ITW Savings and Investment Plan for Employees Generally Hired on or after January 1, 2007

Transcription

1 ITW Savings and Investment Plan for Employees Generally Hired on or after January 1, 2007 Group 2 April 1, 2015

2 April 2015 ITW Savings and Investment Plan for Group 2 Employees

3 Introduction A financially secure retirement is a goal that the Company would like to help you achieve. That s why it sponsors the ITW Savings and Investment Plan. The Plan referred to as the 401(k) Retirement Plan allows you to take advantage of favorable tax laws that enable you to save for retirement while reducing the amount you pay in taxes. To encourage your participation in the Plan, it offers a matching contribution from the Company that can help your savings grow faster. About this SPD This SPD generally describes the benefits provided under the ITW Savings and Investment Plan for Group 2 employees. Features of this SPD include: A table of contents you can use to access sections within this SPD. To access a specific section, click on the section heading or page number (see Contents on page 3) Embedded links to other specified pages and sections within this SPD as well as to external websites which are underscored and highlighted in blue in the online version of this SPD and can be used to reach a referenced topic, section or website. A glossary of key Plan terms, which are capitalized throughout this SPD (see Definitions of Key Terms on page 36). This Summary Plan Description (SPD) describes benefits under the Plan for Group 2 employees, as in effect on January 1, You are a Group 2 employee if: You first became eligible to participate in this Plan on or after January 1, 2007; or You are a former employee who is rehired on or after January 1, This SPD also provides important information regarding the administration of the Plan. This SPD will be effective until another SPD is issued with a later effective date. This SPD may be modified from time to time. To determine the proper benefits at any given time under the Plan, you will need to consult the SPD as in effect at that time. In some cases, your rights under the Plan may be described in a separate document (for example, the Enrollment Guide). These separate documents form a part of this SPD and should be kept with your other important papers regarding your benefits under the Plan. In the event of any conflict between these separate documents and the content of this SPD and certain other such documentation (for example, materials available on ITWemployee.com), the terms of this SPD shall apply. The formal texts of the Plan document and trust agreements, however, are the primary documents which form the Plan. While every effort has been made to ensure that this description is as complete and accurate as possible, the terms of the Plan and Trust agreements shall be controlling in case of any conflict between this SPD and the Plan and Trust agreements. April 2015 ITW Savings and Investment Plan for Group 2 Employees 1

4 Nothing in this SPD is intended to be interpreted as a promise or guarantee of future or continued employment or as stating provisions and terms of employment. No rights accrue to any employee, dependent or beneficiary by any misstatement in, or omission from, this SPD, or by the operation of the Plan. ITW and its employees recognize their mutual right to end their employment relationship at any time and acknowledge that such relationship is one of employment at will. ITW reserves the right to change (including, but not limited to, the right to amend, suspend, or terminate) its personnel policies, procedures, benefit plans and programs, including those for retirees, in its sole discretion, at any time without notice. No representative of ITW has the authority to make any agreement or representation contrary to the provisions of this SPD or the Plan. If you have questions after reading this SPD, contact the 401(k) Retirement Plan Administrator (see Administrative Facts/Contact Information on page 33). April 2015 ITW Savings and Investment Plan for Group 2 Employees 2

5 Contents Eligibility and Participation... 5 Eligibility... 5 Participation... 6 How the ITW Savings and Investment Plan Works... 6 Plan Highlights... 7 Getting Started... 7 Your ITW Savings... 8 Opportunities to Save... 8 Pre-Tax Savings... 8 After-Tax Savings... 9 IRS Limits... 9 Contribution Carryover Election... 9 Catch-Up Contributions Payroll Deductions Special Tax Credit for Participants within Certain Income Ranges Company Contributions Company Matching Contributions Company Basic Contributions Employee Rollover Contributions Investing Your Account Path1 Target Retirement Funds Path2 Core Investment Funds Default Investment Fund Changing Your Investments Automatic Rebalancing Diversification Rights The Importance of Diversification ITW Stock Dividend Elections Fund Management Fees Other Withdrawals Funds Available for Withdrawal Requesting a Withdrawal In-Service Withdrawal Age 59½ Withdrawal Hardship Withdrawal Continued April 2015 ITW Savings and Investment Plan for Group 2 Employees 3

6 Loans How to Apply for a Loan How Much Can You Borrow? Interest Rate How You Repay Your Loan What Happens to Loan Repayments Missed Loan Repayments Default and Foreclosure Receiving Your Account When You Leave the Company What Vesting Means Applying for a Distribution How Your Account Will Be Paid Forms of Payment Payout Timing If You Leave ITW and Are Rehired Benefits for Your Survivor Naming a Beneficiary Surviving Spousal Beneficiary Non-Spousal Beneficiary Trust or Estate Beneficiaries Payment of Small Balances Filing Claims Initial Review of Claims Denial of Claims Appeal of Denied Claims Other Plan Information Plan Insurance Qualified Domestic Relations Order Loss of Benefits Administrative Information Administrative Facts/Contact Information No Contract of Employment Successor Company Applicable Law Indemnification Amendment or Termination of a Plan Your Rights to Benefits under ERISA Definitions of Key Terms More information is available at ITWemployee.com or by contacting the ITW Employee Service Center at (Option 3 and then Option 1). April 2015 ITW Savings and Investment Plan for Group 2 Employees 4

