Pen-CAlBenefi ts Consulting Since 1959

CONTENTSAbout us 02Philosophy 04Team Members 06Portfolio 2 Pages 08Portfolio 1 Page 10Graphic Chart 12 Stakeholders 14

50 states80 Employees100,000 users

53 Years experienceONE reliable COMPANY

ABOUT USFor over fi fty years, Pen-Cal has provided corporate and fi nancial institutions with solutions to maximize their returns on assets and invested capital. Our experience allows us to determine the most effi cient fi nancing strategy for our clients’ based on their goals and objectives and fi nancial requirements. Our proprietary analysis gives a clear picture of the fi nancial impact of implementing an executive benefi t plan from a cash fl ow, income statement, and balance sheet perspective. The following are some of the most common fi nancing strategies:

Taxable Investments (i.e. Mutual Funds, Money Managers, Exchange Traded Funds) Corporate Owned Life Insurance (COLI) Hedge Administration and Funding Hybrid – Combination of the above

Executive benefi t plans are a valuable supplement to a company’s benefi t plan package. Not only do they help to retain and reward key executives, but it also gives employers an edge when attracting and recruiting new talent Executive benefi t plans allow key executives the most effective way to accumulate wealth and save for a retirement suitable with their current lifestyle. Owners can also pick and choose who participates in the plan and can customize a specifi c plan for each executive. Nonqualifi ed plans also provide signifi cant tax advantages, both for employees and businesses. Often, plans can be designed with no impact to the company balance sheet, and over time can actually improve it.

It is important to provide benefi t offerings to employees at every level of an organization. We specialize in the design of fi scally responsible plans that allow companies to attract, retain, and provide for the retirement years of every employee. These plans come with a host of legal requirements and administrative complexities. With years of industry experience, we know how to navigate these complexities and craft solutions that are specifi c and unique to each employer. No two plans are alike, and we offer the fl exibility and technology needed to ensure each plan matches a company’s overall benefi ts goals and philosophies.

Executive Benefits

Employee Benefits

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“Relax down the path to retirement”

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PROJECT MANAGERS:Michael Cartright

Jennifer Saverplate

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PHILOSOPHY

Pen-Cal’s philosophy is to continue to be our clients trusted executive retirement plan leaders with experience, dedication and an unwavering commitment to customer service excellence. By providing our clients with comprehensive retirement solutions, we help you and your executive team achieve their goals, hopes and dreams when it comes time to retirement solutions.

With our solutions to our clients they will remain leaders in their busi-ness community when it comes to offering top retirement solutions for the ultimate tool for Recruiting, Retaining and Rewarding their employ-ees. We will demonstrate client trust with empathy and integrity to develop long term relationships with our clients.

“The mission of Pen-Cal is to be the leader in design, implementation, and administration of employee and executive benefi t programs. We provide comprehensive, customized, and technologically innovative solutions to assist companies with the “3 R’s” - Recruiting, Retaining and Rewarding.”

-Bob Penland

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Name: Kirk Penland

Position: Chief Executive Officer

Years of Experience 32

Biography:Kirk Penland is the chief executive offi cer of Pen-Cal Ad-ministrators, Inc. and is recognized as one of theleading authoritative fi gures in the employee and execu-tive benefi ts industry. With more than 32 yearsexperience in benefi ts consulting, he has helped Pen-Cal to become one of the country’s top providers in the design, implementation, and administration of employee and executive benefi t plans.Kirk has pioneered several unique strategies to fund and fi nance executive benefi t plans. These strategies work fl uently with the goals and objectives of the corporation sponsoring these plans while minimizing the fi nancial impact to the corporation. He is also instrumental in nav-igating the fi rm through the constantly changing regula-tory environment surrounding tax savings plans.

Pen-Cal was born out a simple question: How can we help you reach your retirement goals? Bob Penland our founder in 1959 set out to answer this question and 50 years later, Pen-Cal Financial and Administrative services are still a leader in Executive retirement plan de-sign, implementation and administration.

The Pen-Cal team is comprised of over 80 employees coming from diverse backgrounds with a special understanding of customer service. Whether you reach one of our plan administrative specialist by phone, or our CEO Kirk Penland, you fi nd us knowledgea-ble, courteous and dedicated to serving your needs. Your executive retirement plan will go through each of our teams hands before the fi nal im-plementation is presented to your company. Beginning with our acquisitions team headed by our senior most staff. Their unique knowl-edge of plan design gives them a leading edge advantage in fi nding and funding the right plan choice for your plan needs.

