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Glossary of Terms

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12b-1 Fee
A fee for the advertising, marketing and distribution of a mutual fund.

401(k) Plan
A defined contribution plan that permits employees to have a portion of their salary deducted from their paycheck and contributed to an account. Federal (and sometimes state) taxes on the employee contributions and investment earnings are deferred until the participant receives a distribution from the plan (typically at retirement). Employers may also make contributions to a participant’s account.

403(b) Plan
Also known as a Tax Sheltered Annuity (TSA), a 403(b) Plan provides a tax shelter for 501(c)(3) tax exempt employers which can be non-governmental or governmental in some situations. Employers qualifying allow participants to defer taxes on amounts contributed by employees from their paychecks. May or may not be subject to ERISA, depending primarily on whether the employer makes a matching or non-elective contribution.

457(b) Plan
A type of tax advantaged defined contribution retirement plan that is available to governmental and certain non-governmental employers in the US. The employer provides the plan and the employee defers compensation into it on a pre-tax basis. While it operates like a 401(k) or 403(b) plan it is technically a non-qualified plan that has qualified plan tax deduction characteristics. A 457(b) plan does not have the same coverage requirements due to it being considered a non-qualified plan. It can be used in conjunction with a 403(b) plan in some instances to provide additional deductions for key executives.

(A)

Actual Contribution Percentage Test (ACP)
A nondiscrimination test applied to employer matching contributions and employee voluntary after-tax contributions. The test is designed to limit the percentage of matching and voluntary amounts contributed by highly compensated employees, compared to the percentage of similar amounts contributed by non-highly compensated employees.

Actual Deferral Percentage (ADP)
An anti-discrimination test under IRC section 401(k) (3) that compares the amount deferred by highly compensated employees to the deferrals of non-highly compensated employees.

Affiliated Service Group
A group of two or more related service or management employers. For testing purposes, all employees of the affiliated service group are treated as employed by a single employer.

AFTAP (Adjusted Funding Target Attainment Percentage)
A measure of defined benefit plan funding adequacy, computed as the ratio of plan assets divided by benefit liabilities. Plans with an AFTAP of less than 80% are subject to benefit limitations – including restrictions on lump sum payments and possible limits on benefit increases. The AFTAP must be certified in writing by an actuary.

After-Tax Voluntary Contribution
An employee contributions that is taxed currently. When paid out, the principal contribution is distributed tax-free, but earnings on the contribution are taxable income. After-tax voluntary contributions are included in the annual additions limit and the ACP Test.

Allocation
How the employer’s contribution to defined contribution plans is divided among participants.

Alternate Payee
A person other than a plan participant (such as a spouse, former spouse, child, etc.) who, under a domestic relations order, has a right to receive all or some of a participant’s pension benefits.

Annual Addition
The amount of contributions and forfeitures allocated to a participant in a plan year in a defined contribution plan. For 2012, the annual addition limit is the lesser of $50,000 or 100% of compensation.

Annual Audit
An independent audit required by federal law for all plans with more than 100 participants. It is also common to refer to a DOL or IRS examination of a plan as a plan audit.

Annual Report
A document filed annually (Form 5500) with the IRS that reports pension plan information for a particular year, including such items as participation, funding, and administration.

Annuity
A contract providing retirement income at regular intervals. See also Qualified Joint and Survivor Annuity.

Automatic Contribution Arrangement (ACA)
A feature that may be added to a 401(k) Plan to automatically enroll employees at a minimum deferral level.

Automatic Deferral Default Percentage
The percentage of pay that is deferred when an employee is enrolled in a plan through its automatic enrollment feature. A typical automatic deferral default percentage is 3% of pay. Participants can generally choose to defer an amount other than the default percentage.

Automatic Enrollment
The practice of enrolling all eligible employees in a plan and beginning participant deferrals without requiring the employees to submit a request to participate. Plan documents specify how these automatic deferrals will be invested. Employees who do not want to make contributions to the plan or in an amount different than specified in the automatic enrollment must actively file a request to the plan sponsor. Participants can generally change the amount of pay that is deferred and how it is invested.

