Important Concepts for Non-qualified Retirement Plans

MMC Benefits Handbook

What is a Non-qualified Plan?

A non-qualified retirement plan is a benefit plan whose primary purpose is to provide supplemental benefits to a select group of senior management or highly-compensated employees. Non-qualified retirement plans provide additional benefits over and above the benefits provided by a company's tax-qualified retirement benefit plan. At Marsh McLennan, this includes the non-qualified:

Benefit Equalization Plan (BEP) and

Supplemental Retirement Plan (SRP)

and may also include non-qualified benefits earned under an acquired company's plans, such as the Johnson & Higgins Pension Excess Benefit Plan (J&H Excess Plan), Sedgwick Excess Retirement Plan (Sedgwick Excess Plan) and Organization Resources Counselors, Inc. Supplemental Retirement Plan (ORC Excess Plan).

Tax-Qualified Plan vs. Non-qualified Plan

A Tax-Qualified Plan is a plan that qualifies under Section 401(a) of the Internal Revenue Code (IRC), and therefore enjoys significant tax advantages for both the employee and employer. Some examples of these advantages are:

The employee is not taxed when benefits are earned; only when benefits are received.

Plan benefits accumulate free of taxes until distributed.

Once a participant terminates and reaches early or normal retirement age, there are few if any restrictions on participants' ability to choose the time and form for their benefit payments.

Plan assets are secure - they are set aside in trust, beyond the reach of an employer's creditors, providing a high level of security for employees.

In exchange for these tax advantages, Internal Revenue Code rules and regulations must be strictly followed. However, these restrictions can impact benefits for highly compensated employees. One significant restriction is that under a Tax-Qualified Plan, benefits are limited:

A Tax-Qualified Plan must limit the annual benefit a participant can receive.

A Tax-Qualified Plan must limit the amount of a participant's compensation when calculating benefits.

A non-qualified plan provides similar tax advantages, but generally has no statutory limits on the amount of the benefit that may be provided. However, in order to provide retirement benefits that are tax-deferred until payment, non-qualified plans must observe a different set of rules under the IRC, some of which are complex. For example:

Participation in non-qualified plans must be limited to a select group of management or highly compensated employees. See "BEP Eligibility" for details.

Plan benefits may not be funded by a trust. Benefits under the Company's non-qualified plans will be paid from the Company's general assets except for certain payments attributable to benefit accruals under the BEP and SRP prior to January 1, 2003, which were arranged to be paid through annuities purchased from various insurance companies. See "Annuities Purchased Prior to 2003" for details.

Non-qualified plan benefits accrued and vested on and after January 1, 2005 or non-qualified benefits, regardless of when accrued or vested, that are paid in accordance with a plan term first made available after October 3, 2004 are subject to the requirements of Internal Revenue Code Section 409A (Section 409A). See "What is Section 409A?" for details.

Non-qualified plan benefits accrued and vested prior to January 1, 2005 that are paid in accordance with a plan payment term that was a part of the plan on October 3, 2004 are not subject to tax rules in effect under Section 409A. A plan sponsor had the option to grandfather that portion of a vested accrued benefit payable under those prior tax rules. See "Grandfathered BEP Benefit."

Non-qualified benefits are subject to significant restrictions on the time and form of payment that do not apply to tax-qualified plans. See "When the 409A BEP Benefit Commences" for details.

What is Section 409A?

The American Jobs Creation Act (signed into law on October 22, 2004) added Section 409A to the IRC. Section 409A significantly changed the rules that govern payments from non-qualified retirement plans such as the BEP and SRP or the frozen J&H Excess Plan, Sedgwick Excess Plan and ORC Excess Plan.

Section 409A introduced strict rules governing the time of payment, and form of payment under non-qualified plans, subjecting their benefits to tax penalties that are imposed on the employee, if its rules are not followed.

In general, Section 409A added rules for non-qualified plans that are more restrictive than the rules that were previously in effect. More details are provided below and elsewhere in this Benefits Handbook section.

