Exhibit 10.2
HORACE MANN
EXECUTIVE SUPPLEMENTAL EMPLOYEE
RETIREMENT PLAN
(ESERP)
1997 RESTATEMENT
ARTICLE I -- GENERAL
1.1 Background and Establishment. The Horace Mann Executive Supplemental
Employee Retirement Plan ("ESERP") was effective as of 01 January 1992. The
function of the ESERP is to provide supplemental retirement income benefits
to a finite group of employees. This finite group was identified by their
estimated projected loss of benefits due to limitations on compensation as
defined under Section 401(a)(17) and benefit limitations as defined under
Section 415 of the Internal Revenue Code from the qualified Money Purchase
Pension Plan ("MPPP"), qualified Horace Mann Pension Plan ("HMPP") and non-
qualified Supplemental Employee Retirement Plan ("SERP"). (All references
are to the HMPP and MPPP as the "Floor Offset" arrangement as their 1995
Restatement, as amended, unless specified otherwise.) The Floor Offset
arrangement is described in its Summary Plan Description ("SPD") as
contained in the Employee Benefits Binder. The ESERP plan only covers named
employees.
In 1994, the Plan was expanded to include certain key employees, who may
not be executives of the Company, but whose employment and performance are
considered to be important to meeting the goals and objectives of Horace
Mann Educators Corporation ("HMEC"), the parent company of HMSC.
Additionally, the structure of the Plan was changed to replicate features
of the qualified "floor offset" arrangement that exists with the HMPP and
the MPPP.
Effective 12 February 1997, the Plan was amended and restated to include
the same vesting provisions as the HMPP and MPPP.
ARTICLE II -- DEFINITIONS
The following words shall have the meanings below unless the context clearly
indicates otherwise:
2.1 "Actuarial Equivalent" or "Equivalent" means the actuarial equivalent as
defined in the HMPP.
2.2 "Company" or "HMSC" means Horace Mann Service Corporation and any successor
thereto.
2.3 "Eligible Earnings" means the same earnings (compensation) as those which
are eligible under the SERP, MPPP and HMPP and as described in their SPD's
unless otherwise specified in the Appendix. Earnings which exceed the
statutory limits as defined and controlled by the Internal Revenue Code in
Section 401(a)(17), as amended, will be included as eligible earnings for
purposes of the ESERP.
2.4 "Eligible Employee" means those employees who are identified by their
estimated projected loss of benefits due to limitations on compensation as
defined under Section
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401(a)(17) and benefit limitations as defined under Section 415 of the
Internal Revenue Code from the MPPP, HMPP and SERP, who are highly
compensated key employees and who are designated in the Appendix as
recorded by the Plan Administrator.
2.5 "ESERP Benefit" means the benefit payable in accordance with the Plan.
2.6 "Final Average Earnings" means the Participant's Final Average Earnings as
defined in the HMPP.
2.7 "NQMPPP" means the defined contribution feature of the Plan as described in
Article 4.2.
2.8 "NQMPPP Eligible Earnings" means only those Eligible Earnings in excess of
the limits imposed by Internal Revenue Code ("IRC") Section 401(a)(17), as
amended.
2.9 "Participant" means those highly compensated key employees listed in the
Appendix.
2.10 "Plan" means the Executive Supplemental Employee Retirement Plan as amended
from time to time.
2.11 "Plan Year" means each twelve-consecutive month period beginning 01 January
1992.
2.12 "Spouse" means a person who is the Participant's Spouse as defined in the
HMPP.
2.13 "Vesting Service" means the sum of an Eligible Employee's periods of
continuous service as defined in the MPPP.
2.14 "Years of Service" means only those periods of service as defined in the
HMPP for purposes of benefit calculation. Any service beyond 30 years will
not be included in the benefit calculation.
ARTICLE III - ELIGIBILITY TO PARTICIPATE
3.1 Becoming a Participant. Each Eligible Employee shall initially become a
Participant as indicated in Appendix A, as amended from time to time.
3.2 Reemployment.
(a) Following Retirement. If a Participant retires from the Company, and
subsequently is re-employed as a full time, part time or temporary
employee who works more than 10 days per month, the Participant's
periodic ESERP benefit will cease until he re-retires. Upon his
subsequent retirement, his prior and additional service and earnings,
plus any additional credit earned under the qualified plan(s) will be
included in the recalculation of the Participant's ESERP benefit.
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In the event the Participant retires and is re-employed and works less
than 10 days a month, the Participant's periodic ESERP payment will
continue.