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(B)

Balance Forward
A system of accounting that provides for the allocation of earnings and losses on a periodic basis (annual, quarterly, monthly, etc.).

Beneficiary
A person, persons or trust designated to receive the plan benefits of a party participant in the event of the participant’s death.

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(C)

Cafeteria Plan
A benefit plan offering a choice from a “menu” of cash or two or more benefits.

Carve-out
A plan design that is structured to utilize the IRS coverage tests under Section 410 to include or exclude certain participants in the qualified plan in order to optimize plan objectives of contribution amounts, tax deductible contributions and control employer plan contribution costs. Can be used in both a Defined Benefit or Defined Contribution Plan.

Cash-Balance Plan
A defined benefit plan that is structured to look like a defined contribution plan. The employee’s account earn or accrue a hypothetical rate of return that changes from year to year. The participant’s account is credited with the hypothetical annual interest rate which is often tied to a rate such as a U.S. Treasury Bond.

Cash-Out
The distribution of assets from a qualified plan to a participant prior to retirement, or age 59 ½ typically occurring when a participant has a balance under $1,000.00 and leaves a company without requesting to have their assets rolled over into an IRA or into a new employer’s plan. Cash-outs are subject to federal withholding tax, and are subject to the 10% early withdrawal penalty if not rolled over.

Cash or Deferred Arrangement (CODA)
A type of profit sharing or stock bonus plan in which employees may defer current compensation on a pre-tax basis. Also known as the 401(k) provision.

Cash or Deferred Election
A participant request to defer compensation, on a pre-tax basis to a CODA plan.

Catch-up Contributions
Please see our most recent Official Dollar Limitations newsletter.

Combination Plan
A plan design utilizing both a Defined Benefit Plan and Defined Contribution Plan in combination to optimize or maximize participant and employer contributions to achieve the plan design objectives of contribution levels and tax deductibility.

Conduit IRA (Individual Retirement Account)
An IRA that is established for the sole purpose of receiving a distribution from a qualified plan. Money in a conduit IRA can often be rolled back into a qualified plan. (See Rollover IRA)

Control Group
Businesses are under common control when one entity owns at least 80% of the stock, profit, or capital interest in other organization, or when the same five or fewer people own a controlling interest in each entity.

Conversion
The process of changing from one service provider to another.

Cross-Tested Plan
IRS regulations provide for a plan design known as Cross-Tested plans and often called New Comparability Plans. These plans allow different and often greater allocations to Highly Compensated Employees (HCE) in a defined contribution plan by testing for nondiscrimination in benefits at retirement by actuarially converting the contribution allocations to benefits at retirement. Regulations implemented minimum allocation “gateways” to restrict the permitted disparity in allocation rates for plans that do not meet the “broadly available” allocation rate requirements.

Broadly available” allocations mean each rate is available to a group of employees which meets the Sec. 410(b) coverage test without using the average benefits percentage test under Sec. 410(b). Plans meeting the broadly available requirements may continue to be Cross-Tested under the regular methods. Other plans must meet the “gateway minimums” before they may be Cross-Tested.

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(D)

Daily Valuation
A system of accounting that provides for the allocation of investment earnings and losses on a daily basis.

Defined Benefit Plan
A defined benefit plan is a qualified plan that promises to provide a benefit at retirement. This benefit must be definitely determinable based on a formula set forth in the plan.

The maximum annual benefit for a participant is the lesser of 100% of high 3-year average compensation or $195,000 (as indexed) actuarially adjusted for retirement ages less than the SSRA 62. The maximum benefit is further reduced for years of service less than 10 (in the case of the 100% limit) and reduced for years of participation less than 10 (in the case of the $195,000 dollar limit).

An actuary determines annual contribution. The employer must satisfy funding requirements in order to provide benefits at retirement. The employer bears the investment risk, not the employee.

