Help Clients Choose the Right Retirement Plan

1. Help Clients Choose the Right Retirement Plan

2. The material presented in today’s course can: Increase your product and service knowledge Help you discover new markets Provide you with new tools and ideas Today’s Presentation

3. This presentation may include a generic discussion of certain classes of investments, discussion of tax issues and hypothetical scenarios. The information contained herein is not intended as a solicitation nor intended to provide specific advice or recommendations to any individual. Federal tax laws are complex and subject to change. Any tax statements made herein reflect the understanding of SunAmerica Asset Management (“SunAmerica”), and may not necessarily be current or complete. Neither SunAmerica nor its representatives may give legal, tax or investment advice. Certain classes of investments discussed may be distributed by SunAmerica Capital Services, Inc. Notice

4. Understanding basics of retirement plans History of employer-sponsored plans Advantages of sponsoring a retirement plan 2. Types of Employer-Sponsored plans IRA-based plans Qualified retirement plans 3. Help clients choose the right retirement plan Comparison of retirement plan features Agenda

5. Help Clients Choose the Right Retirement Plan Retirement Plan Basics

6. First private pension plan in U.S. 1875 American Express Company Revenue Acts 1920s: Tax advantages introduced for profit sharing and pension plans 1930s: Plan contributions for irrevocable benefit of participants 1940s: Plan coverage cannot discriminate History

7. On-going legislative changes ERISA legislation 1974: focus on employee protection Revenue Act 1978: creation of SEP IRA and 401(k) SBJPA 1996: creation of SIMPLE IRA and Safe Harbor 401(k) EGTRRA 2001: creation of Roth 401(k) salary deferrals History

8. Employee recruiting and retention Benevolence Potential tax advantages: Employer deduction: admin costs & contributions Employee tax-deferral: salary-deferral Small business tax credits for new plans Potential Advantages of Sponsoring a Retirement Plan

9. Help Clients Choose the Right Retirement Plan Types of Retirement Plans

10. Key Classifications: IRA-based plans Qualified retirement plans Defined contribution Defined benefit Nonqualified plans Types of Retirement Plans

11. Help Clients Choose the Right Retirement Plan IRA-Based Plans

12. IRAs: Account owned by individual/employee Full access to funds (subject to potential penalties) Investment control Minimal administration/reporting requirements Governed by IRA rules IRA Plans

13. SEP IRA SIMPLE IRA IRA Plans

14. Employer Contributions only Discretionary Up to 25% of compensation or net profit to a maximum of $51,000 for 2013 Employer Contribution Formulas Pro-rata Flat dollar Social Security Integration SEP IRA

15. Participant Eligibility (most restrictive) Age 21 and compensation in 3 out of last 5 years Establishment & Funding Adopt plan by employer’s tax filing due date plus extension Any type of business entity can establish IRS Form 5305-SEP or prototype Funding by employer’s tax filing due date plus extension SEP IRA

16. Potential Advantages Easy to establish and maintain Can be established and funded up to tax filing due date plus extension Contributions are completely discretionary Potential Disadvantages Solely employer funded IRA based plan – no vesting; assets belong completely to employee immediately SEP IRA

17. Employee Contributions Salary deferrals up to $12,000 for 2013 $2,500 catch-up if age 50+ for 2013 Employer Contributions Mandatory 3% match or 2% non-elective contribution 3% match not subject to $255,000 compensation limit Must notify employees of funding intention in advance SIMPLE IRA

18. Participant Eligibility (most restrictive) Expected to earn $5,000 current year and has earned $5,000 in any 2 preceding years. Establishment Businesses with 100 or less employees earning $5,000 or more during preceding year Establish by October 1st of year for which plan will be funded IRA model document or prototype document Cannot contribute to another plan in same year SIMPLE IRA

19. Potential Advantages Salary-deferral option No QRP coverage testing Employer contributions are minimal Potential Disadvantages Greater contributions available with other plans Mandatory employer funding, little flexibility Cannot pair with another retirement plan Must establish by October 1st and meet annual notification deadlines IRA based plan; no vesting SIMPLE IRA

20. Help Clients Choose the Right Retirement Plan Qualified Retirement Plans

21. Qualified Plans: Asset owned by the plan Participant access subject to plan provisions May have participant-directed investing Vesting schedule and loans Governed by ERISA rules Qualified Retirement Plans

22. Defined Contribution: the employer’s contribution obligation is defined, the employee’s future benefit is not guaranteed Defined Benefit: the employee’s future benefit is defined and the employer is obligated to fund to meet that amount Defined Contribution vs. Defined Benefit

23. Defined Contribution vs. Defined Benefit

24. Employer Contributions Discretionary, up to 25% of compensation or net profit to a maximum of $51,000 for 2013 Employee contributions Potential after-tax employee contributions Employer Contribution Formulas Pro Rata Social Security Integration Age Weighted New Comparability Profit Sharing

25. Participant Eligibility (most restrictive) Age 21, and One year of service or two years of service with immediate vesting Establishment No IRS model plan documents Establish by last day of plan year for which plan will be funded (typically December 31st) Employer funding deadline – tax filing due date plus extension Profit Sharing

26. Potential Advantages Contributions are discretionary Flexible contribution allocation formulas Vesting schedule and loans Potential Disadvantages Solely employer funded More administration than SEP IRA for similar contribution Profit Sharing

