<PAGE>
 
                                                                    EXHIBIT 10.4






                PMA CAPITAL CORPORATION (FORMERLY PMC) EXECUTIVE
                           DEFERRED COMPENSATION PLAN
                 (AMENDED AND RESTATED AS OF DECEMBER 7, 1998)
<PAGE>
 
                PMA CAPITAL CORPORATION (FORMERLY PMC) EXECUTIVE
                ------------------------------------------------

                           DEFERRED COMPENSATION PLAN
                           --------------------------


                               TABLE OF CONTENTS
                               -----------------
                                                                            PAGE
                                                                            ----
INTRODUCTION                                                                 1

ARTICLE I. - DEFINITIONS.................................................... 1
         1.1  "Administrator"............................................... 1
         1.2  "Beneficiary"................................................. 1
         1.3  "Benefit Distribution Date"................................... 1
         1.4  "Committee"................................................... 1
         1.5  "Compensation"................................................ 1
         1.6  "Code"........................................................ 2
         1.7  "Deferral Agreement".......................................... 2
         1.8  "Deferred Benefit Accounts"................................... 2
         1.9  "Determination Date".......................................... 2
        1.10  "Disability".................................................. 2
        1.11  "Early Retirement Age"........................................ 2
        1.12  "Education Account"........................................... 2
        1.13  "Eligible Dependent".......................................... 2
        1.14  "Eligible Employee"........................................... 3
        1.15  "Employers"................................................... 3
        1.16  "Enrollment Period"........................................... 3
        1.17  "Executive Deferral Contribution"............................. 3
        1.18  "Fixed Period Benefit Account"................................ 3
        1.19  "Investment Fund" or "Fund"................................... 3
        1.20  "Matching Contribution"....................................... 3
        1.21  "Participant"................................................. 3
        1.22  "Plan"........................................................ 3
        1.23  "Plan Sponsor"................................................ 3
        1.24  "Plan Year"................................................... 4
        1.25  "Restatement Effective Date".................................. 4
        1.26  "Retirement".................................................. 4
        1.27  "Retirement Account".......................................... 4
        1.28  "Retirement Age".............................................. 4
        1.29  "Vested"...................................................... 4

ARTICLE II. - MEMBERSHIP IN THE PLAN........................................ 4



                                      -i-
<PAGE>
 
         2.1  Commencement of Participation................................  4
         2.2  Procedure For and Effect of Admission........................  4
         2.3  Cessation of Participation...................................  4
         2.4  Recommencement of Participation..............................  5

ARTICLE III. - PLAN CONTRIBUTIONS..........................................  5
         3.1  Executive Deferral Contribution..............................  5
         3.2  Rules Governing Executive Deferral Contributions.............  5
         3.3  Matching Contribution........................................  5

ARTICLE IV. - PARTICIPANTS' ACCOUNTS.......................................  6
         4.1  Establishment of Accounts....................................  6
         4.2  Executive Benefit Allocation.................................  6
         4.3  Irrevocable Allocation.......................................  6
         4.4  Pre-1993 Directed Adjustment of Deferred Benefit Accounts....  6
         4.5  Post-1992 Directed Adjustment of Deferred Benefit Accounts...  7
         4.6  Administration of Investments................................  7
         4.7  Valuation of Deferred Benefit Accounts.......................  7
         4.8  Suballocation Within the Deferred Benefit Accounts...........  7
         4.9  Investment Obligation of the Employer........................  8

ARTICLE V. - VESTING.......................................................  8
         5.1  Vesting Schedule.............................................  8
         5.2  Forfeitures..................................................  9

ARTICLE VI. - BENEFITS.....................................................  9
         6.1  Retirement Account...........................................  9
         6.2  Education Account............................................ 10
         6.3  Fixed Period Benefit Account................................. 10
         6.4  Restructuring of Deferred Benefit Accounts................... 11
         6.5  Tax Withholding.............................................. 11

ARTICLE VII. - ADMINISTRATION.............................................. 11
         7.1  Appointment of Administrator................................. 11
         7.2  Administrator's Responsibilities............................. 11
         7.3  Records and Accounts......................................... 12
         7.4  Administrator's Specific Powers and Duties................... 12
         7.5  Employer's Responsibility to Administrator................... 13
         7.6  Expenses.                                                     13
         7.7  Liability.................................................... 13
         7.8  Indemnification.............................................. 13
         7.9  Procedure to Claim Benefits.................................. 13



                                     -ii-
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ARTICLE VIII. - AMENDMENT AND TERMINATION.................................. 14
         8.1  Plan Amendment............................................... 14
         8.2  Termination of the Plan...................................... 14
         8.3  Amendment or Termination Procedure........................... 14

ARTICLE IX. - MISCELLANEOUS................................................ 15
         9.1  Funding...................................................... 15
         9.2  No Assignment Permitted...................................... 15
         9.3  Supplemental Benefits........................................ 15
         9.4  Governing Law................................................ 15
         9.5  Jurisdiction................................................. 15
         9.6  Payments to Minors and Incompetents.......................... 15
         9.7  Binding Terms................................................ 15
         9.8  Status of Employment......................................... 16
         9.9  Severability................................................. 16
        9.10  Spendthrift Provision........................................ 16
        9.11  Headings..................................................... 16
        9.12  Rules of Interpretation...................................... 16


 
                                     -iii-
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                                  INTRODUCTION

     PMA CAPITAL CORPORATION (formerly Pennsylvania Manufacturers Corporation),
a Pennsylvania corporation, maintains the PMC Deferred Compensation Plan (the
"PMC Plan") and is the Plan Sponsor of the PMC Plan.