Defined Contribution Plan
A type of qualified plan that does not guarantee any particular pension amount upon retirement. Instead, contributions may be contributed by the employer and/or employee to the plan depending on the type of plan established. 401(k) plans, profit sharing and money purchase plans are types of Defined Contribution Plans. Under the terms of the plan document the contribution is “defined” as to how much can or will be contributed. At retirement or termination, the amount received by the participant is determined by how much was contributed by or on behalf of the participant plus the earnings that have accumulated. This amount may be subject to a vesting schedule. The investment risk is borne by the employee/participant and not the employer.

Department of Labor (DOL)
The U.S. Department of Labor (DOL) deals with issues related to the American workforce—including topics concerning pension and benefit plans. Through its branch agency the EBSA, the DOL is responsible for administering the provisions of Title I of ERISA.

Determination Letter
Document issued by the IRS formally recognizing that the plan meets the qualifications for tax-advantaged treatment.

Direct Rollover
A distribution from a qualified plan that the participant transfers directly to another retirement plan or to an Individual Retirement Account (IRA).

Discrimination Testing
Numerical measurements used to determine if tax qualified retirement plans are in compliance with several regulations under Section 401(a)(4). Typically, the process of determining whether the plan is in compliance is collectively called discrimination testing.

Disclosure
Certain types of information plan sponsors must provide plan participants to access certain types of information, including the summary plan descriptions, summary of material modifications, and summary annual reports.

Disqualified Person
As defined under Section 4975(C)(1)(A) of the Internal Revenue Code and with respect to a qualified plan, this person includes a fiduciary or employer any of whose employees are covered by such plan; a member of the family of either of these individuals; an officer or director or 10% or more shareholder of an employer any of whose employees are covered by such plan. This definition is considered in the area of Prohibited Transactions involving the plan and Self-Dealing. See party-in-interest definition.

Distribution
Any payout made from a retirement plan. See also Lump Sum Distribution and Annuity.

Distress Termination
A company-initiated termination of a defined benefit pension plan when the company is in financial difficulty, continuing the plan would likely force the company to shut down, and the pension plan does not have enough assets to pay all current and future benefits.

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(E)

EACA (Eligible Automatic Contribution Arrangement)
An automatic deferral 401(k) plan which is eligible for favored treatment because it meets certain IRS requirements. An EACA must use a Qualified Default Investment Alternative. (See QDIA)

Early Withdrawal Penalty
A 10% penalty tax for withdrawal of assets from a qualified retirement plan prior to age 59½, death, disability, or retirement. This 10% penalty tax is in addition to regular federal and (if applicable) state tax.

EGTRRA
Economic Growth and Tax Relief Reconciliation Act of 2001.

Elective Deferral
A contribution made by an employee to a 401(k) plan.

Eligibility
Conditions that must be met in order to participate in a plan, such as age or service requirements.

Eligible Employees
Employees who meet the requirements for participation in an employer-sponsored plan.

Eligible Retirement Plan
An IRA and/or a qualified retirement plan that can receive a rollover.

Eligible Rollover Distribution
A distribution from a qualified retirement plan that can be rolled over to an eligible retirement plan.

Employee Benefits Security Administration (EBSA)
An agency of the Department of Labor responsible for protecting the integrity of retirement plans, and other employee benefits.

Employer
Typically the plan sponsor.

Employee Retirement Income Security Act (ERISA)
The federal law that establishes the basic requirements for employee benefit plans. The authority for administering and enforcing ERISA is divided among three federal agencies: the Internal Revenue Service (IRS), the Department of Labor (DOL), and the Pension Benefit Guaranty Corporation (PBGC).

EPCRS (Employee Plans Compliance Resolution System)
An IRS program that allows plan sponsors to correct operational errors that would otherwise result in plan disqualification.

ERISA Rights Statement
A statement required by ERISA that explains participant and beneficiary rights and must be included within a summary plan description (SPD).

ESOP (employee stock ownership plan)
A qualified defined contribution plan in which plan assets are invested primarily or exclusively in the securities of the sponsoring employer.

Excess Aggregate Contributions
After-tax participant contributions or matching employer contributions that cause a plan to fail the 401(m) actual contribution percentage (ACP) non-discrimination test.

Excess Benefit Plan
A plan, or part of a plan, maintained to provide benefits that exceed IRS Code 415 limits on contributions and benefits.

