1998 EXECUTIVE
SAVINGS PLANS BROCHURE
[LOGO]
TABLE OF CONTENTS
Advantages of the Executive Savings Plans for You.......................... 1
Important Information About the Executive Savings Plans.....................2
Why Executive Savings Plans..............................................2
Who is Eligible..........................................................2
How the Plans Work..........................................................4
Automatic Restoration Option Mirrors 401(k)..............................4
Incentive (MIP) Deferral Option Offers Company Match.....................4
Salary Deferral Option Offers Flexibility................................5
Limited Bonus Deferral Option............................................5
Making Changes...........................................................5
Investing Your Savings......................................................6
Changing Your Investment Choices.........................................6
More About Your Investment Credit Choices................................7
Receiving Information About Your Account.................................7
Distributions From the ESP..................................................8
Receiving Your Distributions.............................................8
Choosing Your Distribution Method........................................8
What to Do Next.............................................................9
Important Questions and Answers About the Executive Savings Plans Options..10
As an executive of United HealthCare, you are eligible to participate in the
Executive Savings Plans. These plans have been enhanced for 1998 to make them
more effective for you by clarifying the deferral opportunities and
simplifying the enrollment procedures. This brochure outlines the changes and
provides details of how you can benefit from these special compensation
deferral plans.
ADVANTAGES OF THE EXECUTIVE SAVINGS PLANS FOR YOU
As an important component of United HealthCare's competitive benefits
program, the Executive Savings Plans (ESP) offer you a tremendous opportunity
to save for your future. The Plans:
- - Enable you to postpone taxes by deferring your compensation until a later
date when you leave the company, or until the event of total permanent
disability or death;
- - Ensure that you receive the advantages of the 401(k) Savings Plan,
including the maximum tax deferral opportunity and company matching
contributions, by automatically enrolling you in the ESP Automatic
Restoration Option and allowing you to defer your MIP bonus under the
Incentive (MIP) Deferral Option; and
- - Have been designed to be flexible and allow you to choose among the various
options to develop an individual deferral strategy that best meets your
personal financial needs.
For 1998, the ESP Options include:
- - Automatic Restoration Option
- - Incentive (MIP) Deferral Option
- - Salary Deferral Option
- - Limited Bonus Deferral Option
1
IMPORTANT INFORMATION ABOUT THE EXECUTIVE SAVINGS PLANS
WHY EXECUTIVE SAVINGS PLANS
At United HealthCare, we are committed to providing you opportunities that
help you prepare for a financially secure future. The 401(k) Savings Plan,
Employee Stock Ownership Plan and Employee Stock Purchase Plan offer all
eligible employees options for accumulating savings and retirement assets.
However, these plans are subject to restrictive tax rules. Recognizing that
these rules limit the amount you can defer into those plans, United
HealthCare created the Executive Savings Plans. These non-qualified deferred
compensation plans allow you to defer virtually as much of your compensation
as you wish through means that leverage the current tax environment.
The Plans are not subject to the same restrictions placed upon qualified
plans, such as the annual 401(k) elective deferral dollar limits or
compensation limits. The Plans are unfunded plans, which means that funds or
contributions are not set aside in a trust and are subject to the claims of
the general creditors of United HealthCare. Each plan is intended to be an
unfunded pension plan maintained by United HealthCare for a select group of
management or highly compensated employees.
WHO IS ELIGIBLE
To participate in the Executive Savings Plans, you must meet certain
eligibility requirements.
1. For all Options, you must be an employee with at least 30 days of service
in an eligible class at United HealthCare. The following are eligible
classes in 1998:
AUTOMATIC RESTORATION OPTION, INCENTIVE (MIP) DEFERRAL OPTION AND SALARY
DEFERRAL OPTION:
- Grades 33 and above
- Medical Directors M2 - M4
- Clinical Medical Staff DC2 - CD3, CM2 - CM3
LIMITED BONUS DEFERRAL OPTION:
- As designated by the Board of Directors
2
2. Participation under the Plans is available the first day of the calendar
month following completion of the 30-day eligibility requirement. Employees
who become newly eligible during the year will receive enrollment materials
prior to their eligibility date.
