Pension Plan SUMMARY PLAN DESCRIPTION

Transcription

1 Pension Plan SUMMARY PLAN DESCRIPTION Reflecting Changes Effective January 1, 2008

2 Table of Contents A WORD OF INTRODUCTION...1 THE PLAN IN BRIEF...2 PLAN PARTICIPATION...3 PAYING FOR THE PLAN...3 FACTORS ON WHICH BENEFITS ARE BASED...4 RIGHTS OF MILITARY VETERANS...5 CALCULATING YOUR AGE-65 RETIREMENT BENEFIT...6 EARLY RETIREMENT...7 LATE RETIREMENT...9 PAYMENT METHODS...9 SURVIVOR S BENEFITS...12 IF YOU LEAVE BEFORE RETIREMENT...12 DIVORCE...14 APPLICATION FOR PENSION INCOME...15 ADMINISTRATION OF THE PLAN...15 SOME OTHER THINGS YOU SHOULD KNOW...16 i

3 A WORD OF INTRODUCTION Many employees don t think about their Pension Plan as much as they should. This is due to the fact that it is designed to pay benefits later-- after you leave CPS. The Plan meets this objective. With this Plan, Social Security and your own personal savings, your retirement years should be a time of great enjoyment to you, a time when you should not be burdened with financial pressures. Information in this booklet will tell you who is covered by the Plan, when you can begin receiving benefits, how your benefits are calculated, and what payment methods are available to you. Also, this booklet describes the benefits payable if you should become disabled, or in case of death. This booklet summarizes the major provisions of the Plan s legal document. That document contains additional information and detail beyond that which can be provided in this summary. In all cases, the Plan s legal document will govern and be considered the final authority. If you wish, you may examine the plan document or for a nominal charge, you may obtain a copy for yourself. It is available from the Retirement Planning, Disability and Life area in Employee Services. 1

4 THE PLAN IN BRIEF The CPS Pension Plan can provide you with regular income throughout your retirement. It also offers some benefits if you become disabled or in case of death. The following are the principal features of the Plan: Participation All CPS Energy regular, full-time employees who are at least 21 years of age and who have completed one year of continuous employment with CPS Energy are participants. Employment as a CPS Energy part-time employee incurred after January 1, 2008, can be used to satisfy the one year of continuous employment requirement provided the employee incurred a minimum of 12 months of uninterrupted part-time employment. Paying for the Plan You pay 5% of W-2 wages, subject to certain exceptions and additions. CPS pays the balance of the cost to provide Plan benefits. Normal Retirement Available at age 65. Early Retirement There are two ways you can become eligible for an Early Retirement: Available anytime with 25 years of Benefit Service. Benefits are reduced if you retire before age 55. Available anytime you are age 55 or older with 10 or more years of Benefit Service. Benefits are reduced if you retire before age 62. Spouse To determine eligibility under the Plan, a person is considered a Spouse of an employee if the employee and the spouse are of opposite sexes and have obtained a valid and certified marriage certificate or declaration and registration of informal (common law) marriage, which has not been nullified by a decree of divorce or other such court order. This definition of eligibility is in effect until Texas law recognizes same sex marriages. Survivors Benefits In the event you die before you elect to retire, both lump sum and/or ongoing payments will be available to your spouse and/or other named beneficiary. In addition, there is a $5,000 in-service death benefit. In the event you die after your retirement begins, ongoing benefits depend on the payment option you elect. Note: These benefits are in addition to any benefits available under the CPS Group Life Insurance Plan. Vested Benefits Even if you leave CPS before retirement, vested benefits can still be payable as a lump sum, or they can be paid monthly when you reach retirement age. 2

5 PLAN PARTICIPATION All CPS regular, full-time employees who are at least age 21 begin participation upon completing 12 months of continuous employment with CPS. If you are working in a position that CPS classifies as a regular, full-time position, you will begin participating in the Plan upon reaching age 21 and completing 12 months of continuous employment. Continuous employment includes leaves of absence under the Family and Medical Leave Act, military leave, and other approved leaves of absence. Employees assigned to positions CPS classifies as part-time, temporary, special project, summer, or seasonal are not eligible to participate, however, nor are leased or agency employees. If you are a regular, full-time employee who leaves employment with CPS before beginning participation, you must start your 12 months of continuous employment over again upon any rehire. If you leave CPS after beginning to participate under the Plan, however, you will immediately begin participation upon rehire if you did not receive a distribution from the Plan when you left, or if you repay the entire amount of your distribution, plus interest, when you return. Please see the Employee Benefits staff if you wish to make a repayment to the Plan. Rehired retirees will participate in the Plan immediately if they are hired as regular full-time employees, and all Pension payments will cease during re-employment. PAYING FOR THE PLAN You contribute 5% of your pay each pay period and CPS contributes the balance of the funds necessary to provide Plan benefits. You and CPS both contribute towards the cost of providing Plan benefits. Employee Contributions Once you begin participation in the Plan, 5% of your W-2 wages will automatically be contributed to the Plan on a pre-tax basis. This amount will be withheld from each payroll and deposited into the Pension Trust. Your contributions to the Plan are still considered wages for Social Security purposes, however. Your contributions and your benefits under the Plan are based on a particular definition of Compensation that is your W- 2 wages plus (that is, adding back in) any amounts you contribute under the CPS Deferred Compensation Plan and the CPS Flexible Benefit Plan. This means that your 5% contribution will apply to such types of pay as: Overtime (excluding overtime adjustments paid as a result of any incentive payment), shift differentials, call duty pay, upgrade rates, bonuses, sick leave pay, vacation pay, jury duty pay, funeral leave pay, payments made under the CPS workers compensation supplemental pay program, and supper pay. Contributions, however, will not be made for W-2 earnings on items such as Life Insurance Plan imputed income, auto allowances or commuting expenses, uniform allowances, tuition reimbursements, suggestion system awards, safety awards, retirement awards, other awards, gift certificates, moving expense reimbursements, any extraordinary severance payments or payments received under any CPS voluntary enhanced retirement program or early retirement window benefit program 3

