FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2002
Commission file number 0-24000
ERIE INDEMNITY COMPANY
(814) 870-2000
Registrant’s telephone number, including area code
Not applicable
Former name, former address and former fiscal year, if changed since last report
| 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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No | ||
| Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date. |
Class A Common Stock, no par value, with a stated value of $.0292 per share—
63,677,106 shares as of November 1, 2002.
Class B Common Stock, no par value, with a stated value of $70 per share—
3,050 shares as of November 1, 2002.
The common stock is the only class of stock the Registrant is presently authorized to issue.
1
INDEX
ERIE INDEMNITY COMPANY
| PART I | FINANCIAL INFORMATION | |
| Item 1. | Financial Statements (Unaudited) | |
| Consolidated Statements of Financial Position—September 30, 2002 and December 31, 2001 | ||
| Consolidated Statements of Operations—Three and nine months ended September 30, 2002 and 2001 | ||
| Consolidated Statements of Comprehensive Income—Three and nine months ended September 30, 2002 and 2001 | ||
| Consolidated Statements of Cash Flows—Nine months ended September 30, 2002 and 2001 | ||
| Notes to Consolidated Financial Statements—September 30, 2002 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
| Item 4. | Controls and Procedures | |
| PART II | OTHER INFORMATION | |
| Item 1. | Legal Proceedings | |
| Item 6. | Exhibits and Reports on Form 8-K | |
| Item 11. | Statement Regarding Computation of Per Share Earnings | |
| SIGNATURES | ||
| OFFICER CERTIFICATIONS | ||
2
PART I. FINANCIAL INFORMATION
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Continued)
See Notes to Consolidated Financial Statements.
3
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands)
September 30,
December 31,
2002
2001
(Unaudited)
$
629,618
$
557,278
390,639
311,969
137,383
110,121
41,044
46,164
10,054
12,945
10,895
10,930
16,783
20,904
$
1,236,416
$
1,070,311
$
1,957
$
1,955
213
215
7,830
7,830
31,266
35,222
1,018,868
913,406
$
1,060,134
$
958,628
(101,860
)
(93,373
)
$
958,274
$
865,255
$
2,194,690
$
1,935,566
See Notes to Consolidated Financial Statements.
4
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 30 | September 30 | |||||||||||||||||||||
|
|
|
|||||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
| (Amounts in thousands, except per share data) | ||||||||||||||||||||||
|
MANAGEMENT OPERATIONS:
|
||||||||||||||||||||||
|
Management fee revenue
|
$ | 209,068 | $ | 167,308 | $ | 593,895 | $ | 480,805 | ||||||||||||||
|
Service agreement revenue
|
1,192 | 7,089 | 16,310 | 20,339 | ||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
Total revenue from management operations
|
$ | 210,260 | $ | 174,397 | $ | 610,205 | $ | 501,144 | ||||||||||||||
|
Cost of management operations
|
144,801 | 119,353 | 421,097 | 349,796 | ||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
Income from management operations
|
$ | 65,459 | $ | 55,044 | $ | 189,108 | $ | 151,348 | ||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
INSURANCE UNDERWRITING OPERATIONS:
|
||||||||||||||||||||||
|
Premiums earned
|
$ | 42,171 | $ | 34,766 | $ | 119,824 | $ | 100,857 | ||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
Losses and loss adjustment expenses incurred
|
35,044 | 35,017 | 98,431 | 88,074 | ||||||||||||||||||
|
Policy acquisition and other underwriting
expenses
|
13,416 | 10,338 | 37,343 | 28,696 | ||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
Total losses and expenses
|
48,460 | 45,355 | 135,774 | 116,770 | ||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
Underwriting loss
|
($6,289 | ) | ($10,589 | ) | ($15,950 | ) | ($15,913 | ) | ||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
INVESTMENT OPERATIONS:
|
||||||||||||||||||||||
|
Net investment income
|
$ | 13,867 | $ | 12,347 | $ | 40,705 | $ | 36,855 | ||||||||||||||
|
Net realized loss on investments
|
(4,047 | ) | (5,451 | ) | (8,628 | ) | (2,726 | ) | ||||||||||||||
|
Equity in earnings of Erie Family
Life Insurance Company
|
106 | 327 | 1,091 | 2,513 | ||||||||||||||||||
|
Equity in earnings (losses) of limited partnerships
|
803 | (229 | ) | 1,110 | 1,279 | |||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
Net revenue from investment operations
|
$ | 10,729 | $ | 6,994 | $ | 34,278 | $ | 37,921 | ||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
Income before income taxes
|
$ | 69,899 | $ | 51,449 | $ | 207,436 | $ | 173,356 | ||||||||||||||
|
Provision for income taxes
|
23,737 | 17,019 | 69,247 | 57,011 | ||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
Net income
|
$ | 46,162 | $ | 34,430 | $ | 138,189 | $ | 116,345 | ||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
Net income per share
|
$ | 0.65 | $ | 0.48 | $ | 1.94 | $ | 1.63 | ||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
|
Weighted average shares outstanding
|
71,006 | 71,346 | 71,109 | 71,380 | ||||||||||||||||||
|
Dividends declared per share:
|
||||||||||||||||||||||
|
Class A
|
$ | 0.17 | $ | 0.1525 | $ | 0.51 | $ | 0.4575 | ||||||||||||||
|
Class B
|
25.50 | 22.875 | 76.50 | 68.625 | ||||||||||||||||||
See Notes to Consolidated Financial Statements.
5
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30 | September 30 | ||||||||||||||||||
|
|
|
||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
|
|
|
|
|
||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
|
Net Income
|
$ | 46,162 | $ | 34,430 | $ | 138,189 | $ | 116,345 | |||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Unrealized gains (losses) on securities:
|
|||||||||||||||||||
|
Unrealized holding gains (losses) arising
during period
|
5,153 | (10,602 | ) | (19,030 | ) | (8,021 | ) | ||||||||||||
|
Less: Losses included in net income
|
4,047 | 5,451 | 8,628 | 2,726 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Net unrealized holding gains (losses)
arising during period
|
9,200 | (5,151 | ) | (10,402 | ) | (5,295 | ) | ||||||||||||
|
Income tax (expense) benefit related to
unrealized gains (losses)
|
(3,220 | ) | 1,802 | 3,641 | 1,853 | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Net appreciation (depreciation) of investments
|
5,980 | (3,349 | ) | (6,761 | ) | (3,442 | ) | ||||||||||||
|
Minimum pension liability adjustment
|
0 | 0 | 4,315 | 0 | |||||||||||||||
|
Less: Tax asset related to pension
liability adjustment
|
0 | 0 | (1,510 | ) | 0 | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Net pension liability adjustment
|
0 | 0 | 2,805 | 0 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Other comprehensive income (loss), net of tax
|
5,980 | (3,349 | ) | (3,956 | ) | (3,442 | ) | ||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Comprehensive income
|
$ | 52,142 | $ | 31,081 | $ | 134,233 | $ | 112,903 | |||||||||||
|
|
|
|
|
|
|||||||||||||||
See Notes to Consolidated Financial Statements.
6
ERIE INDEMNITY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Nine Months Ended September 30, | ||||||||||||
|
|
||||||||||||
| 2002 | 2001 | |||||||||||
|
|
|
|||||||||||
| (Amounts in thousands) | ||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net income
|
$ | 138,189 | $ | 116,345 | ||||||||
|
Adjustments to reconcile net income to net
cash provided by operating activities:
|
||||||||||||
|
Depreciation and amortization
|
2,909 | 2,306 | ||||||||||
|
Deferred income tax expense
|
726 | 3,820 | ||||||||||
|
Amortization of deferred policy acquisition costs
|
21,516 | 17,852 | ||||||||||
|
Equity in income of limited partnerships
|
(1,110 | ) | (1,279 | ) | ||||||||
|
Realized loss on investments
|
8,628 | 2,726 | ||||||||||
|
Net amortization of bond discount
|
(318 | ) | (156 | ) | ||||||||
|
Undistributed losses (earnings) of Erie Family Life
Insurance Company
|
196 | (1,317 | ) | |||||||||
|
Deferred compensation
|
341 | 119 | ||||||||||
|
Increase in accrued investment income
|
(3,358 | ) | (1,231 | ) | ||||||||
|
Increase in receivables
|
(174,815 | ) | (148,346 | ) | ||||||||
|
Policy acquisition costs deferred
|
(26,133 | ) | (21,283 | ) | ||||||||
|
Increase in prepaid expenses and other assets
|
(14,476 | ) | (11,497 | ) | ||||||||
|
(Decrease) increase in accounts payable and accrued
expenses
|
(5,265 | ) | 5,698 | |||||||||
|
Increase in commissions payable and accrued
|
27,262 | 11,803 | ||||||||||
|
Increase in income taxes payable
|
9,673 | 22,313 | ||||||||||
|
Increase in loss reserves
|
72,340 | 54,383 | ||||||||||
|
Increase in unearned premiums
|
78,669 | 48,331 | ||||||||||
|
|
|
|
||||||||||
|
Net cash provided by operating activities
|
$ | 134,974 | $ | 100,587 | ||||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments:
|
||||||||||||
|
Fixed maturities
|
($248,428 | ) | ($161,360 | ) | ||||||||
|
Equity securities
|
(41,655 | ) | (43,267 | ) | ||||||||
|
Limited partnership investments
|
(34,448 | ) | (20,488 | ) | ||||||||
|
Sales/maturities of investments:
|
||||||||||||
|
Fixed maturity sales
|
83,978 | 79,485 | ||||||||||
|
Fixed maturity calls/maturities
|
80,950 | 61,249 | ||||||||||
|
Equity securities
|
33,949 | 39,881 | ||||||||||
|
Mortgage loans
|
99 | 850 | ||||||||||
|
Limited partnership sales or distributions
|
22,028 | 5,687 | ||||||||||
|
Purchase of property and equipment
|
(1,334 | ) | (1,821 | ) | ||||||||
|
Purchase of computer software
|
(359 | ) | (818 | ) | ||||||||
|
Loans to agents
|
(2,527 | ) | (6,903 | ) | ||||||||
|
Collections on agent loans
|
2,000 | 1,788 | ||||||||||
|
|
|
|
||||||||||
|
Net cash used in investing activities
|
($105,747 | ) | ($45,717 | ) | ||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Dividends paid to shareholders
|
($32,763 | ) | ($29,507 | ) | ||||||||
|
Purchase of treasury stock
|
(8,487 | ) | (6,687 | ) | ||||||||
|
|
|
|
||||||||||
|
Net cash used in financing activities
|
($41,250 | ) | ($36,194 | ) | ||||||||
|
|
|
|
||||||||||
|
Net (decrease) increase in cash and cash equivalents
|
(12,023 | ) | 18,676 | |||||||||
|
Cash and cash equivalents at beginning of period
|
88,213 | 38,778 | ||||||||||
|
|
|
|
||||||||||
|
Cash and cash equivalents at end of period
|
$ | 76,190 | $ | 57,454 | ||||||||
|
|
|
|
||||||||||
|
Supplemental disclosures of cash flow information:
|
||||||||||||
|
Income tax payments
|
$ | 69,326 | $ | 31,571 | ||||||||
See Notes to Consolidated Financial Statements.
7
ERIE INDEMNITY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A — BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements, which include the
accounts of Erie Indemnity Company and its wholly owned property and casualty
insurance subsidiaries, Erie Insurance Company (EIC), Erie Insurance Company of
New York (EINY) and Erie Insurance Property & Casualty Company, have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles (GAAP) for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company’s Form 10-K
for the year ended December 31, 2001 as filed with the Securities and Exchange
Commission on March 12, 2002.
NOTE B — RECLASSIFICATIONS
Certain amounts previously reported in the 2001 financial statements have been
reclassified to conform to the current period’s presentation. Such
reclassifications were minor in nature and did not impact earnings.
NOTE C — EARNINGS PER SHARE
Earnings per share is based on the weighted average number of Class A shares
outstanding (63,789,404 and 64,011,614 at September 30, 2002 and 2001,
respectively), giving effect to the conversion of the weighted average number
of Class B shares outstanding (3,050 in 2002 and 3,070 in 2001) at a rate of
2,400 Class A shares for one Class B share. In August 2002, 20 shares of Class
B voting stock were converted to 48,000 non voting shares of Class A common
stock. Weighted average equivalent shares outstanding totaled 71,006,149 for
the quarter ended September 30, 2002 and 71,345,939 for the same period one
year ago. For the nine months ended September 30, 2002 weighted average
equivalent shares outstanding were 71,109,404 compared to 71,379,614 for the
nine months ended September 30, 2001.
NOTE D — INVESTMENTS
Marketable equity securities consist primarily of common and non redeemable
preferred stocks while fixed maturities consist of bonds, notes and redeemable
preferred stock. Management considers all fixed maturities and marketable
equity securities available-for-sale. Management determines the appropriate
classification of fixed maturities at the time of purchase and reevaluates such
designation as of each statement of financial position date.
Available-for-sale securities are stated at fair value, with the unrealized
gains and losses, net of deferred tax, reported as a separate component of
accumulated other comprehensive income in shareholders’ equity. When a decline
in the value of investments is considered to be other-than-temporary by
management, the investments are written down to their estimated realizable
value. Investment impairments are evaluated on an individual security basis
and investments considered impaired are recorded as realized losses on
investments in the Consolidated Statements of Operations. In the third quarter
of 2002 and 2001, the Company recognized impairment charges totaling $6,975 and
$5,736, respectively.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE D — INVESTMENTS (Continued)
The following is a summary of available-for-sale securities:
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE D — INVESTMENTS (Continued)
The Company participates in a securities lending program whereby certain
securities from its portfolio are loaned to other institutions through a
lending agent. A fee is paid to the Company by the borrower. Collateral,
comprised of cash and government securities, that exceeds the market value of
the loaned securities is maintained by the lending agent in the event a
borrower becomes insolvent or fails to return securities. The Company had
loaned securities with a market value of $37,396 and $38,503 secured by
collateral of $39,067 and $39,645 at September 30, 2002 and 2001, respectively.
The Company maintains the loaned securities on its Consolidated Statements of
Financial Position as part of its invested assets. The Company has incurred no
losses on the loan program since the program’s inception.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE D — INVESTMENTS (Continued)
The components of net realized loss on investments as reported in the
Consolidated Statements of Operations are included below. The securities that
were recognized as impaired during the third quarter of 2002 were in the energy
industry segment. Impairment charges taken in the third quarter of 2001
related to the internet, telecommunications equipment, semi-conductor and
software development industry segments.
Limited partnerships include U.S. and foreign private equity, real estate and
fixed income investments. The private equity limited partnerships invest in
small-to medium-sized companies. Limited partnerships are recorded using the
equity method, which approximates the Company’s share of the carrying value of
the partnership. Unrealized gains and losses on private equity limited
partnerships are reflected in shareholders’ equity in accumulated other
comprehensive income, net of deferred taxes. The Company has not guaranteed
any of the partnership liabilities.
Limited partnerships that have declined in value below cost and for which the
decline is considered to be other-than-temporary by management are written down
to realizable value. These impairments are made directly on an individual
limited partnership basis and are considered a loss in the Equity in Earnings
of Limited Partnerships in the Consolidated Statements of Operations. The
components of Equity in Earnings of Limited Partnerships as reported in the
Consolidated Statements of Operations are included below. There were no
impairment charges recognized in the third quarter of 2002. For the nine
months ended September 30, 2002, impairment charges related to limited
partnerships were $1,381. There were no impairments recognized during the nine
month period ended September 30, 2001.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE D — INVESTMENTS (Continued)
During 2001, the Company entered into several foreign currency forward
contracts which are by definition derivatives. The purpose of these contracts
is to hedge future capital calls related to the Company’s limited partnership
commitments. However, under accounting rules, these contracts are not
considered
hedges. The forward contracts have no cash requirements at the inception of
the arrangement. At September 30, 2002 there were no contracts outstanding.
For the quarter ended September 30, 2002 changes in value totaling $85 were
recognized in earnings as realized losses in the Consolidated Statements of
Operations. Gains on these contracts totaled $214 for the nine months ended
September 30, 2002 and $50 for the nine months ended September 30, 2001.
NOTE E — SUMMARIZED FINANCIAL STATEMENT INFORMATION OF AFFILIATE
The Company owns 21.6% of Erie Family Life Insurance Company (EFL) common
shares outstanding and accounts for this investment using the equity method of
accounting. EFL is a Pennsylvania- domiciled life insurance company operating
in 10 states and the District of Columbia. Dividends paid to the Company for
the nine months ended September 30, 2002 and 2001 totaled $1,257 and $1,163,
respectively.
The following represents unaudited condensed financial statement information
for EFL on a GAAP basis:
NOTE F — NOTE RECEIVABLE FROM ERIE FAMILY LIFE INSURANCE COMPANY
The Company is due $15,000 from EFL in the form of a surplus note. The note
bears an annual interest rate of 6.45% and all payments of interest and
principal on the note may be repaid only out of unassigned surplus of EFL and
are subject to prior approval by the Pennsylvania Insurance Commissioner.
Interest on the surplus note is scheduled to be paid semi-annually. The note
will be payable on demand on or after December 31, 2005. EFL accrued interest
of $242 in the third quarters of 2002 and 2001 which is payable to the Company.
NOTE G — TREASURY STOCK
The Company has in place a stock repurchase plan under which the Company may
repurchase as much as $120,000 of its outstanding Class A common stock through
December 31, 2002. Treasury shares are recorded in the Consolidated Statements
of Financial Position at cost. The Company filed a registration statement on
Form S-3 with the Securities and Exchange Commission on September 20, 2002.
The Company has suspended share repurchases under this plan until the secondary
offering has been completed.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE H — COMMITMENTS
The Company has contractual commitments to invest up to $116,000 related to its
limited partnership investments at September 30, 2002. These commitments will
be funded as required by the partnership’s agreements through September 2007.
At September 30, 2002, the total commitment to fund limited partnerships that
invest in private equity securities is $80,000, real estate activities $20,000
and fixed income securities $16,000. The Company expects to have sufficient
cash flows from operations to meet these partnership commitments.
NOTE I — SEGMENT INFORMATION
The Company operates its business as two reportable segments — management
operations and property and casualty insurance underwriting. The Company’s
principal operations consist of serving as attorney-in-fact for the Erie
Insurance Exchange (the Exchange). In its capacity as attorney-in-fact, the
Company sells, underwrites and issues property and casualty insurance policies
for the Exchange. These activities constitute the Company’s management
operations. The Company’s property and casualty insurance underwriting
operations arise through direct business of its insurance subsidiaries and by
virtue of the intercompany pooling agreement between its subsidiaries and the
Exchange which includes assumed reinsurance from non-affiliated domestic and
foreign sources. The performance of the management operations segment is
evaluated principally based on revenue growth and the profitability is measured
by the gross margin from management operations, while profitability of the
property and casualty insurance operations segment is evaluated principally
based on the combined ratio. Accounting policies for segments are the same as
described in the summary of significant accounting policies Note 2, of the
Company’s Annual Report on Form 10-K for the year ended December 31, 2001 as
filed with the Securities and Exchange Commission on March 12, 2002.
The Exchange and its property and casualty subsidiary, Flagship City Insurance
Company, combined with the Company’s property and casualty insurance
subsidiaries (collectively, the Property and Casualty Group) provide personal
and commercial lines insurance through independent agents. The performance of
the personal and commercial lines is evaluated based upon the underwriting
results as determined under statutory accounting practices (SAP) for the total
pooled business of the Property and Casualty Group. Assets are not allocated
to segments and are reviewed in total by management for purposes of decision
making. No single customer or agent provides 10% or more of revenues for the
Property and Casualty Group.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE I — SEGMENT INFORMATION (Continued)
Summarized financial information for these operations is presented below:
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE I — SEGMENT INFORMATION (Continued)
The following table presents the management fee revenue by line of business:
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE I — SEGMENT INFORMATION (Continued)
The growth rate of policies in force and policy retention trends (the
percentage of current Policyholders who have renewed their policies) directly
impact the Company’s management and property and casualty insurance
subsidiaries operating segments. Below is a summary of each by line of
business for the Property and Casualty Group’s insurance business.
Growth rate of policies in force for Property and Casualty Group insurance operations:
Policy retention trends for Property and Casualty Group insurance operations:
*CML = Commercial
16
All dollar amounts are in thousands except per share data
Table of Contents
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
$
8,281
$
727
$
82
$
8,926
52,071
3,371
0
55,442
96,068
5,506
0
101,574
42,820
1,524
988
43,356
360,806
24,573
8,997
376,382
47,177
2,070
2,691
46,556
$
607,223
$
37,771
$
12,758
$
632,236
13,051
885
0
13,936
$
620,274
$
38,656
$
12,758
$
646,172
$
1,846
$
784
$
484
$
2,146
19,777
14,023
1,632
32,168
417
233
0
650
11,902
125
114
11,913
22,189
1,478
486
23,181
89,166
4,651
3,785
90,032
20,475
1,404
50
21,829
$
165,772
$
22,698
$
6,551
$
181,919
$
786,046
$
61,354
$
19,309
$
828,091
Table of Contents
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
$
11,211
$
502
$
0
$
11,713
42,392
1,817
88
44,121
110,267
3,496
345
113,418
25,150
1,156
36
26,270
311,757
8,989
1,438
319,308
26,634
859
17
27,476
$
527,411
$
16,819
$
1,924
$
542,306
16,012
1,555
0
17,567
$
543,423
$
18,374
$
1,924
$
559,873
$
3,284
$
814
$
16
$
4,082
28,718
31,570
579
59,709
2,370
12
3
2,379
14,685
938
58
15,565
91,185
2,573
2,111
91,647
19,485
1,039
108
20,416
$
159,727
$
36,946
$
2,875
$
193,798
$
703,150
$
55,320
$
4,799
$
753,671
Table of Contents
Three Months Ended
Nine Months Ended
September 30
September 30
2002
2001
2002
2001
$
2,585
$
1,056
$
5,515
$
3,697
(31
)
(316
)
(84
)
(503
)
(6,975
)
0
(15,341
)
0
($
4,421
)
$
740
($
9,910
)
$
3,194
$
475
$
190
$
7,989
$
4,045
(101
)
(645
)
(4,380
)
(4,229
)
0
(5,736
)
(2,327
)
(5,736
)
$
374
($
6,191
)
$
1,282
($
5,920
)
($
4,047
)
($
5,451
)
($
8,628
)
($
2,726
)
Three Months Ended
Nine Months Ended
September 30
September 30
2002
2001
2002
2001
$
524
($
961
)
($
2,734
)
($
373
)
232
456
3,712
1,318
47
276
132
334
$
803
($
229
)
$
1,110
$
1,279
Table of Contents
Nine Months Ended
Nine Months Ended
September 30, 2002
September 30, 2001
$
79,598
$
79,066
70,604
61,302
8,994
17,764
3,112
6,147
$
5,882
$
11,617
$
18,675
$
22,285
$
5,812
$
5,387
$
31,152
$
14,355
Table of Contents
Table of Contents
Three Months Ended
Nine Months Ended
September 30
September 30
2002
2001
2002
2001
$
209,068
$
167,308
$
593,895
$
480,805
1,192
7,089
16,310
20,339
7,735
1,785
25,973
22,987
$
217,995
$
176,182
$
636,178
$
524,131
$
144,801
$
119,353
$
421,097
$
349,796
$
73,194
$
56,829
$
215,081
$
174,335
$
48,127
$
38,400
$
142,509
$
116,923
$
11,910
$
9,042
$
33,890
$
25,627
29,449
24,778
83,461
72,137
1,966
1,667
5,724
5,024
43,325
35,487
123,075
102,788
(1,154
)
(721
)
(3,251
)
(1,931
)
42,171
34,766
119,824
100,857
2,994
5,209
8,305
14,934
$
45,165
$
39,975
$
128,129
$
115,791
$
12,448
$
10,089
$
37,351
$
28,554
35,184
28,132
97,775
79,434
2,348
8,355
5,265
12,213
49,980
46,576
140,391
120,201
(1,520
)
(1,221
)
(4,617
)
(3,431
)
$
48,460
$
45,355
$
135,774
$
116,770
($
3,295
)
($
5,380
)
($
7,645
)
($
979
)
($
1,965
)
($
3,970
)
($
4,320
)
($
578
)
Table of Contents
Three Months Ended
%
Nine Months Ended
%
September 30
Change
September 30
Change
2002
2001
2002
2001
$
111,942
$
92,807
20.6
%
$
313,786
$
262,901
19.4
%
16,699
13,007
28.4
50,884
39,963
27.3
35,705
28,916
23.5
92,017
76,373
20.5
20,568
14,665
40.3
62,371
44,619
39.8
16,394
11,678
40.4
52,173
38,829
34.3
7,760
6,235
24.5
22,664
18,120
25.1
$
209,068
$
167,308
25.0
%
$
593,895
$
480,805
23.5
%
Table of Contents
Private
12-mth.
12-mth.
All other
12-mth.
Total
passenger
growth
growth
personal lines
growth
Personal
Date
auto
rate
Homeowners
rate
of business
rate
Lines
1,337,280
4.9
%
986,654
7.5
%
192,909
10.3
%
2,516,843
1,356,651
5.3
1,003,517
7.7
197,849
10.7
2,558,017
1,382,419
5.9
1,029,339
8.1
204,614
10.9
2,616,372
1,408,092
6.3
1,053,014
8.4
210,220
11.4
2,671,326
1,432,747
7.1
1,075,816
9.0
215,134
11.5
2,723,697
1,469,617
8.3
1,104,806
10.1
222,061
12.2
2,796,484
1,512,335
9.4
1,146,639
11.4
231,951
13.4
2,890,925
1,554,425
10.4
1,190,651
13.1
240,410
14.4
2,985,486
12-mth.
12-mth.
12-mth.
All other
12-mth.
Total
CML*
growth
CML*
growth
Workers’
growth
CML* lines
growth
Commercial
Date
auto
rate
multi-peril
rate
comp.
rate
of business
rate
Lines
87,567
5.8
%
148,910
10.1
%
47,156
8.4
%
65,077
7.1
%
348,710
89,388
7.0
152,260
10.6
48,104
8.7
66,309
8.0
356,061
91,794
7.9
157,804
10.8
49,711
9.5
67,964
8.9
367,273
94,204
8.8
162,246
11.1
50,984
9.6
70,048
9.0
377,482
96,100
9.7
166,214
11.6
52,033
10.3
71,539
9.9
385,886
98,926
10.7
171,283
12.5
53,320
10.8
73,392
10.7
396,921
102,447
11.6
179,761
13.9
55,607
11.9
75,884
11.7
413,699
105,353
11.8
185,608
14.4
57,375
12.5
78,131
11.5
426,467
Private
All other
passenger
CML*
CML*
Workers’
lines of
Date
auto
auto
Homeowners
multi-peril
comp.
business
Total
92.31
%
89.80
%
90.70
%
87.92
%
88.48
%
87.89
%
91.01
%
92.24
90.29
90.66
88.58
89.06
88.03
91.03
92.25
90.35
90.63
88.36
88.76
88.18
91.01
92.22
90.16
90.38
88.18
88.53
88.16
90.89
92.24
90.53
90.24
88.03
88.43
88.15
90.85
92.26
90.86
90.24
88.77
89.34
88.11
90.91
92.35
91.12
90.35
88.95
89.46
88.30
91.02
92.50
90.79
90.54
88.69
89.51
88.15
91.12
Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the historical financial information and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report on Form 10-K for the year ended December 31, 2001 as filed with the Securities and Exchange Commission on March 12, 2002.
BACKGROUND
Erie Indemnity Company (the Company) operates predominantly as a provider of sales, underwriting and policy issuance services to Erie Insurance Exchange (the Exchange) and also as an underwriter of insurance risk through its property and casualty insurance subsidiaries. The financial results of the Exchange are not consolidated with the Company. The Exchange and its property and casualty insurance subsidiary, Flagship City Insurance Company, and the Company’s three property and casualty insurance subsidiaries, Erie Insurance Company, Erie Insurance Company of New York and Erie Insurance Property & Casualty Company (collectively, the Property and Casualty Group) write personal and commercial lines property and casualty insurance coverages exclusively through approximately 8,000 independent agents.
OPERATING RESULTS
Financial Overview
Consolidated net income for the nine months ended September 30, 2002 increased 18.8% to $138,189,091, from $116,345,197 during the same period in 2001. Income from management operations grew as a result of a 23.5% increase in direct written premiums of the Property and Casualty Group. Results from insurance underwriting operations were about the same in the first nine months of 2002 compared to the same period in 2001. Insurance underwriting results reflect wind storm-related catastrophe losses and increased technology spending related to the eCommerce initiative in 2002 and World Trade Center losses in 2001. In addition, charges of $17,668,090 and $5,736,463 were taken for impaired investments contributing to net realized losses on investments in the first nine months of 2002 and 2001, respectively.
Consolidated net income for the third quarter of 2002 increased 34.1% to $46,161,999, from $34,430,497 during the third quarter of 2001. Income from management operations grew as a result of a 25.0% increase in direct written premiums of the Property and Casualty Group. Losses in the insurance underwriting operations for the quarter were the result of deteriorating loss ratios on direct business combined with catastrophe losses. Revenue from investment operations increased as a result of increases in net investment income combined with increased equity in earnings of limited partnerships.
During the third quarter of 2002, the Company increased its estimated effective tax rate from 33.3% to 34%. Investment income on tax-advantaged securities has remained fairly stable while the total taxable income of the Company continues to grow, making the tax advantaged income a smaller percentage of total income. The increase in the effective tax rate produced an additional $488,551, or $.01 per share charge, in the provision for income taxes for 2002.
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
For the nine months ended September 30, 2002, operating income (net income excluding net realized losses and related federal income taxes) increased 21.7% to $143,797,370, from $118,116,935 reported for the same period in 2001. Operating income per share increased to $2.02 per share in the first nine months of 2002 from $1.65 per share for the same period in 2001, an increase of 22.2%.
Operating income increased 28.5% to $48,792,748 for the quarter ended September 30, 2002 from $37,973,228 for the same period in 2001. Operating income per share for the third quarter of 2002 was $.69 per share, up from $.53 per share for the same period one year ago, an increase of 29.1%.
RESULTS OF OPERATIONS
Analysis of Management Operations
The Company’s principal source of revenue is derived from its management fee revenue earned for providing sales, underwriting and policy issuance services as attorney-in-fact for the Exchange. The management fee is currently 25.0% of the direct written premiums of the Property and Casualty Group. Management fee revenue increased 23.5% to $593,894,850 for the nine months ended September 30, 2002, from $480,804,743 for the same period in 2001. Management fee revenue increased 25.0% to $209,068,067 for the three months ended September 30, 2002 from $167,307,976 for the same period in 2001 (see also Note I “Segment Information” which details management fee revenue by line of business).
The direct written premiums of the Property and Casualty Group grew 25.0% to $836,272,269 in the third quarter of 2002 from $669,231,901 for the same period in 2001. For the nine month period in 2002, direct premiums written increased 23.5% to $2,375,579,406 compared to $1,923,218,968 written for the first nine months of 2001. Direct written premiums of the Property and Casualty Group grew 22.5% on a rolling twelve-month basis with personal lines growing 18.8% while commercial lines grew 32.8%.
Increases in average premium per policy, increases in new policy growth and continuing favorable policy retention rates were all contributing factors in the growth of direct written premiums.
The average premium per policy increased 9.5% to $877 for the twelve months ended September 30, 2002 from $801 for the same period in 2001. In private passenger auto (which accounted for 53.1% of the direct written premiums of the Property and Casualty Group and over 1.5 million policies in force), the average premium per policy increased 7.2% to $1,023 for the twelve months ended September 30, 2002 from $954 during the same period one year ago.
Continued growth in new policies also drove the gains experienced in the Property and Casualty Group’s direct written premium. Personal lines new business premium grew 45.0% for the third quarter of 2002 while commercial lines new premium grew 54.2% during the same period. For the nine months ended September 30, 2002 new business premium grew 45.3% and 56.8% for personal and commercial lines, respectively. Policies in force increased by 11.9% to 3,411,953 at September 30, 2002 from 3,048,808 at September 30, 2001.
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Policy retention increased to 91.1% for the twelve months ended September 30, 2002 from 90.9% for the same period one year ago, for all lines of business combined (see Note I, “Segment Information” which contains policies in force and policy retention trends by line of business).
Service agreement revenue decreased by 19.8% to $16,309,790 for the nine months ended September 30, 2002, from $20,339,426 for the same period in 2001. Service agreement revenue decreased to $1,191,868 for the three months ended September 30, 2002 from $7,088,812 for the same period in 2001. Included in service agreement revenue are service charges the Company collects from Policyholders for providing extended payment plans on policies written by the Property and Casualty Group. During the third quarter of 2002 the Company began recognizing service charge income on a billed basis, which resulted in a one-time reduction in service charge income of $7.4 million. The effect on net income per share after taxes and other adjustment items was $.06 per share. The service charge revenue for the third quarter of 2002 was ($2,285,675), compared to $4,299,884 for the quarter ended September 30, 2001.
Also included in service agreement revenue is service income received from the Exchange as compensation for the management and administration of voluntary assumed reinsurance from non-affiliated insurers. These fees (equal to 7% of assumed reinsurance for all periods presented) increased to $3,477,543 for the three months ended September 30, 2002 from $2,788,928 for the same period in 2001. Service income for the nine months ended 2002 and 2001 totaled $9,598,205 and $8,307,365, respectively. During the fourth quarter of 2001, the Exchange obtained significant price increases on treaties it renewed for 2002. In addition, the Exchange reduced its aggregate exposure in non-affiliated assumed voluntary reinsurance by non-renewing unprofitable business, generally excluding terrorism coverage, and restricting its exposure on certain types of risks.
The cost of management operations increased 21.3% for the third quarter of 2002 to $144,800,981 from $119,353,171 during the third quarter of 2001. For the nine months ended September 30, 2002 the cost of management operations grew by 20.4% to $421,096,679 compared to $349,796,546 for the same period in 2001.
Commission costs totaled $105,855,984 for the third quarter of 2002, a 24.7% increase over the $84,910,266 reported in the third quarter of 2001. Commissions to independent Agents, which are the largest component of the Cost of Management Operations, include scheduled commissions, contingency awards, accelerated commissions and promotional incentives earned by independent Agents. Scheduled commissions, including Agent contingency awards, increased 24.9% to $103,870,732 for the quarter ended September 30, 2002. Agent contingency awards are based upon underwriting profitability of the direct business written with the Property and Casualty Group by the independent Agent. The estimate for the Agent contingency awards is modeled on a monthly basis using the two prior years actual underwriting data by Agency combined with the current year to date actual data. Company estimates use projected underwriting data for the remainder of the current year in order to model the 36-month underwriting results by Agency.
Accelerated commissions are offered to newly recruited Agents in addition to normal commission schedules. Charges incurred for accelerated commissions above normal scheduled rate commissions increased $583,034 to $2,322,752 for the quarter ended September 30, 2002.
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Promotional incentive expenses for the quarter ended September 30, 2002 were $600,000 which related entirely to a 2002 sales incentive contest for the Company’s independent Agents.
For the nine months ended September 30, 2002 commission costs grew by 23.9% to $302,582,286 from $244,147,299 for the same period in 2001. Charges for accelerated commission costs, above normal scheduled rate commissions, totaled $6,754,817 compared to $4,995,396 for the same period one year ago. The accrual recorded for the sales incentive contest was $1,800,000 for the nine months ended September 30, 2002.
The cost of management operations excluding commission costs, increased 13.1% for the three months ended September 30, 2002 to $38,944,997 from $34,442,905 recorded in the third quarter of 2001. Personnel costs, including salaries, employee benefits, and payroll taxes, are the second largest component in cost of operations. Personnel costs increased as employment grew by 8.4% as strong policy sales growth drove staff increases in sales support, underwriting and policy issuance functions. The Company’s personnel costs totaled $22,049,850 for the three month period ended September 30, 2002, compared to $19,659,120 for the same period in 2001, an increase of 12.2%. For the first nine months of 2002, personnel costs increased 10.2% to $68,800,021, from $62,453,399 for the same period in 2001.
Also included in cost of management operations are amounts related to information technology hardware and infrastructure from the Property and Casualty Group’s eCommerce initiative launched in June 2001. Company expenses totaled $192,728 for the third quarter 2002 compared to $354,748 from the same period one year ago. For the nine months of 2002 and 2001 these costs totaled $2,509,081 and $486,378, respectively. These expenditures will continue to be incurred in future periods as the program develops (see “Factors That May Affect Future Results” section herein).
As part of the eCommerce initiative, a significant portion of the Erie Insurance Group’s information technology resources have been deployed to work on the Property and Casualty Group’s eCommerce program. As such, certain personnel costs are currently being allocated to the property and casualty insurance operations of the Property and Casualty Group as part of the eCommerce project under the terms of a Technology Cost Sharing Agreement. However, once the eCommerce program is completed some of these personnel costs will again be deployed by the Company and related expenses will be absorbed in its cost of management operations. There are approximately 60 full time equivalent staff, or 15% of total Erie Insurance Group information technology staff, currently deployed to work on the eCommerce program. The cost of management operations could increase by as much as $8.0 million per year when the staff is reassigned outside of the Technology Cost Sharing Agreement tasks.
The gross margins from management operations (net revenue divided by total revenue) were 31.1% and 31.6% in the third quarters of 2002 and 2001, respectively. Gross margins were 31.0% and 30.2% for the first nine months of 2002 and 2001, respectively.
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Analysis of Insurance Underwriting Operations
The underwriting loss from the insurance operations of the Company’s property and casualty insurance subsidiaries, Erie Insurance Company (EIC) and Erie Insurance Company of New York (EINY), which together assume a 5.5% share of the underwriting results of the Property and Casualty Group under an intercompany pooling agreement, improved to an underwriting loss of $6,289,314 during the third quarter of 2002 compared to underwriting losses of $10,588,452 during the same period in 2001. The underwriting losses in the third quarter 2002 resulted from a deteriorated loss ratio on direct business compared to the same period of 2001, and continued development of catastrophe losses during the current period. Also contributing to the third quarter 2002 underwriting results were increased underwriting expenses related to the application development costs of the Property and Casualty Group’s eCommerce technology program and assigned risk buyout program costs. The 2001 underwriting losses include the adverse impact from the attack on the World Trade Center through the reinsurance business of the property and casualty insurance operations.
The Company had an underwriting loss of $15,950,012 for the first nine months of 2002 compared to an underwriting loss of $15,912,690 for the same period in 2001. Losses resulting from spring storm-related catastrophes were partly responsible for the underwriting loss in 2002. The underwriting results for the first nine months of 2002 also reflect increased underwriting expenses related to the eCommerce technology program and assigned risk buyout program costs.
The Company’s property and casualty insurance subsidiaries’ share of the Property and Casualty Group’s direct business generated underwriting losses of $5,907,437 and $3,900,364 for the third quarters of 2002 and 2001, respectively. For the nine months ended September 30, 2002 underwriting losses from the Company’s 5.5% of the Property and Casualty Group’s direct business was $16,409,065 compared to $8,723,395 in 2001. The increased loss ratio resulted primarily from adverse development of the loss reserves for prior accident years, principally in uninsured motorist and underinsured motorist (UM/UI) coverage in the personal and commercial automobile lines. The actual loss development of UM/UI exceeded established reserves for prior periods. Loss development has also been above expected development on UM/UI coverages due to unfavorable precedents set by court decisions and an evolving arbitration system. The Company is addressing these loss trends principally by increasing premium rates and through more stringent underwriting and re-underwriting of insurance policies. Over the past two years, rate increases were filed by members of the Property and Casualty Group, including the Company’s property and casualty subsidiaries, for certain lines of business in various states to offset growing loss costs in those lines of business (See “Factors That May Affect Future Results, Insurance Premium Rate Increases” section herein).
Catastrophes are an inherent risk of the property and casualty insurance business and can have a material impact on the Company’s insurance underwriting results. In addressing this risk, the Company has developed what it believes are reasonable underwriting standards and monitors the Property and Casualty Group’s exposure by geographic region. Additionally, EIC and EINY have in effect an all-lines aggregate excess of loss agreement with the Exchange (discussed below), which should substantially mitigate the effect of catastrophe losses on the Company’s financial position. The Company’s share of catastrophe losses, as defined by the Property and Casualty Group, was $1,479,519 for the three months ended September 30, 2002. Included in this amount was $1,000,535 in continued development of the storm-related catastrophes that
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
occurred during the second quarter. Also included in this amount was $234,195 related to tornados that hit the state of Indiana in late September. The Company’s share of catastrophe losses was $330,000 for the third quarter of 2001. Catastrophe losses of the Company’s property and casualty insurance subsidiaries were $5,427,709 and $1,470,778 for the nine months of 2002 and 2001, respectively.
The Company’s property and casualty insurance subsidiaries’ unaffiliated net assumed reinsurance business generated underwriting losses of $381,877 and $6,688,088 in the third quarters of 2002 and 2001, respectively. The third quarter 2001 loss includes the Company’s 5.5% share of the Property and Casualty Group’s estimated incurred losses from the September 11th terrorist attack on the World Trade Center. These losses, net of recoveries under the excess of loss agreement with the Exchange totaled $5.8 million before taxes. There has been no additional reserve development in 2002 relating to the estimated incurred reinsurance losses related to this terrorist attack. Through September 30, 2002 loss payments made by the Property and Casualty Group related to the attack have totaled $35,622,505 with an additional $114,377,495 set up as reserves for case and incurred but not reported claims. Underwriting income from the Company’s property and casualty unaffiliated voluntary assumed reinsurance business totaled $459,053 for the nine months ended September 30, 2002 compared to an underwriting loss of $7,189,295 for the same period one year ago.
EIC and EINY’s aggregate excess of loss reinsurance agreement with the Exchange limits their net retained share of ultimate net losses in any applicable accident year. Under the agreement, the Exchange assumes losses that exceed 72.5% of the Company’s earned premium for each accident year. The Exchange is liable for 95.0% of the amount of such excess up to, but not exceeding, 15.0% of the Company’s earned premium. EIC and EINY are liable for amounts in excess of the coverage in the excess of loss agreement. This reinsurance treaty is excluded from the intercompany pooling agreement. EIC and EINY pay a premium equal to 1.01% of their net premium earned to the Exchange for this coverage. The deposit premium paid to the Exchange for the agreement totaled $1,423,226 and $1,449,617 for the nine months ended September 30, 2002 and 2001, respectively. Recoveries during the third quarter 2002 amounted to $400,448, compared to recoveries of $2,505,138 for the same period one year ago. Recoveries recorded during the third quarter of 2002 totaled $294,880 for accident year 2000, and $381,271 for 1999 offset by a reduction in loss recoveries for accident year 2001 of $275,703. Recoveries totaled $1,970,959 for the first nine months of 2002 compared to $3,058,718 for the same period one year ago. No cash payments have been made between companies in 2002 or 2001 for recoveries under this agreement since related losses are reserved but not yet paid.
Included in the Company’s underwriting expenses are the Company’s share of eCommerce initiative expenses for application development costs which are covered under the technology cost sharing agreement. These costs total $945,903 and $410,443 for the quarters ended September 30, 2002 and 2001, respectively. For the nine months ended September 30, 2002 and 2001 eCommerce cost sharing agreement expenses totaled $3,001,813 and $601,981, respectively. These shared costs will continue to be incurred in future periods as the program develops (see “Factors That May Affect Future Results” section, herein).
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company experienced an increase in costs associated with assigned risk buyout programs in 2002. Under a buyout program, one insurer pays another insurer to assume the first insurer’s obligations to participate in a state-mandated involuntary coverage program, such as an assigned risk plan for those who are unable to obtain automobile insurance in the voluntary market because of underwriting ineligibility. The third quarter costs in 2002 were $204,995 compared to $143,812 for the same period in 2001. The buyout programs include Limited Assignment Distribution (LAD), which covers personal automobile risks, and Commercial Limited Assignment Distribution (CLAD), pertaining to commercial automobile risks. The Property and Casualty Group has a CLAD program in Pennsylvania and both LAD and CLAD programs in New York, Illinois, Virginia and West Virginia. These programs provide that a servicing carrier perform all administrative functions relative to the assigned risk policies, including collecting premiums and making payments for losses and loss adjustment expenses. The Property and Casualty Group makes payments to the servicing carrier, which includes an administrative fee, as well as a fee for rate inadequacy costs above the collected premium.
The increase in LAD/CLAD expense is almost exclusively attributable to the program in the state of New York, which had costs of $201,423 compared to $139,684 during the third quarters of 2002 and 2001, respectively. The rise in costs in New York is the result of significant increases in both the population of assigned risk policies and increased LAD contract fees attributable to deteriorating rate adequacy of the New York residual market. Additionally, the Property and Casualty Group’s market share in the state has increased, resulting in more assigned risk policies being allocated to the Property and Casualty Group.
The combined ratio for the Company’s property and casualty insurance operations calculated under Generally Accepted Accounting Principles (GAAP) was 114.9% and 130.5% for the three months ended September 30, 2002 and 2001, respectively. The GAAP combined ratio represents the ratio of loss, loss adjustment, acquisition, and other underwriting expenses incurred to premiums earned. During the third quarter of 2002, this ratio was impacted by 3.8 points related to adverse development on loss reserves of the prior accident years, 3.5 points related to catastrophe losses incurred and by 2.2 combined ratio points related to eCommerce expenses. The higher ratio in 2001 reflects the impact of the September 11th attacks which amounted to 16.7 combined ratio points in the third quarter 2001. The GAAP combined ratio, excluding adverse development of prior years, catastrophe losses and eCommerce expenses, was 105.4% for the quarter ended September 30, 2002. For the nine months of 2002 and 2001, the GAAP combined ratio was 113.3% and 115.8%, respectively.
Analysis of Investment Operations
Net revenue from investment operations for the third quarter of 2002 increased to $10,729,397 from $6,994,026 in the third quarter of 2001. Net revenue from investment operations includes net investment income, realized capital losses, equity in limited partnerships and equity in earnings of Erie Family Life Insurance Company (EFL). Net investment income rose 12.3% to $13,867,678 for the quarter ended September 30, 2002. Increases in investments in taxable bonds contributed to the growth in net investment income for the quarter. For the nine months ended September 30, 2002 net investment income increased 10.4% to $40,704,633 compared to $36,855,462 for the same period one year ago.
As a result of impairment charges taken in the third quarters of 2002 and 2001 the Company realized net losses on investments of $4,047,306 and $5,450,356, respectively. The third
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
quarter 2002 impairment charges that totaled $6,975,269 were for fixed maturity investments in the energy sector. For the nine months ended September 30, 2002 net revenue from investment operations declined 9.6% to $34,278,296 from $37,921,163 for the same period in 2001. This decrease primarily resulted from a $5,902,391 increase in net realized losses from investments. Impairment charges for the nine months ended September 30, 2002 and 2001 totaled $17,668,090 and $5,736,463, respectively.
Equity in earnings of limited partnerships was $802,967 for the quarter ended September 30, 2002 compared to losses of $229,464 for the same period in 2001. Private equity and fixed income limited partnerships realized earnings of $570,841 for the three months ended September 30, 2002 compared to losses of $684,613 for the same period of 2001. Real estate limited partnerships reflected earnings of $232,126 for the three months ended September 30, 2002 compared to earnings of $455,149 for the same period of 2001. In the third quarters of 2002 and 2001 there were no impairment charges related to limited partnerships. Equity in earnings of limited partnerships totaled $1,109,903 and $1,278,587 for the first nine months of September 30, 2002 and 2001, respectively.
The Company’s investment in EFL is accounted for under the equity method of accounting. The Company’s 2002 third quarter earnings from its 21.6 percent ownership of EFL totaled $106,058, down from the $326,953 recorded in the third quarter of 2001. Equity in earnings of EFL for the nine-month period ended September 30, 2002 totaled $1,091,882 down from the $2,512,865 recorded in the same period in 2001.
The decrease in earnings from EFL for the third quarter and nine months ended September 30, 2002 when compared to the same period in 2001, were the result of increased impairment charges taken by EFL on their investments in 2002.
FINANCIAL CONDITION
Investments
The Company’s investment strategy takes a long-term perspective emphasizing investment quality, diversification and superior investment returns. Investments are managed on a total return approach that focuses on current income and capital appreciation. The Company’s investment strategy also provides for liquidity to meet the short- and long-term commitments of the Company. At September 30, 2002, the Company’s investment portfolio of investment-grade bonds, common stock, preferred stock and cash and cash equivalents totaled $889.0 million, or 40.6%, of total assets. These investments provide the liquidity the Company requires to meet the demands on its funds.
The Company reviews the investment portfolio to evaluate positions that may have incurred other-than-temporary declines in value. For all investment holdings, general economic conditions and/or conditions specifically affecting the underlying issuer or its industry are considered in evaluating impairment in value. In addition to specific factors, the primary factors considered in the Company’s review of investment valuation are the length of time the market value is below cost and the amount the market value is below cost.
For common equity securities (including private equity limited partnerships) where the decline in market value is more than 20% below cost for a period exceeding six months, there is a strong indication of other-than-temporary impairment. Under these circumstances the Company
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
considers market conditions, industry characteristics and the fundamental operating results of the issuer before deciding whether to sell the investment at a loss, to recognize an impairment charge to operations or to do neither. For common equity securities that have declined more than 20% below cost for a period exceeding twelve months, the position is presumed impaired and is either sold or recognized as impaired in the Consolidated Statements of Operations. There were no impairment charges related to equity securities in the third quarter of 2002. However, impairment charges related to equity securities totaled $5,736,463 in the third quarter of 2001. For the nine month period ended September 30, 2002 and 2001 impairment charges relating to equity securities totaled $2,326,980 and $5,736,463, respectively. In the third quarters of 2002 and 2001 no private equity limited partnership values were written down. For the nine month period ended September 30, 2002 impairment charges relating to private equity limited partnerships totaled $1,380,625. There were no impairment charges relating to private equity limited partnerships in 2001.
For fixed maturity investments, the Company individually analyzes all positions whose market value has declined more than 20% below cost. The Company considers market conditions, industry characteristics and the fundamental operating results of the issuer to determine if the decline is due to changes in interest rates, changes relating to a decline in credit quality, or other issues affecting the investment. Positions that have incurred market price decline of over 20% for a period greater than six months where the creditworthiness of the issuer or other factors indicate a decline that is other- than-temporary are either sold or recognized as impaired and reflected as a charge to the Company’s operations. Impairments recognized in the third quarter of 2002 related to fixed maturity investments totaled $6,975,269 (See “Analysis of Investment Operations” section).
For the nine month period ended September 30, 2002 impairment charges relating to fixed maturity investments totaled $15,341,110. There were no impairments recognized during the nine month period of 2001 for fixed maturity investments.
If the Company’s policy for determining the recognition of impaired positions were different, the Company’s Consolidated Statements of Financial Position and Results of Operations could be significantly impacted. Management believes its investment valuation philosophy and accounting practices result in appropriate and timely measurement of value and recognition of impairment.
The Company’s investments are subject to certain risks, including interest rate and price risk. The Company monitors exposure to interest rate risk through periodic reviews of asset and liability positions. Estimates of cash flows and the impact of interest rate fluctuations relating to the investment portfolio are monitored regularly. Generally, the Company does not hedge its exposure to interest rate risk, as it has the ability to hold its fixed maturity investments to maturity.
The Company’s portfolio of marketable equity securities, which is carried on the Consolidated Statements of Financial Position at estimated fair value, has exposure to price risk, the risk of potential loss in estimated fair value resulting from an adverse change in prices. The Company’s objective is to earn competitive relative returns by investing in a diverse portfolio of high-quality, liquid securities. Portfolio characteristics are analyzed regularly and market risk is actively managed through a variety of techniques. Portfolio holdings are diversified across industries; concentrations in any one company or industry are limited by parameters established by management and the Company’s Board of Directors.
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liabilities
The process of estimating the liability for unpaid losses and loss expenses is inherently judgmental and can be influenced by factors subject to variation. Possible sources of variation include changing claim frequency and severity, changing rates of inflation as well as changes in other economic conditions, judicial trends and legislative changes. It is unlikely that future losses and loss adjustment expenses will develop exactly as projected. The Company continually refines reserves as experience develops and new information becomes known. The Company reflects adjustments to reserves in the results of operations in the periods in which the estimates are changed.
At September 30, 2002, the Property and Casualty Group’s estimated total loss exposure related to the events of September 11th remained at $150 million. Disputes concerning whether the September 11th attack on the World Trade Center should be considered one or two insurable events are currently being litigated. The Property and Casualty Group’s $150 million loss estimate anticipates that the events of September 11th is considered one event. If the attack comes to be considered as two events, the total potential exposure for the Property and Casualty Group, the Company believes, would increase between $50 million and $75 million. The effect on the Company, as a result, would be additional losses between $2.7 million and $4.1 million. The net losses, after taking into consideration the excess of loss reinsurance agreement, would be minimal to the Company.
A recent court decision by a federal judge in New York ruled that the September 11th attack on the World Trade Center was a single occurrence under the terms of the insurance policies used by three of the 22 property insurers of the World Trade Center. The ruling would limit the insurers liability to a single payment for one series of events as opposed to two payments for two separate occurrences. Subsequent to this ruling, the leaseholder of the World Trade Center notified the federal judge of the intent to appeal in the U.S. Court of Appeals for the Second Circuit. Prior to this ruling, a November 2002 trial date had been set to hear the case for the remaining insurers of the World Trade Center. The World Trade Center leaseholder has also requested the November trial be delayed until an appellate court decision is reached on the ruling of the New York federal judge.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of an entity’s ability to secure enough cash to meet its contractual obligations and operating needs. Operating cash flows are generated from the Company’s management operations, the net cash flow from the EIC’s 5% and the EINY’s .5% participation in the underwriting results of the intercompany pooling agreement with the Exchange, and the Company’s investment income from affiliated and non-affiliated investments. With respect to the management fee, funds are generally received from the Exchange on a premiums collected basis. The other receivable from the Exchange and affiliates represents the management fee receivable from premiums written but not yet collected as well as the management fee receivable on premiums collected in the current month, net of operating expenses paid by the Exchange. The Company pays commissions on premiums collected rather than written premiums. Cash outflows are variable because of the fluctuations in settlement dates for liabilities for unpaid losses and because of the potential for large losses, either individually or in aggregate.
At September 30, 2002 and December 31, 2001, the Company’s receivables from its affiliates totaled $761,294,991 and $640,655,330, respectively. The receivables are the result of the management fee, cash payments for affiliates and the intercompany pooling agreement. They represent a concentration of credit risk. The management fee receivable due from the Exchange
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
included in this total, is generally collected within a year and totaled $189,455,080 at September 30, 2002 and $147,344,684 at December 31, 2001. Another component of this receivable is the receivables for the intercompany pooling activity which rose 16.1% to $570,128,358 at September 30, 2002 from the $491,055,048 at December 31, 2001. This represents the increases in direct loss reserves, loss adjustment expense reserves and unearned premium reserves ceded to the Exchange under the pooling agreement. There is a direct correlation between the increase in direct written premium of the Company’s subsidiaries and the increase in direct loss reserves, loss adjustment expense reserves and unearned premium reserves ceded to the Exchange. These increases were the result of the $93,248,134, or 26.2% increase in direct written premium of the Company’s subsidiaries for the nine months ended September 30, 2002 when compared to the same period in 2001.
The Company generates sufficient net positive cash flow from its operations to fund its commitments and build its investment portfolio, thereby increasing future investment returns. The Company also maintains a high degree of liquidity in its investment portfolio in the form of readily marketable fixed maturities, equity securities and short-term investments. Net cash flows provided by operating activities were $134,974,376 and $100,586,985 for the nine months ended September 30, 2002 and 2001, respectively.
Dividends declared and paid to shareholders for the quarters ended September 30, 2002 and 2001, totaled $10,906,248 and $9,832,321, respectively. Dividends declared and paid for the nine months ended September 30, 2002 were $32,763,292 compared to $29,506,890 for the same period in 2001. There are no regulatory restrictions on the payment of dividends to the Company’s shareholders, although there are state law restrictions on the payment of dividends from the Company’s insurance subsidiaries to the Company. Dividends from insurance subsidiaries are not material to the Company’s cash flows.
Cash flows from financing activities include the purchase of treasury stock. During the first nine months of 2002, 207,217 shares were repurchased at a total cost of $8,486,839 or an average price of $40.96 compared to 194,200 shares repurchased for the same period in 2001 at a total cost of $6,686,588 or an average price of $34.43. The Company has discontinued share repurchases under this plan.
Company management continues to plan for space needs to accommodate increased personnel in its Home Office complex. The Company is in the design phase to build additional office and parking facilities on its current Home Office campus in Erie, Pennsylvania. The current estimate to build these facilities ranges between $50 million and $60 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Management Fees
The rate for the management fee paid to the Company by the Exchange is determined by the Company’s Board of Directors. The rate may be changed periodically by the Board at its discretion but may not exceed 25%. The Company’s Board of Directors also acts in a fiduciary capacity with respect to the operation of the Exchange. The Board considers several factors in determining the management fee rate, including the relative financial strength of the Exchange and the Company and the long-term capital needs of the Exchange, in order to foster growth and competitiveness as well as maintain its superior financial strength, which ultimately benefits the entire Erie Insurance Group
27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(including the Company, the Property and Casualty Group and EFL). Because the management fee revenue from the Exchange provides the majority of the Company’s revenue, the income of the Company is dependent upon the ability of the Exchange to maintain its financial condition and its ability to continue to offer competitive insurance products in the marketplace. The management fee rate charged the Exchange was 25% for all periods presented herein. If the Board were to decrease the management fee rate 1% (from 25% to 24%) for the nine months ended September 30, 2002 it would have resulted in a $23,755,794 reduction to the management fee revenue as reported on the Consolidated Statements of Operations. The per share impact, after federal income taxes, would be approximately $.22 per share.
Financial Condition of the Exchange
The relative financial condition of the Company and that of the Exchange are the principal areas evaluated at least annually by the Company’s Board of Directors in their determination of the management fee rate. The Exchange is also the lead insurer in the underwriting results of the Property and Casualty Group. The financial statements of the Exchange are prepared in accordance with Statutory Accounting Principles (SAP) required by the NAIC Accounting Practices and Procedures Manual, as modified to include prescribed or permitted practices of the Commonwealth of Pennsylvania. Financial statements prepared under SAP provide a more conservative approach than under GAAP. Under SAP, the principle focus is on the solvency of the insurer in order to protect the interests of the policyholders. Some significant differences between SAP and GAAP include the following:
| • | SAP provides a more conservative approach to the valuation of invested assets | ||
| • | SAP recognizes expenses when incurred and does not allow for the establishment of deferred policy acquisition cost assets | ||
| • | Statutory deferred tax calculations follow GAAP with certain modifications for the realization criteria of deferred tax assets and the recording of the impact of changes in its deferred tax balances | ||
| • | GAAP requires the establishment of an asset for the estimated salvage and subrogation that will be recovered in the future. Under SAP a company may establish this recoverable but is not required to do so. The Exchange does not establish salvage and subrogation recoveries. |
The selected financial data below as of and for the nine months ended September 30, 2001 and 2002 is derived from the Exchange’s unaudited financial statements prepared in accordance with
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
SAP. In the opinion of management, all adjustments consisting only of normal
recurring accruals, considered necessary for a fair presentation have been
included. The financial data set forth below is only a summary.
Nine months ended
September 30,
September 30,
(In thousands) (Statutory Accounting Basis)
2002
2001
(Unaudited)
$
2,140,526
$
1,792,450
$
1,727,052
$
1,568,896
718,881
551,623
($
305,407
)
($
328,069
)
48,237
(32,489
)
(68,925
)
(43,230
)
($
188,245
)
($
317,328
)
As of
September 30,
December 31,
(In thousands) (Statutory Accounting Basis)
2002
2001
(Unaudited)
$
5,238,660
$
5,990,511
6,190,240
6,998,794
3,663,000
3,200,836
4,042,623
3,953,243
$
2,147,617
$
3,045,551
The Exchange’s Policyholders’ surplus has declined over the past nine months primarily as a result of continued underwriting losses (see “Analysis of Insurance Underwriting Operations”) combined with unrealized losses from their common equity securities. Common equity securities represent a significant portion of the Exchange’s investment portfolio. They are exposed to price risk, volatility of the capital markets and general economic conditions. As such the Exchange had unrealized losses totaling $749,342,000, net of statutory deferred taxes, for the first nine months of 2002.
To the extent that the Exchange incurs additional investment losses resulting from declines in the value of its marketable securities, the Exchange’s policyholders’ surplus will be further adversely affected. If the surplus of the Exchange were to decline significantly from its current level, the Property and Casualty Group could find it more difficult to retain its existing business and attract new business. A decline in the business of the Property and Casualty Group would have an adverse effect on the amount of the management fees the Company receives and the underwriting results of the Property and Casualty Group in which the Company has a 5.5% participation. In addition, a decline in the surplus of the Exchange from its current level would make it more likely that the management fee rate received by the Company would be reduced.
Catastrophe Risk
The Property and Casualty Group is currently obtaining quotes for treaty reinsurance to protect the 2003 accident year underwriting results of the Exchange and other members of the Property
29
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
and Casualty Group from catastrophes and other adverse underwriting events. The lower surplus levels of the Exchange, along with increasing catastrophe risk exposure as a result of accelerating policy growth, have resulted in management’s decision to actively pursue the purchase of treaty reinsurance coverage. The Exchange’s reported surplus totaled $2.1 billion at September 30, 2002 compared to $3.0 billion at December 31, 2001.
The risk of not maintaining reinsurance coverage in the event of a significant catastrophe or a series of moderate catastrophes in the same year means that surplus levels could be exposed to dramatic decline should such catastrophes occur. A dramatic decline in the surplus levels would result in pressure to reduce premium writings, and thereby, curtail growth. Without the benefit of higher surplus levels, the leverage of the Exchange is reduced and so is the opportunity to grow. Reinsurance for catastrophe exposure reduces the variability of earnings and protects the balance sheet and income statement against large and infrequent events.
The Company’s current reinsurance agreement in effect with the Exchange mitigates catastrophe loss exposure risk to the Company’s property and casualty insurance subsidiaries, but does not mitigate the exposure of the Exchange or the Property and Casualty Group as a whole.
Insurance Premium Rate Increases
Rate increases filed by the Property and Casualty Group for certain lines of business in various states were sought to offset growing loss costs in those lines. The Company continually evaluates pricing levels balancing competitive conditions and the need to maintain the solid financial condition of the insurers of the Property and Casualty Group. Pricing actions contemplated or taken by the insurers of the Property and Casualty Group are subject to various regulatory requirements of the states in which the insurers operate. Premium increases anticipated due to pricing actions approved through September 30, 2002 could amount to approximately $122 million in premium for the Property and Casualty Group in 2002 and $97 million in premium for the Property and Casualty Group in 2003. There is also the potential for an additional $49 million in premium for the Property and Casualty Group in 2003 resulting from pricing actions contemplated or filed and awaiting approval. The majority of the anticipated increase stems from the private passenger and commercial auto lines of business as well as the homeowners line of business. Further rate actions continue to be contemplated for 2003.
Geographic Expansion
On December 6, 2001, the Company announced the Erie Insurance Group’s (the Group) intention to expand its operations into Minnesota. Minnesota will be the 12th state served by the Group, in addition to the District of Columbia. Beginning in the third quarter of 2004, the Group intends to write all lines of insurance it currently offers, including auto, home, business, life and annuities in Minnesota.
Insurance Company Insolvencies
The insurance companies of the Property and Casualty Group pay assessments under the solvency or guaranty laws of the various states in which they are licensed. Pennsylvania-based PHICO Insurance Company, which became insolvent in late 2001, could impact future underwriting results of the Property and Casualty Group and consequently the Company. The impact of this insolvency on the Company’s financial results cannot be reasonably estimated at
30
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
this time, thus no liability has been established by the Company to date. However, a charge to the Company’s insurance underwriting operations is likely to be made as more information becomes available.
Terrorism
The property and casualty subsidiaries of the Company are exposed to both direct insurance and reinsurance losses arising from possible future terrorist actions. The property and casualty subsidiaries are exposed to such losses by virtue of their 5.5% participation in the intercompany pooling agreement with the Exchange. Their exposure is limited by the terms of an excess of loss agreement that is in place with the Exchange.
The tragic September 11th attacks resulted in staggering losses for the insurance industry and have caused uncertainty in the insurance and reinsurance market. The industry has been compelled to re-examine policy language and to address the potential for future threats of terrorist events and losses. The Property and Casualty Group’s personal and commercial property and casualty insurance policies were not intended to cover the risk of terrorist events and losses such as those suffered in the September 11th attacks. It is difficult to predict and measure the risks associated with possible future terrorist attacks.
To address the industry’s terrorism exposure, insurers have been working with Congress, the White House and other interested parties to enact legislation that would help spread the risk of future terrorist losses. On June 18, 2002 the Senate passed Senate Bill 2600, the Terrorism Reinsurance Act, which provides for shared public and private compensation for insured losses resulting from acts of terrorism. The Senate Bill includes a participating company deductible based on a percentage of market share. The federal government would assume liability for 80% of the portion of covered terrorism-related losses in 2002 that exceed participating companies’ deductibles, but do not exceed $10 billion in total and 90% of the losses in excess of the deductible when the total loss exceeds $10 billion. In 2003, the level would increase to $15 billion if renewed. The Senate program would be effective for one year, with the option to extend it for a second year.
Commercial property and casualty lines, including workers’ compensation and business interruption, would be required to participate. Personal lines insurers may participate by election. The bill creates a federal cause of action for damages resulting from terrorism. Punitive damages are not restricted and will not be paid by the federal government. The Senate Bill has moved to committee and conferees have been appointed to resolve differences between the Senate Bill and the House Bill previously approved in 2001, which provides for financial assistance through a loan-payback procedure and includes additional protections against lawsuits, such as a restriction on punitive damages. The tort reform measures have been one of the major areas of disagreement. A compromise litigation/liability management proposal that has gained some support consolidates cases in federal court, prohibits payment of punitive damages from government funds and limits punitive damages except in cases of criminal behavior. Passage of a compromise bill remains uncertain; however, President Bush recently met with lawmakers to push for resolution of the impasse and addressed the business community and the financial services industry to urge congressional action on terrorism legislation.
Regulators in the states in which the Property and Casualty Group does business, with the exception of New York, have approved limited optional terrorism exclusion endorsements for use on commercial property and liability lines within the framework developed by Insurance Services
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Office (ISO). These endorsements exclude claims for terrorist acts involving the release of biological, chemical, nuclear or radioactive materials. In other incidents of terrorism, thresholds must be met before the exclusion will apply. For both property and liability coverage the total of insured property damage, including business interruption, must exceed $25 million. For liability coverage, the exclusion will also apply if more than 50 people sustain death or serious physical injury. The Property and Casualty Group has made the necessary filings and obtained approval for use of these optional exclusions where deemed necessary.
ISO has also made filings for use of optional terrorism exclusion endorsements on commercial auto policies, within the framework approved for commercial property and liability lines. The Property and Casualty Group has recently made the necessary filings and obtained approval for use of these optional exclusions on commercial auto and garage auto policies, if deemed necessary. Approval has been obtained in all states in which the Property and Casualty Group does business except New York, Virginia and Illinois.
The National Association of Insurance Commissioners (NAIC) has recently passed a consensus in support of denial of terrorism exclusions on personal lines policies. NAIC action is advisory and states have approval authority; however, it is likely that many states will follow the NAIC resolution. Through its trade organizations and grassroots efforts, the Property and Casualty Group continues to work toward a federal solution to the terrorist threats facing personal lines insurers.
The Company’s substantial portfolio of equity and fixed income investments could also be affected by potential future terrorist actions which may affect the level of economic activity as well as investor confidence in the U.S. capital markets.
Exposure to Losses for Mold
The industry continues to work to understand mold and toxic mold and control exposures and losses involving property damage and personal injuries, arguably related to mold. Due to media coverage and heightened awareness, the Property and Casualty Group is seeing an increase in the number of claims with a mold component from both first party and third party coverages in personal and commercial lines. While the level of activity has not reached significant proportions, this trend is expected to continue. The costs associated with these losses, both investigative and remedial, will continue to rise. The opinions of state insurance departments regarding mold coverages and exclusions continue to be unpredictable. The Company has recommended changes to policy language for the Property and Casualty Group policies that would limit exposure in personal lines policies in the future. Mold exclusions and limitations for commercial lines are currently under review. Exclusions and limitations in personal lines policies will be filed in various states for implementation in 2003.
