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Securing the Promise
Questions and Answers on the Proposal for Pension Plan Aggregation

1. Q. What is Aggregation?
A: Aggregation is a term for the AAFES initiative to better align the benefit obligations and related trust assets in our three retirement plans.

2. Q. What are the three plans?
A: AAFES has three plans or programs to provide benefits for retired associates: the basic retirement plan; the post-retirement medical, dental, and life insurance program (PRM); and the plan to provide supplemental deferred compensation benefits to employees who participate in the AAFES Executive Management Program (EMP).

3. Q: When will aggregation become effective?
A: Aggregation will become effective on the first of the month after receiving the Department of Defense (DoD) approval on the AAFES proposal. We anticipate that this process may take some time.

4. Q: What would change if aggregation is approved?
A:. Aggregation won’t impact the benefits payable to anyone entitled to receive them. Only the source of payment from these plans is changing.

5. Q. How is the payment changing?
A: These benefits are funded through trusts (legal entities separate from AAFES) used to set aside money to protect retirement funds and pay benefits. AAFES cannot use the money in the trusts for any purpose other than paying benefits to eligible participants. There are three separate trusts:

• Basic Retirement Annuity Plan Trust
• Trust for Retiree Medical, Dental and Life Insurance Plan of Army of Air Force Exchange Service (PRM)
• Supplemental Deferred Compensation Plan for Members of the Executive Management Program (EMP) Trust.

Aggregation would better align the benefit obligations and related trust assets. As illustrated in the chart on the next page, the trustees will shift most of the liabilities for these EMP benefits from the EMP plan to the basic plan so that benefits are paid from the basic trust. A significant portion of EMP supplemental plan assets will no longer be needed to pay these pension benefits and may then be used to pay PRM health care expenses for all retirees, whether or not the retiree was hourly or management.

6. Q: Who else has reviewed the AAFES proposal to realign the funds in the three Trusts to ensure it’s legal and a sound financial decision?
A: The idea to realign the assets was proposed by our outside benefits consultant and reviewed by our internal General Counsel and our external Trust attorney who is an expert in Trust Law and IRS rules. The Trustees of the pension plan voted to approve the proposal after assurances that realigning the funds would benefit the associates, retirees, and AAFES. AAFES obtained a favorable determination letter from the Internal Revenue Service on the plan change. We also coordinated the idea with our Trustee Bank, State Street, and they have expressed no concerns. Based on this feedback, the proposal was approved by the Commander and the AAFES Board of Directors and sent to DoD for final approval.

The Office of the Secretary of Defense Civilian Personnel Policy office responsible for NAF Personnel Policy oversight coordinated the proposal with the OSD General Counsel’s office and others within the DoD chain. DoD also hired an outside attorney, a Colonel in the reserves, to review the proposal before they elevated the proposal up the DoD chain of command. The Principal Deputy Under Secretary of Defense (Personnel and Readiness) is currently reviewing the AAFES proposal. We’re currently in the process of getting additional input from other governmental agencies and financial experts to satisfy requests from Congressional members of the House and Senate Armed Services Committees. All in all, aggregation is being thoroughly evaluated and studied by a number of experts both within AAFES and externally to ensure your benefits are secured to the maximum extent possible.

7. Q. Why is aggregation good for all concerned?
A: This change in funding will financially strengthen the PRM plan to help ensure eligible retirees and their eligible dependents have medical coverage.

8. Q: If I qualified for continued medical and dental benefits after retirement, does aggregation mean that there will be enough funding available so I won’t have any more medical plan changes in the future?
A: No. While the PRM benefit assures eligible retirees have access to quality medical and dental plan coverage, plan changes have always been necessary to keep pace with rising healthcare costs and to keep the plan affordable. As you can see from the funding levels noted in the funded status chart, even if aggregation is approved, we still have a shortfall in the PRM Trust that AAFES will need to fund.

9. Q. What if I do not qualify for the PRM benefit or I do not retire as an EMP, how does aggregation change my benefit?
A: This change in funding would not affect you in any way. You will continue to receive your promised basic pension benefits just as you do now. This commitment by AAFES is legally protected regardless of the funding status of the basic retirement plan.

10. Q. I’m a retired or active EMP. How else would aggregation affect me?
A: If you are an active or retired EMP at the time aggregation is approved, your benefit will be paid from the Basic Retirement Plan. There is one exception. If you are one of the very few participants whose benefits are limited by the Internal Revenue Code Section 415 benefit limits, then the portion of your benefit that exceeds those limits will be paid from the EMP Trust.

Bottom line … you will receive the same pension benefits just as you would have without this alignment in the funding. The biggest change is that your EMP retirement benefit becomes more secure since it’s now being paid out of an IRS “qualified” plan. This means you have a legal right to the benefit and it can’t be taken away from you. Currently, while the EMP benefits are protected in a non-qualified Trust, the Trust’s money is non-vested and forfeitable in the unlikely event that AAFES should ever go bankrupt and assets were ever needed to satisfy creditors.

• Retired EMPs: Go to www.aafes.com/area and read the EMP plan booklet under the “Your Benefits” section, “retirement” category, to learn more about the current protections offered EMPs by existing Grantor Trust rules.
• Active EMPs: Go to h2.aafes.com. Select “quick links,”, then “Benefits Information,” and then scroll down to the “retirement” section for a copy of the EMP booklet.

If you have additional questions not addressed here, please send them to benefits@aafes.com or contact the HQ AAFES Benefits Branch at 1-800-519-3381.

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