EXHIBIT 10.22
SUMMARY PLAN DESCRIPTION
CABOT MICROELECTRONICS CORPORATION 401(k) PLAN
[GRAPHIC]
CABOT MICROELECTRONICS CORPORATION 401(k) PLAN
I. BASIC PLAN INFORMATION.................................................2
A. ACCOUNT..............................................................2
B. BENEFICIARY..........................................................2
C. EMPLOYEE.............................................................2
D. EMPLOYER.............................................................2
E. ERISA................................................................2
F. HIGHLY COMPENSATED EMPLOYEE..........................................2
G. NON HIGHLY COMPENSATED EMPLOYEE......................................2
H. PARTICIPANT..........................................................2
I. PLAN TYPE............................................................3
J. PLAN ADMINISTRATOR...................................................3
K. PLAN NUMBER..........................................................3
L. PLAN SPONSOR.........................................................3
M. PLAN YEAR............................................................3
N. SERVICE OF PROCESS...................................................3
O. TRUSTEE..............................................................3
II. PARTICIPATION..........................................................3
A. ELIGIBILITY REQUIREMENTS.............................................3
III. CONTRIBUTIONS..........................................................4
A. COMPENSATION.........................................................4
B. EMPLOYEE PRETAX CONTRIBUTIONS........................................4
1. Regular Contributions................................................4
C. EMPLOYER MATCHING CONTRIBUTIONS......................................5
1. Safe Harbor Matching Contributions...................................5
D. PROFIT SHARING CONTRIBUTIONS.........................................5
1. Fixed Profit Sharing Contributions...................................5
E. QUALIFIED NONELECTIVE CONTRIBUTIONS..................................5
F. LIMIT ON CONTRIBUTIONS...............................................5
G. ROLLOVER CONTRIBUTIONS...............................................6
IV. INVESTMENTS............................................................6
A. INVESTMENTS..........................................................6
B. STATEMENT OF ACCOUNT.................................................7
C. ELECTION.............................................................7
V. VESTING................................................................7
VI. PARTICIPANT LOANS......................................................7
A. GENERAL LOAN RULES...................................................7
B. SPECIFIC LOAN PROCEDURES.............................................7
VII. IN SERVICE WITHDRAWALS.................................................7
A. HARDSHIP WITHDRAWALS.................................................7
B. WITHDRAWALS AFTER AGE 59 1/2.........................................8
C. WITHDRAWALS AFTER AGE 70 1/2.........................................8
D. WITHDRAWALS AFTER NORMAL RETIREMENT AGE..............................8
E. WITHDRAWALS OF ROLLOVER CONTRIBUTIONS................................8
VIII. DISTRIBUTION OF BENEFITS...............................................9
A. ELIGIBILITY FOR BENEFITS.............................................9
B. DISTRIBUTABLE EVENTS.................................................9
1. Death................................................................9
2. Disability...........................................................9
3. Retirement...........................................................9
4. Minimum Required Distributions.......................................9
5. Termination of Employment...........................................10
C. FORM OF PAYMENTS....................................................10
1. Lump Sum Distributions..............................................10
a) Cash Distribution................................................10
b) Direct Rollover Distribution.....................................10
c) Combination Cash Distribution and Direct Rollover Distributions..11
IX. MISCELLANEOUS INFORMATION.............................................11
A. BENEFITS NOT INSURED................................................11
B. ATTACHMENT OF YOUR ACCOUNT..........................................11
C. PLAN-TO-PLAN TRANSFER OF ASSETS.....................................12
D. PLAN AMENDMENT......................................................12
E. PLAN TERMINATION....................................................12
F. INTERPRETATION OF PLAN..............................................12
G. ELECTRONIC DELIVERY.................................................12
X. INTERNAL REVENUE CODE TESTS...........................................13
A. NON-DISCRIMINATION TESTS............................................13
B. TOP HEAVY TEST......................................................13
XI. PARTICIPANT RIGHTS....................................................13
A. CLAIMS..............................................................13
1. Claims Procedures...................................................13
2. Review Procedures...................................................13
B. STATEMENT OF ERISA RIGHTS...........................................14
XII. SERVICES AND FEES.....................................................15
XIII. APPENDIX A: INVESTMENT OPTIONS........................................16
XIV. APPENDIX B: LOAN PROCEDURES...........................................17
A. INITIATING LOANS....................................................17
1. Loan Application....................................................17
2. Loan Amount.........................................................18
3. Number of Loans.....................................................18
4. Interest Rate.......................................................18
5. Source of Loan Proceeds.............................................18
B. LOAN REPAYMENTS AND LOAN MATURITY...................................18
C. DEFAULT OR TERMINATION OF EMPLOYMENT................................18
XV. APPENDIX C. SPECIAL TAX NOTICE REGARDING PLAN PAYMENTS...............19
- --------------------------------------------------------------------------------
SUMMARY PLAN DESCRIPTION
CABOT MICROELECTRONICS CORPORATION 401(k) PLAN
- --------------------------------------------------------------------------------
The Cabot Microelectronics Corporation 401(k) Plan (the "Plan") of Cabot
Microelectronics Corporation has been amended as of 01/15/2002 (the "Effective
Date"). This Plan is intended to be a qualified retirement plan under the
Internal Revenue Code.
The purpose of the plan is to enable eligible Employees to save for retirement.
As well as retirement benefits, the plan provides certain benefits in the event
of death, disability, or other termination of employment. The Plan is for the
exclusive benefit of eligible Employees and their Beneficiaries.
This booklet is called a Summary Plan Description ("SPD") and it contains a
summary in understandable language of your rights and benefits under the plan.
If you have difficulty understanding any part of this SPD, you should contact
the Plan Administrator identified in the Basic Plan Information section of this
document during normal business hours for assistance.
This SPD is a brief description of the principal features of the plan document
and trust agreement and is not meant to interpret, extend or change these
provisions in any way. A copy of the plan document is on file with the Plan
Administrator and may be read by any employee at any reasonable time. The plan
document and trust agreement shall govern if there is a discrepancy between this
SPD and the actual provisions of the plan.
- --------------------------------------------------------------------------------
1
- --------------------------------------------------------------------------------
I. BASIC PLAN INFORMATION
- --------------------------------------------------------------------------------
The information in this section contains definitions to some of the terms that
may be used in this Summary Plan Description. If the first letter of any of
these definitions below is capitalized then it represents the indicated defined
term.
A. ACCOUNT
An Account shall be established by the Trustee to record contributions made on
your behalf and any related income, expenses, gains or losses. It may also be
referred to as an Account balance.
B. BENEFICIARY
This is the person or persons you designate, or are identified by the plan
document if you fail to designate or improperly designate, who will receive your
benefits in the event of your death. You may designate more than one
Beneficiary.
C. EMPLOYEE
An Employee is an individual who is employed by your Employer and is not
terminated.
D. EMPLOYER
The name, address and business telephone number of your Employer is:
Cabot Microelectronics Corporation
870 Commons Drive
Aurora, IL 60504
(630) 375-5462
Your Employer's federal tax identification number is: 36-4324765.
E. ERISA
ERISA (the Employee Retirement Income Security Act of 1974) identifies the
rights of Participants and Beneficiaries covered by a qualified retirement plan.
F. HIGHLY COMPENSATED EMPLOYEE
You are considered a highly compensated Employee if (i) at anytime during the
current or prior year you own, or are considered to own, at least five percent
of your Employer, or (ii) received compensation from your Employer during the
prior year in excess of $85,000, as adjusted and you are in the top paid group
consisting of the top 20% of employees ranked by compensation.
G. NON HIGHLY COMPENSATED EMPLOYEE
An individual who is not a Highly Compensated Employee.
H. PARTICIPANT
An Employee of the Employer who has satisfied the eligibility and entry date
requirements to participate in the Plan or a formerly eligible Employee of such
Employer who has an Account balance remaining in the Plan.
- --------------------------------------------------------------------------------
2
I. PLAN TYPE
The Cabot Microelectronics Corporation 401(k) Plan is a defined contribution
plan. These types of plans are commonly described by the method by which
contributions for participants are made to the plan. The Cabot Microelectronics
Corporation 401(k) Plan is a profit sharing plan with a 401(k) deferral feature.
More information about the contributions made to the plan can be found in
Section III, Contributions.