6 Employer Contributions CPS Energy pays the balance of the cost of providing the benefits. An independent actuary helps CPS determine the amount to be set aside to pay benefits promised in the future. Rollovers From Other Plans The Plan accepts rollovers for only two purposes: first, to enable you to repay the amount of a prior distribution from the Plan in order to avoid a loss of Benefit Service upon re-employment, and second, to enable you to pay for all Benefit Service missed while on military duty. Please see the discussion of lost Benefit Service, repayment, and make-up of Service under Benefit Service, in Factors on Which Benefits are Based, below, and Rights of Military Veterans, also below. Such rollovers may be made directly from another employer s qualified retirement plan or may be made indirectly through you, if made within 60 days of your receipt of the distribution from the other plan. The Committee has adopted rules for screening rollovers in order to protect the qualified status of the Pension Plan, and you can obtain information about these requirements from the Benefits Department. Contributions Held in Trust All contributions--both from you and CPS--are put into the CPS Pension Trust. Once money is put in the Trust, it can only be used for the benefit of participants, retired participants, and beneficiaries. No funds can be used for purposes other than Plan benefits and administrative costs directly related to the Plan. What happens to your contributions if you leave CPS before retirement? You can always have returned to you your contributions plus the rate of interest specified in the Plan. However, you may want those contributions to remain in the Plan to help provide a benefit for you when you reach retirement age. Please see If You Leave Before Retirement for more details. Plan Rate of Interest Beginning January 1, 2005, for employee contributions made by active participants on and after that date, the Plan credits interest on your employee contributions at the rate of 8%. A rate of 8½ % applied between January 1, 1999 and December 31, Prior to January 1, 1999, the rate was 5%. FACTORS ON WHICH BENEFITS ARE BASED Three factors affect your benefits: years of Benefit Service, your compensation and your primary Social Security benefit. Your Pension Plan benefit will reflect your Benefit Service and pay with CPS. The following factors are used in calculating Plan benefits. Benefit Service Generally, your Benefit Service is the full period of your participation in the Plan, measured in terms of years and (for partial years) days. Benefit Service includes periods while you are on an approved leave of absence except for periods during which you receive benefits under the City Public Service Disability Income Plan. If your employment is terminated and you receive a benefit or a distribution of your Contribution Accumulation, you will lose all Benefit Service. If you return to participation later, however, you may elect (within 3 months of your return) to repay the amount you previously received, with interest calculated at the Plan s rate (Please see Plan Rate of Interest under Paying for the Plan, above.), and to make up any employee contributions due from the date of your rehire. This repayment and make-up will entitle you to restore your lost Benefit Service and to participate immediately upon rehire, but must be completed within 30 days after your election. You may use a rollover from another employer s plan to make this repayment. (Please see Rollovers, under Paying for the Plan, above.) Non-rollover repayments for lost service are made on an after-tax basis. 4