Excess Contributions
Pre-tax participant contributions that cause a plan to fail the 401(k) actual deferral percentage (ADP) non-discrimination test.

Excess Deferral
The amount of elective deferrals made by a participant in excess of the 401(k) contribution limit for a calendar year.

Exclusive Benefit Rule
Plan fiduciaries must discharge their duties for the exclusive benefit of participants and beneficiaries.

Expense Ratio
The percentage of mutual fund’s assets that are used to pay its annual operating and management expenses.

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(F)

FASB (Financial Accounting Standards Board)
This board sets uniform standards regarding the accounting treatment of contributions and the disclosure of plan information on company financial statements.

Fidelity Bond
A bond that protects participants in the event a fiduciary or other responsible person steals or mishandles plan assets. Sometimes confused with Fiduciary Bond or Fiduciary Insurance.

Fiduciary
Fiduciary may include the employer, key executives, members of The Board of Directors or Investment Advisors.

Fiduciary means under IRC§4975(e)(3), any person who:

  1. Exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets.
  2. Renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so.
  3. Has any discretionary authority or discretionary responsibility in the administration of such plan.

Based on this definition, the Employer is a fiduciary regardless of who the named trustee of the plan is, because the employer has control over many plan decisions, including payroll deductions, contributions, policy changes, etc. In addition, the Employer is usually the Plan Administrator, which is not to be confused with the “third party administrator” that an employer may hire to help them perform certain ministerial functions related to the plan.

Fiduciary Insurance
Insurance that protects plan fiduciaries in the event that they are found liable for a breach of fiduciary responsibility.

Fiscal Year
The 12-month period used by a business for accounting purposes.

Five-Percent Owner
Any person who owns – directly or indirectly – more than 5% of the stock of the employer or more than 5% of the voting power of such stock. Due to stock attribution rules, certain family members of 5% owners are also treated as 5% owners.

Forfeiture
Plan assets surrendered by participants upon termination of employment before being fully vested in the plan. Forfeitures may be distributed to the other participants in the plan or sued to offset employer contributions.

Form 1099R
An income tax form sent to the recipient of a plan distribution and filed with the IRS listing the amount of the distribution.

Form 5500
A tax form which all qualified retirement plans (excluding SEPs and SIMPLE IRAs) must file annually with the IRS.

Frozen Plan
A plan that continues to exist, even though employer contributions have been discontinued and/or future accruals have ceased.

Funding Deficiency
For defined benefit or money purchase plans, the amount of the minimum required contribution that was not funded by the minimum funding deadline (8.5 months after the plan’s year-end).

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(G)

Gateway Contribution
A minimum contribution that must be deposited to the plan that allows the plan to use “New Comparability” to pass non-discrimination requirements.

GATT
An acronym for the Uruguay Round Agreements Act (Uruguay Round of the General Agreement on Tariffs and Trade) that revised minimum lump-sum payments from defined benefit plans and impacted pension law after 1994.

Guaranteed Investment Contracts (GICs)
Accounts with an insurance company at a fixed rate of interest and for a specified term.

GUST
An acronym for the following four laws: the Uruguay Round Agreements Act (GATT); the Uniformed Services Employment and Reemployment Rights Act of 1994; the Small Business Job Protection Act of 1996; and the Taxpayer Relief Act of 1997.

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(H)

Hardship or In-Service Distribution
A participant’s withdrawal of their plan contributions prior to retirement. Eligibility may be conditioned on the presence of financial hardship. These distributions are taxable as early distributions are subject to a 10% penalty tax if the participant is under the 59½.

Highly Compensated Employees (HCEs)
An employee who received more than $110,000 in compensation (indexed annually) during the last plan year OR is more than a 5% owner in the company.

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(I)

Individual Retirement Account (IRA)
Personal retirement vehicles that allows a person to make annual tax deductible or non-deductible contributions. These accounts must meet IRS code 408 requirements, but are created and funded at the discretion of the individual. They are not employer sponsored plans.

