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HomeMy WebLinkAboutDocumentation_Pension Public Safety_Tab 27_11/08/2005- ,:. ~_ y>.... GABRIEL, ROEDER, SMITH & COMPANY nsultants & Actuaries One Towne Square • Suite 800 • Southfield, Michigan 48076 • 248-799-9000 •800-521-0498 • fax 248-799-9020 September 12, 2005 The enclosed News Scan and Research Memo were developed by Gabriel, Roeder, Smith & Company to inform our clients and other benefit professionals about important events in the benefits industry. We hope you find our information clearly written and useful in your professional activities. To receive our News Scans and other publications electronically, send an email to ~yeb.admin cr ~abrielroeder com with the message "SUBSCRIBE NEWS SCAN" in the subject line. To stop receiving our publications via email, send the message "LTNSUBSCRIBE NEWS SCAN" in the same way. • Please turn to our web site at www.~abrielroeder.com for other publications related to pensions and benefits. Sincerely, Paul Zorn Director of Governmental Research Enclosures • • September. Z005* The following news summaries were developed by Gabriel, Roeder, Smith & Company to inform clients and other benefit professionals of news in the benefits industry. Our thanks to Mary Ann Vitale for her diligent work on this issue. To receive this publication electronically, send an email to web.adnun(a?gabrielroeder.com with the message "SUBSCRIBE NEWS SCAN" in the subject line. To stop receiving this publication electronically, send the message "UNSUBSCRIBE NEWS SCAN' in the same manner. Copies of this and other benefit-related publications are available on the GRS web site at www.gabrielroeder.com. Massachusetts Governor Proposes Compulsory Health .Insurance Plan On June 21, 2005, Massachusetts Governor Mitt Romney introduced legislation (H. 2923 and H. 2924) requiring all state residents to obtain health insurance or pay tax and wage penalties for health care costs. The plan, known as an individual mandate, would require uninsured residents who do not qualify for the state's low-income programs to either buy state-subsidized health insurance or risk tax penalties and wage garnishment. Under the proposal, state-subsidized health insurance would be available at a cost of 1.3 percent to 5.8 percent of income. Residents who choose not to participate would be ineligible for a personal tax • exemption and a portion of any tax refund. Residents at the lowest income levels would pay $2.30 per week for coverage with a state subsidy of $66.93 per week. Those at the highest income levels would pay $32.31 per week with a state subsidy of $36.92. According to Romney, the plan would require no new revenues, but instead be funded with the $1 billion currently spent on health care for uninsured individuals. However, according to a Blue Cross and Blue Shield of Massachusetts Foundation report, the state would need to spend an additional $1 billion for universal coverage. Source: Bureau of National Affairs, Pension & Benefcts Reporter, July 5, 2005. Illinois Governor Signs Legislation to Fill Gap in Medicare Part I) Coverage On June 29, 2005, Illinois Governor Rod Blagojevich signed legislation (SB 973) establishing the Illinois Seniors and Disabled Drug Coverage Program to cover the gap in the Medicare Part D prescription drug benefit. The gap occurs because a provision of Part D requires participants to pay 100 percent of their prescription drug costs between $2,250 and $5,100 (often referred to as the "donut hole"). For lower-income retirees, the new state law provides wrap-azound coverage for the donut hole, helping to fill it in with state funds. To be eligible for the new program, a person must be (1) at least age 65 or disabled, (2) enrolled in a Medicaze Part D prescription drug plan, if eligible, and (3) have less than a specified amount of household income depending on household size. The new program will take effect when Medicare Part D begins on January 1, 2006. ' The authors of these news summaries are not attorneys and the statements made are not intended as legal advice or opinion. Qualified legal counsel should be consulted to ensure plan provisions comply with applicable laws and regulations. 9/8!2005 ~ 2005 -Gabriel, Roeder, Smith & Company Page 1 The text of the legislation is available at: http://www.il g`eov/legislation/publicacts/fulltext.as~?Name=094-0086. House Committee Passes Pension Protection Act On June 30, 2005, the Pension Protection Act (H.R. 2830) passed the House Education and the Workforce Committee. Representative John Boehner (R-OH) introduced the comprehensive pension reform bill to increase funding requirements for single-employer and multi-employer defined benefit pension plans and shorten the period for eliminating funding shortfalls. Generally, the new legislation would require pension plans to fully fund their current liability, comply with new reporting and disclosure requirements, restrict benefit payments and new benefit accruals in underfunded plans, and pay increased Pension Benefit Guaranty Corporation (PBGC) premiums. Specifically, the Act would: • Permanently replace the funding interest rate with three rates based on a modified yield curve; • Require employers to make sufficient contributions to meet a 100 percent funding tazget phased in over five yeazs; • Require employers to make additional contributions to eliminate funding shortfalls over seven years; • Prohibit the use of credit balances for severely underfunded plans (i.e., less than 80 percent funded); • Phase in PBGC premium increases over five years; • Provide new reporting and disclosure requirements related to funding status; and • Allow employers to provide workers with access to investment advice, provided any potential conflicts of interest are disclosed. The modified yield curve would replace the single corporate bond interest rate that expires at the end of 2005. Under the modified yield curve approach, employers would calculate their required contributions based on ~ee interest rates corresponding to average corporate bond yields maturing when future pension liabilities are due: (i) within five years, (ii) between five and 20 years, and (iii) after 20 years. Each rate would be developed and published monthly by the Treasury Department using athree-year average of corporate bond yields weighted 50 percent for the most recent plan year, 35 percent for the previous year, and 15 percent for the year prior to the previous year. The modified yield curve would be phased in over three years. Currently, under IRC § 417(e)(3), lump sum distributions from a defined benefit plan are calculated using the 30-year Treasury rate. Under H.R. 2830, the modified yield curve would replace the 30-year Treasury rate for calculating lump sum distributions. Additionally, the bill would require plans to use the RP-2000 Combined Mortality Table, but a substitute mortality table could be-used to measure both liability and lump sum distributions. A special effective date would apply for changes to be phased in over five years beginning in 2006. While governmental plans are not subject to the lump sum rules under IRC § 417(e)(3), proposed IRS regulations require governmental plans to use the 417(e)(3) rates for certain benefit limitation calculations under IRC § 415. The bill has been sent to the House Ways and Means Committee for review. Co-author and Committee Chairman William Thomas (R-CA) revealed his plans to incorporate this bill into his Social Security reform plan. The bill's text can be found at: http://www.thomas.loc.gov/ by searching for H.R. 2830. Senate Finance Committee Approves .Pension .Relirrm Bill On July 26, 2005, the Senate Finance Committee unanimously approved a modified chairman's mark of-the National Employee Savings Trust and Equity Guarantee (NESTEG) Act of 2005 (S. 219). The proposed comprehensive pension reform bill contains provisions for single- and multi-employer defined benefit plans ~ith some provisions applicable to governmental plans. The NESTEG proposals have common features with 9/8/?005 G 2005 -Gabriel, Roeder, Smith & Company Page 2 the House Committee's Pension Protection Act (H.R. 2830) approved on June 30, 2005. However, the House version would only be applicable to private plans. • Some of the major NESTEG provisions applicable to private plans would include: - Requiring plans to use a yield curve to value liabilities and calculate lump sum distributions. - Requiring plans to use current market values for plan assets. - Prohibiting benefit increases for plans funded at 80 percent or less. - Prohibiting lump sums or other accelerated benefit forms for plans funded at 60 percent or less. - Requiring plans to amortize unfunded liabilities over seven years. - Eliminating the practice of "smoothing" pension liabilities. - Requiring a new accounting standard for pension funds when a plan sponsor's credit rating is reduced to junk bond status. NESTEG provisions applicable to governmental plans include: - Purchase of permissive service credit. The legislation would amend IRC § 415(n) to allow participants to purchase additional credit for service already earned under the plan (i.e., "buy-up" the benefit), and to purchase credit for periods regardless of whether service is performed. In addition, for service credit purchased with transfers from 403(b) annuities or 457 governmental plans, the restrictions on purchasing nonqualified service would not apply. These restrictions limit the amount of nonqualified service purchased to a maximum of five yeazs and only allow the purchase after the member has at least five years of participation in the plan. - Minimum distribution rules. The Treasury would be directed to issue regulations under which a governmental plan would be treated as complying with the minimum distribution rules of § 401(a)(9) if the plan follows a reasonable, good faith interpretation of the statutory requirements. - Waiver of 10 percent early withdrawal tax on certain distributions. Any distributions from a • qualif ed defined benefit pension plan made to a public safety employee who separates from service after age 50 (age 55 under current law) would be exempt from the 10 percent eazly withdrawal tax. - Extension of moratorium on the application of the nondiscrimination rules. All governmental plans would continue to be exempt from the nondiscrimination rules under § 401(a)(4) and minimum participation rules under § 401(a)(26). - Withholding on distributions from governmenta1457 plans. The legislation would allow the pre- EGTRRA wage withholding rules to be applied to distributions from a governmental 457 plan beginning before January 1, 2002, if the distributions are payable over a period of less than 10 years. Before EGTRRA, distributions from a 457 plan were subject to the income tax withholding rules for wages rather than for qualified retirement plans. EGTRRA changed the withholding rules for 457 plans to conform with qualified retirement plans. As a result, after 2001, governmenta1457 plans are required to withhold income taxes at a 20 percent rate for distributions paid over less than 10 years, even if they began before the effective date of the EGTRRA changes. The proposed legislation would allow the pre-EGTRRA rules to be applied to such distributions. - Indian tribal government. The term "governmental plan" would include defined benefit plans established or maintained for employees by an Indian tribal government, a subdivision or agency of an Indian tribal government, or an entity established and owned by an Indian tribal government. The Joint Committee on Taxation (JCT) description of the Chairman's Mark of the NESTEG bill is available at: http://w~vw.house.gov/jct/x-56-OS.pdf and JCT modifications to the Chairman's Mark are available at: http://wvv~v.house. gov/jct/x-57-OS.pdf. CRS Report Compares Proposed Pension Reform Legislation • On July 15, 2005, the Congressional Research Service (CRS) released its report, Defined Benefit Pension Reform for Single-Employer Plans, providing an overview of proposed pension reform legislation. The report describes the current laws applicable to defined benefit pension plans, the Administration's pension reform 9/8;2005 ~~ 2005 -Gabriel, Roeder, Smith K Company Page 3 proposal, and other