7 ITW Savings and Investment Plan Eligibility and Participation Eligibility You will generally be eligible to participate in the ITW Savings and Investment Plan if you are a regular, non-union employee (full-time or part-time) who is on the U.S. payroll of a Participating Business Unit. An employee who is participating in another defined contribution (401(k)) plan maintained by the Company will not be eligible to participate in this Plan. Participating Business Units The list of Participating Business Units designated to participate in the ITW Savings and Investment Plan is maintained by the Employee Benefits Steering Committee of ITW and is considered part of the Plan. Unless otherwise indicated by the Employee Benefits Steering Committee, all eligible employees of a Participating Business Unit participate in the Plan (as noted above). The Employee Benefits Steering Committee may determine that any division, plant, location, facility or department which was previously designated as eligible to participate in the Plan shall thereafter be ineligible to participate under such terms and conditions as it shall deem appropriate. Temporary, Casual and Leased Employees and Returning Employee Consultants An employee who is (or is treated by ITW as) employed in a temporary, casual, or leased status or who is (or is treated by ITW as) a returning employee consultant, co-op student, or independent contractor will not be eligible to participate in the ITW Savings and Investment Plan. For purposes of these classifications, the descriptions are: Temporary means employment on a temporary basis that lasts no longer than six months. Casual means employment with generally inconsistent and irregular hours and/or days, or for a predetermined period of no more than one month. Leased means contracted employment with a third-party agency. Returning employee consultant means a former employee with technical or managerial expertise who is engaged on an irregular basis and paid on an hourly basis. Co-op student means a student hired to work for ITW for a semester or quarter as part of an arrangement through their school. Independent contractor means a self-employed individual who is hired for project work. Any individual hired by ITW as an independent contractor will not be eligible to participate. In addition, eemployees covered by a collective bargaining agreement will not be eligible to participate in the Plan. Employees working within a collective bargaining unit not covered under a plan that has satisfied the requirements for union decertification will not be eligible to participate in the Plan unless so designated by the Employee Benefits Steering Committee. April 2015 ITW Savings and Investment Plan for Group 2 Employees 5

8 Participation You may enroll in the ITW Savings and Investment Plan and begin making contributions as soon as practicable following your date of hire or the date you are first considered an eligible employee. All elections must be submitted through the Plan website or by contacting the 401(k) Retirement Plan Administrator (see Administrative Facts/Contact Information on page 33). In general, if you enroll by 11:00 p.m. Central Time on any Sunday, your contribution deductions should begin in the following pay period. Signing Up Once eligible, you can enroll and select your contribution rate and investment elections at any time. When you enroll, you authorize the Company to deduct savings contributions from your pay, including any different contribution levels or other transactions you elect online or by phone. If you do not want to enroll in the Plan, you can decline enrollment through the Plan website or by phone. Automatic Enrollment If you do not make an election either to enroll or to decline enrollment within 60 days of eligibility you will be automatically enrolled in the Plan at a 3% pre-tax contribution rate. This 3% pre-tax contribution rate will automatically increase by 1% annually until your contribution reaches 6%, allowing you to fully benefit from the ITW Company matching contribution (see Company Contributions on page 12). Your contributions and any Company matching contributions will be invested in the ITW Target Retirement Fund nearest to the year in which you turn age 65. For example, if you turn age 65 in 2018, then your contributions will be invested in the 2020 Target Retirement Fund. If you are enrolled through Automatic Enrollment, you can change your contribution and/or investment elections or elect to stop making contributions at any time. How the ITW Savings and Investment Plan Works Through the ITW Savings and Investment Plan, you have the opportunity to save for the future. Consider the following: The sooner you start, the easier it is. The good news is that people are living longer, well beyond the age of retirement. This means that your savings will have to last longer. The sooner you start saving, the more time you have to set aside the money you will need in retirement. Social Security may not be enough. During your working years, you have come to expect a paycheck, but what happens when you are no longer working? The Social Security Administration predicts that its retirement benefits for the average worker will provide between 30% and 40% of retirement income. This means that the majority of your retirement income will need to come from this Plan and your personal savings. April 2015 ITW Savings and Investment Plan for Group 2 Employees 6

