Exhibit 10.4
SIXTH AMENDMENT TO THE
QUANEX CORPORATION HOURLY BARGAINING UNIT EMPLOYEE SAVINGS PLAN
THIS AGREEMENT by Quanex Corporation, a Delaware corporation (the “Sponsor”),
W I T N E S S E T H:
WHEREAS, the Sponsor maintains the Quanex Corporation Hourly Bargaining Unit
Employee Savings Plan, as amended and restated effective January 1, 1998 (the
“Plan”);
WHEREAS, pursuant to Section 12.01 of the Plan, the Sponsor has the right to
amend the Plan;
WHEREAS, the Plan is required to be amended to comply with certain provisions of
the Final Regulations under sections 401(k) and 401(m) of the Internal Revenue
Code of 1986, as amended, that were published on December 29, 2004.
NOW THEREFORE, the Plan is hereby amended, effective January 1, 2006, to include
all required regulatory and statutory changes enacted under sections 401(k) and
401(m) of the Code and the Regulations issued thereunder, as follows:
APPENDIX D
FINAL 401(K)/401(M) REGULATIONS AMENDMENT
D.1.1 Preamble

  (a)  
Adoption and Effective Date of Amendment. This Amendment of the Plan is adopted
to reflect certain provisions of the Final Regulations under Code sections
401(k) and 401(m) that were published on December 29, 2004 (the “Final 401(k)
Regulations”). This Amendment is intended as good faith compliance with the
requirements of the Final 401(k) Regulations and is to be construed in
accordance with the Final 401(k) Regulations and guidance issued thereunder.
Except as otherwise provided, this Amendment shall be effective as of the first
day of the first Plan Year beginning after December 31, 2005.
    (b)  
Supersession of Inconsistent Provisions. This Amendment shall supersede the
provisions of the Plan to the extent those provisions are inconsistent with the
provisions of this Amendment.

D.1.2 General Rules

  (a)  
Deferral Elections. A cash or deferred arrangement (“CODA”) is an arrangement
under which eligible Employees may make elective deferral elections. Such
elections cannot relate to compensation that is currently available prior to the
adoption or effective date of the CODA. In addition, except for occasional, bona
fide administrative considerations, contributions made pursuant to such an
election cannot precede the earlier of (1) the performance of services relating
to the contribution and (2) when the compensation that is subject to the
election would be currently available to the Employee in the absence of an
election to defer.

 

 

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  (b)  
Vesting Provisions. Elective contributions are always fully vested and
nonforfeitable. The Plan shall disregard elective contributions in applying the
vesting provisions of the Plan to other contributions or benefits under Code
section 411(a)(2). However, the Plan shall otherwise take a Participant’s
elective contributions into account in determining the Participant’s vested
benefits under the Plan. Thus, for example, the Plan shall take elective
contributions into account in determining whether a Participant has a
nonforfeitable right to contributions under the Plan for purposes of
forfeitures, and for applying provisions permitting the repayment of
distributions to have forfeited amounts restored, and the provisions of Code
sections 410(a)(5)(D)(iii) and 411(a)(6)(D)(iii) permitting a plan to disregard
certain service completed prior to breaks-in-service (sometimes referred to as
“the rule of parity”).

D.1.3 Hardship Distributions

  (a)  
Hardship Events. A distribution under the Plan is hereby deemed to be on account
of an immediate and heavy financial need of an Employee if the distribution is
for one of the following or any other item permitted under Treasury Regulation
section 1.401(k)-1(d)(3)(iii)(B):

  (i)  
Expenses for (or necessary to obtain) medical care that would be deductible
under Code section 213(d) (determined without regard to whether the expenses
exceed 7.5 percent of adjusted gross income);
    (ii)  
Costs directly related to the purchase of a principal residence for the Employee
(excluding mortgage payments);
    (iii)  
Payment of tuition, related educational fees, and room and board expenses, for
up to the next twelve (12) months of post-secondary education for the Employee,
the Employee’s spouse, children, or dependents (as defined in Code section 152,
and, for taxable years beginning on or after January 1, 2005, without regard to
Code section 152(b)(l), (b)(2), and (d)(l)(B));
    (iv)  
Payments necessary to prevent the eviction of the Employee from the Employee’s
principal residence or foreclosure on the mortgage on that residence;
    (v)  
Payments for burial or funeral expenses for the Employee’s deceased parent,
spouse, children or dependents (as defined in Code section 152, and, for taxable
years beginning on or after January 1, 2005, without regard to Code section
152(d)(l)(B)); or
    (vi)  
Expenses for the repair of damage to the Employee’s principal residence that
would qualify for the casualty deduction under Code section 165 (determined
without regard to whether the loss exceeds 10 percent of adjusted gross income).