J. PLAN ADMINISTRATOR
The Plan Administrator is responsible for the administration of the Plan and its
duties are identified in the plan document. In general, the Plan Administrator
is responsible for providing you and your Beneficiaries with information about
your rights and benefits under the Plan. The name, address and business
telephone number of the Plan Administrator is:
Cabot Microelectronics Corporation
870 Commons Drive
Aurora, IL 60504
(630) 375-5462
K. PLAN NUMBER
The three digit IRS number for the Plan is 001.
L. PLAN SPONSOR
Your Employer is the sponsor of the Plan.
M. PLAN YEAR
The plan year is the twelve-month period ending on the last day of December.
Your Employer may periodically change the plan year.
N. SERVICE OF PROCESS
The plan's agent for service of legal process is the Plan Administrator.
O. TRUSTEE
The trustee is responsible for trusteeing the Plan's assets. The trustee's
duties are identified in the trust agreement and relate only to the assets in
its possession. The name and address of the Plan's Trustee are:
Fidelity Management Trust Company
82 Devonshire Street
Boston, MA 02109
- --------------------------------------------------------------------------------
II. PARTICIPATION
- --------------------------------------------------------------------------------
A. ELIGIBILITY REQUIREMENTS
You are eligible to participate in the Plan if you are an Employee and you are
not:
- a citizen of Puerto Rico
- --------------------------------------------------------------------------------
3
- covered by a collective bargaining agreement for which retirement
benefits have been the subject of good faith negotiations
- a Leased Employee
- a nonresident alien with no income from a U.S. source
- independent contractors
You are also not eligible to participate if you are an individual who is a
signatory to a contract, letter of agreement, or other document that
acknowledges your status as an independent contractor not entitled to benefits
under the Plan and you are not otherwise classified by the Employer as a common
law employee and the Employer does not withhold income taxes, file Form W-2 (or
any replacement form), or remit Social Security payments to the Federal
government for you, even if you are later adjudicated to be a common law
employee.
The plan requires you to attain the age of 21. Upon satisfying these
requirements you will become eligible to participate in the Plan immediately
upon completing those eligibility requirements. However, if you are employed as
of 05/01/2000 then you shall become eligible to participate on that date. You
will receive credit for purposes of eligibility for the time that you worked
for:
Cabot Corporation
Rippe Corporation
Once you become a Participant, you are eligible to participate in the Plan until
you terminate your employment with your Employer or become a member of a class
of Employees excluded from the Plan. If you terminate your employment and are
later re-employed by your Employer, you will again be eligible to participate in
the Plan after you complete one hour of service.
- --------------------------------------------------------------------------------
III. CONTRIBUTIONS
- --------------------------------------------------------------------------------
After you satisfy the participation requirements in Section Two of this Summary
Plan Description, you will be eligible to make pretax contributions. In
addition, your Employer may make matching and profit sharing contributions to
your Account. The type(s) of contributions available under the Plan are
described in this section.
A. COMPENSATION
Compensation must be defined to compute contributions under the Plan. Eligible
compensation for computing contributions under the Plan is the taxable
compensation for a Plan Year reportable by your Employer on your IRS Form W-2,
excluding reimbursements or other expenses allowances, fringe benefits, moving
expenses, deferred compensation and welfare benefits and including salary
reduction contributions you made to an Employer sponsored cafeteria, 401(k) or
403(b). In addition, compensation excludes:
- the taxable value of a qualified or non-qualified stock option
- severance pay
Compensation for your first year of eligible Plan participation will be measured
only for that portion of your initial Plan Year that you are eligible. Tax laws
limit the amount of compensation that may be taken into account each Plan Year;
the maximum amount for the 2002 Plan Year is $200,000.00.
- --------------------------------------------------------------------------------
4
B. EMPLOYEE PRETAX CONTRIBUTIONS
1. REGULAR CONTRIBUTIONS
You may elect to contribute a percentage of your eligible compensation into
the Plan after you satisfy the Plan's eligibility requirements. The
percentage of your eligible compensation you elect will be withheld from
each payroll on a pretax basis and contributed to an Account in the Plan on
your behalf. The percentage you defer is subject to an annual limit of the
lesser of 15% of eligible compensation or $11,000 (in 2002 and thereafter
as adjusted by the Secretary of the Treasury) in a calendar year. Your
pretax contributions cannot be forfeited for any reason, however, there are
special Internal Revenue Code rules that must be satisfied and may require
that some of your contributions be returned to you. The Plan Administrator
will notify you if any of your contributions will be returned. You may
increase or decrease the amount you contribute as of the beginning of each
payroll period. You may completely suspend your contributions with
sufficient notice to the Plan Administrator. Thereafter, if you want to
resume your Employee pretax contributions as of as of the beginning of next
payroll period, you must complete a new election form.
C. EMPLOYER MATCHING CONTRIBUTIONS
All matching contributions will be computed by your Employer based on your
eligible compensation contributed to the Plan each Plan Year. You become
eligible for matching contributions only if you make Employee pretax
contributions. You do not need to satisfy this requirement if you die, become
disabled, or retire during the Plan Year. Employer matching contributions must
be allocated to your Account in the Plan within prescribed legal time limits.
1. SAFE HARBOR MATCHING CONTRIBUTIONS
Your Employer has elected to make matching contributions to all
Participants in an amount equal to 100% of the first four percent of your
eligible compensation, and 50% of the next two percent of your eligible
compensation, contributed to the Plan as pretax contributions. These
contributions satisfy certain Internal Revenue Code requirements and
eliminate the need for the Plan to perform certain non-discrimination
annual tests. You will be 100% vested in these contributions when made.
These contributions may be distributed under the same circumstances which
allow your pretax contributions to be distributed (i.e., death, disability,
separation from service, age 59 1/2, and termination of the plan without
the establishment of a successor plan). In addition, prior to the beginning
of each Plan Year, your Employer will provide written notice to you
describing your rights and obligations under the Plan. Your Employer will
provide this notice to you at least 30 days (but no more than 90 days)
before the beginning of each Plan Year for which this election to make Safe
Harbor Nonelective Employer contributions continues to apply. If you become
eligible to participate during the Plan Year, the notice will be provided
no more than 90 days before you become eligible (and no later than the date
you become eligible). For a Plan Year that began on or before April 1,
1999, the notice requirement is satisfied if the notice was provided on or
before March 1, 1999.
D. PROFIT SHARING CONTRIBUTIONS
1. FIXED PROFIT SHARING CONTRIBUTIONS
Your Employer will make a contribution on your behalf in an amount equal to
4% of your compensation. You do not need to satisfy this requirement if you
die, become disabled or retire during the Plan Year.
E. QUALIFIED NONELECTIVE CONTRIBUTIONS
Your Employer may designate all or a portion of any profit sharing contributions
for a Plan Year as "qualified nonelective contributions" and allocate them to
Non-Highly Compensated Employees to help the
- --------------------------------------------------------------------------------
5
Plan pass one or more annually required Internal Revenue Code nondiscrimination
test(s). You will be 100% vested in these contributions and may not request a
hardship withdrawal of these contributions.
F. LIMIT ON CONTRIBUTIONS
Federal law requires that amounts contributed by you and on your behalf by your
Employer for a given limitation year generally may not exceed the lesser of:
- $40,000 (or such amount as may be prescribed by the Secretary of the
Treasury); or
- 100% of your annual compensation.
The limitation year for purposes of applying the above limits is the twelve
month period ending December 31. Contributions under this Plan may not exceed
the above limits. If this does occur, then excess contributions in your Account
may be forfeited or refunded to you based on the provisions of the Plan
document. You will be notified by the Plan Administrator if you have any excess
contributions. Income tax consequences may apply on the amount of any refund you
receive.
G. ROLLOVER CONTRIBUTIONS
You can roll over part or all of an eligible rollover distribution you received
from a prior employer's qualified plan. The Plan Administrator must approve any
rollover contribution and reserves the right to refuse to accept any such
contribution. If your rollover contribution to the Plan is not a direct rollover
(i.e. you received a cash distribution from your prior employer's plan or from
your rollover IRA), then it must be received by the Trustee within 60 days of
your receipt of the distribution. Rollover contributions shall only be made in
the form of cash or allowable mutual fund shares. You may make a rollover
contribution to the Plan before becoming a Participant. However, you will not
become a Participant in the Plan and become entitled to make pretax
contributions and share in Employer contributions until you have met the Plan's
eligibility and entry date requirements. Your rollover contributions Account
will be subject to the terms of this Plan and will always be fully vested and
nonforfeitable.
