Glossary of Retirement Plan Terms
Retirement Plan Terms And Definitions
A Retirement Plan is an employer-sponsored or individual program designed to help individuals save and invest for retirement.
The following is a glossary for terms for Retirement Plans and Retirement Plan Administration.
401(k) Plans
Type of deferred compensation plan. Refers to Internal Revenue Code that authorizes the plan4 03(b) Plan
A retirement plan similar to a 401(k) for certain nonprofit and educational organizations. 457(b) Plan
A retirement plan for state and local government employees and certain nonprofits. Affiliated Service Groups
Related employers that do not have sufficient common ownership to be considered a controlled group but, because of the nature of the services they provide to each other or collectively to third parties, they are considered to be under common control Asset Allocation
Refers to the investment "mix" of a participant's account among the investment types Balance Forward
A recordkeeping and valuation method where the participant's account balance as of the last valuation date (i.e., the last day of the prior plan year or the last day of the last plan quarter) is used as a starting off point and is then updated to reflect contributions, distributions and gains and losses that occurred since the last valuation dateBeneficiary Designation & Pre-Retirement Survivor Annuity Forms
Allows participating employees to choose the person or persons who will receive the employee's plan account balance if the employee dies while participating in the plan Blackout Period
Any period of time of more than three consecutive business days during which the ability of participants or beneficiaries to direct or diversify assets credited to their accounts or to obtain loans or distributions from the plan is temporarily suspended, limited, or restricted Blue-Chip Stocks
The stocks of our nation's largest and most consistently profitable companies. Examples of blue-chip stocks are General Motors or General Electric Cash Or Deferred Plans
A plan feature whereby the employer makes a contribution equal to a certain amount (generally a percentage of compensation) and the plan participant has the option of taking a certain percentage of the contribution in cash or as a plan contribution Cliff Vesting
Vesting method that allows a participant top go from being zero percent vested to fully vested at a specific point in time Catch-Up Contribution
Additional contributions allowed for participants age 50 or older (and in some cases, higher limits at age 60–63). Contribution Limits
IRS-set maximum amounts that can be contributed annually to retirement plans.Controlled Groups
Two or more companies that are connected through common ownership Custodian
Holder of the plan assets Daily Valuation
A recordkeeping system where all plan transactions are recorded and valued in "real" time Defined Benefit Plan
A retirement plan that promises a specific benefit at retirement, typically based on salary and years of service (e.g., pension). Defined Contribution Plan
A retirement plan where contributions are defined, but the final benefit depends on investment performance (e.g., 401(k), 403(b)). Department of Labor (DOL)
Enforces ERISA Distribution
Any payment taken from a retirement plan. Early Withdrawal Penalty
An additional tax that may apply to distributions taken before age 59½, unless an exception applies. Elapsed Time Method
Method of crediting service does not count actual hours worked. Rather, an employee’s service is measured as the time that has elapsed from the employee’s date of hire Elective Deferrals
The amount participants defer from their salary into the plan on a tax-favored basis Employee Contribution
Amounts an employee elects to defer from pay into a retirement plan. Employer Contribution
Contributions made by the employer, such as matching or non-elective contributions. Enrollment Form / Salary Reduction Agreement
Enrolls the employee into the plan and allows the employer to withhold money from the employee’s paycheck ERISA (The Employees Retirement Income Security Act)
Requires certain annual reporting, disclosure, and fiduciary responsibilities in order that both the DOL and the plan participant can be sure that retirement assets held in qualified plans are adequately protected. ERISA also implemented a claims procedure under which employees can dispute denied claims for benefits. Fiduciary
A person or persons that are held personally responsible for the assets held in a 401(k) plan. Fiduciaries are held to several standards of conduct, which, if breached can result in substantial legal liability and penalties. GIC (Guaranteed Investment Contracts
An investment contract that guarantees the payment of a specific rate of interest on the amount of money invested for a specific period of time Graded Vesting
Vesting method that provides for incremental increases in the vesting percentage for each year of service the participant completes Growth Stocks
The stocks of companies whose earning are expected to grow faster than average. Many high technology stocks are considered growth stocks
Guaranteed Investment Contracts (GIC)
An investment contract that guarantees the payment of a specific rate of interest on the amount of money invested for a specific period of time Hardship Withdrawal
