Retirement Plans Today – An update for the plan sponsor

1. Retirement Plans Today –An update for the plan sponsor Presented by: John Smith, Vice President First National Bank 315-555-6000

2. “The President has proposed the creation of Employer Retirement Savings Accounts (ERSAs) to simplify employer-sponsored retirement plans. ERSAs would consolidate 401(k)s, SIMPLE 401(k)s, 403(b)s and 457 defined-contribution accounts. They would be merged into a single plan that can be easily established by any employer. The simplified ERSA addresses the number one concern we hear from small business about 401(k)s and other retirement savings plans—that they are too complicated! And through simplification, ERSAs would lower administrative costs of the plans.” - Elaine Chao, U.S. Secretary of Labor, at ASPPA Conference Washington , D.C.April 26, 2005 A quote

3. Pension Protection Act of 2006 • 401(k), 403(b), 457 plans remain very different • New complexities in the regulations • New safe harbors • New notice requirements • New communication, disclosure rules • New provisions pertaining to advice • New rules for automatic enrollment and default investment vehicles • New rules for beneficiaries, IRA rollovers • Bottom line? While there are some positive developments in the new regs, retirement plans have only become more complicated. And we don’t see that changing anytime soon. …What actually happened

4. A view of the retirement landscape • Highlights from the PPA • Trends and issues we see with plan sponsors • Ways we can help Today’s Agenda

5. A view of the retirement landscape

6. Over 62 million Americans now enrolled in 401(k) Plans • Average combined401(k) balance = $61,000 (per Fidelity Investments) • Average annual income: $27,640 per capita, $44,389 household • That’s 2.2 times annual income for individuals, 1.4 times per household • Considering that most people will need 12 – 15 times annual income to retire one day, that’s a scary thought Key statistics at a glance

7. Average company contribution = 4.5% of payroll (combining all types of employer contribution) • Avg. Deferral = 5.4% NHCEs and 6.7% HCEs • Avg. Participation Rate = 83% (plans with a match), 70.4% (plans without a match) • Avg. Match = 50% on the first 6%. (This is the most common; 33% pay more). • Avg. # of funds = 18 in 2005, 13 in 2000; only 16% offered 10 or more in 1995 • Advice offered = 55.6% (most common in smaller plans) Key statistics at a glance Source: 48th Annual Survey of Profit Sharing/401(k) Council (www.PSCA.org)

8. Automatic enrollment = offered by 10.5% of all plans (2004 survey) • Likely to increase dramatically • 42.1% of plans are self-trusted; 36.3% use Bank trustees; 21.6% use non-bank trustees (small plans are more often self-trusted, while larger plans usually employ a corporate fiduciary: 80.1%) • 92.3% of plans offer Internet access Key statistics at a glance Source: 48th Annual Survey of Profit Sharing/401(k) Council (www.PSCA.org)

9. A dramatic increase in Automatic Enrollment Plan size/Participants 1-49 50-199 200-999 1,000-4,999 5,000+ All Plans % of Plans 2004 0.9% 3.4% 9.8% 18.2% 30.6% 10.5% % of Plans 2005 3.5% 8.1% 19.1% 23.9% 34.3% 16.9% Default Deferral Percentage with Auto Enrollment Default Deferral % of Pay 1% 2% 3% 4% 5% >5% Percent of Plans 3.2% 15.4% 60.3% 10.9% 3.2% 7.1% PSCA Survey: Reported in Defined Contribution Insights Sept / Oct. 2006 issue

10. The Default Fund option for auto-deferrals 9.7% Money Market Lifestyle or Target 37% Lifestyle Or TargetedMaturity Fund Balanced 30.3% Stable Value Fund Stable Value Money Market 17% Balanced Fund PSCA Survey:Reported in Defined Contribution Insights, Sept/Oct 2006 Issue

