Exhibit 10.01
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The
Education Management Corporation
Retirement Plan
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Table of Contents
Quick-Reference Information
Sponsor 1
Other Participating Employers...................................... 1
Plan Administrator................................................. 1
Trustee............................................................ 1
Appeals Authority.................................................. 1
Length Of Service Required For Benefits (Vesting Schedule)......... 2
Plan Year Ends Every............................................... 2
Plan Number........................................................ 2
Welcome to the Plan!
Introduction....................................................... 3
Individual accounts................................................ 3
Contributions...................................................... 3
Payments........................................................... 3
Plan and summary plan description.................................. 4
Ordinary names..................................................... 4
Effective Date..................................................... 4
How You Get into the Plan
Introduction....................................................... 5
The eligibility requirements....................................... 5
Actually getting in................................................ 5
If things change................................................... 5
Trading Off Your Pay For Contributions to the Plan
Introduction....................................................... 6
How much you can trade off......................................... 6
How to do it....................................................... 6
Possible but unlikely limit........................................ 7
Matching Contributions
Introduction....................................................... 7
Special eligibility rule........................................... 7
Rate of match...................................................... 7
Form of matching contribution...................................... 8
Reports............................................................ 8
Investment......................................................... 8
Profit Sharing Contributions
Introduction....................................................... 8
Who shares in profit sharing contributions......................... 8
How much you get................................................... 9
Reports............................................................ 9
The Former ESOP and Employer Stock Accounts
Introduction....................................................... 9
Who has an employer stock account.................................. 9
Who would share in ESOP contributions.............................. 9
How much you get................................................... 10
Reports............................................................ 10
Incoming Rollovers
Introduction....................................................... 10
Direct rollover.................................................... 10
Indirect rollover.................................................. 11
Rules applicable to both types of rollover......................... 11
Approval of plan administrator..................................... 11
Separate accounting................................................ 11
What Happens to the Money While It's in the Plan
Introduction....................................................... 11
"Exclusive benefit"................................................ 11
Investment......................................................... 12
Recordkeeping...................................................... 12
Return of contributions............................................ 12
Making Your Own Investment Decisions
Introduction......................................................... 13
The choices.......................................................... 13
Getting information.................................................. 13
Implementing your choices............................................ 13
Your responsibility.................................................. 13
When You Retire or Terminate Employment
Introduction......................................................... 14
Normal retirement after age 65....................................... 14
Early retirement after age 55........................................ 14
Disability........................................................... 14
Other termination of employment...................................... 14
Forfeitures.......................................................... 15
Some special rules about termination of employment................... 15
When Payment Is Actually Made
Introduction......................................................... 16
General rule......................................................... 16
Your choices about timing............................................ 16
Latest possible date to take the money (or stock).................... 16
How Payment Is Made
Introduction......................................................... 17
All accounts other than employer stock account....................... 17
Employer stock account............................................... 17
Having the money transferred directly to another plan................ 18
"Put" option......................................................... 19
How to Claim Your Money or Stock
Introduction......................................................... 20
Pre-approved payments................................................ 20
Making a formal claim................................................ 20
Appeal............................................................... 20
Discretionary authority.............................................. 21
Payment Before Termination of Employment
Introduction......................................................... 21
Withdrawal of after-tax contributions................................ 21
Age 59 1/2........................................................... 21
Age 70 1/2........................................................... 21
Hardship............................................................. 21
Borrowing Money From Your Accounts
Introduction......................................................... 23
Eligibility.......................................................... 23
Number............................................................... 23
Amount............................................................... 23
Promissory note...................................................... 23
Term................................................................. 23
Interest............................................................. 23
Source and application of funds...................................... 23
Repayment............................................................ 24
Security............................................................. 24
Pre-payment.......................................................... 24
Default.............................................................. 24
How to apply......................................................... 24
In Case of Death
Introduction......................................................... 25
If you're married.................................................... 25
If you're not married................................................ 25
Naming your beneficiary and getting spousal consent.................. 25
Claiming your accounts............................................... 26
Child Support, Alimony and Property Division in Divorce
Introduction......................................................... 26
What a domestic relations order is................................... 26
What happens when a domestic relations order comes in................ 27
How the Length of Your Service Is Calculated
Introduction......................................................... 28
12-Month periods..................................................... 28
Years of service..................................................... 28
Full-time employees.................................................. 28
Part-time faculty.................................................... 28
Other part-time employees............................................ 29
Back pay............................................................. 29
Breaks in service.................................................... 29
How breaks in service cancel years of service........................ 29
Service with related employers....................................... 30
When You Return from Military Service
Introduction......................................................... 30
Break in service..................................................... 31
401(k) contributions................................................. 31
Matching contributions............................................... 31
Profit sharing contributions and ESOP contributions.................. 31
Your "pay"........................................................... 31
Percentage of entitlement to employer accounts....................... 31
Limits and testing................................................... 32
What the Plan Administrator Does
Introduction......................................................... 32
Reporting and disclosure............................................. 32
Bonding.............................................................. 32
Numerical testing.................................................... 33
Prohibited transactions.............................................. 33
Expenses............................................................. 33
Limitation........................................................... 33
What the Employer Does
Introduction......................................................... 33
Establishment........................................................ 33
Contributions........................................................ 33
Employment records................................................... 34
Insurance and indemnification........................................ 34
Changing the plan.................................................... 34
Ending the plan...................................................... 34
Maximum Amount of 401(k) Contributions
Introduction......................................................... 35
$10,500 limit........................................................ 35
If the $10,500 limit is exceeded..................................... 35
Utilization test..................................................... 35
Who the restricted employees are..................................... 36
Performing the utilization test...................................... 36
If the utilization test reveals a problem............................ 38
Returning excess contributions....................................... 38
Combining plans...................................................... 38
Maximum Amount of Matching Contributions
Introduction......................................................... 39
Matching contributions by themselves................................. 39
Matching contributions in combination................................ 39
If this test of matching contributions reveals a problem............. 39
Maximum Amount of Total Contributions
Introduction......................................................... 40
25% of pay limit..................................................... 40
If there's more than one defined contribution plan................... 41
If there's also a defined benefit plan............................... 41
Related employers.................................................... 41
Improvements When The Plan Is Top-Heavy
Introduction......................................................... 42
Who is in the concentration group.................................... 42
Performing the concentration test.................................... 43
Changes if the plan is top-heavy..................................... 44
Special ESOP Provisions
Introduction......................................................... 45
The nature of an ESOP................................................ 45
Investment........................................................... 45
"Employer securities"................................................ 46
Voting............................................................... 47
Diversification...................................................... 47
"Nonterminable" protections and rights............................... 49
Non-allocation under Code section 409(n)............................. 49
Miscellaneous
What "pay" or "compensation" means................................... 50
Leased employees..................................................... 50
Family and medical leave............................................. 50
Changes in vesting schedule.......................................... 51
Non-Alienation....................................................... 51
Payments to minors................................................... 51
Unclaimed benefits................................................... 51
Plan assets sole source of benefits.................................. 51
No right to employment............................................... 51
Profit sharing and stock bonus plan.................................. 52
Merger of plan....................................................... 52
Protection of benefits, rights, and features from previous edition
of plan............................................................ 52
Governing law........................................................ 52
No PBGC Coverage..................................................... 52
"Highly compensated employees."...................................... 52
Statement of ERISA rights............................................ 52
Special Arrangements for New Participating Employers
Introduction......................................................... 54
Illinois Institute of Art............................................ 54
New York Restaurant School........................................... 54
Art Institutes International Portland, Inc........................... 54
Massachusetts Communications College................................. 54
Art Institute of Charlotte........................................... 55
Art Institute of Las Vegas........................................... 55
Art Institute of California.......................................... 55
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Quick-Reference
Information
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Sponsor
Education Management Corporation
300 Sixth Avenue, Suite 800
Pittsburgh, PA 15222
Employer identification number assigned by the IRS: 25-1119571
Other Participating Employers
The other participating employers are listed on Appendix A, which
appears at the end of the plan
Plan Administrator
Retirement Committee
c/o Education Management Corporation
300 Sixth Avenue, Suite 800
Pittsburgh, PA 15222
Telephone: (412) 562-0900
Trustee
Fidelity Management Trust Company
82 Devonshire Street
Boston, MA 02109
(Prior to the merger of the ESOP into the Retirement Plan,
the trustee of the assets of the ESOP was:
Marine Midland Bank
One Marine Midland Center, 17th Floor
P. O. Box 4567
Buffalo, NY 14240)
Appeals Authority
Retirement Committee
c/o Education Management Corporation
300 Sixth Avenue, Suite 800
Pittsburgh, PA 15222
Length Of Service Required For Benefits (Vesting Schedule)
Less than 5 years of service 0%
5 years of service 100%
Because the vesting schedule was different before April 1, 2000, two
special rules apply:
. First, the change in vesting schedule does not have the effect of
reducing anyone's vesting percentage. For example, if you had 3 years
of service before April 1, 2000 and therefore were 20% vested, you
remain 20% vested even under the new schedule.
. Second, if you had at least 3 years of service before April 1, 2000,
you will always get the better of the old schedule or the new schedule.
This means, for example, that after a total of 4 years of service, you
will advance to being 40% vested (according to the old schedule) and
after 5 years of service, you will advance to being 100% vested
(according to the new schedule).
Plan Year Ends Every December 31
Plan Number 001
Page 2 The Education Management Corporation
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Welcome to the Plan!
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Introduction This is the Retirement Plan sponsored by Education Management
Corporation, which we will call "the sponsor." It is maintained by the sponsor
and the other participating employers identified above in the section called
"Quick-Reference Information" under the heading "Other Participating Employers."
Please note: The sponsor used to maintain two separate plans -- the
Retirement Plan and the Employee Stock Ownership Plan. To simplify
administration and make it easier for you to understand your retirement
benefits, they have now been consolidated into a single plan, and this is
it.
Individual accounts Simply put, the plan consists of a series of individual
accounts set up for the employees who are in the plan. Actually, an employee may
have a number of different accounts:
. a 401(k) account (if you choose to trade off pay for contributions to the
plan),
. a match account (again, if you choose to trade off pay for contributions
to the plan),
. a profit sharing account,
. an employer stock account (if you are eligible to participate in the ESOP
portion of the plan), and
. a rollover account (if you roll money into this plan from another plan).
Employees who were in this plan (that is, the Retirement Plan) before May 1,
1992 and who made after-tax employee contributions also have an after-tax
contribution account for those after-tax employee contributions.
Contributions Money goes into your 401(k) account if you choose to trade
off pay for a contribution to the plan. If you do, the employer matches your
401(k) contributions (assuming you have completed one year of service, as
described later in the plan); the matching contributions go into your match
account.
The employer is permitted (but not required) to make additional
contributions -- beyond your 401(k) contributions and any matching
contributions. Your share of any additional contributions goes into your profit
sharing account.
Payments While the money is in the plan, it is invested in accordance with
your investment instructions (except for any employer stock account, of course,
which is invested in employer stock). Then, after you leave the company, you are
entitled to all of the money in your 401(k) account (and any rollover account or
after-tax employee contribution account, if you have one). Depending on the
length of your service, you may be entitled to part or all of the money in your
match account and your profit sharing account and the stock in your employer
stock account.
Retirement Plan Page 3
Please note: Federal law may require withholding or other taxes on the
money that you are paid from this plan. The plan administrator will
naturally comply with any such law. But for the sake of simplicity, we will
say here in the plan that you will receive "all the money." Just keep in
mind that "all the money" is before any required withholding or other
taxes.
Plan and summary plan description The plan document -- that's what this
is --sets out the rules for how and when you get into the plan, how and when
money goes into your accounts, what happens to the money while it's in the plan,
and how and when you can get the money out.
This plan is written in simple, easy-to-understand language. Therefore, it
serves as both the plan document and the "summary plan description" required by
federal law.
Ordinary names Throughout the plan, we will refer to things by their
ordinary names. We will call this plan simply "the plan." We will call the
sponsor which is identified in the section called "Quick-Reference Information"
simply "the sponsor." When we say "employer," we mean the sponsor or one of the
other participating employers -- whichever one employs you. When we say "you,"
we mean you the employee (or former employee) who participates in the plan. When
we say "Code," we mean the federal Internal Revenue Code of 1986, as in effect
from time to time.
There is one exception to this rule. From time to time, we will refer to
your "pay" or "compensation." Unfortunately, those terms have highly technical
meanings, which can change for different purposes under the plan. The various
technical definitions are set forth at the end of the plan under the heading
"Miscellaneous."
Effective Date This edition of the plan generally takes effect on August 1,
2001 and applies only to participants who have at least one hour of service on
or after that date. We say "generally" because there are a few provisions that
take effect on other dates; when those provisions come along, we will say
exactly when they take effect.
This restatement of the Education Management Corporation Retirement Plan is
conditional upon approval by the Internal Revenue Service. Sometimes, the IRS
asks for minor, technical changes in order to give their approval, but if any
such changes are made, we will let you know.
Page 4 The Education Management Corporation
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How You Get into the Plan
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Introduction Before you can get any benefit from the plan, you have to get
into the plan. This part of the plan document explains how you get in.
The eligibility requirements There are three requirements in order to be
eligible to get into the plan:
. First, you have to be an employee of the employer. Remember, when we say
"the employer," we mean the sponsor or one of the other participating
employers -- whichever one employs you. Independent contractors are not
employees of the employer, nor are workers whose services are leased from a
leasing organization (such as "temps"), and they are therefore not eligible
for the plan.
. Second, you must be classified by the employer as a salaried, clerical or
hourly employee and must not be (a) matriculated in an employer with an
enrollment agreement (i.e., a student) or (b) a member of a collective
bargaining unit unless the collective bargaining agreement provides for
participation in this plan.
. Third, you must have worked for the employer for 30 days.
Any special arrangements that might be made for employees of new
participating employers are described at the end of the plan in the section
called "Special Arrangements for New Participating Employers."
Actually getting in As soon as you meet all of the eligibility requirements
at the same time, you are enrolled in the plan on the first of the next month.
Enrollment is automatic; you don't have to fill out any forms just to get into
the plan. But you do have to take action if you want to:
. trade off pay for contributions to the plan, as explained in the
following section called "Trading Off Your Pay for Contributions to the
Plan," or
. direct the investment of your accounts into any investment option other
than the default investment option, as explained later in the section
called "Making Your Own Investment Decisions," or
. name a beneficiary for any benefits that may be payable after your death,
as explained in the section called "In Case of Death."
If things change If at any time you cease to be an employee of the employer
or you cease to be employed in the classification of employees who are eligible
to get into the plan, then your participation in the plan ceases immediately and
automatically. (If you later return to employment with the employer in the
classification of eligible employees, you will participate in the plan again
immediately. It may be necessary to take action to re-start your 401(k)
contributions, as described in the next section.)
Retirement Plan Page 5
Of course, after you leave the plan, you may still be entitled to receive
the money in your account. (We will discuss this later in the section called
"When You Retire or Terminate Employment.") And you remain entitled to direct
the investment of the money in your account until it is paid or forfeited.
============================
Trading Off Your Pay For
Contributions to the Plan
============================
Introduction You may have heard about plans called "401(k)" plans. That's
what this is. It offers you the opportunity to trade off your pay for
contributions to the plan. It is particularly attractive because, under the
current federal income tax law, you don't pay current federal income tax on the
amount of pay that you trade off for a contribution to the plan.
Please note: While free from federal income tax, these amounts are still
subject to Social Security tax (FICA) and state and local income tax in
Pennsylvania and a few other states.
How much you can trade off You can trade off any percentage of your pay,
expressed in whole numbers, up to 15% of your pay.
How to do it If you would like to trade off some of your pay in return for
a contribution to the plan, get in touch with Fidelity, using the toll-free
number shown in the materials that you receive from Fidelity. You will authorize
the employer to reduce your pay by a certain percentage and, instead of paying
it to you in cash, to put that amount into your 401(k) account in the plan.
There are several simple rules for making contributions by this method
(these rules were created by the IRS):
. You must enter into an enforceable agreement with the employer to do
this. (This is handled by Fidelity, which forwards your authorization to
the employer to be implemented in the payroll system and sends you a
confirmation in the mail.)
. The agreement only applies to pay that you earn after the agreement is
entered into. (In other words, you can't make this type of contribution
retroactively).
. You can terminate the agreement at any time by notifying Fidelity, but
the agreement still applies to all pay that was earned while the agreement
was in effect. (In other words, you can't terminate the agreement
retroactively.)
. You can change your agreement at any time, but the change will take
effect at the beginning of the following month.
Whenever a contribution is made by this method, you will see it on your pay
stub. From this point
Page 6 The Education Management Corporation
forward in the plan, we will call these your "401(k) contributions."
Possible but unlikely limit It is possible, though highly unlikely, that
contributions under this section of the plan would create a situation where
total contributions were greater than the amount permitted as a deduction under
the Code. If that were to happen, contributions under this section would be
limited (or, if already made, would be returned to the employer) beginning with
those that represent the greatest percentage of pay, so that the correction
would have the effect of imposing a maximum permissible percentage somewhat
lower than 15%. If any contributions made on your behalf under this section of
the plan are returned to the employer, of course they will promptly be paid to
you and will be treated as taxable income for the year in which they were
contributed to the plan.
