Prepaid Cards -- Option for Distribution of Workers’

Compensation Payments?

This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client or potential client to whom it is directly delivered and/or addressed (including subsidiaries and affiliates, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions or other business relationship and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. Neither this presentation nor any of its contents may be disclosed or used for any other purpose without the prior written consent of J.P. Morgan. To the extent that the information in this presentation is based upon any management forecasts or other information supplied to us by or on behalf of the Company, it reflects such information as well as prevailing conditions and our views as of this date, all of which are accordingly subject to change. J.P. Morgan’s opinions and estimates constitute J.P. Morgan’s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. J.P. Morgan makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects. Notwithstanding anything herein to the contrary, the Company and each of its employees, representatives or other agents may disclose to any and all persons, without limitation of any kind, the U.S. federal and state income tax treatment and the U.S. federal and state income tax structure (if applicable) of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Company insofar as such treatment and/or structure relates to a U.S. federal or state income tax strategy provided to the Company by J.P. Morgan. J.P. Morgan's policies on data privacy can be found at http://www.jpmorgan.com/pages/privacy.  IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone not affiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties. Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”) and if and as used herein may include as applicable employees or officers of any or all of such entities irrespective of the marketing name used. Products and services may be provided by commercial bank affiliates, securities affiliates or other JPMC affiliates or entities. In particular, securities brokerage services other than those which can be provided by commercial bank affiliates under applicable law will be provided by registered broker/dealer affiliates such as J.P. Morgan Securities LLC, J.P. Morgan Institutional Investments Inc. or Chase Investment Services Corporation or by such other affiliates as may be appropriate to provide such services under applicable law. Such securities are not deposits or other obligations of any such commercial bank, are not guaranteed by any such commercial bank and are not insured by the Federal Deposit Insurance Corporation. This presentation does not constitute a commitment by any JPMC entity to extend or arrange credit or to provide any other services.

What is the cost of processing a check?

For example, calculate: Cost of check stock paper Cost of employees time to process the paper - load paper,

stuff checks into envelope, etc. Prorated cost of a printer and printer ink (should also

include power, maintenance) Cost of stamps....currently bulk rate is $.31 each Cost of exception handling.....lost or returned checks -

have to investigate, stop payment at the bank and re-issue.....returned check with invalid address

Cost of fraud - someone stole the check out of the mailbox....again investigation, cancelling check cost (if any), re-issue check(s)

What does it cost to write a check? (sources – wiki.answers.com and nacha.com)

Cost of check vs. electronic deposit

Additionally, consider the costs to research, reconcile and re-issue lost or stolen checks or warrants are additive to the cost of issuing checks (usually 1-3% of the total number of checks issued)

Paper check volume continues to decline

Costs to issue/process a check will continue to increase as volume declines

Cost of Paper Check-- $2.00

Cost of Electronic Deposit -- $0.35

269MM checks in 2008

121MM checks in 2012

Federal Government Establishes Precedent for Electronic Payments

(source -- treasury.gov)

U.S. Treasury:

Any new beneficiary for Federal benefit payments after May 1, 2011 must elect either direct deposit or prepaid card

By March 1, 2013, all check recipients must either elect direct deposit or prepaid card for their payments

What is the Landscape Today for Payments Issuance?

(source 2013 AFP Payments Fraud and Control Survey)

Checks remain the most popular vehicle for payments fraud (even considering the volume of paper disbursements is declining)

In the 2013 AFP Payments Fraud and Control Survey, 87% of organizations who experienced payment fraud indicated checks were targeted

If your program is issuing paper checks, are you increasing your risk/vulnerability profile?

What Alternatives Exist and How Do They Work?

