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MSD SPECIAL SEPARATION PROGRAM FOR "BRIDGED" EMPLOYEES

Employment Agreement

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MERCK CO. INC. | Merck Sharp Dohme Corp

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Title: MSD SPECIAL SEPARATION PROGRAM FOR "BRIDGED" EMPLOYEES
Date: 2/28/2011
Industry: Major Drugs     Sector: Healthcare

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Exhibit 10.12

MSD

SPECIAL SEPARATION PROGRAM

FOR

“BRIDGED” EMPLOYEES

Eligible Employees: Employees of Merck Sharp & Dohme Corp. (and certain of its subsidiaries) who are not subject to a collective bargaining agreement and:

(1) Who Experience a Separation From Service (as defined in the Separation Benefits Plan) on or between January 1, 2009 and December 31, 2011; and

(2) Who as of their last day of employment (Separation Date), are

 

 

at least 49 years of age but not yet age 55 and have at least 9 years of Credited Service; or

 

 

 

at least 55 years of age but not yet age 65* and have at least 9 years of Credited Service but do not have 10 years of Credited Service; or

 

 

 

at least 64 years of age but not yet age 65* and have less than 9 years of Credited Service

           * For those who are at least age 65 with at least 9 but less than 10 years of Credited Service, see the brochure applicable to “Separated Retirement Eligible” Employees.

Effective Date: As of October 1, 2010

Effective as of October 1, 2010
Revised as of October 1, 2010

 


 

This document summarizes the benefits for which a “Bridge-Eligible Employee” may be eligible under the Special Separation Program and other employee benefit plans and programs of Merck Sharp & Dohme Corp. (“MSD”). Unless otherwise noted below, the terms and conditions of MSD’s employee benefit plans and programs applicable on an employee’s termination of employment from the Employer are as described in the applicable sections of the current MSD Benefits Book (and applicable summaries of material modification) previously provided to you or provided to you with this Brochure, as such plans and programs (and the applicable sections of the MSD Benefits Book) may be amended from time to time. (A copy of the applicable sections of the MSD Benefits Book (and applicable summaries of material modification) can be obtained on line at http://hr.merck.com or www.merck.com/benefits or by calling the Merck Benefits Service Center at 1-800-666-3725). However, to the extent that the terms below differ from those described in the applicable sections of the current MSD Benefits Book (and applicable summaries of material modification), this communication constitutes a summary of material modifications and should be kept with that book.

“Bridge-Eligible Employees” are certain nonunionized employees of the Employer

(1) who experience a Separation From Service (as defined in the Separation Benefits Plan) on or between January 1, 2009 and December 31, 2011; and

(2) who as of their last day of employment with the Employer (the “Separation Date”), are

 

 

at least 49 years of age but not yet age 55 and have at least 9 years of Credited Service; or

 

 

 

at least 55 years of age but not yet age 65 and have at least 9 years of Credited Service but do not have 10 years of Credited Service; or

 

 

 

at least 64 years of age but not yet age 65 and have less than 9 years of Credited Service (as defined in the Retirement Plan).

Bridge-Eligible Employees are only those employees who are designated by MSD as “Bridge-Eligible Employees.” “Bridge-Eligible Employees” do not include employees who terminate employment in any way that does not constitute a Separation From Service as defined in the Separation Benefits Plan as determined by MSD, including employees who resign for any reason. Benefits described in this Brochure only apply to Bridge-Eligible Employees and do not apply to any other employees of Merck or its subsidiaries or affiliates, including the Employer.

If you have been designated as a Bridge-Eligible Employee, MSD will provide you with a separation letter (the “Separation Letter”) that will describe the Special Separation Program benefits for which you are eligible and will include a release of legal claims against Merck and its subsidiaries and affiliates, including the Employer, and may also include other terms, such as non-solicitation and non-

Effective as of October 1, 2010
Revised as of October 1, 2010

1


 

competition provisions, as MSD in its sole discretion decides to include. In order for you to retire under the Retirement Plan as of your Separation Date and to receive the benefits under the Special Separation Program, you must sign and return the Separation Letter by the date stated in the letter (the “Separation Letter Return Date”) and, if a revocation period is applicable to you, not revoke the letter within the revocation period.