7 The Plan also permits certain employees who lost Benefit Service under the Plan prior to 1983 because of involuntary termination of employment due to pregnancy to repay the amount distributed at that time and repurchase their lost Benefit Service. If you believe that you may be entitled to make such a repayment, please see the Employee Benefits staff. Employees who return to work for CPS following a period of military service may have special rights to Benefit Service. Please see the section of this booklet called Rights of Military Veterans. Average Compensation Your average compensation is the compensation you received during your highest paid 78 consecutive pay periods within the last 260 pay periods of your employment. Compensation for service prior to January 1, 1991 will be average monthly base compensation. Your pay period compensation for service after December 31, 1990 will be your W-2 wages including amounts paid to the CPS deferred Compensation Plan and Flexible Benefit Plan. W-2 wages will include such items as: overtime, shift differentials, call duty pay, upgrade rates, bonuses, sick leave, vacation, jury duty pay, funeral leave pay and paid personal time. W-2 amounts will not include such items as: life insurance plan imputed income, auto allowances or commuting expenses, uniform allowances, tuition reimbursements, suggestion system awards, safety awards, retirement awards, gift certificates or moving expense reimbursements. Primary Social Security Benefit For purposes of calculating your benefits from the Plan, primary Social Security benefit means an estimate of the monthly benefit amount that you will receive from the Social Security Administration when you are age 65. It does not include any amounts you may receive because of your spouse or other dependents. The Plan benefit formula only uses an estimate of your Social Security benefit for purposes of calculating your Plan benefit. It does not determine your actual monthly Social Security payment. In fact, the primary Social Security benefit estimate is based on your earnings at retirement or termination, assuming an earning history comparable to historical CPS wage progressions and also assuming, if you are not yet 65, that your pay until age 65 will remain constant. You have the right to provide your actual salary history to the Employee Benefits staff for purposes of this calculation, but must do so within 90 days of retirement. You may obtain your actual salary history from the Social Security Administration. RIGHTS OF MILITARY VETERANS Under federal law and CPS policy, military veterans who return to work after a period of qualified military service and within the period described in the Uniformed Services Employment and Reemployment Rights Act of 1994 ( USERRA ), which is generally within 90 days after separation (but much shorter periods in cases of training), have special rights under the Plan. These are summarized below: First, if you meet the requirements of USERRA and you would have participated in the Plan during your leave, you will participate in the Plan immediately upon your return to work. The period of your military leave will be treated as Eligibility Service if you were not already participating when your leave began. Second, you will receive Vesting Service credit for the period of your military service. (Please see If You Leave Before Retirement, below.) Third, you will have the opportunity to receive Benefit Service for the entire period of your military leave by making employee contributions for the period of your absence. The amount of these contributions will be based on the rate of pay you would have received if you had not left, or if that rate is not reasonably certain, on your average rate of pay in the 12-month period immediately before your military leave. You must complete payment of your missed employee contributions by the date that is 5 years from the day you returned to work or, if sooner, by the end of a period that is 3 times the length of your period of qualifying military service. The Plan will not charge interest on this amount, and once you have paid it, the amount itself will be treated as a part of your Pension Accumulation. If you elect to purchase Benefit Service that you missed during military leave, you may do so in one of three methods: (1) by paying the entire amount to the Plan in a lump sum from your own funds; (2) by using a rollover from a qualified plan as described in Rollovers From Other Plans under the section of this booklet called Paying for the Plan, above; or (3) by payroll deduction over the period no longer than the payment period described in the preceding paragraph. If you choose the third method, installments by payroll deduction, and if you sign an irrevocable salary reduction agreement 5

8 for these payments, your contributions will be made on a pre-tax basis. No other form of payment may be accepted while this agreement is in effect. CALCULATING YOUR AGE 65 RETIREMENT BENEFIT With the benefit from the Plan and Social Security, career CPS employees will have guaranteed amounts of monthly income. Normal retirement date as defined in the Plan is the first of the month on or following your 65th birthday. If you retire later than age 65, your Plan formula benefit will be based on your primary Social Security benefit as it was when you reached age 65, but your Benefit Service and average compensation will reflect increases after age 65. The maximum Benefit Service that will be taken into account is 44 years. At normal retirement, your benefit is determined using the following formula: 2 ¼% x years of Benefit Service x average compensation minus 1 ¼% x years of Benefit Service (up to 40) x primary Social Security If, for example, you had 35 years of Benefit Service, your benefit would be 78.75% (2 ¼% x 35) of your average compensation less 43.75% (1 ¼% x 35) of your primary Social Security benefit. With 25 years of Benefit Service at age 65 you would have 56.25% (2 ¼% x 25) of your average compensation less 31.25% (1 ¼% x 25) of your primary Social Security benefit. Let s see what this can mean in real dollars. Let s say you are retiring with 35 years of Benefit Service, your average compensation is $3,000, and your primary Social Security estimate is $700. Here is how the formula works: Basic formula 78.75% x $3,000 = $2, Less part of primary Social Security 43.75% x $700 = $ Total from CPS Pension Plan $2, Plus estimated primary Social Security $ Total monthly retirement income $2, (Additional Social Security benefits may be payable for your spouse or other dependents but are not considered under the Plan formula. If, in the example above, you had 25 years of Benefit Service instead of 35, here is how the formula would work: Basic formula 56.25% x $3,000 = $1, Less part of primary Social Security 31.25% x $700 = $ Total from CPS Pension Plan $1, Plus estimated primary Social Security $ Total monthly retirement income $2, (Again, added Social Security benefits may be available for your spouse or other dependents.) 6

