RLI CORP. EXECUTIVES

DEFERRED COMPENSATION PLAN

 

TABLE OF CONTENTS

 

				Page
ARTICLE 1		INTRODUCTION		1
	1.1.	Establishment		1
	1.2.	Purpose		1
	1.3.	Definitions		1
		1.3.1.	Account	1
		1.3.2.	Affiliate	1
		1.3.3.	Base Salary	1
		1.3.4.	Beneficiary	2
		1.3.5.	Board	2
		1.3.6.	Chief Executive Officer	2
		1.3.7.	Code	2
		1.3.8.	Committee	2
		1.3.9.	Deferral Eligible Amounts	2
		1.3.10.	Employee	2
		1.3.11.	ERISA	2
		1.3.12.	Incentive Compensation	2
		1.3.13.	Participant	2
		1.3.14.	Performance-Based Compensation	2
		1.3.15.	Plan	3
		1.3.16.	Prior Agreement	3
		1.3.17.	RLI	3
		1.3.18.	RLI Stock	3
		1.3.19.	Specified Employee	3
		1.3.20.	Successor Corporation	3
		1.3.21.	Termination of Employment	3
		1.3.22.	Vested	4
		1.3.23.	Year	4
	1.4.	“Top-Hat” Plan		4
ARTICLE 2		PARTICIPATION		4
	2.1.	Eligibility and Selection		4
	2.2.	Notification		4
	2.3.	Enrollment		4
	2.4.	Elective Deferrals		5
		2.4.1.	Elections	5
		2.4.2.	Elections Relate to Services Performed After the Election and Are Irrevocable	5
		2.4.3.	Limits	6
ARTICLE 3		ACCOUNTS		6
	3.1.	Accounts		6
	3.2.	Credits to Accounts		6
		3.2.1.	Elective Deferrals	6
		3.2.2.	Dividends and Other Adjustments	6

 

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	3.3.	Charges to Accounts		6
ARTICLE 4		BENEFITS		6
	4.1.	Vesting		6
	4.2.	Payment of Plan Benefits on Termination of Employment - General Rule		7
	4.3.	Changing Payment Elections		7
		4.3.1.	General Rule	7
		4.3.2.	Election upon Initial Plan Enrollment	7
		4.3.3.	Subsequent Election	7
	4.4.	Special Rules		7
		4.4.1.	Specified Employee Exception	7
		4.4.2.	Cash-Out of Small Amounts	8
	4.5.	Medium of Payments		8
	4.6.	Delay in Distributions		8
	4.7	Acceleration of Distributions		8
	4.8	When a Payment is Deemed to be Made		10
ARTICLE 5		DEATH BENEFITS		10
	5.1.	Death Benefits		10
		5.1.1.	Benefits When Participant Dies Before Commencement of Payments	10
		5.1.2.	Benefits When Participant Dies After Commencement of Payments	10
		5.1.3.	Medium of Payments	10
		5.1.4.	Cash-Out of Small Amounts	10
	5.2.	Designation of Beneficiary		10
		5.2.1.	Persons Eligible to Designate	10
		5.2.2.	Form and Method of Designation	11
		5.2.3.	No Effective Designation	11
		5.2.4.	Successor Beneficiary	11
ARTICLE 6		CLAIMS AND REVIEW PROCEDURES		12
	6.1.	Application for Benefits		12
	6.2.	Claims and Review Procedures		12
		6.2.1.	Initial Claim	12
		6.2.2.	Notice of Initial Adverse Determination	12
		6.2.3.	Request for Review	12
		6.2.4.	Claim on Review	13
		6.2.5.	Notice of Adverse Determination for Claim on Review	13
	6.3.	Claims Rules		13
	6.4.	Deadline to File Claim		14
	6.5.	Exhaustion of Administrative Remedies		14
	6.6.	Arbitration		14
	6.7.	Deadline to File an Arbitration Action		15
	6.8.	Knowledge of Fact by Participant Imputed to Beneficiary		15
	6.9.	Deferral of Payment		15
ARTICLE 7		ADMINISTRATION		15
	7.1.	Administrator		15
		7.1.1.	Delegation	15
		7.1.2.	Automatic Removal	15
		7.1.3.	Conflict of Interest	16

 

