<PAGE>
                                                                    EXHIBIT 10.5

LYONDELL PETROCHEMICAL COMPANY

================================================================================

EXECUTIVE DEFERRAL PLAN



EFFECTIVE SEPTEMBER 1, 1996
<PAGE>
 
                        LYONDELL PETROCHEMICAL COMPANY
                            EXECUTIVE DEFERRAL PLAN

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                            PAGE
<S>                                                                         <C>
ARTICLE I - GENERAL PROVISIONS.............................................    1
     Section 1.1     Purpose and Intent of Plan............................    1
     Section 1.2     Effective Date of Plan................................    1
     Section 1.3     Definitions...........................................    1
                                                                           
ARTICLE II - PARTICIPATION AND DEFERRAL COMMITMENTS........................    6
     Section 2.1     Eligibility and Participation.........................    6
     Section 2.2     Forms of Deferral.....................................    6
     Section 2.3     Deferral Elections....................................    6
     Section 2.4     Limitation on Deferral................................    7
     Section 2.5     Termination of Employment.............................    7
     Section 2.6     Transfers.............................................    7
     Section 2.7     Modification of Deferral Commitments..................    7
                                                                           
ARTICLE III - DEFERRED COMPENSATION ACCOUNTS...............................    9
     Section 3.1     Accounts..............................................    9
     Section 3.2     Deferred Compensation.................................    9
     Section 3.3     Interest Rate.........................................    9
     Section 3.4     Determination of Accounts.............................   10
     Section 3.5     Vesting of Accounts...................................   10
     Section 3.6     Statement of Accounts.................................   10
                                                                           
ARTICLE IV - PLAN BENEFITS.................................................   11
     Section 4.1     Basic Plan Benefit....................................   11
     Section 4.2     Form and Time of Retirement                           
                     Distribution..........................................   11
     Section 4.3     Form of Distribution Upon Termination of              
                     Employment............................................   12
     Section 4.4     Survivor Benefits.....................................   12
     Section 4.5     Early Distributions...................................   15
     Section 4.6     Unscheduled Distributions.............................   16
     Section 4.7     Disability............................................   16
     Section 4.8     Termination of Employment Due to Special              
                     Circumstances.........................................   17
     Section 4.9     Valuation and Settlement..............................   17
     Section 4.10    Small Benefit.........................................   18
     Section 4.11    Benefits In the Event of a Change in                  
                     Control...............................................   18
     Section 4.12    Definitions...........................................   20
                                                                           
ARTICLE V - DESIGNATION OF BENEFICIARY.....................................   24
     Section 5.1     Designation of Beneficiary............................   24
     Section 5.2     Failure to Designate Beneficiary......................   24
</TABLE>

                                      (i)
<PAGE>
 
                        LYONDELL PETROCHEMICAL COMPANY
                            EXECUTIVE DEFERRAL PLAN

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<S>                                                                           <C>
ARTICLE VI - ADMINISTRATION................................................   25
     Section 6.1     Administrative Committee..............................   25
     Section 6.2     Rules of Conduct; Administrative
                     Provisions............................................   25
     Section 6.3     Legal, Accounting, Clerical and Other
                     Services..............................................   25
     Section 6.4     Interpretation of Provisions..........................   25
     Section 6.5     Records of Administration.............................   25
     Section 6.6     Denial of Claim.......................................   26
     Section 6.7     Liability of Committee................................   26

ARTICLE VII - AMENDMENT AND DISCONTINUANCE.................................   27
     Section 7.1     Amendment of Plan.....................................   27
     Section 7.2     Termination...........................................   27
     Section 7.3     Effect of Amendment or Termination....................   27

ARTICLE VIII - MISCELLANEOUS...............................................   28
     Section 8.1     Unfunded Benefit Plan.................................   28
     Section 8.2     Unsecured General Creditor............................   28
     Section 8.3     Grantor Trust.........................................   28
     Section 8.4     Payments and Benefits Not Assignable..................   28
     Section 8.5     No Right of Employment................................   29
     Section 8.6     Adjustments...........................................   29
     Section 8.7     Obligation to Company.................................   29
     Section 8.8     Protective Provisions.................................   29
     Section 8.9     Gender, Singular and Plural...........................   30
     Section 8.10    Law Governing.........................................   30
     Section 8.11    Notice................................................   30
     Section 8.12    Successors and Assigns................................   30
     Section 8.13    Provisions for Incapacity.............................   30

APPENDIX A - EXAMPLE OF SURVIVOR BENEFIT DETERMINATION AND
             PRORATION.....................................................   32
</TABLE>

                                     (ii)
<PAGE>
 
                                   ARTICLE I

                              GENERAL PROVISIONS


SECTION 1.1    PURPOSE AND INTENT OF PLAN.

     This Plan is intended to provide the opportunity for eligible Employees to
accumulate supplemental funds through the deferral of portions of their regular
salary, Awards and Executive Supplementary Savings Plan benefits for retirement
or special needs prior to retirement.

     The Prior Plan was an amendment and restatement of the deferral provisions
of the Lyondell Petrochemical Company Annual Incentive Plan and Lyondell
Petrochemical Company Executive Supplementary Savings Plan as in effect on
October 1, 1990.


SECTION 1.2    EFFECTIVE DATE OF PLAN.

     This amended and restated Plan document shall be generally effective as of
September 1, 1996 and shall apply to those Employees who are employed by the
Company on or after September 1, 1996 except to the extent that certain
provisions hereof specify that they are effective as of a different date.


SECTION 1.3    DEFINITIONS.

     ACCOUNT means a separate bookkeeping account maintained by the Company for
     -------
each Employee and which measures and determines the amounts to be paid to the
Employee under the Plan.  Effective October 1, 1996, separate subaccounts for
previous deferrals of Salary, Awards or ESSP Benefits will be consolidated into
a single account balance.  Accounts shall include any Transferred Accounts that
were assumed as obligations of this Plan as of October 1, 1990.

     ADMINISTRATIVE COMMITTEE means the Benefits Administrative Committee of the
     ------------------------
Company.

     AWARDS means cash awards made under the Lyondell Petrochemical Company
     ------
Value Share Plan or awards under any other plan that the Board of Directors of
Lyondell Petrochemical Company, or its Compensation Committee thereof, has
authorized the Company to adopt and has further authorized awards thereunder to
be treated as Awards under this Plan.

                                       1
<PAGE>
 
     BENEFICIARY means a person who is entitled to receive an Employee's
     -----------
interest under this Plan in the event of the Employee's death.

     CHANGE IN CONTROL means a change in the control of Lyondell Petrochemical
     -----------------
Company as defined in Section 4.12 of the Plan.

     CITIBANK BASE RATE means the average of the base rates in effect on January
     ------------------
1, April 1, July 1 and October 1 of each year at Citibank.

     CODE means the Internal Revenue Code of 1986, as amended, including any
     ----
successor provisions thereof and any regulations or other guidance promulgated
pursuant thereto by applicable governmental agencies.

     COMPANY means Lyondell Petrochemical Company, a Delaware corporation, or
     -------
its successor.