     The PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY, PMA
REINSURANCE CORPORATION, PENNSYLVANIA MANUFACTURERS ASSOCIATION, CALIBER ONE
INDEMNITY COMPANY, AND CALIBER ONE MANAGEMENT CORPORATION have adopted the PMC
Plan with the consent of the Board of Directors of the Plan Sponsor.

     The Employee Benefits Plan Committee of the Plan Sponsor has reserved the
right in Section 8.1 of the PMC Plan to amend the PMC Plan at any time subject
to certain inapplicable limitations.

     The Employee Benefits Plan Committee now desires to amend and restate the
PMC Plan in order to change its name to the PMA CAPITAL CORPORATION EXECUTIVE 
DEFERRED COMPENSATION PLAN effective December 7, 1998, to reflect the change of
Pennsylvania Manufacturers Corporation's name to PMA CAPITAL CORPORATION.

     Accordingly, the Employee Benefits Committee hereby amends the PMC PLAN as
follows:


                            ARTICLE I. - DEFINITIONS


      1.1 "Administrator" means the Committee unless some other individual or
individuals have been appointed in lieu thereof by the Plan Sponsor's Board of
Directors.

      1.2 "Beneficiary" means the person, persons, trust or other entity,
designated by written revocable designation filed with the Administrator by a
Participant to receive payments in the event of the Participant's death.

      1.3 "Benefit Distribution Date" means a future date selected by a
Participant, within guidelines established by the Administrator, on which the
Participant shall be entitled to a supplemental benefit pursuant to this Plan
equal to all or a designated portion of the balance of his Fixed Period Benefit
Account.

      1.4 "Committee" means the Plan Sponsor's Employee Benefits Plan Committee,
as from time to time constituted.

      1.5 "Compensation" means a Participant's rate of base pay or salary,
including Executive Deferral Contributions made hereunder and any pre-tax
elective deferrals to any Employer 

                                      -1-
<PAGE>
 
sponsored retirement savings plan or cafeteria plan, qualified pursuant to
Section 401(k) or 125 of the Code, but excluding bonuses and overtime, all other
Employer contributions to benefit plans and all other forms of remuneration or
reimbursement.

      1.6 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.

      1.7 "Deferral Agreement" means a written agreement between a Participant
and the Employer, whereby a Participant agrees to defer a portion of his
Compensation and the Employer agrees to provide benefits pursuant to the
provisions of the Plan.

      1.8 "Deferred Benefit Accounts" means the bookkeeping accounts which are
credited with a Participant's Executive Deferral and Matching Contributions and
which may take the form of one or more of the following: a Retirement Account,
an Education Account and a Fixed Period Benefit Account.

      1.9 "Determination Date" shall mean March 31, June 30, September 30 and
December 31 of each calendar year and, for each Participant, his date of death,
Retirement, or other termination of employment.

      1.10 "Disability" means for Plan Years prior to January 1, 1994 an illness
or injury which completely prevents a Participant from performing the
Participant's occupation.  For Plan Years commencing on or after January 1,
1994, Disability means a medically determinable physical or mental impairment of
a Participant which is of such severity as to make him eligible for benefits
under the Employer's group long-term disability insurance policy.  Disability
shall be determined in a uniform manner by the Administrator.

      1.11 "Early Retirement Age" means for Plan Years prior to January 1, 1993
the date on which the Participant has attained age 55 and has completed at least
5 years of employment with the Employer.  For Plan Years commencing on and after
January 1,1993, Early Retirement Age means a Participant's 50th birthday,
provided the Participant shall have completed at least 5 years of service (as
defined in Section 5.1 hereof) and further provided that the sum of the
Participant's age (at his last birthday) and years of service on the date of
retirement is at least 60.  If the sum of a Participant's age and years of
service by the date of the Participant's 50th birthday is less than 60, the
Participant's Early Retirement Age shall be attained on the date on which the
sum of the Participant's age and years of service reaches 60.

      1.12 "Education Account" means a Deferred Benefit Account established
pursuant to Section 4.1 hereof.

      1.13 "Eligible Dependent" means an individual who is a child or stepchild
or who is otherwise identified as a dependent of a Participant for federal
income tax purposes who is living at any time throughout the Enrollment Period
and who is either (i) younger than the age of 14 or (ii) younger than the age of
18, but for whom a subaccount was initially established, pursuant to Section 

                                      -2-
<PAGE>
 
4.8 hereof, prior to said dependent attaining the age of 14. Notwithstanding the
foregoing, "age 16" shall be substituted for each reference to "age 14" in this
Section 1.13 with respect to Plan Years commencing after December 31, 1991.

      1.14 "Eligible Employee" means such officers and other highly compensated
employees of the Employer who are identified and approved by the Committee.

      1.15 "Employers" means the PLAN SPONSOR, PENNSYLVANIA MANUFACTURERS'
ASSOCIATION INSURANCE COMPANY, PMA REINSURANCE CORPORATION, PENNSYLVANIA
MANUFACTURERS ASSOCIATION, CALIBER ONE INDEMNITY COMPANY, AND CALIBER ONE
MANAGEMENT CORPORATION, as well as any other related employer which adopts this
Plan with the consent of the Plan Sponsor's Board of Directors.  Each use of the
singular shall be deemed a reference to each of the Employers individually.

