SUPPLEMENTAL
BENEFITS
PLAN
| INTRODUCTION | 1 | |
SURVIVOR BENEFITS | 2 | |
POST-TERMINATION BENEFITS | 4 | |
SEVERANCE BENEFITS | 7 | |
GLOSSARY | 8 | |
ERISA INFORMATION | 11 | |
ADMINISTRATIVE INFORMATION | 12 | |
APPENDIX | 13 |
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The Community Health Systems, Inc. Supplemental Benefits Plan ("SBP" or the "Plan") was designed to provide competitive supplemental benefits for management employees. You become eligible for Plan benefits when you enter an eligible category, or on the date of acquisition of your facility by Community Health Systems, Inc. ("CHS") if you are in an eligible category ("Eligibility Date"). This booklet describes the provisions of each of the Plan components:
All benefits under the Plan are calculated using annual base salary unless stated otherwise.
BENEFIT CATEGORIES
Plan benefits categories are based upon your position with the Company. The following benefit categories are referenced throughout this booklet:
| Executive | Corporate Vice President and above | |
Group 1 | Corporate Assistant Vice Presidents Corporate Management Grades 7-9 Facility Executive Director | |
Group 2 | Corporate Management Grades 4-6 Facility Assistant Executive Director Facility Controller Facility Director of Nursing |
Category determination is the exclusive right of the Plan Sponsor.
PLAN YEAR
The Plan year for the Supplemental Benefits Plan is January 1 to December 3l.
ENROLLMENT AND EFFECTIVE DATES
Although you are immediately eligible for Plan Severance Benefits on your Eligibility Date, there are only two annual entry dates for Survivor and Supplemental Survivor Accumulation Plan ("SSAP") Benefits—January 1 and July 1. The variable universal life insurance policy which funds the Survivor Benefits and the SSAP requires completion of enrollment and investment election forms. This process may take several weeks to complete. Therefore, the actual effective date of coverage of this policy ("SSAP Effective Date") is dependent upon when your account is officially established. You will receive confirmation of this directly from the Plan Administrator—TBG Financial.
CATEGORY OR BENEFIT CHANGE
If you enter a different benefit category or receive an increase in your base salary of 25% or more any time before your next Plan anniversary date, your Survivor and SSAP Benefits will be increased on the next entry date (January 1 or July 1). As with newly eligible employees, changes in the Survivor Benefits and the Survivor Benefits/SSAP resulting from benefit category changes are not in effect until you receive confirmation of the change.
If you are transferred to a position with CHS or a subsidiary that is not a position included within an eligible benefit category, your participation in all Plan components will terminate as of the date on which your transfer becomes effective. CHS will not make any additional contributions on your behalf after the date your transfer becomes effective. However, even after your participation in the Plan
terminates, your ownership rights in the variable life insurance policy purchased in connection with your participation in the SSAP shall be determined under the terms of the Split Dollar Insurance Agreement and/or Death Benefit Only Agreement which you and CHS entered into in connection with your Plan participation. If this happens, TBG financial will contact you regarding your options.
Survivor Benefits are life insurance proceeds intended to provide cash in the event of your death to:
These Survivor Benefits are provided through group insurance or a combination of group insurance and individual permanent insurance (which may continue after you terminate employment) and death benefits paid directly by CHSI.
SUPPLEMENTAL SURVIVOR INSURANCE
Amount of Benefit. Simultaneous with your SSAP Effective Date, your group term life insurance and Accidental Death and Disability ("AD&D") benefits will each be fixed at $50,000 (from your plan Eligibility Date until your SSAP Effective Date your group coverage will be the same amount as the SBP Survivor Benefits). Plan Survivor Benefits are provided in addition the group term coverage (which will now be fixed at $50,000) through the use of a variable universal life insurance policy. The benefit amount is based on Plan entry salary and benefit category:
| Executive | 4X Base Salary | |
Group 1 | 3X Base Salary | |
Group 2 | 2X Base Salary |
The variable universal life policy amount will remain at the multiple of your Planentry base salary unless you enter a different benefit category or receive an increase in your base salary of 25% or more during a Plan year. Otherwise, policies are reviewed every five years for funding adequacy.
Split Dollar Benefit. An additional death benefit may be paid by CHS under the Split Dollar Agreement, depending upon the cash value of the policy.
