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Retirement Plan Glossary

An account or subaccount established or maintained for the benefit of a participant or beneficiary under a retirement plan.

An individual responsible for managing the day-to-day activities of the retirement plan. (The administrator may or may not have discretionary responsibilities and may or may not be a plan fiduciary.)

After-Tax Employee Contribution:
A contribution made by an employee to a retirement plan after taxes have been deducted from their taxable income. (Traditional After-Tax contributions are taxed when deposited and only the earnings are taxed upon withdrawal from the plan. Roth After-Tax contributions are taxed when deposited and, if statutory requirements are met prior to withdrawal, the earnings are also tax-free upon withdrawal).

Aggregate Account:
The value of all accounts maintained on behalf of a participant under a Plan, whether attributable to employer or employee contributions.

Alternate Payee:
A spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under the plan with respect to the participant.

Anniversary Date:
An annually recurring date upon which a specific event took place. For example, in a plan context this may be the anniversary of an employee’s hire date with the employer.

A person entitled to receive a share of a deceased participant’s interest in an account under the plan.

Catch-Up Contribution:
An additional contribution amount that participant may contribute to an eligible retirement plan. Depending upon plan type there are various types of catch-up contributions. Qualified plans such as 401(k) and 403(b) plans, as well as 457(b) plans sponsored by governmental employers often include an age-based catch-up contribution limit for participants who are 50 years of age or older. Section 403(b) plans may provide a special catch-up for participants with 15 or more years of service. Section 457(b) plans may provide for a catch-up contribution within 3 years prior to normal retirement date. Amounts for various types of catch-up contributions vary and may be subject to cost of living adjustments.

Catch Up Eligible Participant:
A participant who is:

  1. Eligible to make elective deferrals to the plan (may apply to both pre-tax and/or Roth contributions).
  2. Meets the criteria for a specific catch-up contribution.

The Internal Revenue Code of 1986, as amended.

Wages and all other payments to an employee by the employer for services rendered to the employer during the course of employment. Plan compensation may include all or only a portion of such compensation and is defined in the plan document.

Annuity Contract:
A document issued by a vendor which establishes the provisions of the investment agreement between group (employer/plan sponsor) or an individual (plan participant) and the insurance company pertaining to such provisions as deposits, withdrawals, interest rates, fees and expenses, surrender charges, forms of payment available, etc..

Custodial Account:
An  account established with a bank, mutual fund company, or other financial institution for the benefit of one or more third parties. In a plan context, the third party is the plan or the plan participants.

Default Percentage:
The percentage of an employee’s compensation withheld from the employee’s compensation contributed and deposited to a retirement plan under the terms of the plan document for an employee who is eligible to make elective deferrals to the plan but has not made such an election during the election period.

Designated Investment Alternative:
Investment vehicles selected by the employer/plan sponsor (or the designated investment fiduciary) to which plan participants and beneficiaries may direct their assets held in or contributed to an account under the plan.

Default Investment Alternative:
A specific investment identified by the employer (or the designated investment fiduciary) as the investment vehicle in which participant accounts shall be invested if no investment instructions are provided by the participant.

Early Retirement Age:
The age, as defined in a plan document, at which the participant satisfies the age requirement for early retirement. Generally to be eligible for early retirement a participant must satisfy both an age and a service requirement. Additionally, the plan may provide for 100% vesting when the plan participant satisfies the ERA provision.

Early Retirement Date:
The earliest date the participant has met all requirements of early retirement and is eligible to receive retirement benefits.

The term employee is treated differently in the Internal Revenue Code and ERISA. Under the Internal Revenue Code only employees of the employer can be covered by the employer’s plan. One way to describe an employee is person who performs services for an employer under a written or oral agreement on a full-time or a part-time basis with recognized rights and duties in exchange for payment. Under plan rules it is important to be able to distinguish an employee from an independent contractor to determine who is or is not eligible to participate in a plan.  Under ERISA the definition of an employee is narrower than under the Internal Revenue Code. Under ERISA an employee is an individual employed by the employer.

The term “employer” is treated differently in the Internal Revenue Code and ERISA. Under the Internal Revenue Code, an employer is any employer of the employees covered by a plan. Only an employer can establish a qualified plan. Employers can be sole proprietors, partnerships, corporations, limited liability partnerships, or companies. Under ERISA the employer is any person acting directly as an employer or acting indirectly in the interest of an employer.

Employer Contributions:
Contributions made by the employer for an employee based upon the terms of the plan document. These contributions are often referred to a matching, basic, discretionary, profit sharing and non-elective. (Note: For tax purposes, elective deferrals and non-elective salary reduction contributions are treated as employer contributions.)

Fiscal Year:
Employer’s accounting/tax year.

The portion of an employee’s account balance (employer contribution account) that is lost because it is not vested when the employee terminates employment.

Former Participant:
A person who has been a participant, but who has ceased to be a participant for any reason.

Generally an insurer is a party offering insurance policies in exchange for a premium. In a retirement plan context, an insurance company is the party offering annuity contracts as retirement plan investments and as a form of payout.