Bridge-Eligible Employees who sign, return and, if a revocation period is applicable, do not revoke the Separation Letter shall be treated as retired under the Retirement Plan and referred to as “Bridged Employees.”

Special Separation Program

All benefits under this Special Separation Program are contingent upon the Bridge-Eligible Employee signing (and, if a revocation period is applicable, not revoking) the Separation Letter. They consist of:

 

 

Separation Pay

 

 

 

Outplacement Services

 

 

 

A pro-rata portion of certain early retirement subsidies under the Retirement Plan (“Pension Bridge”) and treatment as a retiree under the Retirement Plan

 

 

 

Medical and dental benefits

 

 

For Bridge-Eligible Employees with at least 9 years of Credited Service (as defined by the Retirement Plan) as of their Separation Dates)—Treatment as a retiree for purposes of medical, dental benefits

 

 

 

For Bridge-Eligible Employees who have less than 9 years of Credited Service as of their Separation Dates—Eligibility for continued medical and dental benefits for a period

 

 

 

Treatment as a retiree for purposes of unexercised stock options and restricted stock units and performance stock units

 

 

 

Eligibility for a special payment in lieu of an AIP/EIP bonus for the performance year in which his or her Separation Date occurs if his or her Separation Date occurs after June 30 and on or before December 31 of that performance year

Separation Pay and Outplacement Benefits are described in the Separation Plan SPD distributed with this Brochure.

Bridge-Eligible Employees
Effective as of October 1, 2010
Revised as of October 1, 2010

2


 

This Brochure describes:

 

 

the additional benefits offered under the Special Separation Program that are not described in the Separation Plan SPD:

 

 

Pension Bridge;

 

 

 

treatment as a retiree for purposes of medical and dental benefits (provided that, for retiree healthcare benefits, the Bridge-Eligible Employees would have had at least 9 years of Credited Service (as defined by the Retirement Plan) as of their Separation Dates);

 

 

 

treatment as a retiree for purposes of stock options, restricted stock units and performance stock units;

 

 

 

eligibility for a special payment in lieu of an AIP/EIP bonus for the performance year in which his or her Separation Date occurs;

 

 

 

the benefits for those Bridge-Eligible Employees who do not sign, or, if a revocation period is applicable to them, who sign and later revoke, the Separation Letter; and

 

 

 

the terms and conditions of certain Merck or MSD benefit plans and programs as they apply to Bridge-Eligible Employees without regard to whether they sign the Separation Letter.

Retirement Plan — Pension Bridge

“Terminated Vested” — If You Do Not Sign the Separation Letter

By definition, as of the Separation Date, Bridge-Eligible Employees are not eligible for early or normal retirement under the terms of the Retirement Plan for Salaried Employees. So, on your Separation Date, if you are not a Bridged Employee (one who has signed and, if a revocation period is applicable to you, not revoked the Separation Letter) and you have at least 5 years of Vesting Service (as that term is defined in the Retirement Plan), you will be a “terminated vested” participant in the Retirement Plan for all purposes and will stop accruing additional Credited Service (as that term is defined in the Retirement Plan). This means that your employment will have terminated after you are vested and before you were eligible for early or normal retirement under the Retirement Plan (generally, at least age 55 with at least 10 years of Credited Service, or at least age 65 without regard to years of service). If you are less than 65 and your employment terminates before you have at least 5 years of Vesting Service, you are not vested and have no entitlement under the Retirement Plan; you are not considered “terminated vested.”

