The Supplemental Income at Retirement Plan

Transcription

1 The Supplemental Income at Retirement Plan

2 2 Our success begins with you The Supplemental Income at Retirement Plan (SIRP) is an important part of the total compensation program at Liberty Mutual Insurance. Our total compensation program includes a variety of executive compensation plans, benefits and perquisites, as described on myliberty Executive Center. Liberty Mutual reviews the plans on an ongoing basis to make sure we are competitive with our industry peers. This brochure summarizes the key provisions of the Liberty Mutual Supplemental Income at Retirement Plan. The terms Liberty Mutual Insurance, Liberty Mutual and Company mean Liberty Mutual Group Inc. and its subsidiaries and affiliates. The term Retirement Plan means the Liberty Mutual Retirement Benefit Plan.

3 1 Understanding SIRP As a Liberty Mutual executive, you are eligible for the Supplemental Income at Retirement Plan (SIRP). SIRP is a non-qualified plan that allows you to save additional funds in a tax-advantaged way. It also provides additional retirement (pension) benefits because benefits for highly compensated individuals under qualified retirement plans are limited by federal restrictions. (See the Key Terms section on page 13 for a definition of qualified and non-qualified plans.) SIRP has two components defined contribution and defined benefit. Defined Contribution (Deferral to Savings) Part 1: Deferral to Savings You can make contributions beyond the limits imposed under the Internal Revenue Code (IRC) on qualified plans such as the Liberty Mutual 401(k) Plan and may receive SIRP Company matching contributions, provided you make the maximum allowable aggregate contributions to your 401(k). Part 2: Additional Deferral to Savings You can choose to defer additional compensation such as a portion of your base salary or bonus. Defined Benefit (Pension) Part 3: Retirement Income This part of SIRP provides additional pension benefits that cannot be provided under the tax-qualified Liberty Mutual Retirement Benefit Plan because of IRC limitations. Plan Eligibility To be eligible to participate in SIRP, you must be: Classified as Management A or above; Eligible to participate in the Liberty Mutual 401(k) Plan; and Eligible to participate in the Liberty Mutual Retirement Benefit Plan (Liberty s qualified defined benefit pension plan). This brochure explains how SIRP works. Take the time to learn about this important plan. The more you know about SIRP, the better you will understand the value it provides. You Must Make SIRP Elections Every Year Unlike your 401(k) elections, you must make an election each year if you wish to defer savings under SIRP. See Annual SIRP Enrollment Period box on page 3 for more information.

4 2 SIRP Defined Contribution The defined contribution component of SIRP has two parts that allow you to save in a tax-advantaged way. Some of the features appear to be similar, so read this section carefully to make sure you understand the subtle, yet important, differences. If you have questions, you can find additional information under Your SIRP Resources on the last page. 1. Deferrals SIRP PART 1: Deferral to Savings Federal law limits the amount of before-tax earnings highly compensated employees can contribute to a 401(k). Through SIRP, you can save a percentage of your base salary and short-term incentive (STI) bonus on a before-tax basis if you want to contribute beyond the amount allowable under the 401(k) Plan. You can elect to defer 8 to 12 percent of your base salary and STI bonus for the 2018 calendar year. (You can elect to defer 6 to 12 percent for the 2017 calendar year.) These contributions may be eligible for SIRP Company matching contributions. See the SIRP Company Matching Contributions box on page 3 for more information. Matching contributions are credited on a notional basis to your SIRP account. See Key Terms on page 13 for more information. When your deferrals begin depends on your SIRP Commencement Percent election and IRC limits. See SIRP Commencement Percent Election on page 4 for more information. SIRP PART 2: Additional Deferral to Savings SIRP Part 2 offers you two more ways to save through additional base salary and bonus deferrals. Base Salary Deferrals You can elect to defer a percentage of your base salary in addition to your regular 401(k) Plan contributions and any contributions under SIRP Part 1. You can elect to defer additional base salary in 1 percent increments, up to 10 percent. These deferrals will begin during the first pay period of the year. Part 2 base salary deferrals are deducted from your pay before 401(k) contributions (due to an administrative order of operations). This decreases your 401(k)-eligible wages.

