exhibit10_16.htm


    

       

       

      NATIONAL
RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

      DEFERRED
COMPENSATION PENSION RESTORATION PLAN

      
 

    

    
      1.           Participants. The
participants in the National Rural Utilities Cooperative Finance Corporation
Deferred Compensation Pension Restoration Plan (the "Deferred Compensation PRP")
eligible for benefits shall be a select group of management or highly
compensated employees of the National Rural Utilities Cooperative Finance
Corporation (the "Cooperative") who on the date of their termination of
employment from the Cooperative (or on vesting of the Deferred Compensation PRP
benefit, if earlier) have a Pension Limitation, as defined in Section 2(b) of
this Deferred Compensation PRP, applied to reduce the amount of payment that
would otherwise be payable by the "Retirement Security Plan sponsored by the
National Rural Electric Cooperative Association (the
"NRECA").

    

          


    2.           Benefit
Payment

    


    (a).  The
Deferred Compensation PRP Benefit payable under the Deferred Compensation PRP is
the amount of the Pension Limitation minus the Severance Pay Limit.

    


    (b).  The
"Pension Limitation" is the difference between the single lump sum equivalent of
(i) the participant's accrued benefit from the Retirement Security Plan as
calculated by NRECA without the limitations provided in Sections 415 and 401
(a)( 17) of the Internal Revenue Code of 1986 (the "Code"), and (ii) the
participant's accrued benefit from the Retirement Security Plan as calculated by
NRECA after application of the limitations of Sections 415 and 401 (a)( 17) of
the Code, each of which is calculated at the time a participant is entitled to a
payment hereunder. The single lump sum equivalent shall be calculated using the
lump sum methodology and assumptions specified in the Retirement Security
Plan.

    


    (c). The
"Severance Pay Limit" is an amount equal to the lesser of (i) the Frozen Benefit
under the National Rural Utilities Cooperative Finance Corporation Severance Pay
Pension Restoration Plan (the "Severance Pay Plan"), or (ii) twice the
participant's annual compensation for the year immediately preceding the year in
which the participant terminates employment with the Cooperative less the amount
of any other severance pay benefits paid by the Cooperative to the participant.
"Annual Compensation" means the total of all compensation paid by the
Cooperative to the participant including wages, salary, and any other benefit of
monetary value (whether paid in cash or otherwise), such as for example, the
cost of any fringe, welfare or pension benefit. In the event a participant's
Deferred Compensation PRP Benefit vests before the Severance Pay Plan benefit is
payable, for purposes of calculating the Deferred Compensation PRP Benefit, the
Severance Pay Limit shall be determined as of the date the Deferred Compensation
PRP Benefit vests.

    


    (d). In
determining the participant's pension benefit from the Retirement Security Plan
under Section 2(b), there shall be included in the calculation amounts paid in
cash to the


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    participant
or his beneficiary, transferred to an individual retirement account or annuity
for the benefit of the participant or beneficiary or transferred to the
participant's account in the NRECA 401 (k) Pension Plan.

    


    (e) In
the event a participant in the Deferred Compensation PRP is eligible to receive
more than one Deferred Compensation PRP Benefit, (for example, in the case of a
participant who receives his Deferred Compensation PRP Benefit before the
Retirement Security Plan benefit can be paid, and subsequently earns and becomes
vested in another Deferred Compensation PRP Benefit), the Pension Limitation
shall be calculated for each benefit payment. In addition, any subsequent
Deferred Compensation PRP Benefit shall be offset to take into account any
Deferred Compensation PRP Benefit previously paid to the participant by adding
the differences between 2(b)(i) and 2(b)(ii) for the previous payments to the
amount under 2(b)(ii) for the current payment.

    


    3.           Benefit Forfeitable by
Participant. The Deferred Compensation PRP Benefit provided in Section 2
is subject to a substantial risk of forfeiture and shall be forfeited in its
entirety if the participant's employment with the Cooperative is terminated for
any reason before the vesting date the Cooperative has specified in writing for
each participant under this Deferred Compensation PRP. If the Cooperative does not
specify such a date for any participant then such date shall be the normal
retirement date for the participant under the Retirement Security Plan. In any
event, forfeiture shall not occur if the termination of the participant's
employment with the Cooperative is caused by death, disability, or involuntary
termination without cause. For purposes of the Deferred Compensation PRP, the
term "cause" means, as determined by the Board of Directors of the Cooperative
(i) gross negligence or willful misconduct in connection with the performance of
duties; (ii) conviction of a criminal offense (other than minor traffic
offenses); or (iii) material breach of any term of any employment, consulting or
other services, confidentiality, intellectual property or non-competition
agreements, if any, between the participant and the Cooperative. Notwithstanding
the foregoing, the benefit forfeited by a participant under the Deferred
Compensation PRP maintained by the Cooperative (the ''Transferor Cooperative"),
can be reinstated if the participant is hired by another NRECA member
cooperative participating in the NRECA Pension Plan (the "Transferee
Cooperative") immediately following termination of employment with the
Transferor Cooperative, provided the Transferee Cooperative adopts the Deferred
Compensation PRP. The participant shall vest in all benefits earned under the
Deferred Compensation PRP of the Transferor Cooperative and under the Deferred
Compensation PRP of the Transferee Cooperative on the vesting date specified by
the Transferee Cooperative. It is the intention of the Cooperative that the
forfeiture provision of this Deferred Compensation PRP shall constitute a
substantial risk of forfeiture as defined in Section 457(f)(3)(B) of the
Code.

