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Reimbursement Process

The approach used by the Bank in calculating tax reimbursements for retirement income is similar to that currently used for the reimbursement of U.S. Federal and State income taxes on Bank income. The calculation utilizes itemized deductions and personal exemptions reported by the retirees on their tax returns and such deductions and exemptions are allocated proportionally to all sources of income, including retiree outside income. Spouse income is also taken into consideration to determine the effective tax rate.

The tax reimbursement procedure consists of a two-step process in which first, tax reimbursement payments are advanced to the retiree based upon information submitted from the retiree; and secondly, a settlement process is performed after tax returns have been filed. Because the advances are based upon estimates and because the retirees will establish their right to tax reimbursement only at settlement, tax payments are treated as advances and will not be reported as taxable income in the year of receipt. The amount of the settlement will be reported as taxable income in the year the settlement calculation is completed.

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