recently introduced Congressional bills. The major proposed pension reform bills analyzed were: the National Employee Savings and Trust Equity Guarantee Act of 2005 (NESTEG), Pension Preservation and Savings Expansion Act of 2005 (PPSE) and Pension Protection Act of 2005. full copy of the report is available at: http://opencrs.cdt.org/rpts/RL32991 20450714~df .IRS Private Letter Ruling on Governmental Plan Contributions by Indian Tribal Police Department On April 8, 2005, the IRS released a private letter ruling (PLR 200514024, dated 1/11/2005) concluding that contributions made by a federally recognized Indian tribe to a governmental plan on behalf of its uniformed police officers are in compliance with Code § 414(d). Under 414(d), a "govenmental plan" is defined as a plan established and maintained for its employees by the government of the United States, a State or political subdivision, or any agency or instrumentality of the foregoing. Citing Revenue Ruling 89-49, the letter ruling describes factors to consider in determining if a plan is considered a governmental plan, with one of the most important being the degree of control the governmental entity has over the organization's daily operations. Other factors include: 1) specific legislation creating the organization, 2) source of funds, 3) selection process for trustees or operating board, and 4) whether the governmental unit considers the organization's employees to be employees of the applicable governmental unit. In this letter ruling, the IRS concluded that the contributions made by the employer, a tribal police department, aze considered contributions by an agency or instrumentality of the state as provided in 414(d) based on the following considerations: • The employer performed law enforcement functions on behalf of the state and surrounding local govennments; and • The state exercised considerable control over the daily activities of the employer through extensive standards governing the qualifications and licensing of the police officers. Moreover, state law also governed the duties, liabilities, and data practices of the police officers. The IRS also ruled that participation of the police officers in the plan would not adversely affect the plan's governmental status under 414(d). This ruling was consistent with two previous rulings (PLR 200405015 and PLR 200404059). A copy of the private letter ruling is available at: http://www.irs.gov/pubs/irs-wd/0514024_pdf iliinnesota Court Affirms Age-Based Earle Retirement Plan Violated ADEA On July 7, 2005, the U.S. District Court for the District of Minnesota ruled that a Minnesota school district violated the Age Discrimination in Employment Act (ADEA) when it determined early retirement benefits based solely on an individual's age. The school district's early retirement incentive plan provided a cash incentive to full-time teachers who retired after age 52 with at least 15 years of service. Those retiring between the ages of 52 and 58 received 100 percent of the cash incentive, while only 90 percent was paid to those retiring at age 59, and only 80 percent was paid to those retiring at age 60, etc. After age 66, the retiring teachers did not receive any of the incentive benefit. See: EEOC v. Independent School District No. 2174 of Pine River, Minn., No. 04-4087. Source: Bureau of National Affairs, Pension & Benefits Reporter, July 19, 2005. U.S. I~ealth Care Spending I-Iigher Due to Costs for Prescription Drus and Ph~rsician Visits On July 12, 2005, Health Affairs journal published a study entitled "Higher Prices, Not Defensive Medicine Waiting Lists, Explain Why U.S. Health Care Spending is So High." According to the study, U.S. citizens ~ent $5,267 per capita for health Gaze in 2002 which was 53 percent higher that any other industrialized 918/2005 ~ 2005 -Gabriel, Roeder, Smith & Company Page 4 . _ _,~ country. The two major reasons cited for higher U.S. spending were (1) higher incomes and (2) higher medical caze prices for prescription drugs, physician visits and hospital stays. One of the .misconceptions dispelled by the reseazch was that malpractice claims caused higher health caze spending. The study found that the cost of defending U.S. malpractice claims was estimated to be $6.5 billion, only 0.46 percent of total health caze spending in 2001. In the U.S., malpractice awards accounted for $16 per capita in 2001 compazed to $12 in the United Kingdom and $10 in Australia. In 2001, the average U.S. malpractice claim was $265,103. This was higher than in Australia, but 14 percent less than in Canada and 36 percent less than in the United Kingdom. More information on the study is available on Health Affairs website at: http://www.healthaffairs.org(press/julyaugO541.htm ><'[edicare Enrollees with High Drug Costs hia~~ Expect. Elevated Out-of-Pocket Expenses In its July/August 2005 issue, Health Affairs journal released the findings of a Medicare study titled,"Riding the Rollercoaster: The Ups and Downs in Out-of-Pocket Spending Under the Standazd MedicatE Drug Benefit." According to the study, participants in Part D will pay out-of-pocket costs averaging about 44 percent of their total prescription drug costs over the first three years of the program. "High spenders," those with annual drug costs above $2,250, could pay up to 67 percent of the total. This difference is due to a provision in Part D whereby participants pay 100 percent of their prescription drug costs between $2,250 and $5,100 (also known as the "donut hole"). Participants in the donut hole pay all drug costs out-of-pocket until they reach $5,100, after which Part D's catastrophic coverage provision pays 95 percent of additional drug costs. The study estimated about 38 percent of enrollees will reach the donut hole in 2006, and 14 percent will exceed the catastrophic threshold. Over the three years from 2006 to 2008, projected out-of-pocket drug costs • for high spenders aze estimated to be about $11,000. For participants reaching the catastrophic coverage threshold, out of pocket costs are estimated to be nearly $12,300. The research team, led by Bruce Stuart of the University of Maryland in Baltimore, suggested restructuring the drug benefit to meet the needs of all beneficiaries by creating a uniform rate of coinsurance or capping the proportion of income paid for out-of- pocket drug costs. The study is available to Health Affairs subscribers at: http://www.healthaffairs.org A:~IlP Urges CATS to Use Clear Language in Redicare Part ll Beneficiary documents On July 8, 2005, AARP Associate Executive Director Christopher Hansen urged the Centers for Medicare & Medicaid Services (CMS) to provide Medicare beneficiaries with clear and concise documents to explain the Part D prescription drug benefit, scheduled to begin January 1, 2006. In a letter to CMS, Hansen warned that the success of the Part D program would depend on the extent to which potential participants understood the benefits provided. He suggested that the beneficiary-related plan documents (including the Summary of Benefits, Explanation of Benefits, and Evidence of Coverage) be written at a reading level no higher than the sixth grade and tested using focus groups. He also recommended that CMS ban unsolicited telephone calls to seniors to protect them from telemarketing scams. Source: Bureau of National Affairs, Pension & Benefits Reporter, July 19, 2005. Social Security Bill to Establish ludividual Accounts and Benett Offsets On July 15, 2005, Representative Jim McCrery (R-LA) introduced the Growing Real Ownership for Workers • ("GROW") Act of 2005 (H.R. 3304) as a means to reform Social Security. The bill would establish voluntary individual accounts (known as "GROW" accounts) funded with general revenues equal to the surplus Social Security tax revenues. The individual accounts would be invested in marketable U.S. Treasury securities. 9/8/2005 ,~ 2005 - Gabriel, Roeder, Smith & Company Page 6 could offer to pay the Part D premiums for enrollees, as well as a portion of out-of-pocket expenses. The employer would not receive the 28 percent subsidy, but Medicare would become the primary payer and the employer could structure this to lower long-term costs. Additionally, cost trends attributable to prescription drug costs could be excluded from the OPEB valuation thereby lowering the reported liability. A disadvantage of this approach is that employer payments for out-of-pocket costs do not advance the member toward Medicare's catastrophic prescription drug coverage. As discussed eazlier, to be eligible for Medicaze's 95 percent catastrophic prescription drug coverage, the $3,600 must first be paid out-of- pocket. Medicare Part D Implementation CMS continues to issue guidance for plan sponsors and several key dates are approaching that require decisions and actions by employers. The most significant upcoming deadlines include: October 31, 2005 -Employers must submit applications for the federal subsidy for calendar yeaz 2006, including required actuarial attestations, to CMS by October 31, 2005. November 15, 2005 -Employers that provide prescription drug plans must notify active and retired employees (and their spouses and dependents) about the plan's creditable coverage. Moreover, employers also need to inform plan participants that aze entitled to Medicaze benefits whether or not the plan provides creditable coverage. This notice requirement is applicable whether or not the employer applies for the federal subsidy. Medicare Part D Implementation Timeline for 2006 Coverage - ~ Re uirement ., _ Due_1~A#: . e~ ~~` ~~~~~ ~. CMS be ins communications to retirees about Part D October 1, 2005 Application for subsidy (for all plan sponsors whether operating on a plan or calendar ear October 31, 2005 O en Enrollment be ins creditable covera a certification re uired November 15, 2005 Retiree dru subsid ro am be ins Janu 1, 2006 It is likely that most state and local government-sponsored retiree prescription drug plans are actuarially equivalent to the Part D benefit. Therefore, they would be eligible for the 28 percent subsidy after obtaining certification that their prescription drug benefit is actuarially equivalent. If the government is unable to certify actuarial equivalence this year, the option is still open for future years. Additional Resources Guidance on the Part D subsidy is available on the CMS website at: http://rds.cros.hhs. eov Guidance on creditable coverage and model language for creditable coverage disclosure notice is at: http://www. cnts.hhs. cov/medicarereforn~/credcovrg.asp Basic questions and answers about Medicare Prescription Drug Coverage are at: http:/hvww. cros.hhs.gov/partnerships/news/mma/gsandas.pdf 9/12/2005 ©Gabriel, Roeder, Smith & Company Page 6 0 Gabriel, Roeder, Smith & Company GRS RESEARCH MEMORANDUM` Consultants & Actuaries RE: Medicare Part D Prescription Drug Benefits and Subsidies for Employer-Sponsored Retiree Drug Coverage FROM: Mary Ann Vitale and Paul Zorn, Director of Governmental Research DATE: September 12, 2005 Overall, Medicare covers 42 million people, including 35.4 million seniors and 6.3 million disabled people under age 65. Pazticipation in Medicare is expected to grow to 61 million by 2020 and 78 million by 2030. In 2005, Medicaze benefit payments totaled $325 billion (about $7,800 per participant), accounting for 13 percent of the federal budget. Forty percent of Medicare participants report being in very good to excellent health, 50 percent report being in good to fair health, and 10 percent report being in poor health. t Most Medicare participants have modest incomes: 50 percent have incomes below 200 percent of poverty.2 Prior to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (which becomes effective January 1, 2006), Medicare did not cover outpatient prescription drugs. In 2003, total outpatient prescription drug spending for Medicare beneficiaries (including out-of-pocket spending) amounted to $95 billion and averaged about $2,300 per beneficiary.3 Total annual outpatient drug spending was distributed among Medicare beneficiaries as follows: 61 percent spent less than $2,000 (totaling 19 percent of total prescription drug spending for Medicare beneficiaries); 28 percent spent between $2,000 and $5,000 (totaling 39 percent of drug