EXHIBIT 10.7
THE W. R. GRACE & CO.
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
October 1993
CONTENTS
2 Introduction
2 Participation
3 How the Plan Works
3 Credited Service
3 Federal Limits on Pension Benefits
4 Final Average Compensation
4 Examples of Final Average Compensation
5 Primary Social Security Benefit
5 How Benefits Are Calculated
6 Retirement
6 Normal Retirement
6 Early Retirement
6 How Benefits Are Paid
6 Normal Method if Single
6 Normal Method if Married
6 Other Payment Methods
7 Pre-Retirement Survivor Coverage
7 Vesting
7 Other Information
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INTRODUCTION
This brochure describes certain features of the W. R. Grace & Co. Supplemental
Executive Retirement Plan (the supplemental plan) which was adopted by the Grace
Board of Directors as of October 4, 1984 for the purposes of:
o formalizing the Company's commitment to provide full retirement benefits
to eligible executives whose benefits, as calculated under the W. R. Grace & Co.
Retirement Plan for Salaried Employees (the salaried plan), exceed the maximum
limit payable under federal tax law;
o recognizing deferred compensation in benefit calculations;
o recognizing as credited service, under certain circumstances, periods of
employment with Grace during which executives are or have been ineligible to
participate in the salaried plan.
Unlike the salaried plan, the supplemental plan is not a "qualified" plan under
federal tax law. All benefits under the supplemental plan are paid by the
Company from its general assets. The Board of Directors is responsible for the
supplemental plan's maintenance and operation and has appointed the
Compensation, Employee Benefits and Stock Incentive Committee to administer the
plan. The following pages summarize the main features of the supplemental plan.
Because the supplemental plan is tied to the salaried plan, please refer to the
summary of the salaried plan for more information on your retirement benefits.
Please contact the Human Resources Division at the Boca Raton Headquarters
Office if you have any questions or require assistance.
PARTICIPATION
As an executive of Grace or a company controlled by Grace (an affiliate), you
are eligible for the supplemental plan if, on or after October 4, 1984, your
annual base salary is at least $75,000 and you are earning credited service
under the salaried plan at the same time.
In addition, under certain circumstances, you may be considered eligible for the
supplemental plan even if you are not earning credited service under the
salaried plan, upon the recommendation of Grace's senior management and the
approval of Grace's Board of Directors.
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HOW THE PLAN WORKS
The same pension formula is used to calculate benefits under the supplemental
and salaried plans. Benefits under either plan will be based on your credited
service, final average compensation, and estimated primary social security
benefit.
Although the same pension formula is used, calculations under the supplemental
plan include deferred compensation and, as credited service, certain periods of
employment that may not be included by the salaried plan. Moreover, calculations
under the supplemental plan are not subject to federal limits on benefit
payments that apply to the salaried plan. Your benefit under the supplemental
plan will equal the difference between the total benefit calculated and the
benefit actually payable to you under the salaried plan.
CREDITED SERVICE
Subject to the exclusions that follow, credited service under the supplemental
plan includes:
o each month during which you participate in the salaried plan and have at
least one hour of service;
o any period during which you qualify as disabled under the salaried plan;
o all other employment with a division of Grace or an affiliate that does
not participate in the salaried plan.
Credited service, however, will not include any period during which:
o you were satisfying the salaried plan's participation eligibility
requirements (or would have been satisfying these requirement if the Grace
company for which you were working had been covered by the salaried plan); o you
were eligible to contribute to the salaried plan (or any prior contributory
retirement plan) and elected not to do so;
o you waive participation in the salaried plan;
o you are away from work on an approved leave of absence for any reason
other than disability;
o you are not an employee of Grace or an affiliate (except for employment
before acquisition by Grace which has been approved as credited service under
the salaried plan).
If your employment with Grace and all of its affiliates terminates and you are
rehired by Grace or an affiliate at a later date, your prior employment may
count as credited service under the supplemental plan. Contact the Human
Resources Division for details.
FEDERAL LIMITS ON PENSION BENEFITS
Beginning in 1994 the maximum annual compensation used to calculate benefits
under qualified benefit plans is $150,000. This limit is subject to change based
on a special cost-of-living adjustment formula, but is not likely to be adjusted
for inflation until 1996.
In addition, benefit payments under tax qualified pension plans, such as the
salaried plan, are subject to a maximum limit under federal tax law. For 1993,
benefits payable at the "social security" retirement age (see below) from a
qualified pension plan may not exceed $115,641 per year ($9,637 per month); this
limit is scheduled to change each year based on a cost-of-living index formula
which is different than the special formula used to index the $150,000 noted
above. Moreover, this limit is reduced if payments start before social security
retirement age. Social security normal retirement age is age 65 for those born
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before 1938, gradually increasing to 66 for those born between 1938 and 1954,
and gradually increasing to 67 for those born after 1954.