A withdrawal permitted due to immediate and heavy financial need, subject to IRS rules. Highly Compensated Employee (HCE)
An employee who, during the plan year or the preceding 12-month period, owned more than five percent of the employer, or earned compensation for the preceding year in excess of the permissible amount for that year Hours Of Service Method
A "year of service" using the Hours of Service Method is defined as the completion of a specified number of hours of service during a 12-month computation period. This specified number of hours cannot exceed 1,000 hours Immediate Vesting
Employer contributions are 100% owned by the employee as soon as they are made. In-Service Withdrawal
A withdrawal taken while still employed, allowed under specific conditions. Internal Revenue Service (IRS)
Enforces the Internal Revenue Code (IRC). The IRS promulgates regulations and other written authority designed to clarify the specific provisions of the IRC Investment Direction Form
Allows the participating employee to choose the investments for his or her plan account Investment Manager
A registered representative under the Investment Advisors Act of 1940 or under applicable state law licensed under the laws of more than one state to perform investment management services Investment Policy Statement
A roadmap used in the design, implementation, and ongoing monitoring of a 401(k) plan’s investment program IRS (Internal Revenue Service)
Enforces the Internal Revenue Code (IRC). The IRS promulgates regulations and other written authority designed to clarify the specific provisions of the IRC Key Employee
Generally, any employee who, at any time during the plan year that includes the determination date, is a "5 percent owner", a "1 percent owner" who earned more than $150,000, or an officer who earned more than $130,000 (subject to inflation adjustments) Large-Cap Stocks
Stocks of companies with a market capitalization that exceeds $5 billion Matching Contribution
An employer contribution that is only allocated to employees who make elective deferrals Mid-Cap Stocks
Stocks of companies with a market capitalization of $1 billion to $5 billion Mutual Fund
An investment company that pools the funds of many investors to purchase a portfolio of individual securities NHCE
A Non-Highly Compensated Employee. See Highly Compensated Employee. Nondiscrimination Testing
IRS-required testing to ensure plans do not disproportionately benefit highly compensated employees. Non-Elective Contribution
An employer contribution that is not based on elective deferrals lan Administrator
Person or entity responsible for the day-to-day operation of the plan Plan Documents
Contain all the legal and administrative requirements under which the plan must operate Plan Fiduciary
A person or organization with legal responsibility to act in the best interest of plan participants. Plan Sponsor
Person or entity responsible for designing and implementing the plan and its provisions Plan Trustee
The individual or entity responsible for holding and managing plan assets. Pre-Tax Contribution
Contributions made before federal income taxes are applied, reducing current taxable income. Qualified Distribution
A distribution that meets IRS requirements for favorable tax treatment. Qualified Domestic Relations Order (QDRO)
A legal document, filed with the court, that instructs the plan administrator of a 401(k) plan how funds are to be divided between separating or divorcing parties Ratio Percentage Test
Compares the ratio of Non-highly Compensated Employees (NHCEs) benefiting under the plan to that of the Highly Compensated Employees (HCEs) Required Minimum Distribution (RMD)
The minimum amount that must be withdrawn annually from certain retirement accounts starting at a specified age. Rollover
The transfer of retirement assets from one plan or account to another without triggering taxes. Salary Deferral Plans
Written agreement whereby plan participants defer a portion of their salary into the 401k plan. These contributions are referred to as elective contributions and are considered plan assets. Small-Cap Stocks
Stocks of companies with a market capitalization of less than $1 billion Summary Plan Description (SPD)
Describes the plan in layman’s terms Target-Date Fund
An investment fund that automatically adjusts its asset mix as the participant approaches retirement. Top-Heavy
Determination that more than 60% of the plan's assets as of the beginning of the plan year belong to key employees Trustee
Person or entity responsible for investing the plan assets in a prudent manner in the best interests of the plan participants Value Stocks
These are stocks that are currently considered undervalued. This undervaluation may be because of a recent corporate setback or bad publicity. Investors in value stocks anticipate that this stock will recover from whatever is the cause of its current pricing Vesting
A period of time in which monies and any earnings attributable to the employer's contribution become available to the participant. Vesting schedules are used to encourage employees to remain with an employer. Volume Submitter Plan Document
Plan document that is part template and part customized, and has been preliminarily reviewed by the IRS
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