3. To participate in the Automatic Restoration Option, you must participate
in the 401(k) Savings Plan and reach one of the following IRS limits during
1998:
- Earn $160,000 in eligible compensation (the same limit was applicable in
1997)
- Make 401(k) Savings Plan deferrals that reach the 1998 IRS annual limit
of $10,000 (increased from $9,500 in 1997)
YOU WILL AUTOMATICALLY BE ENROLLED IN THIS OPTION, AS DESCRIBED IN FURTHER
DETAIL ON THE NEXT PAGE, UNLESS YOU ELECT NOT TO PARTICIPATE.
4. You may enroll in the Incentive (MIP) Deferral Option for 1998 only during
the December 1997 enrollment period or when you become newly eligible during
the year.
5. Enrollment for the Salary Deferral Option may be made for 1998 during the
December 1997 enrollment period or during the 1998 calendar year for future
1998 earnings.
3
HOW THE PLANS WORK
AUTOMATIC RESTORATION OPTION MIRRORS 401(K)
As long as you participate in the 401(k) Savings Plan, you automatically
participate in the ESP Automatic Restoration Option. The Option:
- - Automatically defers the same percentage amount of your eligible pay on a
pre-tax basis that you contribute to the 401(k) Savings Plan, after your
401(k) Savings Plan elective deferrals reach the 1998 IRS dollar limit of
$10,000 or when you earn $160,000 in eligible pay; and
- - Provides a United HealthCare matching contribution of 50 cents for each
dollar deferred, up to the first six percent of your eligible pay. These
matching contributions receive the same investment credits that you elect for
your own contributions.
When you reach one of the IRS 401(k) annual limits (listed above), your
Automatic Restoration Option deferrals begin in the following pay period. If
you do not wish to participate in the Automatic Restoration Option, you may
"opt out" by electing not to participate in this Option on the Deferral
Election Form.
INCENTIVE (MIP) DEFERRAL OPTION OFFERS COMPANY MATCH
This Option allows you to defer a portion or all of your Management Incentive
Plan (MIP) bonus (1997 MIP bonus paid in 1998) into the ESP and receive a
company matching contribution. Enrollment in this Option is the only way to
get an employer match on your MIP bonus.
You may defer 6 percent, 25 percent, 50 percent, 75 percent, or 100 percent
of your bonus by making a one-time election prior to the beginning of each
calendar year. You may not change your incentive deferral election during the
year. You will receive a company matching contribution of 50 cents on every
dollar you defer up to 6 percent of your total Incentive (MIP) Deferral
Option amount.
4
SALARY DEFERRAL OPTION OFFERS FLEXIBILITY
With this Option, you can defer from 1 percent to 100 percent of all 1998
eligible pay, excluding MIP bonus payments. Salary Deferral Option
contributions begin within your first eligible pay period in 1998. There is
no employer match in this Option.
During the course of the year, you may make an election that will allow you
to increase your deferral percentage or stop your deferral entirely. This
election must be made at least one full pay period in advance of the date
when you want this change to become effective.
LIMITED BONUS DEFERRAL OPTION
This Option is available only to those United HealthCare executives who are
eligible for special bonus amounts that are declared by United HealthCare's
Board of Directors or Compensation Committee or their designees.
If you are eligible to make deferrals of special bonuses under the Limited
Bonus Deferral Option, you will be notified in advance. At that time, you
will receive an enrollment form. You may defer from 1 percent to 100 percent
of any 1998 special bonuses before they are earned.
MAKING CHANGES
Under the current tax laws, once your deferral election is made, it is
irrevocable. However, you may increase or stop your deferral during the year
under the Salary Deferral Option. Once the deferrals are suspended, they may
not be resumed until the beginning of the next calendar year.
If you wish to increase or stop your payroll deductions, call the Plan
Administrator at (612) 936-1653 to obtain the appropriate Executive Savings
Plans form.
5
INVESTING YOUR SAVINGS
You may elect to have your ESP deferrals and matching United HealthCare
contributions credited with investment earnings from one or more of the four
investment credit funds offered under the Plans.