11. 56% passed test without adjustments or advance limitations on deferrals • 9.5% passed by prospectively limiting HCEs to a lower contribution percentage (announced at beginning of year) • 8.0% passed by limiting HCEs to a lower percentage of pay as stated in the plan’s design • 19.7% passed by paying refunds to impacted HCEs • 3.2% passed by re-characterizing HCE excess amounts to a non-qualified plan • 13.1% passed through bottom-up QNECs or other approaches ADP testing remains a battle Source: 48th Annual Survey of Profit Sharing/401(k) Council (www.PSCA.org)

12. Average 401(k) balance: $22,586 • On average, 2,100 calls to PSRs per month (approximately 2.6% of participants opt out in any given month, or 31% in any given year) • Distributions now average 6-7% of plan assets each year (including all types)! From our book of business…

13. Loans are available in 86% of 401(k) plans as a whole (79% for plans with < 200 employees) • For plans with a loan feature, approximately 24% of participants have a loan outstanding • Average loan amount is $6,368 • For plans with loans, loans account for 2% of plan assets • The big challenge: how to keep loans from taking on a life of their own, and how to keep plan assets invested for retirement Loans

14. Distributions 45.5% • Help with loans 18.9% • Account Balance Inquiries 5.1% • Hardship 4.9% • Address Changes 4.1% • Help with PIN 4.0% • Investment questions 3.3% • Statements 2.1% • Website questions 1.8% • Verify Fax 1.1% • Sponsor calling 0.7% • Census questions 0.6% • VRU help 0.2% • Other 7.8% 100.0% When participants ask for help (opt-out calls to our call center)

15. The DJIA (Dow Jones Industrial Average) Last five years in the market The DJIA (Dow Jones Industrial Average)

16. Annualized Returns for as of 9/30/2006for various Morningstar categories Last five years in the market:changing dynamics

17. Highlights from the Pension Protection Act

18. Background • Passed by House July 28, 2006 • Passed by Senate Aug. 3, 2006 • Signed into law August 17, 2006 • Affects all qualified retirement plans, IRAs, 403(b) plans, 457 plans • Effective dates vary by provision Pension Protection Act of 2006

19. EGTRRA permanence – 2010 sunset eliminated • Contribution and deferral limits • Catch-up contributions • Expanded portability • Automatic rollovers • State laws preempted ! • Qualified Roth contribution program • Saver’s credit • Faster vesting for matching contributions • Restrictions regarding reducing future benefits Defined Contribution Provisions

20. (Effective plan years after 12/31/2007) • Automatic deferrals • Automatic deferral increase • Initial deferrals: 3% minimum • Increased annually to 10% maximum • Matching or non-elective contributions • Notice to employees A new safe-harbor for automatic enrollment!

21. Need not apply to current employees with election in effect or those who affirmatively elected not to participate • Auto election must cease to apply if the employee makes an affirmative election or election out of the deferral. • Defaulting the default option concern: Not knowing who made an affirmative election to the old default fund can be covered by disclosure and providing time to make another affirmative election. New safe harbor, cont’d

22. Matching or nonelective contribution • Matching contribution • 100% of deferrals up to 1%, plus • 50% of deferrals between 1% and 6% or • Nonelective contribution • at least 3% of compensation The employer contribution side of the new Safe Harbor

23. Notice to employees • Right to opt out of automatic enrollment • How automatic enrollment contributions will be invested • Timing – reasonable opportunity to make an election • Other • Employees will have the right to opt out and request return of automatic deferrals within the first 90 days of being automatically enrolled. Defined Contribution Provisions (cont.)

24. Investment advice options enhanced • “Fiduciary adviser” defined • Solving the advice issue with two alternatives (computer models or level compensation) • Annual audit of advice program • Notice requirements • Default investment guidance required of DOL • within 6 months of enactment Defined Contribution Provisions (cont.)

25. Periodic benefit statements • (Generally effective plan years after 12/31/2006) • Quarterly for self-directed accounts • Annually for other accounts • Simplifies Form 5500 filing • (Effective plan years after 12/31/2006) • Form 5500-EZ threshold raised to $250,000 • Simplified Form 5500 for plans with 25 or fewer participants Defined Contribution Provisions (cont.)

