 80% but less than 100% 2.4%

More than 20% and not more than 80% 1.3%

20% or less 2.7%

(F)Taxable Wage Base. The maximum amount of wages that are considered for Social Security purposes in effect at the beginning of the Plan Year.

(G)Annual overall permitted disparity limit. Notwithstanding the preceding paragraphs, for any Plan Year this Plan benefits any Participant who benefits under another qualified plan or simplified employee pension, as defined in § 408(k) of the Code, maintained by the Employer that provides for permitted disparity (or imputes disparity), Employer Contributions and forfeitures will be allocated to the account of each Participant who either completes more than 500 hours of service during the Plan Year, or who is employed on the last day of the Plan Year, in the ratio that such Participant's Total Compensation bears to the Total Compensation of all Participants.

(H)Cumulative permitted disparity limit. The cumulative permitted disparity limit for a Participant is 35 total cumulative permitted disparity years. Total cumulative permitted years means the number of years credited to the Participant for allocation under this Plan, any other qualified plan or simplified employee pension plan (whether or not terminated) ever maintained by the employer. For purposes of determining the Participant's cumulative permitted disparity limit, all years ending in the same calendar year are treated as the same year. If the participant has not benefited under a defined benefit or target benefit plan for any year beginning on or after January 1, 1994, the participant has no cumulative disparity limit.

(iii)Uniform points allocation. Under the uniform points allocation, the Employer will allocate the discretionary Employer Contribution on the basis of each Participant’s total points for the Plan Year, as determined under AA §6-3(d). A Participant’s allocation of the Employer Contribution is determined by multiplying the Employer Contribution by a fraction, the numerator of which is the Participant’s total points for the Plan Year and the denominator of which is the sum of the points for all Participants for the Plan Year.

A Participant will receive points for each year(s) of age and/or each Year(s) of Service designated under AA §6-3(d). In addition, a Participant may also receive points based on his/her Plan Compensation. Each Participant will receive the same number of points for each designated year of age and/or service and the same number of points for each designated level of Plan Compensation. If the Employer provides points based on Plan Compensation, the Employer may not designate a level of Plan Compensation that exceeds $200.

To satisfy the nondiscrimination safe harbor under Treas. Reg. §1.401(a)(4)-2, the average of the allocation rates for Highly Compensated Employees in the Plan must not exceed the average of the allocation rates for the Nonhighly Compensated Employees in the Plan. For this purpose, the average allocation rates are determined in accordance with Treas. Reg. §1.401(a)(4)-2(b)(3)(B).

(iv)Employee group allocation. Under the Employee group allocation method, the Employer may make a different discretionary contribution to each Participant’s Employer Contribution Account based on the Employee allocation groups designated under AA §6-3(e). The Employer Contribution made for an allocation group will be allocated as a uniform percentage of Plan Compensation or as a uniform dollar amount. If the Employer Contribution is allocated as a percentage of Plan Compensation, the amount that will be allocated to each Participant within an allocation group is determined by multiplying the Employer Contribution made for that allocation group by the following fraction:


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Participant's Plan Compensation Plan Compensation of all Participants in the allocation group

Alternatively, the Employer may set forth in the description of the Employee groups under AA §6- 3(e)(2) a fixed contribution amount for a designated Employee group. If a fixed contribution is provided for a specific Employee group, the amount designated as the fixed contribution will be allocated to each Participant within the designated Employee group.

The Plan must satisfy the general nondiscrimination rate group test under Treas. Reg. §1.401(a)(4)-2(c) or Treas. Reg. §1.401(a)(4)-8 with respect to the separate allocation rates under the Plan. The Plan may be tested on the basis of allocation rates or equivalent benefit rates. If the Plan is tested on the basis of equivalent benefit rates, the Plan will use standard interest rate and mortality table assumptions in accordance with Treas. Reg. §1.401(a)(4)-12 when testing the allocation formula for nondiscrimination. In the case of self-employed individuals (i.e., sole proprietorships or partnerships), the requirements of 1.401(k)-1(a)(6) continue to apply, and the allocation method should not be such that a cash or deferred election is created for a self-employed individual as a result of the application of the allocation method.

(A)Must designate contribution in writing. The Employer must designate in writing how much of the Employer Contribution is made for each of the Employee allocation groups and whether such amounts are allocated on the basis of Plan Compensation or as a uniform dollar amount. The portion of the Employer Contribution designated for a specific allocation group will be allocated only to Participants within that allocation group. If a Participant is in more than one allocation group during the Plan Year, the Participant will receive an Employer Contribution based on the Participant’s status on the last day of the Plan Year. In the event a Participant is in two or more allocation groups on the last day of the Plan Year, the Participant will receive an Employer Contribution based on the first allocation group listed under AA §6-3(e) in which the Participant is a part. The Employer can provide for a different treatment of Employees in multiple groups under AA §6-3(e)(3)(iii).

(B)Special rules.

(I)Family Members. The Employer may designate in AA §6-3(e)(3)(i) to establish a separate allocation group for each Family Member of a Five-Percent Owner of the Employer. For this purpose, Family Members include the Spouse, children, parents and grandparents of a Five-Percent Owner. If there is more than one Family Member, each Family Member will be in his/her own separate allocation group. (See Section 1.70(a) for the definition of a Five-Percent Owner.)

(II)Benefiting Participants. The Employer may designate in AA §6-3(e)(3)(ii) to establish a separate allocation group for any Nonhighly Compensated Benefiting Participant who does not receive the Minimum Gateway Contribution described under subsection (III)(a) below. For this purpose, a Participant is treated as a Benefiting Participant if such Participant receives an allocation of Employer Contributions (other than Salary Deferrals or Matching Contributions (including Traditional Safe Harbor/QACA Safe Harbor Matching Contributions and QMACs)) or receives an allocation of forfeitures for the Plan Year (other than forfeitures that are subject to Code §401(m) because they are allocated as a Matching Contribution). An allocation may be made to a Nonhighly Compensated Benefiting Participant under this subsection (II) without regard to any allocation conditions otherwise applicable to Employer Contributions under the Plan.

(III)Special gateway contribution. If a separate allocation group is not established for Benefiting Participants under AA §6-3(e)(3)(ii), the Employer may make an additional discretionary Employer Contribution (“special gateway contribution”) for all Nonhighly Compensated Benefiting Participants (as described in subsection (II)) in an amount necessary to provide the Minimum Gateway Contribution described in subsection (a) below. The special gateway contribution will be allocated to all Nonhighly Compensated Benefiting Participants who have not otherwise received the Minimum Gateway Contribution without regard to any allocation conditions otherwise applicable to Employer Contributions under the Plan. However, Participants who the Plan Administrator disaggregates pursuant to Treas. Reg. §1.410(b)-7(c)(4) because they have not satisfied the greatest minimum age and service conditions permissible under Code §410(a) shall not be eligible to receive an allocation of any special gateway contribution made pursuant to this subsection (III).


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(a)Minimum Gateway Contribution. A Benefiting Participant is treated as receiving the Minimum Gateway Contribution if the Participant has an allocation rate that is equal to the lesser of:

(1)one-third of the allocation rate of the Highly Compensated Employee with the highest allocation rate for the Plan Year or

(2)5% of Compensation (as defined in subsection (b) below).

In determining whether a Benefiting Participant has received an allocation that satisfies the Minimum Gateway Contribution, all Employer Contributions allocated to the Participant for the Plan Year are taken into account. For this purpose, Employer Contributions do not include any Matching Contributions or Salary Deferrals.

(b)Compensation for 5% gateway allocation. For purposes of the 5% gateway contribution under subsection (a)(2) above, Compensation means Total Compensation for the Plan Year. However, for this purpose, Total Compensation may exclude amounts paid while an Employee is not a Participant in the Plan.

(c)Compensation under one-third gateway allocation. To determine whether a Benefiting Participant has received an allocation that satisfies the one-third gateway allocation requirement under subsection (a)(1) above, a Participant’s allocation rate is determined by dividing the total Employer Contribution made on behalf of such Participant by the Participant's Plan Compensation (as defined in AA §5-3) or by any other definition of compensation that satisfies the requirements of Treas. Reg. §1.414(s). Any definition of compensation used under this subsection (c) must be applied uniformly in determining the allocation rates of Benefiting Participants.

(IV)Special gateway contribution for DB/DC plans. If this Plan is aggregated with a Defined Benefit Plan for purposes of nondiscrimination testing, the Employer may make an additional discretionary Employer Contribution for Nonhighly Compensated Benefiting Participants in an amount necessary to satisfy the minimum gateway requirements applicable to DB/DC plans. However, Participants who the Plan Administrator disaggregates pursuant to Treas. Reg. §1.410(b)-7(c)(4) because they have not satisfied the greatest minimum age and service conditions permissible under Code §410(a) shall not be eligible to receive an allocation of any special gateway contribution made pursuant to this subsection (IV).

(a)DB/DC gateway contribution. For this purpose, the minimum gateway requirement for DB/DC plans is equal to the lesser of:

(1)one-third (1/3) of the Aggregate Normal Allocation Rate of the Highly Compensated Participant with the highest Aggregate Normal Allocation Rate, or

(2)the lesser of:

(i) 5% of Code §414(s) Compensation (increased by one percentage point for each 5-percentage point increment (or portion thereof) by which the Aggregate Normal Allocation Rate of the Highly Compensated Participant exceeds 25%) or

(ii) 7½% of Code §414(s) Compensation.

(b)Aggregate Normal Allocation Rate. The Aggregate Normal Allocation Rate shall be determined in accordance with Treas. Reg. §1.401(a)(4)-9(b)(2)(ii).

(c)Benefiting Participants. A Participant is treated as a Benefiting Participant if such Participant receives an allocation of Employer Contributions (other than


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Salary Deferrals or Matching Contributions (including Traditional Safe Harbor/QACA Safe Harbor Matching Contributions and QMACs)) or receives an allocation of forfeitures for the Plan Year (other than forfeitures that are subject to Code §401(m) because they are allocated as a Matching Contribution) or accrues a benefit under the Defined Benefit Plan which is aggregated with this Plan for nondiscrimination testing.

(d)Code §414(s) Compensation. For purposes of this subsection (IV), Code

§414(s) Compensation is any definition of compensation that satisfies the requirements under Treas. Reg. §1.414(s)-1. Thus, the Plan may use full-year compensation or compensation earned while a Participant, provided such definition satisfies the requirements of Treas. Reg. §1.414(s)-1.

(V)Special restrictions that apply to “short-service” Employees. A designated Employee allocation group which is limited to Nonhighly Compensated Employees with the lowest amount of compensation and/or the shortest periods of service may be deemed to violate the nondiscrimination requirements under Code §401(a)(4).

(v)Age-based allocation formula. Under the age-based allocation formula, the Employer will allocate the discretionary Employer Contribution on the basis of each Participant’s adjusted Plan Compensation. Amounts allocated under an age-based allocation must satisfy the general nondiscrimination rate group test under Treas. Reg. §1.401(a)(4)-2(c) or Treas. Reg. §1.401(a)(4)-8.

(A)Adjusted Plan Compensation. For this purpose, a Participant’s adjusted Plan Compensation is determined by multiplying the Participant’s Plan Compensation by an Actuarial Factor (as described in subsection (B) below).

(B)Actuarial Factor. A Participant’s Actuarial Factor is determined based on standard actuarial assumptions that satisfy Treas. Reg. §1.401(a)(4)-12 using a testing age that is the later of Normal Retirement Age or the Employee’s current age. Unless designated otherwise under AA

§6-3(f), a Participant’s Actuarial Factor is determined based on an 8.5% interest rate and the UP-1984 mortality table. (See Appendix A of the Plan for the Actuarial Factors associated with an 8.5% interest rate and the UP-1984 mortality table and a testing age of 65. If an interest rate other than 8.5% or a mortality table other than the UP-1984 mortality table is selected under AA §6-3(f), or if a testing age other than age 65 is used, the Plan must determine the appropriate Actuarial Factors based on the designated interest rate, mortality table and testing age.)

(2)Fixed Employer Contribution. The Employer may elect under AA §6-2(b) to make a fixed contribution to the Plan. The Employer may elect under AA §6-2(b)(1) or (2) to make a fixed contribution as a designated percentage of Plan Compensation or as a uniform dollar amount. In addition, the contribution may be allocated in accordance with a Collective Bargaining Agreement or employment agreement.

If a fixed contribution is selected under AA §6-2(b)(1) or (2), the Employer Contribution will be allocated under the fixed contribution formula under AA §6-3(b) in accordance with the selections made in AA §6-2(b). The allocation of the fixed Employer Contribution will satisfy a design-based safe harbor under Treas. Reg.

§1.401(a)(4)-2(b) provided, if the allocation is based on Plan Compensation, the Plan uses a definition of Plan Compensation that satisfies the nondiscrimination requirements under Treas. Reg. §1.414(s)-1.

The Employer may elect under AA §6-2(c) to make a contribution based on the provisions of a Collective Bargaining Agreement, employment agreement or equivalent arrangement which provides for retirement benefits. The Employer will set forth the provisions of any contribution based on the provisions, including allocation provisions, of the Collective Bargaining Agreement, employment agreement or equivalent arrangement by inserting such provisions under AA §6-2(c).

(3)Service-based Employer Contribution. If elected in AA §6-2(e), the Employer may make a contribution based on an Employee’s service with the Employer during the Plan Year (or other period designated under AA

§6-5). The Employer may elect to make the service-based contribution as a discretionary contribution or as a fixed contribution. Any such contribution will be allocated on the basis of Participants’ Hours of Service, weeks of employment or other measuring period selected under AA §6-2(d). The Employer Contribution will be allocated under the service-based allocation formula under AA §6-3(g). Amounts allocated on the basis of service must satisfy the general nondiscrimination rate group test under Treas. Reg. §1.401(a)(4)-2(c) or Treas. Reg. §1.401(a)(4)-8.


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(4)Year of Service Employer Contribution. The Employer may elect under AA §6-2(d) to provide an Employer Contribution based on an Employee’s Years of Service with the Employer. Unless designated otherwise under AA §6-2(e), an Employee earns a Year of Service for each Plan Year during which the Employee completes at least 1,000 Hours of Service. The Employer may designate an alternative definition of Year of Service under AA §6-2(e). The Employer Contribution will be allocated under the Year of Service allocation formula under AA §6-3(h). Amounts allocated on the basis of Years of Service must satisfy the general nondiscrimination rate group test under Treas. Reg. §1.401(a)(4)-2(c) or Treas. Reg. §1.401(a)(4)-8.

(5)Prevailing Wage Contribution. If elected in AA §6-2(f), the Employer may make a Prevailing Wage Contribution for Participants who perform Prevailing Wage Service. For this purpose, Prevailing Wage Service is any service performed by an Employee under a public contract subject to the Davis-Bacon Act or to any other federal, state or municipal prevailing wage law. The Employer will make an Employer Contribution based on the hourly contribution rate for the Participant’s employment classification. The Prevailing Wage Contribution will be allocated under the Prevailing Wage allocation formula under AA §6-3(i). Special restrictions may apply in order for Prevailing Wage Contributions to be taken into account for purposes of satisfying the applicable federal, state or municipal prevailing wage laws. The Employer may attach an Addendum to the Adoption Agreement setting forth the hourly contribution rate for the employment classifications eligible for Prevailing Wage Contributions.

Unless provided otherwise in AA §6-2(f)(3), the following default rules apply for purposes of determining the Prevailing Wage Contribution.

(i)Only available to Nonhighly Compensated Employees. Highly Compensated Employees are not eligible to share in the Prevailing Wage Contribution.

(ii)No minimum age and service conditions. No minimum age or service conditions will apply for purposes of determining an Employee’s eligibility for the Prevailing Wage Contribution. An Employee who performs Prevailing Wage Service will be eligible to receive the Prevailing Wage Contribution as of his/her Employment Commencement Date.

(iii)No allocation conditions. No allocation conditions (as described in Section 3.09) will apply to the Prevailing Wage Contribution.

(iv)Full vesting. Prevailing Wage Contributions are always 100% vested.

If the Employer elects to provide eligibility requirements or vesting requirements with respect to Prevailing Wage Contributions under AA §6-2(f), the Employer may not be able to take full credit under applicable federal, state or municipal prevailing wage laws for the Prevailing Wage Contributions made under this Plan. See the applicable prevailing wage laws for more information regarding the effect of eligibility and/or vesting requirements.

The Employer may elect under AA §6-2(f)(2) to offset other Employer Contributions made under the Plan by the Prevailing Wage Contribution. If the Prevailing Wage Contribution is used to offset a Safe Harbor Employer Contribution or a Safe Harbor Matching Contribution, the Prevailing Wage Contribution will be treated as satisfying the requirements for a Safe Harbor Contribution as set forth in Section 6.04. Thus, any Prevailing Wage Contributions that are used to offset Safe Harbor Contributions will always be 100% vested and will be subject to the distribution restrictions described in Section 6.04(a)(3). The Plan will not fail to qualify as a Safe Harbor 401(k) Plan solely because Prevailing Wage Contributions are used to offset the Safe Harbor Employer or Safe Harbor Matching Contributions under the Plan.

To the extent the Prevailing Wage Contribution satisfies the requirements for a QNEC, as described in subsection (6) below, the Prevailing Wage Contribution may be treated as a QNEC under the Plan. If a Highly Compensated Employee receives a Prevailing Wage Contribution and the Plan fails the nondiscrimination requirements under Code §401(a)(4), the Employer may elect to pay the discriminatory contribution to the Highly Compensated Employee outside of the Plan consistent with the requirements of the applicable prevailing wage laws.

(6)Qualified Nonelective Contributions (QNECs). Notwithstanding any contrary selections in a Profit Sharing/401(k) Plan Adoption Agreement, for any Plan Year, the Employer may make a discretionary QNEC on behalf of Nonhighly Compensated Participants under the Plan to correct a violation of the ADP and/or ACP tests. (See Sections 6.01(b)(3) and 6.02(b)(3).) Such corrective QNEC may be allocated to all Nonhighly Compensated Participants as a uniform percentage of Plan Compensation or a uniform dollar amount or as a


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Targeted QNEC (as defined in subsection (ii)(B) below), without regard to any allocation conditions selected in AA §6-5. The allocation method chosen by the Employer for a corrective QNEC will be uniformly applied to all Participants receiving the corrective QNEC for the Plan Year. The Employer also may make a discretionary QNEC that is not a corrective QNEC and allocate such discretionary QNEC as a uniform percentage of Plan Compensation to Nonhighly Compensated Employees.

A QNEC must satisfy the requirements for a QNEC described in subsection (i) below. If the Plan is disaggregated for otherwise excludable Employees pursuant to Section 6.03(b), the Employer may allocate the QNEC only to Participants in a particular disaggregated portion of the Plan. See Section 6.03(c). (See Sections 6.01(b)(3) and 6.02(b)(3) for a description of the amount of QNECs that may be taken into account under the ADP Test and/or ACP Test.)

If the Employer makes both a discretionary Employer Contribution under AA §6-2(a) and a discretionary QNEC, the Employer must designate the amount of the Employer Contribution which is designated as a regular Employer Contribution and the amount designated as a QNEC.

(i)Requirements for a QNEC. In order to qualify as a QNEC, an Employer Contribution must satisfy the following requirements:

(A)100% vesting. A QNEC must be 100% vested when allocated to a Participant’s Account.

(B)Distribution restrictions. A QNEC when allocated to a Participant’s Account must be subject to the same distribution restrictions applicable to Salary Deferrals under Section 8.10(c), except that no portion of a Participant’s QNEC Account may be distributed on account of Hardship. See Section 8.10(e).

(C)Allocation conditions. A QNEC will not be subject to the allocation provisions applicable to Employer Contributions, as designated under AA §6-6, unless provided otherwise under AA

§6D-3 of the Profit Sharing/401(k) Plan Adoption Agreement.

(ii)Allocation method for QNECs.

(A)Participants. The Employer may allocate the QNEC as a uniform percentage of Plan Compensation or as a uniform dollar amount to all Nonhighly Compensated Participants. Alternatively, the Employer may elect under AA §6D-3(a) of the Profit Sharing/401(k) Plan Adoption Agreement to allocate any QNEC under the Plan to all Participants (rather than to just Nonhighly Compensated Participants).

(B)Targeted QNEC. The Employer may allocate the QNEC as a Targeted QNEC. If the Employer makes a Targeted QNEC, the QNEC will be allocated to Nonhighly Compensated Participants in the QNEC Allocation Group, starting with Nonhighly Compensated Participants with the lowest Plan Compensation for the Plan Year. For this purpose, the QNEC Allocation Group is made up of the Nonhighly Compensated Participants (equal to one-half of total Nonhighly Compensated Participants under the Plan), with the lowest level of Plan Compensation for the Plan Year.

(I)5% of Plan Compensation limit. The QNEC will be allocated to the Nonhighly Compensated Employees in the QNEC Allocation Group up to a maximum of 5% of Plan Compensation. The QNEC will be allocated first to the Nonhighly Compensated Participant(s) with the lowest Plan Compensation (up to the 5% of Plan Compensation maximum allocation) and continuing with Nonhighly Compensated Employees in the QNEC Allocation Group with the next higher level of Plan Compensation, until all of the QNEC has been allocated (or until all Nonhighly Compensated Employees in the QNEC Allocation Group have received the maximum 5% of Plan Compensation QNEC allocation).

(II)Reallocation to lowest one-half of Nonhighly Compensated Participants. If a QNEC remains unallocated after the allocation under subsection (I), the remaining QNEC will continue to be allocated in accordance with subsection (I), in increments equal to twice the level of QNEC allocated to the rest of the QNEC Allocation Group. Thus, for example, if a QNEC remains unallocated after allocating the full 5% of Plan Compensation to the QNEC Allocation Group, the QNEC will continue to be allocated up to 10% of Plan Compensation (twice the QNEC already allocated to the QNEC


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Allocation Group) beginning with the Nonhighly Compensated Employee in the QNEC Allocation Group with the lowest Plan Compensation.

(III)Additional members in QNEC Allocation Group. If at any time, a Nonhighly Compensated Participant is not able to receive a full QNEC allocation under subsection

(a)or (II) (e.g., due to the application of the Code §415 Limitation), the Nonhighly Compensated Participant with the next higher level of Plan Compensation (that is not in the QNEC Allocation Group) will be added to the QNEC Allocation Group.

(IV)Increase in QNEC to correct ADP and ACP Test. If the QNEC is being used to correct both the ADP and ACP Tests, the allocation in subsection (I) may be increased to 10% of Plan Compensation (instead of 5% of Plan Compensation). In addition, the allocation in subsection (II) would also be increased so that the maximum QNEC allocation will be twice the 10% QNEC allocation.

(V)Special rule for Prevailing Wage Contributions. To the extent QNECs are made in connection with the Employer’s obligation to pay Prevailing Wages, this subsection

(B) may be applied by increasing the 5% of Plan Compensation limit to 10% of Plan Compensation.

(7)Frozen Plan. The Employer may designate under AA §2-5 that the Plan is a frozen Plan. As a frozen Plan, the Employer will not make any Employer Contributions with respect to Plan Compensation earned after the date identified in AA §2-5. In addition, if the Plan is a 401(k) Plan, no Participant will be permitted to make Elective Deferrals or After-Tax Employee Contributions to the Plan for any period following the effective date of the freeze as identified in AA §2-5. If the Plan holds any unallocated forfeitures at the time the Plan is frozen, such forfeitures may be allocated in accordance with Section 7.13, regardless of any contrary selections under AA

§8-6.

(b)Employer Contribution formulas (Money Purchase Plan). The Employer may elect under AA §6-2 of the Money Purchase Plan Adoption Agreement to make any of the following Employer Contributions. Each Participant will receive an allocation of Employer Contributions equal to the amount determined under the contribution formula elected under AA §6-2. Any reference to the Adoption Agreement under this subsection (b) is a reference to the Money Purchase Plan Adoption Agreement. To receive an allocation of Employer Contributions, a Participant must satisfy any allocations conditions designated under the Plan, as described in Section 3.09 below.

If the Employer adopts the Money Purchase Plan Adoption Agreement and also maintains another qualified retirement plan or plans, the contribution to be made under the Money Purchase Plan will not exceed the maximum amount that is deductible under Code §404(a)(7), taking into account all contributions that have been made to the other plan or plans prior to the date a contribution is made under the Money Purchase Plan.

(1)Uniform Employer Contribution. If elected under AA §6-2(a), the Employer will make a contribution to each Participant under the Plan as a uniform percentage of Plan Compensation or as a uniform dollar amount. This contribution formula will satisfy a design-based safe harbor under Treas. Reg. §1.401(a)(4)-2(b) provided if the allocation is based on Plan Compensation, the Plan uses a definition of Plan Compensation that satisfies the nondiscrimination requirements under Treas. Reg. §1.414(s)-1.

(2)Permitted disparity contribution formula. If elected under AA §6-2(c), the Employer will make a permitted disparity contribution to each Participant using either the individual or group method. The Employer may not elect the permitted disparity contribution formula under the Plan if the Employer maintains another qualified plan, covering any of the same Employees, which uses permitted disparity in determining the allocation of contributions or the accrual of benefits under such plan. This contribution formula is designed to satisfy a design-based safe harbor under Treas. Reg. §1.401(a)(4)-2(b).

(i)Individual method. Under the individual method, each Participant will receive an allocation of the Employer Contribution equal to the amount determined under the contribution formula under AA §6- 2(c)(1). A Participant may not receive an allocation with respect to Excess Compensation that exceeds the Maximum Disparity Rate.

(A)Excess Compensation. The amount of Plan Compensation that exceeds the Integration Level.

(B)Integration Level. The Taxable Wage Base, unless specified otherwise under AA §6-2(c)(3).


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(C)Maximum Disparity Rate. The Maximum Disparity Rate is the maximum amount that may be allocated with respect to Excess Compensation under the permitted disparity formula. The maximum amount that may be allocated as a percentage of Plan Compensation and Excess Compensation is the following percentage:

Integration Level Maximum

(as a percentage of the Taxable Wage Base) Disparity Rate

100% 5.7%

More than 80% but less than 100% 5.4%

More than 20% and not more than 80% 4.3%

20% or less 5.7%

(D)Taxable Wage Base. The maximum amount of wages that are considered for Social Security purposes as in effect at the beginning of the Plan Year.

(ii)Group method. Under the group method, the Employer contributes a fixed percentage of total Plan Compensation of all Participants. The Employer Contribution is then allocated under the two-step method (as described in subsection (a)(1)(ii)(A) above) or, if the Plan Is Top-Heavy, under the four- step method (as described in subsection (a)(1)(ii)(B) above). In determining Excess Compensation, the Integration Level is the Taxable Wage Base, unless designated otherwise under AA §6-2(c)(3).

(iii)Overall permitted disparity limits. Annual overall permitted disparity limit: Notwithstanding the preceding paragraphs, for any Plan Year this Plan benefits any Participant who benefits under another qualified plan or simplified employee pension, as defined in Code §408(k), maintained by the Employer that provides for permitted disparity (or imputes disparity), Employer Contributions and forfeitures will be allocated to the account of each Participant who either completes more than 500 hours of service during the plan year or who is employed on the last day of the plan year in the ratio that such Participant's Total Compensation bears to the Total Compensation of all Participants.

(iv)Cumulative permitted disparity limit. The cumulative permitted disparity limit for a Participant is 35 total cumulative permitted disparity years. Total cumulative permitted years means the number of years credited to the Participant for allocation or accrual purposes under this Plan, any other qualified plan or simplified employee pension plan (whether or not terminated) ever maintained by the Employer. For purposes of determining the Participant's cumulative permitted disparity limit, all years ending in the same calendar year are treated as the same year. If the Participant has not benefited under a defined benefit or target benefit plan for any year beginning on or after January 1, 1994, the Participant has no cumulative disparity limit.

(3)Employee group contribution formula. Under the Employee group contribution formula, the Employer may make a different contribution to each Participant’s Employer Contribution Account based on the designated Employee groups identified under AA §6-2(d). The Employer will notify the Trustee (or other person receiving the Employer Contributions) in writing the amount of Employer Contributions being given to each Employee group.

The Employer Contribution made for a designated Employee group will be allocated to each eligible Participant in such group as a uniform percentage of Plan Compensation or as a uniform dollar amount, as designated in AA §6-2(d)(2). The Employer also may elect to allocate an amount to each eligible Participant in a designated Employee group the maximum amount permissible under Code §415. See Section 5.03.

The Employee groups designated in AA §6-2(d) must be clearly defined in a manner that will not violate the definite determinable requirement of Treas. Reg. §1.401-1(b)(1)(ii). The portion of the Employer Contribution designated for a specific Employee group will be allocated only to Participants within that group. If a Participant is in more than one Employee group during the Plan Year, the Participant will receive an Employer Contribution based on the Participant’s status on the last day of the Plan Year. In the event a Participant is in two or more Employee groups on the last day of the Plan Year, the Participant will receive an Employer Contribution based on the first Employee group listed under AA §6-2(d) in which the Participant is a part. The Employer can provide for a different treatment of Employees in multiple groups under AA §6-2(d)(3)(i).


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The Plan still must satisfy the general nondiscrimination rate group test under Treas. Reg. §1.401(a)(4)-2(c) or Treas. Reg. §1.401(a)(4)-8 with respect to the separate contribution rates under the Plan. The Plan may be tested on the basis of allocation rates or equivalent benefit rates. If the Plan is tested on the basis of equivalent benefit rates, the Plan will use standard interest rate and mortality table assumptions in accordance with Treas. Reg. §1.401(a)(4)-12 when testing the allocation formula for nondiscrimination.

In the case of self-employed individuals (i.e., sole proprietorships or partnerships), the requirements of 1.401(k)-1(a)(6) continue to apply, and the designation of Employee groups should not be such that a cash or deferred election is created for a self-employed individual as a result of the application of such designation. A designated Employee group which is limited to Nonhighly Compensated Employees with the lowest amount of compensation and/or the shortest periods of service may be deemed to violate the nondiscrimination requirements under Code §401(a)(4).

(4)Age-based contribution formula. Under the age-based contribution formula, the Employer will contribute a specific percentage of each Participant’s adjusted Plan Compensation. Amounts contributed under an age-based contribution formula must satisfy the general nondiscrimination rate group test under Treas. Reg. §1.401(a)(4)- 2(c) or Treas. Reg. §1.401(a)(4)-8.

(i)Adjusted Plan Compensation. For this purpose, a Participant’s adjusted Plan Compensation is determined by multiplying the Participant’s Plan Compensation by an Actuarial Factor (as described in subsection (ii) below).

(ii)Actuarial Factor. A Participant’s Actuarial Factor must be determined based on standard actuarial assumptions that satisfy Treas. Reg. §1.401(a)(4)-12 using a testing age that is the later of Normal Retirement Age or the Employee’s current age. Unless designated otherwise under AA §6-2(e), a Participant’s Actuarial Factor is determined based on an 8.5% interest rate and the UP-1984 mortality table. (See Appendix A of the Plan for the Actuarial Factors associated with an 8.5% interest rate and the UP-1984 mortality table and a testing age of 65. If an interest rate other than 8.5% or a mortality table other than the UP-1984 mortality table is selected under AA §6-2(e), or if a testing age other than age 65 is used, the Plan must determine the appropriate Actuarial Factors based on the designated interest rate, mortality table and testing age.)

(5)Service-based Employer Contribution. If elected in AA §6-2(f), the Employer will make a contribution based on an Employee’s service with the Employer during the Plan Year (or other period designated under AA §6-4). The Employer Contribution will be allocated on the basis of Participants’ Hours of Service, weeks of employment or other measuring period selected under AA §6-2(f). Amounts contributed on the basis of service must satisfy the general nondiscrimination rate group test under Treas. Reg. §1.401(a)(4)-2(c) or Treas. Reg.

§1.401(a)(4)-8.

(6)Prevailing Wage Contribution. If elected in AA §6-2(g), the Employer will make a Prevailing Wage Contribution for Participants who perform Prevailing Wage service. For this purpose, Prevailing Wage service is any service performed by an Employee under a public contract subject to the Davis-Bacon Act or to any other federal, state or municipal prevailing wage law. The Employer will make an Employer Contribution based on the hourly contribution rate for the Participant’s employment classification. Special restrictions may apply in order for Prevailing Wage Contributions to be taken into account for purposes of satisfying the applicable federal, state or municipal prevailing wage laws. The Employer may attach an Addendum to the Adoption Agreement setting forth the hourly contribution rate for the employment classifications eligible for Prevailing Wage Contributions.

Unless provided otherwise in AA §6-2(g)(2), the default rules described in subsection (a)(5) above will apply for purposes of determining the Prevailing Wage Contribution. If the Employer elects to provide eligibility requirements or vesting requirements with respect to Prevailing Wage Contributions under AA §6-2(g), the Employer may not be able to take full credit under applicable federal, state or municipal prevailing wage laws for the Prevailing Wage Contributions made under this Plan. See the applicable prevailing wage laws for more information regarding the effect of eligibility and/or vesting requirements.

The Employer may elect under AA §6-2(g)(1) to offset other Employer Contributions made under the Plan by the Prevailing Wage Contribution.


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forfeitures may be allocated in accordance with Section 7.13, regardless of any contrary selections under AA

§8-6.

(c)Period for determining Employer Contributions. In determining the amount of Employer Contributions to be allocated to Participants under the Plan, the Plan will take into account Plan Compensation (as defined in Section 1.99) for the Plan Year. The Employer may designate under AA §6-5 alternative periods for determining the allocation of Employer Contributions. If alternative periods are designated under AA §6-5, a Participant’s allocation of Employer Contributions will be determined separately for each designated period based on Plan Compensation earned during such period. If an alternative period is designated under AA §6-5, the Employer need not actually make the Employer Contribution during the designated period, provided the total Employer Contribution for the Plan Year is allocated based on the proper Plan Compensation. (If the permitted disparity allocation method applies under AA §6-3(c), the allocation will be based on the Plan Year.)

(d)Offset of Employer Contributions.

(1)Offset of Employer Contributions by Traditional Safe Harbor/QACA Safe Harbor Employer Contributions. If the Plan provides for Traditional Safe Harbor/QACA Safe Harbor Employer Contributions under AA §6C-2 of the Profit Sharing/401(k) Plan Adoption Agreement, the Employer may elect under AA

§6C-6 to offset any additional Employer Contributions a Participant would otherwise receive by the amount of Traditional Safe Harbor/QACA Safe Harbor Employer Contributions the Participant receives under the Plan. Thus, when allocating any additional Employer Contributions under the Plan, if so elected under AA §6C-6, no amounts will be allocated to Participants who receive a Traditional Safe Harbor/QACA Safe Harbor Employer Contribution until the amount of additional Employer Contributions exceeds the amount of Traditional Safe Harbor/QACA Safe Harbor Employer Contributions received under the Plan. For this purpose, if the permitted disparity allocation method applies, this offset applies only to the second step of the two-step permitted disparity formula or the fourth step of the four-step permitted disparity formula.

(2)Offset for contributions under another qualified plan maintained by the Employer. If the Employer maintains any other qualified plan(s) which cover any Participants under this Plan, the Employer may elect under AA §6-5(c) of the Profit Sharing/401(k) Plan Adoption Agreement or AA §6-3(c) of the Money Purchase Plan Adoption Agreement to reduce such Participants’ allocation under this Plan to take into account the benefits provided under the Employer’s other qualified plan(s). For purposes of satisfying the coverage requirements under Code §410(b) and the nondiscrimination requirements under Code §401(a)(4), this Plan may need to be aggregated with such other qualified plan(s) in accordance with Treas. Reg. §1.410(b)-7. The Employer may describe any special rules that apply for purposes of determining the offset under AA §6-5(c)(2) or AA §6-3(c)(2), as applicable.

3.03Salary Deferrals. The Employer may elect under AA §6A of the Profit Sharing/401(k) Plan Adoption Agreement to authorize Participants to make Salary Deferrals under the Plan. A Participant’s total Salary Deferrals may not exceed the lesser of any limitation designated under AA §6A-2, the Elective Deferral Dollar Limit described under Section 5.02 or the amount permitted under the Code §415 Limitation described under Section 5.03. The Employer may elect under AA §6A-2(c) of the Profit Sharing/401(k) Plan Adoption Agreement to apply a different limit on Salary Deferrals to the extent such Salary Deferrals are withheld from a Participant’s bonus payments.

(a)Salary Deferral Election. In order to make Salary Deferrals under the Plan, a Participant must enter into a Salary Deferral Election which authorizes the Employer to withhold a specific dollar amount or a specific percentage from the Participant’s Plan Compensation. The Salary Deferral Election may permit a Participant to specify a different percentage or dollar amount be withheld from specified components of Plan Compensation, such as base pay, bonuses, commissions, etc. The Employer may apply special limits on the amount of Salary Deferrals that may be deferred from bonus payments under AA §6A-2(c) or may apply special deferral limits applicable to bonus payments under the Salary Deferral Election, without regard to any limitations selected under the Adoption Agreement. In addition, the Salary Deferral Election may provide the conditions on which an Employee’s affirmative Salary Deferral Election will expire. If an Employee’s Salary Deferral Election expires, such Employee can always complete a new affirmative election and designate a new deferral percentage. If the Plan is not an Automatic Contribution Arrangement and an Employee’s affirmative election expires, the Salary Deferral Election may provide that the Employee’s expiring deferral election remains in effect and may increase by a designated amount unless the Employee affirmatively elects otherwise. The Employer will deposit any amounts withheld from a Participant’s Plan Compensation as Salary Deferrals into the Participant’s Salary Deferral Account under the Plan. A Salary Deferral Election may only relate to Plan Compensation that is not currently available at the time the Salary Deferral Election is completed. In determining the amount to be withheld from a Participant’s Plan Compensation, a Salary Deferral election may be rounded to the next highest or lowest whole dollar amount.


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The Employer may designate under AA §6A-9 of the Profit Sharing/401(k) Plan Adoption Agreement to apply a special effective date as of which Participants may begin making Salary Deferrals under the Plan. Regardless of any special effective date designated under AA §6A-9, a Salary Deferral Election may not be effective prior to the later of:

(1)the date the Employee becomes a Participant;

(2)the date the Participant executes the Salary Deferral Election; or

(3)the date the Profit Sharing/401(k) Plan is first adopted or effective.

For this purpose, Salary Deferrals may be taken into account for a Plan Year only if the Salary Deferrals are allocated to the Employee's Account as of a date within that Plan Year. For this purpose, Salary Deferrals are considered allocated as of a date within a Plan Year only if the allocation is not contingent on the Employee's participation in the Plan or performance of services on any subsequent date and the Salary Deferrals are actually paid to the Plan no later than the end of the 12-month period immediately following the year to which the contribution relates. In addition, the Salary Deferrals must relate to Plan Compensation that either would have been received by the Employee in the Plan Year but for the Employee's election to defer or are attributable to services performed by the Employee in the Plan Year and, but for the Employee's election to defer, would have been received by the Employee within 2½ months after the close of the Plan Year.

In addition, Salary Deferrals made pursuant to a Salary Deferral Election may not be made earlier than the date the Participant performs the services to which such Salary Deferrals relate or the date the compensation subject to such Salary Deferral Election would be currently available to the Participant absent the deferral election (if earlier).

Regardless of when a Participant elects to commence making Salary Deferrals, the commencement of Salary Deferrals may be delayed for a reasonable period of time in order to implement the Salary Deferral election.

A Salary Deferral Election is valid even though it is executed by an Employee before he/she actually has entered the Plan as a Participant, so long as the Salary Deferral Election is not effective before the date the Employee is a Participant.

With respect to rehired Employees, such Employees must make a new Salary Deferral Election upon reemployment, unless otherwise elected under AA §6A-7. The Plan Administrator may revise this requirement under its administrative procedures.

(b)Change in deferral election. An Employee must be permitted to enter into a new Salary Deferral Election or to modify or terminate an existing Salary Deferral Election at least once a year. Additional dates may be designated on the Salary Deferral Election form (or other written procedures) as to when a Participant may modify or terminate a Salary Deferral Election. Any election to modify or terminate a Salary Deferral Election will take effect within a reasonable period following such election and will apply only on a prospective basis. The Employer may allow an Employee to increase his/her deferral election up to the Elective Deferral Dollar Limit at any time during the last two months of the Plan Year.

(c)Automatic Contribution Arrangements (other than QACA Safe Harbor 401(k) Plans). The Employer may elect under AA §6A-8 of the Profit Sharing/401(k) Plan Adoption Agreement to provide for an automatic deferral election under the Plan under an Automatic Contribution Arrangement (ACA), including an Eligible Automatic Contribution Arrangement (EACA). If the Employer elects to apply an automatic deferral election, the Employer will automatically withhold the amount designated under AA §6A-8 from Participants’ Plan Compensation, unless the Participant completes a Salary Deferral Election electing a different deferral amount (including a zero-deferral amount). Unless provided otherwise under AA §6A-8, an Employee who is automatically enrolled under a prior plan document will continue to be automatically enrolled under the current Plan document. If a Participant’s Salary Deferral Election expires and the Participant fails to complete a new affirmative Salary Deferral Election subsequent to the prior Salary Deferral Election expiring, the Participant becomes subject to the automatic deferral percentage as specified in the Plan pursuant to the automatic contribution arrangement provisions. Each year, the Participant can always complete a new affirmative election and designate a new deferral percentage.

(1)Automatic Contribution Arrangement (ACA) other than an EACA. The Employer may elect under AA

§6A-8(a) of the Profit Sharing/401(k) Plan Adoption Agreement to provide for an automatic deferral election under the requirements of an ACA that is not intended to be an EACA. Such an ACA must meet the requirements for automatic enrollment under applicable regulations under §401(k), but is not required to meet the requirements of an EACA as described in (2) below. A Participant in an ACA must receive notice of the right to make a different election (including an election not to defer) and must have a reasonable period of time to make such an election.


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(2)Eligible Automatic Contribution Arrangement (EACA). The Employer may elect under AA §6A-8(a) of the Profit Sharing/401(k) Plan Adoption Agreement to provide for an automatic deferral election under the requirements of an EACA. If a Plan does not satisfy the requirements for an EACA for an entire Plan Year, the Plan will not be eligible for the special EACA provisions under subsection (ii) for such Plan Year, but will still be treated as an Automatic Contribution Arrangement. The failure to qualify as an EACA has no impact on the qualified status of the Plan or on the Employer’s ability to rely on the Favorable IRS Letter issued with respect to the Plan. Thus, the provisions under subsection (i) will continue to apply as selected in AA 6A-8 for the Plan Year, even if the Automatic Contributions Arrangement does not qualify as an EACA for the entire Plan Year.

(i)Definition of Eligible Automatic Contribution Arrangement (EACA). The Plan will qualify as an EACA if the Plan provides for an automatic deferral election (as described in subsection (A)) and provides an annual written notice as described in subsection (D) below. Any Salary Deferrals withheld pursuant to an automatic deferral election will be deposited into the Participant’s Salary Deferral Account.

(A)Automatic deferral election. To qualify as an EACA, each Employee eligible to participate in the Plan must have a reasonable opportunity after receipt of the notice described in subsection

(D) to make an affirmative election to defer (or an election not to defer) under the Plan before any automatic deferral election goes into effect. If an automatic deferral election applies under the Plan, such election will not apply to Participants who have entered into a Salary Deferral Election for an amount equal to or greater than the automatic deferral amount designated under AA §6A-8. The Employer also may elect to apply the automatic deferral election only to Participants who become eligible to participate after a specified date. If the Plan otherwise qualifies as an EACA but the automatic contribution arrangement does not apply to all eligible Employees (who have not entered into an affirmative deferral election), the Plan will not qualify for the extended 6-month correction period described in subsection (ii)(B) below.

An automatic deferral election ceases to apply with respect to any Employee who makes an affirmative election (that remains in effect) to make Salary Deferrals or to not have any Salary Deferrals made on his/her behalf. Salary Deferrals made pursuant to an automatic deferral election will cease as soon as administratively feasible after an Eligible Employee makes an affirmative deferral election. In addition, automatic deferrals will be reduced or stopped to meet the limitations under Code §§401(a)(17), 402(g), and 415 and to satisfy any suspension period required after a distribution.

Unless elected otherwise under AA §6A-7, a Participant’s affirmative election to defer (or to not defer) will cease upon termination of employment. If a terminated Participant’s affirmative election to defer (or to not defer) ceases upon termination of employment, the Participant will be subject to the automatic deferral provisions of this subsection (A) upon rehire, including the default election provisions and the notice requirements under subsection (D) below.

(B)Uniformity requirement. If an Eligible Employee does not make an affirmative deferral election, such Employee will be treated as having elected to make Salary Deferrals in an amount equal to a uniform percentage of Plan Compensation as set forth in AA §6A-8. For this purpose, an automatic deferral election will not fail to be a uniform percentage of Plan Compensation merely because:

(I)The deferral percentage varies based on the number of years an eligible Employee has participated in the Plan (e.g., due to the application of an automatic increase provisions);

(II)The automatic deferral election does not reduce a Salary Deferral election in effect immediately prior to the effective date of the automatic deferral election;

(III)The rate of Salary Deferrals is limited so as not to exceed the limits of Code

§§401(a)(17), 402(g) (determined with or without Catch-Up Contributions) and 415; or

(IV)The automatic deferral election is not applied during the period an employee is not permitted to make Salary Deferrals pursuant to Section 8.10(e)(1)(ii)(C).

(C)Automatic increase. The Plan may provide under AA §6A-8 that the automatic deferral amount will automatically increase by a designated percentage each Plan Year. Unless designated otherwise under AA §6A-8(b)(4), in applying any automatic deferral increase under


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AA §6A-8, the initial deferral amount will apply for the period that begins when the employee first participates in the automatic contribution arrangement and ends on the last day of the following Plan Year. The automatic increase will apply for each Plan Year beginning with the Plan Year immediately following the initial deferral period and for each subsequent Plan Year. For example, if an Employee makes his/her first automatic deferral for the period beginning July 1, 2020, and no special election is made under AA §6A-8(b)(4), the first automatic increase would take effect on January 1, 2022 (assuming the Plan is using a calendar Plan Year) which is the first day of the Plan Year beginning after the first Plan Year following the period for which the Employee makes his/her first automatic deferral under the Plan.

(D)Annual notice requirement. Each eligible Employee must receive a written notice describing the Participant’s rights and obligations under the Plan which is sufficiently accurate and comprehensive to apprise the Employee of such rights and obligations and is written in a manner calculated to be understood by the average Plan Participant. The annual notice only needs to be provided to those Employees who are covered under the Automatic Contribution Arrangement. If it is impractical to provide the annual notice to a newly eligible Participant before the date such individual becomes eligible to participate under the Plan, the notice will be treated as timely if it is provided as soon as practicable after such date and the Employee is permitted to defer from Plan Compensation earned beginning on the date of participation.

(I)Contents of annual notice. To qualify as an EACA, the annual notice must contain the same information as applies for purposes of the safe harbor notice described under Section 6.04(a)(4). However, to qualify as an EACA, the annual notice must also include a description of:

(a)the level of Salary Deferrals which will be made on the Employee’s behalf if the Employee does not make an affirmative election;

(b)the Employee’s right under the EACA to elect not to have Salary Deferrals made on the Employee’s behalf (or to elect to have such Salary Deferrals made in a different amount or percentage of Plan Compensation);

(c)how contributions under the EACA will be invested and, if the Plan provides for Participant direction of investment, how Salary Deferrals made pursuant to an automatic deferral election will be invested in the absence of an investment election by the Employee; and

(d)the Employee’s right to make a permissible withdrawal (as described under subsection (ii)(A) below), if applicable, and the procedures to elect such a withdrawal.

(II)Timing of annual notice. The annual notice described under this subsection (D) must be provided at the same time and in the same manner as the annual safe harbor notice described in Section 6.04(a)(4). The annual notice must be provided within a reasonable period before the beginning of each Plan Year (or, in the year an Employee becomes an eligible Employee, within a reasonable period before the Employee becomes an eligible Employee). In addition, a notice satisfies the timing requirements only if it is provided sufficiently early so that the Employee has a reasonable period of time after receipt of the notice and before the first Salary Deferral made under the arrangement to make an alternative deferral election.

The annual notice will be deemed timely if it is provided to each eligible Employee at least 30 days (and no more than 90 days) before the beginning of each Plan Year. In the case of an Employee who does not receive the notice within such period because the Employee becomes an eligible Employee after the 90th day before the beginning of the Plan Year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the Employee becomes an eligible Employee (and no later than the date the Employee becomes an eligible Employee).

(E)Timing of automatic deferral. Generally, the automatic deferral will commence as of the date the Employee is otherwise eligible to make Salary Deferrals under the Plan, if the Employee had completed a Salary Deferral Election. However, an automatic deferral will be treated as timely if the deferral is made pursuant to reasonable administrative procedures established by the Plan


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Administrator. If the Plan provides an Employee with a written notice as described in Section 3.03(c)(2)(i)(D) above no later than 30 days after his/her Entry Date, provides the Employee with the opportunity to make an affirmative Salary Deferral Election up to 30 days after the notice is provided, and in the absence of the Employee’s affirmative Salary Deferral Election, provides that automatic deferrals will commence as soon as administratively practicable following the last day of the 30 day period, then the Plan will be treated as having a reasonable administrative procedure.

(ii)Special Rules for Eligible Automatic Contribution Arrangement (EACA). If the Plan provides for an automatic deferral election provision under AA §6A-8 and such automatic deferral election qualifies as an EACA, the Employer may elect to offer special permissible withdrawals (as set forth in subsection (A) below) and will qualify for the special delayed testing date for purposes of making refunds of Excess Contributions and/or Excess Aggregate Contributions (as described in subsection (B) below). To qualify as an EACA, the Plan must satisfy the provisions of subsection (i) for the entire Plan Year. Generally, a Plan that satisfies the QACA Safe Harbor 401(k) Plan requirements under Section 6.04(b) will also satisfy the requirements for an EACA.

(A)Permissible Withdrawals under EACA. If so elected under AA §6A-8(c) of the Profit Sharing/401(k) Adoption Agreement, any Employee who has Salary Deferrals contributed to the Plan pursuant to an automatic deferral election under an EACA may elect to withdraw such contributions (and earnings attributable thereto) in accordance with the requirements of this subsection (A). A permissible withdrawal under this subsection (A) may be made without regard to any elections under AA §10 and will not cause the Plan to fail the prohibition on in- service distribution applicable to Salary Deferrals under Section 8.10(c). In addition, such withdrawal may be made without regard to any notice or consent otherwise required under Code §401(a)(11) or §417. Any Salary Deferrals that are distributed under this subsection (A) are not taken into account under the ADP Test (as described in Section 6.01(a)) or under the ACP Test (as described in Section 6.02(a)) for the Plan Year for which the Salary Deferrals were made or for any other Plan Year.

(I)Amount of distribution. A distribution satisfies the requirement of this subsection (A) if the distribution is equal to the amount of Salary Deferrals made pursuant to the automatic deferral election through the effective date of the withdrawal election (as described in subsection (III)), adjusted for allocable gains and losses as of the date of the distribution. For this purpose, allocable gains and losses are determined in the same manner as for corrective distributions of Excess Contributions (as described in Section 6.01(b)(2)(ii)).

The distribution amount determined under this subsection (I) may be reduced by any generally applicable fees. However, the Plan may not charge a greater fee for a permissible distribution under this subsection (A) than applies with respect to other Plan distributions.

(II)Timing of permissive withdrawal election. An election to withdraw Salary Deferrals under this subsection (A) must be made no later than 90 days after the date of the first default Salary Deferral under the EACA. The date of the first default Salary Deferral is the date that the Plan Compensation from which such Salary Deferrals are withheld would otherwise have been included in gross income. The Employer may designate an alternative period for making permissive withdrawals under AA §6A-8(c)(3).

(III)Effective date of permissible withdrawal. The effective date of a permissible withdrawal election cannot be later than the pay date for the second payroll period that begins after the election is made or, if earlier, the first pay date that occurs at least 30 days after the election is made. If an Employee does not make automatic deferrals to the Plan for an entire Plan Year (e.g., due to termination of employment), the Plan may allow such Employee to take a permissive withdrawal, but only with respect to default contributions made after the Employee’s return to employment.

(IV)Consequences of permissible withdrawal. Any amount distributed under this subsection (A) is includible in the Employee’s gross income for the taxable year in which the distribution is made. However, the portion of any distribution consisting of Roth Deferrals is not included in an Employee’s gross income a second time. In addition, a permissible withdrawal under this subsection (A) is not subject to any penalty tax under Code §72(t). Unless the Employee affirmatively elects otherwise, any


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withdrawal request will be treated as an affirmative election to stop having Salary Deferrals made on the Employee’s behalf as of the date specified in subsection (III) above.

(V)Forfeiture of Matching Contributions. In the case of any withdrawal made under this subsection (A), any Matching Contributions made with respect to such withdrawn Salary Deferrals must be forfeited. Any forfeiture of Matching Contributions under this subsection (V) will be made in accordance with the requirements of Section 7.13.

(B)Expansion of corrective distribution period for EACAs. If the Plan qualifies as an EACA (as defined in subsection (i) above), the corrective distribution provisions applicable to Excess Contributions and Excess Aggregate Contributions under Sections 6.01(b)(2) and 6.02(b)(2) are modified to allow a corrective distribution no later than 6 months (instead of 2½ months) after the last day of the Plan Year in which such excess amounts arose to avoid the 10% excise tax with respect to such corrective distributions.

(3)Preemption of state law. In applying the provisions of this subsection (c), if the Plan satisfies the definition of an automatic contribution arrangement under ERISA §514(e)(2), any law of a State which would directly or indirectly prohibit or restrict the inclusion of an automatic contribution arrangement shall be superseded.

(d)Catch-Up Contributions. If permitted under AA §6A-4 of the Profit Sharing/401(k) Plan Adoption Agreement, a Participant who is age 50 or over by the end of his/her taxable year beginning in the calendar year may make Catch-Up Contributions under the Profit Sharing/401(k) Plan, provided such Catch-Up Contributions are in excess of an otherwise applicable limit under the Plan. For this purpose, an otherwise applicable Plan limit is a limit in the Plan that applies to Salary Deferrals without regard to Catch-up Contributions, such as a Plan-imposed Salary Deferral limit under AA §6A-2, the Code §415 Limitation (described in Section 5.03), the Elective Deferral Dollar Limit (described in Section 5.02), and the limit imposed by the ADP Test (described in Section 6.01). For this purpose, an ADP Test limit only applies to the extent a Highly Compensated Employee is required to receive a corrective refund under Section 6.01(b)(2).

(1)Catch-Up Contribution Limit. Catch-up Contributions for a Participant for a taxable year may not exceed the Catch-Up Contribution Limit. The Catch-Up Contribution Limit for 2020 is $6,500. The Catch-Up Contribution Limit will be adjusted for cost-of-living increases under Code §414(v)(2)(C) in multiples of $500. The Employer may operationally limit Catch-Up Contributions so that a Participant’s total Catch-Up Contributions, when added to other Salary Deferrals, may not exceed 75 percent of the Participant’s Plan Compensation for the taxable year. (A Different Catch-Up Contribution Limit applies for SIMPLE 401(k) Plans. See Section 6.05(b)(2).)

(2)Special treatment of Catch-Up Contributions. Catch-up Contributions are not subject to the Elective Deferral Dollar Limit or the Code §415 Limitation, are not counted in the ADP Test, and are not counted in determining the minimum allocation under Code §416 (as defined in Section 4.04), but Catch-Up Contributions made in prior years are counted in determining whether the Plan is Top Heavy.

(3)Universal availability of Catch-Up Contributions. The Plan may only offer Catch-Up Contributions if all 401(k) plans maintained by the Employer or Related Employers allow all catch-up eligible participants an effective opportunity to make the same dollar amount of Catch-Up Contributions.

(e)Roth Deferrals. If permitted under AA §6A-5 of the Profit Sharing/401(k) Plan Adoption Agreement, a Participant may designate all or a portion of his/her Salary Deferrals as Roth Deferrals. For this purpose, a Roth Deferral is a Salary Deferral that satisfies the following conditions.

(1)Irrevocable election. The Participant makes an irrevocable election (at the time the Participant enters into his/her Salary Deferral Election) designating all or a portion of his/her Salary Deferrals as Roth Deferrals. The irrevocable election applies with respect to Salary Deferrals that are made pursuant to such election. A Participant may modify or change a Salary Deferral Election to increase or decrease the amount of Salary Deferrals designated as Roth Deferrals, provided such change or modification applies only with respect to Salary Deferrals made after such change or modification. (See subsection (b) above for rules regarding the timing of permissible changes or modifications to a Participant’s Salary Deferral Election.)

(2)Subject to immediate taxation. To the extent a Participant designates all or a portion of his/her Salary Deferrals as Roth Deferrals, such amounts will be includible in the Participant’s income at the time the Participant would have received the contribution amounts in cash if the Employee had not made the Salary Deferral election.


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(3)Separate account. Any amounts designated as Roth Deferrals will be maintained by the Plan in a separate Roth Deferral Account. The Plan will credit and debit all contributions and withdrawals of Roth Deferrals to such separate Account. The Plan will separately allocate gains, losses, and other credits and charges to the Roth Deferral Account on a reasonable basis that is consistent with such allocations for other Accounts under the Plan. However, in no event may the Plan allocate forfeitures under the Plan to the Roth Deferral Account. The Plan will separately track Participants’ accumulated Roth Deferrals and the earnings on such amounts.

(4)Satisfaction of Salary Deferral requirements. Roth Deferrals are subject to the same requirements as apply to Salary Deferrals. Thus, Roth Deferrals are subject to the following requirements:

(i)Roth Deferrals are always 100% vested, as provided in Section 7.01.

