Exhibit 10.3.2
PINNACLE WEST CAPITAL CORPORATION
SUPPLEMENTAL EXCESS BENEFIT
RETIREMENT PLAN OF 2005

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

              PAGE  
ARTICLE ONE — PREAMBLE
    1  
 
       
ARTICLE TWO — CONSTRUCTION
    3  
 
       
ARTICLE THREE — ELIGIBILITY AND PARTICIPATION
    3  
(a) Officers
    3  
(b) SMG Participants
    4  
(c) Commencement of Participation
    4  
(d) Status Change
    4  
(e) Rehires
    4  
 
       
ARTICLE FOUR — BENEFITS
    4  
(a) Officer Benefits
    4  
(1) Group A Participants
    4  
(2) Group B Participants
    5  
(3) Group C Participants
    6  
(4) Compensation
    7  
(5) Promotion to Officer Status
    8  
(b) SMG Participants
    8  
(c) Average Monthly Compensation
    9  
(d) Disability Accrual
    9  
(e) Recognition of Benefits under Separate Agreements
    9  
 
       
ARTICLE FIVE — PAYMENT OF BENEFITS ON AND AFTER JANUARY 1, 2009
    10  
(a) Officer Traditional Benefits Described in Sections 4(a)(1) and 4(a)(2)(i)
    10  
(1) Time for Commencement
    10  
(2) Form of Payment
    11  
(3) Actuarial Adjustments
    11  
(b) Spouse’s Benefit with Respect to Officer Traditional Benefits Described in
Sections 4(a)(1) and 4(a)(2)(i)
    12  
(c) Officer Retirement Account Balance Benefits Described in Sections
4(a)(2)(ii) and 4(a)(3)
    13  
(1) Time and Form of Payment
    13  
(2) Actuarial Adjustments
    13  
(3) Payment Upon Death
    14  
(d) SMG Traditional and Retirement Account Balance Benefits Described in
Section 4(b)
    15  
(1) Form of Payment — Traditional Benefits
    15  
(2) Time of Payment — Traditional Benefits
    15  
(3) Form and Time of Payment — Retirement Account Balance Benefit
    16  
(4) Actuarial Adjustments
    16  
(5) Time and Form of Benefits Payable Upon Death
    17  
(e) Change in Time and Form of Payment
    17  
(f) Cash-Out Provisions
    17  
(g) Reemployment
    18  
 
       
ARTICLE SIX — PAYMENT OF BENEFITS BEFORE JANUARY 1, 2009
    18  

i

--------------------------------------------------------------------------------

 

              PAGE  
ARTICLE SEVEN — SECTION 409A COMPLIANCE
    19  
 
       
ARTICLE EIGHT — FUNDING
    20  
 
       
ARTICLE NINE — ADMINISTRATION
    20  
 
       
ARTICLE TEN — AMENDMENT AND TERMINATION OF THE PLAN
    20  
 
       
ARTICLE ELEVEN — ASSIGNMENT
    21  
 
       
ARTICLE TWELVE — WITHHOLDING
    21  
 
       
ARTICLE THIRTEEN — OTHER BENEFIT PLANS OF THE COMPANY
    21  
 
       
ARTICLE FOURTEEN — SPOUSAL CONSENT AND BENEFICIARY DESIGNATIONS
    22  
 
       
ARTICLE FIFTEEN — MISCELLANEOUS
    22  
 
       
ARTICLE SIXTEEN — EFFECTIVE DATE
    22  

ii

--------------------------------------------------------------------------------

 

PINNACLE WEST CAPITAL CORPORATION
SUPPLEMENTAL EXCESS BENEFIT RETIREMENT PLAN OF 2005
ARTICLE ONE — PREAMBLE
          Effective January 1, 1987, PINNACLE WEST CAPITAL CORPORATION (the
“Company”) adopted the PINNACLE WEST CAPITAL CORPORATION SUPPLEMENTAL EXCESS
BENEFIT RETIREMENT PLAN (the “Prior Plan”) for the purpose of paying retirement
benefits to certain employees in excess of the benefits permitted to be paid
under the Pinnacle West Capital Corporation Retirement Plan (the “Retirement
Plan”) by reason of Section 415 of the Internal Revenue Code (the “Code”). The
Prior Plan was thereafter amended several times to provide additional benefits,
thereby changing the Prior Plan from an “excess benefit plan” under the Employee
Retirement Income Security Act of 1974, as amended (the “Act”), to a “top hat”
plan under the Act.
          Effective January 1, 1982, ARIZONA PUBLIC SERVICE COMPANY (“APS”)
adopted the ARIZONA PUBLIC SERVICE COMPANY SUPPLEMENTAL EXCESS BENEFIT
RETIREMENT PLAN (the “APS Plan”) for the purpose of paying retirement benefits
to certain employees in excess of the benefits permitted to be paid under the
Arizona Public Service Company Employees’ Retirement Plan (the “APS Retirement
Plan”) by reason of Section 415 of the Code. The APS Plan was thereafter amended
several times to provide additional benefits, thereby changing the APS Plan from
an “excess benefit plan” under the Act to a “top hat” plan under the Act.
          Effective January 1, 2000, the Company and APS amended and restated
the Prior Plan and the APS Plan to merge the APS Plan into the Prior Plan and to
make other technical changes. The Prior Plan was amended several times
thereafter.
          Effective January 1, 2003, the Company amended the Prior Plan to add a
new benefit structure.