    


    4.           Timing and Form of
Payment. The Deferred Compensation PRP Benefit shall be payable to the
participant (or if deceased to his estate) in a lump sum payment immediately
upon the lapse of the substantial risk of forfeiture specified by the
Cooperative in writing pursuant to Section 3, above, but in no event later than
two and a half months following the lapse of the substantial risk of
forfeiture.

    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    5.           Termination and
Amendment. The Board of Directors of the Cooperative may amend any or all
provisions of this Plan at any time by written instrument identified as an
amendment effective as of a specified date. The Deferred Compensation PRP may be
terminated in whole or in part at any time by action of the Board of Directors
of the Cooperative. However, no such termination or amendment shall reduce any
benefit accrued by a participant in this Plan prior to the effective date of the
termination or amendment.

    


    6. Assets of the Plan and
Benefit Payments. The benefits under this Deferred Compensation PRP shall
be payable from the general assets of the Cooperative and no trust fund or
funding shall be used to secure the payment of plan benefits.

    


    7. General Administrative
Powers and Duties. General administration of the Plan shall be placed in
the Board of Directors ofthe Cooperative (the "Board"). The Board shall have the
power to take all actions required to carry out the provisions of the Deferred
Compensation PRP and shall further have the following powers and duties which
shall be exercised in a manner consistent with the provisions of the Deferred
Compensation PRP:

    


    (a) To
construe and interpret the provisions of the Deferred Compensation PRP and make
rules and regulations under the Deferred Compensation PRP to the extent deemed
advisable by the Board,

    


    (b) To
decide all questions as to eligibility to become a Participant in the Deferred
Compensation PRP and as to the rights of Participants under the Deferred
Compensation PRP,

    


    (c) To
file or cause to be filed all such reports and other statements as may be
required by any federal or state statute, agency or authority for the Deferred
Compensation PRP, and

    


    (d) To do
such other acts as it deems necessary to administer the Deferred Compensation
PRP in accordance with its provisions or as may be required by law.

    


    8. Grant of Discretion.
In discharging the duties assigned to it under the Deferred Compensation PRP,
the Board and its delegates have the discretion and final authority to interpret
and construe the terms of the Deferred Compensation PRP; to determine coverage
and eligibility for and amount of benefits under the Deferred Compensation PRP;
to adopt, amend, and rescind rules, regulations and procedures pertaining to its
duties under the Deferred Compensation PRP and the administration of the
Deferred Compensation PRP; and to make all other determinations deemed necessary
or advisable for the discharge of its duties or the administration of the
Deferred Compensation PRP. The discretionary authority of the Board and its
delegates is final, absolute, conclusive and exclusive, and binds all parties so
long as exercised in good faith. Any judicial review of any decision of the
Board or its delegates shall be limited to the arbitrary and capricious standard
of review.

    


    9.           Claim Adjudicator.
All claims for benefits under the Deferred Compensation PRP shall be determined
by the Cooperative, which shall be a named fiduciary as defined
in


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Section
402(a) of the Employee Retirement Income Security Act of 1974, as amended,
("ERISA") with respect to adjudication of such claims for benefits under the
Deferred Compensation PRP.

    


    10.           Claim Procedure. Upon
the submission of a claim for benefits under the Deferred Compensation PRP to
the Cooperative, notice of a decision with respect to the claim shall be
furnished within 90 days. If
circumstances require an extension of time for processing the claim,
written notice of the extension shall be furnished by the Cooperative to the
claimant prior to the expiration of the initial 90 day period. The notice of
extension shall indicate the circumstances requiring the extension and the date
by which the notice of the decision with respect to the claim shall be
furnished. Commencement of benefit payment shall constitute notice of approval
of a claim to the extent of the amount of approved benefit. If such claim is wholly or
partially denied, such notice shall be in writing and worded in a manner
calculated to be understood by the claimant and shall set forth (i) the reason
or reasons for the denial, (ii) specific reference to pertinent provisions of
the Deferred Compensation PRP on which the denial was based, (iii) a description
of any additional material or information necessary for the claimant to perfect
the claim and an explanation of why such material or information is necessary,
and (iv) an explanation of the claims review procedures and the time limits
applicable to such procedures, including a statement of the claimants right to
bring civil action under ERISA Section 502(a) following an adverse benefit
determination on review. If
the claimant is not notified of the decision in accordance with this
Section, such claim shall be deemed denied and the claimant shall then be
permitted to proceed with the claims review procedure provided
below.