Electronic Payment Card Services Can Help More Injured Workers Realize the Benefits of Direct Deposit

Mainstream financial services for injured workers who do not have bank accounts

Allows the Agency to fully convert to ACH

All injured workers deemed eligible for

benefits will be accepted

No credit issued – withdrawals limited to amount on deposit

1

K E

N T

U C

K Y

D

E P

A R

T M

E N

T

O F

L

A B

O R

E L

E C

T R

O N

I C

P

A Y

M E

N T

C

A R

D

P R

E S

E N

T A

T I

O N

Direct Payment Card — Process Flow

3

Benefits for Injured Workers

All eligible injured workers accepted regardless of credit history Access to cash at virtually any ATM Make purchases at any location that accepts Visa or Mastercard

Debit Card Purchase with cash-back at many locations Cash withdrawals limited to amounts on deposit Mainstream financial services for injured workers who do not have

bank accounts

• On-line bill payment

• Electronic statements and transaction history

• Opt-in “alerts”

• Conducting “e-commerce” via web or phone

4

Injured Worker Access to Deposited Funds

Access to cash at virtually any ATM in their state of residence and throughout the world

Banks participating in Visa or Mastercard program perform over the counter cash withdrawals

Cards can be used at 24 million retail locations throughout the world that accept Visa

5.8 million Visa retail locations in the U.S.

ATM

Cash Teller Transactions

Visa Access(Mastercard comparable)

5

Full Consumer Protection

FDIC Insurance: Each cardholder individually insured by the FDIC for up to $250,000 – no consumer funds at risk

Regulation E: Full compliance including monthly account statements

Zero Liability Policy: Cardholders are not liable for reported unauthorized purchases or withdrawals

Privacy: Ensure all industry privacy standards are met

Data Security: Know where the data is stored, who has access to it and with whom it might be shared

6

Food for Thought for Workers Compensation Organizations

Benefits to Workers Compensation Agency

Reduced costs of worker compensation payments to injured workers

Increased efficiency Eliminate paper checks Eliminate work effort required for lost and stolen checks

(affidavits, stop payments, “one-off” reissues) Improved reconciliation

Escheatment becomes the responsibility of the prepaid card service provider

Business continuity in place should a disaster occur

12

Give Careful Consideration to Data Security

Data loss, leading to identity theft is a growing problem

Hold service providers to highest regulatory standards of data security and confidentiality

Determine how you will assess/measure

7

Are There Partnerships Which May Provide Further Benefit to Agencies/Recipients?

Vocational Rehabilitation Provides stipends for education courses, incremental

medical support/counselling, educational supplies, etc. Are there synergistic interests between your

department and vocational rehabilitation? Would there be benefit to working together on an

electronic payment initiative?

How to Consider Multiple Programs on a Prepaid Card

Workers Compensation Consumer owned funds Regulation E applies Escheatment applies

Vocational Rehabilitation Agency owned funds Agency may debit funds from

prepaid card if required Funding can be restricted to

specific merchant category codes (i.e., educational institutions, book stores, etc.)

Provide robust audit trail for federal oversight agency

Electronic Payment Cards Are Integral to Disaster Preparedness Programs

Designed to provide an efficient method of financial distribution when normal processes disrupted

Integrated as part of the existing payment distribution program

Effective in responding to localized or regional scale disaster events

8

Appendix – Cardholder Materials

Cardholder Training Materials – Easy to Understand and Easy to Use

Card Carrier

Training Brochure

9

Case Study: Significant Cost Savings State “A”

Over $60 Million paid bi-weekly

73,000 recipients in January 2011

Over $1.4 Billion (annually)

Cost to process paper checks $6,149,520/annually (including postage)

Cost to process via ACH or Prepaid Cards $438,000/annually

Benefit to the State:

Switch from Paper to ACH and Prepaid Card resulted in potential savings of over 90% per disbursement

Benefit to the recipient:

Enhanced security and convenience with prepaid cards.

Prepaid Cards Deposits to CardDeposits to Card

Account VolumeAccount Volume

10

Case Study : Significant Cost Savings State “B”

0

1

2

3

4

5

6

Checks and Warrants

Electronic Transactions

$

$45 Million/ week

135,000 people

$2.6 Billion (annually)

Cost to process paper checks $720,000 to $840,000/annually (volume dependent)

Cost to process under the new electronic system $180,000/annually

Benefit to the State:

Switch from Paper to ACH and Prepaid Card resulted in potential savings of over 80% per disbursement

Benefit to the recipient:

Save the injured worker in paying excess cost to cash the checks (2%-5% percent in check cashing fees)

Prepaid Cards

11

Best if cards offered along with direct deposit

Issue cards only after eligibility approvedAdvanced communication to payees improves program/adoption success

Lessons Learned

Surveys show that cardholders have favorable opinions of prepaid card programs

13