Document:

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                      THE PMI GROUP, INC. RETIREMENT PLAN

                (Amended and Restated as of February 17, 2000 -

                           Effective January 1, 1998)
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                               TABLE OF CONTENTS

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INTRODUCTION..............................................................................................................   1

ARTICLE 1 DEFINITIONS.....................................................................................................   2

     1.01  "Accrued Benefit"..............................................................................................   2
     1.02  "Active Participant"...........................................................................................   2
     1.03  "Actuarial Equivalent".........................................................................................   2
     1.04  "Actuary"......................................................................................................   2
     1.05  "Adjustment Factor"............................................................................................   2
     1.06  "Affiliated Employer"..........................................................................................   2
     1.07  "Applicable Interest Rate".....................................................................................   2
     1.08  "Beneficiary"..................................................................................................   2
     1.09  "Benefit Accrual Service"......................................................................................   2
     1.10  "Benefit Commencement Date"....................................................................................   3
     1.11  "Board" or "Board of Directors"................................................................................   3
     1.12  "Break in Service".............................................................................................   3
     1.13  "Code".........................................................................................................   3
     1.14  "Committee"....................................................................................................   3
     1.15  "Compensation".................................................................................................   3
     1.16  "Covered Compensation".........................................................................................   4
     1.17  "Deferred Vested Benefit"......................................................................................   4
     1.18  "Early Retirement Benefit".....................................................................................   4
     1.19  "Early Retirement Date"........................................................................................   4
     1.20  "Effective Date"...............................................................................................   4
     1.21  "Eligible Employee"............................................................................................   4
     1.22  "Employee".....................................................................................................   5
     1.23  "Employee's Age"...............................................................................................   5
     1.24  "Employer".....................................................................................................   5
     1.25  "Employment Commencement Date".................................................................................   5
     1.26  "ERISA"........................................................................................................   5
     1.27  "Final Average Compensation"...................................................................................   5
     1.28  "Fund".........................................................................................................   5
     1.29  "Funding Agent"................................................................................................   6
     1.30  "Highly Compensated Employee" and "Highly Compensated Former Employee".........................................   6
     1.31  "Hour of Service"..............................................................................................   6
     1.32  "Joint Annuitant"..............................................................................................   6
     1.33  "Joint & Survivor Annuity".....................................................................................   6
     1.34  "Leased Employee"..............................................................................................   6
     1.35  "Limitation Year"..............................................................................................   6
     1.36  "Maternity or Paternity Absence"...............................................................................   6
     1.37  "Named Fiduciary"..............................................................................................   6
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     1.38  "Normal Retirement Age".........................................................................................   6
     1.39  "Normal Retirement Benefit".....................................................................................   6
     1.40  "Normal Retirement Date"........................................................................................   7
     1.41  "One-Year Break in Service".....................................................................................   7
     1.42  "Participant"...................................................................................................   7
     1.43  "Participating Employer"........................................................................................   7
     1.44  "Participation".................................................................................................   7
     1.45  "Period of Benefit Accrual Service".............................................................................   7
     1.46  "Period of Service".............................................................................................   7
     1.47  "Plan"..........................................................................................................   7
     1.48  "Plan Sponsor"..................................................................................................   7
     1.49  "Plan Year".....................................................................................................   7
     1.50  "Postponed Retirement Benefit"..................................................................................   7
     1.51  "Postponed Retirement Date".....................................................................................   7
     1.52  "Predecessor Employer"..........................................................................................   8
     1.53  "Predecessor to this Plan"......................................................................................   8
     1.54  "Qualified Joint & Survivor Annuity"............................................................................   8
     1.55  "Reemployment Date".............................................................................................   8
     1.56  "Retirement Date"...............................................................................................   8
     1.57  "Severance Period"..............................................................................................   8
     1.58  "Spouse"........................................................................................................   8
     1.59  "Termination"...................................................................................................   8
     1.60  "Termination Date"..............................................................................................   8
     1.61  "Trust".........................................................................................................   9
     1.62  "Trustee".......................................................................................................   9
     1.63  "Year of Benefit Accrual Service"...............................................................................   9
     1.64  "Year of Eligibility Service"...................................................................................   9
     1.65  "Year of Vesting Service".......................................................................................   9

ARTICLE 2 SERVICE COUNTING RULES...........................................................................................  10

     2.01  Period of Service -- General Rule..............................................................................   10
     2.02  Period of Service -- Computation...............................................................................   10
     2.03  Eligibility Service............................................................................................   11
     2.04  Benefit Accrual Service........................................................................................   11
     2.05  Service -- General Rule........................................................................................   11

ARTICLE 3 ELIGIBILITY FOR PARTICIPATION AND TRANSFERS.....................................................................   12

     3.01  Eligibility to Become a Participant............................................................................   12
     3.02  Eligibility Service Disregarded................................................................................   12
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     3.03  Transfer to Another Plan......................................................................................    13

ARTICLE 4 RETIREMENT ELIGIBILITY AND SUSPENSION OF BENEFITS..............................................................    14

     4.01  Retirement....................................................................................................    14
     4.02  Suspension of Benefits -- Postponed Retirement................................................................    14
     4.03  Suspension of Benefits -- Rehires.............................................................................    14
     4.04  Suspension of Benefit Notice..................................................................................    14
     4.05  Section 203(a)(3)(B) Service..................................................................................    14
     4.06  Recommencement of Benefits....................................................................................    15
     4.07  Required Commencement at Age 70 1/2...........................................................................    15
     4.08  Required Commencement -- Conditions...........................................................................    15
     4.09  Blocking......................................................................................................    15

ARTICLE 5 AMOUNT OF RETIREMENT BENEFIT...................................................................................    16

     5.01  Normal Retirement Benefit.....................................................................................    16
     5.02  Postponed Retirement Benefit..................................................................................    18
     5.03  Early Retirement Benefit......................................................................................    18
     5.04  Accrued Benefit -- Participant Who Has Attained Retirement Age................................................    19
     5.05  Accrued Benefit -- Who has Not Attained Retirement Age shall be:..............................................    19
     5.06  Adjustment for Suspension of Benefits.........................................................................    19

ARTICLE 6 REQUIRED BENEFIT LIMITATIONS...................................................................................    20

     6.01  Code Section 415 Limits.......................................................................................    20
     6.02  Special Limitation for 25 Highest-Paid Employees..............................................................    21
     6.03  Exceptions to Special Limitation..............................................................................    22
     6.04  Distributions Allowed if Security Furnished...................................................................    22
     6.05  Plan Termination Limit........................................................................................    22
     6.06  Highly Compensated Employee or Former Employee................................................................    22
     6.07  Definitions...................................................................................................    23

ARTICLE 7 VESTING........................................................................................................    24

     7.01  General Rule..................................................................................................    24
     7.02  Vesting at Normal Retirement Age..............................................................................    24
     7.03  Vesting Before Normal Retirement Age..........................................................................    24
     7.04  Vesting Upon Plan Termination.................................................................................    24
     7.05  Vesting Service Disregarded...................................................................................    24
     7.06  Repayment of Cash-Out.........................................................................................    25
     7.07  Vesting Service...............................................................................................    26
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ARTICLE 8 QUALIFIED PRERETIREMENT SURVIVOR ANNUITY.......................................................................    27

     8.01  Automatic Preretirement Spousal Death Benefit.................................................................    27

ARTICLE 9 FORMS OF BENEFIT...............................................................................................    29

     9.01  Qualified Joint & Survivor Annuity............................................................................    29
     9.02  Involuntary Lump Sum Payment..................................................................................    29
     9.03  Right to Elect................................................................................................    29
     9.04  Election of Forms.............................................................................................    29
     9.05  Optional Forms of Retirement Benefit..........................................................................    30
     9.06  Beneficiary...................................................................................................    31
     9.07  Eligible Rollover Distributions...............................................................................    32

ARTICLE 10 FUNDING.......................................................................................................    34

     10.01 Funding Agreement.............................................................................................    34
     10.02 Non-Diversion of the Fund.....................................................................................    34

ARTICLE 11 PLAN ADMINISTRATION...........................................................................................    35

     11.01 Appointment of Committee......................................................................................    35
     11.02 Powers and Duties.............................................................................................    35
     11.03 Actions by the Committee......................................................................................    36
     11.04 Interested Committee Members..................................................................................    36
     11.05 Indemnification...............................................................................................    36
     11.06 Conclusiveness of Action......................................................................................    37
     11.07 Payment of Expenses...........................................................................................    37
     11.08 Claim Procedure...............................................................................................    37

ARTICLE 12 FUNDING POLICY AND CONTRIBUTIONS..............................................................................    38

     12.01 Employer Contributions........................................................................................    38
     12.02 Participant Contributions.....................................................................................    38
     12.03 Contingent Nature of Contributions............................................................................    38

ARTICLE 13 AMENDMENT, TERMINATION AND MERGER OF THE PLAN.................................................................    39

     13.01 Right to Amend the Plan.......................................................................................    39
     13.02 Right to Terminate the Plan...................................................................................    39
     13.03 Allocation of Assets and Surplus..............................................................................    39
     13.04 Plan Mergers, Consolidations, and Transfers...................................................................    39
     13.05 Amendment of Vesting Schedule.................................................................................    40
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ARTICLE 14 TOP-HEAVY PLAN PROVISIONS.....................................................................................    41

     14.01 General Rule..................................................................................................    41
     14.02 Vesting Provision.............................................................................................    41
     14.03 Minimum Benefit Provision.....................................................................................    41
     14.04 Change in 415(e) Limits.......................................................................................    42
     14.05 Coordination With Other Plans.................................................................................    42
     14.06 Top-Heavy and Super Top-Heavy Plan Definition.................................................................    42
     14.07 Key Employee..................................................................................................    45
     14.08 Non-Key Employee..............................................................................................    46
     14.09 Collective Bargaining Rules...................................................................................    46

ARTICLE 15 MISCELLANEOUS.................................................................................................    47

     15.01 Limitation on Distributions...................................................................................    47
     15.02 Limitation on Reversion of Contributions......................................................................    47
     15.03 Voluntary Plan................................................................................................    47
     15.04 Nonalienation of Benefits.....................................................................................    48
     15.05 Inability to Receive Benefits.................................................................................    48
     15.06 Missing Persons...............................................................................................    48
     15.07 Military Service..............................................................................................    48
     15.08 Limitation of Third-Party Rights..............................................................................    48
     15.09 Invalid Provisions............................................................................................    48
     15.10 One Plan......................................................................................................    49
     15.11 Use and Form of Words.........................................................................................    49
     15.12 Headings......................................................................................................    49
     15.13 Governing Law.................................................................................................    49
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                                  INTRODUCTION
                                  ------------

          The PMI Group, Inc., having established The PMI Group, Inc. Retirement
     Plan (the "Plan") effective as of April 1, 1995, and having amended the
     Plan on three subsequent occasions, hereby amends and restates the Plan in
     its entirety, effective as of January 1, 1998 (except as otherwise provided
     herein).  The Plan is intended to qualify under Section 401(a) of the
     Internal Revenue Code of 1986, as amended.
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                                   ARTICLE 1

                                  DEFINITIONS
                                  -----------

1.01  "Accrued Benefit" shall mean the amount of annual pension benefit, payable
       ---------------
      as a straight life annuity, commencing at Normal Retirement Age, as shall
      be considered accrued at any time for a Participant in accordance with the
      provisions of Article 5.

1.02  "Active Participant" shall mean a Participant who also is an Eligible
       ------------------
      Employee.

1.03  "Actuarial Equivalent" shall mean a benefit of equivalent current values
       --------------------
      to the benefit that would otherwise have been provided to the Participant,
      determined on the basis of appropriate actuarial assumptions and methods
      that may differ from those used in establishing Plan costs and
      liabilities. Interest shall be eight percent per annum and mortality shall
      be the "applicable mortality table" described in Section 417(e)(3) of the
      Code; provided, however, that the interest used for determining lump sums
      shall be the Applicable Interest Rate.

1.04  "Actuary" shall mean that individual who is an "enrolled actuary" as
       -------
      defined in Section 7701(a)(35) of the Code or that firm of actuaries that
      has on its staff such an actuary, appointed by the Committee.

1.05  "Adjustment Factor" shall mean the cost of living adjustment factor
       -----------------
      prescribed by the Secretary of the Treasury under Section 415(d) of the
      Code for years beginning after December 31, 1987, applied to such items
      and in such manner as the Secretary shall prescribe.

1.06  "Affiliated Employer" shall mean the Plan Sponsor and any corporation,
       -------------------
      trade, or business, which, together with the Plan Sponsor, is a member of
      a "controlled group of corporations," a group under "common control," or
      an "affiliated service group," all as determined under Sections 414(b),
      (c), (m), (o) of the Code, provided that solely for purposes of Section
      6.01, the rule set forth in Section 415(h) of the Code also shall apply.

1.07  "Applicable Interest Rate" shall be the average daily interest rate on
       ------------------------
      30-year Treasury securities for the fifth month preceding the start of
      the Plan Year.

1.08  "Beneficiary" shall mean that person or persons or entity or entities
       -----------
      (including a trust) or estate that shall be entitled to receive benefits
      payable pursuant to the provisions of this Plan by virtue of a
      Participant's death, pursuant to the provisions of Article 9.

1.09  "Benefit Accrual Service" shall mean the period of service of a
       -----------------------
      Participant that is used to calculate the amount of the Participant's
      Accrued Benefit, determined in accordance with Article 2.

                                       2
<PAGE>

1.10  "Benefit Commencement Date" shall mean the first day of the month
       -------------------------
      coincident with or following the date of Termination or the date when the
      Participant first becomes eligible to begin to receive benefits unless the
      Participant elects to postpone receiving benefits until a later date, even
      though the first payment may not actually have been made at that date.

1.11  "Board" or "Board of Directors" shall mean the Board of Directors of The
       -----------------------------
      PMI Group, Inc. except that any action that could be taken by the Board
      may also be taken by a duly authorized Committee of the Board.

1.12  "Break in Service" shall mean a Termination followed by the completion
       ----------------
      of a One-Year Break in Service.

1.13  "Code" shall mean the Internal Revenue Code of 1986, as amended.
       ----
      Reference to a specific section of the Code shall include such section,
      any valid regulation promulgated thereunder, and any comparable provision
      of any future legislation amending, supplementing or superseding such
      section.

1.14  "Committee" shall mean the committee of individuals appointed by the
       ---------
      Board to be responsible for the operations and administration of the
      Plan in accordance with the provisions of Article 11.

1.15  "Compensation" shall mean an Employee's wages, salaries, fees for
       ------------
      professional services, and other amounts received (without regard to
      whether or not an amount is paid in cash) for services actually rendered
      in the course of employment with the Employer to the extent that amounts
      are includable in gross income. Compensation shall also include any
      remuneration that is currently excluded from the Participant's gross
      income by reason of the application of Sections 125 and 129, 401(k) or
      402(h)(1)(B) of the Code. Notwithstanding the foregoing, Compensation with
      respect to any Employee shall exclude:

      (a)  Any compensation directly paid or payable as fringe benefits;

      (b)  Any contributions made by the Employer for or on account of the
           Employees under this Plan, or under any other employee benefit plan
           other than as specifically excepted herein;

      (c)  Any compensation paid or payable by reason of services performed
           prior to the date the Employee becomes a Participant;

      (d)  Any compensation paid or payable by reason of services performed
           after the date the Employee ceased to be a Participant;

      (e)  Any compensation paid as part of a severance agreement;

      (f)  Any compensation paid in lieu of vacation not taken;

                                       3
<PAGE>

      (g)  Amounts in excess of $150,000, as indexed for cost of living in
           accordance with Sections 401(a)(17) and 415(d) of the Code (e.g.,
           $160,000 for 1998 and 1999, and $170,000 for 2000); and

      (h)  Any equity-based compensation (including, but not limited to, stock
           options, restricted or unrestricted stock and performance shares)
           under the Plan Sponsor's Equity Incentive Plan or any similar equity-
           based plan or arrangement sponsored by an Affiliated Employer,
           whether such compensation is paid in shares of stock or cash.

1.16  "Covered Compensation" shall mean, with respect to any Participant, the
       --------------------
      average of the contribution and benefit bases in effect under Section 230
      of the Social Security Act for each year in the 35-year period ending with
      the year in which the Participant attains Social Security retirement age,
      as calculated under Section 401(l)(5)(e)(i) of the Code using the
      unrounded values.

1.17  "Deferred Vested Benefit" shall mean the benefit to which a vested
       -----------------------
      Participant would be entitled after a Break in Service, as calculated in
      accordance with Article 5.

1.18  "Early Retirement Benefit" shall mean the benefit to which a Participant
       ------------------------
      would be entitled in the event of his retirement at his or her Early
      Retirement Date, as calculated in accordance with Article 5.

1.19  "Early Retirement Date" shall mean the date on which a Participant
       ---------------------
      becomes eligible and elects to retire with an early retirement benefit
      under the Plan, as determined in accordance with Section 5.03.