Information Technology Costs
In 2001, the Erie Insurance Group began a comprehensive program of eCommerce initiatives in support of the Erie Insurance Group’s Agency force and back office policy underwriting, issuance and administration. The eCommerce program is intended to improve service and efficiency, as well as result in increased sales. The first major component of the eCommerce program (network and desktop hardware deployment) was completed during the second quarter of 2002. Also, the Erie Insurance Group completed the release of the new web interface to a limited number of Agents and employees in July 2002. In August 2002, the eCommerce program took
32
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
advantage of a significant business opportunity to work with Accenture, a well-known provider of information technology services and solutions, to develop the Erie Insurance Group’s eCommerce system called ERIEConnection sm . The Erie Insurance Group is now working with Accenture to be the chief integrator and manager of the eCommerce program and to provide software applications that meet the Company’s needs . Management of Erie Insurance Group believes this approach will allow the eCommerce program to meet the established budget goals. The Company estimates its share of eCommerce costs in 2003 will amount to approximately $.09 to $.12 per share after income taxes.
Contingencies
In February, 2000 a civil class action lawsuit was filed against Erie Insurance Company and Erie Insurance Exchange (collectively, the ERIE) in Philadelphia, Pennsylvania. The Exchange issued an automobile insurance policy to the Plaintiff. The class action complaint alleges that the Plaintiff was involved in an accident and that her insured vehicle was damaged in the accident. The Complaint alleges that the ERIE acted improperly when it used non-original equipment manufacturer (non-OEM) parts in repairing the damage to the Plaintiff’s vehicle. In March, 2002, the courts granted the Plaintiff’s Revised Motion for Class Certification.
The ERIE is seeking to appeal the certification of the class. In addition, the ERIE has joined, as additional defendants in the class action lawsuit, other non-OEM manufacturers and distributors of crash parts. Although it is too early to assess the probable outcome or the amount of damages of this civil class action lawsuit, the Company believes the ERIE has meritorious legal and factual defenses to this lawsuit and these defenses will be vigorously pursued. As such, no liability has been established by the Company or any of the companies in the Property and Casualty Group to date for this lawsuit. The Company’s exposure to liability arising from this litigation is limited to the 5.5% share of the Company’s property and casualty subsidiaries underwriting results under the intercompany pooling agreement. See also Part II – Item 1. “Legal Proceedings”.
Like other members of the insurance industry, the Company is the target of an increasing number of class action lawsuits like the one described above as well as other types of litigation. This litigation is based on a variety of issues including insurance and claim settlement practices. The Company assesses the likelihood of any adverse outcomes to these matters as well as potential ranges of probable losses. There can be no assurance that actual outcomes will not differ from those assessments.
Employee Benefit Obligations
The Company has a noncontributory defined benefit pension plan covering substantially all Employees. It is the only funded pension plan of the Company. At September 30, 2002 Company management evaluated the fair market value of the pension assets against the accumulated benefit obligation. The approximate fair market value of the pension asset at September 30, 2002 is $135.6 million, which continues to exceed the accumulated benefit obligation of approximately $80 million, therefore an additional minimum liability in connection with the plan was not considered necessary. Also, the discount rates being used in the plan to determine the accumulated benefit obligation were reviewed and an estimated 2003 pension expense was calculated. Based on this preliminary review, the estimated pension expense in 2003 is not expected to be materially different from the 2002 pension expense as it relates to the financial results of the Company.
33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s exposure to market risk is primarily related to fluctuations in prices and interest rates. Quantitative and qualitative disclosures about market risk resulting from changes in prices and interest rates are included in Item 7A. in the Company’s 2001 Annual Report on Form 10-K. There have been no material changes in such risks or the Company’s periodic reviews of asset and liability positions during the nine months ended September 30, 2002. The information contained in the investments section of Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.
The Company is also exposed to credit risk through its portfolios of fixed maturity securities, mortgage loans and to a lesser extent short-term investments. This risk is defined as the potential loss in market value resulting from adverse changes in the borrower’s ability to repay the debt. The Company’s objective is to earn competitive returns by investing in a diversified portfolio of securities. The Company manages this risk by performing up front underwriting analysis and regular reviews by its investment staff. The fixed maturity investments are also maintained between minimum and maximum percentages of invested assets.
The Company has significant receivables from the Exchange, which are subject to credit risk. Company results are directly related to the financial strength of the Exchange. Credit risks related to the receivables from the Exchange are evaluated monthly. Since the Company’s inception, it has collected all amounts due from the Exchange in a timely manner (generally within 120 days).
“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: Certain forward-looking statements contained herein involve risks and uncertainties. These statements include certain discussions relating to management fee revenue, cost of management operations, underwriting, premium and investment income volume, business strategies, profitability and business relationships and the Company’s other business activities during 2002 and beyond. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions. These forward-looking statements reflect the Company’s current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that may cause results to differ materially from those anticipated in those statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict.
34
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and its Chief Financial Officer, of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of this evaluation.
35
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Brenda L. Foultz v. Erie Insurance Exchange and Erie Insurance Company
This civil class action lawsuit was filed in February of 2000 in the Court of Common Pleas of Philadelphia County, Pennsylvania. Erie Insurance Exchange and Erie Insurance Company (collectively, the ERIE) are the named defendants in the suit. The Erie Insurance Exchange issued an automobile insurance policy to the Plaintiff. The Class Action Complaint alleges that the Plaintiff was involved in an accident and that her insured vehicle was damaged in the accident. The Complaint alleges that the ERIE acted improperly when it prepared estimates using non-OEM parts in repairing the damage to the Plaintiff’s vehicle. In repairing the Plaintiff’s vehicle, two “non-OEM parts” were used. The two non-OEM parts used in repairing the Plaintiff’s vehicle were the left and right front lens and housing assemblies. The Plaintiff’s Complaint asserts that all non-OEM crash parts are inferior, defective and substandard, and do not return a damaged vehicle to its condition prior to the accident.
The Complaint, as amended, contains four counts. In the Count I, Plaintiff alleges that the ERIE’s conduct constitutes a breach of contract under its insurance policy. Count II of the Complaint alleges that the ERIE’s conduct violates the Pennsylvania Unfair Trade Practices and Consumer Protection law. Count III alleges that the ERIE’s conduct violates the Pennsylvania bad faith statute. In Count IV of the Complaint Plaintiff requested declaratory relief and an injunction prohibiting the ERIE from using non-OEM parts. The Plaintiff later voluntarily dismissed Count IV. The ERIE answered the Complaint and denied liability on all of the counts. The ERIE also filed a Joinder Complaint in January of 2001 against the manufacturer and distributor of the non-OEM parts alleged by the Plaintiff to be defective. The Court issued an Order permitting the ERIE’s joinder of TYC Brother Industrial Co. Ltd., the manufacturer of the parts at issue, and Genera Corporation, the distributor of the parts. TYC Brother Industrial Co. Ltd. and Genera have also denied any and all liability.
On March 13, 2002, the Court of Common Pleas of Philadelphia County granted the Plaintiff’s Revised Motion for Class Certification. The Court certified the following class:
| All persons in the United States (1) who have been insured by an automobile policy issued by Erie Insurance Company or any other member of the Exchange; (2) who have made a claim at any time on or after February 2, 1994 for vehicle repairs pursuant to their Erie Insurance policies; and (3) have had non-OEM crash parts specified for their repairs. Excluded from the Class are officers, directors and employees of Erie Insurance Company, Exchange, and their subsidiaries. |
The ERIE is seeking to appeal the certification of the class. In addition, the ERIE has joined, as additional Defendants in the class action lawsuit, other non-OEM manufacturers and distributors of crash parts. The Company believes the Exchange and Erie Insurance Company have meritorious legal and factual defenses to this lawsuit and these defenses will be vigorously pursued. In the event an adverse verdict is rendered against the Erie Insurance Exchange and Erie Insurance Company, both Erie Insurance Group companies will vigorously pursue any claims they may have against the non-OEM manufacturers and suppliers.
36
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
37
Reports on Form 8-K
On July 24, 2002, the Company filed a report on Form 8-K, reporting under Item
7 that the Company’s Board of Directors held a special meeting on July 23,
2002. At the meeting, the Board voted to increase the number of directors from
12 to 13; elected Jeffrey A. Ludrof, the Company’s President and Chief
Executive Officer, to the Board; and accepted the resignation of Stephen A.
Milne, the retired President and Chief Executive Officer of the Company.
On September 13, 2002, the Company filed a report on Form 8-K, reporting under
Item 4 that the
Company’s Audit Committee selected Ernst & Young, LLP to be the Company’s
independent auditors for the fiscal year ending December 31, 2003. Malin,
Bergquist & Company, LLP, the Company’s current independent auditors will
continue on as the Company’s independent auditors for the fiscal year ending
December 31, 2002. As mentioned in the Form 8-K, there were no disagreements
with Malin, Bergquist & Company on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure
during the Company’s two most recent fiscal years and throughout the date of
the Form 8-K filing.
Table of Contents
ITEM 11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30 | September 30 | ||||||||||||||||
|
|
|
||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
|
|
|
|
|
||||||||||||||
|
Class A weighted average common shares
outstanding (stated value $.0292)
Class B common shares outstanding
(stated value $70)
|
63,686,149 | 63,977,939 | 63,789,404 | 64,011,614 | |||||||||||||
|
Conversion of Class B shares to
Class A shares (one share of Class B
For 2,400 shares of Class A)
|
7,320,000 | 7,368,000 | 7,320,000 | 7,368,000 | |||||||||||||
|
|
|
|
|
|
|||||||||||||
|
Total weighted average shares
outstanding
|
71,006,149 | 71,345,939 | 71,109,404 | 71,379,614 | |||||||||||||
|
|
|
|
|
|
|||||||||||||
|
Net income
|
$ | 46,161,999 | $ | 34,430,497 | $ | 138,189,091 | $ | 116,345,198 | |||||||||
|
|
|
|
|
|
|||||||||||||
|
Net income per share
|
$ | 0.65 | $ | 0.48 | $ | 1.94 | $ | 1.63 | |||||||||
|
|
|
|
|
|
|||||||||||||
38
SIGNATURES
Pursuant to the requirements 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.
| Erie Indemnity Company | ||
|
|
||
| (Registrant) | ||
| Date: November 6, 2002 | /s/ Jeffrey A. Ludrof | |
|
|
||
| Jeffrey A. Ludrof, President & CEO | ||
| /s/ Philip A. Garcia | ||
|
|
||
| Philip A. Garcia, Executive Vice President & CFO |
39
CERTIFICATIONS
I, Jeffrey A. Ludrof, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Erie Indemnity Company; | ||
| 2. | Based on my knowledge, this quarterly 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 quarterly report; | ||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; | ||
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
| a) | designed such disclosure controls and procedures 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 quarterly report is being prepared; | ||
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | ||
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors: |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | ||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| Date: November 6, 2002 | ||
| /s/ Jeffrey A. Ludrof | ||
|
|
||
| Jeffrey A. Ludrof, President & CEO |
40
CERTIFICATIONS
I, Philip A. Garcia, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Erie
Indemnity Company;
2.
Based on my knowledge, this quarterly 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 quarterly report;
3.
Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly report;
4.
The registrant’s other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a.
designed such disclosure controls and procedures 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 quarterly report is being prepared;
b.
evaluated the effectiveness of the registrant’s
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
“Evaluation Date”); and
c.
presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5.
The registrant’s other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant’s auditors and
the audit committee of registrant’s board of directors:
a.
all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant’s ability to record, process, summarize and report
financial data and have identified for the registrant’s
auditors any material weaknesses in internal controls; and
b.
any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant’s internal controls; and
6.
The registrant’s other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 6, 2002
/s/ Philip A. Garcia
Philip A. Garcia, Executive Vice President & CFO
41
EXHIBIT 3(ii)
AMENDMENT AND RESTATEMENT OF
BYLAWS
-- of --
ERIE INDEMNITY COMPANY
September 9, 2002
ARTICLE I
Offices
Section 1.01. Principal Office. The principal office of Erie Indemnity Company, a Pennsylvania business corporation, shall be located in the City of Erie, Pennsylvania.
ARTICLE II
Meetings of Shareholders
Section 2.01. Annual Meeting. The Annual Meeting of Shareholders shall be held each year, at a day and time fixed by the Board of Directors. At the Annual Meeting, the Shareholders then entitled to vote shall elect Directors and shall transact such other business as may properly be brought before the meeting. In elections for Directors, voting need not be by ballot, except upon demand made by a Shareholder entitled to vote at the election and before the voting begins.
Section 2.02. Special Meetings.
(a) Call of Special Meetings. Special meetings of the Shareholders may be called at any time by:
(1) the Chairman of the Board,
(2) the Chief Executive Officer,
(3) the Board of Directors,
(4) the Chairman of the Executive Committee, or
(5) Shareholders entitled to cast at least twenty percent (20%) of the votes that all Shareholders are entitled to cast at the particular meeting.
(b) Fixing of Time for Meeting. At any time, upon written request of any person who has called a special meeting, it shall be the duty of the Secretary to fix the day and time of the meeting, which shall be held not more than 60 days after the receipt of the request. If the Secretary neglects or refuses to fix the day and time of the meeting, the person or persons calling the meeting may do so.
Section 2.03. Place of Meeting. The place of meeting for any Annual or Special Meeting of Shareholders of the corporation shall be at the principal office of the corporation, unless another place is designated by the Board of Directors in the notice of the meeting.
Section 2.04. Notice of Meeting.
(a) General Rule. Written notice of every meeting of the Shareholders stating the place, day and time of the meeting shall be given by, or at the direction of, the Secretary to each Shareholder of record entitled to vote at the meeting at least:
(1) ten days prior to the day named for a meeting called to consider a fundamental transaction under 15 Pa.C.S. Chapter 19; or
(2) five days prior to the day named for the meeting in any other case.
If the Secretary neglects or refuses to give notice of a meeting, the person or persons calling the meeting may do so. In the case of a Special Meeting of Shareholders, the notice shall specify the general nature of the business to be transacted.
(b) Manner of Giving Notice. Whenever written notice is required to be given to any Shareholder, it may be given either personally or by sending a copy thereof by first class or express mail, postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answerback received) or courier service, charges, prepaid, or by telecopier, to the address (or to the telex, TWX, telecopier or telephone number) of the Shareholder appearing on the books of the corporation. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched or, in the case of telecopier, when received.
(c) Adjourned Shareholder Meetings. When a meeting of Shareholders is adjourned, it shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which the adjournment is taken, unless the Board fixes a new record date for the adjourned meeting.
(d) Notice of Action by Shareholders on Bylaws. In the case of a meeting of Shareholders that has as one of its purposes action on the bylaws, written notice shall be given to each Shareholder that the purpose, or one of the purposes, of the meeting is to consider the
adoption, amendment or repeal of the bylaws. There shall be included in, or enclosed with, the notice a copy of the proposed amendment or a summary of the changes to be effected thereby.
Section 2.05. Quorum.
(a) General Rule. A meeting of Shareholders of the corporation duly called shall not be organized for the transaction of business unless a quorum is present. The presence, in person or by proxy, of Shareholders entitled to cast at least a majority of the votes that all Shareholders are entitled to cast on a particular matter to be acted upon at the meeting shall constitute a quorum for the purposes of consideration and action on the matter. Shares of the corporation owned, directly or indirectly, by it and controlled, directly or indirectly, by the Board of Directors of this corporation, as such, shall not be counted in determining the total number of outstanding shares for quorum purposes at any given time.
(b) Withdrawal of a Quorum. The Shareholders present at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum.
(c) Adjournment for Lack of Quorum. If a meeting cannot be organized because a quorum has not attended, those present may, except as provided in the Business Corporation Law, adjourn the meeting to such time and place as they may determine.
(d) Adjournments Generally. Any meeting at which Directors are to be elected shall be adjourned only from day to day, or for such longer periods not exceeding 15 days each as the Shareholders present and entitled to vote shall direct, until the Directors have been elected. Any other regular or special meeting may be adjourned for such period as the Shareholders present and entitled to vote shall direct.
Section 2.06. Informal Action by Shareholders. Any action required or permitted to be taken at a meeting of the Shareholders or of a class of Shareholders may be taken without a meeting if, prior or subsequent to the action, a consent or consents thereto by all of the Shareholders who would be entitled to vote at a meeting for such purpose shall be filed in writing with the Secretary of the corporation.
Section 2.07. Shareholder Proposals.
(a) Shareholder Proposals Relating to Candidates for Election as Directors.
(1) A Shareholder, whether or not entitled to vote in the election of Directors, may propose to the Nominating Committee of the Board of Directors one or more persons who the Shareholder believes would be appropriate candidates for election by Shareholders as a Director at any meeting of Shareholders at which Directors are to be elected. Such proposal shall be made by notice in writing, delivered in person or by first class United States mail postage prepaid or by reputable overnight delivery service, to the Nominating Committee of the Board of Directors of the corporation to the attention of the Secretary of the corporation at the
principal office of the corporation, within the time limits specified herein and otherwise in accordance with this Section 2.07(a).
(2) In the case of an annual meeting of Shareholders, any such written proposal by a Shareholder must be received by the Nominating Committee not less than 90 calendar days nor more than 120 calendar days before the first anniversary of the date on which the corporation first mailed its proxy statement to Shareholders for the annual meeting of Shareholders in the immediately preceding year; provided, however, that in the case of an annual meeting of Shareholders that is called for a date which is not within 30 calendar days before or after the first anniversary date of the annual meeting of Shareholders in the immediately preceding year, any such written proposal by a Shareholder must be received by the Nominating Committee within five business days after the earlier of the date the corporation shall have mailed notice to its Shareholders that an annual meeting of Shareholders will be held, issued a press release, filed a periodic report with the Securities and Exchange Commission (the "SEC"), or otherwise publicly disseminated notice that an annual meeting of Shareholders will be held.
(3) In the case of a special meeting of Shareholders, any such written proposal by a Shareholder must be received by the Nominating Committee within five business days after the earlier of the date that the corporation shall have mailed notice to its Shareholders that a special meeting of Shareholders will be held, issued a press release, filed a periodic report with the SEC, or otherwise publicly disseminated notice that a special meeting of Shareholders will be held.
(4) Such written proposal by a Shareholder shall set forth (A) the name and address of the Shareholder who has made the proposal, (B) the name, age, business address and, if known, residence address of each person so proposed, (C) the principal occupation or employment for the past five years of each person so proposed, (D) the number of shares of capital stock of the corporation beneficially owned within the meaning of SEC Rule 13d-1 by each person so proposed and the earliest date of acquisition of any such capital stock, (E) a description of any arrangement or understanding between each person so proposed and the proposing Shareholder with respect to such person's proposal, election as a Director, and actions to be proposed or taken by such person if elected as a Director, (F) the written consent of each person so proposed to serve as a Director if nominated and elected as a Director and (G) such other information regarding each such person as would be required under the proxy solicitation rules of the SEC if proxies were to be solicited for the election as a Director of each person so proposed.
(5) If a written proposal by a Shareholder submitted to the Nominating Committee fails, in the reasonable judgment of the Nominating Committee, to contain the information specified in clause (4) hereof or is otherwise deficient, the Chairperson of the Nominating Committee shall, as promptly as is practicable under the circumstances, provide written notice to the Shareholder of such failure or deficiency in the written proposal by a Shareholder and such Shareholder shall have five business days from receipt of such notice to submit a revised proposal that corrects such failure or deficiency in all material respects.
(b) Shareholder Proposals Relating to Matters Other Than Candidates for Election as Directors.
(1) A Shareholder of the corporation may bring a matter (other than a proposal to the Nominating Committee of a candidate for election as a Director which is covered by subsection (a) of this Section 2.07) before a meeting of Shareholders only if (A) such matter is a proper matter for Shareholder action and such Shareholder shall have provided notice in writing, delivered in person or by first class United States mail postage prepaid or by reputable overnight delivery service, to the Secretary of the corporation at the principal office of the corporation, within the time limits specified herein or (B) the Shareholder complies with the provisions of Rule 14a-8 under the Securities Exchange Act of 1934 (as amended) relating to inclusion of Shareholder proposals in the corporation's proxy statement.
(2) In the case of an annual meeting of Shareholders, any such written notice of presentation of a matter by a Shareholder must be received by the Secretary of the corporation not less than 90 calendar days nor more than 120 days before the first anniversary of the date on which the corporation first mailed its proxy statement to Shareholders for the annual meeting of Shareholders in the immediately preceding year; provided, however, that in the case of an annual meeting of Shareholders that is called for a date which is not within 30 calendar days before or after the first anniversary date of the annual meeting of Shareholders in the immediately preceding year, any such written notice of presentation by a Shareholder of a matter must be received by the Secretary of the corporation within five business days after the earlier of the date the corporation shall have mailed notice to its Shareholders that an annual meeting of Shareholders will be held, issued a press release, filed a periodic report with the SEC, or otherwise publicly disseminated that an annual meeting of Shareholders will be held.
(3) In the case of a special meeting of Shareholders, any such written notice of presentation of a matter by a Shareholder must be received by the Secretary of the corporation within five business days after the earlier of the date the corporation shall have mailed notice to its Shareholders that a special meeting of Shareholders will be held, issued a press release, filed a periodic report with the SEC, or otherwise publicly disseminated notice that a special meeting of Shareholders will be held.
(4) Such written notice of presentation of a matter by a Shareholder shall set forth information regarding such matter equivalent to the information regarding such matter that would be required under the proxy solicitation rules of the SEC if proxies were solicited for Shareholder consideration of such matter at a meeting of Shareholders.
(5) If a written notice of presentation of a matter submitted by a Shareholder to the Board of Directors fails, in the reasonable judgment of the Board of Directors, to contain the information specified in clause (iv) hereof or is otherwise deficient, the Chairperson of the Board of Directors shall, as promptly as is practicable under the circumstances, provide written notice to the Shareholder who submitted the written notice of presentation of a matter of such failure or deficiency in the written notice of presentation of a matter and such Shareholder shall
have five business days from receipt of such notice to submit a revised written notice of presentation of a matter that corrects such failure or deficiency in all material respects.
(6) Only matters submitted in accordance with the foregoing provisions of this Section 2.07(b) shall be eligible for presentation at such meeting of Shareholders, and any matter not submitted to the Board of Directors in accordance with such provisions shall not be considered or acted upon at such meeting of Shareholders.
Section 2.08. Waiver of Notice. Whenever any written notice is required to be given to any Shareholder, a waiver thereof in writing signed by the Shareholder entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of the notice. Attendance of a person at any meeting shall constitute a waiver of notice of the meeting except where a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened.
Section 2.09. Voting and Other Action by Proxy.
(a) General Rule.
(1) Every Shareholder entitled to vote at a meeting of Shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person to act for the Shareholder by proxy.
(2) The presence of, or vote or other action at a meeting of Shareholders, or the expression of consent or dissent to corporate action in writing, by a proxy of a Shareholder shall constitute the presence of, or vote or action by, or written consent or dissent of the Shareholder.
(3) Where two or more proxies of a Shareholder are present, the corporation shall, unless otherwise expressly provided in the proxy, accept as the vote of all shares represented thereby the vote cast by a majority of them and, if a majority of the proxies cannot agree whether the shares represented shall be voted or upon the manner of voting the shares, the voting of the shares shall be divided equally among those persons.
(b) Minimum Requirements. Every proxy shall be executed in writing by the Shareholder or by the duly authorized attorney-in-fact of the Shareholder and filed with the Secretary of the corporation. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until written notice thereof has been given to the Secretary of the corporation. An unrevoked proxy shall not be valid after three years from the date of its execution unless a longer time is expressly provided therein. A proxy shall not be revoked by the death or incapacity of the maker unless, before the vote is counted or the authority is exercised written notice of the death or incapacity is given to the Secretary of the corporation.
(c) Expenses. Unless otherwise restricted in the articles, the corporation shall pay the reasonable expenses of solicitation of votes, proxies or consents of Shareholders by or on behalf of the Board of Directors or its nominees for election to the Board, including solicitation by professional proxy solicitors and otherwise.
Section 2.10. Voting by Fiduciaries and Pledgees. Shares of the corporation standing in the name of a trustee or other fiduciary and shares held by an assignee for the benefit of creditors or by a receiver may be voted by the trustee, fiduciary, assignee or receiver. A shareholder whose shares are pledged shall be entitled to vote the shares until the shares have been transferred into the name of the pledgee, or a nominee of the pledgee, but nothing in this section shall affect the validity of a proxy given to a pledgee or nominee.
Section 2.11. Voting by Joint Holders of Shares.
(a) General Rule. Where shares of the corporation are held jointly or as tenants in common by two or more persons, as fiduciaries or otherwise:
(1) if only one or more of such persons is present in person or by proxy, all of the shares standing in the names of such persons shall be deemed to be represented for the purpose of determining a quorum and the corporation shall accept as the vote of all the shares the vote cast by a joint owner or a majority of them; and
(2) if the persons are equally divided upon whether the shares held by them shall be voted or upon the manner of voting the shares, the voting of the shares shall be divided equally among the persons without prejudice to the rights of the joint owners or the beneficial owners thereof among themselves.
(b) Exception. If there has been filed with the Secretary of the corporation a copy, certified by an attorney-at-law to be correct, of the relevant portions of the agreement under which the shares are held or the instrument by which the trust or estate was created or the order of court appointing them or of an order of court directing the voting of the shares, the persons specified as having such voting power in the document latest in date of operative effect so filed, and only those persons, shall be entitled to vote the shares but only in accordance therewith.
Section 2.12. Voting by Corporations.
(a) Voting by Corporate Shareholders. Any corporation that is a Shareholder of this corporation may vote by any of its officers or agents, or by proxy appointed by any officer or agent, unless some other person, by resolution of the Board of Directors of the other corporation or a provision of its articles or bylaws, a copy of which resolution or provision certified to be correct by one of its officers has been filed with the Secretary of this corporation, is appointed its general or special proxy in which case that person shall be entitled to vote the shares.
(b) Controlled Shares. Shares of this corporation owned, directly or indirectly, by it and controlled, directly or indirectly, by the Board of Directors of this corporation, as such, shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares for voting purposes at any given time.
Section 2.13. Determination of Shareholders of Record.
(a) Fixing Record Date. The Board of Directors may fix a time prior to the date of any meeting of Shareholders as a record date for the determination of the Shareholders entitled to notice, or to vote at, the meeting, which time, except in the case of an adjourned meeting, shall be not more than 90 days prior to the date of the meeting of Shareholders. Only Shareholders of record on the date fixed shall be so entitled notwithstanding any transfer of shares on the books of the corporation after any record date fixed as provided in this subsection. The Board of Directors may similarly fix a record date for the determination of Shareholders of record for any other purpose. When a determination of Shareholders of record has been made as provided in this section for purposes of a meeting, the determination shall apply to any adjournment thereof unless the Board fixes a new record date for the adjourned meeting.
(b) Determination When a Record Date is not Fixed. If a record date is not fixed:
(1) The record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held.
(2) The record date for determining Shareholders entitled to express consent or dissent to corporate action in writing without a meeting, when prior action by the Board of Directors is not necessary, shall be the close of business on the day on which the first written consent or dissent is filed with the Secretary of the corporation.
(3) The record date for determining Shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 2.14. Voting Lists.
(a) General Rule. The officer or agent having charge of the transfer books for shares of the corporation shall make a complete list of the Shareholders entitled to vote at any meeting of Shareholders, arranged in alphabetical order, with the address of and the number of shares held by each. The list shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any Shareholder during the whole time of the meeting for the purposes thereof.
(b) Effect of List. Failure to comply with the requirements of this section shall not affect the validity of any action taken at a meeting prior to a demand at the meeting by any
Shareholder entitled to vote thereat to examine the list. The original share register or transfer book, or a duplicate thereof kept in this Commonwealth, shall be prima facie evidence as to who are the Shareholders entitled to examine the list or share register or transfer book or to vote at any meeting of Shareholders.
Section 2.15. Judges of Election.
(a) Appointment. In advance of any meeting of Shareholders of the corporation, the Board of Directors may appoint Judges of Election, who need not be Shareholders, to act at the meeting or any adjournment thereof. If Judges of Election are not so appointed, the presiding officer of the meeting may, and on the request of any Shareholder shall, appoint Judges of Election at the meeting. The number of Judges shall be one or three. A person who is a candidate for office to be filled at the meeting shall not act as a Judge.
(b) Vacancies. In case any person appointed as a Judge fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the Board of Directors in advance of the convening of the meeting or at the meeting by the presiding officer thereof.
(c) Duties. The Judges of Election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all Shareholders. The Judges of Election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three Judges of Election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all.
(d) Report. On request of the presiding officer of the meeting, or of any Shareholder, the Judges shall make a report in writing of any challenge or question or matter determined by them, and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated therein.
ARTICLE III
Directors
Section 3.01. General Powers. All powers vested by law in the corporation shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the Board of Directors.
Section 3.02. Number, Tenure and Qualifications. The Board of Directors shall consist of not less than seven (7), nor more than sixteen (16), Directors (the exact number to be fixed from time to time by resolution of the Board), the majority of whom shall be citizens and
residents of the United States, each of whom shall be at least eighteen (18)
years of age, elected at the Annual Meeting of Shareholders, to serve until the
ensuing Annual Meeting and until a successor is elected and qualified or until
his or her earlier death, resignation or removal. Not less than one-third of the
Directors shall be persons who are not officers or employees of the corporation
or of any entity controlling, controlled by, or under common control with the
corporation and who are not beneficial owners of a controlling interest in the
voting securities of the corporation. "Control," "controlling," "controlled by"
and "under common control with" as used herein, shall be given those meanings
prescribed by Section 1201 of Pennsylvania Act 178 of 1992 (40 P.S.
Section 991.1401). No person who is seventy (70) years of age or older shall be
elected a Director unless already a Director in office and qualifying under one
or more of the following exceptions if such person is: (a) seventy-five (75)
years of age or older on the date of the 1990 Annual Meeting; or (b) under
seventy-five (75) years of age on the date of the 1990 Annual Meeting, provided
however, that such person cannot continue to serve beyond the end of the term in
which becoming seventy-five (75) years of age; or (c) seventy (70) years of age
or older and serving as a Trustee of the H. O. Hirt Trust, so long as the Trust
holds the majority Class B, or equivalent, voting shares of the corporation; or
(d) seventy (70) years of age or older and serving, or previously served, in at
least one of the two highest full-time executive positions of the corporation
for a period of at least one (1) year.
Section 3.03. Meetings. The Annual Meeting of the Board of Directors shall be held immediately after the Annual Meeting of Shareholders for the purpose of organization and the election of officers, and notice thereof shall be given in the same manner as hereinbefore provided in the case of the Annual Meeting of Shareholders. The Board of Directors shall provide, by resolution, for the holding of at least four (4) regular meetings including the annual meeting on specified days or dates without notice. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board or by the President, or by at least three (3) Directors. Written notice of every special meeting of Directors stating the place, day and time of the meeting shall be given not less than five (5) days before the meeting, either personally or by first class or express mail or by telegraph, telex or TWX (with answerback received) or courier services, charges prepaid, or by telecopier. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched or, in the case of telecopier, when received.
Section 3.04. Waiver of Notice. Whenever any written notice is required to be given to any Director, a waiver thereof in writing signed by the Director entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of the notice. Attendance of a person at any meeting shall constitute a waiver of notice of the meeting except where a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened.
Section 3.05. Quorum. A majority of the Directors in office of the corporation shall be necessary to constitute a quorum for the transaction of business; provided, however, that a
quorum shall consist of at least five (5) Directors if the Board consists of only seven (7) Directors. At least one Director who is not an officer or employee of the corporation or of any entity controlling, controlled by or under common control with the corporation and who is not a beneficial owner of a controlling interest in the voting securities of the corporation must be present for a quorum of Directors. The acts of a majority of the directors present and voting at a meeting at which a quorum is present shall be the acts of the Board of Directors.
Section 3.06. Limiting Liability of Directors.
A. A Director of the corporation shall stand in a fiduciary relation to the corporation and shall perform his duties as a Director, including his duties as a member of any committee of the Board of Directors upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interest of the corporation, and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his duties, a Director shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following:
(1) One or more officers or employees of the corporation whom the Director reasonably believes to be reliable and competent in the matters present, or
(2) Counsel, public accountants or other persons as to matters which the Director reasonably believes to be within the professional or expert competence of such persons, or
(3) A committee of the Board of Directors upon which he does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the Director reasonably believes to merit confidence.
A Director shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause his reliance to be unwarranted.
B. In discharging the duties of their respective positions, the Board of Directors, committees of the Board of Directors and individual Directors, may, in considering the best interest of the corporation, consider the effects of any action upon employees, upon suppliers and customers of the corporation and upon communities in which offices or other establishments of the corporation are located, and all other pertinent factors. The consideration of these factors shall not constitute a violation of subsection A of this section.
C. Absent breach of fiduciary duty, lack of good faith or self-dealing, any action taken as a Director or any failure to take any action as a Director shall be presumed to be in the best interests of the corporation.
D. Section 1715 of 15 Pa.C.S. shall not be applicable to the corporation. (Added 4/27/91.)
E. A Director of the corporation shall not be personally liable for monetary damages as such for any action taken, or any failure to take any action, unless:
(1) The Director has breached or failed to perform his duties of his office under subsections A through C of this section, and
(2) The breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.
F. The provisions of subsection E of this section shall not apply to:
(1) The responsibility or liability of a Director pursuant to any criminal statute, or
(2) The liability of a Director for the payment of taxes pursuant to local, state or federal law.
Section 3.07. Executive Committee.
(a) General Rule. There shall be an Executive Committee which, except as provided in subsection (b), shall have and exercise all power and authority of the Board of Directors between meetings of the Board. The Executive Committee shall consist of not fewer than three (3) regular members including the Chief Executive Officer of the corporation who shall be Chairman of the Executive Committee, unless another member shall be designated by resolution of the Board. All of the regular members shall be designated by resolution of the Board. Not less than one-third of the committee must be Directors who are not officers or employees of the corporation or of any entity controlling, controlled by, or under common control with the corporation and who are not beneficial owners of a controlling interest in the voting securities of the corporation. The Executive Committee shall meet at any time and place designated and at least six hours oral or written notice given by or on behalf of the Chairman of the Executive Committee, and shall report promptly to the entire Board of Directors the substance of any action taken by the Executive Committee, which action may be changed by the Board without prejudice to intervening rights.
(b) Limitation on Authority. The Executive Committee shall not have any power or authority as to the following:
(1) The submission to Shareholders of any action requiring approval of Shareholders under the Business Corporation Law.
(2) The creation or filling of vacancies in the Board of Directors.
(3) The adoption, amendment or repeal of these bylaws.
(4) The amendment or repeal of any resolution of the Board that by its terms is amendable or repealable only by the Board.
(5) Action on matters committed by a resolution of the Board of Directors to another committee of the Board.
Section 3.08. Audit Committee and Audit.
(a) Appointment. The Board of Directors shall appoint annually an Audit Committee which shall consist of not less than three (3) Directors who are not officers or employees of the corporation or of any entity controlling, controlled by, or under common control with the corporation and who are not beneficial owners of a controlling interest in the voting securities of the corporation. The Audit Committee shall determine the nature and extent of the audit of the records and of the verification and certification of the accounts of the corporation. The Audit Committee, in its capacity as a committee of the Board, shall be directly responsible for the appointment, compensation, and oversight of the work of any registered public accounting firm employed by the Company (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work, and each such registered public accounting firm shall report directly to the Audit Committee. (Amended 9/9/02)
(b) Audit. The Audit Committee shall present the audit in full to the Board of Directors at a meeting of the Board which shall be held at least two weeks prior to the next Annual Meeting of Shareholders. The audit of the corporation need not be mailed to Shareholders, but it shall be available for inspection by any Shareholders at the office of the corporation during usual business hours and at the Annual Meeting.
Section 3.09. Nominating Committee. The Board of Directors shall appoint annually a Nominating Committee which shall consist of not less than three (3) Directors who are not officers or employees of the corporation or of any entity controlling, controlled by, or under common control with the corporation and who are not beneficial owners of a controlling interest in the voting securities of the corporation. The Nominating Committee shall, prior to the Annual Meeting, determine and nominate candidates for the office of Directors of the corporation to be elected by the shareholders to serve terms as established by the bylaws and until their successors are appointed.
Section 3.10. Executive Compensation Committee. The Board of Directors shall appoint annually an Executive Compensation committee which shall consist of not less than three (3) Directors who are not officers or employees of the corporation or of any entity controlling, controlled by, or under common control with the corporation and who are not beneficial owners of a controlling interest in the voting securities of the corporation. The Executive Compensation Committee shall be responsible for evaluating the performance of the principal officers of the corporation and recommending to the Board of Directors the selection and compensation of the principal officers. The Executive Compensation Committee shall also be responsible for the drafting of reports, disclosures, evaluations and other documents relating to executive compensation for filing with State and Federal regulatory authorities.
Section 3.11. Alternate Committee Members. The Board of Directors may designate one or more Directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee or for the purpose of any written action by the committee. In the absence or disqualification of a member and alternate member or members of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another Director to act at the meeting in the place of the absent or disqualified member.
Section 3.12. Other Committees. The Board of Directors may designate from time to time any other committees as the Board may deem necessary and appropriate. The Board may set the number of members of any such committee and may appoint such members. Not less than one-third of any committee created hereunder must be Directors who are not officers or employees of the corporation or of any entity controlling, controlled by, or under common control with the corporation and who are not beneficial owners of a controlling interest in the voting securities of the corporation.
Section 3.13. Informal Action by Directors. Any action required or permitted to be taken at a meeting of the Directors may be taken without a meeting if, prior or subsequent to the action, a consent or consents thereto by all of the Directors in office is filed with the Secretary of the corporation. Any action without a meeting of the Board shall be limited to those situations where time is of the essence and not in lieu of a regularly scheduled meeting.
Section 3.14. Vacancies. Vacancies in the Board of Directors, including vacancies resulting from an increase in the number of Directors, may be filled by a majority vote of the remaining members of the Board though less than a quorum, or by a sole remaining Director, and each person so selected shall be a director to serve for the balance of the unexpired term, and until a successor has been selected and qualified or until his or her earlier death, resignation or removal.
Section 3.15. Removal of Directors.
(a) Removal by the Shareholders. The entire Board of Directors, or any class of the Board, or any individual Director may be removed from office without assigning any cause by the vote of Shareholders, or of the holders of a class or series of shares, entitled to elect Directors, or the class of Directors. In case the Board or a class of the Board or any one or more Directors are so removed, new Directors may be elected at the same meeting. The Board of Directors may be removed at any time with or without cause by the unanimous vote or consent of Shareholders entitled to vote thereon.
(b) Removal by the Board. The Board of Directors may declare vacant the office of a Director who has been judicially declared of unsound mind or who has been convicted of an offense punishable by imprisonment for a term of more than one year or if, within 60 days after notice of his or her selection, the Director does not accept the office either in writing or by attending a meeting of the Board of Directors.
Section 3.16. Compensation. The Board of Directors has the responsibility and authority to determine the compensation of directors and officers elected by the Board of Directors in connection with their service to the corporation and a Director may be a salaried officer of the corporation, who shall not receive any additional compensation as a Director. The acceptance of gifts of significant value from persons associated with the corporation may impair the ability of the Board of Directors to establish appropriate levels of compensation and incentives for directors and officers elected by the Board of Directors that the Board considers appropriate. For these reasons, a director or an officer elected by the Board of Directors may not accept, or arrange for any member of his or her immediate family to receive, gifts or gratuities of other than nominal or insignificant value from any of the following persons or members of their immediate families: a director or officer elected by the Board of Directors, an employee of the corporation, or any person elected by the Board of Directors who is known to be a beneficial owner of more than 5 percent of the outstanding capital stock of any class of the corporation. If a gift or gratuity of more than nominal or insignificant value is received from any such persons, the gift or gratuity must be returned and the Board of Directors notified. Gifts or gratuities from any person to any member of the immediate family of such person are not prohibited by this bylaw.
ARTICLE IV
Officers
Section 4.01. Number. The officers of the corporation shall be a Chairman of the Board, a President, a Secretary, a Treasurer, and as many Executive Vice Presidents, and Senior Vice Presidents as from time to time may be determined by the Board of Directors. The President, Secretary and Treasurer may not be the same person. The Treasurer must be a natural person. There shall also be as many Vice Presidents and Assistant Officers as from time to time may be determined by the Chief Executive Officer. Other officers, including the office of Vice Chairman of the Board, as from time to time may be determined may be added by resolution of the Board of Directors.
Section 4.02. Election, Appointment and Term of Office. The Board of Directors shall elect annually at their first meeting following the Annual Meeting of Shareholders, the following officers to serve until the next Annual Meeting of Directors and until their successors are duly elected and qualified or until their earlier death, resignation or removal:
(1) the three highest paid officers of the corporation,
(2) the Chairman of the Board and the President if they are not among the three highest paid officers, and
(3) such other officers as the Board of Directors from time to time may designate by resolution.
All officers not required to be elected by the Board or not designated by the Board to be elected by the Board shall be appointed by the Chief Executive Officer to serve at his or her pleasure.
Section 4.03. Standard of Care. An officer of the corporation shall perform his or her duties as an officer in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. A person who so performs his or her duties shall not be liable by reason of having been an officer of this corporation.
Section 4.04. Duties and Responsibilities. Officers of the corporation shall have the duties and responsibilities assigned to them in their respective position descriptions approved by the Chief Executive Officer in addition to the following duties and responsibilities of the various offices:
(a) Chairman of the Board. The Chairman of the Board shall be the Chief Executive Officer of the corporation unless otherwise provided by resolution of the Board of Directors and shall have general supervision of the business, affairs and property of the corporation and over its several officers. The Chairman of the Board shall preside at all meetings of the Shareholders and of the Board of Directors, and shall perform such other duties as from time to time may be assigned by the Board of Directors. The Chairman of the Board shall be ex-officio member of all committees, if any, but shall have no vote on the Audit Committee and the Executive Compensation Committee.
(b) President. The President, in the absence of the Chairman of the Board, or a Vice Chairman of the Board, if any, shall preside at all meetings of the Shareholders and the Board of Directors. The President shall have and exercise all the powers and authority of the Chairman of the Board when the Chairman and a Vice Chairman, if any, are absent or unable to act during a vacancy in the office of the Chairman of the Board. The President shall also have such other duties and responsibilities as from time to time may be assigned by the Chief Executive Officer or the Board of Directors.
(c) Secretary. The Secretary, or an Assistant Secretary, shall be present at all meetings of the Board of Directors and of the Shareholders, and the Secretary shall keep a record of all proceedings of the Board and its committees and the Shareholders. The Secretary shall notify the Shareholders and members of the Board of all regular and special meetings, have charge of the corporate seal and of the books and records of the corporation pertaining to actions of the Board or the Shareholders, and shall have such other duties and authority as prescribed by the Pennsylvania Business Corporation Law and any other applicable law. The Secretary shall also perform such duties as are customary and incident to the office of the Secretary and shall have such other duties as from time to time may be assigned by the Chief Executive Officer or the Board of Directors.
(d) Treasurer. The Treasurer shall have the care and custody of all funds and securities of the corporation, depositing the same in the name of the corporation with such bank
or banks as the Board of Directors may select. The Treasurer shall also perform such duties as are customary and incident to the office of Treasurer and shall have such other duties as from time to time may be assigned by the Chief Executive Officer or the Board of Directors.
(e) Executive Vice Presidents. An Executive Vice President shall, in the absence of the President, perform all the duties of the President. If there is more than one Executive Vice President, the Chief Executive Officer may designate one of them to be senior. Executive Vice Presidents shall also have such other duties and responsibilities as from time to time may be assigned by the Chief Executive Officer or the Board of Directors.
(f) Senior Vice Presidents, Vice Presidents, Assistant Vice Presidents and Other Officers. Senior Vice Presidents, Vice Presidents and Assistant Vice Presidents and other officers shall perform such duties as from time to time may be assigned by the Chief Executive Officer. The duties and responsibilities of the Vice Chairman of the Board shall be assigned by resolution of the Board of Directors.
Section 4.05. Compensation. The compensation of officers elected by the Board of Directors shall be fixed by the Board of Directors subject to change from time to time as the Board may determine; and the compensation of officers, assistant officers, and agents appointed by the Chief Executive Officer shall be fixed by the Chief Executive Officer subject to change from time to time as the Chief Executive Officer shall determine.
ARTICLE V
Share Certificates and Their Transfer
Section 5.01. Share Certificates.
(a) Form. Certificates for shares of the corporation shall be in such form as approved by the Board of Directors, and shall state that the corporation is incorporated under the laws of Pennsylvania, the name of the person to whom issued, and the number and class of shares and the designation of the series (if any) that the certificate represents. The share register or transfer books and blank share certificates shall be kept by the Secretary or by any transfer agent or registrar designated by the Board of Directors for that purpose.
(b) Issuance. The share certificates of the corporation shall be numbered, dated, and registered in the share register on transfer books of the corporation as they are issued. They shall be signed by the Chairman of the Board or the President and by the Secretary or the Treasurer, and shall bear the corporate seal, which may be a facsimile, engraved or printed; but where such certificate is signed by a transfer agent or a registrar the signature of any corporate officer upon such certificate may be a facsimile, engraved or printed. In case any officer who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer because of death, resignation or otherwise, before the certificate is issued, it may be issued with the same effect as if the officer had not ceased to be such at the date of its issue. The
provisions of this Section 5.01 shall be subject to any inconsistent or contrary agreement at the time between the corporation and any transfer agent or registrar.
Section 5.02. Transfer of Shares. Transfer of shares of the corporation shall be made on the books of the corporation by the registered holder thereof or by his attorney thereunto authorized by a power of attorney, duly executed and filed with the Secretary of the corporation and upon surrender for cancellation of the certificate or certificates for such shares. No transfer shall be made inconsistent with the provisions of the Uniform Commercial Code, 13 Pa.C.S.Sections8101 et. seq., and its amendments and supplements.
Section 5.03. Record Holder of Shares. The corporation shall be entitled to treat the person in whose name any share or shares of the corporation stand on the books of the corporation as the absolute owner thereof, and shall not be bound to recognize any equitable or other claim to, or interest in, such share or shares on the part of any other person.
Section 5.04. Lost, Destroyed or Mutilated Certificates. The holder of any shares of the corporation shall immediately notify the corporation of any loss, destruction or mutilation of the certificate therefore, and the Secretary may, in his discretion, cause a new certificate or certificates to be issued to such holder, in case of mutilation of the certificate, upon the surrender of the mutilated certificate or, in case of loss or destruction of the certificate, upon satisfactory proof of such loss or destruction and, if the Secretary shall so determine, the deposit of a bond in such form and in such sum, and with such surety or sureties, as he may direct.
ARTICLE VI
Corporate Actions
Section 6.01. Voting Securities of Other Corporations. Securities held by the corporation in any other corporation shall be voted in person or by proxy by the Chief Executive Officer or any other person duly authorized by the Chief Executive Officer.
ARTICLE VII
Indemnification of Directors, Officers & Employees
Section 7.01. (The provisions of this Section were adopted by the Shareholders on April 28, 1987.)
The Company shall indemnify any Director, officer or employee, who was or is a party to, or is threatened to be made a party to or who is called as a witness in connection with any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the corporation by reason of the fact that he is or was a Director, officer or employee of the corporation, or is or was serving at the request of the corporation as a Director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding unless the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness.
The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, contract, vote of Shareholders, vote of disinterested Directors or pursuant to the direction, howsoever embodied, of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action on another capacity while holding such office. It is the policy of the corporation that indemnification of, and advancement of expenses to, Directors, officers and employees of the corporation shall be made to the fullest extent permitted by law. To this end, the provisions of this Article VII shall be deemed to have been amended for the benefit of Directors, officers and employees of the corporation effective immediately upon any modification of the Business Corporation Law of the Commonwealth of Pennsylvania (the "BCL") or the Directors' Liability Act of the Commonwealth of Pennsylvania (the "DLA") which expands or enlarges the power or obligation of corporations organized under the BCL or subject to the DLA to indemnify, or advance expenses to, Directors, officers and employees of the corporation.
The corporation shall pay expenses incurred by an officer, Director or other employee, in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation.
The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such person.
The corporation shall have the authority to create a fund of any nature, which may, but need not be, under the control of a trustee, or otherwise secure or insure in any manner, its indemnification obligations, whether arising under these Bylaws or otherwise. This authority shall include, without limitation, the authority to (i) deposit funds in trust or in escrow, (ii) establish any form of self-insurance, (iii) secure its indemnity obligation by grant of a security interest, mortgage or other lien on the assets of the corporation, or (iv) establish a letter of credit, guaranty or surety arrangement for the benefit of such persons in connection with the anticipated indemnification or advancement of expenses contemplated by this Article VII. The provision of this Article VII shall not be deemed to preclude the indemnification of, or advancement of expenses to, any person who is not specified in Section 7.01 of this Article VII, but whom the corporation has the power or obligation to indemnify, or to advance expenses for, under the provisions of the BCL or the DLA or otherwise. The authority granted by this section shall be exercised by the Board of Directors of the corporation.
Section 7.02. Proceedings Initiated by Indemnified Persons.
Notwithstanding any other provision of this Article VII, the corporation shall
not indemnify any person under this Article VII for any liability incurred in an
action, suit or proceeding initiated (which shall not be deemed to include
counterclaims or affirmative defenses) or participated in as an intervenor or
amicus curiae by the person seeking indemnification unless such initiation of or
participation in the action, suit or proceeding is authorized, either before or
after its commencement, by the affirmative vote of a majority of the Directors
in office. This section does not apply to successfully prosecuting or defending
the rights of any person to indemnification granted by or pursuant to this
Article VII.
ARTICLE VIII
Amendments
Section 8.01. Amendments. These bylaws may be altered, amended or repealed and new bylaws adopted, either (i) by vote of the Shareholders at any duly organized annual or special meeting of Shareholders, or (ii) with respect to those matters that are not by statute committed expressly to the Shareholders and regardless of whether the Shareholders have previously adopted or approved the bylaw being amended or repealed, by vote of a majority of the Board of Directors of the corporation in office at any regular or special meeting of Directors. Any change in these bylaws shall take effect when adopted unless otherwise provided in the resolution affecting the change.
I hereby certify that the foregoing Bylaws were adopted at the 46th Annual Meeting of Shareholders of the ERIE INDEMNITY COMPANY held on the 27th day of April 1971, and were amended at the following meetings: the 52nd Annual Meeting of Shareholders, April 26, 1977; the Special Shareholders Meeting, August 21, 1979; the 233rd Board of Directors Meeting, November 13, 1979; the 242nd Board of Directors Meeting, March 4, 1981; the 248th Board of Directors Meeting, August 24, 1982; the 62nd Annual Meeting of Shareholders, April 28, 1987; the 280th Board of Directors Meeting, April 24, 1990; by unanimous consent resolution adopted by the Board of Directors on April 27, 1991; the 288th Board of Directors Meeting, December 19, 1991; the 297th Board of Directors Meeting, September 27, 1993; the 299th Board of Directors Meeting, March 1, 1994; the 313th Board of Directors Meeting, September 17, 1996; the 320th Board of Directors Meeting, March 11, 1998; the 325th Board of Directors Meeting, March 9, 1999; the 327th Board of Directors Meeting, June 15, 1999; the Special Board of Directors Meeting, August 16, 1999; and the 343rd Board of Directors Meeting, September 9, 2002.
/s/ J.R. Van Gorder -------------------------------- J. R. Van Gorder, Secretary September 9, 2002 |
EXHIBIT 10.1 - SERVICE AGREEMENT
Amended And Restated
This SERVICE AGREEMENT made and entered into by and between ERIE INSURANCE COMPANY, a Pennsylvania stock insurance company (hereinafter referred to as the "Company") and ERIE INDEMNITY COMPANY, a Pennsylvania stock corporation (hereinafter referred to as "Erie Indemnity"), both of which are headquartered in Erie, Pennsylvania.
WITNESSETH:
WHEREAS, the Company is a wholly owned subsidiary of Erie Indemnity; and
WHEREAS, Erie Indemnity has served as the attorney-in-fact for the Erie Insurance Exchange, a Pennsylvania reciprocal inter-insurance exchange (hereinafter the "Exchange"), since the Exchange's inception in April, 1925; and
WHEREAS, Erie Indemnity provides the Exchange with all management services pursuant to a Subscriber's Agreement with power of attorney executed by each Subscriber at the Exchange, and it is intended hereby that Erie Indemnity shall provide the same management services to the Company in like kind and quality as Erie Indemnity provides to the Exchange; and
WHEREAS, the parties intend to amend and restate the Service Agreement in effect between them since 1989.
NOW THEREFORE, in consideration of the mutual covenants contained herein and intending to be legally bound thereby, the parties agree as follows:
Article I: MANAGEMENT SERVICES
A. Erie Indemnity will provide all necessary and appropriate management services to the Company, including but not limited to the following services: issuing, changing, nonrenewing or cancelling policies; obtaining reinsurance; collecting premiums, receiving notices and proofs of loss; appearing for, compromising, prosecuting, defending, adjusting and settling losses and claims under the policies; accepting service of process on behalf of the Company; and generally managing and conducting the business and affairs of the Company.
B. All the underwriting, claims, and investment services provided to the Company will be based upon the written criteria, standards and guidelines of the Company. The Company will have the ultimate and final authority over decisions and policies, including but not be limited to the acceptance, rejection or canceling of risks, the payment or non-payment of claims, and the purchase and sale of securities.
C. Notwithstanding any other provisions of this Agreement, it is understood that the business and affairs of the Company shall be managed by its Board of Directors, and, to
the extent delegated by such board, by its appropriately designated officers. The Board of Directors and officers of Erie Indemnity shall not have any management prerogatives with respect to the business affairs and operations of the Company.
Article II: MANAGEMENT FEE
In consideration of Erie Indemnity's management services, the Company will pay Erie Indemnity a management fee, which fee shall be on a cost basis. The Company will pay such management fee on a monthly basis no later than thirty days after the end of the month in which the costs were incurred.
Article III: REIMBURSEMENT
In addition to paying Erie Indemnity the management fee in ARTICLE II, the
Company will also fully reimburse Erie Indemnity on an actual cost basis for all
investment expenses incurred by Erie Indemnity on behalf of the Company. The
allocation method for shared expenses (facilities, equipment, personnel,
computers, etc.) shall be consistent with the provisions of New York Regulation
30 (11 NYCRR 105,109).
The Company will make such reimbursement to Erie Indemnity on a monthly basis no later than 30 days after Erie Indemnity notifies the Company of such incurred investment expenses.
Article IV: RECORDS AND RIGHT TO AUDIT
Erie Indemnity shall keep sufficient records for the express purpose of recording therein the nature and details of the management services and financial transactions performed for the Company pursuant to this Agreement. All books and records kept by Erie Indemnity that pertain to the management services and investment services performed by Erie Indemnity shall be owned by Erie Indemnity, but such books and records shall be maintained in a fiduciary capacity for the Company. The Company shall have the right to examine and audit, at the offices of Erie Indemnity at all reasonable times, all books and records of Erie Indemnity relating to any business which is the subject of this Agreement. This right shall survive termination of this Agreement and shall continue so long as either party has any rights or obligations under this Agreement.
Article V: ARBITRATION
As a condition precedent to any right of action hereunder, in the event of any difference of opinion hereafter arising with respect to this Agreement, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration before a panel of three arbitrators, all of whom shall be active or retired disinterested officers of property and casualty insurance companies. One arbitrator shall be chosen by Erie Indemnity, one shall be chosen by the Company, and the third, an umpire, to be chosen by the other two arbitrators before they enter upon arbitration. In the event of any party refusing or neglecting to appoint an arbitrator within 90 days after the other party requests it to do so, or if the arbitrators fail to appoint an umpire within 60 days after they have accepted their appointments, such arbitrator or umpire, as the case may be, shall, upon the application of any party, be appointed by The American
Arbitration Association and the arbitrators and the umpire shall thereupon proceed. The arbitrators shall consider this Agreement as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the majority of the arbitrators shall be final and binding on all parties. Each party shall bear the expense of its own arbitrator and shall jointly and equally bear the other expenses of the umpire and of the arbitration. Any such arbitration shall take place in Erie, Pennsylvania, or such other place as may be mutually agreed.
Article VI: EFFECTIVE DATE AND TERMINATION
This Agreement shall be effective as of January 1, 1992. The Agreement shall continue in full effect until it is amended or terminated by either party. Termination will take place 30 days after either party delivers a written notice to terminate to the other party.
Article VII: MISCELLANEOUS
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania.
If any term, provision, covenant or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the provisions shall continue in full force and effect and shall in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF the parties hereto have amended the Service Agreement between the parties in effect since January 1, 1989 and caused this Service Agreement to supersede it.
ERIE INSURANCE COMPANY
By /s/ J.M. Petersen
-----------------------------------------------------
J.M. Petersen
President, Treasurer & Chief Financial Officer
By /s/ T.M. Sider
-----------------------------------------------------
T.M. Sider
Senior Vice President & Controller
|
ERIE INDEMNITY COMPANY
By /s/ T.B. Hagen
---------------------------------------------------------------------
T.B. Hagen
Chairman of the Board & Chief Executive Officer
By /s/ J.R. Van Gorder
---------------------------------------------------------------------
J.R. Van Gorder
Executive Vice President, Secretary & General Counsel
|
EXHIBIT 10.2
SUPPLEMENTAL RETIREMENT PLAN FOR CERTAIN MEMBERS OF THE
ERIE INSURANCE GROUP RETIREMENT PLAN FOR EMPLOYEES
(Amended and Restated as of December 31, 1995)
The following are the provisions of the SUPPLEMENTAL RETIREMENT PLAN FOR CERTAIN MEMBERS OF THE ERIE INSURANCE GROUP RETIREMENT PLAN FOR EMPLOYEES (hereinafter referred to as the "Supplemental Plan") which was established effective as of December 31, 1986 by the ERIE INDEMNITY COMPANY (hereinafter referred to as the "Company") to provide for the payment of certain pension and pension-related benefits to certain employees of the Company and affiliated companies who are Participants under the ERIE INSURANCE GROUP RETIREMENT PLAN FOR EMPLOYEES (hereinafter referred to as the "Basic Plan"). The Company intends and desires by its adoption of the original Supplemental Plan and by its adoption of the amendments reflected herein, to recognize the value to the Company and affiliated companies of the past and present services of employees covered by the Supplemental Plan, to encourage their continued service to the Company and affiliated companies and to be able to attract and retain superior management personnel by making more adequate provision for their future retirement security than the Basic Plan provides.
This document is intended to constitute a complete restatement of the Supplemental Plan and is effective December 31. 1995.
SECTION 1 - INCORPORATION OF THE QUALIFIED PLAN
1.1 The Basic Plan with any amendments thereto in effect as of December 31, 1995, shall be attached hereto as Exhibit I and is hereby incorporated by reference into and shall be a part of this Supplemental Plan as fully as if set forth herein verbatim. Any amendment
made to the Basic Plan shall also be incorporated by reference into, and form a part of this Supplemental Plan effective as of the effective date of such amendment. The Basic Plan, whenever referred to in this Supplemental Plan, shall mean the Basic Plan existing as of the date the relevant determination is being made under this Supplemental Plan. To the extent the provisions of the Basic Plan, as applicable to the Supplemental Plan Benefits of Participants hereunder and all persons claiming by or through such Participants, are inconsistent with the provisions of this Supplemental Plan, the provisions of this Supplemental Plan shall govern. Notwithstanding any provision of this Supplemental Plan to the contrary, in no event shall the Supplemental Plan Benefits accrued and payable hereunder be paid from the Trust Fund under the Basic Plan or have any effect whatsoever upon the Basic Plan or the payment of benefits from the Trust Fund under the Basic Plan. Words and phrases with initial capital letters which are used in the Basic Plan and in this Supplemental Plan shall have the meanings assigned to them under the provisions of the Basic Plan unless otherwise specified herein or as otherwise qualified by the context in which the term is used in this Supplemental Plan.
1.2 Without limiting the generality of Section 1.1, the following terms shall be given the meanings described in this Section 1.2:
(a) "Actuarial Equivalent" shall mean a benefit of equivalent value to the benefit otherwise described as determined on the basis of the actuarial assumptions specified under the Basic Plan as of the date of determination.
(b) "Administrator" shall mean the Pension Administrator named by the Board of Directors of the Company under the Basic Plan.
(c) "Basic Plan" shall mean the Erie Insurance Group Retirement Plan for Employees, as in effect as of the date the relevant determination is being made under this Supplemental Plan.
(d) "Executive Service" shall mean employment with an Employer as both a Covered Employee and a Senior Vice President or higher-ranking executive.
(e) "Participant" shall mean a Covered Employee who has become a Participant in accordance with Section 3. Participant shall also include a former Covered Employee who had met the foregoing criteria as an Employee and who is, at the time of determination, receiving a benefit (or entitled to receive a benefit) payable from the Company pursuant to the terms of this Supplemental Plan.
(f) "Restoration Benefit" shall mean the benefit provided under Section 42.
(g) "Supplemental Plan" shall mean this Supplemental Retirement Plan for Certain Members of the Erie Insurance Group Retirement Plan for Employees, including any amendments hereto.
(h) "Supplemental Plan Benefits" shall mean, to the extend applicable to any given Participant, the Restoration Benefit and the Supplemental Retirement Income Benefit.
(i) "Supplemental Retirement Income Benefit" shall mean the benefit provided under Section 4 I.
(j) "Years of Executive Service" shall mean each consecutive twelve-month period during which a Covered Employee has been employed in Executive Service, including leaves of absence.
1.3 Any terms used in this Supplemental Plan in the masculine shall be read and construed in the feminine where they would so apply, and any terms used in the singular shall be read and construed in the plural if so applicable.
SECTION 2 - ADMINISTRATION
2.1 The Administrator shall be charged with the administration of the Supplemental Plan. The Administrator shall have all such powers as may be necessary to discharge its duties relative to the administration of the Supplemental Plan, including by way of illustration and not limitation, discretionary authority to interpret and construe the Supplemental Plan, to determine and decide all questions of fact, and all disputes arising under the Supplemental Plan including, but not limited to, the eligibility of any employee to participate hereunder, the validity of any election as may be necessary or appropriate hereunder and the right of any Participant, surviving spouse or Beneficiary to benefits payable hereunder. The Administrator shall have all power necessary to adopt, alter and repeal such administrative rules, regulations and practices governing the operation of the Supplemental Plan as it, in its sole discretion, may from time to time deem advisable. The Administrator shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Supplemental Plan unless attributable to willful misconduct. The Administrator shall be entitled to conclusively rely upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to the Supplemental Plan. Any individual serving as Administrator shall not participate in any action or determination regarding solely his own benefits payable hereunder. Except as provided in Section 2.3, decisions of the Administrator made in good faith shall be final, conclusive and binding upon all parties.
2.2 Whenever the Administrator denies, in whole or in part, a claim for
benefits filed by any person (hereinafter referred to as a "Claimant"),
the Administrator shall transmit a written notice setting forth (i) the
specific reasons for the denial of the claim, (ii) references to the
specific provisions of the Supplemental Plan on which the denial is based,
(iii) a description of any additional needed material or information and
why such material or information is necessary, and (iv) further steps
which the Claimant can take in order to have his claim reviewed (including
a statement that the Claimant or his duly authorized representative may
review the Supplemental Plan document and submit issues and comments
regarding the claim to the Administrator). In addition, the written notice
shall contain the date on which the notice was sent and a statement
advising the Claimant that within ninety (90) days of the date on which
such notice is received, he may request a review of the Administrator's
decision.
2.3 Within ninety (90) days of the date on which the notice of denial of claim is received by the Claimant, the Claimant or his authorized representative may request that the claim denial be reviewed by filing with the Administrator a written request therefor, which request shall contain the following information:
(a) the date on which the notice of denial of claim was received by the Claimant;
(b) the date on which the Claimant's request was filed with the Administrator; provided, however, that the date on which the Claimant's request for review was fact filed with the Administrator shall control in the event that the date of the actual filing is later than the date stated by the Claimant pursuant to this clause b);
(c) the specific portions of the denial of his claim which the Claimant requests the Administrator to review;
(d) a statement by the Claimant setting forth the basis upon which he believes the Administrator should reverse its previous denial of his claim for benefits and accept his claim as made;
(e) whether the Claimant desires a hearing on the claim; and
(f) any written material (included as exhibits) which the Claimant desires the Administrator to examine in its consideration of his position as stated pursuant to clause (d).
If the Claimant has requested a hearing on the claim, such hearing shall be held within thirty (30) days after the date determined pursuant to clause (b) hereof. Within sixty (60) days of the date determined pursuant to clause (b) hereof (or, if special circumstances or the request for a hearing require an extension of time, within ninety (90) days of such date), the Administrator shall conduct a full and fair review of the decision denying the Claimant's claim for benefits and shall deliver its decision to the Claimant in writing. Such written decision shall set forth the specific reasons for the decision, including references to the specific provisions of this Supplemental Plan which were relied upon. The decision will be final and binding on all persons concerned.
SECTION 3 - ELIGIBILITY AND PARTICIPATION
3.1 A Covered Employee may participate in the Supplemental Plan only as provided under Sections 3.2 and 3.3 and only if such Covered Employee may be considered management or highly compensated.
3.2 Any Covered Employee who was considered an eligible Employee under the Supplemental Plan as of December 30, 1995 and any former Covered Employee who is
receiving a benefit (or entitled to receive a benefit) from the Supplemental Plan shall be considered Participants as of December 31, 1995. Effective on and after December 31, 1995, any Covered Employee who enters Executive Service shall become a Participant in this Supplemental Plan (if not already a Participant under Section 3.3) as of the January 1 of the calendar year next following the calendar year in which the Employee enters Executive Service. A Covered Employee who satisfies the foregoing criteria of this Section 3.2 shall participate in the Supplemental Retirement Income Benefit provisions of this Supplemental Plan. The Administrator shall be responsible for identifying those Covered Employees who satisfy the criteria of this Section 3.2 and the time at which such criteria are satisfied. Notwithstanding the foregoing, a Participant (or his surviving spouse or Beneficiary) may become eligible for a Supplemental Retirement Income Benefit only in the event that:
(a) such Participant is vested under the Basic Plan:
(b) such Participant (or his surviving spouse or Beneficiary) is entitled to receive a benefit under the Basic Plan.
(c) prior to his termination of employment with all Employers. such Participant has become vested in the Supplemental Retirement Income Benefit pursuant to the following schedule:
Years of Executive Service Vested Percentage
-------------------------- -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
|
provided, however, that in the event a Participant has satisfied, prior to January 1,
1996, all criteria for a normal retirement pension, early retirement pension or disability retirement pension under the terms of the Basic Plan, such Participant shall be treated as being 100 % vested under the above schedule; and
(d) such Participant's termination of employment with all Employers is either:
(i) also a termination from Executive Service; or
(ii) a termination occurring within twelve months after the Participant transfers from, or otherwise leaves, Executive Service.
3.3 Effective for periods on and after January 1, 1996, any Covered Employee whose benefit under the Basic Plan is limited on account of restrictions imposed for any year by Sections 401(a)(17) and/or 415 of the Code shall become a Participant in this Supplemental Plan (if not already a Participant under Section 3.2) as of the later of the December 31 of the Plan Year in which his Basic Plan benefit is first so limited or January 1, 1996. Notwithstanding his status as a Participant or non-Participant under Section 3.2, a Covered Employee who satisfies the foregoing criteria of this Section 3.3 shall participate in the Restoration Benefit provisions of this Supplemental Plan. The Administrator shall be responsible for identifying those Covered Employees whose Basic Plan benefits are limited in accordance with the foregoing, the time at which such limitations may first apply to said Employees and the extent to which such limitations do apply. Notwithstanding the foregoing. a Participant (or his surviving spouse or Beneficiary) may become eligible for a Restoration Benefit only in the event that:
(a) such Participant (or his surviving spouse or Beneficiary) is entitled to receive a benefit under the Basic Plan;
(b) payment of such Basic Plan benefit is restricted by the application of Section 401 (a)(l7) and/or Section 415 of the Code; and
(c) such individual is not entitled to a Supplemental Retirement Income Benefit hereunder.