The 409A benefit must be payable at a time and in a form that is specified by the plan and not subject to the discretion of the participant or Company, for example, at the later of age 55 or Separation from Service, in the form of an annuity. It is not permitted to provide a participant with choice between an annuity payment and a single sum payment. Further, once a form of annuity has been elected and benefit payments have commenced, the form of annuity cannot be changed. See "When the 409A BEP Benefit Commences" for details.

If the IRS were to determine that a payment made to you from the BEP, SRP, J&H Excess Plan, Sedgwick Excess Plan, ORC Excess Plan or from another non-qualified arrangement aggregated with any of these plans under the Section 409A aggregation rules, is not compliant with Section 409A, you could be subject to immediate taxation and a 20% excise tax "penalty" on all aggregated unpaid plan benefits that are subject to Section 409A.

Determination of a Grandfathered Benefit

At the time that Section 409A was enacted, employers were permitted to "grandfather" non-qualified benefits accrued and vested before January 1, 2005, provided the benefit is paid according to plan terms that were in effect on October 3, 2004, under prior tax rules thereby exempting them from the rules imposed by Section 409A. Marsh McLennan took steps to secure grandfathered treatment for BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan benefits.

A plan sponsor was not legally required to "grandfather" those non-qualified benefits that qualified for such treatment. If a plan sponsor chose not to "grandfather" those benefits then all benefits under the plan were subject to the restrictions of Section 409A rules. Organization Resources Counselors, Inc. (ORC), prior to its acquisition by the Company, determined that benefits under the ORC Excess Plan would not be grandfathered. Accordingly, all benefits under the ORC Excess Plan are subject to Section 409A.

Participant control over the time and form of payment of a grandfathered non-qualified benefit has to be subject to substantial limitations or restrictions; otherwise, the IRC would deem a participant to be in "constructive receipt" of his or her benefit, causing immediate income taxation of the benefit. These rules are reflected in the grandfathered benefit payment rules, where a grandfathered benefit commences at the same time and in the same form as elected for the tax-qualified plan benefit. To the extent the participant is eligible for and wants to elect a single sum payment in lieu of an annuity, such an election must be made at least 12 months in advance of the payment date (or be subject to a 6% penalty reduction. See "Electing a Single Sum Payment" for details.

At the time that the Company took steps to grandfather BEP and SRP benefits under prior tax rules, these plans provided a pre-commencement spouse survivor benefit to eligible opposite-sex spouses. Therefore, a pre-commencement survivor benefit paid to an opposite-sex spouse with respect to a grandfathered benefit is also grandfathered. Effective January 1, 2009, the Company amended the BEP and SRP to extend eligibility for a pre-commencement survivor benefit to eligible same-sex spouses and eligible domestic partners. However, because this payment option was not part of the non-qualified plans on October 3, 2004, the payment of a survivor benefit to an eligible same-sex spouse or domestic partner, regardless of when the benefit was accrued and vested, is not grandfathered and therefore subject to Section 409A.

Summary of Time and Form of Payment Rules under the Marsh & McLennan Companies Non-qualified Retirement Plans

Below is a summary of the key rules relating to time (when benefits are paid) and form (how benefits are paid) of payment under the Company's non-qualified retirement plans. The summary shows the 409A benefit and grandfathered benefit rules in effect for benefits payable from the BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan.

All benefits payable from the ORC Excess Plan are subject to Section 409A.

When Benefits Are Paid

Non-qualified retirement benefits are generally paid when you have an employment event that triggers payment. However, different rules apply to the commencement of the 409A benefit than to the grandfathered benefit.