1.20  "Effective Date" shall mean January 1, 1998, except as otherwise provided
       --------------
      herein; provided however, that any provision of the Plan required as a
      result of the Small Business Job Protection Act of 1996, the Taxpayer
      Relief Act of 1997, the Uruguay Round Agreements Act of 1994, the
      Uniformed Services Employment and Reemployment Rights Act of 1994 or any
      other applicable legislation, shall be effective as of the date specified
      in such legislation.

1.21  "Eligible Employee" shall mean every Employee of an Employer except an
       -----------------
      Employee:

      (a)  who is an individual included in a unit of Employees whose
           compensation and conditions of employment are established by the
           terms of a collective bargaining agreement between an Employer and
           employee representatives, as described in Section 7701(a)(46) of the
           Code, where retirement benefits were the subject of good faith
           bargaining, unless and until such collective bargaining agreement
           provides that the Plan will apply to such individual; or

      (b)  who is an individual included in a unit or class of Employees who are
           excluded from coverage by the Plan pursuant to the policies and
           records of the Plan Sponsor; or

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<PAGE>

      (c)  who, as to any period of time, is classified or treated by an
           Employer as an independent contractor, a consultant, a Leased
           Employee, or an employee of an employment agency or any entity other
           than an Employer, even if such individual is subsequently determined
           to have been a common-law employee of an Employer during such period.

1.22  "Employee" shall mean an individual who is (a) employed by an Employer or
       --------
      Affiliated Employer as a common-law employee, or (b) a Leased Employee.
      However, if Leased Employees constitute less than 20% of the nonhighly
      compensated work force (within the meaning of Section 414(n)(5)(c)(ii) of
      the Code), the term "Employee" shall not include those Leased Employees
      who are covered by a plan described in Section 414(n)(5) of the Code.

1.23  "Employee's Age" shall mean, for the purposes of calculations involving
       --------------
      the age of the Employee, the following. The Employee shall be assumed to
      have been born on the first day of the month coincident with or following
      the Employee's date of birth and shall be assumed to have lived through
      the last day of the month in which the date of the event for which the
      Employee's age is being calculated occurs. Using the above assumptions,
      the Employee's Age shall be defined to be the number of months divided by
      12 and rounded to three decimal places. Linear interpolation shall be
      used, where necessary, in calculations involving the Employee's Age.

1.24  "Employer" shall mean The PMI Group, Inc. and any other Affiliated
       --------
      Employer that, with the consent of the Board, shall adopt this Plan for
      its Eligible Employees, but only for the period during which consent is in
      effect. "Employer" when used in this Plan shall refer to such adopting
      entities either individually or collectively, as the context may require.

1.25  "Employment Commencement Date" shall mean the date on which the Employee
       ----------------------------
      first is credited with an Hour of Service.

1.26  "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
       -----
      as amended.  Reference to a specific section of ERISA shall include such
      section, any valid regulation promulgated thereunder, and any comparable
      provision of any future legislation amending, supplementing or superseding
      such section.

1.27  "Final Average Compensation" shall mean the highest amount obtainable by
       --------------------------
      the annual Compensation of a Participant paid in any five consecutive
      calendar years out of the last ten calendar years. In calculating Final
      Average Compensation for a Participant who is being credited with Service
      under Section 2.01(d) of this Plan (relating to a Participant receiving
      benefits under a long-term disability plan), it shall be assumed that such
      Participant continued to earn at the rate equal to his Final Average
      Compensation as calculated under this Section on the date he first
      commenced to receive Service credit under Section 2.01(d).

1.28  "Fund" shall mean any fund provided for in a trust arrangement or an
       ----
      insurance contract or a combination of both, which is held by a Funding
      Agent, to which contributions under the

                                       5
<PAGE>

      Plan on and after the Effective Date will be made, and out of which
      benefits are paid to the Participants or otherwise provided for.

1.29  "Funding Agent" shall mean a Trustee or insurance company or any duly
       -------------
      appointed successor or successors selected to hold a Fund.

1.30  "Highly Compensated Employee" and "Highly Compensated Former Employee"
       ---------------------------       ----------------------------------
      shall mean an Employee who is determined to be a Highly Compensated
      Employee or Highly Compensated Former Employee under the provisions of
      Article 6 of this Plan.

1.31  "Hour of Service" shall mean each hour for which an Employee is directly
       ---------------
      or indirectly paid or entitled to payment by an Employer or Affiliated
      Employer for the performance of duties in accordance with Department of
      Labor Regulation Section 2530.200b-2(a)(1).

1.32  "Joint Annuitant" shall mean the Beneficiary who will receive retirement
       ---------------
      benefits after the death of the Participant on the basis of the
      provisions of a Joint & Survivor Annuity, as described in Article 9.

1.33  "Joint & Survivor Annuity" shall mean a retirement benefit under which
       ------------------------
      equal monthly installments are payable during the joint lifetimes of the
      retired Participant and the Joint Annuitant, and under which, upon the
      earlier death of the retired Participant, the same amount, or 50 percent
      as elected by the Participant prior to his Benefit Commencement Date,
      continues to be paid to the Joint Annuitant for the Joint Annuitant's
      lifetime.

1.34  "Leased Employee" shall mean an individual who is a leased employee
       ---------------
      (within the meaning of Section 414(n)(2) of the Code) of an Affiliated
      Employer.

1.35  "Limitation Year" shall mean the 12-month period ending on each December
       ---------------
      31.

1.36  "Maternity or Paternity Absence" means an absence from employment by
       ------------------------------
      reason of the pregnancy of an Employee, the birth of a child of the
      Employee, the placement of a child in connection with the child's adoption
      by the Employee, or the caring for a child during the period immediately
      following the birth or adoption, which the Employee certifies to the
      Employee.

1.37  "Named Fiduciary" shall mean a fiduciary designated as such under the
       ---------------
      provisions of Article 11.

1.38  "Normal Retirement Age" shall mean the age at which the Employee reaches
       ---------------------
       his Normal Retirement Date as defined in Section 1.41.

1.39  "Normal Retirement Benefit" shall mean the benefit to which a Participant
       -------------------------
      would be entitled in the event of the Participant's retirement on the
      Participant's Normal Retirement Date, as calculated in accordance with
      Article 5.

                                       6
<PAGE>

1.40  "Normal Retirement Date" shall mean the first day of the month
       ----------------------
      coincident with or following the Participant's 65th birthday.

1.41  "One-Year Break in Service" shall mean a Severance Period of 12
       -------------------------
      consecutive months.

1.42  "Participant" shall mean any Eligible Employee who becomes a Participant
       -----------
      in the Plan pursuant to Article 3 and shall include any individual who has
      separated from Service or ceased to be an Eligible Employee and for whom
      there is still a liability under the Plan.

1.43  "Participating Employer" shall mean any Affiliated Employer that has
       ----------------------
      elected, with the approval of the Board, to participate in the Plan as to
      some or all of its Eligible Employees by adopting this Plan and the
      funding agreement described in Section 10.01 of this Plan. Such employees
      shall be considered Eligible Employees under the Plan and, for the
      purposes of their benefits under the Plan, the Participating Employer
      shall be included in the definition of Employer.

1.44  "Participation" shall mean Service while an Active Participant.
       -------------

1.45  "Period of Benefit Accrual Service" shall mean as to each Participant,
       ---------------------------------
      each period beginning on the date of his or her commencement as an
      Eligible Employee and ending on his or her next Termination Date.

1.46  "Period of Service" shall mean as to each Employee (a) each period
       -----------------
      beginning on his or her Employment Commencement Date or Reemployment Date
      and ending on his or her next Termination Date, and (b) to the extent not
      counted under (a), each absence of twelve (12) months or less from service
      with all Employers and Affiliated Employers, which began by reason of, or
      within which occurred, such Employee's resignation, retirement, discharge
      or death. For purposes of applying this Section 1.46, an Employee's Period
      of Service shall include periods of employment with any other employer
      which is a "predecessor employer" of an Affiliated Employer (within the
      meaning of Section 414(a) of the Code).

1.47  "Plan" shall mean The PMI Group, Inc. Retirement Plan, as embodied herein,
       ----
      and any amendments thereto.

1.48  "Plan Sponsor" shall mean The PMI Group, Inc.
       ------------

1.49  "Plan Year" shall mean the period beginning January 1 and ending
       ---------
      December 31.

1.50  "Postponed Retirement Benefit" shall mean the benefit to which a
       ----------------------------
      Participant would be entitled in the event of his retirement after his
      Normal Retirement Date, as calculated in accordance with Article 5.

1.51  "Postponed Retirement Date" shall mean the first day of the calendar
       -------------------------
      month coincident with or next following the Participant's Termination
      Date, if such date is later than the Participant's Normal Retirement Date.

                                       7
<PAGE>

1.52  "Predecessor Employer" shall mean, with respect to an Employee, one or
       --------------------
      more of the following organizations or units, if the Employee was
      previously employed by them: PMI Mortgage Insurance Company, American
      Pioneer Title Insurance Company, PMI Mortgage Services Company, and PMI
      Reinsurance Company.

1.53  "Predecessor to this Plan" shall mean any plan for which this Plan is a
       ------------------------
      restatement, any plan that has been merged into this Plan or any
      Predecessor to this Plan, or any other plan sponsored by an entity that
      became an Affiliated Employer by acquisition or merger, and that adopted
      this Plan or a Predecessor to this Plan for any of its employees who had
      been participants in such other plan.

1.54  "Qualified Joint & Survivor Annuity" shall mean, for a married
       ----------------------------------
      Participant, a Joint and Survivor Annuity with the Participant's Spouse as
      Joint Annuitant and a 50 percent survivor benefit. For a single
      Participant it shall mean a benefit payable in the form of an annuity for
      the life of the Participant. The Qualified Joint & Survivor Annuity for a
      married Participant shall be at least the Actuarial Equivalent, determined
      under the applicable factors of Article 9 of the Participant's Accrued
      Benefit or, if greater in Actuarial Equivalent value, any optional form of
      benefit then available to the Participant under the Plan.

1.55  "Reemployment Date" shall mean the date on which an Employee first
       -----------------
      completes an Hour of Service after a Termination Date.

1.56  "Retirement Date" shall mean a Participant's Normal, Early or Postponed
       ---------------
      Retirement Date.

1.57  "Severance Period" shall mean each period beginning on an Employee's
       ----------------
      Termination Date and ending on his or her next Reemployment Date.

1.58  "Spouse" shall mean the person to whom the Participant is legally married
       ------
      on the date the Participant receives the Participant's benefit payment
      from the Plan, or the Participant's date of death, if earlier.

1.59  "Termination" shall mean the cessation of active employment with the
       -----------
      Employer or an Affiliated Employer.

1.60  "Termination Date" shall mean the earlier of (a) the date on which an
       ----------------
      Employee dies, resigns, retires or is discharged from employment with all
      Employers and Affiliated Employers, or (b) the first anniversary of the
      first date of a period in which an Employee remains absent from service
      with all Employers and Affiliated Employers for any reason other than his
      or her death, resignation, retirement or discharge, or if the absence is
      on account of a Maternity or Paternity Absence, the second anniversary of
      the first date of the Employee's absence from service with all Employers
      and Affiliated Employers. In accordance with Treas. Reg. Section 1.410(a)-
      9, the period between the first and second anniversaries of absence from
      service as the result of Maternity or Paternity Absence (the "Second
      Year") is neither a Period of Service nor a Severance Period. Accordingly,
      an Employee shall receive no credit for a Year of Benefit Accrual Service,
      a Year of Eligibility

                                       8
<PAGE>

      Service or a Year of Vesting Service during the Employee's Second Year,
      but the Employee's Severance Period shall not commence until the end of
      the Second Year.

1.61  "Trust" shall mean any trust established under an agreement between the
       -----
      Employer and a Trustee under which any portion of the Fund is held, and
      shall include any and all amendments to the Trust agreement.

1.62  "Trustee" shall mean any trustee holding any portion of the Fund under a
       -------
      Trust agreement forming a part of the Plan.

1.63  "Year of Benefit Accrual Service" shall mean a 12-month Period of
       -------------------------------
      Benefit Accrual Service. Subject to Section 2.04, an Employee's total
      number of Years of Benefit Accrual Service shall be calculated by assuming
      that the Employee (a) was hired on the first day of the month coincident
      with or following the Employee's actual date of hire, and (b) incurred a
      Termination Date on the last day of the month in which the Employee's
      actual Termination Date occurs. Years of Benefit Accrual Service shall be
      calculated by dividing the number of months determined in the preceding
      sentence by 12, and rounding down to three decimal places. Linear
      interpolation shall be used where necessary.

1.64  "Year of Eligibility Service" shall mean a 12-month Period of Service.
       ---------------------------
      Subject to Section 3.02, and Employee's total number of Years of
      Eligibility Service shall be calculated by assuming that the Employee (a)
      was hired on the first day of the month coincident with or following the
      Employee's actual date of hire, and (b) incurred a Termination Date on the
      last day of the month in which the Employee's actual Termination Date
      occurs. Years of Eligibility Service shall be calculated by dividing the
      number of months determined in the preceding sentence by 12, and rounding
      down to three decimal places. Linear interpolation shall be used where
      necessary.

1.65  "Year of Vesting Service" shall mean a 12-month Period of Service.
       -----------------------
      Subject to Section 7.05, an Employee's total number of Years of Vesting
      Service shall be calculated by assuming that the Employee (a) was hired on
      the first day of the month coincident with or following the Employee's
      actual date of hire, and (b) incurred a Termination Date on the last day
      of the month in which the Employee's actual Termination Date occurs. Years
      of Vesting Service shall be calculated by dividing the number of months
      determined in the preceding sentence by 12, and rounding down to three
      decimal places. Linear interpolation shall be used where necessary.

                                       9
<PAGE>

                                   ARTICLE 2

                             SERVICE COUNTING RULES
                             ----------------------

2.01  Period of Service -- General Rule. An Employee shall be credited with a
      ---------------------------------
      Period of Service for:

      (a)  Each period for which a person is directly or indirectly paid, or
           entitled to payment, by an Affiliated Employer or a Predecessor
           Employer for the performance of duties.  This Service shall be
           credited to the person during the appropriate Computation Period in
           which the duties are performed;

      (b)  Each period for which a person is directly or indirectly paid, or
           entitled to payment, by an Affiliated Employer or a Predecessor
           Employer for reasons other than for the performance of duties (such
           as vacation, holiday, illness, incapacity including disability, jury
           duty, military duty, leave of absence, or a leave of absence pursuant
           to the Family Leave Act, or layoff). This Service shall be credited
           to the Employee during the Computation Period in which the
           nonperformance of duties occurs, but the total credit for any single
           continuous period during which the employee performs no duties
           (whether or not in a single Computation Period) of such Service shall
           not exceed 501 hours. The computation of non-work hours described in
           this subsection will be computed in accordance with the provisions of
           the Department of Labor Regulation Section 2530.200b-2;

      (c)  Each period for which back pay, irrespective of mitigation of
           damages, has been either awarded or agreed to by an Affiliated
           Employer or Predecessor Employer. This Service will be credited to
           the person for the Plan Year to which the award or agreement
           pertains;

      (d)  Each period for which an Employee is not paid or entitled to
           payment but during which he normally would have performed duties for
           a Participating Employer during any period for which he is eligible
           to receive benefits under the long-term disability plan of a
           Participating Employer; and

      (e)  Each period for which an Employee is not paid or entitled to pay but
           during which the Employee is absent for a period of military service
           for which reemployment rights are protected by law, but only if the
           Employee returns to employment within the time required by law.

2.02  Period of Service -- Computation. For the purpose of calculating Service
      --------------------------------
      under the Plan, an Employee shall be assumed to have been hired on the
      first day of the month coincident with or following the Employee's date of
      hire and shall be assumed to have been terminated on the last day of the
      month in which the Employee's date of termination or retirement occurs.

                                       10
<PAGE>

      Using the above assumptions, Service shall be defined to be the number of
      months of Service divided by 12 and rounded to three decimal places.
      Linear interpolation shall be used, where necessary, in calculations
      involving Service.

2.03  Eligibility Service.  An Eligible Employee shall be credited with a Year
      -------------------
      of Eligibility Service if the Participant performs 12 months of Service
      during the Computation Period commencing with the date of the
      Participant's hire or most recent rehire following a Break in Service or,
      if the Participant fails to perform 12 months of Service in that
      Computation Period, the Participant shall be credited with a Year of
      Eligibility Service if the Participant performs 12 months of Service in
      any Computation Period commencing after his hire or rehire date. If a
      Participant incurs a Break in Service, Eligibility Service prior to his
      Termination Date shall not be counted until the Participant performs a
      Year of Eligibility Service following his Break in Service.

2.04  Benefit Accrual Service.  Benefit Accrual Service shall include any
      -----------------------
      Period of Service except in the case of an employee who was a participant
      in the Allstate Retirement Plan on April 1, 1995. Such prior Allstate
      Retirement Plan participant shall not receive any Benefit Accrual Service
      prior to May 1, 1995. Employees hired by the Employer between May 2, 1994
      and April 30, 1995 shall begin receiving Benefit Accrual Service on their
      original hire date with the Employer and will participate in the Plan one
      year from their original hire date with the Employer.

