Selecting the Appropriate Retirement Plan 2009

2 Qualified Retirement Plans Why Have a Plan? » Help attract and retain employees » Helps the owner and employees save for retirement on a tax-deferred basis » Reduce taxation assessed to the business by IRS » Retirement savings protected from the claims of creditors (exception applied to certain employees)

3 Two Primary Types:  Defined Contribution: This type of plan defines the contribution an employee will receive for each year of service. The investment risks and returns are determined by the employee.  Defined Benefit: This type of plan defines the benefit an employee will receive at retirement. The investment risks and returns are determined by the employer Qualified Retirement Plans

4 Plan Types » SEP IRA » SIMPLE IRA » 401(k) Plans » One-Person Defined Benefit Plans

5 SEP and SIMPLE IRAs

6 Simplified Employee Pension (SEP) IRA » Uncomplicated retirement program for small companies » Discretionary contributions, lesser of 25% of eligible employee’s compensation, or $49,000 (20% for non-incorporated businesses). Contributions are subject to a $245,000 salary cap » Contributions go directly into employee’s IRA account Withdrawals prior to age 59½ may be subject to an additional 10% tax penalty.

7 SIMPLE IRA » Available to employers with fewer than 100 employees, but with no other plans » Allows employee pre-tax contributions of salary and an additional catch-up contribution for individuals age 50 or above 100% of earned income up to $11,500 $14,000 with catch-up contribution (individuals age 50 or above) » Requires minimum employer contribution Must contribute either a dollar-for-dollar match up to 3% of employee’s compensation (for those employees deferring income; compensation not subject to the $245,000 salary cap) or 2% of employee compensation (all employees, including those not deferring income; subject to the $245,000 salary cap) Withdrawals prior to age 59½ may be subject to an additional 10% tax penalty.

8 401(k) Plans

9 The 401(k) Plan » Self-funded by employee through pre-tax salary contributions » Annual employee contributions lesser of 100% compensation, or $16,500 in 2009 (adjusted periodically for inflation) » An additional $5,500 catch-up contribution is available for individuals age 50 or above » Employer may match contributions » Can be paired with any other type of qualified plan (except SIMPLE) » Investment risk on employee - usually participant-directed plans » Loans Available » Requires IRS Non-Discrimination Testing and Annual 5500 Reporting Qualified Retirement Plans Withdrawals prior to age 59½ may be subject to an additional 10% tax penalty.

10 The Safe Harbor 401(k) Plan » Enables business owners to maximize deferral $16,500 + $5,500 catch-up for 2009 » Requires a small mandatory contribution by the employer in order to avoid non- discrimination testing requirements 3% non-elective or 4% elective match » Employees eligible for match after 1 year of service » Immediate vesting on employer contributions » No IRS Non-Discrimination Testing JUST Annual 5500 Reporting Qualified Retirement Plans Withdrawals prior to age 59½ may be subject to an additional 10% tax penalty.

11 The One-Person 401(k) Plan » Business owners may elect to defer up to $16,500 ($22,000 if age 50 or older) PLUS contribute 25% of compensation » Total contributions cannot exceed $49,000 ($54,500 if age 50 or older) » Discretionary contributions give small businesses financial flexibility » May take loans » Easy and inexpensive to maintain » IRS Form 5500 filing only when plan assets exceed $250,000 » Smith Barney can provide a prototype document Qualified Retirement Plans Withdrawals prior to age 59½ may be subject to an additional 10% tax penalty.

12 Defined Benefit Plan AgeW-2 Wages Defined Benefit Contribution401(k) Salary Deferral Total Annual Contribution 40$60,000$36,558$16,500 $53,058 50$90,000$81,925$22,000$103,925 60$200,000$186,862$22,000$208,862 Source: Benetech. For illustrative purposes only. Assumes retirement at age 63. Assumes wage increases of 4% annually. Assumes investment rate of return is 5% annually. Qualified Retirement Plans

13 Fees & Fee Transparency

14 Fees – Finding the Fees

15 Fee Breakout

16 Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. ©2009 Morgan Stanley Smith Barney LLC. Member SIPC. JULY 2009