1

--------------------------------------------------------------------------------

 

          Effective December 31, 2004, the Company amended the Prior Plan to
“grandfather” from the application of Code Section 409A benefits with respect to
only those participants who neither earned nor became vested in a supplemental
excess benefit after December 31, 2004. Only the benefits of such participants
are provided under the terms of the Prior Plan.
          This Plan applies to the entire benefit of any participant who either
earned or became vested in all or any portion of his or her benefits on or after
January 1, 2005.

2

--------------------------------------------------------------------------------

 

ARTICLE TWO

CONSTRUCTION
          Terms capitalized in this Plan shall have the meaning given in
Article Two of the Retirement Plan, governing definitions and construction,
except where such terms are otherwise defined in this Plan. If any provision of
this Plan is determined to be invalid or unenforceable for any reason, the
remaining provisions shall continue in full force and effect. All of the
provisions of this Plan shall be construed and enforced according to the laws of
the State of Arizona, and shall be administered according to the laws of such
state, except as otherwise required by the Act, the Code or other applicable
federal law. It is the intention of the Company that the Plan, as adopted by the
Company, shall constitute an “unfunded plan of deferred compensation for a
select group of management and highly compensated employees” within the meaning
of Sections 201(2) and 301(3) of the Act. Benefits under this Plan shall be paid
from the Company’s general assets, and not from any trust fund or other
segregated fund, unless paid out of a rabbi trust established by the Company.
The assets of any such rabbi trust shall be subject to the claims of the general
creditors of the Company. This Plan shall be construed in a manner consistent
with the Company’s intention.
ARTICLE THREE

ELIGIBILITY AND PARTICIPATION
          Employees of the Company or its Affiliates who are individually
designated as Plan participants by the Human Resources Committee of the Board of
Directors of the Company (“Committee”), in its discretion, shall be eligible to
participate in the Plan, and such designated individuals shall be considered
“Eligible Employees.”
          (a) Officers. Except as provided by the Committee, Eligible Employees
who are officers of the Company or an Affiliate which is a participating
employer under the Retirement Plan shall be entitled to the benefits described
in Section 4(a); provided, however, that presidents and other officers of APS
Energy Services and subsidiaries of SunCor are not eligible to participate in
the Plan and are

3

--------------------------------------------------------------------------------

 

therefore not considered officers for this purpose unless otherwise selected for
participation by the Committee.
          (b) SMG Participants. Except as provided by the Committee, Eligible
Employees of the Company or an Affiliate which is a participating employer under
the Retirement Plan who are not officers shall be entitled to the benefits
described in Section 4(b).
          (c) Commencement of Participation. An Eligible Employee shall commence
participation in this Plan as of the first day of the Plan Year following the
date the Committee designates him or her as a participant. Such participation
shall continue until the date on which the participant is no longer designated
as an Eligible Employee by the Committee.
          (d) Status Change. Notwithstanding the foregoing, if the status of a
participant changes for reasons other than separation from service with the
Company or an Affiliate which is a participating employer under the Retirement
Plan, so that he or she no longer is eligible to participate in the Plan, his or
her participation in the Plan shall cease but his or her benefit under this Plan
as of the date of his or her change of status shall not be canceled or
distributed, but shall be determined upon his or her separation from service
with the Company or an Affiliate.
          (e) Rehires. In the event that a Participant terminates employment and
is later rehired, he or she shall not be eligible to participate in the Plan
again unless such individual is again individually designated as a Plan
participant by the Committee following his or her rehire.
ARTICLE FOUR

BENEFITS
          A participant whose entire benefit was both earned and vested on
December 31, 2004 (as determined under regulations issued under Code
Section 409A) shall receive such benefit under the Prior Plan. All other
participants shall receive their entire benefit under the terms outlined below.
          (a) Officer Benefits.
          (1) Group A Participants. Subject to ARTICLE SEVEN, a participant who
is eligible under Section 3(a) and who is a Group A Participant under the
Retirement Plan shall be

4

--------------------------------------------------------------------------------

 