spending); and 11 percent spent over $5,000 (totaling 42 percent of drug spending).4 Since Medicare did not provide outpatient drug coverage in 2003, prescription drug spending was paid through employer-provided retiree health insurance, other private coverage (e.g., Medigap), or paid out- of-pocket by the retirees. According to the 2000 Medicare Current Beneficiary Survey, prescription drug expenditures for Medicare beneficiaries age 65 and older were paid through the following sources: • 42 percent was paid out-of-pocket; • 36 percent was paid through private insurance; • 13 percent was paid through Medicaid and other public sources; and • 9 percent was paid from other sources. • The authors of this memorandum are not attorneys and the statements made are not intended as legal advice or opinion. ~ MedPAC analysis of the Medicare Current Beneficiary Survey, 2001. Z Ibid. s Kaiser Family Foundation, Medicare and Prescription Drug Spending Chartpack, June 2003. ° Ibid. 9/12/2005 ©Gabriel, Roeder, Smith & Company Page 1 t Medicare Part D Coverage On December 8, 2003, President Bush signed into law the Medicaze Prescription Drug, Improvement, and Modernization Act of 2003 (also referred to as the Medicare Modernization Act or MMA). Starting in 2006, the Act provides a new prescription drug benefit for Medicare enrollees under Medicare Part D. Additionally, the Act provides new federal subsidies for employers that continue to provide drug coverage to retirees, as long as the coverage is at least actuarially equivalent to coverage under Medicaze Part D. Beginning January 1, 2006, Medicare eligible/enrolled individuals may voluntarily enroll in Medicaze Part D standazd coverage, provided through private, risk-bearing, stand-alone plans referred to as Prescription Drug Plans (PDPs). For coverage in 2006, enrollees would pay a monthly premium of about $30 and an annual deductible of $250.5 In return, Medicaze would pay: • 75% of the enrollee's outpatient prescription drug costs between $250 and $2,250; • None of the enrollee's outpatient prescription drug costs between $2,250 and $5,100 (also kno'om as the "donut hole"); and • 95% of the enrollee's out-of-pocket prescription drug costs over $5,100 (i.e., catastrophic coverage). This is illustrated in the following graph: Catastrophic '~ Coverage -for costs over $5,100 No Coverage -for costs between $2,250 and $5,100 Initial Coverage - for costs between $250 and $2,250 5% 95°!° Enrollee Pays 100% (up to $2,850) (a.k.a. "Donut Hole") 25% (up to $500) 75% (upxo $.1,500) $250 Annual Deductible $360 Annual Premium ($30/month) a Enrollee Pays a Medicare Pays (Shading is not proportionate) 5 Centers for Medicare & Medicaid Services, Medicare Fact Sheet, August 9, 2005. CMS originally estimated the Medicare Part D premium would be $35 per month. On August 29, 2005, it announced that premiums charged by .drug plan providers would likely range from $20 to $30 per month, as a result of competition among the Part D plan providers. r' 9/12/2005 ®Gabriel, Roeder, Smith & Company Page 2 True Out-of-Pocket Costs • Under Medicare Part D, catastrophic coverage does not begin in a given year until the enrollee's "true out-of-pocket costs" exceed $3,600. This is the sum of: • the annual deductible ($250); • the enrollee's portion of the initial coverage (i.e., $500 or 25% x [$2,250 - $250]), and • the enrollee's portion of the donut hole (i.e., $2,850 or 100% x [$5,100 - $2,250]). Thus, Medicaze begins paying 95 percent of prescription drug costs only after the enrollee's total prescription drug costs reach $5,100 - of which $3,600 has been paid by the enrollee and $1,500 has been paid by Medicaze Part D. In order for the enrollee's $3,600 to count toward catastrophic coverage, the payments must meet the definition of "true out-of-pocket" costs (TrOOP). Part D defines TrOOP costs as only those paid :by the enrollee, another individual (e.g., a family member), a charity, or a State Pharmaceutical Assistance Program. Payments made by the employer or an insurance plan do not count as TrOOP costs and therefore, do not count toward catastrophic coverage. For example, if the employer paid the $250 annual deductible, it would increase the dollaz amount at which catastrophic coverage could begin for the enrollee to $5,350 ($5,100 + $250). However, since payments for monthly premiums aze not included in the definition of TrOOP costs, an employer can pay the enrollee's Part D premiums without increasing the dollaz amount at which catastrophic coverage begins. Employer Options for Retiree Drug Coverage • In responding to the new Part D program, employers have the following options for providing prescription drug coverage to Medicare-eligible retirees: 1) Provide an "actuarially equivalent" prescription drug plan and receive atax-free federal subsidy; 2) Provide separate drug coverage that supplements or "wraps around" Medicare Part D; 3) Coordinate drug coverage through Medicare Prescription Drug Plans (PDPs); 4) Sponsor an employer PDP through a waiver process with the Center for Medicaze and Medicaid Services (CMS); 5) Offer a Medicare Advantage Prescription Drug Plan (MA-PDP); or 6) Drop drug coverage and possibly offer to pay retirees' monthly Medicare Part D premiums. The remainder of this memorandum discusses employer subsidies under Medicare Part D and employer supplemental ("wrap-around") coverage. Employer Subsidies Under Part D The MMA does not prevent employers or other health care plan sponsors from providing prescription drug coverage that is at least actuarially equivalent to Part D. In analyzing eazlier versions of the legislation, the Congressional Budget Office (CBO) estimated approximately one-third of Medicaze beneficiaries would lose employer-sponsored drug coverage as a result of Part D. Consequently, Congress added federal subsidies to encourage employers to continue providing prescription drug coverage for retirees. To be eligible for the subsidy, an employer must provide an actuarial certification that its plan's • prescription drug coverage is "actuarially equivalent" to the standard Part D benefit. In return, Medicaze 9/12/2005 ©Gabriel, Roeder,- Smith & Company Page 3 f will pay 28 percent of the employer's incurred "allowable costs" for outpatient prescription drugs ~, between $250 and $5,000 per "qualified individual." A "qualified individual" must be eligible for Part D coverage, but have elected to receive his or her drug benefit through the employer instead. The ' • maximum subsidy is $1,330 per member (i.e., 28% x [$5,000 - $250]), and is indexed for certain future '~: cost increases. According to CMS, the subsidy is expected to average about $668 per qualified individual. The subsidy is not taxable income for the employer. Moreover, private-sector employers can take a tax deduction for the cost of providing the prescription drug plan. State and local governments that sponsor retiree health care plans are eligible for the subsidy, but do not benefit from the tax deduction, since they are already tax-exempt entities. Allowable Costs Allowable costs are actual incun ed drug costs under a qualified plan by a qualified individual that is paid either by the plan sponsor (e.g., the employer) or plan member. These costs must be for drugs covered~by Medicare Part D and include dispensing fees, but exclude administrative costs, discounts, rebates, etc. It is important to note that the employer .can receive a subsidy for allowable costs paid by members. However, a plan where members pay most or all of the costs would not be "actuarially equivalent" to the Part D benefit. Actuarial Equivalence Determining actuarial equivalence involves atwo-part test to ensure that both the gross and net value of the plan sponsor's retiree prescription drug benefit is at least equal to the Part D standard benefit. The first part is the "gross value" test which measures whether the expected value of prescription drug -• benefits for Medicare-eligible individuals under the employer's prescription drug program is at least equal to the expected value of the standard Part D benefit. The gross value test is used to determine whether the plan provides "creditable coverage" (that is, whether the drug coverage that is expected to be paid out will, on average, be at least equal to the standard Medicare prescription drug coverage). In order to meet certain disclosure requirements under Part D, employers that provide prescription drug coverage to Medicare-eligible individuals must perform this test whether or not they apply for the subsidy. (See the Creditable Coverage Notice section, later in this memorandum.) The second part is the "net value" test which measures whether the expected value of plan benefits minus retiree contributions for prescription drug coverage is at least equal to the expected value of the standard Part D benefit minus the Part D premium adjusted for supplemental coverage. Requirements for Receiving the Subsidy The following five steps are required for employers to receive the prescription drug subsidy: 1) Submission of an annual application for the employer subsidy. For the retiree drug subsidy beginning January 1, 2006, an application must be submitted to CMS by October 31, 2005.6 In subsequent years, calendar year plans must submit applications by September 30 and non- calendar year plans must submit applications 90 days prior to the beginning of each plan year. 2) Provide attestation of actuarial equivalence. CMS requires certification by a member of the American Academy of Actuaries that the plan meets the actuarial equivalence standards. For •6 The deadline for applying for the Part D subsidy was originally September 30, 2005. However, on September 2, 2005, CMS announced the deadline's extension to October 31, 2005. 9/ 12/2005 ®Gabriel, Roeder, Smith & Company Page 4 each plan, an actuary's attestation must be provided with the application by the applicable deadlines. • 3) Certify disclosure of creditable coverage status. Employers must disclose to plan participants and CMS whether or not each plan provides creditable coverage. CMS has issued creditable coverage guidance with sample disclosure language that can be incorporated into other plan communications. (See the Additional Resources section at the end of this memo for links to CMS guidance on creditable coverage.) 4) Electronically submit and periodically update enrollment information. Employers must provide enrollment information about retirees and dependents to CMS to be updated periodically. S) Electronically submit incurred drug cost data. Employers must provide aggregate data on incurred drug costs and reconcile cost data at yeaz-end to CMS. Creditable Coverage Notice The MMA requires every plan sponsor that offers prescription drug coverage to provide a notice to CMS of the plan's creditable coverage status annually and upon any change in creditable coverage status. 