If you are a “terminated vested” participant, your benefits under the Retirement Plan must begin no later than the first day of the month following age 65. However, you can start receiving a reduced benefit on the first day of any month after you reach age 55. Your benefit will be reduced to reflect early payment of your benefits. The early payment reduction for a “terminated vested” participant

Bridge-Eligible Employees
Effective as of October 1, 2010
Revised as of October 1, 2010

3


 

is an “actuarial” reduction. That is, your life expectancy and certain other actuarial assumptions are used in calculating the reduction amount for each year prior to age 65 that the benefits begin. You should expect this to reduce your benefits substantially because by commencing your benefit early, you receive benefits earlier and for a longer period. A table illustrating examples of actuarial reductions from the age 65 benefit and a more detailed explanation of the benefits for “terminated vested” participants can be found in the Salaried Retirement Plan section of the current MSD Benefits Book (and applicable summaries of material modification).

After you leave the Employer, if you are entitled to a vested benefit from the Retirement Plan, you’ll receive a statement that will tell you what your life income will be at age 65. This will be sent to you within approximately one year from your Separation Date. If any portion of your benefit is from a different plan, such as the Retirement Plan for Hourly Employees of MSD, there is an offset which reduces the benefit from the Retirement Plan. The aggregate lump sum benefit payable from two different plans generally differs slightly from a lump sum payable from only one plan (especially if different interest rate methodologies apply).

Payments not Compensation for Retirement Plan . Separation Pay is not compensation for Retirement Plan purposes. A bonus or the special payment, if any, in lieu of an AIP/EIP bonus paid after your Separation Date is also not compensation for Retirement Plan purposes.

Special Separation Program — Pension “Bridge” — If You Sign the Separation Letter

For Retirement Plan purposes, as a Bridged Employee (one who has signed and, if a revocation period is applicable, not revoked the Separation Letter), you will be considered to have retired from active service with the Employer on your Separation Date and will be entitled to a pro-rata portion of your early retirement subsidies. For those who are not yet 55, you will be considered to have a “deferred” pension on the terms described below. A “deferred” pension benefit is payable no earlier than the first of the month following the participant’s 55 th birthday.

Early Retirement Subsidy . Your benefit from the Retirement Plan will be based on the Credited Service accrued as of the Separation Date and will be payable at age 65; however, you can begin to receive your benefits on the first day of any month after you reach age 55. If you commence your benefit at or after age 55 but before age 62, the benefit will still be reduced. The amount of the reduction is less than the actuarial reduction that applies to “terminated vested” participants and more than the reduction that applies to early retirees who are not Bridged Employees.

Bridge-Eligible Employees
Effective as of October 1, 2010
Revised as of October 1, 2010

4


 

The Retirement Plan provides that the benefits for early retirees are reduced by 0.25% for each month (i.e., 3% for each year) that they begin before age 62. Bridged Employees receive a pro-rata portion (the “Pro-Rata Fraction”) of the enhancement provided by the early retirement subsidies. The Pro-Rata Fraction equals the percentage of the employee’s Credited Service on his/her Separation Date divided by the Credited Service that employee would have had if employment had continued until he/she was first eligible to be treated as an early retiree. For purposes of this fraction, Credited Service is limited to 35 years for both Credited Service at separation and the Credited Service had employment continued to his/her first day of eligibility for treatment as an early retiree.

For example, assume an employee is 49 years old with 9 years of Credited Service on his Separation Date. He would have been first eligible to be treated as an early retiree when he attained age 55, when he would have had 15 years of Credited Service. The Pro-Rata Fraction in this example would be 9/15.

As another example, assume a Bridged Employee is 57 with 9 years of Credited Service on her Separation Date. This employee would have been first eligible to be treated as an early retiree when she had 10 years of Credited Service, so the pro-rata portion would be 9/10.