3.3 Ceasing to be a Participant. A person will cease to be a Participant:
(a) if he loses all of his Years of Credited Service under the HMPP or
MPPP, or
(b) if he dies.
ARTICLE IV - ELIGIBILITY FOR AND AMOUNT OF BENEFITS
4.1 Eligibility. Benefits are payable under the ESERP only if the Participant
separates from service from the Company and would be considered to be
vested under the HMPP or MPPP. That eligibility would include early,
normal, and postponed retirement. As defined in the HMPP:
(a) For employees who separate from service and are immediately eligible
for retirement benefits:
(i) Normal Retirement Date is the first day of the month coincident
with or next following the Participant's 65th birthday and the
Participant has at least 5 years of service;
(ii) Early Retirement Date is the first day of the month coincident
with or following the month in which the Participant is at least 55
years and has at least 10 years of service. Benefits will be reduced
according to the Early Retirement Adjustment Factor Table as contained
in the HMPP; or
(iii) Postponed Retirement Date is the first day of the month
coincident with or next following the Participant's termination of
employment with the Company after his Normal Retirement Date and the
Participant will continue to accrue service under this Plan (up to 30
years) and eligible compensation.
(b) For employees who separate from service, who are vested but not yet
eligible for retirement benefits:
(i) Normal vested benefits are payable as of the first day of the
month coincident with or next following the Participant's 65th
birthday and the Participant has at least 5 years of service and are
calculated in the same manner as provided in the HMPP at the time of
the Participant's separation from service; or
(ii) Early vested benefits are payable as of the first day of the
month coincident with or following the month in which the Participant
is at least 55 years and has at least 10 years of service. Benefits
are calculated in the same manner as provided
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in the HMPP at the time of the Participant's separation from service
and will be reduced according to the Deferred Vested Retirement
Adjustment Factor Table as contained in the HMPP.
4.2 Retirement Benefit Calculation. The purpose of the ESERP is to provide
minimum "floor" post retirement income benefits that are not available to
the Participant under the HMPP, MPPP and SERP due to limits pertaining to
IRC Sections 401(a)(17) and 415, as amended. Any benefits under the HMPP
and MPPP offset the benefits available under the ESERP.
If a Participant under the SERP becomes a Participant under the ESERP, then
all accrued and future accrual of SERP benefits are transferred to the
ESERP.
The ESERP provides for benefit accruals under two plan features.
(a) The first plan feature is a defined benefit calculation which is the
"floor" benefit of the Plan ("Floor Benefit Feature"). If the retirement is
prior to age 65 years, then the Early Retirement Reduction Factors as
stated in the HMPP apply. To calculate the Floor Benefit Feature:
(i) For Participants with an adjusted service date of 8/29/89 or
prior and who were Participants in the HMPP or its predecessor plans:
* the average of the highest 36 consecutive months of Eligible
Earnings under the ESERP;
*times 2%;
*times years of credited service under the HMPP (up to 30 years);
*minus 50% of the Primary Income Social Security Benefit as defined in
the HMPP;
*equals the Participant's monthly age 65 "floor" benefit.
(ii) For Participants with an adjusted service date subsequent to
8/29/89 and who were or became Participants in the HMPP:
* the average of the highest 36 consecutive months of Eligible
Earnings under the ESERP;
*times 1.6%;
*times years of credited service under the HMPP (up to 30 years);
*equals the Participant's monthly age 65 "floor" benefit.
(b) The second plan feature is a defined contribution benefit, referred to
as the "Non-Qualified MPPP" or "NQMPPP Feature". This benefit is determined
by the Participant's Years of Service and NQMPPP Eligible Earnings.
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(i) As defined in the MPPP, Employer contributions are based on a
percentage of the Participant's compensation determined by the
Participant's Vesting Service:
Vesting Service Completed by Amount of Employer's
Participant Contribution
Less than 5 years 5%
5 years but less than 15 years 6%
15 years or more 7%
(ii) For record keeping purposes, for each Participant, a notional or
bookkeeping account is established. Phantom contributions to the
NQMPPP Feature account are not made prior to a Participant becoming an
Eligible Employee in the ESERP. In addition, contributions to the
NQMPPP Feature account are not made on a retroactive basis.
(iii) The NQMPPP Feature account is valued as accumulated
contributions, plus any gains or losses that would have been credited
to those contributions based on the rate of return credited to the
qualified MPPP.
(c) To determine what benefit is due under the ESERP (if any) the following
calculation would be performed. The NQMPPP Feature Monthly Equivalent is
calculated in the same form and manner as the Monthly Equivalent in the
MPPP.