9 There are tax advantages: When you participate in this Plan, you have the option to save money before it is taxed. This reduces the current taxes you would normally pay. You will, however, pay income taxes as you withdraw money throughout your retirement years. You do not pay taxes on any earnings, such as interest or dividends, until you take the money out. Your earnings are automatically reinvested in the Plan to help your nest egg grow. Plan Highlights You can save from 1% to 50% of your Plan pay on a pre-tax basis or from 1% to 10% of your Plan pay on an after-tax basis; or a combination of both pre-tax and after-tax savings, limited to 50% of your Plan pay. If you save in the Plan, the Company will match a portion of your savings. Whether or not you save in the Plan, you will begin to receive an annual Company basic contribution from ITW after you have completed 12 months of service and have attained age 21. You decide how to invest your savings and the Company matching contributions. You have the choice of two investment paths: Path1 Target Retirement Funds or Path2 Core Investment Funds. You are always 100% vested in your employee contributions, any Company matching contributions, any rollover contributions and any earnings on these contributions, once they are deposited to your account. You will be 100% vested in Company basic contributions after completing 36 months of service. Although the Plan is designed to help you save for retirement, withdrawals and loans are permitted in certain situations. You can enroll in the Plan and conduct Plan transactions easily and conveniently. You have the ability to: Learn the current value of your accounts; Change your contribution rate; Change your investment elections; Request loan or withdrawal information; Receive current fund performance figures and daily share prices; and Generate online statements and receive transaction confirmations. Getting Started You can enroll in the Plan by completing the following steps: Review the enrollment package that you received when first eligible for the Plan. You can also obtain more information on the Plan s website. Determine your contribution rate. Take into consideration your age, existing savings, and your future needs. Select your investment options from either the Path1 Target Retirement Funds or the Path2 Core Investments Funds where you can create your own mix. Make your beneficiary designations. For more information on all of the above, refer to the Plan s website or contact the 401(k) Retirement Plan Administrator. April 2015 ITW Savings and Investment Plan for Group 2 Employees 7

10 Your ITW Savings Your total Savings and Investment Plan account may consist of four individual sub-accounts, as follows: Employee Pre-tax Account: Your pre-tax savings and related investment returns. Employee After-tax Account: Your after-tax savings and related investment returns. Company Match Account: Contributions made by the Company as matching contributions to your savings, and related investment returns. Company Basic Account: Contributions made by the Company as basic contributions, plus related invested returns. Rollover Account: Amounts you have rolled over from another plan or IRA and related investment returns. Other Accounts: Certain funds transferred from plans that were merged into the ITW Savings and Investment Plan may be included in one of the accounts listed above. Or, they may be kept in a separate account, depending on any special rules that applied. You can receive more information on these accounts by calling the 401(k) Retirement Plan Administrator and speaking with a Participant Services Representative. Opportunities to Save If you are actively employed by the Company, you can save from 1% to 50% of your Plan pay (in whole percentages) on a pre-tax basis or from 1% to 10% of your Plan pay on an after-tax basis; the amount you can save using a combination of both pre-tax and after-tax savings is limited to 50% of your Plan pay. For this Plan, your Plan pay generally includes: Regular wages, holiday and vacation pay; Overtime, shift differential and incentive pay; and Bonuses and commissions. Pay for the purposes of this Plan does not include short-term disability payments, separation pay, moving allowances and other payroll amounts. Pre-Tax Savings When you contribute to the Plan on a pre-tax basis, you get a tax break today, which may provide you with additional take-home pay. By investing your money before taxes are calculated and withheld, you reduce your taxable income and the current income taxes you would normally pay. You will, however, pay taxes on your pre-tax savings (and related investment returns) as you withdraw the money during your retirement years. If you withdraw your investments before age 59½, your withdrawal will be subject to taxation and a possible 10% penalty. April 2015 ITW Savings and Investment Plan for Group 2 Employees 8

11 After-Tax Savings After-tax savings are made through payroll deduction after income taxes are deducted. Unlike pre-tax savings, after-tax savings do not reduce the amount you pay in current income taxes each year. However, the investment earnings on these savings accrue on a tax-deferred basis. You re taxed on these earnings when they are taken from the Plan. The Pre-tax Savings Advantage The example below shows what the federal tax deferral can be for an employee who saves $25 per pay period. Pre-tax Savings After-tax Savings 10% Tax Bracket 25% Tax Bracket You save $25.00 $25.00 $25.00 Your income tax savings 0 $2.50 $6.25 Your cost of saving $25.00 $22.50 $18.75 IRS Limits Each year, the Internal Revenue Service (IRS) sets limits on the maximum amount of eligible pay under this type of Plan and various savings limits. For 2015, these IRS limits are: Compensation Limit... $265,000 Pre-tax Savings Limit... $18,000 Combined Contribution Limit... $53,000 Catch-up Contribution Limit... $6,000 The amount of your contributions may be reduced to comply with IRS regulations. Contribution Carryover Election The contribution carryover election allows you to specify what should happen in the event that you reach the IRS pre-tax contribution limit in a calendar year. You may elect to either: Continue your pre-tax contribution election on an after-tax basis (up to 10%) for the remainder of the year so that you may continue to receive the Company match, if eligible (this is the default option in the Plan); or Stop your pre-tax contributions at the annual IRS Pre-tax Savings Limit. Keep in mind that the Company matching contribution is deposited to your account each pay period only if you contribute to the Plan during the period. If you reach the IRS Pre-tax Savings limit during the year and elect not to continue making contributions on an after-tax basis, you will not receive the maximum Company match. If your pre-tax contributions are stopped because you reach the IRS Pre-tax Savings Limit during a calendar year, pre-tax contributions will automatically resume the following January based on your pre-tax contribution election on file. April 2015 ITW Savings and Investment Plan for Group 2 Employees 9