- --------------------------------------------------------------------------------
IV. INVESTMENTS
- --------------------------------------------------------------------------------
A. INVESTMENTS
The Employee Retirement Income Security Act of 1974 (ERISA) imposes certain
duties on the parties who are responsible for the operation of the Plan. These
parties, called fiduciaries, have a duty to invest Plan assets in a prudent
manner. However, an exception exists for plans that comply with ERISA Section
404(c) and permit a Participant to exercise control over the assets in his/her
Account and choose from a broad range of investment alternatives. This Plan is
intended to be a Section 404(c) plan. You are responsible for investment
decisions relating to the investment of assets in your Account under the Plan
and the Plan fiduciaries are not responsible for any losses based on your
investment instructions. In addition, you have the right to vote any mutual fund
proxy based on the number of shares you own. Please see Appendix A for a list of
the investments currently available under the Plan. If you want additional
information about any investment alternative, you may request any of the
following information by calling Fidelity at 1-800-835-5097:
- - A description of the annual operating expenses of each investment fund
(e.g., investment management fees, administrative fees, transaction costs)
which reduce the rate of return to you, and the aggregate amount of such
expenses expressed as a percentage of average net assets of the designated
investment alternative;
- - Prospectuses, financial statements and reports, plus any other material
available to the Plan which relates to the available investment
alternatives;
- --------------------------------------------------------------------------------
6
- - A list of the assets comprising the portfolio of each investment fund, the
value of such assets (or the proportion of the investment fund which it
comprises), and with respect to each such asset which is a fixed rate
investment contract issued by a bank, savings and loan association or
insurance company, the name of the issuer of the contract, the term of the
contract and the rate of return on the contract;
- - Information concerning the value of shares or units of the investment funds
available to Participants under the Plan, as well as the past investment
performance of such funds, determined net of expenses, on a reasonable and
consistent basis.
B. STATEMENT OF ACCOUNT
The assets in the Plan are invested in available investment options and a
separate Account is established for each Participant who receives and/or makes a
contribution. The value of your Account is updated each business day to reflect
any contributions, exchanges between investment options, investment earnings or
losses for each investment option and withdrawals. A quarterly statement showing
the value of your Account will be mailed to you within 15 business days after
the following dates: January 31, April 30, July 31, October 31. You may also
access the activity in your Account through the internet by using Fidelity's
Netbenefits at 401k.com website. Please contact the Plan Administrator for
further information.
C. ELECTION
The Plan is intended to qualify as a Participant-directed plan under Section
404(c) of ERISA. This means that you are responsible for your investment
decisions under the plan and any resulting investment activity. The plan
fiduciaries, including, but not limited to, Fidelity Management Trust Company
and Cabot Microelectronics Corporation, are not responsible for any losses
incurred as a result of your investment decisions.
- --------------------------------------------------------------------------------
V. VESTING
- --------------------------------------------------------------------------------
The term "vesting" refers to your nonforfeitable right to the money in your
Account. You receive vesting credit for the number of years that you have worked
for your Employer. If you terminate your employment with your Employer, you may
be able to receive a portion or all of your Account based on your vested
percentage. You are always 100% vested in your Rollover Contributions, Employer
Profit Sharing Contributions, Employer Matching Contributions, Qualified
Nonelective Contributions, Regular Contributions and any earnings thereon.
- --------------------------------------------------------------------------------
VI. PARTICIPANT LOANS
- --------------------------------------------------------------------------------
A. GENERAL LOAN RULES
Loans shall be made available to all qualifying Participants on a
reasonably equivalent basis. However, loans may not be made to an eligible
Employee who makes a rollover contribution and who has not satisfied the
Plan's age, service and entry date requirements. Loans are not considered
distributions and are not subject to Federal or state income taxes,
provided they are repaid as required. While you do have to pay interest on
your loan, both the principal and interest are deposited in your Account.
B. SPECIFIC LOAN PROCEDURES
Please see Appendix B, Loan Procedures, for specific information regarding
receiving and repaying loans from the Plan. Additional information may be
attained from the Plan Administrator.
- --------------------------------------------------------------------------------
7
- --------------------------------------------------------------------------------
VII. IN SERVICE WITHDRAWALS
- --------------------------------------------------------------------------------
If you qualify and your request is approved by the Plan Administrator, you may
obtain a withdrawal from the Plan while you are still an Employee. The following
types of withdrawals are available under the Plan:
A. HARDSHIP WITHDRAWALS
If you are an Employee and request a hardship withdrawal and it is approved by
the Plan Administrator, you may withdraw your Employee pretax contributions to
satisfy any of the following immediate and heavy financial needs: (1) medical
expenses for you, your spouse, children or dependents; (2) the purchase of your
principal residence; (3) to prevent your eviction from, or foreclosure on, your
principal residence; or (4) to pay for post-secondary education expenses
(tuition, related educational fees, room and board) for you, your spouse,
children or dependents for the next twelve months; or any other immediate and
heavy financial need as determined based on Internal Revenue Service
regulations. In accordance with Internal Revenue Service regulations, you must
first exhaust all other assets reasonably available to you prior to obtaining a
hardship withdrawal. This includes obtaining a loan from this Plan and any other
qualified plan maintained by your Employer. Your pretax contributions to this
Plan, and any other Employer-sponsored qualified or non-qualified plan, will be
suspended for twelve months after your receipt of the hardship withdrawal. Your
pretax contributions to the Plan for the following calendar year will be limited
to the applicable limit less any pretax contributions made during the year of
the hardship withdrawal. The minimum hardship withdrawal is $500. Hardship
withdrawals of amounts attributable to pre-tax employee deferral contributions
will no longer be considered an "eligible rollover distribution" after December
31, 1998. Instead, these amounts will be subject to the 10% nonperiodic income
tax withholding rate unless you elect out of withholding. You should refer to
the "Distribution of Benefits" section of this SPD.
B. WITHDRAWALS AFTER AGE 59 1/2
If you have reached age 59 1/2, then you may elect to withdraw all or a portion
of your entire Account while you are still employed by your Employer.
C. WITHDRAWALS AFTER AGE 70 1/2
Starting in the calendar year in which you reach age 70 1/2, you may elect to
receive distributions calculated in the same manner as Minimum Required
Distributions. For more information, please refer to the paragraph so entitled
under the Distributable Events subsection of this SPD's section on Distribution
of Benefits below.
D. WITHDRAWALS AFTER NORMAL RETIREMENT AGE
You may elect to withdraw your vested Account balance after you reach the Plan's
normal retirement age, 65, or delay it until you retire. Notwithstanding, by law
Employee Pretax, Qualified Matching, Safe Harbor Matching, Qualified
Nonelective, and Safe Harbor Nonelective contributions cannot be withdrawn prior
to age 59 1/2.
E. WITHDRAWALS OF ROLLOVER CONTRIBUTIONS
If you have a balance in your rollover contributions Account, you may elect to
withdraw all or a portion of it.
The amount of any taxable withdrawal that is not rolled over into an Individual
Retirement Account or another qualified employer retirement plan will be subject
to Federal and state, if applicable, income taxes. In general, the amount of any
taxable withdrawal that is not rolled over into an Individual Retirement Account
or another qualified employer retirement plan will be subject to 20% Federal
Income Tax and any applicable State Income Tax. A 10% Internal Revenue Code
early withdrawal penalty tax may apply to the
- --------------------------------------------------------------------------------
8
amount of your withdrawal if you are under the age of 59 1/2 and do not meet one
of the Internal Revenue Code exceptions.
The Plan Administrator will notify you of the appropriate procedures to make a
withdrawal from the Plan. The amount of any withdrawal will be withdrawn from
available investment options in the order established by the Trustee. Consult
your Plan Administrator for more information.
- --------------------------------------------------------------------------------
VIII. DISTRIBUTION OF BENEFITS
- --------------------------------------------------------------------------------
A. ELIGIBILITY FOR BENEFITS
A distribution can be made to you if you request one due to your disability,
retirement, or termination of employment from your Employer and any Related
Employer. Your Beneficiary or Beneficiaries may request a distribution of your
vested Account balance in the event of your death.
