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Glossary

How do I get a copy of my Investment Results?

You may obtain information on your investment results in one of three ways:

1. From your Quarterly Statement
2. On the plan Voice Response Unit
3. From the secure Internet website (if your employer elected this option)
4. Or from an EBP Representative

What is a security?

The term "security," in this context, refers to an investment, such as a stock or a bond.

What is a stock?

A stock is an investment that represents a share of ownership in a corporation. Most stock investments are higher in risk than bonds and money market securities, but also offer higher potential total returns.

What is a bond?

A bond represents a "loan" from the bondholder to a company, agent or other bond issuer. In return, the issuer is required to pay the bondholder a specific sum of money (interest) at specified times, as well as repay the loan (principal) amount at maturity. Bonds generally carry less risk and offer lower returns than stock.

What is a money market security?

A money market security is a short-term investment offering a high level of principal safety that can be issued by a variety of institutions, from corporations to the federal government. Money market securities are normally considered low-risk, low-return investments.

What makes one fund riskier than another?

The funds are invested in different securities: stocks, bonds, money market securities, and other investments. Before deciding on a particular mutual fund, read the fund description information carefully. It will fully explain the investment parameters of the fund and explain in detail the potential risks.

Is my money insured by the FDIC?

No, your money is not guaranteed by the Federal Deposit Insurance Corporation (FDIC), by EBP, or by your employer. It is possible that your investment may lose value.

Can I choose the specific stocks I want?

No. All the funds are managed by a portfolio manager who works with a team of analysts to make those decisions. This team's goal is to get the best possible return on your investment in accordance with the fund's objectives, while minimizing risk.

What are investment elections?

The term "Investment Elections" refers to where you choose to invest your future contributions. Changing your investment elections affects only your future contributions -- it does not change where your current balance is invested.

What investment election is right for me?

That decision is up to you. To assist you in the decision-making process, you may want to use the encourage your employer to permit meetings to communicate the plan effectively. For more information, or to order, call (800) 622-2411.

How will I know how much money I have in the plan?

You will also receive a quarterly statement showing the activity in your account. You can always get up-to-date balance information by calling the toll-free plan line at (800) 622-2411. The toll-free number operates 24 hours a day, seven days a week.

How is information available from the toll-free number kept confidential?

To access account information, you will have to provide the correct Social Security number and Personal Identification Number (PIN).

What happens if I forget my PIN or lose it before I have a chance to make my investment elections?

You can request a new PIN by calling the toll-free plan line. Press 0 to speak with a representative who will verify your identity and set up a new PIN for you.

What is a fund transfer?

A fund transfer is when you move money that is already in your account from one investment option to another. A fund transfer affects only your current balance -- it does not change where your future contributions will be invested.

How do you initiate a fund transfer?

You can request a fund transfer via the toll-free automated plan line. After you enter your PIN, press 2 for "Investment Changes" and then select 3 to "Redirect your current balance only." Enter the percentage of your balance you want invested in each of the investment options offered by the plan. After you confirm your choices, your current money will be invested according to the percentages you entered. You can also direct future contributions differently than your current balance. A participant can request to realign their current balance among all investment options or do a variation or partial fund transfer. Fund transfers may take up to five business days to process.

You could do a dollar-to-dollar transfer:

Or you could do a percentage-to-dollar transfer:

These are simple examples that do not take into consideration any market changes during the transfer.

Can I invest my current balance and my future contributions in the same way?

Yes. Call the toll-free automated plan line and enter your Account Number and PIN. Press 2 for "Investment Changes" and then 2 again, for "Redirect both your current balance and future contributions." Enter one set of percentages, designating where you want all of your money invested. After you confirm your choices two things will happen: your current investments will be sold and that money will be invested according to the percentages you entered, and all of your future contributions will be directed according to those same elections percentages. Fund Transfers may take up to five business days to process.

What happens to my loan when I terminate my employment?

When you terminate your employment your entire loan balance becomes due.