*ESERP monthly Floor Benefit Feature;
*minus the NQMPPP Feature Monthly Equivalent;
*minus the HMPP Monthly Benefit;
*minus the MPPP Monthly Equivalent;
*equals the ESERP Monthly Benefit Due.
If the combined payable benefit from the HMPP and the MPPP are greater than
the ESERP, then no benefit is payable from the ESERP. This also applies to
any other forms of benefits payable (such as, early retirement or surviving
spouse options).
4.3 Accrual of Benefits. If a Participant ceases to meet the definition of an
Eligible Employee, ESERP benefit accruals will cease as of that time. No
further accruals will occur unless and until the Participant once again
meets the definition an Eligible Employee. Notwithstanding the foregoing,
if a Participant ceases to meet the definition of an Eligible Employee
while remaining an employee who accrues benefits or earnings under the
NQMPPP, HMPP and/or the MPPP, then the offsets for the NQMPPP Monthly
Equivalent, HMPP Monthly Benefit and MPPP Monthly Equivalent as so
increased shall continue to be used to decrease the ESERP monthly Floor
Benefit Feature.
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4.4 Disability Retirement. Should the Participant be placed on a long term
disability leave of absence, he will continue to accrue service, with
regards to the Floor Benefit Feature of this Plan (up to a maximum of 30
years). However, Eligible Earnings will be considered those which were
earned as an active employee. If at the time the disability ceases, the
Participant is eligible to receive a qualified retirement benefit from the
HMPP, he will also be eligible to receive an ESERP benefit.
4.5 Vesting. The ESERP benefits are subject to the same vesting provisions as
described in the HMPP and the MPPP.
ARTICLE V - FORM AND COMMENCEMENT OF BENEFITS
5.1 Forms of Benefits Payable. The ESERP benefit is comprised of two forms of
benefit.
(a) The first form is a defined benefit payment, payable, provided the
Participant is eligible for retirement benefits under the HMPP, as a
periodic payment in the same form as is provided by the HMPP including any
applicable reduction factors. The same calculation methodology and order of
calculation used in the HMPP is used in the calculation of benefits in the
ESERP.
(i) Forms of monthly payments could reflect survivor benefits and
would be based on annuity payment factors as expressed in the HMPP.
(ii) An automatic lump sum distribution of the ESERP benefit will
occur at retirement if the lump sum benefit equivalent is less than
$3,500. The $3,500 limit may be changed in accordance with the limits
established by the Service for qualified pension plans.
(b) The second form is a defined contribution benefit payment as defined by
the NQMPPP account balance. The NQMPPP Feature is calculated as described
in Article 4.2.
(i) The NQMPPP Feature is paid in one lump sum payment. A
Participant, who incurs a termination of employment after vesting in
the ESERP, will receive an amount equal to the accrued benefit under
the NQMPPP Feature as of his date of termination. Such payment will be
made within ninety (90) days following the termination of employment
of the Participant.
5.2 Survivor Benefits.
(a) With regards to the Floor Benefit Feature, if a Participant elects to
receive a periodic payment from the qualified pension plans, the same
election will apply to the ESERP in the equivalent forms of annuity options
available under the HMPP. Currently, those forms include a 50%, 66 2/3%,
75% and 100% survivor option. The monthly benefit will be actuarially
reduced if a Participant elects one of the survivor options.
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(i) If a Participant dies after having a vested termination in
employment but prior to commencing benefits, the surviving spouse
would receive a benefit of 50% based on the Participant's lifetime
ESERP benefit as calculated in Article 4.2 based on the Participant's
age at the time of death. All other factors would be based on those at
the time of the Participant's Normal Retirement Date from the Company.
If the Participant does not have a spouse, as defined in the HMPP,
upon the death of a Participant, no benefit will be due or payable.
(ii) With regards to the NQMPPP Feature, pursuant to Article 5.1(b),
the NQMPPP account balance would have been paid to the Participant at
the time of a vested termination of employment.
(b) If a Participant dies while actively employed with the Company, the
Participant's spouse, as defined in the HMPP, would receive a benefit from
the ESERP. The benefit, including the accrued balance of the NQMPPP
Feature, would be calculated as provided in Article 4.2 and will be reduced
in the same form and manner as the HMPP. The lump sum payment of the NQMPPP
will be made within ninety (90) days following the death of the
Participant.