You may defer receipt of your distribution until a later date. However, you
cannot postpone it if your vested Account balance is $5,000 or less in which
case the Plan Administrator will direct the Trustee to distribute it to you as a
lump sum distribution without your consent. If your vested Account balance
exceeds $5,000, you may delay your distribution until you are required by law to
receive minimum required distributions. You will have a continuing election to
request a distribution if you elect to postpone your distribution unless you are
re-employed by your Employer or any Related Employer. The value of your Account
balance will continue to increase or decrease, as appropriate, based on the
investment returns until it is distributed. Your written consent will be
required for any distribution if your vested Account balance is greater than
$5,000.
You should consult with your tax advisor to determine the financial impact of
your situation before you request a distribution. You may apply for a
distribution by calling the Fidelity Retirement Benefits Line at 1-800-835-5097.
All telephone calls will be recorded. Most distributions have been pre-approved
by the Plan Administrator.
B. DISTRIBUTABLE EVENTS
You are eligible to request a distribution of your vested Account balance based
on any of the following events:
1. DEATH
If you are a Participant in the Plan and die, your vested Account balance,
if any, will be paid to your designated Beneficiary or Beneficiaries. You
may designate a Beneficiary or Beneficiaries on a designation form that
must be properly signed and filed with the Plan Administrator. If you are
married and want to designate someone other than your spouse as your
primary Beneficiary, your spouse must consent to this designation by
signing the form. His/her signature must be witnessed by a Plan
representative or a notary public. You should contact the Plan
Administrator to obtain a designation of beneficiary form.
2. DISABILITY
If you become disabled while you are employed by your Employer or a Related
Employer, so that you are eligible for disability benefits under your
Employer's Long-Term Disability Plan, the full value of your Account
balance may be distributed to you upon request. You may request a
distribution of your Account balance only if you terminate your employment
with your Employer or Related Employer.
- --------------------------------------------------------------------------------
9
3. RETIREMENT
You do not have to terminate your employment with your Employer just
because you attain your early retirement age of 55 and complete 3 years of
service or you attain your normal retirement age of 65. You may take an
early retirement distribution at or after age 55 and after you complete 3
years of service, but you must first terminate your employment with your
Employer or Related Employer.
4. MINIMUM REQUIRED DISTRIBUTIONS
You are required by law to receive a minimum required distribution from the
Employer's Plan, unless you are a five percent owner of the Employer, no
later than April 1 of the calendar year following the calendar year you
turn 70 1/2 or terminate your employment, whichever is later. If you are a
five percent owner of the Employer, you must start receiving your
distribution no later than April 1 of the calendar year following the
calendar year you turn 70 1/2. Once you start receiving your minimum
required distribution, you should receive it at least annually and you
should complete the appropriate documentation each year until all assets in
your Account are distributed. If you have any questions about your minimum
required distributions, please contact your Plan Administrator.
5. TERMINATION OF EMPLOYMENT
If you terminate your employment with your Employer and any Related
Employer, you may elect to receive a distribution of your vested Account
balance from the Plan.
C. FORM OF PAYMENTS
The forms of payments that you may elect under the Plan are listed in this
section below.
1. LUMP SUM DISTRIBUTIONS
Your entire vested Account balance will be paid to you in a single cash
distribution or other distribution that you elect.
a) CASH DISTRIBUTION
Any distribution paid directly to you will be subject to
mandatory Federal income tax withholding of 20% of the taxable
distribution and the remaining amount will be paid to you. You
cannot elect out of this tax withholding but you can avoid it by
electing a direct rollover distribution as described below. This
withholding is not a penalty but a prepayment of your Federal
income taxes.
You may rollover the taxable distribution you receive to an
individual retirement account (IRA) or your new employer's
qualified plan, if it accepts rollover contributions and you roll
over this distribution within 60 days after receipt. You will not
be taxed on any amounts timely rolled over into the IRA or your
new employer's qualified Plan until those amounts are later
distributed to you. Any amounts not rolled over may also be
subject to certain early withdrawal penalties prescribed under
the Internal Revenue Code.
b) DIRECT ROLLOVER DISTRIBUTION
As an alternative to a cash distribution, you may request that
your entire distribution be rolled directly into a Fidelity IRA,
a non-Fidelity IRA or to your new employer's qualified plan if it
accepts rollover contributions. Federal income taxes will not be
withheld on any direct rollover distribution.
When you call the Fidelity Retirement Benefits Line to take a
withdrawal, you will be asked whether you will be rolling over
any part of your distribution. If you wish to have
- --------------------------------------------------------------------------------
10
any part of your distribution rolled over to an IRA or another
qualified plan, you will need to speak to a Fidelity
representative.
1. Rollover to Fidelity IRA - You will be asked whether you
have received a Fidelity Service for Exiting Employees
(`SEE') Rollover IRA Kit. If you haven't received a SEE Kit,
the Fidelity representative will send out one. Then, your
rollover request will be entered on the system and will pend
(for up to 90 days) until the Rollover IRA account is set
up. You must return the signed Rollover IRA application to
Fidelity's Retail Customer Service Department (in Dallas,
TX) in order to set up the Rollover IRA account. Once the
Rollover IRA account has been set up, your vested Account
balance will be transferred to the Fidelity Rollover IRA.
2. Rollover to Non-Fidelity IRA - A check will be issued by the
Trustee payable to the IRA custodian or trustee for your
benefit. The check will contain the notation `Direct
Rollover' and it will be mailed directly to you. You will be
responsible for forwarding it on to the custodian or
trustee. You must provide the Plan Administrator with
complete information to facilitate your direct rollover
distribution.
3. Rollover to your New Employer's Qualified Plan - You should
check with your new employer to determine if its plan will
accept rollover contributions. If allowed, then a check will
be issued by the Trustee payable to the trustee of your new
employer's qualified plan. The check will contain the
notation `Direct Rollover' and it will be mailed directly to
you. You will be responsible for forwarding it on to the new
trustee. You must provide the plan Administrator with
complete information to facilitate your direct rollover
distribution
c) COMBINATION CASH DISTRIBUTION AND DIRECT ROLLOVER
DISTRIBUTIONS
You may request that part of your distribution be paid directly
to you and the balance rolled into an IRA, your new employer's
retirement plan, or a 403(a) annuity. Any cash distribution will
be subject to the Federal income tax withholding rules referred
to in subsection 1a above and any direct rollover distribution
will be made in accordance with section 1b above. Your direct
rollover distribution must be at least $500.
You will pay income tax on the amount of any taxable distribution
you receive from the Plan unless it is rolled into an IRA or your
new employer's qualified Plan. A 10% IRS premature distribution
penalty tax may also apply to your taxable distribution unless it
is rolled into an IRA or another qualified plan. The 20% Federal
income tax withheld under this section may not cover your entire
income tax liability. Consult with your tax advisor for further
details.
- --------------------------------------------------------------------------------
IX. MISCELLANEOUS INFORMATION
- --------------------------------------------------------------------------------
A. BENEFITS NOT INSURED
Benefits provided by the Plan are not insured or guaranteed by the Pension
Benefit Guaranty Corporation under Title IV of the Employee Retirement Income
Security Act of 1974 because the insurance provisions under ERISA are not
applicable to this particular Plan. You will only be entitled to the vested
benefits in your Account based upon the provisions of the Plan and the value of
your Account will be subject to investment gains and losses.
- --------------------------------------------------------------------------------
11
B. ATTACHMENT OF YOUR ACCOUNT
Your Account may not be attached, garnished, assigned or used as collateral for
a loan outside of this Plan except to the extent required by law. Your creditors
may not attach, garnish or otherwise interfere with your Account balance except
in the case of a proper Internal Revenue Service tax levy or a Qualified
Domestic Relations Order (QDRO). A QDRO is a special order issued by the court
in a divorce, child support or similar proceeding. In this situation, your
spouse, or former spouse, or someone other than you or your Beneficiary, may be
entitled to a portion or all of your Account balance based on the court order.
Participants and Beneficiaries can obtain, without a charge, a copy of QDRO
procedures from the Plan Administrator.
C. PLAN-TO-PLAN TRANSFER OF ASSETS
Your Employer may direct the Trustee to transfer all or a portion of the assets
in the Account of designated Participants to another plan or plans maintained by
your Employer or other employers subject to certain restrictions. The plan
receiving the Trust Funds must contain a provision allowing the transfer and
preserve any benefits required to be protected under existing laws and
regulations. In addition, a Participant's vested Account balance may not be
decreased as a result of the transfer to another plan.
