10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from              to             

Commission File Number: 1-14925

STANCORP FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Oregon	93-1253576
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1100 SW Sixth Avenue, Portland, Oregon, 97204

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (971) 321-7000

Securities registered pursuant to Section 12(b) of the Act:

TITLE OF EACH CLASS	NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock	New York Stock Exchange
Series A Preferred Share Purchase Rights	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the 10-K or any amendment to the Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 29, 2007, was approximately $2.75 billion based upon the closing price of $52.48 on June 29, 2007. For this purpose, directors and executive officers of the registrant are assumed to be affiliates.

As of February 22, 2008, there were 49,011,892 shares of the registrant’s common stock, no par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its 2008 Annual Meeting of Shareholders are incorporated by reference in Parts I and III.

ITEM		PAGE
Available Information		3
Part I
Item
1.	Business	3
1A.	Risk Factors	11
1B.	Unresolved Staff Comments	14
2.	Properties	14
3.	Legal Proceedings	14
4.	Submission of Matters to a Vote of Security Holders	14
4A.	Executive Officers of the Registrant	14
Part II
Item
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
6.	Selected Financial Data	18
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
7A.	Quantitative and Qualitative Disclosures about Market Risk	39
8.	Financial Statements and Supplementary Data	39
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	74
9A.	Controls and Procedures	74
9B.	Other Information	74
Part III
Item
10.	Directors, Executive Officers and Corporate Governance	75
11.	Executive Compensation	75
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	75
13.	Certain Relationships and Related Transactions, and Director Independence	76
14.	Principal Accountant Fees and Services	76
Part IV
Item
15.	Exhibits, Financial Statement Schedules	77
	Signatures	79
	Exhibits Index	80

2 STANCORP FINANCIAL GROUP, INC.

Part I

As used in this Form 10-K, the terms “StanCorp,” “Company,” “we,” “us” and “our” refer to StanCorp Financial Group, Inc. and its subsidiaries, unless the context otherwise requires.

AVAILABLE INFORMATION

StanCorp files its annual, quarterly and current reports, proxy statements and other information with the United States Securities and Exchange Commission (“SEC”). You may read and copy any document StanCorp files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549, U.S.A. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 (or 1-202-551-8090). The SEC maintains an Internet site that contains annual, quarterly and current reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. StanCorp’s electronic SEC filings are available to the public at www.sec.gov.

StanCorp’s Internet site for investors is www.stancorpfinancial.com/investors. StanCorp publishes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, on its Internet site free of charge. StanCorp makes these reports available as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. StanCorp also makes available on www.stancorpfinancial.com/investors (i) its Corporate Governance Guidelines, (ii) its codes of business ethics (including any waivers therefrom granted to executive officers or directors), and (iii) the charters of the audit, organization and compensation, and nominating and corporate governance committees of its board of directors. These documents are also available in print without charge to any person who requests them by writing or telephoning:

Shareholder Relations Department

StanCorp Financial Group, Inc.

1100 SW Sixth Avenue

Portland, OR 97204

(800) 378-8360

Item 1. Business

FORWARD-LOOKING STATEMENTS

Some of the statements contained or incorporated by reference in this Annual Report on Form 10-K, including those relating to the Company’s strategy and other statements that are predictive in nature, that depend on or

refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “seeks” and similar expressions, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements are not historical facts but instead represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve uncertainties that are difficult to predict, which may include, but are not limited to, the factors listed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-looking Statements” of this Report. As a provider of financial products and services, our results of operations may vary significantly in response to claims experience, economic trends, interest rate changes, investment performance, operating expenses and pricing. Caution should be used when extrapolating historical results or conditions to future periods.

Our actual results and financial condition may differ, perhaps materially, from the anticipated results and financial condition in any such forward-looking statements and, given these uncertainties or circumstances, readers are cautioned not to place undue reliance on such statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

GENERAL

We are a holding company for our insurance and asset management subsidiaries and are headquartered in Portland, Oregon. We are the parent company of Standard Insurance Company, a leading provider of group insurance products and services serving the life and disability insurance needs of employer groups and disability insurance serving the needs of individuals. Our insurance subsidiaries also provide accidental death and dismemberment insurance (“AD&D”) and dental insurance. Through our insurance subsidiaries, we have the authority to underwrite insurance products in all 50 states. Our asset management businesses offer investment management services, retirement financial services, individual annuities, group annuity contracts and trust products, full-service 401(k) plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans, 403(b) plans, non-qualified deferred compensation products and services and limited trust services. Our mortgage subsidiary originates and services small, fixed-rate commercial mortgage loans for the investment portfolios of our insurance subsidiaries and for sale to institutional investors.

2007 ANNUAL REPORT 3

Part I

MISSION AND STRATEGY

Our mission is to exceed customers’ needs for financial products and services in growing markets where the application of specialized expertise creates potential for superior shareholder returns. Our vision is to lead the financial services industry in integrity, expertise and customer service. We operate in select financial products and services growth markets and seek to compete on expertise, differentiation and customer service, while maintaining a strong financial position.

StanCorp’s strategy includes:

• Maintaining strong growth rates in traditional risk acceptance businesses (disability and group life insurance).

• Developing greater diversification by taking advantage of market opportunities, demographic trends and capital synergies.

• Significantly increasing our asset accumulation and asset administration businesses over the next few years.

Our ability to accomplish this strategy is dependent on a number of factors, some of which involve risks or uncertainties. See “Competition” and “Key Factors Affecting Results of Operations” below, Item 1A, “Risk Factors,” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-looking Statements” of this Report.

DEVELOPMENT OF STANCORP

StanCorp was incorporated under the laws of Oregon in 1998 as a parent holding company and conducts business through its subsidiaries: Standard Insurance Company (“Standard”); The Standard Life Insurance Company of New York; Standard Retirement Services, Inc. (“Standard Retirement Services”); StanCorp Equities, Inc. (“StanCorp Equities”); StanCorp Mortgage Investors, LLC (“StanCorp Mortgage Investors”); StanCorp Investment Advisers, Inc. (“StanCorp Investment Advisers”); StanCorp Real Estate, LLC (“StanCorp Real Estate”); and StanCorp Trust Company. The Company is based in Portland, Oregon and, through our subsidiaries, has operations throughout the United States.

The Standard is a service mark of StanCorp and its subsidiaries and is used as a brand mark and marketing name by Standard and The Standard Life Insurance Company of New York. We have the authority to underwrite insurance products in all 50 states.

Standard, our largest subsidiary, underwrites group and individual disability insurance and annuity products, group life, AD&D, and dental insurance, and provides retirement plan products. Founded in 1906, Standard is domiciled in Oregon

and licensed in all states except New York, and is licensed in the District of Columbia and the U.S. Territories of Guam and the Virgin Islands.

The Standard Life Insurance Company of New York was organized in 2000 and is licensed to provide group long term and short term disability, life, AD&D and dental insurance in New York.

Effective January 1, 2007, the administration and servicing operations of StanCorp’s retirement plans group annuity contracts offered through Standard and for the trust product formerly offered through Invesmart, Inc. (“Invesmart”), which was acquired in July 2006, began operating under the name Standard Retirement Services. Retirement plans products are offered in all fifty states through Standard or Standard Retirement Services.

StanCorp Equities is a limited broker-dealer and member of the Financial Industry Regulatory Authority. StanCorp Equities serves as principal underwriter and distributor for group variable annuity contracts issued by Standard and as the broker of record for certain retirement plans using the trust platform. StanCorp Equities carries no customer accounts but provides supervision and oversight for the distribution of group variable annuity contracts and of the sales activities of all registered representatives employed by StanCorp Equities and its affiliates.

StanCorp Mortgage Investors originates, underwrites and services small, fixed-rate commercial mortgage loans for the investment portfolios of our insurance subsidiaries. StanCorp Mortgage Investors also generates additional fee income from the origination and servicing of commercial mortgage loans participated to institutional investors. StanCorp Mortgage Investors began operations in 1996 and, as of December 31, 2007, was servicing $3.66 billion in commercial mortgage loans for subsidiaries of StanCorp and $1.90 billion in commercial mortgage loans for other institutional investors. The average loan size of the commercial mortgage loans held by the insurance subsidiaries and serviced by StanCorp Mortgage Investors was approximately $0.7 million at December 31, 2007.

StanCorp Investment Advisers is a Securities and Exchange Commission (“SEC”) registered investment adviser providing performance analysis, fund selection support, model portfolios and other investment advisory and investment management services to its retirement plans clients, individual investors and subsidiaries of StanCorp.

StanCorp Real Estate is a property management company that owns and manages our Hillsboro, Oregon home office properties and other investment properties and manages our Portland, Oregon home office properties.

4 STANCORP FINANCIAL GROUP, INC.

In January 2006, StanCorp established StanCorp Trust Company, which offers limited directed trust services to clients.

MARKET POSITION

Based on mid-year 2007 insurance industry in force premium statistics in the United States, provided by JHA and LIMRA International, we have leading market positions with single digit market share in group long term and short term disability insurance and group life insurance. Based on a 2006 survey by LIMRA International we also have single digit market share for individual disability insurance. The positions are as follows:

• 4th largest provider of group long term disability insurance.

• 4th largest provider of group short term disability insurance.

• 8th largest provider of individual disability insurance.

• 9th largest provider of group life insurance.

FINANCIAL STRENGTH RATINGS

Financial strength ratings, which gauge claims paying ability, are an important factor in establishing the competitive position of insurance companies. Ratings are important in maintaining public confidence in our company and in our ability to market our products. Rating organizations continually review the financial performance and condition of insurance companies, including ours. In addition, credit ratings on our 10-year senior notes (“Senior Notes”) and junior subordinated debentures (“Subordinated Debt”) are tied to our financial strength ratings. A ratings downgrade could increase surrender levels for our annuity products, could adversely affect our ability to market our products and could increase costs of future debt issuances. Standard & Poor’s, Moody’s Investors Service, Inc. and A.M. Best Company provide financial strength and credit ratings.

Standard’s financial strength ratings as of February 2008 were:

• AA- (Very Strong) by Standard & Poor’s—4th of 20 ratings.

• A1 (Good) by Moody’s—5th of 21 ratings.

• A (Excellent) by A.M. Best—3rd of 13 ratings.

CREDIT RATINGS

Standard & Poor’s, Moody’s Investors Service, Inc. and A.M. Best Company provide credit ratings on StanCorp’s Senior Notes. As of February 2008, ratings from these agencies were A-, Baa1 and bbb+, respectively. As of February 2008, A.M. Best Company affirmed an issuer credit rating of a+ to Standard.

Standard & Poor’s, Moody’s Investor Services, Inc. and A.M. Best Company also provide credit ratings on StanCorp’s

Subordinated Debt. As of February 2008, ratings from these agencies were BBB, Baa2 and bbb-, respectively.

SEGMENTS

Our operations include two reportable segments: Insurance Services and Asset Management, as well as an “Other” category for activity outside of the two segments. Resources are allocated, and performance is evaluated at the segment level. The Insurance Services segment offers group and individual disability insurance, group life and AD&D insurance, and group dental insurance. The Asset Management segment offers full-service 401(k) plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans, 403(b) plans and non-qualified deferred compensation products and services through an affiliated broker-dealer. This segment also offers investment management and financial planning services, commercial mortgage loan origination and servicing, and individual fixed annuities. It also includes the former operations of Invesmart, a provider of retirement plan services, and investment advisory and management services, acquired in July 2006. Effective January 1, 2007, the administration and servicing operations for the retirement plans group annuity contracts offered through Standard and for the trust product offered through Invesmart, began operating under the name Standard Retirement Services.

Measured as a percentage of total revenues, revenues for each of our segments for 2007 were 88.5% for Insurance Services and 11.2% for Asset Management. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Results of Operations—Revenues” and Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 3—Segments.”

Net capital gains and losses on investments, return on capital not allocated to the product segments, holding company expenses, interest on debt and adjustments made in consolidation are reflected in “Other.”

Insurance Services Segment

The Insurance Services segment sells disability, life, AD&D and dental insurance products to employer groups ranging in size from two lives to over 685,000 lives, and has about 30,000 group insurance policies in force, covering approximately 8.1 million employees as of December 31, 2007. This segment also sells disability insurance to individuals.

Our group insurance products are sold by sales representatives through independent employee benefit brokers and consultants. The sales representatives, who are employees of the Company, are compensated through salary and incentive compensation programs and are located in 41

2007 ANNUAL REPORT 5

Part I

field offices in principal metropolitan areas of the United States. The field offices also provide sales support, customer service and limited underwriting through field administrative staff. The Company’s arrangements with brokers include compensation earned at the time of sale, and, in some situations, also include compensation related to the overall performance of a block of business (performance related compensation). In most cases, the overall performance of a block of business is measured in terms of volume and persistency (customer retention).

Group long term disability insurance contributed 41% of 2007 premiums for the segment. Group long term disability insurance provides partial replacement of earnings to insured employees who become disabled for extended periods of time.

The Company’s basic long term disability product covers disabilities that occur during the policy period at both work and elsewhere. In order to receive long term disability benefits, an employee must be continuously disabled beyond a specified waiting period, which generally ranges from 30 to 180 days. The benefits usually are reduced by other income that the disabled employee receives from sources such as social security disability, workers compensation and sick leave. The benefits also may be subject to certain maximum amounts and benefit periods. Historically, approximately 50% of all claims filed under our long term disability policies close within 24 months. However, claims caused by more severe disabling conditions may be paid over much longer periods, including up to normal retirement age or longer.

Generally, group long term disability policies offer rate guarantees for periods from one to three years. While we can prospectively re-price and re-underwrite coverages at the end of these guarantee periods, we must pay benefits with respect to claims incurred during these periods without being able to increase guaranteed premium rates during the same periods.

Group life and AD&D insurance contributed 38% of 2007 premiums for the segment. Group life insurance products provide coverage to insured employees for a specified period and have no cash value (amount of cash available to an insured employee on the surrender of, or withdrawal from, the life insurance policy). Coverage is offered to insured employees and their dependents. AD&D insurance is usually provided in conjunction with group life insurance, and is payable after the accidental death or dismemberment of the insured in an amount based on the face amount of the policy or dismemberment schedule.

Group short term disability insurance contributed 11% of 2007 premiums for the segment. Our basic short term disability products generally cover only disabilities occurring outside of work. Short term disability insurance generally

requires a short waiting period, ranging from one to 30 days, before an insured employee may receive benefits, with maximum benefit periods generally not exceeding 26 weeks. Group short term disability benefits also may be reduced by other income, such as sick leave, that a disabled insured employee may receive.

Group dental insurance contributed 3% of 2007 premiums for the segment. Group dental products provide coverage to insured employees and their dependents for preventive, basic and major dental expenses, and also include an option to purchase orthodontia benefits. We offer three dental plans including a traditional plan, a reduced cost plan and a cost containment plan, which are differentiated by levels of service and cost. Standard has a strategic marketing alliance with Ameritas Life Insurance Corp. (“Ameritas”), which offers Standard’s policyholders flexible dental coverage options and access to Ameritas’ nationwide preferred provider organization panel of dentists.

Individual disability insurance contributed 7% of 2007 premiums for the segment. The products include non-cancelable disability coverage, which provides insurance at a guaranteed fixed premium rate for the life of the contract, and guaranteed renewable coverage where premium rates are guaranteed for limited periods and subject to change thereafter. This segment also sells business overhead expense coverage, which reimburses covered operating expenses when the insured is disabled, and business equity buy-out coverage, which provides payment for the purchase, by other owners or partners, of the insured’s ownership interest in a business in the event of total disability. Non-cancelable disability insurance policies represented 81% of sales based on annualized new premiums for 2007.

Our individual disability insurance products are sold nationally by sales representatives through master general agents and brokers, primarily to physicians, lawyers, executives, other professionals and small business owners. The compensation paid to master general agents and brokers is based primarily on a percentage of premiums. Master general agents and some brokers are eligible for a bonus based on sales volume and persistency of business they have written.

Asset Management Segment

The Asset Management segment offers full-service 401(k) plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans, 403(b) plans and non-qualified deferred compensation products and services through an affiliated broker-dealer. This segment also offers investment management and financial planning services,

6 STANCORP FINANCIAL GROUP, INC.

commercial mortgage loan origination and servicing, and individual fixed annuities. Beginning in the third quarter of 2006, this segment included the former operations of Invesmart, a national retirement financial services company. Effective January 1, 2007, the administration and operations of StanCorp’s retirement plans group annuity contracts offered through Standard and for the trust product offered through Invesmart, which was acquired in July 2006, began operating under the name Standard Retirement Services. In the third quarter of 2007, this segment also added $1.7 billion of assets under administration acquired from DPA, Inc., a retirement business based in Portland, Oregon.

Investment services for 401(k), defined benefit, and other 401(a) qualified plans and governmental 457 plans are provided through a non-registered group annuity contract with third party brand name mutual funds through a separate account and, for certain plans, a stable value investment option managed by Standard. These plan services also are provided through a trust product offering third party brand name mutual funds. Mutual funds offered through the separate account as of December 31, 2007, were from American Beacon Funds, AllianceBernstein, Alger Allianz Pimco Funds, American Century Investment Services, Artisan Funds, AST Capital Trust Company, Aston Asset Management LLC., Black Rock Funds, Brandywine Fund, Inc., Calamos, California Investors, Davis Funds, Dodge & Cox, The Dreyfus Corporation, First American, Federated Investors Funds, Fidelity Investments, Franklin Templeton, GE, Goldman Sachs, Harbor, Hotchkis and Wiley Funds, Jennison Dryden Mutual Funds, JP Morgan, Munder Funds, Neuberger & Berman Funds, Oppenheimer, Rainer Investment Management, Royce Funds, SEI Investments, T. Rowe Price, TCW Galileo Funds, UMB, Vanguard Funds, Van Kampen Investment, Wells Fargo and Williams Companies.

The 403(b) and non-qualified deferred compensation plan services are provided through a registered group variable annuity contract, with a stable value investment option managed by Standard and separate account investment options from AllianceBernstein, Alger, Allianz Pimco Funds, American Century Investment Services, Black Rock Funds, Davis, Delaware Investments Mutual Funds, The Dreyfus Corporation, Federated Investors Funds, Fidelity Investments, Franklin Templeton, GE, Goldman Sachs, Lincoln National Funds, Neuberger & Berman Funds, Principal Funds, Royce Funds, T. Rowe Price and Vanguard Funds. Certain plan services also are provided through a trust product offering third party investment options. Funds offered in our retirement plans are regularly evaluated for performance, expense ratios, risk statistics, style consistency, industry diversification and management through the investment

advisory service we provide to our customers. Funds are added and removed as part of this evaluation process. StanCorp Investment Advisers provides fund performance analysis and selection support to 85% of our group annuity plan sponsors. All group annuity contracts are distributed by StanCorp Equities.

The target market for retirement plans is businesses with $1 million to $25 million in plan assets. Our retirement plans products and services are sold primarily through registered investment advisors, brokers, employee benefit consultants, and other distributors served by our sales representatives throughout the United States. Brokers are compensated based on a percentage of the combination of deposits and assets under administration. Compensation is disclosed to the customer by the Company. Most of our retirement plan customers receive financial, record keeping and administrative services, although the option is available to receive only financial and record keeping services or financial services alone.

The primary sources of revenue for the retirement plans business include plan administration fees, asset-based fees and investment income on general account assets under administration, a portion of which is credited to policyholders. In addition, premiums and benefits to policyholders reflect the conversion of retirement plan assets into life-contingent annuities, which is an option that can be selected by plan participants at the time of retirement. Individual fixed annuity deposits earn investment income, a portion of which is credited to policyholders.

In three recent surveys for 2007, the retirement plans business was recognized as an outstanding retirement plan provider.

Standard earned 21 Best in Class awards in PLANSPONSOR magazine’s 2007 defined contribution plan survey as a provider serving plans with less than $5 million in assets.

In 401kExchange’s most recent survey of retirement plan sponsors, Standard was rated the number four plan administrator in the $1 million to $10 million asset range. Rankings were based on interviews of almost 20,000 plan sponsors. Since the Company’s entrance into the 401kExchange.com survey beginning in 1999, Standard has been ranked number two in the category of overall plan administrator for plans with $1 million to $10 million in assets.

In the Boston Research Group’s 2007 survey of defined contribution plans under $5 million in assets, The Standard was rated first in terms of overall satisfaction by plan sponsors. Twenty-six providers were included in this survey.

In July 2006, StanCorp acquired Invesmart and all of its subsidiaries. Invesmart was a provider of retirement plan

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Part I

services, and investment advisory and management services. Effective January 1, 2007, the administration and servicing operations for the retirement plans group annuity contracts offered through Standard Insurance Company (“Standard”) and for the trust product offered through Invesmart began operating under the name Standard Retirement Services.

In July 2007, Standard Retirement Services acquired DPA, Inc., a retirement business based in Portland, Oregon. The acquisition of DPA, Inc. added $1.7 billion to assets under administration. Retirement plans assets under administration were $18.73 billion at December 31, 2007.

The individual annuity products sold by this segment are primarily fixed-rate and indexed deferred annuities, although we also market life-contingent immediate annuities. The target market for fixed-rate and indexed annuities is any individual seeking conservative investments to meet their retirement or other financial goals. The fixed-rate annuity product portfolio includes deferred annuities with initial interest rate guarantees generally ranging from one to six years and a full array of single premium immediate annuity income payment options. The Company launched an indexed annuity product in January 2006 and uses over the counter call-spread options to hedge the index performance of the policies.

Fixed-rate annuities are distributed through master general agents, brokers and financial institutions and compensation is primarily based on a percentage of premiums and deposits related to the business sold.

Master general agents are eligible for a bonus based on the volume of annuity business they coordinate, which is sold by financial institutions and brokers they coordinate.

Most of our annuity business deposits are not recorded as premiums, but rather are recorded as liabilities. Individual fixed annuity deposits earn investment income, a portion of which is credited to policyholders. Annuity premiums consist of premiums on life-contingent annuities, which are a small portion of total sales.

Our investment advisory business, StanCorp Investment Advisers, is a SEC-registered investment adviser providing performance analysis, fund selection support, model portfolios and other investment advisory and investment management services. Our target market is our retirement plan clients with $1 million to $25 million in plan assets, individual investors with $250,000 to $2 million in portfolio assets and the subsidiaries of StanCorp.

Our commercial mortgage loans subsidiary, StanCorp Mortgage Investors, originates, underwrites and services small, fixed-rate commercial mortgage loans, generally between $250,000 and $5 million per loan for the investment

portfolios of our insurance subsidiaries. It also generates additional fee income from the origination and servicing of commercial mortgage loans participated to institutional investors. The target market for commercial mortgage loans is small retail, office, and industrial properties located throughout the continental United States.

Other

In addition to our two segments, we report our holding company and corporate activity in “Other.” This category includes net capital gains and losses on investments, return on capital not allocated to the product segments, holding company expenses, interest on debt and adjustments made in consolidation.

COMPETITION

Competition for sale of our products comes primarily from other insurers and financial services companies such as banks, broker-dealers and mutual funds. Some competitors have greater financial resources, offer a broader array of products and may have higher financial strength ratings. Pricing is a competitive issue in the markets we serve. We do not seek to compete primarily on price. While we believe our products and service provide superior value to our customers, a significant price difference between our products and those of some of our competitors may result in periods of declining new sales, reduced persistency (customer retention), lower premium growth, and increased sales force attrition. See “Key Factors Affecting Results of Operations—Pricing.”

KEY FACTORS AFFECTING RESULTS OF OPERATIONS

Group insurance is our largest business and represented 93%, 93% and 94% of total premiums for the years ended December 31, 2007, 2006 and 2005, respectively. In addition to competition, three factors can have a critical impact on the financial results of our Insurance Services segment operations: claims experience, economic conditions and pricing.

Claims Experience. We have a large and well-diversified group insurance business. However, claims experience can fluctuate widely, particularly from quarter to quarter. The predominant factors affecting claims experience are incidence (number of claims) and severity (length of time a disability claim is paid and the size of the claim). These factors can fluctuate widely within and between our insurance products.

Economic Conditions. The rate of wage and employment growth can influence premium growth in our group insurance business because premium rates are based, in part, on total salaries covered. In addition, our financial results are

8 STANCORP FINANCIAL GROUP, INC.

sensitive to changing interest rates and their effect on product pricing because premiums collected today must be invested to provide a return sufficient to meet the future claims of policyholders. For that reason, we closely monitor changes in interest rates and make changes to our pricing, as appropriate. Interest rates also affect the discount rates we use to establish reserves.

Pricing. One of the key components of our pricing decisions for many of our insurance products is the investment return available to us. In periods of decreasing interest rates, the returns available to us from our primary investments, fixed maturity securities and commercial mortgage loans, decline. This may require us to increase the price of some of our products in order to maintain our targeted returns. If our competitors do not make similar adjustments to their product pricing or if they have a higher return on investments, our products may be more expensive than those offered by competitors. Alternatively, in periods when interest rates are increasing, we may be able to reduce premium rates, and therefore reduce pricing pressure to customers. Given the negative financial consequences of under-pricing, we believe that our practice of maintaining a disciplined approach to product pricing provides the best long-term pricing stability, stable renewal pricing for our customers, higher levels of persistency, and therefore, the best long-term financial success for our company.

RISK MANAGEMENT

We manage risk through sound product design and underwriting, effective claims management, disciplined pricing, distribution expertise, broad diversification of risk by customer geography, industry, size and occupation, maintenance of a strong financial position, maintenance of reinsurance and risk pool arrangements, and sufficient alignment of assets and liabilities to meet financial obligations.

Diversification of Products

We achieve earnings diversification by offering multiple insurance products such as group life, group long term disability, and individual disability products. These products have differing price, market and risk characteristics. Our strategy is to diversify our earnings further through growth in our asset management businesses. Our long-term financial goal is to grow assets under administration 10-15% per year, excluding acquisitions. The Company experienced growth of 6.0% in assets under administration during 2007, excluding 2007 acquisitions, and growth of 17.6%, including the 2007 acquisitions. Even though the Company expects favorable sales and cash flows in 2008, the Company recognizes the current volatility in the stock markets and does not provide specific short-term guidance with regard to overall asset growth.

Diversification by Customer Industry, Geography and Size

We seek to diversify risk by customer industry, geography and size measured by the number of insured employees. Over half of our group insurance premiums come from industries that are resistant to the effects a recession may have on employment. These industries include the public sector, education, health care and utilities. Compared to other industries during the last recession of 2001, most of these businesses showed either slight increases in employment or only fractional decreases. In force premium distribution by industry, geography and customer size for group long term disability and group life products was as follows as of December 31, 2007:

Customer Industry
Public	27	%
Education	19
Professional	10
Manufacturing	10
Health Care	9
Finance	8
Retail	3
Services	2
Utilities	2
Other	10
Total	100	%

Customer Geography
Northeast	14	%
Southeast	18
Central	29
West	39
Total	100	%
Customer Size (Employees)
2-99	13	%
100-2,499	37
2,500-7,499	18
7,500+	32
Total	100	%

Reinsurance

In order to limit our losses from large exposures, we enter into reinsurance agreements with other insurance companies. We review our retention limits based on size and experience. The maximum retention limit per individual for group life and AD&D is $750,000. Our maximum retention limit for group disability insurance is $15,000 monthly benefit per individual. During 2007, we increased our maximum retention limit from $5,000 to $5,500 monthly benefit per individual for individual disability policies with effective dates on or after September 1, 2007. On certain business acquired from Minnesota Life Insurance Company, we have a maximum retention of $6,000 monthly benefit per individual.

2007 ANNUAL REPORT 9

Part I

Standard participates in a reinsurance and third party administration arrangement with Northwestern Mutual under which Northwestern Mutual group long term and short term disability products are sold using Northwestern Mutual’s agency distribution system. Generally, Standard assumes 60% of the risk, and receives 60% of the premiums for the policies issued. If Standard were to become unable to meet its obligations, Northwestern Mutual would retain the reinsured liabilities. Therefore, in accordance with an agreement with Northwestern Mutual, Standard established a trust for the benefit of Northwestern Mutual with the market value of assets in the trust equal to Northwestern Mutual’s reinsurance receivable from Standard. The market value of assets required to be maintained in the trust at December 31, 2007, was $218.0 million. Premiums assumed by Standard for the Northwestern Mutual business accounted for 3% of the Company’s total premiums for each of the three years 2007, 2006 and 2005. In addition to assuming risk, Standard provides product design, pricing, underwriting, legal support, claims management and other administrative services under the arrangement.

Standard maintains a strategic marketing alliance with Ameritas that offers Standard’s policyholders more flexible dental coverage options and access to Ameritas’ nationwide preferred provider organization panel of dentists. As part of this alliance, Standard and Ameritas entered into a reinsurance agreement that provides for 20% of the net dental premiums written by Standard and the risk associated with these premiums to be ceded to Ameritas.

In addition to product-specific reinsurance arrangements, we maintain reinsurance coverage for certain catastrophe losses related to group life and AD&D. This agreement excludes nuclear, biological and chemical acts of terrorism. Through a combination of this agreement and our participation in a catastrophe reinsurance pool discussed below, we have coverage of up to $453.0 million per event.

Subsequent to the terrorist events of September 11, 2001, we entered into a catastrophe reinsurance pool with other insurance companies. This pool spreads catastrophe losses on group life and AD&D over 29 participating members. The annual fee paid by the Company in 2007 to participate in the pool was minor. As a member of the pool, we are exposed to maximum potential losses experienced by other participating members of up to $90.9 million for a single event for losses submitted by a single company and a maximum of $227.2 million for a single event for losses submitted by multiple companies. The Company’s percentage share of losses experienced by pool members will change over time as it is a function of our group life and AD&D in force relative to the

total group life and AD&D in force for all pool participants. The reinsurance pool does not exclude war or nuclear, biological and chemical acts of terrorism.

The Terrorism Risk Insurance Act of 2002 (“TRIA”), which has been extended through 2014, provides for federal government assistance to property and casualty insurers in the event of material losses due to terrorist acts on behalf of a foreign person or foreign interest. Due to the concentration of risk present in group life insurance and the fact that group life insurance is not covered under TRIA, an occurrence of a significant catastrophe or a change in the on-going nature and availability of reinsurance and catastrophe reinsurance could have a material adverse effect on the Company.

Asset/Liability and Interest Rate Risk Management

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Asset/Liability and Interest Rate Risk Management.”

INVESTMENTS

Investment management is an integral part of our business. Investments are maintained to ensure that asset types and maturities are appropriate for the Company’s policy reserves and other liabilities so that we can meet our obligations to policyholders under a wide variety of economic conditions. A substantial portion of our insurance subsidiaries’ policy liabilities result from long term disability reserves that have proven to be very stable over time, and annuity products on which interest rates can be adjusted periodically, subject to minimum interest rate guarantees. Policyholders or claimants may not withdraw funds from the large block of disability reserves. Instead, claim payments are issued monthly over periods that may extend for many years. Holding these stable long-term reserves makes it possible to allocate a significant portion of invested assets to long-term fixed-rate investments, including commercial mortgage loans. The ability to allocate a significant portion of investments to commercial mortgage loans, combined with StanCorp Mortgage Investors’ unique expertise with respect to its market niche for fixed-rate commercial mortgage loans, allows us to enhance the yield on the overall investment portfolio beyond that available through fixed maturity securities with an equivalent risk profile. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Investing Cash Flows” and Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements.”

10 STANCORP FINANCIAL GROUP, INC.

REGULATION

State and Federal Laws and Regulations

Standard sells its products in and is regulated by all states except New York, and sells its products and is regulated in the District of Columbia. The Standard Life Insurance Company of New York sells its products in and is regulated by New York. The insurance industry in the United States is subject to extensive regulation. Such regulation relates to, among other things, terms and provisions of insurance policies, market conduct practices, maintenance of capital and payment of distributions, and financial reporting on a statutory basis of accounting.

We market registered group variable annuity products, which are part of a registered investment company under the Investment Company Act of 1940. These products are subject to that act and the rules thereunder, which, among other things, regulate the relationship between a registered investment company and its investment adviser.

As registered investment advisers, StanCorp Investment Advisers is subject to regulation under the Investment Advisers Act of 1940. This Act requires, among other things, recordkeeping and reporting requirements, disclosure requirements, limitations on transactions between the adviser’s account and an advisory client’s account, limitations on transactions between the accounts of advisory clients, and general anti-fraud prohibitions.

The Sarbanes-Oxley Act of 2002 and rules promulgated by the SEC and the New York Stock Exchange thereunder have imposed substantial new or enhanced regulations and disclosure requirements in the areas of corporate governance (including director independence, director selection and audit committee, corporate governance committee and compensation committee responsibilities), equity compensation plans, auditor independence, pre-approval of auditor fees and services, disclosure of executive compensation and internal control procedures.

Violation of applicable laws and regulations can result in legal or administrative proceedings, which can result in fines, penalties, cease and desist orders or suspension or expulsion of our license to sell insurance in a particular state.

Capital Requirement—Risk-Based Capital

The National Association of Insurance Commissioners has a tool to aid in the assessment of the statutory capital and surplus of life and health insurers. This tool, known as Risk-based Capital (“RBC”), augments statutory minimum capital and surplus requirements. RBC employs a risk-based formula that applies prescribed factors to the various risk elements inherent in an insurer’s business to arrive at minimum capital requirements in proportion to the amount of risk assumed by the insurer.

State insurance departments require insurance enterprises to maintain minimum levels of capital and surplus. As of December 31, 2007, the insurance subsidiaries’ capital was approximately 301% of the company action level of RBC required by regulators, which is 601% of the authorized control level RBC required by our states of domicile. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Management.”

EMPLOYEES

At December 31, 2007, StanCorp and its subsidiaries had 3,437 full-time equivalent employees, 68% of which were located in Portland, Oregon and the surrounding metropolitan area. At December 31, 2007, none of the Company’s employees were represented by unions.

Item 1A. Risk Factors

Risk factors that may affect our business are as follows:

• Our reserves for future policy benefits and claims related to our current and future business as well as businesses we may acquire in the future may prove to be inadequate—For certain of our product lines, we establish and carry as a liability actuarially determined reserves that are calculated to meet our obligations for future policy benefits and claims. These reserves do not represent an exact calculation of our future benefit liabilities, but are instead estimates based on assumptions, which can be materially affected by changes in the national or regional economy, changes in social perceptions about work ethics, emerging medical perceptions regarding physiological or psychological causes of disability, emerging or changing health issues and changes in industry regulation. Claims experience on our products can fluctuate widely from period to period. If actual events vary materially from our assumptions used when establishing the reserves to meet our obligations for future policy benefits and claims, we may be required to increase our reserves, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

• Differences between actual claims experience and underwriting and reserving assumptions may adversely affect our financial results—Our long term disability products provide coverage for claims incurred during the policy period. Generally, group policies offer rate guarantees for periods from one to three years. While we can prospectively re-price and re-underwrite coverages at the end of these guarantee periods, we must pay benefits with respect to claims incurred during these periods

2007 ANNUAL REPORT 11

Part I

without being able to increase guaranteed premium rates during these periods. Historically, approximately 50% of all claims filed under our long term disability policies close within 24 months. However, claims caused by more severe disabling conditions may be paid over much longer periods, including, in some cases, up to normal retirement age or longer. Longer duration claims, in addition to a higher volume of claims than we expect, expose us to the possibility that we may pay benefits in excess of the amount that we anticipated when the policy was underwritten. The profitability of our long term disability products is thus subject to volatility resulting from the difference between our actual claims experience and our assumptions at the time of underwriting and from changes in economic conditions.

• We are exposed to concentration risk on our group life insurance business—Due to the nature of group life insurance coverage, we are subject to geographical concentration risk from the occurrence of a catastrophe.

• Catastrophic losses from a disease pandemic could have an adverse effect on us—Our life insurance operations are exposed to the risk of loss from an occurrence of catastrophic mortality caused by a disease pandemic, such as could arise from the avian flu, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

• Catastrophic losses from terrorism or other factors could have an adverse effect on us—An occurrence of a significant catastrophic event, including natural disasters, terrorism, or other disasters, or a change in the nature and availability of reinsurance and catastrophe reinsurance, could have a material adverse effect on our business, financial position, results of operations or cash flows.

• We may be exposed to disintermediation risk during periods of increasing interest rates—In periods of increasing interest rates, withdrawals of annuity contracts may increase as policyholders seek to invest in investments with higher perceived returns. This process, referred to as disintermediation, may lead to cash outflows. These outflows may require investment assets to be sold at a time when the prices of those assets are adversely affected by the increase in interest rates, which may result in realized investment losses. A significant portion of our investment portfolio consists of commercial mortgage loans, which are relatively illiquid, thus increasing our liquidity risk in the event of disintermediation during a period of rising interest rates.

• Our profitability may be adversely affected by declining interest rates—During periods of declining interest rates, annuity products may be relatively more attractive investments, resulting in increases in the percentage of policies remaining in force from year to year during a period when our new investments carry lower returns. During these periods, lower returns on our investments could prove inadequate for us to meet contractually guaranteed minimum payments to holders of our annuity products. In addition, the profitability of our life and disability insurance products can be affected by declining interest rates. A factor in pricing our insurance products is prevailing interest rates. Longer duration claims and premium rate guarantee periods can expose us to interest rate risk when portfolio yields are less than those assumed when pricing these products. Mortgages and bonds in our investment portfolio are more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates, and we may be required to reinvest those funds in lower interest-bearing investments.

• Our investment portfolio is subject to risks of market value fluctuations, defaults, delinquencies and liquidity—Our general account investments primarily consist of fixed maturity securities, commercial mortgage loans and real estate. The market values of our investments vary with changing economic and market conditions and interest rates. In addition, we are subject to default risk on our fixed maturity securities portfolio, and delinquency and default risk on our commercial mortgage loans. Our commercial mortgage loans are relatively illiquid. We may have difficulty selling commercial mortgage loans at attractive prices, in a timely manner, or both if we require significant amounts of cash on short notice.

• Our business is subject to significant competition—Each of our business segments faces competition from other insurers and financial services companies, such as banks, broker-dealers, mutual funds, and managed care providers for employer groups, individual consumers and distributors. Since many of our competitors have greater financial resources, offer a broader array of products and, with respect to other insurers, may have higher financial strength ratings than we do, the possibility exists that any one of our business segments could be adversely affected, which in turn could have a material adverse effect on our business, financial position, results of operations or cash flows.

• A significant downgrade in our financial strength ratings may negatively affect our business—Financial strength ratings, which rate our claims paying ability, are an

12 STANCORP FINANCIAL GROUP, INC.

important factor in establishing the competitive position of insurance companies. Ratings are important to maintaining public confidence in our company and in our ability to market our products. Rating organizations continually review the financial performance and condition of insurance companies, including our company. A significant ratings downgrade could increase our surrender levels and could adversely affect our ability to market our products and thereby have a material adverse effect on our business, financial position, results of operations or cash flows.

• Our profitability may be affected by changes in state and federal regulation—Our business is subject to comprehensive state regulation and supervision throughout the United States. While we cannot predict the impact of potential or future state or federal legislation or regulation on our business, future laws and regulations, or the interpretation thereof, could have a material adverse effect on our business, financial position, results of operations or cash flows.

• Our business is subject to litigation risk—In the normal course of business, we are a plaintiff or defendant in actions arising out of our insurance business and investment operations. We are from time to time involved in various governmental and administrative proceedings. While the outcome of any pending or future litigation cannot be predicted, as of the date hereof, we do not believe that any pending litigation will have a material adverse effect on our results of operations and financial condition. However, no assurances can be given that such litigation would not materially and adversely affect our business, financial position, results of operations or cash flows.

• The concentration of our investments in California may subject us to losses resulting from an economic downturn as well as certain catastrophes in this state—Our commercial mortgage loans are concentrated in the western region of the U.S., particularly in California. Due to this concentration, we are exposed to potential losses resulting from the risk of an economic downturn in California as well as to certain catastrophes, such as earthquakes and fires, which may affect the region. Although we diversify our commercial mortgage loan portfolio within California by both location and type of property in an effort to reduce earthquake exposure, such diversification may not eliminate the risk of such losses, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

• We may be exposed to environmental liability from our commercial mortgage loan and real estate investments—As a commercial mortgage lender, we customarily conduct environmental assessments prior to making commercial mortgage loans secured by real estate and before taking title through foreclosure to real estate collateralizing delinquent commercial mortgage loans held by us. Based on our environmental assessments, we believe that any compliance costs associated with environmental laws and regulations or any remediation of affected properties would not have a material adverse effect on our results of operations or financial condition. However, we cannot provide assurance that material compliance costs will not be incurred by us.

• As a holding company, we depend on the ability of our subsidiaries to transfer funds to us in sufficient amounts to pay dividends to shareholders, make payments on debt securities and meet our other obligations—We are a holding company for our insurance and asset management subsidiaries and do not have any significant operations of our own. Dividends and permitted payments from our subsidiaries are our principal source of cash to meet our other obligations, pay dividends to shareholders and make payments on debt securities. As a result, our ability to pay dividends to shareholders and interest payments on debt securities primarily will depend upon the receipt of dividends and other distributions from our subsidiaries.

Many of our subsidiaries are non-insurance businesses and have no regulatory restrictions on dividends. Our insurance subsidiaries, however, are regulated by insurance laws and regulations that limit the maximum amount of dividends, distributions and other payments that they could declare and pay to us without prior approval of the states in which the subsidiaries are domiciled. Under Oregon law, Standard Insurance Company may pay dividends only from the earned surplus arising from its business. Oregon law gives the Director of the Oregon Department of Consumer and Business Services—Insurances Division (“Oregon Insurance Division”) broad discretion regarding the approval of dividends. Oregon law requires us to receive the prior approval of the Oregon Insurance Division to pay a dividend if such dividend exceeds certain statutory limitations; however, it is at the Oregon Insurance Division’s discretion to request prior approval of dividends at any time. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Management—Dividends from Subsidiaries.”

2007 ANNUAL REPORT 13

Part I

• Our business may be affected by employment and wage growth—Two factors in the growth of StanCorp’s group businesses are the employment levels, and salary and wage growth of its employer groups. A reduction in either of these factors may affect premium levels for our group businesses.

• Our profitability may be adversely affected by declining equity markets—Sustained equity market declines could result in decreases in the value of our retirement plans assets under administration, which could reduce our ability to earn administrative fee income derived from the value of those assets.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Principal properties owned by Standard Insurance Company (“Standard”) and used by the Company consist of two office buildings in downtown Portland, Oregon: the Standard Insurance Center, with approximately 460,000 square feet; and the Standard Plaza, with approximately 220,000 square feet. Both of our business segments use the facilities described above. The Company also owns a building with 72,000 square feet of office space in Hillsboro, Oregon, which is used by StanCorp Mortgage Investors, LLC and our group insurance claims operations. A second building with 72,000 square feet was completed in the first quarter of 2007 and is used by our group operations. In addition, Standard leases 160,000 square feet of office space located in downtown Portland, Oregon, for home office and claims operations and 60,000 square feet of offsite storage. The

Company leases 66 offices under commitments of varying terms to support its sales and regional processing offices throughout the United States. Management believes that the capacity and types of facilities are suitable and adequate. Management may evaluate additional square footage in 2008 to accommodate its increasing workforce. See Part II, Item 8, “Financial Statements and Supplementary Data—Note 1 to Consolidated Financial Statements.”

Item 3. Legal Proceedings

In the normal course of business, the Company is involved in various legal actions and other state and federal proceedings. A number of actions or proceedings were pending as of December 31, 2007. In some instances, lawsuits include claims for punitive damages and similar types of relief in unspecified or substantial amounts, in addition to amounts for alleged contractual liability or other compensatory damages. In the opinion of management, the ultimate liability, if any, arising from the actions or proceedings is not expected to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of StanCorp’s shareholders during the fourth quarter of 2007.

Item 4A. Executive Officers of the Registrant

The information with respect to executive officers is set forth pursuant to General Instruction G of Form 10-K.

The following table sets forth the executive officers of StanCorp:

Name	Age (as of February 27, 2008)	Position
Robert M. Erickson	39	Assistant Vice President, Controller and Principal Financial Officer of StanCorp and Standard Insurance Company
Kim W. Ledbetter*	55	Senior Vice President, Asset Management Group of Standard Insurance Company
J. Gregory Ness*	50	Senior Vice President, Insurance Services Group of Standard Insurance Company
Eric E. Parsons	59	Chairman, President and Chief Executive Officer of StanCorp and Standard Insurance Company
Michael T. Winslow	53	Senior Vice President and General Counsel of StanCorp and Standard Insurance Company

* Denotes an officer of a subsidiary who is not an officer of StanCorp but who is considered an “executive officer” of StanCorp under the regulations of the Securities and Exchange Commission.

14 STANCORP FINANCIAL GROUP, INC.

Set forth below is biographical information for the executive officers of StanCorp:

Robert M. Erickson, CMA, has been assistant vice president and controller of StanCorp and Standard Insurance Company (“Standard”) since July 2005. In June 2007, he began fulfilling the duties of the Principal Financial Officer on an interim basis until a successor Chief Financial Officer is in place. Since 2000, Mr. Erickson has held several leadership roles in the Corporate Financial Services division of Standard, most recently as corporate divisional controller of Standard.

Kim W. Ledbetter, FSA, CLU, has been senior vice president, Asset Management group of Standard since the Company’s segment realignment in January 2006. Since June 2004, Mr. Ledbetter was senior vice president, asset management and individual disability of Standard, which included responsibility for Standard’s investment operations, including StanCorp Mortgage Investors, LLC, StanCorp Investment Advisers, Inc., our real estate department, and the individual insurance and retirement plans divisions. Since 1997, Mr. Ledbetter was senior vice president, retirement plans division of Standard.

J. Gregory Ness, LLIF, has been senior vice president, Insurance Services group of Standard since the Company’s segment realignment in January 2006. Since April 2004, Mr. Ness was senior vice president, group insurance division of Standard. Since 1999, Mr. Ness was senior vice president, investments of Standard.

Eric E. Parsons has been chairman, president and chief executive officer of StanCorp and Standard since May 2004. Prior to this, Mr. Parsons was president since May 2002 and chief executive officer since January 2003. Mr. Parsons was senior vice president and chief financial officer of StanCorp from its incorporation until 2002 and was chief financial officer of Standard from 1998 through 2002.

Michael T. Winslow, JD, has been senior vice president and general counsel of StanCorp and Standard since July 2004. Mr. Winslow has also performed the duties of assistant corporate secretary since February 2007. Since 2001, Mr. Winslow was vice president, general counsel and corporate secretary of StanCorp and Standard. Prior to joining StanCorp, Mr. Winslow served as assistant general counsel and chief compliance officer for PacifiCorp.

2007 ANNUAL REPORT 15

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

All share information below has been adjusted to reflect the December 9, 2005, two-for-one stock split, affected as a share dividend, of the Company’s common stock. StanCorp’s common stock is listed on the New York Stock Exchange under the symbol “SFG.” As of February 22, 2008, there were 40,630 shareholders of record of common stock.

The following tables set forth the high and low sales prices as reported by the New York Stock Exchange at the close of the trading day and cash dividends paid per share of common stock by calendar quarter:

	2007
	4th Qtr		3rd Qtr		2nd Qtr		1st Qtr
High	$	55.13	$	52.79	$	52.89	$	49.82
Low		49.28		41.44		46.99		44.88
Dividends paid		0.72		—		—		—

	2006
	4th Qtr		3rd Qtr		2nd Qtr		1st Qtr
High	$	46.27	$	51.68	$	55.75	$	54.55
Low		44.29		42.07		46.22		47.64
Dividends paid		0.65		—		—		—

The declaration and payment of dividends in the future is subject to the discretion of StanCorp’s board of directors. It is anticipated that annual dividends will be paid in December of each year depending on StanCorp’s financial condition, results of operations, cash requirements, future prospects, regulatory restrictions on the distributions from the insurance subsidiaries, the ability of the insurance subsidiaries to maintain adequate capital and other factors deemed relevant by StanCorp’s board of directors. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Management.” See also Item 1A, “Risk Factors—As a holding company, we depend on the ability of our subsidiaries to transfer funds to us in sufficient amounts to pay dividends to shareholders, make payments on debt securities and meet our other obligations.”

The following graph provides a comparison of the cumulative total shareholder return on the Company’s common stock with the cumulative total return of the Standard & Poor’s (“S&P”) 500 Index, the S&P Life and Health Insurance Index and the S&P Insurance Group Index. The comparison assumes $100 was invested on December 31, 2002, in the Company’s common stock and in each of the foregoing indexes, and assumes the reinvestment of dividends. The graph covers the period of time beginning December 31, 2002, through December 31, 2007.

Comparison of Five Year Cumulative Total Return

Among StanCorp Financial Group, Inc., the S&P 500 Index,

the S&P Life & Health Insurance Index and the S&P 500 Insurance Group

16 STANCORP FINANCIAL GROUP, INC.

From time to time, the board of directors has authorized share repurchase programs. Share repurchases are to be effected in the open market or in negotiated transactions in compliance with the safe harbor provisions of Rule 10b-18 under regulations of the Securities Exchange Act of 1934. Execution of the share repurchase program is based upon management’s assessment of market conditions for its common stock and other potential growth opportunities. On November 14, 2005, the board of directors authorized a share repurchase program of up to 3.0 million shares of StanCorp common stock. The share repurchases were effected in the open market or in negotiated transactions through May 7, 2007. On May 7, 2007, the board of directors authorized a new share repurchase program of up to 6.0 million shares of StanCorp common stock. The new share repurchase program will be effected in the open market or in negotiated transactions through December 31, 2008. The new share repurchase program replaced our

previous share repurchase program, which had 1.2 million shares remaining that were canceled upon authorization of the new program.

During 2007, the Company repurchased 4.8 million shares of common stock at a total cost of $235.6 million for a volume weighted-average price of $48.60 per common share. At December 31, 2007, there were 1.4 million shares remaining under the Company’s current share repurchase program. During 2007, the Company acquired 7,620 shares of common stock from executive officers to cover tax liabilities of these officers resulting from the release of performance-based shares and retention-based shares at a total cost of $0.4 million for a volume weighted-average price of $47.55 per common share. Repurchases are made at market prices on the date of repurchase. Information required by Item 5 with respect to securities authorized for issuance under equity compensation plans is contained in Part III, Item 12 of this Form 10-K.

The following table sets forth share purchases made, for the periods indicated.

	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
Period:
October 1-31, 2007	320,600	$	50.94	320,600	1,937,000
November 1-30, 2007	241,000		51.45	241,000	1,696,000
December 1-31, 2007	274,900		51.48	274,900	1,421,100
Total fourth quarter	836,500		51.27	836,500

2007 ANNUAL REPORT 17

Part II

Item 6. Selected Financial Data

The following financial data at or for the years ended December 31, should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data.”

(In millions—except share data)	2007			2006			2005			2004			2003
Income Statement Data:
Revenues:
Premiums	$	2,078.3		$	1,935.0		$	1,826.5		$	1,654.0		$	1,589.0
Administrative fees		115.2			77.1			43.3			33.7			28.4
Net investment income		516.3			478.9			465.2			445.3			435.3
Net capital gains (losses)		(0.6	)		1.9			2.2			11.5			9.3
Total revenues		2,709.2			2,492.9			2,337.2			2,144.5			2,062.0
Benefits and expenses:
Benefits to policyholders(1)		1,700.6			1,610.8			1,476.3			1,367.7			1,372.8
Operating expenses(2)		636.2			554.5			517.3			467.1			431.9
Interest expense		30.7			17.9			18.0			17.7			17.5
Total benefits and expenses		2,367.5			2,183.2			2,011.6			1,852.5			1,822.2
Income before income taxes		341.7			309.7			325.6			292.0			239.8
Income taxes		114.2			105.9			114.5			92.6			83.5
Net income	$	227.5		$	203.8		$	211.1		$	199.4		$	156.3
Benefit Ratio (% of total premiums):
Group Insurance		77.4	%		78.3	%		75.8	%		77.4	%		81.3	%
Individual Disability		69.3			79.4			79.2			83.2			82.7
Per Common Share:
Basic net income	$	4.39		$	3.77		$	3.81		$	3.49		$	2.70
Diluted net income		4.35			3.73			3.76			3.45			2.66
Market value at year end		50.38			45.05			49.95			41.25			31.44
Dividends declared and paid		0.72			0.65			0.625			0.50			0.35
Basic weighted-average shares outstanding		51,824,050			54,079,033			55,465,215			57,192,206			57,979,100
Diluted weighted-average shares outstanding		52,344,950			54,688,114			56,076,666			57,838,188			58,669,118
Ending shares outstanding		49,155,131			53,592,178			54,712,936			56,889,678			58,601,446
Balance Sheet Data:
General account assets	$	10,596.5		$	9,806.1		$	9,443.1		$	8,873.4		$	8,296.0
Separate account assets		4,386.4			3,832.5			3,007.6			2,338.6			1,685.7
Total assets	$	14,982.9		$	13,638.6		$	12,450.7		$	11,212.0		$	9,981.7
Long-term debt		562.6			261.1			260.1			258.1			272.0
Total liabilities		13,553.9			12,174.1			11,036.9			9,810.9			8,672.2
Total equity		1,429.0			1,464.5			1,413.8			1,401.1			1,309.5
Statutory Data:
Net gain from operations before federal income taxes	$	309.3		$	271.1		$	314.0		$	275.8		$	214.2
Net gain from operations after federal income taxes and before realized capital gains (losses)		197.2			172.8			207.5			191.5			138.9
Capital and surplus		1,047.8			967.5			968.7			942.5			876.1
Asset valuation reserve		102.2			96.6			88.2			73.8			54.3

⁽¹⁾ Includes benefits to policyholders and interest credited.

⁽²⁾ Includes operating expenses, commissions and bonuses, premium taxes, and the net increase in deferred acquisition costs, value of business acquired and intangibles.

18 STANCORP FINANCIAL GROUP, INC.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management assessment of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto. See Item 8, “Financial Statements and Supplementary Data.” Our consolidated financial statements and certain disclosures made in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and require us to make estimates and assumptions that affect reported amounts of assets and liabilities and contingent assets and contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during each reporting period. The estimates most susceptible to material changes due to significant judgment are identified as critical accounting policies. The results of these estimates are critical because they affect our profitability and may affect key indicators used to measure the Company’s performance. See “Critical Accounting Policies and Estimates.”

We have made in this Form 10-K, and from time to time may make in our public filings, news releases and oral presentations and discussions, certain statements, which are predictive in nature and not based on historical facts. These statements are “forward-looking” and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed or implied. Although such forward-looking statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be achieved. See “Forward-looking Statements.”

EXECUTIVE SUMMARY

Financial Results Overview

Net income per diluted share was $4.35, $3.73 and $3.76 for the years 2007, 2006 and 2005, respectively. Net income for these same periods was $227.5 million, $203.8 million and $211.1 million, respectively. The increase in net income for 2007 compared to 2006 reflected premium growth and comparatively favorable claims experience in our group insurance and individual disability businesses. Net income for 2006 was affected by premium growth, offset by comparatively higher claims expense. Premium growth in the Insurance Services segment was 7.1%, 6.1% and 10.1% for 2007, 2006 and 2005, respectively. For the Insurance Services segment, claims experience for the group insurance products, as indicated by the benefit ratio (benefits to policyholders and interest credited measured as a percentage of premiums), was 77.4%, 78.3% and 75.8% for 2007, 2006 and 2005,

respectively. The growth in net income per diluted share for 2007 also reflected a reduction in diluted weighted-average shares outstanding of 2.3 million compared to 2006 due to increased share repurchase activity in 2007.

Outlook for 2008

For 2008, we will continue to focus on our long-term objectives and address challenges that may arise with financial discipline and from a position of superior financial strength. We manage for profitability, focusing on good business diversification, disciplined product pricing, sound underwriting, effective claims management and high quality customer service.

For 2008, the Company has established the following expectations, which will affect our annual financial results:

• Premium growth in the range of 6% to 8%, a rate we expect will maintain our historical pattern of growing at least 1% to 2% more than the industry growth rate.

• An annual benefit ratio in the range of 77.5% to 79.5% for the group insurance business, noting that our actual experience over the last four years has been toward the lower end of this range. Claims experience can fluctuate widely from quarter to quarter.

CONSOLIDATED RESULTS OF OPERATIONS

Revenues

Revenues primarily consist of premiums, administrative fees and net investment income. Total revenues increased 8.7% to $2.71 billion for 2007 compared to 2006 and 6.7% to $2.49 billion for 2006 compared to 2005.

Premium and Administrative Fees

The following table sets forth percentages of premium and administrative fee growth, and net investment income growth by segment for the years December 31:

	2007		2006		2005
Premiums and administrative fees growth:
Insurance Services	7.0	%	6.1	%	10.2	%
Asset Management	55.3		69.4		40.8
Consolidated total premium and administrative fee growth	9.0		7.6		10.8
Net investment income growth:
Insurance Services	4.0	%	3.3	%	0.3	%
Asset Management	12.5		7.8		4.8
Consolidated total net investment income growth	7.8		2.9		4.5
Total revenue growth	8.7	%	6.7	%	9.0	%

Consolidated premium and administrative fee growth is driven primarily by premium growth in our Insurance Services segment and administrative fee growth in our Asset Management segment. The three primary factors that influence premium growth for our Insurance Services

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segment are sales, customer retention, and organic growth that is derived from wage and employment growth. Premiums for the Insurance Services segment increased 7.1% to $2.06 billion for 2007 compared to 2006, and 6.1% to $1.93 billion for 2006 compare to 2005. The increases in premiums were due in part to strong sales and a single premium in 2007 of $19.3 million related to a reserve buyout, which was partially offset by higher experience rated refunds (“ERRs”) of $37.2 million for 2007, compared to $22.6 million for 2006. Administrative fees for our Asset Management segment increased 51.6% to $118.7 million for 2007 compared to 2006, and 92.9% to $78.3 million for 2006 compared to 2005. Administrative fee growth in our Asset Management segment was due to continued deposit growth, strong customer retention in the retirement plans business, as well as assets under administration added through the acquisition of DPA, Inc. in July 2007 and Invesmart, Inc. (“Invesmart”) in July 2006. Excluding the administrative fees related to the addition of Invesmart and DPA, Inc., administrative fee growth for the Asset Management segment was 22.9% for 2007 compared to 2006.

Net Investment Income

Net investment income increased 7.8% to $516.3 million for 2007 compared to 2006 and 2.9% to $478.9 million for 2006 compared to 2005. Net investment income primarily is affected by changes in levels of invested assets, interest rates, the change in fair value of derivative assets and commercial mortgage loan prepayment fees.

The increase in net investment income for 2007 compared to 2006 was primarily due to an increase of 4.9% to $8.47 billion in average invested assets resulting from operations, and an increase in assets related to proceeds of $300 million from junior subordinated debentures (“Subordinated Debt’) issued in May 2007. Average invested assets do not include cash and cash equivalents. Also contributing to the increase was an increase in premiums on called bonds, primarily in the first six months of 2007. Premiums on called bonds were $2.0 million for 2007, compared to $0.5 million for 2006. The increase in net investment income was partially offset by decreases in the fair value of derivative assets and lower portfolio yield of commercial mortgage loans. The fair value adjustment to derivative assets was a decrease of $1.0 million for 2007, compared to an increase of $0.9 million for 2006. The portfolio yield for commercial mortgage loans decreased to 6.36% at the end of 2007 from 6.40% at the end of 2006. The portfolio yield for fixed maturity securities remained stable at 5.57% at the end of 2007 and 2006.

The increase in net investment income for 2006 compared to 2005 was primarily due to an increase of 4.9% to $8.07 billion in average invested assets resulting from operations and an increase of $0.9 million in the fair value of derivative assets. The increase in net investment income was partially offset by a $3.6 million decrease in commercial mortgage loan prepayment fees, a $1.1 million decrease in premiums on called bonds and decreases in the portfolio yields of commercial mortgage loans and fixed maturity securities. The portfolio yield for commercial mortgage loans decreased to 6.40% at the end of 2006 from 6.46% at the end of 2005. The portfolio yield for fixed maturity securities decreased to 5.57% at the end of 2006 from 5.61% at the end of 2005.

Commercial mortgage loan prepayment fees were $9.7 million, $9.8 million and $13.4 million for 2007, 2006 and 2005, respectively. Approximately 85% of our commercial mortgage loans have a provision that requires the borrower to pay a prepayment fee that assures that the Company’s expected cash flow from commercial mortgage loan investments will be protected in the event of prepayment. Since 2001, all new commercial mortgage loans originated by the Company contain this prepayment provision. The remainder of our commercial mortgage loans contains fixed prepayment fees that mitigate prepayments, but may not fully protect the Company’s expected cash flow in the event of prepayment.

Net Capital Gains (Losses)

Net capital gains and losses are reported in “Other.” Net capital losses were $0.6 million for 2007. Net capital gains were $1.9 million and $2.2 million for 2006 and 2005, respectively. Net capital gains and losses occur as a result of sale or impairment of the Company’s assets, neither of which is likely to occur in regular patterns. While the timing of an impairment is not controllable, management does have discretion over the timing of sales of invested assets.

Benefits and Expenses

Benefits to Policyholders (including interest credited)

The growth in benefits to policyholders, including interest credited, is driven by different factors for each of our product segments. For the Insurance Services segment, three primary factors drive benefits to policyholders: premium growth (reserves are established in part based on premium levels), claims experience, and the assumptions used to establish related reserves. The predominant factors affecting claims experience are incidence measured by the number of claims and severity measured as the length of time a disability claim is paid and the size of the claim. The assumptions used to establish the related reserves reflect expected incidence and

20 STANCORP FINANCIAL GROUP, INC.

severity, as well as new investment interest rates and overall portfolio yield, both of which affect the discount rate used to establish reserves. See “Critical Accounting Policies and Estimates—Reserves.”

For our Asset Management segment, the primary factors that drive benefits to policyholders, including interest credited, relate to interest credited to customers. The primary factors that affect interest credited are growth in

general account assets under management, new investment interest rates and overall portfolio yield (which influence our interest crediting rate for our customers), and customer retention. In addition, these amounts may fluctuate from quarter to quarter in compliance with Statement of Financial Accounting Standards (“SFAS”) No. 133 related to changes in interest rates and equity market volatility.

The following table sets forth benefits to policyholders, including interest credited, by segment for the years ended December 31:

(Dollars in millions)	2007		Percent change		2006		Percent change		2005		Percent change
Benefits to policyholders:
Insurance Services	$	1,585.5	5.0	%	$	1,510.4	9.4	%	$	1,381.0	7.6	%
Asset Management		115.1	14.6			100.4	5.4			95.3	12.4
Total benefits to policyholders	$	1,700.6	5.6		$	1,610.8	9.1		$	1,476.3	7.9

The increase in benefits to policyholders, including interest credited, for the Insurance Services segment for 2007 compared to 2006 resulted from business growth as evidenced by premium growth, partially offset by comparatively favorable claims experience in our group insurance and individual disability insurance businesses. See “Business Segments—Insurance Services Segment—Benefits and Expenses—Benefits to Policyholders (including interest credited).”

The increase in benefits to policyholders, including interest credited, for the Insurance Services segment for 2006 compared to 2005 primarily resulted from business growth, as evidenced by premium growth, and comparatively less favorable claims experience in our group insurance product lines. By contrast, group insurance products had favorable claims experience overall for most of 2005.

The increase in benefits to policyholders, including interest credited, for the Asset Management segment for 2007 compared to 2006 resulted primarily from increased interest credited related to growth in general account assets in our retirement plans and individual fixed annuities businesses. Growth in interest credited for this segment was affected by higher SFAS No. 133 liability accruals for our small block of indexed annuities. In 2007, interest credited was increased by $1.6 million due to the effects of this valuation. In addition, benefits to policyholders for the Asset Management segment increased in 2007 compared to 2006 due to an increase in life-contingent annuity sales for our individual fixed annuities business.

The increase in benefits to policyholders, including interest credited, for the Asset Management segment for 2006 compared to 2005 resulted from an increase in assets under administration due to favorable customer retention,

growth in general account assets in our retirement plans and individual fixed annuities businesses, offset by reduced interest crediting rates due to lower new investment interest rates and overall portfolio yield. Growth in general account assets for our retirement plans and individual fixed annuities businesses was 6.4% for 2007 compared to 2006, and 10.2% for 2006 compared to 2005. In addition, a significant increase in the sales of life-contingent annuities for our individual fixed annuities business in 2005 increased benefits to policyholders for that period. See “Business Segments—Asset Management Segment—Benefits and Expenses—Benefits to Policyholders.”

Operating Expenses

Operating expenses increased 17.4% to $434.8 million for 2007 compared to 2006, and 8.7% to $370.3 million for 2006 compared to 2005. The increase in operating expenses was primarily due to the integration of Invesmart since 2007 included a full year of Invesmart expenses compared to a half year of expenses in 2006. The additional increase in operating expenses was due to business growth as evidenced by growth in assets under administration and up-front costs related to the consolidation of some of our trust and insurance platforms. In addition, we acquired DPA, Inc. during the third quarter of 2007. DPA, Inc. is a retirement plan business based in Portland, Oregon. Operating expenses for DPA, Inc. during 2007 were approximately $1.9 million. There were also additional costs related to the installation of a large national account group policy sold in our group insurance business that contributed approximately $8.5 million to the overall increase in operating expenses for 2007. The installation of the large national account included capitalized software and system costs that will be depreciated

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and amortized through 2012. The depreciation and amortization costs will add an average of $3.0 million to operating expenses for the next five years.

The increase in operating expenses for 2006 was primarily due to expenses related to the operations of Invesmart. Excluding expenses from the Invesmart operations, operating expense growth for 2006 was 2.7%. Operating expense growth is typically influenced by business growth as evidenced by premium and administrative fee growth. Premium and administrative fee growth for 2007 was 9.0% compared to 2006, and for 2006 was 7.6% compared to 2005. See “Business Segments.”

Commissions and Bonuses

Commissions and bonuses primarily represent sales-based compensation, which can vary depending on the product, the structure of the commission program and factors such as customer retention, sales, growth in assets under administration and profitability of the business in each of our segments. Commissions and bonuses increased 7.8% to $198.0 million for 2007 compared to 2006, and 9.0% to $183.6 million for 2006 compared to 2005. The increases for the comparative periods were due to premium growth and persistency for our Insurance Services segment and growth in assets under administration for our Asset Management segment. In addition, commissions and bonuses increased due to operations from the Invesmart acquisition in the third quarter of 2006. Excluding the Invesmart acquisition, growth in commissions and bonuses was 7.6% for 2007 compared to 2006, and 8.2% for 2006 compared to 2005.

Net Decrease in Deferred Acquisition Costs (“DAC”), Value of Business Acquired (“VOBA”) and Intangibles

We defer certain commissions, bonuses and operating expenses, which are considered acquisition costs. These costs are then amortized into expenses over a period not to exceed the life of the related policies, which for group insurance contracts is the initial premium rate guarantee period, which averages 2.5 years. VOBA primarily represents the discounted future profits of business assumed through reinsurance agreements. A portion of VOBA is amortized each year to achieve matching against expected gross profits. The Company’s intangibles, consisting of customer lists and marketing agreements, are also subject to amortization. Customer lists were acquired through the purchase of Invesmart, DPA, Inc. and the acquisition by StanCorp Investment Advisers, Inc. of several small investment advisory firms. The values associated with the customer lists are amortized over 10 years. The amortization for the marketing agreement with the Minnesota Life Insurance Company (“Minnesota Life”) is up to 25 years. See “Critical Accounting Policies and Estimates—DAC, VOBA, Other Intangible Assets

and Goodwill.” The net deferral for DAC, VOBA and intangibles for 2007 decreased $1.0 million compared to 2006 and increased $10.2 million for 2006 compared to 2005. In addition, a cumulative effect adjustment of $39.4 million after-tax was recorded as a reduction to retained earnings as of January 1, 2007, as a result of the adoption of Statement of Position (“SOP”) 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts.

Income Taxes

Total income taxes may differ from the amount computed by applying the federal corporate tax rate of 35% because of the net result of permanent differences and the inclusion of state and local income taxes, net of the federal tax benefit. The combined federal and state effective tax rates were 33.4%, 34.2% and 35.2% for 2007, 2006 and 2005, respectively. See Item 8, “Note 10—Income Taxes” for more information on the change in the effective tax rate.

BUSINESS SEGMENTS

StanCorp’s operations include two reportable segments: Insurance Services and Asset Management, as well as an “Other” category for activity outside of the two segments. Resources are allocated, and performance is evaluated at the segment level. The Insurance Services segment offers group and individual disability insurance, group life and accidental death and dismemberment (“AD&D”) insurance, and group dental insurance. The Asset Management segment offers full-service 401(k) plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans, 403(b) plans and non-qualified deferred compensation products and services through an affiliated broker-dealer. This segment also offers investment management and financial planning services, commercial mortgage loan origination and servicing, and individual fixed annuities. It also includes the former operations of Invesmart, a provider of retirement plan services, and investment advisory and management services, acquired in July 2006. Effective January 1, 2007, the administration and servicing operations for the retirement plans group annuity contracts offered through Standard and for the trust product offered through Invesmart, began operating under the name Standard Retirement Services, Inc. (“Standard Retirement Services”).

Segment revenues measured as a percentage of total revenues for 2007 were 88.5% for the Insurance Services segment and 11.2% for the Asset Management segment.

Net capital gains and losses on investments, return on capital not allocated to the product segments, holding company expenses, interest on debt and adjustments made in consolidation are reflected in “Other.”

22 STANCORP FINANCIAL GROUP, INC.

Insurance Services Segment

As the Insurance Services segment is our largest segment, it substantially influences our consolidated financial results. Income before income taxes for the Insurance Services segment was $322.6 million, $282.4 million and $300.1 million for 2007, 2006 and 2005, respectively. Income before income taxes for this segment for 2007 was affected by premium growth and comparatively favorable claims experience in our group insurance and individual disability businesses. Income before income taxes for 2006 for this segment was affected by premium growth, comparatively less favorable claims experience in our group insurance products and operating expense growth less than premium growth.