5 3 Bonus Deferrals You can elect to defer all or a portion of your short-term cash incentive bonus. You can elect deferrals in 10 percent increments, with a 30 percent minimum and 100 percent maximum. These contributions may be eligible for SIRP Company matching contributions. See the box below for more information. SIRP Company Matching Contributions SIRP allows you to defer a portion of your compensation above the maximum amounts allowed under the federal tax law for qualified plans such as the 401(k) Plan. To qualify for Company matching contributions on your SIRP contributions, you must maximize your aggregate 401(k) Plan contributions (see Key Terms on page 13). This means that you must have contributed the following amounts to the 401(k) Plan by the earlier of the date you reach the IRC wage limit ($270,000 in salary and bonus) or December 31: 401(k) Plan aggregate contributions = $18,000 (does not include catch-up contributions) 401(k) Plan catch-up contributions = $6,000 (applicable only if you will be 50 years of age or older by December 31) If you satisfy these 401(k) Plan contribution requirements, SIRP Company matching contributions will be made on a semi-annual basis, credited to your account within 60 days after the six-month period ending in June and December. FICA tax on SIRP matching contributions will be withheld from your pay at the time the match is applied. The SIRP matching contribution rate is the same as the 401(k) Plan. Important: The Company matching contribution will never be applied to both the 401(k) Plan and SIRP for the same contribution IRC Limits $18,000 combined pre- and post-tax (Roth) contributions $6,000 catch-up contributions (age 50 or older) $270,000 wage limit Annual SIRP Enrollment Period To participate in Parts 1 and 2 of SIRP for the following calendar year, you must complete your elections online through the Your Total Rewards web site during the enrollment period, typically in April each year. For example, you must make your elections in April to have any SIRP deferrals during During the enrollment period, you will be asked to make the following elections: Decide how much to save (see Deferrals information starting on page 2). Decide when to begin saving (see SIRP Commencement Percent Election on page 4). Decide how to invest your contributions (see Investment Options on page 5). Decide when you want to receive payment of your contributions (see Payment Distribution Options on page 6). Decide if you want to reallocate prior-year balances (see Investment Options on page 5). Important: You must enroll in SIRP each year your elections do not carry over. Once the enrollment period closes, annual SIRP Deferral to Savings (Parts 1 and 2) elections cannot be changed or revoked, so be sure to make them carefully. You can access Your Total Rewards at libertymutual.

6 4 2. SIRP Commencement Percent Election Each year when you enroll, you make a SIRP Commencement Percent election, which determines when your SIRP Part 1 deferrals start. The chart below shows how this election affects the timing of your deferrals. You elect a SIRP Commencement Percent from 8 12%*... Liberty divides the IRS 401(k) limit ($18,000 in 2017) by your elected percentage... The result determines when your deferrals will begin. Your election: 8% Liberty calculation:** $18,000/8% = $225,000 SIRP Part 1 deferrals begin when you reach $225,000 in eligible wages.*** * For the 2017 plan year, you can elect a SIRP Commencement Percent from 6 12%. **There is one exception to this calculation. If you elect a 6 percent SIRP Commencement Percent in 2017, your deferrals will begin when your compensation exceeds the IRS limit, which is $270,000 in ***Eligible wages include your base salary and short-term bonus minus SIRP deferrals. Federal law limits the amount you can contribute to the 401(k) Plan on an aggregate basis in any tax year. In 2017, your 401(k) Plan contributions will end either when you contribute $18,000 or when your eligible wages reach $270,000, whichever occurs first. When selecting a SIRP Commencement Percent, keep in mind that to avoid a gap or overlap between when your 401(k) contributions end and your SIRP deferrals begin, your aggregate 401(k) contribution rate and your SIRP Commencement Percent should be the same. For example, if you elect to contribute 8 percent of your compensation (base salary plus short-term bonus) to the 401(k) Plan, an election of 8 percent for your SIRP Commencement Percent will avoid any gap or overlap. Consider the following example of how the SIRP Commencement Percent election works. Example: Employee Saving 8 Percent Timing Wages Jan. 401(k): $18, (k) ends SIRP begins Dec. $0 $225k $260k 401(k) Contributions: SIRP Contributions: Total Contributions for the Year: Overall Savings: SIRP: $2,800 $18,000 $2,800 $20,800 8% Assumptions Annual Compensation: $260,000 (includes STI award) 401(k) Contribution Rate: 8% SIRP Deferral Rate: 8% SIRP Commencement Percent: 8% SIRP Deferral Begins: $225,000