2.05  Service -- General Rule.  A Participant shall be credited with a Year of
      -----------------------
      Service for purposes of this Plan other than for determining eligibility
      if the Participant performs 12 months of Service during a Plan Year,
      except that a Year of Service shall not be credited for any Plan Years
      prior to a Break in Service in any of the following cases:

     (a)  Rehire Rule -- The Participant has not been credited with one Year of
          -----------
          Eligibility Service following his date of rehire, or

     (b)  Cash-Out Rule -- The Participant has previously received a
          -------------
          distribution of the present value of his entire nonforfeitable
          benefit, following his Termination Date, unless the Participant has
          repaid in full the distribution, with interest in accordance with
          Section 7.06 of this Plan. For the purposes of this rule, a
          Participant who is not entitled to a Deferred Vested Benefit upon his
          Termination Date shall be considered to be cashed out upon his
          Termination Date, or

     (c)  Rule of Parity -- The Participant was not entitled to a Deferred
          --------------
          Vested Benefit at his Termination Date and has incurred a number of
          consecutive One-Year Breaks in Service equal to the greater of five or
          the number of Years of Service credited to him prior to the first of
          such consecutive One-Year Breaks in Service.

                                       11
<PAGE>

                                   ARTICLE 3

                  ELIGIBILITY FOR PARTICIPATION AND TRANSFERS
                  -------------------------------------------

3.01  Eligibility to Become a Participant. Each individual who was a
      -----------------------------------
      Participant in the Plan on the day before the Effective Date and is an
      Eligible Employee on the Effective Date, shall automatically continue as a
      Participant on the Effective Date. Each other Eligible Employee shall
      become a Participant in the Plan on the first day of the calendar month
      that follows the first date on which he has completed one Year of
      Eligibility Service.

3.02  Eligibility Service Disregarded. The Years of Eligibility Service of a
      -------------------------------
      terminated Participant who is reemployed shall be determined in
      accordance with the following rules.

      (a)  One-Year Break in Service Before Completing One Year of Eligibility
           -------------------------------------------------------------------
           Service. If an Employee incurs a One-Year Break in Service before
           -------
           completing one Year of Eligibility Service, he or she shall be
           treated as a new Employee, upon subsequent reemployment, for the
           purpose of determining eligibility for participation in the Plan.
           Thus, such an Employee must satisfy the requirements of Section 3.01
           after his or her Reemployment Date in order to become a Participant
           in the Plan, and any service before the One-Year Break in Service
           shall be disregarded.

      (b)  Reemployment of Terminated Participants.
           ---------------------------------------

           (1)  Prior Service Disregarded.  If a Participant incurs a One-Year
                -------------------------
                Break in Service, and his or her vested percentage interest in
                his or her Accrued Benefit under the Plan was 0% when the One-
                Year Break in Service began, and the number of his or her
                consecutive One-Year Breaks in Service exceeds the greater of
                (i) the number of his or her Years of Vesting Service, or (ii)
                five (5), then he or she must again satisfy the requirements of
                Section 3.01 after his or her Reemployment Date in order to
                become a Participant in the Plan, and any service before the
                One-Year Break in Service shall be disregarded for purposes of
                eligibility.

           (2)  Prior Service Counted.  If a Participant does not incur a
                ---------------------
                One-Year Break in Service or incurs a One-Year Break in Service
                and:

                (i)  his or her vested percentage interest in his or her
                     Accrued Benefit under the Plan was greater than 0% when
                     the One-Year Break in Service began, or

                (ii) the number of his or her consecutive One-Year Breaks in
                     Service does not exceed the greater of (A) the number of
                     his or her Years of Vesting Service, or (B) five (5), then
                     he or she shall become a Participant in the

                                       12
<PAGE>

                     Plan again on his or her Reemployment Date (provided he
                     or she is reemployed as an Eligible Employee).

3.03  Transfer to Another Plan.  A Participant who ceases to be an Eligible
      ------------------------
      Employee without incurring a Termination shall cease to accrue benefits
      under this Plan as of the date on which he ceased to be an Eligible
      Employee, and his Accrued Benefit will be frozen as of the close of the
      Plan Year in which he ceases to be an Eligible Employee, but he shall
      continue to be a Participant for other purposes under the Plan and, if he
      continues to remain in the employ of an Affiliated Employer, shall
      continue to earn Vesting Service.

                                       13
<PAGE>

                                   ARTICLE 4

               RETIREMENT ELIGIBILITY AND SUSPENSION OF BENEFITS
               -------------------------------------------------

4.01  Retirement. A Participant who has reached his Retirement Date shall be
      ----------
      entitled to retire from employment with all Employers and Affiliated
      Employers and receive benefits in accordance with Article 5.

4.02  Suspension of Benefits -- Postponed Retirement. If a Participant's Service
      ----------------------------------------------
      continues after his Normal Retirement Age and such Service after his
      Normal Retirement Age constitutes Section 203(a)(3)(B) Service (as defined
      in Section 4.05), such Participant's benefits will be suspended, provided
      that the Committee notifies him that his benefits have been suspended in
      the manner provided by Section 4.04 of this Article.

4.03  Suspension of Benefits -- Rehires. If a person receiving benefits
      ---------------------------------
      hereunder is rehired by the Employer, payment of those benefits will be
      suspended as long as the rehired Employee remains employed with the
      Employer, provided such Service constitutes Section 203(a)(3)(B) Service
      (as defined in Section 4.05) and provided that the Committee notifies him
      that benefits have been suspended, in the manner provided by Section 4.04
      of this Article.

4.04  Suspension of Benefit Notice. The notice required under Sections 4.02 or
      ----------------------------
      4.03 of this Article shall contain:

      (a)  a description of the specific reasons for the suspension of benefit
           payments,

      (b)  a general description of the Plan's provisions relating to the
           suspension,

      (c)  a copy of such provisions,

      (d)  a statement to the effect that applicable Department of Labor
           regulations may be found in Section 2530.203-3 of the Code of Federal
           Regulations, and

      (e)  a description of the Plan's procedure for affording a review of such
           suspension.

      Such notice shall be furnished by personal delivery or first-class mail
      during the first calendar month in which payments are discontinued.

4.05  Section 203(a)(3)(B) Service. In accordance with Department of Labor
      ----------------------------
      Regulations Section 2530.203-3, "Section 203(a)(3)(B) Service" shall be
      determined on a monthly basis and an Employee shall be deemed to be in
      Section 203(a)(3)(B) Service in any month in which he shall perform 40 or
      more Hours of Service as defined in Department of Labor Regulations
      Section 2530.200b - 2(a)(1) and (2). An Employee shall have the right to

                                      -14-
<PAGE>

      contest the determination of his status in accordance with the procedures
      set forth in Section 11.08 of this Plan.

4.06  Recommencement of Benefits. Benefits that are suspended in accordance with
      --------------------------
      Section 4.02 or 4.03 of this Article shall be paid in any month in which
      the Participant is not considered to be in Section 203(a)(3)(B) Service.
      If an Employee whose benefits are suspended continues or recommences
      Participation in this Plan and thereafter again becomes entitled to
      benefits hereunder by virtue of a new Early, Normal, or Postponed
      Retirement, previously suspended benefits shall not be recommenced, and
      the Participant shall be entitled only to his Early, Normal, or Postponed
      Retirement Benefit, as of the Participant's new Early, Normal, or
      Postponed Retirement Date, adjusted as provided in Section 5.06.

4.07  Required Commencement at Age 70 1/2. A Participant not currently receiving
      -----------------------------------
      benefits under this Plan who attains age 70 1/2 shall commence receiving
      benefits as if the Participant had retired on December 31 of the calendar
      year in which the Participant attains age 70 1/2, and had a Benefit
      Commencement Date of April 1 of the following calendar year. Each December
      31 thereafter, and upon the Participant's later actual Postponed
      Retirement Date, the Participant benefit payment shall be recalculated
      using the Participant's actual Benefit Accrual Service and actual Final
      Average Compensation.

4.08  Required Commencement -- Conditions. Notwithstanding any provision of this
      -----------------------------------
      Plan to the contrary, all distributions under the Plan shall be made in
      accordance with the requirements of Section 401(a)(9) of the Code and the
      regulations thereunder, including the incidental death benefit
      requirements of Treasury Regulation Section 1.401(a)(9)-2. The provisions
      of this Section override any distribution options under the Plan if
      inconsistent with the requirements of Section 401(a)(9) of the Code.

4.09  Blocking.  In the event of a sale of a division or subsidiary of the
      --------
      Employer, a Participant shall not be considered to have attained his
      Early, Normal or Deferred Retirement Date until he shall have separated
      from service from the division or subsidiary that was sold by the
      Employer. In such event, Service with the division or subsidiary that was
      sold shall be considered Service with the Employer but shall not be
      Benefit Accrual Service, and all provisions of this Plan shall apply
      accordingly.

                                      -15-
<PAGE>

                                   ARTICLE 5

                         AMOUNT OF RETIREMENT BENEFIT
                         ----------------------------

5.01  Normal Retirement Benefit.
      -------------------------
      (a)   A Participant's Normal Retirement Benefit shall be an annual annuity
            for the life of the Participant, payable monthly, commencing upon
            the Participant's Normal Retirement Date, equal to a Participant's
            Base Benefit added to the Participant's Additional Benefit, as
            described below:

            (1)  "Base Benefit" is equal to 1.55 percent of a Participant's
                  ------------
                  Final Average Annual Compensation multiplied by the
                  Participant's Years of Benefit Accrual Service.

            (2)  "Additional Benefit" is equal to 0.65 percent of the excess of
                   -----------------
                  the Final Average Compensation over the Participant's Covered
                  Compensation, multiplied by the Participant's Years of Benefit
                  Accrual Service up to a maximum of 35 years.

            (3)  "Allstate Benefit." A Participant with a frozen benefit fro
                  ----------------
                  the Allstate Retirement Plan will also receive an additional
                  benefit equal to the following: The PMI Final Average
                  Compensation at the time of termination divided by the Average
                  Annual Allstate Compensation, minus one, times the frozen
                  Allstate benefit.

      (b)   Beefed-Up Benefit. The potentially higher benefit described in this
            -----------------
            Section 5.01(b) is applicable to a Participant (if at all) only if
            the Participant is neither a Highly Compensated Employee nor a
            Highly Compensated Former Employee. A Participant who retires from
            employment with all Employers and Affiliated Employers both (1)
            before December 31, 1999, and (2) while at least age 55 but less
            than age 60, shall have his or her Base Benefit and Additional
            Benefit (as described in Section 5.01(a)) recalculated as provided
            in this Section 5.01(b). If such recalculated Base Benefit and
            Additional Benefit exceeds the Base Benefit and Additional Benefit
            as originally calculated under Section 5.01(a), the Participant
            shall be entitled to the recalculated Base Benefit and Additional
            Benefit.

            (1)   The Participant's Final Average Compensation will be
                  calculated as if he or she had continued to work until the
                  earlier of December 31, 1999 or age 60 at his or her
                  Compensation in the last twelve months prior to retirement.

                                      -16-
<PAGE>

            (2)   For a Participant who was hired at Allstate before 1978, his
                  or her Base Benefit and Additional Benefit will be first
                  decreased by (i) and then increased by (ii):

                  (i)  The number of years from termination to the latter of
                       December 31, 1999 or age 60 divided by the number of
                       years of Allstate service prior to January 1, 1978 times
                       the pre-1978 benefit under the Allstate Retirement Plan.

                  (ii) The number of years from termination to the latter of
                       December 31, 1999 or age 60 divided by the number of
                       years of service from January 1, 1988 to April 1, 1995
                       times the post-1988 benefit under the Allstate Retirement
                       Plan.

      (c)   Bridge Benefit. The benefit described in this Section 5.01(c) is
            --------------
            applicable to a Participant (if at all) only if the Participant is
            neither a Highly Compensated Employee nor a Highly Compensated
            Former Employee. If a Participant retires from employment with all
            Employers and Affiliated Employers after attaining at least age 55
            and 20 years of combined service with the Employers and Allstate,
            but did not have 20 years of service with Allstate on April 1, 1995,
            the Participant shall be entitled to a temporary annuity equal to:
            (A) as reduced in (B) payable for the period described in (C) below:

            (A)   The monthly life annuity payable from the Allstate Retirement
                  Plan starting at the Participant's Normal Retirement Date
                  under the Allstate Retirement Plan. (This is the accrued
                  Allstate benefit on April 1, 1995, as communicated by
                  Allstate.)

            (B)   The monthly life annuity will be reduced by one half percent
                  per month (6% per year) for each month the Participant's
                  retirement precedes his or her Normal Retirement under the
                  Allstate Retirement Plan.

            (C)   The monthly life annuity will be paid starting on the first
                  day of the month following retirement under the Plan until the
                  earlier of the Participant's death or the date on which the
                  Participant becomes eligible to receive his or her benefit
                  from the Allstate Retirement Plan. Alternatively, the
                  Participant may elect to have, in the event of his or her
                  death, the monthly life annuity continue to his or her
                  surviving Spouse but not beyond the date when the Participant
                  would have become eligible to receive his or her benefit from
                  the Allstate Retirement Plan. If the Participant elects to
                  have the full benefit continue to his or her Spouse, then the
                  benefit in (B) will be further reduced two percent. If the
                  Participant elects to have half of the benefit continue to his
                  or her Spouse, then the benefit in (B) will be further reduced
                  one percent.

                                      -17-
<PAGE>

5.02  Postponed Retirement Benefit. A Participant who retires on the Postponed
      ----------------------------
      Retirement Date shall receive a Postponed Retirement Benefit that, subject
      to the provisions of the optional retirement benefit and the Joint &
      Survivor Annuity, shall consist of a monthly payment on the first day of
      each calendar month commencing with the Participant's Postponed Retirement
      Benefit Date, and ending with the last such payment before the
      Participant's death, equal to the Participant's Normal Retirement Benefit
      but with Benefit Accrual Service, Compensation, and Final Average
      Compensation determined as of the Participant's Postponed Retirement Date.

5.03  Early Retirement Benefit. A Participant who retires from employment with
      ------------------------
      all Employers and Affiliated Employers prior to the Participant's Normal
      Retirement Date but on or after attaining age 55, and who has completed at
      such time ten Years of Benefit Accrual Service, shall be entitled to an
      Early Retirement Benefit of an annual annuity for life, payable monthly,
      commencing at the date that would have been the Participant's Normal
      Retirement Date. At the election of the Participant, the Participant may
      receive the Participant's Early Retirement Benefit as an annuity
      commencing at the Participant's Early Retirement Date, or at any date
      thereafter, in a reduced amount calculated by multiplying the Normal
      Retirement Benefit (based upon the Participant's years of credit Service
      and Final Average Compensation as of the Participant's Early Retirement
      Date) calculated under Section 5.01 by the appropriate factor as defined
      below and using linear interpolation for partial years as necessary.

      The Base Benefit as described in Section 5.01 will be reduced by 4.8
      percent for each year before the Base Retirement Age as defined in the
      following table:

<TABLE>
<CAPTION>

               Year of Birth            Base
                                     Retirement
                                        Age
              <S>                   <C>
               Before 1942            Age 60
               1942 - 1944            Age 61
               1945 - 1947            Age 62
               1948 - 1950            Age 63
               1951 - 1953            Age 64
               After 1953             Age 65
</TABLE>

     The Additional Benefit as described in Section 5.01 will be reduced by
     eight percent for each year of early retirement from age 62 to age 65 and
     by four percent for each year of early retirement from age 55 to age 62.

                                      -18-
<PAGE>

     Notwithstanding the foregoing, Participants electing early retirement prior
     to December 31, 1999, and prior to their 60th birthday will be eligible for
     the "Beef Up" provision.  Under this provision, a Participant is eligible
     for a "Beefed Up" benefit if the Participant's date of retirement is one or
     more calendar years earlier than the earlier of (a) the Participant's 60th
     birthday, or (b) December 31, 1999.  Under the provision, the Participant's
     Final Average Compensation will be the greater of that which is calculated
     under Section 1.28 or that which would be calculated under Section 1.28 if
     the Participant continued to work until the earlier of his 60th birthday or
     December 31, 1999, and earned in each future year the same as that which he
     earned in his final full year of employment.

5.04  Accrued Benefit -- Participant Who Has Attained Retirement Age. The
      --------------------------------------------------------------
      Participant's Accrued Benefit shall be the Early, Normal, or Postponed
      Retirement Benefit to which the Participant would be entitled if he were
      to retire at such time, payable as an annuity for life commencing at
      Normal Retirement Age or, if the Participant has attained his Normal
      Retirement Age, as of the first of the calendar month coincident with or
      next following the date of calculation.

5.05  Accrued Benefit -- Who has Not Attained Retirement Age shall be:
      ---------------------------------------------------------------

      (a)  Deferred Vested Benefit. A Participant who has incurred a Break in
           -----------------------
           Service shall be entitled to an annual pension benefit, payable as a
           straight life annuity commencing at Normal Retirement Date equal to
           the Participant's Accrued Benefit on his Termination Date, provided
           that the Participant is vested under the provisions of Article 7,
           unless such Participant has been cashed out pursuant to Section 9.02.

