Principal SERP Select SM PROPOSAL. Presented to. Sample Company. Presented by. Producer/Title. Sample Date WE LL GIVE YOU AN EDGE

Transcription

1 Principal SERP Select SM PROPOSAL Presented to Sample Company Presented by Producer/Title Sample Date WE LL GIVE YOU AN EDGE

2 Proprietary and confidential We sincerely appreciate the opportunity to prepare and present the Principal SERP Select SM plan. While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of the Principal Financial Group are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Not FDIC or NCUA insured May lose value Not a deposit No bank or credit union guarantee Not insured by any Federal government agency

3 Table of contents PAGE Qualified retirement plan limitations...2 The retirement income gap...3 Plan overview...4 How it works...5 Benefits for the employer...6 Benefits for the key employee...7 Plan design...8 Accounting guidance Tax summary Plan administrative services Why The Principal? BOES case submission checklist Appendix Financial analysis Plan documents & sample DOL Top Hat letter 1

4 2015 qualified retirement plan limitations 401(k) retirement plans $120,000 of wages earned in preceding year classifies an employee as highly compensated (IRC Sec. 414(q)(1)(B)) 1.25%/2.0% nondiscrimination limit (sometimes called ADP or 401(k) testing limit) $18,000 maximum elective deferral (IRC Sec. 402(g)(1)) $6,000 catch up if age 50 or older $265,000 maximum eligible compensation limit (IRC Sec. 401(a)(17)) 10% additional tax for early withdrawals Defined contribution (profit sharing) retirement plan Total amount of company and employee contributions equal to the lesser of 100% of compensation or $53,000 (IRC Sec. 415 (c)(1)(a)) $265,000 maximum eligible compensation limit 10% additional tax for early withdrawals Defined benefit (pension) retirement plan $210,000 maximum annual benefit (IRC Sec. 415(b)(1)(A)) $265,000 maximum eligible compensation limit [IRC Sec. 401(a)(17)] Individual retirement account (IRA) Employees with modified adjusted gross income above certain amounts (depending on filing status) cannot deduct contributions to an IRA account if participating in a qualified retirement plan (IRC Sec. 408). $5,500 maximum $1,000 catch up if age 50 or older 10% additional tax for early withdrawals No Roth IRA contributions may be made if the individual s modified Adjusted Gross Income (AGI) is in excess of $193,000 (married) or $131,000 (single) [IRC Sec. 408A(c)(3)(C)(ii)(I) and (II)]. 2

5 The retirement income gap Qualified retirement plan restrictions can add to the key employee s retirement gap situation. You are restricted on how much you can contribute to and deduct in a defined contribution plan (for 2015, the lesser of $53,000 or 100% of compensation). In addition, the maximum compensation that can be taken into account for qualified plan purposes is currently limited to $265,000. Finally, you re limited in how much you can pay out as a benefit with a defined benefit plan ($210,000 for 2015). This information is from the Principal Financial Group Replacement Ratio Calculator with source information from the Annual Statistical Supplements to the Social Security Bulletin ( It is intended to demonstrate the potential impact of Social Security and 401(k) plan benefits at various income levels. For more information on your individual circumstances, please speak with your financial or tax professional Principal Financial Services, Inc. Hypothetical results are for illustrative purposes only and are not intended to represent the past or future performance of any investment vehicle. Investment return and principal value will fluctuate and when redeemed the investments may be worth more or less than their original cost. Withdrawals prior to age 59½ may be subject to a 10 percent additional federal tax. Ordinary taxes are due upon withdrawal of pre-tax contributions and earnings in both qualified and nonqualified plans. 3