      1.16 "Enrollment Period" means the 61 day period ending on each December
31st.

      1.17 "Executive Deferral Contribution" means the Plan contribution
described in Section 3.1 hereof.

      1.18 "Fixed Period Benefit Account" means a Deferred Benefit Account
established pursuant to Section 4.1 hereof.

      1.19 "Investment Fund" or "Fund" means the investments described in
Section 4.4 hereof which shall serve as the means for measuring value increases
or decreases with respect to a Participant's Deferred Benefit Accounts, provided
that after December 31, 1992 Investment Fund or Fund means any of the mutual
funds which comprise The Vanguard Group of Investment Companies, other than any
such fund which is offered only to participants in tax-qualified retirement
plans.

      1.20 "Matching Contribution" means the Plan contribution described in
Section 3.3 hereof.

      1.21 "Participant" means an Eligible Employee who has met the conditions
for participation as set forth in Article II hereof.

      1.22 "Plan" means the PMA CAPITAL CORPORATION (FORMERLY PMC) EXECUTIVE
DEFERRED COMPENSATION PLAN as amended and restated in this instrument and as it
may be further amended from time to time.

      1.23 "Plan Sponsor" means PMA CAPITAL CORPORATION (formerly Pennsylvania
Manufacturers Corporation), a Pennsylvania corporation.

                                      -3-
<PAGE>
 
      1.24 "Plan Year" means the period from February 1, 1988 through December
31, 1988 and thereafter, the twelve (12) consecutive month period beginning on
each January 1 and ending on each December 31.

      1.25 "Restatement Effective Date" means December 7, 1998.

      1.26 "Retirement" means any severance from full-time employment by a
Participant after attaining his Retirement Age or Early Retirement Age.

      1.27 "Retirement Account" means a Deferred Benefit Account established
pursuant to Section 4.1 hereof.

      1.28 "Retirement Age" means that date on which a Participant attains age
65.

      1.29 "Vested" means the balance in a Participant's Deferred Benefit
Accounts to which the Participant has a nonforfeitable right, as defined in
Section 5.1 hereof.


                      ARTICLE II. - MEMBERSHIP IN THE PLAN

      2.1 Commencement of Participation.  Each Eligible Employee who is an
          -----------------------------                                   
Eligible Employee at any time during the Enrollment Period for any Plan Year
shall be eligible to become a Participant in the Plan as of the first day of
such Plan Year.  Notwithstanding the foregoing, each employee who first becomes
an Eligible Employee during the course of a Plan Year shall be eligible to
become a Participant with respect to said Plan Year during a thirty day period
commencing on the first day on which he is designated as an Eligible Employee.

      2.2 Procedure For and Effect of Admission.  Each individual who becomes
          -------------------------------------                              
eligible to participate in this Plan shall complete such forms and provide such
data as are reasonably required by the Administrator as a condition of such
participation.  By becoming a Participant, each Eligible Employee shall for all
purposes be deemed conclusively to have assented to the provisions of this Plan
and all amendments hereto.

      2.3 Cessation of Participation.  A Participant shall cease to be a
          --------------------------                                    
Participant the earlier of:

          A.  The date on which the Plan terminates, or

          B.  The date on which he ceases to be an Eligible Employee.

Notwithstanding the foregoing, a Participant who is absent by reason of an
authorized leave of absence shall remain a Participant for so long as such
authorized absence continues, but shall be ineligible for further contributions
to his Deferred Benefit Account, as described in Article III hereof.  Moreover,
a former active Participant, including, without limitation, any individual who
is no longer 

                                      -4-
<PAGE>
 
an Eligible Employee, will be deemed a Participant, for all purposes with
respect to the Plan, except contributions as described in Article III hereof, as
long as such former active Participant retains a benefit pursuant to the terms
of Article VI hereof.

      2.4 Recommencement of Participation.  A former active Participant may
          -------------------------------                                  
recommence participation following his reemployment or upon his again becoming
an Eligible Employee during the thirty (30) day period commencing on the first
day after the Committee confirms his status as an Eligible Employee.


                        ARTICLE III - PLAN CONTRIBUTIONS

      3.1 Executive Deferral Contribution.  Subject to the provisions of Section
          -------------------------------                                       
3.2 hereof, each Eligible Employee may authorize the Employer to reduce his
Compensation by any fixed dollar amount and to have a corresponding amount
credited to his Deferred Benefit Accounts, in accordance with Section 4.2
hereof.  Each Eligible Employee shall file a Deferral Agreement with the
Administrator prior to the date on which the Participant performs services with
respect to which the Compensation deferred hereunder is earned.

      3.2 Rules Governing Executive Deferral Contributions
          ------------------------------------------------

          A.  Throughout any one Plan Year, a Participant may not defer less
     than $1,000 (excepting Plan Years in which the Participant elects not to
     defer any portion of his Compensation) or more than 25% of his
     Compensation, provided that this percentage limitation shall no longer
     apply to Plan Years beginning after December 31, 1993.

          B.  A Participant shall not elect a Benefit Distribution Date with
     respect to a Fixed Period Benefit Account which occurs prior to the
     beginning of the third Plan Year following the Enrollment Period in which
     the Benefit Distribution Date is elected.

