Roth 401(k)/Roth 403(b): Overview and Anticipated Impacts September 2005 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 Welcome & Overview Proposed Roth 401(k) Regulations Dan Fontaine/Mike Taricani/Sandy Koeppel Overview of proposed regulations Plans sponsor and participant impacts Concerns and comments to the IRS Other considerations Washington update Questions & Answers

Proposed Roth Regulations Overview of Proposed Regulations Participants may designate some or all elective deferral contributions as “Roth” contributions Roth contributions made on a post-tax basis, but feel like pre-tax for all other purposes: Matched Included in ADP testing—for 401(k) plans Subject to MRD rules Aggregated with elective deferrals for purposes of annual contribution limits.

Proposed Roth Regulations Overview of Proposed Regulations (continued) Earnings are tax free if distribution is “qualified”: Age 59.5, death, or disability, AND At least 5 years after first Roth contribution

Proposed Roth Regulations Impacts on Sponsors and Providers Amend plans Enhance payroll systems Modify participant education materials Benefits of Roth vs pre-tax Don't emphasize one or other Update enrollment forms, IVR, and Internet Consider auto-rollover rules

Proposed Roth Regulations Participant Impacts Participant benefits can be substantial—but only for distributions that are qualified To determine the benefit, the participant needs to analyze three key factors: Will tax rates be higher in retirement than during working years? Will the eventual distribution be qualified? At what age do I start contributing on a Roth basis? How to help participants choose the best option?

Proposed Roth Regulations Summary of Concerns and Comments to IRS Sunset Provision 2010 Amendments Model Amendments Distributions Taxation and ordering rules Direction needed from IRS Pro-rata? Basis first? Hardship withdrawals Amount available

Proposed Roth Regulations Summary of Concerns and Comments to IRS (continued) Loans Defaulted Loans - taxability Calculation vs. Draw down Involuntary cash-outs/auto rollovers Combined or separate thresholds Corrective distributions—for 401(k) plans Participant (HCE choice) vs. Plan/IRS mandates MRDs Mirror Roth IRAs

Proposed Roth Regulations Summary of Concerns and Comments to IRS (continued) Effect on auto-enrollment pre-tax vs Roth vs split Effect on auto-escalation pre-tax vs Roth vs split; fractional percentages Need clarity on five-year rule especially as accounts move between plans and IRAs Effective date

Proposed Roth Regulations Washington Update

Proposed Roth Regulations Questions & Answers