26. Provides for retirement plan rollovers directly to Roth IRAs (Effective after 12/31/2007) • QRPs, government 457(b), 403(b) plans • Roth IRA conversion rules apply • Taxable portion taxed in year rolled over • Nonspouse beneficiaries may roll plan assets to IRAs (Effective for distributions after 12/31/2006) • QRPs, government 457(b), 403(a), 403(b) plans • IRA maintained as “inherited” IRA • Cannot roll to nonspouse’s own IRA Defined Contribution Provisions (cont.)

27. Greater portability of after-tax assets between employer-sponsored plans(Effective after 12/31/2007) • Plan must separately account for after-tax assets • Opens door for direct rollovers of Roth 401(k), 403(b) accounts • Hardship distribution definition includes nonspouse, nondependent beneficiary hardships (Effective on date of enactment) Defined Contribution Provisions (cont.)

28. Extends distribution notice period – 402(f) noticeto 180 days (Effective plan years after 12/31/2006) • Allows penalty-free distributions for guardsmen and reservists (Effective after 9/11/2001) • Called to active duty after Sept. 11, 2001 and beforeDec. 31, 2007 • Called for 180 or more days, or for indefinite period • Distributions from IRAs, or of deferrals made to 401(k) plans, 403(b) plans, and certain pre-ERISA trusts • 2-year repayments to IRAs Defined Contribution Provisions (cont.)

29. Accelerates vesting in DC plans, top-heavy vesting schedules apply to all DC plans • 6 year graded or 3 year cliff • IRS has authority to modify sanctions under EPCRS (correction program) • Prohibits forcing participants to purchase company stock with Employee contributions Defined Contribution Provisions (cont.)

30. Missing participant relief – PBGC • Employer security diversification enhanced • Penalty and bonding limits changed • Mandates qualified domestic relations order (QDRO) regulations (timing) • Plan amendments – 2009 Defined Contribution Provisions (cont.)

31. EGTRRA provisions made permanent • Increased IRA, SEP, and SIMPLE contribution limits • Catch-up contributions • Expanded rollovers • Saver’s credit • Small employer plan start-up credit IRA Provisions

32. Trends and issues we see with plan sponsors

33. The “juggling act” for today’s Plan Sponsor Participant education / advice Maximizing benefits to key EEs Keeping plan document up-to-date Corporate goals and objectives Shifting needs Of Baby Boomers Fund selection, review process Fiduciary responsibility Satisfying 404(c)

34. “Can you get me ‘out of the middle’ on loans, distributions and other activities?” • “I don’t want to be the one telling participants how to invest.” • “Who are the fiduciaries to our plan?” • “What is 404(c) again?” • Still a lack of understanding over fees • Best intentions versus actual execution: ongoing investment review, due diligence Concerns we hear in discussions with prospects

35. Regulations have become quite complicated • IRS, DOL audit programs are more aggressive, and automation / computerization has facilitated this trend • Cost of “doing it wrong” is higher than ever before • Many retirement programs have multiple firms involved, which can place ultimate accountability back with the plan sponsor • Until they invent an insurance policy that will jump out of a file cabinet and do these things, it is far from enough “Do we really need a Trustee? Can’t we just buy an insurance policy?”

36. Question of whether an investment-knowledgeable committee can be assembled internally • Sporadic / inconsistent fund review process • Committee essentially “picks the hot funds” • Much time was spent to create an IPS, but it was never followed up • A few vocal / influential participants create a menu that is cluttered with options, confusing everyone else • Individual employees unwittingly ended up serving as trustee – creating personal liability • Significant balances reside in money market fund due to inertia (as opposed to a deliberate choice) • Lack of understanding that ensuring reasonableness of fees is just as important as monitoring fund performance in ‘fiduciary duty’ • Thinking 404(c) is automatic, or initiated by the provider Real-life circumstances