7 5 3. Investment Options When you decide to contribute to SIRP Parts 1 and 2, a notional investment account is set up in your name. You choose how you want to allocate contributions among the available investment options, which reflect the asset classes in the Company s surplus investment portfolio and are managed by Liberty Mutual Investments. While the Company may add or remove investment options at any time, here are the current investment options available, as well as the percentage of your SIRP account that you may allocate to each asset class: ASSET CLASS OPTION 1: Personalized Investment Allocation Foreign Public Equities OPTION 2: Pre-Mix Portfolio Up to 5% 5% Private Equities Up to 10% 10% High-Yield Bonds Up to 15% 15% Domestic Public Equities (S&P 500) General Fixed Income Up to 30% 30% From 40% to 100% 40% Fund performance can be found on Your Total Rewards. Past performance is not indicative of future results. Investment return and value of shares may fluctuate. Naming a Beneficiary When you first enroll in SIRP, you will be asked to name a beneficiary to receive the total accumulated value of your SIRP account in the event of your death. Payments are made to beneficiaries based on your deferral elections made through 2013 while actively employed. For deferrals made in 2014 or later, payments will be made in a lump sum to your beneficiary in the February following the year of your death. If your beneficiary dies before you, payments will be made to your estate. During the annual election period, you can make separate investment allocations for your existing account balance and for future contributions. If you reallocate your existing account balance during the annual election period, your reallocation elections will only be applied to your SIRP balance as of June 30 of the current year. (Reallocation elections will not be accepted outside of the annual election period.) Any deferrals made between July 1 and December 31 of the same year will continue to reflect the fund allocations elected during the previous year. Investment results are notional and are calculated quarterly. You will receive quarterly statements showing the value of your account, reflecting gains or losses based on your allocations and investment option performance. Since SIRP is an unfunded, non-qualified plan, you are not subject to immediate taxation when you earn investment returns. If you die without having named a surviving SIRP beneficiary, your SIRP benefits will be paid to your surviving spouse, if you are married, or to your estate, if you are unmarried. You can change your beneficiary election at any time online through Your Total Rewards. Unlike benefits payable under the qualified plans the Liberty Mutual 401(k) Plan and the Liberty Mutual Retirement Benefit Plan SIRP benefits are not subject to payment to alternate payees under a domestic relations order, except as otherwise required by applicable law.

8 6 4. Payment Distribution Options Making Annual Payment Elections Each year when you enroll, you will be asked to elect one of two payment forms for your SIRP Part 1 and Part 2 deferrals a lump sum or calculated installments. If you elect a lump sum, you can choose to receive it on a specific date (called a Fixed Future Date ) or after you separate from the Company. If you choose installments, you can spread them out over two to 15 years, beginning after you retire. Lump Sum on Fixed Future Date You can choose to receive a lump-sum payment on a fixed future date subject to a five-year minimum deferral. In other words, you will be eligible to receive payment of the amount deferred to savings no sooner than the end of the year that begins five years after the effective year of your deferral election. Here s how it works: 1. You elect a fixed future date payment for the next SIRP deferral year (e.g., you elect in April 2017 for savings in 2018); 2. The minimum deferral period is five years, which is December 31 of the fifth year (e.g., December 31, 2023); and then 3. You receive a lump-sum payment within 60 days of the end of the calendar quarter following your elected payment (e.g., February 2024). Lump Sum After Retirement You can choose to receive a lump-sum payment in February of the year following your separation year (e.g., if you retire in January 2018, you would receive payment in February 2019). Calculated Installments After Retirement You can choose to receive annual installments for up to 15 years, payable starting the February of the year following your retirement year. Note: Although you cannot request a loan from your account, hardship withdrawals are available when federal tax regulations and plan requirements (including approval of the CEO and, in some cases, the Compensation Committee of the Board of Directors) are met. Contact Executive Compensation for more information.