9 Cost-of-Living Adjustments Our Plan has a built-in level of protection against inflation. The pension benefit paid under the Plan will be changed as of January 1 of each year to reflect changes in the Consumer Price Index (All Urban Consumers-All Items) based on the 12 months ending September 30. Specifically, your benefit will be increased or decreased by 50% of the change in the Consumer Price Index, but it will not increase or decrease by more than 5% a year. In no case will your benefit ever decrease below its initial level. The first time you receive a cost-of-living adjustment, any increase or decrease in your benefit based on that year will be prorated to reflect the portion of the year that you were receiving payments. EARLY RETIREMENT Employees can become eligible for an Early Retirement under two different methods. Method 1: You can retire if you have at least 25 years of Benefit Service. If your payments begin before you re 55, your amount will be reduced. You may elect to retire anytime you have at least 25 years of Benefit Service. Your early retirement benefit will be figured much the same way as a normal retirement benefit. If you are not at least 55 years old when you retire, there is a reduction in your payment. Prior to February 1, 1993, this reduction was 4% for each year payments begin before your 55th birthday. Effective February 1,1993, this reduction is 6%. The plan has adopted grandfather provisions to insure that you will not receive a lower benefit than the benefit due you on February 1, Also, you should know that if you retire early, Social Security will not be available to you until you are at least 62, and then only on a reduced basis. The Retirement Planning, Disability and Life area in Employee Services can provide you estimates of your pension benefits. For Example As an example of how the early retirement provisions work, let s say you are retiring at age 55 with 28 years of Benefit Service. If you had 28 years of Benefit Service, your benefit would be 63% (2 ¼ % x 28) of your average compensation less 35% (1 ¼% x 28) of your primary Social Security benefit. Let s say your average compensation is $2,500 and your estimated primary Social Security is $700. Your estimated primary Social Security benefit, however, will be reduced before it is subtracted from the first calculation of your Plan benefit. This is a special adjustment recognizing that Social Security benefits are not available until later. For payments begun at age 55, for example, this reduction is 50%. Here is how your early retirement benefit is calculated: Basic formula 63% x $2,500 = $1, Less estimated primary Social Security 35% x $700 x 50% = $ Total from Pension Plan = $1, As a second example, let s say you were retiring at age 52 with 25 years of Benefit Service. If you had 25 years of Benefit Service your benefit would be 56.25% (2 ¼% x 25) of your average compensation less 31.25% (1 ¼% x 25) of your estimated primary Social Security benefit. Let s say your average compensation is $1,500 and your estimated primary Social Security benefit is $650. Here is how your early retirement benefit is calculated: 7

10 Basic formula 56.25% x $1,500 = $ Reduction of 6% for each year payment began before 55 means that the basic formula of the Plan benefit calculation will be reduced by 18% (6% x 3): Reduction for payment at age 52 18%x $ = $ Basic formula with reduction = $ Estimated primary Social Security 31.25% x $ = $ Special Adjustment for payment at age % x $ = $ Total from Pension Plan = $ As with normal retirement benefits, the benefits calculated for early retirement will be adjusted annually to reflect changes in the Consumer Price Index (as explained Cost of Living Adjustments ). Method 2: You can retire if you are age 55 or older with at least 10 years of Benefit Service. If your payments begin before you re 62, your amount will be reduced. You may elect to retire anytime you are age 55 or older with at least 10 years of Benefit Service. Your early retirement benefit will be figured much the same way as a normal retirement benefit. If you are not at least 62 years old when you retire, there is a reduction in your payment. This reduction is 1/15, or 6.6%, for each of the first 5 years and 1/30, or 3.3%, for each additional year that payment of your benefit begins before age 62. Also, you should know that if you retire early, Social Security will not be available to you until you are at least 62, and then only on a reduced basis. The Retirement Planning, Disability and Life area in Employee Services can provide you estimates of your pension benefits. For Example As an example of how the Method 2 early retirement provisions work, let s say you are retiring at age 62 with 16 years of Benefit Service. If you had 16 years of Benefit Service, your benefit would be 36% (2 ¼ % x 16) of your average compensation less 20% (1 ¼% x 16) of your primary Social Security benefit. Let s say your average compensation is $2,500 and your estimated primary Social Security benefit is $700. Here is how your early retirement benefit is calculated: Basic formula 36% x $2,500 = $ Less estimated primary Social Security 20% x $700 = $ Before subtracting the $ estimated primary Social Security portion, it is further reduced. This is the special adjustment recognizing that Social Security benefits are not available until later. For payments begun at 62, for example, that reduction is an additional 20%: Special adjustment 80% x $ = $ Total from Pension Plan = $ As a second example, let s say you are retiring at age 59 with 13 years of Benefit Service. If you had 13 years of Benefit Service your benefit would be 29.25% (2 ¼% x 13) of your average compensation less 16.25% (1 ¼% x 13) of your estimated primary Social Security. Let s say your average compensation is $1,500 and your estimated primary Social Security is $650. Here is how your early retirement benefit is calculated: Basic formula 29.25% x $1,500 = $ Reduction of 6.6% for each year payment began before 62 means that the basic formula of the Plan benefit calculation will be reduced by 19.8% (6.6% x 3 years). Reduction for payment at age % x $ = $ Basic formula with reduction = $ Estimated primary Social Security 16.25% x $ = $

