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

2. 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

3. 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

4. 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

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
Shortfall Transition Exemption
92%
94%
96%
100%
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%
70%
75%
80%
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

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
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

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
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

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
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

9. 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

10. 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

11. Sample Illustrations under PPA11

12. Sample Illustrations under PPA12

13. Sample Illustrations under PPA13

14. Impact for DB Sponsors
Volatility! 14

15. 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

16. 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

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

18. 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

19. 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

20. Sample Illustration under Accounting Reform Phase I20

21. 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

22. 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