6 Plan overview Like you, many growing businesses are challenged with recruiting, rewarding and retaining key employees. An effective strategy to help you face these challenges is the implementation of selective, nonqualified executive benefit programs. The Principal is a leader in this market and has been offering a suite of nonqualified retirement plans for more than a quarter of a century. Our Principal SERP Select plan is designed to address the specific needs of growing businesses like yours. Principal SERP Select can help you recruit and retain key employees by building a path for loyalty with rewards. It allows you to select key employees who will receive employer contributions from you. Benefits are payable upon certain triggering events. In addition, you and your key employees can reap multiple rewards since the plan financing vehicle is an employer-owned, permanent life insurance policy. A portion of the employer-owned life insurance death benefit may be endorsed to the key employee for survivor income purposes. This allows the plan to provide protection under multiple contingencies. Any remaining portion of the life insurance death benefit may be used by you as key person coverage or to recover costs. Business profile Business entity - C corporation Available for owners and key employees - S corporation, LLC Available for key employees Business continuity Financial stability (profitable, good cash flow, long history) One to five potential key employees in higher tax brackets Target average case $25,000 to $150,000 annual premium Not appropriate for: not-for-profit organizations, organizations subject to 457(f), S corporations, LLCs or partnership owners Reward key employees Key employees see value in your promise of significant contributions to help supplement their retirement income. Key employees appreciate the security provided through the survivor life insurance protection that may be available during the service period. Key employees sense the value you place on their continued employment and loyalty to you and your business. Protect your business You may efficiently reward and retain people key to the success of your business. You may help reward and retain key employees by providing an opportunity for supplemental retirement income. You can choose to protect your business against the death of a key person with key person life insurance or you can recover the costs of the program. 4

7 How it works This plan is designed to be simple, yet flexible offering a defined contribution plan design. You can select who participates and the contribution amount. This plan is designed to accept only employer contributions with vesting options creating strong "golden handcuffs" that help tie select key employees to your business. Reward your top talent for their loyalty, and help keep the integrity of your business in place. After establishing a defined contribution deferred compensation agreement with the key employee(s) you select, you determine how much you want to contribute to the plan (employer contributions only). Life insurance is used to help finance the plan. Optional endorsement split dollar agreement deferred compensation agreement KEY EMPLOYEES (5 or fewer) Payout Upon triggering event ASSETS Company Assets/ Insurance policy premium EMPLOYER death benefit/ cash values Then, upon a triggering event such as separation from service, retirement, death or disability, a vested payout to the key employee may begin. Dollars to complete the payout may come from company cash flow, distributions from the life insurance policy or transfer of ownership of the life insurance policy. 5

8 Benefits for the employer Effective method to recruit, reward and retain key executives Employer can be selective about which executives are covered under the benefit, as well as the level at which they will benefit. Benefit must be focused on a select group of management or highly compensated employees (see page 14). Vesting schedules and payout options are available to allow the plan to meet multiple retention goals (see page 9). Employer tax deduction May deduct the benefits paid to the key employee(s) at any distribution event. Tax-efficient life insurance death benefits Can be an attractive way to finance valuable benefits to select employees. If properly structured, the employer receives death benefit tax free. Financing flexibility Informal financing options include fixed or variable universal life insurance policies from The Principal. Life insurance policy values accumulate tax deferred Employer owns the asset and can use cash values for business purposes. Premium payments do not incur payroll taxes. Simplified plan-level administrative services Simplified employer asset and liability reports are provided. May access policy information 24/7. 6

9 Benefits for the key employee Supplemental retirement income Simple and easy-to-understand plan design Employer contributions only Key employee(s) may be given the opportunity to choose (at implementation) the investment options used for hypothetical account measurement Earnings and contributions accumulate tax deferred Employer contributions do not increase current taxable income; income tax will be due and payable in the year the benefits are paid Avoids 10% excise tax penalty on distributions prior to age 59½ No minimum withdrawal required at age 70½ Life insurance death benefit Income tax-free life insurance death benefit may be paid to key employee s beneficiary if endorsement split dollar is used, and death occurs. Minimal cost to the key employee costs are based on taxes due on the economic benefit of pure life insurance endorsed to the key employee, versus full premium costs if the key employee were to purchase the life insurance outside of the plan. 7

