NONQUALIFIED DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS OF

Exhibit 10.38

NONQUALIFIED DEFERRED COMPENSATION PLAN FOR

NON-EMPLOYEE DIRECTORS OF

AMERICAN WATER WORKS COMPANY, INC.

(As amended and restated, effective as of January 1, 2009)

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NONQUALIFIED DEFERRED COMPENSATION PLAN FOR

NON-EMPLOYEE DIRECTORS OF

AMERICAN WATER WORKS COMPANY, INC.

ARTICLE I

PURPOSE

AWW previously adopted this Plan, effective as of the Original Effective Date for the purpose of providing AWW’s Non-Employee Directors with the opportunity to defer Director Fees that would otherwise be paid by AWW for a particular Plan Year. AWW intends that the Plan shall at all times be maintained on an unfunded basis for federal income tax purposes under the Code. AWW also intends that the Plan be operated and maintained in accordance with the requirements of section 409A of the Code and the regulations and rulings thereunder. AWW desires to amend and restate the Plan, effective as of the Effective Date to make certain design and clarifying changes to the Plan.

All capitalized terms shall have the meanings set forth in ARTICLE II below.

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ARTICLE II

DEFINITIONS

For purposes of this Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise:

Section 2-1 “Amended Enrollment Agreement” means a new Enrollment Agreement executed by a Participant that satisfies the requirements of Section 7-4 below and that changes the time and/or form of a distribution for a particular Plan Year.

Section 2-2 “AWW” means American Water Works Company, Inc. or any successor thereto.

Section 2-3 “Beneficiary” means the person or persons (natural or otherwise) designated by the Participant as such in accordance with Section 10-1 below.

Section 2-4 “Board” means the Board of Directors of AWW.

Section 2-5 “Code” means the Internal Revenue Code of 1986, as amended.

Section 2-6 “Committee” means the Board.

Section 2-7 “Deemed Investment Option” means the deemed investment options as designated by the Committee for purposes of the Plan, as may be changed from time to time. Each Participant shall designate the Deemed Investment Options pursuant to which deemed earnings (or losses) shall be credited to the Participant’s Deferral Account in accordance with ARTICLE V.

Section 2-8 “Deferral Account” means the bookkeeping account established by AWW to which are credited Deferral Contributions, and notational earnings and losses thereon.

Section 2-9 “Deferral Contribution” means the Director Fee Deferrals credited to the Plan on behalf of a Participant pursuant to Section 4-1 below.

Section 2-10 “Director Fees” means, for each Participant, the annual retainer fee for a Participant for his or her service on the Board for any calendar year, any additional annual fees for such Participant’s service as chairman of a Board or a Board committee and any fees scheduled to be paid for attendance at Board or Board committee meetings, including telephonic meetings, during the calendar year, that, but for the execution of a valid Enrollment Agreement, would otherwise be paid to such Participant.

Section 2-11 “Director Fee Deferral” means that portion of a Participant’s Director Fees, before taking into account amounts deferred under this Plan, as to which a Participant has made an irrevocable election to defer receipt until the date specified in the Participant’s Enrollment Agreement.

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Section 2-12 “Effective Date” means January 1, 2009, the effective date of this amendment and restatement of the Plan. The “Original Effective Date” means January 1, 2008, the initial effective date of the Plan.

Section 2-13 “Enrollment Agreement” means the authorization form which a Non-Employee Director timely files with the Committee to make Director Fee Deferrals to the Plan.

Section 2-14 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

Section 2-15 “Non-Employee Director” means any individual who:

Section 2-16 “Participant” means each Non-Employee Director who is participating in the Plan in accordance with the provisions of ARTICLE IV. In the event of a Participant’s death, the term Participant shall mean the Participant’s Beneficiary. In the case of a Participant’s incompetency, the term Participant shall include an individual with a duly authorized power of attorney or, in the absence of a duly authorized power of attorney, the Participant’s personal representative or guardian. An individual shall remain a Participant until that individual has received full distribution of any amount credited to the Participant’s Deferral Account.