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Matching Contributions
============================
Introduction In order to encourage employees to make 401(k) contributions
(in other words, to encourage savings for retirement), the employer agrees to
make an additional contribution to the plan on your behalf if you make 401(k)
contributions. This is called a matching contribution and it is an additional
contribution on top of your pay.
Special eligibility rule Although you are eligible to make 401(k)
contributions on the first of the month after 30 days of employment with the
employer, you are not eligible for matching contributions until the next January
1 or July 1 after you have completed one year of service. This doesn't
necessarily mean 12 months. You may be credited with a "year of service" after
just 900 hours of service. This is explained later in the plan under the heading
"How the Length of Your Service Is Calculated."
Rate of match The employer agrees to make an additional contribution to the
plan of $1 for every dollar of 401(k) contributions that you choose to make up
to 3% of your pay plus $.50 for every dollar of 401(k) contributions from 4% to
6% of your pay. Here is a table showing the match that would apply to various
levels of 401(k) contributions:
401(k) Contributions Match
1% 1%
2% 2%
3% 3%
4% 3.5%
5% 4%
6% - 15% 4.5%
Matching contributions are made each pay period. With one exception, the
matching contribution is calculated separately for each pay period, based on
your 401(k) contributions for that pay period alone, not on a cumulative basis
during the plan year. For example, if your rate of 401(k) contributions is less
than 6% for a particular pay period (so you're not getting the maximum available
matching contribution), you can't make it up by boosting your rate to more than
6% in some future pay period. And if your 401(k) contributions reach the dollar
limit described later in the plan in the section called "Maximum Amount of
401(k) Contributions" (and therefore stop) before the end of the year, your
matching contributions will stop
Retirement Plan Page 7
at the same time.
As an exception, however, effective January 1, 1999, if you have maintained
a rate of 401(k) contributions of 6% or more throughout the plan year but your
matching contributions stop because you reach the dollar limit on 401(k)
contributions before the end of the year, the employer will make a "catch-up"
matching contribution, as soon as administratively possible at the end of the
plan year, in whatever additional amount is necessary to provide you with the
maximum available matching contribution for the plan year.
Form of matching contribution Matching contributions will ordinarily be
made in cash. But there are two possible exceptions. First, the employer is
permitted (but not required) to make matching contributions in employer stock.
Second, if forfeitures from employer stock accounts are used to make the
matching contribution, either in whole or in part, those forfeitures may be
applied either in the form of employer stock or by selling the stock and
applying them in cash.
Reports The employer's matching contribution is added to your match
account. When the employer contributes in this manner, you will see it on your
periodic statements from the trustee, Fidelity.
Investment To the extent that the matching contribution is made in employer
stock, your match account will be shown as invested in employer stock. Keep in
mind that this is still your match account, not an "employer stock account,"
which is something different that is explained later in the plan in the section
called "The Former ESOP and Employer Stock Accounts." You can direct that the
employer stock in your match account be sold and the proceeds invested in one or
more of the available investment options, as explained later in the section
called "Making Your Own Investment Decisions."
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Profit Sharing
Contributions
============================
Introduction In addition to 401(k) contributions that you choose to make,
and the matching contributions that go with them, the employer can make profit
sharing contributions whenever it chooses to do so. The employer is under no
obligation to contribute to the plan in this manner. If the employer contributes
in this manner, its contribution is on top of your pay. That is, the employer
makes the contribution out of its own money; you don't have to trade off any pay
to get it. We will call these "profit sharing contributions."
Who shares in profit sharing contributions If the employer makes a profit
sharing contribution, the amount is allocated as of the last day of the plan
year (currently, December 31) among the individual accounts of all the
participants in the plan who meet all three of these requirements:
. you have become eligible to receive matching contributions by the last
day of that plan year and
. you completed a year of service during that plan year (see "How the
Length of Your Service Is Calculated," later in the plan, for what
constitutes a "year of service") and
Page 8 The Education Management Corporation
. you were employed by the employer on the last day of the plan year,
currently December 31 (or you retired during the year, became disabled
during the year or died during the year).
Keep in mind that only employees who have become eligible for matching
contributions are entitled to share in profit sharing contributions. If you do
not become eligible for matching contributions until January 1, you do not share
in the profit sharing contributions for the preceding year.
How much you get Profit sharing contributions are divided in proportion to
each employee's pay from the employer during that year -- so everybody gets an
amount equal to the same percentage of pay added to his or her account.
Reports A profit sharing contribution by the employer is added to your
profit sharing account. When the employer contributes in this manner, you will
see it on your periodic statements from the trustee, Fidelity.
============================
The Former ESOP and
Employer Stock Accounts
============================
Introduction The ESOP loan has been paid off, so no more ESOP contributions
by the employer are contemplated (as explained near the end of the plan in the
section called "Special ESOP Provisions"). But participants may still have
employer stock accounts, reflecting contributions to the ESOP when it was a
separate plan, so it is useful to describe employer stock accounts.
Who has an employer stock account Not everyone in the plan has an employer
stock account. There are two categories of employees who have employer stock
accounts:
. Everyone who had an account in the Education Management Corporation
Employee Stock Ownership Plan before it was merged into this plan,
effective April 7, 1999, still has an employer stock account. It is the
same account that he or she had under the ESOP; now it is maintained under
this plan instead.
. Everyone who received an allocation of ESOP contributions or forfeitures
through the end of 1999 or receives an allocation of ESOP forfeitures after
1999 also has an employer stock account, in which those ESOP contributions
or forfeitures are held.
Who would share in ESOP contributions . Though no more employer
contributions are contemplated for the ESOP portion of the plan, this section
describes how an employer contribution would be allocated among participants if
it were to be made. ESOP contributions would be allocated as of the last day of
the plan year (currently, December 31) among the employer stock accounts of
employees in the plan who meet all of these requirements:
. You were employed on the last day of the plan year by an employer that
participates in
Retirement Plan Page 9
the ESOP feature of the plan (or you retired from such an employer during
the year, became disabled from such an employer during the year, or died
during the year while employed by such an employer).
Please note: Not all employers who participate in the 401(k) feature of the
plan participate in the ESOP feature. To find out if your employer
participates in the ESOP feature, look at the list of participating
employers on Appendix A at the end of this plan: employers that do not
participate in the ESOP are denoted with an asterisk.
. You have become eligible to receive matching contributions by the last
day of that year.
. You completed a year of service during that plan year (see "How the
Length of Your Service Is Calculated," later in the plan, for what
constitutes a "year of service").
Keep in mind that only employees who have become eligible for matching
contributions are entitled to share in ESOP contributions. If you do not become
eligible for matching contributions until January 1, you do not share in any
ESOP contributions for the preceding year.
How much you get ESOP contributions would be divided in proportion to each
eligible employee's pay from the employer during that year -- so everybody would
get an amount equal to the same percentage of pay added to his or her employer
stock account. (If you are still technically employed by the sponsor or another
employer that participates in the ESOP, so that you would be entitled to share
in ESOP contributions or forfeitures, but some of your pay comes from another
employer that does not participate in the ESOP feature, your pay from both
employers would be taken into account for this purpose.)
Reports . Your share of ESOP contributions would be added to your employer
stock account as of the last day of the plan year. You would see the amount on
your statements from the trustee, Fidelity.
============================
Incoming Rollovers
============================
Introduction There is one other way that money can come into the plan for
you. That is when money is transferred from another plan. It is called a
"rollover," and this section will explain how it works.
Direct rollover If you are entitled to get money from a pension, profit
sharing or stock bonus plan, and it constitutes an "eligible rollover
distribution" under the Code, that plan must offer you the opportunity to have
the money transferred directly to another plan (instead of paid to you in cash)
if you can find a plan that will take it.
This plan will take a direct transfer of that type, if all of the other
rules of this section are met. (This is what the law calls a "direct rollover.")
Page 10 The Education Management Corporation
choose to take the money in cash from that other plan. If you do, and you get
what the law calls an "eligible rollover distribution," you can still make a
rollover to this plan if:
. you deliver a check to the plan administrator not later than the
60th day after you received the money from the other plan, or
. put the money in a "conduit" individual retirement account within 60
days after you received the money from the other plan, never make any other
contributions to that conduit IRA, and then transfer all of that money to this
plan; and
. all of the other rules of this section are met.
The rules of the Code for indirect rollovers are very strict and can be
very tricky. This plan does not attempt to explain those rules. You should
consult the tax advisor of your choice.
Rules applicable to both types of rollover This plan will not accept
any rollover that does not comply with the requirements of the Code. Foremost
among them is the requirement that the rollover come from a pension, profit
sharing or stock bonus plan that is qualified under section 401(a) of the Code.
In addition, this plan is set up to be generally exempt from the joint
and survivor annuity rules of the Code. This plan will not accept any transfer
of assets from another plan if the effect would be to make this a "transferee
plan" subject to those rules.
Approval of plan administrator If you would like to make a rollover to
this plan, get in touch with the trustee (Fidelity), which can give you the
forms. The plan administrator has complete authority to deny any requested
rollover if the person requesting the rollover is unable or unwilling to satisfy
the plan administrator that the rollover complies with these rules and will not
jeopardize the intended status and operation of the plan.
Separate accounting If the plan accepts a rollover on your behalf, that
rollover will be put into a separate account for you -- separate from your
401(k) account, your match account, your profit sharing account and your
employer stock account (if any).
================================
What Happens to the Money
While It's in the Plan
================================
Introduction As required by law, the individual accounts of the
employees in the plan are held in trust by the trustee identified at the
beginning of the plan in the section called "Quick-Reference Information" under
the heading "Trustee." A trust is a pool of assets held by an individual or
company (such as a bank) who is called the "trustee." All contributions to the
plan are paid to the trustee.
"Exclusive benefit" The trustee holds the assets of the plan for the
exclusive benefit of the employees in the plan -- that is, exclusively for the
purposes of providing benefits to participants and beneficiaries of the plan and
defraying the reasonable expenses of administering the plan.
Retirement Plan Page 11
Investment Assets held by the trustee are invested by the trustee in
accordance with the terms of the plan. Except for employer stock accounts, the
plan gives you free choice among a number of different investment funds (as
described in the following section of the plan). Employer stock accounts are
invested in employer stock, as described in more detail near the end of the plan
in the section called "Special ESOP Provisions."
Recordkeeping Though the money is all pooled together for investment
purposes, you still have one or more individual accounts. The plan administrator
is responsible for keeping track of your individual accounts.
The investments are valued daily. But the government requires us to
say here that the plan administrator will figure out the total value of the
investments of the plan at the end of every year. If the value has gone up since
the last valuation, then all of the accounts will be increased in the same
proportion. If the value has gone down since the last valuation, then all of the
accounts will be decreased in the same proportion. The plan administrator will
give you periodic reports of the value of your account.
Return of contributions Except for a few unusual circumstances, once
the employer puts money into the plan, the money can never come back to the
employer. Here are the exceptions:
. If the employer made the contribution by mistake of fact, then it
can be returned within 1 year after the contribution was made.
. All contributions by the employer are made on the condition that
they are deductible by the employer for federal income tax purposes.
If any part of a contribution is disallowed, that part of the
contribution can be returned to the employer within 1 year after
disallowance of the deduction.
. If this plan fails to qualify initially for favorable tax
treatment under the Code, then all contributions can be returned to
the employer, as long as an application for determination on the plan
was filed with the Internal Revenue Service by the due date of the
employer's return for the taxable year in which the plan was adopted.
Page 12 The Education Management Corporation
================================
Making Your Own Investment
Decisions
================================
Introduction This plan allows you to have considerable control over
how your money is invested. This section of the plan will explain how you do it.
Keep in mind that this section applies to all of your accounts except your
employer stock account, which is invested in employer stock (but can be
diversified after age 55 and 10 years of participation in the plan), as
described in more detail near the end of the plan in the section called "Special
ESOP Provisions."
The choices The plan offers a number of choices. They are listed on
Appendix B, which is a separate sheet that forms a part of this plan and which
also includes a brief description of each alternative (taken from information
published by Fidelity).
The choices may change from time to time. When they do, you will be
given a new Appendix B showing all of the choices that are in effect after the
change is made.
Please note: If matching contributions are made in employer stock,
your match account will be invested in employer stock to that extent,
rather than in any of the investments shown on Appendix B. But you may
direct the trustee at any time to sell the employer stock and re-
invest the proceeds in one or more of the investments shown on
Appendix B, as explained below under the heading "Implementing your
choices." Just remember that employer stock is not one of the
investment options on Appendix B, so you can never move your money in
the other direction -- that is, you can never go from any of the
investments shown on Appendix B into employer stock.
Getting information The plan administrator cannot tell you which
investment choice is best for you; that is your decision alone, and the plan
administrator is not licensed as an investment advisor.
But the plan administrator will provide you with more specific
information about the choices, including exactly what each fund is invested in,
who runs each fund, and how each fund has performed in the past. We hope this
information will be helpful to you in making your choices.
Implementing your choices When you first join the plan, you will make
your investment choices by contacting the trustee, Fidelity, at the toll-free
number shown in the materials that you receive from Fidelity. After joining the
plan, you can change your investment choices whenever you like during normal
business hours. Just call Fidelity at the toll-free number shown in the
materials that you receive from Fidelity. A representative will guide you
through making the change.
If for any reason there is no current investment direction on file for
you with the trustee, the plan hereby requires that your accounts
(other than your employer stock account, if any) be invested in the
Managed Income Portfolio, and neither the plan administrator nor the
trustee nor any other fiduciary of the plan shall have any authority
or discretion to direct otherwise. The same applies to any portion of
your investment direction that becomes out of date, such as if you
have chosen a particular fund and that fund is no longer offered
(unless a substitute fund is automatically provided).
Your responsibility In return for complete freedom to choose how your
accounts are invested
Retirement Plan Page 13
among the available investment funds, you take complete responsibility for your
choices. No one else is responsible for helping you or keeping you from making
bad decisions. In fact, no one monitors your decisions at all.
This plan is designed to take advantage of section 404(c) of the
Employee Retirement Income Security Act of 1974, as amended, which means that
the plan administrator and the trustee and all other fiduciaries of the plan are
relieved of any and all responsibility for the investment decisions that you
make.
================================
When You Retire or Terminate
Employment
================================
Introduction This is a retirement plan. The purpose is for both you
and the employer to save for your retirement. This section will explain when you
can get your money (or stock, in the case of an employer stock account).
Normal retirement after age 65 If your employment with the employer
terminates any time on or after your 65th birthday, you are entitled to all the
money in your 401(k) account, match account, and profit sharing account, as well
as all of the money in your after-tax contribution account and rollover account,
if you have them. In addition, you are entitled to all of the stock and cash in
your employer stock account (and cash equal to any fractional share of stock).
Early retirement after age 55 If your employment with the employer
terminates any time before age 65 but after age 55 and you have completed at
least 5 years of service, you are entitled to all the money in your 401(k)
account, match account, and profit sharing account, as well as all of the money
in your after-tax contribution account and rollover account, if you have them.
In addition, you are entitled to all of the stock and cash in your employer
stock account (and cash equal to any fractional share of stock). (To figure out
your length of service, see the section entitled "How Your Length Of Service Is
Calculated.")
Disability If you become totally and permanently disabled, then you
are entitled to all the money in your 401(k) account, match account, and profit
sharing account, as well as all of the money in your after-tax contribution
account and rollover account, if you have them. In addition, you are entitled to
all of the stock and cash in your employer stock account (and cash equal to any
fractional share of stock).
For this purpose, "totally and permanently disabled" means that, in
the opinion of a physician selected by the plan administrator, you are unable to
engage in any substantially gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or to be of long, continued and indefinite duration.
Other termination of employment If your employment with the employer
terminates before normal or early retirement or disability (as just described),
you are entitled to receive all the money in your 401(k) account, as well as all
of the money in your after-tax contribution account and rollover account, if you
have them.
In addition, you are entitled to receive part or all of the money in
your match account, your profit sharing account, and your employer stock account
(if you have them) if you completed enough years of
Page 14 The Education Management Corporation
service to become vested. At the beginning of the plan, in the section called
"Quick-Reference Information," under the heading "Length Of Service Required For
Benefits," there is a table showing what percentage of these accounts you get.
(To figure out your length of service, see the section entitled "How Your Length
Of Service Is Calculated.")
Forfeitures Any portion of your accounts that you are not entitled to when
your employment terminates is forfeited. If you are not vested at all,
forfeiture occurs when your employment terminates, because you are considered to
have taken your entitlement (which is zero) at that time. If you are partially
vested, forfeiture occurs (a) whenever you take the portion that you are
entitled to or (b) otherwise when you have five consecutive break in service
years. (With respect to your employer stock account, forfeitures are taken first
from any cash in your account; they are taken from stock allocated to your
account only as a last resort.)
If you are later re-employed, the amount of the forfeiture (with no
adjustment for subsequent gains, losses, or expenses) will be restored to your
accounts if, and only if, you re-pay the full amount that you previously
received from the plan. Re-payment must be made within 5 years after you are
first re-employed and before you suffer 5 break in service years in a row (as
described below under the heading "How The Length Of Your Service Is
Calculated").