D. PLAN AMENDMENT
Your Employer reserves the authority to amend certain provisions of the Plan by
taking the appropriate action. However, any amendment may not eliminate certain
forms of benefits under the Plan or reduce the existing vested percentage of
your Account balance derived from Employer contributions. If you have three or
more years of service with your Employer and a Related Employer and the vesting
schedule is amended, then you will be given a choice to have the vested
percentage of future Employer contributions made to your Account computed under
the new or the old vesting schedule. The Plan Administrator will provide you
with the appropriate information to make an informed decision if the Plan's
vesting schedule is amended.
E. PLAN TERMINATION
Your Employer has no legal or contractual obligation to make annual
contributions to or to continue the Plan. Your Employer reserves the right to
terminate the Plan at any time by taking appropriate action as circumstances may
dictate, with the approval of the Board of Directors. In the event the Plan
should terminate, each Participant affected by such termination shall have a
vested interest in his Account of 100 percent. The Plan Administrator will
facilitate the distribution of Account balances in single lump sum payments to
each Participant in accordance with Plan provisions until all assets have been
distributed by the Trustee.
F. INTERPRETATION OF PLAN
The Plan Administrator has the power and discretionary authority to construe the
terms of the Plan based on the Plan document, existing laws and regulations and
to determine all questions that arise under it. Such power and authority
include, for example, the administrative discretion necessary to resolve issues
with respect to an Employee's eligibility for benefits, credited services,
disability, and retirement, or to interpret any other term contained in Plan
documents. The Plan Administrator's interpretations and determinations are
binding on all Participants, Employees, former Employees, and their
Beneficiaries.
G. ELECTRONIC DELIVERY
This Summary Plan Description and other important Plan information may be
delivered to you through electronic means. This Summary Plan Description
contains important information concerning the rights and benefits of your Plan.
If you receive this Summary Plan Description (or any other Plan information)
- --------------------------------------------------------------------------------
12
through electronic means you are entitled to request a paper copy of this
document, free of charge, from the Plan Administrator. The electronic version of
this document contains substantially the same style, format and content as the
paper version.
- --------------------------------------------------------------------------------
X. INTERNAL REVENUE CODE TESTS
- --------------------------------------------------------------------------------
A. NON-DISCRIMINATION TESTS
The Plan must pass Internal Revenue Code non-discrimination tests as of the last
day of each Plan Year to maintain a qualified Plan. These tests are intended to
ensure that the amount of contributions under the Plan do not discriminate in
favor of Highly Compensated Employees. In order to meet the tests, your Employer
encourages participation from all eligible Employees. Depending upon the results
of the tests, the Plan Administrator may have to refund pretax contributions
contributed to the Plan and vested matching contributions to certain Highly
Compensated Employees, as determined under Internal Revenue Service regulations.
Pretax or matching contributions will be refunded to you from applicable
investment options. You will be notified by the Plan Administrator if any of
your contributions will be refunded to you.
B. TOP HEAVY TEST
The Plan is subject to the Internal Revenue Code "top-heavy" test. Each Plan
Year, the Plan Administrator tests this Plan, together with any other
Employer-sponsored qualified plans that cover one or more key employees, to
ensure that no more than 60% of the benefits are for key employees. If this Plan
is top-heavy, then your Employer may be required to make a minimum annual
contribution on your behalf to this, or another Employer sponsored plan, if you
are employed as of Plan Year-end. In addition, the following vesting schedule
will be used instead of the one previously listed in the vesting section of this
Summary Plan Description.
YEARS OF SERVICE VESTING PERCENTAGE
less than 1 100
1 100
- --------------------------------------------------------------------------------
XI. PARTICIPANT RIGHTS
- --------------------------------------------------------------------------------
A. CLAIMS
1. CLAIMS PROCEDURES
You or your Beneficiary has the right to make a claim for benefits you are
entitled to under the Plan. You must submit any claim to the Plan
Administrator on the required form and it will be considered and subject to
a full and fair review. The Plan Administrator will provide you with
written notice of the disposition of your claim within 90 days after it has
been filed, or, in certain circumstances, within 180 days if special
circumstances require an extension of time to process the claim. In the
event the claim is denied, the Plan Administrator will disclose in writing
to you the specific reasons for the denial, the pertinent reference to the
provisions of the Plan, a description of additional material or information
required and why it is required, and information about the steps that must
be taken to submit a request for review.
- --------------------------------------------------------------------------------
13
2. REVIEW PROCEDURES
You or your Beneficiary may appeal the denial of your claim within 60 days
after the date which you receive a denied claim. If you wish further
consideration of your claim, you must file a written request for review
with the Plan Administrator and include any pertinent documentation. The
Plan Administrator shall make a decision on your claim and will notify you
in writing within 60 days after receipt or within 120 days if there are
special circumstances that may require an extension of time to process the
request. If a decision on review is not made then the claim will be
considered denied.
B. STATEMENT OF ERISA RIGHTS
As a Participant in the Plan, you are entitled to certain rights and protections
under ERISA. ERISA provides that all Plan Participants shall be entitled to:
- - Examine, without charge, at the Plan Administrator's office and at other
specified locations such as worksites and union halls, all documents
governing the Plan, including insurance contracts and collective bargaining
agreements, and a copy of the latest annual report (Form 5500 Series) filed
by the Plan with the U.S. Department of Labor.
- - Obtain, upon written request to the Plan Administrator, copies of documents
governing the operation of the plan, including insurance contracts and
collective bargaining agreements, and copies of the latest annual report
(Form 5500 Series) and updated Summary Plan Description. The Plan
Administrator may make a reasonable charge for the copies.
- - Receive a summary of the Plan's annual financial report. The Plan
Administrator is required by law to furnish each Participant with a copy of
this Summary Annual Report each year.
- - Obtain a statement telling you whether you have a right to receive a
benefit under the plan at normal retirement age (age 65) and if so, what
your benefits would be at normal retirement age if you stop working under
the Plan now. If you do not have a right to a pension, the statement will
tell you how many more years you have to work to get a right to a pension.
This statement must be requested in writing and is not required to be given
more than once every twelve (12) months. The Plan must provide the
statement free of charge.
In addition to creating rights for Plan Participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit plan.
The people who operate your Plan, called "fiduciaries" of the Plan, have a duty
to do so prudently and in the interest of you, other Plan Participants and
Beneficiaries. No one, including your Employer, your union, or any other person,
may fire you or otherwise discriminate against you in any way to prevent you
from obtaining a pension benefit or exercising your rights under ERISA.
If your claim for a pension benefit under the Plan 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 review and reconsider your claim. Under ERISA,
there are steps you can take to enforce the above rights. For instance, if you
request materials from the Plan and do not receive them within 30 days, you may
file suit in a Federal court. In such a case, the court may require the Plan
Administrator to provide the materials and pay you up to $110 a day until you
receive the materials, unless the materials were not sent because of reasons
beyond the control of the Plan Administrator.
If you have a claim for benefits that is denied or ignored, in whole or in part,
you may file suit in a state or Federal court. In addition, if you disagree with
the Plan's decision or lack thereof concerning the qualified status of a
domestic relations order, you may file suit in Federal court. If it should
happen that Plan fiduciaries misuse the Plan's money, or if you are
discriminated against for asserting your rights, you may seek assistance from
the U.S. Department of Labor, or you may file suit in a Federal court. The court
will decide who should pay court costs and legal fees. If you are successful,
the court may order the person you
- --------------------------------------------------------------------------------
14
have sued to pay these costs and fees. If you lose, the court may order you to
pay these costs and fees; for example, if it finds your claim frivolous.
If you have any questions about your Plan, you should contact the Plan
Administrator. If you have any questions about your rights under ERISA, you
should contact the nearest office of the Pension and Welfare Benefits
Administration, U.S. Department of Labor, listed in your telephone directory or
the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits
Administration, U.S. Department of Labor, 200 Constitution Avenue N.W.,
Washington, D.C. 20210.
- --------------------------------------------------------------------------------
XII. SERVICES AND FEES
- --------------------------------------------------------------------------------
Fees and expenses charged under your Account will impact your retirement
savings, and fall into three basic categories. Investment fees are generally
assessed as a percentage of assets invested, and are deducted directly from your
investment returns. Investment fees can be in the form of sales charges, loads,
commissions, 12b-1 fees, or management fees. You can obtain more information
about such fees from the documents (e.g., a prospectus) that describe the
investments available under your Plan and from Appendix A: Investment Options.
