Executive Benefit Arrangements

1. Executive Benefit Arrangements Recruiting, Rewarding & Retaining Key Employees

2. The Need for Executive Benefits In today’s competitive marketplace, employers need to provide more than just a 401(k) plan in order to Recruit, Retain, or Reward employees

3. Even after the favorable changes to IRA and 401(k) contribution limits, highly compensated executives are still faced with a smaller percentage of their compensation being set-aside for retirement Non-qualified plans allows executives to accumulate more money for retirement Avoids the participation, vesting, funding and fiduciary ERISA requirements of welfare benefit plans Reverse Discrimination

4. Types of Executive Compensation Executive compensation can take many forms: Stock Options Deferred Compensation Deferral Alternative Bonus Plan Supplemental Executive Retirement Plan Executive Bonus Split Dollar

5. Stock Options Not as attractive in current market environment May dilute ownership in company Can be used in conjunction with other plans Phantom Stock No dilution of company ownership Aligns interests of owners and employees Stock Plans

6. Deferred Compensation Executives can defer salary on a pre-tax basis No limits on amount of salary deferred Employer may match salary deferrals - 401(k) Mirror Employer can set when & how retirement payments are made Executive pays tax only when payments received**

7. Executive agrees to defer a portion of his/her salary Deferred salary remains in corporation until retirement Earnings in deferred compensation plan grow tax-deferred for executive Executive $ $ Employer Employee pays tax on retirement benefits when received Employee Employer takes tax deduction when employee receives benefits Deferred Compensation Pre-tax Employer

8. Deferral Alternative Bonus Plan The Ideal Situation • An executive who has maxed out qualified plan contributions and desires to defer compensation to reduce current income taxes while maintaining control over the future benefit • An employer seeking a strong executive benefit without the cost and complexity of an ordinary deferred compensation or executive bonus plan

9. Deferral Alternative Bonus Plan The Mechanics • Executive receives salary that would otherwise have been deferred. • Executive pays premiums to a personally owned policy equal to the same amount that would have been deferred under a traditional salary deferral plan • Employer pays tax on the amount the employee contributes to the policy.

10. Acme implements a deferral alternative bonus strategy by bonusing Karen an amount she would otherwise have deferred. (Acme also bonuses tax cost to Karen) Corporation $ Executive Karen pays premium into a personally owned cash value life insurance policy Deferral Alternative Bonus Plan-Case Example An effective executive benefit permitting employee control over the benefit while allowing the employer to avoid the complication of traditional deferred compensation.

11. Supplemental Executive Retirement Plan (SERP)* Employer makes contributions to non-qualified retirement plan Employer can select which executives participate Employer determines vesting schedule Employer determines when and how benefits are paid Employee taxed only when benefits are paid Role of Life Insurance to informally fund the plan

12. Employer agrees to contribute money to a golden handcuff plan Employee’s golden handcuff account subject to vesting schedule determined by employer $ Employer Employee Employer Payments can be a defined benefit or based on employee’s account balance Employer takes tax deduction when employee receives benefits Supplemental Executive Retirement Plan (SERP)* A SERP Earnings in golden handcuff plan grow tax-deferred for executive Employee pays tax on retirement benefits when received

13. Set-Up Employer & Employee enter into two separate agreements Employer promises to pay executive a lump-sum after employee meets agreed service requirement Pay-Out Lump-sum must be paid out within 2½ months after end of taxable year executive meets service requirement At time of payout, the lump-sum is tax deductible to employer and taxable to executive. Meets exception to 409A definition of deferred compensation* SERP Dollar Plus (Short Term Deferral Exception)

14. Acme implements a SERP Dollar Plus strategy by promising Craig, a valued executive a bonus at the end of a 15 year service period Corporation $ Executive After 15 years & within 2½ months after close of Acme’s taxable year, Craig is bonused the lump sum SERP Dollar Plus Case Example A strong golden handcuff permitting employer control over the benefit while avoiding some of the complication of traditional deferred compensation.

15. Executive Bonus Plan Employer pays cash bonus which is used to purchase a life insurance policy for employee Deductible by employer Taxable to employee Employer can “gross up” bonus to cover taxes as well Employee can access policy cash values tax-free when policy is properly structured Death benefit paid to beneficiary tax-free With respect to a §162 Executive Bonus Plan, the employer should consult with and rely on independent legal and tax advisers regarding whether any executive bonus plan may be considered to be a welfare benefit plan under ERISA and if so, what requirements must be met. • Loans and withdrawals will decrease the cash value and death benefit. Tax-favored distributions assume that the • life insurance policy is properly structured, is not a modified endowment contract (MEC), and distributions are • made up to the cost basis and policy loans thereafter. If the policy has not performed as expected and to avoid a • policy lapse, distributions may need to be reduced, stopped and/or premium payments may need to be resumed. • Should the policy lapse or be surrendered prior to the death of the insured, there may be tax consequences.