Following are key indicators that management uses to manage and assess the performance of the Insurance Services segment:

(Dollars in millions)	2007			2006			2005
Premiums:
Group life and AD&D	$	807.2		$	735.0		$	681.0
Group long term disability		869.8			809.9			780.7
Group short term disability		219.5			211.1			191.7
Group dental		70.8			72.9			73.8
Experience rated refunds		(37.2	)		(22.6	)		(20.2	)
Individual disability		133.5			121.1			109.4
Total premiums	$	2,063.6		$	1,927.4		$	1,816.4
Group insurance sales (annualized new premiums) reported at contract effective date	$	408.8		$	317.8		$	324.9
Individual disability sales (annualized new premiums)		23.9			21.5			21.5
Group insurance benefit ratio (% of premiums)		77.4	%		78.3	%		75.8	%
Individual disability benefit ratio (% of premiums)		69.3			79.4			79.2
Segment operating expense ratio (% of premiums)		15.2			15.1			15.6

Revenues

Revenues for the Insurance Services segment increased 6.6% to $2.40 billion for 2007 compared to 2006, primarily due to premium growth of 7.1% and increased net investment income in our insurance businesses. Revenues for the Insurance Services segment increased 5.7% to $2.25 billion for 2006 compared to 2005, again primarily due to increased premiums and increased net investment income in our insurance businesses.

Premiums

Premiums for the Insurance Services segment increased 7.1% for 2007 compared to 2006, and 6.1% for 2006 compared to 2005. The primary factors that contribute to premium growth for the Insurance Services segment are sales and persistency for all of our insurance products and organic growth in our group insurance product lines due to

employment and wage rate growth from existing group policyholders.

Sales. Sales of our group insurance products increased 28.6% for 2007 compared to 2006, and decreased 2.2% for 2006 compared to 2005. Sales for 2007 exceeded $400 million of annualized premium for the first time in our history. This sales growth and the related increase in the number of new cases underscores our efforts to diversify our block of business further and thus our risk. The increase in sales for 2007 included sales to a few large national accounts and a single sale of $19.3 million related to a reserve buyout. The decline in sales for 2006 compared to 2005 was due to a highly competitive sales environment and slower industry growth. The group insurance market continues to reflect a price-competitive sales environment.

Persistency. Persistency for our group insurance products has historically exceeded industry averages, which we believe demonstrates our commitment to customer service and pricing discipline for new sales. Premium growth for 2007 was supported by strong persistency in our group insurance product lines at 87.4%, compared to 88.1% for 2006 and 88.2% for 2005. Persistency in our individual disability products remains favorable. A significant portion of our in force individual disability policies are non-cancelable.

Organic Growth. A portion of our premium growth in our group insurance in force business is due to continued employment and wage rate growth. Employment and wage growth slowed during 2007 compared to 2006 and 2005. Organic growth is also affected by changes in premium per insured and the average age of employees.

Premium growth for 2007 compared to 2006 was affected by a single sale of $19.3 million related to a reserve buyout. The buyout included claims incurred prior to June 1, 2007. Premium growth was offset by ERRs of $37.2 million, $22.6 million and $20.2 million for 2007, 2006 and 2005, respectively. ERRs, which are refunds to certain group contract holders based on claims experience, can fluctuate widely from quarter to quarter depending on the underlying experience of specific contracts.

Net Investment Income

Net investment income for the Insurance Services segment increased 4.0% to $325.8 million for 2007 compared to 2006 and 3.3% to $313.4 million for 2006 compared to 2005. The increase in net investment income for 2007 compared to 2006 was primarily affected by growth in average invested assets due to premium growth and by additional income related to premiums on called bonds for this segment of $1.2 million for 2007 compared to $0.3 million for 2006. The increase in net investment income for 2006 compared to 2005 was primarily affected by growth in average invested

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assets due to premium growth, partially offset by a reduction in invested asset yields and commercial mortgage loan prepayments. See “Consolidated Results of Operations—Revenues—Net Investment Income.”

Benefits and Expenses

Benefits to Policyholders (including interest credited)

Three primary factors drive benefits to policyholders: premium growth (reserves are established in part based on premium levels), claims experience and the assumptions used to establish related reserves. The predominant factors affecting claims experience are claims incidence measured by the number of claims and claims severity measured as the length of time a disability claim is paid and the size of the claim. The assumptions used to establish the related reserves reflect claims incidence and claims severity, in addition to new-money investment interest rates and overall portfolio yield, as both affect the discount rate used to establish reserves.

Benefits to policyholders, including interest credited, for the Insurance Services segment increased 5.0% to $1.59 billion for 2007 compared to 2006, and 9.4% to $1.51 billion for 2006 compared to 2005. The increases primarily resulted from business growth as evidenced by premium growth, with the 2007 increase partially offset by favorable claims experience. Premiums for the Insurance Services segment increased 7.1% for 2007 compared to 2006, and 6.1% for 2006 compared to 2005.

Because premium growth is one of the primary factors that drive benefits to policyholders, the benefit ratio, calculated as benefits to policyholders and interest credited as a percentage of premiums, is utilized to provide a measurement of claims normalized for premium growth. The benefit ratio for our group insurance product lines for 2007 was 77.4%, compared to 78.3 % for 2006 and 75.8% for 2005. The group benefit ratio for 2007 was just below the Company’s estimated annual range of 77.5% to 79.5% for 2007.

We adopted a new group life waiver table, the Society of Actuaries Table 2005, to be used in the calculation of reserves for group life waiver claims incurred in 2007 and later. Adoption of this table resulted in a reduction of $15.5 million in reserves established for new 2007 group life waiver claims compared to the reserves that would have been established using the prior table.

The benefit ratio for our individual disability business was 69.3% for 2007 compared to 79.4% for 2006, primarily reflecting favorable claims experience in 2007. The benefit ratio for our individual disability business was 79.2% for 2005.

Due to the small size of our individual disability business, claims experience and, therefore, the benefit ratio can fluctuate more widely from quarter to quarter than that of our group insurance business.

We increased our individual disability reserves by $6.0 million in 2006 and by an additional $7.4 million in 2007 to address findings of an industry experience study. Due to the size of our individual disability block of business, we view the industry experience study as a credible source for establishing reserves. As with any block of business, we will continue to monitor emerging information, and if necessary, we will adjust our reserves accordingly.

Generally, we expect the individual disability benefit ratio to trend down over time to reflect the growth in the business outside of the large block of disability business assumed in 2000 from Minnesota Life, and the corresponding shift in revenues from net investment income to premiums. The decrease year to year in the expected benefit ratio does not necessarily indicate an increase in profitability; rather it reflects a change in the mix of revenues from the business.

The discount rate used in the fourth quarter of 2007 for newly established long term disability claim reserves was 5.35%, which decreased from 5.50% used during the first three quarters of 2007.

If investment rates prove to be lower than provided for in the margin between the new money investment rate and the reserve discount rate, we could be required to increase reserves, which could cause expense for benefits to policyholders to increase. The margin at December 31, 2007, in our overall block of business for group insurance between invested asset yield and weighted-average reserve discount rate was 40 basis points. See “Liquidity and Capital Resources.”

Operating Expenses

Operating expenses in the Insurance Services segment increased 7.3% to $313.2 million for 2007 compared to 2006, and 2.7% to $291.8 million for 2006 compared to 2005. Operating expenses as a percentage of premiums were 15.2%, 15.1% and 15.6% for 2007, 2006 and 2005, respectively. The increase in operating expenses in 2007 was primarily due to business growth as evidenced by premium growth and additional costs related to strong sales in our group insurance business. Some of the expense related to our strong sales in 2007 included new and enhanced systems capabilities that will benefit current and future customers. The decrease in the expense ratio for 2006 was primarily due to careful expense management, and decreased expenses related to technology spending in 2006 compared to 2005.

24 STANCORP FINANCIAL GROUP, INC.

Asset Management Segment

Income before income taxes for the Asset Management segment increased 11.7% to $42.9 million for 2007 compared to 2006, and 24.3% to $38.4 million for 2006 compared to 2005. The increases were primarily due to fees earned from higher assets under administration. Revenues grew 28.0% for 2007 compared to 2006, and 24.2% for 2006 compared to 2005. The slower growth in income before income taxes compared to revenue growth was primarily due to higher interest credited relating to changes in the fair value of certain liabilities for indexed annuities, higher expenses related to the integration of Invesmart and consolidation of some of our trust and insurance platforms. During the third quarter of 2007, the Company acquired DPA, Inc., a retirement business based in Portland, Oregon, which added $1.7 billion to the Company’s total assets under administration.

Following are key indicators that management uses to manage and assess the performance of the Asset Management segment:

(Dollars in millions)	2007			2006			2005
Premiums:
Retirement plans	$	0.8		$	1.3		$	1.3
Individual annuities		13.9			6.3			8.8
Total premiums	$	14.7		$	7.6		$	10.1
Administrative fees:
Retirement plans	$	100.1		$	63.7		$	31.6
Other financial services business		18.6			14.6			9.0
Total administrative fees	$	118.7		$	78.3		$	40.6
Net investment income:
Retirement plans	$	83.4		$	74.0		$	64.6
Individual annuities		70.0			68.5			66.3
Other financial services income		16.8			8.8			9.4
Total net investment income	$	170.2		$	151.3		$	140.3
Sales (annuity deposits)	$	210.7		$	214.2		$	119.9
Interest credited (% of net investment income):
Retirement plans		54.9	%		54.5	%		55.0	%
Individual annuities		67.0			64.4			60.9
Retirement plans:
Operating expenses (% of average assets under administration)		0.6	%		0.6	%		0.9	%

December 31 (In millions)	2007		2006		2005
Assets under administration:
Retirement plans general account	$	1,467.1	$	1,361.9	$	1,214.1
Retirement plans separate account		4,386.4		3,832.5		3,007.6
Total retirement plans insurance products		5,853.5		5,194.4		4,221.7
Retirement plans trust products		12,872.1		11,045.6		—
Individual fixed annuities		1,295.9		1,234.9		1,143.3
Commercial mortgage loans under administration for other investors		1,899.4		1,407.0		1,141.9
Other		447.3		137.5		35.5
Total assets under administration	$	22,368.2	$	19,019.4	$	6,542.4

Revenues

Revenues for the Asset Management segment increased 28.0% to $303.6 million for 2007 compared to 2006, and 24.2% to $237.2 million for 2006 compared to 2005. Revenues from the retirement plans business include plan and trust administration fees, fees on equity investments held in separate account assets and other assets under administration, and investment income on general account assets under administration. Premiums and benefits to policyholders reflect the conversion of retirement plan assets into life-contingent annuities, which can be selected by plan participants at the time of retirement, including the sale of immediate annuities. Most of the sales for this segment are recorded as deposits and are therefore not reflected as premiums. Individual fixed annuity deposits earn investment income, a portion of which is credited to policyholders.

Premiums

Premiums for the Asset Management segment are generated from life-contingent annuities, which primarily are a single-premium product. Premiums for the segment can vary significantly from quarter to quarter due to low sales volume of life-contingent annuities and the varying size of single premiums. Premiums for the Asset Management segment were $14.7 million, $7.6 million and $10.1 million for 2007, 2006 and 2005, respectively.

Administrative Fees

Administrative fees for the Asset Management segment were $118.7 million, $78.3 million and $40.6 million for 2007 2006 and 2005, respectively. Administrative fees are primarily earned from assets under administration.

Assets under administration for this segment, including retirement plans, individual fixed annuities and outside managed commercial mortgage loans, were $22.37 billion at December 31, 2007, which was a $3.35 billion increase compared to December 31, 2006. The increase was due to continued deposit growth, good customer retention, strong mortgage originations for other investors and equity market

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appreciation in the retirement plans business as well as $1.7 billion acquired through the third quarter 2007 acquisition of DPA, Inc., a retirement plans business based in Portland, Oregon. Administrative fee growth for 2007 included $2.6 million in administrative fee revenue from the DPA, Inc. business acquired in the third quarter of 2007. Assets under administration increased $12.48 billion for 2006 compared to 2005. Growth in assets under administration in 2006 resulted from almost $11 billion added through the addition of Invesmart, as well as continued deposit growth and customer retention in our other retirement plans business. Excluding the assets under administration added through the addition of Invesmart, average assets under administration increased 23.2% for 2006 compared to 2005.

StanCorp Mortgage Investors, LLC (“StanCorp Mortgage Investors”) originated $1.45 billion, $942.8 million and $996.4 million of commercial mortgage loans for 2007, 2006 and 2005, respectively. The increases in originations primarily were due to less competition, accompanied by increased demand for fixed-rate commercial mortgage loans. Commercial mortgage loans managed for other investors increased 35.0% at December 31, 2007, compared with December 31, 2006.

Net Investment Income

Net investment income for the Asset Management segment increased 12.5% to $170.2 million for 2007 compared to 2006. The increase was primarily due to an increase of 9.8% to $1.41 billion in average general account assets under administration and an increase in commercial mortgage loan commitment fees of $3.9 million for 2007 compared to 2006 as a result of the increase in commercial mortgage loan originations. Partially offsetting the increase in net investment income was a decrease in the fair value of derivative assets of $1.0 million, compared to an increase of $0.9 million for 2006 and lower yields on commercial mortgage loans.

Net investment income for the Asset Management segment increased 7.8% to $151.3 million for 2006 compared to 2005. The increase for the comparative periods was primarily due to a 14.9% increase in average retirement plan general account assets under administration, partially offset by a $1.6 million decrease in commercial mortgage loan prepayments and a $1.6 million decrease in commercial mortgage loan commitment fees.

Benefits and Expenses

Benefits to Policyholders

Benefits to policyholders for the Asset Management segment represents current and future benefits on life-

contingent annuities, which vary with life-contingent annuity sales. Benefits to policyholders for the Asset Management segment increased $6.4 million to $22.4 million for 2007 compared to 2006 and decreased $3.4 million to $16.0 million for 2006 compared to 2005. Changes in the level of benefits to policyholders will approximate changes in premium levels because these annuities primarily are single-premium life-contingent annuity products with a significant portion of all premium payments established as reserves.

Interest Credited

Interest credited represents interest paid to policyholders on retirement plan general account assets and individual fixed annuity deposits. Interest credited for the Asset Management segment increased 9.8% to $92.7 million for 2007 compared to 2006, and 11.2% to $84.4 million for 2006 compared to 2005. Interest credited to retirement plan customers increased primarily due to an increase in the interest-crediting rate to retirement plan customers and increases in average balances. Interest credited to individual fixed annuity deposits included the indexed annuity products first offered in 2006. The interest credited to the indexed annuities increased $4.3 million for 2007 compared to 2006 primarily due to increases in the S&P 500 Index and average balances. Average assets under administration for individual fixed annuities increased 6.4% for 2007 compared to 2006, and 6.7% for 2006 compared to 2005. Interest credited also includes changes in fair value of index-based interest guarantees. See Item 8 “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 7, Derivative Financial Instruments.”

Operating Expenses

Operating expenses for the Asset Management segment increased 52.9% to $120.2 million for 2007 compared to 2006. The increase in operating expenses for this segment was due to business growth as evidenced by growth in assets under administration, the integration of Invesmart, which included a full year of expenses in 2007 compared to a half year of expenses in 2006, up-front costs related to the consolidation of our trust product and group annuity platforms and $1.9 million of expenses in 2007 related to the operations of DPA, Inc.

Operating expenses for the Asset Management segment increased 54.4% to $78.6 million for 2006 compared to 2005. The increase in operating expenses for this segment was due to business growth as evidenced by growth in assets under administration and operating expenses related to the acquisition of Invesmart in July 2006. Segment operating expenses in 2006 included nearly a half year of operating expenses related to Invesmart. Excluding operating expenses

26 STANCORP FINANCIAL GROUP, INC.

related to operating the Invesmart business, operating expenses for 2006 increased 14.1% to $58.1 million compared to 2005.

OTHER

In addition to our two segments, we report our holding company and corporate activity in “Other.” This category includes net capital gains and losses, return on capital not allocated to the product segments, holding company expenses, interest on debt and adjustments made in consolidation.

The Other category reported a loss before income taxes of $23.8 million for 2007 compared to a loss before income taxes of $11.1 million for 2006 and a loss before income taxes of $5.4 million for 2005. Contributing to the loss before income taxes for 2007 compared to 2006 was an increase in interest expense of $12.8 million primarily related to the $300 million Subordinated Debt issued in May 2007. The interest expense was partially offset by an increase in net investment income of $6.1 million to $20.3 million in 2007. The increase in net investment income is primarily due to increased levels of invested assets attributed to the proceeds received through the Subordinated Debt issuance. In addition, 2007 included $3.0 million in pre-tax severance costs due to the departure of the chief financial officer in the second quarter. The increased loss before income taxes for 2006 compared to 2005 was primarily due to lower net investment income resulting from lower excess capital as a result of the purchase of Invesmart in the third quarter of 2006. Net investment income for 2006 was $14.2 million, compared to $21.6 million for 2005. See “Liquidity and Capital Resources—Financing Cash Flows.”

LIQUIDITY AND CAPITAL RESOURCES

Asset/Liability and Interest Rate Risk Management

Asset/Liability management is a part of our risk management structure. The risks we assume related to asset/liability mismatches vary with economic conditions. The primary source of economic risk originates from changes in interest rates. It is generally management’s objective to align the characteristics of assets and liabilities so that our financial obligations can be met under a wide variety of economic conditions. From time to time, management may choose to liquidate certain investments and reinvest in different investments so that the certainty of meeting our financial obligations is increased. See “—Investing Cash Flows.”

We manage interest rate risk, in part, through asset/liability analyses. In keeping with presently accepted actuarial standards, the Company has made adequate provisions for the anticipated cash flows required to meet contractual obligations and related expenses, through the use of statutory reserves and related items at December 31, 2007.

Our financial instruments are exposed to financial market volatility and potential disruptions in the market that may result in certain financial instruments becoming less valuable. Financial market volatility includes interest rate risk. We have analyzed the estimated loss in fair value of certain market sensitive financial assets held at December 31, 2007 and 2006, given a hypothetical 10% increase in interest rates, and related qualitative information on how we manage interest rate risk. The interest rate sensitivity analysis was based upon our fixed maturity securities and commercial mortgage loans held at December 31, 2007 and 2006. Interest rate sensitivity of our financial assets was measured assuming a parallel shift in interest rates. All security yields were increased by 10% of the year-end 10-year U.S. Government Treasury bond yield, or 0.40% and 0.47% for the 2007 and 2006 analyses, respectively. The change in fair value of each security was estimated as the change in the option adjusted value of each security. Option adjusted values were computed using our payment models and provisions for the effects of possible future changes in interest rates. The analyses did not explicitly provide for the possibility of non-parallel shifts in the yield curve, which would involve discount rates for different maturities being increased by different amounts. The actual change in fair value of our financial assets can be significantly different from that estimated by the model. The hypothetical reduction in the fair value of our financial assets that resulted from the model was estimated to be $180 million and $183 million at December 31, 2007 and 2006, respectively.

As a percentage of our fixed maturity investments, callable bonds were 2.4% at December 31, 2007. Since 2001, all commercial mortgage loans originated by us contain a provision requiring the borrower to pay a prepayment fee to assure that our expected cash flow from commercial mortgage loan investments would be protected in the event of prepayment. Approximately 85% of our commercial mortgage loan portfolio contains this prepayment provision. The remainder of our commercial mortgage loans contains fixed prepayment fees that mitigate prepayments, but may not fully protect our expected cash flow in the event of prepayment.

Operating Cash Flows

Net cash provided by operations is net income adjusted for non-cash items and accruals and was $485.7 million, $390.1 million and $407.1 million for 2007, 2006 and 2005, respectively.

Investing Cash Flows

We maintain a diversified investment portfolio primarily consisting of fixed maturity securities and fixed-rate

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commercial mortgage loans. Investing cash inflows primarily consist of the proceeds of investments sold, matured or repaid. Investing cash outflows primarily consist of payments for investments acquired or originated.

The insurance laws of the states of domicile and other states in which the insurance subsidiaries conduct business regulate the investment portfolios of the insurance subsidiaries. Relevant laws and regulations generally limit investments to bonds and other fixed maturity securities, mortgage loans, common and preferred stock and real estate. Decisions to acquire and dispose of investments are made in accordance with guidelines adopted and modified from time to time by the insurance subsidiaries’ boards of directors. Each investment transaction requires the approval of one or more members of senior investment staff, with increasingly higher approval authorities required for transactions that are more significant. Transactions are reported quarterly to the finance and operations committee of the board of directors for Standard and to the board of directors for The Standard Life Insurance Company of New York.

Net cash used in investing activities was $597.0 million, $749.3 million and $664.9 million for 2007, 2006 and 2005, respectively. The decrease in the net use of cash in investing activities from 2007 compared to 2006 was primarily due to the July 2006 purchase of Invesmart. Invesmart was a national retirement financial services company and is now part of our Asset Management segment. There were no similar sized acquisitions during 2007. In addition, contributing to the decrease in cash used was a $606.9 million increase in proceeds from investments sold, matured or repaid. This increase was partially offset by a $495.5 million increase in cash used by the combination of new mortgage originations, purchases of fixed maturity securities, and purchases of real estate investments. Partially offsetting the overall decrease in investing cash used for acquisitions was the Company’s increased use of cash for short-term investments. The increased use of cash for short-term investments was primarily due to the investment of cash received through the Subordinated Debt offering in May 2007.

Our target investment portfolio allocation is approximately 60% fixed maturity securities and 40% commercial mortgage loans. At December 31, 2007, our portfolio consisted of 57.2% fixed maturity securities, 41.9% commercial mortgage loans, 0.8% real estate and 0.1% short-term investments.

Fixed Maturity Securities

Our fixed maturity securities totaled $5.0 billion at December 31, 2007. We believe that we maintain prudent diversification across industries, issuers and maturities. Our corporate bond industry diversification targets are based on

the Lehman Investment Grade Credit Index, which is reasonably reflective of the mix of issuers broadly available in the market. We also target a specified level of government, agency and municipal securities in our portfolio for credit quality and additional liquidity. The overall credit quality of our fixed maturity securities investment portfolio was A (Standard & Poor’s) at December 31, 2007. The percentage of fixed maturity securities below investment-grade was 4.1% and 3.6% at December 31, 2007 and 2006, respectively. At December 31, 2007, bonds on our watch list totaled approximately $49.3 million. We did not have any direct exposure to sub-prime or Alt-A mortgages in our fixed maturity securities portfolio at December 31, 2007. We held investments in debt securities issued by bond insurers at December 31, 2007, with $33.5 million in market value and $40.7 million in book value. The Company intends to hold these securities to maturity and will continue to evaluate these holdings, but currently expects the fair values of its investments in debt securities issued by bond insurers to recover as these debt securities approach their maturity dates. Should the credit quality of our fixed maturity securities decline, there could be a material adverse effect on our business, financial position, results of operations or cash flows.

At December 31, 2007, our fixed maturity securities portfolio had gross unrealized capital gains of $115.8 million and gross unrealized capital losses of $52.4 million. Unrealized gains and losses primarily result from holding fixed maturity securities with interest rates higher or lower, respectively, than those currently available at the reporting date.

Commercial Mortgage Loans

StanCorp Mortgage Investors originates and services fixed-rate commercial mortgage loans for the investment portfolios of our insurance subsidiaries and generates additional fee income from the origination and servicing of commercial mortgage loans participated to institutional investors.

Commercial mortgage loan originations for internal and external investors were $1.45 billion, $942.8 million and $996.4 million for 2007, 2006 and 2005, respectively. The increased originations in 2007 reflected a return to a more traditional origination market with the securitized lenders essentially out of the market for loans, making the market less competitive with wider spreads. The decrease in originations in 2006 reflected a more competitive origination market for commercial mortgage loan financing. The level of commercial mortgage loan originations in any year is influenced by market conditions as we respond to changes in interest rates, available spreads and borrower demand.

28 STANCORP FINANCIAL GROUP, INC.

At December 31, 2007, StanCorp Mortgage Investors serviced $3.66 billion in commercial mortgage loans for subsidiaries of StanCorp and $1.90 billion for other institutional investors, compared to $3.32 billion serviced for subsidiaries of StanCorp and $1.41 billion for other institutional investors at December 31, 2006.

The average loan to value ratio for the overall portfolio was approximately 57% at December 31, 2007, and the average loan size in the portfolio was approximately $0.7 million at December 31, 2007. We have the contractual ability to pursue personal recourse on most of the loans.

Capitalized commercial mortgage loan servicing rights associated with commercial loans serviced for other institutional investors were $5.7 million and $4.0 million at December 31, 2007 and 2006, respectively.

At December 31, 2007, there were four commercial mortgage loans totaling $1.9 million in our portfolio that were more than sixty days delinquent, of which two commercial mortgage loans with a total balance of $0.7 million were in the process of foreclosure. We had a net balance of restructured loans of $3.4 million at December 31, 2007, and a commercial mortgage loan loss reserve of $3.0 million. At December 31, 2007, we do not have any direct exposure to sub-prime or Alt-A mortgages. The delinquency rate and loss performance of our commercial mortgage loan portfolio is in line with the recent industry averages as reported by the American Council of Life Insurers. The performance of our commercial mortgage loan portfolio may fluctuate in the future. Should the delinquency rate or loss performance of our commercial mortgage loan portfolio increase, the increase could have a material adverse effect on our business, financial position, results of operations or cash flows.

At December 31, 2007, our commercial mortgage loan portfolio was collateralized by properties with the following characteristics:

• 46% retail properties.

• 18% industrial properties.

• 19% office properties.

• 8% commercial properties.

• 6% hotel/motel properties.

• 3% apartment, residential and agricultural properties.

At December 31, 2007, our commercial mortgage loan portfolio was diversified regionally as follows:

• 47% Western region.

• 24% Central region.

• 29% Eastern region.

Commercial mortgage loans in California accounted for 30% of our commercial mortgage loan portfolio at December 31, 2007. Through this concentration, we are

exposed to potential losses resulting from an economic downturn in California as well as to certain catastrophes, such as earthquakes and fires, which may affect certain areas of the state. We require borrowers to maintain fire insurance coverage to provide reimbursement for any losses due to fire. Although we diversify our commercial mortgage loan portfolio within California by both location and type of property in an effort to reduce certain catastrophe and economic exposure, such diversification may not eliminate the risk of such losses. Historically, the delinquency rate of our California-based commercial mortgage loans has been substantially below the industry average and consistent with our experience in other states. In addition, we do not require earthquake insurance for properties on which we make commercial mortgage loans, but do consider the potential for earthquake loss based upon seismic surveys and structural information specific to each property when new loans are underwritten. We do not expect the exposure to catastrophe or earthquake damage to the properties in our commercial mortgage loan portfolio located in California to have a material adverse effect on our business, financial position, results of operations or cash flows. However, if economic conditions in California decline, we could experience a higher delinquency rate on the portion of our commercial mortgage loan portfolio located in California, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

Under the laws of certain states, environmental contamination of a property may result in a lien on the property to secure recovery of the costs of cleanup. In some states, such a lien has priority over the lien of an existing mortgage against such property. As a commercial mortgage lender, we customarily conduct environmental assessments prior to making commercial mortgage loans secured by real estate and before taking title through foreclosure on real estate collateralizing delinquent commercial mortgage loans held by us. Based on our environmental assessments, we believe that any compliance costs associated with environmental laws and regulations or any remediation of affected properties would not have a material adverse effect on our business, financial position, results of operations or cash flows. However, we cannot provide assurance that material compliance costs will not be incurred by us.

In the normal course of business, we commit to fund commercial mortgage loans generally up to 90 days in advance. At December 31, 2007, the Company had outstanding commitments to fund commercial mortgage loans totaling $265.0 million, with fixed interest rates ranging from 6.0% to 7.125%. These commitments generally have fixed expiration dates. A small percentage of commitments

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expire due to the borrower’s failure to deliver the requirements of the commitment by the expiration date. In these cases, we will retain the commitment fee and good faith deposit. Alternatively, if we terminate a commitment due to the disapproval of a commitment requirement, the commitment fee and good faith deposit may be refunded to the borrower, less an administrative fee.

Financing Cash Flows

Financing cash flows primarily consist of policyholder fund deposits and withdrawals, borrowings and repayments on the line of credit, borrowings and repayments on long-term debt, repurchases of common stock and dividends paid on common stock. Net cash provided by financing activities was $261.1 million, $362.0 million and $265.7 million for 2007, 2006 and 2005, respectively. The decrease for 2007 resulted from several offsetting factors. Cash inflows from a $300 million Subordinated Debt offering in May 2007 were offset by increased repurchases of common stock, the elimination of cash inflows from a third party minority interest in a limited liability company that was dissolved in December 2006 and slightly slower growth in policyholder fund deposits, net of withdrawals. The increase for 2005 primarily resulted from the third party interest in the limited liability company created for the purpose of holding commercial mortgage loans originated by StanCorp Mortgage Investors. The minority third party investment totaled $143.2 million for 2005. Standard retained its ownership share of the commercial mortgage loans upon the dissolution of the limited liability company. The non-cash transaction in the Consolidated Statements of Cash Flows for 2006 represented the transfer of commercial mortgage loans to the minority shareholders at dissolution. The Company repurchased common stock at a total cost of $235.6 million, $70.1 million and $106.4 million for 2007, 2006 and 2005, respectively.

On June 15, 2006, the Company established a five-year, $200 million senior unsecured revolving credit facility (“Facility”). On May 9, 2007, the Facility was amended to extend the expiration date by one year to June 15, 2012. At the option of StanCorp and with the consent of the lenders under the Facility, the termination date can be extended for an additional one-year period. Additionally, upon the request of StanCorp and with consent of the lenders under the Facility, the Facility can be increased by up to $100 million to a total of up to $300 million. Borrowings under the Facility will be used to provide for working capital and general corporate purposes of the Company and its subsidiaries and the issuance of letters of credit.

Under the agreement, StanCorp is subject to customary covenants that take into consideration the impact of material

transactions, changes to the business, compliance with legal requirements and financial performance. The two financial covenants are based on our total debt to total capitalization ratio and consolidated net worth. The Facility is subject to performance pricing based upon our total debt to total capitalization ratio and includes interest based on a Eurodollar margin, plus facility and utilization fees. At December 31, 2007, StanCorp was in compliance with all covenants under the Facility and had no outstanding balance on the Facility. StanCorp currently has no commitments for standby letters of credit, standby repurchase obligations or other related commercial commitments.

StanCorp filed a $1.0 billion shelf registration statement with the Securities and Exchange Commission, which became effective on July 23, 2002, and expires on December 1, 2008, registering common stock, preferred stock, debt securities and warrants. On September 25, 2002, we completed an initial public debt offering of $250 million of 6.875%, 10-year senior notes (“Senior Notes”), pursuant to the shelf registration statement. The principal amount of the Senior Notes is payable at maturity and interest is payable semi-annually in April and October. Upon expiration of the $1.0 billion shelf registration statement in December 2008, the Company, as a well-known seasoned issuer, has the ability to file an automatic shelf registration statement for subsequent security issuances.

On May 29, 2007, the Company completed a public debt offering of $300 million of 6.90%, Subordinated Debt. The Subordinated Debt has a final maturity on June 1, 2067, is non-callable at par for the first 10 years and is subject to a replacement capital covenant. The covenant limits replacement of the Subordinated Debt for the first 40 years to be redeemable only with securities, which carry equity-like characteristics that are the same as or more equity-like than the Subordinated Debt. The principal amount of the Subordinated Debt is payable at final maturity. Interest is payable semi-annually at 6.90% in June and December for the first 10 years and quarterly thereafter at a floating rate equal to three-month LIBOR plus 2.51%. StanCorp has the option to defer interest payments for up to five years. StanCorp management chose to make the first scheduled interest payment of $10.5 million in December 2007. StanCorp used approximately $30 million of the proceeds from the sale of the Subordinated Debt to fund the acquisition by StanCorp Real Estate, LLC (a wholly owned subsidiary) of certain real estate assets from Standard and $227.7 million to repurchase approximately 4.6 million shares of common stock. The Company intends to use the remaining debt proceeds to repurchase additional shares of its common stock and for general corporate purposes.

30 STANCORP FINANCIAL GROUP, INC.

On May 7, 2007, the board of directors authorized a new repurchase program for up to 6.0 million shares of StanCorp common stock, which replaced the Company’s prior share repurchase program. We repurchased 4.8 million shares of common stock at a total cost of $235.6 million during 2007. At December 31, 2007, there were 1.4 million shares remaining under the current repurchase program.

CAPITAL MANAGEMENT

State insurance departments require insurance enterprises to maintain minimum levels of capital and surplus. At December 31, 2007, the insurance subsidiaries capital was approximately 301% of the company action level of Risk-based Capital (“RBC”) required by regulators, which is 601% of the authorized control level RBC required by our states of domicile. We expect to maintain a target capital of approximately 300% of the company action level of the insurance company. We expect to distribute capital in excess of the target to the holding company. At December 31, 2007, statutory capital, adjusted to exclude asset valuation reserves, for our regulated insurance subsidiaries totaled $1.15 billion.

The levels of capital in excess of targeted RBC we generate vary inversely in relation to our levels of premium growth, primarily due to initial reserve requirements, certain regulatory capital requirements based on premiums and certain acquisition costs associated with policy issuance. At higher levels of premium growth, we generate less capital in excess of targeted RBC. At very high levels of premium growth, we could generate the need for capital infusions. At lower levels of premium growth, we generate more capital in excess of targeted RBC. At our expected growth rate, we anticipate generating capital in excess of our 300% target of $125 to $150 million in 2008.

We will continue to maintain our three priorities, in the following order, for the remaining excess capital:

• Fund internal growth.

• Fund acquisitions that are consistent with our mission and meet our return objectives.

• Provide a return to shareholders, via share repurchases and dividends.

In addition, we seek to maintain amounts sufficient to fund holding company operating expenses, interest on our debt and our annual dividends to shareholders. Maintaining additional capital provides timing flexibility if we choose to access capital markets to finance growth or acquisition. StanCorp has a $1.0 billion shelf registration statement with the SEC. Under the shelf registration, we have issued $550 million in long-term debt. See “Liquidity and Capital Resources—Financing Cash Flows.”

We had debt to total capitalization ratios of 28.6% and 15.2% at December 31, 2007 and 2006, respectively. The increase in our debt to total capitalization ratio was primarily due to the $300 million Subordinated Debt. Certain rating agencies recognize a portion of the Subordinated Debt as equity. Standard & Poor’s currently recognizes the Subordinated Debt as 100% equity, while Moody’s and AM Best currently recognize 75% of the Subordinated Debt as equity. Debt to total capitalization after the 75% equity credit is 17.3% at December 31, 2007. Our ratio of earnings to fixed charges for 2007 and 2006 was 3.3x and 3.5x, respectively.

Dividends from Subsidiaries

StanCorp’s ability to pay dividends to its shareholders, repurchase its shares and meet its obligations substantially depends upon the receipt of distributions from its subsidiaries, including Standard. Standard’s ability to pay dividends to StanCorp is affected by factors deemed relevant by Standard’s board of directors, including the ability to maintain adequate RBC according to Oregon statute. Under Oregon law, Standard may pay dividends only from the earned surplus arising from its business. It also must receive the prior approval of the Director of the Oregon Department of Consumer and Business Services—Insurance Division (“Oregon Insurance Division”) to pay a dividend if such dividend exceeds certain statutory limitations. The current statutory limitations are the greater of (a) 10% of Standard’s combined capital and surplus as of December 31 of the preceding year, or (b) the net gain from operations after dividends to policyholders and federal income taxes before realized capital gains or losses for the 12-month period ended on the preceding December 31 date. In each case, the limitation must be determined under statutory accounting practices. Oregon law gives the Oregon Insurance Division broad discretion to disapprove requests for dividends in excess of these limits. There are no regulatory restrictions on dividends from non-insurance subsidiaries of StanCorp.

During 2007 and 2006, Standard paid dividends to StanCorp totaling $155.0 million and $147.0 million, respectively.

Dividends to Shareholders

On November 5, 2007, the board of directors of StanCorp declared an annual cash dividend of $0.72 per share, calculated and payable on a per share basis. The dividend was payable on December 7, 2007, to shareholders of record on November 16, 2007. The declaration and payment of dividends in the future is subject to the discretion of StanCorp’s board of directors. It is anticipated that annual dividends will be paid in December of each year depending on StanCorp’s financial condition, results of operations, cash

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requirements, future prospects, regulatory restrictions on distributions from the insurance subsidiaries, the ability of the insurance subsidiaries to maintain adequate capital and other factors deemed relevant by the board of directors. In addition, the declaration or payment of dividends would be restricted if StanCorp elects to defer interest payments on its Subordinated Debt. If elected, the restriction would be in place during the deferral period, which cannot exceed five years. StanCorp has paid dividends each year since its initial public offering in 1999.

Share Repurchases

From time to time, the board of directors has authorized share repurchase programs. Share repurchases are to be effected in the open market or in negotiated transactions in compliance with the safe harbor provisions of Rule 10b-18 under regulations of the Securities Exchange Act of 1934 (the “Exchange Act”). Execution of the share repurchase program is based upon management’s assessment of market conditions for its common stock and other potential growth opportunities.

On November 14, 2005, the board of directors authorized a share repurchase program of up to 3.0 million shares of StanCorp common stock. The share repurchases were effected in the open market or in negotiated transactions through May 7, 2007. On May 7, 2007, the board of directors authorized a new share repurchase program of up to 6.0 million shares of StanCorp common stock. The new share repurchase program will be effected in the open market or in negotiated transactions through December 31, 2008. The new share repurchase program replaced our previous share repurchase program, which had 1.2 million shares remaining that were canceled upon authorization of the new program.

During 2007, we repurchased 4.8 million shares of common stock at a total cost of $235.6 million for a volume weighted-average price of $48.60 per common share. At December 31, 2007, there were 1.4 million shares remaining under the current share repurchase program. In addition, during 2007, we acquired 7,620 shares of common stock from executive officers to cover tax liabilities of these officers resulting from the release of performance-based shares and retention-based shares at a total cost of $0.4 million for a volume weighted-average price of $47.55 per common share, which reflects the market price on the transaction dates.

FINANCIAL STRENGTH RATINGS

Financial strength ratings, which gauge claims paying ability, are an important factor in establishing the competitive position of insurance companies. Ratings are important in maintaining public confidence in our company and in our ability to market our products. Rating organizations

continually review the financial performance and condition of insurance companies, including ours. In addition, credit ratings on our Senior Notes and Subordinated Debt are tied to our financial strength ratings. A ratings downgrade could increase surrender levels for our annuity products, could adversely affect our ability to market our products and could increase costs of future debt issuances. Standard & Poor’s, Moody’s Investors Service, Inc. and A.M. Best Company provide financial strength and credit ratings.

Standard’s financial strength ratings as of February 2008 were:

• AA- (Very Strong) by Standard & Poor’s—4th of 20 ratings.

• A1 (Good) by Moody’s—5th of 21 ratings.

• A (Excellent) by A.M. Best—3rd of 13 ratings.

CREDIT RATINGS

Standard & Poor’s, Moody’s Investors Service, Inc. and A.M. Best Company provide credit ratings on StanCorp’s Senior Notes. As of February 2008, ratings from these agencies were A-, Baa1 and bbb+, respectively. As of February 2008, A.M. Best Company affirmed an issuer credit rating of a+ to Standard.

Standard & Poor’s, Moody’s Investor Services, Inc. and A.M. Best Company also provide credit ratings on StanCorp’s Subordinated Debt. As of February 2008, ratings from these agencies were BBB, Baa2 and bbb-, respectively.

CONTINGENCIES AND LITIGATION

See Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 19—Contingencies and Commitments.”

OFF-BALANCE SHEET ARRANGEMENTS

See discussion of loan commitments, “Liquidity and Capital Resources, Investing Cash Flows, Commercial Mortgage Loans.”

CONTRACTUAL OBLIGATIONS

See Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 19—Contingencies and Commitments.”

INSOLVENCY ASSESSMENTS

Insolvency regulations exist in many of the jurisdictions in which our subsidiaries do business. Such regulations may require insurance companies operating within the jurisdiction to participate in guaranty associations. The associations levy assessments against their members for the purpose of paying benefits due to policyholders of impaired or insolvent insurance companies. Association assessments levied against us from January 1, 2005, through December 31, 2007, aggregated $0.5 million. At December 31, 2007, we maintained a reserve

32 STANCORP FINANCIAL GROUP, INC.

of $0.6 million for future assessments with respect to currently impaired, insolvent or failed insurers.

STATUTORY FINANCIAL ACCOUNTING

Standard and The Standard Life Insurance Company of New York prepare their statutory financial statements in accordance with accounting practices prescribed or permitted by their states of domicile. Prescribed statutory accounting practices include state laws, regulations, and general administrative rules, as well as the Statements of Statutory Accounting Practices set forth in publications of the National Association of Insurance Commissioners (“NAIC”).

Statutory accounting practices differ in some respects from GAAP. The principal statutory practices that differ from GAAP are: a) bonds and commercial mortgage loans are reported principally at amortized cost; b) asset valuation and the interest maintenance reserves are provided as prescribed by the NAIC; c) certain assets designated as non-admitted, principally deferred tax assets, furniture, equipment, and unsecured receivables, are not recognized as assets, resulting in a charge to statutory surplus; d) annuity considerations with life contingencies, or purchase rate guarantees, are recognized as revenue when received; e) reserves for life and disability policies and contracts are reported net of ceded reinsurance and calculated based on statutory requirements, including required discount rates; f) commissions, including initial commissions and expense allowance paid for reinsurance assumed, and other policy acquisition expenses are expensed as incurred; g) initial commissions and expense allowance received for a block of reinsurance ceded net of taxes are reported as deferred gains in surplus and recognized as income in subsequent periods; h) federal income tax expense includes current income taxes defined as current year estimates of federal income taxes and tax contingencies for current and all prior years and amounts incurred or received during the year relating to prior periods, to the extent not previously provided; i) deferred tax assets, net of deferred tax liabilities, are included in the regulatory financial statements but are limited to those deferred tax assets that will be realized within one year; j) surplus notes are included in capital and surplus; and k) interest on surplus notes is not recorded as a liability nor an expense until approval for payment of such interest has been granted by the commissioner of the state of domicile.

Statutory net gains from insurance operations before federal income taxes were $309.3 million, $271.1 million and $314.0 million for 2007, 2006 and 2005, respectively. The changes in net gains were primarily due to premium growth, comparatively favorable claims experience, and a rise in the statutory discount rate that decreased reserve requirements.

Differences between Statutory and GAAP results for 2007 compared to 2006 were due to a rise in the statutory discount rate effective in 2007 for certain reserves established after January 1, 2007, that decreased statutory reserve requirements. Statutory capital, adjusted to exclude asset valuation reserves, for our insurance regulated subsidiaries totaled $1.15 billion and $1.06 billion at December 31, 2007 and 2006, respectively.

Effective December 31, 2006, the NAIC adopted changes to the RBC calculation that required us to perform additional testing to determine the risk based capital requirement for annuities. The adopted change did not have a material impact on our RBC requirements.

ACCOUNTING PRONOUNCEMENTS

See Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 1—Summary of Significant Accounting Policies—Accounting Pronouncements.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements and certain disclosures made in this Form 10-K have been prepared in accordance with GAAP and require us to make estimates and assumptions that affect reported amounts of assets and liabilities and contingent assets and contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The estimates most susceptible to material changes due to significant judgment (identified as the “critical accounting policies”) are those used in determining asset impairments, DAC, VOBA, other intangibles and goodwill, the reserves for future policy benefits and claims, and the provision for income taxes. The results of these estimates are critical because they affect our profitability and may affect key indicators used to measure the Company’s performance. These estimates have a material effect on our results of operations and financial condition.

Investment Impairments

Our investment portfolio includes fixed maturity securities and commercial mortgage loans. When the fair value of a fixed maturity security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an impairment exists. The analysis considers the financial condition and near-term prospects of the issuer, as well as the value of any security we may have in the investment. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject

2007 ANNUAL REPORT 33

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to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the fixed maturity security may be different than previously estimated, which could have a material effect on our results of operations and financial condition. The commercial mortgage loan valuation allowance is based on our analysis of factors including changes in the size and composition of the loan portfolio, actual loan loss experience, economic conditions and individual loan analysis.

DAC, VOBA, Other Intangible Assets and Goodwill

DAC, VOBA, other intangible assets and goodwill are considered intangible assets. These intangible assets are generally originated through the issuance of new business or the purchase of existing business, either by purchasing blocks of insurance policies from other insurers or by the outright purchase of other companies. Our intangible assets are subject to impairment tests on an annual basis, or more frequently if circumstances indicate that carrying values may not be recoverable.

Acquisition costs we have deferred as DAC are those costs that vary with and primarily are related to the acquisition, and in some instances the renewal of insurance products. These costs are typically one-time expenses that represent the cost of originating new business and placing that business in force. Certain costs related to obtaining new business and acquiring business through reinsurance agreements have been deferred and will be amortized to accomplish matching against related future premiums or gross profits, as appropriate. We normally defer certain acquisition-related commissions and incentive payments, certain costs of policy issuance and underwriting, and certain printing costs. Assumptions used in developing DAC and amortization amounts each period include the amount of business in force, expected future persistency, withdrawals, interest rates and profitability. These assumptions are modified to reflect actual experience when appropriate. Additional amortization of DAC is charged to current earnings to the extent it is determined that future premiums or gross profits are not adequate to cover the remaining amounts deferred. DAC totaled $202.3 million and $208.5 million at December 31, 2007 and 2006, respectively. Changes in actual persistency are reflected in the calculated DAC balance. Costs that do not vary with the production of new business are not deferred as DAC and are charged to expense as incurred.

DAC for group and individual disability insurance products and group life insurance products is amortized over the life of related policies in proportion to future premiums in accordance with SFAS No. 60, Accounting and Reporting by Insurance Enterprises. The DAC for our group life and group

disability products has generally been amortized over a period of five years. DAC for individual disability insurance products is amortized in proportion to future premiums over the life of the contract, averaging 20 to 25 years with approximately 50% and 75% expected to be amortized by years 10 and 15, respectively. Beginning with the adoption of SOP 05-1 on January 1, 2007, we began amortizing DAC for group disability and life insurance products over the initial premium rate guarantee period, which averages 2.5 years.

Our individual deferred annuities and group annuity products are classified as investment contracts. DAC related to these products is amortized over the life of related policies in proportion to expected gross profits in accordance with SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments. For our individual deferred annuities, DAC is generally amortized over 30 years with approximately 50% and 90% expected to be amortized by years 5 and 15, respectively. DAC for group annuity products is amortized over 10 years with approximately 30% expected to be amortized by year five.

VOBA primarily represents the discounted future profits of business assumed through reinsurance agreements. We have established VOBA for a block of individual disability business assumed from Minnesota Life and a block of group disability and group life business assumed from Teachers Insurance and Annuity Association of America (“TIAA”). VOBA is generally amortized in proportion to future premiums for group and individual disability insurance products and group life products. However, a portion of the VOBA related to the TIAA transaction associated with an in force block of group long term disability claims for which no ongoing premium is received is amortized in proportion to expected gross profits. If actual premiums or future profitability are inconsistent with our assumptions, we could be required to make adjustments to VOBA and related amortization. For the VOBA associated with the Minnesota Life block of business reinsured, the amortization period is up to 30 years and is amortized in proportion to future premiums. The amortization period of the intangible asset for the marketing agreement with Minnesota Life is up to 25 years. The VOBA associated with the TIAA transaction is comprised of two parts with differing amortization methods. The amortization periods are up to 10 years for VOBA that is amortized in proportion to premiums and up to 20 years for VOBA that is amortized in proportion to expected gross profits. VOBA totaled $34.4 million and $53.7 million at December 31, 2007 and 2006, respectively. Upon adoption of SOP 05-1, the premium portion of the VOBA related to TIAA was recorded as a $10.0 million reduction to retained earnings.

34 STANCORP FINANCIAL GROUP, INC.

At December 31, 2007, DAC and VOBA balances amortized in proportion to expected gross profits accounted for 29.5% and 27.3%, or $59.7 million and $9.4 million of the total balance for DAC and VOBA, respectively. At December 31, 2006, DAC and VOBA balances amortized in proportion to expected gross profits accounted for 25.1% and 22.0% of the total balance for DAC and VOBA, or $52.4 million and $11.8 million, respectively.

Key assumptions, which will affect the determination of expected gross profits for the annuity products are persistency, the spread between investment yields and interest credited, and stock market performance for the group annuity products with assets held in equity funds. For VOBA related to the TIAA group long term disability claims for which no further premiums are due, that is amortized in proportion to expected gross profits, the key assumptions that affect the development of expected gross profits are the claim termination rates and investment yields. Although a change in a single assumption may have an impact on the calculated amortization of DAC or VOBA, it is the relationship of that change to the changes in other key assumptions that determines the ultimate impact on DAC and VOBA amortization. Because actual results and trends related to these assumptions do vary from those assumed, we revise these assumptions annually to reflect the Company’s current best estimate of expected gross profits. As a result of this process, known as “unlocking,” the cumulative balances of DAC and VOBA are adjusted with an offsetting benefit or charge to income to reflect changes in the period of the revision. An unlocking event that results in an after-tax benefit generally occurs as a result of actual experience or future expectations being favorable compared to previous estimates. An unlocking event that results in an after-tax charge generally occurs as a result of actual experience or future expectations being unfavorable compared to previous estimates. As a result of unlocking, the amortization schedule for future periods is also adjusted. Due to unlocking, DAC and VOBA balances decreased $0.4 million for 2007, and increased $0.3 million for 2006. Based on past experience, future changes in DAC and VOBA balances due to changes in underlying assumptions are not expected to be material. However, significant, unanticipated changes in key assumptions, which affect the determination of expected gross profits may result in a large unlocking event, which could have a material adverse effect on the Company’s financial position or results of operations.

Our other intangible assets are subject to amortization and consist of certain customer lists and a marketing agreement. Customer lists with a value of $28.6 million and a weighted-average amortization period of 10 years were acquired by us during the third quarter of 2006, primarily in connection

with the purchase of Invesmart, and related to the Asset Management segment. Additional customer lists were acquired with the purchase of DPA, Inc. and with the acquisition by StanCorp Investment Advisers of small investment advisory firms. Customer lists have a combined estimated weighted-average remaining life of approximately 9.7 years. The marketing agreement accompanied the Minnesota Life transaction and provides access to Minnesota Life agents, some of whom now market Standard’s individual disability insurance products. The amortization period for the Minnesota Life marketing agreement is up to 25 years. Other intangible assets totaled $52.1 million and $47.0 million at December 31, 2007 and 2006, respectively.

Goodwill of $33.5 million was acquired by the Company during the third quarter of 2006, primarily in connection with the purchase of Invesmart, and related to the Asset Management segment. Goodwill totaled $36.0 million and $33.5 million at December 31, 2007 and 2006, respectively.

Reserves

Reserves represent amounts to pay future benefits and claims. Developing the estimates for reserves (and therefore the resulting impact on earnings) requires varying degrees of subjectivity and judgment, depending upon the nature of the reserve. For most of our reserves, the calculation methodology is prescribed by various accounting and actuarial standards, although judgment is required in the determination of assumptions to use in the calculation. At December 31, 2007, these reserves represented approximately 87% of total reserves held or $4.50 billion. We also hold reserves that lack a prescribed methodology but instead are determined by a formula that we have developed based on our own experience. Because this type of reserve requires a higher level of subjective judgment, we closely monitor its adequacy. These reserves, which are primarily incurred but not reported reserves associated with our disability products represented approximately 13% of total reserves held at December 31, 2007, or $653.2 million. Finally, a small amount of reserves is held based entirely upon subjective judgment. These reserves are generally set up as a result of unique circumstances that are not expected to continue far into the future and are released according to pre-established conditions and timelines. These reserves represented less than 1% of total reserves held at December 31, 2007, or $10.2 million.

Reserves include policy reserves for claims not yet incurred, and claim reserves for liabilities for unpaid claims and claim adjustment expenses for claims that have been incurred or are estimated to have been incurred but not yet reported to us. These reserves totaled $5.02 billion, $4.78 billion and

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$4.55 billion at December 31, 2007, 2006 and 2005, respectively, and represented over 96% of total reserves.

Policy Reserves

Policy reserves totaled $908.3 million, $887.4 million and $871.5 million at December 31, 2007, 2006 and 2005, respectively. Policy reserves include reserves established for individual life and individual disability businesses.

Policy reserves for our individual disability block of business are established at the time of policy issuance using the net level premium method as prescribed by generally accepted accounting principles (“GAAP”) and represent the current value of projected future benefits including expenses less projected future premium. These reserves, related specifically to our individual disability block of business, totaled $164.4 million, $153.8 million and $144.5 million at December 31, 2007, 2006 and 2005, respectively.

We continue to maintain a policy reserve for as long as a policy is in force, even after a separate claim reserve is established.

Assumptions used to calculate individual disability policy reserves may vary by the age, sex and occupation class of the claimant, the year of policy issue and specific contract provisions and limitations.

Individual disability policy reserves are sensitive to assumptions and considerations regarding:

• Claim incidence rates.

• Claim termination rates.

• Discount rates used to value expected future claim payments and premiums.

• Persistency rates.

• The amount of monthly benefit paid to the insured less reinsurance recoveries and other offsets.

• Expense rates including inflation.

Policy reserves for our individual and group immediate annuity blocks of business totaled $141.8 million, $136.8 million and $138.3 million at December 31, 2007, 2006 and 2005, respectively. These reserves are established at the time of policy issue and represent the present value of future payments due under the annuity contracts. The contracts are single premium contracts and therefore there is no projected future premium.

Assumptions used to calculate immediate annuity policy reserves may vary by the age and sex of the annuitant and year of policy issue.

Immediate annuity policy reserves are sensitive to assumptions and considerations regarding:

• Annuitant mortality rates.

• Discount rates used to value expected future annuity payments.

Policy reserves for our individual life block of business totaled $664.5 million, $596.6 million and $588.6 million at December 31, 2007, 2006 and 2005, respectively. Effective January 1, 2001, substantially all of our individual life policies and the associated reserves were ceded to Protective Life Insurance Company under a reinsurance agreement.

Policy reserves are calculated using our best estimates of assumptions and considerations at the time the policy was issued, adjusted to allow for the effect of adverse deviations in actual experience. These assumptions are not subsequently modified unless policy reserves become inadequate at which time we may need to change assumptions to increase reserves.

Claim Reserves

Claim reserves are established when a claim is incurred or is estimated to have been incurred but not yet reported to us and, as prescribed by GAAP, equal our best estimate of the present value of the liability of future unpaid claims and claim adjustment expenses. Reserves for incurred but not reported claims (“IBNR”) are determined using company experience and consider actual historical incidence rates, claim-reporting patterns, and the average cost of claims. The reserves are calculated using a company derived formula based primarily upon premium, which is validated through a close examination of reserve runout experience.

These reserves are related to group life, and group and individual disability products offered by our insurance segment. The following table sets forth total claim reserves segregated between reserves associated with life versus disability products:

(In millions)	2007		2006		2005
Group life	$	735.6	$	688.9	$	628.8
Group disability		2,923.8		2,780.7		2,644.4
Individual disability		590.6		569.8		540.7
Total claim reserves	$	4,250.0	$	4,039.4	$	3,813.9

Unlike policy reserves, claim reserves are subject to revision as our current claim experience and expectations regarding future factors, which may influence claim experience change. Each quarter we monitor our emerging claim experience to ensure that the claim reserves remain appropriate and make adjustments to our assumptions based on actual experience and our expectations regarding future events as appropriate.

Assumptions used to calculate claim reserves may vary by the age, sex and occupation class of the claimant, the year the claim was incurred, time elapsed since disablement and specific contract provisions and limitations.

36 STANCORP FINANCIAL GROUP, INC.

Claim reserves for our disability products are sensitive to assumptions and considerations regarding:

• Claim incidence rates for IBNR claim reserves.

• Claim termination rates.

• Discount rates used to value expected future claim payments.

• The amount of monthly benefit paid to the insured less reinsurance recoveries and other offsets.

• Expense rates including inflation.

• Historical delay in reporting of claims incurred.

Certain of these factors could be materially affected by changes in social perceptions about work ethics, emerging medical perceptions and legal interpretations regarding physiological or psychological causes of disability, emerging or changing health issues and changes in industry regulation. If there are changes in one or more of these factors or if actual claims experience is materially inconsistent with our assumptions, we could be required to change our reserves.

Claim reserves for our group life and AD&D products are established for death claims reported but not yet paid, IBNR death claims and waiver of premium benefits. The death claim reserve is based on the actual amount to be paid. The IBNR reserve is calculated using historical information, and the waiver of premium benefit is calculated using a tabular reserve method that takes into account company experience and published industry tables.

Trends in Key Assumptions

Key assumptions affecting our reserve calculations are (1) the discount rate, (2) claim termination rate and (3) the claim incidence rate for policy reserves and IBNR claim reserves.

Reserve discount rates for newly incurred claims are reviewed quarterly and if necessary are adjusted to reflect our current and expected net investment yields. The discount rate used to calculate GAAP reserves for newly incurred long term disability claims declined 15 basis points in 2007, increased 75 basis points in 2006 and declined 25 basis points in 2005 as a result of changes in the interest rate environment. Based on our current size, a 25 basis point increase in the discount rate would result in a short-term decrease of approximately $2 million per quarter of benefits to policyholders, and a corresponding increase to pre-tax earnings. Offsetting adjustments to group insurance premium rates can take from one to three years given that most new contracts have rate guarantees in place.

Claim termination rates can vary widely from quarter to quarter. The claim termination assumptions used in determining our reserves represent our expectation for claim terminations over the life of our block of business and will

vary from actual experience in any one quarter. In 2007, while we have experienced some variation in our claim termination experience we have not seen any prolonged or systemic change that would indicate a sustained underlying trend that would affect the claim termination rates used in the calculation of reserves. As a result of our on-going assessment of recovery patterns for claims experience for group long term disability insurance, we did release incurred but not reported reserves totaling $9 million in 2005. There were no similar reserve releases for 2006.

We adopted a new group life waiver table, the Society of Actuaries Table 2005, to be used in the calculation of reserves for group life waiver claims incurred in 2007 and later. Adoption of this table resulted in a reduction of $15.5 million in reserves established for new 2007 group life waiver claims compared to the reserves that would have been established using the prior table.

In 2007, as a result of continued favorable recovery patterns for our group long term disability insurance, partially offset by the recognition of the unique characteristics of a certain group, we released incurred but not reported reserves totaling $13.5 million.

In 2007, we adjusted the calculation of the incurred but not reported reserves related to pending group life waiver claims as a result of continued redundancy in the reserve. This resulted in a decrease in reserves of $6.0 million. There were no similar reserve releases in 2006 or 2005.

In 2007, we adjusted the termination assumptions associated with a small block of group long term disability reported reserves due to prolonged unfavorable reserve runout experience for the block. This resulted in an increase in reserves of $16.8 million. There were no similar reserve increases in 2006 or 2005.

In 2006, we did adjust the claim termination rate assumptions for a small block of individual disability claims in light of a recently released industry table. This resulted in an increase in reserves of $6 million. These assumptions were further refined in 2007 and resulted in an additional increase in reserves of $7.4 million. Our block of business is relatively small and as a result, we view the new industry table as more credible for establishing reserve levels compared solely to our own experience. We will continue to monitor our developing experience in light of the availability of the new industry table and if necessary will adjust reserves accordingly.

Claim incidence rates, which affect our policy reserves and IBNR claim reserves, can also vary widely from quarter to quarter. Overall, we have not seen any prolonged or systemic change that would indicate a sustained underlying trend that would affect the claim incidence rates used in the calculation of policy reserves or IBNR claim reserves.

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We monitor the adequacy of our reserves relative to our key assumptions. In our estimation, scenarios based on reasonably possible variations in claim termination assumptions could produce a percentage change in reserves for our group insurance lines of business of approximately +/- 0.2% or $9 million. However given that claims experience can fluctuate widely from quarter to quarter, significant unanticipated changes in claim termination rates over time could produce a change in reserves for our group insurance lines outside this range.

Income Taxes

The provision for income taxes includes amounts currently payable and deferred amounts that result from temporary differences between financial reporting and tax bases of assets and liabilities as measured by current tax rates. Currently, years open for audit by the Internal Revenue Service are 2004 through 2007.

FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, including those relating to our strategy and other statements that are predictive in nature, that depend on or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” “seeks” and similar expressions, are forward-looking statements within the meaning of Section 21E of the Exchange Act, as amended. These statements are not historical facts but instead represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve uncertainties that are difficult to predict, which may include, but are not limited to, the factors discussed below. As a provider of financial products and services, our results of operations may vary significantly in response to economic trends, interest rate changes, investment performance and claims experience. Caution should be used when extrapolating historical results or conditions to future periods.

Our actual results and financial condition may differ, perhaps materially, from the anticipated results and financial condition in any such forward-looking statements and, given these uncertainties or circumstances, readers are cautioned not to place undue reliance on such statements. We assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The following factors could cause results to differ materially from management expectations as suggested by such forward-looking statements:

• Growth of sales premiums, annuity deposits, cash flows, gross profits and profitability.

• Growth in assets under administration including performance of equity investments in the separate account.

• Availability of capital required to support business growth and the effective utilization of excess capital.

• Achievement of anticipated levels of operating expenses.

• Benefit ratios, including changes in claims incidence, severity and recovery.

• Levels of persistency.

• Adequacy of reserves established for future policy benefits.

• Credit quality of the holdings in our investment portfolios.

• Experience in delinquency rates or loss experience in our commercial mortgage loan portfolio.

• Concentration of commercial mortgage loan assets collateralized in California.

• Environmental liability exposure resulting from commercial mortgage loan and real estate investments.

• The effect of changes in interest rates on reserves, policyholder funds, investment income and commercial mortgage loan prepayment fees.

• The condition of the economy and expectations for interest rate changes.

• The impact of rising benefit costs on employer budgets for employee benefits.

• Integration and performance of business acquired through reinsurance or acquisition.

• Competition from other insurers and financial services companies, including the ability to competitively price our products.

• Financial strength and credit ratings.

• Changes in the regulatory environment at the state or federal level or changes in U.S. GAAP accounting principles, practices or policies.

• Findings in litigation or other legal proceedings.

• Receipt of dividends from, or contributions to, our subsidiaries.

• Adequacy of the diversification of risk by product offerings and customer industry, geography and size.

• Adequacy of asset/liability management.

• Concentration of risk, especially inherent in group life products.

• Ability of reinsurers to meet their obligations.

38 STANCORP FINANCIAL GROUP, INC.

• Availability, adequacy and pricing of reinsurance and catastrophe reinsurance coverage and potential charges incurred.

• Losses from a disease pandemic.

• Events of terrorism, natural disasters or other catastrophic events.

• Changes in federal or state income taxes.

• The effect of changing levels of commercial mortgage loan prepayment fees on cash flows.

• Use of proceeds from issuance of debt.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Asset/Liability and Interest Rate Risk Management.”

Item 8. Financial Statements and Supplementary Data

	PAGE
Report of Independent Registered Public Accounting Firm	40
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2007, 2006 and 2005	42
Consolidated Balance Sheets at December 31, 2007 and 2006	43
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2007, 2006 and 2005	44
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005	45
Notes to Consolidated Financial Statements	46

2007 ANNUAL REPORT 39

Part II

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders of

StanCorp Financial Group, Inc.

Portland, Oregon

We have audited the accompanying consolidated balance sheets of StanCorp Financial Group, Inc. and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. We also have audited the Company's internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of StanCorp Financial Group, Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As discussed in Note 1 to the consolidated financial statements, on January 1, 2007, the Company changed its method of accounting for deferred acquisition costs upon the adoption of Statement of Position 05-1, Accounting by Insurance Enterprises for

40 STANCORP FINANCIAL GROUP, INC.

Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts. As also discussed in Notes 1 and 11 to the consolidate financial statements, on December 31, 2006, the Company changed its method of accounting for defined benefit and other postretirement plans upon the adoption of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.

/s/    DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP

Portland, Oregon

February 27, 2008

2007 ANNUAL REPORT 41

Part II

Consolidated Statements of Income and Comprehensive Income

Years Ended December 31 (In millions—except share data)	2007			2006			2005
Revenues:
Premiums	$	2,078.3		$	1,935.0		$	1,826.5
Administrative fees		115.2			77.1			43.3
Net investment income		516.3			478.9			465.2
Net capital gains (losses)		(0.6	)		1.9			2.2
Total revenues		2,709.2			2,492.9			2,337.2
Benefits and expenses:
Benefits to policyholders		1,591.8			1,513.1			1,392.3
Interest credited		108.8			97.7			84.0
Operating expenses		434.8			370.3			340.6
Commissions and bonuses		198.0			183.6			168.5
Premium taxes		36.4			34.6			32.0
Interest expense		30.7			17.9			18.0
Net increase in deferred acquisition costs, value of business acquired and intangibles		(33.0	)		(34.0	)		(23.8	)
Total benefits and expenses		2,367.5			2,183.2			2,011.6
Income before income taxes		341.7			309.7			325.6
Income taxes		114.2			105.9			114.5
Net income		227.5			203.8			211.1
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities available-for-sale:
Unrealized capital gains (losses) on securities available-for-sale, net		25.0			(41.7	)		(67.5	)
Reclassification adjustment for net capital gains included in net income, net		(2.0	)		(1.7	)		(8.8	)
Employee benefit plans:
Prior service cost and net gains arising during the period, net		0.3			—			—
Reclassification adjustment for amortization to net periodic pension cost, net		1.6			—			—
Total other comprehensive income (loss), net of tax		24.9			(43.4	)		(76.3	)
Comprehensive income	$	252.4		$	160.4		$	134.8
Net income per common share:
Basic	$	4.39		$	3.77		$	3.81
Diluted		4.35			3.73			3.76
Weighted-average common shares outstanding:
Basic		51,824,050			54,079,033			55,465,215
Diluted		52,344,950			54,688,114			56,076,666

See Notes to Consolidated Financial Statements.

42 STANCORP FINANCIAL GROUP, INC.

Consolidated Balance Sheets

December 31 (Dollars in millions)	2007		2006
ASSETS
Investments:
Fixed maturity securities—available-for-sale	$	4,997.1	$	4,786.0
Short-term investments		4.5		—
Commercial mortgage loans, net		3,657.7		3,316.0
Real estate, net		71.8		89.9
Policy loans		3.9		4.0
Total investments		8,735.0		8,195.9
Cash and cash equivalents		205.8		56.0
Premiums and other receivables		106.8		99.2
Accrued investment income		93.1		89.5
Amounts recoverable from reinsurers		929.6		913.6
Deferred acquisition costs, value of business acquired, intangibles and goodwill, net		324.8		342.7
Property and equipment, net		126.9		84.6
Other assets		74.5		24.6
Separate account assets		4,386.4		3,832.5
Total assets	$	14,982.9	$	13,638.6
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Future policy benefits and claims	$	5,158.7	$	4,927.6
Other policyholder funds		3,153.8		2,937.8
Deferred tax liabilities, net		15.6		22.9
Short-term debt		4.0		2.4
Long-term debt		562.6		261.1
Other liabilities		272.8		189.8
Separate account liabilities		4,386.4		3,832.5
Total liabilities		13,553.9		12,174.1
Contingencies and commitments
Shareholders’ equity:
Preferred stock, 100,000,000 shares authorized; none issued		—		—
Common stock, no par, 300,000,000 shares authorized; 49,155,131 and 53,592,178 shares issues at December 31, 2007 and 2006, respectively		267.1		479.9
Accumulated other comprehensive income (loss)		16.8		(8.1	)
Retained earnings		1,145.1		992.7
Total shareholders’ equity		1,429.0		1,464.5
Total liabilities and shareholders’ equity	$	14,982.9	$	13,638.6

See Notes to Consolidated Financial Statements.

2007 ANNUAL REPORT 43

Part II

Consolidated Statements of Changes in Shareholders’ Equity

	Common Stock					Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Shareholders’ Equity
(In millions—except share data)	Shares		Amount
Balance, January 1, 2005	56,889,678		$	618.2		$	136.1		$	646.8		$	1,401.1
Net income	—			—			—			211.1			211.1
Other comprehensive loss, net of tax	—			—			(76.3	)		—			(76.3	)
Common stock:
Repurchased	(2,666,000	)		(106.4	)		—			—			(106.4	)
Issued to directors	4,210			0.2			—			—			0.2
Issued under employee stock plans, net	485,048			18.6			—			—			18.6
Cost of common stock split	—			(0.3	)		—			—			(0.3	)
Dividends declared on common stock	—			—			—			(34.2	)		(34.2	)
Balance, December 31, 2005	54,712,936			530.3			59.8			823.7			1,413.8
Net income	—			—			—			203.8			203.8
Other comprehensive loss, net of tax	—			—			(43.4	)		—			(43.4	)
Adjustment to initially apply SFAS No. 158, net of tax	—			—			(24.5	)		—			(24.5	)
Common stock:
Repurchased	(1,519,200	)		(70.1	)		—			—			(70.1	)
Issued to directors	3,617			0.2			—			—			0.2
Issued under employee stock plans, net	394,825			19.5			—			—			19.5
Dividends declared on common stock	—			—			—			(34.8	)		(34.8	)
Balance, December 31, 2006	53,592,178			479.9			(8.1	)		992.7			1,464.5
Net income	—			—			—			227.5			227.5
Cumulative adjustment to apply SOP 05-1, net of tax	—			—			—			(39.4	)		(39.4	)
Other comprehensive income, net of tax	—			—			24.9			—			24.9
Common stock:
Repurchased	(4,847,200	)		(235.6	)		—			—			(235.6	)
Issued to directors	1,292			0.4			—			—			0.4
Issued under employee stock plans, net	408,861			22.4			—			—			22.4
Dividends declared on common stock	—			—			—			(35.7	)		(35.7	)
Balance December 31, 2007	49,155,131		$	267.1		$	16.8		$	1,145.1		$	1,429.0

See Notes to Consolidated Financial Statements.