Plan administration fees cover the day-to-day expenses of your Plan for
recordkeeping, accounting, legal and trustee services, as well as additional
services that may be available under your Plan, such as daily valuation,
telephone response systems, internet access to plan information, retirement
planning tools, and educational materials. In some cases, these costs are
covered by investment fees that are deducted directly from investment returns.
In other cases, these administrative fees are either paid directly by your
Employer, or are passed through to the participants in the Plan, in which case a
recordkeeping fee will be deducted from your Account. Transaction-based fees are
associated with optional services offered under your Plan, and are charged
directly to your Account if you take advantage of a particular plan feature that
may be available, such as a Plan loan. For more information on fees associated
with your Account, refer to your quarterly Account statement or speak with your
Plan Administrator.
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
XIII. APPENDIX A: INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You have the opportunity to direct the investments of your Account among the
following investment funds:
- --------------------------------------------------------------------------------
Fund Name Fund Code Fund Objective
- --------------------------------------------------------------------------------
FIDELITY RETIRE MMKT 0630 Seeks a high current income, preservation
of capital, and liquidity from money market
instruments.
FID INST SH-INT GOVT 0662 Seeks a high level of current income,
consistent with preserving capital, through
investments in Government securities.
FIDELITY EQ INC II 0319 Seeks income by investing primarily in
income-producing equity securities,
considering the potential for capital
appreciation. Seeks yield exceeding the S&P
500.
FIDELITY FUND 0003 Seeks long-term capital growth, with a
reasonable level of current income as a
secondary objective, through investment in
common stocks.
FIDELITY AGGR GROWTH 0324 Seeks long-term capital appreciation by
investing mainly in equity securities of
companies believed to offer the potential
for accelerated growth.
FIDELITY FIFTY 0500 Seeks long-term capital appreciation.
FIDELITY LOW PR STK 0316 Capital appreciation; invests mainly in a
portfolio of low-priced stocks that may be
undervalued, overlooked or out-of-favor.
FIDELITY DIVERS INTL 0325 Seeks capital growth by investing mainly in
countries which are included in the Morgan
Stanley EAFE Index; focuses on companies
with market capitalizations of $100,000,000
or more; seeks a rate of return which
exceeds that of the GDP-Weighted EAFE
Index.
FID FREEDOM INCOME 0369 To seek high current income and, as a
secondary objective, some capital
appreciation for those already in
retirement.
FID FREEDOM 2000 0370 To seek high total returns for those
planning to retire in approximately 1 - 10
years.
FID FREEDOM 2010 0371 To seek high total returns for those
planning to retire in approximately 10 - 20
years.
FID FREEDOM 2020 0372 To seek high total returns for those
planning to retire in approximately 20 - 30
years.
- --------------------------------------------------------------------------------
16
FID FREEDOM 2030 0373 To seek high total returns for those
planning to retire in approximately 30 - 40
years.
FID FREEDOM 2040 0718 Seeks high total returns for those planning
to retire around 2040.
FIDELITY BALANCED 0304 Seeks the highest amount of current income
possible while preserving capital, by
investing in a balance of quality bonds and
high-yielding stocks.
If a contribution is received for your Account and you have not supplied
investment instructions to the Trustee, this contribution will be invested based
on Employer direction, or absent such direction, in the most conservative
investment option in the Plan.
You may redirect the investment of your future contributions or exchange your
existing Account balance among available investment options by calling
1-800-835-5097 on any business day between 8:30 AM (ET) and 8:00 PM (ET). This
is an automated telephone service and you should follow the telephonic
instructions or you can press the appropriate number if you want to talk to a
Fidelity telephone representative. All representative-assisted calls will be
recorded for your protection. You may call the telephone number virtually 24
hours a day, seven days a week to check Account balances, prices, yields or
obtain investment information. You may also use the internet to redirect the
investment or your future contributions or exchange your existing Account
balance by using Fidelity's NetBenefits internet account access website (at
401k.com). Please contact the Plan Administrator for further information.
Exchanges received and confirmed before the close of the market (usually 4:00 PM
(ET)) will be posted on that business day based upon the closing price of the
affected investment(s). Exchanges received and confirmed after the market close
will be processed on the next business day based upon the closing price of the
affected investment(s) on that next business day. The minimum exchange is the
lesser of $250 or 100% of your Account balance in the investment option. If your
exchange is less than $250 then it may only be exchanged into one investment
option. A written confirmation of your change in the investment of your future
contributions or your exchange of an existing fund will be mailed to you within
five business days. Fidelity reserves the right to change, restrict, or
terminate exchange procedures to protect mutual fund shareholders.
Your Employer has agreed to pay certain investment fees associated with having
each investment in excess of the 10 investment options allowed for the Plan at
no additional fee. If your Employer fails to pay any of those fees, then
Participants may have those fees deducted from their Accounts.
- --------------------------------------------------------------------------------
XIV. APPENDIX B: LOAN PROCEDURES
- --------------------------------------------------------------------------------
A. INITIATING LOANS
1. LOAN APPLICATION
If you have met the Plan's eligibility and entry date requirements, you may
apply for a loan by calling the Fidelity Retirement Benefits Line,
1-800-835-5097. All telephone calls will be recorded. You may apply for
only one loan each Plan Year. All loans have been pre-approved by the Plan
Administrator
- --------------------------------------------------------------------------------
17
based on the criteria outlined in the Plan. Loans will be allowed for any
purpose. A loan set up fee of $175 will be deducted from your Account for
each new loan processed.
2. LOAN AMOUNT
The minimum loan is $1,000 and the maximum amount is the lesser of one-half
of your vested Account balance or $50,000 reduced by the highest
outstanding loan balance in your Account during the prior twelve month
period. All of your loans from plans maintained by your Employer or a
Related Employer will be considered for purposes of determining the maximum
amount of your loan. Up to 50% of your vested Account balance may be used
as collateral for any loan.
3. NUMBER OF LOANS
You may only have one loan outstanding at any given time. If you have an
existing loan you may not apply for another loan until the existing loan is
paid in full.
4. INTEREST RATE
All loans shall bear a reasonable rate of interest as determined by the
Plan Administrator based on the prevailing interest rates charged by
persons in the business of lending money for loans which would be made
under similar circumstances. The interest rate shall remain fixed
throughout the duration of the loan.
5. SOURCE OF LOAN PROCEEDS
Loan proceeds will be withdrawn from available contribution sources and
investment options in the order established by the Trustee.
Please contact the Plan Administrator for more information.
B. LOAN REPAYMENTS AND LOAN MATURITY
All loans must be repaid in level payments through after-tax payroll deductions
on at least a quarterly basis over a five year period unless it is for the
purchase of your principal residence in which case the loan repayment period may
not extend beyond 10 years from the date of the loan. If repayment is not made
by payroll deduction, a loan shall be repaid to the Plan by payment to the
Employer. The level repayment requirement may be waived for a period of one year
or less if you are on a leave of absence, however, your loan must still be
repaid in full on the maturity date. If a loan is not repaid within its stated
period, it will be treated as a taxable distribution to you.
C. DEFAULT OR TERMINATION OF EMPLOYMENT
The Plan Administrator will consider a loan in default if any scheduled
repayment remains unpaid at the end of the calendar quarter following the
calendar quarter in which a scheduled repayment was due or if there is an
outstanding principal balance existing on a loan after the last scheduled
repayment date. In the event of a default, death, disability or termination of
employment, the entire outstanding principal and accrued interest shall be
immediately due and payable. In addition, you will be deemed to have received a
taxable distribution from the Plan.
- --------------------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
XV. APPENDIX C. SPECIAL TAX NOTICE REGARDING PLAN PAYMENTS
- --------------------------------------------------------------------------------
This notice contains important information you will need before you decide how
to receive your benefits from the Cabot Microelectronics Corporation 401(k) Plan
(the "Plan"). Important Note: If you receive this Special Tax Notice Regarding
Plan Payments (also known as a "section 402(f) notice") through electronic
means, you are entitled to request a paper copy of this document, free of
charge, from the Plan Administrator.
SUMMARY
There are two ways you may be able to receive a Plan payment that is eligible
for rollover:
(1) Certain payments can be made directly to a traditional IRA or, if you
choose, another qualified employer plan that will accept it ("DIRECT
ROLLOVER"); or
(2) The payment can be PAID TO YOU.
