Roth 401(k) Web Conference for Corporate Clients Hosts: Dan Fontaine Michael Taricani Sandy Koeppel Tuesday, June 27, 2006 3:00 to 4:30 Eastern (800) 230-1085 www.prudential.com/clientconference Prudential Retirement provides this information as a courtesy but not as a substitute for legal advice to any customer from its own legal counsel. Please discuss these matters with legal counsel to the extent you deem appropriate.

Agenda Overview History, Timeline of Roth 401(k) and Roth 403(b) Provisions Regulatory Open Issues The Marketplace Roth “Bloopers” Trends Plan Design Considerations Employer Preparedness Washington Update Q&A

Overview - History History of Roth 401(k)/403(b) Established with EGTRRA 2001 Effective January 1, 2006 Proposed regulations published by IRS on March 2, 2005 Contributions Accounting Public comments through May 31, 2005 “Final” regulations issued December 30, 2005

Overview - History History of Roth 401(k)/403(b) Continued New proposed regulations issued January 26, 2006 Distributions Taxation Reporting 403(b) Public comments through April 26, 2006. Sample amendment issued by IRS on April 24, 2006

Overview - Provisions Characteristics of Roth Contributions Are elective deferral contributions, but are contributed on a post-tax basis Requires a 401(k) or 403(b) plan; cannot have a “Roth-only” plan Requires separate accounting Employees can choose to contribute elective deferrals as: Pre-tax only Roth only Any combination of pre-tax and Roth Are not subject to income limits Catch-up Roth contributions are allowed

Overview - Provisions Characteristics of Roth Contribution Rules and Limits In combination with pre-tax elective deferrals, are subject to the §402(g) annual deferral limit Subject to MRD rules (unlike Roth IRAs) Subject to non-discrimination rules and limits: Must be included in the ADP Test Subject to the §415 Annual Additions Limit Subject to the Top Heavy Rules

Overview - Provisions Characteristics of Roth Distributions May only be distributed: At severance from employment Upon death Upon disability Upon plan termination At age 59½ Upon hardship

Overview - Provisions More Characteristics of Roth Distributions Fully tax-free when “qualified”: Age 59½, death, disability; and Roth account has been open for at least five years. Some distributions can never be “qualified”— even if the age and five-year-holding requirements are met: Corrective Distributions Excess Deferrals Excess Contributions (failed ADP Test) Excess Annual Additions Deemed Distributions of Defaulted Loans

Regulatory Open Issues Rollover Complexity Different rules for: Direct vs indirect rollover Rollover to qualified plan vs rollover to Roth IRA Qualified vs non-qualified Roth distributions Full vs partial rollovers Automatic Rollover Rules Cannot “carve out” Roth amounts between $200 and $999; may not find Roth IRA provider willing to take small balances

Regulatory Open Issues Form 1099-R Separate Roth Form 1099-R is “expected to be required” IRS has not yet issued Roth distribution tax codes 402(f) “Rollover Distribution” Notice No sample language from IRS despite rollover complexity Application of Five-Year Holding Period Direct rollover to qualified plan: Start date carries over Indirect rollover to qualified plan: No carry over Direct rollover to Roth IRA: No carry over Indirect rollover to Roth IRA: No carry over

Regulatory Open Issues Rollover Contribution Reporting Requirement New requirement for Sponsors Pertains to indirect Roth rollover contributions only Seems unnecessary Lack of Clarity for Hardship Withdrawals Only contributions (not earnings) are eligible for withdrawal. If non-qualified, a portion of the contributions withdrawn is treated like taxable earnings. Full withdrawal amount reduces future hardship available.

Regulatory Open Issues Loans, In-Service Withdrawals, and Hardships Not clear if pre-tax and Roth must have identical treatment or if flexibility is allowed Plans can provide participant choice between pre-tax and Roth elective deferrals for distributions Also pertains to corrective distributions Minimum Required Distributions Required from Roth 401(k) . . . but why?! Not required from Roth IRA

Marketplace Roth “Bloopers” Prudential Retirement has helped clients avoid . . . Plan design problems Roth IRAs cannot be rolled to a qualified plan. Don’t use imprecise plan language: Basis for match should be “elective deferrals” (not “pre-tax contributions”). Can’t allow direct rollovers between Roth 401(k) and Roth 403(b) plans. “Participant choice” is not always a good thing

Marketplace Roth “Bloopers” Prudential Retirement has helped clients overcome . . . Industry “guidance” that lacked expertise Roth and pre-tax contributions cannot be combined in a single contribution source. The Roth feature is not more advantageous if taxes in retirement will be lower than during working years. Hardship withdrawals from Roth accounts are not completely non-taxable. Roth rollovers to Roth IRA do not carry over the five-year start date.

Marketplace Trends for Roth Adoption Profit Sharing/401(k) Council of America (PSCA) Plan Sponsor Survey – October 2005 17.4% plan to add the Roth feature (no specific time frame) 40.9% are still considering 35.1% will not add 6.6% have not thought about it Prudential Retirement Mini-Survey of Current Clients May 2006 2.6% will add the Roth feature in 2006 27.2% will add the Roth feature in 2007 or later 70.2% will not add the Roth feature

Employer Preparedness ERISA Compliance Act solely in the interest of (all) the participants and their beneficiaries Board resolution, if applicable Broad-based participant education Payroll updates: Include Roth Contributions for Tax withholding and W2 reporting Match calculations 402(g) limit tracking and ADP testing Contribution data file programming

Employer Preparedness Administrative Processes Enrollment and salary reduction change forms Written administrative procedures and plan amendment Roth IRA provider for forced rollovers

Plan Set-Up Guidelines Important plan design considerations in the absence of better Roth guidance from the IRS: To match or not to match Deferral elections Automatic enrollment and deferral rate escalation programs Rollover contributions Catch-up contributions In-service and hardship withdrawal hierarchies Plan loans Corrective distribution hierarchies Automatic rollover distributions

Proposed Roth 401(k) Regulations Washington Update Questions & Answers Prudential Retirement and Prudential Financial are service marks of The Prudential Insurance Company of America, Newark, NJ and its affiliates. Prudential Retirement is a Prudential Financial business.