5.3 Commencement of Payment of ESERP Benefits. Payment of any ESERP benefit due
will begin on commencement of payment of benefits from the qualified
pension plans, except as provided in Article 5.1(b). Notification of
retirement to the Employee Benefits Unit for the qualified pension plans
will also initiate the process of calculation and payment of the ESERP
benefit. A Participant cannot defer the ESERP benefit if he has commenced
receiving benefits from the qualified plans. Conversely, if the Participant
defers receiving benefits from the qualified plans, he must defer receiving
the ESERP benefit except as provided in Article 5.1(b).
ARTICLE VI - ADMINISTRATION
6.1 Pension Committee. The same membership structure, actions, responsibility
and authority shall apply to this Plan as described in the HMPP and the
MPPP. The decision of the Pension Committee in matters within its
jurisdiction shall be final, binding, and conclusive upon the Company and
upon each Eligible Employee, Participant, spouse, and every other person or
party interested or concerned.
6.2 Plan Administrator. The Plan Administrator shall have the same duties and
authority pursuant to this Plan as are described in the HMPP and the MPPP.
All affairs of calculation, payment and administration of the ESERP are
conducted by the Plan Administrator. No benefits will be paid under the
terms of this Plan without the authorization of the Plan Administrator. The
Plan Administrator shall be entitled to rely conclusively 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.
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6.3 Liability. The Committee and Plan Administrator shall be free from all
liability, joint and several, for their acts as members of such Committee,
except to the extent that they may have committed wilful misconduct or
otherwise required by federal law.
ARTICLE VII - AMENDMENT AND TERMINATION
7.1 Amendment or Termination. The Company and Pension Committee intend the Plan
to be permanent but reserve the right to amend or terminate the Plan when,
in the sole opinion of the Pension Committee, such amendment or termination
is advisable. Any such amendment or termination shall be made pursuant to a
resolution of the Board of Directors of the Company and shall be effective
as of the date of such resolution. No amendment or termination of the Plan
shall directly or indirectly deprive any Participant or surviving spouse of
all or any portion of any ESERP Benefit payment which has commenced prior
to the effective date of the resolution amending or terminating the Plan.
7.2 Change of Control. In the event of a Change of Control of HMEC (the parent
company of HMSC), certain protection will apply. Any Participant who is
employed by HMSC when a Change of Control occurs, who has signed a
Severance Agreement and who is discharged for reasons other than cause,
during a three year period subsequent to the Change of Control, will
receive their benefit from the ESERP in a lump sum payment equal to their
accrued benefit under the ESERP, as defined in Article 4.2, at the time of
severance. Should this Plan be terminated and not replaced due to a Change
of Control of HMEC, all ESERP Participants will receive a lump sum payment
of their accrued benefit as of the date of termination of the ESERP. All
payments will be made in a reasonable period after the triggering event has
occurred.
A Change of Control shall be deemed to have occurred if (i) there shall be
consummated (1) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation, or pursuant to
which shares of the Company's common stock would be converted into cash,
securities or other property, other than a merger of the Company in which
no Company shareholder's ownership percentage in the surviving corporation
immediately after the merger is less than such shareholder's ownership
percentage in the Company immediately prior to such merger by ten percent
(10%) or more, or (2) any sale, lease exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially
all of the assets of the Company; (ii) the shareholders of the Company
approve any plan or proposal for the liquidation or dissolution of the
Company which is a part of a sale of assets, merger, or reorganization of
the Company or other similar transaction; (iii) any "person" as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), is or becomes, directly or indirectly, the
"beneficial owner," as defined in Rule 13d-3 under the Exchange Act, of
securities of the Company that represent 51% or more of the combined voting
power of the Company's then outstanding securities; or (iv) a majority of
the members of the Company's Board of Directors are persons who are
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then serving on the Board of Directors without having been elected by the
Board of Directors or having been nominated by the Company for election by
its shareholders.
7.3 Corporate Successors. The Plan shall not be automatically terminated by a
transfer or sale of assets of the Company or by the merger or consolidation
of the Company into or with any other corporation or other entity, but the
Plan shall be continued after such sale, merger or consolidation only if
and to the extent that the transferee, purchaser or successor entity agrees
to continue the Plan. In the event the Plan is not continued by the
transferee, purchaser or successor entity, then the Plan shall terminate
subject to the provisions of paragraphs 7.1 and 7.2.
ARTICLE VIII - MISCELLANEOUS
8.1 No Contract of Employment. Nothing contained in this Plan will confer upon
any Participant the right to be retained in the service of the Company nor
limit the right of the Company to discharge or otherwise deal with
Participants without regard to the existence of the Plan.