entitled to a monthly benefit for life commencing at age 65 equal to the lesser
of (i) or (ii), reduced by (iii), where
          (i) Equals three percent (3%) of the participant’s Average Monthly
Compensation multiplied by the participant’s Years of Service, not to exceed ten
(10) Years of Service, plus two percent (2%) of the participant’s Average
Monthly Compensation multiplied by the participant’s Years of Service in excess
of ten (10) Years of Service,
          (ii) Equals sixty percent (60%) of the participant’s Average Monthly
Compensation, and
          (iii) Equals the amount of such participant’s monthly benefit for life
at age 65 determined under the terms of the Retirement Plan.
          (2) Group B Participants. Subject to ARTICLE SEVEN, a participant who
is eligible under Section 3(a) and who is a Group B Participant under the
Retirement Plan shall be entitled to a monthly benefit for life commencing at
age 65 equal to the sum of (i) and (ii), where
          (i) Equals the benefit determined under the formula set forth above in
this Section 4(a)(1) for a Group A Participant in the Retirement Plan based on
the participant’s Years of Service as of March 31, 2003 (March 31, 2006 in the
case of a SunCor participant) and his or her Average Monthly Compensation as of
the date of determination. Years of Service as of March 31, 2003 (March 31, 2006
in the case of a SunCor participant) shall equal his or her full Years of
Service as of such date plus a partial Year of Service equal to the lesser of
one (1) or a fraction, the numerator of which is the participant’s Hours of
Service earned during the period beginning on the day after the last day of his
or her Computation Period ending prior to March 31, 2003 (March 31, 2006 in the
case of a SunCor participant) and ending on March 31, 2003 (March 31, 2006 in
the case of a SunCor participant), and the denominator of which is 1,000, and

5

--------------------------------------------------------------------------------

 

          (ii) Equals the monthly benefit for life payable at age 65 which is
the Actuarial Equivalent of a lump sum benefit equal to the participant’s
Supplemental Retirement Account Balance minus the participant’s Retirement
Account Balance under the Retirement Plan. For the avoidance of doubt, if the
amount under this Section 4(a)(2)(ii) is a negative number, it will serve as an
offset against the amount payable under Section 4(a)(2)(i).
          (3) Group C Participants. Subject to ARTICLE SEVEN, a participant who
is eligible under Section 3(a) and who is a Group C Participant under the
Retirement Plan shall be entitled to a monthly benefit for life commencing at
age 65 equal to the Actuarial Equivalent of a lump sum benefit equal to
(i) reduced by (ii), where
          (i) Equals the participant’s Supplemental Retirement Account Balance,
and
          (ii) Equals the participant’s Retirement Account Balance under the
Retirement Plan.
          A participant’s Supplemental Retirement Account Balance shall be a
notional account credited with Monthly Retirement Account Balance Credits and
Interest Credits. For purposes of this Plan, Monthly Retirement Account Balance
Credits shall be determined under the general methodology set forth in the
Retirement Plan based on the participant’s Monthly Compensation for the month
but using the following chart; provided that, except for a Group C Participant,
a participant shall not receive a Monthly Retirement Account Balance Credit
after the last day of the calendar year in which he or she is credited with
twenty-five (25) Years of Service, with twenty-five years (25) Years of Service
defined as twenty-five (25) full twelve (12) month periods in duration.

6

--------------------------------------------------------------------------------

 

          Age at End of Plan Year in   Percent of Monthly Which Month Occurs  
Compensation Contribution Rate
Less than 35
    12 %
35-39
    14 %
40-44
    16 %
45-49
    20 %
50-54
    24 %
55 and over
    28 %

          (4) Compensation. For purposes of this Section 4(a), Compensation and
Monthly Compensation shall be determined without regard to the limitation set
forth in Section 401(a)(17) of the Code and shall be increased by any cash
payments made to the participant pursuant to “year-end” bonus or incentive plans
maintained by the Company or an Affiliate which is a participating employer
under the Retirement Plan for employees generally and by any amounts deferred by
the participant under any of the Company’s or such an Affiliate’s deferred
compensation plans for employees. Bonus or incentive payments made in a form
other than cash, bonus or incentive payments which are not “year-end” bonus or
incentive payments, bonus or incentive payments under individual agreements
between the Company or such an Affiliate and a participant, and large asset
bonus plan payments shall not be taken into account as Compensation and Monthly
Compensation for purposes of this Plan unless the Company’s President or Chief
Executive Officer determines, in his or her discretion, that such bonus or
incentive payment shall be taken into account as Compensation and Monthly
Compensation under this Plan. Subject to the foregoing, (a) eligible bonuses and
incentive payments (including eligible bonuses and incentive payments paid after
termination) shall be taken into account as Compensation and Monthly
Compensation in the year in which such amounts are paid rather than in the year
in which they are earned, provided that the Company’s President or Chief
Executive Officer shall have the authority to determine, in his or her
discretion, that such bonus or incentive payment shall be taken into account in
the year in which such amounts are earned rather than in the year in which they
are paid, (b) Retention Unit Awards granted in a calendar month which become