44 STANCORP FINANCIAL GROUP, INC.

Consolidated Statements of Cash Flows

Years Ended December 31 (In millions)	2007			2006			2005
Operating:
Net income	$	227.5		$	203.8		$	211.1
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized capital losses		3.8			4.7			2.5
Depreciation and amortization		97.8			83.9			70.8
Deferral of acquisition costs, value of business acquired, intangibles and goodwill, net		(90.1	)		(77.9	)		(61.6	)
Deferred income taxes		0.7			2.3			0.9
Changes in other assets and liabilities:
Receivables and accrued income		(26.1	)		(28.6	)		(16.2	)
Future policy benefits and claims		231.1			238.3			204.7
Other, net		41.0			(36.4	)		(5.1	)
Net cash provided by operating activities		485.7			390.1			407.1
Investing:
Proceeds of investments, sold, matured or repaid:
Fixed maturity securities—available-for-sale		635.1			517.2			537.5
Commercial mortgage loans		1,055.8			560.7			753.6
Real estate		1.5			7.6			1.2
Cost of investments acquired or originated:
Fixed maturity securities—available-for-sale		(818.7	)		(773.7	)		(880.1	)
Commercial mortgage loans		(1,400.2	)		(940.8	)		(1,049.6	)
Real estate		(9.3	)		(18.2	)		(6.7	)
Acquisitions		(6.1	)		(81.7	)		—
Short-term investments		(10.3	)		—			—
Other investments		(0.2	)		(4.1	)		(0.2	)
Acquisition of property and equipment		(44.6	)		(16.3	)		(20.6	)
Net cash used in investing activities		(597.0	)		(749.3	)		(664.9	)
Financing:
Policyholder fund deposits		1,705.8			1,645.6			1,405.5
Policyholder fund withdrawals		(1,489.8	)		(1,357.1	)		(1,157.1	)
Short-term debt		1.6			0.4			1.8
Long-term debt		297.7			0.6			2.0
Third party interest in a limited liability company		—			164.0			143.2
Issuance of common stock		17.1			13.4			10.9
Repurchases of common stock		(235.6	)		(70.1	)		(106.4	)
Dividends paid on common stock		(35.7	)		(34.8	)		(34.2	)
Net cash provided by financing activities		261.1			362.0			265.7
Increase in cash and cash equivalents		149.8			2.8			7.9
Cash and cash equivalents, beginning of year		56.0			53.2			45.3
Cash and cash equivalents, end of year	$	205.8		$	56.0		$	53.2
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	132.6		$	111.2		$	101.1
Income taxes		97.3			100.3			99.2
Non-cash transactions:
Transfer of commercial mortgage loans in limited liability company dissolution		—			307.1			—

See Notes to Consolidated Financial Statements.

2007 ANNUAL REPORT 45

Part II

Notes to Consolidated Financial Statements

As used in this Form 10-K, the terms “StanCorp,” “Company,” “we,” “us” and “our” refer to StanCorp Financial Group, Inc. and its subsidiaries, unless the context otherwise requires.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization, principles of consolidation, and basis of presentation

StanCorp is a holding company for our insurance and asset management subsidiaries and is headquartered in Portland, Oregon. We are the parent company of Standard Insurance Company, a leading provider of group insurance products and services serving the life and disability insurance needs of employer groups and the disability insurance needs of individuals. Our insurance subsidiaries also provide accidental death and dismemberment (“AD&D”) insurance and dental insurance. Through our insurance subsidiaries, we have the authority to underwrite insurance products in all 50 states. Our asset management businesses offer investment management services, retirement financial services, individual annuities, group annuity contracts and trust products, full-service 401(k) plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans, 403(b) plans, non-qualified deferred compensation products and services and limited trust services. The Company’s mortgage subsidiary originates and services small, fixed-rate commercial mortgage loans for the investment portfolios of its insurance subsidiaries and for participation to institutional investors. StanCorp operates through two segments: Insurance Services and Asset Management, each of which is described below. See “Note 3—Segments.”

StanCorp was incorporated under the laws of Oregon in 1998 as a parent holding company and conducts business through its subsidiaries: Standard Insurance Company (“Standard”); The Standard Life Insurance Company of New York; Standard Retirement Services, Inc. (“Standard Retirement Services”); StanCorp Equities, Inc. (“StanCorp Equities”); StanCorp Mortgage Investors, LLC (“StanCorp Mortgage Investors”); StanCorp Investment Advisers, Inc. (“StanCorp Investment Advisers”); StanCorp Real Estate, LLC (“StanCorp Real Estate”); and StanCorp Trust Company. The Company is headquartered in Portland, Oregon and, through its subsidiaries, has operations throughout the United States.

The Standard is a service mark of StanCorp and its subsidiaries and is used as a brand mark and marketing name by Standard and The Standard Life Insurance Company of New York.

Standard, the Company’s largest subsidiary, underwrites group and individual disability insurance and annuity

products, group life, AD&D, and dental insurance, and provides retirement plan products. Founded in 1906, Standard is domiciled in Oregon and licensed in all states except New York, and is licensed in the District of Columbia and the U.S. Territories of Guam and the Virgin Islands.

The Standard Life Insurance Company of New York was organized in 2000 and is licensed to provide group long term and short term disability, life, AD&D and dental insurance in New York.

Effective January 1, 2007, the administrative and servicing operations of StanCorp’s retirement plans group annuity contracts offered through Standard and for the trust product formerly offered through Invesmart, Inc. (“Invesmart”), which was acquired in July 2006, began operating under the name Standard Retirement Services. Retirement plans products are offered in all fifty states through Standard or Standard Retirement Services.

StanCorp Equities is a limited broker-dealer and member of the Financial Industry Regulatory Authority. StanCorp Equities serves as principal underwriter and distributor for group variable annuity contracts issued by Standard and as the broker of record for certain retirement plans using the trust platform. StanCorp Equities carries no customer accounts but provides supervision and oversight for the distribution of group variable annuity contracts and of the sales activities of all registered representatives employed by StanCorp Equities and its affiliates.

StanCorp Mortgage Investors originates, underwrites and services small, fixed-rate commercial mortgage loans for the investment portfolios of the Company’s insurance subsidiaries. The Company also generates additional fee income from the origination and servicing of commercial mortgage loans participated to institutional investors. The average loan size of the commercial mortgage loans held by the insurance subsidiaries and serviced by StanCorp Mortgage Investors was approximately $0.7 million and $0.8 million at December 31, 2007 and 2006, respectively.

StanCorp Investment Advisers is a Securities and Exchange Commission (“SEC”) registered investment adviser providing performance analysis, fund selection support, model portfolios and other investment advisory and investment management services to its retirement plan clients, individual investors and subsidiaries of StanCorp.

StanCorp Real Estate is a property management company that owns and manages the Hillsboro, Oregon home office properties and other investment properties and manages the Portland, Oregon home office properties.

In January 2006, StanCorp established StanCorp Trust Company, which offers limited direct trust services to clients.

StanCorp and Standard hold interests in low-income

46 STANCORP FINANCIAL GROUP, INC.

housing partnerships. Individually, the interest in these partnerships do not represent a significant variable interest pursuant to the definition of Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R), Consolidation of Variable Interest Entities, (revised December 2003)—an interpretation of ARB No. 31, nor do they meet the requirements for consolidation. The total investment in these interests was $17.8 million and $21.1 million at December 31, 2007 and 2006, respectively.

Minority interest related to consolidated entities included in other liabilities was $0.5 million and $0.6 million at December 31, 2007 and 2006, respectively.

The consolidated financial statements include StanCorp and its subsidiaries. Intercompany balances and transactions have been eliminated.

Use of estimates

Our consolidated financial statements and certain disclosures made in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and require us to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The estimates most susceptible to material changes due to significant judgment (the “critical accounting policies”) are those used in determining asset impairments, the reserves for future policy benefits and claims, deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), other intangible assets and goodwill, and the provision for income taxes. The results of these estimates are critical because they affect our profitability and may affect key indicators used to measure the Company’s performance. These estimates have a material effect on our results of operations and financial condition.

Investments

For all investments, capital gains and losses are recognized using the specific identification method. Net investment income and capital gains and losses related to separate account assets and liabilities are included in the separate account assets and liabilities. For all investments, we record impairments when it is determined that the decline in fair value of an investment below its amortized cost basis is other than temporary. We reflect impairment charges in net capital gains or losses and permanently adjust the cost basis of the investment to reflect the impairment. In our quarterly impairment analysis, we evaluate whether a decline in value of fixed maturity securities is other than temporary. Factors considered in this analysis include the length of time and the

extent to which the fair value has been below amortized cost, the financial condition and near-term prospects of the issuer, our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value, and the value of any security interest we may have collateralized in the investment. See “Note 5—Investment Securities.” For securities expected to be sold, an other than temporary impairment charge is recorded if we do not expect the realizable market value of a security to recover to amortized cost prior to the expected date of sale. Once an impairment charge has been recorded, we continue to review the other than temporarily impaired securities for further potential impairment on an on-going basis.

Our investment portfolio includes fixed maturity securities and commercial mortgage loans. When the fair value of a fixed maturity security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an impairment exists. The analysis considers the financial condition and near-term prospects of the issuer, as well as the value of any security we may have in the investment and our intent and ability to hold the investment. At December 31, 2007, issues on our impairment watch list totaled approximately $32.7 million in market value and $41.8 million in book value. We did not have any direct exposure to sub-prime or Alt-A mortgages in our fixed maturity securities portfolio at December 31, 2007. The Company held investments in debt securities issued by bond insurers at December 31, 2007, with $33.5 million in market value and $40.7 million in book value. The Company intends to hold these securities to maturity and will continue to evaluate these holdings, but currently expects the fair values of its investments in debt securities issued by bond insurers to recover as these debt securities approach their maturity dates. Should the credit quality of our fixed maturity securities decline, there could be a material adverse effect on our business, financial position, results of operations or cash flows.

Investment securities include fixed maturity securities. Fixed maturity securities are classified as available-for-sale and are carried at fair value on the consolidated balance sheets. This balance also includes derivative investments, which are carried at fair value. See “Note 7—Derivative Financial Instruments.” Valuation adjustments for fixed maturity securities are reported as net increases or decreases to other comprehensive income (loss), net of tax, on the consolidated statements of income and comprehensive income. Valuation adjustments for derivatives are reported as a component of net investment income.

2007 ANNUAL REPORT 47

Part II

Short-term investments on the consolidated balance sheet at December 31, 2007, consisted of commercial paper.

Commercial mortgage loans are stated at amortized cost less a valuation allowance for potentially uncollectible amounts. The commercial mortgage loan valuation allowance is based on our analysis of factors including changes in the size and composition of the loan portfolio, actual loan loss experience and individual loan analysis. We did not have any direct exposure to sub-prime or Alt-A mortgages in our commercial mortgage loan portfolio at December 31, 2007.

Real estate held for investment is stated at cost less accumulated depreciation. Depreciation generally is provided on the straight-line method with property lives varying from 30 to 40 years. Accumulated depreciation for real estate totaled $29.1 million and $27.0 million at December 31, 2007 and 2006, respectively. Real estate acquired in satisfaction of debt is recorded at the lower of cost or fair value less estimated costs to sell and is depreciated consistently with real estate held for investment.

Policy loans are stated at their aggregate unpaid principal balances and are secured by policy cash values.

Cash and Cash Equivalents

Cash and cash equivalents include cash and investments purchased with original maturities of three months or less at the time of acquisition. The carrying amount of cash equivalents approximates the fair value of those instruments.

DAC, VOBA, other intangible assets and goodwill

DAC, VOBA, other intangible assets and goodwill are considered intangible assets. These intangible assets are generally originated through the issuance of new business or the purchase of existing business either by purchasing blocks of insurance policies from other insurers or by the outright purchase of other companies. The Company’s intangible assets are subject to impairment tests on an annual basis or more frequently if circumstances indicate that carrying values may not be recoverable.

Acquisition costs that the Company has deferred as DAC are those costs that vary with and are primarily related to the acquisition and, in some instances, the renewal of insurance products. These costs are typically one-time expenses that represent the cost of originating new business and placing that business in force. Certain costs related to obtaining new business and acquiring business through reinsurance agreements have been deferred and will be amortized to accomplish matching against related future premiums or gross profits as appropriate. The Company normally defers certain acquisition-related commissions and incentive payments, certain costs of policy issuance and underwriting, and certain printing costs. Assumptions used in developing

DAC and amortization amounts each period include the amount of business in force, expected future persistency, withdrawals, interest rates and profitability. These assumptions are modified to reflect actual experience when appropriate. Additional amortization of DAC is charged to current earnings to the extent it is determined that future premiums or gross profits are not adequate to cover the remaining amounts deferred. DAC totaled $202.3 million and $208.5 million at December 31, 2007 and 2006, respectively. Changes in actual persistency are reflected in the calculated DAC balance. Costs that do not vary with the production of new business are not deferred as DAC and are charged to expense as incurred.

DAC for group and individual disability insurance products and group life insurance products is amortized over the life of related policies in proportion to future premiums in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 60, Accounting and Reporting by Insurance Enterprises. The DAC for our group life and group disability products has generally been amortized over a period of five years. DAC for individual disability insurance products is amortized in proportion to future premiums over the life of the contract, averaging 20 to 25 years with approximately 50% and 75% expected to be amortized by years 10 and 15, respectively. Beginning with the adoption of Statement of Position (“SOP”) 05-1 on January 1, 2007, the Company began amortizing DAC for group disability and life insurance products over the initial premium rate guarantee period, which averages 2.5 years.

The Company’s individual deferred annuities and group annuity products are classified as investment contracts. DAC related to these products is amortized over the life of related policies in proportion to expected gross profits in accordance with SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments. For the Company’s individual deferred annuities, DAC is generally amortized over 30 years with approximately 50% and 90% expected to be amortized by years 5 and 15, respectively. DAC for group annuity products is amortized over 10 years with approximately 30% expected to be amortized by year five.

VOBA primarily represents the discounted future profits of business assumed through reinsurance agreements. We have established VOBA for a block of individual disability business assumed from the Minnesota Life Insurance Company (“Minnesota Life”) and a block of group disability and group life business assumed from Teachers Insurance and Annuity Association of America (“TIAA”). VOBA is generally amortized in proportion to future premiums for group and individual disability insurance products and group life

48 STANCORP FINANCIAL GROUP, INC.

products. However, a portion of the VOBA related to the TIAA transaction associated with an in force block of group long term disability claims for which no ongoing premium is received is amortized in proportion to expected gross profits. If actual premiums or future profitability are inconsistent with our assumptions, the Company could be required to make adjustments to VOBA and the related amortization. For the VOBA associated with the Minnesota Life block of business reinsured, the amortization period is up to 30 years and is amortized in proportion to future premiums. The amortization period of the intangible asset for the marketing agreement with Minnesota Life is up to 25 years. The VOBA associated with the TIAA transaction is comprised of two parts with differing amortization methods. The amortization periods are up to 10 years for VOBA that is amortized in proportion to premiums and up to 20 years for VOBA that is amortized in proportion to expected gross profits. VOBA totaled $34.4 million and $53.7 million at December 31, 2007 and 2006, respectively. Upon adoption of SOP 05-1, the premium portion of the VOBA related to TIAA was recorded as a $10.0 million reduction to retained earnings.

At December 31, 2007, DAC and VOBA balances amortized in proportion to expected gross profits accounted for 29.5% and 27.3%, or $59.7 million and $9.4 million of the total balance for DAC and VOBA, respectively. At December 31, 2006, DAC and VOBA balances amortized in proportion to expected gross profits accounted for 25.1% and 22.0% of the total balance for DAC and VOBA, or $52.4 million and $11.8 million, respectively.

Key assumptions, which will affect the determination of expected gross profits for the annuity products are persistency, the spread between investment yields and interest credited, and stock market performance for the group annuity products with assets held in equity funds. For VOBA related to the TIAA group long term disability claims for which no further premiums are due that is amortized in proportion to expected gross profits, the key assumptions that affect the development of expected gross profits are the claim termination rates and investment yields. Although a change in a single assumption may have an impact on the calculated amortization of DAC or VOBA, it is the relationship of that change to the changes in other key assumptions that determines the ultimate impact on DAC and VOBA amortization. Because actual results and trends related to these assumptions do vary from those assumed, the Company revises these assumptions annually to reflect its current best estimate of expected gross profits. As a result of this process, known as “unlocking,” the cumulative balances of DAC and VOBA are adjusted with an offsetting benefit or charge to income to reflect changes in the period of the

revision. An unlocking event that results in an after-tax benefit generally occurs as a result of actual experience or future expectations being favorable compared to previous estimates. An unlocking event that results in an after-tax charge generally occurs as a result of actual experience or future expectations being unfavorable compared to previous estimates. As a result of unlocking, the amortization schedule for future periods is also adjusted. Due to unlocking, DAC and VOBA balances decreased $0.4 million for 2007, and increased $0.3 million for 2006. Based on past experience, future changes in DAC and VOBA balances due to changes in underlying assumptions are not expected to be material. However, significant, unanticipated changes in key assumptions, which affect the determination of expected gross profits may result in a large unlocking event, which could have a material adverse effect on the Company’s financial position or results of operations.

The Company’s other intangible assets are subject to amortization and consist of certain customer lists and a marketing agreement. Customer lists with a value of $28.6 million and a weighted-average amortization period of 10 years were acquired by the Company during the third quarter of 2006, primarily in connection with the purchase of Invesmart, and related to the Asset Management segment. Additional customer lists were acquired with the purchase of DPA, Inc. and with the acquisition by StanCorp Investment Advisers of small investment advisory firms. Customer lists have a combined estimated weighted-average remaining life of approximately 9.7 years. The marketing agreement accompanied the Minnesota Life transaction and provides access to Minnesota Life agents, some of which now market Standard’s individual disability insurance products. The amortization period for the Minnesota Life marketing agreement is up to 25 years. Other intangible assets totaled $52.1 million and $47.0 million at December 31, 2007 and 2006, respectively.

Goodwill of $33.5 million was acquired by the Company during the third quarter of 2006, primarily in connection with the purchase of Invesmart, and related to the Asset Management segment. Goodwill totaled $36.0 million and $33.5 million at December 31, 2007 and 2006, respectively.

2007 ANNUAL REPORT 49

Part II

The following table sets forth activity for DAC, VOBA, other intangible assets and goodwill:

(In millions)	2007			2006			2005
Carrying value at beginning of period:
DAC	$	208.5		$	165.8		$	132.5
VOBA		53.7			59.6			65.2
Other intangible assets		47.0			19.9			21.1
Goodwill		33.5			—			—
Total balance beginning of period		342.7			245.3			218.8
Deferred or acquired:
DAC		86.2			78.5			61.6
Other intangible assets		9.0			28.6			—
Goodwill		2.5			33.5			—
Total deferred or acquired		97.7			140.6			61.6
Amortized during period:
DAC		(47.1	)		(35.8	)		(28.3	)
VOBA		(3.9	)		(5.9	)		(5.6	)
Other intangible assets		(3.9	)		(1.5	)		(1.2	)
Total amortized during period		(54.9	)		(43.2	)		(35.1	)
Adjustment to apply SOP 05-1:
DAC		(45.3	)		—			—
VOBA		(15.4	)		—			—
Total adjustment during period		(60.7	)		—			—
Carrying value at end of period, net:
DAC		202.3			208.5			165.8
VOBA		34.4			53.7			59.6
Other intangible assets		52.1			47.0			19.9
Goodwill		36.0			33.5			—
Total carrying value at end of period	$	324.8		$	342.7		$	245.3

At December 31, 2007, the accumulated amortization of VOBA and other intangible assets, excluding DAC, was $54.4 million and $7.4 million, respectively. The accumulated amortization of VOBA and other intangibles, excluding DAC, was $50.5 million and $3.5 million at December 31, 2006.

The estimated net amortization of VOBA and other intangible assets, excluding DAC, for each of the next five years is as follows:

(In millions)	Amount
2008	$	9.4
2009		7.1
2010		7.3
2011		7.0
2012		7.2

Property and equipment, net

The following table sets forth the major classifications of the Company’s property and equipment and accumulated depreciation at December 31:

(In millions)	2007		2006
Home office properties	$	122.9	$	97.2
Office furniture and equipment		69.0		53.3
Capitalized software		87.1		57.2
Leasehold improvements		10.0		7.2
Subtotal		289.0		214.9
Less: accumulated depreciation		162.1		130.3
Property and equipment, net	$	126.9	$	84.6

Property and equipment are stated at cost less accumulated depreciation. The Company provides for depreciation of property and equipment using the half-year, straight-line method over the estimated useful lives, which are generally 40 years for properties and from three to ten years for equipment. Leasehold improvements are amortized over the estimated useful life of the asset, with amortization not to exceed the life of the lease. Depreciation expense for 2007, 2006 and 2005 was $22.2 million, $15.1 million and $12.7 million, respectively. The Company reviews property and equipment for impairment when circumstances or events indicate the carrying amount of the asset may not be recoverable and recognizes a charge to earnings if an asset is impaired.

Non-affiliated tenants leased approximately 38.5%, 40.0% and 40.6% of the home office properties at December 31, 2007, 2006 and 2005, respectively. Income from the leases is included in net investment income.

Separate account

Separate account assets and liabilities represent segregated funds held for the exclusive benefit of contract holders. The activities of the account primarily relate to contract holder-directed 401(k) contracts. Standard charges the separate account with asset management and plan administration fees associated with the contracts. Separate account assets and liabilities are carried at fair value.

Future policy benefits and claims

Benefits and expenses are matched with recognized premiums to result in recognition of profits over the life of the contracts. The match is accomplished by recording a provision for future policy benefits and unpaid claims and claim adjustment expenses. For most of our product lines, we establish and carry as a liability actuarially determined reserves that are calculated to meet our obligations for future policy benefits and claims. These reserves do not represent an exact calculation of our future benefit liabilities but are

50 STANCORP FINANCIAL GROUP, INC.

instead estimates based on assumptions and considerations concerning a number of factors, which include:

• The amount of premiums that we will receive in the future.

• The rate of return on assets we purchase with premiums received.

• Expected number and severity of claims.

• Expenses.

• Persistency, which is the measurement of the percentage of premiums remaining in force from year to year.

In particular, our group and individual long term disability reserves are sensitive to assumptions and considerations regarding the following factors:

• Claim incidence rates for incurred but not reported claim reserves.

• Claim termination rates.

• Discount rates used to value expected future claim payments.

• Persistency rates.

• The amount of monthly benefit paid to the insured (less reinsurance recoveries and other offsets).

• Expense rates including inflation.

• Historical delay in reporting of claims incurred.

Assumptions may vary by:

• Age, gender and, for individual policies, occupation class of the claimant.

• Year of issue for policy reserves or incurred date for claim reserves.

• Time elapsed since disablement.

• Contract provisions and limitations.

Other policyholder funds

Other policyholder funds are liabilities for investment-type contracts and are based on the policy account balances including accumulated interest. Other policyholder funds include amounts related to advanced premiums, premiums on deposit and experience rated liabilities totaling $373.8 million and $357.5 million at December 31, 2007 and 2006, respectively.

Recognition of premiums

Premiums from group life and group and individual disability contracts are recognized as revenue when due. Investment-type contract fee revenues consist of charges for policy administration and surrender charges assessed during the period. Charges related to services to be performed are deferred until earned. The amounts received in excess of premiums and fees are included in other policyholder funds in the consolidated balance sheets. Experience rated refunds (“ERRs”) are computed in accordance with the terms of the

contracts with certain group policyholders and are accounted for as an adjustment to premiums.

Income Taxes

The provision for income taxes includes amounts currently payable and deferred amounts that result from temporary differences between financial reporting and tax bases of assets and liabilities as measured by current tax rates. Currently, years open for audit by the Internal Revenue Service (“IRS”) are 2004 through 2007. See “Note 10—Income Taxes.”

Other comprehensive income and losses

Other comprehensive income and loss included changes in unrealized capital gains and losses on investment securities available-for-sale, net of the related tax effects, and changes in unrealized prior service costs and credits and net gains and losses associated with our employee benefit plans, net of the related tax effects. The following table sets forth our other comprehensive income and loss for the years ended December 31:

(In millions)	2007			2006			2005
Unrealized gains or losses on securities available-for-sale:
Unrealized capital gains (losses) on securities available-for-sale, net	$	38.4		$	(65.0	)	$	(104.9	)
Less: tax effects		13.4			(23.3	)		(37.4	)
Unrealized capital gains (losses) on securities available-for-sale, net of tax		25.0			(41.7	)		(67.5	)
Reclassification adjustment for net capital gains included in net income, net		(3.0	)		(2.7	)		(13.8	)
Less: tax effects		(1.0	)		(1.0	)		(5.0	)
Reclassification adjustment for realized net capital gains, net of tax		(2.0	)		(1.7	)		(8.8	)
Total unrealized gains (losses) on securities available-for-sale		23.0			(43.4	)		(76.3	)
Employee benefit plans:
Prior service cost and net gains arising during the period, net		0.5			—			—
Less: tax effects		0.2			—			—
Prior service cost and net gains arising during the period, net of tax		0.3			—			—
Reclassification adjustment for amortization to net periodic pension cost, net		2.4			—			—
Less: tax effects		0.8			—			—
Reclassification adjustment for amortization to net periodic pension cost, net		1.6			—			—
Total unrealized changes in employee benefit plans		1.9			—			—
Total other comprehensive income (loss), net of tax	$	24.9		$	(43.4	)	$	(76.3	)

2007 ANNUAL REPORT 51

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Accumulated Other Comprehensive Loss

The following table sets forth the adjustment to initially apply SFAS No. 158 in 2006:

(In millions)	Amount
Defined benefit retirement plans:
Net loss	$	(43.5	)
Prior service credit		5.7
Transition asset		0.1
Adjustment to initially apply SFAS No 158		(37.7	)
Less: tax effects		(13.2	)
Adjustment to initially apply SFAS No. 158, net of tax	$	(24.5	)

The following table sets forth the incremental effect of applying SFAS No. 158 on individual line items in the Consolidated Balance Sheets and Consolidated Statement of Changes in Equity at December 31, 2006:

(In millions)	Before Application of SFAS No. 158		Adjustments			After Application of SFAS No. 158
Other liabilities	$	152.1	$	37.7		$	189.8
Deferred tax liabilities		36.1		(13.2	)		22.9
Total liabilities		12,149.6		24.5			12,174.1
Accumulated other comprehensive income (loss)		16.4		(24.5	)		(8.1	)
Total shareholders’ equity		1,489.0		(24.5	)		1,464.5

Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which is intended to increase consistency and comparability in fair value measurements by defining fair value, establishing a framework for measuring fair value and expanding disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. StanCorp will adopt the provisions of SFAS No. 157 beginning January 1, 2008, and is currently evaluating the impact of this statement on our financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115, effective for all entities at the beginning of the first fiscal year that begins after November 15, 2007. Early adoption was permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elected to apply the provisions of SFAS No. 157, Fair Value Measurements. If adopted by an entity, SFAS No. 159 creates a fair value option whereby a company may irrevocably elect to measure many financial instruments and certain other items at fair value on

an instrument-by-instrument basis with changes in fair value recognized in earnings as those changes occur. An entity can elect the fair value option only at the date of initial adoption of SFAS No. 159. The Company did not elect early adoption of SFAS No. 159. Therefore, the provisions of SFAS No. 159 will become effective for the Company on January 1, 2008. StanCorp is not electing to measure retroactively additional eligible items at fair value that are not currently presented at fair value.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations. The revised standard will improve, simplify and converge internationally the accounting for business combinations. Under SFAS No. 141R, an acquiring entity in a business combination must recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity at the acquisition date fair values, with limited exceptions. In addition, SFAS No. 141R requires the acquirer to disclose all information that investors and other users need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, the Company will record and disclose business combinations under the revised standard beginning January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51. The new statement establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, SFAS No. 160 requires the recognition of a noncontrolling interest (formerly referred to as “minority interest”) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be identified and included in consolidated net income on the face of the income statement. SFAS No. 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. This statement also includes expanded disclosure requirements regarding interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008, and earlier adoption is prohibited. The Company has performed an analysis of the impact that the adoption of SFAS No. 160 will

52 STANCORP FINANCIAL GROUP, INC.

have on our financial statements, and we do not expect it to have a material effect.

In November 2007, the SEC issued Staff Accounting Bulletin (“SAB”) No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings. SAB No. 109 provides guidance on the accounting for written loan commitments recorded at fair value under GAAP. Specifically, SAB No. 109 revises the Staff’s views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. SAB No. 109, which supersedes SAB No. 105, Application of Accounting Principles to Loan Commitments, requires the expected net future cash flows related to the associated servicing of the loan to be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. SAB No. 109 is effective in fiscal quarters beginning after December 15, 2007. StanCorp is currently evaluating the potential financial impact, if any, that the adoption of SAB No. 109 will have on its financial statements.

2. NET INCOME PER COMMON SHARE

Basic net income per common share was calculated by dividing net income by the weighted-average number of common shares outstanding. Net income per diluted common share, as calculated using the treasury stock method, reflects the potential dilutive effects of restricted stock grants and exercises of dilutive outstanding stock options. The computation of diluted weighted-average earnings per share does not include stock options with an option exercise price greater than the average market price because they are antidilutive and inclusion would increase earnings per share.

Net income per basic and diluted weighted-average common shares outstanding was calculated as follows for the years ended December 31:

	2007		2006		2005
Net income (In millions)	$	227.5	$	203.8	$	211.1
Basic weighted-average common shares outstanding		51,824,050		54,079,033		55,465,215
Stock options		496,929		554,354		551,301
Restricted stock		23,971		54,727		60,150
Diluted weighted-average common shares outstanding		52,344,950		54,688,114		56,076,666
Net income per common share:
Net income per basic common share	$	4.39	$	3.77	$	3.81
Net income per diluted common share		4.35		3.73		3.76
Antidilutive shares not included in net income per diluted common share calculation		348,425		408,450		137,550

3. SEGMENTS

StanCorp’s operations include two reportable segments: Insurance Services and Asset Management, as well as an “Other” category for activity outside of the two segments. Resources are allocated and performance is evaluated at the segment level. The Insurance Services segment offers group and individual disability insurance, group life and AD&D insurance, and group dental insurance. The Asset Management segment offers full-service 401(K) plans, 457 plans, defined benefit plans, money purchase pension plans, profit sharing plans, 403(b) plans and non-qualified deferred compensation products and services through an affiliated broker-dealer. This segment also offers investment management and financial planning services, commercial mortgage loan origination and servicing, and individual fixed annuities. It also includes the operations of the former Invesmart, a provider of retirement plan services, and investment advisory and management services, acquired in July 2006. Effective January 1, 2007, the administration and servicing operations for the retirement plans group annuity contracts offered through Standard and for the trust product offered through Invesmart, began operating under the name Standard Retirement Services. In the third quarter of 2007, the Asset Management segment added $1.7 billion of assets under administration acquired from DPA, Inc., a retirement business based in Portland, Oregon.

Net capital gains and losses on investments, return on capital not allocated to the product segments, holding

2007 ANNUAL REPORT 53

Part II

company expenses, interest on debt and adjustments made in consolidation are reflected in “Other.”

The following table sets forth premiums, administrative fees and net investment income by major product line or category within each of our segments for the years ended December 31:

(In millions)	2007			2006			2005
Premiums:
Insurance Services:
Group life and AD&D	$	807.2		$	735.0		$	681.0
Group long term disability		869.8			809.9			780.7
Group short term disability		219.5			211.1			191.7
Group dental		70.8			72.9			73.8
Experience rated refunds		(37.2	)		(22.6	)		(20.2	)
Total Group insurance		1,930.1			1,806.3			1,707.0
Individual disability		133.5			121.1			109.4
Total Insurance Services premiums		2,063.6			1,927.4			1,816.4
Asset Management:
Retirement plans		0.8			1.3			1.3
Individual annuities		13.9			6.3			8.8
Total Asset Management premiums		14.7			7.6			10.1
Total premiums	$	2,078.3		$	1,935.0		$	1,826.5
Administrative fees:
Insurance Services:
Group insurance	$	8.1		$	8.4		$	8.5
Individual insurance		0.3			0.3			0.3
Total Insurance Services administrative fees		8.4			8.7			8.8
Asset Management:
Retirement plans		100.1			63.7			31.6
Other financial services businesses		18.6			14.6			9.0
Total Asset Management administrative fees		118.7			78.3			40.6
Other		(11.9	)		(9.9	)		(6.1	)
Total administrative fees	$	115.2		$	77.1		$	43.3
Net investment income:
Insurance Services:
Group insurance	$	276.9		$	265.8		$	255.1
Individual insurance		48.9			47.6			48.2
Total Insurance Services net investment income		325.8			313.4			303.3
Asset Management:
Retirement plans		83.4			74.0			64.6
Individual annuities		70.0			68.5			66.3
Other financial services businesses		16.8			8.8			9.4
Total Asset Management net investment income		170.2			151.3			140.3
Other		20.3			14.2			21.6
Total net investment income	$	516.3		$	478.9		$	465.2

The following tables set forth select segment information at or for the years ended December 31:

(In millions)	Insurance Services			Asset Management			Other			Total
2007:
Revenues:
Premiums	$	2,063.6		$	14.7		$	—		$	2,078.3
Administrative fees		8.4			118.7			(11.9	)		115.2
Net investment income		325.8			170.2			20.3			516.3
Net capital losses		—			—			(0.6	)		(0.6	)
Total revenues		2,397.8			303.6			7.8			2,709.2
Benefits and expenses:
Benefits to policyholders		1,569.4			22.4			—			1,591.8
Interest credited		16.1			92.7			—			108.8
Operating expenses		313.2			120.2			1.4			434.8
Commissions and bonuses		167.5			30.5			—			198.0
Premium taxes		36.4			—			—			36.4
Interest expense		—			0.5			30.2			30.7
Net increase in deferred acquisition costs, value of business acquired and intangibles		(27.4	)		(5.6	)		—			(33.0	)
Total benefits and expenses		2,075.2			260.7			31.6			2,367.5
Income (loss) before income taxes	$	322.6		$	42.9		$	(23.8	)	$	341.7
Total assets	$	7,232.2		$	7,545.8		$	204.9		$	14,982.9
2006:
Revenues:
Premiums	$	1,927.4		$	7.6		$	—		$	1,935.0
Administrative fees		8.7			78.3			(9.9	)		77.1
Net investment income		313.4			151.3			14.2			478.9
Net capital gains		—			—			1.9			1.9
Total revenues		2,249.5			237.2			6.2			2,492.9
Benefits and expenses:
Benefits to policyholders		1,497.1			16.0			—			1,513.1
Interest credited		13.3			84.4			—			97.7
Operating expenses		291.8			78.6			(0.1	)		370.3
Commissions and bonuses		155.5			28.1			—			183.6
Premium taxes		34.6			—			—			34.6
Interest expense		—			0.5			17.4			17.9
Net increase in deferred acquisition costs, value of business acquired and intangibles		(25.2	)		(8.8	)		—			(34.0	)
Total benefits and expenses		1,967.1			198.8			17.3			2,183.2
Income (loss) before income taxes	$	282.4		$	38.4		$	(11.1	)	$	309.7
Total assets	$	6,882.2		$	6,660.8		$	95.6		$	13,638.6

54 STANCORP FINANCIAL GROUP, INC.

(In millions)	Insurance Services			Asset Management			Other			Total
2005:
Revenues:
Premiums	$	1,816.4		$	10.1		$	—		$	1,826.5
Administrative fees		8.8			40.6			(6.1	)		43.3
Net investment income		303.3			140.3			21.6			465.2
Net capital gains		—			—			2.2			2.2
Total revenues		2,128.5			191.0			17.7			2,337.2
Benefits and expenses:
Benefits to policyholders		1,372.9			19.4			—			1,392.3
Interest credited		8.1			75.9			—			84.0
Operating expenses		284.2			50.9			5.5			340.6
Commissions and bonuses		148.0			20.5			—			168.5
Premium taxes		32.0			—			—			32.0
Interest expense		—			0.4			17.6			18.0
Net increase in deferred acquisition costs, value of business acquired and intangibles		(16.8	)		(7.0	)		—			(23.8	)
Total benefits and expenses		1,828.4			160.1			23.1			2,011.6
Income (loss) before income taxes	$	300.1		$	30.9		$	(5.4	)	$	325.6
Total assets	$	6,565.8		$	5,435.0		$	449.9		$	12,450.7

The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table sets forth carrying amounts and estimated fair values for financial instruments at December 31:

	2007				2006
(In millions)	Fair Value		Carrying Amount		Fair Value		Carrying Amount
Investments:
Investment securities	$	4,997.1	$	4,997.1	$	4,786.0	$	4,786.0
Commercial mortgage loans, net		3,640.0		3,657.7		3,303.1		3,316.0
Policy loans		3.9		3.9		4.0		4.0
Liabilities:
Total other policyholder funds, investment type contracts	$	2,584.6	$	2,620.9	$	2,517.6	$	2,550.7
Long-term debt		563.4		562.6		276.0		261.1

Investments

The fair values of investment securities were based on quoted market prices, where available, or on values obtained from independent pricing services. The fair values of commercial mortgage loans were estimated using option-

adjusted valuation discount rates. The carrying values of policy loans approximate fair values. While potentially financial instruments, policy loans are an integral component of the insurance contract and have no maturity date.

Liabilities

The fair values of other policyholder funds that are investment-type contracts were estimated using discounted cash flows at the then-prevailing interest rates offered for similar contracts or as the amounts payable on demand less surrender charges at the balance sheet date. The fair value for long-term debt was predominantly based on quoted market prices. These liabilities were carried at book value, as opposed to market value, on the consolidated balance sheets.

5. INVESTMENT SECURITIES

The following table sets forth amortized cost and estimated fair values of investment securities available-for-sale at December 31:

	2007
	Amortized Cost		Unrealized				Estimated Fair Value
(In millions)			Gains		Losses
Available-for-sale:
U.S. government and agency bonds	$	417.4	$	24.9	$	0.1	$	442.2
Bonds of states and political subdivisions of the U.S		151.2		5.0		0.7		155.5
Foreign government bonds		22.2		0.5		—		22.7
Corporate bonds		4,342.9		85.4		51.6		4,376.7
Total investment securities	$	4,933.7	$	115.8	$	52.4	$	4,997.1
	2006
	Amortized Cost		Unrealized				Estimated Fair Value
(In millions)			Gains		Losses
Available-for-sale:
U.S. government and agency bonds	$	443.6	$	13.2	$	3.0	$	453.8
Bonds of states and political subdivisions of the U.S		84.5		2.0		1.4		85.1
Foreign government bonds		19.8		—		0.1		19.7
Corporate bonds		4,211.8		71.9		56.3		4,227.4
Total investment securities	$	4,759.7	$	87.1	$	60.8	$	4,786.0

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Part II

The following table sets forth the contractual maturities of investment securities available-for-sale at December 31:

	2007				2006
(In millions)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Available-for-sale:
Due in 1 year or less	$	412.3	$	412.8	$	346.7	$	346.7
Due in 1-5 years		2,129.3		2,157.5		1,856.7		1,858.3
Due in 5-10 years		1,419.6		1,423.2		1,531.5		1,517.9
Due after 10 years		972.5		1,003.6		1,024.8		1,063.1
Total investment securities	$	4,933.7	$	4,997.1	$	4,759.7	$	4,786.0

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations. Callable bonds represented 2.4%, or $122.0 million, of our investment securities at December 31, 2007.

The following table sets forth net investment income summarized by type of investment for the years ended December 31:

(In millions)	2007			2006			2005
Investment securities available-for-sale	$	274.7		$	263.0		$	248.0
Commercial mortgage loans		240.9			217.0			223.9
Real estate		7.5			5.3			5.0
Policy loans		0.2			0.3			0.2
Other		8.6			8.1			4.1
Gross investment income		531.9			493.7			481.2
Investment expenses		(15.6	)		(14.8	)		(16.0	)
Net investment income	$	516.3		$	478.9		$	465.2

The following table sets forth capital gains (losses) for the years ended December 31:

(In millions)	2007			2006			2005
Gains:
Investment securities available-for-sale	$	5.0		$	4.6		$	7.1
Commercial mortgage loans		2.5			1.4			4.7
Real estate		0.1			4.0			—
Gross capital gains		7.6			10.0			11.8
Losses:
Investment securities available-for-sale		(4.6	)		(2.9	)		(8.9	)
Capitalized software		—			(0.5	)		—
Commercial mortgage loans		(1.9	)		—			—
Real estate		(1.7	)		(4.7	)		(0.7	)
Gross capital losses		(8.2	)		(8.1	)		(9.6	)
Net capital gains (losses)	$	(0.6	)	$	1.9		$	2.2

Securities deposited for the benefit of policyholders in various states, in accordance with state regulations, amounted to $6.4 million and $6.2 million at December 31, 2007 and 2006, respectively.

The following table sets forth our investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2007. The unrealized losses on the investment securities set forth below were primarily due to increases in market interest rates subsequent to their purchase by the Company. The Company expects the fair value of these investment securities to recover as the investment securities approach their maturity dates or sooner if market yields for such investment securities decline. The Company does not believe that any of the investment securities are impaired due to reasons of credit quality or are related to any company or industry specific event. Based on management’s evaluation and intent, none of the unrealized losses summarized in this table are considered other-than-temporary.

				Aging
	At December 31, 2007			Less than 12 Months			12 or More Months
(Dollars in millions)	Number	Amount		Number	Amount		Number	Amount
Unrealized losses:
Bonds:
U.S. government and agency	9	$	0.1	1	$	—	8	$	0.1
State and political subdivisions of the U.S.	35		0.7	13		0.1	22		0.6
Corporate	1,799		51.6	1,121		24.3	678		27.3
	1,843	$	52.4	1,135	$	24.4	708	$	28.0
Fair market value of securities with unrealized losses:
Bonds:
U.S. government and agency	9	$	13.6	1	$	0.2	8	$	13.4
State and political subdivisions of the U.S.	35		42.4	13		18.5	22		23.9
Corporate	1,799		1,624.1	1,121		676.2	678		947.9
	1,843	$	1,680.1	1,135	$	694.9	708	$	985.2

56 STANCORP FINANCIAL GROUP, INC.

The following table sets forth our investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2006:

				Aging
	At December 31, 2006			Less than 12 Months			12 or More Months
(Dollars in millions)	Number	Amount		Number	Amount		Number	Amount
Unrealized losses:
Bonds:
U.S. government and agency	90	$	3.0	81	$	2.8	9	$	0.2
State and political subdivisions of the U.S.	34		1.4	31		1.3	3		0.1
Foreign government	3		0.1	3		0.1	—		—
Corporate	1,794		56.3	1,651		52.0	143		4.3
	1,921	$	60.8	1,766	$	56.2	155	$	4.6
Fair market value of securities with unrealized losses:
Bonds:
U.S. government and agency	90	$	161.0	81	$	149.3	9	$	11.7
State and political subdivisions of the U.S.	34		41.0	31		38.0	3		3.0
Foreign government	3		11.6	3		11.6	—		—
Corporate	1,794		2,374.7	1,651		2,194.8	143		179.9
	1,921	$	2,588.3	1,766	$	2,393.7	155	$	194.6

6. COMMERCIAL MORTGAGE LOANS, NET

The Company underwrites mortgage loans on commercial property and in addition to real estate collateral, requires either partial or full recourse on most loans. The following table sets forth the geographic concentration of commercial mortgage loans at December 31:

	2007				2006
(In millions)	Amount		Percent		Amount		Percent
California	$	1,096.2	30.0	%	$	1,036.2	31.2	%
Texas		365.7	10.0			332.4	10.1
Florida		190.5	5.2			174.4	5.3
Georgia		183.3	5.0			143.3	4.3
Other		1,822.0	49.8			1,629.7	49.1
Total commercial mortgage loans	$	3,657.7	100.0	%	$	3,316.0	100.0	%

Although the Company underwrites commercial mortgage loans throughout the United States, commercial mortgage loans in California represent a concentration of credit risk at 30% and 31% of our commercial mortgage loan portfolio at December 31, 2007 and 2006, respectively. Through this concentration, we are exposed to potential losses resulting from an economic downturn in California as well as to certain catastrophes, such as earthquakes and fires, which

may affect the state. We require borrowers to maintain fire insurance coverage to provide reimbursement for any losses due to fire. Although we diversify our commercial mortgage loan portfolio within California by both location and type of property in an effort to reduce certain catastrophe and economic exposure, such diversification may not eliminate the risk of such losses. Historically, the delinquency rate of our California-based commercial mortgage loans has been substantially below the industry average and consistent with our experience in other states. In addition, we do not require earthquake insurance for properties on which we make commercial mortgage loans but do consider the potential for earthquake loss based upon seismic surveys and structural information specific to each property when new loans are underwritten. We do not expect the exposure to catastrophe or earthquake damage to the properties in our commercial mortgage loan portfolio located in California to have a material adverse effect on our business, financial position, results of operations or cash flows. However, if economic conditions in California decline, we could experience a higher delinquency rate on the portion of our commercial mortgage loan portfolio located in California, which could have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

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The following table sets forth the amount of commercial mortgage loans on the consolidated balance sheet at December 31, 2007, segregated by origination year.

(In millions)	Amount		Percent
Prior to 2000	$	125.6	3	%
2000		47.1	1
2001		125.3	3
2002		291.4	8
2003		523.3	14
2004		751.2	21
2005		539.0	15
2006		543.9	15
2007		710.9	20
Total	$	3,657.7	100	%

The commercial mortgage loan valuation allowance is estimated based on evaluating known and inherent risks in the loan portfolio. The allowance is based on our analysis of factors including changes in the size and composition of the loan portfolio, actual loan loss experience and individual loan analysis. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest. Loan impairment is measured using discounted cash flows except when the current fair value, reduced by costs to sell, is determinable. Loans that are deemed uncollectible are generally written off against the allowance, and recoveries, if any, are credited to the allowance.

Commercial mortgage loans foreclosed and transferred to real estate were $0.5 million and $1.8 million for 2007 and 2006, respectively. At December 31, 2007 and 2006, we had commercial mortgage loans totaling $1.9 million and $2.9 million, respectively, that were more than sixty days delinquent and of these amounts, $0.7 million and $1.2 million, respectively, were in the process of foreclosure. The following table sets forth commercial mortgage loan valuation and allowance provisions at December 31:

(In millions)	2007			2006			2005
Balance at beginning of the year	$	2.4		$	2.5		$	2.3
Provisions (recapture)		1.8			0.4			1.0
Charge offs		(1.2	)		(0.5	)		(0.8	)
Balance at end of the year	$	3.0		$	2.4		$	2.5

7. DERIVATIVE FINANCIAL INSTRUMENTS

In the first quarter of 2006, the Company began marketing indexed annuities. These contracts permit the holder to elect an interest rate return or an indexed return, where interest credited to the contracts is based on the performance of the S&P 500 index, subject to an upper limit or cap. Policyholders may elect to rebalance between interest crediting options at renewal dates annually. At each renewal date, the

Company has the opportunity to re-price the indexed component by changing the cap, subject to minimum guarantees. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, requires that the Company estimate the fair value of the index-based interest rate guarantees for the current period and for all future reset periods until contract maturity. Changes in the fair value are recorded as interest credited and represent an estimate of the cost of the options to be purchased in the future to hedge the guarantees, discounted back to the date of the balance sheet using current market indicators for future interest rates, option costs and actuarial estimates for policyholder lapse behavior. The interest credited to policyholders relating to the change in the fair value of the index-based interest guarantees was $1.6 million for 2007, compared to $1.2 million for 2006.

The Company purchases S&P 500 Index options in conjunction with its sales of indexed annuities. SFAS No. 133 requires companies to recognize all derivative investments as assets in the balance sheet at fair value. These investments are highly correlated to the portfolio allocation decisions of its policyholders, such that the Company is economically hedged with respect to index-based interest rate guarantees for the current reset period. However, the Company does not use hedge accounting. The fair value of the Company’s derivative instruments of $6.0 million and $3.0 million at December 31, 2007 and 2006, respectively, was included in fixed maturity securities in the consolidated balance sheets. The change in fair value associated with these investments was a decrease of $1.0 million for 2007, compared to an increase of $0.9 million for 2006, and is accounted for in the net investment income section of the income statement.

58 STANCORP FINANCIAL GROUP, INC.

8. LIABILITY FOR UNPAID CLAIMS, CLAIMS ADJUSTMENT EXPENSES AND OTHER POLICYHOLDER FUNDS

The liability for unpaid claims, claims adjustment expenses and other policyholder funds includes liabilities for insurance offered on products such as group long term and short term disability, individual disability, group dental and group AD&D. The liability for unpaid claims and claim adjustment expenses is established when a claim is incurred or is estimated to have been incurred but not yet reported to us and, as prescribed by GAAP, equals our best estimate of the present value of the liability of future unpaid claims and claim adjustment expenses. This liability is included in future policy benefits and claims in the consolidated balance sheets. The following table sets forth the change in the liabilities for unpaid claims and claim adjustment expenses for the years ended December 31:

(In millions)	2007			2006			2005
Balance at beginning of the year, gross of reinsurance	$	3,350.5		$	3,185.1		$	3,040.8
Less: reinsurance recoverable and other		(98.0	)		(91.2	)		(87.9	)
Net balance at beginning of the year		3,252.5			3,093.9			2,952.9
Incurred related to:
Current year		1,032.4			995.9			944.1
Prior year’s interest		191.1			183.0			180.3
Prior years		(115.4	)		(115.9	)		(134.0	)
Total incurred		1,108.1			1,063.0			990.4
Paid related to:
Current year		(301.2	)		(288.9	)		(269.3	)
Prior years		(648.1	)		(615.5	)		(580.1	)
Total paid		(949.3	)		(904.4	)		(849.4	)
Net balance at end of the year and other		3,411.3			3,252.5			3,093.9
Plus: reinsurance recoverable		103.1			98.0			91.2
Balance at end of the year, gross of reinsurance	$	3,514.4		$	3,350.5		$	3,185.1

Classified as future policyholder benefits and claims, but excluded from the table above are amounts recorded for group and individual life reserves, group and individual annuity reserves, group disability premium deficiency reserves, and individual disability active life reserves. Below is a table that reconciles amounts above to future policyholder benefits and claims as presented on the consolidated balance sheet:

(In millions)	2007			2006			2005
Future policyholder benefits	$	5,158.7		$	4,927.6		$	4,689.3
Less: Individual life reserves		(600.8	)		(595.7	)		(588.1	)
Less: Group life reserves		(735.6	)		( 688.9	)		(628.8	)
Less: Group and Individual annuity reserves		(141.8	)		(136.9	)		(138.3	)
Less: Individual disability active life reserves		(166.1	)		(155.6	)		(146.4	)
Less: Group disability premium deficiency reserves		—			—			(2.6	)
Liability for unpaid claims and claims adjustment expense	$	3,514.4		$	3,350.5		$	3,185.1

The majority of the net liability balances are related to long term disability claims on which interest earned on assets backing the reserves is a key component of reserving and pricing. The year to year development of incurred claims related to prior years is therefore broken out into an interest portion and remaining incurred portion.

The changes in amounts incurred related to prior years for the years 2007, 2006, and 2005 are not the result of a significant change in an underlying assumption or method used to determine the estimate. Instead we expect these amounts to change over time as a result of the growth in the size of our in force insurance business and the actual claims experience with respect to that business during the time periods captured for claims with an incurral date in years prior to the year of valuation. Interest is also a key component in the year-to-year development of the reserves and therefore the positive changes in amounts incurred related to prior years for the years 2007, 2006 and 2005 should not be taken as an indicator of the adequacy or inadequacy of the reserves held. In each of the years captured there was a decrease in incurred amounts associated with prior years after the effect of interest is taken into account, indicating claim experience was favorable when compared to the assumptions used to establish the associated reserves.

Other policyholder funds at December 31, 2007, 2006 and 2005, included $1.40 billion, $1.29 billion and $ 1.14 billion, respectively, of employer-sponsored defined contribution and benefit plans funds, and $892.3 million, $988.3 million and $986.7 million, respectively, of individual fixed annuity funds.

9. LONG-TERM DEBT

The following table sets forth the Company’s long-term debt at December 31:

(In millions)	2007		2006
Long-term debt:
Senior notes	$	250.0	$	250.0
Subordinated debt		300.0		—
Other long-term borrowings		12.6		11.1
Total long-term debt	$	562.6	$	261.1

StanCorp filed a $1.0 billion shelf registration statement with the SEC, which became effective on July 23, 2002, and expires on December 1, 2008, registering common stock, preferred stock, debt securities and warrants. On September 25, 2002, we completed an initial public debt offering of $250 million of 6.875%, 10-year senior notes (“Senior Notes”), pursuant to the shelf registration statement. The principal amount of the Senior Notes is payable at maturity, and interest is payable semi-annually in April and October. Upon expiration of the $1.0 billion shelf registration statement in December 2008, the Company, as a

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well-known seasoned issuer, has the ability to file an automatic shelf registration statement for subsequent security issuances.

On May 29, 2007, the Company completed a public debt offering of $300 million of 6.90%, junior subordinated debentures (“Subordinated Debt”). The Subordinated Debt has a final maturity on June 1, 2067, is non-callable at par for the first 10 years and is subject to a replacement capital covenant. The covenant limits replacement of the Subordinated Debt for the first 40 years to be redeemable only with securities that carry equity-like characteristics that are the same as or more equity-like than the Subordinated Debt. The principal amount of the Subordinated Debt is payable at final maturity. Interest is payable semi-annually at 6.90% in June and December for the first 10 years and quarterly thereafter at a floating rate equal to three-month LIBOR plus 2.51%. StanCorp has the option to defer interest payments for up to five years. StanCorp management chose to make the first scheduled payment of $10.5 million in December 2007. StanCorp used approximately $30 million of the proceeds from the sale of the Subordinated Debt to fund the acquisition by StanCorp Real Estate (a wholly owned subsidiary) of certain real estate assets from Standard. Since the Subordinated Debt was issued in May 2007, the Company has repurchased approximately 4.6 million shares of common stock at a repurchase price of $222.7 million. The Company intends to use the remaining debt proceeds to repurchase additional shares of its common stock and for general corporate purposes.

10. INCOME TAXES

The provision for income taxes was as follows for the years ended December 31:

(In millions)	2007		2006		2005
Current	$	113.5	$	103.6	$	113.6
Deferred		0.7		2.3		0.9
Total income taxes	$	114.2	$	105.9	$	114.5

The difference between taxes calculated as if the federal corporate tax rate of 35% was applied to income before income taxes and the recorded tax expense is reconciled as follows:

(In millions)	2007			2006			2005
Tax at federal corporate rate of 35%	$	119.6		$	108.4		$	113.9
Increase (decrease) in rate resulting from:
Tax exempt interest		(0.4	)		(0.4	)		(0.4	)
Dividends received deduction		(3.7	)		(2.6	)		(1.6	)
State income taxes, net of federal benefit		2.0			3.0			3.3
Federal tax credits		(2.7	)		(3.0	)		(2.6	)
Valuation allowance		—			(0.9	)		0.9
Other		(0.6	)		1.4			1.0
Total income taxes	$	114.2		$	105.9		$	114.5

The tax effect of temporary differences that gave rise to significant portions of the net deferred tax liability was as follows at December 31:

(In millions)	2007		2006		2005
Policyholder liabilities	$	14.5	$	17.1	$	17.7
Deferred gain on disposal of block of business		1.1		1.3		1.4
Retirement plans for employees		8.6		3.5		7.4
Loss carryforwards		25.4		26.4		3.9
Application of SFAS No. 158		13.2		13.2		—
Investments		9.2		—		—
Other		2.8		3.1		0.9
Total deferred tax assets		74.8		64.6		31.3
Less valuation allowance		—		—		0.9
Net deferred tax assets		74.8		64.6		30.4
Investments		—		0.5		9.3
Net unrealized capital gains		22.2		9.8		34.0
Capitalized software		11.9		6.9		8.9
Deferred policy acquisition costs		45.6		57.4		48.9
Intangible		8.1		9.4		—
Other		2.6		3.5		2.9
Total deferred tax liabilities		90.4		87.5		104.0
Net deferred tax liability	$	15.6	$	22.9	$	73.6

The Company is carrying forward net operating losses of $8.2 million that originated in StanCorp and The Standard Life Insurance Company of New York. The losses will be used in future years to offset taxable income from those entities to the degree allowed by the IRS Code. If unutilized, $4.6 million would expire in 2023, $2.3 million would expire in 2024 and $1.3 million would expire in 2025. In addition, the Company is carrying forward a $58.5 million federal net operating loss from the acquisition of Invesmart. This carryforward is subject to limitations under IRS Section 382, which potentially reduce the annual amount that may be utilized. This carryforward will expire between 2018 and 2024 with the majority of it expiring in 2022. In addition, as a result of the Invesmart acquisition, the Company has approximately $2.0 million (tax effected) of various state net operating loss carryforwards that expire at various dates through 2025.

Upon adoption of FASB Interpretation No. 48 on January 1, 2007, and throughout 2007, the Company did not have any material unrecognized tax benefits. It is the Company’s accounting policy to record income tax interest and penalties in the income tax provision. See “Note 1—Summary of Significant Accounting Policies—Income Taxes.”

11. PENSION BENEFITS

The Company has two non-contributory defined benefit pension plans: the employee pension plan and the agent pension plan. The employee pension plan is for all eligible employees of StanCorp and its subsidiaries and was frozen effective January 2003 for new participants. The agent

60 STANCORP FINANCIAL GROUP, INC.

pension plan, which is frozen for new participants, is for former field employees and agents. Both plans are sponsored and administered by Standard. The defined benefit pension plans provide benefits based on years of service and final average pay.

Effective December 31, 2006, Standard adopted SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires the Company to recognize the funded or underfunded status of our pension benefit plans as an asset or liability on the balance sheet. This is measured as the difference between the plan assets at fair value and the projected benefit obligation as of the year-end balance sheet date. At December 31, 2007, an asset of $1.4 million was reflected on the balance sheet.

The following table provides a reconciliation of the changes in the pension plans’ projected benefit obligations, fair value of assets and the funded status at December 31:

(In millions)	2007			2006			2005
Change in benefit obligation:
Projected benefit obligation at beginning of the year	$	(225.8	)	$	(204.1	)	$	(184.7	)
Service cost		(9.3	)		(8.0	)		(7.6	)
Interest cost		(13.2	)		(12.4	)		(11.2	)
Actuarial gain (loss)		4.9			(5.6	)		(4.7	)
Benefits paid		4.8			4.3			4.1
Projected benefit obligation at end of the year		(238.6	)		(225.8	)		(204.1	)
Change in plan assets:
Fair value of plan assets at beginning of the year		227.5			191.4			157.2
Actual return on plan assets		14.3			15.5			12.5
Employer contributions		3.0			25.0			26.0
Benefits paid and estimated expenses		(4.8	)		(4.4	)		(4.3	)
Fair value of plan assets at end of the year		240.0			227.5			191.4
Funded status at end of the year	$	1.4		$	1.7		$	(12.7	)

The following table summarizes the projected and accumulated benefit obligations and the fair value of assets for our plans at December 31:

(In millions)	2007		2006		2005
Projected benefit obligation	$	238.6	$	225.8	$	204.1
Accumulated benefit obligation		201.0		191.8		173.9
Fair value of assets		240.0		227.5		191.4

SFAS No. 158 also requires the Company to recognize as a component of accumulated other comprehensive income or loss, net of tax, the actuarial gains or losses, prior service costs or credits, and transition assets that have not yet been recognized as components of net periodic benefit cost. The following table sets forth the amounts recognized in accumulated other comprehensive loss at December 31:

(In millions)	2007			2006
Net loss	$	25.7		$	28.7
Prior service credit		(1.5	)		(1.6	)
Transition asset		—			(0.1	)
Total recognized in accumulated other comprehensive loss	$	24.2		$	27.0

The estimated net loss and prior service credit for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2008 are $1.5 million and $0.3 million, respectively.

The following table sets forth the Company’s target and actual weighted-average asset allocations for defined benefit pension plans at December 31:

	2007		2007		2006
(In millions)	Target Allocation		Percentage of Plan Assets
Asset Category:
Equity securities	50.0	%	47.9	%	47.1	%
Debt securities	50.0		52.1		52.9
Total	100.0	%	100.0	%	100.0	%

The investment goal of the employee pension plan is to produce long-run portfolio returns that are consistent with reasonable contribution rates and a well-funded plan. To manage the overall risk of the portfolio, the portfolio is rebalanced as necessary to keep the allocation within tolerance levels of the target allocation. The portfolio is diversified across a number of equity asset categories and stable value assets. The investment goal of the agent pension plan is to invest in stable value assets in order to maintain its funded status.

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The following table sets forth the components of net periodic benefit cost, other changes in plan assets and benefit obligations recognized in other comprehensive income, and obligation assumptions used in the measurement of the benefit obligations for the years ended December 31:

(In millions)	2007			2006			2005
Components of net periodic benefit cost (benefit):
Service cost	$	9.4		$	8.2		$	7.7
Interest cost		13.2			12.4			11.2
Expected return on plan assets		(17.2	)		(14.4	)		(12.1	)
Amortization of unrecognized transition asset		(0.1	)		(0.2	)		(0.2	)
Amortization of prior service credit		(0.2	)		(0.3	)		(0.3	)
Amortization of net actuarial loss		2.6			2.5			2.3
Net periodic benefit cost		7.7			8.2			8.6
Other changes in plan assets and benefit obligation recognized in other comprehensive (income) loss:
Net gain		(2.2	)		—			—
Amortization of net loss		(2.6	)		—			—
Amortization of prior service credit		0.3			—			—
Amortization of transition asset		0.1			—			—
Total recognized in other comprehensive (income) loss		(4.4	)		—			—
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	3.3		$	8.2		$	8.6
Weighted-average assumptions:
Assumptions used for net periodic benefit cost:
Discount rate		5.75	%		5.75	%		5.75	%
Expected return on plan assets		7.63			7.61			7.58
Rate of compensation increase (Home Office Plan)		4.50			4.50			4.50
Assumptions used to determine benefit obligations:
Discount rate		6.00	%		5.75	%		5.75	%
Rate of compensation increase (Home Office Plan)		4.50			4.50			4.50

The long-run rate of return for the employee pension plan portfolio is derived by calculating the average return for the portfolio monthly, from 1971 to the present, using the average mutual fund manager returns in each asset category, weighted by the target allocation to each category. Because the average equity market value returns over the last 30 years generally have been higher than the long run expected rate of return, the historical average return used to determine the expected return on plan assets was reduced by 20% to reflect the expected long run rate of return more effectively.

Equity securities in the employee pension plan portfolio totaled $114.9 million and $107.2 million at December 31, 2007 and 2006, respectively. The plan held no StanCorp securities as plan assets at December 31, 2007 and 2006.

The Company contributed $3.0 million and $25.0 million to the employee pension plan in 2007 and 2006, respectively. The Company is not obligated to make any contributions to its pension plans for 2008. In addition, no plan assets are expected to be returned to the Company in 2008.

The expected benefit payments for the Company’s pension plans are as follows for the years indicated:

(In millions)	Amount
2008	$	5.5
2009		6.3
2010		7.0
2011		7.8
2012		8.7
2013-2017		57.1

Deferred compensation plans

Eligible employees are covered by one of two qualified deferred compensation plans sponsored by Standard and Standard Retirement Services under which a portion of the employee contribution is matched. Employees not eligible for the employee pension plan are eligible for an additional non-elective employer contribution. Contributions to the plan for 2007, 2006 and 2005 were $8.8 million, $6.6 million and $5.9 million, respectively.

In addition, eligible executive officers are covered by a non-qualified supplemental retirement plan. The unfunded status was $19.9 million and $17.2 million at December 31, 2007 and 2006, respectively. Expenses were $2.3 million, $1.8 million and $1.6 million for 2007, 2006 and 2005, respectively. At December 31, 2007, net loss and prior service cost of $3.9 million, net of tax, was excluded from the net periodic benefit cost and reported as a component of accumulated other comprehensive income. In addition, $19.9 million was reflected in other liabilities. In March 2007, additional executive officers were eligible to participate in the plan, which increased the pension benefit obligation by $2.1 million and decreased accumulated other comprehensive income by $1.4 million, net of tax.

Eligible executive officers, directors, agents and group producers may participate in one of several non-qualified deferred compensation plans under which a portion of the deferred compensation for participating executive officers, agents and group producers is matched. The liability for the plans was $8.9 million and $8.1 million at December 31, 2007 and 2006, respectively.

12. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Standard sponsors and administers a postretirement benefit plan that includes medical, prescription drug benefits and group term life insurance. Eligible retirees are required to contribute specified amounts for medical and prescription drug benefits that are determined periodically and are based on retirees’ length of service and age at retirement. Effective January 1, 2006, participation in the postretirement benefit plan is limited to employees who had reached the age of 40 as of January 1, 2006, or whose combined age and length of

62 STANCORP FINANCIAL GROUP, INC.

service were equal to or greater than 45 years as of January 1, 2006.

The funded or underfunded status of the postretirement benefit plan, reflected as an asset or liability, is measured as the difference between the fair value of plan assets and the accumulated benefit obligation. At December 31, 2007, a liability of $5.1 million was reflected on the balance sheet for this plan.

The Company uses a December 31 measurement date for the postretirement benefit plan. The following table provides a reconciliation of the changes in the postretirement benefit plan’s accumulated benefit obligations, fair value of assets and the funded status for the years ended December 31:

(In millions)	2007			2006			2005
Change in postretirement benefit obligation:
Accumulated postretirement benefit obligation at beginning of the year	$	(19.9	)	$	(22.5	)	$	(27.6	)
Service cost		(1.3	)		(0.9	)		(1.2	)
Interest cost		(1.2	)		(1.1	)		(1.1	)
Amendments		—			(0.5	)		—
Actuarial gain		—			4.8			5.9
Benefits paid		0.4			0.3			0.4
Curtailment		—			—			1.1
Accumulated postretirement benefit obligation at end of the year		(22.0	)		(19.9	)		(22.5	)
Change in postretirement benefit plan assets:
Fair value of plan assets at beginning of the year		15.9			15.3			14.9
Actual return on plan assets		1.0			0.6			0.4
Employer contributions		0.5			0.3			0.5
Benefits paid and estimated expenses		(0.5	)		(0.3	)		(0.5	)
Fair value of plan assets at end of the year		16.9			15.9			15.3
Funded status at end of the year	$	(5.1	)	$	(4.0	)	$	(7.2	)

The gains and losses, and prior servicing costs or credits excluded from the projected benefit obligation are recognized as a component of accumulated other comprehensive (income) loss, net of tax. The following table sets forth the amounts recognized in accumulated other comprehensive income at December 31:

(In millions)	2007			2006
Net gain	$	(2.5	)	$	(2.6	)
Prior service credit		(1.9	)		(2.1	)
Total recognized in accumulated other comprehensive income	$	(4.4	)	$	(4.7	)

The estimated net gain and prior service credit for the postretirement benefit plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2008 are $0.1 million and $0.4 million, respectively.

The projected discounted cash flow obligation for the postretirement benefit plan was $32.5 million and $29.9 million at December 31, 2007 and 2006, respectively.

For the postretirement benefit plan, the assumed health care cost trend rates were assumed to increase as follows for the years ended December 31:

	2007		2006
Health care cost trend rate assumed for next year:
Medical	7.75	%	8.25	%
Prescription	9.50		10.00
HMO (blended)	7.75		8.00
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) (1)	5.00		5.25

⁽¹⁾ Year that the rate reaches the ultimate trend is 2015.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

(In millions)	1% Point Increase		1% Point Decrease
Effect on total of service and interest cost	$	0.3	$	(0.2	)
Effect on postretirement benefit obligation		2.9		(2.3	)

The following table sets forth the Company’s target and actual weighted-average asset allocations for the postretirement medical plan for the years ended December 31:

	2007		2007		2006
	Target Allocation		Percentage of Plan Assets
Asset Category:
Debt securities	95.0	%	95.4	%	99.0	%
Other	5.0		4.6		1.0
Total	100.0	%	100.0	%	100.0	%

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Components of net periodic benefit cost, other changes in plan assets and benefit obligations recognized in other comprehensive loss, and obligation assumptions used in the measurement of the postretirement benefit obligations were as follows for the years ended December 31:

(Dollars in millions)	2007			2006			2005
Components of net periodic benefit cost (benefit):
Service cost	$	1.1		$	1.0		$	1.2
Interest cost		1.2			1.0			1.1
Expected return on plan assets		(0.9	)		(0.8	)		(0.8	)
Amortization of prior service credit		(0.4	)		(0.4	)		(0.6	)
Amortization of net actuarial gain		(0.1	)		(0.2	)		—
Curtailment		—			—			(2.3	)
Net periodic benefit cost		0.9			0.6			(1.4	)
Other changes in plan assets and benefit obligation recognized in other comprehensive (income) loss:
Amortization of prior service credit		0.4			—			—
Amortization of net actuarial gain		0.1			—			—
Total recognized in other comprehensive (income) loss		0.5			—			—
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	1.4		$	0.6		$	(1.4	)
Weighted-average assumptions:
Assumptions used for net periodic benefit cost
Discount rate		5.75	%		5.75	%		5.75	%
Expected return on plan assets		5.50			5.50			5.50
Rate of compensation increase graded by age		4.50			4.50			4.50
Assumptions used to determine benefit obligations:
Discount rate		6.00	%		5.75	%		5.75	%
Rate of compensation increase graded by age		4.50			4.50			4.50

The Company contributed approximately $0.4 million and $0.3 million to fund the postretirement benefit plan in 2007 and 2006, respectively. The Company expects to make contributions of $0.6 million to its postretirement benefit plan in 2008. No plan assets are expected to be returned to the Company in 2008.

The expected benefit payments for the Company’s postretirement benefit plan for the years indicated are as follows:

(In millions)	Amount
2008	$	0.6
2009		0.7
2010		0.7
2011		0.8
2012		0.9
2013-2017		6.0

13. SHARE-BASED COMPENSATION

The Company has three share-based compensation plans: the 1999 Omnibus Stock Incentive Plan, the 2002 Stock Incentive Plan and the 1999 Employee Share Purchase Plan (“ESPP”).

The 1999 Omnibus Stock Incentive Plan authorized the board of directors of StanCorp to grant eligible employees certain incentive or non-statutory stock options, bonuses and performance stock options, restricted and foreign stock awards, and stock appreciation and cash bonus rights related to StanCorp’s common stock. The maximum number of shares of common stock that may be issued under this plan is 3.4 million. Substantially all of these shares have been issued or optioned.

The 2002 Stock Incentive Plan authorized the board of directors to grant eligible employees and certain related parties incentive or non-statutory stock options and restricted stock. The maximum number of shares of common stock that may be issued under this plan is 2.9 million. At December 31, 2007, 2.2 million shares or options for shares have been issued under the 2002 plan.

The Company’s ESPP allows eligible employees to purchase StanCorp common stock at a discount. The ESPP is described later in this section.

Income before income taxes included compensation costs related to all share-based compensation arrangements of $8.7 million, $8.7 million and $6.4 million for 2007, 2006 and 2005, respectively. The related tax benefits were $3.0 million, $3.0 million and $2.2 million for the same periods, respectively.

The Company has provided three types of share-based compensation pursuant to the 1999 Omnibus Stock Incentive Plan and the 2002 Stock Incentive Plan: option grants to directors, officers and certain non-officer employees; restricted stock grants to officers; and stock retainer fees to directors.