'This notice is due by September 30, regazdless of whether the plan offers "creditable" or "noncreditable" coverage.' In addition, plan sponsors must notify Part D eligible participants of the plan's creditable coverage status at the following times: • Annually prior to November 15; • Before the initial enrollment period for Part D; • Before the effective date of enrollment in the employer's drug plan; • When drug coverage ends or the status of creditable coverage changes; and • Upon the beneficiary's request. A simplified creditable coverage test may be used if an employer is not applying for the Part D subsidy. Under the simplified test, the prescription drug plan must satisfy several requirements such as providing at least 60 percent of participants' prescription drug expenses, on average. Advantages and Disadvantages of the Employer Subsidy The main advantage of the Part D subsidy for employers is the tax-free reimbursement for 28 percent of allowable costs incurred for outpatient prescription- drug benefits. This has been estimated to save approximately 20 percent of the employer's allowable drug spending annually. Another advantage is that, by continuing the current plan, there will be less disruption in benefits provided to members and therefore less of a need to communicate benefit changes. The disadvantages include the required annual certification of the plan for actuarial equivalence, as well as additional plan administration and reporting requirements related to applying for the subsidy, and processing subsidy payments. Employer Supplemental (`Wrap-Around") Coverage Instead of offering prescription drug coverage, employers could require Medicare eligible plan members to select the Part D benefit, but also offer coverage that supplements Part D. For example, the employer ~ As noted in an earlier footnote, CMS extended the application deadline for the Part D subsidy from September 30, • 2005, to October 31, 2005. At this writing, it is unclear whether that extension also applies to the deadline for submitting creditable coverage notices to CMS. 9/12/2005 ®Gabriel, Roeder, Smith & Company Page 5 Eligible workers bom on or after January 1, 1950, would be automatically enrolled but would have the option to disenroll. The proposal also includes a benefit offset that would reduce the individual's guaranteed Social Security benefit by the individual account balances. .According to Social Security Administration's (SSA) chief actuary, Stephen Goss, the plan would reduce Social Security's long-term liabilities by an estimated 0.24 percent of taxable payroll, from an estimated actuarial deficit of 1.92 percent of payroll under present law to 1.68 percent of payroll under the proposed law. The bill has been referred to the House Committee on Ways and Means and is expected to be included in a broader retirement policy proposal being drafted by Committee Chairman William Thomas (R-CA). The legislation is available at: http://thomas.loc.gov/ by searching for H.R. 3304. A copy of the SSA actuary's memorandum on GROW accounts is available at: httn://www.ssa.~ov/OACT/solvency/McCrerv 20050715 pdf HSA Premiums Decrease in Earh 2005 On July 27, 2005, eHealthInsurance released its report, Health Savings Accounts: The First Six Months of 2005, indicating that HSA premiums decreased by an average of $348 over the last year. Overall, annual HSA premiums fell 15 percent from $2,471 in 2004 to $2,122 in 2005. The lazgest decrease occurred among individual plans, with annual premiums falling 19.1 percent from $1,655 in 2004 to $1,339 in 2005. Family plan premiums decreased 4.8 percent from $3,329 in 2004 to $3,169 in 2005. Of all age groups, premiums for the age 45-64 cohort decreased the most, falling 17 percent from $2,701 in 2004 to $2,245 in 2005. HSAs were established by Congress to allow consumers to pay for qualified medical expenses with pre-tax dollazs, beginning January 1, 2004. To be tax-advantaged, HSAs must be combined with high-deductible health plans that include: - Minimum annual deductibles of $1,000 for individuals and $2,000 for families, and . - Maximum annual out-of-pocket expenses limited to $5,100 for individuals and $10,200 for families. The eHealthInsurance report indicates that affordable HSA programs have provide many of the benefits offered by comprehensive health insurance plans: including emergency room services, hospitalization, and lab/X-ray services. Neazly 80 percent of the HSA plans purchased in early 2005 also have prescription drug coverage with half paying the entire cost after the deductible is met. The study also found that, during 2005, a transition towazd younger buyers occurred with the age 21-29 group increasing from 18.3 percent of total buyers in 2004 to 24.2 percent in 2005. Also, a larger portion of individuals (as compared with families) purchased HSAs, increasing from 51.3 percent in 2004 to 57.1 percent in 2005. The report is based on data from the Kaiser Family Foundation and Health Research and Educational Trust. eHealthInsurance is a major source of health insurance and represents over 140 health insurance companies. A copy of the report is available at: httn://image.ehealthinsurance.com/ehealthinsurance/ReportNew/072705HSA6mosReportFinal pdf • 9!8/2005 ©2005 -Gabriel, Roeder, Smith & Company Page b Must be Postmarked Concord EFS, Inc. Securities Litigation No Later Than: c/o The Garden City Group, Inc. December 16, 2005 Settlement Administrator P.O. Box 9000 #6344 Merrick, New York 11566-9000 Toll Free: (800) 259-0294 PROOF OF CLAIM AND RELEASE PART I: CLAIMANT IDENTIFICATION Claim Number: 02102032 Control Number: 0690717600 1111111 IIIII IIIII IIII IIIII IIIII IIIII IIIII Illll IIIII IIIII IIII IIII ~n~~u~~~t~~n~~~~n~~~nu~~~~nr~~~~n~~~n~n~~~~~n~n~i) V]LLRDE OF 7EQUESTA PUSL]C SAFETY OFF]CERS PENS]ON 1RU57 FUND 250 TEpUESTR DR STE 304 TEQVESTA, FL 3369-2766 ~~ R `~ ~ ~ 111111111111111111111111 1111111111111111111 WRITE ANY NAME AND ADDRESS CORRECTIONS BELOW OR /F THERE IS NO PREPRINTED DATA TO THE LEFT, YOU MUST PROVIDE YOUR FULL NAME AND ADDRESS HERE: IF THE ABOVE AREA IS @~~(~ YOU MUST ENTER YOUR FULL NAME AND ADDRESS HERE Please till in Social Security Number/ Taxpayer ID Number if box is blank: Daytime Telephone Number: ( ~ - Evening Telephone Number: ( ~ - Identity of Claimant (Check one): ^ Individual/Sole Proprietor ^ Corporation ^ Pension Plan ^ Partnership ^ Trust ^ IRA ^ Other (specify) TO: ALL PERSONS OR ENTITIES WHO, DURING THE PERIOD FROM MARCH 29, 2001 THROUGH SEPTEMBER 4, 2002, INCLUSIVE, PURCHASED OR OTHERWISE ACQUIRED CONCORD EFS, INC. ("CONCORD") COMMON STOCK. ALL CLAIMANTS ARE URGED TO PLEASE READ THESE INSTRUCTIONS, NOTICE OF PENDENCY AND SETTLEMENT OF CLASS ACTION (THE "NOTICE") ACCOMPANYING THIS PROOF OF CLAIM ("PROOF OF CLAIM") AND HOW TO COMPLETE THE PROOF OF CLAIM PROPERLY. I. GENERAL INSTRUCTIONS 1. To recover as a Member of the Settlement Class based upon your claims in the consolidated action entitled In re Concord EFS, Inc. Securities Litigation, Civil Action No. 02-2697, pending in the United States District Court for the Western District of Tennessee, you must complete and, on page 5 hereof, sign this Proof of Claim. If you fail to file a properly completed Proof of Claim in the manner and time set forth in paragraph 3 below, your claim may be rejected and you may be precluded from any recovery from the Settlement Fund created in connection with the proposed settlement of the Action, as defined in the Notice. in the Action. Submission of this Proof of Claim, however, does not assure that you will share in the proceeds of settlement 3. YOU MUST MAIL YOUR COMPLETED AND SIGNED PROOF OF CLAIM, SO THAT IT IS POSTMARKED OR RECEIVED ON OR BEFORE DECEMBER 16, 2005, TO THE FOLLOWING ADDRESS: Concord EFS, Inc. Securities Litigation Go The Garden City Group, Inc. Settlement Administrator P.O. Box 9000 #6344 Merrick, New York 11566-9000 IIIIIIIIUIIIIINIII~NIINIINIINIIIIINII~nN~ll~~~6 4. If you are NOT a Settlement Class Member (as defined in the Notice), DO NOT submit a Proof of Claim Form. 5. If you are a Settlement Class Member and you did not timely and validly request exclusion in connection with the proposed settlement, you will be bound by the terms of any judgment entered in the Action, including the releases provided therein, REGARDLESS OF WHETHER YOU SUBMIT A PROOF OF CLAIM. II. CLAIMANT IDENTIFICATION 1. If you purchased Concord common stock and held the certificate(s) in your name, you are the beneficial purchaser as well as the record purchaser. If, however, you purchased Concord common stock and the certificate(s) were registered in the name of a third party, such as a nominee or brokerage firm, you are the beneficial purchaser and the third party is the record purchaser. 2. Use Part I of this form entitled "Claimant Identification" to identify each purchaser of record ("nominee"), if different from the beneficial purchaser of the Concord common stock forming the basis of this claim. THIS CLAIM MUST BE FILED BY THE ACTUAL BENEFICIAL PURCHASER OR PURCHASERS, OR THE LEGAL REPRESENTATIVE OF SUCH PURCHASER OR PURCHASERS, OF THE CONCORD COMMON STOCK UPON WHICH THIS CLAIM IS BASED. 3. All joint purchasers must sign this claim. Executors, administrators, guardians, conservators, and trustees may complete and sign this claim on behalf of persons represented by them, but the claim must be accompanied by evidence demonstrating their current representative capacity and authority. The Social Security (or taxpayer identification) number and telephone number of the beneficial owner may be used in verifying the claim. Failure to provide the foregoing information could delay verification of your claim and/or result in claim rejection. III. CLAIM FORM 1. Use Part II of this form entitled "Schedule of Transactions in Concord common stock" to supply all required details of your transaction(s) in Concord common stock. If you need more space or additional schedules, attach separate sheets giving all of the required information in substantially the same form. Sign and print or type your name on each additional sheet. 2. On the schedules, provide all requested information with respect to all of your purchases and all of your sales of Concord common stock that took place at any time beginning March 29, 2001 through September 4, 2002, inclusive (the "Class Period"), whether such transactions resulted in a profit or a loss. Failure to report all such transactions may result in rejection of your claim. 3. List each transaction in the Class Period separately and in chronological order, by trade date, beginning with the earliest. You must accurately provide the month, day and year of each transaction you list. 4. The date of covering a "short sale" is deemed to be the date of purchase of a Concord Security. The date of a "short sale" is deemed to be the date of sale of a Concord common stock. 5. You should attach copies of broker confirmations or other documentation of your transactions in Concord common stock to your claim. Failure to provide this documentation could delay verification of your claim and/or result in claim rejection. IF YOU DO NOT ALSO COMPLETE AND RETURN THE W-9 FORM INCLUDED HEREIN, ANY RECOVERY TO WHICH YOU ARE ENTITLED MAY BE SUBJECT TO DISALLOWANCE OR 20% BACK-UP WITHHOLDING UNDER THE INTERNAL REVENUE CODE. 2 'Part II: SCHEDULE OF TRANSACTIONS IN CONCOR COMMON STOCK Separately list each of your purchases/acquisitions or sales of Concord common stock below. Photo copy this page if more space is needed. Ba sure to include your name and Social Security number or Tax ID number on any additional sheets. The date of purchase, acquisition or sale is the "trade" or "contract" date, and not the "settlement" or "payment" date. A• BEGINNING HOLDINGS: Number of shares of Concord common stock held at the opening of trading on March 29, 2001, (if none, write O), (Must be documented): B• PURCHASESIACQUISITIONS: Purchases/acquisitions of Concord common stock during the period of March 29, 2001 through September 4, 2002, inclusive. (Must be documented): "°'"`°~ "' Number of Shares Purchase Price Aggregate Cost I Purchase/Acquisitions of Common Stock Per Share (List Chronologiplly) purchased/A cared of Common Stodc (exd~xes andmfreneSSions, / / ~ ~ 0 / / ~ L_J 0 / / ~~ ~ s~ / / ~ ~ s~ C. SALES: Sales of Concord common stock during the period of March 29, 2001 and September 4, 2002, inclusive. (Must be documented): Date(s) of Sale Number of Shares Sale Price Amount Received I (List Chronologically) of Common Stock Per Share (excluding commissions, (Month/Day/Year) Sold of Common Stock taxes anri fees) o 0 0 o 0 0 o0 0 o 0 0 D• UNSOLD HOLDINGS: Number of shares of Concord common stock held at the close of trading on September 4, 2002, (if none, write OJ, (Holdings must be documented): YOU MUST READ AND SIGN THE ACKNOWLEDGEMENT AND RELEASE ON PAGE 5. IF YOU NEED ADDITIONAL SPACE TO LIST YOUR TRANSACTIONS PHOTOCOPY THIS PAGE PART III. SUBMISSION TO JURISDICTION OF COURT AND ACKNOWLEDGMENTISIIIII~~IIIIIIIIIIIIIIII~II~I~~IIIIIIIIIIIIIIIu~lp~l~~~ 1. I (We) submit this Proof of Claim under the terms of the Stipulation and Agreement of Settlement of Class Acton (the "Settlement Agreement") as described in the Notice. I (We) also submit to the jurisdiction of the United States District Court for the Western District of Tennessee with respect to my (our) claim as a Settlement Class Member and for purposes of enforcing the release set forth herein. I (Vile) further acknowledge that I am (we are) bound by and subject to the terms of any judgment that may be entered in the Action. 