Integration
A plan feature whereby benefits are integrated with Social Security. An integrated plan generally provides larger benefits for employees who earn more than the Social Security taxable wage base. After 1986, integration was renamed “permitted disparity.”

Internal Revenue Service (IRS)
The branch of the U.S. Treasury Department that is responsible for administering the requirements of qualified pension plans and other tax-advantaged vehicles. The IRS also worked with the DOL and the PWBC to develop Form 5500, and is responsible for monitoring the data submitted annually on Form 5500 reports.

Investment Fiduciary
A fiduciary to the plan that focuses primarily on investment decision making affecting the plan. May include the plan sponsor, Board of Director members, certain Company Executives, Investment Advisors, Money Managers and Brokers.

Involuntary Termination
A PBGC-initiated termination of an under funded defined benefit pension plan.

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(J)

Joint-and-Survivor Annuity
An annuity paying one individual for his or her life and then providing for an annuity for the person’s surviving spouse, usually in a reduced amount.

(K)

Keogh Plan
A qualified defined contribution plan permitting self-employed individuals to contribute a portion of their earnings pre-tax to an individual account.

Key Employee
A participant who at any time during the plan year is 1) more than 5% owner of the employer; 2) an officer earning more than $130,000 (indexed); or 3) more than 1% owner earning more than $150,000. Key employees are instrumental in determining whether a plan is top-heavy. (See Top-Heavy)

KSOP
A combination 401(k) and employee stock ownership plan.

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(L)

Leased Employee
An individual contracted to a leasing organization that provides services for the company.

Leveraged ESOP
An employee stock ownership plan that borrows money to acquire employer stock.

Lump-Sum Distribution
The distribution at retirement of a participant’s entire account balance within one calendar year due to retirement, death or disabilities.

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(M)

Matching Contribution
A contribution made by the company to the account of the participant based on a ratio or dollar amount of contributions made by the participant. Many different matching formulas are possible.

Material Modification
A change in the terms of the plan that may affect plan participants, or other significant changes in a summary plan document (SPD).

Maximum Guaranteed Benefit
Under the law, the largest monthly amount PBGC can pay a participant from it funds.

Minimum Funding
The minimum amount that must be contributed to a defined benefit or money purchase plan within 8.5 months after plan year-end. If minimum funding is not met, a funding deficiency occurs and an excise tax is due. (See Funding Deficiency)

Money Market Fund
A mutual fund seeking to generate income for participants through investments in short-term securities.

Money-Purchase Plan
A type of defined contribution plan in which the employer’s contributions are determined by a specific formula, usually as a percentage of pay. Contributions are not dependent on company profits.

Multiemployer Plan
A pension plan receiving contributions from more than one employer contributes, and which usually is maintained according to collective bargaining agreements.

Mutual Fund
A single account designed to create a diverse portfolio that may help to reduce the risk of owning individual investments.

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(N)

Named Fiduciary
One or more named individuals who have authority to control and manage the operations of the plan.

New Comparability
A plan feature in which different contribution levels are provided for different groups of employees. The plan must pass a nondiscrimination test to prove that it does not discriminate in favor of highly compensated employees.

Nonelective Contribution
An employer contribution that cannot be withdrawn or paid to the employee in cash. This contribution is neither a matching contribution nor an elective contribution.

Non-forfeitable Benefits
The portion of the account in which the participant is vested and, therefore, cannot be forfeited.

Non-Qualified Deferred Compensation Plan
A plan sometimes called a Top-hat plan, in which the assets of certain employees (usually Highly Compensated Employees) are deferred from income taxation. These funds may be reached by an employer’s creditors as they are considered employer assets until the terms of the plan provide for actual or constructive receipt by the participant. At the time of such receipt, the assets are deductible by the employer and considered income to the participant. A properly operated non-qualified plan is not subject to ERISA and is required not to include all employees.

Nonqualified Plan
A retirement plan that intentionally does not meet IRS qualification requirements. Plan designs can be either defined benefit or defined contribution, usually covering only a select group of employees. Generally, the company does not take a tax deduction for plan contributions until benefits are distributed to the participant.