          C.  The amount of Compensation that a Participant elects to defer
     shall be credited to the Participant's Deferred Benefit Accounts during
     each Plan Year on or about that date on which the Participant is paid the
     nondeferred portion of the Compensation which is the source of the
     deferral.

          D.  An election to defer Compensation pursuant to this Plan is
     irrevocable and shall continue until the earlier of the Employee's
     termination of employment or the end of the Plan Year for which the
     deferral is effective.

      3.3 Matching Contribution.  The Employer shall make a Matching
          ---------------------                                     
Contribution for each Eligible Employee which shall equal $1.00 for each $1.00
of Executive Deferral Contribution. Notwithstanding the foregoing, no Matching
Contribution shall be made with respect to a Participant's Executive Deferral
Contribution in excess of 5% of his Compensation in effect on the 

                                      -5-
<PAGE>
 
December 31st immediately preceding the Plan Year for which the Matching
Contribution is being made and no Matching Contribution shall be made hereunder
to the extent that the sum of such Matching Contribution and the matching
contribution made on a Participant's behalf to the Employer's Section 401(k)
plan also would exceed 5% of the Participant's Compensation in effect on the
December 31st immediately preceding the Plan Year for which the Matching
Contribution is being made.


                      ARTICLE IV. - PARTICIPANTS' ACCOUNTS

      4.1 Establishment of Accounts.  One or more of the following Deferred
          -------------------------                                        
Benefit Accounts shall be established with respect to each Participant:

          A.  Retirement Account

          B.  Education Account

          C.  Fixed Period Benefit Account

     All contributions on behalf of a Participant shall be deposited to the
appropriate Deferred Benefit Accounts, in accordance with Section 4.2 hereof.

      4.2 Executive Benefit Allocation.  Each Eligible Employee shall submit to
          ----------------------------                                         
the Administrator before the close of the Enrollment Period for each Plan Year,
a written statement specifying the Eligible Employee's allocation of his
anticipated contributions with respect to his Deferred Benefit Accounts.

      4.3 Irrevocable Allocation.  Except as provided in Section 6.4 hereof,
          ----------------------                                            
once an Eligible Employee has allocated anticipated contributions under the Plan
and the Plan Year has begun, he may not modify, alter, amend or revoke said
allocation.  Notwithstanding the foregoing, a Participant may, prior to the
commencement of a new Plan Year, elect to modify, alter, amend or revoke his
future allocations to his Deferred Benefit Accounts, effective the first day of
such Plan Year.

      4.4 Pre-1993 Directed Adjustment of Deferred Benefit Accounts.  For Plan
          ---------------------------------------------------------           
Years commencing prior to January 1, 1993 and except as provided herein, a
Participant may direct that his Deferred Benefit Accounts be valued, in
accordance with Section 4.7 hereof, as if the account were invested in one or
both of the following Investment Funds:

          INVESTMENT FUND                TYPE OF INVESTMENT
          ---------------                ------------------

          Guaranteed Fund                An income fund which offers a
                                         guaranteed rate of return on an 
                                         annual basis.

                                      -6-
<PAGE>
 
          Equity Fund                    A common stock fund with an objective
                                         of long-term growth of capital and
                                         income through investment in a
                                         portfolio of "blue chip" stocks.

     A Participant shall submit to the Administrator in writing his investment
selection.  The Participant may select one or both of the Investment Funds in
multiples of 25%.  A Participant may make a separate selection with respect to
each of his Deferred Benefit Accounts.

      4.5 Post-1992 Directed Adjustment of Deferred Benefit Accounts.  For Plan
          ----------------------------------------------------------           
Years commencing on and after January 1, 1993 and except as provided herein, a
Participant may direct that his Deferred Benefit Accounts be valued, in
accordance with Section 4.7 hereof, as if the balance in the account were
invested in one or more of the Investment Funds.  The Participant may select to
invest in one or more Investment Funds, but not more than four (4) (or such
greater number as the Administrator may determine from time to time) in
multiples of 25% (or such smaller percentage as the Administrator may determine
from time to time).  A Participant may make a separate selection with respect to
each of his Deferred Benefit Accounts, but overall the Participant may not have
investments in more than four (4) (or such greater number as the Administrator
may determine from time to time) Investment Funds.

      4.6 Administration of Investments.  The investment gain or loss with
          -----------------------------                                   
respect to contributions made to the Deferred Benefit Accounts on behalf of a
Participation shall continue to be determined in the manner selected by the
Participant, pursuant to Section 4.4 or 4.5 hereof (whichever is applicable),
until a new designation is filed with the Administrator.  If any Participant
fails to file a designation, he shall be deemed to have elected to continue to
follow the investment designation, if any, in effect for the immediately
preceding Plan Year.  A designation filed by a Participant changing his
Investment Funds shall apply to future contributions and/or amounts already
accumulated in his Deferred Benefit Accounts.  A Participant may change his
investment selection two (2) times throughout the course of each Plan Year
beginning before January 1, 1994 and may change his investment selection on a
quarterly basis during each Plan Year commencing on or after January 1, 1994.