Tax Status. There is no taxable income to you for your $50,000 group term coverage. However, since the Plan's death benefits are paid in an income tax-free lump sum to your beneficiaries, as required by the IRS, you will have taxable income added to your W-2 each year for the imputed income value of the additional Plan death benefits. The Plan's Survivor Benefits are provided on a Split Dollar Insurance basis. By using Split Dollar, the lowest possible rates for valuing this benefit are used when calculating the amount to be added to your W-2. Split Dollar results in taxable income to you which is approximately 60% lower than the same benefit under group term life.
Termination. Upon termination of employment, the policy is portable. You may elect to continue this policy, although future premium payments may be required. The variable universal life contract used to fund this benefit is very adaptable and may be modified after you leave to change the amount of premium payments or the level of benefit provided.
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Accelerated Living Benefit. The accelerated living benefit can provide funds from your Supplemental Survivor policy when you are terminally ill with less than six months to live. Accelerated living benefits may be taxable when received.
Evidence of Insurability. Up to $1,000,000 coverage is guaranteed regardless of your medical condition. This guarantee is contingent upon your ability to work and proof of full-time employment during the three months prior to your Plan entry date. If your amount of coverage exceeds the carrier's guaranteed issue, you may be required to provide pertinent details on your health or to have a physical examination by a healthcare professional selected by the insurance company. All examination results will be kept strictly confidential.
Post-Termination Benefits are intended to provide cash or other benefits to you and your family. These benefits are designed to:
SUPPLEMENTAL SURVIVOR ACCUMULATION PLAN ("SSAP")
Amount of Benefit. The SSAP is funded through deposits to the variable universal life insurance policy which funds your Survivor Benefits. Each year, on the anniversary of your SSAP Effective Date (either January 1 or July 1), for so long as you are an active employee or until you reach age 65 (when contributions cease), CHS will make a deposit to your account bas d on your benefit category:
| Executive | The target benefit, assuming a maximum 30 years of service with CHS, is equal to 50% of projected final average last five years cash compensation (base salary and target bonus) with CHS at age 65. This target benefit encompasses a combination of CHS paid sources: | |
— SSAP deposits | ||
| — CHS employer social security contributions | ||
| — 401(k) basic and matching contributions | ||
A target cash value at age 65 (the lump sum required to produce an annuity equal to the target benefit) is then determined and a percentage of projected annual cash compensation is calculated to yield the target cash value. This percentage is used to determine the amount of the annual SSAP deposit. | ||
Groups 1 and 2 | The annual deposit is 3% of base salary. This percent was selected to provide a target benefit, assuming a maximum of 30 years of service with CHS, equal to 60% of projected final average last five years base salary. This target benefit is provided through a combination of CHS paid sources: | |
— SSAP deposits | ||
| — CHS employer social security contributions | ||
| — 401 (k) basic and matching contributions |
Type of Benefit. This Plan is designed to be a welfare benefit plan for tax and ERISA purposes.
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Vesting. You vest in the cash value (the value of the policy upon surrender) of your SSAP at a rate of 10% per year of service. For Plan purposes, years of service begin the later of the date CHS acquired your hospital or the date you entered an eligible position. In the event of your death, disability or retirement at age 65 from CHS, you automatically become 100% vested.
Ownership. You legally own all vested SSAP deposits and earnings, subject to the Substantial Risk of Forfeiture.
Tax Status. Your SSAP benefit is protected from taxation until termination of employment by a Substantial Risk of Forfeiture ("SRF") (see Appendix). Income taxes will be due upon a distribution of funds at termination of employment or at the end of the Substantial Risk of Forfeiture period, if applicable. Income taxes due may be paid using the policy's cash value. Tax liability upon death is governed by the provisions of the Split Dollar Agreement.
Termination Value. At termination of employment your policy is portable. The variable universal life policy used to fund this benefit is very adaptable and may be modified after you leave to change the amount of premium payments or the level of benefit provided. The amount and duration of the policy's post-termination values depend upon the amount of cash value in the policy when you terminate employment or, if applicable, when the Substantial Risk of Forfeiture ends (your vested percentage is frozen at the time of voluntary termination rather than when the SRF ends). The higher the investment return, the greater the value.
Investment Choices. You may direct the investment of the premium deposits among the portfolios within the insurance policy. The Prospectus which you will receive at the time of your enrollment in the Plan will describe your investment alternatives. You may move the money within the portfolios up to four times per year (except for transfers from the fixed fund which are restricted) without charge.
Distribution of Funds
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option to choose which SRF requirement you must satisfy before the vested portion of your SSAP account will be released to you:
At the end of the SRF period, CHS will release its interest in the policy and recover any non-vested cash. You may then elect any of the following:
The Severance Benefits below will be provided to you in the event you are terminated without Cause ("Ordinary Termination").
