Nonqualified Deferred Compensation Plan The Nonqualified Incentive Bonus Plan

Presented to: [ Name Of Company ] [ Title Of Employees ] Presented by: [ Name Of Agent(s) ] [ Title Of Agent(s) ] [ Name Of Company / Firm ]

Get a Nonqualified Solutions Edge The Principal is a leading provider of nonqualified deferred compensation (NQDC) plans.* Our comprehensive plan services provide everything you need — plan design, financing options, implementation and plan administrative services. * Based on total number of NQDC clients, PLANSPONSOR Deferred Compensation Buyer’s Guide, December 2013.

The Challenge for employers 4

Retaining key employees Retaining and motivating employees is essential to the ongoing success of most organizations. Changing economic conditions and demographic shifts of baby boomers toward retirement expose organizations to a higher risk of losing these employees. Retention issues and high cost of losing key employees: More than of half of employers report difficulty retaining high- potential employees (56%) and top performers (54%)* Total cost of replacing an employee estimated to be between 90% to 200% of his/her annual salary** * Towers Watson “Global Talent Management and Rewards Study”, August 2014 ** SHRM Foundation “Retaining Talent”, February 2014

A Solution 6

Nonqualified Incentive Bonus Plan A tax-deferred bonus program* that gives employers a retention and reward tool for key employees with limited options. Qualified plans have contribution limits and NQDC plan participants must meet “top-hat” eligibility requirements. The Nonqualified Incentive Bonus Plan solves this with: -the opportunity to provide additional compensation to the top-hat or non-top-hat employees they choose -while offering the ability to set vesting schedules that help meet business goals. * Contributions to the plan are subject to FICA when benefits vest. Distributions are taxable to participants upon receipt.

Nonqualified Incentive Bonus Plan Not subject to ERISA A “bonus program” as defined by the Department of Labor – not a “retirement plan” – No participant deferrals, employer contributions only –Total time from date of contribution to date of payment cannot be more than 10 years A plan not subject to qualified plan coverage and testing rules A plan not subject to the “top-hat” rules of ERISA A plan not subject to the fiduciary and reporting requirements of ERISA

Top Hat and non-Top Hat employees may participate in the plan. Tax-deferred accumulation of earnings Ability to further defer the receipt and taxation of plan benefits, as allowed by plan design Ability to design an individualized investment strategy (unlike many incentive programs) Complete account, vesting and transaction information Benefits for the plan participant 9

No participant contributions into the plan are permitted. Plan is not subject to Employee Retirement Income Security Act (ERISA) protection, and assets financing the plan are owned by the company and subject to company creditors. As allowed by plan design, elections to defer receipt of benefits and delay taxation must be made within 30 days after the employer contribution is made. Company’s non-compliance with deferred compensation rules under Section 409A of the Internal Revenue Code may result in individual tax and penalties. Considerations for the plan participant 10

Retain and reward selected key employees (both Top Hat and non-Top Hat) by making discretionary incentive contributions that are tax deferred.* Set vesting schedules that meet corporate objectives. Assets accumulated to finance the plan remain an asset on the company’s balance sheet, while providing liquidity for benefit payments. Plan is simple, no testing, no required audit, and no 5500 reporting. Benefits for the company 11 * Contributions to the plan are subject to FICA when benefits vest. Distributions are taxable to participants upon receipt.

Distributions to plan participants must be paid within 10 years from the original date of each company contribution. To qualify as a bonus plan not subject to ERISA, the plan cannot be designed to “systematically” provide benefits to participants after separation from service. This determination must be made by the company. Deferred income tax deduction vs. a current income tax deduction on plan contributions. The company accrues a deferred tax asset to reflect the temporary difference. * Plan administrative service fees apply. Considerations for the company 12 * For taxable corporations

Plan financing options An Incentive Bonus plan is an unfunded & unsecured contractual obligation (liability) to pay a future benefit. The company finances this liability in one of three ways: UNFINANCEDTAXABLE INVESTMENTSVARIABLE COLI The best approach depends on the company’s: Income tax bracket - Long-term cost of money Earnings assumption - Realized vs. unrealized distributions Cash flow requirements

AdvantagesDisadvantages Simple Company benefits from ROA greater than growth in participant accounts Provides cash to grow the company Liquidity (increased risk to participant) Company liable for benefit regardless of earnings “Legacy vs. liability”. Leaving future benefit management the responsibility for cash flow to pay benefit liability 14 Unfinanced approach Plan financing options

AdvantagesDisadvantages Many investment options Direct link of earnings on assets to plan liabilities Highest cash flow to support tax on earnings Transaction accounting & recordkeeping may be difficult 15 Financing with taxable investments Plan financing options

AdvantagesDisadvantages Earnings accumulate “tax deferred” Tax-free distributions (subject to contract limitations/charges) Tax-free life insurance death proceeds (subject to rules regarding selection of insureds and consent requirements) Policy charges Process of underwriting Educating participants about insurance 16 Financing with variable corporate-owned life insurance (COLI) Plan financing options

Nonqualified plan administrative services system 17

Concentric system design Plan management system

Selective employer contributions to reward valuable employees Ability to set vesting schedules that meet corporate objectives. Typically NQDC plans are only for “top-hat” employees Ability to design an individualized investment strategy Ability of participants to further defer the receipt and taxation of plan benefits Problems to solve Summary

Questions and Comments

Disclaimer While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal or its representatives are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Before investing, carefully consider the investment option objectives, risks, charges and expenses. Contact a financial professional or visit principal.com for a prospectus or, if available, a summary prospectus containing this and other information. Please read it carefully before investing. Insurance issued and plan administrative services provided by Principal Life Insurance Co. Securities offered through Princor Financial Services Corp., 800/ , member SIPC. Principal Life and Princor ® are members of The Principal Financial Group ®, Des Moines, IA No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage and retrieval system, without prior written permission from the Principal Financial Group ®. Copyright ©2014 Principal Financial Services, Inc. BB | 11/2014 | t q5