      4.7 Valuation of Deferred Benefit Accounts.  The Deferred Benefit Accounts
          --------------------------------------                                
of each Participant shall be valued daily based upon the performance of the
Investment Fund or Funds selected by the Participant.  Such valuation shall
reflect the net asset value expressed per share of each designated Investment
Fund.  The fair market value of an Investment Fund shall be determined by the
Administrator.  Each Deferred Benefit Account shall be valued separately.  A
valuation summary shall be prepared on each Determination Date.

      4.8 Suballocation Within the Deferred Benefit Accounts.
          -------------------------------------------------- 

          A.  In the event a Participant shall allocate a portion of his
     anticipated contributions to an Education Account, the Participant may
     further allocate amongst subaccounts on behalf of any Eligible Dependent.
     In the absence of such suballocation, all contributions to the

                                      -7-
<PAGE>
 
     Participant's Education Account shall be equally allocated to the
     Participant's Eligible Dependents.

          B.  In the event a Participant shall allocate a portion of his
     anticipated contributions to a Fixed Period Benefit Account, the
     Participant may further allocate amongst subaccounts differentiated by
     Benefit Distribution Dates.

          C.  Notwithstanding the foregoing, at any point in time, a Participant
     may not have more than a total of five (5) Accounts and subaccounts.

          D.  A Participant's election pursuant to Section 4.4 or 4.5 hereof,
     whichever is applicable, shall apply uniformly to each subaccount
     established pursuant to this Section 4.8.

      4.9 Investment Obligation of the Employer.  Benefits are payable as they
          -------------------------------------                               
become due irrespective of any actual investments the Employer may make to meet
its obligations.  Neither the Employer, nor any trustee (in the event the
Employer elects to use a grantor trust to accumulate funds) shall be obligated
to purchase or maintain any asset, and any reference to investments or
Investment Funds is solely for the purpose of computing the value of benefits.
To the extent a Participant or any person acquires a right to receive payments
from the Employer under this Plan, such right shall be no greater than the right
of any unsecured creditor of the Employer.  Neither this Plan nor any action
taken pursuant to the terms of this Plan shall be considered to create a
fiduciary relationship between the Employer and the Participants or any other
persons or to establish a trust in which the assets are beyond the claims of any
unsecured creditor of the Employer.


                              ARTICLE V. - VESTING

      5.1 Vesting Schedule.  A Participant shall have a fully Vested interest
          ----------------                                                   
with respect to the Executive Deferral Contributions to his Deferred Benefit
Accounts, in all instances.  A Participant's Vested interest in the Matching
Contributions to his Deferred Benefit Accounts shall be determined by the
occurrence of the following events:

          A.  100% Vested upon death or Disability;

          B.  100% Vested upon the attainment of his Retirement Age or Early
     Retirement Age;

          C.  100% Vested upon Plan termination pursuant to Section 8.3 hereof;
     or

          D.  Except as otherwise stated above, the Participant's Vested
     interest in the Matching Contributions made to his Deferred Benefit
     Accounts shall be 100% after the completion of one year of service.  As
     used herein, year of service means a consecutive 12-

                                      -8-
<PAGE>
 
     month period for which the Participant has been employed as a full-time
     Employee of the Employer.

      5.2 Forfeitures.  The Vested portion of the Matching Contributions
          -----------                                                   
allocated to the Participant's Deferred Benefit Accounts shall be determined in
accordance with Section 5.1 hereof. The non-Vested portion shall be forfeited
and shall be used to reduce future Matching Contributions to the Plan.


                             ARTICLE VI. - BENEFITS

      6.1 Retirement Account.
          ------------------ 

          A.  If a Participant remains continuously employed by the Employer
     until the earlier of his termination on or after his Retirement Age, Early
     Retirement Age, death, or Disability, the Employer shall pay to the
     Participant or to the Participant's Beneficiary, if applicable, a
     supplemental benefit equal to the balance in the Participant's Retirement
     Account, determined pursuant to Section 4.7 hereof.

          B.  If a Participant should terminate employment for any reason other
     than one of those described in Paragraph A., above, the Employer shall pay
     to the Participant or to the Participant's Beneficiary, if applicable, a
     supplemental benefit equal to the Vested balance in the Participant's
     Retirement Account, determined pursuant to Section 4.7 hereof.

          C.  In the event of a Participant's termination of employment for any
     reason, including, but not limited to, Retirement or death, the benefit to
     be paid to the Participant or Beneficiary, if applicable, shall take the
     form of a lump sum payment, installment payments or any combination of
     those two forms, as the Participant or Beneficiary, if applicable, may
     elect, provided that all payments hereunder must be completed by no later
     than the third January 1st following the end of the calendar year in which
     the Participant's termination of employment occurs (the "Maximum Deferral
     Date").  If a Participant dies prior to receiving all of the payments to
     which the Participant is entitled pursuant to the payment schedule he
     elected, the remaining payments shall be made to the Participant's
     Beneficiary.

          D.  In addition to electing the form of payment, the Participant shall
     also elect the date on which the payments shall commence, provided that the
     payment of the balance, if any, in a Fixed Period Benefit Account may
     continue to commence on its scheduled Benefit Distribution Date.
     Notwithstanding the foregoing, in no event shall any payment of the
     Participant's supplemental benefit commence on any date which follows the
     Maximum Deferral Date.