AMOUNT OF BENEFIT
Severance Benefits are based upon your benefits category and the reason for the termination:*
| Benefits Category | Ordinary Termination | |
|---|---|---|
| President | 24 months | |
| Executive Vice President | 18 months | |
| Senior Vice President | 15 months | |
| Vice President | 12 months | |
| Assistant Vice Presidents | 9 months | |
| Group 1 (Corporate Grades 7-9) | 6 months | |
| Group 1 (Facility) | 6 months | |
| Group 2 (Corporate Grades 4-6) | 3 months | |
| Group 2 (Facility) | 3 months |
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Basic and supplemental benefits (or their value if the benefit may not legally or contractually be continued post-termination) included in the severance payment are:
Employees who are subject to Ordinary Termination after enrollment in the Plan, but before completing 12 months of employment with CHS, will receive one-half of the Severance Benefits shown above.
CHANGE OF OWNERSHIP (Key Hospital Managers only)
Severance Benefits will not be payable if your employment with CHS ends due to the sale, lease or transfer of your facility and you are retained in the same or a comparable position by a successor employer for at least 90 days.
TAX STATUS
The cost of these benefits is added to your W-2 as taxable income.
PAYMENT OF BENEFIT
In order to receive your severance benefits, you will be required to release CHS from all claims relating to your employment (see Appendix for form of Release of Claims).
* If any inconsistency exists between the provisions of an employment agreement and this document regarding post-termination benefits, the provisions of the employment agreement shall apply.
Cash Value. The value of the SSAP policy upon surrender.
Cause. The Company shall have Cause upon any or all of the following:
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Cause shall not include ordinary negligence or failure to act, whether due to an error in judgement or otherwise, if employee has exercised substantial efforts in good faith to perform the duties reasonably assigned or appropriate to his position.
Death Benefit Only Agreement. Provides the Company with an unfunded obligation to pay the cash value of your policy to your beneficiary. This agreement also provides the Company with the right to recover any excess of the face value of the policy in excess of participant's salary multiple.
Group Insurance. Refers to insurance plans written on groups of employees, typically for health, life, and disability protection.
Imputed Income. The value ascribed by the Internal Revenue Service to certain employer-sponsored benefits, such as group term life insurance in excess of $50,000. The value is then reported as income on each individual's W-2 at the end of the year.
Key Hospital Manager. A facility's Executive Director, Assistant Executive Director, Controller and Director of Nursing of their equivalent positions.
Non-Competition Provisions. During the Employee's employment with the Company, employee shall not directly or indirectly own or accept employment with, consult with or maintain any interest in any healthcare provider organization, or otherwise act on behalf of any other enterprise whether in competition with the Company or not, except as approved in advance from time to time by the Company's CEO or other appropriate officers. Notwithstanding the preceding sentence, nothing shall prevent employee from owning stock in any corporation whose stock is listed on any nationally recognized stock exchange as long as employee owns less than 3% of the outstanding shares of any such corporation. In any event the Company's CEO or other appropriate officers have previously approved in advance to allow employee to accept employments with, consult with or maintain any interest in any healthcare provider organization, or otherwise act on behalf of another enterprise whether in competition with the Company or not and subsequently revoke such approval, the CEO or other appropriate officers shall give employee written notice of such revocation, in which event the employee shall have 30 days to cure such violation. The CEO or other appropriate officers approvals of any ownership position of employee in another enterprise shall not be revoked.
Ordinary Termination. Involuntary termination without Cause.
Pre-Tax. The deposit or deferral of cash compensation made before income taxes are paid. Pre-tax deferrals increase investment by an amount equivalent to an individual's income tax bracket.
SSAP. Supplemental Survivor Accumulation Plan. See Post-Termination Benefits.
Split Dollar Agreement. This agreement between the participant and CHS spells out the terms and conditions of your policy ownership including amount of death benefit, premium payments, vesting and policy cash values, the Company's right to recover a portion of the policy value for termination of employment, etc. This is also the vehicle by which the variable universal policy is actually purchased.
Salary. Refers to annual base salary.
Split Dollar Insurance. A method whereby two or more parties share in the ownership or value and death proceeds of an insurance policy. Provides more favorable tax treatment than other forms of insurance or ownership. See Survivor Benefits.
Substantial Risk of Forfeiture. The possibility that a benefit may not be collected by an employee because of adverse cirumstances, typically the risks of cliff vesting and non-competition agreement. The risks preserve the tax-favored status of certain non-qualified benefits. See Post-Termination and Severance Benefits.