409A Benefit	Grandfathered Benefit
If You Separate from Service and Have a Small 409A Benefit If you experience a Separation from Service and your 409A benefit is a small benefit, a single sum 409A benefit payment will be made following your Separation from Service. The single sum payment for the 409A benefit payable from the BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan will be made in the fourth month following Separation from Service. The single sum payment for the 409A benefit payable from the ORC Excess Plan 409A benefit will be made in the month following Separation from Service.	If You Terminate Employment and Have a Small Grandfathered Benefit If you terminate employment and your grandfathered benefit is a small benefit, a single sum grandfathered benefit payment will be made immediately following termination of employment. There is no grandfathered ORC Excess Plan benefit.
If You Separate from Service Due to a Reduction in Hours or Leave of Absence Lasting Longer Than 6 Months and Your 409A Benefit is Not a Small Benefit If you have a Separation from Service due to a reduction in hours and your 409A benefit is not a small benefit, it will be paid following your Separation from Service. A 409A benefit payable from the BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan will commence effective in the month following the later of Separation from Service or the attainment of age 55. However, payment will be delayed until the fourth month following Separation from Service, unless the participant is deemed a Specified Employee at the time of commencement. If the participant is a Specified Employee at the time of commencement, payment will be delayed until the seventh month following Separation from Service. A 409A benefit payable from the ORC Supplemental Retirement Plan will commence at the later of the first month following Separation from Service or the first month following the attainment of age 62. Payments are not subject to a delay, unless the participant is deemed to be a Specified Employee at the time of commencement, in which case the payments are delayed until the seventh month following Separation from Service. A Specified Employee (generally one of a company's 50 top-paid officers) may not receive a payment of a 409A benefit, earlier than the seventh month following Separation from Service, except in the case of a Separation from Service due to death or disability.	If You Terminate Employment and Your Grandfathered Benefit is Not a Small Benefit If you terminate employment and your grandfathered benefit is not a small benefit, your grandfathered benefit will commence at the same time as your tax-qualified Marsh & McLennan Companies Retirement Plan benefit. If you terminate employment and your grandfathered benefit is not a small benefit, your SRP, J&H Excess Plan or Sedgwick Excess Plan grandfathered benefit will commence at the same time as your tax-qualified Marsh & McLennan Companies Retirement Plan benefit. There is no grandfathered ORC Excess Plan benefit.
If You Have a Separation from Service Due to a Disability Absence If you are absent from work due to a disability and are determined to be disabled as defined by the Marsh & McLennan Companies Long-Term Disability Plan you will incur a Separation from Service when you have been absent for a period of 29 months. A 409A benefit payable from the BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan will commence in the first month following the attainment of age 65 if you have a Separation from Service due to disability before age 65. If you separate from service due to disability after attaining age 65, your benefit will commence in the month following your Separation from Service. A 409A benefit payable from the ORC Excess Plan will commence in the later of the first month following Separation from Service or the first of the month following the attainment of age 60 if Separation from Service occurs before age 60.	If You Become Disabled If you become disabled, as defined by the Marsh & McLennan Companies Long-Term Disability Plan, no payment event will occur until you terminate employment and elect to commence your tax-qualified plan benefit. There is no grandfathered ORC Excess Plan benefit.
If You Die While Employed and Before Your 409A Benefit Commences If you die before attaining age 50 while employed and before a 409A BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan benefit commences, a 409A Survivor Benefit will be paid to an eligible Spouse or Domestic Partner on the date you would have attained age 55. If you die on or after attaining age 50 while employed and before your 409A BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan benefit commences, your 409A Survivor Benefit will be paid to your eligible Spouse or Domestic Partner on the first of the month following your death.	If You Die While Employed and Before Your Grandfathered Benefit Commences If you die before attaining age 50 while employed and before your grandfathered BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan benefit commences, a Grandfathered Survivor Benefit will be paid to your eligible opposite-sex Spouse on the date you would have reached age 65. However, your opposite-sex Spouse can elect a reduced benefit starting as early as the date you would have attained age 55. If you die on or after attaining age 50 while employed and before your grandfathered BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan benefit commences, a Grandfathered Survivor Benefit will be paid to your eligible opposite-sex Spouse on the first of the month following your death.
If You Die After Termination of Employment and Before Your 409A Benefit Commences If you die after termination of employment and before a 409A BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan benefit commences, your 409A Survivor Benefit will be paid to your eligible Spouse or Domestic Partner in the month following the later of your date of death or the date you would have attained age 55.	If You Die After Termination of Employment and Before Your Grandfathered Benefit Commences If you die after termination of employment and before your grandfathered BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan benefit commences, your Grandfathered Survivor Benefit will be paid to your eligible opposite-sex Spouse in the month following the later of your date of death or the date you would have attained age 55.
If You Die and Have an ORC Excess Plan Benefit If you die before attaining age 60 and before an ORC Excess Plan benefit commences, an ORC Survivor Benefit will be paid to your eligible Spouse or Domestic Partner on the date you would have attained age 60. If you die on or after attaining age 60 and before an ORC Excess Plan benefit commences, an ORC Survivor Benefit will be paid to your eligible Spouse or Domestic Partner beginning on the first day of the month following your death.	If You Die and Have an ORC Excess Plan Benefit There is no grandfathered ORC Excess Plan benefit.