Normal Retirement Age
An assumed retirement age that is specified in the plan document. Participants are not required to retire when they reach retirement age. Participants generally continue to earn benefits if they work past retirement age. Participants are 100% vested at normal retirement age.

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(O)

OASDI (Old Age, Survivors and Disability Insurance)
Payroll tax imposed on employers and employees. The OASDI tax rate is used in determining the amount of benefits provided by a plan using permitted disparity (integration).

Officer
An administrative executive of a corporation. The determination that an employee is an officer is based on facts, circumstances and the person’s amount of responsibility. An employee’s job title has no bearing on whether he or she is an officer.

One-Percent Owner
Any person who owns – directly or indirectly – more than 1% of the stock of the employer or more than 1% of the voting power of such stock.

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(P)

Partial Termination
When a certain number of participants leave the plan for a reason not of their choosing (e.g., layoff or plant closure), a partial termination occurs. Under a partial termination, affected employees generally must become 100% vested in their accounts. As a general rule, if more than 20% of a plan’s participants are terminated over a two-year period, the situation should be reviewed with your third party administrator and ERISA legal counsel.

Participant Directed Accounts
Investment options offered to participants that allow them to choose their own investment mix. Utilized in most 401(k) and 403(b) plans.

Party-In-Interest
Term used under ERISA to describe any individual or group having direct interest in the plan including: the employer, the directors, officers, employees or owners of the employer; any employee organization whose members are plan participants; plan fiduciaries; and plan service providers. See Disqualified Person definition.

PBGC
The Pension Benefit Guaranty Corporation, a federal government agency that insures private defined benefit pension plans.

Pension Benefit Guaranty Corporation (PBGC)
A federal agency established by the Title IV of ERISA for the insurance of defined benefit pension plans. The PBGC provides payment of limited pension benefits if a plan terminates and is unable to cover all required benefits.

Permitted Disparity
A plan feature whereby larger benefits are provided to employees who earn more than the Social Security taxable wage base. Prior to 1986, this was referred to as “integration.”

Plan Administrator
The individual, group or corporation named in the plan document as responsible for day to day operations. The plan sponsor is generally the plan administer if no other entity is named. The plan administrator is usually a fiduciary to the plan. The term is not to be confused with third party administrator which provides ministerial administrative services to the plan.

Plan Loan
Loan from a participant’s accumulated plan assets, generally structured not to exceed 50% of the balance or $50,000, whichever is less. Loans are an optional plan feature.

Plan Sponsor
The entity responsible for establishing and maintaining the plan. The plan sponsor is a fiduciary to the plan.

Plan Year
The calendar, policy or fiscal year for which plan records are maintained.

Portability
This occurs when, upon termination of employment, an employee transfers retirement funds from one employer’s plan to another without penalty.

PPA
Pension Protection Act of 2006.

Profit Sharing Plan
A company-sponsored plan funded only by company contributions. Company contributions may be determined by a fixed formula related to the employer’s profits, or may be at the discretion of the board of directors. Profits are generally not a requirement for a profit sharing contribution. Sometimes called an Employer Non-Elective contribution.

Prohibited Transaction
Activities regarding treatment of plan assets by fiduciaries that are prohibited by ERISA. These include transactions with a party-in-interest or disqualified person, including but no limited to, the sale, exchange, lease, or loan of plan securities or other properties. Any treatment of plan assets by the fiduciary that is not consistent with the best interests of the plan participants is a prohibited transaction.

Prudent Man Rule
A fiduciary must act “with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims.”

P.S. 58 Costs
Costs applied to current life insurance protection provided in the plan. P.S. 58 costs are required to be reported as taxable income to the participant via Form 1099R.

PWBA (Pension and Welfare Benefits Administration)
The division of the Department of Labor (DOL) responsible for the regulatory and administrative provisions of ERISA. This division is now known as the EBSA (Employee Benefits Security Administration).

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(Q)

QACA (Qualified Automatic Contribution Arrangement)
A type of 401(k) plan that provides for automatic enrollment, a minimum profit sharing or matching contribution and 100% vesting after two years of service. A QACA is deemed to satisfy the ADP Test. (See ADP Test)

QDIA (Qualified Default Investment Alternative)
The default investment fund for a participant-directed defined contribution plan that meets with Department of Labor requirements.