After the right plan is chosen, our implemen-tation teams will be at work making sure fund lineups are correct, Payroll contacts are es-tablished and the proper initial steps have be-gun. During conversion, our team will carefully re-view plan documents, system setups, mail out proper participant notices and begin website implementation. Our technology team, works hard at staying on top of the latest technology to keep your experience online streamlined and informa-tive, from online enrolment to future retire-ment forecasting. When the time comes for fi nal plan set up our fi nancial plan experts will return to help you and your executive staff members make edu-cated and informed decisions on their fi rst en-rolment into your new retirement plan though participant education meetings.From start to fi nish the highly polished Pen-Cal teams make the process of retirement plan design, implementation, education and on going plan administration a streamlined hassle free experience.

TEAM MEMBERSworking with us will be a pleasure...

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Name: Terry O’Prey Jr

Position: Senior Vice President

Years of Experience:17

Biography:Terry O’Prey Jr. is a Senior Vice Preside of Pen-Cal Ad-ministrators, Inc. and has more than 17 years’ experi-ence in the employee and executive benefi ts industry. Terry oversees new client services, implementation, plan administration, and website technology. He is re-sponsible for managing over 6.7 billion dollars in assets and participant liabilities and oversees a staff of 53 indi-viduals responsible for supporting client business.Before serving as Senior Vice President, Terry served as Director of Executive Benefi ts Administration, where he was responsible for managing the administrative services teams who handled duties such as client calls; monthly/quarterly/annual client reports and statements; and annual, periodic, and ad hoc participant enrolment communication and enrolment material for Pen-Cal’s largest and most complex client base.

Name: Kevin Chen

Position: Senior Implementation Manager

Years of Experience:10

Biography:Kevin Chen is a Senior Implementation Manager for Pen-Cal Administrators and has more than eight years’ experience in the employee and executive benefi ts in-dustry. As Senior Implementation Manager, Kevin is re-sponsible for implementing procedures and documents for new plans, converting and reconciling data from prior recordkeepers onto Pen-Cal’s systems, establishing payroll and wiring procedures, establishing web access for new clients, and generating enrolment communica-tion and education materials.Before coming to Pen-Cal, Kevin spent fi ve years in the tuition fi nancing department of TIAA-CREF selling 529 college savings plans. Prior to that, Kevin worked in the fi nancial services industry as an investment advisor for Fortis.

Name: Tara Clarke

Position: Senior Relationship Manager

Years of Experience:10

Short Biography:Tara Clarke is a Senior Relationship Manager for Pen-Cal Administrators, Inc. and has more than 8 years’ ex-perience in the employee and executive benefi ts indus-try. As a Senior Relationship Manager, Tara oversees a team of client service managers responsible for plan activities such as contributions, distributions, new enroll-ees, annual re-enrollment, and the production of valua-tions and statements. Before becoming Senior Relationship Manager, Tara served as a Senior Nonqualifi ed Plan Administrator, where she managed more than 20 of Pen-Cal’s largest and most complex plans. As an administrator, she was also responsible for processing contributions, distribu-tions, and transactions; generating monthly/quarterly/annual client reports and statements; and preparing par-ticipant enrollment and educational materials.

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The Power of Tax Deferral

NQDC Overview

“Our most valued asset is our employees. Our goal is to recruit, reward and retain highly valued members of our team.”

The power of tax deferral is an important benefi t offered by many retirement savings programs such as §409A, §403(b), §401(k) and §457 plans, traditional IRAs, etc. When contri-butions are made on a pre-tax basis, your current taxable income is reduced by the amount you invest. Just as impor-tant, taxes on any earnings your tax-deferred investments generate are deferred as well, putting more of your money to work for you over time. Taxes are not due until you begin to make withdrawals—usually at retirement—which may be years away. Plus, while distributions are taxed as ordinary income, the impact may be minimized as many investors fi nd themselves in a lower tax bracket at retirement.

Our most valued asset is our employees. Our goal is to recruit, reward, and retain highly valued members of our team. As part of a select group, you are being presented with the opportunity to participate in the company’s Non-qualifi ed deferred compensation plan.

Nonqualifi ed Deferred Compensation plans (NQDC) are voluntary savings programs which give executives the ability to save additional pre-tax dollars above and beyond the current retirement plan limits. NQDC plans allow for enhanced retirement and savings opportunities and provide participants a vehicle to manage current and future income taxes.

