Retirement Plans for Small Businesses

Transcription

1 OppenheimerFunds Retirement Services Plans That Work Retirement Plans for Small Businesses Employer Guide 1234

2 Plans That Work OppenheimerFunds Retirement Services understands the challenges you face and offers solutions to meet them in today s increasingly complex environment. Each retirement plan is backed with the experience and strength of OppenheimerFunds, an industry leader firmly committed to the retirement plans business. We focus extensive resources on the technology, people and products necessary to help plan sponsors meet fiduciary responsibilities and participants work toward a successful retirement. With our dedication to investment excellence, we bring the breadth and depth of high quality investments necessary for successful plans, including proven Oppenheimer mutual funds, asset allocation solutions and multiple manager offerings. Finally, we offer these investments through flexible retirement plan programs that include a comprehensive package of education, planning tools, communication and support. From enrollment to retirement income planning, we provide solutions for today s challenges. In short, we create Plans That Work. Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.

3 A Secure Future for You and Your Employees If you own a small company or are self-employed, you can be proud of being a driving force in the United States economy. Small, dynamic businesses represent the heart and soul of the entrepreneurial spirit, employing 36% of the U.S. workforce. 1 However, less than 20% of small business owners have retirement plans in place. 2 Given the uncertainty over Social Security, generally longer lifespans and inflation s threat to long-term purchasing power, this lack of retirement coverage is becoming an increasingly important issue in Washington, D.C. In response, lawmakers have made several legislative changes to retirement plans including allowing permanently higher contribution limits that can help make it easier for small businesses and their employees to enjoy the same benefits that larger companies have enjoyed for years. 1 As you read through this guide, you ll see that there have never been more or better options available to self-employed individuals and small business owners interested in establishing a retirement plan. You ll learn about: Significant advantages for you and your business A plan for every small business The experience and backing of OppenheimerFunds 1. Source of data: U.S. Small Business Administration, Office of Advocacy, based on data provided by the U.S. Census Bureau, Statistics of U.S. Businesses, Source of data: Society of Professional Asset-Managers and Record Keepers, 2007.

4 Significant Advantages for You and Your Business 2 Recognizing the huge impact that small enterprises have had on new job growth, Congress has supported a whole new breed of retirement plans tailored to the specific needs of smaller ventures. These plans, which include SIMPLE IRAs, SEP IRAs, Individual 401(k)s and Profitsharing plans, may be suitable for small businesses looking for low cost, minimal government regulation and/or relief from having to contribute to a retirement plan every year. Each of these plans, along with others, is discussed later in this guide. And while each plan has its unique features, all of them: Offer efficient ways to shelter personal and business income from current taxes Allow employees to take advantage of tax-deferred investment earnings to accelerate the growth of retirement savings Offer tax relief for business owners. Since employer contributions to a retirement plan are a tax-deductible expense, sponsoring a plan gives your business an immediate tax break Provide the caliber of benefit necessary to attract, hire and keep quality employees. Workers these days not only need employers support in saving for retirement, they expect it. An OppenheimerFunds retirement plan can be a surprisingly low cost, simple way to add a major incentive to your benefits package No matter what type of small business you have, you ll find that a retirement plan offers benefits you can t afford to pass up. OppenheimerFunds offers a comprehensive range of plans, each designed to address the specific requirements of small business owners like you. Retirement Plan Advantage This illustration shows how much faster money can compound in a tax-advantaged retirement plan relative to a comparable investment in a non-tax-favored savings vehicle. It assumes $100 of salary saved per month at an 8% annual rate of return over a 20-year savings period. 3 Retirement plan 4 15% tax bracket 28% tax bracket 31% tax bracket Tax-advantaged Taxable $32,759 $30,530 $43,696 $59, This hypothetical example is not intended to show the performance of any Oppenheimer fund for any period of time, nor does it show fluctuations in principal value or investment return. 4. Assumes a fixed average annual rate of return of 8%, on a tax-deferred basis, with dividends and distributions reinvested. Withdrawals from qualified plans prior to age 59½ may be subject to taxes and penalties. The hypothetical ending values are subject to income tax when withdrawn. Periodic investment plans do not ensure a profit or protect against losses in declining markets.