  (b)  
Reduction of Code Section 402(g) Limit Following Hardship Distribution. If the
Plan provides for hardship distributions upon satisfaction of the safe harbor
standards set forth in Treasury Regulation sections 1.401(k)-1(d)(3)(iii)(B)
(deemed immediate and heavy financial need) and 1.401(k)-1(d)(3)(iv)(E) (deemed
necessary to satisfy immediate need), then there shall be no reduction in the
maximum amount of elective deferrals that a Participant may make pursuant to
Code section 402(g) solely because of a hardship distribution made by this Plan
or any other plan of the Employer.

 

 

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D.1.4 Actual Deferral Percentage Test

  (a)  
Targeted Contribution Limit. Qualified nonelective contributions (as defined in
Treasury Regulation section 1.401(k)-6) cannot be taken into account in
determining the actual deferral ratio (“ADR”) for a Plan Year for a Non-Highly
Compensated Employee (“NHCE”) to the extent such contributions exceed the
product of that NHCE’s Code section 414(s) compensation and the greater of five
percent (5%) or two (2) times the Plan’s “representative contribution rate.” Any
qualified nonelective contribution taken into account under an actual
contribution percentage test under Treasury Regulation section 1.401(m)-2(a)(6)
(including the determination of the representative contribution rate for
purposes of Treasury Regulation section 1.401(m)-2(a)(6)(v)(B)), is not
permitted to be taken into account for purposes of this Section D.1.4(a)
(including the determination of the “representative contribution rate” under
this Section D.1.4(a)). For purposes of this Section D.1.4(a):

  (i)  
The Plan’s “representative contribution rate” is the lowest “applicable
contribution rate” of any eligible NHCE among a group of eligible NHCEs that
consists of half of all eligible NHCEs for the Plan Year (or, if greater, the
lowest “applicable contribution rate” of any eligible NHCE who is in the group
of all eligible NHCEs for the Plan Year and who is employed by the Employer on
the last day of the Plan Year), and
    (ii)  
The “applicable contribution rate” for an eligible NHCE is the sum of the
qualified matching contributions (as defined in Treasury Regulation section
1.401(k)-6) taken into account in determining the ADR for the eligible NHCE for
the Plan Year and the qualified nonelective contributions made for the eligible
NHCE for the Plan Year, divided by the eligible NHCE’s Code section 414(s)
compensation for the same period.

Notwithstanding the above, qualified nonelective contributions that are made in
connection with an Employer’s obligation to pay prevailing wages under the
Davis-Bacon Act (46 Stat. 1494), Public Law 71-798, Service Contract Act of 1965
(79 Stat. 1965), Public Law 89-286, or similar legislation can be taken into
account for a Plan Year for an NHCE to the extent such contributions do not
exceed 10 percent (10%) of that NHCE’s Code section 414(s) compensation.
Qualified matching contributions may only be used to calculate an ADR to the
extent that such qualified matching contributions are matching contributions
that are not precluded from being taken into account under the actual
contribution percentage test for the Plan Year under the rules of Tresasury
Regulation section 1.401(m)-2(a)(5)(ii) and as set forth in Section D.1.6(a).