To calculate the benefit that will be paid, the formula is

 

 

Pro-Rata Fraction TIMES the participant’s accrued benefit as of the Separation Date payable with early retirement subsidies

 

 

 

PLUS (1 MINUS the Pro-Rata Fraction) TIMES the participant’s accrued benefit at Separation Date actuarially reduced for early commencement

Here’s an example of how this formula will work. Assume an employee is 52 years old at separation with 23 years of Credited Service. His earliest retirement age will be 55, at which time he would have had 26 years of Credited Service, so his Pro-Rata Fraction is 23/26, or 88.46%. Assume his accrued benefit—that is, the age 65 annuity paid every month for the rest of his life—is $1,000. If he receives his pension at age 55, as an early retiree he would receive $790. As a terminated vested participant, he would receive $340.

Bridge-Eligible Employees
Effective as of October 1, 2010
Revised as of October 1, 2010

5


 

Under the formula, he would receive

• 88.46% Times $790 equals $698.83
Plus
(1-88.46% = 11.54%) Times $340 equals $39.24
Equals
$738.07 as an annuity, payable at age 55.

The $738.07 annuity value could be converted into any of the forms of benefit available under the Retirement Plan.

Rule of 85 Transition Benefit . Bridged Employees who, if their employment with the Employer had continued would have qualified for the Rule of 85 Transition Benefit within two years of their Separation Date will receive the Rule of 85 Transition Benefit when benefits from the Retirement Plan begin. In other words, this enhancement applies if on your Separation Date you are at least 53 years old, and the sum of your age and Credited Service is at least 81. The Rule of 85 Transition Benefit will be payable upon commencement of your pension benefits, even if the date of commencement of pension benefits is earlier than the date you would otherwise have qualified for the Rule of 85 Transition Benefit, and is included in the early retirement subsidies that are subject to the Pro-Rata Fraction described above.

The Rule of 85 Transition Benefit is fully described in the Salaried Retirement Plan section of the current MSD Benefits Book (and applicable summaries of material modification). In general, the Rule of 85 was phased out in July of 1995. It had provided that an employee whose employment terminated after age 55, when age and service equaled at least 85, would be eligible for an unreduced age 65 benefit instead of the normal early retirement subsidy (i.e., a 3% per year reduction for each year that benefit payments begin prior to age 62). The Rule of 85 Transition Benefit preserved 100% of the Rule of 85 for any employee who was 50 or older in July of 1995, with 90% preserved for then 49 year old employees, 80% for then 48 year old employees, etc. No benefit was preserved for employees then 40 or younger.

For example, assume a Bridged Employee was born June 30, 1954. On July 1, 1995, this employee was 41 so 10% of her Rule of 85 benefit was preserved. Assume further that her Separation Date is January 1, 2009 (she’ll be 54 years and 6 months old) and that she then has 30 years of Credited Service. If her employment had continued until she attained age 55, she would have been entitled to the Rule of 85 Transition Benefit as of July 1, 2009 (her age and service as of that date would have exceeded 85). This employee may begin to receive her benefits (including her Rule of 85 Transition Benefit, i.e., 10% of the Rule of 85 benefit) from the Retirement Plan on July 1, 2009, the first day of the month after she reaches age 55. For this Bridged Employee, her “early retirement subsidies” as described above that are subject to the Pro-Rata Fraction would include the Rule of 85 Transition Benefit.

Bridge-Eligible Employees
Effective as of October 1, 2010
Revised as of October 1, 2010

6


 

On the other hand, assume instead that a Bridged Employee would be 52 on his Separation Date. No matter how many years of Credited Service he had, he is not eligible for the Rule of 85 Transition Benefit under the Special Separation Program because he would not have been entitled to the Rule of 85 Transition Benefit within two years of his Separation Date had he remained an employee of the Employer. In other words, he would not have reached age 55 and had 85 points within 2 years of his Separation Date had his employment continued.

