PLAN OVERVIEW & FEATURES THE WINDERMERE RETIREMENT PLAN FOR AGENTS

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1 OVERVIEW & FEATURES PLAN OVERVIEW & FEATURES THE WINDERMERE RETIREMENT PLAN FOR AGENTS Updated: August 17, 2006 The Windermere Retirement Plan and Trust for Agents (the Plan) is a tax-qualified, multiple employer profit sharing plan. By adopting the Plan you are permitted to make contributions from your earnings on a tax-deductible basis. The Plan is sponsored by Windermere Real Estate Services Company.! Qualified means our plan and trust document have been reviewed by the IRS and issued a Qualification Letter adopting employers can rely upon.! Multiple employer means that the plan and trust operate one trust with many separate entities who have a Windermere affiliation in common. Participating employers include selfemployed individuals, partners and small business owners including incorporate entities (S-Corporations, C-Corporations and Limited Liability Companies).! Defined contribution is a type of plan that provides a fixed allocation formula to divide up whatever contribution is made to the trust by the employer among the individual accounts of each eligible participant. If you have employees in the Windermere Retirement Plan, you divide up the contribution in proportion to each participating employee s compensation relative to the other participating employees, including yourself.! Profit sharing is a type of plan that provides contribution flexibility which is ideal for self employed people. The word profit in the description has nothing to do with the word as normally used. It is meant to imply that as disposable income goes up and down, so to may the contributions. In this respect contributions are discretionary so you can change them from year to year or even skip a year. Created on 08/17/2006 Agent Info 08/17/06.doc ELIGIBILITY All Windermere Agents in the United States are eligible to adopt and participate in the Windermere Retirement Plan for Agents upon placing their real estate license and signing an agent agreement with a Windermere company. Windermere licensed franchisees and affiliated businesses licensed with a Windermere franchisor may also join the Agent Info doc Page 2 of 12

2 Plan. If you have non-related employees other than yourself, you are generally required to include them in your plan and make contributions on their behalf unless the employee fails to satisfy very narrow eligibility requirements described herein. ENROLLING IN THE PLAN You can adopt the Plan by filling out the enclosed Adoption Agreement and Enrollment and Beneficiary Designation Forms for the Windermere Retirement Plan for Agents. Upon completion simply submit completed forms to the Recordkeeper. Once your enrollment materials have been accepted your Plan accounts will be opened and your will be sent notification of your Plan establishment. You should receive this notification within ten business days from the date your forms are accepted by the recordkeeper. You may then begin contributing to your Plan. MAKING CONTRIBUTIONS Subject to your individual deductible limits, the amount and frequency of your contributions is entirely at your discretion. Contributions are sent directly by you for investment in your Plan accounts. There is no limit on the number of contributions that you can make in a given year. You may change the amount you contribute each year and you can even skip a year or more and resume contributions later. TAX CONSIDERATIONS The following topics are presented to make adopting employers aware of tax issues that may or may not apply to them. This is not tax advice and may not be relied upon as such. Each participating employer is responsible for understanding consequences of adopting, maintaining and being compliant with the plan and the tax code, and seeking their own tax advice. Self-employed, unincorporated individuals who adopt and participate in the Plan are both participating employers and plan participants depending on what is being discussed. This can be confusing because most self-employed people don t think of themselves as employers, or as employees of themselves. But if you or your tax advisor are looking in the tax code regarding such things as maximum contributions and deductibility, you are probably the employer in IRS lingo. If you are consulting the code with respect to the taxability of distributions or penalties on early withdrawals, you are the participant or employee. Remember that any plan rule that speaks to employees or participants also applies to the self-employed owner with respect to her participation. Our plan is designed to permit the maximum allowable limits available under law. That means that some limits change year to year. It also means that if one limit is higher than another, figuring out which limit to abide by is complicated. Unfortunately, we are unable to list these limits out into the future. The numbers used in the following illustrations are for 2006 only. THE DIFFERENCE BETWEEN CONTRIBUTION AND DEDUCTION LIMITS The plan allows for a higher percent-of-compensation limit than is currently deductible. The plan has a higher limit to accommodate a higher deduction limits should it become available in the future. Since contributions in excess of the deductible limit are penalized, you and your tax advisor should use the lower deduction limit. The plan s limit is 100% but