11 Special Adjustment for payment at age % x $ = $ Total from Pension Plan = $ As with normal retirement benefits, the benefits calculated for early retirement will be adjusted annually to reflect changes in the Consumer Price Index (as explained above, under Cost of Living Adjustments ). Under both of the methods explained above, you may retire early and delay the start of your payments until a later date. Your benefit would then be calculated based upon your age at the date payments start instead of your age at date of retirement. Employees may also retire at any time after age 65. LATE RETIREMENT If you continue employment with CPS after qualifying for a normal retirement pension but after your normal retirement date, you will retire under the Plan's provisions for late retirement. Your late retirement benefit is the same as your normal retirement benefit, except that the Plan's formula will be applied to your actual Benefit Service and average monthly compensation as of your late retirement date, but your primary Social Security benefit as of your normal retirement date (age 65). This means that you will receive credit for pay increases and additional service earned after age 65, up to a maximum of 44 years, and that the Plan's offset for part of your primary Social Security benefit will be the same as it would have been at age 65. PAYMENT METHODS There are a number of options available so that you can arrange the best payment method for you and your spouse or other beneficiary. Flexibility in the way monthly benefits are paid puts the Plan in step with different circumstances and different needs. Basic Plan benefits are for 120 months guaranteed and payable thereafter for the duration of the employee s life. This means that the value of your benefit is based on those periods of payment. Other actuarially equivalent optional forms of payments are available. The basic option for a married employee is a reduced payment during your lifetime, and then 50% of that amount to be continued to your spouse for your spouse s lifetime, if she or he survives you. The amount of the reduction in your monthly pension as paid in the basic 120 months and life payment form will depend on the age of your spouse. The Plan s Administrative Committee can supply you with information about this option as you near retirement age. Both you and your spouse must sign a waiver if you wish to elect out of this option and select one of the optional forms of payment as described below. Other Payment Forms The following other forms of benefit payments are available: An annuity for your life An annuity for your life with 5, 15, or 20 years guaranteed payment An annuity for your life with 75% or 100% survivor pension for your spouse s life An annuity for your life with 50%, 75%, or 100% survivor pension for your spouse s life, plus 5, 10, or 15 years certain payments Installments for a fixed term of 5, 10, 15, or 20 years. 9

12 If the total value of your benefit is $1,000 or less, the Plan will distribute your benefit to you in a lump sum without any election on your part. Only your spouse may be designated as your joint annuitant to receive a survivor pension, except in very limited circumstances involving certain divorce decrees entered after retirement. Please see the Employee Benefits staff if you believe you may be eligible for this exception. Cash Withdrawals You may, if you wish, have the value of all or part of your contributions only, plus interest at the Plan s rate, paid to you at retirement (or termination). If you elect this cash withdrawal, any pension you receive will be reduced to reflect the amount of benefit that could have been provided by the amount distributed to you as a lump sum. The Retirement Planning, Disability and Life area in Employee Services can furnish you information about these options and the proper forms on which to indicate your desires. Rollovers of Plan Distributions Whenever you receive a distribution from the Plan, the untaxed portion will normally be subject to income taxes. You may, however, reduce or defer the tax due on your distribution, especially lump sum distributions, through use of one of the following methods: a) The direct rollover of all or a portion of the distribution to an Individual Retirement Account (IRA) or another qualified retirement plan willing to accept the transfer. Such a rollover is exempt from the standard 20% withholding tax that would otherwise apply to eligible rollover distributions and defers your obligation to pay income taxes on the amount rolled until you are required to withdraw it from the IRA or other plan. When you request a distribution the Retirement Planning, Disability and Life area in Employee Services will provide you with further information and instructions on the election of a direct rollover. The Retirement Planning, Disability and Life area in Employee Services will also require you to provide certain information about the plan or IRA you wish to receive your direct rollover. b) The indirect rollover of all or a portion of the taxable portion of the distribution to an Individual Retirement Account (IRA) or another qualified employer plan. This will result in deferral of tax until you begin withdrawing funds from the IRA or other qualified employer plan. The rollover of the distribution, however, must be made within strict time frames (normally, within 60 days after you receive your distribution). Not all distributions qualify for direct or indirect rollover treatment. c) The election of favorable income tax treatment for lump sums under 5-year forward averaging (or, if you had reached age 50 by January 1, year forward averaging ). In addition to income taxes, a 10% early distribution tax is imposed on non-monthly payments in many circumstances. Whenever you receive a distribution, the Retirement Planning, Disability and Life area in Employee Services will provide you with a detailed explanation of these options. THE RULES WHICH DETERMINE WHETHER YOU QUALIFY FOR SOME OF THESE DEFERRAL OPTIONS ARE COMPLEX, AND YOU SHOULD CONSULT A QUALIFIED TAX ADVISOR BEFORE MAKING YOUR DECISION. BENEFITS IF YOU ARE DISABLED The Pension Plan does not provide a separate disability benefit. If the City Public Service Disability Income Plan Administrative Committee approves your claim for a Total and Permanent Disability and you qualify for disability benefits under the federal Social Security Act, you will be treated as a terminated employee if you are not eligible for an Early, Late or Normal retirement. You will have the option of receiving your accrued Pension benefit in a lump sum or deferring the benefit until age 65. If you are eligible for an Early, Late or Normal retirement, you will receive a pension calculated in the manner previously shown. Based upon your age, the Early retirement reduction may be partially reduced or eliminated. 10