5 A Plan for Every Small Business From Profit-sharing and Defined Benefit plans to Safe Harbor 401(k) and New Comparability plans, OppenheimerFunds offerings are designed to meet the varying needs of different types and sizes of small businesses. To determine which one may be right for you and your business, take these factors into consideration: Flexibility and control Today s retirement plans give small employers more flexibility than ever before. This control extends to a large number of important areas, including: How the plan is funded The maximum amount of money that can be sheltered under the plan Who is eligible to participate When employees are vested The degree of administration involved The cost of the plan Ease of administration Many of our small-business retirement plans have been designed to keep administrative work to a minimum. Although the amount of paperwork required by each plan does vary somewhat, you ll find it can be easy for small business owners to establish plans even plans once full of complexity Cost Few small business owners can afford to pay high fees to implement and maintain a retirement plan. Fortunately, many of today s plans are intended specifically to minimize such expenses. As always, OppenheimerFunds strives to keep its fees as competitive as possible How Do I or My Employees Qualify for a Tax Credit? To encourage more Americans to save for retirement, the government now offers special tax incentives to small business owners who establish a retirement plan and to lower paid employees who participate in one. Qualifying employers who start a plan may receive up to $500 per year in tax credits for start-up costs for a period of up to three years. Lower income workers who participate may be eligible for a tax credit of up to $1,000 for contributions made to the plan. For more details, contact your financial advisor. 3

6 4 Available Plans Suitable for Most Small Businesses OppenheimerFunds offers several types of retirement plans tailored to the needs and circumstances of self-employed individuals and small business owners. Here s a brief look at each one. SIMPLE IRA SIMPLE IRAs are ideal for business owners with 100 or fewer workers who would like their employees to share responsibility for their own retirement savings, but who don t want the complexity, cost and administration of a 401(k). Such businesses generally include consumer establishments such as stores and restaurants, professional firms and small companies. SIMPLE IRAs are also appropriate plans for freelancers, independent contractors, part-timers and individuals who earn any self-employment income from activities outside of their full-time jobs. Key benefits Very simple to administer; no discrimination testing or government reporting is required Allows employees to make annual pretax, salary-deferral contributions of up to $10,500 (for 2007) or 100% of income, whichever is less ($13,000 if age 50 or older) Individual employees can defer the maximum amount, regardless of the amounts deferred by other employees Important considerations Employer contributions are mandatory and must use one of the following plan formulas: A dollar-for-dollar match on salary deferrals up to 3% of compensation. This can be lowered to 1% in two years out of any five year period Employer can make a nonelective contribution of 2% of compensation, regardless of whether employees choose to participate up to compensation cap of $225,000 Must be the employer s exclusive plan Doesn t permit Social Security integration All contributions are 100% immediately vested Premature withdrawal penalty tax of 25% in first two years of participation Loans are not permitted Annual 60-day notice must be given to all eligible employees Overall, the maximum annual contribution that can be made to a SIMPLE IRA is low when compared to other plans up to $21,000, or $26,000 for individuals age 50 or older 5 5. A participant must earn at least $350,000 ($433,333 if over age 50) to receive the maximum contribution under the SIMPLE IRA. Rollover Rules Moving your retirement plan from one employer to another is easy. Rollovers may be made between Qualified Plans, 403(b)s, 457s, SEP IRAs and IRAs. Rollovers can be made from a SIMPLE IRA to any of the mentioned plans after two years of participation in the SIMPLE IRA. Rollovers from other plan types cannot be made into the SIMPLE IRA. It is important to check for any plan restrictions in a provider s plan before moving your plan.

7 SEP IRA SEPs are ideal if you re a self-employed individual or small business owner who wants a simple, easy-to-administer plan that allows you to make annual discretionary tax-deductible contributions to a retirement plan. For each participant employers are permitted to make annual tax-deductible contributions of up to the lesser of $45,000 (for 2007), or 25% of compensation (based on the first $225,000 of compensation). SEPs are also ideal for freelancers, independent contractors, part-timers and individuals who earn any self-employment income from activities outside of their full-time jobs. Key benefits Annual contribution percentages may vary; contributions may even be skipped altogether Simple to establish and maintain; no government reporting Permits Social Security integration Important considerations In general, the same percentage of compensation must be contributed for all participants Involves top-heavy testing All contributions are 100% immediately vested Generally difficult to exclude part-timers from eligibility Loans are not permitted What About Social Security Integration? Retirement plans that are integrated with Social Security use a contribution formula that takes employees Social Security payments into account. Using such a formula allows higher paid employees to receive a higher contribution percentage. If one of your goals is to maximize retirement plan benefits for key members of your staff, Social Security integration can be advantageous. 5