12 In the event that you reach the IRS Pre-tax Savings Limit during a calendar year and you have not made a contribution carryover election, your pre-tax contribution election will be continued on an after-tax basis (up to 10%) for the remainder of the year unless you change your election. You can make a contribution carryover election online through the Plan website or by phone. Catch-Up Contributions You may be eligible to contribute an additional amount to the Plan on a pre-tax basis. This amount is called a catch-up contribution. You are eligible to make a catch-up contribution if you are actively employed by the Company and: You are or will reach age 50 by December 31 of the calendar year; and Your pre-tax contributions are expected to exceed one of the applicable IRS or Plan limits for the year. You may begin making catch-up contributions as of January 1 of the year in which you reach age 50. You do not have to wait until your 50th birthday to begin catch-up contributions. The catch-up contribution is elected as a dollar amount that will be deducted each pay period and invested in accordance with your investment elections on file for future contributions. There is an IRS annual maximum ($6,000 for 2015) on catch-up contributions. Catch-up contributions are not eligible for Company matching contributions. You must elect your catch-up contribution amount separately from, and in addition to, your regular pre-tax and/or after-tax contribution election. Your catch-up election must be a whole dollar amount. To figure out your per-pay-period catch-up contribution amount, determine the total amount you want to contribute as catch-up contributions for the year and divide by the number of pay periods remaining in the year. For example, if you want total catch-up contributions of $6,000 for the calendar year and have 26 pay periods, your catch-up election should be $231 per pay period. You can start, stop, or change your catch-up contribution election at any time just as you do with your regular pre-tax and/or after-tax contribution election through the Plan website or by contacting the 401(k) Retirement Plan Administrator. You can decide the timing of your catch-up contribution election, which may be concurrent with your regular pre-tax and/or after-tax contribution election. Once your catch-up contribution election is processed, your contributions will begin as soon as administratively possible and the catch-up amount will be deducted each pay period until you reach the annual maximum, or until you make a change. The catch-up contribution you elect will apply in future years unless you change your election. If you do not reach the IRS annual Catch-up Contribution Limit or the Plan limit for pre-tax contributions at yearend, your contribution will not be considered a catch-up contribution by the IRS. If this happens, your contribution will be added to your regular pre-tax contribution, up to IRS limits. Any amounts above the IRS or Plan maximum contributions will be considered catch-up contributions; consult a tax advisor for more information. April 2015 ITW Savings and Investment Plan for Group 2 Employees 10

13 Payroll Deductions You can start, stop or change your savings rate as of any pay period. You can make a change at any time through the Plan website or by calling the 401(k) Retirement Plan Administrator. Generally, if you make the change by 11:00 p.m. Central Time on any Sunday, your change will take effect as of the next pay period. Automatic Contribution Rate Escalator To make the most of the Plan over the course of your career, you can elect to make automatic future increases in your contribution rate in set increments based on a time frame that you select. With the Automatic Contribution Rate Escalator, you can elect future contribution increases. Be sure to increase your savings to 6% or more each pay period to receive the maximum Company match. If you are enrolled through Automatic Enrollment, this feature is automatically set to increase your pretax contribution rate by 1% annually until your contribution rate reaches 6% of your pay, unless you make a change. You may change your contribution rate (set it or turn it off) using the Automatic Contribution Rate Escalator feature at any time. Any time you change your contribution rate and/or your investment elections, the Automatic Contribution Rate Escalator will be turned off. You will need to re-elect it if you wish to have your contributions automatically increased. Special Tax Credit for Participants within Certain Income Ranges There are special retirement savings benefits for employees whose annual adjusted gross income (AGI) is $30,500 or less ($61,000 or less if married and filing jointly). In addition, to be eligible you must be at least 18 years of age, not a full-time student and not claimed as a dependent on someone else s tax return. If eligible, you can claim a tax credit for up to 50% of your first $2,000 in pre-tax contributions. That s a credit of up to $1,000 against what you would otherwise owe the IRS. The income brackets and corresponding Tax Credits for Savers amounts for 2015 are listed below: AGI for Single Filer* AGI for Married Filing Jointly Tax Credit (%) Maximum Potential Tax Credit** $18,250 or less $36,500 or less 50% $1,000 $18,251 - $19,750 $36,501 - $39,500 20% $400 $19,751 - $30,500 $39,501 - $61,000 10% $200 $30,501 or more $61,001 or more 0% $0 * AGI ranges are higher for single filers with head of household status. ** Maximum potential credit applies if you contribute at least $2,000 pre-tax to the Plan. Contributing more to the Plan could significantly increase your tax credit, which should lower the amount you pay in taxes since your pre-tax contributions lower your AGI. For example, if a single employee who otherwise has an AGI of $18,000 contributes $500 pre-tax to the Plan annually, he would have an AGI of $17,500 and be eligible for April 2015 ITW Savings and Investment Plan for Group 2 Employees 11