10 Plan design As you are designing a Principal SERP Select SM plan to suit your business needs, there are two key areas to focus on: The supplemental retirement income created by the employer s promise of annual employer contributions. The endorsement of the life insurance benefit that may be available to the key employee. Supplemental retirement income The employer makes contributions to a Principal SERP Select plan. The employer commits to a specified annual contribution over a set number of years. Once the selections are made for the plan, it can be implemented and the life insurance policy can be purchased by the employer to informally finance the plan. Employer contributions As a deferred compensation plan, Principal SERP Select is an unfunded, contractual obligation from the employer to pay a benefit to the key employee at some point in the future. The benefit is a hypothetical account equal to the employer contributions to the key employee s account, plus earnings or losses based on a hypothetical investment. Considerations include: The plan is informally financed with employer, after-tax dollars. Measuring benefit growth The plan is simple, yet flexible and can be tailored to meet the specific needs of both the company and the key employee; the plan can be designed using several options to measure the benefit: Fixed rate Principal LifeTime 2040 Account Principal LifeTime 2020 Account Principal LifeTime 2050 Account Principal LifeTime 2030 Account The Principal LifeTime Accounts, which are target-date accounts, invest in underlying Principal Funds. Each Principal LifeTime Account is managed toward a particular target (retirement) date or the approximate date the participant or investor starts withdrawing money. As each Principal LifeTime Account approaches its target date, the investment mix becomes more conservative by increasing exposure to generally more conservative investment options and reducing exposure to typically more aggressive investment options. The asset allocation for each Principal LifeTime Account is regularly re-adjusted within a time frame that extends years beyond the target date, at which point it reaches its most conservative allocation. Principal LifeTime Accounts assume the value of the investor s account will be withdrawn gradually during retirement. Neither the principal nor the underlying assets of the Principal LifeTime Accounts are guaranteed at any time, including the target date. Investment risk remains at all times. The financing design for the life insurance policy is also important: - Cash value may be used to make the benefit payment to the key employee. - Death benefits may provide key person insurance coverage, as well as covering any survivor benefit endorsed to the key employee. 8

11 Plan design (continued) Vesting Vesting creates a contractual obligation from the employer to pay the benefit when a key employee becomes eligible to receive it. The employer has two options both effective from initial contribution date: Cliff vesting: 100% in any year, up to year 10 Graded vesting: 20% each year, until 100% vested after five years Distribution events The plan will include standard benefit distribution events. These will include separation from service, retirement, death and disability. Payout options Each key employee will be able to select a lump-sum payment option or annual installment payments over a 3-, 5- or 10-year period. Benefits payments Benefit payments will be made from cash or paid from life insurance policies using withdrawals and loans. 1 In the event of a disability during the service period, the key employee may be entitled to a benefit to be specified in the agreement. In the event of death prior to separation from service, the key employee may be entitled to a benefit. The benefit may be tax-free if an endorsement split dollar agreement is utilized. If Endorsement Split Dollar is used, plan sponsors should retain sufficient death benefit to meet their vested obligation payout. See the Appendix for a Principal SERP Select agreement to assist you with defining the details of the plan. Plan financing options The Principal SERP Select plan is technically an unfunded obligation by the employer to pay a benefit to a key employee at some time in the future. The employer pays premiums on a company-owned life insurance policy to informally finance the future benefit. Principal SERP Select offers both fixed and variable life insurance products. There are many benefits provided by Principal SERP Select for both the employer and the key employee. However, there are some potential issues that should be taken into consideration as well. 1 Withdrawals and loans taken from life insurance policies classified as modified endowment contracts may be subject to income tax and may also be subject to federal tax penalty if the withdrawal or loan is taken prior to age 59½. Withdrawals and loans from life insurance policies may reduce the amount payable to your beneficiaries at your death. Withdrawals and loans will also reduce the policy cash surrender value and may cause the policy to lapse. Lapse of a life insurance policy can cause loss of death benefit and adverse income tax consequences. 9

12 Accounting guidance Following is a general discussion of the applicable accounting principles. Please keep in mind that the employers, in consultation with their accountants and advisors, should determine the accounting treatment that will be used for financial reporting. The accounting for the Principal SERP Select plan, as it relates to a for-profit employer, is made up of two separate categories of entries: 1. The first set of entries is to account for deferred compensation as compensation expense and to record the deferred compensation account(s) as a liability. 2. The second set of entries is to account for the informal financing of the deferred compensation plan using life insurance policies. GAAP guidelines The Financial Accounting Standards Board (FASB) is responsible for establishing non-governmental U.S. Generally Accepted Accounting Principles (GAAP). Effective for accounting periods ending after September 15, 2009, the FASB Accounting Standards Codification (ASC Codification) is the single source of authoritative U.S. GAAP. For convenience, these accounting guidelines include both pre- and post-codification references to GAAP. Expense and liability Principal SERP Select accounts are contractual obligations from the employer to pay the key employees in the future and are treated as a long-term liability. This Principal SERP Select liability is accounted for under ASC (APB 12). Life insurance If employer-owned life insurance is used to informally finance Principal SERP Select, ASC (TB 85-4 and EITF 06-5) entitled Accounting for Purchases of Life Insurance should be your reference. In the Principal SERP Select plan, the employer may offer a pre-retirement death benefit for the executive through the use of an endorsement split dollar arrangement. The employer owns the contract, pays the premium and records the policy as a corporate-owned asset according to ASC (TB85-4 and EITF 06-5) and FASB Technical Bulletin No Income taxes The Principal SERP Select liability is an expense that is deductible for tax purposes only when it is paid to the key employee. The Principal SERP Select liability would be grouped with all other deductible temporary differences to compute the deferred tax asset. (Flow-through entities, e.g. S corporations, partnerships, do not record a deferred tax asset. Owners will receive tax benefits at the time the deferred compensation payments are paid to key employees.) The deferred tax asset is accounted for under ASC (SFAS 109). A deferred tax liability is recognized for temporary differences that result in taxable amounts in future years. These deferred tax accounts are based on ASC guidance. 10