8 6 Payroll Deduction IRA OppenheimerFunds Payroll Deduction IRA offers all business owners the opportunity to provide a valuable employee benefit without expensive administrative costs. This is the only retirement plan with no employer contributions and no employer costs. This plan simply allows employees to have a portion of their paycheck automatically deposited into an OppenheimerFunds IRA if they choose. Employees can choose to invest in an OppenheimerFunds Traditional IRA, Roth IRA, Coverdell Education Savings Account or all. Contributions are limited to $4,000, plus $1,000 in catch-up contributions for workers age 50 or older (for 2007). Contributions to a Coverdell Education Savings Account are limited to $2,000 (for 2007). Key benefits Low cost to you because employees fund their IRA accounts through payroll deductions; no administrative fees or expenses Simple to establish and maintain; no discrimination testing or government reporting Anyone can participate in the Payroll Deduction IRA plan, regardless of company size, age or position in the company Can be used to complement any of the OppenheimerFunds employersponsored retirement plans Important considerations Compared to other retirement plans, the maximum annual contribution to a Payroll Deduction IRA is low Loans are not permitted Employees are responsibile for making sure that aggregate annual contributions to all IRAs and Roth IRAs do not exceed annual limits, and that they meet the income eligibility requirements for contributing to a Roth IRA Spousal Contributions 6 OppenheimerFunds allows participants to make contributions to OppenheimerFunds IRAs on behalf of a spouse. Employees complete the Payroll Deduction IRA application and indicate if it is a Spousal IRA. Under Account Ownership, the employee lists the name and information of his/her spouse. The employer s payroll officer then sets up accounts on our online Contribution Processing System (CPS) for the spouse and withholds the appropriate amount from an employee s paycheck. OppenheimerFunds then invests the money according to the allocation instructions. This option is provided solely at the discretion of the employer. 6. In order to take advantage of the Spousal IRA rules for either a Traditional or Roth IRA, a husband and wife must file a joint income tax return and the receiving spouse must have less compensation than the contributing spouse (or no compensation). Contributing spouses are not required to establish their own IRA account in order to establish an IRA on behalf of their receiving spouse.

9 Single K SM Single K SM is a plan designed specifically for owner-only businesses that employ a spouse or the owner s immediate family members. It s also designed for businesses with part-time employees who are not eligible to participate in the plan. If your business fits this description whether it s a corporation, partnership, sole proprietorship or non-profit entity Single K may be for you. Key benefits Employer can make an overall tax-deductible profit-sharing contribution of up to 25% of eligible payroll plus as much as another $15,500 (for 2007) in salary deferrals ($20,500 if age 50 or older). Total contributions cannot exceed the lesser of $45,000 (for 2007) ($50,000 if age 50 or older) or 100% of compensation (based on the first $225,000 of compensation) Availability of loans and hardship withdrawals No top-heavy and discrimination testing required Roth option available Important considerations All contributions are immediately 100% vested May require filing of Form 5500 if assets exceed $250,000 7

10 8 401(k) The 401(k) is designed for businesses of all sizes that wish to have their employees share responsibility for retirement savings. With features such as availability of loans and hardship withdrawals, the 401(k) is one of the most flexible retirement plans available. As a result of these extra features, 401(k)s require more administration than other plans. Key benefits Allows employees to make annual pretax, salary deferral and/or Roth after-tax contributions of up to $15,500 (for 2007). In addition, catch-up contributions limited to $5,000 may be made by participants age 50 or older Employer matching contributions (optional). Maximum tax-deductible employer contribution is 25% of the compensation paid during the year to the participants under the plan. The overall maximum contribution per eligible employee is the lesser of $45,000 (for 2007) or 100% of compensation (based on the first $225,000 of compensation) Availability of loans and hardship withdrawals Vesting schedule permitted Part-time and seasonal workers can potentially be excluded on the basis of eligibility requirements Important considerations Higher cost than other plans Requires filing of Form 5500 Nondiscrimination and top-heavy testing required Roth 401(k): Another Way to Save Money Tax Free IRS rules effective January 1, 2006, allow 401(k) plans to offer a Roth feature. In short, this makes it possible for employees to designate some of their contributions as Roth contributions. Participants can save up to $15,500 in a combination of pretax and Roth 401(k) contributions for 2007, plus another $5,000 in catch-up contributions if they are 50 or older. Roth contributions offer several benefits: All participants are eligible Higher contributions than a Roth IRA, with no income level restrictions Participants make after-tax contributions now and take tax-free distributions at retirement

