TABLE OF CONTENTS
PAGE
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I. Plan Benefits 1
II. Eligibility and Enrollment 1
III. Cost of the Plan 2
IV. Options at Retirement 2
V. Cost Recovery by Delmarva 2
VI. Change in Coverage 3
VII. Insurability 3
VIII. Termination 3
IX. Statement 3
X. Disability 4
XI. Change in Ownership 4
I. PLAN BENEFITS
Delmarva Power & Light Company, hereinafter referred to as Delmarva,
provides all eligible executives an amount of life insurance equal to a
minimum of three times their annual salary. This coverage may be provided
in two alternative programs. The first option is coverage under the
Employee Group Life Insurance Plan, capped at $202,500 of coverage. The
second option includes $50,000 of coverage under the Group Life Insurance
Plan, and the balance under this Management Life Insurance Plan, hereafter
referred to as the Plan. The Plan coverage will be issued under individual
policies by the New England Mutual Life Insurance Company. Servicing
representative of the Plan is Rockwell Associates of Wilmington, Delaware.
II. ELIGIBILITY AND ENROLLMENT
Employees in jobs core graded 19 and above are eligible for participation
in this Plan, including employees in the entry grade 18 to a job core
graded 19. Eligible employees may elect to continue their coverage under
the Group Life Insurance Plan unchanged or may elect to participate under
this Plan. If the employee elects this Plan, the employee will be enrolled
immediately and coverage in the Plan will be effective the first day of the
first full month following enrollment. At this time the employee will
become a participant of the Plan and group life insurance coverage will be
reduced to $50,000. The participant will then complete an application
provided by the Compensation & Benefits Department at Delmarva, which will
then be submitted to New England Life. All other necessary forms will be
completed and signed at this time. The participant will personally own the
management life insurance
policy, but will collaterally assign it to Delmarva for cost recovery
purposes. As a participant's salary increases, additional insurance may be
purchased according to the benefit schedule. The same application procedure
will apply.
As a participant nears retirement, an increase in benefits may adversely
affect cash values already in force. As a result, the participant has the
right to review and reject the additional coverage.
III. COST OF THE PLAN
The cost of the Plan is paid for by Delmarva and the employee. Each
participant will pay the preferred term rate per $1,000 of life insurance
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coverage. The balance of the premium will be paid by Delmarva.
IV. OPTIONS AT RETIREMENT
At retirement each participant will have the option of electing a
combination of (1) a reduced paid-up policy (minimum $20,000 coverage) with
an annual cash dividend, (2) a lump sum of cash, or (3) maintaining a life
insurance policy at coverage greater than the paid-up value by assuming the
premium payments.
V. COST RECOVERY BY DELMARVA
Should the employee die before retirement, Delmarva's cost is recovered
through the death benefit generated by the Plan, which will always be
sufficient to recover total premiums paid by Delmarva and provide the
benefits illustrated to the participant in the benefit schedule.
At the participant's retirement, Delmarva will recover its cost (total
premiums paid) out of policy cash values and the balance will be used to
support those options listed under Section IV entitled, "Options at
Retirement."
VI. CHANGE IN COVERAGE
Participants whose salaries increase are eligible to apply for a new
policy to reach the benefit amount as shown on the attached schedule.
Procedures for additional benefits are the same as the original enrollment
procedures. Any such increase will be effective January 1 of each year. If
a participant moves into a job core graded below 19, regardless of salary
amount, the participant is not eligible for the Plan.
VII. INSURABILITY
Delmarva's executive physical is used for medical evidence of insurability
-- smokers will be considered a "standard" medical risk. Additional
evidence of insurability may be required.
VIII. TERMINATION
Other than death, disability, or retirement, the participant forfeits all
benefits of the Plan.
IX. STATEMENT
An Annual Statement will be provided to each participant showing total
life insurance benefits under the Plan.
X. DISABILITY
In the event a participant becomes disabled, the group life insurance
benefit is reduced according to its schedule, and the existing amount of
insurance under the Management Life Insurance Plan remains in effect until
normal retirement age is reached.
XI. CHANGE IN OWNERSHIP OR ORGANIZATION
In the event that Delmarva becomes a party to a merger, consolidation, sale
of substantially all of its assets, or other corporate reorganization in
which the Company will not be a surviving corporation, or in which the
holders of the stock will receive securities of another corporation (in any
such case, the "New Company"), then the New Company shall assume the rights
and obligations of the Company under this Plan and further will immediately
prepay all premiums to any life insurance contract in force, the proceeds
of which are intended to fund the annuity obligations under this Plan.