Option grants

Options are granted to directors, officers and certain non-officer employees. Directors and executive officers receive annual grants in amounts determined by the organization and compensation committee of the board of directors. Officers may also receive options when hired or promoted to an officer position. In addition, the chief executive officer has authority to award a limited number of options at his discretion to non-executive officers and other employees. Options are granted with an exercise price equal to the market closing price of the stock on the date of grant. Directors’ options vest in one year with all others vesting in four equal installments on the first four anniversaries of the grant date. Option awards to certain officers vest immediately upon a change of control of the Company as defined in the change of control agreement. Options generally expire 10 years from the grant date.

64 STANCORP FINANCIAL GROUP, INC.

A summary of option activity and options outstanding and exercisable is presented below:

	Option		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Terms (Years)	Aggregate Intrinsic Value
Outstanding, January 1, 2005	2,162,302		$	24.19	7.3	$	36,974,736
Granted	431,200			41.11
Exercised	(354,002	)		19.80
Forfeited	(21,252	)		27.87
Outstanding, December 31, 2005	2,218,248			28.14	7.0		48,378,159
Granted	433,350			49.96
Exercised	(244,327	)		21.28
Forfeited	(54,754	)		40.33
Expired	(1,855	)		12.24
Outstanding, December 31, 2006	2,350,662			32.61	6.7		31,305,782
Granted	432,800			45.72
Exercised	(326,321	)		24.43
Forfeited	(106,975	)		44.81
Expired	(7,038	)		44.90
Outstanding, December 31, 2007	2,343,128			35.58	6.4		34,722,495
Exercisable, December 31, 2007	1,509,007			30.46	5.4		30,077,972

The fair value of each option award under the share-based compensation plans was estimated using the Black-Scholes option pricing model as of the grant date using the assumptions noted in the following table. The Black-Scholes model uses the expected term as an input with the calculated option value varying directly with the length of time until exercise. The Company bases its estimate of expected term on an analysis of the historical exercise experience of similar options granted to similar employee or director groups. The expected term given below represents the weighted-average expected term of options granted. Expected stock price volatility is based on volatility of the Company’s stock over the prior period equal in duration to the expected term. The dividend rate is the rate expected to be paid over the expected term, generally estimated to be equal to the rate for the year prior to the grant. The risk-free rate is the interest rate on a U.S. Treasury bond of a maturity closest to the expected term of the option.

	2007		2006		2005
Dividend yield	1.34	%	1.48	%	1.27	%
Expected stock price volatility	22.7-26.8		23.0-28.9		22.9-26.3
Risk-free interest rate	4.57-4.69		4.17-5.14		3.58-4.49
Expected option lives	4.9 years		5.0 years		5.0 years

The weighted-average grant date fair value of options granted was $11.95, $13.14 and $10.73 during 2007, 2006 and 2005, respectively. The total intrinsic value of the options exercised was $8.4 million, $6.8 million and $8.6 million for the same periods, respectively. The amount received from the exercise of stock options was $8.0 million, $5.2 million and $7.0 million for 2007, 2006 and 2005, respectively. The related tax benefit derived from the tax deduction received by the Company for the difference between the stock price and the exercise price when the options were exercised was $2.8 million, $2.4 million and $3.0 million for 2007, 2006 and 2005, respectively.

The expense of stock options is amortized over the vesting period, which is also the period over which the grantee must provide services to the Company. At December 31, 2007, the total compensation cost related to unvested option awards that had not yet been recognized in the financial statements was $5.7 million. This cost will be recognized over the next four years.

Restricted stock grants

Restricted stock grants are a part of the Company’s long-term compensation for certain senior officers. The Company grants both performance-based and retention-based restricted stock. Under the current plans, the Company had 0.5 million shares available for issuance as restricted stock at December 31, 2007.

Performance-based restricted stock

Performance-based awards are made to designated senior officers each year and vest with respect to all or a portion of the awards based on the Company’s financial performance for a given year. In years prior to 2007, awards consisted of restricted stock (60%) and cash performance units (40%), which represent a right to receive cash equal to the value of one share of stock subject to the same employment and performance criteria. Both restricted stock and cash performance units are subject to forfeiture if continued employment and financial performance criteria are not met.

On December 8, 2006, the organization and compensation committee of the board of directors of StanCorp approved a revised form of long-term incentive award agreement to be used in connection with future grants of performance-based awards to executives. Under the new agreement, which will apply for the 2009 performance period and thereafter, stock will be issued at the end of the performance period based on satisfaction of employment and financial performance conditions with a portion of the shares withheld to cover required tax withholding (“Stock Performance Units”). These Stock Performance Units are generally granted two years before the performance period. In 2007, there were 83,655

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Stock Performance Units granted of which 8,680 were forfeited during the year leaving 74,975 potential remaining to be issued, subject to performance measures and service conditions, as unrestricted common stock primarily in 2010. The grant date fair value per unit granted was $45.49.

The compensation cost of these awards was measured using an estimate of the number of shares of StanCorp stock that will vest at the end of the performance period, multiplied by the fair market value. For shares, the fair market value was measured at the grant date. For cash units, the value was measured as of the date of the financial statements.

A summary of the activity for performance-based restricted stock outstanding is presented below:

	Restricted Shares		Cash Units		Weighted- Average Grant Date Fair Value
Unvested balance, January 1, 2005	120,600		79,800		$	32.69
Granted	40,494		25,980
Vested	(28,220	)	(18,674	)
Forfeited	(11,980	)	(7,928	)
Unvested balance, December 31, 2005	120,894		79,178			35.27
Granted	43,261		28,605
Vested	(31,945	)	(21,137	)
Forfeited	(10,291	)	(6,821	)
Unvested balance, December 31, 2006	121,919		79,825			41.37
Granted	—		—
Vested	(27,086	)	(17,923	)
Forfeited	(25,928	)	(17,207	)
Unvested balance, December 31, 2007	68,905		44,695			45.62

No performance-based shares or cash units were granted in 2007. There were 43,261 and 40,494 performance-based shares or cash units granted during 2006 and 2005 respectively. The weighted-average grant date fair value of both performance-based shares and cash units granted during 2006 and 2005 was $50.16 and $40.41, respectively. The total value of performance-based shares vested and cash units paid was $2.2 million, $2.8 million and $2.1 million for 2007, 2006 and 2005, respectively.

The compensation cost that the Company will ultimately recognize as a result of these awards is dependent on the Company’s financial performance and (for cash units) the price of the Company’s stock on the vesting dates. Assuming that the target is achieved for each performance goal, and valuing cash units at the price of StanCorp stock on December 31, 2007, $6.8 million in additional compensation cost would be recognized through 2009. This cost is expected to be recognized over a weighted-average period of 1.4 years.

Retention-based restricted stock

Awards of retention-based restricted stock to certain senior officers are made less frequently and at irregular intervals by the organization and compensation committee of the board of directors. Participants vest with respect to the stock after completion of a specified period of employment, generally three or four years. The compensation cost of these awards is measured using the fair market value of the stock at the grant date and is amortized over the specified period of employment. There was $0.1 million of total unrecognized compensation cost related to unvested retention-based shares at December 31, 2007, which will be recognized by the end of 2008.

A summary of the retention-based restricted stock activity and its characteristics are presented below:

	Restricted Shares		Weighted- Average Grant Date Fair Value
Unvested balance, January 1, 2005	31,000		$	24.17
Granted	—			—
Vested	(12,000	)		18.75
Unvested balance, December 31, 2005	19,000			27.59
Granted	8,000			50.36
Vested	(4,000	)		26.54
Unvested balance, December 31, 2006	23,000			35.55
Granted	—			—
Vested	(15,000	)		27.87
Unvested balance, December 31, 2007	8,000			49.95

Stock retainer fees to directors

Prior to May 7, 2007, the Company used StanCorp common stock pursuant to the 1999 Omnibus Stock Incentive Plan and the 2002 Stock Incentive Plan to pay a portion of the retainer fees to members of the Company’s board of directors each quarter. Total retainer fees were fixed in dollars. Directors received one-third of the retainer fees in stock and received the remainder in cash. The number of shares issued varied according to the market value of the stock on the date of the issue. The shares were fully vested when issued.

On November 6, 2006, the board of directors of StanCorp approved a new director compensation schedule that became effective May 7, 2007. Under the new schedule, each director who is not an employee of StanCorp or Standard receives cash retainer fees that the Company pays quarterly. Additionally, each director will receive 1,000 shares of common stock annually beginning on the day preceding the annual shareholders meeting in 2008.

The number of director shares issued was 1,292, 3,617 and 4,210 during 2007, 2006 and 2005, respectively. The weighted-average fair value per share for the shares issued

66 STANCORP FINANCIAL GROUP, INC.

was $46.36, $49.83 and $40.94 for the same periods, respectively.

Employee share purchase plan

The Company’s ESPP allows eligible employees to purchase StanCorp common stock at a 15% discount off the lesser of the fair market value of the stock on either the commencement date of each six-month offering period or the end-of-the-period purchase date. Under the terms of the plan, each eligible employee may elect to have up to 10% of the employee’s gross total cash compensation for the period withheld to purchase StanCorp common stock. No employee may purchase StanCorp common stock having a fair market value in excess of $25,000 in any calendar year. Of the 2.0 million shares authorized for this plan, 0.8 million remain available at December 31, 2007.

The compensation cost for the ESPP is measured as the sum of the value of the 15% discount and the value of the embedded six-month option. The value of the discount is equal to 15% of the fair market value of the purchase price of the stock. The value of the embedded option is calculated using the Black-Scholes option pricing model using the assumptions noted in the following table. Expected stock price volatility was based on the volatility of StanCorp common stock over the six months preceding the offering period. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of the grant.

	2007		2006		2005
Dividend yield	1.34	%	1.48	%	1.27	%
Expected stock price volatility	17.0-27.7		24.9-32.7		22.0-22.9
Risk-free interest rate	4.69-5.15		4.36-5.17		2.59-3.21
Expected option lives	0.5 years		0.5 years		0.5 years

The weighted-average per-share fair value for the Company’s ESPP offerings was $10.27, $10.68 and $7.66 during 2007, 2006 and 2005, respectively. The Company’s compensation cost resulting from the ESPP was $1.2 million, $1.2 million and $0.9 million for 2007, 2006 and 2005, respectively. The related tax benefit was $0.4 million, $0.4 million and $0.3 million for the same periods, respectively.

14. REINSURANCE

The Company manages risk through sound product design and underwriting, effective claims management, disciplined pricing, distribution expertise, broad diversification of risk by customer geography, industry, size and occupation, maintenance of a strong financial position, maintenance of reinsurance and risk pool arrangements, and sufficient alignment of assets and liabilities to meet financial obligations.

In order to limit its losses from large exposures, the Company enters into reinsurance agreements with other

insurance companies. The Company reviews its retention limits based on size and experience. The maximum retention limit per individual for group life and AD&D is $750,000. The Company’s maximum retention limit for group disability insurance is $15,000 monthly benefit per individual. During 2007, the Company increased its maximum retention limit from $5,000 to $5,500 monthly benefit per individual for individual disability policies with effective dates on or after September 1, 2007. On certain Minnesota Life business, the Company has a maximum retention of $6,000 monthly benefit per individual.

Standard participates in a reinsurance and third party administration arrangement with Northwestern Mutual under which Northwestern Mutual group long term and short term disability products are sold using Northwestern Mutual’s agency distribution system. Generally, Standard assumes 60% of the risk and receives 60% of the premiums for the policies issued. If Standard were to become unable to meet its obligations, Northwestern Mutual would retain the reinsured liabilities. Therefore, in accordance with an agreement with Northwestern Mutual, Standard established a trust for the benefit of Northwestern Mutual with the market value of assets in the trust equal to Northwestern Mutual’s reinsurance receivable from Standard. The market value of assets required to be maintained in the trust at December 31, 2007, was $218.0 million. Premiums assumed by Standard for the Northwestern Mutual business accounted for 3% of the Company’s total premiums for each of the three years 2007, 2006 and 2005. In addition to assuming risk, Standard provides product design, pricing, underwriting, legal support, claims management and other administrative services under the arrangement.

During 2002, Standard formed a strategic marketing alliance with Ameritas Life Insurance Corp. (“Ameritas”) that offers Standard’s policyholders new and more flexible dental coverage options and access to Ameritas’ nationwide preferred provider organization panel of dentists. As part of this alliance, Standard and Ameritas entered into a reinsurance agreement that provides for 20% of the net dental premiums written by Standard and the risk associated with this premium to be ceded to Ameritas.

In addition to product-specific reinsurance arrangements, the Company maintains reinsurance coverage for certain catastrophe losses related to group life and AD&D. This agreement excludes nuclear, biological and chemical acts of terrorism. Through a combination of this agreement and its participation in a catastrophe reinsurance pool discussed below, the Company has coverage of up to $453.0 million per event.

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Subsequent to the terrorist events of September 11, 2001, the Company entered into a catastrophe reinsurance pool with other insurance companies. This pool spreads catastrophe losses on group life and AD&D over approximately 29 participating members. The annual fee paid by the Company in 2007 to participate in the pool was minor. As a member of the pool, the Company is exposed to maximum potential losses experienced by other participating members of up to $90.9 million for a single event for losses submitted by a single company and a maximum of $227.2 million for a single event for losses submitted by multiple companies. The Company’s percentage share of losses experienced by pool members will change over time as it is a function of our group life and AD&D in force relative to the total group life

and AD&D in force for all pool participants. The reinsurance pool does not exclude war or nuclear, biological and chemical acts of terrorism.

The Terrorism Risk Insurance Act of 2002 (“TRIA”), which has been extended through 2014, provides for federal government assistance to property and casualty insurers in the event of material losses due to terrorist acts on behalf of a foreign person or foreign interest. Due to the concentration of risk present in group life insurance and the fact that group life insurance is not covered under TRIA, an occurrence of a significant catastrophe or a change in the on-going nature and availability of reinsurance and catastrophe reinsurance could have a material adverse effect on the Company.

The following table sets forth reinsurance information at or for the years ended December 31:

(Dollars in millions)	Gross Amount		Ceded to Other Companies		Assumed from Other Companies		Net Amount		Percentage of Amount Assumed to Net
2007:
Life insurance in force	$	313,653.9	$	5,698.9	$	102.3	$	308,057.3	—	%
Premiums:
Life insurance and annuities	$	866.3	$	61.2	$	—	$	805.1	—	%
Accident and health insurance		1,217.5		58.6		114.3		1,273.2	9.0
Total premiums	$	2,083.8	$	119.8	$	114.3	$	2,078.3	5.5	%
2006:
Life insurance in force	$	271,276.9	$	4,907.2	$	112.2	$	266,481.9	—	%
Premiums:
Life insurance and annuities	$	792.5	$	62.6	$	—	$	729.9	—	%
Accident and health insurance		1,144.9		55.2		115.4		1,205.1	9.6
Total premiums	$	1,937.4	$	117.8	$	115.4	$	1,935.0	6.0	%
2005:
Life insurance in force	$	241,268.8	$	5,035.9	$	120.7	$	236,353.6	0.1	%
Premiums:
Life insurance and annuities	$	741.5	$	63.7	$	0.4	$	678.2	0.1	%
Accident and health insurance		1,077.4		48.3		119.2		1,148.3	10.4
Total premiums	$	1,818.9	$	112.0	$	119.6	$	1,826.5	6.5	%

Recoveries recognized under reinsurance agreements were $60.8 million, $56.4 million and $52.8 million for 2007, 2006 and 2005, respectively. Amounts recoverable from reinsurers were $929.6 million and $913.6 million at December 31, 2007 and 2006, respectively. Of these amounts, $795.4 million and $789.2 million were from the reinsurance transaction with Protective Life Insurance Company (“Protective Life”) effective January 1, 2001. See “Note 15—Reinsurance of Blocks of Business.”

15. REINSURANCE OF BLOCKS OF BUSINESS

Effective October 1, 2002, Standard entered into a reinsurance agreement with TIAA to assume TIAA’s group disability and group life insurance business. This business included approximately 1,800 group insurance contracts, representing 650,000 insured individuals. Standard paid a ceding commission of approximately $75 million and received approximately $705 million in assets and corresponding statutory liabilities. If Standard were to

68 STANCORP FINANCIAL GROUP, INC.

become unable to meet its obligations, TIAA would retain the reinsured liabilities. Therefore, in accordance with the agreement with TIAA, Standard established a trust for the benefit of TIAA with the market value of assets in the trust equal to TIAA’s reinsurance receivable from Standard. The market value of assets required to be maintained in the trust is determined quarterly. The market value of assets required to be maintained in the trust at December 31, 2007, was approximately $451.1 million. Approximately $60 million in VOBA was capitalized related to the reinsurance agreement.

Effective October 1, 2000, Standard assumed, through a reinsurance agreement, the individual disability insurance business of Minnesota Life. Standard paid a ceding commission of approximately $55 million and received approximately $500 million in assets and corresponding statutory liabilities. If Standard were to become unable to meet its obligations, Minnesota Life would retain the reinsured liabilities. Therefore, in accordance with the agreement with Minnesota Life, Standard established a trust for the benefit of Minnesota Life with the market value of assets in the trust equal to Minnesota Life’s reinsurance receivable from Standard. The market value of assets required to be maintained in the trust is determined

quarterly. The market value of assets required to be maintained in the trust at December 31, 2007, was $597.6 million. Accompanying the transaction was a national marketing agreement that provides access to Minnesota Life agents, some of whom now market Standard’s individual disability insurance products. The national marketing agreement, remains in effect through 2009.

Effective January 1, 2001, Standard ceded to Protective Life, through a reinsurance agreement, Standard’s individual life insurance product line. Standard received a ceding commission of approximately $90 million and transferred to Protective Life approximately $790 million in assets and corresponding statutory liabilities. If Protective Life were to become unable to meet its obligations, Standard would retain the reinsured liabilities. Therefore, the liabilities remain on Standard’s books, and an equal amount is recorded as a recoverable from the reinsurer. In accordance with the agreement, Protective Life established a trust for the benefit of Standard with assets in the trust required to be equal to Standard’s reinsurance receivable from Protective Life. The amount of assets required to be maintained in the trust is determined quarterly.

16. INSURANCE INFORMATION

The following table sets forth insurance information at or for the years ended December 31:

	Deferred Acquisition Costs(1)		Future Policy Benefits and Claims		Other Policyholder Funds		Premium Revenue		Net Investment Income		Benefits, Claims and Interest Credited		Amortization of Deferred Acquisition Costs(1)		Other Operating Expenses(2)
2007:
Insurance Services	$	194.9	$	5,016.9	$	532.9	$	2,063.6	$	325.8	$	1,585.5	$	43.2	$	489.7
Asset Management		59.7		141.8		2,620.9		14.7		170.2		115.1		6.6		145.6
Total	$	254.6	$	5,158.7	$	3,153.8	$	2,078.3	$	496.0	$	1,700.6	$	49.8	$	635.3
2006:
Insurance Services	$	228.1	$	4,790.7	$	477.9	$	1,927.4	$	313.4	$	1,510.4	$	37.2	$	456.7
Asset Management		52.4		136.9		2,459.9		7.6		151.3		100.4		5.6		98.4
Total	$	280.5	$	4,927.6	$	2,937.8	$	1,935.0	$	464.7	$	1,610.8	$	42.8	$	555.1
2005:
Insurance Services	$	202.9	$	4,551.0	$	429.8	$	1,816.4	$	303.3	$	1,381.0	$	33.3	$	447.4
Asset Management		41.0		138.3		2,219.5		10.1		140.3		95.3		4.5		64.8
Total	$	243.9	$	4,689.3	$	2,649.3	$	1,826.5	$	443.6	$	1,476.3	$	37.8	$	512.2

⁽¹⁾ DAC and amortization of DAC including VOBA and amortization of VOBA.

⁽²⁾ Other operating expenses include operating expenses, commissions and bonuses, interest expense, premium taxes, and the net increase in DAC.

17. REGULATORY MATTERS

Standard and The Standard Life Insurance Company of New York prepare their statutory financial statements in accordance with accounting practices prescribed or permitted by their states of domicile. Prescribed statutory accounting practices include state laws, regulations, and general administrative rules, as well as the Statements of Statutory Accounting Practices set forth in publications of the National Association of Insurance Commissioners (“NAIC”).

Statutory accounting practices differ in some respects from GAAP. The principal statutory practices that differ from GAAP are: a) bonds and commercial mortgage loans are reported principally at amortized cost; b) asset valuation and the interest maintenance reserve are provided as prescribed by the NAIC; c) certain assets designated as non-admitted, principally deferred tax assets, furniture, equipment, and unsecured receivables are not recognized as assets, resulting in a charge to statutory surplus; d) annuity considerations

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with life contingencies, or purchase rate guarantees, are recognized as revenue when received; e) reserves for life and disability policies and contracts are reported net of ceded reinsurance and calculated based on statutory requirements, including required discount rates; f) commissions, including initial commissions and expense allowance paid for reinsurance assumed, and other policy acquisition expenses are expensed as incurred; g) initial commissions and expense allowance received for a block of reinsurance ceded net of taxes are reported as deferred gains in surplus and recognized as income in subsequent periods; h) federal income tax expense includes current income taxes defined as current year estimates of federal income taxes and tax contingencies for current and all prior years and amounts incurred or received during the year relating to prior periods, to the extent not previously provided; i) deferred tax assets, net of deferred tax liabilities, are included in the regulatory financial statements, but are limited to those deferred tax assets that will be realized within one year that are considered admitted assets; j) surplus notes are included in capital and surplus; and k) interest on surplus notes is not recorded as a liability nor an expense until approval for payment of such interest has been granted by the commissioner of the state of domicile.

Standard and The Standard Life Insurance Company of New York are subject to statutory restrictions that limit the maximum amount of dividends and distributions that they could declare and pay to StanCorp without prior approval of the states in which the subsidiaries are domiciled.

During 2007 and 2006, Standard made distributions to StanCorp totaling $155.0 million and $147.0 million, respectively.

State insurance departments require insurance enterprises to adhere to minimum Risk-based Capital (“RBC”) requirements promulgated by the NAIC. At December 31, 2007 and 2006, the insurance subsidiaries’ capital levels were significantly in excess of that which would require corrective action by the insurance subsidiaries or regulatory agencies. The authorized control level RBC was $191.3 million and $175.3 million at December 31, 2007 and 2006, respectively.

The following table reconciles the statutory capital and surplus of the insurance subsidiaries as reported to state insurance regulatory authorities with the Company’s GAAP equity at December 31:

(In millions)	2007			2006
Statutory capital and surplus	$	1,047.8		$	967.5
Adjustment to reconcile to GAAP equity:
Future policy benefits and other policyholder funds		235.8			232.6
Deferred acquisition costs, value of business acquired and intangibles		315.3			280.5
SOP 05-1 adjustment		(60.7	)		—
Deferred tax liabilities		(196.2	)		(204.1	)
Asset valuation reserve		102.2			96.6
Interest maintenance reserve		7.7			6.1
Valuation of investments		48.0			14.9
Equity of StanCorp and its non-insurance subsidiaries		(257.3	)		(117.7	)
Non-admitted assets		237.5			240.1
Prepaid pension cost		(35.4	)		(41.1	)
Accrued retirement & defined benefit plans		(3.3	)		(2.2	)
Capital lease obligations		(7.0	)		—
Other, net		(5.4	)		(8.7	)
GAAP equity	$	1,429.0		$	1,464.5

The following table reconciles statutory gain from operations as reported to insurance regulatory authorities with GAAP net income for the years ended December 31:

(In millions)	2007			2006			2005
Statutory gain from operations	$	239.6		$	170.9		$	207.5
Adjustments to reconcile to GAAP net income:
Future policy benefits and other policyholder funds		3.2			14.3			6.4
Deferred acquisition costs and value of business acquired, net of amortization		36.4			36.7			23.8
Deferred income taxes		(0.7	)		(2.3	)		(0.9	)
Current income taxes		(1.4	)		(5.3	)		(7.1	)
Earnings of StanCorp and its non-insurance subsidiaries		11.5			(3.1	)		(10.5	)
Gain from sale of assets to affiliate		(44.2	)		—			—
Reinsurance ceding commission		(12.0	)		(9.9	)		(9.6	)
Reserve increase due to change in valuation basis		(2.6	)		(7.5	)		(6.3	)
Deferred capital gains (interest maintenance reserve)		1.6			3.8			2.2
Other, net		(3.9	)		6.2			5.6
GAAP net income	$	227.5		$	203.8		$	211.1

18. PARENT HOLDING COMPANY CONDENSED FINANCIAL INFORMATION

Set forth below are the unconsolidated condensed financial statements of StanCorp. The significant accounting policies used in preparing StanCorp’s financial statements are substantially the same as those used in the preparation of the consolidated financial statements of the Company except that StanCorp’s subsidiaries are carried under the equity method.

70 STANCORP FINANCIAL GROUP, INC.

The following table presents StanCorp’s condensed statements of income for the years ended December 31:

(In millions)	2007			2006			2005
Revenues:
Net investment income	$	6.3		$	3.3		$	0.8
Total		6.3			3.3			0.8
Expenses:
Interest expense		30.1			17.6			18.4
Operating expenses		6.0			5.3			7.8
Total		36.1			22.9			26.2
Loss before income taxes and equity in net income of subsidiaries		(29.8	)		(19.6	)		(25.4	)
Income taxes		(20.1	)		(5.0	)		(2.9	)
Surplus note interest, affiliated entity		—			—			4.4
Equity in net income of subsidiaries		237.2			218.4			229.2
Net income	$	227.5		$	203.8		$	211.1

The following table presents StanCorp’s condensed balance sheets at December 31:

(In millions)	2007		2006
Assets
Cash and cash equivalents	$	71.1	$	—
Investment in subsidiaries		1,866.7		1,704.7
Receivable from subsidiaries		10.9		8.4
Other assets		40.6		13.7
Total	$	1,989.3	$	1,726.8
Liabilities and Shareholders’ Equity
Payable to subsidiaries	$	—	$	6.6
Long-term debt		550.0		250.0
Other liabilities		10.3		5.7
Total shareholders’ equity		1,429.0		1,464.5
Total	$	1,989.3	$	1,726.8

The following table presents StanCorp’s condensed statements of cash flows for the years ended December 31:

(In millions)	2007			2006			2005
Operating:
Net income	$	227.5		$	203.8		$	211.1
Change in operating assets and liabilities		33.2			(0.9	)		(1.8	)
Net cash provided by operating activities		260.7			202.9			209.3
Investing:
Investment in subsidiaries		(379.6	)		(321.1	)		(244.9	)
Dividends received from subsidiaries		95.4			147.0			84.8
Surplus note		—			—			75.0
Investment securities and other		57.8			34.7			2.3
Net cash used in investing activities		(226.4	)		(139.4	)		(82.8	)
Financing:
Receivables from affiliates, net		(9.0	)		6.6			—
Proceeds from issuance of Subordinated Debt		300.0			—			—
Issuance and repurchase of common stock, net		(218.5	)		(50.4	)		(87.9	)
Dividends on common stock		(35.7	)		(34.8	)		(34.2	)
Net cash provided by (used in) financing activities		36.8			(78.6	)		(122.1	)
Increase (decrease) in cash and cash equivalents		71.1			(15.1	)		4.4
Cash and cash equivalents, beginning of the year		—			15.1			10.7
Cash and cash equivalents, end of the year	$	71.1		$	—		$	15.1

19. CONTINGENCIES AND COMMITMENTS

In the normal course of business, the Company is involved in various legal actions and other state and federal proceedings. A number of actions or proceedings were pending as of December 31, 2007. In some instances, lawsuits include claims for punitive damages and similar types of relief in unspecified or substantial amounts, in addition to amounts for alleged contractual liability or other compensatory damages. In the opinion of management, the ultimate liability, if any, arising from the actions or proceedings is not expected to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

On June 15, 2006, the Company established a five-year, $200 million senior unsecured revolving credit facility (“Facility”). On May 9, 2007, the Facility was amended to extend the expiration date by one year to June 15, 2012. At the option of StanCorp and with the consent of the lenders under the Facility, the termination date can be extended for an additional one-year period. Additionally, upon the request of StanCorp and with consent of the lenders under the Facility, the Facility can be increased by up to $100 million to a total of up to $300 million. Borrowings under the Facility will be used to provide for working capital and general

2007 ANNUAL REPORT 71

Part II

corporate purposes of the Company and its subsidiaries and the issuance of letters of credit.

Under the agreement, StanCorp is subject to customary covenants that take into consideration the impact of material transactions, changes to the business, compliance with legal requirements and financial performance. The two financial covenants are based on the Company’s total debt to total capitalization ratio and consolidated net worth. The Facility is subject to performance pricing based upon the Company’s total debt to total capitalization ratio and includes interest based on a Eurodollar margin, plus facility and utilization fees. At December 31, 2007, StanCorp was in compliance with all covenants under the Facility and had no outstanding balance on the Facility. StanCorp currently has no commitments for standby letters of credit, standby repurchase obligations or other related commercial commitments.

The Company leases certain buildings and equipment under non-cancelable operating leases that expire in various years through 2014, with renewal options for periods ranging from one to five years. Future minimum payments under the leases are 2008, $13.5 million; 2009, $9.8 million; 2010, $5.8 million; 2011, $3.8 million; and thereafter, $3.7 million. Total rent expense was $15.8 million, $9.6 million and $12.5 million for the years ended December 31, 2007, 2006 and 2005, respectively.

At December 31, 2007, minimum future rental receivables on non-cancelable leases of retail and office space with initial terms of one year or more are 2008, $13.3 million; 2009, $12.5 million; 2010, $10.9 million; 2011, $8.2 million; 2012 $4.9; and thereafter, $19.2 million.

The Company’s financing obligations generally include debts, lease payment obligations and commitments to fund commercial mortgage loans. The remaining obligations reflect the long-term portion of other liabilities and the Company’s obligations under our insurance and annuity product contracts.

The following table summarizes the Company’s contractual obligations as of December 31, 2007:

	Payments Due by Period
(In millions)	Total		Less Than 1 Year		1 to 3 Years		3 to 5 Years		More Than 5 Years
Contractual Obligations:
Short-term debt and capital lease obligations	$	4.0	$	4.0	$	—	$	—	$	—
Long-term debt and capital lease obligations		562.6		—		5.2		251.4		306.0
Interest on long-term debt obligations		288.1		38.4		76.9		76.7		96.1
Operating lease obligations		36.6		13.5		15.6		6.3		1.2
Funding requirements for commercial mortgage loans		265.0		265.0		—		—		—
Purchase obligations		3.6		1.7		1.1		0.8		—
Insurance obligations		4,776.7		685.1		874.1		695.7		2,521.8
Policyholder fund obligations		298.0		24.0		44.9		37.4		191.7
Other short-term and long-term liabilities according to GAAP		61.9		7.2		10.6		4.2		39.9
Total	$	6,296.5	$	1,038.9	$	1,028.4	$	1,072.5	$	3,156.7

The Company’s long-term debt obligations consisted primarily of the $250 million 6.875%, Senior Notes and the $300 million 6.90% Subordinated Debt. See “Note 9—Long-Term Debt” for additional information.

In the normal course of business, the Company commits to fund commercial mortgage loans generally up to 90 days in advance. At December 31, 2007, the Company had outstanding commitments to fund commercial mortgage loans totaling $265.0 million, with fixed interest rates ranging from 6.0% to 7.125%. These commitments generally have fixed expiration dates. A small percentage of commitments expire due to the borrower’s failure to deliver the requirements of the commitment by the expiration date. In these cases, the Company will retain the commitment fee and

72 STANCORP FINANCIAL GROUP, INC.

good faith deposit. Alternatively, if we terminate a commitment due to the disapproval of a commitment requirement, the commitment fee and deposit may be refunded to the borrower, less an administrative fee.

The purchase obligations in the table are related to non-cancelable telecommunication obligations, software maintenance agreements and other contractual obligations, all expiring in various years through 2012.

The insurance obligations in the table are actuarial estimates of the cash required to meet our obligations for future policy benefits and claims. These estimates do not represent an exact calculation of our future benefit liabilities, but are instead based on assumptions, which involve a number of factors, including mortality, morbidity, recovery, the consumer price index, reinsurance arrangements and other sources of income for people on claim. Assumptions may vary by age and gender and, for individual policies, occupation class of the claimant; time elapsed since disablement; and contract provisions and limitations. Certain of these factors could be materially affected by changes in social perceptions about work ethics, emerging medical perceptions and legal interpretations regarding physiological or psychological causes of disability, emerging or changing health issues and changes in industry regulation. Changes in one or more of these factors or if actual claims experience is materially inconsistent with our assumptions, could cause actual results to be materially different from the information presented in the table. Not included in the table is approximately $957.8 million in other reserve liabilities where the amount and timing of related payouts cannot be reasonably determined.

Policyholder fund obligations include payments based on currently scheduled withdrawals and annuity benefit payments stemming from liabilities shown on the balance sheet as policyholder funds. Not included in the table is approximately $2.59 billion in policyholder funds that may be withdrawn upon request. In addition, amounts presented also exclude separate account liabilities of $4.39 billion.

Other long-term liabilities reflected in the Company’s balance sheet at December 31, 2007, consisted of a $15.2 million tax reimbursement liability related to the block of life insurance business sold to Protective Life in 2001, $9.2 million in capital commitments related to our low-income housing investments, $28.7 million in unfunded liabilities for non-qualified deferred compensation and supplemental retirement plans, an accrued liability of $5.1 million for postretirement benefits, $0.6 million of accrued guarantee association payments and $3.1 million of remaining payments for StanCorp Investment Advisers acquisitions.

From time to time, the board of directors has authorized share repurchase programs. Share repurchases are to be effected in the open market or in negotiated transactions in compliance with the safe harbor provisions of Rule 10b-18 under regulations of the Securities Exchange Act of 1934. Execution of the share repurchase program is based upon management’s assessment of market conditions for its common stock and other potential growth opportunities. On November 14, 2005, the board of directors authorized a share repurchase program of up to 3.0 million shares of StanCorp common stock. The share repurchases were effected in the open market or in negotiated transactions through May 7, 2007. On May 7, 2007, the board of directors authorized a new share repurchase program of up to 6.0 million shares of StanCorp common stock. The share repurchase program will be effected in the open market or in negotiated transactions through December 31, 2008. The new share repurchase program replaced our previous share repurchase program, which had 1,180,500 shares remaining that were canceled upon authorization of the new program.

During 2007, the Company repurchased approximately 4.8 million shares of common stock at a total cost of $235.6 million for a volume weighted-average price of $48.60 per common share. At December 31, 2007, there were 1.4 million shares remaining under the new share repurchase program. In addition, during 2007, the Company acquired 7,620 shares of common stock from executive officers to cover tax liabilities of these officers resulting from the release of performance-based shares and retention-based shares at a total cost of $0.4 million for a volume weighted- average price of $47.55 per common share, which reflects the market price on the transaction dates.

QUARTERLY FINANCIAL INFORMATION (Unaudited)

The following tables set forth select unaudited financial information by calendar quarter for the years indicated:

	2007
(In millions—except share data)	4th Qtr			3rd Qtr			2nd Qtr		1st Qtr
Premiums	$	546.0		$	522.2		$	518.1	$	492.0
Administrative fees		30.1			30.2			28.4		26.5
Net investment income		131.0			131.3			130.7		123.3
Net capital gains (losses)		(1.8	)		(0.4	)		0.7		0.9
Total revenues		705.3			683.3			677.9		642.7
Benefits to policyholders		410.5			389.4			409.9		382.0
Net income		60.5			66.6			52.1		48.3
Net income per common share:
Basic	$	1.22		$	1.30		$	0.98	$	0.90
Diluted		1.21			1.29			0.97		0.90

2007 ANNUAL REPORT 73

Part II

	2006
(In millions—except share data)	4th Qtr		3rd Qtr		2nd Qtr			1st Qtr
Premiums	$	501.2	$	479.4	$	481.4		$	473.0
Administrative fees		26.5		25.1		13.1			12.4
Net investment income		122.0		120.5		117.5			118.9
Net capital gains (losses)		2.8		2.1		(0.3	)		(2.7	)
Total revenues		652.5		627.1		611.7			601.6
Benefits to policyholders		371.3		374.1		385.3			382.4
Net income		67.5		54.7		42.9			38.7
Net income per common share:
Basic	$	1.26	$	1.02	$	0.79		$	0.71
Diluted		1.25		1.01		0.78			0.70

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Management of the Company has evaluated, under the supervision and with the participation of the Company’s chief executive officer and principal financial officer, the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(c) and 15d-15(c)) as of the end of the period covered by this report. Based on this evaluation, the chief executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at December 31, 2007, and designed to provide reasonable assurance that material information relating to us and our consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to management, including the Company’s chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Management of StanCorp Financial Group, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Company management assessed the effectiveness of the

Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Our management concluded that based on its assessment, our internal control over financial reporting was effective as of December 31, 2007. The effectiveness of our internal control over financial reporting as of December 31, 2007 was audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which appears under Item 8 –Financial Statements and Supplementary Data.

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2007, that have materially affected, or are reasonably likely to affect materially, the Company’s internal control over financial reporting.

Item 9B. Other Information

None.

74 STANCORP FINANCIAL GROUP, INC.

Part III

Item 10. Directors, Executive Officers and Corporate Governance

Information required by Item 10 relating to directors of StanCorp is set forth under the caption “Election of Directors” in the 2008 Proxy Statement and is incorporated herein by reference.

For information on the executive officers of the registrant, see Part I, Item 4A, “Executive Officers of the Registrant.”

Information relating to beneficial ownership reporting compliance by directors and executive officers of the Company pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) is set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2008 Proxy Statement, and is incorporated herein by reference.

We have codes of business ethics for all directors, senior executive officers, including the Chairman, President and Chief Executive Officer, and the Senior Vice President and Chief Financial Officer of StanCorp (its principal executive officer and principal financial officer, respectively), and employees of the Company. The codes of business ethics are available on the Company’s web site located at www.stancorpfinancial.com/investors. A copy of the codes of business ethics will be provided without charge to any person who requests them by writing to the address or telephoning the number indicated under “Available Information” on page 3. We will disclose on our web site any amendments to or waivers from our codes of business ethics applicable to directors or executive officers of StanCorp, including the Chairman, President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, in accordance with all applicable laws and regulations.

Information regarding executive officers is contained in Part I, Item 4A of this Form 10-K.

AUDIT COMMITTEE

StanCorp has a separately designated standing Audit Committee established in accordance with Section 3(a)58(A) of the Exchange Act. Information regarding the members of the Audit Committee is reported under the caption “Corporate Governance—Committees of the Board” in the Company’s 2008 Proxy Statement, herein incorporated by reference.

AUDIT COMMITTEE FINANCIAL EXPERT

Information required by Item 10 regarding the audit committee financial expert is reported under the caption “Corporate Governance—Committees of the Board” in the Company’s 2008 Proxy Statement and is incorporated herein by reference.

Item 11. Executive Compensation

Information required by Item 11 regarding executive compensation is reported under the captions “Director Compensation,” “Executive Compensation,” and “Compensation Discussion and Analysis” in the Company’s 2008 Proxy Statement, herein incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by Item 12 regarding security ownership of certain beneficial owners and management is reported under the caption “Share Ownership of Directors and Officers” and “Security Ownership of Certain Beneficial Owners” in the Company’s 2008 Proxy Statement, herein incorporated by reference.

EQUITY COMPENSATION PLANS

The Company currently has in effect three equity compensation plans, all of which have been approved by shareholders. These are the 1999 Omnibus Stock Incentive Plan, the 1999 Employee Share Purchase Plan (“ESPP”) and the 2002 Stock Plan. The shares to be issued subject to outstanding options and the shares otherwise available for issue under these plans as of December 31, 2007, are presented below:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted- average exercise price of outstanding options, warrants and rights		Number of securities available for future issuance under equity compensation plans (excluding securities reflected in column (a)
	(a)	(b)		(c)
Equity compensation plans approved by security holders	2,418,103	$	35.58	1,574,668
Equity compensation plans not approved by security holders	—		—	—

Under the 1999 Omnibus Stock Incentive Plan, 38,655 shares remained available for issuance as options or restricted stock as of December 31, 2007. Under the 1999 ESPP, there were 820,252 shares available for issuance. Under the 2002 Stock Plan, there were 715,761 shares available to be issued, all of which could be issued as options, and 468,871 of these shares, which could be issued as restricted stock. Shares issuable under performance share awards are not included in calculating the weighted-average price of outstanding options, warrants and rights.

2007 ANNUAL REPORT 75

Part III

Item 13. Certain Relationships and Related Transactions,  and Director Independence

Information required by Item 13 regarding certain relationships and related transactions, and director independence is reported under the caption “Corporate Governance—Director Independence” in the Company’s 2008 Proxy Statement, herein incorporated by reference.

Item 14. Principal Accountant Fees and Services

Information required by Item 14 regarding principal accounting fees and services is reported under the caption “Proposal to Ratify Appointment of Independent Registered Public Accounting Firm” in the Company’s 2008 Proxy Statement, herein incorporated by reference.

76 STANCORP FINANCIAL GROUP, INC.

Part IV

Item 15. Exhibits, Financial Statement Schedules

(a) Index of documents filed as part of the report:

1. The following Consolidated Financial Statements of StanCorp are included in Item 8, “Financial Statements and Supplementary Data.”

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2007, 2006 and 2005

Consolidated Balance Sheets at December 31, 2007 and 2006

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2007, 2006 and 2005

Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005

Notes to Consolidated Financial Statements

2. The following Financial Statement Schedules of StanCorp are included in Item 8, “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements.” Schedules not referenced are inapplicable or not required.

Condensed Financial Information of Registrant

Valuation and Qualifying Accounts

Summary of Investments—Other Than Investments in Affiliates

Supplementary Insurance Information

Reinsurance

3. Exhibits Index

Number	Name
3.1	Articles of Incorporation of StanCorp Financial Group, Inc. as amended
3.2	Bylaws of StanCorp Financial Group, Inc.
4.1	Form of Rights Agreement
4.2	Form of Indenture Relating to Senior Debt Securities
4.3	StanCorp Financial Group, Inc. and U.S. Bank National Association as Trustee, First Supplemental Indenture, Dated as of September 25, 2002
4.4	First Supplemental Indenture, dated May 29, 2007, between the Company and U.S. Bank National Association
4.5	Replacement Capital Covenant dated May 29, 2007, for the benefit of holders of the Company’s 6.875% Senior Notes due 2012
10.1	StanCorp Financial Group, Inc. 1999 Omnibus Stock Incentive Plan, As Amended
10.2	Amendment No. 3 to StanCorp Financial Group, Inc. 1999 Omnibus Stock Incentive Plan
10.3	StanCorp Financial Group, Inc. 1999 Employee Share Purchase Plan
10.4	Amendment No. 1 to StanCorp Financial Group, Inc. 1999 Employee Share Purchase Plan
10.5	Standard Insurance Company Supplemental Retirement Plan for the Senior Officer Management Group 2008 Restatement
10.6	StanCorp Financial Group, Inc. Deferred Compensation Plan for Senior Officers 2008 Restatement
10.7	StanCorp Financial Group, Inc. Amended 2002 Stock Incentive Plan
10.8	Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan, As Amended Restricted Stock Agreement
10.9	Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan Non-Statutory Stock Option Agreement Senior Officers
10.10	Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan Non-Statutory Stock Option Agreement Directors
10.11	StanCorp Financial Group, Inc. Short-Term Incentive Plan
10.12	Acquisition Agreement by and between Minnesota Life Insurance Company and Standard Insurance Company Dated December 1, 2000
10.13	100% Coinsurance Agreement Between Protective Life Insurance Company and Standard Insurance Company dated November 6, 2000

2007 ANNUAL REPORT 77

Part IV

Number	Name
10.14	Purchase and Sale Agreement by and Between Teachers Insurance and Annuity Association of America and Standard Insurance Company dated May 29, 2002
10.15	StanCorp Financial Group, Inc. Deferred Compensation Plan for Directors 2008 Restatement
10.16	Group Disability Income Reinsurance Agreement between The Northwestern Mutual Life Insurance Company (Milwaukee, Wisconsin) and Standard Insurance Company (Portland, Oregon)
10.17	Amendment No. 1 Restatement of Deferred Compensation Plan for Directors of Standard Insurance Company
10.18	Amendment to Group Disability Income Reinsurance Agreement between Standard Insurance Company (Portland, Oregon) and The Northwestern Mutual Life Insurance Company (Milwaukee, Wisconsin)
10.19	Form of Executive Officer and Director Indemnity Agreement
10.20	Credit Agreement Dated as of June 15, 2006, Among StanCorp Financial Group, Inc., as Borrower, The Lenders Listed Herein, as Lenders, Wells Fargo Bank, National Association, as Administrative Agent, and U.S. Bank National Association, as Syndication Agent, $200,000,000
10.21	Form of Change of Control Agreement
10.22	Form of StanCorp Financial Group, Inc. Long-Term Incentive Award Agreement (20     Performance Period)
10.23	Credit Agreement Extension Dated as of May 9, 2007, Among StanCorp Financial Group, Inc., as Borrower, The Lenders Listed Herein, as lenders, Wells Fargo Bank, National Association, as Administrative Agent, and U.S. Bank National Association, as Syndication Agent, $200,000,000
12.1	Statement Regarding Computation of Ratio of Earnings to Fixed Charges
14.1	Code of Business Conduct and Ethics for the Board of Directors
14.2	Code of Ethics for Senior Officers
14.3	Guide to Business Conduct
21	Subsidiaries of the Registrant
23	Independent Registered Public Accounting Firm Consent
24	Power of Attorney of Directors of StanCorp Financial Group, Inc.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Assistant Vice President, Controller and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Assistant Vice President, Controller and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	StanCorp Financial Group, Inc. Corporate Governance Guidelines dated February 12, 2007

78 STANCORP FINANCIAL GROUP, INC.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in Portland, Oregon on February 27, 2008.

STANCORP FINANCIAL GROUP, INC.
By:	/s/ ERIC E. PARSONS
Name: Eric E. Parsons
Title:   Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ ERIC E. PARSONS Eric E. Parsons	Chairman, President and Chief Executive Officer (Principal Executive Officer) Director	February 27, 2008
/s/ ROBERT M. ERICKSON Robert M. Erickson	Assistant Vice President, Controller and Principal Financial Officer	February 27, 2008
* Virginia L. Anderson	Director	February 27, 2008
* Frederick W. Buckman	Director	February 27, 2008
* John E. Chapoton	Director	February 27, 2008
* Stanley R. Fallis	Director	February 27, 2008
* Wanda G. Henton	Director	February 27, 2008
* Peter O. Kohler, MD	Director	February 27, 2008
* Jerome J. Meyer	Director	February 27, 2008
* Ralph R. Peterson	Director	February 27, 2008
* E. Kay Stepp	Director	February 27, 2008
* Michael G. Thorne	Director	February 27, 2008
* Ronald E. Timpe	Director	February 27, 2008

*By:	/S/ ERIC E. PARSONS
	Eric E. Parsons, as Attorney-in-fact

2007 ANNUAL REPORT 79

Part IV

Exhibits Index

Number	Name	Method of Filing
3.1	Articles of Incorporation of StanCorp Financial Group, Inc. as amended	Filed as Exhibit 4.1 on Registrant’s Form 8-K, dated May 7, 1999, and incorporated herein by this reference
3.2	Bylaws of StanCorp Financial Group, Inc.	Filed as Exhibit 3.2 on Registrant’s Form S-1A, dated March 12, 1999, and incorporated herein by this reference
4.1	Form of Rights Agreement	Filed as Exhibit 4.2 on the Registrant’s Form 8-K, dated May 7, 1999, and incorporated herein by this reference
4.2	Form of Indenture Relating to Senior Debt Securities	Filed as Exhibit 4 (c) on the Registrant’s Form S-3, dated July 3, 2002, and incorporated herein by this reference
4.3	StanCorp Financial Group, Inc. and U.S. Bank National Association as Trustee, First Supplemental Indenture, Dated as of September 25, 2002	Filed as Exhibit 4.1 on the Registrant’s Form 8-K, dated September 25, 2002, and incorporated herein by this reference
4.4	First Supplemental Indenture, dated May 29, 2007, between the Company and U.S. Bank National Association	Filed as Exhibit 4.1 on Registrant’s 8-K, dated May 30, 2007, and incorporated herein by this reference
4.5	Replacement Capital Covenant dated May 29, 2007, for the benefit of holders of the Company’s 6.875% Senior Notes due 2012	Filed as Exhibit 4.2 on Registrant’s 8-K, dated May 30, 2007, and incorporated herein by this reference
10.1	StanCorp Financial Group, Inc. 1999 Omnibus Stock Incentive Plan, As Amended	Filed as Exhibit 10.2 on Registrant’s Form 10-Q, dated August 14, 2000, and incorporated herein by this reference
10.2	Amendment No. 3 to StanCorp Financial Group, Inc. 1999 Omnibus Stock Incentive Plan	Filed as Exhibit 10.3 on Registrant’s Form 10-K, dated March 10, 2005, and incorporated herein by this reference
10.3	StanCorp Financial Group, Inc. 1999 Employee Share Purchase Plan	Filed as Exhibit 10.3 on the Registrant’s Form 10-K, dated March 14, 2000, and incorporated herein by this reference
10.4	Amendment No. 1 to StanCorp Financial Group, Inc. 1999 Employee Share Purchase Plan	Filed as Exhibit 10.5 on Registrant’s Form 10-K, dated March 10, 2005, and incorporated herein by this reference
10.5	Standard Insurance Company Supplemental Retirement Plan for the Senior Officer Management Group 2008 Restatement	Filed herewith
10.6	StanCorp Financial Group, Inc. Deferred Compensation Plan for Senior Officers 2008 Restatement	Filed herewith
10.7	StanCorp Financial Group, Inc. Amended 2002 Stock Incentive Plan	Filed as Exhibit 10.14 on Registrant’s Form 10-Q, dated November 9, 2004, and incorporated herein by this reference
10.8	Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan, As Amended Restricted Stock Agreement	Filed as Exhibit 10.3 on the Registrant’s Form 8-K, dated January 6, 2005, and incorporated herein by this reference
10.9	Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan Non-Statutory Stock Option Agreement Senior Officers	Filed as Exhibit 10.5 on the Registrant’s Form 8-K, dated January 6, 2005, and incorporated herein by this reference

80 STANCORP FINANCIAL GROUP, INC.

Number	Name	Method of Filing
10.10	Form of StanCorp Financial Group, Inc. 2002 Stock Incentive Plan Non-Statutory Stock Option Agreement Directors	Filed as Exhibit 10.6 on the Registrant’s Form 8-K, dated January 6, 2005, and incorporated herein by this reference
10.11	StanCorp Financial Group, Inc. Short-Term Incentive Plan	Filed as Exhibit 10.2 on Registrant’s Form 10-Q, dated May 9, 2007, and incorporated herein by this reference
10.12	Acquisition Agreement by and between Minnesota Life Insurance Company and Standard Insurance Company dated December 1, 2000	Filed as Exhibit 2 on Registrant’s Form 10-K, dated March 14, 2001, and incorporated herein by this reference
10.13	100% Coinsurance Agreement Between Protective Life Insurance Company and Standard Insurance Company dated November 6, 2000	Filed as Exhibit 2 on Registrant’s Form 10-Q, dated May 14, 2001, and incorporated herein by this reference
10.14	Purchase and Sale Agreement by and Between Teachers Insurance and Annuity Association of America and Standard Insurance Company dated May 29, 2002	Filed as exhibit 10.17 on Registrant’s Form 10-K, dated March 14, 2003, and incorporated herein by this reference
10.15	StanCorp Financial Group, Inc. Deferred Compensation Plan for Directors 2008 Restatement	Filed herewith
10.16	Group Disability Income Reinsurance Agreement between The Northwestern Mutual Life Insurance Company (Milwaukee, Wisconsin) and Standard Insurance Company (Portland, Oregon)	Filed as Exhibit 10.20 on Registrant’s Form 10-K, dated March 10, 2005, and incorporated herein by this reference
10.17	Amendment No. 1 Restatement of Deferred Compensation Plan for Directors of Standard Insurance Company	Filed as Exhibit 10.21 on Registrant’s Form 10-Q, dated August 9, 2005, and incorporated herein by this reference
10.18	Amendment to Group Disability Income Reinsurance Agreement between Standard Insurance Company (Portland, Oregon) and The Northwestern Mutual Life Insurance Company (Milwaukee, Wisconsin)	Filed as Exhibit 10.22 on Registrant’s Form 10-Q, dated August 9, 2005, and incorporated herein by this reference
10.19	Form of Executive Officer and Director Indemnity Agreement	Filed as Exhibit 10.25 on Registrant’s Form 10-Q, dated August 9, 2005, and incorporated herein by this reference
10.20	Credit Agreement Dated as of June 15, 2006, Among StanCorp Financial Group, Inc., as Borrower, The Lenders Listed Herein, as Lenders, Wells Fargo Bank, National Association, as Administrative Agent, and U.S. Bank National Association, as Syndication Agent, $200,000,000	Filed as Exhibit 10.1 on the Registrant’s Form 8-K, dated June 16, 2006, and incorporated herein by this reference
10.21	Form of Change of Control Agreement	Filed as Exhibit 10.1 on Registrant’s Form 8-K, dated December 14, 2006, and incorporated herein by this reference
10.22	Form of StanCorp Financial Group, Inc. Long-Term Incentive Award Agreement (20     Performance Period)	Filed as Exhibit 10.1 on Registrant’s Form 10-Q, dated May 9, 2007, and incorporated herein by this reference
10.23	Credit Agreement Extension Dated as of May 9, 2007, Among StanCorp Financial Group, Inc., as Borrower, The Lenders Listed Herein, as lenders, Wells Fargo Bank, National Association, as Administrative Agent, and U.S. Bank National Association, as Syndication Agent, $200,000,000	Filed as Exhibit 10.1 on Registrant’s Form 8-K, dated May 10, 2007, and incorporated herein by this reference

2007 ANNUAL REPORT 81

Part IV

Number	Name	Method of Filing
12.1	Statement Regarding Computation of Ratio of Earnings to Fixed Charges	Filed herewith
14.1	Code of Business Conduct and Ethics for the Board of Directors	Filed as Exhibit 14.1 on Registrant’s Form 10-K, dated March 5, 2004, and incorporated herein by this reference
14.2	Code of Ethics for Senior Officers	Filed as Exhibit 14.2 on Registrant’s Form 10-K, dated March 5, 2004, and incorporated herein by this reference
14.3	Guide to Business Conduct	Filed as Exhibit 14.3 on Registrant’s Form 10-K, dated March 5, 2004, and incorporated herein by this reference
21	Subsidiaries of the Registrant	Filed herewith
23	Independent Registered Public Accounting Firm Consent	Filed herewith
24	Power of Attorney of Directors of StanCorp Financial Group, Inc.	Filed herewith
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certification of Assistant Vice President, Controller and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.2	Certification of Assistant Vice President, Controller and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
99.1	StanCorp Financial Group, Inc. Corporate Governance Guidelines dated February 12, 2007	Filed as Exhibit 99.1 on Registrant’s Form 8-K, dated February 16, 2007, and incorporated herein by this reference

82 STANCORP FINANCIAL GROUP, INC.

EX-10.5

Exhibit 10.5

STANDARD INSURANCE COMPANY

SUPPLEMENTAL RETIREMENT PLAN

FOR THE SENIOR OFFICER MANAGEMENT GROUP

2008 Restatement

2008 RESTATEMENT OF STANDARD INSURANCE COMPANY’S

SUPPLEMENTAL RETIREMENT PLAN

FOR SENIOR OFFICER MANAGEMENT GROUP

STATEMENT OF PURPOSE

This Supplemental Retirement Plan for the Senior Officer Management Group covers members of the Senior Officer Management Group who are designated as Participants and who retire under the Standard Retirement Plan.

This Plan is separate from and in addition to both the Deferred Compensation Plan and the Standard Retirement Plan. It is intended that this Plan be unfunded and maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.

The purpose of this Plan is to provide retirement benefit payments to those Participants who retire under the Standard Retirement Plan and whose retirement benefits from the Standard Retirement Plan are reduced either as a result of the deferral of a portion of the Participant’s annual compensation under his Deferred Compensation Agreement or as a result of provisions of the Internal Revenue Code and the Standard Retirement Plan which impose certain limits on qualified plan accumulations, compensation taken into account under the plan or benefits provided for highly compensated employees.

This Plan was revised in 1990 to conform its provisions to the provisions of the Standard Retirement Plan for Home Office Personnel 1988 Restatement and was most recently amended effective January 1, 2002. The Plan is being revised at this time to comply with applicable provisions of Internal Revenue Code Section 409A. This 2008 restatement of this Plan shall determine the Supplemental Retirement Benefit of any Participant whose retirement benefit is determined under the Standard Retirement Plan for Home Office Personnel 2002 Restatement, as amended, that becomes payable on or after January 1, 2008.

Standard Insurance Company hereby restates the following Supplemental Retirement Plan for the Senior Officer Management Group:

ARTICLE I

DEFINITIONS

Capitalized terms used but not defined herein shall have the same meanings as provided in the Standard Retirement Plan. The following terms, when used herein, shall have the meanings indicated in this Article unless a different meaning is clearly required by the context:

1.1 “Adjusted Credited Compensation” means the amount that would have been a Participant’s Compensation if the Participant had not deferred a portion of his compensation otherwise payable to him currently, at his own election, under the Deferred Compensation Plan.

1.2 “Anniversary Date” means January 1, 1980, and each January 1st thereafter.

1.3 “Beneficiary” means any person who receives a contingent or survivor benefit under the Plan as a result of a Participant’s death following the Participant’s Benefit Commencement Date pursuant to the designation made on the Participant’s Election Form or the Participant’s Surviving Spouse or Dependent Domestic Partner who receives a Supplemental Death Benefit.

1.4 “Benefit Commencement Date” means the date that benefit payments under the Plan commence pursuant to Section 4.3, either upon the Participant’s Separation from Service or the date elected by the Participant pursuant to Sections 2.2 and 4.3(a).

1.5 “Board” means the Board of Directors of Standard Insurance Company.

1.6 “Code” means the Internal Revenue Code of 1986, as amended, and applicable regulations.

1.7 “Company” means Standard Insurance Company, a life insurance company organized and existing under the laws of the state of Oregon, or any successor thereto.

1.8 “Compensation” means the Participant’s Credited Compensation as defined under the Standard Retirement Plan.

1.9 “Deferred Compensation Agreement” means the individual agreements to defer compensation entered into between members of the Senior Officer Management Group and the Company pursuant to the Deferred Compensation Plan.

1.10 “Deferred Compensation Plan” means the Standard Insurance Company Deferred Compensation Plan for Senior Officer Management Group as it presently exists and may, from time to time, be amended.

1.11 “Effective Date” means January 1, 1979. The effective date of this amended and restated Plan shall be January 1, 2008.

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1.12 “Election Form” means the form executed by a Participant pursuant to Section 2.2, electing the time and form of commencement of the Supplemental Retirement Benefit and designating the Beneficiary for purposes of any contingent or survivor benefit under a Supplemental Retirement Benefit.

1.13 “Employer” means the Company, StanCorp Financial Group, Inc., the Standard Life Insurance Company of New York, Standard Mortgage Investors, LLC, StanCorp Investment Advisors, Inc., and any other person or business organization that has adopted and maintains the Standard Retirement Plan and has also elected to participate in this Plan with the consent of the Company.

1.14 “Hour of Service” means the Hours of Service determined under the Standard Retirement Plan.

1.15 “Participant” means a member of the Senior Officer Management Group, who has become a Participant in accordance with Article II of the Plan.

1.16 “Plan” means this Supplemental Retirement Plan for the Senior Officer Management Group as it presently exists and may, from time to time, be amended.

1.17 “Plan Year” means the twelve month period beginning on January 1 and ending on December 31.

1.18 “Senior Officer Management Group” means a select group of management or highly compensated employees of a participating Employer who are designated by the CEO of the Company as entitled to participate in the plan.

1.19 “Separation from Service” means the termination of a Participant’s employment with the Employer as determined under Treas. Reg. §1.409A-1(h)(1); provided that, for purposes of this definition, the term “Employer” shall include any member of the controlled group of entities that, with the Company and the Employer, comprise a single employer under Code Sections 414(b) and (c) and the Treasury Regulations thereunder.

1.20 “Service” means employment of the Participant by the Employer for the performance of labor or duties by the Participant on behalf of the Employer and for which the Participant is to be compensated by the Employer.

1.21 “Standard Retirement Plan” means the Standard Retirement Plan for Home Office Personnel, as evidenced by the documents for such plan and any amendments thereto.

1.22 “Supplemental Retirement Benefit” means the amount payable to a Participant from this Plan as provided under Section 4.1.

1.23 “Supplemental Death Benefit” means the amount payable to a Beneficiary of a Participant as provided under Section 4.4.

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1.24 “Total and Permanent Disability” means a physical or mental condition that results in the Participant being eligible to receive disability benefits under the Federal Social Security program or under any formal program of long-term disability insurance provided by the Employer. A Participant shall not be treated as having a Separation from Service due to Total and Permanent disability until the first date following the 29-month period during which the Participant has been separated from service with the Employer as a result of being unable to perform the duties of his position following a Total and Permanent Disability.

1.25 “Years of Service” means Years of Benefit Service or Years of Vesting Service as defined in the Standard Retirement Plan or the Standard Retirement Plan for Field Personnel, as applicable. For the purpose of determining the Participant’s Supplemental Retirement Benefit, his periods of Service shall be described as Years of Benefit Service. For the purpose of determining the Participant’s vested interest in his Supplemental Retirement Benefit, his periods of Service shall be described as Years of Vesting Service.

ARTICLE II

ELIGIBILITY AND ELECTION OF TIME AND FORM OF PAYMENT

2.1 Eligibility – Each member of the Senior Officer Management Group who became a Participant prior to January 1, 2008 and who was a Participant as of December 31, 2007 shall continue as a Participant. On and after January 1, 2008, no additional individuals shall become Participants in the Plan. An individual shall cease to be a Participant as of the earliest of the date of his death, the date he has a Separation from Service prior to earning a Vested Percentage greater than zero percent (0%) or the date that all vested Supplemental Retirement Benefits accrued on his behalf, if any have been paid to him.

2.2 Election of Time and Form of Payment – A Participant who has not begun to receive benefits under the Plan prior to December 31, 2008, shall, prior to December 31, 2008, elect the date of commencement of his vested Supplemental Retirement Benefit and the form of distribution of his vested Supplemental Retirement Benefit (including, if applicable, the Beneficiary who shall receive contingent or survivor benefits in the event of his death after his Benefit Commencement Date), in accordance with the provisions of Section 4.2 and 4.3, respectively, by execution of an Election Form.

After December 31, 2008, such election shall be irrevocable, except that:

(a) a Participant who has not become entitled to a distribution of his vested Supplemental Retirement Benefit may make an election to defer commencement of benefits under the Plan to a future specified date; provided that an election to defer commencement of benefits shall not take effect unless it is made more than one year before the date on which such payment is scheduled to commence and defers the date of payment commencement by at least five years; and

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(b) a Participant may elect an alternative form of benefit within a reasonable period of time prior to his Benefit Commencement Date in accordance with the provisions of Section 4.3. In its sole discretion, the Company may prescribe such rules regarding the filing of Election Forms as it deems necessary, including the time, form and manner in which such Election Forms must be filed; provided that any such rules shall not permit an Election Form to be filed later than the applicable time or times prescribed in the Plan.

2.3 Transition Rules – Notwithstanding any provision of the Plan to the contrary, but subject to Section 4.2(d), in the event that a Participant or his Beneficiary begins to receive a retirement benefit under the Standard Retirement Plan on or after January 1, 2008, the Participant or his Beneficiary, as applicable, shall also receive a Supplemental Retirement Benefit under this Plan, payable in the same form and at the same time as such retirement benefit is payable under the Standard Retirement Plan. A Participant or Beneficiary who began to receive benefits under this Plan prior to January 1, 2008 shall continue to receive such benefits in accordance with the terms of the Plan in effect at the time the benefit payments commenced.

ARTICLE III

VESTING OF SUPPLEMENTAL RETIREMENT BENEFIT

3.1 Vesting of Supplemental Retirement Benefit

(a) At any time, a Participant’s vested Supplemental Retirement Benefit shall be determined under the following schedule, according to his Years of Vesting Service:

Years of Vesting Service	Vested Percentage
Less than 5	0	%
5 or more	100	%

In addition, a Participant’s Vested Percentage shall be 100% upon his attainment of Normal Retirement Age while an employee.

(b) The portion of a Participant’s Supplemental Retirement Benefit to which he has attained a nonforfeitable right shall be referred to as his “vested Supplemental Retirement Benefit,” and shall equal the product of his Supplemental Retirement Benefit multiplied by his Vested Percentage, as determined above.

ARTICLE IV

PAYMENT OF SUPPLEMENTAL BENEFITS

4.1 Retirement Benefit – A Participant or his Beneficiary shall be entitled to receive his vested Supplemental Retirement Benefit under this Plan, payable in accordance with Section 4.2 and 4.3. The amount of the Supplemental Retirement Benefit shall be equal to (a) minus (b), where:

(a) is the retirement benefit that would be computed and paid under the Standard Retirement Plan if: (i) the Participant’s Adjusted Credited Compensation were used in computing the retirement benefit instead of the Participant’s credited Compensation, and (ii) no limitations were imposed under the Standard Retirement Plan with respect to the benefit payable

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thereunder or the amount of compensation taken into account in computing such benefit by virtue of Section 401(a)(17), Section 415 or other comparable provisions of the Code, or Treasury Regulations thereunder, as the same now exist or may hereafter be amended; and

(b) is the retirement benefit the Participant actually receives from the Standard Retirement Plan or, if the Participant has not begun to receive his retirement benefit under the Standard Retirement Plan on his Benefit Commencement Date, the retirement benefit the Participant would have received from the Standard Retirement Plan if his retirement benefit under the Standard Retirement Plan commenced on his Benefit Commencement Date.

4.2 Manner of Payment –

(a) For a Participant who has no spouse as of his Benefit Commencement Date, the vested Supplemental Retirement Benefit shall be paid in the form of a Straight Life Annuity providing monthly income payable for the Participant’s life, with no payments after death.

(b) For a Participant who has a spouse as of his Benefit Commencement Date, the vested Supplemental Retirement Benefit shall be paid in the form of a Qualified Joint and Survivor Annuity, which:

(1) provides monthly income payable for his life, and thereafter for the life of his spouse, with payments to the spouse equal to two thirds of the payments to the Participant, and

(2) is actuarially equivalent to a Straight Life Annuity for the life of the Participant.

(c) Notwithstanding Sections 4.2(a) and (b), a Participant may elect on an Election Form to receive his Supplemental Retirement Benefit in any alternative form of payment permitted under the Standard Retirement Plan that is a life annuity (as defined in Treas. Reg. §1.409A-2(b)(2)(ii)). A Participant’s initial election shall be filed at the time required under Section 2.2. If the Participant fails to make an initial election regarding the form of benefit under Section 2.2, the provisions of Section 4.2(a) or (b), whichever is applicable, shall apply. Any Participant, including a Participant who failed to make an initial election in a timely manner, may elect within a reasonable time prior to his Benefit Commencement Date to receive an alternative form of benefit.

(d) Notwithstanding any provision of the Plan to the contrary, if the Actuarial Value of the Participant’s vested Supplement Retirement Benefit does not exceed $5,000, the vested Supplemental Retirement Benefit shall be distributed to the Participant in the form of a lump sum upon his Separation from Service.

4.3 Time of Payment of Vested Supplemental Retirement Benefits – Except as provided in Section 4.3(b) below, payment of a Participant’s vested Supplemental Retirement Benefit shall begin upon the later of Separation from Service (including a Separation from Service as a result of Total and Permanent Disability) or the date designated by the Participant in his Election Form pursuant to Section 2.2.

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(a) The date a Participant elects in his Election Form may be any specified date on or after the Participant’s Early Retirement Age, subject to the Company’s approval. If the Company fails to approve or reject the Participant’s election within the time period during which the Participant’s election may be made, it shall be deemed approved.

(b) Notwithstanding any other provision of the Plan:

(1) subject to Section 4.3(b)(2), any payment required to be made under the terms of the Plan on a specified date (including a Participant’s Separation from Service) may be made as soon thereafter as administratively practicable, but not later than the end of the calendar year that includes the date the benefit was otherwise required to commence under the terms of the Plan, and

(2) payment of vested Supplemental Retirement Benefits to a Participant who is a specified employee (as defined in Code Section 409A(a)(2)(B) and Treas. Reg. §1.409A-1(i)(l)) otherwise payable upon his Separation from Service shall not commence before the date that is six months after the date of the Participant’s Separation from Service. Prior to the last day of the seventh month following his Separation from Service, the Participant shall be paid, in the form of a lump sum, the total amount of monthly vested Supplemental Retirement Benefits that would have been payable to the Participant since the Participant’s Separation from Service but for the six-month delay, together with interest calculated at the rate that would be applied for purposes of computing the Actuarial Value of a benefit that commenced on the date of the Participant’s Separation from Service. Regular monthly payments of the Participant’s vested Supplemental Retirement Benefits, in accordance with the Participant’s election made pursuant to Section 2.2 and this Article IV will commence during the seventh month following the Participant’s Separation from Service.

4.4 Death Benefit – Provided that a Participant’s Vested Percentage is greater than zero percent (0%) as of the date of his death, upon the Participant’s death prior to his Benefit Commencement Date, a Supplemental Death Benefit will become payable to the Participant’s Surviving Spouse or Dependent Domestic Partner. If the Participant has no Surviving Spouse or Dependent Domestic Partner, no Supplemental Death Benefit shall be payable under this Plan. The Supplemental Death Benefit shall be equal to (a) minus (b) where:

(a) is the death benefit that would be computed and paid under the Standard Retirement Plan if: (i) the Participant’s Adjusted Credited Compensation were used in computing the death benefit instead of the Participant’s Credited Compensation, and (ii) no limitations were imposed under the Standard Retirement Plan with respect to the benefit payable thereunder, or the amount of compensation taken into account in computing such benefit by virtue of Section 401(a)(17), Section 415 or other comparable provisions of the Code, or Treasury Regulations thereunder, as the same now exist or may hereafter be amended, and

7

(b) is the death benefit the Beneficiary actually receives from the Standard Retirement Plan or, if the Beneficiary has not begun to receive the death benefit under the Standard Retirement Plan on the date his Supplemental Death Benefit commences, the death benefit the Beneficiary would have received from the Standard Retirement Plan if his death benefit under the Standard Retirement Plan had commenced on the date his Supplemental Death Benefit commenced.