     CONSTRUCTIVE TERMINATION FOR GOOD REASON means the termination of the
     ----------------------------------------
Participant's employment with the Company, LCR, or any subsidiary of the Company
or LCR (a) by the Participant, within 90 days following a Change in Control, if
the Participant is the Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer or General Counsel, or (b) by the Participant, including those
Officers and General Counsel listed above, within two years following a Change
in Control and within 90 days following the occurrence, without the
Participant's written consent, of any of the following events:

          (1) the assignment of the Participant to any duties or
     responsibilities that are not comparable to the Participant's position,
     offices, duties, responsibilities or status immediately preceding such
     Change in Control, or a change in the Participant's reporting
     responsibilities or titles in effect at such time resulting in a reduction
     of the Participant's responsibilities or position with the Company;

          (2) the reduction of the Participant's annual salary (including any
     deferred portions thereof), the reduction of the Participant's Value Share
     Plan as a result of an adverse change in Plan terms (and not as a result of
     a reduction solely to satisfy federal tax law requirements), or a material
     reduction in the level of benefits or supplemental compensation provided to
     the Participant; or

          (3) the actual transfer, or the proposed transfer, as evidenced in a
     written communication from Company to the Participant, of the Participant
     to another location other than the location at which he was primarily
     employed immediately preceding the Change in Control, unless such new
     location is

                                       2
<PAGE>
 
     a major operating unit or facility of the Company that is located within 50
     miles of the Participant's primary location as of the date immediately
     preceding such Change in Control; provided, however, (1) the Participant,
                                       --------  -------                      
     within 30 days from the date that he is given written notice by the Company
     of such actual or proposed transfer, shall provide the Board with written
     notice that such transfer shall constitute a Constructive Termination for
     Good Reason hereunder, (2) Company within 20 days of receipt of such notice
     by the Board shall fail to provide the Participant with written notice
     rescinding such actual or proposed transfer and (3) if the transfer is not
     rescinded by the Company, the Participant must terminate his employment due
     to Constructive Termination for Good Reason within 40 days following
     expiration of the 20-day period referred to in the preceding clause so that
     in any event the Participant shall have terminated his employment with the
     Company within 90 days after the Participant first receives written notice
     from the Company of such actual or proposed transfer.
 
     DEFERRAL ELECTION means an election made by an Employee to defer Salary,
     -----------------
Awards, and/or ESSP Benefits pursuant to Article II, for which the Employee has
submitted a Participation Agreement to the Company.

     DEFERRAL PERIOD means a maximum number of years, established by the
     ---------------
Administrative Committee in advance of a particular Deferral Election, over
which the Employee elects to defer Salary, Awards and/or ESSP Benefits.  A new
Deferral Period shall normally start each January 1, except that an Employee who
is immediately eligible upon his commencement of employment or who otherwise
attains eligibility following the Effective Date, shall have his Deferral Period
commence 30 days following the Employee's first day of employment or attainment
of eligibility, as applicable.

     DEFERRED COMPENSATION means the amount of Salary, Awards and/or ESSP
     ---------------------
Benefits that a Participant elects to defer pursuant to a Deferral Election.

     DISABILITY means the disability as determined under the provisions of the
     ----------
Company's Executive Long-Term Disability Plan.

     EARLY DISTRIBUTION means a distribution prior to Termination of Employment
     ------------------
pursuant to Section 4.5.

     EFFECTIVE DATE means September 1, 1996.
     --------------

     ELIGIBLE TERMINATION means a termination of an Employee's employment with
     --------------------
the Company (other than due to death, Disability or retirement) or his
"Constructive Termination for Good Reason", either of which occurs within 2
years following a Change in Control.

                                       3
<PAGE>
 
     EMPLOYEE means an individual who is a regular salaried employee of the
     --------
Company on or after October 1, 1990.

     ERISA means the Employee Retirement Income Security Act of 1974, as
     -----
amended, including any successor provisions thereof, and any regulations or
other guidance promulgated pursuant thereto by applicable governmental agencies.

     ESSP BENEFITS means the benefits under the Company's Executive
     -------------
Supplementary Savings Plan.

     FINANCIAL HARDSHIP means a condition of financial difficulty, determined by
     ------------------
the Administrative Committee, upon advice of counsel, based on written
information supplied by the Employee in accordance with such standards
established by the Administrative Committee from time to time, which condition
is sufficient, in counsel's judgment, to justify a change in payment election
under the Plan without causing receipt of taxable income by any other Plan
Participant before the Participant actually receives his benefit.

     INCOME TAX GROSS-UP means the benefit described in the last paragraph of
     -------------------
Section 4.11 of the Plan.

     INTEREST RATE means the interest rate announced by the Company in advance
     -------------
of the election period for a Plan Year which shall  be the interest rate applied
to that Plan Year.

     PARTICIPANT means any Employee who is participating in this Plan as
     -----------
provided in Article II, and any former Employee who has not received the entire
benefit to which he is entitled under this Plan.

     PARTICIPATION AGREEMENT means the Deferral Election submitted by a
     -----------------------
Participant to the Company prior to the beginning of the Deferral Period.

     PLAN means this Executive Deferral Plan.
     ----

     PLAN YEAR means each calendar year beginning on January 1 and ending on
     ---------
December 31.

     RETIREMENT DISTRIBUTION means a distribution due to Termination of
     -----------------------
Employment with a right to an immediate allowance under a retirement plan
maintained by the Company.

     SALARY means the Employee's regular, biweekly salary, excluding Awards and
     ------
any other special or additional compensatory payments made by the Company.

                                       4
<PAGE>
 
     SUBSIDIARIES OR AFFILIATES means:
     --------------------------

     (a) All corporations, that are members of a controlled group of
corporations within the meaning of Section 1563(a) of the Code (determined
without regard to Section 1563(a)(4) and Section 1563(e)(3)(C) of said Code) and
of which the Company is then a member, and

     (b) All trades or businesses, whether or not incorporated, that, under the
regulations prescribed by the Secretary of the Treasury pursuant to Section
210(d) of ERISA, are then under common control with the Company.

     SURVIVOR BENEFIT means the benefit provided by Section 4.4 in the event of
     ----------------
the Participant's death.

     TERMINATION OF EMPLOYMENT means the termination of an Employee's employment
     -------------------------
with Lyondell Petrochemical Company, Atlantic Richfield Company, ARCO Chemical
Company, and LYONDELL-CITGO Refining Company Ltd. or any subsidiary or affiliate
of any such company.  A transfer to any such company, to which a Participant
voluntarily consents shall not be a Termination of Employment for purposes of
this Plan.

     TRANSFERRED ACCOUNT means the portion of any Participant's Account, as
     -------------------
represented by official records certified by the Administrator of the Company's
Annual Incentive Plan and Executive Supplementary Savings Plan or the Atlantic
Richfield Company Executive Supplementary Savings Plan or the ARCO Chemical
Company Executive Supplementary Savings Plan that reflect amounts of deferrals
made by the Participant, plus any credited interest, prior to October 1, 1990
under the Company's Annual Incentive Plan and Executive Supplementary Savings
Plan.

     VALUATION DATE means the last day of each month, or such other dates as the
     --------------
Administrative Committee may determine in its discretion, which may be either
more or less frequent, for the valuation of Participants' Accounts.

     401(K) AND SAVINGS PLAN means the Company's 401(k) and Savings Plan.
     -----------------------

                                       5
<PAGE>
 
                                  ARTICLE II

                    PARTICIPATION AND DEFERRAL COMMITMENTS


SECTION 2.1    ELIGIBILITY AND PARTICIPATION.

     (a) ELIGIBILITY.  Eligibility to make a Deferral Election shall be limited
         -----------
to Employees (1) who are eligible to receive an Award; (2) who are participants
in the Executive Supplementary Savings Plan or (3) who have been designated as
eligible by a specific resolution of the Administrative Committee upon
recommendation of the Vice President, Human Resources, of the Company.

     (b) PARTICIPATION.  An eligible Employee may elect to participate in the
         -------------
Plan by submitting a Participation Agreement in accordance with rules, including
the time and form of submission, established by the Administrative Committee.


SECTION 2.2    FORMS OF DEFERRAL.

     (a) BASIC DEFERRAL.   A Participant may elect to defer Salary, Awards
         --------------
and/or ESSP Benefits in a Participation Agreement subject to any limitations,
conditions or restrictions, such as minimum or maximum amounts that may be
deferred, as the Administrative Committee prescribes in advance of the Deferral
Period.

