THE PENSION PROTECTION ACT OF 2006

1. THE PENSION PROTECTION ACT OF 2006 What does the Financial Planner Need to Know??? May 20, 2008

2. EGTRRA PERMANENCY

3. EGTRRA PERMANENCY • Allowed Catch-Up Contributions for Older Workers • Allowed Roth 401(k)s • Simplified Top Heavy Rules • Allowed Plan Loans to All Employees, Regardless of the Type of Business Entity • Established Low-Income Saver’s Credit • Miscellaneous Provisions

4. DEFINED BENEFIT PLAN FUNDING CHANGES

5. DEFINED BENEFIT PLAN FUNDING CHANGES • Asset Valuations • Minimum Required Contributions • Use of Credit Balances • “At-Risk” Plans • Restrictions on Benefit Increases, Lump Sums and Other Benefits

6. DEFINED BENEFIT PLAN FUNDING CHANGES

7. DEFINED BENEFIT PLAN FUNDING CHANGES • Yield curve would be derived from a 2-year average of interest rates on investment-grade bonds • Alternatively, a plan can elect to use the full yield curve (i.e., non-segmented) without the 2-year averaging, but only for minimum funding

8. DEFINED BENEFIT PLAN FUNDING CHANGES • Minimum Required Contribution (MRC) is sum of: • Target Normal Cost (TNC) • Shortfall Amortization Charge • Any Funding Waiver Amortizations. • The MRC may be reduced by Credit Balances in certain circumstances

9. DEFINED BENEFIT PLAN FUNDING CHANGES

10. DEFINED BENEFIT PLAN FUNDING CHANGES

11. DEFINED BENEFIT PLAN FUNDING CHANGES • With the exception of accelerated benefit distributions: • Plan sponsors may make additional contributions or provide security to avoid the limitations. • Restrictions do not apply to new plans for the first five years of the plan. • Small plans not exempt from these rules even though they are exempt from “at-risk” rules.

12. DEFINED CONTRIBUTION PLAN CHANGES • Faster vesting to either 3 yr or 6 yr graded • Rollovers of after-tax money and Roth 401(k)’s allowed to 403(b) plans • Rollovers from Qualified Plans, 403(b)’s, and 457 plans can be made directly to Roth IRA • Through 2009, compensation limits of $100k AGI • Compensation limits eliminated after 2009 • IRA conversions back in 2010 with 3 yr spread of taxes!!

13. DEFINED CONTRIBUTION PLAN CHANGES • Special exemptions for government plans and Indian tribal plans • Non-spousal beneficiaries now can rollover to IRA and take annual distributions • Big Estate Planning Opportunity

14. INVESTMENT ADVICE • New Prohibited Transaction Exemption for Fiduciary Advisors • Default Investment Elections • Diversification Rights with Respect to Amounts Invested in Employer Securities

15. INVESTMENT ADVICE • Prohibited Transaction Exemptions for “fiduciary advisors” to provide advice to participants and beneficiaries on their own funds under 2 alternative exemptions: “fiduciary advisor” defined as an Registered Investment Advisor, bank, insurance company, broker, dealer, an affiliated offshore institution/individual, or an employee Fee Leveling Exemption • Fees received by fiduciary advisor are not dependent on the investment selections made.

16. INVESTMENT ADVICE Computer Model Exemption • Advice delivered by a computer model certified by an independent investment expert • Model must use all plan investments and cannot weigh towards advisor’s investments • Must allow participants to use other advisors • Disclosures made before advice given as well as annually • All relationships identified • Past performance • Advisor indicates fiduciary status • Participant can have independent advisor • Fiduciary Advisor is an RIA, Bank, Ins Co. Broker/Dealer, or an affiliate

17. INVESTMENT ADVICE • Detailed disclosures required to be made before the initial advice given, as well as annually thereafter  • The relationship between the fiduciary advisor, the plan investment options and fees that will be received • The past performance of investment options under the plan • Services provided by the advisor and that the advisor is a fiduciary • That the participant is free to engage an independent advisor • Other disclosures required by securities laws

18. PORTABILITY OF BENEFITS • In-service distributions from pension plans to participants who have reached age 62 (even if the normal retirement age is later than age 62) will be allowed • Distributions from Qualified plans, 403(b) annuities and 457 plans can be rolled over directly to ROTH IRAs. The ROTH IRA conversion rules must be followed: • The taxable portion of the rollover amount would be taxed at the time of the rollover, and • Only individuals with $100,000 or less of Adjusted Gross Income (AGI) can do the rollover. After 2010, there is no $100,000 AGI restriction.

