1. 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.

2. 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

3. 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.

4. 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

5. 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

6. 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?

7. 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

8. 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

9. 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

10. Proposed Roth Regulations
Washington Update

11. Proposed Roth Regulations
Questions & Answers