     (b) SAVINGS DEFERRAL.  Any amount of Salary that the Participant elected to
         ----------------
contribute to the 401(k) and Savings Plan during each Deferral Period that was
not permitted due to legal restrictions precluding such contributions and
deferrals to the 401(k) and Savings Plan, other than the limitation on the
amount of deferrals under Section 402(g) of the Code, shall be deferred under
this Plan to the extent that such contributions would have received  a matching
Company contribution under the 401(k) and Savings Plan.  The Company will
contribute an additional amount for amounts deferred during a Deferral Period
under this Subsection (b) based upon the matching Company contribution formula
then in effect under the 401(k) and Savings Plan.


SECTION 2.3    DEFERRAL ELECTIONS.

     Prior to each Deferral Period, at a time and on a form prescribed by the
Administrative Committee, each Employee may execute an election form to defer
Salary, Awards, and/or ESSP Benefits.  This Deferral Election shall be
irrevocable unless modifications are authorized pursuant to Section 2.7.

                                       6
<PAGE>
 
SECTION 2.4    LIMITATION ON DEFERRAL.

     Except as permitted for accelerated deferral in Section 2.7(b), Deferral
Elections shall be subject to the following limitations:

     (a) A Participant may not defer more than 50 percent of his Salary.

     (b) The minimum amount that may be deferred for the Deferral Period
relating to a Deferral Election, shall be established by the Administrative
Committee in advance of the Deferral Period.


SECTION 2.5    TERMINATION OF EMPLOYMENT.

     A Participant's Deferral Elections shall terminate upon the Participant's
Termination of Employment; provided, however, that any Deferral Election
                           --------  -------                            
relating to Salary, Awards and/or ESSP Benefits granted after Termination of
Employment shall remain binding.


SECTION 2.6    TRANSFERS.

     A Participant's Deferral Elections shall be irrevocable regardless of a
transfer of employment among Lyondell Petrochemical Company, Atlantic Richfield
Company, ARCO Chemical Company, LYONDELL-CITGO Refining Company Ltd., or any
subsidiary or affiliate of any such company.  In the case of such a transfer,
the Participant's Deferral Election shall apply to Awards, Salary or ESSP
Benefits granted by the transferee company and the applicable Plan of the
transferee company shall assume responsibility for the remaining period, if any,
of any Deferral Election that the Participant made under the transferor
company's plan.


SECTION 2.7    MODIFICATION OF DEFERRAL ELECTIONS.

     Deferral Elections shall be irrevocable except as follows:

     (a) FINANCIAL HARDSHIP.  The Administrative Committee may permit a
         ------------------
Participant to either reduce the amount elected under a prior Deferral Election,
or waive the remaining deferrals under a prior Deferral Election, upon finding
that the Participant has suffered a Financial Hardship.

     (b) ACCELERATED DEFERRAL.  At the Administrative Committee's discretion,
         --------------------
prior to the beginning of any Plan Year in any Deferral Period for which two or
more Plan Years remain, a Participant may elect to accelerate the amount of
previously elected Deferred Compensation for any of the remaining Plan Years in
that Deferral

                                       7
<PAGE>
 
Period on a form prescribed by the Administrative Committee; provided, however,
                                                             --------  -------
that any acceleration in Deferred Compensation for remaining Plan Years in the
Deferral Period shall not increase, for any single Plan Year, the total Salary
deferrals above 50 percent of Salary, the total deferred Awards above 100
percent of an Award or the total deferred ESSP Benefits above 100 percent of the
ESSP Benefits during that Plan Year.

                                       8
<PAGE>
 
                                  ARTICLE III

                        DEFERRED COMPENSATION ACCOUNTS


SECTION 3.1    ACCOUNTS.

     For record-keeping purposes only, Accounts shall be maintained for each
Participant.


SECTION 3.2    DEFERRED COMPENSATION.

     A Participant's Deferred Compensation shall be credited to the
Participant's Account as of the date when the corresponding non-deferred portion
of the compensation is paid or would have been paid but for the Deferral
Election.  The Company shall have the right to withhold from Salary (or
otherwise to cause the Employee or the executor or administrator of his estate,
or his Beneficiary) to make payment of any federal, state, local and/or foreign
taxes required to be withheld with respect to any Deferred Compensation.


SECTION 3.3    INTEREST RATE.

     The Accounts shall be credited monthly with interest based on the rates
specified below, compounded annually.  Interest shall be credited as of each
Valuation Date from the dates when deferred amounts are credited to Accounts,
based on the balance of each Account.

     (a) INTEREST RATE DURING PARTICIPANT'S LIFETIME.  During a Participant's
         -------------------------------------------
lifetime, the Participant's Account will be credited with interest on a monthly
basis during each Plan Year at the Interest Rate previously announced by the
Company to apply for the Plan Year, but at no less than the Citibank Base Rate.
The Interest Rate for the first Plan Year shall be 125 percent of the rolling
average 10-year Treasury Note Rate.

     (b) INTEREST RATE AFTER PARTICIPANT'S DEATH.  Except with respect to
         ---------------------------------------
payments made pursuant to Article IV, Section 4.4(a)(2)(i) following a
Participant's death, the Participant's Account will be credited with interest on
a monthly basis during each Plan Year at an interest rate equal to the Citibank
Base Rate.

     (c) GUARANTEED INTEREST RATE.  In no event will the Interest Rate
         ------------------------
applicable to the portion of a Transferred Account containing deferrals of
Awards previously granted under the Company's Annual Incentive Plan be less than
the Citibank Base Rate.


SECTION 3.4    DETERMINATION OF ACCOUNTS.

                                       9
<PAGE>
 
     A Participant's Account as of each Valuation Date shall consist of the
balance of the Participant's Account as of the immediately preceding Valuation
Date, plus the amount of the Participant's Deferred Compensation since Valuation
Date, plus interest credited to the Account, and minus any distributions or
reductions made from the Account since the immediately preceding Valuation Date.


SECTION 3.5    VESTING OF ACCOUNTS.

     Each Participant shall be 100 percent vested at all times in the amounts
credited to the Participant's Account.


SECTION 3.6    STATEMENT OF ACCOUNTS.

     The Company shall provide each Participant with periodic statements setting
forth the balance of the Participant's Account.

                                       10
<PAGE>
 
                                  ARTICLE IV

                                 PLAN BENEFITS


SECTION 4.1    BASIC PLAN BENEFIT.

     If a Participant has a Termination of Employment for any reason, the
Company shall pay a Plan benefit equal to the Participant's Account, as
determined below:

     (a) Accounts of Participants shall be credited with the interest rate
previously determined under Section 3.3(a) or (c), and communicated in advance
of each Deferral Period, to apply each Plan Year that the Account has been
maintained.

     (b) The Interest Rates provided under Section 4.1(a) shall be payable until
the Participant's Accounts are distributed in full except in the event of the
Participant's death.  After the Participant's death, interest shall be credited
at the Interest Rate previously determined under Section 3.3(b).


SECTION 4.2    FORM AND TIME OF RETIREMENT DISTRIBUTION.

     (a) TIME OF RETIREMENT DISTRIBUTIONS.  Retirement Distributions shall be
         --------------------------------
paid at the time and in the form of benefit elected by the Participant.  If a
Participant is an Employee, the Participant may change a distribution election
once each year until the year in which the Participant attains age 53.  The
change must be made during a period established by the Administrative Committee
which precedes a Deferral Period and is irrevocable until the next period
established by the Administrative Committee.

     The Participant's distribution election shall be irrevocable as of the year
in which a Participant attains age 53, except that a Participant may request, in
writing, that the Administrative Committee allow a change in distribution
election prior to retirement or commencement of benefits, or in the case of
installment payments, following commencement of payments, (i) without any
reduction in, or imposition of any penalty on, the Participant's Account, if the
Administrative Committee determines that the Participant has experienced a
Financial Hardship justifying the request for a change of election, or (ii) if
the Administrative Committee, in its sole discretion, determines that it is
appropriate to grant the Participant's request.  Absent the Participant's
election of the form and/or commencement date of the Retirement Distribution,
payment will be made in a lump sum immediately following the Participant's date
of retirement from the Company.