13 Accounting guidance (continued) EXPENSE AND LIABILITY ENTRIES Expense and Liability entries 1 Creating the deferred compensation account BALANCE SHEET INCOME STATEMENT DR CR DR CR Salary expense $100,000 Deferred compensation liability $100,000 2 Crediting Earnings to the Deferred Compensation Account Deferred compensation expense $4,000 3 Deferred compensation liability expense $4,000 distribute THE DEFERRED COMPENSATION liability ACCOUNT to the Key employee and close out the account Deferred compensation liability $104,000 Cash $104,000 Tax effects 1 nondeductible deferred compensation expense Deferred Income Tax Asset $40,000 Cash $40,000 2 nondeductible Effect of earnings credited to the account Deferred income tax asset $1,600 BALANCE SHEET INCOME STATEMENT DR CR DR CR Tax expense $1,600 3 Deductible effect on the distribution Cash $41,600 Deferred income tax asset $41,600 (1) The employer contributes $100,000 for the benefit of the key employee and the company sets up a deferred compensation liability account and debits a deferred compensation expense account. (2) Accounting for the earnings credited to the deferred compensation account, assuming a hypothetical 4% rate of return. This cost may be partially or fully offset by the earnings in an employer-owned life insurance policy used to informally finance the plan. The company may book the tax effect of the increase in the deferred compensation account, but since it is not currently deductible, it increases the deferred income tax asset. (3) Paying out the key employee with cash and closing out the deferred compensation liability account. The payment is currently deductible for taxes, which reverses the deferred income tax asset. 11

14 Accounting guidance (continued) Life insurance entries 1 Employer pays premium into insurance contract BALANCE SHEET INCOME STATEMENT DR CR DR CR Life insurance premium expense $100,000 Cash $100,000 2 Cash surrender value (Csv) in the insurance contract Life insurance CSV asset $68,839 Life insurance premium expense $68,839 3 Partial withdrawal of csv (surrender or loan) and deposit into cash Cash $10,000 Life insurance CSV $10,000 4 Plan participant dies at end of year with $1,000,000 of death benefit Cash $941,161 Non-taxable life insurance proceeds $941,161 Cash $58,839 Life insurance CSV asset $58,839 Tax Effects 1 No Tax Effect Life insurance premiums are not tax deductible. 2 No Tax Effect 3 No Tax Effect Return of principal from a life insurance policy is non-taxable. 4 No Tax Effect Proceeds from death benefits are non-taxable. (1) Employer contributions are used to pay a premium into the life insurance contract. (2) The CSV is accounted for as an asset and offsets the life insurance premium expense. (3) The employer can withdraw money from the CSV in the form of a surrender or loan and deposit into employer cash to pay a deferred compensation benefit to the key employee. (4) When the key employee dies, the employer receives the death benefit proceeds and recognizes the non-taxable income (the difference between the death benefit and the CSV). 12