SECTION 4 - AMOUNT OF SUPPLEMENTAL PLAN BENEFITS
4.1 The monthly Supplemental Retirement Income Benefit determined with respect to a Participant who satisfies the provisions of Section 3.2 hereof, and which is paid in accordance with Section 5, shall be the Actuarial Equivalent of the product of (i) the excess, if any, of (a) over (b) below, and (ii) the percentage determined under (c) below, where:
(a) equals the monthly benefit which would have been payable to such Participant, or on his behalf, to his surviving spouse or other Beneficiary or Beneficiaries under the Basic Plan assuming for this purpose that the following modifications were a part of the Basic Plan:
(i) "Compensation" shall be as defined in the Basic Plan provided that
(A) all otherwise current compensation which is deferred at the Participant's election under any qualified or nonqualified deferred compensation plan or annuity arrangement shall be includable in "Compensation"; and
(B) "Compensation" (as defined in accordance with the foregoing) shall be determined without regard to the annual limitation on compensation set forth in action 401(a)( 17) of the Code;
(ii) "Final Average Earnings" shall be equal to 1/24th of the aggregate compensation received by the Participant during the twenty-four
consecutive calendar months as a Covered Employee which produces the greatest aggregate Compensation out of the one hundred twenty calendar month period ending on the earlier of the date on which the Participant retires or terminates employment with all Employers or the date on which the Participant is no longer considered a Covered Employee;
(iii) the monthly benefit under the Basic Plan shall be equal to 60 % of Final Average Earnings, reduced proportionately if the Participant's years of Credited Service are less than 30 years or 25 years, whichever limitation applied to the Participant under the provisions of Section 6.1 of the Basic Plan as in effect on December 30, 1989; and
(iv) the monthly benefit under the Basic Plan is accrued in the normal form of ten-year certain and life thereafter annuity.
(b) equals the aggregate of monthly benefits payable to such Participant, or on his behalf, to his surviving spouse or other Beneficiary or Beneficiaries under the Basic Plan and under any other qualified or nonqualified (funded or unfunded) defined benefit retirement plan sponsored by an Employer; provided, however, that for purposes of this offset, such monthly benefits which are payable in a form other than that of a ten-year certain and life thereafter annuity shall be converted to a monthly benefit which is the Actuarial Equivalent of a ten-year certain and life thereafter annuity.
(c) equals the Participant's vested percentage determined in accordance with Section 3.2(c) hereof.
4.2 The monthly Restoration Benefit determined with respect to a Participant who satisfies the provisions of Section 3.3 hereof, and which is paid in accordance with Section 5, shall be the Actuarial Equivalent of the excess, if any, of (a) over (b), where:
(a) equals the monthly benefit which would have been payable under the form of a single life annuity to such Participant, or on his behalf, to his surviving spouse or other Beneficiary or Beneficiaries under the Basic Plan, if the provisions of the Basic Plan were administered without regard to the annual limitation on compensation set forth in Section 401(a)(17) of the Code and without regard to the limitations on benefits set forth in Sections 4l5(b) and (e) of the Code; and
(b) equals the monthly benefit which is payable under the form of a single life annuity to such Participant, or on his behalf, to his surviving spouse or other beneficiary or Beneficiaries under the Basic Plan.
The Restoration Benefits payable under the Supplemental Plan to, or on behalf of, Participant shall be computed in accordance with the foregoing and with the objective that the Participant, his surviving spouse or other Beneficiary or Beneficiaries, should receive under the Supplemental Plan and the Basic Plan, the total amount which would otherwise have been payable to that recipient solely under the Basic Plan, as of the date payment is made, had the provisions of Section 401(a)(17) and Section 415 of the Code not been applicable thereto:
4.3 Notwithstanding any provision of this Supplemental Plan to the contrary, the Supplemental Plan Benefits provided under Sections 4.1 and 4.2 shall be determined and coordinated by the Administrator so as to prevent any duplication of Supplemental Plan Benefits or duplication of benefits provided by any other plan or program sponsored by
an Employer which is intended to supplement the Basic Plan or any individual agreement between the Participant and an Employer providing for retirement benefits. For purposes of this Section 4.3, any benefits provided under individual deferred compensation contracts and annuities or the Erie Insurance Group Supplemental 401(k) Plan are not intended to supplement the Basic Plan.
4.4 Unless otherwise specifically provided in this Supplemental Plan, a Participant who retired or terminated employment under the provisions of the Supplemental Plan as in effect prior to December 31, 1995, and who is not thereafter rehired, shall continue to receive, or be eligible to receive, benefits under this Supplemental Plan in accordance with the provisions of the Supplemental Plan document as in effect prior to December 31, 1995.
SECTION 5 - COMMENCEMENT AND FORM OF
SUPPLEMENTAL PLAN BENEFITS
Subject to the following provisions of this Section 5, the Supplemental Plan benefits hereunder shall become payable to a Participant, surviving spouse or Beneficiary as of the date upon which such Participant, spouse or Beneficiary first begins to receive retirement (or survivor) benefit payments under the Basic Plan and shall be subject to the same eligibility conditions and reductions for early commencement as are applied to the corresponding benefits under the Basic Plan. Such Supplemental Plan Benefits shall be payable in the form of payment under which Basic Plan benefits are made to such Participant, spouse or Beneficiary; provided however, that in the event a surviving spouse or Beneficiary is entitled to receive Supplemental Plan Benefits as a result of the death of a Participant, the Administrator may, in its discretion, pay such benefit in the form of a lump sum.
Each form of payment provided hereunder shall be the Actuarial Equivalent of the Participant's Supplemental Plan Benefits determined under the normal form of a ten-year certain and life thereafter annuity (Supplemental Retirement Income benefit) or a single life annuity (Restoration Benefit).
SECTION 6 - AMENDMENT AND DISCONTINUANCE
The Company expects to continue the Supplemental Plan indefinitely, but reserves the right to amend or discontinue the Supplemental Plan at any time, if, in its sole judgment, such amendment or discontinuance is necessary or desirable. Any such amendment or discontinuance shall be made pursuant to a resolution of the Board of Directors of the Company and shall be effective as of the date specified in such resolution. No amendment or discontinuance of the Supplemental Plan shall directly or indirectly deprive any Participant, surviving spouse or Beneficiary of all or any portion of the Supplemental Plan Benefits earned by the Participant as of the date of amendment or discontinuance (based upon the Participant's age, compensation and service as of the date of such amendment or discontinuance). In the event of a discontinuance of the Supplemental Plan, the Company (or any transferee, or successor entity of the Company) shall be obligated to pay benefits to Participants, surviving spouses and Beneficiaries at such time or times and in such forms as provided under the terms of the Supplemental Plan.
SECTION 7 - MISCELLANEOUS
7.1 No Effect on Employment Rights. Nothing contained herein shall be construed as creating any contract of employment between any Employer or Affiliate and any Participant nor shall any provision hereof confer upon any Participant the right to be
retained in the service of any Employer or Affiliate nor limit the right of any Employer or Affiliate to discharge or otherwise deal with Participants without regard to the existence of the Supplemental Plan.
7.2 Plan Unfunded. Notwithstanding any provision herein to the contrary, this
Supplemental Plan is intended to constitute an unfunded plan described in
Section 201(2) of ERISA and the benefits offered hereunder shall
constitute nothing more than an unfunded, unsecured promise by the Company
to pay benefits determined hereunder which are accrued by Participants
while such Participants are employed by the Company or other Employers
Prior to commencement of Supplemental Plan Benefits to a Participant,
surviving spouse or Beneficiary in accordance with the terms hereof, no
provision shall be made with respect to segregating any assets of an
Employer for payment of any benefits hereunder. To the extent any benefits
provided under this Supplemental Plan are actually paid from a source
other than the Company, neither the Company nor any other Employer shall
have any further obligation therefor, but to the extent not so paid, such
benefits shall remain the obligations of, and shall be paid by, the
Company. No Participant, surviving spouse, Beneficiary or any other person
shall have any interest in any particular assets of the Company or an
Affiliate by reason of the right to receive a benefit under the
Supplemental Plan and any such Participant, surviving spouse, Beneficiary
or other person shall have only the rights of a general unsecured creditor
of the Company with respect to any rights under the Supplemental Plan.
Nothing contained in the Supplemental Plan shall constitute a guaranty by
the Company, any Affiliate, or any other entity or person that the assets
of the Company will be sufficient to pay any benefit
hereunder. All expenses and fees incurred in the administration of the Supplemental Plan shall be paid by the Employers.
7.3 Binding on Company, Participants and their Successors. The Supplemental Plan shall be binding upon and inure to the benefit of the Employers, their successors and assigns and Participants and their heirs, executors, administrators and legal representatives. In the event of the merger or consolidation of the Company with or into any other corporation, or in the event substantially all of the assets of the Company shall be transferred to another corporation, the successor corporation resulting from the merger or consolidation, or the transferee of such assets, as the case may be, shall, as a condition to the consummation of the merger, consolidation or transfer, assume the obligations of the Company hereunder and shall be substituted for the Company hereunder.
7.4 Spendthrift Provisions. The interest of a Participant or his Surviving spouse or Beneficiary under the Supplemental Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, either voluntarily or involuntarily, prior to actual receipt thereof by the payee; any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any such interest herein prior to such receipt shall be void. Supplemental Plan Benefits shall not be subject to garnishment, attachment or other legal or equitable process nor shall they be an asset in bankruptcy; provided, however, that no amount shall be payable from this Supplemental Plan to a Participant, or any person claiming by or through a Participant, unless and until any and all amounts representing debts or other obligations owed to any Employer by the Participant have been fully paid and satisfied.
Neither the Company nor any Employer or
Affiliate shall be liable in any manner for or subject to the debts, contracts, liabilities, torts or engagements of any person entitled to any benefit under the Supplemental Plan.
7.5 Disclosure. Each Participant, upon his written request, shall receive a copy of the Supplemental Plan and the Administrator will make available for inspection by any Participant a copy of any written rules and regulations used by the Administrator in administering the Supplemental Plan.
7.6 State Law. The Supplemental Plan is established under and will be construed according to the laws of the Commonwealth of Pennsylvania to the extent that such laws are not preempted by the Employee Retirement Income Security Act of 1974, as amended, and regulations promulgated thereunder.
7.7 Incapacity of Recipient. In the event a Participant, surviving spouse or Beneficiary is declared incompetent and a guardian, conservator or other person legally charged with the care of his person or of his estate is appointed, any benefits under the Supplemental Plan to which such Participant, spouse or Beneficiary is entitled shall be paid to such guardian, conservator or other person legally charged with the care of his person or his estate. Except as provided hereinabove, when the Administrator, in its sole discretion, determines that a Participant, surviving spouse or Beneficiary is unable to manage his financial affairs, the Administrator may direct the Company to make distribution(s) to any one or more of the spouse, lineal ascendants or descendants or other closest living relatives of such Participant, spouse or Beneficiary who demonstrates to the satisfaction of the Administrator the propriety of making such distribution(s). Any payment so made shall be in complete discharge of any liability under the Supplemental Plan for such
payment. The Administrator shall not be required to see to the application of any such distribution made as provided above.
7.8 Unclaimed Benefit. Each Participant shall keep the Administrator informed of his current address. The Administrator shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Administrator within three years after the date on which any payment of the Participant's benefit hereunder may be made, payment may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Participant, whichever occurs first, the Administrator is unable to locate the spouse or any Beneficiary of the Participant, any Supplemental Plan Benefits held for a Participant, surviving spouse or Beneficiary shall be forfeited.
7.9 Elections, Applications, Notices. Every direction, revocation or notice authorized or required hereunder shall he deemed delivered to the Company or the Administrator as the case may be: (a) on the date it is personally delivered to the Administrator at the Company's executive offices at 100 Erie Insurance Place, Erie, Pennsylvania 16530 or (b) three business days after it is sent by registered or certified mail, postage prepaid, addressed to the Administrator at the offices indicated above, and shall be deemed delivered to a Participant, surviving spouse or Beneficiary: (a) on the date it is personally delivered to such individual, or (b) three business days after it is sent by registered or certified mail, postage prepaid, addressed to such individual at the last address shown for him on the Company's records. Any notice required hereunder may be waived by the person entitled thereto.
7.10 Counterparts. This Supplemental Plan may be executed in any number of
counterparts, each of which shall be considered as an original, and no
other counterparts need be produced.
7.11 Severability. In the event any provision of this Supplemental Plan shall
be held illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining provisions of the Supplemental Plan. This
Supplemental Plan shall be construed and enforced as if such illegal or
invalid provision had never been contained herein.
7.12 Headings. The headings of Sections of this Supplemental Plan are for
convenience of reference only and shall have no substantive effect on the
provisions of this Supplemental Plan.
|
Executed at Erie, Pennsylvania this 20th day, of December, 1995, effective December 31, 1995.
ERIE INDEMNITY COMPANY
By: /s/ John M. Petersen
----------------------------------------
John M. Petersen
Title: President and Chief Executive Officer
ATTEST:
/s/ J. R. Van Gorder
-------------------------------
J. R. Van Gorder
Executive Vice President,
Secretary and General Counsel
|
EXHIBIT 10.3 - REINSURANCE POOLING AGREEMENT
This Agreement is effective as of 12:01 a.m. on the 1st day of January, 1995, among the Erie Insurance Exchange, a Pennsylvania reciprocal interinsurance exchange (hereinafter referred to as the "Exchange"), the Erie Insurance Company, a Pennsylvania stock insurance company (hereinafter referred to as the "Company"), and Erie Insurance Company of New York, a New York stock insurance company (hereinafter referred to as "ERIE-New York"). This Agreement supersedes the Reinsurance Pooling Agreement between the Exchange and the Company, which was in effect from January 1, 1992 until the effective date of this Agreement.
ARTICLE I - PREAMBLE
The purpose of this Agreement is to pool, or share proportionately among the parties, the results of property and casualty insurance underwriting operations through reinsurance; to reduce administrative and executive expenses; and to produce for each party a broader distribution of risk by line of insurance. The Exchange, the Company, and ERIE-New York are affiliated and are under the same executive management. This Agreement is made to recognize that each company is a member of the same holding company system and a member of the Erie Insurance Group (hereinafter referred to as "The ERIE Group"), subject to group decisions and strategies designed primarily to promote the stability and success of The ERIE Group and that each company will accordingly share proportionately in the combined property and casualty insurance underwriting operations of The ERIE Group.
ARTICLE II - AGREEMENT
In consideration of the agreements and mutual promises contained herein, the parties hereto make the following Agreement effective as of 12:01 a.m., Eastern Standard Time, January 1, 1995. Such Agreement shall remain in effect until cancelled as provided in Article XI.
ARTICLE III - DEFINITIONS
For the purposes of this Agreement, the following terms shall have the meanings indicated below:
(a) "Net Policy Liabilities" shall mean the gross direct liabilities with respect to insurance policies and reinsurance assumed less reinsurance ceded to reinsurers other than the parties to this Agreement.
(b) "Respective Percentage Share" shall mean the participation percentage set forth next to the name of each company in Exhibit A, attached hereto and made a part hereof.
(c) "Underwriting Expenses" shall mean all expenses incurred individually or collectively by the Exchange, Company, and ERIE-New York in the acquisition of insurance and reinsurance business, the issuance of insurance policies and contracts, and the rendering of services under the contracts, including premium taxes, licenses and fees, and such other underwriting expenses relating to insurance operations as may be mutually agreeable to the parties excluding federal and foreign income taxes, investment expenses and any other expenses not related to underwriting operations.
(d) "Dividends" to policyholders shall be treated as Underwriting Expenses.
(e) "Net", as used herein shall mean net after giving effect to ceded reinsurance transactions with other insurers or reinsurers, if any, which inure to the benefit of the parties to this Agreement.
(f) "Insurance Policies" shall include all insurance or reinsurance agreements, contracts, policies, certificates, binders, endorsements, or agreements of insurance or reinsurance issued or renewed by the Exchange, Company, or ERIE-New York for which they may become obligated.
(g) "Loss Adjustment Expense" shall include both allocated loss adjustment expense and unallocated loss adjustment expense.
(h) "Accounting Period" shall mean calendar quarter (i.e. March 31, June 30, September 30, and December 31 of each year).
ARTICLE IV - LIABILITIES - BUSINESS CEDED
The Company and ERIE-New York each individually agrees to cede and transfer to the Exchange and the Exchange agrees to assume and reinsure:
(a) 100% of all Net Policy Liabilities under all Insurance Policies of the Company and ERIE-New York respectively, outstanding and in force at 12:01 a.m., Eastern Standard Time, January 1, 1995.
(b) 100% of the Net Policy Liabilities, automatically from inception, under all Insurance Policies issued or assumed by the Company and ERIE-New York respectively, with effective dates on and after January 1, 1995, during the continuation of this Agreement.
(c) 100% of the Net liability of the Company and ERIE-New York respectively, for unpaid losses (including both reported and unreported losses), unpaid loss adjustment expenses, underwriting expenses due and unpaid prior to January 1, 1995, and unpaid dividends to policyholders.
ARTICLE V - PREMIUMS AND RESERVES - BUSINESS CEDED
The Company and ERIE-New York each individually agrees to pay to the Exchange the following:
(a) 100% of the unearned premium reserves of the Company and ERIE-New York respectively, carried for the Net Policy Liabilities assumed and reinsured by the Exchange under Article IV(a) hereof as shown on the records of the Company and ERIE-New York respectively, as of 12:01 a.m., Eastern Standard Time, January 1, 1995.
(b) 100% of the premiums received by the Company and ERIE-New York respectively, for business ceded and transferred to the Exchange under Article IV(b) hereof less the costs of any reinsurance placed with reinsurers other than the Exchange.
(c) 100% of the reserves carried by the Company and ERIE-New York respectively, for losses (including both reported and unreported losses), loss adjustment expense, underwriting expenses (including dividends to policyholders) as shown on the records of the Company and ERIE-New York respectively, as of 12:01 a.m., Eastern Standard Time, January 1, 1995.
ARTICLE VI - LIABILITIES RETROCEDED
Following the assumption and reinsurance of the liabilities of the Company and ERIE-New York respectively, as set forth in Article IV hereof, the Exchange shall retrocede and transfer to the Company and ERIE-New York each company's individual Respective Percentage Share of the following:
(a) 100% of all New Policy Liabilities under all Insurance Policies of the Exchange outstanding and in force at 12:01 a.m., Eastern Standard Time, January 1, 1995.
(b) 100% of the Net Policy Liabilities, automatically from inception, under all Insurance Policies issued or assumed by the Exchange with effective dates on and after January 1, 1995, during the continuation of this Agreement.
(c) 100% of the Net Policy Liability of the Exchange for unpaid losses (including both reported and unreported losses), unpaid loss adjustment expenses, underwriting expenses due and unpaid prior to January 1, 1995, and unpaid dividends to policyholders.
ARTICLE VII - PREMIUMS AND RESERVES - BUSINESS RETROCEDED
Following the payment of the premiums and reserves of the Company and ERIE-New York respectively, as set forth in Article V hereof, the Exchange shall retrocede and transfer to the Company and ERIE-New York each company's individual Respective Percentage Share of the following:
(a) 100% of the Exchange's unearned premium reserves carried for its Net Policy Liabilities under all Insurance Policies of the Exchange outstanding and in force as of 12:01 a.m., Eastern Standard Time, January 1, 1995.
(b) The Exchange's premiums received by the Exchange for its own account and all premiums received by the Exchange pursuant to Article V(b) hereof for business assumed from the Company and ERIE-New York respectively, under Article IV(b) hereof, less all Underwriting Expenses incurred by the Exchange in relation to such business and less all reinsurance placed with insurers and reinsurers other than the parties to this Agreement by the Exchange for its own account or for the joint account of the Exchange, Company and ERIE-New York.
(c) 100% for the reserves carried by the Exchange for losses (including both reported and unreported losses), loss adjustment expense, underwriting expenses (including dividends to policyholders) as shown on the records of the Exchange as of 12:01 a.m., Eastern Standard Time, January 1, 1995.
ARTICLE VIII - AGENTS' BALANCES/OUTSTANDING ACCOUNTS
The Company and ERIE-New York hereby agree to sell, transfer, assign and the Exchange hereby agrees to purchase all rights, title and interest of the Company and ERIE-New York in their agents' balances, uncollected premiums and all other accounts relating to underwriting operations, including underwriting pools and associations as they exist at 12:01 a.m., Eastern Standard Time, January 1, 1995, at statutory book value. The Exchange hereby agrees to sell, transfer and assign and the Company and ERIE-New York hereby agree to purchaser their Respective Percentage Shares of the total agents' balances, uncollected premiums and all other accounts relating to underwriting operations at statutory book value immediately after and including the transfers effected by the first sentence of this paragraph.
Underwriting assets and related liabilities of the Exchange, the Company, and ERIE-New York arising after 12:01 a.m., Eastern Standard Time, January 1, 1995, shall be pro-rated according to the Respective Percentage Share of the companies.
Notwithstanding anything to the contrary herein contained, the Company and ERIE-New York hereby agree for purposes of statutory financial statements, to assume their Respective Percentage Share of any amounts disallowed the Exchange on account of reinsurance effected with so-called unauthorized reinsurers and any amounts disallowed the Exchange for non-admitted agents' balances and uncollected premiums.
ARTICLE IX - OBLIGATIONS
The Exchange agrees to act on behalf of the Company and ERIE-New York to fulfill all the respective obligations of the Company and ERIE-New York under the Insurance Policies reinsured hereby and to adjust and pay all claims thereunder and to pay all Underwriting Expenses (including dividends to policyholders) on behalf of the Company and ERIE-New York, and the Company and ERIE-New York hereby agree to the Exchange acting on their behalf with respect to such matters. The adjustment of claims and claim payments for policies written by ERIE-New York will be made in accordance with guidelines established by the Board of Directors of ERIE-New York. It is the purpose and intent of this Agreement that all reinsurance hereunder shall be subject in all respects to the same rates, terms, conditions, interpretations, waivers, the exact proportion of premiums paid without deduction for brokerage, and to the same modifications, alterations and cancellations as the respective insurances of the companies to which such reinsurance relates, the true intent of this Agreement being that the reinsurer shall in every case to which this Agreement applies and in the Respective Percentage Share set forth herein follow the fortunes of the reinsured. This Agreement is solely between and for the benefit of the parties hereto and the acceptance of reinsurance hereunder shall not create any right or legal relation whatsoever between the primary insured and any party to this Agreement other than the company issuing the original insurance contract to such insured.
ARTICLE X - ACCOUNTS AND SETTLEMENTS
The Exchange, the Company, and ERIE-New York shall keep sufficient records for the express purpose of recording therein the amounts and other particulars of the reinsurance ceded and assumed between the parties hereto. Each party to this Agreement shall have the right to examine,
at the offices of the other parties at all reasonable times, all books and records of the other parties relating to any business which is the subject of this Agreement. This right shall survive termination of this Agreement and shall continue so long as any party has any rights or obligations under this Agreement.
Copies of all Insurance Policies thereto which come within the scope of this Agreement shall be available to all companies which are parties to this Agreement. Each company which is a party hereto will make its financial data available to every company for the purpose of recording those inter-company transactions necessitated by this Agreement and shall provide such financial information in sufficient detail and in mutually acceptable form to prepare monthly financial and quarterly and annual filings with all applicable insurance departments and other regulatory authorities.
The Exchange shall render to the Company and to ERIE-New York at such periods as are mutually agreed upon (but not less frequently than quarterly), a statement showing net premiums received, Underwriting Expenses (including dividends paid to policyholders), net losses and loss adjustment expenses paid during the accounting period. Reasonable approximations may be substituted when necessary, for interim accounting, but there shall be an annual adjustment to the exact amounts. The companies shall settle accounts between them by payment of such amounts as may be owing within 30 days after the end of the accounting period.
Each quarter the Exchange shall render to the Company and to ERIE-New York a report of all accruals required to adjust cash transactions to the accounting basis required for accounting in accordance with generally accepted practices for preparation of the NAIC form of annual statement, and to adjust the expense allowance to the accrual basis.
To the extent that transfers of non-cash assets may be required to effectuate the settlements herein provided, such transfers shall be made at fair market values as of the date such transfers are made.
ARTICLE XI - TERMINATION
This Agreement may be terminated by mutual agreement stating the terms and conditions therefore or by any party giving to the other parties not less than 90 days advance written notice stating when, as of the end of any calendar year such termination shall be effective. The Net Policy Liabilities previously ceded and transferred by the company and assumed and reinsured by the Exchange and that subsequently assumed and reinsured by the Company and by ERIE-New York under the Respective Percentage Share participation shall cease with respect to losses resulting from accidents or occurrences after the termination date of this Agreement. Upon termination of this Agreement, reinsurance and reserve settlement among the parties shall be made upon the same formula and conditions as those governing the inception of this Agreement, restoring to each party its Insurance Policies, related assets and reserves.
ARTICLE XII - INSOLVENCY CLAUSE
Each party hereby agrees that in the event of the insolvency of any party, this Agreement shall be so construed that the reinsurance due hereunder shall be payable directly to the insolvent party or its liquidator, receiver, or statutory successor by the reinsurer on the basis of the liability of the insolvent party under the contract or contracts reinsured without diminution because of the
insolvency. It is further agreed that the liquidator, the receiver, or the statutory successor of the insolvent party shall give written notice to the reinsurer of the pendency of a claim against the insolvent party on the policy reinsured within a reasonable time after such claim is filed in the solvency proceedings; that during the pendency of such claim the reinsurer may investigate such claim and interpose at their own expense in the proceeding where such claim is to be adjudicated any defense or defenses which they may deem available to the insolvent party or its liquidator, receiver, or statutory successor; that the expenses thus incurred by the reinsurer shall be chargeable subject to court approval against the insolvent party as part of the expense of liquidation to the extent of the proportionate benefit which may accrue to the insolvent party solely as a result of the defense undertaken by the reinsurer.
It is further agreed and understood that as to all reinsurance made, ceded, renewed or otherwise becoming effective hereunder, the reinsurance shall be payable by the insurer directly to the insolvent party or to its liquidator, receiver or statutory successor.
ARTICLE XIII - ARBITRATION
As a condition precedent to any right of action hereunder, in the event of any difference of opinion hereafter arising with respect to this Agreement, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration before a panel of three arbitrators, all of whom shall be active or retired disinterested officers of property and casualty insurance companies, reinsurance companies or underwriters at Lloyd's, London. One arbitrator shall be chosen by each party to the dispute, and the third, an umpire, to be chosen by the other two arbitrators before they enter upon arbitration. In the event of any party refusing or neglecting to appoint an arbitrator within 90 days after the other party requests it to do so, or if the arbitrators fail to appoint an umpire within 60 days after they have accepted their appointments, such arbitrator or umpire, as the case may be, shall, upon the application of any party, be appointed by the American Arbitration Association and the arbitrators and the umpire shall thereupon proceed. The arbitrators shall consider this Agreement as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the majority of the arbitrators shall be final and binding on all parties. Each party shall bear the expense of its own arbitrator and shall jointly and equally bear the other expenses of the umpire and of the arbitration. Any such arbitration shall take place in Erie, Pennsylvania, or such other place as may be mutually agreed.
ARTICLE XIV - ERRORS AND OMISSIONS
The parties to this Agreement will use due diligence in promptly and accurately reporting all transactions under this Agreement. It is agreed, however, that any errors or omissions occurring through clerical error, accident or oversight, of any party to this Agreement shall not invalidate any of the provisions of this Agreement; and the party making such error agrees to correct it immediately upon discovery.
ARTICLE XV - AMENDMENTS
This Agreement may be altered or amended in any respect at any time and from time to time by mutual consent of the parties either by an endorsement or addendum executed by the parties hereto or by correspondence signed by a responsible officer of each party, and such endorsement or
addendum or correspondence shall be binding on the parties and be deemed to be an integral part of this Agreement.
ARTICLE XVI - OTHER PROVISIONS
1. This Agreement shall not apply to the investment operations, liabilities for Federal and foreign income tax, or other operations unrelated to the insurance underwriting of the parties hereto.
2. In the event that the Company is not licensed in New York and/or the Exchange is not an accredited reinsurer in New York, the Exchange agrees to post a letter of credit collateralizing the business ceced to it by ERIE-New York.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures.
ERIE INSURANCE EXCHANGE
by Erie Indemnity Company
Attorney-in-Fact
By: /s/ J. M. Petersen
----------------------------------------
J. M. Petersen
President and
Chief Executive Officer
|
ERIE INSURANCE COMPANY
By: /s/ J. R. Van Gorder
----------------------------------------
J. R. Van Gorder
Executive Vice President,
Secretary and General Counsel
|
ERIE-NEW YORK
By: /s/ T. M. Sider
----------------------------------------
T. M. Sider
Executive Vice President and
Chief Financial Officer
|
ERIE INSURANCE GROUP
REINSURANCE POOLING AGREEMENT
EFFECTIVE January 1, 1995
EXHIBIT A
Participating Insurer Respective Percentage Share --------------------- --------------------------- Erie Insurance Exchange 94.5% Erie Insurance Company 5.0% ERIE-New York 0.5% |
EXHIBIT 10.4 - ERIE INSURANCE COMPANY AND
ERIE INSURANCE COMPANY OF NEW YORK
ERIE, PENNSYLVANIA
AGGREGATE EXCESS OF LOSS REINSURANCE CONTRACT
This REINSURANCE CONTRACT is made between ERIE INSURANCE EXCHANGE, by and through its Attorney-in-Fact, ERIE INDEMNITY COMPANY, of Erie, Pennsylvania (hereafter called the "REINSURER"), and ERIE INSURANCE COMPANY and its wholly owned subsidiary ERIE INSURANCE COMPANY OF NEW YORK, both of Erie, Pennsylvania (herein referred to collectively (or individually as the context requires) as the "COMPANY").
In consideration of the agreements and mutual promises contained herein, the parties hereby agree that this Reinsurance Contract covers 95% of the Ultimate Net Loss for each Annual Period, as herein provided and specified, which may accrue to the COMPANY under all policies, contracts, and binders of insurance and reinsurance as respects coverages classified by the COMPANY as Property and Casualty as a result of any loss or losses thereunder occurring each Annual Period during the term of this Reinsurance Contract, subject to the following terms and conditions:
ARTICLE 1 - Term
This Reinsurance Contract shall commence on the first day of January, 1998, and shall remain in force thereafter until cancelled in accordance with Article 18.
"Annual Period", as used herein, shall mean the period from January 1 to December 31, both days inclusive, of any calendar year.
ARTICLE 2 - Retention and Limit
No claim shall be made hereunder unless the COMPANY'S total Ultimate Net Losses, as herein defined, incurred during any Annual Period covered hereunder exceed an amount equal to 72.5% of the COMPANY'S Net Premiums, as herein defined, earned during that Annual Period of this Reinsurance Contract. The REINSURER shall then be liable for 95% of the amount of such excess up to, but not exceeding, an amount equal to 95% of 15% of the COMPANY'S Net Premium earned during that Annual Period.
It is understood and agreed that losses equal to 5% of the Ultimate Net Loss in excess of the retentions hereunder, shall be retained net by the COMPANY for its own account.
ARTICLE 3 - Definition of Ultimate Net Loss
The term "Ultimate Net Loss" shall mean the liabilities incurred during any Annual Period by the COMPANY under insurance or reinsurance agreements, contracts, policies, certificates, binders, endorsements or agreements of insurance or reinsurance and shall include those liabilities of the COMPANY incurred during any Annual Period under that certain Reinsurance Pooling Agreement between Erie Insurance Exchange, Erie Insurance Company and Erie Insurance Company of New York effective January 1, 1995 ("Reinsurance Pooling Agreement") as it currently exists or may hereafter be amended, except that "Ultimate Net Loss" as used herein shall not include unallocated loss adjustment expenses incurred by the Company.
Nothing in this Article shall be construed to mean that losses are not recoverable hereunder until the COMPANY'S Ultimate Net Loss has been ascertained.
ARTICLE 4 - Definition of Net Premiums
The term "Net Premiums" shall mean direct premiums, less return premiums, received by the COMPANY during any Annual Period under insurance or reinsurance agreements, contracts, policies, certificates, binders, endorsements, or agreements of insurance or reinsurance, and shall include the COMPANY'S respective share of the premiums received under the Reinsurance Pooling Agreement as it currently exists or may hereafter be amended, less premiums for all reinsurances inuring to the benefit of this Reinsurance Contract without deduction of dividends declared, paid, or credited to policyholders.
ARTICLE 5 - Underwriting Warranty
It is warranted by the COMPANY that it will not knowingly retain net liability in excess of the following respective amounts:
Property coverages: $10,000,000 as respects any one risk.
Casualty coverages: $5,000,000 as respects any one policy other than Workers'
Compensation policies.
|
It is understood that the COMPANY shall be the sole judge of what constitutes any one risk as respects property coverages and any one policy as respects casualty coverages.
ARTICLE 6 - Net Retained Liability
This Reinsurance Contract shall apply only to that portion of any insurance or reinsurance which the COMPANY retains net for its own account during any Annual Period, and in calculating the amount of any loss hereunder, and also in computing the amount in excess of which this Reinsurance
Contract attaches, only loss or losses in respect to that portion of any insurance or reinsurance which the COMPANY retains net for its own account shall be included. It is, however, understood and agreed that the amount of the REINSURER'S liability during any Annual Period hereunder in respect to any loss or losses shall not be increased by reason of the inability of the COMPANY to collect from any other reinsurers, whether specific or general, any amounts which may have become due from them, whether such inability arises from the insolvency of such other reinsurers or otherwise.
ARTICLE 7 - Quota Share Reinsurance
Unless otherwise specially agreed, it is understood that, in the event the COMPANY cedes reinsurance on a quota share or portfolio basis, the provisions of this Reinsurance Contract shall apply as if such reinsurance had not been effected.
ARTICLE 8 - Notice of Loss
In the event of a claim arising hereunder, notice shall be given to Erie Insurance Exchange, 100 Erie Insurance Place, Erie, Pennsylvania, 16530-0001, to the attention of the Managing Director of Reinsurance as soon as practicable.
ARTICLE 9 - Loss Settlements
All loss settlements made by the COMPANY, providing the same are within the terms of this Reinsurance Contract, shall be unconditionally binding upon the REINSURER, and amounts falling to the share of the REINSURER shall be payable by it upon reasonable evidence of the amount due or to be due being given by the COMPANY.
Should the COMPANY'S Ultimate Net Losses incurred during any Annual Period covered hereunder exceed, at any time during that Annual Period, an amount equal to 72.5% of the Net Premiums earned through that period of time, it is understood and agreed that, at the option of the COMPANY, 95% of such excess and 95% of all such additional Ultimate Net Losses occurring thereafter will be paid by the REINSURER, subject to a limit of 95% of 15% of the Net Premiums earned as respects any losses occurring during that Annual Period. Any such payment shall be subject to adjustment in accordance with the provisions of Article 3 after the REINSURER'S ultimate liability hereunder has been determined.
ARTICLE 10 - Governing Law; Jurisdiction
Subject to "Article 15 - Arbitration", if the REINSURER fails to pay any amount claimed to be due hereunder, the REINSURER, at the request of the COMPANY, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this clause constitutes or should
be understood to constitute a waiver of the REINSURER'S rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States.
It is further agreed that service of process in such suit may be made upon the REINSURER, and that the reinsurer will abide by the final decision of such court or of any appellate court in the event of an appeal.
Further, pursuant to any statute of any state, territory, or district of the United States which makes provision therefor, the REINSURER hereby designates the Superintendent, Commissioner, or Director of Insurance, or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit, or proceeding instituted by or on behalf of the COMPANY or any beneficiary hereunder arising out of this Reinsurance Contract, and hereby authorizes the said officer to mail such process, or a true copy thereof, to the COMPANY.
ARTICLE 11 - Insolvency
In the event of insolvency of the COMPANY, the reinsurance under this Reinsurance Contract shall be payable by the REINSURER to the COMPANY or to its liquidator, receiver, or statutory successor, on the basis of the liability of the COMPANY under the policy or policies reinsured without diminution because of the insolvency of the COMPANY.
It is further agreed that the liquidator, or receiver, or statutory successor of the COMPANY, shall give written notice to the REINSURER of the pendency of any claim against the COMPANY on the policies reinsured within a reasonable time after such claim is filed in the insolvency proceeding, and that, during the pendency of such claim, the REINSURER may investigate such claim and interpose, at their own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which they may deem available to the COMPANY or to its liquidator, or receiver, or statutory successor. The expense thus incurred by the REINSURER shall be chargeable, subject to court approval, against the COMPANY as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the COMPANY solely as a result of the defense undertaken by the REINSURER.
ARTICLE 12 - Premium
The premium for this reinsurance shall be 1.01% of the subject Net Premiums earned by the COMPANY during any Annual Period this Reinsurance Contract remains in force, and shall be subject to a minimum premium of $800,000 for each Annual Period.
The COMPANY shall pay to the REINSURER a deposit premium of $900,000 for each Annual Period which shall be payable in equal installments of $450,000 each on the first days of January and July during the period this Reinsurance Contract remains in force. Final adjustment of the premium for each Annual Period hereunder shall be made as soon as may be reasonably practicable after expiration of that Annual Period.
ARTICLE 13 - Premium and Loss Payments
Premiums shall be payable directly to the REINSURER and losses shall be paid directly to the COMPANY in United States currency.
ARTICLE 14 - Access to Records
The REINSURER, by its duly appointed representative, shall have the right, at any reasonable time, to examine all papers in the possession of the COMPANY referring business effected hereunder.
ARTICLE 15 - Arbitration
Except as provided in "Article 16 - Loss Commutation", should an irreconcilable difference of opinion arise between the COMPANY and the REINSURER as to the interpretation or payment under this Reinsurance Contract, it is hereby mutually agreed that, as a condition precedent to any right of action hereunder, such difference, upon the written request of either party, shall be submitted to arbitration, one arbitrator to be chosen by the COMPANY, one by the REINSURER, and an umpire to be chosen by the two arbitrators before they enter upon arbitration.
In the event that either party should fail to choose an arbitrator within sixty days following a written request by the other party to enter upon arbitration, the requesting party may choose two arbitrators who shall in turn choose an umpire before entering upon arbitration. If the arbitrators have not chosen an umpire at the end of ten days following the last day of the selection of the two arbitrators, each of the arbitrators shall name three, of whom the other declines two, and the decision shall be made of the remaining two by drawing lots. The arbitrators and the umpire shall be active or retired disinterested officers of insurance or reinsurance companies or Underwriters at Lloyd's, London, not under the control of either party to this Reinsurance Contract. Each party shall present its case to the arbitrators within sixty days following the date of their appointment.
The decision, in writing, of the arbitrators shall be final and binding upon both parties as to questions of fact, but failing to agree, they shall call in the umpire and the decision of the majority shall be final and binding as to questions of fact upon both parties. Judgment upon the award rendered may be entered in any court having jurisdiction. Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other the expense of the umpire and of the arbitration.
In the event that the two arbitrators are chosen by one party, as above provided, the expense of the arbitrators, the umpire, and the arbitration shall be equally divided between the two parties.
Any such arbitration shall take place at Erie, Pennsylvania, unless some other location is mutually agreed upon by the two parties in interest.
ARTICLE 16 - Loss Commutation
Sixty months after expiration of each Annual Period, the COMPANY and the REINSURER agree to commute any unpaid net losses recoverable applicable to that Annual Period.
The COMPANY shall submit a statement of valuation of the net losses recoverable showing the elements considered reasonable to establish the net losses to be commuted. The COMPANY and the REINSURER shall agree upon the capitalized value of such losses and the REINSURER shall pay to the COMPANY the amount so determined. Payment by the REINSURER of the capitalized value of such losses shall constitute a complete and final release of the REINSURER'S liability in respect of such losses for that Annual Period.
If the COMPANY and the REINSURER fail to agree on the capitalized value of such losses within sixty days of receipt of the statement of valuation, then any difference shall be settled by a panel of three Actuaries or Appraisers, one to be chosen by each party and the third by the two so chosen. If either party refuses or neglects to appoint an Actuary or Appraiser within sixty days after the request in writing that the difference be settled by a panel of three Actuaries or Appraisers, the other party may appoint two Actuaries or Appraisers. If the two Actuaries or Appraisers fail to agree on the selection of a third Actuary or Appraiser within thirty days of their appointment, then each of them shall name two, one of whom the other shall decline and the determination of the Actuary or Appraiser shall be made by drawing lots. All the Actuaries or Appraisers shall be regularly engaged in the valuation of claims subject to the provisions of this Article 16 - Commutation. None of the Actuaries or Appraisers shall be under the control of either party to this Reinsurance Contract nor shall they have any interest in the net losses being commuted other than that which is required to fulfill their obligations hereunder.
Each party shall submit its case to its Actuary or Appraiser within thirty days of the appointment of the third Actuary or Appraiser. The decision in writing of any two Actuaries or Appraisers, when filed with the COMPANY and the REINSURER, shall be final and binding on both parties. The expense of the Actuaries or Appraisers and of the Commutation shall be equally divided between the COMPANY and the REINSURER. Said Commutation shall take place in Erie, Pennsylvania, unless some other place is mutually agreed upon by the COMPANY and the REINSURER. The term "capitalized value" as used herein shall mean the estimated value of all future payments hereunder, excluding any provision for incurred but not reported losses, reduced to present value at
an agreed upon rate of interest to be determined at the time of commutation or the prime rate, whichever is less.
ARTICLE 17 - Extended Expiration
Should this Reinsurance Contract terminate while a loss occurrence covered hereunder is in progress, it is understood and agreed that, subject to the other conditions of this Reinsurance Contract, the REINSURER shall be responsible for their proportion of the entire loss or damage caused by such occurrence.
ARTICLE 18 - Termination
Either party may terminate this Reinsurance Contract at any December 31, by giving the other party not less than 30 days prior written notice.
ARTICLE 19 - Singular Contains the Plural
In interpretation of this Reinsurance Contract, the singular includes the plural and the plural includes the singular, should the context so require to give full force and effect to the intent of the parties and the provisions hereunder.
ARTICLE 20 - Notice of Default; Cure
In the event of a default of any of the terms of this Reinsurance Contract, notice of the default shall be given and the party against which a default is alleged shall have fifteen days in which to cure such default, prior to any action being taken hereunder.
ARTICLE 21 - Notices
Notice to REINSURER shall be given at the following address or at any address specified in writing by REINSURER:
Erie Insurance Exchange 100 Erie Insurance Place Erie, PA l6530
Notice to COMPANY shall be given at the following addresses or at any addresses specified in writing by COMPANY:
Erie Insurance Exchange Erie Insurance Company of New York
100 Erie Insurance Place 175 Corporate Woods,
Erie, PA l6530 Suite 100
Rochester, NY 14623
|
Notice is effective when given in writing, upon personal delivery, or sent postage pre-paid by regular mail, Federal Express or similar service, telex or telecopier to the address specified herein.
ARTICLE 22 - Amendments
This Reinsurance Contract may be altered or amended in any of its terms and conditions by the written mutual consent of the parties, and such amendment shall be considered as part of this Reinsurance Contract.
ARTICLE 23 - Binding Effect
The provisions of this Reinsurance Contract shall be binding on both parties and their respective heirs, legal representatives, successors and assigns, binding any receivers, trustees or other fiduciaries appointed in any federal state insolvency proceeding or federal bankruptcy case.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives.
In Erie, Pennsylvania, this 31st day of August, 1998.
ATTEST: ERIE INSURANCE COMPANY
/s/ Mark Torok /s/ Jan R. Van Gorder
------------------------------- ----------------------------------
Mark Torok Jan R. Van Gorder
ERIE INSURANCE COMPANY OF NEW YORK
ATTEST:
/s/ Mark Torok /s/ Philip A. Garcia
------------------------------- ----------------------------------
Mark Torok Philip A. Garcia
ERIE INSURANCE EXCHANGE, by ERIE
ATTEST: INDEMNITY COMPANY, Attorney-in-Fact
/s/ Maureen Sidelinger /s/ Michael S. Zavasky
------------------------------- ----------------------------------
Maureen Sidelinger Michael S. Zavasky
|
EXHIBIT 10.5
Erie Insurance Group
RETIREMENT PLAN FOR EMPLOYEES
As Amended and Restated Effective December 31, 2000
TABLE OF CONTENTS
ARTICLE I - INTRODUCTION..................................................................................1
ARTICLE II - DEFINITIONS
2.1 "Accrued Pension"............................................................................2
2.2 "Actuary"....................................................................................2
2.3 "Administrator"..............................................................................2
2.4 "Affiliate"..................................................................................2
2.5 "Anniversary Date"...........................................................................2
2.6 "Annuity Starting Date"......................................................................2
2.7 "Beneficiary"................................................................................3
2.8 "Board of Directors" or "Board"..............................................................3
2.9 "Code".......................................................................................3
2.10 "Company"....................................................................................3
2.11 "Compensation"...............................................................................3
2.12 "Covered Employee"...........................................................................4
2.13 "Credited Service"...........................................................................4
2.14 "Date of Hire"...............................................................................4
2.15 "Date of Severance"..........................................................................4
2.16 "Earliest Retirement Age"....................................................................5
2.17 "Effective Date".............................................................................5
2.18 "Employee"...................................................................................5
2.19 "Employer(s)"................................................................................5
2.20 "ERISA"......................................................................................5
2.21 "Final Average Earnings".....................................................................5
2.22 "Highly Compensated".........................................................................5
2.23 "Hour of Service"............................................................................6
2.24 "Leased Employee"............................................................................7
2.25 "Maternity or Paternity Absence".............................................................7
2.26 "Normal Retirement Age"......................................................................8
2.27 "Normal Retirement Date".....................................................................8
2.28 "Participant"................................................................................8
2.29 "Period of Severance"........................................................................8
2.30 "Plan" or "Pension Plan".....................................................................8
2.31 "Plan Year"..................................................................................8
2.32 "Service"....................................................................................8
2.33 "Social Security Covered Compensation".......................................................9
2.34 "Test Compensation"..........................................................................9
2.35 "Top Paid Group".............................................................................9
2.36 "Total and Permanent Disability".............................................................10
2.37 "Trust Agreement"............................................................................10
|
2.38 "Trustee"............................................................................................10
2.39 "Trust Fund" or "Fund"...............................................................................10
ARTICLE III - ADMINISTRATION OF THE PLAN
3.1 Pension Administrator........................................................................11
3.2 Powers.......................................................................................11
3.3 Delegation of Duties.........................................................................13
3.4 Administrator as Named Fiduciary.............................................................13
3.5 Conclusiveness of Various Documents..........................................................13
3.6 Actions to be Uniform........................................................................14
3.7 Liability and Indemnification................................................................14
3.8 Claims Review Procedure......................................................................14
3.9 Waiver of Participation......................................................................16
ARTICLE IV - SERVICE PROVISIONS
4.1 Service......................................................................................17
4.2 Credited Service.............................................................................17
4.3 Loss and Reinstatement of Service............................................................17
4.4 Transfer to Other Employment.................................................................18
4.5 Transfer From Other Employment...............................................................18
ARTICLE V - ELIGIBILITY FOR PENSIONS
5.1 Normal Retirement............................................................................19
5.2 Early Retirement.............................................................................19
5.3 Disability Retirement........................................................................19
5.4 Vesting......................................................................................20
ARTICLE VI - AMOUNT OF PENSION
6.1 Normal Retirement Pension....................................................................21
6.2 Early Retirement Pension.....................................................................21
6.3 Disability Retirement Pension................................................................21
6.4 Deferred Pension Upon Termination of Service.................................................22
6.5 Increases in Pension for Certain Retired Participants........................................23
6.6 Offset of Accruals by Plan Distributions.....................................................23
6.7 Non-Duplication of Benefits..................................................................23
6.8 Special Provisions Pertaining to Section 401(a)(17) Employees................................24
ARTICLE VII - COMMENCEMENT AND DURATION OF PENSIONS
7.1 Normal and Early Retirement Pensions.........................................................25
7.2 Disability Retirement Pension................................................................25
7.3 Deferred Vested Pension......................................................................26
7.4 Reemployment of a Retired Participant........................................................26
7.5 Automatic Surviving Spouse's Pension.........................................................27
7.6 Requirement for Spouse Consent...............................................................30
7.7 Optional Forms of Pensions...................................................................30
7.8 Payment of Small Pension.....................................................................32
|
7.9 Repayment of Cashout on Reemployment.........................................................33
7.10 Delay in Commencement of Pension Payments....................................................34
7.11 Direct Rollover of Eligible Rollover Distributions...........................................35
7.12 Change to Pension Payments in Connection with Qualifying Event...............................36
ARTICLE VIII - DEATH BENEFITS
8.1 Death Prior to Retirement or Severance.......................................................41
8.2 Death Prior to Commencement of Early or Disability Pensions..................................41
8.3 Death Prior to Commencement of Vested Pensions...............................................42
8.4 Effect of Valid 100% Joint and Survivor Election.............................................43
8.5 Death On or After Annuity Starting Date......................................................43
8.6 Death Benefit for Vested Participants Who Terminated
After September 1, 1974 and Prior to August 23, 1984.........................................43
ARTICLE IX - TRUST FUND AND THE TRUSTEE
9.1 Trust Fund...................................................................................45
9.2 Irrevocability...............................................................................45
9.3 Contributions by the Company.................................................................45
9.4 Contributions by Participants................................................................46
9.5 Benefits Payable Only From Trust Fund........................................................47
9.6 Plan Expenses................................................................................47
ARTICLE X - BENEFIT LIMITATIONS
10.1 Maximum Limitation Under Section 415(b) of the Code..........................................48
10.2 Defined Benefit Plan and Defined Contribution Plan
Combined Limitation..........................................................................51
ARTICLE XI - MISCELLANEOUS PROVISIONS
11.1 Plan Non-Contractual.........................................................................53
11.2 Non-Alienation of Retirement Rights or Benefits..............................................53
11.3 Payment of Pension to Others.................................................................54
11.4 Prohibition Against Reversion................................................................54
11.5 Merger, Transfer of Assets or Liabilities....................................................54
11.6 Actuarial Equivalence........................................................................55
11.7 Change of Vesting Schedule...................................................................55
11.8 Controlled Group.............................................................................56
11.9 Severability.................................................................................56
11.10 Employer Records.............................................................................56
11.11 Application of Plan Provisions...............................................................56
11.12 Missing Participants.........................................................................56
11.13 IRC 414(u) Compliance Provision..............................................................57
ARTICLE XII - AMENDMENT AND TERMINATION
12.1 Amendment and Termination of the Plan........................................................58
12.2 Administration of the Plan in Case of Termination............................................58
12.3 Internal Revenue Service Limitations.........................................................59
|
ARTICLE XIII - TOP-HEAVY PROVISIONS
13.1 General......................................................................................60
13.2 Definitions Relating to Top-Heavy Provisions.................................................60
13.3 Top-Heavy Plan Vesting Requirements..........................................................62
13.4 Top-Heavy Plan Minimum Benefit Requirements..................................................63
13.5 Required Adjustments.........................................................................64
13.6 Limited Application of this Article..........................................................65
ARTICLE XIV - JURISDICTION
14.1 Jurisdiction.................................................................................66
|
Erie Insurance Group
RETIREMENT PLAN FOR EMPLOYEES
Effective December 31, 1946
As Amended and Restated Effective December 31, 2000
ARTICLE I
INTRODUCTION
The Erie Insurance Group adopted a Retirement Plan, effective December 31, 1946. Such Plan, which has been heretofore amended from time to time by action of the Board of Directors in accordance with the provisions of the Plan, is herein amended and restated.
This amendment and restatement of the Plan shall constitute an amendment, restatement and continuation of the Plan. This amendment and restatement is generally effective December 31, 2000. However, certain provisions of this amendment and restatement are effective as of some other date. The provisions of this amendment and restatement with stated effective dates prior to December 31, 2000 shall be deemed to amend the corresponding provisions, if any, of the Plan as in effect before this amendment and restatement and all amendments thereto as of such dates. Events occurring before the applicable effective date of any provision of this amendment and restatement shall be governed by the applicable provision of the Plan as in effect on the date of the event. The object of the Plan is to provide retirement pensions for eligible employees.
ARTICLE II
DEFINITIONS
For the purposes of this Retirement Plan for Employees, the following words and phrases shall have the following meanings unless a different meaning is clearly required by the context. Any terms herein used in the masculine shall be read and construed in the feminine where they would so apply, and any terms used in the singular shall be read and construed in the plural if again so applicable.
2.1 "Accrued Pension" shall mean a pension amount determined with respect to a Participant in accordance with Section 6.2(a) of the Plan using the date of determination for the date of early retirement.
2.2 "Actuary" shall mean the actuary or firm of actuaries chosen by, but independent of the Company, who is, or in the case of a firm one or more of whose members is, an enrolled actuary under the provisions of Section 3042 of the Employee Retirement Income Security Act of 1974.
2.3 "Administrator" shall mean the Pension Administrator appointed by the Board under the provisions of Article III of the Plan.
2.4 "Affiliate" means any other employer which, together with the Company, is a member of a controlled group of corporations or of a commonly controlled trade or business (as defined in Code Sections 414(b) and (c) and as modified, where appropriate, by Code Section 415(h)) or of an affiliated service group (as defined in Code Section 414(m)) or other organization described in Code Section 414(o). Each such Affiliate shall be treated as an Affiliate only during such period as it is or was an Affiliate as defined above.
2.5 "Anniversary Date" shall mean any December 31 occurring after the Effective Date.
2.6 "Annuity Starting Date" shall mean the first day of the first period for which an amount is received as an annuity (whether by reason of retirement or other termination of Service). A Participant whose benefit is suspended under any provision of the Plan shall be deemed not to have reached his Annuity Starting Date until such benefit again
becomes payable. The Annuity Starting Date for a benefit payable under
Section 7.10 shall be the applicable date described therein.
2.7 "Beneficiary" shall mean any person who, by reason of a designation made
by a Participant, is or will be entitled to receive any amount or benefit
hereunder upon the death of such Participant.
2.8 "Board of Directors" or "Board" shall mean the Board of Directors of the
Company.
2.9 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.10 "Company" shall mean Erie Indemnity Company, a corporation organized and
existing under the laws of Pennsylvania.
2.11 "Compensation" for any period shall mean the aggregate amount of base
salary received by a Covered Employee from the Employers during the
period. For this purpose, "base salary" shall exclude overtime
compensation, bonuses, and commissions, but shall include compensation
excluded from W-2 income because of salary reduction agreements in
connection with plans described in Section 125, 401(k), or, for periods on
and after January 1, 2001, 132(f)(4) of the Code, or resulting from
annuity or deferred compensation contracts. Effective for each Plan Year
beginning on and after December 31, 1989, in no event shall the amount of
Compensation taken into account under the Plan exceed the adjusted annual
limitation permitted under Section 401(a)(17) of the Code for such Plan
Year. Such adjusted annual limitation shall be, for each Plan Year
beginning on and after December 31, 1989 and prior to December 31, 1994,
$200,000 as adjusted for such year in the same manner as under Section
415(d) of the Code and, for each Plan Year beginning on and after December
31, 1994, $150,000 as adjusted for such year as provided under Section
401(a)(17)(B) of the Code. However, with respect to the determination of a
retirement pension or Accrued Pension for the 1993 Plan Year, the adjusted
annual limitation for the 1993 Plan Year will be assumed to apply to all
prior years.
For Plan Years beginning before January 1, 1997, in determining the
Compensation of a Covered Employee for purposes of the foregoing annual
limitation, the rules aggregating certain family members (as set forth in
Section 2.22) shall apply, except that in applying such rules, the term
"family" shall include only the spouse of the
3
|
Covered Employee and any lineal descendent of the Covered Employee who has
not attained age 19 before the end of the calendar year. If, as a result
of the family aggregation rules, the adjusted annual limitation is
exceeded, then the limitation shall be prorated among the family members
in proportion to each individual's Compensation as determined under this
paragraph without regard to the adjusted annual limitation.
2.12 "Covered Employee" shall mean any Employee of an Employer, excluding:
(a) any such Employee whose employment is governed by the terms of a
collective bargaining agreement under which retirement benefits were
the subject of good faith bargaining,
(b) any such Employee who has voluntarily waived participation in the
Plan, and
(c) any such Employee who is compensated on an hourly basis.
Notwithstanding any provision of the Plan to the contrary, an individual
who an Employer determines to be a contract employee, independent
contractor, leased employee (including a Leased Employee as defined
hereunder), leased owner, leased manager, shared employee or person
working under a similar classification shall not become a Covered Employee
hereunder, regardless of whether any such individual is ultimately
determined to be a common law employee, unless and until the Employer
shall otherwise determine.
2.13 "Credited Service" shall mean a Participant's service determined in
accordance with Article IV hereof for the purpose of calculating the
amount of benefit earned under the Plan.
2.14 "Date of Hire" shall mean the date on which an Employee first commences
employment or reemployment and works at least one Hour of Service for an
Employer or an Affiliate.
2.15 "Date of Severance" shall mean the earliest to occur of the following
|
dates:
(a) date of retirement,
(b) date of voluntary employment termination,
(c) date of discharge by an Employer unless he is subsequently reemployed and given pay back to the date of discharge,
(d) date of death,
(e) the first anniversary of a date of absence from active employment
for any other reason; provided, however, that the second anniversary
of a date of absence from active employment shall be used for an
Employee who is absent by reason of a Maternity or Paternity Absence
which commenced on or after December 31, 1985, or who is absent by
reason of Total and Permanent Disability.
An Employee shall not incur a Date of Severance while he is in the active
service of the United States Armed Forces if his reemployment rights are
protected by law.
2.16 "Earliest Retirement Age" shall mean the earliest date on which, under the
Plan, the Participant could elect to receive retirement benefits in
accordance with Section 5.1 or 5.2 hereof.
2.17 "Effective Date" shall mean December 31, 1946.
2.18 "Employee" shall mean any common-law employee of an Employer or an
Affiliate; provided, however, that for purposes of Section 2.22;
"Employee" shall include any self-employed individual performing services
for an Employer or Affiliate who is treated as an employee under Section
401(c)(1) of the Code.
2.19 "Employer(s)" shall mean the Company, Erie Family Life Insurance Company,
Erie Insurance Exchange, Erie Insurance Company, EI Holding Corp., EI
Service Corp., Erie Insurance Company of New York, Erie Insurance Property
& Casualty Company, Flagship City Insurance Company and any other
Affiliate which may adopt this Plan.
2.20 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
2.21 "Final Average Earnings" shall mean 1/36th of the aggregate Compensation
received during the thirty-six consecutive calendar months as a Covered
Employee which produces the greatest aggregate Compensation out of the one
hundred twenty calendar month period ending on the earlier of the date on
which the Participant retires or terminates employment with the Employers
or the date on which the Participant is no longer considered a Covered
Employee.
2.22 "Highly Compensated" shall mean, for years beginning on and after January
1, 1997, any Employee who is a more than five percent (5%) owner of an
Employer or both
5
|
earned $80,000 or more in Test Compensation from the Employer in the prior
Plan Year (the "lookback year") and was member of the Top Paid Group for
such year; provided, however, that such $80,000 figure shall be adjusted
for cost of living at the same time and in the same manner as determined
under Code Section 415(d). For years beginning before January 1, 1997,
"Highly Compensated" shall mean any Employee who meets any of the
following requirements in either the lookback year or the current Plan
|
Year (the "determination year"):
(a) is a more than five percent (5%) owner of an Employer;
(b) earns $75,000 or more in Test Compensation;
(c) earns $50,000 or more in Test Compensation and is member of the Top Paid Group;
(d) is an officer of an Employer (as described in Section 416(i) of the Code) who earns Test Compensation of more than fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of the Code for such year; or
(e) is a former Employee who was Highly Compensated upon separation from service prior to the determination year, performs no service for an Employer during the determination year or was Highly Compensated at any time after age 55.
In addition, the Test Compensation paid to any family member (spouse, lineal ascendant or descendent and their spouses) of a more than five percent owner or of one of the top 10 Highly Compensated Employees on the basis of Test Compensation, shall be aggregated with the Test Compensation of such Employee for the purposes of this definition. Notwithstanding the foregoing, an Employee will not be Highly Compensated for the current year merely by compensation or officer status, unless he is in the top 100 Employees by Test Compensation. The amounts indicated in (b) and (c) above shall be adjusted for cost of living by the Secretary of the Treasury at the same time and in the same manner as under Code Section 415(d). To the extent permitted under regulations and other guidance promulgated by the Internal Revenue Service, the Company may elect to determine the status of Highly Compensated Employees on a basis other than that provided above.
2.23 "Hour of Service" shall include the following:
(a) each hour for which an Employee is directly or indirectly paid or entitled to payment from an Employer or an Affiliate as an Employee for the performance of duties during an applicable computation period (these hours must be credited
to the Employee in the computation period during which the duties were performed and not when paid, if different); and
(b) each hour for which back pay, irrespective of mitigation of damages, has been awarded or agreed to by an Employer or an Affiliate (these hours must be credited in the computation period or periods to which the award or agreement pertains rather than that in which the payment, award or agreement was made); and
(c) each hour for which an Employee is directly or indirectly paid or
entitled to payment from an Employer or an Affiliate for reasons,
such as vacation, sickness or disability, other than for the
performance of duties (these hours shall be calculated and credited
pursuant to Section 2530.200b-2 of the Department of Labor
regulations which are incorporated herein by reference).
2.24 "Leased Employee" shall mean any person (other than an Employee of an
Employer) who pursuant to an agreement between the Employer and any other
person ("leasing organization") has performed services for the Employer
(or for the Employer and related persons determined in accordance with
Section 414(n)(6) of the Code) on a substantially full-time basis for a
period of at least one year and, for periods before January 1, 1997, such
services are of a type historically performed by employees in the business
field of the Employer or, for periods on and after January 1, 1997, such
services are performed under primary direction or control by the
recipient. Except as provided below, any person satisfying the foregoing
criteria shall be treated as an Employee. Contributions or benefits
provided a Leased Employee by the leasing organization which are
attributable to services performed for the Employer shall be treated as
provided by the Employer.
Notwithstanding the foregoing, a Leased Employee shall not be considered
an Employee of an Employer if: (i) such Leased Employee is covered by a
money purchase pension plan providing: (1) a nonintegrated employer
contribution rate of at least 10 percent of compensation, (2) immediate
participation, and (3) full and immediate vesting; and (ii) Leased
Employees do not constitute more than 20 percent of the Employer's
non-Highly Compensated workforce.
2.25 "Maternity or Paternity Absence" shall mean an absence from work by an
|
Employee for any period:
(a) by reason of 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 such Employee, or
(d) for purposes of caring for such child for a period immediately following such birth or placement.
An absence will not be considered a "Maternity or Paternity Absence"
unless the Employee provides the Administrator with such timely
information as the Administrator may reasonably require to establish that
the absence from work is for one of the four permitted reasons outlined
above. Nothing in this Plan shall require an Employer to grant a paid
leave of absence to any Employee.
2.26 "Normal Retirement Age" of a Participant shall be age 65.
2.27 "Normal Retirement Date" of a Participant shall be the first day of the
month next following the month in which his sixty-fifth birthday occurs.
2.28 "Participant" shall mean any Covered Employee and any former Covered
Employee who is entitled to, or who is receiving, a retirement benefit or
deferred vested pension under the Plan.
2.29 "Period of Severance" shall mean the period of time between an Employee's
Date of Severance and the date as of which he performs his first Hour of
Service following reemployment.
2.30 "Plan" or "Pension Plan" shall mean this "Erie Insurance Group Retirement
Plan for Employees" as herein set forth with all amendments, modifications
and supplements hereafter made.
2.31 "Plan Year" shall mean any period of 12 consecutive calendar months next
preceding an Anniversary Date of the Plan.
2.32 "Service" shall mean an Employee's service determined in accordance with
Article IV hereof for the purposes of meeting the eligibility requirements
for a benefit under the Plan.
|
2.33 "Social Security Covered Compensation" shall mean, for any Plan Year, the
average (without indexing) of the Social Security taxable wage bases in
effect for each calendar year during the 35-year period ending with the
last day of the calendar year in which the Participant attains (or will
attain) Social Security Retirement Age (as such term is defined in Section
10.1(a)(iv) hereof). In determining a Participant's Social Security
Covered Compensation for a Plan Year, the Social Security taxable wage
base for the current Plan Year and any subsequent Plan Year shall be
assumed to be the same as in effect for the Plan Year for which the
determination is being made. A Participant's Social Security Covered
Compensation shall be automatically adjusted for each Plan Year in
accordance with these provisions, up to and including the Plan Year in
which the Participant attains Social Security Retirement Age.
2.34 "Test Compensation" shall mean, for any Plan Year, an Employee's
compensation, reported under Sections 6041 and 6051 of the Code on Form
W-2, as paid by the Company or other Employer for the calendar year ending
with or within such Plan Year, including any amounts contributed pursuant
to a salary reduction election on behalf of a Covered Employee to a plan
described in Sections 125, 402(e)(3), 402(h)(1)(B), 403(b), 457(b) or, for
periods on and after January 1, 2001, 132(f)(4) of the Code for the period
in question. Test Compensation in any given year shall not exceed the
adjusted annual limitation in effect for such year (as set forth in
Section 2.11), provided that such limitation shall not be applied in
determining the top 10 Highly Compensated Employees subject to family
aggregation under the Plan (applicable to Plan Years beginning before
January 1, 1997) and for purposes of determining the status of an Employee
as a Highly Compensated Employee or Key Employee. To the extent permitted
under regulations and other guidance promulgated by the Internal Revenue
Service, the Company may elect to determine Test Compensation on a basis
other than that provided above.
2.35 "Top Paid Group" means all active Employees who, as of a given year, are
in the top twenty percent (20%) of the Company's work force on the basis
of Test Compensation for such year, excluding the following:
(a) employees who have not completed six (6) months of Service by the
end of such year;
(b) employees who work less than seventeen and one-half (17-1/2) hours
per week for such year;
(c) employees who normally do not work more than six (6) months in a
year;
|
(d) employees under age twenty-one (21) at the end of such year; and
(e) non-resident aliens who received no U.S. - source income for such year.
For purposes of this Section, the Company's work force shall include
individuals employed by an Affiliate.
2.36 "Total and Permanent Disability" shall mean permanent incapacity resulting
in the Participant being unable to engage in any gainful employment or
occupation by reason of any medically demonstrable physical or mental
condition, excluding, however, (a) incapacity contracted, suffered or
incurred while the Participant was engaged in or which resulted from
having engaged in a felonious enterprise; and (b) incapacity contracted,
suffered or incurred in the employment of other than an Employer,
including self-employment.
2.37 "Trust Agreement" shall mean the trust agreement between the Company and a
Trustee as provided in Section 9.1, together with all amendments,
modifications and supplements, thereto.
2.38 "Trustee" shall mean the Trustee or Trustees designated under a Trust
Agreement including any successor or successors.
2.39 "Trust Fund" or "Fund" shall mean the retirement plan trust fund
established by the Company in accordance with Article IX.
|
ARTICLE III
ADMINISTRATION OF THE PLAN
3.1 Pension Administrator
The Plan shall be administered by a Pension Administrator (the "Administrator") who shall serve at the pleasure of the Board of Directors. Any individual serving as the Administrator may resign by delivering his written resignation to the Board. In the event of the death, resignation or removal of the Administrator, the Board shall fill the vacancy. In making the appointment, the Board shall not be limited to any particular group, and nothing herein contained shall be construed to prevent any Participant, director, officer, employee or shareholder of the Employers from serving as the Administrator. The Administrator will not be compensated from the Trust Fund for services performed in such capacity, but the Company or Fund will reimburse such individual for expenses reasonably incurred by him in such capacity. If the Board does not appoint any individuals to the Administrator, then the Company shall act as the Administrator.
Appointment by the Board shall be evidenced by a certified copy of the resolution of the Board making such appointment, and copies of such certified resolution shall be delivered to the Trustee and to such other persons as may require such notice.
3.2 Powers
The Administrator will have full power to administer the Plan in all of its details, subject, however, to the requirements of ERISA. This power shall include having the sole and absolute discretion to interpret and apply the provisions of the Plan to determine the rights and status hereunder of any individual, to decide disputes arising under the Plan, and to make any determinations and findings of fact with respect to benefits payable hereunder and the persons entitled thereto as may be required for any purpose under the Plan. Without limiting the generality of the above, the Administrator is granted the following authority which it shall discharge in its sole and absolute discretion in accordance with Plan provisions as interpreted by the Administrator:
(a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan, including the modification of the claims procedure under Section 3.8 in accordance with any regulations issued under Section 503 of ERISA.
(b) To interpret the Plan.
(c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan, his period of participation and/or service under the Plan, his date of birth, his eligibility to accrue a benefit under the Plan and to receive a distribution from the Plan.
(d) To compute the amount of benefits which will be payable to any Participant or other person in accordance with the provisions of the Plan, and to determine the identity of the person or persons to whom such benefits will be paid.
(e) To authorize the payment of Plan benefits and to direct cessation of benefit payments.
(f) To appoint one or more investment managers to manage the investment and reinvestment of the Fund and to enter into management contracts on behalf of the Company with respect to such appointments. Unless and until the Administrator appoints an investment manager with respect to all or a specific portion of the Fund, the Trustee shall have exclusive authority to manage and control all or such portion of the Fund.