QNEC (Qualified Nonelective Contribution)
An employer contribution that is 100% vested and subject to the same distribution requirements as 401(k) contributions. QNECs are often deposited to enable the plan to pass the 401(k) ADP Test. (See ADP Test)

QOSA (Qualified Optional Survivor Annuity)
Optional annuity that must be offered to terminated participants by plans that offer joint and survivor annuities effective for plan years beginning after January 1, 2008.

QPSA (Qualified Pre-retirement Survivor Annuity)
An immediate annuity on the life of the surviving spouse of a participant who dies before the annuity starting date.

QSLOB (Qualified SLOB)
A qualified separate line of business. (See SLOB)

Qualified Domestic Relations Order (QDRO)
A judgment, decree or order that creates or recognizes an alternate payee’s (such as former spouse, child, etc.) right to receive all or a portion of a participant’s retirement plan benefits.

Qualified Joint and Survivor Annuity (QJSA)
An annuity with payments continuing to the surviving spouse after the participant’s death, equal to at least 50% of the participant’s benefit.

Qualified Plan
Any plan that qualifies for favorable tax treatment by meeting the requirements of section 401(a) of the Internal Revenue Code and by following applicable regulations. Qualified plans include Defined Contribution plans, 401(k) and profit sharing plans, money purchase plans, ESOPs, target benefit plans, Defined Benefit plans and others.

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(R)

Recordkeeper
The entity (bank, mutual fund, insurance company, third-party administrator, etc.) that maintains the participant accounts and issues participant statements.

Reportable Event
An event that must be reported to the PBGC to indicate that a defined benefit plan is in danger of being terminated and may not have sufficient assets to pay benefits.

Required Beginning Date
The date by which plan distributions must commence. For 5% owners, it is generally April 1 following the year in which the owner attains age 70½. For non-5% owners, it is generally April 1 following the latter of attainment of age 70½ or termination of employment.

Required Minimum Distributions
The minimum amount that must be paid to a participant each year after attaining age 70½.

Rollover
The action of moving plan assets from one qualified plan to another or to an IRA within sixty days of distributions, while retaining the tax benefits of a qualified plan.

Rollover IRA
An Individual Retirement Account established for the sole purpose of receiving a distribution from a qualified plan. Distributions in rollover IRAs can often be rolled back into a qualified plan. (See Conduit IRA)

Roth 401(k)
A 401(k) feature that allows employees to make elective contributions on an after-tax basis. Qualified distributions from these plans, including both the Roth contributions and their associated earnings, are distributed tax-free if all requirements are met.

Roth IRA
An IRA in which the contributions are non-deductible and the distributions are non-taxable.

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(S)

Safe Harbor Rules
Provisions that exempt certain individuals or kinds of companies from one or more regulations, a common example is a Safe Harbor matching contribution.

SAR (Summary Annual Report)
A summary of the Form 5500 (annual report) that is required to be distributed to plan participants.

Savings Incentive Match Plan for Employees
See SIMPLE Plan.

Schedule SSA
A form that must be filed by all plans subject to ERISA Section 203 minimum vesting requirements. The schedule, which is attached to Form 5500, provides data on participants who separated from service with a vested benefit but were not paid their benefits.

Self-employed Person
A sole proprietor or partner in a partnership who declares earned income. A sole proprietor’s earned income is reported on Schedule C. A partner’s earned income is reported on Schedule K-1.

SERP (Supplemental Executive Retirement Plan)
A nonqualified defined benefit retirement plan for executives.

Service Provider
A company that provides any type of service to the plan, including managing assets, recordkeeping, providing plan education, and plan administration.

SIMPLE Plan (savings incentive match plan for employees)
A type of defined contribution plan for employers with 100 or fewer employees in which the employer matches 100% of employee deferrals up to 3% of compensation or provides non-elective contributions up to 2% of compensation. These contributions are immediately and 100% vested, and they are the only employer contribution to the plan. SIMPLE plans may be structured as individual retirement accounts (IRAs) or as 401(k) plans. These plans usually do not meet the design expectations of employers with over 5 employees due to their very limited flexibility.