2. I (We) agree to furnish additional information to Plaintiffs' Lead Counsel or the Settlement Administrator to support this claim, including details of transactions in Concord common stock purchased outside the Class Period if requested to do so. I (We) agree to be subject to discovery with respect to the validity and/or amount of my (our) claim. 3. 1 (V1le) consent to summary disposition by the Court, without any right of appeal or review, with respect to the validity and/or amount of, or any other dispute regarding, my (our) claim. I (We) waive trial by jury (to the extent any such right may exist) with respect to the Court's summary disposition with respect to the validity and/or amount of my (our) claim. PART IV. RELEASE AND CERTIFICATION 1. I (We) hereby acknowledge that upon the occurrence of the Settlement Effective Date, as defined in the Notice, my signature hereto will acknowledge full and complete satisfaction of and do hereby fully, finally and forever settle, release and discharge from the Released Claims each and all of the Released Parties as those terms are defined below. 2. "Released Claims" means any and all claims, liabilities, demands, causes of action, or lawsuits, known or unknown (including Unknown Claims), whether legal, statutory, equitable or of any other type or form, whether under federal or state law, and whether brought in an individual, representative or any other capacity, that in any way relate to or arise out of or are connected with the purchase, retention, or sale of Concord common stock (ticker symbol: CEFT) during the Settlement Class Period, including, but not limited to, any event, act, statement or omission occurring during the Settlement Class Period that has been alleged or asserted in, or which could have been alleged or asserted in, the Action, any of the cases consolidated into the Action, or the Complaint. 3. "Released Parties" means Defendants, their predecessors, successors, parents, subsidiaries, and each and all of their respective current and former officers, directors, employees, agents, accountants, auditors, attorneys, consultants, insurers, investment bankers, representatives, heirs, and assigns. The Released Parties who are not Settling Parties are intended as third party beneficiaries of the Settlement Agreement with respect to the release of Released Claims. 4. "Unknown Claims" means any Released Claims which any Lead Plaintiff and/or Settlement Class Member does not know or suspect to exist in his, her or its favor at the time of the release of the Released Parties which, if known by him, her or it, might have affected his, her or its settlement with and release of the Released Parties, or might have affected his, her or its decision not to object to this settlement. Without admitting that California law is in any way applicable to this agreement, in whole or in part, with respect to any and all Released Claims, the Settling Parties stipulate and agree that, upon the Effective Date, each Lead Plaintiff and each of the Settlement Class Members shall be deemed to have, and by operation of the Final Judgment shall have, expressly waived the provisions, rights and benefits of California Civil Code §1542, which provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Each Lead Plaintiff and each of the Settlement Class Members shall be deemed to have, and by operation of the Final Judgment shall have, expressly waived any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar, comparable or equivalent to California Civil Code §1542. The Lead Plaintiffs or Settlement Class Members may hereafter discover facts in addition to or different from those which he, she or it now knows or believes to be true with respect to the subject matter of the Released Claims, but the Lead Plaintiffs and each Settlement Class Member, upon the Settlement Effective Date, shall be deemed to have, and by operation of the Final Judgment shall have, fully, finally, and forever settled and released any and all Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, whether or not concealed or hidden, which now exist, or heretofore have existed, upon any theory of law or equity now existing or coming into existence in the future, including, but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts. The Lead Plaintiffs and Settlement Class Members shall be deemed by operation of the Final Judgment to have acknowledged that the foregoing waiver was separately bargained for and a key element of the settlement of which this release is a part. 5. I (We) hereby warrant and represent that I (we) have not assigned or transferred or purported to assign or transfer, voluntarily or involuntarily, any matter released pursuant to this release or any other part or portion thereof. 6. I (V11e) hereby warrant and represent that I {we) have included information about all of my (our) transactions in Concord common stock that occurred during the Class Period as well as the amount of Concord common stock held by me (us) at the opening of trading on March 29, 2001, and at the close of trading on September 4, 2002. I (We) have not submitted any other claim covering the same purchases or sales of Concord common stock during the Class Period and know of no other person having done so on my (our) behalf. 7. I (We) hereby warrant and represent that I (we) am (are) not excluded from the Class as defined herein and in the Notice. SUBSTITUTE FORM W-9 IIIIIIIII~I~I~IIuII~IIIII~II~II~~IIII~~III~II~lI~11~Np Request for Taxpayer Identification Number ('TIN") and Certification PART 1 NAME: Enter TIN on the appropriate line. For individuals, this is your social security number ("SSN"). For sole proprietors, you must show your individual name, but you may also enter your business or "doing business as" name. You may enter either your SSN or your Employer Identification Number ("EIN"). For other entities, it is your EIN. ___ __ ____ or __ _ _____ Social Security Number Employer Identification Number PART II For Payees Exempt From Backup Withholding If you are exempt from backup withholding, enter your correct TIN in Part I and write "exempt" on the following line: PART III Certification UNDER THE PENALTY OF PERJURY, I (WE) CERTIFY THAT: 1. The number shown on this form is my correct TIN; and 2. I (We) certify that I am (we are) NOT subject to backup withholding under the provisions of Section 3406(a)(1)(C) of the Internal Revenue Code because: (a) I am (we are) exempt from backup withholding; or (b) I (we) have not been notified by the Internal Revenue Service that I am (we are) subject to backup withholding as a result of a failure to report all interest or dividends; or (c) the Internal Revenue Service has notified me (us) that I am (we are) no longer subject to backup withholding. NOTE: If you have been notified by the Internal Revenue Service that you are subject to backup withholding, you must cross out item b above. The Internal Revenue Service does not require your consent to any provision of this document other than the certification required to avoid backup withholding. I declare under penalty of perjury under the laws of the United States of America that the foregoing information (including all copies of documents) supplied by the undersigned is true and correct. Executed this day of . in (City) (State /Country) (Sign your name here) (Type or print your name here) (Capacity of person(s) signing, e.g., Beneficial Purchase, Executor or Administrator) (Sign your name here) (Type or print your name here) (Capacity of person(s) signing, e.g., Beneficial Purchase, Executor or Administrator) ~ioiiiiiuum~~iii~iii~ii~i~w~~~~oiia~u ACCURATE CLAIM PROCESSING TAKES TIME. THANK YOU FOR YOUR PATIENCE. REMINDER CHECKLIST 1. Please sign the Certification Section of the Proof of Claim and Release form. 2. If this claim is made on behalf of joint claimants, then both must sign. 3. Please remember to attach supporting documents. 4. DO NOT SEND ORIGINALS OF ANY SUPPORTING DOCUMENTS. 5. Keep a copy of your Proof of Claim and Release form and all documentation submitted for your records. 6. The Administrator will acknowledge receipt of your Proof of Claim and Release form by mail. Your claim is not deemed filed until you receive an acknowledgement postcard. If you do not receive an acknowledgement postcard within 30 days, please call the Claims Administrator toll-free at 1 (800) 259-0294. 7. If you move, please send us your new address. 8. Do not use highlighter on the Proof of Claim and Release form or supporting documentation. THIS PROOF OF CLAIM MUST BE POSTMARKED NO LATER THAN DECEMBER 16, 2005 AND MUST BE MAILED TO: Concord EFS, Inc. Securities Litigation c/o The Garden City Group, Inc. Settlement Administrator P.O. Box 9000 #6344 Merrick, New York 11566-9000 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TENNESSEE MEMPHIS DIVISION IN RE CONCORD EFS, INC. ) No. 02-2697 Ma SECURITIES LITIGATION ) Judge Mays NOTICE OF PENDENCY AND SETTLEMENT OF CLASS ACTION TO: ALL PERSONS OR ENTITIES WHO, DURING THE PERIOD FROM MARCH 29, 2001 THROUGH SEPTEMBER 4, 2002, INCLUSIVE, PURCHASED OR OTHERWISE ACQUIRED CONCORD EFS, INC. ("CONCORD") COMMON STOCK. PLEASE READ THIS NOTICE CAREFULLY. THIS NOTICE RELATES TO A PROPOSED SETTLEMENT OF THIS CLASS ACTION LAWSUIT. IF YOU ARE A CLASS MEMBER, THIS NOTICE CONTAINS IMPORTANT INFORMATION AS TO YOUR RIGHTS CONCERNING THE SETTLEMENT. IF YOU ARE A MEMBER OF THE CLASS AND DO NOT SUBMIT A TIMELY REQUEST FOR EXCLUSION, YOU WILL BE BOUND BY THE RELEASE INCLUDED IN THIS NOTICE, REGARDLESS OF WHETHER YOU SUBMIT A CLAIM. YOU ARE HEREBY NOTIFIED, the above-captioned action (the "Action"), a class action lawsuit, is currently pending in the United States District Court for the Western District of Tennessee (the "Court"). The Action alleges various violations of the federal securities laws, as further described in Section II below, against Concord EFS, Inc. ("Concord") and certain of its officers and directors. The Action seeks damages on behalf of all persons or entities who purchased Concord common stock from March 29, 2001 through September 4, 2002, inclusive (the "Settlement Class Period"). This Notice is published pursuant to an Order of the Court and Federal Rule of Civil Procedure 23 to notify you that, subject to Court approval, the parties have reached a settlement of the Action. The proposed Stipulation and Agreement of Settlement of Class Action (the "Settlement Agreement") creates a Settlement Fund in the amount of $13,250,000.00. Your recovery from this fund will depend on a number of variables, including the number of shares of Concord common stock you purchased during the Settlement Class Period, and the timing of your purchases and any sales. Plaintiffs are required by taw to provide in this Notice an estimate of the average per-share recovery, but the figure below does not necessarily represent the recovery any particular Member will receive. Dividing the gross amount of the Settlement Fund by the number of shares that plaintiffs estimate were purchased during and held to the end of the Settlement Class Period (approximately 275 million shares) results in an estimated average recovery per damaged share of approximately $0.05 before deduction of Court approved fees and expenses. The actual per-damage-share recovery figure will vary depending on the number of Members who elect to participate in the Settlement, and when those Members' Concord common stock was purchased and/or sold. For example, the figure may be higher if less than all of the eligible claims are filed. Thus, because the actual recovery of each Authorized Claimant will be based on the volume of claims made and each Authorized Claimant's estimated out-of-pocket damages, rather than a simple per-share average, any individual Member may receive a recovery that is either higher or lower than the per-share average. Defendants emphatically deny any and all claims of wrongdoing, and any and all liability alleged in connection with such claims. Further, Lead Plaintiffs and the Defendants do not agree on the average amount of damages per share that would be recoverable if the Lead Plaintiffs prevailed on each claim alleged. The issues on which the parties disagree include, among others: (1) whether the statements allegedly made or facts allegedly omitted were material, false, misleading, or otherwise actionable under the securities