11 Safe Harbor 401(k) If you like the features of a 401(k) but not the cumbersome nondiscrimination plus top-heavy testing requirements that accompany it, you may find a Safe Harbor 401(k) to be a viable alternative. Safe Harbor 401(k) plans may be suitable for companies with highly compensated employees who are limited in how much they may contribute to a 401(k) because non-highly compensated employees are not participating or contributing enough to the plan. Key benefits Highly compensated employees can maximize contributions to the plan each year, even if lower paid employees contribute very little Nondiscrimination and top-heavy testing is automatically satisfied for Safe Harbor employer contributions and employee deferrals Safe Harbor 401(k) offers all the same benefits as the traditional 401(k) plan Important considerations Employer matching contributions are required as follows: A dollar-for-dollar match on salary deferrals up to 3% of compensation and 50 cents on the dollar for salary deferrals between 3% and 5% of employee compensation Alternatively, a nonelective contribution of 3% of compensation for all eligible employees, regardless of whether or not they participate in the plan, is required Enhanced matching contributions are permitted All Safe Harbor employer contributions are immediately 100% vested Requires filing of Form 5500 Safe Harbor 401(k) The Safe Harbor 401(k) is one of the most flexible, low maintenance retirement plans available. Flexibility with less administration may seem contradictory, but it s possible because Congress eliminated the cumbersome top-heavy rules for Safe Harbor plans. 7 Employers and their higher paid workers can tuck away the maximum contributions permitted under the Safe Harbor plan, enjoy its flexible plan features and, if using the matching contribution formula, not have to worry whether lower paid workers are participating in the plan. 7. Top-heavy testing may require an employer to make a minimum contribution on behalf of non-key employees. Top-heavy rules still apply to retirement plans such as traditional 401(k)s and SARSEPs. 9

12 10 Profit-sharing If you like the features of a SEP, but want more control over your plan s eligibility and vesting, and don t mind some additional administrative responsibilities, a Profit-sharing plan may be a better option. Profit-sharing plans are suitable for businesses with unpredictable earnings as well as those with part-time employees and/or high employee turnover. Key benefits Annual contribution percentage may vary; contributions may even be skipped altogether. Employer is allowed to make a tax-deductible contribution of 25% of eligible payroll paid during the year to the participants under the plan. The overall maximum contribution per eligible employee is 100% of compensation not to exceed $45,000, based on the first $225,000 of compensation Part-time and seasonal workers can potentially be excluded on the basis of eligibility requirements Vesting schedule permitted Availability of loans and hardship withdrawals 8 Permits Social Security integration Important considerations In general, if the employer chooses to make a contribution to the plan, the same percentage of compensation must be contributed on behalf of all participants 9 Involves moderate administration and is subject to ERISA reporting requirements Money Purchase Pension Plans Adopted primarily by small businesses and self-employed individuals who wanted to save more of their income, Money Purchase Pension plans have been rendered obsolete by the same legislative changes that made the Single K plan possible. You can contribute as much to a Profit-sharing plan as you can to a Money Purchase Pension plan. What s more, unlike a Money Purchase Pension plan, Profit-sharing plan contributions are discretionary rather than mandatory giving employers more flexibility. 8. Not available in all plans. 9. This is generally applicable for plans that choose to use a nonintegrated contribution formula.

13 Non-traditional Profit-sharing Plans and Other Options for Small Businesses with Older, Higher Compensated Employees OppenheimerFunds makes Profit-sharing plans available in several variations that are suitable for a wide variety of employers, including corporations, partnerships and sole proprietorships. Age-weighted, New Comparability and Super Comparability plans offer all the benefits of traditional Profit-sharing plans, plus greater flexibility. They allow you to make larger contributions to older, higher paid owners and employees. This is because the plan contributions are based on benefits at retirement age, not on allocations of contributions to the plan. Briefly, here s how each of them works. Age-weighted If you re a small company with one or more key employees who are older and more highly paid than the rest of the workforce, an Age-weighted plan is suitable for you. With an Age-weighted plan, contributions are based on a formula that takes age, as well as compensation, into account. As a result, employees with fewer years left until they retire receive larger contributions than their younger counterparts. 11 Key benefits Contributions for older employees may be considerably higher than those made for younger employees. Each year, you re allowed to make a taxdeductible contribution of 25% of eligible payroll paid during the year to the participants under the plan. The overall maximum contribution per eligible employee is the lesser of $45,000 (for 2007) or 100% of compensation (based on the first $225,000 of compensation) Same flexibility as traditional Profit-sharing plans. Contributions are not required every year and vesting schedules are permitted. Loans and hardship withdrawals are also available Important considerations More administration costs than other plans Subject to ERISA reporting requirements No prototype documents are available Subject to nondiscrimination rules and top-heavy testing