Section 2-17 “Plan” means this plan, called the Nonqualified Deferred Compensation Plan for Non-Employee Directors of American Water Works Company, Inc., as may be amended from time to time.

Section 2-18 “Plan Year” means the 12 month period beginning on each January 1 and ending on the following December 31.

Section 2-19 “Separation From Service” means a Participant’s separation from service with the Employer within the meaning of section 409A of the Code and the regulations issued thereunder.

Section 2-20 “Specified Distribution Date” means a specific time within the meaning of section 409A of the Code and the regulations issued thereunder that is designated by the Participant in his or her Enrollment Agreement or Amended Enrollment Agreement, as applicable; provided, however, that the Specified Distribution Date must be designated as a calendar year.

Section 2-21 “Unforeseeable Emergency” means the Participant has experienced an “unforeseeable emergency” within the meaning of Treas. Reg. §1.409A-3(i)(3)(i).

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ARTICLE III

ADMINISTRATION OF THE PLAN AND DISCRETION

Section 3-1 Administration. The Committee shall have full power and authority to interpret the Plan, to prescribe, amend and rescind any rules, forms and procedures as it deems necessary or appropriate for the proper administration of the Plan and to make any other determinations and to take any other such actions as it deems necessary or advisable in carrying out its duties under the Plan. All actions taken by the Committee arising out of, or in connection with, the administration of the Plan or any rules adopted thereunder, shall, in each case, lie within its sole discretion, and shall be final, conclusive and binding upon AWW, the Board, each Participant, each Beneficiary and all persons and entities having an interest therein, and a Participant’s participation in the Plan shall constitute that Participant’s acknowledgement and acceptance of the Committee’s authority and discretion. The Committee may from time to time adopt rules and regulations governing the operation of this Plan and may employ and rely on such employees of AWW, legal counsel, accountants and agents, as it may deem advisable to assist in the administration of the Plan.

Section 3-2 Compensation of Committee; Expenses. Members of the Committee shall serve without compensation for any services relating solely to the Plan. All expenses of administering the Plan shall be paid by AWW.

Section 3-3 Indemnification. AWW shall indemnify, defend and hold the Committee harmless from any and all claims, losses, damages, expenses (including counsel fees) and liability (including any amounts paid in settlement of any claim) arising from any act or omission of such member, except when the same is due to gross negligence or willful misconduct.

Section 3-4 Interpretations. Any decisions, actions or interpretations to be made under the Plan by AWW or the Committee shall be made in its respective sole discretion, not as a fiduciary and need not be uniformly applied to similarly situated individuals and shall be final, binding and conclusive on all persons interested in the Plan.

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ARTICLE IV

PARTICIPATION

Section 4-1 Deferral Contributions.

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Section 4-2 Time of Distribution.

Section 4-3 Form of Distribution.

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Section 4-4 Newly Eligible Non-Employee Directors. An individual who first qualifies as a Non-Employee Director during a particular Plan Year shall not be eligible to participate as a Non-Employee Director until the following Plan Year.

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ARTICLE V

INVESTMENT CREDITS AND FUNDING

Section 5-1 Deemed Investment Options.

Section 5-2 Returns on Accounts. A Participant’s Deferral Account shall be credited with returns in accordance with the Deemed Investment Options elected by the Participant from time to time; provided, however, that if the Participant does not affirmatively elect a Deemed Investment Option, until the Participant makes an affirmative election as to the Deemed Investment Options under the Plan, the Participant will be deemed to have elected the default investment option that the Committee has designated for this purpose. Unless otherwise provided under this Plan, Participants may allocate the amounts credited to their Deferral Account among the Deemed Investment Options available under the Plan only in whole percentages of not less than one percent. The rate of return, positive or negative, credited under each Deemed Investment Option is based upon the actual investment performance of the investment fund(s) designated by the Committee from time to time, and shall equal the total return of such investment fund net of asset based charges, including, without limitation, money management fees, fund expenses and mortality and expense risk insurance contract charges. In addition, if a Participant elects to invest in the Deemed Investment Option that is deemed invested solely in shares of AWW common stock, additional share units will be credited to the Participant’s Deferral Account in such fund to reflect cash dividends paid by AWW in respect of its share of common stock.