Section 409A applies to compensation that workers earn in one year, but that is paid in a future year. This is re-ferred to as Nonqualifi ed deferred compensation. This is different from deferred compensation in the form of elec-tive deferrals to qualifi ed plans (such as a 401(k) plan) or to a 403(b) or 457(b) plan.

Nonqualifi ed deferred compensation plans or 409A work in tandem with your personal savings, social security, and qualifi ed retirement programs, yet allow eligible participants to:

• Defer much more pre-tax compensation than 401(k) Pans

• Signifi cantly reduce current tax liablility• Utilize tax-advantaged investment crediting options• Plan for retirement and long-term savings goals in a tax-

effective manner.

Qualified Plans Carry an AMT TrapEven though you do not pay “regular” tax on a qualifi ed plan such as 401k, Congress and the IRS do have a little sur-prise called the Alternative Minimum Tax (AMT)

An AMT example: You receive ISOs to buy 100 shares at the current market price of $10 per share. Two years later, when shares are worth $20, you exercise, paying $10. The $10 spread between your exercise price and the $20 value is subject to AMT. How much AMT you pay will depend on your other income and deductions, but it could be a fl at 28% AMT rate on the $10 spread, or $2.80 per share.

Later, it you sell the stock at a profi t, you may be able to recover the AMT through what’s known as an “AMT credit.” But sometimes, if the stock crashes before you sell, you could be stuck paying a big tax bill on phantom income. That’s what happened to employees hit by the dot-com bust of 2000 and 2001. In 2008 Congress passed a special provision to help those workers out. But don’t count on Con-gress doing that again. If you exercise ISOs, you must plan properly for the tax.

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As an executive, you are more likely to receive all (or at least most) of your options as Non-qualifi ed options. They are not taxed as favourably as ISOs, but at least there is no AMT trap. As with ISOs, there is no tax at the time the option is granted. But when you exercise a Nonqualifi ed option, you owe ordinary income tax (and, if you are an employee, Medicare and other payroll taxes) on the differ-ence between your price and the market value.

For example: You receive an option to buy stock at $5 per share when the stock is trading at $5. Two years later, you exercise when the stock is trading at $10 per share. You pay $5 when you exercise, but the value at that time is $10, so you have $5 of compensation income. Then, if you hold the stock for more than a year and sell it, any sales price above $10 (your new basis) should be long-term capital gain.

Exercising options takes money, and generates tax to boot. That’s why many people exercise options to buy shares and sell those shares the same day. Some plans even per-mit a “cashless exercise.” The Pen-Cal Platform is one of the few NQDC speciality fi rms that offer same day trading

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The Rise IN POPULARITY OF N

Retirement Savings Short FallMany employers offer qualifi ed retirement plans to help employees save for retirement. While these plans generally provide a suffi cient vehicle for most workers to save for retirement, they tend to fall short for highly compensated employees (HCEs). IRS regulations and nondiscrimination tests limit the amount of money that HCEs can defer into qualifi ed plans. Employers turn to NQDC plans as an executive benefi t because of the restrictions our tax code and the laws and rules of ERISA place on qualifi ed plans. For example, qualifi ed plans must meet stringent nondiscrimination, participation, vesting, and reporting requirements. Generally, such plans do not provide equitable treatment

Executive Salary at age 50 $50,000

Executive Salary at age 50 $150,000

Executive Salary at age 50 $300,000

SOCIAL SECURITY SOCIAL SECURITYSOCIAL SECURITY

22% 14% 7%

SHORTFALL

401(K)

401(K)

52%

76%78% 34%

17%

401(K)

SHORTFALL

for highly-compensated employees because statutory limits cap the amount that can be contributed to the plan, thus creating “reverse discrimination.” As a percent of income, these executives are permitted to put away very little on a pre-tax basis, resulting in a retirement savings shortfall. With a 401(k) limit of only $17,500per year (2013), building meaningful retirement balances is a challenge. In some companies, the problem is even worse if the plan’s anti-discrimination testing prevents full deferrals from the highly compensated. The charts above illustrate the problem.

Our 409A and 409A+ Plans allow key employees to defer income for retirement and can help employers motivate,reward and retain their top personal. These plans avoid many of the restrictions inherent in qualifi ed plans, offering the following advantages:

• Discriminatory- Employer selects the key employees who can participate.

