New Comparability Plan Design New Comparability Contribution Formulas May Skew Retirement Benefits to Owner

1. New Comparability Plan Design New Comparability Contribution Formulas May Skew Retirement Benefits to Owner/Key Employees

2. Traditional Allocation Methods Pro-rata – The same percentage of compensation allocated to all eligible participants Integrated with Social Security – Compensation up to the Taxable Wage Base (TWB) receives the same percentage of compensation, Compensation over the TWB receives a higher percentage. No additional discrimination required to prove these methods are non-discriminatory Plan Document can be a standardized or a non-standardized prototype

3. Traditional Plan Challenges Deferral rates of non-highly compensated employees limits the deferrals of highly compensated The cost of providing a profit sharing contribution that maximizes the the owner’s share can be prohibitive

4. Solutions to Traditional Challenges Safe Harbor Design permits highly compensated to maximize 401(k) deferrals. By utilizing a 3% Safe Harbor design, ADP Test can be satisfied and deferrals reach $16,500 With $16,500 deferred, only a $32,500 Profit Sharing contribution to the Owner is needed to maximize his/her benefit to get Owner to $49,000.

5. Non-traditional Allocations Document must be customized to define the allocation method Non-Discrimination is determined by the benefit received rather than the dollars contributed Age-Weighted allocation – Skews benefits towards the older participants. Control of who benefits the most is limited New Comparability – Skews benefits toward selected participants and allows greater control than Age-Weighted method

6. Other Design Considerations Understanding the ramifications of Top Heavy is important and can be solved by proper plan design and 3% Contribution. New Comparability minimum “gateway” contributions of 3% to non-highly compensated All 3 considerations (Safe Harbor, Top Heavy and Minimum Gateway) can be satisfied with the New Comparability Standard Allocation of 3%

7. Deciding What Works Best

8. Total Contribution Amount is Reduced but Owner’s Share is not Pro-rata Contribution of $114,081.63 is required to get Owner 1 total contribution of $49,000 New Comparability Contribution of $79,149.66 is required to get Owner 1 total contribution of $49,000 Total Contribution reduced by $34,931.97

9. Tax Considerations Can Make New Comparability Even More Attractive Pro-rata Allocation COSTS $10,751.11 after taxes are considered New Comparability SAVES $9,418.15

10. Updates 2007/2008 Safe Harbor and Auto Enrollment/Increase 1/1/2008 match 100% up to 1% and 50% on the next 5% Combining DB and DC Plans For plan years beginning after 12/31/2005, the combined plan deduction limit does not apply to the extent contributions to one or more DC plans do not exceed 6% of compensation New Comparability - Non-Standardized Document IRS in the process of approving based on certain criteria Limited rate groups based on number of HCE’s and NHCE’s

11. Where to Reach Us Redwood Administrators, Inc. Scialabba & Associates, P.C. 866-RAI-7770 (866-724-7770) 101A Foster Road Moorestown, NJ 08057 Marketing@RedwoodAdmin.com www.RedwoodAdmin.com

12. Questions & Answers