14 a 20% credit ($100). However, if that same employee contributes $1,000 annually, he would lower his AGI to $17,000 and therefore be eligible for a 50% credit ($500). Other restrictions may apply. Consult with a tax advisor or the IRS directly at or for more complete information on these tax benefits. Company Contributions Company Matching Contributions You are immediately eligible to receive a Company matching contribution if you save under the Plan. For Group 2 employees, the Company will match $1 for each $1 of the first 3% of pay that you contribute to the Plan and $.50 for every $1 you contribute on the next 3% of pay. The maximum Company matching contribution is 4.5% of pay if you contribute 6% or more of your pay. ITW will match your savings per pay period as follows: Your Contributions Company Matching Contributions 1.0% 1.0% 2.0% 2.0% 3.0% 3.0% 4.0% 3.5% 5.0% 4.0% 6.0% or more 4.5% For example, if you are saving $30 a week and this amount is 6% of your pay, the Company will deposit an additional $22.50 a week (4.5% of your pay) into your account. Company matching contributions are deposited each pay period only if you contribute to the Plan in that pay period. Your combined total pre-tax and after-tax contributions are eligible for the Company matching contribution. If you reach the maximum IRS Pre-tax Savings Limit during the year ($18,000 in 2015) and elect not to continue making contributions on an after-tax basis, you will not receive the maximum Company match. Be sure to keep your contribution rate at 6% or more in order to take advantage of the full Company match. Your Company matching contributions are invested according to your current investment elections. If you also participate in another non-qualified deferred compensation arrangement maintained by the Company that provides a Company match, you will not receive a Company matching contribution in this Plan set increments. Catch-up contributions are not eligible for Company matching contributions. April 2015 ITW Savings and Investment Plan for Group 2 Employees 12

15 Company Basic Contributions As a Group 2 employee, you will begin to receive an annual Company basic contribution from ITW after you have completed 12 months of service and have attained age 21 even if you choose not to make contributions of your own to the Plan. The Company basic contribution is calculated based on a graded points-based formula. For each plan year, your Benefit Points are the sum of: Your age (including fractions of years) determined as of January 1 of that calendar year; plus Your vesting service (including fractions of years) determined as of January 1 of that calendar year. Your Company basic contribution each year is determined based on a percentage of your pay up to the Social Security Wage Base (SSWB) and a different percentage for pay above SSWB. Taxable Wage Base means the Social Security contribution and benefit base in effect at the beginning of the plan year. For 2015, the Taxable Wage Base is $118,500. The Company basic contribution will begin on the first payroll date following the date that you satisfy both the age and service requirements. The table below shows the percentage ITW will contribute each pay period: Benefit Points Company Basic Contribution Up to SSWB Company Basic Contribution Above SSWB Less than % 6.0% % 8.0% % 10.0% 70 or more 6.0% 11.7% You are considered to have 12 months of service as of the first anniversary of your hire date. If you have a break in service of more than 12 months, your service date will be adjusted. Employee Rollover Contributions If you are entitled to receive an eligible rollover distribution from another employer s IRS-qualified plan, you may roll over your pre-tax and after-tax balances from that plan into this Plan. You may also roll over pre-tax and aftertax distributions from other IRS-qualified 403(a), 403(b), governmental 457 plans, Roth IRAs, and traditional IRAs. You are always 100% vested in any rollover contributions. The following rules apply to rollovers: If you are an eligible employee, you may make a rollover at any time while you are eligible for the Plan. Unless the rollover is a direct rollover, your rollover must be made within 60 days of your receipt of payment from the other plan. You may be asked to provide documentation to show that your distribution is eligible to be rolled over. Certain distributions, such as installment payments that are part of a series of payments for 10 years or more, hardship distributions, or required minimum distributions are not eligible for rollover. April 2015 ITW Savings and Investment Plan for Group 2 Employees 13

16 To roll over your balance, you must submit a form along with your rollover check. This form is available on the Plan website or by contacting the 401(k) Retirement Plan Administrator. Managing Your Account You can obtain information and perform account transactions online at ITWemployee.com or over the phone at (Option 3 and then Option 1). The information you can access and transactions you can perform include: Enrolling in the Plan; Changing your contribution rate; Selecting your investment elections; Obtaining account information; Generating online statements ; Using modeling tools; and Changing your Personal Identification Number (PIN). Employees may access their 401(k) Retirement Plan website through ITWemployee.com. The 401(k) Retirement Plan Administrator will send you a confirmation following changes you make online or by phone. You will receive a statement summarizing the activity in your account each quarter, prepared as of the end of each calendar quarter. Your statement will report activity in all of your accounts separately. The statement will also summarize withdrawals, loans, transfers and any other transactions that have affected your account during the quarter. To ensure you receive your quarterly statements on a timely basis, it is important to keep your current address on file with the Company. Investing Your Account Whether you re knowledgeable and comfortable enough to make your own investment decisions, or you d prefer to rely on professionals, the 401(k) Retirement Plan offers two different paths to guide you. Path1 Target Retirement Funds; and Path2 Core Investment Funds. Each path offers a mix of investments with different strategies, objectives and risk/reward potentials. You decide how to invest the contributions made to your account. You will make one election for the allocation of any employee (pre-tax, after-tax, catch-up and rollover) and Company contributions to your account. You may only select one path but you may change paths at any time, subject to a few restrictions, as outlined in Changing Your Investments on page 17. April 2015 ITW Savings and Investment Plan for Group 2 Employees 14