27. Employer Contributions Discretionary profit sharing or match, per plan document Employee Contributions Salary deferrals up to $17,500 for 2013 $5,500 catch-up if age 50+ for 2013 Total Combined ER + EE Contributions Lesser of 25% of compensation or $51,000 for 2013 401(k) Profit Sharing

28. Participant Eligibility (most restrictive) Age 21, and One year of service or two years of service with immediate vesting Establishment No IRS model plan documents Establish by last day of plan year Funding deadlines Employer – tax filing due date + extension Employee salary deferrals – current year salary 401(k) Profit Sharing

29. Potential Advantages Employees take stake in saving for retirement through salary deferrals Employer contribution optional Vesting schedule on ER contributions Potential Disadvantages Must pass coverage tests unless Individual 401(k) More administration required than with SIMPLE IRA; TPA required 401(k) Profit Sharing

30. Employer Contributions (traditional pre-tax only) Discretionary profit sharing or match, per plan document Employee Contributions (combined traditional and Roth) Salary deferrals up to $17,500 for 2013 $5,500 catch-up if age 50+ for 2013 Roth portion eligible to rollover to another Roth 401(k) or Roth IRA upon triggering event Roth 401(k)

31. Potential Advantages Potential tax-free distribution of earnings Competitive advantage in recruiting Adjusted gross income limits do not affect Roth 401(k) eligibility Potential Disadvantages No tax-deduction on Roth deferrals Administration is more complex than traditional 401(k) Roth 401(k)

32. Employer Contributions Mandatory 4% match (effectively), or Mandatory 3% non-elective contribution Employee Contributions {same as traditional 401(k)} Salary deferrals up to $17,500 for 2013 $5,500 catch-up if age 50+ for 2013 Safe Harbor 401(k)

33. Potential Advantages Satisfies non-discrimination testing Lower administration costs Allows owners to maximize contributions Potential Disadvantages Mandatory employer contributions, which must be 100% vested Safe Harbor 401(k)

34. Defined Contribution vs. Defined Benefit

35. Employer Contributions Mandatory actuarially determined amount Participant’s annual benefit cannot exceed the lesser of $205,000 (for 2013) or 100% of annual compensation. Employer Benefit Formulas Flat amount or flat percentage Unit benefit (most common) Floor offset allocation when paired with DC plan Defined Benefit

36. Participant Eligibility Minimum coverage and minimum participation requirements Establishment Establish by last day of plan year (December 31st if based on calendar year) Defined Benefit

37. Potential Advantages Larger contributions for older employees Guaranteed stream of income in retirement Competitive edge in recruiting and retention Potential Disadvantages Mandatory employer-only funding Employer assumes investment risk Complex administration and greater cost Defined Benefit

38. “Hybrid” Plan: Characteristics of DC and DB Employer Contributions DC characteristics: A percentage of compensation is credited to hypothetical employee account DB Characteristics: Contribution is not limited to 415(c) limit of $51,000 Employer guarantees a rate of return and bears investment risk Cash Balance DB

39. Potential Advantages Less costly to maintain than traditional DB plans Can be paired with 401(k) Potential Disadvantages Participants must be vested 100% after 3 years Less favorable to older employees Employer assumes investment risk Administration costs still greater than most DC plans Cash Balance DB

40. Help Clients Choose the Right Retirement Plan Important Considerations

41. What is the purpose for establishing the plan? Gather census data: How many employees? Ages? Longevity with firm? Ask key questions to determine priorities: Is contribution flexibility important? Who will fund the plan? Is a vesting schedule desired? Does the employer want to offer loans? Is administrative complexity a factor? Determining Retirement Plan “Must Haves”

42. Contribution Flexibility Discretionary • SEP IRA • Profit Sharing • 401(k) Profit Sharing Mandatory • SIMPLE IRA • Safe Harbor 401(k) • 401(k) with match per plan document • Defined Benefit • Cash Balance DB

43. Who Will Fund the Plan? Employer Only • SEP IRA • Profit Sharing • Defined Benefit • Cash Balance Employee Only • 401(k) with no Profit Sharing or match Both ER + EE • 401(k) with Profit Sharing or match • Safe Harbor 401(k) • Roth 401(k) • SIMPLE IRA

44. Vesting & Loans Available Qualified Plans • Profit Sharing • 401(k) • Defined Benefit Not Available IRA-based Plans • SEP IRA* • SIMPLE IRA* * Note: 60-day rollover allowed and Pre-59½ 10% penalty exceptions may apply to distributions

45. Administration Most Complex • Defined Benefit • Cash Balance Middle of the Road • Roth 401(k) • 401(k) • Profit Sharing Least Complex • SEP IRA • SIMPLE IRA • Safe Harbor 401(k)

46. Comparison of Plan Features

47. Ultimate determining factor – “What is the employer’s purpose for establishing the plan?” Seek professional plan administration, tax and legal advice. Choosing the Right Retirement Plan

48. History Potential advantages of sponsoring a retirement plan Types of employer-sponsored plans IRA plans Defined contribution QRPs Defined benefit QRPs Choosing the right plan Summary

49. Thank you for your participation in today’s discussion about Choosing the Right Retirement Plan Choosing the Right Retirement Plan For CPE and financial professional use only.

50. Important Information Investments involve risk, including the possible loss of principal. Please ask me about the risks and fees associated with your current investments and any investments that may be recommended in the future. Funds distributed by SunAmerica Capital Services, Inc., Harborside Financial Center, 3200 Plaza 5, Jersey City, NJ 07311-4992, 800-858-8850.