(g) To appoint, employ or engage such other agents, counsel accountants, consultants and actuaries as may be required to assist in administering the Plan.
(h) To establish procedures to determine whether a domestic relations
order is a qualified domestic relations order within the meaning of
Section 414(p) of the Code, to determine under such procedures
whether a domestic relations order is a qualified domestic relations
order and whether a putative alternate payee otherwise qualifies for
benefits hereunder, to inform the parties to the order as to the
effect of the order, and to direct the Trustee to hold in escrow or
pay any amounts so directed to be held or paid by the order.
(i) To determine whether the Plan has incurred a partial termination.
(j) To obtain from the Employers, Employees, Participants, spouses and Beneficiaries such information as shall be necessary for the proper administration of the Plan.
(k) To perform all reporting and disclosure requirements imposed upon the Plan by ERISA, the Code or any other lawful authority.
(l) To take such steps as it, in its discretion, considers necessary and/or appropriate to remedy any inequity under the Plan that results from incorrect information received or communicated or as the consequence of administrative error.
(m) To correct any defect, reconcile any inconsistency or supply any omission under the Plan.
(n) To delegate its powers and duties to others in accordance with
Section 3.3.
(o) To exercise such other authority and responsibility as is specifically assigned to it under the terms of the Plan and to perform any other acts necessary to the performance of its powers and duties.
The Administrator at its discretion may either request the Company or direct the Fund to pay for any or all services rendered by the Trustee and by persons appointed, employed or engaged under Section 3.2(f) or (g) or under the terms of the Trust Agreement.
The Administrator's interpretations, decisions, computations and determinations under this Section 3.2 which are made in good faith will be final and conclusive upon the Employers, all Participants and all other persons concerned. Any action taken by the Administrator with respect to the rights or benefits of any person under the Plan shall be revocable by the Administrator as to payments or distributions not theretofore made, pursuant to such action, from the Trust Fund; and appropriate adjustments may be made in future payments or distributions to a Participant or Beneficiary to offset any excess payment or underpayment previously made to such Participant or Beneficiary from the Trust Fund. No ruling or decision of the Administrator in any one case shall create a basis for a retroactive adjustment in any other case prior to the date of written filing of each specific claim.
3.3 Delegation of Duties
The Administrator may, from time to time, designate any individual to carry out any of the responsibilities of the Administrator other than the appointment of an investment manager(s). The individual so designated will have full authority or such limited authority as the Administrator may specify, to take such actions as are necessary or appropriate to carry out the responsibilities assigned by the Administrator.
3.4 Administrator as Named Fiduciary
The Administrator will be a "named fiduciary" for purposes of section 402(a)(1) of ERISA with authority to control and manage the operation and administration of the Plan.
3.5 Conclusiveness of Various Documents
The Administrator and the Company and its directors and officers will be entitled to rely upon all tables, valuations, certificates and reports furnished by any actuary,
accountant, counsel or other expert appointed, employed or engaged by the Administrator or the Company.
3.6 Actions to be Uniform
Any discretionary actions to be taken under the Plan by the Administrator will be nondiscriminatory and uniform with respect to all persons similarly situated.
3.7 Liability and Indemnification
To the full extent allowed by law, the Administrator shall not incur any
liability to any Participant or Beneficiary, or to any other person, by
reason of any act or failure to act on the part of the Administrator if
such act or omission is not the result of the Administrator's gross
negligence, willful misconduct or exercise of bad faith. To the full
extent allowed by law, the Company agrees to indemnify the Administrator
against all liability and expenses (including reasonable attorney's fees
and other reasonable expenses) occasioned by any act or omission to act if
such act or omission is not the result of the Administrator's gross
negligence, willful misconduct or exercise of bad faith. Neither this
Section 3.7 nor any other provision of this Plan shall be applied to
invalidate, modify, or limit in any respect any contract, agreement, or
arrangement for indemnifying or insuring the Administrator against, or
otherwise limiting, such liability or expense, or for settlement of such
liability, to the extent such contract, agreement, or arrangement is not
precluded by the terms of Section 410 of ERISA.
3.8 Claims Review Procedure.
The Administrator shall be responsible for the claims procedure under the Plan. An application for a retirement benefit or other benefit under the Plan shall be considered a claim for purposes of this Section 3.8.
(a) Original Claim. In the event a claim of any Participant, Beneficiary, alternate payee, or other person (hereinafter referred to in this Section as the "Claimant") for a benefit is partially or completely denied, the Administrator shall give, within ninety (90) days after receipt of the claim (or if special circumstances, made known to the Claimant, require an extension of time for processing the claim, within one hundred eighty (180) days after receipt of the claim), written notice of such denial to the Claimant. Such notice shall set forth, in a manner calculated to be understood by the Claimant, the specific reason or reasons for the denial (with reference to pertinent Plan provisions upon which the denial is based); an
explanation of additional material or information, if any, necessary
for the Claimant to perfect the claim; a statement of why the
material or information is necessary; on and after January 1, 2002,
a statement of the Claimant's right to bring a civil action under
Section 502(a) of ERISA; and an explanation of the Plan's claims
review procedure, including the time limits applicable to such
procedure. If the notice of denial is not furnished within the
required time period specified above, the claim shall be deemed to
be denied and the Claimant shall be permitted to proceed to the
review stage described in paragraph (b).
(b) Review of Denied Claim.
(i) A Claimant whose claim is partially or completely denied shall have the right to request a full and fair review of the denial by a written request delivered to the Administrator within sixty (60) days of receipt of the written notice of claim denial (or sixty (60) days after the date on which the claim is deemed denied under paragraph (a) above), or within such longer time as the Administrator, under uniform rules, determines. In such review, the Claimant or his duly authorized representative shall have the right to review, upon request and free of charge, all documents, records or other information relevant to the claim and to submit any written comments, documents, or records relating to the claim to the Administrator.
(ii) The Administrator, within sixty (60) days after the request for review, or in special circumstances, such as where the Administrator in its sole discretion holds a hearing, within one hundred twenty (120) days of the request for review, will submit its decision in writing. Such decision shall take into account all comments, documents, records and other information properly submitted by the Claimant, whether or not such information was considered in the original claim determination. The decision on review will be binding on all parties, will be written in a manner calculated to be understood by the Claimant, will contain specific reasons for the decision and specific references to the pertinent Plan provisions upon which the decision is based, will indicate that the Claimant may review, upon request and free of charge, all documents, records or other information relevant to the claim and on and after January 1, 2002, will contain a statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA. If
no decision is made within the time period specified above, the claim shall be deemed to be denied on review.
(iii) If a Claimant fails to file a claim or request for review in the manner and in accordance with the time limitations specified herein, such claim or request for review shall be waived, and the Claimant shall thereafter be barred from again asserting such claim.
(c) Determination by the Committee Conclusive. The Administrator's determination of factual matter relating to Participants, Beneficiaries and alternate payees including, without limitation, a Participant's Credited Service, Service and any other factual matters, shall be conclusive. The Administrator and the Company and its respective officers and directors shall be entitled to rely upon all tables, valuations, certificates and reports furnished by an actuary, any accountant for the Plan, the Trustee or any investment managers and upon opinions given by any legal counsel for the Plan insofar as such reliance is consistent with ERISA. The actuary, the Trustee and other service providers may act and rely upon all information reported to them by the Administrator and/or the Company and need not inquire into the accuracy thereof nor shall be charged with any notice to the contrary.
3.9 Waiver of Participation
It is the purpose of this Plan to provide for the accrual of retirement benefits for all Covered Employees. Notwithstanding the foregoing, any Covered Employee may waive participation in this Plan by executing a Waiver of Participation on a form provided by the Administrator for such purpose. Any Waiver of Participation shall be effective for the Plan Year in which it is executed and shall be irrevocable. During any Plan Year for which a Waiver of Participation is in effect, no Service, Credited Service or Compensation shall be recognized under the Plan for the Covered Employee.
ARTICLE IV
SERVICE PROVISIONS
4.1 Service
Service shall be used to determine a Participant's vested rights under the Plan. An Employee shall receive Service for the period of time between his Date of Hire and his Date of Severance, provided that no Service shall be received for the period of continued absence between the first and second anniversary of the date of first absence from work by reason of a Maternity or Paternity Absence. Service shall be counted for full years only. Service shall include any prior periods of Service that are reinstated in accordance with Section 4.3 below. Service shall include any Period of Severance which has continued for less than one year.
Notwithstanding the foregoing, Service (but not Credited Service) shall include periods of absence granted under The Family and Medical Leave Act of 1993, to the extent of the minimum service credit required by said Act.
4.2 Credited Service
Credited Service shall be used to compute the amount of a Participant's benefit and to determine a Participant's eligibility for an early retirement and a disability retirement under the Plan. Credited Service shall be based on Service but shall not include (i) any period of Service in which a Participant is not a Covered Employee, and (ii) any Period of Severance; provided, however, that a Participant's Credited Service shall include that Credited Service accumulated during the period in which the Participant is eligible for a disability retirement pension (as determined under Sections 5.3, 6.3 and 7.2 hereof). Solely for purposes of computing the amount of a Participant's benefit under Section 6.1 and subject to the foregoing provisions of this Section, Credited Service shall include a year of credit for any fraction of a year of Service.
4.3 Loss and Reinstatement of Service
In the event a Participant incurs a Date of Severance prior to his becoming eligible for a retirement benefit or deferred vested pension under the Plan, he shall be deemed to receive a distribution equal to the actuarial equivalent value of the entire vested pension earned through his Date of Severance. In such a case, the Participant shall lose his Service and Credited Service and his Accrued Pension shall be forfeited as of such date of deemed distribution. If subsequently reemployed as a Covered Employee, a
Participant shall, after again completing one year of Service, be considered a Plan Participant retroactively as of such date of reemployment and have his forfeited Service, Credited Service and Accrued Pension reinstated if his last Period of Severance is less than the greater of:
(a) five years, or
(b) the Participant's forfeited Service (including any periods of Service previously reinstated under the provisions of this Section 4.3 or its predecessor).
4.4 Transfer To Other Employment
Upon the transfer of a Participant covered by the Plan to other employment with an Employer or Affiliate whereby he ceases to be a Covered Employee hereunder, his Accrued Pension based on his Credited Service and Final Average Earnings as of the transfer date shall be frozen and Credited Service shall cease to accrue for purposes of the Plan. In the event such Participant remains in the employment of an Employer until such time as, except for such transfer, he would have met the age, service and/or other eligibility requirements for any pension under the Plan, such frozen Accrued Pension shall become payable in accordance with the appropriate provisions of the Plan as in effect on the date of transfer.
4.5 Transfer From Other Employment
Upon transfer or retransfer of an individual from other employment with an Employer or Affiliate such that the individual becomes a Covered Employee hereunder, his years of Service as otherwise computed under this Article IV will include the period of his employment with an Employer or Affiliate prior to such transfer or retransfer for the purpose of meeting the vesting requirements under this Plan; provided, however, that only years of Credited Service acquired while employed as a Covered Employee covered under this Plan shall be used to compute the amount of any pension under this Plan.
ARTICLE V
ELIGIBILITY FOR PENSIONS
5.1 Normal Retirement
A Participant whose employment with an Employer and all Affiliates is
terminated when or after he attains Normal Retirement Age shall be
eligible for a normal retirement pension in the amount as provided in
Section 6.1 hereof. A Participant's right to his normal retirement pension
shall be nonforfeitable upon the attainment of his Normal Retirement Age
provided he is an Employee on such date. A Participant continuing in
employment with an Employer after his Normal Retirement Date in a capacity
such that he completes 40 or more Hours of Service per month will be
provided with a notice incorporating the substance of the notification
described in Section 2530.203-3(b)(4) of the Code of Federal Regulations.
Such notice shall include a statement that the Participant's pension will
be suspended and permanently withheld for months in which he completes 40
or more Hours of Service. Any benefit accrual earned by a Participant for
any given Plan Year ending on or after the date on which the Participant
attains Normal Retirement Age shall be reduced (but not below zero) by the
amount of any actuarial adjustment which may be required in connection
with a delay in payment of a Participant's normal retirement benefit or
the suspension of benefits otherwise payable after the Participant attains
Normal Retirement Age.
5.2 Early Retirement
A Participant with 15 or more years of Credited Service whose employment with an Employer and all Affiliates is terminated when or after he reaches the age of 55 but prior to the attainment of age 65, shall be eligible for an early retirement pension in the amount as provided in Section 6.2 hereof.
5.3 Disability Retirement
A Participant whose status as a Covered Employee is terminated due to his Total and Permanent Disability after 15 or more years of Credited Service and prior to the attainment of age 65, and who is eligible for and receiving disability benefits under the Erie Insurance Group Long Term Disability Plan shall be eligible for a disability retirement pension in an amount as provided in Section 6.3 hereof beginning at his Normal Retirement Date providing he remains Totally and Permanently Disabled up to his Normal Retirement Date.
5.4 Vesting
A Participant with 5 years or more of Service and whose employment with an Employer and all Affiliates is terminated at a time when he is ineligible for any retirement pension under the Plan shall be eligible for a deferred vested pension as computed under Section 6.4.
If a Participant is reemployed as a Covered Employee by an Employer after
having qualified for a deferred vested pension in accordance with this
Section 5.4, such Participant shall retain his right to receive such
deferred vested pension and he shall be reinstated with the Service and
Credited Service to which he was entitled at the time of his prior
termination of employment. Any benefits to which the Participant may be
entitled upon his subsequent retirement or termination of employment shall
be reduced actuarially, as provided in Section 7.4, to reflect any
deferred vested pension benefits paid prior to reemployment.
ARTICLE VI
AMOUNT OF PENSIONS
6.1 Normal Retirement Pension
Subject to the provisions of Section 7.1 and Article X, the monthly pension of a Participant who is eligible for a normal retirement pension under the provisions of Section 5.1 (as stated in the form of a life annuity) shall be one-twelfth (1/12) of the result obtained by multiplying the sum of (a) and (b) by (c), where:
(a) equals 1.0% of the Participant's Final Average Earnings not in excess of Social Security Covered Compensation;
(b) equals 1.5% of the Participant's Final Average Earnings in excess of Social Security Covered Compensation; and
(c) equals the Participant's Credited Service not in excess of 30 years.
In no event shall the overall permitted disparity limits of Section 1.401(l)-5 of the Income Tax Regulations be exceeded.
6.2 Early Retirement Pension
Subject to the provisions of Section 7.1 and Article X, the monthly early retirement pension of a Participant eligible for an early retirement pension under the provisions of Section 5.2 shall be, at the option of the Participant, either (a) or (b) as set forth below:
(a) A deferred pension, commencing as of the Participant's Normal
Retirement Date, equal to the amount of pension, determined under
Section 6.1, to which he is entitled based upon his Credited Service
and Final Average Earnings as of his date of early retirement and
the level of Social Security Covered Compensation in effect on such
date.
(b) An immediate pension, commencing as of the month following the month
in which such Participant retires early, determined as provided in
(a) above, but reduced by 1/4 of 1 percent for each complete
calendar month up to 60 such months and by 3/8ths of 1 percent for
each complete calendar month in excess of 60 months, by which his
early retirement pension commencement date precedes his Normal
Retirement Date.
6.3 Disability Retirement Pension
Subject to the provisions of Section 7.2 and Article X, a Participant eligible for disability benefits under the provisions of Section 5.3 and under Title II of the Social Security Act shall receive a disability retirement pension beginning as of his Normal
Retirement Date. Such disability retirement pension shall be in an amount determined in accordance with Section 6.1 assuming that:
(a) service and Credited Service are granted for each calendar year (and part thereof) during which he continues to be Totally and Permanently Disabled and to qualify for Social Security disability benefits, and
(b) his Compensation during his last full calendar year before his termination due to disability continues unchanged from the calendar year including his date of disability to the calendar year including his Normal Retirement Date, and
(c) his Social Security Covered Compensation is based on the level in effect at the time he becomes disabled.
6.4 Deferred Pension Upon Termination of Service
Subject to the provisions of Section 7.3 and Article X, the monthly pension, commencing as of Normal Retirement Date, of a former Covered Employee whose employment with an Employer and Affiliates has terminated after he has become eligible for a deferred vested pension in accordance with Section 5.4, shall be equal to the pension such Participant would have been entitled to under Section 6.2(a) as of his termination of employment, multiplied by a vesting percentage determined in accordance with the table immediately below:
Years of Service Vesting Percentage ---------------- ------------------ Less than 5 0% 5 or more 100% |
Except as otherwise provided under Section 8.1, any Participant having less than five years of Service at the time of his death or other termination of employment with the Employers or an Affiliate shall have no vested rights under this Plan and neither he nor his spouse or Beneficiary shall be entitled to any benefits under this Plan.
A former Covered Employee who is eligible for a deferred vested pension and who is credited with 15 or more years of Credited Service may elect (by written application) to commence his deferred vested pension in a reduced amount at any time between the ages of 55 and 65, in which case the monthly pension amount as determined above shall be reduced in accordance with the provisions of subsection (b) of Section 6.2 based on the number of months that his Annuity Starting Date precedes his Normal Retirement Date.
6.5 Increase in Pension for Certain Retired Participants
(a) Notwithstanding the foregoing provisions of this Article VI and effective for Plan payments made on or after January 1, 1996, the monthly pension payable to a Qualified Pensioner (or to the Beneficiary of a Qualified Pensioner) shall be increased by the greater of five percent (5%) or twenty dollars ($20.00). For purposes of this subsection (a), a "Qualified Pensioner" means a Participant who retired under the normal retirement, early retirement, or disability retirement provisions of the Plan prior to January 1, 1994.
(b) Notwithstanding the foregoing provisions of this Article VI and effective for Plan payments made on or after January 1, 1999, the monthly pension payable to a Qualified Pensioner (or to the Beneficiary of a Qualified Pensioner) shall be increased by the greater of four percent (4%) or fifteen dollars ($15.00). For purposes of this subsection (b), a "Qualified Pensioner" means a Participant who retired under the normal retirement, early retirement, or disability retirement provisions of the Plan and commenced Plan payment prior to January 1, 1997.
6.6 Offset of Accruals by Plan Distributions
In the event distribution of benefits commence to an employed Participant pursuant to Section 7.10 or for any other reason after the employed Participant has attained his Normal Retirement Age, any increase in the Participant's monthly benefit which accrues in any Plan Year in which such distribution is made shall be reduced (but not below zero) by the Actuarial Equivalent of total Plan benefit distributions made to such Participant by the close of such Plan Year.
6.7 Non-Duplication of Benefits
(a) There shall be no duplication of any retirement benefit or deferred vested pension benefit payable under this Plan, and any pension or retirement benefit payable under any other qualified defined benefit pension, retirement, or similar plan to which an Employer or predecessor Employer of the particular Participant has contributed, based upon the same period of service. Unless such other benefits are clearly intended to be in addition to benefits under this Plan, the Administrator shall make or cause to be made appropriate adjustments in the retirement benefit or deferred vested pension benefit payable under this Plan in respect to any Participant to carry out the provisions of this paragraph.
(b) No benefit shall be payable to any Participant under more than one
Section of the Plan for the same period of time. No retirement
benefit or deferred vested pension benefit shall be paid to any
Participant while he is receiving benefits under a long-term
disability benefit contract or plan to which an Employer or
Affiliate has contributed.
6.8 Special Provisions Pertaining to Section 401(a)(17) Employees
Unless otherwise provided under the Plan, the Accrued Pension of each
Section 401(a)(17) Employee (as hereinafter defined) will be the greater
of the Accrued Pension determined for such Employee under (a) or (b)
below:
(a) The Employee's Accrued Pension determined with respect to the benefit formula applicable for the Plan Year beginning on or after December 31, 1994, as applied to the Employee's total years of service taken into account under the Plan for the purpose of benefit accruals; or
(b) The sum of: (i) the Employee's Accrued Pension as of the last day of the last Plan Year beginning before December 31, 1994, frozen in accordance with Section 1.401(a)(4)-13 of the Income Tax Regulations, and (ii) the Employee's Accrued Pension determined under the benefit formula applicable for the Plan Years beginning on and after December 31, 1994, as applied to the Employee's years of service credited for Plan Years beginning on and after December 31, 1994, for purposes of benefit accruals.
A "Section 401(a)(17) Employee" means a Covered Employee whose current Accrued Pension as of a date on or after the first day of the first Plan Year beginning on or after December 31, 1994, is based on Compensation for a year beginning on or after December 31, 1994, that exceeded $150,000.
ARTICLE VII
COMMENCEMENT AND DURATION OF PENSIONS
7.1 Normal and Early Retirement Pensions
Any normal or early retirement pension shall be payable to a retired Participant who has applied therefor in accordance with the rules established by the Administrator, commencing as of the first day of the month next following the date as of which he retires (or, if later, commencing as of the first day of the month next following the date as of which such application was made), and shall be payable monthly for the remaining life of such retired Participant. The last payment to the retired Participant under this form shall be for the month in which the death of such retired Participant occurs. However, if the retired Participant duly accepted the Automatic Surviving Spouse's Pension as set forth in Section 7.5 or elected an optional form of pension in Section 7.7 and is receiving his retirement pension pursuant to such election, then any pension payments to him and his surviving spouse or Beneficiary shall be as set forth in Section 7.5 or 7.7, whichever applicable.
7.2 Disability Retirement Pension
A disability retirement pension shall be payable to a disabled Participant who has applied therefor in accordance with the rules established by the Administrator, commencing as of the Participant's Normal Retirement Date (or, if later, commencing as of the first day of the month next following the date as of which such application was made), provided the Participant has remained continuously disabled (within the meaning of Section 5.3) up to his Normal Retirement Date.
To ascertain whether a Participant retains his eligibility for a disability retirement pension up to his Normal Retirement Date, he may be required by the Administrator to submit to a medical examination at any time prior to age 65, but not more often than semi-annually. If it is determined by the Administrator that he is no longer totally and permanently disabled on the basis of such an examination, or that he has engaged or is engaging in gainful employment (except for purposes of rehabilitation approved by the Administrator), or that prior to age 65 he ceases to be eligible for disability benefits under the Social Security Act, then his eligibility for a disability retirement pension will end and, if reemployed, his Credited Service accumulated to that time shall be reinstated. If such retired Participant is not reemployed by an Employer upon the
termination of such disability, he shall be entitled to such pension as may be available to him under Article V based on his then current age and Credited Service.
In the event a person eligible for a disability retirement pension refuses to submit to a medical examination as required by the Administrator, all his rights to a disability retirement pension hereunder shall cease until he submits to such examination.
Any disability pension shall be payable monthly for the remaining life of
such retired Participant. The last payment to the retired Participant
under this form shall be for the month in which the death of such retired
Participant occurs. However, if the Participant duly accepted the
Automatic Surviving Spouse's Pension as set forth in Section 7.5 or
elected an optional form of pension in Section 7.7 and is receiving his
retirement pension pursuant to such election, then any pension payments to
him and his surviving spouse or Beneficiary shall be as set forth in
Section 7.5 or 7.7, whichever applicable.
7.3 Deferred Vested Pension
A deferred vested pension shall be payable to a Participant who has met the criteria provided in Section 5.4, commencing as of the Participant's Normal Retirement Date (or, if later, commencing as of the first day of the month next following the month proper application is made therefor), or, if the Participant has at least 15 years of Credited Service as of his termination of employment, commencing as of the first day of any month between the ages of 55 and 65 in accordance with an eligible Participant's election to receive a reduced amount under the provisions of Section 6.4. A deferred vested pension shall be payable monthly for the remaining life of the Participant. The last payment to the Participant under this form shall be for the month in which the death of such Participant occurs. However, if the Participant duly elected the Automatic Surviving Spouse's Pension as set forth in Section 7.5 or elected an optional form of pension in Section 7.7 and is receiving his deferred vested pension pursuant to such election, then any pension payments to him and his surviving spouse or Beneficiary shall be as set forth in Section 7.5 or 7.7, whichever applicable.
7.4 Reemployment of a Retired Participant
The pension payable to any Participant receiving retirement benefits or
deferred vested pension benefits shall cease and be permanently withheld
if and when such Participant is reemployed by an Employer; provided,
however, that no pension shall be withheld by the Plan pursuant to this
Section 7.4 for any month during which such reemployed
Participant has been employed in a classification which is not covered under the Plan or during which such Participant fails to complete 40 or more Hours of Service. In addition, no payment shall be withheld by the Plan pursuant to this Section 7.4 unless the Plan notifies the reemployed Participant by personal delivery or first class mail during the first calendar month in which the Plan withholds payments that his benefits are suspended. Such notification shall contain a description of the specific reasons why benefit payments are being suspended, a general description of the Plan provisions relating to the suspension of payments, a copy of such provisions, and a statement to the effect that applicable Department of Labor regulations may be found in Section 2530.203-3 of the Code of Federal Regulations. In addition, the suspension notification shall inform the reemployed Participant of the Company's procedure for affording a review of the suspension of benefits.
The retirement or deferred vested pension shall resume with the month following subsequent retirement or termination of employment. Any retirement or deferred vested pension payable upon such subsequent retirement or termination shall be determined as provided in Article VI on the basis of the Participant's Credited Service at the time of his previous retirement or termination, plus his Credited Service as a Participant during his period of reemployment; provided, however, that such retirement or deferred vested pension shall be reduced by the actuarial equivalent of the retirement or deferred vested pension benefits, if any, that the Participant received prior to his reemployment. Notwithstanding the foregoing, in no event shall a Participant's retirement or deferred vested pension payable following his subsequent retirement or termination be less than that retirement or deferred vested pension payable to the Participant prior to his reemployment. In the determination of the Final Average Earnings of a Participant who is reemployed and who again becomes an active Participant, the thirty-six month period to be considered shall be the number of months in such period of reemployment prior to his subsequent date of retirement or termination, plus such number of months immediately prior to his earlier retirement or termination as shall total thirty-six months; provided that Final Average Earnings shall in no case be diminished as a result of such period of reemployment.
7.5 Automatic Surviving Spouse's Pension
A married Participant who is eligible to commence payments pursuant to the normal, early or disability retirement provisions of the Plan or pursuant to the deferred vested pension provisions of the Plan and whose benefit may not be paid under the provisions
of Section 7.8 shall automatically be deemed to have elected, at the commencement dates otherwise specified herein, an immediate monthly pension during his lifetime with the provision that, following his death, a monthly survivor's pension equal to 50 percent of his reduced pension shall be payable to his surviving spouse during the further lifetime of the spouse (the "Automatic Surviving Spouse's Pension"). Such pension shall be actuarially equivalent to an immediate single life annuity. The automatic election provided in this Section 7.5 shall become effective as of the Participant's Annuity Starting Date; provided, however, that such automatic election shall become effective only after the Participant and his surviving spouse have been married for at least one year.
Notwithstanding the foregoing, if the Participant and his designated spouse have not been married for at least one year as of the Participant's Annuity Starting Date, the Automatic Surviving Spouse's Pension hereunder shall nonetheless take effect, provided that, in the event the Participant and his designated spouse do not remain married for a period of at least one year the Plan shall treat the Participant as not having been married on the Annuity Starting Date with the result that no survivor pension shall be payable to the spouse (absent a Qualified Domestic Relations Order to the contrary) and no retroactive correction shall be made to the benefit payable to the Participant.
An unmarried Participant who retires pursuant to the normal, early or disability retirement provisions of the Plan or pursuant to the deferred vested pension provisions of the Plan and whose benefit may not be paid under the provisions of Section 7.8 shall automatically be deemed to have elected a monthly pension payable for his lifetime.
A Participant may prevent the automatic election provided in this Section 7.5 at any time within the "applicable election period" (as hereafter defined) by executing a specific written rejection of such an election on a form approved by the Administrator and filing it with the Administrator; provided that such rejection shall not take effect unless the Participant's spouse, if applicable, consents to such rejection in accordance with Section 7.6 of the Plan. Any election to revoke the Automatic Surviving Spouse's Pension and any spouse's consent thereto must specify the particular optional form of benefit elected by the Participant and, if applicable, must state the specific non-spouse Beneficiary or Beneficiaries (including any class of Beneficiaries or any contingent Beneficiaries) who may be entitled to any benefits upon the Participant's death. Any subsequent change in optional form of benefit or in a non-spouse Beneficiary selected
shall be valid only if accompanied by the written and witnessed consent of the Participant's spouse in the manner described in Section 7.6.
During the period beginning no more than 90 days and ending no less than 30 days prior to the Participant's Annuity Starting Date, the Administrator shall furnish to the Participant a written general description of the automatic election provided in this Section 7.5. The general description shall include a written explanation of the Participant's and spouse's rights under the Automatic Surviving Spouse's Pension, including the availability and effect of the election to reject the Automatic Surviving Spouse's Pension. Such description shall also provide information as to the material features of the optional forms of benefit as well as a brief explanation of their relative values as compared to the Automatic Surviving Spouse's Pension. In addition, in the event the Participant's Annuity Starting Date is prior to his attainment of Normal Retirement Age, such description shall inform the Participant of his right to defer receipt of the Plan distribution. A Participant may make and revoke his written rejection of an Automatic Surviving Spouse's Option at any time and any number of times within the "applicable election period". The "applicable election period" shall commence 90 days prior to the Participant's Annuity Starting Date and shall end on the Participant's Annuity Starting Date. Notwithstanding the foregoing, effective on and after January 1, 1997, the written description identified in this paragraph may be provided after the Participant's Annuity Starting Date provided the Participant has at least 30 days following distribution of the written description to reject the Automatic Surviving Spouse's Pension and elect another form of payment permitted under the Plan. Distribution to the Participant may commence after seven days have elapsed from the date the Administrator provides the written description provided that the Participant has received information that clearly indicates his right to at least 30 days to consider the contents of the description, the Participant affirmatively elects distribution and any required spousal consent is satisfied.
A Participant who retires pursuant to the normal, early or disability retirement provisions of the Plan or pursuant to the deferred vested pension provisions of the Plan and who is entitled, under such provisions, to a pension with a lump sum actuarial equivalent value not in excess of $5,000 (or for distributions prior to December 31, 2001 was not in excess of $3,500 at the time of that distribution or any prior distribution) shall receive his pension in accordance with Section 7.8 hereof.
7.6 Requirement for Spouse Consent
Any election of a married Participant under Sections 7.5 and 7.7 (other than an election to revoke a rejection of the Automatic Surviving Spouse's Pension under Section 7.5) shall require the consent of the Participant's spouse unless it is established to the satisfaction of the Administrator that the consent required under this Section 7.6 may not be obtained:
(i) because there is no spouse or because the spouse cannot be located,
(ii) because the Participant is legally separated from the spouse,
(iii) because the Participant has been abandoned by his spouse (within the meaning of local law) and such Participant has a court order to that effect, or
(iv) because of such other circumstances as the Secretary of the Treasury may by regulations prescribe.
Any consent by a spouse shall be in writing acknowledging the effect of such election or revocation and witnessed by a notary public or such Plan representatives as may be designated for this purpose by the Administrator. Any spouse's consent (or establishment that the spouse's consent may not be obtained) shall be effective only with respect to such spouse.
7.7 Optional Forms of Pensions
In lieu of a benefit in the form of payment determined in Section 7.5, a Participant may, with the consent of his spouse as described in Section 7.6, elect an actuarially equivalent benefit described below. This election is effective as of a Participant's Annuity Starting Date.
(a) Option A: 10-Year Certain and Life Option - A reduced monthly retirement income is payable to the Participant during his remaining lifetime, and upon his death prior to receiving payment for a period equivalent to 120 months, monthly payments of the same reduced amount will be made to his Beneficiary until the number of monthly payments made to the Beneficiary, when added to the number of monthly payments made to the Participant, is equivalent to 120 monthly payments.
(b) Option B: 15-year Certain and Life Option - A reduced monthly retirement income is payable to the Participant during his remaining lifetime, and upon his death prior to receiving payment for a period equivalent to 180 months, monthly payments of the same reduced amount will be made to his Beneficiary until the number of monthly payments made to the Beneficiary, when added to the
number of monthly payments made to the Participant, is equivalent to 180 monthly payments.
(c) Option C: 50% Joint and Survivor Option - a reduced monthly retirement income is payable to the Participant for his remaining lifetime, and upon his death, monthly income of 50% of such reduced monthly income previously paid to the Participant shall be paid to his Beneficiary for as long thereafter as that person shall live.
(c) Option D: 100% Joint and Survivor Option - a reduced monthly retirement income is payable to the Participant for his remaining lifetime, and upon his death, monthly income of 100% of such reduced monthly income previously paid to the Participant shall be paid to his Beneficiary for as long thereafter as that person shall live.
(e) Option E: Joint and Survivor Pop-Up Option - a reduced monthly retirement income is payable to the Participant for his remaining lifetime, and upon his death, monthly income of either 50% or 100% (as elected by the Participant) of such reduced monthly income previously paid to the Participant shall be paid to the Participant's spouse for as long thereafter as such spouse shall live; provided, however, that in the event the spouse of the Participant predeceases the Participant and such spouse's death occurs within 60 months of the Participant's Annuity Starting Date, the provisions of Section 7.12 shall apply. Notwithstanding any provision of the Plan to the contrary (i) the Joint and Survivor Pop-Up Option shall be available only with respect to a Participant who has retired under the normal retirement provisions of Section 5.1 or the early retirement provisions of Section 5.2, and (ii) actuarial equivalence of a benefit payable under the Joint and Survivor Pop-Up Option shall be determined under Section 11.6; provided, however, that in the event an annuity contract is purchased from an insurance company with respect to such benefit, actuarial equivalence shall thereafter be determined by reference to the specific annuity contract which will be purchased by the Plan to provide the monthly retirement income payable under this form of payment.
Election of these options must be made during the applicable election period described in Section 7.5. Except to the extent otherwise provided under Section 8.4, if either the Participant or his Beneficiary dies after the election of an option is made but before the Annuity Starting Date such option will not become effective. If the Beneficiary shall die after commencement of the joint and survivor pension, but before the death of the retired Participant, the Participant shall continue to receive the reduced pension payable
in accordance with such option. An option may be cancelled by the Participant prior to the Annuity Starting Date. The effect of such cancellation shall be to reinstate the life annuity specified in Section 7.1, 7.2 or 7.3, whichever applicable, or, if the Participant is married, the Automatic Surviving Spouse's Pension under Section 7.5 (in which case any subsequent option election must satisfy the requirements of Section 7.5). Except to the extent expressly permitted under the Plan, no election regarding an optional form of payment may be made by a Participant following the Participant's Annuity Starting Date. If the Beneficiary designated by a Participant in connection with the election of an optional form of benefit is not the spouse of the Participant, then the election shall be effective only if the minimum distribution incidental benefit requirements of Section 1.401(a)(9)-2 of the Income Tax Regulations are satisfied with respect to such distribution.
7.8 Payment of Small Pension
Notwithstanding any provision of the Plan to the contrary, if the actuarial equivalent present value of any retirement benefit, deferred vested pension or survivor benefit does not exceed $5,000 (or for distributions prior to December 31, 2001, did not exceed $3,500 at the time of distribution or any prior distribution), the pension shall be paid as soon as practicable in a lump sum equal to such present value. No lump sum payments shall be made if the actuarial equivalent present value of the benefit is in excess of these thresholds. For determinations made prior to December 31, 1995, the actuarial equivalent present value of a retirement benefit, deferred vested pension or survivor benefit for purposes of this Section 7.8 shall be calculated on the basis of the UP-1984 Table (reflecting a one-year setback for Participants and a two-year setback for Beneficiaries) and the interest rates which would be used (as of the beginning of the month in which the distribution occurs) by the Pension Benefit Guaranty Corporation in determining the present value of a lump sum distribution on plan termination. In no event shall such actuarial equivalent present value be less than that calculated using the same mortality table described above with a 6% interest rate. For determinations made on and after December 31, 1995, the actuarial equivalent present value of a retirement benefit, deferred vested pension or survivor benefit shall be calculated and paid on the basis of the "applicable mortality table" defined in Section 417(e)(3)(A)(ii)(I) of the Code and the annual interest rate on 30-year Treasury securities for the second calendar month preceding the month in which the distribution is payable; provided, however, that in the event the Alternative Present Value (as hereinafter defined) of the applicable benefit is a larger amount, such larger amount shall be paid (provided such Alternative
Present Value calculation does not exceed $5,000 or, for periods prior to December 31, 2001, $3,500). For purposes of this Section 7.8, the "Alternative Present Value" of a retirement benefit, deferred vested pension or survivor benefit shall be based on the Accrued Pension earned by the Participant at the earlier of his termination of employment, or December 30, 1995, determined by using the UP-1984 mortality table (reflecting a one-year setback for Participants and a two-year setback for Beneficiaries) and a 6% interest rate.
The provisions of this Section 7.8 shall likewise apply to any Participant who terminates his employment with an Employer and all Affiliates prior to his completion of such period of Service as is required for a deferred vested pension under the Plan. In such case the terminated Participant shall be deemed to receive a lump sum distribution of the actuarial equivalent present value of his entire vested pension as of his date of termination of employment. Subject to Section 7.9 hereof, a Participant who receives a distribution (or deemed distribution) under this Section 7.8 shall lose his Credited Service (and Service, in the case of a deemed distribution) under the Plan, shall forfeit his nonvested Accrued Pension and shall no longer be considered a Participant hereunder after such date of distribution (or deemed distribution).
7.9 Repayment of Cashout on Reemployment
Notwithstanding any provision of Section 7.8 to the contrary, in the event a Participant described in Section 7.8 receives a distribution described thereunder and is subsequently reemployed by an Employer as a Covered Employee, such Participant's Credited Service and Accrued Pension earned before his termination of employment shall be reinstated for all purposes of the Plan if the Participant repays to the Plan the full amount of his distribution with interest, compounded annually from the date of distribution to December 30, 1988 at the rate of five percent (5%) per annum and from December 31, 1988 to the date of repayment at the rate determined for each Plan Year within such period under Section 411(c)(2)(C) of the Internal Revenue Code. With respect to a former Participant who has been deemed to receive a distribution of his entire vested pension upon his termination of employment in accordance with the second paragraph of Section 7.8, such individual shall be deemed to have repaid such distribution, with interest, as of his date of rehire and such Participant's Service, Credited Service and Accrued Pension earned before his termination of employment shall be reinstated as of such date. For purposes of the foregoing, the period in which the Participant's repayment or deemed repayment must occur shall end on the earlier of
the fifth anniversary of the Participant's reemployment or the date on
which the Participant's Period of Severance extends to five consecutive
years.
7.10 Delay in Commencement of Pension Payments
In no event shall payment of any pension under the provisions of this
Article VII commence as of a date that is later than 60 days after the
close of the Plan Year during which a Participant attains his Normal
Retirement Date or, if later, terminates his employment with an Employer
and Affiliates.
Notwithstanding the foregoing, with respect to a Participant who attains
age 70-1/2 before January 1, 1999 and any Participant who attains age
70-1/2 after January 1, 1999 but who has either terminated employment with
an Employer and all Affiliates prior to attaining such age or is a 5%
owner (for purposes of Section 416 of the Code), distribution of benefits
to the Participant must commence no later than the April 1st of the
calendar year following the calendar year in which the Participant attains
age 70-1/2 unless the Participant had attained age 70-1/2 prior to January
1, 1988. With respect to an employed Participant who attains age 70-1/2 on
or after January 1, 1999, distribution of benefits to the Participant
(other than a 5% owner), must commence no later than the April 1st of the
calendar year following the calendar year in which the Participant
retires. In the case of a Participant who retires in a calendar year after
the calendar year in which he attains 70-1/2 and who has not commenced
payments as of the first day of such later calendar year, the Plan benefit
accrued by the Participant shall be actuarially increased, to the extend
required by regulations, to take into account the period (commencing on
the April 1st of the calendar year following the calendar year in which
the Participant attains 70-1/2 and ending on the date payment commences)
during which the Participant did not receive any benefits under the Plan;
provided, however, that such actuarial increase, to the extent permitted
by regulations, shall reduce the benefit accrual otherwise occurring
during such period.
Notwithstanding any provision of the Plan to the contrary, all
distributions under the Plan shall be made in accordance with regulations
under Section 401(a)(9) of the Code (including Section 1.401(a)(9)-2 of
the Income Tax Regulations). Furthermore, those provisions reflecting
Section 401(a)(9) of the Code (as included here by reference if not
specifically stated) shall override any provision hereof inconsistent with
Section 401(a)(9).
|
7.11 Direct Rollover of Eligible Rollover Distributions.
Notwithstanding any provision of the Plan to the contrary, a Distributee
may elect, subject to provisions adopted by the Administrator which shall
be consistent with income tax regulations, to have any portion of an
Eligible Rollover Distribution paid directly to an Eligible Retirement
Plan specified by the Distributee in a Direct Rollover to such plan. The
Administrator shall notify a Distributee of his right to elect a Direct
Rollover. Such notice shall be provided to the Distributee not less than
30 days before the vested Accrued Pension maintained on behalf of the
Distributee is distributed without the Distributee's affirmative election
to make or not make a Direct Rollover. A Distributee's affirmative
election to make or not make a Direct Rollover may be implemented by the
Administrator less than 30 days after the Distributee receives such notice
of his Direct Rollover rights, but only if the Administrator notifies the
Distributee that he has the right to consider the decision of whether or
not to elect a Direct Rollover for up to 30 days. A Distributee who is
eligible for an automatic lump sum distribution under Section 7.8 and who
has been given a timely notice and explanation of the election to have his
Eligible Rollover Distribution paid to an Eligible Retirement Plan will be
presumed to have elected to have his benefit paid directly to him if the
Distributee fails to make the election within 31 days of being notified of
his rights to make the election. For purposes of this Section:
(a) The term "Distributee" shall mean a Covered Employee or former
Covered Employee. In addition, such an individual's surviving spouse
or such an individual's spouse or former spouse who is an alternate
payee within the meaning of Section 414(p)(8) of the Code are
Distributees with respect to the interest of the spouse or former
spouse.
(b) The term "Eligible Rollover Distribution" shall mean any
distribution of all or any portion of the balance to the credit of
the Distributee other than: any distribution that is one of a series
of substantially equal periodic payments made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee and his beneficiary, or for a
specified period of ten years or more; any distribution to the
extent such distribution is required under Section 401(a)(9) of the
Code; for periods on and after January 1, 1999, that portion of a
hardship withdrawal that is attributable to elective contributions
within the meaning of Section 1.401(k)-1(g) of Income Tax
Regulations; and the portion of any distribution that is not
includible in gross income.
(c) The term "Eligible Retirement Plan" shall mean an individual
retirement account or annuity, as described in Code Sections 408(a)
and 408(b),
35
|
respectively, an annuity plan described in Section 403(a) of the
Code, or a qualified trust described in Section 401(a) of the Code
that accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution to a
surviving spouse, an "Eligible Retirement Plan" is an individual
retirement account or annuity.
(d) The term "Direct Rollover" shall mean a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
7.12 Change to Pension Payments in Connection with Qualifying Event.
(a) In the event an Eligible Retiree (as hereinafter defined)
experiences a Qualifying Event (as hereinafter defined), the
provisions of this Section 7.12 shall apply, provided that the
Eligible Retiree furnishes the Administrator with reasonable notice
of the Qualifying Event within 120 days of the Qualifying Event and
provides such further information applicable hereunder as the
Administrator may reasonably require. For purposes of this Section:
(i) "Eligible Retiree" shall mean a Participant who has retired
under the normal retirement provisions of Section 5.1 or the
early retirement provisions of Section 5.2 and who, as of his
Annuity Starting Date, was either:
(A) legally married and commencing receipt of his retirement
income in the form of an Automatic Surviving Spouse's
Pension (as defined in Section 7.5), under the 100%
Joint and Survivor Option (with his spouse as
Beneficiary thereunder) or, on or after November 1,
1997, under the Joint and Survivor Pop-Up Option; or
(B) unmarried and commencing receipt of his retirement
income in the normal form of benefit provided under
Section 7.1 (a life annuity).
(ii) "Qualifying Event" shall mean an event described in (A), (B)
|
or (C) below:
(A) The spouse of an Eligible Retiree who is receiving retirement income under the Joint and Survivor Pop-Up Option under Section 7.7(e) predeceases the Eligible Retiree and such spouse's death occurs within 60 months of the Eligible Retiree's Annuity Starting Date;
(B) The marital status of an Eligible Retiree who is
receiving retirement income under any of the forms of
payment described in subparagraph (a)(i)(A) of this
Section 7.12 changes on or after September 1, 1997 and
within 120 months of his Annuity Starting Date due to
the Eligible Retiree's divorce, marital dissolution, or
legal separation; or
(C) The marital status of an Eligible Retiree who is described under subparagraph (a)(i)(B) of this Section 7.12 changes on or after September 1, 1997 and within 120 months of his Annuity Starting Date due to the Eligible Retiree's marriage.
(iii) "Qualifying Event Election Period" shall mean the 90-day period beginning on the date on which the Eligible Retiree timely notifies the Administrator of a Qualifying Event, as provided in Section 7.12(a) above.
(iv) The determination of an Eligible Retiree's marital status and the determination of whether a divorce, marital dissolution or legal separation has occurred shall be made on the basis of applicable state law unless preempted by federal law.
(b) Unless the Eligible Retiree timely makes an election under Section 7.12(c), in the event of the occurrence of a Qualifying Event described in subparagraphs (a)(ii)(A) or (a)(ii)(B) of this Section 7.12, and contingent upon the Eligible Retiree's timely notification to the Administrator, the retirement income payable to the affected Eligible Retiree shall revert to the normal form of benefit
provided under Section 7.1 (a life annuity) as of the first day of the month following the expiration of the Qualifying Event Election Period; provided, however, that:
(i) the amount of such monthly life annuity shall be the actuarial equivalent of the Eligible Retiree's benefit, determined as of the time of calculation hereunder, under the form of payment in effect as of his Annuity Starting Date; provided, however, that such monthly amount shall not exceed the amount of the monthly life annuity which the Eligible Retiree was entitled to as of his Annuity Starting Date; and
(ii) in the case of a Qualifying Event described in subparagraph
(a)(ii)(B) of this Section 7.12, the spouse or ex-spouse of
the Eligible Retiree, as part of the division of marital
property (or other determination which is not subject to
modification under state law), expressly waives all interest
in the Eligible Retiree's pension under the Plan and such
waiver is incorporated into a document which satisfies the
formal requirements of a "Qualified Domestic Relations Order"
as defined in Section 414(p) of the Code; and
(iii) in the case of a Qualifying Event described in subparagraph
(a)(ii)(B) of this Section 7.12, the spouse or ex-spouse of
the Eligible Retiree shall secure such proof of insurability
as the Administrator may require, in its discretion; and
(iv) in the case of a Qualifying Event described in subparagraph
(a)(ii)(C) of this Section 7.12, the Eligible Retiree shall
secure such proof of insurability as the Administrator may
require, in its discretion.
(c) In the case of any Qualifying Event and contingent upon the Eligible Retiree's timely notification to the Administrator, the affected Eligible Retiree shall be permitted to elect, within the Qualifying Event Election Period, to receive his
future retirement income from the Plan in any form of payment offered under the Plan; provided, however, that:
(i) payments under any elected form of payment shall commence as of the first day of the month next following the month in which the Eligible Retiree makes full and complete application to the Administrator in accordance with rules established by the Administrator (such commencement date referred to herein as the "Adjusted Commencement Date"); and
(ii) payments under any elected form of payment shall be the actuarial equivalent of the Eligible Retiree's benefit, determined as of the time of calculation hereunder, under the form of payment in effect as of his Annuity Starting Date; provided, however, that such monthly amount shall not exceed the amount of the monthly benefit under the elected form of payment which the Eligible Retiree was entitled to as of his Annuity Starting Date; and
(iii) In the case of a Qualifying Event described in subparagraph
(a)(ii)(B) of this Section 7.12, the spouse or ex-spouse of
the Eligible Retiree, as part of the division of marital
property (or other determination which is not subject to
modification under state law), expressly waives all interest
in the Eligible Retiree's pension under the Plan and such
waiver is incorporated into a document which satisfies the
formal requirements of a "Qualified Domestic Relations Order"
as defined in Section 414(p) of the Code; and
(iv) In the case of a Qualifying Event described in subparagraph
(a)(ii)(B) of this Section 7.12, the spouse or ex-spouse of
the Eligible Retiree shall secure such proof of insurability
as the Administrator may require, in its discretion; and
(v) In the case of a Qualifying Event described in subparagraph
(a)(ii)(C) of this Section 7.12, the Eligible Retiree shall
secure such proof of insurability as the Administrator may
require, in its discretion; and
(vi) The provisions of Sections 7.5 and 7.6 hereof shall apply with respect to any Eligible Retiree who is married as of the Adjusted Commencement Date and, for purposes of such Sections and Section 7.7, the Adjusted Commencement Date shall be deemed the Annuity Starting Date for the elected form of payment described in this Section 7.12(c); and
(vii) In no event shall more than one election be made under this
Section 7.12(c) by an Eligible Retiree with respect to any
single Qualifying Event nor shall any Eligible Retiree be
permitted to make more than two elections under this Section
7.12(c), irrespective of the number of Qualifying Events
affecting such Eligible Retiree; and
(viii) A Participant's status as an Eligible Retiree must be independently satisfied with respect to each Qualifying Event (substituting, where applicable, the Adjusted Commencement Date for the Annuity Starting Date under Section 7.12(a)(i)).
ARTICLE VIII
DEATH BENEFITS
8.1 Death Prior to Retirement or Severance
Upon the death of a Participant prior to his Date of Severance, his surviving spouse, if any, shall receive a monthly surviving spouse's benefit under the assumption that the Participant had retired the day prior to his death with an Accrued Pension under the Plan as determined in accordance with the provisions of subsection 6.2(a), and under the further assumption that the automatic election of a surviving spouse's benefit pursuant to subsection 7.5 was in effect at the time of death. Such surviving spouse benefit shall commence as of the first day of the month following the Participant's death, shall be unreduced for early commencement and shall be payable for the lifetime of the surviving spouse.
For purposes of Sections 8.1, 8.2 and 8.3, the interest that is payable to the Participant's surviving spouse shall be distributed over a period not in excess of the life expectancy of such surviving spouse and shall commence no later than the December 31 of the calendar year in which the Participant would have attained age 65 (or the December 31 of the calendar year immediately following the calendar year of the Participant's death, if later).
8.2 Death Prior to Commencement of Early or Disability Pensions Upon the death of a Participant after his Date of Severance, and prior to his Annuity Starting Date and while the Participant is awaiting the commencement of payment of either: (1) an early retirement pension pursuant to subsection 6.2(a) above, or (2) a disability pension after attainment of age 55 but prior to the attainment of his Normal Retirement Date, his surviving spouse, if any, shall receive a monthly surviving spouse's benefit under the assumption that the Participant had retired the day prior to his death with an Accrued Pension under the Plan as determined in accordance with the provisions of subsection 6.2(a), and under the further assumption that the automatic election of a surviving spouse's benefit pursuant to subsection 7.5 was in effect at the time of death. Such surviving spouse's benefit shall commence as of the first day of the month following the Participant's death unless the surviving spouse elects a later commencement date. Such benefit shall be reduced for early commencement in accordance with the provisions of Section 6.2(b) and shall be payable for the lifetime of the surviving spouse.
Upon the death of a disabled Participant who is awaiting commencement of his pension at his Normal Retirement Date and who is under age 55 at the time of his death, his surviving spouse, if any, shall receive a monthly surviving spouse's benefit determined under the provisions of Section 8.1 assuming he died prior to his Date of Severance.
If a Participant terminates employment when eligible for a disability retirement pension under Section 5.3 and at a time during which he is receiving long term disability benefits under the Erie Insurance Group Long Term Disability Plan, then service to date of death will be included for benefit purposes.
8.3 Death Prior to Commencement of Vested Pensions
If a vested former Participant who has at least one Hour of Service on or after December 31, 1976, and who has been married for at least one year on his date of death, dies on or after August 23, 1984 but prior to his Annuity Starting Date, then his spouse shall be provided with a preretirement survivor annuity determined as follows:
(a) in the case of a Participant who dies after the date on which the
Participant attained his Earliest Retirement Age as though such
Participant had retired on the day before the Participant's date of
death, with an immediate benefit determined under the provisions of
Section 6.2(a) and payable under the Automatic Surviving Spouse's
Pension in Section 7.5 of the Plan, or
(b) in the case of a Participant who dies on or before the date on which the Participant would have attained his Earliest Retirement Age, as though such Participant had:
(i) separated from Service on the date of death,
(ii) survived to his Earliest Retirement Age,
(iii) retired with an immediate benefit determined under the provisions of Section 6.4 and payable under the Automatic Surviving Spouse's Option in Section 7.5 of the Plan at the Earliest Retirement Age, and
(iv) died on the day after the day on which such Participant would have attained the Earliest Retirement Age.
Under this Section 8.3, a monthly surviving spouse's benefit shall commence as of the first day of the month following the later of the month of the Participant's death or the month in which the Participant would have attained his Earliest Retirement Age under the Plan unless the surviving spouse elects a later commencement date (which shall not
be later than the December 31 of the calendar year in which the deceased Participant would have attained age 65). Such surviving spouse's benefit shall be reduced for early commencement in accordance with Section 6.2(b) and shall be payable thereafter for the remainder of the surviving spouse's lifetime.
8.4 Effect of Valid 100% Joint and Survivor Election
Notwithstanding the foregoing, in the event a Participant described in
Section 8.1, 8.2 or 8.3 above has made a valid election of Option D under
Section 7.7 and names his spouse as Beneficiary thereunder, the amount of
the Pre-Retirement Survivor Annuity shall be equal to the reduced monthly
amount which otherwise would have been payable to the Participant as
determined through application of the foregoing provisions of this Article
VIII.
8.5 Death on or After Annuity Starting Date
Upon the death of a Participant on or after his Annuity Starting Date, payments, if any, to a Beneficiary shall be made in accordance with the form of benefit in effect on the date of the Participant's death. If the Beneficiary of the deceased Participant is entitled to receive the remaining certain period payments from the 10-Year or 15-Year Certain and Life forms of payment, the Administrator shall instruct the Trustee to pay to such Beneficiary the actuarial equivalent value of the monthly payments to which the Beneficiary is entitled in a single sum. Actuarial equivalence for this purpose shall be determined under the assumptions set forth in Section 7.8. If the Beneficiary under such form of payment is the surviving spouse of the deceased Participant, then any amounts payable may be converted to an actuarially equivalent life annuity to such spouse provided the spouse requests payment in such form. Notwithstanding the foregoing, in all events the deceased Participant's remaining interest in the Plan shall be distributed at least as rapidly as under the form of distribution in operation as of the date of the Participant's death.
8.6 Death Benefit for Vested Participants Who Terminated After September 1, 1974 and Prior to August 23, 1984
Any vested former Participant who terminated after September 1, 1974 and prior to August 23, 1984 and whose benefits are not in pay status as of August 23, 1984 is to be provided with the right to elect to receive such benefits reduced and payable in the form of a qualified 50% joint and survivor annuity as defined by ERISA and the Internal
Revenue Code as in effect prior to August 23, 1984, including the right to revoke such coverage without spousal consent if such former Participant:
(a) completed at least one Hour of Service under the Plan after September 1, 1974, and
(b) survives to his Annuity Starting Date.
ARTICLE IX
TRUST FUND AND THE TRUSTEE
9.1 Trust Fund
Subject to the provisions of this Section 9.1, the Company shall execute a Trust Agreement with a Trustee (or Trustee) selected by the Company under the terms of which a Trust Fund will be established for the purpose of receiving and holding contributions made by the Company as well as interest and other income on investments of such funds, and for the purpose of paying the pensions and other benefits provided by the Plan and paying any expenses incident to the operation of the Plan or Trust Fund to the extent authorized by the Company. The Trustee is to manage and operate the Trust Fund and to receive, hold, invest and reinvest the funds of the Trust.
The Company shall determine the form and terms of such Trust Agreement, may modify the Trust Agreement from time to time to accomplish the purpose of the Plan, may remove any Trustee and may select any successor trustee. Pensions under the Plan may alternatively be provided through the purchase of annuity contracts issued by an insurance company. In lieu of a Trust Agreement and Trust Fund, the Company may utilize a contract or contracts of insurance for the purpose of receiving and holding contributions made by the Company and for the purpose of paying pensions and other benefits provided by the Plan, and in such event the references hereunder to "Trust Agreement", "Trustee" and "Trust Fund" shall be deemed to be references to "Insurance Contract", "Insurance Carrier" and "Insured Fund" respectively.
9.2 Irrevocability
The Trust Fund shall be used to pay pensions and other benefits as provided in the Plan and, as provided in Section 9.6, those reasonable expenses, taxes and fees incurred in the administration of the Plan and Trust Fund which are not paid directly by the Company. No part of the principal or income of the fund shall be used for or diverted to purposes other than those provided in the Plan and no part of the Trust Fund shall revert to the Company for the benefit of the Company, except as permitted under Sections 9.3, 11.4 and 12.2 hereof.
9.3 Contributions by the Company
The Company will pay to the Trustee, subject to all the other provisions of the Plan, such amounts as its Board determines, authorizes and directs; provided that as a
minimum contribution, the Company intends to pay to the Trustee such amounts as may be necessary to meet the minimum funding standards established under the Employee Retirement Income Security Act of 1974. The Company also intends to pay all expenses incident to the operation of the Plan that are not paid directly from the Trust Fund. Any forfeitures arising from the severance of employment or death of a Participant, or for any other reason, shall be used to reduce the contributions of the Company under the Plan and shall not be applied to increase the pensions or benefits any Participant would otherwise receive under the Plan at any time prior to the termination of the Plan.
Payments made to meet the minimum funding standards established under ERISA shall, to the maximum extent permitted by valid provisions of ERISA, be in complete discharge of the financial obligation of the Company under this Plan. The pension benefits of the Plan shall, subject to valid provisions of ERISA, be only such as can be provided by the assets of the Trust and there shall be no further liability or obligation on any Employer to make any further contributions to the Trust for any reason. Except as prescribed by valid provisions of ERISA, the Company does not guarantee continuity of payment of any benefits under the Plan. The Company does not, in any event, guarantee that its contributions or the Trust Fund will be sufficient to provide the benefits hereunder. All rights of Participants and Beneficiaries, and of any person claiming under any Participant or Beneficiary, shall be enforceable only against the Trust Fund, except as ERISA may otherwise provide.
Notwithstanding any provisions of the Plan to the contrary, each contribution made by the Company shall be conditioned upon the deductibility of the contribution under Section 404 of the Code. If the deduction of all or part of the contribution is disallowed, the contribution shall, to the extent disallowed, be repaid to the Company within one year after the date of disallowance. A contribution also may be repaid to the Company, within one year after the date made, to the extent it exceeded the full funding limitation or otherwise was made in error because of a mistake in fact. Amounts returned under this Section 9.3 shall recognize any net losses attributable to the returned contribution but shall not include any net earnings thereon.
9.4 Contributions By Participants
No Participant shall be required or allowed to make any contribution to the Trust Fund established under the Plan.
9.5 Benefits Payable Only From Trust Fund
Payment of benefits under the Plan to Participants and Beneficiaries will be made only by the Trustee from the funds or securities held by the Trust and/or the annuity contract or contracts held by the Trust. Except as may be provided by law, no liability for the payment of benefits to Participants or their Beneficiaries hereunder shall be imposed upon the Company, any Employer or the officers or shareholders of the Company or any Employer, and there shall be no liability or obligation on the part of the Company or any Employer, to make any further contributions in the event of termination of the Plan.
9.6 Plan Expenses
All reasonable expenses, taxes and fees of the Plan, the Administrator and the Trustee incurred in the administration of the Plan and Trust Fund shall be paid from the Trust Fund; provided, however, that the obligation of the Trust Fund to pay such expenses, taxes and fees shall cease to exist to the extent that the same are paid, at the discretion of the Company, by the Employers.
ARTICLE X
BENEFIT LIMITATIONS
10.1 Maximum Limitation Under Section 415(b) of the Code
Any provisions of the Plan to the contrary notwithstanding, benefits payable under the Plan shall be subject to the following limitations:
(a) Maximum Annual Benefit:
(i) Subject to the exception below, the Annual Benefit (as hereinafter defined) payable under this Plan for any limitation year beginning on or after January 1, 1995 shall not exceed the lesser of the Dollar Maximum of $120,000 or the Percentage Maximum of 100% of the Participant's average compensation for the period of three consecutive years during which the Participant had the greatest aggregate compensation from an Employer. Compensation, in determining a Participant's Percentage Maximum, shall include the total of all amounts paid to a Participant by an Employer during the limitation year which are defined as wages within the meaning of Section 3401(a) of the Code and, for years beginning on and after January 1, 1998, shall include amounts contributed pursuant to a salary reduction election on behalf of the Participant to a plan described in Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b) of the Code and, for periods on and after January 1, 2001, to a plan described in Section 132(f)(4) of the Code. Effective each January 1, the Dollar Maximum described above shall be automatically adjusted to the new dollar limitation for that calendar year as determined by the Secretary of the Treasury pursuant to Section 415(d) of the Code. To the extent permitted under Section 415 of the Code, such adjusted limitation shall be applied to the benefits payable to current retirees for that calendar year.
(ii) For purposes of this Section, "Annual Benefit" means the benefit payable in the form of a straight-life annuity or a qualified joint and survivor pension, with no ancillary benefit, on an annualized basis. If a benefit is payable in any other form, the Annual Benefit limitation shall be applied by adjusting it to the equivalent of a straight-life annuity. Effective for limitation years beginning before January 1, 1995, such actuarially equivalent straight-life annuity shall be computed by using an interest rate equal to the greater of 5% or the Plan's interest rate and
mortality shall be determined by using the Plan's mortality
table. For limitation years beginning on and after January 1,
1995, the actuarially equivalent straight-life annuity is
equal to the greater of (i) the annuity benefit computed using
the Plan's interest rate and mortality tables for adjusting
forms of payment or (ii) the annuity benefit computed using an
interest rate of 5% and the "applicable mortality table" under
Code Section 417(e). In determining the actuarially equivalent
straight-life annuity for a benefit form subject to Code
Section 417(e)(3), the actuarial assumptions used shall be the
"applicable interest rate" and the "applicable mortality
table" under Code Section 417(e). For these purposes, the
lookback month shall be the second month preceding the Plan
Year that includes the Annuity Starting Date.
(iii) For purposes of the maximum limitation of this Article, all
qualified defined benefit plans (whether or not terminated)
maintained by an Employer or any Affiliate shall be treated as
a single plan. For purposes of applying the limitations of
Section 415 of the Internal Revenue Code, the terms "Employer"
and "Affiliate" shall be construed in light of Sections 414(b)
and (c) of the Code, as modified by Code Section 415(h).
(iv) If the Annual Benefit begins before a Participant's Social Security Retirement Age (as hereinafter defined), the Dollar Maximum (but not the Percentage Maximum) shall be actuarially reduced so that it is the actuarial equivalent of an Annual Benefit beginning at the Participant's Social Security Retirement Age:
(A) If a Participant's Social Security Retirement Age is 65, the Dollar Maximum for benefits commencing on or after age 62 is determined by reducing the Dollar Maximum by 5/9 of one percent for each month by which benefits commence before the month in which the Participant attains age 65.
(B) If a Participant's Social Security Retirement Age is greater than 65, the Dollar Maximum for benefits commencing on or after age 62 is determined by reducing the Dollar Maximum by 5/9 of one percent for each of the first 36 months and 5/12 of one percent for each of the additional months (up to 24
months) by which benefits commence before the month of the Participant's Social Security Retirement Age.
For purposes of this Section, the term "Social Security Retirement Age" shall mean the age used as the retirement age of a Participant under Section 216(l) of the Social Security Act, except that such Section shall be applied without regard to the age increase factor and as if the early retirement age under Section 216(l)(2) of such Act were 62.
(v) If the Annual Benefit begins before age 62, the Dollar Maximum (but not the Percentage Maximum) shall be reduced so that it is the actuarial equivalent of the Dollar Maximum beginning at age sixty-two (62). For purposes hereof, the age adjusted Dollar Maximum beginning prior to age 62 shall be determined as the lesser of (i) the actuarial equivalent annual benefit computed using the Plan's interest rate and mortality table for early retirement benefits or (ii) the actuarial equivalent annual benefit computed using an interest rate of 5% and the "applicable mortality table" under Section 417(e) of the Code.
(vi) If the Annual Benefit begins after a Participant's Social Security Retirement Age, the Dollar Maximum (but not the Percentage Maximum) shall be increased so that it is the actuarial equivalent of an Annual Pension beginning at such age. For purposes hereof, the annual benefit beginning after Social Security Retirement Age shall be determined as the lesser of (i) the actuarial equivalent annual benefit computed using the Plan's interest rate and mortality table for the late retirement benefits or (ii) the actuarial equivalent annual benefit computed using an interest rate of 5% and the "applicable mortality table" under Section 417(e) of the Code.
(vii) For purposes of adjusting the Annual Benefit under paragraphs
(i), (ii), (iv), (v) and/or (vi), no adjustments shall be
taken into account before the year for which such adjustment
first takes effect.
(viii) The foregoing Section 415(b)(2)(E) actuarial assumptions shall apply to all benefits under the Plan (including benefits accrued before and after the RPA `94 effective date which shall be the first limitation year beginning on or after January 1, 1995).
(b) Adjustment for Plan Participation
If a Participant retires with less than 10 years of Plan participation, the Dollar Maximum (but not the Percentage Maximum) shall be reduced by multiplying such dollar limitation by a fraction, the numerator of which is the Participant's years of participation in the Plan and the denominator of which is 10.
(c) Adjustment for Years of Service
If a Participant has less than 10 years of Service, the maximum Annual Benefit payable to the Participant shall be reduced by multiplying such maximum Annual Benefit by a fraction, the numerator of which is the Participant's years of Service or part thereof, and the denominator of which is 10.
(d) Exception Benefits
(i) Subject to the limitations of paragraph (a), this Plan may pay an Annual Benefit to any retired Participant which shall exceed 100% of such Participant's average compensation, provided that the Annual Pension shall not be in excess of $10,000 for the current Plan Year and for all prior Plan Years, and provided that the Participant shall not be or have been at any time considered as an active participant in any defined contribution plan maintained by an Employer or an Affiliate.
(ii) In no event shall the adjustments for participation or Service (pursuant to subsections (b) and (c), respectively) reduce the limitation provided in paragraphs (a)(i) or (d)(i) hereof, whichever is applicable, to an amount less than one-tenth (1/10) of the applicable limitation as determined without regard to such adjustments.
(iii) To the extent provided by the Secretary of the Treasury or his delegate, the adjustment for Plan participation described in subsection (b) herein shall be applied separately with respect to each change in the benefit structure of the Plan.
10.2 Defined Benefit Plan and Defined Contribution Plan Combined Limitation
(a) Effective for limitation years beginning before January 1, 2000, in
any case in which a Participant is a participant in both a defined
benefit plan and a defined contribution plan maintained by an
Employer, benefits payable under this Plan and such other plans
shall not cause the limitations prescribed in Internal Revenue Code
Section 415(e) to be exceeded. Except as otherwise provided in
Internal Revenue Code Section 415(e), the sum of the "defined
benefit plan fraction" and the "defined contribution plan fraction"
shall not exceed 1.0.
(b) For the purposes of this Section 10.2:
(i) "defined benefit plan fraction" for any limitation year is a fraction
(A) the numerator of which is the projected Annual Benefit of each Participant under the Plan (determined as of the close of such limitation year), and
(B) the denominator of which is the lesser of:
(1) the product of 1.25 multiplied by the Dollar Maximum set forth in Section 10.1(a)(i) for such year, or
(2) the product of 1.4 multiplied by the Percentage Maximum set forth in Section 10.1(a)(i).
(ii) "defined contribution plan fraction" for any limitation year is a fraction
(A) the numerator of which is the sum of the annual additions under Section 415(c)(2) of the Code to the Participant's account or accounts as of the close of the limitation year, and
(B) the denominator of which is the sum of the lesser of the following amounts determined for such year and for each prior year of Service with an Employer:
(1) the product of 1.25 multiplied by the dollar limitation in effect under Section 415(c)(1)(A) of the Code for such year, or
(2) the product of 1.4 multiplied by the amount which may be taken into account under Section 415(c)(1)(B) of the Code with respect to such Participant under such plan for such year.
(c) For purposes of applying the limitations set forth in this Section 10.2, all qualified defined benefit plans (whether or not terminated) ever maintained by the Company or an Affiliate shall be treated as one defined benefit plan, and all qualified defined contribution plans (whether or not terminated) ever maintained by the Company or an Affiliate shall be treated as one defined contribution plan.