You have the right to wait at least 30 days from your receipt of this notice to
make your distribution decision. You waive the 30 day period by initiating
either a direct rollover or a payment to you before the end of the 30 day
period.
If you choose a DIRECT ROLLOVER:
- Your payment will not be taxed in the current year and no income tax
will be withheld.
- Your payment will be made directly to your traditional IRA or, if you
choose, to another employer plan that accepts your rollover. Your Plan
payment cannot be rolled over to a Roth IRA, a SIMPLE IRA, or an
education IRA because these are NOT traditional IRAs.
- Your payment will be taxed later when you take it out of the
traditional IRA or the qualified employer plan.
If you choose to have your Plan payment that is eligible for rollover PAID TO
YOU:
- You will receive only 80% of the payment because the Plan
administrator, or his/her agent, is required to withhold 20% of the
payment and send it to the IRS as income tax withholding to be
credited against your taxes.
- Your payment will be taxed in the current year unless you roll it
over. Under limited circumstances, you may be able to use special tax
rules that could reduce the tax you owe.
- --------------------------------------------------------------------------------
19
However, if you receive the payment before age 59 1/2, you also may
have to pay an additional 10% tax.
- You can roll over the payment by paying it to your traditional IRA or
to another qualified employer plan that accepts your rollover within
60 days after you receive the payment. The amount rolled over will not
be taxed until you take it out of the traditional IRA or the qualified
employer plan.
- If you want to roll over 100% of the payment to a traditional IRA or
another qualified employer plan, you must find other money to replace
the 20% that was withheld. If you roll over only the 80% that you
received, you will be taxed on the 20% that was withheld and that is
not rolled over.
MORE INFORMATION
I. PAYMENTS THAT CAN & CANNOT BE ROLLED OVER
II. DIRECT ROLLOVER
III. PAYMENT PAID TO YOU
IV. SURVIVING SPOUSES, ALTERNATE PAYEES AND OTHER BENEFICIARIES
I. PAYMENTS THAT CAN AND CANNOT BE ROLLED OVER
Payments from the Plan may be "eligible rollover distributions." This means that
they can be rolled over to an IRA or to another employer plan that accepts
rollovers. Payments from the Plan cannot be rolled over to Roth IRA, a SIMPLE
IRA, or an education IRA. The following types of payments cannot be rolled over:
NON-TAXABLE PAYMENT. In general, only the "taxable portion" of your payment can
be rolled over. If you have made "after-tax" employee contributions to the Plan,
these contributions will be non-taxable when they are paid to you, and they
cannot be rolled over. (After-tax employee contributions generally are
contributions you made from your own pay that were already taxed.) Your Plan
administrator should be able to tell you how much of your payment is the taxable
portion and how much is the after-tax employee contribution portion.
PAYMENTS SPREAD OVER LONG PERIODS. You cannot roll over a payment if it is part
of a series of equal (or almost equal) payments that are made at least once a
year and that will last for:
- your lifetime (or your life expectancy); OR
- your lifetime and your beneficiary's lifetime (or life
expectancies); or
- a period of ten years or more.
REQUIRED MINIMUM PAYMENTS. Beginning in the year in which you reach age 70 1/2
or retire, whichever is later, a certain portion of your payment cannot be
rolled over because it is a " minimum required distribution" (MRD) that must be
paid to you. Special rules apply if you own 5% or more of your employer.
- --------------------------------------------------------------------------------
20
HARDSHIP DISTRIBUTIONS. A hardship distribution for your employer's 401(k) Plan
may not be eligible for rollover. Those amounts that are attributable to your
pre-tax contributions that are distributed as the result of a financial hardship
are not eligible to be rolled over. The Plan administrator will be able to tell
you which portion, if any, of your hardship distribution is eligible to be
rolled over.
II. DIRECT ROLLOVER
A DIRECT ROLLOVER is a direct payment of your Plan benefits to a traditional IRA
or to another qualified employer plan that will accept it. You can choose a
DIRECT ROLLOVER of all or a portion of your payment that is an eligible rollover
distribution, as described in Part I above. You are not taxed on any portion of
your payment for which you choose a DIRECT ROLLOVER until you later take it out
of the traditional IRA or the qualified employer plan. In addition, no income
tax withholding is required for any portion of your Plan benefits for which you
choose a DIRECT ROLLOVER.
DIRECT ROLLOVER TO A TRADITIONAL IRA. You can open a traditional IRA to receive
the direct rollover. If you choose to have your payment made directly to a
traditional IRA, contact an IRA sponsor (usually a financial institution) to
find out how to have your payment made in a direct rollover to a traditional IRA
at that institution. If you are unsure of how to invest your money, you can
temporarily establish a traditional IRA to receive the payment. However, in
choosing a traditional IRA, you may wish to consider whether the traditional IRA
you choose will allow you to move all or a part of your payment to another
traditional IRA at a later date, without penalties or other limitations. See IRS
PUBLICATION 590, INDIVIDUAL RETIREMENT ARRANGEMENTS, for more information on
traditional IRAs (including limits on how often you can roll over between IRAs).
DIRECT ROLLOVER TO A PLAN. If you are employed by a new employer that has a
qualified employer plan, and you want a direct rollover to that plan, ask the
plan administrator of that plan whether it will accept your rollover. A
qualified employer plan is not legally required to accept a rollover. If your
new employer's plan does not accept a rollover, you can choose a DIRECT ROLLOVER
to a traditional IRA.
DIRECT ROLLOVER OF A SERIES OF PAYMENTS. If you receive a payment that can be
rolled over to a traditional IRA or to another qualified employer plan that will
accept it, and it is paid in a series for less than ten years, your choice to
make or not make a DIRECT ROLLOVER for a payment will apply to all later
payments in the series until you change your election. You are free to change
your election for any later payments in the series of payments.
III. PAYMENT PAID TO YOU
If your payment can be rolled over under Part I and the payment is made to you
in cash, it is subject to 20% federal income tax withholding. The payment is
taxed in the year you receive it unless, within 60 days, you roll it over to a
traditional IRA or another qualified employer plan that accepts rollovers. If
you do not roll it over, special tax rules may apply.
- --------------------------------------------------------------------------------
21
INCOME TAX WITHHOLDING
MANDATORY WITHHOLDING. If any portion of your payment can be rolled over under
Part I and you do not elect a DIRECT ROLLOVER, the Plan is required by law to
withhold 20% of that amount. This amount is sent to the IRS as income tax
withholding. For example, if you can roll over a payment of $10,000, only $8,000
will be paid to you because the Plan must withhold $2,000 as income tax.
However, when you prepare your income tax return for the year, you must report
the full $10,000 as a payment from the Plan. You must report the $2,000 as tax
withheld, and it will be credited against any income tax you owe for the year.
VOLUNTARY WITHHOLDING. If any portion of your payment is taxable but cannot be
rolled over under Part I, the mandatory withholding rules described above do not
apply. In this case, you may elect not to have withholding apply to that
portion. To elect out of withholding, ask the Plan administrator for the
election form and related information.
SIXTY-DAY ROLLOVER OPTION. If you receive a payment that can be rolled over
under Part I, you can still decide to roll over all or part of it to a
traditional IRA or to another qualified employer plan that accepts rollovers. If
you decide to roll over, you must contribute the amount of the payment you
received to a traditional IRA or another qualified plan within 60 days after you
receive the payment. The portion of your payment that is rolled over will not be
taxed until you take it out of the traditional IRA or the qualified employer
plan.
You can roll over up to 100% of your payment that can be rolled over under Part
I, including an amount equal to the 20% that was withheld. If you choose to roll
over 100%, you must find other money within the 60-day period to contribute to
the traditional IRA or the qualified employer plan to replace the 20% that was
withheld. On the other hand, if you roll over only the 80% that you received,
you will be taxed on the 20% that was withheld.
EXAMPLE: The portion of your payment that can be rolled over under Part I
is $10,000, and you choose to have it paid to you. You will receive $8,000
AND $2,000 will be sent to the IRS as income tax withholding. Within 60
days after receiving the $8,000, you may roll over the entire $10,000 to a
traditional IRA or qualified employer plan. To do this, you roll over the
$8,000 you received from the Plan, and you will have to find $2,000 from
other sources (your savings, a loan, etc.). In this case, the entire
$10,000 is not taxed until you take it out of the traditional IRA or the
qualified employer plan. If you roll over the entire $10,000, you may get a
refund of the $2,000 withheld when you file your income tax return.