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Section 5-3 Changes in Deemed Investment Options. A Participant may change the Deemed Investment Options to which the Participant’s Deferral Account is deemed to be allocated on such basis as determined by the Committee in its sole discretion. As the Participant may elect, each such change may include:

Section 5-4 Valuation of Deferral Account. The value of a Participant’s Deferral Account as of any date shall equal the amounts theretofore credited to such Deferral Account, including any earnings (positive or negative) deemed to be earned on such Deferral Account in accordance with Section 5-2 above through the day preceding such date, less the amounts theretofore deducted from such Deferral Account.

Section 5-5 Statement of Deferral Account. The Committee shall provide to each Participant, not less frequently than quarterly (or such other period as determined by the Committee in its sole discretion), a statement in such form as the Committee deems desirable setting forth the balance standing to the credit of each Participant in each of his or her Deferral Account.

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ARTICLE VI

VESTING

Each Participant shall at all times be fully vested in the amounts credited to his or her Deferral Account.

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ARTICLE VII

DISTRIBUTIONS

Section 7-1 Distributions. If a Participant is entitled to receive a distribution of the amount credited to his or her Deferral Account under the Plan on account of Separation from Service, unless the Participant has filed an Amended Enrollment Agreement pursuant to Section 7-4 below, such amount shall commence to be distributed to the Participant in the form selected by the Participant for such Plan Year in January of the Plan Year that follows the Plan Year in which his or her Separation from Service occurs. If a Participant is entitled to receive a distribution of his or her Deferral Account under the Plan on account of a Specified Distribution Date, unless the Participant has filed an Amended Enrollment Agreement pursuant to Section 7-4 below, such amount shall commence to be distributed to the Participant in the form selected by the Participant for such Specified Distribution Date in January of the Plan Year that is designated by the Participant as the Specified Distribution Date. If a Participant elects to receive his or her benefit in the form of a lump sum, the value of the Participant’s Deferral Account attributable to the relevant Plan Years that will be distributed on account of a lump sum will be determined as of the first business day of the month in which the distribution occurs. If a Participant elects to receive his or her benefits in the form of installments, the value of the Participant’s Deferral Account that will be distributed on account of installments shall be equal to (A) the value of such Deferral Account as of the first business day of the month in which the distribution occurs, divided by (B) the number of annual installment payments elected by the Participant for such Plan Year’s contributions. The remaining annual installments shall be equal to (1) the value of such Deferral Account as of the first business day of the month in which the distribution occurs for such Plan Year’s contributions, divided by (2) the number of installments remaining for such Plan Year’s contributions.

Section 7-2 Death of Participant. If a Participant dies prior to commencement of his or her benefit under the Plan, the Participant’s Beneficiary shall receive a lump sum distribution of the entire vested amount credited to the Participant’s Deferral Account as soon as administratively practicable following the date of the Participant’s death, but no later than sixty (60) days following the date of such death. If a Participant dies after commencement of his or her benefit under the Plan, the Participant’s Beneficiary shall receive a lump sum distribution of the remaining installments payable to the Participant under the Plan as soon as administratively practicable following the date of the Participant’s death, but no later than sixty (60) days following the date of such Participant’s death. The value of the Participant’s Deferral Account subject to such distribution will be determined as of the first business day of the month in which the distribution occurs.

Section 7-3 Distribution on Account of an Unforeseeable Emergency. In the event that the Committee, upon written request of a Participant, determines, in its sole discretion, that the Participant has suffered an Unforeseeable Emergency, AWW shall pay from the Participant’s Deferral Account as soon as practicable following such determination, but not later than sixty (60) days, an amount necessary to meet the

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Unforeseeable Emergency, after deduction of any and all taxes as may be required pursuant to Section 10-7 below. Except as otherwise provided in regulations under section 409A of the Code, the amounts distributed to a Participant pursuant to an Unforeseeable Emergency shall not exceed the amounts necessary to satisfy such Unforeseeable Emergency, plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement of compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). With respect to that portion of the Deferral Account which is distributed to a Participant, in accordance with this Section 7-3, the value of such amount shall be reduced from the Participant’s Deferral Account. Notwithstanding anything in this Plan to the contrary, a Participant who receives a distribution pursuant to this Section 7-3 in any Plan Year shall not be entitled to make any further Deferral Contributions, for the remainder of such Plan Year. No distributions pursuant to this Section 7-3 may be made from the Participant’s Deferral Account. The value of the Participant’s Deferral Account subject to such distribution will be determined as of the first business day of the month in which the distribution occurs.

