DEFINED CONTRIBUTION PLANS Presented by: Mary Read, CPC, QPA National Director of Qualified Plan Marketing For Financial Professional Use Only. Not For Use With the Public.

DISCLOSURE 2 This material is intended as a general discussion of qualified plan concepts and strategies. It is not intended as specific advice concerning any individual legal, tax or accounting matter. Alliance Benefit Group-Pentegra does not provide legal, tax or accounting advice. Any questions regarding your individual situation should be directed to your personal advisor on such matters. For Financial Professional Use Only- Not For Use With Public

TYPES OF RETIREMENT PLANS Defined Contribution – Contribution is limited – Retirement benefit is unknown – Benefit depends on the amount of contributions made and any growth of plan investments Profit Sharing Money Purchase 401(k) Target Benef it 3 For Financial Professional Use Only- Not For Use With Public Contribution Limit 25% of Participating Payroll Allocation Limit 100% of pay, maximum $50,000

WHO WILL BENEFIT? Must we cover everyone? Yes No 4 For Financial Professional Use Only- Not For Use With Public

ELIGIBILITY ■ Typically age 21 with 1 year of service. ■ Can be as long as 2 years (1 year for 401(k)) ■ Being Eligible does not affect status for a Traditional deductible IRA 5 For Financial Professional Use Only- Not For Use With Public

PARTICIPATION ■ Actually being included in contributions ■ May exclude eligible employees ■ Must pass coverage test 6 For Financial Professional Use Only- Not For Use With Public

PARTICIPATION 70% Test % of Non-highly Compensated Employees (NHCE) participating must be at least 70% of Highly Compensated Employees (HCE) participating Participating 2HCE1 7NHCE4 7 Example Employees: 2 HCE 10 NHCE For Financial Professional Use Only- Not For Use With Public

CASE STUDY - INDUSTRIAL DESIGN, INC. AgeCompensation Owner A61$250,000 Owner B48$250,000 Employee 132$60,000 Employee 262$30,000 $590,000 8 This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ. For Financial Professional Use Only- Not For Use With Public

SIMPLIFIED EMPLOYEE PENSION (SEP) AgeSalaryAllocation% Pay Owner A61$250,000$50,00020% Owner B48250,00050,00020% Emp 13260,00012,00020% Emp 26230,0006,00020% Total:$118,000 Keys:$100,000 Key %:84.7% EEs Contribution:$18,000 9 This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ. For Financial Professional Use Only- Not For Use With Public

SIMPLE-IRA AgeSalaryDeferral Total w/ 3% Match Owner A61$250,000$14,000$21,350 Owner B48250,00011,50018,850 Emp 13260,0001,8003,600 Emp 26230, ,800 Total:$28,200$45,600 Keys:$25,500$40,200 Key %88% EEs Contribution2, Savings Incentive Match Plan for Employees This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ. For Financial Professional Use Only- Not For Use With Public

PROFIT SHARING - PAY BASED FORMULAS Proportionate to Pay ■ Everyone gets the same percentage of pay (like SEP) Permitted Disparity ■ Also known as Integration With Social Security ■ Can help a plan favor higher paid employees ■ Formula takes into account payments the employer already makes to Social Security ■ Sample formula 5.7% of compensation above SS Wage Base, balance allocated in proportion to pay 11 For Financial Professional Use Only- Not For Use With Public

Integrated Profit Sharing Plan AgeSalaryTrad PSIntegrated PS Owner A61$250,000$50,000 Owner B48250,00050,000 EE 13260,00012,00010,086 EE 26230,0006,0005,043 Total$590,000$118,000$115,129 Key Total$100,000 Key %85%87% Contribution This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ. For Financial Professional Use Only- Not For Use With Public

Pay and Age Based Formulas Age Based  Allocations favor older employees  Favor groups where the employer is older than employees  Allocations based on projected benefits at a future retirement age  The fewer years until retirement, the more the allocation must be each year to accumulate the projected benefit For Financial Professional Use Only- Not For Use With Public

Age Weighted Profit Sharing Plan AgeSalaryTrad PSAge Weighted PS Owner A61$250,000$50,000 Owner B48250,00050,00017,313 EE 13260,00012,0001,800 EE 26230,0006,0006,510 Total$590,000$118,000$75,623 Key Total$100,000$67,313 Key %85%89% Contribution This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ. For Financial Professional Use Only- Not For Use With Public

Takes the concept of Age Based further  Allows for employees to be segregated into groups with different contribution rates  Allows the plan to test on projected benefits that are comparable instead of equal  Well suited to businesses where not all employees are younger than the owner or multiple owners are different ages New Comparability Profit Sharing For Financial Professional Use Only- Not For Use With Public

New Comparability Profit Sharing AgeSalaryTrad PSNew Comparability Profit Sharing Owner A61$250,000$50,000 Owner B48250,00050,000 EE 13260,00012,0003,000 EE 26230,0006,0001,500 Total$590,000$118,000$104,500 Key Total$100,000 Key %85%96% Contribution This example is purely hypothetical and for illustrative purposes only. The example shown does not represent any particular plan and your results will differ. Contributions: Owners – 20% of salary; Employees 5% of salary For Financial Professional Use Only- Not For Use With Public

Case Study Industrial Design, Inc. PS AB SSI NC These examples are purely hypothetical and for illustrative purposes only. The examples shown here do not represent the actual results of any particular plan and your results likely will differ. For Financial Professional Use Only- Not For Use With Public

WHICH CLIENTS? Business Owners ■ Profitable ■ Have cash flow ■ Approaching retirement ■ Could benefit from protection of assets ■ Could benefit from tax deduction ■ May already have a plan, but maybe not the best plan 18 Government Census Statistics U.S. Department of Labor, U.S. Bureau of Labor Statistics, August 2007 National Compensation Survey: Employee Benefits in Private Industry in the United States, March 2009 Update How About New Clients? 30 million businesses comprised of 9.5 million incorporated businesses with less than 10 employees and 20.7 million unincorporated businesses For Financial Professional Use Only- Not For Use With Public

IN A PERFECT WORLD… Ask the employer: ■ How much do you want to contribute? ■ Which employees do you want to include? ■ Which employees do you want to favor? …within the law we can help design a plan that comes close to the client’s idea of “perfect” 19 For Financial Professional Use Only- Not For Use With Public

20 ALLIANCE BENEFIT GROUP-PENTEGRA  Outstanding Personal Service  Industry Experts  No Commission Splits  No Hidden Fees Lori J. Carpenter Advisor Relationship Manager (800) Direct: Mary Read CPC, QPA National Director of Qualified Plans Marketing For Financial Professional Use Only – Not For Use With Public Training, custom plan proposals, prospecting and marketing materials are free. We are only a phone call away!

CIRCULAR 230 DISCLOSURES The above information is not intended or written to be used, and it cannot be used, by any person for the purposes of avoiding any penalty that may be imposed by the Internal Revenue Service. In the event the advice is also considered to be a “marketed opinion” within the meaning of the IRS guidance, then as required by the IRS, please be further advised of the following: The above advice was written to support the promotion or marketing of the transactions or matters addressed by the written advice and, based on the particular circumstances, you should seek advice from an independent tax advisor. 21 For Financial Professional Use Only- Not For Use With Public