17 Path1 Target Retirement Funds Ideal for those who don t have the time or experience to manage their investments, the Target Retirement Funds are made up of different, well-diversified mixes of the Core Investment Funds (described on page 16) and real asset components such as TIPS and commodities (described below). All you have to do is pick the fund with the date closest to when you think you ll need your retirement account typically, the fund closest to the year you reach age 65. With Target Retirement Funds, professional fund managers gradually adjust the asset mix of the fund over time to suit the target date retirement horizon. Your investment mix will gradually become more conservative, eventually resulting in the asset allocation of the Retirement Fund as you near age 65. This same asset allocation will continue through the length of your retirement. The 10 Target Retirement Funds ranked from most conservative to most aggressive are: Retirement Fund for those participants in or near retirement 2020 Target Retirement Fund 2025 Target Retirement Fund 2030 Target Retirement Fund 2035 Target Retirement Fund 2040 Target Retirement Fund 2045 Target Retirement Fund 2050 Target Retirement Fund 2055 Target Retirement Fund 2060 Target Retirement Fund Glossary of Investment Terms: Asset Classes Bonds are like an I.O.U. from a corporation or a government that pays either a fixed or adjustable rate of interest for borrowing money. Cash represents short-term money market instruments including Certificates of Deposit (CDs) or Treasury bills. Commodities are physical investments such as food and metals. Stocks represent ownership in a corporation, usually as shares. TIPS are issued and backed by the US Treasury and promise to pay a specified interest rate plus the rate of inflation. The Target Retirement Funds are the 401(k) Retirement Plan s default investment option (see Default Investment Fund on page 17). April 2015 ITW Savings and Investment Plan for Group 2 Employees 15

18 Key features of the Target Retirement Funds include: Professional investment allocation and diversification based on your savings time horizon (how long you have to save). If you have a longer time horizon, you may start off investing with the goal of achieving the highest potential returns (which involves the most risk). As the target date approaches, you become a more conservative investor, ultimately invested in the Retirement Fund. Professional investment advisors who rebalance and adjust the fund s mix of assets periodically. You have the flexibility to invest up to 20% of your balance in the ITW Common Stock Fund. Certain restrictions apply to the Target Retirement Funds; these include: You may invest in only one Target Retirement Fund at any time. You may not directly invest in any of the Path2 options, except the ITW Common Stock Fund, while invested in a Target Retirement Fund. No more than 20% of your balance may be invested in the ITW Common Stock Fund. Path2 Core Investment Funds Designed for those who want to actively create and manage their investment strategy, the Core Investment Funds offer a mix of different asset classes to help you build a portfolio to suit your retirement goals and risk tolerance. Each Core Investment Fund has a different investment objective and represents one of the major asset classes, from the most conservative stable assets to the more aggressive foreign stocks. Since it only invests in one security, the ITW Common Stock Fund is the most aggressive option. Aside from the Stable Asset Fund and the ITW Common Stock Fund, the funds are funds of funds, meaning each one is made up of a collection of underlying funds with multiple fund managers. This creates diversity of investment styles within each fund. With Path2 fund options, you create your own portfolio using a mix of funds. More details on each of the Path2 funds, including the underlying fund managers, are available on the Plan website or by phone. The six Core Investment Funds ranked from most conservative to most aggressive are: Stable Asset Fund Diversified Bond Fund Large Company U.S. Stock Fund Mid and Small Company U.S. Stock Fund Diversified Foreign Stock Fund ITW Common Stock Fund Money transferred to the Stable Asset Fund must remain invested in that fund for a period of 60 days before it can be transferred to another fund option. You cannot become a Path1 investor until that 60-day period has passed. April 2015 ITW Savings and Investment Plan for Group 2 Employees 16