14 12 New Comparability New Comparability plans take Age-weighted plans a step further. Rather than allocate contributions according to a formula based solely on age and compensation, New Comparability plans enable you to categorize employees by a variety of criteria, including ownership, tenure, age and job function. Each category may then receive a different contribution percentage. Key benefits Employees are grouped as Preferred or Non-preferred with the Preferred group(s) receiving a greater portion of the employer s overall plan contribution. The contribution limits are the same as those of a traditional Profit-sharing plan Same flexibility as traditional Profit-sharing plans. Contributions are not required every year and vesting schedules are permitted. Loans and hardship withdrawals are also available Important considerations More administrative costs than other plans Subject to ERISA reporting requirements No prototype documents are available Subject to top-heavy testing and nondiscrimination rules The IRS has issued regulations which provide specific allocation rates for New Comparability plans. Please contact your tax advisor for more information Traditional Profit-sharing vs. New Comparability Plans Traditional New Profit-sharing Comparability Age Salary Contributions Contributions High Net Worth Workers Creative Director 54 $225,000 $45,000 $45,000 Creative Director ,000 45,000 45,000 Total $90,000 $90,000 Rank-and-file Workers Web Writer 30 55,000 11,000 2,750 Account Manager 31 47,000 9,400 2,350 Account Manager 28 42,000 8,400 2,100 Marketing Assistant 32 40,000 8,000 2,000 Marketing Assistant 25 26,000 5,200 1,300 Total $42,000 $10,500 Grand Total $132,000 $100,500 The Wealthy Entrepreneur If you re a high net worth business owner whose primary objective is to maximize the benefit you and your higher paid workers receive under the plan, while minimizing the benefit your lower paid workers receive, OppenheimerFunds has plan solutions for you. Qualified plan options such as Age-weighted and New Comparability profit-sharing plans, as well as Defined Benefit plans, offer you a great opportunity to save substantial amounts of money in a shorter period of time. And thanks to legislation changes, the increased amounts that may be contributed to these plans have been made permanent. Here s an example of how a New Comparability Plan can help you to provide a benefit to your rank-and-file workers while maximizing the plan s benefit for a core group of employees usually your high net worth workers. Let s say you have an Internet-based marketing company made up of two directors, a writer, two account managers and two assistants. Your goal as a director is to benefit from as much of the plan contributions as possible and minimize the amount you have to contribute to your employees. If you were to establish a traditional Profitsharing plan, here s how it could work with a 20% allocation. Each employee gets a profitsharing contribution equal to 20% of their pay, so the directors end up with about 68% of the total plan contribution. But with the New Comparability solution, the directors could potentially get a larger percentage of the plan s contributions 90% of overall total plan contributions. This is a hypothetical illustration only. Due to the complexity of New Comparability plans, a tax or legal advisor should be consulted.

15 Super Comparability Many companies that have faced challenges meeting nondiscrimination testing and top-heavy requirements have found the new Super Comparability plan to be a welcome addition to their retirement plan options. Super Comparability plans combine aspects of Safe Harbor 401(k) plans and New Comparability plans to provide you with the ability to make maximum contributions for highly compensated employees. Key benefits Allows employees to make annual 401(k) pretax salary deferrals of up to $15,500 (for 2007). Participants age 50 or older can contribute an additional $5,000 Nondiscrimination and top-heavy testing is not required if all contributions are made solely in accordance with Safe Harbor Discretionary profit-sharing contribution is permitted Enables maximum salary deferrals for highly compensated employees Important considerations More administration costs than other plans Subject to ERISA reporting requirements and IRS-required annual notice to participants Safe Harbor employer contributions required annually Safe Harbor employer contributions are 100% immediately vested Discretionary profit-sharing contributions are still subject to nondiscrimination rules and top-heavy testing 13