Section 7-4 Change in Time and/or Form.

Section 7-5 Type of Distribution. All distributions from the Plan will be paid to the Participants in cash.

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ARTICLE VIII

AMENDMENT AND TERMINATION

The Plan may be amended, suspended, discontinued or terminated at any time by the Committee; provided, however, that, except as provided below, no such amendment, suspension, discontinuance or termination shall reduce or in any manner adversely affect the rights of any Participant with respect to benefits that are payable or may become payable under the Plan based upon the balance of the Participant’s Deferral Account as of the effective date of such amendment, suspension, discontinuance or termination. Notwithstanding anything to the contrary in this ARTICLE VIII, if the Committee determines that, in order to comply with the requirements of section 409A of the Code, additional changes must be made to the Plan, then the Committee may, in its sole discretion and without the consent of the Participant, amend the Plan to comply with such requirements. If the Committee terminates the Plan, Participants shall be entitled to a distribution of their benefit under the Plan if the termination is on account of a permitted distribution event under Treas. Reg. §1.409A-3(j)(4)(ix)(A), (B), (C) or (D) and the requirements, as applicable, of such regulations are met with respect to the termination of the Plan and distribution of benefits hereunder.

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ARTICLE IX

CLAIMS PROCEDURES

Section 9-1 Claim. A person who believes that he or she is being denied a benefit to which he or she is entitled under the Plan (hereinafter referred to as a “Claimant”) may file a written request for such benefit with the Committee, setting forth the claim.

Section 9-2 Claim Decision. Upon receipt of a claim, the Committee shall advise the Claimant that a reply will be forthcoming within ninety (90) days and shall, in fact, deliver such reply within such period. The Committee may, however, extend the reply period for an additional ninety (90) days for reasonable cause. If the claim is denied in whole or in part, the Claimant shall be provided a written explanation, using language calculated to be understood by the Claimant, setting forth:

Section 9-3 Request for Review. Within sixty (60) days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Committee review its determination. The Claimant, or his or her duly authorized representative, may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Committee. If the Claimant does not request a review of the initial determination within such sixty (60) day period, the Claimant shall be barred and estopped from challenging the determination.

Section 9-4 Review of Decision.

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ARTICLE X

MISCELLANEOUS

Section 10-1 Designation of Beneficiary. Each Participant may designate a Beneficiary or Beneficiaries (which Beneficiary may be an entity other than a natural person) to receive any payments which may be made following the Participant’s death. Such designation may be changed or canceled at any time without the consent of any such Beneficiary. Any such designation, change or cancellation must be made in a form approved by the Committee and shall not be effective until received by the Committee, or its designee. If no Beneficiary has been named, or the designated Beneficiary or Beneficiaries shall have predeceased the Participant, the Beneficiary shall be the Participant’s estate. If a Participant designates more than one Beneficiary, the interests of such Beneficiaries shall be paid in equal percentages, unless the Participant has specifically designated otherwise.

Section 10-2 Limitation of Participant’s Right. Nothing in this Plan shall be construed as conferring upon any Participant any right to continue in the service of AWW (or any employer in AWW’s controlled group), nor shall it interfere with the rights of AWW (or any employer in the Employer’s controlled group) to terminate the service of any Participant and/or to take any action affecting any Participant without regard to the effect which such action may have upon such Participant as a recipient or prospective recipient of benefits under the Plan. Any amounts payable hereunder shall not be deemed salary or other compensation to a Participant for the purposes of computing benefits to which the Participant may be entitled under any other arrangement established by AWW (or any employer in the Employer’s controlled group).