7

--------------------------------------------------------------------------------

 

vested shall be counted as Compensation paid and earned in such calendar month;
provided, however, that if Retention Unit Awards are taken into account in
determining a participant’s Average Monthly Compensation with respect to
benefits described in Sections 4(a)(1) or 4(a)(2)(i), no more than two other
year-end bonus or incentive payments will be taken into account in determining
such Average Monthly Compensation. Effective for SunCor bonuses earned in 2006
and later years, bonuses paid to the SunCor President and Executive Vice
Presidents shall be included in Compensation or Monthly Compensation only to the
extent of 100% of base pay, and the bonuses paid to SunCor Vice Presidents shall
be included in Compensation or Monthly Compensation only to the extent of 70% of
base pay. The Company’s President or Chief Executive Officer shall have the sole
and absolute discretion to determine whether a bonus or incentive payment made
to a participant constitutes Compensation or Monthly Compensation for purposes
of this Section 4(a) and may differentiate among individuals in establishing the
bonus or incentive payments that may be taken into account under the Plan.
          (5) Promotion to Officer Status. In the event that an Eligible
Employee is promoted to officer status, his or her Traditional Benefit and
Retirement Account Balance Benefit shall be retroactively calculated as if he or
she had served as an officer during the entire period of his or her employment
with the Company or any of its Affiliates.
          (b) SMG Participants.
          Subject to ARTICLE SIX and ARTICLE SEVEN, any participant who is
designated for participation pursuant to Section 3(b) and who receives a benefit
under the Retirement Plan, or such participant’s surviving spouse or beneficiary
in the event of the participant’s death, shall be entitled to a benefit payable
in accordance with this ARTICLE FOUR and with ARTICLE FIVE equal to (i) reduced
by (ii), where
          (i) Equals the amount of such participant’s or surviving spouse’s or
beneficiary’s benefit under the Retirement Plan computed under the provisions of
the Retirement Plan but without regard to the cap on Compensation in
Section 2.1(n) and the limitations in

8

--------------------------------------------------------------------------------

 

Section 5.13 of the Retirement Plan and the provisions of Sections 401(a)(17)
and 415 of the Code; and
          (ii) Equals the amount of such participant’s or surviving spouse’s or
beneficiary’s benefit which would be payable under the terms of the Retirement
Plan if the participant or his or her surviving spouse or beneficiary were to
receive payment under the Retirement Plan at the same time and in the same form
as benefits are payable under this Plan.
          For purposes of this Section 4(b), Compensation shall include any
amount of the participant’s regular salary that the participant elects to defer
under any deferred compensation plans for employees of the Company or an
Affiliate which is a participating employer under the Retirement Plan (including
amounts deferred before participation in the Plan commences) and shall exclude
all bonus or incentive payments paid to the participant.
          (c) Average Monthly Compensation.
          For purposes of computing a participant’s Average Monthly
Compensation, such term shall have the same meaning as under the Retirement Plan
except that the highest 36 consecutive months of Compensation will be determined
based on the participant’s entire period of employment (instead of only the most
recent 120 consecutive months of employment as provided in the Retirement Plan).
          (d) Disability Accrual.
          A participant who is earning a disability accrual under Section 4.5 of
the Retirement Plan shall continue to accrue benefits under this Plan until the
earlier of the date disability accrual ceases under the Retirement Plan or the
date his or her benefits commence under this Plan.
          (e) Recognition of Benefits under Separate Agreements.
          In the event that the Company or an Affiliate enters into a separate
agreement with an Eligible Employee which provides that the payment of benefits
under the Plan shall be modified as provided in such agreement, the Plan shall
be deemed to have been amended to reflect the terms of any such agreement.

9

--------------------------------------------------------------------------------

 

ARTICLE FIVE

PAYMENT OF BENEFITS ON AND AFTER JANUARY 1, 2009
          (a) Officer Traditional Benefits Described in Sections 4(a)(1) and
4(a)(2)(i).
          (1) Time for Commencement. A participant may elect the time for
commencement of payment of benefits described in Sections 4(a)(1) and 4(a)(2)(i)
on or before the later of December 31, 2008 or the day before the Committee
designates the individual as a participant in this Plan. Any such election shall
be irrevocable except as provided in Section 5(e). A participant desiring to
make the election described in the preceding sentence may elect to receive his
or her benefits described in Sections 4(a)(1) or 4(a)(2)(i) upon the later of
separation from service or a specified age after age 55 (age 54 for an
individual who has severed from employment before 2009 and, as a result of such
severance, has received an additional year of age and service under the
Retirement Plan and has therefore become entitled to receive Traditional
Benefits under the Retirement Plan at age 54) and on or before age 65. Such
election of a commencement age before age 65 will be effective only if the
participant has ten Years of Service upon his or her separation from service. In
the absence of such an election, the participant’s benefits described in
Section 4(a)(1) or 4(a)(2)(i) will commence as follows: (i) upon separation from
service if at the time of such separation from service he or she has either
attained age sixty-five (65) or has both attained age fifty-five (55) and
completed ten (10) Years of Service; or (ii) age sixty-five (65) if at the time
of such separation from service he or she has neither attained age sixty-five
(65) nor both attained age fifty-five (55) and completed ten (10) Years of
Service. Such benefits shall be unreduced if they commence on or after the date
on which the participant attains the age of sixty-five (65) years or attains the
age of