8.2 Funding The Plan at all times shall be entirely unfunded and no provision
shall at any time be made with respect to segregating any assets of the
Company for payment of any benefits hereunder. The ESERP does not have a
trust or trust fund arrangement. No Participant, surviving spouse or any
other person shall have any interest in any particular assets of the
Company by reason of the right to receive a benefit under the Plan and any
such Participant, surviving spouse or other person shall have only the
rights of a general unsecured creditor of the Company with respect to any
rights under the Plan. Nothing contained in the Plan shall constitute a
guaranty by the Company or any other entity or person that the assets of
the Company will be sufficient to pay any benefit hereunder.
8.3 Nonalienation of Benefits. No benefit payable under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge prior to actual receipt thereof
by the payee; and any attempt so to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge prior to such receipt shall be void; and
the Company shall not be liable in any manner for or subject to the debts,
contracts, liabilities, engagements or torts of any person entitled to any
benefit under the Plan.
8.4 Tax Implications. The ESERP is not a qualified pension plan, but a deferred
compensation plan. It is not eligible for a tax free roll-over at the time
of distribution and may also be subject to taxation on benefit accruals
during a Participant's employment. The Plan Administrator will notify a
Participant if any tax is owed by a Participant. A Participant should seek
the advice of a tax consultant or financial advisor regarding his personal
tax situation.
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8.5 Reduction for Overpayment. The Plan Administrator shall, whenever it
determines that a person has received benefit payments under this Plan in
excess of the amount to which the person is entitled under the terms of the
Plan, make two reasonable attempts to collect such overpayment from the
person. If the person to whom such overpayment was made does not, within a
reasonable time, make the requested repayment to the Plan Administrator,
the overpayment shall be considered as an advance payment of benefits and
the Plan Administrator will reduce all future benefits payable to that
person by the actuarial equivalent value of the overpayment.
8.6 State Law. The Plan is established under and will be construed according to
the laws of the State of Illinois, to the extent that such laws are not
preempted by the Employee Retirement Income Security Act and valid
regulations published thereunder.
8.7 Incapacity of Recipient. In the event a Participant or surviving spouse is
declared incompetent and a conservator or other person legally charged with
the care of his person or of his estate is appointed, any benefits under
the Plan to which such Participant or surviving spouse is entitled shall be
paid to such conservator or other person legally charged with the care of
his person or his estate. Except as provided above in this paragraph, when
the Plan Administrator in its sole discretion, determines that a
Participant or surviving spouse is unable to manage his financial affairs,
the Plan Administrator will make distributions to any person for the
benefit of such Participant or surviving spouse.
8.8 Unclaimed Benefit. Each Participant shall keep the Plan Administrator
informed of his current address and the current address of his spouse. The
Plan 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 Plan
Administrator within three (3) years after the date on which any payment of
the Participant's ESERP benefit 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, the Plan Administrator
is unable to locate any surviving spouse of the Participant, then the
Company shall have no further obligation to pay any benefit hereunder to
such Participant or surviving spouse or any other person and such benefit
shall be irrevocably forfeited.
8.9 Invalidity of Certain Provisions. If any provision of this Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provisions hereof and the Plan shall be construed and
enforced as if such provisions, to the extent invalid or unenforceable, had
not been included.
8.10 Limitations on Liability and Indemnification. Notwithstanding any of the
preceding provisions of the Plan, neither the Company, Plan Administrator,
nor any individual acting as an employee or agent of the Company or as a
member of the Pension Committee shall be liable to any Participant, former
Participant, surviving spouse or any other person for any claim, loss,
liability or expense incurred in connection with the Plan.
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Further, the Company shall indemnify and hold harmless each member of the
Board of Directors, each member of the Pension Committee, the Plan
Administrator, and each officer and employee of the Company to whom are
delegated duties, responsibilities and authority with respect to the Plan
against all claims, liabilities, fines and penalties, and all expenses
reasonably incurred by or imposed upon him (including but not limited to
reasonable attorney fees) which are not the result of intentional acts
knowingly in violations of the Plan or the law.
8.11 Gender and Number. Except when the context indicates to the contrary when
used herein, masculine terms shall be deemed to include the feminine, and
singular the plural.
8.12 Headings. The headings of articles are included solely for convenience of
reference, and if there is any conflict between such headings and the text
of this Plan, the text shall control.
Executed in two counterpart originals effective as of 12 February 1997.
HORACE MANN SERVICE CORPORATION
By: /s/ Kathryn E. Karr
---------------------------
Plan Administrator
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APPENDIX A
(As of ______________)
The following highly compensated key employees are designated to participate in
the Horace Mann Executive Supplemental Employee Retirement Plan:
NAME SOCIAL SECURITY NUMBER PARTICIPATION DATE
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