These funds include the:
- - First American Prime Obligations Fund
- - Loomis Sayles Bond Fund
- - First American Equity Index Fund
- - PBHG Growth Fund
As you select your investment credit fund(s), keep in mind that your
elections are subject to investment risk. As with any investment, if the
returns credited on the fund(s) you choose are positive, your account balance
will have positive credits. If the returns credited are negative, your
account balance will decline. Remember, as unfunded plans, the investment
credit funds are merely measuring tools to determine the value of your
account under the Plans, and United HealthCare is not required to purchase
such investments. Please review the fund information provided with your
enrollment materials before making your decision.
If you make no investment credit election, you will receive credits as if you
had elected the Loomis Sayles Bond Fund.
CHANGING YOUR INVESTMENT CHOICES
You may change your investment credit choices once per calendar quarter on
any business day during that quarter. To make a change, you must complete and
submit an Investment Credit Election Form to the Plan Administrator. If the
form is received by the Plan Administrator by noon Central time, the change
will become effective the following business day.
You also may elect to have your future contributions credited differently
from your existing account balance for investment return purposes. When you
make your investment election for 1998, it will not affect your existing
account balance unless you actively elect to reallocate it. To reallocate your
existing account balance, complete the Investment Credit Election Form.
6
MORE ABOUT YOUR INVESTMENT CREDIT CHOICES
You can elect to have your account credited with the investment performance
of one or any combination of the following four funds:
- - FIRST AMERICAN PRIME OBLIGATIONS FUND. The fund's investment objective is
maximum current income to the extent consistent with the preservation of
capital and the maintenance of liquidity. The fund invests in money market
instruments including debt obligations issued by the U.S. government, its
agencies or instrumentalities, and corporate obligations including high-grade
commercial paper, non-convertible corporate debt and loan participation
interests. The fund may also invest in repurchase agreements related to these
securities.
- - LOOMIS SAYLES BOND FUND. The fund's investment objective is high total
investment return through a combination of current income and capital
appreciation. The fund seeks to attain its objective by normally investing
substantially all of its assets in debt securities (including convertibles),
although up to 20 percent of its assets may be invested in preferred stocks.
At least 65 percent of the fund's total assets may be invested in bonds. The
fund may invest any portion of its assets in securities of Canadian issuers,
and a limited portion of its assets in securities of other foreign issuers.
The fund will also invest less than 35 percent of its assets in securities of
below investment grade quality.
- - FIRST AMERICAN EQUITY INDEX FUND. This fund seeks to achieve investment
results that correspond to the performance of the Standard and Poor's 500
Composite Stock Price Index (S&P 500). The fund invests substantially in
common stocks included in the S&P 500. The fund's advisor believes that its
objective can best be achieved by investing in the common stocks of
approximately 250 to 500 of the issues included in the S&P 500.
- - PBHG GROWTH FUND. The fund seeks capital appreciation and invests primarily
in common stocks of small and medium capitalization companies believed to
have an outlook for strong earnings growth and the potential for significant
capital appreciation. The average market capitalizations or annual revenues
of holdings in the portfolio may fluctuate over time as a result of market
valuation levels and the availability of specific investment opportunities.
You may elect to have your accounts credited with investment performance in
any combination of the investment credit funds in 1 percent increments, as
long as your total investment percentage equals 100 percent. If you make no
investment credit election, you will receive credits as if you had elected
the Loomis Sayles Bond Fund.
RECEIVING INFORMATION ABOUT YOUR ACCOUNT
You will receive a statement, currently on a quarterly basis, showing the
status of your account credits in the ESP. In addition, you have daily access
to information about your account by calling the Retirement Plans Service
Center at 1-888-842-2756.
7
DISTRIBUTIONS FROM THE ESP
RECEIVING YOUR DISTRIBUTIONS
Distributions will be available only upon termination, permanent total
disability or death. You can expect to receive your lump sum or first
installment distribution beginning the February following the end of the
calendar year in which the distribution event occurs. The distribution method
is chosen upon your initial enrollment in the Plans and cannot be changed.