      (b)  Deferred Vested Benefit -- Early Commencement. A Participant entitled
           ---------------------------------------------
           to a Deferred Vested Benefit who has satisfied the Service
           requirement for entitlement to an Early Retirement Benefit and who
           subsequently satisfies the age requirements for entitlement to an
           Early Retirement Benefit shall be entitled to elect to receive his
           Deferred Vested Benefit at a date prior to the date on which it
           otherwise would be payable, in an Actuarial Equivalent amount
           calculated in accordance with the factors defined below and using
           linear interpolation for partial years as necessary:

           The Base Benefit and Additional Benefit as described in Section 5.01
           will be reduced by eight percent for each year the benefit commences
           prior to age 65 but after age 60 and an additional four percent for
           each year the benefit commences prior to age 60.

5.06  Adjustment for Suspension of Benefits. The otherwise payable Early,
      -------------------------------------
      Normal, or Postponed Retirement Benefit of any Participant who had
      previously become entitled to an Early, Normal, or Postponed Retirement
      Benefit, but whose benefit payments were suspended pursuant to the
      provisions of Article 4, shall be reduced by the Actuarial Equivalent of
      any payments previously made to him.

                                      -19-
<PAGE>

                                   ARTICLE 6

                          REQUIRED BENEFIT LIMITATIONS
                          ----------------------------

6.01  Code Section 415 Limits. The benefits otherwise payable to a Participant,
      -----------------------
      or a Beneficiary under this Plan and, where relevant, the Accrued Benefit
      of a Participant, shall be limited to the extent required, and only to the
      extent required, by the provisions of Section 415 of the Code and rulings,
      notices and regulations issued thereunder. To the extent applicable,
      Section 415 of the Code and rulings, notices, and regulations issued
      thereunder are hereby incorporated by reference into this Plan. In
      calculating these limits, the following rules shall apply:

      (a)  Actuarial Equivalencies -- Effective as of April 1, 1995:
           -----------------------

           (1)  For purposes of determining the actuarial equivalent of the
                limitation described in Section 415(b)(2)(C) of the Code (and,
                except as provided in subparagraph (a)(2) of this Section 6.01,
                for purposes of determining the actuarial equivalent of the
                benefit as described in Section 415(b)(2)(B) of the Code), the
                mortality assumption used shall be the "applicable mortality
                table" described in Section 417(e)(3) of the Code and the
                interest rate assumption used shall be not less than the greater
                of 5% or the interest rate specified in Section 1.03.

           (2)  For purposes of determining the actuarial equivalent of the
                benefit described in Section 415(b)(2)(B) of the Code for any
                form of benefit subject to Section 417(e)(3) of the Code, the
                mortality assumption used shall be the "applicable mortality
                table" described in Section 417(e)(3) of the Code and the
                interest rate assumption used shall be not less than the greater
                of the Applicable Interest Rate or the interest rate specified
                in Section 1.03.

           (3)  For purposes of determining the actuarial equivalent of the
                limitation described in Section 415(b)(2)(D) of the Code, the
                mortality assumption used shall be the "applicable mortality
                table" described in Section 417(e)(3) of the Code and the
                interest rate assumption used shall be not greater than the
                lesser of 5% or the interest rate specified in Section 1.03.

      (b)  Cost-of-Living Adjustments -- If the applicable Section 415 limits
           --------------------------
           are increased after a benefit is in pay status by virtue of an
           adjustment to those limits reflecting a change in the cost-of-living
           index, benefit payments to a Participant or his Beneficiary shall be
           increased automatically to the maximum extent permitted under the
           revised limits. This increase shall occur only to the extent it would
           not cause the benefit to exceed the benefit to which the Participant
           or Beneficiary would have been entitled in the absence of the Section
           415 limits.

                                      -20-
<PAGE>

      (c)  Surviving Spouse Payments -- If, upon the death of a Participant
           -------------------------
           whose benefits were limited under this Section 6.01, the
           Participant's surviving Spouse shall be entitled to a benefit payment
           smaller than that which was payable while the Participant was alive,
           the benefit payments to the spouse shall equal the lesser of (1) and
           (2) below, where:

           (1)  is the benefit payment that would be payable to the surviving
                Spouse if benefits under this Plan had not been limited by this
                Section 6.01, and

           (2)  is the benefit payment that would be payable to the surviving
                Spouse if the benefit provided under this plan had been a Joint
                & Survivor Annuity with survivor benefits equal to 50 percent of
                the amount payable while the Participant was alive, in an amount
                equal to the maximum limitations provided under this Section
                6.01.

      (d)  Reduction for Participation in Defined Contribution Plans -- For any
           ---------------------------------------------------------
           Limitation Year beginning prior to December 31, 1999, if the
           Participant is, or ever has been, covered under one or more qualified
           defined contribution plans maintained by the Employer or an
           Affiliated Employer, the combined plan limits of Section 415(e) of
           the Code shall be calculated by reducing the limits applicable to
           this Plan first, prior to restricting annual additions to any such
           defined contribution plan. This subsection (d) shall have no force or
           effect for any Limitation Year beginning after December 31, 1999.

      (e)  Reduction for Participation in Defined Benefit Plans -- If the
           ----------------------------------------------------
           Participant is entitled to a benefit under any defined benefit plan
           that is, or ever has been, maintained by the Employer or an
           Affiliated Employer, the limits under this Section 6.01 shall be
           applied to the combined benefits payable and the benefit payable
           hereunder shall be reduced to the extent necessary to make the
           combined benefits meet the limits under this Section 6.01.

      (f)  Average Compensation -- To calculate Average Compensation for an
           --------------------
           Employee's high three years of service, compensation shall be the
           Employee's Compensation as defined in Section 1.15, and the three
           years' average shall be calculated using consecutive calendar years.

6.02  Special Limitation for 25 Highest-Paid Employees. The provision of this
      ------------------------------------------------
      Section 6.02 shall apply to the 25 highest-paid Highly Compensated
      Employees or Highly Compensated Former Employees for a Plan Year. Subject
      to Section 6.03, if a benefit becomes or is payable for a Plan Year to
      such an Employee, it cannot exceed an amount equal to the payments that
      would be made during the Plan Year on behalf of the Employee under a
      single life annuity that is the Actuarial Equivalent of the sum of the
      Employee's Accrued Benefit and any other benefits under the Plan.

                                      -21-
<PAGE>

6.03  Exceptions to Special Limitation. The provisions of Section 6.02 shall not
      --------------------------------
      apply if: (a) the value of the benefits that would be payable to an
      Employee described in Section 6.02 are less than one percent of the value
      of current liabilities, or (b) the value of the assets held in the Fund
      equals or exceeds, immediately after payment of a benefit to an Employee
      described in Section 6.02, 110 percent of the value of current
      liabilities. For purposes of this Section, the value of current
      liabilities shall be as defined in Section 412(l)(7) of the Code.

6.04  Distributions Allowed if Security Furnished. A benefit that is restricted
      -------------------------------------------
      pursuant to Section 6.02 may be nevertheless distributed if the Employee
      is obligated to repay the Plan, in the event of a termination of the Plan,
      any amount necessary for the distributions of assets to satisfy the
      requirements of Section 401(a)(4) of the Code. The amount the Employee
      shall be obligated to repay, at any time, shall not exceed a restricted
      amount, that shall equal, at any measurement date, the excess of the
      distributions the Employee has received over the amount that the Employee
      would have received had distributions commenced in a manner that would
      have not violated the provisions of Section 6.02, both accumulated at a
      reasonable rate of interest from the date payment was (or would have been)
      made to the measurement date. The Employee's obligation to repay must be
      secured by either: (a) an escrow account with an initial value at the date
      of distribution of at least 125 percent of the restricted amount, and at
      all times thereafter a value of at least 110 percent of the restricted
      amount, (b) a bond, issued by a surety approved by the U.S. Treasury as an
      acceptable surety for federal bonds, of 100 percent of the restricted
      amount, or (c) a bank letter of credit equal to 100 percent of the
      restricted amount.

6.05  Plan Termination Limit. In the event of Plan termination the benefit of
      ----------------------
      any Highly Compensated Employee or Highly Compensated Former Employee
      shall be limited to a benefit that is nondiscriminatory under Section
      401(a)(4) of the Code.

6.06  Highly Compensated Employee or Former Employee. The term "Highly
      ----------------------------------------------
      Compensated Employee" shall mean an Employee who performs service during
      the Determination Year and is described in one or more of the following
      groups in accordance with IRS regulations:

      (a)  An Employee who is or was a 5-percent owner (within the meaning of
           Section 414(q)(2) of the Code), at any time during the Determination
           Year or the Look-Back Year; or

      (b)  An Employee who received Compensation during the Look-Back Year in
           excess of $80,000 (as adjusted for such Year pursuant to Sections
           414(q)(1) and 415(d) of the Code) and was a member of the Top-Paid
           Group for such Year.

      The term "Highly Compensated Former Employee" shall mean a former Employee
      who has a separation year prior to the Determination Year and was a Highly
      Compensated active Employee for either: (1) such Employee's separation
      year or (2) any Determination Year ending on or after the Employee's 55th
      birthday.

                                      -22-
<PAGE>

     A separation year is the Determination Year in which the Employee separates
     from Service.  Notwithstanding the foregoing, an Employee who separated
     from Service before January 1, 1987, is a Highly Compensated Employee only
     if he was a five-percent owner or received Compensation in excess of
     $50,000 during (1) the Employee's separation year (or the year preceding
     such separation year), or (2) any year ending on or after such Employee's
     55th birthday (or the last year ending before such Employee's 55th
     birthday).

     Notwithstanding anything to the contrary in this Plan, Sections 414(b),
     (c), (m), (n), and (o) of the Code are applied prior to determining whether
     an Employee is a Highly Compensated Employee.

     The above provisions of this Section 6.06 shall be effective as of January
     1, 1997.

6.07  Definitions.  For purposes of this Section and Section 6.06,
      -----------

      (a)  "Compensation" shall mean compensation as defined in Section
            414(q)(4) and the regulations thereunder.

      (b)  "Determination Year" shall mean the Plan Year for which the
            determination of who is Highly Compensated is being made.

      (c)  "Look-Back Year" shall mean the 12-month period preceding the
            Determination Year.

      (d)  "Top-Paid Group" shall mean the top twenty percent (20%) of all
            Employees when ranked on the basis of Compensation paid to such
            Employees during the year under consideration. The number and
            identity of Employees in the group will be determined in accordance
            with Section 414(q).

      (e)   The Employer shall have the right to elect to determine Highly
            Compensated Employees by reference to calendar-year Compensation, in
            accordance with IRS regulations. If the Employer so elects, the
            Employer must make such election with respect to all qualified plans
            it or any Affiliated Employer maintains.

                                      -23-
<PAGE>

                                   ARTICLE 7

                                    VESTING
                                    -------
7.01  General Rule. A Participant who incurs a Break in Service at a time when
      ------------
      he is not entitled to an Early, Normal or Postponed Retirement Benefit
      under the provisions of Article 5 shall not be entitled to benefits under
      this Plan except as provided under the provisions of this Article.

7.02  Vesting at Normal Retirement Age. A Participant who has attained Normal
      --------------------------------
      Retirement Age shall be fully vested in his Accrued Benefit.

7.03  Vesting Before Normal Retirement Age. A Participant who incurs a
      ------------------------------------
      Termination at a time when he is not entitled to an Early, Normal or
      Postponed Retirement Benefit under the provisions of Article 5 shall be
      entitled to a Deferred Vested Benefit, payable as provided under Article
      5, provided the Participant has attained five Years of Vesting Service at
      the time of Termination.

      For each Participant who both (a) became an Eligible Employee after April
      1, 1995, and (b) prior to April 1, 1995, was employed by PMI for at least
      twelve (12) months, his or her Period of Service for such employment also
      shall be counted for purposes of determining his or her Years of Vesting
      Service.

7.04  Vesting Upon Plan Termination. In the event of termination or partial
      -----------------------------
      termination of this Plan, each affected Participant shall be 100 percent
      vested in his Accrued Benefit, but only to the extent funded. The
      foregoing sentence shall not apply to a former Participant who has been
      cashed out (including those deemed cashed out under Section 7.05(c)) or
      who has incurred five consecutive One-Year Breaks in Service after his
      Termination Date. Such a former Participant shall not be entitled to any
      additional vested benefit upon Termination or partial Termination.

7.05  Vesting Service Disregarded. The Years of Vesting Service of a terminated
      ---------------------------
      Participant who is reemployed shall be determined in accordance with the
      following rules.

      (a)  Prior Service Disregarded. If a Participant incurs a One-Year Break
           -------------------------
           in Service, and his or her vested percentage interest in his or her
           Accrued Benefit under the Plan was 0% when the One-Year Break in
           Service began, and the number of his or her consecutive One-Year
           Breaks in Service exceeds the greater of (1) the number of his or her
           Years of Vesting Service, or (2) five, then his or her Years of
           Vesting Service credited before the One-Year Break in Service shall
           be disregarded.

      (b)  Prior Service Counted. If a Participant does not incur a One-Year
           ---------------------
           Break in Service, or incurs a One-Year Break in Service, and:

                                      -24-
<PAGE>

           (1)  his or her vested percentage interest in his or her Accrued
                Benefit under the Plan was greater than 0% when the One-Year
                Break in Service began, or

           (2)  the number of his or her consecutive One-Year Breaks in Service
                does not exceed the greater of (A) the number of his or her
                Years of Vesting Service, or (B) five,

      then the Years of Vesting Service credited before the Participant's
      termination shall be reinstated, effective as of his or her Reemployment
      Date.

      (c)   Future Service Disregarded. In determining a Participant's Accrued
            --------------------------
           Benefit and Years of Vesting Service for purposes of the Plan, if the
           Participant incurs a Termination Date and the nonforfeitable
           percentage of his or her Accrued Benefit at that time is zero, he
           shall be deemed to have received a complete distribution of the
           nonforfeitable portion of his or her Accrued Benefit at the time of
           his or her Termination Date, and shall immediately forfeit his or her
           Accrued Benefit. However, such forfeited Accrued Benefit shall be
           restored if the Participant has a Reemployment Date within five
           consecutive One-Year Breaks in Service following such Termination
           Date. The portion of a Participant's Accrued Benefit and Years of
           Vesting Service previously disregarded by a prior application of this
           paragraph shall not be counted for the purpose of the preceding
           sentences.

7.06  Repayment of Cash-Out. If an Employee shall have received a full
      ---------------------
      distribution of his nonforfeitable interest in this Plan following his
      Termination Date, he shall be entitled to repay the amount of that
      distribution to the Plan together with compound interest at the rate of
      five percent per annum for any period prior to the first day of the Plan
      Year beginning on or after January 1, 1988, and at the rate of 120 percent
      of the applicable federal midterm rate as in effect for the first month of
      the Plan Year for any Plan Year or portion of a Plan Year that commences
      on or after January 1, 1988. Any such repayment shall be made prior to the
      earlier of:

      (a)  The fifth anniversary of the date on which the Employee was rehired
           by the Employer, or

      (b)  The close of the first period of five consecutive One-Year Breaks in
           Service following the Participant's Termination Date.

           A Participant who is deemed to have been cashed out under Section
           7.05(c) because he was not entitled to a Deferred Vested Benefit on
           his Termination Date shall be deemed to have properly made a
           repayment upon again becoming a Participant. Such a deemed repayment
           will not restore Years of Service which would not be counted under
           the provisions of Section 7.05(c) (the Rule of Parity).

                                      -25-
<PAGE>

7.07  Vesting Service. A Participant shall be credited with a Year of Vesting
      ---------------
      Service as provided in Sections 1.66, 7.05 and 7.06, except that Vesting
      Service shall not include any Year of Service completed prior to the date
      of establishment of this Plan or the Predecessor to this Plan other than a
      Participant's service completed with Allstate prior to April 1, 1995, if
      the Participant was employed by Allstate on March 31, 1995 and by the
      Employer or an Affiliated Employer on April 1, 1995.

                                      -26-
<PAGE>

                                   ARTICLE 8

                    QUALIFIED PRERETIREMENT SURVIVOR ANNUITY
                    ----------------------------------------

8.01  Automatic Preretirement Spousal Death Benefit
      ---------------------------------------------

      (a)  Except as provided in subsection (b) below, in the event a
           Participant with a vested right to his Accrued Benefit under the Plan
           dies before his Benefit Commencement Date, a death benefit shall be
           provided to the Participant's Spouse as follows:

           (1)  If the Participant at the date of death was eligible to retire
                and receive a benefit under the Plan at an Early, Normal or
                Postponed Retirement Date, then his surviving Spouse shall
                automatically receive a death benefit in an amount equal to one-
                half of the amount of the retirement benefit that would have
                been payable to the Spouse if the Participant had retired on the
                day preceding his death, receiving a benefit in the form of a
                Joint & Survivor Annuity with a 50 percent survivor annuity to
                the Spouse.