FINAL AVERAGE COMPENSATION
Pension benefits under both the salaried and supplemental plans reflect your
final average compensation, which is the monthly average of your compensation
for the 60-consecutive months (five consecutive years) in which your plan
compensation is the greatest during the last 180 moths (15 years) of your
continuous employment with Grace or an affiliate.
Under the supplemental plan, your plan compensation includes base salary,
commissions and incentive compensation awards (maximum of five) you receive (or
are eligible to receive) from Grace or an affiliate, including compensation you
elect to defer or have previously elected to defer under the Company's Deferred
Compensation Program, before any deductions are made.
As under the salaried plan, the definition of plan compensation under the
supplemental plan does not include special pay, income related to stock options
or stock awards, long-term incentive awards, or Company contributions made in
your behalf to any benefit plan.
If you elect to defer base salary or annual incentive compensation (or both),
your final average compensation is determined as if you had received the
deferred amount or amounts in the month in which they would have otherwise been
paid. That is, if you should elect to defer your 1994 incentive compensation
award until after retirement, and you otherwise would have received this award
in March 1995, your final average compensation would be determined as if you had
received the award in March 1995.
IMPORTANT: If your active employment with Grace and all its affiliates
terminates and you are then rehired by Grace or an affiliate, any deferred base
salary or annual incentive compensation will count when calculating final
average compensation ONLY if credited service for the month in which you would
have received that salary or incentive compensation is restored under the
supplemental plan.
EXAMPLES OF FINAL AVERAGE COMPENSATION
If an executive retires on January 1, 1996 and the executive's compensation was
greatest during the five-year period immediately before retirement, following
are two examples of how final average compensation is determined.
Total Retirement Plan
Annual Compensation
Incentive ---------------------------
Base Compensation Salaried Supplemental
Salary ---------------- Plan Plan
Paid Paid Deferred (Limited) (Unlimited)
---- ---- -------- --------- -----------
1991 $120,000 $ -0- $20,000 $120,000 $140,000
1992 130,000 -0- 20,000 130,000 150,000
1993 140,000 10,000 10,000 150,000 160,000
1994 150,000 20,000 -0- 150,000(1) 170,000
1995 160,000 20,000 -0- 150,000(1) 180,000
------- ------ -------- ----------- -------
Total $700,000 $50,000 $50,000 $700,000 $800,000
(1) "Qualified" Plan compensation limited to $150,000 in 1994 and not expected
to be indexed for cost of living until 1996.
Under the supplemental plan, the executive's final average annual compensation
would equal $160,000 ($800,000 /5). Under the salaried plan, however, the
executive's final average annual compensation would equal $140,000 ($700,000
/5), since compensation over $150,000 and the deferred incentive compensation
would not be included. Remember, the benefit payable under the supplemental plan
would equal the difference between the calculations under the supplemental
plan's formula and the salaried plan's formula.
Keep in mind that the incentive compensation in this example represents when
awards are paid or would otherwise
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have been paid if a deferral had not been elected. That is, the total incentive
compensation shown for 1993 represents $20,000 awarded in 1993 for 1992
services, for which the executive elected to defer 50 percent in December of
1991.
The calculation works the same if the executive had deferred base salary and not
incentive compensation. Again, total compensation, including deferred base
salary, would be used to determine final average compensation under the
supplemental plan as shown in the following example.
Total Retirement Plan
Compensation
Annual ------------------------
Base Salary Incentive Salaried Supplemental
----------------- Compensation Plan Plan
Paid Deferred Paid (Limited) (Unlimited)
---- -------- ---- --------- -----------
1991 $108,000 $12,000 $20,000 $128,000 $140,000
1992 118,000 12,000 20,000 138,000 150,000
1993 128,000 12,000 20,000 148,000 160,000
1994 138,000 12,000 20,000 150,000(1) 170,000
1995 148,000 12,000 20,000 150,000(1) 180,000
--------- -------- ------ ------- -------
Total $640,000 $60,000 $100,000 $714,000 $800,000
-
(1) "Qualified" Plan compensation limited to $150,000 in 1994 and not expected
to be indexed for a cost of living until 1996.
Under the supplemental plan, the executive's annual final average compensation
would equal $160,000 ($800,000 /5). Under the salaried plan, however, the
executive's annual final average compensation would equal $142,800 ($714,000
/5), since the deferred base salary ($60,000 for five years) and the paid
compensation in excess of $150,000 in 1994 and 1995 would not be included.
Again, remember that the benefit payable under the supplemental plan would equal
the difference between the calculations under the supplemental plan's formula
and the salaried plan's formula.
PRIMARY SOCIAL SECURITY BENEFIT
An estimate of your primary social security benefit is used in calculating
benefits under both the salaried and supplemental plan. The estimate of the
monthly benefit social security will pay you at age 65 (or at your current age,
if you're over age 65), is based on your career earnings (assuming no additional
earnings from the time your employment with Grace terminates) and the terms of
the Social Security Act in effect at the time of your employment terminates.
Any social security benefit payable to your spouse or other family member will
not be considered in these calculations.