     If a Participant is an Employee, notwithstanding a 

                                       11
<PAGE>
 
Participant's age or prior distribution elections, during a period established
by the Administrative Committee prior to the 1997 Deferral Period, that
Participant may submit a distribution election which supersedes all existing
distribution elections for all previous deferrals under this Plan. If the
Participant fails to submit a new distribution election during this period and
has attained age 53 or more, the Participant's deferrals shall be paid in a lump
sum immediately following the Participant's date of retirement from the Company.

     (b) FORM OF RETIREMENT DISTRIBUTIONS.  A Participant may elect one or more
         --------------------------------
of the following forms and commencement dates for all or portions of his
Deferral Account:

          (1) LUMP SUM.  A single payment of all or a percentage of, or of a
              --------
specific dollar amount of, the Participant's Deferral Account, payable at
retirement.

          (2) INSTALLMENT PAYMENTS.  Monthly installment payments in
              --------------------
substantially equal payments of principal and interest over periods prescribed
and communicated by the Administrative Committee in advance of the applicable
Deferral Period.  The amount of each of the monthly installments shall be
redetermined effective as of January 1 of each year based on the remaining
Account balance and the remaining number of installment payments.

          (3) DEFERRED PAYMENTS.  A lump sum or installment payments or
              -----------------
combination thereof, commencing subsequent to retirement at one of the optional
deferral times prescribed and communicated by the Administrative Committee in
advance of the applicable Deferral Period.


SECTION 4.3   FORM OF DISTRIBUTION UPON TERMINATION OF EMPLOYMENT.

     Except as provided in Sections 4.8 and 4.11, termination benefits payable
upon a Participant's Termination of Employment other than due to retirement or
death shall be paid in a lump sum following Termination of Employment; provided,
                                                                       -------- 
however, that the Administrative Committee may, in its sole discretion, pay such
-------                                                                         
termination benefits in monthly installments over a 3-year period.


SECTION 4.4   SURVIVOR BENEFITS.

     (a) AMOUNT AND FORM OF BENEFIT ON AND AFTER JULY 1, 1993:
         ----------------------------------------------------

          (1) DEATH AFTER AGE 65.  If the Participant dies on or after attaining
              ------------------
age 65, the amount of the Survivor Benefit shall be equal to the Participant's
Account balance, increased by the applicable Interest Rate on the unpaid Account
balance during the

                                       12
<PAGE>
 
period in which Survivor Benefit payments are being made to the Participant's
Beneficiary, and payable in the form elected by the Participant.

          (2) DEATH PRIOR TO TERMINATION OF EMPLOYMENT AND PRIOR TO AGE 65.
              ------------------------------------------------------------

               (i)  Benefit Determination. If a Participant dies prior to
                    ---------------------
attaining age 65 and prior to Termination of Employment, the Survivor Benefit
payable with respect to such Participant shall be the greater of the values
determined under (A) or (B) immediately below:

                    (A) The net present value of a stream of annual payments
which equals 40 percent of the Participant's Account, and which are payable on
the date of the Participant's death and on each anniversary of such date until
the date on which the Participant would have attained age 65. For purposes of
this calculation (I) the applicable discount rate shall be determined by the
Administrative Committee, in its sole discretion, and (II) Deferral Elections
that have not been completed prior to the Participant's death shall be
determined in accordance with the provisions of Section 4.4(a)(2)(i)(C) below;
or

                    (B) The value of the Participant's Account balance at his
date of death.

                    (C) For purposes of calculating the deferred amount where a
Participant has died before he completes his Deferral Elections, the
Participant's Salary (for purposes of determining the amount deferred with
respect to either Salary or ESSP Benefits) and Awards for relevant years or
other time periods ending after this death shall be deemed to be as follows:

                        (I)  Salary for each year or time period shall be the
Participant's annual base Salary in effect on the date of his death, increased
for each year after his death by the escalation factor for such year, determined
in the sole discretion of the Administrative Committee; and

                        (II) Awards for each such year shall be the amount that
is the highest annual average of the Participant's Awards paid in any 3
consecutive year period during the last ten years during which the Participant
received Awards from the Company or, for years prior to the Effective Date, from
a Subsidiary or Affiliate (or if fewer than ten, the total number of years for
which the Participant received Awards).

                                       13
<PAGE>
 
               (ii) Amount and Form of Payment.
                    --------------------------

                    (A) The annual Survivor Benefit payable with respect to
Section 4.4(a)(2)(i)(A) shall be equal to 40 percent of the value of the
Account, as determined in accordance with Section 4.4(a)(2)(i)(A) and, to the
extent applicable, with Section 4.4(a)(2)(i)(C). One-twelfth of the annual
Survivor Benefit shall be paid monthly from the Participant's date of death
until the end of the month in which the Participant would have attained age 65.

                    (B) The Survivor Benefit payable with respect to Section
4.4(a)(2)(i)(B) shall be the value of the Participant's Account balance at his
date of death, increased by the applicable Interest Rate on the unpaid Account
balance during the period in which Survivor Benefit payments are being made to
the Participant's Beneficiary, and shall be paid in monthly installments over
the greater of:

                        (I)  the period described in Section 4.4(a)(2)(ii)(A);
or

                        (II) the period over which the Participant had elected
to have installment payments made after his retirement.

                    (C) Notwithstanding any other provision of this Plan, if the
Survivor Benefit payable is the amount determined under Section
4.4(a)(2)(ii)(A), and if the Participant completed (or, pursuant to Section
4.4(a)(2)(i)(C), is deemed to have completed) a portion of a Deferral Election
while an employee at LYONDELL-CITGO Refining Company Ltd. and a portion of such
Deferral Election while a Participant in this Plan, then the annual amount of
the Survivor Benefit determined pursuant to Section 4.4(a)(2)(ii)(A) shall be
equal to the product of (I) the amount of the Survivor Benefit determined
pursuant to Section 4.4(a)(2)(ii)(A), multiplied by (II) a fraction, the
numerator of which is equal to the portion of the Deferral Elections that the
Participant completed (or, pursuant to Section 4.4(a)(2)(i)(C), is deemed to
have completed) under this Plan, and the denominator of which is equal to the
sum of the Deferral Elections that the Participant completed (or, pursuant to
Section 4.4(a)(2)(i)(C), is deemed to have completed) under this Plan and under
the LYONDELL-CITGO Refining Company Ltd. Executive Deferral Plan. An example of
the determination of the Survivor Benefit and the proration of that benefit
between the Company and LYONDELL-CITGO Refining Company Ltd. is attached hereto
as Appendix A.

     (b) DEATH AFTER TERMINATION OF EMPLOYMENT AND PRIOR TO AGE 65.  If the
         ---------------------------------------------------------
Participant dies after Termination of Employment and prior to age 65, the
Participant's Account balance shall be paid by continuation of the form of
benefit that was payable to the Participant for the remaining payments that 
would have been made to

                                       14
<PAGE>
 
the Participant if the Participant had lived, increased by the applicable
Interest Rate credited on unpaid Account balances of deceased Participants
during each year of the payment period to the Beneficiary.


SECTION 4.5    EARLY DISTRIBUTIONS.

     A Participant may elect to receive an Early Distribution from his Account
subject to the following restrictions:

     (a) TIMING OF ELECTION.  The election to take an Early Distribution from an
         ------------------
Account for a particular Deferral Election must be made at the same time the
Participant makes the particular Deferral Election.

     (b) AMOUNT OF WITHDRAWAL.  The amount which a Participant can elect to
         --------------------
receive as an Early Distribution with respect to an Account shall be such
portions of the Participant's Account balance for the amounts deferred under a
particular Deferral Election, as prescribed by the Administrative Committee in
advance of the Deferral Period.  If a previously elected amount exceeds the
Account balance when an Early Distribution is to be made, only the Account
balance will be paid.