           (2)  If the Participant at the date of death was not eligible to
                retire under the Plan and receive a benefit under the Plan at an
                Early, Normal, or Postponed Retirement Date, then the
                Participant's surviving Spouse shall receive an Automatic
                Preretirement Spousal Death Benefit in an amount equal to the
                amount that would have been payable to the spouse under the
                normal form of payment under Section 9.01, assuming:

               (A)  the Participant had separated from service on the earlier of
                    his Termination Date or date of his death,

               (B)  the Participant had survived to the earliest date he could
                    have retired and received a benefit under the Plan pursuant
                    to Article 5,

               (C)  the Participant retired on such date with a benefit in the
                    form of a Joint & Survivor Annuity with a 50 percent
                    survivor annuity to the Spouse but calculated using only
                    actual Benefit Accrual Service as of the Participant's date
                    of death, (and if the Participant was only partially vested
                    on his date of death, multiplied by the Participant's vested
                    percentage as determined under Section 7.03 on the date of
                    death), and

               (D)  the Participant died on the day after his Benefit
                    Commencement Date.

           The Automatic Preretirement Spousal Death Benefit under this Section
           8.01(a)(2) shall commence to be paid to the Spouse, unless the Spouse
           elects otherwise, as of the first day of the month coinciding with or
           next following the earliest date the

                                      -27-
<PAGE>

           Participant could have retired and received a benefit under the Plan
           pursuant to Article 4, had he not died, and shall be paid up to the
           first day of the month in which such spouse dies. The Spouse may not
           delay commencement of the Automatic Preretirement Spousal Death
           Benefit beyond the Participant's Normal Retirement Date.

      (b)  The Automatic Preretirement Spousal Death Benefit payable under this
           Article 8 shall be payable after the death of the Participant only if
           the Spouse had been married to the Participant throughout the one-
           year period ending on the date of the Participant's death.

                                      -28-
<PAGE>

                                   ARTICLE 9

                                FORMS OF BENEFIT
                                ----------------

9.01  Qualified Joint & Survivor Annuity. At the earliest time a Participant
      ----------------------------------
      could become entitled to commence receiving payments of an Early, Normal
      or Postponed Retirement Benefit or of a Deferred Vested Benefit, other
      than an involuntary lump sum payment under the provisions of Section 9.02,
      benefits shall commence in the form of a Qualified Joint & Survivor
      Annuity (which, for a Participant who has no Spouse, includes a single
      life annuity) unless the Participant, with the consent of his Spouse, if
      any, elects otherwise. Any consent of the Participant's Spouse shall be
      made within 90 days of the date the Qualified Joint & Survivor Annuity
      would otherwise commence, and shall be executed in accordance with the
      rules of Section 9.04.

9.02  Involuntary Lump Sum Payment. If at any time a Participant has incurred a
      ----------------------------
      Termination but has not begun to receive benefit payments, and is entitled
      to a benefit (whether Early, Normal, or Postponed) or to a Deferred Vested
      Benefit, or a Beneficiary is entitled to a death benefit hereunder, that
      has an Actuarial Equivalent value of less than $5,000, the Actuarial
      Equivalent value shall be paid to such Participant or Beneficiary in a
      lump sum in lieu of, and in full satisfaction of, his benefit under this
      Plan. Neither the consent of the Beneficiary, the Participant nor of his
      Spouse shall be necessary to make such payment. Upon the making of such
      payment, neither the Beneficiary, the Participant nor his Spouse shall
      have any further benefit under this Plan. Participants deemed to have a
      zero accrued account benefit at Termination shall be deemed to have been
      cashed out under this Section 9.02.

9.03  Right to Elect. In lieu of the benefits provided by Section 9.01, the
      --------------
      Participant shall have the right to elect, prior to his Benefit
      Commencement Date, an alternate form of benefit provided under the terms
      of this Article 9. If the Participant is married, any such election may be
      made only with the consent of his Spouse, executed as provided under
      Section 9.04. Any alternative form of benefit shall be the Actuarial
      Equivalent of the Participant's Accrued Benefit.

9.04  Election of Forms. A Participant may make or revoke an election of any
      -----------------
      form of benefit to which the Participant is entitled under this Article 9
      in writing to the Committee, and such election or revocation shall be
      subject to the following conditions:

      (a)  The Committee shall furnish to each Participant a general written
           explanation in nontechnical terms of the availability of the various
           optional forms of payment under the Plan within a reasonable period
           of time prior to the earliest date the Participant could retire under
           the Plan. A Participant has a right to receive, within 30 days after
           filing a written request with the Committee, a written explanation of
           the terms and conditions of the Qualified Joint & Survivor Annuity,
           the Participant's right to make and the effect of an election to
           waive the Qualified Joint & Survivor Annuity, the

                                      -29-
<PAGE>

           rights of the Participant's Spouse (if any), the right to make, and
           the effect of, a revocation of a previous election to waive the
           Qualified Joint & Survivor Annuity, and the financial effect upon the
           Participant, given in terms of dollars per annuity payment. Requests
           for additional information may be made by the Participant at any time
           before the 90th day prior to the Benefit Commencement Date.

      (b)  An election to receive an optional form of benefit may be made at
           any time during the election period. The election period is a period
           of 90 days prior to the Participant's Benefit Commencement Date.
           Subject to subsection (c) below, a Participant may make an election
           not to receive the Qualified Joint & Survivor Annuity, revoke any
           previous election, and if the Participant so desires, make a new
           election, until the expiration of the election period.

      (c)  If a Participant is married, an election of a form of benefit
           other than the Qualified Joint & Survivor Annuity will require the
           written consent of the Spouse, and such written consent must be
           witnessed by a notary public (or a representative of the Plan).

      (d)  Any consent by a Spouse obtained under this Section 9.04 shall be
           effective only with respect to the specific form of benefit elected.
           Additionally, a married Participant's designation of a Beneficiary
           other than his or her Spouse shall not be effective unless the
           election designates a specific Beneficiary which may not be changed
           without spousal consent.

      (e)  Notwithstanding any provision of the Plan to the contrary, a
           Participant's Benefit Commencement Date may be less than 30 days
           after the written explanation described in subsection (a) above is
           furnished to the Participant, provided that: (1) the Participant has
           been provided with information that clearly indicates that the
           Participant has at least 30 days to consider whether to waive the
           Qualified Joint & Survivor Annuity and elect (with spousal consent,
           if applicable) a form of distribution other than a Qualified Joint &
           Survivor Annuity, (2) the Participant is permitted to revoke any
           affirmative distribution election at least until the Benefit
           Commencement Date or, if later, at any time prior to the expiration
           of the 7-day period that begins the day after the explanation of the
           Qualified Joint & Survivor Annuity is provided to the Participant,
           (3) the Benefit Commencement Date is a date after the date that the
           written explanation was provided to the Participant, but may be a
           date before the date that an affirmative distribution election is
           made by the Participant, and (4) the distribution must not actually
           commence before the expiration of the foregoing 7-day period.

9.05  Optional Forms of Retirement Benefit. The optional forms which a
      ------------------------------------
      Participant may elect are any one of the following:

      (a)  50 Percent or 100 Percent Joint & Survivor Annuitant Option -- An
           -----------------------------------------------------------
           Actuarial Equivalent monthly benefit payable to the Participant for
           life, and after his death in the amount of 50 percent or 100 percent
           of such amount (as specified by the

                                      -30-
<PAGE>

           Participant prior to commencement of benefits) to the Joint Annuitant
           for life. Should the Joint Annuitant die prior to the Participant's
           Benefit Commencement Date, any election of this option shall be
           automatically canceled. If the Participant should die prior to the
           Benefit Commencement Date, no payments shall be made under this
           option to the Joint Annuitant, but if the Joint Annuitant is the
           Spouse of the Participant, such Spouse will be entitled to the death
           benefit provided under Article 8.

           The factor to convert the life annuity to the 50 percent Joint &
           Survivor Annuitant Option above is 94 percent plus 0.3 percent for
           each full year that the Joint Annuitant is more than five years older
           than the Participant not to exceed 99 percent or minus 0.3 percent
           for each full year that the Joint Annuitant is more than five years
           younger than the Participant. The factor to convert the life annuity
           to the 100 percent Joint & Survivor Annuitant Option above is 89
           percent plus 0.5 percent for each full year that the Joint Annuitant
           is more than five years older than the Participant not to exceed 99
           percent or minus 0.5 percent for each full year that the Joint
           Annuitant is more than five years younger than the Participant.

      (b)  Ten-Year Certain and Life Income Option -- An Actuarial Equivalent
           ---------------------------------------
           monthly benefit that provides retirement benefit payments to the
           Participant for his lifetime with a guaranteed minimum period of at
           least ten. In the event of the death of the Participant after the
           Benefit Commencement Date, but prior to the Participant's receiving
           retirement benefit payments for the whole Ten-Year Certain period,
           the remaining payments for the minimum term of years will be paid to
           the Participant's Beneficiary. In the event of the death of the
           Participant prior to the Participant's Benefit Commencement Date, the
           election of this option shall be void and of no effect.

           The factor to convert the life annuity to the above option will be 95
           percent at age 65 plus 0.4 percent for each full year that the
           benefit commencement date precedes age 65 or minus 0.7 percent for
           each full year that the benefit commencement date is postponed past
           age 65.

      (c)  Straight Life Annuity Option -- A Participant who has a Spouse may
           ----------------------------
           elect to have the Participant's retirement benefit payable in equal,
           unreduced monthly payments during the Participant's lifetime, with no
           further payments to any other person after the Participant's death.
           If this option is elected, the retirement benefit payable to the
           Participant shall be the amount of retirement benefit determined
           under the applicable Section(s) of Article 5.

      (d)  Lump Sum Payment Option -- A single payment equal to the Actuarial
           -----------------------
           Equivalent of the Participant's accrued retirement benefit.

9.06  Beneficiary. A Participant may name a Joint Annuitant who is an individual
      -----------
      for a Joint & Survivor Annuity option. For a Ten-Year Certain and Life
      Income Option, the Participant may elect, in writing, an individual or
      individuals, or any entity or entities, including

                                      -31-
<PAGE>

      corporations, partnerships or trusts, provided that such individuals and
      entities are ascertainable, and the shares of each are clearly set forth.
      In the event any Beneficiary predeceases the Participant or is not in
      existence, not ascertainable, or cannot be located at the date benefits
      become payable to such beneficiary, benefits shall be paid to such
      contingent Beneficiary or Beneficiaries as shall have been named by the
      Participant on the Participant's original beneficiary election, and, if
      none, the contingent Beneficiary shall be the Participant's estate.

9.07  Eligible Rollover Distributions.
      -------------------------------

      (a)  Notwithstanding any provision of the Plan to the contrary that would
           otherwise limit a distributee's election under this Section, a
           distributee may elect, at the time and in the manner prescribed by
           the Committee, to have any portion of an eligible rollover
           distribution paid directly to an eligible retirement plan specified
           by the distributee in a direct rollover.

      (b)  Definitions.

           (1)  Eligible rollover distribution -- An eligible rollover
                ------------------------------
                distribution is any distribution of all or any portion of the
                balance to the credit of the distributee, except that an
                eligible rollover distribution does not include: any
                distribution that is one of a series of substantially equal
                periodic payments (not less frequently than annually) made for
                the life (or life expectancy) of the distributee or the joint
                lives (or joint life expectancies) of the distributee and the
                distributee's designated Beneficiary, or for a specified period
                of ten years or more; any distribution to the extent such
                distribution is required under Section 401(a)(9) of the Code;
                and the portion of any distribution that is not includable in
                gross income (determined without regard to the exclusion for net
                unrealized appreciation with respect to Employer securities).

           (2)  Eligible retirement plan -- An eligible retirement plan is an
                ------------------------
                individual retirement account described in Section 408(a) of the
                Code, an individual retirement annuity described in Section
                408(b) of the Code, an annuity plan described in Section 403(a)
                of the Code, or a qualified trust described in Section 401(a) of
                the Code, that accepts the distributee's eligible rollover
                distribution. However, in the case of an eligible rollover
                distribution to the surviving spouse, an eligible retirement
                plan is an individual retirement account or individual
                retirement annuity.

           (3)  Distributee -- A distributee includes an Employee or former
                -----------
                Employee. In addition, the Employee's or former Employee's
                surviving Spouse and the Employee's or former Employee's Spouse
                or former Spouse who is the alternate payee under a Qualified
                Domestic Relations Order, as defined in Section 414(p) of the
                Code, are distributees with regard to the interest of the Spouse
                or former Spouse.

                                      -32-
<PAGE>

           (4)  Direct rollover -- A direct rollover is a payment by the Plan to
                ---------------
                the eligible retirement plan specified by the distributee.

                                      -33-

<PAGE>

                                  ARTICLE 10

                                    FUNDING
                                    -------

10.01  Funding Agreement. The Employer has entered into a funding arrangement
       -----------------
       with one or more Funding Agents providing for the administration of the
       Fund or Funds in which the assets of this Plan are held. The Employer may
       at any time or from time to time appoint one or more investment managers,
       as defined under Section 3(38) of ERISA, each of which shall direct the
       Funding Agent in the investment or reinvestment of all or part of the
       Fund.

10.02  Non-Diversion of the Fund. To the extent required by law, the principal
       -------------------------
       or income of any Fund shall be used solely for the exclusive benefit of
       Participants or Beneficiaries, or to meet the necessary expenses of the
       Plan, except that upon termination of the Plan, after all the liabilities
       under the Plan have been satisfied, any property remaining in a Fund
       after satisfaction of all liabilities under this Plan shall be considered
       the result of erroneous actuarial computation and shall be distributed by
       the Funding Agent to the Employer.

                                      -34-
<PAGE>

                                  ARTICLE 11

                              PLAN ADMINISTRATION
                              -------------------
11.01  Appointment of Committee.-- A Committee consisting of at least three
       ------------------------
       members shall be appointed by the Board to administer the Plan on behalf
       of the Board. Vacancies in the Committee shall be filled from time to
       time by appointment of a new Committee member by the Board. A member of
       the Committee shall hold office until he gives written notice of his
       resignation to the Board, until death, or until removal by the Board.

11.02  Powers and Duties.
       -----------------

       (a)  The Committee shall have full power and discretion to administer the
            Plan and to construe and apply all of its provisions on behalf of
            the Employer. The Committee is the Named Fiduciary within the
            meaning of Section 402(a) of ERISA for purposes of Plan
            administration. The Committee's powers and duties, unless properly
            delegated, shall include, but shall not be limited to:

            (1)  Designating agents to carry out responsibilities relating to
                 the Plan, other than fiduciary responsibilities.

            (2)  Deciding questions relating to eligibility, continuity of
                 employment, and amounts of benefits.

            (3)  Deciding disputes that may arise with regard to the rights of
                 Employees, Participants and their legal representatives, or
                 Beneficiaries under the terms of the Plan. Decisions by the
                 Committee will be deemed final in each case.

            (4)  Obtaining information from the Employer with respect to its
                 Employees as necessary to determine the rights and benefits of
                 Participants under the Plan. The Committee may rely
                 conclusively on such information furnished by the Employer.

            (5)  Compiling and maintaining all records necessary for the Plan.

            (6)  Authorizing the Funding Agent to make payment of all benefits
                 as they become payable under the Plan.

            (7)  Engaging such legal, administrative, consulting, actuarial,
                 investment, accounting, and other professional services as the
                 Committee deems proper.

            (8)  Adopting rules and regulations for the administration of the
                 Plan that are not inconsistent with the Plan. The Committee
                 may, in a nondiscriminatory

                                      -35-
<PAGE>

                 manner, waive the timing requirements of any notice or other
                 requirements described in the Plan. Any such waiver will not
                 obligate the Committee to waive any subsequent timing or other
                 requirements for other Participants.

            (9)  Interpreting and approving Qualified Domestic Relations Orders,
                 as defined in Section 414(p) of the Code.

            (10) Making nonsubstantive amendments for the purpose of maintaining
                 the qualified status of the Plan only.

            (11) Performing other actions provided for in other parts of this
                 Plan.

       (b)  The Employer shall have responsibility for, and shall be the Named
            Fiduciary for, the following purposes:

           (1)  Selection of the funding media for the Plan, including the power
                to direct investments and to appoint an investment manager or
                managers pursuant to Section 402(c) of ERISA.

           (2)  Allocating fiduciary responsibilities, other than trustee
                responsibilities as defined in Section 405(c) of ERISA, among
                fiduciaries, and designation of additional fiduciaries.

           (3)  Selection of insurance contracts to provide benefits hereunder,
                or, if all assets are not held under insurance contracts, the
                Trustee.

      (c)  The Trustee, if any, shall have responsibility for, and shall be the
           Named Fiduciary for the care and custody of, and, to the extent
           investment managers are not appointed by the Employer, management of
           Plan assets held by such Trustee other than insurance contracts.

11.03 Actions by the Committee. A majority of the members composing the
      ------------------------
      Committee at any time will constitute a quorum. The Committee may act at a
      meeting, or in writing without a meeting, by the vote or assent of a
      majority of its members. The Committee will appoint a Committee
      Chairperson and a Secretary. The Secretary will record all action taken by
      the Committee. The Committee will have authority to designate in writing
      one of its members or any other person as the person authorized to execute
      papers and perform other ministerial duties on behalf of the Committee.

11.04 Interested Committee Members. No member of the Committee will participate
      ----------------------------
      in an action of the Committee on a matter that applies solely to that
      member. Such matters will be determined by a majority of the remainder of
      the Committee.