How Benefits Are Paid

In general, you will receive your non-qualified retirement benefit as a monthly annuity, provided it is not a small benefit amount. A small benefit amount is a benefit amount that is below a certain minimum value. The minimum value for a 409A benefit is different than the minimum value for a grandfathered benefit. You will automatically receive a single sum payment if your non-qualified retirement benefit is a small benefit amount. In addition, you might be eligible to elect a single sum payment of a grandfathered benefit in lieu of a monthly annuity.


409A Benefit	Grandfathered Benefit
Payment Form Payment of BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan or ORC Excess Plan 409A benefit will generally be made as a monthly payment in the normal form. If you are not married on your benefit commencement date, your normal form of payment is a Single Life Annuity. If you are married on your benefit commencement date, your normal form of payment is a 50% Contingent Annuity with your spouse as the contingent annuitant. You may elect to commence your benefit in one of the optional forms of annuity payment (such as the Single Life Annuity, Contingent Annuity and Period Certain option).You must complete an election at the time your benefit commences. This election will be separate from your Marsh & McLennan Companies Retirement Plan payment election. No elective single sum payment option is available for any benefit amounts. Generally, if the combined single sum value of any 409A benefit payable from the BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan and ORC Supplemental Retirement Plan is $18,000 (the 2016 IRS limit) or less, those benefits will be paid to you in a single sum when you Separate from Service. This IRS limit is subject to annual cost-of-living adjustments.	Payment Form Payment of BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan grandfathered benefit will generally be made in the same form that you elect under the tax-qualified Retirement Plan. A grandfathered benefit that is not a small benefit will generally be paid as an annuity. If you accrued a benefit before 2003 which was funded with an annuity contract, that portion of your benefit will be paid at the same time and in the same form as your tax-qualified Retirement Plan benefit. If the monthly annuity amount that is the result of combining both the 409A benefit and grandfathered portion of a BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan benefit, is less than $100, the grandfathered portion of the BEP, SRP, J&H Excess Plan or Sedgwick Excess Plan benefit will be considered a small benefit and you will receive a single sum distribution of the value of your grandfathered benefit immediately following termination of employment.
Payment Elections Your 409A benefit will be paid at the specified date, following a Separation from Service. You will receive the normal form of payment for your 409A benefit unless you elect another payment option. If you wish to make an election for another payment option, you may make this election at the time your benefit commences, following a Separation from Service.	Payment Elections You must elect to commence your tax-qualified Retirement Plan benefit in order to commence your non-qualified grandfathered benefit. Generally, your grandfathered benefit will pay in the same form of payment that you elect for your Tax-Qualified Plan benefit and there is no separate election.
Single Sum Option You do not have the option to elect a single sum form of payment for your non-qualified 409A benefit.	Single Sum Option You might be able to elect to have all or a portion of your grandfathered BEP and/or SRP benefit paid as an actuarially equivalent single sum payment. Generally, this election must be on file at least 12 months prior to your commencement date. You may change your payment form from an annuity to a single sum or from a single sum to an annuity. However, if your new election is not on file for at least 12 months prior to the date benefits commence, your benefits will be reduced by 6%, consistent with Marsh McLennan's interpretation of governing tax law and the plans' administrative rules. If you do not complete a BEP/SRP Grandfathered Benefit Distribution Election Form electing a single sum payment for your grandfathered benefit, such grandfathered BEP and/or SRP benefit will be paid in the same form of payment that you elect for your tax-qualified Marsh & McLennan Companies Retirement Plan benefit.