laws; (2) whether the statements allegedly made or facts allegedly omitted (if there were any) were made or omitted with the state of mind required to impose liability; (3) the appropriate economic model for determining the amount by which the prices of Concord common stock were allegedly artificially inflated (if at all) during the Settlement Class Period; (4) the amount by which the prices of Concord common stock were allegedly artificially inflated (if at all) during the Settlement Class Period; (5) the extent to which external factors, such as general market and industry conditions, influenced the trading prices of Concord common stock at various times during the Settlement Class Period; (6) the extent to which the various matters that Lead Plaintiffs allege were materially false or misleading influenced (if at all) the trading prices of Concord common stock at various times during the Settlement Class Period; and (7) the extent to which the various allegedly adverse material facts that Lead Plaintiffs alleged were omitted influenced (if at all) the trading prices of Concord common stock at various times during the Settlement Class Period. Lead Plaintiffs believe that the proposed settlement is fair, reasonable, adequate and in the best interests of the Class. There are significant risks associated with continuing to litigate and proceeding to trial. In addition, there is a danger that the Class would not prevail on their claims against the Defendants even if those claims went to trial, in which case the Class would receive nothing. Further, had the case proceeded to trial and assuming Lead Plaintiffs established liability of the Defendants, the amount of damagds recoverable by Members would have been subject to vigorous attack by the Defendants. Recoverable damages are limited to losses actually caused by conduct found actionable under applicable securities laws. Had the Action gone to trial, Defendants would have tried to prove that all or most of the losses of Members were caused by non-actionable market, industry, or other general economic factors. The proposed settlement eliminates these risks and provides an immediate recovery for Members. Plaintiffs' Counsel have not received any payment for their services in prosecuting the Action on behalf of Plaintiffs and Members. If the Court approves the settlement, Plaintiffs' Counsel will apply to the Court for an award of attorneys' fees not to exceed 25% of the Settlement Fund. Plaintiffs' Counsel also plans to seek reimbursement of out-of-pocket expenses from the settlement proceeds, not to exceed $500,000.00 exclusive of settlement administration expenses. This Notice is not intended to be, and should not be construed as, an expression of any opinion by the Court with respect to the truth of the allegations in the Action or the merits of the claims or defenses asserted. Defendants have expressly denied any and all wrongdoing and/or liability. This Notice is to advise you of the proposed settlement and of your rights in connection therewith. If you have any questions about the settlement, you may contact the following Plaintiffs' Lead Counsel: WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP PETER C. HARRAR PAULETTE S. FOX 270 Madison Avenue New York, NY 10016 (212) 545-4600 Please do not contact the Court or Concord. DEFINITIONS The following terms have the meanings specified below: 1. "Authorized Claimant" means a Member (or the representative of such Member including, without limitation, agents, administrators, executors, heirs, successors, and assigns), who submits a Proof of Claim and Release and who is entitled to a distribution from the Net Settlement Fund pursuant to the terms and conditions set forth in the Settlement Agreement. "Concord" or the "Company" means Concord EFS, Inc. 3. "Defendants" means Concord, Dan M. Palmer, Edward A. Labry, III, Edward T. Haslam, Marcia E. Heister, William E. Lucado, Christopher S. Reckert, E. Miles Kilburn, Ronald V. Congemi, and Richard P. Kiphart. 4. "Distribution Fund" means the Settlement Fund less any bank fees charged for maintenance of the Escrow Account, disbursements for establishment of the Notice and Administration Fund, and any taxes that may be payable from the Settlement Fund. 5. "Final Approval Order" means the Final Order Approving Class Action Settlement and Plan of Allocation, which shall be identical in all material respects to that provided in the form of Exhibit B to the Settlement Agreement. 6. "Final Judgment" means that judgment to be entered by the Court pursuant to the Final Approval Order, identical in all material respects to that provided in the form of Exhibit C to the Settlement Agreement, rendering the Settlement final, dismissing the Action with prejudice and without costs to any party, releasing all Released Claims, and enjoining Members from instituting, continuing, or prosecuting any action asserting one or more Released Claims. 7. "Individual Defendants" means Dan M. Palmer, Edward A. Labry, III, Edward T. Haslam, tilarcia E. Heister, William E. Lucado, Christopher S. Reckert, E. Miles Kilburn, Ronald V. Congemi, and Richard P. Kiphart. 8. "Lead Plaintiffs" means J.T. Milligan, James Keith Milligan and J. Curtis Williams, Jr. g. "Member" means any person or entity who is a member of the Settlement Class (including beneficial owners of Concord common stock purchased on their behalf by others during the Settlement Class Period), and including, without limitation, the Lead Plaintiffs, but excluding those persons or entities who submit valid and timely requests for exclusion from the Settlement Class in accordance with the procedures set forth in this Notice. 10. "Net Settlement Fund" means the Distribution Fund less all attorneys' fees and attorneys' and Plaintiffs' expenses allowed by the Court. 11. "Plaintiffs" means J.T. Milligan; James Keith Milligan; J. Curtis Williams, Jr.; Marc Abrams; Kathy Schmersahl; John and Leslie Norwood; GF Partnership; AVG Limited Partnership; JYG Partnership; Sandford Sadja and Stanley Sved. 12. "Plaintiffs' Counsel" means Wolf Haldenstein Adler Freeman & Herz LLP; Law Offices of Paul Kent Bramlett; Law Offices of Charles J. Piven, P.A.; Law Offices of Marc S. Henzel; and Vianale &Vianale LLP. 13. "Plaintiffs' Lead Counsel" means Wolf Haldenstein Adler Freeman & Herz LLP. 14. "Plan of Allocation" means that plan or formula of allocation of the Distribution Fund approved by the Court, which plan or formula shall govern the distribution of the Distribution Fund. It is understood and agreed to by the parties hereto that, notwithstanding any other provision of the Settlement Agreement, any proposed Plan of Allocation that is part of the Notice is not a part of the Settlement Agreement or material thereto, being a matter solely internal to the Settlement Class and not affecting Defendants. Any revisions by the Court or on appeal or otherwise relating solely to the Plan of Allocation shall not operate to terminate or cancel the Settlement Agreement. 15. "Released Claims" means any and all claims, liabilities, demands, causes of action, or lawsuits, known or unknown (including Unknown Claims), whether legal, statutory, equitable or of any other type or form, whether under federal or state law, and whether brought in an individual, representative or any other capacity, that in any way relate to or arise out of or are connected with the purchase, retention, or sale of Concord common stock (ticker symbol: CEFT) during the Settlement Class Period, including, but not limited to, any event, act, statement or omission occurring during the Settlement Class Period that has been alleged or asserted in, or which could have been alleged or asserted in, the Action, any of the cases consolidated into the Action, or the Complaint. 16. "Released Parties" means Defendants, their predecessors, successors, parents, subsidiaries, and each and all of their respective current and former officers, directors, employees, agents, accountants, auditors, attorneys, consultants, insurers, investment bankers, representatives, heirs, and assigns. The Released Parties who are not Settling Parties are intended as third party beneficiaries of the Settlement Agreement with respect to the release of Released Claims. 17. "Settlement Administrator" means The Garden City Group, Inc. 18. "Settlement Class" means all persons or entities who purchased or had purchased on their behalf Concord common stock between March 29, 2001 and September 4, 2002, inclusive of those dates. Excluded from the Settlement Class are Defendants, members of the immediate family of each of the Individual Defendants, any entity in which any Defendant has a controlling interest or had a controlling interest during the Settlement Class Period, and the legal representatives, officers and directors, heirs, successors or assigns of any such excluded party. Also excluded from the Settlement Class are those Members who validly and timely request exclusion from the Settlement Class in accordance with the procedures set forth in this Notice. 19. "Settlement Class Period" means the period commencing on March 29, 2001 and ending on September 4, 2002, inclusive. 20. "Settlement Effective Date" means the date upon which the Final Approval Order and Final Judgment becomes both final and no longer subject to appeal or review (or further appeal or review), whether by unsuccessful conclusion of any possible appeal, Lapse of time, or otherwise. 21. "Settlement Fund" means the amounts deposited in the Escrow Account pursuant to Section 3 of the Settlement Agreement, including any interest earned thereon, as provided for therein. 22. "Settlement Hearing" means the hearing to be held by the Court to consider final approval of the Settlement pursuant to Rule 23(e) of the Federal Rules of Civil Procedure. 23. "Settling Parties" means the Lead Plaintiffs, the Members, and the Defendants. 24. "Unknown Claims" means any Released Claims which any Lead Plaintiff andlor Member does not know or suspect to exist in his, her or its favor at the time of the release of the Released Parties which, if knovrn by him, her or it, might have affected his, her or its settlement with and release of the Released Parties, or might have affected his, her or its decision not to object to this settlement. Without admitting that California law is in any way applicable to this agreement, in whole or in part, with respect to any and all Released Claims, the Settling Parties stipulate and agree that, upon the Effective Date, each Lead Plaintiff and each of the Members shall be deemed to have, and by operation of the Final Judgment shall have, expressly waived the provisions, rights and benefits of California Civil Code §1542, which provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Each Lead Plaintiff and each of the Members shall be deemed to have, and by operation of tha Final Judgment shall have, expressly waived any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar, comparable or equivalent to California Civil Code §1542. The Lead Plaintiffs or Members may hereafter discover facts in addition to or different from those which he, she or it now knows or believes to be true with respect to the subject matter of the Released Claims, but the Lead Plaintiffs and each Member, upon the Settlement Effective Date, shall be deemed to have, and by operation of the Final Judgment shall have, fully, finally, and forever settled and released any and all Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, whether or not concealed or hidden, which now exist, or heretofore have existed, upon any theory of law or equity now existing or coming into existence in the future, including, but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts. The Lead Plaintiffs and Members shall be deemed by operation of the Final Judgment to have acknowledged that the foregoing waiver was separately bargained for and a key element of the settlement of which this release is a part. il. THE LITIGATION AND RELATED PROCEEDINGS 1. On and after September 6, 2002, the following actions were filed in the United States District Court for the Western District of Tennessee (the "Court") as a proposed class action on behalf of persons who purchased the common stock of Concord between March 29, 2001 and September 4, 2002: a. Brody v. Concord EFS, Inc., et al., No. 02-2697; b. Colbert Bimet, L.P. v. Concord EFS, Inc., et al., No. 02-2711; c. Abrams v. Concord EFS, Inc., et al., No. 02-2735; d. Counts v. Concord EFS, Inc., et al., No. 02-2757; e. Schmersahl v. Concord EFS, Inc., et al., No. 02-2816; f. Norwood v. Concord EFS, Inc., et al., No. 02-2847; and g. GF Partnership v. Concord EFS, Inc., et al., No. 02-2861. On or about November 18, 2002, Colbert Bimet, L.P. v. Concord EFS, Inc., et al., No. 02-2711, was voluntarily dismissed. 