(d) Notwithstanding any other provisions of this Plan, the rate of benefit accrual under this Plan will be reduced to a level necessary to prevent the limitations set forth in this Section 10.2 from being exceeded with respect to any Participant; provided, however, if any Participant's benefit accrual has been reduced as provided in this Section, such reduction shall be restored effective as of the first day of the first limitation year beginning on or after January 1, 2000.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Plan Non-Contractual
No Participant or Beneficiary shall have any right or interest under the Plan unless and until he becomes entitled thereto as provided in the Plan. The adoption and maintenance of the Plan shall not be deemed to constitute a contract between an Employer and any Employee. Inclusion in the Plan will not affect an Employer's right to discharge or otherwise discipline Employees and membership in the Plan will not give any Employee the right to be retained in the service of an Employer nor any right or claim to a pension or other benefit unless such right is specifically granted under the terms of the Plan.
11.2 Non-Alienation of Retirement Rights or Benefits
(a) Except as provided in Section 11.2(b) or 11.2(c), no benefit payable under the Plan shall be subject in any manner to anticipation, sale, transfer, assignment, pledge, encumbrance, security interest or charge, and any action by way of anticipating, alienating, selling, transferring, assigning, pledging, encumbering, charging or granting a security interest in the same shall be void and of no effect; nor shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit.
(b) Section 11.2(a) shall not apply to the creation, assignment, or recognition of a right to any benefit payable pursuant to a qualified domestic relations order as defined in Section 414(p) of the Code. The Company shall establish reasonable procedures to determine the status of domestic relations orders and to administer distributions under such orders which are deemed to be qualified domestic relations orders. Such procedures shall be in writing and shall comply with the provisions of Section 414(p) of the Code. To the extent that, because of a qualified domestic relations order, more than one individual is to be treated as a surviving spouse, the total amount payable from the Plan as a result of the death of a Participant shall not exceed the amount that would be payable from the Plan if there were only one surviving spouse.
(c) Notwithstanding the provisions of Section 11.2(a), the Plan may offset any portion of the Accrued Pension of a Participant or the Participant's Beneficiary against a claim of the Plan arising:
(i) as a result of the Participant's or Beneficiary's conviction of a crime involving the Plan; or
(ii) with regard to the Participant's or Beneficiary's violation of ERISA's fiduciary provisions upon:
(A) the entry of any civil judgment, consent order, or decree against the Participant or Beneficiary; or
(B) the execution of any settlement agreement between the
Participant or Beneficiary and the Department of Labor
or Pension Benefit Guaranty Corporation.
The provisions of this Section 11.2(c) shall apply only to orders,
judgments, decrees and settlements issued or entered into after August 5,
1997, and which expressly provide for such offset.
11.3 Payment of Pension to Others
In the event that the Administrator shall find that any Participant or
Beneficiary to whom a pension is payable, is unable to care for his
affairs because of illness, accident or incapacity, any payment due
(unless prior claim therefor shall have been made by a duly qualified
guardian or other legal representative) may, in the discretion of the
Administrator, be paid to the spouse, parent, child, brother or sister of
such Participant or Beneficiary or to any other person deemed by the
Administrator to be maintaining or responsible for the maintenance of such
Participant or Beneficiary. Any such payment shall be a payment for the
account of the Participant or Beneficiary and shall be a complete
discharge of any liability of the Plan and any Employer therefor.
11.4 Prohibition Against Reversion
Except as provided in Section 9.2 hereof, in no event shall any funds held
in the Trust Fund revert to the Company or be diverted to purposes other
than the exclusive benefit of Participants or their Beneficiaries prior to
the satisfaction of all liabilities under the Plan; provided, however,
that in the event the Plan is terminated, if, after all plan liabilities
are satisfied, there remains a balance in the Fund as a result of
actuarial error, such balance shall be returned to the Company.
11.5 Merger, Transfer of Assets or Liabilities
The Company may merge or consolidate the Plan with, transfer assets and
liabilities of the Plan to, or receive a transfer of assets and
liabilities from, any other plan without the
54
|
consent of any other Employer or other person, if such transfer is
effected in accordance with applicable law and if such other plan meets
the requirements of Code Sections 401(a) and 501(a), permits such transfer
or the receipt of such transfer and, with respect to liabilities to be
transferred from this Plan to such other plan, satisfies the requirements
of Code Sections 411(d)(6) and 417. This Plan may not be merged or
consolidated with any other plan, nor may any assets or liabilities of
this Plan be transferred to any other plan, unless the terms of the
merger, consolidation or transfer are such that each Participant in the
Plan would, if the Plan were terminated immediately after such merger,
consolidation or transfer, receive a pension having a value equal to or
greater than the pension he would have been entitled to receive if this
Plan had terminated immediately prior to the merger, consolidation or
transfer.
11.6 Actuarial Equivalence
Any determination of actuarial equivalence required by the provisions of
this Plan, when not otherwise specified in the Plan, shall be made on the
basis of the UP-1984 Table (reflecting a one year setback for Employees
and a two year setback for Beneficiaries) with an annual interest rate of
6%.
11.7 Change of Vesting Schedule
If the Plan's vesting schedule is amended or if the Plan is deemed amended
by an automatic change to or from a Top-Heavy Plan vesting schedule
(Section 13.3), each Participant with at least three years of Service with
an Employer may elect, within a reasonable period after the adoption of
the amendment or change, to have his nonforfeitable pension computed under
the Plan without regard to such amendment or change.
The period during which the election may be made shall commence at the
date the amendment is adopted or 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
(c) 60 days after the Participant is issued written notice of the amendment by the Company.
Notwithstanding the foregoing provisions of this Section 11.7, the vested interest of any Participant on the date such amendment is effective shall not be less than his vested interest under the Plan as in effect immediately prior to the effective date of such change.
11.8 Controlled Group
For purposes only of determining eligibility to participate in the Plan
and eligibility for any pension (but not the amount thereof) under the
Plan, all employment with an Employer or an Affiliate shall be deemed to
be employment with an Employer in computing Hours of Service and Service.
11.9 Severability
If any provision of this Plan is held to be invalid or unenforceable, such
determination shall not affect the other provisions of this Plan. In such
event, this Plan shall be construed and enforced as if such provision had
not been included herein.
|
11.10 Employer Records
The records of a Participant's Employer shall be presumed to be conclusive of the facts concerning his employment or non-employment, Service, Credited Service and Compensation unless shown beyond a reasonable doubt to be incorrect.
11.11 Application of Plan Provisions
This Plan shall be binding on all Participants and their spouses and Beneficiaries and upon heirs, executors, administrators, successors, and assigns of all persons having an interest herein. The provisions of the Plan in no event shall be considered as giving any such person any legal or equitable right against the Company, an Employer or an Affiliate, any of its officers, employees, directors, or shareholders, or against the Trustee, except such rights as are specifically provided for in the Plan or hereafter created in accordance with the terms of the Plan.
11.12 Missing Participants.
If a Participant who has left employment with the Company and Affiliates has failed to file an application for benefits within 120 days after attainment of his Normal Retirement Date, the Administrator shall treat the Participant's retirement benefit or vested Accrued Pension as forfeited; provided, however, that such Accrued Pension shall be reinstated retroactive to the commencement date set forth below upon the subsequent filing of a completed application with the Administrator and shall commence within ninety (90) days after such application is filed. For purposes of this Section 11.12, the commencement date shall be the later of:
(a) sixty (60) days after the close of the Plan Year during which the Participant attained his Normal Retirement Date; and
(b) sixty (60) days after the close of the Plan Year during which the Participant terminated employment with the Hospital or Affiliate.
11.13 IRC 414(u) Compliance Provision
Notwithstanding any provision of the Plan to the contrary and effective as
of December 12, 1994, contributions, benefits and service credit with
respect to qualified military service shall be provided in accordance with
Section 414(u) of the Code.
ARTICLE XII
AMENDMENT AND TERMINATION
12.1 Amendment and Termination of the Plan
The Company hopes and expects to continue the Plan, but expressly reserves
the right at any time and from time to time, without the consent of
Participants,
|
(a) to reduce or discontinue payments to the Plan;
(b) to terminate the Plan;
(c) to amend the Plan, retroactively or otherwise, in such manner as it may deem necessary or advisable in order to qualify the Plan and any trust established in conjunction therewith under the provisions of Sections 401(a) and 501(a) of the Code, or any similar Code provisions from time to time in effect;
(d) to amend the Plan in any other respect, provided, however, that no
such amendment shall forfeit or diminish the interest of any
Participant in the Trust Fund to the extent that such interest has
become vested in such Participant, except as may be permitted under
the Code or ERISA.
Any such amendment to or termination of this Plan shall be evidenced by an
instrument executed on behalf of the Company by the President. Such
instrument shall recite at which time the amendments contained therein
shall become effective.
Promptly after an amendment of this Plan shall have become effective, the
Company shall cause a copy of such amendment to be filed with the
Administrator and with the Trustee, and the Administrator shall take such
steps as it may deem appropriate to reasonably communicate the amendment
to Participants.
12.2 Administration of the Plan in Case of Termination
Upon termination of the Plan, as determined by the Pension Benefit
Guaranty Corporation, the assets of the Trust Fund shall be liquidated and
distributed in accordance with Section 4044 of ERISA and applicable
regulations issued thereunder. In the event of the termination of the Plan
or a partial termination of the Plan, the rights of all affected
Participants to Accrued Pensions determined as of the date of such
termination or partial termination, to the extent funded, or as further
adjusted by the Pension Benefit Guaranty Corporation as of such date,
shall be nonforfeitable. Notwithstanding the foregoing, upon Plan
termination, the benefit of any Highly Compensated Employee shall be
limited to a benefit that is nondiscriminatory under Section 401(a)(4) of
the Code.
|
Upon termination of the Plan, after the satisfaction of all liabilities of the Plan to its Participants, Beneficiaries and surviving spouses, the Company shall receive any remaining amount resulting from any variations between actual requirements and actuarially expected requirements.
12.3 Internal Revenue Service Limitations
(a) Except in such cases where the circumstances described in subsection
(b) apply, the annual payments under the Plan to any one (1) of the
twenty-five (25) highest paid Highly Compensated Employees (and
Highly Compensated former Employees), ranked by Test Compensation,
shall not exceed the sum of:
(i) those payments that would be made on behalf of such Employee under a single life annuity that is the Actuarial Equivalent of the sum of the Employee's Accrued Pension and the Employee's Other Benefits (as defined in subsection (c) below) under the Plan; and
(ii) those payments the Employee is entitled to receive under a social security supplement.
(b) The provisions of subsection (a) above shall not apply if:
(i) after payment of all such benefits to an Employee described in
subsection (a), the value of Plan assets equals or exceeds
110% of the value of current liabilities (as defined in Code
Section 412(l)(7) under the Plan;
(ii) the value of all such benefits to an Employee described in subsection (a) above is less than one percent of the value of current liabilities under the Plan prior to the payment of all such benefits to such Employee; or
(iii) the value of all such benefits to an Employee described in subsection (a) does not exceed $5,000 or such other amount as may be prescribed under Section 411(a)(11)(A) of the Code as the maximum amount that may be paid out without the Participant's consent.
(c) For purposes of this Section 12.3, "Other Benefits" shall include
any loan in excess of the amounts set forth in Code Section
72(p)(2)(A), any periodic income, any withdrawal values payable to a
living Employee and any death benefits not provided for by insurance
on the Employee's life. "Other Benefits" for this purpose shall not
include any social security supplements.
ARTICLE XIII
TOP-HEAVY PROVISIONS
13.1 General
Notwithstanding any provision of this Plan to the contrary, the provisions
of this Article XIII shall apply with respect to any Plan Year provided
the Plan is a Top-Heavy Plan (as defined in Section 13.2(c) below) for
such Plan Year.
13.2 Definitions Relating to Top-Heavy Provisions
For purposes of this Article XIII:
(a) "Key Employee" means any Employee or former Employee (and the
beneficiaries of such an Employee or former Employee) who, during
the current Plan Year or any of the four preceding Plan Years, is:
(i) an officer of an Employer having annual Test Compensation
greater than 50 percent of the amount in effect under Section
415(b)(1)(A) of the Code for any such Plan Year; for purposes
of this definition, no more than the lesser of (1) 50
Employees or (2) the greater of three Employees or 10% of the
Employees shall be treated as officers;
(ii) an owner (or considered an owner under Section 318 of the
Code) of one of the ten largest interests in an Employer if
such individual's annual Test Compensation exceeds the dollar
limitation under Section 415(c)(1)(A) of the Code;
(iii) a five percent (5%) owner (or considered an owner under
Section 318 of the Code) who owns more than five percent (5%)
of the outstanding stock of an Employer or who owns Employer
stock possessing more than five percent (5%) of the total
combined voting power of all stock of an Employer;
(iv) a one percent (1%) owner (or considered an owner under Section
318 of the Code) who has annual Test Compensation from an
Employer of $150,000 or more, and who owns more than one
percent (1%) of the outstanding stock of an Employer or who
owns Employer stock possessing more than one percent (1%) of
the total combined voting power of all stock of an Employer.
(b) "Determination Date" means, with respect to any Plan Year, the last
day of the immediately preceding Plan Year.
|
(c) "Top-Heavy Plan" means a plan where, as of the Determination Date, the present value of the cumulative accrued benefits (including any part of any accrued benefit distributed in the five-year period ending on the Determination Date) under the Plan for Key Employees exceeds sixty percent (60%) of the present value of the cumulative accrued benefits (including any part of any accrued benefit distributed in the five-year period ending on the Determination Date) under the Plan for all Employees.
(i) If this Plan is in a Required Aggregation Group, each Plan of an Employer required to be in such group will be a Top-Heavy Plan if such group is a Top-Heavy Group.
(ii) If this Plan is in a Permissive Aggregation Group which is not a Top-Heavy Group, no Plan of an Employer in such group will be a Top-Heavy Plan.
(d) "Required Aggregation Group" means:
(i) each plan of an Employer in which a Key Employee is a participant, and
(ii) each other plan of an Employer which enables a plan in which a Key Employee is a participant to meet the requirements of Internal Revenue Code Sections 401(a)(4) or 410. A terminated plan must be aggregated with other plans of an Employer if it was maintained within the five-year period ending on the Determination Date for the Plan Year in question and it would, but for the fact it terminated, be part of a required aggregation group for such Plan Year.
(e) "Permissive Aggregation Group" means any plan of an Employer which is not part of the Required Aggregation Group, but is treated as if it were at the option of the Company, provided such group continues to meet the requirements of Internal Revenue Code Sections 401(a)(4) and 410.
(f) "Top-Heavy Group" means any Required or Permissive Aggregation Group, if as of the Determination Date, the sum of the present value of cumulative accrued benefits for Key Employees under all defined benefit plans included in such Group and the aggregate of the accounts of Key Employees under all defined contribution plans included in such Group exceeds sixty percent (60%) of the similar sum determined for all Employees.
(g) "Present Value of Accrued Benefits" shall be determined as of the most recent valuation date within a twelve-month period ending on the Determination Date,
but for the purposes of determining whether this Plan is a Top-Heavy Plan, shall not include:
(i) any rollover contribution initiated by the Employee.
(ii) any accrued benefit or account attributable to an Employee who is not a Key Employee, but who was a Key Employee in any prior Plan Year. To the extent that a Key Employee is deemed to be a Key Employee if he meets the definition of Key Employee within any of the four (4) preceding Plan Years, this provision shall apply following the end of such period of time.
(iii) Any accrued benefit or account attributable to any individual who has not performed any services for an Employer at any time during the five-year period ending on the Determination Date.
Solely for purposes of determining if the Plan is a Top Heavy Plan as described above, the Present Value of Accrued Benefits shall be determined by using the single accrual method which is used for all plans of the Company and of any Affiliate. If no such single method exists, benefits shall be determined as if they accrued not more rapidly than the lowest accrued rate permitted under Section 411(b)(1)(C) of the Code.
(h) "Valuation Date" means December 31.
(i) "Non-Key Employee" means any Employee who is not a Key Employee.
13.3 Top-Heavy Plan Vesting Requirements
(a) For any Plan Year in which the Plan is a Top-Heavy Plan, the following vesting schedule will apply to benefits derived from Employer contributions. The nonforfeitable interest in a Participant's accrued benefit will be determined as follows:
Nonforfeitable Percentage of
Years of Service Accrued Benefit
----------------- ----------------------------
0 but less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 or more 100%
|
This Section 13.3 does not apply to any Participant who does not have an Hour of Service after the Plan becomes a Top-Heavy Plan.
(b) If the vesting schedule under the Plan shifts in or out of the above schedule due to determination of whether or not the Plan is a Top-Heavy Plan, such shift shall be an amendment to the vesting schedule and Section 11.7 shall apply.
13.4 Top-Heavy Plan Minimum Benefit Requirements
(a) For any Plan Year in which the Plan is determined to be a Top-Heavy Plan, each Non-Key Employee Participant who has completed a year of service will accrue a minimum annual benefit (derived from Employer contributions and expressed as a life annuity beginning at Normal Retirement Age and determined without regard to any Social Security contribution or benefit).
(b) Such accrual of a minimum annual benefit will be the lesser of:
(i) Two percent (2%) of the Participant's highest average compensation for the five consecutive years during which the Participant had the greatest compensation from the Employer multiplied by the years of service as defined in (c) below, or
(ii) Twenty percent (20%) times the Participant's highest average compensation for the five consecutive years during which the Participant had the greatest compensation from an Employer.
(c) (i) For the purpose of the accrual of minimum annual benefit, year of service shall mean a year of Credited Service as defined in Article IV, but will exclude years when the Plan was not a Top-Heavy Plan for any Plan Year ending during such year of Credited Service, as well as years of Credited Service in a Plan Year beginning before December 31, 1984. Notwithstanding the above, each Non-Key Employee Participant who has completed 1,000 Hours of Service in a year in which the Plan is a Top-Heavy Plan shall be entitled to the minimum annual benefit regardless of the level of such Non-Key Employee's compensation.
(ii) The compensation required to be taken into account for
purposes of this Section 13.4 is the compensation described in
Section 10.1(a)(i) of the Plan; provided, however, that
compensation shall not exceed the adjusted annual limitation
in effect for the given year (as set forth in Section 2.11)
and compensation in years which end in a Plan Year beginning
before December 31, 1984 and compensation in years after the
close of the last Plan Year in which the Plan is a Top-Heavy
Plan shall be disregarded.
(d) Notwithstanding any other provision of the Plan, an Employee shall be a Participant for the purposes of this Section 13.4, and a Participant shall be entitled to an accrual under this Section 13.4, even if he would not otherwise be entitled to receive an accrual or would have received a lesser accrual for the year because the Non-Key Employee Participant is not employed on a specified date.
(e) If the annual retirement pension payable under the Plan to a Participant who has accrued a minimum annual benefit under this Article XIII commences at a date other than at Normal Retirement Age, such Participant shall receive at least an amount that is the actuarial equivalent of the minimum annual benefit commencing at Normal Retirement Age as provided under this Section 13.4 using a five percent (5%) interest rate assumption for such determination. If the annual retirement pension payable to a Participant who has accrued a minimum annual benefit under this Article XIII is in a form other than a single life annuity, such Participant shall receive an amount that is not less than the minimum annual benefit as otherwise provided in this Section 13.4 adjusted to be the actuarial equivalent of a single life annuity commencing at the same age using the provisions of Section 11.6 of the Plan for such determination.
(f) In the case of Employees covered under both this Plan and any other
plan maintained by an Employer, this Plan will provide the top heavy
minimum benefit which shall be offset by the benefit, if any,
provided under such other plans.
13.5 Required Adjustments
In any year which begins before January 1, 2000 and in which the Plan is
determined to be a Top-Heavy Plan, either (a) or (b) below must apply.
(a) The defined benefit plan fraction of Section 10.2(b)(i) of the Plan
and the defined contribution plan fraction of Section 10.2(b)(ii) of
the Plan shall be applied by substituting 1.0 for 1.25, OR
(b) (i) This paragraph may apply if this is determined to be a
Top-Heavy Plan, but would not be a Top-Heavy Plan if ninety
percent (90%) were substituted for sixty percent (60%) in
Section 13.2(c) of this Plan, and
(ii) The following modifications to Section 13.4, Minimum Benefit
|
Requirements, are adopted:
In Section 13.4(b)(i): use 3% instead of 2%, and in Section
13.4(b)(ii): increase 20% by one percentage point for each
year (up to 10) for which the Plan was considered under this
Section 13.5.
13.6 Limited Application of this Article.
The sole purpose of this Article is to comply with Section 416 of the Code
and the terms of this Article shall be interpreted, applied, and if and to
the extent necessary, shall be deemed modified so as to satisfy solely the
minimum requirements of Section 416 of the Code and the regulations
promulgated with respect thereto.
|
ARTICLE XIV
JURISDICTION
14.1 Jurisdiction
The provisions of the Plan shall be construed in accordance with ERISA,
the Code, and, where not superseded by ERISA, the laws of the Commonwealth
of Pennsylvania.
|
Executed at Erie, Pennsylvania, this 10th day of December, 2001.
ERIE INDEMNITY COMPANY
By: /s/ Stephen A. Milne
---------------------
President
|
EXHIBIT 10.6 - DEFERRED COMPENSATION PLAN
OF ERIE INDEMNITY COMPANY
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 2001)
ARTICLE ONE
INTRODUCTION
This Deferred Compensation Plan (the "Plan") is an unfunded, non-qualified, deferred compensation arrangement created for a select group of management and highly compensated employees of the Company and its Affiliates.
The Plan has been amended from time to time and was last amended and restated effective January 1, 1997.
Effective as of December 31, 2000, the Supplemental 401(k) Plan has been merged into the Plan. Deferred compensation credited on behalf of eligible employees under the Supplemental 401(k) Plan shall be credited under the Plan effective January 1, 2001 and shall be payable under the terms of the Plan as in effect on the date payments are to commence hereunder.
This amendment and restatement of the Plan shall constitute an amendment, restatement and continuation of the Plan and the Supplemental 401(k) Plan. This amendment and restatement is generally effective as of January 1, 2001. However, certain provisions of this amendment and restatement are effective as of some other date. The provisions of this amendment and restatement with stated effective dates prior to January 1, 2001, shall be deemed to amend the corresponding provisions, if any, of the Plan or the Supplemental 401(k) Plan as in effect before this amendment and restatement and all amendments thereto as of such dates. Events occurring before the applicable effective date of any provision of this amendment and restatement shall be governed by the applicable provision of the Plan or the Supplemental 401(k) Plan as in effect on the date of the event.
ARTICLE TWO
DEFINITIONS
The following words or phrases are defined terms whenever they appear in the Plan:
2.1 "Administrator" shall mean the person or committee, appointed by the Chief Executive Officer of the Company, who shall be responsible for the functions assigned to him under the Plan.
2.2 "Affiliate" shall mean a corporation or partnership in which more than 50% of the equity is owned directly or indirectly by the Company including, without limitation, the following: Erie Family Life Insurance Company, Erie Insurance Company, EI Holding Corp., EI Service Corp., Erie Insurance Company of New York, Erie Insurance Property & Casualty Company and Flagship City Insurance Company.
2.3 "Amendment Form" shall mean the Deferred Compensation Agreement Amendment Form described in Section 5.3.
2.4 "Board of Directors" shall mean the Board of Directors of the Erie Indemnity Company.
2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.6 "Committee" shall mean the Executive Compensation Committee of the Board of Directors or its successor as designated by the Board of Directors.
2.7 "Company" shall mean the Erie Indemnity Company, a Pennsylvania business corporation.
2.8 "Compensation" shall mean "Compensation" as defined under the Qualified Plan provided, however, that for purposes of the Plan, any limitation on recognized Compensation under Section 401(a)(17) of the Code shall be ignored. Except as otherwise specified by the Board of Directors, any change in the definition of Compensation under the Qualified Plan (other than a change related to Section 401(a)(17) of the Code) shall automatically be considered a change to the Plan, effective as of the effective date of change under the Qualified Plan, and the Plan shall thereafter be administered in accordance with such change.
2.9 "Deferred Compensation Account" shall mean the bookkeeping account described in Section 4.1.
2.10 "Election Form" shall mean the Deferred Compensation Plan Election Form described in Section 3.2 and/or such form described in Section 3.3.
2.11 "Participant" shall mean each employee of the Company or an Affiliate who participates in the Plan in accordance with the terms and conditions of the Plan.
2.12 "Plan" shall mean the Deferred Compensation Plan of Erie Indemnity Company, as the same incorporates, for periods on and after January 1, 2001, the Erie Insurance Group Supplemental 401(k) Plan, including any amendments hereto.
2.13 "Plan Year" shall mean the plan year applicable under the Qualified Plan. Any change in plan year under the Qualified Plan shall automatically be considered a change to the Plan, effective as of the effective date of change under the Qualified Plan.
2.14 "Qualified Plan" shall mean the Erie Insurance Group Employee Savings Plan, as amended.
2.15 "Supplemental Company Contribution" shall mean the contribution credit described in Section 4.3(b) and determined in reference to a formula set forth in the Qualified Plan. Except as otherwise specified by the Board of Directors, any change in the employer matching contribution formula under the Qualified Plan shall automatically be considered a change to the Plan, effective as of the effective date of change under the Qualified Plan, and the Plan shall thereafter be administered in accordance with such change.
2.16 "Supplemental Employee Contribution" shall mean the contribution credit described in Section 4.3(a) and determined in reference to a formula set forth in the Qualified Plan. Except as otherwise specified by the Board of Directors, any change in the elective contribution formula under the Qualified Plan shall automatically be considered a change to the Plan, effective as of the effective date of change under the Qualified Plan, and the Plan shall thereafter be administered in accordance with such change.
2.17 "Supplemental 401(k) Plan" shall mean the Erie Insurance Group Supplemental
401(k) Plan, as amended. Effective as of December 31, 2000, the Supplemental
401(k) Plan has been merged into, and continued under, the Plan.
2.18 "Valuation Date" shall mean the close of business as of each business day.
ARTICLE THREE
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY
The individuals who are eligible to participate in the Plan are those employees selected by the Committee. The Committee shall make its selection of employees eligible to participate at a meeting held at least 30 days before January 1 of the year next beginning or at such special meetings called for the purpose of determining the eligibility of new employees hired by the Company or its Affiliates.
The Committee, in its sole discretion, shall determine to what extent an
employee shall be eligible to participate under the provisions of Section 4.2
and/or Section 4.3 hereof. Except as otherwise provided by the Committee, an
employee who has been selected by the Committee as eligible to participate under
Section 4.2 and/or Section 4.3 of the Plan shall continue such eligibility from
year to year of his employment with the Company or Affiliate, regardless of
whether the employee elects to participate or not, unless the Committee, in its
discretion, terminates all or part of that employee's eligibility. Acting in its
sole discretion, the Committee may divide eligible employees into groups and
specify different Plan features (such as maximum levels of participation) for
each group.
3.2 PARTICIPATION UNDER DEFERRED COMPENSATION PROVISIONS
An employee who is eligible under the provisions of Section 3.1 to participate under the provisions of Section 4.2 may elect to participate, alter the extent of his participation, or suspend or terminate his participation by delivering a properly completed and executed Election Form to the Administrator. This form shall specify:
a) The amount of annual salary to be deferred and/or the amount of any bonus to be deferred;
b) The Participant's investment designation in accordance with Section 4.5;
c) The method by which the amounts credited to his Deferred Compensation Account are to be paid;
d) The date at which payment of the amounts credited to his Deferred Compensation Account is to occur (in the event of a lump sum distribution) or commence (in the event of a form of distribution other than a lump sum); and
e) The beneficiary designated by the Participant to receive payment of the amounts credited to his Deferred Compensation Account in the event the Participant dies before distribution of the amounts credited to his Deferred Compensation Account is completed.
The election under paragraph (a) shall be irrevocable with respect to the
calendar year to which it applies. The election under paragraph (b) may be
changed as provided in Section 4.5 and shall be subject to the provisions of
Section 3.4. The elections under paragraphs (c) and (d) shall be irrevocable
except as provided in Section 5.3 hereof and shall be subject to the provisions
of Section 3.4. The election under paragraph (e) may be changed by the
Participant at any time by delivering a new designation of beneficiary to the
Administrator, on such form or forms as may be satisfactory to the
Administrator. A designation of beneficiary shall be subject to the provisions
of Section 3.4. A Participant's beneficiary designation shall be considered
revoked in the event that the primary beneficiary and all contingent
beneficiaries selected by a Participant die prior to the Participant.
3.3 PARTICIPATION UNDER SUPPLEMENTAL 401(k) PROVISIONS
Effective January 1, 2001, an employee who is eligible under the provisions of
Section 3.1 to participate under the provisions of Section 4.3 may elect to
participate, alter the extent of his participation, or suspend or terminate his
participation by delivering a properly completed and executed Election Form to
the Administrator. This form shall specify:
a) The amount of his future Compensation to be deferred;
b) The Participant's investment designation in accordance with Section 4.5;
c) The method by which amounts credited to his Deferred Compensation Account are to be paid;
d) The date at which payment of the amounts credited to his Deferred Compensation Account is to occur (in the event of a lump sum distribution) or commence (in the event of a form of distribution other than a lump sum); and
e) The beneficiary designated by the Participant to receive payment of the amounts credited to his Deferred Compensation Account in the event the Participant dies before distribution of the amounts credited to his Deferred Compensation Account is completed.
The election under paragraph (a) shall be irrevocable with respect to the
calendar year to which it applies. The election under paragraph (b) may be
changed as provided in Section 4.5 and shall be subject to the provisions of
Section 3.4. The elections under paragraphs (c) and (d) shall be irrevocable
except as provided in Section 5.3 hereof and shall be subject to the provisions
of Section 3.4. The election under paragraph (e) may be changed by the
Participant at any time by delivering a new designation of beneficiary to the
Administrator, on such form or forms as may be satisfactory to the
Administrator. A designation of beneficiary shall be subject to the provisions
of Section 3.4. A Participant's beneficiary designation shall be considered
revoked in the event that the primary beneficiary and all contingent
beneficiaries selected by a Participant die prior to the Participant.
3.4 COORDINATION OF ELECTIONS
Notwithstanding any provision of this Article Three to the contrary, an employee who is eligible to participate under the provisions of Sections 4.2 and 4.3 and who elects to participate under both Sections shall be required to coordinate and combine certain elections (stated below) into a single election that shall be applicable both to salary and/or bonuses deferred under Section 4.2 and Compensation deferred under Section 4.3. The elections that shall be coordinated into a single election under this Section 3.4 are:
a) A Participant's investment designation described in Sections 3.2(b) and 3.3(b);
b) A Participant's method of payment election described in Sections 3.2(c) and 3.3(c);
c) A Participant's election regarding the time payment is made or commences, as described in Sections 3.2(d) and 3.3(d); and
d) A Participant's beneficiary designation described in Sections 3.2(e) and 3.3(e).
The effective date of this Section 3.4 with respect to any Participant shall be the effective date of the Participant's initial deferral under Section 4.2 or his initial deferral under Section 4.3, whichever is later.
3.5 EFFECTIVE DATE FOR PARTICIPATION
The effective date for participation in the Plan by an employee who is eligible shall be the first day of the calendar year next beginning after the date the Administrator receives the employee's Election Form. The effective date for participation in the Plan by a newly hired employee who is eligible shall be the date that he begins active employment with the Company or an Affiliate as long as the Administrator has received the employee's Election Form prior to this date. The deferral of a Participant's salary under Section 4.2 and/or the deferral of a Participant's Compensation under Section 4.3 shall begin or end, as appropriate, as of the first day of the full pay period coincident with or next following the effective date of his participation as described in this paragraph. The deferral of any Participant bonus under Section 4.2 shall be effective as of the date such bonus would otherwise be payable to the Participant.
ARTICLE FOUR
COMPENSATION DEFERRED
4.1 DEFERRED COMPENSATION ACCOUNT
A deferred compensation account shall be established for each employee who becomes a Participant in the Plan. Effective January 1, 2001, the compensation each Participant elects to defer under Section 4.2 and/or any Supplemental Employee Contributions and Supplemental Company Contributions under Section 4.3 as well as hypothetical interest earned on such deferred compensation shall be maintained in this "Deferred Compensation Account." This Deferred Compensation Account shall be kept only for bookkeeping and accounting purposes and no Company funds shall be transferred or designated to this account.
Effective as of December 31, 2000, the separate accounts maintained on behalf of a Participant under the Supplemental 401(k) Plan shall be merged into the Deferred Compensation Account hereunder. Any election made with respect to such separate accounts that is in effect as of December 31, 2000 shall be deemed to apply to the entire balance of the Participant's Deferred Compensation Account on or after January 1, 2001 unless the Participant has previously made a valid election applicable to the Deferred Compensation Account maintained on his behalf and such election remains in effect as of January 1, 2001. A Participant may choose to change or amend elections applicable to Deferred Compensation Accounts in the manner provided in Sections 4.5 and 5.3.
4.2 AMOUNT OF SALARY/BONUS DEFERRAL
An employee who is eligible to participate under the provisions of this Section
4.2 may elect to defer receipt of up to 25% of his annual salary for services as
an employee of the Company or an Affiliate. In addition to, or in lieu of, a
deferral of annual salary, a Participant may elect to defer receipt of up to
100% of any bonus to be payable by the Company or an Affiliate. Such elections
shall be made by the end of the calendar year which precedes the calendar year
in which the deferral election is effective. Compensation deferred under this
Section 4.2 shall be credited to the Participant's Deferred Compensation Account
on the date such compensation would otherwise have been payable to the
Participant.
4.3 AMOUNT OF SUPPLEMENTAL 401(k) CONTRIBUTIONS
a) Effective January 1, 2001 an employee who is eligible to participate under the provisions of this Section 4.3 may elect to have Supplemental Employee Contributions made to the Plan on his behalf. An eligible employee shall elect to participate in the Plan within such time and in accordance with such means as are designated by the Administrator. The amount of Supplemental Employee Contribution credited hereunder with respect to a participating employee for any given year shall be determined by the Administrator, in its discretion, and shall be in reference to the amount by which the elective contributions made on behalf of such employee for such year under the Qualified Plan is limited by the application of Section 402(g) of the Code.
b) Effective January 1, 2001, in the event that the allocation of employer matching contributions under the Qualified Plan on behalf of a Participant is limited for any given Plan Year due to the limitation on elective contributions made on such Participant's behalf under the Qualified Plan under Section 402(g) of the Code, the amount by which such employer matching contributions are limited shall be determined by the Administrator, in its discretion, and such amount shall be credited under the Plan as a matching contribution on Supplemental Employee Contributions and shall be designated as Supplemental Company Contributions.
c) Compensation deferred under this Section 4.3 shall be credited to the Participant's Deferred Compensation Account as of the date such compensation would otherwise have been treated as a contribution allocation under the Qualified Plan.
4.4 HYPOTHETICAL INTEREST
Deferred compensation is assumed to earn interest and this hypothetical interest shall be credited as of each Valuation Date on the amount shown in each Participant's Deferred Compensation Account on such Valuation Date in accordance with the valuation procedure adopted by the Administrator. The hypothetical interest to be credited to each Participant shall be determined by the Administrator and computed in reference to the appreciation or depreciation experienced since the immediately preceding Valuation Date by the hypothetical investment funds which the Administrator may offer to Participants under Section 4.5.
The crediting of hypothetical interest shall occur so long as there is a balance in the Participant's Deferred Compensation Account regardless of whether the Participant has terminated employment with the Company or Affiliates or has died. The Administrator may prescribe any reasonable method or procedure for the accounting of hypothetical interest.
4.5 PARTICIPANT INVESTMENT DESIGNATION
a) A Participant (and any eligible employee first electing to participate in the Plan) shall designate on such form or forms as may be satisfactory to the Administrator, that portion of his compensation to be deferred under Sections 4.2 and 4.3 and, separately, that portion of any existing Deferred Compensation Account maintained on his behalf which shall be credited with hypothetical interest in reference to each of the hypothetical investment funds that may be offered by the Administrator, in the discretion of the Administrator. Such designations shall specify, in 1% increments, the percentages to be credited in reference to each of the hypothetical investment funds offered. Such designations shall remain in effect until the Participant submits a new designation within such time and in accordance with such means as is determined pursuant to a uniform policy adopted by the Administrator. Under such policy, the new designations shall be effective as of a given date specified by the Administrator. In the event a Participant fails to make an effective designation under this
Section 4.5(a), the Administrator, acting in its discretion, shall make such designation on behalf of the Participant.
b) In accepting participation in the Plan, a Participant agrees on behalf of himself and his beneficiary(ies) to assume all risk in connection with any decrease in value of the hypothetical investment funds in reference to which hypothetical interest is credited to the Participant's Deferred Compensation Account. The Company, the Affiliates and the Administrator shall not be liable to any Participant or beneficiary for the under-performance of any hypothetical investment fund offered under the Plan.
c) The Administrator may, in its discretion, offer additional hypothetical investment funds to Participants and may cease to offer any such fund at such time as it deems appropriate. In the event the Administrator decides to discontinue offering an investment fund under the Plan, those Participants on whose behalf hypothetical interest is then being credited on the basis of the discontinued hypothetical investment fund shall be required to designate, from such selection of funds as may be offered by the Administrator, a fund or funds as a replacement for the investment fund being discontinued. Such designation shall be made in accordance with Section 4.5(a) hereof. Hypothetical interest credited on behalf of any Participant who is affected by the discontinuation of a hypothetical investment fund but who fails to make the replacement designation provided in this Section 4.5(c) shall mirror, to the extent of the Participant's interest in such discontinued fund, such hypothetical investment fund or funds as the Administrator may choose in its discretion.
d) Title to and beneficial ownership of any assets which the Company or any Affiliate may earmark to pay the contingent deferred compensation hereunder shall at all times remain in the Company or Affiliate. The Participant, his beneficiary(ies) and any heirs, successors and assigns shall not have any legal or equitable right, interest or control over or any property interest whatsoever in any specific assets of the Company or any Affiliate or related entity on account of having an interest under the Plan. Any and all of the Company's assets, and any life insurance policies, annuity contracts or the proceeds therefrom which may be acquired by the Company shall be, and remain, the general unpledged, unrestricted assets of the Company. In no event shall the Company or any Affiliate be required to purchase any specific shares or interest in any investment fund.
4.6 STATEMENTS
Statements will be sent to each Participant as to the balance of his Deferred Compensation Account at least once each calendar year.
ARTICLE FIVE
PAYMENT OF DEFERRED COMPENSATION
5.1 PAYMENT
Upon termination of employment with the Company and all Affiliates, the balance of the Participant's Deferred Compensation Account shall be paid to him according to the method and at the times selected by the Participant in his Election Form or, if applicable, in the most recent, properly executed and effective Amendment Form which the Participant has delivered to the Administrator prior to the Participant's termination of employment.
5.2 METHODS OF PAYMENT
The Participant may elect any of the following methods of payment of his Deferred Compensation Account:
a) A lump sum distribution;
b) Payments in approximately equal annual installments for a period not to exceed 10 years;
c) Payments in approximately equal monthly installments for a period not to exceed 10 years; and
d) Payment of a dollar amount or percentage (as specified by the Participant) of the Participant's Deferred Compensation Account in the form of a single sum payment with the balance of such Account being paid under either the method described in Section 5.2(b) or the method described in Section 5.2(c). (Available for elections on and after November 16, 2000.)
In the event the Participant dies before receiving the entire distribution owed to him, the balance in the Participant's Deferred Compensation Account on his date of death shall be paid as soon as practicable in a lump sum to the beneficiary designated by the Participant in the most recent, properly executed, beneficiary designation which the Participant has delivered to the Administrator prior to the Participant's death. If no beneficiary designation is in effect on the death of the Participant, the balance in the Participant's Deferred Compensation Account shall be paid to the estate of the Participant.
5.3 AMENDMENT TO PAYMENT ELECTION
A Participant who is employed by the Company or an Affiliate may request to defer the date at which payment of his Deferred Compensation Account will occur (or commence) and may request a change in his elected method of payment by submitting an Amendment Form to the Administrator which indicates the period of additional deferral and/or the desired method of payment; provided, however:
a) Such request of additional deferral or alternative method of payment shall be subject to the Administrator's power, to be exercised at Administrator's discretion, to direct that payment of the Participant's Deferred Compensation Account will occur or commence, or will be paid under a method, in accordance with the Participant's election(s) on a previously delivered Amendment Form or on the Participant's Election Form; and
b) In no event shall any requested additional deferral or alternative method of payment become effective unless the Amendment Form evidencing such request is submitted to, and approved by, the Administrator at least twelve months prior to the date payment of the Deferred Compensation Account would otherwise have occurred or commenced under the Election Form or Amendment Form in effect on the date the Participant requests the additional deferral or alternative method of payment.
5.4 EMERGENCY CIRCUMSTANCES
Notwithstanding any other provision of this Plan, if the Committee determines, after consideration of a Participant's application, that the Participant has a financial necessity of such a substantial nature that a current payment of compensation deferred under this Plan is warranted, the Committee may in its sole and absolute discretion direct that all or a portion of the Participant's Deferred Compensation Account balance be paid to him. The payment shall be made in the manner and at the times specified by the Committee for payment; provided, however, such payment shall not be in excess of that amount which is, in the discretion of the Committee, required to satisfy the financial necessity.
ARTICLE SIX
AMENDMENT AND DISCONTINUANCE
The Company expects to continue the Plan indefinitely, but reserves the right to amend or discontinue the Plan at any time, if, in its sole judgment, such amendment or discontinuance is necessary or desirable. Any such amendment or discontinuance shall be made pursuant to a resolution of the Board of Directors and shall be effective as of the date specified in such resolution. Without a consent of the Participant, no amendment or discontinuance of the Plan shall adversely affect the balance of a Participant's Deferred Compensation Account at the time of amendment or discontinuance. In the event of a discontinuance of the Plan, the Company (or
any transferee, or successor entity of the Company) shall be obligated to pay Deferred Compensation Account balances to Participants and beneficiaries at such time or times and in such forms as provided under the terms of the Plan.
ARTICLE SEVEN
GENERAL PROVISIONS
7.1 NO EFFECT ON EMPLOYMENT RIGHTS
Nothing contained herein shall be construed as creating any contract of employment between the Company or any Affiliate and any Participant nor shall any provision hereof confer upon any Participant the right to be retained in the service of the Company or any Affiliate nor limit the right of the Company or any Affiliate to discharge or otherwise deal with Participants without regard to the existence of the Plan.
7.2 GENERAL CONTRACTUAL OBLIGATION
It is the intent of this Plan, and each Participant understands, that no trust has been created for his or her benefit and that no Participant has any interest in any asset of the Company, any Affiliate or any related entity. The Company's obligation to pay to the Participant the sums deferred together with any interest thereon is a general contract obligation. Nothing contained in the Plan shall constitute a guaranty by the Company, any Affiliate, or any other entity or person that the assets of the Company will be sufficient to pay these amounts. The status of the Participant is that of an unsecured creditor to the extent of the total amount of his compensation deferred plus hypothetical interest credited as above described.
7.3 BINDING ON COMPANY, PARTICIPANTS AND THEIR SUCCESSORS
The Plan shall be binding upon and inure to the benefit of the Company and Affiliates, their successors and assigns and Participants and their heirs, executors, administrators and legal representatives. In the event of the merger or consolidation of the Company with or into any other corporation, or in the event substantially all of the assets of the Company shall be transferred to another corporation, the successor corporation resulting from the merger or consolidation, or the transferee of such assets, as the case may be, shall, as a condition to the consummation of the merger, consolidation or transfer, assume the obligations of the Company hereunder and shall be substituted for the Company hereunder.
7.4 SPENDTHRIFT PROVISIONS
The interest of a Participant or his beneficiary under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, either voluntarily or involuntarily, prior to actual receipt thereof by the payee; any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any such interest herein prior to such receipt shall be void. Deferred Compensation Accounts hereunder shall not be subject to garnishment, attachment or other legal or equitable process nor shall they be an asset in bankruptcy; provided, however, that no amount shall be payable from this Plan to a Participant,
or any person claiming by or through a Participant, unless and until any and all amounts representing debts or other obligations owed to the Company or any Affiliate by the Participant have been fully paid and satisfied. Neither the Company nor any Affiliate shall be liable in any manner for or subject to the debts, contracts, liabilities, torts or engagements of any person who has a Deferred Compensation Account maintained on his behalf under the Plan.
7.5 DISCLOSURE
Each Participant, upon his written request, shall receive a copy of the Plan and the Administrator will make available for inspection by any Participant a copy of any written rules and regulations used by the Administrator in administering the Plan.
7.6 GOVERNING LAW
The Plan is established under and will be construed according to the laws of the Commonwealth of Pennsylvania to the extent that such laws are not preempted by the Employee Retirement Income Security Act of 1974, as amended, and regulations promulgated thereunder.
7.7 INCAPACITY OF RECIPIENT
In the event a Participant or beneficiary is declared incompetent and a guardian, conservator or other person legally charged with the care of his person or of his estate is appointed, any Deferred Compensation Account under the Plan to which such Participant, or beneficiary is entitled shall be paid to such guardian, conservator or other person legally charged with the care of his person or his estate. Except as provided hereinabove, when the Administrator, in its sole discretion, determines that a Participant or beneficiary is unable to manage his financial affairs, the Administrator may direct the Company to make distribution(s) from the Deferred Compensation Account maintained on behalf of such Participant or beneficiary to any one or more of the spouse, lineal ascendants or descendants or other closest living relatives of such Participant or beneficiary who demonstrates to the satisfaction of the Administrator the propriety of making such distribution(s). Any payment so made shall be in complete discharge of any liability under the Plan for such payment. The Administrator shall not be required to see to the application of any such distribution made as provided above.
7.8 ELECTIONS, APPLICATIONS, NOTICES
Every designation, election, revocation or notice authorized or required hereunder shall be deemed delivered to the Company or the Administrator as the case may be: (a) on the date it is personally delivered to the Administrator at the Company's executive offices at 100 Erie Insurance Place, Erie, Pennsylvania 16530 or (b) three business days after it is sent by registered or certified mail, postage prepaid, addressed to the Administrator at the offices indicated above. Every such item which is to be delivered to a person or entity designated by the Administrator to perform recordkeeping and other administrative services on behalf of the Plan shall be deemed delivered to such person or entity when it is actually received (either physically or through interactive electronic communication) by such person or entity. Every designation, election, revocation or notice authorized or required hereunder which is to be delivered to a Participant or beneficiary shall be deemed delivered to the Participant or beneficiary: (a) on the date it is
personally delivered to such individual, or (b) three business days after it is sent by registered or certified mail, postage prepaid, addressed to such individual at the last address shown for him on the Company's records. Any notice required hereunder may be waived by the person entitled thereto.
7.9 COUNTERPARTS
This Plan may be executed in any number of counterparts, each of which shall be considered as an original, and no other counterparts need be produced.
7.10 SEVERABILITY
In the event any provision of this Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan. This Plan shall be construed and enforced as if such illegal or invalid provision had never been contained herein.
7.11 HEADINGS
The headings of Sections of this Plan are for convenience of reference only and shall have no substantive effect on the provisions of this Plan.
7.12 CONSTRUCTION
The masculine gender, where appearing in this Plan, shall be deemed to also include the feminine gender. The singular shall also include the plural, where appropriate.
ARTICLE EIGHT
ADMINISTRATION
8.1 GENERAL ADMINISTRATION
The Administrator shall be charged with the administration of the Plan. The Administrator shall have all such powers as may be necessary to discharge its duties relative to the administration of the Plan, including by way of illustration and not limitation, discretionary authority to interpret and construe the Plan, to determine and decide all questions of fact, and all disputes arising under the Plan including, but not limited to, the eligibility of any employee to participate hereunder, the validity of any election as may be necessary or appropriate hereunder and the right of any Participant or beneficiary to receive payment of all or any portion of a Deferred Compensation Account maintained hereunder. The Administrator shall have all power necessary to adopt, alter and repeal such administrative rules, regulations and practices governing the operation of the Plan as it, in its sole discretion, may from time to time deem advisable. The Administrator shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to willful misconduct. The Administrator shall be entitled to conclusively rely upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to the Plan. Any individual serving as Administrator shall not
participate in any action or determination regarding solely his own benefits payable hereunder. Except as provided in Section 8.3, decisions of the Administrator made in good faith shall be final, conclusive and binding upon all parties.
8.2 CLAIMS PROCEDURE
Whenever the Administrator denies, in whole or in part, a claim for benefits filed by any person (hereinafter referred to as a "Claimant"), the Administrator shall transmit a written notice setting forth (i) the specific reasons for the denial of the claim, (ii) references to the specific provisions of the Plan on which the denial is based, (iii) a description of any additional needed material or information and why such material or information is necessary, and (iv) further steps which the Claimant can take in order to have his claim reviewed (including a statement that the Claimant or his duly authorized representative may review the Plan document and submit issues and comments regarding the claim to the Administrator). In addition, the written notice shall contain the date on which the notice was sent and a statement advising the Claimant that, within ninety (90) days of the date on which such notice is received, he may request a review of the Administrator's decision.
8.3 CLAIMS REVIEW
Within ninety (90) days of the date on which the notice of denial of claim is received by the Claimant, the Claimant or his authorized representative may request that the claim denial be reviewed by filing with the Administrator a written request therefor, which request shall contain the following information:
a) the date on which the notice of denial of claim was received by the Claimant;
b) The date on which the Claimant's request was filed with the Administrator; provided, however, that the date on which the Claimant's request for review was in fact filed with the Administrator shall control in the event that the date of the actual filing is later than the date stated by the Claimant pursuant to this clause (b);
c) the specific portions of the denial of his claim which the Claimant requests the Administrator to review;
d) a statement by the Claimant setting forth the basis upon which he believes the Administrator should reverse its previous denial of his claim for benefits and accept his claim as made;
e) whether the Claimant desires a hearing on the claim; and
f) any written material (included as exhibits) which the Claimant desires the Administrator to examine in its consideration of his position as stated pursuant to clause (d).
If the Claimant has requested a hearing on the claim, such hearing shall be held within thirty (30) days after the date determined pursuant to clause (b) hereof. Within sixty (60) days of the date determined pursuant to clause (b) hereof (or, if special circumstances or the request for a hearing require an extension of time, within ninety (90) days of such date), the Administrator shall conduct a full and fair review of the decision denying the Claimant's claim for benefits and shall deliver its decision to the Claimant in writing. Such written decision shall set forth the specific reasons for the decision, including references to the specific provisions of this Plan which were relied upon. The decision will be final and binding on all persons concerned.
ARTICLE NINE
MERGER OF SUPPLEMENTAL 401(k) PLAN
Effective as of December 31, 2000, the Supplemental 401(k) Plan shall be merged into and become a part of this Plan. Each Participant who had earned a benefit under the Supplemental 401(k) Plan as of such date of merger shall have his right to such benefit preserved under the Plan and, for periods on and after January 1, 2001, shall look solely to the terms of the Plan for purposes of determining his rights and responsibilities regarding such benefit.
Executed at Erie, Pennsylvania this 22nd day of December, 2000, effective January 1, 2001.
ERIE INSURANCE GROUP
By: /s/ Stephen A. Milne
----------------------------
Title: President and CEO
-------------------------
ATTEST:
/s/ Douglas F. Ziegler
------------------------------------
Douglas F. Ziegler
Senior V.P., Treasurer and
Chief Investment Officer
|
EXHIBIT 10.7 - ERIE INSURANCE GROUP
EMPLOYEE SAVINGS PLAN
INTRODUCTION
The Erie Indemnity Company (the "Company") adopted the Erie Insurance Group Employee Savings Plan (the "Plan") effective January 1, 1989. The Company has subsequently amended the Plan from time to time and was last amended and restated the Plan effective as of May 1, 1998.
This amendment and restatement of the Plan shall constitute an amendment, restatement and continuation of the Plan. This amendment and restatement is generally effective as of January 1, 2001. However, certain provisions of this amendment and restatement are effective as of some other date. The provisions of this amendment and restatement with stated effective dates prior to January 1, 2001, shall be deemed to amend the corresponding provisions, if any, of the Plan as in effect before this amendment and restatement and all amendments thereto as of such dates. Events occurring before the applicable effective date of any provision of this amendment and restatement shall be governed by the applicable provision of the Plan as in effect on the date of the event.
The purpose of the Plan is to provide a pre-tax long term savings vehicle for eligible employees and to provide participants with an opportunity to contribute toward additional retirement security according to the provisions of Section 401(k) of the Internal Revenue Code of 1986, as amended.
TABLE OF CONTENTS
INTRODUCTION Page
ARTICLE ONE - DEFINITIONS
1.1 Administrator or Plan Administrator......................................1
1.2 Affiliate................................................................1
1.3 Board....................................................................1
1.4 Code.....................................................................1
1.5 Company..................................................................1
1.6 Compensation.............................................................1
1.7 Covered Employee.........................................................2
1.8 Effective Date...........................................................2
1.9 Employee.................................................................2
1.10 Employer.................................................................2
1.11 Employer Matching Contribution...........................................2
1.12 Erie Indemnity Stock.....................................................2
1.13 Erie Indemnity Stock Fund................................................2
1.14 ERISA....................................................................2
1.15 Highly Compensated.......................................................3
1.16 Hour of Service..........................................................3
1.17 Interactive Electronic Communication.....................................4
1.18 Leased Employee..........................................................4
1.19 Normal Retirement Date...................................................4
1.20 Notice...................................................................5
1.21 Participant..............................................................5
1.22 Plan.....................................................................5
1.23 Plan Year................................................................5
1.24 Qualified Domestic Relations Order or QDRO...............................5
1.25 Safe Harbor Matching Contribution........................................6
1.26 Spousal Consent..........................................................6
1.27 Tax Deferred Contribution................................................6
1.28 Test Compensation........................................................6
1.29 Top Paid Group...........................................................7
1.30 Total Account............................................................7
1.31 Trust Agreement..........................................................7
1.32 Trust Fund...............................................................8
1.33 Trustee..................................................................8
1.34 Valuation Date...........................................................8
1.35 Year of Eligibility Service..............................................8
|
ARTICLE TWO - PARTICIPATION
2.1 Participation............................................................9
2.2 Rehired Employees........................................................9
2.3 Employment Transfers.....................................................9
ARTICLE THREE - EMPLOYER CONTRIBUTIONS
3.1 Tax Deferred Contributions..............................................11
3.2 Dollar Limitation on Tax Deferred Contributions.........................11
3.3 Actual Deferral Percentage Limitation on Tax Deferred Contributions.....13
3.4 Treatment of Tax Deferred Contributions in Excess of Actual
Deferred Percentage Limitation..........................................15
3.5 Coordination of Distributions of Excess Tax Deferred Contributions......17
3.6 Employer Matching Contributions.........................................17
3.7 Actual Contribution Percentage Limitation on Employer Matching
Contributions........................................................17
3.8 Treatment of Employer Matching Contributions in Excess of
Actual Contribution Percentage Limitation............................18
3.9 Combined Alternative Limitation on Tax Deferred Contributions
and Employer Matching Contributions..................................20
3.10 Safe Harbor Matching Contributions......................................21
3.11 Source of Employer Contributions........................................22
3.12 Investment of Employer Contributions....................................22
3.13 Recovery of Contributions...............................................23
3.14 Other Provisions Relating to Employer Contributions.....................23
ARTICLE FOUR - ROLLOVER CONTRIBUTIONS
4.1 Rollover Contributions .................................................25
4.2 Vesting of Rollover Contributions ......................................25
ARTICLE FIVE - PARTICIPANT ACCOUNTS AND VALUATION OF FUNDS
5.1 Establishment of Participant Accounts ..................................26
5.2 Procedure as of Each Valuation Date ....................................26
5.3 Investment Elections ...................................................26
5.4 Erie Indemnity Stock Fund...............................................28
ARTICLE SIX - VESTING & DISTRIBUTIONS
6.1 Vesting ................................................................30
6.2 Distributions Upon Retirement, or Other Termination of Employment.......30
6.3 Payment of Amounts Distributed .........................................31
6.4 Direct Rollovers........................................................33
|
ARTICLE SEVEN - WITHDRAWALS
7.1 Withdrawals Generally ..................................................35
7.2 Hardship Withdrawal ....................................................35
7.3 Safe Harbor Distribution ...............................................36
7.4 Hardship Withdrawal Priority............................................36
7.5 Modifications to Hardship Withdrawal Standards..........................36
ARTICLE EIGHT - THE TRUST FUND
8.1 Trust Agreement ........................................................38
8.2 Appointment of Independent Accountants .................................38
8.3 Appointment of Investment Manager ......................................38
8.4 Investment Committee ...................................................38
8.5 Voting of Erie Indemnity Stock..........................................39
ARTICLE NINE - ADMINISTRATION OF THE PLAN
9.1 The Administrator ......................................................41
9.2 Powers of Administrator.................................................41
9.3 Delegation of Duties....................................................43
9.4 Conclusiveness of Various Documents.....................................43
9.5 Actions to be Uniform...................................................43
9.6 Liability and Indemnification...........................................43
ARTICLE TEN - CLAIMS PROCEDURE
10.1 Claim for Benefit ......................................................45
10.2 Review of Denial of Claim ..............................................45
10.3 Decision by Administrator ..............................................45
ARTICLE ELEVEN - MISCELLANEOUS
11.1 Non-Alienation of Benefits .............................................47
11.2 Risk to Participants and Source of Payments ............................48
11.3 Expenses ...............................................................48
11.4 Rights of Participants .................................................48
11.5 Statement of Accounts ..................................................48
11.6 Designation of Beneficiary .............................................49
11.7 Payment to Incompetents ................................................49
11.8 Authority to Determine Payee ...........................................50
11.9 Severability ...........................................................50
11.10 Employer Records........................................................50
11.11 Limitation on Contributions ............................................50
11.12 IRC 414(u) Compliance Provision.........................................52
ARTICLE TWELVE - AMENDMENT, TERMINATION OR MERGER OF THE PLAN
12.1 Right to Amend .........................................................53
12.2 Right to Terminate .....................................................53
12.3 Merger, Transfer of Assets or Liabilities...............................54
|
ARTICLE THIRTEEN - TOP HEAVY PROVISIONS
13.1 Top Heavy Provisions ...................................................55
13.2 Minimum Contribution ...................................................56
13.3 Plan Year in Which Plan is Top Heavy ...................................57
13.4 Plan Year in Which Plan Ceases to be Top Heavy .........................57
13.5 Limited Application of this Article.....................................57
ARTICLE FOURTEEN - LOANS
14.1 Availability of Loans ..................................................58
14.2 Terms and Conditions of Participant Loans ..............................58
14.3 Loan Accounts...........................................................60
|
ARTICLE ONE
DEFINITIONS
As used in this Plan, the following terms shall have the following meanings unless a different meaning is clearly required by the context. Any terms herein used in the masculine shall be read and construed in the feminine where they would so apply, and any terms used in the singular shall be read and construed in the plural if again so applicable.
1.1 "Administrator" or "Plan Administrator" means the Administrator appointed by the Board in accordance with the provisions of Article Nine.
1.2 "Affiliate" means any other employer which, together with the Company, is a member of a controlled group of corporations or of a commonly controlled trade or business (as defined in Code Sections 414(b) and (c) and as modified, where appropriate, by Code Section 415(h)) or of an affiliated service group (as defined in Code Section 414(m)) or other organization described in Code Section 414(o). Each such Affiliate shall be treated as an Affiliate only during such period as it is or was an Affiliate as defined above.
1.3 "Board" means the Board of Directors of the Company.
1.4 "Code" means the Internal Revenue Code of 1986, as amended from time to time.
1.5 "Company" means Erie Indemnity Company, a corporation organized and existing under the laws of Pennsylvania.
1.6 "Compensation" for any period means the aggregate amount of base salary or wages paid by an Employer to an Employee during the period. For this purpose, "base salary or wages" shall exclude overtime compensation, bonuses and commissions but shall be deemed to include any amounts contributed by the Employer pursuant to a salary reduction agreement and which is not includible in the gross income of the Participant under Code Sections 125 and 402(e)(3) for the Plan Year in question. Effective for each Plan Year, in no event shall the amount of Compensation taken into account under the Plan exceed the adjusted annual limitation permitted under Section 401(a)(17) of the Code for such Plan Year. Such adjusted annual limitation shall be, for each Plan Year beginning on and after January 1, 1989 and prior to January 1, 1994, $200,000 as adjusted for such year in the same manner as under Section 415(d) of the Code and, for each Plan Year beginning on and after January 1, 1994, $150,000 as adjusted for such year as provided under Section 401(a)(17)(B) of the Code.
For years beginning before January 1, 1997, in determining the
Compensation of a Covered Employee for purposes of the foregoing annual
limitation, the rules aggregating certain family members (as set forth in
Section 1.15) shall apply, except that in applying such rules, the term
"family" shall include only the spouse of the Covered Employee and any
lineal descendent of the Covered Employee who has not attained age 19
before the end of the calendar year. If, as a result of the family
aggregation rules, the adjusted annual limitation is exceeded, then the
limitation
shall be prorated among the family members in proportion to each individual's Compensation as determined under this paragraph without regard to the adjusted annual limitation.
1.7 "Covered Employee" shall mean any Employee of an Employer, excluding:
(a) any such Employee whose employment is governed by the terms of a collective bargaining agreement under which retirement benefits were the subject of good faith bargaining; and
(b) for periods prior to January 1, 2001, any such Employee who is compensated on an hourly basis.
Notwithstanding any provision of the Plan to the contrary, any individual
who an Employer determines to be a contract employee, independent
contractor, leased employee (including a Leased Employee as defined
hereunder), leased owner, leased manager, shared employee or person
working under a similar classification shall not become a Covered Employee
hereunder, regardless of whether any such individual is ultimately
determined to be a common law employee, unless and until the Employer
shall otherwise determine. An Employee shall be considered a Covered
Employee only during such period in which the individual satisfies the
requirements defined above.
1.8 "Effective Date" means January 1, 1989.
1.9 "Employee" shall mean any common-law employee of an Employer or an
Affiliate; provided, however, that for purposes of Section 1.15 "Employee"
shall include any self-employed individual performing services for an
Employer or Affiliate who is treated as an employee under Section
401(c)(1) of the Code.
1.10 "Employer(s)" shall mean the Company, Erie Family Life Insurance Company,
Erie Insurance Exchange, Erie Insurance Company, EI Holding Corp., EI
Service Corp., Erie Insurance Company of New York, Erie Insurance Property
& Casualty Company, Flagship City Insurance Company and any other
Affiliate which may adopt this Plan.
1.11 "Employer Matching Contribution" means the Employer contribution made
pursuant to Section 3.6.
1.12 "Erie Indemnity Stock" means the Class A common stock of the Company which
is a qualifying employer security within the meaning of Section 407(d)(5)
of ERISA.
1.13 "Erie Indemnity Stock Fund" means the investment fund described in Section
5.4.
1.14 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.15 "Highly Compensated" means, for periods beginning before January 1, 1997,
any Employee who meets any of the following requirements in either the
prior Plan Year (the "lookback year") or the current Plan Year (the
|
"determination year"):
(a) is a more than five percent (5%) owner of an Employer;
(b) earns $75,000 or more in Test Compensation;
(c) earns $50,000 or more in Test Compensation and is a member of the Top Paid Group;
(d) is an officer of an Employer (as described in Section 416(i) of the Code) who earns Test Compensation of more than fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of the Code for such year; or
(e) is a former Employee who was Highly Compensated upon separation from service prior to the determination year, performs no service for an Employer during the determination year, or was Highly Compensated at any time after attaining age 55.
In addition, the Test Compensation paid to any family member (spouse, lineal ascendant or descendant and their spouses) of an Employee or former Employee who is a more than five percent owner or is one of the top 10 Highly Compensated Employees on the basis of Test Compensation, shall be aggregated with the Test Compensation of such Employee for the purposes of this definition. Notwithstanding the foregoing, an Employee will not be Highly Compensated for the determination year merely by compensation or officer status unless he was in the top 100 Employees on the basis of Test Compensation. The amounts indicated in (b) and (c) above shall be adjusted for cost of living at the same time and in the same manner as determined under Code Section 415(d). For years beginning on and after January 1, 1997, "Highly Compensated" shall mean any Employee who is a more than five percent (5%) owner of an Employer or both earned $80,000 or more in Test Compensation from the Employer in the lookback year and was member of the Top Paid Group for such year; provided, however, that such $80,000 figure shall be adjusted for cost of living at the same time and in the same manner as determined under Code Section 415(d). To the extent permitted under regulations and other guidance promulgated by the Internal Revenue Service, the Company may elect to determine the status of Highly Compensated Employees on a basis other than that provided above.
1.16 "Hour of Service" shall include the following:
(a) Each hour for which an Employee is directly or indirectly paid or entitled to payment from an Employer or an Affiliate as an Employee for the performance of duties during an applicable computation period (these hours must be credited to the Employee in the computation period during which the duties were performed and not when paid, if different); and
(b) Each hour for which back pay, irrespective of mitigation of damages, has been awarded or agreed to by an Employer or an Affiliate (these hours must be credited in the computation period or periods to which the award or agreement pertains rather than that in which the payment, award or agreement was made); and
(c) Each hour for which an Employee is directly or indirectly paid or
entitled to payment from an Employer or an Affiliate for reasons,
such as vacation, sickness or disability, other than for the
performance of duties (these hours shall be calculated and credited
pursuant to Section 2530.200b-2 of the Department of Labor
regulations which are incorporated herein by reference).
1.17 "Interactive Electronic Communication" means a communication between a
Participant or beneficiary and the person or entity designated by the
Administrator to perform recordkeeping and other administrative services
on behalf of the Plan pursuant to a system maintained by such person or
entity and communicated to each Participant and beneficiary whereby each
such individual may make elections and exercise options as described
herein with respect to all or a portion of his Total Account through the
use of such system and a personal identification number. If a Participant
or beneficiary (i) consents to participate in Interactive Electronic
Communication procedures adopted by the Administrator and (ii)
acknowledges that actions taken by him through the use of his personal
identification number pursuant to the Interactive Electronic Communication
procedure constitute his signature for purposes of initiating transactions
such as investment option changes, and increases, decreases, and
suspensions of Tax Deferred Contributions, the Participant or beneficiary,
as the case may be, will be deemed to have given his written consent and
authorization to any such action resulting from the use of the Interactive
Electronic Communication system by the Participant or beneficiary.
1.18 "Leased Employee" means any person (other than an Employee of an Employer)
who pursuant to an agreement between the Employer and any other person
("leasing organization") has performed services for the Employer (or for
the Employer and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full-time basis for a period of
at least one year and, for periods before January 1, 1997, such services
are of a type historically performed by employees in the business field of
the Employer or, for periods on and after January 1, 1997, such services
are performed under primary direction or control by the recipient. Except
as provided below, any person satisfying the foregoing criteria shall be
treated as an Employee. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to services
performed for the Employer shall be treated as provided by the Employer.
Notwithstanding the foregoing, a Leased Employee shall not be considered
an Employee of an Employer if: (i) such Leased Employee is covered by a
money purchase pension plan providing: (1) a nonintegrated employer
contribution rate of at least 10 percent of compensation, (2) immediate
participation, and (3) full and immediate vesting; and (ii) Leased
Employees do not constitute more than 20 percent of the Employer's
non-Highly Compensated workforce.
1.19 "Normal Retirement Date" means the first day of the month next following
the month in which the Participant attains age 65 (his "Normal Retirement
Age").
1.20 "Notice" means, unless otherwise specifically provided herein, (i) written
Notice on an appropriate form provided by the Administrator that is, in
the discretion of the Administrator, properly completed and executed by
the party giving such Notice and which is delivered by hand or by mail to
the Administrator or to such party designated by the terms of the Plan or
by the Administrator to receive the Notice, or (ii) Notice by Interactive
Electronic Communication to
|
the person or entity designated by the Administrator to perform
recordkeeping and other administrative services on behalf of the Plan. The
form of Notice satisfactory in any given circumstance under the Plan shall
be determined by the Administrator, in its discretion, and shall be
applied uniformly to all Participants and beneficiaries. Notice to any
party as provided herein shall be deemed to be given when it is actually
received (either physically or by Interactive Electronic Communication, as
the case may be) by the party to whom such Notice is given.
1.21 "Participant" means any Covered Employee who participates in the Plan as
provided in Section 3.1 (an "active" Participant) or Section 4.1, and
further, shall include any current or former Covered Employee who has
suspended his Tax Deferred Contributions or has terminated or retired if
such individual has a vested Total Account balance maintained on his
behalf under the Plan.
1.22 "Plan" means this Erie Insurance Group Employee Savings Plan as herein set
forth with all amendments, modifications and supplements hereafter made.
