Principal ® Select Reward Plan Date Name and title

Business Owner & Executive Solutions – For Growing Businesses

Financial Needs Retirement funds – Do I have enough? Healthcare – How will I pay for it when I retire? Survivor needs – What if I die too soon? Will I have financial security? Taxes?

Popular Selective Retirement Income (Executive Benefit) Plans Deferred Compensation –Executive defers salary therefore deferring income tax until benefit is paid –Corporation books a liability –Ultimate control/Golden handcuffs –Can be informally financed with a corporate-owned asset –Employer contributions/match are made with after-tax dollars –Provides deferred tax-deduction for employer –IRC Section 409A compliance required –Plan-level administrative service fees Principal Executive Bonus Plus SM –Executive owns the asset –Company gets a current tax deduction for employer contributions –Executive pays income tax on employer contributions –Distributions are tax-advantaged if life insurance is used to finance the benefit –Limited Employer control/ Golden handcuffs –No cost for administration

Deferred Compensation Plans – Reality Check Employer Challenges S corporation/LLC –Not available for owners Deferred tax deduction Cost of administration Accounting –Balancing assets and liabilities Executive Challenges Security of the promise Who owns the asset? What happens to the benefit at death?

Executive Bonus Plans – Reality Check 1. Employer – Control –Restrictive Agreement –Repayment Obligation 2. Executive – Current Taxation –Contribution is taxed although, executive may receive a tax bonus from the employer

Principal Select Reward Plan Financial protection in the event of a premature death Financial security to help ensure you don’t outlive your income Self-Completing Solution

Principal Select Reward Plan How it Works Employer and executive enter into two agreements 1.Endorsement Split Dollar Executive is allowed to name a beneficiary for the death benefit of a life insurance policy 2.Principal Select Reward Plan (Unfunded/Unvested) Employer promises to pay a lump-sum bonus to the executive within 30 days of the executive meeting a specified service requirement Self-Completing Solution

Principal Select Reward Plan - How it Works When the executive vests in the benefit (fulfills the service requirement) –Ownership of the life insurance policy Transfers to the executive –Executive owns the policy free and clear Pays income tax from policy values Receives income-tax free income at retirement Income-tax free death benefit to survivors at death Self-Completing Solution

Employer pays premium for policy Executive is endorsed a death benefit Principal Select Reward Plan During the Service Period EMPLOYEREXECUTIVE #1#1

Principal Select Reward Plan During the Service Period Executive pays tax on economic benefit EXECUTIVE #2#2

Principal Select Reward Plan During the Service Period The Select Reward Plan agreement creates an unfunded SERP-type Benefit for the Executive The Select Reward Plan agreement creates an unfunded SERP-type benefit for the executive Unfunded SERP #3#3

Executive owns policy and can take income from policy Principal Select Reward Plan at Distribution Corporate-owned life policy ownership is transferred to the executive to satisfy the promised bonus Executive pays tax on the amount of the bonus/value of policy EXECUTIVE SERP benefit/ Life insurance policy Executive owns Life Policy with cash value & death benefit #4#4 #5#5

Principal Select Reward Plan FOR EMPLOYER Flexibility with both selection and financing options Golden handcuff Minimal IRC Section 409A compliance Free administration! FOR EXECUTIVE Survivor death benefit during service period Minimal tax cost during service period for death benefit Lump-sum bonus when vested Retirement income

Free Plan-Level Administrative Services Plan-level Administrative Services Dedicated home office administrator Provide economic benefit amount to employer Consolidated plan-level reports Employer-view Internet access Tax-value reporting upon the transfer of the policy to the executive

The Tailored Edge You Need Our Business Owner and Executive Solutions offer you the complete package – the expertise to help you find the right solutions, a portfolio of products to choose from, and the plan administrative services you need to focus on your business, and leave the details to us.

Disclosures While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance products from the Principal Financial Group ® (The Principal ® ) are issued by and plan administrative services are provided by Principal National Life Insurance Company (except in New York) and Principal Life Insurance Company. Securities offered through Princor Financial Services Corporation, 800/ , member SIPC. Principal National, Principal Life and Princor ® are members of the Principal Financial Group , Des Moines, IA No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage and retrieval system, without prior written permission from the Principal Financial Group . Copyright ©2008 Principal Financial Services, Inc. #