In-Plan Roth Conversion:
This refers to a plan feature which permits a participant, who may or may not have a current right to a distribution, to designate a portion of the account to be taxed and retained in the plan as an after-tax account. As a Roth conversion account, the earnings will not be taxed if distributed at least five years later under the Roth qualified distribution rules. A plan may only permit in-plan Roth conversions if it permits Roth after-tax salary deferrals. An in-plan Roth conversion refers to the amount that a participant elects to transfer from a pre-tax plan account to a Roth account within the plan.

Joint and Survivor Annuity:
An insurance product that continues regular payments as long as one of the annuitants is alive. A joint and survivor annuity must have two or more annuitants, and is often purchased by married couples who want to guarantee that a surviving spouse will receive regular income for life.

Late Retirement Date:
A participant's actual retirement date after having reached the normal retirement age.

Leased Employee:
Workers who are officially employed by a professional employer organization (also called as a leasing company or PEO), which is generally responsible for overseeing HR-related functions, but who actually perform services for a different employer.
Limitation Year:
The measuring period for determining whether the plan satisfies code section 415 limitation. The limitation year is generally the plan year but an alternative 12-month period may be defined in the plan document. Special rules apply to the application of limits in a short plan year.

Matching Contribution:
An employer contribution for which the allocation formula is based on deferrals made by a participant.

Month of Service:
It is an alternative way of counting services rather than accounting actual hours worked. An example: a participant may obtain 190 hours in a month if working 1 hour during the month. How a month of service is determined for a retirement plan is defined in the plan document if applicable to the plan. For example, a month of service might be defined as any calendar month in which an employee works 1 hour or any calendar month in which an employee works 80 hours.

Normal Retirement Age:
The age at which the participant attains the age defined in the plan document as normal retirement age. In a qualified plan the normal retirement age cannot exceed the greater of age 65 or attainment of 5 years of service.

An eligible employee who is covered by a retirement plan.

Participant Account:
The account(s) established and maintained by the administrator for each participant with respect to such participant’s total interest under the plan. Plan assets may include contributions, deferrals, rollovers, plan to plan transfers, assets merged into the plan and earnings thereon. Separate accounts may be required within a plan to account for recordkeeping of various types of plan assets under plan provisions and statutory requirements for each type of account.

Participation Agreement (Agreement between a plan sponsor and another employer):
The agreement between an employer sponsoring a retirement plan and another employer which enable the employees of the second  employer to participate in the plan of the employer sponsoring the plan.

Payout Options:
Any of the forms of distribution or options for payment that may be available under an investment arrangement established under the terms of the plan.

Period of Severance:
A continuous period of time during which the employee is not employed by the employer. It is generally only pertinent when a former employee is rehired by an employer.

The plan identified as the retirement plan.

Plan Year:     
The period designated by the plan document for the maintenance of plan records. The plan year can be the calendar year or an alternative period.

Qualified Voluntary Employee Contribution Account:
The account established and maintained by the administrator for each participant with respect to such participant’s total interest under the plan resulting from the participant’s tax-deductible qualified voluntary employee contributions. Such deductible contributions were permitted in calendar years 1982-1986 in place of IRA contributions and do not include elective deferrals under IRC 401(k).

Qualified Matching Contribution (QMAC):
An employer matching contribution that must be fully vested which is subject to distributions restrictions and which can be used to meet ADP or ACP nondiscrimination requirements.

Qualified Nonelective Contribution (QNEC):
A nonmatching employer contribution that must be fully vested, which is subject to distributions restrictions and which can aid in meeting the nondiscrimination requirements.

A qualified domestic relations order (“QDRO”):
It is a domestic relations order, made pursuant to a state domestic relations law, that provides for the payment of all or a portion of the participant’s benefits to a spouse, former spouse, child, or other dependent (“alternate payee”) relating to child support, alimony payments, or martial property rights.

Rules made by governmental agencies providing interpretation of laws issued by the governmental agency responsible for such interpretation. The regulations pertaining to the Internal Revenue Code are issued by the United States Department of the Treasury. Regulations pertaining to The Employee Retirement Income Security Act of 1974, as amended are issued by the Department of Labor.

Retired Participant:
A plan participant who has met the plan qualifications for retirement benefits and has retired.

Retirement Date:
The date as of which a participant retires.

Rollover Account:
A plan account established and maintained by the administrator for assets transferred from another employer plan or individual retirement account.

Seasonal Employee:
An employee hired to work on a full or part-time basis by employers who need additional help in a particular season.

Tax-exempt entity:
 A not-for-profit organization that it granted tax-exempt status by the Internal Revenue Service.

Terminated Participant:
A person who has been a participant, but whose employment has terminated.

Trustee is not a term defined in either the Internal Revenue Code or ERISA. It is generally defined by state law and means a person or entity which holds property (plan assets) for the benefit of another. Retirement plan assets subject to ERISA must be held in a trust or a trust substitute, such as an annuity contract offered by an insurance carrier. Duties and identification of the trustee can provide in the plan document or a separate trust document.

Trust Fund:
The assets held by the trustee for the benefit of another.

 The non-forfeitable portion of any account maintained on behalf of a participant in a retirement plan.

Year of Service:
Year of Service is a term defined in a retirement plan document. It describes the period of time and the method for measuring service. Generally service is measured in hours within a 12 month period or elapsed time, which does not count hours. The result of the measured service generally determines when an employee is eligible to participate in a plan and the participant’s share of entitlement to the plan account derived from employer contributions.