1.23 "Plan Year" means the calendar year.
1.24 "Qualified Domestic Relations Order" or "QDRO" means any judgment, decree
or order (including approval of a property settlement agreement) which is
made pursuant to a State Domestic Relations Law (including a community
property law) and which:
(a) relates to provision of child support, alimony payments, or marital
property rights of a spouse, former spouse, child or other dependent
of a Participant;
(b) recognizes or creates an alternate payee's right to, or assigns to
an alternate payee the right to receive all or a portion of the
benefits payable with respect to a Participant under this Plan; and
|
(c) clearly specifies:
(i) name and last known address of the Participant and of each alternate payee;
(ii) the amount, percentage, or manner in which such could be determined, of the Participant's benefits to be paid to such alternate payee by the Plan;
(iii) the number of payments or time periods the QDRO covers; and
(iv) each plan to which the QDRO applies.
A QDRO cannot require the Plan to provide a type or form of benefit, or any option not otherwise provided by the Plan, nor can it require the Plan to provide increased benefits. A QDRO cannot require payment to an alternate payee by virtue of a previous QDRO.
A written procedure will be established to determine the qualified status of domestic relations orders and to administer distributions thereunder.
1.25 "Safe Harbor Matching Contribution" means the Employer contribution made
pursuant to Section 3.10.
1.26 "Spousal Consent" means a written consent given by a Participant's
legally-recognized spouse to a Participant's designation of a specified
beneficiary or beneficiaries (including the designation of any class of
beneficiaries or any contingent beneficiaries) under Section 11.6(a), the
Participant's election of an immediate distribution under Section 6.2, or
the Participant's request for a withdrawal (in excess of $3,500) or loan
under Sections 7.2 and 14.2, respectively. Any Spousal Consent shall be
effective only with respect to such spouse. Such consent shall be duly
witnessed by a Plan representative or a notary public and shall
acknowledge the effect on the spouse of the Participant's election. The
Participant may revoke, without limitation, any such designation, election
or request without the need for Spousal Consent at any time before the
date as of which the Participant is to receive a distribution from the
Plan or, if applicable, before the effective date of a withdrawal or loan.
Any new designation, election or request by a Participant as provided
above will require a new Spousal Consent. The requirement for Spousal
Consent may be waived by the Administrator if it is established that there
is no spouse, the spouse cannot be located, the Participant has a court
order evidencing a legal separation from or abandonment by the spouse, or
for such other circumstances as shall be prescribed by applicable law.
1.27 "Tax Deferred Contribution" means the Employer contribution made pursuant
to Section 3.1.
1.28 "Test Compensation" means, for any Plan Year, an Employee's compensation,
reported under Sections 6041 and 6051 of the Code on Form W-2, as paid by
an Employer or an Affiliate for the calendar year ending with or within
such Plan Year, including any amounts contributed pursuant to a salary
reduction election on behalf of a Covered Employee to a plan described in
Sections 125, 402(e)(3), 402(h)(1)(B) or 403(b) of the Code for the period
in question. Test Compensation in any given year shall not exceed the
adjusted annual limitation in effect for such year (as set forth in
Section 1.6), provided that such limitation shall not be applied in
determining the top 10 Highly Compensated Employees subject to family
aggregation under the Plan (applicable to Plan Years beginning before
January 1, 1997) and for purposes of determining the status of an Employee
as a Highly Compensated Employee or Key Employee. To the extent permitted
under regulations and other guidance promulgated by the Internal Revenue
Service, the Company may elect to determine Test Compensation on a basis
other than that provided above.
Applicable to years beginning before January 1, 1998, Test Compensation
for purposes of Section 11.11 shall exclude all amounts contributed
pursuant to a salary reduction election on behalf of a Covered Employee.
1.29 "Top Paid Group" means all active Employees who, as of a given year, are
in the top twenty percent (20%) of the Company's work force on the basis
of Test Compensation for such year, excluding the following:
(a) Employees who have not completed six months of service by the end of
such year;
(b) Employees who work less than 17-1/2 hours per week for such year;
|
(c) Employees who normally do not work more than six months in a year;
(d) Employees under age 21 at the end of such year; and
(e) non-resident aliens who received no U.S.-source income for such year.
For purposes of this Section, the Company's work force shall include
individuals employed by an Affiliate.
1.30 "Total Account" means the total amounts held under the Plan for a
Participant, consisting of the following sub-accounts:
(a) "Tax Deferred Account" the portion of the Participant's Total
Account consisting of Tax Deferred Contributions made in accordance
with Section 3.1, plus (minus) any investment earnings (losses) on
such contributions and less any distributions or withdrawals made
from this account in accordance with Articles Six and Seven,
respectively.
(b) "Employer Account" the portion of the Participant's Total Account
consisting of Employer Matching Contributions made in accordance
with Section 3.6, plus (minus) any investment earnings (losses) on
such contributions and less any distributions or withdrawals made
from this account in accordance with Articles Six and Seven,
respectively.
(c) "Rollover Account" the portion of the Participant's Total Account
consisting of Rollover Contributions made in accordance with Section
4.1, plus (minus) any investment earnings (losses) on such
contributions and less any distributions or withdrawals made from
this account in accordance with Articles Six and Seven,
respectively.
(d) "Safe Harbor Matching Account" the portion of the Participant's
Total Account consisting of Safe Harbor Matching Contributions made
in accordance with Section 3.10, plus (minus) any investment
earnings (losses) on such contributions and less any distributions
made from this account in accordance with Article Six.
1.31 "Trust Agreement" means the Trust Agreement between the Company and a
Trustee as provided in Section 8.1, together with all amendments,
modifications and supplements hereafter made.
1.32 "Trust Fund" means the fund established under the terms of the Trust
Agreement with the Trustee for the purpose of holding and investing the
assets of the Plan. The Trust Fund shall consist of such investment funds
or vehicles as the Administrator may, in its discretion, designate from
time to time and may include such investments as may be selected by a
Participant or beneficiary under a self-directed "open option" arrangement
authorized by the Administrator.
Nothing herein shall prohibit the Trust Fund from holding reasonable
amounts in cash or cash equivalents in any fund or vehicle offered under
the Plan. The portion of the Trust Fund to be
|
invested in the various funds or vehicles shall be determined by
Participant investment elections made pursuant to Article Five. The
Administrator may, in its discretion, offer additional investment funds or
vehicles to all Participants and may cease to offer any investment fund or
vehicle at such time as it deems appropriate.
Except as otherwise indicated, the Trust Fund shall be deemed to include
that portion of a Total Account which a Participant or beneficiary elects
to invest in a group annuity contract provided by the Erie Family Life
Insurance Company.
1.33 "Trustee" means the Trustee or Trustees acting as such under a Trust
Agreement, including any successor or successors.
1.34 "Valuation Date" means, for periods prior to the Conversion Date, the last
day of each calendar month and, for periods on and after the Conversion
Date, the close of business as of each business day.
1.35 "Year of Eligibility Service" means an "Eligibility Computation Period" in
which an Employee completes at least 1,000 Hours of Service.
The "Eligibility Computation Period" with respect to an Employee shall
mean the 12 consecutive month period that begins on the first day on which
the Employee is credited with an Hour of Service in the employment of an
Employer or Affiliate ("Employment Commencement Date") and ends on the
first anniversary thereof, and each Plan Year thereafter beginning with
the Plan Year that includes the first anniversary of the Employee's
Employment Commencement Date. In the event an Employee completes 1,000
Hours of Service during the Eligibility Computation Period that begins on
his Employment Commencement Date and completes 1,000 Hours of Service
during the Eligibility Computation Period that begins on the January 1
that next follows his Employment Commencement Date, such Employee shall be
credited with two Years of Eligibility Service.
|
ARTICLE TWO
PARTICIPATION
2.1 Participation
(a) Any Employee shall be eligible to participate in the Plan on the first day of a pay period, provided he is a Covered Employee and is actively employed by an Employer on such date and, provided further, that he makes proper application for participation within a reasonable time prior to the start of such pay period by completing and filing with the Administrator such forms as may be prescribed by the Administrator.
(b) Notwithstanding the foregoing, effective January 1, 2001, any Covered Employee who is compensated on an hourly basis and who is classified by an Employer as other than a regular hourly employee shall be eligible to participate in the Plan on the January 1 or July 1 coincident with or next following such Employee's completion of each of the following requirements, provided he remains a Covered Employee as of such January 1 or July 1:
(i) His attainment of age 21 years; and
(ii) His completion of one Year of Eligibility Service.
If the Employee is not a Covered Employee on the date he otherwise would have become eligible to participate in the Plan, such Employee shall automatically become eligible to participate in the Plan upon his return to employment as a Covered Employee.
2.2 Rehired Employees
An Employee who had been an "active" Participant in the Plan, who terminates his employment and is subsequently re-employed may become eligible to participate in the Plan under Section 3.1 on the first day of any pay period following re-employment, provided he is a Covered Employee and is actively employed by an Employer on such date and, provided further, that he makes proper application for participation within a reasonable time prior to the start of such pay period by completing and filing with the Administrator such forms as may be prescribed by the Administrator.
2.3 Employment Transfers
(a) Upon the transfer of a Covered Employee to other employment with an Employer or Affiliate whereby he ceases to be a Covered Employee hereunder, such individual's ability to have Tax Deferred Contributions made to the Plan on his behalf (and to receive Employer Matching Contributions) with respect to Compensation earned on and after this date of transfer shall cease and such Participant shall be considered an "inactive" Participant under the Plan.
(b) Upon the transfer of an individual from other employment with an Employer or Affiliate such that the individual becomes a Covered Employee hereunder, such individual shall be eligible to participate in the Plan as provided in Section 2.1 hereof.
ARTICLE THREE
EMPLOYER CONTRIBUTIONS
3.1 Tax Deferred Contributions
(a) Each Covered Employee who is eligible to participate in the Plan and who has elected to become a Participant (in accordance with Article Two) may, at the time of making application to become a Participant, elect to reduce his future Compensation on a fixed, whole percentage, from one percent (1%) to eight percent (8%) of that Compensation otherwise payable in future pay periods. Effective with respect to pay periods commencing on and after December 14, 2000, a Participant may elect to reduce his future Compensation by a stated percentage, from one percent (1%) to fifteen percent (15%) of that Compensation otherwise payable in future pay periods. Such election shall be made in accordance with procedures adopted by the Administrator and communicated to Participants.
Subject to the limitations set forth in Sections 3.2, 3.3, 3.4, 3.9 and 11.11, the Participant's Compensation shall be reduced in accordance with the foregoing election and shall be designated as a Tax Deferred Contribution to the Plan. Tax Deferred Contributions shall be withheld by the Participant's Employer each pay period by regular payroll deduction in accordance with the Employer's payroll withholding procedures and shall be credited to the Participant's Tax Deferred Account as of the date the contributions are received by the Trustee or otherwise deposited in the Trust Fund. Such contributions shall be deposited in the Trust Fund as soon as such amounts can reasonably be segregated from the Employer's general assets.
(b) Participant Tax Deferred Contributions constitute Employer contributions under the Plan and are intended to qualify as elective contributions under Section 401(k) of the Code. Tax Deferred Contributions may be made only with respect to an amount which the Participant could otherwise elect to receive in cash and which is not currently available to the Participant as of the date an election specified in this Section 3.1 is made. In the event a Participant has no Compensation for any payroll period, no Tax Deferred Contribution may be made for such period. Any Tax Deferred Contribution made on behalf of a Covered Employee in any given Plan Year that is taken into account for purposes of the actual deferral percentage limitation described in Section 3.3(b) shall be attributable to services performed by the Covered Employee in such Plan Year and shall relate to Compensation which would have been paid in such Plan Year or within two and one-half (2-1/2) months following such Plan Year but for the deferral election.
3.2 Dollar Limitation on Tax Deferred Contributions
(a) Any provision of this Plan to the contrary notwithstanding, no Employer shall be permitted, during any calendar year, to make with respect to such calendar year, Tax Deferred Contributions on behalf of a Participant under the Plan (when combined with
the Participant's elective deferrals under any other plans, contracts, or arrangements) that will exceed the limitation in affect for such year under Section 402(g)(1) of the Code, as adjusted in accordance with Section 402(g)(5) of the Code.
(b) In the event any amount of Tax Deferred Contributions for a calendar year exceeds the limitation applicable under this Section 3.2 for such calendar year, such excess amount (hereafter described for purposes of this Section, as "Excess Deferrals"), as adjusted for any income or loss allocable thereto in accordance with regulations, shall to the extent possible be distributed to such Participant, as provided in subparagraphs (i), (ii), (iii) and (iv) below:
(i) At a date not later than the March 1st of the calendar year
immediately following the calendar year to which such Excess
Deferrals are attributable, any Participant to whom this
Section 3.2 applies may notify, in writing, the Administrator
by submitting a form as may be provided by the Administrator
which shall specify the amount of the Participant's Excess
Deferrals for the given calendar year and shall contain a
certified statement by the Participant indicating that if such
amount is not distributed, such Excess Deferrals will exceed
the limit imposed on the Participant by Section 402(g) of the
Code for the year in which the Tax Deferred Contribution
occurred.
Notwithstanding the foregoing and solely for the purpose of facilitating a distribution of Excess Deferrals as required by regulation, in the event a Participant has Excess Deferrals in a given year calculated by taking into account his Tax Deferred Contributions hereunder and his elective deferrals under any other plan, contract, or arrangement maintained by an Employer or Affiliate, the Participant will be deemed to have notified the Administrator in the manner provided in this subparagraph.
(ii) At a date not later than the April 15 of the calendar year immediately following the calendar year to which such Excess Deferrals are attributable, the Plan may distribute to the Participant the amount of the Excess Deferrals allocated to the Plan as adjusted for any income or loss allocable to such excess. Any Excess Deferrals distributed pursuant to this subparagraph are to be included in the gross income of the Participant for the year to which such Excess Deferrals relate. Any income that is allocable to such Excess Deferrals (as determined in accordance with rules promulgated by the Secretary of the Treasury or his delegate) that is distributed pursuant to this subparagraph is to be included in the gross income of the Participant for the year in which such amount is distributed. In making a distribution as permitted under this Section, the Employer shall specifically designate the distribution as that consisting of Excess Deferrals within the meaning of Section 402(g)(1) of the Code. Any distribution of less than the entire amount of Excess Deferrals plus income or loss attributable to such deferral contributions shall be treated as a pro rata distribution of such excess deferral contributions and income/loss.
(iii) To the extent provided by the Secretary of the Treasury or his
delegate, such Excess Deferrals distributed pursuant to this
subparagraph are to be taken into account for purposes of
applying the actual deferral percentage test specified in
Section 3.3(b) (except if such excess is both prohibited under
Section 401(a)(30) of the Code and is attributable to a
non-Highly Compensated Employee), and for any other purpose of
the Code which may be prescribed by the Secretary of the
Treasury or his delegate. No corrective distribution under
this Section shall be recognized for purposes of determining
whether the minimum distribution requirements of Section
401(a)(9) of the Code are satisfied with respect to any
Participant.
(iv) Any distribution in accordance with this Section 3.2 shall be made without regard to any notice or consent otherwise required under Sections 411(a)(11) or 417 of the Code.
3.3 Actual Deferral Percentage Limitation on Tax Deferred Contributions (Plan Years beginning before January 1, 2001)
(a) Any provision of Section 3.1(a) to the contrary notwithstanding and effective for Plan Years beginning before January 1, 2001, the Tax Deferred Contribution percentages under Section 3.1(a) shall be modified as provided in paragraph (d) if the requirements of paragraph (b) are not satisfied.
(b) An actual deferral percentage shall be determined for each Covered
Employee who is eligible to make Tax Deferred Contributions. Such
percentage shall be equal to the total Tax Deferred Contribution
(and, if elected by the Company, Employer Matching Contribution)
made on the Covered Employee's behalf for the Plan Year divided by
his Test Compensation in the Plan Year. With respect to Covered
Employees who are eligible to make Tax Deferred Contributions but
make no such contributions under this Plan, such actual deferral
percentage shall be zero.
Notwithstanding the foregoing, if for any Plan Year beginning before January 1, 1997, any eligible Highly Compensated Covered Employee is subject to the family aggregation rules of Section 414(q)(6) of the Code because he is either a five percent (5%) owner or one of the top 10 Highly Compensated Employees on the basis of Test Compensation, the actual deferral percentage of such Employee, as so aggregated for such year, shall be determined by combining the Tax Deferred Contributions and Test Compensation of all family members (as described in Section 1.15) eligible to participate in the Plan.
The average of the actual deferral percentages for eligible Highly Compensated Covered Employees (High Average), when compared to the average of the actual deferral percentages for eligible non-Highly Compensated Covered Employees (Low Average), must meet one of the following requirements:
(i) The High Average is no greater than the Low Average times one and one-quarter (1-1/4); or
(ii) The excess of the High Average over the Low Average is not greater than two (2) percentage points and the High Average is no greater than the Low Average times two (2).
The provisions of this paragraph (b) shall be deemed to include the provisions of Section 401(k)(3) of the Code and Section 1.401(k)-1(b) of the Income Tax Regulations which are hereby incorporated by reference.
(c) If two or more plans which include cash or deferred arrangements are considered as one plan for purposes of Section 410(b) of the Code, such arrangements included in such plans shall be treated as one arrangement for purposes of this Section 3.3 If any Highly Compensated Covered Employee is a participant under two or more cash or deferred arrangements maintained by an Employer or Affiliate, all such arrangements shall be treated as one cash or deferred arrangements for purposes of determining the actual deferral percentage of such Covered Employee. For purposes of this section, actual deferral percentages shall be calculated to the nearest one-hundredth of one percent.
(d) To the extent Tax Deferred Contributions (and Employer Matching Contributions, if applicable) made with respect to Highly Compensated Covered Employees cause the High Average to fail to meet paragraph (b) above, such Tax Deferred Contributions (individually determined pursuant to Section 3.4(a) and as adjusted for earnings or loss thereon in accordance with regulations promulgated by the Secretary of the Treasury or his delegate) shall return to the Employer solely for the purpose of enabling the Employer to withhold any federal, state, or local taxes due on such amounts. Thereafter, the Employer shall treat all remaining amounts in accordance with the provisions of Sections 3.4(b) below. The Administrator may also, at any time, authorize a suspension or reduction of Tax Deferred Contributions made pursuant to Section 3.1 hereof in accordance with rules promulgated by the Administrator. These rules may include administrative provisions authorizing the suspension or reduction of Tax Deferred Contributions above a specified dollar amount or percentage of Compensation.
(e) The extent to which Tax Deferred Contributions cause the High Average to fail to meet paragraph (b) above shall be determined by the Administrator in a reasonable and consistent manner. The Administrator shall not be liable to any Participant (or his beneficiary, if applicable) for any losses caused by inaccurately estimating the amount of any Participant's Tax Deferred Contributions in excess of the limitations established in Sections 3.2(a) and 3.3(b) and the earnings or losses attributable to such Tax Deferred Contributions.
(f) In the event the Administrator determines that an amount to be deferred pursuant to the election provided in Section 3.1 would cause an Employer's contributions under this and/or any other tax-qualified retirement plan maintained by an Employer or Affiliate to exceed the applicable deduction limitations contained in Section 404 of the Code, or to
exceed the maximum annual addition determined in accordance with
Section 11.11, the Administrator may treat such amount in accordance
with the rules in paragraph (d) above.
3.4 Treatment of Tax Deferred Contributions in Excess of Actual Deferral Percentage Limitation (Plan Years beginning before January 1, 2001)
(a) If the actual deferral percentage limitation of Section 3.3(b) is not satisfied with respect to any given Plan Year beginning before January 1, 1997, the amount of Tax Deferred Contributions that are in excess of such limitation and are attributable to a Highly Compensated Covered Employee shall be determined as follows:
(i) the actual deferral percentage of the Highly Compensated Covered Employee with the highest actual deferral percentage is reduced to the extent necessary to:
(A) cause such Employee's actual deferral percentage to equal that of the Highly Compensated Covered Employee with the next highest actual deferral percentage; or
(B) enable the Plan to satisfy the actual deferral percentage limitation, if such reduction is less than that required by (A) above.
(ii) The process described in (i) above shall be repeated until the Plan satisfies the actual deferral percentage limitation.
(iii) Notwithstanding the foregoing, the determination of excess Tax
Deferred Contributions with respect to a given Highly
Compensated Covered Employee whose actual deferral percentage
is determined under the family aggregation rules described in
Section 3.3(b) hereof shall be accomplished by reducing the
actual deferral percentage as required by the foregoing
provisions of this paragraph (a) and by allocating the excess
Tax Deferred Contributions derived thereby for the family
group among the family members in proportion to the Tax
Deferred Contributions of each family member that is combined
to determine the actual deferral percentage for the family
group.
(b) If the actual deferral percentage limitation of Section 3.3(b) is not satisfied with respect to any given Plan Year beginning on or after January 1, 1997 and before January 1, 2001, the amount of Tax Deferred Contributions that are in excess of such limitation and are attributable to a Highly Compensated Covered Employee shall be determined by first computing the total dollar amount of Tax Deferred Contributions which must be reduced to satisfy the limitation and by allocating these amounts, in accordance with guidance promulgated by the Secretary of the Treasury or his delegate, to the Highly Compensated Covered Employees on behalf of whom the largest amounts of Tax Deferred Contributions have been made to the Plan for the given Plan Year.
(c) Those Tax Deferred Contributions attributable to a Highly Compensated Covered Employee that are deemed in excess of the actual deferral percentage limitation for any
given Plan Year shall be distributed (along with any earnings or losses attributable thereto in accordance with regulations) no later than the last day of the Plan Year following the Plan Year to which such excess Tax Deferred Contributions relate. Any excess Tax Deferred Contribution that is in an amount greater than the de minimis amount prescribed by the Secretary of the Treasury or his delegate (and any income or loss attributable to such excess Tax Deferred Contribution) that is distributed pursuant to this paragraph by two and one-half (2-1/2) months following the Plan Year to which such excess amount relates shall be includible in the affected Covered Employee's gross income on the earliest date on which any Tax Deferred Contribution made on behalf of such Covered Employee during such Plan Year would have been received had the Employee declined to make the deferral election specified in Section 3.1(a) hereof. Any excess Tax Deferred Contributions (and any income or loss attributable thereto) so distributed more than two and one-half (2-1/2) months following the Plan Year to which such excess amounts relate and any de minimis excess Tax Deferred Contributions (and any income or loss attributable thereto) distributed prior to such date shall be includible in the affected Covered Employee's gross income in the year in which such amounts are distributed.
(d) In making a distribution under this section, the Administrator shall specifically designate such distribution as a distribution consisting of Tax Deferred Contributions (and income or loss) in excess of that permitted by the actual deferral percentage limitation. Any distribution of less than the entire amount of excess Tax Deferred Contributions and income or loss attributable thereto (as such entire amount is determined after application of paragraph (a) or paragraph (b) of this Section 3.4, whichever applicable, and after application of Section 3.5, if applicable) shall be treated as a pro rata distribution of such excess contribution and income/loss.
(e) Except as otherwise provided by the Secretary of the Treasury or his delegate, any Tax Deferred Contribution in excess of the actual deferral percentage limitation shall be taken into account for purposes of determining the Participant's annual additions limitation as provided in Section 11.11 herein, and shall be taken into account for purposes of Section 404 of the Code, notwithstanding the correction of such excess amounts by distribution. No corrective distribution under this section shall be recognized for purposes of determining whether the minimum distribution requirements of Section 401(a)(9) of the Code are satisfied with respect to any Participant.
(f) Any distribution in accordance with this section shall be made without regard to any notice or consent otherwise required under Sections 411(a)(11) or 417 of the Code.
3.5 Coordination of Distributions of Excess Tax Deferred Contributions (Plan Years beginning before January 1, 2001)
In the event that a portion of the Tax Deferred Contributions made with
respect to a Highly Compensated Covered Employee for any given Plan Year
beginning before January 1, 2001 exceed the applicable limitations of both
Section 3.2(a) and Section 3.3(b), such excess amounts subject to both
limitations shall be coordinated as follows:
(a) to the extent permitted, such excess amounts shall be distributed pursuant to Section 3.2(b) hereof; and
(b) to the extent that any such excess amounts remain after application of paragraph (a) such excess amounts shall be distributed pursuant to Section 3.4(c) hereof.
3.6 Employer Matching Contributions
Effective with respect to each given pay period beginning on and after January 1, 1997 and prior to December 14, 2000, the Employer shall contribute an amount to the Trust Fund equal to fifty percent (50%) of the Tax Deferred Contributions made with respect to each Participant during such payroll period which are not in excess of six percent (6%) of the Participant's Compensation during such payroll period. Such contributions shall be designated as Employer Matching Contributions. Employer Matching Contributions shall be credited to Participants' Employer Accounts as of the date they are received by the Trustee or otherwise deposited in the Trust Fund.
3.7 Actual Contribution Percentage Limitation on Employer Matching Contributions (Plan Years beginning before January 1, 2001)
(a) Effective with respect to each Plan Year beginning before January 1, 2001, an actual contribution percentage shall be determined for each Covered Employee who is eligible to become a Participant. Such percentage shall be equal to his Employer Matching Contributions for the Plan Year, divided by his Test Compensation in the Plan Year. With respect to Covered Employees who are eligible to participate in the Plan but have no Tax Deferred Contributions made to the Plan on their behalf and therefore do not have any Employer Matching Contributions made to the Plan on their behalf under Section 3.6, such actual contribution percentage shall be zero.
Notwithstanding the foregoing, if for any Plan Year beginning before January 1, 1997, an eligible Highly Compensated Covered Employee is subject to the family aggregation rules of Section 414(q)(6) of the Code because he is either a five percent (5%) owner or one of the top 10 Highly Compensated Employees on the basis of Test Compensation, the actual contribution percentage of such Employee, as so aggregated for such year, shall be determined by combining the Employer Matching Contributions and Test Compensation of all family members (as described in Section 1.15) eligible to participate in the Plan.
(b) The average of the actual contribution percentages for eligible Highly Compensated Covered Employees (High Average), when compared to the average of the actual
contribution percentages for eligible non-Highly Compensated Covered Employees (Low Average) must meet one of the following requirements:
(i) the High Average is no greater than the Low Average times one and one-quarter (1-1/4); or
(ii) the excess of the High Average over the Low Average is not greater than two (2) percentage points and the High Average is no greater than the Low Average times two (2).
The provisions of this paragraph (b) shall be deemed to include the provisions of Section 401(m)(2) of the Code and Section 1.401(m)-1(b) of the Income Tax Regulations which are hereby incorporated by reference.
(c) If two or more plans to which Employer Matching Contributions are
made are treated as one plan for purposes of Section 410(b) of the
Code, such plans shall be treated as one plan for purposes of this
Section 3.7. If any Highly Compensated Covered Employee is a
participant in two or more plans of an Employer or Affiliate to
which such contributions are made, all such contributions shall be
aggregated for purposes of this section. For purposes of this
section, actual contribution percentages shall be calculated to the
nearest one-hundredth of one percent.
(d) To the extent Employer Matching Contributions cause the High Average to fail to meet paragraph (b) above, the Administrator may include such amount of Tax Deferred Contributions (if not used to satisfy the requirements of Section 3.3(b)) as may be necessary to satisfy the requirements of paragraph (b).
(e) The extent to which Employer Matching Contributions cause the High Average to fail to meet paragraph (b) above shall be determined by the Administrator in a reasonable and consistent manner. The Administrator shall not be liable to any Participant (or his beneficiary, if applicable) for any losses caused by inaccurately estimating the amount of any Employer Matching Contributions made on behalf of any Participant in excess of the limitation established in paragraph (b) above and the earnings or losses attributable to such Employer Matching Contributions.
3.8 Treatment of Employer Matching Contributions in Excess of Actual Contribution Percentage Limitation (Plan Years beginning before January 1, 2001)
(a) If the actual contribution percentage limitation of Section 3.7(b) is not satisfied with respect to any given Plan Year beginning before January 1, 1997, the amount of Employer Matching Contributions (as such term includes any Tax Deferred Contribution that may be treated as an Employer Matching Contribution for purposes of Section 3.7(b) hereof) that are in excess of such limitation and are attributable to a Highly Compensated Covered Employee shall be determined as follows:
(i) the actual contribution percentage of the Highly Compensated Covered Employee with the highest actual contribution percentage is reduced to the extent necessary to:
(A) cause such Employee's actual contribution percentage to equal that of the Highly Compensated Covered Employee with the next highest actual contribution percentage; or
(B) enable the Plan to satisfy the actual contribution percentage limitation, if such reduction is less than that required by (A) above.
(ii) The process described in (i) above shall be repeated until the Plan satisfies the actual contribution percentage limitation.
(iii) Notwithstanding the foregoing, the determination of excess Employer Matching Contributions with respect to a given Highly Compensated Covered Employee whose actual contribution percentage is determined under the family aggregation rules described in Section 3.7(a) hereof shall be accomplished by reducing the actual contribution percentage as required by the foregoing provisions of this paragraph (a) and by allocating the excess Employer Matching Contributions derived thereby for the family group among the family members in proportion to the Employer Matching Contributions made on behalf of each family member that is combined to determine the actual contribution percentage of the family group.
(b) If the actual contribution percentage limitation of Section 3.7(b) is not satisfied with respect to any given Plan Year beginning on or after January 1, 1997 and before January 1, 2001, the amount of Employer Matching Contributions (as such term includes any Tax Deferred Contribution that may be treated as an Employer Matching Contribution for purposes of Section 3.7(b) hereof) that are in excess of such limitation and are attributable to a Highly Compensated Covered Employee shall be determined by first computing the total dollar amount of Employer Matching Contributions which must be reduced to satisfy the limitation and by allocating these amounts, in accordance with guidance promulgated by the Secretary of the Treasury or his delegate, to the Highly Compensated Covered Employees on behalf of whom the largest amounts of Employer Matching Contributions have been made to the Plan for the given Plan Year.
(c) Any Employer Matching Contributions attributable to a Highly Compensated Covered Employee that are deemed in excess of the actual contribution percentage limitation for a given Plan Year (through application of paragraph (a) or paragraph (b) above, whichever applicable) shall be distributed (along with any earnings or losses attributable thereto in accordance with regulations) no later than the last day of the Plan Year following the Plan Year to which such excess Employer Matching Contributions relate. Any such excess Employer Matching Contribution that is in an amount greater than the de minimis amount prescribed by the Secretary of the Treasury or his delegate (and any income or loss attributable to such excess Employer Matching Contribution) that is distributed pursuant to this paragraph by two and one-half (2-1/2) months following the Plan Year to which
such excess amounts relate shall be includible in the affected Covered Employee's gross income for his taxable year ending with or within the Plan Year for which the excess Employer Matching Contributions were made. Any excess Employer Matching Contributions (and any income or loss attributable thereto) so distributed more than two-and one-half (2-1/2) months following the Plan Year to which such excess amounts relate and any de minimis excess Employer Matching Contributions (and any income or loss attributable thereto) distributed prior to such date shall be includible in the affected Covered Employee's gross income in the taxable year in which such amounts are distributed.
(d) In making a distribution under paragraph (c), the Administrator shall specifically designate such distribution as a distribution consisting of Employer Matching Contributions in excess of that permitted by the actual contribution percentage limitation, along with any income or loss attributable thereto. Any distribution of less than the entire amount of excess Employer Matching Contributions shall be treated as a pro rata distribution of such excess contribution and income/loss.
(e) Except as otherwise provided by the Secretary of the Treasury or his delegate, any Employer Matching Contribution in excess of the actual contribution percentage limitation shall be taken into account for purposes of determining the Participant's annual additions limitation, as provided in Section 11.11 herein, and shall be taken into account for purposes of Section 404 of the Code, notwithstanding the correction of such excess amount by a distribution under this section. No corrective distribution under this section shall be recognized for purposes of determining whether the minimum distribution requirements of Section 401(a)(9) of the Code are satisfied with respect to any Participant.
(f) Any distribution in accordance with this section shall be made without regard to any notice or consent otherwise required under Sections 411(a)(11) or 417 of the Code.
3.9 Combined Alternative Limitation on Tax Deferred Contributions and Employer Matching Contributions (Plan Years beginning before January 1, 2001)
Any provisions of this Article Three to the contrary notwithstanding, if, for any Plan Year beginning before January 1, 2001, both the High Average specified in Section 3.3(b) (relating to actual deferral percentages) and the High Average specified in Section 3.7(b) (relating to actual contribution percentages) exceed the Low Average specified in such sections by more than twenty-five percent (25%), the Administrator shall apply the aggregate alternative limitation in accordance with Section 1.401(m)-2 of the Income Tax Regulations, the provisions of which are incorporated herein by reference. In the event such combined alternative limitation is not satisfied for any given Plan Year, the Company shall direct the Administrator to reduce the High Average of Section 3.3(b) and/or the High Average of Section 3.7(b) as permitted by Sections 3.4, 3.5 and 3.8 hereof to the extent necessary to satisfy the combined alternative limitation.
For purposes of this Section 3.9, the High Average specified in Sections 3.3(b) and 3.7(b) shall
be determined after taking into account all corrective measures permitted under Sections 3.2, 3.4 and 3.8.
3.10 Safe Harbor Matching Contributions
(a) Effective with respect to each given pay period beginning on and after December 14, 2000, the Employer shall contribute an amount to the Trust Fund equal to the sum of those amounts individually determined with respect to each Participant, as follows:
(i) One hundred percent (100%) of the Tax Deferred Contributions made with respect to the Participant during such pay period which do not exceed three percent (3%) of the Participant's Compensation during such pay period; and
(ii) Fifty percent (50%) of the Tax Deferred Contributions made with respect to the Participant during such pay period which exceed three percent (3%), but do not exceed five percent (5%), of the Participant's Compensation during such pay period.
Such contributions shall be designated as Safe Harbor Matching Contributions and shall be 100% vested and nonforfeitable when made. The Employer shall make Safe Harbor Matching Contributions as soon as practicable following the end of the pay period to which they relate and such contributions shall be credited to Participants' Safe Harbor Matching Accounts as of the date they are received by the Trustee or otherwise deposited in the Trust Fund.
(b) Effective with respect to each Plan Year in which the provisions of
Section 3.10(a) are applicable, the Administrator shall provide
Notice during the "Safe Harbor Notice Period" (as hereinafter
defined) to each Covered Employee who is eligible to participate in
the Plan during such Plan Year. Such Notice shall describe the
following:
(i) The formula used to determine the Safe Harbor Matching Contribution to be made on behalf of such Employee for such Plan Year;
(ii) Any requirements that such Employee must satisfy to become entitled to receive such contributions;
(iii) The type and amount of Compensation that may be deferred under the Plan as Tax Deferred Contributions;
(iv) The procedures for making or changing an election to make Tax Deferred Contributions; and
(v) The withdrawal and vesting provisions applicable to contributions under the Plan.
For purposes hereof, the "Safe Harbor Notice Period" shall mean a period beginning 90 days before the first day of the applicable Plan Year and ending 30 days before the first
day of the applicable Plan Year; provided, however, with respect to a Covered Employee who becomes eligible to participate in the Plan during a given Plan Year in which the provisions of Section 3.10(a) are applicable, the "Safe Harbor Notice Period" shall begin 90 days before the day such Employee may first participate in the Plan and shall end on the day such Employee may first participate in the Plan.
(c) For Plan Years beginning on and after January 1, 2001 in which the
Safe Harbor Matching Contribution of Section 3.10(a) is made and the
Notice requirement of Section 3.10(b) is satisfied, the Employer
elects to treat the Plan as automatically satisfying the
nondiscrimination in amount of employer contribution requirements of
Section 401(a)(4) of the Code. Notwithstanding any provision of this
Section 3.10 to the contrary, the Employer may suspend future Safe
Harbor Matching Contributions at any time provided that the
procedures for implementing such suspension are consistent with
guidance promulgated by the Internal Revenue Service and, provided
further, that for any Plan Year in which such suspension occurs, the
provisions of Section 3.3, 3.4, 3.5, 3.7, 3.8 and 3.9 shall again
become applicable to the extent then required by law.
3.11 Source of Employer Contributions
(a) The Employer shall make all contributions to the Plan without regard to current or accumulated net profits. Notwithstanding the foregoing, for purposes of Sections 401(a)(27) and 401(k) of the Code, the Plan shall continue to be considered a profit sharing plan. All Employer contributions shall be made in cash.
(b) Any provision of the Plan to the contrary notwithstanding, the total
Employer contribution made with respect to any Plan Year, when added
to any other contributions made by the Employer to a plan qualified
under Section 401(a) of the Code, shall not exceed such amount which
is deductible for such Plan Year pursuant to Sections 404(a)(3) or
404(a)(7) of the Code. In any event, all contributions for a Plan
Year shall be paid within the regular or extended time for filing
the Employer's federal income tax return for the fiscal year which
includes the Plan Year end.
3.12 Investment of Employer Contributions
The Employer contributions made on behalf of a Participant shall be
invested by the Trustee in accordance with the Participant's election
under Sections 5.3(a) and 5.4(a).
|
3.13 Recovery of Contributions
Except as provided in this Section 3.13, the assets of the Plan shall
never inure to the benefit of an Employer or Affiliate and shall be held
for the exclusive purpose of providing benefits under the Plan and
defraying reasonable expenses of the Plan. However, no provision of this
Plan shall:
(a) Prohibit the return of a contribution to an Employer or a
Participant within one year after payment if such contribution was
made by a mistake of fact;
(b) Prohibit the return of a contribution which was conditioned upon its
deductibility under Section 404 of the Code (to the extent
disallowed as a deduction);
provided, however, in the case of the return of a contribution which was
made as a result of a mistake of fact, the amount which shall be returned
is the excess of the amount contributed over the amount which would have
been contributed had the mistake of fact not occurred. Further, in the
case of the return of a contribution which was conditioned upon
deductibility, and in the case of a contribution made as the result of a
mistake of fact, earnings attributable to the excess contribution may not
be returned, but losses attributable thereto must reduce the amount to be
returned. Further, in both such cases, if the withdrawal of the amount
attributable to the mistaken or non-deductible contribution would cause
the balance of the account of any Participant to be reduced to less than
the balance which would have been in the account had the mistaken or
non-deductible amount not been contributed, then the amount to be returned
to the Employer will be limited so as to avoid such reduction.
3.14 Other Provisions Relating to Employer Contributions
|
(a) A Participant may as of any time:
(i) suspend the Tax Deferred Contributions made on his behalf; or
(ii) increase or decrease the rate of Tax Deferred Contributions made on his behalf or have such contributions resumed after a period of suspension.
Such suspension or change in rate shall be effective as of the first day of the pay period next following the date the Participant delivers Notice of the same to the Administrator, provided such Notice is delivered to the Administrator in such time as to allow the Administrator a reasonable period within which to act on the election contained therein.
During any period of suspension, regardless of the length of its duration, the Participant's Account shall be maintained in accordance with the procedure set forth in Article Five.
(b) In the event Employer Matching Contributions or Safe Harbor Matching Contributions have been made with respect to Tax Deferred Contributions that are subsequently determined to fail to meet the annual dollar limitation specified in Section 3.2(a) (and if such Excess Deferrals are distributed pursuant to Section 3.2(b)) or the actual deferral
percentage limitation of Section 3.3(b) (and if such excess Tax Deferred Contributions are distributed pursuant to Section 3.4), such Employer Matching Contributions or Safe Harbor Matching Contributions (and any income or loss attributable thereto determined in accordance with regulations) shall be forfeited and applied to reduce future Employer Matching Contributions or Safe Harbor Matching Contributions.
ARTICLE FOUR
ROLLOVER CONTRIBUTIONS
4.1 Rollover Contributions
(a) Under such rules and procedures as the Administrator may establish,
any Covered Employee may make a cash contribution to this Plan of
all or a portion of the amount received by the Covered Employee in
the form of a lump sum distribution from a qualified trust within
the meaning of Section 402(c)(8) of the Code or from a rollover
account described in Section 408(d)(3) of the Code, or may make a
direct rollover of all or a portion of an eligible rollover
distribution within the meaning of Section 402(c)(4) of the Code.
Such rollover contribution shall be allocated to a Rollover Account
established on behalf of the Covered Employee. For purposes of this
Section 4.1, the entire amount of cash to be accepted by this Plan
as a rollover contribution must constitute all or a portion of an
eligible rollover distribution (as defined in Section 6.4). Such
contribution must not include after-tax amounts contributed by the
Employee or regular IRA contributions and, with respect to rollovers
of distributions from a qualified trust or rollover account, must be
received by the Trustee on or before the 60th day after the day on
which the Employee received the distribution. A rollover
contribution may include funds which were contributed on the
Participant's behalf under an arrangement described in Code Section
401(k). Before accepting any rollover contributions from a Covered
Employee, the Administrator shall determine to its satisfaction that
such contribution does not contain amounts from sources other than
those provided in this Section 4.1.
(b) In the event the Administrator has reasonably concluded that an
amount may be accepted by the Plan as a rollover contribution under
Section 4.1(a) but later determines that all or a portion of such
amount is not an eligible rollover distribution (as defined in
Section 6.4) from a qualified trust within the meaning of Section
402(c)(8) of the Code or from a rollover account described in
Section 408(d)(3) of the Code, the Administrator shall cause such
ineligible amount and related investment earnings to be distributed
to the Covered Employee (or, if applicable, beneficiary) as soon as
administratively feasible.
4.2 Vesting of Rollover Contributions
Amounts contributed under Section 4.1 hereof shall at all times be 100% vested.
ARTICLE FIVE
PARTICIPANT ACCOUNTS AND VALUATION OF FUNDS
5.1 Establishment of Participant Accounts
(a) There shall be established and maintained for each Participant a Total Account consisting of the following accounts:
(i) a Tax Deferred Account;
(ii) an Employer Account; and
(iii) for periods on and after January 1, 2001, a Safe Harbor Matching Account.
Under the circumstances described in Article Four, a Participant may also have a Rollover Account maintained on his behalf.
(b) Within each of the accounts listed in Section 5.1(a), separate records shall be kept of the portion, if any, of each account invested in each investment fund or vehicle then offered under the Plan.
5.2 Procedure as of Each Valuation Date
As of each Valuation Date, each Participant's balance in his various accounts shall be adjusted in accordance with the valuation procedure adopted by the Administrator.
5.3 Investment Elections
(a) When a Covered Employee submits his application to become a Participant, he shall give Notice regarding the investment of Tax Deferred Contributions and any Employer Matching Contributions or Safe Harbor Matching Contributions made on his behalf under the Plan. The Notice shall specify, in 1% increments from 0% to 100%:
(i) the percentage of all future Tax Deferred Contributions to be invested in each investment option which is then made available for the investment of Tax Deferred Contributions; and
(ii) the percentage of all future Employer Matching Contributions or, with respect to pay periods beginning on and after December 14, 2000, Safe Harbor Matching Contributions, to be invested in each investment option which is then made available for the investment of Employer Matching Contributions or, with respect to pay periods beginning on and after December 14, 2000, Safe Harbor Matching Contributions.
A Participant may change the investment elections made under this
Section 5.3(a) at any time by giving Notice to the Administrator or
its designee within such time and in accordance with such means as
are designated by the Administrator and communicated to Participants
and Covered Employees. Such Notice of change shall be subject to the
procedural specifications set forth above (and, if applicable,
subject to the limitations set forth in Section 5.4) and, except as
may otherwise be provided in the Trust Agreement, shall be effective
with respect to contributions received by the Trustee (or otherwise
deposited into the Trust Fund) as of the Valuation Date on which the
Notice is received or as of the next following Valuation Date, in
accordance with procedures established by the Administrator, and
communicated to Participants and Covered Employees.
A Covered Employee making a rollover contribution shall give Notice regarding the investment of such contribution. Such Notice shall be delivered on or prior to the date the rollover contribution is effective and shall specify, in 1% increments from 0% to 100%, the percentage of the rollover contribution to be invested in each investment option which is then made available for the investment of rollover contributions.
(b) Each Participant and beneficiary shall have the opportunity to
change the manner in which the Total Account maintained on his
behalf under the Plan is invested. Such opportunity shall be
exercised by giving Notice to the Administrator or its designee
within such time and in accordance with such means as are designated
by the Administrator and communicated to Participants, Covered
Employees and affected beneficiaries. Subject to any minimum dollar
limitation which may be established by the Administrator from
time-to-time, such Notice shall specify, in a whole dollar amount or
in 1% increments from 0% to 100%, the dollar amount, or percentage,
of the Total Account maintained on behalf of the Participant or
beneficiary which is to be invested in each investment option then
made available. Except as may otherwise be set forth in the Trust
Agreement, such Notice shall be effective as of the Valuation Date
on which the Notice is received by the Trustee or as of the next
following Valuation Date, in accordance with procedures established
by the Administrator and communicated to Participants, Covered
Employees and affected beneficiaries. Notwithstanding any provision
of this paragraph (b) to the contrary, (i) the election under this
Section 5.3(b) shall be subject to any contractual limitations
imposed on the direct transfer of assets between given investment
funds, (ii) in no event shall any portion of the Total Account
maintained on behalf of a Participant or beneficiary in the Erie
Family Life Group Annuity Fund be transferred to any other
investment fund and (iii) in no event shall any portion of the Total
Account maintained on behalf of a Participant be transferred to the
Erie Indemnity Stock Fund.
(c) Any investment elections or changes in elections under this Section 5.3 may be limited or delayed by the Administrator or Trustee, if, in the judgment of such party, giving immediate effect to such elections would adversely affect the Total Account balances of a significant number of Participants.
(d) In the event a Participant's or beneficiary's investment election is incomplete, the Participant or beneficiary will be assumed to have chosen to invest in such default fund as is set forth in the Trust Agreement.
(e) Any investment election under the foregoing provisions of this
Section 5.3 shall remain in effect until changed by another election
under this Section.
(f) Each Participant, Covered Employee and beneficiary is solely responsible for the selection of his investment option. The Trustee, the Administrator, the Employer, and the directors, officers, supervisors and other employees of the Employer are not empowered to advise a Participant, Covered Employee or beneficiary as to the manner in which any portion of his Total Account shall be invested. The fact that an investment option is available under the Plan shall not be construed as a recommendation for investment in that investment option.
5.4 Erie Indemnity Stock Fund
The provisions of this Section shall become applicable to the extent to which Participants' and beneficiaries' Employer Accounts and/or Safe Harbor Matching Accounts under the Plan are invested in the Erie Indemnity Stock Fund.
(a) Effective for pay periods beginning on and after May 8, 1997, the Administrator shall make available under the Plan an investment fund which shall consist exclusively of Erie Indemnity Stock; provided, however, that in the discretion of the Trustee, within guidelines set by the Administrator, a portion of such fund may be held in short-term interest-bearing investments or cash pending purchase of Erie Indemnity Stock and to provide sufficient liquidity for exchanges out of the fund, withdrawals and loans. Such investment fund shall be referred to as the "Erie Indemnity Stock Fund". Except as otherwise provided in this Section 5.5, a Participant shall be permitted to invest all or a portion of the Employer Matching Contributions or, with respect to pay periods beginning on and after December 14, 2000, the Safe Harbor Matching Contributions, made on his behalf in the Erie Indemnity Stock Fund in accordance with the provisions of Section 5.3. A Participant shall not be permitted to invest any portion of the Tax Deferred Contributions made on his behalf in the Erie Indemnity Stock Fund nor shall any Participant or Covered Employee be permitted to invest any portion of a rollover contribution in the Erie Indemnity Stock Fund. No Participant, Covered Employee or beneficiary may transfer any portion of the Total Account maintained on his behalf to the Erie Indemnity Stock Fund. For purposes of implementing Participant investment elections under Section 5.3, or a Participant's or beneficiary's distribution election under Section 6.3, the Trustee may, in its discretion, purchase or sell Erie Indemnity Stock on the open market or by privately-negotiated transaction; provided however, that any such purchase or sale shall be made only in exchange for fair market value as determined by the Trustee and, provided further that, no commission shall be charged to or paid by the Plan with respect to any purchase or sale of Erie Indemnity Stock between the Plan and a party in interest (as defined in Section 3(14) of ERISA). Any distributions, dividends or
other income received by the Trustee with respect to the Erie Indemnity Stock Fund shall be reinvested by the Trustee in the Erie Indemnity Stock Fund.
(b) The restrictions contained in this paragraph (b) shall apply to that portion of the Employer Accounts and/or Safe Harbor Matching Accounts maintained on behalf of Participants or beneficiaries which are invested in the Erie Indemnity Stock Fund and, if and to the extent necessary, any election made by a Participant or beneficiary under the Plan shall be deemed modified to be consistent with this paragraph (b).
(i) Notwithstanding the provisions of Section 5.3, and Articles Seven and Fourteen:
(A) No Participant or beneficiary shall, on the basis of material nonpublic information with respect to the Company or its affiliates, make an election permitted by that Section or those Articles if (1) such election would result in an exchange into or out of, loans from, withdrawals from, or an increase or decrease in the amount of contributions to the Erie Indemnity Stock Fund, and (2) the transaction resulting from such election is prohibited by Rule 10b-5.
(B) No officer shall make an election permitted by that
Section or those Articles if such election would result
in a transaction involving the Erie Indemnity Stock Fund
which is not an exempt transaction pursuant to Rule
16b-3.
For purposes of this paragraph (b), the terms "Rule 10b-5" and Rule 16b-3" shall mean the rules, as amended, having those designations promulgated by the United States Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, and the terms "affiliate" and "officer" shall have the meanings set forth in Rule 12b-2 and Rule 16a-1(f), respectively, both as so promulgated and amended.
ARTICLE SIX
VESTING & DISTRIBUTIONS
6.1 Vesting
A Participant shall be fully vested in all contributions made and investment earnings credited under the provisions of the Plan.
6.2 Distributions Upon Retirement or Other Termination of Employment
(a) Subject to the provisions of (b) below, in the event of the termination of a Participant's employment with the Company and Affiliates for any reason, the Participant (or, if deceased, his designated beneficiary) shall receive the vested Total Account maintained on behalf of the Participant in accordance with Section 6.3 if, as of the date of determination, the balance of such vested Total Account is not in excess of $3,500.00. The Administrator or its designee shall make such determination on a periodic basis, not less frequent than annually. If, as of such date of determination, the vested Total Account maintained on behalf of a Participant exceeds $3,500.00, the Participant may elect, in such manner as provided by the Administrator, to either take or commence an immediate distribution of such vested Total Account (with Spousal Consent) in a form permitted under Section 6.3, or to defer receipt of the same until a later date, but not beyond the end of the calendar year in which he attains age 70-1/2. Such election by a Participant must be made in writing to the Administrator on a form or forms designated for such purpose. The failure of any terminating Participant to make an election with respect to a vested Total Account in excess of the $3,500 threshold shall be deemed an election by the Participant to defer receipt of such vested Total Account. A Participant who elects (or is deemed to have elected) to defer receipt of his vested Total Account may request a distribution of his vested Total Account in a form permitted under Section 6.3 at a subsequent date, subject to Spousal Consent. Pending distribution of his Total Account, such Participant shall be permitted to change the manner in which such Total Account is invested in accordance with Section 5.3(b).
(b) The Administrator or its designee shall notify a Participant or
beneficiary of his election right under Section 6.2(a) and, in the
case of a Participant who may defer payment of the vested portion of
his Total Account in accordance with Section 6.2(a), of his right to
defer payment. Such notification shall be provided to the
Participant or beneficiary not less than 30 days and not more than
90 days before payment is made; provided however, that a Participant
or beneficiary may affirmatively elect to be paid the vested Total
Account being maintained on his behalf (such election to include
Spousal Consent, in the case of a Participant) within 30 days after
the Participant or beneficiary received the notice described in this
Section 6.2(b).
(c) A Participant who returns to employment with the Employer on a full or part-time basis prior to distribution of his vested Total Account under paragraph (a) shall be deemed to have cancelled his distribution election as of his date of reemployment.
(d) All payments made pursuant to this Section 6.2 shall be based on the Participant's vested Total Account balance on the Valuation Date as of which payment is made.
6.3 Payment of Amounts Distributed
(a) For periods before January 1, 2001 and except as otherwise provided in Section 6.3(c), all Plan distributions shall be paid in the form of a lump sum. Effective on and after January 1, 2001, distributions to a Participant or beneficiary may be paid in the form of:
(i) a lump sum;
(ii) monthly, quarterly or annual installments that will provide a fixed amount per pay period; or
(iii) monthly, quarterly or annual installments that will provide substantially equal payments over a fixed period that is not in excess of the lesser of fifteen (15) years or the recipient's life expectancy, as determined by the Administrator as of the date the payments begin.
A Participant or beneficiary who has elected payment in an installment form under Section 6.3(a)(ii) or (iii) may elect, at some future date, to have the balance of the vested Total Account maintained on his behalf paid in the form of a lump sum. Except as provided in the preceding sentence, a Participant or beneficiary may not change his elected form of distribution following the date Plan payments begin. A Participant who returns to employment with the Employer on a full or part-time basis following commencement of an installment form of distribution shall be deemed to have cancelled his distribution election as of his date of reemployment. In no event may distributions from the Plan be made in the form of an annuity.
(b) The distributee shall elect to have that portion of his Employer
Account and Safe Harbor Matching Account which is invested in the
Erie Indemnity Stock Fund paid either (i) in whole units of Erie
Indemnity Stock (with fractional units being distributed in cash) or
(ii) in cash. The election of a Participant or beneficiary under
this Section 6.3(b) shall be made in connection with the
Participant's or beneficiary's distribution election(s) under
Section 6.2. In the event distribution is made in the absence of a
Participant's or beneficiary's distribution election, that portion
of an Employer Account and Safe Harbor Matching Account which is
invested in the Erie Indemnity Stock Fund at the time of
distribution shall be paid in cash.
(c) Distribution to a Participant must commence no later than the April 1st of the calendar year following the calendar year in which the Participant attains age 70-1/2. Notwithstanding the foregoing, effective January 1, 1999 with respect to any employed Participant who attains age 70-1/2 during or after the 1999 calendar year, distribution must commence no later than the April 1st of the calendar year following the calendar year in which the Participant retires; provided, however, that if the Participant is a five percent owner (for
purposes of Section 416 of the Code) during the calendar year in
which he attains age 70-1/2 or in a later calendar year,
distribution must commence to the Participant no later than the
April 1st of the calendar year following the calendar year in which
the Participant attains age 70-1/2 or the calendar year in which the
Participant becomes a five percent owner, whichever date is later.
For periods before January 1, 2001, a Participant who is required to
commence payments under this Section 6.3(c), and who continues to
work on either a full or part-time basis, may elect to receive his
Total Account in the form of 10 annual installments instead of a
lump sum distribution. In all cases, for purposes of calculating the
amount of a required minimum distribution, life expectancy will be
determined without regard to the permissive recalculation rule of
Section 401(a)(9)(D) of the Code.
Notwithstanding the foregoing, unless the Participant elects otherwise, distribution of benefits under Section 6.2 will begin no later than the 60th day after the latest of the close of the Plan Year in which:
(i) the Participant attains age 65,
(ii) occurs the fifth anniversary of the Plan Year in which the Participant commenced participation in the Plan, or
(iii) the Participant terminated employment with the Company and Affiliates.
(d) In the event the Participant dies after distribution of his interest
has begun, but prior to distribution of his entire interest, the
remaining portion of such interest shall be distributed in a method
which is at least as rapid as the method being used at the date of
the Participant's death. In the event the Participant dies prior to
commencement of the distribution of his interest, the entire
interest attributable to such Participant shall be distributed
within five years after the date of his death, unless such interest
is payable to a designated beneficiary (as defined in Code Section
401(a)(9)), commences no later than the December 31 of the calendar
year following the calendar year of the Participant's death and is
payable over a period which does not exceed the life expectancy of
such designated beneficiary, as determined by the Administrator as
of the date payments begin.
Notwithstanding the foregoing, if the designated beneficiary of the Participant is the Participant's surviving spouse, the date distributions are required to begin shall be no earlier than the date that the Participant would have attained age 70-1/2 and, if the spouse dies before payments begin, subsequent distribution shall be made as if the spouse had been the Participant.
(e) Any provision of the Plan to the contrary notwithstanding, all distributions shall be determined and made in accordance with the provisions of Section 401(a)(9) of the Code and the regulations promulgated thereunder including 1.401(a)(9)-2. Such provisions shall override any distribution provision of the Plan that is inconsistent with Code Section 401(a)(9).
6.4 Direct Rollovers
(a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, subject to provisions adopted by the Administrator which shall be consistent with income tax regulations, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. The Administrator shall notify a distributee of his right to elect a direct rollover; such notice shall be furnished to the distributee between 30 days and 90 days prior to the date as of which the distributee is to receive a distribution from the Plan, provided that the distributee may affirmatively elect a distribution or direct rollover to occur within 30 days after the furnishing of such notice. Subject to Section 6.2(a), a distributee who has been given a timely notice and explanation of the election to have his eligible rollover distribution paid to an eligible retirement plan, and who has failed to file an election with the Administrator within 30 days of the delivery of such notice and explanation shall be presumed to have elected to have his benefit paid directly to him as of the Valuation Date which is, or which next follows, the end of such 30-day period.
(b) Definitions.
(i) Eligible Rollover Distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include 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 distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of 10 years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); for periods on and after January 1, 1999, that portion of a hardship withdrawal that is attributable to Tax Deferred Contributions; and 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).
(ii) Eligible Retirement Plan: An eligible retirement plan is an
individual retirement account described in Code Section
408(a), an individual retirement annuity described in Code
Section 408(b), an annuity plan described in Code Section
403(a), or a qualified trust described in Code Section 401(a),
that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to
the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
(iii) Distributee: A distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code
Section 414(p), are distributees with regard to the interest of the spouse or former spouse.
(iv) Direct Rollover: A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.
ARTICLE SEVEN
WITHDRAWALS
7.1 Withdrawals Generally
A Participant actively employed with the Company or an Affiliate (herein referred to in this Article as an "Eligible Applicant") may make written application to the Administrator for withdrawal of a portion of his account balance without terminating his employment, but only in such amounts and under such conditions as specified in this Article Seven. All such applications for a withdrawal made by an Eligible Applicant shall be approved or denied by the Administrator in accordance with a uniform, non-discriminatory policy and such action by the Administrator shall be final.
7.2 Hardship Withdrawal
Upon proper written application of an Eligible Applicant in such form as the Administrator may specify, the Administrator may permit the Eligible Applicant withdraw in cash the portion of the balance of his Total Account representing his Rollover Account (if applicable), his Employer Account and his Tax Deferred Contributions without earnings thereon, provided that the reason for such withdrawal is to enable the Eligible Applicant to meet unusual or special situations in his financial affairs resulting in immediate and heavy financial needs of the Eligible Applicant and, provided further, that the Administrator must be satisfied that any withdrawal hereunder is not in excess of the amount necessary to meet the immediate and heavy financial need and is not available from other resources of the Eligible Applicant. The amount available for withdrawal shall be based on the balances of the applicable accounts (and the Tax Deferred Contributions made) on the Valuation Date as of which payment is made. In the event an Eligible Applicant is married at the time of application and the withdrawal request exceeds $3,500, the Administrator shall require Spousal Consent prior to approving the withdrawal application. Amounts required to meet the following items are deemed to be for immediate and heavy financial needs:
(a) payments necessary to prevent the eviction of the Eligible Applicant from, or foreclosure of the mortgage on, his principal residence;
(b) expenses for medical care described in Code Section 213(d) incurred by the Eligible Applicant, his spouse, or his dependents as defined in Code Section 152, or necessary for these persons to obtain medical care described in Section 213(d) of the Code;
(c) costs directly related to the purchase of an Eligible Applicant's principal residence; or
(d) payment of tuition, related educational fees and room and board expenses, for the next 12 months of post-secondary education for the Eligible Applicant, his spouse or his dependents.
7.3 Safe Harbor Distribution
A distribution shall be deemed necessary to satisfy an immediate and heavy financial need of a Eligible Applicant if all of the following requirements are satisfied:
(a) the distribution is not in excess of the amount of the immediate and heavy financial need of the Eligible Applicant including any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from such distribution;
(b) the Eligible Applicant has obtained all other forms of distribution and nontaxable loans currently available from all plans maintained by an Employer;
(c) the Eligible Applicant shall be suspended from making Tax Deferred Contributions to the Plan until the first day of the pay period occurring 12 full months from the effective date of the withdrawal; and
(d) the limitation specified in Section 3.2(a) shall be applied to the aggregated Tax Deferred Contributions made during the taxable years which include the first and last days of the suspension period and not separately to each such taxable year.
7.4 Hardship Withdrawal Priority
(a) A withdrawal pursuant to this Article Seven shall be made from the Total Account maintained on behalf of an Eligible Applicant in the order of priority set forth in this Section 7.4. That portion of a Eligible Applicant's Total Account which is of a lower priority shall be withdrawn only after those portions of the Total Account which are of higher priority have been completely withdrawn:
(i) Rollover Account;
(ii) Employer Account; and
(iii) Tax-Deferred Account (excluding earnings on Tax Deferred Contributions).
In no event shall a hardship withdrawal be taken from the Safe Harbor Matching Account maintained on behalf of an Eligible Applicant.
(b) Subsequent to the determination under paragraph (a), withdrawals shall be made out of those investment options in which the applicable account is invested according to the withdrawal hierarchy designated by the Administrator and communicated to Participants.
7.5 Modifications to Hardship Withdrawal Standards
The Company shall have full discretionary authority to modify the provisions of Sections 7.2, 7.3 and 7.4 provided that any modifications shall be evidenced by a writing approved by the Plan Administrator, shall be consistently applied to all pending and future applications as of the date
of the modification and shall not operate so as to reduce or eliminate any benefit protected under Section 411(d)(6) of the Code that has accrued as of the date of modifications.
ARTICLE EIGHT
THE TRUST FUND
8.1 Trust Agreement
The Company has entered into a Trust Agreement for the purpose of holding assets of the Trust Fund other than assets attributable to amounts invested in a group annuity contract provided by the Erie Family Life Insurance Company. The Trust Agreement provides, among other things, that all funds received by the Trustee thereunder shall be held, administered, invested and distributed by the Trustee, and that no part of the corpus or income of the Trust Fund held by the Trustee shall be used for, or diverted to, purposes other than for the exclusive benefit of participants or their beneficiaries. The Company shall have the authority to remove such Trustee or any successor Trustee, and any Trustee or any successor Trustee may resign. Upon removal or resignation of a Trustee, the Company shall appoint a successor Trustee.
The Company shall have authority to direct that there shall be more than one Trustee under the Trust Agreement and to determine the portion of the assets under the Trust Agreement to be held by each such Trustee. If such a direction is given, the Company shall designate the additional Trustee or Trustees, and each Trustee shall hold and invest and keep records with respect to the portion of such assets held by it.
8.2 Appointment of Independent Accountants
The Company may select a firm of independent public accountants to examine and report on the financial position and the results of the operations of the Trust Fund created under the Plan, at such times as it deems proper and/or necessary.
8.3 Appointment of Investment Manager
The Company may select an independent investment manager to invest the portion of the Trust Fund in each of the various funds. Such investment manager shall be either registered as an investment manager under the Investment Adviser's Act of 1940, a bank, a mutual fund or an insurance company, and as required by the Company, shall acknowledge in writing that he is a fiduciary with respect to the Plan.
8.4 Investment Committee
The Company shall appoint three or more persons to serve as the Employee Savings Plan Investment Committee, to be referred to herein as the "Investment Committee". The Investment Committee shall perform such duties relating to the investment of the Trust Fund as the Company delegates to it and the duties specified in this Section 8.4. Any one or more of the members of the Investment Committee may be officers or directors of an Employer and need not be Participants entitled to benefits under the Plan. The Company in its sole discretion may remove or replace any member at any time with or without cause. A member may resign by delivering his written resignation to the Company, and such resignation shall become effective
upon its delivery or at any other date specified therein. If, at any time, there shall be a vacancy in the membership of the Investment Committee, the remaining member or members shall continue to act until such vacancy is filled by the Company. The Investment Committee shall hold meetings upon such notice, at such place or places and at such times as its members may from time to time determine. A simple majority of the members at the time in office shall constitute a quorum for the transaction of business. All action taken by the Investment Committee at any meeting shall be by vote of the simple majority of those present at such meeting, but the Investment Committee may act without a meeting by unanimous action of its members evidenced by a resolution or other written instrument signed by all members of the Investment Committee.
The Investment Committee shall have the following responsibilities:
(a) to recommend to the Company a Trustee and to recommend any changes in said Trustee;
(b) to recommend to the Company the appointment of fund managers;
(c) to allocate the duties and procedures for the Trustee and investment managers;
(d) to establish a separate investment philosophy and goals for each of the fund managers;
(e) to monitor the Trustee with respect to servicing the trust in a fiduciary capacity; and
(f) to monitor the fund managers with respect to the investment philosophy, goals and rates of return.
8.5 Voting of Erie Indemnity Stock
(a) Each Participant or beneficiary who has an Employer Account maintained under the Plan on his behalf with an investment in the Erie Indemnity Stock Fund shall have the powers and responsibilities set forth in this Section 8.5.
(b) Prior to each meeting of the Class A shareholders of the Company during which a vote of Class A shares is to be taken, the Company shall cause to be sent to each person described in Section 8.5(a), a copy of the proxy solicitation material for such meeting, together with a form requesting confidential voting instructions for the voting of Erie Indemnity Stock held in the Erie Indemnity Stock Fund in proportion to the number of shares or units of the Erie Indemnity Stock Fund held by such a person's Employer Account. Upon receipt of such a person's instructions, the Trustee shall then vote in person, or by proxy, such Erie Indemnity Stock as so instructed.
(c) Instructions received from the persons described in Section 8.5(a) by the Trustee regarding the voting of Erie Indemnity Stock held in the Erie Indemnity Stock Fund shall be held in strictest confidence and shall not be divulged to any other person, including directors, officers or employees of the Company, or any Affiliate, except as otherwise required by law.
(d) Except as otherwise set forth in the Trust Agreement, the Trustee shall vote Erie Indemnity Stock which represents those shares or units of the Erie Indemnity Stock Fund for which the Trustee does not receive affirmative direction from Participants and beneficiaries in the same proportion as the Trustee votes those shares of Erie Indemnity Stock held in the Erie Indemnity Stock Fund for which it has received voting instructions.
ARTICLE NINE
ADMINISTRATION OF THE PLAN
9.1 The Administrator
The Plan shall be administered by a Plan Administrator who shall serve at the pleasure of the Board. The Board has appointed the Company's Senior Vice President, Treasurer and Chief Investment Officer to serve as Administrator. The Administrator may resign by delivering his written resignation to the Board. In the event of the death, resignation or removal of the Administrator, the Board shall fill the vacancy. In making the appointment, the Board shall not be limited to any particular person or group, and nothing herein contained shall be construed to prevent any Participant, director, officer, employee or shareholder of the Employers from serving as the Administrator. The Administrator will not be compensated from the Trust Fund for services performed in such capacity, but the Company will reimburse such individual for expenses reasonably incurred by him in such capacity. The Administrator shall be the "named fiduciary" for purposes of ERISA; provided, however, that Participants and beneficiaries with Employer Accounts under the Plan shall be considered "named fiduciaries" solely to the extent of those fiduciary duties and responsibilities which are directly related to the exercise of voting rights with respect to Plan interests invested in the Erie Indemnity Stock Fund (and not to other aspects of Plan operation and/or administration).
Appointment by the Board shall be evidenced by a certified copy of the resolution of the Board making such appointment, and copies of such certified resolution shall be delivered to the Trustee and to such other persons as may require such notice.
9.2 Powers of Administrator
The Administrator will have full power to administer the Plan in all of its details, subject, however, to the requirements of ERISA. This power shall include having the sole and absolute discretion to interpret and apply the provisions of the Plan, to determine the rights and status hereunder of any individual, to decide disputes arising under the Plan, and to make any determinations and findings of fact with respect to benefits payable hereunder and the persons entitled thereto as may be required for any purpose under the Plan. Without limiting the generality of the above, the Administrator is hereby granted the following authority which it shall discharge in its sole and absolute discretion in accordance with Plan provisions as interpreted by the Administrator:
(a) To make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan, including the modification of the claims procedure under Article Ten in accordance with any regulations issued under Section 503 of ERISA.
(b) To interpret the Plan.
(c) To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan, his period of participation and/or service under the Plan, his date of birth, the value of the Total Account, or any part thereof, maintained on behalf of the person and the
rights of any person to receive a distribution from the Plan and the amount of such distribution.
(d) To compute the amount of Tax Deferred Contributions, Employer Matching Contributions and Safe Harbor Matching Contributions to be made on behalf of any Participant in accordance with the provisions of the Plan.