16. Life insurance cash values grow tax-deferred for executive Corporation pays premium on executive’s life insurance policy & takes tax deduction for premium $ Corporation Executive Employee’sBeneficiary Executive pays tax on bonus Employee’s beneficiary receives death benefit tax-free Executive Bonus Plan • Loans and withdrawals will decrease the cash value and death benefit. Tax-favored distributions assume that the • life insurance policy is properly structured, is not a modified endowment contract (MEC), and distributions are • made up to the cost basis and policy loans thereafter. If the policy has not performed as expected and to avoid a • policy lapse, distributions may need to be reduced, stopped and/or premium payments may need to be resumed. • Should the policy lapse or be surrendered prior to the death of the insured, there may be tax consequences. *Restrictive Endorsement Executive can access policy cash values to supplement retirement

17. Split Dollar Executive Benefits Split Dollar: Two Regimes 1. Economic Benefit 2. Loan Regime

18. Split Dollar Economic Benefit Plan Employer & employee split costs and benefits of life insurance policy Employer pays premium -Controls cash value in policy Employee taxed on non-cash value or pure insurance portion - Low cost benefit for employee - Employee’s beneficiary receives death benefit tax-free

19. Split Dollar Plan-Life Economic Benefit Pays premium and controls cash value portion of policy Employer $ Since corporation will be repaid, no tax deduction for employer Executive Pays tax on economic benefit provided by policy

20. Receives Death Benefit equal to Cash Value tax-free* $ Employer Executive’sBeneficiary Receives Death Benefit above Cash Value tax-free Split Dollar Plan at Death Economic Benefit

21. Split Dollar-Loan Regime Employer loans money to employee to pay policy premiums Employer will get cash advances back at death or when the loan term ends Premium advances by employer are treated as loan to employee Employee can “borrow” funds at applicable federal rates Benefit included in insured’s taxable income is typically measured by the foregone interest Policy cash values above loan amount owed can be used by employee to supplement retirement income* Death benefit received income tax-free by employee’s beneficiary Consider exit strategy Split Dollar-Loan Regime • Loans and withdrawals will decrease the cash value and death benefit. Tax-favored distributions assume that the • life insurance policy is properly structured, is not a modified endowment contract (MEC), and distributions are • made up to the cost basis and policy loans thereafter. If the policy has not performed as expected and to avoid a • policy lapse, distributions may need to be reduced, stopped and/or premium payments may need to be resumed. • Should the policy lapse or be surrendered prior to the death of the insured, there may be tax consequences.

22. Executive Employers payment of premium is treated as a loan to employee Employer $ Executive must pay interest, or be taxed if interest is forgiven by employer Executive’sBeneficiary Executive’s beneficiary receives remaining death benefit Insurance Policy Split Dollar-Loan Regime Loan repaid from death benefit IRS IRS

23. Planning Issues ERISA Non-qualified plans generally limited to top executives (no rank & file) Financial Impact Plan should be designed to minimize impact to company financials

24. Which Plan to Use? May need to offer more than one type of plan Retirement Need Death Benefit Need Let us help you determine the most appropriate plan for your situation

25. Important Information Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. Clients should seek advice based on their particular circumstances from an independent advisor. Neither MetLife nor its representatives provide tax or legal advice. MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances. Prospectuses for Equity Advantage Variable Universal Life, and for the investment portfolios offered thereunder, are available from MetLife. The policy prospectus contains information about the policies features, risks, charges and expenses. Investors should consider the investment objectives, risks, charges and expenses of the investment company carefully before investing. The investment objectives, risks and policies of the investment options, as well as other information about the investment options, are described in their respective prospectuses. Clients should read the prospectuses and consider this information carefully before investing. Product availability and features may vary by state. MetLife life insurance policies have limitations, exclusions, charges, termination provisions and terms for keeping them in force. There is no guarantee that any of the variable investment options in this product will meet its stated goals or objectives. The cash value is subject to market fluctuations so that, when withdrawn, it may be worth more or less than its original value. Guarantees are subject to the claims paying ability and financial strength of the issuing insurance company. Life insurance products are issued by MetLife Investors USA Insurance Company, Irvine, CA, 92614. Metropolitan Life Insurance Company, New York, NY, 10166 and in New York only by First MetLife Investors Insurance Company, New York, NY, 10166. All guarantees are subject to the claims-paying ability and financial strength of the issuing insurance company. Variable products are distributed by MetLife Investors Distribution Company, Irvine, CA. All are MetLife companies. November 2011 Insurance Products are: • Not A Deposit • Not FDIC-Insured • Not Insured By Any Federal Government Agency • Not Guaranteed By Any Bank Or Credit Union • May Go Down In Value L1111218084[exp1212]