     (c) TIMING AND FORM OF EARLY DISTRIBUTION.  The Early Distribution shall
         -------------------------------------
commence at a time prescribed by the Administrative Committee and in the form
elected by the Participant on the Participation Agreement at the time of the
Deferral Election; provided, however, that if the Participant terminates
                   --------  -------                                    
employment without a right to commence a retirement allowance under the
Retirement Plan, the Early Distribution election will be canceled and
distribution will be made pursuant to Section 4.3; and provided, further, that
                                                       --------  -------      
if the Participant terminates employment with a right to commence a retirement
allowance, the Early Distribution election will be canceled and distribution
will be made pursuant to Section 4.2.

     (d) Amounts paid to a Participant pursuant to this section shall be treated
as distributions from the Participant's Account.

     (e) During a period to be established by the Administrative Committee prior
to the 1997 Deferral Period, a Participant may elect to maintain or revoke any
existing Early Distribution election.  No other changes are permitted in any
existing Early Distribution election.  A Participant who fails to make an
election regarding existing Early Distributions shall be considered to have
elected to maintain those existing Early Distribution elections.


SECTION 4.6    UNSCHEDULED DISTRIBUTIONS.

     (a) DISTRIBUTIONS ON ACCOUNT OF FINANCIAL HARDSHIP.  Upon a 
         ----------------------------------------------

                                       15
<PAGE>
 
finding that a Participant has suffered a Financial Hardship, following the
Participant's written application, the Administrative Committee shall make a
distribution of all or a portion of the Participant's Account, consistent with
the finding of Financial Hardship but not to exceed the amount of the
Participant's request, without any reduction in, or imposition of any penalty
on, the Participant's Account. The distribution shall be paid in a lump sum as
soon as administratively practical following the finding of Financial Hardship.

     (b) OTHER UNSCHEDULED DISTRIBUTIONS.  A Participant, by a written
         -------------------------------
application to the Administrative Committee, may apply for a distribution of all
or part of his/her Account, without regard to any condition of Financial
Hardship.  Any distribution so requested shall be made as soon as practical
following the Participant's application and shall be subject to whatever
penalty, in the form of a forfeiture of a percentage of the amount requested
and/or a suspension of participation, as may be determined by the Administrative
Committee, upon the advice of Counsel for the Plan, to be necessary to preclude
the constructive receipt of taxable income by any Participant in the Plan.

     (c) REVIEW OF REQUEST FOR UNSCHEDULED DISTRIBUTIONS.  Counsel for the Plan,
         -----------------------------------------------
on an ongoing basis, shall review legal and tax developments to assure
continuous compliance with the relevant authorities governing plan design to
prevent constructive receipt of taxable income by any Participant, and shall
advise the Administrative Committee in writing in advance of any change in its
most recent written advice on the penalty that is to be imposed with respect to
unscheduled distributions.

     The Company shall notify Participants in writing of the provisions of this
Section 4.6 and of the specific, currently effective penalty as described under
Section 4.6(b), and shall update this written notification periodically and in
advance of any subsequent change of which it is notified under Section 4.6(c),
unless in the opinion of the Company it is administratively impractical to do
so, in which case such notification shall be provided no later than 30 days
following the effective date of the change.


SECTION 4.7    DISABILITY.

     If a Participant suffers a Disability under the provisions of the Company's
Executive Long-Term Disability Plan, the Participant's Deferral Elections will
cease except for any Awards that may be payable thereafter. Distribution of the
Participant's Account will not be made due to the Disability. The Participant's
Account will be distributed in accordance with the method that the Participant
had elected for payment of retirement benefits if and when the Participant
retires following his Disability. Absent the

                                       16
<PAGE>
 
Participant's retirement election, payment will be made in a lump sum upon
Termination of Employment.


SECTION 4.8    TERMINATION OF EMPLOYMENT DUE TO SPECIAL CIRCUMSTANCES.
     
     If, other than as provided in Section 4.11, a Participant has an
         ----- ----                                                  
involuntary Termination of Employment in conjunction with a sale of assets or a
reorganization (including termination due to a specific job elimination), the
Participant's Account will be distributed in accordance with the method which
the Participant had elected for payment of retirement benefits under this Plan,
with payment commencing on the earliest date the Participant would have become
eligible to commence receiving the retirement benefit hereunder.  During the
period between the Participant's Termination of Employment and the commencement
of payments under this Plan, interest will be credited to the Participant's
Account each year at the applicable rate of interest for Accounts of living
Participants.  Absent the Participant's election with respect to the form of
benefit to be paid by this Plan at or after his retirement, payment will be made
in a lump sum upon Termination of Employment.


SECTION 4.9    VALUATION AND SETTLEMENT.

     The Settlement Date shall be the earlier of the date on which a lump sum is
paid or on which installment payments commence.  The Settlement Date for an
Account shall be no more than 30 days after the last day of the month in which
the Participant or his Beneficiary becomes entitled to payments on account of
retirement, other Termination of Employment or death, unless the Participant has
elected to defer commencement of payments following retirement to a later date.
The Settlement Date for an Early Distribution or delayed payments following
retirement shall be the month that the Participant has elected for commencement
of such payments.  The amount of a lump sum and the initial amount of
installment payments for a Participant's Account shall be based on the value of
the Participant's Account as of the Valuation Date at the end of the immediately
preceding month before the Settlement Date.  For example, the Valuation Date at
the end of December shall be used to determine a lump sum and/or the initial
amount of installment payments that will be made in the following January.

                                       17
<PAGE>
 
SECTION 4.10   SMALL BENEFIT.

     Notwithstanding any election made by the Participant, the Administrative
Committee, in its sole discretion, may pay any benefit in the form of a lump sum
payment to the Participant or any Beneficiary, if the lump sum amount of the
Account balance that remains in the Account following a distribution for any
reason, or which is payable to the Participant or Beneficiary when payments to
such Participant or Beneficiary would otherwise commence is less than $6,000.


SECTION 4.11   BENEFITS IN THE EVENT OF A CHANGE IN CONTROL.

     Notwithstanding the contrary provisions of Section 4.8, the provisions of
this Section 4.11 shall control in the event of a Change in Control of the
Company.

     In the event that (i) there is a "Termination or Adverse Amendment" (as
defined below) of this Plan within 2 years following a Change in Control and
(ii) either (a) an Eligible Termination has not occurred with respect to a
Participant who is an active Employee or (b) the Participant has had an
involuntary Termination of Employment for reasons described in Section 4.8
hereof and, pursuant to his election as to the form and timing of his Retirement
Distributions hereunder, he has not begun to receive such Retirement
Distributions on the date of such Termination or Adverse Amendment, then
notwithstanding any other provision of this Plan, the full amount of
contributions and earnings accrued or credited to the Participant's Account (as
of the date immediately preceding the Termination or Adverse Amendment) shall be
immediately distributed to the Participant in a cash lump-sum payment.  If
applicable, the Company also shall pay the Participant in a cash lump-sum
payment an additional amount equal to the "Income Tax Gross-up" (as defined
below).

     In the event that the Participant has an Eligible Termination, and as of
his Eligible Termination date is not eligible to receive an "Immediate
Retirement Benefit" (as defined below), then the full amount of contributions
and earnings accrued or credited to the Participant's Account (as of the date
immediately preceding his Eligible Termination) shall be immediately distributed
to the Participant in a cash lump-sum payment.  If applicable, the Company also
shall pay the Participant in a cash lump-sum payment an additional amount equal
to the Income Tax Gross-up, without regard to whether or not there has been a
Termination or Adverse Amendment.