13 If the Disability Income Plan Administrative Committee approves your claim for a Total and Temporary Disability, your then-accrued pension benefit will be placed in suspense. You will not accrue pension benefits while on a Total and Temporary Disability nor will the Plan collect any employee contributions during that period. 11

14 SURVIVOR S BENEFITS If you die before retiring, your spouse or other beneficiary will receive benefits from the Pension Plan. If you die before electing to retire or terminate employment, the Plan will provide a death benefit. If your death occurs before your 65 th birthday or before you are eligible for an early retirement, your spouse (or designated beneficiary) will receive $5,000 plus the value of the pension you had earned to the date of your death. That pension value will be paid as a lump sum. It will never be less than the amount of your contributions plus the rate of interest as specified in the Plan. If your death occurs on or after your 65 th birthday or after you are eligible for an early retirement, the amount your spouse (or other beneficiary) will receive is $5,000 plus monthly payments in the same amount as the early retirement benefit you would have received, converted to a benefit payable for 120 monthly guaranteed payments. If your surviving spouse is your beneficiary, he or she may elect to convert the death benefit to a life annuity for the spouse s life, or a life annuity with 5, 10, 15, or 20 years guaranteed. The monthly payments will be adjusted annually for changes in the Consumer Price Index as described under Cost-of-Living Adjustments, above. Your beneficiary may elect to take a lump sum payment instead of the monthly payments, but in that case, there will be no adjustments for changes in the Consumer Price Index. If you are married, your beneficiary is automatically your spouse unless you and your spouse waive this requirement. The waiver form requires that your spouse s signature be witnessed by a notary public. Beginning January 1, 2001, if you are divorced from your spouse before your pension payments have begun, your spouse will automatically be disqualified from receiving your death benefit under the Plan unless one of the following conditions is met: The Plan has received a Qualified Domestic Relations Order that designates your former spouse as your beneficiary, or You re-designate your former spouse as your beneficiary after the rendition of your divorce decree, or Your former spouse is designated (either before or after the divorce) as a trustee, custodian, or other fiduciary to receive your death benefits for the benefit of a child or other beneficiary. If you are unmarried at the time of your death and have not designated a beneficiary, or if you have no surviving beneficiary to receive your death benefits, your death benefits will be distributed to your estate. At the time your Plan participation begins (or sooner), you will be asked to complete a beneficiary designation form. You may change your beneficiary designation at any time by completing a new form. The Retirement Planning, Disability and Life area in Employee Services has the beneficiary designation forms or forms may be obtained from the CPS Intranet. PLEASE NOTE THAT IT IS EXTREMELY IMPORTANT TO REVIEW YOUR BENEFICIARY DESIGNATION IF YOU ARE DIVORCED OR WIDOWED, OR IF ANY OF YOUR OTHER BENEFICIARIES DIE BEFORE YOU. IF YOU LEAVE BEFORE RETIREMENT You can always get back your contributions, plus interest specified under the Plan, and your vested interest in benefits under the Plan. Under certain circumstances, you may be eligible to receive benefits when you reach retirement age. What happens if you stop working for CPS before you meet the requirements for normal or early retirement? First, all of the money you have contributed to the Plan, plus the rate of interest specified in the Plan, can be returned to you. If you are not vested as explained below, you may elect to receive your Contribution Accumulation at three times only: within the 90-day period following termination of your employment, after reaching age 62 or the date you would have become eligible for an early retirement if you had stayed with CPS. 12