(ii)Roth Deferrals are subject to the Elective Deferral Dollar Limit, as described in Section 5.02. For this purpose, all Salary Deferrals (both Pre-Tax Salary Deferrals and Roth Deferrals) are aggregated in applying the Elective Deferral Dollar Limit.

(iii)Roth Deferrals are subject to the same distribution restrictions as apply to Salary Deferrals under Section 8.10(c). See Section 8.11(b) for special distribution provisions applicable to Roth Deferrals.

(iv)Roth Deferrals are subject to ADP nondiscrimination testing, as set forth in Section 6.01.

(v)Roth Deferrals are subject to the required minimum distribution requirements under Code §401(a)(9), as set forth in Section 8.12.

(vi)Roth Deferrals are treated as Employer Contributions for purposes of Code §§401(a), 401(k), 402, 411, 412, 415, 416 and 417.

(5)Rollover of Roth Deferrals.

(i)Rollovers from this Plan. For purposes of the rollover rules under Section 8.05, a Direct Rollover of a distribution from a Participant’s Roth Deferral Account will only be made to another Roth Deferral Account under a qualified plan described in Code §401(a) or an annuity contract or custodial account described in Code §403(b) or to a Roth IRA described in §408A, and only to the extent the rollover is permitted under the rules of Code §402(c).

(ii)Rollovers to this Plan. Subject to the provisions under Section 3.07, a Participant may make a Rollover Contribution to his/her Roth Deferral Account only if the rollover is a Direct Rollover from another Roth Deferral Account under a qualified retirement plan (as described in Section 3.07) and only to the extent the rollover is permitted under the rules of Code §402(c). A rollover of Roth Deferrals may not be made to this Plan from a Roth IRA. Any rollover of Roth Deferrals to this Plan will be held in a separate Roth Rollover Account.

(iii)Minimum rollover amount. The Plan Administrator may decide whether or not to provide for a Direct Rollover (including an Automatic Rollover) for distributions from a Participant's Roth Deferral Account if it is reasonably expected (at the time of the distribution) that the total amount the Participant will receive as a distribution during the calendar year will total less than $200. In addition, the Plan Administrator may decide whether or not to take into account any distribution from a Participant's Roth Deferral Account in determining whether distributions from a Participant's other Accounts are reasonably expected to total less than $200 during a year. For purposes of applying the Automatic Rollover provisions under Section 8.06, a Participant’s Roth Deferral Account and the Participant’s other Accounts are treated as accounts held under separate plans. (See Treas. Reg. §1.401(k)- 1(f)(4)(ii).)

(iv)Separate treatment of Roth Deferrals. The provisions under Section 8.05 allow a Participant to elect a Direct Rollover of only a portion of an Eligible Rollover Distribution, but only if the amount rolled over is at least $500. For this purpose, the Plan Administrator may decide whether or not to treat any amount distributed from the Participant’s Roth Deferral Account as a separate distribution from any amount distributed from the Participant's other Accounts in the Plan, even if the amounts are distributed at the same time.

(f)In-Plan Roth Conversions. Effective on or after January 1, 2013, the Employer may elect under AA §6A-5(c) of the Profit Sharing/401(k) Plan Adoption Agreement to permit In-Plan Roth Conversions under the Plan. For this purpose,


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an In-Plan Roth Conversion is a conversion of amounts held in a Participant’s Plan Account, other than a Roth Deferral Account or Roth Rollover Account, into the Participant’s In-Plan Roth Conversion Account under the Plan, pursuant to Code §402A(c)(4). Any election to make an In-Plan Roth Conversion during a taxable year may not be changed after the In-Plan Roth Conversion is completed. (For In-Plan Roth Conversions completed prior to January 1, 2013, a Participant had to be eligible to receive a distribution of the converted amounts at the time of the In-Plan Roth Conversion. The provisions of this Section 3.03 (f) do not affect an In-Plan Roth Conversion completed prior to January 1, 2013.)

An In-Plan Roth Conversion may be elected by a Participant, a Spousal beneficiary, or an Alternate Payee who is a Spouse or former Spouse. To the extent the term “Participant” is used for purposes of determining eligibility to make an In-Plan Roth Conversion, such term will also include a Spousal beneficiary and an Alternate Payee who is a Spouse or former Spouse.

(1)Amounts Eligible for In-Plan Roth Conversion. If permitted under AA §6A-5(c) of the Profit Sharing/401(k) Adoption Agreement, a Participant may convert any portion of his/her vested Account Balance (other than amounts attributable to Roth Deferrals or Roth Deferral rollovers) to an In-Plan Roth Conversion Account. Unless elected otherwise under AA §6A-5(c)(2), a Participant need not be eligible to receive a distribution from the Plan at the time of the In-Plan Roth Conversion.

In addition, an In-Plan Roth Conversion will not be treated as a distribution for the following purposes:

(i)Participant loans. A Participant loan directly transferred into an In-Plan Roth Conversion without changing the repayment schedule is not treated as a new loan. The Employer may elect in AA §6A- 5(c)(4)(iii) to not permit Participant loans to be distributed as part of an In-Plan Roth Conversion.

(ii)Spousal consent. An In-Plan Roth Conversion is not treated as a distribution for purposes of applying the spousal consent requirements under Code §401(a)(11). Thus, a married Plan Participant is not required to obtain spousal consent in connection with an election to make an In-Plan Roth Conversion, even if the Plan is otherwise subject to the spousal consent requirements under Code §401(a)(11).

(iii)Participant consent. An In-Plan Roth Conversion is not treated as a distribution for purposes of applying the participant consent requirements under Code §411(a)(11). Thus, amounts that are converted as part of an In-Plan Roth Conversion continue to be taken into account in determining whether the Participant’s vested Account Balance exceeds $5,000 for purposes of applying the Involuntary Cash-Out provisions and will not trigger the requirement for a notice of the Participant’s right to defer receipt of the distribution.

(iv)Protected benefits. An In-Plan Roth Conversion is not treated as a distribution under Code

§411(d)(6)(B)(ii). Thus, a Participant who had a distribution right (such as a right to an immediate distribution) prior to the In-Plan Roth Conversion cannot have that distribution right eliminated solely as a result of the election to make an In-Plan Roth Conversion. The Employer may have to maintain separate accounts with respect to different contribution sources within the In-Plan Roth Conversion Account in order to protect distribution options related to such different contribution sources.

(v)Mandatory withholding. An In-Plan Roth Conversion is not subject to 20% mandatory withholding under Code §3405(c).

(vi)Distribution restrictions. Generally, a distribution will be permitted from the In-Plan Roth Conversion Account to the extent permitted for regular Roth Deferrals under AA §10-1. However, as described in subsection (iv) above, additional distribution options may need to be protected with respect to specific contribution sources. The distribution restrictions normally applicable to Roth Deferrals, as described in Section 8.10(c) of the Plan, do not apply to the extent the conversion is from a contribution source that is not otherwise subject to the distribution restrictions applicable to Roth Deferrals. In addition, distribution restrictions that otherwise apply with respect to a specific contribution source will continue to apply if such contribution source is converted to Roth Deferrals.

(2)Effect of In-Plan Roth Conversion. A Participant must include in gross income the taxable amount of an In- Plan Roth Conversion. For this purpose, the taxable amount of an In-Plan Roth Conversion is the fair market value of the distribution reduced by any basis in the converted amounts. If the distribution includes Employer securities, the fair market value includes any net unrealized appreciation within the meaning of Code

§402(e)(4). If an outstanding loan is rolled over as part of an In-Plan Roth Conversion, the amount includible in gross income includes the balance of the loan.


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Generally, the taxable amount of an In-Plan Roth Conversion is includible in gross income in the taxable year in which the conversion occurs.

(3)Application of Early Distribution Penalty under Code §72(t). An In-Plan Roth Conversion is not subject to the early distribution penalty under Code §72(t) at the time of the conversion. However, if an amount allocable to the taxable amount of an In-Plan Roth Conversion is subsequently distributed within the 5-taxable-year period beginning with the first day of the Participant’s taxable year in which the conversion was made, the amount distributed is treated as includible in gross income for purposes of applying the Code §72(t) early distribution penalty. For this purpose, the 5-taxable-year period ends on the last day of the Participant’s fifth taxable year in the period. This subsection (3) will not apply to the extent the distribution is rolled over to a Roth account in another qualified plan or is rolled over to a Roth IRA. However, the rule under this subsection (3) will apply to any subsequent distributions made from such other Roth account or Roth IRA within the 5- taxable-year period.

(4)Contribution Sources. Unless elected otherwise under AA §6A-5(c), an In-Plan Roth Conversion may be made from any contribution source under the Plan, other than a Roth Deferral Account or Roth Rollover Account. The Employer may elect in AA §6A-5(c)(3) to limit the contribution sources that are eligible for In- Plan Roth Conversion. In addition, the Employer may elect in AA §6A-5(c)(4) to limit In-Plan Roth Conversions to contribution accounts that are 100% vested.

3.04Matching Contributions. The Employer may elect under AA §6B of the Profit Sharing/401(k) Plan Adoption Agreement to authorize Matching Contributions under the Plan. If the Employer elects more than one Matching Contribution formula under AA §6B-2, each formula is applied separately. A Participant’s aggregate Matching Contributions will be the sum of the Matching Contributions under all such formulas. Any Matching Contribution made under the Plan will be allocated to Participants’ Matching Contribution Account. To receive an allocation of Matching Contributions, a Participant must satisfy any allocation conditions designated under the Plan, as described in Section 3.09 below.

A contribution will not be considered a Matching Contribution if such contribution is contributed before the underlying Salary Deferral or After-Tax Employee Contribution election is made or before an Employee performs the services with respect to which the underlying Salary Deferrals or After-Tax Employee Contributions are made (or when the cash that is subject to such election would be currently available, if earlier). A Matching Contribution will not be treated as failing to satisfy the requirements of this paragraph merely because contributions are occasionally made before the Employee performs the services with respect to which the underlying Salary Deferral or After-Tax Employee Contribution election is made (or when the cash that is subject to such elections would be currently available, if earlier) in order to accommodate bona fide administrative considerations (and such amounts are not paid early for the principal purpose of accelerating deductions).

(a)Contributions eligible for Matching Contributions. The Matching Contribution formula(s) apply to Salary Deferrals and After-Tax Employee Contributions made under the Plan, to the extent authorized under the Adoption Agreement. The Employer may designate under AA §6D-2(b) of the Profit Sharing/401(k) Plan Adoption Agreement to include After-Tax Employee Contributions from the Matching Contribution formula(s). If the Matching Contribution formula(s) applies to both Salary Deferrals and After-Tax Employee Contributions, such contributions are aggregated to determine the Matching Contributions under the Plan. Any reference to Salary Deferrals under the Matching Contribution formula(s) includes After-Tax Employee Contributions to the extent such amounts are eligible for Matching Contributions under the Plan.

In addition, the Employer may elect under AA §6B-3(b) to match Elective Deferrals under another qualified plan, 403(b) plan or 457 plan maintained by the Employer. If the Employer elects to make a Matching Contribution based on the Employee’s Elective Deferrals or Roth Deferrals under another qualified plan, 403(b) plan or 457 plan, the Employer shall make a Matching Contribution on behalf of any eligible Participant who makes Elective Deferrals or Roth Deferrals to the plan designated under AA §6B-3(b). Any such Matching Contribution made to the Plan will be allocated in accordance with any special provisions added under AA §6B-3(b). Any such Matching Contributions will be in addition to any Matching Contributions made with respect to Salary Deferrals or After-Tax Employee Contributions under this Plan.

(b)Period for determining Matching Contributions. AA §6B-5 sets forth the period for which the Matching Contribution formula(s) applies. For this purpose, the period designated in AA §6B-5 applies for purposes of determining the amount of Salary Deferrals (and After-Tax Employee Contributions, if applicable) taken into account in applying the Matching Contribution formula(s) and in applying any limits on the amount of Salary Deferrals that may be taken into account under the Matching Contribution formula(s). (See subsection (c) for rules applicable to true- up contributions where the Employer contributes Matching Contributions to the Plan on a different period than selected under AA §6B-5.)


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If the Employer elects a discretionary Matching Contribution under AA §6B-2, the Employer may elect to make a different Matching Contribution for each period designated in AA §6B-5. Thus, for example, if the discretionary Matching Contribution is based on the Plan Year quarter under AA §6B-5, the Employer may elect to make a different level of Matching Contribution for each Plan Year quarter. The Matching Contribution for the full Plan Year must be taken into account in applying the ACP Test with respect to such Plan Year.

(c)True-up contributions. If the Employer makes Matching Contributions more frequently than annually, the Employer may need to make true-up contributions for Participants. True-up contributions will be required if the Employer actually contributes Matching Contributions to the Plan on a more frequent basis than the period that is used to determine the amount of the Matching Contributions under AA §6B-5 or AA §6C-2(a)(2) of the Profit Sharing/401(k) Plan Adoption Agreement with respect to Traditional Safe Harbor/QACA Safe Harbor Contributions. For example, if Matching Contributions apply with respect to Salary Deferrals made for the Plan Year, but the Employer contributes the Matching Contributions on a quarterly basis, the Employer may have to make a true-up contribution to any Participant based on Salary Deferrals for the Plan Year. If a true-up contribution is required under this subsection (c), the Employer may make such additional contribution as required to satisfy the contribution requirements under the Plan. Similar true-up contribution requirements will apply with respect to Traditional Safe Harbor/QACA Safe Harbor Matching Contributions under Section 6.04(a)(1)(ii). (Note that to provide a true-up in a Safe Harbor Plan, the Plan must be determining Safe Harbor Matching Contributions on an annual basis.) If true-up contributions will not be made for any Participant under the Plan, payroll period should be selected under AA §6B-5(a) or AA §6C-2(a)(2)(i), as applicable.

If a period other than the Plan Year is selected under AA §6B-5, the Employer may make an additional discretionary Matching Contribution equal to the true-up contribution that would otherwise be required if Plan Year was selected under AA §6B-5. If an additional discretionary Matching Contribution is made under this subsection (c), such contribution must be provided to all eligible Participants who would otherwise be entitled to a true-up contribution based on Plan Compensation for the Plan Year.

(d)Qualified Matching Contributions (QMACs). Notwithstanding any contrary selections in the Profit Sharing/401(k) Plan Adoption Agreement, for any Plan Year, the Employer may make a discretionary QMAC on behalf of Nonhighly Compensated Participants under the Plan to correct a violation of the ADP and/or ACP tests. (See Sections 6.01(b)(3) and 6.02(b)(3).) Such corrective QMAC may be allocated to all Nonhighly Compensated Participants as a uniform percentage of Plan Compensation or a uniform dollar amount or as a Targeted QMAC (as defined in subsection (2) below), without regard to any allocation conditions selected in AA §6-5. The allocation method chosen by the Employer for a corrective QMAC will be uniformly applied to all Participants receiving the corrective QMAC for the Plan Year.

The Employer may elect to make a non-corrective discretionary QMAC on behalf of Nonhighly Compensated Participants under the Plan. Such QMAC will be allocated uniformly to all Nonhighly Compensated Participants, without regard to any allocation conditions selected in AA §6B-7, unless designated otherwise under AA §6D-4(c) of the Profit Sharing/401(k) Plan Adoption Agreement. In addition, the Employer may elect under AA §6D-4 to treat all (or a portion) of the Matching Contributions designated under AA §6B-2 as QMACs. (See Sections 6.01(b)(3) and 6.02(b)(3) for a description of the amount of QMACs that may be taken into account under the ADP Test and/or ACP Test.)

(1)Requirements for QMACs. Any QMAC contributed pursuant to this subsection (d) must satisfy the following requirements at the time the contribution is made to the Plan, regardless of any inconsistent elections under the Profit Sharing/401(k) Plan Adoption Agreement:

(i)100% vesting. A QMAC must be 100% vested when allocated to a Participant’s Account.

(ii)Distribution restrictions. A QMAC, when allocated to a Participant’s Account, must be subject to the same distribution restrictions applicable to Salary Deferrals under Section 8.10(c), except that no portion of a Participant’s QMAC Account may be distributed on account of Hardship. See Section 8.10(e).

(iii)Allocation conditions. A QMAC will not be subject to the allocation provisions applicable to Matching Contributions, as designated under AA §6B-7, unless provided otherwise under AA §6D-4(c).

(iv)Discretionary QMAC. If the Employer makes both a discretionary Matching Contribution under AA

§6B-2(a) and a discretionary QMAC, the Employer must designate, in writing, the amount of the Matching Contribution that is designated as a regular Matching Contribution and the amount designated as a QMAC.


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(2)Targeted QMAC. If elected under AA §6D-4(b)(3) of the Profit Sharing/401(k) Plan Adoption Agreement, the Employer may make a discretionary QMAC and allocate such QMAC as a Targeted QMAC. If the Employer makes a Targeted QMAC, the QMAC will be allocated to Nonhighly Compensated Participants in the QMAC Allocation Group, starting with Nonhighly Compensated Participants with the lowest Plan Compensation for the Plan Year. For this purpose, the QMAC Allocation Group is made up of the Nonhighly Compensated Participants (equal to one-half of total Nonhighly Compensated Participants under the Plan), with the lowest level of Plan Compensation for the Plan Year who have made Salary Deferrals and/or After-Tax Employee Contributions during the Plan Year that are eligible for Matching Contributions. If the Plan is disaggregated for otherwise excludable Employees pursuant to Section 6.03(b), the Employer may allocate the QMAC only to Participants in a particular disaggregated portion of the Plan. See Section 6.03(c).

(i)Amount of Matching Contribution. The QMAC will be allocated to Nonhighly Compensated Participants in the QMAC Allocation Group as follows:

(A)The QMAC will be allocated first to the Nonhighly Compensated Participant(s) with the lowest Plan Compensation up to the greater of 5% of Plan Compensation or 100% of the Participant’s deferral rate and continuing with Nonhighly Compensated Employees in the QMAC Allocation Group with the next higher level of Plan Compensation, until all of the QMAC has been allocated (or until all Nonhighly Compensated Employees in the QMAC Allocation Group have received the maximum 5% of Plan Compensation or 100% Matching Contribution). If after this allocation, QMAC contributions are still available, additional Matching Contributions may be made to Nonhighly Compensated Employees in the QMAC Allocation Group (beginning with Nonhighly Compensated Participant(s) with the lowest Plan Compensation) up to a maximum of twice the lowest Matching Contribution rate received by any Nonhighly Compensated Participant(s) in the QMAC Allocation Group.

(B)If additional QMACs remain to be allocated after the allocation under subsection (A) (e.g., because the Plan still fails the ACP test), the additional QMACs will be allocated to the Nonhighly Compensated Employees in the QMAC Allocation Group (beginning with Nonhighly Compensated Participant(s) with the lowest Plan Compensation) in an amount necessary to provide a Matching Contribution rate equal to the highest Matching Contribution rate of any Nonhighly Compensated Employee in the QMAC Allocation Group. If additional QMACs remain, the remaining QMACs will be allocated beginning with the Nonhighly Compensated Employees in the QMAC Allocation Group (beginning with Nonhighly Compensated Participant(s) with the lowest Plan Compensation) up to twice the lowest Matching Contribution rate for any Nonhighly Compensated Employee in the QMAC Allocation Group. This allocation will continue until all QMACs have been allocated to the Nonhighly Compensated Employees in the QMAC Allocation Group.

(ii)Determining Matching Contribution rate. In determining the allocation of the Targeted QMAC under this subsection (ii), the Matching Contribution rate is the total Matching Contributions allocated to the Nonhighly Compensated Employee (determined as a percentage of Salary Deferrals and/or After- Tax Employee Contributions, to the extent eligible for Matching Contributions). If the Matching Contribution rate is not the same for all levels of Salary Deferrals and or After-Tax Employee Contributions, the Nonhighly Compensated Employee’s Matching Contribution rate is determined assuming the Employee’s total Salary Deferrals and/or After-Tax Contributions are equal to 6% of Plan Compensation, regardless of how much the Employee actually contributes under the Plan.

(iii)Special rule for Prevailing Wage Contributions. To the extent QMACs are made in connection with the Employer's obligation to pay Prevailing Wages, this subsection (iii) may be applied by increasing the 5% of Plan Compensation limit to 10% of Plan Compensation.

3.05Traditional Safe Harbor/QACA Safe Harbor Contributions. The Employer may elect under AA §6C of the Profit Sharing/401(k) Plan Adoption Agreement to treat the Plan as a Safe Harbor 401(k) Plan. To qualify as a Safe Harbor 401(k) Plan, the Employer must make a Traditional Safe Harbor/QACA Safe Harbor Employer Contribution or a Traditional Safe Harbor/QACA Safe Harbor Matching Contribution. Such contributions are subject to special vesting and distribution restrictions and will be allocated to a Participant’s Traditional Safe Harbor/QACA Safe Harbor Employer Contribution Account or Traditional Safe Harbor/QACA Safe Harbor Matching Contribution Account, as applicable. See Section 6.04(a) for the requirements that must be met to qualify as a Safe Harbor 401(k) Plan.

3.06After-Tax Employee Contributions. The Employer may elect under AA §6D-2 of the Profit Sharing/401(k) Plan Adoption Agreement or under AA §6-6 of the Money Purchase Plan Adoption Agreement to allow Participants to make After-Tax Employee Contributions under the Plan. If permitted under AA §6D-2 or AA §6-6, as applicable, a Participant’s compensation


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will be reduced by the amount the Participant elects to contribute as an After-Tax Employee Contribution. Any After-Tax Employee Contributions made under this Plan are subject to the ACP Test outlined in Section 6.02(a). Any After-Tax Employee Contributions made under the Plan will be held in Participants’ After-Tax Employee Contribution Account, which is always 100% vested.

A Participant’s election to change or resume an after-tax election will be effective as set forth under the After-Tax Employee Contributions election form or other written procedures adopted by the Plan Administrator. An Employee must be permitted to modify or terminate an existing After-Tax Employee Contribution election at least once a year. Additional dates may be designated on the After-Tax Employee Contribution election form (or other written procedures) as to when a Participant may commence, modify or terminate After-Tax Employee Contributions. Any election to modify or terminate an After-Tax Employee Contribution election will take effect within a reasonable period following such election and will apply only on a prospective basis.

A Participant may withdraw amounts from his/her After-Tax Employee Contribution Account at any time, in accordance with the distribution rules under Section 8.10(a), except as otherwise provided under AA §10. No forfeitures will occur solely as a result of an Employee’s withdrawal of After-Tax Employee Contributions. The Employer may collect Participants' After-Tax Employee Contributions using payroll reduction or other collection procedures. The Employer may designate in the Adoption Agreement or in separate administrative procedures any special rules regarding the acceptance of After-Tax Employee Contributions. Any separate procedures will apply uniformly to all Participants under the Plan.

3.07Rollover Contributions. An Employee (or former Employee) may make a Rollover Contribution to this Plan from a qualified retirement plan or from an IRA, if the acceptance of rollovers is permitted under AA §C-2 or if the Plan Administrator adopts administrative procedures regarding the acceptance of Rollover Contributions. Subject to the provisions under Section 3.03(e)(5)(ii) relating to rollovers of Roth Deferrals, any Rollover Contribution an Employee (or former Employee) makes to this Plan will be held in the Employee’s Rollover Contribution Account, which is always 100% vested. A Participant may withdraw amounts from his/her Rollover Contribution Account at any time, in accordance with the distribution rules under Section 8, except as prohibited under AA §10. Any amounts received as a Rollover Contribution under this Section 3.07 will not be treated as an Annual Addition for purposes of applying the Code §415 Limitation described in Section 5.03.

For purposes of this Section 3.07, a qualified retirement plan is a tax-qualified retirement plan described in Code §401(a) or Code §403(a), an annuity contract described in §403(b) of the Code, or an eligible plan under §457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state. To qualify as a Rollover Contribution under this Section, the Rollover Contribution must be transferred directly from the qualified retirement plan or IRA in a Direct Rollover or must be transferred to the Plan by the Employee within the requisite period of time allowed for Rollover Contributions from the qualified retirement plan or IRA.

The Plan Administrator may accept any Rollover Contribution that satisfies the requirements, including the time period to make Rollover Contributions, under Code §402(c) and applicable IRS regulations and other guidance. Thus, for example, the Plan Administrator may accept a Rollover Contribution as provided under Revenue Procedure 2016-47 relating to the waiver of the 60-day rollover period and acceptable self-certification by an Employee and the Plan may accept a Rollover Contribution of qualified plan loan offset amounts within the applicable time period.

If permitted under AA Appendix §C-2 or other administrative procedures, an Employee (or former Employee) may make a Rollover Contribution to the Plan even if the Employee is not a Participant with respect to any or all other contributions under the Plan. An Employee who makes a Rollover Contribution to this Plan prior to becoming a Participant shall be treated as a Participant only with respect to such Rollover Contribution Account but shall not be treated as a Participant with respect to other contribution sources under the Plan until he/she otherwise satisfies the eligibility conditions under the Plan. To the extent Participant loans are authorized under the Plan, a “limited Participant” under this paragraph may request a Participant loan from the Rollover Contribution Account, unless provided otherwise under AA §B-3 or separate administrative procedures adopted by the Plan Administrator.

The Plan Administrator may refuse to accept a Rollover Contribution if the Plan Administrator reasonably believes the Rollover Contribution:

(a)is not being made from a proper plan or IRA;

(b)is not being made within sixty (60) days from receipt of the amounts from a qualified retirement plan or IRA;

(c)could jeopardize the tax-exempt status of the Plan; or

(d)could create adverse tax consequences for the Plan or the Employer.

Prior to accepting a Rollover Contribution, the Plan Administrator may require the Employee to provide satisfactory evidence


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establishing that the Rollover Contribution meets the requirements of this Section.

If the Plan accepts an invalid Rollover Contribution, the contribution will be treated, for purposes of applying the qualification requirements of Code §401(a) to the Plan, as if it were a valid Rollover Contribution if two conditions are satisfied:

(a)When accepting the amount from the Employee as a Rollover Contribution, the Plan Administrator must reasonably conclude that the contribution is a valid Rollover Contribution; and

(b)If the Plan Administrator later determines that the contribution was an invalid Rollover Contribution, the Plan Administrator must distribute the amount of the invalid Rollover Contribution, plus any earnings attributable thereto, to the Employee within a reasonable time after such determination.

The Plan Administrator may use the criteria set forth in IRS Revenue Ruling 2014-9, as well as other evidence, in reasonably determining whether a Rollover Contribution is valid. Thus, the Plan Administrator may access the EFAST2 database maintained by the Department of Labor to assist in determining whether a potential Rollover Contribution was distributed by a plan intended to be a qualified plan. If the Plan Administrator later determines that the Rollover Contribution was not valid, the Plan Administrator must have the amount rolled over plus any attributable earnings distributed within a reasonable period of time after such determination.

Unless provided otherwise under AA §11-7 or AA §C-1(b) or under separate administrative procedures, if a Participant is permitted under AA §C-1 to direct the investment of his/her Rollover Account, such Participant may invest such Account in Qualifying Employer Securities, as set forth in Section 10.06(c).

The Plan Administrator may apply different conditions for accepting Rollover Contributions from qualified retirement plans and IRAs. For example, the Plan Administrator may decide in its discretion whether to accept a Direct Rollover of a loan note from another qualified plan. Any conditions on Rollover Contributions must be applied uniformly to all Employees under the Plan.

3.08Deductible Employee Contributions. The Plan Administrator will not accept deductible employee contributions that are made for a taxable year beginning after December 31, 1986. Contributions made prior to that date will be maintained in a separate Account which will be nonforfeitable at all times. The Account will share in the gains and losses under the Plan in the same manner as described in Section 10.03(d). No part of the deductible voluntary contribution Account will be used to purchase life insurance. Subject to the Joint and Survivor Annuity requirements under Section 9 (if applicable), the Participant may withdraw any part of the deductible voluntary contribution Account by making a written application to the Plan Administrator.

3.09Allocation Conditions. In order to receive an allocation of Employer Contributions (other than Salary Deferrals and Traditional Safe Harbor/QACA Safe Harbor Contributions) or an allocation of Matching Contributions, a Participant must satisfy any allocation conditions designated under AA §6-6 or AA §6B-7, as applicable. If the Employer elects under AA §6- 6(d) or AA §6B-7(d) to apply a minimum service requirement, the Employer may elect to base such minimum service requirement on the basis of Hours of Service or on the basis of consecutive days of employment under the Elapsed Time method. The imposition of an allocation condition may cause the Plan to fail the minimum coverage requirements under Code

§410(b), unless the only allocation condition under the Plan is a safe harbor allocation condition. Under the safe harbor allocation condition, a Participant who completes the minimum service required under AA §6-6(b) or AA §6B-7(b), as applicable, will satisfy the safe harbor allocation condition for receiving an Employer Contribution or Matching Contribution, even if the Participant’s employment terminates during the Plan Year. (The safe harbor allocation condition is the only allocation condition that may be required under the Standardized Profit Sharing/401(k) Plan Adoption Agreement.)

(a)Application to designated period. Instead of applying the allocation conditions on the basis of the Plan Year, the Employer may elect in AA §6-5(a) or AA §6B-7(e) to apply the allocation conditions on the basis of designated periods. If the Employer elects to apply a last day of employment condition on the basis of designated periods, a Participant will not be entitled to an allocation of Employer Contributions or Matching Contributions for any period designated under AA §6-6(e)(1) or AA §6B-7(e)(1), as applicable, unless the Participant is employed by the Employer at the end of such designated period. If the Employer elects to apply an Hours of Service allocation condition on the basis of designated periods, a Participant will not be entitled to an allocation of Employer Contributions or Matching Contributions for any period designated under AA §6-6(e)(1) or AA §6B-7(e)(1), as applicable, unless the Participant satisfies the required service condition before the end of such designated period.

If the Employer elects to apply the allocation conditions on the basis of designated periods, the Employer may elect to apply any Hours of Service condition using the cumulative method (as described in subsection (1) below) or the period- by-period method (as described in subsection (2) below). The Employer may elect operationally to use either method in applying the Hours of Service condition, provided the Employer uses the same method for all affected Employees during any given period. (If the Employer elects to apply a minimum service requirement on the basis of days of employment under AA §6-6(d)(2) or AA §6B-7(d)(2), as applicable, the Employer may not apply such minimum


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service condition on the basis of designated periods. Likewise, the Employer may not apply any Hours of Service requirement under a safe harbor allocation condition on the basis of designated periods. In either case, however, the Employer may apply a last day of employment condition, if applicable, on the basis of designated periods.)

(1)Cumulative method. Under the cumulative method, the Hours of Service condition is applied with respect to each designated period on a cumulative basis for the Plan Year. The required service condition for any period is determined by multiplying the required Hours of Service (or days of employment, if applicable) by a fraction, the numerator of which is the total number of periods completed during the Plan Year (including the current period) and the denominator of which is the total number of periods during the Plan Year. For example, if a Participant must complete 1,000 Hours of Service to receive an Employer Contribution or Matching Contribution under the Plan, and the Employer elects to apply such condition on the basis of Plan Year quarters under AA §6-6(e)(1)(i) or AA §6B-7(e)(1)(i), as applicable, a Participant would have to complete 250 Hours of Service by the end of the first Plan Year quarter [1/4 x 1,000], 500 Hours of Service by the end of the second Plan Year quarter [2/4 x 1,000], 750 Hours of Service by the end of the third Plan Year quarter [3/4 x 1,000] and 1,000 Hours of Service by the end of the Plan Year [4/4 x 1,000] to receive an allocation of the Employer Contribution or Matching Contribution for such period. If a Participant does not satisfy the required service condition for any designated period during the Plan Year, no Employer Contribution or Matching Contribution will be allocated to that Participant for such period.

(2)Period-by-period method. Under the period-by-period method, the minimum service allocation condition is applied separately for each designated period. The required service condition for any period is determined by multiplying the required Hours of Service (or days of employment, if applicable) by a fraction, the numerator of which is one (1) and the denominator of which is the total number of periods during the Plan Year. For example, if a Participant must complete 1,000 Hours of Service to receive an Employer Contribution or Matching Contribution under the Plan, and the Employer elects to apply such condition on the basis of Plan Year quarters under AA §6-6(e)(1)(i) or AA §6B-7(e)(1)(i), as applicable, a Participant would have to complete 250 Hours of Service in each Plan Year quarter [1/4 x 1,000] to receive an allocation of the Employer Contribution or Matching Contribution for such period. If a Participant does not satisfy the required service condition for any designated period during the Plan Year, no Employer Contribution or Matching Contribution will be allocated to that Participant for such period.

(b)Special rule for year of Plan termination. A last day employment condition automatically applies for any Plan Year in which the Plan is terminated, regardless of whether the Employer has elected to apply a last day employment condition under AA §6-6(c) or AA §6B-7(c), as applicable. Thus, the Employer will not be obligated to make an Employer Contribution or Matching Contribution for the Plan Year in which the Plan terminates, unless the Employer provides for an Employer Contribution and/or Matching Contribution in its termination amendment. If there are unallocated forfeitures at the time of Plan termination, such forfeitures will be allocated to Participants under the Plan’s procedures for allocating forfeitures.

(c)Service with Predecessor Employers. If the Employer maintains the plan of a Predecessor Employer, any service with such Predecessor Employer is treated as service with the Employer for purposes of applying the allocation conditions under this Section 3.09. If the Employer does not maintain the plan of a Predecessor Employer, service with such Predecessor Employer does not count for purposes of applying the allocation conditions under this Section 3.09, unless the Employer specifically designates under AA §4-5 to credit service with such Predecessor Employer. Unless designated otherwise under AA §4-5, if the Employer takes into account service with a Predecessor Employer, such service will count for purposes of eligibility under Section 2 (see Section 2.06), vesting under Section 7 (see Section 7.08) and for purposes of the minimum allocation conditions under this Section 3.09.

3.10 Contribution of Property. Subject to the consent of the Trustee, the Employer may make its contribution to the Plan in the form of property, provided such contribution does not constitute a prohibited transaction under the Code or ERISA. The decision to make a contribution of property is subject to the general fiduciary rules under ERISA. This Section 3.10 does not apply for purposes of the Money Purchase Adoption Agreement.


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SECTION 4

TOP HEAVY PLAN REQUIREMENTS

For any Plan Year for which this Plan is Top Heavy, the provisions of this Section apply and supersede any conflicting provisions in the Plan or Adoption Agreement.

4.01Top Heavy Plan. This Plan is Top Heavy if any of the following conditions exist:

(a)If the Top Heavy Ratio for this Plan exceeds sixty percent (60%) and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group;

(b)If this Plan is a part of a Required Aggregation Group (but is not part of a Permissive Aggregation Group) and the aggregate Top Heavy Ratio for the group of plans exceeds 60%; or

(c)If this Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group and the Top Heavy Ratio for the Permissive Aggregation Group exceeds 60%.

If the Plan is a Safe Harbor 401(k) Plan and the Plan consists solely of Traditional Safe Harbor/QACA Safe Harbor Contributions (as described in Section 6.04(a)(1)) and Matching Contributions that satisfy the ACP Test safe harbor (as described in Section 6.04(i)), the Plan is not subject to the Top Heavy requirements of this Section 4.

4.02Top Heavy Ratio.

(a)Defined Contribution Plan(s) only. If the Employer maintains one or more Defined Contribution Plans (including a SEP described under Code §408(k)) and the Employer has not maintained any Defined Benefit Plan which during the 5-year period ending on the Determination Date(s) has or has had accrued benefits, the Top Heavy Ratio for this Plan alone (or for the Required Aggregation Group or Permissive Aggregation Group, as appropriate) is a fraction, the numerator of which is the sum of the Account Balances of all Key Employees as of the Determination Date(s) and the denominator of which is the sum of all Account Balances, both computed in accordance with Code §416 and the regulations thereunder. For this purpose, the Account Balance used for purposes of applying the Top Heavy rules includes any part of the Account Balance distributed in the 1-year period ending on the Determination Date(s) (or during the 5-year period ending on the Determination Date in the case of a distribution made for a reason other than severance from employment, death or disability). Both the numerator and denominator of the Top Heavy Ratio are increased to reflect any contribution not actually made as of the determination date, but which is required to be taken into account on that date under § 416 of the Code and the regulations thereunder.

(b)Maintenance of Defined Benefit Plan. If the Employer maintains one or more Defined Contribution Plans (including a SEP, as described under Code §408(k)) and the Employer maintains or has maintained one or more Defined Benefit Plans which during the 5-year period ending on the Determination Date(s) has or has had any accrued benefits, the Top Heavy Ratio for any Required Aggregation Group or Permissive Aggregation Group (as appropriate), is a fraction, the numerator of which is the sum of Account Balances under the Defined Contribution Plan(s) for all Key Employees, determined in accordance with subsection (a) above, and the present value of accrued benefits under the aggregated Defined Benefit Plan(s) for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the Account Balances under the aggregated Defined Contribution Plan(s) for all Participants, determined in accordance with subsection (a) above, and the present value of accrued benefits under the Defined Benefit Plan(s) for all Participants as of the Determination Date(s), all determined in accordance with Code §416 and the regulations thereunder. The accrued benefits under a Defined Benefit Plan in both the numerator and denominator of the Top Heavy Ratio are increased for any distributions of an accrued benefit made during the 1-year period ending on the Determination Date (or during the 5-year period ending on the Determination Date in the case of a distribution made for a reason other than severance from employment, death or disability).

(c)Determining value of Account Balance or accrued benefit. For purposes of subsections (a) and (b) above, the value of Account Balances and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Code §416 and the regulations thereunder for the first and second Plan Years of a Defined Benefit Plan. When aggregating plans the value of Account Balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year.

(1)The Account Balances and accrued benefits of a Participant (i) who is not a Key Employee but who was a Key Employee in a prior year, or (ii) who has not been credited with at least one Hour of Service with any Employer maintaining the Plan at any time during the 1-year period ending on the Determination Date will be disregarded.


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(2)The calculation of the Top Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code §416 of the Code and the regulations thereunder. Deductible employee contributions will not be taken into account for purposes of computing the Top Heavy Ratio.

(3)The accrued benefit of a Participant other than a Key Employee shall be determined under the method, if any, that uniformly applies for accrual purposes under all Defined Benefit Plans maintained by the Employer, or if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code §411(b)(1)(C).

4.03Other Definitions.

(a)Key Employee. Any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year that includes the Determination Date is:

(1)an officer of the Employer with annual Total Compensation greater than $185,000 for 2020, then as adjusted under Code §416(i)(1);

(2)a Five-Percent Owner (as defined in Section 1.70(a); or

(3)a more than 1-percent owner of the Employer with an annual Total Compensation of more than $150,000.

The Key Employee determination will be made in accordance with Code §416(i) and the regulations and other guidance of general applicability issued thereunder.

(b)Non-Key Employee. An Employee or former Employee who does not satisfy the definition of Key Employee under subsection (a) above.

(c)Determination Date. For any Plan Year subsequent to the first Plan Year, the Determination Date is the last day of the preceding Plan Year. For the first Plan Year of the Plan, the Determination Date is the last day of that first Plan Year.

(d)Permissive Aggregation Group. The Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code §§401(a)(4) and 410.

(e)Required Aggregation Group.

(1)Each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the Plan Year containing the Determination Date or any of the four preceding Plan Years (regardless of whether the Plan has terminated); and

(2)any other qualified plan of the Employer that enables a plan described in subsection (1) to meet the coverage or nondiscrimination requirements of Code §§401(a)(4) or 410(b).

(f)Present Value. The present value based on the interest and mortality rates specified in the relevant Defined Benefit Plan. In the event that more than one Defined Benefit Plan is included in a Required Aggregation Group or Permissive Aggregation Group, a uniform set of actuarial assumptions must be applied to determine present value. The Employer may specify in AA §11-5(b) the actuarial assumptions that will apply if the Defined Benefit Plans do not specify a uniform set of actuarial assumptions to be used to determine if the plans are Top Heavy.

(g)Total Compensation. For purposes of determining the minimum Top Heavy contribution under Section 4.04, Total Compensation is determined using the definition under Section 1.142. For this purpose, Total Compensation is subject to the Compensation Limit as defined in Section 1.26.

(h)Valuation Date. The date as of which Account Balances or accrued benefits are valued for purposes of calculating the Top Heavy Ratio. See AA §11-1.

4.04Minimum Allocation. If a Plan is Top Heavy, each Participant who is not a Key Employee must receive a minimum allocation as described in this Section 4.04. Except as otherwise provided in subsections (d) - (f) below, the minimum allocation under this Section 4.04 is the lesser of 3% of Total Compensation or the largest percentage of Employer Contributions and forfeitures, as a percentage of Total Compensation, allocated on behalf of any Key Employee for that year. If any Non-Key Employee who is entitled to receive a Top Heavy minimum contribution pursuant to this Section 4.04 fails to receive an appropriate allocation, the Employer will make an additional contribution on behalf of such Non-Key Employee to satisfy the requirements of this


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Section. The Employer may elect under AA §11-4(a) to make the Top Heavy contribution to all Participants. If the Employer elects to provide the Top Heavy minimum contribution to all Participants, the Employer also will make an additional contribution on behalf of any Key Employee who is a Participant and who did not receive an allocation equal to the Top Heavy minimum contribution. (See subsection (h) for a discussion of the vesting rules applicable to the Top Heavy minimum allocation.)

(a)Determination of Key Employee contribution percentage. In determining the largest contribution percentage of any Key Employee, the Key Employee’s contribution percentage includes Salary Deferrals made by the Key Employee for the Plan Year (except as provided by regulation or statute).

(b)Determining of Non-Key Employee minimum allocation. In determining whether a Non-Key Employee's allocation of Employer Contributions and forfeitures is at least equal to the minimum allocation percentage (as described in Section 4.04 above), the Employee's Salary Deferrals for the Plan Year are disregarded. To the extent a Non-Key Participant receives an allocation of Matching Contributions under the Plan (including Traditional Safe Harbor/QACA Safe Harbor Matching Contributions or QMACs), such Matching Contributions can be taken into account in determining whether the minimum allocation has been satisfied.

(c)Certain allocation conditions inapplicable. The Top Heavy Plan minimum allocation shall be made even though, under other Plan provisions, the Non-Key Employee would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the Plan Year because of:

(1)the Participant’s failure to complete 1,000 Hours of Service (or any equivalent provided in the Plan);

(2)the Participant’s failure to make Salary Deferrals or After-Tax Employee Contributions to the Plan; or

(3)Total Compensation is less than a stated amount.

The minimum allocation also is determined without regard to any Social Security contribution or whether a Participant fails to make Salary Deferrals for a Plan Year in which the Plan includes a 401(k) feature.

(d)Participants not employed on the last day of the Plan Year. The minimum allocation requirement described in this Section 4.04 does not apply to a Participant who is not employed by the Employer on the last day of the Plan Year.

(e)Collectively Bargained Employees. The top-heavy minimum allocation requirements under this Section 4.04 do not apply to Collectively Bargained Employees (as defined in Section 1.25).

(f)Participation in more than one Top Heavy Plan. The minimum allocation requirement described in this Section 4.04 does not apply to a Participant who is covered under another plan maintained by the Employer if, pursuant to AA §11- 5, the other Plan will satisfy the minimum allocation requirement.

(1)More than one Defined Contribution Plans. If the Employer maintains one or more Defined Contribution Plans in addition to this Plan, the Employer may designate in AA §11-5(a) which plan(s) will provide the Top Heavy minimum allocation, if such plans are Top Heavy. If the Employer maintains more than one Defined Contribution Plan and does not designate the Plan to provide the Top Heavy minimum allocation, the Employer will be deemed to have selected this Plan as the Plan under which the Top Heavy minimum contribution will be provided. If an Employee is entitled to a Top Heavy minimum contribution but has not satisfied the minimum age and/or service requirements under the Plan designated to provide the Top Heavy minimum contribution, the Employee may receive a Top Heavy minimum contribution under the designated Plan.

(2)Defined Contribution Plan and a Defined Benefit Plan. If the Employer maintains a Defined Benefit Plan in addition to this Plan, the Employer may elect to provide the Top Heavy minimum allocation:

(i)in the Defined Benefit Plan;

(ii)in this Plan (or any other Defined Contribution Plan) but increasing the minimum allocation from 3% to 5%; or

(iii)under any other acceptable method of compliance.

If a Non-Key Employee participates only under the Defined Benefit Plan, the Top Heavy minimum benefit will be provided under the Defined Benefit Plan. If a Non-Key Employee participates only under the Defined Contribution Plan, the Top Heavy minimum benefit will be provided under the Defined Contribution Plan (without regard to this subsection (2)). If the Employer maintains a Defined Benefit Plan in addition to this Plan


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and does not designate how the minimum allocation will be provided, the Employer will be deemed to have selected this Plan as the Plan under which the Top Heavy minimum allocation will be provided.

(g)No forfeiture for certain events. The minimum Top Heavy allocation for purposes of this Section 4 must be nonforfeitable to the extent required under Code §416(b)(1)(A) or Code §416(b)(1)(B).

(h)Top Heavy vesting rules. If a Top Heavy minimum allocation is made for a Plan Year, such allocation will be subject to the vesting schedule selected in AA §8 applicable to Employer Contributions. If the Plan does not provide for Employer Contributions, for example because the Plan only provides for Salary Deferrals and/or Matching Contributions, the Top Heavy minimum allocation will be subject to a 6-year graded vesting schedule, as defined in Section 7.02(b), unless an alternative vesting schedule is selected under AA §11-4(b).


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SECTION 5

LIMITS ON CONTRIBUTIONS

5.01Limits on Employer Contributions. Any contributions the Employer makes under the Plan are subject to the limitations set forth in this Section 5.

(a)Limitation on Salary Deferrals. Any Salary Deferrals made under the Plan are subject to the Elective Deferral Dollar Limit, as described in Section 5.02 below.

(b)Limitation on total Employer Contributions. All Employer Contributions the Employer makes under the Plan are subject to the Code §415 Limitation, as described in Section 5.03 below. For purposes of applying the Code §415 Limitation, Employer Contributions include any Employer Contributions, Salary Deferrals, Matching Contributions, QNECs, QMACs, or Traditional Safe Harbor/QACA Safe Harbor Contributions made under the Plan. See the definition of Annual Additions under Section 5.03(c)(1) below.

5.02Elective Deferral Dollar Limit. No Participant may contribute as Elective Deferrals to this Plan (and any other plan, contract or arrangement maintained by the Employer) during any calendar year, an amount that exceeds the Elective Deferral Dollar Limit in effect for the Participant’s taxable year beginning in such calendar year. Additional restrictions apply if a Participant participates in a plan maintained by an unrelated employer. (See subsection (b)(7) below.)

The Elective Deferral Dollar Limit is the limit under Code §402(g)(1). The Elective Deferral Dollar Limit is $19,500 for taxable years beginning in 2020. The Elective Deferral Dollar Limit will be adjusted for cost-of-living increases under Code

§402(g)(4). Any such adjustments will be in multiples of $500.

If a Participant is age 50 or over by the end of the taxable year, the Elective Deferral Dollar Limit is increased by the Catch-Up Contribution Limit (as defined in Section 3.03(d)(1)). If the Plan does not provide for Catch-up Contributions, the Elective Deferral Dollar Limit is not increased by the Catch-Up Contribution Limit.

(a)Excess Deferrals. Excess Deferrals are Elective Deferrals made during the Participant's taxable year that exceed the Elective Deferral Dollar Limit (as described above) for such year; counting only Elective Deferrals made under this Plan and any other plan, contract or arrangement maintained by the Employer. (See subsection (b)(7) below for provisions that apply when a Participant makes Elective Deferrals to a plan of an unrelated Employer.)

(b)Correction of Excess Deferrals. If a Participant makes Excess Deferrals (i.e., Elective Deferrals in excess of the Elective Deferral Dollar Limit) under this Plan and any other plan maintained by the Employer, such Excess Deferrals (plus allocable income or loss) shall be distributed to the Participant. A distribution of Excess Deferrals may be made at any time (subject to the correction provisions under the IRS EPCRS program). If the corrective distribution of Excess Deferrals is made by April 15 of the calendar year following the year the Excess Deferrals are made to the Plan, such amounts will be taxable in the year of deferral but not in the year of distribution. If a corrective distribution of Excess Deferrals is made after April 15 of the following calendar year, such amounts will be taxable in both the year of deferral and the year of distribution. See subsection (3) below.

(1)Amount of corrective distribution. The amount to be distributed from this Plan as a correction of Excess Deferrals equals the amount of Elective Deferrals the Participant contributes during the taxable year to this Plan and any other plan maintained by the Employer in excess of the Elective Deferral Dollar Limit, reduced by any corrective distribution of Excess Deferrals the Participant receives during the calendar year from this Plan or other plan(s) maintained by the Employer. If a Participant has both a Pre-Tax Deferral Account and a Roth Deferral Account, the Participant may designate the extent to which the corrective distribution of Excess Deferrals is taken from the Pre-Tax Deferral Account or from the Roth Deferral Account, unless designated otherwise under AA §6A-5(b)(2). If a Participant does not designate the Account(s) from which the distribution will be made, the corrective distribution will be made first from the Participant’s Pre-Tax Deferral Account.

(2)Allocable gain or loss. A corrective distribution of Excess Deferrals must include any allocable gain or loss for the taxable year in which the Excess Deferrals are contributed to the Plan. The gain or loss allocable to Excess Deferrals may be determined in any reasonable manner, provided the manner used to determine allocable gain or loss is applied consistently for all Participants and in a manner that is reasonably reflective of the method used by the Plan for allocating income to Participants’ Accounts. A corrective distribution of Excess Deferrals will not include any income or loss allocable to the period between the end of the taxable year and the date of distribution.

(3)Taxation of corrective distribution. If a corrective distribution of Excess Deferrals is made by April 15 of the following calendar year, amounts attributable to the Excess Deferrals will be includible in the Participant’s gross income in the taxable year in which such amounts are deferred under the Plan and amounts attributable to


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income or loss on the Excess Deferrals will be includible in gross income in the year of distribution. However, a corrective distribution of Excess Deferrals will not be included in gross income to the extent such distribution is comprised of Roth Deferrals. A Roth Deferral is treated as an Excess Deferral only to the extent that the total amount of Roth Deferrals for an individual exceeds the applicable limit for the taxable year or the Roth Deferrals are identified as Excess Deferrals and the individual receives a distribution of the Excess Deferrals and allocable income under this paragraph.

If a corrective distribution of Excess Deferrals is made after April 15, the amount of the corrective distribution attributable to Excess Deferrals will be includible in the Participant’s gross income in both the taxable year in which such amounts are deferred under the Plan and the taxable year in which such amounts are distributed. (See Section 8.11(b)(2) for a discussion of the ordering rules for determining the Accounts from which the corrective distribution is made where a Participant has both a Pre-Tax Deferral Account and a Roth Deferral Account.)

If a corrective distribution of Excess Deferrals made after April 15 of the following calendar year apply to Excess Deferrals that are Roth Deferrals, such amounts are includible in gross income (without adjustment for any return of investment in the contract under Code §72(e)(8)). In addition, such distribution cannot be a qualified distribution as described in Code §402A(d)(2) and is not an Eligible Rollover Distributions (within the meaning of Code §402(c)(4)). For this purpose, if a Roth Deferral account includes any Excess Deferrals, any distributions from the Roth Deferral account are treated as attributable to those Excess Deferrals until the total amount distributed from the Roth Deferral account equals the total of such Excess Deferrals and attributable income.

(4)Coordination with other provisions. A corrective distribution of Excess Deferrals made by April 15 of the following calendar year may be made without consent of the Participant or the Participant’s Spouse, and without regard to any distribution restrictions applicable under Section 8. A corrective distribution of Excess Deferrals made by the appropriate April 15 also is not treated as a distribution for purposes of applying the required minimum distribution rules under Section 8.12.

(5)Coordination with ADP failure. If a Participant receives a corrective distribution of Excess Contributions to correct an ADP Test failure for a Plan Year beginning with or within a calendar year for which the Participant makes Excess Deferrals, any corrective distribution from the Plan is treated first as a corrective distribution of Excess Deferrals to the extent necessary to eliminate the Excess Deferral violation. The amount which must be distributed to correct the ADP Test failure is reduced by the amount treated as a corrective distribution of Excess Deferrals.

(6)Suspension of Salary Deferrals. If a Participant’s Salary Deferrals under this Plan, in combination with any Elective Deferrals the Participant makes during the calendar year under any other plan maintained by the Employer, equal or exceed the Elective Deferral Dollar Limit, the Employer may suspend the Participant’s Salary Deferrals under this Plan for the remainder of the calendar year without the Participant’s consent.

(7)Correction of Excess Deferrals under plans not maintained by the Employer. The correction provisions under this subsection (b) apply only if a Participant makes Excess Deferrals under this Plan (or under this Plan and other plans maintained by the Employer). However, if a Participant has Excess Deferrals for a calendar year on account of making Elective Deferrals to a plan of an unrelated employer, the Participant may assign to this Plan any portion of his/her Elective Deferrals made under all plans during the calendar year to the extent such Elective Deferrals exceed the Elective Deferral Dollar Limit. The Participant must notify the Plan Administrator in writing on or before March 1 of the following calendar year of the amount of the Excess Deferrals to be assigned to this Plan. If any Roth Deferrals were made to a plan, the notification must also identify the extent to which, if any, the Excess Deferrals are comprised of Roth Deferrals.

Upon receipt of a timely notification, the Excess Deferrals assigned to this Plan will be distributed (along with any allocable income or loss) to the Participant in accordance with the corrective distribution provisions under this subsection (b). A Participant is deemed to notify the Plan Administrator of Excess Deferrals (including any portion of Excess Deferrals that are comprised of Roth Deferrals) to the extent such Excess Deferrals arise only under this Plan and any other plan maintained by the Employer.

5.03Code §415 Limitation.

(a)No other plan participation. If the Participant does not participate in, and has never participated in another qualified retirement plan, a welfare benefit fund (as defined under Code §419(e)), an individual medical account (as defined under Code §415(l)(2)), or a SEP (as defined under Code §408(k)) maintained by the Employer, which provides an Annual Addition as defined in subsection (c)(1), then the amount of Annual Additions which may be credited to the


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Participant’s Account for any Limitation Year will not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan.

If an Employer Contribution that would otherwise be contributed or allocated to a Participant's Account will cause that Participant’s Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount to be contributed or allocated to such Participant will be reduced so that the Annual Additions allocated to such Participant’s Account for the Limitation Year will equal the Maximum Permissible Amount. However, if a contribution or allocation is made to a Participant’s Account in an amount that exceeds the Maximum Permissible Amount, such excess Annual Additions may be corrected pursuant to the correction procedures outlined under the IRS’ Employee Plans Compliance Resolution System (EPCRS).

(b)Participation in another plan. This subsection (b) applies if, in addition to this Plan, the Participant receives an Annual Addition during any Limitation Year from another Defined Contribution Plan, a welfare benefit fund (as defined under Code §419(e)), an individual medical account (as defined under Code §415(l)(2)), or a SEP (as defined under Code §408(k)) maintained by the Employer.

(1)This Plan’s Code §415 Limitation. The Annual Additions that may be credited to a Participant’s Account under this Plan for any Limitation Year will not exceed the Maximum Permissible Amount (defined in subsection (c)(6) below) reduced by the Annual Additions credited to a Participant’s Account under any other Defined Contribution Plan, welfare benefit fund, individual medical account, or SEP maintained by the Employer for the same Limitation Year.

(2)Annual Additions reduction. If the Annual Additions with respect to the Participant under any other Defined Contribution Plan, welfare benefit fund, individual medical account, or SEP maintained by the Employer are less than the Maximum Permissible Amount and the Annual Additions that would otherwise be contributed or allocated to the Participant’s Account under this Plan would exceed the Code §415 Limitation for the Limitation Year, the amount contributed or allocated will be reduced so that the Annual Additions under all such Plans and funds for the Limitation Year will equal the Maximum Permissible Amount. However, if a contribution or allocation is made to a Participant’s Account in an amount that exceeds the Maximum Permissible Amount, such excess Annual Additions may be corrected pursuant to the correction procedures outlined under the IRS’ Employee Plans Compliance Resolution System (EPCRS).

(3)No Annual Additions permitted. If the Annual Additions with respect to the Participant under such other Defined Contribution Plan(s), welfare benefit fund(s), individual medical account(s), or SEP(s) in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant’s Account under this Plan for the Limitation Year. However, if a contribution or allocation is made to a Participant’s Account in an amount that exceeds the Maximum Permissible Amount, such excess Annual Additions may be corrected pursuant to the correction procedures outlined under the IRS’ Employee Plans Compliance Resolution System (EPCRS).

(c)Definitions.

(1)Annual Additions. The amounts credited to a Participant’s Account for the Limitation Year that are taken into account in applying the Code §415 Limitation.

(i)Amounts that are included as Annual Additions:

(A)Employer Contributions, including Matching Contributions, Salary Deferrals, QNECs, QMACs and Traditional Safe Harbor/QACA Safe Harbor Contributions;

(B)After-Tax Employee Contributions;

(C)Forfeitures;

(D)Amounts allocated to an individual medical account (as defined in Code §415(l)(2)), which is part of a pension or annuity plan maintained by the Employer;

(E)Amounts derived from contributions paid or accrued which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code

§419A(d)(3)) under a welfare benefit fund (as defined in Code §419(e)) maintained by the Employer; and


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(F)Allocations under a SEP (as defined in Code §408(k)) other than Employee contributions excludible from gross income under Code §408(k)(6).

Contributions do not fail to be Annual Additions merely because they are Excess Contributions (as described in Section 6.01(b)(1) or Excess Aggregate Contributions (as described in Section 6.02(b)(1)), or merely because Excess Contributions or Excess Aggregate Contributions are corrected through distribution.

