OLA 1069 T 1008 Planning Solutions for Small to Midsized Businesses

This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should be urged to consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.

Executive Bonus Plan  Today’s competitive landscape makes it difficult to recruit and retain key executives  A comprehensive compensation package is crucial for both business owners and executives  Companies can provide growing cash values with company-paid life insurance  Plan is easy to administer and exempt from ERISA requirements

Retirement Planning Issues  Executives looking for another tax-deferred way to supplement retirement income  Supplemental retirement planning solutions help businesses attract and retain key employees

 Allows executives to buy life insurance through taxable bonus provided by employer  Executive has unrestricted access to the policy cash value Benefits of an Executive Bonus Plan

 Owners of small to midsized businesses  Employers who want to recruit and retain key executives  Companies that may want to provide benefits exclusively to the owners  Companies that don’t offer qualified retirement plans  Companies that want to offer benefits in excess of those offered by their qualified retirement plans  Key executives Who Benefits?

 Employer issues a taxable bonus to the executive to purchase a life insurance policy  Executive purchases and owns a life insurance policy and names the beneficiaries Here’s How It Works

 Company can pay executive “double bonus” to cover estimated tax liability on both bonuses  Executive can purchase life insurance protection using equivalent of pre-tax dollars Here’s How It Works with “Double Bonus”

Executive Bonus Plan in Action * Loans, withdrawals, and performance will lower the policy value and net cash value and may lower the death benefit. If the policy is considered a Modified Endowment Contract (MEC), distributions are treated first as taxable distributions of earnings in the policy. Withdrawals, loans, and assignments are considered distributions. Taxable distributions from a MEC prior to age 59 1 / 2 may also be subject to a 10% federal income tax penalty.

 Executive can access policy’s cash values at retirement or any other time to meet other financial goals*  If executive dies, designated beneficiaries receive death benefit Accessing the Benefits * Loans, withdrawals, and performance will lower the policy value and net cash value and may lower the death benefit. If the policy is considered a Modified Endowment Contract (MEC), distributions are treated first as taxable distributions of earnings in the policy. Withdrawals, loans, and assignments are considered distributions. Taxable distributions from a MEC prior to age 59 1 / 2 may also be subject to a 10% federal income tax penalty.

 Helps distinguish company’s compensation package  Provides selected employees or owners with attractive pre- and post-retirement benefits  Generally receives income tax deduction for executive bonus payments  Offers benefit flexibility  Has minimal plan setup costs Employer Benefits

 Cash value accumulates tax-deferred  Death benefit protection for named beneficiaries  Additional source of income to meet financial goals*  Bonus allows purchase of valuable life insurance protection with equivalent of pre-tax dollars Executive Benefits *Loans, withdrawals, and performance will lower the policy value and net cash value and may lower the death benefit. If the policy is considered a Modified Endowment Contract (MEC), distributions are treated first as taxable distributions of earnings in the policy. Withdrawals, loans, and assignments are considered distributions. Taxable distributions from a MEC prior to age 59 1 / 2 may also be subject to a 10% federal income tax penalty.

 Supplements Social Security and company pensions using life insurance  Provides an essential part of an executive compensation package  Benefits owners of small to midsized businesses, and companies that don’t offer qualified retirement plans  Benefits companies that want to offer benefits in excess of those offered by their qualified retirement plans Summary

 Enhances executive benefits and may help employers recruit and retain key associates  Offers death benefit protection of life insurance and tax-advantaged cash value Summary (Cont.)

Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company (collectively “Transamerica”), and their representatives do not give ERISA, tax, or legal advice. This material and the concepts presented here are provided for informational purposes only and should not be construed as ERISA, tax, or legal advice. Clients and other interested parties must be urged to consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here. Discussions of the various planning strategies and issues are based on our understanding of the applicable federal income, gift, and estate tax laws in effect at the time of this presentation. However, tax laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamerica’s interpretations. Additionally, the information presented here does not take into consideration the general tax and ERISA provisions applicable to defined benefit retirement plans or the applicable state laws of clients and prospects. Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of October 2008.

OLA 1069 T 1008 Planning Solutions for Small to Midsized Businesses