15 In addition, to the extent you are vested you own certain rights to the pension you have earned. Vesting is based on your Vesting Service. Vesting Service includes the most recent period of your uninterrupted active service with CPS, not just years as a Plan participant. It is measured in terms of years, with fractions of years measured in days. Vesting Service includes periods while you are on an approved leave of absence except for periods during which you receive benefits under the City Public Service Disability Income Plan. Prior to your vesting status was determined by the following two tables: Years of Vesting Service Percent Vested Less than 10 0% 10 50% 11 60% 12 70% 13 80% 14 90% 15 or more 100% The second table used both your age and Vesting Service in determining your vesting status. If your years of Vesting Service are And the sum of your age and Vesting Service is at least Then your percent vested is less than 5-0% % % % % % % You were entitled to vest benefits under whichever table is more favorable for you. Effective January 1, 1999 (if you make employee contributions after that date), your vesting status will be determined by the following two tables: If your years of Then your percent Vesting Service are vested is less than 3 0% 3 20% 4 40% 5 60% 6 80% 7 or more 100% The second table uses only your age. Age Then your percent vested is less than 40 0% 40 or more 100% You are entitled to vest under whichever table is more favorable to you. If you are vested -- either partially or fully -- you can elect to receive a deferred vested retirement benefit when you reach age 65 or sooner. You can have the payments begin when you reach age 62, or when you would have become eligible for an early retirement if you had kept working, if that would be earlier. But if you have payments begin before age 65, they will be reduced to reflect the longer period over which they are expected to be paid. If you begin benefits before age 65, your deferred vested benefit will be calculated in the same way as an early retirement benefit, except that the special 13

16 adjustment that is made to the amount subtracted for your estimated primary Social Security benefit is also made to the basic formula benefit as well You have the same choice of payment methods available to you as you would for normal or early retirement. Payment methods are explained in Payment Methods, above. Deferred vested pension payments will be adjusted annually for changes in the Consumer Price Index, as described in Cost-of-Living Adjustments. In addition, if you have the right to a deferred vested benefit, you can elect to have the lump sum equivalent of that entire benefit (assuming no post-retirement cost-of-living adjustments) paid to you when you terminate. This payment will include the return of your contributions, plus interest. Of course, if you take this option, no further benefits will be payable from this Plan when you reach retirement age. The Plan imposes limits on the times that you may request full payment of your deferred vested benefit in a lump sum. You elect this lump sum payment only within 90 days after your termination of employment or at any time after reaching either age 62 or the date you would have become eligible for an early retirement had you continued working for CPS. A lump sum option does not exist at age 65, except for payment of your Contribution Accumulation. If you elect to receive a refund of only your contributions and interest when you terminate, the deferred vested benefit you could have received at retirement will still be payable, but it will be reduced by the value of the refund you received. Furthermore, the cost-of-living adjustment will then be applied only to your reduced pension. DIVORCE In order to divide your pension with your former spouse as a result of divorce, your divorce decree must conform to certain Plan rules. The Administrative Committee has adopted, on behalf of the CPS Pension Plan, the special provisions of the Texas Government Code that apply to Qualified Domestic Relations Orders, or QDROs. These rules are summarized below. If you, your spouse, or your attorneys need help in determining the value of your Plan benefit, if you wish to use the Plan s model QDRO forms, or if you would like your draft QDRO to be reviewed before the judge signs it, please see the Retirement Planning, Disability and Life area in Employee Services for assistance. A QDRO is any court decree, judgment, or order that relates to child support, alimony, or marital property rights (including community property) to be provided out of your Plan benefit to a spouse, former spouse, child, or other dependent (these persons are called alternate payees ). Before a QDRO will be honored by the Plan, it must be approved by the Committee under detailed rules set out in the Plan document. If the order is not approved by the Committee, the Pension Plan will not be able to pay your former spouse or other dependent, even though a judge has signed the order. If the order is not submitted or not approved by the Committee, you may have to make the payments yourself, and you may pay more income taxes as a result. The Plan provides two basic methods of dividing pensions in case of divorce. First, if your pension payments have already begun when you are divorced, the QDRO may award the alternate payee a portion of your monthly pension payment. In this case, if the alternate payee is your joint annuitant and survives you, he or she will receive the survivor annuity portion of the option you elected while married. Any remaining term certain benefits will then be paid to the beneficiary you designate. If the alternate payee is not your joint annuitant, he or she will receive whatever percentage of the survivor annuity or term certain payments that are awarded by the QDRO. Second, if you are still employed when your divorce occurs, the Plan offers two methods of payment to alternate payees. Under one method, the QDRO may award a percentage of your benefit or an amount, and this percentage or amount will be paid, at the option of the alternate payee, in the form of either a life annuity for the alternate payee s life or a lump sum. Either form is payable when your own pension commences. Under the other method, the percentage of your benefit that is awarded to the alternate payee is applied to your own monthly pension payment at the time you retire. You choose the pension option, and the alternate payee receives a percentage of it. Under this method, if you die before the alternate payee dies, the alternate payee receives his or her awarded percentage until the alternate payee s own death or until the monthly pension payments stop, whichever occurs first, but you have the right to designate a beneficiary for the rest of your benefits. If your divorce occurs while you are still employed at CPS, you later terminate employment, and you elect to receive your Contribution Accumulation in a lump sum, your alternate payee will also receive his or her share in a lump sum at the same time. If you are eligible for a pension and do not elect lump sum payment of your entire Plan benefit, the alternate payee will receive his or her share in monthly payments when your pension commences. If you die before becoming 14