16 14 Single DB Plus SM Single DB Plus SM is an owner-only retirement savings alternative for high income earners that offers the highest deductible contributions potentially higher limits than a 401(k), Profit-sharing, Money Purchase Pension, SEP IRA or SIMPLE IRA plan. Key benefits The maximum annual benefit in a Single DB Plus is $180,000 (for 2007) the cost of funding that benefit can be as much as four times more than you can contribute to other plan types. Contributions made to a Single DB Plus are determined by an actuary and will vary according to an individual s income, age and circumstances Since employer contributions are a tax-deductible business expense, the more you save for retirement, the more you save in taxes Access to a wide variety of investments, including Oppenheimer funds, Tremont hedge funds 10 and OFI Private Investments separate accounts. In addition, as much as 30% of plan assets may be allocated to non- OppenheimerFunds sponsored investments With your larger base of contribution dollars, this plan s tax deferral of investment income can accelerate the growth of your retirement nest egg You decide how much you contribute, where you put your money and what you do with your savings when you retire The money you save and invest through Single DB Plus is aimed at producing a specific level of income at retirement, the same way a corporate pension plan does. In this case, however, you can control how much that benefit will be Important considerations More expensive to establish and maintain. Requires the services of an attorney Plan contributions are mandatory Employer bears the burden of market fluctuations Subject to ERISA reporting requirements May require coverage by Pension Benefit Guaranty Corporation Does This Plan Have Your Name on It? If you fit the following profile, Single DB Plus may be a terrific way for you to build your retirement assets in just a few years. Age: 45 years or older Income: High, stable annual income of $100,000 or more; the ability/desire to save over $45,000 a year for at least three years Status: Self-employed individuals; business owners with one to five employees; employees who have income from a side business; self-employed spouses of high income earners 10. An investment in a Fund in the Oppenheimer Tremont Hedge Funds Series involves special considerations and risks not associated with investments in traditional mutual funds. Alternative investments should be considered as a supplement to an overall investment program and investors should invest only if they are willing to undertake the risks involved. Before making an investment decision, investors should consider the suitability of such investments with respect to their investment objectives and personal situation, as well as consider such factors as personal net worth, income, age, tax status, risk tolerance and liquidity needs.

17 Single DB Plus: The Highest Saving Limits and Potentially Greatest Tax Benefits Index. The maximum annual benefit in a Single DB Plus SM is generally $180,000. Annual required contributions for Single DB Plus SM are determined by an actuary and will vary according to an individual s income, age and circumstances. This illustration assumes the maximum benefit payable at retirement age 62 for a 52-year-old business owner earning $225,000 per year. It also assumes that contributions will be made for a 10-year period. 12. The maximum contribution in a Profit-sharing and SEP plan is $45,000. The maximum contribution in a Single K SM plan is $50,000 including $5,000 in catch-up contributions. 13. Assumes a combined federal/state marginal income tax rate of 40%. 15

18 16 Defined Benefit Defined Benefit plans, as their name implies, provide a specified benefit at retirement. Based on the way Defined Benefit plans are funded, they can be ideal for companies with older employees who wish to accumulate assets rapidly over a shorter period of time. They also can be appropriate for high revenue companies and smaller employers that can afford to make higher contributions. Key benefits No other qualified plans allow for higher contribution levels than Defined Benefit plans Maximum retirement benefit is 100% of average compensation for the three consecutive years in which the participant s compensation was the highest, up to a maximum of $180,000 (for 2007) a year Defined Benefit plans help take the guesswork out of retirement plan savings. Employees will know how much they can expect to receive at retirement It is possible to contribute the maximum of 100% of compensation or $45,000, whichever is less, to a defined contribution plan and still fund a Defined Benefit plan 14 Important considerations More expensive to establish and maintain. The services of an actuary are required to calculate and certify plan contributions Quarterly plan contributions are required The benefit of the plan must be paid, regardless of how the plan s investments perform Subject to ERISA reporting requirements May require coverage by Pension Benefit Guaranty Corporation Defined Contribution, Defined Benefit. What s the Difference? Defined contribution plans (like a profitsharing or 401(k) plan) specify the funding formula used to determine a plan s annual employer contribution, but don t stipulate a specific benefit at retirement. The savings an employee ends up with at retirement depends on how the plan s investments performed over time. Defined benefit plans (like a traditional corporate pension) promise a certain benefit based on a formula that generally takes into account an employee s salary and years of service. The risk of investing plan funds to produce the guaranteed benefit is borne by the employer. 14. Maximum funding will vary with total eligible payroll.

