Restrictive Executive Bonus Arrangements Just The Basics [ Presented by: [Joe Sample], [Designations per field stationery guidelines] [Company Approved Title] [Agency Name] [The Prudential Insurance Company of America] [1234 Main Street, Suite 1, Floor 10] [Anywhere], [ST] [12345] [in required states] [<ST> Insurance License Number <1234567890>] [Phone] [123-123-1234] Fax [123-123-1245] [joe.sample@prudential.com]] Hello, this is ________________________ of _______________________, bringing you a brief presentation with information about an advanced marketing concept known as “Restrictive Executive Bonus Arrangements” - or REBAs. ©2013 Prudential Financial, Inc. and its related entities. NOT FOR CONSUMER USE. 0239419-00001-00 Ed. 02/2013 Exp. 08/19/2014

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The Problem: Business Owner Concerns May lose key executive through recruitment by another company or early retirement Wants a selective incentive arrangement for recruiting, retaining and rewarding key executives Desires a current income tax deduction Let’s begin by discussing what exactly a REBA is. One of the easiest ways to do this is with a case study. Here’s the problem. A business owner is concerned that a key executive may be recruited by another company, or is considering early retirement. The owner wants to establish a selective incentive arrangement that will help recruit, retain and reward key executives. At the same time, the business would like to receive a current income tax deduction while maintaining some control of the benefits. NOT FOR CONSUMER USE.

“Traditional” Executive Bonus Plan Business pays premiums on an insurance policy owned by the key executive Insurance Company Tax Deductible Premiums One solution that a business owner might consider to address his or her problem is an executive bonus arrangement. In a typical executive bonus arrangement, the employer agrees to bonus life insurance premiums on a policy owned by and insuring the executive. Generally, the employer’s payment of the premium is deductible as a regular and necessary business expense, subject to the reasonable compensation rules. In turn, the executive reports any employer-paid premium as additional taxable compensation. Many times, the employer enhances the attractiveness of this fringe benefit by bonusing additional cash to the executive to cover the income and payroll taxes generated by the premium payments. This is often referred to as a “double bonus” or a “gross-up” arrangement. Under this approach, the executive is left with no “out-of-pocket” cost for a personally owned life insurance policy. For the executive, what is there not to like? He or she receives an employer-financed life insurance policy that provides an income tax-free death benefit to his or her named beneficiaries, as well as access to the policy’s cash value. Little is at risk due to the portability of the policy. But, therein lies the problem. While employers like the executive bonus arrangement for its simplicity and the fact that it provides an immediate tax deduction, they do not want to see valuable cash flow wasted on departing executives, or worse yet, used as capital for competitive ventures. The Solution: The Restricted Executive Bonus Arrangement or REBA for short. Cash Value Access* Death Benefit Taxable Compensation Key Executive Beneficiary * Withdrawals and loans from a life insurance policy reduce policy cash values and death benefit, may affect any policy guarantees against lapse, and may have tax consequences. NOT FOR CONSUMER USE.

Solution: REBA Provides employee incentives while maintaining some employer control Restrictive endorsement limits an executive’s rights in the policy Employment agreement contains the “golden handcuffs” May be tax deductible to the business A REBA is an executive bonus plan that provides incentives for long-term employment while maintaining some degree of employer control. In its most basic form, a restrictive executive bonus arrangement looks like a bonus arrangement, except that the employer retains a greater degree of control through the use of two tools: a restrictive endorsement is placed on the insurance policy, and an employment agreement is executed between the executive and the employer. The restrictive endorsement limits the executive’s rights in the policy. While the endorsement is in effect, the executive is generally not permitted to surrender the policy for cash, obtain policy loans, take withdrawals, change ownership or collaterally assign the policy. Only after the endorsement is removed can the executive take those actions. The employment agreement contains the “golden handcuffs” that help to retain executives. The agreement contains the conditions that the executive must meet. In addition, the agreement may contain a clause that obligates the executive to repay some or all of any bonus amounts if the executive fails to meet the specified employment obligations. Properly structured, the bonus can be tax deductible to the business as an ordinary and necessary business expense. NOT FOR CONSUMER USE.

REBA Prospects Small to medium sized businesses Businesses that desire a current income tax deduction Employers who are reliant on the talents of a handful of key executives Normally not owners Employers that are looking for an arrangement that is simple and straightforward to implement and administer What types of employers are the most suitable prospects for REBA? REBAs are most suitable for small to medium sized businesses desiring a current tax-deductible contribution. The employer’s payment of the insurance premium is generally deductible as compensation expense. The executive reports any employer-paid premium as additional taxable compensation. Some employers enhance the attractiveness of this fringe benefit by bonusing additional cash to the executive to cover the income and payroll taxes generated by the premium payments. This is referred to as a “double bonus” or “gross-up” arrangement, and can reduce or offset any taxes to the executives. For employers reliant on the talents of a handful of key employees, REBAs serve as a strong retention vehicle because they provide financial security for the families of these employees. Simple administration is another advantage of REBAs. Because there are no Internal Revenue Service or Department of Labor restrictions, REBAs are easy and inexpensive to administer. There are no government forms or reports to complete, and assets are free from any creditor complications. With no plan provisions or nondiscrimination requirements to address, REBAs can be custom-tailored to meet each plan participant’s particular needs. NOT FOR CONSUMER USE.

Additional Benefits Life Insurance Protection Flexible Design Selective Participation Creditor Protection Simplicity There are many benefits of REBAs. A REBA can be funded with insurance products that can provide the executive with pre and post retirement death benefit protection and supplemental income. Of course, withdrawals and loans from a life insurance policy reduce policy cash values and death benefit, may affect any policy guarantees against lapse, and may have tax consequences. Because of a REBA’s flexible design, contributions and distributions can be tailored to fit the specific needs of each executive. The business has discretion to select who participates – the employer is not required to include all employees for participation. The insurance policy is owned by the executive, and policy values are beyond the reach of company creditors. And it’s simple – no IRS approval is needed for implementation or termination! NOT FOR CONSUMER USE.

Thank You !! Need more information? THANK YOU FOR JOINING US! ] Click on the ATTACHMENTS tab for more material Click the Tools & Help icon Contact the Life Sales Desk: lifesalesdesk@prudential.com - or – Visit our website: www.pruxpress.com THANK YOU FOR JOINING US! ] That concludes our high level overview of REBAs. For more information on this topic – click on the ATTACHMENTS tab - on the left side of your screen - to review some of our approved marketing material on this subject… -- or -- click the Tools & Help icon – that question mark in the lower right corner of your screen - to share this presentation with a colleague, to download the presentation, or to send us your questions or requests …. - or – [ Contact the Life Sales Desk or visit our website at www.pruxpress.com ] Thank you for joining us today! We look forward to hearing from you - soon! NOT FOR CONSUMER USE.

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