17 eligible for your pension, the alternate payee will receive the Plan s death benefit described in Survivor s Benefits above, multiplied by the percentage awarded to the alternate payee. If you die before becoming eligible for a retirement pension, the alternate payee s death benefit will be paid in a lump sum. If you are retirement-eligible at your death, the alternate payee may choose between a lump sum or an annuity for his or her own life. You may designate a beneficiary for the portion of your benefits that is not awarded to the alternate payee. APPLICATION FOR PENSION INCOME You have the basic responsibility to notify the Administrative Committee to have your pension start at the proper time. To begin receiving retirement income from the Plan, you should submit a written request to the Plan s Administrative Committee at least 90 days prior to the date you intend to retire. The Retirement Planning, Disability and Life area in Employee Services can assist you with this request. Your benefit commencement date will generally be the first of the month coinciding with or following the date you actually retire or terminate employment. Route your benefit application to your Division Director, who will approve it and forward it to the Retirement Planning, Disability and Life area in Employee Services. Waivers of part of the 90-day period may be accepted in appropriate cases. If special circumstances require more than 90 days for processing the claim, you will be notified of that fact, in writing, within 30 days of your filing your request for benefits. The notice you receive will explain the special circumstances that make an extension necessary. Approximately 45 to 60 days prior to your retirement date, the Retirement Planning, Disability and Life area in Employee Services will make arrangements with you for a meeting to discuss the various Plan options with you and your spouse, if you are married. You are encouraged to ask any questions you have regarding Plan benefits at this meeting. As for questions about federal income tax obligations, the Employee Benefits staff does not provide tax advice and therefore will respond only to general questions about federal income tax obligations, such as the intended tax character of different portions of your Plan benefit. If you have specific tax questions regarding your personal obligations, you should address them to your tax advisor. You will be required to select a retirement option approximately one month prior to the month in which your retirement becomes effective. If there is a retirement party scheduled for you on the last workday of the month prior to the day your retirement begins, your Division Director can arrange to pick up your retirement packet (which includes your first month s retirement check) from the Retirement Planning, Disability and Life area in Employee Services for distribution at the retirement party. Otherwise, the Retirement Planning, Disability and Life area in Employee Services will distribute your retirement packet to you directly or mail it to you at your request. Please note that January 1 st checks may not be disbursed in December. ADMINISTRATION OF THE PLAN The plan is administered by the Administrative Committee. The City Public Service Pension Plan is sponsored by CPS Energy, 145 Navarro, San Antonio, Texas Most of your day-to-day questions can be handled by the Retirement Planning, Disability and Life area in Employee Services. Formally, the Plan s Administrative Committee is charged with Plan administration, and the Committee oversees the administrative activity of the Retirement Planning, Disability and Life area in Employee Services. The Committee is appointed by an Oversight Committee consisting of the General Manager and CEO of CPS Energy, the CFO of CPS Energy and the Chairman of the Audit Committee of the CPS Energy Board of Trustees. You may contact the Committee directly by writing to: 15

18 The City Public Service Pension Plan Administrative Committee Attn: Belinda Siller, Employee Services P. O. Box 1771 San Antonio, Texas It is up to the Plan s Administrative Committee to interpret the Plan and make final decisions in such matters as eligibility and payment of benefits. All records for the Plan are maintained on a calendar year basis. SOME OTHER THINGS YOU SHOULD KNOW Here is information on the plan s maximum benefits, assignment of benefits, and CPS right to amend or terminate the Plan. Maximum Benefit The Plan contains provisions detailing the maximum benefit that can be paid in accordance with federal laws and regulations (called Section 415 ). While most employees will never reach that maximum, it is a legal requirement that the maximum be included in the Plan. Any employee who will be affected by this maximum will be notified by the Administrative Committee. If you retire or terminate employment after 1997 and your benefit is limited by these provisions, you will be covered by a separate plan called the City Public Service Section 415 Restoration Plan, which will provide you with the portion of your benefit that could not legally be provided under the Pension Plan. Any Section 415 Restoration Plan benefits will be paid by CPS directly, and not by the Pension Trust. You will not need to make any separate election to participate in this plan or to receive any benefits due you under this plan. All of the payment elections you and your spouse make for Pension Plan purposes will automatically be applied to any Section 415 Restoration Plan benefits that you are entitled to receive. Assignment of Benefits The Plan is intended to pay benefits only to you or your beneficiary under the provisions described in the legal document summarized in this booklet. Your benefits cannot be used as collateral for loans or assigned in any other way. Some legally required exceptions to this rule, however, are benefits assigned to a spouse, former spouse, or dependent under Qualified Domestic Relations Orders (see the section called Divorce, above), certain voluntary bankruptcy assignments of benefits actually being paid, and certain federal tax liens. Plan Amendments or Termination Although the Pension Plan is intended to be permanent, CPS reserves the right to modify it or terminate it. If the Plan is terminated, benefits will be fully vested and will be paid in accordance with provisions in the governing document, which provides that no funds may be returned to CPS until all Plan benefits are provided for Plan participants and beneficiaries. 16