The money or stock to restore each of your accounts (match, profit sharing
or employer stock) will come from forfeitures from accounts of the same type
occurring during the same year when restoration is required, to the extent that
such forfeitures are available. If not, forfeitures from different types of
accounts may be used. If forfeitures in total are inadequate, the employer will
contribute the balance in cash. Effective January 1, 2000, any balance of
forfeitures during a plan year in excess of what is necessary to restore
accounts during that year will be applied as follows:
. Forfeitures from profit sharing accounts will be applied toward the
employer's obligation to contribute under the plan and allocated in the
same manner as required employer contributions, thus reducing the amount of
cash contribution necessary from the employer to make the required
contributions. (This change was previously made effective December 28,
1999.)
. Forfeitures from matching accounts and employer stock accounts will be
applied in one of the following two ways: (i) forfeitures from both types
of accounts will be applied toward the employer's obligation to contribute
under the plan and allocated in the same manner as required employer
contributions, thus reducing the amount of cash contribution necessary from
the employer to make the required contributions or (ii) forfeitures from
match accounts will be applied toward the employer's obligation to make
matching contributions and allocated as if they were matching
contributions, thus reducing the amount of cash contribution necessary from
the employer to make the required matches, and forfeitures from employer
stock accounts will be allocated as if they were ESOP contributions. For
the 2000 plan year, method (i) will be used. For plan year 2001 and future
years, the Retirement Committee will decide before the plan year begins
whether method (i) or method (ii) will be used for that plan year. (The
Retirement Committee will be exercising its authority to change the plan,
as described in the section called "What the Employer Does," under the
heading "Changing the plan.") For plan year 2001 and future years, if for
any reason the Retirement Committee has not acted before the plan year
begins, method (ii) will be used for that plan year.
Some special rules about termination of employment When we say your
"employment with the employer terminates," we mean that you are no longer
employed by any employer that participates in the plan nor by any other member
of the controlled group of trades or businesses (as described later in the plan
under the heading "How The Length Of Your Service Is Determined"). In addition,
we mean that you have a "separation from service" that permits you to receive
your 401(k) contributions under the rules of section 401(k) of the Code and the
regulations under that section.
Retirement Plan Page 15
================================
When Payment Is
Actually Made
================================
Introduction The preceding section described what you are entitled to when
you retire or your employment terminates for some other reason. This section
will go on to describe when payment is actually made, which depends on a number
of factors.
General rule Payment is made as soon as administratively possible after
your termination of employment. If payment is made because you have become
totally and permanently disabled (as described in the preceding section),
payment is made as soon as it is determined that you have suffered total and
permanent disability. This applies to all your accounts: your 401(k) account,
after-tax account, and rollover account (if you have them), as well as your
match account, profit sharing account, and employer stock account (to the extent
you are vested, of course).
As an exception to the general rule that this edition of the plan applies
only to participants who complete at least one hour of service on or after
August 1, 2001, this section of the plan will be applied to all participants who
have not yet received distribution of their employer stock accounts as of August
1, 2001, no matter when their employment terminated.
Your choices about timing If your entitlement is $5,000 or less, you do not
have any choices about timing. You must take the money (or stock) when you are
first entitled to payment. (For distributions before March 22, 1999, there was
an additional rule that your entitlement was never more than $5,000 on the
occasion of any previous distribution.) If your entitlement is $5,000 or less,
the plan administrator will notify you and, if you don't initiate a withdrawal
by calling the trustee, will direct the trustee to pay you your entitlement.
But if your entitlement is more than $5,000, payment will not be made
unless and until you apply for it. This gives you some ability to postpone
payment. When you want to take the money (or stock), start the process by
calling the trustee (Fidelity) at (800) 835-5092. The process is described later
in the plan in the section called "How to Claim Your Money or Stock."
The law says that, after your employment terminates, you must receive the
money (or stock) no later than 60 days after the close of the plan year in which
your employment terminated (or you attain age 65, if later) unless you choose
not to take it. If you don't apply for the money by that date, we will interpret
your silence as your choice not to take the money yet.
Latest possible date to take the money (or stock) While you have some
ability to postpone payment of your benefit, you can't postpone it forever. Once
your employment has terminated and you have reached age 70 1/2, you must at
least begin to take the money by April 1 of the following year (that is,
Page 16 The Education Management Corporation
April 1 of the year following the year in which your employment with the
employer terminates or you attain age 70 1/2, whichever comes later). Then you
must take more by the end of that plan year and every following plan year on a
schedule that does not extend beyond your life expectancy (or the joint life
expectancies of you and your designated beneficiary). Life expectancy is
determined by tables issued by the Internal Revenue Service and will be re-
determined every year. (Of course, you may take all the money to which you are
entitled at any time after age 70 1/2; you need not string it out.)
Please note: There is a stricter rule for 5% owners. Any employee who is a
5% owner upon attainment of age 70 1/2 must begin to take the money by
April 1 of the following year even if he or she remains employed.
The plan administrator will pay you whatever is necessary to comply with
this provision of the law (section 401(a)(9) of the Code, including the "minimum
incidental death benefit" rules) even if you don't apply for payment. Payments
that are required to be made under this section can not be transferred to
another plan in a direct rollover.
================================
How Payment Is Made
================================
Introduction When your employment has terminated and the time comes for
payment, the next question is, In what form is the payment made? This section
will answer that question.
All accounts other than employer stock account The form of payment for all
accounts other than your employer stock account (if you have one) is payment in
a single sum by check made payable to you. (If any of your match account remains
invested in employer stock, the trustee will sell the stock and distribute the
cash.)
Please note: Before August 1, 2001, there was an alternative available for
those who were members of the Retirement Plan before May 1, 1992, namely,
the purchase of an annuity contract. Due to a change in the regulations,
that alternative is eliminated from this edition of the plan, effective
with respect to annuity starting dates later than 90 days after you receive
notification of this change by way of a "summary of material modifications"
(or annuity starting dates on or after January 1, 2003, if that comes
first). If that alternative still applies to you and you would like to
receive your benefit in the form of an annuity, see the previous edition of
the plan in the section called "Alternative Form of Payment for
Grandfathered Members."
Employer stock account Now that the stock of Education Management
Corporation is publicly traded, the form of payment of your employer stock
account is the same form in which your account is invested. That is, any stock
in your account is paid in stock, either by having the stock issued in your name
and sending the actual stock certificate to you or your account at some
institution or, if the trustee can do it,
Retirement Plan Page 17
by making a wire transfer to a brokerage account that you designate. Any cash is
paid in the form of cash, except that you have the right to demand payment of
the cash portion of your account in stock. Any remaining partial share of stock
is paid in cash, of course.
You may take payment of your employer stock account in a single payment.
Or, if you prefer, you may take your account in annual installments over two,
three, four or five years. If you take it in installments, each annual payment
is equal to the amount in your account, divided by the number of remaining
payments. For example, if you chose to take your employer stock account in
annual installments over five years, when the first payment was to be made,
there would be 5 remaining payments, so you would get 1/5 of the amount in your
account at that time. The next year, there would be 4 remaining payments, so you
would get 1/4 of the amount in your account at that time. Eventually, in the
fifth year, there would be only 1 remaining payment, so you would get 1/1 (that
is, all) of the amount in your account at that time.
After receiving stock from the trustee, it's yours to keep or sell on the
open market, as you see fit. (The stock is publicly traded.)
There is one possible exception to the rule that payment of your employer
stock account is made in the same form in which your account is invested. If you
are required to take part of your account out of the plan because of the rules
explained in the previous section under the heading "Latest possible date to
take the money (or stock)," the requirement will be met first by taking money
out of accounts other than your employer stock account. But if the requirement
cannot be satisfied without taking stock out of your employer stock account, you
will be offered the opportunity to take the amount of stock necessary to satisfy
the requirement. If you do not do so, however, the trustee will be forced to
sell enough stock to satisfy the requirement and then will pay you in cash. (As
an exception to the general rule that this edition of the plan applies only to
participants who complete at least one hour of service on or after August 1,
2001, this paragraph will be applied to all participants who are required to
take distributions on or after August 1, 2001, no matter when their employment
terminated.)
Having the money transferred directly to another plan Rather than taking
the money (or stock) and paying taxes on it when the time comes for payment, you
may be able to make a "direct rollover" to another plan. Direct rollovers can be
made to plans of these types:
. a pension, profit sharing or stock bonus plan that is qualified under
section 401(a) of the Code, or
. an individual retirement account or individual retirement annuity
(IRA), or
. an annuity plan described in section 403(a) of the Code.
This might happen, for example, if you get another job and the plan of your new
employer will accept the transfer. Naturally, this plan will not make the
transfer if the other plan will not accept it.
All payments from this plan are eligible for direct rollover except the
following:
. any payment to the extent that it is required because you have reached
age 70 1/2,
Page 18 The Education Management Corporation
. effective for payments after 1999, any hardship distribution of 401(k)
contributions, and
. any payment under an annuity contract that has been purchased for and
given to you as described near the end of the plan in the section called
"Alternative Form of Payment for Grandfathered Members."
If the money that you are about to receive is eligible for direct rollover
to another plan, the plan administrator will notify you and give you at least 30
days to decide whether you would like to have a direct rollover to another plan.
On the other hand, you don't have to wait 30 days; you may take the money or do
the direct rollover as soon as 7 days after receiving notification from the plan
administrator, as long as you sign the appropriate form waiving your right to
consider your decision for 30 days.
"Put" option In the unusual event that the stock of Education Management
Corporation that you receive is subject to a restriction under any federal or
state securities law, any regulation thereunder, or an agreement affecting the
security, that would make the security not as freely tradable as a security not
subject to restriction, you are entitled to make Education Management
Corporation buy the stock back from you for cash. This is officially known as a
"put option" and it also applies to any beneficiary of yours. Here are the
rules:
. You can exercise the put option at any time within 60 days after you
get the stock or during a corresponding window period of 60 days during the
following plan year. (The time will be extended by any period during which
Education Management Corporation is prohibited by law from buying the stock
back from you.)
. You exercise your put option by notifying Education Management
Corporation in writing.
. Education Management Corporation will buy the stock back from you at
fair market value, as determined by the ESOP Committee. Or, with the
consent of Education Management Corporation, the trustee may buy the stock
back from you at fair market value.
. If the stock was distributed to you within a single taxable year and
represented your complete entitlement under the plan, payment for your
stock will be made in substantially equal installments (at least annually)
over a period of not more than 5 years, as chosen by the purchaser, with
the first payment within 30 days after you exercise the put option. The
unpaid installments will bear a reasonable rate of interest and will be
adequately secured by the purchaser.
. On the other hand, if the stock is coming to you in installments,
payment for your stock will be made within 30 days after you exercise the
put option with respect to each installment.
Retirement Plan Page 19
================================
How to Claim Your Money
or Stock
================================
Introduction This section of the plan describes how to get your money when
the time comes.
Pre-approved payments The plan administrator keeps the trustee (Fidelity)
up to date about the employment status, vesting status, etc., of participants in
the plan. That means, when the time comes for you to get your money, you can
(and should) simply call Fidelity.
Based on the information already in your file from the plan administrator,
Fidelity will talk with you about the options that are available. When you
decide what you would like to do, Fidelity will provide you with the application
forms. Complete and return them to Fidelity. If the information on file at
Fidelity shows that you are entitled to payment, Fidelity will simply make the
payment:
. For all accounts other than your employer stock account, you can expect
to receive payment from Fidelity within 7 to 10 days.
. For your employer stock account, payments will be processed on the 15th
of each month and again on the last day of each month. It takes Fidelity
about 4 to 6 weeks to issue a paper stock certificate. If you would prefer
a wire transfer to a brokerage account of your choosing, ask Fidelity
whether wire transfers are available. If so, Fidelity will provide you with
the necessary information. Wire transfers (if available) can be made in 7
to 10 days.
Making a formal claim If for any reason Fidelity does not give you a
payment that you believe you are entitled to, or if you have any other type of
claim under the plan, you need to make a formal claim to the plan administrator.
Write to the plan administrator at the address shown at the beginning of the
plan in the section called "Quick-Reference Information" explaining what you
want and why you believe you are entitled to it.
If your claim is granted, the plan administrator will get in touch with
Fidelity to make sure that payment is made. If your claim is denied, the plan
administrator will respond to you in writing, point out the specific reasons and
plan provisions on which the denial is based, describe any additional
information needed to complete the claim, and describe the appeal procedure.
Appeal If your claim is denied and you disagree and want to pursue the
matter, you must file an appeal in accordance with the following procedure. You
cannot take any other steps unless and until you have exhausted the appeal
procedure. For example, if your claim is denied and you do not use the appeal
procedure, the denial of your claim is conclusive and cannot be challenged, even
in court.
To file an appeal, write to the appeals authority identified at the
beginning of the plan in the section called "Quick-Reference Information"
stating the reasons why you disagree with the denial of your claim. You must do
this within 60 days after the claim was denied. In the appeal process, you have
the right to review pertinent documents. You have the right to be represented by
anyone else, including a lawyer if you
Page 20 The Education Management Corporation
wish. And you have the right to present evidence and arguments in support of
your position.
The appeals authority will issue a written decision within 60 days. The
appeals authority may, in its sole discretion, decide to hold a hearing, in
which case it will issue its decision within 120 days. The decision will explain
the reasoning of the appeals authority and refer to the specific provisions of
this plan on which the decision is based.
Discretionary authority The plan administrator and appeals authority
shall have and shall exercise complete discretionary authority to construe,
interpret and apply all of the terms of the plan, including all matters relating
to eligibility for benefits, amount, time or form of benefits, and any disputed
or allegedly doubtful terms. In exercising such discretion, the plan
administrator and appeals authority shall give controlling weight to the intent
of the sponsor of the plan. All decisions of the appeals authority in the
exercise of its authority under the plan (or of the plan administrator absent an
appeal) shall be final and binding on the plan, the plan sponsor and all
participants and beneficiaries.
=================================
Payment Before Termination
of Employment
=================================
Introduction Normally, your accounts will be paid after you retire (or
your employment terminates for some other reason). But there are a few
circumstances in which you can take money out of certain accounts even before
your employment has terminated. This part of the plan explains those times.
Withdrawal of after-tax contributions If you were a member of this plan
(that is, the Retirement Plan) before May 1, 1992 and you made after-tax
contributions, you may withdraw all or any portion of those contributions at any
time upon request, except that if the value of your after-tax contribution
account has declined below the amount of contributions that you made, you may
only withdraw the lesser amount, of course.
Age 59 1/2 When you reach age 59 1/2, you may withdraw all or any
portion of your 401(k) account upon request, except that withdrawal may not be
made more often than once during each plan year, and the minimum withdrawal is
$500.
Age 70 1/2 After you reach age 70 1/2, you may take all the money in
all your accounts at any time upon request, even if you are still employed by
the employer.
Hardship If you suffer immediate and heavy financial need (whether or
not you are still employed by the employer), you may be able to get some or all
of your 401(k) contributions out of the plan. There are general eligibility
rules, but there is also a "safe harbor." The "safe harbor" means that you
qualify automatically for a hardship withdrawal under particular, narrow
circumstances. We will describe the safe harbor eligibility rules first.
Retirement Plan Page 21
Safe harbor. Under the safe harbor eligibility rules, the following
four types of financial need automatically qualify for a hardship withdrawal:
. medical expenses that would be deductible under section 213 of the
Code,
. purchase of a principal residence for the employee,
. payment of college or graduate school tuition (for the next school
term only) for the employee, spouse, children or other dependents, or
. the need to prevent eviction of the employee or foreclosure on his
or her personal residence.
If you have one of those financial needs, you can get a hardship withdrawal (no
more than the amount of the financial need, of course), provided that:
. you have obtained all distributions and loans available under all
plans of the employer;
. all qualified plans of the employer provide that your 401(k)
contributions and employee contributions (if applicable under the plan)
will be suspended for at least 12 months following the distribution
(this plan so provides if you choose to use this safe harbor); and
. all qualified plans of the employer provide that the 401(k)
contributions made during the year of the distribution will count
against the $10,500 limit on 401(k) contributions (described later in
this plan) for the calendar year following the calendar year of the
distribution (this plan so provides if you choose to use this safe
harbor).
General eligibility rules. If you do not have one of the four "safe
harbor" financial needs, or if you choose not to use the safe harbor, you may
still qualify for a hardship withdrawal. The plan administrator will determine
whether your financial need is immediate and heavy within the meaning of the
plan, taking into account whether the need was predictable and within your
control.
The amount of hardship distribution that you can receive from the plan
under the general eligibility rules is only that which is necessary to respond
to the need after all other resources reasonably available to you have been
exhausted. All other resources available to you will be considered to have been
exhausted only if you truthfully affirm that the need cannot be met by insurance
reimbursement, reasonable liquidation of your assets or assets of your husband
or wife or minor children that are reasonably available to you, cessation of
401(k) contributions or employee contributions under any plan of the employer,
borrowing from commercial sources or other distributions or non-taxable loans
from any employer.
Source of hardship distribution. A hardship distribution can be made
from the contributions that were made by trading off pay. This really means just
the contributions, not any earnings on those amounts, except that, if you were a
member of the plan before January 1, 1989 and you made 401(k) contributions,
then the earnings on those contributions up through December 31, 1988 can be
taken into account.