37. Make the technologydo more • Plan sponsor site becomes a workstation; online delivery of all reports • Changing deferral rates (larger plans) • Take “speedbumps” out of loan, distribution process • Eliminate many paper forms • Place SPD, fact sheets online • Electronic enrollment • Enabling plan sponsor site for transactions • Do more for the plan sponsor • Eligibility determination • Approving hardships • One-on-one calls with participants to review plan and funds • Online guidance and education HR trends

38. How we can help

39. Plan Sponsors Oursolution BPA-Harbridge provides daily valuation administration to each plan. This includes plan document services, plan design work, ongoing compliance testing, and processing of contributions, distributions and other activity. Most day-to-day operational matters are handled by BPA, in coordination with HR and the Trustee. The result is an extremely efficient program with no duplication of effort. BPA-Harbridge First National Bank As Trustee, we ensure that the overall program meets the client’s needs. We assist with many fiduciary and plan-related responsibilities, including fund selection / review and ERISA 404(c). We meet with participants on a regular basis to help them understand the plan and make sound investment decisions. We are the “eyes and ears” of our program on the ground, giving clients the onsite attention they need while BPA handles the operational, administrative and back-office functions. A wide array of mutual funds are offered in our program -- including equity, international, fixed income and stable value options from over 100 different fund families. BPA deals directly with fund families to buy and sell mutual funds per the instructions of participants on the voice response and internet systems. Mutual Funds

40. We track all employeeson our system (not just those with a balance), and receive full census with each transmission • We perform a variety of edit checks thennotify employer of amount to be funded • We determine eligibilityby source, for all money types within plan • Online enrollment, deferral rate changes • Vesting updates with each contribution cycle • Streamlined process for loans, distributions • Greatly reduced workload on HR for year-end compliance testing, Form 5500 process • Ability to run ADP, ACP tests on demand • Interacting with HR through “Action Items” in plan sponsor website Simplifying life for Human Resources(administration versus recordkeeping)

41. Bilingual voice response unit, participant website, and sponsor website (English and Spanish) • Personalized rate of return (statements and web) • Automatic rebalancing • Automated loan and distribution processes • Online fact sheets and prospectuses • Quarterly statement archive (e-delivery) • All participant forms, SPD, confirms, and newsletter posted online • Self-directed brokerage account option • Robust plan sponsor workstation The latest features and technology

42. Over 135 fund families currently traded across our platform (1,200+ funds in total) • No proprietary funds • Able to select the strongest possible mix of investments for the plan • Full range of A, Advisor and R shares, plus institutional shares • A critical distinction versus “asset gatherer” retirement programs True open architecture on investments

43. Supporting every type of qualified retirement plan (DC and DB), as well as non-qualified plans • Unbiased advice, since we handle all plan types • A “total retirement solution” under one roof • Plan consulting offered as part of each engagement (initial andongoing) • Peace of mind, simplified approach to compliance and communication • Clients expect us – as retirement professionals – to advise them on compliance and technical matters. We take that role seriously. A high level of plan design and ERISA expertise

44. As Trustee, we conduct regular, onsite education meetings (semi-annually, quarterly, etc) • Quarterly statements and newsletters • Education and guidance via participant website • Enrollment booklets, workbooks, slide rules and other printed pieces (some from mutual fund families) • Customizable education pieces for various needs • Collaborating with HR to deliver the message, using a variety of media Answering the call on participant education

45. Bringing a much-needed fiduciary process to client retirement plans • Constructing high-quality, diversified fund menus • Creating and living out an Investment Policy Statement • Assistance with ERISA 404(c) • Helping participants understand their plan, become energized to invest and select an appropriate mix of investments • Plan design assistance and consultation • Serving as relationship manager and the local point of contact • Brings the “best of all worlds” to a plan sponsor Other roles we play as Trustee

46. For more information, please call John Smith at First National Bank, 315-555-6000. Email is johnsmith@fnb.com • We welcome the opportunity to provide a proposal for your plan • Open for Q&A / discussion Thank you for your participation today!

47. Thank you for your participation!