CHOOSING YOUR DISTRIBUTION METHOD
You have three distribution methods to choose from. The method you choose
will be used for distributions for all four options in the Executive Savings
Plans. If you do not elect a distribution option, you will automatically
receive a lump sum payout of your account balance the February following the
year of your termination, permanent total disability or death.
- - LUMP SUM: A single payment of your entire account balance is paid out to
you in February following the year in which you terminate, become disabled or
die. For example, if you terminate employment on January 12, 1998, you will
receive a single lump sum distribution in February 1999.
- - THREE-YEAR INSTALLMENTS: The three installments will be paid annually
beginning the February following the end of the calendar year in which you
terminate, become disabled or die. For example, if you terminate employment
on November 1, 1998, your installments will be paid in February 1999,
February 2000 and February 2001.
- - FIVE-YEAR INSTALLMENTS: The five installments are paid annually beginning
the February following the end of the calendar year in which you terminate,
become disabled or die. For example, if you terminate employment on April 25,
1998, your installments will be paid in February 1999, February 2000,
February 2001, February 2002 and February 2003.
8
WHAT TO DO NEXT
- - If you make a deferral election in the 401(k) Savings Plan, you will be
enrolled automatically in the Automatic Restoration Option at your then
current 401(k) Savings Plan deferral percentage. If you wish to "opt out" of
this election, you must indicate so on a Deferral Election form.
- - Decide whether or not participating in one of the other ESP Options is
right for you. You may find it helpful to consult with a tax or financial
advisor. Then, if you decide to enroll, complete and return the appropriate
ESP election and beneficiary forms included in your packet. If you do not
designate a beneficiary, your benefits will be paid in accordance with the
Plan's provisions in the event of your death.
- - If you have questions, call the Plan Administrator at (612) 936-1645.
9
IMPORTANT QUESTIONS AND ANSWERS ABOUT THE EXECUTIVE SAVINGS PLANS OPTIONS
Q1. WHAT ARE THE DIFFERENCES BETWEEN THE EXECUTIVE SAVINGS PLANS AND THE
401(k) SAVINGS PLAN?
A1. The United HealthCare 401(k) Savings Plan is a "qualified plan" under
the Internal Revenue Code. Under 401(k) plans, participants can defer
income into a trust fund, subject to certain limits. The chief limitations
of 401(k) plans for executives are the various IRS-imposed caps on the
amount that can be deferred.
Because the Executive Savings Plans apply only to a select group of
senior management and highly compensated employees and are not qualified
plans, these limitations do not apply. Non-qualified plans are more
flexible in their design and can be more selective in terms of the
employees who are allowed to participate.
The main advantages of these Plans are the substantially greater
deferral opportunity they can offer, as well as the 50 cents per dollar
match on the first six percent of salary deferred in the Automatic
Restoration Option, or first six percent of MIP bonuses deferred into the
Incentive (MIP) Deferral Option. The main disadvantage is that the Plans
are not funded nor are assets held in a trust, but rather the account
balances are paid directly by United HealthCare out of its general assets.
As a result, there is not the same security as in a qualified plan.
Participation in the Executive Savings Plans does not affect your
ability to participate in the 401(k) Savings Plan. You can participate in
either or both Plans. However, you will be enrolled in the Executive
Savings Plans Automatic Restoration Option only if you are participating
in the 401(k) Savings Plan.
Q2. WHAT ARE MY CHOICES FOR RECEIVING DISTRIBUTIONS FROM THE PLANS?
A2. When you enroll in the Plans, you need to elect the form of payment you
wish to receive upon termination, death or disability:
- One lump sum payment;
- Annual installments over a three-year period; or
- Annual installments over a five-year period.
IF YOU DO NOT ELECT HOW YOU WANT YOUR ACCOUNT BALANCE DISTRIBUTED, IT
WILL BE PAID OUT IN ONE LUMP SUM PAYMENT THE FEBRUARY FOLLOWING THE YEAR OF
YOUR TERMINATION, PERMANENT TOTAL DISABILITY OR DEATH. THE DISTRIBUTION
METHOD YOU ELECT DURING YOUR INITIAL ENROLLMENT FOR ESP IS IRREVOCABLE. YOU
CANNOT CHANGE YOUR DISTRIBUTION METHOD IN THE FUTURE.