Application. If you suffer immediate and heavy financial need and want
a hardship distribution from the plan, call the trustee (Fidelity). Fidelity
will review your circumstances against the requirements of the plan and let you
know whether a hardship withdrawal is available and, if so, how much. If you
wish to proceed, Fidelity will then provide you with the appropriate forms. Just
complete the forms and return them to Fidelity.
Page 22 The Education Management Corporation
=================================
Borrowing Money From Your
Accounts
=================================
Introduction This is a retirement plan, and we do not encourage people to
take loans from their accounts. Nevertheless, active employees (not retirees or
other former employees) may borrow from their 401(k) account (and after-tax
account and rollover account, if any), and this section of the plan will
describe how much you can get and how to do it.
Eligibility Loans are available only to members of the plan who are
receiving a paycheck from the employer. For example, loans are available to
active employees, employees on paid leave of absence and former employees who
are receiving severance pay. But loans are not available to other former
employees (such as retirees) or to employees on unpaid leave of absence. In
addition, under the law, loans are not available to anyone who is treated as an
owner-employee under section 408(d) of ERISA or to the members of their
families.
Number You may have one home loan (as described below) and one personal
loan (as described below) but you may not have more than one of each kind (that
is, you may not have more than two loans).
Amount The minimum loan is $1,000. The maximum loan is one-half of the sum
of your 401(k) account and, if you have them, your rollover account and after-
tax contribution account. The amount is judged at the time of your application
for the loan.
As an exception, you may never have loans outstanding of more than $50,000
from all plans of the employer and any other members of the same controlled
group of trades or businesses. And the limit of $50,000 is reduced by the amount
by which you have paid off any loans within the previous twelve months.
EXAMPLE: In January, you took out a loan of $30,000. By December, you have
paid it down to $25,000. Though the present balance is $25,000 and you
might think that you could get another $25,000 loan, the amount that you
paid off during the past year --$5,000 -- counts against the $50,000 limit,
so you can't get a loan of more than $20,000 now.
Promissory note Loans from the plan must be evidenced by a legally
enforceable promissory note.
Term You may choose the term of the loan, except that the term for a
personal loan may not be more than five years and the term for a home loan may
not be longer than twenty years. A "home loan" is a loan that is used to acquire
a dwelling unit that, within a reasonable time after the loan is made, will be
used as your principal residence. (Home improvement loans, loans to buy a second
home, and loans to buy homes for other members of the family do not qualify as
loans used to acquire a dwelling unit that will be used as your principal
residence.) All other loans are "personal loans."
Interest Loans bear interest at the same rate charged by the employer's
principal bank on loans of the same type. Specifically, loans used to acquire a
dwelling unit that will be used as your principal residence bear the same
interest rate as mortgage loans. All other loans bear the same rate of interest
as secured personal loans. The rate is the rate quoted by the bank on the first
business day of the month in which you request the loan.
Retirement Plan Page 23
Source and application of funds The money to make a loan is obtained by
liquidating investments in your 401(k) account. (If you have a rollover account
or after-tax contribution account in addition to your 401(k) account, the money
is taken from all of them proportionately.) The promissory note is then
considered an asset of that account or accounts. When made, repayments (both
principal and interest) are credited proportionately to the account or accounts
from which the money was originally taken to make the loan.
Repayment Repayment must be made on a schedule set out in (or attached
to) the promissory note, requiring payment of principal and interest in regular,
substantially equal installments over the term of the loan. Repayment must be
made by payroll deduction from each paycheck.
As an exception, the duty to pay according to the payment schedule will
be suspended (but not for more than one year) while you are on a leave of
absence without pay. When you return from the leave, the installment payments
will resume in the original amount and the term of the loan will be extended by
the same number of payments which were suspended. If such an extension would
extend the term of the loan beyond five years (in the case of a personal loan)
or twenty years (in the case of a home loan), however, a new installment payment
schedule will be established instead, under which the new installment payments
are sufficient to pay off the remaining balance of the loan by the end of the
maximum five- or twenty-year period.
As another exception, the duty to pay according to the payment schedule
will be suspended if, and for as long as, you are performing military service
within the meaning of the federal Uniformed Services Employment and Reemployment
Rights Act of 1994. When you cease to perform such service, the installment
payments will resume in the original amount and the term of the loan will be
extended by the same number of payments which were suspended.
Security As a condition of receiving a loan, you must post collateral
by pledging as security for the loan fifty percent of your vested accrued
benefit under the plan at the time when the loan is made.
Pre-payment You may pay the outstanding balance of a loan at any time
without penalty for pre-payment.
Default If you fail to make the full amount of any required installment
payment by payroll deduction, the loan will be considered in default, and the
entire outstanding balance due and payable immediately, on the last day of the
calendar quarter following the calendar quarter in which the installment payment
was due. This may occur, for example, when your employment with the employer
terminates or if you declare bankruptcy.
If your loan goes into default and you do not pay the outstanding
balance, the outstanding balance will be considered a "deemed distribution" for
tax purposes to the extent provided in regulations of the Internal Revenue
Service. When you take a distribution from the plan, the plan administrator will
foreclose on your vested accrued benefit that was pledged as security for the
loan in order to satisfy the unpaid balance of the loan, effectively offsetting
the unpaid balance of the loan against the amount otherwise payable from the
plan.
In addition, all loans will be due and payable immediately upon
distribution of assets in the event of termination of the plan.
How to apply To get the ball rolling, call the trustee (Fidelity) at
(800) 835-5092. You will need to know the identification number that the trustee
has assigned to this plan for its internal purposes, which is 90094. Fidelity
will check on the amount available in your account and talk to you about how
much you would like, what the monthly payments would be, and what the length of
the loan would be.
When you are happy with the terms of the loan, Fidelity will generate
the loan application and send it to you. All you have to do is sign where
indicated and return it to Fidelity. If your loan is approved, you should expect
to get a check from the trustee in 7 to 10 days. The payroll department will
automatically start to withhold the loan payments from your paycheck.
Page 24 The Education Management Corporation
=================================
In Case of Death
=================================
Introduction If you die before your entitlement has been paid (such as
while you are still employed by the employer), the plan will pay out all of the
money (and stock) in all your accounts under the plan, regardless of how long
you have worked for the employer. Whom it is paid to, and how, depends on a
number of factors. This section will explain.
Please note: If you are married at the time of your death, your choice
of beneficiary cannot be honored for certain portions of your accounts
unless your husband or wife consented before you died, in accordance
with the rules explained in this section. This is called "spousal
consent" and it is explained in this section under the heading "Naming
your beneficiary and getting spousal consent."
If you're married If you were married at the time of your death, the
money (or stock) will be paid to your surviving husband or wife in a single
payment, unless, before your death, you named some other beneficiary with the
written consent of the husband or wife who survives you (as described below). If
the recipient is your surviving husband or wife, he or she may make a direct
rollover into an IRA.
Please note: There is a temporary exception for participants who were
members of this plan (that is, the Retirement Plan) before May 1, 1992 and who
are married when they die and who die within a certain period. That period ends
90 days after you are notified of the elimination of the option to receive
benefits in the form of an annuity (or on January 1, 2003, if that comes first),
as provided in this edition of the plan. If you are described in this paragraph
and die within that period, your death benefits are governed by the previous
edition of the plan, under which some of your accounts are subject to spousal
consent and some are not.
If you're not married If you are not married at the time of your death,
then the money will be paid to whomever you named as your beneficiary before
your death. (If you and your husband or wife die simultaneously, so that you do
not have a "surviving spouse," you will be treated as if you were unmarried at
the time of your death, and this paragraph will apply.)
Naming your beneficiary and getting spousal consent You can name your
beneficiary at any time before your death by completing a form from the plan
administrator and returning it to the plan administrator. (This function is not
handled by Fidelity.) Your beneficiary is whomever you last named on the records
of the plan administrator.
Retirement Plan Page 25
Please note: Only you can change your beneficiary, and you can only do
it by filing a new beneficiary designation with the plan administrator.
In particular, death or divorce does not automatically change your
beneficiary. Whenever there are major changes in your life such as
death or divorce, you are well advised to double-check your beneficiary
designation with the plan administrator to assure that it remains as
you intend.
If you have named a beneficiary in place of your surviving husband or
wife, your choice of beneficiary will not be honored unless your surviving
husband or wife has consented in writing (or can't be located). The plan
administrator has a form for this purpose, which must be completed, signed by
your husband or wife, witnessed by a notary public, and filed with the plan
administrator before you die.
If you complete and file the form with the plan administrator and then
want to change your mind (that is, you would like to go back to having your
husband or wife as your beneficiary), you can withdraw the form just by filing a
new beneficiary form with the plan administrator any time before you die.
If money should be paid to a beneficiary, but you have not named a
beneficiary or your beneficiary does not survive you, the money will be divided
among the people in the first of the following classes that contains a survivor:
(a) your surviving husband or wife, (b) your children, (c) your parents, (d)
your brothers and sisters, or (e) your estate.
Claiming your accounts To claim the money, your husband, wife or other
beneficiary should contact the plan administrator, get an application form, and
follow the same procedure as you would have done to claim the money. While we
expect payment to happen as soon as administratively possible after your death,
we must recite here, in accordance with IRS rules, that all of your accounts
must be completely paid out not later than five years after your death.
=================================
Child Support, Alimony and
Property Division in Divorce
=================================
Introduction The plan will honor certain court orders made in the
context of family law -- child support, alimony and division of property in
divorce. This means that part of your account may have to be paid to someone
else; you may not get all that you are expecting. This section of the plan will
explain when and how that can happen.
What a domestic relations order is It is a judgment, decree or order of
a court (including approval of a property settlement) made pursuant to state
domestic relations law (including a community property law) that provides child
support, alimony payments, or marital property rights to your spouse, former
spouse, child or other dependent.
Page 26 The Education Management Corporation
The plan will not honor a domestic relations order unless it specifies:
. that it applies to this plan,
. your name and last known mailing address, as well as the name and
last known mailing address of anyone else who is supposed to get
payments,
. the amount or percentage of your benefits that are supposed to be
paid to someone else, or the manner in which the amount or percentage
is to be determined, and
. the number of payments or the period to which the order applies.
Also, the plan will not honor a domestic relations order if it attempts
to require the plan to:
. provide increased benefits,
. provide any type or form of benefit, or any option, that is not
already provided for here in the plan document (except to the extent
specifically permitted by the Code), or
. pay to anyone any benefits that are already required to be paid to
someone else under a previous domestic relations order.
What happens when a domestic relations order comes in When a domestic
relations order comes to the plan administrator, the plan administrator will
first notify you and everyone else who is supposed to get part of your benefit
under the order that the order has come in. The plan administrator will also
tell you about the following procedure for deciding whether to honor the order.
Next, the plan administrator will separately account for the benefits
that, under the order, would be paid to someone other than you and hold onto
them while deciding whether to honor the order.
Next, the plan administrator will decide whether the plan should honor
the order, applying the rules that are described in this section of the plan.
When the decision is made, the plan administrator will notify you and everyone
else who is supposed to get part of your benefit.
If the plan administrator decides that the plan will honor the order,
the plan administrator will proceed to make the payments required by the order
(or schedule them for future payment, if they are not due yet). If the plan
administrator decides that the plan cannot honor the order, the plan
administrator will make payment as if there had been no order.
In the unlikely event that the plan administrator cannot decide whether
the plan should honor the order within 18 months after the first payment should
have been made under the order, the plan administrator will make payments as if
there had been no order until the decision is made, and then make future
payments (but no past payments) in accordance with the decision.
Retirement Plan Page 27
=================================
How the Length of Your Service
is Calculated
=================================
Introduction The length of your service with the employer can matter for
two reasons under the plan: for becoming eligible for matching contributions and
for deciding what portion of your account you are entitled to if you leave
before retirement or disability. This part of the plan will explain how to
calculate the length of your service.
Two notes before we start. First, this section of the plan describes the
rules currently in effect. Other rules may have been in effect for earlier
periods, such as before ERISA took effect and before the Retirement Equity Act
took effect. Those earlier rules continue to apply to service that was rendered
before those laws took effect. Second, any special arrangements that might be
made for employees of new participating employers are described at the end of
the plan in the section called "Special Arrangements for New Participating
Employers."
12-Month periods The plan looks at how many hours of service you have in
certain 12-month periods.
Becoming eligible for matching contributions. For the purpose of becoming
eligible for matching contributions, the first 12-month period runs from your
date of hire to the first anniversary of your date of hire. After that, the 12-
month period is the plan year, beginning with the plan year in which the first
anniversary of your date of hire occurs.
Portion of your account. For the purpose of determining what portion of
your account you are entitled to if you leave before retirement or disability,
the 12-month periods are plan years. At the beginning of the plan, in the
section called "Quick-Reference Information," it shows what the plan year is.
Years of service Your length of service is measured in full years. You get
credit for a year of service if you complete 900 hours of service during that
12-month period. You get credit for the year whenever you have accumulated 900
hours of service, regardless of what happens during the rest of the year. (This
is entirely independent of whether you are working in the classification of
employees covered by the plan.)
However, years of service can be cancelled by breaks in service, as
explained below.
Full-time employees Full-time employees are credited with 45 hours of
service for each week in which they receive credit for one hour of service for
performing services for the employer. A full-time employee for this purpose is
any employee who works the regularly scheduled full work week as established by
normal office hours for the location where the employee is employed.
Part-time faculty Part-time faculty are credited with 1.88 hours of service
for each one hour of actual classroom time in recognition of the required
preparation for classroom time. For this purpose, any faculty member who is
assigned to teach less than a full work week will be considered part-time
faculty.
Page 28 The Education Management Corporation
Other part-time employees Part-time employees other than faculty receive
credit for each clock hour for which the employee is paid (or entitled to
payment) by the employer. It doesn't matter how much you are paid for that hour;
an overtime hour is still one hour.
Working hours. Hours of service naturally include hours when you are
actually working as an employee.
Non-working hours. They also include hours when you are still an employee
but not working due to vacation, holiday, illness, layoff, jury duty, military
service, and leave of absence, if you are paid (or entitled to payment) for
those hours by the employer. The number of hours credited for a time when you
were not working is the number of regularly scheduled working hours in the
period for which you are paid. For example, if a day consists of 8 regularly
scheduled working hours and you are paid for a day of vacation, you get credit
for 8 hours of service.
As an exception, no more than 501 hours of service will be credited for any
one, continuous period during which you were not working (or, in the case of
back pay, would not have been working).
As another exception, payments made solely to comply with workers'
compensation, unemployment compensation, or disability insurance laws, and
payments that reimburse you for medical expenses, do not result in credit for
hours of service.
Back pay If for some reason you don't work for some period but are later
granted back pay for that time, hours of service include hours for which you are
granted back pay. Credit for hours of service is allocated to the period when
the work was (or would have been) performed.
Breaks in service If you complete fewer than 100 hours of service during
one of these 12-month periods, that is a "break in service."
The one exception is if you are absent due to pregnancy, birth (or
placement for adoption), or caring for a child immediately after birth (or
placement). If you don't have more than 100 hours of service in the year when
absence begins but the hours that would normally have been credited for the
absence during that year would bring your total over 100, then that 12-month
period will not count as a break in service. (If you have more than 100 hours in
the year when the absence begins, but you don't have more than 100 hours in the
following year, this rule applies to the second year instead. That is to say, if
you remain absent during the following year and the hours that would normally
have been credited for the absence during the following year would bring your
total over 100, then the following year will not count as a break in service.)
How breaks in service cancel years of service. A break in service cancels
your credit for all prior years of service temporarily -- until you return to
work and complete another year of service.
A break in service cancels your credit for all prior years of service
permanently if:
. when the first break in service occurred, you had no entitlement to any
portion of any account derived from employer contributions (within the
meaning of section 410(a)(5)(D)(iii) of the Code); and
. you have at least 5 break in service years in a row; and
Retirement Plan Page 29
. the number of break in service years is at least equal to your prior
years of service.
EXAMPLE: You accumulate 2 years of service. Then you have 1 break in
service. Then you return to work. When you return, you have credit for no
years of service (the break in service has temporarily cancelled all
prior service credit). But suppose that, after returning to work, you
complete another full year of service. Then you regain credit for the
first 2 years, and you have credit for a total of 3 years of service.
EXAMPLE: You accumulate 2 years of service. Then you have 5 consecutive
breaks in service. Then you return to work. You have credit for no years
of service, but even if you work another full year of service, you will
still not regain any of your prior years of service. They were
permanently cancelled because you had 5 consecutive breaks in service,
which was equal to or greater than your prior service credit.
Service with related employers . Service with someone other than the
employer still counts for the purpose of calculating the length of your service
with the employer under this section of the plan if it was performed at a time
when the employer maintained this plan and it was performed for:
. a corporation which, at that time, was under common control with the
employer under section 414(b) of the Code, or
. a trade or business which, at that time, was under common control with
the employer under section 414(c) of the Code, or
. an entity which, at that time, was a member of an affiliated service
group with the employer under section 414(m) of the Code, or
. an entity which, at that time, was required to be aggregated with the
employer under section 414(o) of the Code (including the regulations
under that section).