If, on the other hand, you roll over only $8,000, the $2,000 you did
not roll over is taxed in the year it was withheld. When you file your
income tax return, you may get a refund of the $2,000 withheld.
(However, any refund is likely to be larger if you roll over the
entire $10,000.)
ADDITIONAL 10% TAX IF YOU ARE UNDER AGE 59 1/2. If you receive a payment before
you reach age 59 1/2 and you do not roll it over, then, in addition to the
regular income tax, you may have to pay an extra tax equal to 10% of the taxable
portion of the payment. The additional 10% tax does not generally apply to (1)
payments that are paid after you separate from service with your employer during
or after the year you reach age 55, (2) payments that are paid because you
retire due to disability, (3) payments that are paid as equal (or almost equal)
payments over your life or life expectancy (or your and your beneficiary's lives
or
- --------------------------------------------------------------------------------
22
life expectancies), (4) dividends paid with respect to stock by an employee
stock ownership plan (ESOP) as described in Code section 404(k), (5) payments
that are paid directly to the government to satisfy a federal tax levy, (6)
payments that are paid to an alternate payee under a qualified domestic
relations order, or (7) payments that do not exceed the amount of your
deductible medical expenses. See IRS FORM 5329 for more information on the
additional 10% tax.
SPECIAL TAX TREATMENT IF YOU WERE BORN BEFORE JANUARY 1, 1936. If you receive a
payment that can be rolled over under Part I and you do not roll it over to a
traditional IRA or to another qualified employer plan that accepts it, the
payment will be taxed in the year you receive it. However, if it qualifies as a
"lump sum distribution," it may be eligible for special tax treatment (see also
"Employer Stock or Securities" below). A lump sum distribution is a payment,
within one year, of your entire balance under the Plan (and certain other
similar plans of the employer) that is payable to you after you have reached age
59 1/2 or because you have separated from service with your employer (or, in the
case of a self-employed individual, after you have reached age 59 1/2 or have
become disabled). For a payment to qualify as a lump sum distribution, you must
have been a participant in the Plan for at least five years before the year in
which you received the distribution. The special tax treatment for lump sum
distributions that may be available to you is described below.
TEN-YEAR AVERAGING. If you receive a lump sum distribution and you were
born before January 1, 1936, you can make a one-time election to figure the
tax on the payment by using "10-year averaging" (using 1986 tax rates).
Ten-year averaging often reduces the tax you owe.
CAPITAL GAIN TREATMENT. If you receive a lump sum distribution and you were
born before January 1, 1936 and if you were a participant in the Plan
before 1974, you may elect to have the part of your payment that is
attributable to your pre-1974 participation in the Plan, taxed as long-term
capital gain at a rate of 20%.
There are other limits on the special tax treatment for lump sum distributions.
For example, you can generally elect this special tax treatment only once in
your lifetime, and the election applies to all lump sum distributions that you
receive in that same year. If you have previously rolled over a distribution
from the Plan (or certain other similar plans of the employer), you cannot use
this special averaging treatment for later payments from the Plan. If you roll
over your payment to a traditional IRA, you will not be able to use this special
tax treatment for later payments from the traditional IRA. Also, if you roll
over only a portion of your payment to a traditional IRA, this special tax
treatment is not available for the rest of the payment. See IRS FORM 4972, which
has more information on lump sum distributions and how you elect the special tax
treatment.
EMPLOYER STOCK OR SECURITIES. There is a special rule for a payment from the
Plan that includes employer stock (or other employer securities). To use this
special rule, (1) the payment must qualify as a lump sum distribution, as
described above, except that you do not yet have five years of Plan
participation, or (2) the employer stock included in the payment must be
attributable to "after-tax" employee contributions, if any. Under this special
rule, you may have the option of not paying tax on the "net unrealized
appreciation" of the stock until you sell the stock. Net unrealized appreciation
generally is the increase in the value of the employer stock while it was held
by the Plan. For example, if employer stock was contributed to your Plan account
when the stock was worth $1,000 but the stock was worth $1,200 when you received
it, you would not have to pay tax on the $200 increase in value until you later
sold the stock.
- --------------------------------------------------------------------------------
23
You may instead elect not to have the special rule apply to the net unrealized
appreciation. In this case, your net unrealized appreciation will be taxed in
the year you receive the stock, unless you roll over the stock. The stock
(including any net unrealized appreciation) can be rolled over to a traditional
IRA or another qualified employer plan in either a direct rollover or a rollover
that you make yourself.
If you receive only employer stock in a payment that can be rolled over, no
amount will be withheld from the payment. If you receive cash or property other
than employer stock, as well as employer stock, in a payment that can be rolled
over, the 20% withholding amount will be based upon the entire amount paid to
you (including the employer stock but excluding the net unrealized
appreciation). However, the amount withheld will be limited to cash or property
(excluding employer stock) paid to you.
If you receive employer stock in a payment that qualifies as a lump sum
distribution, the special tax treatment for lump sum distributions described
above (such as 10-year averaging) also may apply. See IRS FORM 4972 for
additional information on these rules.
REPAYMENT OF PLAN LOANS. If you end your employment and have an outstanding loan
from your Plan, your employer may reduce (or "offset") your balance in the Plan
by the amount of your loan you have not repaid. The amount of your loan offset
is treated as a distribution to you at the time of the offset and will be taxed
to you unless you roll over an amount equal to the amount of your loan offset to
another qualified employer plan or a traditional IRA within 60 days of the date
of the offset. If the amount of your loan offset is the only amount you receive
or are treated as having received, no amount will be withheld from the offset.
If you receive other payments of cash or property from the Plan, the 20%
withholding amount will be based on the entire amount paid to you, including the
amount of the loan repayment. The amount withheld will be limited to the amount
of other cash or property paid to you (other than employer securities).
IV. SURVIVING SPOUSES, ALTERNATE PAYEES AND OTHER BENEFICIARIES
In general, the rules summarized above that apply to payments to employees also
apply to payments to surviving spouses of employees and to spouses or former
spouses who are "alternate payees." You are an alternate payee if your interest
in the Plan results from a "qualified domestic relations order," which is an
order issued by a court, usually in connection with a divorce or legal
separation. Some of the rules summarized above also apply to a deceased
employee's beneficiary who is not a spouse. However, there are some exceptions
for payments to surviving spouses, alternate payees, and other beneficiaries
that should be mentioned.
If you are a surviving spouse, you may choose to have a payment that can be
rolled over, as described in Part I, paid in a DIRECT ROLLOVER to a traditional
IRA or paid to you. If you have the payment paid to you, you can keep it or roll
it over yourself to a traditional IRA but you cannot roll it over to a qualified
employer plan. If you are an alternate payee, you have the same choices as the
employee. Thus, you can have the payment paid as a DIRECT ROLLOVER or paid to
you. If you have it paid to you, you can keep it or roll it over yourself to a
traditional IRA or to another qualified employer plan that accept rollovers.
- --------------------------------------------------------------------------------
24
If you are a beneficiary other than the surviving spouse, you cannot choose a
direct rollover, and you cannot roll over the payment yourself.
If you are a surviving spouse, an alternate payee, or another beneficiary, your
payment is generally not subject to the additional 10% tax described in Section
III, even if you are younger than age 59 1/2.
If you are a surviving spouse, an alternate payee, or another beneficiary, you
may be able to use the special tax treatment for lump sum distributions and the
special rule for payments that include employer stock, as described in Section
III. If you receive a payment because of the employee's death, you may be able
to treat the payment as a lump sum distribution if the employee met the
appropriate age requirements, whether or not the employee had five years of
participation in the Plan.
V. HOW TO OBTAIN ADDITIONAL INFORMATION
This notice summarizes only the federal (not state or local) tax rules that
might apply to your payment. The rules described above are complex and contain
many conditions and exceptions that are not included in this notice. Therefore,
you may want to consult with a professional tax adviser before you take a
payment of your benefits from the Plan. Also, you can find more specific
information on the tax treatment of payments from qualified retirement plans in
IRS PUBLICATION 575, PENSION AND ANNUITY INCOME, IRS PUBLICATION 590, INDIVIDUAL
RETIREMENT ARRANGEMENTS. These publications are available from your local IRS
office, on the IRS Web site at WWW.IRS.GOV or by calling 1-800-TAX-FORMS.
- --------------------------------------------------------------------------------
25