15 Tax summary With the Principal SERP Select plan, it is important to keep the tax considerations in mind for your key employees and for your business. Considerations for the employer The employer is required to have the key employee sign a Notice and Consent form (IRC Section 101(j)). There are no tax deductions for premiums paid (IRC Section 264(a)(1)). The employer receives a tax deduction for the benefits paid to the key employee (IRC Section 162). Income tax-free death benefits may be available should the key employee die prior to separation from service. Life insurance death benefits received by a C corporation may be subject to the corporate alternative minimum tax (AMT). Life insurance used to informally finance the Principal SERP Select plan may represent a valid business purpose when considering the accumulated earnings tax. Considerations for the key employee If endorsement split dollar is used, the current economic benefit costs, as measured by Carrier OYT rates, for the life insurance death benefit are based on the pure insurance protection that would be paid to the key employee s beneficiary at death. This amount must be reported annually, by the key employee, as income. Employer contributions are pre-tax and earnings accumulate tax free. Income tax-free death benefits will be paid to the key employee s beneficiary should a death occur prior to separation from service, if endorsement split dollar is used. Income taxes will be due in the year in which benefits are paid to the key employee and will be treated as wages subject to FICA and FUTA the later of (1) when services are performed or (2) when there is no substantial risk of forfeiture of the rights to such amounts. Any life insurance death benefit that may be paid to the key employee s beneficiary will be included in the key employee s gross estate for estate tax purposes. The account balance will be included in the key employee s estate. 13

16 Tax summary (continued) ERISA considerations Employers may significantly limit exposure to Employee Retirement Income Security Act (ERISA) requirements by offering this benefit only to a select group of management or highly compensated employees in order to qualify for the Top Hat exemption under ERISA. The following are guidelines to consider when determining this eligible group: Less than 10% of total employees Executives with wages of more than $115,000 each Average compensation of the Top Hat group is three times greater than the average compensation of the non-top Hat group The key employee, by virtue of position or compensation level, has the ability to influence the design and operation of the plan. The employer must also file a Top Hat Letter with the U.S. Department of Labor (DOL) when the plan is established. The written plan document must include a claims procedure. A sample letter is included with the plan documents provided in the Appendix. Securities and Exchange Commission (SEC) considerations Required 8-K filings for compensation agreements between the corporation and executive officers and directors. The Securities Act of 1933 prohibits the offer or sale of securities unless a registration statement has been filed or an exemption is available. - In 1995, the SEC stopped issuing no-action letters on deferred compensation plans, which started a debate as to whether or not a deferred compensation plan is a security. - Clarification has been sought from the SEC, but there is no clear determination. It appears that the position of the SEC as to whether deferred compensation plans need to be registered as a security depends on the participant s motives. If the motive is tax deferral, the plan may not be considered a security. If it is determined that the deferred compensation IS a security subject to registration, there are exemptions that provide relief: - For plan participants residing in a single state - For certain small offerings - For transactions not involving public offerings 14

17 Plan administrative services Exceptional service for you and your key employees is the primary ingredient in a successful benefit program. The manner in which this program is introduced, enrolled and serviced after implementation, will leave a lasting impression as important as the benefit itself. The Principal offers plan-level services that will provide a very meaningful and financially rewarding program for both the employer and its valuable key employees all at no charge. When it comes to providing these benefits, The Principal is there for the employer with administrative services and support throughout the process. We will be there with timely, appropriate communication and information as you administer your plan, as well as being accessible through several different channels, if questions arise. Dedicated home office executive benefits administrator Provides plan-level administrative services for your plan and coordinates with your representative to address service needs. Consolidated plan-level reports In addition to standard policy-level information, these reports include a census of covered key employees, asset reports, liability reports and basic information about the policies that cover them. Individualized key employee annual benefit statements Provided to you for each participant. Consolidated billing services Available to allow you to pay premiums in one easy payment. Economic benefit amounts (if applicable) Provided to you each year for reporting on the key employee s income, reflecting the value of the insurance coverage provided under any endorsement split dollar agreement that may be in place. Internet access via Allows you to view all policies associated with your plan. Toll-free number (Monday through Friday, 8 a.m. to 5 p.m., CT) 15

18 Why The Principal? The Principal is a recognized leader in providing employee and executive retirement solutions. A leading provider of nonqualified deferred compensation plans. 1 Provider of nonqualified executive benefit plan administrative services for more than 4,100 clients representing more than 63,000 participants. 2 No. 1 ESOP recordkeeper. 3 The Principal is a diversified family of insurance and financial services companies, presenting you with a depth of resources and understanding to help the financial futures of both you and your employees. A FORTUNE 500 company. Diverse operations including individual insurance, investments, retirement plans and group/employee benefits. We have the underwriting experience and expertise that comes with more than 130 years as a leading individual life insurance company. 1 Based on total number of NQDC plans, PLANSPONSOR Deferred Compensation Buyer s Guide, December As of June 30, Based on number of plans, PLANSPONSOR Recordkeeping Survey, June