HOW BENEFITS ARE CALCULATED
Your normal annual retirement benefit under the supplemental plan will be
calculated as follows:
1.5 percent of your final average compensation times your years of
credited service, minus 1.25 percent times your estimated primary social
security benefit times your years of credited service,
minus any applicable reductions (i.e., if you start receiving plan payments
before age 62; if payments are made under a method other than a life annuity; if
you elect a survivor option that results in a pre-retirement revocation penalty;
and, if applicable, you elect a transfer or refund of your contributions from
the salaried plan),
minus the actual annual benefit payable to you under the salaried plan
(including any reductions made to reflect the federal maximum annual benefit
limit, the exclusion of deferred compensation, or the exclusion of compensation
in excess of limits defined by federal tax laws).
If you were employed by Grace or an affiliate when employee contributions were
required under the salaried plan and you were ineligible for the salaried plan,
the
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portion of your supplemental plan benefit that is based on credited service for
that period will be reduced to 30 percent.
In addition, supplemental plan benefits are reduced by benefits you either
received or are eligible to receive from any other pension or profit sharing
plan of Grace or an affiliate (excluding the Grace savings and investment
plans), including legislated or negotiated plans which Grace or an affiliate has
funded. If you are entitled to receive such pension (or profit sharing)
benefits, the reduction to your supplemental plan benefit will reflect the
credited service (or the years of participation in a profit sharing plan) that
counts both under the other pension plan (or profit sharing plan) and the
supplemental plan, the payment method that applies, and the date payments start
under the supplemental plan.
RETIREMENT
Your election to retire under the salaried plan automatically applies to the
supplemental plan.
NORMAL RETIREMENT
Generally, normal retirement occurs at the end of the month in which you reach
age 65. But if you continue to work past age 65, normal retirement occurs at the
end of the month in which your employment terminates.
EARLY RETIREMENT
If you wish to retire at a younger age, you may do so on the last day of any
month on or after your 55th birthday. If you retire early, you may elect to
start receiving payments immediately or delay them until a later date. However,
if payments start before age 62, your benefit will be reduced to reflect the
likelihood that you will receive benefits for a longer period of time. The
reduction is based on your age when payments start.
HOW BENEFITS ARE PAID
The payment method you elect under the salaried plan will automatically apply to
the supplemental plan.
NORMAL METHOD IF SINGLE
Your normal payment method is a LIFE ANNUITY if you're single when payments are
scheduled to start. This method provides you with lifetime monthly payments,
with no payments continuing to anyone following your death. The dollar amount of
this type of payment is greatest because only one lifetime is covered - yours.
NORMAL METHOD IF MARRIED
If you are married when your payments are scheduled to start, your normal
payment method is 50 percent joint and survivor annuity. This method provides
you with reduced monthly payments for life. Following your death, your spouse
(at the time your benefits commenced), if surviving you, will received one-half
of your monthly payment for life. Payments are reduced under this method to
cover two lifetimes - yours and your spouse's.
OTHER PAYMENT METHODS
The plan's other alternate payment methods available to you include:
o Joint and survivor annuities of 100, 75, or 66-2/3 percent of your
monthly payments, as you elect;
o Life annuity on your life only (which is available as an option to
married participants, with spousal consent);
o Ten-year certain and life annuity (with death benefits, if any, payable
to your spouse or designated beneficiary);
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o Level income benefits.
Certain restrictions apply to the availability of the above options, based on
your marital status and time of election, as described in the summary of the
salaried plan.
PRE-RETIREMENT SURVIVOR COVERAGE
Under the supplemental plan, pre-retirement survivor coverage for your spouse is
the same as the pre-retirement survivor coverage provided under the salaried
plan. All elections that apply to pre-retirement survivor coverage under the
salaried plan automatically apply to the supplemental plan.
VESTING
Vesting refers to your right to a pension benefit under the supplemental plan.
You become vested under the supplemental plan when:
o you reach age 55, if you are an employee of Grace or an affiliate at that
time,
o you have at least five years of "vesting service" with Grace or an
affiliate, as determined under the salaried plan, or
o you are otherwise vested under the salaried plan.
In the event you terminate employment for any reason other than disability as
recognized under the salaried plan, and are not vested, you will not be eligible
to receive any pension benefit from the supplemental plan. However, if you are
subsequently hired, this benefit may be restored, subject to the
break-in-service rules of the supplemental plan.
OTHER INFORMATION
The supplemental plan may be terminated by Grace at any time for any or all
employees. Grace may also change any plan feature at any time.
In addition, Grace as administrator of the supplemental plan has the
discretionary authority to determine eligibility for plan benefits and to
otherwise interpret the terms of the supplemental plan. The decisions of Grace
with regard to interpreting the terms of the plan are final.
This brochure describes the main features of the Grace Supplemental Executive
Retirement Plan. This brochure is written in everyday terms and avoids technical
language wherever possible. This is not an official document. The official plan
documents for the Supplemental Executive Retirement Plan adopted by the Grace
Board of Directors, not this brochure, will be used to resolve questions about
the benefits from the Plan.
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