19. PORTABILITY OF BENEFITS

20. AMENDING PLANS • Private Retirement Plans Must Be Amended By End of the 2009 Plan Year • Governmental Retirement Plans Must Be Amended By End of the 2011 Plan Year • Plans must comply operationally through end of 2009 Plan Year

21. EGTRRA PERMANENCY401(K) PROFIT SHARING PLANS 20012007 Gross Company Payroll $ 1,000,000 $ 1,000,000 Employee Elective Deferrals $ 100,000 $ 100,000 Net Payroll for Computing Deductible Contribution $ 900,000 $ 1,000,000 Deduction Limit 15% 25% Deductible Contribution $ 135,000 $ 250,000 Adjustment for Employee Deferrals (100,000)0 Allowable Employer Profit Sharing $ 35,000 $ 250,000 Contribution

22. EGTRRA PERMANENCYCATCH-UP CONTRIBUTION LIMITS Year401(k), 403(b), SARSEP,SIMPLEGovernmental 457 PlanPlan 2002 $1,000 $ 500 2003 $2,000 $ 1,000 2004 $3,000 $ 1,500 2005 $4,000 $ 2,000 2006 $5,000 $ 2,500 2007 $5,000 $ 2,500

23. EGTRRA PERMANENCYONE-PERSON 401(k) PLAN To maximize contributions (2007), we need the following: Minimum Compensation : $ 118,000 Section 401(k) Deferral : $ 15,500 Profit Sharing Contribution : $ 29,500 Total Contribution/Allocation : $ 45,000 Total dollars needed in Business Entity : $ 147,500 Contribution as a % of Compensation : 38.14%

24. REPORTING AND DISCLOSURE • Plan sponsors of DB Plans must furnish a new detailed funding notice to all participants and the PBGC within 120 days after the end of the plan year. • Must include whether plan’s funding target percentage is less than 100%; the plan’s assets and liabilities as of the last day of the prior plan year; breakdown of active participants versus retirees; the plan’s funding policy and asset allocation and an explanation of any amendments affecting plan liabilities

25. REPORTING AND DISCLOSURE • Small plans (100 or fewer participants) allowed to provide notice when Form 5500 due • Summary Annual Reports for DB Plans repealed • DOL to provide model notice

26. REPORTING AND DISCLOSURE

27. REPORTING AND DISCLOSURE • Plan sponsors required to file an ERISA 4010 notice if funding target percentage below 80% for preceding year. • Participants have right to get access to information filed with the PBGC upon a plan termination.

28. REPORTING AND DISCLOSURE

29. REPORTING AND DISCLOSURE • Statement must “on the basis of the latest available information” show amount of vested benefits. • Statements must also include explanation of any permitted disparity or floor-offset arrangement affecting benefits under the plan. • DC plan statements must show assets as of the most recent valuation date (e.g., some plan assets are trustee invested and “hard-to-value”), including employer securities.

30. REPORTING AND DISCLOSURE

31. REPORTING AND DISCLOSURE • All statements may be provided in written, electronic, or other appropriate form.  • DOL directed to provide simplified 5500 Form for plans with fewer than 25 participants.  • One-participant plans with assets less than $250,000 will be exempt from the 5500 Form filing requirement.  • Notice and comment period regarding distribution is expanded to 30--180 days before the distribution commences.