19 Evaluate Your Company s Needs As you can see, each of the plans discussed has a unique combination of features. Your financial, tax and business situation will dictate which plan options are appropriate for your consideration. Take a moment to answer the following questions to help you start thinking about which retirement plan may be best for your business. After you ve completed the questionnaire, bring it with you when you speak with your financial advisor. He or she can use this as a starting point toward helping you identify the plan that best meets your needs and objectives. 1. Do you currently have a retirement plan? Yes. Please specify type of plan If you already offer a retirement plan, you may wish to consider ways to enhance the existing plan before establishing a new plan. 2. Approximately how many people do you employ? None (owner-only and/or spouse) More than 20 If yours is an owner-only business, then a SEP, Single K or Single DB Plus may be appropriate for you. If you have several employees, a SEP, SIMPLE, 401(k) or Profit-sharing plan may be a better alternative. 3. What type of employer-funded contribution do you intend to offer? None Employer discretionary Employer matching Employer basic (nondiscretionary) If your objective is to offer employer contributions and keep administration work and fees to a minimum, then consider a SEP or SIMPLE plan. However, if your goal is to provide contributions for specific groups of employees, a qualified plan such as a 401(k) or Profit-sharing plan may be the better choice. If you do not plan to offer employer contributions but want to offer your employees a valuable benefit, a Payroll Deduction IRA may be the best choice. 4. Which is a higher priority: administrative simplicity and low cost, or plan design flexibility? Simplicity and low cost Consider implementing a SEP or SIMPLE plan. These plans tend to have fewer administrative complexities. However, the trade-off is that such plans are less flexible in terms of plan design. Plan design flexibility If you understand and are willing to take on the responsibility of running a more complex plan, and if design flexibility is a priority, then you should consider a 401(k) or Profit-sharing plan. No 17

20 OppenheimerFunds Qualified Plans At-a-Glance 18 Who Can Establish? Maximum Eligibility Requirements Employer Contribution Required Employee Deferral Limit (2007) Overall Maximum Contribution (2007) Roth Option Available Vesting Schedule Permitted Hardship Withdrawals SIMPLE IRA Self-employeds, partnerships, S-corporations, C-corporations, non-profits, governmental agencies Employees earning $5,000 in the current year and $5,000 in any two preceding years $10,500 ($2,500 age 50 catch up) $21,000 ($26,000 if age 50 or older) SEP IRA Self-employeds, partnerships, S-corporations, C-corporations, non-profits, governmental agencies Age 21 and service with employer in any three out of the last five years with $500 in earnings Payroll Deduction IRA Single K SM 401(k) Self-employeds, partnerships, S-corporations, C-corporations, non-profits, governmental agencies Earned Income Under age 70½ for Traditional IRA Self-employeds, partnerships, S-corporations, C-corporations, non-profits, governmental agencies Age 21 and one year of service Self-employeds, partnerships, S-corporations, C-corporations, non-profits No governmental agencies Age 21 and one year of service Safe Harbor 401(k) Self-employeds, partnerships, S-corporations, C-corporations, non-profits No governmental agencies Age 21 and one year of service N/A N/A N/A N/A N/A $4,000 ($1,000 age 50 catch up) $2,000 for Coverdell $45,000 $4,000 ($5,000 if age 50 or older) $2,000 for Coverdell $15,500 ($5,000 age 50 catch up) $45,000 ($50,000 if age 50 or older) $15,500 ($5,000 age 50 catch up) $45,000 ($50,000 if age 50 or older) $15,500 ($5,000 age 50 catch up) $45,000 ($50,000 if age 50 or older) N/A N/A N/A N/A N/A N/A 16 N/A N/A N/A Loans N/A N/A N/A Form 5500 Filing Required N/A N/A N/A 17 Annual Fee $15 18 $15 18 $15 18 $15 18 Call for quote Call for quote 15. Requiring two years of service mandates 100% immediate vesting. 16. Vesting schedule available for discretionary employer contributions only. 17. Form 5500 required for ERISA one-participant plans with assets exceeding $250, Special Discount: If the total value of the participant s OppenheimerFunds accounts is $50,000 or more, the annual custodial fee is just $10. The fee is assessed once, regardless of how many Oppenheimer funds are invested in the plan.