19 Default Investment Fund You may direct the investment of all of the contributions made to the Plan by you or the Company on your behalf, as well as earnings on those contributions, to one or more of the Plan s available investment choices, which include a broad range of investment alternatives intended to allow you to achieve a diversified portfolio. If you do not select an investment path or you are enrolled in the Plan through Automatic Enrollment, your account will automatically be invested in the Target Retirement Fund nearest to the year you turn 65. As you approach your Target Retirement Fund date, your Target Retirement Fund gradually and automatically shifts from more aggressive investments (stocks) to more conservative ones (bonds and short-term reserves). Keep in mind that although Target Retirement Funds can simplify investment selection, all investing is subject to risk. Each Target Retirement Fund invests in the broadly diversified Path2 Core Investment Funds and Real Assets (such as Commodities, REITS, etc.), which are subject to the risks associated with these underlying funds. Diversification does not ensure a profit or protect against a loss in a declining market. There are fees associated with each investment fund. A fund s expense ratio is the cost of running the fund, expressed as a percentage of the fund s assets. For each fund, this is an average weighted expense ratio, based on expenses incurred by each fund. As of March 31, 2015, the expense ratios for the Target Retirement Funds range from 0.29% to 0.39% and the expense ratios for the Path2 core funds range from 0.09% to 0.62%. You may change the investment of future contributions as well as direct the investment of your existing Plan account at any time without financial penalty, subject to the funds trading restrictions. Changing Your Investments The Plan offers you the flexibility either to change the way your existing accounts are invested. In general, you may make a change on any business day. However, in certain situations, there may be limitations on transfers. There are also restrictions within each investment path. Under Path1 Target Retirement Funds no more than 20% of your future contributions may be invested in the ITW Common Stock Fund. Under Path2 Core Investment Funds money transferred to the Stable Asset Fund must remain invested in that fund for a period of 60 days before it can be transferred to another option, and you cannot choose to change to a Path1 investor until that 60-day period has passed. The Plan is offered as a long-term savings vehicle for Plan members and is not intended as a vehicle for shortterm trading. Excessive, short-term trading activities interfere with portfolio management and have an adverse effect on other Plan members. Under the provisions of the Plan, the ITW Employee Benefits Steering Committee is authorized to take such action that it deems necessary to curtail excessive trading, including limiting Plan members rights to transfer among investments. You may change your investment elections online or by contacting the 401(k) Retirement Plan Administrator. You will receive a confirmation of your change. For more information about the transactions you can make online or by phone, see Managing Your Account on page 14. April 2015 ITW Savings and Investment Plan for Group 2 Employees 17

20 Automatic Rebalancing If you are a Path1 Target Retirement Fund investor, the automatic rebalancing feature is already built into the fund options and does not need to be set. If you are a Path2 Core Investment Fund investor, you have the option of establishing automatic account rebalancing, which allows you to have your account automatically rebalanced based on the timeframe you select and according to your investment allocations on file for future contributions. You may elect this option through the Plan s website or by contacting the 401(k) Retirement Plan Administrator. It s an easy way to keep your portfolio on track. Any investment election changes will turn off automatic account rebalancing. Diversification Rights In general, a defined contribution retirement plan, such as this Plan, must allow you to elect to move any portion of your account that is invested in the ITW Company Stock Fund from that investment into other investment alternatives under the Plan. The Plan permits full diversification. You are allowed to immediately diversify any portion of your account that is invested in the ITW Common Stock Fund, whether you bought it with your contributions or it was purchased with Company matching contributions, subject to the insider trading rules. All of the investment options under the Plan are available to you if you decide to diversify out of the ITW Company Stock Fund. While you can always transfer out of the ITW Common Stock Fund, there are certain limitations on Path1 investors ability to transfer into the ITW Common Stock Fund. If you are a: Path1 investor you may not request a transfer to the ITW Common Stock Fund if your current holdings are greater than 20% or if that transfer would result in your holdings being greater than 20%. Also, no more than 20% of future contributions may be invested in the ITW Common Stock Fund. Path2 investor there are no limits on the percentage of your account that you can invest in the ITW Common Stock Fund. The Plan also allows Participants to make an ITW Stock Dividend Election whereby Participants can diversify their dividends earned on their ITW Common Stock Fund balance. For more information, see ITW Stock Dividend Elections on page 19. In deciding whether to exercise this right, you will want to give careful consideration to the following information that describes the importance of diversification. April 2015 ITW Savings and Investment Plan for Group 2 Employees 18

21 The Importance of Diversification To help achieve long-term retirement security, you should give careful consideration to the benefits of a wellbalanced and diversified investment portfolio. Spreading your assets among different types of investments can help you achieve a favorable rate of return, while minimizing your overall risk of losing money. This is because market or other economic conditions that cause one category of assets, or one particular security, to perform very well often cause another asset category, or another particular security, to perform poorly. A generally accepted rule is that if you invest more than 20% of your retirement savings in any one company or industry, your savings may not be sufficiently diversified. Although diversification is not a guarantee against loss, it is an effective strategy to help you manage investment risk. In deciding how to invest your retirement savings, you should take into account all of your assets, including any retirement savings outside of the Plan. No single approach is right for everyone because, among other factors, individuals have different financial goals, different time horizons for meeting their goals, and different tolerances for risk. Therefore, you should carefully consider the diversification rights described in this summary and how these rights affect the amount of money that you invest and how you invest it. It is also important to periodically review your investment portfolio, your investment objectives, and the investment options under the Plan to help ensure that your retirement savings will meet your retirement goals. By having a mix of or diversifying your investments, you may reduce your exposure to market risk while improving your potential returns. Investment experts say that good diversification and consistent investing is critical to achieving one s retirement goals. ITW Stock Dividend Elections Plan participants who hold shares in the ITW Common Stock Fund will have the option to reinvest each stock dividend to purchase additional shares of stock in the Plan or receive a cash payout of each dividend payment. The ITW Common Stock Fund normally pays dividends on a quarterly basis. You may make your ITW stock dividend election online or by calling the 401(k) Retirement Plan Administrator. Unless you make an election to receive a cash payout, the dividends will automatically be reinvested in your account. If you would like a cash payout, you must make this election and the Plan will pay you the dividends on your shares in the ITW Common Stock Fund. Cash payouts of dividends are considered taxable income for the year in which they are paid, but are not subject to the additional 10% penalty normally applied to early withdrawals. Cash payouts cannot be rolled over to an IRA or another qualified plan; once cashed out, you lose the tax-deferred status of the dividends. If you invest in the ITW Common Stock Fund, IRS and Plan rules require that you elect available cash dividend distributions before receiving a hardship withdrawal. April 2015 ITW Savings and Investment Plan for Group 2 Employees 19