32. AUTO-ENROLLMENT SAFE HARBOR • Passes 401(k) tests and top heavy tests • Must cover all eligible employees • Applies to new hires and those that did not affirmatively elect • Automatic enrollment must be between 3% and 10% • Employee contributions must automatically increase by 1% each year to at least 6% but not more than 10% • Matching contributions must be 100% for the first 1% and 50% up to the next 5% with 100% vesting after 2 yrs • Annual notices, preempts state laws, default investments, allows permissible distributions within 90 days, excess contributions disgorged and taxed in year of distribution • This is a winner!

33. NEW 403(b) REGULATIONS • Written Plan Document • Contract Exchanges • Plan-to-Plan Transfers • Plan Termination • Universal Availability • Non-Discrimination • Catch-Up Contributions

34. NEW 403(b) REGULATIONS • Distributions • Timing of Contributions • Controlled Group Issues • Incidental Life Insurance • Roth IRA Contributions • Effective Date-1/1/09

35. CASH BALANCE PLANS • Contributions to fund retirement benefits can exceed 401(k)/defined contribution maximum of $46,000 • Participants have hypothetical account balances

36. CASH BALANCE PLANS • Cash Balance plans are granted regulatory recognition • Cash Balance plans are not age-discriminatory if pay and annual interest credits for older workers are not less than those of younger workers • Beneficial for small business and individual private corporations

37. CASH BALANCE PLANS • Elimination of 25% deduction limit • 2006/2007: 25% limit applies only to the defined benefit plan if, profit sharing allocations do not exceed 6% of pay • 2008: 25% limit is eliminated for PBGC covered plans regardless of profit sharing contribution • Professional services firm need a minimum of 26 employees to be PBGC covered

38. CASH BALANCE PLANS • Participants have hypothetical accounts • Accounts are credited with • Employer contribution credit • Interest credit • Participant may receive account balance on termination

39. CASH BALANCE PLANS • Benefits are more easily understood by the participant • Participant receives an annual statement that shows an account balance • Costs are understandable for the plan sponsor • Contribution credits for the staff (as a % of pay) can be the same

40. CASH BALANCE PLANS • Assets must be pooled and trustee directed • Interest credit is guaranteed • For employer • Investment gains: decrease contributions • Investment losses: increase contributions

41. CASH BALANCE PLANS • Manage investments to • Match the interest credit rate • Match the client’s objectives • Investment risk on employer

42. CASH BALANCE PLANS • Cash Balance investment strategies involve: • Plan demographics • Cash flow • Risk tolerance • Investment strategy is coordinated with plan actuary

43. CASH BALANCE PLANS IDEAL CANDIDATES • Professional Firms with 2 or more partners • Principals between the ages of 45 & 65 • Employees, on average, at least 5-10 years younger than principals • Budget in excess of $45/$50k

44. CASH BALANCE PLANS

45. PLAN DESIGN

46. Defined Benefit Cost % of Comp. Employee-(Age) Compensation Notes: HCE-(60) Grp 1 $220,000 $102,802 46.73% Normal retirement benefit: HCE-(50) Grp 2 220,000 49,160 22.35% Group 1 - 5.0% of compensation time year of participation. NHCE-(40) Grp 2 50,000 6,061 12.12% Group 2 - 3.0% of compensation time year of NHCE-(30) Grp 2 35,000 2,107 6.02% participation. NHCE-(25) Grp 2 30,000 1,390 4.63% NHCE-(25) Grp 2 20,000 869 4.35% Maximum 20 years. NHCE-(23) Grp 1 20,000 1,159 5.80% Normal retirement age: 65 NHCE-(23) Grp 1 19,000 1,101 5.79% Actuarial Assumptions: 6%, 1994 GAR-Unisex Mort. NHCE-(28) Grp 2 30,000 183 0.61% NHCE-(27) Grp 2 18,000 890 4.94% $662,000 $165,722 Cost Benefit Analysis % of Total HCE Total $151,962 91.70% NHCE Total $13,760 8.30% $165,722 100.00% PLAN DESIGN

47. Plan DesignDB/DC Combo

48. SUMMARY • EGTRRA Permanency • Defined Benefit Funding Rules • Investment Advice • 403(b) Compliance • Disclosure • Cash Balance Plans • Plan Design Opportunities