Please note: Service with related employers does not count for any other
purpose under the plan. Specifically, you are not entitled to get into
the plan or to get a share of the employer contributions if you are
working for anyone other than the employer.
===============================
When You Return from
Military Service
===============================
Introduction There are a few special rules to accommodate employees who
enter military service and then return to employment with the employer, and they
are listed in this section. These rules apply only to employees who are entitled
to re-employment under the federal Uniformed Services Employment and
Reemployment Rights Act of 1994 (which is called "USERRA"), as it may be amended
from time to time, which contains detailed rules about what "military service"
is, how long an employee can be absent, when the employee must return, and other
conditions such as an honorable discharge. If you do not meet the requirements
of USERRA, this section of the plan does not apply to you.
Please note: It is your responsibility to let the plan administrator know
if you are returning from military service, so that this section of the
plan can be appropriately applied.
Page 30 The Education Management Corporation
Break in service If you are entitled to re-employment and are in fact re-
employed in accordance with USERRA, you will not be considered to have incurred
a break in service (as described in the preceding section of the plan) by reason
of that military service.
401(k) contributions You obviously were not in a position to make 401(k)
contributions to the plan during your military service. But if you are entitled
to re-employment and are in fact re-employed in accordance with USERRA, you are
entitled to "make up" those contributions. Here's how:
. Besides the amount of contributions that you could ordinarily get by
trading off your pay for contributions to the plan, you may trade off
additional pay (that is, pay for work performed after you are re-employed)
for additional contributions to the plan.
. The maximum amount of additional contributions that you can get by
trading off your pay is the maximum amount that you could have gotten if
you had not been absent in military service.
. You can make these additional 401(k) contributions any time beginning on
your re-employment and ending after a period equal to three times your
period of military service (or five years, whichever comes first). For
example, if your military service lasted 10 months, you can make these
additional 401(k) contributions over a period of 30 months, beginning with
your date of re-employment.
Matching contributions If you choose to make the additional 401(k)
contributions referred to in the preceding paragraph, your employer contribution
account will be credited with the corresponding matching contributions that it
would have received if you had not been absent in military service. (Your
account will not be credited with investment earnings on those amounts that you
might have earned if you had not been absent in military service.)
Profit sharing contributions and ESOP contributions If you are entitled to
re-employment and are in fact re-employed in accordance with USERRA, your profit
sharing account will be credited with the employer profit sharing contributions
(and your employer stock account will be credited with the ESOP contributions)
that you would have received if you had not been absent in military service.
This means contributions only; your account will not be credited with investment
earnings on those amounts or forfeitures that you might have received if you had
not been absent in military service.
Your "pay" For the purpose of this section of the plan, you will be treated
as though you received pay at the same rate that you would have received if you
had not been absent in military service (including raises, for example, that you
would have received if you had not been absent). If the amount of pay cannot be
determined with reasonable certainty, you will be treated as though you
continued to receive pay during your absence at the same rate as your average
rate of pay from the employer during the 12 months before you entered military
service.
Percentage of entitlement to employer accounts If you are entitled to re-
employment and are in fact re-employed in accordance with USERRA, you will be
given credit for that period of military service when the plan administrator
calculates the percentage of your employer contribution accounts to which you
are entitled on the table under the heading "Length Of Service Required For
Benefits" in the section called "Quick-Reference Information."
Retirement Plan Page 31
Limits and testing Contributions made under this section of the plan
because of USERRA:
. will not be taken into account at all for the purpose of the
utilization test described in the section entitled "Maximum Amount of
401(k) Contributions" or the section entitled "Maximum Amount of
Matching Contributions";
. will not cause the plan to fail to meet the requirements in the
section entitled "Improvements When the Plan is Top-Heavy";
. will be subject to the limits in the year when they would have been
paid if you had not entered military service (rather than the year in
which they are actually paid under this section) for the purpose of the
$10,500 limit described in the section entitled "Maximum Amount of
401(k) Contributions" and the section entitled "Maximum Amount of Total
Contributions" and will be ignored when applying those limits to the
other contributions actually paid for those years.
===============================
What the Plan Administrator
Does
===============================
Introduction The plan administrator has all rights, duties and powers
necessary or appropriate for the administration of the plan. Many of those
functions are described elsewhere in the plan. This section will mention some
others.
Please note: The description in this section of certain
responsibilities imposed by law is solely for convenient reference by
the plan administrator and is not intended to alter or increase those
duties or transform them into contractual duties.
Reporting and disclosure The plan administrator will provide a copy of
this plan to each new member of the plan no later than 90 days after joining the
plan.
The plan administrator will prepare and file the annual return/report
(Form 5500) for the plan each year, if required. For that purpose, the plan
administrator will retain an independent qualified public accountant (within the
meaning of ERISA) to perform such services as ERISA requires.
After filing the annual return/report, the plan administrator will
distribute to all participants and to all beneficiaries receiving benefits the
"summary annual report" if required by ERISA.
The plan administrator will furnish to any participant or beneficiary,
within 30 days of a written request, any and all information required by ERISA
to be provided, including copies of the plan and any associated trust agreements
and insurance contracts. The participant must pay the plan the actual cost of
copying (unless that is more than the maximum permitted by ERISA, in which case
the plan administrator will charge the maximum permitted by ERISA).
Bonding The plan administrator will assure that all "plan officials"
who are required by ERISA to be covered by a fidelity bond are so covered.
Page 32 The Education Management Corporation
Numerical testing It is the responsibility of the plan administrator to
monitor compliance with the following sections of the plan regarding (1) the
maximum amount of 401(k) contributions, (2) the maximum amount of matching
contributions, (3) the maximum amount of total contributions, and (4) top-heavy.
It is the plan administrator's responsibility to take whatever action is
required by those sections.
Prohibited transactions ERISA prohibits a variety of transactions, most
involving "parties in interest." The plan administrator will not cause the plan
to engage in any transaction that is prohibited by ERISA.
Expenses The expenses of administering the plan will be paid out of the
plan assets. They may include, for example, fidelity bond premiums, trustee and
investment management fees, and professional fees.
If the plan administrator is a full-time employee of the employer, then the
plan administrator will not receive any compensation from the plan for serving
as plan administrator but will be reimbursed for expenses.
Limitation The plan administrator does not have any authority or
responsibility to perform any of the functions that are described in the
following section as employer functions. Specifically:
. The plan administrator must accept as a fact the employment information
furnished by the employer. The plan administrator has no authority or
responsibility with regard to the employment relationship, and any disputes
over the employment history are strictly between the employer and the
employee. To the extent possible, the plan administrator will, of course,
give effect under the plan to any new or corrected employment information
furnished by the employer.
. The plan administrator has no authority or responsibility for collecting
employer contributions.
===============================
What the Employer Does
===============================
Introduction The sponsor and the participating employers have functions
entirely different from the administration functions that are performed by the
plan administrator. This section will identify those functions.
Establishment The sponsor was responsible for establishing the plan in the
first place. That included establishing all the terms of the plan as set forth
in this document.
Contributions The employer contributes to the plan as described above in
the sections entitled "Trading Off Your Pay For Contributions To The Plan,"
"Matching Contributions," "Profit Sharing Contributions," and "The Former ESOP
and Stock Accounts." In addition, the employer may, but does not have to, pay
any expenses of the plan, so that they are not charged against the plan assets.
Retirement Plan Page 33
Employment records Since the plan administrator does not employ the
employees who are members of the plan and does not keep employment records, it
is the responsibility of the employer to provide to the plan administrator
whatever information the plan administrator needs to apply the rules of the
plan.
Insurance and indemnification The employer will provide fiduciary
liability insurance to, or otherwise indemnify, every employee of the employer
who serves the plan in a fiduciary capacity against any and all claims, loss,
damages, expense, and liability arising from any act or failure to act in that
capacity unless there is a final court decision that the person was guilty of
gross negligence or willful misconduct.
Changing the plan The sponsor has the right to change the plan in any
way and at any time and does not have to give any reason for doing so. These
changes can be retroactive.
For example, the plan names the plan administrator, the trustee, and
the appeals authority (they're all shown at the beginning of the plan in the
section called "Quick-Reference Information"). The sponsor has the right to
amend the plan to replace any of those individuals or firms at any time and
without giving any reason.
Exceptions. The Code says that no amendment can be adopted that would
make it possible for the assets of the plan to be used for, or diverted to,
purposes other than the exclusive benefit of participants and beneficiaries, and
the plan adopts that language but only to the extent (and with the same meaning)
required by the Code.
The plan also adopts, but only to the extent and with the same meaning
required by the Code, the Code prohibition on amendments which have the effect
of reducing the "accrued benefit" of any member of the plan (including the
provision of the Code which imposes the same prohibition on amendments
eliminating or reducing an early retirement benefit or a retirement-type subsidy
or eliminating an optional form of payment).
Changes made by the sponsor may be made by resolution of the board of
directors of the sponsor adopted in accordance with the by-laws of the sponsor.
Alternatively, changes that do not materially increase the liability of the
sponsor or any participating employer under the plan may be made by the
Retirement Committee of the sponsor, as long as any such amendment is reflected
in a writing that is formally designated as an amendment to this plan, is
adopted by the unanimous consent of the members of the Retirement Committee, and
is broadly applicable to participants under the plan (rather than targeted at
any individual or small group of participants). For this purpose, the decision
to admit a new participating employer will be considered as not materially
increasing the liability of the sponsor or any participating employer under the
plan.
Ending the plan The plan has no set expiration date; when it was
established, it was not intended to be temporary. Nevertheless, the sponsor has
the right to end the plan (in whole or in part) at any time and without giving a
reason for doing so. The procedure for the sponsor to end the plan is the same
as for changing the plan, as described in the preceding paragraph. In addition,
any participating employer may withdraw from participation in the plan at any
time and without giving a reason for doing so.
If there is a "termination" or "partial termination" of the plan within
the meaning of Treasury Regulation 1.411(d)-2 (sorry, but it's too difficult to
try to describe what that is, particularly because it is not the same as ending
the plan) or a complete discontinuance of contributions, everyone who is
affected by the termination or partial termination or complete discontinuance of
contributions and who is still a member of the plan at that time will
automatically be advanced to 100% on the table at the beginning of the plan in
the section called "Quick-Reference Information" under the heading "Length Of
Service Required For Benefits," regardless of their length of service. For this
purpose, those whose employment previously terminated at a time when their
percentage was zero will be considered to have been "cashed out" at zero and
will no longer be considered participants.
Page 34 The Education Management Corporation
===============================
Maximum Amount of
401(k) Contributions
===============================
Introduction The Code puts a couple of different limits on the amount that
you can cause the employer to contribute to the plan by trading off your pay.
This part of the plan describes them.
$10,500 limit Contributions that you cause the employer to make by trading
off your pay cannot be more than $10,500 in any one calendar year. And we are
not talking just about this plan. This limit applies to any and all plans of any
and all employers, including 401(k) plans, simplified employee pension plans,
and 403(b) tax-sheltered annuities.
The $10,500 figure applies to the year 2001. But the IRS changes it from
time to time according to the cost-of-living, and the new figure automatically
applies here. The plan administrator can tell you what the exact figure is for
each year. In the paragraphs that follow, however, we'll keep saying "$10,500"
just because it's easier that way.
If the $10,500 limit is exceeded There are two ways in which the $10,500
limit might be exceeded. First, although this plan prohibits 401(k)
contributions of more than $10,500, a mistake might be made. In that case, as
soon as the mistake is discovered, the plan administrator will simply return any
and all 401(k) contributions that were more than $10,500 for a given plan year,
adjusted for any income or loss experienced while the excess was in the plan.
Second, although 401(k) contributions to this plan are not more than
$10,500, you might have worked for some other employer during part of the year
and the total of 401(k) contributions made to this plan and the plan of that
other employer might be more than $10,500. In that case, you may withdraw all or
part of the excess from this plan (not more than the 401(k) contributions that
were actually made to this plan, of course), as long as you give the plan
administrator written notice which is received by the plan administrator no
later than March 15 of the calendar year following the year in which the excess
401(k) contributions were made. Then the plan administrator will return the
amount that you have designated, adjusted for any income or loss experienced
while the excess was in the plan.
Utilization test How much employees at the top of the organization can
trade off pay for contributions depends on how much all the other employees
trade off their pay for contributions. You only have to worry about this if you
are at the top of the organization. We will call these people "restricted
employees."
Retirement Plan Page 35
Who the restricted employees are The restricted employees are determined
each year. They are anybody who owned 5% or more of the employer during that
year or the preceding year. They are also anybody who had compensation from the
employer during the preceding year of more than $85,000. (That's the figure for
2001. The figure changes slightly from year to year according to the cost-of-
living. The plan administrator can tell you what the exact figure is each year.)
Special rules for former employees. Former employees are considered
restricted employees if they were restricted any time after age 55 or they were
restricted when they left the employer.
Special rule for non-resident aliens. Non-resident aliens who have no U.S.-
source income are not taken into account at all when applying this part of the
plan.
Performing the utilization test First, the plan administrator will identify
all the restricted employees who are eligible to choose 401(k) contributions to
the plan for the plan year being tested (whether or not they have chosen to
trade off pay for contributions). The plan administrator will figure, separately
for each such employee, what percent of pay he or she has traded off for
contributions. For employees who have chosen not to trade off pay for
contributions, this percentage will be zero. The plan administrator will then
average all of those percentages.
Second, the plan administrator will focus on the year before the year being
tested, identifying those individuals who were not restricted employees but were
eligible to choose 401(k) contributions to the plan for that plan year (whether
or not they chose to trade off pay for contributions). The plan administrator
will figure, separately for each such employee, what percent of pay he or she
traded off for contributions during the preceding year. Once again, for
employees who chose not to trade off pay for contributions, this percentage will
be zero (except to the extent that the employer chooses to make "qualified
nonelective contributions" as described below). The plan administrator will then
average all of those percentages. (As an exception for 1997 only, instead of
using the year before the year being tested, the administrator may use the year
being tested.)
Please note: In calculating these averages, the plan administrator may take
advantage of any special rules provided in the law or in published guidance
from the IRS. For example, for plan years beginning after 1998, the plan
administrator may exclude from the calculation entirely individuals who are
not restricted employees and who have neither attained age 21 nor completed
one year of service with the employer, as long as the coverage rules of
section 410(b) of the Code can be met without taking those individuals into
account. Alternatively, the plan administrator may consider all individuals
who have neither attained age 21 nor completed one year of service with the
employer, whether they are restricted employees or not, as a separate plan
for this purpose, as long as the coverage rules of section 410(b) of the
Code would be met by both this plan and the separate plan.
In calculating these percentages, the plan administrator will take into
account only pay that, but for the choice to trade it off for contributions to
the plan, would have been received by the employee in the appropriate plan year
or is attributable to services performed in that plan year and would have been
received by the employee within 2 1/2 months after the end of the plan year. In
addition, 401(k) contributions will be taken into account for a plan year only
if not contingent on participation or performance of services after the end of
the plan year and actually paid to the trustee not later than 12 months after
the end of the plan year.
If the average for the employees who are not restricted was less than 2% in
the preceding year, the average for the restricted employees in the year being
tested cannot be more than twice that percentage. If the average for the
employees who are not restricted was between 2% and 8% in the preceding year,
the average for the restricted employees in the year being tested cannot be more
than 2 percentage points higher. If the average for the employees who are not
restricted was more than 8% in the preceding year, the average for the
restricted employees in the year being tested cannot be more than 1.25 times
that percentage.
Page 36 The Education Management Corporation
If the utilization test reveals a problem If the average for the restricted
employees is higher than it should be, the plan administrator will correct the
problem by paying the contributions back to the restricted employees, as
follows.
Step 1 -- Calculating the total amount to be returned. The plan
administrator will take the restricted employee with the highest percentage of
401(k) contributions and figure out how much of that employee's 401(k)
contributions would have to be returned to that employee so that his or her
percentage would be reduced enough to solve the problem for the whole group, but
not more than would make the percentage of that employee's 401(k) contributions
equal the percentage for the restricted employee with the second-highest
percentage.
If the problem has not been solved for the group as a whole, then the plan
administrator will figure out how much of the 401(k) contributions of both of
those people (the restricted employee with the highest percentage and the
employee with the second-highest percentage) would have to be returned so that
their percentage would be reduced enough to solve the problem for the whole
group, but not more than would make the percentage for those two employees equal
the percentage for the restricted employee with the third-highest percentage.
If the problem has not been solved for the group as a whole, the plan
administrator will keep doing this until the problem is solved. Then the
administrator will complete step one by totaling the dollar amount of the
contributions that would have to be returned to solve the problem. That is the
total amount that will have to be returned.
Step 2 -- Calculating how much is returned to each restricted employee. Now
the administrator will take the restricted employee with the highest dollar
amount of 401(k) contributions and return that employee's 401(k) contributions
to him or her until (a) the total amount that has to be returned (as determined
in step one) has been returned or (b) the dollar amount of that employee's
401(k) contributions has been reduced to the dollar amount of the restricted
employee with the second-highest dollar amount of 401(k) contributions.