for tax year 2006, the deductible limit is only 25%. For tax years after 2006, you may have to replace the limit of 25% with whatever limit is then permitted (at this time we are not aware of any changes to this limit but you need to check the limits each year regardless because the dollar limit does change annually). To remind you of this discrepancy, the limits will hereafter be referred to as: the percent-of-compensation limit is 100% (but subject to an overriding deduction limit of 25% of compensation). DETERMINING YOUR MAXIMUM CONTRIBUTION: INCORPORATED ENTITIES Your individual dollar limit will depend on whether you operate your contractual relationship with Windermere as a sole proprietor or as a corporate entity. Agents who are incorporated must calculate the contribution amount based on their gross W-2 compensation. The 2006 limits are:! Dollar limit under 415(c) (Limit of employee elective, non-elective and employer contributions to a plan) is $44,000 in 2006 and will be adjusted annually for inflation in $1,000 increments annually hereafter; and, the corresponding percent-of-compensation limit is Agent Info doc Page 3 of 12 Agent Info doc Page 4 of 12

3 100% (but subject to an overriding deduction limit of 25% of compensation).! Dollar limit under 401(a)(17) (Compensation that may be taken into consideration in determining employer contributions to taxqualified plans) is $220,000 in 2006 and will be adjusted for inflation in $5,000 increments annually hereafter. The determination of W-2 compensation is complex. These overlybroad examples are provided to illustrate general principals of how limits are applied to compensation. You are strongly encouraged to seek professional tax assistance to perform the following analysis. Example 1 (for calendar and tax year 2006 only, different limits will $ 250,000 W-2 Wages Since $250,000 is in excess of the compensation limit you must drop compensation down to $220,000. $ 220,000 Maximum W-2 wage due to compensation limit x 25% maximum percent of contribution permissible $ 55,000 Preliminary contribution amount Since $55,00 is in excess of the maximum contribution amount you must drop the contribution down to $44,000. Example 2 (for calendar and tax year 2006 only, different limits will $ 74,568 W-2 Wages x 25% maximum percent of contribution permissible $ 18,642 Maximum contribution is okay because it is less than $44,000. DETERMINING YOUR MAXIMUM CONTRIBUTION: SOLE PROPRIETORS Sole proprietors are required to calculate their deductible contributions based on compensation net of allowable expenses, half of selfemployment tax, and any annual contributions made to the Plan. Consult with your tax-advisor regarding the exact calculation for your annual deductible limit. Over contributing could result in penalties and could affect the tax-qualified status of your Plan. The 2006 limits are:! Dollar limit under 415(c) (Limit of employee elective, non-elective and employer contributions to a plan) is $44,000 and will be adjusted annually for inflation in $1,000 increments annually hereafter; and, the corresponding percent-of-compensation limit is 100% (but subject to an overriding deduction limit of 25% of compensation).! Dollar limit under 401(a)(17) (Compensation that may be taken into consideration in determining employer contributions to taxqualified plans) is $220,000 and will be adjusted for inflation in $5,000 increments annually hereafter. Deduction limits are currently lower than contribution limits, effectively limiting contributions to the maximum tax-deductible amounts since employers generally do not make contributions in excess of the amount they can deduct. Further, there may be excise taxes on contributions in excess of the deductible amount. To stay under the deduction limit, the effective contribution limit should be 20% of net compensation for the owner and must be limited to 25% for employees. The determination of compensation, allowable deductions, and selfemployment taxes is highly complex. These overly-broad examples are provided to illustrate general principals of how limits are applied to compensation. You are strongly encouraged to seek professional tax assistance to perform the following analysis. Example 1 (for calendar and tax year 2006 only, different limits will $ 250,000 Pre-retirement contribution net Schedule C ($ 8,798) 50% of self employment taxes ($17,595 gross) $ 241,202 Preliminary net Schedule C Since the preliminary net number of $241,202 is in excess of the compensation limit you must drop compensation down to $220,000. Agent Info doc Page 5 of 12 Agent Info doc Page 6 of 12