10

--------------------------------------------------------------------------------

 

sixty (60) years and is credited with at least twenty (20) Years of Service. If
benefits commence earlier than as provided in the preceding sentence, the
portion of his or her benefit calculated in accordance with Section 4(a)(1) or
4(a)(2)(i) shall be reduced by three percent (3%) for each year (or part
thereof) by which the participant’s retirement age precedes the date on which he
or she would have attained the age of sixty (60) years if he or she is credited
with at least twenty (20) Years of Service or the date on which he or she would
have attained the age of sixty-five (65) years if credited with less than twenty
(20) Years of Service.
          (2) Form of Payment. This section governs the election of the form of
payment of benefits described in Sections 4(a)(1) and 4(a)(2)(i). A participant
may elect to receive such benefits in the form of a life annuity or any joint
and survivor annuity form (with the participant’s spouse as joint annuitant)
permitted under the Retirement Plan. In addition, a participant who commences
benefits after 2007 shall have a five-year installment option with respect to
any benefits payable after 2008 under Sections 4(a)(1) or 4(a)(2)(i). However, a
participant must elect the five-year installment form of benefit on or before
the later of December 31, 2008 or the day before the Committee designates the
individual as a participant in this Plan. If a participant has not elected the
five-year installment form of benefit as provided in the preceding sentence,
then the participant may elect an annuity form of payment at any time up until
the date payments are scheduled to commence. Except as provided in the preceding
sentence or in Section 5(e), any such election of the form of payment shall be
irrevocable. In the absence of an election regarding the form of payment,
benefits payable to a single participant under Section 4(a)(1) or
Section 4(a)(2)(i) shall be payable as a life annuity and to a married
participant as a monthly payment to the participant for his or her life equal to
the amount determined under Section 4(a)(1) or Section 4(a)(2)(i) and upon his
or her death, shall provide monthly payments to the participant’s spouse for
life equal to one hundred percent (100%) of the monthly payment being received
by the participant at the time of his or her death. A participant may not elect
to receive such benefits in any form not described in this Section, such as the
ten-year certain form or the method described in Section 6.6 of the Retirement
Plan (the “Over-and-Under Payment Method”).
          (3) Actuarial Adjustments. The joint and 50% survivor annuity form
shall be fully subsidized (i.e., the amount of the benefit payable for the
participant’s life under the joint

11

--------------------------------------------------------------------------------

 

and 50% survivor annuity shall be equal to the amount of the benefit payable for
the participant’s life under the life only benefit). Alternate joint and
survivor payment forms shall be actuarially equivalent to the joint and 50%
survivor form, using the same actuarial adjustments as provided under the
Retirement Plan. The five-year installment form shall be actuarially equivalent
to the single life annuity (increased for this purpose by the subsidy for the
joint and 50% survivor form), but using a discount rate assumption of 6.25% and
the mortality table used by the Company for year-end financial reporting
purposes for the calendar year preceding the year in which the five-year
installment benefit commences.
          (b) Spouse’s Benefit with Respect to Officer Traditional Benefits
Described in Sections 4(a)(1) and 4(a)(2)(i).
          If a participant entitled to benefits under Section 4(a)(1) or
Section 4(a)(2)(i) dies while still employed by the Company or an Affiliate, the
participant’s spouse shall be entitled to a survivor annuity equal to one
hundred percent (100%) of the monthly benefit that the participant would have
received under Section 4(a)(1) or Section 4(a)(2)(i) had he or she terminated
employment on the day before he or she died, survived to the age on which he or
she would first be eligible to commence benefits under this Section 5(a),
elected to retire and commence benefits under the Plan and the Retirement Plan
at that time in the form of a joint and 100% survivor annuity, and then died.
Benefits payable to the surviving spouse shall commence on the first day of the
month following the participant’s date of death. Benefits payable to a
terminated participant entitled to benefits under Section 4(a)(1) or 4(a)(2)(i)
who dies prior to commencing benefits shall be paid in the form of a survivor
annuity equal to fifty percent (50%) of the monthly benefit for life which the
participant would have received had he or she survived to the earliest date
under this Section 5(a) upon which he or she could have commenced benefits. Such
benefits shall commence as follows: (i) upon death if at the time of such death
the participant has either attained age sixty-five (65) or has both attained age
fifty-five (55) and completed ten (10) Years of Service; or (ii) age sixty-five
(65) if at the time of such death the participant has neither attained age
sixty-five (65) nor both attained age fifty-five (55) and completed ten
(10) Years of Service.

12

--------------------------------------------------------------------------------

 

