BLR’s Human Resources Training Presentations

1. BLR’s Human Resources Training Presentations Explaining 401(k) to Employees2005 UPDATES

2. Goals • Be aware of the many benefits of participating in a 401(k) plan • Understand the investment options • Know how the plan works, including the rules for investing, transferring, and withdrawing funds • Be able to explain the 401(k) to your employees

3. What Is a 401(k) Plan? • Savings and investment plan • Pre-tax income • Tax-deferred earnings • Designed primarily as a retirement plan

4. What Are the Advantages Of a 401(k)? • Tax-deferred earnings • Reduction in current gross income • Automatic payroll deductions • Control of account

5. What Are the Advantages Of a 401(k)? (cont.) • Portability • No minimum investments • Option to borrow from the account • Matching funds

6. Who Is Eligible to Participate? • Employee • Over age 21 • Meets time-in-employment requirement

7. How Much Can You Save? • Maximum contributions • Vesting rules

8. When Should You Start Saving in a 401(k) Plan? • The earlier the better • Example 1: 20 years in the plan • Example 2: 40 years in the plan

9. Can You “Catch Up” If You Started Late? • Catch-up contributions • Separate written election • Employer obligations

10. Where Do Your 401(k) Contributions Go? • Trust fund for company employees • Different types of investments • Individual contributions buy shares • Value of shares • Investments not protected

11. What Are Your Investment Options? • Stable value funds • Company stock • Mutual funds • Money market funds • Bond funds

12. What Are Your Investment Options? (cont.) • Balanced funds • Stock index funds • Growth and income funds • Growth funds • Aggressive growth funds • International and global equity funds

13. What Type of Investor Are You? • Conservative • Moderate • Aggressive

14. How Can You Choose the Best Investment? • Have I learned all I can about each investment? • How has this investment performed in the past? • How long do I have before I need the money? • How can I diversify investments to reduce risk?

15. How Do You Know What the Ideal Mix of Investments Should Be? • 25 to 34 • 35 to 44 • 45 to 54 • 55 to 64 Conservative Stock Growth Stock Age Bonds GIC 25 to 34 35 to 44 45 to 54 55 to 64 25% 20% 15% 15% 60% 60% 60% 45% 5% 10% 15% 30% 10% 10% 10% 10%

16. What Are the Advantages Of a 401(k) Versus an IRA? • Maximum contribution • Deposits • Diversification • Employer contributions • Timing of tax savings • Tax treatment at distribution

17. What If You Leave the Company Or Die Before Retirement Age? • If you leave the company • If you die before retirement age

18. Can You Borrow From a 401(k) Plan? • Loan qualifications • Minimums and maximums • Repayment of the loan • Separation from the company

19. When Are Funds Normally Distributed? • Age 59-1/2 • Employee becomes totally and permanently disabled • Employee dies • Plan is terminated • Employee leaves the company

20. What If You Withdraw Money Early? • Taxes • Penalties

21. What About Hardship Withdrawals? • Medical expenses • Purchase of a home • College tuition payments • Threat of eviction or foreclosure • Funeral expenses for a family member

22. Are There Any Disadvantages To a 401(k) Plan? • Funds aren’t insured • Benefits are based only on the vested value of the account • Company can amend, merge, or discontinue the plan at any time • Employees tend to invest too conservatively • People tend to spend their 401(k) money when they change jobs

23. What Else Should Employees Know About the 401(k) Plan? • Maximum allowable annual contribution • Percentage matched by the company • Vesting rules • Rules for transfer of funds

24. What Else Should Employees Know About the 401(k) Plan? (cont.) • When earnings are credited to their account • How often statements are provided • How to access their account • History of investment options

25. Goals • Be aware of the many benefits of participating in a 401(k) plan • Understand the investment options • Know how the plan works, including the rules for investing, transferring, and withdrawing funds • Be able to explain the 401(k) to your employees

26. Summary • The 401(k) plan can be an excellent way for employees to save for retirement • 401(k) plans have many advantages over other types of savings and investment plans • Employees should realize that they are totally responsible for the growth of their 401(k) account

27. Summary (cont.) • They need to learn as much as possible about the plan and the investments they make • To reduce risks, wise investors diversify their 401(k) portfolios

28. Quiz 1. Briefly define a 401(k) plan. 2. Identify four advantages of a 401(k). 3. There is no limit to the amount of money employees can contribute to the 401(k) each year. True or False 4. Company matching contributions must be ___________ before they fully belong to the employee. 5. Employees over age 40 are allowed to make additional catch-up contributions each year to the 401(k). True or False

29. Quiz (cont.) 6. Contributions to the 401(k) go into a ___________, and each employee who participates buys __________ in the fund with his or her contributions. 7. Identify three possible 401(k) investment options. 8. The ideal mix of investments changes over the years. True or False 9. If employees contribute to the 401(k), they are prohibited by law from also contributing to a personal IRA. True or False 10. What happens if an employee withdraws 401(k) funds before age 59 1/2 without hardship as a reason?

30. Quiz Answers 1. A 401(k) is a savings and investment plan, designed primarily as a retirement plan, that allows employees to make investments with pre-tax income and that defers taxes on earnings until the money is withdrawn. 2. There are numerous advantages to a 401(k), including tax-deferred earnings, reduction in current gross income, automatic payroll deductions, the ability to make one’s own investment decisions, portability, no minimum investments, the option to borrow from the account for certain specified reasons, and matching contributions from the company.

31. Quiz Answers (cont.) 3. False. There is a limit to the amount of money employees can contribute annually to the plan. 4. Company matching contributions must be vested before they fully belong to the employee. 5. False. Employees age 50 and over are allowed to make catch-up contributions. 6. Contributions to the 401(k) go into a trust fund, and each employee who participates buys shares in the fund with his or her contributions.

32. Quiz Answers (cont.) 7. Possible investment options include stable value funds, company stock, and mutual funds, which may combine investments in money market funds, bond funds, and various kinds of stock funds. 8. True. As employees get older and closer to retirement, experts recommend making more conservative investments. 9. False. Employees may contribute to both the 401(k) and an IRA. However, the amount of their IRA tax deduction may be reduced or limited as a result.

33. Quiz Answers (cont.) 10. The company is required by law to withhold 20 percent of the withdrawn amount for taxes. In addition, the employee must pay a 10 percent penalty to IRS.