9 7 Payment of Account If you leave the Company, the timing of your SIRP balance* payment depends on the reason you leave: Separation: If you leave the Company for any reason other than retirement, disability or death, your entire account balance will be paid as a lump sum in the February following the year you terminate employment with Liberty. Fixed future date elections are only applicable while you are an active employee. Payment is accelerated upon separation. Retirement: If you chose annual installments or a lump-sum payment, your first installment or your account balance will be paid in the February following the year you retire from Liberty. Please Note: You are eligible to retire if you are age 55 or older and have at least five years of continuous service since your most recent employment date. Disability: If you become disabled (as defined by SIRP) and choose annual installments or a lump-sum payment, your first installment or your account balance will be paid the February following the year of your disability. *SIRP accounts first established after December 31, 2004, that are less than the IRC 402(g) limit upon termination of employment ($18,000 in 2017) will be paid in a lump sum regardless of the payment election. Questions? If you have questions about how your SIRP balance will be paid out, check out the SIRP FAQs on myliberty Executive Center or contact Executive Compensation. Death: For deferral years prior to 2013, payments will be made to your beneficiary using the payment elections you made while actively employed. If you chose annual installments or a lump-sum payment, the first installment or your account balance will be paid in the February following the year of your death. For deferrals made in 2014 or later, payments will be made in a lump sum to your beneficiary in the February following the year of your death. (See page 5 for more information about beneficiaries.) SIRP ACCOUNT PAYMENT EXAMPLE EVENT DATE REASON ORIGINAL PAYMENT ELECTION PAYOUT TIMING Separation for any reason other than retirement, disability or death Calculated Installments Lump Sum After Retirement Lump Sum on Fixed Future Date Lump sum paid February 2018 Retirement Calculated Installments Lump Sum After Retirement Installments begin February 2018 Lump sum paid February 2018 March 1, 2017 Disability Calculated Installments Lump Sum After Retirement Installments begin February 2018 Lump sum paid February 2018 Death Deferral elections made before 2014 Calculated Installments Lump Sum After Retirement Installments begin February 2018 Lump sum paid February 2018 Deferral elections made in 2014 or after Calculated Installments Lump Sum After Retirement Lump sum paid February 2018

10 8 Making Changes to Your Payment Elections The process for changing your payment elections depends upon when your balance was contributed. You can change your payment elections online on the Your Total Rewards Web site. Balances Contributed on or After January 1, 2005* You can change your payment elections for balances contributed on or after January 1, 2005 (adjusted for investment gains and losses), subject to the following federal tax rules: Except for payments made on account of death, the new payment election must be deferred for a period of at least five years from the date the payment otherwise would have been made (or, in the case of installment payments, five years from the date the first installment payment was scheduled to be paid). You must make any election change no less than 12 months before the date the payment is scheduled to be paid (or in the case of installment payments, 12 months before the first installment payment is to be paid). Any change will not take effect until 12 months after the date on which Executive Compensation receives and approves your new election form. Any change to the payment form must not accelerate payment except as allowed under federal tax rules. Balances Contributed Before January 1, 2005* You can change your payment elections for balances contributed before January 1, 2005 (adjusted for investment gains and losses), provided you make this change no later than December 31 of the year prior to the calendar year in which you retire. For example, if you retire on February 1, 2017, you must submit a completed second election form no later than December 31, You can only change a retirement lump-sum or installment payment election once. You can change fixed date deferral elections multiple times, but each change must delay the payment date an additional five years. *As a result of a tax law change, the SIRP program consists of two plans: SIRP, which deals with deferrals made and pension benefits accrued and vested before January 1, 2005, and SIRP #2, which deals with deferrals made and pension benefits accrued and vested after December 31, Material differences between these plans are discussed in this brochure. Also, note that fixed future dates that are later than your actual retirement date will be accelerated to the February following the year of your retirement.