          (c) Officer Retirement Account Balance Benefits Described in
Sections 4(a)(2)(ii) and 4(a)(3).
          (1) Time and Form of Payment. The participant may elect the form and
time of payment of benefits described in Section 4(a)(2)(ii) or Section 4(a)(3)
on or before the later of December 31, 2008 or the day before the Committee
designates the individual as a participant in this Plan. Any such election shall
be irrevocable except as provided in the next sentence or Section 5(e). Any
election of an annuity form of benefit may be changed to any other actuarially
equivalent annuity form of benefit on or before the date annuity payments are to
begin. A participant may elect to receive benefits described in Section
4(a)(2)(ii) or Section 4(a)(3) at any time permitted under the Retirement Plan.
A participant may elect to receive benefits described in Section 4(a)(2)(ii) or
Section 4(a)(3) in the form of a lump sum, a life annuity, or in any joint and
survivor annuity form (with the participant’s spouse as joint annuitant)
permitted under the Retirement Plan. In addition, a participant who commences
benefits after 2007 shall have a five-year installment option with respect to
any benefits payable after 2008. A participant may not elect to receive such
benefits in any other form, such as the ten-year certain form or the
Over-and-Under Payment Method. In the absence of an election regarding the form
of benefits, payments shall be made in a lump sum upon separation from service.
          (2) Actuarial Adjustments. The life annuity form of benefit shall be
actuarially equivalent to the participant’s Retirement Account Balance, using
the actuarial factors set forth in the Retirement Plan. The joint and 50%
survivor annuity form shall be fully subsidized (i.e., the amount of the benefit
payable for the participant’s life under the joint and 50% survivor annuity
shall be equal to the amount of the benefit payable for the participant’s life
under the life only annuity benefit). The other joint and survivor annuity forms
of benefit shall be actuarially equivalent to the joint and 50% survivor annuity
form of benefit, using the actuarial assumptions in the Retirement Plan. The
five-year installment form shall be actuarially equivalent to the lump sum
benefit (increased for this purpose by the subsidy for the joint and

13

--------------------------------------------------------------------------------

 

50% survivor form), but using a discount rate assumption of 6.25% and the
mortality table used by the Company for year-end financial reporting purposes
for the calendar year preceding the year in which the five-year installment
benefit commences.
          (3) Payment Upon Death. If a participant dies before commencement of
benefits described in Sections 4(a)(2)(ii) or 4(a)(3), such benefits shall be
paid to the participant’s spouse or beneficiary in a lump sum upon the
participant’s death.

14

--------------------------------------------------------------------------------

 

          (d) SMG Traditional and Retirement Account Balance Benefits Described
in Section 4(b).
          (1) Form of Payment — Traditional Benefits. This section governs the
election of the form of payment of SMG benefits which supplement benefits
described in Sections 5.1.1 and 5.1.2(a) of the Retirement Plan (“Traditional
Benefits”). A participant may elect to receive Traditional Benefits in any form
permitted under the Retirement Plan except for the Over-and-Under Payment
Method. In addition, a participant who commences benefits after 2007 shall have
a five-year installment option with respect to any Traditional Benefits payable
after 2008. However, a participant must elect the five-year installment form of
benefit on or before the later of December 31, 2008 or the day before the
Committee designates the individual as a participant in this Plan. If a
participant has not elected the five-year installment form of benefit as
provided in the preceding sentence, then the participant may elect the annuity
form of payment of Traditional Benefits at any time up until the date payments
are scheduled to commence. Except as provided in the preceding sentence or in
Section 5(e), any such election of the form of payment shall be irrevocable. In
the absence of an election with respect to Traditional Benefits, Traditional
Benefits payable to a single participant shall be payable as a life annuity and
to a married participant in the form of a joint and 50% survivor annuity with
the participant’s spouse as beneficiary.
          (2) Time of Payment — Traditional Benefits. The participant may elect
the time for payment of Traditional Benefits on or before the later of
December 31, 2008 or the day before the Committee designates the individual as a
participant in this Plan. Any such election shall be irrevocable except as
provided in Section 5(e). A participant desiring to make the election described
in the preceding sentence may elect to receive his or her Traditional Benefits
upon the later of separation from service or a specified age after age 55 and on
or before age 65. Such election of a commencement age before age 65 will be
effective only if the participant has

15

--------------------------------------------------------------------------------

 

ten Years of Service upon his or her separation from service. In the absence of
such an election, the participant’s Traditional Benefits will commence as
follows: (i) upon separation from service if at the time of such separation from
service he or she has either attained age sixty-five (65) or has both attained
age fifty-five (55) and completed ten (10) Years of Service; or (ii) age
sixty-five (65) if at the time of such separation from service he or she has
neither attained age sixty-five (65) nor both attained age fifty-five (55) and
completed ten (10) Years of Service.
          (3) Form and Time of Payment — Retirement Account Balance Benefit. A
participant may elect the time and form of payment of his or her benefit which
supplements his or her Retirement Account Balance under the Retirement Plan
(“Retirement Account Balance Benefit”) on or before the later of December 31,
2008 or the day before the Committee designates the individual as a participant
in this Plan. A participant may elect to receive his or her Retirement Account
Balance Benefit at any time and in any form permitted under the Retirement Plan,
except for the Over-and-Under Payment Method. In addition, a participant who
commences benefits after 2007 shall have a five-year installment option with
respect to any benefits payable after 2008. However, a participant must elect
the five-year installment form of benefit on or before the later of December 31,
2008 or the day before the Committee designates the individual as a participant
in this Plan. Any election of a form or time of payment for his or her
Retirement Account Balance Benefit shall be irrevocable except as provided in
the next sentence or Section 5(e). If a participant elects an annuity form of
payment for his or her Retirement Account Balance Benefit, such election may be
changed to another actuarially equivalent annuity form available under the
Retirement Plan at any time on or before annuity payments are scheduled to
commence. In the absence of an election, his or her Retirement Account Balance
Benefit shall be paid in a lump sum upon separation from service.
          (4) Actuarial Adjustments. Alternate payment forms described in this
Section 5(d) (other than the five-year installment form) shall be actuarially
equivalent using the assumptions provided under the Retirement Plan. The
five-year installment form shall be