          E.  Notwithstanding any provision hereof to the contrary, if at the
     time benefits are to be paid, the Participant's Retirement Account has a
     Vested balance of less than $10,000, 

                                      -9-
<PAGE>
 
     the Administrator has the option of directing that the Participant's
     benefit hereunder shall be paid to the Participant as a lump sum on the
     first day of the first month following the Participant's date of
     termination.

      6.2 Education Account.
          ----------------- 

          A.  If a Participant remains continuously employed by the Employer
     until January 1 of the calendar year in which an Eligible Dependent of the
     Participant attains a Determination Age, the Employer shall pay to the
     Participant a supplemental benefit, as soon as administratively possible,
     determined as follows:

          ELIGIBLE DEPENDENT'S           PERCENTAGE OF ELIGIBLE
            DETERMINATION AGE            DEPENDENT'S SUBACCOUNT
            -----------------            ----------------------

               18                         25%
               19                         33%
               20                         50%
               21                         100%

          B.  If a Participant should terminate his employment for any reason
     while having a balance in his Education Account, the Vested portion of the
     balance either shall be distributed in accordance with any pre-existing
     distribution schedule or shall be transferred to an existing or new
     Retirement Account and distributed to the Participant or Beneficiary, if
     applicable, in accordance with Section 6.1 hereof, as the Participant may
     elect, but regardless of which option the Participant elects, all
     distributions must be completed by the Maximum Deferral Date.

      6.3 Fixed Period Benefit Account.
          ---------------------------- 

          A.  If a Participant remains continuously employed by the Employer
     until a designated Benefit Distribution Date, the Employer shall pay to the
     Participant a supplemental benefit equal to the Vested balance of the
     Participant's subaccount which has been earmarked with respect to said
     Benefit Distribution Date.

          B.  If a Participant should terminate his employment for any reason
     while having a Vested balance in his Fixed Period Benefit Account, the
     Vested balance either shall be distributed in accordance with any pre-
     existing distribution schedule or shall be transferred to an existing or
     new Retirement Account and distributed to the Participant or Beneficiary,
     if applicable, in accordance with Section 6.1 hereof, as the Participant
     may elect, but regardless of which option the Participant elects, all
     distributions must be completed by the Maximum Deferral Date.

                                      -10-
<PAGE>
 
      6.4 Restructuring of Deferred Benefit Accounts.  In accordance with
          ------------------------------------------                     
whatever rules and regulations may be adopted by the Administrator and subject
to the restrictions set forth hereafter, a Participant may elect to restructure
the Deferred Benefit Accounts to which Executive Deferral and Matching
Contributions have been credited.  A Participant restructures any of his
Deferred Benefit Accounts by transferring all or any portion of the balance in
one or more of the Deferred Benefit Accounts to one or more of the other
Deferred Benefit Accounts.  The following restrictions shall apply to any such
transfers:

          A.  Each election to restructure must be made during an Enrollment
     Period, but no later than during the Enrollment Period for the Plan Year in
     which a Benefit Distribution Date, Determination Date or any other payment
     date is scheduled to occur, provided that a restructuring election for the
     Plan Year beginning on January 1, 1994 may be made at any time during the
     annual Enrollment Period.

          B.  In the event a restructuring will result in a further deferral of
     the Vested balance in one or more of the Participant's Deferred Benefit
     Accounts, the initial payment date for such further deferral may be no
     earlier than the second January 1st following the January 1st of the Plan
     Year in which the distribution would otherwise have been made.

          C.  In the event a restructuring will result in an acceleration of the
     distribution of the Vested balance in one or more Deferred Benefit
     Accounts, the initial payment date for such accelerated deferral must occur
     no earlier than the third January 1st following the Enrollment Period in
     which the restructuring is elected.

      6.5 Tax Withholding.  To the extent required by the law in effect at the
          ---------------                                                     
time benefits are distributed pursuant to this Article VI, the Employer or its
agents shall withhold any taxes required by the federal or any state or local
government from payments made hereunder.


                          ARTICLE VII - ADMINISTRATION

      7.1 Appointment of Administrator.  The Administrator shall be the person
          ----------------------------                                        
designated pursuant to Section 1.1 hereof.  The Administrator may be removed by
the Plan Sponsor's Board of Directors at any time and he may resign at any time
by submitting his resignation in writing to the Plan Sponsor.  Moreover, if the
Administrator is an employee of the Employer, such individual shall be deemed to
have resigned on the date his employment is terminated should he not have
resigned or been removed prior to that date.  A new Administrator shall be
appointed as soon as possible in the event that the Administrator is removed or
resigns from his position.  Any person so appointed shall signify his acceptance
by filing a written acceptance with the Plan Sponsor.

      7.2 Administrator's Responsibilities.  The Administrator is responsible
          --------------------------------                                   
for the day to day operation and administration of the Plan.  He may appoint
other persons or entitles to perform any of his discretionary or ministerial
functions.  Such appointment shall be made and accepted by 

                                      -11-
<PAGE>
 
the appointee in writing. The Administrator and any such appointee may employ
advisors and other persons necessary or convenient to help him carry out his
duties including, but not limited to, his discretionary duties. The
Administrator shall have the right to remove any such appointee from his
position. Any person, group of persons, or entity may serve in more than one
fiduciary capacity.

      7.3 Records and Accounts.  The Administrator shall maintain or shall cause
          --------------------                                                  
to be maintained accurate and detailed records and accounts of Participants and
of their rights under the Plan and of all investments, receipts, disbursements
and other transactions.  Such accounts, books and records relating thereto shall
be open at all reasonable times to inspection and audit by the Employer and by
persons designated thereby.