11 9 SIRP Defined Benefit The two main SIRP components, defined contribution and defined benefit, are designed to complement each other. The defined benefit part of SIRP provides additional pension benefits beyond the amounts that can be provided under the Liberty Mutual Retirement Benefit Plan (the Retirement Plan) due to IRC limitations. In other words, your retirement benefit will come from multiple sources: a portion from the qualified Retirement Plan and a portion from the non-qualified SIRP defined benefit (Part 3). Read on to learn more about this important benefit. SIRP Part 3: Retirement Income (Pension) The IRC limits the benefit that can be paid and the amount of compensation that can be taken into account when calculating benefits under any qualified defined benefit pension plan, such as Liberty s Retirement Plan. These IRC limits can change each year based on inflation. Please refer to the Retirement Plan s summary plan description for the current plan limits. The pension component of SIRP allows you to receive a non-qualified pension benefit based on your total eligible compensation above the benefit payable under the qualified Retirement Plan. In addition, because the amounts you defer in SIRP Part 1 and Part 2 reduce the compensation used for determining your benefit under the Retirement Plan, SIRP Part 3 ensures that your total pension benefit at retirement will not be reduced because of those deferrals. Once you become a qualified executive and become eligible for the Retirement Plan, you are automatically eligible for SIRP Part 3. There is no need to enroll. Cash Balance Benefit Formula Prior Final Average Pay Benefit Formula Under the Retirement Plan benefit formula for participants prior to January 1, 2014, the Retirement Plan provides a defined benefit an annuity that is calculated at the time you retire based on your final average compensation. If you were a participant in the Retirement Plan prior to January 1, 2014, you will receive a pension benefit based on your vested credited service as of December 31, 2013, and your age and final average pay as of your termination date, subject to the Retirement Plan s vesting provisions. Effective January 1, 2014, the Company amended the Retirement Plan to include a cash balance formula, under which the Company provides you with monthly pay credits and interest credits through a notional cash balance account. Under the Retirement Plan, the pay credit is equal to 4.5 percent of your eligible annual compensation; interest credits are based on the United States 30-year Treasury Rate in effect as of August of the preceding year, which is published in September. For 2017, the interest credit rate is 2.26 percent. Effective January 1, 2014, benefits will accrue under SIRP Part 3 based on the pay credits and interest credits that would have been made under the Retirement Plan if not for the IRC limits mentioned above, except that pay credits under SIRP Part 3 will be determined on an annual basis.

12 10 Payment of SIRP Part 3 Under the Retirement Plan, vested benefits under the cash balance formula are payable when you leave the Company, regardless of age. Vested benefits under the prior plan formula are payable as early as age 55 if you have at least three years of continuous service. If you are not vested under the Retirement Plan at the time of retirement or termination, you are not eligible to receive any benefits from SIRP Part 3. Benefits Earned After December 31, 2013 There are two payment options, depending on the value of your SIRP cash balance benefit at the time your employment ends: If the actuarial value of your SIRP cash balance benefit is $100,000 or less at the time you leave the Company, then you will receive your SIRP cash balance benefit as a single lump-sum payment within 60 days following the date your employment ends. If the actuarial value of your SIRP cash balance benefit is greater than $100,000 at the time you leave the Company, then you will receive your SIRP cash balance benefit in the form of an annuity, payable beginning on the first day of the month on or following the date your employment ends (if you are eligible for retirement under the Retirement Plan when you leave the Company) or beginning on the first day of the month on or after reaching age 55 (if you are not eligible for retirement under the Retirement Plan when you leave the Company). If you do not have a spouse on the date benefit payments begin, you will receive your SIRP cash balance benefit in the form of a monthly annuity for your life. If you have a spouse on the date benefit payments begin, you will receive your benefit in the form of a monthly annuity for your life, or if you have a surviving spouse, monthly payments will continue to your spouse at 50 percent for the life of your spouse.* Benefits Earned After December 31, 2004 You must begin to receive your SIRP Part 3 pension benefits, paid by Liberty Mutual, after the later of: Age 55, Retirement or Termination. You will receive your benefit earned after December 31, 2004, in the following forms: If you do not have a spouse on the date benefit payments begin, you will receive your benefit in the form of a monthly annuity for your life. If you have a spouse on the date benefit payments begin, you will receive your benefit in the form of a monthly annuity for your life, or if you have a surviving spouse, monthly payments will continue to your spouse at 50 percent for the life of your spouse.* If you die before beginning to receive your benefit payments earned after December 31, 2004, a monthly benefit may be payable to your surviving spouse in the form of a life annuity with payments to begin either immediately (if you were eligible to have begun to receive your benefit) or on the date you would have been eligible (if you were not eligible to begin receiving your benefit). (See page 11 for the Special Rules that apply to certain eligible participants after 24 months of benefit payments with respect to benefits accrued before 2013.) Note: If at any time the SIRP #2 pension benefit is payable and the actuarial present value of the benefit is less than the IRC section 402(g) limit ($18,000 in 2017), that benefit will be paid in a lump sum and not as an annuity as described on this page. *Optional forms of SIRP cash-balance benefit payments may be available, subject to the terms of SIRP.

