The Qwest Pension Plan

1
The Qwest Pension Plan

• Post-Merger, what happens to the Plan?
• Does anything change? Can CenturyLink change the
  Plan?
• How does the Qwest Pension Plan work?
• How does the Qwest Retiree Healthcare Plan work?

2
Post-Merger, what happens to the Qwest Pension
Plan?

• CenturyLink is bound by the provisions of Section
  1.3
• Successorship of our contract.
• As such, CenturyLink . . . shall be bound by the
  Terms
• and conditions of this Collective Bargaining
  Agreement
• between Qwest Corporation, Qwest Business
• Resources, Inc. and CWA, and shall assume all
  other
• duties and responsibilities of a successor (as
  that
• term is construed under the National Labor
  Relations
• Act).

3
Successorship

• Any change to any of the negotiated benefit plans
  is
• subject to the provisions of Addendum 10.
• Section A.10.4 states that the employer can
  propose
• changes "provided, however, that no change shall
  be made
• without the consent of the Union in the Plans
  which would
• reduce or diminish the benefits or privileges
  thereunder for
• the employees within the bargaining unit."

4
Can the Plan be changed for the already retired?

• You cannot change the Plan and then retroactively
  change
• the rules. Changes to Pension Plans must conform
  to
• certain rules established under the law. To
  illustrate how
• that works, we can look to how both Qwest and
• CenturyLink ended their Plans for all
  non-represented
• employees.

5
Qwest

• In November 2009, Qwest amended the Pension Plan
• freezing those non-represented employees where
• they currently were in the plan. While they could
  freeze
• those employees, those employees retained what
  they had
• up to that point. Additionally, non-represented
  employees
• hired after January 1, 2009 are not eligible to
  participate.
• CenturyLink followed suit freezing their current
  non-
• represented employees and disallowing future non-
• represented new-hires from participation the
  following year.

6
Changes to Non-representedPlans

• You cannot change a Plan and then retroactively
  change
• the rules. This is one of the major protections
  of the
• Employee Retirement Income Security Act (ERISA).
  
• Legally, while the door could be closed going
  forward, what
• is earned to date can't be changed to take it
  away.

7
Changes to Non-representedPlans

• Employers can end a pension plan through a
  process
• called plan termination. There are two ways an
• employer can terminate its pension plan
• The employer can end the plan in a standard
  termination but only after showing the Pension
  Benefit Guaranty Corporation (PBGC) that the plan
  has enough money to pay all benefits owed to
  participants.
• If a plan is in a termination process and is not
  fully funded, the employer may apply for a
  distress termination if the employer is in
  financial distress. To do so, the employer must
  prove to a bankruptcy court or to the PBGC that
  the employer cannot remain in business unless the
  plan is terminated.

8
Pension Benefit Guaranty Corporation

• Security of benefit
• Pension Benefit Guaranty Corporation
• PBGC guarantees maximum benefit amount
• Benefit is indexed annually
• Additional information www.pbgc.gov

9
Could the Company unilaterally buy out all
pensions and end any pension coverage?

• If they didnt have to bargain with us and
  decided to just
• dump their pension Plan, they could if they
  followed the
• process required under law. They would first have
  to show
• the PBGC that the plan has enough money to pay
  all
• The Pension benefits owed to participants. The
  Plan would
• then be required to either (a) purchase an
  annuity from an
• insurance company which would provide the
  participants
• with lifetime benefits when they retire or, (b)
  if the Plan
• Allows ump sum payments, to issue one lump sum
• payment to each of the participants that covers
  their entire
• benefit.

10
Pension buy out continued

• Before purchasing an annuity, the plan
  administrator must
• give participants advance notice that identifies
  the
• insurance company (or companies) that the
  employer may
• select to provide the annuity. The PBGCs
  guarantee ends
• when the plan either purchases annuities for or
  gives
• participants lump sum payments.

11
Do the other Represented CenturyLink units have
pensions?

• CenturyLink has 2 pension plans. The CenturyTel
  legacy
• Plan (which is now frozen) covering the
  non-represented
• CenturyLink employees and a second Plan which is
• compromised of the Pension assets of those units
  that
• were acquired that had pension plans.
• Those Plans are still in effect. Eliminating or
  freezing those
• plans is a mandatory subject of bargaining.