16

--------------------------------------------------------------------------------

 

actuarially equivalent to the single life annuity for the Traditional Benefit or
the lump sum for the Retirement Account Balance Benefit, but using a discount
rate assumption of 6.25% and the mortality assumption used by the Company for
year-end financial reporting purposes for the calendar year preceding the year
in which the five-year installment benefit commences.
          (5) Time and Form of Benefits Payable Upon Death. In the event a
participant dies before Traditional Benefits described in Section 4(b) commence,
benefits shall be paid to the surviving spouse for his or her life commencing as
follows: (i) upon death if at the time of such death the participant has either
attained age sixty-five (65) or has both attained age fifty-five (55) and
completed ten (10) Years of Service; or (ii) age sixty-five (65) if at the time
of such death the participant has neither attained age sixty-five (65) nor both
attained age fifty-five (55) and completed ten (10) Years of Service. In the
event that the participant dies before Retirement Account Balance Benefits
described in Section 4(b) commence to the participant, then such benefits shall
be paid to the participant’s spouse or beneficiary in a lump sum upon the
participant’s death.
          (e) Change in Time and Form of Payment.
          A participant may change an election as to the time and form of
payment of his or her benefits if an election is filed in accordance with rules
established by the Committee, provided (i) such election must not take effect
until at least twelve months after the date on which the election is properly
filed, (ii) the first payment with respect to which such election is made must
be deferred for a period of not less than five years from the date such payment
would otherwise have been made, and (iii) any election related to a payment that
was otherwise to be made at a specified time may not be made less than twelve
months prior to the date of the first scheduled payment. Any such change in
election must provide for payment at a time permitted under the Retirement Plan
and a form permitted under this Plan.
          (f) Cash-Out Provisions.
          (1) If the present value of a participant’s or Spouse’s or Vested
Survivor’s vested Traditional Benefit under the Plan is less than the limit
described in Code Section 402(g)

17

--------------------------------------------------------------------------------

 

upon the participant’s death, retirement, or other separation from service which
occurs after 2008, the participant’s or Spouse’s or Vested Survivor’s vested
Traditional Benefit shall immediately be distributed in a single lump sum. If
the value of a participant’s or Spouse’s or Vested Survivor’s vested Retirement
Account Balance Benefit plus the participant’s vested benefit under the Pinnacle
West Capital Corporation Deferred Compensation Plan of 2005 for Employees of
Pinnacle West Capital Corporation and Affiliates is less than the limit
described in Code Section 402(g) upon the participant’s retirement, death, or
other separation from service which occurs after 2008, such vested Retirement
Account Balance Benefit shall immediately be distributed in a single lump sum.
The benefits of a non-vested participant shall automatically be deemed to be
cashed out pursuant to this Section 5(f) upon such participant’s separation from
service.
          (2) For purposes of calculating the present value of a participant’s
vested benefits, the Spouse’s Benefit or the Vested Survivor’s Benefit, the
actuarial assumptions incorporated by reference in Section 2.1(c) of the
Retirement Plan shall be used, but in no event shall such present value be less
than the present value calculated using the “applicable interest rate” and
“applicable mortality table,” as defined in Section 5.19 of the Retirement Plan.
          (g) Reemployment.
          For the avoidance of doubt, once benefits under this Plan have
commenced, such benefits shall not be suspended as a result of the participant’s
reemployment by the Company or an Affiliate.
ARTICLE SIX

PAYMENT OF BENEFITS BEFORE JANUARY 1, 2009
          A participant who separates from service before January 1, 2009 and
who begins receiving payment of his or her benefits under the Retirement Plan
before January 1, 2009 shall receive benefits under this Plan in the same manner
and at the same time as the participant’s benefits under the Retirement Plan are
paid. Notwithstanding the foregoing, a participant who terminated employment
after December 31, 2007 will be entitled to change the form of payments of his
or her unpaid benefits as of December 31, 2008 under this Plan to the five-year
installment option by filing a special election on or

18

--------------------------------------------------------------------------------

 

before December 31, 2008. Such special election shall only apply to benefits
payable after December 31, 2008.
ARTICLE SEVEN

SECTION 409A COMPLIANCE
          If a benefit becomes payable under this Plan to a specified employee,
payments due within six months following separation from service shall be
delayed and distributed as a single payment on the first day of the seventh
month immediately following the participant’s separation from service, with
simple interest added to such payments from the date they otherwise would have
been paid at the crediting rate in effect under the Retirement Plan. The terms
“separation from service” and “specified employee” shall have the meaning set
forth in Section 409A of the Code, the regulations thereunder, and the
resolution issued by the Board of Directors of the Company defining such terms,
except that a separation from service shall not include separation by reason of
death. All provisions of this Plan shall be interpreted in a manner so as to be
consistent with Section 409A of the Code and the regulations issued thereunder.

