/0503 Business & Legal Reports, Inc. BLRs Human Resources Training Presentations Explaining 401(k) to Employees 2005 UPDATES

/0503 Business & Legal Reports, Inc. Goals Be aware of the many benefits of participating in a 401(k) plan Understand the investment options Know how the plan works, including the rules for investing, transferring, and withdrawing funds Be able to explain the 401(k) to your employees

/0503 Business & Legal Reports, Inc. What Is a 401(k) Plan? Savings and investment plan Pre-tax income Tax-deferred earnings Designed primarily as a retirement plan

/0503 Business & Legal Reports, Inc. What Are the Advantages Of a 401(k)? Tax-deferred earnings Reduction in current gross income Automatic payroll deductions Control of account

/0503 Business & Legal Reports, Inc. What Are the Advantages Of a 401(k)? (cont.) Portability No minimum investments Option to borrow from the account Matching funds

/0503 Business & Legal Reports, Inc. Who Is Eligible to Participate? Employee Over age 21 Meets time-in-employment requirement

/0503 Business & Legal Reports, Inc. How Much Can You Save? Maximum contributions Vesting rules

/0503 Business & Legal Reports, Inc. When Should You Start Saving in a 401(k) Plan? The earlier the better Example 1: 20 years in the plan Example 2: 40 years in the plan

/0503 Business & Legal Reports, Inc. Can You Catch Up If You Started Late? Catch-up contributions Separate written election Employer obligations

/0503 Business & Legal Reports, Inc. Where Do Your 401(k) Contributions Go? Trust fund for company employees Different types of investments Individual contributions buy shares Value of shares Investments not protected

/0503 Business & Legal Reports, Inc. What Are Your Investment Options? Stable value funds Company stock Mutual funds Money market funds Bond funds

/0503 Business & Legal Reports, Inc. What Are Your Investment Options? (cont.) Balanced funds Stock index funds Growth and income funds Growth funds Aggressive growth funds International and global equity funds

/0503 Business & Legal Reports, Inc. What Type of Investor Are You? Conservative Moderate Aggressive

/0503 Business & Legal Reports, Inc. How Can You Choose the Best Investment? Have I learned all I can about each investment? How has this investment performed in the past? How long do I have before I need the money? How can I diversify investments to reduce risk?

/0503 Business & Legal Reports, Inc. How Do You Know What the Ideal Mix of Investments Should Be? 25 to to to to 64 Age Growth Stock Conservative Stock BondsGIC 25% 20% 15% 60% 45% 5% 10% 15% 30% 10% 25 to to to to 64

/0503 Business & Legal Reports, Inc. What Are the Advantages Of a 401(k) Versus an IRA? Maximum contribution Deposits Diversification Employer contributions Timing of tax savings Tax treatment at distribution

/0503 Business & Legal Reports, Inc. What If You Leave the Company Or Die Before Retirement Age? If you leave the company If you die before retirement age

/0503 Business & Legal Reports, Inc. Can You Borrow From a 401(k) Plan? Loan qualifications Minimums and maximums Repayment of the loan Separation from the company

/0503 Business & Legal Reports, Inc. When Are Funds Normally Distributed? Age 59-1/2 Employee becomes totally and permanently disabled Employee dies Plan is terminated Employee leaves the company

/0503 Business & Legal Reports, Inc. What If You Withdraw Money Early? Taxes Penalties

/0503 Business & Legal Reports, Inc. What About Hardship Withdrawals? Medical expenses Purchase of a home College tuition payments Threat of eviction or foreclosure Funeral expenses for a family member

/0503 Business & Legal Reports, Inc. Are There Any Disadvantages To a 401(k) Plan? Funds arent insured Benefits are based only on the vested value of the account Company can amend, merge, or discontinue the plan at any time Employees tend to invest too conservatively People tend to spend their 401(k) money when they change jobs

/0503 Business & Legal Reports, Inc. What Else Should Employees Know About the 401(k) Plan? Maximum allowable annual contribution Percentage matched by the company Vesting rules Rules for transfer of funds

/0503 Business & Legal Reports, Inc. What Else Should Employees Know About the 401(k) Plan? (cont.) When earnings are credited to their account How often statements are provided How to access their account History of investment options

/0503 Business & Legal Reports, Inc. Goals Be aware of the many benefits of participating in a 401(k) plan Understand the investment options Know how the plan works, including the rules for investing, transferring, and withdrawing funds Be able to explain the 401(k) to your employees

/0503 Business & Legal Reports, Inc. Summary The 401(k) plan can be an excellent way for employees to save for retirement 401(k) plans have many advantages over other types of savings and investment plans Employees should realize that they are totally responsible for the growth of their 401(k) account

/0503 Business & Legal Reports, Inc. Summary (cont.) They need to learn as much as possible about the plan and the investments they make To reduce risks, wise investors diversify their 401(k) portfolios

/0503 Business & Legal Reports, Inc. Quiz 1.Briefly define a 401(k) plan. 2.Identify four advantages of a 401(k). 3.There is no limit to the amount of money employees can contribute to the 401(k) each year.True or False 4.Company matching contributions must be ___________ before they fully belong to the employee. 5. Employees over age 40 are allowed to make additional catch-up contributions each year to the 401(k). True or False

/0503 Business & Legal Reports, Inc. Quiz (cont.) 6.Contributions to the 401(k) go into a ___________, and each employee who participates buys __________ in the fund with his or her contributions. 7.Identify three possible 401(k) investment options. 8.The ideal mix of investments changes over the years. True or False 9.If employees contribute to the 401(k), they are prohibited by law from also contributing to a personal IRA. True or False 10.What happens if an employee withdraws 401(k) funds before age 59 1/2 without hardship as a reason?

/0503 Business & Legal Reports, Inc. Quiz Answers 1.A 401(k) is a savings and investment plan, designed primarily as a retirement plan, that allows employees to make investments with pre-tax income and that defers taxes on earnings until the money is withdrawn. 2.There are numerous advantages to a 401(k), including tax-deferred earnings, reduction in current gross income, automatic payroll deductions, the ability to make ones own investment decisions, portability, no minimum investments, the option to borrow from the account for certain specified reasons, and matching contributions from the company.

/0503 Business & Legal Reports, Inc. Quiz Answers (cont.) 3.False. There is a limit to the amount of money employees can contribute annually to the plan. 4.Company matching contributions must be vested before they fully belong to the employee. 5. False. Employees age 50 and over are allowed to make catch-up contributions. 6.Contributions to the 401(k) go into a trust fund, and each employee who participates buys shares in the fund with his or her contributions.

/0503 Business & Legal Reports, Inc. Quiz Answers (cont.) 7.Possible investment options include stable value funds, company stock, and mutual funds, which may combine investments in money market funds, bond funds, and various kinds of stock funds. 8.True. As employees get older and closer to retirement, experts recommend making more conservative investments. 9.False. Employees may contribute to both the 401(k) and an IRA. However, the amount of their IRA tax deduction may be reduced or limited as a result.

/0503 Business & Legal Reports, Inc. Quiz Answers (cont.) 10.The company is required by law to withhold 20 percent of the withdrawn amount for taxes. In addition, the employee must pay a 10 percent penalty to IRS.