PLAN DESCRIPTION
TABLE OF CONTENTS
PAGE
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Plan Description
Management Life Insurance Benefits 1
Management Life Insurance Plan 3
-- When Coverage Becomes Effective 3
-- How the Plan Is Funded 3
-- Changes in the Amount of Your Coverage 4
-- If You Become Disabled 4
-- At Retirement 4
-- If You Leave Delmarva 5
-- An Example 5
-- Definitions 8
MANAGEMENT LIFE INSURANCE BENEFITS
______________________________________________________________________________
As part of its overall compensation and benefits package, Delmarva Power & Light
Company offers all employees a life insurance benefit of approximately three
times annual salary. Employees in jobs core graded 19 and above (including
entry grade 18 to a job core graded 19) may elect to participate in the
management life insurance program. The following chart shows coverage amounts
by salary range.
SALARY LIFE INSURANCE AMOUNT
- - --------------------------------------------
$50,000 - $64,999 $ 150,000
65,000 - 79,999 200,000
80,000 - 99,999 250,000
100,000 - 124,999 325,000
125,000 - 149,999 400,000
150,000 - 199,000 550,000
200,000 - 249,000 700,000
250,000 - 349,000 1,000,000
- - --------------------------------------------
350,000 - + 1,250,000
- - --------------------------------------------
If you are eligible, you may choose coverage through:
. the Group Life Insurance Plan, up to a maximum term benefit of $202,500, or
. a combination of term coverage through the group plan and permanent,
individual coverage through the Management Life Insurance Plan.
Term coverage provides a death benefit to your beneficiary if you die while you
are employed by Delmarva and covered by the Plan. If you choose the term
coverage, Delmarva will pay the premium. However, you will be required to pay
imputed income tax on amounts of coverage over $50,000.
Unlike term coverage, the Management Life Insurance Plan has a cash value at
retirement, which means the Plan may be used as a long-term savings vehicle as
well as a death benefit. If you choose the combination term and permanent
coverage, Delmarva will pay the full cost of the $50,000 term coverage and you
and Delmarva will share the cost of amounts over $50,000 under the Management
Life Insurance Plan.
The remainder of this summary describes your benefits under the Management Life
Insurance Plan (also referred to as "the Plan"). You'll find more about your
term life insurance coverage in the Survivor Benefits Section in your Employee
Handbook.
MANAGEMENT LIFE INSURANCE BENEFITS
______________________________________________________________________________
WHEN COVERAGE BECOMES EFFECTIVE
Coverage under the Management Life Insurance Plan is underwritten by New England
Mutual Life Insurance Company. You may enroll in the Plan and designate a
beneficiary as soon as you become eligible. As mentioned earlier, you become
eligible when you are in a job core graded 19 (or entry grade 18 to a core
graded 19 job). Your coverage will become effective on the first day of the
month after you enroll, provided New England Mutual approves your application.
Approval will be subject to evidence of insurability based on your executive
physical and certain other tests that may be required. This process takes
several months. Your Group Life Insurance continues in effect, without change,
during the application period.
HOW THE PLAN IS FUNDED
You and Delmarva share the cost of coverage under the Management Life Insurance
Plan. Because the Plan has a cash value, the total premium is significantly
higher than that of term coverage. Delmarva pays most of this cost. Your cost
is less than what the premium would be if the coverage were term, rather than
permanent, coverage.
Although you actually own the policy, you assign part of the policy to Delmarva.
This ensures that, in the event of your death before retirement, Delmarva will
recover its cost to provide the coverage through the cash value portion of the
Plan. Your beneficiary will receive the death benefit, which is the amount
shown in the chart on page 1.
CHANGES IN THE AMOUNT OF YOUR COVERAGE
As your salary increases, you'll have the option of increasing life insurance
benefits as well (based on the available coverage amounts outlined on page 1).
The application procedure for additional amounts is the same process that is
required for the initial enrollment. Increases will become effective on January
1 of each year, based on your salary on that date.
IF YOU BECOME DISABLED
In case of disability, the portion of your coverage that is provided under the
group life insurance plan will be reduced according to that plan's schedule.
The existing amount of coverage under the Management Life Insurance Plan will
remain in effect until you reach normal retirement age (age 65). You will
continue to pay your share of the premium until age 65.