21 Profit-sharing Age-weighted New Comparability Super Comparability Single DB Plus Who Can Establish? Self-employeds, partnerships, S-corporations, C-corporations, non-profits, governmental agencies Self-employeds, partnerships, S-corporations, C-corporations, non-profits, governmental agencies Self-employeds, partnerships, S-corporations, C-corporations, non-profits, governmental agencies Self-employeds, partnerships, S-corporations, C-corporations, non-profits No governmental agencies Self-employeds, partnerships, S-corporations, C-corporations, non-profits, governmental agencies Maximum Eligibility Requirements Age 21 and two years of service 15 Age 21 and two years of service 15 Age 21 and two years of service 15 Age 21 and two years of service 15 Age 21 and one year of service Employer Contribution Required N/A N/A N/A Employee Deferral Limit (2007) N/A N/A N/A $15,500 ($5,000 age 50 catch up) N/A 19 Overall Maximum Contribution (2007) $45,000 $45,000 $45,000 $45,000 ($50,000 if age 50 or older) $180,000 maximum annual benefit at retirement Roth Option Available Vesting Schedule Permitted Hardship Withdrawals N/A N/A N/A N/A 16 N/A Loans Form 5500 Filing Required Annual Fee Call for quote Call for quote Call for quote Call for quote Call for quote

22 The Experience and Backing of OppenheimerFunds 20 No matter what type of retirement plan you establish, you can do so knowing that each one is backed by a strong, tested industry leader dedicated to investment excellence and providing solutions to meet investors needs. A strong, tested industry leader OppenheimerFunds has become one of the most recognized, trusted financial services companies by adhering to our core corporate values excellence, integrity, team spirit and caring. These reflect our belief that success is measured equally by what we achieve and how we achieve it. Investment excellence Our disciplined investment process and experienced management teams combine the depth of a sharply focused specialty shop environment with the scale and oversight of a larger financial services firm. From our core fund teams to those who manage our range of powerful diversifiers, OppenheimerFunds investment professionals are organized into independent teams that specialize in one area of the market. This approach yields investment ideas that are unique to each team and translates into low securities overlap from fund to fund. Solutions to meet today s challenges While all investors want solid performance, each has unique goals that may shift over time. That s why we offer a full range of financial solutions, including the wide variety of retirement plans highlighted in this guide. To help you reach important objectives, such as helping employees save for retirement, we offer: Expert support OppenheimerFunds will provide in-depth consultation and analysis to help you choose an appropriate plan, plus guidance and assistance throughout the enrollment process Attractive pricing We strive to deliver top quality products and services at highly competitive costs, and offer small business owners several desirable features, including share class flexibility Convenience To make our retirement plans easier to use, we provide online account access, easy-to-read statements and access to the Contribution Processing System (CPS), which will help you manage plan contributions more efficiently Retirement Income Planning We recognize that building savings is only part of the process of working toward the retirement you envision. Once you or your employees have retired, OppenheimerFunds offers a wealth of resources to help spend down retirement assets strategically. These include: A full suite of investor education materials Advanced retirement income planning software Tools to help you and your employees make informed rollover decisions

23 A Smart Decision for Today and Tomorrow Now s the time to give yourself and your employees all the tax and savings advantages a retirement plan from OppenheimerFunds can provide. Though putting a plan into place can seem daunting, it may be one of the best financial decisions you ll ever make. N E X T S T E P S To establish a plan that s right for your company: Use the Evaluate Your Company s Needs worksheet on page 17 of this guide Discuss your options with your financial advisor Visit or call for additional information

24 Retirement Plans for Small Businesses There have never been more compelling reasons for small businesses to establish a retirement plan or more options available to owners seeking to do so. This guide lays out the facts on small business retirement plans so you and your financial advisor can make an informed choice for your company. Inside, you ll learn about: Significant advantages for you and your business A plan for every small business The experience and backing of OppenheimerFunds Talk to your advisor today about the benefits of implementing an OppenheimerFunds retirement plan for your business. Get Started Call your financial advisor Visit Call us, This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that may be imposed under U.S. federal tax laws. Contact your attorney or other advisor regarding your specific legal, investment or tax situation. Before investing in any of the Oppenheimer funds, investors should carefully consider a fund s investment objectives, risks, charges and expenses. Fund prospectuses contain this and other information about the funds, and may be obtained by asking your financial advisor, visiting our website at or calling us at Read prospectuses carefully before investing. Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc. Two World Financial Center, 225 Liberty Street, New York, NY Copyright 2007 OppenheimerFunds Distributor, Inc. All rights reserved. RB August 24,