3. On November 29, 2002, the Court entered an Order consolidating the above actions. Thus, the litigation, in its entirety, exists as consolidated Case No. 02-CV-2697 ("the Action"). Furthermore, on this same date, the Court confirmed the appointment of J.T. Milligan, James Keith Milligan, and J. Curtis Williams, Jr. as Lead Plaintiffs for the Action. By the same Order, the Court approved the selection of Plaintiffs' Lead Counsel: Wolf Haldenstein Adler Freeman & Herz LLP. 4. Lead Plaintiffs filed their Consolidated Amended Class Action Complaint (the "Complaint") on February 17, 2003. The Complaint generally alleges that Defendants violated Section 10(b) and, in the case of the Individual Defendants, Section 20(a) of the Securities Exchange Act of 1934, by issuing materially false and misleading statements during the Settlement Class Period concerning Concord's financial condition and operating results, including concerning Concord's transactions with H & F Services, Inc., an entity that served as a sales organization for certain of Concord's products. 5. Defendants filed a Motion to Dismiss on May 2, 2003, and then Plaintiffs filed their Response to the Motion to Dismiss on May 30, 2003. Defendants then filed a Reply to Plaintiffs' Response on June 25, 2003. 6. On January 7, 2004, this Court entered an order denying the Motion to Dismiss filed by Defendants, and, thereafter, Defendants filed an Answer and Separate or Affirmative Defenses on February 27, 2004. Discovery occurred thereafter. 7. Beginning in January 2005, Lead Plaintiffs and Defendants submitted to mediation with an independent mediator. Following mediation, the parties entered into the Settlement Agreement to settle the Action, subject to the approval of the Court. III. DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY Defendants have expressly and emphatically denied and continue to deny each and all of the claims and contentions alleged by the Lead Plaintiffs. Defendants expressly have denied and continue to deny all charges of wrongdoing or liability against them arising out of any of the conduct, statements, acts or omissions alleged, or that could have been alleged, in the Action. Defendants also have denied and continue to deny, inter alia, the allegations that the Lead Plaintiffs or the Members (as defined above) have suffered damage, that the Lead Plaintiffs or the Members were harmed by the alleged conduct, or that the price of Concord common stock was artificially inflated by reason of any alleged misrepresentations, non-disclosures or otherwise. Nonetheless, the Defendants have concluded that further conduct of the Action would be protracted, expensive, and distracting to Defendants and that it is desirable that the Action be fully and finally settled in the manner and upon the terms and conditions set forth in the Settlement Agreement. The Defendants have also taken into account the uncertainty and risks inherent in any litigation, especially in complex cases like the Action. The Defendants have therefore determined that the Action should be settled in the manner and upon the terms and conditions set forth in the Settlement Agreement. Neither the Settlement Agreement nor the settlement shall be construed, whether in whole or in part, as evidence, or an admission or concession on the part of Defendants, of any fault or liability, nor shall the Settlement Agreement or the settlement be considered an admission by Defendants that Lead Plaintiffs have satisfied the requirements for class certification under Federal Rule of Civil Procedure 23 for any purposes other than the settlement. Without conceding any infirmity in any defenses they have asserted or intend to assert in the Action, Defendants consider it desirable and in their best interest that the Action be dismissed on the terms set forth herein in order to avoid further expense and protracted litigation. IV. CLAIMS OF THE LEAD PLAINTIFFS AND BENEFITS OF SETTLEMENT The Lead Plaintiffs believe that the claims asserted in the Action have merit. However, Plaintiffs' Lead Counsel recognize and acknowledge Defendants' denial of wrongdoing and liability, as well as the expense and length of continued proceedings necessary to prosecute the Action through trial and through appeals. Plaintiffs' Lead Counsel also have taken into account the uncertain outcome and risk of continued litigation, especially in complex actions such as the Action, as well as the difficulties and delays inherent in such litigation. Plaintiffs' Lead Counsel considered the inherent problems of proving, and possible defenses to, the allegations asserted in the Action, including potential difficulties in establishing proximately caused damages. Based on their evaluation, Plaintiffs' Le9d Counsel believe that the settlement set forth in the Settlement Agreement confers substantial benefits upon the Class and protects the best interests of the Lead Plaintiffs and the Class. V. THE RIGHTS OF SETTLEMENT CLASS MEMBERS If you are a Member of the Settlement Class, you may receive the benefit of and you will be bound by the terms of the proposed settlement described in this Notice, upon the Court's approval of such terms. If you are a Member, you have the following options: ' 1. Filing a Proof of Claim. You may complete and file the attached Proof of Claim and Release ("Proof of Claim') as described below. If you choose this option, you will remain a Member, you will share in the proceeds of the proposed settlement if your claim is timely and valid and if the proposed settlement is finally approved by the Court, and you will be bound by the Final Judgment and Release described below. 2. Requesting Exclusion. If you do not wish to be included in the Class and you do not wish to participate in the proposed settlement described in this Notice, you may request to be excluded. To do so, you must so state in writing no later than October 4, 2005, to the following address: Concord EFS, Inc. Securities Litigation Exclusions c/o The Garden City Group, Inc. Settlement Administrator P.O. Box 9000 #6344 Merrick, New York 11566-9000 Your exclusion request must set forth: (a) the name of the Action (In re Concord EFS, Inc. Securities Litigation, Civil Action No. 02-CV-2697); (b) your name, address, and telephone number, and the name and address of the record owner of your Concord common stock if different from your own; (c) the number of shares of Concord common stock you purchased (or options in Concord common stock you transacted) during the Settlement Class Period, and the dates of each such transaction; and (d) that you wish to be excluded from the Class. NO REQUEST FOR EXCLUSION WILL BE CONSIDERED VALID UNLESS ALL OF THE INFORMATION DESCRIBED ABOVE IS INCLUDED IN ANY SUCH REQUEST. 3. If you validly request exclusion from the Class: (a) you will be excluded from the Class; (b) you will not share in the proceeds of the settlement described herein; (c) you will not be bound by any judgment entered in the Action; and (d) you will not be precluded from otherwise prosecuting an individual claim, if timely, against Defendants based on the matters complained of in the Action. 4. If you do not request in writing to be excluded from the Class, you will be bound by any and all determinations or judgments in the Action in connection with the proposed settlement, whether favorable or unfavorable to the Class, including, without limitation, the Final Judgment described below, and you shall be deemed to have, and by operation of the Final Judgment shall have, fully and finally released all of the "Released Claims" (as defined herein), regardless of whether you submit a valid Proof of Claim. Even if you have a pending litigation, arbitration or other proceeding against any of the "Released Parties" relating to any of the "Released Claims," or want to start such a proceeding later, you must exclude yourself from the Class if you want to continue or bring the proceeding. If you have a pending lawsuit, speak to your lawyer in that case immediately. 5. Objecting to the Settlement. If you do not request exclusion from the Class, you may object to any aspect of the proposed settlement, andlor the application of Plaintiffs' Counsel for an award of attorneys' fees and reimbursement of expenses. Your objection must (1) be in writing, (2) include your name, address and telephone number; (3) demonstrate your membership in the Settlement Class, including the number of shares you purchased; (4) state the reasons for your objection and include any factual and/or legal materials that you believe support your objection. To be considered, any objection and supporting materials must be filed with the Court no later than October 4, 2005: Clerk of the Court United States District Court Western District of Tennessee, Memphis Division Room 242, Clifford Davis Federal Building 167 North Main Street Memphis, Tennessee 38103 You must also serve copies of your objection and any supporting materials on Plaintiffs' Lead Counsel and Defendants' Counsel, at the following addresses no later than October 4, 2005: Counsel for the Class: WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP PETER C. HARRAR PAULETTF S. FOX 270 Madison Avenue New York, NY 10016 Counsel for the Defendants SIDLEY AUSTIN BROWN & WOOD LLP GERARD D. KELLY -and- Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 5 6. Unless otherwise ordered by the Court, any Member who does not submit an objection in the manner set forth above shall be deemed to have waived all objections and opposition to the fairness, reasonableness, and adequacy of the proposed ' settlement, the Plan of Allocation, or to the request of Plaintiffs' Counsel for attorneys' fees, costs and expenses. 7. The filing of a Proof of Claim by a Member does not preclude a Member from objecting to the settlement. However, if your objection is rejected, you will be bound by the settlement and the Final Judgment described below just as if you had not objected. 8. Doing Nothing. You may do nothing at all. If you choose this option, you will not share in the proceeds of the settlement, but you will be bound by any judgment entered by the Court, and you shall be deemed to have, and by operation of the Final Judgment shall have, fully released all of the "Released Claims" against the "Released Parties" (as defined herein). 9. Your Lawyers in the Action. If you are a Member, you may, but are not required to, enter an appearance through counsel of your own choosing at your own expense. If you wish to do so, your attorney must file a notice of appearance with the Court, and serve copies on Plaintiffs' Lead Counsel and Defendants' Counsel at the addresses listed above, no later than October 4, 2005. If you do not hire your own attorney, your interests will be represented by Plaintiffs' Lead Counsel. VI. THE PROPOSED SETTLEMENT Plaintiffs' Lead Counsel, on the basis of, among other things, a thorough investigation of the facts and the law relating to the acts, events, and conduct complained of and the subject matter of the Action, have concluded that the proposed settlement is fair to and in the best interests of the Class. The following description of the proposed settlement of the Action is only a summary, and reference is made to the text of the Settlement Agreement on file with the Court for a full statement of its provisions: 1. The Settlement Fund consists of $13,250,000.00 in cash, plus any interest that may accrue thereon. 