Section 10-3 No Limitation on Actions by AWW. Nothing contained in the Plan shall be construed to prevent AWW from taking any action which is deemed by it to be appropriate or in its best interest. No Participant, Beneficiary, or other person shall have any claim against AWW as a result of such action.

Section 10-4 Obligations to AWW. To the maximum extent permitted under section 409A of the Code and its corresponding regulations, if a Participant becomes entitled to a distribution of benefits under the Plan, and if at such time the Participant has outstanding any debt, obligation, or other liability representing an amount owing to AWW, then AWW may offset such amount owed to AWW against the amount of benefits otherwise distributable, but only as such distributions would otherwise be made if paid to the Participant in accordance with such Participant’s Enrollment Agreement. Such determination shall be made by the Committee.

Section 10-5 Nonalienation of Benefits.

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Section 10-6 Protective Provisions. Each Participant shall cooperate with AWW by furnishing any and all information requested by AWW in order to facilitate the payment of benefits hereunder, taking such physical examinations as AWW may deem necessary and taking such other relevant action as may be requested by AWW. If a Participant refuses to cooperate, AWW shall have no further obligation to the Participant under the Plan, other than payment to such Participant of the then current balance of the Participant’s Accounts in accordance with his or her prior elections.

Section 10-7 Withholding Taxes. AWW may make such provisions and take such action as it may deem necessary or appropriate for the withholding of any taxes which AWW is required by any law or regulation of any governmental authority, whether federal, state or local, to withhold in connection with any deferrals to, amounts credited to and benefits payable under the Plan, including, but not limited to, withholding of appropriate sums from any amount payable to the Participant (or his or her Beneficiary) under the Plan or otherwise payable to the Participant from other sources. Each Participant, however, shall be responsible for the payment of all individual tax liabilities relating to any such deferrals, credits and benefits.

Section 10-8 Unfunded Status of Plan. The Plan is intended to constitute an “unfunded” plan of deferred compensation for Participants. Benefits payable hereunder shall be payable out of the general assets of AWW, and no segregation of any assets whatsoever for such benefits shall be made. With respect to any payments not yet made to a Participant, nothing contained herein shall give any such Participant any rights to assets that are greater than those of a general creditor of AWW.

Section 10-9 Severability. If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force and effect without regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in the Plan.

Section 10-10 Governing Law. The Plan shall be construed in accordance with and governed by the laws of the State of New Jersey, without reference to the principles of conflict of laws.

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Section 10-11 Headings. Headings are inserted in this Plan for convenience of reference only and are to be ignored in the construction of the provisions of the Plan.

Section 10-12 Gender, Singular and Plural. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may read as the plural and the plural as the singular.

Section 10-13 Notice. Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Committee shall be directed to AWW’s address. Mailed notice to a Participant or Beneficiary shall be directed to the individual’s last known address in the AWW’s records.

Section 10-14 Incapacity. In the event that any amount becomes payable under the Plan to a person who, in the sole judgment of the Committee, is considered by reason of physical or mental condition to be unable to give a valid receipt therefore, the Committee may direct that such payment be made to any person found by the Committee, in its sole judgment, to have assumed the care of such person. Any payment made pursuant to such determination shall constitute a full release and discharge of the Committee and AWW.

Section 10-15 Section 409A. The Plan is intended to comply with the applicable requirements of section 409A of the Code and its corresponding regulations and related guidance, and shall be administered in accordance with section 409A of the Code to the extent section 409A of the Code applies to the Plan. Notwithstanding anything in the Plan to the contrary, elections to defer Director Fees to the Plan, and distributions from the Plan, may only be made in a manner and upon an event permitted by section 409A of the Code. To the extent that any provision of the Plan would cause a conflict with the requirements of section 409A of the Code, or would cause the administration of the Plan to fail to satisfy the requirements of section 409A of the Code, such provision shall be deemed null and void to the extent permitted by applicable law. Other than a valid Enrollment Agreement or Amended Enrollment Agreement, in no event shall a Participant, directly or indirectly, designate the calendar year of payment. For avoidance of doubt, deferrals under the Plan are maintained on a Plan Year basis.

Executed this 14^th day of November, 2008.

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