If the total amount that has to be returned has not yet been returned, then
the plan administrator will return the 401(k) contributions of those two
employees (the restricted employee with the highest dollar amount and the
employee with the second-highest dollar amount) to those two employees until (a)
the total amount that has to be returned (as determined in step one) has been
returned or (b) the dollar amount of those two employees' 401(k) contributions
has been reduced to the dollar amount of the restricted employee with the third-
highest dollar amount of 401(k) contributions.
If the total amount that has to be returned (as determined in step one) has
not yet been returned, the plan administrator will keep doing this until the
total amount that has to be returned has been returned. It is understood that,
after returning 401(k) contributions by this method, if the utilization test
were to be run again, it might still not be passed, but the IRS has stated in
Notice 97-2 that this is the method to be used and when this method has been
followed, the utilization test is considered to have been satisfied.
Retirement Plan Page 37
Returning excess contributions The concept of returning any excess
contributions (due to either the $10,500 limit or the limitation on restricted
employees) is simply to reverse the contributions -- as if they had never been
made. If the contributions had never been made, of course, the employee would
have received those amounts as pay and would have had to pay federal income tax
on them. So you have to pay income tax on them when you get them back.
When you get the excess contributions back depends on why you are getting
them back:
. If you are getting them back because of the $10,500 limit, you will get
them back (including the allocable income or loss) by April 15 of the
following year. The returned contributions are included in your taxable
income for the previous year (the year when they were contributed), while
the income on them is included in your taxable income for the year when you
actually receive it.
. If you are getting them back because of the utilization test, you will
get them back (including allocable income or loss) by the end of the
following plan year. The returned contributions and any allocable income
are included in your taxable income for the year in which you actually
receive them. (The only exception is the unlikely event that you get them
back before March 15 of the following year, in which case they are included
in your taxable income for the previous year.)
The allocable income or loss is that portion of the total income or loss
for the year for your 401(k) account which bears the same proportion to the
total as the excess 401(k) contributions for the year bear to the account
balance of your 401(k) account at the end of the year (minus the income (or plus
the loss) on that account for the year).
The amount of excess contributions returned to you because of the annual
dollar limit will be reduced by any excess contributions previously returned to
you because of the limitation on restricted employees for the plan year
beginning with or within your taxable year. And the amount of excess
contributions returned to you because of the limitation on restricted employees
will be reduced by any excess contributions previously returned to you because
of the annual dollar limit for your taxable year ending with or within the plan
year.
Combining plans If two or more plans are aggregated for purposes of section
401(a)(4) of the Code or section 410(b) of the Code (other than section
410(b)(2)(A)(ii)), then all 401(k) contributions made under both plans will be
treated as made under a single plan, for the purpose of this section of the
plan. (Of course, the aggregated plans must comply with sections 401(a)(4) and
410(b) as though they were a single plan.) In addition, if a restricted employee
is eligible to trade off contributions under two or more plans of the employer,
those cash-or-deferred arrangements will be treated as a single arrangement,
unless the applicable rules would prohibit permissive aggregation of those
arrangements.
Page 38 The Education Management Corporation
===============================
Maximum Amount Of
Matching Contributions
===============================
Introduction Besides limiting the amount of 401(k) contributions that
can be made on behalf of restricted employees, the Code also limits the amount
of matching contributions that can be made for restricted employees -- both by
themselves and when considered in combination with the 401(k) contributions.
This part of the plan describes these additional limitations.
Matching contributions by themselves The plan administrator will test
the matching contributions by themselves by running the same test as described
in the preceding section ("Maximum Amount of 401(k) Contributions"), taking into
account only those employees who have satisfied the special eligibility rule for
matching contributions and using matching contributions rather than their 401(k)
contributions.
Matching contributions in combination If the utilization test for
401(k) contributions (described in the preceding section of the plan) and the
utilization test for matching contributions (described in the preceding
paragraph of this section) both show that the average for the restricted
employees is more than 1.25 times the average for all other employees (after any
corrective distributions), then the plan administrator must run this additional
test.
Step 1. The plan administrator will add the average percentage for the
restricted employees under the trade-off test (already calculated under the
preceding section of the plan) and the average percentage for the restricted
employees under the matching test (already calculated under the preceding
paragraph of this section).
Step 2. The plan administrator will look at the average percentage for
all other employees under the trade-off test (already calculated under the
preceding section of the plan) and the average percentage for all other
employees under the matching test (already calculated under the preceding
paragraph of this section) and identify which is larger.
Step 3. The plan administrator will take the larger number in Step 2
and multiply by 1.25, then take the smaller number and either add 2 percentage
points or double it (whichever produces the lower number), and then add those
two numbers together.
Step 4. The plan administrator will take the smaller number in Step 2
and multiply by 1.25, then take the larger number and either add 2 percentage
points or double it (whichever produces the lower number), and then add those
two numbers together.
Step 5. The plan administrator will see if the number in Step 1 is
larger than both the number in Step 3 and the number in Step 4. If it is larger
than both of them, the test is failed. If it is smaller than either of them, the
test is passed.
If this test of matching contributions reveals a problem If the
matching contributions fail the tests in this section (either by themselves or
in combination with the 401(k) contributions), then the plan administrator will
return the excess matching contributions in the same manner as under the
preceding section of the plan (which specifies how excess 401(k) contributions
are returned). Alternatively, the employer may, but is not required to, solve
the problem in whole or in part by making additional "qualified nonelective
contributions" to the 401(k) accounts of employees who are not restricted, as
described in the preceding section of the plan, as long as those contributions
satisfy the requirements of Reg. (S) 1.401(m)-1(b)(5).
Retirement Plan Page 39
===============================
Maximum Amount of
Total Contributions
===============================
Introduction Federal law sets a limit on how much money can go into your
accounts in this plan in any one year. This section describes the limit. You
don't have to worry about this, though; the plan administrator will pay
attention to this section and make sure that the limit is not exceeded.
25% of pay limit The total of employer contributions, employee
contributions (if applicable), and forfeitures allocated to your accounts for
any one plan year cannot be more than 25% of your compensation from the employer
(or $30,000, whichever is less). (As the $30,000 figure rises in accordance with
the cost of living, the new figure will automatically be applied here.)
As an exception, forfeitures of stock that was acquired with the proceeds
of an exempt loan will not count against the limit if no more than one-third of
the employer contributions to this plan for a year which are deductible under
section 404(a)(9) of the Code are allocated to highly compensated employees --
all within the meaning of section 415(c)(6) of the Code.
If this limitation would be exceeded as a result of the allocation of
forfeitures, a reasonable error in estimating your annual compensation, a
reasonable error in determining the amount of 401(k) contributions that may be
made on your behalf within this limitation, or any other facts and circumstances
that the Commissioner of Internal Revenue finds justifies relief under this
paragraph, the excess amounts otherwise allocable to your account for that plan
year will be used to reduce employer contributions for the next plan year (and
succeeding plan years, as necessary) for you, as long as you are covered by the
plan at the end of that plan year. However, if you are not covered by the plan
at the end of that plan year, the excess amounts will be held unallocated in a
suspense account for that plan year and allocated and reallocated in the next
plan year to all of the remaining participants in the plan in accordance with
the rules set forth in subparagraph Treas. Reg. (S) 1.415-6(b)(6)(i).
Furthermore, the excess amounts will be used to reduce employer contributions
for the next plan year (and succeeding plan years, as necessary) for all of the
remaining participants in the plan.
And, though it may never apply, the IRS requires us to say that the $30,000
limit is reduced by employer contributions allocated to any individual medical
account which is part of a pension or annuity plan and contributions on behalf
of a member of the concentration group, as described below under the heading
"Improvements When the Plan Is Top-Heavy," to a separate account for post-
retirement medical benefits pursuant to Code section 419A(d) prior to the
employee's separation from service.
Page 40 The Education Management Corporation
If there's more than one defined contribution plan All "defined
contribution" plans of the employer (that's what this is) are considered to be
one plan, so that, if the employer runs any other defined contribution plans,
the limit applies to the total contributions under all of those plans. These may
be plans qualified under section 401(a) of the Code, annuity plans under section
403(a), annuity contracts under section 403(b), or simplified employee pension
plans under section 408(k). But the limitation of this section of the plan will
be applied first to the other plan or plans, reducing the annual additions under
those plans to elimination before any reduction is applied under this plan.
"Employee contributions" does not include rollover contributions from
another plan and does not include employee contributions to a simplified
employee pension plan that are excludable from gross income under section
408(k)(6) of the Code.
If there's also a defined benefit plan Due to a change in the law, this
section no longer applies, beginning with the 2000 plan and limitation year.
Related employers For the purpose of this section of the plan, all related
employers are considered to be a single employer to the extent required by Code
sections 414(b), (c), (m), and (o) and 415(h).
Retirement Plan Page 41
===============================
Improvements When The
Plan Is Top-heavy
===============================
Introduction The plan administrator has to monitor the plan year by
year to see if the benefits of the plan are concentrated in a group of employees
that we will call the "concentration group." If so, the plan is said to be "top-
heavy" and several improvements are automatically made in the plan for that
year. This section of the plan describes what the plan administrator does to
figure out if the plan is top-heavy and what improvements are made if it is.
Please note: This plan has never been top-heavy and is unlikely ever to
become top-heavy. But the IRS makes us put these provisions in the
document just in case.
Who is in the concentration group The plan administrator will first
figure out who is in the concentration group for a given plan year. This is what
the plan administrator will do:
Officers. List each officer on the last day of each of the five
preceding plan years and how much he or she made each year. Delete from the list
anyone who did not make more than 1/2 the defined benefit dollar limit in
section 415 of the Code for that year.
Find the highest number of employees of the employer at any time during
the five preceding plan years, excluding employees who have not completed 6
months of service, employees who normally work less than 17 1/2 hours per week,
employees who normally work during not more than 6 months during any year,
employees who have not attained age 21, and employees included in a collective
bargaining unit. And then delete from the list of officers as follows:
. If the number of employees is less than 30, delete all but the 3
officers having the greatest aggregate compensation during those five
years.
. If the number of employees is more than 30 but less than 500, take
10 percent of that number, round to the next highest whole number, and
then delete all but the resulting number of officers having the
greatest aggregate compensation during those five years.
. If the number of employees is more than 500, delete all but the 50
officers having the greatest aggregate compensation during those five
years.
Everybody left on the list is in the concentration group.
5% Owners. List all employees who owned more than 5% of the value of
the stock or voting power of the stock of the employer on the last day of the
preceding plan year. All those people are in the concentration group.
1% Owners. Separately for each of the five preceding years, list all
employees who owned more than 1% (but not more than 5%) of the value of the
stock or voting power of the stock of the employer on the last day of each year.
Delete anyone who did not make more than $150,000 that year. (That figure is
adjusted for the cost of living every year.) Everybody left on the list is in
the concentration group.
Page 42 The Education Management Corporation
1/2% Owners. Separately for each of the five preceding years, list all
employees who owned more than 1/2% of the value of the stock or voting power of
the stock of the employer at any time during those five plan years. Delete the
entry for any year if the employee did not make more than the defined
contribution dollar limit in 415 that year. Select the 10 entries having the
highest ownerships. (In case of a tie in ownership, the one with the higher
compensation wins.) Those ten people are in the concentration group.
Performing the concentration test To test for top-heaviness, the plan
administrator will identify all pension, profit sharing and stock bonus plans of
the employer in which any member of the concentration group participated in any
of the preceding five years. (This includes plans that have previously been
terminated if they were maintained at any time during those five years.) In
addition, if any of those plans relies on the existence of some other plan in
order to meet the coverage or nondiscrimination rules, then that other plan will
also be thrown into the test. All of them will be tested together as if they
were one plan.
Defined benefit plans. For each defined benefit plan, the plan
administrator will calculate the present value of each participant's accrued
benefit as of the valuation date coincident with or last preceding the end of
the last plan year, as if the participant terminated on the valuation date,
using the same actuarial assumptions for all plans. This will include the value
of nonproportional subsidies and accrued benefits attributable to nondeductible
employee contributions (whether voluntary or mandatory). If there is no uniform
accrual method under all such defined benefit plans, the plan administrator will
determine the accrued benefit by applying the slowest accrual rate permitted
under the "fractional rule" of Code section 411(b)(1)(C).
Defined contribution plans. For each defined contribution plan (including
this one), the plan administrator will calculate the account balance of each
participant, as of the valuation date coincident with or last preceding the end
of the last plan year. This will include contributions due by the last day of
the last plan year.
Add-backs. For both defined benefit and defined contribution plans, the
plan administrator will add back in the value of all distributions made in those
five years, except to the extent already taken into account.
Exclusions. The plan administrator will exclude from the total all accrued
benefits and account balances of persons who were members of the concentration
group for prior years but are not members of the concentration group for the
year being tested. The plan administrator will also exclude from the total all
rollovers except those which (1) were not made at the initiative of the employee
or (2) came from a plan of an employer required to be aggregated with this
employer under section 414 of the Code.
Concentration percentage. The plan administrator will divide the total
accrued benefits and account balances of the members of the concentration group
by the total accrued benefits and account balances of everyone in the plans. If
the result is more than 60%, all the plans are top-heavy. If the result is 60%
or less, none of the plans are top-heavy.
Exception. If the percentage is more than 60%, but would not be more than
60% if another plan were added to the group of plans that are being tested (and
that plan is one which could be added without taking the group out of compliance
with the coverage and nondiscrimination rules), then none of the plans are top-
heavy.
Retirement Plan Page 43
Changes if the plan is top-heavy . There are three changes that apply for a
particular plan year if the plan is top-heavy for that year.
Benefits in the event of termination of employment before retirement. If
the plan is top-heavy for a particular year, then the schedule at the beginning
of the plan in the section called "Quick-Reference Information" under the
heading "Length Of Service Required For Benefits" may be changed for everyone
who has at least one hour of service after the plan became top-heavy.
. If that schedule provides for 100% after 5 years of service, it is
changed to 100% after 3 years of service.
. If it provides for gradually increasing percentages from 3 to 7
years of service, it is changed to provide the same progression but
from 2 to 6 years of service.
. If it already provides a schedule which is better than 100% after 3
years or graded from 2 to 6 years, then there is no change in the
schedule.
If, in a future year, the plan is no longer top-heavy, the schedule in
"Quick-Reference Information" is reinstated, except that the reinstatement of
the original schedule is treated as an amendment to the plan subject to the two
limitations described below in the "Miscellaneous" section under the heading
"Changes in the Vesting Schedule."
Minimum contribution. For a year when the plan is top-heavy, each
member of the plan who is not a member of the concentration group will receive
an employer contribution on top of his pay of at least 3%, with three
exceptions:
. The percentage is not required to be greater than the highest
percentage received for that year by anyone who is a member of the
concentration group. In figuring that percentage, contributions made by
trading off pay are counted as contributions, as are matching
contributions.
. If the employer also maintains a defined benefit plan that is top-
heavy and that plan provides that the concentration requirements will
be met by providing the minimum required accrual in that defined
benefit plan, then there is no minimum contribution required in this
plan.
. If the employer also maintains a defined benefit plan that is top-
heavy and that plan does not provide that the concentration
requirements will be met by providing the minimum required accrual in
that defined benefit plan, then the minimum contribution in this plan
is 5%.
The minimum contribution requirement applies to everyone in the plan
who has not separated from service by the end of the plan year, including those
who have not completed 900 hours of service during the year and those who have
not chosen to trade off pay for contributions. The minimum contribution
requirement cannot be met by counting contributions made by trading off pay or
matching contributions.
Maximum amount of total contributions. Due to a change in the law, this
subsection no longer applies, effective with the 2000 plan and limitation year.
Page 44 The Education Management Corporation
===============================
Special ESOP Provisions
===============================
Introduction Since the Education Management Corporation Employee Stock
Ownership Plan has been merged into this plan (the Education Management
Corporation Retirement Plan), there are a number of special provisions from the
Employee Stock Ownership Plan that need to be preserved in this plan. This
section contains them.
The nature of an ESOP This type of ESOP borrows money from a bank and
uses it to buy stock of the sponsor -- Education Management Corporation. The
stock is held as collateral for the loan. Then, from year to year, the employer
makes cash contributions to the plan that are used to pay down the loan.
As the loan is paid down each year, a corresponding amount of stock no
longer needs to be held as collateral for the loan. The stock that is released
is allocated among the employer stock accounts of the employees who are in the
plan.
Over time, the idea is that the loan will be completely paid off, which
means that all of the stock will be released and allocated to the accounts of
the employees in the plan. As a matter of fact, in this plan, that has already
happened: the loan has been paid off and the stock has all been allocated to the
employer stock accounts of the employees in the plan.
Investment Investments of employer stock accounts are made at the
direction of the plan administrator. Since this is in part an ESOP, however, the
assets of the employer stock accounts must be invested primarily in stock of
Education Management Corporation. (If any future ESOP contributions are made or
dividends are paid, the trustee must use them to buy more stock of Education
Management Corporation to the extent that stock is available on terms that the
plan administrator considers prudent.)
Technically, this includes any "qualifying employer security" within
the meaning of section 407(d)(5) of ERISA that also meets the requirements of
section 409(l) of the Code. This includes common stock issued by Education
Management Corporation that is readily tradable on an established securities
market, as well as noncallable preferred stock (as long as it is convertible at
any time into readily tradable common stock and the conversion price was
reasonable when the noncallable preferred stock was acquired by this plan). The
full definition is set out later in this section, but we will call this simply
"stock" or "employer stock."