(ii)Amounts that are not included as Annual Additions:

(A)Rollover Contributions (as defined in Code §§402(c), 403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16));

(B)Catch-Up Contributions as defined under Section 3.03(d);

(C)A repayment and/or restoration of a Cash-Out Distribution, as defined under Sections 7.12(a)(2) and (3);

(D)Repayments of Participant loans;

(E)Excess Deferrals that are distributed in accordance with Section 5.02(b); and

(F)A restorative payment that is made to restore losses resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under Title I of ERISA or under other applicable federal or state law.

(iii)Time when amounts are credited to a Participant’s Account. An Annual Addition is credited to a Participant’s Account for a particular Limitation Year if such amount is allocated to the Participant’s Account as of any date within that Limitation Year. An Annual Addition will not be deemed credited to a Participant’s Account for a particular Limitation Year unless such amount is actually contributed to the Plan no later than 30 days after the time prescribed by law for filing the Employer’s income tax return (including extensions) for the taxable year with or within which the Limitation Year ends. In the case of After-Tax Employee Contributions, such amount shall not be deemed credited to a Participant’s Account for a particular Limitation Year unless the contributions are actually contributed to the Plan no later than 30 days after the close of that Limitation Year.

(2)Defined Contribution Dollar Limitation. $57,000 for 2020, then as adjusted under Code §415(d).

(3)Employer. For purposes of this Section 5.03, Employer shall mean the Employer that adopts this Plan, and all members of a controlled group of corporations (as defined in §414(b) of the Code as modified by §415(h)), all commonly controlled trades or businesses (as defined in §414(c) of the Code as modified by §415(h)) or affiliated service groups (as defined in §414(m)) of which the adopting Employer is a part, and any other entity required to be aggregated with the Employer pursuant to regulations under §414(o) of the Code.

(4)Excess Amount. The excess of the Participant’s Annual Additions for the Limitation Year over the Maximum Permissible Amount.

(5)Limitation Year. The Plan Year, unless the Employer elects another 12-consecutive month period under AA

§11-3(a). If the Limitation Year is amended to a different 12-consecutive month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. If the Plan has an initial Plan Year that is less than 12 months, the Limitation Year for such first Plan Year is the 12-month period ending on the last day of that Plan Year, unless otherwise specified in AA §11-3(a).

If an Employer has multiple Limitation Years (e.g., due to the maintenance of multiple Defined Contribution Plans by a group of Related Employers), and a Participant is credited with Annual Additions in only one Defined Contribution Plan, the Code §415 Limitation is applied only with respect to that Plan. If a Participant is credited with Annual Additions in more than one Defined Contribution Plan, each such Plan satisfies the Code §415 Limitation based on Annual Additions for the Limitation Year with respect to such plan, plus any amounts credited to the Participant's Account under all other plans required to be aggregated pursuant to Code

§415(f).

(6)Maximum Permissible Amount. The maximum Annual Additions that may be contributed or allocated to a Participant’s Account under the Plan for any Limitation Year shall not exceed the lesser of:


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(i)the Defined Contribution Dollar Limitation; or

(ii)100 percent of the Participant’s Total Compensation for the Limitation Year.

The Total Compensation limitation referred to in (ii) shall not apply to any contribution for medical benefits (within the meaning of Code §401(h) or §419A(f)(2)) which is otherwise treated as an Annual Addition.

If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12- consecutive month period, the Maximum Permissible Amount will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction:

Number of months in the short Limitation Year 12

If a short Limitation Year is created because the Plan has an initial Plan Year that is less than 12 months, no proration of the Defined Contribution Dollar Limitation is required, unless provided otherwise under AA §11- 3(a). (See subsection (5) above for the rule allowing the use of a full 12-month Limitation Year for the first year of the Plan, thereby avoiding the need to prorate the Defined Contribution Dollar Limitation.)

(7)Total Compensation. The amount of compensation as defined under Section 1.142, subject to the Employer’s election under AA §5-2.

(i)Self-Employed Individuals. For a Self-Employed Individual, Total Compensation is such individual’s Earned Income.

(ii)Total Compensation actually paid or made available. For purposes of applying the limitations of this Section 5.03, Total Compensation for a Limitation Year is the Total Compensation actually paid or made available to an Employee during such Limitation Year. However, if elected in AA §5-4(c), the Employer may include in Total Compensation for a Limitation Year amounts earned but not paid in the Limitation Year because of the timing of pay periods and pay days, but only if:

(A)the amounts are paid during the first few weeks of the next Limitation Year;

(B)such amounts are included on a uniform and consistent basis with respect to all similarly-situated employees; and

(C)no amounts are included in Total Compensation in more than one Limitation Year.

(iii)Disabled Participants. Total Compensation does not include any imputed compensation for the period a Participant is disabled. However, the Employer may elect under AA §11-3(b) to include under the definition of Total Compensation, the amount a terminated Participant who is permanently and totally disabled (as described under Treas. Reg. §1.415(c)-2(g)(4)) would have received for the Limitation Year if the Participant had been paid at the rate of Total Compensation paid immediately before becoming permanently and totally disabled. If the Employer elects under AA §11-3(b) to include imputed compensation for a disabled Participant, a disabled Participant will receive an allocation of any Employer Contribution the Employer makes to the Plan based on the Employee’s imputed compensation for the Plan Year. Any Employer Contributions made to a disabled Participant under this subsection (iii) are fully vested when made and will be made only to Non-Highly Compensated Employees.

(d)Restorative payments. Restorative payments are not considered Annual Additions for any Limitation Year. For this purpose, restorative payments are payments made to restore losses to the Plan resulting from actions (or a failure to act) by a fiduciary for which there is a reasonable risk of liability under Title I of ERISA or under other applicable federal or state law, where Participants who are similarly situated are treated similarly with respect to the payments. Examples of restorative payments include payments made pursuant to a Department of Labor order, the Department of Labor’s Voluntary Fiduciary Correction Program, or a court-approved settlement, to restore losses to the Plan on account of the breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the Plan). Payments made to the Plan to make up for losses due merely to market fluctuations and other payments that are not made on account of a reasonable risk of liability for breach of a fiduciary duty under Title I of ERISA are not restorative payments and generally constitute contributions that give rise to Annual Additions.


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(e)Corrective provisions. The Plan is amended to eliminate any specific correction methods for correcting excess annual additions. If the Plan is eligible for self-correction under the IRS’ EPCRS program, the Employer may use reasonable correction methods (including the correction methods described in §1.415-6(b)(6) of the 1981 IRS regulations) to the extent permitted under the IRS’ EPCRS program.

(f)Change of Limitation Year. Where there is a change of Limitation Year, a short Limitation Year exists for the period beginning with the first day of the Limitation Year and ending on the day before the change in Limitation Year is effective. For this purpose, if the Plan is terminated effective as of a date other than the last day of the Limitation Year, the Plan is treated as if it were amended to change its Limitation Year.


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SECTION 6

SPECIAL RULES AFFECTING 401(k) PLANS

6.01Nondiscrimination Testing of Salary Deferrals – ADP Test. Except as provided under Section 6.04 for Safe Harbor 401(k) Plans, if the Plan permits Participants to make Salary Deferrals, the Plan must satisfy the Actual Deferral Percentage Test ("ADP Test") each Plan Year. The Plan Administrator shall maintain records sufficient to demonstrate satisfaction of the ADP Test, including the amount of any QNECs or QMACs included in such test, pursuant to subsection (a)(4) below. If the Plan fails the ADP Test for any Plan Year, the corrective provisions under subsection (b) below will apply.

(a)ADP Test. The ADP Test compares the Average Deferral Percentage (ADP) of the Highly Compensated Group with the ADP of the Nonhighly Compensated Group. The Highly Compensated Group is the group of Participants who are Highly Compensated for the current Plan Year. The Nonhighly Compensated Group is the group of Participants who are Nonhighly Compensated for the applicable Plan Year. If the Prior Year Testing Method is selected under AA §6A- 6, the Nonhighly Compensated Group is the group of Participants in the prior Plan Year who were Nonhighly Compensated for that year. If the Current Year Testing Method is selected under AA §6A-6, the Nonhighly Compensated Group is the group of Participants who are Nonhighly Compensated for the current Plan Year.

(1)Average Deferral Percentage – ADP. The ADP for a specified group is the average of the deferral percentages calculated separately for each Participant in such group. A Participant’s deferral percentage is the ratio of the Participant’s deferral contributions expressed as a percentage of the Participant’s Testing Compensation for the Plan Year. (See Section 1.138 for the definition of Testing Compensation.) For this purpose, a Participant’s deferral contributions include any Salary Deferrals (other than Catch-Up Contributions) made pursuant to the Participant’s deferral election (including Excess Deferrals of Highly Compensated Employees that arise solely from Elective Deferrals made under this Plan or other plans maintained by the Employer) and other contributions provided under subsection (4) below, if applicable, but excluding:

(i)Excess Deferrals of Nonhighly Compensated Employees that arise solely from Elective Deferrals made under this Plan or other plans maintained by the Employer; and

(ii)Salary Deferrals that are taken into account in the ACP Test (pursuant to Section 6.02(a)(4)).

For purposes of computing Actual Deferral Percentages, a Participant who does not make Salary Deferrals for the Plan Year shall be included in the ADP Test as a Participant on whose behalf no Salary Deferrals are made.

(2)ADP Test testing methods. In applying the ADP Test for any Plan Year, the Plan may use the Prior Year Testing Method or the Current Year Testing Method, as selected under AA §6A-6. If no testing method is selected under AA §6A-6, the Plan will use the Current Year Testing Method.

(i)Prior Year Testing Method. Under the Prior Year Testing Method, the Average Deferral Percentage ("ADP") of the Highly Compensated Group (as defined in subsection (a) above) for the current Plan Year and the ADP of the Nonhighly Compensated Group (as defined in subsection (a) above) for the prior Plan Year must satisfy one of the following tests for each Plan Year:

(A)The ADP of the Highly Compensated Group for the current Plan Year shall not exceed 1.25 times the ADP of the Nonhighly Compensated Group for the prior Plan Year; or

(B)The ADP of the Highly Compensated Group for the current Plan Year shall not exceed the percentage (whichever is less) determined by:

(I)adding 2 percentage points to the ADP of the Nonhighly Compensated Group for the prior Plan Year; or

(II)multiplying the ADP of the Nonhighly Compensated Group for the prior Plan Year by 2.

(ii)Current Year Testing Method. Under the Current Year Testing Method, the Average Deferral Percentage (“ADP”) of the Highly Compensated Group (as defined in subsection (a) above) for the current Plan Year and the ADP of the Nonhighly Compensated Group (as defined in subsection (a) above) for the current Plan Year must satisfy one of the ADP tests, as described in subsections (i)(A) and (i)(B) above, for each Plan Year.


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Year Testing Method is used for a Plan Year, the Plan may switch to the Prior Year Testing Method for a Plan Year only if the Plan has used the Current Year Testing Method for each of the preceding five Plan Years (or if lesser, the number of Plan Years the Plan has been in existence) or if, as a result of a merger or acquisition described in Code §410(b)(6)(C)(i), the Employer maintains both a plan using Prior Year Testing and a plan using Current Year Testing and the change is made within the transition period described in Code §410(b)(6)(C)(ii).

(3)Special rule for first Plan Year. For the first Plan Year that the Plan permits Salary Deferrals, the testing method selected under AA §6A-6 applies. If the Prior Year Testing Method applies for the first year of the Plan, the ADP Test applies by assuming the ADP for the Nonhighly Compensated Group is 3%, unless designated otherwise in AA §6A-6(b). If the Current Year Testing Method applies for the first year of the Plan, the ADP Test applies using the actual data for the Nonhighly Compensated Group in the first Plan Year, unless designated otherwise in AA §6A-6(a). This first Plan Year rule does not apply if this Plan is a successor to a plan that included a 401(k) arrangement, or the Plan is aggregated for purposes of applying the ADP Test with another plan that included a 401(k) arrangement in the prior Plan Year. For subsequent Plan Years, the testing method selected under AA §6A-6 will apply.

(4)Use of QNECs and QMACs under the ADP Test. The Plan Administrator may take into account all or any portion of QNECs and QMACs for purposes of applying the ADP Test. QNECs and QMACs may not be included in the ADP Test to the extent such amounts are included in the ACP Test for such Plan Year. QNECs and QMACs made to another qualified plan maintained by the Employer may also be taken into account, so long as the other plan has the same Plan Year as this Plan. To include QNECs under the ADP Test, all Employer Nonelective Contributions, including the QNECs, must satisfy Code §401(a)(4). In addition, the Employer Nonelective Contributions, excluding any QNECs used in the ADP Test or ACP Test, must also satisfy Code §401(a)(4). If the Prior Year Testing Method is being used (as described in subsection (2)(i) above), QMACs or QNECs may not be used in the ADP Test, if such QMACs or QNECs are contributed after the Plan Year for which the ADP Test is being performed.

No QNEC may be taken into account under the ADP Test for any individual Nonhighly Compensated Employee to the extent such QNEC exceeds the greater of 5% of such Nonhighly Compensated Employee’s Plan Compensation or two times the lowest applicable contribution rate for any eligible Nonhighly Compensated Employee within a group of Nonhighly Compensated Employees that consist of 50% of the total eligible Nonhighly Compensated Employees under the Plan (or, if greater, the lowest applicable contribution rate allocated to any Nonhighly Compensated Employee who is in the group of Nonhighly Compensated Employees employed as of the last day of the Plan Year). For this purpose, the applicable contribution rate is the sum of QNECs and QMACs (to the extent taken into account under the ADP Test) allocated to a Nonhighly Compensated Employee (determined as a percentage of Plan Compensation). If QNECs are being made in connection with the Employer’s obligation to pay prevailing wages under the Davis-Bacon Act (46 Stat. 1494), Public Law 71-798, Service Contract Act of 1965 (79 Stat. 1965), Public Law 89-286, or similar legislation, QNECs can be taken into account for a Plan Year for a Nonhighly Compensated Employee to the extent such contributions do not exceed 10% of Plan Compensation. QMACs also may not be taken into account under the ADP Test to the extent such QMACs may not be taken into account under the ACP Test, as described in Section 6.02(a).

(i)Timing of contributions. In order to be used in the ADP Test for a given Plan Year, QNECs and QMACs must be made before the end of the 12-month period immediately following the Plan Year for which they are allocated. For this purpose, if the Plan is using the Prior Year Testing Method, QMACs and QNECs must be contributed no later than 12 months after the close of that prior Plan Year in order to be taken into account under the ADP Test.

(ii)Testing flexibility. The Plan Administrator is expressly granted the full flexibility permitted by applicable Treasury regulations to determine the amount of QNECs and QMACs used in the ADP Test. QNECs and QMACs taken into account under the ADP Test do not have to be uniformly determined for each Participant, and may represent all or any portion of the QNECs and QMACs allocated to each Participant, provided the conditions described above are satisfied.

(5)Double-counting limits. This subsection (5) applies if the Prior Year Testing Method is used to run the ADP Test and, in the prior Plan Year, the Current Year Testing Method was used to run the ADP Test. If this paragraph applies, all QNECs or QMACs that were included in either the ADP Test or ACP Test for the prior Plan Year are disregarded in calculating the ADP of the Nonhighly Compensated Group for the prior Plan Year.


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For purposes of applying the double-counting limits, if actual data of the Nonhighly Compensated Group is used for a first Plan Year described in subsection (3) above, the Plan is still considered to be using the Prior Year Testing Method for that first Plan Year. Thus, the double-counting limits do not apply if the Prior Year Testing Method is used for the next Plan Year.

(b)Correction of Excess Contributions. If the Plan fails the ADP Test for a Plan Year, the Plan Administrator may use any combination of the correction methods under this section to correct the Excess Contributions under the Plan.

(1)Excess Contributions. Excess Contributions are the amount of Salary Deferrals (and other contributions) taken into account in computing the ADP of the Highly Compensated Group that exceed the maximum amount permitted under the ADP Test for the Plan Year. The amount of Excess Contributions for a Plan Year are the amounts determined by hypothetically reducing the ADP contributions of the Highly Compensated Employees, beginning with the Highly Compensated Employee(s) with the highest ADP for the Plan Year, and reducing the ADP of such Highly Compensated Employees until the reduced percentage reaches the ADP of the Highly Compensated Employee(s) with the next higher ADP or until the adjusted ADP percentage satisfies the ADP Test. The reduction continues for each level of Highly Compensated Employees until the Plan satisfies the ADP Test. The total dollar amount so determined is then divided among the Highly Compensated Group in the manner described in subsection (2) to determine the actual corrective distributions to be made.

(2)Corrective distributions. If the Plan fails the ADP Test for a Plan Year, the Plan Administrator may, in its discretion, distribute Excess Contributions (including any allocable income or loss) no later than 12 months following the end of the Plan Year to correct the ADP Test violation, except to the extent such Excess Contributions are recharacterized as Catch-Up Contributions. If the Excess Contributions are distributed more than 2½ months after the last day of the Plan Year in which such excess amounts arose, a 10% excise tax will be imposed on the Employer with respect to such amounts.

(i)Amount to be distributed. In determining the amount of Excess Contributions to be distributed to a Highly Compensated Employee under this section, Excess Contributions are first allocated equally to the Highly Compensated Employee(s) with the largest dollar amount of ADP contributions for the Plan Year in which the excess occurs until all of the Excess Contributions are allocated or the dollar amount of ADP contributions for such Highly Compensated Employee(s) is reduced to the next highest dollar amount of such contributions for any other Highly Compensated Employee(s). Once all Excess Contributions have been allocated, to the extent a Highly Compensated Employee has not reached his or her Catch-up Contribution limit under the Plan, the Excess Contributions allocated to such Highly Compensated Employee are recharacterized as Catch-up Contributions and will not be treated as Excess Contributions.

(ii)Allocable gain or loss. A corrective distribution of Excess Contributions must include any allocable gain or loss for the Plan Year in which the excess occurs. For this purpose, allocable gain or loss on Excess Contributions may be determined in any reasonable manner, provided the manner used is applied uniformly and in a manner that is reasonably reflective of the method used by the Plan for allocating income to Participants’ Accounts.

Only allocable gain or loss through the end of the Plan Year must be taken into account in determining allocable income or loss attributable to a corrective distribution of Excess Contributions.

(iii)Coordination with other provisions. A corrective distribution of Excess Contributions made by the end of the Plan Year following the Plan Year in which the excess occurs may be made without consent of the Participant or the Participant’s Spouse, and without regard to any distribution restrictions applicable under Section 8.10. Excess Contributions are treated as Annual Additions for purposes of Code §415 even if distributed from the Plan. A corrective distribution of Excess Contributions is not treated as a distribution for purposes of applying the required minimum distribution rules under Section 8.12.

If a Participant has Excess Deferrals for the calendar year ending with or within the Plan Year for which the Participant receives a corrective distribution of Excess Contributions, the corrective distribution of Excess Contributions is treated first as a corrective distribution of Excess Deferrals. The amount of the corrective distribution of Excess Contributions that must be distributed to correct an ADP Test failure for a Plan Year is reduced by any amount distributed as a corrective distribution of Excess Deferrals for the calendar year ending with or within such Plan Year.

(iv)Accounting for Excess Contributions. Excess Contributions are distributed from the following sources and in the following priority:


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(A)Salary Deferrals that are not matched;

(B)proportionately from Salary Deferrals not distributed under subsection (A) and related QMACs that are included in the ADP Test;

(C)QMACs included in the ADP Test that are not distributed under subsection (B); and

(D)QNECs included in the ADP Test.

If a Participant has both a Pre-Tax Deferral Account and a Roth Deferral Account, the Participant may designate the extent to which the corrective distribution of Salary Deferrals is taken from the Pre-Tax Deferral Account or from the Roth Deferral Account, unless designated otherwise under AA §6A-5(e) of the Profit Sharing/401(k) Plan Adoption Agreement. If a Participant does not designate the Account(s) from which the distribution will be made, the corrective distribution will be made first from the Participant’s Pre-Tax Deferral Account.

(3)Making QNECs or QMACs. Regardless of any elections under AA §6D-3 or AA §6D-4 of the Profit Sharing/401(k) Plan Adoption Agreement, the Employer may make additional QNECs or QMACs to the Plan on behalf of the Nonhighly Compensated Employees and such amounts may be used to correct an ADP Test violation. Any QNECs contributed under this subsection (3) which are not specifically authorized under AA

§6D-1(c) may, at the discretion of the Employer, be allocated to all Participants who are Nonhighly Compensated Employees in the ratio that each such Participant’s Plan Compensation bears to the Plan Compensation of all Participants for the Plan Year, as a uniform dollar amount or as a Targeted QNEC. Any QMACs contributed under this subsection (3) which are not specifically authorized under AA §6D-1(d) may, at the discretion of the Employer, be allocated to all Participants who are Nonhighly Compensated as a uniform percentage of Salary Deferrals made during the Plan Year, or as a Targeted QMAC. (See Section (a)(4) for rules regarding the amount of QNECs and QMACs that may be taken into account under the ADP Test.) The allocation method chosen by the Employer for a corrective QNEC or QMAC will be uniformly applied to all Participants receiving the corrective QNEC or QMAC for the Plan Year.

(4)Recharacterization. If After-Tax Employee Contributions are permitted under AA §6D, the Plan Administrator, in its sole discretion, may permit a Participant to treat any Excess Contributions that are allocated to that Participant as if he/she received the Excess Contributions as a distribution from the Plan and then contributed such amounts to the Plan as After-Tax Employee Contributions. Any amounts recharacterized under this subsection (4) will be 100% vested at all times. Amounts may not be recharacterized by a Highly Compensated Employee to the extent that such amount in combination with other After-Tax Employee Contributions made by that Participant would exceed any limit on After-Tax Employee Contributions under AA §6D-2.

Recharacterization must occur no later than 2½ months after the last day of the Plan Year in which such Excess Contributions arise and is deemed to occur no earlier than the date the last Highly Compensated Employee is informed in writing of the amount recharacterized and the consequences thereof. Recharacterized amounts will be taxable to the Participant for the Participant's taxable year in which the Participant would have received such amounts in cash had he/she not deferred such amounts into the Plan.

(c)Adjustment of deferral rate for Highly Compensated Employees. The Employer may suspend (or automatically reduce the rate of) Salary Deferrals for the Highly Compensated Group, to the extent necessary to satisfy the ADP Test or to reduce the margin of failure. A suspension or reduction shall not affect Salary Deferrals already contributed by the Highly Compensated Employees for the Plan Year. As of the first day of the subsequent Plan Year, Salary Deferrals shall resume at the levels stated in the Salary Deferral Elections of the Highly Compensated Employees.

(d)Special testing rules.

(1)Special rule for determining ADP of Highly Compensated Group. When calculating the ADP of the Highly Compensated Group for any Plan Year, a Highly Compensated Employee’s Salary Deferrals under all qualified plans maintained by the Employer are taken into account as if such contributions were made to a single plan. For this purpose, any QNECs or QMACs treated as Salary Deferrals for purposes of the ADP also are treated as made under a single plan. In addition, if a Highly Compensated Employee participates in two or more 401(k) plans of the Employer that have different Plan Years, all Salary Deferrals made during the Plan Year under all such plans shall be aggregated.


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(2)Aggregation of plans. When calculating the ADP Test, if this Plan satisfies the requirements of Code §401(k),

§401(a)(4), or §410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code sections only if aggregated with this Plan, all such plans are treated as a single plan. If more than 10% of the Employer's Nonhighly Compensated Employees are involved in a plan coverage change as defined in Treas. Reg. §1.401(k)-2(c)(4), then any adjustments to the ADP of the Nonhighly Compensated Group for the prior year will be made in accordance with such regulations, unless the Employer has elected under AA §6A-6 to use the Current Year Testing Method. Plans may be aggregated in order to satisfy Code §401(k) only if they have the same Plan Year and use the same ADP testing method.

(3)Treatment of forfeited Matching Contributions. If Matching Contributions are forfeited as a result of the distribution of Excess Contributions or Excess Aggregate Contributions, as provided under Section 7.12(d), such Matching Contributions may be forfeited before the ACP Test is performed. Thus, such forfeited Matching Contributions need not be taken into account under the ACP Test. Alternatively, the ACP Test may be run prior to the forfeiture of the Matching Contributions. Any Matching Contributions that are forfeited as a result of failing the ACP Test need not be forfeited under Section 7.12(d).

6.02Nondiscrimination Testing of Matching Contributions and After-Tax Employee Contributions – ACP Test. Except as provided under Section 6.04 for Safe Harbor 401(k) Plans, if the Plan provides for Matching Contributions and/or After-Tax Employee Contributions, the Plan must satisfy the Actual Contribution Percentage Test ("ACP Test") each Plan Year. The Plan Administrator shall maintain records sufficient to demonstrate satisfaction of the ACP Test, including the amount of any Salary Deferrals or QNECs included in such test, pursuant to subsection (a)(4) below. If the Plan fails the ACP Test for any Plan Year, the corrective provisions under subsection (b) below will apply.

(a)ACP Test. The ACP Test compares the Average Contribution Percentage (ACP) of the Highly Compensated Group with the ACP of the Nonhighly Compensated Group. The Highly Compensated Group is the group of Participants who are Highly Compensated for the current Plan Year. The Nonhighly Compensated Group is the group of Participants who are Nonhighly Compensated for the applicable Plan Year. If the Prior Year Testing Method is selected under AA

§6B-6, the Nonhighly Compensated Group is the group of Participants in the prior Plan Year who were Nonhighly Compensated for that year. If the Current Year Testing Method is selected under AA §6B-6, the Nonhighly Compensated Group is the group of Participants who are Nonhighly Compensated for the current Plan Year.

(1)Average Contribution Percentage – ACP. The ACP for a specified group is the average of the contribution percentages calculated separately for each Participant in the group. A Participant’s contribution percentage is the ratio of the contributions made on behalf of the Participant that are included under the ACP Test, expressed as a percentage of the Participant’s Testing Compensation for the Plan Year. (See Section 1.138 for the definition of Testing Compensation.) For this purpose, the contributions included under the ACP Test are the sum of the After-Tax Employee Contributions, Matching Contributions, and QMACs (to the extent not taken into account for purposes of the ADP Test) made under the Plan on behalf of the Participant for the Plan Year. The ACP may also include other contributions as provided in subsection (4) below, if applicable but excluding Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or because the contributions to which they relate are Excess Deferrals, Excess Contributions, Excess Aggregate Contributions or permissible withdrawals as provided under Section 3.03(c)(2)(ii)(A)(V). See subsection (d)(3) for rules regarding the treatment of forfeited Matching Contributions under the ACP Test.

For purposes of computing Actual Contribution Percentages, a Participant who is eligible for After-Tax Employee Contributions, Matching Contributions (including forfeitures), QMACs or Salary Deferrals (to the extent Salary Deferrals are included in the ACP Test pursuant to subsection (4) below) but does not make or receive any such contributions shall be included in the ACP Test as a Participant on whose behalf no such contributions are made. No Matching Contributions (including QMACs) may be taken into account under the ACP Test for any individual Nonhighly Compensated Employee to the extent such Matching Contributions exceed the greater of:

(i)5% of such Nonhighly Compensated Employee’s Plan Compensation;

(ii)100% of the Nonhighly Compensated Employee’s Salary Deferrals and/or After-Tax Employee Contributions (to the extent such contributions are eligible for Matching Contributions); or

(iii)two times the lowest Matching Contribution rate for any eligible Nonhighly Compensated Employee within a group of Nonhighly Compensated Employees that consists of 50% of the total Nonhighly Compensated Employees who actually make Salary Deferrals and/or After-Tax Employee Contributions that are eligible for Matching Contributions for the Plan Year (or, if greater, the lowest Matching Contribution rate for any Nonhighly Compensated Employee who is employed as of the last


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day of the Plan Year and who actually makes Salary Deferrals and/or After-Tax Employee Contributions that are eligible for Matching Contributions for the Plan Year).

For this purpose, the Matching Contribution rate is the total Matching Contributions allocated to the Nonhighly Compensated Employee (determined as a percentage of Salary Deferrals and/or After-Tax Employee Contributions, to the extent eligible for Matching Contributions). If the Matching Contribution rate is not the same for all levels of Salary Deferrals and/or After-Tax Employee Contributions, the Nonhighly Compensated Employee’s Matching Contribution rate is determined assuming the Employee’s total Salary Deferrals and/or After-Tax Contributions are equal to 6% of Plan Compensation, regardless of how much the Employee actually contributes under the Plan.

Matching Contributions that do not satisfy the requirements above must satisfy the requirements of Code

§401(a)(4) (without regard to the ACP test) for the Plan Year for which they are allocated under the Plan as if they were Employer Contributions and were the only Employer Contributions for that year.

(2)ACP Test testing methods. In applying the ACP Test for any Plan Year, the Plan may use the Prior Year Testing Method or the Current Year Testing Method, as selected under AA §6B-6. If no testing method is selected under AA §6B-6, the Plan will use the Current Year Testing Method.

(i)Prior Year Testing Method. Under the Prior Year Testing Method, the Average Contribution Percentage ("ACP") of the Highly Compensated Group (as defined in subsection (a) above) for the current Plan Year and the ACP of the Nonhighly Compensated Group (as defined in subsection (a) above) for the prior Plan Year must satisfy one of the following tests for each Plan Year:

(A)The ACP of the Highly Compensated Group for the current Plan Year shall not exceed 1.25 times the ACP of the Nonhighly Compensated Group for the prior Plan Year.

(B)The ACP of the Highly Compensated Group for the current Plan Year shall not exceed the percentage (whichever is less) determined by (A) adding 2 percentage points to the ACP of the Nonhighly Compensated Group for the prior Plan Year or (B) multiplying the ACP of the Nonhighly Compensated Group for the prior Plan Year by 2.

(ii)Current Year Testing Method. Under the Current Year Testing Method, the Average Contribution Percentage (“ACP”) of the Highly Compensated Group (as defined in subsection (a) above) for the current Plan Year and the ACP of the Nonhighly Compensated Group (as defined in subsection (a) above) for the current Plan Year must satisfy one of the ACP tests, as described in subsection (i) above, for each Plan Year.

(iii)Change in testing method. In order to change the testing method used for a particular Plan Year, the Plan must be amended before the end of the year for which such amendment is effective. See Rev. Proc. 2007-44 for further guidance regarding the timing of discretionary amendments under the Plan. If the Current Year Testing Method is used for a Plan Year, the Plan may switch to the Prior Year Testing Method for a Plan Year only if the Plan has used the Current Year Testing Method for each of the preceding five Plan Years (or if lesser, the number of Plan Years the Plan has been in existence) or if, as a result of a merger or acquisition described in Code §410(b)(6)(C)(i), the Employer maintains both a plan using Prior Year Testing and a plan using Current Year Testing and the change is made within the transition period described in Code §410(b)(6)(C)(ii).

(3)Special rule for first Plan Year. For the first Plan Year that the Plan provides for either Matching Contributions or After-Tax Employee Contributions, the testing method selected under AA §6B-6 applies. If the Prior Year Testing Method applies for the first year of the Plan, the ACP Test applies by assuming the ACP for the Nonhighly Compensated Group is 3%, unless designated otherwise under AA §6B-6(b). If the Current Year Testing Method applies for the first year of the Plan, the ACP Test applies using the actual data for the Nonhighly Compensated Group in the first Plan Year, unless designated otherwise under AA §6B-6(a). This first Plan Year rule does not apply if this Plan is a successor to a plan that was subject to the ACP Test or if the Plan is aggregated for purposes of applying the ACP Test with another plan that was subject to the ACP test in the prior Plan Year. For subsequent Plan Years, the testing method selected under AA §6B-6 will apply.

(4)Use of Salary Deferrals and QNECs under the ACP Test. The Plan Administrator may take into account all or any portion of Salary Deferrals and QNECs for purposes of applying the ACP Test. QNECs may not be included in the ACP Test to the extent such amounts are included in the ADP Test for such Plan Year. Salary Deferrals and QNECs made to another qualified plan maintained by the Employer may also be taken into account, so long as the other plan has the same Plan Year as this Plan. To include Salary Deferrals under the


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ACP Test, the Plan must satisfy the ADP Test taking into account all Salary Deferrals, including those used under the ACP Test, and taking into account only those Salary Deferrals not included in the ACP Test. To include QNECs under the ACP Test, all Employer Nonelective Contributions, including the QNECs, must satisfy Code §401(a)(4). In addition, the Employer Nonelective Contributions, excluding any QNECs used in the ADP Test or ACP Test, must also satisfy Code §401(a)(4). If the Prior Year Testing Method is being used (as described in subsection (2)(i) above), QNECs may not be included in the ACP Test, if such QNECs are contributed after the Plan Year for which the ADP Test is being performed.

No QNEC may be taken into account under the ACP Test for any individual Nonhighly Compensated Employee to the extent such QNEC exceeds the greater of 5% of such Nonhighly Compensated Employee’s Plan Compensation or two times the lowest applicable contribution rate for any eligible Nonhighly Compensated Employee within a group of Nonhighly Compensated Employees that consist of 50% of the total eligible Nonhighly Compensated Employees under the Plan (or, if greater, the lowest applicable contribution rate allocated to any Nonhighly Compensated Employee who is in the group of Nonhighly Compensated Employees employed as of the last day of the Plan Year). For this purpose, the applicable contribution percentage is the sum of QNECs and Matching Contributions allocated to a Nonhighly Compensated Employee (determined as a percentage of Plan Compensation). If QNECs are being made in connection with the Employer’s obligation to pay prevailing wages under the Davis-Bacon Act (46 Stat. 1494), Public Law 71-798, Service Contract Act of 1965 (79 Stat. 1965), Public Law 89-286, or similar legislation, QNECs can be taken into account for a Plan Year for a Nonhighly Compensated Employee to the extent such contributions do not exceed 10% of Plan Compensation.

(i)Timing of contributions. In order to be used in the ACP Test for a given Plan Year, QNECs must be made before the end of the 12-month period immediately following the Plan Year for which they are allocated. For this purpose, if the Plan is using the Prior Year Testing Method, QMACs and QNECs must be contributed no later than 12 months after the close of that prior Plan Year in order to be taken into account under the ADP Test.

(ii)Testing flexibility. The Plan Administrator is expressly granted the full flexibility permitted by applicable Treasury regulations to determine the amount of Salary Deferrals and QNECs used in the ACP Test. Salary Deferrals and QNECs taken into account under the ACP Test do not have to be uniformly determined for each Participant, and may represent all or any portion of the Salary Deferrals and QNECs allocated to each Participant, provided the conditions described above are satisfied.

(5)Double-counting limits. This subsection (5) applies if the Prior Year Testing Method is used to run the ACP Test and, in the prior Plan Year, the Current Year Testing Method was used to run the ACP Test. If this paragraph applies, all QNECs or QMACs that were included in either the ADP Test or ACP Test for the prior Plan Year are disregarded in calculating the ACP of the Nonhighly Compensated Group for the prior Plan Year.

(b)Correction of Excess Aggregate Contributions. If the Plan fails the ACP Test for a Plan Year, the Plan Administrator may use any combination of the correction methods under this section to correct the Excess Aggregate Contributions under the Plan.

(1)Excess Aggregate Contributions. Excess Aggregate Contributions are the amount of Matching Contributions and/or After-Tax Employee Contributions taken into account in computing the ACP of the Highly Compensated Group that exceed the maximum amount permitted under the ACP Test for the Plan Year. The amount of Excess Aggregate Contributions for a Plan Year are the amounts determined by hypothetically reducing the ACP contributions of the Highly Compensated Employees, beginning with the Highly Compensated Employee(s) with the highest ACP for the Plan Year, and reducing the ACP of such Highly Compensated Employees until the reduced percentage reaches the ACP of the Highly Compensated Employee(s) with the next higher ACP or until the adjusted ACP percentage satisfies the ACP Test. The reduction continues for each level of Highly Compensated Employees until the Plan satisfies the ACP Test. The total dollar amount so determined is then divided among the Highly Compensated Group in the manner described in subsection (2) to determine the actual corrective distributions to be made. For this purpose, any Excess Contributions that are recharacterized as After-Tax Employee Contributions under Section 6.01(b)(4) are taken into account as After-Tax Employee Contributions for the Plan Year that includes the time at which the Excess Contribution is includible in the gross income of the Employee under §1.401(k)-2(b)(3)(ii).


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(2)Corrective distribution of Excess Aggregate Contributions. If the Plan fails the ACP Test for a Plan Year, the Plan Administrator may, in its discretion, distribute Excess Aggregate Contributions (including any allocable income or loss) no later than 12 months following the end of the Plan Year to correct the ACP Test violation. Excess Aggregate Contributions will be distributed only to the extent they are vested under Section 7.02, determined as of the last day of the Plan Year for which the contributions are made to the Plan. To the extent Excess Aggregate Contributions are not vested, the Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited in accordance with Section 7.12 in the Plan Year in which the corrective distribution is made from the Plan. If the Excess Aggregate Contributions are distributed more than 2½ months after the last day of the Plan Year in which such excess amounts arose, a 10-percent excise tax will be imposed on the Employer with respect to such amounts.

(i)Amount to be distributed. In determining the amount of Excess Aggregate Contributions to be distributed to a Highly Compensated Employee under this section, Excess Aggregate Contributions are first allocated equally to the Highly Compensated Employee(s) with the largest dollar amount of ACP contributions for the Plan Year in which the excess occurs until all of the Excess Aggregate Contributions are allocated or until the dollar amount of ACP contributions for such Highly Compensated Employee(s) is reduced to the next highest dollar amount of such contributions for any other Highly Compensated Employee(s).

(ii)Allocable gain or loss. A corrective distribution of Excess Aggregate Contributions must include any allocable gain or loss for the Plan Year in which the excess occurs. For this purpose, allocable gain or loss on Excess Aggregate Contributions may be determined in any reasonable manner, provided the manner used is applied uniformly and in a manner that is reasonably reflective of the method used by the Plan for allocating income to Participants’ Accounts.

Only allocable gain or loss through the end of the Plan Year must be taken into account in determining allocable income or loss attributable to a corrective distribution of Excess Aggregate Contributions.

(iii)Coordination with other provisions. A corrective distribution of Excess Aggregate Contributions made by the end of the Plan Year following the Plan Year in which the excess occurs may be made without consent of the Participant or the Participant’s Spouse, and without regard to any distribution restrictions applicable under Section 8.10. Excess Aggregate Contributions are treated as Annual Additions for purposes of Code §415 even if distributed from the Plan. A corrective distribution of Excess Aggregate Contributions is not treated as a distribution for purposes of applying the required minimum distribution rules under Section 8.12.

(iv)Accounting for Excess Aggregate Contributions. Excess Aggregate Contributions are distributed from the following sources and in the following priority:

(A)After-Tax Employee Contributions that are not matched;

(B)proportionately from After-Tax Employee Contributions not distributed under subsection (A) and related Matching Contributions that are included in the ACP Test;

(C)Matching Contributions included in the ACP Test that are not distributed under subsection (B);

(D)Salary Deferrals included in the ACP Test that are not matched;

(E)proportionately from Salary Deferrals included in the ACP Test that are not distributed under subsection (D) and related Matching Contributions that are included in the ACP Test and not distributed under subsection (B) or (C)); and

(F)QNECs included in the ACP Test.

If a Participant has both a Pre-Tax Deferral Account and a Roth Deferral Account, the Participant may designate the extent to which the corrective distribution of Salary Deferrals is taken from the Pre-Tax Deferral Account or from the Roth Deferral Account, unless designated otherwise under AA §6A-5(b). If a Participant does not designate the Account(s) from which the distribution will be made, the corrective distribution will be made first from the Participant’s Pre-Tax Deferral Account.

(3)Making QNECs or QMACs. Regardless of any elections under AA §6D-3 or AA §6D-4 of the Profit Sharing/401(k) Plan Adoption Agreement, the Employer may make additional QNECs or QMACs to the Plan


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on behalf of the Nonhighly Compensated Employees and such amount may be used to correct an ACP Test violation to the extent such amounts are not used in the ADP Test. Any QNECs contributed under this subsection (3) which are not specifically authorized under AA §6D-3 may, at the discretion of the Employer, be allocated to all Participants who are Nonhighly Compensated Employees in the ratio that each such Participant’s Plan Compensation bears to the Plan Compensation of all Participants for the Plan Year, as a uniform dollar amount or as a Targeted QNEC. Any QMACs contributed under this subsection (3) which are not specifically authorized under AA §6D-4 may, at the discretion of the Employer, be allocated to all Participants who are Nonhighly Compensated as a uniform percentage of Salary Deferrals made during the Plan Year or as a Targeted QMAC. (See subsections (a)(1) and (a)(4) for rules regarding the amount of QNECs and QMACs that may be taken into account under the ACP Test.) The allocation method chosen by the Employer for a corrective QNEC or QMAC will be uniformly applied to all Participants receiving the corrective QNEC or QMAC for the Plan Year.

(c)Adjustment of contribution rate for Highly Compensated Employees. The Employer or Plan Administrator may suspend (or automatically reduce the rate of) After-Tax Employee Contributions for the Highly Compensated Group, to the extent necessary to satisfy the ACP Test or to reduce the margin of failure. A suspension or reduction shall not affect After-Tax Employee Contributions already contributed by the Highly Compensated Employees for the Plan Year. As of the first day of the subsequent Plan Year, After-Tax Employee Contributions shall resume at the levels elected by the Highly Compensated Employees.

(d)Special testing rules.

(1)Special rule for determining ACP of Highly Compensated Group. When calculating the ACP of the Highly Compensated Group for any Plan Year, a Highly Compensated Employee’s After-Tax Employee Contributions and/or Matching Contributions under all qualified plans maintained by the Employer are taken into account as if such contributions were made to a single plan. For this purpose, any QNECs or QMACs taken into account under the ACP Test also are treated as made under a single plan. In addition, if a Highly Compensated Employee participates in two or more plans of the Employer that have different Plan Years, all ACP contributions made during the Plan Year under all such plans shall be aggregated.

(2)Aggregation of plans. When calculating the ACP Test, if this Plan satisfies the requirements of Code §401(m),

§401(a)(4), or §410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code sections only if aggregated with this Plan, all such plans are treated as a single plan. If more than 10% of the Employer's Nonhighly Compensated Employees are involved in a plan coverage change as defined in Treas. Reg. §1.401(m)-2(c)(4), then any adjustments to the ACP of the Nonhighly Compensated Group for the prior year will be made in accordance with such regulations, unless the Employer has elected under AA §6B-6 to use the Current Year Testing Method. Plans may be aggregated in order to satisfy Code §401(m) only if they have the same Plan Year and use the same ACP testing method.

6.03Disaggregation of Plans. Subject to the provisions of this Section 6.03, certain plans shall be treated as constituting separate plans to the extent required under the mandatory disaggregation rules under Code §§401(k) and 401(m).

(a)Plans covering Collectively Bargained Employees and non-Collectively Bargained Employees. If the Plan covers Collectively Bargained Employees and non-Collectively Bargained Employees, the Plan is mandatorily disaggregated for purposes of applying the ADP Test and the ACP Test into two separate plans, one covering the Collectively Bargained Employees and one covering the non-Collectively Bargained Employees. A separate ADP Test must be applied for each disaggregated portion of the Plan in accordance with applicable Treasury regulations. A separate ACP Test must be applied to the disaggregated portion of the Plan that covers the non-Collectively Bargained Employees. The disaggregated portion of the Plan that includes the Collectively Bargained Employees is deemed to pass the ACP Test.

(b)Otherwise excludable Employees. If the minimum coverage test under Code §410(b) is performed by disaggregating otherwise excludable Employees (i.e., Employees who have not satisfied the statutory age 21 and one Year of Service eligibility conditions permitted under Code §410(a)), then the Plan is treated as two separate plans, one benefiting the otherwise excludable Employees and the other benefiting Employees who have satisfied the statutory age and service


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eligibility conditions. If such disaggregation applies, the following operating rules apply to the ADP Test and the ACP Test.

(1)Single ADP and ACP Test. Only the disaggregated plan that benefits the Employees who have satisfied the statutory age and service eligibility conditions permitted under Code §410(a) is subject to the ADP Test and the ACP Test. However, any Highly Compensated Employee who is benefiting under the disaggregated plan that includes the otherwise excludable Employees is taken into account in such tests.

(2)Application of Entry Dates. In determining whether an Employee is an otherwise excludible Employee for purposes of applying the testing rules in subsection (1) above, the Plan will be deemed to provide the statutory Entry Dates permitted under Code §410(a)(4) (i.e., the earlier of the date that is 6 months after the date the Employee satisfies the statutory age and service conditions or the first day of the Plan Year following satisfaction of such statutory age and service conditions). Thus, an Employee is treated as an otherwise excludible Employee for purposes of applying the special testing rules in subsection (1) above if the Employee has not satisfied the statutory age and service requirements permitted under Code §410(a), taking into account the statutory Entry Date provisions under Code §410(a)(4). In applying the special testing rules in subsection

(1) above, the Employer may elect to use the Plan’s Entry Dates or the statutory Entry Dates permitted under Code §410(a)(4).

(c)Corrective action for disaggregated plans. Any corrective action authorized by this Section 6 may be determined separately with respect to each disaggregated portion of the Plan. A corrective action taken with respect to a disaggregated portion of the Plan need not be consistent with the method of correction (if any) used for another disaggregated portion of the Plan. To the extent the Adoption Agreement authorizes the Employer to make discretionary QNECs or discretionary QMACs, such QNECs or QMACs may be designated as allocable only to Participants in a particular disaggregated portion of the Plan.

6.04Safe Harbor 401(k) Plan Provisions. The Employer may elect in AA §6C to apply the Safe Harbor 401(k) Plan provisions under this Section 6.04. For this purpose, the Plan satisfies the requirements of this Section 6.04 if the Plan is a Traditional Safe Harbor 401(k) Plan, as described in subsection (a) or a Qualified Automatic Contribution Arrangement (QACA) Safe Harbor 401(k) Plan, as described in subsection (b). If the Plan qualifies as a Safe Harbor 401(k) Plan, the ADP Test described in Section 6.01(a) is deemed to be satisfied for any Plan Year in which the Plan qualifies as a Safe Harbor 401(k) Plan. In addition, if Matching Contributions are made for such Plan Year, the ACP Test is deemed satisfied with respect to such contributions if the conditions of subsection (i) below are satisfied. To qualify as a Safe Harbor 401(k) Plan, the requirements under this Section 6.04 must be satisfied for the entire Plan Year. In accordance with Treas. Reg. §§1.401(k)-1(e)(7) and 1.401(m)-1(c)(2), it is impermissible to use the ADP and ACP Test for a Plan Year in which the Plan is intended to be a Safe Harbor 401(k) Plan and the requirements of this Section 6.04 are not satisfied for the entire Plan Year.

(a)Traditional Safe Harbor 401(k) Plan requirements. To qualify as a Traditional Safe Harbor 401(k) Plan, the Plan must provide a Safe Harbor Contribution, as described under subsection (1), and must satisfy the requirements under subsections (2), (3) and (4) below.

(1)Traditional Safe Harbor Contribution. To qualify as a Traditional Safe Harbor 401(k) Plan, the Employer must provide a Traditional Safe Harbor Employer Contribution or a Traditional Safe Harbor Matching Contribution to Nonhighly Compensated Participants under the Plan. The Traditional Safe Harbor Contribution must be made to the Plan no later than 12 months following the close of the Plan Year for which it is being used to qualify the Plan as a Traditional Safe Harbor 401(k) Plan.

(i)Traditional Safe Harbor Employer Contribution. The Employer may elect under AA §6C-2(b) to make a Traditional Safe Harbor Employer Contribution of at least 3% of Plan Compensation. The Employer has the discretion to increase the amount of the Traditional Safe Harbor Employer Contribution in excess of the percentage designated under AA §6C-2(b). (See subsection (4)(iii) below for the ability to condition the Traditional Safe Harbor Employer Contribution on the provision of a supplemental notice.)

(ii)Traditional Safe Harbor Matching Contribution. The Employer may elect under AA §6C-2(a)(1) to satisfy the Traditional Safe Harbor Contribution requirement by making a Traditional Safe Harbor Matching Contribution with respect to each Participant’s Salary Deferrals under the Plan. If After-Tax Employee Contributions are authorized under AA §6D-1(b) of the Profit Sharing/401(k) Plan Adoption Agreement, the Employer may elect in AA §6D-2(b) to provide the Traditional Safe Harbor Matching Contribution with respect to such After-Tax Employee Contributions. The Employer may elect under AA §6C-2(a)(1) of the Profit Sharing/401(k) Plan Adoption Agreement to provide a basic Traditional Safe Harbor Matching Contribution, an enhanced Traditional Safe Harbor Matching Contribution, or a tiered Traditional Safe Harbor Matching Contribution.


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(A)Basic Traditional Safe Harbor Matching Contribution. Under the basic Traditional Safe Harbor Matching Contribution formula, each eligible Participant (as defined in AA §6C-4) will receive a Traditional Safe Harbor Matching Contribution equal to:

(I)100% of the amount of a Participant’s Salary Deferrals that do not exceed 3% of the Participant’s Plan Compensation, plus

(II)50% of the amount of a Participant’s Salary Deferrals that exceed 3% of the Participant’s Plan Compensation but that do not exceed 5% of the Participant’s Plan Compensation.

(B)Enhanced Traditional Safe Harbor Matching Contribution. Under the enhanced Traditional Safe Harbor Matching Contribution formula, the Traditional Safe Harbor Matching Contribution must not be less, at each level of Salary Deferrals, than the amount required under the basic Traditional Safe Harbor Matching Contribution formula under subsection (A) above. Under the enhanced Traditional Safe Harbor Matching Contribution formula, the rate of Matching Contributions may not increase as an Employee’s rate of Salary Deferrals increase.

(C)Contributions for Highly Compensated Employees. The Plan will not fail to be a Traditional Safe Harbor 401(k) Plan merely because Highly Compensated Employees also receive a Traditional Safe Harbor Matching Contribution under the Plan. However, a Traditional Safe Harbor Matching Contribution will not satisfy this section if any Highly Compensated Employee is eligible for a higher rate of Traditional Safe Harbor Matching Contribution than is provided for any Nonhighly Compensated Employee who has the same rate of Salary Deferrals.

(D)Period for making Traditional Safe Harbor Matching Contribution. In determining a Participant’s Traditional Safe Harbor Matching Contributions, the Employer may elect under AA §6C-2(a)(2) of the Profit Sharing/401(k) Plan Adoption Agreement to determine the Traditional Safe Harbor Matching Contribution on the basis of Salary Deferrals the Participant makes during the Plan Year. Alternatively, the Employer may elect to determine the Traditional Safe Harbor Matching Contribution on a payroll, monthly, or quarterly basis. If the Employer elects to use a period other than the Plan Year, the Traditional Safe Harbor Matching Contribution must be deposited into the Plan by the last day of the Plan Year quarter following the Plan Year quarter for which the Salary Deferrals are made. See Section 3.04(c) for rules applicable to true-up contributions where the Employer contributes Traditional Safe Harbor Matching Contributions to the Plan on a different period than selected under AA §6C-2(a)(2).

(2)Full and immediate vesting. The Traditional Safe Harbor Contribution under subsection (1) above must be 100% vested, regardless of the Employee’s length of service, at the time the contribution is made to the Plan. Any additional amounts contributed under the Plan may be subject to a vesting schedule.

(3)Distribution restrictions. Distributions of the Traditional Safe Harbor Contribution under subsection (1) must be restricted in the same manner as Salary Deferrals under Section 8.10(c), except that such contributions may not be distributed upon Hardship. See Section 8.10(e).

(4)Annual notice. Each eligible Participant (as defined in subsection (b) below) must receive a written notice describing the Participant’s rights and obligations under the Plan.

(i)Contents of notice. The annual notice must include a description of:

(A)the Safe Harbor 401(k) Plan contribution formula being used under the Plan;

(B)any other contributions under the Plan;

(C)the plan to which the Safe Harbor 401(k) Plan contributions will be made (if different from this Plan);

(D)the type and amount of Plan Compensation that may be deferred under the Plan;

(E)the administrative requirements for making and changing Salary Deferral elections; and

(F)the withdrawal and vesting provisions under the Plan.


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In addition to any other election periods provided under the Plan, each eligible Participant may make or modify his/her Salary Deferral election during the 30-day period immediately following receipt of the annual notice.

(ii)Timing of notice. Each Participant must receive the annual notice within a reasonable period before the beginning of the Plan Year (or within a reasonable period before an Employee becomes a Participant, if later). For this purpose, an Employee will be deemed to have received the notice in a timely manner if the Employee receives such notice at least 30 days, but not more than 90 days, before the beginning of the Plan Year. For an Employee who becomes a Participant after the 90th day before the beginning of the Plan Year, the notice will be deemed timely if it is provided before the date the Employee becomes eligible to participate under the Plan (but no more than 90 days before the Employee becomes eligible).

(iii)Supplemental notice. If the Employer elects to provide the Traditional Safe Harbor Employer Contribution described in subsection (1)(i) above, the Employer may elect under AA §6C-2(b)(1) to make such contribution only as authorized under a supplemental notice described in this subsection (iii). If the Employer elects to make the Traditional Safe Harbor Employer Contribution pursuant to a supplemental notice, each Participant will be notified in the annual notice described in this subsection

(4) that the Employer may provide the Traditional Safe Harbor Employer Contribution and that a supplemental notice will be provided if the Employer decides to make the Traditional Safe Harbor Employer Contribution. The supplemental notice indicating the Employer’s intention to make the Traditional Safe Harbor Employer Contribution must be provided no later than 30 days prior to the last day of the Plan Year for the Plan to qualify as a Traditional Safe Harbor 401(k) Plan. If the supplemental notice is not provided in accordance with this paragraph, the Employer is not obligated to make the Traditional Safe Harbor Employer Contribution and the Plan does not qualify as a Traditional Safe Harbor 401(k) Plan. The Plan will qualify as a Traditional Safe Harbor 401(k) Plan for subsequent Plan Years if the appropriate notices are provided for such years. No amendment is required to make the Safe Harbor Employer Contribution in subsequent Plan Years.

(b)Qualified Automatic Contribution Arrangement (QACA) Safe Harbor 401(k) Plan requirements. The Employer may elect in AA §6C-3 of the Profit Sharing/401(k) Plan Adoption Agreement to apply the Qualified Automatic Contribution Arrangement (QACA) provisions under this subsection (b). To qualify as a QACA, the Plan must provide for an automatic deferral as described in subsection (1) below, and must provide for a QACA Safe Harbor Contribution as described under subsection (2) below. The Plan also must satisfy the requirements under subsections (3) - (6) under this subsection (b).

(1)Automatic deferral. To qualify as a QACA, the Plan must provide for an automatic deferral election (as defined in Section 3.03(c)(2)(i)(A) above) equal to a qualified percentage of Plan Compensation.

(i)Automatic deferral percentage. For this purpose, a qualified percentage is, with respect to any Employee, a uniform percentage of Plan Compensation that does not exceed 10%, and which is at least:

(A)3% during the period that begins when the Employee first begins making automatic deferrals under the QACA and ending on the last day of the following Plan Year;

(B)4% during the first Plan Year following the initial period described in subsection (A);

(D)6% during any subsequent Plan Year.

The Employer may elect under AA §6C-3(c)(4) to apply the automatic increase described under this subsection (i) as of a date other than the beginning of the Plan Year. If a date other than the first day of the Plan Year is selected under AA §6C-3(c)(4), the Plan still must satisfy the minimum deferral percentage requirements under this subsection (i) as of the beginning of the periods designated above. Thus, if an automatic increase becomes effective as of a date within a Plan Year, the Plan must provide for an automatic deferral percentage at least equal to the minimum percentage as of the designated date in the Plan Year commencing before the Plan Years described under (B) – (D) above.

(ii)Eligible Employees. In applying the QACA Safe Harbor 401(k) Plan provisions under this subsection (b), the automatic deferral election described under subsection (1) must apply to all eligible Employees without taking into account any Employee who:


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(A)was eligible to participate in the Plan (or a predecessor Plan) immediately prior to the effective date of the QACA Safe Harbor 401(k) Plan, and

(B)had an affirmative election in effect on such effective date (which remains in effect) either to:

(I)make Salary Deferrals in a specified amount or percentage of Plan Compensation; or

(II)not have any Salary Deferrals made on his/her behalf.

(iii)Treatment of rehires. The minimum deferral percentages described in subsection (1) are determined based on the date the Participant first begins making automatic deferrals under the Plan, without regard to whether the Employee continues to be eligible to make contributions after such date. Thus, the minimum percentage is generally determined based on the number of years since an Employee first has automatic deferrals made under the QACA Safe Harbor 401(k) Plan.

However, if an Employee is precluded from making automatic deferrals to the Plan for an entire Plan Year (e.g., due to termination of employment), the Plan may treat such Employee as having a new initial period for determining the minimum required default percentage under subsection (1) (if such Employee recommences making default contributions under the QACA Safe Harbor 401(k) Plan), regardless of what minimum percentage would otherwise apply to that Employee. The provisions of this subsection (iii) will automatically apply, unless designated otherwise under AA §6C-3(c)(5)(ii).

Unless elected otherwise under AA §6C-3(c)(5)(i), a Participant’s affirmative election to defer (or to not defer) will cease upon termination of employment. If a terminated Participant’s affirmative election to defer (or to not defer) ceases upon termination of employment, the Participant will be subject to the automatic deferral provisions of this subsection (1) upon rehire (regardless of the amount of time since the rehired Employee terminated employment), including the default election provisions and the notice requirements under subsection (5) below.