AT RETIREMENT
When you retire, Delmarva will recover its cost for the Plan. With the
remaining cash value, you'll have the following three options which you may
choose in the combination that best suits your individual situation:
. a reduced, paid-up policy with a death benefit of at least $20,000 and an
annual cash dividend,
. a lump sum of cash, or
. to continue a policy that exceeds the paid-up value. In this case, you will
assume full premium payments.
IF YOU LEAVE DELMARVA
If your employment terminates for any reason other than retirement, disability
or death, you will forfeit all benefits under the Management Life Insurance
Plan.
AN EXAMPLE
The following example shows how the Management Life Insurance Plan works. The
example assumes that premium payments will be required for 10 years. After 10
years, dividends will cover the premiums necessary to maintain the policy. It
is important to note that while dividends typically cover the cost after 10
years, dividends cannot be guaranteed.
Assumptions:
- - -----------
Age when policy begins: 45
*Salary $ 100,000
*Life Insurance Amount $ 325,000
Annual Premium: $10,021.90
* For purposes of this example, these amounts are constant. Increased
amounts of coverage would result in increased premiums.
MANAGEMENT LIFE INSURANCE PLAN FUNDING
PREMIUM PAYMENTS
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YEAR EMPLOYEE DELMARVA
- - ----------------------------------------------------------
1 $ 269.75 $ 9,752.15
- - ----------------------------------------------------------
2 $ 286.00 $ 9,735.90
- - ----------------------------------------------------------
3 $ 308.75 $ 9,713.15
- - ----------------------------------------------------------
4 $ 328.25 $ 9,693.65
- - ----------------------------------------------------------
5 $ 351.00 $ 9,670.90
- - ----------------------------------------------------------
6 $ 367.25 $ 9,654.65
- - ----------------------------------------------------------
7 $ 383.50 $ 9,638.40
- - ----------------------------------------------------------
8 $ 403.00 $ 9,618.90
- - ----------------------------------------------------------
9 $ 422.50 $ 9,599.40
- - ----------------------------------------------------------
10 $ 445.25 $ 9,576.65
- - ----------------------------------------------------------
Total $3,565.25 $96,653.75
- - ----------------------------------------------------------
In this example, the employee will have paid $3,565.25 over a ten year period
and no additional payments will be required. However, he or she will pay
imputed income tax on the premium amount that is covered by dividends.
If the employee dies before retirement, Delmarva will recover its cost of
$96,653.75 and the employee's beneficiary will receive a benefit of $325,000.
As an example, at normal retirement, this employee may choose:
-- a lump sum cash payment of $135,283,
-- a paid-up policy with a death benefit of $273,024,
-- to pay premiums for a policy that offers a higher level of coverage
than the paid-up policy.
The above amount would be reduced if the employee were to take early retirement.
DEFINITIONS
______________________________________________________________________________
Term Coverage Coverage in effect only while employee works
for Delmarva and is covered under Group Life
Insurance Plan.
Permanent Coverage Death benefit payable to beneficiary if
employee dies while covered under Management
Life Insurance Plan. Employee may surrender
policy for cash at retirement.
Cash Value Amount payable in exchange for policy;
increases over lifetime of policy. Delmarva
recovers its cost for coverage from cash
value. At retirement, employee may elect
cash value, less Delmarva's cost, in lieu of
life insurance coverage.
Paid-up Policy Permanent policy that has been paid in full
and no additional premium is required.
Dividends are paid in cash rather than used
to pay premiums.
MANAGEMENT LIFE INSURANCE PLAN
AT-A-GLANCE
MANAGEMENT LIFE INSURANCE PLAN AT-A-GLANCE
______________________________________________________________________________
Eligibility Jobs core graded 19 and above, including entry
grade 18. Participation is at election of
employee
Cost Shared by Delmarva and employee
Coverage Amount Approximately three times salary
Type of Coverage $50,000 term; remainder permanent
Death Benefit Payable to beneficiary
Cash Value Sufficient to recover Delmarva's cost; available
at retirement in lieu of policy
Options at Retirement Combination of:
. Reduced, paid-up policy
. Lump sum payment
. Policy that exceeds paid-up value
In Event of Disability Reduction in term benefit; continuation of
permanent coverage
Upon Termination Coverage ceases, cash value forfeited
Permanent Coverage Provided by New England Mutual Life Insurance
Company