2. Upon Court approval of the Settlement Agreement and entry of a Final Judgment that becomes final, and upon satisfaction of the other conditions to the settlement, described below, the Settlement Fund will be distributed as follows: (a) to pay costs and expenses in connection with providing notice to the members of the Class and administering the settlement on behalf of the Class; (b) to pay Escrow Account fees as provided for in Section 4 of the Settlement Agreement; (c) to pay the reasonable costs incurred in the preparation of any tax returns required to be filed on behalf of the Settlement Fund, as well as the taxes (and any interest and penalties determined to be due thereon) owed by reason of the earnings of the Settlement Fund, including all Tax Expenses as defined in the Settlement Agreement; (d) to pay Plaintiffs' Counsel attorneys' fees, expenses, and costs, with interest thereon, if and to the extent allowed by the Court; and (e) to reimburse Plaintiffs for their reasonable costs and expenses directly relating to their representation of the Class. 3. Subject to Court approval of the Plan of Allocation described below, the balance of the Net Settlement Fund shall be distributed to Authorized Claimants, as follows: (a) Each Member claiming to be an Authorized Claimant shall submit a separate Proof of Claim and Release. The Proo! of Claim, which is included with this Notice, must be signed under penalty of perjury and supported by such documents as specified in the Proof of Claim. (b) Ail Proof of Claim forms must be postmarked or received by December 16, 2005. Unless otherwise ordered by the Court, any Member who fails to submit a Proof of Claim within such period, or such other period as the Court may order, shall be forever barred from receiving any payments pursuant to the Settlement Agreement, but will in all other respects be subject to the provisions of the Settlement Agreement and the Final Judgment described below. 4. To the extent sufficient funds exist in the Net Settlement Fund, each Authorized Claimant will receive an amount equal to the Authorized Claimant's "claim," as defined below. If, however, the amount in the Net Settlement Fund is not sufficient to permit payment of the total claim of each Authorized Claimant, then each Authorized Gaimant shall be paid that percentage of the Net Settlement Fund that each Authorized Claimant's claim is of the total of the claims of all Authorized Claimants. A "claim" will be computed pursuant to the Plan of Allocation as follows: An Authorized Claimant's Recognized Loss, for which the claimant will receive a pro rata recovery, will be computed as follows: (a) With respect to each Member who purchased Concord common stock during the Settlement Class Period and who held on to those through the end of the Settlement Class Period, the Recognized Loss shall mean the difference (excluding brokerage commissions and transaction charges), if any, between the price paid for the shares and $14.78 per share, which is the weighted average trading price of Concord common stock during the ninety days following the end of the Settlement Class Period. (b) With respect to each Class Member who purchased Concord common stock during the Settlement Class Period and who sold those shares before the end of the Settlement Class Period, the recognized loss shall be zero. (c) In determining the Recognized Loss of Authorized Claimants and their pro rata recoveries, the following rules will apply: (i) FIFO: Where an Authorized Claimant engaged in multiple purchases and/or sales of Concord common stock, the first-in first-out method ("FIFO") will be applied to determine the relevant purchases and sales. (ii) De minimis: No payment will be made on any claims where the payable loss is $10.00 or less, but the Authorized Claimant will nevertheless be bound by the final judgment entered by the Court. 5. The above Plan of Allocation may be modified by a ruling by the Court, an objection filed by a Member or a settlement with a person or entity requesting exclusion from the Settlement Class. 6. Payment pursuant to the Plan of Allocation set forth above shall be conclusive against all Authorized Claimants. No Member shall have any claim whatsoever against Defendants, Defendants' counsel, Defendants' insurers or any of their agents or representatives with respect to any act, omission or determination of the Escrow Agent, Settlement Administrator, Plaintiffs' Lead Counsel or any agent or designee of the Escrow Agent, Settlement Administrator or Plaintiffs' Lead Counsel in connection with the administration of the Settlement or Plan of Allocation. No Member shall have any claim against Plaintiffs' Lead Counsel, the Settlement Administrator, or any of their agents or representatives based on distributions made substantially in accordance with the Settlement Agreement, the Plan of Allocation, or further Court orders. All Members who fail to complete and file a valid and timely Proof of Claim and Release shall be barred from participating in distributions from the Net Settlement Fund (unless otherwise ordered by the Court), but otherwise shall be bound by all of the terms of the Settlement Agreement, including the terms of the Release and Final Judgment described below. 7. To share in the Net Settlement Fund, you must submit a valid Proof of Claim and Release on the form enclosed with this Notice, to the address set forth on the enclosed Proof of Claim form, so that it is postmarked or received no later than December 16, 2005. VII. CONDITIONS FOR SETTLEMENT The settlement is conditioned upon the occurrence of certain events described in the Settlement Agreement on file with the Court. Those events include, among other things: (a) entry of the Final Judgment by the Court, as provided for in the Settlement Agreement; and (b) expiration of the time.to appeal from or alter or amend the Final Judgment. If, for any reason, any one of the conditions described in the Settlement Agreement is not met, the Settlement Agreement might be terminated. If the Settlement Agreement is terminated, it will become null and void, and the parties to the Settlement Agreement will be restored to their respective positions in the Action as of April 25, 2005. VIII. DISMISSAL AND RELEASES 1. If the Court approves the proposed settlement, the Court will enter a Final Judgment that wi!1 dismiss the Action against Defendants with prejudice, and bar and enjoin the Plaintiffs and each Member, regardless of whether such Member has submitted a Proof of Claim, from prosecuting the "Released Claims' against the "Released Parties" (as defined hPre;n). The Court shall retain jurisdiction over implementation of the settlement, disposition of the Settlement Fund, hearing and determining Plaintiffs' Counsel's application for attorneys' fees, costs, interest, and expenses (including fees and costs of experts), and enforcing and administering the Settlement Agreement, including any releases executed in connection therewith. 2. Upon the Settlement Effective Date, Lead Plaintiffs and Class f,Aembers of the Settlement Class, on behalf of themselves, their heirs, executors, administrators, successors and assigns, and any person they represent, sha!I be deemed to have, and by operation of the Final Judgment shall have, fully, finally and forever released, relinquished and discharged, and shall forever be enjoined from prosecution of, each and every Released Claim against any and all of the Released Parties, whether or not such Settlement Class Member executes and delivers a Proof of Claim, provided, however, that nothing herein is meant to bar any claim relating to performance or enforcement of the Settlement Agreement or the Settlement. IX. NOTICE TO BANKS, BROKERS, AND OTHER NOMINEES Banks, brokerage firms, institutions, and other Members who are nominees, and who purchased or otherwise acquired Concord common stock between March 29, 2001 and September 4, 2002, inclusive, for the beneficial interest of another Member are requested within ten (10) days of receipt of this Notice to: (1) provide the Settlement Administrator with the names and addresses of such Class Member, or (2) forward a copy of this Notice to each such Member and provide the Settlement Administrator with written confirmation of doing so. The Settlement Administrator will reimburse your reasonable costs and expenses of complying with this provision upon submission of appropriate documentation. Additional postage pre-paid copies of the Notice may be obtained from the Settlement Administrator for forwarding to such beneficial owners. All such correspondence to the Settlement Administrator should be addressed as follows: Concord EFS, Inc. Securities Litigation Go The Garden City Group, Inc. Settlement Administrator P.O. Box 9000 #6344 Merrick, New York 11566-9000 X. FEES, COSTS, AND EXPENSES OF PLAINTIFFS' COUNSEL 1. To date, Plaintiffs' Counsel have not received any payment for their services in conducting the Action on behalf of the Plaintiffs and the Members, nor have counsel been reimbursed for their out-of-pocket expenses. At the conclusion of the Court's approval hearing described below, Plaintiffs' Counsel will apply to the Court for an award of attorneys' fees of up •to 25% of the Settlement Fund, plus reimbursement of expenses, not to exceed $500,000.00 exclusive of settlement administration expenses. Such sums as the Court may grant will be paid from the Distribution Fund. Members are not personally liable for any fees or expenses awarded by the Court. 2. The fee requested will compensate Plaintiffs' Counsel for their efforts in achieving the Settlement Fund for the benefit of the Settlement C-ass, and for their risk in undertaking this case on a contingent basis. If approved by the Court, the fee requested would fall within the range of fees awarded to plaintiffs' counsel under similar circumstances in litigation of this type. XI. THE HEARING ON PROPOSED SETTLEMENT 1. A hearing (the "Settlement Hearing") will take place before the Honorable Samuel H. Mays, Jr., at the United States District Court for the Western District of Tennessee, Memphis Division, Room 1111, Clifford Davis Federal Building, 167 North Main Street, Memphis, Tennessee 38103, at 1:30 p.m., on October 21, 2005, for the purpose of determining whether: (a) the proposed settlement and Settlement Agreement should be approved as fair, reasonable and adequate; (b) the proposed Plan of Allocation is fair, reasonable, and adequate and should be approved; (c) the Court should approve applications of Plaintiffs' Counsel for an award of attorneys' fees, costs and expenses; and (d) the Court should enter the Final Judgment dismissing the Action with prejudice as against Defendants and releasing the Released Parties. The Court may reschedule the Settlement Hearing or modify any dates set forth herein without further notice to Members. 2. Any Member who has not requested exclusion may appear at the Settlement Hearing to show cause why the proposed settlement should not be approved, or the Action should not be dismissed with prejudice as against the Defendants, and to present any opposition to the Plan of Allocation or the application of Plaintiffs' Counsel for attorneys' fees, costs and expenses. However, any Member wishing to be heard at the Settlement Hearing must first file and serve a timely written objection, as described above. XII. OBTAINING ADDITIONAL INFORMATION This Notice contains only a summary of the terms of the proposed settlement. For a more detailed statement of the matters involved in the Action, reference is made to the pleadings, to the Settlement Agreement, and to other papers filed in the Action, which may be inspected at the office of the Clerk of the Court, United States District Court for the Western District of Tennessee, Room 242, Clifford Davis Federal Building, 167 North Main Street, Memphis, Tennessee 38103, during business hours of each business day. In addition, the Complaint, Settlement Agreement, Notice, Proof of Claim, and other pleadings, documents, or orders of the Court as the Settling Parties may agree or the Court may order are available at the following website: www.whafh.com. DO NOT CONTACT THE COURT OR CONCORD REGARDING THIS NOTICE. If you have any questions about the proposed settlement, you may contact the following Plaintiffs' Lead Counsel: WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP PETER C. HARRAR PAULETTE S. FOX 270 Madison Avenue New York, NY 10016 (212) 545-4600 DATED: August 10, 2005 BY ORDER OF THE COURT UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TENNESSEE