    


    11.           Claims Review
Procedure. (a) Within 90 days following receipt of notice of a claim
denial, or within 90 days following close of the 90 day period referred to in
Section 10, the claimant must file an appeal of the denial of a claim in writing
with the Board requesting a review of such denial.

    


    (b) Prior
to a decision on the appeal by the Board, the claimant or the claimant's duly
authorized representative may review and receive copies, free of charge, of all
pertinent documents, records or other information relating to the claims and
submit issues, comments, documents, records and other relevant information in
writing for consideration, whether or not such items were submitted or
considered in the initial determination. The issues and comments submitted by a
claimant or the claimant's duly authorized representative shall supplement the
administrative record on which the appeal is to be decided and should contain
all of the additional information the claimant wishes to be considered in the
review.

    


    (c)
Within 60 days following receipt of an appeal, the Board shall render a written
decision. If circumstances
require an extension of time for reviewing an appeal, written notice of the
extension shall be furnished to the claimant or the claimant's authorized
representative prior to the commencement of the extension. If an extension of time is
elected, the Board shall render its decision within 120 days after receipt of
the appeal.

    


    (d)           The
Board's decision on the appeal shall be in writing, worded in a manner
calculated to be understood by the claimant, and shall set forth (i) the reason
or reasons for the decision, (ii) specific reference to pertinent provisions of
the plan on which the decision is based,


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    and (iii)
a statement of the claimant's right to bring an action under ERISA Section
502(a).

    


    12.           Notices. (a) The
Cooperative shall notify NRECA in writing upon the occurrence of any of the
following events:

    


    (i) The
payment of any benefits to a participant in the Deferred
Compensation

    PRP,
including the amount and time of the benefit payment, and

    


    (ii) The
adoption, amendment or termination of the Deferred Compensation PRP, including a
copy of the signed Deferred Compensation PRP as adopted or amended and the Board
resolution authorizing such action or the resolution authorizing the termination
of the Deferred Compensation PRP.

    


    (b). All
notices sent to NRECA shall be mailed to:

    Alan
Vandendriessche

    Insurance
& Financial Services
Department

    National
Rural Electric Cooperative Association

    4301
Wilson Boulevard

    Arlington,
Virginia 22203.

    


    13.           No Right to
Employment. Nothing in the Deferred Compensation PRP shall constitute,
nor be interpreted to constitute, a promise or representation of the employment
or continued employment of any individual by the Cooperative or other
entity.

    


    14.           No Waiver or
Estoppel. No term, condition or provision of the Deferred Compensation
PRP shall be deemed to have been waived, and there shall be no estoppel against
the enforcement of any provision of the Deferred Compensation PRP, except by
written instrument of the party charged with such waiver or estoppel. No such
written waiver shall be deemed a continuing waiver unless specifically stated
therein, and each such waiver shall operate only as to the specific term or
condition waived and shall not constitute a waiver of such term or condition for
the future or as to any act other than that specifically waived.

    


    15.           Misstatements of
Information. In the event of any misstatement of any fact affecting
benefits and eligibility for benefits, the true facts shall be used to determine
eligibility and benefits.

    


    16.           Applicable Law. The
provisions of this Deferred Compensation PRP shall be construed according to the
laws of the State of Virginia, except as preempted by Federal law and in
accordance with the Code and ERISA.

    


    17.           Code Section 409A. Notwithstanding any
provision to the contrary in this Deferred Compensation PRP, each provision in
this Deferred Compensation PRP shall be interpreted to permit the deferral of
compensation in accordance with Section 409A of the Code and the guidance issued
thereunder. Any provision of the Deferred Compensation PRP that


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    would
conflict with such requirements shall not be valid or enforceable.

    


    IN WITNESS WHEREOF,
Cooperative has caused this document to be executed

    effective
as of January 1, 2005.

    


    


    


    NATIONAL
RURAL UTILITIES COOPERATIVE

    FINANCE
CORPORATION

    


    (SEAL)

    


    


    Date: 7/5/06                                                                By:
/s/ JOHN T.
EVANS