The Supplemental Death Benefit shall be paid in the form of an annuity for the life of the Surviving Spouse or Dependent Domestic Partner only, whichever is applicable.

4.5 Cost of Living Adjustment – Supplemental benefits payable to the Participant or his Beneficiary under this Article IV shall be adjusted to take into account any post-retirement adjustments in the cost of living at the same time and in the same manner as any cost of living adjustments to the retirement benefits payable to the Participant or Beneficiary from the Standard Retirement Plan.

ARTICLE V

MISCELLANEOUS

5.1 Questions Determined by Company – The CEO of the Company or his designee (referred to hereinafter in this Section 5.1 as the “CEO”), has the discretionary authority to interpret terms of the Plan, to determine factual questions that arise in the course of administering the Plan, to adopt rules and regulations regarding the administration of the Plan, to determine the conditions under which benefits become payable under the Plan and to make any other determinations that the CEO believes are necessary and advisable for the administration of the Plan. Benefits under this Plan will be paid only if the CEO decides, in his discretion, that the applicant is entitled to them. In the event of any question or dispute as to retirement, the date of commencement of such retirement, the date of death of a Participant or his Beneficiary, the occurrence of any event that may entitle a Participant or Beneficiary to a benefit under this Plan, or the amount, time or form of payment of a benefit under the Plan, the decision of the Company, as determined by the CEO shall be binding on all interested parties. The CEO may employ such consultants and advisors as he deems necessary or desirable for carrying out his duties under the Plan. The benefit claim procedure and the review procedure under the Standard Retirement Plan are incorporated herein by reference; provided that, the authority exercised by the Plan Administrator under the Standard Retirement Plan shall be exercised by the CEO under this Plan.

5.2 Non-alienation of Payments – No Participant, Participant’s spouse, Dependent Domestic Partner, Beneficiary, heir or distributee or any other person, shall have the right to commute, encumber, assign, transfer, pledge or otherwise anticipate or dispose of the right to receive payments hereunder.

5.3 No Trust Created; Unsecured Creditors – Notwithstanding anything herein contained to the contrary, no action taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind or fiduciary relationship between the Company or the Employer and the Participants, their designated Beneficiaries or any other persons or distributees. Any deferred amounts shall continue for all purposes to be part of the general assets of the Company or the Employer, as applicable, subject to the claims of the Company’s or the Employer’s creditors, and the Company or the Employer shall in no way be restricted with regard to the control, investment and use of such amounts. To the extent that any person acquires the right to receive payment under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company or the Employer.

8

5.4 Nonguarantee of Employment – Nothing contained herein shall be construed as conferring upon a Participant the right to continue in the employ of the Employer, as a member of the Senior Officer Management Group, an executive or in any other capacity. The Employer may terminate the employment of any Participant at any time the CEO of the Company determines such termination to be for the benefit of the Employer.

5.5 Applicable Law; Invalidity of Provisions – To the extent not preempted by Federal Law, the validity of this Plan or any of its provisions shall be determined under and construed according to the laws of the State of Oregon. If any provision of this Plan shall be held illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Plan and it shall be construed as if said illegal or invalid provisions had never been included.

5.6 Section 409A Compliance – This Plan is intended to comply with the requirements of Code Section 409A, and the provisions herein shall be interpreted in a manner consistent with such intent.

5.7 Section Headings – The headings of this Plan have been inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof.

5.8 Gender – The masculine pronoun whenever used includes the female pronoun.

ARTICLE VI

PLAN AMENDMENT AND TERMINATION

6.1 Amendment – The Plan may be amended in whole or in part from time to time by the Board; provided that, the Board may, in its sole discretion, delegate its authority to amend the Plan to the CEO of the Company; and further provided that, no amendment shall deprive any Participant of any of the benefits which have accrued to him prior to the date of the amendment

6.2 Termination – The Company, through action by the Board, reserves the right to terminate the Plan at any time, provided that the termination of the Plan shall not deprive any Participant of any of the benefits which have accrued to him prior to the date of the termination.

6.3 Notice of Amendment – Notice of every such amendment or the termination of the Plan shall be given in writing to each Participant or Beneficiary of a deceased Participant at the time and in the manner determined by the Company.

STANDARD INSURANCE COMPANY
By:
	President and Chief Executive Officer	Date

9

EX-10.6

Exhibit 10.6

NONQUALIFIED

DEFERRED COMPENSATION PLAN

ADOPTION AGREEMENT

(Including Code §409A provisions)

StanCorp Financial Group, Inc.	801934
Deferred Compensation Plan for Senior Officers

Nonqualified Deferred Compensation Plan

Adoption Agreement

NONQUALIFIED

DEFERRED COMPENSATION PLAN

ADOPTION AGREEMENT

The undersigned StanCorp Financial Group, Inc. (“Employer”) by execution of this Adoption Agreement hereby establishes this Nonqualified Deferred Compensation Plan (“Plan”) consisting of the Basic Plan Document, this Adoption Agreement and all other Exhibits and documents to which they refer. The Employer makes the following elections concerning this Plan. All capitalized terms used in the Adoption Agreement have the same meaning given in the Basic Plan Document. References to “Section” followed by a number in this Adoption Agreement are references to the Basic Plan Document.

PREAMBLE

ERISA/Code Plan Type: The Employer establishes this Plan as (choose one of (a) or (b)):

x (a) Nonqualified Deferred Compensation Plan. An unfunded nonqualified deferred compensation plan which is (choose only one of (i), (ii), (iii) or (iv)):

¨ (i) Excess benefit plan. An “excess benefit plan” under ERISA§3(36) and exempt from Title I of ERISA.

x (ii) Top-hat plan. A “SERP” or other plan primarily for a “select group of management or highly compensated employees” under ERISA and partially exempt from Title I of ERISA.

¨ (iii) Contractors only. A plan benefiting only Contractors (non-Employees) and exempt from Title I of ERISA.

¨ (iv) Church plan. A church plan as described in Code §414(e) and ERISA §3(33) and maintained by a church or church controlled organization under Code §3121(w)(3).

¨ (b) Ineligible 457 Plan. An ineligible 457 Plan subject to Code §457(f). The Employer is (choose only one of (i), (ii) or (iii)):

¨ (i) Governmental Plan. A State.

¨ (ii) Tax-Exempt Plan. A Tax-Exempt Organization. The Plan is intended to be a “top-hat” plan or an excess benefit plan as described in (a)(ii) and (a)(ii) above or the Plan benefits only Contractors.

¨ (iii) Church plan. A church plan as described in Code §414(e) and ERISA §3(33) but which is not maintained by a church or church controlled organization under Code §3121(w)(3).

Note: If the Employer elects (a)(i), the Plan benefits only Employees. If the Employer elects (a)(ii), the Plan generally may not benefit Contractors based on the “primarily” requirement. If the Employer elects (a)(iii), the Plan benefits only Contractors. If the Employer elects (a)(iv), (b)(i), or (b)(iii) the Plan may benefit Employees and Contractors. If the Employer elects (b)(ii), the plan is either a top-hat plan, an excess benefit plan or benefits only Contractors.

409A Plan Type: The Employer establishes this Plan (choose one of (a) or (b)):

x (a) Account Balance Plan. As the following type(s) of Account Balance Plan(s) under Section 1.02 (choose one of (i), (ii) or (iii)):

¨ (i) Elective Deferral Account Balance Plan. See Section 2.02.

¨ (ii) Employer Contribution Account Balance Plan. See Sections 2.03 and 2.04.

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x (iii) Both. Both an Elective Deferral Account Balance Plan and an Employer Contribution Account Balance Plan.

Note: For purposes of aggregation under Section 1.05, a Separation Pay Plan based only on Voluntary Separation from Service is treated as an Account Balance Plan. Nevertheless, if the Employer maintains this Plan as any type of Separation Pay Plan, the Employer should elect (b) below.

¨ (b) Separation Pay Plan. As the following type(s) of Separation Pay Plan(s) under Section 1.42 (choose one of (i) through (iv)):

¨ (i) Involuntary Separation.

¨ (ii) Window Program.

¨ (iii) Voluntary Separation.

¨ (iv) Combination:                                                                               (specify)

Note: Under a Separation Pay Plan, the Employer must limit its payment election to Separation from Service or death. Electing death as a separate payment event would permit a different payment election for death versus any other Separation from Service. Separation from Service may also result from Disability.

Uniformity or Nonuniformity: The nonuniformity provisions described in the Preamble to the Basic Plan Document (choose one of (a) or (b)):

¨ (a) Do not apply. All Adoption Agreement elections and Plan provisions apply to all Participants.

x (b) Apply. See Exhibit A to the Adoption Agreement.

ARTICLE I

DEFINITIONS

1.11 Change in Control. Change in Control means (choose (a) or choose one of (b), (c) or (d)):

x (a) Not applicable. Change in Control does not apply for purposes of this Plan.

¨ (b) All events. Change in Control means all events under Section 1.11.

¨ (c) Limited events. Change in Control means only the following events under Section 1.11 (choose one or two of (i), (ii) and (iii)):

¨ (i) Change in ownership of the Employer.

¨ (ii) Change in the effective control of the Employer.

¨ (iii) Change in the ownership of a substantial portion of the Employer’s assets.

¨ (d) (Specify): ______________________________________________________________________________________.

Note: The Employer may not use the blank in (d) to specify events not described in Treas. Reg. §1.409A-3(i)(5). However, the Employer may increase the percentages required to trigger a Change in Control under one or all three of the listed events.

1.15 Compensation. The Employer makes the following modifications to the “gross W-2” definition of Compensation (choose (a) or at least one of (b) – (e)):

¨ (a) No modifications.

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¨ (b) Net Compensation. Exclude all elective deferrals to other plans of the Employer described in Section 1.15.

¨ (c) Base Salary only. Exclude all Compensation other than Base Salary.

¨ (d) Bonus only. Exclude all Compensation other than Bonus.

x (e)(Specify): Compensation includes salary reduction amounts elected by the Participant pursuant to a tax-qualified plan under Section 401(k) of the Code, a cafeteria plan under Section 125 of the Code, or a qualified transportation fringe under Section 132(f) of the Code, but EXCLUDES company-wide profit sharing bonuses; officer’s hiring or relocation bonuses; other individualized officer bonuses; long-term incentive plan benefits; unused vacation; severance pay; taxable fringe benefits; tax reimbursements; awards and prizes; club dues; noncash compensation; disqualifying dispositions from a qualified employee stock purchase program; and contributions/benefits under any other employee benefit plan. Payments under the Employer’s Short Term Incentive Compensation Plan shall be counted as Compensation in the Plan Year during which they were earned. Excess Compensation means Compensation in excess of the IRC 401(a)(17) limit for the Taxable Year.

Note: See Section 1.15(B) as to Contractor Compensation.

1.17 Disability. Disability means (choose one of (a) or (b))):

¨ (a) All impairments. All impairments constituting Disability.

¨ (b) Limited. Only the following impairments constituting Disability:                                 .

1.20 Effective Date. The effective date of the Plan is (choose one of (a) or (b)):

¨ (a) New Plan. This Plan is a new Plan and is effective                                                                      .

Note: The effective date should be no earlier than January 1, 2008.

x (b) Restated Plan. This Plan is a restated Plan and is restated effective as of January 1, 2008. The Plan is restated to comply with Code §409A. The Plan was originally effective January 1, 1976.

Note: If the Plan (whether or not in written form) was in effect before January 1, 2008, the Plan is a restated Plan.

1.38 Plan Name. The name of the Plan as adopted by the Employer is: StanCorp Financial Group, Inc. Deferred Compensation Plan for Senior Officers.

1.39 Retirement Age. A Participant’s Retirement Age under the Plan is (choose only one of (a)-(d)):

¨ (a) Not applicable. Retirement Age does not apply for purposes of this Plan.

x (b) Age. The Participant’s attainment of age: 65.

¨ (c) Age and service. The Participant’s attainment of age              with              Years of Service (defined under 1.57) with the Employer.

¨ (d) (Specify): _________________________________________________________________________________________.

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1.40 Separation from Service. In determining whether a Participant has incurred a Separation from Service under the Plan (choose one or both or (a) and (b)):

x (a) Determination of “Employer.” In determining the “Employer” under Section 1.40(E) and Code §§414(b) and (c), apply the following percentage: 80% (specify percentage).

Note: The specified percentage may not be more than 80% and may not be less than 20%. If the percentage is less than 50%, there must be legitimate business criteria.

¨ (b) Collectively Bargained Multiple Employer Plan. Under Section 1.40(H), the following reasonable definition of Separation from Service applies:                                      (specify).

1.44 Specified Employees-Elections. The Employer makes the following elections relating to the determination of Specified Employees (choose (a) or choose one or more of (b)-(e)):

¨ (a) Not applicable. The Employer does not have any Specified Employees or none which benefit under the Plan.

¨ (b) Alternative Code §415 Compensation. The Employer elects the following alternative definition of Code §415 Compensation:                                                                                                                            (specify).

¨ (c) Alternative Specified Employee identification date. The Employer elects the following alternative Specified Employee identification date:                                                                                                            (specify).

¨ (d) Alternative Specified Employee effective date. The Employer elects the following alternative Specified Employee effective date:                                                                           (specify).

¨ (e) Other elections. The Employer makes the following other elections relating to Specified Employees:                                          (specify).

Note: See Treas. Reg. 1.409A-1(i)(8) as to uniformity requirements affecting the above Specified Employee elections.

1.51 Unforeseeable Emergency. Unforeseeable Emergency means (choose (a) or choose one of (b) or (c)):

¨ (a) Not applicable. Unforeseeable Emergency does not apply for purposes of this Plan.

x (b) All events. All events constituting Unforeseeable Emergency.

¨ (c) Limited. Only the following events constituting Unforeseeable Emergency: _____________________________________ _____________________________________________________________________________________________________.

1.56 Wraparound Election. The Plan (choose one of (a) or (b)) :

¨ (a) Permits. Permits Participants who participate in a 401(k) plan of the Employer to make Wraparound Elections.

x (b) Not permitted. Does not permit Wraparound Elections (or the Employer does not maintain a 401(k) plan covering any Participants).

1.57 Year of Service. The following apply in determining credit for a Year of Service under the Plan (choose (a) or choose one or more of (b) – (e)):

¨ (a) Not applicable. Year of Service does not apply for purposes of this Plan.

¨ (b) Year of continuous service. To receive credit for one Year of Service, the Participant must remain in continuous employment with the Employer (or render contract service to the Employer) for the Participant’s entire Taxable Year.

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¨ (c) Service on any day. To receive credit for one Year of Service, the Participant only need be employed by the Employer (or render contract service to the Employer) on any day of the Participant’s Taxable Year.

¨ (d) Pre-Plan service. The Employer will treat service before the Plan’s Effective Date for determining Years of Service as follows (choose one of (i) or (ii)):

¨ (i) Include.

¨ (ii) Disregard.

x (e)(Specify): Years of Service shall be credited pursuant to the same rules as are used to determine vesting under The Standard 401(k) Plan.

ARTICLE II

PARTICIPATION

2.01 Participant Designation. The Employer designates the following Employees or Contractors as Participants in the Plan (choose one of (a), (b) or (c)):

¨ (a) All top-hat Employees. All Employees whom the Employer from time to time designates in writing as part of a select group of management or highly compensated employees.

¨ (b) All Employees with maximum qualified plan additions or benefits. All Employees who have reached or will reach their limit under Code §§415(b) or (c) in the Employer’s qualified plan for the Taxable Year or for the 415 limitation year ending in the Taxable Year.

x (c) Specified Employees/Contractors by name, job title or classification: The Chief Executive Officer and any officer of the Employer who is designated by the Chief Executive Officer shall be eligible to participate. The Chief Executive Officer shall be eligible for all contribution sources. Prior to each Plan Year, the Chief Executive Officer shall specify which officers are eligible to participate and the contribution sources for which they are eligible. These designations shall be attached as Exhibit A.

2.02 Elective Deferrals. Elective Deferrals by Participants are (choose one of (a), (b) or (c)):

x (a) Permitted. Participants may make Elective Deferrals.

¨ (b) Not permitted. Participants may not make Elective Deferrals.

¨ (c) Frozen Elective Deferrals. The Plan does not permit Elective Deferrals as of:                                                                                                                                                                                                                                                                          .

2.02(A) Amount limitation/conditions. A Participant’s Elective Deferrals for a Taxable Year are subject to the following amount limitation(s) or other conditions (choose (a) or choose at least one of (b) – (d)):

¨ (a) No limitation.

x (b) Maximum Elective Deferral amount: Participants may not defer more than 50% of their Compensation for the Plan Year.

x (c) Minimum Elective Deferral amount: Participants may defer a whole number percentage of Compensation for that Plan Year that is not less than two percent.

x (d)(Specify): Elective Deferrals may be withheld but not contributed to the Plan to the extent necessary to offset the Participant’s share of FICA amounts not otherwise paid by the Participant.

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2.02(B) Election timing. A Participant must provide the Elective Deferral election under Section 2.02 to the Employer (choose one of (a) or (b)):

x (a) By the deadline. No later than the applicable election deadline under Section 2.02(B).

¨ (b) Specified date. No later than                                               days before the applicable election deadline under Section 2.02(B).

2.02(B)(6) Final payroll period. The Plan treats final payroll period Compensation under Section 2.02(B)(6) as (choose one of (a) or (b)):

¨ (a) Current Year. As Compensation for the current Taxable Year in which the payroll period commenced.

x (b) Subsequent Year. As Compensation for the subsequent Taxable Year in which the Employer pays the Compensation.

2.02(C) Election changes/Irrevocability. A Participant who makes an Elective Deferral election before the applicable deadline under Section 2.02(B) (choose one of (a) or (b)):

x (a) May change. May change the election until the applicable election deadline.

¨ (b) May not change. May not change the election as to the first Taxable Year to which the election applies.

Note: A payment election under Section 4.02(A) or (B) is a separate election which is not controlled by this Section 2.02(C). See Section 4.06(B).

2.02(D) Election duration. A Participant’s Elective Deferral election (choose one of (a) or (b)):

x (a) Taxable Year only. Applies only to the Participant’s Compensation for the Taxable Year for which the Participant makes the election.

¨ (b) Continuing. Applies to the Participant’s Compensation for all Taxable Years, commencing with the Taxable Year for which the Participant makes the election, unless the Participant makes a new election or revokes or modifies an existing election.

2.03 Nonelective Contributions. During each Taxable Year the Employer will contribute a Nonelective Contribution for each Participant equal to (choose (a) or (f) or choose one or more of (b) – (e)):

¨ (a) None. The Employer will not make Nonelective Contributions to the Plan.

¨ (b) Fixed percentage.                     % of the Participant’s Compensation.

¨ (c) Fixed dollar amount. $                     per Participant.

¨ (d) Discretionary. Such Nonelective Contributions (or additional Nonelective Contributions) as the Employer may elect, including zero.

x (e)(Specify): A Participant who is not a participant in the Supplemental Retirement Plan for the Senior Officer Management Group and who has Excess Compensation for the Taxable Year shall be entitled to a Nonelective Contribution if specified in Exhibit A. Such Nonelective Contribution shall be a percentage of the Participant’s Excess Compensation for the Taxable Year equal to the percentage of Compensation that is made as a nonelective contribution for such Participant to The Standard 401(k) Plan or that would be made if such Participant were not participating in the Standard Retirement Plan for Home Office Personnel. The Nonelective Contribution shall be based on the Participant’s years of participation after 2002. It will be made to the Plan as soon as practicable after Plan Year end. The amount of the contribution may be reduced to the extent necessary to offset the Participant’s share of FICA amounts not otherwise paid by the Participant.

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¨ (f) Frozen Nonelective Contributions. The Employer will not make any Nonelective Contributions as of: ____________ ___________________________________________________________________________________________________.

2.04 Matching Contributions. During each Taxable Year, the Employer will contribute a Matching Contribution equal to (choose (a) or (i) or choose one or more of (b) – (h)):

¨ (a) None. The Employer will not make Matching Contributions to the Plan.

¨ (b) Fixed match-flat. An amount equal to                     % of each Participant’s Elective Deferrals for each Taxable Year.

¨ (c) Fixed match-tiered. An amount equal to the following percentages for each specified level of a Participant’s Elective Deferrals or Years of Service for each Taxable Year:

Elective Deferrals	Matching Percentage
_____________	_____________	%
_____________	_____________	%
_____________	_____________	%
_____________	_____________	%

Note: Specify Elective Deferrals subject to match as a percentage of Compensation or a dollar amount.

Years of Service	Matching Percentage
_____________	_____________	%
_____________	_____________	%
_____________	_____________	%
_____________	_____________	%

¨ (d) No other caps. The Employer in applying the Matching Contribution formula under 2.04(b) or (c) above will not limit the Participant’s Elective Deferrals taken into account (except as indicated above) and otherwise will not limit the amount of the match.

¨ (e) Limit on Elective Deferrals matched. The Employer in making Matching Contributions will disregard a Participant’s Elective Deferrals exceeding_____________ (specify percentage or dollar amount of Compensation) for the Taxable Year.

¨ (f) Limit on matching amount. The Matching Contribution for any Participant for a Taxable Year may not exceed:                                                       (specify percentage or dollar amount of Compensation).

¨ (g) Discretionary. Such Matching Contributions as the Employer may elect, including zero.

x (h)(Specify): The Employer’s Matching Contribution for the Taxable Year shall be the lesser of the following:

(i) four percent of the Participant’s Excess Compensation for the Taxable Year; and

(ii) 100 percent of the Participant’s Elective Deferral for the Taxable Year, and shall be contributed in February following the end of the Taxable Year to which the Matching Contribution relates. This amount may be reduced to the extent necessary to offset the Participant’s share of FICA amounts not otherwise paid by the Participant.

¨ (i) Frozen Matching Contributions. The Employer will not make any Matching Contributions as of:                                                                                                                                                                                                                                                           .

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2.05 Actual or Notional Contribution. The Employer’s Contributions will be (choose one of (a) or (b) and choose (c) as applicable):

x (a) Actual. Made in cash or property to Participant Accounts or to the Trust.

¨ (b) Notional. Credited to Participant Accounts only as a bookkeeping entry.

¨ (c)(Specify): ____________________________________________________________________________.

2.06 Allocation Conditions. To receive an allocation of Employer Contributions, a Participant must satisfy the following conditions during the Taxable Year (choose (a) or choose one or both of (b) and (c)):

x (a) No allocation conditions.

¨ (b) Year of continuous service. The Participant must remain in continuous employment with the Employer (or render contract service to the Employer) for the entire Taxable Year.

¨ (c)(Specify): _____________________________________________________________________________.

ARTICLE III

VESTING AND SUBSTANTIAL RISK OF FORFEITURE

3.01 Vesting Schedule/Other Substantial Risk of Forfeiture. The following vesting schedule or other Substantial Risk of Forfeiture applies to a Participant’s Accrued Benefit (choose (a) or choose one or more of (b) – (f)):

¨ (a) Not applicable. The Plan does not apply a vesting schedule or other Substantial Risk of Forfeiture.

¨ (b) Immediate vesting. 100% Vested at all times with respect to the entire Accrued Benefit.

x (c) Immediate vesting–Elective Deferrals and Matching Contributions. A Participant’s Elective Deferral Account and Matching Contributions Account are 100% Vested at all times.

x (d) Vesting schedule – Nonelective Contributions Account. The Participant’s entire Nonelective Contributions Account is subject to the following vesting schedule:

Years of Service	Vesting %
less than 3	0	%
3 or more	100	%

¨ (e) Vesting schedule – class year or all years. The Plan’s vesting schedule applies as follows (Choose one of (i) or (ii)):

¨ (i) Class year. Apply the vesting schedule separately to the Deferred Compensation for each Taxable Year.

¨ (ii) All years. Apply the vesting schedule to all Deferred Compensation based on all Years of Service.

¨ (f) Other Substantial Risk of Forfeiture. (Specify):                                                                                                                                                                                                                                                                                                                                         .

Note: An Employer may elect both a vesting schedule and an additional Substantial Risk of Forfeiture. In such event, a Participant failing to satisfy the conditions resulting in a Substantial Risk of Forfeiture will forfeit his/her Account, even if 100% Vested under any vesting schedule. If the Plan is an Ineligible 457 Plan, the Employer must specify a Substantial Risk of Forfeiture, which may be a vesting schedule provided that under any “graded” vesting schedule, an Ineligible 457 Plan Participant will be taxed as and when each portion of his/her Deferred Compensation vests.

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3.02 Immediate Vesting upon Specified Events. A Participant’s entire Accrued Benefit is 100% Vested without regard to Years of Service if the Participant’s Separation from Service with the Employer occurs on or following or as a result of (choose (a) or choose one or more of (b) – (e)):

¨ (a) Not Applicable.

¨ (b) Retirement Age. On or following Retirement Age.

¨ (c) Death. As a result of death.

¨ (d) Disability. As a result of Disability.

x (e)(Specify): The Participant’s attainment of Normal Retirement Age (as defined by The Standard 401(k) Plan) while an Employee.

Note: An early vesting provision generally does not result in prohibited acceleration of benefits under Code §409A. See Section 4.03(C).

3.03 Application of Forfeitures. The Employer will (choose only one of (a) – (d)):

¨ (a) Not Applicable. Not apply any provision regarding allocation of forfeitures since there are no Plan forfeitures.

x (b) Retain. Keep all forfeitures for the Employer’s account.

¨ (c) Allocate. Allocate (in the year in which the forfeiture occurs) any forfeiture to the Accounts of the remaining (nonforfeiting) Participants, in accordance with one of the following methods (choose only one):

¨ (i) Per Compensation. In the same ratio each Participant’s Compensation for the Taxable Year bears to the total Compensation of all Participants sharing in the forfeiture allocation for the Taxable Year.

¨ (ii) Per Account balances. In the same ratio each Participant’s Account balance at the beginning of the Taxable Year bears to the total Account balances of all Participants sharing in the forfeiture allocation for the Taxable Year.

¨ (d)(Specify):                                                                                                                                                                    .

Note: If the Employer elects to create the Trust under Section 5.03, the Employer should coordinate its forfeiture application elections with the provisions of the Trust.

ARTICLE IV

BENEFIT PAYMENTS

4.01 Payment Events/Elections. The Plan payment events are (choose one or more of (a) through (i) as applicable):

Note: The Employer must elect the Plan permitted payment events. The Employer may elect all of the 409A permitted events or limit the payment events, but the Employer must elect at least one payment event. If the Plan permits initial payment elections, change payment elections, or both, as to any or all of the Plan permitted payment events, the Employer should elect 4.01(d)(iv), (e)(ii) and (i) as applicable. The Employer also should elect under 4.02(A) and 4.02(B) as to who has election rights and to specify any limitations on

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such rights. If the Plan will not offer any initial or change payment elections, the Employer should not elect 4.01(d)(iv), (e)(ii) or (i). If the Plan will not offer any initial payment elections the Employer also should elect 4.02(A)(a). If the Plan will not offer change payment elections, the Employer also should elect 4.02(B)(a).

x (a) Separation from Service.

x (b) Death.

¨ (c) Disability.

¨ (d) Specified Time. The Plan permits payment to a Participant at a Specified Time (choose one of (i)- (iv)):

¨ (i) Forfeiture Lapse. At the time that the Deferred Compensation no longer is subject to a Substantial Risk of Forfeiture.

¨ (ii) Stated Age. Upon attainment of age:                      (specify age).

¨ (iii) (Specify): On:                                                               (e.g., January 1, 2015).

¨ (iv) Election. In accordance with a Participant or Employer election under 4.02(A) or (B).

Note: The Employer must approve any Participant payment election. See Section 4.06. Payment at a Specified Time will be a lump-sum payment.

¨ (e) Fixed Schedule. The Plan Permits payment to a Participant in accordance with the following Fixed Schedule (choose one of (i) or (ii)):

¨ (i) Schedule:                                                              .

¨ (ii) Election. In accordance with a Participant or Employer election under 4.02(A) or (B).

Note: The Employer must approve any Participant payment election. See Section 4.06. Payment pursuant to a Fixed Schedule will be installments or an annuity commencing at a specific time.

¨ (f) Change in Control. The Plan permits payment to a Participant based on a Change in Control.

x (g) Unforeseeable Emergency. The Plan permits payment to a Participant who has an Unforeseeable Emergency.

¨ (h)(Specify):                                                                                                        (e.g., based on Unforeseeable Emergency, but only as the Elective Deferral Accounts).

Note: The Employer in (h) may modify any of (a)-(g) but only if such modifications are consistent with Code §409A.

¨ (i) Election. As to 4.01 (a), (b), (c), (f), (g) and/or (h), in accordance with a Participant or Employer election under 4.02(A) or (B).

Note: The Employer must approve any Participant payment election. See Section 4.06.

4.01(E) Contractor deemed Separation from Service. In making any payment to a Contractor based on Separation from Service, the Plan (choose (a) or choose one of (b) or (c)):

x (a) Not applicable. \ Only Employees are Participants in the Plan.

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¨ (b) Applies deemed Separation from Service. Applies the deemed Separation from Service provisions of Section 4.01(E).

¨ (c) Does not apply. Does not apply the deemed Separation from Service provisions of Section 4.01(E).

4.02 Timing, Form and Medium of Payment/Elections. The Plan will pay a Participant’s Vested Accrued Benefit as follows (complete (a), (b) and (c)):

(a) Timing. Payment will commence or be made (choose only one of (i) - (vi)):

¨ (i) 30 days. On a date which is 30 days following the payment event, unless otherwise made at a Specified Time or in accordance with a Fixed Schedule.

¨ (ii) 90 days. On a date which is within 90 days following the payment event, unless otherwise made at a Specified Time or in accordance with a Fixed Schedule.

Note: A Participant may not designate the Taxable Year of Payment under (a)(ii).

¨ (iii) 6 months. On a date that is 6 months following the payment event, unless otherwise made at a Specified Time or in accordance with a Fixed Schedule.

¨ (iv) Specified Time/Fixed Schedule. At the Specified Time under Section 4.01(d) or pursuant to the Fixed Schedule under Section 4.01(e).

x (v)(Specify) Payments on Separation from Service shall commence in January following the Participant’s Separation from Service. Death benefits shall be payable within 60 days of the date of death.

¨ (vi) Election. In accordance with a Participant or Employer election under Sections 4.02(A) or (B).

Note: The Employer must approve any Participant payment election. See Section 4.06(C).

Note: See Section 4.01(D) as to restrictions on timing of payments to Specified Employees.

(b) Form. The Plan will make payment in the form of (choose one or more of (i) – (v)):

x (i) Lump-sum. A single payment.

x (ii) Installments. In installments as follows: in 5 or 10 substantially equal installments.

¨ (iii) Annuity. An immediate annuity contract.

x (iv)(Specify): If the payment is made in installments, the initial installment shall be fixed by the Plan Administrator based on an assumed rate of return on the Employer’s general portfolio during the installment period. Regardless of the Participant’s election, the Participant’s benefit shall be paid as a single lump sum distribution in the January following Separation from Service if the total benefit is less than $50,000 on the January 1 following the Participant’s Separation from Service. If the payment is made to a Beneficiary after the Participant’s death, the payment shall be paid as a lump sum within 60 days after the Participant’s death. If the payment is due to an Unforeseeable Emergency, it must be paid as a lump sum.

x (v) Election. In accordance with a Participant or Employer election under Sections 4.02(A) or (B).

Note: The Employer must approve any Participant payment election. See Section 4.06.

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(c) Medium. The form of payment will be (choose only one of (i) - (iv)):

x (i) Cash only.

¨ (ii) Property only.

¨ (iii) Property or cash (or both).

¨ (iv) Election. In accordance with a Participant or Employer election under 4.02(A) or (B).

Note: The Employer must approve all Participant payment elections. See Section 4.06.

Note: A choice between cash or property is not subject to Code §409A. See Treas. Reg. §1.409A-2(a)(1).

The Plan treats this election as not being subject to the timing rules applicable to payment elections.

4.02(A) Initial payment elections. The Plan (choose only one of (a) - (d)):

¨ (a) No initial payment elections. The Plan and Adoption Agreement specify the payment events and the timing, form and medium of payment. If there are multiple payment events, the Plan will make payment based on the earliest event to occur except as follows:                                                                                   (indicate no exceptions or specify sequencing).

¨ (b) Participant initial payment election. Permits a Participant initially to elect the payment event and the timing, form and medium of payment of his/her Deferred Compensation in accordance with Section 4.02(A) (choose only one of (i) or (ii)):

¨ (i) All Accounts. The Plan applies a Participant’s elections to all of the Participant’s Accounts under the Plan.

¨ (ii) Elective Deferral Account. The Plan applies a Participant’s elections only to the Participant’s Elective Deferral Account. The Employer will make all payment elections as to Nonelective and Matching Contribution Accounts.

Note: A Participant must elect a payment event from those which the Employer has elected under 4.01 above, unless the Employer has permitted a Participant to elect the 409A permissible payment events. A Participant in his/her election form may limit the payment election to Compensation Deferred at the time of the election or also may apply the payment election to all future Deferred Compensation.

¨ (c) Employer initial payment election. Permits the Employer (and not the Participant) initially to elect the payment events and the timing, form and medium of payment of all Participant Accounts in accordance with Section 4.02(A).

x (d)(Specify): The payment timing and medium are fixed by the Plan. The Participant may initially elect the form of payment.

Note: If a Participant or the Employer does not make an initial payment election, see Sections 4.01(B) and 4.02(A)(5).

4.02(B) Change payment elections. The Plan (choose only one of (a) or (b); choose (c) if (b) applies and choose (d) if applicable):

Note: Even if the Employer under 4.02(A)(a) elects not to permit any Participant or Employer initial payment elections, the Plan under Section 4.02(A)(1)treats a Plan designation of the payment events and of the timing, form and medium of payment as an initial election for purposes of applying any change election the Plan permits.

¨ (a) Change payment elections not permitted. Does not permit a Participant, a Beneficiary or the Employer to make a change payment election in accordance with Section 4.02(B).

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x (b) Permits change payment elections. Permits changes payment elections or changes to a change payment elections in accordance with Section 4.02(B) and as follows (choose one or more of (i) -(iv) ):

x (i) Participant election. Permits a Participant to make change payment elections.

¨ (ii) Employer election. Permits the Employer to make change payment elections.

¨ (iii) Beneficiary election. Permits a Beneficiary following the Participant’s death to make change payment elections.

¨ (iv)(Specify):                                                                                   (e.g., a Beneficiary may make a change payment election only if the Participant had the right to do so, OR a Participant may make a change payment election only after attaining age 60).

¨ (c) Limit on number of change payment elections. The number of change payment elections (as to any initial payment election) that a Participant, a Beneficiary or the Employer (as applicable) may make is (choose one of (i) or (ii)):

x (i) Unlimited. Not limited except as required under Section 4.02(B).

¨ (ii) Limited. Limited to:                          (specify number).

¨ (d)(Specify):                                                                                   (e.g., permits change payment elections only as to Elective Deferral Account).

4.02(B)(3)(b) Installment payments. The Plan under Section 4.03(B)(3)(b) for purposes of application of the change payment election provisions treats an installment payment as a (choose one of (a), (b) or (c)):

x (a) Single payment.

¨ (b) Series of payments.

x (c) Treatment for 2005 through 2007. For the period spanning 2005 through 2007, treat installments as (choose one of (i) or (ii)):

x (i) Single payment.

¨ (ii) Series of payments.

Note: If the Plan is a restated Plan, and the Employer otherwise before January 1, 2008, did not make a written designation regarding the treatment of installment payments, the Employer in (c) may elect to apply a different election for the period spanning 2005 through 2007, than applies after 2007 under (a) or (b). See Treas. Reg. 1.409A-2(b)(2)(iv).

¨ (d) Not applicable. The Plan does not permit installment payments.

4.06(B) Election changes/Irrevocability. A Participant who makes an initial payment election or a change payment election which the Employer has accepted (complete (a) and (b)):

(a) Initial payment elections. (choose one of (i), (ii) or (iii)):

x (i) May change. May change the initial payment election as to the Deferred Compensation to which the election applies, until the applicable election deadline under 4.02(A)(2)(a). Any change to an initial payment election made after the initial payment election becomes irrevocable is a change payment election.

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¨ (ii) May not change. May not change the initial election as to the Deferred Compensation to which the election applies.

¨ (iii) Not applicable. As elected above, a Participant may not make an initial payment election.

(b) Change payment elections. (choose one of (i), (ii) or (iii)):

x (i) May change. May change the change payment election as to the Deferred Compensation to which the election applies. Where the payment event is a Specified Time or a Fixed Schedule, the Participant may change the election until the applicable deadline under Section 4.02(B)(1)(a). Where the change payment election relates to any other payment event (not a Specified Time or a Fixed Schedule), the Participant must make the change within 30 days following the Participant’s making of the change payment election which the Participant seeks to change. Any change to a change payment election made after the change payment election becomes irrevocable is a new change payment election.

¨ (ii) May not change. May not change the change payment election as to the Deferred Compensation to which the election applies.

¨ (iii) Not applicable. As elected above, a Participant may not make a change payment election.

Note: An Elective Deferral election under Section 2.02(C) is a separate election which is not controlled by this election 4.06(B).

ARTICLE V

TRUST ELECTION AND INVESTMENTS

5.02 No Trust. The Employer by electing (a) or (b) below does not create the Trust described in Section 5.03. Section 5.02 applies. The Employer will credit each Participant’s Account with (choose one or both of (a) or (b)):

x (a) Actual Earnings (choose only one of (i) through (iv)):

¨ (i) Employer direction. As a result of the Employer’s directed investment of the Account.

¨ (ii) Participant direction. As a result of the Participant’s directed investment of his/her own Account.

¨ (iii) Participant direction over Elective Deferrals. As a result of the Participant’s directed investment of his/her own Elective Deferral Account, and the Employer’s directed investment of the balance of the Participant’s Account.

x (iv) (Specify): As a result of the Participant’s directed investment of his/her own Account, except that as of January 1 following the Participant’s Separation from Service or as of the date of the Participant’s death, as applicable, the Participant’s Account shall be adjusted by the gain or loss on the general portfolio account of Standard Insurance Company until the entire balance of the Account has been paid to the Participant or Beneficiary.

¨ (b) Notional Earnings. (choose one or both of (i) or (ii)):

¨ (i) Fixed/floating interest. Interest at the rate of                                 and applied to (choose only one of (A), (B) or (C)):

Note: use blank to specify rate, fixed or floating with index, time interval, simple or compounded interest, etc.

¨ (A) Total Account. The Participant’s entire Account.

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¨ (B) Deferrals only. The Participant’s Elective Deferral Account, with the balance of the Account being subject to actual investment as specified in 5.02(a).

¨ (C) Employer Contribution only. The Participant’s Employer Contribution Accounts with the balance of the Account being subject to actual investment as specified in 5.02(a).

¨ (ii) (Specify): ____________________________________________________________________________

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5.03 Trust. The Employer by electing (a) or (b) below will establish the Trust described in Section 5.03 and designated as Exhibit C. The Trust will be identical in form to the Model Rabbi Trust issued by the Internal Revenue Service under Rev. Proc. 92-64 or any successor thereto. The Employer also may modify the Trust if necessary to comply with Applicable Guidance. The Employer will select among the optional and alternative features available under the Trust, and the Employer will not establish or adopt any other trust under the Plan. The version of the Trust the Employer adopts is (choose one of (a) or (b)):

¨ (a) Individually designed version.

¨ (b) Adoption agreement version.

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EMPLOYER SIGNATURE

The Employer hereby agrees to the provisions of this Plan, and in witness of its agreement, the Employer, by its duly authorized officer, has executed this Adoption Agreement on                     .

Name of Employer: StanCorp Financial Group, Inc.

Signed:

[Name/Title]

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NONQUALIFIED

DEFERRED COMPENSATION PLAN

BASIC PLAN DOCUMENT

(Including Code §409A provisions)

Nonqualified Deferred Compensation Prototype Plan

NONQUALIFIED

DEFERRED COMPENSATION PLAN

BASIC PLAN DOCUMENT

By execution of the Adoption Agreement associated with this Basic Plan Document, the Employer establishes this Nonqualified Deferred Compensation Plan (“Plan”) for the benefit of certain Employees and Contractors the Employer designates in its Adoption Agreement. The primary purpose of the Plan is to provide additional compensation to Participants upon termination of employment or service with the Employer. The Employer will pay benefits under the Plan only in accordance with the terms and conditions set forth in the Plan.

PREAMBLE

ERISA/Code Plan Type. The Employer in its Adoption Agreement will specify whether it establishes the Plan as a nonqualified deferred compensation plan or as an ineligible Code §457(f) plan. A nonqualified deferred compensation plan is an unfunded plan that may be: (i) an “excess benefit plan” under ERISA §3(36); (ii) a plan maintained “primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” (“top-hat plan”) under ERISA §§201(2), 301(a)(3) and 401(a)(1); (iii) a plan only for Contractors and exempt from Title I of ERISA; or (iv) a church plan under Code §414(e) and ERISA §3(33) and maintained by a church or church-controlled organization under Code §3121(w)(3). A top-hat plan includes a supplemental executive retirement plan (“SERP”). A tax-exempt Code §457(f) plan may include a church plan under Code §414(e) and ERISA §3(33) but which is not sponsored by a church or church-controlled organization under Code §3121(w)(3).

409A Plan Type. The Employer in its Adoption Agreement will specify whether it establishes the Plan as an Account Balance Plan or as a Separation Pay Plan.

Possible Nonuniformity. The Employer in its Adoption Agreement will specify such Plan terms as will apply to all Participants uniformly or as may apply to a given Participant. Except where the Plan or Applicable Guidance require uniformity in order to comply with Code §409A, the Employer need not provide the same Plan benefits or apply the same Plan terms and conditions to all Participants, even as to Participants who are of similar pay, title and other status with the Employer. The elections the Employer makes in its Adoption Agreement apply uniformly to all Participants, except to the extent the Employer adopts inconsistent provisions with respect to one or more Participants in a separate attachment designated as “Exhibit A” and attached to the Adoption Agreement. The Employer may create a separate Exhibit A for one or more Participants, specifying such terms and conditions as are applicable to a given Participant. The Employer, in Exhibit A, may modify any Plan provision or any Adoption Agreement election as to one or more Participants.

I. DEFINITIONS

1.01 “Account” means the account the Employer establishes under the Plan for each Participant and, as applicable, means a Participant’s Elective Deferral Account, Nonelective Contribution Account or Matching Contribution Account.

1.02 “Account Balance Plan” means an Elective Deferral Account Balance Plan or an Employer Contribution Account Balance Plan, or a combination of both, as the Employer elects in its Adoption Agreement.

(A) Elective Deferral Account Balance Plan. An Elective Deferral Account Balance Plan is a plan comprised of an Elective Deferral Account as described under Treas. Reg. §1.409A-1(c)(2)(i)(A).

(B) Employer Contribution Account Balance Plan. An Employer Contribution Account Balance Plan is a plan comprised of Employer Nonelective Contribution Accounts, Matching Contribution Accounts, or both, as described under Treas. Reg. §1.409A-1(c)(2)(i)(B).

1.03 “Accrued Benefit” means the total dollar amount credited to a Participant’s Account.

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1.04 “Adoption Agreement” means the document the Employer executes to establish the Plan and includes all Exhibits and other documents referenced therein.

1.05 “Aggregated Plans” means this Plan and any other like-type plan of the Employer in which a given Participant participates and as to which the Plan (see Sections 2.02(B)(2) and 6.03(B)) or Treas. Reg. §1.409A-1 (c)(2) requires the aggregation of all such nonqualified deferred compensation in applying Code §409A. For this purpose, the following rules apply:

(A) Participants in Separate Plans. The plan for a Participant is treated as a separate plan from the plan for any other Participant, even though such plans may be incorporated into a single written plan in this Plan and covering all Participants.

(B) Plan Types. The following plans under clauses (i), (ii) and (iii) are not “like-type plans” and are treated as separate from each other: (i) all Elective Deferral Account Balance Plans (including for aggregation purposes only, Separation Pay Plans based on Voluntary Separation from Service); (ii) all Employer Contribution Account Balance Plans (including for aggregation purposes only, Separation Pay Plans based on Voluntary Separation from Service); and (iii) all Separation Pay Plans based on Involuntary Separation from Service or under a Window Program.

(C) Dual Status. If a Participant in two like-type plans participates in one plan as an Employee and in the other as a Contractor, the plans are not Aggregated Plans. If an Employee also serves on the Employer’s board of directors (or in a similar capacity with regard to a non-corporate entity) and participates in like-type plans but participates in one plan as an Employee and in the other as a director (or similar capacity with regard to a non-corporate entity) [a “director plan”], the plans are not Aggregated Plans provided that the director plan is substantially similar to a plan the maintains for non-employee directors. If the director plan is not substantially similar, for purposes of aggregation, the director plan is treated as a plan for Employees. Director plans and plans for Contractors are subject to aggregation under this Section 1.05.

1.06 “Applicable Guidance” means as the context requires Code §§83, 409A and 457, Treas. Reg. §1.83, Treas. Reg. §§1.409A-1 through -6, Treas. Reg. §1.457-11, or other written Treasury or IRS guidance regarding or affecting Code §§83, 409A or 457(f), including, as applicable, any Code §409A guidance in effect prior to January 1, 2008.

1.07 “Base Salary” means a Participant’s Compensation consisting only of regular salary and excluding any other Compensation.

1.08 “Basic Plan Document” means this Nonqualified Deferred Compensation Plan document.

1.09 “Beneficiary” means the person or persons entitled to receive Plan benefits in the event of a Participant’s death.

1.10 “Bonus” means a Participant’s Compensation consisting only of bonus and excluding any other Compensation. A Bonus also may be Performance-Based Compensation under Section 1.37.

1.11 “Change in Control” means, as to an Employer which is a corporation, a change: (i) in the ownership of the Employer (acquisition by one or more persons acting as a group of more than 50% of the total voting power or fair market value of the Employer); (ii) in the effective control of the Employer (acquisition or acquisition during a 12-month period ending on the date of the latest acquisition, by one or more persons acting as a group of 30% or more of the total voting power of the Employer or replacement of a majority of the members of the board of directors of the Employer [described below, but including only the entity for which no other corporation is a majority shareholder] during any 12-month period by directors not endorsed by a majority of the board before the appointment or election); or (iii) in the ownership of a substantial portion of the assets of the Employer (acquisition or acquisition during a 12-month period ending on the date of the latest acquisition, by one or more persons [other than related persons described in Treas. Reg. §1.409A-3(i)(5)(vii)(B)] acting as a group of assets with a total gross fair market value of 40% or more of the total gross fair market value of all assets of the Employer immediately before such acquisition or acquisitions), each within the meaning of Treas. Reg. §1.409A-3(i)(5) or in Applicable Guidance. For this purpose, the Employer

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includes the Employer, the corporation which is liable for the payment of the Deferred Compensation, a majority shareholder (more than 50% of total fair market value and voting power) of the foregoing or a corporation in a chain of corporations in which each is a majority owner of another corporation in the chain, ending in the Employer or in the corporation that is liable for payment of the Deferred Compensation, all in accordance with Treas. Reg. §1.409A-3(i)(5)(ii). An event constituting a Change in Control must be objectively determinable and any certification thereof by the Employer or its agents may not subject to the discretion of such person. For purposes of applying this Section 1.11, stock ownership is determined in accordance with Code §318(a) as modified under Treas. Reg. §1.409A-3(i)(5)(iii). The Employer in its Adoption Agreement will elect whether a Change in Control includes any or all the events described in clauses (i), (ii) or (iii) and also may elect to increase the percentage change required under any such event to constitute a Change in Control. Pending the issuance of Applicable Guidance as to the application of the Change in Control provisions to partnerships (or other non-corporate entities), if the Employer elects in its Adoption Agreement to permit Change in Control as a payment event, the Employer will apply clauses (i) and (iii) and clause (ii) as it relates to a change in the composition of the board of directors by analogy in accordance with Treas. Reg. §1.409A, Preamble, II.G.

1.12 “Change in the Employer’s Financial Health” means an adverse change in the Employer’s financial condition as described in Applicable Guidance.

1.13 “Code” means the Internal Revenue Code of 1986, as amended.

1.14 “Commissions” means Compensation or portions of Compensation consisting of Sales Commissions or of Investment Commissions. See Section 2.02(B)(5).

(A) Sales Commissions. Sales Commissions means Compensation or portions of Compensation a Participant earns if: (i) a substantial portion of Participant’s services to the Employer consists of the direct sale of a product or a service to a customer that is not related or treated as related to the Employer or to the Participant (under Treas. Reg. §§1.409A-1(f)(2)(ii)) and (iv)); (ii) the Compensation the Employer pays to the Participant consists either of a portion of the purchase price for the product or service or of an amount substantially all of which is calculated by reference to volume of sales; and (iii) payment is either contingent upon the Employer receiving payment from an unrelated customer (as described in clause (i) above) for the product or services or, if consistently applied as to all similarly situated service providers, is contingent upon the closing of a sales transaction and such other requirements as the Employer may specify before the closing of the sales transaction.

(B) Investment Commissions. Investment Commissions means Compensation or portions of Compensation a Participant earns if: (i) a substantial portion of the Participant’s services to the Employer to which the Compensation relates consists of sales of financial products or other direct customer services to a customer that is not related or treated as related to the Employer or to the Participant (under Treas. Reg. §§1.409A-1(f)(2)(ii)) and (iv)) as to customer assets or customer asset accounts; (ii) the customer retains the right to terminate the relationship and to move or liquidate the assets or asset accounts without undue delay (but subject to a reasonable notice period); (iii) the Compensation is based on a portion of the value of the overall assets or asset account balance, substantially all of the Compensation is calculated by reference to the increase in value of the overall assets of account balance, or both; and (iv) the value of the overall assets or account balance and Investment Commissions are determined at least annually.

(C) Related Customer Commissions. This Section 1.14 also applies to Sales Commissions and to Investment Commissions involving a related customer provided: (i) the Employer as to unrelated customers makes substantial sales or provides substantial services giving rise to Commissions; and (ii) the sales, service and Commission arrangements with the related customer are bona fide, arise from the Employer’s ordinary course of business and are substantially the same, in terms and in practice, as those terms and practices that apply to unrelated customers to which substantial sales are made or substantial services are rendered.

1.15 “Compensation”

(A) Employees. Compensation means as to an Employee, gross W-2 compensation. “W-2 Compensation” means wages for federal income tax withholding purposes, as defined under Code §3401(a), plus all other payments to an Employee in the course of the Employer’s trade or business, for which the Employer must furnish the Employee a written statement under Code §§6041, 6051 and 6052, disregarding

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any rules limiting the remuneration included as wages under this definition based on the nature or location of the employment or service performed. “Gross W-2 compensation” means W-2 compensation plus all amounts excludible from a Participant’s gross income under Code §§125,132(f)(4), 402(e)(3), 402(h)(2), 403(b), and 408(p), contributed by the Employer, at the Participant’s election, to a cafeteria plan, a qualified transportation fringe benefit plan, a 401(k) arrangement, a SEP, a tax sheltered annuity, or a SIMPLE plan.

(B) Contractors. Compensation as to a Contractor means all payments by the Employer to the Contractor for services during a Taxable Year.

(C) Modifications. The Employer in its Adoption Agreement will elect whether to modify the definition of Compensation. The Employer may modify the definition of Compensation or may specify a different definition of Compensation either as to Employees, as to Contractors or both.

1.16 “Contractor” means a person or entity providing services to the Employer (not as an Employee) as described in Treas. Reg. §1.409A-1(f)(1) and which for any Taxable Year of the Contractor that the Contractor is on the cash receipts and disbursements method of accounting for Federal income tax purposes. A person serving on a board of directors is a Contractor as to Compensation for such service without regard to whether the person is an Employee for other purposes. A Contractor is not subject to this Plan or to Code §409A if in the Taxable Year in which the Legally Binding Right to Compensation arises: (i) the Contractor is actively engaged in the trade or business of performing services other than as an Employee or as a director (or similar position as to a non-corporate Employer); (ii) the Contractor provides significant services to the Employer and to at least 2 other unrelated service recipients, where the Contractor, the Employer and the other service recipient(s) are all unrelated to each other within the meaning of Treas. Reg. §§1.409A-1(f)(2)(i)(B) and (C) as applicable; and (iii) the services are not “management services” within the meaning of Treas. Reg. §1.409A-1(f)(2)(iv). For purposes of clause (ii) “significant services” means as described in Treas. Reg. §1.409A-1(f)(2)(iii). This Plan and Code §409A also do not apply to certain other “related” Contractor services as described in Treas. Reg. §1.409A-1(f)(2)(v).

1.17 “Disability” except as the Plan otherwise provides means a condition of a Participant who by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months: (i) is unable to engage in any substantial gainful activity; or (ii) is receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering Employees. The Employer in its Adoption Agreement will elect whether Disability includes all impairments constituting Disability under this Section 1.17, or only certain specified Disabilities which satisfy the foregoing definition. The Employer will determine whether a Participant has incurred a Disability based on its own good faith determination and may require a Participant to submit to reasonable physical and mental examinations for this purpose. A Participant will be deemed to have incurred a Disability if: (i) the Social Security Administration or Railroad Retirement Board determines that the Participant is totally disabled; or (ii) the applicable insurance company providing disability insurance to the Participant under an Employer sponsored disability program determines that a Participant is disabled under the insurance contract definition of disability, provided such definition complies with the definition in this Section 1.17.

1.18. “Deferred Compensation” means the Participant’s Account Balance attributable to Elective Deferrals and Employer Contributions and includes Earnings on such amounts except where the Plan otherwise provides. “Compensation Deferred” is Compensation that the Participant or the Employer has deferred under this Plan. Compensation is Deferred Compensation if: (i) under the terms of the Plan and the relevant facts and circumstances, the Participant has a Legally Binding Right to Compensation during a Taxable Year that the Participant has not actually or constructively received and included in gross income; and (ii) pursuant to the Plan terms, the Compensation is or may be payable to or on behalf of the Participant in a later Taxable Year. Deferred Compensation includes Separation Pay paid pursuant to a Separation Pay Plan except as otherwise described in Treas. Reg. §1.409A-1(b)(9) relating to certain excluded Involuntary or Voluntary Separation from Service or Window Programs and certain reimbursements, medical benefits, in-kind benefits and limited payments. Deferred Compensation excludes certain “short-term deferrals” and all other items described in Treas. Reg. §§1.409A-1(b)(3), (4), (5), (6), (8), (10), (11) and (12) or in other Applicable Guidance.

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1.19 “Earnings” means earnings, gain or loss applicable to a Participant’s Account provided that such amounts reflect actual predetermined investments or notional amounts which do not exceed a reasonable rate of interest. Amounts credited to an Account that do not reflect actual predetermined investments or a reasonable rate of interest are Deferred Compensation and are not Earnings. For purposes of making the determination of whether an amount is Earnings or is Deferred Compensation, the principles of Treas. Reg. §31.3121(v)(2)-1(d)(2) apply.

1.20 “Effective Date” of the Plan is the date the Employer specifies in the Adoption Agreement, but which is not earlier than January 1, 2008. If this Plan restates a Plan (written or otherwise) which was in effect before January 1, 2008, for periods before January 1, 2008, as to 409A Amounts, the standards and transition rules in effect under Notices 2006-79, 2006-64, 2003-33, 2006-4, Prop. Treas. Reg. §1.409A, Preamble, Section XI and Notice 2005-1 apply. See also the Treas. Reg. §1.409A Preamble, Section XII as to the treatment of certain actions which were in compliance with Applicable Guidance in effect before the issuance of such 409A Regulations on April 17, 2007, but which are not in compliance with such Regulations.

1.21 “Elective Deferral” means Compensation a Participant elects to defer into the Participant’s Account under the Plan.

1.22 “Elective Deferral Account” means the portion of a Participant’s Account attributable to Elective Deferrals and Earnings thereon.

1.23 “Employee” means a person providing services to the Employer as a common law employee (and not as a Contractor) as described in Treas. Reg. §1.409A-1(f)(1) and who, for any Taxable Year of the Employee, is on the cash receipts and disbursements method of accounting for Federal income tax purposes.

1.24 “Employer” means the person or entity: (i) receiving the services of the Participant (even if another person pays the Deferred Compensation); (ii) with respect to whom the Legally Binding Right to Compensation arises; and (iii) who or which executes an Adoption Agreement establishing the Plan. The Employer includes all persons with whom the Employer would be considered a single employer under Code §§414(b) or (c). In the case of an Ineligible 457 Plan, Employer means a State or a Tax-Exempt Organization. For purposes of this Plan, “Employer” means “service recipient” as that term in used in Treas. Reg. §1.409A-1 through -6.

1.25 “Employer Contribution” means amounts the Employer contributes or credits to an Account under the Plan, including Nonelective Contributions and Matching Contributions but not including Elective Deferrals.

1.26 “Employer Contribution Account” means the portion of a Participant’s Account attributable to Employer Contributions and Earnings thereon.

1.27 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

1.28 “409A Amount” means: (i) any Compensation Deferred prior to January 1, 2005, unless such Deferred Compensation is a Grandfathered Amount; and (ii) any Compensation Deferred in Taxable Years beginning after December 31, 2004. In determining 409A Amounts, the rules of Section 1.05 regarding Aggregated Plans apply.

1.29 “Grandfathered Amount” means an amount of Deferred Compensation hereunder as to which, prior to January 1, 2005, a Participant: (i) had a Legally Binding Right to be paid Deferred Compensation; and (ii) was Vested. However, if the Employer after October 3, 2004, materially modifies the Plan as described in Treas. Reg. 1.409A-6(a)(4), then such amount ceases to be a Grandfathered Amount. In determining Grandfathered Amounts, the rules of Section 1.05 regarding Aggregated Plans apply.

1.30 “Ineligible 457 Plan” means this Plan which is subject to Code §457(f) and that is not an eligible 457 plan under Code §457(b).

1.31 “Legally Binding Right” means, in reference to Compensation, the grant by the Employer to the Participant of an enforceable right (under contract, statute or other applicable law) to Compensation where, after the Participant has performed the services which created the Legally Binding Right, the Compensation is

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not subject to unilateral reduction or elimination by the Employer or any other person. The Employer, based on the facts and circumstances and in accordance with Treas. Reg. §1.409A-1(b)(1), will determine: (i) whether a Legally Binding Right exists; or (ii) whether a Legally Binding Right does not exist on account of the existence of negative discretion which has substantive significance to reduce or eliminate the Compensation. Negative discretion does not exist where the Participant has effective control over the person with the negative discretion, has effective control over any portion of compensation of the decision maker or is a family member of the decision maker (within the meaning of Code §267(c)(4) applied as if the family of an individual includes the spouse of any member of the family). Compensation is not subject to unilateral reduction or elimination merely because: (i) it may be reduced or eliminated by operation of objective Plan terms, such as a Substantial Risk of Forfeiture; (ii) the Compensation is determined under a formula that provides for an offset based on benefits provided under another plan, including a qualified plan; or (iii) benefits are reduced on account of actual or notional investment losses, or, in a final average pay plan, because of subsequent decreases in compensation.

1.32 “Matching Contribution” means a fixed or discretionary Employer contribution made with respect to a Participant’s Elective Deferral.

1.33 “Matching Contribution Account” means the portion of a Participant’s Account attributable to Matching Contributions and Earnings thereon.

1.34 “Nonelective Contribution” means a fixed or discretionary Employer Contribution that is unrelated to a Participant’s Elective Deferrals.

1.35 “Nonelective Contribution Account” means the portion of a Participant’s Account attributable to Nonelective Contributions and Earnings thereon.

1.36 “Participant” means an Employee or Contractor the Employer designates under Adoption Agreement Section 2.01 or in Exhibit “B” to the Adoption Agreement to participate in the Plan. For purposes of this Plan, “Participant” means a “service provider” as that term in used in Treas. Reg. 1.409A-1 through-6, who is a participant in the Plan. A reference herein to “service provider” means another service provider to the Employer, whether or not that person is a Participant.

1.37 “Performance-Based Compensation” means Compensation (including a Bonus) where the amount of, or entitlement to, the Compensation is contingent on satisfaction of preestablished organizational or individual performance criteria relating to a performance period of at least 12 consecutive months. The Employer must establish the organizational or individual performance criteria in writing not later than 90 days after commencement of the performance period and the outcome must be substantially uncertain at the time that the Employer establishes the performance criteria. The Employer may establish performance criteria without the necessity of action by its shareholders, board of directors, compensation committee or similar entities in the case of a non-corporate Employer. Performance-Based Compensation does not include any amount that will be paid regardless of performance or that will be paid based on a level of performance that is substantially certain to be met at the time the criteria are established. If the Plan will pay the Participant’s Performance-Based Compensation in the event of the Participant’s death or disability or if a Change in Control occurs, without regard to whether the performance criteria have been satisfied, the Compensation is not Performance-Based Compensation (and therefore is not entitled to the election timing under Section 2.02(B)(4)) if payment occurs as a result of any of such events. “Disability” for purposes of this Section 1.37 means any medically determinable physical or mental impairment resulting form the Participant’s inability to perform the duties of his/her position or of any substantially similar position, where such impairment can be expected to result in death or to last for a continuous period of not less than 6 months. Performance-Based Compensation does not include an amount of Compensation which is based on a specified number of shares of stock multiplied by the share price at the end of the performance period, but may include an amount of Compensation based on an increase in share price over the performance period or which is not payable unless the share price is at or above a specified price. Performance-Based Compensation may be based on subjective performance criteria provided: (i) the criteria are bona fide and relate the Participant’s performance, a group of service providers that includes the Participant or a business unit for which the Participant provides services which may include the Employer; and (ii) the person who decides whether the subjective performance criteria have been met is someone other than the Participant, the Participant’s family member (within the meaning of

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Code §267(c)(4) applied as if the family of an individual includes the spouse of any member of the family), or a person under the effective control of the Participant or such a family member. In addition, the decision maker’s compensation may not be controlled in whole or in part by the Participant or such a family member. The Employer will determine the status of Compensation as Performance-Based Compensation in accordance with Treas. Reg. §1.409A-1(e) and Applicable Guidance.

1.38 “Plan” means the Nonqualified Deferred Compensation Plan of the Employer established by and including the Adoption Agreement, the Basic Plan Document, the Trust, if any, and all notices, forms, elections and other written documentation to which the Plan refers. The Employer will set forth the name of the Plan in its Adoption Agreement. For purposes of applying Code §409A requirements this Plan, as the Employer elects in its Adoption Agreement, is an Elective Deferral Account Balance Plan, an Employer Contribution Account Balance Plan or both, or is a Separation Pay Plan. This Plan does not constitute: (i) a Code §401(a) plan with and exempt trust under Code §501(a); (ii) a Code §403(a) annuity plan; (iii) a Code §403(b) annuity; (iv) a Code §408(k) SEP; (v) a Code §408(p) Simple IRA; (vi) a Code §501(c)(18) trust to which an active participant makes deductible contributions; (vii) a Code §457(b) plan; or (viii) a Code §415(m) plan.

1.39 “Retirement Age” means the date (if any) the Employer elects in the Adoption Agreement.

1.40 “Separation from Service”

(A) Employees. Separation from Service means in the case of an Employee, the Employee’s termination of employment with the Employer whether on account of death, retirement, Disability or otherwise.

(1) Insignificant or Significant Service/Presumptions. The Employer will determine whether an Employee has terminated employment (and incurred a Separation from Service) based on whether the facts and circumstances as described in Treas. Reg. §1.409A-1(h)(1)(ii). An Employee incurs a Separation from Service if the parties reasonably anticipate, based on the facts and circumstances, the Employee will not perform any additional services after a certain date or that the level of bona fide services (whether performed as an Employee or as a Contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed (whether performed as an Employee or as a Contractor) over the immediately preceding 36-month period (or, if less, the period the employee has rendered service to the Employer) (“average prior service”). An Employee is presumed to have incurred a Separation from Service if the Employee’s service level decreases to 20% or less than the average prior service and an Employee is presumed to not have incurred a Separation from Service if the Employee’s service level continues at a rate which is 50% or more of the average prior service. No presumption applies where the Employee’s service level is more than 20% and less than 50% of the average prior service.

(2) Effect of Leave. An Employee does not incur a Separation from Service if the Employee is on military leave, sick leave, or other bona fide leave of absence if such leave does not exceed a period of 6 months, or if longer, the period for which a statute or contract provides the Employee with the right to reemployment with the Employer. If a Participant’s leave exceeds 6 months but the Participant is not entitled to reemployment under a statute or contract, the Participant incurs a Separation from Service on the next day following the expiration of 6 months. A leave of absence constitutes a bona fide leave of absence for this Section 1.40 only if there is a reasonable expectation that the Employee will return to perform services for the Employer. Where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of at least 6 months, and where the Participant cannot perform his/her duties or the duties of any substantially similar position, in determining when a Separation from Service occurs, the above 6 month period is 29 months unless the Employer or the Employee terminate the leave sooner. For purposes of determining average prior service under Section 1.40 (A)(1), during a paid leave of absence which is not a Separation From Service, the Employee is treated as rendering bona fide services at a level that would have been required to earn the amount paid during the leave. If the leave of absence is unpaid, the leave period is disregarded in determining average prior service.

(3) Alternative Definition. In lieu of applying Section 1.40(A)(1), the Employer or Participant in an initial payment election or in a change payment election may elect a percentage of reduced bona fide services resulting in a Separation from Service which percentage must be greater than 20% and less than 50% of prior average service, determined over the immediately preceding 36 months.

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(B) Contractors. Separation from Service, in the case of a Contractor, means the expiration of the contract (or all contracts) under which the Contractor performs services for the Employer provided that the expiration constitutes a good-faith and complete termination of the contractual relationship between the Contractor and the Employer. A good-faith and complete termination does not occur if the Employer anticipates a renewal of the service contract or the Employer anticipates the Contractor becoming an Employee. The Employer anticipates the renewal of the contract if the Employer intends to contract again for the services provided under the expired contract and neither the Employer nor the Contractor has eliminated the Contractor as a possible provider of such additional services. The Employer is deemed to intend renewal of the Contractor’s expired contract if renewal is conditioned only upon incurring a need for services, the Employer’s ability to pay for the services, or both. See Section 4.01(E) as to Contractor “deemed” Separation from Service provisions.

(C) Involuntary Separation from Service (including for “good reason”). “Involuntary Separation from Service” means a Separation from Service due to the Employer’s independent exercise of unilateral authority to terminate the Participant’s services (other than due the Participant’s implicit or explicit request), where the Participant was willing and able to continue performing services for the Employer. Involuntary Separation from Service may include the Employer’s failure to renew the service contract at the time the contract expires provided that the Participant was willing and able to execute a new contract on substantially the same terms and conditions as the expiring contract and to continue providing such services. The Employer will make the determination as to whether an Involuntary Separation from Service has occurred based on all of the facts and circumstances and in accordance with Treas. Reg. §1.409A-1(n). For this purpose, a Participant’s voluntary Separation from Service is treated as an Involuntary Separation from Service if it is for “good reason” as described in Treas. Reg. §§1.409A-1(n)(2). For this purpose, the Separation from Service is deemed to be for a good reason if it occurs during a limited period not to exceed 2 years following the initial existence of the following without the Participant’s: consent (i) a material reduction in the Participant’s base compensation (including Base Salary); (ii) a material reduction in the Participant’s authority, duties or responsibilities; (iii) a material reduction in the authority, duties or responsibilities of the Participant’s supervisor, including a change in the Participant’s reporting responsibilities to a lower level than the board of directors or similar authority in a non-corporate entity; (iv) a material reduction in the Participant’s budget; (v) a material change in the location at which the Participant renders service; or (vi) any other action or inaction that constitutes the Employer’s material breach of the agreement under which the Participant provides services to the Employer. In addition, to be a deemed “good reason” the amount, time and form of payment upon Separation from Service must be substantially identical to the amount payable upon an actual Involuntary Separation from Service, if such right exists, and the Participant must provide notice to the Employer within 90 days of the initial existence of the condition and afford the Employer at least 30 days to remedy the condition without having to pay the Compensation.

(D) Voluntary Separation from Service. “Voluntary Separation from Service” means a Separation from Service which is not an Involuntary Separation from Service under Section 1.40(C).

(E) “Employer” for Purposes of Separation Rules. The “Employer” for purposes of applying this Section 1.40 (determining Separation from Service under the Plan) means as defined under Section 1.24 but by applying 50% in lieu of 80% in applying Code §§414(b) and (c). The Employer in lieu of applying the previous sentence may elect in its Adoption Agreement to use a percentage equal to not less than 20% and not more than 80% in determining related employers under Code §§414(b) and (c); provided that the Employer may not elect to apply a percentage which is less than 50% unless there are legitimate business criteria for doing so.

(F) Dual Capacity. If a Participant renders service to the Employer both in the capacity as an Employee and as a Contractor (or changes status from Employee to Contractor or vice versa), the Participant must incur a Separation from Service in both capacities to constitute a Separation from Service. For this purpose, if a Participant renders service both as an Employee and as a member of the Employer’s board of directors (or an analogous position in the case of a non-corporate Employer) the director services (or the Employee services if this Plan relates to director services) are disregarded in determining whether the Participant has incurred a Separation from Service as to this Plan provided that the plans are not Aggregated Plans.

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(G) Certain Asset Sales. In accordance with and subject to Treas. Reg. §1.409A-1(h)(4), if the Employer sells its assets to an unrelated party purchaser where the Participants otherwise would incur a Separation from Service and where such Participants will provide services to the purchaser after the sale closing, the Employer and the purchaser retain discretion no later than the asset sale closing date to specify in writing whether the Participants will incur a Separation from Service. In making such determination, the Employer and the purchaser must treat all affected Participants consistently.

(H) Collectively Bargained Multiple Employer Plan. If the Plan is established pursuant to a bona fide collective bargaining agreement covering services rendered for multiple employers, the Employer (which for this purpose means the employer which executes the Adoption Agreement) in its Adoption Agreement may elect to define Separation from Service in a reasonable manner that treats an Employee as not having separated during periods in which the Employee is not providing services but is available to do so for one or more employers. However, such alternative definition must also provide that the Employee is deemed to have incurred a Separation from Service at a specified date not later than the end of any period of at least 12 consecutive months during which time the Employee has not provided any service covered by the collective bargaining agreement to any participating employer. The Employer will apply this section in accordance with the requirements of Treas. Reg. §1.409A-1(h)(6).