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		7.1.4.	Binding Effect	16
		7.1.5.	Third-Party Service Providers	16
	7.2.	Benefits Not Transferable		16
	7.3.	Benefits Not Secured		16
	7.4.	RLI’s Obligations		16
	7.5.	Withholding Taxes		16
	7.6.	Service of Process		16
	7.7.	Limitation on Liability		16
ARTICLE 8		AMENDMENT AND TERMINATION		17
	8.1.	Amendment		17
	8.2.	Termination		17
ARTICLE 9		MISCELLANEOUS		17
	9.1.	Effect on Other Plans		17
	9.2.	Effect on Employment		17
	9.3.	Disqualification		17
	9.4.	Rules of Document Construction		17
	9.5.	References to Laws		18
	9.6.	Choice of Law		18
	9.7.	Binding Effect		18

 

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RLI CORP. EXECUTIVES

DEFERRED COMPENSATION PLAN

 

ARTICLE 1

 

INTRODUCTION

 

1.1.                             Establishment .  RLI  established the RLI Corp. Executives Deferred Compensation Plan effective January 1, 2005.  Prior to that date, RLI provided similar deferred compensation opportunities to a select group of executives under certain Prior Agreements.  All obligations under the Prior Agreements (including any predecessor arrangements) will be satisfied under the Prior Agreements, rather than under this Plan.  RLI hereby restates the Plan, effective January 1, 2009, to comply with the requirements of the final regulations issued under Section 409A of the Code (“Section 409A”) on April 10, 2007.

 

This restatement applies, to amounts deferred under the Plan on or after January 1, 2009 (the “Restatement Date”), and to the payment of all amounts deferred under the Plan (whether such amounts were deferred before, on, or after the Restatement Date) that have not yet been distributed as of the Restatement Date.  Except as set forth in Article 6, no amount deferred under the Plan is intended to be “grandfathered” under Section 409A.

 

The obligation of RLI to make payments under the Plan constitutes an unsecured (but legally enforceable) promise of RLI to make such payments and no person, including any Participant or Beneficiary, shall have any lien, prior claim or other security interest in any property of RLI as a result of the Plan.

 

1.2.                             Purpose .  The purpose of the Plan is to attract and retain qualified executives and to provide them with an opportunity to save on a pre-tax basis and accumulate tax-deferred income to achieve their financial goals.

 

1.3.                             Definitions .  When the following terms are used herein with initial capital letters, they shall have the following meanings:

 

1.3.1.                   Account — the separate recordkeeping account (unfunded and unsecured) maintained for each Participant in connection with the Participant’s participation in the Plan.

 

1.3.2.                   Affiliate — a business entity which is under a “common control” with RLI or which is a member of an “affiliated service group” that includes RLI, as those terms are defined in Code § 414(b), (c) and (m).

 

1.3.3                      Base Salary — the Participant’s total salary and wages from all Affiliates, including any amount that would be included in the definition of Base Salary but for the individual’s election to defer some of such Participant’s salary pursuant to the Plan or any other deferred compensation plan established by an Affiliate; but excluding disability pay and any other remuneration paid by Affiliates, such as overtime, incentive compensation, stock options, distributions of compensation previously deferred, restricted stock, allowances for expenses (including moving, travel expenses, and automobile allowances), and fringe benefits whether payable in cash or in a form other than cash.  In the case of an individual in a plan sponsored by an Affiliate that is described in Section 401(k), 125 or 132(f) of the Code, the term Base Salary shall include any amount that would be included in the definition of Base

 

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Salary but for the individual’s election to reduce such individual’s salary and have the amount of the reduction contributed to or used to purchase benefits under such plan.

 

1.3.4.                   Beneficiary — the person or persons designated as such under Sec. 5.2.

 

1.3.5 .                   Board — the Board of Directors of RLI.

 

1.3.6.                   Chief Executive Officer — the Chief Executive Officer of RLI.

 

1.3.7.                   Code — the Internal Revenue Code of 1986, as the same may be amended from time to time.

 

1.3.8.                   Committee — the Executive Resources Committee of the Board.

 

1.3.9.                   Deferral Eligible Amounts —with respect to a Participant for any period, means the sum of such Participant’s Base Salary and Incentive Compensation for such period.