12
Is the Qwest Pension Plan safe?

• On page 105 of Qwests current annual 10-K
  Report, it is reported that
• "The accounting unfunded status of our pension
  plan was 585 million
• at December 31, 2010. During 2012 we expect to
  begin making
• required contributions to the plan and we
  estimate that these 2012
• contributions could be between 300 million and
  350 million."
• The Qwest Plan was underfunded by 790 million as
  of December 31,
• Continuing on page 110 of this Report, the "Fair
  value of pension plan
• assets at end of year" 2010 was 7.66 billion.
  And, on page 120,
• Qwest reports the total pension plan "benefit
  obligation" at end of year
• 2010 was 8.245 billion. Current Plan assets are
  at 93 of liabilities.
• By law they are required to make contributions to
  bring it to 100 but
• also gives them time in which to make those
  contributions.

13
How does the Qwest Pension Plan work?
14
Who is covered by the Qwest Pension Plan?

• Employees with one or more years of service
• Participation is automatic dont have to enroll
• Occupational employees hired or rehired before
  12/31/08 are vested after 5 years (traditional
  Pension Plan)
• Occupational employees hired or rehired after
  12/31/08 are vested after 3 years (Cash Balance
  Formula)
• Eligible to take benefit at termination (if
  vested), do not have to wait until age 65

15
Who pays for the cost of the Plan?

• Pension benefit is provided at no cost to
  employee
• Employees do not make contributions they are
  not allowed
• Qwest pays for entire cost and bears the
  investment risk

16
Plan Requirements

• The Plan must meet certain criteria established
  by the
• IRS and the Department of Labor (DoL). This
  criteria
• requires that the funds be set aside in a Trust.
  At
• Qwest, there is 8.245 Billion owed with current
  assets
• of 7.66 billion. Assets can only be used for the
  
• benefit of plan participants.

17
Term of Employment (TOE) Qwest employees only

• Length of service used to determine eligibility
  for a
• Service Pension or a Disability Pension
• TOE is also used to determine all seniority-based
  
• benefits such as vacation, schedule of shifts,
  Short Term
• Disability and tuition assistance
• TOE is measured in terms of completed years,
  months,
• and days of employment with a Participating
  Company
• Bridging of service rules apply to TOE

18
Pension Calculation Service (PCS)

• PCS is the service used to determine the pension
  benefit.
• It is similar to TOE, but not identical. PCS is
  prorated for
• any part-time employment.
• PCS is maintained for Pension Plan purposes only
  no
• other benefits are based on it.

19
Negotiated Occupational Formulas

• Pension Band based on job title X Pension
• Calculation Service (PCS)
• Supplemental Benefit
• (.001 X annual average of supplemental earnings
  X
• PCS)
• Age 65 monthly annuity
• Supplemental earnings include differentials,
• performance bonus payments, In-charge allowance

20
Negotiated Occupational Formulas

• Sales Consultants Pension Factor using average
  monthly
• compensation X PCS resulting in a monthly age 65
  benefit
• Average monthly compensation is based on highest
  60 consecutive months of eligible earnings out of
  last 120 consecutive months of eligible earnings
• Compensation includes base pay, sales
  incentives,
• overtime, and STD pay

21
Negotiated Occupational Formulas

• Occupational Benefits are expressed as a Normal
• Retirement Age monthly annuity (age 65)
• At termination of employment or retirement, the
  age 65
• monthly annuity is converted to an immediate
  annuity
• and an immediate lump sum

22
Account Balance Formula (ABF) Employees
Hired or Rehired After December 31, 2008

• Each active Occupational Employee hired or
  rehired after
• December 31, 2008 will earn a benefit under the
  Account
• Balance Formula (ABF). Compensation Credits equal
  to
• three percent (3) of the employees eligible
  compensation
• (as defined by the Plan document) will be
  calculated
• annually in accordance with the ABF. Employees
  will
• become vested in the benefit upon the completion
  of three
• (3) years of employment. Upon separation from
• employment, if the three (3) year vesting period
  is satisfied,
• an employee is eligible to receive their account
  balance as
• prescribed by the Plan document, including a lump
  sum.