(2)QACA Safe Harbor Contribution. To qualify as a QACA Safe Harbor 401(k) Plan, the Employer must provide a QACA Safe Harbor Employer Contribution or a QACA Safe Harbor Matching Contribution to Nonhighly Compensated Employees under the Plan.

(i)QACA Safe Harbor Employer Contribution. The Employer may elect under AA §6C-3(b) of the Profit Sharing/401(k) Plan to make a QACA Safe Harbor Employer Contribution of at least 3% of Plan Compensation.

(ii)QACA Safe Harbor Matching Contribution. The Employer may elect under AA §6C-3(a)(1) of the Profit Sharing/401(k) Plan to make a QACA Safe Harbor Matching Contribution with respect to each Participant’s Salary Deferrals under the Plan. The Employer may elect to provide a basic QACA Safe Harbor Matching Contribution, an enhanced QACA Safe Harbor Matching Contribution, or a tiered QACA Safe Harbor Matching Contribution.

(A)Basic QACA Safe Harbor Matching Contribution. Under the basic QACA Safe Harbor Matching Contribution formula, each eligible Participant (as defined in AA §6C-4) will receive a QACA Safe Harbor Matching Contribution equal to:

(I)100% of the Participant’s Salary Deferrals that do not exceed 1% of the Participant’s Plan Compensation; plus

(II)50% of the Participant’s Salary Deferrals that exceed 1% of the Participant’s Plan Compensation but that do not exceed 6% of the Participant’s Plan Compensation.

(B)Enhanced QACA Safe Harbor Matching Contribution. Under the enhanced QACA Safe Harbor Matching Contribution formula, the QACA Safe Harbor Matching Contribution must not be less, at each level of Salary Deferrals, than the amount required under the basic QACA Safe Harbor Matching Contribution formula under subsection (A) above. Under the enhanced QACA Safe Harbor Matching Contribution formula, the rate of Matching Contributions may not increase as an Employee’s rate of Salary Deferrals increase.

(C)Contributions for Highly Compensated Employees. The Plan will not fail to be a QACA merely because Highly Compensated Employees also receive a QACA Safe Harbor Matching Contribution under the Plan. However, a QACA Safe Harbor Matching Contribution will not


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satisfy this section if any Highly Compensated Employee is eligible for a higher rate of QACA Safe Harbor Matching Contribution than is provided for any Nonhighly Compensated Employee who has the same rate of Salary Deferrals.

(D)Period for making QACA Safe Harbor Matching Contribution. In determining a Participant’s QACA Safe Harbor Matching Contributions, the Employer may elect under AA

§6C-3(a)(2) to determine the QACA Safe Harbor Matching Contribution on the basis of Salary Deferrals the Participant makes during the Plan Year. Alternatively, the Employer may elect to determine the QACA Safe Harbor Matching Contribution on a payroll, monthly, or quarterly basis.

(3)2-year cliff vesting. A Participant must be 100% vested in any QACA Safe Harbor Contributions under subsection (2) above upon the completion of two (2) Years of Service. Any additional amounts contributed under the Plan may be subject to any vesting schedule described under Section 7.02. For this purpose, a QACA Safe Harbor Contribution is treated as a separate contribution source for purposes of applying the rules under Section 7.10 relating to the amendment of a vesting schedule.

(4)Distribution restrictions. Distributions of the QACA Safe Harbor Contribution must be restricted in the same manner as Salary Deferrals under Section 8.10(c), except that such contributions may not be distributed upon Hardship.

(5)Annual notice. Each eligible Employee must receive a written notice as described in subsection (a)(4) above.

(6)Definition of Plan Compensation. The definition of Plan Compensation used for purposes of determining default Salary Deferral contributions under the QACA Safe Harbor 401(k) Plan must satisfy the safe harbor requirements under Treas. Reg. §1.401(k)-3(b)(2). For this purpose, if the Plan defines Plan Compensation in a manner that does not satisfy the safe harbor requirements under Treas. Reg. §1.401(k)-3(b)(2), effective for the first Plan Year beginning on or after January 1, 2010, the definition of Plan Compensation used for determining default Salary Deferral contributions will automatically be modified so that any exclusions that cause the definition of Plan Compensation to fail the safe harbor requirements will apply only to Highly Compensated Employees.

(c)Eligibility for Traditional Safe Harbor/QACA Safe Harbor Contributions. The Employer may elect under AA

§6C-4(a) to provide the Traditional Safe Harbor/QACA Safe Harbor Contribution to all Participants or only to Participants who are Nonhighly Compensated Employees. Alternatively, the Employer may elect under the Profit Sharing/401(k) Plan Adoption Agreement to provide the Traditional Safe Harbor/QACA Safe Harbor Contribution to all Nonhighly Compensated Employees who are Participants and all Highly Compensated Employees who are Participants but who are not Key Employees. This permits a Plan providing the Traditional Safe Harbor/QACA Safe Harbor Employer Contribution to use such amounts to satisfy the Top Heavy minimum contribution requirements under Section 4. Thus, a Plan providing the Traditional Safe Harbor/QACA Safe Harbor Employer Contribution may use such amounts to satisfy the Top Heavy minimum contribution requirements without having to allocate the contribution to Key Employees. See subsection (d) for a description of the eligibility conditions applicable to Traditional Safe Harbor/QACA Safe Harbor Contributions. Also see Section 3.02(d)(1) for provisions for offsetting additional Employer Contributions by the Traditional Safe Harbor/QACA Safe Harbor Contribution under the Plan.

The Employer also may elect under AA §6C-4(b) of the Profit Sharing/401(k) Plan Adoption Agreement to exclude certain designated Employees from the Traditional Safe Harbor/QACA Safe Harbor Contribution. If any Non-Highly Compensated Employee who is eligible to make Salary Deferrals under the Plan is excluded from the Traditional Safe Harbor/QACA Safe Harbor Contribution under AA §6C-4(b), the Plan must be disaggregated into separate plans for minimum coverage purposes pursuant to Code §410(b)(4). If each of the disaggregated plans can separately satisfy the minimum coverage requirements under Code §401(a)(4), the separate component plans may be tested separately for nondiscrimination under Code §401(a)(4), including the safe harbor rules under this Section 6.04. If the Plan is disaggregated into separate plans for nondiscrimination purposes, the portion of the disaggregated plan that covers Employees who are not eligible for the Traditional Safe Harbor/QACA Safe Harbor Contribution must satisfy the ADP Test (and ACP Test, if applicable).

(d)Different eligibility conditions. In determining who is a Participant for purposes of the Traditional Safe Harbor/QACA Safe Harbor Contribution, the eligibility conditions applicable to Salary Deferrals under AA §4-1 apply. However, the Employer may elect under AA §6C-4(c) of the Profit Sharing/401(k) Plan Adoption Agreement to apply different eligibility conditions for the Traditional Safe Harbor/QACA Safe Harbor Contribution than apply to Salary Deferrals. If the Employer elects under AA §6C-4(c)(1)(iv) to require a Year of Service for determining eligibility for Traditional Safe Harbor/QACA Safe Harbor Contributions, a Year of Service for this purpose is the completion of 1,000 Hours of Service during an Eligibility Computation Period.


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An Eligibility Computation Period is as defined under Section 2.03(a)(3) using Plan Years for subsequent Eligibility Computation Periods. If different eligibility conditions are selected for Traditional Safe Harbor/QACA Safe Harbor Contributions that are more restrictive than the eligibility conditions applicable for Salary Deferrals, the Plan must be disaggregated into separate plans for coverage purposes pursuant to Code §410(b)(4). If the Plan uses different eligibility conditions for Traditional Safe Harbor/QACA Safe Harbor Contributions, the portion of the disaggregated plan that covers Employees who are not eligible for the Traditional Safe Harbor/QACA Safe Harbor Contribution must satisfy the ADP Test (and ACP Test, if applicable).

(e)Provision of Safe Harbor Contribution in separate plan. The Employer may elect under AA §6C-2(b)(2) to provide the Traditional Safe Harbor/QACA Safe Harbor Contribution under another Defined Contribution Plan maintained by the Employer. The Traditional Safe Harbor/QACA Safe Harbor Contribution under such other plan must satisfy the conditions under this Section 6.04 for this Plan to qualify as a Traditional Safe Harbor 401(k) Plan or a QACA Safe Harbor 401(k) Plan. To make the Traditional Safe Harbor/QACA Safe Harbor Contribution under another Defined Contribution Plan, each Employee eligible to participate under this Plan must also be eligible to participate under the other Defined Contribution Plan, and the other Defined Contribution Plan must have the same Plan Year as this Plan.

(f)Mid-Year Changes to Safe Harbor 401(k) Plan. Effective for mid-year changes made after January 28, 2016, the Employer may make mid-year changes to Traditional Safe Harbor/QACA Safe Harbor 401(k) Plans as provided under IRS Notice 2016-16 and any successor guidance.

(g)Reduction or suspension of Traditional Safe Harbor/QACA Safe Harbor Contributions. The Employer may amend the Plan during the Plan Year to reduce or suspend the Traditional Safe Harbor/QACA Safe Harbor Contributions (on a prospective basis) provided the following conditions are satisfied:

(1)The Employer must provide a supplemental notice to all Participants explaining the consequences and effective date of the amendment.

(2)Participants must be given a reasonable opportunity (including a reasonable period after receipt of the supplemental notice) to change their Salary Deferral and/or After-Tax Employee Contribution elections, as applicable.

(3)The amendment reducing or eliminating the Traditional Safe Harbor/QACA Safe Harbor Contribution must be effective no earlier than the later of:

(i)30 days after Participants are given the supplemental notice; or

(ii)the date the amendment is adopted.

(4)The Plan is subject to the ADP Test and ACP Test for the entire Plan Year in which the reduction or suspension occurs using the Current Year Testing Method.

(5)If the Plan is amended to reduce or eliminate a Traditional Safe Harbor/QACA Safe Harbor Employer Contribution, the Employer must operate at an economic loss as described in Code §412(c)(2)(A) for the Plan Year or the notice provided under subsection (a)(4) must include a statement that the Plan may be amended during the Plan Year to reduce or suspend the Traditional Safe Harbor/QACA Safe Harbor Employer Contribution and that the reduction or suspension will not apply until at least 30 days after all Eligible Employees are provided notice of the reduction or suspension.

(h)Deemed compliance with ADP Test. If the Plan satisfies all the conditions under subsection (a) above to qualify as a Traditional Safe Harbor/QACA Safe Harbor 401(k) Plan, the Plan is deemed to satisfy the ADP Test for the Plan Year.

(i)Deemed compliance with ACP Test. If the Plan satisfies all the conditions under subsection (a) above to qualify as a Traditional Safe Harbor/QACA Safe Harbor 401(k) Plan, the Plan is deemed to satisfy the ACP Test for the Plan Year with respect to Matching Contributions (including Matching Contributions that are not used to qualify as a Traditional Safe Harbor/QACA Safe Harbor 401(k) Plan, provided the following conditions are satisfied. If the Plan does not satisfy the requirements under this subsection (i) for a Plan Year, the Plan must satisfy the ACP Test for such Plan Year in accordance with subsection (j) below.

(1)Only Traditional Safe Harbor/QACA Safe Harbor Matching Contributions. If the only Matching Contributions provided under the Plan are Traditional Safe Harbor/QACA Safe Harbor Matching Contributions under AA §6C-2(a) and §6C-3(a), the Plan is deemed to satisfy the ACP Test, without regard to the conditions under subsections (2) - (5) below.


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(2)Additional Matching Contributions. If Matching Contributions are provided in addition to Traditional Safe Harbor/QACA Safe Harbor Matching Contributions under AA §6C-2(a) and §6C-3(a), the total Matching Contributions provided under the Plan (including any Traditional Safe Harbor/QACA Safe Harbor Matching Contributions) may not apply to any Salary Deferrals or After-Tax Employee Contributions that exceed 6% of Plan Compensation. If a Matching Contribution formula applies to both Salary Deferrals and After-Tax Employee Contributions, then the Matching Contributions may not apply to the sum of such contributions that exceed 6% of Plan Compensation. If Matching Contributions under the Plan apply to Salary Deferrals in excess of 6% of Plan Compensation, the Plan will be subject to ACP Testing to the extent provided under subsection

(j)below.

(3)Discretionary Matching Contributions. If the Employer elects to provide discretionary Matching Contributions under a Traditional Safe Harbor 401(k) Plan, such discretionary Matching Contributions will not be subject to the ACP Test only if the total amount of the discretionary Matching Contributions are limited to no more than 4% of the Employee’s Plan Compensation.

(4)Rate of Matching Contribution may not increase. The Matching Contribution formula may not provide a higher rate of match at higher levels of Salary Deferrals or After-Tax Employee Contributions.

(5)Limit on Matching Contributions for Highly Compensated Employees. The Matching Contributions made for any Highly Compensated Employee at any rate of Salary Deferrals and/or After-Tax Employee Contributions cannot be greater than the Matching Contributions provided for any Nonhighly Compensated Employee at the same rate of Salary Deferrals and/or After-Tax Employee Contributions.

(6)After-Tax Employee Contributions. If the Plan permits After-Tax Employee Contributions, such contributions must satisfy the ACP Test, regardless of whether the Matching Contributions under Plan are deemed to satisfy the ACP Test under this subsection (i). The ACP Test must be performed in accordance with subsection (j) below.

(7)Additional Matching Contributions may be subject to vesting and distribution restrictions. Additional Matching Contributions may satisfy the ACP Test safe harbor described in this subsection (i) even if such Matching Contributions are subject to the normal vesting schedule and distribution rules applicable to Matching Contributions. However, if such Matching Contributions are subject to allocation conditions under AA §6B-7, such Matching Contributions may fail to satisfy the ACP Test safe harbor described in this subsection (i).

(j)Rules for applying the ACP Test. If the ACP Test must be performed under a Traditional Safe Harbor/QACA Safe Harbor 401(k) Plan , either because there are After-Tax Employee Contributions, or because the Matching Contributions do not satisfy the conditions described in subsection (i) above, the Current Year Testing Method must be used to perform such test, even if the Adoption Agreement specifies that the Prior Year Testing Method applies. In addition, the testing rules provided in IRS Notice 98-52 (or any successor guidance) are applicable in applying the ACP Test.

(k)Application of Top Heavy rules. If the only contributions under a Traditional Safe Harbor/QACA Safe Harbor 401(k) Plan are Traditional Safe Harbor/QACA Safe Harbor Contributions described under subsection (a) and Matching Contributions eligible for the ACP Test safe harbor, as described in subsection (i), the Plan is deemed to satisfy the Top Heavy requirements, as described in Section 4. For this purpose, if a Plan has only safe harbor contributions described under this subsection (k) and the Plan has forfeitures for a Plan Year, such forfeitures may be used to reduce or may be allocated as additional Matching Contributions that are designed to satisfy the ACP Test safe harbor, as described under subsection (i). In such case, the Plan will continue to satisfy the exemption from the Top Heavy rules as described in this subsection (k). See Section 7.13(e)(1).

(l)Plan Year. Except as provided in subsections (1) - (3) below, to qualify as a Safe Harbor 401(k) Plan, the safe harbor requirements under this Section 6.04 must be satisfied for an entire 12-month Plan Year.

(1)First year of plan. A newly established plan (other than a successor plan within the meaning of Treas. Reg.

§1.401(m)-2(c)(2)(iii)) will not fail to satisfy the requirements of this subsection (l) merely because the Plan Year is less than 12 months, provided that the Plan Year is at least 3 months long. If an Employer is newly established and adopts the Plan as soon as administratively feasible after the Employer comes into existence, the initial Plan Year may be shorter than 3 months.

If the Plan has an initial Plan Year that is less than 12 months, for purposes of applying the Code §415 Limitation under Section 5.03, the Limitation Year will be the 12-month period ending on the last day of the


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short Plan Year. Thus, no proration of the Defined Contribution Dollar Limitation will be required. See Section 5.03(c)(2). In addition, the Employer’s Plan Compensation will be determined for the 12-month period ending on the last day of the short Plan Year. Thus, no proration of the Compensation Limit will be required. See Section 1.26.

(2)Change of Plan Year. If the Plan is amended to change its Plan Year, resulting in a Short Plan Year (see Section 11.08), the Plan will not fail to satisfy the requirements of subsection (l), provided:

(i)The Plan satisfies the safe harbor requirements under this Section 6.04 for the immediately preceding Plan Year; and

(ii)The plan satisfies the safe harbor requirements under this Section 6.04 (determined without regard to subsection (g) above) for the immediately following Plan Year or for the immediately following 12 months if the immediately following Plan Year is less than 12 months.

(3)Final plan year. If the Plan is terminated during a Plan Year, the Plan will not fail to satisfy the requirements of subsection (l) merely because the final Plan Year is less than 12 months, provided that the Plan satisfies the safe harbor requirements under this Section 6.04 through the date of termination and either:

(i)The Plan would satisfy the requirements of subsection (g), treating the termination of the Plan as a reduction or suspension of Traditional Safe Harbor/QACA Safe Harbor Matching Contributions (other than the requirement that Employees have a reasonable opportunity to change their Salary Deferral or After-Tax Employee Contribution elections); or

(ii)The Plan termination is in connection with a transaction described in Code §410(b)(6)(C) or the Employer incurs a substantial business hardship, comparable to a substantial business hardship described in Code §412(d). If this subsection (ii) applies, the Plan will continue to qualify as a Safe Harbor 401(k) Plan for the year of termination.

6.05SIMPLE 401(k) Plan contributions. The Employer may designate in AA §6A-10 of the Profit Sharing/401(k) Plan Adoption Agreement to treat the Plan as a SIMPLE 401(k) Plan under Code §401(k)(11). To treat the Plan as a SIMPLE 401(k) Plan for a Plan Year, the Employer must be an Eligible Employer (as defined in subsection (a)(1) below) and no contributions may be made, or benefits accrued, for services during the calendar year, on behalf of any Eligible Employee under any other plan, contract, pension, or trust described in Code §219(g)(5)(A) or (B), maintained by the Employer. If the Plan is designated as a SIMPLE 401(k) Plan, the provisions of this Section 6.05 will apply even if inconsistent with any other provisions under the Plan.

(a)Definitions.

(1)Eligible Employer. An Eligible Employer means, with respect to any calendar year, an Employer that had no more than 100 employees who received at least $5,000 of SIMPLE Compensation from the Employer for the preceding calendar year. In applying the preceding sentence, all Employees of Related Employers and Leased Employees are taken into account.

An Eligible Employer that elects to have the SIMPLE 401(k) provisions apply to the Plan and that fails to be an Eligible Employer for any subsequent calendar year is treated as an Eligible Employer for the 2 calendar years following the last calendar year the Employer was an Eligible Employer. If the failure is due to any acquisition, disposition, or similar transaction involving an Eligible Employer, the preceding sentence applies only if the provisions of Code §410(b)(6)(C)(i) are satisfied.

(2)Eligible Employee. An Eligible Employee means, for purposes of the SIMPLE 401(k) provisions, any Employee who is entitled to make Salary Deferrals under the terms of the Plan.

(b)Contributions.

(1)Salary Deferrals. Each Eligible Employee may make Salary Deferrals in an amount not to exceed $13,500 for 2020. The salary deferral limit will be adjusted for cost-of living increases under Code §408(p)(2)(E). Any such adjustments will be in multiples of $500.

(2)Catch-Up Contributions. The amount of an Employee's Salary Deferrals permitted for a calendar year is increased for Employees age 50 or over by the end of the calendar year by the amount of allowable Catch-up Contributions. The allowable Catch-up Contribution is $3,000 for 2020. The catch-up limit will be adjusted for


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cost-of-living increases under Code §414(v)(2)(C). Any such adjustments will be in multiples of $500. Catch- up Contributions are otherwise treated the same as other Salary Deferrals.

(3)Matching Contributions. Each calendar year, the Employer will contribute a Matching Contribution to the Plan on behalf of each Employee who makes Salary Deferrals. The amount of the Matching Contribution will be equal to the Employee's Salary Deferrals up to a limit of 3 percent of the Employee's SIMPLE Compensation for the full calendar year.

(4)Employer Contributions. For any calendar year, instead of a Matching Contribution, the Employer may elect to contribute an Employer Contribution of 2 percent of Total Compensation for the full calendar year for each Eligible Employee who received at least $5,000 of SIMPLE Compensation for the calendar year.

(c)Limit on Contributions. No Employer or Employee Contributions may be made to this Plan for a calendar year other than Salary Deferrals described in subsections (b)(1) and (b)(2), Matching Contributions described in subsection (b)(3), Employer Contributions described in subsection (b)(4), and Rollover Contributions described in Treas. Reg. §1.402(c)- 2, Q&A-1(a). Such contributions (other than Catch-Up Contributions under subsection (b)(2)) are subject to the Code

§415 Limitation.

(d)Election and notice requirements.

(1)Election period.

(i)In addition to any other election periods provided under the Plan, each Eligible Employee may make or modify Salary Deferral elections during the 60-day period immediately preceding each January 1.

(ii)For the calendar year an Employee becomes eligible to make Salary Deferrals under the SIMPLE 401(k) provisions, the 60-day election period requirement under subsection (i) is deemed satisfied if the Employee may make or modify a Salary Deferral election during a 60-day period that includes either the date the Employee becomes eligible or the day before.

(iii)Each Employee may terminate a Salary Deferral election at any time during the calendar year

(2)Notice requirements.

(i)The Employer will notify each Eligible Employee prior to the 60-day election period described in subsection (1) that he/she can make a Salary Deferral election or modify a prior election during that period.

(ii)The notification described in subsection (i) will indicate whether the Employer will provide a 3-percent Matching Contribution described in subsection (b)(3) or a 2-percent Employer Contribution described in subsection (b)(4).

(e)Vesting requirements. All benefits attributable to contributions described in subsections (b)(3) and (b)(4) are fully vested at all times, and all previous contributions made under the Plan are fully vested as of the beginning of the calendar year the SIMPLE 401(k) provisions apply.

(f)Top Heavy rules. The Plan is not treated as a Top Heavy Plan under Code §416 for any calendar year for which this Section 6.05 applies.

(g)Nondiscrimination tests. The ADP and ACP Tests described in Sections 6.01(a) and 6.02(a) are treated as satisfied for any calendar year for which this Section 6.05 applies.

(h)SIMPLE Compensation. SIMPLE Compensation for purposes of this Section 6.05 means the sum of wages, tips, and other compensation from the Eligible Employer subject to federal income tax withholding (as described in Code

§6051(a)(3)) and the Employee’s Salary Deferrals made under any other plan, and if applicable, Elective Deferrals under a SIMPLE IRA (as defined under Code §408(p), a SARSEP (as defined in Code §408(a)(6), or a plan or contract that satisfies the requirements of Code §403(b), and compensation deferred under a Code §457 plan, required to be reported by the employer on Form W-2 (as described in Code §6051(a)(8)). For self-employed individuals, SIMPLE Compensation means net earnings from self-employment determined under Code §1402(a) prior to subtracting any contributions made under the SIMPLE 401(k) plan on behalf of the individual. Compensation also includes amounts paid for domestic service (as described in Code §3401(a)(3). SIMPLE Compensation taken into account under the Plan is subject to the Compensation Limit (as defined under Section 1.26).


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SECTION 7

PARTICIPANT VESTING AND FORFEITURES

7.01Vesting of Contributions. A Participant’s vested interest in his/her Employer Contribution Account and Matching Contribution Account is determined based on the vesting schedule elected in AA §8. A Participant is always fully vested in his/her Salary Deferral Account, After-Tax Employee Contribution Account, QNEC Account, QMAC Account, Traditional Safe Harbor/QACA Safe Harbor Employer Contribution Account, Traditional Safe Harbor/QACA Safe Harbor Matching Contribution Account, and Rollover Contribution Account.

7.02Vesting Schedules. A Participant’s vested interest in his/her Employer Contribution Account and/or Matching Contribution Account is determined by multiplying the Participant’s vesting percentage (determined under the applicable vesting schedule selected in AA §8) by the total amount under the applicable Account.

(a)Full and immediate vesting schedule. Under the full and immediate vesting schedule, the Participant is always 100% vested in his/her Account Balance.

(b)6-year graded vesting schedule. Under the 6-year graded vesting schedule, an Employee vests in his/her Employer Contribution Account and/or Matching Contribution Account in the following manner:

After 2 Years of Service – 20% vesting After 3 Years of Service – 40% vesting After 4 Years of Service – 60% vesting After 5 Years of Service – 80% vesting After 6 Years of Service – 100% vesting

(c)3-year cliff vesting schedule. Under the 3-year cliff vesting schedule, an Employee is 100% vested after 3 Years of Service. Prior to the third Year of Service, the vesting percentage is zero.

(d)5-year graded vesting schedule. Under the 5-year graded vesting schedule, an Employee vests in his/her Employer Contribution Account and/or Matching Contribution Account in the following manner:

After 1 Years of Service – 20% vesting After 2 Years of Service – 40% vesting After 3 Years of Service – 60% vesting After 4 Years of Service – 80% vesting After 5 Years of Service – 100% vesting

(e)Modified vesting schedule. Under the modified vesting schedule, the Employer may designate the vesting percentage that applies for each Year of Service. The vesting percentage selected under the modified vesting schedule for any Year of Service may not be less than the percentage that would be permitted under a permitted vesting schedule under this Section 7.02. Thus, for example, the modified vesting schedule for each Year of Service would have to satisfy the 6- year graded vesting schedule, unless 100% vesting occurs after no more than 3 Years of Service. (A modified vesting schedule may not be selected under the Standardized Plan Adoption Agreement.)

7.03Different Vesting Schedules for Different Sources. The Employer may designate different vesting schedules for different sources (e.g., Matching Contributions, Employer Contributions and/or QACA Safe Harbor Contributions) under AA §8-2.

7.04Special vesting rules.

(a)Normal Retirement Age. Regardless of the Plan’s vesting schedule, an Employee’s right to his/her Account Balance is fully vested upon the date he/she attains Normal Retirement Age (as defined in AA §7-1), provided the Employee is still employed at such time.

(b)100% vesting upon death, disability, or Early Retirement Age. The Employer may elect under AA §8-4 to allow a Participant’s vesting percentage to automatically increase to 100% if the Participant dies, terminates employment upon becoming Disabled, becomes Disabled, and/or attains Early Retirement Age while employed by the Employer.

(c)Safe Harbor 401(k) Plans. If the Plan is a Safe Harbor 401(k) Plan as defined in Section 6.04, any Safe Harbor 401(k) Plan contributions made under the Plan are always 100% vested. If the Plan provides for QACA Safe Harbor Contributions under AA §6C-3, such contributions will vest in accordance with the vesting schedule selected under AA

§8-2(b) of the Profit Sharing/401(k) Plan Adoption Agreement. If a Safe Harbor 401(k) Plan provides for regular Employer Contributions or Matching Contributions, such amounts will be vested in accordance with the vesting


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schedule selected under AA §8. Section 7.10 will not apply merely because the Plan is amended to add a vesting schedule for regular Employer Contributions or Matching Contributions.

(d)Vesting upon merger, consolidation or transfer. No accelerated vesting will be required solely because a Defined Contribution Plan is merged with another Defined Contribution Plan, or because assets are transferred from a Defined Contribution Plan to another Defined Contribution Plan. (See Section 14.05(a) for the benefits that must be protected as a result of a merger, consolidation or transfer.)

(e)Vesting schedules applicable to prior contributions. If the Plan holds Employer Contributions and/or Matching Contributions that are subject to vesting, but the Plan no longer provides for such contributions, the Plan will continue to apply the vesting schedule applicable to those contributions as determined under the prior Plan document. See Section 7.13(e) for the rules applicable to forfeitures of such prior contributions. The Employer may document any prior vesting schedule in AA Appendix A.

7.05Year of Service. An Employee’s position on the vesting schedule is dependent on the Employee’s Years of Service with the Employer. Generally, an Employee will earn a vesting Year of Service for each Vesting Computation Period (as defined in Section 7.06) during which the Employee completes at least 1,000 Hours of Service. Alternatively, the Employer may elect under AA §8-5(a) to modify the definition of Year of Service to require completion of any lesser number of Hours of Service or may elect to calculate Years of Service using the Elapsed Time method (as defined in subsection (b) below).

(a)Hours of Service. Unless the Employer elects to use the Elapsed Time method under AA §8-5(c), vesting Years of Service will be determined based on an Employee’s Hours of Service earned during the Vesting Computation Period.

(1)Actual Hours of Service. In determining an Employee’s vesting Years of Service, the Employer will credit an Employee with the actual Hours of Service earned during the Vesting Computation Period, unless the Employer elects under AA §8-5(d) to determine Hours of Service using the Equivalency Method.

(2)Equivalency Method. Instead of counting actual Hours of Service in applying the Plan’s vesting schedules, the Employer may elect under AA §8-5(d) to determine Hours of Service based on the Equivalency Method. Under the Equivalency Method, an Employee receives credit for a specified number of Hours of Service based on the period worked with the Employer.

(ii)Daily. Under the daily Equivalency Method, an Employee is credited with 10 Hours of Service for each day during which the Employee completes at least one Hour of Service with the Employer.

(iii)Weekly. Under the weekly Equivalency Method, an Employee is credited with 45 Hours of Service for each week during which the Employee completes at least one Hour of Service with the Employer.

(3)Employee need not be employed for entire Vesting Computation Period. If an Employee completes the required Hours of Service during a Vesting Computation Period, the Employee will receive credit for a Year of Service, even if the Employee is not employed for the entire Vesting Computation Period.

(b)Elapsed Time method. Instead of using Hours of Service in applying the Plan’s vesting schedules, the Employer may elect under AA §8-5(c) to apply the Elapsed Time method for calculating an Employee’s vesting service with the Employer. Under the Elapsed Time method, an Employee receives credit for the aggregate period of time worked for the Employer commencing with the Employee's first day of employment (or reemployment, if applicable) and ending on the date the Employee begins a Period of Severance which lasts at least 12 consecutive months. In calculating an Employee’s aggregate period of service, an Employee receives credit for any Period of Severance that lasts less than 12 consecutive months. If an Employee’s aggregate period of service includes fractional years, such fractional years are expressed in terms of days.

(1)Period of Severance. For purposes of applying the Elapsed Time method, a Period of Severance is any continuous period of time during which the Employee is not employed by the Employer. A Period of Severance begins on the date the Employee retires, quits or is discharged, or if earlier, the 12-month anniversary of the date on which the Employee is first absent from service for a reason other than retirement, quit or discharge.


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In the case of an Employee who is absent from work for maternity or paternity reasons, the 12-consecutive month period beginning on the first anniversary of the first date of such absence shall not constitute a Period of Severance. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence:

(i)by reason of the pregnancy of the Employee;

(ii)by reason of the birth of a child of the Employee;

(iii)by reason of the placement of a child with the Employee in connection with the adoption of such child by the Employee; or

(iv)for purposes of caring for a child of the Employee for a period beginning immediately following the birth or placement of such child.

(2)Related Employers/Leased Employees. For purposes of applying the Elapsed Time method, service will be credited for employment with any Related Employer. Service also will be credited for any service as a Leased Employee or as an employee under Code §414(o).

(c)Change in service crediting method. If the service crediting method is changed from an Hours of Service method to the Elapsed Time method or from the Elapsed Time method to an Hours of Service method, the amount of service credited to an Employee will be determined under subsection (1) or (2) below. For this purpose, a change in service crediting method will occur if the Plan is amended to change the service crediting method or if the service crediting method is changed as a result of an Employee’s change in employment status.

(1)Change to Elapsed Time method. If the service crediting method is changed from an Hours of Service method to the Elapsed Time method, the amount of vesting service credited to an Employee will equal the sum of the service under subsections (i) and (ii) below:

(i)The number of Years of Service equal to the number of Years of Service credited under the Hours of Service method before the Vesting Computation Period during which the change to the Elapsed Time method occurs.

(ii)For the Vesting Computation Period in which the change occurs, the greater of:

(A)the period of service that would be credited under the Elapsed Time method from the first day of that Vesting Computation Period through the date of the change; or

(B)the service that would be taken into account under the Hours of Service method for the Vesting Computation Period which includes the date of the change.

If the period of service described in subsection (A) is the greater amount, then subsequent periods of service are credited under the Elapsed Time method beginning with the date of the change. If the period of service described in subsection (B) applies, the Elapsed Time method will be used beginning with the first day of the Vesting Computation Period that would have followed the Vesting Computation Period in which the change to the Elapsed Time method occurred.

If the change to the Elapsed Time method occurs as of the first day of a Vesting Computation Period, the use of the Elapsed Time method begins as of the date of the change, and the calculation in subsection (B) above

does not apply. In such case, the Employee’s service is determined under subsection (A) above plus the subsequent periods of service determined under the Elapsed Time method, starting with the effective date of the change.

(2)Change to Hours of Service method. If the service crediting method is changed from the Elapsed Time method to an Hours of Service method, the Employee's Elapsed Time service earned as of the date of the change is converted into Years of Service under the Hours of Service method, determined as the sum of subsections (i) and (ii), below:

(i)A number of Years of Service is credited that equals the number of 1-year periods of service credited under the Elapsed Time method as of the date of the change.


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(ii)For the Vesting Computation Period which includes the date of the change, the Employee is credited with an equivalent number of Hours of Service, using one of the Equivalency Methods defined in Section 2.03(a)(5) above for any fractional year that was credited under the Elapsed Time method as of the date of the change.

For the portion of the Vesting Computation Period following the date of the change, actual Hours of Service are counted. The Hours of Service credited for the portion of the Vesting Computation Period in which the Elapsed Time method was in effect are added to the actual Hours of Service credited for the remaining portion of the Vesting Computation Period to determine if the Employee has a Year of Service for that Vesting Computation Period.

7.06Vesting Computation Period. Generally, the Vesting Computation Period is the Plan Year. Alternatively, the Employer may elect under AA §8-5(b) to use the 12-month period commencing on the Employee’s Employment Commencement Date (or reemployment date, if applicable) and each subsequent 12-month period commencing on the anniversary of such date or the Employer may elect to use any other 12-consecutive month period as the Vesting Computation Period.

7.07Excluded service. Generally, except as provided under Section 7.09 with respect to service excluded under the Break in Service rules, all service with the Employer counts for purposes of applying the Plan’s vesting schedules. However, the Employer may elect under AA §8-3 to exclude certain service with the Employer in calculating an Employee’s vesting Years of Service.

(a)Service before the Effective Date of the Plan. The Employer may elect under AA §8-3(a) to exclude service earned during any period prior to the date the Employer established the Plan or a Predecessor Plan. For this purpose, a Predecessor Plan is a qualified plan maintained by the Employer that is terminated within the 5-year period immediately preceding or following the establishment of this Plan. A Participant’s service under a Predecessor Plan must be counted for purposes of determining the Participant’s vested percentage under this Plan.

(b)Service before a specified age. The Employer may elect under AA §8-3(b) to exclude service before an Employee attains a specified age (not to exceed age 18). An Employee will be credited with a Year of Service for the Vesting Computation Period during which the Employee attains the required age, provided the Employee satisfies all other conditions required for a Year of Service.

7.08Service with Predecessor Employers. If the Employer maintains the plan of a Predecessor Employer, any service with such Predecessor Employer is treated as service with the Employer for purposes of applying the provisions of this Plan. If the Employer does not maintain the plan of a Predecessor Employer, service with such Predecessor Employer does not count for vesting purposes under this Section 7, unless the Employer specifically designates under AA §4-5 to credit service with such Predecessor Employer for vesting. Unless designated otherwise under AA §4-5, if the Employer takes into account service with a Predecessor Employer, such service will count for purposes of eligibility under Section 2 (see Section 2.06) vesting under this Section 7, and for purposes of the minimum allocation conditions under Section 3.09 (see Section 3.09(c)).

7.09Break in Service Rules. In addition to any service excluded under Section 7.07, the Employer may elect under AA §8-5 to disregard an Employee’s vesting service with the Employer under the Break in Service rules set forth in this Section 7.09.

(a)Break in Service. An Employee incurs a Break in Service for any Vesting Computation Period (as defined in Section 7.06) during which the Employee does not complete more than five hundred (500) Hours of Service with the Employer. However, if the Employer elects under AA §8-5(a) to require less than 1,000 Hours of Service to earn a vesting Year of Service, a Break in Service will occur for any Vesting Computation Period during which the Employee does not complete more than one-half (1/2) of the Hours of Service required to earn a vesting Year of Service. In applying these Break in Service rules, Years of Service and Breaks in Service are measured on the same Vesting Computation Period.

(b)One-Year Break in Service rule. Under the One-Year Break in Service rule, if an Employee incurs a one-year Break in Service, such Employee will not be credited with any service earned prior to such one-year Break in Service for purposes of applying the Plan’s vesting schedules until the Employee has completed a Year of Service after the Break in Service. The Employer must elect to apply the One-Year Break in Service rule under AA §8-5(f). Unless elected otherwise under AA §8-5(f), the One-Year Break in Service rule applies only with respect to an Employee who has terminated employment. The One-Year Break in Service rule is not available under the Standardized Plan Adoption Agreement.

If a Participant has service disregarded under the One-Year Break in Service rule, such Participant will have his/her service reinstated as of the first day of the Vesting Computation Period during which the Participant completes a Year of Service following the Break in Service.


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(c)Nonvested Participant Break in Service rule. Under the Nonvested Participant Break in Service rule, if an Employee is totally nonvested (i.e., 0% vested) in his/her Account Balance attributable to Employer and Matching Contributions, and such Employee incurs five (5) or more consecutive one-year Breaks in Service (or, if greater, a consecutive period of Breaks in Service at least equal to the Employee’s aggregate number of Years of Service with the Employer), the Plan will disregard all service earned prior to such consecutive Breaks in Service for purposes of applying the vesting schedules under the Plan. If the Employer elects the Elapsed Time method of crediting service (as authorized under Section 7.05(b), an Employee will be treated as incurring five consecutive Breaks in Service when he/she incurs a Period of Severance of at least 60 months.

If the Employee continues in employment with the Employer after incurring the requisite Break in Service, such Employee will be treated as a new Employee for purposes of determining vesting under the Plan. For this purpose, a Participant who has made Salary Deferrals under the Plan will be treated as having a vested interest in the Plan. Thus, the Nonvested Participant Break in Service rule may not be used with respect to any contributions under the Plan (even if such Participant is totally nonvested in his/her Account Balance attributable to Employer and Matching Contributions) for a Participant who has made Salary Deferrals under the Plan. The Employer must elect to apply the Nonvested Participant Break in Service rule under AA §8-5. Unless elected otherwise under AA §8-5, the Nonvested Participant Break in Service rule applies only with respect to an Employee who has terminated employment. In determining an Employee’s aggregate Years of Service for purposes of applying the Nonvested Participant Break in Service rule, any Years of Service otherwise disregarded under a previous application of this rule are not counted.

(d)Five-Year Forfeiture Break in Service. A Participant’s vesting service also may be disregarded if the Participant incurs a Five-Year Forfeiture Break in Service, as described in Section 7.12(b) below.

7.10Amendment of Vesting Schedule. If the Plan’s vesting schedule is amended (or is deemed amended by an automatic change to or from a Top Heavy Plan vesting schedule) or if the Plan is amended in any way that directly or indirectly affects the computation of the Participant’s vested percentage, each Participant with at least three (3) Years of Service with the Employer, as of the end of the election period described in the following paragraph, may elect to have his/her vested interest computed under the Plan without regard to such amendment or change. However, the new vesting schedule will apply automatically to an Employee, and no election will be provided, if the new vesting schedule is at least as favorable to such Employee, in all circumstances, as the prior vesting schedule.

The period during which the election may be made shall commence with the date the amendment is adopted or is deemed to be made and shall end on the latest of:

(a)60 days after the amendment is adopted;

(b)60 days after the amendment becomes effective; or

No amendment to the Plan shall be effective to the extent that it has the effect of decreasing a participant's accrued benefit. Notwithstanding the preceding sentence, a participant's Account Balance may be reduced to the extent permitted under Code

§412(d)(2). For purposes of this paragraph, a plan amendment which has the effect of decreasing a participant's Account Balance, with respect to benefits attributable to service before the amendment, shall be treated as reducing an accrued benefit.

Furthermore, if the vesting schedule of the Plan is amended, in the case of an Employee who is a Participant as of the later of the date such amendment is adopted or effective, the vested percentage of such Employee’s Account Balance derived from Employer Contributions (determined as of such date) will not be less than the percentage computed under the Plan without regard to such amendment.

7.11Special Vesting Rule - In-Service Distribution When Account Balance is Less than 100% Vested. If amounts are distributed from a Participant’s Employer Contribution Account or Matching Contribution Account at a time when the Participant’s vested percentage in such amounts is less than 100% and the Participant may increase the vested percentage in the Account Balance:

(a)A separate Account will be established for the Participant’s interest in the Plan as of the time of the distribution; and

(b)At any relevant time the Participant’s vested portion of the separate Account will be equal to an amount ("X") determined by the formula:

X = P (AB + D) - D

Where:


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P is the vested percentage at the relevant time;

AB is the Account Balance at the relevant time; and D is the amount of the distribution.

7.12Forfeiture of Benefits. A Participant will forfeit the nonvested portion of his/her Employer Contribution and/or Matching Contribution Account upon the occurrence of any of the events described below. The Plan Administrator has the responsibility to determine the amount of a Participant’s forfeiture. Until an amount is forfeited pursuant to this Section 7.12, a Participant’s entire Account must remain in the Plan and continue to share in gains and losses of the Trust. A Participant will not forfeit any of his/her nonvested Account until the occurrence of one of the following events.

(a)Cash-Out Distribution. Following termination of employment, a Participant may receive a total distribution of his/her vested benefit under the Plan (a Cash-Out Distribution) in accordance with the distribution and Participant consent provisions under Section 8. If a Participant receives a Cash-Out Distribution upon termination of employment, the Participant’s nonvested benefit under the Plan will be forfeited in accordance with subsection (1) below. If at the time of termination, a Participant is totally nonvested in his/her entire Account Balance, the Participant will be deemed to receive a total Cash-Out Distribution of his/her entire vested Account Balance (i.e., a deemed Cash-Out Distribution of zero dollars) as of the date of termination, subject to the forfeiture provisions under subsection (1) below.

A Cash-Out Distribution does not occur until such time as the Participant receives a distribution of his/her entire vested Account Balance, including amounts attributable to Salary Deferrals. If a Participant receives a distribution of less than the entire vested portion of his/her Account Balance (including any additional amounts to be allocated under subsection (1)(ii) below), the Participant will not be treated as receiving a Cash-Out Distribution until such time as the Participant receives a distribution of the remainder of the vested portion of his/her Account Balance.

(1)Timing of forfeiture. Unless elected otherwise under AA §8-7(b), if a Participant receives a Cash-Out Distribution of his/her vested Account Balance (as defined in subsection (a) above), the Participant will immediately forfeit the nonvested portion of such Account Balance, as of the date of the distribution or deemed distribution (as determined under subsection (i) or (ii) below, whichever applies). (See Section 7.13 below for a discussion of the treatment of forfeitures under the Plan.)

(i)No further allocations. For purposes of applying the Cash-Out Distribution rules, a terminated Participant who receives a total distribution of his/her vested Account Balance will be treated as receiving the Cash-Out Distribution as of the date the Participant receives such distribution (or in the case of a deemed Cash-Out Distribution (as described in subsection (a) above) as of the date the Participant terminates employment), provided the Participant is not entitled to any further allocations under the Plan for the Plan Year in which the Participant terminates employment. The Participant will forfeit his/her nonvested benefit as of the date the Participant receives the Cash-Out Distribution, in accordance with the provisions under Section 7.13.

(ii)Additional allocations. For purposes of applying the Cash-Out Distribution rules, if upon termination of employment, a Participant is entitled to an additional allocation for the Plan Year in which the Participant terminates, such Participant will not be deemed to receive a Cash-Out Distribution until such time as the Participant receives a distribution of his/her entire vested Account Balance, including any amounts that are still to be allocated under the Plan. Thus, a terminated Participant who is entitled to an additional allocation (e.g., an additional Employer Contribution) for the Plan Year of termination will not be deemed to have a total Cash-Out Distribution until the Participant receives a distribution of such additional amounts. In the case of a deemed Cash-Out Distribution (as described in subsection (a) above), if the Participant is entitled to an additional allocation under the Plan for the Plan Year in which the Participant terminates employment, the deemed Cash-Out Distribution is deemed to occur on the first day of the Plan Year following the Plan Year in which the termination occurs, provided the Participant is still totally nonvested in his/her Account Balance.

(iii)Modification of Cash-Out Distribution rules. The Employer may elect under AA §8-7(a) to modify the Cash-Out Distribution provision under subsection (ii) above to provide that the Cash-Out Distribution and related forfeiture occur immediately upon distribution (or deemed distribution) of the terminated Participant’s vested Account Balance, without regard to whether the Participant is entitled to an additional allocation under the Plan.

(2)Repayment of Cash-Out Distribution. If a Participant receives a Cash-Out Distribution (as defined in subsection (a) above) that results in a forfeiture under subsection (1) above, and the Participant resumes


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employment covered under the Plan, such Participant may repay to the Plan the amount received as a Cash-Out Distribution. For this purpose, unless elected otherwise under AA §8-6, to be entitled to a restoration of benefits (as described in subsection (3) below), the Participant must repay the entire amount of the Cash-Out Distribution, including any amounts attributable to Salary Deferrals. A Participant will only be permitted to repay his/her Cash-Out Distribution if such repayment is made before the earlier of:

(i)five (5) years after the first date on which the Participant is subsequently re-employed by the Employer; or

(ii)the date the Participant incurs a Five-Year Forfeiture Break in Service (as defined in subsection (b) below).

If a Participant receives a deemed Cash-Out Distribution (as described in subsection (a) above), and the Participant resumes employment covered under this Plan before the date the Participant incurs a Five-Year Forfeiture Break in Service, the Participant is deemed to repay the Cash-Out Distribution immediately upon his/her reemployment.

(3)Restoration of forfeited benefit. If a rehired Participant repays a Cash-Out Distribution in accordance with subsection (2) above, any amounts that were forfeited on account of such Cash-Out Distribution (unadjusted for any interest that might have accrued on such amounts after the distribution date) will be restored to the Plan no later than the end of the Plan Year following the Plan Year in which the Participant repays the Cash-Out Distribution (or is deemed to repay the Cash-Out Distribution under subsection (2) above). No amount will be restored under the Plan, however, until such time as the Participant repays the entire amount of the Cash-Out Distribution. (However, see subsection (d) below for a discussion of special rules that apply if a Participant’s Cash-Out Distribution includes a distribution of Salary Deferrals.) In no event will a Participant be entitled to a restoration under this subsection (3) if the Participant returns to employment after incurring a Five-Year Forfeiture Break in Service (as defined in subsection (b) below).

(4)Sources of restoration. If a Participant’s forfeited benefit is required to be restored under subsection (3), the restoration of such forfeited benefits will occur from the following sources. If the following sources are not sufficient to completely restore the Participant’s benefit, the Employer must make an additional contribution to the Plan:

(i)Any unallocated forfeitures for the Plan Year of the restoration;

(ii)Any unallocated earnings for the Plan Year of the restoration; or

(iii)Any portion of a discretionary Employer Contribution to the extent such contribution has not been allocated to Participants’ Accounts for the Plan Year of the restoration.

(b)Five-Year Forfeiture Break in Service. If a Participant has five (5) consecutive one-year Breaks in Service (a Five- Year Forfeiture Break in Service), all Years of Service after such Breaks in Service will be disregarded for the purpose of vesting in the portion of the Participant’s Employer Contribution Account and/or Matching Contribution Account that accrued before such Breaks in Service. A Participant who incurs a Five-Year Forfeiture Break in Service will forfeit the nonvested portion of his/her Employer Contribution and/or Matching Contribution Account as of the end of the Vesting Computation Period in which the Participant incurs the fifth consecutive Break in Service. Except as provided under Section 7.09, a Participant who is rehired after incurring a Five-Year Forfeiture Break in Service will be credited with both pre-break and post-break service for purposes of determining his/her vested percentage in amounts that accrue under the Plan after the Five-Year Forfeiture Break in Service.

(c)Missing Participant or Beneficiary. Subject to the consent requirements of Code §411(a)(11) and the automatic rollover rules of Code §401(a)(31)(B), if the Plan is able to make a distribution to a Participant or Beneficiary without consent (as permitted under Section 8.04) and such Participant or Beneficiary cannot be located within a reasonable period following a reasonable diligent search, the missing Participant’s or Beneficiary’s Account may be forfeited, as provided in subsection (2) below. An Employer or Plan Administrator will be deemed to have performed a reasonable diligent search if it complies with the requirements of the Department of Labor’s Field Assistance Bulletin 2014-01 (or subsequent guidance), as described below. In determining whether a reasonable period has elapsed following a reasonable diligent search, the Employer or Plan Administrator may follow any applicable guidance provided under statute, regulation, or other IRS or DOL guidance of general applicability. However, the Employer or Plan Administrator will be deemed to have waited a reasonable period following a reasonable diligent search if the Employer or Plan Administrator waits at least 6 months following the completion of a reasonable diligent search. For purposes of applying this subsection (c), a Participant or Beneficiary is considered missing only if the Plan may make a distribution to such Participant or Beneficiary without consent. (See Section 14.03(b)(4) for rules that apply for missing


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Participants or Beneficiaries upon Plan termination. Also see Section 8.06 for the availability of Automatic Rollover rules that permit the Plan Administrator to automatically rollover a Participant’s Involuntary Cash-Out Distribution to an IRA upon the Participant’s failure to consent to a distribution, without the need to locate the Participant.)

(1)Reasonable diligent search. The Employer or Plan Administrator will be deemed to have performed a reasonable diligent search if it complies with the requirements of the Department of Labor’s Field Assistance Bulletin 2014-01 (or subsequent guidance). A reasonable diligent search may include:

(i)Sending a certified letter to the Participant’s or Beneficiary’s last known address;

(ii)Checking related plan records of the Employer (e.g., health plan records) to determine if a more current address exists for the Participant or Beneficiary;

(iii)If the Participant cannot be located, attempting to identify and contact any individual that the Participant has designated as a Beneficiary under the Plan for updated information concerning the location of the missing Participant; and

(iv)In addition to the search methods discussed above, using other search methods, including the use of Internet search tools, commercial locator services, and credit reporting agencies to locate the missing Participant.

The Plan will not be considered to violate the required minimum distribution standards under Code §401(a)(9) for its failure to commence or make a distribution to a Participant or Beneficiary to whom a payment is due if the Employer has met these reasonable search criteria.

(2)Forfeiture of Account of missing Participant or Beneficiary. If a Participant or Beneficiary is deemed to be missing (as described in this subsection (c)), the Plan Administrator may forfeit the distributable amount attributable to such missing Participant or Beneficiary, as permitted under applicable laws and regulations. If, after an amount is forfeited under this subsection (2), the missing Participant or Beneficiary is located, the Plan will restore the forfeited amount (unadjusted for gains or losses) to such Participant or Beneficiary within a reasonable time in accordance with the provisions of subsection (a)(3) above. However, if a missing Participant or Beneficiary has not been located by the time the Plan terminates, the forfeiture of such Participant’s or Beneficiary’s distributable amount will be irrevocable.

(3)Expenses attributable to search for missing Participant. Reasonable expenses attendant to locating a missing Participant may be charged to such Participant’s Account, provided that the amount of such expenses is reasonable. The Plan Administrator may take into account the size of a Participant’s Account in relation to the cost of the search when deciding how extensive a search is required before declaring such Participant as missing under this subsection (c).

(d)Excess Deferrals, Excess Contributions, and Excess Aggregate Contributions. If a Participant receives a distribution of Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions, the portion of his/her Matching Contribution Account (whether vested or not) which is attributable to such distributed amounts will be forfeited, adjusted for any gain or loss consistent with the provisions under Sections 6.01(b)(2)(ii) and 6.02(b)(2)(ii). For this purpose, Matching Contributions need not be forfeited to the extent such amounts have been distributed as Excess Contributions or Excess Aggregate Contributions, pursuant to Section 6.01(b)(2) or 6.02(b)(2). A forfeiture of Matching Contributions under this subsection (d) occurs in the Plan Year in which the Participant receives the distribution of Excess Deferrals, Excess Contributions, and/or Excess Aggregate Contributions.

If the Plan is subject to both the ADP Test and the ACP Test for a given year, and forfeitures occur under this subsection (d) due to the distribution of Excess Contributions as a result of an ADP Test failure, the Plan Administrator may determine the amount of the forfeitures before the ACP Test is performed, in which case the forfeited Matching Contributions are not taken into account under the ACP Test, or may determine the amount of the forfeitures after performing (and correcting) both the ADP Test and ACP Test.

(e)Forfeiture upon death of a Participant. If elected under AA §8-8, upon the death of a Participant, the Plan may forfeit benefits (including vested benefits) as permitted under Code §411(a)(3)(A). In no event may the Plan forfeit any benefits required under the Qualified Joint and Survivor Annuity requirements under Section 9 of the Plan and Code

§401(a)(11). In addition, in no event may the Plan forfeit any amounts attributable to a Participant’s Salary Deferrals or After-Tax Employee Contributions under the Plan or if the Plan has commenced distributions prior to the Participant’s death.


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7.13Allocation of Forfeitures. The Employer may decide in its discretion how to treat forfeitures under the Plan. Alternatively, the Employer may designate under AA §8-6 how forfeitures occurring during a Plan Year will be treated. Under AA §8-6, the Employer may elect to use forfeitures in the Plan Year in which the forfeitures occur or in the Plan Year following the Plan Year in which the forfeitures occur. In applying the forfeiture provisions under the Plan, if there are any unused forfeitures as of the end of the Plan Year designated in AA §8-6(d) or (e), as applicable, any remaining forfeiture will be used (as designated in AA §8-6) in the immediately following Plan Year. The Employer may elect under AA §8-6 to allocate forfeitures in any manner permitted under this Section 7.13.

(a)Reallocation as additional contributions under Profit Sharing/401(k) Plan Adoption Agreement. The Employer may elect in AA §8-6 to reallocate forfeitures as additional contributions under the Plan. If the Employer elects under a Profit Sharing/401(k) Plan Adoption Agreement to reallocate forfeitures as additional contributions, the Employer may allocate such amounts as additional Employer Contributions and/or additional Matching Contributions. If the forfeitures allocated under this subsection (a) relate to discretionary contributions, such amounts may be allocated in the same manner as selected under AA §6-3 or AA §6B-2 with respect to the contribution type being allocated. If the forfeitures relate to fixed contributions, such amounts may be allocated in addition to such fixed contributions in the ratio that the Plan Compensation of each Participant bears to the Plan Compensation of all Participants. In allocating forfeitures under this subsection (a), the Employer may take into account any limits under AA §6B-4 of the Profit Sharing/401(k) Plan Adoption Agreement in determining the amount of forfeitures to be allocated as additional Matching Contributions. In applying the provisions of this subsection (a), no allocation of forfeitures will be made to any Participant with respect to forfeitures that arise out of his/her own Account. A Participant may share in any additional forfeitures to the extent the Participant is eligible to receive an allocation of such forfeitures under AA §8-6.

(b)Reallocation as additional Employer Contributions under Money Purchase Plan Adoption Agreement. The Employer may elect in AA §8-6 to reallocate forfeitures as additional Employer Contributions under the Plan. If the Employer elects under the Money Purchase Plan Adoption Agreement to reallocate forfeitures as additional Employer Contributions, such amounts will be allocated in the ratio that the Plan Compensation of each Participant bears to the Plan Compensation of all Participants. In applying the provisions of this subsection (b), no allocation of forfeitures will be made to any Participant with respect to forfeitures that arise out of his/her own Account.

(c)Reduction of contributions. The Employer may elect in AA §8-6 to use forfeitures to reduce Employer Contributions and/or Matching Contributions under the Plan. If the Employer elects under a Profit Sharing/401(k) Plan Adoption Agreement to use forfeitures to reduce contributions, the Employer may, in its discretion, use such forfeitures to reduce Employer Contributions, Matching Contributions, or both. The Employer may adjust its contribution deposits in any manner, provided the total Employer Contributions and/or Matching Contributions made for the Plan Year properly take into account the forfeitures that are to be used to reduce such contributions for that Plan Year.

If contributions are allocated over multiple allocation periods, the Employer may reduce its contribution for any allocation periods within the Plan Year in which the forfeitures are to be allocated so that the total amount allocated for the Plan Year is proper. If the Plan provides for a discretionary Employer or Matching Contribution and the Employer elects not to make an Employer or Matching Contribution for the Plan Year, any forfeitures will be allocated to eligible Participants as an additional Employer or Matching Contribution, as provided under subsection (a) above.

(d)Payment of Plan expenses. The Employer may elect under AA §8-6 to use forfeitures to pay Plan expenses for the Plan Year in which the forfeitures would otherwise be applied. If any forfeitures remain after the payment of Plan expenses under this subsection, the remaining forfeitures will be allocated as selected under AA §8-6. This subsection

(d)only applies to the extent Plan expenses are paid by the Plan. Nothing herein affects the ability of the Employer to pay Plan expenses, as authorized under Section 11.05(a). In determining the Plan expenses that may be offset by Plan forfeitures, the Employer may use any reasonable method to determine the Plan expenses attributable to a particular year. For example, the Employer may treat any reasonable Plan expenses paid during a particular Plan Year as allocated to that Plan Year for purposes of applying forfeitures to pay such Plan expenses. In addition, the Employer may elect to use forfeitures first to reduce Employer and/or Matching Contributions or as an additional allocation (as set forth in AA §8-6) prior to using forfeitures to pay Plan expenses. If forfeiture amounts still remain, such forfeitures then may be used to pay Plan expenses.

(e)Forfeiture rules for other contribution types.