      7.4 Administrator's Specific Powers and Duties.  In addition to other
          ------------------------------------------                       
powers, rights and duties set forth elsewhere in the Plan, the Administrator
shall have the following powers and duties:

          A.  To appoint, retain, and terminate such persons as it deems
     necessary or advisable to assist in the administration of the Plan or to
     render advice with respect to the responsibilities of the Administrator
     under the Plan, including accountants, actuaries, attorneys and physicians;

          B.  To make use of the services of the employees of the Employer in
     administrative matters;

          C.  To obtain and act on the basis of all tables, valuations,
     certificates, opinions, and reports furnished by the persons described in
     Paragraph A. or B., above.  Any determination of Actuarially Equivalent
     benefits by the actuary selected by the Administrator shall be conclusive
     and binding on the Employer, the Administrator and all Participants;

          D.  To determine all benefits and resolve all questions pertaining to
     the administration and interpretation of the Plan provisions, either by
     rules of general applicability or by particular decisions.  To the maximum
     extent permitted by law, all interpretations of the Plan and other
     decisions of the Administrator shall be conclusive and binding on all
     parties;

          E.  To adopt such forms, rules and regulations as it shall deem
     necessary or appropriate for the administration of the Plan and the conduct
     of its affairs, provided that any such forms, rules and regulations shall
     not be inconsistent with the provisions of the Plan;

          F.  To remedy any inequity from incorrect information received or
     communicated or from administrative error;

          G.  To commence or defend any litigation arising from the operation of
     the Plan in any legal or administrative proceeding;

                                      -12-
<PAGE>
 
          H.  To direct the Employer to pay benefits under the Plan, and to give
     such other directions and instructions as may be necessary for the proper
     administration of the Plan; and

          I.  To be responsible for the preparation, filing and disclosure on
     behalf of the Plan of such documents and reports as are required by any
     applicable federal or state law.

      7.5 Employer's Responsibility to Administrator.  The Employer shall
          ------------------------------------------                     
furnish the Administrator such data and information as he may require.  The
records of the Employer shall be determinative of each Participant's period of
employment, termination of employment and the reason therefor, leave of absence,
reemployment, years of service, personal data, and compensation reductions.
Participants and their Beneficiaries shall furnish to the Administrator such
evidence, data, or information, and execute such documents as the Administrator
requests.

      7.6 Expenses.  All expenses incident to the operation and administration
          --------                                                            
of the Plan reasonably incurred, including, without limitation by way of
specification, the fees and expenses of attorneys and advisors, and for such
other professional, technical and clerical assistance as may be required, shall
be paid by each Employer.

      7.7 Liability.  Neither the Administrator nor the Employer shall be liable
          ---------                                                             
to any person for any action taken or omitted in connection with the
administration of this Plan unless attributable to his own fraud or willful
misconduct; nor shall the Employer be liable to any person for such action
unless attributable to fraud or willful misconduct on the part of the director,
officer or employee of the Employer.

      7.8 Indemnification.  To the extent coverage is not provided by any
          ---------------                                                
applicable insurance policy, the Plan Sponsor hereby agrees to indemnify the
Administrator and each of its members, and to hold them harmless against any and
all liability for their acts, omissions and conduct and for the acts, omissions
and conduct of their duly appointed agents made in good faith pursuant to the
provisions of the Plan, including, without limitation, any out-of-pocket
expenses reasonably incurred in the defense of any claim relating thereto;
provided, however, that no person or entity so indemnified shall voluntarily
assume or admit any liability, nor, except at its or his own cost, shall any of
the foregoing make any payment, assume any obligations or incur any expense
without the prior written consent of the Plan Sponsor.  The Plan Sponsor may
purchase, at its expense, liability insurance to protect each Employer and the
persons indemnified hereunder from liability incurred in the good faith
administration of this Plan.

      7.9 Procedure to Claim Benefits.  Each Participant or Beneficiary must
          ---------------------------                                       
claim any benefit to which he is entitled under this Plan by a written
notification to the Administrator.  If a claim is denied, it must be denied
within a reasonable period of time, and be contained in a written notice stating
the following:

          A.  The specific reason for the denial.

                                      -13-
<PAGE>
 
          B.  Specific reference to the Plan provision on which the denial is
     based.

          C.  Description of additional information necessary for the claimant
     to present his claim, if any, and an explanation of why such material is
     necessary.

          D.  An explanation of the Plan's claim review procedure.

     The claimant will have 60 days to request a review of the denial by the
Administrator, who will provide a full and fair review.  The request for review
must be written and submitted to the same person who handles initial claims.
The claimant may review pertinent documents, and he may submit issues and
comments in writing.

     The decision by the Administrator with respect to the review must be given
within 60 days after receipt of the request, unless special circumstances
require an extension (such as the need for a hearing).  In no event shall the
decision be delayed beyond 120 days after receipt of the request for review.
The decision shall be written in a manner calculated to be understood by the
claimant, and it shall include specific reasons and refer to specific Plan
provisions as to its effect.


                   ARTICLE VIII - AMENDMENT AND TERMINATION

      8.1 Plan Amendment.  The Plan may be amended in whole or in part by the
          --------------                                                     
Committee at any time, provided, however, that no such action by the Committee
shall reduce the amount of a Participant's benefit accrued as of the time
thereof.  Notice of any such amendment shall be given in writing to each
Participant and each Beneficiary of a deceased Participant.