• Unlimited- Participants can defer an unlimited amount of income, including bonuses.

• Pre-tax- Participant contributions are made on a pre-tax basis.

One Solution

F NonQualified Plans

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Employee BenefitsEmployees may defer an unlimited amount of their salaries and/or bonuses on a pre-tax basis, and any earnings attributable to these deferrals are credited on a tax-deferred basis. The above bar chart is an example of how much money could be accumulated and taken as retirement income if earnings are set aside pre-tax and allowed to grow tax-deferred in a 409A plan versus after-tax earnings growing in a taxable investment 409A Savings PeriodAnnual contributions $15,000 $10,200 Years 1-20Total annual contributions 300,000 204,000 Years 1-20

Account Value at retirement(gross) 713,000 362,000 Age65Account value at retirement(Net) 485,000 362,000 Age 65

Annual retirement income (after-tax) 67,000 46,000 Years 21-31Total retirement income (after-tax) 669,000 455,000 Years 21-30

A 409A plan can be structured to help companies attract, retain, and reward key employees. Employers may choose who participates in the plan from among their highly compensated and/or management employees. Employers can elect to match employee deferrals or make discretionary contributions into the plan. Such contributions can be discriminate as to who is allowed to participate in the plan as well as to what extent, all on an annually discretionary basis. Nonqualifed plans are exempt from ERSA vesting, funding, participation and fi duciary requirements. This means that employers may disciminate as to who participates in the plan and to what extent. In order for contributions to be made pre-tax basis, however, nonqualifi ed plans must not allow participants to hold a benefi cial interest in plan assets.

To achieve this, 409A plan benefi ts must be an unsecured promise to pay from the general assets of the employer.C-corporations are the best candidates for 409A plans because owner as well as key employees can participate. Note that while 409A plans my not directly benefi t owners of pass-through entities (i.e., S-corporations, LLCs, partnerships, sole proprietors, etc.), They can benefi t non-owner employees. Tax exempt and governmental employers may adopt Nonqualifi ed plans, but additional rules apply under IRC 457.

$300,000Contributions20yr totals

$200,000Contributions20yr totals

$485,000Account valueAt retirement

$362,000Account valueAt retirement

$670,000RetirementIncome10yr totals(after tax)

$455,000RetirementIncome10yr totals(after tax)

409A

Savings Plan

409a plan vs. Savings planAssumptions: Age 45, 8% return, 32% tax bracket

Employer Benefits

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NQDC Design ConsiderationsDeferral plan vs. SERP 409A plans may be structured to accept employee and/or em-ployer contributions as folows;Deferral plan- allows employees To de-fer salary and/or bonus compensation into the plan; employees are always 100% vested in the plan benefi ts based on their own deferrals.SERP- allows only employer contributions and generally involves some type of vesting schedule for plan benefi ts. Combination plan- a combination of de-ferral plan and a SERP; for example, an em-ployer may offer to mach employee deferrals.

Defined benefit vs defined contri-bution Another design consideration for 409A plans is whether to offer a defi ned ben-efi t or defi ned contribution plan:Defined benefit plan- pays a specifi c benefi t to participants at time of distribution. These plans are usually SERPs and do not specify contribution amounts. Example plan benefi t:”Each participant receives $500,000 after ten years of plan participation”Defined contribution plan- allows contribution values to accumulate in a hypo-thetical account for each participant. Partici-

pants may be allowed to allocate the value of their hypothetical accounts among a variety of indices based on the performance of selected investment options and/or fi xed returns. Plan benefi ts for each participant are based on the value of his/her hypothetical account at time of distribution. Example plan benefi t: “Each participant receives a monthly benefi t for ten years based on the value of his/her hypotheti-cal account at retirement.”

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Hypothetical account vs. Notional asset reserve Defi ned contribution plans may be structured to base their benefi ts on account values determined according to the following methods:Hypothetical account- participants may allocate the value of their hypothetical accounts among a variety of indices based on the performance of certain investment options and/or fi xed returns. The employer will often mirror these allocations in the plan’s funding vehicle. Notonal asset reserve- allows the values of assets, like mutual funds or corporate owned life insurance for each participant, to become the values used to determine the participant’s benefi ts. This is a popular design for plans with a small number of participants and/or employers that do not want the possibility of discrepancy between hypothetical account and plan funding vehicle values.