11.05 Indemnification. The Employer, by the adoption of this Plan, indemnifies
      ---------------
      and holds the members of the Committee, jointly and severally, harmless
      from the effects and

                                      -36-
<PAGE>

      consequences of their acts, omissions, and conduct in their official
      capacities, except to the extent that the effects and consequences result
      from their own willful misconduct, breach of good faith, or gross
      negligence in the performance of their duties. The foregoing right of
      indemnification will not be exclusive of other rights to which each such
      member may be entitled by any contract or other instrument or as a matter
      of law.

11.06 Conclusiveness of Action. Any action on matters within the discretion of
      ------------------------
      the Committee will be conclusive, final, and binding upon all Participants
      in the Plan and upon all persons claiming any rights, including
      Beneficiaries.

11.07 Payment of Expenses. The members of the Committee will serve without
      -------------------
      compensation for their services. The compensation or fees of consultants,
      actuaries, accountants, counsel and other specialists and any other costs
      of administering the Plan or Fund, including any premiums due to the
      Pension Benefit Guaranty Corporation (PBGC), will be paid by the Fund
      unless, at the discretion of the Employer, paid by the Employer.

11.08 Claim Procedure. Any Participant or Beneficiary may submit a written
      ---------------
      application to the Committee for payment of any benefit that may be due
      him under the Plan. Such application shall set forth the nature of the
      claim and any information as the Committee may reasonably request. Upon
      receipt of any such application, the Committee shall determine whether or
      not the Participant or Beneficiary is entitled to the benefit hereunder.
      If a claim is denied, in whole or in part, the Committee shall give
      written notice to any Participant or Beneficiary of the denial of a claim
      for the commencement, continuation or calculation of amount of retirement
      benefits under the Plan. The notice shall be given within 90 days after
      receipt of the Participant's or Beneficiary's application unless special
      circumstances require an extension for processing the claim. In no event
      shall such extension exceed a period of 90 days from the end of such
      initial review period. The notice will be delivered to the claimant or
      sent to the claimant's last known address, and will include the specific
      reason or reasons for the denial, a specific reference or references to
      pertinent Plan provisions on which the denial is based, a description of
      any additional material or information for the claimant to perfect the
      claim, which will indicate why such material or information is needed, and
      an explanation of the Plan's claims review procedure. If the claimant
      wishes to appeal the claim's denial, the claimant or a duly authorized
      representative will file a written request with the Committee for a
      review. This request must be made by the claimant within 60 days after
      receiving notice of the claim's denial. The claimant or representative may
      review pertinent documents relating to the claim and its denial and may
      submit issues and comments in writing to the Committee. Within 60 days
      after receipt of such a request for review, the Committee shall reconsider
      the claim and make a decision on the merits of the claim. If circumstances
      require an extension of time for processing the claim, the 60-day period
      may be extended but in no event more than 120 days after the receipt of a
      request for review. The decision on review will be in writing and include
      specific reasons and references to the pertinent Plan provisions on which
      the decision is based.

                                      -37-
<PAGE>

                                  ARTICLE 12

                        FUNDING POLICY AND CONTRIBUTIONS
                        --------------------------------

12.01 Employer Contributions. The Employer intends to make contributions to fund
      ----------------------
      this Plan at such times and in such amounts as the Actuary shall certify
      to the Employer as being no less than the amounts required to be
      contributed under Section 412 of the Code. Any actuarial gains arising
      under the Plan shall be used to reduce future Employer contributions to
      the Plan and shall not be applied to increase retirement benefits with
      respect to remaining Participants.

12.02 Participant Contributions. Participant contributions to the Fund are not
      -------------------------
      permitted.

12.03 Contingent Nature of Contributions. Unless the Employer notifies the
      ----------------------------------
      Committee and the Funding Agent in writing to the contrary, all
      contributions made to this Plan are conditioned upon their deductibility
      under Section 404 of the Code.

                                      -38-
<PAGE>

                                  ARTICLE 13

                 AMENDMENT, TERMINATION AND MERGER OF THE PLAN
                 ---------------------------------------------

13.01 Right to Amend the Plan. The Employer reserves the right to modify, alter
      -----------------------
      or amend this Plan from time to time to any extent that it may deem
      advisable including, but without limiting the generality of the foregoing,
      any amendment deemed necessary to ensure the continued qualification of
      the Plan under Section 401 of the Code or the appropriate provisions of
      any subsequent revenue law. No such amendment shall increase the duties or
      responsibilities of a Funding Agent without its consent thereto in
      writing. No such amendment(s) shall have the effect of reinvesting in the
      Employer the whole or any part of the principal or income of the Fund or
      to allow any portion of the principal or income of the Fund to be used for
      any purposes other than for the exclusive benefit of Participants or
      Beneficiaries at any time prior to the satisfaction of all the liabilities
      under the Plan with respect to such persons. No amendment shall (a) reduce
      a Participant's Accrued Benefit on the effective date of the Plan
      amendment, (b) eliminate or reduce an early retirement benefit, retirement
      type subsidy or an optional form of benefit under the Plan with respect to
      the Participant's Accrued Benefit on the date of the amendment, or (c)
      reduce a retired Participant's retirement benefit as of the effective date
      of the amendment.

13.02 Right to Terminate the Plan. The Employer shall have the right to
      ---------------------------
      terminate this Plan at any time. In the event of such termination all
      affected Participants shall be vested as provided in Section 7.04.

13.03 Allocation of Assets and Surplus. In the event the Plan shall be
      --------------------------------
      terminated as provided in Section 13.02 above, the then present value of
      retirement benefits vested in each Participant shall be determined as of
      the discontinuance date, and the assets then held by the Funding Agents as
      reserves for benefits for Participants, Joint Annuitants or Beneficiaries
      under this Plan shall, subject to any necessary approval by the PBGC be
      allocated, to the extent that they shall be sufficient, after providing
      for expenses of administration, in the order of precedence provided for
      under Section 4044 of ERISA, as modified by the provisions of Treasury
      Regulation Section 1.414(l)-l(f) or (h) if a special schedule of benefits
      (as defined in such regulations) is in effect as a result of a plan merger
      within the five-year period prior to the date of termination. The
      retirement benefits for which funds have been allocated in accordance with
      Section 4044 of ERISA shall be provided through the continuance of the
      existing Fund arrangements or through a new instrument entered into for
      that purpose and shall be paid either in a lump sum or in equal monthly
      installments through the purchase of a nontransferable annuity
      contract(s). After all liabilities of the Plan have been satisfied with
      respect to all Participants so affected by the Plan's termination, the
      Employer shall be entitled to any balance of Plan assets that shall
      remain.

13.04 Plan Mergers, Consolidations, and Transfers. The Plan shall not be
      -------------------------------------------
      automatically terminated by the Employer's acquisition by or merger into
      any other company, trade or business, but the

                                     -39-
<PAGE>

       Plan shall be continued after such merger provided the successor employer
       agrees to continue the Plan with respect to affected Participants herein.
       All rights to amend, modify, suspend or terminate the Plan with respect
       to Participants of the Employer shall be transferred to the successor
       employer, effective as of the date of the merger or acquisition. The
       merger or consolidation with, or transfer of the allocable portion of the
       assets and liabilities of the Fund to any other qualified retirement plan
       trust shall be permitted only if the benefit each Plan Participant would
       receive, if the Plan were terminated immediately after such merger or
       consolidation, or transfer of the allocable portion of the assets and
       liabilities, would be at least as great as the benefit he would have
       received had this Plan been terminated immediately before the date of
       merger, consolidation, or transfer.

13.05  Amendment of Vesting Schedule. If the vesting provisions of this Plan are
       -----------------------------
       amended, including an amendment caused by the expiration of top-heavy
       status under the terms of Article 14, Participants with three or more
       Years of Service, or three or more years of employment, whether or not
       consecutive, at the later of the date the amendment is adopted or becomes
       effective, shall automatically be vested, from that point forward, in the
       greater of the amount vested under the vesting schedule as amended or the
       amount vested under the vesting schedule prior to amendment.

                                      -40-
<PAGE>

                                  ARTICLE 14

                           TOP-HEAVY PLAN PROVISIONS
                           -------------------------
14.01  General Rule. For any Plan Year for which this Plan is a "Top-Heavy Plan"
       ------------
       as defined in Section 14.06 below this Plan shall be subject to the
       provisions of this Article 14.

14.02  Vesting Provision. Each Participant who has completed an Hour of Service
       -----------------
       during the Plan Year in which the Plan is top-heavy and has completed the
       number of Years of Vesting Service specified in the following table,
       shall have a vested right to the percentage of his Accrued Benefit under
       this Plan, correspondingly shown in the following table:

                     Years of                   Percentage of
                  Vesting Service               Accrued Benefit

               Less than 2 years                     0%
               2 years                              20%
               3 years                              40%
               4 years                              60%
               5 years                              80%
               6 or more                           100%

       Each Participant's Deferred Vested Benefit shall not be less than his
       vested Accrued Benefit determined as of the last day of the last Plan
       Year in which the Plan was not a Top-Heavy Plan. If the Plan ceases to be
       a Top-Heavy Plan, an Employee with three or more years of employment,
       whether or not consecutive, shall have his Deferred Vested Benefit
       determined either in accordance with this Section 14.02 or Section 7.03,
       as provided in Section 13.05. Each such Participant shall have the right
       to elect the applicable schedule within 60 days after the day he is
       issued written notice by the Committee, or as otherwise provided in
       accordance with regulations issued under the provisions of the Code
       relating to changes in the vesting schedule.

14.03  Minimum Benefit Provision. If the Plan is a Top-Heavy Plan in any Plan
       -------------------------
       Year, each Participant who is a Non-Key Employee shall, as of the end of
       that Plan Year, be entitled to an Accrued Benefit that is at least equal
       to the Applicable Percentage of the Participant's Average Compensation
       for Years in the Testing Period. For purposes of this Section:

       (a)    "Applicable Percentage" shall mean the lesser of two percent
              multiplied by Years of Service of the Participant, or 20 percent;

                                      -41-
<PAGE>

       (b)    "Average Compensation for Years in the Testing Period" shall mean
              average annual compensation for that period of five consecutive
              years that produces the highest average. In determining
              consecutive years, any year not included as a Year of Service
              under the provisions of Article 2 shall be ignored. In calculating
              Average Compensation for Years in the Testing Period, the amount
              of compensation taken into account shall not exceed $150,000 times
              the Adjustment Factor applicable at the date such benefits are
              calculated.

14.04  Change in 415(e) Limits. For any Limitation Year beginning prior to
       -----------------------
       December 31, 1999, if the Plan is a Top-Heavy Plan the combined plan
       limit of Section 415(e) of the Code shall be applied by substituting
       "1.0" for "1.25" in Sections 415(e)(2)(b) and 415(e)(3)(b) of the Code.
       The first sentence of this Section 14.04 will not apply if the Plan is
       not a Super Top-Heavy Plan, as defined in Section 14.06, and if the
       Accrued Benefit of each Participant would meet the requirements of
       Section 14.03 if the Applicable Percentage under that Section were the
       lesser of (a) or (b) where:

       (a)    is three percent multiplied by Years of Service, and

       (b)    is 20 percent increased by one percent for each year the Plan was
              subject to the change in 415(e) limits under this Section 14.04,
              but not to more than 30 percent.

14.05  Coordination With Other Plans. In the event that another defined
       -----------------------------
       contribution or defined benefit plan maintained by the Employer or an
       Affiliated Employer provides contributions or benefits on behalf of
       Participants in this Plan, such other plan shall be treated as part of
       this Plan pursuant to applicable principles (such as Rev. Rul. 81-202 or
       any successor ruling) in determining whether this Plan satisfies the
       requirements of Sections 14.02 and 14.03. Such determination shall be
       made upon the advice of counsel by the Committee.

14.06  Top-Heavy and Super Top-Heavy Plan Definition. This Plan shall be a
       ---------------------------------------------
       "Top-Heavy Plan" for any Plan Year if, as of the determination date (as
       defined in subsection 14.06(a)) the present value of the cumulative
       Accrued Benefits under the Plan for Participants (including former
       Participants) who are Key Employees (as defined in Section 14.07) exceeds
       60 percent of the present value of the cumulative Accrued Benefits under
       the Plan for all Participants, excluding former Key Employees, or if this
       Plan is required to be in an aggregation group (as defined in Section
       14.06(c)) which for such Plan Year is a top-heavy group (as defined in
       Section 14.06(d)). This Plan shall be a "Super Top-Heavy Plan" for any
       Plan Year if it meets the above definition after substituting "90
       percent" for "60 percent." For purposes of this Section:

       (a)    "Determination date" means for any Plan Year the last day of the
              immediately preceding Plan Year (Except that for the first Plan
              Year of this Plan the determination date means the last day of
              such Plan Year).

       (b)    The present value shall be determined as of the most recent
              valuation date that is within the 12-month period ending on the
              determination date and as described in the

                                      -42-
<PAGE>

              regulations under the Code. Present values for purposes of
              determining whether this Plan is a Top-Heavy Plan shall be based
              on the following interest and mortality rates:

              (1)    Interest Rate -- eight percent annually.

              (2)    Mortality Rate -- 1983 Group Annuity Mortality Table for
                                       Males.
       (c)    "Aggregation group" means the group of plans, if any, that
              includes both the group of plans that are required to be
              aggregated and the group of plans that are permitted to be
              aggregated.

              (1)    The group of plans that are required to be aggregated (the
                     "required aggregation group") includes:

                     (A)   Each plan of an Affiliated Employer in which a Key
                           Employee is a participant, including collectively
                           bargained plans.

                     (B)   Each other plan, including collectively bargained
                           plans of an Affiliated Employer, which enables a plan
                           in which a Key Employee is a participant to meet the
                           requirements of the Code prohibiting discrimination
                           as to contributions or benefits in favor of Employees
                           who are officers, shareholders or the highly
                           compensated or prescribing the minimum participation
                           standards.

              (2)    The group of plans that are permitted to be aggregated (the
                     "permissive aggregation group") includes the required
                     aggregation group plus one or more plans of an Affiliated
                     Employer that is not part of the required aggregation group
                     and that the Committee certifies as constituting a plan
                     within the permissive aggregation group. Such plan or plans
                     may be added to the permissive aggregation group only if,
                     after the addition, the aggregation group as a whole
                     continues not to discriminate as to contributions or
                     benefits in favor of officers, shareholders, or the highly-
                     compensated and to meet the minimum participation standards
                     under the Code.

       (d)    "Top-heavy group" means the aggregation group, if as of the
              applicable determination date, the sum of the present value of the
              cumulative accrued benefits for Key Employees under all defined
              benefit plans included in the aggregation group plus the aggregate
              of the accounts of Key Employees under all defined contribution
              plans included in the aggregation group exceeds 60 percent of the
              sum of the present value of the cumulative accrued benefits for
              all Employees, excluding former Key Employees, under all such
              defined benefit plans plus the aggregate accounts for all
              Employees, excluding former Key Employees, under such defined
              contribution plans. If the aggregation group that is a top-heavy
              group is a required aggregation group, each plan in the group will
              be top-heavy. If the aggregation group that is a top-heavy group
              is a permissive aggregation group, only those plans that are part
              of the required

                                      -43-
<PAGE>

              aggregation group will be treated as top-heavy. If the aggregation
              group is not a top-heavy group, no plan within such group will be
              top-heavy.

       (e)    In determining whether this Plan constitutes a "Top-Heavy Plan,"
              the Committee (or its agent) shall make the following adjustments
              in connection therewith:

              (1)    When more than one plan is aggregated, the Committee shall
                     determine separately for each plan as of each plan's
                     determination date the present value of the accrued
                     benefits or account balance. The results shall then be
                     aggregated adding the results of each plan as of the
                     determination dates for such plans that fall within the
                     same calendar year.

              (2)    In determining the present value of the cumulative Accrued
                     Benefit or the amount of the account of any Employee, such
                     present value or account shall include the amount in dollar
                     value of the aggregate distributions made to such Employee
                     under the applicable plan during the five-year period
                     ending on the determination date, unless reflected in the
                     value of the Accrued Benefit or account balance as of the
                     most recent valuation date. Such amounts shall include
                     distributions to Employees that represented the entire
                     amount credited to their accounts under the applicable
                     plan.

              (3)    Further, in making such determination, such present value
                     or such account shall include any rollover contribution (or
                     similar transfer), as follows:

                     (A)    If the rollover contribution (or similar transfer)
                            is initiated by the employee and made to or from a
                            plan maintained by another employer, the plan
                            providing the distribution shall include such
                            distribution in the present value or such account;
                            the plan accepting the distribution shall not
                            include such distribution in the present value or
                            such account unless the plan accepted it before
                            December 31, 1983.

                     (B)    If the rollover contribution (or similar transfer)
                            is not initiated by the Employee or made from a plan
                            maintained by another employer, the plan accepting
                            the distribution shall include such distribution in
                            the present value or such account, whether the plan
                            accepted the distribution before or after December
                            31, 1983; the plan making the distribution shall not
                            include the distribution in the present value or
                            such account.

              (4)    Further, in making such determination, in any case where an
                     individual is a "Non-Key Employee," as defined in Section
                     14.08 with respect to an applicable plan, but was a Key
                     Employee with respect to such plan for any prior plan year,
                     any accrued benefit and any account of such Employee shall
                     be altogether disregarded. For this purpose, to the extent
                     that a Key Employee is deemed to be a key employee if he
                     met the definition of Key Employee

                                      -44-
<PAGE>

                     within any of the four preceding plan years, this provision
                     shall apply following the end of such period of time.