1.41 “Separation Pay” means any Deferred Compensation (applied before application of any exclusion applicable to Separation Pay Plans under Treas. Reg. §1.409A-1(b)(9)) that will not be paid under any circumstances unless the Participant incurs a Separation from Service, whether voluntary or involuntary, including payments in the form of reimbursements for expenses incurred and provision of in-kind benefits. Deferred Compensation that a Participant may receive without incurring a Separation from Service is not Separation Pay merely because the Participant elects to receive or receives payment upon or after Separation from Service. Deferred Compensation does not fail to constitute Separation Pay merely because the Participant must execute a release of claims, noncompetition agreement or nondisclosure agreement or is subject to similar requirements. Any amount or entitlement that acts as a substitute for, or replacement of, Deferred Compensation is a payment of Deferred Compensation and is not Separation Pay.

1.42 “Separation Pay Plan” means any plan that provides for Separation Pay, including the portion of any plan that provides for Separation Pay, under Treas. Reg. §§1.409A-1(m). The Employer in its Adoption Agreement will elect whether this Plan is a Separation Pay Plan and will elect whether the plan pays benefits in the event of Involuntary Separation from Service, Voluntary Separation from Service, pursuant to a Window Program or a combination thereof.

1.43 “Service Year” means a Participant’s Taxable Year in which the Participant performs services which give rise to Compensation. A “service period” or “performance period” means a Service Year or such other period in which a Participant performs services for the Employer giving rise to Compensation.

1.44 “Specified Employee” means a Participant who is a key employee as described in Code §416(i)(1)(A), disregarding paragraph (5) thereof and using compensation as defined under Treas. Reg. §1.415(c)-2(a). However, a Participant is not a Specified Employee unless any stock of the Employer is publicly traded on an established securities market or otherwise and the Participant is a Specified Employee on the date of his/her Separation from Service. If a Participant is a key employee at any time during the 12 months ending on the Specified Employee identification date, the Participant is a Specified Employee for the 12 month period commencing on the Specified Employee effective date. The Specified Employee identification date is December 31. The Specified Employee effective date is the April 1 following the Specified Employee identification date. The Employer, in determining whether this Section 1.44 and all related Plan provisions apply, will determine whether the Employer has any publicly traded stock as of the date of a Participant’s Separation from Service. In the case of certain corporate transactions (a merger, acquisition, spin-off or initial public offering), or in the case of nonresident alien Employees, the Employer will apply the Specified Employee provisions of the Plan in accordance with Treas. Reg. §1.409A-1(i) and other Applicable Guidance. Notwithstanding the foregoing, the Employer in its Adoption Agreement, and in accordance with Treas. Reg. §1.409A-1(i) and other Applicable Guidance, may make the following elections: (i) use of any Code §415 definition of compensation for Specified Employee determination; (ii) designation of an alternative Specified Employee identification date; (iii) designation of an alternative Specified Employee effective date; (iv) use of an alternative method to identify Participants who will be subject to the 6 month delay rule in Section 4.01(D); (v) certain elections in the context of corporate transactions; and (vi) certain elections regarding nonresident alien Employees. The Employer’s election under clauses (ii) or (iii) regarding an identification date or effective

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date made on or before December 31, 2007, applies to any Separation from Service occurring on or after January 1, 2005, unless the Employer subsequently changes the identification date and/or effective date. Such elections are effective as of the date that all necessary corporate action has been taken to make the election binding as to all nonqualified deferred compensation plans in which service providers of the Employer who would become a Specified Employees participate. The Employer must apply all such elections consistently as to all service providers. The Employer will apply the Specified Employee provisions of the Plan, including the elections described in this Section 1.44, in accordance with Treas. Reg. §1.409A-1(i) and other Applicable Guidance.

1.45 “Specified Time or Fixed Schedule” means, in reference to a payment of Deferred Compensation, the Employer, at the time of the deferral of the Compensation can objectively determine: (i) the amount payable; and (ii) the payment date or dates. An amount is objectively determinable if the deferral election specifically identifies the amount or if the Employer can determine the amount at the time it is due pursuant to an objective, nondiscretionary formula specified at the time of deferral.

(A) Dates and Period(s). A payment is scheduled to occur at a specified time if it is a lump sum payment on a specific date, or a specific, objectively determinable date, including following the lapse of a substantial risk of forfeiture. A payment is scheduled to occur on a fixed schedule if it is a series of payments (which may include an annuity or a series of installments) payable on specific dates or on specifically, objectively determinable dates including following the lapse of a substantial risk of forfeiture. The designation of a Taxable Year of the Participant, or a defined period within a Taxable Year of the Participant, in which payment will occur is adequate designation of a specific date. For purposes of Sections 4.02 and 4.05, if the date specified is only a designated Taxable Year of the Participant, or a period of time during such a Taxable Year, the date specified under the plan is treated as the first day of such Taxable Year or the first day of the period of time, as applicable.

(B) Limitations and Link to Employer Receipts. A Fixed Schedule may include certain: (i) limitations on the amount payable at a specified time of during a specified period expressed either as a stated limit or based on an objective nondiscretionary formula; and (ii) payment schedules based on the timing of payments received by the Employer as described in Treas. Reg. §§1.409A-3(i)(1)(ii) and (iii) and other Applicable Guidance.

(C) Tax Gross-Up Payments. A Specified Time or Fixed Schedule may include tax gross-up payments made by the end of the Participant’s Taxable Year which follows the Taxable Year in which the Participant remits the related taxes resulting from compensation paid or made available to the Participant by the Employer, as described in Treas. Reg. §1.409A-3(i)(1)(v) and other Applicable Guidance.

1.46 “State” means: (i) one of the fifty states of the United States or the District of Columbia, or (ii) a political subdivision of a State, or any agency or instrumentality of a State or its political subdivision. A State does not include the federal government or an agency or instrumentality thereof.

1.47 “Substantial Risk of Forfeiture”

(A) 409A Amounts. Substantial Risk of Forfeiture means as to 409A Amounts, and other than for purposes of application of Code §457(f), Compensation which is payable conditioned: (i) on the performance of substantial future services by any person including the Participant; or (ii) on the occurrence of a condition related to a purpose of the Compensation, and where under clause (i) or (ii) the possibility of forfeiture is substantial. A condition related to the purpose of the Compensation relates to the Participant’s performance for the Employer or to the Employer’s business activities or organizational goals. A Substantial Risk of Forfeiture includes conditioning payment on the Participant’s Involuntary Separation from Service without cause provided the possibility of not incurring such a Separation from Service is substantial. Except as to payment of Compensation related to a Change in Control, a Substantial Risk of Forfeiture does not include any addition of a condition after a Legally Binding Right to the Compensation arises or any extension of a period during which the Compensation is subject to a Substantial Risk of Forfeiture. Compensation is not subject to a Substantial Risk of Forfeiture merely because payment is conditioned on the Participant’s refraining from performing services. Compensation is not subject to a Substantial Risk of Forfeiture beyond the date or time that the Participant otherwise could have elected to receive the Compensation unless the present value of the amount

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subject to the Substantial Risk of Forfeiture (determined without regard to the Substantial Risk of Forfeiture) is materially greater than the present value of the amount that the Participant otherwise could have elected to receive, absent the Substantial Risk of Forfeiture. As such, a Participant’s Elective Deferrals generally may not be made subject to a Substantial Risk of Forfeiture if the Participant could have elected to receive an equivalent amount in cash. In addition, Compensation the Participant would receive for continuing to perform service for the Employer (such as through the extension of an employment contract) is disregarded in determining whether the present value of such nonvested payment amount is materially greater than the Compensation which the Participant could have elected to receive presently. In determining whether the possibility of forfeiture is substantial in the case of rights to Compensation granted to a Participant who owns significant voting power or value in the Employer, the Employer in accordance with Treas. Reg. §1.409A-1(d)(3) and Applicable Guidance, will take into account all relevant facts and circumstances.

(B) Grandfathered Amounts. A Substantial Risk of Forfeiture for Grandfathered Amounts is defined in Treas. Reg. §1.83-3(c) and in Notice 2005-1, Q/A-16(b) or in Applicable Guidance.

(C) Ineligible 457 Plan. A Substantial Risk of Forfeiture for purposes of application of Code §457(f) under an Ineligible 457 Plan is described in Code §457(f)(3)(B), Treas. Reg. §1.83-3(c) and Applicable Guidance.

1.48 “Tax-Exempt Organization” means any tax-exempt organization other than: (i) a governmental unit; or (ii) a church or a qualified church-controlled organization within the meaning of Code §§3121(w)(3)(A) and 3121(w)(3)(B).

1.49 “Taxable Year” means as to the Participant, the Participant’s taxable year and means as to the Employer, the Employer’s taxable year, in each case as the Plan provides or as the context otherwise requires.

1.50 “Trust” means the trust, if any, described in Section 5.03 of the Basic Plan Document and which the Employer in its Adoption Agreement elects to create.

1.51 “Unforeseeable Emergency” means: (i) a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, a Beneficiary or the Participant’s dependent (as defined in Code §152 but without regard to Code §§152(b)(1), (b)(2) and (d)(1)(B)); (ii) loss of the Participant’s property due to casualty; or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant’s control. The Employer in its Adoption Agreement will elect whether to permit payment based on a Participant’s Unforeseeable Emergency. The Employer will determine whether a Participant incurs an Unforeseeable Emergency based on the relevant facts and circumstances and in accordance with Treas. Reg. §1.409A-3(i)(3) or Applicable Guidance, but in any case, the Plan may not make payment to the extent that the Unforeseeable Emergency may be relieved: (i) through reimbursement or compensation from insurance or otherwise; (ii) by liquidation of the Participant’s assets to the extent that such liquidation of assets would not itself cause severe financial hardship; or (iii) by the Participant’s cessation of Elective Deferrals under the Plan. The Plan must limit the amount of any payment based on Unforeseeable Emergency to the amount that is reasonably necessary to satisfy the emergency need, which may include amounts necessary to pay any Federal, state, local or foreign income taxes or penalties reasonably anticipated to result from the payment. The Employer in making the determination as to the amount of payment must take into account any additional Compensation available to the Participant upon cancellation of an Elective Deferral election under Section 4.03(D)(vii). However, the Employer in determining “necessity” may disregard amounts available as a hardship distribution or a loan from a qualified plan or as an unforeseeable emergency distribution from another nonqualified plan, regardless of whether such amount is 409A Amount or is a Grandfathered Amount. If the Employer in its Adoption Agreement elects to permit payment based on Unforeseeable Emergency, the Employer further will elect whether to permit payment based on all events that will constitute an Unforeseeable Emergency or to limit such events to a subset of specific events which will so qualify. The Employer will not pay a Participant any Deferred Compensation based an Unforeseeable Emergency unless the Participant requests such payment on a form the Employer provides for this purpose, the Employer determines that the payment would qualify under the Plan terms as being based on the Participant’s Unforeseeable Emergency, and the Employer in its sole discretion otherwise approves the payment. Neither a Participant’s request or failure to request an Unforeseeable Emergency payment nor the Employer’s acceptance or rejection of such a request is a change payment election under Section 4.02(B).

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1.52 “USERRA” means the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended.

1.53 “Valuation Date” means the last day of each of the Employer’s Taxable Year and such other dates as the Employer may determine.

1.54 “Vested” means an amount of Deferred Compensation which is not subject to a Substantial Risk of Forfeiture or to a requirement to perform further services for the Employer. For purposes of determining whether an amount satisfies the vesting requirement for Grandfathered Amounts under Article VII, the definition of Substantial Risk of Forfeiture in Section 1.47(B) applies.

1.55 “Window Program” means a program the Employer establishes in connection with an impending Separation from Service to provide Separation Pay to separated Participants and which program is available only for a period of up to 12 months for Participants who separate during such period or who separate during such period under specified circumstances. A Window Program does not include a program the Employer establishes under which there is a pattern of repeated provision of similar Separation Pay in similar situations for substantially consecutive limited periods of time. Whether a recurrent program constitutes such a pattern depends upon all of the facts and circumstances, including whether the benefits are account of a specific event or condition, the degree to which the separation pay relates to the event or condition and whether the event or condition is temporary or discrete or is a permanent aspect of the Employer’s business.

1.56 “Wraparound Election” means as to a Participant who also is a participant in a 401(k) plan of the Employer, an election (or elections, if made separately) to defer compensation under both plans with the result that the Participant will achieve under the 401(k) plan, the maximum amount of elective deferrals and matching contributions, if any, as is permissible under the 401(k) plan terms and under Code §§402(g), 401(k)(3), 401(m), 415 and 414(v). For any Participant’s Taxable Year, the maximum amount of Elective Deferrals the Plan will transfer as to the Participant (and corresponding decrease in amounts of Compensation Deferred to this Plan) may not exceed the Code §402(g) limit (but increased by catch-up contributions under Code §414(v) for any year in which the Participant is catch-up eligible). For any Participant’s Taxable Year, the maximum amount of Matching Contributions the Plan will transfer as to the Participant (and corresponding decrease in amounts of Compensation Deferred to this Plan) may not exceed the maximum amount of matching contributions that would be provided under the 401(k) plan absent any plan-based restrictions which reflect Code limits on qualified plan contributions. Under a Wraparound Election, the Plan promptly following completion of 401(k) plan testing and within any time required under Applicable Guidance, will transfer from the Participant’s Account such Elective Deferrals and related Matching Contributions for the Taxable Year (but without Earnings thereon) as are consistent with the Wraparound Election, to the Participant’s account under the 401(k) plan to be held and administered in accordance with the 401(k) plan. Any remaining amounts not transferred to the 401(k) plan will remain in and be administered in accordance with this Plan. The Employer in its Adoption Agreement will specify whether a participant may make a Wraparound Election. A Participant will make a Wraparound Election subject to any timing requirements of Applicable Guidance and on a form the Employer provides for this purpose.

1.57 “Year of Service” means the requirements, if any, the Employer specifies in its Adoption Agreement.

II. PARTICIPATION

2.01 Participants Designated. The Employer will designate from time to time in its Adoption Agreement those Employees or Contractors (by name, job title or other classification) who are Participants in the Plan.

2.02 Elective Deferrals. The Employer will specify in its Adoption Agreement whether Participants may elect to make Elective Deferrals to their Accounts.

(A) Limitations. The Employer will specify in its Adoption Agreement any amount limitations or conditions applicable to Elective Deferrals.

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(B) Election Form and Timing. A Participant must make his/her Elective Deferral election on an election form the Employer provides for that purpose. The Participant must make the election no later than the latest of the applicable times specified below. The Employer in its Adoption Agreement will elect that a Participant must make and deliver his/her election to the Employer no later than: (i) such applicable time; or (ii) the number of days prior to such applicable time as the Employer sets forth in its Adoption Agreement. The Employer will disregard any Elective Deferral election which is not timely under this Section 2.02(B). See Section 6.04.

(1) General Timing Rule. Except as otherwise provided in this Section 2.02(B), a Participant must deliver to the Employer his/her Elective Deferral election regarding Service Year Compensation no later than the end of the Participant’s Taxable Year which is prior to the Service Year.

(2) New Participant/New Plan. As to the Service Year in which an Employee or a Contractor first becomes a Participant (a “newly eligible Participant”), the Participant must make and deliver an Elective Deferral election for that Service Year not later than 30 days after the Employee or Contractor becomes a Participant. All Participants who are eligible to participate on the Effective Date of a new plan are newly eligible Participants as of the Effective Date.

(a) Participant status. For purposes of this Section 2.02(B)(2), an Employee or Contractor is eligible to participate in the Plan at any time during which, under the Plan terms and without further amendment or action by the Employer, the Employee or Contractor is eligible to accrue Deferred Compensation under the Plan (other than Earnings on prior Deferred Compensation), even if the Employee or Contractor has elected not to accrue any such Deferred Compensation (or has made no election).

(b) Changes in status. For purposes of this Section 2.02(B)(2), if a Participant has been paid all Deferred Compensation and on or before the last payment ceases to be eligible to participate in the Plan, but thereafter becomes eligible to participate, the Employee or Contractor is treated as a newly eligible Participant. If a Participant ceases to be eligible to participate, other than as to Earnings, regardless of whether the Participant has been fully paid all Deferred Compensation under the Plan, and subsequently becomes eligible to participate, the Employee or Contractor is treated as a newly eligible Participant provided that the period during which the Employee or Contractor was ineligible was at least 24 months.

(c) Compensation to which election applies. Under this Section 2.02(B)(2), a Participant’s election may apply only to Compensation for services the Participant performs subsequent to the date the Participant delivers the election to the Employer. For Compensation that is earned for a specified performance period, including an annual bonus, if the newly eligible Participant makes an Elective Deferral election after the performance period commences, the Employer will pro rate the election by multiplying the performance period Compensation by the ratio of the number of days left in the performance period at the time of the election, over the total number of days in the entire performance period.

(d) Excess benefit plan. For purposes of this Section 2.02(B)(2), if this Plan is an excess benefit plan, an Employee is a newly eligible Participant in the Plan as of the first day of the Employee’s Taxable Year immediately following the first year in which he or she accrues a benefit under the Plan. Any election the Employee makes within 30 days following such date applies to any benefits accrued for services provided before the election. An excess benefit plan for purposes of this Section 2.02(B)(2)(d) means a plan under which all Deferred Compensation is attributable to Employer Contributions and is based on the amount the Participant would have accrued under the Employer’s qualified plan(s) but for one or more Code limits which apply to the qualified plan(s) over the benefits the Participant actually accrues in such plan(s). Once a Participant has accrued a benefit or deferred compensation in any year, the Participant is not eligible to use the delayed election in this Section 2.02(B)(2)(d).

(e) Aggregated Plans. All references to the Plan in this Section 2.02(B)(2) include Aggregated Plans. As such, an Employee or Contractor who participates in an Aggregated Plan is not a newly eligible Participant and this Section 2.02(B)(2) does not apply.

(3) Certain Forfeitable Rights. If payment of Deferred Compensation is subject to a condition requiring the Participant to perform services for the Employer for at least 12 months after the Participant obtains the Legally Binding Right to the Compensation to avoid forfeiture of the payment, the Participant may make an Elective Deferral election no later than 30 days after the Participant obtains the Legally Binding Right

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to the Compensation, provided the Participant makes the election at least 12 months prior to the earliest date on which the service forfeiture condition could lapse. If the Plan provides for a waiver of the service condition upon the Participant’s death, Disability or upon a Change in Control, and such event occurs before the end of the 12 month minimum service period, the Participant’s elective Deferral election is valid only if the election is timely under the Plan without regard to this Section 2.02(B)(3).

(4) Performance-Based Compensation. As to any Performance-Based Compensation, a Participant may elect no later than 6 months before the end of the performance period to defer such Compensation, provided that the Participant: (i) continuously performs services from the later of the beginning of the performance period or the date the Employer establishes the performance criteria and at least through the date of the Participant’s election; and (ii) may not make an election after the Compensation has become readily ascertainable. For purposes of this Section 2.02(B)(4), if the Performance-Based Compensation is a specified or calculable amount, the Compensation is readily ascertainable if and when the amount is first substantially certain to be paid. If the Performance-Based Compensation is not a specified or calculable amount, the Compensation or any portion thereof is readily ascertainable when the amount is first both calculable and substantially certain to be paid. In applying this Section 2.02(B)(4), the Employer will bifurcate any right to payment as between amounts which are readily ascertainable and amounts which are not readily ascertainable.

(5) Commissions.

(a) Sales Commissions. For purposes of election timing under this Section 2.02(B), if Compensation consists of Sales Commissions, the Participant is treated as providing the services giving rise to the Commissions in the Participant’s Taxable Year in which the customer remits payment to the Employer, or, if applied consistently to all similarly situated service providers, the Participant’s Taxable Year in which the sale occurs.

(b) Investment Commissions. For purposes of election timing under this Section 2.02(B), if Compensation consists of Investment Commissions, the Participant is treated as providing the services giving rise to the Commissions over the 12 months preceding the date as of which the overall value of the assets or the asset accounts is determined for purposes of calculation of the Investment Commissions.

(6) Final Payroll Period. If Compensation is payable after the last day of the Participant’s Taxable Year, but is Compensation for the Participant’s services during the final payroll period within the meaning of Code §3401(b) (or, as to a Contractor, a period not longer than such period) which contains the last day of the Participant’s Taxable Year, the Compensation is treated for purposes of an election under this Section 2.02(B), as Compensation: (i) for the current Taxable Year in which the final payroll period commenced; or (ii) for the subsequent Taxable Year in which the Employer pays the Compensation, as the Employer elects in its Adoption Agreement. This Section 2.02(B)(6) does not apply to Compensation for services performed over any period other than the final payroll period as described herein, including an annual bonus. If the Employer amends its Adoption Agreement after December 31, 2007, to alter the timing rule of this Section 2.02(B)(6), any such amendment may not take effect until 12 months after the later of the date the amendment is executed and is effective. If the Plan is a restated Plan, whatever election the Employer makes in it Adoption Agreement on or before December 31, 2007, applies to any period spanning 2005 through 2007, as applicable, unless the Employer indicates otherwise in its election.

(7) Separation Pay/Window Program. If the Participant’s election relates to Separation Pay (based on voluntary or involuntary Separation from Service) and the Separation Pay is the subject of bona-fide, arm’s length negotiations at the time of Separation from Service, the Participant may make an election under this Section 2.02(B) at any time up to the time that the Participant has a Legally Binding Right to the Separation Pay. This Section 2.02(B)(7) does not apply to any Separation Pay to which the Participant obtained a Legally Binding Right before the negotiations at the time of Separation from Service, including a right to payment subject to a condition. If the Separation Pay results from a Window Program, the Participant may make the election at any time up to the time that the Participant’s election to participate in the Window Program becomes irrevocable.

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(8) Fiscal Year Employer. In the event that the Employer’s Taxable Year is a not the same as the Participant’s Taxable Year, a Participant may elect to defer Compensation which is co-extensive with one or more of the Employer’s consecutive Taxable Years, and no amount of which is paid or payable during the Employer’s Taxable Year or Years constituting the period of service, by making an election no later than the end of the Employer’s Taxable Year which precedes the Employer’s first Taxable Year in which the Participant performs the service for which the Compensation is payable.

(C) Election Changes/ Irrevocability. The Employer in its Adoption Agreement will elect whether a Participant’s Elective Deferral election made prior to the Section 2.02(B) deadline becomes irrevocable as to a Taxable Year: (i) following the last day on which a Participant may make an election under Section 2.02(B) for such Taxable Year; or (ii) if earlier, when the Participant makes the election for a Taxable Year. For this purpose, a Participant’s Elective Deferral election is considered made when the Employer accepts the election. If the Employer elects to permit changes to an election up to the Section 2.02(B) election deadline, a Participant may make any number of changes to his/her Elective Deferral election during the period prior to the election becoming irrevocable. If the Employer elects in its Adoption Agreement and under Section 2.02(D) that a Participant’s election is continuing, the Participant is deemed to have made an irrevocable election as to each Taxable Year on the last day that the Participant could have made an election under Section 2.02(B). As such, the Participant may revoke or modify a continuing election for a Taxable Year up to the date that such election is deemed made and irrevocable for that Taxable Year. A change payment election under Section 4.02(B) or a permissible acceleration under Section 4.02(C)(3) does not render an Elective Deferral election and an accompanying initial payment election under Section 4.02(A) revocable within the meaning of this Section 2.02(C).

(D) Election Duration/Cancellation. As the Employer elects in its Adoption Agreement, a Participant’s Elective Deferral election remains in effect: (i) only for the duration of the Taxable Year for which the Participant makes the election; or (ii) for the duration of the Taxable Year for which the Participant makes the election and for all subsequent Taxable Years unless the Participant executes a subsequent timely election, modification or revocation. A Participant, subject to Plan requirements regarding election timing, may make a new election, or may revoke or modify an existing election effective no earlier than for the next Taxable Year, provided that under Section 4.02(C)(3), a Participant may cancel an existing and otherwise irrevocable election for a Taxable Year at any time following the Participant’s receipt of an Unforeseeable Emergency distribution or of a distribution from the Employer’s 401(k) plan based upon hardship within the meaning of Treas. Reg. §1.401(k)-1(d)(3).

(E) “Non-Elections” or Deemed Compliance.

(1) Linkage to Qualified or Certain Foreign Plans. The following are not elections under Section 2.02(B): (i) the amount of Compensation Deferred under this Plan is determined under a formula for determining benefits under the Employer’s qualified plan or broad-based foreign retirement plan (but applied without regard to Code or foreign law imposed limitations); or (ii) the amount of Compensation Deferred under this Plan is offset by some or all benefits provided under the Employer’s qualified plan or broad-based foreign plan and where in either case the amount of Compensation Deferred under the Plan increases on account of changes in the Code or foreign law imposed benefit limitations applicable to the qualified plan or foreign plan, provided in either case such operation does not result in a change in the time or form for payment under this Plan and that the change in the amounts of Compensation Deferred do not exceed the change in amounts deferred under the qualified plan or foreign plan.

(2) Actions/Inactions (including Wraparound Elections). The following Participant actions or in actions are not elections under Section 2.02(B), even if they result in an increase in Compensation Deferred under the Plan: (i) election or non-election under the Employer’s qualified plan or broad-based foreign plan as to receipt of a subsidized or ancillary benefit under such plans; (ii) an amendment of such other plans’ benefits to add or remove a subsidized or ancillary benefit or to freeze or limit future accruals under the qualified plan or foreign plan or to reduce existing benefits under the foreign plan; or (iii) a Participant’s Wraparound Election, provided in all cases such action or inaction does not result in a change in the time or form for payment under this Plan and that under clauses (i) and (ii) above, the change in the amounts of Compensation Deferred do not exceed the change in amounts deferred under the qualified plan or foreign plan.

(3) Elections under a Cafeteria (125) Plan. If a Participant who is also a participant in a cafeteria (Code §125) plan of the Employer, changes an election under the cafeteria plan with the result that the amount of Compensation Deferred under this Plan changes on account of an increase or decrease in Compensation under this Plan as a result of the cafeteria plan election, the cafeteria plan election is not an election for purposes of Section 2.02(B).

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(4) USERRA Rights. The requirements of Section 2.02(B) are deemed satisfied as to any Elective Deferral election (including an initial payment election) which the Plan provides to satisfy the requirements of USERRA.

(5) Annualizing Recurrent Partial Year Compensation. If a Participant is receiving recurring part-year Compensation, the Participant’s election to defer all or a portion of such Compensation to be earned during a particular service period is deemed to satisfy the requirements of Section 2.02(B) if the Participant makes the election before the services giving rise to the Compensation begin and the election does not defer payment of any of such Compensation to a date beyond the last day of the 13^th month following the first date of the service period. For purposes of this Section 2.02(E)(5), recurring part-year Compensation means Compensation paid for services rendered as to a position the Participant and the Employer reasonably anticipate will continue on similar terms and on similar conditions in subsequent years, and will require services to be provided in successive service periods, each of which comprises less than 12 months and each of which begins in one Taxable Year of the Participant and ends in the next Taxable Year. This Section 2.02(E)(5) applies only once to Compensation Deferred such that the same amount may not again be treated as recurring part-year Compensation and subject to a second deferral election.

2.03 Nonelective Contributions. The Employer will specify in its Adoption Agreement whether the Employer will or may make Nonelective Contributions to the Plan, and the terms and conditions applicable to any Nonelective Contributions.

2.04 Matching Contributions. The Employer will specify in its Adoption Agreement whether the Employer will or may make Matching Contributions to the Plan, and the terms and conditions applicable to any Matching Contributions.

2.05 Actual or Notional Contribution. The Employer will specify in its Adoption Agreement whether it will make any Employer Contribution as a notional contribution or as an actual contribution. If the Employer establishes the Trust, any Employer Contributions to the Trust will be actual contributions.

2.06 Allocation Conditions. The Employer will specify in its Adoption Agreement or an exhibit thereto any employment or other condition applicable to the allocation of Employer Contributions for a Taxable Year.

2.07 Timing. The Employer may elect to make any Employer Contribution for a Taxable Year at such times as Code §409A or Applicable Guidance may permit. The Employer is not required to contribute any actual contribution (or to post any notional contribution) to an Account at the time that the Employer makes its contribution election.

2.08 Administration. The Employer will administer all Employer Contributions in the same manner as Elective Deferrals, and will treat the Employer’s election to make Employer Contributions as an Elective Deferral election, except as the Plan otherwise provides. If the Employer establishes the Trust, the Employer will remit any Elective Deferrals to the Trust and will make any Employer Contributions to the Trust. Any Employer Contribution is not subject to an immediate Participant right to elect a cash payment in lieu of the Employer Contribution and such amounts are payable only in accordance with the Plan terms.

III. VESTING AND SUBSTANTIAL RISK OF FORFEITURE

3.01 Vesting Schedule or other Substantial Risk of Forfeiture. The Employer will specify in its Adoption Agreement any vesting schedule or other Substantial Risk of Forfeiture applicable to Participant Accounts. If the Plan is an Ineligible 457 Plan, the Employer must specify a Substantial Risk of Forfeiture.

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3.02 Immediate Vesting on Specified Events. The Employer will specify in its Adoption Agreement whether a Participant’s Account is Vested without regard to Years of Service if the Participant Separates from Service on or following Retirement Age, or as a result of death, Disability, or other events.

3.03 Application of Forfeitures. A Participant will forfeit any non-Vested Accrued Benefit (where vesting is based on a service condition) upon Separation from Service. A Participant will forfeit any other non-Vested Accrued Benefit when the condition constituting a Substantial Risk of Forfeiture can no longer be satisfied, such as its expiration date. The Employer will specify in its Adoption Agreement how it will apply Participant forfeitures under the Plan.

IV. BENEFIT PAYMENTS

4.01 Payment Events. The Employer in its Adoption Agreement will specify the Plan permissible payment events as all or some of the following payment events affecting a Participant: (i) Separation from Service; (ii) death; (iii) Disability; (iv) a Specified Time or pursuant to a Fixed Schedule; (v) Change in Control; or (vi) Unforeseeable Emergency. As to payment events (i), (ii), (iii) (v) and (vi), the Plan will pay to the Participant the Vested Accrued Benefit held in the Participant’s Account on the applicable payment event or on another specified payment date as provided in Section 4.01(A). Payment will commence at the time and payment will be made in the form and medium specified under Section 4.02. See Section 4.02 as to payment elections, including as to payment events under this Section 4.01.

(A) Payment on Objective and Nondiscretionary (Specified) Payment Date(s). The Plan or an initial payment election or change payment election must provide for a payment date that the Employer, at the time of the payment event, can determine objectively and without the exercise of discretion. Such payment date may, but need not, coincide with a payment event, but any payment date must be on or following and must relate to a Plan payment event.

(1) Payment Schedule as Payment Date. A specified payment date may include a payment schedule which is objectively determinable and nondiscretionary based on the date of the payment event and that would qualify as a Fixed Schedule if the payment event were a fixed date. An election of a payment schedule must be made at the time of the election of the payment event.

(2) Designation of Year or Other Period. A specified payment date or a specified payment schedule with regard to any payment event other than a Specified Time or pursuant to a Fixed Schedule may include: (i) a Participant’s Taxable Year or Years; or (ii) a designated period of time but only if the designated period both begins and ends within one Taxable Year of the Participant or the designated period is not more than 90 days and the Participant does not have the right to designate the Taxable Year of payment except under a change payment election under Section 4.02(B). For purposes of clause (ii), this includes designation of payment on or before the last date of the designated (maximum 90 day) period but after the payment event occurs.

(3) Deemed Payment Date. If the Adoption Agreement or any such election provides for payment only in a designated Taxable Year or Years, the payment date is deemed to be January 1 of that Year or Years. If the Adoption Agreement or any such election provides for payment only in a designated period, the payment date is deemed to be the first day in the relevant period.

(B) Payment Event Default. This Section 4.01(B) applies if the Employer in its Adoption Agreement fails to elect one or more payment events described in this Section 4.01, if a Participant or the Employer under Section 4.02 fails to elect one of more payment events where the Adoption Agreement affords them such an election, or if the Employer under Section 4.06 rejects the election and the Participant does not timely file a new election the Employer accepts. In such event, the Plan will pay the affected Participant’s Vested Benefit held in the Participant’s Account following the earlier of the Participant’s Separation from Service or death. See Section 4.02(A)(5) as to the applicable default for the time, form and medium of such payments. If this default provision applies, the default payment is deemed to be an initial payment election under the Plan.

(C) Multiple Payment Events; Sequencing. The Plan or an initial payment election or a change payment election may provide for more than one permissible payment event and may provide for payment upon the earliest or latest of more than one permissible payment event. See Section 4.02(A)(4) as to limitations on the number of time and form of payment elections which may apply to a single payment event. In a Separation Pay Plan, the Plan or any election may provide for any payment only upon Separation from Service (including as a result of death or Disability).

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(D) Payment to Specified Employees. Notwithstanding anything to the contrary in the Plan or in a Participant or Employer payment election, the Plan may not make payment, based on Separation from Service to a Participant who, on the date of Separation from Service is a Specified Employee, earlier than 6 months following Separation from Service (or if earlier, upon the Specified Employee’s death), except as permitted under this Section 4.01(D). This limitation applies regardless of the Participant’s status as a Specified Employee or otherwise on any other date including the next Specified Employee effective date had the Participant continued to render services through such date. The Employer, operationally and without any direct or indirect Participant election, will elect whether any payments that otherwise would be payable to the Specified Employee during the foregoing 6 month period: (i) will be accumulated and payment delayed until the first day of the seventh month that is after the 6 month period; or (ii) will be delayed by 6 months as to each installment otherwise payable during the 6 month period. This Section 4.01(D) does not apply to payments made on account of a domestic relations order, payments made because of a conflict of interest, or payment of employment taxes, all as described in Treas. Reg. 1.409A-3(i)(2)(i). This Section 4.01(D) also does not apply to any reimbursement or in-kind benefit which is Separation Pay but which is not Deferred Compensation under Section 1.18(A).

(E) Deemed Separation of Contractor. The Employer in its Adoption Agreement may elect to apply the special payment timing rules in this Section 4.01(E) as to Contractors. Compliance with this Section 4.01(E) results in the Contractor being deemed to have incurred a Separation from Service under Section 1.39. Under this Section 4.01(E): (i) the Plan will not pay a Contractor’s Account, or any portion thereof, before a date that is at least 12 months after the expiration of the contract (or all contracts) under which the Contractor performs services for the Employer; and (ii) no amount payable under clause (i) will be paid to the Contractor if the Contractor (whether as a Contractor or an Employee) performs services for the Employer after the contract(s)’ expiration and before the payment date.

4.02 Timing, Form and Medium/ Payment Elections. Unless the Employer under Section 4.02(A) and/or 4.02(B) permits Employer or Participant elections, the Employer (in addition to its election of permissible payment events under Section 4.01) will elect in its Adoption Agreement the permissible: (i) payment timing; (ii) payment form (lump-sum, installments, annuity or other form, including a combination thereof); and (iii) payment medium (cash or property) applicable to Plan Accounts (all of which elections are collectively, “payment elections”). Until the Plan pays a Participant’s entire Vested Accrued Benefit, the Plan will continue to credit the Participant’s Account with Earnings, in accordance with Section 5.02(A) or Section 5.03(B) as applicable. A permissible payment medium election may, but is not required to be, made at the same time as the initial payment election or change payment election, but must be made a reasonable time before any payment date. No election as to payment medium may change the time or form of payment.

(A) Initial Payment Election. The Employer will elect in its Adoption Agreement: (i) whether a Participant or the Employer may make an initial payment election or whether there are no Participant or Employer initial payment elections and the payment events, timing, form and medium are controlled by the Employer’s Adoption Agreement elections; and (ii) whether any Participant payment election applies to all Account types or only applies to a Participant’s Elective Deferral Account. A Participant must make any permissible initial payment election on a form the Employer provides for that purpose.

(1) No elections are a Deemed Initial Election. If the Employer elects in its Adoption Agreement not to provide any Participant or Employer initial payment elections, the elected Adoption Agreement and applicable Plan provisions constitute an initial payment election under the Plan.

(2) Timing.

(a) Participant Election. A Participant must make an initial payment election at the time of the Participant’s Elective Deferral election under Section 2.02(B), or in the absence of such an Elective Deferral election but where the Participant may make an initial payment election as to Employer Contributions, within the same time period as such an Elective Deferral election would be permitted.

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(b) Employer Election. The Employer must make an initial payment election as to a Participant at the time that the Employer grants a Legally Binding Right to Deferred Compensation to the Participant, or, if later, by the time that the Participant would have had to make such election, if the Plan had permitted the Participant to make such an election. In the case of a newly eligible Participant or a new Plan described under Section 2.02(B)(2), the Employer must make the initial payment election no later than 30 days after the date the Employee or Contractor becomes a Participant and the pro ration provisions of Section 2.02(B)(2)(c) do not apply to such Employer election.

(3) Future Deferred Compensation and Earnings. A payment election may apply only to the Deferred Compensation that is the subject of the Elective Deferral election or the Employer Contribution or may apply to such Deferred Compensation and to all future Deferred Compensation, as the payment election indicates. A payment election separately may apply to Deferred Compensation and to the Earnings thereon provided that the Plan credits Earnings at least annually.

(4) Limitations on Payment Time and Form; Multiple Payment Events. Except as otherwise provided in this Section 4.02(A)(4), the Plan or a payment election may designate only one time and form of payment for each of the following payment events: Separation from Service, Disability, death or Change in Control.

(a) Disability, Death or Change in Control. In the case of payment in the event of Disability, death or Change in Control, the Plan or payment election may provide for one time and/or method of payment if the event occurs on or before one specified date and may provide for an alternative time and form of payment if the event occurs after the specified date.

(b) Separation From Service. In the case of payment in the event of Separation from Service, the Plan or payment election may provide for an alternative time and form of payment where: (i) Separation from Service occurs within a limited period of time not exceeding two years following a Change in Control; (ii) Separation from Service occurs before or after a specified date or Separation occurs before or after the combination of a specified date and a specified period of service determined under a predetermined, nondiscretionary objective formula or pursuant to the method for crediting service under a qualified plan of the Employer (but not both of the options under clause (ii)); and Separation from Service which is not described in clause (i) or (ii). However, neither the Plan nor a payment election may provide for a different time and form of payment based on whether Separation from Service is Voluntary or Involuntary or based on the Participant’s marital status at the time of Separation from Service.

(c) Unforeseeable Emergency. If the Employer in its Adoption Agreement elects to permit Unforeseeable Emergency as a payment event, a Participant at any time may request payment based on Unforeseeable Emergency by submitting to the Employer a form the Employer provides for this purpose. The Plan will make payment to the Participant within 90 days following the Employer’s acceptance of the Participant’s Unforeseeable Emergency payment request. If that 90-day period spans more than one Taxable Year of the Participant, the Participant will not have any discretion over the Taxable Year of payment. See Section 1.51 as to additional requirements relating to an Unforeseeable Emergency payment.

(d) Addition, Change or Deletion of Time and Form. The addition, change, or deletion of an alternative time and form of payment (after the initial payment election has become irrevocable) as permitted under this Section 4.02(A)(4) is a change payment election subject to Section 4.02(B) and is subject to Section 4.02(C).

(5) Time, Form and Medium Default. If the Participant or the Employer as applicable has the right to make an initial payment election but fails to do so, or if the Employer rejects the Participant’s election under Section 4.06 and the Participant does not make a new timely election the Employer accepts, the Plan will pay the affected Participant’s Vested Accrued Benefit attributable to the non-election under this default provision, in a lump-sum cash payment 13 months following the earliest event permitting payment of the Participant’s Account under Section 4.01 (including, if applicable, the default payment events under Section 4.01(B)). If this default provision applies, the default payment is deemed to be an initial payment election under the Plan.

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(B) Change Payment Election. The Employer will elect in its Adoption Agreement whether the Employer or a Participant may make a change payment election under this Section 4.02(B). If the Plan permits change elections, the Employer in its Adoption Agreement will elect whether to limit the number of change payment elections. If the Plan permits a Participant or the Employer to change existing payment elections (initial or change payment elections) as to any or all Deferred Compensation, including any Plan specified initial payment election or a default payment applicable in the absence of an actual initial payment election, any such change payment election must comply with this Section 4.02(B). A change payment election may add or delete payment events, may delay payment and/or may change the form of payment, provided the change does not result in an impermissible acceleration under Section 4.02(C). The Employer in its Adoption Agreement will elect whether a Beneficiary following a Participant’s death may make a change payment election under this Section 4.02(B). A Participant’s change of Beneficiary is not a change payment election provided that the time and method of payment is not otherwise changed. See Section 4.02(B)(3) as to changes of Beneficiary where the payment method is a life annuity. A Participant or Beneficiary must make any change payment election on a form the Employer provides for such purpose.

(1) Conditions on Change Payment Elections.

(a) Election Timing/Deferral of Payment. Any change payment election: (i) may not take effect until at least 12 months following the date the change payment election is made; (ii) if the change payment election relates to a payment based on Separation from Service or on Change in Control, or if the payment is at a Specified Time or pursuant to a Fixed Schedule, the change payment election must result in payment being made not earlier than 5 years following the date upon which the payment otherwise would have been made (or, in the case of a life annuity or installment payments treated as a single payment, 5 years from the date the first amount was scheduled to be paid); and (iii) if the change payment election relates to payment at a Specified Time or pursuant to a Fixed Schedule, the Participant or Employer must make the change payment election not less than 12 months prior to the date the payment is scheduled to be made (or, in the case of a life annuity or installment payments treated as a single payment, 12 months prior to the date the first amount was scheduled to be paid).

(b) Application of Other Rules. A change payment election must satisfy the Plan provisions applicable to initial payment elections under Section 4.02(A)(4) related to multiple payment events and Section 4.02(A)(3) regarding scope and Earnings also applies to change payment elections. For purposes of application of Section 4.02(A)(4), Section 4.02(B)(1)(a) applies separately as to each Payment described under Section 4.02(B)(2) and due upon each payment event.

(c) Rejection. If the Employer under Section 4.06 rejects a Participant or Beneficiary change payment election, the Participant’s initial payment election or deemed initial payment election continues to apply unless and until the Participant makes another change payment election which the Employer accepts.

(d) USERRA Rights. The requirements of Section 4.02(B) are deemed satisfied as to any change payment election which the Plan provides to satisfy the requirements of USERRA. Such elections are not an acceleration under Section 4.02(C).

(2) Definition of “Payment.” Except as otherwise provided in Section 4.02(B)(3), a “payment” for purposes of applying Section 4.02(B)(1) is each separately identified amount the Plan is obligated to pay to a Participant on a determinable date and includes amounts paid for the benefit of the Participant. An amount is “separately identified” only if the amount is objectively determinable under a nondiscretionary formula. A payment includes the provision of any taxable benefit, including payment in cash or in-kind. A payment includes, but is not limited to, the transfer, cancellation or reduction of an amount of Deferred Compensation in exchange for benefits under a welfare benefit plan, fringe benefits excludible under Code §§119 or 132, or any other benefit that is excluded from gross income. In the case of a Specified Time or a Fixed Schedule, “payment” for purposes of Section 4.02(B)(1) means as further described in Treas. Reg. §1.409A-3(i)(1).

(3) Life Annuities and Installment Payments.

(a) Life Annuities. A life annuity is treated as a single payment. For purposes of this Section 4.02(B)(3), a “life annuity” is a series of substantially equal periodic payments, payable not less frequently than annually, for the life (or life expectancy) of the Participant, or the joint lives (or life expectancies) of the Participant and of his/her Beneficiary. A change of Beneficiary which occurs before the initial payment of a

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life annuity is not a change payment election. A change in the form of payment before any annuity payment has been made from one type of life annuity to another with the same scheduled date for the first payment is not subject to the change payment election requirements provided that the annuities are actuarially equivalent applying reasonable actuarial assumptions and that at any given time, the same actuarial assumptions and methods are used to value each annuity. The requirement of actuarial equivalence applies for the duration of the Participant’s participation in the Plan such that the annuity payment must be actuarially equivalent at all times for the annuity payment options to be treated as a single time and method of payment. The Plan over time may change actuarial assumptions and methods provided such methods and assumptions are reasonable. The following features are disregarded in determining if the payment is a life annuity but are taken into account in determining if one life annuity is the actuarial equivalent of another: (i) term certain features under which payments continue for the longer of the annuitant’s life or for a fixed period of time; (ii) pop-up features under which payments increase upon the death of the Beneficiary or other event which eliminates the survivor annuity; (iii) cash refund features under which there is a payment on the death of the last annuitant in an amount not greater than the excess of the present value of the annuity at the annuity starting state over the total payments before the last annuitant’s death; (iv) a feature under which the annuity provides higher periodic payments before the expected commencement of Social Security or Railroad Retirement Act benefits and lower payments after the expected commencement of such benefits, such the combined payments are approximately level before and after the expected commencement date; and (v) features providing for a cost-of-living increase in the annuity payment in accordance with Treas. Reg. §1.409A-6, Q & A-14(A)(1) or (2). A joint and survivor annuity does not fail to be actuarially equivalent to a single life annuity solely due to the value of a subsidized survivor benefit provided the annual lifetime annuity to the Participant is not greater than the annual lifetime benefit to the Participant under the single life annuity and the annual survivor annuity benefit is not greater than the annual lifetime annuity to the Participant under the joint and survivor annuity.

(b) Installments. The Employer in its Adoption Agreement will elect whether to treat a series of installment payments which are not a life annuity as a single payment or as a series of separate payments. If the Employer fails to so elect, the Employer must treat the installments as a single payment. Any election to treat installments as separate payments applies at all times with respect to the amount deferred. For purposes of this Section 4.02(B)(3), a “series of installment payments” means payment of a series of substantially equal periodic amounts to be paid over a predetermined number of years, except to the extent that any increase in the payment amounts reflects reasonable Earnings through the date of payment. For this purpose, a series of installment payments over a predetermined period and: (i) a series of installments over a shorter or longer period; and (ii) a series of installments over the same period but with a difference commencement date, are different times and methods of payment and a change in the predetermined period or commencement date is subject to this Section 4.02(B). An installment payment does not fail to be an installment solely because the plan provides for an immediate payment of all remaining installments if the present value of the Deferred Compensation to be paid in the remaining installments falls below a predetermined amount, and the immediate payment in not an acceleration under Section 4.02(C) provided that the payment election establishes this feature, including the predetermined amount triggering immediate payment and that any change to the feature is subject to this Section 4.02(B). If the Plan is a restated Plan, whatever election the Employer makes in it Adoption Agreement on or before December 31, 2007, applies to any period spanning 2005 through 2007, as applicable, unless the Employer indicates otherwise in its election.

(4) Coordination with Anti-Acceleration Rule. The definition of “payment” in Sections 4.02(B)(2) and (3) also applies to Section 4.02(C). A change payment election may change the form of payment to a more rapid schedule (including a change from installments to a lump-sum payment) without violating Section 4.02(C), provided any such change remains subject to the change payment election provisions under this Section 4.02(B).

(5) Multiple Payment Events. If the Plan permits multiple payment events, the change payment election provisions of Section 4.02(B)(1) apply separately as to each payment due upon each payment event. The addition or deletion of a permissible payment event to Deferred Compensation previously deferred is subject to the change election provisions of Section 4.02(B)(1) where the additional event may cause a change in the time or form of payment. However the addition of death, Disability or Unforeseeable Emergency as an “earliest of” payment event is not a change payment election and is not an impermissible acceleration under Section 4.02(C).

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(6) Domestic Relations Orders. An election, pursuant to or reflected in a domestics relations order under Code §414(p)(1)(B), by someone other than the Participant, as to payments to a person other than the Participant, is not a change payment election subject to this Section 4.02(B).

(7) Certain Payment Delays not Subject to Change Payment Election Rules. The Employer operationally will elect whether to apply the some or all of the following payment delay provisions. The Employer in applying such provisions must treat all payments to similarly situated service providers on a reasonably equivalent basis. If applicable, these provisions do not result in the Plan failing to provide for payment upon a permissible event as Code §409A requires nor are the delays treated as a change payment election under this Section 4.02(B).

(a) Non-deductible Payment. The Plan may delay payment to a Participant if the Employer reasonably anticipates that the Employer’s deduction for the scheduled payment of the Participant’s Deferred Compensation will be barred under Code §162(m). In such event, the Plan (without any Participant election as to timing) will pay such Deferred Compensation either in the Participant’s first Taxable Year in which the Employer reasonably anticipates or should reasonably anticipate that Code §162(m) will not apply or during the period beginning on the date the affected Participant Separates from Service and ending on the later of the last day of the Participant’s Taxable Year in which the Separation occurs or the 15^th day of the third month following the Separation. If the Employer fails to delay under this Section 4.02(B)(7)(a) all scheduled payments during a Taxable Year which could be so delayed, the Employer’s delay of any payment is a change payment election subject to this Section 4.02(B). If the Employer delays payment until the Participant’s Separation from Service, the payment is considered as made based on Separation from Service for purpose of application of Section 4.01(D) and payment to a Specified Employee will be made on the date that is six months after Separation from Service.

(b) Securities or Other Laws. The Plan may delay payment to a Participant if the Employer reasonably anticipates that the payment will violate Federal securities law or other applicable law. The Plan will pay such Deferred Compensation at the earliest date at which the Employer reasonably anticipates that the payment will not cause a violation of such laws. For purposes of this Section 4.02(B)(7)(b), a violation of “other applicable law” does not include a payment which would cause inclusion of the Deferred Compensation in the Participant’s gross income or which would subject the Participant to any Code penalty or other Code provision.

(c) Change in Control. The Plan may delay payment to a Participant related to a Change in Control and that occur under the circumstances described in Treas. Reg. 1.409A-3(i)(5)(iv).

(d) Other. The Plan may delay payment to a Participant upon such other events as Applicable Guidance may permit.

(8) Extension of Short-Term Deferral. A Participant who, after the deadline for an initial payment election under Section 4.02(A)(2)(a), makes an election to defer payment of an amount which, but for the election, would be a short-term deferral under Treas. Reg. 1.409A-1(b)(4) and not subject to 409A, makes a change payment election subject to this Section 4.02(B) and in applying Section 4.02(B), the Plan treats the scheduled payment date as the date the Substantial Risk of Forfeiture lapses; provided that a Participant making such an election may provide for payment upon a Change in Control without regard to the 5 year requirement under clause (ii) of Section 4.02(B)(1)(a).

(C) No Acceleration.

(1) General Rule. No person may accelerate the time or schedule of any Plan payment or amount scheduled to be paid under the Plan. For this purpose, the payment of an amount substituted for the Deferred Compensation is a payment of the Deferred Compensation, as provided in Treas. Reg. §1.409A-3(f).

(2) Not an Acceleration. Certain actions as described in Treas. Reg. §§1.409A-3(j)(1), (2), (3), (5) and (6) are not an acceleration including: (i) certain payments made as a result of an intervening payment event and made in accordance with Plan provisions or pursuant to an initial payment election under Section 4.02(A) or a change payment election under Section 4.02(B); (ii) the Employer’s waiver or acceleration of the

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satisfaction of any condition constituting a Substantial Risk of Forfeiture provided that payment is made only upon a permissible payment event; (iii) the addition of death, Disability or Unforeseeable Emergency as payment events where such addition results in an earlier payment than would have occurred without the addition of such events (iv) an election to change Beneficiaries (including before the commencement of a life annuity) the if the time and form of payment does not change (except where under a life annuity a change in time of payments results solely from the different life expectancy of the new Beneficiary); (v) a decrease in the Compensation Deferred under the Plan as a result of certain linkage to qualified plans or broad-based foreign plans or certain other actions or inactions, including related to Wraparound Elections; or (vi) a change to a cafeteria plan election (under Code §125(d)) resulting in a change in the Compensation Deferred under this Plan.

(3) Permissible Accelerations/ Including Cash-Out. Notwithstanding Section 4.02(C)(1), the Employer in its sole discretion and without any Participant discretion or election, operationally may elect accelerations of the time or schedule of payment from the Plan in any or all of the circumstances described in Treas. Reg. §§1.409A-3(j)(4)(ii) through (xiv). Such circumstances include, but are not limited to, the mandatory lump-sum payment of the Participant’s entire Vested Accrued Benefit at any time provided that the Employer evidences its discretion to make such payment in writing no later than the date of payment, the payment results in the termination and liquidation of the Participant’s interest under the Plan and under all Aggregated Plans, and the payment amount does not exceed the applicable dollar amount under Code §402(g)(1)(B). The Employer in applying this Section 4.02(C)(3) must treat all similarly situated service providers on a reasonably equivalent basis. See Section 6.03 as to Plan termination which also results in a permissible acceleration.

4.03 Withholding. The Employer will withhold from any payment made under the Plan and from any amount taxable under Code §409A, all applicable taxes, and any and all other amounts required to be withheld under Applicable Guidance.

4.04 Beneficiary Designation. A Participant may designate a Beneficiary (including one or more primary and contingent Beneficiaries) to receive payment of any Vested Accrued Benefit remaining in the Participant’s Account at death. The Employer will provide each Participant with a form for this purpose and no designation will be effective unless made on that form and delivered to the Employer. A Participant may modify or revoke an existing designation of Beneficiary by executing and delivering a new designation to the Employer. In the absence of a properly designated Beneficiary, the Employer will pay a deceased Participant’s Vested Accrued Benefit to the Participant’s surviving spouse and if none, to the Participant’s then living lineal descendants, by right of representation, and if none, to the Participant’s estate. If a Beneficiary is a minor or otherwise is a person whom the Employer reasonably determines to be legally incompetent, the Employer may cause the Plan or Trust to pay the Participant’s Vested Accrued Benefit to a guardian, trustee or other proper legal representative of the Beneficiary. The Plan’s or Trust’s payment of the deceased Participant’s Vested Accrued Benefit to the Beneficiary or proper legal representative of the Beneficiary completely discharges the Employer, the Plan and Trust of all further obligations under the Plan.

4.05 Payments Treated as Made on Payment Date.

(A) Certain Late Payments. The Plan’s payment of Deferred Compensation is deemed made on the Plan required payment date or payment election required payment date even if the Plan makes payment after such date, provided the payment is made by the latest of: (i) the end of the Taxable Year in which the payment is due; (ii) the 15^th day of the third calendar month following the payment due date provided that the Participant is not able, directly or indirectly, to designate the Taxable Year of payment; (iii) in case the Employer cannot calculate the payment amount on account of administrative impracticality which is beyond the Participant’s control (or the control of the Participant’s Beneficiary), in the first Taxable Year of the Participant in which payment is practicable; (iv) in case the making of the payment on the specified date would jeopardize the Employer’s ability to continue as a going concern, in the first Taxable Year of the Participant in which the payment would not have such effect. The Employer may cause the Plan or Trust to pay a Participant’s Vested Accrued Benefit on any date which satisfies this Section 4.05(A) and that is administratively practicable following any Plan specified payment date or the date specified in any valid payment election.

(1) Change in Control. In the case of certain Change in Control events, as described in Treas. Reg. §1.409A-3(i)(5)(iv), certain transaction based compensation paid on the same schedule and on the same terms as apply to shareholders generally with respect the Employer’s stock or as the payments to the Employer, is treated as paid on the designated payment date. Further, such payments made within 5 years after the Change in Control event are deemed compliant with Sections 4.02(A) and (B).

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(2) Disputed Payments. In the event of a dispute between the Employer and a Participant as to whether Deferred Compensation is payable to the Participant or as to the amount thereof, or any other failure to pay, payment is treated as paid on the designated payment date if such payment is made in accordance with Treas. Reg. §1.409A-3(g).

(B) Early Payments. The Employer also may cause the Plan or Trustee to pay on a date no earlier than 30 days before the specified payment date provided the Participant is not able, directly or indirectly, to designate the Taxable Year of the payment. Such “early” payments are not an accelerated payment under Section 4.02(C).

4.06 Payment Election Requirements. The term “payment election,” for purposes of this Section 4.06(B) and the Plan generally, means either an initial payment election under Section 4.02(A) or a change payment election under Section 4.02(B).

(A) Compliance with Plan Terms. All initial payment elections and change payment elections must be consistent with the Plan and with the Adoption Agreement.

(B) When Election is Considered Made; Irrevocability.

(1) Participant Elections. A Participant’s payment election is not considered made for any purpose under the Plan until both: (i) the Employer approves the election; and (ii) the election has become irrevocable. A Participant’s payment election is always revocable until the Employer accepts the election, which acceptance must occur within the time period described in Section 4.06(C). A Participant’s payment election becomes irrevocable as the Employer elects in its Adoption Agreement.

(2) Employer Elections. The Employer’s payment election is not considered made for any purpose under the Plan until the election has become irrevocable. The Employer’s initial payment election is irrevocable after the last permissible date for making the election under Section 4.02(A)(2)(b). The Employer’s change payment election relating to payment at a Specified Time or pursuant to a Fixed Schedule is irrevocable after the last permissible date for making the election under Section 4.02(B)(1)(a). The Employer’s change payment election relating to payment based on any other payment event (not a Specified Time or Fixed Schedule) remains revocable for 30 days following the Employer’s execution of the change payment election.

(3) Effect of Changes While Election is Revocable. Any change made to a payment election while the election remains revocable is not a change payment election, either for purposes of Section 4.02(B)(1)(a) timing rules or in applying any Plan limit on the number of change payment elections a Participant may make as to any amount of Deferred Compensation. Any modification to a payment election after the election has become irrevocable is a change payment election (if made with respect to an initial payment election) or is a new change payment election (if made with respect to a change payment election).

(4) Continuing Elections. If an initial payment election is continuing under Section 4.02(A)(3), such that it applies to Compensation Deferred in one or more Taxable Years beginning after the first Taxable Year to which the payment election applies, the payment election is revocable as to such future Taxable Years until the last permissible date under Section 402(A)(2)(b) for making the election with regard to such future Taxable Year or Years.

(C) Employer Approval of Participant and Beneficiary Elections. The Employer expressly and in writing must approve any Participant or Beneficiary payment election as to timing, form and medium, even if the Plan and Adoption Agreement permit such election. The Employer, in its absolute discretion, may withhold approval for any reason, including, but not limited to, non-compliance with Plan terms. However, the Employer must approve or reject any such election within the time period during which the Participant or Beneficiary would have had to make the election. If the Employer does not so approve or reject a payment

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election, the election is deemed rejected within such time period. With regard to initial payment elections, unless the Participant subsequently makes a timely initial payment election the Employer accepts, the Employer will pay the Participant’s Vested Accrued Benefit under the payment event, timing, form and medium default provisions of Sections 4.01(B) and 4.02(A)(5).

(D) Preservation of Pre-2008 Payment Elections. If the Plan is a restatement of a Plan which was in effect before January 1, 2008, as to pre-2008 Deferred Compensation (and Earnings thereon) which is a 409A Amount, the Plan preserves any 409A permissible payment elections under the Plan which elections are not available under the Plan as to Compensation Deferred after 2007, subject to any change payment election made as to such pre-2008 Deferred Compensation.

V. TRUST ELECTION AND PLAN EARNINGS

5.01 Unfunded Plan. The Employer as it elects in its Adoption Agreement intends this Plan to be an unfunded plan that is wholly or partially exempt under ERISA. No Participant, Beneficiary or successor thereto has any legal or equitable right, interest or claim to any property or assets of the Employer, including assets held in any Account under the Plan except as the Plan otherwise permits. The Employer’s obligation to pay Plan benefits is an unsecured promise to pay. Any assets held in Plan Accounts remain subject to claims of the Employer’s general creditors and no Participant’s or Beneficiary’s claim to Plan assets has any priority over any general unsecured creditor of the Employer. Except as otherwise provided in the Plan or Trust, all Plan assets, including all incidents of ownership thereto, at all times will be the sole property of the Employer.

5.02 No Trust. Except as provided in its Adoption Agreement, this Plan does not create a trust for the benefit of any Participant. If the Employer does not establish the Trust: (i) the Employer may elect to make notional contributions in lieu of actual contributions to the Plan; and (ii) the Employer may elect not to invest any actual Plan contributions. If the Employer elects to invest any actual Plan contributions, such investments may be held for the Employer’s benefit in providing for the Employer’s obligations under the Plan or for such other purposes as the Employer may determine.

(A) Earnings. If the Employer does not establish the Trust, the Employer will elect in its Adoption Agreement whether the Plan periodically will credit actual or notional Plan contributions with a determinable amount of notional Earnings (at a specified fixed or floating interest rate or other specified index) or will credit or charge each Participant’s Account with the Earnings actually incurred by the Account.

(B) Investment Direction. If the Account is credited and charged with actual Earnings, the Employer will specify in the Adoption Agreement whether the Employer or the Participant has the right to direct the investment of the Participant’s Account and also may specify any limitations on the Participant’s right of investment direction. If the Adoption Agreement provides for Employer investment direction, the Employer may make any investment of Plan assets it deems reasonable or appropriate. If the Adoption Agreement provides for Participant investment direction, this right is limited strictly to investment direction and the Participant will not be entitled to the distribution of any Account asset except as the Plan otherwise permits.

5.03 Trust. If the Employer elects in its Adoption Agreement to create the Trust, the applicable provisions of the Basic Plan Document continue to apply, including those of Section 5.01. The Trustee will pay Plan benefits in accordance with the Plan terms or upon the Employer’s direction consistent with Plan terms.

(A) Restriction on Trust Assets. If an Employer establishes, directly or indirectly, the Trust (or any other arrangement Applicable Guidance may describe), the Trust and the Trust assets must be and must remain located within the United States, except with respect to a Participant who performs outside the United States substantially all services giving rise to the Deferred Compensation. The Trust may not contain any provision limiting the Trust assets to the payment of Plan benefits upon a Change in the Employer’s Financial Health, even if the assets remain subject to claims of the Employer’s general creditors. For this purpose, the Employer, upon a Change in the Employer’s Financial Health, may not transfer Deferred Compensation to the Trust. The Employer (and any member of a controlled group which includes the Employer) during the “restricted period” also may not transfer Deferred Compensation to the Trust and the Trust may not be restricted to payment of Plan benefits, to the extent that such transfer or restriction would violate the at-risk limitation of Code §409A(b)(3). Any Trust the Employer establishes under this Plan shall be further subject to Applicable Guidance, compliance with which is necessary to avoid the transfer of assets to the Trust being treated as a transfer of property under Code §83.

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(B) Trust Earnings and Investment. If the Employer establishes the Trust, the Trust earnings provisions apply to all Plan contributions and constitute Earnings for purposes of the Plan. The Trustee will invest the assets held in the Trust in accordance with the Trust terms but are not subject to Participant direction of investment.

VI. MISCELLANEOUS

6.01 No Assignment. No Participant or Beneficiary has the right to anticipate, alienate, assign, pledge, encumber, sell, transfer, mortgage or otherwise in any manner convey in advance of actual receipt, the Participant’s Account. Prior to actual payment, a Participant’s Account is not subject to the debts, judgments or other obligations of the Participant or Beneficiary and is not subject to attachment, seizure, garnishment or other process applicable to the Participant or Beneficiary.

6.02 Not Employment Contract. This Plan is not a contract for employment between the Employer and any Employee who is a Participant. This Plan does not entitle any Participant to continued employment with the Employer, and benefits under the Plan are limited to payment of a Participant’s Vested Accrued Benefit in accordance with the terms of the Plan.

6.03 Amendment and Termination.

(A) Amendment. The Employer reserves the right to amend the Plan at any time to comply with Code §409A, Treas. Reg. §1.409A and other Applicable Guidance or for any other purpose, provided that such amendment will not result in taxation to any Participant under Code §409A. Except as the Plan and Applicable Guidance otherwise may require, the Employer may make any such amendments effective immediately.

(B) Termination. The Employer may terminate, but is not required to terminate and liquidate the Plan which includes the distribution of all Plan Accounts under the following circumstances:

(1) Dissolution/Bankruptcy. The Employer may terminate and liquidate the Plan within 12 months following a dissolution of a corporate Employer taxable under Code §331 or with approval of a Bankruptcy court under 11 U.S.C. §503(b)(1)(A), provided that the Deferred Compensation is paid to the Participants and is included in the Participants’ gross income in the latest of (or, if earlier, the Taxable Year in which the amount is actually or constructively received): (i) the calendar year in which the plan termination and liquidation occurs; (ii) the first calendar year in which the amounts no longer are subject to a Substantial Risk of Forfeiture; or (iii) the first calendar year in which the payment is administratively practicable.

(2) Change in Control. The Employer may terminate and liquidate the Plan by irrevocable action taken within the 30 days preceding or the 12 months following a Change in Control, provided the Employer distributes all Plan Accounts (and must distribute the accounts under any Aggregated Plans which plan the Employer also must terminate and liquidate as to each Participant who has experienced the Change in Control) within 12 months following the date of Employer’s irrevocable action to terminate and liquidate the Plan and Aggregated Plans. Where the Change in Control results from an asset purchase transaction, the “Employer” with discretion to terminate and liquidate the Plan is the Employer that is primarily liable after the transaction to pay the Deferred Compensation.

(3) Other. The Employer may terminate the Plan for any other reason in the Employer’s discretion provided that: (i) the termination and liquidation does not occur proximate to a downturn in the Employer’s financial health; (ii) the Employer also terminates all Aggregated Plans in which any Participant also is a participant; (ii) the Plan makes no payments in the 12 months following the date of Employer’s irrevocable action to terminate and liquidate the Plan other than payments the Plan would have made irrespective of Plan termination; (iii) the Plan makes all payments within 24 months following the date of Employer’s irrevocable action to terminate and liquidate the Plan; and (iv) the Employer within 3 years following the date of Employer’s irrevocable action to terminate and liquidate the Plan does not adopt a new plan covering any Participant that would be an Aggregated Plan.

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(4) Applicable Guidance. The Employer may terminate and liquidate the Plan under such other circumstances as Applicable Guidance may permit.

(C) Effect on Vesting. Any Plan amendment or termination will not reduce the Vested Accrued Benefit held in any Participant Account at the date of the amendment or termination and will not accelerate vesting except as the Employer may expressly provide for in connection with the amendment or termination, provided that any such vesting acceleration does not subject any Participant to taxation under Code §409A.

(D) Cessation of Future Contributions. The Employer in its Adoption Agreement may elect at any time to amend the Plan to cease future Elective Deferrals, Nonelective Contributions or Matching Contributions as of a specified date. In such event, the Plan remains in effect (except those provisions permitting the frozen contribution type) until all Accounts are paid in accordance with the Plan terms, or, if earlier, upon the Employer’s termination of the Plan.

6.04 Fair Construction. The Employer, Participants and Beneficiaries intend that this Plan in form and in operation comply with Code 409A, the regulations thereunder, and all other present and future Applicable Guidance. The Employer and any other party with authority to interpret or administer the Plan will interpret the Plan terms in a manner which is consistent with Applicable Law. However, as required under Treas. Reg. §1.409A-1(c)(1), the “interpretation” of the Plan does not permit the deletion of material terms which are expressly contrary to Code §409A and the regulations thereunder and also does not permit the addition of missing terms necessary to comply therewith. Such deletions or additions may be accomplished only be means of a Plan amendment under Section 6.03(A). Any Participant, Beneficiary or Employer permitted Elective Deferral election, initial payment election, change payment election or any other Plan permitted election, notice or designation which is not compliant with Applicable Law is not an “election” or other action under the Plan and has no effect whatsoever. In the event that a Participant, Beneficiary or the Employer fail to make an election or fail to make a compliant election, the Employer will apply the Plan’s default terms under Sections 4.01(B) and 4.02(A)(5).

6.05 Notice and Elections. Any notice given or election made under the Plan must be in writing and must be delivered or mailed by certified mail, to the Employer, the Trustee or to the Participant or Beneficiary as appropriate. The Employer will prescribe the form of any Plan notice or election to be given to or made by Participants. Any notice or election will be deemed given or made as of the date of delivery, or if given or made by certified mail, as of 3 business days after mailing.

6.06 Administration. The Employer will administer and interpret the Plan, including making a determination of the Vested Accrued Benefit due any Participant or Beneficiary under the Plan. As a condition of receiving any Plan benefit to which a Participant or Beneficiary otherwise may be entitled, a Participant or Beneficiary will provide such information and will perform such other acts as the Employer reasonably may request. The Employer may cause the Plan to forfeit any or all of a Participant’s Vested Accrued Benefit, if the Participant fails to cooperate reasonably with the Employer in the administration of the Participant’s Plan Account, provided that this provision does not apply to a bona fide dispute under Section 4.05(A)(2). The Employer may retain agents to assist in the administration of the Plan and may delegate to agents such duties as it sees fit. The decision of the Employer or its designee concerning the administration of the Plan is final and is binding upon all persons having any interest in the Plan. The Employer will indemnify, defend and hold harmless any Employee designated by the Employer to assist in the administration of the Plan from any and all loss, damage, claims, expense or liability with respect to this Plan (collectively, “claims”) except claims arising from the intentional acts or gross negligence of the Employee.

6.07 Account Statements. The Employer from time to time will provide each Participant with a statement of the Participant’s Vested Accrued Benefit as of the most recent Valuation Date. The Employer also will provide Account statements to any Beneficiary of a deceased Participant with a Vested Accrued Benefit remaining in the Plan. Any such statements are for information purposes only prior to an actual Plan payment, are subject to adjustment or correction, and are not binding upon the Employer.

6.08 Accounting. The Employer will maintain for each Participant as is necessary for proper administration of the Plan, an Elective Deferral Account, a Matching Contribution Account, a Nonelective Contribution Account, and separate sub-accounts reflecting 409A Amounts and Grandfathered Amounts in accordance with Section 7.03.

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6.09 Costs and Expenses. Investment charges which will be borne by the Account to which they pertain. The Employer will pay the other costs, expenses and fees associated with the operation of the Plan, excluding those incurred by Participants or Beneficiaries. The Employer will pay costs, expenses or fees charged by or incurred by the Trustee only as provided in the Trust or other agreement between the Employer and the Trustee.

6.10 Reporting. The Employer will report Deferred Compensation for Employee Participants on Form W-2 for and on Form 1099-MISC for Contractor Participants in accordance with Applicable Guidance.

6.11 ERISA Claims Procedure. If this Plan is established as a “top-hat plan” within the meaning of DOL Reg. §2520.104-23, the following claims procedure under DOL Reg. §2560.503-1 applies. For purposes of the Plan’s claims procedure under this Section 6.11, the “Plan Administrator” means the Employer. A Participant or Beneficiary may file with the Plan Administrator a written claim for benefits, if the Participant or Beneficiary disputes the Plan Administrator’s determination regarding the Participant’s or Beneficiary’s Plan benefit. However, the Plan Administrator will cause the Plan to pay only such benefits as the Plan Administrator in its discretion determines a Participant or Beneficiary is entitled to receive. The Plan Administrator under this Section 6.11 will provide a separate written document to affected Participants and Beneficiaries which explains the Plan’s claims procedure and which by this reference is incorporated into the Plan. If the Plan Administrator makes a final written determination denying a Participant’s or Beneficiary’s claim, the Participant or Beneficiary must file an action with respect to the denied claim within 180 days following the date of the Plan Administrator’s final determination.