23
Service Pension Eligible (SPE)

• Modified Rule of 75
• AGE Years of Service
• Any Age 30 years of service
• 50 - 54 25 years of service
• 55 - 59 20 years of service
• 60 - 64 15 years of service
• 65 10 years of service
• Modified Rule of 75 applies to Occupational
  Formulas
• provides a subsidy to the annuity payment option
  between
• ages 55 65

24
What Does Service Pension Eligibility SPE Mean?

• Determines early retirement reduction for
  receiving monthly payments prior to age 65
• If under age 55 and SPE, a 6 annual reduction is
  applied for each year under 55
• If 30 or more years of service and under age 55,
  no reduction is applied
• If not SPE, the reduction for receiving benefit
  prior to age 65 is greater. Benefit is treated
  as a deferred benefit paid at present age

25
Other Retirement Benefits

• Currently, if employee is SPE, Retiree Benefits
  include the following
• The medical benefits in effect at retirement
• Life insurance and dental benefits
• Telephone Discount
• Retirement Gift
• These are subject to change e.g., bargaining
  Plan provisions govern

26
Benefit Conversions

• Factors that include mortality and interest rates
  are used to convert annuities to lump sums
• The interest rate is based on the average of the
  30-Year Treasury rate for the 5 months prior to
  the month of termination.
• Estimates for future dated terminations are based
  on a 6 interest rate
• The lower the interest rate used in the
  conversion of the occupational age 65 monthly
  annuity, the larger the lump sum. Conversely,
  the higher the interest rate, the lower the lump
  sum.

27
Pension Protection Act 2006 (PPA)

• Legislation did not change the basic calculation
  of benefits under the negotiated occupational
  formulas
• Most changes were effective 1/1/2008
• Changes the interest rate/mortality table used to
  convert age 65 monthly annuity to a lump sum
  under the occupational formulas

28
PPA 2006 and Beyond

• New interest rates will be phased in over 5 years
  starting in 2008
• Corporate bond rate ( segmented yield curve) will
  replace the 30-year treasury rate
• Currently, the corporate bond rate is higher than
  the treasury rate
• Mortality will be based on the RP 2000 table
  adjusted for increased longevity

29
Payment Options

• Single Life Annuity
• Monthly benefit paid to you for rest of life
• 50 and 100 Joint and Survivor Annuity
• Reduced benefit paid to you for life with
  either 50 or 100 continuing to spouse
• Life Annuity with Ten Years Certain
• Monthly benefit paid to you for rest of life
  with 120 months of payments guaranteed
• Lump Sum
• Total value of benefit paid
• Combination Payment Option
• Lump sum and monthly annuity

30
Survivor Options

• 50 and 100 Joint and Survivor Annuity Reduced
  benefit paid to you for life with either 50 or
  100 continuing to spouse
• Pension Survivor Benefit

31
Pension Survivor Benefit

• Effective January 1, 2009 the Qwest Pension Plan
  was
• changed to pay a pre-retirement benefit in all
  cases when a
• vested employee dies prior to receiving the
  pension
• benefit. The benefit will be paid to a surviving
  spouse, a
• named beneficiary or trust or the employees
  estate.

32
Pension Survivor Benefit - cont

• All employees (married and single) have the
  opportunity to
• request and complete a beneficiary designation
  form at any
• time prior to benefit commencement that will
  allow the
• employee to name any person, trust or the
  employees
• estate as the beneficiary for the pension plan
  benefit if they
• die as an active employee or before they start
  receiving their
• pension benefit. The beneficiary designation will
  follow
• requirements of Federal law regarding the
  required Joint and
• Survivor benefit and spousal consent rules.

33
Pension Survivor Benefit - cont

• The provisions in the Plan pertaining to Spousal
  benefits
• are unchanged. The Plan would provide a benefit
  to a non-
• spouse beneficiary, trust or estate based on a
  50 Joint
• and Survivor annuity calculated as if the
  participant had
• started receiving the benefit the day before
  his/her death.
• The benefit can be paid as a lump sum if elected
  within the
• required time frame.

