Tom Terry JPMorgan Compensation and Benefit Strategies April 15, 2008

1. Tom TerryJPMorgan Compensation and Benefit StrategiesApril 15, 2008 Pensions in the US How are pension plans holding up?

2. Looking Back … • The Insurance Era • De-regulation • Re-regulation (ERISA) • Reform (PPA)

3. The Insurance Era • 1915 to 1945 • Pensions were highly regulated • Plans were fully funded • Asset and liability matching prevailed

4. De-regulation of Pensions • 1945 to 1974 • Employers pushed aside the insurance companies • Traditional disciplines were abandoned • No required funding • No solvency standards • No asset-liability matching

5. Re-Regulation • Early ERISA Era: 1974 to 1988 • Federal government steps in with • Required minimum funding • Required service-based vesting • New reporting and disclosures • New federal insurance program - PBGC

6. Re-Regulation, Part 2 • Late ERISA Era: 1988 to 2005 • Accelerated minimum funding based on a solvency measure • High hurdles for funding above the minimum • Pension insurance program introduced a mild form of underwriting

7. Pension Reform • 2006 + • Pension Protection Act (PPA) • Seven year funding of unfunded liabilities • Minimal smoothing • Increased maximum tax deductible contributions • Increased premiums to the PBGC • FASB is mid-stream in revamping accounting

8. Outlook: Doom and Gloom • Enhanced and newly volatile solvency standards will drive plan sponsors away • FASB stands ready to drive off any remaining DB sponsors

9. Outlook: Better Days Ahead • Elimination of actuarial opacity is a good thing • PPA did not introduce any new risks • PPA actually opens up the door for level, rational funding policies

10. Emerging Dramas • The PBGC deficit remains • What will happen to frozen plans? • Public pension plan regulation is lacking • Social Security imbalances not yet addressed