(e) To authorize the payment of Plan benefits and to direct cessation of benefit payments.
(f) To appoint, employ or engage such other agents, counsel, accountants, consultants and actuaries as may be required to assist in administering the Plan.
(g) To establish procedures to determine whether a domestic relations
order is a qualified domestic relations order within the meaning of
Section 414(p) of the Code, to inform the parties to the order as to
the effect of the order, and to direct the Trustee to hold in escrow
or pay any amounts so directed to be held or paid by the order.
(h) To obtain from the Employers, Employees, Participants, spouses and beneficiaries such information as shall be necessary for the proper administration of the Plan.
(i) To perform all reporting and disclosure requirements imposed upon the Plan by ERISA, the Code or any other lawful authority.
(j) To ensure that procedures are established which are sufficient to safeguard the confidentiality of information relating to the purchase, holding, and sale of Erie Indemnity Stock held in the Erie Indemnity Stock Fund and the exercise of shareholder rights with respect to Erie Indemnity Stock held in the Erie Indemnity Stock Fund and to ensure such procedures are being followed.
(k) To appoint and remove an independent fiduciary for the purpose of carrying-out activities relating to any situations which the Administrator determines involves an unreasonable potential for undue Employer influence with regard to the direct or indirect exercise of shareholder rights with respect to Erie Indemnity Stock holdings in the Erie Indemnity Stock Fund.
(l) To take such steps as it, in its discretion, considers necessary and/or appropriate to remedy an inequity under the Plan that results from incorrect information received or communicated or as the consequence of administrative error.
(m) To correct any defect, reconcile any inconsistency or supply any omission under the Plan.
(n) To delegate its powers and duties to others in accordance with
Section 9.3.
(o) To exercise such other authority and responsibility as is specifically assigned to it under the terms of the Plan and to perform any other acts necessary to the performance of its powers and duties.
The Administrator at its discretion may either request the Company or direct the Fund to pay for any or all services rendered by the Trustee, any investment manager, and by persons appointed, employed or engaged under Section 9.2(f) or under the terms of the Trust Agreement.
The Administrator's interpretations, decisions, computations and determinations under this Section 9.2 which are made in good faith will be final and conclusive upon the Employers, all Participants and all other persons concerned. Any action taken by the Administrator with respect to the rights or benefits of any person under the Plan shall be revocable by the Administrator as to payments or distributions not theretofore made, pursuant to such action, from the Trust Fund; and appropriate adjustments may be made in future payments or distributions to a Participant or beneficiary to offset any excess payment or underpayment previously made to such Participant or beneficiary from the Trust Fund. No ruling or decision of the Administrator in any one case shall create a basis for a retroactive adjustment in any other case prior to the date of a written filing of each specific claim.
9.3 Delegation of Duties
The Administrator may, from time to time, designate any person to carry out any of the responsibilities of the Administrator. The person so designated will have full authority, or such limited authority as the Administrator may specify, to take such actions as are necessary or appropriate to carry out the duties delegated by the Administrator.
9.4 Conclusiveness of Various Documents
The Administrator and the Company and its directors and officers will be entitled to rely upon all tables, valuations, certificates and reports furnished by any actuary, accountant, counsel or other expert appointed, employed or engaged by the Administrator or the Company.
9.5 Actions to be Uniform
Any discretionary actions to be taken under the Plan by the Administrator will be nondiscriminatory and uniform with respect to all persons similarly situated.
9.6 Liability and Indemnification
To the full extent allowed by law, the Administrator shall not incur any
liability to any Participant or beneficiary, or to any other person, by
reason of any act or failure to act on the part of the Administrator if
such act or omission is not the result of the Administrator's gross
negligence, willful misconduct or exercise of bad faith. To the full
extent allowed by law, the Company agrees to indemnify the Administrator
against all liability and expenses (including reasonable attorney's fees
and other reasonable expenses) occasioned by any act or omission to act if
such act or omission is not the result of the Administrator's gross
negligence, willful misconduct or exercise of bad faith. Neither this
Section 9.6 nor any other provision of this Plan shall be applied to
invalidate, modify, or limit in any respect any contract, agreement, or
arrangement for indemnifying or insuring the Administrator against, or
otherwise limiting, such
liability or expense, or for settlement of such liability, to the extent
such contract, agreement, or arrangement is not precluded by the terms of
Section 410 of ERISA.
ARTICLE TEN
CLAIMS PROCEDURE
10.1 Claim for Benefit
If a Participant or a beneficiary asserts a right to any benefit under the
Plan which he has not received, he must file a claim for such benefit with
the Administrator in such manner as provided hereunder. If the
Administrator wholly or partially denies such claim, it shall provide
written notice to the Participant or the beneficiary submitting the
application within 90 days of the receipt by the Administrator of the
|
application. The Administrator shall set forth in the notice:
(a) the specific reasons for denial of the claim;
(b) the specific reference to pertinent provisions of the Plan on which the denial is based;
(c) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary; and
(d) further steps which the Participant or beneficiary may take in order
to have his claim reviewed (including a statement that the claimant
or his duly authorized representative may review Plan documents and
submit issues and comments regarding the claim to the
Administrator).
10.2 Review of Denial of Claim
A Participant or beneficiary whose application for benefits is denied may
request a full and fair review of the decision denying the claim within 90
days after receipt of the notice of the denial provided by the
Administrator. The Participant or beneficiary may:
(a) request a hearing by the Administrator upon written application to
the Administrator;
(b) review pertinent Plan documents in the possession of the
Administrator; and
(c) submit issues and comments in writing to the Administrator for
review.
If a hearing is requested by a Participant or beneficiary, such hearing
shall be held within 30 days after the Administrator's receipt of the
request for review.
10.3 Decision by Administrator
A decision on review by the Administrator shall be made promptly and not
later than 60 days after the receipt by the Administrator of a request for
review, unless special circumstances (such as the need to hold a hearing)
require an extension of time for processing, in which case the Participant
or beneficiary will be notified of the extension and a decision shall be
rendered as soon as possible, but not later than 120 days after the
receipt of the request for review. The
|
decision shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the Participant or beneficiary, and specific references to the pertinent provisions of the Plan on which the decision is based.
ARTICLE ELEVEN
MISCELLANEOUS
11.1 Non-Alienation of Benefits
(a) Except as provided in Section 11.1(b) or 11.1(c), no benefit payable under the Plan shall be subject in any manner to anticipation, sale, transfer, assignment, pledge, encumbrance, security interest or charge, and any action by way of anticipating, alienating, selling, transferring, assigning, pledging, encumbering, charging or granting a security interest in the same shall be void and of no effect; nor shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit.
(b) Section 11.1(a) shall not apply to the creation, assignment, or recognition of a right to any benefit payable pursuant to a Qualified Domestic Relations Order. The Company shall establish reasonable procedures to determine the status of domestic relations orders and to administer distributions under such orders which are deemed to be Qualified Domestic Relations Orders. Such procedures shall be in writing and shall comply with the provisions of Section 414(p) of the Code. To the extent that, because of a Qualified Domestic Relations Order, more than one individual is to be treated as a surviving spouse, the total amount payable from the Plan as a result of the death of a Participant shall not exceed the amount that would be payable from the Plan if there were only one surviving spouse.
(c) Notwithstanding the provisions of Section 11.1(a), the Plan may offset any portion of the Total Account maintained on behalf of a Participant or beneficiary against a claim of the Plan arising:
(i) as a result of the Participant's or beneficiary's conviction of a crime involving the Plan; or
(ii) with regard to the Participant's or beneficiary's violation of ERISA's fiduciary provisions upon:
(A) the entry of any civil judgment, consent order, or decree against the Participant or beneficiary; or
(B) the execution of any settlement agreement between the Participant and the Department of Labor or Pension Benefit Guaranty Corporation.
The provisions of this Section 11.1(c) shall apply only to orders, judgments, decrees and settlements issued or entered into after August 5, 1997, and which expressly provide for such offset.
11.2 Risk to Participants and Source of Payments
Each Participant assumes all risk in connection with any decrease in the
value of any investment fund in the Trust Fund, and the Trust Fund shall
be the sole source of any payments to be made to Participants or their
beneficiaries under the Plan.
11.3 Expenses
Subject to any restriction applicable under Section 5.4(a), brokerage
fees, transfer taxes and other expenses incurred by the Trustee in
connection with the purchase or sale of securities may be added to the
cost of such securities or deducted from the proceeds thereof, as the case
may be. Earnings credited to accounts invested in mutual funds shall be
net of direct fund management expenses. Fees and other expenses associated
with a self-directed "open option" arrangement shall be assessed directly
against the Total Account maintained on behalf of the Participant or
beneficiary participating in such arrangement.
All other costs and expenses incurred in administering the Plan shall be
paid by the Company or an Employer, unless the Company authorizes the
payment of such expenses from the Trust Fund.
11.4 Rights of Participants
No Participant or beneficiary shall have any right or interest under the
Plan unless and until he becomes entitled thereto as provided in the Plan.
The adoption and maintenance of the Plan shall not be deemed to constitute
a contract between an Employer and any Employee or Participant. Inclusion
in the Plan will not affect an Employer's right to discharge or otherwise
discipline Employees and membership in the Plan will not give any Employee
the right to be retained in the service of an Employer nor any right or
claim to a benefit unless such right is specifically granted under the
terms of the Plan.
The Plan shall be binding on all Participants and their spouses and
beneficiaries and upon heirs, executors, administrators, successors, and
assigns of all persons having an interest herein. The provisions of the
Plan in no event shall be considered as giving any such person any legal
or equitable right against the Company, an Employer or an Affiliate, any
of its officers, employees, directors, or shareholders, or against the
Trustee, except such rights as are specifically provided for in the Plan
or hereafter created in accordance with the terms of the Plan.
11.5 Statement of Accounts
As soon as practicable after the last day of March, June, September and
December, or such other time or times as the Administrator shall
designate, the Company shall cause to be sent to each current or former
Participant a written statement of his account.
|
11.6 Designation of Beneficiary
(a) Each Participant shall file with the Administrator, on such form as may be provided by the Administrator, a written designation of a beneficiary or beneficiaries who shall receive payment of the Participant's interest under the Plan in the event of his death. If the Participant is married, the Participant's beneficiary must be his spouse (in accordance with Code Section 401(a)(11)(B)(iii)) unless Spousal Consent requirements are satisfied. In the event the Participant shall die and there is no properly designated beneficiary then living, the interest of the Participant under the Plan shall be paid in a lump sum to his surviving spouse, or, if there is no surviving spouse, to his estate or other successor, all as the Administrator may determine.
(b) A beneficiary entitled to a payment of all or a portion of a
Participant's Total Account due to the death of the Participant may
disclaim his interest therein subject to the following requirements.
To be eligible to disclaim, a beneficiary must be a natural person,
must not have received a distribution of all or any portion of said
Total Account at the time such disclaimer is executed and delivered,
and must have attained at least age twenty-one (21) years as of the
date of the Participant's death. Any disclaimer must be in writing
and must be executed personally by the beneficiary before a notary
public. A disclaimer shall state that the beneficiary's entire
interest is disclaimed or shall specify what portion thereof is
disclaimed. To be effective, an original executed copy of the
disclaimer must be both executed and actually delivered to the
Administrator after the date of the Participant's death but not
later than one hundred eighty (180) days after the date of the
Participant's death. A disclaimer shall be irrevocable when
delivered to the Administrator. A disclaimer shall be considered to
be delivered to the Administrator only when actually received by the
Administrator. The Administrator shall be the sole judge of the
content, interpretation and validity of a purported disclaimer. Upon
the filing of a valid disclaimer, the beneficiary shall be
considered not to have survived the Participant as to the interest
disclaimed. A disclaimer by a beneficiary shall not be considered to
be a transfer of an interest or an assignment or alienation of
benefits in violation of Section 11.1 hereof. No other form of
attempted disclaimer shall be recognized by the Administrator.
11.7 Payment to Incompetents
If any person entitled to receive any benefits hereunder is a minor, or is
in the judgment of the Administrator, legally, physically, or mentally
incapable of personally receiving and receipting for any distribution, the
Administrator may instruct the Trustee to make distribution to such other
person, persons or institutions who, in the judgment of the Administrator,
are then maintaining or have custody of such distributee. As a condition
to the issuance of such instruction for the distribution to such other
person or institution, the Administrator may require such person or
institution to exhibit or to secure an order, decree or judgment of a
court of competent jurisdiction with respect to the incapacity of the
person who would otherwise be entitled to receive the benefits.
11.8 Authority to Determine Payee
|
The determination of the Administrator as to the identity of the proper
payee of any benefit under the Plan and the amount of such benefit
properly payable shall be conclusive, and payment in accordance with such
determination shall constitute a complete discharge of all obligations on
account of such benefit.
11.9 Severability
If any provision of this Plan is held to be invalid or unenforceable, such
determination shall not affect the other provisions of this Plan. In such
event, this Plan shall be construed and enforced as if such provision had
not been included herein.
|
11.10 Employer Records
The records of a Participant's Employer shall be presumed to be conclusive of the facts concerning his employment or non-employment, periods of service and Compensation unless shown beyond a reasonable doubt to be incorrect.
11.11 Limitation on Contributions
(a) In no event shall the total annual additions on behalf of a
Participant under this Plan and under any other defined contribution
plan or plans maintained by the Employer with respect to any
Limitation Year exceed the lesser of $30,000 (or such dollar figure,
as increased in accordance with Section 415(d) of the Code for years
up to and including the given Limitation Year) or 25% of the Test
Compensation, paid to the Participant by an Employer within such
Limitation Year. All amounts contributed to any defined contribution
plan maintained by an Employer or an Affiliate (taking into account
Section 415(h) of the Code) other than any rollover contribution and
any salary reduction contribution to a simplified employee pension
shall be aggregated with contributions made by an Employer under
this Plan in computing any Employee's total annual additions
limitation. For purposes hereof, the Limitation Year shall be the
calendar year.
For purposes of this section, "total annual additions" for any Limitation Year shall mean the sum of the following:
(i) Employer contributions under this Plan and under any other defined contribution plan maintained by an Employer or Affiliate;
(ii) Reallocated forfeitures under any defined contribution plan maintained by an Employer or Affiliate;
(iii) After-tax contributions under any other defined contribution plan maintained by an Employer or Affiliate; and
(iv) Amounts allocated to an individual medical account, as defined in Section 415(1)(2) of the Code, as part of a pension or annuity plan and amounts
derived from contributions paid or accrued which are attributable to post-retirement medical benefits described in Section 419A(d) of the Code, under a welfare benefit fund (as defined in Section 419(e) of the Code) maintained by an Employer or Affiliate.
Loan repayments under Section 14.2 shall not be recognized as annual additions for purposes of this section.
(b) In the event that a Participant's total annual additions for any Limitation Year exceed the limitations of Section 11.11(a) because of a reasonable error in estimating the Participant's Compensation, a reasonable error in determining the amount of Tax Deferred Contributions that a Participant may make within the limitations of paragraph (a) above or due to such other facts and circumstances as the Commissioner of Internal Revenue finds justifiable, his total annual additions shall be reduced in the following order until such limitations are met:
(i) any after-tax employee contributions made in the Limitation Year by the Participant under any other plan maintained by an Employer or Affiliate shall be returned to the Participant in accordance with the provisions of such plan to the extent necessary to meet the above limitations;
(ii) If further corrective adjustment is necessary, Tax Deferred Contributions made on the Participant's behalf in the Limitation Year that are in excess of five percent (5%) of the Participant's Compensation (six percent (6%) for Limitation Years beginning before January 1, 2001) shall be distributed to the Participant;
(iii) If further corrective adjustment is necessary with respect to a Limitation Year beginning on or after January 1, 2001, the Tax Deferred Contributions made on the Participant's behalf in the Limitation Year that are not in excess of five percent (5%) of the Participant's Compensation and the Safe Harbor Matching Contributions made on the Participant's behalf in the Limitation Year shall be reduced proportionately to the extent necessary to meet the above limitations.
(iv) If further corrective adjustment is necessary with respect to a Limitation Year beginning before January 1, 2001, the Tax Deferred Contributions made on the Participant's behalf in the Limitation Year that are not in excess of six percent (6%) of the Participant's Compensation and the Employer Matching Contributions made on the Participant's behalf in the Limitation Year shall be reduced proportionately to the extent necessary to meet the above limitations.
Tax Deferred Contributions so reduced shall be distributed to the Participant. Employer Matching Contributions and Safe Harbor Matching Contributions so reduced shall be held unallocated in a suspense account and shall be applied to reduce the Employer Matching Contribution or Safe Harbor Matching Contribution with respect to all Participants for the subsequent Limitation Year. Any distribution under this paragraph
which includes Tax Deferred Contributions shall also include gains on such Tax Deferred Contributions.
The Administrator may change the order of the reductions listed above in any manner which, in the judgment of the Administrator, is in the Participant's best interest.
(c) If a Participant is also a participant in a defined benefit plan maintained by an Employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any Limitation Year beginning after December 31, 1982 and before January 1, 2000 shall not exceed 1.0. The defined benefit plan fraction for any Limitation Year is a fraction, the numerator of which is the projected annual benefit of the Participant under such Plan (determined as of the close of the year), and the denominator of which is the lesser of 1.25 times the dollar limit in Section 415(b)(1)(A) of the Code or 1.4 times 100% of the Participant's average Test Compensation over that period of consecutive calendar years (not more than three) during which his Test Compensation was the highest. The defined contribution plan fraction for any Limitation Year is a fraction the numerator of which is the sum of the annual additions on behalf of the Participant under this Plan and any other defined contribution plan or plans maintained by an Employer as of the close of the year and the denominator of which is the sum of 1.25 times the maximum dollar limit or 1.4 times the maximum percentage limit, whichever is smaller on a year-by-year basis, which could have been made under Section 415(c) of the Code for such year and for each prior year of service with the Employer, subject to any transition adjustments allowed by law and adopted by the Administrator. Any adjustment necessary to comply with the limitations of this Section 11.11(c) shall be made in the Participant's benefit payable under the defined benefit plan. The provisions of this paragraph (c) shall not apply with respect to Limitation Years beginning on and after January 1, 2000.
(d) The sole purpose of this Section is to comply with Sections 415(c) and 415(e) of the Code and the terms of this Section shall be interpreted, applied, and if and to the extent necessary, shall be deemed modified so as to satisfy solely the minimum requirements of Sections 415(c) and 415(e) of the Code and the regulations promulgated with respect thereto.
11.12 IRC 414(u) Compliance Provision
Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service shall be provided in accordance with Section 414(u) of the Code.
ARTICLE TWELVE
AMENDMENT, TERMINATION OR MERGER OF THE PLAN
12.1 Right to Amend
The Company reserves the right at any time or times to modify or amend the
Plan by resolution of the Board setting forth such modification or
amendment; provided, however, that no such modification or amendment shall
be made which would:
(a) increase the duties or liabilities of the Trustee without its
written consent; or
(b) divest a Participant of any portion of his Total Account hereunder
that has accrued to him prior to the effective date of such
amendment; or
(c) cause or permit any portion of the Trust Fund to be converted to or
become the property of the Company; or
(d) cause any portion of the Trust Fund to be used for purposes other
than the exclusive benefit of the Participants or their
beneficiaries;
unless such modification or amendment is necessary or appropriate to
enable the Plan or Trust Fund to qualify under Section 401 of the Code, as
amended from time to time, or to retain for the Plan or Trust Fund such
qualified status.
12.2 Right to Terminate
(a) Although it is the expectation of the Company that it will continue
the Plan as a permanent retirement program for the benefit of the
Employees eligible hereunder, the Company reserves the right at any
time, by action of its Board, at its sole discretion, to terminate
the Plan in whole or in part. There shall be no liability or
obligation on the part of an Employer to make any further
contributions to the Trust Fund in the event of the termination of
the Plan.
(b) Notwithstanding anything to the contrary contained herein, Trustee's
fees and other expenses incident to the operation and management of
the Plan incurred after the termination of the Plan may, at the
discretion of the Company, be paid from assets of the Trust Fund
that are not part of any Participant's Total Account.
(c) In the event of the termination of the Plan in whole or in part or
in the event of the complete discontinuance of Employer
contributions under the Plan, each affected Participant's interest
in the Trust Fund shall become 100% vested and shall be
nonforfeitable.
|
12.3 Merger, Transfer of Assets or Liabilities
The Company may merge or consolidate the Plan with, transfer assets and
liabilities of the Plan to, or receive a transfer of assets and
liabilities from, any other plan without the consent of any other Employer
or other person, if such transfer is effected in accordance with
applicable law and if such other plan meets the requirements of Code
Sections 401(a) and 501(a), permits such transfer or the receipt of such
transfer and, with respect to liabilities to be transferred from this Plan
to such other plan, satisfies the requirements of Code Sections 411(d)(6).
This Plan may not be merged or consolidated with any other plan, nor may
any assets or liabilities of this Plan be transferred to any other plan,
unless the terms of the merger, consolidation or transfer are such that
each Participant in the Plan would, if the Plan were terminated
immediately after such merger, consolidation or transfer, receive a
benefit equal to or greater than the benefit he would have been entitled
to receive if this Plan had terminated immediately prior to the merger,
consolidation or transfer.
|
ARTICLE THIRTEEN
TOP HEAVY PROVISIONS
13.1 Top Heavy Provisions
(a) The Plan shall be deemed to be a top heavy plan for a Plan Year if, as of a Determination Date, the aggregate value of the Total Accounts of Key Employee Participants exceeds 60% of the aggregate value of the Total Accounts of all Participants (excluding, for such determination, "unrelated" rollovers), or if the Plan is part of a required Aggregation Group which is top heavy. Such value shall be determined by using the single accrual method which is used for all plans of the Employers (including entities required to be aggregated with the Employer pursuant to Sections 414(b), (c), (m) and (o) of the Code) and by taking into account any distributions made during the five Plan Years ending on the Determination Date. If a Participant was not a Key Employee during the five Plan Years ending on the Determination Date, but such individual was a Key Employee during any previous Plan Year, the value of his Total Account shall not be taken into account. Further, if any Employee has not performed services for an Employer at any time during the five-year period ending on the Determination Date, the value of such Employee's Total Account shall be disregarded. In no event shall the Plan be considered top heavy if it is part of a required or permissive Aggregation Group which is not top heavy.
(b) For purposes of this Section 13.1, the following terms shall have the meaning indicated:
(i) Key Employee means any Employee who at any time during the Plan Year or any of the four preceding Plan Years is:
(A) an officer of an Employer or an Affiliate. No more than
50 Employees (or, if lesser, the greater of three
Employees or 10 percent of the Employees) shall be
treated as officers. No Employee whose annual Test
Compensation is less than 50% of the amount specified in
Section 415(b)(1)(A) of the Code, adjusted for any
automatic increases permitted by law or regulation,
shall be treated as an officer;
(B) one of the 10 Employees owning or considered as owning (within the meaning of Section 318 of the Code) the largest interest in an Employer, if such Employee's annual Test Compensation is greater than the amount specified in Section 415(c)(1)(A) of the Code, adjusted for any automatic increases permitted by law or regulation;
(C) a more than five percent owner of an Employer; or
(D) a more than one percent owner of an Employer having annual Test Compensation from an Employer of more than $150,000.
For the purpose of determining top 10 owners, five percent owners and one percent owners, neither the aggregation rules nor the rules of Sections 414(b), (c) and (m) shall apply.
(ii) Non-Key Employee means an Employee who is not a Key Employee.
(iii) Determination Date means the last day of the preceding Plan Year.
(iv) Plan Year means any calendar year commencing on or after December 31, 1988.
(v) A required Aggregation Group is each plan of an Employer which
provides benefits to a Key Employee and each other plan of an
Employer, if any, which is included with this Plan for
purposes of meeting the requirements of Sections 401(a)(4) or
410 of the Code. A permissive Aggregation Group is this Plan
and each other plan of an Employer which in total would
continue to meet the requirements of Section 401(a)(4) and 410
of the Code with such other plan being taken into account. For
purposes hereof, an Aggregation Group shall include a
terminated plan if such Plan was maintained within the
five-year period ending on the Determination Date for the Plan
Year in question and it would, but for the fact if terminated,
be part of a required Aggregation Group for such Plan Year. An
Aggregation Group will be deemed to be a "top-heavy group" if
the sum of (a) the present value of the cumulative accrued
benefits for Key Employees under all defined benefit plans
included in such group, and (b) the aggregate of the accounts
of Key employees under all defined contribution plans included
in such group, exceeds 60% of a similar sum determined for all
Employees.
(vi) "Employee" and "Key Employee" shall also include beneficiaries
of such an Employee. Inherited benefits shall retain the
character of the benefits of the Participant.
13.2 Minimum Contribution
Notwithstanding the provisions of Article Three, for any Plan Year during
which the Plan is deemed to be top heavy, the Employers shall make a
minimum contribution on behalf of each Non-Key Employee Participant which
shall be no less than three percent (3%) of the Test Compensation of the
Non-Key Employee Participant; provided, however, that if the Employer
contribution allocated on behalf of the Key Employee Participant for whom
such allocation represents the highest percentage of Test Compensation for
the given Plan Year of all Key Employee Participants is a lesser
percentage, the minimum contribution shall be reduced to such lesser
percentage. For purposes of this Section 13.2 all defined contribution
plans that are included in an Aggregation Group shall be considered as one
plan. In the case of Employees covered under both this Plan and any
defined benefit plan maintained by an Employer or Affiliate, the defined
benefit plan will provide the top heavy minimum benefit and will be offset
by the benefit provided under this Plan. Non-Key Covered Employees who are
eligible to participate in the Plan or who have become participants in the
Plan but who subsequently fail to complete 1,000 Hours of Service by the
end of the applicable Plan Year (and who have not
|
separated from service by the end of such Plan Year) shall receive an
allocation of a minimum contribution.
Except to the extent used for the purpose of determining the largest
percentage of Test Compensation contributed by an Employer for a given
year on behalf of a Key Employee Participant, Tax Deferred Contributions
described in Section 3.1 and Employer Matching Contributions described in
Section 3.6 shall not be considered Employer contributions under this
Section 13.2.
13.3 Plan Year in Which Plan is Top Heavy
In any Plan Year in which the Plan is top heavy, but not super top heavy,
the factor of 1.25 in Section 11.11(c) shall be changed to 1.00 wherever
it appears therein; provided, however, that such change shall not have the
effect of reducing any benefit accrued under a defined benefit plan prior
to the first day of the Plan Year in which this provision becomes
applicable and, provided further, that this Section 13.3 shall not apply
with respect to Limitation Years beginning on and after January 1, 2000.
13.4 Plan Year in Which Plan Ceases to be Top Heavy
In any Plan Year that the Plan ceases to be top heavy, the above
provisions shall no longer apply.
13.5 Limited Application of this Article
The sole purpose of this Article is to comply with Section 416 of the Code
and the terms of this Article shall be interpreted, applied and, if and to
the extent necessary, shall be deemed modified so as to satisfy solely the
minimum requirements of Section 416 of the Code and the regulations
promulgated with respect thereto.
|
ARTICLE FOURTEEN
LOANS
14.1 Availability of Loans
Subject to the provisions of this Article Fourteen, Participants actively
employed with the Company or an Affiliate (herein referred to in this
Article as "Eligible Applicants") may apply for a loan from the Plan. All
such applications for a loan made by an Eligible Applicant shall be
approved or denied by the Administrator in accordance with a uniform,
non-discriminatory policy and such action by the Administrator shall be
final. All loans approved shall be effective as of the "loan effective
date" (as hereinafter defined) provided the loan application was submitted
to the Administrator within a reasonable time (as determined by the
Administrator) prior to the loan effective date. All loans shall be made
only in consideration of adequate security. For purposes hereof the term
"loan effective date" shall mean the date, mutually agreed upon by the
Participant and the Administrator, on which the loan shall be considered
effective.
The Administrator may establish rules governing the granting of loans,
provided (i) that such rules are not inconsistent with the provisions of
this Article Fourteen, (ii) that any such rules adopted by the
Administrator shall be described in the documents supporting the loan
transaction and (iii) that loans are made available to all Eligible
Applicants on a reasonably equivalent basis and are not made available to
Eligible Applicants who are Highly Compensated in an amount greater than
the amount made available to other Eligible Applicants.
14.2 Terms and Conditions of Participant Loans
(a) Amount of Loan. At the time the loan is made, the principal amount
of the loan, when added to all other outstanding loans of the
Participant from the Plan and any other qualified plan of an
Employer and Affiliates, shall not exceed the lesser of:
(i) $50,000, as reduced by the excess, if any, of the Eligible
Applicant's highest outstanding loan balance from the Plan
during the one-year period ending on the day before the date
such new loan is secured over the outstanding balance of loans
from the Plan on the date such loan is made; or
(ii) one-half of the current value of the Total Account maintained
on behalf of the Eligible Applicant under the Plan.
The current value of a Total Account shall be determined as of the
Valuation Date on which the Eligible Applicant initiates the loan
process by providing Notice to the Administrator or its designee. No
loan shall be made in an amount less than $1,000. Any loan amount
shall be made in accordance with Section 14.3.
(b) Application for Loan. The Eligible Applicant must give the
Administrator adequate written notice, as determined by the
Administrator, of the requested amount and desired
|
time for receiving a loan. In addition, if an Eligible Applicant is married at the time of application, the Administrator shall require Spousal Consent prior to approving the loan application.
(c) Length of Loan. The Eligible Applicant and the Administrator shall arrange for the repayment of a Plan loan. The period of repayment shall not exceed five years from the date the loan is made. All repayment schedules (whether by payroll withholding or otherwise) shall commence as of the next administratively feasible pay period following the disbursement of the loan and shall provide for substantially level amortization of principal and interest. An Eligible Applicant on a leave of absence and an Eligible Applicant who terminates employment with the Company and Affiliates must make principal and interest payments in the amount and on such dates as otherwise due. In the event such payments are not made the maturity of the loan shall be accelerated and the outstanding principal amount of the loan, together with all accrued interest, shall be deemed immediately due and distributable at such date or dates as the Administrator deems reasonable and as may be specified by applicable law and regulation. Except as otherwise permitted in Income Tax Regulations, in no event shall the date of deemed distribution extend beyond the end of the calendar quarter next following the calendar quarter in which the payment was not made.
(d) Prepayment. The Eligible Applicant shall be permitted to repay the loan in total as of any date prior to maturity without penalty.
(e) Note. The loan shall be evidenced by a promissory note executed by the Eligible Applicant and delivered to the Administrator. The Eligible Applicant will agree to execute any other documents (e.g., payroll withholding forms) that may be necessary or appropriate to effect the loan.
(f) Interest. All loans shall be considered investments of the Trust and interest shall be charged on the loan at the rate set by the Administrator as of the loan effective date. Such rate shall be based on the prime lending rate charged by a financial institution selected by the Administrator, plus 100 basis points.
(g) Security. Subject to the extent required under regulations promulgated by the Secretary of Labor or his delegate, a Plan loan shall be secured by an assignment of the Eligible Applicant's right, title and interest in that portion of his Total Account under the Plan as shall adequately secure the loan, provided such security shall not exceed one-half of the current value of the Eligible Applicant's vested Total Account. The Administrator may also require such additional collateral as may be deemed necessary to adequately secure repayment of the loan.
(h) Default. The Administrator shall take reasonable steps to secure repayment of any loan granted hereunder in accordance with its terms; however, when the Administrator declares a loan to an Eligible Applicant to be in default, the outstanding balance of the loan, together with unpaid, accrued interest, shall be deemed a lien against the Total Account maintained on behalf of the Eligible Applicant and no contributions or distributions of any
kind (other than distributions due to loan default) may thereafter be made by or on behalf of the Eligible Applicant to or from this Plan during the continuance of the default. The Administrator shall take such reasonable steps as it shall deem necessary or appropriate to eliminate the default before causing an offset distribution to be made with respect to the Eligible Applicant for the purpose of fully amortizing the loan outstanding; however, should the loan remain in default after these administrative procedures are taken, the Administrator will consider the entire amount of the loan outstanding (including all accrued interest to date) as a distribution as of the first date, on or following the administrative procedures, on which the Eligible Applicant has a distributable event and will process the Total Account of the Eligible Applicant accordingly.
(j) Other Terms and Conditions. The Administrator shall fix such other
terms and conditions of the loan as it deems necessary to comply
with legal requirements, to maintain the qualification of the Plan
and Trust Fund under Code Section 401(a), to exempt the loan
transaction from the prohibited transaction rules of under Code
Section 4975, or to prevent the treatment of the loan for tax
purposes as a distribution to the Eligible Participant. The
Administrator may fix other terms and conditions of the loan, not
inconsistent with the provisions of this Article Fourteen.
(k) No Prohibited Transactions. No loan shall be made unless such loan
is exempt from the tax imposed on prohibited transactions by Code
Section 4975 or would be exempt from such tax (if the Eligible
Participant were a disqualified person as defined in Section
4975(e)(2) of the Code) by reason of Code Section 4975(d)(1).
10.3 Loan Accounts
A loan made by the Plan to a Eligible Applicant in accordance with
Sections 14.1 and 14.2 shall be from the Total Account maintained on
behalf of such Eligible Applicant and from the investment funds in which
such Total Account is invested in such order of priority as the
Administrator, pursuant to a uniform and nondiscriminatory policy, shall
direct. Payments of principal and interest on loans shall be paid over to
the Trustee as soon as possible after each payroll deduction or other
repayment and shall be credited to the Total Account of the Eligible
Applicant as of the date the repayments are received by the Trustee. Loan
repayments will be credited in such manner as determined by the
Administrator to those accounts and those investment options which were
accessed in connection with the granting of the loan to the Eligible
Applicant. The Administrator shall have the authority to establish other
reasonable rules, not inconsistent with the provisions of the Plan,
governing the establishment and maintenance of loan accounts.
|
Executed at Erie, Pennsylvania, this 10th day of December, 2000.
ERIE INDEMNITY COMPANY
By: /s/ Stephen A. Milne
-------------------------------
Title: President and CEO
|
EXHIBIT 10.8 - FIRST AMENDMENT TO
ERIE INSURANCE GROUP EMPLOYEE SAVINGS PLAN
(As Amended And Restated Effective as of January 1, 2001)
WHEREAS, Erie Indemnity Company (the "Company") maintains the Erie Insurance Group Employee Savings Plan (the "Plan") under an amendment and restatement effective as of January 1, 2001;
WHEREAS, the Plan provides that the Company may amend the Plan; and
WHEREAS, the Company wishes to amend the Plan as hereinafter set forth. The purpose of this Amendment is to make changes in connection with recent legislative and regulatory changes affecting tax-qualified plans. The provisions of this Amendment shall be effective as of the dates stated herein. Words and phrases used herein with initial capital letters which are defined in the Plan are used herein as defined.
NOW THEREFORE, the Company hereby amends the Plan as follows:
1. Effective January 1, 2002, the following provisions shall be added to the end of the first paragraph of Section 6.3(c) of the Plan:
"With respect to distribution under the Plan made in calendar years beginning on or after January 1, 2002, the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the regulations under Section 401(a)(9) that were proposed in January 2001, notwithstanding any provisions of the Plan to the contrary. This amendment will continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Section 401(a)(9) of the Code or such other date specified in guidance published by the Internal Revenue Service."
2. Effective January 1, 2002, Sections 10.1, 10.2 and 10.3 of the Plan shall be deleted in their entirety and the following shall be inserted in lieu thereof:
"10.1 Claims Review Procedure.
The Administrator shall be responsible for the claims procedure under the Plan. An application for a distribution, withdrawal or loan under the Plan shall be considered a claim for purposes of this Article Ten.
10.2 Original Claim.
In the event a claim of any Participant, beneficiary, alternate
payee, or other person (hereinafter referred to in this Section as
the "Claimant") for a benefit is partially or completely denied, the
Administrator shall give, within ninety (90) days after receipt of
the claim (or if special circumstances, made known to the Claimant,
require an extension of time for processing the claim, within one
hundred eighty (180) days after receipt of the claim), written
notice of such denial to the Claimant. Such notice shall set forth,
in a manner calculated to be understood by the Claimant, the
specific reason or reasons for the denial (with reference to
pertinent Plan provisions upon which the denial is based); an
explanation of additional material or information, if any, necessary
for the Claimant to perfect the claim; a statement of why the
material or information is necessary; on and after January 1, 2002,
a statement of the Claimant's right to bring a civil action under
Section 502(a) of ERISA; and an explanation of the Plan's claims
review procedure, including the time limits applicable to such
procedure. If the notice of denial is not furnished within the
required time period specified above, the claim shall be deemed to
be denied and the Claimant shall be permitted to proceed to the
review stage described in Section 10.3.
10.3 Review of Denied Claim.
(a) A Claimant whose claim is partially or completely denied shall have the right to request a full and fair review of the denial by a written request delivered to the Administrator within sixty (60) days of receipt of the written notice of claim denial (or sixty (60) days after the date on which the claim is deemed denied under Section 10.2), or within such longer time as the Administrator, under uniform rules, determines. In such review, the Claimant or his duly authorized representative shall have the right to review, upon request and free of charge, all documents, records or other information relevant to the claim and to submit any written comments, documents, or records relating to the claim to the Administrator.
(b) The Administrator, within sixty (60) days after the request for review, or in special circumstances, such as where the Administrator in its sole discretion holds a hearing, within one hundred twenty (120) days of the request for review, will submit its decision in writing. Such decision shall take into account all comments, documents, records and other information properly submitted by the Claimant, whether or not such information was considered in the original claim determination. The decision on review will be binding on all parties, will be written in a manner calculated to be understood by the Claimant, will contain specific reasons for the decision and specific references to the pertinent Plan provisions upon which the decision is based, will indicate
that the Claimant may review, upon request and free of charge, all documents, records or other information relevant to the claim and on and after January 1, 2002, will contain a statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA. If no decision is made within the time period specified above, the claim shall be deemed to be denied on review.
(c) If a Claimant fails to file a claim or request for review in the manner and in accordance with the time limitations specified herein, such claim or request for review shall be waived, and the Claimant shall thereafter be barred from again asserting such claim.
10.4 Determination by the Administrator Conclusive.
The Administrator's determination of factual matters relating to Participants, beneficiaries and alternate payees shall be conclusive. The Administrator and the Company and its respective officers and directors shall be entitled to rely upon all tables, valuations, certificates and reports furnished by any accountant for the Plan, the Trustee or any investment managers and upon opinions given by any legal counsel for the Plan insofar as such reliance is consistent with ERISA. The Trustee and other service providers may act and rely upon all information reported to them by the Administrator and/or the Company and need not inquire into the accuracy thereof nor shall be charged with any notice to the contrary."
3. Effective January 1, 2001, a new section shall be added to Article Eleven of the Plan and such new section shall read as follows:
"8.15 Provision for Community Renewal Tax Relief Act of 2000
For Plan Years and limitation years ending on and after January 1, 2001, the definition of "Test Compensation" shall include elective amounts that are not includable in the gross income of the Employee by reason of Section 132(f)(4) of the Code."
4. Effective January 1, 2002, Section 14.2(c) of the Plan shall be deleted in its entirety and the following shall be inserted in lieu thereof:
"(c) Length of Loan. The Eligible Applicant and the Administrator shall arrange for the repayment of a Plan loan. The period of repayment shall not exceed five years from the date the loan is made. All repayment schedules (whether by payroll withholding or otherwise) shall commence as of the next administratively feasible pay period following the disbursement of the loan
and shall provide for substantially level amortization of principal and interest.
An Eligible Applicant on a leave of absence shall be permitted to extend the term of the loan by the length of the absence; provided, however, that except with respect to a leave of absence on account of military service, the term of the loan, as extended, shall not exceed five years from the date the loan is made. An Eligible Applicant who terminates employment with the Company and Affiliates must make principal and interest payments in the amount and on such dates as otherwise due. In the event such payments are not made the maturity of the loan shall be accelerated and the outstanding principal amount of the loan, together with all accrued interest shall be deemed immediately due and distributable at such date or dates as the Administrator deems reasonable and as may be specified by applicable law and regulation. Except as otherwise permitted in Income Tax Regulations, in no event shall the date of deemed distribution extend beyond the end of the calendar quarter next following the calender quarter in which the payment was not made."
Executed at Erie, Pennsylvania, this 10th day of December, 2001.
ERIE INDEMNITY COMPANY
By: /s/ Stephen A. Milne -------------------------------- Stephen A. Milne President and CEO |
EXHIBIT 10.9
APPENDIX A
2001 ANNUAL INCENTIVE PLAN
OF
ERIE INDEMNITY COMPANY
1. PURPOSE. The purpose of the Annual Incentive Plan (the "Plan") of Erie Indemnity Company (the "Company") is to promote the best interests of the Erie Insurance Exchange while enhancing shareholder value of the Company and to promote the attainment of significant business objectives by the Company, its subsidiaries and affiliates by basing a portion of selected employees' compensation on the performance of such employee and the Company (as defined below).
2. DEFINITIONS.
a. "AWARD AGREEMENT" means the agreement entered into between the Company and a Participant, setting forth the terms and conditions applicable to an award granted to the Participant under this Plan.
b. "BASE SALARY" shall mean the annual base salary for a Participant at December 31, 2001.
c. "COMBINED RATIO" means the sum of the loss ratio (including loss
adjustment expenses), expense ratio and policyholder dividend ratio, as
determined in accordance with statutory accounting principles and reported to
A.M. Best Company for the combined property casualty operations of the Erie
Insurance Exchange and affiliated property casualty companies (collectively
"Erie"). For Erie, the Combined Ratio shall be adjusted to exclude the net
revenues from the management operations of Erie Indemnity Company in the
calculation of the underwriting expense ratio.
d. "COMPANY" means Erie Indemnity Company and any corporation, partnership or other organization of which the Company owns or controls, directly or indirectly, not less than 50% of the total combined voting power of all classes of stock or other equity interests. For purposes of this Plan, the term "Company" shall include any successors thereto.
e. "COMMITTEE" means the Executive Compensation Committee of the Board of Directors of the Company, or its functional successor, unless some other Board committee has been designated by the Board of Directors to administer the Plan.
f. "PARTICIPANT" means any individual who has met the eligibility requirements set forth in Section 5 hereof and to whom a grant has been made and is outstanding under the Plan.
g. "PEER GROUP" means a group of companies selected by the Committee on an industry and line of business basis.
h. "PERFORMANCE MEASURES" means the criteria upon which awards for 2001 will be based and, unless otherwise determined by the Committee shall be: (i) a combination of the difference between ERIE's average Combined Ratio for 1999, 2000 and 2001 and the Combined Ratio of the Peer Group for 1999, 2000 and 2001 and the difference between ERIE's growth in net written premiums in 2001 as compared to growth in net written premiums of the Peer Group in 2001 ("Financial Performance Measure"); and (ii) the Participant's individual performance assessment under the Company's existing performance assessment system ("Individual Performance Measure"). The Financial Performance Measure and the Individual Performance Measure are collectively referred to as (the "Performance Measures").
i. "TARGET AWARD" means:
the specific percentage of a Participant's base salary as determined by the Committee.
3. ADMINISTRATION. The Plan shall be administered by the Committee.
The Committee's determinations under the Plan need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, awards under the Plan, whether or not such persons are similarly situated. Whenever the Plan refers to a determination being made by the Committee, it shall be deemed to mean a determination by the Committee in its sole discretion.
Subject to the provisions of the Plan, the Committee shall be authorized to interpret the Plan, to make, amend and rescind such rules as it deems necessary for the proper administration of the Plan, to make all other determinations necessary or advisable for the administration of the Plan and to correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems desirable to carry the Plan into effect. Any action taken or determination made by the Committee shall be conclusive on all parties.
4. WEIGHTING OF PERFORMANCE MEASURES. The Target Award shall be weighted in a manner so that 75% of the Target Award shall be based upon the Financial Performance Measure and 25% of the Target Award shall be based upon the Individual Performance Measure. Satisfaction of either of the Performance Measures shall entitle a Participant to payment with respect to that portion of the award notwithstanding the fact that the other Performance Measure is not satisfied.
5. ELIGIBLE PERSONS. Any key employee of the Company who the Committee determines, in its sole discretion, has a significant effect on the operations of the Company shall be eligible to participate in the Plan. Any Participant in this Plan shall be deemed ineligible to participate in the Erie Insurance Group Employee Profit Sharing Bonus Plan. No employee shall have a right (a) to be selected under the Plan, or (b) having once been selected, to (i) be selected again or (ii) continue as an employee.
6. DETERMINATION OF AWARDS. The Committee shall determine the actual award to each Participant for the year, based upon the following formula:
Participant Award = (.75 of Target Award x Financial Performance Percentage Earned) + (.25 of Target Award x Individual Performance Percentage Earned).
The Financial Performance Percentage Earned and Individual Performance Percentage Earned shall be determined in accordance with Appendix I and Appendix II, respectively. For the Financial Performance Percentage Earned, the amount shall be mathematically interpolated between cells in the matrix based upon Erie's actual differences in Combined Ratio and Growth in New Written Premiums. The Individual Performance Percentage Earned shall be based on the performance assessment conducted during calendar year 2001.
The total award payable to any Participant may range from zero (0) to one
hundred and sixty (160) percent of the Participant's Target Award, depending
upon whether, or the extent to which, the Performance Measures have been
achieved. Notwithstanding anything in this Plan to the contrary, a Participant
shall not be entitled to, and no amount shall be payable to, such Participant in
the event that the Participant's Performance Points (as reflected in Appendix
II) are below 109. All such determinations regarding the achievement of
Performance Measures and the determination of actual awards will be made by the
Committee.
7. DISTRIBUTION OF AWARDS. Awards under the Plan shall be paid in cash as soon as practicable after 2001 year-end audited financial statements for Erie have been prepared and Peer Group data is available. Estimates of awards may be paid earlier at the discretion of the Committee and final adjustments paid upon the availability of audited financial statements.
8. TERMINATION OF EMPLOYMENT. A Participant must be actively employed by the Company on the date his or her award is determined by the Committee ("the Payment Date") in order to be entitled to payment of any award. In the event active employment of a Participant shall be terminated before the Payment Date for any reason other than discharge for "Cause" (as defined in such employee's employment agreement with the Company or, if no such agreement exists, as defined by the Committee) or voluntary resignation, such Participant may receive such portion of his or her award as may be determined by the Committee. A Participant discharged for Cause shall not be entitled to receive any award for the year. A Participant who voluntarily resigns prior to the Payment Date shall not be entitled to receive any award unless otherwise determined by the Committee.
9. MISCELLANEOUS.
a. NONASSIGNABILITY. No award will be assignable or transferable without the written consent of the Committee in its sole discretion, except by will or by the laws of descent and distribution.
b. WITHHOLDING TAXES. Whenever payments under the Plan are to be made, the Company will withhold therefrom an amount sufficient to satisfy any applicable governmental withholding tax requirements related thereto.
c. AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors of the Company may at any time amend, suspend or discontinue the Plan, in whole or in part. The Committee may at any time alter or amend any or all Award Agreements under the Plan to the extent permitted by law.
d. OTHER PAYMENTS OR AWARDS. Nothing contained in the Plan will be deemed in any way to limit or restrict the Company from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.
e. PAYMENTS TO OTHER PERSONS. If payments are legally required to be made to any person other than the person to whom any amount is available under the Plan, payments will be made accordingly. Any such payment will be a complete discharge of the liability of the Company under this Plan.
f. LIMITS OF LIABILITY.
1. Any liability of the Company to any Participant with respect to an award shall be based solely upon contractual obligations created by the Plan and the Award Agreement.
2. Neither the Company, nor any member of its Board of Directors or of the Committee, nor any other person participating in any determination of any question under the Plan, or in the interpretation, administration or application of the Plan, shall have any liability to any party for any action taken or not taken in good faith under the Plan.
g. RIGHTS OF EMPLOYEES.
1. Status as an employee eligible to receive an award under the Plan shall not be construed as a commitment that any award will be made under this Plan to such employee or to other such employees generally.
2. Nothing contained in this Plan or in any Award Agreement (or in any other documents related to this Plan or to any award or Award Agreement) shall confer upon any employee or Participant any right to continue in the employ or other service of the Company or constitute any contract or limit in any way the right of the Company to change such person's compensation or other benefits or to terminate the employment or other service of such person with or without cause.
h. SECTION HEADINGS. The section headings contained herein are for the purposes of convenience only, and in the event of any conflict, the text of the Plan, rather than the section headings, will control.
i. INVALIDITY. If any term or provision contained herein will to any extent be invalid or unenforceable, such term or provision will be reformed so that it is valid, and such invalidity or unenforceability will not affect any other provision or part hereof.
j. APPLICABLE LAW. The Plan, the Award Agreements and all actions taken hereunder or thereunder shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania without regard to the conflict of law principles thereof.
k. EFFECTIVE DATE. The Plan shall be effective as of January 1, 2001.
/s/ Robert C. Wilburn
-----------------------------------------
Robert C. Wilburn, Chairman
Executive Compensation Committee
|
EXHIBIT 10.10 - ERIE INDEMNITY COMPANY
DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS
(AS AMENDED AND RESTATED AS OF APRIL 30, 2002)
ARTICLE ONE
INTRODUCTION
This Deferred Compensation Plan (the "Plan") is an unfunded, non-qualified, deferred compensation arrangement created for outside directors of Erie Indemnity Company. It is intended that the Plan will aid in retaining and attracting outside directors of exceptional ability by providing such directors with a vehicle for deferring director's compensation until retirement from the Board of Directors of Erie Indemnity Company.
The Plan was effective as of May 1, 1997 and has been amended thereafter. This amendment and restatement of the Plan shall constitute an amendment, restatement and continuation of the Plan. This amendment and restatement is generally effective as of April 30, 2002. However, certain provisions of this amendment and restatement are effective as of some other date. The provisions of this amendment and restatement with stated effective dates prior to April 30, 2002, shall be deemed to amend the corresponding provisions, if any, of the Plan as in effect before this amendment and restatement and all amendments thereto as of such dates. Events occurring before the applicable effective date of any provision of this amendment and restatement shall be governed by the applicable provision of the Plan as in effect on the date of the event.
ARTICLE TWO
DEFINITIONS
The following words or phrases are defined terms whenever they appear in the Plan:
2.1 "Administrator" shall mean the person or committee, appointed by the Board, who shall be responsible for the functions assigned to him under the Plan.
2.2 "Amendment Form" shall mean the Amendment Form described in Section 8.3.
2.3 "Annual Share Credit" shall mean the Share Credit addition determined under
Section 7.2.
2.4 "Beneficiary" shall mean the individual(s) or trust(s) selected by a Participant to receive payment of amounts credited under the Plan in the event of the Participant's death, as evidenced by the most recent, properly completed and executed, Beneficiary designation which the Participant has delivered to the Administrator prior to the Participant's death. A Participant may make separate Beneficiary designations for those amounts credited to the Deferred Stock Account maintained on his behalf and to any Total Deferred Cash Account maintained on his behalf. A Participant may change his Beneficiary at any time by delivering a new designation of Beneficiary to the Administrator on such form or forms as may be satisfactory to the
Administrator. A new designation of Beneficiary shall be effective upon receipt by the Administrator of the completed designation. As of such effective date, the new designation shall divest any Beneficiary named in a prior designation in that interest indicated in the prior designation. If no Beneficiary designation is in effect on the death of the Participant, or if all designated Beneficiaries have predeceased the Participant, any payments to be made under the Plan on account of the Participant's death shall be paid to the estate of the Participant.
2.5 "Board" shall mean the Board of Directors of the Erie Indemnity Company.
2.6 "Board Compensation" shall mean the remuneration, expressed in terms of a cash amount, earned by a Director for service on the Board including, without limitation, a retainer, meeting fees and chairperson's fees.
2.7 "Board Tenure Year" shall mean the period which, in reference to any given calendar year, begins on the date of the Company's annual shareholder meeting held in such year and ends on the day before the Company's annual shareholder meeting held in the immediately following calendar year.
2.8 "Committee" shall mean the Executive Development and Compensation Committee of the Board or its successor, as designated by the Board.
2.9 "Common Stock" shall mean the Class A common stock of the Company.
2.10 "Company" shall mean the Erie Indemnity Company, a Pennsylvania business corporation.
2.11 "Deferred Compensation Account" shall mean the bookkeeping account described in Section 4.2.
2.12 "Deferred Stock Account" shall mean the bookkeeping account described in Article Seven.
2.13 "Director" shall mean a member of the Board.
2.14 "Dividend Equivalent Credit" shall mean the Share Credit addition determined under Section 7.3.
2.15 "Election Form" shall mean the Participation Election Form described in
Section 3.2.
2.16 "Employee" shall mean a person engaged in performing services for the Company, its affiliates or subsidiaries, as an exempt or non-exempt full-time employee, as defined by the Company's Corporate Personnel Manual, as in existence at the time of determination, and not as an independent contractor.
2.17 "Hypothetical Interest" shall mean the gains and losses credited to a Participant's Deferred Compensation Account and/or Retirement Plan Transfer Account in accordance with Article Six.
2.18 "Outside Director" shall mean:
a) A Director who is not an Employee or officer of the Company, its affiliates or subsidiaries; and
b) Solely for the purpose of applying those provisions of the Plan pertaining to the transfer of a Retirement Plan Transfer Credit and the maintenance of a Retirement Plan Transfer Account, "Outside Director" shall also include any individual who was a Director on May 1, 1997 but not an Outside Director (within the meaning of paragraph (a) above) as of such date.
2.19 "Participant" shall mean each Outside Director who participates in the Plan in accordance with the terms and conditions of the Plan.
2.20 "Plan" shall mean the Erie Indemnity Company Deferred Compensation Plan for Outside Directors, including any amendments hereto.
2.21 "Retirement Plan" shall mean the Erie Indemnity Company Retirement Plan for Outside Directors, effective as of January 1, 1991 and as amended thereafter.
2.22 "Retirement Plan Transfer Account" shall mean the bookkeeping account described in Section 5.3.
2.23 "Retirement Plan Transfer Credit" shall mean the contribution credit determined under Section 5.1.
2.24 "Retirement Plan Transfer Vesting Date" shall mean the date on which a Participant officially stops serving on the Board for reasons other than the Participant's death, provided such date follows the Participant's attainment of age 65 and completion of five Years of Board Service.
2.25 "Share Credit" shall mean the separate, identifiable units accumulated within a Participant's Deferred Stock Account attributable to Annual Share Credits and Dividend Equivalent Credits.
2.26 "Share Credit Allocation Date" shall mean, with respect to any Board Tenure Year, the business day next following the first day of such Board Tenure Year; provided, however, that in reference to any individual who becomes an Outside Director on any day other than the first day of a given Board Tenure year, the Share Credit Allocation Date relative to such year shall mean the business day next following the day on which the individual becomes an Outside Director.
2.27 "Total Deferred Cash Account" shall mean the sum of the amounts credited under any Deferred Compensation Account and any Retirement Plan Transfer Account maintained on behalf of a Participant.
2.28 "Valuation Date" shall mean the close of business as of each business day.
2.29 "Vested" shall mean, as of any given date, the portion of the Deferred Stock Account and/or the Total Deferred Cash Account maintained on behalf of a Participant which is then 100% vested and nonforfeitable, as determined under Sections 4.2, 5.3, and Article Seven hereof.
2.30 "Year of Board Service" shall mean each Board Tenure Year during which a Director has served on the Board, including, for Directors on the Board as of May 1, 1997, all Years of Board Service prior to the adoption of the Plan.
ARTICLE THREE
PARTICIPATION
3.1 ELIGIBILITY AND PARTICIPATION
a) Effective as of May 1, 2002, all Outside Directors then in Board service shall participate in the Plan. Any individual who becomes an Outside Director after May 1, 2002 shall participate in the Plan as of the Share Credit Allocation Date next following the date as of which the individual becomes an Outside Director. As a condition of participation, each Outside Director shall deliver to the Administrator properly completed and executed elections as described in Section 3.2.
b) Each Outside Director is eligible to participate in the Board Compensation deferral provisions of the Plan and may choose to defer Board Compensation in accordance with the provisions of Section 4.1.
3.2 PARTICIPATION ELECTION FORM
An Outside Director shall deliver to the Administrator the following elections, to be made on such Election Form or Forms as the Administrator, in its discretion, shall prescribe:
a) The method by which amounts credited to the Participant's Deferred Stock Account and, separately, any Total Deferred Cash Account is to be paid;
b) The date, following the Participant's official termination of service on the Board, as of which payment of amounts credited to the Participant's Deferred Stock Account and, separately, any Total Deferred Cash Account is to occur (in the event of a lump sum distribution) or commence (in the event of distribution in installments); and
c) The Beneficiary to whom payments of amounts credited to the Participant's Deferred Stock Account, and separately, any Total Deferred Cash Account will be made in the event of the Participant's death.
In addition, an Outside Director on whose behalf a Total Deferred Cash Account is being maintained shall also be required to complete and deliver to the Administrator the investment designation described in Section 6.2.
The elections under paragraphs (a) and (b) shall be irrevocable except as provided in Section 8.3 hereof. The election under paragraph (c) may be changed as provided in Section 2.4.
ARTICLE FOUR
BOARD COMPENSATION DEFERRED
4.1 DEFERRED COMPENSATION ELECTION
A Participant who is an Outside Director as described in Section 2.18(a) may elect to defer Board Compensation for a given calendar year by delivering a properly completed and executed Election Form to the Administrator by the end of the calendar year which precedes the given calendar year in which the election is to be effective. Such Election Form shall state, in 10% increments from 10% to 100%, the percentage of Board Compensation to be deferred. Such deferral election shall be irrevocable as of the January 1 of the calendar year to which the election applies. Such deferral election shall terminate as to all Board Compensation earned after such calendar year.
4.2 DEFERRED COMPENSATION ACCOUNT
A Deferred Compensation Account shall be established for each Outside Director who properly completes and executes an Election Form on which he elects to defer Board Compensation. The Board Compensation which each Participant defers and Hypothetical Interest earned on such Board Compensation (as provided in Section 6.1) shall be credited to this Deferred Compensation Account. Board Compensation deferred under this Plan shall be credited to the Participant's Deferred Compensation Account as of the date such compensation would otherwise have been payable to the Participant. A Participant's Deferred Compensation Account shall be kept only for bookkeeping and accounting purposes and no Company funds shall be transferred or designated to this account. A Participant's interest in the Deferred Compensation Account maintained on his behalf shall be Vested at all times.
ARTICLE FIVE
TRANSFER OF RETIREMENT PLAN CREDIT
5.1 RETIREMENT PLAN TRANSFER ELECTION
a) The Company has recorded a contribution credit under the Plan on behalf of each Outside Director who satisfied the criteria set forth in paragraph (b) of this Section 5.1. Such contribution credit is referred to herein as the Retirement Plan Transfer Credit, was recorded as of December 31, 1997 and, except as provided in Section 6.1(b), was equal to the amount individually determined under Section 5.2.
b) An Outside Director was entitled to a Retirement Plan Transfer Credit if:
(i) The Outside Director was an Outside Director, as described in Section 2.18(a) or Section 2.18(b), on May 1, 1997; and
(ii) During the period beginning June 17, 1997 and ending August 1, 1997, the Outside Director elected to have the Retirement Plan Transfer Credit recorded on his behalf under the Plan in lieu of any continuing interest under the Retirement Plan.
5.2 RETIREMENT PLAN TRANSFER CREDIT
a) The Retirement Plan Transfer Credit with respect to an Outside
Director who (i) satisfied the criteria set forth in Section 5.1 and
(ii) was considered an "Eligible Director" under the terms of the
Retirement Plan as in effect on May 1, 1997 was the actuarial present
value (as defined in paragraph (c) below) of the retirement benefit
accrued by the Outside Director under the Retirement Plan as of May 1,
1997.
b) The Retirement Plan Transfer Credit with respect to an Outside
Director who (i) satisfied the criteria set forth in Section 5.1 and
(ii) was not considered an "Eligible Director" under the terms of the
Retirement Plan as in effect on May 1, 1997 was the actuarial present
value of the deemed retirement benefit (as hereinafter defined) of the
Outside Director under the Retirement Plan as of May 1, 1997. For
purposes hereof, the "deemed retirement benefit" shall mean the
retirement benefit which the Outside Director would have accrued under
the Retirement Plan as of May 1, 1997 had participation in such
Retirement Plan not been limited to "Eligible Directors" as therein
defined (such deemed retirement benefit being based on the Outside
Director's "Years of Board Service" as of May 1, 1997, as defined in
the Retirement Plan and determined on the basis of full years and
calendar quarters of such service, and the retainer in effect as of
May 1, 1997).
c) For purposes of this Section 5.2, "actuarial present value" shall mean the single sum value of a retirement benefit (or deemed retirement benefit), determined as of May 1, 1997, by using the 1983 Group Annuity Mortality Table (50% male/50% female) and an interest rate of seven percent.
5.3 RETIREMENT PLAN TRANSFER ACCOUNT
A Retirement Plan Transfer Account has been established for each Outside Director described in Section 5.1(b). The Retirement Plan Transfer Credit and Hypothetical Interest earned on such Retirement Plan Transfer Credit shall be recorded in this Retirement Plan Transfer Account. A Participant's Retirement Plan Transfer Account shall be kept only for bookkeeping and accounting purposes and no Company funds shall be transferred or designated to this account. Notwithstanding any provision of the Plan to the contrary, a Participant's interest in the Retirement Plan Transfer Account maintained on his behalf shall be forfeited in its entirety in the event the Participant's service as a Director is terminated for any reason (including death) prior to the Participant's attainment of his Retirement Plan Transfer Vesting Date. Upon attainment of his Retirement Plan Transfer Vesting Date, a Participant's interest in such Retirement Plan Transfer Account shall become Vested.
ARTICLE SIX
CREDITS TO PARTICIPANT TOTAL DEFERRED CASH ACCOUNTS
6.1 HYPOTHETICAL INTEREST
a) The Total Deferred Cash Account maintained on behalf of a Participant under the Plan will be credited with Hypothetical Interest. The Hypothetical Interest shall be credited as of each Valuation Date on the amount credited to the Participant's Total Deferred Cash Account on such Valuation Date in accordance with the valuation procedure adopted by the Administrator. The Hypothetical Interest to be credited to each Total Deferred Cash Account shall be determined by the Administrator and computed in reference to the appreciation or depreciation experienced since the immediately preceding Valuation Date by the hypothetical investment funds which the Administrator may offer to Participants under Section 6.2. For any given period, Hypothetical Interest may be a positive or a negative figure. The crediting of Hypothetical Interest shall occur so long as there is a balance in the Participant's Total Deferred Cash Account regardless of whether the Participant has terminated service with the Board or has died. The Administrator may prescribe any reasonable method or procedure for the accounting of Hypothetical Interest.
b) Notwithstanding any provision of this Article Six to the contrary:
(i) The Retirement Plan Transfer Credit, determined under Section 5.2 and recorded as of December 31, 1997 on behalf of an Outside Director described in Section 5.1(b), was increased with Hypothetical Interest for the period beginning on May 1, 1997 and ending on December 31, 1997; and
(ii) For purposes of subparagraph (i) above, "Hypothetical Interest" was in reference to the interest, compounded on a daily basis, at the rate or rates in effect during the period beginning on May 1, 1997 and ending December 31, 1997, as declared by the Board of Directors of Erie Family Life Insurance Company on the Erie Family Life Insurance Company deposit administration group annuity contract held by the trustee of the Erie Insurance Group Employee Savings Plan.
6.2 PARTICIPANT INVESTMENT DESIGNATION
a) A Participant (and any Outside Director first electing to participate in the Plan) may designate on such form or forms as may be satisfactory to the Administrator, that portion of his future deferred compensation and, separately, that portion of any existing Total Deferred Cash Account maintained on his behalf which shall be credited with Hypothetical Interest in reference to each of the hypothetical investment funds that may be offered by the Administrator, in the discretion of the Administrator. Such designations may specify, in 1% increments, the percentages to be credited in reference to each of the hypothetical investment funds offered. Such designations may remain in effect until the Participant submits a new designation within such time and in accordance with such means as is determined pursuant to a uniform policy adopted by the Administrator. Under such policy, new designations may be made as to (i) future deferred compensation
and/or (ii) any existing Total Deferred Cash Account, provided that separate designations as to the crediting of a Deferred Compensation Account and a Retirement Plan Transfer Account shall not be available. All new designations shall be effective as of a given date specified by the Administrator. In the event a Participant fails to make an effective designation under this Section 6.2(a), the Administrator, acting in its discretion, shall make such designation on behalf of the Participant.
b) In accepting participation in the Plan, a Participant agrees on behalf of himself and his Beneficiary to assume all risk in connection with any decrease in value of the hypothetical investment funds in reference to which Hypothetical Interest is credited to the Participant's Total Deferred Cash Account. The Company and the Administrator shall not be liable to any Participant or Beneficiary for the under-performance of any hypothetical investment fund offered under the Plan.
c) The Administrator may, in its discretion, offer additional hypothetical investment funds to Participants and may cease to offer any such fund at such time as it deems appropriate. In the event the Administrator decides to discontinue offering an investment fund under the Plan, those Participants on whose behalf Hypothetical Interest is then being credited on the basis of the discontinued hypothetical investment fund shall be required to designate, from such selection of hypothetical funds as may be offered by the Administrator, a hypothetical fund or funds as a replacement for the hypothetical investment fund being discontinued. Such designation shall be made in accordance with Section 6.2(a) hereof. Hypothetical Interest credited on behalf of any Participant who is affected by the discontinuation of a hypothetical investment fund but who fails to make the replacement designation provided in this Section 6.2(c) shall mirror, to the extent of the Participant's interest in such discontinued fund, such hypothetical investment fund or funds as the Administrator may choose in its discretion.
d) Notwithstanding any provision of the Plan to the contrary, the
eligibility of a Participant to make any designation under this
Section 6.2 shall not be construed as to provide any Participant or
any other person with a beneficial ownership interest in any Company
assets. Title to and beneficial ownership of any assets which the
Company may earmark to pay the contingent deferred compensation
hereunder shall at all times remain in the Company. The Participant,
his Beneficiary and any heirs, successors or assigns shall not have
any legal or equitable right, interest or control over or any property
interest whatsoever in any specific assets of the Company or any
Affiliate on account of having an interest under the Plan. Any and all
of the Company's assets, and any life insurance policies, annuity
contracts or the proceeds therefrom which may be acquired by the
Company shall be, and remain, the general unpledged, unrestricted
assets of the Company. In no event shall the Company be required to
purchase any specific shares or interest in any investment fund.
6.3 STATEMENTS
Statements will be sent to each Participant as to the balance of his Total Deferred Cash Account at least once each calendar year.
ARTICLE SEVEN
CREDITING OF DEFERRED STOCK
7.1 DEFERRED STOCK ACCOUNT
A Deferred Stock Account shall be established for each Outside Director to which shall be credited the amounts described in Section 7.2 and 7.3.
7.2 ANNUAL SHARE CREDIT
With respect to each Board Tenure Year during which the Director is an Outside Director, the Deferred Stock Account maintained on such Participant's behalf shall be credited with an Annual Share Credit, effective as of the Share Credit Allocation Date. For any given Board Tenure Year, the Annual Share Credit made to an Outside Director's Deferred Stock Account shall be equal to the quotient obtained by dividing the Outside Director's annual retainer for the given year by the closing price of Common Stock on the Share Credit Allocation Date. A Participant's interest in the Annual Share Credit attributable to any given Board Tenure Year shall vest in accordance with the following schedule:
VESTED PERCENTAGE IN
DATE OF RETIREMENT OR THAT YEAR'S ANNUAL
TERMINATION OF BOARD SERVICE SHARE CREDIT
---------------------------- ------------
Before last day of third full month of given Board Tenure Year 0%
After last day of third full month of given Board Tenure Year but before last 25%
day of sixth full month of given Board Tenure Year
After last day of sixth full month of given Board Tenure Year but before last 50%
day of ninth full month of given Board Tenure Year
After last day of ninth full month of given Board Tenure Year but before the 75%
earlier of (i) the twelfth full month of given Board Tenure Year or (ii) the
date on which begins the immediately following Board Tenure Year.