4 $ 220,000 Effective comp due to compensation limit ($ 44,000) 20% of net Schedule C, also contribution limit $ 176,000 Adjusted net Schedule C Example 2 (for calendar and tax year 2006 only, different limits will $ 100,000 Pre-retirement contribution net Schedule C ($ 6,780) 50% of self employment taxes ($13,578 gross) $ 93,211 Preliminary net Schedule C ($ 18,642) 20% of net Schedule C $ 74,568 Adjusted net Schedule C Notice that by using a 20% factor on the preliminary net Schedule C number the formula results in contributions that are 25% of the final or reported Schedule C amount. This essentially puts a self employed person on parity with a W-2 employee. ANNUAL TAX FILING REQUIREMENTS All contributions made to your Plan (within IRS guidelines) are deductible on your (or your corporation s) federal tax return and/or tax schedule filings. Any earnings on your accounts are tax-deferred until you take a distribution from your Plan. If you do not have any employees you are permitted to file IRS form 5500-EZ. The 5500-EZ filing is not required until the aggregate market value of all of the plans you sponsor is greater than $100,000. If your Plan includes one or more employees in addition to yourself, or you have more than one plan, IRS form 5500 is required without regard to the $100,000 limit. OWNING ANOTHER BUSINESS If you have a controlling or community property interest in other business entities, incorporated or not, you have one business entity for qualified retirement plan purposes. Generally this means that you cannot make retirement contributions in one business without making proportionate contributions to the employees in the other business. Unless you have specific tax advice to the contrary, you should presume all employees in all lines of business are in one business and that you will make a contribution to them that is proportionate to what you give yourself. To determine if you should be included in the other business plan, can exclude the other business from this Plan, or put the other business under a separate retirement program, you need to perform several tests over the combined populations of both business to determine what alternatives are viable. You are strongly encouraged to seek professional tax assistance to perform this analysis. PARTICIPATION IN ANOTHER PLAN You may participate in the Windermere Retirement Plan and another plan, however, both your contributions and your earnings, if you have another source of income funding the second plan, must generally be aggregated to determine if your overall compensation, contribution and deductible limits You are strongly encouraged to seek professional tax assistance to perform this analysis. ROLLOVER CONTRIBUTIONS Many people like the simplicity and convenience of having all their retirement savings at one place and appearing on one statement. Accordingly, the Plan allows you to rollover assets from a prior employer s qualified retirement plan or from an IRA that contains only qualified investments. You can get rollover instructions by visiting either the plan s website at or from the WORC Site (Resources>Programs>Retirement Benefits) at Beneficiary Designations forms that are not submitted online should be mailed to the Plan Office above. CHANGING INVESTMENT SELECTIONS You may change your investment selections on any business day; however, the change will take place on the next business day that the stock market is open. STATEMENTS At the end of each calendar quarter, you will receive a Plan statement. The statement can be mailed either to your home address or business address. Your statements will include year-to-date contribution information and an investment earnings summary for all of your accounts. It will also provide a summary of any changes processed at your request during the previous quarter. TAKING DISTRIBUTIONS Joining a retirement plan is a long term commitment. While the plan permits variable funding, there is an expectation that contributions will be regular and on-going. As with any retirement plan, you can get your money out when you retire, die, become disabled or you have a separation of service (you are no longer affiliated with Windermere Real Estate). Agent Info doc Page 7 of 12 Agent Info doc Page 8 of 12

5 Federal regulations do permit a limited withdrawal of funds without a separation of service on those funds that have been on deposit for 2 or more years, and a withdrawal of up to all funds after you have participated 5 or more years. Distributions from your Plan are permitted after age 65 even if you still work at Windermere. All withdrawals are subject to current income taxes for the year in which they are withdrawn. If you are under 59!, withdrawals may be subject to penalties as well. Please be sure to consult with your tax advisor with any questions regarding the impact of tax issues. You can get withdrawal instructions by visiting either the plan s website at or from the WORC Site (Resources>Programs>Retirement Benefits) at Withdrawal forms that are not submitted online should be mailed to the Plan Office above. MANAGEMENT & OPERATION OF THE PLAN AND TRUST The Plan and Trust Document establishes an Advisory Committee that is responsible for keeping the trust and plan document compliant; and, hiring, monitoring and replacing the plan s vendors. The trust retains:! a third party administrator to help with participant enrollment, participant communications and vendor coordination! an attorney to assist with compliance and documentation! a trust company (custodial bank) to hold and account for plan assets! a recordkeeper to do participant statements and maintain the web site! an investment advisor to monitor investment performance The investments used by this plan are mutual funds. The funds are selected from a universe of fund managers that satisfy the plan s investment policy. The investment policy establishes minimum criteria from which funds are selected from the universe of several thousand mutual funds available to us through our trust company. You can get a list of current investment options by visiting either the plan s website at or from the WORC Site (Resources>Programs>Retirement Benefits) at FUNDING PLAN AND TRUST