VII. 409A AMOUNTS AND GRANDFATHERED AMOUNTS

7.01 409A Amounts. The terms of this Plan control as to any 409A Amount.

7.02 Grandfathered Amounts. A Grandfathered Amount remains subject to the terms of the Plan as in effect before January 1, 2005, unless the Employer makes a material modification to the Plan as described in Treas. Reg. §1.409A-6(a)(4).

7.03 Separate Accounting/Earnings. The Employer will account separately for 409A Amounts and for Grandfathered Amounts within each Participant’s Account. The Employer also will account separately for Earnings on the 409A Amounts and Earnings on the Grandfathered Amounts. Post-2004 Earnings on Grandfathered Amounts are included in the Grandfathered Amount.

* * * * * * * * * * * * * * *

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EX-10.15

Exhibit 10.15

NONQUALIFIED

DEFERRED COMPENSATION PLAN

ADOPTION AGREEMENT

(Including Code §409A provisions)

Deferred Compensation Plan for	801955
Directors of StanCorp Financial Group

Nonqualified Deferred Compensation Plan

Adoption Agreement

NONQUALIFIED

DEFERRED COMPENSATION PLAN

ADOPTION AGREEMENT

The undersigned Standard Insurance Company (“Employer”) by execution of this Adoption Agreement hereby establishes this Nonqualified Deferred Compensation Plan (“Plan”) consisting of the Basic Plan Document, this Adoption Agreement and all other Exhibits and documents to which they refer. The Employer makes the following elections concerning this Plan. All capitalized terms used in the Adoption Agreement have the same meaning given in the Basic Plan Document. References to “Section” followed by a number in this Adoption Agreement are references to the Basic Plan Document.

PREAMBLE

ERISA/Code Plan Type: The Employer establishes this Plan as (choose one of (a) or (b)):

x (a) Nonqualified Deferred Compensation Plan. An unfunded nonqualified deferred compensation plan which is (choose only one of (i), (ii), (iii) or (iv)):

¨ (i) Excess benefit plan. An “excess benefit plan” under ERISA§3(36) and exempt from Title I of ERISA.

¨ (ii) Top-hat plan. A “SERP” or other plan primarily for a “select group of management or highly compensated employees” under ERISA and partially exempt from Title I of ERISA.

x (iii) Contractors only. A plan benefiting only Contractors (non-Employees) and exempt from Title I of ERISA.

¨ (iv) Church plan. A church plan as described in Code §414(e) and ERISA §3(33) and maintained by a church or church controlled organization under Code §3121(w)(3).

¨ (b) Ineligible 457 Plan. An ineligible 457 Plan subject to Code §457(f). The Employer is (choose only one of (i), (ii) or (iii)):

¨ (i) Governmental Plan. A State.

¨ (ii) Tax-Exempt Plan. A Tax-Exempt Organization. The Plan is intended to be a “top-hat” plan or an excess benefit plan as described in (a)(ii) and (a)(ii) above or the Plan benefits only Contractors.

¨ (iii) Church plan. A church plan as described in Code §414(e) and ERISA §3(33) but which is not maintained by a church or church controlled organization under Code §3121(w)(3).

Note: If the Employer elects (a)(i), the Plan benefits only Employees. If the Employer elects (a)(ii), the Plan generally may not benefit Contractors based on the “primarily” requirement. If the Employer elects (a)(iii), the Plan benefits only Contractors. If the Employer elects (a)(iv), (b)(i), or (b)(iii) the Plan may benefit Employees and Contractors. If the Employer elects (b)(ii), the plan is either a top-hat plan, an excess benefit plan or benefits only Contractors.

409A Plan Type: The Employer establishes this Plan (choose one of (a) or (b)):

x (a) Account Balance Plan. As the following type(s) of Account Balance Plan(s) under Section 1.02 (choose one of (i), (ii) or (iii)):

x (i) Elective Deferral Account Balance Plan. See Section 2.02.

¨ (ii) Employer Contribution Account Balance Plan. See Sections 2.03 and 2.04.

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¨ (iii) Both. Both an Elective Deferral Account Balance Plan and an Employer Contribution Account Balance Plan.

Note: For purposes of aggregation under Section 1.05, a Separation Pay Plan based only on Voluntary Separation from Service is treated as an Account Balance Plan. Nevertheless, if the Employer maintains this Plan as any type of Separation Pay Plan, the Employer should elect (b) below.

¨ (b) Separation Pay Plan. As the following type(s) of Separation Pay Plan(s) under Section 1.42 (choose one of (i) through (iv)):

¨ (i) Involuntary Separation.

¨ (ii) Window Program.

¨ (iii) Voluntary Separation.

¨ (iv) Combination:                                                               (specify)

Note: Under a Separation Pay Plan, the Employer must limit its payment election to Separation from Service or death. Electing death as a separate payment event would permit a different payment election for death versus any other Separation from Service. Separation from Service may also result from Disability.

Uniformity or Nonuniformity: The nonuniformity provisions described in the Preamble to the Basic Plan Document (choose one of (a) or (b)):

x (a) Do not apply. All Adoption Agreement elections and Plan provisions apply to all Participants.

¨ (b) Apply. See Exhibit A to the Adoption Agreement.

ARTICLE I

DEFINITIONS

1.11 Change in Control. Change in Control means (choose (a) or choose one of (b), (c) or (d)):

x (a) Not applicable. Change in Control does not apply for purposes of this Plan.

¨ (b) All events. Change in Control means all events under Section 1.11.

¨ (c) Limited events. Change in Control means only the following events under Section 1.11 (choose one or two of (i), (ii) and (iii)):

¨ (i) Change in ownership of the Employer.

¨ (ii) Change in the effective control of the Employer.

¨ (iii) Change in the ownership of a substantial portion of the Employer’s assets.

¨ (d) (Specify):                                                                                                                                                                                         .

Note: The Employer may not use the blank in (d) to specify events not described in Treas. Reg. §1.409A-3(i)(5). However, the Employer may increase the percentages required to trigger a Change in Control under one or all three of the listed events.

1.15 Compensation. The Employer makes the following modifications to the “gross W-2” definition of Compensation (choose (a) or at least one of (b) – (e)):

¨ (a) No modifications.

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¨ (b) Net Compensation. Exclude all elective deferrals to other plans of the Employer described in Section 1.15.

¨ (c) Base Salary only. Exclude all Compensation other than Base Salary.

¨ (d) Bonus only. Exclude all Compensation other than Bonus.

x (e) (Specify): Compensation is defined as Directors’ Fees paid by the Employer to the Participant for services during the Taxable Year. Directors’ Fees consist of a retainer, and a meeting fee for each meeting of the Board of Directors or a committee of the Board attended by the Participant.

Note: See Section 1.15(B) as to Contractor Compensation.

1.17 Disability. Disability means (choose one of (a) or (b))):

¨ (a) All impairments. All impairments constituting Disability.

¨ (b) Limited. Only the following impairments constituting Disability:                                                                                  .

1.20 Effective Date. The effective date of the Plan is (choose one of (a) or (b)):

¨ (a) New Plan. This Plan is a new Plan and is effective                                                                                                           .

Note: The effective date should be no earlier than January 1, 2008.

x (b) Restated Plan. This Plan is a restated Plan and is restated effective as of January 1, 2008. The Plan is restated to comply with Code §409A. The Plan was originally effective January 1, 1974.

Note: If the Plan (whether or not in written form) was in effect before January 1, 2008, the Plan is a restated Plan.

1.38 Plan Name. The name of the Plan as adopted by the Employer is Deferred Compensation Plan for Directors of StanCorp Financial Group.

1.39 Retirement Age. A Participant’s Retirement Age under the Plan is (choose only one of (a)-(d)):

x (a) Not applicable. Retirement Age does not apply for purposes of this Plan.

¨ (b) Age. The Participant’s attainment of age:

¨ (c) Age and service. The Participant’s attainment of age              with              Years of Service (defined under 1.57) with the Employer.

¨ (d) (Specify):                                                                                                                                                                                .

1.40 Separation from Service. In determining whether a Participant has incurred a Separation from Service under the Plan (choose one or both or (a) and (b)):

x (a) Determination of “Employer.” In determining the “Employer” under Section 1.40(E) and Code §§414(b) and (c), apply the following percentage: 80% (specify percentage).

Note: The specified percentage may not be more than 80% and may not be less than 20%. If the percentage is less than 50%, there must be legitimate business criteria.

¨ (b) Collectively Bargained Multiple Employer Plan. Under Section 1.40(H), the following reasonable definition of Separation from Service applies:                                                                   (specify).

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1.44 Specified Employees-Elections. The Employer makes the following elections relating to the determination of Specified Employees (choose (a) or choose one or more of (b)-(e)):

x (a) Not applicable. The Employer does not have any Specified Employees or none which benefit under the Plan.

¨ (b) Alternative Code §415 Compensation. The Employer elects the following alternative definition of Code §415 Compensation:                                                                                                                                                     (specify).

¨ (c) Alternative Specified Employee identification date. The Employer elects the following alternative Specified Employee identification date:                                                                                                                                             (specify).

¨ (d) Alternative Specified Employee effective date. The Employer elects the following alternative Specified Employee effective date:                                      (specify).

¨ (e) Other elections. The Employer makes the following other elections relating to Specified Employees:                                          (specify).

Note: See Treas. Reg. 1.409A-1(i)(8) as to uniformity requirements affecting the above Specified Employee elections.

1.51 Unforeseeable Emergency. Unforeseeable Emergency means (choose (a) or choose one of (b) or (c)):

x (a) Not applicable. Unforeseeable Emergency does not apply for purposes of this Plan.

¨ (b) All events. All events constituting Unforeseeable Emergency.

¨ (c) Limited. Only the following events constituting Unforeseeable Emergency:                                                                                                                                                                                                                              .

1.56 Wraparound Election. The Plan (choose one of (a) or (b)) :

¨ (a) Permits. Permits Participants who participate in a 401(k) plan of the Employer to make Wraparound Elections.

x (b) Not permitted. Does not permit Wraparound Elections (or the Employer does not maintain a 401(k) plan covering any Participants).

1.57 Year of Service. The following apply in determining credit for a Year of Service under the Plan (choose (a) or choose one or more of (b) – (e)):

x (a) Not applicable. Year of Service does not apply for purposes of this Plan.

¨ (b) Year of continuous service. To receive credit for one Year of Service, the Participant must remain in continuous employment with the Employer (or render contract service to the Employer) for the Participant’s entire Taxable Year.

¨ (c) Service on any day. To receive credit for one Year of Service, the Participant only need be employed by the Employer (or render contract service to the Employer) on any day of the Participant’s Taxable Year.

¨ (d) Pre-Plan service. The Employer will treat service before the Plan’s Effective Date for determining Years of Service as follows (choose one of (i) or (ii)):

¨ (i) Include.

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¨ (ii) Disregard.

¨ (e) (Specify):                                                                                                                                                                                    .

ARTICLE II

PARTICIPATION

2.01 Participant Designation. The Employer designates the following Employees or Contractors as Participants in the Plan (choose one of (a), (b) or (c)):

¨ (a) All top-hat Employees. All Employees whom the Employer from time to time designates in writing as part of a select group of management or highly compensated employees.

¨ (b) All Employees with maximum qualified plan additions or benefits. All Employees who have reached or will reach their limit under Code §§415(b) or (c) in the Employer’s qualified plan for the Taxable Year or for the 415 limitation year ending in the Taxable Year.

x (c) Specified Employees/Contractors by name, job title or classification: Any individual elected or appointed to serve on the Board of Directors of StanCorp Financial Group and who is not employed by StanCorp Financial Group or an affiliated entity.

Note: An Employer might elect (c) and reference Exhibit B to maintain confidentiality within the workforce as to the identity of some or all Participants.

2.02 Elective Deferrals. Elective Deferrals by Participants are (choose one of (a), (b) or (c)):

x (a) Permitted. Participants may make Elective Deferrals.

¨ (b) Not permitted. Participants may not make Elective Deferrals.

¨ (c) Frozen Elective Deferrals. The Plan does not permit Elective Deferrals as of:                                                                                                                                                                                                                                               .

2.02(A) Amount limitation/conditions. A Participant’s Elective Deferrals for a Taxable Year are subject to the following amount limitation(s) or other conditions (choose (a) or choose at least one of (b) – (d)):

¨ (a) No limitation.

¨ (b) Maximum Elective Deferral amount:                                                                                                                                    .

¨ (c) Minimum Elective Deferral amount:                                                                                                                                    .

x (d) (Specify): If an Elective Deferral is made, it must be all retainer fees and/or all meetings fees for the year.

2.02(B) Election timing. A Participant must provide the Elective Deferral election under Section 2.02 to the Employer (choose one of (a) or (b)):

x (a) By the deadline. No later than the applicable election deadline under Section 2.02(B).

¨ (b) Specified date. No later than                                          days before the applicable election deadline under Section 2.02(B).

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2.02(B)(6) Final payroll period. The Plan treats final payroll period Compensation under Section 2.02(B)(6) as (choose one of (a) or (b)):

¨ (a) Current Year. As Compensation for the current Taxable Year in which the payroll period commenced.

x (b) Subsequent Year. As Compensation for the subsequent Taxable Year in which the Employer pays the Compensation.

2.02(C) Election changes/Irrevocability. A Participant who makes an Elective Deferral election before the applicable deadline under Section 2.02(B) (choose one of (a) or (b)):

x (a) May change. May change the election until the applicable election deadline.

¨ (b) May not change. May not change the election as to the first Taxable Year to which the election applies.

Note: A payment election under Section 4.02(A) or (B) is a separate election which is not controlled by this Section 2.02(C). See Section 4.06(B).

2.02(D) Election duration. A Participant’s Elective Deferral election (choose one of (a) or (b)):

x (a) Taxable Year only. Applies only to the Participant’s Compensation for the Taxable Year for which the Participant makes the election.

¨ (b) Continuing. Applies to the Participant’s Compensation for all Taxable Years, commencing with the Taxable Year for which the Participant makes the election, unless the Participant makes a new election or revokes or modifies an existing election.

2.03 Nonelective Contributions. During each Taxable Year the Employer will contribute a Nonelective Contribution for each Participant equal to (choose (a) or (f) or choose one or more of (b) – (e)):

x (a) None. The Employer will not make Nonelective Contributions to the Plan.

¨ (b) Fixed percentage.                                 % of the Participant’s Compensation.

¨ (c) Fixed dollar amount. $                                     per Participant.

¨ (d) Discretionary. Such Nonelective Contributions (or additional Nonelective Contributions) as the Employer may elect, including zero.

¨ (e) (Specify):                                                                                                                                                                                    .

¨ (f) Frozen Nonelective Contributions. The Employer will not make any Nonelective Contributions as of:                                                                                                                                                                                             .

2.04 Matching Contributions. During each Taxable Year, the Employer will contribute a Matching Contribution equal to (choose (a) or (i) or choose one or more of (b) – (h)):

x (a) None. The Employer will not make Matching Contributions to the Plan.

¨ (b) Fixed match-flat. An amount equal to                         % of each Participant’s Elective Deferrals for each Taxable Year.

¨ (c) Fixed match-tiered. An amount equal to the following percentages for each specified level of a Participant’s Elective Deferrals or Years of Service for each Taxable Year:

Elective Deferrals	Matching Percentage
_____________	_____________%
_____________	_____________%
_____________	_____________%
_____________	_____________%

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Note: Specify Elective Deferrals subject to match as a percentage of Compensation or a dollar amount.

Years of Service	Matching Percentage
_____________	_____________%
_____________	_____________%
_____________	_____________%
_____________	_____________%

¨ (d) No other caps. The Employer in applying the Matching Contribution formula under 2.04(b) or (c) above will not limit the Participant’s Elective Deferrals taken into account (except as indicated above) and otherwise will not limit the amount of the match.

¨ (e) Limit on Elective Deferrals matched. The Employer in making Matching Contributions will disregard a Participant’s Elective Deferrals exceeding                                                       (specify percentage or dollar amount of Compensation) for the Taxable Year.

¨ (f) Limit on matching amount. The Matching Contribution for any Participant for a Taxable Year may not exceed:                                                       (specify percentage or dollar amount of Compensation).

¨ (g) Discretionary. Such Matching Contributions as the Employer may elect, including zero.

¨ (h) (Specify):                                                                                                                                                                         .

¨ (i) Frozen Matching Contributions. The Employer will not make any Matching Contributions as of:                                                                                                                                                                                 .

2.05 Actual or Notional Contribution. The Employer’s Contributions will be (choose one of (a) or (b) and choose (c) as applicable):

¨ (a) Actual. Made in cash or property to Participant Accounts or to the Trust.

x (b) Notional. Credited to Participant Accounts only as a bookkeeping entry.

¨ (c) (Specify):                                                                                                                                                                             .

2.06 Allocation Conditions. To receive an allocation of Employer Contributions, a Participant must satisfy the following conditions during the Taxable Year (choose (a) or choose one or both of (b) and (c)):

¨ (a) No allocation conditions.

¨ (b) Year of continuous service. The Participant must remain in continuous employment with the Employer (or render contract service to the Employer) for the entire Taxable Year.

¨ (c) (Specify):                                                                                                                                                                                .

ARTICLE III

VESTING AND SUBSTANTIAL RISK OF FORFEITURE

3.01 Vesting Schedule/Other Substantial Risk of Forfeiture. The following vesting schedule or other Substantial Risk of Forfeiture applies to a Participant’s Accrued Benefit (choose (a) or choose one or more of (b) – (f)):

x (a) Not applicable. The Plan does not apply a vesting schedule or other Substantial Risk of Forfeiture.

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¨ (b) Immediate vesting. 100% Vested at all times with respect to the entire Accrued Benefit.

¨ (c) Immediate vesting (Elective Deferrals)/vesting schedule (Employer Contributions). A Participant’s Elective Deferral Account is 100% Vested at all times. A Participant’s Nonelective Contributions Account and Matching Contributions Account are subject to the following vesting schedule:

Years of Service		Vesting %
_____________	or less	0	%
_____________		____	%
_____________		____	%
_____________		____	%
_____________	or more	100	%

¨ (d) Vesting schedule - entire Accrued Benefit. The Participant’s entire Accrued Benefit is subject to the following vesting schedule:

Years of Service		Vesting %
_____________	or less	0	%
_____________		____	%
_____________		____	%
_____________		____	%
_____________		____	%
_____________		____	%
_____________	or more	100	%

¨ (e) Vesting schedule – class year or all years. The Plan’s vesting schedule applies as follows (Choose one of (i) or (ii)):

¨ (i) Class year. Apply the vesting schedule separately to the Deferred Compensation for each Taxable Year.

¨ (ii) All years. Apply the vesting schedule to all Deferred Compensation based on all Years of Service.

¨ (f) Other Substantial Risk of Forfeiture. (Specify):                                                                                                                                                                                                                                                                                                                .

Note: An Employer may elect both a vesting schedule and an additional Substantial Risk of Forfeiture. In such event, a Participant failing to satisfy the conditions resulting in a Substantial Risk of Forfeiture will forfeit his/her Account, even if 100% Vested under any vesting schedule. If the Plan is an Ineligible 457 Plan, the Employer must specify a Substantial Risk of Forfeiture, which may be a vesting schedule provided that under any “graded” vesting schedule, an Ineligible 457 Plan Participant will be taxed as and when each portion of his/her Deferred Compensation vests.

3.02 Immediate Vesting upon Specified Events. A Participant’s entire Accrued Benefit is 100% Vested without regard to Years of Service if the Participant’s Separation from Service with the Employer on or following or as a result of (choose (a) or choose one or more of (b) – (e)):

x (a) Not Applicable.

¨ (b) Retirement Age. On or following Retirement Age.

¨ (c) Death. As a result of death.

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¨ (d) Disability. As a result of Disability.

¨ (e) (Specify):                                                                                                                                                                                .

Note: An early vesting provision generally does not result in prohibited acceleration of benefits under Code §409A. See Section 4.03(C).

3.03 Application of Forfeitures. The Employer will (choose only one of (a) – (d)):

x (a) Not Applicable. Not apply any provision regarding allocation of forfeitures since there are no Plan forfeitures.

¨ (b) Retain. Keep all forfeitures for the Employer’s account.

¨ (c) Allocate. Allocate (in the year in which the forfeiture occurs) any forfeiture to the Accounts of the remaining (nonforfeiting) Participants, in accordance with one of the following methods (choose only one):

¨ (i) Per Compensation. In the same ratio each Participant’s Compensation for the Taxable Year bears to the total Compensation of all Participants sharing in the forfeiture allocation for the Taxable Year.

¨ (ii) Per Account balances. In the same ratio each Participant’s Account balance at the beginning of the Taxable Year bears to the total Account balances of all Participants sharing in the forfeiture allocation for the Taxable Year.

¨ (d) (Specify):                                                                                                                                                                                    .

Note: If the Employer elects to create the Trust under Section 5.03, the Employer should coordinate its forfeiture application elections with the provisions of the Trust.

ARTICLE IV

BENEFIT PAYMENTS

4.01 Payment Events/Elections. The Plan payment events are (choose one or more of (a) through (i) as applicable):

Note: The Employer must elect the Plan permitted payment events. The Employer may elect all of the 409A permitted events or limit the payment events, but the Employer must elect at least one payment event. If the Plan permits initial payment elections, change payment elections, or both, as to any or all of the Plan permitted payment events, the Employer should elect 4.01(d)(iv), (e)(ii) and (i) as applicable. The Employer also should elect under 4.02(A) and 4.02(B) as to who has election rights and to specify any limitations on such rights. If the Plan will not offer any initial or change payment elections, the Employer should not elect 4.01(d)(iv), (e)(ii) or (i). If the Plan will not offer any initial payment elections the Employer also should elect 4.02(A)(a). If the Plan will not offer change payment elections, the Employer also should elect 4.02(B)(a).

¨ (a) Separation from Service.

x (b) Death.

¨ (c) Disability.

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¨ (d) Specified Time. The Plan permits payment to a Participant at a Specified Time (choose one of (i)-(iv)):

¨ (i) Forfeiture Lapse. At the time that the Deferred Compensation no longer is subject to a Substantial Risk of Forfeiture.

¨ (ii) Stated Age. Upon attainment of age:                      (specify age).

¨ (iii) (Specify): On:                                                                       (e.g., January 1, 2015).

¨ (iv) Election. In accordance with a Participant or Employer election under 4.02(A) or (B).

Note: The Employer must approve any Participant payment election. See Section 4.06. Payment at a Specified Time will be a lump-sum payment.

¨ (e) Fixed Schedule. The Plan Permits payment to a Participant in accordance with the following Fixed Schedule (choose one of (i) or (ii)):

¨ (i) Schedule:                                                              

¨ (ii) Election. In accordance with a Participant or Employer election under 4.02(A) or (B).

Note: The Employer must approve any Participant payment election. See Section 4.06. Payment pursuant to a Fixed Schedule will be installments or an annuity commencing at a specific time.

¨ (f) Change in Control. The Plan permits payment to a Participant based on a Change in Control.

¨ (g) Unforeseeable Emergency. The Plan permits payment to a Participant who has an Unforeseeable Emergency.

x (h) (Specify): The later of (a) the date the Participant ceases to serve on the StanCorp Financial Group Board of Directors; and (b) the Participant’s attainment of age 65 (e.g., based on Unforeseeable Emergency, but only as the Elective Deferral Accounts).

Note: The Employer in (h) may modify any of (a)-(g) but only if such modifications are consistent with Code §409A.

¨ (i) Election. As to 4.01 (a), (b), (c), (f), (g) and/or (h), in accordance with a Participant or Employer election under 4.02(A) or (B).

Note: The Employer must approve any Participant payment election. See Section 4.06.

4.01(E) Contractor deemed Separation from Service. In making any payment to a Contractor based on Separation from Service, the Plan (choose (a) or choose one of (b) or (c)):

¨ (a) Not applicable. \ Only Employees are Participants in the Plan.

¨ (b) Applies deemed Separation from Service. Applies the deemed Separation from Service provisions of Section 4.01(E).

x (c) Does not apply. Does not apply the deemed Separation from Service provisions of Section 4.01(E).

4.02 Timing, Form and Medium of Payment/Elections. The Plan will pay a Participant’s Vested Accrued Benefit as follows (complete (a), (b) and (c)):

(a) Timing. Payment will commence or be made (choose only one of (i) - (vi)):

¨ (i) 30 days. On a date which is 30 days following the payment event, unless otherwise made at a Specified Time or in accordance with a Fixed Schedule.

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¨ (ii) 90 days. On a date which is within 90 days following the payment event, unless otherwise made at a Specified Time or in accordance with a Fixed Schedule.

Note: A Participant may not designate the Taxable Year of Payment under (a)(ii).

¨ (iii) 6 months. On a date that is 6 months following the payment event, unless otherwise made at a Specified Time or in accordance with a Fixed Schedule.

¨ (iv) Specified Time/Fixed Schedule. At the Specified Time under Section 4.01(d) or pursuant to the Fixed Schedule under Section 4.01(e).

x (v) (Specify): Payments shall be made on the first of the month following the month during which the payment event occurs. For this purpose, the payment event is the later of the Participant ceasing to serve on the StanCorp Financial Group Board of Directors or attaining age 65. Upon death, payment shall be made no sooner than 60 days and no later than 90 days after the date of the Participant’s death.

¨ (vi) Election. In accordance with a Participant or Employer election under Sections 4.02(A) or (B).

Note: The Employer must approve any Participant payment election. See Section 4.06(C).

Note: See Section 4.01(D) as to restrictions on timing of payments to Specified Employees.

(b) Form. The Plan will make payment in the form of (choose one or more of (i) – (v)):

x (i) Lump-sum. A single payment.

x (ii) Installments. In installments as follows: Participants may elect to receive up to ten (10) equal annual installments.

¨ (iii) Annuity. An immediate annuity contract.

x (iv) (Specify): Payments upon death must be made in the form of a lump sum. For other payment events, if the Participant does not designate the form of payment, the payment shall be made in ten (10) equal annual installments.

x (v) Election. In accordance with a Participant or Employer election under Sections 4.02(A) or (B).

Note: The Employer must approve any Participant payment election. See Section 4.06.

(c) Medium. The form of payment will be (choose only one of (i) - (iv)):

x (i) Cash only.

¨ (ii) Property only.

¨ (iii) Property or cash (or both).

¨ (iv) Election. In accordance with a Participant or Employer election under 4.02(A) or (B).

Note: The Employer must approve all Participant payment elections. See Section 4.06.

Note: A choice between cash or property is not subject to Code §409A. See Treas. Reg. §1.409A-2(a)(1). The Plan treats this election as not being subject to the timing rules applicable to payment elections.

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Adoption Agreement

4.02(A) Initial payment elections. The Plan (choose only one of (a) - (d)):

¨ (a) No initial payment elections. The Plan and Adoption Agreement specify the payment events and the timing, form and medium of payment. If there are multiple payment events, the Plan will make payment based on the earliest event to occur except as follows:                                                                           (indicate no exceptions or specify sequencing).

¨ (b) Participant initial payment election. Permits a Participant initially to elect the payment event and the timing, form and medium of payment of his/her Deferred Compensation in accordance with Section 4.02(A) (choose only one of (i) or (ii)):

¨ (i) All Accounts. The Plan applies a Participant’s elections to all of the Participant’s Accounts under the Plan.

¨ (ii) Elective Deferral Account. The Plan applies a Participant’s elections only to the Participant’s Elective Deferral Account. The Employer will make all payment elections as to Nonelective and Matching Contribution Accounts.

Note: A Participant must elect a payment event from those which the Employer has elected under 4.01 above, unless the Employer has permitted a Participant to elect the 409A permissible payment events. A Participant in his/her election form may limit the payment election to Compensation Deferred at the time of the election or also may apply the payment election to all future Deferred Compensation.

¨ (c) Employer initial payment election. Permits the Employer (and not the Participant) initially to elect the payment events and the timing, form and medium of payment of all Participant Accounts in accordance with Section 4.02(A).

x (d) (Specify): The payment timing and medium are fixed under the Plan. The Participant may initially elect the form of payment of his/her Deferred Compensation.

Note: If a Participant or the Employer does not make an initial payment election, see Sections 4.01(B) and 4.02(A)(5).

4.02(B) Change payment elections. The Plan (choose only one of (a) or (b); choose (c) if (b) applies and choose (d) if applicable):

Note: Even if the Employer under 4.02(A)(a) elects not to permit any Participant or Employer initial payment elections, the Plan under Section 4.02(A)(1) treats a Plan designation of the payment events and of the timing, form and medium of payment as an initial election for purposes of applying any change election the Plan permits.

x (a) Change payment elections not permitted. Does not permit a Participant, a Beneficiary or the Employer to make a change payment election in accordance with Section 4.02(B).

¨ (b) Permits change payment elections. Permits changes payment elections or changes to a change payment elections in accordance with Section 4.02(B) and as follows (choose one or more of (i) -(iv) ):

¨ (i) Participant election. Permits a Participant to make change payment elections.

¨ (ii) Employer election. Permits the Employer to make change payment elections.

¨ (iii) Beneficiary election. Permits a Beneficiary following the Participant’s death to make change payment elections.

¨ (iv) (Specify):                                                                                        (e.g., a Beneficiary may make a change payment election only if the Participant had the right to do so, OR a Participant may make a change payment election only after attaining age 60).

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¨ (c) Limit on number of change payment elections. The number of change payment elections (as to any initial payment election) that a Participant, a Beneficiary or the Employer (as applicable) may make is (choose one of (i) or (ii)):

¨ (i) Unlimited. Not limited except as required under Section 4.02(B).

¨ (ii) Limited. Limited to:                      (specify number).

¨ (d) (Specify):                                                              (e.g., permits change payment elections only as to Elective Deferral Account).

4.02(B)(3)(b) Installment payments. The Plan under Section 4.03(B)(3)(b) for purposes of application of the change payment election provisions treats an installment payment as a (choose one of (a), (b) or (c)):

¨ (a) Single payment.

¨ (b) Series of payments.

¨ (c) Treatment for 2005 through 2007. For the period spanning 2005 through 2007, treat installments as (choose one of (i) or (ii)):

¨ (i) Single payment.

¨ (ii) Series of payments.

Note: If the Plan is a restated Plan, and the Employer otherwise before January 1, 2008, did not make a written designation regarding the treatment of installment payments, the Employer in (c) may elect to apply a different election for the period spanning 2005 through 2007, than applies after 2007 under (a) or (b). See Treas. Reg. 1.409A-2(b)(2)(iv).

¨ (d) Not applicable. The Plan does not permit installment payments.

4.06(B) Election changes/Irrevocability. A Participant who makes an initial payment election or a change payment election which the Employer has accepted (complete (a) and (b)):

(a) Initial payment elections. (choose one of (i), (ii) or (iii)):

x (i) May change. May change the initial payment election as to the Deferred Compensation to which the election applies, until the applicable election deadline under 4.02(A)(2)(a). Any change to an initial payment election made after the initial payment election becomes irrevocable is a change payment election.

¨ (ii) May not change. May not change the initial election as to the Deferred Compensation to which the election applies.

¨ (iii) Not applicable. As elected above, a Participant may not make an initial payment election.

(b) Change payment elections. (choose one of (i), (ii) or (iii)):

¨ (i) May change. May change the change payment election as to the Deferred Compensation to which the election applies. Where the payment event is a Specified Time or a Fixed Schedule, the Participant may change the election until the applicable deadline under Section 4.02(B)(1)(a). Where the change payment election relates to any other payment event (not a Specified Time or a Fixed Schedule), the Participant must make the change within 30 days following the Participant’s making of the change payment election which the Participant seeks to change. Any change to a change payment election made after the change payment election becomes irrevocable is a new change payment election.

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¨ (ii) May not change. May not change the change payment election as to the Deferred Compensation to which the election applies.

x (iii) Not applicable. As elected above, a Participant may not make a change payment election.

Note: An Elective Deferral election under Section 2.02(C) is a separate election which is not controlled by this election 4.06(B).

ARTICLE V

TRUST ELECTION AND INVESTMENTS

5.02 No Trust. The Employer by electing (a) or (b) below does not create the Trust described in Section 5.03. Section 5.02 applies. The Employer will credit each Participant’s Account with (choose one or both of (a) or (b)):

¨ (a) Actual Earnings (choose only one of (i) through (iv)):

¨ (i) Employer direction. As a result of the Employer’s directed investment of the Account.

¨ (ii) Participant direction. As a result of the Participant’s directed investment of his/her own Account.

¨ (iii) Participant direction over Elective Deferrals. As a result of the Participant’s directed investment of his/her own Elective Deferral Account, and the Employer’s directed investment of the balance of the Participant’s Account.

¨ (iv) (Specify):                                                                                                                                                                                .

x (b) Notional Earnings. (choose one or both of (i) or (ii)):

x (i) Fixed/floating interest. Interest at the rate of the general portfolio account of Standard Insurance Company and applied to (choose only one of (A), (B) or (C)):

Note: use blank to specify rate, fixed or floating with index, time interval, simple or compounded interest, etc.

x (A) Total Account. The Participant’s entire Account.

¨ (B) Deferrals only. The Participant’s Elective Deferral Account, with the balance of the Account being subject to actual investment as specified in 5.02(a).

¨ (C) Employer Contribution only. The Participant’s Employer Contribution Accounts with the balance of the Account being subject to actual investment as specified in 5.02(a).

¨ (ii) (Specify):                                                                                                                                                                                 .

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EMPLOYER SIGNATURE

The Employer hereby agrees to the provisions of this Plan, and in witness of its agreement, the Employer, by its duly authorized officer, has executed this Adoption Agreement on                                                                                                                                    ,

Name of Employer: Standard Insurance Company
Signed:
	[Name/Title]

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NONQUALIFIED

DEFERRED COMPENSATION PLAN

BASIC PLAN DOCUMENT

(Including Code §409A provisions)

Nonqualified Deferred Compensation Prototype Plan

NONQUALIFIED

DEFERRED COMPENSATION PLAN

BASIC PLAN DOCUMENT

By execution of the Adoption Agreement associated with this Basic Plan Document, the Employer establishes this Nonqualified Deferred Compensation Plan (“Plan”) for the benefit of certain Employees and Contractors the Employer designates in its Adoption Agreement. The primary purpose of the Plan is to provide additional compensation to Participants upon termination of employment or service with the Employer. The Employer will pay benefits under the Plan only in accordance with the terms and conditions set forth in the Plan.

PREAMBLE

ERISA/Code Plan Type. The Employer in its Adoption Agreement will specify whether it establishes the Plan as a nonqualified deferred compensation plan or as an ineligible Code §457(f) plan. A nonqualified deferred compensation plan is an unfunded plan that may be: (i) an “excess benefit plan” under ERISA §3(36); (ii) a plan maintained “primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” (“top-hat plan”) under ERISA §§201(2), 301(a)(3) and 401(a)(1); (iii) a plan only for Contractors and exempt from Title I of ERISA; or (iv) a church plan under Code §414(e) and ERISA §3(33) and maintained by a church or church-controlled organization under Code §3121(w)(3). A top-hat plan includes a supplemental executive retirement plan (“SERP”). A tax-exempt Code §457(f) plan may include a church plan under Code §414(e) and ERISA §3(33) but which is not sponsored by a church or church-controlled organization under Code §3121(w)(3).

409A Plan Type. The Employer in its Adoption Agreement will specify whether it establishes the Plan as an Account Balance Plan or as a Separation Pay Plan.

Possible Nonuniformity. The Employer in its Adoption Agreement will specify such Plan terms as will apply to all Participants uniformly or as may apply to a given Participant. Except where the Plan or Applicable Guidance require uniformity in order to comply with Code §409A, the Employer need not provide the same Plan benefits or apply the same Plan terms and conditions to all Participants, even as to Participants who are of similar pay, title and other status with the Employer. The elections the Employer makes in its Adoption Agreement apply uniformly to all Participants, except to the extent the Employer adopts inconsistent provisions with respect to one or more Participants in a separate attachment designated as “Exhibit A” and attached to the Adoption Agreement. The Employer may create a separate Exhibit A for one or more Participants, specifying such terms and conditions as are applicable to a given Participant. The Employer, in Exhibit A, may modify any Plan provision or any Adoption Agreement election as to one or more Participants.

I. DEFINITIONS

1.01 “Account” means the account the Employer establishes under the Plan for each Participant and, as applicable, means a Participant’s Elective Deferral Account, Nonelective Contribution Account or Matching Contribution Account.

1.02 “Account Balance Plan” means an Elective Deferral Account Balance Plan or an Employer Contribution Account Balance Plan, or a combination of both, as the Employer elects in its Adoption Agreement.

(A) Elective Deferral Account Balance Plan. An Elective Deferral Account Balance Plan is a plan comprised of an Elective Deferral Account as described under Treas. Reg. §1.409A-1(c)(2)(i)(A).

(B) Employer Contribution Account Balance Plan. An Employer Contribution Account Balance Plan is a plan comprised of Employer Nonelective Contribution Accounts, Matching Contribution Accounts, or both, as described under Treas. Reg. §1.409A-1(c)(2)(i)(B).

1.03 “Accrued Benefit” means the total dollar amount credited to a Participant’s Account.

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1.04 “Adoption Agreement” means the document the Employer executes to establish the Plan and includes all Exhibits and other documents referenced therein.

1.05 “Aggregated Plans” means this Plan and any other like-type plan of the Employer in which a given Participant participates and as to which the Plan (see Sections 2.02(B)(2) and 6.03(B)) or Treas. Reg. §1.409A-1 (c)(2) requires the aggregation of all such nonqualified deferred compensation in applying Code §409A. For this purpose, the following rules apply:

(A) Participants in Separate Plans. The plan for a Participant is treated as a separate plan from the plan for any other Participant, even though such plans may be incorporated into a single written plan in this Plan and covering all Participants.

(B) Plan Types. The following plans under clauses (i), (ii) and (iii) are not “like-type plans” and are treated as separate from each other: (i) all Elective Deferral Account Balance Plans (including for aggregation purposes only, Separation Pay Plans based on Voluntary Separation from Service); (ii) all Employer Contribution Account Balance Plans (including for aggregation purposes only, Separation Pay Plans based on Voluntary Separation from Service); and (iii) all Separation Pay Plans based on Involuntary Separation from Service or under a Window Program.

(C) Dual Status. If a Participant in two like-type plans participates in one plan as an Employee and in the other as a Contractor, the plans are not Aggregated Plans. If an Employee also serves on the Employer’s board of directors (or in a similar capacity with regard to a non-corporate entity) and participates in like-type plans but participates in one plan as an Employee and in the other as a director (or similar capacity with regard to a non-corporate entity) [a “director plan”], the plans are not Aggregated Plans provided that the director plan is substantially similar to a plan the maintains for non-employee directors. If the director plan is not substantially similar, for purposes of aggregation, the director plan is treated as a plan for Employees. Director plans and plans for Contractors are subject to aggregation under this Section 1.05.

1.06 “Applicable Guidance” means as the context requires Code §§83, 409A and 457, Treas. Reg. §1.83, Treas. Reg. §§1.409A-1 through -6, Treas. Reg. §1.457-11, or other written Treasury or IRS guidance regarding or affecting Code §§83, 409A or 457(f), including, as applicable, any Code §409A guidance in effect prior to January 1, 2008.

1.07 “Base Salary” means a Participant’s Compensation consisting only of regular salary and excluding any other Compensation.

1.08 “Basic Plan Document” means this Nonqualified Deferred Compensation Plan document.

1.09 “Beneficiary” means the person or persons entitled to receive Plan benefits in the event of a Participant’s death.

1.10 “Bonus” means a Participant’s Compensation consisting only of bonus and excluding any other Compensation. A Bonus also may be Performance-Based Compensation under Section 1.37.

1.11 “Change in Control” means, as to an Employer which is a corporation, a change: (i) in the ownership of the Employer (acquisition by one or more persons acting as a group of more than 50% of the total voting power or fair market value of the Employer); (ii) in the effective control of the Employer (acquisition or acquisition during a 12-month period ending on the date of the latest acquisition, by one or more persons acting as a group of 30% or more of the total voting power of the Employer or replacement of a majority of the members of the board of directors of the Employer [described below, but including only the entity for which no other corporation is a majority shareholder] during any 12-month period by directors not endorsed by a majority of the board before the appointment or election); or (iii) in the ownership of a substantial portion of the assets of the Employer (acquisition or acquisition during a 12-month period ending on the date of the latest acquisition, by one or more persons [other than related persons described in Treas. Reg. §1.409A-3(i)(5)(vii)(B)] acting as a group of assets with a total gross fair market value of 40% or more of the total gross fair market value of all assets of the Employer immediately before such acquisition or acquisitions), each within the meaning of Treas. Reg. §1.409A-3(i)(5) or in Applicable Guidance. For this purpose, the Employer

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includes the Employer, the corporation which is liable for the payment of the Deferred Compensation, a majority shareholder (more than 50% of total fair market value and voting power) of the foregoing or a corporation in a chain of corporations in which each is a majority owner of another corporation in the chain, ending in the Employer or in the corporation that is liable for payment of the Deferred Compensation, all in accordance with Treas. Reg. §1.409A-3(i)(5)(ii). An event constituting a Change in Control must be objectively determinable and any certification thereof by the Employer or its agents may not subject to the discretion of such person. For purposes of applying this Section 1.11, stock ownership is determined in accordance with Code §318(a) as modified under Treas. Reg. §1.409A-3(i)(5)(iii). The Employer in its Adoption Agreement will elect whether a Change in Control includes any or all the events described in clauses (i), (ii) or (iii) and also may elect to increase the percentage change required under any such event to constitute a Change in Control. Pending the issuance of Applicable Guidance as to the application of the Change in Control provisions to partnerships (or other non-corporate entities), if the Employer elects in its Adoption Agreement to permit Change in Control as a payment event, the Employer will apply clauses (i) and (iii) and clause (ii) as it relates to a change in the composition of the board of directors by analogy in accordance with Treas. Reg. §1.409A, Preamble, II.G.

1.12 “Change in the Employer’s Financial Health” means an adverse change in the Employer’s financial condition as described in Applicable Guidance.

1.13 “Code” means the Internal Revenue Code of 1986, as amended.

1.14 “Commissions” means Compensation or portions of Compensation consisting of Sales Commissions or of Investment Commissions. See Section 2.02(B)(5).

(A) Sales Commissions. Sales Commissions means Compensation or portions of Compensation a Participant earns if: (i) a substantial portion of Participant’s services to the Employer consists of the direct sale of a product or a service to a customer that is not related or treated as related to the Employer or to the Participant (under Treas. Reg. §§1.409A-1(f)(2)(ii)) and (iv)); (ii) the Compensation the Employer pays to the Participant consists either of a portion of the purchase price for the product or service or of an amount substantially all of which is calculated by reference to volume of sales; and (iii) payment is either contingent upon the Employer receiving payment from an unrelated customer (as described in clause (i) above) for the product or services or, if consistently applied as to all similarly situated service providers, is contingent upon the closing of a sales transaction and such other requirements as the Employer may specify before the closing of the sales transaction.

(B) Investment Commissions. Investment Commissions means Compensation or portions of Compensation a Participant earns if: (i) a substantial portion of the Participant’s services to the Employer to which the Compensation relates consists of sales of financial products or other direct customer services to a customer that is not related or treated as related to the Employer or to the Participant (under Treas. Reg. §§1.409A-1(f)(2)(ii)) and (iv)) as to customer assets or customer asset accounts; (ii) the customer retains the right to terminate the relationship and to move or liquidate the assets or asset accounts without undue delay (but subject to a reasonable notice period); (iii) the Compensation is based on a portion of the value of the overall assets or asset account balance, substantially all of the Compensation is calculated by reference to the increase in value of the overall assets of account balance, or both; and (iv) the value of the overall assets or account balance and Investment Commissions are determined at least annually.

(C) Related Customer Commissions. This Section 1.14 also applies to Sales Commissions and to Investment Commissions involving a related customer provided: (i) the Employer as to unrelated customers makes substantial sales or provides substantial services giving rise to Commissions; and (ii) the sales, service and Commission arrangements with the related customer are bona fide, arise from the Employer’s ordinary course of business and are substantially the same, in terms and in practice, as those terms and practices that apply to unrelated customers to which substantial sales are made or substantial services are rendered.

1.15 “Compensation”

(A) Employees. Compensation means as to an Employee, gross W-2 compensation. “W-2 Compensation” means wages for federal income tax withholding purposes, as defined under Code §3401(a), plus all other payments to an Employee in the course of the Employer’s trade or business, for which the Employer must furnish the Employee a written statement under Code §§6041, 6051 and 6052, disregarding

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any rules limiting the remuneration included as wages under this definition based on the nature or location of the employment or service performed. “Gross W-2 compensation” means W-2 compensation plus all amounts excludible from a Participant’s gross income under Code §§125,132(f)(4), 402(e)(3), 402(h)(2), 403(b), and 408(p), contributed by the Employer, at the Participant’s election, to a cafeteria plan, a qualified transportation fringe benefit plan, a 401(k) arrangement, a SEP, a tax sheltered annuity, or a SIMPLE plan.

(B) Contractors. Compensation as to a Contractor means all payments by the Employer to the Contractor for services during a Taxable Year.

(C) Modifications. The Employer in its Adoption Agreement will elect whether to modify the definition of Compensation. The Employer may modify the definition of Compensation or may specify a different definition of Compensation either as to Employees, as to Contractors or both.

1.16 “Contractor” means a person or entity providing services to the Employer (not as an Employee) as described in Treas. Reg. §1.409A-1(f)(1) and which for any Taxable Year of the Contractor that the Contractor is on the cash receipts and disbursements method of accounting for Federal income tax purposes. A person serving on a board of directors is a Contractor as to Compensation for such service without regard to whether the person is an Employee for other purposes. A Contractor is not subject to this Plan or to Code §409A if in the Taxable Year in which the Legally Binding Right to Compensation arises: (i) the Contractor is actively engaged in the trade or business of performing services other than as an Employee or as a director (or similar position as to a non-corporate Employer); (ii) the Contractor provides significant services to the Employer and to at least 2 other unrelated service recipients, where the Contractor, the Employer and the other service recipient(s) are all unrelated to each other within the meaning of Treas. Reg. §§1.409A-1(f)(2)(i)(B) and (C) as applicable; and (iii) the services are not “management services” within the meaning of Treas. Reg. §1.409A-1(f)(2)(iv). For purposes of clause (ii) “significant services” means as described in Treas. Reg. §1.409A-1(f)(2)(iii). This Plan and Code §409A also do not apply to certain other “related” Contractor services as described in Treas. Reg. §1.409A-1(f)(2)(v).

1.17 “Disability” except as the Plan otherwise provides means a condition of a Participant who by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months: (i) is unable to engage in any substantial gainful activity; or (ii) is receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering Employees. The Employer in its Adoption Agreement will elect whether Disability includes all impairments constituting Disability under this Section 1.17, or only certain specified Disabilities which satisfy the foregoing definition. The Employer will determine whether a Participant has incurred a Disability based on its own good faith determination and may require a Participant to submit to reasonable physical and mental examinations for this purpose. A Participant will be deemed to have incurred a Disability if: (i) the Social Security Administration or Railroad Retirement Board determines that the Participant is totally disabled; or (ii) the applicable insurance company providing disability insurance to the Participant under an Employer sponsored disability program determines that a Participant is disabled under the insurance contract definition of disability, provided such definition complies with the definition in this Section 1.17.

1.18 “Deferred Compensation” means the Participant’s Account Balance attributable to Elective Deferrals and Employer Contributions and includes Earnings on such amounts except where the Plan otherwise provides. “Compensation Deferred” is Compensation that the Participant or the Employer has deferred under this Plan. Compensation is Deferred Compensation if: (i) under the terms of the Plan and the relevant facts and circumstances, the Participant has a Legally Binding Right to Compensation during a Taxable Year that the Participant has not actually or constructively received and included in gross income; and (ii) pursuant to the Plan terms, the Compensation is or may be payable to or on behalf of the Participant in a later Taxable Year. Deferred Compensation includes Separation Pay paid pursuant to a Separation Pay Plan except as otherwise described in Treas. Reg. §1.409A-1(b)(9) relating to certain excluded Involuntary or Voluntary Separation from Service or Window Programs and certain reimbursements, medical benefits, in-kind benefits and limited payments. Deferred Compensation excludes certain “short-term deferrals” and all other items described in Treas. Reg. §§1.409A-1(b)(3), (4), (5), (6), (8), (10), (11) and (12) or in other Applicable Guidance.

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1.19 “Earnings” means earnings, gain or loss applicable to a Participant’s Account provided that such amounts reflect actual predetermined investments or notional amounts which do not exceed a reasonable rate of interest. Amounts credited to an Account that do not reflect actual predetermined investments or a reasonable rate of interest are Deferred Compensation and are not Earnings. For purposes of making the determination of whether an amount is Earnings or is Deferred Compensation, the principles of Treas. Reg. §31.3121(v)(2)-1(d)(2) apply.

1.20 “Effective Date” of the Plan is the date the Employer specifies in the Adoption Agreement, but which is not earlier than January 1, 2008. If this Plan restates a Plan (written or otherwise) which was in effect before January 1, 2008, for periods before January 1, 2008, as to 409A Amounts, the standards and transition rules in effect under Notices 2006-79, 2006-64, 2003-33, 2006-4, Prop. Treas. Reg. §1.409A, Preamble, Section XI and Notice 2005-1 apply. See also the Treas. Reg. §1.409A Preamble, Section XII as to the treatment of certain actions which were in compliance with Applicable Guidance in effect before the issuance of such 409A Regulations on April 17, 2007, but which are not in compliance with such Regulations.

1.21 “Elective Deferral” means Compensation a Participant elects to defer into the Participant’s Account under the Plan.

1.22 “Elective Deferral Account” means the portion of a Participant’s Account attributable to Elective Deferrals and Earnings thereon.

1.23 “Employee” means a person providing services to the Employer as a common law employee (and not as a Contractor) as described in Treas. Reg. §1.409A-1(f)(1) and who, for any Taxable Year of the Employee, is on the cash receipts and disbursements method of accounting for Federal income tax purposes.

1.24 “Employer” means the person or entity: (i) receiving the services of the Participant (even if another person pays the Deferred Compensation); (ii) with respect to whom the Legally Binding Right to Compensation arises; and (iii) who or which executes an Adoption Agreement establishing the Plan. The Employer includes all persons with whom the Employer would be considered a single employer under Code §§414(b) or (c). In the case of an Ineligible 457 Plan, Employer means a State or a Tax-Exempt Organization. For purposes of this Plan, “Employer” means “service recipient” as that term in used in Treas. Reg. §1.409A-1 through -6.

1.25 “Employer Contribution” means amounts the Employer contributes or credits to an Account under the Plan, including Nonelective Contributions and Matching Contributions but not including Elective Deferrals.

1.26 “Employer Contribution Account” means the portion of a Participant’s Account attributable to Employer Contributions and Earnings thereon.

1.27 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

1.28 “409A Amount” means: (i) any Compensation Deferred prior to January 1, 2005, unless such Deferred Compensation is a Grandfathered Amount; and (ii) any Compensation Deferred in Taxable Years beginning after December 31, 2004. In determining 409A Amounts, the rules of Section 1.05 regarding Aggregated Plans apply.

1.29 “Grandfathered Amount” means an amount of Deferred Compensation hereunder as to which, prior to January 1, 2005, a Participant: (i) had a Legally Binding Right to be paid Deferred Compensation; and (ii) was Vested. However, if the Employer after October 3, 2004, materially modifies the Plan as described in Treas. Reg. 1.409A-6(a)(4), then such amount ceases to be a Grandfathered Amount. In determining Grandfathered Amounts, the rules of Section 1.05 regarding Aggregated Plans apply.

1.30 “Ineligible 457 Plan” means this Plan which is subject to Code §457(f) and that is not an eligible 457 plan under Code §457(b).

1.31 “Legally Binding Right” means, in reference to Compensation, the grant by the Employer to the Participant of an enforceable right (under contract, statute or other applicable law) to Compensation where, after the Participant has performed the services which created the Legally Binding Right, the Compensation is

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not subject to unilateral reduction or elimination by the Employer or any other person. The Employer, based on the facts and circumstances and in accordance with Treas. Reg. §1.409A-1(b)(1), will determine: (i) whether a Legally Binding Right exists; or (ii) whether a Legally Binding Right does not exist on account of the existence of negative discretion which has substantive significance to reduce or eliminate the Compensation. Negative discretion does not exist where the Participant has effective control over the person with the negative discretion, has effective control over any portion of compensation of the decision maker or is a family member of the decision maker (within the meaning of Code §267(c)(4) applied as if the family of an individual includes the spouse of any member of the family). Compensation is not subject to unilateral reduction or elimination merely because: (i) it may be reduced or eliminated by operation of objective Plan terms, such as a Substantial Risk of Forfeiture; (ii) the Compensation is determined under a formula that provides for an offset based on benefits provided under another plan, including a qualified plan; or (iii) benefits are reduced on account of actual or notional investment losses, or, in a final average pay plan, because of subsequent decreases in compensation.

1.32 “Matching Contribution” means a fixed or discretionary Employer contribution made with respect to a Participant’s Elective Deferral.

1.33 “Matching Contribution Account” means the portion of a Participant’s Account attributable to Matching Contributions and Earnings thereon.

1.34 “Nonelective Contribution” means a fixed or discretionary Employer Contribution that is unrelated to a Participant’s Elective Deferrals.

1.35 “Nonelective Contribution Account” means the portion of a Participant’s Account attributable to Nonelective Contributions and Earnings thereon.

1.36 “Participant” means an Employee or Contractor the Employer designates under Adoption Agreement Section 2.01 or in Exhibit “B” to the Adoption Agreement to participate in the Plan. For purposes of this Plan, “Participant” means a “service provider” as that term in used in Treas. Reg. 1.409A-1 through-6, who is a participant in the Plan. A reference herein to “service provider” means another service provider to the Employer, whether or not that person is a Participant.

1.37 “Performance-Based Compensation” means Compensation (including a Bonus) where the amount of, or entitlement to, the Compensation is contingent on satisfaction of preestablished organizational or individual performance criteria relating to a performance period of at least 12 consecutive months. The Employer must establish the organizational or individual performance criteria in writing not later than 90 days after commencement of the performance period and the outcome must be substantially uncertain at the time that the Employer establishes the performance criteria. The Employer may establish performance criteria without the necessity of action by its shareholders, board of directors, compensation committee or similar entities in the case of a non-corporate Employer. Performance-Based Compensation does not include any amount that will be paid regardless of performance or that will be paid based on a level of performance that is substantially certain to be met at the time the criteria are established. If the Plan will pay the Participant’s Performance-Based Compensation in the event of the Participant’s death or disability or if a Change in Control occurs, without regard to whether the performance criteria have been satisfied, the Compensation is not Performance-Based Compensation (and therefore is not entitled to the election timing under Section 2.02(B)(4)) if payment occurs as a result of any of such events. “Disability” for purposes of this Section 1.37 means any medically determinable physical or mental impairment resulting form the Participant’s inability to perform the duties of his/her position or of any substantially similar position, where such impairment can be expected to result in death or to last for a continuous period of not less than 6 months. Performance-Based Compensation does not include an amount of Compensation which is based on a specified number of shares of stock multiplied by the share price at the end of the performance period, but may include an amount of Compensation based on an increase in share price over the performance period or which is not payable unless the share price is at or above a specified price. Performance-Based Compensation may be based on subjective performance criteria provided: (i) the criteria are bona fide and relate the Participant’s performance, a group of service providers that includes the Participant or a business unit for which the Participant provides services which may include the Employer; and (ii) the person who decides whether the subjective performance criteria have been met is someone other than the Participant, the Participant’s family member (within the meaning of

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Code §267(c)(4) applied as if the family of an individual includes the spouse of any member of the family), or a person under the effective control of the Participant or such a family member. In addition, the decision maker’s compensation may not be controlled in whole or in part by the Participant or such a family member. The Employer will determine the status of Compensation as Performance-Based Compensation in accordance with Treas. Reg. §1.409A-1(e) and Applicable Guidance.

1.38 “Plan” means the Nonqualified Deferred Compensation Plan of the Employer established by and including the Adoption Agreement, the Basic Plan Document, the Trust, if any, and all notices, forms, elections and other written documentation to which the Plan refers. The Employer will set forth the name of the Plan in its Adoption Agreement. For purposes of applying Code §409A requirements this Plan, as the Employer elects in its Adoption Agreement, is an Elective Deferral Account Balance Plan, an Employer Contribution Account Balance Plan or both, or is a Separation Pay Plan. This Plan does not constitute: (i) a Code §401(a) plan with and exempt trust under Code §501(a); (ii) a Code §403(a) annuity plan; (iii) a Code §403(b) annuity; (iv) a Code §408(k) SEP; (v) a Code §408(p) Simple IRA; (vi) a Code §501(c)(18) trust to which an active participant makes deductible contributions; (vii) a Code §457(b) plan; or (viii) a Code §415(m) plan.

1.39 “Retirement Age” means the date (if any) the Employer elects in the Adoption Agreement.

1.40 “Separation from Service”

(A) Employees. Separation from Service means in the case of an Employee, the Employee’s termination of employment with the Employer whether on account of death, retirement, Disability or otherwise.

(1) Insignificant or Significant Service/Presumptions. The Employer will determine whether an Employee has terminated employment (and incurred a Separation from Service) based on whether the facts and circumstances as described in Treas. Reg. §1.409A-1(h)(1)(ii). An Employee incurs a Separation from Service if the parties reasonably anticipate, based on the facts and circumstances, the Employee will not perform any additional services after a certain date or that the level of bona fide services (whether performed as an Employee or as a Contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed (whether performed as an Employee or as a Contractor) over the immediately preceding 36-month period (or, if less, the period the employee has rendered service to the Employer) (“average prior service”). An Employee is presumed to have incurred a Separation from Service if the Employee’s service level decreases to 20% or less than the average prior service and an Employee is presumed to not have incurred a Separation from Service if the Employee’s service level continues at a rate which is 50% or more of the average prior service. No presumption applies where the Employee’s service level is more than 20% and less than 50% of the average prior service.

(2) Effect of Leave. An Employee does not incur a Separation from Service if the Employee is on military leave, sick leave, or other bona fide leave of absence if such leave does not exceed a period of 6 months, or if longer, the period for which a statute or contract provides the Employee with the right to reemployment with the Employer. If a Participant’s leave exceeds 6 months but the Participant is not entitled to reemployment under a statute or contract, the Participant incurs a Separation from Service on the next day following the expiration of 6 months. A leave of absence constitutes a bona fide leave of absence for this Section 1.40 only if there is a reasonable expectation that the Employee will return to perform services for the Employer. Where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of at least 6 months, and where the Participant cannot perform his/her duties or the duties of any substantially similar position, in determining when a Separation from Service occurs, the above 6 month period is 29 months unless the Employer or the Employee terminate the leave sooner. For purposes of determining average prior service under Section 1.40 (A)(1), during a paid leave of absence which is not a Separation From Service, the Employee is treated as rendering bona fide services at a level that would have been required to earn the amount paid during the leave. If the leave of absence is unpaid, the leave period is disregarded in determining average prior service.

(3) Alternative Definition. In lieu of applying Section 1.40(A)(1), the Employer or Participant in an initial payment election or in a change payment election may elect a percentage of reduced bona fide services resulting in a Separation from Service which percentage must be greater than 20% and less than 50% of prior average service, determined over the immediately preceding 36 months.

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(B) Contractors. Separation from Service, in the case of a Contractor, means the expiration of the contract (or all contracts) under which the Contractor performs services for the Employer provided that the expiration constitutes a good-faith and complete termination of the contractual relationship between the Contractor and the Employer. A good-faith and complete termination does not occur if the Employer anticipates a renewal of the service contract or the Employer anticipates the Contractor becoming an Employee. The Employer anticipates the renewal of the contract if the Employer intends to contract again for the services provided under the expired contract and neither the Employer nor the Contractor has eliminated the Contractor as a possible provider of such additional services. The Employer is deemed to intend renewal of the Contractor’s expired contract if renewal is conditioned only upon incurring a need for services, the Employer’s ability to pay for the services, or both. See Section 4.01(E) as to Contractor “deemed” Separation from Service provisions.

(C) Involuntary Separation from Service (including for “good reason”). “Involuntary Separation from Service” means a Separation from Service due to the Employer’s independent exercise of unilateral authority to terminate the Participant’s services (other than due the Participant’s implicit or explicit request), where the Participant was willing and able to continue performing services for the Employer. Involuntary Separation from Service may include the Employer’s failure to renew the service contract at the time the contract expires provided that the Participant was willing and able to execute a new contract on substantially the same terms and conditions as the expiring contract and to continue providing such services. The Employer will make the determination as to whether an Involuntary Separation from Service has occurred based on all of the facts and circumstances and in accordance with Treas. Reg. §1.409A-1(n). For this purpose, a Participant’s voluntary Separation from Service is treated as an Involuntary Separation from Service if it is for “good reason” as described in Treas. Reg. §§1.409A-1(n)(2). For this purpose, the Separation from Service is deemed to be for a good reason if it occurs during a limited period not to exceed 2 years following the initial existence of the following without the Participant’s: consent (i) a material reduction in the Participant’s base compensation (including Base Salary); (ii) a material reduction in the Participant’s authority, duties or responsibilities; (iii) a material reduction in the authority, duties or responsibilities of the Participant’s supervisor, including a change in the Participant’s reporting responsibilities to a lower level than the board of directors or similar authority in a non-corporate entity; (iv) a material reduction in the Participant’s budget; (v) a material change in the location at which the Participant renders service; or (vi) any other action or inaction that constitutes the Employer’s material breach of the agreement under which the Participant provides services to the Employer. In addition, to be a deemed “good reason” the amount, time and form of payment upon Separation from Service must be substantially identical to the amount payable upon an actual Involuntary Separation from Service, if such right exists, and the Participant must provide notice to the Employer within 90 days of the initial existence of the condition and afford the Employer at least 30 days to remedy the condition without having to pay the Compensation.

(D) Voluntary Separation from Service. “Voluntary Separation from Service” means a Separation from Service which is not an Involuntary Separation from Service under Section 1.40(C).

(E) “Employer” for Purposes of Separation Rules. The “Employer” for purposes of applying this Section 1.40 (determining Separation from Service under the Plan) means as defined under Section 1.24 but by applying 50% in lieu of 80% in applying Code §§414(b) and (c). The Employer in lieu of applying the previous sentence may elect in its Adoption Agreement to use a percentage equal to not less than 20% and not more than 80% in determining related employers under Code §§414(b) and (c); provided that the Employer may not elect to apply a percentage which is less than 50% unless there are legitimate business criteria for doing so.

(F) Dual Capacity. If a Participant renders service to the Employer both in the capacity as an Employee and as a Contractor (or changes status from Employee to Contractor or vice versa), the Participant must incur a Separation from Service in both capacities to constitute a Separation from Service. For this purpose, if a Participant renders service both as an Employee and as a member of the Employer’s board of directors (or an analogous position in the case of a non-corporate Employer) the director services (or the Employee services if this Plan relates to director services) are disregarded in determining whether the Participant has incurred a Separation from Service as to this Plan provided that the plans are not Aggregated Plans.

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(G) Certain Asset Sales. In accordance with and subject to Treas. Reg. §1.409A-1(h)(4), if the Employer sells its assets to an unrelated party purchaser where the Participants otherwise would incur a Separation from Service and where such Participants will provide services to the purchaser after the sale closing, the Employer and the purchaser retain discretion no later than the asset sale closing date to specify in writing whether the Participants will incur a Separation from Service. In making such determination, the Employer and the purchaser must treat all affected Participants consistently.

(H) Collectively Bargained Multiple Employer Plan. If the Plan is established pursuant to a bona fide collective bargaining agreement covering services rendered for multiple employers, the Employer (which for this purpose means the employer which executes the Adoption Agreement) in its Adoption Agreement may elect to define Separation from Service in a reasonable manner that treats an Employee as not having separated during periods in which the Employee is not providing services but is available to do so for one or more employers. However, such alternative definition must also provide that the Employee is deemed to have incurred a Separation from Service at a specified date not later than the end of any period of at least 12 consecutive months during which time the Employee has not provided any service covered by the collective bargaining agreement to any participating employer. The Employer will apply this section in accordance with the requirements of Treas. Reg. §1.409A-1(h)(6).

1.41 “Separation Pay” means any Deferred Compensation (applied before application of any exclusion applicable to Separation Pay Plans under Treas. Reg. §1.409A-1(b)(9)) that will not be paid under any circumstances unless the Participant incurs a Separation from Service, whether voluntary or involuntary, including payments in the form of reimbursements for expenses incurred and provision of in-kind benefits. Deferred Compensation that a Participant may receive without incurring a Separation from Service is not Separation Pay merely because the Participant elects to receive or receives payment upon or after Separation from Service. Deferred Compensation does not fail to constitute Separation Pay merely because the Participant must execute a release of claims, noncompetition agreement or nondisclosure agreement or is subject to similar requirements. Any amount or entitlement that acts as a substitute for, or replacement of, Deferred Compensation is a payment of Deferred Compensation and is not Separation Pay.

1.42 “Separation Pay Plan” means any plan that provides for Separation Pay, including the portion of any plan that provides for Separation Pay, under Treas. Reg. §§1.409A-1(m). The Employer in its Adoption Agreement will elect whether this Plan is a Separation Pay Plan and will elect whether the plan pays benefits in the event of Involuntary Separation from Service, Voluntary Separation from Service, pursuant to a Window Program or a combination thereof.

1.43 “Service Year” means a Participant’s Taxable Year in which the Participant performs services which give rise to Compensation. A “service period” or “performance period” means a Service Year or such other period in which a Participant performs services for the Employer giving rise to Compensation.

1.44 “Specified Employee” means a Participant who is a key employee as described in Code §416(i)(1)(A), disregarding paragraph (5) thereof and using compensation as defined under Treas. Reg. §1.415(c)-2(a). However, a Participant is not a Specified Employee unless any stock of the Employer is publicly traded on an established securities market or otherwise and the Participant is a Specified Employee on the date of his/her Separation from Service. If a Participant is a key employee at any time during the 12 months ending on the Specified Employee identification date, the Participant is a Specified Employee for the 12 month period commencing on the Specified Employee effective date. The Specified Employee identification date is December 31. The Specified Employee effective date is the April 1 following the Specified Employee identification date. The Employer, in determining whether this Section 1.44 and all related Plan provisions apply, will determine whether the Employer has any publicly traded stock as of the date of a Participant’s Separation from Service. In the case of certain corporate transactions (a merger, acquisition, spin-off or initial public offering), or in the case of nonresident alien Employees, the Employer will apply the Specified Employee provisions of the Plan in accordance with Treas. Reg. §1.409A-1(i) and other Applicable Guidance. Notwithstanding the foregoing, the Employer in its Adoption Agreement, and in accordance with Treas. Reg. §1.409A-1(i) and other Applicable Guidance, may make the following elections: (i) use of any Code §415 definition of compensation for Specified Employee determination; (ii) designation of an alternative Specified Employee identification date; (iii) designation of an alternative Specified Employee effective date; (iv) use of an alternative method to identify Participants who will be subject to the 6 month delay rule in Section 4.01(D); (v) certain elections in the context of corporate transactions; and (vi) certain elections regarding nonresident alien Employees. The Employer’s election under clauses (ii) or (iii) regarding an identification date or effective

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date made on or before December 31, 2007, applies to any Separation from Service occurring on or after January 1, 2005, unless the Employer subsequently changes the identification date and/or effective date. Such elections are effective as of the date that all necessary corporate action has been taken to make the election binding as to all nonqualified deferred compensation plans in which service providers of the Employer who would become a Specified Employees participate. The Employer must apply all such elections consistently as to all service providers. The Employer will apply the Specified Employee provisions of the Plan, including the elections described in this Section 1.44, in accordance with Treas. Reg. §1.409A-1(i) and other Applicable Guidance.

1.45 “Specified Time or Fixed Schedule” means, in reference to a payment of Deferred Compensation, the Employer, at the time of the deferral of the Compensation can objectively determine: (i) the amount payable; and (ii) the payment date or dates. An amount is objectively determinable if the deferral election specifically identifies the amount or if the Employer can determine the amount at the time it is due pursuant to an objective, nondiscretionary formula specified at the time of deferral.

(A) Dates and Period(s). A payment is scheduled to occur at a specified time if it is a lump sum payment on a specific date, or a specific, objectively determinable date, including following the lapse of a substantial risk of forfeiture. A payment is scheduled to occur on a fixed schedule if it is a series of payments (which may include an annuity or a series of installments) payable on specific dates or on specifically, objectively determinable dates including following the lapse of a substantial risk of forfeiture. The designation of a Taxable Year of the Participant, or a defined period within a Taxable Year of the Participant, in which payment will occur is adequate designation of a specific date. For purposes of Sections 4.02 and 4.05, if the date specified is only a designated Taxable Year of the Participant, or a period of time during such a Taxable Year, the date specified under the plan is treated as the first day of such Taxable Year or the first day of the period of time, as applicable.

(B) Limitations and Link to Employer Receipts. A Fixed Schedule may include certain: (i) limitations on the amount payable at a specified time of during a specified period expressed either as a stated limit or based on an objective nondiscretionary formula; and (ii) payment schedules based on the timing of payments received by the Employer as described in Treas. Reg. §§1.409A-3(i)(1)(ii) and (iii) and other Applicable Guidance.

(C) Tax Gross-Up Payments. A Specified Time or Fixed Schedule may include tax gross-up payments made by the end of the Participant’s Taxable Year which follows the Taxable Year in which the Participant remits the related taxes resulting from compensation paid or made available to the Participant by the Employer, as described in Treas. Reg. §1.409A-3(i)(1)(v) and other Applicable Guidance.

1.46 “State” means: (i) one of the fifty states of the United States or the District of Columbia, or (ii) a political subdivision of a State, or any agency or instrumentality of a State or its political subdivision. A State does not include the federal government or an agency or instrumentality thereof.