Your options :

• Pay it off: You may pay the loan balance in full. This will not create a taxable event. In other words, you will not incur current income taxes and no early withdrawal penalty will be imposed.
• Default on the loan and rollover the rest (subject to plan restriction): You may default on the loan and rollover the distributable vested account balance to your new employer's qualified retirement plan or to your personal IRA. Unless you meet one of the exceptions, the unpaid loan balance will be considered a taxable distribution subject to a 10% early withdrawal penalty. You must claim the unpaid loan balance as taxable income on your tax return.
• Default on the loan and leave the rest (subject to plan restriction): If your vested account balance is greater than $5,000 you may choose to not pay back the loan and to leave the rest of the money in the plan. Again, an early withdrawal penalty of 10% will be imposed (unless you meet one of the exceptions) and the unpaid loan balance must be claimed as taxable income on your personal tax return in the year you default on the loan.
• Default on the loan and take the rest. You may choose not to pay back the loan and to take what's left of your vested account balance as a distribution. If you choose this option, an amount equal to 20% of your vested account balance will be withheld from your distribution to cover federal income taxes and you may be subject to an IRS 10% early withdrawal penalty. The entire distribution is taxable.

Why is the mutual fund price on my statement not what I see in the newspaper?

Shares of the mutual fund and the units in your account are similar, yet different. Both represent ownership of the fund, but one is a direct ownership and the other is an indirect ownership. The mutual fund price in the paper represents direct ownership. Because your investment is in a retirement account sponsored by your company, certain adjustments to the mutual fund price are required. The value of the units in your account is generally the mutual fund net asset value adjusted for dividends, capital gains, fees, and rebates that occur over time.

What happens to my savings if I leave the company?

When you leave the company, you choose what to do with your company plan money.

Your options :

• Invest your savings in your new employer's compatible qualified defined contribution plan (if your new employer has a plan and allows it).
• Keep your savings in your current company's plan (if the company's plan allows it).

      Choosing one of the options above offers some advantages :

• Your savings remain tax-deferred -- meaning you pay no taxes on your money until you receive a distribution.
• Company plans generally do not charge transaction or management fees to employees -- many IRAs do charge fees for investment fund changes and fund management.
• Loans and certain types of withdrawals may be available through the company plan -- these generally are not available through an IRA.
• Company plans generally offer a range of investment fund and payment options.

Remember, If you move your savings to your new employer's plan, the money must be payable directly to your new employer's plan administrator or taxes will be withheld on the distribution. So it's very important to complete the appropriate forms well in advance of your departure to tell your current employer where the money should be sent.

• Roll your savings into an Individual Retirement Account (IRA). IRAs are a tax-efficient spot to place your savings through a rollover. Like company plans, your money and its investment earnings will not be taxed until it is withdrawn from the IRA. IRAs generally offer a wide range of investment options and usually have more flexible payment options than company plans.

To make sure no taxes are withheld from your distribution, your check must be made out to the IRA provider. This is called a direct rollover.

If you wish, you may have the distribution check made payable to you, and you may then roll over the distribution within 60 days of receiving the check. If you choose this option, you should be aware that 20% of the distribution will automatically be withheld for federal tax purposes. State taxes may also be withheld. To avoid being taxed and possibly penalized on the federal and state withholdings, you must raise cash, from your own resources, equal to the amount withheld, and deposit this amount along with your distribution check into the IRA. You may, of course, simply choose to pay taxes and penalties (if applicable) on the withholdings, and only roll over the distribution.

If you don't roll over anything, you must claim the entire distribution (including amounts withheld) as taxable income on your personal income tax return. Depending on your particular circumstances, penalties may also apply. Remember, tax treatment is subject to change.

• Take your savings as cash. This option provides a tax windfall for the federal government. If you choose to take your savings in cash, you must claim the amount distributed as taxable income on your personal income tax return. Depending on your personal circumstances, favorable tax treatment of your distribution may be available. However, if you do not qualify for favorable tax treatment, your distribution may be subject to an additional 10% penalty. Regardless of which tax treatment applies to you, when you take your savings as cash, the IRS requires companies to automatically withhold 20% of the distribution to be applied toward any federal taxes due on the distribution. Some states may also require that an amount be withheld and applied toward any state taxes due on the distribution. Tax treatment is subject to change.