(1)Forfeitures under a Safe Harbor 401(k) Plan. The Employer may use forfeitures to reduce the Safe Harbor 401(k) Plan contributions. However, regardless of any elections under AA §8-6 of the Profit Sharing/401(k) Plan Adoption Agreement, forfeitures may be used to reduce Matching Contributions that satisfy the ACP Test safe harbor (as described in Section 6.04(i)) or may be allocated as additional discretionary Matching Contributions. If forfeitures under a Safe Harbor 401(k) Plan are allocated as additional discretionary Matching Contributions, such discretionary Matching Contributions will be subject to the requirements applicable to ACP Test safe harbor Matching Contributions under Section 6.04(i), without regard to any elections under the Plan.


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The use of forfeitures under this subsection to allocate as additional ACP Test safe harbor Matching Contributions or to reduce ACP Test safe harbor Matching Contributions will not cause the Plan to lose the exemption from Top-Heavy Testing as described in Section 6.04(k).

(2)Prior Employer and/or Matching Contributions. If the Plan maintains Employer Contribution and/or Matching Contribution Accounts, but the Plan no longer provides for such contributions, such amounts will continue to vest under the vesting schedule applicable to such contributions under the prior Plan or under any vesting schedule designated under Appendix A of the Adoption Agreement. If there are any forfeitures related to such prior contributions, such amounts may be reallocated as an additional Employer Contribution or as an additional Matching Contribution in accordance with the provisions of subsection (a) or (b), to the extent such contributions are authorized under the Plan, or may be used to reduce any Employer Contribution or Matching Contribution, consistent with the provisions of subsection (c) above. If the Plan does not provide for either Employer Contributions or Matching Contributions, the Employer may reallocate forfeitures of prior contributions as an Employer Contribution (using the pro rata allocation formula) or as a discretionary Matching Contribution under AA §6-3(a) or AA §6B-2(a) of the Profit Sharing/401(k) Plan Adoption Agreement, as applicable, or as a fixed contribution under AA §6-2(a) of the Money Purchase Plan Adoption Agreement. Alternatively, the Employer may use such forfeitures to pay Plan expenses as authorized under subsection (d). The Employer may elect to use such forfeitures in the Plan Year the forfeiture occurs or in the following Plan Year.

(3)Excess Deferrals, Excess Contributions, and Excess Aggregate Contributions. If a Participant forfeits any portion of his/her Matching Contribution Account as a result of a corrective distribution of Excess Contributions or Excess Aggregate Contributions, as set forth under Section 7.12(d), such amounts will be treated as a forfeiture in the Plan Year in which the Participant receives the distribution of Excess Deferrals, Excess Contributions, and/or Excess Aggregate Contributions. A forfeiture of Matching Contributions under this subsection (3) will be treated in accordance with the selections applicable to Matching Contributions under AA §8-6 of the Profit Sharing/401(k) Plan Adoption Agreement. If no selections are made under AA §8-6 of the Profit Sharing/401(k) Plan Adoption Agreement with respect to Matching Contributions (e.g., because the Matching Contributions are 100% vested), the Employer may elect to reallocate the forfeiture as an additional Matching Contribution or may use the forfeiture to reduce Matching Contributions in the year the forfeiture occurs or in the following Plan Year. Alternatively, the Employer may use such forfeitures to pay Plan expenses as authorized under subsection (d).

(4)Other contributions. If a Participant has any other amounts under the Plan which are treated as forfeited (e.g. a forfeiture for a missing Participant under Section 7.12(c)), such amounts may be forfeited in accordance with the provisions under subsection (1) above.


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SECTION 8 PLAN DISTRIBUTIONS

Subject to the Qualified Joint and Survivor Annuity Requirements under Section 9, a Participant may receive a distribution of his/her vested Account Balance at the time and in the manner provided under this Section 8. Upon reaching the Required Beginning Date (defined in Section 8.12(e)(5)), a Participant must begin receiving distributions under the Plan (in accordance with the provisions of Section 8.12.)

8.01Deferred distributions. A Participant must be permitted to receive a distribution from the Plan no later than the 60th day after the latest of the close of the Plan Year in which:

(a)the Participant attains age 65 (or Normal Retirement Age, if earlier);

(b)occurs the 10th anniversary of the year in which the Participant commenced participation in the Plan; or

(c)the Participant terminates service with the Employer.

A failure by the Participant (and Spouse, if applicable) to consent to a distribution while a benefit is immediately distributable shall be deemed to be an election to defer commencement of payment of any benefit sufficient to satisfy this section. For this purpose, an Account Balance is immediately distributable if any part of the Account Balance could be distributed to the Participant (or surviving Spouse) before the Participant attains or would have attained if not deceased) the later of Normal Retirement Age or age 62.

8.02Available Forms of Distribution. Subject to the Qualified Joint and Survivor Annuity (QJSA) rules described in Section 9, the Employer may elect under AA §9-1 the forms of distribution that are available to a Participant or Beneficiary under the Plan. Different distribution options may apply depending on whether a distribution is made upon termination of employment, death, disability or as an in-service withdrawal. Available distribution options under AA §9-1 may include a lump sum of all or a portion of the Participant’s vested Account Balance, an in-kind distribution of an Annuity Contract, partial lump sums, installments, annuity payments, or any other form designated in AA §9-1. In addition, distribution options may be available as provided under a guaranteed income product to the extent such distribution options are consistent with the requirements of ERISA and other qualification requirements. Any distribution options selected under the Plan must comply with the required minimum distribution rules under Section 8.12.

(a)Installment or annuity forms of distribution. If the Plan provides for installment payments as an optional form of distribution, such payments may be made in monthly, quarterly, semi-annual, or annual payments over a period not exceeding the life expectancy of the Participant and his/her designated Beneficiary. The Plan Administrator may permit a Participant or Beneficiary to accelerate the payment of all, or any portion, of an installment distribution. If the Plan provides for annuity payments, the Plan must purchase an annuity that provides for payments over a period that does not extend beyond either the life of the Participant (or the lives of the Participant and his/her designated Beneficiary) or the life expectancy of the Participant (or the life expectancy of the Participant and his/her designated Beneficiary). The availability of installments and or annuity payments may be restricted under AA §9-1.

Regardless of the distribution options selected under AA §9-1, if the Plan is subject to the Joint and Survivor Annuity requirements (as described in Section 9), the Plan must make distribution in the form of a QJSA (as defined in Section 9.02(a)) unless the Participant (and Spouse, if the Participant is married) elects an alternative distribution form in accordance with a Qualified Election (as defined in Section 9.04).

(b)In-kind distributions. Nothing in this Section 8 precludes the Plan Administrator from making a distribution in the form of property, or other in-kind distribution, in a nondiscriminatory manner. If the Plan invests in Annuity Contracts, Qualifying Employer Securities or Qualifying Employer Real Property, the Plan Administrator may make a distribution in the form of distributed Annuity Contracts, Employer Securities or other property, unless designated otherwise under AA §9-6(e). An in-kind distribution is only available to the extent such investments are held in the Participant’s Account at the time of the distribution. This subsection (b) does not give any Participant the right to request an in-kind distribution if not otherwise authorized by the Plan Administrator.

(c)Distribution options applicable to prior contributions. Subject to the protected benefits rules under Code

§411(d)(6), if the Plan holds Employer Contributions and/or Matching Contributions, but the Plan no longer provides for such contributions, the Plan may continue to apply the distribution options applicable to those contributions as determined under the prior Plan document, unless elected otherwise. The Employer may document any prior distribution options in AA Appendix A or AA §10-3.

8.03Amount Eligible for Distribution. For purposes of determining the amount a Participant or Beneficiary may receive as a distribution from the Plan, a Participant’s Account Balance is determined as of the Valuation Date (as specified in AA §11-1)


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immediately preceding the date the Participant or Beneficiary receives his/her distribution from the Plan. For this purpose, the Account Balance must be increased for any contributions allocated to the Participant’s Account since the most recent Valuation Date and must be reduced for any distributions made from the Participant’s Account since the most recent Valuation Date. A Participant or Beneficiary does not share in any allocation of gains or losses attributable to the period between the most recent Valuation Date and the date of the distribution, unless provided otherwise under uniform funding and valuation procedures established by the Plan Administrator. See Section 10.03.

If a Participant’s vested Account Balance upon termination does not exceed a distribution processing fee that would otherwise be charged to the Participant upon distribution, the Plan may use such amounts to pay the distribution processing fee or may treat the distribution amount as a forfeiture in accordance with the provisions under Section 7.13.

8.04Participant Consent. If the value of a Participant's entire vested Account Balance exceeds the Involuntary Cash-Out threshold (as defined in subsection (a) below), the Participant must consent to any distribution of such Account Balance prior to his/her Required Beginning Date (as defined in Section 8.12(e)(5)) or, if so provided in AA §9-6(d), as of the date the Participant attains (or would have attained if not deceased) the later of Normal Retirement Age or age 62. If a distribution is subject to Participant consent, the Participant must consent in writing to the distribution within the 180-day period ending on the Annuity Starting Date (as defined in Section 1.12). If the distribution is subject to the Qualified Joint and Survivor Annuity requirements under Section 9, the Participant’s Spouse (if the Participant is married at the time of the distribution) also must consent to the distribution in accordance with Section 9.04.

(a)Involuntary Cash-Out threshold. For purposes of determining whether a distribution is subject to the Participant consent requirements as described in Section 8.04, the Involuntary Cash-Out threshold is $5,000 unless a lesser amount is designated under AA §9-6(a). (See Section 8.06 for a discussion of the Automatic Rollover rules that apply if a Participant does not consent to a distribution that does not exceed the Involuntary Cash-Out threshold.)

(b)Rollovers disregarded in determining value of Account Balance for Involuntary Cash-Outs. For purposes of determining whether a Participant’s vested Account Balance exceeds the Involuntary Cash-Out threshold described in subsection (a), the value of the Participant's vested Account Balance shall be determined with regard to that portion of the Account Balance that is attributable to Rollover Contributions (and earnings allocable thereto) within the meaning of Code §§402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16). Alternatively, the Employer may elect in AA

§9-6(c) to exclude Rollover Contributions (and earnings allocable thereto) in determining whether the Participant’s vested Account Balance exceeds the Involuntary Cash-Out threshold.

(c)Participant notice. Prior to receiving a distribution from the Plan, a Participant must be notified of his/her right to defer any distribution from the Plan in accordance with the provisions under Section 8.01. The notification shall include a general description of the material features and the relative values of the optional forms of benefit available under the Plan (consistent with the requirements under Code §417(a)(3)). The Participant notice must include a description of the consequences of a Participant’s decision not to defer the receipt of a distribution. The notice must be provided no less than 30 days and no more than 180 days prior to the Participant’s Annuity Starting Date. However, distribution may commence less than 30 days after the notice is given, if the Participant is clearly informed of his/her right to take 30 days after receiving the notice to decide whether or not to elect a distribution (and, if applicable, a particular distribution option), and the Participant, after receiving the notice, affirmatively elects to receive the distribution prior to the expiration of the 30-day minimum period. (But see Section 9.02 for the rules regarding the timing of distributions when the Qualified Joint and Survivor Annuity requirements apply.) The notice requirements described in this paragraph may be satisfied by providing a summary of the required information, so long as the conditions described in applicable regulations for the provision of such a summary are satisfied, and the full notice is also provided (without regard to the 180-day period described in this subsection).

(d)Special rules. The consent rules under this Section 8.04 apply to distributions made after the Participant’s termination of employment and to distributions made prior to the Participant’s termination of employment. However, the consent of the Participant (and the Participant’s Spouse, if applicable) shall not be required to the extent that a distribution is required to satisfy the required minimum distribution rules under Section 8.12 or to satisfy the requirements of Code

§415, as described in Section 5.03. A Participant also will not be required to consent to a corrective distribution of Excess Deferrals, Excess Contributions or Excess Aggregate Contributions.

8.05Direct Rollovers. Notwithstanding any provision in the Plan to the contrary, a Participant may elect, at the time and the manner prescribed by the Plan Administrator, to have all or any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan in a Direct Rollover. The Plan Administrator may decide whether or not to provide a partial Direct Rollover if the Eligible Rollover Distribution is less than $500. For purposes of this Section 8.05, a Participant includes a Participant or former Participant. In addition, this Section applies to any distribution from the Plan made to a Participant’s surviving Spouse or to a Participant’s Spouse or former Spouse who is the Alternate Payee under a QDRO, as defined in Section 11.06(b)(3). This Section 8.05 also applies to distributions made to a Participant’s non-Spouse beneficiary, as set forth in subsection (c) below.


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(a)Definitions.

(1)Eligible Rollover Distribution. An Eligible Rollover Distribution is any distribution of all or any portion of a Participant’s Account Balance, except an Eligible Rollover Distribution does not include:

(i)any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Participant or the joint lives (or joint life expectancies) of the Participant and the Participant’s Beneficiary, or for a specified period of ten years or more;

(ii)any distribution to the extent such distribution is a required minimum distribution under Code

§401(a)(9), as described under Section 8.12;

(iii)any Hardship distribution, as described in Section 8.10(e);

(iv)the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities);

(v)any distribution if it is reasonably expected (at the time of the distribution) that the total amount the Participant will receive as a distribution during the calendar year will total less than $200; or

(vi)a distribution made to satisfy the requirements of Code §415 (as described in Section 5.03) or a distribution to correct Excess Deferrals, Excess Contributions or Excess Aggregate Contributions (as described in Sections 5.02(b), 6.01(b)(2), and 6.02(b)(2)).

(2)Eligible Retirement Plan. For purposes of applying the Direct Rollover provisions under this Section 8.05, an Eligible Retirement Plan is:

(i)a qualified plan described in Code §401(a);

(ii)an individual retirement account described in Code §408(a);

(iii)an individual retirement annuity described in Code §408(b);

(iv)an annuity plan described in Code §403(a);

(v)an annuity contract described in Code §403(b);

(vi)an eligible plan under Code §457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan; or

(vii)for rollovers made on or after December 31, 2015, a SIMPLE IRA described in Code §408(p). However, the following restrictions apply: (1) the provision does not allow SIMPLE IRAs to accept rollovers from designated Roth accounts, and (2) the change applies only to rollovers made after the two-year period beginning on the date the Participant first participated in their employer’s SIMPLE IRA plan,

The definition of Eligible Retirement Plan also applies in the case of a distribution to a surviving Spouse, or to a Spouse or former Spouse who is the Alternate Payee under a QDRO, as defined in Section 11.06(b)(3).

To the extent any portion of an Eligible Rollover Distribution is attributable to Roth Deferrals (as defined in Section 3.03(e)), an Eligible Retirement Plan with respect to such portion of the distribution shall include only another designated Roth account of the Participant or a Roth IRA. To the extent any portion of an Eligible Rollover Distribution is attributable to After-Tax Employee Contributions, an Eligible Retirement Plan with respect to such portion of the distribution shall include only an individual retirement account or annuity described in Code §408(a) or (b) or a qualified Defined Contribution Plan described in Code §401(a) or §403(a) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not includible in gross income.


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(3)Direct Rollover. A Direct Rollover is a payment made directly from the Plan to the Eligible Retirement Plan specified by the Participant. The Employer may develop reasonable procedures for accommodating Direct Rollover requests.

(b)Direct Rollover notice. A Participant entitled to an Eligible Rollover Distribution must receive a written explanation of his/her right to a Direct Rollover, the tax consequences of not making a Direct Rollover, and, if applicable, any available special income tax elections. The notice must be provided within 30 – 180 days prior to the Participant’s Annuity Starting Date, in the same manner as described in Section 8.04(c). The Direct Rollover notice must be provided to all Participants, unless the total amount the Participant will receive as a distribution during the calendar year is expected to be less than $200.

If a Participant terminates employment and is eligible for a distribution which is not subject to Participant consent, and the Participant does not respond to the Direct Rollover notice indicating whether a Direct Rollover is desired and the name of the Eligible Retirement Plan to which the Direct Rollover is to be made, the Plan Administrator may distribute the Participant’s entire vested Account Balance in the form of an Automatic Rollover (pursuant to Section 8.06). (However, see Section 8.06(b) for special rules that apply to Involuntary Cash-Out Distributions below $1,000.) If a distribution would qualify for Automatic Rollover, the Direct Rollover notice must describe the procedures for making an Automatic Rollover, including the name, address, and telephone number of the IRA trustee and information regarding IRA maintenance and withdrawal fees and how the IRA funds will be invested. The Direct Rollover notice also must describe the timing of the Automatic Rollover and the Participant's ability to affirmatively opt out of the Automatic Rollover.

(c)Direct Rollover by non-Spouse beneficiary. The Plan must permit a non-Spouse beneficiary (as defined in Code

§401(a)(9)(E)) to make a direct rollover of an eligible rollover distribution to an individual retirement account under Code §408(a) or an individual retirement annuity under Code §408(b) that is established on behalf of the designated Beneficiary and that will be treated as an inherited IRA pursuant to the provisions of Code §402(c)(11). A non-Spouse rollover will be subject to the direct rollover requirements under Code §401(a)(31), the rollover notice requirements under Code §402(f) or the mandatory withholding requirements under Code §3405(c).

(d)Direct Rollover of non-taxable amounts. Notwithstanding any other provision of the Plan, an Eligible Rollover Distribution may include the portion of any distribution that is not includible in gross income. For this purpose, an Eligible Retirement Plan includes a Defined Contribution or Defined Benefit Plan qualified under Code §401(a) and a tax-sheltered annuity plan under Code §403(b), provided the rollover is accomplished through a direct rollover and the recipient Eligible Retirement Plan separately accounts for any amounts attributable to the rollover of any nontaxable distribution and earnings thereon.

(e)Rollovers to Roth IRA. A Participant or beneficiary (including a non-spousal beneficiary to the extent permitted under subsection (c) above), may rollover an Eligible Rollover Distribution (as defined in subsection (a)(1)) to a Roth IRA, provided the Participant (or beneficiary) satisfies the requirements for making a Roth contribution under Code

§408A(c)(3)(B). Any amounts rolled over to a Roth IRA will be included in gross income to the extent such amounts would have been included in gross income if not rolled over (as required under Code §408A(d)(3)(A)). For purposes of this subsection (e), the Plan Administrator is not responsible for assuring the Participant (or beneficiary) is eligible to make a rollover to a Roth IRA.

8.06Automatic Rollover. The Automatic Rollover rules in this Section 8.06 are effective for all Involuntary Cash-Out Distributions (as defined in subsection (b). See Section 14.03(b)(4) for special rules that apply upon termination of the Plan. For purposes of applying the Automatic Rollover provisions under this Section 8.06, a Participant’s Roth Deferral Account and the Participant’s other Accounts are treated as accounts held under separate plans. (See Treas. Reg. §1.401(k)-1(f)(4)(ii).)

(a)Automatic Rollover requirements. If a Participant is entitled to an Involuntary Cash-Out Distribution (as defined in subsection (b) below), and the Participant does not elect to receive a distribution of such amount (either as a Direct Rollover to an Eligible Retirement Plan or as a direct distribution to the Participant), then the Plan Administrator may pay the distribution in a Direct Rollover to an individual retirement plan (IRA) designated by the Plan Administrator. (The Automatic Rollover provisions under this subsection (a) apply to any Involuntary Cash-Out Distribution for which the Participant fails to consent to a distribution, without regard to whether the Participant can be located. See Section 7.12(c) for alternatives if the Participant cannot be located after a reasonable diligent search.)


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(b)Involuntary Cash-Out Distribution. An Involuntary Cash-Out Distribution is any distribution that is made from the Plan without the Participant’s consent. Unless elected otherwise under AA §9-6(b), an Involuntary Cash-Out Distribution, for purposes of applying the Automatic Rollover requirements under this Section 8.06, does not include any amounts below $1,000. To the extent elected under AA §9-6(d), an Involuntary Cash-Out Distribution also includes a distribution that may be made without Participant consent upon attainment of age 62 or Normal Retirement Age. (See Section 8.04 for the Participant consent requirements with respect to distributions under the Plan.) The Plan Administrator may decide whether or not to provide for an Automatic Rollover for a distribution if it is reasonably expected (at the time of the distribution) that the total amount the Participant will receive as a distribution during the calendar year will total less than $200.

(c)Treatment of Rollover Contributions. Unless elected otherwise under AA §9-6(c), for purposes of determining whether a mandatory distribution is greater than $1,000, the portion of the Participant’s distribution attributable to any Rollover Contribution is included.

8.07Distribution Upon Termination of Employment. Subject to the required minimum distribution provisions under Section 8.12, a Participant who terminates employment for any reason (other than death) is entitled to receive a distribution of his/her vested Account Balance in accordance with this Section 8.07. (See Section 8.08 for the applicable rules when a Participant dies before distribution of his/her vested Account Balance is completed.)

(a)Account Balance not exceeding $5,000. If a Participant’s vested Account Balance does not exceed $5,000 at the time of distribution, the only distribution option available under the Plan is a lump sum option. The Participant will be eligible to receive a distribution of his/her vested Account Balance as of the date selected in AA §9-3(b). (The Employer may elect in AA §9-6(a) to require a Participant to consent to a distribution where his/her vested Account Balance does not exceed an amount below $5,000. However this will not change the distribution options described in this subsection (a), unless the Employer specifically modifies such options under AA §9-3(b)(5). See Section 8.04 for a further discussion of the consent requirements under the Plan.)

(b)Account Balance exceeding $5,000. If a Participant’s vested Account Balance exceeds $5,000 at the time of distribution, the Participant may elect to receive a distribution of his/her vested Account Balance in any form permitted under AA §9-1. The Participant will be eligible to receive a distribution of his/her vested Account Balance as of the date selected in AA §9-3. (See Section 8.04 for a discussion of the consent requirements under the Plan.) Distributions to Employees may be accelerated upon special circumstances, such as termination after attainment of Normal Retirement Age or other special circumstances, provided such acceleration does not cause the Plan to violate the nondiscrimination rules under Code §401(a)(4) and the regulations thereunder.

8.08Distribution Upon Death. Subject to the Required Minimum Distribution rules in Section 8.12, a Participant’s vested Account Balance will be distributed to the Participant’s Beneficiary(ies) in accordance with this Section 8.08. (See subsection (c) for rules regarding the determination of Beneficiaries upon the death of the Participant.) The form of benefit payable with respect to a deceased Participant will depend on whether the Participant dies before or after distribution of his/her Account Balance has commenced.

(a)Death after commencement of benefits. If a Participant begins receiving a distribution of his/her benefits under the Plan, and subsequently dies prior to receiving the full value of his/her vested Account Balance, the remaining benefit will continue to be paid to the Participant’s Beneficiary(ies) in accordance with the form of payment that has already commenced. If a Participant commences distribution prior to death only with respect to a portion of his/her Account Balance, then the rules in subsection (b) apply to the rest of the Account Balance.

(b)Death before commencement of benefits. If a Participant dies before commencing distribution of his/her benefits under the Plan, the form and timing of any death benefits will depend on whether the value of the death benefit exceeds

$5,000. In determining whether the value of the death benefit exceeds $5,000, if there is both a QPSA death benefit and a non-QPSA death benefit, each death benefit is valued separately to determine whether it exceeds $5,000.

(1)Death benefit not exceeding $5,000. If the value of the death benefit does not exceed $5,000, such benefit will be paid to the Participant’s Beneficiary(ies) in a single sum as soon as administratively feasible following the Participant’s death.

(2)Death benefit exceeding $5,000. If the value of the death benefit exceeds $5,000, the payment of the death benefit will depend on whether the Qualified Joint and Survivor Annuity requirements apply. See Section 9 to determine whether the Qualified Joint and Survivor Annuity rules apply to a death distribution from the Plan.

(i)If the Qualified Joint and Survivor Annuity requirements do not apply, the entire death benefit is payable in the form and at the time described in subsection (ii)(B).


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(ii)If the Qualified Joint and Survivor Annuity requirements apply, the death benefit may consist of a QPSA death benefit (as described in Section 9.03(a)) and, if applicable, a non-QPSA death benefit.

(A)QPSA death benefit. Subject to the waiver procedures under Section 9.04(b), if the Participant is married at the time of death, the surviving Spouse is entitled to a QPSA death benefit payable in accordance with the provisions under Section 9.03. (See Section 9.04(c) for rules regarding the determination of a Participant’s marital status.)

(B)Non-QPSA death benefits. If a Participant is not married at the time of death, the QPSA death benefit was waived under a Qualified Election, or if the QPSA death benefit is less than 100% of the Participant’s vested Account Balance, then the non-QPSA death benefit is payable in the form and at the time described in this subsection (B). Any death benefit payable under this subsection (B) will be paid in a lump sum as soon as administratively feasible following the Participant’s death. However, the death benefit may be payable in a different form if prescribed by the Participant’s Beneficiary designation, or the Beneficiary, before a lump sum payment of the benefit is made, elects to receive the distribution in an alternative form of benefit permitted under Section 8.02.

In no event will any death benefit be paid in a manner that is inconsistent with the Required Minimum Distribution rules under Section 8.12. The Beneficiary of any pre-retirement death benefit described in this subsection (b) may postpone the commencement of the death benefit to a date that is not later than the latest commencement date permitted under Section 8.12. The provisions of this Section 8.08(b) do not apply to a Beneficiary who is entitled to benefits under the Plan after a Particpant’s death and the Plan Administrator may pay out such benefits in such time and manner as determined by the Plan Administrator.

(c)Determining a Participant’s Beneficiary. The determination of a Participant’s Beneficiary(ies) to receive any death benefits under the Plan will be based on the Participant’s (or Beneficiary’s, if applicable) Beneficiary designation under the Plan. If a Participant (or Beneficiary, if applicable) does not designate a Beneficiary to receive the death benefits under the Plan, distribution will be made to the default Beneficiaries, as set forth in subsection (3) below. However, any designation of a Beneficiary other than the Participant’s Spouse, must satisfy the consent requirements under subsection (2)(i) and (ii) below.

(1)Post-retirement death benefit. If a Participant dies after commencing distribution of benefits under the Plan (but prior to receiving a distribution of his/her entire vested Account Balance under the Plan), the Beneficiary of any post-retirement death benefit is determined in accordance with the Beneficiary selected under the distribution option in effect prior to death.

(2)Pre-retirement death benefit. If a Participant dies before commencing distribution of his/her benefits under the Plan, the determination of the Participant’s Beneficiary will be determined at the time of death under subsection (i) or (ii), as applicable.

(i)If the Qualified Joint and Survivor Annuity requirements apply, the QPSA death benefit will be payable in accordance with Section 9.02. If a QPSA death benefit is payable under Section 9.02, such benefit will be paid to the Participant’s surviving Spouse, unless:

(A)there is no surviving Spouse (determined under applicable law at the time of the Participant’s death);

(B)the surviving Spouse has consented to the designation of an alternate Beneficiary(ies) under a Qualified Election (as defined in Section 9.04); or

(C)the surviving Spouse makes a valid disclaimer of the death benefit.

If the Qualified Joint and Survivor Annuity requirements apply, the Spouse is determined as of the Annuity Starting Date for purposes of determining whether a valid election has been made to waive the post-retirement death benefit. If the Qualified Joint and Survivor Annuity requirements do not apply, the Spouse is determined as of the Participant’s date of death for purposes of determining whether a valid election has been made to waive the post-retirement death benefit.

If the QPSA death benefit applies to less than 100% of the Participant’s vested Account Balance, the remaining death benefit is payable to any Beneficiary(ies) named in the Participant’s Beneficiary designation, without regard to whether spousal consent is obtained for such designation. If a Spouse does not properly consent to a Beneficiary designation, the QPSA waiver is invalid and the QPSA


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death benefit is still payable to the Spouse, but the Beneficiary designation remains valid with respect to any non-QPSA death benefit.

(ii)If the Qualified Joint and Survivor Annuity requirements do not apply, the surviving Spouse (determined under applicable law at the time of the Participant’s death) will be treated as the sole Beneficiary, regardless of any contrary Beneficiary designation, unless there is no surviving Spouse, the Participant has been deemed to not have a Spouse as provided for under Section 9.04(c)(1) or the Spouse has consented to the Beneficiary designation in a manner that is consistent with the requirements for a Qualified Election under Section 9.04 or the Spouse makes a valid disclaimer.

(3)Default beneficiaries. To the extent a Beneficiary has not been named by the Participant (subject to the spousal consent rules discussed above) and is not designated under the terms of the Investment Arrangement(s), this Plan or the Adoption Agreement to receive all or any portion of the deceased Participant’s death benefit, such amount shall be distributed to the Participant’s surviving Spouse (if the Participant was married at the time of death) who shall be considered the designated Beneficiary. If a Participant is legally divorced, the former Spouse is not considered the default Beneficiary. If the Participant does not have a surviving Spouse at the time of death, distribution will be made to the Participant’s surviving children (including legally adopted children, but not including step-children), as designated Beneficiaries, in equal shares. If the Participant has no surviving children, distribution will be made to the Participant’s estate. The Employer may modify the default beneficiary rules described in this subparagraph under AA §9-5(a).

(4)Identification of Beneficiaries. The Plan Administrator may request proof of the Participant’s death and may require the Beneficiary to provide evidence of his/her right to receive a distribution from the Plan in any form or manner the Plan Administrator may deem appropriate. The Plan Administrator’s determination of the Participant’s death and of the right of a Beneficiary to receive payment under the Plan shall be conclusive. If a distribution is to be made to a minor or incompetent Beneficiary, payments may be made to the person’s legal guardian, conservator recognized under state law, or custodian in accordance with the Uniform Gifts to Minors Act or similar law as permitted under the laws of the state where the Beneficiary resides. The Plan Administrator or Trustee will not be liable for any payments made in accordance with this subsection (4) and will not be required to make any inquiries with respect to the competence of any person entitled to benefits under the Plan.

(5)Death of Beneficiary. Unless specified otherwise in the Participant’s (or Beneficiary’s, if applicable) Beneficiary designation form or under AA §9-5(a), if a Beneficiary does not predecease the Participant but dies before distribution of the death benefit is made to the Beneficiary, the death benefit will be paid to the Beneficiary’s estate. If the Participant and the Participant’s Beneficiary die simultaneously, and the Participant’s Beneficiary designation form does not address simultaneous death, the determination of the death beneficiary will be determined under any state simultaneous death laws, to the extent applicable. If no applicable state law applies, the death benefit will be paid to any contingent beneficiaries named under the Participant’s beneficiary designation. If there are no contingent beneficiaries, the death benefit will be paid to the Participant’s default beneficiaries, as described in subsection (3).

(6)Divorce from Spouse. Except as otherwise provided in an Investment Arrangement, and unless designated otherwise under AA §9-5(c), if a Participant designates his/her Spouse as Beneficiary and subsequent to such Beneficiary designation, the Participant and Spouse are divorced, the designation of the Spouse as Beneficiary under the Plan is automatically rescinded unless specifically provided otherwise under a divorce decree or QDRO, or unless the Participant enters into a new Beneficiary designation naming the prior Spouse as Beneficiary. In addition, the provisions under this subsection (6) will not apply if the Participant has entered into a Beneficiary designation that specifically overrides the provisions of this subsection (6).

(d)Slayer Rule. Notwithstanding anything to the contrary in the Plan, if the Plan Administrator receives notice prior to distribution of a Participant’s vested Account that an individual is responsible for the death of such Participant, then no payment of benefits with respect to such Participant will be made under any provision of the Plan to such individual. An individual will be treated as being responsible for the death of a Participant for purposes of the foregoing sentence only if, by virtue of such individual’s involvement in the death of the Participant, such individual’s entitlement to any interest in assets of the deceased could be denied (whether or not there is in fact any such entitlement) under any applicable state law, including, without limitation, laws governing intestate succession, wills, jointly-owned property, bonds, and life insurance. For purposes of the Plan, any such responsible individual will be deemed to have predeceased the Participant. The Plan Administrator shall withhold distribution of benefits otherwise payable under the Plan for such period of time as is necessary or appropriate under the circumstances to make a determination with regard to the application of this section.


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8.09Distribution to Disabled Employees. Unless elected otherwise under AA §9-4, no special distribution rules apply to Disabled Employees. However, the Employer may elect in AA §9-4 to permit a distribution at an earlier date for Disabled Employees.

8.10In-Service Distributions. The Employer may elect under AA §10 to permit in-service distributions under the Plan. A Participant may withdraw all or any portion of his/her vested Account Balance (including through installments), to the extent designated, upon the occurrence of any of the event(s) selected under AA §10-1. Except to the extent provided under subsection (a) below, if an in-service distribution is not specifically permitted under AA §10, a Participant may not receive a distribution from the Plan until termination of employment, death or disability. If the Plan permits a Participant to receive an in-service distribution, and such distribution is subject to the Qualified Joint and Survivor Annuity requirements under Section 9, such distribution may be made only if the Participant’s Spouse (if the Participant is married at the time of distribution)

consents to such distribution in accordance with the requirements under Section 9.04. If the Plan holds contribution sources that are no longer permitted, the in-service distribution options that applied with respect to such contribution sources under the prior plan document continue to apply under this Plan. The Employer may document any in-service distribution options for such prior contribution sources under AA §A-12 of the Profit Sharing/401(k) Plan Adoption Agreement or AA §A-8 of the Money Purchase Plan Adoption Agreement.

(a)After-Tax Employee Contributions and Rollover Contributions. Unless designated otherwise under AA §10-2, a Participant may withdraw at any time, upon written request, all or any portion of his/her Account Balance attributable to After-Tax Employee Contributions or Rollover Contributions. Any amounts transferred to the Plan pursuant to a Qualified Transfer also may be withdrawn at any time pursuant to a written request, as set forth under Section 14.05(d). No forfeiture will occur solely as a result of an Employee’s withdrawal of After-Tax Employee Contributions. (See Section 14.05 for a discussion of the distribution rules applicable to transferred Plan assets.)

(b)Employer Contributions and Matching Contributions. The Employer may elect under AA §10 the extent to which in-service distributions will be permitted from Employer Contributions and Matching Contributions under the Plan. (See subsection (c) below for the in-service distribution rules applicable to Salary Deferrals, QNECs, QMACs and Traditional Safe Harbor/QACA Safe Harbor Contributions under a Profit Sharing/401(k) Plan.) If permitted under AA

§10 of the Profit Sharing/401(k) Plan Adoption Agreement, Employer Contributions may be withdrawn upon the occurrence of a specified event (such as attainment of a designated age or the occurrence of a Hardship, as defined in subsection (e) below). In addition, a Participant may withdraw his/her Employer and/or Matching Contributions upon the completion of a certain number of years, provided no distribution solely on account of years may be made with respect to Employer Contributions that have been accumulated in the Plan for less than 2 years, unless the Participant has been a Participant in the Plan for at least 5 years. (See Section 7.11 for special vesting rules that apply if a Participant takes an in-service distribution prior to becoming 100% vested in such contributions.)

If the Plan is a pension plan (e.g., a money purchase plan or if the Plan holds transferred assets from a money purchase plan), a Participant may not receive an in-service distribution of his/her vested Account Balance prior to the earlier of the attainment of Normal Retirement Age or age 62 (to the extent permitted under AA §10-1 or AA §10-2).

(c)Salary Deferrals, QNECs, QMACs, and Traditional Safe Harbor/QACA Safe Harbor Contributions. If the Employer has adopted the Profit Sharing/401(k) Plan Adoption Agreement, any Salary Deferrals, QNECs, QMACs, or Traditional Safe Harbor/QACA Safe Harbor Contributions (including any earnings on such amounts) generally may not be distributed prior to the Participant's severance from employment, death, or disability. However, the Employer may elect under AA §10 to permit an in-service distribution of such amounts upon attainment of a specified age (no earlier than age 59½) or upon a Hardship (as defined in subsection (e)). A Hardship distribution is not available with respect to QNECs, QMACs, or Traditional Safe Harbor/QACA Safe Harbor Contributions.

If Normal Retirement Age or Early Retirement Age is earlier than age 59½ and an in-service distribution is permitted upon attainment of Normal Retirement Age or Early Retirement Age from Salary Deferrals, QNECs, QMACs, or Traditional Safe Harbor/QACA Safe Harbor Contributions, the Normal Retirement Age and/or Early Retirement Age will be deemed to be age 59½ for purposes of determining eligibility to distribute Salary Deferrals, QNECs, QMACs, or Traditional Safe Harbor/QACA Safe Harbor Contributions.

(d)Penalty-free withdrawals for individuals called to active duty. The distribution provisions applicable to Salary Deferrals include a Qualified Reservist Distribution, as defined in subsection (1) below. If a Participant takes a Qualified Reservist Distribution, such distributions will not be subject to the 10% penalty tax under Code §72(t). A Qualified Reservist Distribution is only available if permitted under AA §10-1.

(1)Qualified Reservist Distribution. For purposes of this subsection (d), a Qualified Reservist Distribution means any distribution to an individual if:

(i)such distribution is from amounts attributable to elective deferrals described in Code §402(g)(3)(A) or (C) or Code §501(c)(18)(D)(iii);


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(ii)such individual was (by reason of being a member of a reserve component (as defined in §101 of Title 37 of the United States Code)) ordered or called to active duty for a period in excess of 179 days or for an indefinite period; and

(iii)such distribution is made during the period beginning on the date of such order or call and ending at the close of the active duty period.

(2)Active duty. A Qualified Reservist Distribution will only be available for individuals who are ordered or called into active duty after September 11, 2001.

(e)Hardship distribution. The Employer may elect under AA §10-1 or AA §10-2 of the Profit Sharing/401(k) Plan Adoption Agreement to authorize an in-service distribution upon the occurrence of a Hardship event. The Employer may elect to apply the safe harbor Hardship rules under subsection (1) or the non-safe harbor Hardship provisions under subsection (2) below. A Hardship distribution is not available for QNECs, QMACs or Traditional Safe Harbor/QACA Safe Harbor Contributions.

(1)Safe harbor Hardship distribution. To qualify for a safe harbor Hardship, a Participant must demonstrate an immediate and heavy financial need, as described in subsection (i) below, and the distribution must be necessary to satisfy such need, as described in subsection (ii) below.

(i)Immediate and heavy financial need. To be considered an immediate and heavy financial need, the Hardship distribution must be made to satisfy one of the following financial needs:

(A)to pay expenses incurred or necessary for medical care (as described in Code §213(d)) of the Participant, the Participant’s Spouse or dependents (determined without regard to whether the expenses exceed 7.5% of adjusted gross income);

(B)for the purchase (excluding mortgage payments) of a principal residence for the Participant;

(C)for payment of tuition and related educational fees (including room and board) for the next 12 months of post-secondary education for the Participant, the Participant’s Spouse, children or dependents;

(D)to prevent the eviction of the Participant from, or a foreclosure on the mortgage of, the Participant’s principal residence;

(E)to pay funeral or burial expenses for the Participant's deceased parent, Spouse, child or dependent;

(F)to pay expenses to repair damage to the Participant's principal residence that would qualify for a casualty loss deduction under Code §165 (determined without regard to whether the loss exceeds the 10% of adjusted gross income limit); or

(G)for any other event that the IRS recognizes as a safe harbor Hardship distribution event under ruling, notice or other guidance of general applicability.

For purposes of determining eligibility of a Hardship distribution under this subsection (i), a dependent is determined under Code §152. However, the determination of dependent for purposes of tuition and education fees under subsection (C) above will be made without regard to Code §152(b)(1), (b)(2), and (d)(1)(B) and the determination of dependent for purposes of funeral or burial expenses under subsection (E) above will be made without regard to Code §152(d)(1)(B).

A Participant must provide the Plan Administrator with a written request for a Hardship distribution. The Plan Administrator may require written documentation, as it deems necessary, to sufficiently document the existence of a proper Hardship event.

(ii)Distribution necessary to satisfy need. A distribution will be considered as necessary to satisfy an immediate and heavy financial need of the Participant if:

(A)The distribution is not in excess of the amount of the immediate and heavy financial need (including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution);


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(B)The Participant has obtained all available distributions, other than Hardship distributions, and all nontaxable loans under the Plan and all plans maintained by the Employer; and

(C)The Participant is suspended from making Salary Deferrals (and After-Tax Employee Contributions) for at least 6 months after the receipt of the Hardship distribution.

(2)Non-safe harbor Hardship distribution. The Employer may elect in the Profit Sharing/401(k) Plan Adoption Agreement to permit Participants to take a Hardship distribution without satisfying the requirements of subsection (1) above. A non-safe harbor Hardship distribution is not available for QNECs, QMACs, or Traditional Safe Harbor/QACA Safe Harbor Contributions.

(i)Immediate and heavy financial need. For purposes of determining whether a Hardship exists under this subsection (2), the same Hardship distribution events described in subsection (1)(i) above will qualify as a Hardship distribution event under this subsection (2). The Employer may modify the permissible Hardship distribution events under AA §10-3(f) of the Profit Sharing/401(k) Plan Adoption Agreement.

(ii)Distribution necessary to satisfy need. A Hardship distribution under this subsection (2) need not satisfy the requirements under subsection (1)(ii) above. Instead, all relevant facts and circumstances are considered to determine whether the Employee has other resources reasonably available to relieve or satisfy the need. For this purpose, resources include assets of the Employee's Spouse and minor children that are reasonably available to the Employee. In addition, the amount withdrawn for hardship may include amounts necessary to pay federal, state or local income taxes, or penalties reasonably anticipated to result from the distribution.

The Plan Administrator may rely upon the Employee's written representation that the need cannot be reasonably relieved through the following sources:

(A)Reimbursement or compensation by insurance;

(B)Liquidation of the Employee's assets;

(C)Cessation of Salary Deferrals or After-Tax Employee Contributions under the Plan;

(D)Other currently available distributions or nontaxable loans from the Plan or any other plan maintained by the Employer (or any other employer); or

(E)Borrowing from commercial sources on reasonable commercial terms in an amount sufficient to satisfy the need.

The Employer or Plan Administrator may not rely upon the written representation under this subsection

(ii) if it has actual knowledge to the contrary.

(3)Amount available for Hardship distribution. A Participant may receive a Hardship distribution of any portion of his/her vested Employer Contribution Account or Matching Contribution Account (including earnings thereon), as permitted under AA §10. A Participant may receive a Hardship distribution of Salary Deferrals provided such distribution, when added to other Hardship distributions from Salary Deferrals, does not exceed the total Salary Deferrals the Participant has made to the Plan (increased by income allocable to such Salary Deferrals as of the later of December 31, 1988 or the end of the last Plan Year ending before July 1, 1989).

(4)Availability to terminated Employees. If a Hardship distribution is permitted under AA §10-1 or AA §10-2, a Participant may take such a Hardship distribution after termination of employment to the extent no other distribution is available from the Plan.

(5)Application of Hardship distributions rules with respect to primary beneficiaries. If elected under AA

§10-3(e) of the Profit Sharing/401(k) Plan Adoption Agreement, if the Plan otherwise permits Hardship distributions based on the safe harbor hardship provisions under subsection (1) above, the existence of an immediate and heavy financial need under subsection (1)(i) above may be determined with respect to a primary beneficiary under the Plan. For this purpose, a primary beneficiary is an individual who is named as a beneficiary under the Plan and has an unconditional right to all or a portion of a Participant’s Account Balance upon the death of the Participant. Hardship distributions with respect to primary beneficiaries under this


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subsection (5) are limited to Hardship distributions on account of medical expenses, educational expenses and funeral expenses (as described in subsections (1)(i)(A), (1)(i)(C) and (1)(i)(E), above)). Any Hardship distribution with respect to a primary beneficiary must satisfy all the other requirements applicable to Hardship distributions under subsection (e).

8.11Sources of Distribution. Except as otherwise provided in the Investment Arrangement, and unless provided otherwise in separate administrative provisions adopted by the Plan Administrator, in applying the distribution provisions under this Section 8, distributions will be made on a pro rata basis from all Accounts from which a distribution is permitted. Alternatively, the Plan Administrator may permit Participants to direct the Plan Administrator as to which Account the distribution is to be made. Regardless of a Participant’s direction as to the source of any distribution, the tax effect of such a distribution will be governed by Code §72 and the regulations thereunder.

(a)Exception for Hardship withdrawals. If the Plan permits a Hardship withdrawal from both Salary Deferrals (including Roth Deferrals) and Employer Contributions, a Hardship distribution will first be treated as having been made from a Participant’s Employer Contribution Account and then from the Employer’s Matching Contribution Account, to the extent such Hardship distribution is available with respect to such Accounts. Only when all available amounts have been exhausted under the Participant’s Employer Contribution Account and/or Matching Contribution Account will a Hardship distribution be made from a Participant’s Pre-Tax Salary Deferral Account and/or Roth Deferral Account. (See subsection (b) below for the ordering rules for distributions from the Pre-Tax Salary Deferral and Roth Deferral Accounts.) The Plan Administrator may modify the ordering rules under this subsection (a) or under separate administrative procedures.

(b)Roth Deferrals. If a Participant has both a Pre-Tax Salary Deferral Account and a Roth Deferral Account, withdrawals and loans from such Accounts will be made in accordance with this subsection (b).

(1)Distributions and withdrawals. Unless designated otherwise under AA §6A-5 of the Profit Sharing/401(k) Plan Adoption Agreement or separate administrative procedures, if a Participant has both a Pre-Tax Salary Deferral Account and a Roth Deferral Account, the Participant may designate the extent to which a distribution or withdrawal of Salary Deferrals will come from the Pre-Tax Salary Deferral Account or the Roth Deferral Account. Alternatively, the Employer may provide under AA §6A-5 (or under separate administrative procedures) that any distribution or withdrawal of Salary Deferrals will be made on a pro rata basis from the Pre-Tax Salary Deferral Account and the Roth Deferral Account. Alternatively, the Employer may designate any other order of distribution and withdrawals under AA §6A-5 or separate administrative procedures.

(2)Distribution of Excess Deferrals, Excess Contributions or Excess Aggregate Contributions. Unless designated otherwise under AA §6A-5 of the Profit Sharing/401(k) Plan Adoption Agreement or separate administrative procedures, if a Participant has both a Pre-Tax Salary Deferral Account and a Roth Deferral Account, and the Plan is required to make a corrective distribution of Excess Deferrals or Excess Contributions to such Participant (in accordance with Section 5.02(b) or Section 6.01(b)(2)) or is required to make a distribution of Salary Deferrals as a correction of Excess Aggregate Contributions (in accordance with Section 6.02(b)(2)), the Participant may designate whether the Plan will make such corrective distribution of Excess Deferrals or Excess Contributions from the Pre-Tax Salary Deferral Account or the Roth Deferral Account. Alternatively, the Employer may elect under AA §6A-5 of the Profit Sharing/401(k) Plan Adoption Agreement (or under separate administrative procedures) that corrective distributions of Salary Deferrals to correct Excess Deferrals, Excess Contributions, or Excess Aggregate Contributions will be made pro rata from the Pre-Tax Salary Deferral Account and Roth Deferral Account or first from the Pre-Tax Salary Deferral Account or first from the Roth Deferral Account.

Unless designated otherwise under separate administrative procedures, if a Participant is permitted to designate the extent to which a corrective distribution is made from the Pre-Tax Salary Deferral Account or the Roth Deferral Account, and the Participant fails to designate the appropriate Account by the date the corrective distribution is made from the Plan, such corrective distribution may be withdrawn equally from both the Pre- Tax Salary Deferral Account and the Roth Deferral Account or the Employer may withdraw such amounts first from either the Pre-Tax Salary Deferral Account or the Roth Deferral Account.

8.12Required Minimum Distributions. A Participant’s entire interest under the Plan will be distributed, or begin to be distributed, to the Participant no later than the Participant's Required Beginning Date (as defined in subsection (e)(5) below). All distributions required under this Section 8.12 will be determined and made in accordance with the regulations under Code

§401(a)(9) and the minimum distribution incidental benefit requirement of Code §401(a)(9)(G).

(a)Period of distribution. For purposes of applying the required minimum distribution rules under this Section 8.12, any distribution made in a form other than a lump sum must be made over one of the following periods (or a combination thereof):


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(1)the life of the Participant;

(2)the life of the Participant and a Designated Beneficiary;

(3)a period certain not extending beyond the life expectancy of the Participant; or

(4)a period certain not extending beyond the joint and last survivor life expectancy of the Participant and a Designated Beneficiary.

(b)Death of Participant before required distributions begin. If the Participant dies before required distributions begin, the Participant's entire interest will be distributed, or begin to be distributed, no later than as follows:

(1)Surviving Spouse is sole Designated Beneficiary. Unless designated otherwise under AA §10-4, if the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary, the surviving Spouse may elect to take distributions under the 5-year rule (as described in subsection (f)(1) below) or under the life expectancy method. If the life expectancy method applies, distributions to the surviving Spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70-1/2, if later.

(2)Surviving Spouse is not the sole Designated Beneficiary. Unless designated otherwise under AA §10-4, if the Participant’s surviving Spouse is not the Participant’s sole Designated Beneficiary, the Designated Beneficiary may elect to take distributions under the 5-year rule (as described in subsection (f)(1) below) or under the life expectancy method. If the life expectancy method applies, then distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died. If the Designated Beneficiary does not elect to commence distributions by December 31 of the calendar year immediately following the calendar year in which the Participant dies, a complete distribution must be made by December 31 of the calendar year containing the fifth anniversary of the Participant’s death. See subsection (f)(1) below.

(3)No Designated Beneficiary. If there is no Designated Beneficiary as of the date of the Participant’s death who remains a Beneficiary as of September 30 of the year immediately following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(4)Death of surviving Spouse. If the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary, and the surviving Spouse dies after the Participant but before distributions to the surviving Spouse begin, this subsection (b) (other than subsection (1) above) will apply as if the surviving Spouse were the Participant.

For purposes of this subsection (b) and AA §10-4, unless subsection (4) above applies, distributions are considered to begin on the Participant’s Required Beginning Date. If subsection (4) above applies, distributions are considered to begin on the date distributions are required to begin to the surviving Spouse under subsection (1) above. If distributions under an annuity purchased from an insurance company irrevocably commence to the participant before the Participant’s Required Beginning Date (or to the Participant’s surviving Spouse before the date distributions are required to begin to the surviving Spouse under subsection (1) above), the date distributions are considered to begin is the date distributions actually commence.

(c)Required Minimum Distributions during Participant’s lifetime.

(1)Amount of Required Minimum Distribution for each Distribution Calendar Year. During the Participant’s lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of:

(i)the quotient obtained by dividing the Participant’s Account Balance by the distribution period set forth in the Uniform Lifetime Table found in Treas. Reg. §1.401(a)(9)-9, Q&A-2, using the Participant’s age as of the Participant’s birthday in the Distribution Calendar Year; or

(ii)if the Participant’s sole Designated Beneficiary for the Distribution Calendar Year is the Participant’s Spouse, the quotient obtained by dividing the Participant’s Account Balance by the number in the Joint and Last Survivor Table set forth in Treas. Reg. §1.401(a)(9)-9, Q&A-3, using the Participant’s and Spouse’s attained ages as of the Participant’s and Spouse’s birthdays in the Distribution Calendar Year.


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(2)Lifetime Required Minimum Distributions continue through year of Participant’s death. Required Minimum Distributions will be determined under this subsection (c) beginning with the first Distribution Calendar Year and continuing up to, and including, the Distribution Calendar Year that includes the Participant’s date of death.

(d)Required Minimum Distributions after Participant’s death.

(1)Death on or after date required distributions begin.

(i)Participant survived by Designated Beneficiary. If the Participant dies on or after the date required distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s Designated Beneficiary, determined as follows:

(A)The Participant’s remaining life expectancy is calculated in accordance with the Single Life Table found in Treas. Reg. §1.401(a)(9)-9, Q&A-1, using the age of the Participant in the year of death, reduced by one for each subsequent year.

(B)If the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary, the remaining life expectancy of the surviving Spouse is calculated using the Single Life Table found in Treas. Reg. §1.401(a)(9)-9, Q&A-1, for each Distribution Calendar Year after the year of the Participant’s death using the surviving Spouse’s age as of the Spouse’s birthday in that year. For Distribution Calendar Years after the year of the surviving Spouse’s death, the remaining life expectancy of the surviving Spouse is calculated using the age of the surviving Spouse as of the Spouse’s birthday in the calendar year of the Spouse’s death, reduced by one for each subsequent calendar year.

(C)If the Participant’s surviving Spouse is not the Participant’s sole Designated Beneficiary, the Designated Beneficiary’s remaining life expectancy is calculated under the Single Life Table using the age of the Designated Beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

(ii)No Designated Beneficiary. If the participant dies on or after the date required distributions begin and there is no Designated Beneficiary as of the Participant’s date of death who remains a Designated Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the Participant’s remaining life expectancy under the Single Life Table calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(2)Death before date required distributions begin.

(i)Participant survived by Designated Beneficiary. Unless designated otherwise under AA §10-4, if the Participant dies before the date required distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the remaining life expectancy of the Participant’s Designated Beneficiary, determined as provided in subsection (1) above.

(ii)No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of the date of death of the Participant who remains a Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(iii)Death of surviving Spouse before distributions to surviving Spouse are required to begin. If the Participant dies before the date distributions begin, the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary, and the surviving Spouse dies before distributions are required to begin to the surviving Spouse under Section (b)(1) above, this subsection (2) will apply as if the surviving Spouse were the Participant.


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(e)Definitions.

(1)Designated Beneficiary. A Beneficiary designated by the Participant (or the Plan), whose life expectancy may be taken into account to calculate minimum distributions, pursuant to Code §401(a)(9) and Treas. Reg.

§1.401(a)(9)-4.

(2)Distribution Calendar Year. A calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year that contains the Participant’s Required Beginning Date. For distributions beginning after the Participant’s death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin pursuant to subsection (b) above. The Required Minimum Distribution for the Participant’s first Distribution Calendar Year will be made on or before the Participant’s Required Beginning Date. The Required Minimum Distribution for other Distribution Calendar Years, including the Required Minimum Distribution for the Distribution Calendar Year in which the Participant’s Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.

(3)Life expectancy. For purposes of determining a Participant’s Required Minimum Distribution amount, life expectancy is computed using one of the following tables, as appropriate:

(i)Single Life Table;

(ii)Uniform Life Table; or

(iii)Joint and Last Survivor Table found in Treas. Reg. §1.401(a)(9)-9.

(4)Account Balance. For purposes of determining a Participant’s Required Minimum Distribution, the Participant’s Account Balance is determined based on the Account Balance as of the last Valuation Date in the calendar year immediately preceding the Distribution Calendar Year (the “valuation calendar year”) increased by the amount of any contributions or forfeitures allocated to the Account Balance as of dates in the calendar year after the Valuation Date and decreased by distributions made in the calendar year after the Valuation Date. The Account Balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the Distribution Calendar Year if distributed or transferred in the valuation calendar year.

(5)Required Beginning Date. Unless designated otherwise under AA §10-4, a Participant’s Required Beginning Date under the Plan is:

(i)For Five-Percent Owners. April 1 that follows the end of the calendar year in which the Participant attains age 70½.

(ii)For Participants other than Five-Percent Owners. April 1 that follows the end of the calendar year in which the later of the following two events occurs:

(A)the Participant attains age 70½; or

(B)the Participant terminates employment.

If a Participant is not a Five-Percent Owner for the Plan Year that ends with or within the calendar year in which the Participant attains age 70-1/2, and the Participant has not retired by the end of such calendar year, his/her Required Beginning Date is April 1 that follows the end of the first subsequent calendar year in which the Participant becomes a Five-Percent Owner or retires.

A Participant may begin in-service distributions prior to his/her Required Beginning Date only to the extent authorized under Section 8.10 and AA §10. However, if this Plan were amended to add the Required Beginning Date rules under this subsection (5), a Participant who attained age 70½ prior to January 1, 1999 (or, if later, January 1 following the date the Plan is first amended to contain the Required Beginning Date rules under this subsection (5)) may receive in-service minimum distributions in accordance with the terms of the Plan in existence prior to such amendment.

(iii)Alternative Required Beginning Date for Participants other than Five-Percent Owners. The Employer may designate under AA §10-4 to determine the Required Beginning Date for Participants other than Five-Percent Owners without regard to the rule in subsection (ii) above. If so designated


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under AA §10-4, the Required Beginning Date for all Participants under the Plan will be April 1 of the calendar year following attainment of age 70½.

(iv)Five-Percent Owner. A Participant is a Five-Percent Owner for purposes of this Section if such Participant is a Five-Percent Owner (as defined in Code §416) at any time during the Plan Year ending with or within the calendar year in which the Participant attains age 70½. Once distributions have begun to a Five-Percent Owner under this Section 8.12, they must continue to be distributed, even if the Participant ceases to be a Five-Percent Owner in a subsequent year.

(f)Special Rules.

(1)Election to apply 5-year rule to required distributions after death. If the Participant dies before distributions begin and there is a Designated Beneficiary, the Employer may elect under AA §10-4, instead of applying the provisions of subsections (b) and (d) above, to require the Participant’s entire interest to be distributed to the Designated Beneficiary by December 31 of the calendar year containing the fifth anniversary of the Participant’s death. If the Participant’s surviving Spouse is the Participant’s sole Designated Beneficiary, and the surviving Spouse dies after the Participant but before distributions to either the Participant or the surviving Spouse begin, this election will apply as if the surviving Spouse were the Participant.

(2)Election to allow Participants or Beneficiaries to elect 5-year rule. If a Participant or Designated Beneficiary is permitted under AA §10-4 to elect whether to apply the life expectancy rule under subsection (b) above or the five year rule under subsection (1) above, the election must be made no later than the earlier of September 30 of the calendar year in which distribution would be required to begin under subsection (b) above or by September 30 of the calendar year which contains the fifth anniversary of the Participant’s (or, if applicable, surviving Spouse’s) death. If neither the Participant nor Beneficiary makes an election under this paragraph, distributions will be made in accordance with the 5-year rule under subsection (1) above.