     In the event that (i) there is a Termination or Adverse Amendment of this
Plan following a Change in Control and (ii) either (a) the Participant as of his
Eligible Termination date is either eligible to receive an Immediate Retirement
Benefit or 

                                       18
<PAGE>
 
elects (or has elected) to commence an Immediate Retirement Benefit or (b) the
Participant has had an involuntary Termination of Employment for reasons
described in Section 4.8 hereof and, pursuant to his election as to the form and
timing of his Retirement Distributions hereunder, the Participant has begun to
receive installment payments of such Retirement Distributions hereunder but has
not, as of the date of such Termination or Adverse Amendment, received the full
amount of benefits to which he is entitled under this Plan, then the full amount
of contributions and earnings accrued or credited to the Participant's Account
(as of the date immediately preceding the Termination or Adverse Amendment)
shall be immediately distributed to the Participant in a cash lump-sum payment.
If applicable, the Company also shall pay the Participant in a cash lump-sum
payment an additional amount equal to the Income Tax Gross-up.

     For purposes of this Plan, "Termination or Adverse Amendment" means that
this Plan is either (i) terminated for whatever reason by the Company or (ii)
amended by the Company in any way that adversely affects the Participant's
rights, privileges or benefits hereunder including, without limitation, an
amendment that results in a change to the methodology used to determine the
interest rate for earnings credited to the Participant's Account, without the
Participant's written consent to such amendment, other than an amendment that is
required by law.

     For purposes of this Plan, "Immediate Retirement Benefit" means the
Participant is eligible (after giving effect to any additional years of age and
additional years of service for benefit accrual purposes to which the Employee
is entitled under the Lyondell Petrochemical Company Supplementary Executive
Retirement Plan) to receive an immediate allowance or distribution (whether
reduced or unreduced) from a retirement plan maintained by the Company that is
intended to be a qualified plan under Section 401(a) of the Internal Revenue
Code of 1986, as amended.

     For purposes of this Plan, if any of the events above occur within the
specified time period, "Income Tax Gross-up" shall be based on the full amount
of contributions and earnings accrued or credited to Participant's account
balance as of September 1, 1996.  The Income Tax Gross-up shall be the following
percentage of the amount necessary so that after payment of any federal, state
and local income or employment tax by the Participant on the distribution of
that amount under this Plan and the Income Tax Gross-up, the net amount retained
by the Participant shall be the full amount accrued and credited to his Account
under this Plan as of September 1, 1996.

                                       19
<PAGE>
 
<TABLE> 
<CAPTION> 
     Specified Time Period                    Percentage of
     ---------------------                    --------------
                                              Income Tax Gross-up
                                              -------------------
<S>                                           <C> 
September 1, 1996 - August 31, 1997                100%

September 1, 1997 - August 31, 1998                66%

September 1, 1998 - August 31, 1999                33%
</TABLE> 

     No Income Tax Gross-up shall be payable for an event which occurs on
September 1, 1999 or later.

     For purposes of determining the amount of the Income Tax Gross-up, the
Participant shall be deemed (i) to pay federal income taxes at the highest
stated rate of federal income taxation (including surtaxes, if any) for the
calendar year in which the Income Tax Gross-up is to be made (for 1996, the
highest stated rate is 39.6 percent); and (ii) to pay any applicable state and
local income taxes at the highest stated rate of taxation (including surtaxes,
if any) for the calendar year in which the Income Tax Gross-up is to be made.
Any Income Tax Gross-up required hereunder shall be paid by Company to the
Participant at the same time that any payment made under this Plan which is
subject to income tax is paid or deemed received by the Participant.


SECTION 4.12   DEFINITIONS.

     (a)  EVENTS CONSTITUTING A "CHANGE IN CONTROL".  For purposes of this Plan,
          ----------------------------------------
a Change in Control will be deemed to have occurred as of the date that one or
more of the following occurs:

          (1)  Individuals who, as of the date hereof, constitute the entire
Board of Directors of the Company ("Incumbent Directors") cease for any reason
to constitute at least a majority of the Board; provided, however, that any
                                                --------  -------          
individual becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the then Incumbent Directors shall be considered as
though such individual was an Incumbent Director, but excluding, for this
purpose any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest, as such terms are
used in Rule 14a-11 under the Exchange Act or other actual or threatened
solicitation of proxies or consents by or on behalf of any Person (as defined
below) other than the Board; provided, further, that in the event ARCO at any
                             --------  -------                               
time determines to achieve minority representation on the Company's Board of
Directors approximately equal to its then ownership percentage of the Company's
common stock, its implementation of such determination through the

                                       20
<PAGE>
 
election of ARCO employees as directors of the Company shall not be deemed to be
a Change in Control and such ARCO employees shall constitute Incumbent
Directors;

          (2)  The stockholders of the Company shall approve (A) any merger,
consolidation or recapitalization of the Company (or, if the capital stock of
the Company is affected, any subsidiary of the Company), or any sale, lease, or
other transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of the Company (each of the foregoing being an "Acquisition Transaction")
where (1) the shareholders of the Company immediately prior to such Acquisition
Transaction would not immediately after such Acquisition Transaction
beneficially own, directly or indirectly, shares or other ownership interests
representing in the aggregate 80 percent or more of (a) the then outstanding
common stock or other equity interests of the corporation or other entity
surviving or resulting from such merger, consolidation or recapitalization or
acquiring such assets of the Company, as the case may be (the "Surviving
Entity") (or of its ultimate parent corporation or other entity, if any), and
(b) the Combined Voting Power of the then outstanding Voting Securities of the
Surviving Entity (or of its ultimate parent corporation or other entity, if any)
or (2) the Incumbent Directors at the time of the initial approval of such
Acquisition Transaction would not immediately after such Acquisition Transaction
constitute a majority of the Board of Directors, or similar managing group, of
the Surviving Entity (or of its ultimate parent corporation or other entity, if
any), or (B) any plan or proposal for the liquidation or dissolution of the
Company;

          (3)  Any Person except for ARCO shall be or become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of securities of the Company representing in the aggregate more than
twenty percent (20%) of either (A) the then outstanding shares of common stock
of the Company ("Common Shares") or (B) the Combined Voting Power of all then
outstanding Voting Securities of the Company; provided, however, that
                                              --------  -------
notwithstanding the foregoing, a "Change of Control" shall not be deemed to have
occurred for purposes of this Subsection (iii):

               (i)   Solely as a result of an acquisition of securities by the
Company which, by reducing the number of Common Shares or other Voting
Securities outstanding, increases (a) the proportionate number of Common Shares
beneficially owned by any Person to more than 20 percent of the Common Shares
then outstanding, or (b) the proportionate voting power represented by the
Voting Securities beneficially owned by any Person to more than 20 percent of
the Combined Voting Power of all then outstanding Voting Securities; or

                                       21
<PAGE>
 
               (ii)  Solely as a result of an acquisition of securities directly
from the Company except for any conversion of a security that was not acquired
directly from the Company, provided, further, that if any Person referred to in
                           --------  -------
paragraph (1) or (2) of this Subsection (iii) shall thereafter become the
beneficial owner of any additional Common Shares or other Voting Securities of
the Company (other than pursuant to a stock split, stock dividend or similar
transaction), then a "Change of Control" shall be deemed to have occurred for
purposes of this Subsection (iii); or

          (4)  ARCO shall become the owner, directly or indirectly, of
securities of the Company representing in the aggregate more than 50 percent of
either (i) the then outstanding Common Shares or (ii) the Combined Voting Power
of all then outstanding Voting Securities of the Company except as the result of
an acquisition of securities by the Company which, by reducing the number of
Common Shares or other Voting Securities outstanding, increases (x) the
proportionate number of Common Shares beneficially owned by ARCO to more than 50
percent of the Common Shares then outstanding, or (y) the proportionate voting
power represented by the Voting Securities beneficially owned by ARCO to more
than 50 percent of the Combined Voting Power of all then outstanding Voting
Securities; provided, however, that if thereafter ARCO becomes the beneficial
            --------  -------
owner of any additional Common Shares or other Voting Securities of the Company
(other than pursuant to a stock split, stock dividend or similar transaction)
the exception provided above shall no longer apply; provided, further, that for
                                                    --------  -------
purposes of this Subsection (iv), neither record ownership of common stock of
the Company by the Trustee for ARCO's 401(a) qualified plans nor beneficial
ownership of common stock of the Company by any of ARCO's directors for their
personal account shall be deemed to constitute "indirect" ownership of common
stock of the Company by ARCO; provided, further, that notwithstanding any
                              --------  -------
contrary provision of the Plan, no Change in Control shall be deemed to have
occurred pursuant to this Subsection (iv) if as a result of an inadvertent act
ARCO becomes the owner, directly or indirectly, of additional Common Shares or
Voting Securities and such securities are sold or otherwise disposed of by ARCO
within 30 days after ARCO discovers, or is notified by the Company as to, the
potential Change of Control resulting from such ownership, so that, as a result
of such subsequent sale or other disposition by ARCO, no Change in Control would
otherwise be deemed to have occurred pursuant to the terms (excluding this
proviso) of this Subsection (iv) .