34
Pension Survivor Benefit - cont

• The surviving spouse will receive the greater of
• (a) the amount the surviving spouse would have
• received if the Participant had commenced
  receiving benefits under a 50 qualified joint
  and survivor annuity on the day before his/her
  death or
• (b) an amount equal to 45 of the benefit that
  would have been paid had the participant
  terminated employment, survived until age 65 and
  started to receive payments at age 65.

35
When can I receive my pension?

• Upon termination (if vested) - do not have to
  wait until age 65
• Lump sum option available only if election made
  within 180 days after termination
• Election for annuity must be made within 180 days
  or no retroactive payments will be made
• Spousal consent required for election of option
  other than a 50 or 100 Joint and Survivor
  annuity.

36
Retirement

• If participant requests a pension kit at least 30
  days in advance of termination date, retirement
  date is the day following term.
• If participant request pension kit less than 30
  days in advance of termination date, the pension
  effective date is 30 days after termination.
• Termination must be posted in HR data base by 5th
  of month, and
• Pension forms must be received by 5th of month to
  paid on the 1st of the following month

37
Tax Implications

• Lump sum is taxable as ordinary income
• Lump sum payments are subject to an additional
  10 excise tax if under age 55 at termination
• If rolled over to IRA, not taxed until withdrawn
• Annuity payments are taxed as ordinary income
  you make election on withholding

38
Qwest Pension Plan Resources

• Pension Plan web site https//qwestpension.com
• Can access from home
• Run pension estimates
• Request pension kits
• Summary Plan Description
• Current and historical interest rates
• Need four digit PIN (separate from 401(k))
• Qwest Service Center
• 1-800-729-PLAN (7526) Option 1, 3
• Questions? Talk to a service representative
• Links through HRxpress

39
How does Qwest RetireeHealthcare work?
40
Company Retiree Health Care Annual Cost Cap

• The Company shall determine before the start of
  each year the total
• expected cost for each Coverage Category for
  eligible former Union
• represented employees retiring on or after
  January 1, 1991 (except
• employees who retired under the 1992 ERO). The
  cost to the Company
• for each eligible former Union represented
  employee retiring on or after
• January 1, 1991 (except employees who retired
  under the 1992 ERO) and
• their eligible dependents (commonly referred to
  as Occupational Post-
• 1990 Retirees) shall not exceed the Company
  Retiree Health Care Annual
• Cost Cap detailed below for each Coverage
  Category. Eligible
• Occupational Post-1990 Retirees will be
  responsible to pay premiums
• (commonly referred to as Retiree Premiums)
  equal to the amount by
• which the total expected annual health care costs
  for each Coverage
• Category exceed the Company Retiree Health Care
  Annual Cost Cap. The
• Company Retiree Health Care Annual Cost Cap is
  outlined in the table
• below

41
Company Retiree Health Care Annual Cost Cap

• Coverage Category Company Retiree Health
  
• (Eligible as defined Annual Cost Cap
• by the Plan)
• Eligible Non-Medicare 6,250 per retiree
• Adult excluding dependent 6,250 per spouse
• child(ren)
• Eligible Child(ren) (incl.
• student and handicapped) 2,070 maximum
• Eligible Medicare-eligible 2,570 per retiree
• Adult excluding dependent 2,570 per spouse
• child(ren)
• Waived Coverage 0

42
Company Retiree Health Care Annual Cost Cap

• Coverage Category Company Retiree Health
• (Eligible as defined Annual Cost
  Cap
• by the Plan)
• Company Retiree Health Care Annual Cost Cap
  includes medical and dental costs
• Eligible Child(ren) (incl. student and
  handicapped)
• Eligible Child(ren) (incl. student and
  handicapped) Company Retiree Health Care Annual
  Cost. Cap is based on a child(ren) unit. The unit
  may include one or multiple eligible children but
  the maximum cap amount applied is 2,070
  regardless of the number of children covered.