Survivor Benefits. Life insurance which may or may not include cash value.
Tax-Sheltered. Not subject to income taxes until constructively received at some later date.
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Variable Universal Life Insurance. Similar to a whole life insurance contract incorporating various investment portfolios and featuring adjustable premiums and death benefits. Also known as VAL or VUL. See Survivor and Post-Termination Benefits.
Vesting. The amount of ownership an individual has in a benefit. Vesting determines how much of the benefit the employee is entitled to receive. See Post-Termination Benefits.
YOUR RIGHTS UNDER ERISA
As a participant in the Plan, you are entitled to certain rights and protection under federal law, as stated in the Employee Retirement Income Security Act of 1974 (ERISA). ERISA entitles you as a Plan participant to:
OBLIGATION OF FIDUCIARIES
In addition to creating rights for participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate the Plan are called fiduciaries. They have a duty to operate the Plan prudently and in the interest of you and other Plan participants and beneficiaries. In carrying out their respective responsibilities under the Plan, the Plan Administrator and other fiduciaries shall have the discretionary authority to interpret the terms of the Plan and to determine eligibility for and entitlement to Plan benefits according to the terms of the Plan. Any interpretation or determination made within their discretionary authority shall be given full force and effect, unless it can be shown that the interpretation or determination was arbitrary and capricious.
PROVISIONS FOR LEGAL ACTION
No one employed by Community Health Systems, Inc., a subsidiary or an affiliated group may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit or exercising your rights under ERISA. If your claim for benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the Plan Administrator review and reconsider your claim.
Under ERISA, there are steps you can take to enforce the above rights:
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FOR MORE INFORMATION
If you have any questions about this Plan, contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, contact the nearest area office of the Labor-Management Services Administration, U.S. Department of Labor.
PLAN NAME
Community Health Systems, Inc. Supplemental Benefits Plan
PLAN SPONSOR
Community Health Systems, Inc.
PO. Box 217 (Zip 37024-0217)
155 Franklin Road, Suite 400
Brentwood, TN 37027-4600
(615) 373-9600
PLAN IDENTIFICATION NUMBER
Plan #506
PLAN SPONSOR IDENTIFICATION NUMBER
76-0137985
FUNDING AND ADMINISTRATION
The Plan is funded entirely by the Plan Sponsor.
Plan Administration is provided by TBG Financial, One Century Plaza, 2029 Century Park East, Suite 3720, Los Angeles, CA 90067.
AGENT FOR LEGAL PROCESS
Community Health Systems, Inc.
PO. Box 217 (Zip 37024-0217)
155 Franklin Road, Suite 400
Brentwood, TN 37027-4600
(615) 373-9600
PLAN YEAR
January 1 through December 31
PLAN'S FUTURE
Community Health Systems, Inc. intends to continue the Plan but reserves the right to terminate, change, withdraw, or suspend the Plan at any time subject to the Split Dollar Agreement, Death Benefit Only Agreement, Collateral Assignment and an agreement required to implement the Plan's provisions. Any such amendment or termination shall be adopted by formal action of the Company's Board of Directors.
Any action that effects the continuance of this Plan will not impact any deposits to participants accounts made before the action was taken.
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SUBSTANTIAL RISK OF FORFEITURE
| Name: |
Location: |
I am a Participant in the CHS Supplemental Survivor Accumulation Plan (SSAP), which involves the purchase of a life insurance policy on my life. I will own the policy. CHS will pay premiums on the policy.
I recognize that CHS has the right to receive a portion of the policy's death proceeds if I die before any other termination of employment. CHS also retains a security interest in the cash value of the policy, resulting in a return of the policy's cash value to CHS if certain contingencies (described below) occur.
and I then violate the post-termination restrictions described below.
(a) Noncompetition Restrictions:
which organization is located within 50 miles of the corporate headquarters, or from any CHS facility.
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(b) Post-Termination Consulting Requirements:
Example: If my vested cash value were $10,000, and my final hourly rate of compensation were $50, then I would have to render 10 hours of service to CHS before receiving all rights to the cash value [($10,000/$50) × 20%].
| Date: | Signature: |
RELEASE OF CLAIMS
In consideration of the Severance Benefits to be paid by Community Health Systems, Inc. (CHS), the undersigned, having opportunity to consult with legal counsel, agrees as follows:
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ACCEPTED AND AGREED TO BY:
| Employee Signature: |
| Date Signed: | 20 |
| Witness Signature: |
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