An inherent risk of a 409A plan is that an employer might be fi nancially unable to pay plan benefi ts at time of distribution. To reduce this risk, a Rabbi trust may be adopted to hold plan assets for purposes other than paying plan benefi ts, but does not protect the assets from creditors in the event of a bankruptcy. Rabbi trust are often used in deferral plans but are less frequently used in SERPs.

409A plans cannot truly be “funded” like a qualifi ed plan. Qualifi ed plan assets are generally held in trust for the participants. Nonqualifi ed plan assets remain a general asset of the employer (or held in a Rabbi trust owned by the employer) and must be subject to the claims of company creditors. There is one requirement to fund a Nonqualifi ed plan: however, most companies choose to set money aside to meet future plan liabilities. Nonqualifi ed plans are typically “informally funded” in one fo the following three ways.

“The most common tax-deferred 409A plan funding vehicle is corporate owned life insurance(COLI).COLI not only provides tax-deferral on any gain, but account values can be withdrawn from the policy to pay plan benefi ts on a fi rst-in fi rst-out (FIFO)basis.”

Unfunded- Since there are no requirements for a 409A plan sponsor to establish a reserve to pay future benefi ts, one funding option is to simply pay plan benefi ts when due from cash fl ows. This is increasingly the least desirable funding option for employers. Plan benefi ts are a legitimate deb of the company for which a suffi cient reserve should be established. Additionally, the nature of the plan and the often unique relationship between the company and participants typically mandates some type of

informal funding.Taxable assets- Unless the employer chooses to informally fund its 409A plan with an asset that is tax-exempt or tax-deferred, any income or gain on plan assets is taxable to the company. This is true even if a Rabbi trust holds the plan assets for the employer. “Taxable assets” may comprise almost any asset, including equity investments such as mutual funds. The obvious disadvantage to funding a 409A plan with taxable assets is that the company must pay taxes each year on any gain. Additionally, since employee deferrals are pre-tax and build tax-deferred for the participant, this means that the plan assets and liabilities can become increasingly mismatched to the company’s disadvantage over time. Tax-deferred assets- Since 409A plan assets are held as a general asset of the employer, many companies choose to fund these plans with tax-deferred assets. The most common tax-deferred 409A plan funding vehicle is corporate owned life insurance(COLI).COLI not only provides tax-deferral on any gain, but account values can be withdrawn from the policy to pay plan benefi ts on a fi rst-in fi rst-out (FIFO)basis. This means that at any point in time, an amount equal to the premiums paid can be taken from the policy tax-free. Additionally, any gain can be borrowed from the policy without creating a currently taxable situation.If a COLI policy is held until death, the proceeds are paid to the company tax-free. COLI proceeds can be used to pay participant death benefi ts,

Rabbi Trust

Funding

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Benefits consulting since 1959

Our Executive Plus program brings together all legal, funding and administrative elements of a Nonqualifi ed deferred compensation plan, and consolidates them into one easy to estab-lish, turnkey package. Leveraging the widely recognized expertise in employer sponsored retirement plans of American United Life In-surance Company (AUL) our Executive Plus plans offer a wide variety of unique features and benefi ts.

409A Plus Funding VehicleA fl exible premium variable universal life in-surance policy serves as the primary funding vehicle for our Executive Plus plans. In addi-tion to providing the inherent tax advantage of life insurance, a FPVUL offers a Variety of benefi ts that make this type of policy well-suit-ed for corporate ownership.

Key Person and split dollar ar-rangements COLI can be structured to provide multiple benefi ts to owners and ben-efi ciaries. For Nonqualifi ed plans, COLI can

serve as the plan’s informal funding vehicle and provide life insurance for a variety of needs and benefi ciaries. For instance, the policy proceeds could be structured not only to reimburse the employer for all plan cost but provide key person insurance as well. Anoth-er option would be to pay a portion of the pro-ceeds to the participant’s spouse under such an arrangement, the spouse could receive a benefi t equal to what the participant intended to save for retirement if he/she had lived and continued to contribute to the plan.

Development & AdministrationOur Executive Plus plans, are designed by our top tier fi nancial experts. All administration and compliance is handled by our own Plan Administration Department and your partici-pants . IF desired, an enrolment meeting may be held with your prospective participants to review plan features.

Pen-Cal Executive 409A Plus plans.

Pen-cal6210 stoneridge mall roadPleasanton, ca 94588-3260t. 925.251.3400www.pencal.com

“50 Years of Excellence in retirement solutions”