13 11 Benefits Earned Before January 1, 2005 Benefits are paid at the same time and in the same form as your qualified Retirement Plan benefit is paid. In other words, if you choose to receive your Retirement Plan benefit in the form of a life annuity, you will receive your SIRP Retirement Income benefit as a life annuity paid by Liberty Mutual. However, if you retired from Liberty, after 24 months of benefit payments, you may be eligible to receive your benefit as a commercial annuity or lump sum. (See below for the Special Rules that apply to certain eligible participants after 24 months of benefit payments.) Special Rules for Benefits Earned Before January 1, 2013 If you retire or die while employed after becoming eligible for retirement, and if the Company makes the commercial annuity option available, after 24 months of payment of your SIRP benefit under the plan, you (or your surviving spouse) will be asked to elect one of the following: Lump-Sum Cash Payment: This option provides the actuarial equivalent of the remaining benefits payable to you under SIRP Part 3. Commercial Annuity Contract: This option provides payments from an annuity provider approximating your monthly after-tax SIRP benefit and includes an additional lumpsum payment for estimated taxes due for the purchase of the annuity contract, using tax rate assumptions established by the Plan Administrator. Commercial Annuity Contract Not Available If the Plan Administrator determines that the commercial annuity contracts are not readily available with respect to you or your surviving annuitant in proper form or for a reasonable cost, then: For Benefits Earned Before January 1, 2005 The Company will continue to pay your benefit in the same form that was in effect just prior to the 25th month. If the Plan Administrator later determines that annuity contracts are available in proper form and at a reasonable cost, you will be asked to elect a lump-sum cash payment or a commercial annuity contract. For Benefits Earned January 1, 2005, through December 31, 2012 You will receive your benefit in the form of a lump-sum cash payment. Payment of the lump sum or receipt of the commercial annuity contract will fully satisfy the benefit obligations of the Company and SIRP. If you cease to be a qualified executive before you retire or terminate employment, then the lump sum and annuity options will only be available covering the benefit accrued under SIRP #2 while an eligible executive. Non-Duplication of Benefits You will never receive a benefit paid under SIRP for the same period of service for which you are receiving or eligible to receive a supplemental retirement benefit under a similar plan maintained by the Company or any affiliated employer.