Purchases of stock must be made at a price which, in the judgment of
the plan administrator, does not exceed the fair market value of the stock.
Sales of stock may be made to any person, except that if the buyer is a
"disqualified person" under section 4975(e)(2) of the Code, the sales price may
not be less than the fair market value of the stock and no commission can be
charged on the sale. All sales will comply with section 408(e) of ERISA.
There may also be a small amount of cash in employer stock accounts. It
may be invested in bank accounts, certificates of deposit, securities, short-
term funds maintained by the trustee, or any other kind of investment in
accordance with the trust agreement, or it may simply be held in cash.
Retirement Plan Page 45
"Employer securities" We said earlier that the stock must constitute
"employer securities" under Code section 409(l). Here is the text of Code
section 409(l) so there is no doubt about what we mean:
"(1) IN GENERAL.--The term 'employer securities' means common stock issued
by the employer (or by a corporation which is a member of the same
controlled group) which is readily tradable on an established securities
market.
"(2) SPECIAL RULE WHERE THERE IS NO READILY TRADABLE COMMON STOCK.--If
there is no common stock which meets the requirements of paragraph (1), the
term 'employer securities' means common stock issued by the employer (or by
a corporation which is a member of the same controlled group) having a
combination of voting power and dividend rights equal to or in excess of--
"(A) that class of common stock of the employer (or of any other such
corporation) having the greatest voting power, and
"(B) that class of common stock of the employer (or of any other such
corporation) having the greatest dividend rights.
"(3) PREFERRED STOCK MAY BE ISSUED IN CERTAIN CASES.--Noncallable preferred
stock shall be treated as employer securities if such stock is convertible
at any time into stock which meets the requirements of paragraph (1) or (2)
(whichever is applicable) and if such conversion is at a conversion price
which (as of the date of the acquisition by the tax credit employee stock
ownership plan) is reasonable. For purposes of the preceding sentence,
under regulations prescribed by the Secretary, preferred stock shall be
treated as noncallable if after the call there will be a reasonable
opportunity for a conversion which meets the requirements of the preceding
sentence.
"(4) APPLICATION TO CONTROLLED GROUP OF CORPORATIONS.--
"(A) IN GENERAL.--For purposes of this subsection, the term 'controlled
group of corporations' has the meaning given to such term by section
1563(a) (determined without regard to subsections (a)(4) and (e)(3)(C)
of section 1563 ).
"(B) WHERE COMMON PARENT OWNS AT LEAST 50 PERCENT OF FIRST TIER
SUBSIDIARY.--For purposes of subparagraph (A), if the common parent owns
directly stock possessing at least 50 percent of the voting power of all
classes of stock and at least 50 percent of each class of nonvoting
stock in a first tier subsidiary, such subsidiary (and all other
corporations below it in the chain which would meet the 80 percent test
of section 1563(a) if the first tier subsidiary were the common parent)
shall be treated as includible corporations.
"(C) WHERE COMMON PARENT OWNS 100 PERCENT OF FIRST TIER SUBSIDIARY.--For
purposes of subparagraph (A), if the common parent owns directly stock
possessing all of the voting power of all classes of stock and all of
the nonvoting stock, in a first tier subsidiary, and if the first tier
subsidiary owns directly stock possessing at least 50 percent of the
voting power of all classes of stock, and at least 50 percent of each
class of nonvoting stock, in a second tier subsidiary of the common
parent, such second tier subsidiary (and all other corporations below it
in the chain which would meet the 80 percent test of section 1563(a) if
the second tier subsidiary were the common parent)
Page 46 The Education Management Corporation
shall be treated as includible corporations.
"(5) NONVOTING COMMON STOCK MAY BE ACQUIRED IN CERTAIN CASES.--Nonvoting
common stock of an employer described in the second sentence of section
401(a)(22) shall be treated as employer securities if an employer has a
class of nonvoting common stock outstanding and the specific shares that
the plan acquires have been issued and outstanding for at least 24 months."
Voting In a number of instances, you may be entitled to direct how the
stock in your employer stock account is voted when votes of the shareholders of
Education Management Corporation are taken. This section applies equally to any
beneficiary of yours who may have an account under the plan. Here they are:
. If any class of stock in the plan is required to be registered under
section 12 of the Securities Exchange Act of 1934, as amended, then you are
entitled to instruct the plan administrator how to vote the stock in your
employer stock account to the extent required under section 409(e) of the
Code.
. As to any stock acquired by the ESOP with the proceeds of a loan with
respect to which the lenders exclude from federal taxable income a portion
of the interest pursuant to section 133 of the Code, you are entitled to
instruct the plan administrator how to vote the stock in your employer
stock account, to the extent required under section 133(b)(7)(A) of the
Code.
. In any event, you are entitled to direct the plan administrator how to
vote the stock in your employer stock account with respect to any vote of
shareholders on any corporate merger, consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all
assets, or a similar transaction, to the extent required by Sections
401(a)(22) and 409(e) of the Code and regulations thereunder.
If you do not instruct the plan administrator how to vote the stock in your
employer stock account (or if there is any stock that is not allocated to the
accounts of the members of the plan), the plan administrator is entitled to
instruct the trustee how to vote the stock, assuming that the instructions of
the plan administrator are consistent with ERISA.
Diversification If you have reached age 55 and you have participated in the
ESOP for at least ten years, you may choose to have some of the stock in your
employer stock account sold and the proceeds transferred to your profit sharing
account here in the plan, where it will be invested in accordance with the
investment instructions then in effect for your profit sharing account. This is
called "diversification."
In measuring your period of participation in the ESOP, your participation
in the ESOP while it was a separate plan before April 7, 1999 will obviously
count; participation in this consolidated plan on and after April 7, 1999 will
also count. And since the ESOP was only established effective January 1, 1989,
ten years of participation in the ESOP obviously can't happen until the end of
1998.
Your "window of opportunity." The opportunity to diversify your employer
stock account begins as soon as you have attained age 55 and completed 10 years
of participation in the plan (or upon the adoption of this edition of the plan,
if later). For example, once this edition of the plan is adopted, if you have
already completed 10 years of participation in the plan, it begins on your 55th
birthday. On the other hand, if you reach age 55 before you have completed 10
years of participation in the plan, it begins after you have completed 10 years
of participation.
Retirement Plan Page 47
The opportunity continues for the rest of that plan year (the plan year
in which you attained age 55 and completed 10 years of participation) and then
for the next six full plan years.
EXAMPLE: Your participation in the ESOP began effective January 1,
1989. You remain a participant through December 31, 1998, so that, as
of January 1, 1999, you have completed 10 years of participation in the
plan. This edition of the plan is adopted on April 7, 1999. Then you
attain age 55 on September 12, 1999. You may diversify the investment
of your employer stock account beginning on September 12, 1999. The
opportunity continues for the rest of the 1999 and then for the next
six full plan years -- the years 2000, 2001, 2002, 2003, 2004 and 2005.
What portion of your account can be diversified. There's a formula to
determine what portion of your account can be diversified. It is:
. 25% (or, in the case of the last year in which you can diversify,
50%) of the number of shares of stock that have ever been allocated to
your account as of the most recent December 31 minus
. the number of shares that you have previously asked to have
diversified under this section.
EXAMPLE: You may diversify the investment of your employer stock
account beginning on September 12, 1999. As of December 31, 1998, the
total number of shares of stock ever allocated to your account was 100
shares. That means you may diversify up to 25 shares of stock beginning
on September 12, 1999.
EXAMPLE CONTINUED: Suppose you choose to diversify 10 shares of stock
in January of the year 2000. You still have the opportunity to
diversify through the year 2005. Suppose that no additional shares are
allocated to your account. Since the total number of shares ever
allocated to your account is 100 and you have previously chosen to
diversify 10 shares, you may diversify up to 15 more shares at any time
through the year 2005.
EXAMPLE CONTINUED: Suppose you diversify another 15 shares during the
year 2001. You have now diversified 25 shares, so you are at the limit
of 25%. But in the year 2005, the limit rises to 50%, so during the
year 2005, you may diversify up to another 25 shares (for a total of 50
shares out of 100).
How. Call the trustee (Fidelity) whenever you are eligible to
diversify. The trustee will verify your eligibility against the information
provided by the plan administrator, calculate the number of shares that are
available to be diversified, and take your direction to diversify part or all of
those shares.
What happens. After receiving your call, the trustee (Fidelity) will
take out of your employer stock account the number of shares that you have
chosen to diversify. It will then sell them as soon as administratively possible
on the open market. The money that it receives from selling those shares will be
deposited in your profit sharing account here in the plan, where it will
automatically be invested in accordance with the investment instructions then in
effect for your profit sharing account.
Page 48 The Education Management Corporation
"Nonterminable" protections and rights With one exception, stock will
never be subject to a put, call or other option or a buy-sell or similar
arrangement while held by and when distributed from this plan. The exception is
that stock may be subject to a put option to the extent provided earlier in the
plan in the section called "How Payment Is Made" under the heading "'Put'
Option." This prohibition remains effective despite the fact that the ESOP loan
has been repaid and regardless of whether the plan remains an ESOP in the
future. And the provision of the plan regarding put options also remains
effective despite the fact that the ESOP loan has been repaid and regardless of
whether the plan remains an ESOP in the future.
Non-allocation under Code section 409(n) While there is no stock
acquired in a transaction for which the seller has elected favorable tax
treatment under section 1042 of the Code that remains unallocated at the present
time, this section expresses a rule that was applied when the stock was
allocated, for historical purposes only.
No employer securities, or other assets attributable to or in lieu of
such employer securities, acquired in such a transaction may be allocated
directly or indirectly, to the Accounts of:
. such seller;
. any individual who is related to the seller (within the meaning of
Section 267(b) of the Code), or
. any other individual who owns (directly or by attribution, after the
application of section 318(a) of the Code applied without regard to the
employee trust exception in section 318(a)(2)(B)(i) of the Code) more
than 25% of (A) any class of outstanding stock of the employer or any
affiliate, or (B) the total value of any class of outstanding stock of
the employer or of any affiliate.
The restriction on allocations to persons described in the first or
second bullet points shall apply only during a nonallocation period which shall
begin on the date of the section 1042 sale and end on the later of (A) the tenth
(10th) anniversary of the date of the section 1042 sale, or (B) the date of the
allocation attributable to the last payment of principal and/or interest on the
exempt loan incurred with respect to the section 1042 sale.
The restriction on allocation to persons described in the second bullet
point shall not apply to participants who are lineal descendants of the seller,
except that the aggregate amount allocated to the benefit of all such lineal
descendants during the nonallocation period shall not exceed 5% of the employer
securities (or other amounts attributable to or in lieu thereof) held by the
trust attributable to a section 1042 sale of employer securities to the trust by
any person who is related (within the meaning of section 267(c)(4) to such
lineal descendants.
An individual shall be restricted under the third bullet point if he or
she is described by that clause at any time during the one-year period ending on
the date of the section 1042 sale or as of the date employer securities are
allocated to participants.
Retirement Plan Page 49
=============================
Miscellaneous
=============================
What "pay" or "compensation" means With the three exceptions noted
below in this section, when we refer to your "pay" or "compensation" we mean
your taxable wages for the purpose of federal income tax as shown in the box
labeled "Wages, Tips, Other Compensation" on your W-2, plus any amounts excluded
solely because of the nature or location of the services provided. The period
used to determine your pay or compensation for a plan year is the plan year.
Adding back salary reduction amounts. "Pay" or "compensation" also
includes salary reduction amounts under a cafeteria plan (Code section 125), a
401(k) plan (Code section 402(e)(3)), a tax-sheltered annuity (Code section
403(b)), a simplified employee pension plan (Code section 402(h)) or an eligible
deferred compensation plan of a tax-exempt organization (Code section 457).
"Pay" or "compensation" also includes salary reduction for qualified
transportation fringes (Code section 132(f)) effective January 1, 2001 for the
purpose of the limit described under the heading "Maximum Amount of Total
Contributions" and for the purpose of the rules described under the heading
"Improvements When the Plan Is Top-Heavy" and effective January 1, 2002 for all
other purposes.
Excluding extraordinary items. For all purposes except the limit
described under the heading "Maximum Amount of Total Contributions" and the
rules described under the heading "Improvements When the Plan Is Top-Heavy,"
"pay" or "compensation" does not include:
. reimbursements or other expense allowances,
. fringe benefits (cash and non-cash),
. moving expenses,
. deferred compensation, or
. welfare benefits.
$170,000 limit on compensation. As required by section 401(a)(17) of
the Code, compensation in excess of $170,000 (adjusted for the cost of living)
is not taken into account for any purpose under this plan .
Leased employees If the employer previously leased your services from a
leasing organization but later you become employed by the employer itself, your
length of service includes your service as a leased employee if it was performed
at a time when the employer maintained this plan. (When we say "employer," we
include related employers, as described above under the heading "How The Length
of Your Service Is Calculated".) For this purpose, service as a leased employee
is service performed under primary direction or control by the employer,
pursuant to an agreement between a leasing organization and the employer,
regardless of how long you performed that service.
Family and medical leave Any leave to which you are entitled under the
federal Family and Medical Leave Act of 1993 will not result in the loss of any
"employment benefit" provided by this plan that had accrued prior to the leave
and that would not have been lost if you had remained actively at work during
the leave.
Page 50 The Education Management Corporation
Changes in vesting schedule If the schedule shown at the beginning of
the plan in the section called "Quick-Reference Information" under the heading
"Length of Service Required for Benefits" is ever changed, there are two
limitations. First, the change will never reduce the percentage that applies to
your account based on employer contributions that were made on top of your pay
through the end of the last year before the change was adopted (or became
effective, if later). Second, if you have 3 or more years of service when the
change is adopted (or becomes effective, if later), you may nevertheless choose
to stay under the schedule that was in effect before the change was made.
Non-Alienation With the two exceptions provided here, your right to
benefits under the plan cannot be assigned or alienated. This means you cannot
sell your interest in the plan or pledge it as security for a loan. No creditor
of yours can take away your interest in the plan. This provision of the plan is
intended to comply with, and apply just as broadly and as stringently as,
section 206(d) of ERISA and section 401(a)(13) of the Code.
The first exception is qualified domestic relations orders described in
the section entitled "Child Support, Alimony and Division of Property in
Divorce." The second exception is that, effective August 5, 1997, the plan may
offset against your benefit any amount that you are ordered or required to pay
to the plan in the circumstances set forth in section 206(d)(4) of ERISA.
Payments to minors If the proper recipient of money from the plan is a
minor, or if the plan administrator believes the recipient to be legally
incompetent to receive it, the plan administrator may direct that the payment be
made instead to anyone who has authority over the affairs of the recipient, such
as a parent, guardian, or other relative.
Payment made in this manner will entirely satisfy the obligation of the
plan to pay the money, and the plan administrator will have no responsibility to
see what happens to the money after it is paid.
Unclaimed benefits People are expected to claim their money from the
plan when their employment terminates. It is your responsibility to make the
claim; the plan administrator does not have any responsibility to track you
down.
If you still haven't claimed your money by the time when it must be
paid, the plan administrator will make a reasonable effort to locate you (such
as inquiring of the employer, sending a letter to your last known address, and
inquiring of the Social Security Administration). If the plan administrator
still can't find you, the plan administrator will set up an interest-bearing
account with a financial institution in your name in order to get your money out
of the plan. If no financial institution will set up an account in your name
without your participation, the plan administrator will have to assume that you
are dead and pay the money in accordance with the death provisions of the plan.
Plan assets sole source of benefits The plan assets (held in the trust
fund or by an insurance company) are the only source of benefits under the plan.
The employer and plan administrator are not responsible to pay benefits from
their own money, nor do they guarantee the sufficiency of the trust fund or
insurance contracts in any way.
No right to employment Many of the requirements of the plan depend on
your employment status, particularly how long you have worked for the employer.
But your employment status is purely a matter between you and your employer; the
plan does not change anything. The fact that your rights under the plan might be
different if your employment history were different does not give you any
different employment rights than if the plan had never existed.
Retirement Plan Page 51
Profit sharing and stock bonus plan This plan is intended to qualify under
section 401(a) of the Code as a profit sharing plan with a qualified cash-or-
deferred arrangement and, to the extent of the employer stock accounts, as a
stock bonus plan.
Merger of plan The Code requires that the plan contain the following
provision (which is also a requirement of ERISA). However, the interpretation
and application of this provision are quite different from what it appears to
say, and we intend that it be interpreted and applied no more strictly than
required by the regulations under the Code:
The plan may not merge or consolidate with, or engage in a transfer of
assets or liabilities with, any other plan unless the benefit that each
participant in this plan would receive if both plans terminated immediately
after the transaction is no less than the benefit that the participant would
have received if this plan had terminated immediately before the transaction.
Protection of benefits, rights, and features from previous edition of plan
Since this document constitutes an amendment and restatement of the plan, it
must preserve, to the minimum extent required by section 411(d)(6) of the Code
and Treasury Regulation 1.411(d)-4, all benefits, rights and features required
by that Code section and regulation to be protected against reduction. While we
believe that this document preserves all such benefits, rights and features, as
a failsafe we recite here that the terms of all such benefits, rights, and
features, to the extent entitled to protection under this restatement of the
plan, are hereby incorporated by reference from the prior plan document.