14.07  Key Employee. The term "Key Employee" means any Employee or former
       ------------
       Employee under this Plan who, at any time during the Plan Year containing
       the determination date or during any of the four preceding Plan Years, is
       or was one of the following:

       (a)    An officer of the Employer having annual compensation greater than
              50 percent of the amount in effect under Section 415(b)(1)(A) of
              the Code for such Plan Year. Whether an individual is an officer
              shall be determined by the Committee on the basis of all the facts
              and circumstances, such as an individual's authority, duties and
              term of office, not on the mere fact that the individual has the
              title of an officer. For any such Plan Year, there shall be
              treated as officers no more than the lesser of:

              (1)    50 Employees, or

              (2)    the greater of three Employees or 10 percent of the
                     Employees.

              For this purpose, the highest-paid officers shall be selected.

       (b)    One of the ten Employees owning (or considered as owning, within
              the meaning of the constructive ownership rules of the Code) the
              largest interests in an Affiliated Employer. An Employee who has
              some ownership interest is considered to be one of the top ten
              owners unless at least ten other Employees own a greater interest
              than the Employee. However, an Employee will not be considered a
              top ten owner for a Plan Year if the Employee earns less than the
              amount in effect under Section 415(c)(1)(A) of the Code as in
              effect for the calendar year in which the determination date
              falls.

       (c)    Any person who owns (or is considered as owning within the meaning
              of the constructive ownership rules of the Code) more than five
              percent of the outstanding stock of an Affiliated Employer or
              stock possessing more than five percent of the combined total
              voting power of all stock of the Employer.

       (d)    A one-percent owner of an Affiliated Employer having an annual
              compensation from the Employer of more than $150,000, and
              possessing more than five percent of the combined total voting
              power of all stock of an Affiliated Employer. For purposes of this
              Section, Compensation means Compensation as defined in Section 415
              of the Code.

       For purposes of parts (a), (b), (c), and (d) of this definition, a
       Beneficiary of a Key Employee shall be treated as a Key Employee. For
       purposes of parts (c) and (d), each Affiliated Employer is treated
       separately in determining ownership percentages; but, in determining the
       amount of Compensation, each Affiliated Employer is taken into account.

                                      -45-
<PAGE>

14.08  Non-Key Employee. The term "Non-Key Employee" means any Participant who
       ----------------
       is not a Key Employee.

14.09  Collective Bargaining Rules. The provisions of Sections 14.02, 14.03, and
       ---------------------------
       14.04 do not apply with respect to any Employee included in a unit of
       Employees covered by a collective bargaining agreement unless the
       application of such Sections has been agreed upon with the collective
       bargaining agent.

                                      -46-
<PAGE>

                                  ARTICLE 15

                                 MISCELLANEOUS
                                 -------------

15.01  Limitation on Distributions. Notwithstanding any provision of this Plan
       ---------------------------
       regarding payment to Beneficiaries or Participants, or any other person,
       the Committee may withhold payment to any person if the Committee
       determines that such payment may expose the Plan to conflicting claims
       for payment. As a condition for any payments, the Committee may require
       such consent, representations, releases, waivers or other information as
       it deems appropriate. The Committee may, in its discretion, comply with
       the terms of any judgment or other judicial decree, order, settlement or
       agreement including, but not limited to, a Qualified Domestic Relations
       Order as defined in Section 414(p) of the Code.

15.02  Limitation on Reversion of Contributions. Except as provided in
       ----------------------------------------
       subsections (a) through (c) below, Employer contributions made under the
       Plan will be held for the exclusive benefit of Participants, Joint
       Annuitants or Beneficiaries and may not revert to the Employer.

       (a)    A contribution made by the Employer under a mistake of fact may be
              returned to the Employer within one year after it is contributed
              to the Plan, to the extent that it exceeds the amount that would
              have been contributed, absent the mistake in fact.

       (b)    A contribution conditioned on the Plan's initial qualification
              under Sections 401(a) and 501(a) of the Code may be returned to
              the Employer, if the Plan does not qualify, within one year after
              the date the Plan is denied qualification.

       (c)    A contribution conditioned upon its deductibility under Section
              404 of the Code, may be returned, to the extent the deduction is
              disallowed, to the Employer within one year after the
              disallowance.

       Compensation attributable to amounts that may be returned to the Employer
       pursuant to this Section may not be distributed, but, in the event that
       there are losses attributable to such amounts, the amount returned to the
       Employer shall be reduced by the amount of such losses.

15.03  Voluntary Plan. The Plan is purely voluntary on the part of the Employer
       ---------------
       and neither the establishment of the Plan nor any Plan amendment nor the
       creation of any fund or account, nor the payment of any benefits will be
       construed as giving any Employee or any person legal or equitable right
       against the Employer, any trustee or other Funding Agent, or the
       Committee unless specifically provided for in this Plan or conferred by
       affirmative action of the Committee or the Employer according to the
       terms and provisions of this Plan. Such actions will not be construed as
       giving any Employee or Participant the right to be retained in the
       service of the Employer. All Employees and/or Participants will remain
       subject to discharge to the same extent as though this Plan had not been
       established.

                                      -47-
<PAGE>

15.04  Nonalienation of Benefits. Participants and Beneficiaries are entitled to
       -------------------------
       all the benefits specifically set out under the terms of the Plan, but
       neither those benefits nor any of the property rights in the Plan are
       assignable or distributable to any creditor or other claimant of a
       Participant or Beneficiary. A Participant will not have the right to
       anticipate, assign, pledge, accelerate, or in any way dispose of or
       encumber any of the monies or benefits or other property that may be
       payable or become payable to such Participant or his Beneficiary
       provided, however, the Committee shall recognize and comply with a valid
       Qualified Domestic Relations Order as defined in Section 414(p) of the
       Code.

15.05  Inability to Receive Benefits. If the Committee receives evidence that a
       -----------------------------
       person entitled to receive any payment under the Plan is physically or
       mentally incompetent to receive payment and to give a valid release, and
       another person or any institution is maintaining or has custody of such
       person, and no guardian, committee, or other representative of the estate
       of such person has been duly appointed by a court of competent
       jurisdiction, then any distribution made under the Plan may be made to
       such other person or institution. The release of such other person or
       institution will be a valid and complete discharge for the payment of
       such distribution.

15.06  Missing Persons. If the Committee is unable, after reasonable and
       ---------------
       diligent effort, to locate a Participant, Joint Annuitant, or Beneficiary
       where no contingent beneficiary is provided under the Plan, who is
       entitled to a distribution under the Plan, the distribution due such
       person will be forfeited after five years. If, however, such a person
       later files a claim for such benefit, it will be reinstated without any
       interest earned thereon. In the event that a distribution is due to a
       Beneficiary where a contingent beneficiary is provided under the Plan
       (including the situation in which the contingent beneficiary is the
       Participant's estate), and the Committee is unable, after reasonable and
       diligent effort, to locate the Beneficiary, the benefit shall be payable
       to the contingent beneficiary, and such nonlocatable Beneficiary shall
       have no further claim or interest hereunder. Notification by certified or
       registered mail to the last known address of the Participant or
       Beneficiary will be deemed a reasonable and diligent effort to locate
       such person.

15.07  Military Service. Notwithstanding any provision of this Plan to the
       ----------------
       contrary, contributions, benefits and service credit with respect to
       qualified military service will be provided in accordance with Section
       414(u) of the Code.

15.08  Limitation of Third-Party Rights. Nothing expressed or implied in the
       --------------------------------
       Plan is intended or will be construed to confer upon or give to any
       person, firm, or association other than the Employer, the Participants or
       Beneficiaries, and their successors in interest, any right, remedy, or
       claim under or by reason of this Plan except pursuant to a Qualified
       Domestic Relations Order as defined in Section 414(p) of the Code.

15.09  Invalid Provisions. In case any provision of this Plan is held illegal or
       ------------------
       invalid for any reason, the illegality or invalidity will not affect the
       remaining parts of the Plan. The Plan will be construed and enforced as
       if the illegal and invalid provisions had never been included.

                                      -48-
<PAGE>

15.10  One Plan. This Plan may be executed in any number of counterparts, each
       --------
       of which will be deemed an original and the counterparts will constitute
       one and the same instrument and may be sufficiently evidenced by any one
       counterpart.

15.11  Use and Form of Words. Whenever any words are used herein in the
       ---------------------
       masculine gender, they will be construed as though they were also used in
       the feminine gender in all cases where that gender would apply, and vice
       versa. Whenever any words are used herein in the singular form, they will
       be construed as though they were also used in the plural form in all
       cases where the plural form would apply, and vice versa.

15.12  Headings. Headings to Articles and Sections are inserted solely for
       --------
       convenience and reference, and in the case of any conflict, the text,
       rather than the headings, shall control.

15.13  Governing Law. The Plan will be governed by and construed according to
       -------------
       the federal laws governing employee benefit plans qualified under the
       Code and according to the laws of the state of California where such laws
       are not in conflict with the federal laws.

       IN WITNESS WHEREOF, The PMI Group, Inc. has adopted this amended and
       restated Plan effective as of January 1, 1998 (except as otherwise
       specified herein).

                                        THE PMI GROUP, INC.

                                        By:
                                           -----------------------------

                                        Name:
                                             ---------------------------

                                        Title:
                                              --------------------------

                                      -49-<PAGE>

                              THE PMI GROUP, INC.

                          EMPLOYEE STOCK PURCHASE PLAN

                  (Amended and Restated as of August 16, 1999)

<PAGE>
                                   TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               Page
<S>              <C>                                                                                           <C>
SECTION 1      PURPOSE.......................................................................................   1
SECTION 2      DEFINITIONS...................................................................................   1
     2.1   "1934 Act"........................................................................................   1
     2.2   "Board"...........................................................................................   1
     2.3   "Code"............................................................................................   1
     2.4   "Committee".......................................................................................   1
     2.5   "Common Stock"....................................................................................   1
     2.6   "Company".........................................................................................   1
     2.7   "Compensation"....................................................................................   1
     2.8   "Eligible Employee"...............................................................................   1
     2.9   "Employee"........................................................................................   2
     2.10   "Employer" or "Employers"........................................................................   2
     2.11   "Enrollment Date"................................................................................   2
     2.12   "Grant Date".....................................................................................   2
     2.13   "Participant"....................................................................................   2
     2.14   "Plan"...........................................................................................   2
     2.15   "Purchase Date"..................................................................................   2
     2.16   "Subsidiary".....................................................................................   2
SECTION 3     SHARES SUBJECT TO THE PLAN.....................................................................   2
     3.1   Number Available..................................................................................   2
     3.2   Adjustments.......................................................................................   2
SECTION 4     ENROLLMENT.....................................................................................   2
     4.1   Participation.....................................................................................   2
     4.2   Payroll Withholding...............................................................................   3
SECTION 5     OPTIONS TO PURCHASE COMMON STOCK...............................................................   3
     5.1   Grant of Option...................................................................................   3
     5.2   Duration of Option................................................................................   3
     5.3   Number of Shares Subject to Option................................................................   3
     5.4   Other Terms and Conditions........................................................................   3
SECTION 6     PURCHASE OF SHARES.............................................................................   4
     6.1   Exercise of Option................................................................................   4

                                                      -i-
</TABLE>
<PAGE>
                                    TABLE OF CONTENTS
                                        (continued)
<TABLE>
<CAPTION>
                                                                                                                     Page
 <S>         <C>                                                                                                              <C>
      6.2   Delivery of Shares..............................................................................................   4
      6.3   Exhaustion of Shares............................................................................................   4
SECTION 7      WITHDRAWAL...................................................................................................   4
     7.1   Withdrawal.......................................................................................................   4
SECTION 8      CESSATION OF PARTICIPATION...................................................................................   4
     8.1   Termination of Status as Eligible Employee.......................................................................   4
SECTION 9      DESIGNATION OF BENEFICIARY...................................................................................   5
     9.1   Designation......................................................................................................   5
     9.2   Changes..........................................................................................................   5
     9.3   Failed Designations..............................................................................................   5
SECTION 10      ADMINISTRATION..............................................................................................   5
    10.1   Plan Administrator...............................................................................................   5
    10.2   Actions by Committee.............................................................................................   5
    10.3   Powers of Committee..............................................................................................   5
    10.4   Decisions of Committee...........................................................................................   6
    10.5   Administrative Expenses..........................................................................................   6
    10.6   Eligibility to Participate.......................................................................................   6
    10.7   Indemnification..................................................................................................   6
SECTION 11      AMENDMENT, TERMINATION, AND DURATION........................................................................   7
    11.1   Amendment, Suspension, or Termination............................................................................   7
    11.2   Duration of the Plan.............................................................................................   7
SECTION 12      GENERAL PROVISIONS..........................................................................................   7
    12.1   Participation by Subsidiaries....................................................................................   7
    12.2   Inalienability...................................................................................................   7
    12.3   Severability.....................................................................................................   7
    12.4   Requirements of Law..............................................................................................   7
    12.5   Compliance with Rule 16b-3.......................................................................................   7
    12.6   No Enlargement of Employment Rights..............................................................................   8
    12.7   Apportionment of Costs and Duties................................................................................   8
    12.8   Construction and Applicable Law..................................................................................   8
    12.9   Captions.........................................................................................................   8

                                                    -ii-
</TABLE>
<PAGE>

                               TABLE OF CONTENTS
                                  (continued)
<TABLE>
<CAPTION>
                                                                                                                              Page
         <S>           <C>                                                                                                    <C>
              12.10   EXECUTION.............................................................................................   8

                                                              -iii-

</TABLE>
<PAGE>

                              THE PMI GROUP, INC.
                          EMPLOYEE STOCK PURCHASE PLAN

                                   SECTION 1
                                   PURPOSE

          The PMI Group, Inc. hereby establishes The PMI Group, Inc. Employee
Stock Purchase Plan, effective as of July 23, 1998, in order to provide eligible
employees of the Company and its participating Subsidiaries with the opportunity
to purchase Common Stock through payroll deductions.  The Plan is intended to
qualify as an employee stock purchase plan under Section 423(b) of the Code.
The Plan is hereby amended and restated on the occasion of the Company's 3-for-2
stock split, effective as of August 16, 1999.

                                   SECTION 2
                                  DEFINITIONS

          2.1  "1934 Act" means the Securities Exchange Act of 1934, as amended.
                --------
Reference to a specific Section of the 1934 Act or regulation thereunder shall
include such Section or regulation, any valid regulation promulgated under such
Section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such Section or regulation.

          2.2  "Board" means the Board of Directors of the Company.
                -----

          2.3  "Code" means the Internal Revenue Code of 1986, as amended.
                ----
Reference to a specific Section of the Code or regulation thereunder shall
include such Section or regulation, any valid regulation promulgated under such
Section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such Section or regulation.

          2.4  "Committee" shall mean the committee appointed by the Board to
                ---------
administer the Plan.  Any member of the Committee may resign at any time by
notice in writing mailed or delivered to the Secretary of the Company.  As of
the effective date of the Plan, the Plan shall be administered by the
Compensation and Nominating Committee of the Board.

          2.5  "Common Stock" means the common stock of the Company.
                ------------

          2.6  "Company" means The PMI Group, Inc., a Delaware corporation.
                -------

          2.7  "Compensation" means a Participant's base salary or regular wages
                ------------
(including sick pay and vacation pay).  The Committee, in its discretion, may
(on a uniform and nondiscriminatory basis) establish a different definition of
Compensation prior to an Enrollment Date for all options to be granted on such
Enrollment Date.

          2.8  "Eligible Employee" means every Employee of an Employer, except
                -----------------
(a) any Employee who immediately after the grant of an option under the Plan,
would own stock and/or hold outstanding options to purchase stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or of any Subsidiary of the Company (including
stock attributed to such Employee pursuant to Section 424(d) of the Code), or
(b) as provided in the following sentence.  The Committee, in its discretion,
from time to time may, prior to an Enrollment Date for all options to be granted
on such Enrollment Date, determine (on a uniform and nondiscriminatory basis)
that an Employee shall not be an Eligible Employee if he or she: (1) has not
completed at least one year of service since his or her last hire

                                      1
<PAGE>

date (or such lesser period of time as may be determined by the Committee in its
discretion), (2) customarily works not more than 20 hours per week (or such
lesser period of time as may be determined by the Committee in its discretion),
(3) customarily works not more than 5 months per calendar year (or such lesser
period of time as may be determined by the Committee in its discretion), or (4)
is an officer or other manager.

          2.9  "Employee" means an individual who is a common-law employee of
                --------
any Employer, whether such employee is so employed at the time the Plan is
adopted or becomes so employed subsequent to the adoption of the Plan.

          2.10  "Employer" or "Employers" means any one or all of the Company
                 --------      ---------
and those Subsidiaries which, with the consent of the Board, have adopted the
Plan.

          2.11  "Enrollment Date" means such dates as may be determined by the
                 ---------------
Committee (in its discretion and on a uniform and nondiscriminatory basis) from
time to time.

