NQDC Market Insights Kurt Miller, Vice President – Business Development NQ Principal Financial Group

Principal NQDC Insights Serve all size markets: Large, Medium & Small Administrative services to over 2,500 plans #1 provider of nonqualified deferred compensation (NQDC) plans – PLANSPONSOR 2015 NQDC/457(f) Buyer’s Guide – based on total number of NQDC plans 1 in 4 NQDC for-profit clients are S Corps Average plan size Average participant deferrals

Principal NQDC Insights 2015 Trends in Nonqualified Deferred Compensation – published June 2016 Since 2008, Principal conducts annual NQDC research with plan sponsors & participants Results available at principal.com/nqresearch Goals Track satisfaction changes Assess experiences with these plans Identify the goals and uses of these plans

Principal NQDC Insights

Principal NQDC Insights

Principal NQDC Insights

Principal NQDC Insights S Corp insights Drivers similar to C Corps: Retirement challenges, key employee retention & taxation Majority finance NQDC with Corporate Owned Life Insurance (“COLI”) 64% COLI / 30% Taxable Investments / 6% Unfinanced (as of 6/30/2016) Shareholders often insureds for COLI financing, using DB for other business needs Key employee retention is important Employer money with rolling vesting attractive Drive performance “How to get non-shareholders to act like shareholders”

Principal NQDC Insights DEPARTMENT OF LABOR 2015 New Plan Filings SMALL MARKET OPPORTUNITY Ability to serve small market is necessary Smaller employers face the same recruiting and retention challenges as large employers SIMILARITIES: Plan design similar – majority finance with Corporate Owned Life Insurance (COLI) DIFFERENCES: Plan servicing and support challenges Plan products Average Plan Size Average Participant Deferral

Principal NQDC Insights Case Study – Alternative to Corporate Stock Bonuses Employer: Profitable manufacturing company with a 401(k) plan that was adding approximately 20 employees/year to the plan. Step 1: Establish that an NQDC PLAN is the right fit Positive company relationship with an advisor at a BGA U.S subsidiary company performing well: parent company in another country granting bonuses in corporate stock Unlike the country where parent company based, these bonuses were taxed as income in the U.S. Bonuses to U.S. subsidiary approved; $2M taxable bonus payments

Principal NQDC Insights Case Study – Alternative to Corporate Stock Bonuses Employer: Profitable manufacturing company with a 401(k) plan that was adding approximately 20 employees/year to the plan. Step 2: Choose the PRODUCT/FINANCING that meets organizational objectives Tax-friendly corporate-owned life insurance (COLI) selected Balance sheet and P&L impact Taxes not paid on growth & balance sheet not impacted because of high cash values Plan implementation begins, including underwriting

Principal NQDC Insights Case Study – Alternative to Corporate Stock Bonuses Employer: Profitable manufacturing company with a 401(k) plan that was adding approximately 20 employees/year to the plan. Step 3: Educate PARTICIPANTS Crucial step: plan not effective without eligible employees participating Eligible participants confused about plan & its tax benefits One-on-one consultation with employees to explain how deferrals impact tax brackets – in this case, bringing some down 4 brackets

Principal NQDC Insights Case Study – Alternative to Corporate Stock Bonuses Employer: Profitable manufacturing company with a 401(k) plan that was adding approximately 20 employees/year to the plan. Results for this case Executive Nonqualified “Excess” Plan established 6 key employees designated as eligible participants COLI premium: $2.7 million recurring Estimated first-year commissions: $594,000