 

1.3.10.            Employee — a common-law employee of RLI or an Affiliate (while it is an Affiliate).

 

1.3.11.            ERISA — the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.

 

1.3.12.            Incentive Compensation — the total remuneration of the Participant of the Participant from all Affiliates under the various incentive compensation programs maintained by Affiliates, including, but not limited to, amounts received under the Market Value Potential (“MVP”) Executive Incentive Program and the Underwriting Profit Program (“UPP”), but excluding any other type of remuneration paid by Affiliates, such as Base Salary, overtime, stock options, distributions of compensation previously deferred, restricted stock, allowances for expenses, and fringe benefits.  The Committee, from time to time, shall designate those items of a Participant’s Compensation deemed to be Incentive Compensation.

 

1.3.13.            Participant — an eligible Employee who enrolls as a Participant in the Plan under Sec. 2.3.  An Employee who becomes a Participant shall remain a Participant in the Plan until the earlier of the following:

 

(a)                                   The complete payment of the Participant’s Account balance after the Participant’s Termination of Employment; or

 

(b)                                  The Participant’s death.

 

1.3.14.            Performance-Based Compensation —the Incentive Compensation of the Participant for a period where the amount of, or entitlement to, the Incentive Compensation is contingent on the satisfaction of pre-established organizational or individual performance criteria relating to a performance period of at least 12 consecutive months.  Organizational or individual performance criteria are considered pre-established if established in writing by no later than 90 days of the commencement period of service to which the criteria relate, provided that the outcome is substantially uncertain at the time the criteria are established.  Performance-Based Compensation may include payment based on performance criteria that are not approved by the Board or the Compensation Committee of the Board or by the stockholders of the Company.  Performance-Based Compensation does not include any amount or portion

 

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of any amount that will be paid either regardless of performance, or based upon a level of performance that is substantially certain to be met at the time the criteria are established.

 

1.3.15.            Plan — the unfunded deferred compensation plan that is set forth in this document, as the same may be amended from time to time.  The name of the Plan is the “RLI Corp. Executives Deferred Compensation Plan.”

 

1.3.16.            Prior Agreement — an individual agreement entered into by an Employee and RLI to provide deferred compensation opportunities to the Employee.

 

1.3.17.            RLI — RLI Corp. and any Successor Corporation.

 

1.3.18.            RLI Stock — the common stock of RLI.

 

1.3.19.            Specified Employee — means an employee of an Affiliate who is subject to the six-month delay rule described in Section 409A(2)(B)(i) of the Code.  RLI shall establish a written policy for identifying Specified Employees in a manner consistent with Section 409A, which policy may be amended by RLI from time to time as permitted by Section 409A.

 

1.3.20.            Successor Corporation — any entity that succeeds to the business of RLI through merger, consolidation, acquisition of all or substantially all of its assets, or any other means and which elects before or within a reasonable time after such succession, by appropriate action evidenced in writing, to continue the Plan.

 

1.3.21.            Termination of Employment —with respect to a Participant, means the Participant’s separation from service with all Affiliates, within the meaning of Section 409A(a)(2)(A)(i) of the Code and the regulations under such section.  Solely for this purpose, a Participant who is an eligible Employee will be considered to have a Termination of Employment when the Participant dies, retires, or otherwise has a termination of employment with all Affiliates.  The employment relationship is treated as continuing intact while the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, so long as the individual retains a right to reemployment with an Affiliate under an applicable statute or by contract.  For purposes hereof, a leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for an Affiliate.  If the period of leave exceeds six months and the individual does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such six-month period.  Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to last for a continuous period of not less than six months, where such impairment causes the employee to be unable to perform the duties of such employee’s position of employment or any substantially similar position of employment, RLI may substitute a 29-month period of absence for such six-month period.

 

Whether a termination of employment has occurred is determined based on whether the facts and circumstances indicate that the Affiliate and the Participant reasonably anticipated that no further services will be performed after a certain date or that the level of bona fide services the Participant will perform after such date will permanently decrease to no more than 49 percent of the average level of bona fide services performed over the immediately preceding 36-month period (or the full period of services if the Participant has been providing services for less than 36 months).

 

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Notwithstanding anything in Section 1.3.2 to the contrary, in determining whether a Participant has had a Termination of Employment with an Affiliate, an entity’s status as an “Affiliate” shall be determined substituting “50 percent” for “80 percent” each place it appears in Section 1563(a)(1),(2), and (3) and in Treasury Regulation Section 1.414(c)-2.