      8.2 Termination of the Plan.  The Committee shall have the right to
          -----------------------                                        
terminate the Plan and/or the Deferral Agreement pertaining to a Participant at
any time prior to the commencement of benefits, but only in the event that the
Committee, in its sole discretion, shall determine that the economics of the
Plan have been adversely and materially affected by a change in the tax laws, by
any other government action or by any other event beyond the control of the
Participant and the Committee or that the termination of the Plan is otherwise
in the best interest of each Employer.  In the event of any such termination,
the Employer shall pay a benefit to the Participant or to the Beneficiary of any
deceased Participant, in lieu of other benefits hereunder, equal to the full
value of Participant's Deferred Benefit Accounts determined pursuant to Section
4.7 hereof.  Moreover, in the event of any such termination, earnings shall
continue to be credited in accordance with Section 4.7 hereof to the balance in
the Participant's Deferred Benefit Accounts as of the Plan termination date.

      8.3 Amendment or Termination Procedure.  Each amendment shall be set forth
          ----------------------------------                                    
in a written instrument and shall be authorized and approved by a resolution of
the Committee. Similarly, the termination of the Plan shall be authorized and
approved by a resolution of the Committee.

                                      -14-
<PAGE>
 
                          ARTICLE IX. - MISCELLANEOUS

      9.1 Funding.  Benefits payable under this Plan to a Participant or
          -------                                                       
Beneficiary, if applicable, shall be paid directly by each Employer from a so-
called "rabbi trust", to the extent that such benefits are not paid from the
general assets of the Employer.  The rabbi trust is an irrevocable grantor
trust, the assets of which are subject to the claims of the general creditors of
each Employer in the event of its insolvency.  Except as to any amounts paid or
payable to the rabbi trust, the Employer shall not be obligated to set aside,
earmark or escrow any funds or other assets to satisfy its obligations under
this Plan, and the Participant and his Beneficiary shall not have any property
interest in any specific assets of the Employer other than an unsecured right to
receive payments from the Employer as provided herein.  In the event that the
amounts accumulated in the rabbi trust are not sufficient to pay the benefits
payable under this Plan, such benefits shall be paid directly from the general
assets of each Employer.

      9.2 No Assignment Permitted.  No Participant, Beneficiary or heir shall
          -----------------------                                            
have any right to commute, sell, transfer, assign, alienate or otherwise convey
the right to receive any payment under the terms of this Plan.  Any such
attempted assignment or alienation shall be considered null and void.

      9.3 Supplemental Benefits.  The benefits provided for the Participants
          ---------------------                                             
under this Plan are in addition to benefits provided by any other plan or
program of the Employer and, except as otherwise expressly provided for herein,
the benefits of this Plan shall supplement and shall not supersede any plan or
agreement between the Employer and any Participant or any provisions contained
therein.

      9.4 Governing Law.  The Plan shall be governed and construed under the
          -------------                                                     
internal laws of the Commonwealth of Pennsylvania, except to the extent
preempted by Federal law.

      9.5 Jurisdiction.  The courts of the Commonwealth of Pennsylvania shall
          ------------                                                       
have exclusive jurisdiction in any and all actions arising under this Plan.

      9.6 Payments to Minors and Incompetents.  If a Participant or Beneficiary
          -----------------------------------                                  
entitled to receive any benefits hereunder is a minor or is deemed by the
Administrator or is adjudged to be legally incapable of giving a valid receipt
and discharge for such benefits, they will be paid to the duly appointed
guardian of such minor or incompetent or to such other legally appointed person
as the Administrator may designate.  Such payment shall, to the extent made, be
deemed a complete discharge of any liability for such payment under the Plan.

      9.7 Binding Terms.  The terms of this Plan shall be binding upon and inure
          -------------                                                         
to the benefit of the Participants, Beneficiaries and Employer, their respective
heirs, executors, administrators, successors and assigns.

                                      -15-
<PAGE>
 
      9.8 Status of Employment.  Nothing herein contained shall be deemed: (1)
          --------------------                                                
to give any Participant the right to be retained in the employ of the Employer
or a subsidiary or affiliate; (2) to affect the right of the Employer to
discipline or discharge any Participant at any time; (3) to give the Employer or
a subsidiary or affiliate the right to require any Participant to remain in its
employ; or (4) to affect any Participant's right to terminate his employment at
any time.

      9.9 Severability.  In case any provision of this Plan shall be held
          ------------                                                   
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of the Plan, and the Plan shall be construed and
enforced as if such illegal and invalid provisions had never been set forth.

      9.1 Spendthrift Provision.  The interest of any Participant or any
          ---------------------                                         
Beneficiary receiving payments hereunder shall not be subject to anticipation or
assignment, nor to voluntary or involuntary alienation until distribution is
actually made.

      9.1 Headings.  All headings preceding the text of the several Articles and
          --------                                                              
Sections hereof are inserted solely for convenience of reference and shall not
constitute a part of this Plan, nor affect its meaning, construction or effect.

      9.1 Rules of Interpretation.  Where the context admits, words in the
          -----------------------                                         
masculine gender shall include the feminine and neuter genders, and the singular
shall mean the plural.

                                      -16-