The Pension Protection Act of 2006

2. The Pension Protection Act of 2006 Emerging Trends… One Year Later! October 3-5, 2007 Beach Cove Resort North Myrtle Beach , South Carolina

3. The passage of PPA –August 2006 Filing of class-action lawsuits – Sept. 2006 DOL releases proposed rules for QDIA – Sept 2006 Report by the U.S. Government Accountability Office (GAO Report) – November 2006 Congressional hearings on 401(k) Plan Fees – March 2007 DC Circuit Court Overturns Broker-Dealer Exemption – March 2007 Proposed legislation for Fee Disclosures – July 2007 401(k)s in the Spotlight

4. 401(k) Version 2.0 • Not simply a response to regulatory and competitive environments • More than procedural changes • Rather, a completely re-designed approach to sponsoring a retirement plan

5. Social Security is $13,600,000,000,000 (trillion) in the hole. The number of traditional Defined Benefit Pension plans decreased by more than 80% over the past 20 years. The number of people covered by retiree health care has been cut in half over the past 10 years. 401(k) Version 2.0… Why? A few facts about our retirement system…

6. Low 401(k) Participation Rates 25% - 33% of eligible employees do not participate in their company’s 401(k) plan. Low Contribution Rates Poor Investment Decisions… Poor Results Lower returns and with higher risk Failure to re-balance portfolios Many invest way too conservatively 401(k) Version 2.0… Why? A few observations about Version 1.0…

7. Even 1% Can Make a Difference! Returns… Expenses… The GAO Report and others have shown that paying 1% more in fees can reduce a participant’s balance at retirement by 17% to 23%...

8. Hidden (High?) Fees Potential drain on account balances Early Withdrawal Provisions Loans and hardships impair accumulation efforts Lump Sum Distributions Expose participants to increased longevity risk 401(k) Version 2.0… Why? A few observations about Version 1.0…

9. 401(k) Version 2.0… Why? 98 90 $454 84 $364 73 $303 70 $173 3% Contri- bution Start Age 21 Start Age 26 $ Mrkt Inv $104 All 3

10. Assume responsibility for plan funding Determine proper contribution amount Adjust contributions periodically as necessary Determine appropriate asset classes for investment Determine correct investment mix Choose investment managers for each investment class or style Monitor the manager’s performance Re-balance the portfolio periodically Monitor investment expenses Budget benefit distributions to ensure payments continue for life Decisions for Retirement Plan Managers

11. PPA’s Key 401(k) Provisions • Automatic Participant Enrollments • Automatic Savings Escalations • Automatic Investment Options These are the building blocks for Version 2.0

12. Lessons Learned From V 1.0 “The lesson here for the next generation workplace defined contribution plans is that we should structure decision points in these plans to default workers toward participation, higher contribution rates, and better age-based asset allocation through changes in plan design practices. Inertia, then, can be made to work to the advantage of participants.”

13. 92% of participants automatically enrolled at a 6% contribution rate remained in the plan. 89% of participants automatically enrolled at a 5% contribution rate remained in the plan. 88% of participants automatically enrolled at a 3% contribution rate remained in the plan. 87% of participants automatically enrolled at a 2% contribution rate remained in the plan. Example- Automatic Enrollment Data Not what you would expect…

14. Another Lesson Learned From 401(k) V 1.0 “Keep it simple!”

15. In 1998, the average number of investment options was 10. In 2004, the average number of investment options had increased to 18. Some plans literally have a 100 or more options. Evidence suggests that too many choices overwhelms and paralyzes decision making efforts 401(k) Version 1.0... Too Many Choices! Consider this…

16. Simple automated investment option. Improves participant investment diversification through asset allocation. Provides professional investment management. Investment allocation automatically rebalances periodically. Investment allocation adjusts as participant approaches retirement age. New QDIAs… Target Date Funds

17. Potential for Significant Improvement in Retirement Readiness % of pre-retirement income replaced 63% 58% 55% 52% Increase from 6% auto-enrollments; target date fund Workers without auto-enrollments

18. Add in Social Security and the Results are Promising % of pre-retirement income replaced 104% 86% 81% 79% Social Security Increase from 6% auto-enrollments; target date fund Workers without auto-enrollments

19. Automatic Participant Enrollment. Target-Date Default Investment Options. Customized, managed, pre-mixed, diversified investment portfolios. Participant advice for those whose needs go beyond the Target-Date fund option. Deliberate use of fiduciary advisors. Fee disclosure and monitoring requirements Key Features of Version 2.0

20. Most Brokerages AVOID the ‘F’ Word

21. On-Track Reporting to Participants. Investment recommendations Contribution rate suggestions Plan sponsor reports to track the plan’s effectiveness in providing retirement income goals for employees. Post-retirement annuity products to meet the lifetime monthly income objective Anticipate stricter enforcement rules for loans and hardships Key Features of Version 2.0

22. 401(k) Version 1.0 versus 2.0

23. Chip Hunt 1140 Woodruff Rd Suite 106 - 120 Greenville, SC 29607 W: 864.627.401k F:  864.627.4025 C: 864.350.1523 Chip Hardy 4840 Forest Drive #303 Columbia, SC  29206 W: 803.787.401k F: 803.787.4081 C: 803.261.3402 Contact Information www.primetrustadvisors.com