 

RLI shall have discretion to determine whether a Participant has experienced a Termination of Employment in connection with an asset sale transaction entered into by RLI or an Affiliate, provided that such determination conforms to the requirements of Section 409A and the regulations and other guidance issued under such section, in which case RLI’s determination shall be binding on the Participant.

 

1.3.22.            Vested — nonforfeitable.

 

1.3.23.            Year — the calendar year.

 

1.4.                             “Top-Hat” Plan.   The Plan is intended to be a “top-hat” plan — that is, an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated individuals within the meaning of ERISA §§ 201(2), 301(a)(3) and 401(a)(1), which is exempt from Parts 2, 3 and 4 of Title I of ERISA.  The Plan also is a nonqualified deferred compensation plan subject to Code § 409A.  To the extent any provision of the Plan does not satisfy the requirements contained in Code § 409A or in any regulations or other guidance issued by the Treasury Department under Code § 409A, such provision will be applied in a manner consistent with such requirements, regulations or guidance, notwithstanding any contrary provision of the Plan or any inconsistent election made by a Participant.

 

ARTICLE 2

 

PARTICIPATION

 

2.1.                             Eligibility and Selection .  The following Employees shall be eligible to enroll as Participants in the Plan:

 

(a)                                   Employees with the titles:  Chairman of the Board, Chief Executive Officer, President and Senior Vice President; and

 

(b)                                  Such other Employees as the Committee, in its sole discretion, shall determine from time to time, provided that each such Employee must;

 

(1)                                   Have the title of Vice President or above, and

 

(2)                                   Be expected to have compensation in excess of the Code § 401(a)(17) limit in the Participant’s initial Year of eligibility.

 

2.2.                             Notification.   RLI shall provide each eligible Employee with (i) written notification of the Employee’s eligibility to participate in the Plan, and (ii) either copy of the Plan or written notification that such a copy is available upon request.

 

2.3.                             Enrollment.   An eligible Employee will be allowed to enroll in the Plan during the thirty (30) day period coinciding with and following the date the Employee is notified of the Employee’s eligibility to participate in accordance with Sec. 2.2.  Such an enrollment will be effective as of the date it is made.

 

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Thereafter, an eligible Employee may elect to enroll for a Year during the enrollment period established by RLI for such Year, which enrollment period will be a period of not less than thirty (30) days that ends not later than the last day of the prior Year.  Enrollment must be made in such manner and in accordance with such rules as may be prescribed for this purpose by RLI (including by means of a voice response or other electronic system under circumstances authorized by RLI).

 

2.4.                             Elective Deferrals.

 

2.4.1.                   Elections .  A Participant may elect to reduce Deferral Eligible Amounts by any dollar amount or whole percent, but not more than one-hundred percent (100%).  A separate reduction amount or percentage may apply to base compensation and to bonuses.  An election must be made in such manner and in accordance with such rules as may be prescribed for this purpose by RLI (including by means of a voice response or other electronic system under circumstances authorized by RLI).  An election must be made as part of the enrollment described in Sec. 2.3.

 

2.4.2.                   Elections Relate to Services Performed After the Election and Are Irrevocable.  An election will apply to all Deferral Eligible Amounts attributable to services performed in a given Year, regardless of when such Deferral Eligible Amounts would otherwise be payable to the Participant (for example, an election to defer a bonus attributable to services performed in a given Year but payable in the next Year, must be made as part of the enrollment election made prior to the Year in which the services are performed).  However, an election will only be effective to defer Deferral Eligible Amounts earned after the election is made, and not before.  For example, an election made in connection with a mid-year enrollment under Sec. 2.3 will only be effective for Deferral Eligible Amounts attributable to services performed on and after the effective date of the enrollment as provided in Sec. 2.3.  An election will apply solely with respect to the given Year — that is, an election will not automatically be carried over and applied to the next Year.