14 12 FICA Tax Treatment of SIRP Benefits Defined Contribution Under current federal tax rules, contributions and earnings contributed to SIRP Part 1 and Part 2 are made on a before-tax basis. When distributed, these amounts are considered supplemental income and taxable for federal and state income tax purposes. Participant contributions and SIRP Company matching contributions are subject to Federal Insurance Contributions Act (FICA) tax at the time they are contributed to SIRP. Defined Benefit FICA Tax Treatment SIRP Final Average Pay Benefit The benefit accrued under SIRP Part 3 is subject to FICA tax. You have the option to pay the FICA tax annually or wait to pay it when your employment ends. You will be notified of the FICA tax obligation each August and offered an opportunity to have the tax withheld from the last nine paychecks of the year. If you choose not to pay the tax, the untaxed accrued benefit will be calculated each year and you will have the option to pay the tax in any active year. When your employment ends, a true-up calculation will be completed and you must pay the FICA tax obligation before the end of that calendar year. SIRP Cash Balance Benefit Pay credits and interest credits under SIRP Part 3 are subject to FICA tax at the time they are credited to your notional SIRP account. The FICA tax will be withheld from your pay in December.

15 Key Terms Aggregate 401(k) Plan Contributions Aggregate employee elective contributions are limited to $18,000 in 2017 (plus an additional $6,000 for employees age 50 or over). This limitation is by individual, rather than by plan. You can split your annual elective deferrals between designated Roth contributions and traditional before-tax contributions, but your combined contributions cannot exceed the deferral limit. Federal Insurance Contributions Act (FICA) FICA includes Social Security and Medicare taxes. Employees and employers are both required to pay these taxes. The 2017 Social Security tax rate for employees is 6.2 percent, up to the $127,200 wage base limit. The 2017 Medicare tax rate for employees is 1.45 percent, up to $200,000 ($250,000 for married taxpayers filing jointly) of wages and 2.35 percent thereafter. Medicare does not have a wage-base limit. Non-Qualified Plans As a highly compensated employee (determined under the IRS regulations as anyone earning more than $120,000 in 2017), there are limits on the amount you can save through the qualified savings plan (the Liberty Mutual 401(k) Plan) or have considered as annual compensation in your Liberty Mutual Retirement Benefit Plan s pension calculations. A non-qualified plan allows you to save a percentage of your earnings on a tax-deferred basis and earn additional pension benefits above the qualified plan limits. As an unfunded plan, your SIRP balances are credited as bookkeeping entries to your plan accounts and, along with the non-qualified pension, are paid from the general assets of the Company at the time of payment. Participants are general creditors of the Company. Non-qualified plan deferred compensation payments cannot be rolled over into a tax-qualified plan, such as an IRA or 401(k) plan. Notional Investment Account Unlike your 401(k) Plan contributions, which are invested directly in your elected fund options and held in a separate trust meeting federal tax law requirements, your SIRP contributions are credited to a notional account. Notional accounts, maintained strictly for accounting purposes, account for participant contributions, SIRP Company matching contributions and investment returns. Qualified Plans These plans meet the requirements of IRC Section 401(a) and the Employee Retirement Income Security Act of 1974 (ERISA) and so are eligible for favorable tax treatment. The plans are subject to limits on contributions, eligible compensation and pension benefits. Benefits under qualified plans are considered protected because the plan assets are held in a trust solely for the benefit of plan participants. 13

16 Your SIRP Resources You will receive quarterly SIRP statements if you elect to participate in the SIRP Part 1 or SIRP Part 2 components. You can view your SIRP account and historical payment elections online through Your Total Rewards. You can also make your annual SIRP elections, view SIRP notional account balances and investment returns, estimate pension benefits, view your vested status and change beneficiary designations online through Your Total Rewards. If you have any questions about your SIRP participation, please contact Executive Compensation. If you have questions about the Liberty Mutual 401(k) Plan or the Liberty Mutual Retirement Plan, visit Your Total Rewards or call Benefits Express at Representatives are available Monday Friday, 9 a.m. to 5 p.m. ET. This summary is intended to familiarize employees with various aspects of the Supplemental Income at Retirement Plan (SIRP). While every effort has been made to provide accurate information, the possibility of an error exists. If there is a discrepancy between this summary and the Plan Document, the latter will apply. Liberty Mutual reserves complete discretion to select those individuals who are eligible to participate in SIRP, their effective dates of participation and their dates of termination of participation. The plan is subject to amendment or termination by the Company at any time. The SIRP Summary should not be regarded as an indicator of an employment contract between you and Liberty. It does not change the at-will nature of your employment relationship with Liberty. SIRP March 2017