(3)Forms of Distribution. Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a lump sum on or before the Required Beginning Date, as of the first Distribution Calendar Year, distributions will be made in accordance with subsections (b) and (d) above. If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Code §401(a)(9) and the regulations.

(4)Treatment of trust beneficiaries as Designated Beneficiaries. If a trust is properly named as a Beneficiary under the Plan, the beneficiaries of the trust will be treated as the Designated Beneficiaries of the Participant solely for purposes of determining the distribution period under this Section 8.12 with respect to the trust’s interests in the Participant’s vested Account Balance. The beneficiaries of a trust will be treated as Designated Beneficiaries for this purpose only if, during any period during which required minimum distributions are being determined by treating the beneficiaries of the trust as Designated Beneficiaries, the following requirements are met:

(i)the trust is a valid trust under state law, or would be but for the fact there is no corpus;

(ii)the trust is irrevocable or will, by its terms, become irrevocable upon the death of the Participant;

(iii)the beneficiaries of the trust who are beneficiaries with respect to the trust’s interests in the Participant’s vested Account Balance are identifiable from the trust instrument; and

(iv)the Plan Administrator receives the documentation described in subsection (5)(i) below.

If the foregoing requirements are satisfied and the Plan Administrator receives such additional information as it may request, the Plan Administrator may treat such beneficiaries of the trust as Designated Beneficiaries.

(5)Special rules applicable to trust beneficiaries.

(i)Information that must be supplied to Plan Administrator.

(A)Required minimum distribution before death where Spouse is sole beneficiary. If a Participant designates a trust as the beneficiary of his/her entire benefit and the Participant’s Spouse is the sole beneficiary of the trust, the Participant must provide the information under

(I)or (II) below to satisfy the information requirements under subsection (4)(iv) above.


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(I)The Participant must provide to the Plan Administrator a copy of the trust instrument and agree that if the trust instrument is amended at any time in the future, the Participant will, within a reasonable time, provide to the Plan Administrator a copy of each such amendment; or

(II)The Participant must:

(a)provide to the Plan Administrator a list of all of the beneficiaries of the trust (including contingent and remaindermen beneficiaries with a description of the conditions on their entitlement sufficient to establish that the Spouse is the sole beneficiary) for purposes of Code §401(a)(9);

(b)certify that, to the best of the Participant’s knowledge, the list under subsection

(a)above is correct and complete and that the requirements of subsection (4) above are satisfied;

(c)agree that, if the trust instrument is amended at any time in the future, the Participant will, within a reasonable time, provide to the Plan Administrator corrected certifications to the extent that the amendment changes any information previously certified; and

(d)agree to provide a copy of the trust instrument to the Plan Administrator upon demand.

(B)Required minimum distribution after death. In order to satisfy the documentation requirement of subsection (4)(iv) above for required minimum distributions after the death of the Participant (or Spouse in a case to which Treas. Reg. §1.401(a)(9)-3, Q&A-5 applies), the trustee of the trust must satisfy the requirements of subsection (I) or (II) below by October 31 of the calendar year immediately following the calendar year in which the Participant died.

(I)The trustee of the trust must:

(a)provide the Plan Administrator with a final list of all beneficiaries of the trust (including contingent and remaindermen beneficiaries with a description of the conditions on their entitlement) as of September 30 of the calendar year following the calendar year of the Participant’s death;

(b)certify that, to the best of the trustee's knowledge, the list in subsection (a) above is correct and complete and that the requirements of subsection (4) above are satisfied; and

(c)agree to provide a copy of the trust instrument to the Plan Administrator upon demand.

(II)The trustee of the trust must provide the Plan Administrator with a copy of the actual trust document for the trust that is named as a beneficiary of the Participant under the Plan as of the Participant’s date of death.

(ii)Relief for discrepancy. If required minimum distributions are determined based on the information provided to the Plan Administrator in certifications or trust instruments described in subsection (i) above, the Plan will not fail to satisfy Code §401(a)(9) merely because the actual terms of the trust instrument are inconsistent with the information in those certifications or trust instruments previously provided to the Plan Administrator, provided the Plan Administrator reasonably relied on the information provided and the required minimum distributions for calendar years after the calendar year in which the discrepancy is discovered are determined based on the actual terms of the trust instrument.

(6)Trust beneficiary qualifying for marital deduction. If a Beneficiary is a trust (other than an estate marital trust) that is intended to qualify for the federal estate tax marital deduction under Code §2056 ("marital trust"), then:

(i)in no event will the annual amount distributed from the Plan to the marital trust be less than the greater of:


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(A)all fiduciary accounting income with respect to such Beneficiary’s interest in the Plan, as determined by the trustee of the marital trust; or

(B)the minimum distribution required under this Section 8.12;

(ii)the trustee of the marital trust (or the trustee’s legal representative) shall be responsible for calculating the amount to be distributed under subsection (i) above and shall instruct the Plan Administrator in writing to distribute such amount to the marital trust;

(iii)the trustee of the marital trust may from time to time notify the Plan Administrator in writing to accelerate payment of all or any part of the portion of such beneficiary’s interest that remains to be distributed, and may also notify the Plan Administrator to change the frequency of distributions (but not less often than annually); and

(iv)the trustee of the marital trust shall be responsible for characterizing the amounts so distributed from the Plan as income or principle under applicable state laws.

(g)Transitional Rule. Notwithstanding the other requirements of this Section 8.12, and subject to the Joint and Survivor Annuity Requirements under Section 9, distribution on behalf of any Employee, including a Five-Percent Owner, may be made in accordance with all of the following requirements (regardless of when such distribution commences):

(1)The distribution by the Plan is one that would not have disqualified the Plan under Code §401(a)(9) as in effect prior to amendment by the Deficit Reduction Act of 1984;

(2)The distribution is in accordance with a method of distribution designated by the Participant whose interest in the Plan is being distributed or, if the Participant is deceased, by a Beneficiary of such Participant;

(3)Such designation was in writing, was signed by the Participant or the beneficiary, and was made before January 1, 1984;

(4)The Participant had accrued a benefit under the Plan as of December 31, 1983; and

(5)The method of distribution designated by the Participant or the beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Participant’s death, the beneficiaries of the Participant listed in order of priority.

A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to the distributions to be made upon the death of the Participant.

For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Participant, or the Beneficiary, to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfies the requirements in subsections (1) – (5) above.

If a designation is revoked any subsequent distribution must satisfy the requirements of Code §401(a)(9) and the proposed regulations thereunder. If a designation is revoked subsequent to the date distributions are required to begin, the Plan must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy Code §401(a)(9) and the proposed regulations thereunder, but for the TEFRA §242(b)(2) election. For calendar years beginning after December 31, 1988, such distributions must meet the minimum distribution incidental benefit requirements. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another Beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). In the case in which an amount is transferred or rolled over from one plan to another plan, the rules in Treas. Reg.

§1.401(a)(9)-8, Q&A-14 and Q&A-15 shall apply.

(h)Modification of Minimum Distribution Rules Relating to Qualified Longevity Annuity Contracts.

(1)The following provisions modify the required minimum distribution rules under this Section 8.12 of the Plan to conform the rules to final Treasury Regulation §1.401(a)(9)-6 relating to the purchase of Qualifying Longevity Annuity Contracts (QLACs). The Plan will apply the provisions consistent with the requirements under the Treas. Reg. §§1.401(a)(9)-5 and 1.401(a)(9)-6, as amended.


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(2)Effective/Applicability Dates.

(i)General effective dates. This subsection (h) applies to contracts purchased on or after July 2, 2014. If on or after July 2, 2014, an existing contract is exchanged for a contract that satisfies the requirements of this subsection (h), the new contract will be treated as purchased on the date of the exchange and the fair market value of the contract that is exchanged for a QLAC will be treated as a premium paid with respect to the QLAC.

(ii)Delayed applicability date for requirement that contract state that it is intended to be QLAC. An annuity contract purchased before January 1, 2016, will not fail to be a QLAC merely because the contract does not satisfy the requirement of subsection (4)(i)(F) below, provided that:

(A)When the contract (or a certificate under a group annuity contract) is issued, the Employee is notified that the annuity contract is intended to be a QLAC; and

(B)The contract is amended (or a rider, endorsement or amendment to the certificate is issued) no later than December 31, 2016, to state that the annuity contract is intended to be a QLAC.

(3)Account Balance for Determining Minimum Distributions. For purposes of determining a Participant’s Required Minimum Distribution as described under this Section 8.12 of the Plan, the Participant’s Account Balance, as defined under Section 8.12(e)(4) of the Plan, does not include the value of any Qualifying Longevity Annuity Contract (QLAC), described under Section 8.12(h)(4) and Treas. Reg. §1.401(a)(9)–6, Q&A - 17, that is held under the Plan.

(4)Rules Applicable to Qualifying Longevity Annuity Contracts.

(i)Definition of Qualifying Longevity Annuity Contracts. A Qualifying Longevity Annuity Contract (QLAC) is an annuity contract that is purchased from an insurance company for an Employee and that, in accordance with the rules of application of this subsection (4) and Treas. Reg. §1.401(a)(9)-6, Q&A - 17, satisfies each of the following requirements:

(A)Premiums for the contract satisfy the requirements of subsection (ii) of this Section 8.12(h)(4);

(B)The contract provides that distributions under the contract must commence not later than a specified annuity starting date that is no later than the first day of the month next following the 85th anniversary of the Employee’s birth;

(C)The contract provides that, after distributions under the contract commence, those distributions must satisfy the requirements of this Article and Treas. Reg. §1.401(a)(9) (other than the requirement that annuity payments commence on or before the Required Beginning Date);

(D)The contract does not make available any commutation benefit, cash surrender right, or other similar feature;

(E)No benefits are provided under the contract after the death of the employee other than the benefits described in Subsection (iii) of this Section 8.12(h)(4);

(F)When the contract is issued, the contract (or a rider or endorsement with respect to that contract) states that the contract is intended to be a QLAC; and

(G)The contract is not a variable contract under Code §817, an indexed contract, or a similar contract, except to the extent provided by the Commissioner of the Internal Revenue Service in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin.

(ii)Limitations on premiums.

(A)In general. The premiums paid with respect to the contract on a date satisfy the requirements of this Subsection (ii) if they do not exceed the lesser of the dollar limitation in Subsection (B) below or the percentage limitation in Subsection (C) below.

(B)Dollar limitation. The dollar limitation is an amount equal to the excess of:


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(I)$135,000 for 2020, then as adjusted under Section (d)(2) of Treas. Reg. §1.401(a)(9)-6,

Q&A - 17; over

(II)The sum of:

(a)The premiums paid before that date with respect to the contract; and

(b)The premiums paid on or before that date with respect to any other contract that is intended to be a QLAC and that is purchased for the Employee under the Plan, or any other plan, annuity, or account described in Code §§ 401(a), 403(a), 403(b), or 408 or eligible governmental plan under Code §457(b).

(C)Percentage limitation. The percentage limitation is an amount equal to the excess of:

(I)25 percent of the Employee’s Account Balance under the Plan (including the value of any QLAC held under the plan for the Employee) as of that date, determined in accordance with Treas. Reg. §1.401(a)(9)-6, Q&A - 17 (d)(1)(iii); over

(II)The sum of:

(a)The premiums paid before that date with respect to the contract; and

(b)The premiums paid on or before that date with respect to any other contract that is intended to be a QLAC and that is held or was purchased for the employee under the plan.

(iii)Payments after death of the Employee.

(A)Surviving spouse is sole beneficiary.

(I)Death on or after annuity starting date. If the Employee dies on or after the annuity starting date for the contract and the Employee’s surviving spouse is the sole beneficiary under the contract, then except as provided in Treas. Reg. §1.401(a)(9)-6, Q&A-17(c)(4), the only benefit permitted to be paid after the Employee’s death is a life annuity payable to the surviving spouse where the periodic annuity payment is not in excess of 100 percent of the periodic annuity payment that is payable to the Employee.

(II)Death before annuity starting date.

(a)Amount of annuity. If the employee dies before the annuity starting date and the employee’s surviving spouse is the sole beneficiary under the contract then except as provided in paragraph in Treas. Reg. §1.401(a)(9)-6, Q&A-17(c)(4), the only benefit permitted to be paid after the Employee’s death is a life annuity payable to the surviving spouse where the periodic annuity payment is not in excess of 100 percent of the periodic annuity payment that would have been payable to the Employee as of the date that benefits to the surviving spouse commence. However, the annuity is permitted to exceed 100 percent of the periodic annuity payment that would have been payable to the employee to the extent necessary to satisfy the requirement to provide a Qualified Preretirement Survivor Annuity.

(b)Commencement date for annuity. Any life annuity payable to the surviving spouse under Subsection (a) above must commence no later than the date on which the annuity payable to the Employee would have commenced under the contract if the Employee had not died.

(B)Surviving spouse is not sole beneficiary.

(I)Death on or after annuity starting date. If the Employee dies on or after the annuity starting date for the contract and the Employee’s surviving spouse is not the sole beneficiary under the contract, then except as provided in Treas. Reg. §1.401(a)(9)-6, Q&A-17(c)(4), the only benefit permitted to be paid after the Employee’s death is a life annuity payable to the Designated Beneficiary where the periodic annuity payment is


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not in excess of the applicable percentage (determined under paragraph Treas. Reg.

§1.401(a)(9)-6, Q&A-17(c)(2)(iii)) of the periodic annuity payment that is payable to the Employee.

(II)Death before annuity starting date.

(a)Amount of annuity. If the Employee dies before the annuity starting date and the Employee’s surviving spouse is not the sole beneficiary under the contract, then except as provided in Treas. Reg. §1.401(a)(9)-6, Q&A - 17 (c)(4), the only benefit permitted to be paid after the Employee’s death is a life annuity payable to the Designated Beneficiary where the periodic annuity payment is not in excess of the applicable percentage (determined under Treas. Reg.

§1.401(a)(9)-6, Q&A-17(c)(2)(iii) of the periodic annuity payment that would have been payable to the Employee as of the date that benefits to the Designated Beneficiary commence under this subsection (a).

(b)Commencement date for annuity. In any case in which the employee dies before the annuity starting date, any life annuity payable to a designated beneficiary under this Subsection (b) must commence by the last day of the calendar year immediately following the calendar year of the Employee’s death.

(iv)Rules of application.

(A)Rules relating to premiums.

(I)Reliance on representations. For purposes of the limitation on premiums described in Subsections (ii)(B) and (ii)(C) above, unless the Plan Administrator has actual knowledge to the contrary, the Plan Administrator may rely on an Employee’s representation (made in writing or such other form as may be prescribed by the Commissioner of the Internal revenue Service) of the amount of the premiums described in Subsections (ii)(B)(II)(b) and (ii)(C)(II)(b) above, but only with respect to premiums that are not paid under a plan, annuity, or contract that is maintained by the Employer or Related Employer.

(II)Consequences of excess premiums.

(a)General Rule. If an annuity contract fails to be a QLAC solely because a premium for the contract exceeds the limits under Subsection (b) below, then the contract is not a QLAC beginning on the date that premium payment is made unless the excess premium is returned to the non-QLAC portion of the Employee’s account in accordance with Treas. Reg. §1.401(a)(9)-6, Q&A-17 (d)(1)(ii)(B). If the contract fails to be a QLAC, then the value of the contract may not be disregarded under A–3(d) of Treas. Reg. §1.401(a)(9)–5 as of the date on which the contract ceases to be a QLAC.

(b)Correction in year following year of excess. If the excess premium is returned (either in cash or in the form of a contract that is not intended to be a QLAC) to the non-QLAC portion of the Employee’s account by the end of the calendar year following the calendar year in which the excess premium was originally paid, then the contract will not be treated as exceeding the limits under this Subsection (b) at any time, and the value of the contract will not be included in the Employee’s Account Balance. If the excess premium (including the fair market value of an annuity contract that is not intended to be a QLAC, if applicable) is returned to the non-QLAC portion of the Employee’s account after the last valuation date for the calendar year in which the excess premium was originally paid, then the Employee’s account balance for that calendar year must be increased to reflect that excess premium in the same manner as an Employee’s Account Balance is increased under Treas. Reg. §1.401(a)(9)–7, A–2 to reflect a rollover received after the last valuation date.

(c)Return of excess premium not a commutation benefit. If the excess premium is returned to the non-QLAC portion of the Employee’s account as


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described in Treas. Reg. §1.401(a)(9)-6, Q&A-17(d)(1)(ii)(B), it will not be treated as a violation of the requirement in subsection (4)(i)(D) above that the contract not provide a commutation benefit.

(III)Application of 25-percent limit. For purposes of the 25-percent limit under Subsection (ii)(C) above, an Employee’s Account Balance on the date on which premiums for a contract are paid is the account balance as of the last valuation date preceding the date of the premium payment, adjusted as follows. The Account Balance is increased for contributions allocated to the account during the period that begins after the valuation date and ends before the date the premium is paid and decreased for distributions made from the account during that period.

(B)Dollar and age limitations subject to adjustments.

(I)Dollar limitation. In the case of calendar years beginning after January 1, 2020, the

$135,000 amount under Subsection (ii)(B)(I) will be adjusted at the same time and in the same manner as the limits are adjusted under Code §415(d), except that any increase under this Subsection that is not a multiple of $10,000 will be rounded to the next lowest multiple of $10,000.

(II)Age limitation. The maximum age set forth in Subsection (i)(B) above may be adjusted to reflect changes in mortality, with any such adjusted age to be prescribed by the Commissioner of the Internal Revenue Service in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin.

(III)Prospective application of adjustments. If a contract fails to be a QLAC because it does not satisfy the dollar limitation in Subsection (ii)(B) above or the age limitation in Subsection (i)(B) above, any subsequent adjustment that is made pursuant to Subsections (iv)(B)(I) or (iv)(B)(II) above will not cause the contract to become a QLAC.

(C)Determination of whether contract is intended to be a QLAC. If a contract fails to be a QLAC at any time for a reason other than an excess premium described in Treas. Reg.

§1.401(a)(9)-6, Q&A-17(d)(1)(ii), then as of the date of purchase the contract will not be treated as a QLAC (for purposes of A–3(d) of Treas. Reg. §1.401(a)(9)–5) or as a contract that is intended to be a QLAC as of the date of purchase.

(D)Group annuity contract certificates. The requirement under Subsection (i)(F) above that the contract state that it is intended to be a QLAC when issued is satisfied if a certificate is issued under a group annuity contract and the certificate, when issued, states that the Employee’s interest under the group annuity contract is intended to be a QLAC.

8.13Correction of Qualification Defects. Nothing in this Section 8 precludes the Plan Administrator from making a distribution to a Participant to correct a qualification defect consistent with the correction procedures under the IRS’ EPCRS program. Thus, for example, if an Employee is permitted to enter the Plan prior to his/her proper Entry Date under Section 2.03(b) and the Plan Administrator determines that a corrective distribution is a proper means of correcting the operational violation, nothing in this Section 8 would prevent the Plan from making such corrective distribution. Any such distribution must be made in accordance with the correction procedures applicable under the IRS’ EPCRS program.


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SECTION 9

JOINT AND SURVIVOR ANNUITY REQUIREMENTS

9.01Application of Joint and Survivor Annuity Rules. The Qualified Joint and Survivor Annuity rules under this Section 9 will apply to any Participant who is credited with an Hour of Service with the Employer on or after August 23, 1984. (See Section

9.05 for special transitional rules that may apply.) The application of the Joint and Survivor Annuity rules will differ based on the type of Plan involved.

(a)Money Purchase Plan. If the Employer adopts the Money Purchase Plan Adoption Agreement, the Plan will be subject to the Joint and Survivor rules described under this Section 9.

(b)Profit Sharing/401(k) Plan. If the Employer adopts a Profit Sharing/401(k) Plan Adoption Agreement, the Employer may elect under AA §9-2(a) to apply the Joint and Survivor Annuity requirements under this Section 9 to all Participants under the Plan. If the Employer does not elect under AA §9-2(a) to apply the Joint and Survivor Annuity requirements to all Participants, such requirements will only apply to a distribution from the Plan if:

(1)the Participant elects to receive a distribution in the form of a life annuity; or

(2)the distribution is made from benefits that were directly or indirectly transferred from a plan that was subject to the Joint and Survivor Annuity requirements at the time of the transfer; or

(3)the distribution is made from benefits that are used to offset the benefits under another plan of the Employer that is subject to the Joint and Survivor Annuity requirements.

(c)Exception to the Joint and Survivor Annuity Requirements. If, as of the Annuity Starting Date, the Participant’s vested Account Balance (for pre-death distributions) or the value of the QPSA death benefit (for post-death distributions) does not exceed $5,000, the Participant or surviving Spouse, as applicable, will receive a lump sum distribution pursuant to Section 8.07(a) or Section 8.08(b)(1), in lieu of any QJSA or QPSA benefits.

(d)Administrative procedures. The Plan Administrator may provide alternative procedures for applying the spousal consent requirements under this Section 9 provided such procedures are consistent with the requirements under this Section 9. For example, the Plan Administrator may require under separate administrative procedures to require spousal consent to Participant distributions or may in a separate loan procedure require spousal consent prior to granting a Participant loan, without subjecting the Plan to the Joint and Survivor Annuity requirements.

(e)Accumulated deductible employee contributions. A distribution from or under a separate Account under a money purchase plan which is attributable solely to accumulated deductible employee contributions, as defined in Code

§72(o)(5)(B), is subject to the rules under subsection (b) above.

(f)Plans that offer life annuity option or deferred annuity contract. If the Plan offers a life annuity benefit option and the Participant selects this option, the Joint and Survivor Annuity rules will thereafter apply with respect to that Participant’s benefits under the Plan. Thus, in this situation, the Joint and Survivor Annuity requirements may apply under the Plan on a Participant by Participant basis. Also, if there is a separate accounting of the Account Balance subject to the Participant’s life annuity election, the Plan may provide that the Joint and Survivor Annuity requirements apply only to that part of the Account Balance.

If a Plan otherwise exempt from the Joint and Survivor Annuity requirements offers a deferred annuity contract as an investment option, the Plan is subject to the Joint and Survivor Annuity requirements with respect to that deferred annuity, if the annuity does not allow the Participant to elect another form of benefit prior to the Annuity Starting Date. A Plan that offers a deferred annuity contract as an investment option that allows a Participant to elect another form of benefit is not subject to the Joint and Survivor Annuity requirements until the Participant elects to receive a life annuity option. A Participant is deemed to have elected to receive a life annuity on the Annuity Starting Date if the Participant has not elected another form of benefit prior to the Annuity Starting Date. The remainder of the Participant’s Account is not subject to the Joint and Survivor Annuity requirements if the Account is otherwise not subject to the Joint and Survivor Annuity requirements and the Plan separately accounts for the deferred annuity contract.

9.02Pre-Death Distribution Requirements. If a pre-death distribution is subject to the Qualified Joint and Survivor Annuity requirements under this Section 9, the distribution will be paid in the form of a Qualified Joint and Survivor Annuity (QJSA), unless the Participant (and Spouse, if the Participant is married) elects to receive the distribution in an alternative form. A Participant (and Spouse) may elect to receive distribution in the form of a Qualified Optional Survivor Annuity (QOSA).

In applying the provisions under this Section 9.02, a Participant (and Spouse) may only waive out of the QJSA pursuant to a Qualified Election (as defined in Section 9.04). Under the Qualified Election provisions under Section 9.04, the QOSA form of


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benefit is treated as a QJSA form of benefit for purposes of determining whether spousal consent is required with respect to a waiver of the QJSA in favor of the QOSA form of benefit. Thus, no spousal consent is required to waive out of the QJSA form of benefit in favor of an actuarially equivalent QOSA form of benefit.

(a)Qualified Joint and Survivor Annuity (QJSA). A QJSA is an immediate annuity payable over the life of the Participant with a survivor annuity payable over the life of the Participant’s Spouse equal to 50% of the amount of the annuity which is payable during the joint lives of the Participant and the Spouse. The Employer may elect under AA

§9-2(a) to increase the percentage of the Spouse’s survivor annuity to 100%, 75% or 66-2/3% (instead of 50%). If the Participant is not married as of the Annuity Starting Date, the QJSA is an immediate annuity payable over the life of the Participant.

(b)Qualified Optional Survivor Annuity (QOSA). A QOSA is an immediate annuity payable over the life of the Participant with a survivor annuity payable over the life of the Participant’s Spouse that is equal to the applicable percentage of the amount of the annuity that is payable during the joint lives of the Participant and the Spouse and is the actuarial equivalent of a single life annuity for the life of the Participant. If the survivor annuity provided by the QJSA under the Plan is less than 75% of the annuity payable during the joint lives of the Participant and Spouse, the applicable percentage is 75%. If the survivor annuity provided by the QJSA under the Plan is greater than or equal to 75% of the annuity payable during the joint lives of the Participant and Spouse, the applicable percentage is 50%.

(c)Notice requirements.

(1)Written explanation. The Plan Administrator shall provide each Participant with a written explanation of:

(i)the terms and conditions of the QJSA;

(ii)the Participant’s right to make and the effect of an election to waive the QJSA form of benefit;

(iii)the rights of the Participant’s Spouse; and

(iv)the right to make, and the effect of, a revocation of a previous election to waive the QJSA.

The notice must be provided to each Participant under the Plan no less than 30 days and no more than 180 days prior to the Annuity Starting Date. The written explanation shall comply with the requirements of Treas. Reg.

§1.417(a)(3)-1.

(2)Waiver of 30-day period. The Annuity Starting Date for a distribution in a form other than a QJSA may be less than 30 days after receipt of the written explanation described in the preceding paragraph provided:

(i)the Participant has been provided with information that clearly indicates that the Participant has at least 30 days to consider whether to waive the QJSA and elect (with spousal consent) a form of distribution other than a QJSA;

(ii)the Participant is permitted to revoke any affirmative distribution election at least until the Annuity Starting Date or, if later, at any time prior to the expiration of the 7-day period that begins the day after the explanation of the QJSA is provided to the Participant; and

(iii)the Annuity Starting Date is after the date the written explanation was provided to the Participant.

The Annuity Starting Date may be a date prior to the date the written explanation is provided to the Participant if the distribution does not commence until at least 30 days after such written explanation is provided, subject to the waiver of the 30-day period described above.

(d)Annuity Starting Date. The Annuity Starting Date is the date an Employee commences distributions from the Plan. If a Participant commences distribution with respect to a portion of his/her Account Balance, a separate Annuity Starting Date applies to any subsequent distribution. If distribution is made in the form of an annuity, the Annuity Starting Date is the first day of the first period for which annuity payments are made.

9.03Distributions After Death. If the Joint and Survivor Annuity requirements apply with respect to a distribution on behalf of a married Participant who dies before the Annuity Starting Date (as defined in Section 9.02(d) above), the surviving Spouse of that Participant is entitled to receive such distribution in the form of a QPSA, unless the Participant and Spouse have waived the QPSA pursuant to a Qualified Election. Any portion of a Participant’s vested Account Balance that is not payable to the surviving Spouse as a QPSA will be payable under the rules described in Section 8.08(b)(2)(ii)(B).


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(a)Qualified Preretirement Survivor Annuity (QPSA). A QPSA is an annuity payable over the life of the surviving Spouse that is purchased using 50% of the Participant’s vested Account Balance (that is subject to the Qualified Joint and Survivor Annuity requirements) as of the date of death. The Employer may elect under AA §9-2(b) to increase the amount used to purchase the QPSA to 100% (instead of 50%) of the Participant’s vested Account Balance. To the extent that less than 100% of the Participant’s vested Account Balance is paid to the surviving Spouse, any After-Tax Employee Contributions will be allocated to the surviving Spouse in the same proportion as the After-Tax Employee Contributions bear to the total vested Account Balance of the Participant. If elected under AA §9-5(b), a surviving Spouse will not be entitled to a QPSA if the Participant and surviving Spouse were not married throughout the one-year period ending on the date of the Participant’s death.

If a surviving Spouse is entitled to a QPSA distribution, the surviving Spouse may elect to receive such distribution at any time following the Participant’s death (subject to the required minimum distribution rules under Section 8.12) and may elect to receive distribution in any form permitted under Section 8.02 of the Plan. A QPSA distribution will not commence to a surviving Spouse without the consent of the surviving Spouse prior to the date the Participant would have reached Normal Retirement Age (or age 62, if later). If the QPSA death benefit has been waived, in accordance with the procedures in Section 9.04(b), then the portion of the Participant’s vested Account Balance that would have been payable as a QPSA death benefit in the absence of such a waiver is treated as a non-QPSA death benefit payable under Section 8.08(b)(2)(ii)(B).

The QPSA death benefit may be payable to a non-Spouse Beneficiary only if the Spouse consents to the Beneficiary designation, pursuant to the Qualified Election requirements under Section 9.04, or makes a valid disclaimer. The non- QPSA death benefit, if any, is payable to the person named in the Beneficiary designation, without regard to whether spousal consent is obtained for such designation. If a Spouse does not properly consent to a Beneficiary designation, the QPSA waiver is invalid, and the QPSA death benefit is still payable to the Spouse, but the Beneficiary designation remains valid with respect to any non-QPSA death benefit.

(b)Notice requirements. The Plan Administrator shall provide each Participant, within the applicable period for such Participant, a written explanation of the QPSA in such terms and in such manner as would be comparable to the explanation provided for the QJSA in Section 9.02(c) above. The applicable period for a Participant is whichever of the following periods ends last:

(1)the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35;

(2)a reasonable period ending after the individual becomes a Participant; or

(3)a reasonable period ending after the joint and survivor annuity requirements first apply to the Participant.

Notwithstanding the foregoing, notice must be provided within a reasonable period ending after separation from service in the case of a Participant who separates from service before attaining age 35.

For purposes of applying the preceding paragraph, a reasonable period ending after the enumerated events described in

(2) and (3) above, is the end of the two-year period beginning one year prior to the date the applicable event occurs, and ending one year after that date. In the case of a Participant who separates from service before the Plan Year in which age 35 is attained, notice shall be provided within the two-year period beginning one year prior to separation and ending one year after separation. If such a Participant thereafter returns to employment with the employer, the applicable period for such Participant shall be redetermined.

9.04Qualified Election. A Participant (and the Participant’s Spouse) may waive the QJSA or QPSA pursuant to a Qualified Election. A Qualified Election is a written election signed by both the Participant and the Participant’s Spouse (if applicable) that specifically acknowledges the effect of the election. The Spouse’s consent must be witnessed by a plan representative or notary public. Any consent by a Spouse under a Qualified Election (or a determination that the consent of a Spouse is not required) shall be effective only with respect to such Spouse. If the Qualified Election permits the Participant to change a payment form or Beneficiary designation without any further consent by the Spouse, the Qualified Election must acknowledge that the Spouse has the right to limit consent to a specific Beneficiary, and a specific form of benefit, as applicable, and that the Spouse voluntarily elects to relinquish either or both of such rights. A Participant or Spouse may revoke a prior waiver of the QPSA benefit at any time before the commencement of benefits without limit on the number of revocations. Spousal consent is not required for a Participant to revoke a prior QPSA waiver. No consent obtained under this provision shall be valid unless the Participant has received notice as provided in Section 9.02(c) or Section 9.03(b), as applicable.

(a)QJSA. In the case of a waiver of the QJSA, the election must designate an alternative form of benefit payment that may not be changed without spousal consent (unless the Spouse enters into a general consent agreement expressly


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permitting the Participant to change the form of payment without any further spousal consent). Only the Participant needs consent to the commencement of a distribution in the form of a QJSA.

(b)QPSA. In the case of a waiver of the QPSA, the election must be made on a timely basis and the election must designate a specific alternate Beneficiary, including any class of Beneficiaries or any contingent Beneficiaries, which may not be changed without spousal consent (unless the Spouse enters into a general consent agreement expressly permitting the Participant to change the Beneficiary designation without any further spousal consent). To be timely, a Participant (and the Participant’s Spouse) may waive the QPSA at any time during the period beginning on the first day of the Plan Year in which the Participant attains age 35 and ending on the date of the Participant’s death. If a Participant separates from service prior to the first day of the Plan Year in which age 35 is attained, with respect to the Account Balance as of the date of separation, the election period begins on the date of separation. A Participant who has not yet attained age 35 as of the end of a Plan Year may make a special Qualified Election to waive, with spousal consent, the QPSA for the period beginning on the date of such election and ending on the first day of the Plan Year in which the Participant will attain age 35. Such election is not valid unless the Participant receives the proper notice required under Section 9.03(b). QPSA coverage is automatically reinstated as of the first day of the Plan Year in which the Participant attains age 35. Any new waiver on or after such date must satisfy all the requirements for a Qualified Election.

(c)Identification of surviving Spouse. If it is established to the satisfaction of the Plan Administrator that there is no Spouse or that the Spouse cannot be located, any waiver signed by the Participant is deemed to be a Qualified Election.

(1)Definition of Spouse. For this purpose, a Participant will be deemed to not have a Spouse if the Participant is legally separated or has been abandoned and the Participant has a court order to such effect. However, a former Spouse of the Participant will be treated as the Spouse or surviving Spouse and any current Spouse will not be treated as the Spouse or surviving Spouse to the extent provided under a QDRO. See Section 1.134 for the definition of Spouse under the Plan.

(2)One-year marriage rule. The Employer may elect under AA §9-5(b), for purposes of applying the provisions of this Section 9, that an individual will not be considered the surviving Spouse of the Participant if the Participant and the surviving Spouse have not been married for the entire one-year period ending on the date of the Participant’s death.

9.05Transitional Rules. Any living Participant not receiving benefits on August 23, 1984, who would otherwise not receive the benefits prescribed under this Section 9 must be given the opportunity to elect to have the preceding provisions of this Section 9 apply if such Participant is credited with at least one Hour of Service under this Plan or a predecessor plan in a Plan Year beginning on or after January 1, 1976, and such Participant had at least 10 years of vesting service when he or she separated from service. The Participant must be given the opportunity to elect to have this Section 9 apply during the period commencing on August 23, 1984 and ending on the date benefits would otherwise commence to such Participant. A Participant described in this paragraph who has not elected to have this Section 9 apply is subject to the rules in this Section 9.05 instead. Also, a Participant who does not qualify to elect to have this Section 9 apply because such Participant does not have at least 10 Years of Service for vesting purposes is subject to the rules of this Section 9.05.

Any living Participant not receiving benefits on August 23, 1984, who was credited with at least one Hour of Service under this Plan or a predecessor plan on or after September 2, 1974, and who is not otherwise credited with any service in a Plan Year beginning on or after January 1, 1976, must be given the opportunity to have his/her benefits paid in accordance with the following paragraph. The Participant must be given the opportunity to elect to have this Section 9.05 apply (other than the first paragraph of this Section) during the period commencing on August 23, 1984, and ending on the date benefits would otherwise commence to such Participant.

If, under either of the preceding two paragraphs, a Participant is subject to this Section 9.05, the following rules apply.

(a)Automatic joint and survivor annuity. If benefits in the form of a life annuity become payable to a married Participant who:

(1)begins to receive payments under the Plan on or after Normal Retirement Age;

(2)dies on or after Normal Retirement Age while still working for the Employer;

(3)begins to receive payments on or after the Qualified Early Retirement Age; or

(4)separates from service on or after attaining Normal Retirement Age (or the Qualified Early Retirement Age) and after satisfying the eligibility requirements for the payment of benefits under the Plan and thereafter dies before beginning to receive such benefits;


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then such benefits will be received under this plan in the form of a QJSA, unless the Participant has elected otherwise during the election period. For this purpose, the election period must begin at least 6 months before the participant attains Qualified Early Retirement Age and end not more than 90 days before the commencement of benefits. Any election hereunder will be in writing and may be changed by the Participant at any time.

(b)Election of early survivor annuity. A Participant who is employed after attaining the Qualified Early Retirement Age will be given the opportunity to elect, during the election period, to have a survivor annuity payable on death. If the Participant elects the survivor annuity, payments under such annuity must not be less than the payments that would have been made to the Spouse under the QJSA if the Participant had retired on the day before his or her death. Any election under this provision will be in writing and may be changed by the Participant at any time. For this purpose, the election period begins on the later of:

(1)the 90th day before the Participant attains the Qualified Early Retirement Age, or

(2)the date on which participation begins

and ends on the date the Participant terminates employment.

(c)Qualified Early Retirement Age. The Qualified Early Retirement Age is the latest of:

(1)the earliest date, under the Plan, on which the Participant may elect to receive retirement benefits,

(2)the first day of the 120th month beginning before the Participant reaches Normal Retirement Age, or

(3)the date the Participant begins participation under the Plan.


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SECTION 10

PLAN ACCOUNTING AND INVESTMENTS

10.01Participant Accounts. The Plan Administrator will maintain a separate Account for each Participant to reflect the Participant’s entire interest under the Plan. The Plan Administrator may maintain any (or all) of the following separate sub-Accounts:

•Pre-Tax Deferral Account

•Roth Deferral Account

•Employer Contribution Account

•Matching Contribution Account

•Qualified Nonelective Contribution (QNEC) Account

•Qualified Matching Contribution (QMAC) Account

•Traditional Safe Harbor Employer Contribution Account

•Traditional Safe Harbor Matching Contribution Account

•QACA Safe Harbor Employer Contribution Account

•QACA Safe Harbor Matching Contribution Account

•After-Tax Employee Contribution Account

•Rollover Contribution Account

•Roth Rollover Contribution Account

•In-Plan Roth Conversion Account

•Transfer Account.

The Plan Administrator may establish other Accounts, as it deems necessary, for the proper administration of the Plan.

10.02Valuation of Accounts. A Participant’s portion of the Trust assets is determined as of each Valuation Date under the Plan. The value of a Participant’s Account consists of the fair market value of the Participant’s share of the Trust assets. The Trustee must value Plan assets at least annually. The Trustee’s determination of the value of Trust assets shall be final and conclusive.

(a)Periodic valuation. The Employer may elect under AA §11-1, or may elect operationally, to value assets on a periodic basis. The Trustee and the Plan Administrator may adopt reasonable procedures for performing such valuations.

(b)Daily valuation. The Employer may elect under AA §11-1, or may elect operationally, to value assets on a daily basis. The Plan Administrator may adopt reasonable procedures for performing such valuations. Unless otherwise set forth in the written procedures, a daily valued Plan will have its assets valued at the end of each business day during which the New York Stock Exchange is open. The Plan Administrator has authority to interpret the provisions of this Plan in the context of a daily valuation procedure. This includes, but is not limited to, the determination of the value of the Participant's Account for purposes of Participant loans, distribution and consent rights, and corrective distributions.

(c)Interim valuations. The Plan Administrator may request the Trustee to perform interim valuations, provided such valuations do not result in discrimination in favor of Highly Compensated Employees.

10.03Adjustments to Participant Accounts. Unless the Plan Administrator adopts other reasonable administrative procedures, as of each Valuation Date under the Plan, each Participant’s Account is adjusted in the following manner.

(a)Distributions and forfeitures from a Participant’s Account. A Participant’s Account will be reduced by any distributions, forfeitures and other reductions from the Account since the previous Valuation Date.

(b)Life insurance premiums and dividends. A Participant’s Account will be reduced by the amount of any life insurance premium payments under the Plan made for the benefit of the Participant since the previous Valuation Date. The Account will be credited with any dividends or credits paid on any life insurance policy held by the Trust for the benefit of the Participant.

(c)Contributions and forfeitures allocated to a Participant’s Account. A Participant’s Account will be credited with any contribution, forfeiture or other additions allocated to the Participant since the previous Valuation Date.

(d)Net income or loss. A Participant’s Account will be adjusted for any net income or loss in accordance with any reasonable procedures that the Plan Administrator may establish. Such procedures may be reflected in a funding agreement governing the applicable investments under the Plan. To the extent the Plan Administrator does not establish separate written procedures, net income or loss will be allocated to Participants’ Accounts in accordance with the following provisions.


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(1)Net income or loss attributable to General Trust Account. To the extent a Participant’s Account is invested as part of a General Trust Account, such Account is adjusted for its allocable share of net income or loss experienced by the General Trust Account. The net income or loss of the General Trust Account is allocated to the Participant Accounts in the ratio that each Participant’s Account bears to all Accounts, based on the value of each Participant's Account as of the prior Valuation Date, as adjusted in subsections (a) - (c) above. In determining Participant Account Balances as of the prior Valuation Date, the Employer may apply a weighted average method that credits each Participant’s Account with a portion of the contributions made since the prior Valuation Date. The Plan’s investment procedures may designate the specific type(s) of contributions eligible for a weighted allocation of net income or loss and may designate alternative methods for determining the weighted allocation. If the Employer elects to apply a weighted average method, such method will be applied uniformly to all Participant Accounts under the General Trust Account.

(2)Net income or loss attributable to a Directed Account. If the Participant or Beneficiary is entitled to direct the investment of all or part of his/her Account (see Section 10.07), the Account (or the portion of the Account which is subject to such direction) will be maintained as a Directed Account, which reflects the value of the directed investments as of any Valuation Date. The assets held in a Directed Account may be (but are not required to be) segregated from the other investments held in the Trust. Net income or loss attributable to the investments made by a Directed Account is allocated to such Account in a manner that reasonably reflects the investment experience of such Directed Account. Where a Directed Account reflects segregated investments, the manner of allocating net income or loss shall not result in a Participant (or Beneficiary) being entitled to distribution from the Directed Account that exceeds the value of such Account as of the date of distribution.

10.04Share or unit accounting. The Plan’s investment procedures may provide for share or unit accounting to reflect the value of Accounts, if such method is appropriate for the investments allocable to such Accounts.

10.05Suspense accounts. The Plan’s investment procedures also may provide for special valuation procedures for suspense accounts that are properly established under the Plan.

10.06Investments under the Plan.

(a)Investment options. The person(s) responsible for the investment of Plan assets is authorized to invest Plan assets in any prudent investment consistent with the funding policy of the Plan and the requirements of ERISA. Investment options include, but are not limited to, the following:

•common and preferred stock or other equity securities (including stock bought and sold on margin);

•Qualifying Employer Securities and Qualifying Employer Real Property (to the extent permitted under subsection

•corporate bonds;

•open-end or closed-end mutual funds (including funds for which a Provider, Trustee, or affiliate serves as investment advisor or other capacity);

•money market accounts;

•certificates of deposit;

•debentures;

•commercial paper;

•put and call options;

•limited partnerships;

•mortgages;

•U.S. Government obligations, including U.S. Treasury notes and bonds;

•real and personal property having a ready market;

•life insurance or annuity policies;

•commodities;

•savings accounts;

•notes; and

•securities issued by the Trustee and/or its affiliates, as permitted by law.

(b)Investment of tax deductible Employee contributions in life insurance and collectibles. No portion of any voluntary, tax deductible Employee contributions being held under the Plan (or any earnings thereon) may be invested in life insurance contracts or, as with any Participant-directed investment, in tangible personal property characterized by the IRS as a collectible.


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(c)Limitations on the investment in Qualifying Employer Securities and Qualifying Employer Real Property. The Trustee may invest in Qualifying Employer Securities and Qualifying Employer Real Property within certain limits. Any such investment shall only be made upon written direction of the Employer who shall be solely responsible for the propriety of such investment. Additional directives regarding the purchase, sale, retention or valuing of such securities may be addressed in a funding policy, statement of investment policy, or other separate procedures or documents governing the investment of Plan assets.

(1)Profit Sharing Plan other than a 401(k) Plan. In the case of a Profit Sharing Plan (without a 401(k) feature), no limit applies to the percentage of Plan assets invested in Qualifying Employer Securities and Qualifying Employer Real Property, except as provided in a funding policy, statement of investment policy, or other separate procedures or documents governing the investment of Plan assets.

(2)401(k) Plan. With respect to the portion of the Plan consisting of amounts attributable to Salary Deferrals (including Roth Deferrals), no more than 10% of the fair market value of Plan assets attributable to Salary Deferrals and Roth Deferrals may be invested in Qualifying Employer Securities and Qualifying Employer Real Property if the Employer, the Trustee, or a person other than the Participant requires any portion of the Salary Deferrals or Roth Deferrals and attributable earnings to be invested in Qualifying Employer Securities or Qualifying Employer Real Property.

(i)Exceptions to Limitation. The limitation in this subsection (2) shall not apply if any one of the conditions in subsections (A), (B) or (C) below applies.

(A)Investment of Salary Deferrals or Roth Deferrals in Qualifying Employer Securities or Qualifying Real Property is solely at the discretion of the Participant.

(B)As of the last day of the preceding Plan Year, the fair market value of assets of all profit sharing plans and 401(k) plans of the Employer was not more than 10% of the fair market value of all assets under plans maintained by the Employer.

(C)The portion of a Participant’s Salary Deferrals or Roth Deferrals required to be invested in Qualifying Employer Securities and Qualifying Employer Real Property for the Plan Year does not exceed 1% of such Participant’s Plan Compensation.

(ii)No application to other contributions. The limitation in this subsection (2) has no application to Matching Contributions or Employer Contributions. Instead, the rules under subsection (1) above apply for such contributions.

(3)Money purchase plan. In the case of a money purchase plan, no more than 10% of the fair market value of Plan assets may be invested in Qualifying Employer Securities and Qualifying Employer Real Property.

(4)Special rules applicable to Qualifying Employer Securities and Qualifying Employer Real Property. The Employer may elect under AA §11-7 to limit the Accounts which can be used to invest in Qualifying Employer Securities or Qualifying Employer Real Property. In addition, the Employer may elect to apply different distribution options for Qualifying Employer Securities and/or Qualifying Employer Real Property under AA

§11-7.

To the extent permitted by the Employer under this Section 10.06(c), and unless provided otherwise under AA

§11-7, an Employee may direct the Employer to invest amounts in his/her Rollover Contribution Account in Qualifying Employer Securities. If an Employee is permitted to invest his/her Rollover Contribution Account in Qualifying Employer Securities, any purchase or sale of Qualifying Employer Securities must be for adequate consideration (within the meaning of ERISA §3(18)). In addition, any investment in Qualifying Employer Securities must satisfy the nondiscrimination requirements under Code §401(a)(4) and the regulations thereunder and must not violate the prohibited transaction rules under ERISA §408(e).

(d)Diversification requirements for Defined Contribution Plans invested in Employer securities. The following rules apply with respect to Defined Contribution Plans that provide for the investment of Plan assets in publicly-traded Employer securities. For purposes of this Article, publicly traded employer security is an employer security under ERISA §407(d)(1) which is readily tradable on an established securities market. A security is readily tradable on an established securities market if the security is traded on a national securities exchange that is registered under §6 of the Securities Exchange Act of 1934, or if the security is traded on a foreign national securities exchange that is officially recognized, sanctioned, or supervised by a governmental authority and where the security is deemed by the Securities and Exchange Commission as having a ready market under SEC Rule 15c3-1.


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(1)Employer Contributions invested in Employer securities. If any portion of the Account of a Participant attributable to Employer Contributions (other than Salary Deferrals) is invested in Employer securities, if the Participant (including a beneficiary of such Participant and an Alternate Payee who has an account under the Plan with respect to such Participant or a deceased Participant’s beneficiary) has completed at least 3 Years of Service for vesting purposes, such Participant may elect to direct the Plan to divest any such securities and to reinvest an equivalent amount in other investment options meeting the requirements of subsection (4) below. A year of vesting service has the same meaning as described in Code §411(a)(5).

(2)Salary Deferrals and After-Tax Employee Contributions invested in Employer securities. If any portion of the Account of a Participant attributable to Salary Deferrals or Employee contributions (under a Profit Sharing/401(k) Plan) is invested in Employer securities, such Participant may elect to direct the Plan to divest any such securities and to reinvest an equivalent amount in other investment options meeting the requirements of subsection (4) below.

(3)Phase-in of diversification requirements. To the extent Employer securities are acquired with Employer Contributions during a Plan Year beginning before January 1, 2007, the provisions under subsection (1) above shall only apply a percentage of such securities (applied separately for each class of securities), as determined below.

(i)Phase-in percentage. For purposes of applying the phase-in rules under this subsection (3), the phase- in rules apply to the following percentage of Employer securities based on the Plan Year for which these requirements apply.


Plan Year			Applicable Percentage
2007			33
2008			66
2009 and later			100

(ii)Exception for certain Participants over age 55. The phase-in rules under this subsection (3) will not apply to Participants who have attained age 55 and completed at least 3 Years of Service for vesting purposes before the first Plan Year beginning on or after January 1, 2006.

(4)Investment options. The requirements of this subsection (d) are met if the Plan offers not less than three (3) investment options, in addition to Employer securities, to which the Participant may direct the proceeds from the divestment of employer securities pursuant to this paragraph, each of which is diversified and has materially different risk and return characteristics. The Plan may provide reasonable limits on the time for divestment and reinvestment opportunities, provided such limits allow for at least quarterly divestment and reinvestment opportunities. Except as provided in regulations, the Plan may not impose restrictions or conditions on the investment of Employer securities which are not imposed on the investment of other Plan assets, other than restrictions or conditions imposed by reason of the application of securities laws or other guidance.

(5)Exceptions for certain plans. The diversification requirements under this subsection (d) do not apply to:

(i)One-participant plans. A plan that on the first day of the Plan Year covered only one individual (or the individual and the individual’s Spouse) and the individual owned 100 percent of the Employer (whether or not incorporated), or covered only one or more partners (or partners and their Spouses) and such plan:

(A)meets the minimum coverage requirements of Code §410(b) without being combined with any other plan of the Employer;

(B)does not provide benefits to anyone except the individual (and the individual’s Spouse) or the partners (and their Spouses);

(C)does not cover any Related Employers (as defined in Section 1.124); and

(D)does not cover an Employer that uses the services of Leased Employees (within the meaning of Code §414(n)).

(ii)Certain employee stock ownership plans. An employee stock ownership plan (“ESOP”) if: (i) there are no contributions to such plan (or allocable earnings) attributable to elective deferrals or matching contributions, and (ii) such plan is not aggregated (pursuant to Code §414(l)) with any other defined contribution plan or defined benefit plan maintained by the same Employer.


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(6)Certain plans treated as holding publicly-traded Employer securities. Except as provided in regulations, a plan holding Employer securities which are not publicly traded Employer securities shall be treated as holding publicly-traded Employer securities if any Employer corporation, or any member of a controlled group of corporations which includes such Employer corporation, has issued a class of stock which is a publicly traded Employer security. This subsection (6) will not apply if no Employer corporation, or parent corporation of an Employer corporation (as defined in Code §424(e)), has issued any publicly-traded Employer security, and no Employer corporation, or parent corporation of an Employer corporation, has issued any special class of stock which grants particular rights to, or bears particular risks for, the holder or issuer with respect to any corporation described in this subsection (6) which has issued any publicly-traded Employer security. For purposes of this subsection (6), the term controlled group of corporations has the meaning given such term by Code §1563(a), except that 50% shall be substituted for 80% each place it appears.

10.07Participant-directed investments. Unless otherwise indicated in the Adoption Agreement or in separate procedures, and except as otherwise required in an Investment Arrangement, each Participant shall have the exclusive right, in accordance with the provisions of the Plan, to direct the investment of all or a portion of the amounts allocated to the separate Accounts of the Participant under the Plan. (A reference to Participant under this Section 10.07 also applies to any Beneficiary or Alternate Payee eligible to direct investments under the Plan.)

(a)Limits on participant investment direction. The Employer may elect under AA §C-1, or under separate investment procedures, to limit Participant direction of investments to specific types of contributions or with respect to specific investment options. The terms of an Investment Arrangement may impose additional limitations. In no case may Participants direct that investments be made in collectibles, other than U.S. Government or State issued gold and silver coins, nor may adoption or modification of an investment procedure impose a limitation and/or restriction that would be prohibited under Section 14.01(b). (See Section 10.03(d)(2) for rules regarding allocation of net income or loss to a Directed Account.)

(b)Failure to direct investment. If Participant direction of investments is permitted, the Employer will designate how accounts will be invested in the absence of proper affirmative direction from the Participant. The Employer may designate a default fund under the Plan on behalf of Participants who have been identified by the Plan Administrator as having not specified investment choices under the Plan.

(c)Disclosure requirements. To the extent the Plan allows Participant direction of investment, each Participant or beneficiary that has the right to direct the investment of Plan assets must receive the disclosures required under DOL Reg. §2550.404a-5 on a regular and periodic basis. The Plan Administrator will not be liable for the completeness and accuracy of information used to satisfy these disclosure requirements when the Plan Administrator reasonably and in good faith relies on information received from or provided by a Plan service provider or the issuer of a designated investment alternative. For purposes of this subsection (c), a designated investment alternative is an investment alternative designated by the Plan into which Participants and beneficiaries may direct the investment of Plan assets held in their individual Accounts. The term designated investment alternative shall not include brokerage windows, self-directed brokerage accounts, or similar plan arrangements that enable Participants and beneficiaries to select investments beyond those designated by the Plan.

(d)ERISA §404(c) protection. If the Plan (by Employer election under AA §C-1(b)(4) or pursuant to the Plan’s investment procedures) is intended to comply with ERISA §404(c), the Participant investment direction program adopted by the Plan Administrator should comply with applicable Department of Labor regulations. Compliance with ERISA §404(c) is not required for plan qualification purposes. The following information is provided solely as guidance to assist the Plan Administrator in meeting the requirements of ERISA §404(c). Failure to meet any of the following safe harbor requirements does not impose any liability on the Plan Administrator (or any other fiduciary under the Plan) for investment decisions made by Participants, nor does it mean that the Plan does not comply with ERISA §404(c). Nothing in this Plan shall impose any greater duties upon the Trustee with respect to the implementation of ERISA §404(c) than those duties expressly provided for in procedures adopted by the Employer and agreed to by the Trustee.

(1)Disclosure requirements. The Plan Administrator (or other Plan fiduciary who has agreed to perform this activity) shall provide, or shall cause a person designated to act on his behalf to provide, the following information to Participants:

(i)Mandatory disclosures. To satisfy the requirements of ERISA §404(c), the Participants must receive certain mandatory disclosures, including:


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(A)an explanation that the Plan is intended to be an ERISA §404(c) plan and that the fiduciaries of the Plan may be relieved of liability for any losses which are the direct and necessary result of investment instructions given by the Participant or beneficiary;

(B)the information required pursuant to subsection (c) above; and

(C)if Participants or beneficiaries are able to directly or indirectly acquire or sell any Employer securities, a description of the procedures established to provide for the confidentiality of information relating to the purchase, holding and sale of such Employer securities, and the exercise of voting, tender and similar rights, by Participants and beneficiaries, and the name, address and phone number of the Plan fiduciary responsible for monitoring compliance with such procedures.

(2)Diversified investment options. The Plan must provide at least three diversified investment options that offer a broad range of investment opportunity. Each of the investment opportunities must have materially different risk and return characteristics. The procedure may allow investment under a segregated brokerage account.

(3)Frequency of investment instructions. Participants must have the opportunity to give investment instructions as frequently as is appropriate to the volatility of the investment. For each investment option, the frequency can be no less than quarterly.

10.08Investment in Life Insurance. A group or individual life insurance policy purchased by the Plan may be issued on the life of a Participant, a Participant’s Spouse, a Participant’s child or children, a family member of the Participant, or any other individual with an insurable interest. If this Plan is a money purchase plan, a life insurance policy may only be issued on the life of the Participant. A life insurance policy includes any type of policy, including a second-to-die policy, provided that the holding of a particular type of policy is not prohibited under rules applicable to qualified plans.

Any premiums on life insurance held for the benefit of a Participant will be charged against such Participant’s vested Account Balance. Unless directed otherwise, the Plan Administrator will reduce each of the Participant’s Accounts under the Plan equally to pay premiums on life insurance held for such Participant’s benefit. Any premiums paid for life insurance policies must satisfy the incidental life insurance rules under subsection (a) below.

(a)Incidental Life Insurance Rules. Any life insurance purchased under the Plan must meet the following requirements:

(1)Ordinary life insurance policies. The aggregate premiums paid for ordinary life insurance policies (i.e., policies with both nondecreasing death benefits and nonincreasing premiums) for the benefit of a Participant must be at any time less than 50% of the aggregate amount of Employer Contributions (including Salary Deferrals) and forfeitures that have been allocated to the Account of such Participant.

(2)Life insurance policies other than ordinary life. The aggregate premiums paid for term, universal or other life insurance policies (other than ordinary life insurance policies) for the benefit of a Participant shall not at any time exceed 25% of the aggregate amount of Employer Contributions (including Salary Deferrals) and forfeitures that have been allocated to the Account of such Participant.

(3)Combination of ordinary and other life insurance policies. The sum of one-half (½) of the aggregate premiums paid for ordinary life insurance policies plus all the aggregate premiums paid for any other life insurance policies for the benefit of a Participant shall not at any time exceed 25% of the aggregate amount of Employer Contributions (including Salary Deferrals) and forfeitures which have been allocated to the Account of such Participant.

(4)Exception for certain Profit Sharing and 401(k) Plans. If the Plan is a Profit Sharing Plan or a Profit Sharing/401(k) Plan, the limitations in this Section do not apply to the extent life insurance premiums are paid only with Employer Contributions and forfeitures that have been accumulated in the Participant’s Account for at least two years or are paid with respect to a Participant who has been a Participant for at least five years. For purposes of applying this special limitation, Employer Contributions do not include any Salary Deferrals, QMACs, QNECs or Safe-Harbor Contributions under a 401(k) plan.

(5)Exception for After-Tax Employee Contributions and Rollover Contributions. The Plan Administrator also may invest, with the Participant’s consent, any portion of the Participant’s After-Tax Employee Contribution Account or Rollover Contribution Account in a group or individual life insurance policy for the benefit of such Participant, without regard to the incidental life insurance rules under this Section.