 

Notwithstanding the foregoing, elections for Incentive Compensation that is Performance-Based Compensation must be completed and submitted to the Company not later than six months before the end of the performance period for the Incentive Compensation; provided, however, that in order for such an election to be valid, the a Participant must perform services continuously from the beginning of the performance period (or the date the performance criteria are established, if later) through the date the election is entered into, and provided further, that in no event may an election be effective to defer Incentive Compensation after the Incentive Compensation has become reasonably ascertainable.  For purposes hereof, if Incentive Compensation is a specific or calculable amount, the Incentive Compensation is readily ascertainable if and when the amount is first substantially certain to be paid.  If Incentive Compensation is not a specific or calculable amount, the Incentive Compensation, or any portion thereof, is readily ascertainable when the amount is both calculable and substantially certain to be paid.  Accordingly, in general, any minimum amount that is both calculable and substantially certain to be paid will be treated as readily ascertainable.

 

In general, an election shall become irrevocable as of the last day of the enrollment period applicable to it.  However, if a Participant incurs an “unforeseeable emergency,” as defined in Section 4.7(h), or becomes entitled to receive a hardship distribution pursuant to Treas. Reg. Sec. 1.401(k)-1(d)(3) after the election otherwise becomes irrevocable, the election shall be cancelled as of the date on which the Participant is determined to have incurred the unforeseeable emergency or becomes eligible to receive the hardship distribution and no further deferrals will be made under it.  In addition, if a Participant becomes “disabled” (as defined below), RLI may, in its discretion, cancel the Participant’s election then in effect, provided that such cancellation is made no later than end of the Plan Year, or if later, the 15 th  day of the third month following the date on which the Participant becomes disabled, and

 

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provided further that RLI does not allow the Participant a direct or indirect election regarding the cancellation.  For purposes of the preceding sentence, “disability” means any medically determinable physical or mental impairment resulting in the Participant’s inability to perform the duties required by the Participant’s position or any substantially similar position, where such impairment can be expected to result in death or can be expected to last for a continuous period of not less than six months.

 

                                                2.4.3.                   Limits.  RLI may, in its sole discretion, limit the minimum or maximum amount of deferrals that are allowed under the Plan by any Participant or any group of Participants, provided that such limit is established prior to the beginning of the Year or prior to enrollment of the affected Participant.

 

ARTICLE 3

 

ACCOUNTS

 

3.1.                             Accounts.  RLI shall establish and maintain a separate Account for each Participant.  The Account shall be for recordkeeping purposes only and shall not represent a trust fund or other segregation of assets for the benefit of the Participant.  The balance of each Participant’s Account will be maintained in full and fractional shares of RLI Stock.

 

3.2.                             Credits to Accounts .  Each Participant’s Account shall be credited from time to time as provided in this section.

 

3.2.1.                   Elective Deferrals.   Each Deferral Eligible Amount which the Participant has elected to defer under the Plan shall be credited to the Participant’s Account on, or as soon as administratively practicable after, the date it would otherwise be paid to the Participant.  The cash amount shall be converted to RLI Stock credits, equal to the number of full and fractional shares that could be purchased with such amount on, or as soon as administratively feasible after, the date such amount is credited to the Participant’s Account.

 

3.2.2.                   Dividends and Other Adjustments.  The Participant’s Account shall be credited with additional RLI Stock credits, equal to the number of full and fractional shares of RLI Stock that could be purchased with any cash dividends which would be payable on the RLI Stock credited to the Participant’s Account.  For this purposes, the share price on, or as soon as administratively practicable after, the date the dividend is paid will be used.  The Account also will be adjusted for any stock split, redemption or similar event, in a manner determined to be reasonable by RLI.

 

3.3.                             Charges to Accounts.   As of the date any Plan benefit measured by the Account is paid to the Participant or the Participant’s Beneficiary, the Account shall be charged with the amount of such benefit payment.

 

ARTICLE 4

 

BENEFITS

 

4.1.                             Vesting .   The Participant’s Account shall be fully (100%) Vested.

 

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4.2.                             Payment of Plan Benefits on Termination of Employment - General Rule.  If the Participant has an Account balance at Termination of Employment, RLI shall pay that balance to the Participant in five (5) annual installments, as follows:

 

(a)                                   Time.   The first installment shall be paid on the January 1 following the Year in which the Participant’s Termination of Employment occurs.  The remaining installments shall be paid on each subsequent January 1.

 

(b)                                  Amount.   The amount of each installment shall be determined using a “fractional” method — by multiplying the Participant’s Account balance immediately before the installment payment date by a fraction, the numerator of which is one and the denominator of which is the number of