Governing law The plan is subject to ERISA and therefore governed
exclusively by federal law except where ERISA provides otherwise. If state law
ever applies to the interpretation or application of the plan, it shall be the
law of the state where the employer has its principal place of business.
No PBGC Coverage This plan is not covered by the plan termination insurance
system established under Title IV of ERISA and administered by the Pension
Benefit Guaranty Corporation. As a defined contribution, individual account
plan, it is not eligible for coverage under the law.
"Highly compensated employees." In the section called "Maximum Amount of
Total Contributions," under the heading "25% of pay limit," reference is made to
"highly compensated employees." That phrase means any employee who owned 5% or
more of the employer during the year in question or the preceding year, as well
as any employee who had compensation from the employer during the preceding year
of more than $85,000. (The dollar figure changes slightly from year to year
according to the cost-of-living. The plan administrator can tell you what the
exact figure is for this year.) Non-resident aliens who have no U.S.-source
income are not taken into account when applying this definition.
Statement of ERISA rights Regulations of the federal government require
that the following "Statement of ERISA Rights" appear in this document, and we
are reproducing it here with quotation marks. Not all of the statement is
necessarily accurate or applies to this plan. Neither the employer nor the plan
administrator takes any responsibility for the accuracy or completeness of this
statement, which is made to you by the federal government, not by anyone
connected with the plan:
"As a participant in this plan, you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA provides that all plan participants shall be entitled to:
Page 52 The Education Management Corporation
"Examine, without charge, at the plan administrator's office and at other
specified locations, such as worksites and union halls, all plan documents,
including collective bargaining agreements and copies of all documents filed by
the plan with the U.S. Department of Labor, such as detailed annual reports and
plan descriptions.
"Obtain copies of all plan documents and other plan information upon
written request to the plan administrator. The 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.
"Obtain a statement telling you whether you have a right to receive a
pension at normal retirement age (age 65) and if so, what your benefits would be
at normal retirement age if you stopped 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 a year. 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 and other plan participants
and beneficiaries. No one, including your employer 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 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 $100 a day until you receive the materials, unless
the materials were not sent because of reasons beyond the control of the
administrator. If you have a claim for benefits which is denied or ignored, in
whole or in part [and you have exhausted the plan's claim and appeal procedure],
you may file suit in a state or 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 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 is
frivolous. If you have any questions about this statement or 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."
Service of legal process may be made on the plan administrator or any
trustee.
Retirement Plan Page 53
=============================
Special Arrangements for New
Participating Employers
=============================
Introduction When a new school joins the EDMC family, it is sometimes
appropriate to make special arrangements for the employees of that school, in
order to bring them into this plan in a way that harmonizes with the plan that
they were in before. If a special arrangement is made, this section describes
it.
Illinois Institute of Art In determining the length of your service for
getting into this plan (that is, the Retirement Plan) effective January 1, 1996
and for deciding what portion of your account you are entitled to if you leave
before age 65, hours of service in the employ of Ray College of Design from
January 1, 1995 to November 8, 1995 are taken into account as hours of service
under the plan to the same extent as if Ray College of Design had been a
participating employer during that period.
New York Restaurant School In determining the length of your service for
getting into this plan (that is, the Retirement Plan) effective January 1, 1997
and for deciding what portion of your account you are entitled to if you leave
before age 65, hours of service in the employ of New York Restaurant School,
Inc. from January 1, 1996 to August 2, 1996 are taken into account as hours of
service under the plan to the same extent as if New York Restaurant School, Inc.
had been a participating employer during that period.
In addition, any individual who was an employee of New York Restaurant
School, Inc. immediately prior to August 2, 1996 and was eligible to participate
in the New York Restaurant School, Inc. 401(k) Profit Sharing Plan and becomes
an employee eligible to participate in this plan by reason of New York
Restaurant School's becoming a participating employer on or about August 2, 1996
is eligible to participate in this plan effective September 1, 1996
notwithstanding the semi-annual entry dates otherwise provided in the section
entitled "How You Get Into the Plan."
Art Institutes International Portland, Inc. In determining the length of
your service for getting into this plan (that is, the Retirement Plan) effective
April 1, 1998 and for deciding what portion of your account you are entitled to
if you leave before age 65, hours of service in the employ of Bassist College
from January 1, 1997 to February 26, 1998 are taken into account as hours of
service under the plan to the same extent as if Bassist College had been a
participating employer during that period.
Massachusetts Communications College The requirement of one year of service
in order to join this plan (that is, the Retirement Plan) shall not apply to any
employee who, immediately prior to January 1, 2000, was an employee of
Massachusetts Communications College and a participant in the Massachusetts
Communications College 401(k) Plan and Trust.
In addition, in determining the length of your service for getting into
this plan (that is, the Retirement Plan) effective January 1, 2000 and for
deciding what portion of your account you are entitled to if you leave before
age 65, hours of service in the employ of Massachusetts Communications College
from January 1, 1999 through December 31, 1999 are taken into account as hours
of service under the plan to the same extent as if Massachusetts Communications
College had been a participating employer during that period.
Page 54 The Education Management Corporation
In addition, if hours of service by employees of Massachusetts
Communications College for years before 1999 can be substantiated by December
31, 2000, then in determining the length of your service for deciding what
portion of your account you are entitled to if you leave before age 65, hours of
service in the employ of Massachusetts Communications College for years before
1999 will be taken into account as hours of service under the plan to the same
extent as if Massachusetts Communications College had been a participating
employer during that period. As an exception, no more than five years of service
will be credited under this paragraph to any employee who upon entering this
plan is a "restricted employee" as described in the section called "Maximum
Amount of 401(k) Contributions."
Art Institute of Charlotte The requirement of one year of service in order
to join this plan (that is, the Retirement Plan) shall not apply to any employee
who, immediately prior to January 1, 2000, was an employee of the American
Business & Fashion Institute, Inc. and a participant in the American Business &
Fashion Institute, Inc. 401(k) Profit Sharing Plan.
In addition, in determining the length of your service for getting into
this plan (that is, the Retirement Plan) effective January 1, 2000 and for
deciding what portion of your account you are entitled to if you leave before
age 65, hours of service in the employ of the American Business & Fashion
Institute, Inc. from January 1, 1999 through December 31, 1999 are taken into
account as hours of service under the plan to the same extent as if the American
Business & Fashion Institute, Inc. had been a participating employer during that
period.
In addition, if hours of service by employees of the American Business &
Fashion Institute, Inc. for years before 1999 can be substantiated by December
31, 2000, then in determining the length of your service for deciding what
portion of your account you are entitled to if you leave before age 65, hours of
service in the employ of the American Business & Fashion Institute, Inc. for
years before 1999 will be taken into account as hours of service under the plan
to the same extent as if the American Business & Fashion Institute, Inc. had
been a participating employer during that period. As an exception, no more than
five years of service will be credited under this paragraph to any employee who
upon entering this plan is a "restricted employee" as described in the section
called "Maximum Amount of 401(k) Contributions."
Art Institute of Las Vegas In determining the length of your service for
the purpose of eligibility to receive matching contributions and for deciding
what portion of your account you are entitled to if you leave before age 65,
hours of service in the employ of the Interior Design Institute, Inc. before it
was acquired by Education Management Corporation are taken into account as hours
of service under the plan to the same extent as if the Interior Design
Institute, Inc. had been a participating employer during that period. As an
exception, no more than five years of service will be credited under this
paragraph to any employee who upon entering this plan is a "restricted employee"
as described in the section called "Maximum Amount of 401(k) Contributions."
Art Institute of California . In determining the length of your service for
the purpose of eligibility to receive matching contributions and for deciding
what portion of your account you are entitled to if you leave before age 65,
hours of service in the employ of LJAAA, Inc. before it was acquired by
Education Management Corporation are taken into account as hours of service
under the plan to the same extent as if LJAAA, Inc. had been a participating
employer during that period. As an exception, no more than five years of service
will be credited under this paragraph to any employee who upon entering this
plan is a "restricted employee" as described in the section called "Maximum
Amount of 401(k) Contributions."
Retirement Plan Page 55
Appendix A to the
Education Management Corporation
Retirement Plan
Participating Employers As of August 1, 2001
(* denotes employer that does not participate in ESOP feature)
The Art Institute of Atlanta, Inc. The Art Institute of Las Vegas, Inc.*
6600 Peachtree Dunwoody Road 4225 S. Eastern Avenue, Suite 4
100 Embassy Row Las Vegas, NV 89119
Atlanta, GA 30328 (effective July 1, 2001)
TAIC, Inc.* The Art Institute of Los Angeles, Inc.*
d/b/a The Art Institute of California Santa Monica Business Park, Building S
10025 Mesa Rim Road 2900 31st Street, Suite 150
San Diego, CA 92121 Santa Monica, CA 90405
(effective January 1, 2001) (effective January 13, 1997)
The Art Institute of Charlotte, Inc.* The Art Institute of Los Angeles
1515 Mockingbird Lane, Suite 600 - Orange County, Inc.*
Charlotte, NC 28209 3601 West Sunflower Avenue
(effective January 1, 2000) Santa Ana, CA 92704
(effective January 1, 2000)
The Art Institute of Colorado, Inc. The Art Institutes International Minnesota, Inc.*
1200 Lincoln Street 15 South 9th Street
Denver, CO 80203 LaSalle Building
Minneapolis, MN 55402
(effective January 28, 1997)
The Art Institute of Dallas, Inc. The Art Institute of Pittsburgh
8080 Park Lane, Suite 100 420 Boulevard of the Allies
Dallas, TX 75231 Pittsburgh, PA 15219
The Art Institute of Ft. Lauderdale, Inc. The Art Institute of Philadelphia, Inc.
1799 SE 17th Street 1622 Chestnut Street
Ft. Lauderdale, FL 33316 Philadelphia, PA 19103
The Art Institute of Houston, Inc. The Art Institute of Phoenix, Inc.*
1900 Yorktown 2233 West Dunlap Avenue
Houston, TX 77056 Phoenix, AZ 85021
The Art Institutes International
at San Francisco, Inc.*
1170 Market StreetSan Francisco, CA 94102
(effective December 19, 1997)
Page 56 The Education Management Corporation
The Art Institute of Portland, Inc.* 1000 Plaza Drive, Suite 1000
2000 Southwest Fifth Avenue Schaumburg, IL 60173
Portland, OR 97201
(effective April 1, 1998)
Massachusetts Communications College*
The Art Institute of Seattle, Inc. 142 Berkeley Street
2323 Elliott Avenue Boston, MA 02116
Seattle, WA 98121 (effective January 1, 2000)
NCPT, Inc.
The Art Institute of Washington, Inc.* 6600 Peachtree Dunwoody Road
The Ames Center 100 Embassy Row
1820 N. Fort Meyer Drive Atlanta, GA 30328
Arlington, VA 22209
(effective January 1, 2000)
The National Center for Professional Development
The Art Institute OnLine, Inc.* - University Division, Inc.
420 Boulevard of the Allies 6600 Peachtree Dunwoody Road
Pittsburgh, PA 15219 100 Embassy Row
Atlanta, GA 30328
The New York Restaurant School, Inc.*
The Illinois Institute of Art, Inc.* 75 Varick Street, 16th Floor
350 North Orleans, Suite 136-L New York, NY 10013
Chicago, IL 60654
The Illinois Institute of Art at Schaumburg, Inc.*
Retirement Plan Page 57
Appendix B to the
Education Management Corporation
Retirement Plan
Investment Options Effective July 6, 2001
-----------------------------------------
Managed Income Portfolio (Fidelity) This is a commingled pool of the
Fidelity Group Trust for Employee Benefit Plans. Its objective is to preserve
principal while earning interest income. It invests in investment contracts
offered by major insurance companies and other approved financial institutions
and in certain types of fixed income securities. A small portion of the fund is
invested in a money market fund to provide daily liquidity.
Fidelity Intermediate Bond Fund This is a mutual fund that invests in all
types of U. S. and foreign bonds, including corporate or U. S. government
issues. Normally, it selects bonds considered medium to high quality
("investment grade") while maintaining an average maturity of 3 to 10 years.
These bond prices will go up and down more than those of short-term bonds.
Invesco Equity Income Fund This is a mutual fund that seeks to provide
current income. Capital growth is an additional, but secondary, objective of the
fund. Normally, at least 65% of the fund's assets are invested in dividend-
paying common stocks. Up to 10% of its assets may be invested in stocks which do
not pay dividends. The rest may be invested in corporate and other types of
bonds.
Spartan U. S. Equity Index Fund This fund, managed by Bankers Trust, seeks
to provide investment results that correspond to the total return of common
stocks publicly traded in the United States. In seeking this objective, the fund
attempts to duplicate the composition and total return of the S&P 500. The fund
uses an "indexing" approach and allocates its assets similarly to those of the
index. The fund's composition may not always be identical to that of the S&P
500.
Fidelity Freedom Funds These are mutual funds that invest in a combination
of Fidelity equity, fixed-income, and money market funds. They allocate their
assets among those funds according to an asset allocation strategy that becomes
increasingly conservative as each Freedom Fund approaches its target retirement
date. The Freedom Funds are:
Fidelity Freedom 2000 Fund -- targeted to investors expecting to retire
around 2000.
Fidelity Freedom 2010 Fund -- targeted to investors expecting to retire
around 2010.
Fidelity Freedom 2020 Fund -- targeted to investors expecting to retire
around 2020.
Fidelity Freedom 2030 Fund -- targeted to investors expecting to retire
around 2030.
Fidelity Freedom 2040 Fund -- targeted to investors expecting to retire
around 2040.
Fidelity Freedom Income Fund -- targeted to investors who have retired.
Please note: The Fidelity Freedom Funds replace three other Fidelity funds
that were previously available -- Fidelity Asset Manager, Fidelity Asset
Manager: Growth, and Fidelity Asset Manager: Income. Effective July 6,
2001, no money may be contributed or transferred to those three Asset
Manager funds.
Please note also: If you have chosen any of those three Asset Manager
funds --Fidelity Asset Manager, Fidelity Asset Manager: Growth, or Fidelity
Asset Manager: Income -- as the destination for new contributions going
into the plan, then effective July 6, 2001, those new contributions will
automatically be re-directed by Fidelity into the Fidelity Freedom Fund
that corresponds to your birth date, as shown on the table in the following
paragraph.
Page 58 The Education Management Corporation
Please note, finally: Participants with money in any of those Asset Manager
funds --Fidelity Asset Manager, Fidelity Asset Manager: Growth, and
Fidelity Asset Manager: Income -- are urged to move the money into other
investment options available under the plan. Any money remaining in any of
those three Asset Manager funds at September 30, 2001 (that is, 90 days
later) will automatically be transferred by Fidelity into the Fidelity
Freedom Fund that corresponds to your birth date, as shown on this table:
Year of Birth Fidelity Freedom Fund
------------- ---------------------
1900-1934 Freedom Income
1935-1940 Freedom 2000
1941-1950 Freedom 2010
1951-1960 Freedom 2020
1961-1970 Freedom 2030
1971-1980 Freedom 2040
Fidelity Magellan Fund This is a growth mutual fund that seeks long-term
capital appreciation by investing in the stocks of both well-known and lesser
known companies with potentially above-average growth potential and a
correspondingly higher level of risk. Securities may be of foreign, domestic,
and multinational companies.
Fidelity Growth Company Fund This is a mutual fund that seeks long-term
capital appreciation by investing primarily in common stocks and securities
convertible into common stocks. It may invest in companies of any size with
above-average growth potential, though growth is most often sought in smaller,
less well known companies in emerging areas of the economy. The stocks of small
companies often involve more risk than those of larger companies.
Ariel Fund This is a mutual fund managed by Ariel Capital Management, Inc.
It seeks long-term capital appreciation. It normally invests 80% of its assets
in equity securities with market capitalizations under $1.5 billion. It may
invest the remaining 20% in investment grade debt securities. It seeks
environmentally responsible companies; it may not invest in issuers primarily
involved in the manufacture of weapons systems, nuclear energy or tobacco.
Franklin Small Cap Growth Fund A This is a mutual fund managed by Franklin
Advisers, Inc. It seeks to increase the value of investments over the long term
through capital growth. It invests primarily in equity securities of small
capitalization growth companies, which generally have market capitalizations of
less than $1.5 billion at the time of the investment. The fund may also invest
up to 25% of its assets in foreign securities, which involve special risks,
including economic and political uncertainty and currency fluctuation.
Fidelity Diversified International Fund This is a mutual fund whose
objective is capital growth. It normally invests at least 65% of total assets in
foreign securities. It normally invests primarily in common stocks. Stocks are
selected by using a computer-aided quantitative analysis supported by
fundamental analysis. In exchange for greater potential rewards, foreign
investments, especially in emerging markets, involve greater risks than U. S.
investments and as with any investment, share price and return will fluctuate.
The risks in foreign investments include political and economic uncertainties of
foreign countries, as well as the risk of currency fluctuations.
Retirement Plan Page 59