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(b)Ownership of Life Insurance Policies. The Trustee is the owner of any life insurance policies purchased under the Plan. Any life insurance policy purchased under the Plan must designate the Trustee as owner and beneficiary under the policy. The Trustee will pay all proceeds of any life insurance policies to the Beneficiary of the Participant for whom such policy is held in accordance with the distribution provisions under Section 8 and the Joint and Survivor Annuity requirements under Section 9. In no event shall the Trustee retain any part of the proceeds from any life insurance policies for the benefit of the Plan.

(c)Evidence of Insurability. Prior to purchasing a life insurance policy, the Plan Administrator may require the individual whose life is being insured to provide evidence of insurability, such as a physical examination, as may be required by the Insurer.

(d)Distribution of Insurance Policies. Life insurance policies under the Plan, which are held on behalf of a Participant, must be distributed to the Participant or converted to cash upon the later of the Participant’s Annuity Starting Date (as defined in Section 1.12) or termination of employment. Any life insurance policies that are held on behalf of a terminated Participant must continue to satisfy the incidental life insurance rules under subsection (a) above. If a life insurance policy is purchased on behalf of an individual other than the Participant, and such individual dies, the Participant may withdraw any or all life insurance proceeds from the Plan, to the extent such proceeds exceed the cash value of the life insurance policy determined immediately before the death of the insured individual.

(e)Discontinuance of Insurance Policies. Investments in life insurance may be discontinued at any time, either at the direction of the Trustee or other fiduciary responsible for making investment decisions. If the Plan provides for Participant direction of investments, life insurance as an investment option may be eliminated at any time by the Plan Administrator. Where life insurance investment options are being discontinued, the Plan Administrator, in its sole discretion, may offer the sale of the insurance policies to the Participant, or to another person, provided that the prohibited transaction exemption requirements prescribed by the Department of Labor are satisfied.

(f)Protection of Insurer. An Insurer (as defined in Section 1.74) that issues a life insurance policy under the terms of this Section 10.08, shall not be responsible for the validity of this Plan and shall be protected and held harmless for any actions taken or not taken by the Trustee or any actions taken in accordance with written directions from the Trustee or the Employer (or any duly authorized representatives of the Trustee or Employer). An Insurer shall have no obligation to determine the propriety of any premium payments or to guarantee the proper application of any payments made by the insurance company to the Trustee.

The Insurer is not, and shall not be, considered a party to this Plan and is not a fiduciary with respect to the Plan solely as a result of the issuance of life insurance policies under this Section 10.08.

(g)No Responsibility for Act of Insurer. Neither the Employer, the Plan Administrator, nor the Trustee shall be responsible for the validity of the provisions under a life insurance policy issued under this Section 10.08 or for the failure or refusal by the Insurer to provide benefits under such policy. The Employer, the Plan Administrator and the Trustee are also not responsible for any action or failure to act by the Insurer, or any other person which results in the delay of a payment under the life insurance policy, or which renders the policy invalid or unenforceable in whole or in part.


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SECTION 11

PLAN ADMINISTRATION AND OPERATION

11.01Plan Administrator. The Employer is the Plan Administrator, unless the Employer designates in writing an alternative Plan Administrator. The Plan Administrator has the responsibilities described in this Section 11.

11.02Designation of Alternative Plan Administrator. The Employer may designate another person or persons as the Plan Administrator by name, by reference to the person or group of persons holding a particular position, by reference to a procedure under which the Plan Administrator is designated, or by reference to a person or group of persons charged with the specific responsibilities of Plan Administrator.

(a)Acceptance of responsibility by designated Plan Administrator. If the Employer designates an alternative Plan Administrator, the designated Plan Administrator must accept its responsibilities in writing. The Employer and the designated Plan Administrator jointly will determine the time period for which the alternative Plan Administrator will serve.

(b)Multiple alternative Plan Administrators. If the Employer designated more than one person as an alternative Plan Administrator, such Plan Administrators shall act by majority vote, unless the group delegates particular Plan Administrator duties to a specific person.

(c)Resignation or removal of designated Plan Administrator. A designated Plan Administrator may resign by delivering a written notice of resignation to the Employer. The Employer may remove a designated Plan Administrator by delivering a written notice of removal. If a designated Plan Administrator resigns or is removed, and no new alternative Plan Administrator is designated, the Employer is the Plan Administrator.

(d)Employer responsibilities. If the Employer designates an alternative Plan Administrator, the Employer will provide in a timely manner all appropriate information necessary for the Plan Administrator to perform its duties. This information includes, but is not limited to, Participant compensation data, Employee employment, service and termination information, and other information the Plan Administrator may require. The Plan Administrator may rely on the accuracy of any information and data provided by the Employer.

(e)Indemnification of Plan Administrator. The Employer will indemnify, defend and hold harmless the Plan Administrator (including the individual members of any administrative committee appointed by the Employer to handle administrative functions of the Plan or any Employees who have administrative responsibility for the Plan) with respect to any liability, loss, damage or expense resulting from any act or omission (except willful misconduct or gross negligence) in their official capacities in the administration of this Plan, including attorney, accountant and advisory fees and all other expenses reasonably incurred in their defense. The indemnification provisions of this Section do not relieve any person from any liability under ERISA for breach of a fiduciary duty. Furthermore, the Employer may execute a written agreement further delineating the indemnification agreement of this Section, provided the agreement is consistent with and does not violate ERISA.

11.03Named Fiduciary. The Plan Administrator is the Named Fiduciary for the Plan, unless the Plan Administrator specifically names another person or persons as Named Fiduciary and the designated person accepts its responsibilities as Named Fiduciary in writing. The Plan must always have at least one Named Fiduciary.

11.04Duties, Powers and Responsibilities of the Plan Administrator. The Plan Administrator will administer the Plan for the exclusive benefit of the Plan Participants and Beneficiaries, and in accordance with the terms of the Plan. If the terms of the Plan are unclear, the Plan Administrator may interpret the Plan, provided such interpretation is consistent with the rules of ERISA and Code §401 and is performed in a uniform and nondiscriminatory manner, and further subject to the limitations of the Investment Arrangement(s). This right to interpret the Plan is an express grant of discretionary authority to resolve ambiguities in the Plan document and to make discretionary decisions regarding the interpretation of the Plan’s terms, including who is eligible to participate under the Plan, and the benefit rights of a Participant or Beneficiary. Unless an interpretation or decision is determined to be arbitrary and capricious, the Plan Administrator will not be held liable for any interpretation of the Plan terms or decision regarding the application of a Plan provision.

(a)Delegation of duties, powers and responsibilities. The Plan Administrator may delegate its duties, powers or responsibilities to one or more persons. Such delegation must be in writing and accepted by the person or persons receiving the delegation. The Employer must agree to such delegation by an alternative Plan Administrator.

(b)Specific Plan Administrator responsibilities. The Plan Administrator has the general responsibility to control and manage the operation of the Plan. This responsibility includes, but is not limited to, the following:


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(1)To interpret and enforce the provisions of the Plan, including those related to Plan eligibility, vesting and benefits;

(2)To communicate with the Trustee and other responsible persons with respect to the crediting of Plan contributions, the disbursement of Plan distributions and other relevant matters;

(3)To develop separate procedures (if necessary and subject to limitations in this Plan) consistent with the terms of the Plan to assist in the administration of the Plan, including the adoption of a separate or modified loan policy (see Section 13), procedures for direction of investment by Participants (see Section 10.07), procedures for determining whether domestic relations orders are QDROs (see Section 11.06), and procedures for the determination of investment earnings to be allocated to Participants’ Accounts (see Section 10.03(d));

(4)To maintain all records necessary for tax and other administration purposes;

(5)To furnish and to file all appropriate notices, reports and other information to Participants, Beneficiaries, the Employer, the Trustee and government agencies (as necessary);

(6)To provide information relating to Plan Participants and Beneficiaries;

(7)To retain the services of other persons, including investment managers, attorneys, consultants, advisers and others, to assist in the administration of the Plan;

(8)To review and decide on claims for benefits under the Plan;

(9)To correct any defect or error in the operation of the Plan;

(10)To establish a funding policy and method for the Plan for purposes of ensuring the Plan is satisfying its financial objectives and is able to meet its liquidity needs; and

(11)To suspend contributions, including Salary Deferrals and/or After-Tax Employee Contributions, on behalf of any or all Highly Compensated Employees, if the Plan Administrator reasonably believes that such contributions will cause the Plan to discriminate in favor of Highly Compensated Employees. See Sections 6.01(c) and 6.02(c).

11.05Plan Administration Expenses.

(a)Reasonable Plan administration expenses. All reasonable expenses related to plan administration will be paid from Plan assets, except to the extent the expenses are paid (or reimbursed) by the Employer. For this purpose, Plan expenses include, but are not limited to, all reasonable costs, charges and expenses incurred by the Trustee in connection with the administration of the Trust (including such reasonable compensation to the Trustee as may be agreed upon from time to time between the Employer or Plan Administrator and the Trustee and any fees for legal services rendered to the Trustee).

(b)Plan expense allocation. The Plan Administrator will allocate plan expenses among the accounts of Plan Participants. The Plan Administrator has authority to allocate these expenses either proportionally based on the value of the Account Balances or pro rata based on the number of Participants in the Plan. The Plan Administrator will determine the proper method for allocating expenses in accordance with such reasonable nondiscriminatory rules as the Plan Administrator deems appropriate under the circumstances. Unless the Plan Administrator decides otherwise, the following expenses will be allocated to the Participant’s Account relative to which the expense is incurred: distribution expenses, including those relating to lump sums, installments, QDROs, hardship, in-service and required minimum distributions; loan expenses; participant direction expenses, including brokerage fees; and benefit calculations.

(c)Expenses related to administration of former Employee or surviving Spouse. The Plan may charge reasonable Plan administrative expenses to the Account of a former Employee or surviving Spouse, but only if the administrative expenses are on a pro rata basis. Under the pro rata basis, the expenses are based on the amount in each account of a former Employee or surviving Spouse receiving benefits from the Plan. The Plan Administrator may use another reasonable basis for charging the expenses, provided it complies with the requirements of Title I of ERISA. In any event, the allocation of plan expenses must meet the nondiscrimination rules of Code §401(a)(4).

(d)ERISA Spending Account. The Employer may maintain an ERISA Spending Account to hold certain miscellaneous amounts that are remitted to the Plan. Any amounts allocated to the ERISA Spending Account will be applied to pay reasonable Plan expenses no later than the end of the Plan Year following the Plan Year in which such amounts were allocated to the ERISA Spending Account and, unless elected otherwise under AA §11-9, any remaining amounts held


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in the ERISA Spending Account will be allocated to Participants as an allocation of earnings for the Plan Year. Such excess amounts held under the ERISA Spending Account may be allocated in a reasonable manner. For example, such excess amounts may be allocated to all Participants under the Plan prorata on the basis of Account Balances or under any other reasonable method.

11.06Qualified Domestic Relations Orders (QDROs).

(a)In general. The Plan Administrator must develop written procedures for determining whether a domestic relations order is a QDRO and for administering distributions under a QDRO. For this purpose, the Plan Administrator may use the default QDRO procedures set forth in subsection (h) below or may develop separate QDRO procedures.

(b)Definitions related to Qualified Domestic Relations Orders (QDROs).

(1)QDRO. A QDRO is a domestic relations order that creates or recognizes the existence of an Alternate Payee’s right to receive, or assigns to an Alternate Payee the right to receive, all or a portion of the benefits payable with respect to a Participant under the Plan. (See Code §414(p).) The QDRO must contain certain information and meet other requirements described in this Section 11.06.

(2)Domestic relations order. A domestic relations order is a judgment, decree, or order (including the approval of a property settlement) that is made pursuant to state domestic relations law (including community property law).

(3)Alternate Payee. An Alternate Payee must be a Spouse, former Spouse, child, or other dependent of a Participant.

(c)Recognition as a QDRO. To be a QDRO, an order must be a domestic relations order (as defined in subsection (b)(2) above) that relates to the provision of child support, alimony payments, or marital property rights for the benefit of an Alternate Payee. The Plan Administrator is not required to determine whether the court or agency issuing the domestic relations order had jurisdiction to issue an order, whether state law is correctly applied in the order, whether service was properly made on the parties, or whether an individual identified in an order as an Alternate Payee is a proper Alternate Payee under state law.

A domestic relations order otherwise meeting the requirements to be a QDRO shall not fail to be treated as a QDRO solely because:

(1)the order is issued after, or revises, another domestic relations order or QDRO; or

(2)of the time at which the order is issued, including orders issued after the death of the Participant.

Any QDRO described in this Section 11.06 shall be subject to the same requirements and protections which apply to QDROs under Code §414(p)(7).

(d)Contents of QDRO. A QDRO must contain the following information:

(1)the name and last known mailing address of the Participant and each Alternate Payee;

(2)the name of each plan to which the order applies;

(3)the dollar amount or percentage (or the method of determining the amount or percentage) of the benefit to be paid to the Alternate Payee; and

(4)the number of payments or time period to which the order applies.

(e)Impermissible QDRO provisions.

(1)The order must not require the Plan to provide an Alternate Payee or Participant with any type or form of benefit, or any option, not otherwise provided under the Plan;

(2)The order must not require the Plan to provide for increased benefits (determined on the basis of actuarial value);

(3)The order must not require the Plan to pay benefits to an Alternate Payee that are required to be paid to another Alternate Payee under another order previously determined to be a QDRO; and


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(4)The order must not require the Plan to pay benefits to an Alternate Payee in the form of a Qualified Joint and Survivor Annuity for the lives of the Alternate Payee and his or her subsequent Spouse.

(f)Immediate distribution to Alternate Payee. Even if a Participant is not eligible to receive an immediate distribution from the Plan, an Alternate Payee may receive a QDRO benefit immediately in a lump sum, provided such distribution is consistent with the QDRO provisions.

(g)Fee for QDRO determination. The Plan Administrator may condition the making of a QDRO determination on the payment of a fee by a Participant or an Alternate Payee (either directly or as a charge against the Participant’s Account).

(h)Default QDRO procedure. If the Plan Administrator chooses this default QDRO procedure or if the Plan Administrator does not establish a separate QDRO procedure, this subsection (h) will apply as the procedure the Plan Administrator will use to determine whether a domestic relations order is a QDRO. This default QDRO procedure incorporates the requirements set forth below.

(1)Access to information. The Plan Administrator will provide access to Plan and Participant benefit information sufficient for a prospective Alternate Payee to prepare a QDRO. Such information might include the summary plan description, other relevant plan documents, and a statement of the Participant’s benefit entitlements. The disclosure of this information is conditioned on the prospective Alternate Payee providing to the Plan Administrator information sufficient to reasonably establish that the disclosure request is being made in connection with a domestic relations order.

(2)Notifications to Participant and Alternate Payee. The Plan Administrator will promptly notify the affected Participant and each Alternate Payee named in the domestic relations order of the receipt of the order. The Plan Administrator will send the notification to the address included in the domestic relations order. Along with the notification, the Plan Administrator will provide a copy of the Plan’s procedures for determining whether a domestic relations order is a QDRO.

(3)Alternate Payee representative. The prospective Alternate Payee may designate a representative to receive copies of notices and Plan information that are sent to the Alternate Payee with respect to the domestic relations order.

(4)Evaluation of domestic relations order. Within a reasonable period of time, the Plan Administrator will evaluate the domestic relations order to determine whether it is a QDRO. A reasonable period will depend on the specific circumstances. The domestic relations order must contain the information described in subsection

(d) above. If the order is only deficient in a minor respect, the Plan Administrator may supplement information in the order from information within the Plan Administrator’s control or through communication with the prospective Alternate Payee.

(i)Separate accounting. Upon receipt of a domestic relations order, the Plan Administrator will separately account for and preserve the amounts that would be payable to an Alternate Payee until a determination is made with respect to the status of the order. During the period in which the status of the order is being determined, the Plan Administrator will take whatever steps are necessary to ensure that amounts that would be payable to the Alternate Payee, if the order were a QDRO, are not distributed to the Participant or any other person. The separate accounting requirement may be satisfied, at the Plan Administrator’s discretion, by a segregation of the assets that are subject to separate accounting.

(ii)Separate accounting until the end of 18-month period. The Plan Administrator will continue to separately account for amounts that are payable under the QDRO until the end of an 18-month period. The 18-month period will begin on the first date following the Plan’s receipt of the order upon which a payment would be required to be made to an Alternate Payee under the order. If, within the 18-month period, the Plan Administrator determines that the order is a QDRO, the Plan Administrator must pay the Alternate Payee in accordance with the terms of the QDRO. If, however, the Plan Administrator determines within the 18-month period that the order is not a QDRO, or, if the status of the order is not resolved by the end of the 18-month period, the Plan Administrator may pay out the amounts otherwise payable under the order to the person or persons who would have been entitled to such amounts if there had been no order. If the order is later determined to be a QDRO, the order will apply only prospectively; that is, the Alternate Payee will be entitled only to amounts payable under the order after the subsequent determination.


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(iii)Preliminary review. The Plan Administrator will perform a preliminary review of the domestic relations order to determine if it is a QDRO. If this preliminary review indicates the order is deficient in some manner, the Plan Administrator will allow the parties to attempt to correct any deficiency before issuing a final decision on the domestic relations order. The ability to correct is limited to a reasonable period of time.

(iv)Notification of determination. The Plan Administrator will notify, in writing, the Participant and each Alternate Payee of the Plan Administrator’s decision as to whether a domestic relations order is a QDRO. In the case of a determination that an order is not a QDRO, the written notice will contain the following information:

(A)references to the Plan provisions on which the Plan Administrator based its decision;

(B)an explanation of any time limits that apply to rights available to the parties under the Plan (such as the duration of any protective actions the Plan Administrator will take); and

(C)a description of any additional material, information, or modifications necessary for the order to be a QDRO and an explanation of why such material, information, or modifications are necessary.

(v)Treatment of Alternate Payee. If an order is accepted as a QDRO, the Plan Administrator will act in accordance with the terms of the QDRO as if it were a part of the Plan. Except as designated otherwise under this subsection (v), an Alternate Payee will be considered a Beneficiary under the Plan and be afforded the same rights as a Beneficiary. The Plan Administrator will provide any appropriate disclosure information relating to the Plan to the Alternate Payee. In determining the rights of an Alternate Payee, unless designated otherwise under AA §C-4, the following rules apply:

(A)Loans. An Alternate Payee is not permitted to take a loan from the Plan.

(B)Death benefits. If an Alternate Payee dies prior to receiving the entire amount designated under the QDRO, such benefits will be paid in accordance with Section 8.08, treating the Alternate Payee as the Beneficiary. If the Alternate Payee dies without a designated Beneficiary, the benefits will be paid to the Alternate Payee’s estate. Any death benefit will be paid in a single sum as soon as administratively feasible after the Alternate Payee’s death.

(C)Direction of investments. An Alternate Payee has the right to direct the investment of the portion of the Participant’s benefit that is segregated for the Alternate Payee’s benefit pursuant to a QDRO in the same manner as the Participant.

(D)Voting rights. An Alternate Payee has the right to exercise any voting rights in the same manner as the Participant.

11.07Claims Procedure. The Plan Administrator shall establish and maintain reasonable procedures governing the filing of benefit claims, notification of benefit determinations, and appeal of adverse benefit determinations (hereinafter collectively referred to as claims procedures) consistent with the requirements of ERISA Reg. §2560.503-1 and any other applicable guidance. The claims procedures for a plan will be deemed to be reasonable only if:

(a)The claims procedures comply with the requirements of paragraphs (c), (d), (e), (f), (g), (h), (i), and (j) of ERISA Reg.

§2560.503-1, as appropriate;

(b)A description of all claims procedures and the applicable time frames is included as part of a summary plan description meeting the requirements of 29 CFR 2520.102-3;

(c)The claims procedures do not contain any provision, and are not administered in a way, that unduly inhibits or hampers the initiation or processing of claims for benefits;

(d)The claims procedures do not preclude an authorized representative of a claimant from acting on behalf of such claimant in pursuing a benefit claim or appeal of an adverse benefit determination; and

(e)The claims procedures contain administrative processes and safeguards designed to ensure and to verify that benefit claim determinations are made in accordance with governing plan documents and that, where appropriate, the plan provisions have been applied consistently with respect to similarly situated claimants.


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11.08Operational Rules for Short Plan Years. The following operational rules apply if the Plan has a Short Plan Year. A Short Plan Year is any Plan Year that is less than a 12-month period, either because of the amendment of the Plan Year, or because the Effective Date of a new Plan is less than 12 months prior to the end of the first Plan Year.

(a)If the Plan is amended to create a Short Plan Year, and an Eligibility Computation Period or Vesting Computation Period is based on the Plan Year, the applicable computation period begins on the first day of the Short Plan Year, but such period ends on the day which is 12 months from the first day of such Short Plan Year. Thus, the computation period that begins on the first day of the Short Plan Year overlaps with the computation period that starts on the first day of the next Plan Year. This rule applies only to an Employee who has at least one Hour of Service during the Short Plan Year.

If a Plan has an initial Short Plan Year, the rule in the above paragraph applies only for purposes of determining an Employee’s Vesting Computation Period and only if the Employer elects under AA §8-3(a) to exclude service earned prior to the adoption of the Plan. For eligibility and vesting (where service prior to the adoption of the Plan is not ignored), if the Eligibility Computation Period or Vesting Computation Period is based on the Plan Year, the applicable Computation Period will be determined on the basis of the Plan’s normal Plan Year, without regard to the initial short Plan Year.

(b)If Employer Contributions are allocated for a Short Plan Year, any allocation condition under AA §6-6 or AA §6B-7 (under the Profit Sharing/401(k) Plan Adoption Agreement) that requires a Participant to complete a specified number of Hours of Service to receive an allocation of such Employer Contributions will not be prorated as a result of such Short Plan Year unless otherwise specified under the special rules in AA §6-5 or AA §6B-7, as applicable.

(c)If the permitted disparity method is used to allocate any Employer Contributions made for a Short Plan Year, the Integration Level will be prorated to reflect the number of months (or partial months) included in the Short Plan Year.

(d)The Compensation Limit, as defined in Section 1.26, will be prorated to reflect the number of months (or partial months) included in the Short Plan Year unless the compensation used for such Short Plan Year is a period of 12 months. (See Section 6.04(l)(1) for special rules that apply for the first year of a Safe Harbor 401(k) Plan.)

In all other respects, the Plan shall be operated for the Short Plan Year in the same manner as for a 12-month Plan Year, unless the context requires otherwise. If the terms of the Plan are ambiguous with respect to the operation of the Plan for a Short Plan Year, the Plan Administrator has the authority to make a final determination on the proper interpretation of the Plan.


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Pre-Approved Defined Contribution Plan Section 12 – Trust and Other Plan Funding

SECTION 12

TRUST AND OTHER PLAN FUNDING

12.01Establishment of Trust or Other Funding Mechanism. In conjunction with the establishment of this Plan, the Employer will establish and maintain a domestic Trust (or other funding mechanism) in the United States consisting of such sums as shall from time to time be paid to the Trustee under the Plan and such earnings, income and appreciation as may accrue thereon.

12.02Conflicting Trust Provisions. In the event of any conflict between the terms of this Plan and any conflicting provision contained in any associated Trust, custodial account document or any document that is incorporated by reference, the terms of this Plan will govern.

12.03More than One Trustee. If the Plan has more than one person acting as Trustee, the Trustees may allocate the Trustee responsibilities by mutual agreement. The Trustees may agree to make decisions by a majority vote or may permit any one of the Trustees to make any decision, undertake any action or execute any documents affecting this Trust without the approval of the remaining Trustees. The Trustees may agree to the allocation of responsibilities in a separate trust agreement or other binding document.

12.04Annual Valuation. The Plan assets will be valued at least on an annual basis. The Employer may designate more frequent Valuation Dates under AA §11-1. Notwithstanding any election under AA §11-1, the Trustee and Plan Administrator may agree to value the Trust on a more frequent basis, and/or to perform an interim valuation of the Trust.

12.05Appointment of Custodian. The Plan Administrator may appoint a Custodian to hold all or any portion of the Plan assets. A Custodian has the powers, rights and responsibilities similar to those of a Directed Trustee. The Custodian will be protected from any liability with respect to actions taken pursuant to the direction of the Plan Administrator, the Employer, an investment manager, a Named Fiduciary or other third party with authority to provide direction to the Custodian. The Employer may enter into a separate agreement with the Custodian. Such separate agreement must be consistent with the responsibilities and obligations set forth in this Plan document.

12.06Custodial Accounts, Annuity Contracts and Insurance Contracts. As provided under Code §401(f), a custodial account, an annuity contract or a contract issued by an Insurer is treated as a qualified trust under the Plan if (i) the custodial account or contract would, except for the fact that it is not a trust, constitute a qualified trust under Code §401(a) and (ii) in the case of a custodial account the assets thereof are held by a bank (as defined in Code §408(n)) or another person who demonstrates to the IRS that the manner in which the assets are held are consistent with the requirements of Code §401(a).

No insurance contract will be purchased under the Plan unless such contract or a separate definite written agreement between the Employer and the Insurer provides that: (1) no value under contracts providing benefits under the Plan or credits determined by the Insurer (on account of dividends, earnings, or other experience rating credits, or surrender or cancellation credits) with respect to such contracts may be paid or returned to the Employer or diverted to or used for other than the exclusive benefit of the Participants or their Beneficiaries. However, any contribution made by the Employer because of a mistake of fact must be returned to the Employer within one year of the contribution.

If this Plan is funded by individual contracts that provide a Participant's benefit under the Plan, such individual contracts shall constitute the Participant's Account Balance. If this Plan is funded by group contracts, under the group annuity or group insurance contract, premiums or other consideration received by the insurance company must be allocated to Participants’ accounts under the Plan.


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Pre-Approved Defined Contribution Plan Section 12 – Trust and Other Plan Funding

SECTION 13 PARTICIPANT LOANS

13.01Availability of Participant Loans. The Employer may elect under Appendix B of the Adoption Agreement to permit Participants to take loans from their vested Account Balance under the Plan. Participant loans may be treated as a segregated investment on behalf of each individual Participant for whom the loan is made or may be treated as a general investment of the Plan. If the Employer elects to permit loans under the Plan, and subject to the terms of the Investment Arrangement(s), the Employer may elect to use the default loan policy under this Section 13, as modified under Appendix B of the Adoption Agreement, or an outside loan policy for purposes of administering Participant loans under the Plan. If a separate written loan policy is adopted, the terms of such separate loan policy will control over the terms of this Plan with respect to the administration of any Participant loans. Any separate written loan policy must satisfy the requirements under Code §72(p) and the regulations thereunder.

Unless designated otherwise under AA §B-3, Participant loans under this Section 13 are available to Participants and Beneficiaries who are parties in interest (as defined in ERISA §3(14)). Unless modified in a separate loan policy, any reference to Participant under this Section 13 is a reference to a Participant or Beneficiary who is a party in interest.

To receive a Participant loan, a Participant must sign (including, where applicable, using electronic or other means recognized as sufficient) a promissory note along with a pledge or assignment of the portion of the Account Balance used for security on the loan. The loan will be evidenced by a legally enforceable agreement which specifies the amount and term of the loan, and the repayment schedule.

The rules and limitations on Participant loans under this Section 13 may be modified by legislative or regulatory action. If such action occurs, the applicable rule or limitation is modified accordingly.

13.02Must be Available in Reasonably Equivalent Manner. Participant loans must be made available to Participants in a reasonably equivalent manner. Participant loans will not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Employees. The Employer may elect under AA §B-8 to limit the availability of Participant loans to specified events. For example, the availability of Participant loans may be limited to the occurrence of a hardship event as described in Section 8.10(e)(1)(i).

13.03Loan Limitations. A Participant loan may not be made to the extent such loan (when added to the outstanding balance of all other loans made to the Participant) exceeds the lesser of:

(a)$50,000 (reduced by the excess, if any, of the Participant’s highest outstanding balance of loans from the Plan during the one-year period ending on the day before the date on which such loan is made, over the Participant’s outstanding balance of loans from the Plan as of the date such loan is made) or

(b)one-half (½) of the Participant’s vested Account Balance, determined as of the Valuation Date coinciding with or immediately preceding such loan, adjusted for any contributions or distributions made since such Valuation Date.

If so elected under AA §B-4, a Participant may take a loan equal to the greater of $10,000 or 50% of the Participant's vested Account Balance. However, if a Participant takes a loan in excess of 50% of the Participant’s vested Account Balance, such loan is still subject to the adequate security requirements under Section 13.06.

In applying the limitations under this Section 13.03, all plans maintained by the Employer are aggregated and treated as a single plan. In addition, any assignment or pledge of any portion of the Participant’s interest in the Plan and any loan, pledge, or assignment with respect to any insurance contract purchased under the Plan will be treated as a loan under this Section.

13.04Limit on Amount and Number of Loans. Unless elected otherwise under AA §B-5 and/or AA §B-6, or under a separate written loan policy, and except as otherwise provided in an Investment Arrangement, a Participant may not receive a Participant loan of less than $1,000 nor may a Participant have more than one Participant loan outstanding at any time.

(a)Loan renegotiation. Unless designated otherwise under AA §B-14, a Participant may be permitted to renegotiate a loan without violating the one outstanding loan requirement to the extent such renegotiated loan is a new loan (i.e., the renegotiated loan separately satisfies the reasonable interest rate requirement under Section 13.05, the adequate security requirement under Section 13.06, and the periodic repayment requirement under Section 13.07) and the renegotiated loan does not exceed the limitations under Section 13.03 above, treating both the replaced loan and the renegotiated loan as outstanding at the same time. However, if the term of the renegotiated loan does not end later than the original term of the replaced loan, the replaced loan may be ignored in applying the limitations under Section 13.03 above. The availability of renegotiations may be restricted, provided the ability to renegotiate a Participant loan is available on a non-discriminatory basis.


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(b)Participant must be creditworthy. The Plan Administrator may refuse to make a loan to any Participant who is determined to be not creditworthy. For this purpose, a Participant is not creditworthy if, based on the facts and circumstances, it is reasonable to believe that the Participant will not repay the loan. A Participant who has defaulted on a previous loan from the Plan and has not repaid such loan (with accrued interest) at the time of any subsequent loan will be treated as not creditworthy until such time as the Participant repays the defaulted loan (with accrued interest). See Section 13.10(b) for rules that apply if a Participant receives a subsequent loan while a prior defaulted loan is still outstanding.

13.05Reasonable Rate of Interest. All Participant loans will be charged a reasonable rate of interest. For this purpose, the interest rate charged on a Participant loan must be commensurate with the interest rates charged by persons in the business of lending money for loans under similar circumstances. Alternative methods for determining a reasonable rate of interest may be identified under AA §B-7 or under a separate written loan policy. The interest rate assumptions must be periodically reviewed to ensure the interest rate charged on Participant loans is reasonable.

If a Participant is in military service while he/she has an outstanding Participant loan, the applicable interest charged on such loan during the period while the Participant is in military service will not exceed 6% per year provided the Participant provides written notice and a copy of his/her call-up or extension orders to the Plan Administrator within 180 days following the Participant’s termination or release from military service. For this purpose, military service is as defined in the Soldier’s and Sailor’s Civil Relief Act of 1940 as modified by the Servicemembers Civil Relief Act of 2003. The Participant may voluntarily waive this 6% interest limitation and the Plan Administrator may petition the court to retain the original interest rate if the ability to repay is not affected by the Participant's activation to military duty.

13.06Adequate Security. All Participant loans must be adequately secured. The Participant’s vested Account Balance shall be used as security for a Participant loan provided the outstanding balance of all Participant loans made to such Participant does not exceed 50% of the Participants vested Account Balance, determined immediately after the origination of each loan, and if applicable, the spousal consent requirements described in Section 13.08 have been satisfied. The Plan Administrator may require a Participant to provide additional collateral to receive a Participant loan if the Plan Administrator determines such additional collateral is required to protect the interests of Plan Participants. A separate loan policy, or written modifications to this loan policy, may prescribe alternative rules for obtaining adequate security. However, the 50% rule in this paragraph may not be replaced with a greater percentage.

13.07Periodic Repayment. A Participant loan must provide for level amortization with payments to be made not less frequently than quarterly. A Participant loan must be payable within a period not exceeding five (5) years, unless the loan is for the purchase of the Participant’s principal residence, in which case the loan may be payable within ten (10) years or such longer period that is commensurate with the repayment period permitted by commercial lenders for similar loans. Loan repayments must be made through payroll withholding, ACH and/or coupon payment. If a Participant’s paycheck is insufficient to make both Salary Deferrals and loan repayments, the Plan Administrator may establish an administrative procedure establishing the hierarchy for Salary Deferrals and loan repayments.

(a)Leave of absence. A Participant with an outstanding Participant loan may suspend loan payments to the Plan for up to 12 months for any period during which the Participant’s pay is insufficient to fully repay the required loan payments. Upon the Participant’s return to employment (or after the end of the 12-month period, if earlier), the Participant’s outstanding loan will be re-amortized over the remaining period of such loan to make up for the missed payments. The re-amortized loan may extend beyond the original loan term so long as the loan is paid in full by whichever of the following dates comes first:

(1)the date which is five (5) years from the original date of the loan (or the end of the suspension, if sooner); or

(2)the original loan repayment deadline (or the end of the suspension period, if later) plus the length of the suspension period.

Alternatively, upon a Participant’s return to employment (or after the end of the 12-month period, if earlier), the Plan Administrator may allow the Participant’s outstanding loan payments to resume at the same loan payment amount as of the time of the loan suspension, with a balloon payment of the remaining balance due by the earlier of (1) the date which is five (5) years from the original date of the loan (or the end of the suspension, if sooner), or (2) the original loan repayment deadline (or the end of the suspension period, if later) plus the length of the suspension period.

(b)Military leave. A Participant with an outstanding Participant loan also may suspend loan payments for any period such Participant is on military leave, in accordance with Code §414(u)(4). Upon the Participant’s return from military leave (or the expiration of five years from the date the Participant began his/her military leave, if earlier), loan payments will recommence under the amortization schedule in effect prior to the Participant’s military leave, without regard to the five-year maximum loan repayment period. Alternatively, the loan may be re-amortized to require a different level of


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loan payment, as long as the amount and frequency of such payments are not less than the amount and frequency under the amortization schedule in effect prior to the Participant’s military leave.

13.08Spousal Consent. If this Plan is subject to the Joint and Survivor Annuity requirements under Section 9, a Participant may not use his/her Account Balance as security for a Participant loan unless the Participant’s Spouse, if any, consents to the use of such Account Balance as security for the loan. The spousal consent must be made within the 180-day period ending on the date the Participant’s Account Balance is to be used as security for the loan. Spousal consent is not required, however, if the value of the Participant’s total Account Balance does not exceed $5,000. If the Plan is not subject to the Joint and Survivor Annuity requirements under Section 9, a Spouse’s consent is not required to use a Participant’s Account Balance as security for a Participant loan, regardless of the value of the Participant’s Account Balance. (An Employer may elect under AA Appendix B- 16 to require spousal consent for loans even though the Plan is not subject to the Joint and Survivor Annuity requirements of Section 9.)

Any spousal consent required under this Section must be in writing, must acknowledge the effect of the loan, and must be witnessed by a plan representative or notary public. Any such consent to use the Participant’s Account Balance as security for a Participant loan is binding with respect to the consenting Spouse and with respect to any subsequent Spouse as it applies to such loan. A new spousal consent will be required if the Account Balance is subsequently used as security for a renegotiation, extension, renewal, or other revision of the loan. A new spousal consent also will be required only if any portion of the Participant’s Account Balance will be used as security for a subsequent Participant loan.

13.09Designation of Accounts. A Participant loan will be treated as a segregated investment on behalf of the individual Participant for whom the loan is made or may be treated as a general investment of the Plan. Unless designated otherwise under AA §B-15 of the Profit Sharing/401(k) Plan Adoption Agreement or under a separate loan procedure, and except as otherwise provided in an Investment Arrangement and the loan agreement, loan amounts may be taken from any available contribution source under the Plan. The Plan Administrator may determine the hierarchy of contribution sources from which a loan is taken or may follow directions of the Participant. Each payment of principal and interest paid by a Participant on his/her Participant loan shall be credited to the same Participant Accounts and investment funds within such Accounts from which the loan was taken.

13.10Procedures for Loan Default. Except as otherwise provided in the Investment Arrangement and in any loan agreement, and subject to applicable requirements in Code §72(p) and the regulations thereunder, the following loan default provisions will apply. A Participant will be considered to be in default with respect to a loan if any scheduled repayment with respect to such loan is not made by the end of the calendar quarter following the calendar quarter in which the missed payment was due. The Employer may apply a shorter cure period under AA §B-10.

(a)Offset of defaulted loan. If a Participant defaults on a Participant loan, the Plan may not offset the Participant’s Account Balance until the Participant is otherwise entitled to an immediate distribution of the portion of the Account Balance which will be offset and such amount being offset is available as security on the loan, pursuant to Section

13.06. For this purpose, a loan default is treated as an immediate distribution event to the extent the law does not prohibit an actual distribution of the type of contributions which would be offset as a result of the loan default (determined without regard to the consent requirements under Sections 8.04 and 9.04, so long as spousal consent was properly obtained at the time of the loan, if required under Section 13.08). The Participant may repay the outstanding balance of a defaulted loan (including accrued interest through the date of repayment) at any time.

Pending the offset of a Participant’s Account Balance following a defaulted loan, the following rules apply to the amount in default.

(1)Interest continues to accrue on the amount in default until the time of the loan offset or, if earlier, the date the loan repayments are made current or the amount is satisfied with other collateral;

(2)A subsequent offset of the amount in default is not reported as a taxable distribution, except to the extent the taxable portion of the default amount was not previously reported by the Plan as a taxable distribution;

(3)The post-default accrued interest included in the loan offset is not reported as a taxable distribution at the time of the offset.

(b)Subsequent loan following defaulted loan. If a loan is defaulted and has not been repaid or distributed (e.g., by plan loan offset), any subsequent loan must satisfy one of the following conditions:

(1)There must be an arrangement between the Plan, Participant or beneficiary and the Employer, enforceable under applicable law, under which repayments will be made by payroll withholding. For this purpose, an arrangement will not fail to be enforceable merely because a party has the right to revoke the arrangement prospectively; or


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(2)The Plan receives adequate security from the Participant or beneficiary that is in addition to the Participant's or beneficiary's accrued benefit under the Plan.

If a subsequent loan is made to a Participant or beneficiary that satisfies one of the conditions in this subsection (b) and before repayment of the subsequent loan, the conditions in this subsection are no longer satisfied (e.g., the loan recipient revokes consent to payroll withholding), the second loan will be treated as a deemed distribution under Code

§72(p).

A separate loan policy, or written modifications to this loan policy, may modify the procedures for determining a loan default.

13.11Termination of Employment.

(a)Offset of outstanding loan. If permitted under the Investment Arrangement, the loan agreement and any loan policy and unless elected otherwise under AA §B-12 or if a Participant requests a Direct Rollover as allowed under Section 13.11(b) below, a Participant loan becomes due and payable in full immediately upon the Participant’s termination of employment. Upon a Participant’s termination, the Participant may repay the entire outstanding balance of the loan (including any accrued interest) within a reasonable period following termination of employment. If the Participant does not repay the entire outstanding loan balance, the Participant’s vested Account Balance will be reduced by the remaining outstanding balance of the loan (without regard to the consent requirements under Sections 8.04 and 9.04, so long as spousal consent was properly obtained at the time of the loan, if required under Section 13.08), to the extent such Account Balance is available as security on the loan, pursuant to Section 13.06, and the remaining vested Account Balance will be distributed in accordance with the distribution provisions under Section 8. If the outstanding loan balance of a deceased Participant is not repaid, the outstanding loan balance shall be treated as a distribution to the Participant and shall reduce the death benefit amount payable to the Beneficiary under Section 8.08. This subsection (a) does not apply to the extent the terminated Participant is a party in interest as defined in ERISA §3(14).

(b)Direct Rollover. Unless elected otherwise under AA §B-13, upon termination of employment, a Participant may request a Direct Rollover of the loan note (provided the distribution is an Eligible Rollover Distribution as defined in Section 8.05(a)(1)) to another qualified plan which agrees to accept a Direct Rollover of the loan note. A Participant may not engage in a Direct Rollover of a loan to the extent the Participant has already received a deemed distribution with respect to such loan. (See the rules regarding deemed distributions upon a loan default under Section 13.10.)

13.12Mergers, Transfers or Direct Rollovers from another Plan/Change in Loan Record Keeper. Except as otherwise provided in an Investment Arrangement and related loan agreement, and subject to applicable requirements in Code §72(p) and the regulations thereunder, any Participant loan transferred into the Plan as the result of a merger, consolidation, or plan to plan transfer, or rolled over to the Plan from another plan, shall be administered in accordance with the provisions of the note reflecting such loan, and shall remain outstanding until repaid in accordance with its terms, except that the Participant may be permitted to renegotiate the terms of the loan to the extent necessary to ensure the administration of such loan continues to satisfy the requirements of Code §72(p) and the regulations thereunder. In addition, if there is a change in the person or persons to whom the record keeping of Participant loans has been delegated, a loan shall continue to be administered in accordance with the provisions of the note reflecting such loan, and shall remain outstanding until repaid in accordance with its terms, except that the Participant may be permitted to renegotiate the terms of a loan to the extent necessary to ensure the administration of the loan after the change in the loan record keeper continues to satisfy the requirements of Code §72(p) and the regulations thereunder, regardless of any contrary election under AA §B-14.

13.13Amendment of Plan to Eliminate Participant Loans. The Plan may be amended at any time to eliminate Participant loans on a prospective basis. However, the elimination of a Participant loan feature may not result in the acceleration of payment of any existing Participant loans, unless the terms of the Participant loan permit such acceleration.


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SECTION 14

PLAN AMENDMENTS, TERMINATION, MERGERS AND TRANSFERS

14.01Plan Amendments.

(a)Amendment by the Provider. The Provider (as described in §4.08 of Revenue Procedure 2017-41 or its successor) may amend any part of the plan. However, for purposes of reliance on an Opinion Letter, the Provider will no longer have the authority to amend the plan on behalf of the Employer as of the date (1) the employer amends the plan to incorporate a type of plan described in §6.03 of Rev. Proc. 2017-41 that is not permitted under the Pre-approved Plan program, or (2) the Internal Revenue Service notifies the employer, in accordance with §8.06(3) of Rev. Proc. 2017-41, that the Plan is an individually designed plan due to the nature and extent of Employer amendments to the Plan.

For purposes of Provider amendments, the Mass Submitter shall be recognized as the agent of the Provider. If the Provider does not adopt the amendments made by the Mass Submitter, it will no longer be identical to or a minor modifier of the Mass Submitter plan.

The Provider will maintain, or have maintained on its behalf, a record of the Employers that have adopted the Plan, and the Provider will make reasonable and diligent efforts to ensure that adopting Employers have actually received and are aware of all Plan amendments and that such Employers adopt new documents when necessary.

(b)Amendment by the Employer. The Employer shall have the right at any time to amend the Adoption Agreement in the following manner without affecting the Plan’s status as a Pre-Approved Plan. (The ability to amend the Plan as authorized under this subsection (b) applies only to the Employer that executes the Employer Signature Page of the Adoption Agreement. Any amendment to the Plan by the Employer under this subsection (b) also applies to any other Employer that participates under the Plan as a Participating Employer.)

(1)The Employer may change any optional selections under the Adoption Agreement.

(2)The Employer may add overriding language to the Adoption Agreement when such language is necessary to satisfy Code §415 or Code §416 because of the required aggregation of multiple plans.

(3)The Employer may change the Employer Information in Section 1 of the Adoption Agreement and/or the administrative selections under Appendix C of the Adoption Agreement by replacing the appropriate page(s) within the Adoption Agreement. Such amendment does not require re-execution of the Employer Signature Page of the Adoption Agreement and any such change will not affect the Employer’s reliance on the Favorable IRS Letter.

(4)The Employer may amend administrative provisions of the trust or custodial document, including the name of the Plan, Employer, Trustee or Custodian, Plan Administrator and other fiduciaries, the trust year, and the name of any pooled trust in which the Plan’s trust will participate.

(5)The Employer may add certain sample or model amendments published by the IRS which specifically provide that their adoption will not cause the Plan to be treated as an individually designed plan.

(6)The Employer may add or change provisions permitted under the Plan and/or specify or change the effective date of a provision as permitted under the Plan.

(7)The Employer may adopt any amendments that it deems necessary to satisfy the requirements for resolving qualification failures under the IRS’ compliance resolution programs.

(8)The Employer may adopt an amendment to cure a coverage or nondiscrimination testing failure, as permitted under applicable Treasury regulations.

The Employer may amend the Plan at any time for any other reason, including a waiver of the minimum funding requirement under Code §412(d). If such amendment is not deemed to be significant, the Plan will not lose its status as a Pre-Approved Plan. However, if the Employer modifies the language of the Plan or Adoption Agreement (other than the completion of optional selections (e.g., Describe lines), the Employer may not be able to rely on the Favorable IRS Letter issued with respect to the Plan and may need to submit the Plan to the IRS for a favorable determination letter to retain reliance. If an amendment to the Plan is deemed significant, such amendment could cause the Plan to lose its status as a Pre-Approved Plan and become an individually designed plan. (The loss of reliance on the Favorable IRS Letter is determined under Rev. Proc. 2017-41 (and its successor) and any other applicable IRS guidance.)


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The above provision, limiting the ability of the adopting Employer to amend the Plan, would not preclude the Employer, in cases where the Employer is switching from an individually designed plan or from one Pre-Approved Plan to another, from attaching to the Plan a list of the §411(d)(6) protected benefits that must be preserved.

(c)Method of amendment. An amendment to the Plan may be adopted as a modification to the Adoption Agreement and/or Basic Plan Document or as a separate snap-on amendment. An amendment to the Plan may be adopted as part of a properly executed board resolution. Any such resolution must be executed by the board of directors or a duly authorized officer of the Employer (if the Employer is a corporation or other similarly organized business entity), by a general partner or member of the Employer (if the Employer is a partnership or limited liability company), or by a sole proprietor (if the Employer is a sole proprietorship).

(d)Reduction of accrued benefit. No amendment to the Plan shall be effective to the extent that it has the effect of reducing a Participant's accrued benefit. Notwithstanding the preceding sentence, a Participant’s Account Balance may be reduced to the extent permitted under statute (e.g., Code §412(d)(2)), regulations (e.g., Treas. Reg. §§1.411(d)-3 and 1.411(d)-4), or other IRS guidance of general applicability. For purposes of this section, a plan amendment includes any changes to the terms of a plan, including changes resulting from a merger, consolidation, or transfer (as defined in Code §414(l)) or a Plan termination. Allocations of Employer Contributions and forfeitures will not be discontinued or decreased because of the Participant’s attainment of any age.

The rules of this subsection (d) apply to a Plan amendment that decreases a Participant's benefit, or otherwise places greater restrictions or conditions on a Participant's right to protected benefits, even if the amendment merely adds a restriction or condition that is permitted under the vesting rules in Code §411. However, such an amendment does not violate this subsection (d) to the extent it applies with respect to benefits that accrue after the applicable amendment date. An amendment that satisfies the applicable requirements under DOL Reg. §2530.203-2(c) relating to Vesting Computation Periods does not fail to satisfy the requirements of this subsection (d) merely because the amendment changes the Plan's Vesting Computation Period.

If the adoption of this Plan will result in the elimination of a protected benefit, the Employer may preserve such protected benefit by identifying the protected benefit under AA §11-11. Failure to identify protected benefits under the Adoption Agreement will not override the requirement that such protected benefits be preserved under this Plan. The availability of each optional form of benefit under the Plan must not be subject to Employer discretion.

If the Plan is a Profit Sharing/401(k) Plan, the Employer may eliminate or restrict the ability of a Participant to receive payment of his/her Account Balance under a particular form of benefit for distributions with annuity starting dates after the date the amendment is adopted if, after the amendment is effective with respect to the Participant, the Participant has the ability to elect to receive distribution in the form of a lump sum that is otherwise identical to the optional form of benefit being eliminated or restricted. For this purpose, a lump sum distribution form is otherwise identical only if the lump sum distribution form is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the participant) except with respect to the timing of payments after commencement.

To the extent the Plan permits Participants to receive an in-kind distribution of marketable securities (other than Employer securities), the Plan Administrator may require Employees to receive distributions in the form of cash. In addition, the Plan may be amended to limit in-kind distributions to investments held in the participant’s Account at the time of the amendment and for which the Plan, prior to the amendment, allowed in-kind distribution. Any such amendment may limit the availability of in-kind distributions to investments that are actually held in a Participant’s Account at the time of distribution. Thus, the Plan would not have to continue to allow Participants to request an in- kind distribution after the Participant’s Account no longer holds such investment (either by election of the Participant or because the Plan no longer offers that investment option).

(e)Amendment of vesting schedule. If the Plan's vesting schedule is amended or the Plan is amended in any way that directly or indirectly affects the computation of a Participant's nonforfeitable percentage, in the case of an Employee who is a Participant as of the later of the date such amendment or change is adopted or the date it becomes effective, the nonforfeitable percentage (determined as of such date) of such Employee's account balance will not be less than the percentage computed under the Plan without regard to such amendment or change. With respect to benefits accrued as of the later of the adoption or effective date of the amendment, the vested percentage of each Participant will be the greater of the vested percentage under the old vesting schedule or the vested percentage under the new vesting schedule.

(f)Effective date of Plan Amendments. If the Plan is restated or amended, such restatement or amendment is generally effective as of the Effective Date of the restatement or amendment (as designated on the Employer Signature Page with respect to such amendment), except where the context indicates a reference to an earlier Effective Date. The Employer


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may designate special effective dates for individual provisions under the Plan where provided in the Adoption Agreement or under Appendix A of the Adoption Agreement.

(1)Retroactive Effective Date. If the Plan is amended retroactively (e.g., to add language required to comply with IRS guidance or law), the provisions of this Plan generally override the provisions of any prior Plan. However, if the provisions of this Plan are different from the provisions of the Employer’s prior plan and, after the retroactive Effective Date of this Plan, the Employer operated in compliance with the provisions of the prior plan, the provisions of such prior plan (including interim amendments) are incorporated into this Plan for purposes of determining whether the Employer operated the Plan in compliance with its terms, provided operation in compliance with the terms of the prior plan do not violate any qualification requirements under the Code, regulations, or other IRS guidance.

(2)Retroactive effect of certain provisions. This Plan is designed to comply with the Code, regulations, and general guidance applicable to qualified retirement plans in effect as of the Effective Date of the Plan. Certain provisions of the Plan are retroactively effective as indicated in the specific provisions. If the Plan is being restated within the remedial amendment period for retroactive compliance, the special effective dates for such provisions will apply, even if such special effective dates precede the Effective Date of the restatement designated on the Employer Signature Page of the Adoption Agreement. If the Effective Date of this restatement or amendment is later than the applicable special effective date, such special effective dates will apply and any prior plan being replaced by this Plan will be considered to have been timely amended for the applicable provisions.

(3)Merged plans. Except for retroactive application of the provisions under this subsection (f), if one or more qualified retirement plans have been merged into this Plan, the provisions of the merging plan(s) will remain in full force and effect until the Effective Date of the plan merger(s), unless provided otherwise under Appendix A of the Adoption Agreement.

14.02Amendment to Correct Coverage or Nondiscrimination Violation.

(a)Amendment within correction period under Treas. Reg. §1.401(a)(4)-11(g). If the Plan fails the minimum coverage test under Code §410(b) or the nondiscrimination requirements under Code §401(a)(4) for any Plan Year, the Employer may amend the Plan to correct the coverage or nondiscrimination violation within 9½ months after the end of the Plan Year, as permitted under Treas. Reg. §1.401(a)(4)-11(g). Any such amendment may be adopted as a modification of the Adoption Agreement or as a snap-on amendment, as described under Section 14.01(c), and will not affect the Pre- Approved Plan status provided the amendment does not violate any of the requirements applicable to Pre-Approved Plans under Rev. Proc. 2017-41 or subsequent guidance.

(b)Fail-Safe Coverage Provision. If the Employer has elected to apply a last day of the Plan Year allocation condition and/or an Hours of Service allocation condition, the Employer may elect under AA §11-6 to apply the Fail-Safe Coverage Provision described in this subsection (b). Under the Fail-Safe Coverage Provision, if the Plan fails to satisfy the ratio percentage coverage requirements under Code §410(b)(1)(A) or (B) for a Plan Year due to the application of a last day of the Plan Year allocation condition and/or an Hours of Service allocation condition, such allocation condition(s) will be automatically eliminated for the Plan Year for certain Employees, under the process described in subsections (2)(i) and (2)(ii) below, until enough Employees are benefiting under the Plan so that the ratio percentage test of Treasury Regulation §1.410(b)-2(b)(2) is satisfied.

(1)Application of Fail-Safe Coverage Provision. If the Employer elects to have the Fail-Safe Coverage Provision apply, such provision automatically applies for any Plan Year for which the Plan does not satisfy the ratio percentage coverage test under Code §410(b). (Except as provided in the following paragraph, the Plan may not use the average benefits test to comply with the minimum coverage requirements if the Fail-Safe Coverage Provision is elected.) The Plan satisfies the ratio percentage test if the percentage of the Nonhighly Compensated Employees under the Plan is at least 70% of the percentage of the Highly Compensated Employees who benefit under the Plan. An Employee is benefiting for this purpose only if he/she actually receives an allocation of Employer Contributions or forfeitures or, if testing coverage of a 401(m) arrangement (i.e., a Plan that provides for Matching Contributions and/or After-Tax Employee Contributions), the Employee would receive an allocation of Matching Contributions by making the necessary contributions or the Employee is eligible to make After-Tax Employee Contributions. To determine the percentage of Nonhighly Compensated Employees or Highly Compensated Employees who are benefiting, the following Employees are excluded for purposes of applying the ratio percentage test:

(i)Employees who have not satisfied the Plan’s minimum age and service conditions under Section 2.03;

(ii)Nonresident Alien Employees;


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(iii)Union Employees; and

(iv)Employees who terminate employment during the Plan Year with less than 501 Hours of Service and do not benefit under the Plan.

(2)Fail-Safe Coverage test. Under the Fail-Safe Coverage Provision, certain Employees who are not benefiting for the Plan Year as a result of a last day of the Plan Year allocation condition or an Hours of Service allocation condition will participate under the Plan based on whether such Employees are Category 1 Employees or Category 2 Employees (as described in subsection (i) and (ii) below). If after applying the Fail-Safe Coverage Provision, the Plan does not satisfy the ratio percentage coverage test, the Fail-Safe Coverage Provision does not apply, and the Plan may use any other available method (including the average benefit test) to satisfy the minimum coverage requirements under Code §410(b).

(i)Category 1 Employees – Nonhighly Compensated Employees who are still employed by the Employer on the last day of the Plan Year but who failed to satisfy the Plan’s Hours of Service condition. The Hours of Service allocation condition will first be eliminated for Category 1 Employees (who did not receive an allocation under the Plan due to the Hours of Service allocation condition) beginning with the Category 1 Employee(s) credited with the most Hours of Service for the Plan Year and continuing with the Category 1 Employee(s) with the next most Hours of Service until the ratio percentage test is satisfied. If two or more Category 1 Employees have the same number of Hours of Service, the allocation condition will be eliminated for those Category 1 Employees starting with the Category 1 Employee(s) with the highest Plan Compensation. If the Plan still fails to satisfy the ratio percentage test after all Category 1 Employees receive an allocation, the Plan proceeds to Category 2 Employees (see subsection (ii) below).

(ii)Category 2 Employees - Nonhighly Compensated Employees) who terminated employment during the Plan Year with more than 500 Hours of Service. The last day of the Plan Year allocation condition will then be eliminated for Category 2 Employees (who did not receive an allocation under the Plan due to the last day of the Plan Year allocation condition) beginning with the Category 2 Employee(s) who terminated employment closest to the last day of the Plan Year and continuing with the Category 2 Employee(s) with a termination of employment date that is next closest to the last day of the Plan Year until the ratio percentage test is satisfied. If two or more Category 2 Employees

terminate employment on the same day, the allocation condition will be eliminated for those Category 2 Employees starting with the Category 2 Employee(s) with the highest Plan Compensation.

(3)Special rule for Top Heavy Plans. In applying the Fail-Safe Coverage Provision under this Section 14.02, if the Plan is a Top-Heavy Plan, the Employer may first eliminate the Hours of Service allocation condition for all Non-Key Employees who are Nonhighly Compensated Employees, prior to applying the Fail-Safe Coverage Provisions described above.

14.03Plan Termination. The Employer may terminate this Plan at any time by delivering to the Trustee and Plan Administrator written notice of such termination.

(a)Full and immediate vesting. Upon a full or partial termination of the Plan (or in the case of a Profit Sharing Plan, the complete discontinuance of contributions), all amounts credited to an affected Participant’s Account become 100% vested, regardless of the Participant’s vested percentage determined under Section 7.02. The Plan Administrator has discretion to determine whether a partial termination has occurred.

(b)Distribution upon Plan termination. Upon the termination of the Plan, the Plan Administrator shall direct the distribution of Plan assets to Participants in accordance with the provisions under Section 8. For purposes of applying the provisions of this subsection (b), distribution may be delayed until the Employer receives a favorable determination letter from the IRS as to the qualified status of the Plan upon termination, provided the determination letter request is made within a reasonable period following the termination of the Plan. Until all Plan assets have been distributed from the Plan, the Employer must amend the Plan in order to comply with current laws and regulations and may take any other actions necessary to retain the qualified status of the Plan.