  (b)  
Limitation on QNECs and QMACs. Qualified nonelective contributions and qualified
matching contributions cannot be taken into account to determine an ADR to the
extent such contributions are taken into account for purposes of satisfying any
other actual deferral percentage test, any actual contribution percentage test,
or the requirements of Treasury Regulation sections 1.401(k)-3, 1.401(m)-3, or
1.401(k)-4. Thus, for example, matching contributions that are made pursuant to
Treasury Regulation section 1.401(k)-3(c) cannot be taken into account under the
actual deferral percentage test. Similarly, if a plan switches from the current
year testing method to the prior year testing method pursuant to Treasury
Regulation section 1.401(k)-2(c), qualified nonelective contributions that are
taken into account under the current year testing method for a year may not be
taken into account under the prior year testing method for the next year.
    (c)  
ADR of HCE if Multiple Plans. The actual deferral ratio (“ADR”) of any
Participant who is a highly compensated employee (“HCE”) for the Plan Year and
who is eligible to have elective contributions (as defined in Treasury
Regulation section 1.401(k)-6) (and qualified nonelective contributions and/or
qualified matching contributions, if treated as elective contributions for
purposes of the actual deferral percentage test) allocated to such Participant’s
accounts under two (2) or more cash or deferred arrangements described in Code
section 401(k), that are maintained by the same Employer, shall be determined as
if such elective contributions (and, if applicable, such qualified nonelective
contributions and/or qualified matching contributions) were made under a single
arrangement. If an HCE participates in two or more cash or deferred arrangements
of the Employer that have different Plan Years, then all elective contributions
made during the Plan Year being tested under all such cash or deferred
arrangements shall be aggregated, without regard to the plan years of the other
plans. However, for Plan Years beginning before January 1, 2006, if the plans
have different Plan Years, then all such cash or deferred arrangements ending
with or within the same calendar year shall be treated as a single cash or
deferred arrangement. Notwithstanding the foregoing, certain plans shall be
treated as separate if mandatorily disaggregated under the Regulations of Code
section 401(k).

 

 

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  (d)  
Plans Using Different Testing Methods for the Actual Deferral Percentage and
Actual Contribution Percentage Test. Except as otherwise provided in this
Section D.1.4(d), the Plan may use the current year testing method or prior year
testing method for the actual deferral percentage test for a Plan Year without
regard to whether the current year testing method or prior year testing method
is used for the actual contribution percentage test for that Plan Year. However,
if different testing methods are used, then the Plan cannot use:

  (i)  
The recharacterization method of Treasury Regulation section 1.401(k)-2(b)(3) to
correct excess contributions for a Plan Year;
    (ii)  
The rules of Treasury Regulation section 1.401(m)-2(a)(6)(ii) to take elective
contributions into account under the actual contribution percentage test (rather
than the actual deferral percentage test); or
    (iii)  
The rules of Treasury Regulation section 1.401(k)-2(a)(6)(v) to take qualified
matching contributions into account under the actual deferral percentage test
(rather than the actual contribution percentage test).

D.1.5 Adjustment to Actual Deferral Percentage Test

  (a)  
Distribution of Income Attributable to Excess Contributions. Distributions of
excess contributions must be adjusted for income (gain or loss), including an
adjustment for income for the period between the end of the Plan Year and the
date of the distribution (the “gap period”). The Plan Administrator has the
discretion to determine and allocate income using any of the methods set forth
below:

  (i)  
Reasonable method of allocating income. The Plan Administrator may use any
reasonable method for computing the income allocable to excess contributions,
provided that the method does not violate Code section 401(a)(4), is used
consistently for all Participants and for all corrective distributions under the
Plan for the Plan Year, and is used by the Plan for allocating income to
Participants’ accounts. A Plan will not fail to use a reasonable method for
computing the income allocable to excess contributions merely because the income
allocable to excess contributions is determined on a date that is no more than
seven (7) days before the distribution.
    (ii)  
Alternative method of allocating income. The Plan Administrator may allocate
income to excess contributions for the Plan Year by multiplying the income for
the Plan Year allocable to the elective contributions and other amounts taken
into account under the actual deferral percentage test (including contributions
made for the Plan Year), by a fraction, the numerator of which is the excess
contributions for the Employee for the Plan Year. and the denominator of which
is the sum of the:

  (1)  
Account balance attributable to elective contributions and other amounts taken
into account under the actual deferral percentage test as of the beginning of
the Plan Year, and
    (2)  
Any additional amount of such contributions made for the Plan Year.

  (iii)  
Safe harbor method of allocating gap period income. The Plan Administrator may
use the safe harbor method in this paragraph to determine income on excess
contributions for the gap period. Under this safe harbor method, income on
excess contributions for the gap period is equal to ten percent (10%) of the
income allocable to excess contributions for the Plan Year that would be
determined under paragraph (ii) above, multiplied by the number of calendar
months that have elapsed since the end of the Plan Year. For purposes of
calculating the number of calendar months that have elapsed under the safe
harbor method, a corrective distribution that is made on or before the fifteenth
(15th) day of a month is treated as made on the last day of the preceding month
and a distribution made after the fifteenth day of a month is treated as made on
the last day of the month.