1.47 “Substantial Risk of Forfeiture”

(A) 409A Amounts. Substantial Risk of Forfeiture means as to 409A Amounts, and other than for purposes of application of Code §457(f), Compensation which is payable conditioned: (i) on the performance of substantial future services by any person including the Participant; or (ii) on the occurrence of a condition related to a purpose of the Compensation, and where under clause (i) or (ii) the possibility of forfeiture is substantial. A condition related to the purpose of the Compensation relates to the Participant’s performance for the Employer or to the Employer’s business activities or organizational goals. A Substantial Risk of Forfeiture includes conditioning payment on the Participant’s Involuntary Separation from Service without cause provided the possibility of not incurring such a Separation from Service is substantial. Except as to payment of Compensation related to a Change in Control, a Substantial Risk of Forfeiture does not include any addition of a condition after a Legally Binding Right to the Compensation arises or any extension of a period during which the Compensation is subject to a Substantial Risk of Forfeiture. Compensation is not subject to a Substantial Risk of Forfeiture merely because payment is conditioned on the Participant’s refraining from performing services. Compensation is not subject to a Substantial Risk of Forfeiture beyond the date or time that the Participant otherwise could have elected to receive the Compensation unless the present value of the amount

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subject to the Substantial Risk of Forfeiture (determined without regard to the Substantial Risk of Forfeiture) is materially greater than the present value of the amount that the Participant otherwise could have elected to receive, absent the Substantial Risk of Forfeiture. As such, a Participant’s Elective Deferrals generally may not be made subject to a Substantial Risk of Forfeiture if the Participant could have elected to receive an equivalent amount in cash. In addition, Compensation the Participant would receive for continuing to perform service for the Employer (such as through the extension of an employment contract) is disregarded in determining whether the present value of such nonvested payment amount is materially greater than the Compensation which the Participant could have elected to receive presently. In determining whether the possibility of forfeiture is substantial in the case of rights to Compensation granted to a Participant who owns significant voting power or value in the Employer, the Employer in accordance with Treas. Reg. §1.409A-1(d)(3) and Applicable Guidance, will take into account all relevant facts and circumstances.

(B) Grandfathered Amounts. A Substantial Risk of Forfeiture for Grandfathered Amounts is defined in Treas. Reg. §1.83-3(c) and in Notice 2005-1, Q/A-16(b) or in Applicable Guidance.

(C) Ineligible 457 Plan. A Substantial Risk of Forfeiture for purposes of application of Code §457(f) under an Ineligible 457 Plan is described in Code §457(f)(3)(B), Treas. Reg. §1.83-3(c) and Applicable Guidance.

1.48 “Tax-Exempt Organization” means any tax-exempt organization other than: (i) a governmental unit; or (ii) a church or a qualified church-controlled organization within the meaning of Code §§3121(w)(3)(A) and 3121(w)(3)(B).

1.49 “Taxable Year” means as to the Participant, the Participant’s taxable year and means as to the Employer, the Employer’s taxable year, in each case as the Plan provides or as the context otherwise requires.

1.50 “Trust” means the trust, if any, described in Section 5.03 of the Basic Plan Document and which the Employer in its Adoption Agreement elects to create.

1.51 “Unforeseeable Emergency” means: (i) a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, a Beneficiary or the Participant’s dependent (as defined in Code §152 but without regard to Code §§152(b)(1), (b)(2) and (d)(1)(B)); (ii) loss of the Participant’s property due to casualty; or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant’s control. The Employer in its Adoption Agreement will elect whether to permit payment based on a Participant’s Unforeseeable Emergency. The Employer will determine whether a Participant incurs an Unforeseeable Emergency based on the relevant facts and circumstances and in accordance with Treas. Reg. §1.409A-3(i)(3) or Applicable Guidance, but in any case, the Plan may not make payment to the extent that the Unforeseeable Emergency may be relieved: (i) through reimbursement or compensation from insurance or otherwise; (ii) by liquidation of the Participant’s assets to the extent that such liquidation of assets would not itself cause severe financial hardship; or (iii) by the Participant’s cessation of Elective Deferrals under the Plan. The Plan must limit the amount of any payment based on Unforeseeable Emergency to the amount that is reasonably necessary to satisfy the emergency need, which may include amounts necessary to pay any Federal, state, local or foreign income taxes or penalties reasonably anticipated to result from the payment. The Employer in making the determination as to the amount of payment must take into account any additional Compensation available to the Participant upon cancellation of an Elective Deferral election under Section 4.03(D)(vii). However, the Employer in determining “necessity” may disregard amounts available as a hardship distribution or a loan from a qualified plan or as an unforeseeable emergency distribution from another nonqualified plan, regardless of whether such amount is 409A Amount or is a Grandfathered Amount. If the Employer in its Adoption Agreement elects to permit payment based on Unforeseeable Emergency, the Employer further will elect whether to permit payment based on all events that will constitute an Unforeseeable Emergency or to limit such events to a subset of specific events which will so qualify. The Employer will not pay a Participant any Deferred Compensation based an Unforeseeable Emergency unless the Participant requests such payment on a form the Employer provides for this purpose, the Employer determines that the payment would qualify under the Plan terms as being based on the Participant’s Unforeseeable Emergency, and the Employer in its sole discretion otherwise approves the payment. Neither a Participant’s request or failure to request an Unforeseeable Emergency payment nor the Employer’s acceptance or rejection of such a request is a change payment election under Section 4.02(B).

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1.52 “USERRA” means the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended.

1.53 “Valuation Date” means the last day of each of the Employer’s Taxable Year and such other dates as the Employer may determine.

1.54 “Vested” means an amount of Deferred Compensation which is not subject to a Substantial Risk of Forfeiture or to a requirement to perform further services for the Employer. For purposes of determining whether an amount satisfies the vesting requirement for Grandfathered Amounts under Article VII, the definition of Substantial Risk of Forfeiture in Section 1.47(B) applies.

1.55 “Window Program” means a program the Employer establishes in connection with an impending Separation from Service to provide Separation Pay to separated Participants and which program is available only for a period of up to 12 months for Participants who separate during such period or who separate during such period under specified circumstances. A Window Program does not include a program the Employer establishes under which there is a pattern of repeated provision of similar Separation Pay in similar situations for substantially consecutive limited periods of time. Whether a recurrent program constitutes such a pattern depends upon all of the facts and circumstances, including whether the benefits are account of a specific event or condition, the degree to which the separation pay relates to the event or condition and whether the event or condition is temporary or discrete or is a permanent aspect of the Employer’s business.

1.56 “Wraparound Election” means as to a Participant who also is a participant in a 401(k) plan of the Employer, an election (or elections, if made separately) to defer compensation under both plans with the result that the Participant will achieve under the 401(k) plan, the maximum amount of elective deferrals and matching contributions, if any, as is permissible under the 401(k) plan terms and under Code §§402(g), 401(k)(3), 401(m), 415 and 414(v). For any Participant’s Taxable Year, the maximum amount of Elective Deferrals the Plan will transfer as to the Participant (and corresponding decrease in amounts of Compensation Deferred to this Plan) may not exceed the Code §402(g) limit (but increased by catch-up contributions under Code §414(v) for any year in which the Participant is catch-up eligible). For any Participant’s Taxable Year, the maximum amount of Matching Contributions the Plan will transfer as to the Participant (and corresponding decrease in amounts of Compensation Deferred to this Plan) may not exceed the maximum amount of matching contributions that would be provided under the 401(k) plan absent any plan-based restrictions which reflect Code limits on qualified plan contributions. Under a Wraparound Election, the Plan promptly following completion of 401(k) plan testing and within any time required under Applicable Guidance, will transfer from the Participant’s Account such Elective Deferrals and related Matching Contributions for the Taxable Year (but without Earnings thereon) as are consistent with the Wraparound Election, to the Participant’s account under the 401(k) plan to be held and administered in accordance with the 401(k) plan. Any remaining amounts not transferred to the 401(k) plan will remain in and be administered in accordance with this Plan. The Employer in its Adoption Agreement will specify whether a participant may make a Wraparound Election. A Participant will make a Wraparound Election subject to any timing requirements of Applicable Guidance and on a form the Employer provides for this purpose.

1.57 “Year of Service” means the requirements, if any, the Employer specifies in its Adoption Agreement.

II. PARTICIPATION

2.01 Participants Designated. The Employer will designate from time to time in its Adoption Agreement those Employees or Contractors (by name, job title or other classification) who are Participants in the Plan.

2.02 Elective Deferrals. The Employer will specify in its Adoption Agreement whether Participants may elect to make Elective Deferrals to their Accounts.

(A) Limitations. The Employer will specify in its Adoption Agreement any amount limitations or conditions applicable to Elective Deferrals.

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(B) Election Form and Timing. A Participant must make his/her Elective Deferral election on an election form the Employer provides for that purpose. The Participant must make the election no later than the latest of the applicable times specified below. The Employer in its Adoption Agreement will elect that a Participant must make and deliver his/her election to the Employer no later than: (i) such applicable time; or (ii) the number of days prior to such applicable time as the Employer sets forth in its Adoption Agreement. The Employer will disregard any Elective Deferral election which is not timely under this Section 2.02(B). See Section 6.04.

(1) General Timing Rule. Except as otherwise provided in this Section 2.02(B), a Participant must deliver to the Employer his/her Elective Deferral election regarding Service Year Compensation no later than the end of the Participant’s Taxable Year which is prior to the Service Year.

(2) New Participant/New Plan. As to the Service Year in which an Employee or a Contractor first becomes a Participant (a “newly eligible Participant”), the Participant must make and deliver an Elective Deferral election for that Service Year not later than 30 days after the Employee or Contractor becomes a Participant. All Participants who are eligible to participate on the Effective Date of a new plan are newly eligible Participants as of the Effective Date.

(a) Participant status. For purposes of this Section 2.02(B)(2), an Employee or Contractor is eligible to participate in the Plan at any time during which, under the Plan terms and without further amendment or action by the Employer, the Employee or Contractor is eligible to accrue Deferred Compensation under the Plan (other than Earnings on prior Deferred Compensation), even if the Employee or Contractor has elected not to accrue any such Deferred Compensation (or has made no election).

(b) Changes in status. For purposes of this Section 2.02(B)(2), if a Participant has been paid all Deferred Compensation and on or before the last payment ceases to be eligible to participate in the Plan, but thereafter becomes eligible to participate, the Employee or Contractor is treated as a newly eligible Participant. If a Participant ceases to be eligible to participate, other than as to Earnings, regardless of whether the Participant has been fully paid all Deferred Compensation under the Plan, and subsequently becomes eligible to participate, the Employee or Contractor is treated as a newly eligible Participant provided that the period during which the Employee or Contractor was ineligible was at least 24 months.

(c) Compensation to which election applies. Under this Section 2.02(B)(2), a Participant’s election may apply only to Compensation for services the Participant performs subsequent to the date the Participant delivers the election to the Employer. For Compensation that is earned for a specified performance period, including an annual bonus, if the newly eligible Participant makes an Elective Deferral election after the performance period commences, the Employer will pro rate the election by multiplying the performance period Compensation by the ratio of the number of days left in the performance period at the time of the election, over the total number of days in the entire performance period.

(d) Excess benefit plan. For purposes of this Section 2.02(B)(2), if this Plan is an excess benefit plan, an Employee is a newly eligible Participant in the Plan as of the first day of the Employee’s Taxable Year immediately following the first year in which he or she accrues a benefit under the Plan. Any election the Employee makes within 30 days following such date applies to any benefits accrued for services provided before the election. An excess benefit plan for purposes of this Section 2.02(B)(2)(d) means a plan under which all Deferred Compensation is attributable to Employer Contributions and is based on the amount the Participant would have accrued under the Employer’s qualified plan(s) but for one or more Code limits which apply to the qualified plan(s) over the benefits the Participant actually accrues in such plan(s). Once a Participant has accrued a benefit or deferred compensation in any year, the Participant is not eligible to use the delayed election in this Section 2.02(B)(2)(d).

(e) Aggregated Plans. All references to the Plan in this Section 2.02(B)(2) include Aggregated Plans. As such, an Employee or Contractor who participates in an Aggregated Plan is not a newly eligible Participant and this Section 2.02(B)(2) does not apply.

(3) Certain Forfeitable Rights. If payment of Deferred Compensation is subject to a condition requiring the Participant to perform services for the Employer for at least 12 months after the Participant obtains the Legally Binding Right to the Compensation to avoid forfeiture of the payment, the Participant may make an Elective Deferral election no later than 30 days after the Participant obtains the Legally Binding Right

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to the Compensation, provided the Participant makes the election at least 12 months prior to the earliest date on which the service forfeiture condition could lapse. If the Plan provides for a waiver of the service condition upon the Participant’s death, Disability or upon a Change in Control, and such event occurs before the end of the 12 month minimum service period, the Participant’s elective Deferral election is valid only if the election is timely under the Plan without regard to this Section 2.02(B)(3).

(4) Performance-Based Compensation. As to any Performance-Based Compensation, a Participant may elect no later than 6 months before the end of the performance period to defer such Compensation, provided that the Participant: (i) continuously performs services from the later of the beginning of the performance period or the date the Employer establishes the performance criteria and at least through the date of the Participant’s election; and (ii) may not make an election after the Compensation has become readily ascertainable. For purposes of this Section 2.02(B)(4), if the Performance-Based Compensation is a specified or calculable amount, the Compensation is readily ascertainable if and when the amount is first substantially certain to be paid. If the Performance-Based Compensation is not a specified or calculable amount, the Compensation or any portion thereof is readily ascertainable when the amount is first both calculable and substantially certain to be paid. In applying this Section 2.02(B)(4), the Employer will bifurcate any right to payment as between amounts which are readily ascertainable and amounts which are not readily ascertainable.

(5) Commissions.

(a) Sales Commissions. For purposes of election timing under this Section 2.02(B), if Compensation consists of Sales Commissions, the Participant is treated as providing the services giving rise to the Commissions in the Participant’s Taxable Year in which the customer remits payment to the Employer, or, if applied consistently to all similarly situated service providers, the Participant’s Taxable Year in which the sale occurs.

(b) Investment Commissions. For purposes of election timing under this Section 2.02(B), if Compensation consists of Investment Commissions, the Participant is treated as providing the services giving rise to the Commissions over the 12 months preceding the date as of which the overall value of the assets or the asset accounts is determined for purposes of calculation of the Investment Commissions.

(6) Final Payroll Period. If Compensation is payable after the last day of the Participant’s Taxable Year, but is Compensation for the Participant’s services during the final payroll period within the meaning of Code §3401(b) (or, as to a Contractor, a period not longer than such period) which contains the last day of the Participant’s Taxable Year, the Compensation is treated for purposes of an election under this Section 2.02(B), as Compensation: (i) for the current Taxable Year in which the final payroll period commenced; or (ii) for the subsequent Taxable Year in which the Employer pays the Compensation, as the Employer elects in its Adoption Agreement. This Section 2.02(B)(6) does not apply to Compensation for services performed over any period other than the final payroll period as described herein, including an annual bonus. If the Employer amends its Adoption Agreement after December 31, 2007, to alter the timing rule of this Section 2.02(B)(6), any such amendment may not take effect until 12 months after the later of the date the amendment is executed and is effective. If the Plan is a restated Plan, whatever election the Employer makes in it Adoption Agreement on or before December 31, 2007, applies to any period spanning 2005 through 2007, as applicable, unless the Employer indicates otherwise in its election.

(7) Separation Pay/Window Program. If the Participant’s election relates to Separation Pay (based on voluntary or involuntary Separation from Service) and the Separation Pay is the subject of bona-fide, arm’s length negotiations at the time of Separation from Service, the Participant may make an election under this Section 2.02(B) at any time up to the time that the Participant has a Legally Binding Right to the Separation Pay. This Section 2.02(B)(7) does not apply to any Separation Pay to which the Participant obtained a Legally Binding Right before the negotiations at the time of Separation from Service, including a right to payment subject to a condition. If the Separation Pay results from a Window Program, the Participant may make the election at any time up to the time that the Participant’s election to participate in the Window Program becomes irrevocable.

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(8) Fiscal Year Employer. In the event that the Employer’s Taxable Year is a not the same as the Participant’s Taxable Year, a Participant may elect to defer Compensation which is co-extensive with one or more of the Employer’s consecutive Taxable Years, and no amount of which is paid or payable during the Employer’s Taxable Year or Years constituting the period of service, by making an election no later than the end of the Employer’s Taxable Year which precedes the Employer’s first Taxable Year in which the Participant performs the service for which the Compensation is payable.

(C) Election Changes/ Irrevocability. The Employer in its Adoption Agreement will elect whether a Participant’s Elective Deferral election made prior to the Section 2.02(B) deadline becomes irrevocable as to a Taxable Year: (i) following the last day on which a Participant may make an election under Section 2.02(B) for such Taxable Year; or (ii) if earlier, when the Participant makes the election for a Taxable Year. For this purpose, a Participant’s Elective Deferral election is considered made when the Employer accepts the election. If the Employer elects to permit changes to an election up to the Section 2.02(B) election deadline, a Participant may make any number of changes to his/her Elective Deferral election during the period prior to the election becoming irrevocable. If the Employer elects in its Adoption Agreement and under Section 2.02(D) that a Participant’s election is continuing, the Participant is deemed to have made an irrevocable election as to each Taxable Year on the last day that the Participant could have made an election under Section 2.02(B). As such, the Participant may revoke or modify a continuing election for a Taxable Year up to the date that such election is deemed made and irrevocable for that Taxable Year. A change payment election under Section 4.02(B) or a permissible acceleration under Section 4.02(C)(3) does not render an Elective Deferral election and an accompanying initial payment election under Section 4.02(A) revocable within the meaning of this Section 2.02(C).

(D) Election Duration/Cancellation. As the Employer elects in its Adoption Agreement, a Participant’s Elective Deferral election remains in effect: (i) only for the duration of the Taxable Year for which the Participant makes the election; or (ii) for the duration of the Taxable Year for which the Participant makes the election and for all subsequent Taxable Years unless the Participant executes a subsequent timely election, modification or revocation. A Participant, subject to Plan requirements regarding election timing, may make a new election, or may revoke or modify an existing election effective no earlier than for the next Taxable Year, provided that under Section 4.02(C)(3), a Participant may cancel an existing and otherwise irrevocable election for a Taxable Year at any time following the Participant’s receipt of an Unforeseeable Emergency distribution or of a distribution from the Employer’s 401(k) plan based upon hardship within the meaning of Treas. Reg. §1.401(k)-1(d)(3).

(E) “Non-Elections” or Deemed Compliance.

(1) Linkage to Qualified or Certain Foreign Plans. The following are not elections under Section 2.02(B): (i) the amount of Compensation Deferred under this Plan is determined under a formula for determining benefits under the Employer’s qualified plan or broad-based foreign retirement plan (but applied without regard to Code or foreign law imposed limitations); or (ii) the amount of Compensation Deferred under this Plan is offset by some or all benefits provided under the Employer’s qualified plan or broad-based foreign plan and where in either case the amount of Compensation Deferred under the Plan increases on account of changes in the Code or foreign law imposed benefit limitations applicable to the qualified plan or foreign plan, provided in either case such operation does not result in a change in the time or form for payment under this Plan and that the change in the amounts of Compensation Deferred do not exceed the change in amounts deferred under the qualified plan or foreign plan.

(2) Actions/Inactions (including Wraparound Elections). The following Participant actions or in actions are not elections under Section 2.02(B), even if they result in an increase in Compensation Deferred under the Plan: (i) election or non-election under the Employer’s qualified plan or broad-based foreign plan as to receipt of a subsidized or ancillary benefit under such plans; (ii) an amendment of such other plans’ benefits to add or remove a subsidized or ancillary benefit or to freeze or limit future accruals under the qualified plan or foreign plan or to reduce existing benefits under the foreign plan; or (iii) a Participant’s Wraparound Election, provided in all cases such action or inaction does not result in a change in the time or form for payment under this Plan and that under clauses (i) and (ii) above, the change in the amounts of Compensation Deferred do not exceed the change in amounts deferred under the qualified plan or foreign plan.

(3) Elections under a Cafeteria (125) Plan. If a Participant who is also a participant in a cafeteria (Code §125) plan of the Employer, changes an election under the cafeteria plan with the result that the amount of Compensation Deferred under this Plan changes on account of an increase or decrease in Compensation under this Plan as a result of the cafeteria plan election, the cafeteria plan election is not an election for purposes of Section 2.02(B).

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(4) USERRA Rights. The requirements of Section 2.02(B) are deemed satisfied as to any Elective Deferral election (including an initial payment election) which the Plan provides to satisfy the requirements of USERRA.

(5) Annualizing Recurrent Partial Year Compensation. If a Participant is receiving recurring part-year Compensation, the Participant’s election to defer all or a portion of such Compensation to be earned during a particular service period is deemed to satisfy the requirements of Section 2.02(B) if the Participant makes the election before the services giving rise to the Compensation begin and the election does not defer payment of any of such Compensation to a date beyond the last day of the 13^th month following the first date of the service period. For purposes of this Section 2.02(E)(5), recurring part-year Compensation means Compensation paid for services rendered as to a position the Participant and the Employer reasonably anticipate will continue on similar terms and on similar conditions in subsequent years, and will require services to be provided in successive service periods, each of which comprises less than 12 months and each of which begins in one Taxable Year of the Participant and ends in the next Taxable Year. This Section 2.02(E)(5) applies only once to Compensation Deferred such that the same amount may not again be treated as recurring part-year Compensation and subject to a second deferral election.

2.03 Nonelective Contributions. The Employer will specify in its Adoption Agreement whether the Employer will or may make Nonelective Contributions to the Plan, and the terms and conditions applicable to any Nonelective Contributions.

2.04 Matching Contributions. The Employer will specify in its Adoption Agreement whether the Employer will or may make Matching Contributions to the Plan, and the terms and conditions applicable to any Matching Contributions.

2.05 Actual or Notional Contribution. The Employer will specify in its Adoption Agreement whether it will make any Employer Contribution as a notional contribution or as an actual contribution. If the Employer establishes the Trust, any Employer Contributions to the Trust will be actual contributions.

2.06 Allocation Conditions. The Employer will specify in its Adoption Agreement or an exhibit thereto any employment or other condition applicable to the allocation of Employer Contributions for a Taxable Year.

2.07 Timing. The Employer may elect to make any Employer Contribution for a Taxable Year at such times as Code §409A or Applicable Guidance may permit. The Employer is not required to contribute any actual contribution (or to post any notional contribution) to an Account at the time that the Employer makes its contribution election.

2.08 Administration. The Employer will administer all Employer Contributions in the same manner as Elective Deferrals, and will treat the Employer’s election to make Employer Contributions as an Elective Deferral election, except as the Plan otherwise provides. If the Employer establishes the Trust, the Employer will remit any Elective Deferrals to the Trust and will make any Employer Contributions to the Trust. Any Employer Contribution is not subject to an immediate Participant right to elect a cash payment in lieu of the Employer Contribution and such amounts are payable only in accordance with the Plan terms.

III. VESTING AND SUBSTANTIAL RISK OF FORFEITURE

3.01 Vesting Schedule or other Substantial Risk of Forfeiture. The Employer will specify in its Adoption Agreement any vesting schedule or other Substantial Risk of Forfeiture applicable to Participant Accounts. If the Plan is an Ineligible 457 Plan, the Employer must specify a Substantial Risk of Forfeiture.

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3.02 Immediate Vesting on Specified Events. The Employer will specify in its Adoption Agreement whether a Participant’s Account is Vested without regard to Years of Service if the Participant Separates from Service on or following Retirement Age, or as a result of death, Disability, or other events.

3.03 Application of Forfeitures. A Participant will forfeit any non-Vested Accrued Benefit (where vesting is based on a service condition) upon Separation from Service. A Participant will forfeit any other non-Vested Accrued Benefit when the condition constituting a Substantial Risk of Forfeiture can no longer be satisfied, such as its expiration date. The Employer will specify in its Adoption Agreement how it will apply Participant forfeitures under the Plan.

IV. BENEFIT PAYMENTS

4.01 Payment Events. The Employer in its Adoption Agreement will specify the Plan permissible payment events as all or some of the following payment events affecting a Participant: (i) Separation from Service; (ii) death; (iii) Disability; (iv) a Specified Time or pursuant to a Fixed Schedule; (v) Change in Control; or (vi) Unforeseeable Emergency. As to payment events (i), (ii),(iii) (v) and (vi), the Plan will pay to the Participant the Vested Accrued Benefit held in the Participant’s Account on the applicable payment event or on another specified payment date as provided in Section 4.01(A). Payment will commence at the time and payment will be made in the form and medium specified under Section 4.02. See Section 4.02 as to payment elections, including as to payment events under this Section 4.01.

(A) Payment on Objective and Nondiscretionary (Specified) Payment Date(s). The Plan or an initial payment election or change payment election must provide for a payment date that the Employer, at the time of the payment event, can determine objectively and without the exercise of discretion. Such payment date may, but need not, coincide with a payment event, but any payment date must be on or following and must relate to a Plan payment event.

(1) Payment Schedule as Payment Date. A specified payment date may include a payment schedule which is objectively determinable and nondiscretionary based on the date of the payment event and that would qualify as a Fixed Schedule if the payment event were a fixed date. An election of a payment schedule must be made at the time of the election of the payment event.

(2) Designation of Year or Other Period. A specified payment date or a specified payment schedule with regard to any payment event other than a Specified Time or pursuant to a Fixed Schedule may include: (i) a Participant’s Taxable Year or Years; or (ii) a designated period of time but only if the designated period both begins and ends within one Taxable Year of the Participant or the designated period is not more than 90 days and the Participant does not have the right to designate the Taxable Year of payment except under a change payment election under Section 4.02(B). For purposes of clause (ii), this includes designation of payment on or before the last date of the designated (maximum 90 day) period but after the payment event occurs.

(3) Deemed Payment Date. If the Adoption Agreement or any such election provides for payment only in a designated Taxable Year or Years, the payment date is deemed to be January 1 of that Year or Years. If the Adoption Agreement or any such election provides for payment only in a designated period, the payment date is deemed to be the first day in the relevant period.

(B) Payment Event Default. This Section 4.01(B) applies if the Employer in its Adoption Agreement fails to elect one or more payment events described in this Section 4.01, if a Participant or the Employer under Section 4.02 fails to elect one of more payment events where the Adoption Agreement affords them such an election, or if the Employer under Section 4.06 rejects the election and the Participant does not timely file a new election the Employer accepts. In such event, the Plan will pay the affected Participant’s Vested Benefit held in the Participant’s Account following the earlier of the Participant’s Separation from Service or death. See Section 4.02(A)(5) as to the applicable default for the time, form and medium of such payments. If this default provision applies, the default payment is deemed to be an initial payment election under the Plan.

(C) Multiple Payment Events; Sequencing. The Plan or an initial payment election or a change payment election may provide for more than one permissible payment event and may provide for payment upon the earliest or latest of more than one permissible payment event. See Section 4.02(A)(4) as to limitations on the number of time and form of payment elections which may apply to a single payment event. In a Separation Pay Plan, the Plan or any election may provide for any payment only upon Separation from Service (including as a result of death or Disability).

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(D) Payment to Specified Employees. Notwithstanding anything to the contrary in the Plan or in a Participant or Employer payment election, the Plan may not make payment, based on Separation from Service to a Participant who, on the date of Separation from Service is a Specified Employee, earlier than 6 months following Separation from Service (or if earlier, upon the Specified Employee’s death), except as permitted under this Section 4.01(D). This limitation applies regardless of the Participant’s status as a Specified Employee or otherwise on any other date including the next Specified Employee effective date had the Participant continued to render services through such date. The Employer, operationally and without any direct or indirect Participant election, will elect whether any payments that otherwise would be payable to the Specified Employee during the foregoing 6 month period: (i) will be accumulated and payment delayed until the first day of the seventh month that is after the 6 month period; or (ii) will be delayed by 6 months as to each installment otherwise payable during the 6 month period. This Section 4.01(D) does not apply to payments made on account of a domestic relations order, payments made because of a conflict of interest, or payment of employment taxes, all as described in Treas. Reg. 1.409A-3(i)(2)(i). This Section 4.01(D) also does not apply to any reimbursement or in-kind benefit which is Separation Pay but which is not Deferred Compensation under Section 1.18(A).

(E) Deemed Separation of Contractor. The Employer in its Adoption Agreement may elect to apply the special payment timing rules in this Section 4.01(E) as to Contractors. Compliance with this Section 4.01(E) results in the Contractor being deemed to have incurred a Separation from Service under Section 1.39. Under this Section 4.01(E): (i) the Plan will not pay a Contractor’s Account, or any portion thereof, before a date that is at least 12 months after the expiration of the contract (or all contracts) under which the Contractor performs services for the Employer; and (ii) no amount payable under clause (i) will be paid to the Contractor if the Contractor (whether as a Contractor or an Employee) performs services for the Employer after the contract(s)’ expiration and before the payment date.

4.02 Timing, Form and Medium/ Payment Elections. Unless the Employer under Section 4.02(A) and/or 4.02(B) permits Employer or Participant elections, the Employer (in addition to its election of permissible payment events under Section 4.01) will elect in its Adoption Agreement the permissible: (i) payment timing; (ii) payment form (lump-sum, installments, annuity or other form, including a combination thereof); and (iii) payment medium (cash or property) applicable to Plan Accounts (all of which elections are collectively, “payment elections”). Until the Plan pays a Participant’s entire Vested Accrued Benefit, the Plan will continue to credit the Participant’s Account with Earnings, in accordance with Section 5.02(A) or Section 5.03(B) as applicable. A permissible payment medium election may, but is not required to be, made at the same time as the initial payment election or change payment election, but must be made a reasonable time before any payment date. No election as to payment medium may change the time or form of payment.

(A) Initial Payment Election. The Employer will elect in its Adoption Agreement: (i) whether a Participant or the Employer may make an initial payment election or whether there are no Participant or Employer initial payment elections and the payment events, timing, form and medium are controlled by the Employer’s Adoption Agreement elections; and (ii) whether any Participant payment election applies to all Account types or only applies to a Participant’s Elective Deferral Account. A Participant must make any permissible initial payment election on a form the Employer provides for that purpose.

(1) No elections are a Deemed Initial Election. If the Employer elects in its Adoption Agreement not to provide any Participant or Employer initial payment elections, the elected Adoption Agreement and applicable Plan provisions constitute an initial payment election under the Plan.

(2) Timing.

(a) Participant Election. A Participant must make an initial payment election at the time of the Participant’s Elective Deferral election under Section 2.02(B), or in the absence of such an Elective Deferral election but where the Participant may make an initial payment election as to Employer Contributions, within the same time period as such an Elective Deferral election would be permitted.

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(b) Employer Election. The Employer must make an initial payment election as to a Participant at the time that the Employer grants a Legally Binding Right to Deferred Compensation to the Participant, or, if later, by the time that the Participant would have had to make such election, if the Plan had permitted the Participant to make such an election. In the case of a newly eligible Participant or a new Plan described under Section 2.02(B)(2), the Employer must make the initial payment election no later than 30 days after the date the Employee or Contractor becomes a Participant and the pro ration provisions of Section 2.02(B)(2)(c) do not apply to such Employer election.

(3) Future Deferred Compensation and Earnings. A payment election may apply only to the Deferred Compensation that is the subject of the Elective Deferral election or the Employer Contribution or may apply to such Deferred Compensation and to all future Deferred Compensation, as the payment election indicates. A payment election separately may apply to Deferred Compensation and to the Earnings thereon provided that the Plan credits Earnings at least annually.

(4) Limitations on Payment Time and Form; Multiple Payment Events. Except as otherwise provided in this Section 4.02(A)(4), the Plan or a payment election may designate only one time and form of payment for each of the following payment events: Separation from Service, Disability, death or Change in Control.

(a) Disability, Death or Change in Control. In the case of payment in the event of Disability, death or Change in Control, the Plan or payment election may provide for one time and/or method of payment if the event occurs on or before one specified date and may provide for an alternative time and form of payment if the event occurs after the specified date.

(b) Separation From Service. In the case of payment in the event of Separation from Service, the Plan or payment election may provide for an alternative time and form of payment where: (i) Separation from Service occurs within a limited period of time not exceeding two years following a Change in Control; (ii) Separation from Service occurs before or after a specified date or Separation occurs before or after the combination of a specified date and a specified period of service determined under a predetermined, nondiscretionary objective formula or pursuant to the method for crediting service under a qualified plan of the Employer (but not both of the options under clause (ii)); and Separation from Service which is not described in clause (i) or (ii). However, neither the Plan nor a payment election may provide for a different time and form of payment based on whether Separation from Service is Voluntary or Involuntary or based on the Participant’s marital status at the time of Separation from Service.

(c) Unforeseeable Emergency. If the Employer in its Adoption Agreement elects to permit Unforeseeable Emergency as a payment event, a Participant at any time may request payment based on Unforeseeable Emergency by submitting to the Employer a form the Employer provides for this purpose. The Plan will make payment to the Participant within 90 days following the Employer’s acceptance of the Participant’s Unforeseeable Emergency payment request. If that 90-day period spans more than one Taxable Year of the Participant, the Participant will not have any discretion over the Taxable Year of payment. See Section 1.51 as to additional requirements relating to an Unforeseeable Emergency payment.

(d) Addition, Change or Deletion of Time and Form. The addition, change, or deletion of an alternative time and form of payment (after the initial payment election has become irrevocable) as permitted under this Section 4.02(A)(4) is a change payment election subject to Section 4.02(B) and is subject to Section 4.02(C).

(5) Time, Form and Medium Default. If the Participant or the Employer as applicable has the right to make an initial payment election but fails to do so, or if the Employer rejects the Participant’s election under Section 4.06 and the Participant does not make a new timely election the Employer accepts, the Plan will pay the affected Participant’s Vested Accrued Benefit attributable to the non-election under this default provision, in a lump-sum cash payment 13 months following the earliest event permitting payment of the Participant’s Account under Section 4.01 (including, if applicable, the default payment events under Section 4.01(B)). If this default provision applies, the default payment is deemed to be an initial payment election under the Plan.

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(B) Change Payment Election. The Employer will elect in its Adoption Agreement whether the Employer or a Participant may make a change payment election under this Section 4.02(B). If the Plan permits change elections, the Employer in its Adoption Agreement will elect whether to limit the number of change payment elections. If the Plan permits a Participant or the Employer to change existing payment elections (initial or change payment elections) as to any or all Deferred Compensation, including any Plan specified initial payment election or a default payment applicable in the absence of an actual initial payment election, any such change payment election must comply with this Section 4.02(B). A change payment election may add or delete payment events, may delay payment and/or may change the form of payment, provided the change does not result in an impermissible acceleration under Section 4.02(C). The Employer in its Adoption Agreement will elect whether a Beneficiary following a Participant’s death may make a change payment election under this Section 4.02(B). A Participant’s change of Beneficiary is not a change payment election provided that the time and method of payment is not otherwise changed. See Section 4.02(B)(3) as to changes of Beneficiary where the payment method is a life annuity. A Participant or Beneficiary must make any change payment election on a form the Employer provides for such purpose.

(1) Conditions on Change Payment Elections.

(a) Election Timing/Deferral of Payment. Any change payment election: (i) may not take effect until at least 12 months following the date the change payment election is made; (ii) if the change payment election relates to a payment based on Separation from Service or on Change in Control, or if the payment is at a Specified Time or pursuant to a Fixed Schedule, the change payment election must result in payment being made not earlier than 5 years following the date upon which the payment otherwise would have been made (or, in the case of a life annuity or installment payments treated as a single payment, 5 years from the date the first amount was scheduled to be paid); and (iii) if the change payment election relates to payment at a Specified Time or pursuant to a Fixed Schedule, the Participant or Employer must make the change payment election not less than 12 months prior to the date the payment is scheduled to be made (or, in the case of a life annuity or installment payments treated as a single payment, 12 months prior to the date the first amount was scheduled to be paid).

(b) Application of Other Rules. A change payment election must satisfy the Plan provisions applicable to initial payment elections under Section 4.02(A)(4) related to multiple payment events and Section 4.02(A)(3) regarding scope and Earnings also applies to change payment elections. For purposes of application of Section 4.02(A)(4), Section 4.02(B)(1)(a) applies separately as to each Payment described under Section 4.02(B)(2) and due upon each payment event.

(c) Rejection. If the Employer under Section 4.06 rejects a Participant or Beneficiary change payment election, the Participant’s initial payment election or deemed initial payment election continues to apply unless and until the Participant makes another change payment election which the Employer accepts.

(d) USERRA Rights. The requirements of Section 4.02(B) are deemed satisfied as to any change payment election which the Plan provides to satisfy the requirements of USERRA. Such elections are not an acceleration under Section 4.02(C).

(2) Definition of “Payment.” Except as otherwise provided in Section 4.02(B)(3), a “payment” for purposes of applying Section 4.02(B)(1) is each separately identified amount the Plan is obligated to pay to a Participant on a determinable date and includes amounts paid for the benefit of the Participant. An amount is “separately identified” only if the amount is objectively determinable under a nondiscretionary formula. A payment includes the provision of any taxable benefit, including payment in cash or in-kind. A payment includes, but is not limited to, the transfer, cancellation or reduction of an amount of Deferred Compensation in exchange for benefits under a welfare benefit plan, fringe benefits excludible under Code §§119 or 132, or any other benefit that is excluded from gross income. In the case of a Specified Time or a Fixed Schedule, “payment” for purposes of Section 4.02(B)(1) means as further described in Treas. Reg. §1.409A-3(i)(1).

(3) Life Annuities and Installment Payments.

(a) Life Annuities. A life annuity is treated as a single payment. For purposes of this Section 4.02(B)(3), a “life annuity” is a series of substantially equal periodic payments, payable not less frequently than annually, for the life (or life expectancy) of the Participant, or the joint lives (or life expectancies) of the Participant and of his/her Beneficiary. A change of Beneficiary which occurs before the initial payment of a

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life annuity is not a change payment election. A change in the form of payment before any annuity payment has been made from one type of life annuity to another with the same scheduled date for the first payment is not subject to the change payment election requirements provided that the annuities are actuarially equivalent applying reasonable actuarial assumptions and that at any given time, the same actuarial assumptions and methods are used to value each annuity. The requirement of actuarial equivalence applies for the duration of the Participant’s participation in the Plan such that the annuity payment must be actuarially equivalent at all times for the annuity payment options to be treated as a single time and method of payment. The Plan over time may change actuarial assumptions and methods provided such methods and assumptions are reasonable. The following features are disregarded in determining if the payment is a life annuity but are taken into account in determining if one life annuity is the actuarial equivalent of another: (i) term certain features under which payments continue for the longer of the annuitant’s life or for a fixed period of time; (ii) pop-up features under which payments increase upon the death of the Beneficiary or other event which eliminates the survivor annuity; (iii) cash refund features under which there is a payment on the death of the last annuitant in an amount not greater than the excess of the present value of the annuity at the annuity starting state over the total payments before the last annuitant’s death; (iv) a feature under which the annuity provides higher periodic payments before the expected commencement of Social Security or Railroad Retirement Act benefits and lower payments after the expected commencement of such benefits, such the combined payments are approximately level before and after the expected commencement date; and (v) features providing for a cost-of-living increase in the annuity payment in accordance with Treas. Reg. §1.409A-6, Q & A-14(A)(1) or (2). A joint and survivor annuity does not fail to be actuarially equivalent to a single life annuity solely due to the value of a subsidized survivor benefit provided the annual lifetime annuity to the Participant is not greater than the annual lifetime benefit to the Participant under the single life annuity and the annual survivor annuity benefit is not greater than the annual lifetime annuity to the Participant under the joint and survivor annuity.

(b) Installments. The Employer in its Adoption Agreement will elect whether to treat a series of installment payments which are not a life annuity as a single payment or as a series of separate payments. If the Employer fails to so elect, the Employer must treat the installments as a single payment. Any election to treat installments as separate payments applies at all times with respect to the amount deferred. For purposes of this Section 4.02(B)(3), a “series of installment payments” means payment of a series of substantially equal periodic amounts to be paid over a predetermined number of years, except to the extent that any increase in the payment amounts reflects reasonable Earnings through the date of payment. For this purpose, a series of installment payments over a predetermined period and: (i) a series of installments over a shorter or longer period; and (ii) a series of installments over the same period but with a difference commencement date, are different times and methods of payment and a change in the predetermined period or commencement date is subject to this Section 4.02(B). An installment payment does not fail to be an installment solely because the plan provides for an immediate payment of all remaining installments if the present value of the Deferred Compensation to be paid in the remaining installments falls below a predetermined amount, and the immediate payment in not an acceleration under Section 4.02(C) provided that the payment election establishes this feature, including the predetermined amount triggering immediate payment and that any change to the feature is subject to this Section 4.02(B). If the Plan is a restated Plan, whatever election the Employer makes in it Adoption Agreement on or before December 31, 2007, applies to any period spanning 2005 through 2007, as applicable, unless the Employer indicates otherwise in its election.

(4) Coordination with Anti-Acceleration Rule. The definition of “payment” in Sections 4.02(B)(2) and (3) also applies to Section 4.02(C). A change payment election may change the form of payment to a more rapid schedule (including a change from installments to a lump-sum payment) without violating Section 4.02(C), provided any such change remains subject to the change payment election provisions under this Section 4.02(B).

(5) Multiple Payment Events. If the Plan permits multiple payment events, the change payment election provisions of Section 4.02(B)(1) apply separately as to each payment due upon each payment event. The addition or deletion of a permissible payment event to Deferred Compensation previously deferred is subject to the change election provisions of Section 4.02(B)(1) where the additional event may cause a change in the time or form of payment. However the addition of death, Disability or Unforeseeable Emergency as an “earliest of” payment event is not a change payment election and is not an impermissible acceleration under Section 4.02(C).

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(6) Domestic Relations Orders. An election, pursuant to or reflected in a domestics relations order under Code §414(p)(1)(B), by someone other than the Participant, as to payments to a person other than the Participant, is not a change payment election subject to this Section 4.02(B).

(7) Certain Payment Delays not Subject to Change Payment Election Rules. The Employer operationally will elect whether to apply the some or all of the following payment delay provisions. The Employer in applying such provisions must treat all payments to similarly situated service providers on a reasonably equivalent basis. If applicable, these provisions do not result in the Plan failing to provide for payment upon a permissible event as Code §409A requires nor are the delays treated as a change payment election under this Section 4.02(B).

(a) Non-deductible Payment. The Plan may delay payment to a Participant if the Employer reasonably anticipates that the Employer’s deduction for the scheduled payment of the Participant’s Deferred Compensation will be barred under Code §162(m). In such event, the Plan (without any Participant election as to timing) will pay such Deferred Compensation either in the Participant’s first Taxable Year in which the Employer reasonably anticipates or should reasonably anticipate that Code §162(m) will not apply or during the period beginning on the date the affected Participant Separates from Service and ending on the later of the last day of the Participant’s Taxable Year in which the Separation occurs or the 15^th day of the third month following the Separation. If the Employer fails to delay under this Section 4.02(B)(7)(a) all scheduled payments during a Taxable Year which could be so delayed, the Employer’s delay of any payment is a change payment election subject to this Section 4.02(B). If the Employer delays payment until the Participant’s Separation from Service, the payment is considered as made based on Separation from Service for purpose of application of Section 4.01(D) and payment to a Specified Employee will be made on the date that is six months after Separation from Service.

(b) Securities or Other Laws. The Plan may delay payment to a Participant if the Employer reasonably anticipates that the payment will violate Federal securities law or other applicable law. The Plan will pay such Deferred Compensation at the earliest date at which the Employer reasonably anticipates that the payment will not cause a violation of such laws. For purposes of this Section 4.02(B)(7)(b), a violation of “other applicable law” does not include a payment which would cause inclusion of the Deferred Compensation in the Participant’s gross income or which would subject the Participant to any Code penalty or other Code provision.

(c) Change in Control. The Plan may delay payment to a Participant related to a Change in Control and that occur under the circumstances described in Treas. Reg. 1.409A-3(i)(5)(iv).

(d) Other. The Plan may delay payment to a Participant upon such other events as Applicable Guidance may permit.

(8) Extension of Short-Term Deferral. A Participant who, after the deadline for an initial payment election under Section 4.02(A)(2)(a), makes an election to defer payment of an amount which, but for the election, would be a short-term deferral under Treas. Reg. 1.409A-1(b)(4) and not subject to 409A, makes a change payment election subject to this Section 4.02(B) and in applying Section 4.02(B), the Plan treats the scheduled payment date as the date the Substantial Risk of Forfeiture lapses; provided that a Participant making such an election may provide for payment upon a Change in Control without regard to the 5 year requirement under clause (ii) of Section 4.02(B)(1)(a).

(C) No Acceleration.

(1) General Rule. No person may accelerate the time or schedule of any Plan payment or amount scheduled to be paid under the Plan. For this purpose, the payment of an amount substituted for the Deferred Compensation is a payment of the Deferred Compensation, as provided in Treas. Reg. §1.409A-3(f).

(2) Not an Acceleration. Certain actions as described in Treas. Reg. §§1.409A-3(j)(1), (2), (3), (5) and (6) are not an acceleration including: (i) certain payments made as a result of an intervening payment event and made in accordance with Plan provisions or pursuant to an initial payment election under Section 4.02(A) or a change payment election under Section 4.02(B); (ii) the Employer’s waiver or acceleration of the

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satisfaction of any condition constituting a Substantial Risk of Forfeiture provided that payment is made only upon a permissible payment event; (iii) the addition of death, Disability or Unforeseeable Emergency as payment events where such addition results in an earlier payment than would have occurred without the addition of such events (iv) an election to change Beneficiaries (including before the commencement of a life annuity) the if the time and form of payment does not change (except where under a life annuity a change in time of payments results solely from the different life expectancy of the new Beneficiary); (v) a decrease in the Compensation Deferred under the Plan as a result of certain linkage to qualified plans or broad-based foreign plans or certain other actions or inactions, including related to Wraparound Elections; or (vi) a change to a cafeteria plan election (under Code §125(d)) resulting in a change in the Compensation Deferred under this Plan.

(3) Permissible Accelerations/ Including Cash-Out. Notwithstanding Section 4.02(C)(1), the Employer in its sole discretion and without any Participant discretion or election, operationally may elect accelerations of the time or schedule of payment from the Plan in any or all of the circumstances described in Treas. Reg. §§1.409A-3(j)(4)(ii) through (xiv). Such circumstances include, but are not limited to, the mandatory lump-sum payment of the Participant’s entire Vested Accrued Benefit at any time provided that the Employer evidences its discretion to make such payment in writing no later than the date of payment, the payment results in the termination and liquidation of the Participant’s interest under the Plan and under all Aggregated Plans, and the payment amount does not exceed the applicable dollar amount under Code §402(g)(1)(B). The Employer in applying this Section 4.02(C)(3) must treat all similarly situated service providers on a reasonably equivalent basis. See Section 6.03 as to Plan termination which also results in a permissible acceleration.

4.03 Withholding. The Employer will withhold from any payment made under the Plan and from any amount taxable under Code §409A, all applicable taxes, and any and all other amounts required to be withheld under Applicable Guidance.

4.04 Beneficiary Designation. A Participant may designate a Beneficiary (including one or more primary and contingent Beneficiaries) to receive payment of any Vested Accrued Benefit remaining in the Participant’s Account at death. The Employer will provide each Participant with a form for this purpose and no designation will be effective unless made on that form and delivered to the Employer. A Participant may modify or revoke an existing designation of Beneficiary by executing and delivering a new designation to the Employer. In the absence of a properly designated Beneficiary, the Employer will pay a deceased Participant’s Vested Accrued Benefit to the Participant’s surviving spouse and if none, to the Participant’s then living lineal descendants, by right of representation, and if none, to the Participant’s estate. If a Beneficiary is a minor or otherwise is a person whom the Employer reasonably determines to be legally incompetent, the Employer may cause the Plan or Trust to pay the Participant’s Vested Accrued Benefit to a guardian, trustee or other proper legal representative of the Beneficiary. The Plan’s or Trust’s payment of the deceased Participant’s Vested Accrued Benefit to the Beneficiary or proper legal representative of the Beneficiary completely discharges the Employer, the Plan and Trust of all further obligations under the Plan.

4.05 Payments Treated as Made on Payment Date.

(A) Certain Late Payments. The Plan’s payment of Deferred Compensation is deemed made on the Plan required payment date or payment election required payment date even if the Plan makes payment after such date, provided the payment is made by the latest of: (i) the end of the Taxable Year in which the payment is due; (ii) the 15^th day of the third calendar month following the payment due date provided that the Participant is not able, directly or indirectly, to designate the Taxable Year of payment; (iii) in case the Employer cannot calculate the payment amount on account of administrative impracticality which is beyond the Participant’s control (or the control of the Participant’s Beneficiary), in the first Taxable Year of the Participant in which payment is practicable; (iv) in case the making of the payment on the specified date would jeopardize the Employer’s ability to continue as a going concern, in the first Taxable Year of the Participant in which the payment would not have such effect. The Employer may cause the Plan or Trust to pay a Participant’s Vested Accrued Benefit on any date which satisfies this Section 4.05(A) and that is administratively practicable following any Plan specified payment date or the date specified in any valid payment election.

(1) Change in Control. In the case of certain Change in Control events, as described in Treas. Reg. §1.409A-3(i)(5)(iv), certain transaction based compensation paid on the same schedule and on the same terms as apply to shareholders generally with respect the Employer’s stock or as the payments to the Employer, is treated as paid on the designated payment date. Further, such payments made within 5 years after the Change in Control event are deemed compliant with Sections 4.02(A) and (B).

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(2) Disputed Payments. In the event of a dispute between the Employer and a Participant as to whether Deferred Compensation is payable to the Participant or as to the amount thereof, or any other failure to pay, payment is treated as paid on the designated payment date if such payment is made in accordance with Treas. Reg. §1.409A-3(g).

(B) Early Payments. The Employer also may cause the Plan or Trustee to pay on a date no earlier than 30 days before the specified payment date provided the Participant is not able, directly or indirectly, to designate the Taxable Year of the payment. Such “early” payments are not an accelerated payment under Section 4.02(C).

4.06 Payment Election Requirements. The term “payment election,” for purposes of this Section 4.06(B) and the Plan generally, means either an initial payment election under Section 4.02(A) or a change payment election under Section 4.02(B).

(A) Compliance with Plan Terms. All initial payment elections and change payment elections must be consistent with the Plan and with the Adoption Agreement.

(B) When Election is Considered Made; Irrevocability.

(1) Participant Elections. A Participant’s payment election is not considered made for any purpose under the Plan until both: (i) the Employer approves the election; and (ii) the election has become irrevocable. A Participant’s payment election is always revocable until the Employer accepts the election, which acceptance must occur within the time period described in Section 4.06(C). A Participant’s payment election becomes irrevocable as the Employer elects in its Adoption Agreement.

(2) Employer Elections. The Employer’s payment election is not considered made for any purpose under the Plan until the election has become irrevocable. The Employer’s initial payment election is irrevocable after the last permissible date for making the election under Section 4.02(A)(2)(b). The Employer’s change payment election relating to payment at a Specified Time or pursuant to a Fixed Schedule is irrevocable after the last permissible date for making the election under Section 4.02(B)(1)(a). The Employer’s change payment election relating to payment based on any other payment event (not a Specified Time or Fixed Schedule) remains revocable for 30 days following the Employer’s execution of the change payment election.

(3) Effect of Changes While Election is Revocable. Any change made to a payment election while the election remains revocable is not a change payment election, either for purposes of Section 4.02(B)(1)(a) timing rules or in applying any Plan limit on the number of change payment elections a Participant may make as to any amount of Deferred Compensation. Any modification to a payment election after the election has become irrevocable is a change payment election (if made with respect to an initial payment election) or is a new change payment election (if made with respect to a change payment election).

(4) Continuing Elections. If an initial payment election is continuing under Section 4.02(A)(3), such that it applies to Compensation Deferred in one or more Taxable Years beginning after the first Taxable Year to which the payment election applies, the payment election is revocable as to such future Taxable Years until the last permissible date under Section 402(A)(2)(b) for making the election with regard to such future Taxable Year or Years.

(C) Employer Approval of Participant and Beneficiary Elections. The Employer expressly and in writing must approve any Participant or Beneficiary payment election as to timing, form and medium, even if the Plan and Adoption Agreement permit such election. The Employer, in its absolute discretion, may withhold approval for any reason, including, but not limited to, non-compliance with Plan terms. However, the Employer must approve or reject any such election within the time period during which the Participant or Beneficiary would have had to make the election. If the Employer does not so approve or reject a payment

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election, the election is deemed rejected within such time period. With regard to initial payment elections, unless the Participant subsequently makes a timely initial payment election the Employer accepts, the Employer will pay the Participant’s Vested Accrued Benefit under the payment event, timing, form and medium default provisions of Sections 4.01(B) and 4.02(A)(5).

(D) Preservation of Pre-2008 Payment Elections. If the Plan is a restatement of a Plan which was in effect before January 1, 2008, as to pre-2008 Deferred Compensation (and Earnings thereon) which is a 409A Amount, the Plan preserves any 409A permissible payment elections under the Plan which elections are not available under the Plan as to Compensation Deferred after 2007, subject to any change payment election made as to such pre-2008 Deferred Compensation.

V. TRUST ELECTION AND PLAN EARNINGS

5.01 Unfunded Plan. The Employer as it elects in its Adoption Agreement intends this Plan to be an unfunded plan that is wholly or partially exempt under ERISA. No Participant, Beneficiary or successor thereto has any legal or equitable right, interest or claim to any property or assets of the Employer, including assets held in any Account under the Plan except as the Plan otherwise permits. The Employer’s obligation to pay Plan benefits is an unsecured promise to pay. Any assets held in Plan Accounts remain subject to claims of the Employer’s general creditors and no Participant’s or Beneficiary’s claim to Plan assets has any priority over any general unsecured creditor of the Employer. Except as otherwise provided in the Plan or Trust, all Plan assets, including all incidents of ownership thereto, at all times will be the sole property of the Employer.

5.02 No Trust. Except as provided in its Adoption Agreement, this Plan does not create a trust for the benefit of any Participant. If the Employer does not establish the Trust: (i) the Employer may elect to make notional contributions in lieu of actual contributions to the Plan; and (ii) the Employer may elect not to invest any actual Plan contributions. If the Employer elects to invest any actual Plan contributions, such investments may be held for the Employer’s benefit in providing for the Employer’s obligations under the Plan or for such other purposes as the Employer may determine.

(A) Earnings. If the Employer does not establish the Trust, the Employer will elect in its Adoption Agreement whether the Plan periodically will credit actual or notional Plan contributions with a determinable amount of notional Earnings (at a specified fixed or floating interest rate or other specified index) or will credit or charge each Participant’s Account with the Earnings actually incurred by the Account.

(B) Investment Direction. If the Account is credited and charged with actual Earnings, the Employer will specify in the Adoption Agreement whether the Employer or the Participant has the right to direct the investment of the Participant’s Account and also may specify any limitations on the Participant’s right of investment direction. If the Adoption Agreement provides for Employer investment direction, the Employer may make any investment of Plan assets it deems reasonable or appropriate. If the Adoption Agreement provides for Participant investment direction, this right is limited strictly to investment direction and the Participant will not be entitled to the distribution of any Account asset except as the Plan otherwise permits.

5.03 Trust. If the Employer elects in its Adoption Agreement to create the Trust, the applicable provisions of the Basic Plan Document continue to apply, including those of Section 5.01. The Trustee will pay Plan benefits in accordance with the Plan terms or upon the Employer’s direction consistent with Plan terms.

(A) Restriction on Trust Assets. If an Employer establishes, directly or indirectly, the Trust (or any other arrangement Applicable Guidance may describe), the Trust and the Trust assets must be and must remain located within the United States, except with respect to a Participant who performs outside the United States substantially all services giving rise to the Deferred Compensation. The Trust may not contain any provision limiting the Trust assets to the payment of Plan benefits upon a Change in the Employer’s Financial Health, even if the assets remain subject to claims of the Employer’s general creditors. For this purpose, the Employer, upon a Change in the Employer’s Financial Health, may not transfer Deferred Compensation to the Trust. The Employer (and any member of a controlled group which includes the Employer) during the “restricted period” also may not transfer Deferred Compensation to the Trust and the Trust may not be restricted to payment of Plan benefits, to the extent that such transfer or restriction would violate the at-risk limitation of Code §409A(b)(3). Any Trust the Employer establishes under this Plan shall be further subject to Applicable Guidance, compliance with which is necessary to avoid the transfer of assets to the Trust being treated as a transfer of property under Code §83.

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(B) Trust Earnings and Investment. If the Employer establishes the Trust, the Trust earnings provisions apply to all Plan contributions and constitute Earnings for purposes of the Plan. The Trustee will invest the assets held in the Trust in accordance with the Trust terms but are not subject to Participant direction of investment.

VI. MISCELLANEOUS

6.01 No Assignment. No Participant or Beneficiary has the right to anticipate, alienate, assign, pledge, encumber, sell, transfer, mortgage or otherwise in any manner convey in advance of actual receipt, the Participant’s Account. Prior to actual payment, a Participant’s Account is not subject to the debts, judgments or other obligations of the Participant or Beneficiary and is not subject to attachment, seizure, garnishment or other process applicable to the Participant or Beneficiary.

6.02 Not Employment Contract. This Plan is not a contract for employment between the Employer and any Employee who is a Participant. This Plan does not entitle any Participant to continued employment with the Employer, and benefits under the Plan are limited to payment of a Participant’s Vested Accrued Benefit in accordance with the terms of the Plan.

6.03 Amendment and Termination.

(A) Amendment. The Employer reserves the right to amend the Plan at any time to comply with Code §409A, Treas. Reg. §1.409A and other Applicable Guidance or for any other purpose, provided that such amendment will not result in taxation to any Participant under Code §409A. Except as the Plan and Applicable Guidance otherwise may require, the Employer may make any such amendments effective immediately.

(B) Termination. The Employer may terminate, but is not required to terminate and liquidate the Plan which includes the distribution of all Plan Accounts under the following circumstances:

(1) Dissolution/Bankruptcy. The Employer may terminate and liquidate the Plan within 12 months following a dissolution of a corporate Employer taxable under Code §331 or with approval of a Bankruptcy court under 11 U.S.C. §503(b)(1)(A), provided that the Deferred Compensation is paid to the Participants and is included in the Participants’ gross income in the latest of (or, if earlier, the Taxable Year in which the amount is actually or constructively received): (i) the calendar year in which the plan termination and liquidation occurs; (ii) the first calendar year in which the amounts no longer are subject to a Substantial Risk of Forfeiture; or (iii) the first calendar year in which the payment is administratively practicable.

(2) Change in Control. The Employer may terminate and liquidate the Plan by irrevocable action taken within the 30 days preceding or the 12 months following a Change in Control, provided the Employer distributes all Plan Accounts (and must distribute the accounts under any Aggregated Plans which plan the Employer also must terminate and liquidate as to each Participant who has experienced the Change in Control) within 12 months following the date of Employer’s irrevocable action to terminate and liquidate the Plan and Aggregated Plans. Where the Change in Control results from an asset purchase transaction, the “Employer” with discretion to terminate and liquidate the Plan is the Employer that is primarily liable after the transaction to pay the Deferred Compensation.

(3) Other. The Employer may terminate the Plan for any other reason in the Employer’s discretion provided that: (i) the termination and liquidation does not occur proximate to a downturn in the Employer’s financial health; (ii) the Employer also terminates all Aggregated Plans in which any Participant also is a participant; (ii) the Plan makes no payments in the 12 months following the date of Employer’s irrevocable action to terminate and liquidate the Plan other than payments the Plan would have made irrespective of Plan termination; (iii) the Plan makes all payments within 24 months following the date of Employer’s irrevocable action to terminate and liquidate the Plan; and (iv) the Employer within 3 years following the date of Employer’s irrevocable action to terminate and liquidate the Plan does not adopt a new plan covering any Participant that would be an Aggregated Plan.

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(4) Applicable Guidance. The Employer may terminate and liquidate the Plan under such other circumstances as Applicable Guidance may permit.

(C) Effect on Vesting. Any Plan amendment or termination will not reduce the Vested Accrued Benefit held in any Participant Account at the date of the amendment or termination and will not accelerate vesting except as the Employer may expressly provide for in connection with the amendment or termination, provided that any such vesting acceleration does not subject any Participant to taxation under Code §409A.

(D) Cessation of Future Contributions. The Employer in its Adoption Agreement may elect at any time to amend the Plan to cease future Elective Deferrals, Nonelective Contributions or Matching Contributions as of a specified date. In such event, the Plan remains in effect (except those provisions permitting the frozen contribution type) until all Accounts are paid in accordance with the Plan terms, or, if earlier, upon the Employer’s termination of the Plan.

6.04 Fair Construction. The Employer, Participants and Beneficiaries intend that this Plan in form and in operation comply with Code 409A, the regulations thereunder, and all other present and future Applicable Guidance. The Employer and any other party with authority to interpret or administer the Plan will interpret the Plan terms in a manner which is consistent with Applicable Law. However, as required under Treas. Reg. §1.409A-1(c)(1), the “interpretation” of the Plan does not permit the deletion of material terms which are expressly contrary to Code §409A and the regulations thereunder and also does not permit the addition of missing terms necessary to comply therewith. Such deletions or additions may be accomplished only be means of a Plan amendment under Section 6.03(A). Any Participant, Beneficiary or Employer permitted Elective Deferral election, initial payment election, change payment election or any other Plan permitted election, notice or designation which is not compliant with Applicable Law is not an “election” or other action under the Plan and has no effect whatsoever. In the event that a Participant, Beneficiary or the Employer fail to make an election or fail to make a compliant election, the Employer will apply the Plan’s default terms under Sections 4.01(B) and 4.02(A)(5).

6.05 Notice and Elections. Any notice given or election made under the Plan must be in writing and must be delivered or mailed by certified mail, to the Employer, the Trustee or to the Participant or Beneficiary as appropriate. The Employer will prescribe the form of any Plan notice or election to be given to or made by Participants. Any notice or election will be deemed given or made as of the date of delivery, or if given or made by certified mail, as of 3 business days after mailing.

6.06 Administration. The Employer will administer and interpret the Plan, including making a determination of the Vested Accrued Benefit due any Participant or Beneficiary under the Plan. As a condition of receiving any Plan benefit to which a Participant or Beneficiary otherwise may be entitled, a Participant or Beneficiary will provide such information and will perform such other acts as the Employer reasonably may request. The Employer may cause the Plan to forfeit any or all of a Participant’s Vested Accrued Benefit, if the Participant fails to cooperate reasonably with the Employer in the administration of the Participant’s Plan Account, provided that this provision does not apply to a bona fide dispute under Section 4.05(A)(2). The Employer may retain agents to assist in the administration of the Plan and may delegate to agents such duties as it sees fit. The decision of the Employer or its designee concerning the administration of the Plan is final and is binding upon all persons having any interest in the Plan. The Employer will indemnify, defend and hold harmless any Employee designated by the Employer to assist in the administration of the Plan from any and all loss, damage, claims, expense or liability with respect to this Plan (collectively, “claims”) except claims arising from the intentional acts or gross negligence of the Employee.

6.07 Account Statements. The Employer from time to time will provide each Participant with a statement of the Participant’s Vested Accrued Benefit as of the most recent Valuation Date. The Employer also will provide Account statements to any Beneficiary of a deceased Participant with a Vested Accrued Benefit remaining in the Plan. Any such statements are for information purposes only prior to an actual Plan payment, are subject to adjustment or correction, and are not binding upon the Employer.

6.08 Accounting. The Employer will maintain for each Participant as is necessary for proper administration of the Plan, an Elective Deferral Account, a Matching Contribution Account, a Nonelective Contribution Account, and separate sub-accounts reflecting 409A Amounts and Grandfathered Amounts in accordance with Section 7.03.

©  Copyright 2007 SunGard 07/07    27

Nonqualified Deferred Compensation Prototype Plan

6.09 Costs and Expenses. Investment charges which will be borne by the Account to which they pertain. The Employer will pay the other costs, expenses and fees associated with the operation of the Plan, excluding those incurred by Participants or Beneficiaries. The Employer will pay costs, expenses or fees charged by or incurred by the Trustee only as provided in the Trust or other agreement between the Employer and the Trustee.

6.10 Reporting. The Employer will report Deferred Compensation for Employee Participants on Form W-2 for and on Form 1099-MISC for Contractor Participants in accordance with Applicable Guidance.

6.11 ERISA Claims Procedure. If this Plan is established as a “top-hat plan” within the meaning of DOL Reg. §2520.104-23, the following claims procedure under DOL Reg. §2560.503-1 applies. For purposes of the Plan’s claims procedure under this Section 6.11, the “Plan Administrator” means the Employer. A Participant or Beneficiary may file with the Plan Administrator a written claim for benefits, if the Participant or Beneficiary disputes the Plan Administrator’s determination regarding the Participant’s or Beneficiary’s Plan benefit. However, the Plan Administrator will cause the Plan to pay only such benefits as the Plan Administrator in its discretion determines a Participant or Beneficiary is entitled to receive. The Plan Administrator under this Section 6.11 will provide a separate written document to affected Participants and Beneficiaries which explains the Plan’s claims procedure and which by this reference is incorporated into the Plan. If the Plan Administrator makes a final written determination denying a Participant’s or Beneficiary’s claim, the Participant or Beneficiary must file an action with respect to the denied claim within 180 days following the date of the Plan Administrator’s final determination.

VII. 409A AMOUNTS AND GRANDFATHERED AMOUNTS

7.01 409A Amounts. The terms of this Plan control as to any 409A Amount.

7.02 Grandfathered Amounts. A Grandfathered Amount remains subject to the terms of the Plan as in effect before January 1, 2005, unless the Employer makes a material modification to the Plan as described in Treas. Reg. §1.409A-6(a)(4).

7.03 Separate Accounting/Earnings. The Employer will account separately for 409A Amounts and for Grandfathered Amounts within each Participant’s Account. The Employer also will account separately for Earnings on the 409A Amounts and Earnings on the Grandfathered Amounts. Post-2004 Earnings on Grandfathered Amounts are included in the Grandfathered Amount.

* * * * * * * * * * * * * * *

28    07/07

EX-12.1

Exhibit 12.1

Statement Regarding Computation of Ratio of Earnings to Fixed Charges

	Years Ended December 31,
	2007			2006			2005			2004			2003
	(Dollars in millions)
Earnings calculation:
Income before income taxes	$	341.7		$	309.7		$	325.6		$	292.0		$	239.8
Fixed charges		147.0			121.9			107.9			100.1			98.0
Earnings	$	488.7		$	431.6		$	433.5		$	392.1		$	337.8
Fixed charges calculation:
Other interest expense including capital lease interest but excluding Senior Note	$	1.4		$	1.0		$	1.1		$	1.1		$	0.9
Amortization of Senior Notes		17.5			17.5			17.5			17.5			17.5
Amortization of Subordinated Debt		12.4			—			—			—			—
Interest credited		108.8			97.7			84.0			76.5			75.0
Portion of rental expense representing an interest factor (1)		6.9			5.7			5.3			5.0			4.6
Total fixed charges	$	147.0		$	121.9		$	107.9		$	100.1		$	98.0
Ratio of earnings to fixed charges		3.3	x		3.5	x		4.0	x		3.9	x		3.4	x

(1) Interest portion of operating leases is assumed to be 28 percent.

EX-21

EXHIBIT 21

	Subsidiaries of StanCorp Financial Group, Inc.
	Company Name	Location
1.	Standard Insurance Company	Oregon
2.	The Standard Life Insurance Company of New York	New York
3.	StanCorp Retirement Services, Inc.	Oregon
4.	StanCorp Mortgage Investors, LLC	Oregon
5.	StanCorp Investment Advisers, Inc.	Oregon
6.	StanCorp Equities, Inc.	Oregon
7.	StanCorp Real Estate, LLC	Oregon
8.	StanCorp Trust Company	Oregon
9.	Standard Management, Inc.	Oregon

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-78379, 333-35484, 333-99251, and 333-116062 on Form S-8 and Registration Statement No. 333-91954 on Form S-3 of our report dated February 27, 2008 relating to the consolidated financial statements of StanCorp Financial Group, Inc. and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph regarding the adoption, on January 1, 2007, of Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts, and on December 31, 2006, of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans), and the effectiveness of StanCorp Financial Group, Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of StanCorp Financial Group, Inc. for the year ended December 31, 2007.

/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP

Portland, Oregon

February 27, 2008

EX-24

EXHIBIT 24

POWER OF ATTORNEY OF DIRECTORS OF

STANCORP FINANCIAL GROUP, INC.

The undersigned hereby appoints each of Eric E. Parsons and Michael T. Winslow, signing singly, as the undersigned’s true and lawful attorney-in-fact and agent to:

(1) execute for and on behalf of the undersigned as a director or officer of StanCorp Financial Group, Inc., the annual report on Form 10-K for the year ended December 31, 2007, complete and execute any amendment or amendments thereto, and timely file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

(2) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be in the best interest of, or legally required by the undersigned.

The undersigned hereby ratifies and confirms all that the attorney-in-fact and agent shall do or cause to be done under this Power of Attorney.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 27th day of February 2008.

/s/ Virginia L. Anderson

Virginia L. Anderson

/s/ Frederick W. Buckman

Frederick W. Buckman

/s/ John E. Chapoton

John E. Chapoton

/s/ Stanley R. Fallis

Stanley R. Fallis

/s/ Wanda G. Henton

Wanda G. Henton

/s/ Peter O. Kohler, MD

Peter O. Kohler, MD

/s/ Jerome J. Meyer

Jerome J. Meyer

/s/ Ralph R. Peterson

Ralph R. Peterson

/s/ E. Kay Stepp

E. Kay Stepp

/s/ Michael G. Thorne

Michael G. Thorne

/s/ Ronald E. Timpe

Ronald E. Timpe

EX-31.1

Exhibit 31.1

Certification

I, Eric E. Parsons, certify that:

1. I have reviewed this annual report on Form 10-K of StanCorp Financial Group, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 27, 2008

/s/ Eric E. Parsons

Eric E. Parsons

Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, Robert M. Erickson, certify that:

1. I have reviewed this annual report on Form 10-K of StanCorp Financial Group, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: February 27, 2008

/s/ Robert M. Erickson

Robert M. Erickson

Assistant Vice President, Controller and Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of StanCorp Financial Group, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eric E. Parsons, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 27, 2008

/s/ Eric E. Parsons

Eric E. Parsons

Chairman, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of StanCorp Financial Group, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert M. Erickson, Assistant Vice President, Controller and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 27, 2008

/s/ Robert M. Erickson

Robert M. Erickson

Assistant Vice President, Controller and Principal Financial Officer