(1)General distribution procedures. Upon termination of the Plan, distribution shall be made to Participants with vested Account Balances of $5,000 or less in lump sum as soon as administratively feasible following the Plan termination, regardless of any contrary election under AA §9. No consent is necessary for a distribution of a vested Account Balance of $5,000 or less. Subject to the provisions of this subsection (b), for Participants with vested Account Balances in excess of $5,000, distribution will be made through the purchase of deferred annuity contracts which protect all protected benefits under the Plan (as defined in Code §411(d)(6)), unless a


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Participant elects to receive an immediate distribution in any form of payment permitted under the Plan. If an immediate distribution is elected in a form other than a lump sum, the distribution will be satisfied through the purchase of an immediate annuity contract. Distributions will be made as soon as administratively feasible following the Plan termination, regardless of any contrary election under AA §9.

(2)Special rule for certain Profit Sharing Plans. If this Plan is a Profit Sharing/401(k) Plan, distribution will be made to all Participants in the form of a lump sum, without consent, as soon as administratively feasible following the termination of the Plan, without regard to the value of the Participants’ vested Account Balance. This special rule applies only if the Plan does not provide for an annuity option under AA §9-1 and the Employer (or any Related Employer) does not maintain another Defined Contribution Plan (other than an ESOP defined in Code §4975(e)(8)) at any time between the termination of the Plan and the distribution. If the Employer (or Related Employer) maintains another Defined Contribution Plan (other than an ESOP), then the Participant’s Account Balance will be transferred, without the Participant’s consent, to the other plan, if the Participant does not consent to an immediate distribution (to the extent consent is required under this subsection (b)).

(3)Special rules for 401(k) Plans. If this Plan is a Profit Sharing/401(k) Plan, a distribution of Salary Deferrals, QMACs, QNECs, and Traditional Safe Harbor/QACA Safe Harbor Contributions may be distributed in a lump sum upon Plan termination only if the Employer does not maintain another Defined Contribution Plan (other than an ESOP (as defined in Code §4975(e)(7) or §409(a)), a SEP (as defined in Code §408(k)), a SIMPLE IRA (as defined in Code §408(p)), a plan or contract described in Code §403(b) or a plan described in Code

§457(b) or (f)), at any time during the period beginning on the date of termination and ending 12 months after the final distribution of all Plan assets. This subsection (3) will not apply to restrict distribution upon termination of the Plan if at all times during the 24-month period beginning 12 months before the Plan termination, fewer than 2% of the Participants under the Profit Sharing/401(k) Plan are eligible under the other Defined Contribution Plan. This subsection (3) also will not apply to the extent a Participant may take a distribution under another permissible distribution event.

(4)Missing Participants or Beneficiaries. Upon termination of the Plan, if any Participant or Beneficiary is determined to be missing (i.e., cannot be located after a reasonable diligent search (as described in Section 7.12(c)(1))), is unresponsive to the Plan’s communications, is eligible for or elected a lump sum distribution under the Plan and does not accept the Plan payment, or is otherwise considered missing under other acceptable criteria), the Plan Administrator may proceed with the distribution or disposition of the Participant’s Account under the options recommended under the Department of Labor’s Field Assistance Bulletin 2014-01 (or subsequent guidance) and PBGC Reg. §§4050.201-4050.207, including making a direct rollover to an IRA selected by the Plan Administrator, utilizing the PBGC’s missing participant program or disposing of the Participant’s Account is another acceptable method. For this purpose, the Plan Administrator will adopt procedures, similar to the procedures required under Section 8.06, for making Automatic Rollovers in applying the provisions under this subsection (4). An Automatic Rollover under this subsection (4) may be made on behalf of any missing Participant, regardless of the value of his/her vested Account Balance under the Plan.

(c)Termination upon merger, liquidation or dissolution of the Employer. The Plan shall terminate upon the liquidation or dissolution of the Employer or the death of the Employer (if the Employer is a sole proprietor) provided however, that in any such event, arrangements may be made for the Plan to be continued by any successor to the Employer. If the Plan Administrator or Trustee is still in existence, the Trustee or Plan Administrator may engage in any actions necessary to complete the termination of the Plan. If there is no person serving as Trustee or Plan Administrator, another person or entity may be designated to carry out the termination of the Plan. Such person or entity may be selected in writing by a majority of Participants whose Accounts under the Plan have not been fully distributed. In the case of a sole proprietor, the executor of the estate of such sole proprietor may serve as Plan Administrator for purposes of completing the termination of the Plan, unless an alternative person is designated by a majority of the Participants under the Plan. If no person or entity is designated to terminate the Plan, a qualified termination administrator (QTA) (or other entity permitted by the IRS or DOL) may terminate the Plan in accordance with rules promulgated by the IRS and DOL.

(d)Partial Termination. In determining whether a Plan has experienced a partial termination as described under Code

§411(d)(3), the Plan Administrator will apply the principals set forth under IRS Revenue Ruling 2007-43.

14.04Merger or Consolidation. In the event the Plan is merged or consolidated with another plan, each Participant must be entitled to a benefit immediately after such merger or consolidation that is at least equal to the benefit the Participant was entitled to immediately before such merger or consolidation (had the Plan terminated).


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If the Employer amends the Plan from one type of Defined Contribution Plan (e.g., a Money Purchase Plan) into another type of Defined Contribution Plan (e.g., a Profit Sharing Plan) it will not result in a partial termination or any other event that would require full vesting of some or all Plan Participants.

14.05Transfer of Assets. The Plan may accept a transfer of assets from another qualified retirement plan on behalf of any Employee, even if such Employee is not eligible to receive other contributions under the Plan. If a transfer of assets is made on behalf of an Employee prior to the Employee’s becoming a Participant, the Employee shall be treated as a Participant for all purposes with respect to such transferred amount. Any assets transferred to this Plan from another plan must be accompanied by written instructions designating the name of each Employee for whose benefit such amounts are being transferred, the current value of such assets, and the sources from which such amounts are derived. The Plan Administrator will deposit any transferred assets in the appropriate Participant’s Transfer Account. The Transfer Account will contain any sub-Accounts necessary to separately track the sources of the transferred assets. Each sub-Account will be treated in the same manner as the corresponding Plan Account. The Plan also may transfer some or all of the assets of a Participant’s account to another qualified retirement plan.

The Plan Administrator may refuse to accept a transfer of assets if the Plan Administrator reasonably believes the transfer (1) is not being made from a proper qualified plan; (2) could jeopardize the tax-exempt status of the Plan; or (3) could create adverse tax consequences for the Plan or the Employer. Prior to accepting a transfer of assets, the Plan Administrator may require evidence documenting that the transfer of assets meets the requirements of this Section 14.05. The Trustee will have no responsibility to determine whether the transfer of assets meets the requirements of this Section 14.05; to verify the correctness of the amount and type of assets being transferred to the Plan; or to perform a due diligence review with respect to such transfer.

(a)Protected benefits. Except in the case of a Qualified Transfer (as defined in subsection (d) below), a transfer of assets is initiated at the Plan level and does not require Participant or spousal consent. If the Plan Administrator directs the Trustee to accept a transfer of assets to this Plan, the Participant on whose behalf the transfer is made retains all protected benefits (as defined in Code §411(d)(6)) that applied to such transferred assets under the transferor plan.

(b)Application of QJSA requirements. Except in the case of a Qualified Transfer (as defined in subsection (d) below), if the Plan accepts a transfer of assets from another plan which is subject to the Qualified Joint and Survivor Annuity requirements (as described in Section 9), the amounts transferred to this Plan continue to be subject to the QJSA requirements. If this Plan is not otherwise subject to the QJSA requirements (as determined under AA §9-2), the QJSA requirements apply only to the extent the transferred amounts were subject to the Qualified Joint and Survivor Annuity requirements under the transferor plan. The Employer must maintain such amounts in a separate Transfer Account under this Plan in order to apply the QJSA rules to such transferred amounts. The Employer may override this default rule by checking AA §9-2(a) of the Profit Sharing/401(k) Plan Adoption Agreement thereby subjecting the entire Plan to the QJSA requirements.

(c)Transfers from a Defined Benefit Plan, Money Purchase Plan or 401(k) Plan.

(1)Transfer from Defined Benefit Plan. The Plan will not accept a transfer of assets from a Defined Benefit Plan unless such transfer qualifies as a Qualified Transfer (as defined in subsection (d) below) or the assets transferred from the Defined Benefit Plan are in the form of paid-up annuity contracts which protect all of the Participant’s protected benefits (as defined under Code §411(d)(6)) under the Defined Benefit Plan.

However, the Plan may accept a transfer of assets from a Defined Benefit Plan maintained by the Employer in order to comply with the qualified replacement plan requirements under Code §4980(d) (relating to the excise tax on reversions from a qualified plan). A transfer made pursuant to Code §4980(d) will be allocated as Employer Contributions either in the Plan Year in which the transfer occurs, or over a period of Plan Years (not exceeding the maximum period permitted under Code §4980(d)). To the extent a transfer described in this paragraph is not totally allocable in the Plan Year in which the transfer occurs, the portion which is not allocable will be credited to a suspense account until allocated.

(2)Transfer from or conversion of Money Purchase Plan. If this Plan is a Profit Sharing Plan or a 401(k) Plan and the Plan accepts a transfer or conversion of assets from a money purchase plan (other than as a Qualified Transfer as defined in subsection (d) below), the amounts transferred or converted (and any gains attributable to such amounts) continue to be subject to the distribution restrictions applicable to money purchase plan assets under the transferor plan. Such amounts may not be distributed for reasons other than death, disability, attainment of Normal Retirement Age, attainment of age 62, or termination of employment, regardless of any distribution provisions under this Plan that would otherwise permit a distribution prior to such events.

(3)401(k) Plan. If the Plan accepts a transfer of Salary Deferrals, QMACs, QNECs, or Traditional Safe Harbor/QACA Safe Harbor Contributions from a 401(k) plan, such amounts retain their character under this


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Plan and such amounts (including any allocable gains or losses) remain subject to the distribution restrictions applicable to such amounts under the Code. If the Plan accepts a transfer of Roth Deferrals, the Plan must continue to apply the Roth Deferral rules (as described in Section 3.03(e)) to such transferred Roth Deferrals.

(d)Qualified Transfer. The Plan may eliminate certain protected benefits (as provided under subsection (3)(ii) below) related to plan assets that are received in a Qualified Transfer from another plan. A Qualified Transfer is a plan-to-plan transfer of a Participant’s benefits that meets the requirements under subsection (1) or (2) below.

(1)Elective transfer. A plan-to-plan transfer of a Participant’s benefits from another qualified plan is a Qualified Transfer if such transfer satisfies the following requirements:

(i)The Participant must have the right to receive an immediate distribution of his/her benefits under the transferor plan at the time of the Qualified Transfer. The Participant must not be eligible at the time of the Qualified Transfer to take an immediate distribution of his/her entire benefit in a form that would be entirely eligible for a Direct Rollover.

(ii)The Participant on whose behalf benefits are being transferred must make a voluntary, fully informed election to transfer his/her benefits to this Plan.

(iii)The Participant must be provided an opportunity to retain the protected benefits under the transferor plan. This requirement is satisfied if the Participant is given the option to receive an annuity that protects all protected benefits under the transferor plan or the option of leaving his/her benefits in the transferor plan.

(iv)The Participant’s Spouse must consent to the Qualified Transfer if the transferor plan is subject to the Joint and Survivor Annuity requirements under Section 9. The Spouse’s consent must satisfy the requirements for a Qualified Election under Section 9.04.

(v)The amount transferred (along with any contemporaneous Direct Rollover) must not be less than the value of the Participant’s vested benefit under the transferor plan.

(vi)The Participant must be fully vested in the transferred benefit.

(2)Transfer upon specified events. A plan-to-plan transfer of a Participant’s entire benefit (other than amounts the Plan accepts as a Direct Rollover) from another Defined Contribution Plan that is made in connection with an asset or stock acquisition, merger, or other similar transaction involving a change in the Employer or is made in connection with a Participant’s change in employment status that causes the Participant to become ineligible for additional allocations under the transferor plan, is a Qualified Transfer if such transfer satisfies the following requirements:

(i)The Participant need not be eligible for an immediate distribution of his/her benefits under the transferor plan.

(ii)The Participant on whose behalf benefits are being transferred must make a voluntary, fully informed election to transfer his/her benefits to this Plan.

(iv)The benefits must be transferred between plans of the same type. To satisfy this requirement, the transfer must satisfy the following requirements:

(A)To accept a Qualified Transfer under this subsection (2) from a money purchase plan, this Plan also must be a money purchase plan.

(B)To accept a Qualified Transfer under this subsection (2) from a 401(k) plan, this Plan also must be a 401(k) plan (including a plan that holds frozen 401(k) plan assets).

(C)To accept a Qualified Transfer under this subsection (2) from a profit sharing plan, this Plan may be any type of Defined Contribution Plan.


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(3)Treatment of Qualified Transfer.

(i)Rollover Contribution Account. If the Plan Administrator directs the Trustee to accept on behalf of a Participant a transfer of assets that qualifies as a Qualified Transfer under subsection (1) above, the Plan Administrator will treat such amounts as a Rollover Contribution and will deposit such amounts in the Participant’s Rollover Contribution Account. A Qualified Transfer may include benefits derived from After-Tax Employee Contributions.

(ii)Elimination of protected benefits. If the Plan accepts a Qualified Transfer under subsection (1) above, the Plan does not have to protect any protected benefits (defined under Code §411(d)(6)) derived from the transferor plan. However, if the Plan accepts a Qualified Transfer that meets the requirements for a transfer under subsection (2) above, the Plan must continue to protect the QJSA benefit if the transferor plan is subject to the QJSA requirements.

(e)Trustee’s right to refuse transfer. If the assets to be transferred to the Plan under this Section 14.05 are not susceptible to proper valuation and identification or are of such a nature that their valuation is incompatible with other Plan assets, the Trustee may refuse to accept the transfer of all or any specific asset, or may condition acceptance of the assets on the sale or disposition of any specific asset.

(f)Transfer of Plan to unrelated Employer. The Employer may not transfer sponsorship of the Plan to an unrelated employer if the transfer is not in connection with a transfer of business assets or operations from the Employer to the unrelated employer.


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SECTION 15 MISCELLANEOUS

15.01Exclusive Benefit. Plan assets will not be used for, or diverted to, a purpose other than the exclusive benefit of Participants or their Beneficiaries.

No amendment may authorize or permit any portion of the assets held under the Plan to be used for, or diverted to, a purpose other than the exclusive benefit of Participants or their Beneficiaries, except to the extent such assets are used to pay taxes or administrative expenses of the Plan. An amendment also may not cause or permit any portion of the assets held under the Plan to revert to or become property of the Employer.

15.02Return of Employer Contributions. Upon written request by the Employer, the Trustee may return any Employer Contributions provided that the circumstances and the time frames described below are satisfied. The Trustee may request the Employer to provide additional information to ensure the amounts may be properly returned. Any amounts returned shall not include earnings but must be reduced by any losses.

(a)Mistake of fact. Any Employer Contributions made because of a mistake of fact must be returned to the Employer within one year of the contribution.

(b)Disallowance of deduction. Employer Contributions to the Trust are made with the understanding that they are deductible. In the event the deduction of an Employer Contribution is disallowed by the IRS, such contribution (to the extent disallowed) must be returned to the Employer within one year of the disallowance of the deduction.

(c)Failure to initially qualify. Employer Contributions to the Plan are made with the understanding, in the case of a new Plan, that the Plan satisfies the qualification requirements of Code §401(a) as of the Plan’s Effective Date. In the event that the Internal Revenue Service determines that the Plan is not initially qualified under the Code, any Employer Contributions (and allocable earnings) made incident to that initial qualification must be returned to the Employer within one year after the date the initial qualification is denied, but only if the application for the qualification is made by the time prescribed by law for filing the employer’s return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe.

15.03Alienation or Assignment. Except as permitted under applicable statute or regulation, a Participant or Beneficiary may not assign, alienate, transfer or sell any right or claim to a benefit or distribution from the Plan, and any attempt to assign, alienate, transfer or sell such a right or claim shall be void, except as permitted by statute or regulation. Any such right or claim under the Plan shall not be subject to attachment, execution, garnishment, sequestration, or other legal or equitable process. This prohibition against alienation or assignment also applies to the creation, assignment, or recognition of a right to a benefit payable with respect to a Participant pursuant to a domestic relations order, unless such order is determined to be a QDRO pursuant to Section 11.06, or any domestic relations order entered before January 1, 1985.

This Section 15.03 shall not preclude the following:

(a)The enforcement of a Federal tax levy made pursuant to Code §6331.

(b)The collection by the United States on a judgment resulting from an unpaid tax assessment.

(c)Any arrangement for the recovery by the Plan of overpayments of benefits previously made to a participant.

This Section 15.03 shall not apply to an offset of a Participant’s benefits as a result of a judgment of conviction for a crime involving the Plan, under a civil judgment brought in connection with a violation (or alleged violation) of ERISA, or pursuant to a settlement agreement as defined in Code §401(a)(13)(C).

If an amount was withdrawn from the Plan due to an IRS levy that was later determined to be wrongful, the Participant may recontribute the amount, including interest, as a result of the wrongful levy.

15.04Offset of benefits. A Participant's benefits under the Plan may be offset for an amount the Participant is required to pay because of:

(a)a judgment resulting from conviction for a crime involving such plan;

(b)a civil judgment involving ERISA fiduciary rules; or

(c)a settlement agreement with DOL or PBGC.


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The judgment, order, decree or settlement must expressly provide for offset against the Participant's benefit. Where the QJSA rules apply to the Participant's benefit, the QJSA rules are satisfied even though the offset occurs, but only if the Spouse consents in writing to the offset or an election to waive the survivor rights are in effect, or the Spouse is ordered or required by the judgment, order, decree, or settlement to pay an amount to the Plan in connection with an ERISA fiduciary violation, or the judgment, order, decree or settlement retains the Spouse's right to receive the survivor annuity. This exception applies to judgments, orders, and decrees issued, and settlement agreements entered into on or after August 5, 1997.

15.05 Participants’ Rights. The adoption of this Plan by the Employer does not give any Participant, Beneficiary, or Employee a right to continued employment with the Employer and does not affect the Employer’s right to discharge an Employee or Participant at any time. This Plan also does not create any legal or equitable rights in favor of any Participant, Beneficiary, or Employee against the Employer, Plan Administrator or Trustee. Unless the context indicates otherwise, any amendment to this Plan is not applicable to determine the benefits accrued (and the extent to which such benefits are vested) by a Participant or former Employee whose employment terminated before the effective date of such amendment, except where application of such amendment to the terminated Participant or former Employee is required by statute, regulation or other guidance of general applicability. Where the provisions of the Plan are ambiguous as to the application of an amendment to a terminated Participant or former Employee, the Plan Administrator has the authority to make a final determination on the proper interpretation of the Plan.

15.06Military Service. To the extent required under Code §414(u), an Employee who returns to employment with the Employer following a period of qualified military service will receive any contributions, benefits and service credit required under Code

§414(u), provided the Employee satisfies all applicable requirements under the Code and regulations. In determining the amount of contributions under Code §414(u), Plan Compensation will be deemed to be the compensation the Employee would have received during the period while in military service based on the rate of pay the Employee would have received from the Employer but for the absence due to military leave. If the compensation the Employee would have received during the leave is not reasonably certain, Plan Compensation will be equal to the Employee’s average compensation from the Employer during the twelve (12) month period immediately preceding the military leave or, if shorter, the Employee’s actual period of employment with the Employer.

(a)Death benefits under qualified military service. In the case of a Participant who dies while performing qualified military service (as defined in Code §414(u)), the survivors of the Participant are entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) provided under the Plan as though the Participant resumed and then terminated employment on account of death.

(b)Benefit accruals. If elected under AA §11-10(a), for benefit accrual purposes, the Plan will treat an individual who dies or becomes disabled (as defined under the terms of the Plan) while performing qualified military service (as defined in Code §414(u)) with respect to the Employer, as if the individual has resumed employment in accordance with the individual’s reemployment rights under the Uniformed Services Employment and Reemployment Rights Act (USERRA) on the day preceding death or disability (as the case may be) and terminated employment on the actual date of death or disability.

(1)This subsection (b) shall apply only if all individuals performing qualified military service with respect to the Employer maintaining the Plan who die or became disabled as a result of performing qualified military service prior to reemployment by the employer are credited with service and benefits on reasonably equivalent terms.

(2)The amount of employee contributions and the amount of elective deferrals of an individual treated as reemployed under this subsection (b) shall be determined on the basis of the individual’s average actual employee contributions or elective deferrals for the lesser of:

(i)the 12-month period of service with the Employer immediately prior to qualified military service; or

(ii)if service with the Employer is less than such 12-month period, the actual length of continuous service with the Employer.

(c)Plan distributions. Notwithstanding the provisions regarding the treatment of Differential Pay and unless otherwise elected under AA §11-10(b), an individual may be treated as having been severed from employment during any period the individual is on active duty for a period of at least 30 days while performing service in the Uniformed Services for purposes of receiving a Plan distribution under Code §401(k)(2)(B)(i)(I). If an individual elect to receive a distribution while on military leave, the individual may not make Salary Deferrals or Employee After-Tax Employee Contributions under the Plan during the 6-month period beginning on the date of the distribution. However, a distribution under this provision that is also a Qualified Reservist Distribution, as defined in Section 8.10(d)(1), is not subject to the 6-month suspension.


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(d)Make-Up Contributions. A Participant who is reemployed following a qualified military leave shall have the right to make up any Salary Deferrals or After-Tax Employee Contributions to which he/she would have been entitled but for the fact the Participant was on qualified military leave. The Employer will also make any Employer Contributions and Matching Contributions the Participant would have earned during the period of qualified military leave had the Participant remained employed during such period. The Employer will only be required to make Matching Contributions if the reemployed Participant makes up the underlying contributions that were eligible for the Matching Contributions.

In determining the amount of Make-Up Contributions, a Participant may make under this subsection (d), a Participant will be treated as earning Plan Compensation during the period the Participant was on qualified military leave equal to:

(1)the rate of pay the Participant would have received from the Employer during such period had the Participant not been on qualified military leave; or

(2)if the Plan Compensation the Participant would have received during such period was not reasonably certain, the Participant's average Plan Compensation during the 12-month period immediately preceding the qualified military leave (or the entire period of employment, if shorter).

If the Employer is required under this subsection (d) to make Employer Contributions for a reemployed Participant, the Employer must make such Employer Contributions not later than 90 days after the date of reemployment or the date the Employer Contributions are otherwise due for the year in which the military service was performed. For Salary Deferrals and After-Tax Employee Contributions, a Participant who is reemployed following a qualified military leave may make up such contributions during the period beginning on the date of reemployment and ending on the earlier of the date that is three times the length of the military service period or 5 years from the date of reemployment. Any required Matching Contributions must be made in the same manner as other Matching Contribution under the Plan following the Participant’s contribution of the amounts eligible for the Matching Contributions.

Any make up contributions under this subsection (d) are subject to the Code §415 Limitation under Section 5.03 and the Elective Deferral Dollar Limitation under Section 5.02 for the year for which the make-up contribution would have been made had the Participant not been on qualified military leave.

15.07Annuity Contract. Any annuity contract distributed under the Plan must be nontransferable. In addition, the terms of any annuity contract purchased and distributed to a Participant or to a Participant’s Spouse must comply with all requirements under the Code and regulations thereunder.

15.08Use of IRS Compliance Programs. Nothing in this Plan document should be construed to limit the availability of the IRS’ voluntary compliance programs. An Employer may take whatever corrective actions are permitted under the IRS voluntary compliance programs, as is deemed appropriate by the Plan Administrator or Employer. For example, the Employer may make a corrective contribution, including a QNEC or QMAC, or may make corrective distributions from the Plan, to the extent authorized under the IRS’ voluntary compliance programs. If the Employer's Plan fails to attain or retain qualification, such Plan will no longer participate in this Pre-Approved Plan and will be considered an individually designed plan.

15.09Governing Law. The provisions of this Plan shall be construed, administered, and enforced in accordance with the provisions of applicable Federal Law and, to the extent applicable, the laws of the state in which the Trustee has its principal place of business. The foregoing provisions of this Section shall not preclude the Employer and the Trustee from agreeing to a different state law with respect to the construction, administration and enforcement of the Plan.

15.10Waiver of Notice. Any person entitled to a notice under the Plan may waive the right to receive such notice, to the extent such a waiver is not prohibited by law, regulation or other pronouncement.

15.11Use of Electronic Media. The Employer, Plan Administrator, Trustee and any other designated individual responsible for providing applicable notices or disclosures under the Plan, and any Participant or beneficiary making an election under the Plan may use telephonic or electronic media to satisfy any notice requirements required by this Plan. Any use of electronic medium under the Plan must comply with the requirements outlined in Treas. Reg. §1.401(a)-21 or other general guidance concerning the use of telephonic or electronic media. The Plan Administrator also may use telephonic or electronic media to conduct plan transactions such as enrolling participants, making (and changing) Salary Deferral Elections, electing (and changing) investment allocations, applying for Plan loans, and other transactions, to the extent permissible under regulations (or other generally applicable guidance).

15.12Severability of Provisions. In the event that any provision of this Plan shall be held to be illegal, invalid or unenforceable for any reason, the remaining provisions under the Plan shall be construed as if the illegal, invalid or unenforceable provisions had never been included in the Plan.


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15.13Binding Effect. The Plan, and all actions and decisions made thereunder, shall be binding upon all applicable parties, and their heirs, executors, administrators, successors and assigns.


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SECTION 16 PARTICIPATING EMPLOYERS

16.01Participation by Participating Employers. An Employer (other than the Employer that executes the Employer Signature Page of the Adoption Agreement) may elect to participate under this Plan by executing a Participating Employer Adoption Page under the Adoption Agreement. A Participating Employer (including a Related Employer defined in Section 1.124) may not contribute to this Plan unless it (or its authorized representative) executes the Participating Employer Adoption Page. If an unrelated Employer executes a Participating Employer Adoption Page, the Plan will be a Multiple Employer Plan (see Section

16.07 for special rules applicable to Multiple Employer Plans).

16.02Participating Employer Adoption Page.

(a)Application of Plan provisions. By executing a Participating Employer Adoption Page, a Participating Employer adopts all the provisions of the Plan, including the elective choices made by the signatory Employer under the Adoption Agreement. The Participating Employer may elect under the Participating Employer Adoption Page to modify the elective provisions under the Adoption Agreement as they apply to the Participating Employer.

(b)Plan amendments. In addition, unless provided otherwise under the Participating Employer Adoption Page, a Participating Employer is bound by any amendments made to the Plan in accordance with Section 14.01.

(c)Trustee designation. The Participating Employer agrees to use the same Trustee as is designated on the Trust Declaration under the Agreement, except as provided in a separate trust agreement.

16.03Compensation of Related Employers. In applying the provisions of this Plan, Total Compensation (as defined in Section 1.142) includes amounts earned with a Related Employer, regardless of whether such Related Employer executes a Participating Employer Adoption Page. The Employer may elect under AA §5-3(h) to exclude amounts earned with a Related Employer that does not execute a Participating Employer Adoption Page for purposes of determining an Employee’s Plan Compensation.

16.04Allocation of Contributions and Forfeitures. Unless selected otherwise under the Participating Employer Adoption Page, any contributions made by a Participating Employer (and any forfeitures relating to such contributions) will be allocated to all Participants employed by the Employer and Participating Employers in accordance with the provisions under this Plan. A Participating Employer may elect under the Participating Employer Adoption Page to allocate its contributions (and forfeitures relating to such contributions) only to the Participants employed by the Participating Employer making such contributions. If so elected, Employees of the Participating Employer will not share in an allocation of contributions (or forfeitures relating to such contributions) made by any other Participating Employer (except in such individual's capacity as an Employee of that other Participating Employer). Thus, for example, a Participating Employer may make a different discretionary contribution and allocate such contribution only to its Employees. Where contributions are allocated only to the Employees of a contributing Participating Employer, a separate accounting must be maintained of Employees’ Account Balances attributable to the contributions of a particular Participating Employer. This separate accounting is necessary only for contributions that are not 100% vested, so that the allocation of forfeitures attributable to such contributions can be allocated for the benefit of the appropriate Employees. An election to allocate contributions and forfeitures only to the Participants employed by the Participating Employer making such contributions will preclude the Plan from satisfying the nondiscrimination safe harbor rules under Treas. Reg. §1.401(a)(4)-2 and may require additional nondiscrimination testing. (See Section 16.07 for special coverage and nondiscrimination testing requirements applicable to Multiple Employer Plans.)

16.05Discontinuance of Participation by a Participating Employer. A Participating Employer may discontinue its participation under the Plan at any time. To document a Participating Employer’s cessation of participation, the following procedures should be followed:

(a)the Participating Employer should adopt a resolution that formally terminates active participation in the Plan as of a specified date;

(b)the Employer that has executed the Employer Signature Page of the Adoption Agreement should re-execute such page, indicating an amendment by page substitution through the deletion of the Participating Employer Adoption Page executed by the withdrawing Participating Employer; and

(c)the withdrawing Participating Employer should provide any notices to its Employees that are required by law.

Discontinuance of participation means that no further benefits accrue after the effective date of such discontinuance with respect to employment with the withdrawing Participating Employer. The portion of the Plan attributable to the withdrawing Participating Employer may continue as a separate plan, under which benefits may continue to accrue, through the adoption by the Participating Employer of a successor plan (which may be created through the execution of a separate Adoption Agreement


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by the Participating Employer) or by spin-off of the portion of the Plan attributable to such Participating Employer followed by a merger or transfer into another existing plan, as specified in a merger or transfer agreement.

16.06Operational Rules for Related Employer Groups. If an Employer has one or more Related Employers, the Employer and such Related Employer(s) constitute a Related Employer group. In such case, the following rules apply to the operation of the Plan.

(a)If the term Employer is used in the context of administrative functions necessary to the operation, establishment, maintenance, or termination of the Plan, only the Employer executing the Employer Signature Page under the Adoption Agreement, and any Related Employer executing a Participating Employer Adoption Page, is treated as the Employer.

(b)Hours of Service are determined by treating all members of the Related Employer group as the Employer.

(c)The term Excluded Employee is determined by treating all members of the Related Employer group as the Employer, except as specifically provided in the Plan.

(d)Compensation is determined by treating all members of the Related Employer group as the Employer, except as specifically provided in the Plan.

(e)An Employee is not treated as terminated from employment if the Employee is employed by any member of the Related Employer group.

(f)The Code §415 Limitation described in Section 5.03 and the Top Heavy Plan rules described in Section 4 are applied by treating all members of the Related Employer group as the Employer.

In all other contexts, the term Employer generally means a reference to all members of the Related Employer group, unless the context requires otherwise. If the terms of the Plan are ambiguous with respect to the treatment of the Related Employer group as the Employer, the Plan Administrator has the authority to make a final determination on the proper interpretation of the Plan.

16.07Multiple Employer Plans. Regardless of any election under AA §2-6, if an Employer (other than a Related Employer) executes a Participating Employer Adoption Page under the Adoption Agreement, the Plan is treated as a Multiple Employer Plan. Treatment of the Plan as a Multiple Employer Plan will not affect reliance on the Favorable IRS Letter issued to the Provider or any determination letter issued on the Plan.

(a)Application of qualification rules to Multiple Employer Plans. If the Plan is a Multiple Employer Plan, the following qualification rules apply.

(1)Eligibility requirements. If the Plan is a Multiple Employer Plan, the eligibility rules under Section 2 are applied as if the Employees of all Employers participating in the Multiple Employer Plan are employed by a single Employer.

(2)Vesting rules. If the Plan is a Multiple Employer Plan, the vesting rules under Section 7 are applied as if the Employees of all Employers participating in the Multiple Employer Plan are employed by a single Employer.

(3)Code §415 Limit. If the Employer is a Multiple Employer Plan, the Code §415 Limit under Section 5.03 is applied as if the Employees of all Employers participating in the Multiple Employer Plan are employed by a single Employer. Thus, if a Participant receives contributions from more than one Employer within the Multiple Employer Plan, such contributions must be aggregated for purposes of applying the Code §415 Limit. For this purpose, Total Compensation from all participating Employers may be considered in applying the Code §415 Limit.

(4)Top Heavy rules. If the Plan is a Multiple Employer Plan, the determination of whether the Plan is Top Heavy under Section 4 is made separately with respect to each Employer (that is not a Related Employer) that participates in the Plan, taking into account only the Account Balances of Employees of that Employer. If the Plan is a Top Heavy Plan with respect to a Participating Employer, the minimum benefit required under Section

4.04 is determined based solely on the Employees of the Top Heavy Employer. The failure of any Participating Employer to satisfy the Top Heavy requirements for a particular Plan Year may affect the qualified status of the entire Plan.

(5)Minimum coverage and nondiscrimination testing. Each Participating Employer (that is not a Related Employer) that participates in a Multiple Employer Plan must separately satisfy the minimum coverage requirements under Code §410(b) and the nondiscrimination requirements under Code §401(a)(4) (including the ADP and ACP Tests if the Plan is a 401(k) Plan) taking into account only Employees of that Employer. The


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failure of any participating Employer to satisfy the minimum coverage or nondiscrimination rules for a particular Plan Year may affect the qualified status of the entire Plan.

(6)Other rules applicable to Multiple Employer Plans. To the extent not addressed in this Section 16.07, the rules under Code §413(c) and applicable regulations will apply to a Multiple Employer Plan.

(b)Definitions that apply to Multiple Employer Plans.

(1)Lead Employer. The signatory Employer under the Adoption Agreement. See subsection (c)(2) below for rules regarding the ability of the Lead Employer to amend the Plan on behalf of Participating Employers.

(2)Participating Employer. An Employer which, with the consent of the Lead Employer, executes a Participating Employer Adoption Page. To the extent permitted by the Lead Employer, a Participating Employer may modify the selections made by the Lead Employer under the Adoption Agreement. Any modifications made by a Participating Employer may be described as an attachment to the Participating Employer Signature Page for that Participating Employer.

(3)Professional Employer Organization (PEO). An organization described in Rev. Proc. 2002-21 and any successor legislation or regulation. If the Lead Employer is a PEO, each Participating Employer is a Client Organization as defined in Rev. Proc. 2002-21. Any Employee on the PEO's payroll who receives amounts from the PEO for providing services pursuant to a service agreement between the PEO and the Client Organization shall be deemed to be the Employee of the Client Organization for whom the Employee performs services, and not of the PEO. Any amounts paid by a PEO to an Employee of a Client Organization shall be treated as paid by the Client Organization for all purposes under the Plan.

(c)Special rules for Multiple Employer Plans. The Lead Employer is the Named Fiduciary and Plan Administrator under the Plan, unless specifically designated otherwise under AA §11-12 or under separate written procedures assigning such responsibilities to another party. The underlying Participating Employers are co-sponsors of the Multiple Employer Plan.

(1)Allocation of contributions. Any contributions (and forfeitures relating to such contributions) made by a Participating Employer will be allocated only to the Participants employed by the Participating Employer making such contributions. By adopting the Plan, a Participating Employers agrees to make any contributions required under the Plan to maintain the qualified status of the Plan.

If a Participating Employer elects to separately apply the Safe Harbor 401(k) Plan provisions, such provisions will be applied solely with respect to the Participating Employer electing Safe Harbor 401(k) status. Thus, Traditional Safe Harbor/QACA Safe Harbor Contributions only need to be made for Employees of the Participating Employer and the Plan of the Participating Employer will qualify as a Safe Harbor 401(k) Plan if it separately satisfies the requirements for a Safe Harbor 401(k) Plan as described under Section 6.04.

(2)Amendment of Plan document. The Lead Employer reserves the right to amend the Plan on behalf of all Participating Employers. Each Employer signing a Participating Employer Signature Page shall be bound by the provisions in this Plan document and any selections made under the Adoption Agreement, except to the extent the Participating Employer makes a contrary election under the Adoption Agreement, as set forth under subsection (b)(2) above.

(i)Plan amendments. The Lead Employer shall be responsible for ensuring the Plan is updated for any required amendments. Unless provided otherwise under the Participating Employer Signature Page, a Participating Employer is bound by any amendments made to the Plan by the Lead Employer.

(ii)Trustee designation. The Participating Employer agrees to use the same Trustee as is designated on the Trust Declaration under the Lead Employer Adoption Agreement, except as provided in a separate trust agreement.

(iii)Plan termination. The Lead Employer may terminate this Plan at any time by delivering to the Trustee and each Participating Employer a written notice of such termination.

(iv)Execution of Participating Employer Adoption Page. The Employer that has executed the Employer Signature Page of the Adoption Agreement, or its designated representative, is authorized to sign the Participating Employer Adoption Page on behalf of a Participating Employer to adopt an amendment or subsequent Plan restatement, unless otherwise provided under the Participating Employer Adoption Page.


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(3)Ability of Lead Employer to Remove Participating Employers. The Lead Employer may remove any Participating Employer from the Plan if the Participating Employer refuses to correct a qualification defect under the Plan maintained by such Participating Employer. Upon removal from the Plan, the Participating Employer may continue to maintain its portion of the Plan as a single-Employer Plan. Upon removal of a Participating Employer, Employees of such terminated Participating Employer will cease to be eligible to accrue additional benefits under this Plan with respect to Plan Compensation earned on or after the date of termination.

The Lead Employer may develop reasonable administrative procedures outlining the procedures for removing a Participating Employer from the Plan. By adopting this Plan, each Participating Employer authorizes the Lead Employer to exercise the option to remove a Participating Employer from the Plan in accordance with such administrative procedures.

Upon removal of a Participating Employer, the terminated Participating Employer may elect to have the assets associated with Accounts of its Employees to be transferred to a separate Defined Contribution Plan maintained by the terminated Participating Employer consistent with the requirements under Code §414(l). If the Participating Employer does not establish a Defined Contribution Plan to accept the transfer of assets from this Plan, the Lead Employer may establish a new Defined Contribution Plan on behalf of the Participating Employer to which the assets attributable to the Employees of the terminating Participating Employer may be transferred consistent with the requirements under Code §414(l). Any new plan established by the Lead Employer will contain provisions consistent with the selections applicable to the Participating Employer under this Plan. The terminated Participating Employer will be responsible for designating the Trustee of the new Plan. If no such designation is made, the Trustee will be the highest ranking officer or representative of the Employer or such other financial institution designated by the Lead Employer to protect the interests of Plan Participants. Reasonable expenses associated with the establishment of the new plan may be charged to the Accounts of Participants of the terminated Participating Employer.

(4)Withdrawal from Plan. Upon thirty (30) days written notice to the other party, either the Lead Employer or Participating Employer may voluntarily withdraw from the Plan. If a Participating Employer withdraws from the Plan, the Participating Employer may continue to maintain the Plan as a single-Employer Plan. Plan assets attributable to the Employees of the Participating Employer will be transferred to the Participating Employer’s Plan, consistent with the requirements of Code §414(l). No distributions will be permitted from the Plan solely on account of a Participating Employer’s withdrawal from the Plan. The withdrawing Employer will bear all reasonable costs associated with the withdrawal and transfer of assets to a new plan. Employees of a withdrawing Employer will cease to be eligible to accrue additional benefits under this Plan with respect to Plan Compensation earned on or after the date of withdrawal. The withdrawal of a Participating Employer from the Plan is not considered a Plan termination which allows distributions to the Participants of the withdrawing Participating Employer.

(5)Indemnification of Lead Employer. Each Participating Employer will indemnify and hold harmless the Plan Administrator, the Lead Employer and its subsidiaries; officers, directors, shareholders, employees, and agents of the Lead Employer; the Plan; the Trustees, Fiduciaries, Participants and Beneficiaries of the Plan, as well as their respective successors and assigns, against any cause of action, loss, liability, damage, cost, or expense of any nature whatsoever (including, but not limited to, attorney's fees and costs, whether or not suit is brought, as well as IRS plan disqualifications, other sanctions or compliance fees or DOL fiduciary breach sanctions and penalties) arising out of, or relating to, the Participating Employer's noncompliance with any of the Plan's terms or requirements; any intentional or negligent act or omission the Participating Employer commits with regard to the Plan; and any omission or provision of incorrect information with regard to the Plan which causes the Plan to fail to satisfy the requirements of a tax-qualified plan.

16.08Special Rules for Standardized Plan Adoption Agreement. If the Employer adopts a Standardized Plan Adoption Agreement, each Related Employer (who has Employees who may be eligible to participate in the Plan) is required to execute a Participating Employer Adoption Page. If a Related Employer fails to execute a Participating Employer Adoption Page, the Plan will be treated as an individually-designed plan, except as provided in subsections (a) and (b) below. A Related Employer will not be treated as a Participating Employer absent the completion of a Participating Employer Adoption Page by such Related Employer.

(a)Change in status - new Related Employer. If an Employer becomes a new Related Employer after the Effective Date of the Adoption Agreement by reason of an acquisition or disposition of stock or assets, a merger, or similar transaction, the new Related Employer must execute a Participating Employer Adoption Page no later than the end of the transition period described in Code §410(b)(6)(C). The new Related Employer must become a Participating Employer with respect to the Plan no later than the first day of the Plan Year that begins after such transition period ends. If the transition period in Code §410(b)(6)(C) is not applicable, the new Related Employer must become a


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Participating Employer as of the first day of the Plan Year beginning after the Employer becomes a Related Employer. If the new Related Employer properly executes a Participating Employer Adoption Page, the Plan will retain its status as a Standardized Plan and the Employer (including any Participating Employers) may continue to rely on the Favorable IRS Letter issued to the Standardized Plan Provider. If the new Related Employer does not properly execute a Participating Employer Adoption Page in accordance with the requirements of this subsection (a), the Plan will be treated as an individually-designed plan for any period of noncompliance.

(b)Change in status – cessation of Related Employer relationship. If a Related Employer ceases to be part of a Related Employer group with the Employer that signs the Employer Signature Page, the provisions of Section 16.05, relating to discontinuance of participation, apply. If the former Related Employer properly withdraws from the Standardized Plan, as provided in Section 16.05, the Plan will retain its status as a Standardized Plan and the Employer (including any Participating Employers) may continue to rely on the Favorable IRS Letter issued to the Standardized Plan Provider. If the former Related Employer does not properly withdraw from the Plan, the Plan will be treated as an individually- designed plan for any period of noncompliance.


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APPENDIX A ACTUARIAL FACTORS

(For use with age-based contribution formula)

Actuarial Factor Table. The following table sets forth Actuarial Factors based on a testing age of 65, an interest rate of 8.5% and the UP-1984 mortality table. The Actuarial Factors in this table must be modified if the Employer uses a testing age other than age 65 or selects a different interest rate or mortality table under the age-based contribution formula. To determine a Participant's Actuarial Factor, use the factor corresponding to the number of years to the Participant’s testing age. The number of years to the testing age is determined by counting the number of years from the last day of the current plan year to the last day of the Plan Year in which the Participant reaches the testing age. If the Participant has reached the testing age as of the last day of the current Plan Year, the number of years is 0 for that year and all subsequent years.


Years to Testing Age	Actuarial Factor	Years to Testing Age	Actuarial Factor
0	0.07949	25	0.01034
1	0.07326	26	0.00953
2	0.06752	27	0.00878
3	0.06223	28	0.00810
4	0.05736	29	0.00746
5	0.05286	30	0.00688
6	0.04872	31	0.00634
7	0.04490	32	0.00584
8	0.04139	33	0.00538
9	0.03814	34	0.00496
10	0.03516	35	0.00457
11	0.03240	36	0.00422
12	0.02986	37	0.00389
13	0.02752	38	0.00358
14	0.02537	39	0.00330
15	0.02338	40	0.00304
16	0.02155	41	0.00280
17	0.01986	42	0.00258
18	0.01831	43	0.00238
19	0.01687	44	0.00219
20	0.01555	45	0.00202
21	0.01433	46	0.00186
22	0.01321	47	0.00172
23	0.01217	48	0.00158
24	0.01122	49	0.00146


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APPENDIX B INTERIM AMENDMENT #1

FINAL REGULATIONS RELATING TO HARDSHIP DISTRIBUTIONS

B-1.01 Change in Hardship Distribution requirements. The IRS has issued Final Regulations that amend the rules relating to Hardship distributions from the Plan. This Interim Amendment #1 (Interim Amendment) sets forth the provisions of the Final Regulations and their application to the Plan by amending Section 8.10(e) of the Plan, and providing appropriate Elective Provisions under Interim Amendment - Hardship Distributions Elective Provisions in the Adoption Agreement (Elective Provisions). The Plan Administrator shall administer the provisions of this Interim Amendment, and its Elective Provisions, consistent with a good-faith interpretation of the requirements of the Final Regulations as set forth under Treas. Reg.

§§1.401(k)-1, 1.401(k)-3 and 1.401(m)-3, as amended.

(a)Effective Dates. Except as otherwise provided in this Interim Amendment, and its Elective Provisions, the Final Regulations and this Interim Amendment apply to Hardship distributions made on or after January 1, 2020. For Hardship distributions made before January 1, 2020, the rules applicable to Hardship distributions prior to the Final Regulations apply, unless the Employer elects earlier application as permitted under subsections (a) and (b) below.

(1)Options for earlier application. If elected under the Elective Provisions, the provisions of this Interim Amendment may be applied to distributions made in Plan Years beginning after December 31, 2018. The Employer may elect to apply the prohibition on the suspension of Salary Deferrals and After-Tax Employee Contributions as of the first day of the first Plan Year beginning after December 31, 2018, even if the Hardship distribution was made in a prior year. In addition, the Employer may operationally apply the revised deemed immediate and heavy financial need expenses under Section 8.10(e)(1) of the Plan, as amended by this Interim Amendment, to distributions made on or after a date as early as January 1, 2018.

(2)Certain rules optional in 2019. If, in accordance with the provisions of Section B-1.01(a)(1) of this Interim Amendment, the Employer applies certain Hardship distribution provisions to distributions made before January 1, 2020, then the Employer may disregard the rules relating to the employee representation, as described under Section 8.10(e)(3)(ii)(B) of the Plan, as amended by this Interim Amendment, and the rules prohibiting the suspension of contributions, as described under Section 8.10(e)(3)(iii) of the Plan, as amended by this Interim Amendment, to such distributions.

(3)2020 effective date for employee representations and suspension prohibition. In any event, the rules relating to the employee representation, as described under Section 8.10(e)(3)(ii)(B) of the Plan, as amended by this Interim Amendment, and the rules prohibiting the suspension of contributions, as described under Section 8.10(e)(3)(iv) of the Plan, as amended by this Interim Amendment, are formally made effective for Hardship distributions made on or after January 1, 2020.

B-2.01 Amendment of Section 8.10(e) of the Plan. Section 8.10(e) of the Plan is deleted and replaced with the following:

(e)Hardship distribution. The Employer may elect under AA §10-1 or AA §10-2 of the Profit Sharing/401(k) Plan Adoption Agreement or under Section HD-1 of the Elective Provisions to authorize an in-service distribution upon the occurrence of Hardship. A distribution is made on account of Hardship only if the distribution both is made on account of an immediate and heavy financial need and is necessary to satisfy the financial need.

(1)Deemed immediate and heavy financial need. A distribution is deemed to be made on account of an immediate and heavy financial need of the Employee if the distribution satisfies one of the following needs:

(i)Expenses incurred or necessary for medical care (as described in Code §213(d)) of the Participant, the Participant’s Spouse or dependents (determined without regard to whether the expenses exceed 7.5% of adjusted gross income);

(ii)Costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant;

(iii)Payment of tuition, related educational fees and room and board for up to the next 12 months of post- secondary education for the Participant, the Participant’s Spouse, children or dependents;

(iv)Payments necessary to prevent the eviction of the Participant from, or a foreclosure on the mortgage of, the Participant’s principal residence;

(v)Payments for funeral or burial expenses for the Participant's deceased parent, Spouse, child or dependent;

(vi)Expenses for the repair of damage to the Participant’s principal residence that would qualify for the


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casualty deduction under Code §165 (determined without regard to Code §165(h)(5) and whether the loss exceeds 10% of adjusted gross income);

(vii)Expenses and losses (including loss of income) incurred by the Participant on account of a disaster declared by the Federal Emergency Management Agency (FEMA) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, Pub. L. 100-707, provided that the Participant’s principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance with respect to the disaster; or

(viii)for any other event that the IRS recognizes as a deemed immediate and heavy financial need Hardship distribution event under ruling, notice or other guidance of general applicability.

For purposes of determining eligibility for a Hardship distribution under this subsection (1), a dependent is determined under Code §152. However, the determination of dependent for purposes of tuition and related educational fees under subsection (iii) above will be made without regard to Code §§152(b)(1), (b)(2), and (d)(1)(B) and the determination of dependent for purposes of funeral or burial expenses under subsection (v) above will be made without regard to Code §152(d)(1)(B).

(2)Non-deemed immediate and heavy financial need. The Employer may elect under in the Profit Sharing/401(k) Plan Adoption Agreement to permit Participants to take a Hardship distribution without satisfying one of the needs in subsection (1) above by setting forth nondiscriminatory and objective standards under AA §10-3(f).

(3)Distribution necessary to satisfy financial need.

(i)Distribution may not exceed amount of need. A distribution is treated as necessary to satisfy an immediate and heavy financial need of an Employee only to the extent the amount of the distribution is not in excess of the amount required to satisfy the financial need (including any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution).

(ii)No alternative means reasonably available. A distribution is not treated as necessary to satisfy an immediate and heavy financial need of an employee unless each of the following requirements is satisfied:

(A)The Employee has obtained all other currently available distributions (including distributions of ESOP dividends under Code §404(k), but not Hardship distributions) under the Plan and all other plans of deferred compensation, whether qualified or nonqualified, maintained by the Employer;

(B)The Employee has provided to the Plan Administrator a representation in writing (including the use of an electronic medium as defined in Treas. Reg. §1.401(a)- 21(e)(3)), or in such other form as may be prescribed by the IRS, that he or she has insufficient cash or other liquid assets reasonably available to satisfy the need; and

(C)The Plan Administrator does not have actual knowledge that is contrary to the representation.

(iii)Additional conditions. The Plan generally may provide for additional conditions to demonstrate that a distribution is necessary to satisfy an immediate and heavy financial need of an employee. For example, a plan may provide that, before a Hardship distribution may be made, an Employee must obtain all nontaxable loans (determined at the time a loan is made) available under the Plan and all other plans maintained by the Employer.

(iv)No suspensions allowed for Hardship distributions made on or after January 1, 2020. The Plan may not provide for a suspension of an Employee’s Salary Deferrals or After-Tax Employee Contributions under any plan described in Code §§401(a) or 403(a), any Code §403(b) plan, or any eligible governmental plan described in Treas. Reg. §1.457-2(f) as a condition of obtaining a Hardship distribution for Hardship distributions made on or after January1, 2020.

(4)Sources for Hardship distributions. For Plan Years beginning after December 31, 2018 (or such later date specified under the AA §10-1 or under §HD-1(a) and/or (b) of Elective Provisions, the Employer may permit Hardship distributions from the vested portion of a Participant’s Employer Contribution Account, Matching


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Contribution Account, Pre-Tax Salary Deferral Account, Roth Deferral Account, Qualified Nonelective Employer Contribution (QNEC) Account, Qualified Matching Contribution (QMAC) Account, Safe Harbor Employer Contribution Account, Safe Harbor Matching Contribution Account, QACA Safe Harbor Contribution Account and QACA Safe Harbor Matching Contribution Account. The Hardship distribution may include earnings on these Accounts, regardless of when amounts were contributed or earned. The Employer may designate the Accounts (including earnings) from which a Participant may receive a Hardship distribution under

§HD-1 of the Elective Provisions. The Plan Administrator may adopt distribution ordering rules consistent with the sources available for Hardship distributions under separate administrative procedures. This subsection (4) supersedes any contrary provisions under the Plan, including any provision that limits the sources for Hardship distribution.

(5)Availability to terminated Employees. If a Hardship distribution is permitted under AA §10-1 or AA §10-2 or under §HD-1 of the Interim Amendment, a Participant may take such a Hardship distribution after termination of employment to the extent no other distribution is available from the Plan.

(6)Application of Hardship distributions rules with respect to primary beneficiaries. If elected under AA §10- 3(e) of the Profit Sharing/401(k) Plan, if the Plan otherwise permits Hardship distributions based on the deemed immediate and heavy needs under subsection 8.10(e)(1)(i) (medical expenses), (1)(iii) (educational expenses) or (1)(v) (funeral expenses) above, the existence of an immediate and heavy financial need may be determined with respect to a primary beneficiary under the Plan. For this purpose, a primary beneficiary is an individual who is named as a beneficiary under the Plan and has an unconditional right to all or a portion of a Participant’s Account Balance upon the death of the Participant. Any Hardship distribution with respect to a primary beneficiary must satisfy all the other requirements applicable to Hardship distributions under Section 8.10(e) of the Plan, as amended by this Interim Amendment.

B-3.01 Relief for Victims of Certain Qualified Natural Disasters. Notwithstanding other provisions of the Plan, the Employer may operate the Plan to provide relief from certain qualification rules relating to Hardship distributions and loans for Participants who are victims of certain Qualified Natural Disasters, as set forth under applicable IRS or legislative guidance.

B-3.02 Qualified Natural Disasters. For purposes of this section, Qualified Natural Disasters, in addition to the Qualified Natural Disasters listed under the 2017 Pre-Approved Defined Contribution Plan Interim Amendment previously adopted by the Pre- Approved Plan Provider, include Hurricane Michael and Hurricane Florence, as provided under the preamble to the Final Regulations.

B-3.03 General Rules. If the Employer and the Plan Administrator make good-faith efforts to apply the Plan provisions in conformance with the relief provided under applicable guidance, the Plan will not be treated as failing to satisfy the requirements of the Code or regulations. In general, the following rules apply:

(a)In order to make a loan or distribution (including a Hardship distribution), the Plan must provide for loans or distributions, as applicable.

(b)Participants (victims) for whom the relief is available are determined under the appropriate IRS or legislative guidance.

(c)The amount available for Hardship distribution is limited to the maximum amount that would be available for a Hardship distribution under the Plan. However, the relief provided applies to any Hardship distribution of the Participant and no post-distribution contribution restrictions apply.

(d)To qualify for relief under this section, a Hardship distribution must be made on account of a Hardship resulting from the applicable Qualified Natural Disaster and within the time frame provided under the applicable guidance relating to the Qualified Natural Disaster.

(e)The Plan will not be treated as failing to follow Plan procedural requirements for loans or distributions during the periods provided under guidance relating to the applicable Qualified Natural Disaster, which for Hurricane Michael and Hurricane Florence ended on March 15, 2019.


© Copyright 2020


Pre-Approved Defined Contribution Basic Plan Document (Cycle 3) #01


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Exhibit 21

Subsidiaries of Radian Group Inc. (1)


Name			Domicile
Benevida Settlement Services LLC (2)			Delaware
Enhance Financial Services Group Inc.			New York
homegenius Inc.			Delaware
Homegenius Real Estate of Florida LLC			Delaware
Radian Escrow Services LLC			Delaware
Radian Guaranty Inc.			Pennsylvania
Radian Insurance Inc.			Pennsylvania
Radian Investment Group Inc.			Delaware
Radian Lender Services LLC			Delaware
Radian MI Services Inc.			Pennsylvania
Radian Mortgage Assurance Inc.			Pennsylvania
Radian Mortgage Capital LLC			Delaware
Radian Mortgage Services Inc.			Delaware
Radian Real Estate Management LLC			Delaware
Radian Real Estate Services Inc.			Delaware
Radian Reinsurance Inc.			Pennsylvania
Radian REM LLC			Utah
Radian Settlement Services Inc.			Pennsylvania
Radian Settlement Services of Utah LLC			Utah
Radian Technology Services LLC			Delaware
Radian Title Agency Of Texas LLC			Texas
Radian Title Insurance Inc.			Ohio
Radian Title Services Inc.			Delaware
Radian Valuation Services LLC			Pennsylvania
Red Bell Ohio, LLC			Delaware
Red Bell Real Estate, Inc.			California
Red Bell Real Estate, LLC			Delaware

(1)Unless otherwise noted, all subsidiaries are 100% directly or indirectly owned by Radian Group Inc.

(2)51% owned subsidiary of Radian Title Services Inc., a wholly owned subsidiary of Radian Group Inc.

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-98106; 333-120519; 333-156279; 333-152624; 333-160266; 333-167009; 333-174428; 333-195934; 333-217842; 333-224789; and 333-256036) and Form S-3 (No. 333-236785) of Radian Group Inc. of our report dated February 25, 2022 relating to the financial statements and financial statement schedules and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

February 25, 2022

EXHIBIT 31

CERTIFICATIONS

I, Richard G. Thornberry, certify that:

1. I have reviewed this Annual Report on Form 10-K of Radian Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date: February 25, 2022			/s/ RICHARD G. THORNBERRY
			Richard G. Thornberry Chief Executive Officer

I, J. Franklin Hall, certify that:

1. I have reviewed this Annual Report on Form 10-K of Radian Group Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date: February 25, 2022			/s/ J. FRANKLIN HALL
			J. Franklin Hall Chief Financial Officer

EXHIBIT 32

Section 1350 Certifications

I, Richard G. Thornberry, Chief Executive Officer of Radian Group Inc., and I, J. Franklin Hall, Chief Financial Officer of Radian Group Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Annual Report on Form 10-K Report on Form 10-K for the year ended December 31, 2021 (the “Periodic Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Radian Group Inc.



Date: February 25, 2022			/s/ RICHARD G. THORNBERRY
			Richard G. Thornberry Chief Executive Officer

			/s/ J. FRANKLIN HALL
			J. Franklin Hall Chief Financial Officer