10
Q3. WHY DO I HAVE TO MAKE A DEFERRAL ELECTION BEFORE I KNOW WHAT I WILL BE
PAID?
A3. In exchange for the opportunity to defer taxation on unearned income,
the IRS requires that an irrevocable election to defer income must be made
before the income is actually earned. Since your election will remain in
effect for an entire year, you may want to be conservative in your deferral
amount.
Q4. WHAT WOULD HAPPEN TO MY DEFERRALS IN THE EVENT THAT UNITED HEALTHCARE
DECLARES BANKRUPTCY?
A4. In the unlikely event that United HealthCare declares bankruptcy, ESP
participants would be viewed as general creditors and the claims for their
accounts would be treated in the manner and sequence stipulated by the
bankruptcy laws. Typically, ESP participants would share, on a pro-rata
basis with all other general unsecured creditors of the company, in any
assets that remain after payment of the company's obligations to secured
creditors. In contrast, benefits under the United HealthCare 401(k) Savings
Plan would not be affected by the bankruptcy of United HealthCare since
they already are funded in trust.
Q5. ARE DISTRIBUTIONS ELIGIBLE TO BE ROLLED OVER INTO AN IRA?
A5. No. Because these are not IRS tax-qualified plans, you cannot roll over
your ESP distributions into an IRA or to another employer's qualified plan
when you leave United HealthCare. When electing a non-qualified plan
distribution, we encourage you to seek professional tax advice to determine
the best course of action for your individual financial circumstances.
Q6. HOW DO I KNOW HOW WELL THE INVESTMENT CREDIT OPTIONS ARE PERFORMING?
A6. You have daily access to your account and the performance of the
investment credit options by calling the Retirement Plans Service Center at
1-888-842-2756. In addition, you will receive a statement of your account
balance (currently quarterly). The statement includes a chart showing the
investment credit performance of each of the fund options. Of course, past
performance is not a guarantee of future performance.
11
Q7. WHY AM I CREDITED WITH AN EMPLOYER MATCH CONTRIBUTION ON MY DEFERRALS
UNDER THE AUTOMATIC RESTORATION OPTION AND INCENTIVE (MIP) DEFERRAL OPTION,
BUT NOT UNDER MY DEFERRALS FOR THE SALARY DEFERRAL OPTION?
A7. The Automatic Restoration Option and the Incentive (MIP) Deferral Option
are intended to provide you with deferral and matching contribution
opportunities that are similar to what would be available to you under the
401(k) Savings Plan, but which are not available to you because you are
prevented from making further 401(k) Savings Plan deferrals as a result
of reaching the 1998 $10,000 IRS deferral limit or the $160,000
compensation limit. The Salary Deferral Option is not designed or intended
to "make up" for the 401(k) Savings Plan limitations, thus you are not
credited with an employer match on deferrals you make under this Option.
Q8. CAN I CHANGE MY DISTRIBUTION ELECTION AFTER I BEGIN PARTICIPATING IN THE
PLANS?
A8. No. Once your election has been made to defer funds into the Plans, the
IRS prevents you from exercising any control over the form or timing of
your distribution. This concept is referred to as "constructive receipt."
Q9. IS THE EMPLOYER MATCH IN THE PLANS SUBJECT TO SOCIAL SECURITY (FICA)
AND/OR INCOME TAXES?
A9. The employer match is subject to FICA tax at the time that the match is
credited to your ESP account. Whether the match is actually taxed depends
on whether, at the time it is credited, you have exceeded the Social
Security taxable wage base. The match will always be subject to and taxed
under the OASDI portion of the FICA tax. The match is not, however, subject
to federal or state income taxes at the time it is credited to your
account. Instead, the match is generally subject to income tax when you
receive a distribution from the Plans.
12
[LOGO]