22 Fund Management The Employee Benefits Investment Committee of ITW may add, change, or delete any investment funds as appropriate and as allowed by the Plan document and trust agreement at any time. The majority of the Plan s funds are made up of a mix of mutual funds, commingled funds and separate accounts providing you with diversification and the advantage of different investment styles. Professional investment managers help the Investment Committee select and monitor the mix within each fund according to the Plan s established investment policy guidelines. Commingled funds and separate accounts are generally only available to institutional investors like the Plan. By having a mix of managers and leveraging the Plan s buying power there is flexibility in the investments to manage potential risk and reward. There may also be reduced investment fees. ITW has designed the Plan to satisfy Section 404(c) of the Employee Retirement Income Security Act of 1974 (ERISA) and related regulations covering participant-directed investments. Under the Plan, you decide how your account is invested among the investment choices established by the Employee Benefits Investment Committee. Because the Company has designated the Plan as an ERISA 404(c) Plan, neither ITW nor its Employee Benefits Steering or Investment Committees will be liable for losses that result from your investment decisions. Fees As an investor in a fund, you pay for what it costs to run that particular fund: the cost of the fund managers, the trading activity, the administration, research and, in the case of retail mutual funds, advertising. These fees are deducted as expenses from what the fund earns. When evaluating funds, it is important to compare net returns (after fees). Fees vary from one fund to another. As of March 31, 2015, the fees ranged from 0.09% to 0.62%. For current fees, see the Fund Fact Sheets available on the Plan website. Over time, lower fees could result in a greater account balance. For example, while a fund might have earned 7%, if the fund s fees were 1%, the actual fund return would be 6%, but if the fund s fees were only 0.25%, the actual fund return would be 6.75%. This difference adds up over time. Other For details about the investment paths and funds offered, refer to the enrollment package and the other Plan materials you have received. The enrollment package, which describes the investment paths, and the Fund Fact Sheets, which provide an explanation of the objectives of each fund, the associated fees and expenses, and risk and reward characteristics are also available on the Plan website. Alternatively, you can request Fund Fact Sheets, profiles and similar information for the mutual funds, commingled funds and separate accounts that make up the Core Investment Funds from the Plan s 404(c) representative Empower Retirement by writing to the 401(k) Retirement Plan Administrator (see Administrative Facts/Contact Information on page 33). April 2015 ITW Savings and Investment Plan for Group 2 Employees 20

23 Withdrawals Funds Available for Withdrawal Although the main purpose of the Plan is to help you accumulate funds for your future financial security, there are three types of withdrawals available in the Plan while you are employed: In-Service; Age 59½; and Hardship. The amounts available for withdrawal while you re an employee depend on your age and the specific reason for the withdrawal. The following rules apply to all withdrawals: The amount available for withdrawal will be reduced by any loans you may have taken from the Plan. Your withdrawal will be taken on a pro-rata basis from each fund in which your accounts are invested. Requesting a Withdrawal Withdrawal requests may be made at any time during the year. Withdrawals are processed as soon as possible after the request is received and approved. In-Service Withdrawal You may request one in-service withdrawal per calendar quarter through the Plan s website or by contacting the 401(k) Retirement Plan Administrator. You can withdraw the following for any reason: All or part of your employee after-tax and rollover accounts; and The lesser of 50% of your Company match account or 100% of your Company match account minus the Company matching contributions made to your account in the last 24 months. The Company basic contribution account is not available for in-service withdrawal. In addition, if you have an account from certain predecessor plans, those funds are not eligible for in-service withdrawal. Age 59½ Withdrawal If you are age 59½ or older, you may request one age 59½ withdrawal per calendar quarter through the Plan s website or by calling the 401(k) Retirement Plan Administrator. You can withdraw the following for any reason: All or a portion of your employee pre-tax, after-tax, and rollover accounts; All or a portion of your Company match account; and All or part of the vested portion of your Company basic contributions. April 2015 ITW Savings and Investment Plan for Group 2 Employees 21