Example :

If, on the other hand, you left the $100,000 in a tax deferred account earning 8% annually, it could double in nine years!

What happens to my savings when I retire?

When you retire you decide how and when you want to receive your money.

Your options are:

• Taking a lump sum distribution. This is the most common form of distribution. You have several options if you choose to take a lump sum:
• Roll the money over into an IRA. IRAs offer a big tax advantage; you pay no taxes on your money or your money's investment earnings until you take it out of the IRA. However, to make sure that no taxes are withheld, your distribution must be made payable to the IRA's financial institution.
• Purchase an annuity. The advantages of an annuity include the security of a fixed amount of income, no responsibility for managing funds or investments, and you pay taxes on your money as you receive it (rather than at the time of distribution). However, to make sure that no taxes are withheld from your distribution, the check must be made out to the annuity's insurance company. If you receive the check, 20% will be withheld for taxes. The disadvantages of an annuity? Inflation can decrease the buying power of a fixed income investment such as an annuity. This can be a real problem in times of high inflation unless you have other sources of income besides the annuity. In addition, annuities often leave nothing to survivors after a spouse dies or to children if you die. Additionally, annuities can have high expenses.
• Five- or ten-year averaging. This is a special tax treatment that can work to your advantage -- especially if you plan to use your lump sum soon, such as to make a down payment on a piece of real estate. Five- or ten-year averaging offers a hefty tax break for those who qualify. You should consult your tax advisor to determine if you are eligible for tax averaging.
• Leave the money in the plan. Employees who own more than 5% of a company are required to begin receiving distribution by the 1st of April following the calendar year they reach age 70 1/2 whether they retire or not. Other employees must begin receiving distribution when they retire.

Will EBP work with my current service provider?

Yes, EBP will assign a Conversion Team to work with your company, your current service providers and your payroll vendor to ensure a smooth conversion. The Team consists of a Project Leader, Conversion Administrator and Plan Consultant. The Project Leader will prepare and update timelines throughout the conversion process.

How long does the conversion process take?

EBP's service commitment is to have the toll-free line open within six weeks of receiving balance assets and acceptable records from the prior recordkeeper. Of course, there is no way to ensure cooperation from prior vendors.

Why are my balances different on the Voice Response Unit (VRU) when compared with the Internet?

The Voice Response Unit reflects immediately all transactions that occur during the day. The VRU also updates prices once in the evening and will reflect any price adjustments once in the morning. The Internet updates transactions between the hours of 3:00am and 6:00am ET. The Internet does not reflect "pending transactions." The Internet does however update price changes up to four times daily. Future site and VRU enhancements will synch up these balances.

How will dividend payments and capital gains distributions affect my account now that EBP uses share accounting?

With share accounting, dividends and capital gains are now posted directly to your plan account. Previously, dividend and capital gain payments were included in the unitized net asset value of each mutual fund.

When dividends and capital gains are declared and announced by a mutual fund, the fund designates a record date. If your plan account is invested in the fund on the record date, you will receive a portion of the dividend or capital gain. The amount you receive will be based on the number of shares of the fund that are in your account on the record date. The share price of the mutual fund will decrease on the Ex-Dividend Date, which is the date the mutual fund distributes the dividend or capital gain.

Please note that when the dividend or capital gain is paid by the mutual fund, the reinvested shares will be posted to your plan account. Once the reinvested shares are added to your plan account, the market value of your plan account will increase by the same amount of the market value decrease on the Ex-Dividend Date. The net result is that the total value of your plan account is unaffected by the dividend or capital gain.*

* The mutual fund share price may fluctuate as a result of market volatility.

Executive Benefit Plans, Inc. Copyright 1996 - 2006