19 Principal Life Insurance Company Principal National Life Insurance Company Members of Principal Financial Group Only one company is the issuer and responsible for obligations of any given policy and is hereinafter referred to as the Company. SERP Select Submission Checklist Date: New Case Existing Case Employer Info Employer Name: Federal Tax ID: Business Structure: C-Corp S-Corp LLC/LLP Partnership Sole Proprietor Private Company Public Company (ticker symbol ) Other: Mailing Address: Employer Contact Name & Title: Phone #: Plan Info Formal Plan Name: Effective Date of Plan: Underwriting Full Underwriting Simplified Issue-Teleapp** Simplified Issue-Standard/Decline** Plan Submission ** Simplified Issue underwriting programs require Principal s pre-approval see Page 2. Refer to next page plan. Checklist & Tips to assemble and submit all paperwork for this SERP Select Home Office Contacts (for internal use only) Name Phone # Primary Contact: Backup Contact: Backup Contact: Backup Contact: Backup Contact: DD 849 S-1 Page 1 of 2 Insurance products from the Principal Financial Group (The Principal ) are issued by Principal National Life Insurance Company (except in New York) and Principal Life Insurance Company. This completed document is for restricted use only. No part may be copied nor disclosed without prior consent of The Principal. 17

20 Checklist & Tips Use this list to make sure you ve assembled all paperwork for submitting your SERP Select plan. For all SERP Select plans, submit If Endorsement Split Dollar will apply in pre-retirement years To obtain List Billing For Simplified Issue Underwriting If the Life Insurance policies will be owned by a Rabbi Trust Plan Submission Assistance / Questions (?) Page 1 of this SERP Select Submission Checklist (submit only 1 per plan, not per application) Life Insurance Application(s) (one per participant) Employee Consent to be Insured form (one per participant) Life Insurance Illustration(s)/Quotation(s) or corresponding Disclosure(s) Copies of formal Adoption Agreement, SERP Select Plan Agreement, and Participant Agreements. Roles and Responsibilities Acknowledgement (signed) Copy of formal Plan Agreement Form DD914E - Endorsement Split Dollar Benefit Instructions (one per application) (Note: On each Life App, Beneficiary field should read, See Split Dollar Benefit Instructions. ) DD2721 Consolidated Premium Statement Agreement Copy of Principal correspondence (a prior letter or ) pre-approving use of the Simplified Issue Underwriting Program. (Note: With this Underwriting Program, make sure to obtain special Plan Submission assistance by calling Business Market Administration at the phone number below.) Under Age 70: Submit... For Variable life ins: Trustee Certification form RF971, or entire Trust document. For Non-Variable life ins: Trustee Certification form RF971, or Trust's first and last/signature page. Ages 70+: Submit entire Trust document. Call Business Market Admin Department via Producer Support Line: , options 4,2,3. DD 849 S-1 Page 2 of 2 Insurance products from the Principal Financial Group (The Principal ) are issued by Principal National Life Insurance Company (except in New York) and Principal Life Insurance Company. This completed document is for restricted use only. No part may be copied nor disclosed without prior consent of The Principal. 18

21 WE LL GIVE YOU AN EDGE Principal National Life Insurance Company and Principal Life Insurance Company, Des Moines, Iowa , Before investing, carefully consider the investment option objectives, risks, charges and expenses. Contact a financial professional or visit principal.com for a prospectus or, if available, a summary prospectus containing this and other information. Please read it carefully before investing. Investing in variable life insurance involves risk including the loss of principal. Investors should consider their risk tolerance and time horizon when selecting the life insurance product to meet their needs. Variable life insurance has annual fees and expenses and has both life insurance related charges and investment management fees. See the variable life insurance prospectus for complete details on fees and expenses. While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance issued by Principal National Life Insurance Co. (except in NY) and Principal Life Insurance Co. Principal Funds, Inc., is distributed by Principal Funds Distributor, Inc. Securities offered through Princor Financial Services Corp., , member SIPC and/or independent broker/dealers. Principal National, Principal Funds Distributor, Inc., Principal Life and Princor are members of the Principal Financial Group, Des Moines, IA BB /2014 t mh