Simplified employee-pension plan (SEP)
A defined contribution plan in which employers make contributions to individual employee accounts (similar to IRAs). This is not considered a qualified plan under section 401. These plans usually do not meet the design expectations of employers with over 5 employees due to their very limited flexibility.

Single 401(k)
A 401(k) plan designed to accommodate owner/ operators and their family members. More flexibility and tax savings opportunities than a SIMPLE or SEP plan. Can be combined with other types of plans such as a Defined Benefit Plan to maximize tax deductions and provide increase flexibility.

SLOB (Separate Line of Business)
A line of business that is organized and operated separately from the remaining businesses of the employer. SLOBs can maintain separate retirement plans and/or be tested separately, if it is determined that they are a Qualified SLOB (QSLOB) as defined by the Internal Revenue Code.

Social Security Retirement Age
The age, used as the normal retirement age under the Social Security Act to pay unreduced benefits, that depends on the calendar year of birth.

Standard Termination
Termination of a plan that has enough assets to pay for all benefits.

Stock Bonus Plan
A defined contribution plan in which company contributions are made in the form of company stock.

Summary Annual Report
A report that companies must file annually on the financial status of the plan. The summary annual report must be automatically provided to participants every year.

Summary of Material Modifications
A document that must be distributed to plan participants summarizing material modifications made to a plan.

Summary Plan Descriptions (SPD)
A document describing the features of an employer-sponsored plan. The primary purpose of the SPD is to disclose the features of the plan to current and potential plan participants. ERISA requires that certain information be contained in the SPD, including participant rights under ERISA, claims procedures and funding arrangements.

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(T)

Target-Benefit Plan
A type of defined contribution plan in which company contributions are based on an actuarial valuation designed to provide a target benefit to each participant upon retirement. The plan does not guarantee that such benefit will be paid; its only obligation is to pay whatever benefit can be provided by the amount in the participant’s account. It is a hybrid of a money-purchase plan and a defined-benefit plan.

Tax Sheltered Annuity (TSA)
See 403(b) plan

Termination (for single-employer plans)
When a pension plan ends.

Top-paid Group
Used to define highly compensated employees (HCEs) by limiting those otherwise eligible to be HCEs to the top 20% paid group.

Top Heavy Plan
A plan in which 60% of account balances (both vested and non-vested) are held by certain highly compensated employees.

TPA (Third-party Administrator)
An outside company hired by the Plan Administrator to assist in administering the plan.

Trust
A legal entity established under state law to hold and administer plan assets. Federal law allows the trust to be tax-exempt.

Trustee
The individual, group of individuals, bank, or trust company having fiduciary responsibility for holding plan assets. The trustee is one of several fiduciaries to the plan.

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(U)

Underfunded Plan
A pension plan without enough assets to pay all benefits.

Unfunded Benefit Liabilities
The amount of promised pension benefits that exceeds a plan’s assets.

USERRA
The Uniformed Services Employment and Reemployment Rights Act of 1994, which prohibits discrimination against employees because of membership in the uniformed services.

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(V)

Vesting
The participant’s ownership right to company contributions.

Vesting Schedule
The structure for determining participant’s right to company contributions that have accrued in their individual accounts. In a plan with immediate vesting, company contributions are fully vested as soon as they are deposited to a participant’s account. Cliff vesting provides that company contributions will be fully vested only after a specific amount of time, and that employees who leave before this happens will not be entitled to any of the company contributions (with certain exceptions for death, disability or retirement). In plans with graduated vesting, vesting occurs in specified increments.

Voluntary Contributions
After-tax amounts that a participant voluntarily contributes to a retirement plan. Voluntary contributions are included in the annual additions limit and the ACP Test.

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(Y)

Years of Service
As defined by the plan document – either a 12-month period (elapsed time) or a 12-month period in which the participant is credited with at least 1,000 hours of service. The 12-month period can be measured by the participant’s employment year or on a plan year basis as defined by the plan document.

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