Pension Protection Act of 2006 Playing by the Rules for DB Mike Walton & Vin Grillo Products & Advisory Services Webcast: November 1, 2006 1

Outline The New Rule Book Pension Protection Act of 2006 The Game within the Game Accounting Reform Phase I & II No Mercy Rule Sample Illustrations under PPA 2

Pension Protection Act of 2006 Generally effective for 2008 Plan Years New funding rules Potential lump sum restrictions (includes cash balance plans) Potential restrictions for plan amendments, payment forms and funding of executive deferred compensation And more… 3

Pension Protection Act of 2006 Funding Target Attainment Percentage (FTAP) Actuarial Value of Assets / Targeted Liability Trigger percentage for the new rules impacts Funding requirements Benefit administration Benefit delivery 4

Pension Protection Act of 2006 Playing by the Rules Critical Targets The rewards of being at or above the target How Prudential is Helping Our Clients with Contribution and Investment Planning Shortfall Transition Exemption 92% - 2008 94% - 2009 96% - 2010 100% - 2011 No amortization component to the plan’s required contribution if FTAP is met or exceeded in each year Prudential’s PPA Forecasting Tool can determine if a plan will meet these targets, including the expected contribution needed for the 2006 and 2007 plan years. “At risk” Plans 65% - 2008 70% - 2009 75% - 2010 80% - 2011 And 70% using “at-risk” assumptions Plan can avoid higher contribution requirements of “at risk” plans (based on the prior year’s FTAP) Prudential’s PPA Forecasting Tool can determine if a plan is in jeopardy of being labeled “at risk”, including determining the 2006 and 2007 plan year contributions to avoid that designation. 5

Pension Protection Act of 2006 Playing by the Rules Critical Targets The rewards of being at or above the target How Prudential is Helping Our Clients with Contribution and Investment Planning Deductible Contribution Limits To 150% For 2006 and 2007 plan years, DB sponsors can make contributions as large as 150% of unfunded Current Liability to position the plan’s FTAP for 2007 and 2008. Prudential’s PPA Forecasting Tool can measure the funding gap between the sponsor’s targeted FTAP and current funded level of the plan to help the sponsor build an appropriate contribution strategy. Transfer of Excess Pension Assets for Retiree Health 120% PPA permits sponsors to pay retiree medical costs with excess DB plan assets. Prudential’s Retiree Medical Actuaries can assist sponsors with an asset transfer strategy so the DB plan works twice for the sponsor and the plan’s retirees. 6

Pension Protection Act of 2006 Playing by the Rules Critical Targets The rewards of being at or above the target How Prudential is Helping Our Clients with Contribution and Investment Planning Credit Balance Carryovers and Pre-funding Balances 80% Sponsors can tap carryover balances and Pre-funding balances to satisfy contribution requirements Prudential’s PPA Forecasting Tool can assist in building the optimal sponsor strategy for utilization of current and projected credit balances. Acceptable Corridor for the Actuarial Value of Assets 90% to 110% of the Market Value of Assets In addition to two-year smoothing, the corridor has been narrowed. Prudential’s PPA Forecasting Tool can measure the additional contribution risk for a plan associated with tighter asset rules. 7

Pension Protection Act of 2006 Playing by the Rules Critical Targets The rewards of being at or above the target How Prudential is Helping Our Clients with Contribution and Investment Planning Forms of Payment Restrictions, Including an Automatic Plan Freeze 60% * Avoid having to automatically freeze the plan in the year the FTAP becomes ≤ 60%. Avoid not being able to pay lump sums. Prudential’s PPA Forecasting Tool can assist in building the optimal sponsor strategy to mitigate unnecessary surprises for plan participants. Benefit Increases and Lump Sum Partial Restrictions 80% * Avoid not being able to amend the plan for a benefit increase. Avoid having to limit lump sum payments. * The funded status percentage is based on an adjusted assets and adjusted liabilities, as applicable. 8

Pension Protection Act of 2006 Playing by the Rules Critical Targets The rewards of being at or above the target How Prudential is Helping Our Clients with Contribution and Investment Planning Funding of Non-Qualified Deferred Compensation 80% * Avoid restrictions on the ability to set aside assets in a Rabbi trust to finance NQDC for top five executive officers. Prudential’s PPA Forecasting Tool can assist in building the optimal sponsor strategy to avoid an unnecessary surprise for executives. Presumed Funded Status and Actuarial Certification April 1st and October 1st By April 1st – Avoid 10 point reduction in FTAP By October 1st – Avoid presumption of FTAP to be < 60% Prudential’s outsourcing and data management services can help ensure timely and accurate data delivery and administration. * The funded status percentage is based on an adjusted assets and adjusted liabilities, as applicable. 9

Pension Protection Act of 2006 Newsflash: FTAP is more than determining which DB plans are underfunded. The new rules will significantly impact your plan administration and participants. 10

Sample Illustrations under PPA 11

Sample Illustrations under PPA 12

Sample Illustrations under PPA 13

Impact for DB Sponsors Volatility! 14

Asset-Liability Consulting Services Articulate Objectives Establish Sponsor’s Objectives Set Clear Expectations Develop Meaningful Results Confirm Policies Review Assumptions & Methods Collect Plan & Census Information Perform Baseline Forecast Evaluate Outcomes Formulate Policy Changes Present Findings & Recommendations 15

Sample Asset Liability Modeling (ALM) Objectives for 2008 2006 Funded Status Sample Target Objectives for 2008 Purpose Over 92% Funded Stay over 92% with upside to 100% Exemption from shortfall amortization 85% to 92% Achieve 92%, but not fall below 80% Exemption from Shortfall Amortization and have unrestricted use of credit balances 75% to 85% No worse than 80% Protect against administrative restrictions on lump sums and funding of NQDC 65% to 75% Protect against falling below 65% Avoid the contribution requirements of an “at-risk” plan Under 65% No worse than 60% Protect against a PPA mandated plan freeze 16

What’s the strategy cost? Prudential’s PPA Forecasting Tool 17

Accounting Reform Phase I and II Pension and Other Post Employment Benefits (OPEB) Phase I: Balance Sheet Effective for FYE > 12/15/2006 for public entities, and for FYE > 6/15/2007 for privately held corporations. Requires the difference between assets and liabilities, including future salary increases, to be recorded on the balance sheet. Year over year adjustments flow through Other Comprehensive Income (OCI) and impact net worth of the Company (i.e. equity). 18

Accounting Reform Phase I and II Phase II: Income Statement Phase II is expected to take several years to complete. FASB will review all accounting standards for pension and post-employment benefits. Directionally toward international accounting standards, which are more closely marked to market. FASB could distinguish between total pension cost and operational pension cost to mitigate income statement volatility. 19

Sample Illustration under Accounting Reform Phase I 20

Sample Illustration under Accounting Reform Phase I Impact on Shareholder Equity Pensions Difference of the PBO and ABO equals $22 million Note: no longer contribute out of the OCI OPEB Difference of the APBO and Net Amount Recognized equals $26.8 million Total Impact on Shareholder Equity Pension + OPEB = $48.8 million 21

Questions Prudential Retirement and Prudential Financial are registered service marks of The Prudential Insurance Company of America, Newark, NJ and its affiliates. Prudential Retirement is a Prudential Financial business. Prudential Financial is a service mark of The Prudential Insurance Company of America, Newark, NJ and its affiliates. 22