 

 

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  (iv)  
Alternative method of allocating Plan Year and gap period income. The Plan
Administrator may determine the income for the aggregate of the Plan Year and
the gap period, by applying the alternative method provided by paragraph
(ii) above to this aggregate period. This is accomplished by (1) substituting
the income for the Plan Year and the gap period, for the income for the Plan
Year, and (2) substituting the amounts taken into account under the actual
deferral percentage test for the Plan Year and the gap period, for the amounts
taken into account under the actual deferral percentage test for the Plan Year
in determining the fraction that is multiplied by that income.

  (b)  
Corrective Contributions. If a failed actual deferral percentage test is to be
corrected by making an Employer contribution, then the provisions of the Plan
for the corrective contributions shall be applied by limiting the contribution
made on behalf of any NHCE pursuant to such provisions to an amount that does
not exceed the targeted contribution limits of Section D.1.4(a), above, or in
the case of a corrective contribution that is a qualified matching contribution,
the targeted contribution limit of Section D.1.6(a), below.

D.1.6 Actual Contribution Percentage Test

  (a)  
Targeted Matching Contribution Limit. A matching contribution with respect to an
elective contribution for a Plan Year is not taken into account under the actual
contribution percentage test for an NHCE to the extent it exceeds the greatest
of:

  (i)  
five percent (5%) of the NHCE’s Code section 414(s) compensation for the Plan
Year;
    (ii)  
the NHCE’s elective contributions for the Plan Year; and
    (iii)  
the product of two (2) times the Plan’s “representative matching rate” and the
NHCE’s elective contributions for the Plan Year.

For purposes of this Section D.1.6(a), the Plan’s “representative matching rate”
is the lowest “matching rate” for any eligible NHCE among a group of NHCEs that
consists of half of all eligible NHCEs in the Plan for the Plan Year who make
elective contributions for the Plan Year (or, if greater, the lowest “matching
rate” for all eligible NHCEs in the Plan who are employed by the Employer on the
last day of the Plan Year and who make elective contributions for the Plan
Year).
For purposes of this Section D.1.6(a), the “matching rate” for an Employee
generally is the matching contributions made for such Employee divided by the
Employee’s elective contributions for the Plan Year. If the matching rate is not
the same for all levels of elective contributions for an Employee, then the
Employee’s “matching rate” is determined assuming that an Employee’s elective
contributions are equal to six percent (6%) of Code section 414(s) compensation.
If the Plan provides a match with respect to the sum of the Employee’s after-tax
Employee contributions and elective contributions, then for purposes of this
Section D.1.6(a), that sum is substituted for the amount of the Employee’s
elective contributions in subsections (ii) & (iii) above and in determining the
“matching rate,” and Employees who make either after-tax Employee contributions
or elective contributions are taken into account in determining the Plan’s
“representative matching rate.” Similarly, if the Plan provides a match with
respect to the Employee’s after-tax Employee contributions, but not elective
contributions, then for purposes of this subsection, the Employee’s after-tax
Employee contributions are substituted for the amount of the Employee’s elective
contributions in subsections (ii) & (iii) above and in determining the “matching
rate,” and Employees who make after-tax Employee contributions are taken into
account in determining the Plan’s “representative matching rate.”

 

 

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  (b)  
Targeted QNEC Limit. Qualified nonelective contributions (as defined in Treasury
Regulation section 1.401(k)-6) cannot be taken into account under the actual
contribution percentage test for a Plan Year for an NHCE to the extent such
contributions exceed the product of that NHCE’s Code section 414(s) compensation
and the greater of five percent (5%) or two (2) times the Plan’s “representative
contribution rate.” Any qualified nonelective contribution taken into account
under an actual deferral percentage test under Treasury Regulation section
1.401(k)-2(a)(6) (including the determination of the “representative
contribution rate” for purposes of Treasury Regulation section
1.401(k)-2(a)(6)(iv)(B)) is not permitted to be taken into account for purposes
of this Section D.1.6(b) (including the determination of the “representative
contribution rate” for purposes of subsection (i) below). For purposes of this
Section D.1.6(b):