19

--------------------------------------------------------------------------------

 

ARTICLE EIGHT

FUNDING
          Benefits under this Plan shall be payable from the general assets of
the Company and shall not be segregated in a trust fund or otherwise funded in
any manner prior to the time of payment. No Plan participant shall have any
vested rights hereunder nor any right hereunder to any specific assets of the
Company.
ARTICLE NINE

ADMINISTRATION
          The Plan will be administered by the Administrative Committee that
administers the Retirement Plan. Except as otherwise expressly provided in this
Plan, the Administrative Committee shall have the same powers and
responsibilities as it has under Sections 10.4 and 12.2 of the Retirement Plan.
Claims for benefits under the Plan shall be determined in the manner set forth
in Article Eleven of the Retirement Plan.
ARTICLE TEN

AMENDMENT AND TERMINATION OF THE PLAN
          The Plan may be amended in whole or in part, prospectively or
retroactively, by action of the Company’s Board of Directors, and may be
terminated at any time by action of the Board of Directors in accordance with
the requirements of Code Section 409A and the regulations issued thereunder;
provided, however, that no such amendment or termination shall reduce any amount
payable hereunder to the extent such amount accrued prior to the date of
amendment or termination. All amendments shall be in writing, approved by the
Company’s Board of Directors and executed by a duly authorized officer of the
Company.

20

--------------------------------------------------------------------------------

 

ARTICLE ELEVEN

ASSIGNMENT
          No Plan participant or beneficiary of a Plan participant shall have
any right to assign, pledge, hypothecate, anticipate or any way create a lien on
any amounts payable hereunder. No amounts payable hereunder shall be subject to
assignment or transfer or otherwise be alienable, either by voluntary or
involuntary act, or by operation of law, or be subject to attachment, execution,
garnishment, sequestration or other seizure under any legal, equitable or other
process, or be liable in any way for the debts or defaults of Plan participants
and their beneficiaries. Notwithstanding the foregoing, assignments of the
benefits provided under this Plan shall be permitted for purposes of satisfying
family support obligations if such assignments are pursuant to a court order
which satisfies the requirements for a “qualified domestic relations order” as
defined in Section 206(d)(3) of the Act.
ARTICLE TWELVE

WITHHOLDING
          Any taxes required to be withheld from payments to the Plan
participants hereunder shall be deducted and withheld by the Company.
ARTICLE THIRTEEN

OTHER BENEFIT PLANS OF THE COMPANY
          Nothing contained in this Plan shall prevent a Plan participant prior
to his or her death, or his or her spouse or other beneficiary after his or her
death, from receiving, in addition to any payments provided for under this Plan,
any payments provided for under the Retirement Plan or under The Pinnacle West
Capital Corporation Savings Plan, or which would otherwise be payable or
distributable to him or her, his or her surviving spouse or beneficiary under
any plan or policy of the Company or otherwise. Nothing in this Plan shall be
construed as preventing the Company or any

21

--------------------------------------------------------------------------------

 

of its subsidiaries from establishing any other or different plans providing for
current or deferred compensation for employees.
ARTICLE FOURTEEN

SPOUSAL CONSENT AND BENEFICIARY DESIGNATIONS
          To the extent required by the Company, a participant must obtain the
consent of his or her spouse to a form of benefit under which the spouse does
not receive a survivor annuity or to a beneficiary designation under which the
spouse is not designated as the beneficiary. A participant may designate his or
her beneficiary to receive Retirement Account Benefits which have not yet
commenced upon his or her death. In the absence of any such beneficiary
designation, the participant’s beneficiary designation under the Retirement Plan
shall control or, in the absence of any such designation under the Retirement
Plan, the participant’s Retirement Account Benefits shall be paid to the same
person or entity as under the Retirement Plan. A participant may also designate
a beneficiary to receive any remaining installment payments due upon his or her
death under the five-year installment option. In the absence of any such
designation, the remaining installment payments shall be paid to his or her
spouse if he or she is living on the date of the participant’s death or, in the
absence of any such spouse, to his or her estate.
ARTICLE FIFTEEN

MISCELLANEOUS
          Nothing contained in this Plan shall be construed as a contract of
employment between the Company and an employee, or as a right of any employee to
be continued in the employment of the Company, or as a limitation of the right
of the Company to discharge any of its employees, with or without cause.
          All of the provisions of this Plan shall be binding upon all persons
who shall be entitled to any benefit hereunder, their heirs and personal
representatives.
ARTICLE SIXTEEN

EFFECTIVE DATE
          The Plan, as amended and restated, shall be effective as of January 1,
2005.

22

--------------------------------------------------------------------------------

 

          IN WITNESS WHEREOF, the Company has caused this Pinnacle West Capital
Corporation Supplemental Excess Benefit Retirement Plan, as amended and restated
herein, to be executed by its duly authorized officer this 19th day of December,
2008.

                  PINNACLE WEST CAPITAL CORPORATION    
 
           
 
  By         /s/ Barbara M. Gomez    
 
           
 
           
 
  Its        VP and Treasurer    
 
           

              Attest:        
 
           
By
       /s/ Donna L. Thomas    
 
       
 
           
 
  Its        HR Services Director    
 
           

23