Social Security Bridge Transition Benefit . Bridged Employees also will be eligible for the Social Security Bridge Transition Benefit under the Special Separation Program. The Social Security Bridge Transition Benefit is fully described in the Salaried Retirement Plan section of the current MSD Benefits Book (and applicable summaries of material modification). In general, the Social Security Bridge Transition Benefit reduces the offset for Social Security Benefits under the Retirement Plan by providing a temporary monthly supplement prior to age 62. The benefit was eliminated in July 1995 but was preserved for employees then at least age 50, with 90% preserved for employees then 49, 80% for employees then 48, etc. The benefit was not preserved for employees then 40 or younger. Because this benefit does not require any particular number of points, you may be eligible for the Social Security Transition Benefit even if you are not eligible for the Rule of 85 Transition Benefit.

Death of a Bridged Employee . If you die after you sign the Separation Letter but before you begin to receive your benefits from the Retirement Plan, your spouse (or estate in the case of any unmarried participant) will receive an annuity or a lump sum. If you die before age 55, you will be eligible for the Social Security Bridge Transition Benefit. If you were eligible for the Rule of 85 Transition Benefit on your Separation Date, you will not be eligible for this benefit if you die before you reach age 55. The Pro-Rata Fraction described above would be applied as described above. The benefit is calculated as though you had elected a joint and 50% survivor annuity with your spouse (if you’re unmarried, as though you had a spouse the same age as you) on the day before you died. The lump sum is the actuarial equivalent of just the 50% survivor portion of the benefit—that is, taking into account your death. The annuity or lump sum is payable only after your spouse (or administrator of your estate) applies for the benefit. Bridged Employees under the Special Separation Program will not be charged for the qualified pre-retirement spousal annuity fully described in the Salaried Retirement Plan section of the current MSD Benefits Book (and applicable summaries of material modification).

Other Information . Except as described here, you will be treated as a terminated vested participant for Retirement Plan purposes. For example, you may not receive a “disability retirement” as discussed in the Salaried Retirement Plan section of the current MSD Benefits Book (and applicable summaries of material modification).

Bridge-Eligible Employees
Effective as of October 1, 2010
Revised as of October 1, 2010

7


 

The special provisions in the Retirement Plan regarding Bridged Employees are subject to certain discrimination tests under tax laws. Our actuaries have reviewed data on a preliminary basis and concluded that these special provisions satisfy those tests under most scenarios. However, if the provisions in practice happen to fail the tests, the benefits described here will be paid, to the extent necessary, from assets of MSD outside the Retirement Plan. Benefits from the Retirement Plan have tax advantages that payments outside it do not. You will be notified as soon as possible if this provision affects you.

After you leave the Employer, if you are entitled to a vested benefit from the Retirement Plan, you’ll receive a statement that will tell you what your life income will be at age 65. This will be sent to you within approximately one year from your Separation Date. If any portion of your benefit is from a different plan, such as the Retirement Plan for Hourly Employees of MSD, there is an offset which reduces the benefit from the Retirement Plan. The aggregate lump sum benefit payable from two different plans generally differs slightly from a lump sum payable from only one plan (especially if different interest rate methodologies apply).

Payments not Compensation for Retirement Plan . Separation Pay is not compensation for Retirement Plan purposes. A bonus or the special payment, if any, in lieu of an AIP/EIP bonus paid after your Separation Date is also not compensation for Retirement Plan purposes.

Split Election . Bridged Employees whose pension benefits are payable in part from the Supplemental Retirement Plan who wish to make an election with respect to the retirement benefits under that plan may do so in accordance with that plan by contacting the Support Center at 1-866-MERCK-HD (1-866-637-2543) to request the appropriate paperwork if eligible.

Medical (including Prescription Drug) and Dental

Medical (including Prescription Drug) and Dental — If You Do Not Sign the Separation Letter

If you don’t sign the Separation Letter (or if a revocation period is applicable to you, you revoke the Separation Letter), your medical and dental coverage options in effect on your Separation Date will continue under MSD’s medical and dental plans (as they may be amended from time to time) until the end of the month in which your Separation Date occur. At the end of that period, you will be eligible to elect to continue your coverage in accordance with COBRA for up to 18 months from your Separation Date. If you have no medical and/or dental coverage under MSD’s plans on your Separation Date, you will not have medical

Bridge-Eligible Employees
Effective as of October 1, 2010
Revised as of October 1, 2010

8


 

and/or dental coverage, as applicable, after your Separation Date nor will you be eligible to elect such coverage under COBRA.