  (i)  
The Plan’s “representative contribution rate” is the lowest “applicable
contribution rate” of any eligible NHCE among a group of eligible NHCEs that
consists of half of all eligible NHCEs for the Plan Year (or, if greater, the
lowest “applicable contribution rate” of any eligible NHCE who is in the group
of all eligible NHCEs for the Plan Year and who is employed by the Employer on
the last day of the Plan Year), and
    (ii)  
The “applicable contribution rate” for an eligible NHCE is the sum of the
matching contributions (as defined in Treasury Regulation section
1.401(m)-1(a)(2)) taken into account in determining the ACR for the eligible
NHCE for the Plan Year and the qualified nonelective contributions made for that
NHCE for the Plan Year, divided by that NHCE’s Code section 414(s) compensation
for the Plan Year.

Notwithstanding the above, qualified nonelective contributions that are made in
connection with an Employer’s obligation to pay prevailing wages under the
Davis-Bacon Act (46 Stat. 1494), Public Law 71-798, Service Contract Act of 1965
(79 Stat. 1965), Public Law 89-286, or similar legislation can be taken into
account for a Plan Year for an NHCE to the extent such contributions do not
exceed 10 percent (10%) of that NHCE’s Code section 414(s) compensation.

  (c)  
ACR of HCE if Multiple Plans. The actual contribution ratio (“ACR”) for any
Participant who is a highly compensated employee (“HCE”) and who is eligible to
have matching contributions or after-tax Employee contributions allocated to his
or her account under two (2) or more plans described in Code section 401(a), or
arrangements described in Code section 401(k) that are maintained by the same
Employer, shall be determined as if the total of such contributions was made
under each plan and arrangement. If an HCE participates in two (2) or more such
plans or arrangements that have different plan years, then all matching
contributions and after-tax Employee contributions made during the Plan Year
being tested under all such plans and arrangements shall be aggregated, without
regard to the plan years of the other plans. For plan years beginning before
January 1, 2006, all such plans and arrangements ending with or within the same
calendar year shall be treated as a single plan or arrangement. Notwithstanding
the foregoing, certain plans shall be treated as separate if mandatorily
disaggregated under the Regulations of Code section 401(m).
    (d)  
Plans Using Different Testing Methods for the Actual Contribution Percentage and
Actual Deferral Percentage Test. Except as otherwise provided in this Section
D.1.6(d), the Plan may use the current year testing method or prior year testing
method for the actual contribution percentage test for a Plan Year without
regard to whether the current year testing method or prior year testing method
is used for the actual deferral percentage test for that Plan Year. However, if
different testing methods are used, then the Plan cannot use:

  (i)  
The recharacterization method of Treasury Regulation section 1.401(k)-2(b)(3) to
correct excess contributions for a Plan Year;
    (ii)  
The rules of Treasury Regulation section 1.401(m)-2(a)(6)(ii) to take elective
contributions into account under the actual contribution percentage test (rather
than the actual deferral percentage test); or

 

 

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  (iii)  
The rules of Treasury Regulation section 1.401(k)-2(a)(6) to take qualified
matching contributions into account under the actual deferral percentage test
(rather than the actual contribution percentage test).

D.1.7 Adjustment to Actual Contribution Percentage Test

  (a)  
Distribution of Income Attributable to Excess Aggregate Contributions.
Distributions of excess aggregate contributions must be adjusted for income
(gain or loss), including an adjustment for income for the period between the
end of the Plan Year and the date of the distribution (the “gap period”). For
purposes of this Section D.1.7(a), “income” shall be determined and allocated in
accordance with the provisions of Section D.1.5(a), above, except that such
Section D.1.5(a) shall be applied by substituting “excess contributions” with
“excess aggregate contributions” and by substituting amounts taken into account
under the actual contribution percentage test for amounts taken into account
under the actual deferral percentage test.
    (b)  
Corrective Contributions. If a failed actual contribution percentage test is to
be corrected by making an Employer contribution, then the provisions of the Plan
for the corrective contributions shall be applied by limiting the contribution
made on behalf of any NHCE pursuant to such provisions to an amount that does
not exceed the targeted contribution limits of Sections D.1.6(a) and D.1.6(b).

 

 

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IN WITNESS WHEREOF, the Sponsor has caused this Agreement to be executed on the
26th day of October, 2006.
QUANEX CORPORATION

By:    /s/ Kevin P. Delaney                                         
Title: Senior Vice President –General Counsel
          and Secretary