OPERATIONS The Windermere Retirement Plan for Agents has unique characteristics that are generally not found in single employer plans of a similar participant base and asset size. Its multiple employer environment (most of the participants of the plan are the plan sponsors themselves) creates unique documentation and operational issues. The trust is a self-funded entity. All expenses of the plan are paid by the participants from one of several sources:! The majority of plan and trust expenses are taken from assets before returns are posted to the fund. In doing so, the NAV* or net asset value share prices are net of these expenses. How funds pay out these expenses and whether they pay them to themselves or third parties is determined by the fund s share class. Generally our funds are of a share class with revenue sharing** arrangements that allows us to pay for services you could get from a mutual fund company but in our situation, has been sub-contracted out to independent third parties for services. For example, we could get legal, custodial, recordkeeping, communications, compliance, etc. from a single mutual fund company but the plan would be limited to only that family s funds. In our current arrangement fees that would have been internalized by a fund family for services to our plan are made available to the trust to pay for third party vendors of our choosing. o * NAV is the share price of the fund that can be found in the newspaper and various web sites. The net refers to net of fund, and in our case, some plan and trust expenses. o ** This is a method of withdrawing money from a mutual fund to pay for services from third parties. The money is a fee to the participants and revenue to the vendor providing the services. Revenue Sharing is a generic name for a number of specific fees such as sub-ta fees, distribution fees, 12(b)-1 fees, etc. With retirement plans in particular, it is mutually beneficial to the trust and the fund to sub-contract services to independent third parties. For example, we could get all the services listed above from a single mutual fund company but the plan would be limited to only that family s funds. In our current arrangement fees that would have been internalized by a fund family for Agent Info doc Page 9 of 12 Agent Info doc Page 10 of 12

6 services to our plan are made available to the trust to pay for third party vendors of our choosing.! Each participant is assessed a per capita fee, paid quarterly. Currently the per capita fee is $9 per quarter.! Some transactions are unique to one participant but costly to the plan and potentially disruptive to the overall economics of the group. When these are identified, they are charged to the participant who initiated the transaction. Examples of such fees are: o $ 55/distribution * redemption fee for proceeds distributed by check (in-service withdrawals; distributions due to separation from service). o $ 200/evaluation QDRO Evaluation Fee (Qualified Domestic Relations Order evaluation, processing and account set-up). The important thing to note is that the aggregate fee structure is reasonable for a plan and trust of this type, and that even with whatever expense burden the fund carries, the net returns after fees exceed the performance criteria of the plan s investment policy. You can determine each fund s expenses by reviewing the fund fact sheets posted at both the plan s website at or from the WORC Site (Resources>Programs>Retirement Benefits) at NOTICE #1 See the Plan Document for an overview of eligibility and participation rules. See the Adoption Agreement for an overview of the responsibilities of a co-sponsoring employer in this plan. A copy of the Plan Document and Adoption Agreement are posted for downloading in the Retirement Benefits section of the Programs Folder in the WORC site at If there is any discrepancy between the general descriptions of the plan in this piece or the Summary Plan Description and the terms of the Plan Document or Adoption Agreement, the Plan Document and Adoption Agreement will govern. NOTICE #2 We have attempted to highlight various tax situations you should be aware of if you participate in this plan. These illustrations are overly broad to focus attention on issues some participants may need to discuss with their tax advisor. These illustrations cannot be construed as tax advice. Each individual s tax situation is too unique to rely on these simplistic explanations. A good retirement plan should be backed by a good tax advisor. We strongly encourage you to seek professional help to maximize the benefits that this plan and the tax code afford. NOTICE #3 Additional and possibly more current information about the Plan and Trust can be obtained from the following locations: General information (pre- and post-enrollment): Web Access: WORC>Resources>Programs>Retirement Benefits Participant information (for enrollees only): Web Access: *** [email protected] Phone: *** For first time login use your Social Security Number (no dashes, no spaces) as your username and the last four digits of your Social Security Number as your password. The first time you log in using this password, you will be prompted to change the password. Plan Advisory Committee: C/O: Retirement Plan Coordinator [email protected] Phone: Mail: Windermere Retirement Plans 5424 Sand Point Way NE Seattle, WA Agent Info doc Page 11 of 12 Agent Info doc Page 12 of 12