On or after the earlier of (i) the twelfth full month of given Board Tenure 100%
Year or (ii) the date on which begins the immediately following Board Tenure
Year.
|
7.3 DIVIDEND EQUIVALENT CREDIT
For each quarterly period (i) with respect to which a dividend is paid on Common Stock, and (ii) in which there is a balance in the Deferred Stock Account maintained on behalf of a Participant as of the record date applicable to the dividend paid on Common Stock (regardless of
whether the Participant has terminated service with the Board or has died), a Participant's Deferred Stock Account shall be credited with a Dividend Equivalent Credit. The Dividend Equivalent Credit for any such quarterly period shall be credited as of the date on which the dividend is paid on Common Stock for such quarterly period. For any such applicable quarterly period, the Dividend Equivalent Credit made to a Participant's Deferred Stock Account shall be determined as follows:
a) A dividend credit is determined, expressed in cash, equal to the product of:
(i) The dividend payable by the Company on one share of Common Stock for such quarterly period; and
(ii) The number of full, accumulated Share Credits credited to the Participant's Deferred Stock Account as of the Common Stock dividend record date applicable to such quarterly period.
b) The dividend credit determined in paragraph (a) above will immediately be converted into a Share Credit by dividing such cash dividend credit by the closing price of Common Stock on the date on which the dividend is paid on Common Stock for such quarterly period.
No Dividend Equivalent Credit will be made with respect to a partial Share Credit.
A Participant's interest in the Share Credits attributable to Dividend Equivalent Credits shall be Vested at all times.
7.4 AGGREGATION OF PARTIAL SHARE CREDITS
Effective as of each Share Credit Allocation Date and each Common Stock dividend record date with respect to which Dividend Equivalent Credits are made, any partial Share Credits then credited to a Participant's Deferred Stock Account shall be aggregated in such manner as the Administrator shall provide to constitute full Share Credits.
7.5 ADJUSTMENT TO SHARE CREDITS
Share Credits maintained on behalf of a Participant hereunder shall be subject to appropriate adjustment by the Administrator in the event of changes in the outstanding Common Stock by reason of stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges, or other relevant changes in capitalization occurring after the date Share Credits are credited hereunder.
7.6 PURPOSE OF PARTICIPANT'S DEFERRED STOCK ACCOUNT
A Participant's Deferred Stock Account shall be kept only for bookkeeping and accounting purposes and no Company funds shall be transferred or designated to this account. Statements will be sent to each Participant as to the balance of his Deferred Stock Account at least once each calendar year.
ARTICLE EIGHT
PAYMENT OF DEFERRED STOCK ACCOUNT AND
TOTAL DEFERRED CASH ACCOUNT
8.1 PAYMENT
Upon termination of service with the Board, the amounts represented by the balances credited to the Participant's Vested Deferred Stock Account and Vested Total Deferred Cash Account shall be paid to him by the Company according to the method and at the times selected by the Participant in his Election Form or, if applicable, in the most recent, properly executed and effective Amendment Form(s) which the Participant has delivered to the Administrator prior to the Participant's termination of Board service. A Participant may make independent elections under this Article Eight applicable to (i) the Vested Deferred Stock Account maintained on his behalf and (ii) the Vested Total Deferred Cash Account maintained on his behalf.
8.2 METHODS OF PAYMENT
a) A Participant may elect one of the following methods of payment for the amounts represented by his Vested Deferred Stock Account:
(i) A lump sum distribution; or
(ii) Payments in approximately equal annual installments for a period not to exceed 10 years.
Payments of the distributable amount represented by all or a portion of the balance in the Participant's Vested Deferred Stock Account will be made in shares of Common Stock equal to the number of full Share Credits comprising the distributable amount that are then credited to the Participant's Vested Deferred Stock Account, with fractional Share Credits comprising the distributable amount payable in cash.
b) A Participant may elect any one of the following methods of payment for the amounts represented by his Vested Total Deferred Cash Account:
(i) A lump sum distribution;
(ii) Payment in approximately equal annual installments for a period not to exceed 10 years; or
(iii) Payment in approximately equal monthly installments for a period not to exceed 10 years.
Payments of the distributable amount represented by all or a portion of the balance in the Participant's Vested Total Deferred Cash Account shall be made in cash.
c) In the event the Participant dies before receiving the entire
distribution to which he is entitled under the Plan, the provisions of
Section 8.4 shall apply.
8.3 AMENDMENT TO PAYMENT ELECTION
A Participant who is an active Director may request to defer the date at which payment of the amount represented by his Vested Deferred Stock Account and/or Vested Total Deferred Cash Account will occur (or commence) and may request a change in his elected method of payment by submitting a properly completed and executed Amendment Form to the Administrator which indicates the period of additional deferral and/or the desired method of payment; provided, however:
a) Such request of additional deferral or alternative method of payment shall be subject to the Administrator's power, to be exercised at the Administrator's discretion, to direct that payment of the amount represented by the Participant's Vested Deferred Stock Account and/or Vested Total Deferred Cash Account will occur or commence, or will be paid under a method, in accordance with the Participant's election(s) on a previously delivered Amendment Form or on the Participant's Election Form; and
b) In no event shall any requested additional deferral or alternative method of payment become effective unless the Amendment Form evidencing such request is submitted to, and approved by, the Administrator at least twelve months prior to the date payment of the amount represented by the Vested Deferred Stock Account and/or Vested Total Deferred Cash Account would otherwise have occurred or commenced under the Election Form or Amendment Form in effect on the date the Participant requests the additional deferral or alternative method of payment.
A Participant may make separate requests under this Section 8.3 applicable to the Vested Deferred Stock Account maintained on his behalf and to any Total Deferred Cash Account maintained on his behalf.
8.4 PAYMENT UPON DEATH OF PARTICIPANT
a) In the event of a Participant's death prior to his Retirement Plan Transfer Vesting Date, the amount represented by the Participant's Deferred Compensation Account and the amount represented by the Participant's Vested Deferred Stock Account shall be paid by the Company to the Participant's Beneficiary or Beneficiaries as soon as practicable in the form of a lump sum. Any amount represented by the balance credited to the Participant's
Retirement Plan Transfer Account shall be forfeited upon the Participant's death.
b) In the event of a Participant's death on or after his Retirement Plan Transfer Vesting Date, the amount represented by the Participant's Vested Deferred Stock Account and the amount represented by the Participant's Vested Total Deferred Cash Account shall be paid by the Company to the Participant's Beneficiary or Beneficiaries as soon as practicable in the form of a lump sum.
c) Payment of the distributable amount represented by the deceased Participant's Vested Deferred Stock Account will be made in shares of Common Stock equal to the number of full Share Credits credited to such account as of the payment date, with fractional Share Credits payable in cash.
8.5 EMERGENCY CIRCUMSTANCES
Notwithstanding any other provision of this Plan, if the Committee determines, after consideration of a Participant's application, that the Participant has a financial necessity of such a substantial nature that a current payment of compensation deferred under this Plan is warranted, the Committee may in its sole and absolute discretion direct that all or a portion of the Participant's Deferred Compensation Account balance be paid to him. The payment shall be made in the manner and at the times specified by the Committee for payment; provided, however, such payment shall not be in excess of that amount which is, in the discretion of the Committee, required to satisfy the financial necessity. In making determinations under this Section 8.5, no member of the Committee shall vote with respect to any application made by the Committee member under this Section.
ARTICLE NINE
AMENDMENT AND DISCONTINUANCE
The Company expects to continue the Plan indefinitely, but reserves the right to amend or discontinue the Plan at any time, if, in its sole judgment, such amendment or discontinuance is necessary or desirable. Any such amendment or discontinuance shall be made pursuant to a resolution of the Board and shall be effective as of the date specified in such resolution. Without a consent of the Participant, no amendment or discontinuance of the Plan shall adversely affect the balance of a Participant's Deferred Compensation Account, Deferred Stock Account or Retirement Plan Transfer Account at the time of amendment or discontinuance. In the event of a discontinuance of the Plan, the Company (or any transferee, or successor entity of the Company) shall be obligated to pay amounts represented by Vested Deferred Stock Account balances and Vested Total Deferred Cash Account balances to Participants and Beneficiaries at such time or times and in such forms as provided under the terms of the Plan.
ARTICLE TEN
GENERAL PROVISIONS
10.1 GENERAL CONTRACTUAL OBLIGATION
It is the intent of this Plan, and each Participant understands, that no trust has been created for his or her benefit in connection with this Plan and that eligibility and participation in this Plan does not grant any Participant any interest in any asset of the Company or any affiliated company. The Company's obligation to pay to the Participant the amounts credited hereunder is a general contract obligation and shall be satisfied solely from the general assets of the Company. Nothing contained in the Plan shall constitute a guaranty by the Company, any affiliated company, or any other entity or person that the assets of the Company will be sufficient to pay amounts determined in accordance with the Plan. The obligation of the Company under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay amounts in the future. Notwithstanding a Participant's entitlement to Vested amounts under the terms of the Plan, the status of the Participant is that of an unsecured general creditor to the extent of his entire interest under the Plan as herein described.
10.2 SPENDTHRIFT PROVISIONS
The interest of a Participant or his Beneficiary under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, either voluntarily or involuntarily, prior to actual receipt thereof by the payee; any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any such interest herein prior to such receipt shall be void. Amounts credited hereunder shall not be subject to garnishment, attachment or other legal or equitable process nor shall they be an asset in bankruptcy; provided, however, that no amount shall be payable from this Plan to a Participant, or any person claiming by or through a Participant, unless and until any and all amounts representing debts or other obligations owed to the Company or any affiliated company by the Participant have been fully paid and satisfied. The Company shall not be liable in any manner for or subject to the debts, contracts, liabilities, torts or engagements of any person who has a Deferred Stock Account or a Total Deferred Cash Account maintained on his behalf under the Plan.
10.3 INCAPACITY OF RECIPIENT
In the event a Participant or Beneficiary is declared incompetent and a guardian, conservator or other person legally charged with the care of his person or of his estate is appointed, any Vested Deferred Stock Account and any Vested Total Deferred Cash Account under the Plan to which such Participant, or Beneficiary is entitled shall be paid to such guardian, conservator or other person legally charged with the care of his person or his estate. Except as provided hereinabove, when the Administrator, in its sole discretion, determines that a Participant or Beneficiary is unable to manage his financial affairs, the Administrator may direct the Company to make distribution(s) from the Vested Deferred Stock Account and any Vested Total Deferred Cash Account maintained on behalf of such Participant or Beneficiary to any one or more of the spouse, lineal ascendants or descendants or other closest living relatives of such Participant or
Beneficiary who demonstrates to the satisfaction of the Administrator the propriety of making such distribution(s). Any payment so made shall be in complete discharge of any liability under the Plan for such payment. The Administrator shall not be required to see to the application of any such distribution made as provided above.
10.4 UNCLAIMED BENEFIT
In the event that any amount determined to be payable to a Participant or Beneficiary hereunder remains unclaimed by such Participant or Beneficiary for a period of four years after the whereabouts or existence of such person was last known to the Administrator, the Administrator may direct that all rights of such person to such amounts be terminated absolutely, provided that if such Participant or Beneficiary subsequently appears and files a claim for payment in accordance with Article Ten, the liability under the Plan for such amounts shall be reinstated.
10.5 ELECTIONS, APPLICATIONS, NOTICES
Every designation, election, revocation or notice authorized or required
hereunder which is to be delivered to the Company or the Administrator shall be
deemed delivered to the Company or the Administrator as the case may be: (a) on
the date it is personally delivered to the Administrator at the Company's
executive offices at 100 Erie Insurance Place, Erie, Pennsylvania 16530 or (b)
three business days after it is sent by registered or certified mail, postage
prepaid, addressed to the Administrator at the offices indicated above. Every
such item which is to be delivered to a person or entity designated by the
Administrator to perform recordkeeping and other administrative services on
behalf of the Plan shall be deemed delivered to such person or entity when it is
actually received (either physically or through interactive electronic
communication) by such person or entity. Every designation, election, revocation
or notice authorized or required hereunder which is to be delivered to a
Participant or Beneficiary shall be deemed delivered to a Participant or
Beneficiary: (a) on the date it is personally delivered to such individual
(either physically or through interactive electronic communication), or (b)
three business days after it is sent by registered or certified mail, postage
prepaid, addressed to such individual at the last address shown for him on the
Company's records. Any notice required hereunder may be waived by the person
entitled thereto.
10.6 COUNTERPARTS
This Plan may be executed in any number of counterparts, each of which shall be considered as an original, and no other counterparts need be produced.
10.7 SEVERABILITY
In the event any provision of this Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan. This Plan shall be construed and enforced as if such illegal or invalid provision had never been contained herein.
10.8 GOVERNING LAW
The Plan is established under and will be construed according to the laws of the Commonwealth of Pennsylvania.
10.9 HEADINGS
The headings of Sections of this Plan are for convenience of reference only and shall have no substantive effect on the provisions of this Plan.
10.10 CONSTRUCTION
The masculine gender, where appearing in this Plan, shall be deemed to also include the feminine gender. The singular shall also include the plural, where appropriate.
ARTICLE ELEVEN
ADMINISTRATION
11.1 GENERAL ADMINISTRATION
The Administrator shall be charged with the administration of the Plan. The Administrator shall have all such powers as may be necessary to discharge its duties relative to the administration of the Plan, including by way of illustration and not limitation, discretionary authority to interpret and construe the Plan, to determine and decide all questions of fact, and all disputes arising under the Plan including, but not limited to, the validity of any election or designation as may be necessary or appropriate hereunder and the right of any Participant or Beneficiary to receive payment of all or any portion of amounts represented by a Deferred Stock Account and/or a Total Deferred Cash Account maintained hereunder. The Administrator shall have all power necessary to adopt, alter and repeal such administrative rules, regulations and practices governing the operation of the Plan as it, in its sole discretion, may from time to time deem advisable. The Administrator shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of the Plan unless attributable to willful misconduct. The Administrator shall be entitled to conclusively rely upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to the Plan. Any individual serving as Administrator shall not participate in any action or determination regarding solely his own benefits payable hereunder. Except as provided in Section 11.3, decisions of the Administrator made in good faith shall be final, conclusive and binding upon all parties.
11.2 CLAIMS PROCEDURE
Payment to a Participant or Beneficiary of any amount determined under the Plan shall be made by the Company only after the Participant or Beneficiary has delivered a properly completed and executed claim to the Administrator on such form(s) and in such manner as provided by the Administrator. Whenever the Administrator denies, in whole or in part, a claim for benefits filed
by any person (hereinafter referred to as a "Claimant"), the Administrator shall
transmit a written notice setting forth (i) the specific reasons for the denial
of the claim, (ii) references to the specific provisions of the Plan on which
the denial is based, (iii) a description of any additional needed material or
information and why such material or information is necessary, and (iv) further
steps which the Claimant can take in order to have his claim reviewed (including
a statement that the Claimant or his duly authorized representative may review
the Plan document and submit issues and comments regarding the claim to the
Administrator). In addition, the written notice shall contain the date on which
the notice was sent and a statement advising the Claimant that, within ninety
(90) days of the date on which such notice is received, he may request a review
of the Administrator's decision.
11.3 CLAIMS REVIEW
Within ninety (90) days of the date on which the notice of denial of claim is received by the Claimant, the Claimant or his authorized representative may request that the claim denial be reviewed by filing with the Administrator a written request therefor, which request shall contain the following information:
a) The date on which the notice of denial of claim was received by the Claimant;
b) The date on which the Claimant's request was filed with the Administrator; provided, however, that the date on which the Claimant's request for review was in fact filed with the Administrator shall control in the event that the date of the actual filing is later than the date stated by the Claimant pursuant to this clause (b);
c) The specific portions of the denial of his claim which the Claimant requests the Administrator to review;
d) A statement by the Claimant setting forth the basis upon which he believes the Administrator should reverse its previous denial of his claim for benefits and accept his claim as made;
e) Whether the Claimant desires a hearing on the claim; and
f) Any written material (included as exhibits) which the Claimant desires the Administrator to examine in its consideration of his position as stated pursuant to clause (d).
If the Claimant has requested a hearing on the claim, such hearing shall be held within thirty (30) days after the date determined pursuant to clause (b) hereof. Within sixty (60) days of the date determined pursuant to clause (b) hereof (or, if special circumstances or the request for a hearing require an extension of time, within ninety (90) days of such date), the Administrator shall conduct a full and fair review of the decision denying the Claimant's claim for benefits and shall deliver its decision to the Claimant in writing. Such written decision shall set forth the specific
reasons for the decision, including references to the specific provisions of this Plan which were relied upon. The decision will be final and binding on all persons concerned.
Executed at Erie, Pennsylvania this 1st day of October, 2002, effective as of April 30, 2002.
ERIE INDEMNITY COMPANY
By: /s/ Jeffrey A. Ludrof
----------------------------
Jeffrey A. Ludrof
Title: President & Chief
Executive Officer
ATTEST:
/s/ Jan R. Van Gorder
------------------------------------
Jan R. Van Gorder
Secretary
|
EXHIBIT 10.11 - EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") made effective as of the 9th day of May, 2002 (the "Effective Date") by and between ERIE INDEMNITY COMPANY, a Pennsylvania corporation with its principal place of business at Erie, Pennsylvania (the "Company"), and JEFFREY A. LUDROF (the "Executive");
WITNESSETH:
WHEREAS, the Company has determined that it is in the best interests of the Company and its shareholders to secure the continued employment of the Executive on the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the Executive desires and is willing to accept employment with the Company on the terms and subject to the conditions set forth herein;
NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:
1. Term. The Company hereby agrees to continue the employment of the Executive and the Executive hereby agrees to continue to serve the Company pursuant to the terms and conditions of this Agreement as President and CEO of the Company, or in such other position with the Company of at least commensurate responsibility and authority in all material respects, for a term of four years commencing on the Effective Date hereof and expiring on May 8, 2006, unless earlier terminated pursuant to Section 5 hereof. Notwithstanding the foregoing, the Executive shall serve in said office(s) at the pleasure of the Company's Board of Directors (the "Board of Directors") and the Executive may be removed from said office(s) at any time with or without Cause, as hereinafter defined, pursuant to Sections 5(b) or 5(d) hereof; provided that any such removal shall be without prejudice to any contract rights the Executive may have hereunder. Subject to Section 8(a)(6) and Section 8(b) hereof, this Agreement shall expire by its terms on May 8, 2006.
2. Duties and Responsibilities. The Executive's duties hereunder shall be those which shall be prescribed by the Company's Bylaws, as amended from time to time, and by the Board of Directors or any committee thereof from time to time and shall include such executive authority, duties, powers and responsibilities as customarily attend the office as President and CEO of a company comparable to the Company. The Executive shall discharge such duties consistent with sound business practices and in accordance with law and the Company's general employment policies, in each case, as in effect from time to time, in all material respects and the Executive shall use best efforts to promote the best interests of the Company. During the term of this Agreement, the Executive's position (including the Executive's status and reporting requirements), authority, duties, powers and responsibilities shall at all times be at least commensurate in all material respects with the most significant of those held, exercised or assigned to the Executive as of the Effective Date. The Executive shall devote the Executive's knowledge, skill and all of the Executive's professional time, attention and energies (reasonable absences for vacations and illness excepted), to the business of the Company in order to perform such assigned duties faithfully, competently and diligently. It is understood and agreed between the parties that the Executive may (i) engage in charitable and
community activities, including serving on boards of directors or trustees of and holding other leadership positions in non-profit organizations unless the objectives and requirements of such positions are determined by the Board of Directors to be inconsistent with the performance of the Executive's duties hereunder, and, (ii) manage personal investments, so long as such activities do not interfere or conflict with the Executive's performance of responsibilities and obligations hereunder. It is expressly agreed that any such activities engaged in by the Executive as of the Effective Date shall not thereafter be deemed to interfere with the Executive's obligations and responsibilities hereunder. The Executive agrees that the approval of the Board of Directors or a committee thereof shall be required before the Executive first accepts a position as director of any for-profit corporation after the date hereof.
3. Compensation. During the term of this Agreement, the Executive shall receive, for all services rendered to the Company hereunder, the following (hereinafter referred to collectively as "Compensation"):
(a) Salary. The Executive shall be paid an annual base salary at an annual rate at least equal to the annual rate being paid or payable to the Executive by the Company in the month in which the Effective Date occurs, with such increases thereafter as shall be determined from time to time to be fair and reasonable by the Board of Directors or by the Executive Compensation Committee of the Board of Directors (the "Committee") in its discretion after taking into account, among other things, the authority, duties, powers and responsibilities of the Executive's position, the Executive's performance, the Company's performance, the compensation of persons in comparable positions at the Company and at other comparable companies, and the effect of inflation. The Executive's annual base salary shall not be reduced after any such increase. The Executive's annual base salary shall be payable in equal installments in accordance with the Company's general salary payment policies, but no less frequently than bi-weekly.
(b) Incentive Compensation. The Executive shall be eligible for awards under the Company's incentive compensation plans, if any, applicable to senior executive officers of the Company or to key employees of the Company or its subsidiaries, including, but not limited to, management incentive plans and stock option plans, in accordance with and subject to the terms thereof (including any provisions providing for changes in the level of or termination of benefits thereunder), on a basis commensurate with the Executive's position and authorities, duties, powers and responsibilities.
(c) Employee Benefit Plans. The Executive and the Executive's "dependents," as that term may be defined under the applicable employee benefit plan(s) of the Company, shall be included, to the extent eligible thereunder and subject to the terms of the plans (including any provisions for changing the level of or termination of benefits thereunder), in all plans, programs and policies which provide benefits for Company employees and their dependents on a basis commensurate with the Executive's position and authorities, duties, powers and
responsibilities including, without limitation, health care insurance, health and welfare plans, pension and retirement plans, group life insurance plans, split dollar life insurance plans, short and long-term disability plans, survivors' benefits, executive supplemental benefits, holidays and other similar or comparable benefits made available to the Company's employees and senior executive officers (hereinafter, such plans, programs and policies shall be collectively referred to as the "Erie Benefit Plans"). Such plans, programs and policies shall include, but are not limited to, the Erie Insurance Group Retirement Plan for Employees, the Erie Insurance Group Employee Savings Plan, the Erie Insurance Group Deferred Compensation Plan, the Erie Insurance Group Split Dollar Life Insurance Plan, the Erie Insurance Group Supplemental Executive Retirement Plan, and the Erie Insurance Group Health Protection, Prescription Drug, Dental Assistance and Vision Care Plans.
(d) Perquisites. The Executive shall be entitled to all perquisites which the Company from time to time makes available to senior executive officers of the Company. Such perquisites shall include, but are not limited to, parking, club dues, tax preparation assistance, and an annual physical examination.
(e) Expenses and Working Facilities. The Executive is hereby authorized to incur, and shall be reimbursed by the Company for, any and all reasonable and necessary business related expenses, including, but not limited to, expenses for business travel, entertainment, gifts and similar matters, which expenses are incurred by the Executive on behalf of the Company or any of its subsidiaries, upon presentation of itemized accounts of such expenses in accordance with Company policies. The Executive shall be furnished during the term of this Agreement with offices and other working facilities in the Company's principal executive offices located in Erie, Pennsylvania (or other location of the principal executive offices within the Erie metropolitan area) and secretarial and other assistance suitable to the Executive's position and adequate for the performance of duties hereunder.
(f) Performance Appraisal. The Executive's performance may be evaluated by the Board of Directors or the Committee from time to time. The Executive shall be entitled to such additional remuneration, including but not limited to annual bonuses based on performance, as the Board of Directors or the Committee may, in its discretion, determine from time to time.
4. Absences. The Executive shall be entitled to vacations in accordance with the Company's vacation policy in effect from time to time (but in no event shall the Executive be entitled to fewer vacation days than under the Company's vacation policy as in effect on the Effective Date) and to absences because of illness or other incapacity, and shall also be entitled to such other absences, whether for holiday, personal time, conventions, or for any other purpose, as are granted to the Company's other senior executive officers or as are approved by the Board of Directors or the Committee, which approval shall not be unreasonably withheld.
5. Termination. The Executive's employment hereunder may be terminated only as follows:
(a) Expiration of Term of Office. Upon the expiration of the term of the office(s) to which the Executive has been elected or appointed as set forth in Section 1 hereof, the Board of Directors may (i) determine that the Executive should not continue in such office(s) or (ii) that the Executive should not be elected or appointed to an office with duties, authorities, powers and responsibilities that are at least commensurate with those of said office(s), in either case, for reasons other than for Cause (if the reasons for such noncontinuance, nonreelection or nonreappointment constitute Cause, then Section 5(d) hereof will apply).
(b) By the Company Without Cause. The Company may at any time terminate the Executive's employment hereunder without Cause only by the affirmative vote of a majority of the entire Board of Directors, and upon no less than thirty (30) days prior written notice to the Executive.
(c) By the Executive Without Good Reason. The Executive may at any time terminate employment hereunder for any reason upon no less than thirty (30) days written notice to the Company. Section 5(e) shall apply to any termination of employment by the Executive for Good Reason.
(d) By the Company For Cause. The Company may terminate the Executive's employment hereunder for Cause. In such event, the Company shall give to the Executive prompt written notice (in addition to any notice which may be required by Section 5(d)(1) hereof) specifying in reasonable detail the basis for such termination. For purposes of this Agreement, "Cause" shall mean any of the following conduct by the Executive:
(1) The deliberate and intentional breach of any material provision of this Agreement, which breach Executive shall have failed to cure within thirty (30) days after Executive's receipt of written notice from the Company specifying the specific nature of the Executive's breach;
(2) The deliberate and intentional engaging by Executive in gross misconduct that is materially and demonstrably inimical to the best interests, monetary or otherwise, of the Company; or
(3) Conviction of a felony or conviction of any crime involving moral turpitude, fraud or deceit.
For purposes of this definition, no act, or failure to act, on the Executive's part shall be considered "deliberate and intentional" unless done, or omitted to be done, by the Executive not
in good faith and without reasonable belief that such action or omission was in the best interest of the Company.
(e) By the Executive for Good Reason. The Executive may terminate employment hereunder for Good Reason upon providing thirty (30) days written notice to the Company after the Executive reasonably becomes aware of the circumstances giving rise to such Good Reason. For purposes of this Agreement, "Good Reason" means the following conduct of the Company, unless the Executive shall have consented thereto in writing:
(1) Material breach of any material provision of this Agreement by the Company, which breach shall not have been cured by the Company within thirty (30) days after Company's receipt from the Executive or the Executive's agent of written notice specifying in reasonable detail the nature of the Company's breach;
(2) The assignment to the Executive of any duties inconsistent in any material respect with the Executive's position (including any reduction of the Executive's status and reporting requirements), authority, duties, powers or responsibilities with the Company as contemplated by Section 2 of this Agreement, or any other action by the Company, including the removal of the Executive from or any failure to reelect or reappoint the Executive to the office(s) specified in Section 2 or a commensurate office(s) (other than for Cause), which results in a diminution of the Executive's authority, duties, position, responsibilities or status, excluding for this purpose any isolated, insubstantial and inadvertent action respecting the Executive not taken in bad faith and which is remedied by the Company within thirty (30) days after receipt of written notice from the Executive to the Company;
(3) The Company's relocation of the Executive out of the Company's principal executive offices or the relocation of the Company's principal executive offices to a location outside the Erie, Pennsylvania metropolitan area, except for required short-term travel on the Company's behalf to the extent necessary for the Executive to carry out his normal duties in the ordinary course of business;
(4) The failure of the Company to obtain the assumption in writing of its obligations to perform this Agreement by any successor as provided in Section 14 hereof not less than
five days prior to a merger, consolidation or sale as contemplated in Section 14; or
(5) A reduction in the overall level of compensation of the
Executive. For purposes of this subsection 5, the following
shall not constitute a reduction in the overall level of
compensation of the Executive: (i) changes in the cash/stock
mix of compensation payable to the Executive; (ii) a reduction
in the overall level of compensation of the Executive
resulting from the failure to achieve corporate, business unit
and/or individual performance goals established for purposes
of incentive compensation for any year or other period;
provided that the aggregate short-term incentive opportunity,
when combined with the Executive's base salary, provides, in
the aggregate, an opportunity for the Executive to realize at
least the same overall level of compensation as was paid in
the immediately prior year or period at target performance
levels; and provided, further, that such target performance
levels are reasonable at all times during the measurement
period, taking into account the fact that one of the purposes
of such compensation is to incent the Executive; (iii)
reductions in compensation resulting from changes to any Erie
Benefit Plan (provided that such changes are generally
applicable to all participants in such Erie Benefit Plan); and
(iv) any combination of the foregoing.
(f) Disability. In the event that the Executive shall be unable to perform the Executive's duties hereunder on a full time basis for a period of one hundred-eighty (180) consecutive calendar days by reason of incapacity due to illness, accident or other physical or mental disability, then the Company may, at its discretion, terminate the Executive's employment hereunder if the Executive, within ten (10) days after receipt of written notice of termination (which notice may be given before or after the end of the entire 180 day period), shall not have returned to the performance of all of his duties hereunder on a full-time basis.
(g) Death. The Executive's employment under this Agreement shall terminate upon the Executive's death.
(h) Mutual Written Agreement. This Agreement and the Executive's employment hereunder may be terminated at any time by the mutual written agreement of the Executive and the Company.
6. Compensation in the Event of Termination. In the event that the Executive's employment hereunder terminates prior to the expiration of this Agreement for any
reason provided in Section 5 hereof, the Company shall pay the Executive, compensation and provide the Executive and the Executive's eligible dependents with benefits as follows:
(a) Executive's Nonreelection to Office; Termination By Company
Without Cause; Termination By Executive for Good Reason. In the event that
the Executive's employment hereunder is terminated: (i) because the
Executive does not continue in office pursuant to Section 5(a) hereof; or
(ii) by the Company without Cause pursuant to Section 5(b) hereof; or
(iii) by the Executive for Good Reason pursuant to Section 5(e) hereof,
then in any such event the Company shall pay or provide, as applicable,
the following compensation and benefits to the Executive:
(1) Three (3) times the following: (A) the highest annual
base salary paid or payable to the Executive in the then
current year or any one (1) of the three (3) calendar
years preceding Executive's termination of employment
hereunder; plus (B) an amount equal to the sum of the
Executive's highest award(s) under the Company's Annual
Incentive Plans for any one (1) of the three (3)
calendar years preceding the date of the termination of
Executive's employment hereunder (such total is referred
to herein as "Covered Compensation"). Such payment to
the Executive by the Company shall be paid in a lump sum
unless the Executive elects, and so notifies the Company
in writing prior to the termination of the Executive's
employment hereunder, to receive such payment in three
(3) equal annual installments. The lump sum or first
payment, as the case may be, shall be paid within sixty
(60) days after the date of the termination of the
Executive's employment hereunder;
(2) Any awards or other compensation to which the Executive is entitled under any of the Company's compensation plans or Erie Benefit Plans to the extent not covered in subsection (1) hereof;
(3) Any award to which the Executive would be entitled under the Company's Long-Term Incentive Plan as in effect on December 16, 1997, calculated under the provision of that Plan as if the Executive ceases to be an Employee of the Company by reason of death, disability or normal retirement;
(4) Continuing coverage for all purposes (including eligibility, coverage, vesting and benefit accruals, as applicable), for a period of three (3) years after the date of the termination of
Executive's employment hereunder, to the extent not prohibited by law, for the Executive and the Executive's eligible dependents under all of the Erie Benefit Plans in effect and applicable to Executive and the Executive's eligible dependents as of the date of termination. In the event that the Executive and/or the Executive's eligible dependents, because of the Executive's terminated status, cannot be covered or fully covered under any or all of the Erie Benefit Plans, the Company shall continue to provide the Executive and/or the Executive's eligible dependents with the same level of such coverage in effect prior to termination, payable from the general assets of the Company if necessary. Notwithstanding the foregoing, the Executive may elect (by giving written notice to the Company prior to the termination of employment hereunder), on a benefit by benefit basis, to receive in lieu of continuing coverage, cash in an amount equal to the present value (using a 6.5% discount rate over three years) of the projected cost to the Company of providing such benefit for such three year period. The aggregate amount of cash to which the Executive is entitled pursuant to the preceding sentence shall be payable by the Company to the Executive within sixty (60) days after the date of the termination of Executive's employment hereunder; and
(5) For a period of three (3) years after the date of the termination of Executive's employment hereunder, such perquisites as are made available to the Executive as of the date of the termination of Executive's employment hereunder.
The Executive's subsequent death, disability or attainment of age 65 or any
other age shall in no way affect or limit the Company's obligations under this
Section 6(a).
(b) Termination By the Company for Cause. In the event that the Company shall terminate the Executive's employment hereunder for Cause pursuant to Section 5(d), this Agreement shall forthwith terminate and the obligations of the parties hereto shall be as set forth in Section 8 hereof.
(c) Termination by the Executive Without Good Reason. In the event that the Executive shall terminate employment hereunder other than for Good Reason pursuant to Section 5(c), this Agreement shall forthwith terminate and the obligations of the parties hereto shall be as set forth in Section 8 hereof.
(d) Disability. In the event that the Company elects to terminate the Executive's employment hereunder pursuant to Section 5(f), the Executive shall
continue to receive from the date of such termination through the expiration date of this Agreement, sixty percent (60%) of the then current annual base salary to which the Executive was entitled pursuant to Section 3(a) hereof immediately preceding such termination, in accordance with the payroll practices of the Company for senior executive officers, reduced, however, by the amount of any proceeds from Social Security and disability insurance policies provided by and at the expense of the Company.
(e) Death. In the event of the death of the Executive during the term of this Agreement, the then current annual base salary to which the Executive was entitled pursuant to Section 3(a) hereof immediately preceding the Executive's death shall be paid, in twelve (12) equal monthly installments following the date of death, to the last beneficiary designated by the Executive under the Company's group life insurance policy maintained by the Company or such other written designation expressly provided to the Company for the purposes hereof or, failing either such designation, to the Executive's estate.
(f) Mutual Written Consent. In the event that the Executive and the Company shall terminate the Executive's employment by mutual written agreement, the Company shall pay such compensation and provide such benefits, if any, as the parties may mutually agree upon in writing.
The Executive shall not be required to mitigate the amount of any payment provided for in this Section 6 by seeking employment or otherwise, nor shall any amounts received from employment or otherwise by the Executive offset in any manner the obligations of the Company hereunder except as specifically provided in Section 6(d) hereof.
7. Certain Additional Payments by the Company. Notwithstanding anything in
this Agreement to the contrary, in the event it is determined that any payment
or distribution by the Company to or for the benefit of the Executive, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), is subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any successor provision, on excess parachute payments, as that term is used and
defined in Sections 4999 and 280G of the Code, then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
equal to the then current rate of tax under said Section 4999 multiplied by the
total of the amounts so paid or payable, including the Gross-Up Payment, which
are deemed to be a part of an excess parachute payment.
8. Effect of Expiration of Agreement or Termination of Executive's Employment. Upon the expiration of this Agreement by its terms or the termination of the Executive's employment hereunder, neither the Company nor the Executive shall have any remaining duties or obligations hereunder except that:
(a) The Company shall:
(1) Pay the Executive's accrued salary and any other accrued benefits under Sections 3(a), (b), and (c) hereof;
(2) Reimburse the Executive for expenses already incurred in accordance with Section 3(e) hereof;
(3) Pay or otherwise provide for any benefits, payments or continuation or conversion rights in accordance with the provisions of any Erie Benefit Plan of which the Executive or any of the Executive's dependents is or was a participant or as otherwise required by law;
(4) Pay the Executive and the Executive's beneficiaries any compensation and/or provide the Executive or the Executive's eligible dependents any benefits, as the case may be, due pursuant to Section 6 or Section 7 hereof; and
(5) Unless the employment of the Executive is terminated by the Company for Cause, pay the Executive or the Executive's beneficiaries the full amount or amounts accrued under the Supplemental Executive Retirement Plan of the Company (the "SERP") as in effect on the Effective Date (or as such benefits may be enhanced by subsequent amendments or supplements to such SERP), as though, solely for purposes of determining any otherwise applicable actuarial reduction factors, the event of the termination of Executive's employment hereunder or expiration of this Agreement occurred on the Executive's Normal Retirement Date as defined in such SERP. Accrued benefits under the SERP shall be fully vested and nonforfeitable upon such termination (including termination on account of the Executive's death) or expiration. Any reductions in SERP benefits that would otherwise apply pursuant to Section 10.1 of the Company's Retirement Plan for Employees (or pursuant to any successor provision of such plan or any successor plan) relating to Section 415(b) of the Code shall not be applicable for purposes hereof. No further approval by the Board of Directors or the Committee with respect to payments under the SERP in accordance with the preceding sentences shall be required. Unreduced payments may begin at age 55, but in no event would payments be made under this Section 8(a)(5) before the Executive reaches age fifty-five (55). The Company shall purchase for the Executive, naming the Executive and/or the Executive's designee the owner, a paid up annuity, from an insurer reasonably acceptable to the Executive but in any event having an A.M. Best rating of A+ or better (or other comparable rating), that will pay to the Executive an amount equal to the benefit to which the Executive would
otherwise be entitled under the SERP and payable at the times such SERP benefit would be payable in accordance with the provisions hereof. Upon the purchase and delivery to the Executive of such an annuity, the Executive shall release the Company from any further obligation under the SERP. The Company further agrees to pay the Executive immediately upon termination, a cash payment (the "Tax Gross-up") equal to the sum of the following: (i) all taxes (federal, state, local, and payroll taxes) incurred and due and owing by the Executive, arising from the cost of the annuity purchased by the Company to meet the requirements of this Section 8(a)(5), and (ii) any such taxes incurred and due and owing with respect to the amount paid in (i).
(6) Continue to remain bound by the terms of Section 12 hereof.
(b) The Executive shall remain bound by the terms of Sections 9 and 13 hereof for a period of thirty six (36) months after the expiration of the Agreement by its terms; provided, that the Executive shall not be bound by the terms of Section 9(b) after the termination of employment (other than a termination of the Executive by the Company for Cause) if such termination occurs after the expiration of this Agreement by its terms.
9. Covenants as to Confidential Information and Competitive Conduct. The Executive hereby acknowledges and agrees as follows: (i) this Section 9 is necessary for the protection of the legitimate business interests of the Company, (ii) the restrictions contained in this Section 9 with regard to geographical scope, length of term and types of restricted activities are reasonable; (iii) the Executive has received adequate and valuable new consideration for entering into this Agreement, and (iv) the Executive's expertise and capabilities are such that this obligation hereunder and the enforcement hereof by injunction or otherwise will not adversely affect the Executive's ability to earn a livelihood.
(a) Confidentiality of Information and Nondisclosure. The Executive acknowledges and agrees that the Executive's employment by the Company under this Agreement necessarily involves knowledge of and access to confidential and proprietary information pertaining to the business of the Company and its subsidiaries. Accordingly, the Executive agrees that at all times during the term of this Agreement and at any time thereafter, the Executive will not, directly or indirectly, without the express written approval of the Company, unless directed by applicable legal authority (including any court of competent jurisdiction, governmental agency having supervisory authority over the business of the Company or the subsidiaries, or any legislative or administrative body having supervisory authority over the business of the Company or its subsidiaries) having jurisdiction over the Executive, disclose to or use, or knowingly permit to be so
disclosed or used, for the benefit of himself, any person, corporation or
other entity other than the Company, (i) any information concerning any
financial matters, customer relationships, competitive status, supplier
matters, internal organizational matters, current or future plans, or
other business affairs of or relating to the Company or its subsidiaries,
(ii) any management, operational, trade, technical or other secrets or any
other proprietary information or other data of the Company or its
subsidiaries, or (iii) any other information related to the Company or its
subsidiaries or which the Executive should reasonably believe will be
damaging to the Company or its subsidiaries which has not been published
and is not generally known outside of the Company. The Executive
acknowledges that all of the foregoing constitutes confidential and
proprietary information, which is the exclusive property of the Company.
(b) Restrictive Covenant. During the term of, and for a period of
one (1) year (the "Restrictive Period") after the termination of the
Executive's employment hereunder for any reason (other than a termination
of the Executive hereunder pursuant to Section 5(a), 5(b) or 5(e),
hereof), the Executive shall not render, directly, or indirectly, services
to any person, firm, corporation, association or other entity which
conducts the same or similar business as the Company or its subsidiaries
at the date of the Executive's termination of employment hereunder within
the states in which the Company or any of its subsidiaries is then
licensed and doing business at the date of the Executive's termination of
employment hereunder without the prior written consent of the Board of
Directors, which may be withheld in its discretion. In the event the
Executive violates any of the provisions contained in this Section 9(b)
hereof, the Restrictive Period shall be increased by the period of time
from the commencement by the Executive of any violation until such
violation has been cured to the satisfaction of the Company. The Executive
further agrees that at no time during the Restrictive Period will the
Executive attempt to directly or indirectly solicit or hire employees of
Company or its subsidiaries or induce any of them to terminate their
employment with the Company or any of the subsidiaries. Notwithstanding
the foregoing, the performance by the Executive of rights and duties under
an agency agreement with the Company shall not constitute a breach of this
Section 9(b).
(c) Company Remedies. The Executive acknowledges and agrees that any
breach of this Section 9 will result in immediate and irreparable harm to
the Company, and that the Company cannot be reasonably or adequately
compensated by damages in an action at law. In the event of a breach by
the Executive of the provisions of this Section 9, the Company shall be
entitled, to the extent permitted by law, immediately to cease to pay or
provide the Executive or the Executive's dependents any compensation or
benefit being, or to be, paid or provided to the Executive pursuant to
Section 3, Section 6 or Section 8 of this Agreement, and also to obtain
immediate injunctive relief restraining the Executive from conduct in
breach of the covenants contained in this Section 9. Nothing herein shall
be construed as prohibiting the Company from pursuing any
other remedies available to it for such breach, including the recovery of damages from the Executive.
10. Resolution of Differences Over Breaches of Agreement. Except as
otherwise provided herein, in the event of any controversy, dispute or claim
arising out of, or relating to, this Agreement, or the breach thereof, or
arising out of any other matter relating to the Executive's employment with the
Company, the parties may seek recourse only for temporary or preliminary
injunctive relief to the courts having jurisdiction thereof and if any relief
other than injunctive relief is sought, the Company and the Executive agree that
such underlying controversy, dispute or claim shall be settled by arbitration
conducted in Erie, Pennsylvania in accordance with this Section 10 and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA").
The matter shall be heard and decided, and awards rendered by a panel of three
(3) arbitrators (the "Arbitration Panel"). The Company and the Executive shall
each select one arbitrator from the AAA National Panel of Commercial Arbitrators
(the "Commercial Panel") and AAA shall select a third arbitrator from the
Commercial Panel. The award rendered by the Arbitration Panel shall be final and
binding as between the parties hereto and their heirs, executors,
administrators, successors and assigns, and judgment on the award may be entered
by any court having jurisdiction thereof. Except as provided in Section 11
hereof, each party shall bear sole responsibility for all expenses and costs
incurred by such party in connection with the resolution of any controversy,
dispute or claim in accordance with this Section 10.
11. Payment of Executive's Legal Fees. If the Executive is required to bring any action to enforce rights or to collect moneys due under this Agreement, the Company shall pay to the Executive the fees and expenses incurred by the Executive in bringing and pursuing such action if the Executive is successful, in whole or in part, on the merits or otherwise (including by way of a settlement involving a payment of money by the Company to the Executive), in such action. The Company shall pay such fees and expenses in advance of the final disposition of such action upon receipt of an undertaking from the Executive to repay to the Company such advances if the Executive is not ultimately successful, in whole or in part, on the merits or otherwise, in such action.
12. Severance Pay upon Termination of Employment after Expiration of the Agreement. Notwithstanding the expiration of this Agreement by its terms and notwithstanding the terms of any corporate severance policy then in effect and applicable to the Executive, if the employment of the Executive is terminated without Cause by the Company, by the Executive for Good Reason or upon the expiration of the term of the office(s) to which the Executive has been elected or appointed as set forth in Section 1 hereof (for reasons other than for Cause), in any case, within thirty-six (36) months after the expiration of this Agreement by its terms, then (i) the Company shall pay to the Executive severance compensation in an amount equal to two (2) times the Executive's Covered Compensation as determined on the date of such termination, and (ii) the Executive and the Executive's eligible dependents shall be entitled to continuing coverage under the Company's then-existing group health plans (including medical, dental, prescription drug and vision plans, if any) for a period of two (2) years after the date of the termination of the Executive's employment, to the extent not prohibited by law and subject to the terms of such plans including provisions as to deductibles and copayments and changes in levels of coverage
that are generally applicable to employees. The payment to the Executive by the Company pursuant to subsection (i) of the preceding sentence shall be paid in a lump sum unless the Executive elects, and so notifies the Company in writing prior to the Executive's termination of employment, to receive such payment in two (2) equal annual installments. The lump sum or first payment, as the case may be, shall be paid within thirty (30) days after the date of termination of the Executive's employment.
13. Release. The Executive hereby acknowledges and agrees that neither the Company nor any of its representatives or agents will be obligated to pay any compensation or benefit which the Executive has a right to be paid or provided to the Executive or the Executive's dependents pursuant to Section 6, Section 8 or Section 12 of this Agreement, unless the Executive, if requested by the Company in its sole discretion, executes a release in a form reasonably acceptable to the Company, which releases any and all claims the Executive has or may have against the Company or its subsidiaries, agents, officers, directors, successors or assigns.
14. Waiver. The waiver by a party hereto of any breach by the other party hereto of any provision of this Agreement shall not operate or be construed as a waiver of any other or subsequent breach by a party hereto.
15. Assignment. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company, and the Company shall be obligated to require any successor to expressly acknowledge and assume its obligations hereunder. This Agreement shall inure to the extent provided hereunder to the benefit of and be enforceable by the Executive or the Executive's legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. The Executive may not delegate any of the Executive's duties, responsibilities, obligations or positions hereunder to any person and any such purported delegation shall be void and of no force and effect.
16. Notices. Any notices required or permitted to be given under this Agreement shall be sufficient if in writing, and if personally delivered or when sent by first class certified or registered mail, postage prepaid, return receipt requested--in the case of the Executive, to his residence address as set forth below, and in the case of the Company, to the address of its principal place of business as set forth below, to the attention of the Chairman of the Board, or in case the Executive is the Chairman of the Board, to the Chairman of the Compensation Committee of the Board -- or to such other person or at such other address with respect to each party as such party shall notify the other in writing.
17. Construction of Agreement.
(a) Governing Law. This Agreement shall be governed by and construed under the laws of the Commonwealth of Pennsylvania.
(b) Severability. In the event that any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
(c) Headings. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience of reference only and shall not constitute a part of this Agreement.
18. Entire Agreement. This Agreement contains the entire agreement of the parties concerning the Executive's employment and all promises, representations, understandings, arrangements and prior agreements on such subject are merged herein and superseded hereby, including the Employment Agreement effective November 20, 1995 which is expressly superseded hereby. The provisions of this Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of any amendment, modification, repeal, waiver, extension or discharge is sought. No person acting other than pursuant to a resolution of the Board of Directors or the Committee shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto or to exercise any of the Company's rights to terminate or to fail to extend this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Executive has hereunto set his hand all as of the day and year first above written.
ATTEST: ERIE INDEMNITY COMPANY /s/ J.R. Van Gorder /s/ F. William Hirt --------------------------- ------------------------------- J.R. Van Gorder F. William Hirt Secretary Chairman of the Board |
WITNESS:
/s/ Debra J. Miller /s/ Jeffrey A. Ludrof
--------------------------- -------------------------------
Debra J. Miller Jeffrey A. Ludrof
5700 Stoneridge Drive
Fairview, PA 16415
|
EXHIBIT 10.12 - FORM OF ATTORNEY-IN-FACT PROVISION OF INSURANCE POLICIES OF
ERIE INSURANCE EXCHANGE
The Subscriber ("you" or "your") agrees with the other Subscribers at ERIE INSURANCE EXCHANGE ("ERIE"), a Reciprocal/Inter-Insurance Exchange, and with their Attorney-in-Fact, the Erie Indemnity Company ("we" or "us"), a Pennsylvania corporation with its Home Office in Erie, Pennsylvania, to the following:
1) You agree to pay your policy premiums and to exchange with other ERIE Subscribers policies providing insurance for any insured loss as stated in those policies.
2) You appoint us as Attorney-in-Fact with the power to: a) exchange policies with other ERIE Subscribers; b) take any action necessary for the exchange of such policies; c) issue, change, non-renew or cancel policies; d) obtain reinsurance; e) collect premiums; f) invest and reinvest funds; g) receive notices and proofs of loss; h) appear for, compromise, prosecute, defend, adjust and settle losses and claims under your policies; i) accept service of process on behalf of ERIE as insurer; and j) manage and conduct the business and affairs of ERIE, its affiliates and subsidiaries. This power of attorney is limited to the purposes described in this Agreement.
3) You agree that as compensation for us a) becoming and acting as
Attorney-in-Fact; b) managing the business and affairs of ERIE; and
c) paying general administrative expenses, including sales
commissions, salaries and employee benefits, taxes, rent,
depreciation, supplies and data processing, we may retain up to 25%
of all premiums written or assumed by ERIE. The rest of the premiums
will be used for losses, loss adjustment expenses, investment
expenses, damages, legal expenses, court costs, taxes, assessments,
licenses, fees, any other governmental fines and charges,
establishment of reserves and surplus, and reinsurance, and may be
used for dividends and other purposes we decide are to the advantage
of Subscribers.
4) You agree that this Agreement, including the power of attorney, shall have application to all insurance policies for which you apply at ERIE, including changes in any of your coverages.
5) You agree to sign and deliver to us all papers required to carry out this Agreement.
6) This Agreement, including the power of attorney, shall not be affected by your subsequent disability or incapacity.
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Erie Indemnity Company (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey A. Ludrof, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Jeffrey A. Ludrof -------------------------- Jeffrey A. Ludrof Chief Executive Officer November 6, 2002 |
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Erie Indemnity Company (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Philip A. Garcia, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Philip A. Garcia ----------------------------- Philip A. Garcia Executive Vice President & Chief Financial Officer November 6, 2002 |
EXHIBIT 99.3 - FIRST AMENDMENT TO SECOND RESTATED AGREEMENT
H.O. HIRT TRUST
Page
----
Article I Lifetime Trust 1
Article II Payment of Taxes, Debts, Legacies and
Expenses After Settlor's Death 2
Article III Administration of Trust Estate 3
Article IV Powers of Trustees 8
Article V Successor Trustees 12
Article VI General Provisions 13
Article VII Certain Rules of Construction 15
|
FIRST AMENDMENT TO SECOND RESTATED AGREEMENT
H. O. HIRT TRUST
Dated the 22nd day of December, 1980.
The Trust Agreement dated April 7, 1967, as restated by a Trust Agreement dated December 17, 1970 and amended thereafter, between HENRY ORTH HIRT, of Erie, Pennsylvania, as the Settlor, his children, FRANK WILLIAM HIRT and SUSAN RUTH HAGEN, as the individual Trustees and MELLON BANK, N.A., as the corporate Trustee and again restated by a Second Restated Agreement dated the 20th day of January, 1978 (and pursuant to the power to amend as contained in paragraph 7.03 of the said Second Restated Agreement) is hereby amended and restated again to read as set forth herein ("this Agreement").
The Settlor has heretofore transferred and delivered certain property to the Trustees, together with all his interest therein. The Trustees shall continue to hold said property, together with any additions thereto as hereinafter provided, as a Trust Estate, shall invest and reinvest the same and shall distribute the net income (hereinafter called "Income") and principal as set forth in the following provisions.
Article I
Lifetime Trust
1.01. During Settlor's lifetime:
(A) To pay to the Settlor the Income quarter-annually or to apply the same to his use as directed by him,
(B) To pay over to Settlor free of trust any amount of principal which he may at any time request in writing,
(C) To pay to Settlor or apply for his benefit any amounts of principal as Trustees in their discretion may from time to time deem advisable for the welfare and comfortable support of Settlor,
(D) To make gifts from principal to individuals and organizations consistent with Settlor's previous pattern of gifts.
Article II
Payment of Certain Taxes, Debts, Legacies and Expenses After Settlor's Death
2.01. Upon the Settlor's death, the Trustees shall pay all estate, inheritance and other taxes in the nature thereof, together with any interest and penalties thereon, becoming payable because of the Settlor's death with respect to the property constituting his gross estate for death tax purposes, whether or not such property passes under this Agreement; PROVIDED, however, that no assets which are not subject to such taxes shall be used for this purpose and that the death taxes on future interests may be paid at such time or times as the Trustees in their sole discretion deem advisable. The
Trustees shall not seek contribution or reimbursement from anyone receiving or having a beneficial interest in any part of said gross estate. The Trustees shall also pay to the Settlor's personal representative or shall expend directly such sums as said personal representative shall certify as necessary to supplement the Settlor's probate estate in order to pay debts, funeral expenses, legacies and administration expenses; PROVIDED, however, that no assets shall be used for this purpose which are not otherwise included in the Settlor's gross taxable estate. Subject to such payments, the principal remaining at the Settlor's death and any accrued or undistributed Income shall be divided and held as is provided in Article III below.
Article III
Administration of Trust Estate
3.01. The Trust Estate shall be held and administered as hereinafter stated.
(A) The Trustees shall divide the Trust Estate into two equal shares for the Settlor's children, FRANK WILLIAM HIRT and SUSAN RUTH HAGEN, and shall hold each share as a separate trust.
(1) During the lifetime of each of the Settlor's children, the Trustees shall pay the Income from his or her trust quarter-annually to or for the benefit of said child, and if the corporate Trustee considers the Income to be insufficient, in view of other income of said child of which it has knowledge, to provide for the welfare and comfortable support of said child
and his or her family, including educational and funeral expenses, the corporate Trustee is authorized in its discretion to use such sums from the principal as it deems advisable therefor; PROVIDED, however, that no shares of Class B capital stock of ERIE INDEMNITY COMPANY may be used for this purpose. In addition, said child shall have the right to withdraw any or all of the principal, exclusive of shares of Class B capital stock of ERIE INDEMNITY COMPANY. Upon the death of said child, if the trust has not already terminated, the remaining principal, exclusive of any shares of Class B capital stock of ERIE INDEMNITY COMPANY, shall be transferred and delivered to or for the benefit of such one or more persons, corporations or other organizations, in such portions or amounts and subject to such trusts, terms and conditions as said child may appoint by specific reference to this power in his or her will.
(2) Upon the death of each child, or upon the Settlor's death in the case of either child who is not then living, the shares of Class B capital stock of ERIE INDEMNITY COMPANY in said child's trust and any principal not appointed by said child as aforesaid, shall be held and distributed as follows:
(a) During the lifetime of the surviving spouse of the deceased child, the Income shall be paid quarter-annually to said spouse, and if the Trustees consider the Income to be insufficient, in view of other income of said spouse and children of which they have knowledge, to provide for the welfare and comfortable support of said child's spouse and children, including educational and funeral expenses, the Trustees are authorized in
their discretion to use such sums from principal, exclusive of shares of Class B stock of ERIE INDEMNITY COMPANY, as they deem advisable therefor; PROVIDED, however, that a child of Settlor shall have the right and power exercisable by specific reference to this power in his or her Will, to direct that the trust shall not continue for the benefit of his or her surviving spouse, or shall continue for a shorter time than the life of said surviving spouse, and in the event of the exercise of said power the trust shall terminate as thus directed.
(b) Upon the termination of said spouse's interest, the principal shall be divided into as many equal shares as said child has children then living and deceased children with issue then living, and each said share shall be held as a separate trust. The Settlor's son now has two living children, ELIZABETH ANN VORSHECK and LAUREL ANN HIRT, and his daughter also has two living children, SARAH ELIZABETH HAGEN and JONATHAN HIRT HAGEN.
(i) Until the termination of the trust, as provided in subparagraph (ii) below, the Trustees shall pay the Income from each grandchild's trust quarter-annually to or for the benefit of said grandchild or, if he or she is deceased, to his or her issue living at the time of payment per stirpes, and if the corporate Trustee considers the Income to be insufficient, in view of other income of which it has knowledge, to provide for the welfare, comfortable support and education of said grandchild and his or her family, the corporate Trustee is authorized in its discretion to use such sums from principal, exclusive of shares of Class B capital stock of ERIE INDEMNITY COMPANY, as it deems advisable therefor; PROVIDED, however, that prior to said grandchild's
twenty-first (21st) birthday, the Trustees may pay to him or her or to the person having custody of him or her, without liability on the part of the Trustees to see to the application thereof, or may expend directly such sums from Income or principal as the corporate Trustee deems advisable for such purpose and shall add any excess Income to principal and invest it as such. The Trustees may pay any other minor's share of Income to his or her natural guardian or such other person as may have custody of him or her or to any adult as Custodian for him or her under the Pennsylvania Uniform Gifts to Minors Act or may deposit the same in an interest-bearing account in said minor's name in the banking department of the corporate Trustee or elsewhere.
(ii) Each trust shall terminate upon the first to occur of (a) the sale or other disposition of all the shares of capital stock of ERIE INDEMNITY COMPANY held under this Agreement or (b) the expiration of a period of twenty-one (21) years following the death of the survivor of all the Settlor's descendants living at the Settlor's death. Upon such termination, the principal shall be transferred and delivered to the Settlor's respective grandchild or, if he or she is deceased, to his or her then living issue per stirpes.
(iii) Should any grandchild become deceased without issue at any time prior to such termination, the then principal of his or her trust shall be added equally to the shares of the other children of his or her parent, the Settlor's child, who are either then living or deceased with issue then living.
(iv) Should all the issue of either of the Settlor's children die before the termination of the trusts, the then principal of said child's share shall be added to the other child's share and held as part thereof.
(B) If any remainderman under the foregoing provisions is a minor and is entitled to a share in excess of the amount which may be paid to his or her natural guardian, such share shall be retained by the corporate Trustee in a separate trust until the eighteenth (18th) birthday of said remainderman, at which time the trust shall terminate and the principal shall be transferred and delivered to him or her free of trust. During such minority period, the Trustee shall pay to the person having custody of said remainderman, without liability on the part of the Trustee to see to the application thereof, or may expend directly so much of the Income and principal as it deems advisable for the welfare, comfortable support and education of said remainderman and shall add any excess Income to principal and invest it as such. In the event of the death of said remainderman during minority, the Trustee is authorized in its discretion to pay part or all of the funeral expenses, and the remaining principal shall be transferred and delivered to said remainderman's estate.
(C) The interest of any beneficiary hereunder, including a remainderman, in Income or principal, shall not be subject to assignment, alienation, pledge, attachment or claims of creditors until after payment has actually been made by the Trustees as hereinbefore provided.
(D) Upon the death of any Income beneficiary, any Income accrued or
received by the Trustees subsequent to the last Income payment date shall be paid to the person or persons for whose benefit the principal producing such Income is continued in trust or to whom such principal is distributed under the terms hereof.
(E) Corporate distributions received in shares of the distributing corporation shall be allocated to principal, regardless of the number of shares and however described or designated by the distributing corporation.
Article IV
Powers of Trustees
4.01. The Trustees hereunder shall have the following powers, in addition to and not in limitation of those granted by law: to accept assets in kind from the Settlor, his estate or elsewhere, to purchase assets from the estate and to retain such assets in kind; to sell assets and to invest and reinvest the proceeds and any other cash in any kind of property, real or personal, or part interest therein, without being restricted to investments which are listed as legal for trust funds; to pledge, exchange or mortgage real or personal property and to lease the same for terms exceeding five (5) years; to give options for sales, leases and exchanges; to borrow money; to compromise claims, to vote shares of corporate stock, in person or by proxy, in favor of or against management proposals, except that they shall vote any bank or bank holding company stock only as directed by an individual Trustee or, if there is none, by a competent adult Income beneficiary of the trust in which said shares are held; in the sole discretion of the corporate Trustee, to
carry securities in the name of a nominee; to make division or distribution hereunder either in cash or in kind; and to allot different kinds of or interests in property to different shares. The Trustees are specifically authorized to accept in kind and to retain any shares of MELLON NATIONAL CORPORATION stock, with no duty on the part of the corporate Trustee to review the same for investment purposes.
4.02. As among the Trustees, the corporate Trustee shall perform all ministerial and administrative duties, including the keeping of books and records, acting as custodian of the trust property and preparing all necessary tax returns. Each individual Trustee named herein but not including any Successor Trustee may delegate from time to time to his or her spouse, to any person eligible to be a successor individual trustee, or to the corporate Trustee, by an instrument in writing, (which instrument shall remain in effect as long as the individual Trustee shall remain in office unless sooner revoked or until expiring according to its terms) any and all of his or her rights, powers and duties hereunder and may also retain such agents as he or she deems advisable in the performance of his or her duties.
4.03. Notwithstanding the foregoing paragraphs 4.01 and 4.02 and any other provision of this Agreement, the following shall apply while any shares of capital stock of ERIE INDEMNITY COMPANY are held hereunder:
(A) At least one of the individual Trustees shall always be a member of the Board of Directors of said Company.
(B) The Settlor hereby declares that the purpose of this Trust is to create and preserve unified ownership and control of ERIE INDEMNITY COMPANY as a means of preserving the existence of ERIE INSURANCE EXCHANGE and ERIE INDEMNITY COMPANY as viable entities capable of furnishing insurance to subscribers at the Exchange and employment to loyal employees of the Exchange and the Company. The Settlor further declares that in his experience in the insurance business over half a century, including the Great Depression of the 1930's, World War II, the Korean and Viet Nam wars and several recessions, he has never lost sight of the fact that ERIE INSURANCE EXCHANGE, as a reciprocal insurer, was organized and exists primarily for the benefit of its subscribers or policyholders and that therefore the interests of the people who put their trust in the Exchange for the protection of their personal and business affairs must come first. However, when the Exchange is healthy, its managing attorney-in-fact, ERIE INDEMNITY COMPANY, will necessarily be prosperous and healthy, to the benefit of the stockholders of the latter. The Settlor therefore urges that the Trustees familiarize themselves with the nature of reciprocal insurers in general and the ERIE INSURANCE EXCHANGE in particular; that in the discharge of their trust duties they concentrate, in cooperation with the Board of Directors of ERIE INDEMNITY COMPANY and the individual whom the Board designates from time to time as "Manager" of the Exchange and Company, to keep ERIE INSURANCE EXCHANGE in the best of health; and that only when the task proves impossible shall they consider what then appears to them to be a logical change to prevent deterioration and possible disaster to the interests of all concerned.
(C) The Trustees will therefore maintain and preserve ownership of all shares of class B capital stock of ERIE INDEMNITY COMPANY unless and until they shall determine, subject to the specific provisions of paragraph 4.04, that the sale, exchange in a corporate combination or reorganization, or other disposition by the Trust of such ownership will best serve said purpose, in which event they are authorized to sell, exchange in a corporate combination or reorganization, or otherwise dispose of the ownership of all, but not less than all, of said shares, for whatever consideration and upon whatever terms they may determine. In the exercise of their unlimited discretion and in making any determination or decision relative to the ultimate purpose stated herein, the Trustees shall be entitled to assume that whatever best serves to preserve the existence of the Exchange and the Company also serves the best interest of any and all beneficiaries and recipients entitled at any time to receive distribution of any Income or principal hereunder.
4.04. In the absence of anything herein contained to the contrary, all powers pertaining to the administration of the trust shall be exercised only by a majority of the Trustees in office; PROVIDED, however, that in the exercise of the power and authority to sell, exchange in a corporate combination or reorganization, or otherwise dispose of shares of ERIE INDEMNITY COMPANY granted in paragraph 4.03 and referred to in paragraph 4.01, or in the taking of any action to terminate the trust or to distribute any part of the corpus to either individual Trustee as a beneficiary other than pursuant to withdrawal as stated in paragraph 3.01(A)(1), the affirmative vote of the corporate Trustee shall be required, and the affirmative or negative vote of either or
both of the individual Trustees, although constituting a majority, shall not be sufficient to authorize any such action.
4.05. The corporate Trustee shall be entitled to receive annual compensation for its services hereunder in accordance with its schedule in effect when the services are performed, but not in excess of such compensation as would be approved by a court of competent jurisdiction. During the Settlor's lifetime, such compensation shall be charged wholly against income, unless the Settlor directs otherwise in writing. For any services performed by it in connection with the Settlor's estate, which services are normally performed by the personal representative, the corporate Trustee shall be entitled to such additional compensation as may be fair and reasonable under the circumstances, not to exceed seventy-five (75%) percent of the additional compensation to which it would be entitled as Executor if the assets of this Trust Estate were to be superimposed upon the testamentary estate of the Settlor. The corporate Trustee is authorized in its discretion to sell securities to the extent necessary to pay any portion of such compensation which is chargeable against principal. The individual Trustees shall also be entitled to reasonable compensation for their services hereunder.
Article V
Successor Trustees
5.01. Upon the occurrence of any vacancy in the office of individual Trustee due to death, incapacity, removal, resignation or any other cause, a Successor Trustee shall be elected by a majority vote of the remaining Trustees
and the Board of Directors of Erie Indemnity Company, with each remaining
Trustee and said Board of Directors each having one vote, provided that after
such election, as required by paragraph 4.03(1), at least one Trustee shall be a
member of said Board of Directors. If no successor is thus elected within thirty
(30) days after occurrence of the vacancy, the remaining Trustees and said Board
shall petition the Common Pleas Court of Erie County, Pennsylvania, to fill said
vacancy by appointment from a list of not fewer than three (3) persons furnished
with said petition; and the President Judge of the Orphans Court Division of
said Common Pleas Court is hereby empowered to fill said vacancy.
5.02. The corporate Trustee may resign at any time during the Settlor's lifetime by written notice to him. After the Settlor's death, the corporate Trustee may resign at any time, without stating cause, by petitioning a court of competent jurisdiction in Erie County to designate and appoint a successor corporate Trustee. In case of the merger or consolidation of the corporate Trustee, the resulting company shall become successor corporate Trustee hereunder without notice to any party.
Article VI
General Provision
6.01. The Settlor or others may add hereto, by Will, inter vivos transfer or beneficiary designation, cash or such property in kind as is acceptable to the corporate Trustee.
6.02. The Settlor reserves the right to terminate this Agreement,
in whole or in part, by written notice delivered to the Trustees during the Settlor's lifetime.
6.03. The Settlor reserves the right to amend this Agreement at any time by a proper instrument in writing, executed by the Settlor, delivered to the Trustees during the Settlor's lifetime and accepted by the Trustees.
6.04. The Settlor may delegate to F. WILLIAM HIRT and SUSAN RUTH HAGEN jointly or to the survivor of them, the right to terminate this Agreement as reserved in paragraph 6.02 above and the right to amend this Agreement as reserved in paragraph 6.03 above, only by a Special Power of Attorney in writing, duly executed and acknowledged by the Settlor before an officer empowered by law to take acknowledgments, and specifically referring to said rights and said portions of this Agreement.
6.05. If the Settlor designates the Trustees as beneficiaries of the proceeds of any policies of insurance on his life, the duty and responsibility for the payment of premiums and other charges on such policies during the Settlor's lifetime shall rest solely upon him, unless he shall expressly direct the Trustees in writing to pay the same from Income or principal; otherwise, the only duty of the Trustees shall be the safekeeping of such policies as are deposited with them, and the Trustees shall be under no duty to notify the Settlor that any such premium or other charge is due and payable. All options, rights, privileges and benefits exercisable by or accruing to the Settlor during his lifetime by the terms of the policies shall be for his sole
benefit and shall not be subject to this trust; the Settlor agrees, however, not to exercise any options whereby the proceeds would be payable to the Trustees other than in one sum. Upon the written request of the Settlor, the Trustees shall execute and deliver such consents and instruments as may be requisite to enable the Settlor to exercise or avail himself of any option, right, privilege or benefit granted by any of the policies. Upon the Settlor's death, or at such later time as may be specified in the policies, the net proceeds of any policies then payable to the Trustees hereunder shall be collected by the Trustees; the receipt of the Trustees for such proceeds shall release the insurance companies from liability on the policies, and the insurance companies shall be under no duty to see to the application of such proceeds. The Trustees may take all steps necessary in their opinion to enforce payment of said policies and shall be entitled to indemnify themselves out of any property held hereunder against all expenses incurred in taking such action.
Article VII
Certain Rules of Construction
7.01. As used in this Agreement, the singular may include the plural and the plural the singular, and the use of any gender shall be applicable to all genders.
7.02. This Agreement has been delivered to and accepted by the corporate Trustee in the Commonwealth of Pennsylvania and shall be governed in all respects by the laws of said Commonwealth.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day and year aforesaid.
/s/ Stephen E. Jones /s/ Henry Orth Hirt (SEAL)
------------------------------------ ------------------------------
Witness Henry Orth Hirt
/s/ Stephen E. Jones /s/ Frank William Hirt (SEAL)
------------------------------------ -------------------------------
Witness Frank William Hirt
/s/ Stephen E. Jones /s/ Susan Ruth Hagen (SEAL)
------------------------------------ -------------------------------
Witness Susan Ruth Hagen
(SEAL)
ATTEST MELLON BANK, N.A.
/s/ Trust Officer By: /s/ Nancy Wilfer
------------------------------------ ----------------------------------
Trust Officer Asst. Vice-President
|