          Notwithstanding any of the foregoing, no Change in Control shall be
deemed to have occurred as a result solely of (i) the registration by ARCO of
the Exchangeable Notes pursuant to the Registration Statement, (ii) the issuance
and sale by ARCO of the Exchangeable Notes to the underwriters in accordance
with the Registration Statement, or (iii) prior to the maturity of the
Exchangeable Notes, purchases and sales of the Exchangeable Notes.

                                       22
<PAGE>
 
     (b)  For purposes of this Section 4.12:

          (1)  "Affiliate" shall mean, as to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the specified Person, within the
meaning of such terms as used in Rule 405 under the Securities Act of 1933, as
amended, or any successor rule.

          (2)  "ARCO" shall mean Atlantic Richfield Company and any of its
Affiliates, excluding the Company.

          (3)  "Combined Voting Power" shall mean the aggregate votes entitled
to be cast generally in the election of the Board of Directors, or similar
managing group, of a corporation or other entity by holders of then outstanding
Voting Securities of such corporation or other entity.

          (4)  "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

          (5)  "Exchangeable Notes" shall mean the debt securities exchangeable
upon maturity, at ARCO's option, into shares of the Company's common stock or
cash, as such debt securities are described in the Registration Statement.

          (6)  "LCR" shall mean LYONDELL-CITGO Refining Company Ltd., a Limited
Liability Company organized under the laws of the State of Texas.

          (7)  "Person" shall mean any individual, entity (including, without
limitation, any corporation, partnership, trust, joint venture, association or
governmental body) or group (as defined in Sections 14(d)(3) or 15(d)(2) of the
Exchange Act and the rules and regulations thereunder); provided, however, that
                                                        --------  -------      
Person shall not include the Company or LCR, any of their subsidiaries, any
employee benefit plan of the Company or LCR or any of their majority-owned
subsidiaries or any entity organized, appointed or established by the Company,
LCR or such subsidiaries for or pursuant to the terms of any such plan.

          (8)  "Registration Statement" shall mean ARCO's registration statement
on Form S-3 (Registration No. 33-53481) with respect to the Exchangeable Notes.

                                       23
<PAGE>
 
          (9)  "Voting Securities" shall mean all securities of a corporation or
other entity having the right under ordinary circumstances to vote in an
election of the Board of Directors, or similar managing group, of such
corporation or other entity.

                                       24
<PAGE>
 
                                   ARTICLE V

                          DESIGNATION OF BENEFICIARY


SECTION 5.1    DESIGNATION OF BENEFICIARY.

     Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive his interest in his Account upon his death.  Such
designation shall be made on a form prescribed by and delivered to the Company.
The Participant shall have the right to change or revoke any such designation
from time to time by filing a new designation or notice of revocation with the
Company, and no notice to any Beneficiary nor consent by any Beneficiary shall
be required to effect any such change or revocation.


SECTION 5.2    FAILURE TO DESIGNATE BENEFICIARY.

     If a Participant fails to designate a Beneficiary before his death, or if
no designated Beneficiary survives the Participant, the Administrative Committee
shall direct the Company to pay the balance in his Account in a lump sum to the
executor or administrator for his estate.

                                       25
<PAGE>
 
                                  ARTICLE VI

                                ADMINISTRATION


SECTION 6.1    ADMINISTRATIVE COMMITTEE.

     The Benefits Administrative Committee for the Company shall act as this
Plan's Administrative Committee.


SECTION 6.2    RULES OF CONDUCT; ADMINISTRATIVE PROVISIONS.

     The Administrative Committee shall adopt such rules for the conduct of its
business and the administration of this Plan as it considers desirable;
provided, however, that such rules shall not conflict with the provisions of
--------  -------                                                           
this Plan.  Except as otherwise specifically provided in this Plan, all of the
administrative provisions (such as the benefit claims procedures) contained in
the 401(k) and Savings Plan shall apply to the administration of this Plan.


SECTION 6.3    LEGAL, ACCOUNTING, CLERICAL AND OTHER SERVICES.

     The Administrative Committee may authorize one or more of its members or
any agent to act on its behalf and may contract for legal, accounting, clerical
and other services to carry out this Plan.  All expenses of the Administrative
Committee shall be paid by the Company.


SECTION 6.4    INTERPRETATION OF PROVISIONS.

     The Administrative Committee shall have the exclusive right and
discretionary authority to interpret the provisions of this Plan and to decide
questions arising in its administration.  The decisions and interpretations of
the Administrative Committee shall be final and binding on the Company,
Employees and all other persons.


SECTION 6.5    RECORDS OF ADMINISTRATION.

     The Administrative Committee shall keep records reflecting the
administration of this Plan which shall be subject to audit by the Company.

                                       26
<PAGE>
 
SECTION 6.6    DENIAL OF CLAIM.

     The Administrative Committee shall provide adequate notice in writing to
any Employee or Beneficiary whose claim for benefits under this Plan has been
denied, setting forth the specific reasons for such denial.  The Employee or
Beneficiary will be given an opportunity for a full and fair review by the
Administrative Committee of the decision denying the claim.  The Employee or
Beneficiary shall be given 60 days from the date of the notice denying any such
claim within which to request such review.



SECTION 6.7    LIABILITY OF COMMITTEE.

     No member of the Administrative Committee shall be liable for any action
taken in good faith or for exercise of any power given the Administrative
Committee, or for the actions of other members of said Committee.

                                       27
<PAGE>
 
                                  ARTICLE VII

                         AMENDMENT AND DISCONTINUANCE


SECTION 7.1    AMENDMENT OF PLAN.

     This Plan may be amended from time to time by the Compensation Committee of
the Board of Directors of the Company.

SECTION 7.2    TERMINATION.

     The Company intends to continue this Plan indefinitely, but reserves the
right to terminate it at any time for any reason.


SECTION 7.3    EFFECT OF AMENDMENT OR TERMINATION.

     No amendment or termination of this Plan may adversely affect the benefit
payable to any former Employee receiving benefits under this Plan prior to the
effective date of the amendment or termination, or any Employee who, as of such
date, was eligible to receive a benefit under this Plan.

                                       28
<PAGE>
 
                                 ARTICLE VIII

                                 MISCELLANEOUS


SECTION 8.1    UNFUNDED BENEFIT PLAN.

     This Plan is intended to constitute a plan which is unfunded and maintained
primarily for the purpose of providing deferred compensation in the form of
additional retirement benefits to a select group of management or highly
compensated employees, as defined in Section 201(a)(2), 301(a)(3) and 401(a)(1)
of ERISA.

SECTION 8.2    UNSECURED GENERAL CREDITOR.