          2.12  "Grant Date" means any date on which a Participant is granted an
                 ----------
option under the Plan.

          2.13  "Participant" means an Eligible Employee who (a) has become a
                 -----------
Participant in the Plan pursuant to Section 4.1 and (b) has not ceased to be a
Participant pursuant to Section 8 or Section 9.

          2.14  "Plan" means The PMI Group, Inc. Employee Stock Purchase Plan,
                 ----
as set forth in this instrument and as hereafter amended from time to time.

          2.15  "Purchase Date" means such dates as may be determined by the
                 -------------
Committee (in its discretion and on a uniform and nondiscriminatory basis) from
time to time prior to an Enrollment Date for all options to be granted on such
Enrollment Date.

          2.16  "Subsidiary" means any corporation in an unbroken chain of
                 ----------
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

                                   SECTION 3
                           SHARES SUBJECT TO THE PLAN

          3.1  Number Available.  A maximum of 300,000 shares of Common Stock
               ----------------
shall be available for issuance pursuant to the Plan.  Shares sold under the
Plan may be newly issued shares or treasury shares.

          3.2  Adjustments.  In the event of any reorganization,
               -----------
recapitalization, stock split, reverse stock split, stock dividend, combination
of shares, merger, consolidation, offering of rights or other similar change in
the capital structure of the Company, the Board may make such adjustment, if
any, as it deems appropriate in the number, kind and purchase price of the
shares available for purchase under the Plan and in the maximum number of shares
subject to any option under the Plan.

                                   SECTION 4
                                   ENROLLMENT

          4.1  Participation.  Each Eligible Employee may elect to become a
               -------------
Participant by enrolling or re-enrolling in the Plan effective as of any
Enrollment Date.  In order to enroll, an

                                       2
<PAGE>

Eligible Employee must complete, sign and submit to the Company an enrollment
form in such form, manner and by such deadline as may be specified by the
Committee from time to time (in its discretion and on a nondiscriminatory
basis). Any Participant whose option expires and who has not withdrawn from the
Plan automatically will be re-enrolled in the Plan on the Enrollment Date
immediately following the Purchase Date on which his or her option expires.

          4.2  Payroll Withholding.  On his or her enrollment form, each
               -------------------
Participant must elect to make Plan contributions via payroll withholding from
his or her Compensation.  Pursuant to such procedures as the Committee may
specify from time to time, a Participant may elect to have withholding equal to
any whole percentage (or such other percentage that the Committee may establish
from time to time for all options to be granted on any Enrollment Date).  A
Participant may elect to increase or decrease his or her rate of payroll
withholding by submitting a new enrollment form in accordance with such
procedures as may be established by the Committee from time to time.  A
Participant may stop his or her payroll withholding by submitting a new
enrollment form in accordance with such procedures as may be established by the
Committee from time to time.  In order to be effective as of a specific date, an
enrollment form must be received by the Company no later than the deadline
specified by the Committee, in its discretion and on a nondiscriminatory basis,
from time to time.  Any Participant who is automatically re-enrolled in the Plan
will be deemed to have elected to continue his or her contributions at the
percentage last elected by the Participant.

                                   SECTION 5
                        OPTIONS TO PURCHASE COMMON STOCK

          5.1  Grant of Option.  On each Enrollment Date on which the
               ---------------
Participant enrolls or re-enrolls in the Plan, he or she shall be granted an
option to purchase shares of Common Stock.

          5.2  Duration of Option.  Each option granted under the Plan shall
               ------------------
expire on the earliest to occur of (a) the completion of the purchase of shares
on the last Purchase Date occurring within 27 months of the Grant Date of such
option, (b) such shorter option period as may be established by the Committee
from time to time prior to an Enrollment Date for all options to be granted on
such Enrollment Date, or (c) the date on which the Participant ceases to be such
for any reason.  Until otherwise determined by the Committee for all options to
be granted on an Enrollment Date, the period referred to in clause (b) in the
preceding sentence shall mean the period from the applicable Enrollment Date
through the last business day prior to the immediately following Enrollment
Date.

          5.3  Number of Shares Subject to Option.  The number of shares
               ----------------------------------
available for purchase by each Participant under the option will be established
by the Committee from time to time prior to an Enrollment Date for all options
to be granted on such Enrollment Date.  In addition and notwithstanding the
preceding, an option (taken together with all other options then outstanding
under this Plan and under all other similar employee stock purchase plans of the
Employers) shall not give the Participant the right to purchase shares at a rate
which accrues in excess of $25,000 of fair market value at the applicable Grant
Dates of such shares in any calendar year during which such Participant is
enrolled in the Plan at any time.

          5.4  Other Terms and Conditions.  Each option shall be subject to the
               --------------------------
following additional terms and conditions:

          (a) payment for shares purchased under the option shall be made only
     through payroll withholding under Section 4.2;

                                       3
<PAGE>

          (b) purchase of shares upon exercise of the option will be
     accomplished only in accordance with Section 6.1;

          (c) the price per share under the option will be determined as
     provided in Section 6.1; and

          (d) the option in all respects shall be subject to such other terms
     and conditions (applied on a uniform and nondiscriminatory basis), as the
     Committee shall determine from time to time in its discretion.

                                   SECTION 6
                               PURCHASE OF SHARES

          6.1  Exercise of Option.  Subject to Section 6.2, on each Purchase
               ------------------
Date, the funds then credited to each Participant's account shall be used to
purchase whole shares of Common Stock.  Any cash remaining after whole shares of
Common Stock have been purchased shall be used to purchase fractional shares of
Common Stock.  The price per Share of the Shares purchased under any option
granted under the Plan shall be eighty-five percent (85%) of the lower of:

          (a) the average of the high and low price per Share on the Grant Date
     for such option on the New York Stock Exchange; or

          (b) the average of the high and low price per Share on the Purchase
     Date on the New York Stock Exchange.

          6.2  Delivery of Shares.  As directed by the Committee in its sole
               ------------------
discretion, shares purchased on any Purchase Date shall be delivered directly to
the Participant or to a custodian or broker (if any) designated by the Committee
to hold shares for the benefit of the Participants.  As determined by the
Committee from time to time, such shares shall be delivered as physical
certificates or by means of a book entry system.

          6.3  Exhaustion of Shares.  If at any time the shares available under
               --------------------
the Plan are over-enrolled, enrollments shall be reduced proportionately to
eliminate the over-enrollment. Such reduction method shall be "bottom up", with
the result that all option exercises for one share shall be satisfied first,
followed by all exercises for two shares, and so on, until all available shares
have been exhausted.  Any funds that, due to over-enrollment, cannot be applied
to the purchase of whole shares shall be refunded to the Participants (without
interest thereon).

                                   SECTION 7
                                   WITHDRAWAL

          7.1  Withdrawal.  A Participant may withdraw from the Plan by
               ----------
submitting a completed enrollment form to the Company.  A withdrawal will be
effective only if it is received by the Company by the deadline specified by the
Committee (in its discretion and on a uniform and nondiscriminatory basis) from
time to time.  When a withdrawal becomes effective, the Participant's payroll
contributions shall cease and all amounts then credited to the Participant's
account shall be distributed to him or her (without interest thereon).

                                   SECTION 8
                           CESSATION OF PARTICIPATION

          8.1  Termination of Status as Eligible Employee.  A Participant shall
               ------------------------------------------
cease to be a Participant immediately upon the cessation of his or her status as
an Eligible Employee (for

                                       4
<PAGE>

example, because of his or her termination of employment from all Employers for
any reason). As soon as practicable after such cessation, the Participant's
payroll contributions shall cease and all amounts then credited to the
Participant's account shall be distributed to him or her (without interest
thereon). If a Participant is on a Company-approved leave of absence, his or her
participation in the Plan shall continue for so long as he or she remains an
Eligible Employee and has not withdrawn from the Plan pursuant to Section 7.1.

                                   SECTION 9
                           DESIGNATION OF BENEFICIARY

          9.1  Designation.  Each Participant may, pursuant to such uniform and
               -----------
nondiscriminatory procedures as the Committee may specify from time to time,
designate one or more Beneficiaries to receive any amounts credited to the
Participant's account at the time of his or her death.  Notwithstanding any
contrary provision of this Section 9, Sections 9.1 and 9.2 shall be operative
only after (and for so long as) the Committee determines (on a uniform and
nondiscriminatory basis) to permit the designation of Beneficiaries.

          9.2  Changes.  A Participant may designate different Beneficiaries (or
               -------
may revoke a prior Beneficiary designation) at any time by delivering a new
designation (or revocation of a prior designation) in like manner.  Any
designation or revocation shall be effective only if it is received by the
Committee.  However, when so received, the designation or revocation shall be
effective as of the date the designation or revocation is executed (whether or
not the Participant still is living), but without prejudice to the Committee on
account of any payment made before the change is recorded.  The last effective
designation received by the Committee shall supersede all prior designations.

          9.3  Failed Designations.  If a Participant dies without having
               -------------------
effectively designated a Beneficiary, or if no Beneficiary survives the
Participant, the Participant's Account shall be payable to his or her estate.

                                   SECTION 10
                                 ADMINISTRATION

          10.1  Plan Administrator.  The Plan shall be administered by the
                ------------------
Committee.  The Committee shall have the authority to control and manage the
operation and administration of the Plan.

          10.2  Actions by Committee.  Each decision of a majority of the
                --------------------
members of the Committee then in office shall constitute the final and binding
act of the Committee.  The Committee may act with or without a meeting being
called or held and shall keep minutes of all meetings held and a record of all
actions taken by written consent.

          10.3  Powers of Committee.  The Committee shall have all powers and
                -------------------
discretion necessary or appropriate to supervise the administration of the Plan
and to control its operation in accordance with its terms, including, but not by
way of limitation, the following discretionary powers:

          (a) To interpret and determine the meaning and validity of the
     provisions of the Plan and the options and to determine any question
     arising under, or in connection with, the administration, operation or
     validity of the Plan or the options;

          (b) To determine any and all considerations affecting the eligibility
     of any employee to become a Participant or to remain a Participant in the
     Plan;

                                       5
<PAGE>

          (c) To cause an account or accounts to be maintained for each
     Participant;

          (d) To determine the time or times when, and the number of shares for
     which, options shall be granted;

          (e) To establish and revise an accounting method or formula for the
     Plan;

          (f) To designate a custodian or broker to receive shares purchased
     under the Plan and to determine the manner and form in which shares are to
     be delivered to the designated custodian or broker;

          (g) To determine the status and rights of Participants and their
     Beneficiaries or estates;

          (h) To employ such brokers, counsel, agents and advisers, and to
     obtain such broker, legal, clerical and other services, as it may deem
     necessary or appropriate in carrying out the provisions of the Plan;

          (i) To establish, from time to time, rules for the performance of its
     powers and duties and for the administration of the Plan;

          (j) To adopt such procedures and subplans as are necessary or
     appropriate to permit participation in the Plan by employees who are
     foreign nationals or employed outside of the United States; and

          (k) To delegate to any one or more of its members or to any other
     person, severally or jointly, the authority to perform for and on behalf of
     the Committee one or more of the functions of the Committee under the Plan.

          10.4  Decisions of Committee.  All actions, interpretations, and
                ----------------------
decisions of the Committee shall be conclusive and binding on all persons, and
shall be given the maximum possible deference allowed by law.

          10.5  Administrative Expenses.  All expenses incurred in the
                -----------------------
administration of the Plan by the Committee, or otherwise, including legal fees
and expenses, shall be paid and borne by the Employers, except any stamp duties
or transfer taxes applicable to the purchase of shares may be charged to the
account of each Participant.  Any brokerage fees for the purchase of shares by a
Participant shall be paid by the Company, but fees and taxes (including
brokerage fees) for the transfer, sale or resale of shares by a Participant, or
the issuance of physical share certificates, shall be borne solely by the
Participant.

          10.6  Eligibility to Participate.  No member of the Committee who is
                --------------------------
also an employee of an Employer shall be excluded from participating in the Plan
if otherwise eligible, but he or she shall not be entitled, as a member of the
Committee, to act or pass upon any matters pertaining specifically to his or her
own account under the Plan.

          10.7  Indemnification.  Each of the Employers shall, and hereby does,
                ---------------
indemnify and hold harmless the members of the Committee and the Board, from and
against any and all losses, claims, damages or liabilities (including attorneys'
fees and amounts paid, with the approval of the Board, in settlement of any
claim) arising out of or resulting from the implementation of a duty, act or
decision with respect to the Plan, so long as such duty, act or decision does
not involve gross negligence or willful misconduct on the part of any such
individual.

                                       6
<PAGE>

                                   SECTION 11
                      AMENDMENT, TERMINATION, AND DURATION

          11.1  Amendment, Suspension, or Termination.  The Board, in its sole
                -------------------------------------
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason.  If the Plan is terminated, the Board, in its discretion,
may elect to terminate all outstanding options either immediately or upon
completion of the purchase of shares on the next Purchase Date, or may elect to
permit options to expire in accordance with their terms (and participation to
continue through such expiration dates).  If the options are terminated prior to
expiration, all amounts then credited to Participants' accounts which have not
been used to purchase shares shall be returned to the Participants (without
interest thereon) as soon as administratively practicable.

          11.2  Duration of the Plan.  The Plan shall commence on the date
                --------------------
specified herein, and subject to Section 11.1 (regarding the Board's right to
amend or terminate the Plan), shall remain in effect thereafter.

                                   SECTION 12
                               GENERAL PROVISIONS

          12.1  Participation by Subsidiaries.  One or more Subsidiaries of the
                -----------------------------
Company may become participating Employers by adopting the Plan and obtaining
approval for such adoption from the Board.  By adopting the Plan, a Subsidiary
shall be deemed to agree to all of its terms, including (but not limited to) the
provisions granting exclusive authority (a) to the Board to amend the Plan, and
(b) to the Committee to administer and interpret the Plan.  An Employer may
terminate its participation in the Plan at any time.  The liabilities incurred
under the Plan to the Participants employed by each Employer shall be solely the
liabilities of that Employer, and no other Employer shall be liable for benefits
accrued by a Participant during any period when he or she was not employed by
such Employer.

          12.2  Inalienability.  In no event may either a Participant, a former
                --------------
Participant or his or her Beneficiary, spouse or estate sell, transfer,
anticipate, assign, hypothecate, or otherwise dispose of any right or interest
under the Plan; and such rights and interests shall not at any time be subject
to the claims of creditors nor be liable to attachment, execution or other legal
process.  Accordingly, for example, a Participant's interest in the Plan is not
transferable pursuant to a domestic relations order.

          12.3  Severability.  In the event any provision of the Plan shall be
                ------------
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.

          12.4  Requirements of Law.  The granting of options and the issuance
                -------------------
of shares shall be subject to all applicable laws, rules, and regulations, and
to such approvals by any governmental agencies or securities exchanges as the
Committee may determine are necessary or appropriate.

          12.5  Compliance with Rule 16b-3.  Any transactions under this Plan
                --------------------------
with respect to officers (as defined in Rule 16a-1 promulgated under the 1934
Act) are intended to comply with all applicable conditions of Rule 16b-3.  To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.  Notwithstanding any contrary provision of
the Plan, if the Committee specifically determines that compliance with Rule
16b-3 no longer is required, all references in the Plan to Rule 16b-3 shall be
null and void.

                                       7
<PAGE>

          12.6  No Enlargement of Employment Rights.  Neither the establishment
                -----------------------------------
or maintenance of the Plan, the granting of options, the purchase of shares, nor
any action of any Employer or the Committee, shall be held or construed to
confer upon any individual any right to be continued as an employee of the
Employer nor, upon dismissal, any right or interest in any specific assets of
the Employers other than as provided in the Plan.  Each Employer expressly
reserves the right to discharge any employee at any time, with or without cause.

          12.7  Apportionment of Costs and Duties.  All acts required of the
                ---------------------------------
Employers under the Plan may be performed by the Company for itself and its
Subsidiaries, and the costs of the Plan may be equitably apportioned by the
Committee among the Company and the other Employers.  Whenever an Employer is
permitted or required under the terms of the Plan to do or perform any act,
matter or thing, it shall be done and performed by any officer or employee of
the Employers who is thereunto duly authorized by the Employers.

          12.8  Construction and Applicable Law.  The Plan is intended to
                -------------------------------
qualify as an "employee stock purchase plan" within the meaning of Section
423(b) of the Code.  Any provision of the Plan which is inconsistent with
Section 423(b) of the Code shall, without further act or amendment by the
Company or the Committee, be reformed to comply with the requirements of Section
423(b).  The provisions of the Plan shall be construed, administered and
enforced in accordance with such Section and with the laws of the State of
California (excluding California's conflict of laws provisions).

          12.9  Captions.  The captions contained in and the table of contents
                --------
prefixed to the Plan are inserted only as a matter of convenience, and in no way
define, limit, enlarge or describe the scope or intent of the Plan nor in any
way shall affect the construction of any provision of the Plan.

                                   EXECUTION

          IN WITNESS WHEREOF, The PMI Group, Inc., by its duly authorized
officer, has executed this Plan on the date indicated below.

                                   THE PMI GROUP, INC.

Dated:  __________, 1999           By ____________________________
                                      Title:

                                       8

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