Although there are exceptions, these investments are generally stocks of small companies, growth stocks, and stocks of foreign companies. These investments can change in value very quickly over short time periods.
A spouse, former spouse, child, or other dependent of a participant named in a Qualified Domestic Relations Order as having a right to receive all or part of the benefits payable to the participant under a plan.
Dividing your money between different types of investments (like stocks and bonds) in a combination you think will give you the best balance between potential investment return and risk.
Average Contribution Percentage (ACP)
A calculation designed to limit the extent to which matching contributions made on behalf of highly compensated employees may exceed the same contributions made on behalf of non-highly compensated employees.
Average Deferral Percentage (ADP)
A calculation designed to limit the extent to which elective contributions made on behalf of highly compensated employees may exceed the same contributions made on behalf of non-highly compensated employees.
The person or persons named by a participant to receive any benefits under a plan in the event that the participant dies.
A bond is a loan. When you invest in a bond, you make a loan to a borrower. In return, the borrower promises to pay back the amount borrowed - plus interest - according to a certain time schedule. Bonds are issued by companies, city and state governments, and the federal government. Bonds can be short-term (under two years), intermediate term (two to ten years), or long-term (over ten years). The longer the term, the more the value of the bond changes when interest rates change. When interest rates go up, bond values decline, and vice versa. See also fixed income investment.
A way your money may grow faster in which you reinvest any earnings you receive from your investments, enabling you to earn money on both your original investment AND your reinvested earnings.
Investments that, historically, have had lower earnings over longer periods of time and don't change much in value over short periods of time. Examples are money market accounts, bank accounts, certificates of deposit, guarantee interest accounts, and stable value funds.
Applies to all elective deferral, additional, discretionary, matching, qualified non-elective, voluntary, rollover contributions and required contributions made under the plan, unless the context clearly indicates only one or certain of these are meant.
Defined Contribution Plan
A type of retirement plan that provides an individual account for each participant. The plan provides benefits based on the amount contributed to an employee's account, plus any earnings and forfeitures of other employees that are allocated to the account.
Department of Labor
A department of the federal government which implements certain laws and regulations, among the laws and regulations are those that affect retirement plans.
Dividing your money between accounts with different risk levels within the same investment category (like dynamic stocks and aggressive stocks) in a combination you think will give you the best balance between potential investment return and risk.
In general, these are stocks of large and medium-size U.S. companies. In the past, they've been more volatile than bonds. Real estate is also considered to be a dynamic investment.
Also known as return. The money you make with the money you invest.
Elective Deferral Contributions
The portion of an employee's salary deferred on a pre-tax basis for his/her retirement.
Another name for stocks and real estate. An alternative is debt or fixed income investments, which include bonds, mortgages, and other investments where a borrower owes money and pays interest.
The Employee Retirement Income Security Act of 1974.
A bond policy required by the Department of Labor for retirement plans. This bond is intended to protect the plan against loss of retirement funds through fraud or dishonesty. The ERISA Bond must name all of the Trustees of the Plan. The minimum ERISA bond coverage is 10% of the assets of EACH plan and the maximum required coverage is $500,000 for EACH plan. The required amount of ERISA Bond coverage is determined at the beginning of each plan year.
Fixed Income Investment
Another name for bonds, mortgages and other investments where a borrower owes money and pays interest according to a time schedule and at a fixed rate.
If a participant terminates employment with the employer before becoming 100% vested, their benefits may be reduced. For example, if the participant is 50% vested in the Profit Sharing Account, they will be eligible for 50% of the account. The other 50% is forfeited. For more information, see the vesting definition below or you can click here ( vesting ) to see a pop-up window with more information on vesting.
The IRS defined limit that specifies the amount that can be allocated to an employee each year under a defined contribution plan.
Regulations that apply only to defined contribution plans which can lessen a plan fiduciary's investment liability in certain situations.
Highly Compensated Employee
An employee will be considered a HCE if at any time during the current or prior year the employee was a greater than five percent owner or the employee earned in excess of $85,000 (indexed annually).
Individual Retirement Account (IRA)
An account or an annuity created by an individual to save for retirement.
The chance that, over time, your money will lose buying power because of an increase in the cost of goods and services.
The chance you take on how much an investment will go up or down in value, especially over shorter periods of time. It's the chance you may lose part of your investment.
A classification of employee which must be identified in order to determine the top-heavy status of a plan.
The date the final payment on a fixed income investment is due from the borrower.
A distribution required by law that must begin by the LATER of April 1 of the year the participant turns 70 1/2 OR the date the participant quits working. If the member is a 5% owner they must begin receiving distributions by April 1 of the year following attainment of age 70 1/2.
Investments, including government securities, corporate bonds, and mortgages, that change in value as interest rates change. They are less volatile than stocks.
Non-Highly Compensated Employee
An employee not meeting the definition of Highly Compensated Employee rules.
A qualified plan that provides for "permitted disparity" is one in which the benefits provided under the plan favor highly compensated employees because the benefits are integrated with Social Security.
Qualified Domestic Relations Order (QDRO)
A domestic relations order issued by a state court that creates or recognizes the existence of an alternate payee's right to, or to an alternate payee the right to, receive all or a portion of payable to a member/participant under a qualified retirement plan.
Qualified Medical Child Support Order
A domestic relations order issued by a state court that specifies the obligation of an individual to provide medical benefits for their dependent. An example would be a medical child support order which requires a parent to obtain and maintain a health insurance plan for their child.
A retirement plan which meets IRS qualification requirements. A qualified plan is allowed certain tax advantages.
The transfer of an eligible rollover distribution from a qualified plan or an IRA to another qualified plan or IRA. When the transfer occurs within 60 days of the distribution date, the transfer will be on a tax-free basis.
Salary Reduction Agreement
Also referred to as a Salary Deferral Agreement. A form signed by the employee authorizing you to deduct a certain percentage of their pay to defer under any qualified cash or deferred arrangement as described in Code Section 401(k).
Securities and Exchange Commission (SEC)
A federal agency that exercises control over the buying and selling of stocks and other securities, licensing of agents, and management of securities companies.
Shares, or certificates of ownership, in a company. Also known as equity.
Summary Plan Description (SPD)
A detailed, but easily understood, summary describing an employee benefit or retirement plan's provisions that must be provided to participants and beneficiaries receiving benefits under the plan.
A retirement plan in which key employees accrue more than 60 percent of the total benefits or contributions under the plan.
A legal entity created when a person or an organization transfers assets to a trustee for the benefit of designated people.
A person, bank, or trust company designated in a trust agreement as having responsibility for holding and investing plan contributions.
The Health Spending Account (HSA) Flex Plan Benefit is subject to Uniform Coverage throughout the plan year. That means that the HSA benefits are available to the participant based upon their annual election, not based upon their actual contributions at any given date.
The Uniformed Service Employment and Reemployment Act regulates the status of an employee who is on leave from an employer due to military or related service.
The non-forfeitable amount or percentage of interest that a participant has earned in a retirement plan.
The fluctuation of the value of an investment over time.
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