     Participants and their Beneficiaries shall have no legal or equitable
rights, claims or interests in any specific assets or property of the Company,
nor shall they be the Beneficiaries of, or have any rights, claims or interests
in any life insurance policies, annuity contracts, or the proceeds therefrom
owned, or which may be acquired by, the Company (the "Policies"). Any such
Policies or other assets of the Company shall be, and remain, the general,
unpledged, unrestricted assets of the Company. The Company's obligation under
the Plan shall be merely that of an unfunded and unsecured promise of the
Company to pay money in the future.

SECTION 8.3    GRANTOR TRUST.

     Although the Company is responsible for the payment of all benefits under
the Plan, the Company may, in its discretion, contribute funds to a grantor
trust for the purpose, as it deems appropriate, of paying benefits under this
Plan. Such trust may be irrevocable, but assets of the trust shall be subject to
the claims of creditors of Lyondell Petrochemical Company. To the extent any
benefits provided under the Plan are actually paid from the trust, the Company
shall have no further obligation with respect thereto but to the extent not so
paid, such benefits shall remain the obligation of, and shall be paid by, the
Company. The Employees shall have the status of unsecured creditors insofar as
their legal claim for benefits under the Plan and the Employees shall have no
security interest in the grantor trust.

SECTION 8.4    PAYMENTS AND BENEFITS NOT ASSIGNABLE.

     Payments to and benefits under this Plan are not assignable, transferable
or subject to alienation since they are primarily for the support and
maintenance of the Participants and their joint annuitants or Beneficiaries
after retirement. Likewise, such

                                       29
<PAGE>
 
payments shall not be subject to attachments by creditors of, or through legal
process against, the Company, the Administrative Committee or Participant.

SECTION 8.5    NO RIGHT OF EMPLOYMENT.

     The provisions of this Plan shall not give an Employee the right to be
retained in the service of the Company nor shall this Plan or any action taken
under the Plan be construed as a contract of employment.

SECTION 8.6    ADJUSTMENTS.

     At the Company's request, the Administrative Committee may, with respect to
a Participant, adjust such Participant's benefit under this Plan or make such
other adjustments with respect to such Participant as are required to correct
administrative errors or provide uniform treatment of Participants in a manner
consistent with the intent and purpose of this Plan.

SECTION 8.7    OBLIGATION TO COMPANY.

     If a Participant becomes entitled to a distribution of benefits under the
Plan, and if at such time the Participant has outstanding any debt, obligation,
or other liability representing an amount owing to the Company, or any benefit
plan maintained by the Company, then the Company may offset such amount owed to
it or such benefit plan against the amount of benefits otherwise distributable.
Such determination shall be made by the Administrative Committee.

SECTION 8.8    PROTECTIVE PROVISIONS.

     Each Participant shall cooperate with the Company by furnishing any and all
information requested by the Company in order to facilitate the payment of
benefits hereunder, taking such physical examinations as the Company may deem
necessary and taking such other relevant action as may be requested by the
Company. If a Participant refuses to cooperate, the Company shall have no
further obligation to the Participant under the Plan. If the Participant makes
any material misstatement of information or nondisclosure of medical history,
then no benefits will be payable hereunder to such Participant or his
Beneficiary, provided, that in the Company's sole discretion, benefits may be
payable in an amount reduced to compensate the Company for any loss, cost,
damage or expense suffered or incurred by the Company as a result in any way of
any such action, misstatement or nondisclosure.

                                       30
<PAGE>
 
SECTION 8.9    GENDER, SINGULAR AND PLURAL.

     All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, or neuter, as the identity of the person or persons may
require.  As the context may require, the singular may be read as the plural and
the plural as the singular.

SECTION 8.10   LAW GOVERNING.

     This Plan shall be construed, regulated and administered under the laws of
the State of Texas, except to the extent that such laws are preempted by ERISA.

SECTION 8.11   NOTICE.

     Any notice or filing required or permitted to be given to the
Administrative Committee under the Plan shall be sufficient if in writing and
hand delivered, or sent by registered or certified mail, to the principal office
of the Company, directed to the attention of the Secretary of the Administrative
Committee. Such notice shall be deemed given as to the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification.

SECTION 8.12   SUCCESSORS AND ASSIGNS.

     This Plan shall be binding upon the Company and its successors and assigns.

SECTION 8.13   PROVISIONS FOR INCAPACITY.

     If the Administrative Committee deems any person entitled to receive any
payment under the provisions of this Plan incapable of receiving or disbursing
the same by reason of minority, illness or infirmity, mental incompetency, or
incapacity of any kind, the Administrative Committee may, in its sole
discretion, take any one or more of the following actions: it may apply such
payment directly for the comfort, support and maintenance of such person; it may
reimburse any person for any such support theretofore supplied to the person
entitled to receive any such payment; or it may pay such payment to any other
person selected by the Administrative Committee to disburse such payment for the
comfort, support and maintenance of the person entitled thereto, including,
without limitations, to any relative who has undertaken, wholly or partially,
the expense of such person's comfort, care and maintenance, or any institution
in whose care or custody the person entitled to the payment may be. The
Administrative Committee may, in its sole discretion, deposit any payment due to
a minor to the

                                       31
<PAGE>
 
minor's credit in any savings or commercial bank of the Administrative
Committee's choice.

                                       32
<PAGE>
 
                                  APPENDIX A

            EXAMPLE OF SURVIVOR BENEFIT DETERMINATION AND PRORATION

 
John Doe: Current Age - 49
Presumed to die on July 1, 1996
 
<TABLE> 
<CAPTION> 
          ===================================================================== 
                                  Award            % Deferred        Amount  
          <S>                     <C>              <C>               <C>     
          1994                    $ 39,000         100%              $39,000 
          --------------------------------------------------------------------- 
          1995                       -0-           10%               -0-     
          ---------------------------------------------------------------------
          1996                    $ 60,000         10%               $ 6,000 
          ---------------------------------------------------------------------
          1997                    $ 60,000         10%               $ 6,000 
          ---------------------------------------------------------------------
          1998                    $ 70,000         10%               $ 7,000 
          ---------------------------------------------------------------------
          Total                                                      $58,000 
          =====================================================================
</TABLE> 


<TABLE> 
<CAPTION> 
          =====================================================================
                                     Base Salary   % Deferred        Amount  
          <S>                        <C>           <C>               <C>     
          1993                       $140,000      20%               $28,000 
          ---------------------------------------------------------------------
          1994                       $164,000      0%                -0-     
          ---------------------------------------------------------------------
          1995                       $170,000      10%               $17,000 
          ---------------------------------------------------------------------
          1996                       $180,000      10%               $18,000 
          ---------------------------------------------------------------------
          1997                       $190,000      10%               $19,000 
          ---------------------------------------------------------------------
          Total                                                      $82,000 
          =====================================================================
</TABLE>

CALCULATION OF SURVIVOR BENEFIT - GREATER OF:

     (a)  40 percent of Deferral Election

          $58,000 + $82,000 = $140,000 * 40% = $56,000 per yr. for 15 yrs.

          The present value of this benefit would be determined by multiplying
          the annual benefit ($56,000) by the number of years the payment is to
          be made (15) and then applying a discount rate.

          If the discount rate is 7.8%, the present value of this benefit would
          be approximately $500,000.
 
     (b)  Actual Account Balance
 
          Amounts deferred:
          $39,000 + $6,000 + $28,000 + $17,000 + $9,000 =   $ 99,000
          Interest (est.)                                   $ 21,000
                                                            --------
          Total                                             $120,000

          $120,000 paid out over 15 years.

          The annual Survivor Benefit would be $56,000 for 15 years as (a) is
          greater than (b).

PRORATION OF THE ANNUAL SURVIVOR BENEFIT BETWEEN COMPANY AND LYONDELL-CITGO:

     Company's Share: $56,000 * 75.5/140 = $30,200

     LYONDELL-CITGO's Share:  $56,000 * 64.5/140 = $25,800

                                       33