Special Separation Program — Retiree Medical (including Prescription Drug) and Dental — If You Have at least Nine Years of Credited Service as of Your Separation Date and You Sign the Separation Letter

Under the Special Separation Program, if you have at least nine years of Credited Service on your Separation Date and you sign (and, if a revocation period is applicable to you, do not revoke) the Separation Letter, you will be eligible to participate in retiree medical and dental coverage under MSD’s plans (as they may be amended from time to time) as of the first day of the month after your Separation Date (even if your Separation Date is not the first day of a month). Your active employee coverage will continue until the end of the month in which your Separation Date occurs. Your retiree healthcare benefits will commence as of the first of the month following your Separation Date (“Retiree Healthcare Commencement Date”).

You will be automatically enrolled in retiree dental under the comprehensive coverage option and in retiree medical coverage under the same coverage option in which you were enrolled as an active employee on the day before your Retiree Healthcare Commencement Date, provided that coverage option is available to you as a retiree; if that medical coverage option is not available, you will be automatically enrolled in the plan’s default option. Coverage under your retiree medical and dental coverage will also automatically continue for your eligible dependents who were your covered dependents under the applicable plans on the day before your Retiree Healthcare Commencement Date.

You are permitted to add eligible dependents or drop covered dependents and/or change medical coverage options retroactive to the date your Retiree Healthcare Commencement Date only if you notify the Merck Benefits Service Center of such change(s) within 30 days after your Retiree Healthcare Commencement Date. Thereafter, any permitted changes will only be made prospectively.

Note that only those eligible dependents who are your “Dependents of Record” as of your Retiree Healthcare Commencement Date can be eligible for dependent coverage under your retiree healthcare coverage, subject to any special enrollment rights under HIPAA. Be sure to register your eligible dependents as “Dependents of Record” with the Merck Benefit Service Center within 30 days after your Retiree Healthcare Commencement Date. If an eligible dependent is not timely registered as your “Dependent of Record”, he/she will never be eligible for dependent coverage under your MSD retiree healthcare coverage, subject to any special enrollment rights under HIPAA. Eligible dependents who are your covered dependents on your Retiree Healthcare Commencement Date, are automatically registered as Dependents of Record.

Bridge-Eligible Employees
Effective as of October 1, 2010
Revised as of October 1, 2010

9


 

You can “opt-out” of retiree coverage, but note that your ability to re-enroll for coverage is generally limited to annual open enrollment (with the following January 1 as the re-enrollment effective date); mid-year enrollment is available only if you are covered under and lose other coverage and you contact the Merck Benefit Service Center to re-enroll in MSD retiree coverage within 30 days of the loss of your other coverage.

You must pay the applicable retiree premiums for retiree healthcare coverage beginning on your Retiree Healthcare Commencement Date. You will receive an invoice from Fidelity that indicates the premium due for your retiree coverage. If you fail to pay the premium required for retiree medical and dental coverage in the time and manner specified on the invoice, you will be deemed to have opted out of coverage and your ability to re-enroll is limited as described above.

For purposes of determining the retiree medical and dental premiums, a Bridged Employee

 

 

will have the number of points that is the sum of his/her age and years of adjusted service as recorded on MSD’s records (from age 40 for those subject to the “Rule of 88”; all adjusted service for those subject to the “Rule of 92”) as of his/her Separation Date; provided however, if such sum is less than 65, then the Bridged Employee is deemed to have 65 points; and

 

 

 

will pay premiums for medical coverage in accordance with the premium schedule for the “Rule of 92” or the “Rule of 88”, as applicable, in e


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