43
Company Retiree Health Care Annual Cost Cap

• The Company will pay expected annual health care
  costs
• up to the Company Retiree Health Care Annual Cost
  Caps
• by direct payment and/or payments and/or
  reimbursements
• made from the Company sponsored trust funds or
  other
• Company sources. Retiree Premiums for the
  expected
• costs that exceed the Company Retiree Health Care
  
• Annual Cost Cap will apply for eligible
  Occupational Post-
• 1990 Retirees beginning January 1, 2009 in order
  to
• maintain health care coverage under the Qwest
  Health
• Care Plan.

44
Company Retiree Health Care Annual Cost Cap -
2009
PPO Non- Medicare Medicare High Deductible Non- Medicare Medicare
Retiree 75 5 Retiree 0 0
Retiree 1 Medicare 80 9 Retiree 1 Medicare 0 0
Retiree 1 non-medicare 150 81 Retiree 1 non-medicare 0 0
Family Medicare 324 207 Family Medicare 0 44
Family non- Medicare 408 330 Family non- Medicare 173 138
45
Company Retiree Health Care Annual Cost Cap -
2010
  PPO PPO PPO HDHP HDHP
  Qwest Qwest Qwest Qwest Qwest
Cost Information Annual Single Family Single/ Family Single Family
Retiree Portion Non-Medicare 102.00 427.00 102/427 11.00 189.00
Retiree Portion Medicare 13.00 246.00 13/246 0.00 68.00
46
Company Retiree Health Care Annual Cost Cap
2011 - lt 65
PPO Non- Medicare High Deductible Non- Medicare
Retiree 127.36 Retiree 32.36
Retiree 1 Spouse 254.76 Retiree 1 Spouse 64.77
Retiree Child(ren) 171.55 Retiree Child(ren) 45.10
Retiree Family 298.91 Retiree Family 77.46
Spouse only 127.36 Spouse only 32.36
Spouse child(ren) 170.80 Spouse child(ren) 44.34
Child(ren) 44.15 Child(ren) 12.69
47
Qwest Retiree Health Care Annual Cost Cap 2011
gt 65
PPO High Deductible
Retiree only 127.36 Retiree only 32.36
Retiree Spouse 254.76 Retiree Spouse 64.77
Retiree 1 Child 171.55 Retiree 1 Child 45.10
Retiree 2 children 298.91 Retiree 2 children 77.46
Retiree spouse 1 child 127.36 Retiree spouse 1 child 32.36
Retiree spouse 1 child 170.80 Retiree spouse 1 child 44.34
Retiree spouse 2 children 44.15 Retiree spouse 2 children 12.69
48
QwestRetiree Health Care Annual Cost Cap 2011
gt 65 continued
PPO High Deductible
Spouse only 13.98 Spouse only 0
Spouse 1 child 34.59 Spouse 1 child 0
Spouse 2 children 45.42 Spouse 2 children 0
Child 20.61 Child 0
2 or more child(ren) 31.38 2 or more child(ren) 0
49
Retiree Health Care Annual Cost Cap - Premiums

• How are the premiums determined?
• The Company shall determine before the start of
  each year the total expected
• cost for each Coverage Category for eligible
  former Union represented
• employees retiring on or after January 1, 1991
  (except employees who retired
• under the 1992 ERO). The cost to the Company for
  each eligible former Union
• represented employee retiring on or after January
  1, 1991 (except employees
• who retired under the 1992 ERO) and their
  eligible dependents (commonly
• referred to as Occupational Post-1990 Retirees)
  shall not exceed the
• Company Retiree Health Care Annual Cost Cap
  detailed below for each
• Coverage Category. Eligible Occupational
  Post-1990 Retirees will be
• responsible to pay premiums (commonly referred to
  as Retiree Premiums)
• equal to the amount by which the total expected
  annual health care costs for
• each Coverage Category exceed the Company Retiree
  Health Care Annual
• Cost Cap.

50
Plan Documents Govern

• This presentation is intended to provide
  general guidance about the benefits currently
  available under the Qwest Communications
  International, Inc. employee benefit plans
  presently sponsored by CenturyLink as the
  successor employer. If there is any difference
  between this guidance and the terms of the
  official plan documents, the terms of the plan
  documents will govern.